<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
COMPASS KNOWLEDGE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 87-0471549
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2710 REW CIRCLE, SUITE 100
OCOEE, FLORIDA 34761
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(407) 656-3906
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(407) 656-7585
(REGISTRANT'S FACSIMILE NUMBER, INCLUDING AREA CODE)
WWW.COMPASSKNOWLEDGE.COM
(REGISTRANT'S WEBSITE ADDRESS)
SECURITIES TO BE REGISTERED PURSUANT TO
SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH EACH
TO BE SO REGISTERED CLASS IS TO BE REGISTERED
------------------- -------------------------
NONE NONE
SECURITIES TO BE REGISTERED PURSUANT TO
SECTION 12(g) OF THE ACT:
----------------------------------------
COMMON STOCK, PAR VALUE $.001 PER SHARE
----------------------------------------
(TITLE OF CLASS)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PART I
Item 1 Description of Business...................................................................... 2
Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition........ 29
Item 3 Description of Property...................................................................... 36
Item 4 Security Ownership of Certain Beneficial Owners and Management............................... 36
Item 5 Directors and Executive Officers and Control Persons......................................... 38
Item 6 Executive Compensation....................................................................... 39
Item 7 Certain Relationships and Related Transactions............................................... 41
Item 8 Description of Securities.................................................................... 42
PART II
Item 1 Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.................................................................... 44
Item 2 Legal Proceedings............................................................................ 45
Item 3 Changes in and Disagreements with Accountants................................................ 45
Item 4 Recent Sales of Unregistered Securities...................................................... 45
Item 5 Indemnification of Directors and officers.................................................... 46
Part F/S Financial Statements.......................................................................... 46
PART III
Item 1 Items 1 and 2 Index and Description to Exhibits.............................................. 47
</TABLE>
i
<PAGE> 3
FORWARD LOOKING STATEMENTS. THE DISCUSSION CONTAINED HEREIN REGARDING
WE AND ITS BUSINESS AND OPERATIONS MAY INCLUDE "FORWARD LOOKING STATEMENTS."
SUCH STATEMENTS CONSIST OF ANY STATEMENT OTHER THAN A RECITATION OF HISTORICAL
FACT AND CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS
"MAY," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF,
OTHER VARIATIONS THEREOF, OR COMPARABLE TERMINOLOGY. ALL FORWARD-LOOKING
STATEMENTS ARE NECESSARILY SPECULATIVE, AND THERE ARE CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY
FROM THOSE REFERRED TO IN SUCH FORWARD-LOOKING STATEMENTS. EXCEPT FOR HISTORICAL
INFORMATION, MATTERS DISCUSSED IN THIS REPORT REGARDING FINANCIAL RESULTS AND
DEMAND FOR PRODUCTS AND SERVICES ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES, INCLUDING THOSE RELATED TO THE FURTHER DEVELOPMENT OF
OUR PRODUCTS AND SERVICES AND MARKET ACCEPTANCE OF SUCH PRODUCTS AND SERVICES.
AS USED IN THIS FORM 10, THE TERMS "WE", "US", "OUR" AND "COMPASS
KNOWLEDGE HOLDINGS, INC." MEAN COMPASS KNOWLEDGE HOLDINGS, INC. AND ITS
SUBSIDIARIES, AND THE TERM "COMMON STOCK" MEANS COMPASS KNOWLEDGE HOLDINGS, INC.
COMMON STOCK, $0.001 PAR VALUE. UNLESS OTHERWISE STATED, REFERENCE TO A "YEAR"
IN THIS FORM 10 MEANS OUR FISCAL YEAR, WHICH ENDS ON DECEMBER 31.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORICAL BACKGROUND
On February 9, 1999, Compass Knowledge Group, Inc. was incorporated
under the laws of the State of Florida for the purpose of establishing a company
to acquire companies and develop and operate businesses involved in the Internet
distance learning business. We had no operating history. Upon formation, our
shareholders were issued 9,188,257 shares of our common stock, $.001 par value.
On January 27, 1999, the Academy of Ambulatory Anesthesia Safety, Inc., was
incorporated under the laws of the State of Florida. Upon its organization, the
Academy of Ambulatory Anesthesia Safety became our wholly owned subsidiary.
Our business began with Professional Educational Seminars, Inc., a
Florida corporation which purchased the operating division and intellectual
property of Paul M. Deutsch Press, Inc. in November 1993. Professional
Educational Seminars was formed for the purpose of developing, owning and
operating seminars, developing and providing certificate programs and developing
and publishing materials in life care planning for catastrophic injuries and
impairments. In November 1993, Rogers W. Kirven, Jr., our Chief Executive
Officer, and several other individuals acquired all the issued and outstanding
stock of Professional Educational Seminars, and in 1994 the name of Professional
Educational Seminars, Inc. was changed to Rehabilitation Training Institute,
Inc., one of our wholly-owned subsidiaries.
In March of 1996, Rehabilitation Training Institute with the University
of Florida Health Services, Inc., a Florida corporation and an affiliate of the
University of Florida, formed Intelicus, LC, a Florida limited liability company
organized for the purpose of developing, marketing and operating degree and
certificate programs for health care professionals. Rehabilitation Training
2
<PAGE> 4
Institute was ultimately issued 64.5% of the ownership interest in Intelicus and
University of Florida Health Services was issued the remaining 35.5% ownership
interest. Intelicus was managed by four managing members, two appointed by
Rehabilitation Training Institute and two appointed by University of Florida
Health Services.
Effective October 31, 1999, Compass Knowledge Group, Inc. consummated a
tax-free stock exchange with the shareholders of Rehabilitation Training
Institute whereby Rehabilitation Training Institute shareholders exchanged, on a
one-for-one basis, all of their common stock in Rehabilitation Training
Institute for common stock in Compass Knowledge Group, Inc. No new shares of
common stock were issued as part of the exchange. Upon consummation of the stock
exchange, we owned 100% of Rehabilitation Training Institute and the Academy of
Ambulatory Anesthesia Safety and Rehabilitation Training Institute owned 64.5%
of Intelicus. The University of Florida Health Services owned the remaining
35.5% of Intelicus. The exchange has been accounted for as a business
combination among control groups, similar to a pooling of interests.
On November 5, 1999, we entered into and consummated a Stock Purchase
Agreement with Pioneer Ventures Limited Partnership whereby we sold to Pioneer
Ventures Limited Partnership 2,000 shares of our Series A Senior Convertible
Preferred Stock raising proceeds of $1,667,026, net of offering expenses of
$82,974. The Preferred Stock may be convertible at any time by the holder at his
option into our common stock at $2.00 per share at any time. The Preferred Stock
is subject to an annual cash and/or preferred stock cumulative dividend of 8%.
The Preferred Stock also has senior liquidation preferences, voting rights equal
to our common stockholders and other rights and preferences common to such
securities, including the right to designate one of our directors. The Preferred
Stock is also entitled to a one-time demand and unlimited piggy-back
registration rights including any common stock issued upon conversion thereof.
On November 15, 1999, we were recapitalized in a tax-free acquisition
of Winthrop Industries, Inc. In accordance with the acquisition agreement, our
common stockholders received one share of Winthrop Industries' common stock for
each share of common stock owned by them and our preferred shareholders received
a like kind and number with identical preferences of Series A Preferred Stock in
Winthrop Industries in exchange for our Series A Preferred Stock. Winthrop
Industries also adopted our Stock Option Plan, thereby allowing our option
holders to exercise their options to acquire common shares of Winthrop
Industries in accordance with the adopted Stock Option Plan. No new shares of
common stock were issued as part of the exchange. For accounting purposes, the
acquisition has been treated as a recapitalization of Compass Knowledge Group,
Inc. with Compass Knowledge Group as the acquirer.
As an additional negotiated condition of the Winthrop Industries
acquisition, Winthrop Industries completed an offering of 2,000,000 shares of
its common stock, at an offering price $2.00 per share, pursuant to an exemption
from registration under the Securities Act of 1933, provided by Regulation D,
Rule 506, of said Act, raising proceeds of $3,936,025, net of offering costs of
$63,975.
As part of the acquisition of Winthrop Industries, its officers and
directors resigned and were replaced by our officers and directors. The name of
Winthrop Industries was changed to Compass Knowledge Holdings, Inc. Prior to the
acquisition of Winthrop Industries, our management had no relationship with
Winthrop Industries or its shareholders.
3
<PAGE> 5
In October 1999, we agreed to purchase the 35.5% equity interest in
Intelicus, LC which was then owned by The University of Florida Foundation, Inc.
as a result of a gift from the University of Florida Health Services, Inc. In
exchange for the 35.5% interest, we agreed to issue to The University of Florida
Foundation 465,000 shares of our common stock and to contribute $300,000 to The
University of Florida Foundation for the purpose of establishing an endowment
fund for health professionals. In addition, two of our principal shareholders
and officers, Rogers W. Kirven, Jr. and Daniel J. Devine, also collectively
gifted 350,000 shares of our common stock owned by them to the University of
Florida Foundation. As a condition to the closing, The University of Florida,
College of Pharmacy agreed to extend for a period of five (5) years the term of
its professional service agreements with us for an additional 35,000 shares of
our common stock. These transactions were consummated in December 1999.
The purchase of The University of Florida Foundation's interest in
Intelicus was structured as an equity exchange whereby The University of Florida
Foundation received 465,000 shares of our common stock (approximately 3.2% of
our issued and outstanding common stock) in exchange for its 35.5% ownership
interest in Intelicus, thereby making Intelicus our wholly owned subsidiary. The
University of Florida Foundation is entitled to a one-time piggy-back
registration right and a nominee of The University of Florida Foundation, Inc.
shall be appointed to our board of directors for so long as The University of
Florida Foundation owns at least 1% of our issued and outstanding stock, as
calculated on a fully diluted basis.
As of December 31, 1999, we had authorized capital consisting of
50,000,000 shares of common stock, par value $.001 per share, 14,750,000 shares
of which were issued and outstanding, and 5,000,000 shares of "Blank Check"
preferred stock, 2,000 shares of which were issued and designated as Series A
Preferred Stock, and 2,500,000 option shares authorized under our option plans
of which 1,500,000 option shares have been issued. Our board of directors will
have the authority to issue all or any portion of the remaining authorized
shares of common stock and preferred stock for such purposes as it determines to
be in our best interest of without the need for shareholder approval.
OUR BUSINESS
INTRODUCTION
We are an innovative educational company that delivers post-secondary
education programs to working professionals using our multimodal delivery system
which includes our Internet education portals. We sell and deliver our own
programs, and the programs of our university and knowledge partners, through our
multi-modal delivery system; a flexible delivery concept that gives working
professionals the ability to earn advanced degrees and specialized certificates
in a distance learning format. We presently operate our business through our
wholly owned subsidiaries.
Our portals serve as the student's primary point of access to our
Internet programs. Our portals currently provide synchronous and asynchronous
4
<PAGE> 6
communication, streaming video and audio. Our delivery portals continue to be
upgraded and enhanced and will include links to other medical sites, daily
updates of important medical news, links to our continuing education programs,
automatic billing and invoicing, banner advertising, links to general interest
sites and direct access to a medical search engine. Students will be able to
customize their own home page to make it as unique and useful as possible.
We have two, proven multi-media, Internet enhanced, educational
delivery systems, one that is used for degree programs and one for certificate
programs. These systems deliver advanced professional degrees, conferred by our
knowledge partners, and professional certificates. Degree programs include the
Doctor of Pharmacy program and the Doctorate of Audiology program while the
certificate programs include Life Care Planning, Functional Capacity Evaluation,
Health Care Finance, Herbal Products and Counseling, Principles and Applications
in Indoor Air Quality and Psychopharmacology for Psychologists.
Our strategic goal is to be the education delivery portal for targeted
niche markets (e.g., pharmacy, audiology, psychology) by cost-effectively
distributing educational programs and products to a worldwide audience. Our
marketing and delivery programs are designed to build and enhance our brand
image and that of our university and knowledge partners. Through our Internet
based delivery system, individual students are able to access brand name
content, anywhere, anytime, and at a reasonable cost. We utilize our experience
and skills to:
o identify under-served market niches,
o obtain and develop branded content,
o design effective delivery structures,
o position programs within the target marketplace, and
o promote and manage the delivery of Internet based educational
programs.
INDUSTRY OVERVIEW
BACKGROUND OF THE EDUCATION INDUSTRY
According to the April 9, 1999 "Book of Knowledge" report published by
Merrill Lynch & Co. (the "Merrill Report"), the United States will spend $740
Billion in 1999 on education, more than the United States will spend on its
national defense and Social Security combined and, more than the gross domestic
product's of Spain, Canada, or Brazil. Yet, the Merrill Report concludes that
the United States' results in education are mixed at best, with the United
States often finding itself ranked in the bottom quartile for basic and advanced
skills in mathematics, science and reading. Recognized as this country's number
one long-term national priority, the United States has established countless
programs at the state, local and federal levels to remedy this problem. Billions
of dollars have been spent on new technologies, new methods to better assess and
hold its teachers accountable have been developed, outsourcing and privatization
have been implemented, and the United States continues to look for alternative
solutions, such as charter schools.
5
<PAGE> 7
The Merrill Report submits that each of these trends will effect how
the United States educates and trains its population in the 21st century. "The
more effective use of technology, specifically distributed learning via the
Internet, will yield the most positive results, and therefore, produce the
greatest opportunities." According to the Merrill Report, it is expected that
distributed learning will do for post-secondary education what the Gutenberg
press did for the Bible.
According to the Merrill Report, spending in the United States
educational system has not kept up with the investment in technology in the
private sector. In fact, in 1998, the private sector spent 50% of its capital
budgets for information technology while only 2% of the education capital budget
was spent for similar programs. However, the Merrill Report concludes that if
the paradigm shift in education has been recognized and through the internet and
computer technology, it will result in significant changes, new technology
investment, and significant business opportunities.
The Merrill Report submits that numerous major environmental trends
will drive growth in the post-secondary distributed learning market. These
factors include:
>> The power of technology will "democratize" education, providing greater
access to a much wider audience at much lower costs.
>> Technology is changing the way we live and is a prime driver of
education. Lifelong learning, which is required for economic survival,
is being made possible through such technologies as the Internet,
video-conferencing and satellite communication systems.
>> Demographics have never been better for post-secondary education. More
high school students and adults are entering post-secondary
institutions than ever before. The makeup of the student body is
changing, with nearly 50% of students being 25 years of age or older.
These older students require greater flexibility and new access
methods.
>> Globalization is increasing the addressable market. Studies show that
for every foreign student studying in the United States, there are from
three to five others who would participate in a degree program if they
had access and the resources.
>> Growing access to Personal Computers and an expanding bandwidth will
provide the vehicle and the medium for distributed, Internet based
learning.
>> Over 2 million new teachers will be hired over the next ten years.
These teachers will be well-trained supporters of the distributed
learning environment.
>> Recognition by leading institutions, and the private education delivery
sector, of a new education paradigm that is based on the Five C's -
Convenience, Condensed, Cost effectiveness, Career oriented and
Customer service oriented education.
According to the Merrill Report, the for-profit distributed learning
market is $500 million and is growing at a rate of 50% per year, potentially
resulting in a $1.6 billion market by 2002. According to the International Data
Corporation, over 700,000 students are taking distributed learning classes and
enrollment is expected to increase to more than 2.2 million students by 2002.
6
<PAGE> 8
OUR MARKET
We have chosen to focus our initial efforts on providing educational
products and services to the post-secondary healthcare education market. We
believe significant demographic, technical, market, societal and financial
trends are estimated to potentially cause the for-profit post-secondary market
to increase with the healthcare segment expected to grow even faster. We are
also currently exploring new opportunities outside the healthcare segment where
we believe profitable opportunities may exist.
We believe that the healthcare distributed learning segment will grow
even faster than the total distributed learning market. It is our opinion that
healthcare professionals are generally more sophisticated than the average
student; they have a history of taking continuing education courses, and they
have ready access to personal computers and the Internet. We believe that growth
will also be driven by pressures to reduce cost from managed care organizations,
government agencies, regulators, large corporations, small businesses, and
consumers. These cost pressures are likely to result in lower incomes,
downsizing, and greater workloads for all healthcare workers which may require
the learning of new skills. Besides maintaining proficiency, many healthcare
professionals also obtain new accreditation so that they can increase their
income. We believe that these factors are causing healthcare professionals to
seek new and more efficient educational/training solutions. We believe that
distributed learning and the Internet are vehicles which can meet this need.
THE MARKET OPPORTUNITY
The current education and training market can be viewed as being very
similar to the healthcare industry of 30 years ago. As can be seen from the
following chart published in the Merrill Report, both markets are extremely
large, and very fragmented, delivery is inefficient, costs are high, technology
use is limited, professional management is lacking, and the stock market
capitalization (a measure of value/interest) is very low when compared to the
total market.
<TABLE>
<CAPTION>
HEALTHCARE MARKET IN 1970 EDUCATION MARKET IN 1999
------------------------- ------------------------
<S> <C>
Huge Market - 8% GDP Huge Market - nearly 10% GDP
Fragmented-Cottage Industry Highly Fragmented-Cottage Industry
High Cost Very Inefficient
Low Technology Low Technology
Lack of Professional Management Lack of Professional Management
Negligible Market Cap (3% of total) Negligible Market Cap (1.59% of total)
Essential Human Service Essential Human Service
</TABLE>
If we examine the healthcare market in 1999, we see a market that has
gone through considerable changes. The healthcare market has become an even
larger part of our overall economy (14%); the industry has become much more
sophisticated, with various sub-segments such as medical devices, biotech,
HMO's, etc; healthcare has spent considerable capital on new technologies and
has become very technologically advanced; and, the industry has generally
implemented strong management controls and accountability. According to the
Merrill Report, these factors have resulted in a very dynamic industry, from one
7
<PAGE> 9
that was undervalued in 1970, to an industry that now accounts for 14% of the
total U.S. capital market. A similar revolution is occurring in the education
market and that revolution it is being driven by new Internet based
technologies.
We believe that the same factors that drove the healthcare industry
will drive significant changes in the healthcare education market. Down-sizing,
consolidations, technology investment, cost containment and multitasking have
driven healthcare organizations to focus on, and improve, their core
competencies and to contract out short term and intermittent support service
requirements. In this environment, individual healthcare workers must either
learn the new professional skills needed to maintain their current professional
position or they will be out of work. An option for the healthcare provider is
to hire consultants who specialize in unique knowledge areas. These
project-specific specialists are generally a time and cost-efficient way to
complete project-related tasks. Part of our strategy is to identify these
specific skill requirements and, on a project basis, to develop training
programs for these high-value and rapidly emerging areas.
Since continuing education is a requirement and cost is a major
concern, the time to learn new skills must be shortened, employees must remain
productive during training, and the training must be cost justified. In fact,
distributed learning provides each of these essential elements. For example, at
Sandia National Laboratories, the annual savings from their online training
programs are estimated at more than $2 million.
A COMPETITIVE ENVIRONMENT
According to the Merrill Report, the competitive environment within the
post-secondary education market is fragmented. It is estimated that in 1999, the
"proprietary" for-profit post-secondary education industry was composed of
approximately 345 schools with revenues that approximate $5 billion. Adding $2.5
billion in textbooks and materials and another $500 million in distributed
learning courses brings the for-profit component of the post-secondary industry
to $8 billion.
There are a number which is increasing almost daily of large, highly
capitalized public companies that focus on the higher education market such as
eCollege.com, Apollo Group, Inc., DeVry, The Lightspan Partnership, Convene.com
and ITT Educational Services. Other companies focus on the corporate training
market (e.g., the CBT Group, The Learning Tree) and a smaller number are
recognized as specialty providers including Sylvan Learning and NCS Computer.
Our direct competitors include such public companies as eCollege.com, Caliber
Learning Systems and Asymetrix, and a number of private companies including
Pensare and Blackboard.com. While these companies are our most direct
competitors, none of these companies concentrates exclusively on the healthcare
education segment. In addition, we believe that our Internet based delivery
strategy, and our focus on customer acquisition and marketing, further
differentiates it from the competition.
Notwithstanding, the distributed learning market is quickly evolving
and is subject to rapid technological change. Although the market is highly
fragmented with no single competitor accounting for a dominant market share,
competition is intense. Our competitors vary in size and in the scope and
breadth of the products and services they offer.
8
<PAGE> 10
We believe that the level of competition will continue to increase as
current competitors increase the sophistication of their offerings and as new
participants enter the market. Many of our current and potential competitors
have longer operating histories, larger customer bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do and may enter into strategic or commercial relationships with larger,
more established and well-financed companies and institutions. Certain
competitors may be able to secure alliances with customers and affiliates on
more favorable terms, devote greater resources to marketing and promotional
campaigns and devote substantially more resources to systems development than we
can. In addition, new technologies and the expansion of existing technologies
may increase the competitive pressures we face. Increased competition may result
in reduced operating margins, as well as loss of market share and brand
recognition. We may not be able to compete successfully against current and
future competitors, and the competitive pressures we face could have a material
adverse effect on our business and financial results.
There is a potential threat that a large, highly capitalized company
will initiate a strategy to enter the distributed learning healthcare segment
which could adversely effect our business and financial results.
OUR BUSINESS MODEL
Our business model, can be characterized as "multi-modal Internet
utilized, Post-Secondary Distributed Learning" model. We believe our focus on
the fast growth healthcare segment, our Internet based delivery system and our
proven customer acquisition process makes us unique. The characteristics of our
business are very positive and include:
o Recurring revenue from extended enrollment that enhances
predictability.
o Strong free cash flow from steady tuition payments and wide operating
margins.
o A centralized cost structure that leads to opportunities for operating
leverage.
o Pricing protection based on annual hikes at traditional institutions of
7% per year.
o A non-cyclical business since people go to school in good times and
bad.
o Accelerated growth driven by demographics, including growing consumer
preferences for higher education, workplace dynamics caused by greater
use of technology, and unparalleled job replacement rates caused by the
mobility of knowledge based workers.
o The increasing use of strategic alliances and consummating acquisitions
that allow for greater leverage of existing resources and a higher
return on invested capital.
STRATEGIC ALLIANCES, OUR FIRST "KNOWLEDGE PARTNER" - THE UNIVERSITY OF FLORIDA
An important part of our strategy is to leverage our investment by
establishing long term strategic alliances with universities and knowledge
content providers. These alliances are based upon a model whereby we bear the
risk of marketplace development and obtain content from our knowledge partner,
thereby making our central operations the delivery of specialized content in the
context of our multi-modal delivery system.
9
<PAGE> 11
The University of Florida was our first knowledge partner. The base of
our knowledge programs at the University is constantly expanding and is a
valuable resource. We have been able to increase our value by repackaging,
promoting and delivering a subset of that knowledge to the marketplace. Our
relationship with The University of Florida has established the precedent and
will likely be used as our blueprint for future alliances with colleges and
universities.
The University of Florida is a major, public, land grant, research
university. It is Florida's oldest, largest and most comprehensive university,
and is among the nation's most academically diverse public universities. The
University of Florida has a long history of established programs in
international education, research and service and it is one of only 15 public,
land-grant universities that belong to the Association of American Universities.
The University of Florida ranks fourth among public universities, and
eighth among all universities, in the number of National Merit Scholars. It also
ranks second among all public institutions in the number of National Achievement
Scholar and is ranked fifth among all institutions.
Our decision to partner with The University of Florida was based upon
its position as a pre-eminent institution in the field of healthcare education
and the University's open-minded flexibility in structuring a win-win
partnership. We will continue to build on this relationship as a template upon
which we anticipate establishing similar partnerships with other content
providers.
STRATEGIC ALLIANCES - FUTURE PARTNERS
We are actively engaged in discussions with several potential strategic
partners with either curriculum content and/or technology specialties. These
content partners offer opportunities for us to rapidly move forward with the
introduction of new programs since they have the core knowledge that may be
placed into our multi-modal delivery system.
The technology partners are educational technology suppliers and would
enhance our ability to stay on the leading edge of rapidly developing content
delivery technology. Additionally, these potential partners have a number of
customers that would be attractive knowledge partners. It is unclear at this
time as to the final structure of these relationships, if a relationship is
developed at all.
CURRENT PROGRAMS
We utilize an innovative, educational marketing based system to
optimize our brand and quality recognition. This system is especially focused on
working professional students who want a educational experience but cannot or do
not want to "return to campus." By utilizing the relationship with The
University of Florida and other content providers, many new programs are
expected to be developed in the near term in specialty areas where demand for
training has already been clearly identified by the professional community. Our
management team is also actively engaged in identifying additional sources of
programs and content providers, individuals, educational organizations and
private companies.
10
<PAGE> 12
Presently, our programs include:
1. THE WORKING PROFESSIONAL DOCTOR OF PHARMACY PROGRAM
There is a significant opportunity to advance the careers of many
pharmacists that want to upgrade their professional credentials to a Doctor of
Pharmacy. Through the convenient structure of The Working Professional Doctor of
Pharmacy Program, this program has become one of the leading distance learning
programs in the country. The University of Florida College of Pharmacy is among
the top pharmacy schools in the nation and U.S. News and World Report's annual
ranking of the best colleges and universities in the country has ranked the
college's Doctor of Pharmacy program among the Top 10 for the past four years.
The Working Professional Doctor of Pharmacy Program has more than 420
students enrolled in the Spring, 2000 semester. Tuition currently ranges from
$18,000 to $20,025 for the three-year degree program.
2. THE WORKING PROFESSIONAL DOCTOR OF AUDIOLOGY PROGRAM
This University of Florida program is designed for the working
professional to upgrade their degree to the Doctorate of Audiology (Au.D.). The
Working Professional Au.D. Degree is a flexible program designed to provide
working audiologists with the complex and diverse skills necessary to meet the
challenges of the dynamic healthcare marketplace. There are approximately 345
students enrolled in the 18 month program, each paying $12,555 in tuition.
3. LIFE CARE PLANNING CERTIFICATE PROGRAM
The Life Care Planning Certificate Program is targeted toward
rehabilitation, medical, and vocational professionals desiring to add billable
skills to their professional "tool kit." Life Care Plans are extensive documents
that are used generally as evidence in litigation. The plan reviews the cause
and result of the catastrophic injury and then defines the plan of care format
for the catastrophically injured individual. Medical and financial aspects are
planned for the full life expectancy of the injured individual. The certificate
program is composed of six training sessions and two distance learning modules
offering up to 120 post-graduate hours in professional training focused on Life
Care Planning for Catastrophic Case Management including vocational issues that
are vital to Life Care Planning. We currently train in excess of 1200 seats per
year (a seat is defined as one individual in one seminar). Currently, the total
tuition cost for this program is $3,595. In addition to the Certificate Program,
(9) additional Advanced Modules are offered for a cost of $795 per module. An
Annual Life Care Planning Conference has become the leading convention for the
industry attracting over 300 professionals and more than 24 sponsors.
4. FUNCTIONAL CAPACITY EVALUATION
Physicians, chiropractors, occupational therapists, physical
therapists, and other healthcare providers must operate under increased scrutiny
from managed care companies. The Functional Capacity Evaluation Certificate
Program gives these professionals the ability to define the extent of an
individual's injuries using scientifically based protocols. The program is
11
<PAGE> 13
composed of four modules which are delivered over a four month period using
distance learning and classroom delivery systems. The tuition for this program
is currently $1,795.
5. HEALTH CARE FINANCE
This Certificate Program prepares physicians for the future of
healthcare delivery and management. The program covers the essential principles
and techniques taught in an MBA program, but uniquely tailored to the
physician's perspective and time constraints. The tuition for this four-module
program is $1,995.
6. HERBAL PRODUCTS AND COUNSELING
This program will educate the Pharmacist regarding the science of
herbal formulas. Additionally, the Pharmacist will be taught how to consult
their customers regarding the facts, fiction, and use of herbal products. It is
anticipated that this program will be expanded in order to be given to other
healthcare professionals. We have in conjunction with the University of Florida,
entered into an agreement with the IVAX Corporation to provide a herbal
certificate program to their customers. We are currently enrolling students for
the spring of 2000 at a tuition cost of $500.00.
7. PRINCIPLES AND APPLICATIONS IN INDOOR AIR QUALITY
With a high awareness of "sick building" syndrome, combined with
government regulation, the demand for Indoor Air Quality education for both
health care and management professionals is very significant. This program is
100% internet based and the tuition ranges from $400 to $600.
8. PSYCHOPHARMACOLOGY FOR PSYCHOLOGISTS
The professional evolution of psychology has presented an opportunity
for psychologists to enhance their knowledge base with additional education,
training and credentialing that would permit the prescription of medications for
emotional and behavioral disorders when appropriate legislative barriers are
addressed. This two year program has a tuition cost that ranges from $8,700 to
$9,570. We are currently enrolling students for the first quarter of 2000.
IN-PROGRESS PROGRAMS
1. SUCCESSION PLANNING CERTIFICATION
Succession Planning is a growing area of specialty that assists
business owners in developing a financial planning strategy that will satisfy
their estate planning and business continuity objectives. The aging demographics
of today's business owners and the creation of thousands of new business from a
vibrant economy have created a demand for succession planning professionals. The
tuition for this certificate program is $4,645. It is anticipated that the first
class for this program will begin in the second quarter of 2000.
12
<PAGE> 14
2. PHARMACY DISEASE-SPECIFIC CERTIFICATES
As an extension to the current pharmacy degree program, many
opportunities exist to utilize the existing curriculum and package into both
certificate programs and continuing education modules. A certificate program in
diabetes management is currently under development. This offers a significant
opportunity to meet the Medicare ruling that allows pharmacists to bill Medicare
for diabetes consultation
3. ASSOCIATES OF ARTS DEGREE
The Associate of Arts degree enables the student to learn through a
distributed learning format using the proven combination of online
communication, textbook reading, audio and video tape content delivery and
intensive mentoring. The program's primary target is the over 1 million home
schooling students nationwide. These students are accustomed to working
independently which makes them good candidates for a distributed learning
format. Many of the home school students complete their high school requirements
early and are ready to begin working on their college degree. Anticipated
tuition cost will be $580.00 per course.
4. MASTERS OF BUSINESS ADMINISTRATION - NON-PROFIT ORGANIZATIONAL
MANAGEMENT
This 18 month program gives the leaders of non-profit organizations and
churches an outcome based, results oriented instruction for developing and
managing their organization . The program utilizes evaluation methodologies to
determine each individual student's competency regarding a specific area of
knowledge. Each course is designed as an independent module focused on one area
of the organization's structure. There is significant value in this format
because the student gains a thorough competency in a particular area and then
can immediately apply the new skills to their work.
PROGRAM DEVELOPMENT
Our Program Development strategy is organized around a four-step
process that includes:
1. COURSE/PROGRAM IDENTIFICATION
A program or course is developed from the marketplace. This is a
characteristic that distinguishes us from traditional educational institutions
and is one of our major strengths. An analogy can be made to Dell Computer which
doesn't produce a computer until the specific model has been ordered by a
customer. In our case, we only develop and deliver a specific program after it
has been identified as being wanted by the marketplace. We then deliver what the
market dictates and in a format that is readily and easily accessible. This is
in stark contrast to higher education's traditional approach that specific
curriculum and delivery systems are offered at the institution's convenience.
We scan the marketplace to find educational opportunities that are
quickly transferable to our proven process/models. Our program development team
is experienced in the development of new ventures and believes in rapid
entrepreneurial development of markets and products. The criteria that are
13
<PAGE> 15
required for initial consideration of a potential program include:
>> Identified opportunity in the working professional healthcare
marketplace;
>> Designed for the working professional;
>> Suitable to the technology and marketing approach of the multi-modal
delivery system and the object learning model; and
>> Offers financial and specific career benefits to the student which are
consistent with our slogan "Knowledge That Earns".
2. CURRICULUM DESIGN
Once a new product is identified, the curriculum must be designed to
operate within our multi-modal delivery system. Most existing degree or
certificate programs that are identified are not scalable or able to be easily
integrated into a distributed learning format without completely restructuring
the curriculum. Therefore, our first step is to locate the best "Knowledge
Experts" and begin the design. Where it is needed, an "Academic Curriculum
Committee" will provide oversight and recommendations regarding the curriculum's
academic goals and structure. An "Academic Accreditation Partner" may also be
involved, particularly where degree accreditation is needed.
Once the educational objectives have been determined, the "Knowledge
Expert" will become a part of our instructional design team whose members
include an instructional designer, media/art producer, and a technology
specialist. The task of the instructional design team is to create the highest
quality, dynamic, and interactive learning environment possible. The team uses
technology and Internet communication tools in combination with proven
curriculum design methods. We believe that this instructional design system
produces the highest outcomes as measured in student knowledge, application of
that knowledge and successful graduation.
3. THE OBJECT LEARNING MODEL
Our object learning model has been developed to be delivered to students via our
multi-modal delivery system. The learning model is based upon the following
characteristics:
>> Curriculum
Programs are developed to provide for specific educational outcomes by
integrating academic theory and professional practice with direct
application to the work place.
>> Faculty
A key characteristic of all of our programs is to supply mentors and
faculty with the appropriate academic credentials and demonstrated
professional experience in the area of instruction. We promote
excellence by requiring professional experience and also promotes
quality with our quality assessment program for faculty. This program
serves to develop continuous improvement and helps students attain
their objective of lifelong learning.
14
<PAGE> 16
>> Competency-based Evaluation
We utilize competency-based evaluations throughout the program in order
to streamline the student's advancement and maximize learning. This
allows students to focus on the high impact problem areas due to its
real-time feedback mechanism.
>> Interactive Learning
Courses are designed for maximum faculty and group input and
discussion. Group activity coupled with interactive electronic
applications allows current access to all professors involved in
teaching and with fellow students.
>> Case Method of Learning
We build our programs using the case method and relevant casework
techniques. This methodology provides students with real-life case
studies that can be immediately applied to the workplace.
>> Academic Degrees and Certificates
The programs are developed to award academic degrees and certificates
from partner institutions, upon successful completion of all
courses/modules. In addition, certificates are awarded for successful
completion of each individual module.
4. THE MULTI-MODAL DELIVERY SYSTEM
The working professional has a select set of educational requirements.
We attempt to meet these needs for accessibility, time and cost effectiveness,
and immediate applicability to work through our multi-modal delivery system.
This system allows the student to utilize the program within the time and access
demands of the working professional. The key components of the model include:
>> Internet casework prescribed by mentor/professor.
>> Video workbook completed at home.
>> Clinical class work on a select basis to determine competence.
>> Group interaction allowing for specific study of content topics and
case presentations.
MARKETPLACE DEVELOPMENT
1. The Company "Market Mining Model" - A Proprietary Differentiator
We believe marketplace development is one of the most critical
components of a successful program, and it is an area of expertise that we
believe that truly distinguishes us from most educational providers. We begin
the marketplace development by conducting an extensive evaluation of all market
15
<PAGE> 17
niches using the market mining model. We have pioneered and proven the market
mining model as a reliable test to evaluate the potential of proposed programs.
It consists of a series of low cost probes to prove market acceptance of a
specific program. The model also schedules and scores the effectiveness of each
specific marketing channel. This proprietary model has proven to be effective in
pre-testing programs in a low cost manner, allowing management to determine how
successful a possible program will be before investing in a complete program
roll-out.
2. Comprehensive Marketing Management
We use a media mix of direct response marketing, advertising, public
relations, internet marketing, telephone call center technology and database
management to acquire students. Every marketing event is tracked, allowing for
effective evaluation of each marketing program. The admissions call center, in
combination with our proprietary marketing software program, provides immediate
feed back on every aspect of the marketing program. The data is also used to
further refine the targeted marketing program using our call center and direct
marketing services.
We also utilize proprietary software that allows for consistent
tracking of all student and task contact. Not only does this improve current
student communication, it also allows us to continue a "life long learning"
relationship with the student. The database tracks which new programs and which
new products would be of interest to students.
Continuous quality improvement is implemented by surveys of
participants in each program. Instructor knowledge, instructor effectiveness and
curriculum application is rated. Once analyzed, action programs are implemented
to continually upgrade and enhance our products and services.
The multi-pronged tools of Internet based delivery through the
multimodal delivery system, the object learning model, the education portal, the
market mining model, and the brand image program, provides us with a solid and
clear set of market discriminators.
GROWTH STRATEGIES
1. CURRENT GROWTH - EXISTING PROGRAMS
We are investing in our existing degree and certificate programs and
are currently in the process of contracting with several new knowledge partners.
We are also entering a new niche market outside the healthcare marketplace with
the launch of a financial planning program. While no absolute assurance can be
given, our new programs are expected to be in full service within the next
several months.
2. FUTURE GROWTH
We believe that we have developed a strategy that will drive our future
growth by focusing in four key areas:
16
<PAGE> 18
o Internal Growth;
o Healthcare Technician Training;
o Acquisitions; and
o Non-healthcare Niches.
RISKS RELATING TO OUR INDUSTRY
DISTANCE LEARNING MAY NOT BE BROADLY ACCEPTED BY ACADEMICS AND
EDUCATORS.
Through our relationships with educational institutions and educators
we understand that some academics and educators are opposed to distributed and
distance learning in principle. They also have expressed concerns regarding the
perceived loss of control over the education process that can result from the
outsourcing of campuses and courses. Some of these critics, particularly college
and university professors, have the capacity to influence the market for our
services, and their opposition could have a material adverse impact on our
business and financial results. Further, the growth and development of the
market for distributed learning has resulted in some concerns from the academic
community about the protection of intellectual property associated with course
content, which may impose additional burdens on companies offering online
learning. We are unaware of any legal action resulting from course content being
delivered over the Internet. The adoption of any additional laws or regulations
may impair the growth of online learning, which could have a material adverse
effect on our business and financial results.
THE MARKET FOR DISTANCE LEARNING IN HIGHER EDUCATION IS IN AN EARLY
STAGE AND MAY NOT CONTINUE TO DEVELOP.
The market for distance learning is new and emerging. Although online
learning has been available for several years, it currently represents only a
small portion of the overall higher education market. Accordingly, our success
depends upon colleges, universities, associations and companies adopting online
learning. To date, we have entered into contracts with only one university, The
University of Florida. The use of online learning may not become widespread and
our services may not achieve commercial success. In addition, colleges and
universities that have already invested substantial resources in other
nontraditional methods of instruction may be reluctant to adopt new methods that
compete with their existing offerings. Any failure of online learning to gain
continuing market acceptance would have a material adverse effect on our
business and financial results.
WE OPERATE IN A HIGHLY COMPETITIVE MARKET AND WE MAY NOT HAVE ADEQUATE
RESOURCES TO COMPETE SUCCESSFULLY.
The distance learning market is quickly evolving and is subject to
rapid technological change. Although the market is highly fragmented with no
single competitor accounting for a dominant market share, competition is
intense. Our competitors vary in size and in the scope and breadth of the
products and services they offer. Competition is most intense from colleges' and
universities' internal information technology departments. Some colleges and
universities construct online learning systems utilizing in-house personnel and
17
<PAGE> 19
creating their own software or purchasing software components from a vendor. We
also face significant competition from a variety of companies including:
>> other companies which seek to offer a complete solution including
software and services;
>> software companies with specific products for the college and
university market;
>> systems integrators; and
>> hardware vendors.
Other competitors in this market include a wide range of education and
training providers. These companies use video, cable, correspondence, CD-ROM,
computer-based training, and online training.
We believe that the level of competition will continue to increase as
current competitors increase the sophistication of their offerings and as new
participants enter the market. Many of our current and potential competitors
have longer operating histories, larger customer bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do and may enter into strategic or commercial relationships with larger,
more established and well-financed companies. Certain competitors may be able to
secure alliances with customers and affiliates on more favorable terms, devote
greater resources to marketing and promotional campaigns and devote
substantially more resources to systems development than we can. In addition,
new technologies and the expansion of existing technologies may increase the
competitive pressures we face. Increased competition may result in reduced
operating margins, as well as loss of market share and brand recognition. We may
not be able to compete successfully against current and future competitors, and
competitive pressures we face could have a material adverse effect on our
business and financial results.
OUR MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE, AND OUR
SERVICES MAY BECOME OBSOLETE OR UNMARKETABLE.
The market for our products and services is characterized by rapid
technological change, changes in customer demands and evolving industry
standards. The introduction of services embodying new technologies and the
emergence of new industry standards can render existing services obsolete and
unmarketable. To succeed, we must address the increasingly sophisticated needs
of higher education by improving our software and services to keep pace with
technological developments, emerging industry standards and customer
requirements. We may not be able to do so successfully.
GOVERNMENT REGULATIONS, INCLUDING THOSE RELATING TO THE INTERNET IN
GENERAL AND TO OUR INDUSTRY IN PARTICULAR, COULD ADVERSELY AFFECT OUR BUSINESS.
Our operating results could be impaired if we become subject to
burdensome government regulation and legal uncertainties. We may be subject to
government laws and regulations, such as the Family Educational Rights and
Privacy Act and Alberta's Freedom of Information and Protection of Privacy
Regulation. Our violation of these statutes, or of any other law or regulation,
could have a material adverse effect on our business and financial results. In
18
<PAGE> 20
addition, it is possible that a number of laws and regulations may be adopted
with respect to the Internet, relating to:
>> user privacy;
>> pricing;
>> content;
>> copyrights;
>> distribution; and
>> characteristics and quality of products and services.
The adoption of any additional laws or regulations may decrease the
popularity or expansion of the Internet. A decline in the growth of the Internet
could decrease demand for our products and services and increase our cost of
doing business. Moreover, the applicability of existing laws to the Internet is
uncertain with regard to many issues including property ownership, intellectual
property, export of encryption technology, sales tax, libel and personal
privacy. Our business and financial results could be seriously harmed by any new
legislation or regulation of these types. There are an increasing number of laws
and regulations pertaining to the Internet. These laws and regulations relate to
liability for information received from or transmitted over the Internet, online
content regulation, user privacy, taxation and quality of products and services.
Moreover, the applicability to the Internet of existing laws governing
intellectual property ownership and infringement, copyright, trademark, trade
secret, obscenity, libel, employment, personal privacy and other issues is
uncertain and developing. We cannot predict the impact, if any, that future
regulation or regulatory changes may have on our business.
COLLEGE AND UNIVERSITY ACCREDITATION STANDARDS COULD ADVERSELY AFFECT
OUR BUSINESS.
Many colleges and universities are accredited by regional accreditation
organizations whose approval may be required for the college or university to
offer courses over the Internet. Any delay in, or failure to receive, such
approval could limit or prevent a college or university from using our system,
which would adversely affect our business and financial results.
Educational institutions are required to have authorization to operate
as degree-granting institutions in each state where they operate physical sites
which provide educational programs. Certain states also take the position that
any education institution providing online degrees to students residing in their
state is required to satisfy certain state standards. Some states accept
accreditation as evidence of meeting minimum state standards for authorization.
Other states require separate evaluations for authorization. Depending on the
state, the addition of a degree program not offered previously or the addition
of a new location must be included in the institution's accreditation and be
approved by the appropriate state authorization agency. The University of
Florida is presently authorized to operate in only three states in which it
provides degrees through our multi-modal model. If The University of Florida and
our other knowledge partners are required to obtain authorization to provide
distance learning degrees and certificate programs in such other states, it
could have a material adverse effect on our business, financial status and our
ability to expand our business.
19
<PAGE> 21
OUR SUCCESS DEPENDS ON MAINTENANCE AND CONTINUED DEVELOPMENT OF THE
INTERNET'S INFRASTRUCTURE.
Our success depends, in large part, upon the maintenance of the
Internet's infrastructure with the necessary speed, data capacity and security,
and timely development of enabling products such as high speed modems, for
providing reliable Web access and services as well as improved content. We
currently depend on a Web server located in a commercial data center, commonly
known as Web "server farms," to provide us a network backbone connection.
Increases in the number of users, frequency of use or bandwidth requirements may
strain the Internet's infrastructure and degrade the performance and reliability
of the Web. Furthermore, the Web has experienced a variety of outages and delays
as a result of damage to portions of its infrastructure, and any future outages
or delays could adversely affect our business. In addition, delays in the
development or adoption of new standards and protocols that are designed to
handle increased levels of activity, could reduce the viability of the Web. The
infrastructure or complementary products or services necessary to maintain and
enhance the Web as a commercial medium may never be developed. If the necessary
infrastructure, standards or protocols or complementary products, services, or
facilities are not developed, or if the Web does not continue to develop as a
viable commercial medium, our business and financial results would be materially
and adversely affected. Even if such infrastructure, standards or protocols or
complementary products, services or facilities are developed, we may be required
to incur substantial expenditures in order to adapt our services to changing or
emerging technologies, which could have a material adverse effect on our
business and financial results.
IF USE OF THE INTERNET DOES NOT CONTINUE TO GROW, OUR BUSINESS COULD BE
HARMED.
Our success is highly dependent on the continued growth in the general
use of the Internet. There can be no guarantee that the general use of the
Internet will continue to grow. Several factors, including concerns related to
security, cost and ease of use and access could limit future growth in Internet
use, which could materially and adversely impact our business and financial
results.
OUR PROSPECTS ARE DIFFICULT TO EVALUATE BECAUSE WE HAVE ONLY BEEN
OPERATING OUR BUSINESS SINCE 1993.
We began offering our products and services in 1993. We have only
received $5.75 million financing and operate with only 21 employees, servicing
one university. As a result of our limited financial and personnel resources and
limited operations, we have a limited operating history from which investors may
evaluate our business and prospects. Further, our revenue growth to date may not
be indicative of our future operating results.
WE INTEND TO INVEST HEAVILY IN ACQUISITIONS, PRODUCTS AND SERVICES.
We intend to invest heavily to acquire companies, develop our products
and services and establish our development, sales and marketing capabilities. We
believe that our success depends, among other things, on our ability to obtain
additional financing, develop new relationships with colleges, universities,
associations and businesses and to maintain existing customer relationships.
20
<PAGE> 22
Accordingly, we intend to incur significant expenses for development and sales
and marketing. As such, our earnings may not increase and we could experience
net operating losses and negative cash flow. To the extent our sales and
marketing efforts do not significantly increase our revenues, our business and
financial results will be materially and adversely affected.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY BE
BELOW THE EXPECTATIONS OF ANALYSTS AND INVESTORS.
Because of our limited operating history and the emerging nature of the
online learning market, we may be unable to accurately forecast our revenues.
The sales cycle for our products and services varies widely and it is difficult
for us to predict the timing of particular sales, the rate at which online
campuses, courses and/or course supplements will be implemented or the number of
students and participants who will enroll in our distributed learning courses.
The cancellation or delay of even a small number of our anticipated
implementations could cause our revenues to fall short of projections. Since
most of our costs are fixed and are based on anticipated revenue levels, small
variations in the timing of revenue recognition could cause significant
variations in operating results from quarter to quarter.
The following factors may affect our quarterly, as well as our annual,
operating results:
>> our ability to attract and retain colleges, universities, associations
and companies;
>> our ability to successfully implement our distributed learning
programs;
>> the amount and timing of operating costs and capital expenditures
relating to expansion of our business;
>> our introduction of new or enhanced services and products, and similar
introductions by our competitors;
>> the budgetary cycles of our clients;
>> our ability to upgrade and develop our systems and infrastructure;
>> our ability to attract, motivate and retain personnel;
>> technical difficulties in delivering our services;
>> governmental regulation;
>> our ability to attract and acquire suitable companies to expand our
business, and
>> general economic conditions.
As a result, we believe that our prior sales and operating results may
not necessarily be meaningful, and that such comparisons may not be accurate
indicators of future performance. Just because our business grew substantially
during the last two years, we can give no assurance that these percentages will
reflect the ongoing pattern of our business. Since we may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall,
any significant decrease in revenue would likely have an immediate material
adverse effect on our business and financial results. In addition, if our future
operating results are below the expectations of securities analysts or
investors, our stock price may decline.
21
<PAGE> 23
OUR SALES CYCLE IS LENGTHY AND CAN VARY WIDELY.
The sales cycle between initial customer contact and signing of a
contract varies widely, reflecting differences in our customers' decision-making
processes and budget cycles. As a result, we may not be able to forecast the
timing and amount of specific sales and resulting revenue. Our customers
typically conduct extensive and lengthy evaluations before committing to our
system. Delays in the sales cycle can result from, among other things, changes
in budgets, the need for approval from both the customer's administration and
faculty, and the need to educate a customer as to the potential applications of
and cost savings associated with our services. We generally have little or no
control over these factors, which may cause a potential customer to favor a
competitor's products and services, or to delay or forego purchases altogether.
The delay in or failure to complete planned transactions could have a material
adverse effect on our business and financial results and could cause our
financial results to vary significantly from period to period.
Since our business focuses solely on distributed learning, we are
particularly vulnerable to uncertain market acceptance, competing services,
implementation difficulties and other factors that could inhibit our ability to
generate sales and achieve market penetration
WE MAY HAVE DIFFICULTY IDENTIFYING AND MEETING THE NEEDS OF OUR
CUSTOMERS.
We may not be able to accurately determine customer requirements or
deliver features and functions that will satisfy customer demands. Furthermore,
even if we correctly identify our customers' requirements, we may not be able to
design and implement services incorporating these features in a timely and
efficient manner. Our failure to determine and address customer requirements in
a timely and efficient manner would have a material adverse effect on our
business and financial results.
MANAGING OUR GROWTH EFFECTIVELY MAY BE DIFFICULT.
We are currently experiencing a period of significant expansion, which
may be difficult to manage. Our growth has placed, and any further growth is
likely to continue to place, a significant strain on our managerial,
operational, financial and other resources. We have grown from 8 employees as of
December 31, 1998 to 21 employees as of December 31, 1999. This growth will
require us to implement additional management information systems, to further
develop our operating, administrative, financial and accounting systems and
controls and to maintain close coordination among our technology development,
accounting, finance, marketing, sales, and customer service and support
departments. If we cannot effectively manage our expanding operations, we may
not be able to continue to grow, or may grow at a slower pace. Our failure to
successfully manage growth and to develop financial controls and accounting and
reporting systems or to add and retain personnel that adequately support our
growth would have a material adverse effect on our business and financial
results.
22
<PAGE> 24
WE MUST EXPAND OUR CUSTOMER SERVICE AND SUPPORT DEPARTMENT AND IT MAY
BE DIFFICULT FOR US TO DO SO.
As we increase the number of colleges, universities, associations and
companies we serve, we will require greater numbers of development personnel and
account service representatives to ensure rapid and successful implementation of
our technology and services. For these positions, we seek individuals with
postgraduate degrees and we face great competition in hiring them. We may not be
able to increase the size of our customer service and support department on a
timely basis, or at all, and we may not be able to provide the high level of
support required by our customers, especially during the initial implementation
and development of our services. Our failure to continue to provide a high level
of customer support would have a material adverse effect on our business and
financial results.
OUR NETWORK INFRASTRUCTURE AND COMPUTER SYSTEMS MAY FAIL.
The continuing and uninterrupted performance of our network
infrastructure and computer systems is critical to our success. Any system
failure that causes interruptions in our ability to provide service to our
customers or their students could reduce customer satisfaction and, if sustained
or repeated, would reduce the attractiveness of our technology and services to
providers or their students. An increase in the number of students online
through our servers could strain the capacity of our software or hardware, which
could lead to slower response times or system failures. During the current
semester, student and faculty connections to websites hosted by us are
approximately 130,000. Based on our present usage patterns, we believe that our
current servers can support significantly more student and faculty users. To the
extent we do not successfully address any capacity constraints, such constraints
would have a material adverse effect on our business and financial results.
Our operations are dependent upon our ability to protect our computer
systems against damage from fire, power loss, telecommunications failures,
vandalism and other malicious acts, and similar unexpected adverse events. In
addition, the failure of our telecommunications provider or our network backbone
provider, which provides us with our Internet connection, to provide the data
communications capacity and network infrastructure in the time frame we require
could cause service interruptions or slower response times. Despite precautions
we have taken, unanticipated problems affecting our systems have from time to
time in the past caused, and in the future could cause, interruptions or delays
in the delivery of our products and services. In the past we have experienced
slower response times, and on occasion some of our customers' websites have been
unavailable for several hours, as the result of general Internet failure and/or
service problems from our previous, third-party web-server provider. Any damage
or failure that interrupts or delays our operations could have a material
adverse effect on our business and financial results.
OUR NETWORK MAY BE VULNERABLE TO SECURITY RISKS.
Our success depends on our ability to provide network security
protection and the confidence of our customers in that ability. Our system is
designed to prevent unauthorized access from the Internet; nevertheless, in the
future we may not be able to prevent unauthorized disruptions of our network
operations, whether caused unintentionally or by computer "hackers." Due to the
23
<PAGE> 25
sensitive nature of the information contained on the websites hosted by us, such
as students' grades, our websites may be targeted by hackers. As such,
disruptions may result in liability to us and harm to our customers, and our
failure to prevent such disruptions would have a material adverse effect on our
business and financial results.
WE DEPEND ON OUR KEY PERSONNEL AND MAY HAVE DIFFICULTY ATTRACTING AND
RETAINING SKILLED EMPLOYEES.
We depend on our key personnel and may have difficulty attracting and
retaining skilled employees. If we are unable to retain key personnel or attract
new personnel, it could have a material adverse effect on our business. The loss
of the services of any of our key personnel or our inability to successfully
attract and retain qualified personnel in the future would have a material
adverse effect on our business. Our future success depends on the continued
service of Rogers W. Kirven, Jr., our Chief Executive Officer, Daniel J. Devine,
our President and Chief Operating Officer and Stephen Wells, our Chief
Information and Marketing Officer. We maintain a life insurance policy on Mr.
Kirven with a face value of $1,000,000. The loss of the services of Messrs.
Kirven, Devine or Wells would have a material adverse effect on our business and
financial results. Our success also depends on our ability to attract, motivate
and retain highly-skilled managerial, sales and marketing, customer service and
support and technology development personnel. Competition for such personnel in
our industry is intense. We may not be able to retain our key employees or
attract, motivate and retain additional key employees in the future. Our failure
to retain these key employees would have a material adverse effect on our
business and financial results.
WE MUST PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
Our success depends, in part, on our ability to protect our proprietary
rights and technology, such as our trade and product names, and the software
included in our products. We presently do not own nor have we applied for any
copyrights, service marks or trademarks, but rely on trade secrets and employee
and third-party nondisclosure agreements to protect our proprietary rights.
Unauthorized parties may attempt to duplicate or copy aspects of our services,
products, systems or software or to obtain and use information that we regard as
proprietary. Policing unauthorized use of our services, products, systems or
software underlying our services is difficult, and while we are unable to
determine the extent to which piracy exists, piracy in general will likely be a
persistent problem. In addition, the laws of many countries do not protect our
proprietary rights to as great an extent as do the laws of the United States. As
a consequence, effective trademark, service mark, copyright, and trade secret
protection may not be available in every country in which our products and
services are made available online. Our proprietary rights and technology may
not be adequate, and our competitors could independently develop similar rights
and technology. Our failure to meaningfully protect our intellectual property
could have a material adverse effect on our business and financial results.
We may from time to time encounter disputes over rights and obligations
concerning intellectual property. Although we believe that our intellectual
property rights are sufficient to allow us to market our existing services
without incurring liability to third parties, and we are not aware of any
24
<PAGE> 26
disputes with third parties relating to competing intellectual property rights,
we might not prevail in such disputes. Failure to prevail in one or more such
disputes could impair our right to market our services, which, in turn, could
have a material adverse effect on our business and financial results.
WE MUST MONITOR AND PROTECT OUR INTERNET DOMAIN NAMES.
We currently hold various Internet domain names. Third parties may
acquire substantially similar or conceptually similar domain names that decrease
the value of our domain name and trademarks and other proprietary rights which
may hurt our business. Domain names generally are regulated by governmental
agencies and their designees. For example, in the United States, the National
Science Foundation has appointed Network Solutions, Inc. as the exclusive
registrar for the ".com," ".net," and ".org" generic domains. The regulation of
domain names in the United States and in foreign countries is subject to change.
Governing bodies could appoint additional domain name registrars or modify the
requirements for holding domain names. Governing bodies could also establish
additional "top-level" domains, which are the portion of a Web address that
appears to the right of the "dot," such as "com," "gov" or "org." The
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. As a result, we may not
acquire or maintain exclusive rights to our domain names in the United States or
in other countries in which we conduct business.
To date, we have not been notified that our services infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim that our current or future services are infringing their
proprietary rights.
ANY ACQUISITIONS OR INVESTMENTS WE MAKE COULD BE DISRUPTIVE TO OUR
BUSINESS, HAVE ADVERSE ACCOUNTING CONSEQUENCES OR BE DILUTIVE TO OUR INVESTORS.
Although we have no present agreement or understanding relating to any
material acquisition or investment, from time to time we have had discussions
with companies regarding our acquiring, or investing in, their businesses. If we
buy a company, we could have difficulty in assimilating its operations, or
assimilating and retaining its key personnel. These difficulties could disrupt
our ongoing business and distract our management and employees. Also,
acquisitions may result in a variety of accounting charges which would increase
our reported expenses, including amortization of goodwill and the write off of
acquired in-process research and development. Furthermore, we may incur debt or
issue dilutive equity securities to pay for any future acquisitions or
investments. As a result, any future business acquisitions or investments could
have a material adverse effect on our business and financial results.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE
AVAILABLE ON ACCEPTABLE TERMS, OR AT ALL.
We expect that our current cash reserves are sufficient to meet our
working capital and capital expenditure requirements, excluding acquisitions,
for at least the next 12 months. However, after that time, or if we use our cash
25
<PAGE> 27
for acquisitions we may need to raise additional funds to fund our operations,
to finance the substantial investments in equipment and corporate infrastructure
we will need for our planned expansion, to enhance and/or expand the range of
services we offer, to increase our promotional and marketing activities, or to
respond to competitive pressures and/or perceived opportunities, such as
investment, acquisition and international expansion activities. Additional
financing may not be available on terms favorable to us, or at all. If adequate
funds are not available when required or on acceptable terms, our business and
financial results could suffer.
EMPLOYEES
On December 31, 1999, we employed approximately 21 people comprised of
3 product development personnel, 10 marketing personnel, 4 technology
individuals, and 4 individuals in general administration. We will hire
additional employees on an as needed basis. We believe that our relationship
with our employees is good. None of our employees are members of collective
bargaining units or labor union contract nor have we been subjected to any
strikes or employment disruptions.
MAJOR SUPPLIERS
Except for curriculum obtained from The University of Florida, which is
currently substantially all of our educational content, we obtain our products
and supplies from many different individuals and entities and are not dependent
on any major suppliers.
DEPENDENCE ON KEY CUSTOMERS
Presently, we have only one knowledge partner, The University of
Florida. We are highly dependent on this partner but anticipate providing, in
the near future, our products and services to other colleges, universities,
associations and companies at large. An interruption or loss of our relationship
with The University of Florida would have a material adverse effect on our
business and financial results.
PATENTS, TRADEMARKS, LICENSES
We do not depend upon any patents to conduct our business; nor do we
hold any such patents. We do not own any registered trade names, trademarks or
service marks.
We have 27 professional service agreements (or license arrangements)
with the University of Florida with respect to use of The University of
Florida's name and content in both course development and marketing. If we were
to breach these agreements, it would have a material adverse effect on our
business and financial results.
We currently use component software from the following vendors:
Microsoft Corporation
Eshare Technology
26
<PAGE> 28
The Microsoft Corporation provides the NT Operating System for our file
servers which we intend to upgrade within the next several weeks to NT Small
Business Server 4.5. Eshare Technology provides our chat server software. We
utilize a hosting company for our web hosting needs.
When possible, we will seek any opportunity to leverage partner
programs or develop relationships where possible. Although the loss of one of
these key software vendors would result in some delay, our management does not
consider that a prolonged delay would be likely.
Legal standards relating to the validity, enforceability and scope of
protection of certain intellectual property rights in Internet-related
industries are uncertain and still evolving, and no assurance can be given as to
the future viability or value of any of our intellectual property rights or
other companies within the information technology industry. There can be no
assurance that the steps we have taken to protect its intellectual property
rights (which presently include only domain name registration and
confidentiality agreements) will be adequate or that third parties will not
infringe or misappropriate our proprietary rights. Any such infringement or
misappropriation, should it occur, could have a material adverse effect on our
business, operations and financial condition. Furthermore, there can be no
assurance that our business activities will not infringe upon the proprietary
rights of others, or that other parties will not assert infringement claims
against us. Such claims and any resultant litigation, should it occur, could
subject we to significant liability for damages and could result in invalidation
of our proprietary rights and, even if not meritorious, could be time-consuming
and expensive to defend, and could result in the diversion of our time and
attention, any of which could have a material adverse effect on our business,
results of operations and financial condition.
We regard substantial elements of our services as proprietary and may
seek to protect them by relying on trademark, service mark, trade dress,
copyright and trade secret laws and restrictions on disclosure and transferring
title. While we have not yet filed any trade name, service mark or trademark
applications, we anticipate pursuing the registration of some of our names and
marks in the United States and possibly worldwide. Effective trademark,
copyright and trade secret protection may not be available in every country in
which our products and services are distributed or made available through the
Internet. There can be no assurance that the steps we anticipate taking will to
protect our proprietary rights and will be adequate or that third parties will
not infringe or misappropriate our copyrights, trademarks, service marks, trade
dress and similar proprietary rights.
GOVERNMENT REGULATION.
INDUSTRY REGULATION
We believe we are not currently subject to any governmental approvals
in order to sell our services or products. There are, however, regulations
applicable to businesses in general, and Internet businesses in particular with
respect to access to or commerce on the Internet.
Our operating results could be impaired if we become subject to
burdensome government regulation and legal uncertainties. We may become subject
to government laws and regulations, such as the Family Educational Rights and
27
<PAGE> 29
Privacy Act and Alberta's Freedom of Information and Protection of Privacy
Regulation. A violation of these statutes, or of any other law or regulation,
could have a material adverse effect on our business and financial results. In
addition, it is possible that a number of laws and regulations may be adopted
with respect to the Internet, relating to user privacy, pricing, content,
copyrights, distribution and characteristics and quality of products and
services.
Educational institutions are required to have authorization to operate
as degree-granting institutions in each state where they operate physical sites
which provide educational programs. Certain states also take the position that
any education institution providing online degrees to students residing in their
state is required to satisfy certain state standards. Some states accept
accreditation as evidence of meeting minimum state standards for authorization.
Other states require separate evaluations for authorization. Depending on the
state, the addition of a degree program not offered previously or the addition
of a new location must be included in the institution's accreditation and be
approved by the appropriate state authorization agency. The University of
Florida is presently authorized to operate in only three states in which it
provides degrees through our multi-modal model. If The University of Florida and
our other knowledge partners are required to obtain authorization to provide
distance learning degrees and certificate programs in such other states, it
could have a material adverse effect on our business, financial status and our
ability to expand our business.
The adoption of any additional laws or regulations may decrease the
popularity or expansion of the Internet. A decline in the growth of the Internet
could decrease demand for our products and services and increase our cost of
doing business. Moreover, the applicability of existing laws to the Internet is
uncertain with regard to many issues including property ownership, intellectual
property, export of encryption technology, sales tax, libel and personal
privacy. Our business and financial results could be seriously harmed by any new
legislation or regulation of these types. There are an increasing number of laws
and regulations pertaining to the Internet. These laws and regulations relate to
liability for information received from or transmitted over the Internet, online
content regulation, user privacy, taxation and quality of products and services.
Moreover, the applicability to the Internet of existing laws governing
intellectual property ownership and infringement, copyright, trademark, trade
secret, obscenity, libel, employment, personal privacy and other issues is
uncertain and developing. We cannot predict the impact, if any, that future
regulation or regulatory changes may have on our business.
SECURITIES REGULATION
Our common stock, par value $.001 per share, was eligible in July 1998
for trading on the NASDAQ Over-The-Counter Bulletin Board Service under the
symbol "WTHP" which was changed to "CKNO" effective with our acquisition of
Winthrop Industries, Inc.
Pursuant to NASD Eligibility Rule 6530 issued on January 4, 1999,
issuers who do not make current filings pursuant to Sections 13 and 15(d) of the
Securities Act of 1934 are ineligible for listing on the NASDAQ Over-the-Counter
Bulletin Board. Pursuant to the Rule, issuers who are not current with such
filings are subject to de-listing pursuant to a phase-in schedule depending on
28
<PAGE> 30
each issuer's trading symbol as reported on January 4, 1999. Therefore, pursuant
to the phase-in schedule, we will be subject to de-listing in May 2000 if we do
not become current with our filings.
We have not made filings pursuant to Sections 13 or 15(d) of the
Securities Act of 1934. We have filed this Registration Statement on Form 10-SB
in order to become a "reporting" company and therefore comply with Rule 6530.
RESEARCH AND DEVELOPMENT
For the years ended December 31, 1999 and December 31, 1998, we
expended approximately $167,063 and $76,100, respectively, in research and
development activities related to developing our web site and educational
programs. These costs are recognized as expense over the life of the contract,
based on the expected revenue stream from course offerings during the contract
period.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
To the best of our knowledge, we are in compliance with all applicable
federal, state, and local environmental laws and regulations. We are unaware of
any federal, state or local environment laws or regulations which have a
material effect on our operations and business. We have incurred minimal costs
associated with environmental compliance.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
FORWARD LOOKING STATEMENTS. THE DISCUSSION CONTAINED HEREIN REGARDING
OUR BUSINESS AND OPERATIONS MAY INCLUDE "FORWARD LOOKING STATEMENTS." SUCH
STATEMENTS CONSIST OF ANY STATEMENT OTHER THAN A RECITATION OF HISTORICAL FACT
AND CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY,"
"EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF, OTHER
VARIATIONS THEREOF, OR COMPARABLE TERMINOLOGY. ALL FORWARD-LOOKING STATEMENTS
ARE NECESSARILY SPECULATIVE, AND THERE ARE CERTAIN RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE REFERRED TO
IN SUCH FORWARD-LOOKING STATEMENTS. EXCEPT FOR HISTORICAL INFORMATION, MATTERS
DISCUSSED IN THIS REPORT REGARDING FINANCIAL RESULTS AND DEMAND FOR PRODUCTS AND
SERVICES ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES,
INCLUDING THOSE RELATED TO THE FURTHER DEVELOPMENT OF OUR PRODUCTS AND SERVICES
AND MARKET ACCEPTANCE OF SUCH PRODUCTS AND SERVICES.
OVERVIEW
Compass Knowledge Holdings, Inc. is a provider of post-secondary
education programs to working professionals via its Internet education delivery
portals and multi-modal delivery system. We sell and deliver our programs and
the programs of our university and knowledge partners, through our multi-modal
delivery system; a flexible delivery concept that gives working professionals
the ability to earn advanced degrees and specialized certificates in a distance
learning format. We presently operate our business through our wholly-owned
subsidiaries which are located in Ocoee, Florida.
29
<PAGE> 31
Our business began with Rehabilitation Training Institute, Inc., one of
our wholly owned subsidiaries, which was formed for the purpose of developing,
owning and operating seminars, developing and providing certificate programs and
developing and publishing materials in life care planning for catastrophic
injuries and impairments. Rehabilitation Training Institute was founded in
November 1993 and began delivering our life care planning program to
rehabilitation professionals primarily through seminars and print media. From
November of 1993 until March of 1996, we grew our customer base and revenue
while developing our technology to support growth.
In March of 1996, Rehabilitation Training Institute with the University
of Florida Health Services, Inc., a Florida corporation and an affiliate of The
University of Florida, formed Intelicus, LC, a Florida limited liability company
organized for the purpose of developing, marketing and operating degree and
certificate programs for health care professionals. In December of 1999, we
acquired The University of Florida's interest in Intelicus thereby making it a
wholly owned subsidiary.
Beginning in March of 1996, we significantly increased our selling and
marketing efforts, and began developing programs with The University of Florida.
Similarly, we invested, and continue to invest, our resources in an effort to
broaden our service capabilities by expanding our infrastructure and personnel.
In the fall of 1996 we added, together with The University of Florida, our
Doctor of Pharmacy program and in the fall of 1998 we launched our Doctorate of
Audiology program and our second certificate program, Functional Capacity
Evaluation. In 1999, Applications in Indoor Air Quality and Health Care Finance
was added to our program list. In 2000, we anticipate adding Herbal Products and
Counseling and Psychopharmacology for Psychologists programs together with eight
additional programs to our education portfolio.
We became profitable in 1998 with profits in 1999 increasing by
approximately 410%. We currently intend to continue to increase our capital and
operating expenses to support anticipated growth, to fund increased sales and
marketing, to enhance existing technology and to make acquisitions. We believe
that despite our intent to increase capital and operating expenditures we will
continue to be profitable, but we will likely need to obtain additional debt
and/or equity financing to fund our anticipated growth.
REVENUE
We typically enter into multi-year contracts with colleges and
universities to provide our distance learning products and services. Each
contract is based on our standard form, customized for each college or
university, and specifies the products and services we will provide. These
contracts specify the courses to be provided, responsibilities of each party
with respect to implementation and the stated percentage of student fees which
each party will receive. Our contracts do not require customers to guarantee any
minimum number of student enrollments or to commit to developing any courses
beyond the initial courses covered by the contract. Our contracts typically have
a minimum term of five years.
30
<PAGE> 32
Our business model is based upon a number of factors, including
increasing the acceptance of distance learning among colleges and universities,
adding new customers, developing additional courses for our existing customers,
increasing student enrollment in distance learning courses, and selling new
products and services to our clients. From our inception through December 31,
1999, our revenue has been generated from our percentage of the student fees
derived from our programs. We expect that this revenue stream will continue to
grow, but that we will also derive fees from providing additional services and
selling ancillary products.
Although we have and continue to experience revenue growth, there is no
assurance that this growth will continue at its current pace, or at all, or that
continued revenue growth will be indicative of future operating results and
profitability.
We presently offer two types of educational programs: degree programs
and professional certificate programs. These programs range in length from two
months to three years. For degree programs, in which our university partners are
responsible for course curricula and for conferring a degree, we receive a
stated percentage of student fees. We currently record as revenues only the
portion of the student fees paid to us by our university partners. For
professional certificate programs, in which we are responsible the majority of
the program risks, developing course curricula and for awarding participant
certificates, we record, as revenue, all student fees.
We based our revenue recognition policy on recent guidance by the
Securities and Exchange Commission (SEC) and current proposal stage literature
promulgated by the Emerging Issues Task Force (EITF), in EITF Issue No. 99-19,
"Reporting Revenue Gross versus Net", regarding the recognition of gross versus
net revenues for internet based entities. While we employ a multi-modal delivery
system in our operations, of which internet applications is only one component,
we believe that our current revenue recognition policy complies with the SEC's
and EITF's guidance. Should the SEC revise its guidance or the final consensus
reached by the EITF in Issue No. 99-19 differ from our current policy, we will
revise our revenue recognition treatment accordingly. However, the decision to
reflect gross or net revenues will not have any impact on our net income.
For both degree and professional certificate programs, student fees
must be paid prior to the student's attendance of the seminar. We defer this
revenue and recognizes it as income over the period of instruction. If a student
withdraws from a course or program prior to the start date, the student fees may
be refunded or applied to a later seminar.
SEASONALITY
Due to the seasonality inherent in the academic calendar which
typically consists of three academic terms, as well as our customers' plans for
distance learning programs and course development, we experience fluctuations in
our quarterly results. We typically collect student fees for our semester based
degree programs in the first, second and fourth quarters. Our operating expenses
are relatively fixed in nature and seasonal fluctuations in revenue will result
in seasonal fluctuation in our operating results. As a result, quarter-to-
quarter financial results are not directly comparable.
31
<PAGE> 33
STUDENT FEES
Total student fee revenue for courses offered by us for 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 1998
--------- -----------
<S> <C> <C>
Degree programs $ 4,164,506 $ 1,597,670
Certificate programs 750,295 491,743
Other revenue 31,444 33,954
------------ -----------
Gross student fees revenue 4,946,245 2,123,367
Less: portion retained by University Partners 2,286,939 912,868
------------ -----------
Net student fee revenue $ 2,659,306 $ 1,210,499
============ ===========
</TABLE>
COST OF REVENUE
Our cost of revenue consists primarily of facility costs, equipment
rentals, video duplications, web site development costs and technical personnel
costs. To continue to execute our business plan, we intend to expand our
operations, including our marketing, technical, operational and customer support
resources.
Historically, we have not paid any sales commissions. Beginning in the
year 2000, sales commissions will be paid to our program development personnel
as student fees are earned to more closely match the revenue recognized. We have
also hired personnel and made investments in our infrastructure to support
future growth. Since the majority of our costs are variable no assurance can be
given that revenues will continue to exceed our cost of revenue in the future.
SELLING AND PROMOTION
The principal components of our selling and promotion expenses are
advertising, promotion and travel. Other significant components include
marketing collateral expenses and consulting fees. As revenue increases, we
expect total selling and marketing expenses to increase but to decrease as a
percentage of revenue.
GENERAL AND ADMINISTRATIVE
The principal component of our general and administrative expenses is
employee compensation and benefits. Other components include facilities,
depreciation, communications, professional and consulting fees. As operations
increase, we expect total general and administrative expenses to increase but to
decrease as a percentage of revenues.
32
<PAGE> 34
RESULTS OF OPERATIONS
Set forth below is certain of our selected combined financial and
operating information for the two years ended December 31, 1999 and 1998. The
selected combined financial information is derived from our consolidated
financial statements for such periods. The information set forth below should be
read in conjunction with Management's Discussion and Analysis of Financial
Conditions and Results of Operations and our Combined Financial Statements and
Notes thereto.
The financial results for the years ended December 31, 1999 include our
recapitalization on November 15, 1999. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" for additional information on
this topic.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net Student Revenue $ 2,659,306 $ 1,210,499
Gross Profit $ 2,043,205 $ 868,445
Net Income Before Minority Interest $ 344,546 $ 55,766
Net Income After Minority Interest $ 155,432 $ 30,312
Earnings per share, basic and diluted $ 0.011 $ 0.002
Pro Forma Weighted Average Shares Outstanding
Basic 12,544,520 12,250,000
Diluted 13,079,779 12,250,000
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
---------------------------------
<S> <C>
Working Capital $ 4,480,963
Total Current Assets $ 5,441,105
Total Property and Equipment $ 85,752
Total Current Liabilities $ 960,142
Stockholders' equity $ 5,865,382
</TABLE>
TWELVE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1998.
Net student fee revenues increased by $1,448,807 to $2,659,306 for the
twelve months ended December 31, 1999 from $1,210,499 for the twelve months
ended December 31, 1998, representing an increase of approximately 120%. These
results are primarily attributed to the full year's impact of Doctor of
Audiology program which provided net student fee revenues of $1,083,793 in 1999
compared to $92,070 in 1998.
Gross profit increased by $1,174,760 to $2,043,205 for the twelve
months ended December 31,1999 from $868,445 for the twelve months ended December
31, 1998, representing an increase of approximately 135%. This increase is the
result of the successful development of new degree and certificate programs. Our
gross profit percentage increased from approximately 72% in 1998 to
approximately 77% in 1999, substantially due to increased efficiencies of scale
with respect to instruction costs and services.
33
<PAGE> 35
Operating expenses increased by $878,063 to $1,703,918 for the twelve
months ended December 31, 1999 from $825,855 for the twelve months ended
December 31, 1998, representing an increase of approximately 106%. The increase
is primarily due to an increase in personnel from 8 in 1998 to 21 in 1999 which
resulted in compensation and other employee related expenses increasing by
$254,743 in 1999. Also contributing was the incremental spending of $183,171
with respect to selling and promotional expenses incurred for new programs, and
an increase in management and consulting fees of approximately $209,300.
As a result of the above changes, net income increased by $125,120 to
$155,432 for the twelve months ended December 31,1999 from $30,312 for the
twelve months ended December 31, 1998.
INCOME TAXES
Income taxes will consist of federal, state and local taxes, when
applicable. We expect continued profits for the foreseeable future that will
generate significant tax expense. We experienced a taxable loss in 1999 which
resulted in a net operating loss carryforward. We elected not to recognize any
current year benefit from this taxable loss.
We use the liability method of accounting for income taxes, as set forth
in Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under the liability method, deferred taxes are determined based
on the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect, in the years in which the
differences are expected to reverse.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents increased from $103,058 at December 31,
1998 to $4,781,033 at December 31, 1999. This net change occurred primarily
because we raised $5,603,051 in net proceeds from the sale of equity securities
and had net cash generated from operations of $432,688 during 1999.
Our investment in property and equipment for the twelve months ended
December 31, 1999 was $78,777 as compared to $9,000 for the twelve months ended
December 31, 1998. Installation of network infrastructure equipment and
equipment for new employees. We intend to continue to make investments in these
types of equipment and property, although we have no material commitments to do
so.
We expect the cash generated from operations and our current cash, cash
equivalents and short term investments to meet our working capital and capital
expenditure requirements for at least the next 12 months unless additional cash
is needed for acquisitions. Beyond the next 12 months, we will need to obtain
additional debt and/or equity financing to fund our operations and anticipated
growth. Although there can be no guarantee, we believe such funds will be
available to us.
34
<PAGE> 36
YEAR 2000 DISCLOSURE.
To date we have not experienced any Year 2000 ("Y2K") repercussions and
we believe that our internal software and hardware systems will continue to
function properly with respect to dates in Y2K and thereafter. We expect to
incur no significant costs in the future for Y2K problems. Notwithstanding, any
Y2K problems experienced by our suppliers, vendors or customers could adversely
affect our business and financial condition. We have not as of this date been
advised or experienced any problems with respect to the Y2K readiness of our
customers, suppliers or vendors. In the event any of our suppliers or vendors
prove not to be Y2K compliant, we believe that we can find a replacement vendor
or supplier which is Y2K compliant without significant delay or expense.
However, if substantially all of our suppliers and vendors prove not to be Y2K
compliant and if we experience difficulties in finding replacement suppliers and
vendors, then, as a result, our business could be materially adversely affected.
The failures to correct material Y2K problems by our customers, suppliers and
vendors could result in an interruption in, or a failure of, certain normal
business activities or operations. Due to the general uncertainty regarding the
Y2K readiness of our customers and third-party suppliers and vendors, we are
unable to determine what, if any, consequences of Y2K failures would have on our
operations, liquidity or financial condition. Any of these events could result
in an adverse effect on our business, operations and financial condition. There
can be no assurance that we will not be required to incur substantial
expenditures in order to adapt our services to changing technologies or to new
protocols as a result of any realized Year 2000-related programming errors.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial
position, operating results or cash flows due to adverse changes in financial
market prices and rates. We are, or may become, exposed to market risk in the
areas of changes in United States interest rates and changes in foreign currency
exchange rates as measured against the United States Dollar. These exposures are
directly related to our normal operating and funding activities. Historically
and as of December 31, 1999, we have not used derivative instruments or engaged
in hedging activities.
INTEREST RATE RISK
We manage interest rate risk by investing excess funds in cash
equivalents and short-term investments bearing variable interest rates, which
are tied to various market indices. As a result, we do not believe that
near-term changes in interest rates will result in a material effect on our
future earnings, fair values or cash flows.
FOREIGN CURRENCY RISK
We may enter into contracts where we pay or a third party pays us in a
foreign currency. This would expose us to changes in exchange rates. Changes in
the foreign exchange rates may positively or negatively affect our financial
position, results of operations or cash flows. We do not believe that near-term
changes in exchange rates will result in a material effect on future earnings,
fair values or cash flows, and therefore, have chosen not to enter into foreign
currency hedging instruments. There can be no assurance that such an approach
will be successful, especially in the event of a significant and sudden decline
in the foreign exchange rates.
35
<PAGE> 37
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). We are required to adopt
SFAS No. 133 in the year ended December 31, 2001. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. To
date, we have not entered into any derivative financial instruments or hedging
activities.
ITEM 3. DESCRIPTION OF PROPERTY
The majority of our business activities are conducted out of our
corporate offices located at 2710 Rew Circle, Suites 100 and 200, Ocoee, Florida
34761. This facility houses our technical and administrative offices. This space
consist of approximately 4,400 square feet of office and production space. The
lease terms expire on September 30, 2002. The average monthly rent is
approximately $6,208, or $74,500 per annum.
We believe that our leased property is in good condition and is well
maintained. Due to our rapid growth, we anticipate leasing additional technical
and administrative office space in the near future. We believe that such space
can be secured on commercially reasonable terms and without undue operational
disruption. We do not have any policies regarding investments in real estate,
securities or other forms of property.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Our authorized capital stock consists of 50,000,000 shares of common
stock, $.001 par value per share, of which there are 14,750,000 shares of common
stock issued and outstanding as of December 31, 1999, and 5,000,000 shares of
"blank check" preferred stock, of there are 2,000 shares of Series A Convertible
Preferred with a stated value of $1,750,000 outstanding as of December 31, 1999.
Contemporaneous with our formation, our board of directors adopted a
Stock Option Plan, pursuant to which it authorized and granted to the Compass
Knowledge Group Management Trust, options to purchase up to 1,500,000 shares of
our common stock. One million three hundred seventy one thousand six hundred
(1,371,600) of these options were granted by the Trustees of the Trust on
February 9, 1999 to various employees, officers, directors and consultants at an
exercise price per option share of $.75. The remainder of the options were
granted by the Trustees during the year to various employees, officers,
directors and consultants at exercise prices of $.75, $2.00 and $4.00, the fair
market value of our common stock at the time of the grant.
36
<PAGE> 38
In December 1999, our board of directors adopted a Year 2000 Stock
Option Plan which authorizes 1,000,000 additional shares of common stock
available for grants to our officers, directors, employees and consultants. The
exercise price shall be at least equal to the fair market value of the
underlying common stock on the grant date and no option may be exercised beyond
ten (10) years from the grant date. To date, none of these options have been
granted.
The following table sets forth, as of December 31, 1999, the beneficial
ownership of our common stock (i) by the only persons who are known by us to own
beneficially more than 5% of our common stock; (ii) by each of our directors;
and (iii) by all directors and officers as a group. Percentage ownership assumes
all vested options are fully exercised.
<TABLE>
<CAPTION>
OPTIONS FOR
NAME AND ADDRESS OF SHARES OF COMMON COMMON PERCENTAGE
BENEFICIAL OWNER STOCK OWNED STOCK OWNED (4) TOTAL SHARES OWNED (5)
---------------- ------------ - --------------- - ------------- ---------
<S> <C> <C> <C> <C>
Rogers W. Kirven, Jr. (1)(4)(6) 4,606,289 381,118 4,987,407 30.15%
2710 Rew Circle, Suite 100
Ocoee, FL 34761
Daniel J. Devine (1)(4)(6) 3,335,587 275,982 3,611,569 21.83%
2710 Rew Circle, Suite 100
Ocoee, FL 34761
Dr. Paul Lerman (2)(5)(6) -0- 5,000 5,000 *
Farleigh Dickenson University
1000 River Road
H325A
Teaneck, NJ 07666
Dr. Robert G. Frank (2)(5)(6) -0- 5,000 5,000 *
College of Health Professions
University of Florida
P.O. Box 100185
Gainesville, FL 32610
Bruce Rosetto (2)(5)(6) 72,756 5,000 82,756 *
U.S. Plastic Lumber Corp.
2300 Glades Rd, Ste. 440 West
Boca Raton, FL 33431
Pioneer Ventures Ltd. Partnership (3)(6) 875,000 -0- 875,000 5.14%
651 Day Hill Road
Windsor, CT 06095-0040
University of Florida Foundation, Inc.(6) 850,000 -0- 850,000 5.27%
University of Florida
P.O. Box 100185
Gainesville, FL 32610
All 5% shareholders, officers and Directors 9,744,632 672,100 10,416,732 62.96%
as a group
</TABLE>
37
<PAGE> 39
- ------------------------------
* Indicates less than one percent.
(1) Individuals who are both officers and directors.
(2) Individuals who are directors only.
(3) Pioneer Ventures owns 2,000 shares of our convertible Series A
Preferred Stock which may be converted by Pioneer at anytime into
875,000 shares of our common stock.
(4) Reflects options granted under our option plan which may be exercised
within the next 60 days at an exercise price of $.75.
(5) Reflects options granted under our option plan which may be exercised
within the next 60 days at an exercise price of $4.00.
(6) Based on 16,541,050 issued and outstanding shares including all options
and other convertible instruments that may be either exercised or
converted into common stock within the next 60 days.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth our directors and executive officers.
Directors are elected for a period of one year and thereafter serve until the
next annual meeting at which their successors are duly elected by our
stockholders. Our officers are employed under four year employment contracts and
other employees serve at the will of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Rogers W. Kirven, Jr. 46 Chairman, Director, Chief Executive Officer, Secretary
and Treasurer
Daniel J. Devine 38 Director and President
Dr. Paul Lerman 59 Director
Dr. Robert G. Frank 47 Director
Bruce Rosetto 41 Director
</TABLE>
OFFICERS AND EMPLOYEE DIRECTORS
ROGERS W. KIRVEN, JR., Co-founder of Compass Knowledge Group, Inc.,
Chairman of the Board and Chief Executive Officer, Secretary and Treasurer. Mr.
Kirven has served as one of our directors and chief executive officer since our
inception. Since 1991, Mr. Kirven served as Managing Partner of the Kirven
Group, Inc., located in Ocoee, Florida, a private investment firm that
specializes in investments in healthcare and education. Mr. Kirven has a
Bachelor of Arts degree from Clemson University and is a graduate of the
Executive Program for Small Companies', Stanford University.
DANIEL J. DEVINE, Co-founder of Compass Knowledge Group, Inc., Director
and President. Mr. Devine is responsible for the overall management of our
business, including all operations and research and development of new programs.
He has served as our Chief Operating Officer and its predecessor companies since
1995. From 1993 to 1995, he was a partner with The Kirven Group, Inc. Prior to
joining the Kirven Group, Mr. Devine was manager of business development for the
38
<PAGE> 40
Global Messaging Group of the Harris Corporation, located in Melbourne, Florida,
which focused on the commercial electronic messaging marketplace. Mr. Devine has
a Bachelor of Science degree in Electrical Engineering from the University of
Florida and completed the Stanford University Executive Program for Growing
Companies in the Spring, 1999.
NON-EMPLOYEE DIRECTORS
DR. PAUL LERMAN. Dr. Lerman became a director in November 1999. Since
April 1990, Dr. Lerman has served as Dean and Professor of the College of
Business Administration for Fairleigh Dickinson University. Dr. Lerman also
provides consulting services to a number of major corporations including, the
BASF Corporation and the AT&T Corporation. Dr. Lerman received his Ph.D. in
Operations Research from New York University, a Master's degree in Mechanical
Engineering from New York University, a Bachelor of Arts degree in Mathematics
and Economics and a B.M.E. in Mechanical Engineering from the New York
University.
DR. ROBERT G. FRANK. Dr. Frank became a Director in November 1999. Dr.
Frank is also a director and a managing member of Intelicus, LC, our operating
subsidiary. Dr. Frank has dedicated his entire career to education and research
in the areas of Clinical and Health Psychology. Dr. Frank has also served since
February of 1995 and continues to serve as the Dean of the College of Health
Professions at the University of Florida and Vice President for Rehabilitation
and Behavioral Health at Shands Healthcare, both located in Gainesville,
Florida. Prior to that time, Dr. Frank served as the Director of Clinical Health
Psychology and Neuropsychology at the University of Missouri School of Medicine.
Dr. Frank received his Ph.D. from the University of New Mexico in Clinical
Psychology.
BRUCE ROSETTO. Mr. Rosetto became a Director in November 1999. Since
January, 1999 Mr. Rosetta has acted as Vice President and General
Counsel/Secretary of U.S. Plastics and Lumber located in Boca Raton, Florida.
Mr. Rosetto was a partner in a New Jersey law firm of Paschon, Feurey and
Rosetto from 1982-86. In 1986, Mr. Rosetto became Chairman and Chief Executive
Officer of Consolidated Waste Services of America, Inc., a fully integrated
environmental company, building that company primarily through mergers and
acquisitions into one of the largest privately owned environmental companies in
New Jersey. Consolidated Waste Services of America, Inc. was eventually sold to
USA Waste Services in December 1997. In 1994, he became Chairman and Chief
Executive Officer of Hemo Biologics International, Inc., a biologic products
company. Mr. Rosetto graduated from LaSalle University in 1979 with a Bachelor
of Arts Degree in Political Science, and obtained his Juris Doctor from
Villanova University School of Law in 1982. He is currently a member of the
Florida and New Jersey Bar.
ITEM 6. EXECUTIVE COMPENSATION
We have entered into an employment agreement with Rogers W. Kirven,
Jr., to serve as our Chief Executive Officer, in November 1999 for an initial
term of four years. The principal terms of Mr. Kirven's employment agreement are
as follows:
o an annual salary of $175,000, which may be increased from time to time
at the discretion of our board of directors;
39
<PAGE> 41
o stock options which may be issued from time to time at the discretion
of our board of directors;
o a provision for term life insurance;
o discretionary bonuses; and
o standard benefits.
We entered into an employment agreement with Daniel J. Devine, to serve
as our President, in November 1999 for an initial term of four years. The
principal terms of Mr. Devine's employment agreement are as follows:
o an annual salary of $140,000, which may be increased from time to time
at the discretion of our board of directors;
o stock options which may be issued from time to time at the discretion
of our board of directors;
o provisions for a term life insurance;
o discretionary bonuses; and
o standard benefits.
SUMMARY COMPENSATION TABLE
The following table sets forth compensation paid to each of the individuals
who served as our Chief Executive Officer and President for the fiscal year
ended December 31, 1999. There were no other officers during 1999.
SUMMARY OF COMPENSATION TABLE.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Name & Principal Other Annual LTIP
Position Salary($) Bonus($) Compensation Options/Warrants(4) Payout($)
- --------------------------- ---------- --------------- ----------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
Rogers W. Kirven, Jr., CEO (1) $ 80,167 $36,000 $-0- 381,118 $-0-
Daniel J. Devine(2) $106,633 $59,256 $-0- 275,982 $-0-
</TABLE>
- -------------------
(1) Rogers W. Kirven, Jr. has served as our Director and the Chief
Executive Officer since our organization on February 9, 1999.
(2) Daniel J. Devine has served as a Director and President since our
organization on February 9, 1999.
(3) Options were granted on February 9, 1999, and may be exercised at any
time at $.75 per share until February 9, 2004. No options were
exercised during fiscal 1999.
STOCK OPTIONS AND WARRANTS
Contemporaneous with our formation, our board of directors adopted a
Stock Option Plan, pursuant to which it authorized and granted to the Compass
Knowledge Group Management Trust, options to purchase up to 1,500,000 shares of
our common stock. All of these options were granted by the Trustees of the Trust
to
40
<PAGE> 42
various employees, officers, directors and consultants at an exercise prices per
option share of $.75, $2.00 and $4.00 which were equal to the fair market value
of our common stock at the time of the grants. Awards under the Stock Option
Plan consist of stock options (both non-qualified options and options intended
to qualify as "Incentive Stock Options" under Section 422 of the Internal
Revenue Code of 1986, as amended), as described in the Plan.
In December 1999, our board of directors adopted a Year 2000 Stock
Option Plan which authorizes 1,000,000 additional shares of common stock
available for grants to our officers, directors, employees and consultants. The
exercise price shall be at least equal to the fair market value of the
underlying common stock on the grant date and no option may be exercised beyond
ten (10) years from the grant date. To date, none of these options have been
granted.
Except as set forth in the tables above, there has been no non-cash
compensation awarded in the form of stock options granted to our officers or
directors under our stock option plans or otherwise.
COMPENSATION OF DIRECTORS
Our directors who are also officers receive no additional compensation
for their service as directors. Each of our outside directors were granted 5,000
options on December 1, 1999. These options have an exercise price of $4.00 and
expire on February 9, 2004, unless otherwise extended. None of our non-directors
have been paid cash compensation to date. Cash and non-cash fees are expected to
be paid our non-employee directors for service in the future. All directors are
entitled to reimbursement for reasonable expenses incurred in the performance of
their duties as members of our Board of Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1999, we issued 465,000 shares of our common stock at a
fair value of $930,000, plus acquisition costs of $16,500, and contributed
$300,000 to The University of Florida Foundation in exchange for its 35.5%
minority interest in Intelicus. Goodwill of $681,555 was recorded as a result of
this acquisition. In addition, we issued 35,000 shares at a fair value of
$70,000 to the University of Florida Foundation as consideration for The
University of Florida to extend a contract agreement for a degree program.
Net student fee revenue from our one university partner was $1,877,567
and $684,802 for the years ended December 31, 1999 and 1998, respectively.
Accounts receivable from this partner totaled $484,961, as of December 31, 1999.
During 1999, we issued 30,000 stock options to a stockholder for the
retirement of a $45,040 note payable.
Also during 1999, we forgave loans of $204,648 from various
stockholders. These amounts were reclassed to additional paid-in capital.
41
<PAGE> 43
On November 15, 1999, one of our wholly owned subsidiaries,
Rehabilitation Training Institute, Inc., paid notes aggregating $800,000 due our
officers, Rogers W. Kirven, Jr. and Daniel J. Devine. These notes originated
from a redemption of 34,483 shares of their common stock in Rehabilitation
Training Institute on January 1, 1999. The notes were payable upon demand and
were repaid from the cash proceeds we received from the sale of our common stock
in connection with our recapitalization on November 15, 1999.
From January 1, 1999 through October 31, 1999, and for the year ended
December 31, 1998, Intelicus, our operating subsidiary, paid management fees in
the amounts of $382,628 and $228,280, respectively, to The Kirven Group, Inc.,
an entity controlled by our Chief Executive Officer, Rogers W. Kirven, Jr. In
turn, The Kirven Group, Inc. employed Rogers W. Kirven, Dan Devine and Steve
Wells. Pursuant to such agreement, The Kirven Group, Inc., through these
individuals and other subcontractors, acted as executive advisors to Intelicus
and were responsible for the day-to-day operation and management of our business
as well as program analysis, acquisitions, due diligence, accounting, financial
and other administrative services. There is no ongoing arrangement for these
services.
We entered into a commercial lease agreement with our Chief Executive
Officer, Rogers W. Kirven, Jr., on January 1, 2000 for approximately 2,450
square feet of office space located at 2710 Rew Circle, Suite 100, Ocoee,
Florida. The lease base rent is $2,588 per month which is computed at a base
rental rate of $12.676 per square per annum. In addition to the base rent, we
are responsible for the payment of all sales tax and other charges and
impositions imposed upon the premises as well as $620 per month as additional
rent for our share of common area maintenance and operating expenses. The lease
expires on September 30, 2002.
Except as described above, we currently have no transactions nor are
there any proposed with our officers, directors, 5% or greater shareholders, and
affiliates. Conflicts of interest could arise in the negotiation of the terms of
any transaction between us and our shareholders, officers, directors or
affiliates. We have no plans or arrangements, including the hiring of an
independent third party, for the resolution of disputes between us and such
persons, if they arise. Our business and financial condition could be adversely
affected should such individuals choose to place their own interests before
ours. No assurance can be given that conflicts of interest will not cause us to
lose potential opportunities, profits, or management attention. Our Board of
Directors has adopted a policy regarding transactions between us and any of our
officers, directors, or affiliates, including loan transactions, requiring that
all such transactions be approved by a majority of the independent and
disinterested members of our Board of Directors and that all such transactions
be for a bona fide business purpose and be entered into on terms at least as
favorable to us as could be obtained from unaffiliated independent third
parties.
ITEM 8. DESCRIPTION OF SECURITIES
The following statements do not purport to be complete and are
qualified in their entirety by reference to the detailed provisions of our
Certificate of Incorporation, as amended, Bylaws, and Stock Option Plan, copies
of which are filed as exhibits to this documents.
42
<PAGE> 44
COMMON STOCK.
We currently are authorized to issue 50,000,000 shares of $.001 par
value common stock, of which, as of December 31, 1999, approximately 14,750,000
shares were issued and outstanding.
The holders of our common stock are entitled to equal dividends and
distributions per share with respect to our common stock when, as and if
declared by our Board of Directors from funds legally available therefore. No
holder of any shares of common stock has a pre-emptive right to subscribe for
any of our securities, nor are any common shares subject to redemption or
convertible into any other of our securities. Upon our liquidation, dissolution
or winding up, and after payment of creditors and preferred stockholders, if
any, our assets will be divided pro-rata on a share-for-share basis among the
holders of the shares of our common stock. All shares of our common stock now
outstanding are fully paid, validly issued and non-assessable. Each share of our
common stock is entitled to one vote with respect to the election of any
director or any other matter upon which our stockholders are required or
permitted to vote. Holders of our common stock do not have cumulative voting
rights, so the holders of more than 50% of the combined shares voting for the
election of directors may elect all of the directors if they choose to do so,
and, in that event, the holders of the remaining shares will not be able to
elect any members to the Board of Directors.
PREFERRED STOCK.
We are authorized to issue up to 5,000,000 shares of $.001 par value
"blank check" Preferred Stock, 5,000 of which have been designated as Series A
Convertible Preferred Stock and 2,000 of which are outstanding as of December
31, 1999. Our Board of Directors has the power, without further action by the
holders of our common stock, to designate the relative rights and preferences of
the preferred stock, and to issue the preferred stock in one or more series as
designated by our Board of Directors. The designation of rights and preferences
could include preferences as to liquidation, redemption and conversion rights,
voting rights, dividends or other preferences, any of which may be dilutive of
the interest of the holders of our common stock or our preferred stock of any
other series. The issuance of preferred stock may have the effect of delaying or
preventing a change in control of our management and ownership without further
shareholder action and may adversely affect the rights and powers, including
voting rights, of the holders of common stock. In certain circumstances, the
issuance of preferred stock could depress the market price of our common stock.
Our Board of Directors will effect a designation of each series of preferred
stock by filing with the Nevada Secretary of State a Certificate of Designation
defining the rights and preferences of each such series. Documents so filed are
matters of public record and may be examined in accordance with procedures of
the Delaware Secretary of State, or copies thereof may be obtained from us.
The Series A Convertible Preferred Stock may be convertible at any time
by the holder at his option to our common stock at $2.00 per share. The Series A
Convertible Preferred Stock is subject to an annual cash and/or preferred stock
cumulative dividend of 8%. The Series A Convertible Preferred Stock also has
senior liquidation preferences, voting rights equal to common stock and other
rights and preferences common to such securities, including the right to
designate one of our directors. The Series A Convertible Preferred Stock is also
entitled to a one-time demand and unlimited piggy-back registration rights
including any common stock issued upon conversion thereof.
43
<PAGE> 45
TRANSFER AGENT.
The transfer agent for our common stock is Interwest Transfer Co., 1981
East 4800 South, Salt Lake City, UT 84117.
PART II
ITEM 1. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS.
Our common stock, par value $.001 per share, was eligible in July 1998
for trading on the NASDAQ Over-The-Counter Bulletin Board Service under the
symbol "WTHP" which was changed to "CKNO" effective with our recapitalization on
November 15, 1999.
Pursuant to NASD Eligibility Rule 6530 issued on January 4, 1999,
issuers who do not make current filings pursuant to Sections 13 and 15(d) of the
Securities Act of 1934 are ineligible for listing on the NASDAQ Over-the-Counter
Bulletin Board. Pursuant to the Rule, issuers who are not current with such
filings are subject to de-listing pursuant to a phase-in schedule depending on
each issuer's trading symbol as reported on January 4, 1999. As previously
discussed, our trading symbol was "WTHP". Therefore, pursuant to the phase-in
schedule, we will be subject to de-listing in May, 2000 if we do not become
current with our filings.
We have not made filings pursuant to Sections 13 or 15(d) of the
Securities Act of 1934. We have filed this Registration Statement on Form 10-SB
in order to become a "reporting" company and therefore comply with the Rule
6530.
Until November 15, 1999 there was no established trading market for our
common stock. Set forth below for each month beginning in November 1999 are the
high and low bid information with respect to our common stock. Because we engage
in over-the-counter market quotations, these quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not represent
actual transactions.
PER SHARE OF
COMMON STOCK
------------------------------
PERIOD: HIGH LOW
- ------- ---- ---
November 1999 $4.23 $3.75
December 1999 $8.00 $3.90
January 2000 $7.40 $5.50
February 1 through February 17, 2000 $7.20 $5.00
44
<PAGE> 46
As of December 31, 1999, 14,750,000 shares of our common stock were
outstanding and, as far as we can determine, were held by in excess of 130
registered shareholders. As of December 31, 1999, there were 2,375,000 shares of
common stock issuable upon exercise of outstanding options or warrants to
purchase, or securities convertible into, common stock.
We have not paid any cash dividends since our inception and do not
anticipate paying cash dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS.
We are not a party to any legal action and are not aware of any
threatened litigation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
There were no changes or disagreements with our accountants.
The reports of Arthur Andersen LLP on our financial statements as of
December 31, 1999 do not contain an adverse opinion or a disclaimer of opinion,
or was qualified or modified as to uncertainty, audit scope or accounting
principles.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On November 5, 1999, we issued 2,000 shares of our Series A Convertible
Preferred Stock to Pioneer Ventures Limited Partnership for $875 per share to
raise $1,750,000. The Series A Convertible Preferred Stock may be convertible by
the holder at his option to common stock at $2.00 per share at any time. The
Series A Convertible Preferred Stock is subject to an annual cash and/or
preferred stock cumulative dividend of 8%. The Series A Convertible Preferred
Stock also has senior liquidation preferences, voting rights equal to our common
stock and other rights and preferences common to such securities, including the
right to designate one director. The Series A Convertible Preferred Stock is
also entitled to a one-time demand and unlimited piggy-back registration rights
including any of our common stock issued upon conversion thereof. The offering
was not underwritten. This sale was exempt from registration in reliance upon
Rule 506 under Regulation D promulgated under the Securities Act of 1933. We
filed a Form D notice of sale with the Securities and Exchange Commission within
15 days after the first sale.
On November 15, 1999, we issued 2,000,000 shares of our common stock,
$.001 par value, to a number of various investors for $2 per share to raise
$4,000,000. The offering was not underwritten. This sale was exempt from
registration in reliance upon Rule 506 under Regulation D promulgated under the
Securities Act of 1933. We filed a Form D notice of sale with the Securities and
Exchange Commission within 15 days after the first sale.
Effective December 1, 1999, we issued 500,000 shares of our common
stock, $.001 par value, to The University of Florida Foundation, Inc. in
consideration of its 35.5% in Intelicus, L.C., a operating subsidiary and an
extension of the term of contracts with the College of Pharmacy, University of
Florida. The shares were issued in reliance upon an exempt from registration
under Section 4(2) of the Securities Act.
45
<PAGE> 47
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of Nevada limits the liability of officers
and directors for breach of fiduciary duty except in certain specified
circumstances, and also empowers us to indemnify officers, directors, employees
and others from liability in certain circumstances such as where the person
successfully defended himself on the merits or acted in good faith in a manner
reasonably believed to be in the best interests of the corporation.
Our articles of incorporation, with certain exceptions, eliminate any
personal liability of our directors or officers or our shareholders for monetary
damages for the breach of such person's fiduciary duty, and, therefore, our
officers or directors cannot be held liable for damages to us or our
shareholders for gross negligence or lack of due care in carrying out his (or
her) fiduciary duties as a Director except in certain specified instances. We
may also adopt by-laws which provide for indemnification to the full extent
permitted under law which includes all liability, damages and costs or expenses
arising from or in connection with service for, employment by, or other
affiliation with us to the maximum extent and under all circumstances permitted
by law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
We are currently in the process of obtaining a Directors and Officers
Liability Insurance policy with coverage limits of approximately $5,000,000.
PART F/S
FINANCIAL STATEMENTS. The Financial Statements required by this Item are
included at the end of this report beginning on Page F-1 as follows:
Index to Financial Statements F-1
Report of Independent Certified Public Accountants Arthur Andersen LLP F-2
Compass Knowledge Holdings, Inc. And Subsidiaries:
Consolidated Balance Sheet -- December 31, 1999 F-3
Consolidated Statements of Operations
For The Years Ended December 31, 1999 (Audited) And 1998 (Unaudited) F-4
Consolidated Statements of Changes In Stockholders' Equity
For The Years Ended December 31, 1999 (Audited) And 1998 (Unaudited) F-5
Consolidated Statements of Cash Flows
For The Years Ended December 31, 1999 (Audited) And 1998 (Unaudited) F-6
Notes To Consolidated Financial Statements
December 31, 1999 (Audited) And 1998 (Unaudited) F-7
46
<PAGE> 48
PART III
ITEMS 1 AND 2. INDEX AND DESCRIPTION TO EXHIBITS.
Exhibit 3 3.1 Articles of Incorporation
3.2 Certificate of Amendment
3.3 Plan and Articles of Merger
3.4 Certificate of Designation
3.5 Bylaws
Exhibit 4 Instruments defining rights of security holders.
4.1 Certain rights of security holders are set forth in the
Articles of Incorporation, as amended, and our Bylaws
as set forth in Exhibits 3.1, 3.2, 3.3 and 3.4
4.2 Investment Agreement by and between Pioneer Ventures
Associates Limited Partnership and Compass Knowledge
Group, Inc. dated November 5, 1999.
4.3 Voting and Shareholder's Agreement by and between
Pioneer Ventures Associates Limited Partnership and
Rogers W. Kirven, Jr. and Daniel Devine dated November
5, 1999.
4.4 Compass Knowledge Holdings, Inc. Year 1999 Stock Option
Plan.
4.5 Compass Knowledge Group, Inc. Stock Option Agreement
4.6 Compass Knowledge Holdings, Inc. Year 2000 Stock Option
Plan.
Exhibit 10 Material Contracts
10.1 Amended and Restated Stock Exchange Agreement dated
effective October 31, 1999 by and among Compass
Knowledge Group, Inc., Rehabilitation Training
Institute, David Colburn, Michael Borcheck, Daniel J.
Devine and Rogers W. Kirven, Jr.
10.2 Agreement and Plan of Merger dated November 15, 1999
among Winthrop Industries, Inc., Media Capital
Subsidiary, Inc. and Compass Knowledge Group, Inc.
10.3 Amended and Restated Employment Agreement dated November
1, 1999 between Rogers W. Kirven, Jr. and Compass
Knowledge Holdings, Inc.
10.4 Amended and Restated Employment Agreement dated November
1, 1999 between Daniel J. Devine and Compass Knowledge
Holdings, Inc.
10.5 Stock Purchase Agreement by and between Compass
Knowledge Holdings, Inc. and The University of Florida
Foundation, Inc. effective December 1, 1999
10.6 Registration Rights Agreement for The University of
Florida Foundation, Inc.
10.7 Standard Professional Services Agreement
Exhibit 27 Financial Data Schedule
47
<PAGE> 49
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
COMPASS KNOWLEDGE HOLDINGS, INC.
Date: FEBRUARY 18, 2000 By: /s/ ROGERS W. KIRVEN, JR.
-------------------- ---------------------------------------
Chief Executive Officer and Director
Directors
/s/ DANIEL J. DEVINE
- ---------------------------------
/s/ DR. PAUL LERMAN
- ---------------------------------
/s/ DR. ROBERT FRANK
- ---------------------------------
/s/BRUCE ROSETTO
- ---------------------------------
48
<PAGE> 50
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999,
TOGETHER WITH REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 51
PART F/S
COMPASS KNOWLEDGE HOLDINGS, INC.
CONTENTS
Index to Financial Statements F-1
Report of Independent Certified Public Accountants Arthur Andersen LLP F-2
Compass Knowledge Holdings, Inc. And Subsidiaries:
Consolidated Balance Sheet -- December 31, 1999 F-3
Consolidated Statements of Operations
For The Years Ended December 31, 1999 (Audited) And 1998 (Unaudited) F-4
Consolidated Statements of Changes In Stockholders' Equity
For The Years Ended December 31, 1999 (Audited) And 1998 (Unaudited) F-5
Consolidated Statements of Cash Flows
For The Years Ended December 31, 1999 (Audited) And 1998 (Unaudited) F-6
Notes To Consolidated Financial Statements
December 31, 1999 (Audited) And 1998 (Unaudited) F-7
F-1
<PAGE> 52
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Compass Knowledge Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Compass Knowledge
Holdings, Inc. and subsidiaries (a Nevada corporation) as of December 31, 1999,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on 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 financial statements referred to above present fairly, in
all material respects, the financial position of Compass Knowledge Holdings,
Inc. and subsidiaries as of December 31, 1999, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Orlando, Florida,
February 4, 2000
F-2
<PAGE> 53
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET -- DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,781,033
Accounts receivable, net of allowance for doubtful accounts of $10,887 484,961
Due from related parties 120,162
Prepaid expenses 48,299
Other assets 6,650
-----------
Total current assets 5,441,105
PROPERTY AND EQUIPMENT, net 85,752
GOODWILL, NET 977,769
OTHER ASSETS, NET 320,898
-----------
Total assets $ 6,825,524
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 179,149
Deferred student fees 449,263
Accrued preferred stock dividends 17,500
Amounts due to related parties 314,230
-----------
Total liabilities 960,142
-----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized, 2,000 shares issued
and outstanding 1,667,026
Common stock, $0.001 par value; 50,000,000 shares authorized,
14,750,000 shares issued and outstanding 14,750
Additional paid-in capital 4,283,509
Unearned compensation (20,150)
Retained deficit (79,753)
-----------
Total stockholders' equity 5,865,382
-----------
Total liabilities and stockholders' equity $ 6,825,524
===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE> 54
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 (AUDITED) AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
(audited) (unaudited)
------------ ------------
<S> <C> <C>
NET STUDENT FEE REVENUE $ 2,659,306 $ 1,210,499
INSTRUCTION COSTS AND SERVICES 616,101 342,054
------------ ------------
Gross profit 2,043,205 868,445
------------ ------------
OPERATING EXPENSES:
Selling and promotional 431,431 248,260
General and administrative 1,272,487 577,595
------------ ------------
Total operating expenses 1,703,918 825,855
------------ ------------
INCOME FROM OPERATIONS 339,287 42,590
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 20,461 16,798
Interest expense (14,803) (2,662)
Other (399) (960)
------------ ------------
Total other income 5,259 13,176
------------ ------------
INCOME BEFORE MINORITY INTEREST IN NET INCOME OF SUBSIDIARY 344,546 55,766
MINORITY INTEREST IN NET INCOME OF SUBSIDIARY 189,114 25,454
------------ ------------
NET INCOME 155,432 30,312
LESS: PREFERRED STOCK DIVIDENDS (17,500) --
------------ ------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 137,932 $ 30,312
============ ============
PRO FORMA EARNINGS PER SHARE: (Note 8)
Basic $ 0.011 $ 0.002
============ ============
Diluted $ 0.011 $ 0.002
============ ============
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING: (Note 8)
Basic 12,544,520 12,250,000
============ ============
Diluted 13,079,779 12,250,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 55
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 (AUDITED) AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Total
Preferred Stock Common Stock Additional Stockholders'
----------------- ----------------- Paid-In Unearned Retained (Deficit)
Shares Amount Shares Amount Capital Compensation Defic Equity
------ ------ ------ ------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997
(Unaudited) -- $ -- 100,000 $ 145,000 $ 85,756 $ -- $(566,830) $ (336,074)
Net income (Unaudited) -- -- -- -- -- -- 30,312 30,312
----- ---------- ---------- --------- ---------- -------- -------- ----------
BALANCE, December 31, 1998
(Unaudited) -- -- 100,000 145,000 85,756 -- (536,518) (305,762)
Conversion to $0.001
par value -- -- -- (144,900) 144,900 -- -- --
Stock redemption and
retirement -- -- (38,257) (38) (887,512) -- -- (887,550)
Distribution to members
of subsidiary -- -- -- -- -- -- (58,525) (58,525)
Issuance of stock options
for retirement of note
payable to stockholder -- -- -- -- 45,040 -- -- 45,040
Forgiveness of notes payable
to stockholders -- -- -- -- 204,648 -- -- 204,648
Issuances of common stock -- -- 14,688,257 14,688 5,018,435 -- -- 5,033,123
Issuance of preferred stock 2,000 1,667,026 -- -- -- -- -- 1,667,026
Issuance of stock options
to non-employees -- -- -- -- 49,600 (49,600) -- --
Impact of change in taxable
status -- -- -- -- (377,358) -- 377,358 --
Preferred stock dividend -- -- -- -- -- -- (17,500) (17,500)
Amortization of unearned
compensation -- -- -- -- -- 29,450 -- 29,450
Net income -- -- -- -- -- -- 155,432 155,432
----- ---------- ---------- --------- ---------- -------- -------- ----------
BALANCE, December 31, 1999 2,000 $1,667,026 14,750,000 $ 14,750 $4,283,509 $(20,150) $(79,753) $5,865,382
===== ========== ========== ========= ========== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 56
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 (AUDITED) AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
(audited) (unaudited)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 155,432 $ 30,312
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation and amortization 18,747 7,616
Other 399 960
Amortization of unearned compensation 29,450 --
Minority interest in net income of subsidiary 189,114 25,454
Decrease (increase) in operating assets and liabilities-
Accounts receivable 45,836 (506,507)
Due from related parties (4,332) 5,817
Prepaid expenses (48,299) --
Other current assets 7,324 (13,974)
Other long term assets (158,365) --
Accounts payable and accrued expenses 147,448 7,715
Deferred student fees (148,250) 203,467
Due to related parties 198,184 (38,632)
----------- -----------
Net cash provided by (used in)
operating activities 432,688 (277,772)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (78,777) (9,000)
Proceeds from sale of property and equipment 1,000 --
Acquisition of minority interest (316,500) --
----------- -----------
Net cash used in investing activities (394,277) (9,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 3,936,025 --
Proceeds from issuance of preferred stock 1,667,026 --
Payment of notes payable to stockholders (830,000) --
Payment of note payable (25,000) --
Cash paid related to merger with Winthrop Industries, Inc. (18,732) --
Distributions paid to minority stockholder (31,230) --
Distributions paid to members of subsidiaries (58,525) --
----------- -----------
Net cash provided by financing activities 4,639,564 --
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,677,975 (286,772)
CASH AND CASH EQUIVALENTS, beginning of year 103,058 389,830
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 4,781,033 $ 103,058
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 57
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (AUDITED) AND 1998 (UNAUDITED)
1. ORGANIZATION, REORGANIZATION AND NATURE OF BUSINESS:
Compass Knowledge Holdings, Inc. (CKHI), formerly known as Winthrop Industries,
Inc. (WII), was incorporated under the laws of the State of Nevada on August 4,
1989. CKHI and subsidiaries (the Company) is an innovative educational company
that delivers post-secondary education programs to working professionals via its
Internet Education Delivery Portals and Multi-Modal Delivery System. The Company
sells and delivers its own programs and the programs of its University and
Knowledge partners, through its Multi-Modal Delivery System; a flexible delivery
concept that gives working professionals the ability to earn advanced degrees
and specialized certificates in a distance learning format. The Company
presently operates its business through its wholly-owned subsidiary, Intelicus,
L.C. (Intelicus), which is located in Ocoee, Florida. Prior to November 30,
1999, a 35.5% minority interest in Intelicus was owned by one of the Company's
University Partners. Effective December 1, 1999, the Company purchased this
minority interest (see Note 3).
On November 15, 1999, WII acquired all of the outstanding common stock of
Compass Knowledge Group, Inc. (CKGI). For accounting purposes, the acquisition
has been treated as a recapitalization of CKGI with CKGI as the acquirer
(reverse acquisition). The historical financial statements prior to November 15,
1999, are those of CKGI, which was formed on February 9, 1999. Also on November
15, 1999, the Board of Directors of the Company (the Board) approved, and
stockholders owning a majority of the Company's outstanding common stock
consented to: (i) the authorization of 5,000,000 shares of preferred stock to be
issued with such rights and preferences as determined by the Board and (ii) a
reverse stock split of the issued and outstanding shares of the Company's common
stock on a 3.33 to 1 basis, so that stockholders of the Company prior to the
CKGI acquisition received one share of the Company's $.001 par value common
stock for every 3.33 shares of common stock held by them.
On November 1, 1999, the Company completed an offering of 2,000,000 shares of
its common stock, at a price of $2.00 per share, pursuant to an exemption from
registration provided by Regulation D, Rule 506, under the Securities Act of
1933, raising proceeds of $3,936,025, net of offering costs of $63,975.
On October 31, 1999, the stockholders of CKGI entered into a one for one stock
exchange with the stockholders of Rehabilitation Training Institute, Inc. (RTI),
a Florida corporation and a wholly-owned subsidiary. RTI holds a 64.5% interest
in Intelicus. A common control group of stockholders existed among the
stockholders of CKGI and RTI. No new shares of common stock were issued as part
of the exchange. The exchange has been accounted for as a business combination
among control groups. Prior to the exchange, CKGI did not have any operations.
Accordingly, the financial information of CKGI (and thus, as noted above, the
Company) prior to the exchange represents the consolidated financial information
of RTI.
F-7
<PAGE> 58
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany amounts and transactions have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less at time of purchase to be cash and cash equivalents.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, due from
related parties, accounts payable and accrued expenses, due to related parties,
and note payable to related party, approximate fair value due to the short-term
maturities of these financial instruments.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed based on the
estimated useful lives of the assets, three years for computer equipment and
seven years for office furniture, using the straight-line method for financial
reporting purposes. Ongoing maintenance and repairs are expensed when incurred.
Depreciation expense was $14,689 and $7,616 for the years ended December 31,
1999 and 1998.
Goodwill
Goodwill represents the excess of the cost over the net assets of the acquired
companies and is being amortized on a straight-line basis over 15 years.
Goodwill of $977,769 at December 31, 1999, net of accumulated amortization of
$3,786, is included on the accompanying consolidated balance sheet. Amortization
expense for the year ended December 31, 1999 was $3,786.
F-8
<PAGE> 59
Other Assets
The Company enters into long-term contracts with certain universities (the
University Partners), for the development and delivery of the degree programs.
Costs incurred by the Company in entering into these contracts are deferred and
amortized over the life of the contract, generally three to five years. Other
assets at December 31, 1999 include $69,728, net of accumulated amortization of
$272, all of which was recorded in the year ended December 31, 1999.
Under the long-term contracts with its University Partners, the Company is
responsible for developing and delivering a degree program for the duration of
the contract period. Direct external and internal costs incurred in the design
and development of course content and the master copy of course materials are
capitalized as content development costs. These costs are recognized as expense
over the life of the contract, based on the expected revenue stream from course
offerings during the contract period. Other assets at December 31, 1999 include
$167,063 of capitalized content development costs.
The Company expenses the production costs of advertising the first time the
advertising takes place, except for direct-response advertising, which is
capitalized and amortized over its expected period of future benefits.
Direct-response advertising consists primarily of marketing materials mailed to
potential students, which include direct response cards. The capitalized costs
of the advertising are amortized over the period student fee revenues for the
associated program will be recognized. At December 31, 1999, $84,107 of
advertising was included in other assets.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever circumstances
indicate that the carrying amount of an asset may not be recoverable. There has
been no impairment reflected in the accompanying consolidated financial
statements.
Revenue Recognition
The Company offers two types of educational programs: degree programs and
professional certificate programs. For degree programs, in which the Company's
University Partners are responsible for course curricula and for conferring a
degree, the Company receives a stated percentage of student fees. The Company
currently records as revenues only the portion of the student fees paid to the
Company by the University Partners.
The Company has based its revenue recognition policy on recent guidance by the
Securities and Exchange Commission (SEC) and current proposal stage literature
promulgated by the Emerging Issues Task Force (EITF), in EITF Issue No. 99-19,
"Reporting Revenue Gross versus Net", regarding the recognition of gross versus
net revenues for internet based entities. While the Company employs a
Multi-Modal Delivery System in its operations, of which internet applications is
only one component, management believes that its current revenue recognition
F-9
<PAGE> 60
policy complies with the SEC's and EITF's guidance. Should the SEC revise its
guidance or the final consensus reached by the EITF in Issue No. 99-19 differ
from the Company's current policy, management will revise its revenue
recognition treatment accordingly. However, the decision to reflect gross or net
revenues will not have any impact on the Company's net income.
For professional certificate programs, in which the Company is responsible for
course curricula and for awarding the certificate, the Company records as
revenue all student fees.
For both degree and professional certificate programs, student fees must be paid
prior to the student's attendance of the seminar. The Company defers this
revenue and recognizes it as income over the period of instruction. If a student
withdraws from a course or program prior to the start date, the student fees may
be refunded or applied to a later seminar.
Total student fee revenue for courses offered by the Company for 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
1999 1998
(audited) (unaudited)
---------- ----------
<S> <C> <C>
Degree programs $4,164,506 $1,597,670
Certificate programs 750,295 491,743
Other revenue 31,444 33,954
---------- ----------
Gross student fees revenue 4,946,245 2,123,367
Less: portion retained by University Partners 2,286,939 912,868
---------- ----------
Net student fee revenue $2,659,306 $1,210,499
========== ==========
</TABLE>
Research and Development Costs
Research and development costs related to present and future educational
programs are expensed as incurred. Research and development costs were
approximately $160,500 and $76,100 for the years ended December 31, 1999 and
1998.
Stock-Based Compensation
The Company accounts for employee and non-employee director stock options in
accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees," (APB 25). Under APB 25, the Company recognizes
compensation expense related to employee and non-employee director stock options
for the excess, if any, of the fair value of the Company's stock at the date of
grant over the option exercise price. The amount is charged to operations over
the vesting period. See Note 9 for the pro forma disclosures required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123).
The Company accounts for non-employee stock options based on the fair value
method in accordance with SFAS 123. Under SFAS 123, the Company recognizes
compensation expense
F-10
<PAGE> 61
related to non-employee stock options based on the fair value of the options at
the date of the grant, as determined by the Black-Scholes pricing model. This
amount is charged to operations over the vesting period.
Income Taxes
The Company uses the liability method of accounting for income taxes, as set
forth in Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes." Under the liability method, deferred taxes are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect, in the years in which the
differences are expected to reverse.
Earnings Per Common Share
Basic earnings per common share are calculated after deducting dividends on
preferred shares from the net earnings and are based on the weighted average
number of shares outstanding during the period. Diluted earnings per common
shares reflect adjustments to the weighted average number of shares outstanding
for the assumed exercise of employee stock options, less the number of treasury
shares assumed to be purchased from the proceeds, including applicable unearned
compensation expense and income tax benefits, and the assumed conversion of
preferred stock.
Newly Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS
133 requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designed as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS 133, as amended by SFAS 137, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the
Company has not entered into derivative contracts to hedge existing risks or for
speculative purposes. Accordingly, the Company does not expect adoption of the
new standard on July 1, 2000, to affect the consolidated financial statements.
F-11
<PAGE> 62
3. RELATED-PARTY TRANSACTIONS:
During December, 1999, the Company issued 465,000 shares of common stock at a
fair value of $930,000, plus acquisition costs of $16,500, to a University
Partner in exchange for its 35.5% minority interest in Intelicus. In connection
with this acquisition, the Company also committed to contribute $300,000 to the
University Partner for the purpose of establishing an endowment fund for health
professionals (the "Contribution"). Goodwill of $981,555 was recorded as a
result of this acquisition. In addition, the Company issued 35,000 shares at a
fair value of $70,000 as consideration for the University Partner to extend a
contract agreement for a degree program.
Net student fee revenue from one University Partner was $1,877,567 and $684,802
for the years ended December 31, 1999 and 1998, respectively. Accounts
receivable from the University Partner totaled $484,961, as of December 31,
1999.
Management Fees
The Company paid approximately $382,600 and $228,300 in management fees to an
entity controlled by the Company's Chief Executive Officer (CEO) and principal
stockholder, for the years ended December 31, 1999 and 1998, respectively.
Amounts Due to Related Parties
Amounts due to related parties include a $12,510 note payable to a stockholder
and $300,000 due to the University Partner in connection with the Contribution.
Both of these amounts were paid in full subsequent to December 31, 1999.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31, 1999:
Amount
--------
Computer equipment $ 92,121
Office furniture 21,611
--------
113,732
Less- Accumulated depreciation (27,980)
--------
$ 85,752
========
5. INCOME TAXES:
The difference between the provision for income taxes at the statutory rate of
34% and the effective tax rate is due to the recording of a valuation allowance
and non-taxable income.
F-12
<PAGE> 63
Deferred income taxes at December 31, 1999, consisted of the following:
Total
Deferred
Tax Assets
(Liabilities)
-------------
Accrued liabilities $ 94
Net operating loss carry forward (NOL) 3,664
Depreciation (288)
--------
Total deferred tax assets $ 3,470
--------
Valuation allowance (3,470)
--------
$ --
========
At December 31, 1999, the Company had a NOL carryforward of $3,664 available to
offset future taxable income, which expires in 2019. Realization of the deferred
tax assets is dependent on generating sufficient future taxable income. At
December 31, 1999, the Company had a net deferred tax asset, which was fully
offset by a valuation allowance.
Through October 31, 1999, RTI was taxed under the provisions of Subchapter S of
the Internal Revenue Code. As of November 1, 1999, RTI terminated its Subchapter
S election; accordingly, the undistributed deficit of $377,358 has been included
as a reduction to additional paid-in capital.
6. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases office space and equipment under leases that expire on
various dates through September 10, 2003. As of December 31, 1999, future net
minimum lease payments that
F-13
<PAGE> 64
have initial or remaining noncancellable lease terms in excess of one year are
as follows:
Year Ending
December 31, Amount
------------ ---------
2000 $ 77,437
2001 76,740
2002 58,112
2003 1,114
--------
$213,403
========
Total rent expense for the years ended December 31, 1999 and 1998 was $44,404
and $37,128, respectively. Included in these amounts is rent expense of $35,866
for the years ended December 31, 1999 and 1998, paid to an entity
controlled by the Company's CEO and principal stockholder.
7. CONVERTIBLE PREFERRED STOCK:
On November 5, 1999, the Company issued 2,000 shares of preferred stock for
proceeds of $1,667,026, net of offering expenses of $82,974. The preferred stock
may be convertible by the holder, at its option, to common stock of the Company
at $2.00 per share at any time (see Note 8). The preferred stock is subject to
an annual cash and/or preferred stock cumulative dividend of 8%. The preferred
stock has senior liquidation preferences, voting rights equal to common stock
and other rights and preferences common to such securities, including the right
to designate one director of the Company. The preferred stock is also entitled
to a one-time demand and unlimited piggy-back registration rights including any
common stock issued upon conversion thereof.
8. EARNINGS PER SHARE:
The computation of basic earnings per share was based on the weighted average
number of shares of common stock outstanding. The computation of diluted
earnings per share was based on the weighted average number of shares of common
stock and common stock equivalents outstanding. In accordance with SFAS No. 128,
"Earnings per Share", the following tables
F-14
<PAGE> 65
reconcile net income and weighted average shares outstanding to the amounts used
to calculate basic and diluted earnings per share for the years ended December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
(audited) (unaudited)
----------- -----------
<S> <C> <C>
Net income available to common stockholders $ 137,932 $ 30,312
----------- -----------
Pro forma weighted average shares outstanding 12,544,520 12,250,000
Effect of stock option plan 535,259 --
----------- -----------
Pro forma diluted weighted average shares outstanding 13,079,779 12,250,000
=========== ===========
Pro forma basic earnings per share $ 0.011 $ 0.002
=========== ===========
Pro forma diluted earnings per share $ 0.011 $ 0.002
=========== ===========
</TABLE>
As of December 31, 1999, there were 2,000 shares of preferred stock, convertible
into 875,000 common shares. These shares were not included in the computation of
diluted earnings per share because the effect of the assumed conversion had an
antidilutive effect.
For purposes of presenting earnings per share, common stock issued to effectuate
the transaction with WII and in the exchange between CKGI and RTI are assumed to
have been outstanding for all periods presented. Accordingly, these earnings per
share presentations have been labeled as pro forma earnings per share.
9. STOCK OPTIONS AND WARRANTS:
Contemporaneous with the formation of CKGI in February 1999, the Board adopted a
Stock Option Plan (the Plan), pursuant to which it authorized and granted to the
Compass Knowledge Group Management Trust (the Trust), options to purchase up to
1,500,000 shares of the Company's common stock. In turn, throughout the year
ended December 31, 1999, the Trust issued options as follows:
<TABLE>
<CAPTION>
Weighted-Average
Exercise Weighted Average Initial Remaining Contractual
Price Contractual Life Life at December 31, 1999 Shares
-------- ------------------------ ------------------------- ---------
<S> <C> <C> <C>
$0.75 5.0 3.8 1,374,500
$2.00 4.3 2.8 60,500
$4.00 4.2 3.3 65,000
-------------------- ---------------- --------------
Total 4.9 3.7 1,500,000
==================== ================ ==============
</TABLE>
The weighted-average exercise price for all stock options granted is $0.94. As
of December 31, 1999, 1,500,000 stock options remained outstanding and 902,100
were exercisable. The exercisable options have a weighted-average exercise price
of $0.89.
F-15
<PAGE> 66
Unless extended by the Company's Board, all options under the Plan expire on
February 9, 2004. Awards under the Plan consist of stock options (both
non-qualified options and options that qualify as "Incentive Stock Options"
under Section 422 of the Internal Revenue Code of 1986, as amended), as
described in the Plan.
On December 15, 1999, the Board of the Company adopted a Year 2000 Stock Option
Plan, which authorized 1,000,000 shares of common stock available for grants to
the Company's officers, directors, employees and consultants. The exercise price
shall be at least equal to the fair market value of the underlying common stock
on the grant date and no option may be exercised beyond 10 years from the grant
date. None of these options were granted during the year ended December 31,
1999.
Pursuant to the requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), the following disclosures are presented to reflect the
Company's pro forma net income for the years ended December 31, 1999 and 1998,
as if the fair value method of accounting prescribed by SFAS 123 had been used
for options granted to employees and non-employee directors. In preparing these
disclosures, the Company has determined the value using the Black Scholes model
based on the following assumptions: expected lives of 5 years, volatility of 0
percent for options granted prior to November 15, 1999, 92 percent for options
granted after November 15, 1999, a risk-free rate of 4.75 percent, and no
expected dividends.
Using these assumptions, the weighted-average fair value per share of the stock
option grants during the year ended December 31, 1999 was approximately $0.29.
Had compensation expense been determined consistent with SFAS 123, utilizing the
assumptions above with amortization of compensation cost over the vesting
period, the Company's net income (loss) for the year ended December 31, 1999
would have been impacted as follows:
<TABLE>
<CAPTION>
As reported Pro forma
----------- ---------
<S> <C> <C>
Net income (loss) $155,432 $(113,636)
Pro forma basic earnings (loss) per share $ 0.011 $ (0.010)
Pro forma diluted earnings (loss) per share $ 0.011 $ (0.010)
======== =========
</TABLE>
For the year ended December 31, 1999, compensation expense related to stock
options issued to non-employees of $29,450 was recognized in the accompanying
consolidated statement of operations. The remaining unamortized unearned
compensation was $20,150 at December 31, 1999.
F-16
<PAGE> 67
10. SUPPLEMENTAL CASH FLOW DISCLOSURES:
The Company paid interest of approximately $10,800 and $2,700 for the years
ended December 31, 1999 and 1998, respectively.
The issuance of 465,000 common shares and the additional 35,000 shares for the
purchase of the minority interest and the five-year contract extension (see Note
3), respectively, were non-cash transactions.
During 1999, the Company issued 30,000 stock options to a stockholder for the
retirement of a $45,040 note payable.
Also during 1999, the Company forgave loans of $204,648 from various
stockholders. These amounts were reclassed to additional paid-in capital. In
addition, the Company received capital contributions from a stockholder in the
form of other assets as follows:
Cash received $ 8,768
Due from related party - a non-cash capital transaction 115,830
--------
Gross assets acquired 124,598
Less: cash paid for transaction costs (27,500)
--------
Net assets acquired $ 97,098
========
On February 9, 1999, 9,188,257 common shares of CKGI were issued to the
stockholders in conjunction with the formation of CKGI, in exchange for
non-monetary consideration.
In accordance with the terms of the Company's cumulative preferred stock,
dividends of $17,500 were accrued at December 31, 1999.
F-17
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
WINTHROP INDUSTRIES, INC.
WE, THE UNDERSIGNED natural persons of the age of twenty-one (21) years or
more, acting as incorporators of a corporation under the Nevada Business
Corporation Act, adopt the following Articles of Incorporation for such
corporation.
ARTICLE I - NAME
The name of the Corporation is Winthrop Industries, Inc.
ARTICLE II - DURATION
The duration of the corporation is perpetual.
ARTICLE III - PURPOSES
The purpose or purposes for which this corporation is engaged are:
(a) To engage in the specific business of looking for business
acquisitions and related matters; also the business of making
investments, including investments in, purchase and ownership of any
and all kinds of property, assets or business, whether alone or in
conjunction with others. Also, to acquire, develop, explore and
otherwise deal in and with all kinds of real and personal property and
all related activities, and for any and all other lawful purposes.
(b) To acquire by purchase, exchange, gift, bequest, subscription, or
otherwise; and to hold, own, mortgage, pledge, hypothecate, sell,
assign, transfer, exchange, or otherwise dispose of or deal in or with
its own
<PAGE> 2
corporate securities or stock or other securities including, without
limitations, any shares of stock, bonds, debentures, notes, mortgages, or other
obligations, and any certificates, receipts or other instruments representing
rights or interests therein on any property or assets created or issued by any
person, firm, associate, or corporation, or instrumentalities thereof; to make
payment therefor in any lawful manner or to issue in exchange therefor its
unreserved earned surplus for the purchase of its own shares, and to exercise
as owner or holder of any securities, any and all rights, powers, and
privileges in respect thereof.
(c) To do each and everything necessary, suitable, or proper for the
accomplishment of any of the purposes or the attainment of any one or more of
the subjects herein enumerated, or which may, at any time, appear conducive to
or expedient for the protection or benefit of this corporation, and to do said
acts as fully and to the same extent as natural persons might, or could do in
any part of the world as principals, agents, partners, trustees, or otherwise,
either alone or in conjunction with any other person, association, or in
corporation.
(d) The foregoing clauses shall be construed both as purposes and powers
and shall not be held to limit or restrict in any manner the general powers of
the corporation, and the enjoyment and exercise thereof, as conferred by the
laws of the State of Nevada; and it is
<PAGE> 3
the intention that the purposes and powers specified in each of the
paragraphs of this Article III shall be regarded as independent
purposes and powers.
ARTICLE IV - STOCK
The aggregate number of shares which this corporation shall have authority
to issue is 50,000,000 shares of Common Stock having a par value of $.001 per
share. All stock of the corporation shall be of the same class, common, and
shall have the same rights and preferences. Fully-paid stock of this corporation
shall not be liable to any further call or assessment.
ARTICLE V - AMENDMENT
These Articles of Incorporation may be amended by the affirmative vote of
"a majority" of the shares entitled to vote on each such amendment.
ARTICLE VI - SHAREHOLDERS RIGHTS
The authorized and treasury stock of this corporation may be issued at such
time, upon such terms and conditions and for such consideration as the Board of
Directors shall determine. Shareholders shall not have pre-emptive rights to
acquire unissued shares of the stock of this corporation.
ARTICLE VII - CAPITALIZATION
This corporation will not commence business until consideration of a value
of at least $1,000 has been received for the issuance of said shares.
ARTICLES VIII - INITIAL OFFICE AND AGENT
The Corporate Trust Company of Nevada
One East First Street
Reno, NV 89501
<PAGE> 4
ARTICLE IX - DIRECTORS
The directors are hereby given the authority to do any act on behalf of
the corporation by law and in each instance where the Business Corporation Act
provides that the directors may act in certain instances where the Articles of
Incorporation authorize such action by the directors, the directors are hereby
given authority to act in such instances without specifically numerating such
potential action or instance herein.
The directors are specifically given the authority to mortgage or pledge
any or all assets of the business without stockholders' approval.
The number of directors constituting the initial Board of Directors of
this corporation is one. The name and address of the person who is to serve as
Director until the first annual meeting of stockholders or until her successors
are elected and qualify, is:
NAME ADDRESS
Joan J. Lee 311 South State, #460
Salt Lake City, UT 84111
ARTICLE X - INCORPORATORS
The name and address of each incorporator is:
NAME ADDRESS
Thomas G. Kimble 311 South State, #440
Salt Lake City, UT 84111
<PAGE> 5
ARTICLE XI
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
No contract or other transaction between this corporation and any one or
more of its directors or any other corporation, firm, association, or entity in
which one or more of its directors or officers are financially interested, shall
be either void or voidable because of such relationship or interest, or because
such director or directors are present at the meeting of the Board of Directors,
or a committee thereof, which authorizes, approves, or ratifies such contract or
transaction, or because his or their votes are counted for such purpose if: (a)
the fact of such relationship or interest is disclosed or known to the Board of
Directors or committee which authorizes, approves, or ratifies the contract or
transaction by vote or consent sufficient for the purpose without counting the
votes or consents of such interested director; or (b) the fact of such
relationship or interest is disclosed or known to the stockholders entitled to
vote and they authorize, approve, or ratify such contract or transaction by vote
or written consent, or (c) the contract or transaction is fair and reasonable to
the corporation.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or committee thereof which
authorizes, approves, or ratifies such contract or transaction.
<PAGE> 6
ARTICLE XII
LIABILITY OF DIRECTORS AND OFFICERS
No director or officer shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
person as a director or officer. Notwithstanding the foregoing sentence, a
director or officer shall be liable to the extent provided by applicable law,
(i) for acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or (ii) for the payment of dividends in violation of
NRS 78.300.
The provisions hereof shall not apply to or have any effect on the liability
or alleged liability of any officer or director of the Corporation for or with
respect to any acts or omissions of such person occurring prior to such
amendment.
Under penalties of perjury, we declare that these Articles of Incorporation
have been examined by us and are, to the best of our knowledge and belief, true,
correct and complete.
DATED this 3rd day of August, 1989.
/s/ Thomas G. Kimble
-------------------------------------
Thomas G. Kimble
<PAGE> 7
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On the 3rd day of August, 1989, personally appeared before me, Thomas G.
Kimble, who duly acknowledged to me that he signed the foregoing Articles of
Incorporation.
My Commission Expires: /s/ LEON W. CROCKETT
4/26/90 ------------------------------
NOTARY PUBLIC
SEAL Residing at: S.L. County
-----------------
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
WINTHROP INDUSTRIES, INC.
Pursuant to the applicable provisions of the Nevada Business
Corporations Act, Winthrop Industries, Inc. (the "Corporation") adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The present name of the Corporation is Winthrop Industries, Inc.
SECOND: The following amendments to its Articles of Incorporation were
adopted by the board of directors and by majority consent of shareholders of the
Corporation in the manner prescribed by applicable law.
(1) The Article entitled ARTICLE I - NAME, is amended to read as
follows:
ARTICLE I - NAME
The name of the corporation shall be: Compass Knowledge Holdings, Inc.
(2) The Article entitled ARTICLE IV - STOCK, is amended to read as
follows:
ARTICLE IV - STOCK
Common. The aggregate number of common shares which this Corporation
shall have authority to issue is 50,000,000 shares of Common Stock having a par
value of $.001 per share. All common stock of the Corporation shall be of the
same class, common, and shall have the same rights and preferences. Fully-paid
common stock of this Corporation shall not be liable to any further call or
assessment.
Preferred. The Corporation shall be authorized to issue 5,000,000
shares of Preferred Stock having a par value of $.001 per share and with such
rights, preferences and designations determined by the board of directors.
THIRD: The Corporation has effectuated, effective with the commencement
of business on Tuesday, November 16, 1999, a 3.33 to 1 reverse stock split as to
its shares of common stock outstanding as of the opening of business on November
15, 1999, which decreases the outstanding shares as of that date from 10,000,000
shares to 3,000,000
<PAGE> 2
shares. The reverse split shall not change the number of shares of Common Stock
authorized for issuance by the Corporation.
FOURTH: The number of shares of the Corporation outstanding and
entitled to vote at the time of the adoption of said amendment was 10,000,000.
FIFTH: The number of shares voted for such amendments was 9,000,000
(90%) and no shares were voted against such amendment.
DATED this day of November, 1999.
WINTHROP INDUSTRIES, INC.
By:
---------------------------------
Lynn Dixon, President/Secretary
VERIFICATION
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The undersigned being first duly sworn, deposes and states: that the
undersigned is the President of Winthrop Industries, Inc., that the undersigned
has read the Certificate of Amendment and knows the contents thereof and that
the same contains a truthful statement of the Amendment duly adopted by the
board of directors and stockholders of the Corporation.
---------------------------------
Lynn Dixon, President
<PAGE> 3
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
Before me the undersigned Notary Public in and for the said County and
State, personally appeared the President and Secretary of Winthrop Industries,
Inc., a Nevada corporation, and signed the foregoing Articles of Amendment as
his own free and voluntary acts and deeds pursuant to a corporate resolution for
the uses and purposes set forth.
IN WITNESS WHEREOF, I have set my hand and seal this day of November,
1999.
NOTARY PUBLIC
Notary Seal:
<PAGE> 1
EXHIBIT 3.3
PLAN AND ARTICLES OF MERGER
OF
MEDIA CAPITAL SUBSIDIARY, INC.
A FLORIDA CORPORATION
INTO
COMPASS KNOWLEDGE GROUP, INC.
A FLORIDA CORPORATION
THE UNDERSIGNED CORPORATIONS DO HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
---- ----------------------
Media Capital Subsidiary, Inc. Florida
Compass Knowledge Group, Inc. Florida
SECOND: That this plan of merger between the parties to the merger has
been approved and adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of Florida Law
whereupon the two constituent corporations shall be merged into a single
corporation.
THIRD: The name of the surviving corporation of the merger is Compass
Knowledge Group, Inc., a Florida corporation.
FOURTH: That the Certificate of Incorporation of Compass Knowledge
Group, Inc., a Florida corporation, shall be the certificate of incorporation of
the surviving corporation.
FIFTH: That an executed copy of this Plan and Articles of Merger is on
file at the principal place of business of the surviving corporation. The
address of said principal place of business for this purpose is 2710 Rew Circle,
Suite 100, Ocoee, Florida 34761.
SIXTH: That a copy of the plan of merger will be furnished on request
and without cost to any stockholder of any constituent corporation.
SEVENTH:
(a) This merger is a triangular merger. All of the outstanding shares
of common
<PAGE> 2
stock of Media Capital Subsidiary, Inc. are owned by Winthrop Industries, Inc.,
a Nevada corporation. In the merger, the manner and basis of converting the
outstanding shares of capital stock of the constituent corporations is as
follows: All outstanding shares of common stock and preferred stock of Compass
Knowledge Group, Inc. shall be converted, on a share for share basis, into
shares of common stock and preferred stock, respectively, of Winthrop
Industries, Inc. The 1,000 shares of outstanding common stock of Media Capital
Subsidiary, Inc. shall be deemed to be the outstanding shares of common stock of
the Surviving Corporation after the merger, and shall be owned by Winthrop
Industries, Inc., making the Surviving Corporation a wholly-owned subsidiary of
Winthrop Industries, Inc.
(b) The effective date of the merger shall be the date this document is
filed with the Department of State of Florida.
(c) Each of the Constituent Corporations adopted this Plan of Merger by
its respective shareholders effective as of November , 1999, and the number of
votes cast by the respective shareholders was sufficient for approval.
Dated: November 15, 1999 MEDIA CAPITAL SUBSIDIARY, INC.,
a Florida corporation
By:
-----------------------------------
Lynn Dixon, President and Secretary
COMPASS KNOWLEDGE GROUP, INC.,
a Florida corporation
By:
-----------------------------------
Dan Devine, President
<PAGE> 1
1
EXHIBIT 3.4
COMPASS KNOWLEDGE HOLDINGS, INC.
Certificate of Designation of
Series A Senior Convertible Preferred Stock
Setting Forth the Powers, Preferences,
Rights, Qualifications, Limitations And
Restrictions of Such Series of Preferred Stock
Pursuant to Sections 607.1001 and 607.1002 of the Nevada
Business Corporation Act, COMPASS KNOWLEDGE HOLDINGS, INC., a Nevada corporation
(the "Company"), does hereby certify that:
Pursuant to the authority conferred upon the Board of
Directors of the Company by the Certificate of Incorporation of the Company, the
Board of Directors of the Company on November 15, 1999 adopted the following
resolution creating a series of preferred stock designated as Series A Senior
Convertible Preferred Stock, and such resolution has not been modified and is in
full force and effect on the date hereof:
RESOLVED that, pursuant to the authority vested in the Board
of Directors of the Company in accordance with the provisions of the Certificate
of Incorporation, a series of the class of authorized preferred stock, par value
$0.001 per share, of the Company is hereby created and that the designation and
number of shares thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations and restrictions thereof are as follows:
SECTION 1. DESIGNATION, NUMBER AND RANK.
(a) The shares of the series shall be designated as "Series A
Senior Convertible Preferred Stock" (the "Series A Preferred Stock"). The number
of shares initially constituting the Series A Preferred Stock shall be *five
thousand* (*5,000*).
(b) The Series A Preferred Stock shall, with respect to
dividends and distributions and with respect to rights on liquidation,
dissolution and winding up, rank (i) higher and prior to the Junior Stock, (ii)
on a parity with all shares of Parity Stock and (iii) shall not be junior, lower
or subsequent to any shares or class of stock of the Company.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(a) In preference to the holders of shares of Common Stock and
of any shares of other capital stock of the Company other than Parity Stock and
Senior Stock, the holders of shares of Series A Preferred Stock shall
automatically and immediately be entitled to receive, out of the assets of the
Company legally available therefor, cumulative cash dividends equal to seventy
($70) dollars per share annually, calculated at an annual rate of eight (8%)
percent. Such dividends shall accrue and be payable in immediately available
funds in four (4) equal quarterly installments of seventeen and 50/100 ($17.50)
dollars per share on the first (1st) Business Day of April, July, October and
January in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date") commencing on the first Quarterly Dividend Payment Date
occurring after the Issue Date; PROVIDED, HOWEVER, that with respect to the
first Quarterly Dividend Payment Date to occur with respect to any shares of
Series A Preferred Stock, the holders of such shares of Series A Preferred Stock
shall be entitled to receive the dividend payable upon such shares on a PER DIEM
basis, out of the assets of the Company legally available therefor, a cumulative
cash dividend in respect of each such share of Series A Preferred Stock.
1
<PAGE> 2
(b) If as of any Quarterly Dividend Payment Date there is a
Dividend Arrearage (as hereinafter defined), an additional dividend (the
"Additional Dividend") shall accrue on each share of the Series A Preferred
Stock for the period from such Quarterly Dividend Payment Date through the
earlier of (i) the date on which such Dividend Arrearage is paid in full and
(ii) the next succeeding Quarterly Dividend Payment Date, in an amount equal to
the product of (x) the Dividend Rate (calculated for such period in accordance
with Section 2(a)) and (y) the amount of such Dividend Arrearage as of such
Quarterly Dividend Payment Date. For purposes of this Section 2(b), "Dividend
Arrearage" shall mean, with respect to each share of Series A Preferred Stock,
as of any Quarterly Dividend Payment Date, the excess, if any of (x) the sum of
all dividends theretofore accrued on such share in accordance with Section 2(a)
hereof (including those accrued as of and including such Quarterly Dividend
Payment Date) plus all Additional Dividends, if any, theretofore accrued on such
share in accordance with this Section 2(b) (including those accrued as of and
including such Quarterly Dividend Payment Date), over (y) all dividends actually
paid with respect to such share on or before such Quarterly Dividend Payment
Date (including stock dividends paid pursuant to Section 2(c), valuing each
share of Series A Preferred Stock paid as a dividend on the Series A Preferred
Stock as set forth in ss.2(c).
(c) I. The cumulative dividends payable pursuant to Sections
2(a) and (b) at the option of the Company, may be paid, in whole or in part, by
the issuance of additional shares of Series A Preferred Stock (the "Alternative
Dividend Rate") upon the same terms as cash dividends payable pursuant to
Sections 2(a) and (b); PROVIDED that, such stock dividends shall (i) be payable
at an annual rate equal to seventeen 50/100 ($17.50) per share annually,
calculated at an annual rate of eight (8%) percent; the applicable rate shall be
calculated on the basis of a 360-day year consisting of twelve 30-day months,
and (ii) accrue and be payable by the immediate delivery at the address of such
holder as shown in the stock books of the Company of (x) a certificate or
certificates representing the shares of Series A Preferred Stock to which such
holder is entitled and (y) a check made payable to such holder for an amount
corresponding to any fractional interest in a share of Series A Preferred Stock
as provided in this Section 2(c); FURTHER PROVIDED, that if any Additional
Dividends are to be paid by a stock dividend pursuant to this Section 2(c), the
amount of such Additional Dividends shall be equal to the product of (i) the
Alternative Dividend Rate (calculated for such period in accordance with Section
2(a)) and (ii) the amount of such Dividend Arrearage as of such Quarterly
Dividend Payment Date.
(c) II. With respect to the first Quarterly Dividend Payment
Date to occur with respect to any shares of Series A Preferred Stock upon which
a stock dividend shall be paid pursuant to this Section 2(c), the holders of
such shares of Series A Preferred Stock shall be entitled to receive as the
dividend payable upon such shares, out of the assets of the Company legally
available therefor, a cumulative stock dividend in accordance with this Section
2(c)I in respect of each such share of Series A Preferred Stock equal to the
number of shares as determined by Section 2(c)I multiplied by a fraction (not to
exceed one), the numerator of which is the number of days from (and including)
the Issue Date with respect to such shares to (but excluding) such Quarterly
Dividend Payment Date, and the denominator of which is ninety (90).
(d) The Company shall pay all documentary, stamp, transfer or
other transactional taxes attributable to the issuance or delivery of shares of
Series A Preferred Stock pursuant to this Section 2. All shares of Series A
Preferred Stock issued and delivered pursuant to this Section 2 will upon
issuance by the Company and delivery be duly authorized and issued and fully
paid and non-assessable and not subject to any purchase option or right of first
refusal or preemptive, subscription or similar rights.
(e) Dividends payable pursuant to Sections 2(a), (b) and (c)
above with respect to any shares shall begin to accrue and be cumulative from
the Issue Date, and shall accrue on a daily basis, in each case whether or not
declared. If the Company makes a dividend payment on the shares of Series A
Preferred Stock in an amount that is less than the total amount of accrued and
payable dividends on such shares at such time, then the dividends paid shall be
allocated PRO RATA among all such shares of Series A Preferred Stock at the time
outstanding on a share-by-share basis.
2
<PAGE> 3
(f) Accumulated but unpaid dividends for any past quarterly
dividend periods may be declared and paid at any time, without reference to any
regular Quarterly Dividend Payment Date. The Board of Directors may fix a record
date for the determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon
pursuant to this Section 2, which record date shall be not more than 20 days nor
less than 5 days prior to the date fixed herein for the payment thereof.
(g) No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the shares of the
Series A or Series B Preferred Stock or any other preferred stock, unless the
dividends due under the Series A Preferred Stock have been paid and are current.
SECTION 3. VOTING RIGHTS.
(a) In addition to any voting rights provided by law, each
share of Series A Preferred Stock shall be entitled to that number of votes as
if such shares of Series A Preferred Stock had been converted into shares of
Common Stock on the appropriate record date.
(b) The shares of Senior Preferred Stock and the shares of
Common Stock (and any other shares of capital stock of the Company at the time
entitled thereto) shall vote together as one class on all matters submitted to a
vote of stockholders of the Company.
SECTION 4. CONVERSION.
[ I ] Conversion Price. The conversion shall be $2.00 per
Share of Common Stock (the "Conversion Price"). Each share of Preferred Stock
shall be convertible at the option of the holder into four hundred thirty-seven
50/100 (437.5) shares of fully paid and nonassessable shares of the Common Stock
of the Company, $.001 par value (the "Common Stock") at any time and from
time-to-time. The Conversion Price and number of shares of Common Stock issuable
upon conversion of the Preferred Stock will be subject to adjustment as set
forth in more detail in Section 4 hereof.
[ II ] Mandatory Conversion Provisions. Provided that the
Company's common stock is listed for trading on the NASDAQ National or Small Cap
Stock Market, the New York Stock Exchange, or the American Stock Exchange
("Listed") but in any event no earlier than May 31, 2001, the Company will have
the one-time option to convert all, or any PRO RATA portion, of the Preferred
Stock, together with any accrued dividends paid and held in shares of Preferred
Stock, into shares of the Company's common stock at the applicable Conversion
Price provided that at such time the average bid price for the Company's common
stock for any ninety (90) consecutive trading days equals or exceeds two times
the then applicable Conversion Price and the average weekly trading volume over
such 90 day period equals or exceeds 100,000 shares. In the event that the
Company exercises its conversion rights hereunder, the Company covenants that,
at the Company's sole expense, it shall use its reasonable best efforts to: (i)
register such converted securities under the Securities Act of 1933, (ii)
register or qualify such converted securities covered by such registration
statement under the applicable securities or blue sky laws in such jurisdictions
within the United States as a majority of the holders of such shares of Series A
Preferred Stock may forreasonably request.
[ III ] General Conversion Provisions. Shares of Series A
Preferred Stock may, at the option of the holder thereof, be converted into
shares of Common Stock, on the terms and conditions set forth in this Section 4,
at any time and from time to time.
Subject to the provisions for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall be convertible in the manner
hereinafter set forth into one hundred seventy-five (175) shares fully paid and
nonassessable shares of Common Stock.
(a) Adjustments. The number of shares of Common Stock into
which each share of Series A Preferred Stock is convertible, and the number of
votes to which the holder of a share of Series A
3
<PAGE> 4
Preferred Stock is entitled pursuant to Section 3, shall be subject to
adjustment from time to time as follows:
(i) DIVIDENDS AND DISTRIBUTIONS. In case the Company
shall at any time or from time to time declare a dividend, or make a
distribution, on the outstanding shares of Common Stock in shares of
Common Stock or subdivide or reclassify the outstanding shares of
Common Stock into a larger number of shares or combine or reclassify
the outstanding shares of Common Stock into a smaller number of shares
of Common Stock, then, and in each such case:
(A) the number of shares of Common Stock into which
each share of Series A Preferred Stock is convertible
shall be adjusted so that the holder of each share
thereof shall be entitled to receive, upon the
conversion thereof, the number of shares of Common
Stock which the holder of a share of Series A
Preferred Stock would have been entitled to receive
after the happening of any of the events described
above had such share been converted immediately prior
to the happening of such event or the record date
therefor, whichever is earlier;
(B) the number of votes to which a holder of a share
of Series A Preferred Stock is entitled pursuant to
Section 3 shall be adjusted so that, after the
happening of any of the events described above, such
holder shall be entitled to a number of votes equal
to (I) the number of votes to which such holder was
entitled pursuant to Section 3 immediately PRIOR to
such happening multiplied by (II) a fraction, the
numerator of which is the number of shares of Common
Stock into which one share of Series A Preferred
Stock was convertible immediately AFTER such
happening and the denominator of which is the number
of shares of Common Stock into which one share of
Series A Preferred Stock was convertible immediately
prior to such happening; and
(C) an adjustment made pursuant to this clause (i)
shall become effective (I) in the case of any such
dividend or distribution, (1) immediately after the
close of business on the record date for the
determination of holders of shares of Common Stock
entitled to receive such dividend or distribution,
for purposes of subclause (A), and (2) immediately
after the close of business on the date of payment of
such dividend or distribution, for purposes of
subclause (B), or (II) in the case of any such
subdivision, reclassification or combination, at the
close of business on the day upon which such
corporate action becomes effective, for purposes of
both subclause (A) and subclause (B).
(ii) ISSUANCE BELOW FAIR VALUE. During the
twenty-four (24) month time period commencing on the date of filing
this certificate with the Secretary of State of the state of Nevada, in
case the Company shall issue shares of Common Stock (or rights, options
or warrants or other securities convertible into or exchangeable for
shares of Common Stock) at a price per share (or having an exercise or
conversion price per share, together with any consideration paid to the
Company to purchase such option, warrant or other convertible or
exchangeable security) less than the Fair Value as of the date of
issuance of such shares (or of such rights, options, warrants or other
convertible securities), then, and in each such case during such
twenty-four (24) month period:
(A) the number of shares of Common Stock into which
each share of Series A Preferred Stock is convertible
shall be adjusted so that the holder of each share
thereof shall be entitled to receive, upon the
conversion thereof, the number of shares of Common
Stock determined by multiplying the number of shares
of Common Stock into which such share was convertible
on the day immediately prior to such date of issuance
by a fraction, (I) the numerator of which is the sum
of (1) the number of shares of Common Stock
outstanding on a fully diluted basis on such date and
(2) the number of additional shares of Common Stock
issued (or into which the convertible securities may
convert), and (II) the denominator of which is the
sum of (1) the number of shares of Common Stock
outstanding on a fully diluted basis on such date and
(2) the number of shares
4
<PAGE> 5
of Common Stock which the aggregate consideration
receivable by the Company for the total number of
shares of Common Stock so issued (or into which the
convertible securities may convert) would purchase at
the Fair Value of the Common Stock on such date. For
purposes of this subparagraph, the aggregate
consideration receivable by the Company in connection
with the issuance of shares of Common Stock or of
securities convertible into shares of Common Stock
shall be deemed to be equal to the sum of the gross
offering price (which is the amount the which the
purchaser pays for such securities) of all such
securities plus the minimum aggregate amount, if any,
payable upon conversion of any such convertible
securities into shares of Common Stock;
(B) the number of votes to which a holder of a share
of Series A Preferred Stock is entitled pursuant to
Section 3 shall be adjusted so that, after the
happening of any of the events described above, such
holder shall be entitled to a number of votes equal
to (I) the number of votes to which such holder was
entitled pursuant to Section 3 immediately prior to
such happening multiplied by (II) a fraction, the
numerator of which is the number of shares of Common
Stock into which one share of Series A Preferred
Stock was convertible immediately after such
happening and the denominator of which is the number
of shares of Common Stock into which one share of
Series A Preferred Stock was convertible immediately
prior to such happening; and
(C) such adjustment shall become effective
immediately after the date of such issuance for
purposes of subclauses (A) and (B).
Definition of Fair Value for Nonpublic Stock. For purposes hereof,
"Fair Value" of any capital stock NOT publicly traded shall be the
higher of (x) the price to be paid by the purchaser of such capital
stock and (y) the lowest value in the range of values of the capital
stock as determined by the appraisal process, if any, described below.
If a holder or holders of Series A Preferred Stock asserting rights
under Section 4(a)(ii) (the "Opposing Stockholders"), on the one hand,
and the Company, on the other hand, cannot agree on the Fair Value of
the Common Stock, the following appraisal process shall be used to
determine the Fair Value. The Company and the Opposing Stockholders
shall attempt to agree on one investment banker and if an agreement is
reached, the determination shall be conducted by such banker. If the
Opposing Stockholders, on the one hand, and the Company, on the other
hand, do not so agree, the Opposing Stockholders, on the one hand, and
the Company, on the other hand, shall each select one independent
investment banker and the two investment bankers so selected shall
select a third investment banker. The investment banker or bankers
making the determination shall determine a range of values for such
capital stock, basing their majority determination on what they believe
a willing purchaser would pay for such capital stock in a transaction
negotiated on commercial terms at arms'-length. Any determination of
such a range of values agreed to by the investment banker (in the case
of only one such banker) or two of the three investment bankers (in the
case of three such bankers) shall be binding on the Opposing
Stockholders and the Company. If two of the three investment bankers
are unable to agree on a range of values for such capital stock as
provided above, the range of values shall be the middle of the three
ranges. If the price to be paid by the purchaser of such stock is
within or exceeds the range of values of the capital stock as
determined by the appraisal process, the fees and expenses of the
investment bankers shall be paid fifty (50%) percent by the Opposing
Stockholders and fifty (50%) percent by the Company. If the lowest
value in the range of values of the capital stock as determined by the
appraisal process constitutes the Fair Value, the fees and expenses of
the investment bankers shall be paid by the Company. This Section
4(a)(ii) shall not apply to (1) the issuance of shares of Common Stock
upon the conversion of any Parity Stock, (2) the issuance of shares of
Common Stock to officers, directors, employees or other agents of the
5
<PAGE> 6
Company of shares of Common Stock (or options, warrants or other rights
to acquire any shares of Common Stock) pursuant to the terms of any
warrant, stock option, stock purchase or similar plan or arrangement,
(3) the issuance of Series A Preferred Stock as a stock dividend
pursuant to Section 2 hereof, or (4) issuances of Common Stock (or
options, warrants or other rights to acquire shares of Common Stock)
pursuant to a stock purchase, asset purchase, stock exchange, merger or
similar agreement.
Definition of Fair Value for Publicly Traded Stock. For purposes
hereof, "Fair Value" of any capital stock which is publicly traded
shall equal the current market price per share as computed herein. The
current market price per share at any date shall be deemed to be the
average of the daily closing prices for the twenty (20) consecutive
trading days commencing twenty-five (25) trading days before the day in
question. The closing price for each day shall be (i) the last sale
price of the Common Stock on the National Association of Securities
Dealers, Inc., Automated Quotation System or any other automated
quotation system or, if no sale occurred on such date, closing bid
price of the Common Stock on such quotation system on such date, or
(ii) if the Common Stock shall be listed or admitted for trading on the
New York or American Stock Exchange or any successor exchange, the last
sale price, or if no sale occurred on such date, the closing bid price
of the Common Stock on such exchange, or (iii) if the Common Stock
shall not be included in any automated quotation system or listed on
any such exchange, the closing bid quotation for Common Stock as
reported by the National Quotation Bureau Incorporated if at least two
securities dealers have inserted both bid and asked quotations for
Common Stock on at least five of the ten preceding days. If none of the
conditions set forth above is met, the closing price of Common Stock on
any day or the average of such closing prices for any period shall be
the fair market value of Common Stock as determined by a member firm of
either the New York Stock Exchange, Inc. or the American Stock
Exchange, Inc., and such member firm shall be selected by the board of
directors of the Company, and such member firm shall be reasonably
acceptable to the Pioneer Partnership.
(iii) MERGER; CONSOLIDATION. In case at any time the
Company shall be a party to any transaction (including, without
limitation, a merger, consolidation, sale of all or substantially all
of the Company's assets, liquidation or recapitalization of the Common
Stock and excluding any transaction to which clause (i) or (ii) of this
paragraph (a) applies) in which the previously outstanding Common Stock
shall be changed into or, pursuant to the operation of law or the terms
of the transaction to which the Company is a party, exchanged for
different securities of the Company or common stock or other securities
of another corporation or interests in a noncorporate entity or other
property (including cash) or any combination of any of the foregoing,
then, as a condition of the consummation of such transaction, lawful
and adequate provision shall be made so that each holder of shares of
Series A Preferred Stock shall be entitled, upon conversion, to an
amount per share equal to (A) the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is
changed or exchanged times (B) the number of shares of Common Stock
into which a share of Series A Preferred Stock is convertible
immediately prior to the consummation of such transaction.
(b) Anti-Dilution Rights. In order to allow the holders of the Series A
Preferred Stock to maintain their PRO RATA share of the Company's capital stock
on a fully diluted basis, except as set forth in the next sentence of this
ss.4(b) and solely with respect to this ss.4(b), the holders of the Series A
Preferred Stock shall be entitled, as of right, to purchase or subscribe foR Pro
RATA any stock of the Company to be issued by reason of an increase of the
issued stock of the Company or the creation a new class of securities, and the
issuance of such securities (collectively referred to as "New Securities"). The
anti-dilution rights set forth hereinabove shall not be applicable to and the
definition of "New Securities" shall not include the following securities (the
"Exempt Securities"): (i) securities issued to employees, consultants or
directors of the Company pursuant to any stock option plan or stock purchase or
stock bonus arrangement approved by the Board of Directors, up to a maximum
amount of two million five hundred thousand (2,500,000) shares of the
outstanding Common Stock on a fully diluted basis, (ii) securities offered to
the public pursuant to a registration statement filed pursuant to the Securities
Act, and (iii) securities issued pursuant
6
<PAGE> 7
to an acquisition of another corporation, partnership or other entity by the
Company by merger, purchase of all or substantially all of the assets or other
reorganization whereby the Company owns not less than fifty-one (51%) percent of
the voting stock of such corporation.
(i) NOTICE AND EXERCISE OF ANTI-DILUTION RIGHTS. In
the event the Company proposes to issue New Securities, it shall give
the holders of the Series A Preferred Stock written notice of its
intention, describing the type of New Securities, the price and general
terms upon which the Company proposes to issue the same. In exercising
such anti-dilutive rights, the holders of the Series A Preferred Stock
shall be given fifteen (15) days from the receipt of such notice to
agree to purchase or subscribe for such New Securities, at the same
price and on the same terms for the entire amount of the New
Securities.
(ii) OVER-ALLOTMENT. The holders of the Series A
Preferred Stock shall have the right of over-allotment such that, in
the event other holders having anti-dilutive rights fail to exercise
such right to purchase all of the New Securities, the remaining holders
of the Series A Preferred Stock may purchase the non-purchasing
holders' New Securities not so purchased, on a PRO RATA basis, based
upon the respective fully diluted Common Stock ownership in the Company
of each such remaining holder of Series A Preferred Stock, within five
(5) days from the date the non-purchasing holders fail to exercise
their rights hereunder. The holders of the Series A Preferred Stock
shall be required to commit in writing, at the time they exercise their
anti-dilution rights, the maximum amount of over-allotment shares they
agree to purchase, if any become available.
(c) Method of Conversion. (i) The holder of any shares of
Series A Preferred Stock may exercise its right to convert such shares into
shares of Common Stock by surrendering for such purpose to the Company, at its
principal office or at the principal office of the transfer agent or at such
other office or agency maintained by the Company for that purpose, a certificate
or certificates representing the shares of Series A Preferred Stock to be
converted accompanied by a written notice stating that such holder elects to
convert all or a specified whole number of such shares in accordance with the
provisions of this Section 4 and specifying the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. In case such notice shall specify a name or names other than that of
such holder, such notice shall be accompanied by payment of all transfer taxes
payable upon the issuance of shares of Common Stock in such name or names.
(ii) Promptly after such notification, such notifying
holder of Series A Preferred Stock shall surrender for purposes of
conversion to the Company, at its principal office or at such other
office or agency maintained by the Company for that purpose, the
certificate or certificates representing all shares of Series A
Preferred Stock held by such holder.
(iii) Such conversion shall be deemed to have been
made at the close of business on the date of giving of such notice and
of such surrender of the certificate or certificates representing the
shares of Series A Preferred Stock to be converted so that the rights
of the holder thereof as to the shares being converted shall cease,
except for the right to receive shares of Common Stock and any Dividend
Arrearage in accordance herewith, and the person entitled to receive
the shares of Common Stock shall be treated for all purposes as having
become the record holder of such shares of Common Stock at such time.
(d) Issuance of Common Stock. Other than taxes payable by the
holder of any Series A Preferred Stock in accordance with paragraph (b) of this
Section 4, the Company will pay any and all issuance, documentary or stamp taxes
and other taxes (other than taxes based on income) that may be payable in
respect of any issuance or delivery of shares of Common Stock on conversion of
Series A Preferred Stock pursuant hereto. As promptly as practicable, and in any
event within ten (10) Business Days after the surrender of the certificate or
certificates representing such shares of Series A Preferred Stock being
converted and, in the case of a conversion by the holder pursuant to paragraph
(b), the receipt by the Company of such notice relating thereto and, if
applicable, payment of all transfer taxes (or the demonstration to the
satisfaction of the Company that such taxes have been paid), the Company shall
deliver or cause to be delivered (i) certificates representing the number of
validly issued, fully paid and
7
<PAGE> 8
nonassessable full shares of Common Stock to which the holder of shares of
Series A Preferred Stock so converted shall be entitled and (ii) in the case of
a conversion at the election of the holder of Series A Preferred Stock, if less
than the full number of shares of Series A Preferred Stock evidenced by the
surrendered certificate or certificates are being converted, a new certificate
or certificates, of like tenor, for the number of shares of Series A Preferred
Stock evidenced by such surrendered certificate or certificates less the number
of shares converted.
(e) Right to Dividends. Upon conversion of any shares of
Series A Preferred Stock, the holder thereof shall be immediately entitled to
receive its Dividend Arrearage (if any) from (i) legally available funds in
respect of the shares so converted to the date of conversion, or (ii) in
additional shares of Series A Preferred Stock in accordance with the provisions
of Section 2.
(f) No Fractional Shares. In connection with the conversion of
any shares of Series A Preferred Stock, no fractions of shares of Common Stock
shall be issued, but in lieu thereof the Company shall adjust such fractional
interest by rounding up to the next whole share of Common Stock.
(g) Reservation of Shares. The Company shall at all times
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Series A Preferred
Stock, such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all then outstanding shares of Series A
Preferred Stock. The Company shall immediately reserve one million three hundred
thousand (1,300,000) shares of its Common Stock to be available upon conversion
of the Series A Preferred Stock and paid-in kind dividends. The Company shall
from time to time, subject to and in accordance with the Nevada Business
Corporation Act, increase the authorized amount of Common Stock if at any time
the number of authorized shares of Common Stock remaining unissued shall not be
sufficient to permit the conversion at such time of all then outstanding shares
of Series A Preferred Stock. The Company shall at all times reserve and keep
available out of its authorized and unissued Series A Preferred Stock, solely
for the purpose of payment of stock dividends upon shares of Series A Preferred
Stock pursuant to Section 2(c), such number of shares of Series A Preferred
Stock as shall from time to time be sufficient to effect the payment of such
stock dividends upon all then outstanding shtheares of Series A Preferred Stock.
(h) Waiver of Adjustment. Notwithstanding anything to the
contrary set forth herein, the operation of, and any adjustment in the number of
shares of Common Stock issuable upon conversion of the Series A Preferred Stock
pursuant to, this Section 4, may be waived with respect to any specific share or
shares of Series A Preferred Stock, either prospectively or retroactively and
either generally or in a particular instance, by a writing executed by the
registered holder of such share or shares of Series A Preferred Stock. Any such
waiver shall bind all future holders of such share or shares of Series A
Preferred Stock for which such rights have been waived.
SECTION 5. REPORTS AS TO ADJUSTMENTS.
Whenever the number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible (or the number of votes to
which each share of Series A Preferred Stock is entitled) is adjusted as
provided in Section 4, the Company shall promptly mail by either first class
mail (or bulk mail if the number of holders exceeds 500) to the holders of
record of the outstanding shares of Series A Preferred Stock at their respective
addresses as the same shall appear in the Company's stock records a notice
stating that the number of shares of Common Stock into which the shares of
Series A Preferred Stock are convertible has been adjusted and setting forth the
new number of shares of Common Stock (or describing the new stock, securities,
cash or other property) into which each share of Series A Preferred Stock is
convertible (and the new number of votes to which each share of Series A
Preferred Stock is entitled), as a result of such adjustment, a brief statement
of the facts requiring such adjustment and the computation thereof, and when
such adjustment became effective.
8
<PAGE> 9
SECTION 6. REDEMPTION.
(a) The Company shall have the right to compel each holder of
the Series A Preferred Stock to redeem any or all of the shares of Series A
Preferred Stock held by such holder on any Quarterly Dividend Payment Date (for
purposes of this ss.6 such date shall be the "Redemption Date"), provided
written demand as set forth below is given. The redemption price for each share
to be redeemed shall be paid by the Company in cash in an amount equal to (i)
the price in the first (1st) year following the date of this Agreement to be the
higher of the closing market price of the Common Stock on the Date of Redemption
or $3 per share of Common Stock, on a post-conversion basis; (ii) the price in
the second (2nd) year following the date of this Agreement to be the higher of
the closing market price of the Common Stock on the Date of Redemption or $4 per
share of Common Stock, on a post-conversion basis; (iii) the price in the third
(3rd) year following the date of this Agreement to be the higher of the closing
market price of the Common Stock on the Date of Redemption or $6 per share of
Common Stock, on a post-conversion basis; (iv) the price in the fourth (4th)
year following the date of this Agreement to be the higher of the closing market
price of the Common Stock on the Date of Redemption or $10per share of Common
Stock, on a post-conversion basis; and (v) the price in the fifth (5th) year
following the date of this Agreement to be the higher of the closing market
price of the Common Stock on the Date of Redemption or $12 per share of Common
Stock, on a post-conversion basis; (all subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) (the "Redemption Price").
(b) Thirty (30) days prior to the Redemption Date, the Company
shall provide each holder of Series A Preferred Stock whose stock is being
redeemed with a written demand ("Redemption Notice") (addressed to the holder at
its address as it appears on the stock transfer books of the Company) to redeem
shares of Series A Preferred Stock as provided above, which notice shall specify
the Redemption Price and the number of shares to be redeemed. All Redemption
Notices hereunder shall be sent by certified mail, returned receipt requested,
and shall be deemed to have been provided when received.
(c) On or prior to the Redemption Date, each holder of Series
A Preferred Stock shall surrender his or its certificate or certificates
representing the shares to be redeemed, in the manner and at the place
designated in the Redemption Notice. If less than all shares represented by such
certificate or certificates are redeemed, the Company shall issue a new
certificate for the unredeemed shares. From and after the Redemption Date,
unless there shall be a default in payment of the Redemption Price, all rights
of each holder with respect to shares of Series A Preferred Stock redeemed on
the Redemption Date shall cease (except the right to receive the Redemption
Price and interest at the rate of 10% in the event payment is not made within 20
days after the Redemption Date), and such shares shall not be deemed to be
outstanding for any purpose whatsoever. Such shares of Series A Preferred Stock
shall not be reissued.
SECTION 7. RESTRICTIVE COVENANTS.
Unless approved in writing by a majority-in-interest of the
holders of the Series A Preferred Stock, the Company shall not:
(a) (i) Authorize, adopt or approve an amendment to the
Articles of Incorporation that would increase or decrease the par value of the
shares of Series A Preferred Stock, or alter or change the powers, preferences
or special rights of the shares of Series A Preferred Stock, or alter or change
the powers, preferences or special rights of the shares of Series A Preferred
Stock, (ii) amend, alter or repeal the Articles of Incorporation so as to
adversely affect the shares of Series A Preferred Stock including, without
limitation, by granting any voting right to any holder of notes, bonds,
debentures or other debt obligations of the Company, (iii) reclassify any shares
of the Company's capital stock into Senior Stock or Parity Stock, (iv) issue any
Senior Stock or Parity Stock, or (v) agree to take any of the foregoing actions;
PROVIDED, HOWEVER, that nothing set forth in this clause 7(a) shall prohibit the
Company from repurchasing shares of Common Stock held by an employee of the
Company upon the termination of the Company's employment of such employee
pursuant to an agreement providing the terms of such repurchase that has been
approved by Company's Board of Directors (an "Approved Repurchase"); and
(b) Upon the occurrence, and during the continuation, of a
Noncompliance Event (as defined below), (i) declare or pay dividends, or make
any other distributions, on any shares of Common
9
<PAGE> 10
Stock or other Junior Stock; or (ii) declare or pay dividends, or make any other
distributions, on any shares of Parity Stock, except, with respect to clause
(ii) of this subparagraph (b), dividends or distributions paid ratably on the
Series A Preferred Stock and all Parity Stock on which dividends are payable or
in arrears, in proportion to the total amounts to which the holders of all
shares of the Series A Preferred Stock and such Parity Stock are then entitled.
A "Noncompliance Event" shall be deemed to have occurred and be continuing
whenever quarterly dividends payable on shares of Series A Preferred Stock as
provided in Section 2 are not paid in full (whether such failure is a result of
the Company not having sufficient legally available funds or for any other
reason) at such time and thereafter until all unpaid dividends payable, whether
or not declared, on the outstanding shares of Series A Preferred Stock shall
have been paid in full.
SECTION 8. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) If the Company shall commence a voluntary case under the
United States Bankruptcy Code or any applicable bankruptcy, insolvency or
similar law of any other country, or consent to the entry of an order for relief
in an involuntary case under any such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or make an
assignment for the benefit of its creditors, or admit in writing its inability
to pay its debts generally as they become due, or if a decree or order for
relief in respect of the Company shall be entered by a court having jurisdiction
in an involuntary case under the United States Bankruptcy Code or any applicable
bankruptcy, insolvency or similar law of any other country, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and on account of any
such event the Company shall liquidate, dissolve or wind up, or if the Company
shall otherwise liquidate, dissolve or wind up, no distribution shall be made to
(i) the holders of shares of Junior Stock unless, prior thereto, the holders of
shares of Series A Preferred Stock shall have received the Liquidation
Preference, plus all accrued and unpaid dividends, whether or not declared or
currently payable, to the date of distribution, with respect to each share, or
(ii) the holders of shares of Parity Stock, except distributions made ratably on
the Series A Preferred Stock and all other Parity Stock in proportion to the
total amounts to which the holders of all shares of Series A Preferred Stock and
other Parity Stock are entitled upon such liquidation, dissolution or winding
up.
(b) Neither the consolidation or merger of the Company with or
into any other Person nor the sale or other distribution to another Person of
all or substantially all the assets, property or business of the Company shall
be deemed to be a liquidation, dissolution or winding up of the Company for
purposes of this Section 8.
SECTION 9. CERTAIN REMEDIES.
To the extent permitted by applicable law, the holders of
twenty (20%) percent or more of the outstanding shares of Series A Preferred
Stock shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Certificate of Designation and to enforce specifically
the terms and provisions of this Certificate of Designation in the United States
District Court for either the District of Connecticut or the District of Nevada
or any court within the States of Connecticut or Nevada, this being in addition
to any other remedy to which such holder may be entitled at law or equity.
SECTION 10. REACQUIRED SHARES.
Any shares of Series A Preferred Stock exchanged, redeemed,
purchased or otherwise acquired by the Company or any of its Subsidiaries in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares of Series A Preferred Stock shall upon their
cancellation become authorized but unissued shares of preferred stock, $.001 par
value, of the Company and, upon the filing of an appropriate certificate with
the Secretary of State of the State of Delaware, may be reissued as part of
another series of preferred stock, par value $.001 per share, of the Company
subject to the conditions or restrictions on issuance set forth herein, but in
any event may not be reissued as shares of Series A Preferred Stock unless all
of the shares of Series A Preferred Stock shall have already been redeemed.
10
<PAGE> 11
SECTION 11. NO SHORT SALES OF COMMON.
No holder of any shares of Series A Preferred Stock shall
directly engage in short-selling efforts in the Company's Common Stock for so
long as it holds Preferred Stock.
SECTION 12. DEFINITIONS.
For the purposes of this Certificate of Designation of Series
A Preferred Stock, the following terms shall have the meanings indicated:
o "Additional Dividends" shall have the meaning assigned to such
term in Section 2(b).
o "Affiliate" shall have the meaning assigned to such term in
the Securities Exchange Act of 1934, as amended.
o "Alternative Dividend" shall have the meaning of a dividend
payment made by the issuance of additional shares of Series A
Preferred Stock has set forth in ss.2(c)I.
o "Approved Repurchase" shall have the meaning assigned to such
term in Section 7.
o "Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in New York City
are authorized or required by law or executive order to close.
o "Certificate of Incorporation" or "Articles of Incorporation"
shall mean the Articles of Incorporation of the Company, as
amended from time to time.
o "Common Stock" shall mean the Common Stock, par value $.001
per share, of the Company.
o "Company" shall have the meaning ascribed to such term in the
Preamble.
o "Current Market Price" per share shall mean, on any date
specified herein for the determination thereof, (a) if the
Common Stock is then listed on a national securities exchange,
designated for quotation on the National Market System or the
Small Cap Market of the Nasdaq Stock Market, quoted in the
over-the-counter-market by a member firm of the NYSE, or the
NASD OTC Bulletin Board, the average daily Market Price of the
Common Stock for those days during the period of fifteen (15)
days, ending on such date, on which the national securities
exchanges were open for trading, and (b) if the Common Stock
is not then so listed, designated or quoted, the Market Price
on such date.
o "Dividend Rate" shall mean a rate of interest equal to 8% per
annum.
o "Dividend Arrearage" shall have the meaning assigned to such
term in Section 2(b).
o "Fair Value" shall have the meaning assigned to such term in
Section 4.
o "Investor" shall mean Pioneer Ventures Associates Limited
Partnership, a Connecticut limited partnership and any one or
more parallel limited partnerships which have been or shall be
organized by Ventures Management Partners LLC as the general
partner to invest in parallel with Pioneer Ventures Associates
Limited Partnership on the same economic terms and PRO RATA
based upon their aggregate subscriptions.
11
<PAGE> 12
o "Investment Agreement" shall mean the Investment Agreement,
dated as of a date in November, 1999, by and between the
Company and the Investor.
o "Issue Date", with respect to any shares of Series A Preferred
Stock shall mean the first date on which such shares of Series
A Preferred Stock are deemed to have been issued or were
actually issued, whichever is earlier.
o "Junior Preferred Stock" shall mean any series of preferred
stock of the Company issued subsequent and in conformity with
the filing of this Certificate of Designation.
o "Junior Stock" shall mean any capital stock of the Company
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock,
including, without limitation, the Common Stock, the Series A
Preferred Stock.
o "Liquidation Preference" with respect to each share of Series
A Preferred Stock shall mean US $70 per share plus interest
thereon from the Issue Date until redemption or conversion at
the compounded rate of 18% per annum, but in no event more
than an aggregate of $175.00 per share.
o "Noncompliance Event" shall have the meaning assigned to such
term in Section 7(b).
o "Parity Stock" shall mean any capital stock of the Company
ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A
Preferred Stock.
o "Person" means an individual, a limited liability company, a
limited liability partnership, a corporation, a partnership,
an association, a joint stock company, a trust, joint venture,
an unincorporated organization or any other entity or
organization, domestic or foreign.
o "Quarterly Dividend Payment Date" shall have the meaning
assigned to such term in Section 2(a).
o "Senior Preferred Stock" shall mean all shares of Series A
Preferred Stock.
o "Senior Stock" shall mean any capital stock of the Company
ranking senior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock.
There shall be no stock senior to the Series A Preferred
Stock, unless otherwise agreed to by a majority vote of the
Series A Preferred Stock.
o "Series A Preferred Stock" shall mean the Series A Convertible
Preferred Stock, $0.001 par value per share, of the Company,
as defined in Section 1(a).
o "Subsidiary" of any Person shall mean with respect to any
Person, a corporation or other entity of which fifty (50%)
percent or more of the voting power of the voting equity
securities or equity interest, is owned, directly or
indirectly, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" herein shall
refer to a Subsidiary or Subsidiaries of the Company.
SECTION 12. SECTION REFERENCES.
All references herein to sections or subsections shall be to
sections or subsections of this Certificate of Designation unless otherwise
expressly provided.
The foregoing was authorized by the entire Board of Directors
by written consent effective November 15, 1999 and the number of votes cast by
the Directors was sufficient for approval. Shareholder approval is not required
for this action.
12
<PAGE> 13
IN WITNESS WHEREOF, Compass Knowledge Holdings, Inc. through
its designated officer has caused this Certificate to be duly executed in its
corporate name as of November 15, 1999.
COMPASS KNOWLEDGE HOLDINGS, INC.
By:
-----------------------------------
STATE OF ___________)
COUNTY OF __________)
On this 15th day of November, 1999, before me, a Notary Public in and for the
Sate and County aforesaid, personally appeared ________________, who either is
known to me personally or who supplied ________________________as
identification, acknowledged to the fact that he is the _________ of COMPASS
KNOWLEDGE HOLDINGS, INC. and that he executed as said officer and director the
foregoing Articles of Amendment of said Corporation as his act and deed and as
the act and deed of said corporation.
WITNESS my hand and seal of office on the date and year first
aforesaid.
----------------------------------
NOTARY PUBLIC
Notary Public Commission expires:
[notarial seal]
13
<PAGE> 1
EXHIBIT 3.5
BY-LAWS
OF
WINTHROP INDUSTRIES, INC.
ARTICLE I - OFFICES
The principal office of the corporation in the State of Nevada shall be
located in the City of Reno County of Washoe. The corporation may have such
other offices, either within or without the State of incorporation as the board
of directors may designate or as the business of the corporation may from time
to time require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held on the 4th day of
August in each year, beginning with the year 1989 at the hour ten o'clock A.M.,
for the purpose of electing directors and for the transaction of such other
business as may come before the meeting. If the day fixed for the annual meeting
shall be a legal holiday such meeting shall be held on the next succeeding
business day.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the president or by the
directors, and shall be called by the president at the request of the holders of
not less than ___ per cent of all the outstanding shares of the corporation
entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or without the State
unless otherwise prescribed by statute, as the place of meeting for any annual
meeting or for any special meeting called by the directors. A waiver of notice
signed by all stockholders entitled to vote at a meeting may designate
By-Laws 1
<PAGE> 2
any place, either within or without the state unless otherwise prescribed by
statute, as the place for holding such meeting. If no designation is made, or if
a special meeting be otherwise called, the place of meeting shall be the
principal office of the corporation.
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of the
meeting and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten nor more than thirty
days before the date of the meeting, either personally or by mail, by or at the
direction of the president, or the secretary, or the officer or persons calling
the meeting, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the stockholder at his address as it appears on the
stock transfer books of the corporation, with postage thereon prepaid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend, or in order to make a determination
of stockholders for any other proper purpose, the directors of the corporation
may provide that the stock transfer books shall be closed for a stated period
but not to exceed, in any case, thirty days. If the stock transfer books shall
be closed for the purpose of determining stockholders entitled to notice of or
to vote at a meeting of stockholders, such books shall be closed for at least
ten days immediately preceding such meeting. In lieu of closing the stock
transfer books, the directors may fix in advance a date as the record date for
any such determination of stockholders, such date in any case to be not more
than thirty days and, in case of a meeting of stockholders, not less than ten
days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled to
vote at any meeting of stockholders
By-Laws 2
<PAGE> 3
has been made as provided in this section, such determination shall apply to
any adjournment thereof.
6. VOTING LISTS.
The officer or agent having charge of the stock transfer books for shares
of the corporation shall make, at least ten days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
five days prior to such meeting, shall be kept on file at the principal office
of the corporation and shall be subject to inspection by any stockholder at any
time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any stockholder during the whole time of the meeting. The original stock
transfer book shall be prima facie evidence as to who are the stockholders
entitled to examine such list or transfer books or to vote at the meeting of
stockholders.
7. QUORUM.
At any meeting of stockholders a majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than said number of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
8. PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy executed
in writing by the stockholder or by his duly authorized attorney in fact. Such
proxy shall be filed with the secretary of the corporation before or at the time
of the meeting.
9. VOTING.
Each stockholder entitled to vote in accordance with the terms and
provisions of the certificate of incorporation and these by-laws shall be
entitled to one vote, in person or by
By-Laws 3
<PAGE> 4
proxy, for each share of stock entitled to vote held by such stockholders. Upon
the demand of any stockholder, the vote for directors and upon any question
before the meeting shall be by ballot. All elections for directors shall be
decided by plurality vote; all other questions shall be decided by majority
vote except as otherwise provided by the Certificate of Incorporation or the
laws of this State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders, shall be as
follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7. Unfinished Business.
8. New Business.
11. INFORMAL ACTION BY STOCKHOLDERS
Unless otherwise provided by law, any action required to be taken at a
meeting of the shareholders, or any other action which may be taken at a
meeting of the stockholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
By-Laws 4
<PAGE> 5
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the corporation shall be managed by its board
of directors. The directors shall in all cases act as a board, and they may
adopt such rules and regulations for the conduct of their meetings and the
management of the corporation, as they may deem proper, not inconsistent with
these by-laws and the laws of this State.
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the corporation shall be initially two persons.
Each director shall hold office until the next annual meeting of stockholders
and until his successor shall have been elected and qualified.
3. REGULAR MEETINGS.
A regular meeting of the directors, shall be held without other notice
than this by-law immediately after, and at the same place as, the annual
meeting of stockholders. The directors may provide, by resolution, the time and
place for the holding of additional regular meetings without other notice than
such resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the request of
the president or any two directors. The person or persons authorized to call
special meetings of the directors may fix the place for holding any special
meeting of the directors called by them.
5. NOTICE.
Notice of any special meeting shall be given at least ten days previously
thereto by written notice delivered personally, or by telegram or mailed to
each director at his business address. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail so addressed, with
postage thereon prepaid. If notice be given by telegram, such notice shall be
deemed to be delivered when the telegram is delivered to the telegraph company.
The attendance of a director at a meeting shall constitute a waiver of notice
of such meeting, except where a director attends a meeting for express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened.
By-Laws 5
<PAGE> 6
6. QUORUM.
At any meeting of the directors a majority shall constitute a quorum for
the transaction business, but if less than said number is present at a meeting,
a majority of the directors present may adjourn the meeting from time to time
without further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the directors.
8. NEWLY CREATED DIRECTORSHIP AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the
removal of directors without cause may be filled by a vote of a majority of the
directors then in office, although less than a quorum exists. Vacancies
occurring by reason of the removal of directors without cause shall be filled
by vote of the stockholders. A director elected to fill a vacancy caused by
resignation, death or removal shall be elected to hold office for the unexpired
term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for the cause by vote of the
stockholders or by action of the board. Directors may be removed without cause
only by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written notice to the board,
the president or the secretary of the corporation. Unless otherwise specified
in the notice, the resignation shall take effect upon receipt thereof by the
board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
11. COMPENSATION.
No compensation shall be paid to directors, as such, for their services,
but by resolution of the board a fixed sum and expenses for actual attendance
at each regular or special meeting of the board may be authorized. Nothing
herein contained shall be constructed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
By-Laws 6
<PAGE> 7
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of the directors
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless his dissent shall be entered in the minutes
of the meeting or unless he shall file his written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its members an executive
committee and other committees, each consisting of three or more directors. Each
such committee shall serve at the pleasure of the board.
By-Laws 7
<PAGE> 8
ARTICLE IV - OFFICERS
1. NUMBER.
The officers of the corporation shall be a president, a vice-president, a
secretary and a treasurer, each of whom shall be elected by the directors. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the directors.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the directors shall be
elected annually at the first meeting of the directors held after each annual
meeting of the stockholders. Each officer shall hold office until his successor
shall have been duly elected and shall have qualified or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided.
3. REMOVAL.
Any officer or agent elected or appointed by the directors may be removed
by the directors whenever in their judgement the best interests of the
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the directors for the unexpired
portion of the term.
5. PRESIDENT.
The president shall be the principal executive officer of the corporation and,
subject to the control of the directors, shall in general supervise and control
all of the business and affairs of the corporation. He shall, when present,
preside at all meetings of the stockholders and of the directors. He may sign,
with the secretary or any other proper officer of the corporation thereunto
authorized by the directors, certificates for shares of the corporation, any
deeds, mortgages, bonds, contracts, or other instruments which the directors
have authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the directors or by these by-laws to
some other officer or agent of the corporation, or shall be required by law to
be otherwise signed or executed; and in general shall
By-Laws 8
<PAGE> 9
perform all duties incident to the office of president and such other duties as
may be prescribed by the directors from time to time.
6. VICE-PRESIDENT.
In the absence of the president or in event of his death, inability or
refusal to act, the vice-president shall perform the duties of the president,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice-president shall perform such other
duties as from time to time may be assigned to him by the President or by the
directors.
7. SECRETARY.
The secretary shall keep the minutes of the stockholders' and of the
directors' meetings in one or more books provided for that purpose, see that all
notices are duly given in accordance with the provisions of these by-laws or as
required, be custodian of the corporate records and of the seal of the
corporation and keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder, have general
charge of the stock transfer books of the corporation and in general perform all
duties incident to the office of secretary and such other duties as from time to
time may be assigned to him by the president or by the directors.
8. TREASURER.
If required by the directors, the treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the directors shall determine. He shall have charge and custody of and be
responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these by-laws and in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the directors.
9. SALARIES.
The salaries of the officers shall be fixed from time to time by the
directors and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the corporation.
By-Laws 9
<PAGE> 10
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authority may be general or confined
to specific instances.
2. LOANS.
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution
of the directors. Such authority may be general or confined to specific
instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation, shall be
signed by such officer or officers, agent or agents of the corporation and in
such manner as shall from time to time be determined by resolution of the
directors.
4. DEPOSITS.
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositaries as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be in such form
as shall be determined by the directors. Such certificates shall be signed by
the president and by the secretary or by such other officers authorized by law
and by the directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the stockholders,
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
By-Laws 10
<PAGE> 11
former certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the directors may prescribe.
2. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the corporation which shall be kept at its principal
office.
(b) The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof, and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of
August in each year.
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX - SEAL
The directors shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the corporation, the state of
incorporation, year of incorporation and the words, "Corporate Seal".
By-Laws 11
<PAGE> 12
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the corporation under the provisions of
these by-laws or under the provisions of the articles of incorporation, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI - AMENDMENTS
These by-laws may be altered, amended or repealed and new by-laws may be
adopted by a vote of the stockholders representing a majority of all the shares
issued and outstanding, at any annual stockholders' meeting or at any special
stockholders' meeting when the proposed amendment has been set out in the notice
of such meeting.
By-Laws 12
<PAGE> 1
EXHIBIT 4.2
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
INVESTMENT AGREEMENT
by and between
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
and
COMPASS KNOWLEDGE GROUP, INC.
November 5, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. SALE AND TRANSFER OF STOCK
1.1 Series A Senior Convertible Preferred Stock.......................................2
1.2 Purchase Price and Payment........................................................2
1.3 Convertible into Common...........................................................3
1.4 Cumulative Dividend...............................................................3
1.5 Liquidation.......................................................................4
1.6 Reservation of Shares; Shares to be Fully Paid....................................4
1.7 Anti-Dilution Rights..............................................................5
1.8 Percentage of Fully Diluted Shares................................................5
1.9 Voting Rights and Prohibitive Covenants...........................................5
1.10 Voting Agreements Concerning Directors............................................6
1.11 Transfer Agent....................................................................7
1.12 Use of Proceeds...................................................................7
1.13 Additional Matters in Certificate of Designation..................................8
ARTICLE II. REGISTRATION RIGHTS
2.1 Demand Registration...............................................................8
2.2 Piggyback Registration............................................................9
2.3 Registration Covenants...........................................................10
2.4 Blue Sky Registration............................................................11
2.5 Deregistration...................................................................11
2.6 Post-Effective Amendments........................................................12
2.7 Right to Delay...................................................................12
2.8 Selection of Underwriters........................................................12
2.9 Principal Shareholders...........................................................13
2.10 Transferability of Registration Rights...........................................13
2.11 Indemnification by Company re: Registration Rights...............................13
2.12 Indemnification by Holder........................................................14
2.13 Notice of Indemnity and Defense..................................................15
ARTICLE III. CO-SALE PROVISIONS
3.1 Co-Sale Rights of Participation..................................................15
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization, Qualification and Corporate Power..................................16
4.2 Subsidiaries.....................................................................16
4.3 Authorization of Agreement.......................................................17
4.4 Validity.........................................................................18
4.5 Government Approval..............................................................18
4.6-A Capitalization of the Company....................................................18
4.7 Annual Report and the Financial Statements.......................................19
4.8 Patents, Trademarks, Etc.........................................................20
4.9 Taxes............................................................................20
</TABLE>
<PAGE> 3
Page ii
<TABLE>
<CAPTION>
<S> <C> <C>
4.10 Approvals........................................................................21
4.11 Litigation.......................................................................21
4.12 Schedule of Documents............................................................22
4.13 No Defaults......................................................................22
4.14 Lack of Felonies.................................................................23
4.15 No Judgments.....................................................................23
4.16 Insurance........................................................................23
4.17 No Brokers.......................................................................23
4.18 Loans and Liens..................................................................24
4.19 Solvency.........................................................................24
4.20 Registration Rights..............................................................24
4.21 Compliance with Securities Laws..................................................24
4.22 Transfer Restrictions............................................................25
4.23 Related Party Transactions.......................................................25
4.24 Miscellaneous....................................................................25
4.25 Certain Specific Representations.................................................26
4.26 Use of Proceeds..................................................................28
4.27 Intentionally Omitted............................................................28
4.28 Wages and Salary.................................................................28
4.29 Complete Disclosure..............................................................28
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PIONEER PARTNERSHIP
5.1 Organization.....................................................................28
5.2 No Breach........................................................................29
5.3 Authority for and Binding Nature of Agreement....................................29
5.4 Brokers..........................................................................29
5.5 Securities Laws Matters..........................................................29
5.6 Additional Matters...............................................................31
ARTICLE VI. COVENANTS
6.1 Financial........................................................................31
6.2 Access...........................................................................32
6.3 Books of Record and Account......................................................33
6.4 Membership on Board..............................................................34
6.5 Future Issuances; Stock Option Plan and Compensation.............................34
6.6 Rule 144 Compliance..............................................................35
6.7 Undertaking to Register its Securities...........................................35
6.8 Undertaking to File 34 Act Filings; and be Listed on NASDAQ......................36
6.9 Confidentiality/Non-compete Agreements...........................................36
6.10 No Breach........................................................................36
ARTICLE VII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PIONEER
PARTNERSHIP TO CLOSE
7.1 Representations and Warranties...................................................37
7.2 Covenants........................................................................37
</TABLE>
<PAGE> 4
Page iii
<TABLE>
<CAPTION>
<S> <C> <C>
7.3 No Actions.......................................................................37
7.4 Consents, Licenses and Permits...................................................38
7.5 Certificate......................................................................38
7.6 Legal Opinion....................................................................38
7.7 No Material Adverse Change.......................................................39
7.8 Agreements with Principals.......................................................39
7.9 Key Person Insurance.............................................................39
7.10 Patents..........................................................................39
7.11 Approval of Counsel..............................................................39
7.12 Consents, Licenses and Permits...................................................40
7.13 Additional Documents.............................................................40
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO CLOSE
8.1 Representations and Warranties...................................................40
8.2 Covenants........................................................................41
8.3 No Actions.......................................................................41
8.4 Additional Documents.............................................................41
8.5 Approval of Counsel..............................................................41
ARTICLE IX. CLOSING
9.1 Location.........................................................................41
9.2 Items to be Delivered by the Company.............................................41
9.3 Items to be Delivered by the Pioneer Partnership.................................43
ARTICLE X. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; FEES
10.1 Survival.........................................................................43
10.2 Indemnification..................................................................43
10.3 Defense of Claims................................................................43
10.4 Rights without Prejudice.........................................................44
ARTICLE XI. FEES
11.1 Investment Banking Fees..........................................................44
11.2 Expenses.........................................................................44
11.3 Legal Fees.......................................................................44
11.4 Accounting Fees..................................................................45
11.5 Break-Up Fee.....................................................................45
ARTICLE XII. TERMINATION AND WAIVER
12.1 Termination......................................................................45
12.2 Waiver...........................................................................46
ARTICLE XIII. MISCELLANEOUS PROVISIONS
13.1 Expenses.........................................................................46
</TABLE>
<PAGE> 5
Page iv
<TABLE>
<CAPTION>
<S> <C> <C>
13.2 Modification, Termination or Waiver..............................................46
13.3 Notices..........................................................................47
13.4 Binding Effect and Assignment....................................................47
13.5 Entire Agreement.................................................................48
13.6 Calendar Days....................................................................48
13.7 Exhibits.........................................................................48
13.8 Governing Law....................................................................48
13.9 Consent to Jurisdiction..........................................................48
13.10 Counterparts.....................................................................48
13.11 Section Headings.................................................................48
13.12 Gender...........................................................................48
13.13 Use of Term "Pioneer Partnership"................................................49
</TABLE>
<PAGE> 6
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT dated as of November 5, 1999 ("Agreement") by and among
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP, a Connecticut limited
partnership with offices at 651 Day Hill Road, Windsor, Connecticut 06095 (the
"Pioneer Partnership"), AND COMPASS KNOWLEDGE GROUP, INC., a Florida corporation
with offices at 2710 Rew Circle, Suite 100, Ocoee, Florida 34761 (the
"Company").
R E C I T A L S :
A. The Company desires to obtain additional funds to finance the
development and marketing of new business products, and to use such funds for
working capital, and closing financing costs, all budgeted as set forth herein.
B. The Pioneer Partnership desires to finance the Company for such
purposes on the terms and conditions set forth below as an equity investment.
C. The parties acknowledge that 5,000 shares of Series A Senior
Convertible Preferred Stock have been authorized under the Company's amended
articles of incorporation by the filing of a certificate of designation, which
was filed with the Florida Secretary of State on or about November ___, 1999
(collectively the "Preferred Stock" or "Series A Preferred Stock") to be issued
by the Company to the Pioneer Partnership pursuant to this Investment Agreement.
E. The Pioneer Partnership desires to finance the Company for such
purposes on the terms and conditions set forth below.
NOW THEREFORE, in consideration of the investment to be made, mutual
benefits to be derived hereby and the representations, warranties, covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and the
Pioneer Partnership agree as follows:
<PAGE> 7
Page 2
ARTICLE I. SALE AND TRANSFER OF STOCK
1.1 Series A Senior Convertible Preferred Stock.
(a) Upon the terms and subject to the conditions hereinafter set forth,
at the closing (as hereinafter defined and set forth), the Company shall issue,
sell, transfer and deliver to the Pioneer Partnership an aggregate of two
thousand (*2,000*) shares of the Company's Series A Senior Convertible Preferred
Stock, $.001 par value (the "Preferred Stock") at the Purchase Price set forth
in Section 1.2 hereof; the Preferred Stock shall have the terms and be issued
subject to the conditions as set forth herein and in the Certificate of
Designation designating the terms of the Series A Preferred Stock filed or to be
filed and recorded with the Secretary of State of the State of Florida upon the
occurrence of the Closing as set forth below; such amended Certificate of
Designation may also be referred to herein as the "Certificate of Incorporation"
or the "Articles of Incorporation".
(b) Upon sale and issuance to the Pioneer Partnership each share of
Preferred Stock shall be free and clear of all manner of liens, pledges,
encumbrances, charges and claims thereon.
(c) Certificates evidencing the Preferred Stock shall be delivered by
the Company to the Pioneer Partnership within ten (10) days of Closing. Such
certificates shall also be accompanied by evidence satisfactory to the Pioneer
Partnership of the Company's payment of any applicable transfer and franchise
taxes. Said stock will not be issued in a transaction registered with the U.S.
Securities and Exchange Commission ("Commission") and shall, therefore, be
restricted from resale to the public. The Preferred Stock Certificate shall be
in the form annexed hereto as EXHIBIT 1.1.
1.2 Purchase Price and Payment.
The Purchase Price for the Preferred Stock to be sold to the Pioneer
Partnership pursuant to this Investment Agreement shall be eight hundred
seventy-five ($875.00) dollars per share. Upon the occurrence and consummation
of the Closing, and in consideration therefor, the Pioneer Partnership shall pay
the Company at that Closing, by check or draft, the sum of one million seven
hundred fifty thousand ($1,750,000.00) dollars as full consideration for its
subscription therefor.
<PAGE> 8
Page 3
1.3 Convertible into Common.
The conversion shall be based upon a price of two ($2.00) dollars per
common share (the "Conversion Price"). Each share of Preferred Stock shall be
convertible at the option of the holder into four hundred thirty-seven and
50/100 (437.5) shares of the Common Stock of the Company, $.001 par value (the
"Common Stock") at any time and from time-to-time. The Conversion Price and the
number of shares of Common Stock issuable upon conversion of the Preferred Stock
will be subject to adjustment in certain circumstances upon any
recapitalizations, including but not limited to stock splits, readjustments or
reclassifications, to protect against dilution, as set forth in more detail in
the Certificate of Incorporation, as amended at the date hereof.
1.4 Cumulative Dividend. Holders of the Preferred Stock shall also be
entitled to an eight (8%) percent cumulative quarterly cash dividend, calculated
upon the amount actually invested by the first holder of such preferred stock or
$70 per share annually; the dividend shall be payable quarterly in arrears
($17.50 per share) calculated on a 360-day year consisting of twelve 30-day
months, and payable immediately out of the assets of the Company legally
available therefor. The Preferred Stock dividend shall be paid before any
dividend shall be set apart or paid on the Common Stock for such quarter or for
any other class of capital stock which has a preference either junior, equal or
senior to this Preferred Stock. The Series A Preferred Stock shall be senior to
all other classes of capital stock. If less than the full preferential dividend
is paid (as a partial payment or if no dividend is paid) to the holders of the
Preferred Stock in any quarter, the unpaid amount shall accumulate and be added
to the preferential dividends due in any subsequent quarter; such unpaid
dividends shall accrue at an increased rate of ten (10%) percent ($87.50 per
share annually or $21.875 per share quarterly) and shall be paid first before
dividends due in the current quarter are paid. No dividends shall be paid to the
holders of the Common Stock or any other classes of stock if any dividends are
unpaid on the Preferred Stock. No class of capital stock shall be paid any
dividend unless and until all dividends accrued and unpaid are paid on the
Preferred Stock are paid in full. The dividends may be paid, in whole or in
part, by the issuance of additional shares of Series A Preferred Stock upon the
same terms as cash dividends payable hereunder except such shares shall bear an
annual dividend rate of eight (8%) percent ($17.50 per share annually or $4.375
per share quarterly). In addition, if there is a Dividend Arrearage, an
Additional Dividend shall be paid
<PAGE> 9
Page 4
which shall be calculated using, as one factor, the Liquidation Preference (all
as defined in the Certificate of Designation).
1.5 Liquidation.
In cases of the voluntary or involuntary liquidation, bankruptcy,
receivership, dissolution or winding up of the Company (other than bankruptcies,
receiverships, etc. which are dismissed within 120 days of filing of the same),
holders of shares of the Preferred Stock shall be entitled to receive a
liquidation preference equal to seventy ($70) dollar per share plus interest
thereon from the date of issue until redemption or conversion at the rate of
eighteen (18%) percent (the "Liquidation Preference"), subject to the
Certificate of Designation, and the adjustments herein and therein, plus an
amount equal to any accrued and unpaid dividends to the payment date, before any
payment or distribution is made to the holders of Common Stock or any other
securities of the Company. Neither a consolidation, reorganization or merger of
the Company with another corporation nor a sale or transfer of all or part of
the Company's assets for cash, securities or other property will be considered a
liquidation, dissolution or winding up of the Company, provided that all accrued
but unpaid dividends on the Preferred Stock will be due and paid upon the
occurrence of such event or upon the public offering of the Company's
securities.
1.6 Reservation of Shares; Shares to be Fully Paid. As of the date
hereof, the Company has reserved, free from preemptive rights, out of its
authorized but unissued shares of Common Stock, or out of shares of Common Stock
held in its treasury, sufficient shares to provide for the conversion of the
Preferred Stock. Before taking any action which would cause an adjustment
reducing the conversion value below the then par value, if any, of the shares of
Common Stock issuable upon conversion of the Preferred Stock, the Company shall
promptly take all corporate action which may be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted conversion price. The Company covenants that all shares of Common Stock
which may be issued upon conversion of the Preferred Stock will upon issue be
fully paid and nonassessable.
1.7 Anti-Dilution Rights. The holders of the Preferred Stock shall have
all of the anti-dilution rights and preemptive rights set forth in the Company's
Certificate of Incorporation, as amended by the Certificate of Designation
contemporaneously with the execution and delivery of this Agreement.
<PAGE> 10
Page 5
1.8 Percentage of Fully Diluted Shares.
(a) The shares of Preferred Stock to be delivered by the Company to the
Pioneer Partnership as set forth above shall, if converted, constitute
seven and 2165/10000 (7.2165%) percent of the fully diluted issued and
outstanding Common Stock of the Company as of the Closing Date, as
hereinafter defined, on an equity basis.
(b) The capitalization of the Company is as set forth on EXHIBIT 1.8(B)
hereto.
(c) The term "fully diluted" as used in this Agreement shall mean the
number of shares of the Common Stock of the Company to be outstanding
upon the exercise or conversion of all warrants, options or other
securities convertible into the Common Stock of the Company outstanding
as of the Closing Date, including the Preferred Stock to be issued on
the Closing Date.
1.9 Voting Rights and Prohibitive Covenants. The Preferred Stock shall
have full voting rights and shall be voted together with the Common Stock as one
class, and the shares of Preferred Stock shall entitle the holder thereof to the
number of votes as if the Preferred Stock had been converted into shares of
Common Stock on the appropriate record date. So long as any of the Preferred
Stock is outstanding, which, upon its conversion, would result in the Pioneer
Partnership owning three (3%) percent or more of the Company's Common Stock, on
a fully diluted basis, the Company shall not without the affirmative vote or
consent of the holders of a majority of all outstanding shares of the Preferred
Stock voting separately as a class (i) amend, alter or repeal any provision of
the Certificate of Incorporation, Certificate of Designation, or the bylaws of
the Company so as to adversely affect the relative rights, preferences,
qualifications, limitations or restrictions of the Preferred Stock, (ii)
authorize or issue any additional equity securities of the Company or any
subsidiaries which would have the effect of reducing the ownership interest of
the Pioneer Partnership in the Company below 4.5% other than the issuance of
equity securities or debt or other instruments convertible into equity
securities (x) for the purpose of raising additional capital, or (y) as a result
of an acquisition of another company by the Company or its subsidiaries, however
such consent shall not be unreasonably withheld, (iii) approve any merger,
consolidation, compulsory share exchange or sale of substantially all of
<PAGE> 11
Page 6
the assets of the Company outside of the ordinary course of business, to which
the Company is a party which would have the effect of reducing the ownership
interest of the Pioneer Partnership in the Company below 4.5%, however such
consent shall not be unreasonably withheld, (iv) repurchase or redeem any equity
securities or pay dividends or other distributions on any equity securities,
unless all accrued and unpaid dividends on the Preferred Stock have been paid in
full, (v) liquidate, dissolve, recapitalize or reorganize the Company which
would have the effect of reducing the ownership interest of the Pioneer
Partnership in the Company below 4.5%, (vi) guarantee indebtedness, of other
persons, directly or indirectly, (vii) effect any fundamental changes in the
nature of the Company's business, including but not limited to acquiring or
investing in another business entity which shall be in a business unrelated to
the business conducted by the Company, and (viii) approve the sale or transfer
of intangible or intellectual property, other than the issuance of licenses in
the ordinary course of business.
1.10 Voting Agreements Concerning Directors.
Effective immediately prior to or concurrently with the Closing, one
(1) nominee of the Pioneer Partnership shall be elected a director of the
Company for successive one-year terms. So long as the Pioneer Partnership shall
own three (3%) percent or more of the Company's Common Stock directly or through
the possible conversion of its Preferred Stock, all on a fully diluted basis,
the Company shall nominate and include in the list of candidates for directors
recommended by the Board of Directors, and use its best efforts to have elected
one nominee of the Pioneer Partnership. In furtherance of the foregoing, Rogers
W. Kirven, Jr. or Daniel Devine, or any trusts, or other entities or affiliates
(collectively "Principal Shareholders") holding the voting rights to their
shares, shall simultaneously execute and deliver to the Pioneer Partnership a
Partnership's Voting and Shareholders Agreement confirming the terms of Sections
1.10 and 6.4 hereof. Should the Pioneer nominee decline to be nominated as
elected, any Pioneer Partnership designee shall have the right to attend any and
all meetings of the board of directors of the Company, and the Company shall be
required to deliver notice to the Pioneer Partnership such designee as if such
designee were a director.
1.11 Transfer Agent. The transfer agent and registrar for all classes
of the Company's stock shall be Interwest Transfer Co., Inc., or Continental
Stock Transfer Company, Inc.
<PAGE> 12
Page 7
1.12 Use of Proceeds. The net proceeds to be received by the Company,
after deduction of all applicable expenses of the closing will be approximately
$1,680,000, and the gross proceeds shall be used and applied only as follows:
USE OF PROCEEDS
USE OF PROCEEDS Funds from Pioneer Closing
- --------------- --------------------------
Investment Banking Fee $ 25,000
PVLP Legal Fees $ 25,000
PVLP Expenses $ 5,000
----------
PVLP Closing Costs $ 55,000
==========
Company Legal Fees $ 10,000
Company Expenses $ 5,000
----------
Company's Closing Costs $ 15,000
----------
Total Closing Costs $ 70,000
Operation Uses
1. Development and marketing of $1,000,000
new programs and business
2. Working Capital $ 660,000
Total Operations Uses $1,680,000
----------
TOTAL PROCEEDS: $1,750,000
==========
The Company shall expend these funds for the purposes indicated within
two years of their receipt. No portion of the gross proceeds will be paid to the
Principal Stockholders, officers, directors, or their affiliates or associates.
No portion of the net proceeds of the Closing except for working capital may be
paid to those persons, directly or indirectly, as consultant fees, advisor fees,
officer salaries or director fees or other payments, or to make loans. The
Company and its officers and directors shall attest to the affect that for the
period six (6) months prior to the closing to the date hereof, there were no
material increases in compensation of fees or
<PAGE> 13
Page 8
salaries not disclosed in EXHIBIT 4.28 hereto. No portion of the closing
proceeds will be used to pay cash finder's fees nor will the Company issue
securities in payment of finder's fees to the Principal Stockholders, officers,
directors, or their affiliates or associates, or to anyone else.
1.13 Additional Matters in Certificate of Designation. Certain other
provisions are provided for in the Certificate of Designation, including but not
limited to an option on the part of the Company to cause a conversion of the
Preferred Stock into Common Stock; a right of first refusal to purchase
additional issuances of securities; and a right of redemption in favor of the
Company.
ARTICLE II. REGISTRATION RIGHTS
2.1 Demand Registration. The Company agrees that within sixty days of
receiving a written request of the Pioneer Partnership or a majority of its
direct assigns (the "Holders"), for so long as such Holders in the aggregate,
are holders of Preferred Stock and/or Common Stock ("Initiating Holders"), on
one (1) occasion, but not prior to July 1, 2000 provided that the Company is a
reporting company under the Exchange Act, or has filed a registration statement
under the 1933 Act, or such other means by which the Company has then become a
"public company" or "goes public" such that it has a class of stock which is
publicly traded, but in no event shall such right continue to be suspended after
one (1) year from the date of the Closing hereof, shall, at the Company's sole
cost and expense, use its reasonable best efforts to cause any or all of the
Preferred Stock and/or the underlying securities issuable upon conversion of the
Preferred Stock (collectively the "Registrable Securities"), to be the subject
of an appropriate Registration Statement, so as to enable the Initiating Holders
to publicly offer without restriction such securities. Upon receipt of a written
request by the Initiating Holders, the Company will promptly give written notice
of the proposed registration to all other Holders and as soon as practicable,
use its diligent reasonable best efforts to effect such registration with the
Commission (including, without limitation, the execution of an undertaking to
file post-effective amendments, appropriate qualification filings under
applicable state securities (blue sky) laws and appropriate compliance with
applicable regulations issued under the 1933 Act). The Company shall file such
registration statement pursuant to the Securities Act of 1933, as
<PAGE> 14
Page 9
amended (the "1933 Act") to register the Registrable Securities for resale. The
Company shall use its reasonable best efforts to cause such registration
statement to become and remain effective (including the taking of such steps as
are reasonably necessary to obtain the removal of any stop order) on a timely
basis.
2.2 Piggyback Registration. (A) So long as the Pioneer Partnership or
its assigns are the holders of Preferred Stock or Common Stock, if the Company
shall register any of its securities for sale pursuant to any appropriate
Registration Statement under the 1933 Act, the Company shall be required to
offer the Holders the opportunity to register any or all the Registrable
Securities, without cost to the Holders thereof (except for the cost of Holders'
counsel, which shall be paid by Holders). In connection with these piggy-back
registration rights, the Company shall give all of the Holders of such
securities notice by certified mail at least thirty (30) business days prior to
the filing of such Registration Statement under the Act. The Holders shall then
have twenty-five (25) days to elect to include all or a portion of its
Registrable Securities for sale in the Registration Statement. (B) The
registration requirement shall not apply to a Registration Statement filed by
the Company pursuant to Form S-8 or S-4 with the sole and express purpose of
registering shares for employees or for stock incentive plans, or any other
inappropriate form. (C) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company will so
advise the Holders. In such event, these registration rights shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter selected by the Company. In the event that
the lead or managing underwriter in its good faith judgment determines that
material adverse market factors require a limitation on the number of shares to
be underwritten, the underwriter may limit the number of Registrable Securities.
In such event, the Company shall so advise all holders of securities requesting
registration, and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated PRO RATA among
all Holders and other participants in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities and other securities which they
had requested to be included in such registration
<PAGE> 15
Page 10
statement at the time of filing the registration statement. If any Holder
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the underwriter, provided such
notice is delivered within thirty (30) days of full disclosure of such terms to
such Holder, without thereby affecting the right of such Holder to participate
in subsequent offerings hereunder.
2.3 Registration Covenants. In the case of each registration effected
by the Company pursuant to this Article II, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will:
(i) Keep such registration effective for a minimum period of
270 days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever
first occurs; PROVIDED, HOWEVER, that in the case of any registration
of Registrable Securities on Form S-3 which are intended to be offered
on a continuous or delayed basis, such 270 day period shall be
extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415,
or any successor rule under the Securities Act, permits an offering on
a continuous or delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation to file a
post-effective amendment, permit, in lieu of filing a post-effective
amendment which (1) includes any Prospectus required by Section
10(a)(3) of the Securities Act, or (2) reflects facts or events
representing a material or fundamental change in the information set
forth in the registration statement, the incorporation by reference of
information required to be included in (1) and (2) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of
the Exchange Act in the registration statement;
(ii) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request;
and
<PAGE> 16
Page 11
(iii) In connection with any underwritten offering, the
Company and the Holders will enter into any underwriting agreement
reasonably necessary to effect the offer and sale of Registrable
Securities, provided such agreement contains customary underwriting
provisions.
2.4 Blue Sky Registration. The Company will use its reasonable best
efforts to register or qualify the Registrable Securities covered by any
registration statement under the 1933 Act and under such securities or blue sky
laws in such jurisdictions within the United States as the Pioneer Partnership
may reasonably request; PROVIDED, HOWEVER, that the Company reserves the right,
in its sole discretion, not to register or qualify such shares of Registrable
Securities in any jurisdiction in which such shares of Common Stock do not
satisfy the requirements of such jurisdiction or in which the Company would be
required to qualify as a foreign corporation to do business in such jurisdiction
and is not so qualified therein. The Company covenants that notwithstanding the
above, that it shall use its reasonable best efforts, at a minimum, to register
or qualify the Registrable Securities in the States of Connecticut and New York.
2.5 Deregistration. In the event the Company has not sold all of the
Registrable Securities included in the registration statement prior to the
expiration of the 270 day registration period under Section 2.3, the Pioneer
Partnership hereby agrees that the Company may deregister by post-effective
amendment any Registrable Securities of the Pioneer Partnership covered by the
registration statement but not sold on or prior to such date.
2.6 Post-Effective Amendments. The Company agrees that it will notify
the Pioneer Partnership of the filing and effective date of each such
post-effective amendment.
2.7 Right to Delay. The Company shall have the right, after it shall
have received written notice pursuant to ss.2.1, to elect not to file or to
delay any such proposed registration during the first 180 days following the
declaration of effectiveness of a registration statement for the Company's first
initial public offering. Further, the Company shall have the one-time right,
after it shall have received written notice pursuant to ss.2.1, to elect not to
file or to delay any such
<PAGE> 17
Page 12
proposed registration statement by not more than 60 days, or to withdraw the
same after the filing but prior to the effective date thereof; such withdrawal
shall renew the Demand Registration rights under ss.2.1. In addition, the
Company may delay the filing, one time only, of any registration statement
requested pursuant to ss.2.1 hereof by not more than 60 days if the Company,
prior to the time it would otherwise have been required to file such
registration statement, determines in good faith that the filing of the
registration statement would require the disclosure of non-public material
information that, in its judgment, would be detrimental to the Company if so
disclosed or would otherwise adversely affect a financing, acquisition,
disposition, merger or other material transaction.
2.8 Selection of Underwriters. If a Demand Registration pursuant to
ss.2.1 hereof involves an underwritten offering, the Company shall have the
right to select the investment banker or investment bankers and manager or
managers that will serve as the underwriter with respect to the underwritten
offering; however the Pioneer Partnership shall have the right to approve the
underwriter and such approval shall not be unreasonably withheld or delayed
without a material reason stated in writing.
2.9 Principal Shareholders. For so long as the Pioneer Partnership or
its limited partners collectively own at least three (3%) percent of the
Company's Common Stock directly or through the possible conversion of the
Preferred Stock (other than a Registration Statement filed by the Company
pursuant to Form S-3 or S-8 with the express purpose of registering shares for
employees pursuant to its stock incentive plans), the Company will not file a
registration statement on behalf of any Principal Shareholder (as that term is
defined in the Voting and Shareholders Agreement between the Pioneer Partnership
and certain shareholders of the Company, dated on or about the date hereof) as
selling shareholders without the prior written approval of the Pioneer
Partnership. The Pioneer Partnership agrees it will consent to permit the
Principal Shareholders to participate in a piggyback registration up to
twenty-five (25%) percent of the total number of shares being registered,
provided there are no defaults or breaches of this Agreement or the Voting and
Shareholders Agreement not cured within thirty (30) days. Further, in the event
that any underwriter, in its good faith judgment determines that material
adverse market factors require a limitation on the number of shares to be
underwritten, then upon
<PAGE> 18
Page 13
written notice the Principal Shareholders shall immediately terminate their
participation in the underwritten offering before any other participant is
required to reduce their participation level.
2.10 Transferability of Registration Rights. The registration rights
described in ss.2.1 and ss.2.2 are freely transferable by the holders of
Registrable Securities to any person to whom such holder transfers its
Registrable Securities.
2.11 Indemnification by Company re: Registration Rights. For a period
of three (3) years from the effective date of such registration statement, the
Company will indemnify each Holder, each of its officers, directors and
partners, and each person controlling such Holder, with respect to which
registration, qualification or compliance has been effected pursuant to this
Article II, and each underwriter, if any, and each person who controls any
underwriter against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
material untrue statement) of a material fact contained in any prospectus,
offering statement, notification or the like incident to any such registration,
qualification or compliance, or based on any omission (or alleged material
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors and partners, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, PROVIDED THAT the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such Holder or underwriter and stated to
be specifically for use therein.
2.12 Indemnification by Holder. Each Holder will, if Registrable
Securities or other securities held by him are included in the securities as to
which such registration, qualification, or compliance is being effected,
indemnify the Company, each of its directors and officers and
<PAGE> 19
Page 14
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of the Securities Act and the rules and regulations
thereunder, each other such Holder and each of their officers, directors, and
partners, and each person controlling such Holder, for a period of one (1) year
from the effective date of such registration statement, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged material untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged material omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and such
Holders, directors, officers, partners, persons, underwriters or control persons
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein provided.
2.13 Notice of Indemnity and Defense. Each party entitled to
indemnification under this Section (the "Indemnified Party") shall give notice
to the party requiring to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnified Party of its obligations under
this Article II. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the
<PAGE> 20
Page 15
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
ARTICLE III. CO-SALE PROVISIONS
3.1 Co-Sale Rights of Participation. Any sale of the capital stock of
the Company by any Principal Shareholder will be subject to a participation
right of co-sale by the Pioneer Partnership or its assigns on a PRO RATA fully
diluted basis as set forth in that certain Voting and Shareholders Agreement
dated November 4, 1999 ("Co-Sale").
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the following representations and warranties to the
Pioneer Partnership each of which shall be deemed material, and the Pioneer
Partnership, in executing, delivering and consummating this Agreement, have
relied and will rely upon the correctness and completeness of each of such
representations and warranties:
4.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Florida; and is not required to be qualified to transact
business as a foreign corporation in any other states or foreign jurisdictions
in which its activities require qualification and the failure to be so qualified
would have a material adverse effect on the business and operations of the
Company; and has all corporate power necessary to engage in the business in
which it is presently engaged.
4.2 Subsidiaries. The Company has no subsidiaries or affiliated
entities, nor is it the subsidiary or affiliate of any other corporation or
business entity except for (a) Rehabilitation Training Institute, Inc., (b)
Academy of Ambulatory Anesthesia Safety, Inc., and, (c) Intelicus, L.C.
(collectively "Subsidiaries"), AND (d) there are no affiliates of the Company.
The Subsidiaries are all wholly owned by the Company, except that Intelicus is
owned 65% by the
<PAGE> 21
Page 16
Company and 35% by the University of Florida Health Services, Inc.; and the
University is presently negotiating the exchange of its holdings in Intelicus
for 500,000 shares of stock in the Company. The Subsidiaries and affiliates are
entities duly organized and validly existing and in good standing under the laws
of the State Florida; are each duly qualified to transact business in its state
of incorporation, being all states or foreign jurisdictions or countries in
which their respective activities require qualification and the failure to be so
qualified would have a material adverse effect on the business and operations of
the Company or its Subsidiaries or affiliates; and have all corporate power
necessary to engage in the business in which they are presently engaged. The
Subsidiaries are controlled by the Company, as such term is governed by ss.20(a)
of the 1933 Act. For purposes of this section, the term "Subsidiary" is defined
to mean any corporation or other business entity, a majority of whose
outstanding voting stock or ownership interests entitled to vote for the
election of directors or such other governing body is, at the time, owned by the
Company and/or one or more other subsidiaries. The term "affiliate" is defined
as that term is defined in the federal securities laws and the regulations of
the Commission pursuant to those laws, excluding the term "individuals".
4.3 Authorization of Agreement. The execution, delivery and performance
by the Company of this Investment Agreement and all other documents and
instruments contemplated hereby have been duly authorized by all requisite
corporate action. A true, correct and valid copy of the Company's Board of
Director's resolution(s) authorizing the transactions and securities to be
issued hereunder has been delivered to the Pioneer Partnership. Neither the
execution and delivery of this Agreement nor compliance by the Company with any
of the provisions hereof nor the consummation of the transactions contemplated
hereby, will:
(a) violate or conflict with any provision of the Certificate
of Incorporation or bylaws of the Company or its Subsidiaries or any
contract to which the Company or any of its Subsidiaries is bound;
(b) violate or, alone or with notice or the passage of time,
result in the material breach or termination of, or otherwise give any
contracting party the right to terminate, or declare a material default
under, the terms of any material
<PAGE> 22
Page 17
agreement or other material document or undertaking, oral or written to
which the Company or any of its Subsidiaries is a party or by which it
or its properties or assets may be bound (except for such violations,
conflicts, breaches or defaults as to which required waivers or
consents by other parties have been, or will be obtained, prior to the
Closing);
(c) result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
the Company or any of its Subsidiaries pursuant to the terms of any
such agreement or instrument;
(d) violate any judgment, order, injunction, decree or award
against, or binding upon the Company or any of its Subsidiaries or
affiliates or upon their properties or assets; or
(e) to the best of the Company's knowledge, violate any law or
regulation of any jurisdiction relating to either the Company or any of
its respective securities, assets or properties or of any of its
Subsidiaries or affiliates in any material manner which could adversely
effect the Company.
4.4 Validity. This Agreement has been duly executed and delivered by
the Company and constitutes the valid and legally binding obligation of the
Company, enforceable in accordance with its terms.
4.5 Government Approval. To the best of the knowledge of the Company,
after diligent inquiry, no registration or filing with, or consent or approval
of, or other action by, any federal, state or other governmental agency or
instrumentality is or will be necessary for the valid execution, delivery and
performance of this Investment Agreement or any other document contemplated
hereby.
4.6-A Capitalization of the Company. Immediately prior to filing the
Certificate of Designation there will be: (a) twenty-five million (25,000,000)
shares of Common Stock, $.001 par value, and (b) five million (5,000,000) shares
of Preferred Stock, $0.001 par value, of which
<PAGE> 23
Page 18
five thousand (5,000) shares have been designated as Series A Preferred Stock,
$0.001 par value, all as authorized for issuance under the Company's certificate
of incorporation, as amended (delivered along with the Company's bylaws to the
Pioneer Partnership). Immediately after the filing of the Certificate of
Designation: there will be (i) nine million two hundred fifty thousand
(9,250,000) shares of Common Stock issued and outstanding, and (ii) two thousand
(2,000) shares of Series A Preferred Stock issued and outstanding, and (iii)
there are one million five hundred thousand (1,500,000) options each to purchase
one share at an exercise price of $0.75 per share expiring September 1, 2004. At
the Closing Date no shares of Common Stock are issuable pursuant to existing
agreements and there are no outstanding warrants, options or other securities
convertible into the Common Stock of the Company, except as stated above. No
other shares of Common Stock or securities are issued or outstanding or
committed for issuance except those committed for issuance upon conversion of
the Preferred Stock to be issued to the Pioneer Partnership hereunder.
4.7 Annual Report and the Financial Statements. The Company has
heretofore furnished to the Pioneer Partnership copies of (a) Intelicus' audited
financial statements for its fiscal year ended December 31, 1998 audited by the
accounting firm of BDO Seidman & Company LLP, and (b) the Company's consolidated
unaudited interim financial statement for the six months ended June 30, 1999,
(hereinafter the financial statements for both the Company and Intelicus shall
hereafter be collectively referred to as the "financial statements"). Such
financial statements are true, correct and complete in all material respects,
and accurately set forth, in all material respects, the financial condition of
the Company and/or its Subsidiaries as of their respective dates, and the
results of operations for the fiscal periods involved, and were prepared in
conformity with generally accepted accounting principles and practices
consistently applied and are annexed hereto as EXHIBIT 4.7-A. The financial
statements fairly present in all material respects the financial condition and
results of operations of the Company and/or its Subsidiaries at the dates
thereof and for the periods covered thereby. Except as set forth in such
financial statements, the Company and/or its Subsidiaries had, as of December
31, 1998, no material obligation or liability, whether absolute, accrued,
contingent or otherwise.
<PAGE> 24
Page 19
(a) The Company and/or its Subsidiaries have good and
marketable title to all of its property and assets subject to no
mortgage, pledge, lien or other encumbrance except as disclosed in
EXHIBIT 4.7-B annexed hereto and made a part hereof, except for assets
leased or licensed to the Company.
(b) To the best of the Company's knowledge, the Company and/or
its Subsidiaries had no obligations, liabilities or commitments,
contingent or otherwise, of a material nature which were not provided
for except as set forth in EXHIBIT 4.7-A and except those incurred in
the normal course of business since December 31, 1998.
(c) Since December 31, 1998 there has been no materially
adverse change in the nature of the business of the Company and/or its
Subsidiaries nor in any of their financial condition or property, other
than changes in the usual or ordinary course of business, and to the
best of the Company's knowledge, the Company has incurred no
obligations or liabilities nor made any commitments other than in the
usual and ordinary course of business or as disclosed in EXHIBIT 4.7-B.
(d) The Company and/or its Subsidiaries are not a party to any
employment contract with any officer, director, or stockholder, or to
any lease, agreement or other commitment not in the usual and ordinary
course of business, nor to any pension, insurance, profit-sharing or
bonus plan, except as disclosed in EXHIBIT 4.7-A and EXHIBIT 4.7-B.
4.8 Patents, Trademarks, Etc. . The Company and/or its Subsidiaries own
or possess, without any adverse claims with respect thereto, and without known
conflict with the rights of others, except as disclosed in EXHIBIT 4.8, the
rights to the patents, trademarks, service marks, trade names, copyrights and
licenses listed in EXHIBIT 4.8 hereto and the same constitute all of the
patents, trademarks, service marks, service names, copyrights, and licenses
necessary, used or useful in the conduct of the business of the Company
(collectively the "Patents"); the Company has not applied for or attempted to
register any of its Patents as it believes it possesses no patentable content or
materials, thus EXHIBIT 4.8 reflects no Patents. The Company protects all
<PAGE> 25
Page 20
technical, trade secret and confidential information developed by and belonging
to the Company and/or its Subsidiaries, which has not been patented, by
maintenance of secrecy relating thereto, and the Company and/or its Subsidiaries
will continue to seek to protect all such information, technology and
intellectual property by maintenance of secrecy related thereto.
4.9 Taxes. To the best of the Company's knowledge the Company and its
respective Subsidiaries have filed all applicable federal, state, county and
local tax and franchise returns and reports required to be filed by it and has
paid (or, as to taxes not currently due and payable, has made adequate provision
in accordance with generally accepted accounting principles for the payment of)
all income and other taxes, assessments, franchise fees and other governmental
charges required by law (including, without limitation, withholding, social
security, payroll and similar taxes) and all interest and penalties, if any,
thereon and all federal, state, local and other taxes accruable since the filing
of such returns have been properly accrued. No adverse proceedings or other
actions are pending or have been taken for the assessment or collection of
additional taxes of any kind from the Company and/or its Subsidiaries for any
period, and to the Company's knowledge, no investigation by the Internal Revenue
Service or any taxing authority affecting the Company and/or its Subsidiaries is
now pending. All taxes that the Company and/or its Subsidiaries are required by
law to withhold or collect have been withheld or collected and have been paid
over to the proper governmental authorities or are properly held by the Company
for such payment.
4.10 Approvals. To the best of the knowledge of the Company, after
diligent inquiry, no authorization or approval of, or filing with, or compliance
with any applicable order, judgment, decree, statute, rule or regulation of, any
court or governmental authority, or approval, consent, release or action of any
third party, is required in connection with the execution and delivery by the
Company of, or the performance or satisfaction of any agreement of the Company
contained in or contemplated by, this Agreement, except for claiming an
exemption from ss.5 of the Securities Act of 1933 by filing a Form D or
otherwise, and by claiming an exemption from registration from applicable Blue
Sky laws and any filings required thereunder.
4.11 Litigation. Except as set forth on EXHIBIT 4.11 hereof, the
Company and its
<PAGE> 26
Page 21
Subsidiaries are not a defendant, nor are they a plaintiff against whom a
counter-claim has been asserted in any actions, suits, claims, arbitrations,
administrative or other proceedings or governmental investigations seeking
$10,000 or more in damages, or any equitable relief, pending or, to the best of
their knowledge, threatened against, relating to or affecting the Company and
its Subsidiaries, or their respective business, operations or assets, which are
not fully covered by insurance, or which question or seek to prevent
consummation of the transactions provided for in this Agreement, whether at law
or in equity, or before or by any Federal, state, local, foreign or other
governmental department, agency or instrumentality, nor to the best of its
knowledge is there any basis therefor. The Company and its Subsidiaries are not
bound or adversely affected by or in default with respect to any judgment,
order, writ, injunction or decree of any court or of any governmental
department, agency or instrumentality.
4.12 Schedule of Documents. The schedule of contracts including a
summary in tabular form hereto of all material terms as EXHIBIT 4.12 which lists
any and all material (material for purposes of this paragraph only shall mean
$50,000) contracts or other material commitments or obligations relating to the
Company and its Subsidiaries: (a) to which a Principal Shareholder and/or
officer or director of the Company and its Subsidiaries is a party, (b) all
leases of real and/or personal property, (c) union collective bargaining,
employment, management and consulting agreements to which the Company or any
Subsidiary is a party, (d) compensation plans, bonus plans, deferred
compensation arrangements, pension and retirement plans, profit sharing plans,
stock purchase and stock option plans, (e) loan agreements and notes, (f)
options to purchase property, (g) stockholder agreements, and (h) all other
material contracts or commitments to which the Company is a party. Except as
listed on EXHIBIT 4.12, neither the Company nor any of its Subsidiaries is a
party to or bound by any contract or commitment (or group of related contracts
or commitments), other than contracts, or agreements in the ordinary course of
business; neither the Company nor any of its Subsidiaries are bound by any
charter, contractual or other corporate restriction that materially and
adversely affect or could affect their respective business, financial condition
or prospects, or which restricts its right or ability to operate its business as
conducted or proposed to be conducted. On or prior to the date hereof, the
Company has delivered to the Pioneer Partnership or a representative thereof, a
true and correct copy of each of the documents listed in EXHIBIT 4.12.
<PAGE> 27
Page 22
4.13 No Defaults. The Company and its Subsidiaries are not in violation
of, breach of or default under, and to the best of the Company's knowledge, no
event (including, without limitation, execution of and consummation of the
transactions provided for in this Agreement) has occurred which with the passage
of time or notice from or action by any party thereto or otherwise could result
in a violation of or default under, or give any other person the right to
terminate, as the case may be, any indenture, mortgage, security, loan, lease or
other material agreement to which the Company and/or its Subsidiaries is a party
or by which it is bound or result in the creation, imposition or acceleration of
any material lien of any nature in favor of any other person.
4.14 Lack of Felonies. Within the past 15 years, neither the Company,
its Subsidiaries, nor, to the best of the Company's knowledge, any of their
respective principals, directors, or executive officers have been convicted of
or pled guilty to any felony under the laws of the United States or any state
thereof. To best of the Company's knowledge, no criminal arrests, proceedings or
actions are pending, nor have any been threatened in the last thirty-six (36)
months against any of such persons.
4.15 No Judgments. There are no judgments, decrees, binding decisions
outstanding against the Company or its Subsidiaries which were issued in any
legal proceeding of any kind by any court, arbitrator, panel, or other governing
or determining authority.
4.16 Insurance. The Company and/or its Subsidiaries agree to obtain
within ninety (90) days of Closing insurance coverages as follows: policies of
general aggregate liability (other than products completed operations) insurance
with coverage of at least $2,000,000 with a deductible not to exceed $10,000,
products completed operations insurance aggregate with coverage of a minimum of
$1,000,000, for each occurrence under such policies with coverage of $1,000,000,
fire damage insurance with minimum coverage of $50,000, medical insurance with
minimum coverage of $5,000, and workers' compensation insurance and extended
coverage on its property. There does not exist, nor has there been, any lapse in
the coverage under presently effective insurance policies. Such policies are or
shall be carried by a reputable and financially
<PAGE> 28
Page 23
stable insurance company and are or shall be sufficient to cover risks as are
customarily insured against by similar businesses. The Company represents it
shall apply for and obtain adequate insurance to replace a substantial amount of
its assets.
4.17 No Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly with the Pioneer
Partnership by the Company, without the intervention of any broker, finder,
investment banker (except the Pioneer Ventures Corp. and/or Ventures Management
Partners LLC), or other third party. Neither the Company nor its Subsidiaries
have engaged, consented to, or authorized any broker, finder, investment banker
or other third party to act on its or his behalf, directly or indirectly, as a
broker or finder in connection with the transactions contemplated by this
Agreement.
4.18 Loans and Liens. Attached hereto as EXHIBIT 4.18 is a complete and
accurate list of all secured and unsecured loans to which the Company or its
Subsidiaries is a party as a borrower, debtor, guarantor or as a party obligated
thereunder and all other financial obligations or judgments to which they are
subject. Such schedule sets forth in tabular form the identity of the borrower,
lender, any guarantors, the original principal amount, the principal amount due
at a current date within 30 days hereof, the current standing of such
obligation, the due date, the interest rate, the amount of interest due with in
a recent date, and a summary of any material provisions not requested herein.
4.19 Solvency. The Company has not admitted in writing an inability to
pay its debts generally as they become due, filed or consented to the filing
against it of a petition in bankruptcy or a petition to take advantage of any
insolvency act, made an assignment for the benefit of creditors, consented to
the appointment of a receiver for itself or for the whole or any substantial
part of its property, or had a petition in bankruptcy filed against it, been
adjudicated a bankrupt, or filed a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other laws or of the United
States or any other jurisdiction.
4.20 Registration Rights. Except as provided for herein or as otherwise
disclosed in the due diligence material submitted by the Company, the Company is
not a party to any
<PAGE> 29
Page 24
agreement or commitment that obligates the Company to register under the
Securities Act of 1933, as amended (the "1933 Act"), any of the Company's
presently outstanding securities or any of the Company's securities that may
hereafter be issued.
4.21 Compliance with Securities Laws. To the best of the Company's
knowledge, the offer, grant, sale, and/or issuance of the Preferred Stock shall
not be in violation of the 1933 Act, the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") any state securities or "blue sky" laws, or the
Company's organization documents such as the certificate of incorporation or
bylaws, when offered, sold and issued in accordance with this Agreement.
4.22 Transfer Restrictions. There are no restrictions on the transfer
of capital stock of the Company imposed by its certificate of incorporation,
bylaws, other organization documents, any agreement to which the Company is a
party (other than those agreements expressly contemplated by this Agreement),
any order of any court or any governmental agency to which the Company is
subject, or any statute other than those imposed by relevant state and federal
securities laws, or is otherwise provided for or disclosed herein.
4.23 Related Party Transactions. There are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors or other "affiliates" (as defined in Rule 405 promulgated
under the 1933 Act), except as outlined on EXHIBIT 4.23, or is otherwise
provided for or disclosed herein.
4.24 Miscellaneous. Except as set forth in EXHIBIT 4.12, EXHIBIT 4.7-A
or EXHIBIT 4.7-B or the Financial Statements or notes thereto, or is otherwise
provided for or disclosed herein, (a) the Company is not a party to or bound by
any distribution, sales agency, franchise or similar agreement or understanding
that relates to the sale or distribution of its products and services, (b) the
Company does not have a sole-source supplier of significant goods and services
(other than utilities) with respect to which practical alternative sources are
not available on comparable terms and conditions, EXCEPT, as set forth in
EXHIBIT 4.24(B) hereto, (c) there are neither pending, nor threatened, any labor
negotiations involving or affecting the Company, and to the best of the
Company's knowledge there are no organizing activities involving union
representation exists in
<PAGE> 30
Page 25
respect of any of their respective employees, (d) the Company is not bound by
any warranties relating to its products or services other than the implied
warranties of merchantability and fitness, of its products and (e) there has
been no assertion of any breach of product or service warranties that could have
a material adverse affect on the business, financial condition or prospects of
the Company. Neither the Company nor any of its employees, consultants, officers
or directors are prohibited from engaging in any business activity that is
currently carried on or contemplated by the Company, by reason of any
restrictive covenant or agreement, including but not limited to, a covenant
not-to-compete.
4.25 Certain Specific Representations. The Company hereby represents
and warrants that:
(a) The investment by the Pioneer Partnership of $1,750,000
("Investment") to be consummated by the Pioneer Partnership in the
Company is NOT opposed by its respective board of directors;
(b) The Company is not engaged as a business in real estate
investments, and is not a real estate operating company;
(c) The Company is not undergoing a bankruptcy liquidation;
(d) The securities to be issued upon consummation of the
Investment are either exercisable for, or convertible into, equity
securities at a pre-determined exercise price or conversion ratio;
(e) The Company is NOT offering as an investment or otherwise
any uncovered options, or any transaction in which securities are sold
short in an uncovered transaction or which would be in violation of
Section 16(c) of the Securities Exchange Act of 1934, as amended,
PROVIDED, HOWEVER, that nothing in this subsection (e) shall prevent
the Pioneer Partnership from acquiring options or warrants exercisable
for, or other securities convertible into, equity securities or assets
at a pre-determined exercise price or conversion ratio;
(f) The Company, and its Subsidiaries are NOT domiciled in any
country that is, at the time of the closing of the Investment and will
ensure that, at the time of the conversion or partial conversion of any
of the securities, a participant in an international boycott illegal
under United States law or opposed by the United States government;
(g) The Company is NOT an investment company registered or
required to be registered under the Investment Company Act of 1940, as
amended;
(h) The Company conducts NO operations in Northern Ireland and
will ensure
<PAGE> 31
Page 26
that at the time of the conversion or partial conversion of any of the
Preferred Stock that it conducts NO operations in Northern Ireland
unless the Company complies with the McBride principles to the
satisfaction of the Pioneer Partnership. The McBride principles consist
of, but are not limited to, the following:
1) increasing the representation of individuals from
under-represented religious groups in the workforce, including
managerial, supervisory, administrative, clerical and
technical jobs;
2) providing adequate security for the protection of
minority employees at the workplace and while traveling to and
from work;
3) banning provocative religious or political emblems
from the workplace;
4) publicly advertising all job openings and making
special recruitment efforts to attract applicants from
under-represented religious groups;
5) layoff, recall and termination procedures which do
not in practice favor particular religious groupings;
6) abolishing job reservations; apprenticeship
restrictions and differential employment criteria, which
discriminate on the basis of religion or ethnic origin;
7) developing training programs that will prepare
substantial numbers of current minority employees for skilled
jobs, including the expansion of existing programs and the
creation of new programs to train, upgrade and improve the
skills of minority employees;
8) establishing procedures to assess, identify and
actively recruit minority employees with potential for further
advancement; and
9) appointing a senior management staff member to
oversee the company's affirmative action efforts and the
setting up of timetables to carry out affirmative action
principles.
For purposes of this ss.4.25, a corporation will be considered to be
"conducting operations in Northern Ireland" if it has facilities and
employees in Northern Ireland, either directly or through one or more
subsidiaries;
(i) The Company is NOT and shall NOT be engaged in any form of
business in Iran which could be considered contrary to the foreign
policy or national interests of the United States;
(j) The Company, if it is an entity organized outside of the
United States, covenants that it shall obtain, on or before closing, a
written opinion of counsel, which counsel and opinion letter shall be
acceptable to the Pioneer Partnership and its Investor Committee,
<PAGE> 32
Page 27
to the effect that as a result of the investment in the Company by the
Pioneer Partnership neither the limited partners, the general partner
nor the Pioneer Partnership will be liable, either directly or
indirectly, for any claim, obligation, or liability of the Company; and
(k) The Company covenants it shall obtain a written opinion of
counsel or attorney confirmation letter, which counsel and opinion
letter shall be acceptable to the Pioneer Partnership, to confirm the
representations within this ss.4.25 and the legality thereof.
4.26 Use of Proceeds. The Company represents it shall use and apply the
proceeds from the stock purchase only for such purposes and in the amounts
substantially as set forth in Section 1.12 hereof. Deviations greater than
$25,000 in each case (except closing costs which shall be as set forth in
ss.1.12) or $100,000 in the aggregate shall require the prior written consent of
the Pioneer Partnership.
4.27 Intentionally Omitted.
4.28 Wages and Salary. As of the Closing Date the level of wages,
salaries and fees payable to the officers and directors of the Company is set
forth in EXHIBIT 4.28 hereto.
4.29 Complete Disclosure. No representation, warranty or statement,
written or oral, made by the Company in this Agreement or in any schedule,
exhibit, certificate or other document furnished or to be furnished to the
Pioneer Partnership, including any and all documents filed with the Commission
within the past 12 months, pursuant hereto or otherwise, in connection with the
transactions contemplated hereby, has contained, contains or will contain at the
closing date any untrue statement of a material fact or has omitted, omits or
will omit at the closing date a material fact required to be stated therein or
necessary to make the statements contained therein not misleading. Without
limiting the generality of the foregoing, the Company is current in all filings
required under the Exchange Act.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PIONEER PARTNERSHIP
The Pioneer Partnership represents and warrants as follows:
5.1 Organization. The Pioneer Partnership is a limited partnership duly
organized and validly existing under the laws of the State of Connecticut.
<PAGE> 33
Page 28
5.2 No Breach. The execution and delivery of this Agreement by the
Pioneer Partnership and the consummation of the transactions contemplated hereby
will not violate any judgment, order, injunction, decree, or award against, or
binding upon, the Pioneer Partnership or upon its properties or assets.
5.3 Authority for and Binding Nature of Agreement. This Agreement and
the documents delivered pursuant hereto have been authorized, duly executed and
delivered by the Pioneer Partnership are valid and binding upon it in accordance
with its terms.
5.4 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly with the Company
by the Pioneer Partnership without the intervention of any broker, finder,
investment banker (except Pioneer Ventures Corp. and/or Ventures Management
Partners LLC), or other third party. The Pioneer Partnership has not engaged,
consented to, or authorized any broker, finder, investment banker (except
Pioneer Ventures Corp.), or other third party to act on its behalf, directly or
indirectly, as a broker or finder in connection with the transactions
contemplated by this Agreement.
5.5 Securities Laws Matters.
(a) The Pioneer Partnership recognizes and understands that the
Preferred and Common Stock into which the Preferred Stock is convertible to be
issued to the Pioneer Partnership pursuant to this Agreement (collectively, the
"securities") will not be registered under the 1933 Act, or under the securities
laws of any state (the "securities laws"). The securities are not being so
registered in reliance upon exemptions from the 1933 Act and the securities laws
which are predicated, in part, on the representations, warranties and agreements
of the Pioneer Partnership contained herein.
(b) The Pioneer Partnership represents and warrants that (i) the
securities to be acquired by the Pioneer Partnership in connection with this
Agreement will be acquired solely for investment and not with a view toward
resale or redistribution in violation of the securities laws, and (ii) the
Pioneer Partnership is an "accredited investor" within the meaning of Regulation
D promulgated by the Securities and Exchange Commission (the "Commission")
pursuant to the 1933 Act. The
<PAGE> 34
Page 29
Pioneer Partnership understands that none of the Company or its subsidiaries or
affiliates is under any obligation to file a registration statement or to take
any other action under the securities laws with respect to any such securities
except as expressly set forth in Article II hereof.
(c) The Pioneer Partnership is aware (i) of the circumstances under
which the Pioneer Partnership is required to hold the securities, (ii) of the
limitations on the transfer or disposition of the securities, (iii) that the
securities must be held indefinitely unless the transfer thereof is registered
under the securities laws or an exemption from registration is available and
(iv) that no exemption from registration is likely to become available for at
least one year from the date of acquisition of the securities. The Pioneer
Partnership is aware of the provisions of Rules 144 and 145 as promulgated by
the Commission under the 1933 Act. The Pioneer Partnership acknowledges that the
Company is relying upon the truth and accuracy of the representations and
warranties in this Section 5.5 by the Pioneer Partnership in consummating the
transactions contemplated by this Agreement without registering the securities
under the securities laws.
(d) The Pioneer Partnership has been furnished with a summary
description of the terms of the securities and the Company has made available to
the Pioneer Partnership the opportunity to ask questions and receive answers
concerning the terms and conditions of the transactions contemplated by this
Agreement and to obtain additional information which they possess or could
reasonably acquire for the purpose of verifying the accuracy of information
furnished to the Pioneer Partnership as set forth herein or for the purpose of
considering the transactions contemplated hereby.
(e) The Pioneer Partnership agrees that the certificates representing
the securities to be acquired pursuant to this Agreement will be imprinted with
the following legend, the terms of which are specifically agreed to:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS AND ARE "RESTRICTED SECURITIES" AS
THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. NEITHER THE SHARES NOR
ANY INTEREST
<PAGE> 35
Page 30
THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND SUCH STATE SECURITIES LAWS OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF
COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
The Pioneer Partnership understands and agrees that appropriate stop transfer
notations will be placed in the records of the Company and with its transfer
agent in respect of the securities which are to be issued to the Pioneer
Partnership. The Company agrees that Kenneth B. Lerman, Esquire is acceptable
counsel for purposes of rendering an opinion of counsel as to the transfer of
securities.
5.6 Additional Matters. The Pioneer Partnership agrees that neither the
Pioneer Partnership nor any other holder of any shares of Series A Preferred
Stock shall convert or sell any shares of the Common Stock or otherwise engage
in short-selling efforts during the 90 days prior to the Closing Date. The
Pioneer Partnership agrees that it shall not directly engage in short-selling
efforts in the Company's securities for so long as it holds the Preferred Stock.
ARTICLE VI. COVENANTS
The Company hereby warranties and covenants that:
6.1 Financial. Except as disclosed in EXHIBIT 6.1, since December 31,
1998 or except as contemplated or disclosed in this Agreement, the Company shall
not have (i) paid or declared any dividends on, or made any distributions in
respect of, or issued, purchased or redeemed, any of the outstanding shares of
its capital stock, or (ii) made or authorized any changes in its Certificate of
Incorporation, except as reflected in the Certificate of Designation, or in any
amendment thereto or in its bylaws, except as required in the Voting Agreement
except as disclosed herein, or (iii) made any commitments or disbursements or
incurred any obligations or
<PAGE> 36
Page 31
liabilities of a substantial nature and which are not in the usual and ordinary
course of business, or (iv) mortgaged or pledged or subjected to any lien,
charge or other encumbrance any of its assets, tangible or intangible, or (v)
sold, leased, or transferred or contracted to sell, lease or transfer any
assets, tangible or intangible or entered into any other transactions, except in
the usual and ordinary course of business, or (vi) made any loan or advance to
any stockholder, officer or director of the Company or to any other person,
firm, or corporation, or (vii) made any material change in any existing
employment agreement or increased the compensation payable or made any
arrangement for the payment of any bonus to any officer, director, employee or
agent, except as set forth in EXHIBIT 4.28 hereof. The Compensation Committee
may make reasonable adjustments to compensation arrangements as it deems
appropriate.
6.2 Access. For so long as either the Pioneer Partnership and/or its
assigns or partners own three (3%) percent or more of the Company's Common Stock
directly or through the possible conversion of its Preferred Stock all on a
fully diluted basis, the Company shall afford, at its sole cost and expense, to
the officers, attorneys, accountants and other authorized representatives of the
Pioneer Partnership and/or its assigns free and full access, during regular
business hours and upon reasonable prior written notice, to the books, records,
personnel, accountants, attorneys, and properties of the Company so that the
Pioneer Partnership may have full opportunity to make such review, examination
and investigation as it may desire of its respective business and affairs; the
Pioneer Partnership acknowledges that the Company shall have the right to
require the prior execution of a reasonable confidentiality agreement by such
individual in such individual's own name or in the name of the agent who is
conducting such review, examination or investigation; however, such individual
or agent is hereby authorized to share such information with the Pioneer
Partnership, provided that the purpose for the review, examination or
investigation is not adverse to the operations of the Company or adverse to the
Pioneer Partnership's rights as a shareholder. The Company will cause its
employees, accountants, and attorneys to cooperate fully with said review,
examination and investigation and to make full disclosure to the Pioneer
Partnership of all material facts affecting its financial condition and business
operation. Nothing herein shall limit the rights of the Pioneer Partnership
and/or its assigns which are available under or granted by applicable statutes
with respect to access, review, examination and investigations. Interference
with said rights or delay in
<PAGE> 37
Page 32
accommodating such rights by the Company shall be an event of Default of the
terms of the Preferred Stock.
6.3 Books of Record and Account. (A) The Company shall maintain at all
times proper books of record and account in accordance with generally accepted
accounting principles ("GAAP"), consistently applied. For so long as either the
Pioneer Partnership or its limited partners and/or its assigns own three (3%)
percent or more of the Company's Common Stock directly or through the possible
conversion of its Preferred Stock all on a fully diluted basis, it will permit
any of the Pioneer Partnership's officers or any of their authorized
representatives or accountants to visit, upon reasonable prior written notice,
and inspect offices and properties, examine its books of account and other
records, and discuss its affairs, finances and accounts with its appropriate
officers, accountants and auditors, all at such reasonable times and reasonable
frequency as the Pioneer Partnership may request; the Pioneer Partnership
acknowledges that the Company shall have the right to require the prior
execution of a reasonable confidentiality agreement by such individual in such
individual's own name or in the name of the agent who is conducting such
examination; however, such individual or agent is hereby authorized to share
such information with the Pioneer Partnership, provided that the purpose for the
examination is not adverse to the operations of the Company or adverse to the
Pioneer Partnership's rights as a shareholder. (B) In addition, the Pioneer
Partnership shall be provided with copies of quarterly and annual financial
statements no later than 45 days after the end of each fiscal quarter and 90
days after the end of each fiscal year. The financial statements shall consist
of balance sheets, statements of operations, statements of cash flows,
statements of changes in stockholders equity and notes thereto all prepared in
accordance with GAAP. The annual financial statements shall be audited in
accordance with GAAP by a nationally reputable accounting firm. (C) Interference
with said rights or delay in accommodating such rights by the Company shall be
an event of Default of the terms of the Preferred Stock.
6.4 Membership on Board. The Company's bylaws shall provide for a
maximum of seven (7) person Board of Directors. Promptly upon the Closing Date
and for so long as the Pioneer Partnership or its limited partners and/or its
assigns collectively own at least three (3%) percent of the Company's Common
Stock directly or through the possible conversion of
<PAGE> 38
Page 33
Preferred Stock, the Company's principal stockholders shall cause one (1)
designee from the Pioneer Partnership to be nominated and elected to serve as
directors of the Company. These designations are subject to the Pioneer
Partnership's rights set forth in Section 1.10(b) hereof. Except as provided for
herein, additional membership on the Board shall require majority approval of
the remaining members of the Board of Directors or election at a meeting of
shareholders. At the next meeting of the Board of Directors, a Compensation
Committee of the Board shall be established. For so long as the Pioneer
Partnership or its limited partners and/or its assigns collectively own at least
three (3%) percent of the Company's Common Stock directly or through the
possible conversion of Preferred Stock, the Compensation Committee shall consist
of three directors; a designee of the Pioneer Partnership, a designee of the
Principal Stockholders, and one other person selected by the Board. The
Compensation Committee shall be maintained to consider and recommend to the
Board of Directors matters concerning the compensation of executives and
employee awards of stock options and other incentive compensation.
6.5 Future Issuances; Stock Option Plan and Compensation. A. The
Company currently has a stock option incentive plan covering 1,500,000 shares of
common stock with an exercise price of $0.75 per share in order to have the
ability to incentivize its key employees, future employees and others; this
incentive plan is approved by the Pioneer Partnership. B. The Company agrees
that it shall not authorize or approve any additional stock incentive programs
or employee or management options during the next twenty-four (24) months except
an employee/management stock incentive plan which shall not exceed 1,000,000
shares of Common Stock issuable under such plan at a price per share which shall
not be below the market price at the time of grant; this restriction ss.6.5.B.
shall no longer be effective if the Pioneer Partnership has converted its
Preferred Stock, and shall not prohibit the issuance of options at market value
for other purposes. C. Base compensation to the officers and directors of both
the Company shall not increase above the levels and standards set forth in
EXHIBIT 4.28 by more than ten (10%) percent in any fiscal year for so long as
the Pioneer Partnership owns at least three (3%) percent of the Company's Common
Stock directly or through the possible conversion of Preferred Stock, without
the written consent of the Pioneer Partnership.
<PAGE> 39
Page 34
6.6 Rule 144 Compliance. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the shares to the public without registration, at all times after
ninety (90) days after any registration statement covering a public offering of
securities of the Company under the 1933 Act shall have become effective, or at
all times after the Company has a class of Securities registered under the
Exchange Act, the Company agrees to use its reasonable best efforts to: (i) make
and keep public information available, as those terms are understood and defined
in Rule 144 under the 1933 Act; (ii) use its reasonable best efforts to file
with the Commission (as hereinafter defined) in a timely manner all reports and
other documents required of the Company under the 1933 Act and the Exchange Act
of 1934; (iii) furnish to each holder of Registrable Securities forthwith upon
request, a written statement by the Company as to the Company's compliance with
the reporting requirements of Rule 144 and of the 1933 Act and the Exchange Act,
a copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Registrable Securities without
registration; and (iv) use the Company's reasonable best efforts to satisfy the
requirements of all such rules and regulations (including the requirements for
current public information, registration under the Exchange Act and timely
reporting to the Commission) at the earliest possible date after its first
registered public offering.
6.7 Undertaking to Register its Securities. The Company undertakes to
use its reasonable best efforts within one (1) year of the Closing to register
its Common Stock under the Securities Act of 1933 in an underwritten public
offering, or otherwise cause a free trading public market for the Common Stock
to commence.
6.8 Undertaking to File 34 Act Filings; and be Listed on NASDAQ. (a)
The Company undertakes to register in its Common Stock under the Securities
Exchange Act of 1934, and thereafter to file its proxy statements, its annual
reports on Form 10-KSB and its quarterly reports on Form 10-QSB, or on such
other appropriate forms, with the SEC for so long as the Pioneer Partnership
owns the Preferred Stock and/or Common Stock obtained through conversion of the
Preferred Stock. (b) The Company undertakes, once it so qualifies, to use its
<PAGE> 40
Page 35
reasonable best efforts to become listed on the NASDAQ Small Cap market, and
once it so qualifies, to use its reasonable best efforts to maintain such
listing for so long as the Pioneer Partnership holds any Preferred Stock, or
Common Stock obtained through conversion of the Preferred Stock. Once the
Company qualifies, the Company undertakes to apply to be listed on the NASDAQ
National Market System or such other national stock exchange. The Company shall
take all reasonable action to maintain such listing after it is so approved and
listed.
6.9 Confidentiality/Non-compete Agreements. On a post-closing basis,
the Company covenants and warranties that it shall use its reasonable best
efforts to institute a confidentiality and non-competition agreement program
with: (A) its major suppliers, subcontractors, vendors and affiliates, as
applicable and appropriate; the Company shall use its reasonable best efforts to
enter into confidentiality and non-competition agreements with those companies
which have access to the ingredient formulas or recipes, customer lists,
proprietary technology or information of the Company, or such other information
or material which good prudence suggests be so protected; and (B) its employees,
officers, directors, and consultants, as applicable and appropriate.
6.10 No Breach. The Company will (i) use its reasonable best efforts to
assure that all of its representations and warranties contained herein are true
in all material respects as of the Closing as if repeated at and as of such
time, and that no material breach or default shall occur with respect to any of
its covenants, representations or warranties contained herein that has not been
cured by the Closing; (ii) not voluntarily take any action or do anything which
will cause a breach of or default respecting such covenants, representations or
warranties; and (iii) promptly notify the Pioneer Partnership of any event or
fact which represents, or is likely to cause such a breach or default.
ARTICLE VII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
THE PIONEER PARTNERSHIP TO CLOSE
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PIONEER PARTNERSHIP TO CLOSE. The
obligation of the Pioneer Partnership to enter into and complete the Closing is
subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions, any one or more of which may be
<PAGE> 41
Page 36
waived by the Pioneer Partnership (except when the fulfillment of such condition
is a requirement of law), as well as the satisfactory completion (in the sole
opinion of the Pioneer Partnership) of (i) an audit or review of the books,
records and accounts of the Company, and (ii) legal and other due diligence.
7.1 Representations and Warranties. All representations and warranties
of the Company contained in this Agreement and in any written statement,
exhibit, certificate, schedule or other document delivered pursuant hereto or in
connection with the transactions contemplated hereby shall be true and correct
in all material respects as at the Closing Date, as if made at the Closing and
as of the Closing Date.
7.2 Covenants. The Company shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by each of them prior to or at the Closing.
7.3 No Actions. No action, suit, proceeding or investigation shall have
been instituted, and be continuing before a court or before or by a governmental
body or agency, or shall have been threatened and be unresolved, to restrain or
to prevent or to obtain damages in respect of, the carrying out of the
transactions contemplated hereby, or which might materially affect the right of
the Pioneer Partnership to own the Company's Stock or the Company or to operate
or control the assets, properties and business after the Closing Date, or which
might have a materially adverse effect thereon.
7.4 Consents, Licenses and Permits. The Company shall have obtained all
consents, licenses and permits of third parties necessary for the performance of
its obligations under this Agreement, and such other consents, if any, to
prevent (i) agreements of the Company from terminating, the termination of
which, in the aggregate, would have a material adverse effect on the business,
financial condition or assets of the Company, or (ii) any material indebtedness
of the Company from becoming due or being subject to becoming due with the
passage of time or on notice as a result of the performance of this Agreement,
any other provision of this Agreement to the contrary notwithstanding. The
Company shall have obtained, and delivered to
<PAGE> 42
Page 37
the Pioneer Partnership, all consents or waivers with respect to preemptive
rights and/or rights of first refusal such that the Preferred Stock may be
validly and lawfully issued without encumbrance.
7.5 Certificate. The Pioneer Partnership shall have received a
certificate in the form satisfactory to its counsel, dated the Closing Date,
signed by an authorized representative of the Company, confirming the substance
and effect of the representations and warranties set forth in Article IV hereto,
and as to the satisfaction of the conditions contained in sections 7.1 and 7.2.
7.6 Legal Opinion. (A) The Pioneer Partnership shall have received the
written opinion of the Company's counsel, and the written opinion of the
Company's counsel, each dated the Closing Date, in form and substance
satisfactory to the Pioneer Partnership and its counsel, confirming the
substance and effect of certain of the representations and warranties set forth
in Article II hereto, that this Agreement is the valid and binding obligation of
the Company, enforceable in accordance with its terms, and as to such other
matters as the Pioneer Partnership may request. (B) The Pioneer Partnership
shall have received the written opinion of the Company's counsel, and the
written opinion of the Company's counsel, each dated the Closing Date, in form
and substance satisfactory to the Pioneer Partnership and its counsel,
confirming the substance and effect of certain of the representations and
warranties set forth in the Voting and Shareholders Agreement thereto, that the
Voting and Shareholders Agreement is the valid and binding obligation of the
Principal Shareholders and on the Company, enforceable in accordance with its
terms, and as to such other matters as the Pioneer Partnership may request.
7.7 No Material Adverse Change. There shall have been no materially
adverse change at the Closing Date in the business, assets, and properties,
financial status or prospects of the Company from December 31, 1998, except as
disclosed in EXHIBIT 7.7 hereof.
7.8 Agreements with Principals. The Company shall have received and
presented to the Pioneer Partnership agreements, in a form satisfactory to the
Pioneer Partnership, from all officers, directors and the Principal Shareholders
of the Company containing the substantive provisions of this Agreement with
respect to co-sale rights, voting agreement as to Board
<PAGE> 43
Page 38
membership, restricted stock and restricted transfer provisions as well as
customary and satisfactory non-competition agreements between the Company and
its officers and key employees. Reference is hereby made to (i) a certain Voting
and Shareholders Agreement between (a) the Principal Shareholders and, (b) the
Pioneer Partnership, of even date. Any amendment, renewal or extension to said
agreements shall require the written consent of the Pioneer Partnership.
Further, any shares which are acquired as a result of such agreements or are
subject to a proxy or voting agreement shall otherwise be subject to the
substantive provisions of this Agreement with respect to anti-dilution rights,
voting agreement as to Board membership, restricted stock and co-sale
provisions.
7.9 Key Person Insurance. The Company shall apply within thirty (30)
days of the date of this Agreement for Key-Person term life insurance, from a
licensed and reputable insurance company in the minimum face amount of
$1,000,000, insuring the life of Rogers Kirven. The Company shall be the
designated beneficiary. Renewal of the policies after the first term shall be at
the discretion of the Company's Board of Directors.
7.10 Patents. All of the officers, directors, principals and the
affiliates of the Company shall have assigned and transferred all of the
Patents, if any, to the Company.
7.11 Approval of Counsel. All actions, proceedings, instruments and
documents required to carry out this Agreement, or incidental thereto, and all
other related legal matters shall have been approved as to form and substance by
the Pioneer Partnership's counsel, which approval shall not be unreasonably
withheld or delayed.
7.12 Consents, Licenses and Permits. The Company, shall have obtained
all consents, licenses and permits of third parties necessary for the
performance of its obligations under this Agreement, and such other consents, if
any, to prevent (i) agreements of the Company from terminating, the termination
of which, in the aggregate, would have a material adverse effect on the
business, financial condition or assets of the Company or (ii) any material
indebtedness of the Company from becoming due or being subject to becoming due
with the passage of time or on notice as a result of the performance of this
Agreement, any other provision of this
<PAGE> 44
Page 39
Agreement to the contrary notwithstanding. The Company shall have obtained, and
delivered to the Pioneer Partnership, all consents or waivers with respect to
preemptive rights and/or rights of first refusal such that the Preferred Stock
may be validly and lawfully issued without encumbrance.
7.13 Additional Documents. The Company shall have delivered all such
other certificates and documents as the Pioneer Partnership or their counsel may
have reasonably requested.
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
THE COMPANY TO CLOSE
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO CLOSE. The
obligation of the Company to enter into and complete the Closing is subject to
the fulfillment, prior to or on the Closing Date, of each of the following
conditions, any one or more of which may be waived by the Company (except when
the fulfillment of such condition is a requirement of law).
8.1 Representations and Warranties. All representations and warranties
of the Pioneer Partnership contained in this Agreement and in any written
statement, exhibit, certificate, schedule or other document delivered pursuant
hereto or in connection with the transactions contemplated hereby shall be true
and correct in all material respects as at the Closing Date, as if made at the
Closing and as of the Closing Date.
8.2 Covenants. The Pioneer Partnership shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by it prior to or at the
Closing.
8.3 No Actions. No action, suit, proceeding, or investigation shall
have been instituted, and be continuing before a court or before a governmental
body or agency, or have been threatened and be unresolved, to restrain or
prevent, or obtain damages in respect of, the carrying out of the transactions
contemplated hereby.
<PAGE> 45
Page 40
8.4 Additional Documents. The Pioneer Partnership shall have delivered
all such other certificates and documents as the Company or its counsel may have
reasonably requested.
8.5 Approval of Counsel. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental thereto, and all
other related legal matters, shall have been approved as to form and substance
by Company's counsel, which approval shall not be unreasonably withheld or
delayed.
ARTICLE IX. CLOSING
9.1 Location. The Closing provided for herein (the "Closing") shall
occur the offices of the Pioneer Partnership or at such place and upon such date
as the Company and the Pioneer Partnership mutually agree.
9.2 Items to be Delivered by the Company. At the Closing, the Company
will deliver or cause to be delivered to the Pioneer Partnership:
(a) duly executed Investment Agreement;
(b) duly executed Voting and Shareholders Agreement;
(c) duly executed approving resolutions;
(d) duly executed and recorded Certificate of Designation;
(e) validly issued original certificates representing the
Preferred Stock in accordance with Article I hereof which shall be
delivered no later than ten (10) days after the Closing.
(f) the certificates required by section 7.5 hereof;
<PAGE> 46
Page 41
(g) the opinion of the Company's counsel, as required by
section 7.6 hereof;
(h) the agreements required by section 7.8 hereof;
(i) the insurance binder and paid receipt required by section
7.9 hereof;
(j) Separate checks for $35,000 and $5,000 payable to Ventures
Management Partners LLC (the General Partner of the Pioneer
Partnership) as required by sections 11.1, 11.2, and 11.4 hereof, less
any amounts paid thereunder;
(k) a check for $35,000, plus out-of-pocket expenses incurred,
payable to Kenneth B. Lerman, Esquire as required by section 11.3
hereof, less any amounts paid thereunder;
(l) such other certified resolutions, exhibits, instruments,
documents and certificates as are required to be delivered by the
Company pursuant to the provisions of this Agreement and pursuant to
the checklists presented by the Pioneer Partnership or its counsel.
9.3 Items to be Delivered by the Pioneer Partnership. At the Closing,
the Pioneer Partnership will deliver or cause to be delivered to the Company:
(a) a check or checks in the aggregate amount of one million
seven hundred fifty thousand hundred ($1,750,000) dollars, as specified
in Article I hereof; and
ARTICLE X. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; FEES
10.1 Survival. The parties hereto agree that their respective
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing for a period of three (3) years.
<PAGE> 47
Page 42
10.2 Indemnification. The Company agrees to save, defend and indemnify
the Pioneer Partnership and its limited and general partners and their
respective officers, directors, managing members and the agents, as well as the
attorneys, accountants, or other representatives of such parties (jointly or
severally "indemnified parties") against, and hold them harmless from any and
all liabilities, of every kind, nature and description, fixed or contingent
(including, without limitation, reasonable counsel fees, expert witness fees,
and expenses in connection with any action, claim or proceeding relating to such
liabilities) arising out of a material breach (a "material breach" shall be any
breach with a potential liability in excess of $50,000) of any of the
representations and warranties contained herein and/or any material transaction
or event commencing or occurring on or prior to the Closing Date, which is not
fully disclosed or provided for in EXHIBIT 4.7-A, EXHIBIT 4.7-B, this Agreement
or the several exhibits hereto, including, without limitation, any tax
liabilities as of the date of the Financial Statements to the extent not so
reflected or reserved against in the Balance Sheet.
10.3 Defense of Claims. The Pioneer Partnership agrees to notify the
Company with reasonable promptness of any claim asserted against them in respect
of which the Company may be liable under this Agreement, which notification
shall be accompanied by a written statement setting forth the basis of such
claim and the manner of calculation thereof. The Company shall have the right to
defend any such claim(s) at its own expense and with counsel of its choice;
provided that the Pioneer Partnership may participate in such defense, if it so
chooses, with its own counsel and at its expense. The Company agrees that if any
of the representations and warranties made by it in this Agreement shall be
finally determined not to have been true, correct or complete when made, then
the Company shall pay to the Pioneer Partnership at the time of such final
determination an amount sufficient to indemnify the Pioneer Partnership and the
other indemnified parties hereto to the full extent of its losses and expenses
sustained by reason thereof, including attorneys, accountants, expert witnesses,
and other professional fees and expenses.
<PAGE> 48
Page 43
10.4 Rights without Prejudice. The rights of the Pioneer Partnership
under this Article are without prejudice to any other rights or remedies that it
may have by reason of this Agreement or as otherwise provided by law.
ARTICLE XI. FEES
11.1 Investment Banking Fees. The Company shall pay an investment
banking fee of $35,000 to the General Partner of the Limited Partnership
(Ventures Management Partners LLC) concurrently with its execution and delivery
of the this Agreement. The General Partner of the Pioneer Partnership hereby
acknowledges receipt from the Company of a check in the amount of $10,000 in
payment of the commitment fee and expenses set forth in this Section 11.1.
11.2 Expenses. The Company shall promptly pay and reimburse the General
Partner of the Pioneer Partnership a non-accountable expense allowance of $5,000
for its out-of-pocket expenses incurred in connection with visits to the
Company's facilities and other costs and expenses in connection with its due
diligence investigation of the Company.
11.3 Legal Fees. The Company shall pay at the Closing the attorneys
fees and out-of-pocket expenses of counsel for the Pioneer Partnership in
connection with the transactions contemplated hereby; such attorneys fees shall
equal $35,000 plus out-of-pocket expenses which shall not exceed $5,000. It is
acknowledged that $10,000 has been paid prior to Closing. In addition, the
Company shall pay its own counsel's fees and all of the expenses of the closing,
including all search fees, filing fees, governmental certification fees, third
party investigation or other due diligence fees for reports, filings or
certifications requested by the Pioneer Partnership to effect the closing.
11.4 Accounting Fees. Intentionally omitted.
11.5 Break-Up Fee. At any time prior to the funding of the investment,
the Company may terminate this Agreement by written notice without any
obligation or liability other than to forfeit the pre-payment of $10,000 paid as
a commitment fee to the General Partner
<PAGE> 49
Page 44
of the Pioneer Partnership along with the legal fee paid as then recharacterized
as the non-refundable Break-up fee.
ARTICLE XII. TERMINATION AND WAIVER
12.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions provided
for herein abandoned at any time prior to the Closing Date:
(a) by mutual consent of the Pioneer Partnership and the
Company;
(b) by the Pioneer Partnership if any of the conditions set
forth in Article VII and Sections 1.12 and 1.13 hereof, in its sole
opinion, shall not have been fulfilled on or prior to closing, or shall
become incapable of fulfillment, and shall not have been waived;
(c) by the Company if any of the conditions set forth in
Article VIII hereof shall not have been fulfilled on or prior to
Closing, or shall have become incapable of fulfillment, and shall not
have been waived;
(d) by any party if any material legal action or proceeding
shall have been instituted or threatened seeking to restrain, prohibit,
invalidate or otherwise affect the consummation of the transactions
contemplated by this Agreement
In the event that this Agreement is terminated as described above, this
Agreement shall be void and of no force and effect, without any liability or
obligation on the part of any of the parties hereto, except the provisions of
Section 11.5 hereof.
12.2 Waiver. Any condition to the performance of the Company or of the
Pioneer Partnership which legally may be waived on or prior to the Closing Date
may be waived at any time by the party entitled to the benefit thereof by action
taken or authorized by an instrument in writing executed by the relevant party
or parties. The failure of any party at any time or times to
<PAGE> 50
Page 45
require performance of any provision hereof shall in no manner affect the right
of such party at a later time to enforce the same. No waiver by any party of the
breach of any term, covenant, representation or warranty contained in this
Agreement as a condition to such party's obligations hereunder shall release or
affect any liability resulting from such breach, and no waiver of any nature,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such condition or of
any breach of any other term, covenant, representation or warranty of this
Agreement.
ARTICLE XIII. MISCELLANEOUS PROVISIONS
13.1 Expenses. Except as set forth in Article XI, each of the parties
hereto shall bear its own expenses in connection herewith.
13.2 Modification, Termination or Waiver. This Agreement may be
amended, modified, superseded or terminated, and any of the terms, covenants,
representations, warranties or conditions hereof may be waived, but only by a
written instrument executed by the party waiving compliance. The failure of any
party at any time or times to require performance of any provision hereof shall
in no manner affect the right of such party at a later time to enforce the same.
13.3 Notices. Any notice or other communication required or which may
be given hereunder shall be in writing and either be delivered personally or be
mailed, certified or registered mail, postage prepaid, and shall be deemed given
when so delivered personally, or if mailed, five (5) days after the date of
mailing, as follows:
If to the Pioneer Partnership, to: Copies to:
PIONEER VENTURES ASSOCIATES Kenneth B. Lerman, Esquire
LIMITED PARTNERSHIP KENNETH B. LERMAN, P.C.
651 Day Hill Road 651 Day Hill Road
P.O. Box 40 Windsor, Connecticut 06095-0040
Windsor, Connecticut 06095
Attention: John F. Ferraro, Director
<PAGE> 51
Page 46
If to the Company, to:
Office of the President
COMPASS KNOWLEDGE GROUP, INC.
2710 Rew Circle, Suite 100
Ocoee, Florida 34761
Attention: Mr. Rogers W. Kirven, Jr., Chairman
The parties may change the persons and addresses to which the notices or other
communications are to be sent to it by giving written notice of any such change
in the manner provided herein for giving notice.
13.4 Binding Effect and Assignment.
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto. No assignment of any rights or
delegation of any obligations provided for herein may be made by any party
without the express written consent of the other party.
13.5 Entire Agreement. This Agreement contains the entire Agreement
between the parties with respect to the subject matter hereof.
13.6 Calendar Days. All references to "days" in this agreement with
respect to the amount of time allocated for notices, performance or other
periods shall mean calendar days, unless otherwise specified.
13.7 Exhibits. All Exhibits annexed hereto and the documents and
instruments referred to herein or required to be delivered simultaneously
herewith or at the Closing are expressly made a part of this Agreement as fully
as though completely set forth herein, and all references to this Agreement
herein or in any such Exhibits, documents or instruments shall be deemed to
refer to and include all such Exhibits, documents and instruments. Any execution
of this Agreement is subject to the receipt of current and complete exhibits.
13.8 Governing Law. This Agreement shall be governed by, and construed
in accordance with the laws of the State of Florida.
<PAGE> 52
Page 47
13.9 Consent to Jurisdiction. The parties hereto consent to
jurisdiction of the Courts of the State of Connecticut and to the U.S. District
Court in the District of Connecticut.
13.10 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but which together shall
constitute one and the same instrument.
13.11 Section Headings. The section headings contained in this
Agreement are inserted for convenience of reference only and shall not affect
the meaning or interpretation of this Agreement.
13.12 Gender. Whenever the content of this Agreement permits, the
masculine, neuter or third person genders shall include the feminine, third
person and neuter genders, and reference to singular or plural shall be
interchangeable with the other.
13.13 Use of Term "Pioneer Partnership". Notwithstanding any provision
of this Agreement to the contrary, included in the definition and meaning of the
"Pioneer Partnership" shall be any one or more parallel limited partnerships
which have been or shall be organized by Ventures Management Partners LLC as the
general partner to invest in parallel with Pioneer Ventures Associates Limited
Partnership on the same economic terms and PRO RATA based upon their aggregate
subscriptions. The limited partners of Pioneer Ventures Associates Limited
Partnership and the parallel partnerships shall be referred to herein as the
"limited partners".
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
THE SIGNATURE PAGE FOLLOWS.]
<PAGE> 53
Page 48
WITNESS the execution of this Agreement as of the date first above
written.
BY THE PIONEER PARTNERSHIP:
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
By: VENTURES MANAGEMENT PARTNERS LLC
its General Partner
By: Pioneer Ventures Corp.the
Its Managing Member
By:
-----------------------------------
John F. Ferraro
a Director of the Managing Member
BY THE COMPANY:
COMPASS KNOWLEDGE GROUP, INC.
By:
----------------------------------
Daniel Devine, President
ATTEST:
(Corporate Seal)
By:
----------------------------------
Rogers W. Kirven, Jr., Chairman
<PAGE> 1
EXHIBIT 4.3
VOTING AND SHAREHOLDERS AGREEMENT
VOTING AND SHAREHOLDERS AGREEMENT dated as of November 5, 1999
by and between Pioneer Ventures Associates Limited Partnership, having an office
at 651 Day Hill Road, Windsor, Connecticut 06095 (the "Pioneer Partnership "),
AND Rogers W. Kirven, Jr. and Daniel Devine, or any trusts, or other entities or
affiliates (collectively hereinafter referred to as the "Principal
Shareholders").
WHEREAS, the Principal Shareholders have or will have sole or
shared voting power over an aggregate of at least eight million (8,000,000) of
the common shares, $.001 par value per share ("Common Shares") of Compass
Knowledge Group, Inc. (the "Company") as more specifically set forth in Exhibit
A attached hereto;
WHEREAS, pursuant to a certain Investment Agreement dated the
date hereof (the "Investment Agreement"), the Pioneer Partnership is investing
in the Company through the purchase of Preferred Stock; and
WHEREAS, the execution of this Agreement by the parties hereto
is a condition precedent to the consummation of the transactions provided for in
the Investment.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the parties hereto agree as follows:
ARTICLE I. Voting by Principal Shareholders.
1.1 Agreement to Vote. Each of the Principal Shareholders agrees that,
so long as the Pioneer Partnership shall own at least three (3%) percent of the
Company's Common Stock either directly or through the conversion of its
Preferred Stock, all on a fully diluted basis, each of them shall vote all of
their Common Shares, whether now owned or hereafter acquired, for the election
as a director(s) of the Company of the designee(s) of the Pioneer Partnership in
accordance with paragraph 1.10 of the Investment Agreement at any meeting of the
Company's
<PAGE> 2
Page 2
shareholders at which such designee shall be nominated as a director. Without
limiting the generality of the foregoing, the Principal Shareholders agree to
execute and deliver any and all reasonable and necessary to documents,
agreements and instruments, including, without limitation, proxies, as the
Pioneer Partnership shall reasonably request so that at least one (1) designee
of the Pioneer Partnership shall be a director of the Company for so long as the
Pioneer Partnership shall own at least three (3%) percent of the Company's
Common Stock either directly or through the conversion of its Preferred Stock,
all on a fully diluted basis.
Article II. Transfers
2.1 Transfer of Common Shares to Affiliates. For so long as the Pioneer
Partnership shall own at least three (3%) percent of the Company's Common Stock
either directly or through the conversion of its Preferred Stock, all on a fully
diluted basis, neither the Principal Shareholders nor any other person who shall
become a party to or bound by this Agreement shall transfer any Common Shares,
whether now or hereafter acquired, (i) to any person without the prior written
consent of the Pioneer Partnership, (ii) to any affiliate, as hereinafter
defined, unless such affiliate shall have first delivered a written agreement
between the affiliate, the Pioneer Partnership and the Company such that the
affiliate agrees to be bound by and be subject to the terms and conditions of
this Agreement with the same force and effect as if such person were named as a
party to this Agreement or as a Principal Shareholder hereunder, and in such
agreement the Pioneer Partnership consents to such transfer, such consent shall
not be unreasonably withheld, or (iii) pursuant to a registration statement
without the prior written approval of the Pioneer Partnership which consent will
not be unreasonably withheld (sales by the Principal Shareholders shall not be
deemed unreasonable if pursuant to an underwritten offering whereby the Pioneer
Partnership is entitled to its proportionate co-sale rights, subject to the
limitations set forth in the Investment Agreement, or (iv) such that the
aggregate holdings of the Principal Shareholders shall not equal less than
fifty-one (51%)
<PAGE> 3
Page 3
percent on a fully diluted basis including all of the issued Series A Preferred
Stock, except in the case where such holdings would fall below 51% as a result
of (x) the sale of the Company securities for purposes of raising capital, or
(y) as a result of an acquisition, merger or reorganization of the Company, its
subsidiaries or the acquisition of another company. The term "affiliate" shall
have the meaning assigned in Rule 144 of the Securities Act of 1933 and shall
also include (a) any spouse, parent, parent-in-law, grandparent, child,
grandchild, sibling, uncle, aunt, niece, nephew or first cousin of the
transferor or (b) any person which the transferor directly or indirectly
controls, or (c) any transfer to any "person" whether a natural person,
corporation, partnership, trust company, or otherwise as used if the transferor
remains a "beneficial owner", as those terms are used in Section 13(d) of the
Securities Exchange Act of 1934, as amended, of the transferred shares.
2.2 Legend on Stock Certificates. The certificates of the Common Stock
now owned by the Principal Shareholders shall be subject to and bear a
restrictive legend as follows:
The shares of stock represented by this certificate are subject to all
of the terms of a certain Voting and Shareholders Agreement dated
November 4, 1999, a copy of which is on file at the offices of the
issuer of this certificate. The shares are subject to certain voting,
co-sale and transfer restrictions. Any actions taken in contravention
to that agreement shall be null and void.
The terms of such endorsement and restrictions are hereby expressly consented to
and accepted.
2.3 Lock-Up. Except in the event of an exchange of stock whereby the
Principal Shareholders exchange their Common Shares pursuant to a plan of
reorganization of the Company and provided that the Principal Shareholders
acquire a controlling interest in the target company which has a class of stock
which is publicly traded, the Principal Shareholders shall agree to restrict all
sales, transfers or other dispositions of their securities of the Company for a
period of not less than one hundred eighty (180) days from the date of Closing.
Upon expiration of the Lock-Up period, all sales, transfers or other
dispositions of the securities of the
<PAGE> 4
Page 4
Restricted Principal Shareholders shall be
governed by ss.2.1 and Article III hereof. However, the Pioneer Partnership in,
its sole discretion, may waive such restriction for a particular transfer upon
request, prior to such transaction.
ARTICLE III. Co-Sale Provisions
3.1 Third-Party Offer and Notice. For so long as the Pioneer
Partnership shall own at least three (3%) percent of the Company's Common Stock
either directly or through the conversion of its Preferred Stock, all on a fully
diluted basis, any voluntary or involuntary transfer of the Common Shares by any
Principal Shareholder will be subject to a participation right of co-sale by
Pioneer Ventures or its assigns on a pro rata fully diluted basis. If any one or
more of the Principal Shareholders obtains from a third party ("Third Party
Purchaser") an offer to purchase any amount of his or her Shares, and the
Principal Shareholder(s) wish to accept such offer, the Principal Shareholder(s)
shall submit a written notice (the "Co-Sale Notice") to Pioneer Ventures
disclosing the amount of Common Shares proposed to be sold, the offered purchase
price, the proposed closing date, and the total number of Common Shares owned by
the Principal Shareholder(s).
3.2 Co-Sale Right of Participation. Upon receipt of a Co-Sale Notice
from any Principal Shareholder, Pioneer Ventures or its assigns may elect to
participate in such transaction and shall have the right to offer its
securities, at the same price and on the same terms, on a fully diluted pro rata
basis with the proposed selling shareholder(s) as set forth in the offer made by
the Third Party Purchaser. Each participating selling party shall in turn be
entitled to receive at the applicable closing the net proceeds of the sale
allocable to the securities sold on behalf of each selling shareholder, after
deduction of such selling shareholder's proportionate share of the reasonable
expenses of the sale. These co-sale provisions will not apply to any sale of
securities pursuant to a distribution to the public, whether pursuant to a
registered public offering, a Rule 144 sale or otherwise. If less than all of a
<PAGE> 5
Page 5
shareholder's securities are being sold pursuant to this Article III, the
securities to be sold shall be determined on a pro rata fully diluted basis.
3.3 Notice of Intent to Participate in Co-Sale. If the Pioneer
Partnership wishes to participate in any sale under this Article III, then
Pioneer Ventures shall notify the selling Principal Shareholder(s) in writing of
such intention as soon as practicable after such Pioneer Partnership's receipt
of the Co-Sale Notice made pursuant to Section 3.1, and in any event within
fifteen (15) days after the date of such Co-Sale Notice has been delivered. Such
notification shall be delivered in person or by facsimile to the Principal
Shareholder(s) at the Company's offices.
ARTICLE IV. Remedies
4.1. Violation of Agreement; Consent to Injunctive Relief. Each of the
Principal Shareholders recognizes and agrees that any violation of any of their
obligations set forth in this Agreement would cause irreparable damage which
could not be compensated by monetary damages. Such violation shall constitute an
Event of Default under the Investment Agreement. Accordingly, in the event of
any breach of a Principal Shareholder's obligations under this Agreement, such
Principal Shareholder consents to the entry of injunctive relief, including the
remedy of specific performance, by a court of competent jurisdiction restraining
any such violation or threatened violation, in addition to any other remedies
available at law or in equity. The Principal Shareholders agree to pay the
reasonable costs of the Pioneer Partnership, including reasonable attorneys
fees, incurred in enforcing the provisions of this Article IV.
Article V. Miscellaneous
5.1. Representations. Each of the Principal Shareholders represents and
warrants that, at the date hereof, he/she or it is the sole record and
beneficial owner of the securities of the Company set forth opposite his/her
name on Exhibit A to this Agreement. Each of the Principal Shareholders
represents that he/she is not the beneficial owner of any Common
<PAGE> 6
Page 6
Shares NOT
disclosed herein through any affiliate or otherwise.
5.2 Further Assurances. From and after the date of this Agreement, the
parties hereto shall from time to time, at the request of any other party and
without further consideration, do, execute and deliver, or cause to be done,
executed and delivered, all such further acts, things and instruments as may be
reasonably requested or required more effectively to evidence and give effect to
the transactions provided for in this Agreement.
5.3. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given if personally delivered or if mailed by first
class registered or certified mail return receipt requested, or by first class
mail or overnight courier if received, addressed to the parties at their
respective addresses set forth on the first page of this Agreement, or to such
other person or address as may be designated by like notice hereunder.
5.4 Modifications. This Agreement may not be modified or discharged
orally, but only in writing duly executed by the party to be charged.
5.5 Successors and Assigns. All the covenants, stipulations, promises
and agreements in this Agreement shall bind the parties' respective heirs,
successors and assigns, whether so expressed or not.
5.6 Headings. The headings of the various sections of this Agreement
are for convenience of reference only and shall in no way modify any of the
terms or provisions of this Agreement.
5.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to instruments made
and to be performed entirely within such State.
5.8 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 document.
<PAGE> 7
Page 7
5.9 Gender. All pronouns used herein are inserted for convenience only
and shall be applied in the masculine, feminine, or third person as appropriate
for each party signing hereto.
5.10 Use of Term "Pioneer Partnership". Notwithstanding any provision
of this Agreement to the contrary, included in the definition and meaning of the
"Pioneer Partnership" shall be any one or more parallel limited partnerships
which have been or shall be organized by Ventures Management Partners LLC as the
general partner to invest in parallel with Pioneer Ventures Associates Limited
Partnership on the same economic terms and pro rata based upon their aggregate
subscriptions. The limited partners of Pioneer Ventures Associates Limited
Partnership and the parallel partnerships shall be referred to herein as the
"limited partners". IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date and year first above written.
By the Pioneer Partnership:
PIONEER VENTURES ASSOCIATES LIMITED
PARTNERSHIP
By: Ventures Management Partners LLC
Its General Partner
By: Pioneer Ventures Corp.,
Its Managing Member
By:
--------------------------------------
John F. Ferraro
a Director of the Managing Member
By the Principal Shareholders:
- ------------------------------ ---------------------------------
Rogers W. Kirven, Jr. Daniel Devine
<PAGE> 8
EXHIBIT A
to
VOTING AGREEMENT
Principal Shareholders
No. of Voting & Ownership
Name and Address(1) Common Shares Percentage
------------------- ------------- ------------------
Rogers W. Kirven, Jr. 4,809,289 51.85%
Daniel Devine 3,482,587 37.65%
- -----------------------
(1) The address for these individuals and entities is c/o Compass Knowledge
Group, Inc., 2710 Rew Circle, Suite 100, Ocoee, Florida 34761
<PAGE> 1
EXHIBIT 4.4
COMPASS KNOWLEDGE HOLDINGS, INC.
1999 EMPLOYEE STOCK OPTION PLAN
<PAGE> 2
COMPASS KNOWLEDGE HOLDINGS, INC.
1999 EMPLOYEE STOCK OPTION PLAN
1. ADOPTION AND PURPOSE
COMPASS KNOWLEDGE HOLDINGS, Inc., a Nevada corporation (the "Company"),
adopted its 1999 Employment Stock Option Plan ("Plan") effective
November 15, 1999. The purpose of the Plan is to foster and promote the
financial success of the Company and increase stockholder value by
strengthening the Company's ability to attract and retain qualified
Employees and Consultants by furnishing suitable recognition of their
efforts which contributed to the success of the Company and to align
their interests to the long-term interest of the Company stockholders.
The Plan is intended to provide "incentive stock options" within the
meaning of that terms under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), as well as non-qualified stock options.
Any proceeds of cash or property received by the Company for the sale
of COMPASS KNOWLEDGE HOLDINGS, Inc. common stock, no par value (the
"Common Stock") pursuant to Options granted under this Plan will be
used for general corporate purposes.
2. ADMINISTRATION
2.1 The Plan shall be administered by a committee (the
"Compensation Committee") appointed by the Board of Directors
of the Company (the "Board") and composed of at least two
Board members. The Compensation Committee shall meet the plan
administrator requirements described under Rule 16b-3(c)(2)
promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), or any similar rule which may
subsequently be in effect. Any vacancy on the Compensation
Committee shall be filled by the Board.
2.2 Subject to the express provisions of the Plan, the
Compensation Committee shall have the sole and complete
authority to (i) determine key employees and others to whom
awards hereunder shall be granted, (ii) make awards in such
form and amounts as it shall determine, (iii) impose such
limitations and conditions upon such awards as it shall deem
appropriate, (iv) interpret the Plan, prescribe, amend and
rescind rules and regulations relating to it, (v) determine
the terms and provisions of the respective participants'
agreement (which need not be identical), and (vi) make such
other determinations as it deems necessary or advisable for
the administration of the Plan. The decisions of the
Compensation Committee on matters within their jurisdictions
under the Plan shall be conclusive and binding on the Company
and all other persons. No member of the Board or the
Compensation Committee shall be liable for any action taken or
determined made in good faith.
2.3 All expenses associated with the Plan shall be paid by the
Company or its Subsidiaries.
3. DEFINITIONS
3.1 "CAUSE" when used in connection with the termination of a
Participant's employment with the Company, shall mean the
termination of the Participant's employment by the Company by
reason of (i) the conviction of the Participant of
2
<PAGE> 3
a crime involving moral turpitude by a court of competent
jurisdiction as to which no further appeal can be taken: (ii)
the proven commission by the Participant of any act of fraud
upon the Company, (iii) the willful and proven
misappropriation of any funds or property of the Company by
the Participant; (iv) the willful, continued and unreasonable
failure by the Participant in any direct, material conflict of
interest with the Company without compliance with the
Company's conflict of interest policy, if any, then in effect;
(vi) the knowing engagement by the Participant, without the
written approval of the Board of Directors of the Company, in
any activity which competes with the business of the Company
or which would result in material injury to the company; or
(vii) the knowing engagement in any activity which would
constitute a material violation of the provisions of the
Company's insider trading policy or business ethics policy, if
any, then in effect.
3.2 "CHANGE IN CONTROL" shall mean the occurrence of any of the
following events.
(i) any Person becomes, after the effective date of this
Plan, the "beneficial owner" (as defined in Rule
13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company
representing 30% or more of the combined voting power
of the Company's then outstanding securities, unless
the Board (as constituted immediately prior to such
Change In Control) determines in its sole absolute
discretion that no Change in Control has occurred.
(ii) individuals who constitute the Board on the effective
date of the Plan cease, for any reason, to constitute
at least a majority of the Board of Directors,
PROVIDED, HOWEVER, that any person becoming a
director subsequent to the effective date of the Plan
who was nominated for election by at least 66 2/3% of
the Board as constituted on the effective date of the
Plan (other than the nomination of an individual
whose initial assumption of office is in connection
with an actual or threatened election contest,
relating to the election of the Board of Directors,
as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) shall be, for
purposes of this Plan, considered a member of the
Board as constituted on the effective date of the
Plan; or
(iii) the Board of Directors determines in its sole and
absolute discretion that there has been a Change in
Control of the Company.
3.3 "CONSULTANTS" shall mean any person who is engaged by the
Company or any parent or Subsidiary of the Company to render
consulting services and is compensated for such consulting
services.
3.4 "EMPLOYEE" shall mean any person employed on an hourly or
salaried basis by the Company or any parent to Subsidiary of
the Company that now exists or hereafter is organized or
acquires the Company.
3.5 The "FAIR MARKET VALUE" of a share of Common Stock on any date
shall be (i) the closing sales price on the immediately
preceding business day of a share of Common Stock as reported
on the principal securities exchange on which shares of Common
Stock are listed or admitted to trading, or (ii) if not so
reported, the
3
<PAGE> 4
average of the closing bid and asked prices for a share of
Common Stock on the immediately preceding business day as
quoted on the National Association of Securities Dealers
Automated Quotation System ("Nasdaq"), or (iii) if not quoted
by the National Quotation Bureau's "Pink Sheets" or the
National Association of Securities Dealers' OTC Bulletin Board
System, or (iv) if none of the above as determined by the
Company's Board of Directors. If the price of a share of
Common Stock shall not be so reported, the Fair Market Value
of a share of Common Stock shall be determined by the
Compensation Committee in its absolute discretion. In no event
shall the Fair Market Value of any shares of Common Stock be
less than its par value.
3.6 "INCENTIVE STOCK OPTION" shall mean an option which is an
"incentive stock option" within the meaning of Section 422 of
the Code and which is identified as an Incentive Stock Option
in the agreement by which it is evidenced.
3.7 "NON-QUALIFIED STOCK OPTION" shall mean an Option which is not
an Incentive Stock Option and which is identified as a
Non-Qualified Stock Option in the agreement by which it is
evidenced.
3.8 "OPTION" shall mean an Option to purchase shares of Common
Stock of the Company granted pursuant to this Plan. Each
Option shall be identified either as an Incentive Stock Option
or a Non-Qualified Stock Option in the agreement by which it
is evidenced.
3.9 "SUBSIDIARY" shall mean a corporation (other than the Company)
in which the Company directly or indirectly controls 50% or
more of the combined voting power of all stock of that
corporation.
4. ELIGIBILITY
The Compensation Committee may grant Options to purchase Common Stock
under this Plan to Employees of the Company, or its Subsidiaries, as
well as to Consultants or to any Trust established for the purposes set
forth herein. Employees of the Company, as well as the Consultants who
are granted Options pursuant to this Plan shall be referred to as
"Participants". The Compensation Committee shall determine, within the
provisions of the Plan, those persons to whom, and the times at which,
Options shall be granted. In making such determinations, the
Compensation Committee may take into account the nature of the services
rendered by such person, his or her present and potential contributions
to the Company's success, and such other factors as the Compensation
Committee, in its discretion shall deem relevant. Grants may be made to
the same individual on more than one occasion.
5. GRANTING OF OPTIONS
5.1 Powers of the Compensation Committee. The Compensation
Committee shall determine, in accordance with the provisions
of the Plan, the duration of each Option, the exercise price
of each Option, the time or times within which (during the
term of the Option) all or portions of each Option may be
exercised, and whether cash, Common Stock, or other property
may be accepted in full or partial payment upon exercise of an
Option.
4
<PAGE> 5
5.2 Number of Options. As soon as practicable after the date an
individual is determined to be eligible under Section 4
hereof, the Compensation Committee may, in its discretion,
grant to such person a number of Options determined by the
Compensation Committee.
6. COMMON STOCK
Each Option granted under the Plan shall be convertible into one share
of Common Stock, unless adjusted in accordance with the provisions of
Section 8 hereof. Options may be granted for a number of shares not to
exceed, in the aggregate, 1,500,000 shares of Common Stock, subject to
adjustment pursuant to Section 8 hereof. For purposes of calculating
the maximum number of shares of Common stock that may be issued under
the Plan, (i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when cash
is used as full payment for shares issued upon the exercise of an
Option, and (ii) shares tendered by a Participant as payment for shares
issued upon exercise of an Option shall be available for issuance under
the Plan. Upon the exercise of an Option, the Company may deliver
either authorized but unissued shares, treasury shares, or any
combination thereof. In the event that any Option granted under the
Plan expires unexercised, or is surrendered by a participant for
cancellation, or is terminated or ceases to be exercisable for any
other reason without having been fully exercised, the Common Stock
subject to such Option shall again become available for new Options to
be granted under the Plan to any eligible person (including the holder
of such former Option) at an exercise price determined in accordance
with Section 7.2 hereof, which price may then be greater or less than
the exercise price of such former Option. No fractional shares of
Common Stock shall be issued, and the Compensation Committee shall
determine the manner in which fractional share value shall be treated.
7. REQUIRED TERMS AND CONDITIONS OF OPTIONS
7.1 Award of Options. The Compensation Committee may, from time to
time and subject to the provisions of the Plan and such other
terms and conditions as the Compensation Committee may
prescribe, grant to any Participant in the Plan one or more
Incentive Stock Options or Non-Qualified Stock Options to
purchase for cash or shares the number of shares of Common
Stock allotted by the Compensation Committee. The date an
Option is granted shall mean the date selected by the
Compensation Committee as of which the Compensation Committee
allots a specific number of shares to a Participant pursuant
to the Plan.
7.2 Exercise Price. The exercise price of any Non-Qualified Stock
Option granted under the Plan shall be such price as the
Compensation Committee shall determine on the date on which
such Non-Qualified Stock Option is granted; provided, however,
that such stock price may not be less than 85% of the Fair
Market Value of a share of Common stock on the date the Option
is granted. Except as provided in Section 7.4 hereof, the
exercise price of any Incentive Stock Option granted under the
Plan shall be not less than 100% of the Fair Market Value of a
share of Common Stock on the date on which such Incentive
Stock Option is granted.
7.3 Term and Exercise. Each Option shall be exercisable on such
date or dates, during such period and for such number of
shares of Common Stock as shall be
5
<PAGE> 6
determined by the Compensation Committee on the day on which
such Option is granted and as set forth in the agreement
evidencing the Option; PROVIDED, HOWEVER, that (A) no Option
shall be exercisable after the expiration of seven (7) years
from the date such Option was granted; and (B) no Incentive
Stock Option granted to a 10% shareholder as set forth in
Section 7.4 hereof shall be exercisable after the expiration
of five (5) years from the date such Incentive Stock Option
was granted; and, PROVIDED, FURTHER, that each Option shall be
subject to earlier termination, expiration or cancellation as
provided in the Plan. Each Option shall be exercisable in
whole or in part with respect to whole shares of Common Stock.
The partial exercise of an Option shall not cause the
expiration, termination or cancellation of the remaining
portion thereof. On the partial exercise of an Option, the
agreement evidencing such Option shall be returned to the
Participant exercising such Option together with the delivery
of the certificates described in Section 7.7 hereof.
7.4 RESERVED
7.5 Maximum Amount of Option Grant. To the extent that the
aggregate Fair Market Value (determined on the date the Option
is granted) of Common Stock subject to Incentive Stock Options
exercisable for the first time by a Participant during any
calendar year exceeds $25,000, such Option shall be treated as
Non-Qualified Stock Options.
7.6 Method of Exercise. An Option shall be exercised by delivering
notice to the Company's principal office, to the attention of
its Secretary, no fewer than five business days in advance of
the effective date of the proposed exercise. Such notice shall
be accompanied by the agreement evidencing the Option, shall
specify the number of shares of Common Stock with respect to
which the Option is being exercised and the effective date of
the proposed exercise, and shall be signed by the Participant.
The Participant may withdraw such notice at any time prior to
the close of business on the business day immediately
preceding the effective date of the proposed exercise, in
which case such agreement shall be returned to the
Participant. Payment for shares of Common Stock purchased upon
the exercise of an Option shall be made on the effective date
of such exercise either (i) in cash, by certified check, bank
cashier's check or wire transfer or (ii) subject to the
approval of the Compensation Committee, in shares of Common
Stock owned by the Participant and valued at their Fair Market
Value on the effective date of such exercise, or partly in
shares of Common Stock with the balance in cash, by certified
check, bank cashier's check or wire transfer. Any payment in
shares of Common Stock shall be effected by the delivery of
such shares to the Secretary of the Company, duly endorsed in
blank or accompanied by stock powers duly executed in blank,
together with any other documents and evidences as the
Secretary of the Company shall require from time to time.
7.7 Delivery of Stock Certificates. Certificates for shares of
Common Stock purchased on the exercise of an Option shall be
issued in the name of the Participant and delivered to the
Participant as soon as practicable following the effective
date on which the Option is exercised; PROVIDED, HOWEVER, that
such delivery shall be effected for all purposes when the
stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the
Participant.
6
<PAGE> 7
8. ADJUSTMENTS
8.1 The aggregate number or type of shares of Common Stock with
respect to which Options may be granted hereunder, the number
or type of shares of Common Stock subject to each outstanding
Option, and the exercise price per share for each such Option
may all be appropriately adjusted, as the Compensation
Committee may determine, for any increase or decrease in the
number of shares of issued Common Stock resulting from a
subdivision or consolidation of shares whether through
reorganization, recapitalization, consolidation, payment of a
shared dividend, or other similar increase or decrease.
8.2 Subject to any required action by the stockholders, if the
Company shall be a party to a transaction involving a sale of
substantially all its assets, a merger, or a consolidation,
any Option granted hereunder shall pertain to and apply to the
securities to which a holder of Common Stock would be entitled
to receive as a result of such transaction; PROVIDED, HOWEVER,
that all unexercised Options under the Plan may be Cancelled
by the Company as of the effective date of any such
transaction by giving notice to the holders of such Options of
its intention to do so, and by permitting the exercise of such
Options during the 30-day period immediately after the date
such notice is given.
8.3 In the case of dissolution of the Company, every Option
outstanding hereunder shall terminate; PROVIDED, HOWEVER, that
each Option holder shall have 30 days' prior written notice of
such event, during which time he shall have a right to
exercise his partly or wholly unexercised Options.
8.4 On the basis of information known to the Company, the
Compensation Committee shall make all determinations under
this Section 8, including whether a transaction involves a
sale of substantially all the Company's assets; and all such
determinations shall be conclusive and binding on the Company
and all other persons.
8.5 Upon the occurrence of a Change in Control, the Compensation
Committee (as constituted immediately prior to the Change in
Control) shall determine, in its absolute discretion, whether
each Option granted under the Plan and outstanding at such
time shall become fully and immediately exercisable and shall
remain exercisable until its expiration, termination or
cancellation pursuant to the terms of the Plan or whether each
such Option shall continue to vest according to its terms.
9. OPTION AGREEMENTS
Each award of Options shall be evidenced by a written agreement,
executed by the Participant and the Company, which shall contain such
restrictions, terms and conditions as the Compensation Committee may
require in accordance with the provisions of this Plan. Option
agreements need not be identical. The certificates evidencing the
shares of Common Stock acquired upon exercise of an Option may bear a
legend referring to the terms and conditions contained in the
respective Option agreement and the Plan, and the Company may place a
stop transfer order with its transfer agent against the transfer of
such shares. If requested to do so by the Compensation Committee at the
time of
7
<PAGE> 8
exercise of an Option, each Participant shall execute a certificate
indicating that he is purchasing the Common Stock under such Option for
investment and not with any present intention to sell the same.
10. LEGAL AND OTHER REQUIREMENTS
10.1 The Company shall be under no obligation to effect the
registration pursuant to the Securities Act of 1933, as
amended, of any shares of Common Stock to be issued hereunder
or to effect similar compliance under any state laws.
Notwithstanding anything herein to the contrary, the Company
shall not be obligated to cause to be issued or delivered any
certificates evidencing shares of Common Stock pursuant to the
Plan unless and until the Company is advised by its counsel
that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of
governmental authority and the requirements of any securities
exchange on which shares of Common Stock are traded. The
Compensation Committee may require, as a condition of the
issuance and delivery of certificates evidencing shares of
Common Stock pursuant to the terms hereof, that the recipient
of such shares make such covenants, agreements and
representations, and that such certificates bear such legends,
as the Compensation Committee, in its sole discretion, deems
necessary or desirable. The exercise of any Option grated
hereunder shall only be effective at such time as counsel to
the Company shall have determined that the issuance and
delivery of shares of Common Stock pursuant to such exercise
is in compliance with all applicable laws, regulations of
governmental authorities and the requirements of any
securities exchange on which shares of Common Stock are
traded. The Company may, in its sole discretion, defer the
effectiveness of any exercise of an Option granted hereunder
in order to allow the issuance of shares of Common Stock
pursuant thereto to be made pursuant to registration or an
exemption from registration or other methods for compliance
available under federal or state securities laws. The Company
shall inform the Participants in writing of its decision to
defer the effectiveness of the exercise of an Option has been
deferred, the Participant may, by written notice, withdraw
such exercise and obtain the refund of any amount paid with
respect thereto.
10.2 With respect to persons subject to Section 16 of the
Securities Exchange Act of 1934, as amended ("Exchange Act"),
transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under
the Exchange Act. To the extent any provisions of the Plan or
action by the Compensation Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Compensation Committee. Moreover,
in the event the Plan does not include a provision required by
Rule 16b-3 to be stated therein, such provision (other than
one relating to eligibility requirements, or the price and
amount of Options) shall be deem automatically to be
incorporated by reference into the Plan insofar as
Participants subject to Section 16 are concerned. The
Compensation Committee may at any time impose any limitations
upon the exercise, delivery and payment of any Option which in
the Compensation Committee's discretion, are necessary in
order to comply with Section 16(b) and the rules and
regulations thereunder.
10.3 A Participant shall have no rights as a stockholder with
respect to any shares covered by an Option, or exercised by
him, until the date of delivery of a stock
8
<PAGE> 9
certificate to him for such shares. No adjustment, other than
pursuant to Section 8 hereof, shall be made for dividends or
other rights for which the record date is prior to the date
such stock certificate is delivered.
11. NON-TRANSFERABILITY
During the lifetime of a Participant, any Option granted to him shall
be exercisable only by him or by his guardian or legal representative.
No Option shall be assignable or transferable, except by will, by the
laws of descent and distribution, or pursuant to certain domestic
relations orders. The granting of an Option shall impose no obligation
upon the holder thereof to exercise such Option or right.
12. NO CONTRACT OF EMPLOYMENT
The adoption of this Plan or the grant of any Option shall not be
construed as giving a Participant the right to continue employment with
the Company or any Subsidiary of the Company. Furthermore, the Company
or any Subsidiary of the Company may at any time dismiss a Participant
from employment, free from any liability or claim under the Plan,
unless otherwise expressed provided in the Plan or any Option
agreement.
13. EFFECT OF TERMINATION OF EMPLOYMENT
13.1 If the employment or consulting, service or similar
relationship of a Participant with the Company shall terminate
for any reason other than Cause, "permanent and total
disability" (within the meaning of Section 22(e)(3) of the
Code) or the death of the Participant (1) Options granted to
such Participant, to extent that they were exercisable at the
time of such termination, shall remain exercisable until the
expiration of three months after such termination, on which
date they shall expires, and (b) Options granted to such
Participant, to the extent that they were not exercisable at
the time of such termination, shall expire at the close of
business on the date of such termination; PROVIDED, HOWEVER,
that no Option shall be exercisable after the expiration of
its terms.
13.2 If the employment or consulting, service or similar
relationship of a Participant with the Company shall terminate
on account of the "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code) or the death of the
Participant (a) Options granted to such Participant, to the
extent that they were exercisable at the time of termination,
shall remain exercisable until the expiration of one year
after such termination, on which date they shall expires, and
(b) Options granted to such Participant, to the extent that
they were not exercisable at the time of such termination,
shall expire at the close of business on the date of such
termination; PROVIDED, HOWEVER, that no Option shall be
exercisable after the expiration of its term.
13.3 In the event of the termination of a Participant's employment
or other relationship with the Company for Cause, all
outstanding Options granted to such Participant shall expire
at the commencement of business the date of such termination.
9
<PAGE> 10
14. INDEMNIFICATION OF COMPENSATION COMMITTEE
In addition to such other rights of indemnification as they may have as
members of the Board or the Compensation Committee, the members of the
Compensation Committee shall be indemnified by the Company against the
reasonable expenses, including attorney's fees actually and necessarily
incurred in connection with the defense of any action, suite or
proceeding (or in connection with any appeal therein), to which they or
any of them may be party by reason of any action taken or failure to
act under or in connection with the Plan or any Option granted
hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suite or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding
that such Compensation Committee member is liable for gross negligence
or misconduct in the performance of his duties, provided that within 60
days after institution of any such action, suite or proceeding a
Compensation Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
15. WITHHOLD TAXES
Whenever the Company proposes or is required to issue or transfer
shares of Common Stock under the Plan, the Company shall have the right
to require the Participant to remit to the Company an amount sufficient
to satisfy any federal, state and/or local withholding tax requirements
prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue or transfer such shares of
Common Stock net the number of shares sufficient to satisfy the
withholding tax requirements. For withholding tax purposes, the shares
of Common Stock will be valued on the date the withholding obligation
is incurred.
16. NEWLY ELIGIBLE PARTICIPANTS
Except as otherwise provided herein, the Compensation Committee shall
be entitled to make such rules, regulations, determinations and awards
as it deems appropriate in respect of any person who become eligible to
participate in the Plan.
17. TERMINATION AND AMENDMENT OF PLAN
The Board of Directors may at any time suspend or discontinue the Plan
or revise or amend it in any respect whatsoever, PROVIDED, HOWEVER,
that without approval of the holders of a majority of the outstanding
shares of Common Stock present in person or by proxy at an annual or
special meeting of stockholders, no revision or amendments shall (i)
increase the number of shares of Common Stock that may be issued under
the Plan, except as provided in Section 8 hereof, (ii) materially
increase the benefits accruing to individuals holding Options granted
pursuant to the Plan, or (iii) materially modify the requirements as to
eligibility for participation in the Plan.
18. GENDER AND NUMBER
Except when otherwise indicated by the context, words in the masculine
gender when used in the Plan shall include the feminine gender and vice
versa, and the singular shall include the plural and the plural shall
include the singular.
10
<PAGE> 11
19. GOVERNING LAW
The Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Nevada.
20. EFFECTIVE DATE OF PLAN
The effective date of the Plan is November 15, 1999. The Plan, each
amendment to the Plan, and each Option granted under the Plan is
conditional on and shall be of no force or effect until approval of the
Plan and each amendment of the Plan by the holders of a majority of the
shares of Common Stock of the Company.
11
<PAGE> 1
EXHIBIT 4.5
COMPASS KNOWLEDGE GROUP, INC.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT dated this 9th day of February, 1999 (the "Grant Date")
by and between COMPASS KNOWLEDGE GROUP, INC, a Florida corporation located at
2710 Rew Circle, Suite 100, Ocoee, Florida 34761, Florida (the "Company"), and
the Compass Knowledge Group Management Trust (the "Optionee").
RECITALS:
A. The Company has duly adopted with subsequent shareholder approval a stock
option plan known as the COMPASS KNOWLEDGE GROUP, INC. 1999 STOCK OPTION PLAN
(the "Plan").
B. The Plan provides for the granting of incentive stock options as defined in
Section 422 of the Internal Revenue Code, as amended (the "Code") and
non-qualified stock options by a Committee to be appointed by the Board of
Directors of the Company (the "Committee") to officers, directors and employees
of the Company or of its parent or subsidiaries, if any, to purchase shares of
common stock of the Company, $.001 par value (the "Stock"), in accordance with
the terms and provisions thereof.
C. The Committee considers the Optionee to be a person who is eligible for a
grant of stock options under the Plan, and has determined that it would be in
the best interest of the Company to grant the incentive stock option documented
herein.
NOW, THEREFORE, based on the foregoing and for good and valuable consideration,
the Company and Optionee hereby agree as follows:
1. Incorporation of Terms and Provisions of Plan.
(a) All of the terms, provisions, conditions and restrictions contained
in the Plan, including any and all rules and regulations adopted under the Plan
by the Committee (the "Plan Provisions"), are hereby incorporated in this
Agreement and the Optionee agrees to be bound by all of the Plan Provisions and
by all of the terms and conditions of this Agreement. This Agreement does not
set forth all of the terms and conditions of the Plan; copies of the Plan may be
obtained upon written request without charge from the Company.
(b) All capitalized terms used in this Agreement without definition
shall have the meaning defined for it in the Plan, if any.
2. Grant of Option. Subject to the provisions of this Agreement and to the Plan
Provisions, the
<PAGE> 2
Company hereby grants to the Optionee an option (the "Option") to purchase from
the Company One Million Five Hundred Thousand (1,500,000) shares of common stock
(the "Option Shares") at a price of $.75 per share, the fair market value (the
"Exercise Price"). The Option is intended by the parties hereto to be, and shall
be treated as an incentive stock option (as such term is defined under Code
Section 422).
3. Exercise of Option.
(a) No portion of the Option may be exercised by the Optionee on or at
any time after the fifth (5th) anniversary of the Grant Date.
(b) Except as otherwise set forth in this Agreement, portions of the
Option may be exercised in whole or in part only as set forth below in
accordance with the Plan Provisions and this Section by the Optionee tendering
the Exercise Price (or a proportionate part thereof if the Option is partially
exercised) to the Company, together with a written notice of intent to exercise
in the form attached hereto as Exhibit "A" to the Company specifying the number
of Option Shares the Optionee wishes to purchase pursuant to the Option. All
Option Shares may be exercised in whole or in part beginning at any time and
from time to time until the expiration of such options.
4. Share Certificates. Upon receipt of the Exercise Price (or the requisite
portion thereof), the Company shall cause one or more stock certificates
evidencing the Optionee's ownership of the Option Shares so purchased by the
Optionee to be issued to the Optionee subject, however, to the Plan Provisions.
5. Investment Securities. The Optionee represents and warrants to the Company
that any Option Shares purchased by the Optionee upon the exercise hereof will
be acquired for investment and not for distribution within the meaning of the
Securities Act of 1933, as amended, provided, however, that the foregoing
representation and warranty shall be inoperative if such Option Shares are
registered under such Act.
6. Default of Optionee. Should the Optionee at any time breach any Plan
Provision or any provision of this Agreement, the Option granted hereunder shall
be null and void. This provision shall be in addition to and not in lieu of any
other remedies which the Company may have at law and/or in equity.
7. Miscellaneous Provisions.
(a) Unless otherwise specifically provided herein, all notices to be
given hereunder shall be in writing and sent to the parties by certified mail,
return receipt requested, which shall be addressed to each party's respective
address, as set forth in the first paragraph of this Agreement, or to such other
address as such party shall give to the other party hereby by a notice given in
accordance with this Section and, except as otherwise provided in this
Agreement, shall be effective when deposited in the United States mail properly
addressed and postage prepaid. If
-2-
<PAGE> 3
such notice is sent other than by the United States mail, such notice shall be
effective when actually received by the party being noticed.
(b) This Agreement may not be assigned in whole or in part by either of
the parties hereto.
(c) Both parties hereto shall execute and deliver such other
instruments and do such other acts as may be necessary to carry out the intent
and purposes of this Agreement.
(d) Whenever the context may require, any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms and the singular
form of nouns and pronouns shall include the plural and vice versa.
(e) The captions contained in this Agreement are inserted only as a
matter of convenience and in no way define, limit or extend the scope of this
Agreement or the intent of any of the provisions hereof.
(f) This Agreement and the Plan constitute the entire understanding
between the parties hereto concerning the grant of incentive stock options to
the Optionee under the Plan and shall not be terminated, except in accordance
with its terms or the Plan Provisions, or amended except in accordance with the
Plan Provisions or in a writing executed by both of the parties hereto.
(g) The waiver of a breach of any term or condition of this Agreement
shall not be deemed to constitute the waiver of any other breach of the same or
any other term or condition.
(h) The invalidity or unenforceability, in whole or in part, of any
covenant, promise or undertaking, or any section, subsection, paragraph,
sentence, clause, phrase or word or of any provision of this Agreement shall not
affect the validity or enforceability of the remaining portions thereof.
(i) This Agreement shall be binding upon and inure to the benefit of
the heirs, successors, estate and personal representatives of the Optionee and
the successors and assigns of the Company.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
Witnesses: COMPASS KNOWLEDGE GROUP, INC
By:
- --------------------------------- ----------------------------------------
Dan Devine, President
COMPASS KNOWLEDGE GROUP MANAGEMENT TRUST
By:
- --------------------------------- ----------------------------------------
Rogers W. Kirven, Jr., Trustee
-4-
<PAGE> 5
EXHIBIT "A" TO
STOCK OPTION AGREEMENT DATED FEBRUARY 9, 1999
NOTICE OF EXERCISE OF OPTION TO PURCHASE
SHARES OF COMMON STOCK
OF COMPASS KNOWLEDGE GROUP, INC
The undersigned does by this notice request that COMPASS KNOWLEDGE GROUP, INC, a
Florida corporation (the "Company"), issue to the undersigned that number of
shares of Common Stock specified below (the "Shares") at the price per Share
specified below pursuant to the exercise of the undersigned's option under the
Stock Option Agreement (the "Option") dated February 9, 1999 between the
undersigned and the Company.
Simultaneously herewith, the undersigned delivers to the Company the purchase
price for the Shares (i.e., that amount which is obtained by multiplying the
number of Shares for which the Option is being exercised by the price
specified), by good check.
The undersigned hereby represents and warrants that the undersigned is acquiring
the Shares for the undersigned's own account and not on behalf of any other
person and without any present view to making a public offering or distribution
of same and without any present intention of selling same at any particular time
or at any particular price or upon the occurrence of any particular event or
circumstance.
The undersigned acknowledges and understands that in connection with the
acquisition of the Shares by the undersigned:
1. The Company has informed the undersigned that the Shares are not registered
under the Securities Act of 1933, as amended (the "Act"), or applicable state
securities or Blue Sky law or laws, and thus the Shares may not be transferred
or otherwise disposed of until the Shares are subsequently registered under the
Act and the applicable state securities or Blue Sky law or laws or an exemption
from such registration requirements is available.
2. The undersigned has been informed that a legend referring to the restrictions
indicated herein on transferability and sale will be placed upon the
certificate(s) evidencing the Shares.
<PAGE> 6
3. If the undersigned is required to file a Form 144 with the Securities and
Exchange Commission in connection with sales of the Shares pursuant to Rule 144
under the Act, the undersigned shall mail a copy of such Form to the Company at
the same time and each time the undersigned mails a copy to the Securities and
Exchange Commission.
A. Date of Stock Option Agreement: February 9, 1999
B. Number of Shares covered by Option: _______________
C. Number of Shares of Common Stock actually to be purchased at this time
(must be 100 Shares or whole multiples thereof): ________
D. Exercise price per Share: $_________
E. Aggregate price to be paid for Shares actually purchased (D multiplied
by C):
$________
Dated:________________________
Very truly yours,
--------------------------------------
Holder Name
Residence:
--------------------------------------
ACCEPTED:
COMPASS KNOWLEDGE GROUP, INC
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
Dated:
---------------------------------
<PAGE> 1
1
EXHIBIT 4.6
COMPASS KNOWLEDGE HOLDINGS, INC.
2000 EMPLOYEE STOCK OPTION PLAN
<PAGE> 2
COMPASS KNOWLEDGE HOLDINGS, INC.
2000 EMPLOYEE STOCK OPTION PLAN
1. ADOPTION AND PURPOSE
COMPASS KNOWLEDGE HOLDINGS, Inc., a Nevada corporation (the "Company"),
adopted its 2000 Employment Stock Option Plan ("Plan") effective
January 1, 2000. The purpose of the Plan is to foster and promote the
financial success of the Company and increase stockholder value by
strengthening the Company's ability to attract and retain qualified
Employees and Consultants by furnishing suitable recognition of their
efforts which contributed to the success of the Company and to align
their interests to the long-term interest of the Company stockholders.
The Plan is intended to provide "incentive stock options" within the
meaning of that terms under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), as well as non-qualified stock options.
Any proceeds of cash or property received by the Company for the sale
of COMPASS KNOWLEDGE HOLDINGS, Inc. common stock, no par value (the
"Common Stock") pursuant to Options granted under this Plan will be
used for general corporate purposes.
2. ADMINISTRATION
2.1 The Plan shall be administered by a committee (the
"Compensation Committee") appointed by the Board of Directors
of the Company (the "Board") and composed of at least two
Board members. The Compensation Committee shall meet the plan
administrator requirements described under Rule 16b-3(c)(2)
promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), or any similar rule which may
subsequently be in effect. Any vacancy on the Compensation
Committee shall be filled by the Board.
2.2 Subject to the express provisions of the Plan, the
Compensation Committee shall have the sole and complete
authority to (i) determine key employees and others to whom
awards hereunder shall be granted, (ii) make awards in such
form and amounts as it shall determine, (iii) impose such
limitations and conditions upon such awards as it shall deem
appropriate, (iv) interpret the Plan, prescribe, amend and
rescind rules and regulations relating to it, (v) determine
the terms and provisions of the respective participants'
agreement (which need not be identical), and (vi) make such
other determinations as it deems necessary or advisable for
the administration of the Plan. The decisions of the
Compensation Committee on matters within their jurisdictions
under the Plan shall be conclusive and binding on the Company
and all other persons. No member of the Board or the
Compensation Committee shall be liable for any action taken or
determined made in good faith.
2.3 All expenses associated with the Plan shall be paid by the
Company or its Subsidiaries.
3. DEFINITIONS
3.1 "CAUSE" when used in connection with the termination of a
Participant's employment with the Company, shall mean the
termination of the Participant's employment by the Company by
reason of (i) the conviction of the Participant of a crime
involving moral turpitude by a court of competent jurisdiction
as to
2
<PAGE> 3
which no further appeal can be taken: (ii) the proven
commission by the Participant of any act of fraud upon the
Company, (iii) the willful and proven misappropriation of any
funds or property of the Company by the Participant; (iv) the
willful, continued and unreasonable failure by the Participant
in any direct, material conflict of interest with the Company
without compliance with the Company's conflict of interest
policy, if any, then in effect; (vi) the knowing engagement by
the Participant, without the written approval of the Board of
Directors of the Company, in any activity which competes with
the business of the Company or which would result in material
injury to the company; or (vii) the knowing engagement in any
activity which would constitute a material violation of the
provisions of the Company's insider trading policy or business
ethics policy, if any, then in effect.
3.2 "CHANGE IN CONTROL" shall mean the occurrence of any of the
following events.
(i) any Person becomes, after the effective date of this
Plan, the "beneficial owner" (as defined in Rule
13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company
representing 30% or more of the combined voting power
of the Company's then outstanding securities, unless
the Board (as constituted immediately prior to such
Change In Control) determines in its sole absolute
discretion that no Change in Control has occurred.
(ii) individuals who constitute the Board on the effective
date of the Plan cease, for any reason, to constitute
at least a majority of the Board of Directors,
PROVIDED, HOWEVER, that any person becoming a
director subsequent to the effective date of the Plan
who was nominated for election by at least 66 2/3% of
the Board as constituted on the effective date of the
Plan (other than the nomination of an individual
whose initial assumption of office is in connection
with an actual or threatened election contest,
relating to the election of the Board of Directors,
as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) shall be, for
purposes of this Plan, considered a member of the
Board as constituted on the effective date of the
Plan; or
(iii) the Board of Directors determines in its sole and
absolute discretion that there has been a Change in
Control of the Company.
3.3 "CONSULTANTS" shall mean any person who is engaged by the
Company or any parent or Subsidiary of the Company to render
consulting services and is compensated for such consulting
services.
3.4 "EMPLOYEE" shall mean any person employed on an hourly or
salaried basis by the Company or any parent to Subsidiary of
the Company that now exists or hereafter is organized or
acquires the Company.
3.5 The "FAIR MARKET VALUE" of a share of Common Stock on any date
shall be (i) the closing sales price on the immediately
preceding business day of a share of Common Stock as reported
on the principal securities exchange on which shares of Common
Stock are listed or admitted to trading, or (ii) if not so
reported, the average of the closing bid and asked prices for
a share of Common Stock on the
3
<PAGE> 4
immediately preceding business day as quoted on the National
Association of Securities Dealers Automated Quotation System
("Nasdaq"), or (iii) if not quoted by the National Quotation
Bureau's "Pink Sheets" or the National Association of
Securities Dealers' OTC Bulletin Board System, or (iv) if none
of the above as determined by the Company's Board of
Directors. If the price of a share of Common Stock shall not
be so reported, the Fair Market Value of a share of Common
Stock shall be determined by the Compensation Committee in its
absolute discretion. In no event shall the Fair Market Value
of any shares of Common Stock be less than its par value.
3.6 "INCENTIVE STOCK OPTION" shall mean an option which is an
"incentive stock option" within the meaning of Section 422 of
the Code and which is identified as an Incentive Stock Option
in the agreement by which it is evidenced.
3.7 "NON-QUALIFIED STOCK OPTION" shall mean an Option which is not
an Incentive Stock Option and which is identified as a
Non-Qualified Stock Option in the agreement by which it is
evidenced.
3.8 "OPTION" shall mean an Option to purchase shares of Common
Stock of the Company granted pursuant to this Plan. Each
Option shall be identified either as an Incentive Stock Option
or a Non-Qualified Stock Option in the agreement by which it
is evidenced.
3.9 "SUBSIDIARY" shall mean a corporation (other than the Company)
in which the Company directly or indirectly controls 50% or
more of the combined voting power of all stock of that
corporation.
4. ELIGIBILITY
The Compensation Committee may grant Options to purchase Common Stock
under this Plan to Employees of the Company, or its Subsidiaries, as
well as to Consultants or to any Trust established for the purposes set
forth herein. Employees of the Company, as well as the Consultants who
are granted Options pursuant to this Plan shall be referred to as
"Participants". The Compensation Committee shall determine, within the
provisions of the Plan, those persons to whom, and the times at which,
Options shall be granted. In making such determinations, the
Compensation Committee may take into account the nature of the services
rendered by such person, his or her present and potential contributions
to the Company's success, and such other factors as the Compensation
Committee, in its discretion shall deem relevant. Grants may be made to
the same individual on more than one occasion.
5. GRANTING OF OPTIONS
5.1 Powers of the Compensation Committee. The Compensation
Committee shall determine, in accordance with the provisions
of the Plan, the duration of each Option, the exercise price
of each Option, the time or times within which (during the
term of the Option) all or portions of each Option may be
exercised, and whether cash, Common Stock, or other property
may be accepted in full or partial payment upon exercise of an
Option.
4
<PAGE> 5
5.2 Number of Options. As soon as practicable after the date an
individual is determined to be eligible under Section 4
hereof, the Compensation Committee may, in its discretion,
grant to such person a number of Options determined by the
Compensation Committee.
6. COMMON STOCK
Each Option granted under the Plan shall be convertible into one share
of Common Stock, unless adjusted in accordance with the provisions of
Section 8 hereof. Options may be granted for a number of shares not to
exceed, in the aggregate, 1,000,000 shares of Common Stock, subject to
adjustment pursuant to Section 8 hereof. For purposes of calculating
the maximum number of shares of Common stock that may be issued under
the Plan, (i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when cash
is used as full payment for shares issued upon the exercise of an
Option, and (ii) shares tendered by a Participant as payment for shares
issued upon exercise of an Option shall be available for issuance under
the Plan. Upon the exercise of an Option, the Company may deliver
either authorized but unissued shares, treasury shares, or any
combination thereof. In the event that any Option granted under the
Plan expires unexercised, or is surrendered by a participant for
cancellation, or is terminated or ceases to be exercisable for any
other reason without having been fully exercised, the Common Stock
subject to such Option shall again become available for new Options to
be granted under the Plan to any eligible person (including the holder
of such former Option) at an exercise price determined in accordance
with Section 7.2 hereof, which price may then be greater or less than
the exercise price of such former Option. No fractional shares of
Common Stock shall be issued, and the Compensation Committee shall
determine the manner in which fractional share value shall be treated.
7. REQUIRED TERMS AND CONDITIONS OF OPTIONS
7.1 Award of Options. The Compensation Committee may, from time to
time and subject to the provisions of the Plan and such other
terms and conditions as the Compensation Committee may
prescribe, grant to any Participant in the Plan one or more
Incentive Stock Options or Non-Qualified Stock Options to
purchase for cash or shares the number of shares of Common
Stock allotted by the Compensation Committee. The date an
Option is granted shall mean the date selected by the
Compensation Committee as of which the Compensation Committee
allots a specific number of shares to a Participant pursuant
to the Plan.
7.2 Exercise Price. The exercise price of any Non-Qualified Stock
Option granted under the Plan shall be such price as the
Compensation Committee shall determine on the date on which
such Non-Qualified Stock Option is granted; provided, however,
that such stock price may not be less than 85% of the Fair
Market Value of a share of Common stock on the date the Option
is granted. Except as provided in Section 7.4 hereof, the
exercise price of any Incentive Stock Option granted under the
Plan shall be not less than 100% of the Fair Market Value of a
share of Common Stock on the date on which such Incentive
Stock Option is granted.
7.3 Term and Exercise. Each Option shall be exercisable on such
date or dates, during such period and for such number of
shares of Common Stock as shall be
5
<PAGE> 6
determined by the Compensation Committee on the day on which
such Option is granted and as set forth in the agreement
evidencing the Option; PROVIDED, HOWEVER, that (A) no Option
shall be exercisable after the expiration of seven (7) years
from the date such Option was granted; and (B) no Incentive
Stock Option granted to a 10% shareholder as set forth in
Section 7.4 hereof shall be exercisable after the expiration
of five (5) years from the date such Incentive Stock Option
was granted; and, PROVIDED, FURTHER, that each Option shall be
subject to earlier termination, expiration or cancellation as
provided in the Plan. Each Option shall be exercisable in
whole or in part with respect to whole shares of Common Stock.
The partial exercise of an Option shall not cause the
expiration, termination or cancellation of the remaining
portion thereof. On the partial exercise of an Option, the
agreement evidencing such Option shall be returned to the
Participant exercising such Option together with the delivery
of the certificates described in Section 7.7 hereof.
7.4 RESERVED
7.5 Maximum Amount of Option Grant. To the extent that the
aggregate Fair Market Value (determined on the date the Option
is granted) of Common Stock subject to Incentive Stock Options
exercisable for the first time by a Participant during any
calendar year exceeds $25,000, such Option shall be treated as
Non-Qualified Stock Options.
7.6 Method of Exercise. An Option shall be exercised by delivering
notice to the Company's principal office, to the attention of
its Secretary, no fewer than five business days in advance of
the effective date of the proposed exercise. Such notice shall
be accompanied by the agreement evidencing the Option, shall
specify the number of shares of Common Stock with respect to
which the Option is being exercised and the effective date of
the proposed exercise, and shall be signed by the Participant.
The Participant may withdraw such notice at any time prior to
the close of business on the business day immediately
preceding the effective date of the proposed exercise, in
which case such agreement shall be returned to the
Participant. Payment for shares of Common Stock purchased upon
the exercise of an Option shall be made on the effective date
of such exercise either (i) in cash, by certified check, bank
cashier's check or wire transfer or (ii) subject to the
approval of the Compensation Committee, in shares of Common
Stock owned by the Participant and valued at their Fair Market
Value on the effective date of such exercise, or partly in
shares of Common Stock with the balance in cash, by certified
check, bank cashier's check or wire transfer. Any payment in
shares of Common Stock shall be effected by the delivery of
such shares to the Secretary of the Company, duly endorsed in
blank or accompanied by stock powers duly executed in blank,
together with any other documents and evidences as the
Secretary of the Company shall require from time to time.
7.7 Delivery of Stock Certificates. Certificates for shares of
Common Stock purchased on the exercise of an Option shall be
issued in the name of the Participant and delivered to the
Participant as soon as practicable following the effective
date on which the Option is exercised; PROVIDED, HOWEVER, that
such delivery shall be effected for all purposes when the
stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the
Participant.
6
<PAGE> 7
8. ADJUSTMENTS
8.1 The aggregate number or type of shares of Common Stock with
respect to which Options may be granted hereunder, the number
or type of shares of Common Stock subject to each outstanding
Option, and the exercise price per share for each such Option
may all be appropriately adjusted, as the Compensation
Committee may determine, for any increase or decrease in the
number of shares of issued Common Stock resulting from a
subdivision or consolidation of shares whether through
reorganization, recapitalization, consolidation, payment of a
shared dividend, or other similar increase or decrease.
8.2 Subject to any required action by the stockholders, if the
Company shall be a party to a transaction involving a sale of
substantially all its assets, a merger, or a consolidation,
any Option granted hereunder shall pertain to and apply to the
securities to which a holder of Common Stock would be entitled
to receive as a result of such transaction; PROVIDED, HOWEVER,
that all unexercised Options under the Plan may be Cancelled
by the Company as of the effective date of any such
transaction by giving notice to the holders of such Options of
its intention to do so, and by permitting the exercise of such
Options during the 30-day period immediately after the date
such notice is given.
8.3 In the case of dissolution of the Company, every Option
outstanding hereunder shall terminate; PROVIDED, HOWEVER, that
each Option holder shall have 30 days' prior written notice of
such event, during which time he shall have a right to
exercise his partly or wholly unexercised Options.
8.4 On the basis of information known to the Company, the
Compensation Committee shall make all determinations under
this Section 8, including whether a transaction involves a
sale of substantially all the Company's assets; and all such
determinations shall be conclusive and binding on the Company
and all other persons.
8.5 Upon the occurrence of a Change in Control, the Compensation
Committee (as constituted immediately prior to the Change in
Control) shall determine, in its absolute discretion, whether
each Option granted under the Plan and outstanding at such
time shall become fully and immediately exercisable and shall
remain exercisable until its expiration, termination or
cancellation pursuant to the terms of the Plan or whether each
such Option shall continue to vest according to its terms.
9. OPTION AGREEMENTS
Each award of Options shall be evidenced by a written agreement,
executed by the Participant and the Company, which shall contain such
restrictions, terms and conditions as the Compensation Committee may
require in accordance with the provisions of this Plan. Option
agreements need not be identical. The certificates evidencing the
shares of Common Stock acquired upon exercise of an Option may bear a
legend referring to the terms and conditions contained in the
respective Option agreement and the Plan, and the Company may place a
stop transfer order with its transfer agent against the transfer of
such shares. If requested to do so by the Compensation Committee at the
time of
7
<PAGE> 8
exercise of an Option, each Participant shall execute a certificate
indicating that he is purchasing the Common Stock under such Option for
investment and not with any present intention to sell the same.
10. LEGAL AND OTHER REQUIREMENTS
10.1 The Company shall be under no obligation to effect the
registration pursuant to the Securities Act of 1933, as
amended, of any shares of Common Stock to be issued hereunder
or to effect similar compliance under any state laws.
Notwithstanding anything herein to the contrary, the Company
shall not be obligated to cause to be issued or delivered any
certificates evidencing shares of Common Stock pursuant to the
Plan unless and until the Company is advised by its counsel
that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of
governmental authority and the requirements of any securities
exchange on which shares of Common Stock are traded. The
Compensation Committee may require, as a condition of the
issuance and delivery of certificates evidencing shares of
Common Stock pursuant to the terms hereof, that the recipient
of such shares make such covenants, agreements and
representations, and that such certificates bear such legends,
as the Compensation Committee, in its sole discretion, deems
necessary or desirable. The exercise of any Option grated
hereunder shall only be effective at such time as counsel to
the Company shall have determined that the issuance and
delivery of shares of Common Stock pursuant to such exercise
is in compliance with all applicable laws, regulations of
governmental authorities and the requirements of any
securities exchange on which shares of Common Stock are
traded. The Company may, in its sole discretion, defer the
effectiveness of any exercise of an Option granted hereunder
in order to allow the issuance of shares of Common Stock
pursuant thereto to be made pursuant to registration or an
exemption from registration or other methods for compliance
available under federal or state securities laws. The Company
shall inform the Participants in writing of its decision to
defer the effectiveness of the exercise of an Option has been
deferred, the Participant may, by written notice, withdraw
such exercise and obtain the refund of any amount paid with
respect thereto.
10.2 With respect to persons subject to Section 16 of the
Securities Exchange Act of 1934, as amended ("Exchange Act"),
transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under
the Exchange Act. To the extent any provisions of the Plan or
action by the Compensation Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Compensation Committee. Moreover,
in the event the Plan does not include a provision required by
Rule 16b-3 to be stated therein, such provision (other than
one relating to eligibility requirements, or the price and
amount of Options) shall be deem automatically to be
incorporated by reference into the Plan insofar as
Participants subject to Section 16 are concerned. The
Compensation Committee may at any time impose any limitations
upon the exercise, delivery and payment of any Option which in
the Compensation Committee's discretion, are necessary in
order to comply with Section 16(b) and the rules and
regulations thereunder.
10.3 A Participant shall have no rights as a stockholder with
respect to any shares covered by an Option, or exercised by
him, until the date of delivery of a stock
8
<PAGE> 9
certificate to him for such shares. No adjustment, other than
pursuant to Section 8 hereof, shall be made for dividends or
other rights for which the record date is prior to the date
such stock certificate is delivered.
11. NON-TRANSFERABILITY
During the lifetime of a Participant, any Option granted to him shall
be exercisable only by him or by his guardian or legal representative.
No Option shall be assignable or transferable, except by will, by the
laws of descent and distribution, or pursuant to certain domestic
relations orders. The granting of an Option shall impose no obligation
upon the holder thereof to exercise such Option or right.
12. NO CONTRACT OF EMPLOYMENT
The adoption of this Plan or the grant of any Option shall not be
construed as giving a Participant the right to continue employment with
the Company or any Subsidiary of the Company. Furthermore, the Company
or any Subsidiary of the Company may at any time dismiss a Participant
from employment, free from any liability or claim under the Plan,
unless otherwise expressed provided in the Plan or any Option
agreement.
13. EFFECT OF TERMINATION OF EMPLOYMENT
13.1 If the employment or consulting, service or similar
relationship of a Participant with the Company shall terminate
for any reason other than Cause, "permanent and total
disability" (within the meaning of Section 22(e)(3) of the
Code) or the death of the Participant (1) Options granted to
such Participant, to extent that they were exercisable at the
time of such termination, shall remain exercisable until the
expiration of three months after such termination, on which
date they shall expires, and (b) Options granted to such
Participant, to the extent that they were not exercisable at
the time of such termination, shall expire at the close of
business on the date of such termination; PROVIDED, HOWEVER,
that no Option shall be exercisable after the expiration of
its terms.
13.2 If the employment or consulting, service or similar
relationship of a Participant with the Company shall terminate
on account of the "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code) or the death of the
Participant (a) Options granted to such Participant, to the
extent that they were exercisable at the time of termination,
shall remain exercisable until the expiration of one year
after such termination, on which date they shall expires, and
(b) Options granted to such Participant, to the extent that
they were not exercisable at the time of such termination,
shall expire at the close of business on the date of such
termination; PROVIDED, HOWEVER, that no Option shall be
exercisable after the expiration of its term.
13.3 In the event of the termination of a Participant's employment
or other relationship with the Company for Cause, all
outstanding Options granted to such Participant shall expire
at the commencement of business the date of such termination.
9
<PAGE> 10
14. INDEMNIFICATION OF COMPENSATION COMMITTEE
In addition to such other rights of indemnification as they may have as
members of the Board or the Compensation Committee, the members of the
Compensation Committee shall be indemnified by the Company against the
reasonable expenses, including attorney's fees actually and necessarily
incurred in connection with the defense of any action, suite or
proceeding (or in connection with any appeal therein), to which they or
any of them may be party by reason of any action taken or failure to
act under or in connection with the Plan or any Option granted
hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suite or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding
that such Compensation Committee member is liable for gross negligence
or misconduct in the performance of his duties, provided that within 60
days after institution of any such action, suite or proceeding a
Compensation Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
15. WITHHOLD TAXES
Whenever the Company proposes or is required to issue or transfer
shares of Common Stock under the Plan, the Company shall have the right
to require the Participant to remit to the Company an amount sufficient
to satisfy any federal, state and/or local withholding tax requirements
prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue or transfer such shares of
Common Stock net the number of shares sufficient to satisfy the
withholding tax requirements. For withholding tax purposes, the shares
of Common Stock will be valued on the date the withholding obligation
is incurred.
16. NEWLY ELIGIBLE PARTICIPANTS
Except as otherwise provided herein, the Compensation Committee shall
be entitled to make such rules, regulations, determinations and awards
as it deems appropriate in respect of any person who become eligible to
participate in the Plan.
17. TERMINATION AND AMENDMENT OF PLAN
The Board of Directors may at any time suspend or discontinue the Plan
or revise or amend it in any respect whatsoever, PROVIDED, HOWEVER,
that without approval of the holders of a majority of the outstanding
shares of Common Stock present in person or by proxy at an annual or
special meeting of stockholders, no revision or amendments shall (i)
increase the number of shares of Common Stock that may be issued under
the Plan, except as provided in Section 8 hereof, (ii) materially
increase the benefits accruing to individuals holding Options granted
pursuant to the Plan, or (iii) materially modify the requirements as to
eligibility for participation in the Plan.
18. GENDER AND NUMBER
Except when otherwise indicated by the context, words in the masculine
gender when used in the Plan shall include the feminine gender and vice
versa, and the singular shall include the plural and the plural shall
include the singular.
10
<PAGE> 11
19. GOVERNING LAW
The Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Nevada.
20. EFFECTIVE DATE OF PLAN
The effective date of the Plan is January 1, 2000. The Plan, each
amendment to the Plan, and each Option granted under the Plan is
conditional on and shall be of no force or effect until approval of the
Plan and each amendment of the Plan by the holders of a majority of the
shares of Common Stock of the Company.
11
<PAGE> 1
EXHIBIT 10.1
CONFIDENTIAL
AMENDED AND RESTATED
STOCK EXCHANGE AGREEMENT
By and Among
COMPASS KNOWLEDGE GROUP, INC.,
REHABILITATION TRAINING INSTITUTE, INC.
AND
DAVID COLBURN,
MICHAEL BORCHECK,
DANIEL J. DEVINE
AND
ROGERS W. KIRVEN
<PAGE> 2
AMENDED AND RESTATED
STOCK EXCHANGE AGREEMENT
This AMENDED AND RETSTATED STOCK EXCHANGE AGREEMENT, effective
______________, 1999, is by and between Compass Knowledge Group, Inc., a Florida
corporation ("Compass"), Rehabilitation Training Institute, Inc. ("RTI") and
David Colburn, Michael Borcheck, Daniel J. Devine and Rogers W. Kirven, Jr.
(hereinafter collectively called "Shareholder").
In consideration of the mutual covenants and agreements contained in
this Agreement, and other good and valuable considerations, the receipt and
adequacy of which are hereby acknowledged, intending to be legally bound hereby,
Compass and Shareholder hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement:
"Acquisition" shall mean the acquisition of Shareholder's shares of
common stock in Rehabilitation Training Institute, Inc. (which accounts for 100%
of Shareholder's holdings in RTI) all upon the terms and subject to the
conditions set forth in this Agreement.
"Acquisition Shares" shall have the meaning ascribed to it in Section
3.1 hereof.
"Agreement" means this Stock Exchange Agreement, and all Schedules and
Exhibits hereto.
"Assets" means all of the assets of Compass and its subsidiaries, or
Rehabilitation Training Institute, Inc. or its subsidiaries, as the case may be,
of every kind and nature. Any representations and warranties made by a party
hereto with respect to the Assets shall pertain only to those Assets that are
owned, leased or otherwise controlled by such party.
"Automatic Termination Date" shall have the meaning ascribed to it in
Section 9.1(e) hereof.
"Board Approval" shall mean Compass Board Approval.
"Business Day" shall mean any weekday, excluding any legal holiday
observed pursuant to the United States federal law or the laws of the State of
Florida.
"Certificate(s)" shall have the meaning ascribed to it in section 3.4
hereof.
"Closing" and "Closing Date" shall have the meanings ascribed to such
terms in Section 3.5 hereof.
"Closing Documents" means this Agreement and all other documents to be
executed and delivered either simultaneously herewith or at Closing in
connection with the Transactions.
<PAGE> 3
"Code" means the Internal Revenue Code of 1986, as amended.
"Compass" shall mean Compass Knowledge Group, Inc., a Florida
corporation.
"Compass Board Approval" shall mean that the Board of Directors of
Compass, at a meeting duly called and held, has (i) determined that the
Acquisition is advisable and in the best interest of Compass and approved it,
(ii) duly approved, authorized and ratified the Acquisition and the consummation
of the Transactions and (iii) duly approved, authorized and ratified the
execution and delivery of this Agreement and each of the Closing Documents to
which it is or will be a party.
"Effective Time" shall have the meaning ascribed to it in Section 2.2
hereof.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended, and all regulations promulgated pursuant thereto.
"Exchange Ratio" shall have the meaning ascribed to it in Section 3.1
hereof.
"Florida Act" shall mean the Florida Business Corporation Act.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time, and applied consistently with those used in the
preparation of financial statements.
"Governmental Authority" shall include any and all governmental or
quasi-governmental bodies, agencies, bureaus, departments, boards, commissions,
instrumentalities or other entities having or asserting jurisdiction over RTI,
Compass, or any Subsidiary of either, as applicable.
"IRS" shall mean the Internal Revenue Service.
"Material Adverse Effect" means a material adverse effect upon, or in,
or circumstances reasonably likely to result in, a material adverse change in
(i) the business, assets, liabilities, operations, results of operations,
properties (including intangible properties), regulatory status or condition
(financial or otherwise) of Compass, Shareholder or RTI, as the case may be,
(ii) the legality, validity, binding effect or enforceability of this Agreement,
or (iii) the ability of Compass or Shareholder to perform their respective
obligations under this Agreement.
"Out-Of-Pocket Costs" shall mean, with respect to Compass, RTI or
Shareholder, as the case may be, all fees, expenses, and other costs that are
directly related to the Transactions contemplated by this Agreement.
"Person" means an individual, corporation, limited liability company,
limited liability partnership, limited partnership, trust, joint venture,
association or unincorporated organization or a Governmental Authority.
"Rehabilitation Training Institute" or "RTI" shall mean Rehabilitation
Training Institute, Inc., a Florida corporation.
"RTI Shares" shall mean all shares of capital stock Shareholder
presently owns or has the right to acquire in RTI.
2
<PAGE> 4
"Schedule Delivery Date" shall mean the date upon which each of Compass
and Shareholder has delivered each and all of their respective Schedules and
Exhibits to each other, and, in the exercise of their respective sole
discretion, each has acknowledged in writing their satisfaction with the results
of their respective due diligence investigations and their mutual consent as to
the contents of the Schedules and Exhibits to be attached hereto and the
incorporation of such Schedules and Exhibits into this Agreement, which date in
no event shall be later than 24 hours prior to the Closing, unless otherwise
agreed to in writing by Shareholder and Compass.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
all regulations promulgated thereunder.
"Shareholder" shall have the meaning ascribed to it in the introductory
paragraph of this Agreement.
"Transactions" means the transactions contemplated by this Agreement,
including but not limited to the Acquisition.
"Winthrop Industries" shall mean Winthrop Industries, Inc., a Nevada
corporation.
ARTICLE 2
THE ACQUISITION
2.1 THE ACQUISITION. At the Effective Time and subject to and upon the
terms and conditions of this Agreement, Compass shall acquire from Shareholder
his RTI Shares.
2.2 EFFECTIVE TIME. Notwithstanding the Closing Date, the Transactions
contemplated by this Agreement shall be effective as _________, 1999 (the
"Effective Time").
ARTICLE 3
ACQUISITION CONSIDERATION
3.1 EXCHANGE OF STOCK. The manner and basis of Shareholder exchanging his RTI
Shares shall be as follows: for each RTI Share owned by Shareholder which are
outstanding immediately prior to the Effective Time shall at the Effective Time,
by virtue of the Acquisition, and without any action on the part of Shareholder,
be exchanged into only the right to receive one share of Compass common stock,
$.001 par value (the "Exchange Ratio"). The Compass common shares to be
delivered by Compass in exchange for the RTI Shares owned by Shareholder are
collectively hereinafter referred to as the "Acquisition Shares". After the
Effective Time, the ownership interest of Shareholder in RTI shall be recognized
or deemed to be issued only to Compass and it shall have all rights in respect
thereof and Shareholder shall not have any rights other than as set forth
herein.
3
<PAGE> 5
3.2 FRACTIONAL SHARES. No scrip or fractional shares of the capital
stock of Compass shall be issued in the Acquisition.
3.3 OPTIONS AND WARRANTS.
(a) All options, warrants and other securities owned by
Shareholder or his affiliates that might otherwise be converted for a capital or
other interest in RTI which is outstanding at the Effective Time shall, by
virtue of the Acquisition and without any further action on the part of
Shareholder or the holder of any such option, warrant or securities be
terminated and shall become null and void, AB INITIO.
3.4 DELIVERY OF SHARES.
(a) On or as soon as practicable after the Effective Time,
Shareholder will surrender for cancellation certificate(s), if any, representing
the RTI Shares, against delivery of certificates representing the Acquisition
Shares. Until surrendered and exchanged as herein provided, each outstanding
certificate owned by Shareholder or his affiliates which, prior to the Effective
Time, represented as an RTI ownership certificate shall be deemed for all
corporate purposes to evidence ownership of the Acquisition Shares.
(b) If delivery of all or part of the Acquisition Shares is to
be made to a person other than Shareholder, it shall be a condition of such
delivery or exchange that the certificate so surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and that the person
requesting such delivery or exchange shall have paid any transfer and other
taxes required by reason of such delivery or exchange in a name other than
Shareholder.
(c) Until surrendered and exchanged in accordance with this
Section 3.4 each such certificate shall, after the Effective Time, represent
solely the right to receive the Acquisition Shares, in an amount and of the type
determined in accordance with Section 3.1 hereof, and Shareholder or its
affiliates shall have no ownership or other rights. No interest shall accrue or
be payable on any Acquisition Shares.
3.5 CLOSING. The closing of the Transactions (the "Closing") shall take
place on such date as mutually determined by the parties hereto, subject to
compliance or waiver of the terms, conditions and contingencies contained in
this Agreement and all required documents have been delivered. Each of the
parties will take all such reasonable and lawful action as may be necessary or
appropriate in order to effectuate the Acquisition as promptly as possible
subject to the satisfaction of the closing conditions set forth in Articles 8
and 9. Upon Closing, Compass will issue and deliver in the manner provided in
Articles 2 and 3 hereof the certificates evidencing the Acquisition Shares to be
issued in the Acquisition.
ARTICLE 4
ADDITIONAL COVENANTS
4.1 CONDUCT OF BUSINESS BY RTI PENDING ACQUISITION. Compass and
Shareholder covenant and agree that, except as otherwise set forth in this
Agreement, between the date of this Agreement and the Closing, the business of
RTI shall be conducted only in, and neither party shall take any action except
in, the ordinary course of business and in a manner consistent with past
practice; and Compass and Shareholder will use their best efforts to
4
<PAGE> 6
preserve intact RTI's business organization, to keep available the services of
its present officers, employees and consultants and to preserve its present
relationships with customers, suppliers and other persons with which they have
significant business relations.
4.2 EXPENSES. All of the expenses incurred by Shareholder in connection
with authorization, preparation, execution and performance of this Agreement and
other agreements referred to in this Agreement, including, without limitation,
all fees and expenses of agents, representatives, brokers, counsel and
accountants for Shareholder, shall be paid by Shareholder, and except as
otherwise provided herein all of the expenses incurred by Compass and RTI in
connection with the authorization, preparation, execution and performance of
this Agreement and other agreements referred to in this Agreement, including
without limitation, all reasonable fees and expenses of advisors, agents,
representatives, brokers, counsel and accountants, shall be paid by Compass.
4.3 NOTIFICATION OF CERTAIN MATTERS.
(a) Compass shall give prompt written notice to Shareholder of the
following:
(i) the occurrence or nonoccurrence of any event whose
occurrence or nonoccurrence would be reasonably likely to cause either (A) any
representation or warranty of Compass contained in this Agreement to be untrue
or inaccurate in any material respect at any time from the date hereof to the
Closing (assuming that each representation and warranty was re-affirmed as of
each day between the date hereof and the Closing Date, inclusive), or (B)
directly or indirectly, any Material Adverse Effect; or
(ii) any material failure of Compass, any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder.
(b) Shareholder shall give prompt written notice to Compass of the
following:
(i) the occurrence or nonoccurrence of any event whose
occurrence or nonoccurrence would be reasonably likely to cause either (A) any
representation or warranty of Shareholder contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Closing (assuming that each representation and warranty was re-affirmed as
of each day between the date hereof and the Closing Date, inclusive); or (B)
directly or indirectly, any Material Adverse Effect;
(ii) any material failure of Shareholder or any employee or
agent thereof, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder.
(c) Notwithstanding the foregoing, the delivery of any notice pursuant
to this Section shall not waive or release Compass or Shareholder, as the case
may be, from their representations, warranties, covenants or agreements under
this Agreement, except as they may be modified and approved in accordance with
this Agreement.
4.4 PUBLIC ANNOUNCEMENTS.
(a) Except for and to the extent of any public announcement or
disclosures relating to the Transactions as may be required by law, or as
provided in this Section 4.4,
5
<PAGE> 7
Compass and Shareholder agree that until the consummation of the Transactions or
the termination of this Agreement, as the case may be, each party will not, and
will direct its directors, officers, employees, representatives and agents who
have knowledge of the Transaction not to, disclose to any Person who is not a
participant in discussions concerning the Transactions (other than Persons whose
consent is required to be obtained hereunder), any of the terms, conditions or
other facts with respect to the Transactions.
(b) This Section 4.4 shall not restrict either Compass or
Shareholder in any actions by such parties which are necessary or appropriate to
enforce their respective rights under this Agreement.
4.5 CONFIDENTIALITY. In connection with this Agreement, the parties may
have access to information which is nonpublic, confidential or proprietary in
nature. All of such information, in whole or in part, together with any
analyses, compilations, studies or other documents prepared by any party, which
contain or otherwise reflect any such information is hereinafter referred to as
the "Information". Each party hereby agrees that the Information will be kept
confidential and shall not, without the prior mutual written consent of the
parties, be disclosed, in any manner whatsoever, in whole or in part, and shall
not be used by any party following the termination of this Agreement. Each party
agrees to transmit the Information only to its respective employees and
representatives who need to know the Information for the purposes of evaluating
the transactions contemplated by this Agreement, and who shall agree to be bound
by the terms and conditions of this Agreement with respect to this provision. In
any event, each party shall be responsible for any breach of this Agreement by
its respective employees or representatives. If the transactions contemplated
hereunder are not consummated, (a) the parties shall return the Information to
the other promptly upon request and no party shall retain any copies, and (b)
for a period of two years after the execution hereof (i) neither party shall
solicit or hire any employee of the other party provided such employee is
employed at the time of such solicitation or hiring, and (ii) neither party
shall solicit or lease the premised operated by the other party. In the event
any party becomes legally compelled to disclose any of the Information, such
party will provide to the other party prompt notice so that each other party may
seek a protective order or other appropriate remedy and/or waive compliance with
the provisions of this Agreement. In the event that such protective order or
other remedy is not obtained, or compliance with the provisions of this
Agreement is waived, a party will furnish only that portion of the Information
which is legally required, and to the extent requested by the other party, will
exercise its best efforts to obtain a protective order or other reliable
assurance that confidential treatment will be accorded the Information. The term
"Information" does not include information which (i) was known to any party
about another party prior to its disclosure, provided that such information was
lawfully obtained or developed without violation of a confidentiality agreement,
(ii) becomes generally available to the public other than as a result of a
disclosure by a party in violation of this Agreement, or (iii) becomes available
from a source other than a party to this Agreement, if the source is not bound
by a confidentiality agreement and such source lawfully obtained such
information.
4.6 CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. Subject to compliance
with applicable law, Shareholder and Compass will (a) cooperate with one another
(i) in promptly determining whether any filings are required to be made or
consents, approvals, permits or authorizations are required to be obtained under
any federal, state or foreign law or regulation and (ii) in promptly making any
such filings, furnishing information required in connection therewith and
seeking timely to obtain any such consents, approvals, permits or authorization
and (b) provide one another with copies of all filings made by such party with
any governmental authority in connection with this Agreement.
6
<PAGE> 8
4.7 GENERAL RELEASES. At the Closing, Shareholder shall deliver a
general release to Compass, in form and substance satisfactory to Compass and
its counsel, releasing Compass and the directors, officers, agents and employees
of Compass from all claims, except as may be described in written contracts
disclosed in the disclosure schedules and expressly described and excepted from
such releases and as to any obligations of Compass pursuant to this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF COMPASS
In order to induce Shareholder to enter into this Agreement and
consummate the Transactions, Compass hereby represents and warrants the
following to Shareholder as of the Schedule Delivery Date, each of which
representations and warranties shall be material to and relied upon by
Shareholder and shall be deemed remade on and as of the date of the Closing:
5.1. ORGANIZATION AND AUTHORITY. Compass is a corporation duly
organized and validly existing under the laws of the State of Florida. Compass
has all necessary corporate power and authority to own, lease and operate its
properties and conduct its business as it is currently being conducted.
5.2. CORPORATE POWER AND AUTHORITY; DUE AUTHORIZATION. The Board of
Directors of Compass has, on or prior to the date of this Agreement at a meeting
duly called and held and not subsequently rescinded or modified in any way, (i)
unanimously adopted this Agreement in accordance with the Florida Act, and (ii)
taken all actions necessary to consummate the Agreement and the transactions
contemplated hereby.
Compass has all requisite corporate power and authority to enter into
this Agreement and, subject to the Transactions contemplated hereby and the
issuance of the Acquisition Shares in connection with the Acquisition, to
consummate the Transactions contemplated hereby. The execution and delivery of
this Agreement by Compass and the consummation by Compass of the Transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Compass and the filing of appropriate Acquisition documents, if
any, as required by the Florida Act. This Agreement constitutes the valid and
binding obligation of Compass enforceable against it in accordance with its
terms except as the enforceability thereof may be limited by applicable
bankruptcy, insolvency of other similar laws relating to the enforcement of
creditors' rights generally and the application of general rules of equity. The
Acquisition and the delivery of the Acquisition Shares by Compass have been duly
authorized by the Board of Directors of Compass and Winthrop Industries.
5.3. NO CONFLICT; REQUIRED CONSENTS. Exclusive of Compass Board
Approval which has been obtained and assuming the appropriate filings and
mailings are made by Compass to effectuate the Acquisition, the execution and
delivery by Compass of this Agreement and the Closing Documents and the
consummation by Compass of the Transactions do not and will not, (a) require the
consent, approval or action of, or any filing or notice to, any corporation,
firm, Person or other entity or any public, governmental or judicial authority
(except for such consents, approvals, actions, filing or notices the failure of
which to make or obtain will not in the aggregate have a Material Adverse
Effect); (b) violate in any material respect the terms of any material
instrument, document or agreement to which Compass is a party, or by which
Compass is bound, or be in conflict in any material respect with, result in a
material breach of or constitute
7
<PAGE> 9
(upon the giving of notice or lapse of time or both) a material default under
any such instrument, document or agreement; (c) violate in any respect the terms
of any instrument, document or agreement to which Compass is a party, or by
which Compass is bound, or be in conflict in any respect with, result in a
breach of or constitute (upon the giving of notice or lapse of time or both) a
default under any such instrument, document or agreement, (c) violate Compass's
Articles of Incorporation or Bylaws; or (d) violate any order, writ, injunction,
decree, judgment, ruling, law, rule or regulation of any federal, state, county,
municipal, or foreign court or governmental authority applicable to Compass.
5.4. ADVISORS FEES. Neither Compass nor any of its subsidiaries or any
affiliate thereof has retained or utilized the services of any advisor, broker,
finder or intermediary, or paid or agreed to pay any fee or commission to any
other Person or entity for or on account of the Transactions, or had any
communications with any Person or entity which would obligate Shareholder to pay
any such fees or commission.
5.5. SHARES TO BE DELIVERED. The Acquisition Shares to be issued to
Shareholder shall be reserved for issuance upon the execution of this Agreement
and when issued and delivered to Shareholder pursuant to this Agreement will be
duly authorized, validly issued, fully paid and nonassessable shares of voting
common stock of Compass, and of the same class as the common stock of Compass
which the other shareholders of Compass have received. Upon delivery of the
Acquisition Shares, Shareholder will receive good and unencumbered title to the
Acquisition Shares, free and clear of all liens, restrictions, charges,
encumbrances, and other security interests of any kind or nature whatsoever,
except for claims arising out of acts of or claims against such Shareholder,
restrictions existing under applicable securities laws and the restrictions
imposed hereby.
5.6. DISCLOSURE AND ALL DOCUMENTATION. No representation or warranty by
Compass contained in this Agreement and no statement contained in any
certificate or schedule furnished to Shareholder pursuant to the provisions
hereof contains or shall contain any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements therein
not misleading. There is no current event or condition of any kind or character
pertaining to Compass that may reasonably be expected to have a Material Adverse
Effect, except as disclosed in this Agreement and except for those events and
conditions which are national or industry-wide in nature. Except as specifically
indicated elsewhere in this Agreement, all documents delivered by Compass to
Shareholder in connection herewith have been and will be complete originals, or
exact copies thereof.
5.7 WINTHROP INDUSTRIES. Notwithstanding anything herein to the
contrary, Compass makes no representation or warranty of any kind, other than as
specifically set forth herein, with respect to Winthrop Industries, the Merger
or the transactions contemplated by the Merger Agreement. Compass and its
principal shareholders have entered, or anticipate entering, into the Merger
Agreement with Winthrop Industries, a copy of which has be provided to
Shareholder. In connection with the Merger, Winthrop Industries has provided
certain due diligence material to Compass which includes, copies of its
Certificate of Incorporation, Bylaws, Minutes of Shareholders and Directors,
Material Contracts, an Information Statement dated November 1, 1999 and its
Private Placement Memorandum dated November 1, 1999 and/or any other Merger
documents (the "Due Diligence Materials"). Copies of the Due Diligence Materials
have been delivered to Shareholder. In accordance with the Merger Agreement and
provided the Merger and the transactions contemplated by this Agreement are
consummated, Shareholder will receive one share of Winthrop Industries' common
stock for each share of common stock he owns in Compass.
8
<PAGE> 10
5.8. SURVIVAL. The representations and warranties contained in this
Article 5 shall not survive the Closing.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
In order to induce Compass to enter into this Agreement and consummate
the Transactions, Shareholder hereby represents and warrants the following to
Compass as of the Schedule Delivery Date, each of which representations and
warranties shall be material to and relied upon by Compass and shall be deemed
remade on and as of the date of the Closing:
6.1. NO CONFLICT; REQUIRED CONSENTS. Schedule 6.1 lists all material
third-party consents or approvals required with respect to Shareholder for
consummation of the Transactions, which consents Shareholder agrees to use its
best reasonable efforts to obtain. Assuming all such consents and approvals have
been obtained and assuming the appropriate filings and mailings are made by
Shareholder to effectuate the Acquisition under the Florida Act, the execution
and delivery by Shareholder of this Agreement and the Closing Documents and the
consummation by Shareholder of the Transactions do not and will not, (a) require
the consent, approval or action of, or any filing or notice to, any corporation,
firm, Person or other entity or any public, governmental or judicial authority
(except for such consents, approvals, actions, filing or notices the failure of
which to make or obtain will not in the aggregate have a Material Adverse
Effect); (b) in a Material Adverse Effect; or (c) violate any order, writ,
injunction, decree, judgment, ruling, law, rule or regulation of any federal,
state, county, municipal, or foreign court or governmental authority applicable
to Shareholder which would prevent or hinder the Transactions contemplated
hereby or the continued operation of the business of RTI after the Closing on
substantially the same basis as theretofore operated.
6.2 ADVISORS FEES. Shareholder has not retained or utilized the
services of any advisor, broker, finder or intermediary, or paid or agreed to
pay any fee or commission to any other Person or entity for or on account of the
Transactions, or had any communications with any Person or entity which would
obligate Compass or RTI to pay any such fees or commission.
6.3 SECURITIES REPRESENTATIONS. Shareholder hereby represents and
warrants to Compass as follows, recognizing that the information contained
herein is being furnished to Compass in order to induce Compass to enter into
the Transactions. Shareholder understands that (a) Compass will rely on the
information contained herein, (b) the Acquisition Shares will not be registered
under the Act in reliance upon exemptions from registration afforded under the
Act, which may include Regulation D promulgated thereunder ("Regulation D"), and
(c) the Acquisition Shares, at the time of sale described herein, will not be
registered and/or qualified under any state securities laws.
A. Shareholder is willing and able to bear the economic risk
of an investment in the Acquisition Shares. Shareholder has adequate means of
providing for current needs and personal contingencies, has no need for
liquidity in the investment, and is able to bear the economic risk of an
investment in Compass of the size contemplated. In making this statement,
Shareholder considered whether Shareholder could afford to hold the Acquisition
Shares for an indefinite period and whether, at this time, Shareholder could
afford a complete loss of an investment in the Acquisition Shares.
9
<PAGE> 11
B. Shareholder's purchase of the Acquisition Shares will be
solely for Shareholder's own account and not for the account of any other
person.
C. The Acquisition Shares are being acquired by Shareholder in
good faith for investment and not without a view to distributing such
Acquisition Shares to others or otherwise reselling said Acquisition Shares or
any portion thereof. Shareholder understands that the substance of the above
representations is (i) that Shareholder does not presently intend to sell or
otherwise dispose of all or any part of the Acquisition Shares; (ii) that
Shareholder does not now have in mind the sale or other disposition of all or
any part of the Acquisition Shares on the occurrence or nonoccurrence of any
predetermined event; and (iii) that Compass is relying upon the truth and
accuracy of the representations.
D. Shareholder understands that the purchase of the
Acquisition Shares is subject to risks as stated in the Due Diligence Materials
or as may be otherwise applicable to similar investments.
E. Shareholder has reviewed all Due Diligence Materials and
has engaged in an independent investigation of Compass, Winthrop Industries,
Inc. and the merger with Winthrop, and no oral or written representations beyond
the Due Diligence Materials have been made to or been relied upon by
Shareholder.
F. Shareholder understands and acknowledges that Compass makes
no recommendation with respect to the purchase of Acquisition Shares.
G. Shareholder is an "accredited investor" as defined under
Rule 501 of Regulation D and has substantial experience in investing in similar
transactions.
6.4. DISCLOSURE AND ALL DOCUMENTATION. No representation or warranty by
Shareholder contained in this Agreement and no statement contained in any
certificate or schedule furnished to Compass pursuant to the provisions hereof
contains or shall contain any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein not
misleading. There is no current event or condition of any kind or character
pertaining to Shareholder or RTI that may reasonably be expected to have a
Material Adverse Effect, except as disclosed in this Agreement and except for
those events and conditions which are national or industry-wide in nature.
Except as specifically indicated elsewhere in this Agreement, all documents
delivered by Shareholder to Compass in connection herewith have been and will be
complete originals, or exact copies thereof.
6.5 LITIGATION. Shareholder is not a party to, the subject of, or
threatened with any litigation which would have a Material Adverse Effect on the
Transactions nor to the best of his knowledge is there any basis for any such
litigation.
6.6 OTHER LIABILITIES. To the best of Shareholder's knowledge no claim
of breach of contract, tort, product liability or other claim, contingent or
otherwise, has been asserted or threatened against Shareholder or RTI nor is
capable of being asserted by any employee, creditor, claimant or person against
Shareholder or RTI which, if asserted, would have a Material Adverse Effect.
10
<PAGE> 12
6.7 JUDGMENTS. There are no outstanding judgments against Shareholder
or to his knowledge RTI that would have a Material Adverse Effect on the
Transactions.
6.8 SURVIVAL. The representations and warranties contained in this
Article 6 shall not survive the Closing.
ARTICLE 7
CONDITIONS TO OBLIGATION OF SHAREHOLDER TO CLOSE
Each and every obligation of Shareholder under this Agreement to be performed on
or prior to the Closing shall be subject to the fulfillment, on or prior to the
Closing, of each of the following conditions, which conditions Compass agrees to
use its reasonable best efforts to satisfy:
7.1 REPRESENTATIONS AND WARRANTIES AT CLOSING. The representations and
warranties made by Compass in or pursuant to this Agreement or given on its
behalf hereunder shall be true and correct on and as of the Closing Date, in
each case with the same effect as though such representations and warranties had
been made or given on and as of the Closing Date except for such representations
and warranties which if not true and correct on and as of the Closing Date, do
not result in damages suffered by Shareholder in excess of $10,000 in the
aggregate.
7.2 OBLIGATIONS PERFORMED. Compass shall have performed and complied
with all material agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing.
7.3 CONSENTS AND APPROVALS. Compass shall have obtained and delivered
to Shareholder the written consents or approvals specified, or to be specified,
if any, (except for such consents or approvals as to which, in the aggregate,
the failure to obtain them shall not have a Material Adverse Effect) and all of
such consents shall remain in full force and effect at and as of the Closing.
7.4 CLOSING DELIVERIES. Compass shall have delivered to Shareholder
each of the following, together with any additional items which Shareholder may
reasonably request to effect the Transaction:
(a) a certificate evidencing Shareholder's ownership of the
RTI Shares; and
(b) any other documents or agreements contemplated hereby
and/or necessary or appropriate to consummate the Transactions.
7.5. NO INVESTIGATIONS OF COMPASS AND ITS SUBSIDIARIES OR THEIR
BUSINESS. As of the Closing Date, there shall be no, and neither Compass nor any
of its subsidiaries shall have any knowledge of any material pending or
threatened investigation by any municipal, state or federal government agency or
regulatory body with respect to Compass, Winthrop Industries or their
subsidiaries, the Assets or the business of Compass, Winthrop Industries and
their subsidiaries, other than such as have been disclosed to Shareholder prior
to the date hereof.
7.6 NO MATERIAL ADVERSE EFFECT. . Other than changes relating to, or
resulting from, the existence of, or the terms of, this Agreement and the
Transactions contemplated hereby,
11
<PAGE> 13
neither Compass or Winthrop Industries shall have suffered since the date hereof
any change that constitutes a Material Adverse Effect.
7.7 SECURITIES LAWS. The parties shall have complied in all material
respects with all federal and state securities laws applicable to the
Transactions.
7.8 MINUTES. Shareholder shall have received at Closing copies of
minutes of the Board of Directors of Compass, certified by the corporate
secretary of Compass approving and authorizing the Acquisition and the
Transactions.
7.9 LEGALITY. No federal or state statute, rule, regulation, executive
order, decree or injunction shall have been enacted, entered, promulgated or
enforced by any court or governmental authority which is in effect and has the
effect of making the Acquisition illegal or otherwise prohibiting the
consummation of the Acquisition.
7.10 REGULATORY MATTERS. All filings shall have been made and all
approvals shall have been obtained as may be legally required pursuant to
federal and state laws prior to the consummation of the Transactions and all
actions by or in respect of, or filings with, any governmental body, agency or
official or any other Person required to permit the consummation of the
Acquisition.
7.11 ADDITIONAL CLOSING CONDITIONS. Each and every one of the
additional closing conditions, if any, required of Compass set forth in Schedule
7.11 attached hereto shall have been completed or fulfilled, as the case may be.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF COMPASS TO CLOSE
Each and every obligation of Compass under this Agreement to be performed on or
prior to the Closing shall be subject to the fulfillment, on or prior to the
Closing, of each of the following conditions, which conditions Shareholder
agrees to use its best efforts to satisfy:
8.1 REPRESENTATIONS AND WARRANTIES AT CLOSING. The representations and
warranties made by Shareholder in or pursuant to this Agreement or given on its
behalf hereunder shall be true and correct on and as of the Closing Date, in
each case with the same effect as though such representations and warranties had
been made or given on and as of the Closing Date except for such representation
and warranties which if not true and correct on and as of the Closing Date, do
not result in damages suffered by Compass in excess of $10,000 in the aggregate.
8.2 OBLIGATIONS PERFORMED. Shareholder shall have performed and
complied with all material agreements and conditions required by this Agreement
to be performed or complied with by it prior to or at the Closing.
8.3 CONSENTS AND APPROVALS. Shareholder shall have obtained and
delivered to Compass the written consents or approvals specified, or to be
specified, if any, (except for such consents or approvals as to which, in the
aggregate, the failure to obtain them shall not have a
12
<PAGE> 14
Material Adverse Effect) and all of such consents shall remain in full force and
effect at and as of the Closing.
8.4 CLOSING DELIVERIES. Shareholder shall have delivered to Compass
each of the following, together with any additional items which Compass may
reasonably request to effect the Transaction:
(a) certificate(s) evidencing the ownership of the RTI shares;
(b) the release as provided for in Section 4.7; and
(c) any other documents or agreements contemplated hereby
and/or necessary or appropriate to consummate the Transactions.
8.5 NO INVESTIGATIONS OF RTI AND ITS BUSINESS. As of the Closing Date,
there shall be no, and Shareholder shall have any knowledge of any material
pending or threatened investigation by any municipal, state or federal
government agency or regulatory body with respect to Shareholder, RTI or their
Assets or the business of RTI, other than such as have been disclosed to Compass
prior to the date hereof.
8.6 NO MATERIAL ADVERSE EFFECT. RTI shall not have suffered any change
that constitutes a Material Adverse Effect on RTI.
8.7 SECURITIES LAWS. The parties shall have complied with all federal
and state securities laws applicable to the Transactions.
8.8 LEGALITY. No federal or state statute, rule, regulation, executive
order, decree or injunction shall have been enacted, entered, promulgated or
enforced by any court or governmental authority which is in effect and has the
effect of making the Acquisition illegal or otherwise prohibiting the
consummation of the Acquisition.
8.10 REGULATORY MATTERS. All filings shall have been made and all
approvals shall have been obtained as may be legally required pursuant to
federal and state laws prior to the consummation of the Transactions and all
actions by or in respect of, or filings with, any governmental body, agency or
official or any other Person required to permit the consummation of the
Acquisition so that Compass shall be able to continue to carry on the business
of RTI substantially in the manner now conducted by RTI shall have been taken or
made.
8.11 ADDITIONAL CLOSING CONDITIONS. Each and every one of the
additional closing conditions, if any, required of Shareholder set forth in
Schedule 8.10 attached hereto shall have been completed or fulfilled, as the
case may be.
ARTICLE 9
TERMINATION
9.1. TERMINATION. This Agreement may be terminated by mutual written
consent of Shareholder and Compass at any time before the Closing Date.
9.2. EFFECT OF TERMINATION. In the event this Agreement is terminated
pursuant to Sections 9.1, no party shall have any obligations to the other
hereunder except for those
13
<PAGE> 15
obligations set forth in Section 4.2 (Expenses) and those with respect to
confidentiality and the return of any confidential information shall remain in
effect.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 SEVERABILITY. If any provision of this Agreement is prohibited by
the laws of any jurisdiction as those laws apply to this Agreement, that
provision shall be ineffective to the extent of such prohibition and/or shall be
modified to conform with such laws, without invalidating the remaining
provisions hereto.
10.2. MODIFICATION. This Agreement may not be changed or modified
except in writing specifically referring to this Agreement and signed by each of
the parties hereto.
10.3 ASSIGNMENT, SURVIVAL AND BINDING AGREEMENT. This Agreement and the
Closing Documents may not be assigned by Shareholder, without prior written
consent of Compass, and may not be assigned by Compass, without prior written
consent of Shareholder. The terms and conditions hereof shall survive the
Closing as provided in this Agreement and shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns.
10.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.5 NOTICES. All notices, requests, demands, claims and other
communication hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
Business Days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to the intended recipient as set forth
below:
If to Compass Compass Knowledge Group, Inc.
2710 Rew Circle
Suite 100
Ocoee, FL 34761
Attn: Rogers W. Kirven, Jr., CEO
If to Shareholder See Schedule 10.5 Attached
If to RTI Rehab Training Institute, Inc.
2710 Rew Circle
Suite 100
Ocoee, FL 34761
Attn: Daniel J. Devine, President
or at such other address as any party hereto notifies the other parties hereof
in writing.
14
<PAGE> 16
10.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement,
together with the Exhibits and Schedules attached hereto, constitutes the entire
agreement and supersedes any and all other prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof and, except as otherwise expressly provided in this
Agreement, is not intended to confer upon any Person other than RTI, Shareholder
and Compass, any rights or remedies hereunder. No provision of this Agreement
shall be construed against any party on the ground that such party drafted the
provision or caused it to be drafted or the provision contains a covenant of
such party.
10.7 GOVERNING LAW; JURISDICTION AND VENUE. This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Florida, excluding those relating to conflicts of laws. The parties
hereto expressly agree that the exclusive jurisdiction and venue for legal
proceedings under this Agreement shall be the state or applicable federal court
having jurisdiction over the defendant's domicile (or in the case of Shareholder
and Compass, the location of its principal corporate office).
10.8. ATTORNEY'S FEES. In any action between the parties to enforce any
of the terms of this Agreement, the prevailing party shall be entitled to
recover reasonable expenses, including reasonable attorney's fees.
10.9. HEADINGS. The section headings contained in this Agreement and
the Schedules and Exhibits attached hereto are inserted for convenience only and
shall not affect in any way the meaning or interpretation of this Agreement.
10.10. INCORPORATION OF EXHIBIT AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated in this Agreement by
reference and made a part hereof.
10.11. CONSTRUCTION. Within this Agreement, the singular shall include
the plural and the plural shall include the singular and any gender shall
include all other genders, all as the meaning and context of this Agreement
shall require. The parties hereto have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties hereto and no presumption or burden of proof shall arise
favoring or disfavoring any party hereto by virtue of the authorship of any of
the provisions of this Agreement.
10.12 ARBITRATION. All disputes arising in connection with or out of
this Agreement shall be finally settled by binding arbitration by three (3)
arbitrators in Orange County, Florida, pursuant to the rules then pertaining of
the American Arbitration Association.
15
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
COMPASS KNOWLEDGE GROUP, INC.
By:
----------------------------------------
DAVID COLBURN
--------------------------------------------
MICHAEL BORCHECK
--------------------------------------------
DANIEL J. DEVINE
--------------------------------------------
ROGERS W. KIRVEN, JR.
--------------------------------------------
REHABILITATION TRAINING INSTITUTE, INC.
By:
----------------------------------------
16
<PAGE> 1
EXHIBIT 10.2
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
WINTHROP INDUSTRIES, INC.,
MEDIA CAPITAL SUBSIDIARY, INC.
AND
COMPASS KNOWLEDGE GROUP, INC.
<PAGE> 2
TABLE OF CONTENTS
1. Plan of Reorganization.......................................1
2. Terms of Merger..............................................2
3. Delivery of Shares...........................................5
4. Representations of Compass...................................5
5. Representations of WII and Dixon.............................7
6. Closing.....................................................13
7. Conditions Precedent to the Obligations
of Compass..................................................13
8. Conditions Precedent to the Obligation of
WII and WII Sub.............................................15
9. Indemnification.............................................15
10. Nature and Survival of Representations......................15
11. Documents at Closing........................................16
12. Finder's Fees...............................................17
13. Miscellaneous...............................................17
Signature Page...........................................................19
Exhibit A - Plan and Articles of Merger
Exhibit B - Compass Shareholder Schedule
Exhibit C - Certificate of Amendment to Articles of Incorporation of WII
Exhibit D - Investment Letter
Exhibit E - Form of Certificate of Designation of Series A Preferred Stock
(i)
<PAGE> 3
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (hereinafter the "Agreement")
is entered into effective as of this day of November, 1999, by and among
Winthrop Industries, Inc., a Nevada corporation (hereinafter "WII"); Media
Capital Subsidiary, Inc., a newly-formed Florida corporation (hereinafter "WII
Sub"); Lynn Dixon, the sole director of WII and WII Sub (hereinafter "Dixon");
and Compass Knowledge Group, Inc., a Florida corporation (hereinafter
"Compass").
RECITALS:
WHEREAS, WII desires to acquire Compass as a wholly-owned subsidiary
and to issue shares of WII common stock to the shareholders of Compass upon the
terms and conditions set forth herein. WII Sub is a wholly-owned subsidiary
corporation of WII which shall be merged into Compass, whereupon Compass shall
be the surviving corporation of said merger and shall become a wholly-owned
subsidiary of WII (WII Sub and Compass are sometimes collectively hereinafter
referred to as the "Constituent Corporations").
WHEREAS, the boards of directors of WII and Compass, respectively, deem
it advisable and in the best interests of such corporations and their respective
shareholders that WII Sub merge with and into Compass pursuant to this Agreement
and the Plan and Articles of Merger in the form attached hereto as Exhibit "A"
and pursuant to applicable provisions of law (such transaction hereafter
referred to as the "Merger").
WHEREAS, WII Sub has an authorized capitalization consisting of 5,000
shares of no par value common stock, of which 1,000 shares shall be issued and
outstanding and owned by WII as of the closing of the Merger Compass has an
authorized capitalization consisting of 25,000,000 shares of common stock, $.01
par value ("Compass Common Stock"), of which 9,750,000 shares are issued and
outstanding, or reserved for issuance, as of the date hereof; and 5,000,000
authorized shares of preferred stock, $.001 par value, of which 5,000 have been
designated as Series A Senior Convertible Preferred Stock ("Preferred Stock").
Compass has 2,000 shares of Preferred Stock outstanding. All of said outstanding
shares of Compass Common Stock and Preferred Stock are owned by the shareholders
of Compass as set forth on the attached Exhibit "B" (hereafter "Compass
Shareholders").
NOW THEREFORE, for the mutual consideration set out herein, and other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT
1. PLAN OF REORGANIZATION. The parties hereto do hereby agree that WII
Sub shall be merged with and into Compass upon the terms and conditions set
forth herein. It is the intention of the parties hereto that this transaction
qualify as a tax-free reorganization under Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended, and related sections thereunder.
1
<PAGE> 4
2. TERMS OF MERGER. In accordance with the provisions of this Agreement
and the requirements of applicable law, WII Sub shall be merged with and into
Compass as of the Effective Date (the terms "Closing" and "Effective Date" are
defined in Section 6 hereof). Compass shall be the surviving corporation
(hereinafter sometimes the "Surviving Corporation") and the separate existence
of WII Sub shall cease when the Merger shall become effective. Consummation of
the Merger shall be upon the following terms and subject to the following
conditions:
(a) CORPORATE EXISTENCE.
(1) At the Effective Date, the Surviving Corporation shall
continue its corporate existence as a Florida corporation and (i) it
shall thereupon and thereafter possess all rights, privileges, powers,
franchises and property (real, personal and mixed) of each of the
Constituent Corporations; (ii) all debts due to either of the
Constituent Corporations, on whatever account, all causes in action and
all other things belonging to either of the Constituent Corporations
shall be taken and deemed to be transferred to and shall be vested in
the Surviving Corporation by virtue of the Merger without further act
or deed; and (iii) all rights of creditors and all liens upon any
property of any of the Constituent Corporations shall be preserved
unimpaired, limited in lien to the property affected by such liens
immediately prior to the Effective Date, and all debts, liabilities and
duties of the Constituent Corporations shall thenceforth attach to the
Surviving Corporation.
(2) At the Effective Date, (i) the Articles of Incorporation
and the By-laws of the Surviving Corporation, as existing immediately
prior to the Effective Date, shall be and remain the Articles of
Incorporation and By-Laws of the Surviving Corporation; (ii) the
members of the Board of Directors of the Surviving Corporation holding
office immediately prior to the Effective Date shall remain as the
members of the Board of Directors of the Surviving Corporation (if on
or after the Effective Date a vacancy exists on the Board of Directors
of the Surviving Corporation, such vacancy may thereafter be filled in
a manner provided by applicable law and the By-laws of the Surviving
Corporation); and (iii) until the Board of Directors of the Surviving
Corporation shall otherwise determine, all persons who hold offices of
the Surviving Corporation at the Effective Date shall continue to hold
the same offices of the Surviving Corporation.
(b) EVENTS OCCURRING AT CLOSING.
(1) WII shall have authorized 50,000,000 shares of $.001 par
value common stock and 5,000,000 shares of $.001 par value preferred
stock. The preferred stock shall be subject to issuance in such series
and with such rights, preferences and designations as determined in the
sole discretion of the board of directors. WII shall file a Certificate
of Designation with the State of Nevada, designating 5,000 shares of
its authorized preferred stock as Series A Senior Convertible Preferred
Stock with rights and preferences as set forth in Exhibit "E".
2
<PAGE> 5
(2) WII shall have 3,000,000 shares of its common stock issued
and outstanding and no other shares of capital stock issued or
outstanding not taking into effect the shares to be issued under this
Agreement.
(3) WII shall have and will demonstrate to the reasonable
satisfaction of Compass that it has no material assets and no debts,
liabilities, liens and/or judgments, contingent or fixed, other than
the proceeds of the WII Financing as described herein.
(4) WII shall have completed its private offering under
Regulation D, Rule 506, as promulgated by the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended, of up
to 2,650,000 shares of its common stock at $2.00 per share pursuant to
its Private Placement Memorandum dated November 1, 1999 (the
"Memorandum"). The gross proceeds of this offering (the "WII
Financing") shall be $5,300,000. However, the transactions completed
herein may be consummated upon receipt by WII of at least $4,000,000 in
good funds under the WII Financing. All proceeds, less agreed upon
costs, shall be delivered to the control of new management of WII at
Closing in good funds. The WII Financing shall have been completed in
compliance with all applicable state and federal securities laws and
the securities sold shall be delivered at Closing to the investors in
the WII Financing.
(c) CONVERSION OF SECURITIES.
As of the Effective Date and without any action on the part of
WII, WII Sub, Compass or the holders of any of the securities of any of these
corporations each of the following shall occur:
(1) Each share of Compass Common Stock issued and outstanding
immediately prior to the Effective Date shall be converted into one
share of WII Common Stock up to a maximum aggregate amount of 9,750,000
shares of WII Common Stock. All such shares of Compass Common Stock
shall no longer be outstanding and shall automatically be canceled and
shall cease to exist, and each certificate previously evidencing any
such shares shall thereafter represent the right to receive, upon the
surrender of such certificate in accordance with the provisions of
Section 3 hereof, certificates evidencing such number of shares of WII
Common Stock, respectively, into which such shares of Compass Common
Stock were converted. The holders of such certificates previously
evidencing shares of Compass Common outstanding immediately prior to
the Effective Date shall cease to have any rights with respect to such
shares of Compass Common except as otherwise provided herein or by law;
(2) Each share of Compass Series A Preferred Stock issued and
outstanding immediately prior to the Effective Date shall be converted
into one share of WII Series A
3
<PAGE> 6
Preferred Stock up to a maximum aggregate amount of 2,000 shares of WII
Series A Preferred Stock. All such shares of Compass Series A Preferred
Stock shall no longer be outstanding and shall automatically be
canceled and shall cease to exist, and each certificate previously
evidencing any such shares shall thereafter represent the right to
receive, upon the surrender of such certificate in accordance with the
provisions of Section 3 hereof, certificates evidencing such number of
shares of WII Common Stock, respectively, into which such shares of
Compass Series A Preferred Stock were converted. The holders of such
certificates previously evidencing shares of Compass Series A Preferred
Stock outstanding immediately prior to the Effective Date shall cease
to have any rights with respect to such shares of Compass Series A
Preferred Stock except as otherwise provided herein or by law;
(3) Any shares of Compass capital stock held in the treasury
of Compass immediately prior to the Effective Date shall automatically
be canceled and extinguished without any conversion thereof and no
payment shall be made with respect thereto;
(4) Each share of capital stock of WII Sub issued and
outstanding immediately prior to the Effective Date shall remain in
existence as one share of common stock of the Surviving Corporation,
all of which shall be owned by WII;
(5) The shares of WII Common Stock previously issued and
outstanding immediately prior to the Merger will remain outstanding,
subject to the provisions of Section 2(b)(5) hereof, so that after
conversion of the Compass Common and Preferred Stock, and the WII
Financing, WII shall have no more than 15,400,000 shares of WII Common
Stock outstanding and 2,000 shares of Preferred Stock outstanding.
(6) 500,000 of the 9,750,000 shares to be issued by WII to the
shareholders of Compass shall be held by the Company for delivery to
the University of Florida Health Services, Inc. ("UFHS") pending
reaching an agreement with UFHS regarding an exchange of such shares
for the ownership of UFHS in Intellicus, L.C. In the event such an
agreement is not concluded within thirty days of Closing (or such
reasonable period as extended by the parties), the 500,000 shares shall
be cancelled on the books and records of WII.
(d) OTHER MATTERS.
(1) There shall be no stock dividend, stock split,
recapitalization, or exchange of shares with respect to or rights
issued in respect of WII's Common Stock after the date hereof and there
shall be no dividends paid on WII's Common Stock after the date hereof,
in each case through and including the Effective Date.
(2) Compass and WII shall have received all requisite director
and shareholder approval of all matters set forth herein and no
shareholder of Compass or WII shall have exercised any dissenters
rights under applicable corporate law.
4
<PAGE> 7
(3) WII shall file an amendment to its Articles of
Incorporation with the Secretary of State of the State of Nevada in
substantially the form attached hereto as Exhibit "B" effecting an
amendment to its Articles of Incorporation to reflect a name change to
Compass Knowledge Holdings, Inc. or such other new name as selected by
Compass, to authorize 5,000,000 shares of blank check preferred stock,
and to put of record the 3.33 to 1 reverse stock split, reducing its
outstanding shares of common stock to 3,000,000 shares from 10,000,000
shares, as set forth in the attached Exhibit "B". All references herein
to shares of common stock of WII to be issued or as outstanding give
effect to the 3.33 to 1 reverse split unless otherwise stated.
(4) WII shall file a Certificate of Designation covering 5,000
shares of Series A Preferred Stock in the form attached hereto as
Exhibit "E".
(5) WII shall adopt a Stock Option Plan at Closing to include
up to 1,500,000 shares of its common stock. The Plan shall include
"incentive" stock options under Section 422 of the Internal Revenue
Code of 1986, as amended and other options and similar rights. WII
shall grant options under said plan to existing optionholders of
Compass in exchange for their Compass options, at Closing, exercisable
at $.75 per share, as designated by Compass subject to the reasonable
approval of WII.
(6) The resignation of the existing WII officer and director
and appointment of new officers and directors as directed by Compass.
3. DELIVERY OF SHARES. On or as soon as practicable after the Effective
Date, Compass will use its best efforts to cause the Compass Shareholders to
surrender for cancellation certificates representing their shares of Compass
Common Stock, against delivery of certificates representing the shares of WII
Common Stock for which the Compass shares are to be converted in the Merger.
Until surrendered and exchanged as herein provided, each outstanding certificate
which, prior to the Effective Date, represented an Compass stock certificate
shall be deemed for all corporate purposes to evidence ownership of the same
number of shares of WII Common Stock into which the Compass certificate shall
have been so converted.
4. REPRESENTATIONS OF COMPASS. Compass hereby represents and warrants
as follows, which warranties and representations shall also be true as of the
Effective Date:
(a) Except as noted on Exhibit "B", the Compass Shareholders
listed on the attached Exhibit "B" are the sole owners of record and
beneficially of the issued and outstanding capital stock of Compass.
(b) The Compass Common Stock and Preferred Stock constitutes
duly authorized, validly issued shares of capital stock of Compass,
fully paid and nonassessable and are the only capital shares of Compass
outstanding.
5
<PAGE> 8
(c) The Compass unaudited financial statements as of June 30,
1999, and the audited Intelicus, L.C. financial statements of December
31, 1998 and 1997, which have been delivered to WII (hereinafter
referred to as the "Compass Financial Statements") are materially
complete, accurate and fairly present the financial condition of the
named indited as of the date thereof and the results of its operations
for the periods covered. Other than as set forth in any schedule
attached hereto, there are no material liabilities or obligations,
either fixed or contingent, not disclosed in the Compass Financial
Statements or in any exhibit thereto or notes thereto other than
contracts or obligations in the ordinary course of business; and no
such contracts or obligations in the ordinary course of business
constitute liens or other liabilities which materially alter the
financial condition of Compass as reflected in the Compass Financial
Statements. Compass has or will have at Closing, good title to all
assets shown on the Compass Financial Statements subject only to
dispositions and other transactions in the ordinary course of business,
the disclosures set forth therein and liens and encumbrances of record.
The Compass financial statement have been prepared in accordance with
generally accepted accounting principles consistently applied (except
as may be indicated therein or in the notes thereto).
(d) Since June 30, 1999, there have not been any material
adverse changes in the financial position of Compass except changes
arising in the ordinary course of business, which changes will in no
event materially and adversely affect the financial position of
Compass.
(e) Compass is not a party to any material pending litigation
or, to its best knowledge, any governmental investigation or
proceeding, not reflected in the Compass Financial Statements, and to
its best knowledge, no material litigation, claims, assessments or any
governmental proceedings are threatened against Compass.
(f) Compass is in good standing in its state of incorporation,
and is in good standing and duly qualified to do business in each state
where required to be so qualified except where the failure to so
qualify would have no material negative impact on Compass.
(g) Compass has, or by the Effective Date will have, filed all
material tax, governmental and/or related forms and reports (or
extensions thereof) due or required to be filed and has (or will have)
paid or made adequate provisions for all taxes or assessments which
have become due as of the Effective Date.
(h) Compass has not materially breached any material agreement
to which it is a party. Compass has previously given WII copies or
access thereto of all material contracts, commitments and/or agreements
to which Compass is a party including all relationships or dealings
with related parties or affiliates.
(i) Compass has no subsidiary corporations except those
disclosed in the Memorandum.
6
<PAGE> 9
(j) Compass has made its corporate financial records, minute
books, and other corporate documents and records available for review
to present management of WII prior to the Effective Date, during
reasonable business hours and on reasonable notice.
(k) The execution of this Agreement does not materially
violate or breach any material agreement or contract to which Compass
is a party and this Agreement has been duly authorized by all
appropriate and necessary corporate action and Compass, to the extent
required, has obtained all necessary approvals or consents required by
any agreement to which Compass is a party.
(l) Information regarding Compass which is set forth in the
Memorandum or which is otherwise used in connection with the Merger is
true, complete and accurate in all material respects.
(m) Compass shall use its most diligent and reasonable best
efforts to cause WII to become a reporting company with the S.E.C. on a
timely basis so as to maintain its listing on the OTCBB.
5. REPRESENTATIONS OF WII, WII SUB AND DIXON. WII, WII Sub and Dixon
hereby jointly and severally represent and warrant as follows, each of which
representations and warranties shall continue to be true as of the Effective
Date:
(a) As of the Effective Date, the shares of WII Common Stock
and Preferred Stock to be issued and delivered to the Compass
Shareholders hereunder will, when so issued and delivered, constitute
duly authorized, validly and legally issued shares of WII capital
stock, fully-paid and nonassessable and free of all liens and
encumbrances.
(b) WII has the corporate power to enter into this Agreement
and to perform its obligations hereunder. The execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby have been or will be duly authorized by the respective Boards of
Directors of WII and WII Sub and by WII as the sole shareholder of WII
Sub. The execution and performance of this Agreement will not
constitute a material breach of any agreement, indenture, mortgage,
license or other instrument or document to which WII or WII Sub is a
party and will not violate any judgment, decree, order, writ, rule,
statute, or regulation applicable to WII, WII Sub or their properties.
The execution and performance of this Agreement will not violate or
conflict with any provision of the respective Certificate of
Incorporation or by-laws of WII or WII Sub.
7
<PAGE> 10
(c) WII has delivered to Compass a true and complete copy of
its (i) audited financial statements for the fiscal years ended
December 31, 1998 and 1997, and unaudited interim financial statements
for the period ended September 30, 1999, (the "WII Financial
Statements"). The WII Financial Statements are complete, accurate and
fairly present the financial condition of WII as of the dates thereof
and the results of its operations for the periods then ended. There are
no material liabilities or obligations either fixed or contingent not
reflected therein. The WII audited financial statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in
the notes thereto) and fairly present the financial position of WII as
of the dates thereof and the results of its operations and changes in
financial position for the periods then ended. WII Sub has no financial
statements because it is currently being formed for the purpose of
effectuating the Merger and it has no assets, liabilities, contracts or
obligations of any kind other than as received or incurred in
connection with its incorporation in Florida. WII has no subsidiaries
except for WII Sub, and WII Sub has no subsidiaries.
(d) Since September 30, 1999, there have not been any material
adverse changes in the financial condition of WII. At Closing, WII will
have no material assets and no liabilities of any kind other than the
cash proceeds from the WII Financing.
(e) Neither WII nor WII Sub is a party to or the subject of
any pending litigation, claims, or governmental investigation or
proceeding not reflected in the WII Financial Statements or otherwise
disclosed herein, and there are no lawsuits, claims, assessments,
investigations, or similar matters, to the best knowledge of Dixon,
threatened or contemplated against or affecting WII Sub, WII, its
management or its properties.
(f) WII and WII Sub are each duly organized, validly existing
and in good standing under the laws of the jurisdiction of their
incorporation; each has the corporate power to own its property and to
carry on its business as now being conducted and is duly qualified to
do business in any jurisdiction where so required except where the
failure to so qualify would have no material negative impact.
(g) WII and WII Sub have filed all federal, state, county and
local income, excise, property and other tax, governmental and/or
related returns, forms, or reports, which are due or required to be
filed by it prior to the date hereof and have paid or made adequate
provision in the WII Financial Statements for the payment of all taxes,
fees, or assessments which have or may become due pursuant to such
returns or pursuant to any assessments received. Neither WII nor WII
Sub is delinquent or obligated for any tax, penalty, interest,
delinquency or charge.
(h) WII's authorized capital stock presently consists of: (i)
50,000,000 shares of Common Stock, $.001 par value, of which 10,000,000
shares are presently issued and outstanding, not giving effect to the
reverse split.. WII Sub's capitalization consists of 5,000
8
<PAGE> 11
shares of no par value common stock ("WII Sub's Common Stock"), of
which 1,000 shares outstanding, all of which owned by WII, free and
clear of all liens, claims and encumbrances. All outstanding shares of
capital stock of WII and WII Sub are, or shall be at Closing, validly
issued, fully paid and nonassessable. There are no existing options,
calls, warrants, preemptive rights, registration rights or commitments
of any character relating to the issued or unissued capital stock or
other securities of either WII or WII Sub.
(i) WII and WII Sub have (and at the Closing they will have)
disclosed in writing all events, conditions and facts materially
affecting the business, financial conditions or results of operations
of either WII or WII Sub.
(j) The corporate financial records, minute books, and other
documents and records of WII and WII Sub have been made available to
Compass prior to the Closing.
(k) WII has not breached, nor is there any pending, or to the
knowledge of management, any threatened claim that WII has breached,
any of the terms or conditions of any agreements, contracts or
commitments to which it is a party or by which it or its properties is
bound. The execution and performance hereof will not violate any
provisions of applicable law or any agreement to which WII is subject.
WII hereby represents that it is not a party to any material contract
or commitment other than appointment documents with its transfer agent,
and that it has disclosed to Compass all relationships or dealings with
related parties or affiliates.
(l) WII has complied with the provisions for registration
under the Securities Act of 1933 and all applicable blue sky laws in
connection with its initial public stock offering. There are no
outstanding, pending or threatened stop orders or other actions or
investigations relating thereto.
(m) All information regarding WII which has been provided to
Compass by WII or set forth in any document disseminated to the public
or filed with the NASD or the Securities and Exchange Commission is
true, complete and accurate in all material respects.
(n) WII is in compliance with, and WII has operated any
businesses previously owned or operated by it in compliance with, all
applicable laws, orders, rules and regulations of all governmental
bodies and agencies, including applicable securities laws and
regulations and environmental laws and regulations, except where such
noncompliance has and will have, in the aggregate, no material adverse
effect. WII has not received notice of any noncompliance with the
foregoing.
(o) Without limiting the foregoing, WII and any other person
or entity for whose conduct WII is legally held responsible are in
material compliance with all applicable federal, state, regional, local
or provincial laws, statutes, ordinances, judgments, rulings and
regulations relating to any matters of pollution, protection of the
environment, health
9
<PAGE> 12
or safety, or environmental regulation or control (collectively,
?Environmental Laws?). Neither WII nor any other person or entity for
whose conduct WII is legally responsible, has (i) received any notice,
demand, request for information, or administrative inquiry relating to
any violation of an Environmental Law or the institution of any suit,
action, claim or proceeding alleging such violation or investigation by
any governmental authority or any third party of any such violation,
(ii) manufactured, generated, treated, stored, handled, processed,
released, transported or disposed of any hazardous substance on, under,
from or at any of WII?s properties or any other properties, (iii)
become aware or received notice of the release or disposal of any
hazardous substances in violation of any applicable Environmental Law,
on, under or at any of WII?s properties or any other properties, (iv)
become aware or received notice of any actual or potential material
liability on the part of WII for the response to or remediation of any
hazardous substance at or arising from any of WII?s properties or any
other properties owned or operated by WII or any other person for whose
conduct WII is legally responsible, or (v) become aware of or received
notice of any actual or potential liability on the part of WII for the
costs of response to or remediation of hazardous substances at or
arising from any properties owned or operated by WII or any other
person for whose conduct WII is or may be held responsible. For
purposes of this Agreement, the term ?hazardous substance? shall mean
any toxic or hazardous materials or substances, including asbestos,
buried contaminants, chemicals, flammable explosives, radioactive
materials or petroleum and petroleum products and any substances
defined as, or included in the definition of, ?hazardous substances,?
?hazardous wastes,? ?hazardous materials? or ?toxic substances? under
any Environmental Law. No Environmental Law imposes any obligation upon
WII arising out of or as a condition to any transaction contemplated
hereby, including, without limitation, any requirement to modify or to
transfer any permit or license, any requirement to file any notice or
other submission with any governmental authority, the placement of any
notice, acknowledgment, or covenant in any land records, or the
modification of or provision of notice under any agreement, consent
order, or consent decree.
(p) WII has filed all required documents, reports and
schedules with the SEC and NASD since February 13, 1997 (collectively,
the "WII SEC Documents"). As of their respective dates, the WII SEC
Documents complied in all material respects with the requirements of
the Securities Act or the NASD rules and regulations, as the case may
be, and, at the respective times they were filed, none of the WII SEC
Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements (including, in
each case, any notes thereto) of WII included in the WII SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with generally accepted
accounting principles (except as may be indicated therein or in the
notes thereto) applied on a consistent basis during the periods
involved
10
<PAGE> 13
(except as may be indicated therein or in the notes thereto) and fairly
presented in all material respects the consolidated financial position
of WII as of the respective dates thereof and the results of its
operations and its cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments
and to any other adjustments described therein). WII has not, since
February 13, 1997, made any change in the accounting practices or
policies applied in the preparation of financial statements.
(q) Except as and to the extent specifically disclosed in this
Agreement and those that are specifically reflected or reserved against
as to amount in the latest balance sheet contained in the WII
Financials, there is no basis for the assertion against WII of any
material liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise and whether due or to become due,
including, without limitation, any liability for taxes and interest,
penalties and other charges payable with respect thereto. Except as set
forth in this Agreement, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will (a) result in any payment (whether severance pay, unemployment
compensation or otherwise) becoming due from WII to any employee,
director or officer or former employee, director or officer of WII, (b)
increase any benefits otherwise payable to any employee, director or
officer or former employee, director or officer of WII, or (c) result
in the acceleration of the time of payment or vesting of any such
benefits.
(r) No patent, formula, process, trade secret, trademark,
trade name, assumed name or copyright used by WII, including all
intellectual property used in the operation of the business of WII
(collectively, the ?WII Intellectual Property?), infringes on any
patent, copyright, trademark or other intellectual property right of
any person, or violates the terms of any agreements related thereto,
nor have there been any claims of infringement or to WII?s knowledge,
threatened against WII.
(s) No aspect of WII?s business, operations or assets is of
such character as would restrict WII from carrying on the business of
Compass and its subsidiaries as it is presently being conducted.
(i) WII has no consultants or independent contractors
to whom it is paying compensation for services.
(ii) WII no material contracts, commitments,
arrangements, or understandings relating to its business,
operations, financial condition, or prospects. For purposes of
this Section, ?material? means payment or performance of a
contract, commitment, arrangement or understanding entered
into in the ordinary course of business which is expected to
(i) involve payments in excess of $10,000 per year, (ii) have
a duration exceeding one (1) year, or (iii) any contract,
commitment, arrangement or understanding entered into not in
the ordinary course of business.
11
<PAGE> 14
(iii) Other than this Agreement and the transactions
contemplated hereby, there are no outstanding contracts,
commitments or bids, or services, development or sales
proposals.
(iv) There are no outstanding lease or purchase
commitments of WII.
(t) No representation or warranty by WII contained in this
Agreement and no statement contained in any certificate or schedule
furnished pursuant to the provisions hereof contains or shall contain
any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements therein not misleading.
There is no current event or condition of any kind or character
pertaining to WII that may reasonably be expected to have a material
adverse effect on WII or Compass and its subsidiaries. Except as
specifically indicated elsewhere in this Agreement, all documents
delivered by WII in connection herewith have been and will be complete
originals, or exact copies thereof.
(u) Assuming all such consents and approvals have been
obtained and assuming the appropriate filings and mailings are made by
WII under the Securities Act and the NASD and with the Secretary of
State of Florida and Nevada, the execution and delivery by WII of this
Agreement and the closing documents and the consummation by WII of the
transactions contemplated hereby do not and will not require the
consent, approval or action of, or any filing or notice to, any
corporation, firm, person or other entity or any public, governmental
or judicial authority (except for such consents, approvals, actions,
filing or notices the failure of which to make or obtain will not in
the aggregate have a material adverse effect); (b) violate in any
material respect the terms of any material instrument, document or
agreement to which WII is a party, or by which WII or the property of
WII is bound, or be in conflict in any material respect with, result in
a material breach of or constitute (upon the giving of notice or lapse
of time or both) a material default under any such instrument, document
or agreement, or result in the creation of any lien upon any of the
property or assets of WII; (c) violate in any respect the terms of any
instrument, document or agreement to which WII is a party, or by which
WII or the property of WII is bound, or be in conflict in any respect
with, result in a breach of or constitute (upon the giving of notice or
lapse of time or both) a default under any such instrument, document or
agreement, or result in the creation of any lien upon any of the
property or assets of WII if the aggregate effect of all such
violations listed in this subsection (c) results in a material adverse
effect on WII taken as a whole; (d) violate WII?s Articles of
Incorporation or Bylaws; or (e) violate any order, writ, injunction,
decree, judgment, ruling, law, rule or regulation of any federal,
state, county, municipal, or foreign court or governmental authority
applicable to WII, or its business or assets. WII is not subject to, or
a party to, any mortgage, lien, lease, agreement, contract, instrument,
order, judgment or decree or any other material restriction of any kind
or
12
<PAGE> 15
character which would prevent or hinder the continued operation of
the business of WII and Compass after the closing.
6. CLOSING. The Closing of the transactions contemplated herein shall
take place on such date (the "Closing") as mutually determined by the parties
hereto when all conditions precedent have been met and all required documents
have been delivered, which Closing is expected to be on or about November 15,
1999, or such later date as mutually agreed to by all parties hereto. The
"Effective Date" of the Merger shall be that date on which executed copies of
the attached Plan and Articles of Merger is filed with the Secretary of State of
Florida.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF COMPASS. All obligations
of Compass under this Agreement are subject to the fulfillment, prior to or as
of the Closing and/or the Effective Date, as indicated below, of each of the
following conditions:
(a) The representations and warranties by or on behalf of WII,
WII Sub and Dixon contained in this Agreement or in any certificate or
document delivered pursuant to the provisions hereof shall be true in
all material respects at and as of the Closing and Effective Date as
though such representations and warranties were made at and as of such
time.
(b) WII and WII Sub shall have performed and complied with all
covenants, agreements, and conditions set forth in, and shall have
executed and delivered all documents required by this Agreement to be
performed or complied with or executed and delivered by them prior to
or at the Closing including the successful completion of the WII
Financing.
(c) On or before the Closing, the shareholders of WII by
majority written consent, the sole director of WII and WII Sub, and WII
as sole shareholder of WII Sub shall have approved in accordance with
applicable state corporation law the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein.
(d) On or before the Closing Date, WII and WII Sub shall have
delivered certified copies of resolutions of the sole shareholder and
director of WII Sub and of the sole director and shareholders of WII
approving and authorizing the execution, delivery and performance of
this Agreement and authorizing all of the necessary and proper action
to enable WII and WII Sub to comply with the terms of this Agreement
including the election of Compass's nominees to the Board of Directors
of WII, the adoption of an Employee Stock Option Plan in the form
provided by Compass and all matters outlined herein.
(e) The Merger shall be permitted by applicable state law and
WII shall have sufficient shares of its capital stock authorized to
complete the Merger.
(f) At Closing, Dixon shall have resigned in writing from his
positions as sole
13
<PAGE> 16
director and officer of WII effective upon the election and appointment
of the Compass nominees as set forth in the Memorandum or as otherwise
designated by Compass.
(g) At the Closing, all instruments and documents delivered to
Compass Shareholders pursuant to the provisions hereof shall be
reasonably satisfactory to legal counsel for Compass.
(h) At the Closing, upon consummation of the Merger, WII shall
have the same authorized and issued capital as at present except as
described in Section 2(b)(2) hereof.
(i) The shares of restricted WII capital stock to be issued to
Compass Shareholders at Closing will be validly issued, nonassessable
and fully-paid under Nevada corporation law and will be issued in a
nonpublic offering in compliance with all federal, state and applicable
securities laws.
(j) Compass shall have received the advice of its tax advisor
that this transaction is a tax free reorganization as to the exchanging
Compass common shareholders.
(k) Compass shall have received all necessary and required
approvals and consents from required parties and its shareholders.
(l) At the Closing, WII and WII Sub shall have delivered to
Compass an opinion of its counsel dated as of the Closing to the effect
that:
(i) WII and WII Sub, each is a corporation duly
organized, validly existing and in good standing under the
laws of the jurisdiction of incorporation;
(ii) This Agreement has been duly authorized,
executed and delivered by WII and WII Sub and is a valid and
binding obligation of WII and WII Sub enforceable in
accordance with its terms;
(iii) WII and WII Sub each through its Board of
Directors and stockholders have taken all corporate action
necessary for performance under this Agreement;
(iv) The documents executed and delivered to Compass
and Compass Shareholders hereunder are valid and binding in
accordance with their terms and vest in Compass Shareholders,
as the case may be, all right, title and interest in and to
the shares of WII's Common Stock and Preferred Stockto be
issued pursuant to Section 2 hereof, and the shares of WII
capital stock when issued will be duly and validly issued,
fully-paid and nonassessable; and
(v) WII and WII Sub each has the corporate power to
execute, deliver and perform under this Agreement.
14
<PAGE> 17
(vi) Legal counsel for WII and WII Sub is not aware
of any liabilities, claims or lawsuits involving WII or WII
Sub.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF WII AND WII SUB. All
obligations of WII and WII Sub under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
(a) The representations and warranties by Compass contained in
this Agreement or in any certificate or document delivered pursuant to
the provisions hereof shall be true in all material respects at and as
of the Closing as though such representations and warranties were made
at and as of such time.
(b) Compass shall have performed and complied with, in all
material respects, all covenants, agreements, and conditions required
by this Agreement to be performed or complied with by them prior to or
at the Closing;
(c) Compass shall cause at or as soon as practicable after
Closing, each of its shareholders to deliver to WII, a letter commonly
known as an "Investment Letter," in substantially the form attached
hereto as Exhibit "D", acknowledging that the shares of WII Common
Stock are being acquired by said shareholders for investment purposes.
(d) Compass shall deliver an opinion of its legal counsel to
the effect that:
(i) Compass is a corporation duly organized, validly
existing and in good standing under the laws of the state of
its incorporation;
(ii) This Agreement has been duly authorized,
executed and delivered by Compass.
9. INDEMNIFICATION. For a period of two years from the Closing, Dixon,
WII and WII Sub agree to jointly and severally indemnify and hold harmless
Compass, its officers, directors and employees, and Compass agrees to indemnify
and hold harmless Dixon, WII and WII Sub, against and in respect of any
liability, damage or deficiency, all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses including attorney's fees incident to
any of the foregoing, resulting from any material misrepresentations made by an
indemnifying party to an indemnified party, an indemnifying party's breach of
covenant or warranty or an indemnifying party's nonfulfillment of any agreement
hereunder, or from any material misrepresentation in or omission from any
certificate furnished or to be furnished hereunder. Subject to a threshold limit
of $50,000 and except as otherwise covered by insurance.
15
<PAGE> 18
10. NATURE AND SURVIVAL OF REPRESENTATIONS. All representations,
warranties and covenants made by any party in this Agreement shall survive the
Closing and the consummation of the transactions contemplated hereby for two
years from the Closing. All of the parties hereto are executing and carrying out
the provisions of this Agreement in reliance solely on the representations,
warranties and covenants and agreements contained in this Agreement and not upon
any investigation upon which it might have made or any representation, warranty,
agreement, promise or information, written or oral, made by the other party or
any other person other than as specifically set forth herein.
11. DOCUMENTS AT CLOSING. At the Closing, the following documents shall
be delivered:
(a) Compass will deliver, or will cause to be delivered, to
WII the following:
(i) a certificate executed by the President and
Secretary of Compass to the effect that all representations
and warranties made by Compass under this Agreement are true
and correct as of the Closing, the same as though originally
given to WII or WII Sub on said date;
(ii) a certificate from the state of Compass's
incorporation dated at or about the Closing to the effect that
Compass is in good standing under the laws of said state;
(iii) Investment Letters in the form attached hereto
as Exhibit "D" executed by each Compass Common Shareholder,
some of which may be delivered after Closing;
(iv) such other instruments, documents and
certificates, if any, as are required to be delivered pursuant
to the provisions of this Agreement;
(v) executed copies of the Plan and Articles of
Merger for filing; and certified copies of resolutions adopted
by the shareholders and directors of Compass authorizing the
Merger; and
(vi) all other items, the delivery of which is a
condition precedent to the obligations of WII and WII Sub, as
set forth herein.
(vii) the legal opinion required by Section 8(d)
hereof.
(b) WII and WII Sub will deliver or cause to be delivered to Compass:
(i) stock certificates representing those securities
of WII to be issued as a part of the Merger as described in
Section 2 hereof;
16
<PAGE> 19
(ii) a certificate of the President/Secretary of WII
and WII Sub, respectively, to the effect that all
representations and warranties of WII and WII Sub made under
this Agreement are true and correct as of the Closing, the
same as though originally given to Compass on said date;
(iii) certified copies of resolutions adopted by
WII's and WII Sub's Board of Directors and WII's and WII Sub's
Stockholders authorizing the Merger and all related matters;
(iv) certificates from the jurisdiction of
incorporation of WII and WII Sub dated at or about the Closing
Date that each of said corporations is in good standing under
the laws of said state;
(v) opinion of WII's counsel as described in Section
7(l) above;
(vi) Net proceeds from WII Financing;
(vii) such other instruments and documents as are
required to be delivered pursuant to the provisions of this
Agreement;
(viii) resignation of Dixon as the sole officer and
director of WII and WII Sub; and
(ix) all other items, the delivery of which is a
condition precedent to the obligations of Compass, as set
forth in Section 7 hereof, including the net proceeds of the
WII Financing.
12. FINDER'S FEES. Dixon, WII and WII Sub, jointly and severally,
represent and warrant to Compass, and Compass represents and warrants to each of
Dixon, WII and WII Sub, that none of them, or any party acting on their behalf,
has incurred any liabilities, either express or implied, to any "broker" of
"finder" or similar person in connection with this Agreement or any of the
transactions contemplated hereby, other than as described in the Memorandum. In
this regard, Dixon, WII and WII Sub, jointly and severally, on the one hand, and
Compass on the other hand, will indemnify and hold the other harmless from any
claim, loss, cost or expense whatsoever (including reasonable fees and
disbursements of counsel) from or relating to any such express or implied
liability, other than as described in the Memorandum.
13. MISCELLANEOUS.
(a) Further Assurances. At any time, and from time to time,
after the Effective Date, each party will execute such additional
instruments and take such action as may be reasonably requested by the
other party to confirm or perfect title to any property
17
<PAGE> 20
transferred hereunder or otherwise to carry out the intent and purposes
of this Agreement.
(b) Waiver. Any failure on the part of any party hereto to
comply with any of its obligations, agreements or conditions hereunder
may be waived in writing by the party to whom such compliance is owed.
(c) Termination. All obligations hereunder may be terminated
at the discretion of either party's Board of Directors if (i) the
closing conditions specified in Sections 7 and 8 are not met by October
29, 1999, (with the exception of the delivery of the Investment
Letters) unless unanimously extended, or (ii) any of the
representations and warranties made herein have been materially
breached.
(d) Amendment. This Agreement may be amended only in writing
as agreed to by all parties hereto.
(e) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given if delivered
in person or sent by prepaid first class registered or certified mail,
return receipt requested to the last known address of the noticed
party.
(f) Headings. The section and subsection headings in this
Agreement are inserted for convenience only and shall not affect in any
way the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed
simultaneously 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.
(h) Binding Effect. This Agreement shall be binding upon the
parties hereto and inure to the benefit of the parties, their
respective heirs, administrators, executors, successors and assigns.
(i) Entire Agreement. This Agreement and the attached Exhibits
including the Plan and Articles of Merger attached hereto as Exhibit
"A" is the entire agreement of the parties covering everything agreed
upon or understood in the transaction. There are no oral promises,
conditions, representations, understandings, interpretations or terms
of any kind as conditions or inducements to the execution hereof.
(j) Time. Time is of the essence.
(k) Severability. If any part of this Agreement is deemed to
be unenforceable the balance of the Agreement shall remain in full
force and effect.
18
<PAGE> 21
(l) Responsibility and Costs. Whether the Merger is
consummated or not, all fees, expenses and out-of-pocket costs and
expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred by the parties
hereto shall be borne solely and entirely by the party that has
incurred such costs and expenses, unless the failure to consummate the
Merger constitutes a breach of the terms hereof, in which event the
breaching party shall be responsible for all costs of all parties
hereto.
(m) Applicable Law. This Agreement shall be construed and
governed by the laws of the State of Nevada.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
MEDIA CAPITAL SUBSIDIARY, INC. WINTHROP INDUSTRIES, INC.
By: By:
------------------------------- --------------------------------
Lynn Dixon, President/Secretary Lynn Dixon, President/Secretary
--------------------------------
Lynn Dixon, individually
COMPASS KNOWLEDGE GROUP, INC.
By:
----------------------------
Dan Devine, President
19
<PAGE> 22
STOCKHOLDERS OF COMPASS
KNOWLEDGE GROUP, INC.
--------------------------------
Dan Devine
--------------------------------
Rogers W. Kirven, Jr.
CloverLeaf Capital Advisors, LLC
By:
-----------------------------
20
<PAGE> 23
EXHIBIT "A"
TO AGREEMENT AND PLAN OF REORGANIZATION
PLAN AND ARTICLES OF MERGER
<PAGE> 24
EXHIBIT "B"
TO AGREEMENT AND PLAN OF REORGANIZATION
LIST OF COMPASS COMMON STOCKHOLDERS
COMMON SHARES TO BE
NAME ISSUED AT CLOSING
- ---- -------------------
Rogers W. Kirven, Jr. 4,809,289
Dan Devine 3,482,587
University of Florida Health Services, Inc. 500,000
Cloverleaf Capital Advisors, LLC 767,250
David Colburn 130,874
Michael Borcheck 60,000
---------
9,750,000
=========
SERIES A PREFERRED STOCKHOLDERS
NAME SHARES
- ---- ------
Pioneer Ventures Associates 2,000
Limited Partnership
<PAGE> 25
EXHIBIT "C"
TO AGREEMENT AND PLAN OF REORGANIZATION
AMENDMENT TO ARTICLES OF INCORPORATION OF WII
<PAGE> 26
EXHIBIT "D"
TO AGREEMENT AND PLAN OF REORGANIZATION
INVESTMENT LETTER
<PAGE> 27
EXHIBIT "E"
TO AGREEMENT AND PLAN OF REORGANIZATION
FORM OF CERTIFICATE OF DESIGNATION OF SERIES A PREFERRED STOCK
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
BY AND BETWEEN
COMPASS KNOWLEDGE HOLDINGS, INC.
AND
ROGERS W. KIRVEN
THIS EMPLOYMENT AGREEMENT (the "Agreement") is effective as of
November 1, 1999 (the "Commencement Date") by and between Compass Knowledge
Holdings, Inc., a Florida corporation (the "Company"), and Rogers W. Kirven, Jr.
("Employee").
WHEREAS, Employee has previously entered into an employment
agreement with a subsidiary of the Company and the parties desire that the
Company assume the responsibilities of the subsidiary with respect to the
employment agreement which has been approved by the Company's Board of
Directors; and
WHEREAS, the Company and Employee desire to enter into this
Agreement to memorialize their oral understanding, to assure the Company of the
services of Employee for the benefit of the Company and to set forth the
respective rights and duties of the parties hereto.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants, terms and conditions set forth herein, the Company and
Employee agree as follows:
ARTICLE I
EMPLOYMENT
1.1 EMPLOYMENT AND TITLE. As of the Commencement Date, the
Company employs Employee, and Employee accepts such employment, as Chief
Executive Officer of the Company, all upon the terms and conditions set forth
herein.
1.2 DUTIES. Subject to the power of the Board of Directors of
Employer to elect and remove officers, Employee will serve as Chief Executive
Officer and will faithfully and diligently perform the services and functions
relating to such office or otherwise reasonable incident to such office,
provided that all such services and functions will be reasonable and within
Employee's area of expertise. Employee will during the term of this Agreement
(or any extension thereof), devote essentially his full business time, attention
and skills and reasonable best efforts to the promotion of the business of
Employer. The foregoing will not be construed as preventing Employee from
managing other businesses, making investments in other business or enterprises
provided that (a) Employee agrees not to become engaged in any other business
activity that interferes with his ability to discharge his duties and
responsibilities to Employer and (b) Employee does not violate any other
provision of this Agreement.
1.3 LOCATION. The principal place of employment and the
location of Employee's principal office shall be in Ocoee, Florida; provided,
however, Employee shall,
<PAGE> 2
when requested by the Board of Directors, or may, if he determines it to be
reasonably necessary, temporarily perform outside of Ocoee, Florida such
services as are reasonably required for the proper execution of his duties under
this Agreement.
1.4 REPRESENTATIONS. Each party represents and warrants to the
other that he/it has full power and authority to enter into and perform this
Agreement and that his/its execution and performance of this Agreement shall not
constitute a default under or breach of any of the terms of any agreement to
which he/it is a party or under which he/it is bound. Each party represents that
no consent or approval of any third party is required for his/its execution,
delivery and performance of this Agreement or that all consents or approvals of
any third party required for his/its execution, delivery and performance of this
Agreement have been obtained.
ARTICLE II
TERM
2.1 TERM. The term of Employee's employment hereunder (the
"Term") shall commence as of the Commencement Date and shall continue through
the fifth anniversary of the Commencement Date (the "Scheduled Termination
Date") unless renewed or earlier terminated pursuant to the provisions of this
Agreement. Assuming all conditions of this Agreement have been satisfied and
there has been no breach of the Agreement during its initial term, Employee may
extend the term for an additional three year term at Employee's election
("Extended Term").
ARTICLE III
COMPENSATION
3.1 SALARY. As compensation for the services to be rendered by
Employee, the Company shall pay Employee, during the Term of this Agreement, an
annual base salary of not less than One Hundred Seventy-five Thousand Dollars
($175,000.00), which base salary shall accrue monthly (prorated for periods less
than a month) and shall be paid in equal bi-monthly installments, in arrears or
as the Employee and the Company otherwise agree. The base salary will be
reviewed annually, or, as appropriate, by the Board of Directors. At any time
the Salary may be increased for the remaining portion of the term if so
determined by the Board of Directors of Employer after a review of Employee's
performance of his duties. Salary to be increased by minimum of CPI plus
increases based on performance, increase in earnings and revenues approved by
the compensation committee.
3.2 BONUSES. The Employer shall pay the Employee an annual
bonus (the "Bonus") as determined by the Board of Directors. The Bonus, if any,
shall be payable within ninety (90) days after the end of the most recent fiscal
year to which the Bonus relates.
3.3 NONQUALIFIED STOCK OPTIONS. Upon the execution of this
Agreement, and subject to the provisions of this Agreement, the Employee shall
be entitled to such nonqualified options to acquire shares of the Company's
common stock (the "Option Shares") as determined pursuant to that certain
Compass Knowledge Holdings Management Trust dated February 9, 1999.
2
<PAGE> 3
3.4 BENEFITS. Employee shall be entitled, during the Term
hereof, to the same medical, hospital, pension, profit sharing, dental and life
insurance coverage and benefits as are available to the Company's most senior
executive officers on the Commencement Date together with the following
additional benefits:
(a) An automobile allowance of $500.00 per month, plus
insurance, gas, and maintenance.
(b) Reimbursement of expenses attributable to not less than
eighty (80) hours of executive education per year.
(c) Comprehensive medical, vision, and dental coverage,
including dependent coverage.
(d) Split Dollar life insurance in an amount not less than
$1,000,000.00 with Employee as the owner thereof.
(e) Long-term disability insurance in an amount, adjusted
annually, which shall be equal to the greater of the maximum amount
allowed by most insurance companies or at law or an amount equal to
eighty percent (80%) of Employee's prior year base salary and incentive
compensation, if any, excluding compensation earned through Company
stock options or other securities.
(f) The Company's normal vacation allowance for all employees
who are executive officers of the Company, but not less than four (4)
weeks annually, with the option to carry over unused vacation days.
Employee shall have the option to be paid for unused vacation days,
either at the end of each year hereunder or at the end of the Term
hereof.
(g) The Employee will be entitled to participate in any
benefit plan or program of the Employer which may currently be in place
or implemented in the future.
(h) During the Term, Employee will be entitled to receive, in
addition to and not in lieu of base salary, bonus or other
compensation, such as other benefits as Employer may provide for its
officers in the future.
3.5 WITHHOLDING. Any and all amounts payable under this
Agreement, including, without limitation, amounts payable under this Article III
and Article VII, which are subject to withholding for such federal, state and
local taxes as the Company, in its reasonable judgment, determines to be
required pursuant to any applicable law, rule or regulation.
3
<PAGE> 4
ARTICLE IV
WORKING FACILITIES, EXPENSES AND INSURANCE
4.1 WORKING FACILITIES AND EXPENSES. Employee shall be
furnished with an office at the principal executive offices of the Company, or
at such other location as agreed to by Employee and the Company, and other
working facilities and secretarial and other assistance suitable to his position
and reasonably required for the performance of his duties hereunder. The Company
shall reimburse Employee for all of Employee's reasonable expenses incurred
while employed and performing his duties under and in accordance with the terms
and conditions of this Agreement, subject to Employee's full and appropriate
documentation, including, without limitation, receipts for all such expenses in
the manner required pursuant to Company's policies and procedures and the
Internal Revenue Code of 1986, as amended (the "Code") and applicable
regulations as are in effect from time to time.
4.2 INSURANCE. The Company may secure in its own name or
otherwise, and at its own expense, life, disability and other insurance covering
Employee or Employee and others, and Employee shall not have any right, title or
interest in or to such insurance other than as expressly provided herein.
Employee agrees to assist the Company in procuring such insurance by submitting
to the usual and customary medical and other examinations to be conducted by
such physicians(s) as the Company or such insurance company may designate and by
signing such applications and other written instruments as may be required by
any insurance company to which application is made for such insurance.
ARTICLE V
ILLNESS OR INCAPACITY
5.1 RIGHT TO TERMINATE. If, during the Term of this Agreement,
Employee shall be unable to perform in all material respects his duties
hereunder for a period exceeding six (6) consecutive months by reason of illness
or incapacity, this Agreement may be terminated by the Company in its reasonable
discretion pursuant to Section 7.2 hereof.
5.2 RIGHT TO REPLACE. If Employee's illness or incapacity,
whether by physical or mental cause, renders him unable for a minimum period of
sixty (60) consecutive calendar days to carry out his duties and
responsibilities as set forth herein, the Company shall have the right to
designate a person to replace Employee temporarily in the capacity described in
Article I hereof; provided, however, that if Employee returns to work from such
illness or incapacity within the six (6) month period following his inability
due to such illness or incapacity, he shall be entitled to be reinstated in the
capacity described in Article I hereof with all rights, duties and privileges
attendant thereto.
5.3 RIGHTS PRIOR TO TERMINATION. Employee shall be entitled to
his full remuneration and benefits hereunder during such illness or incapacity
unless and until an election is made by the Company to terminate this Agreement
in accordance with the provisions of this Article.
5.4 DETERMINATION OF ILLNESS OR INCAPACITY. For purposes of
this Article V, the term "illness or incapacity" shall mean Employee's inability
to perform his duties hereunder
4
<PAGE> 5
substantially on a full-time basis due to physical or mental illness as
determined by a physician selected by the Company and the Employee.
ARTICLE VI
CONFIDENTIALITY
6.1 CONFIDENTIALITY. During the Term of this Agreement and
thereafter, Employee shall not divulge, communicate, use to the detriment of the
Company, or for the benefit of any other business, firm, person, partnership or
corporation, or otherwise misuse, any "Confidential Information", pertaining to
the Company including, without limitation, all (i) data or trade secrets,
including secret processes, formulas or other technical data; (ii) production
methods; (iii) customer lists; (iv) personnel lists; (v) proprietary
information; (vi) financial or corporate records; (vii) operational, sales,
promotional and marketing methods and techniques; (viii) development ideas,
acquisition strategies and plans; (ix) financial information and records; (x)
"know-how" and methods of doing business; and (xi) computer programs, including
source codes and/or object codes and other proprietary, competition-sensitive or
technical information or secrets developed with or without the help of Employee.
Employee acknowledges that any such information or data he may have acquired was
received in confidence and by reason of his relationship to the Company.
Confidential Information, data or trade secrets shall not include any
information which: (a) at the time of disclosure is within the public domain;
(b) after disclosure becomes a part of the public domain or generally known
within the industry through no fault, act or failure to act, error, effort or
breach of this Agreement by Employee; (c) is known to the recipient at the time
of disclosure; (d) is subsequently discovered by Employee independently of any
disclosure by the Company; (e) is required by order, statute or regulation, of
any governmental authority to be disclosed to any federal or state agency, court
or other body; or (f) is obtained from a third party who has acquired a legal
right to possess and disclose such information.
6.2 RECORDS. All documents, papers, materials, notes, books,
correspondence, drawings and other written and graphic records relating to the
Business of the Company which Employee shall prepare or use, or come into
contact with, shall be and remain the sole property of the Company and,
effective immediately upon the termination of the Employee's employment with the
Company for any reason, shall not be removed from the Company's premises without
the Company's prior written consent and any such documents, papers, materials,
notes, books, correspondence, drawings and other written and graphic records
upon request shall be returned to the Company.
ARTICLE VII
TERMINATION
7.1 TERMINATION FOR CAUSE. This Agreement and the employment
of Employee may be terminated by the Company "For Cause" under any one of the
following circumstances:
(a) Employee has committed any material act of fraud,
misappropriation or theft against the Company.
5
<PAGE> 6
(b) Employee's default breach of any material provision of
this Agreement; provided, that Employee shall not be in default
hereunder unless (i) he shall have failed to cure such default or
breach within thirty (30) days of written notice thereof by the Company
to Employee or (ii) Employee shall have duly received notice of at
least three (3) prior instances of such breach or default (whether or
not cured by Employee).
(c) Employee engages in willful misconduct in the performance
of his duties hereunder; provided, that Employee shall not be in
default hereunder unless (i) he shall have failed to cure such default
or breach within fifteen (15) days of written notice thereof by the
Company to Employee, or (ii) Employee shall have duly received notice
of at least three (3) prior instances of such breach or default
(whether or not cured by Employee).
(d) At the election of the Employee.
A termination For Cause under this Section 7.1 shall be
effective upon the date set forth in a written notice of termination delivered
to Employee.
7.2 TERMINATION WITHOUT CAUSE. This Agreement and the
employment of the Employee may be terminated "Without Cause" as follows:
(a) By mutual agreement of the parties hereto.
(b) At the election of the Company by its giving not less than
sixty (60) days prior written notice to Employee in the event of an
illness or incapacity described in Article 5.1.
(c) Upon the removal of Employee from the office of Chief
Executive Officer of the Company or in the event the Company fails to
afford Employee the power and authority generally commensurate with the
position of Chief Executive Officer.
(d) Upon Employee's death.
A termination Without Cause under Section 7.2(b) hereof shall
be effective upon the date set forth in a written notice of termination
delivered in accordance with the notice provisions of such sections. A
termination Without Cause under Sections 7.2(a) or (d) shall be automatically
effective upon the date of mutual agreement or the date of death of the
Employee, as the case may be. A termination Without Cause under Section 7.2(c)
shall be automatically effective upon the date such event takes place.
7.3 EFFECT OF TERMINATION FOR CAUSE. If Employee's employment
is terminated "For Cause":
(a) Employee shall be entitled to accrued base salary under
Section 3.1 hereof through the date of termination.
(b) Employee shall be entitled to accrued bonuses under
Section 3.2 hereof through the date of termination.
6
<PAGE> 7
(c) Employee shall be entitled to reimbursement for expenses
accrued through the date of termination in accordance with the
provisions of Section 4.1 hereof.
(e) All unvested Option Shares under Section 3.3 hereof shall
be forfeited.
(f) Except as provided in Article XI, this Agreement shall
thereupon terminate and cease to be of any further force or effect.
7.4 EFFECT OF TERMINATION WITHOUT CAUSE. If Employee's
employment is terminated "Without Cause":
(a) Employee shall be entitled to the greater of (i) an amount
equal to the annual base salary for the remainder of the term, or (ii)
one year's base salary.
(b) Employee shall be entitled to reimbursement for expenses
accrued through the date of termination in accordance with the
provisions of Section 4.1 hereof.
(c) Employee shall be entitled to receive all amounts of
additional bonuses under Section 3.2 hereof through the expiration of
the Term hereof, which amounts shall be paid upon termination.
(d) Employee shall be entitled to receive all benefits as
would have been awarded under Section 3.7 hereof through the expiration
of the Term hereof, which benefits shall be awarded as and when the
same would have been awarded under the Agreement had it not been
terminated.
(e) All unvested Option Shares under Section 3.3 hereof shall
immediately vest in full.
(f) Except as provided in Article XI, this Agreement shall
thereupon terminate and cease to be of any further force or effect.
7.5 TERMINATION UPON CHANGE OF CONTROL. Upon a "Change of
Control" (as such term is defined in Section 7.5 hereof) of the Company during
the Term hereof, Employee may, at his sole discretion, declare this Agreement
terminated and receive a one-time, lump sum severance payment equal to two and
nine-tenths (2.9) times the total amount of the annual base salary payable under
the terms of Section 3.1 of this Agreement upon the date of such Change of
Control, if within three (3) years of the Change of Control:
(a) Employee's employment hereunder is terminated prior to the
expiration of the Term hereof "Without Cause"; or
(b) Employee elects to terminate his employment with the
Company in the event (i) he is removed from the office of Chief
Executive Officer of the Company or (ii) the Company fails to afford
Employee the power and authority generally commensurate with the
position of Chief Executive Officer or (iii) the Company requires
Employee to relocate his residence outside of Ocoee, Florida.
7
<PAGE> 8
7.6 CHANGE OF CONTROL. For purposes of Section 7.5 of this
Agreement, a Change of Control shall be deemed to have occurred in the event of:
(a) The acquisition by any person or entity, or group thereof
acting in concert, of "beneficial" ownership (as such term is defined
in Securities and Exchange Commission ("SEC") Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) (the "Exchange Act"), of
securities of the Company which, together with securities previously
owned, confer upon such person, entity or group the voting power, on
any matters brought to a vote of shareholders, of thirty percent (30%)
or more of the then outstanding shares of capital stock of the Company;
or
(b) The sale, assignment or transfer of assets of the Company
or any subsidiary or subsidiaries, in a transaction or series of
transactions, if the aggregate consideration received or to be received
by the Company or any such subsidiary in connection with such sale,
assignment or transfer is greater than fifty percent (50%) of the book
value, determined by the Company in accordance with generally accepted
accounting principles, of the Company's assets determined on a
consolidated basis immediately before such transaction or the first of
such transactions; or
(c) The merger, consolidation, share exchange or
reorganization of the Company (or one or more subsidiaries of the
Company) as a result of which the holders of all of the shares of
capital stock of the Company as a group would receive less than fifty
percent (50%) of the voting power of the capital stock or other
interests of the surviving or resulting corporation or entity; or
(d) The adoption of a plan of liquidation or the approval of
the dissolution of the Company; or
(e) The commencement (within the meaning of SEC Rule 14d-2
under the Exchange Act) of a tender or exchange offer which, if
successful, would result in a Change of Control of the Company; or
(f) A determination by the Board of Directors of the Company,
in view of then current circumstances or impending events, that a
Change of Control of the Company has occurred or is imminent, which
determination shall be made for the specific purpose of triggering the
operative provisions of this Agreement.
7.7 LIMITATIONS ON CHANGE OF CONTROL COMPENSATION. In the
event that the lump-sum payment payable to Employee under Section 7.5 hereof
("Severance Benefits"), or any other payments or benefits received or to be
received by Employee from the Company (whether payable pursuant to the terms of
this Agreement, or any other plan, agreement or arrangement with the Company or
any corporation affiliated with the Company within the meaning of Section 1504
of the Code, in the opinion of tax counsel selected by the Company acceptable to
Employee, constitute "parachute payments" within the meaning of Section
280G(b)(2) of the Code and the present value of such "parachute payments" equals
or exceeds three times the average of the annual compensation payable to
Employee by the Company (or an Affiliate) and includable in Employee's gross
income for federal income tax purposes for the five (5) calendar years preceding
the year in which a change in ownership or control (as hereinafter defined) of
8
<PAGE> 9
the Company occurred ("Base Amount"), such Severance Benefits shall be reduced
to an amount the present value of which (when combined with the present value of
any other payments or benefits otherwise received or to be received by Employee
from the Company (or an Affiliate) that are deemed "parachute payments" is equal
to 2.99 times the Base Amount, notwithstanding any other provision to the
contrary in this Agreement. The Severance Benefits shall not be reduced if (i)
Employee shall have effectively waived his receipt or enjoyment of any such
payment or benefit which triggered the applicability of this Section 7.7 or (ii)
in the opinion of such tax counsel, the Severance Benefits (in their full amount
or as partially reduced, as the case may be) plus all other payments or benefits
which constitute "parachute payments" within the meaning of Section 280G(b)(2)
of the Code are reasonable compensation for the services actually rendered,
within the meaning of Section 280G(b)(4) of the Code and such payments are
deductible by the Company. The Base Amount shall include every type and form of
compensation includable in Employee's gross income in respect of his employment
by the Company (or an Affiliate), except to the extent otherwise provided in
temporary or final regulations promulgated under Section 280G(b) of the Code.
For purposes of this Section 7.7, a "change in ownership or control" shall have
the meaning set forth in Section 280G(b) of the Code and any temporary or final
regulations promulgated thereunder. The present value of any non-cash benefit or
any deferred cash payment shall be determined by the Company's independent
auditors in accordance with the principles of Section 280G of the Code.
Employee shall have the right to request that the Company
obtain a ruling from the Internal Revenue Service ("IRS") as to whether any or
all payments or benefits determined by such tax counsel are, in the view of the
IRS, "parachute payments" under Section 280G. If a ruling is sought pursuant to
Employee's request, no Severance Benefits payable under this Agreement in excess
of the Section 280G limitations shall be made to Employee until after fifteen
(15) days from the date of such ruling, however, Severance Benefits shall
continue to be paid during the time up to the amount of that limitation. For
purposes of this Section 7.7, Employee and the Company shall agree to be bound
by the IRS's ruling as to whether payments constitute "parachute payments" under
Section 280G. If the IRS declines, for any reason, to provide the ruling
requested, the tax counsel's opinion provided with respect to what payments or
benefits constitute "parachute payments" shall control and the period during
which the Severance Benefits may be deferred shall be extended to a date fifteen
(15) days from the date of the IRS's notice indicating that no ruling would be
forthcoming.
In the event that Section 280G, or any successor statute is
repealed, this Section 7.7 shall cease to be effective on the effective date of
such repeal. The parties to this Agreement recognize that final regulations
under Section 280G of the Code may affect the amounts that may be paid under
this Agreement and agree that, upon issuance of such final regulations, this
Agreement may be modified as in good faith deemed necessary in light of the
provisions of such regulations to achieve the purposes of this Agreement, and
that consent to such modification shall not be unreasonably withheld.
ARTICLE VIII
NON-COMPETITION AND NON-INTERFERENCE
8.1 NON-COMPETITION. Employee agrees that during the Term of
this Agreement and, in the case of a termination "Not For Cause", for a period
of one (1) year thereafter, (and in the case of a termination "For Cause", for a
period of Two (2) years thereafter
9
<PAGE> 10
Employee will not, directly, indirectly, or as an agent on behalf of or in
conjunction with any person, firm, partnership, corporation or other entity,
own, manage, control, join, or participate in the ownership, management,
operation, or control of, or be financially interested in or advise, lend money
to, or be employed by or provide consulting services to, or be connected in any
manner with any person engaged in Business within a 60 mile radius of any area
within the United States of America which the Company is engaging in its
Business or has immediate plans to engage in its Business.
8.2 NON-INTERFERENCE. Employee agrees that during the Term of
this Agreement and, in the case of a termination "Not For Cause", for a period
of one (1) year thereafter (and in the case of a termination "For Cause", for a
period of two (2) years thereafter), Employee will not, directly, indirectly or
as an agent on behalf of or in conjunction with any person, firm, partnership,
corporation or other entity, induce or entice any employee of the Company to
leave such employment or cause anyone else to do so.
8.3 SEVERABILITY. If any covenant or provision contained in
Article VIII is determined to be void or unenforceable in whole or in part, it
shall not be deemed to affect or impair the validity of any other covenant or
provision. If, in any arbitral or judicial proceeding, a tribunal shall refuse
to enforce all of the separate covenants deemed included in this Article VIII,
then such unenforceable covenants shall be deemed eliminated from the provisions
hereof for the purpose of such proceedings to the extent necessary to permit the
remaining separate covenants to be enforced in such proceedings.
ARTICLE IX
INDEMNIFICATION
9.1. INDEMNIFICATION. The Employer shall to the full extent permitted by law
indemnify, defend and hold harmless Employee from and against any and all
claims, demands, liabilities, damages, losses and expenses (including reasonable
attorney's fees, court costs and disbursements) arising out of the performance
by him of his duties hereunder except in the case of his willful misconduct and
will carry directors and officers' insurance of $10,000,000 with $250,000
deductible.
ARTICLE X
BOARD OF DIRECTORS
10.1 ELECTION AS CHAIRMAN OF THE BOARD. As a condition to
Employee's obligations hereunder, he will be elected to the Company's Board of
Directors and serve as the Chairman. The Company will cause the Employee to be
nominated to serve in such capacities.
ARTICLE XI
MISCELLANEOUS
11.1 NO WAIVERS. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver of any such
provision, nor prevent such party thereafter from enforcing such provision or
any other provision of this Agreement.
10
<PAGE> 11
11.2 NOTICES. Any notice to be given to the Company and
Employee under the terms of this Agreement may be delivered personally, by
telecopy, telex or other form of written electronic transmission, or by
registered or certified mail, postage prepaid, and shall be addressed as
follows:
IF TO THE COMPANY: 2710 Rew Circle
Suite 100
Ocoee, Florida 34761
IF TO EMPLOYEE: 2710 Rew Circle
Suite 100
Ocoee, Florida 34761
Either party may hereafter notify the other in writing of any change in
address. Any notice shall be deemed duly given (i) when personally delivered,
(ii) when telecopied, telexed or transmitted by other form of written electronic
transmission (upon confirmation of receipt) or (iii) on the third day after it
is mailed by registered or certified mail, postage prepaid, as provided herein.
11.3 SEVERABILITY. The provisions of this Agreement are
severable and if any provision of this Agreement shall be held to be invalid or
otherwise unenforceable, in whole or in part, the remainder of the provisions,
or enforceable parts thereof, shall not be affected thereby.
11.4 SUCCESSORS AND ASSIGNS. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company, including the survivor upon any
merger, consolidation, share exchange or combination of the Company with any
other entity. Employee shall not have the right to assign, delegate or otherwise
transfer any duty or obligation to be performed by him hereunder to any person
or entity.
11.5 ENTIRE AGREEMENT. This Agreement supersedes all prior and
contemporaneous agreements and understandings between the parties hereto, oral
or written, and may not be modified or terminated orally. No modification,
termination or attempted waiver shall be valid unless in writing, signed by the
party against whom such modification, termination or waiver is sought to be
enforced. This Agreement was the subject of negotiation by the parties hereto
and their counsel. The parties agree that no prior drafts of this Agreement
shall be admissible as evidence (whether in any arbitration or court of law) in
any proceeding which involves the interpretation of any provisions of this
Agreement.
11.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Florida without
reference to the conflict of law principles thereof.
11.7 SECTION HEADINGS. The section headings contained herein
are for the purposes of convenience only and are not intended to define or limit
the contents of said sections.
11
<PAGE> 12
11.8 FURTHER ASSURANCES. Each party hereto shall cooperate and
shall take such further action and shall execute and deliver such further
documents as may be reasonably requested by the other party in order to carry
out the provisions and purposes of this Agreement.
11.9 GENDER. Whenever the pronouns "he" or "his" are used
herein they shall also be deemed to mean "he" or "his" or "it" or "its" whenever
applicable. Words in the singular shall be read and construed as though in the
plural and words in the plural shall be read and construed as though in the
singular in all cases where they would so apply.
11.10 COUNTERPARTS. This Agreement may be executed in
counterparts, all of which taken together shall be deemed one original.
ARTICLE XII
SURVIVAL
12.1 SURVIVAL. The provisions of Articles VI, VII, VIII, and
X, of this Agreement shall survive the termination of this Agreement.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
Compass Knowledge Holdings, Inc.,
a Florida Corporation,
By:
--------------------------------------
Title:
-------------------------------
EMPLOYEE
------------------------------------------
Rogers W. Kirven, Jr.
13
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
BY AND BETWEEN
COMPASS KNOWLEDGE HOLDINGS, INC.
AND
DANIEL J. DEVINE
THIS EMPLOYMENT AGREEMENT (the "Agreement") to be effective as
of November 1, 1999 (the "Commencement Date") by and between Compass Knowledge
Holdings, Inc., a Florida corporation (the "Company"), and Daniel J. Devine.
("Employee").
WHEREAS, Employee has previously entered into an employment
agreement with a subsidiary of the Company and the parties desire that the
Company assume the responsibilities of the subsidiary with respect to the
employment agreement which has been approved by the Company's Board of
Directors; and
WHEREAS, the Company and Employee desire to enter into this
Agreement to memorialize their oral understanding, to assure the Company of the
services of Employee for the benefit of the Company and to set forth the
respective rights and duties of the parties hereto.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants, terms and conditions set forth herein, the Company and
Employee agree as follows:
ARTICLE I
EMPLOYMENT
1.1 EMPLOYMENT AND TITLE. As of the Commencement Date, the
Company employs Employee, and Employee accepts such employment, as President of
the Company, all upon the terms and conditions set forth herein.
1.2 DUTIES. Subject to the power of the Board of Directors and
Chief Executive Officer of Employer, Employee will serve as President and will
faithfully and diligently perform the services and functions relating to such
office or otherwise reasonable incident to such office, provided that all such
services and functions will be reasonable and within Employee's area of
expertise. Employee will during the term of this Agreement (or any extension
thereof), devote essentially his full business time, attention and skills and
reasonable best efforts to the promotion of the business of Employer. The
foregoing will not be construed as preventing Employee from managing other
businesses, making investments in other business or enterprises provided that
(a) Employee agrees not to become engaged in any other business activity that
interferes with his ability to discharge his duties and responsibilities to
Employer and (b) Employee does not violate any other provision of this
Agreement.
1.3 LOCATION. The principal place of employment and the
location of
<PAGE> 2
Employee's principal office shall be in Ocoee, Florida; provided, however,
Employee shall, when requested by the Board of Directors, or may, if he
determines it to be reasonably necessary, temporarily perform outside of Ocoee,
Florida such services as are reasonably required for the proper execution of his
duties under this Agreement.
1.4 REPRESENTATIONS. Each party represents and warrants to the
other that he/it has full power and authority to enter into and perform this
Agreement and that his/its execution and performance of this Agreement shall not
constitute a default under or breach of any of the terms of any agreement to
which he/it is a party or under which he/it is bound. Each party represents that
no consent or approval of any third party is required for his/its execution,
delivery and performance of this Agreement or that all consents or approvals of
any third party required for his/its execution, delivery and performance of this
Agreement have been obtained.
ARTICLE II
TERM
2.1 TERM. The term of Employee's employment hereunder (the
"Term") shall commence as of the Commencement Date and shall continue through
the fifth anniversary of the Commencement Date (the "Scheduled Termination
Date") unless renewed or earlier terminated pursuant to the provisions of this
Agreement. Assuming all conditions of this Agreement have been satisfied and
there has been no breach of the Agreement during its initial term, Employee may
extend the term for an additional three year term at Employee's election
("Extended Term").
ARTICLE III
COMPENSATION
3.1 SALARY. As compensation for the services to be rendered by
Employee, the Company shall pay Employee, during the Term of this Agreement, an
annual base salary of not less than One Hundred Forty Thousand Dollars
($140,000.00), which base salary shall accrue monthly (prorated for periods less
than a month) and shall be paid in equal monthly installments, in arrears. The
base salary will be reviewed annually, or, as appropriate, by the Board of
Directors. At any time the Salary may be increased for the remaining portion of
the term if so determined by the Board of Directors of Employer after a review
of Employee's performance of his duties. Salary to be increased by minimum of
CPI plus increases based on performance, increase in earnings and revenues
approved by the compensation committee.
3.2 BONUSES. The Employer shall pay the Employee an annual
bonus (the "Bonus") as determined by the Board of Directors. The Bonus, if any,
shall be payable within ninety (90) days after the end of the most recent fiscal
year to which the Bonus relates.
3.3 NONQUALIFIED STOCK OPTIONS. Upon the execution of this
Agreement, and subject to the provisions of this Agreement, the Employee shall
be entitled to such nonqualified
2
<PAGE> 3
options to acquire shares of the Company's common stock (the "Option Shares") as
determined pursuant to that certain Compass Knowledge Holdings Management Trust
dated February 9, 1999.
3.4 BENEFITS. Employee shall be entitled, during the Term
hereof, to the same medical, hospital, pension, profit sharing, dental and life
insurance coverage and benefits as are available to the Company's most senior
executive officers on the Commencement Date together with the following
additional benefits:
(a) An automobile allowance of $500.00 per month, plus
insurance, gas, and maintenance.
(b) Reimbursement of expenses attributable to not less than
eighty (80) hours of executive education per year.
(c) Comprehensive medical, vision, and dental coverage,
including dependent coverage.
(d) Split Dollar life insurance in an amount not less than
$1,000,000.00 with Employee as the owner thereof.
(e) Long-term disability insurance in an amount, adjusted
annually, which shall be equal to the greater of the maximum amount
allowed by most insurance companies or at law or an amount equal to
eighty percent (80%) of Employee's prior year base salary and incentive
compensation, if any, excluding compensation earned through Company
stock options or other securities.
(f) The Company's normal vacation allowance for all employees
who are executive officers of the Company, but not less than four (4)
weeks annually, with the option to carry over unused vacation days.
Employee shall have the option to be paid for unused vacation days,
either at the end of each year hereunder or at the end of the Term
hereof.
(g) The Employee will be entitled to participate in any
benefit plan or program of the Employer which may currently be in place
or implemented in the future.
(h) During the Term, Employee will be entitled to receive, in
addition to and not in lieu of base salary, bonus or other
compensation, such as other benefits as Employer may provide for its
officers in the future.
3.5 WITHHOLDING. Any and all amounts payable under this
Agreement, including, without limitation, amounts payable under this Article III
and Article VII, which are subject to withholding for such federal, state and
local taxes as the Company, in its reasonable
3
<PAGE> 4
judgment, determines to be required pursuant to any applicable law, rule or
regulation.
ARTICLE IV
WORKING FACILITIES, EXPENSES AND INSURANCE
4.1 WORKING FACILITIES AND EXPENSES. Employee shall be
furnished with an office at the principal executive offices of the Company, or
at such other location as agreed to by Employee and the Company, and other
working facilities and secretarial and other assistance suitable to his position
and reasonably required for the performance of his duties hereunder. The Company
shall reimburse Employee for all of Employee's reasonable expenses incurred
while employed and performing his duties under and in accordance with the terms
and conditions of this Agreement, subject to Employee's full and appropriate
documentation, including, without limitation, receipts for all such expenses in
the manner required pursuant to Company's policies and procedures and the
Internal Revenue Code of 1986, as amended (the "Code") and applicable
regulations as are in effect from time to time.
4.2 INSURANCE. The Company may secure in its own name or
otherwise, and at its own expense, life, disability and other insurance covering
Employee or Employee and others, and Employee shall not have any right, title or
interest in or to such insurance other than as expressly provided herein.
Employee agrees to assist the Company in procuring such insurance by submitting
to the usual and customary medical and other examinations to be conducted by
such physicians(s) as the Company or such insurance company may designate and by
signing such applications and other written instruments as may be required by
any insurance company to which application is made for such insurance.
ARTICLE V
ILLNESS OR INCAPACITY
5.1 RIGHT TO TERMINATE. If, during the Term of this Agreement,
Employee shall be unable to perform in all material respects his duties
hereunder for a period exceeding six (6) consecutive months by reason of illness
or incapacity, this Agreement may be terminated by the Company in its reasonable
discretion pursuant to Section 7.2 hereof.
5.2 RIGHT TO REPLACE. If Employee's illness or incapacity,
whether by physical or mental cause, renders him unable for a minimum period of
sixty (60) consecutive calendar days to carry out his duties and
responsibilities as set forth herein, the Company shall have the right to
designate a person to replace Employee temporarily in the capacity described in
Article I hereof; provided, however, that if Employee returns to work from such
illness or incapacity within the six (6) month period following his inability
due to such illness or incapacity, he shall be entitled to be reinstated in the
capacity described in Article I hereof with all rights, duties and privileges
attendant thereto.
4
<PAGE> 5
5.3 RIGHTS PRIOR TO TERMINATION. Employee shall be entitled to
his full remuneration and benefits hereunder during such illness or incapacity
unless and until an election is made by the Company to terminate this Agreement
in accordance with the provisions of this Article.
5.4 DETERMINATION OF ILLNESS OR INCAPACITY. For purposes of
this Article V, the term "illness or incapacity" shall mean Employee's inability
to perform his duties hereunder substantially on a full-time basis due to
physical or mental illness as determined by a physician selected by the Company
and the Employee.
ARTICLE VI
CONFIDENTIALITY
6.1 CONFIDENTIALITY. During the Term of this Agreement and
thereafter, Employee shall not divulge, communicate, use to the detriment of the
Company, or for the benefit of any other business, firm, person, partnership or
corporation, or otherwise misuse, any "Confidential Information", pertaining to
the Company including, without limitation, all (i) data or trade secrets,
including secret processes, formulas or other technical data; (ii) production
methods; (iii) customer lists; (iv) personnel lists; (v) proprietary
information; (vi) financial or corporate records; (vii) operational, sales,
promotional and marketing methods and techniques; (viii) development ideas,
acquisition strategies and plans; (ix) financial information and records; (x)
"know-how" and methods of doing business; and (xi) computer programs, including
source codes and/or object codes and other proprietary, competition-sensitive or
technical information or secrets developed with or without the help of Employee.
Employee acknowledges that any such information or data he may have acquired was
received in confidence and by reason of his relationship to the Company.
Confidential Information, data or trade secrets shall not include any
information which: (a) at the time of disclosure is within the public domain;
(b) after disclosure becomes a part of the public domain or generally known
within the industry through no fault, act or failure to act, error, effort or
breach of this Agreement by Employee; (c) is known to the recipient at the time
of disclosure; (d) is subsequently discovered by Employee independently of any
disclosure by the Company; (e) is required by order, statute or regulation, of
any governmental authority to be disclosed to any federal or state agency, court
or other body; or (f) is obtained from a third party who has acquired a legal
right to possess and disclose such information.
6.2 RECORDS. All documents, papers, materials, notes, books,
correspondence, drawings and other written and graphic records relating to the
Business of the Company which Employee shall prepare or use, or come into
contact with, shall be and remain the sole property of the Company and,
effective immediately upon the termination of the Employee's employment with the
Company for any reason, shall not be removed from the Company's premises without
the Company's prior written consent and any such documents, papers, materials,
notes, books, correspondence, drawings and other written and graphic records
upon request shall be returned to the Company.
5
<PAGE> 6
ARTICLE VII
TERMINATION
7.1 TERMINATION FOR CAUSE. This Agreement and the employment
of Employee may be terminated by the Company "For Cause" under any one of the
following circumstances:
(a) Employee has committed any material act of fraud,
misappropriation or theft against the Company.
(b) Employee's default breach of any material provision of
this Agreement; provided, that Employee shall not be in default
hereunder unless (i) he shall have failed to cure such default or
breach within thirty (30) days of written notice thereof by the Company
to Employee or (ii) Employee shall have duly received notice of at
least three (3) prior instances of such breach or default (whether or
not cured by Employee).
(c) Employee engages in willful misconduct in the performance
of his duties hereunder; provided, that Employee shall not be in
default hereunder unless (i) he shall have failed to cure such default
or breach within fifteen (15) days of written notice thereof by the
Company to Employee, or (ii) Employee shall have duly received notice
of at least three (3) prior instances of such breach or default
(whether or not cured by Employee).
(d) At the election of the Employee.
A termination For Cause under this Section 7.1 shall be
effective upon the date set forth in a written notice of termination delivered
to Employee.
7.2 TERMINATION WITHOUT CAUSE. This Agreement and the
employment of the Employee may be terminated "Without Cause" as follows:
(a) By mutual agreement of the parties hereto.
(b) At the election of the Company by its giving not less than
sixty (60) days prior written notice to Employee in the event of an
illness or incapacity described in Article 5.1.
(c) Upon the removal of Employee from the office of President
of the Company or in the event the Company fails to afford Employee the
power and authority generally commensurate with the position of
President.
(d) Upon Employee's death.
6
<PAGE> 7
A termination Without Cause under Section 7.2(b) hereof shall
be effective upon the date set forth in a written notice of termination
delivered in accordance with the notice provisions of such sections. A
termination Without Cause under Sections 7.2(a) or (d) shall be automatically
effective upon the date of mutual agreement or the date of death of the
Employee, as the case may be. A termination Without Cause under Section 7.2(c)
shall be automatically effective upon the date such event takes place.
7.3 EFFECT OF TERMINATION FOR CAUSE. If Employee's employment
is terminated "For Cause":
(a) Employee shall be entitled to accrued base salary under
Section 3.1 hereof through the date of termination.
(b) Employee shall be entitled to accrued bonuses under
Section 3.2 hereof through the date of termination.
(c) Employee shall be entitled to reimbursement for expenses
accrued through the date of termination in accordance with the
provisions of Section 4.1 hereof.
(e) All unvested Option Shares under Section 3.3 hereof shall
be forfeited.
(f) Except as provided in Article XI, this Agreement shall
thereupon terminate and cease to be of any further force or effect.
7.4 EFFECT OF TERMINATION WITHOUT CAUSE. If Employee's
employment is terminated "Without Cause":
(a) Employee shall be entitled to the greater of (i) an amount
equal to the annual base salary for the remainder of the term, or (ii)
one year's base salary.
(b) Employee shall be entitled to reimbursement for expenses
accrued through the date of termination in accordance with the
provisions of Section 4.1 hereof.
(c) Employee shall be entitled to receive all amounts of
bonuses under Section 3.2 hereof through the expiration of the Term
hereof, which amounts shall be paid upon termination.
(d) Employee shall be entitled to receive all benefits as
would have been awarded under Section 3.4 hereof through the expiration
of the Term hereof, which benefits shall be awarded as and when the
same would have been awarded under the Agreement had it not been
terminated.
(f) All unvested Option Shares under Section 3.3 hereof shall
immediately vest in full.
7
<PAGE> 8
(g) Except as provided in Article XI, this Agreement shall
thereupon terminate and cease to be of any further force or effect.
7.5 TERMINATION UPON CHANGE OF CONTROL. Upon a "Change of
Control" (as such term is defined in Section 7.5 hereof) of the Company during
the Term hereof, Employee may, at his sole discretion, declare this Agreement
terminated and receive a one-time, lump sum severance payment equal to two and
nine-tenths (2.9) times the total amount of the annual base salary payable under
the terms of Section 3.1 of this Agreement upon the date of such Change of
Control, if within three (3) years of the Change of Control:
(a) Employee's employment hereunder is terminated prior to the
expiration of the Term hereof "Without Cause"; or
(b) Employee elects to terminate his employment with the
Company in the event (i) he is removed from the office of President of
the Company or (ii) the Company fails to afford Employee the power and
authority generally commensurate with the position of President or
(iii) the Company requires Employee to relocate his residence outside
of Ocoee, Florida.
7.6 CHANGE OF CONTROL. For purposes of Section 7.5 of this
Agreement, a Change of Control shall be deemed to have occurred in the event of:
(a) The acquisition by any person or entity, or group thereof
acting in concert, of "beneficial" ownership (as such term is defined
in Securities and Exchange Commission ("SEC") Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) (the "Exchange Act"), of
securities of the Company which, together with securities previously
owned, confer upon such person, entity or group the voting power, on
any matters brought to a vote of shareholders, of thirty percent (30%)
or more of the then outstanding shares of capital stock of the Company;
or
(b) The sale, assignment or transfer of assets of the Company
or any subsidiary or subsidiaries, in a transaction or series of
transactions, if the aggregate consideration received or to be received
by the Company or any such subsidiary in connection with such sale,
assignment or transfer is greater than fifty percent (50%) of the book
value, determined by the Company in accordance with generally accepted
accounting principles, of the Company's assets determined on a
consolidated basis immediately before such transaction or the first of
such transactions; or
(c) The merger, consolidation, share exchange or
reorganization of the Company (or one or more subsidiaries of the
Company) as a result of which the holders of all of the shares of
capital stock of the Company as a group would receive less than fifty
percent (50%) of the voting power of the capital stock or other
interests of the surviving or resulting corporation or entity; or
(d) The adoption of a plan of liquidation or the approval of
the dissolution of the Company; or
8
<PAGE> 9
(e) The commencement (within the meaning of SEC Rule 14d-2
under the Exchange Act) of a tender or exchange offer which, if
successful, would result in a Change of Control of the Company; or
(f) A determination by the Board of Directors of the Company,
in view of then current circumstances or impending events, that a
Change of Control of the Company has occurred or is imminent, which
determination shall be made for the specific purpose of triggering the
operative provisions of this Agreement.
7.7 LIMITATIONS ON CHANGE OF CONTROL COMPENSATION. In the
event that the lump-sum payment payable to Employee under Section 7.5 hereof
("Severance Benefits"), or any other payments or benefits received or to be
received by Employee from the Company (whether payable pursuant to the terms of
this Agreement, or any other plan, agreement or arrangement with the Company or
any corporation affiliated with the Company within the meaning of Section 1504
of the Code, in the opinion of tax counsel selected by the Company acceptable to
Employee, constitute "parachute payments" within the meaning of Section
280G(b)(2) of the Code and the present value of such "parachute payments" equals
or exceeds three times the average of the annual compensation payable to
Employee by the Company (or an Affiliate) and includable in Employee's gross
income for federal income tax purposes for the five (5) calendar years preceding
the year in which a change in ownership or control (as hereinafter defined) of
the Company occurred ("Base Amount"), such Severance Benefits shall be reduced
to an amount the present value of which (when combined with the present value of
any other payments or benefits otherwise received or to be received by Employee
from the Company (or an Affiliate) that are deemed "parachute payments" is equal
to 2.99 times the Base Amount, notwithstanding any other provision to the
contrary in this Agreement. The Severance Benefits shall not be reduced if (i)
Employee shall have effectively waived his receipt or enjoyment of any such
payment or benefit which triggered the applicability of this Section 7.7 or (ii)
in the opinion of such tax counsel, the Severance Benefits (in their full amount
or as partially reduced, as the case may be) plus all other payments or benefits
which constitute "parachute payments" within the meaning of Section 280G(b)(2)
of the Code are reasonable compensation for the services actually rendered,
within the meaning of Section 280G(b)(4) of the Code and such payments are
deductible by the Company. The Base Amount shall include every type and form of
compensation includable in Employee's gross income in respect of his employment
by the Company (or an Affiliate), except to the extent otherwise provided in
temporary or final regulations promulgated under Section 280G(b) of the Code.
For purposes of this Section 7.7, a "change in ownership or control" shall have
the meaning set forth in Section 280G(b) of the Code and any temporary or final
regulations promulgated thereunder. The present value of any non-cash benefit or
any deferred cash payment shall be determined by the Company's independent
auditors in accordance with the principles of Section 280G of the Code.
Employee shall have the right to request that the Company
obtain a ruling from the Internal Revenue Service ("IRS") as to whether any or
all payments or benefits determined by such tax counsel are, in the view of the
IRS, "parachute payments" under Section 280G. If a
9
<PAGE> 10
ruling is sought pursuant to Employee's request, no Severance Benefits payable
under this Agreement in excess of the Section 280G limitations shall be made to
Employee until after fifteen (15) days from the date of such ruling, however,
Severance Benefits shall continue to be paid during the time up to the amount of
that limitation. For purposes of this Section 7.7, Employee and the Company
shall agree to be bound by the IRS's ruling as to whether payments constitute
"parachute payments" under Section 280G. If the IRS declines, for any reason, to
provide the ruling requested, the tax counsel's opinion provided with respect to
what payments or benefits constitute "parachute payments" shall control and the
period during which the Severance Benefits may be deferred shall be extended to
a date fifteen (15) days from the date of the IRS's notice indicating that no
ruling would be forthcoming.
In the event that Section 280G, or any successor statute is
repealed, this Section 7.7 shall cease to be effective on the effective date of
such repeal. The parties to this Agreement recognize that final regulations
under Section 280G of the Code may affect the amounts that may be paid under
this Agreement and agree that, upon issuance of such final regulations, this
Agreement may be modified as in good faith deemed necessary in light of the
provisions of such regulations to achieve the purposes of this Agreement, and
that consent to such modification shall not be unreasonably withheld.
ARTICLE VIII
NON-COMPETITION AND NON-INTERFERENCE
8.1 NON-COMPETITION. Employee agrees that during the Term of
this Agreement and, in the case of a termination "Not For Cause", for a period
of one (1) year thereafter, (and in the case of a termination "For Cause", for a
period of Two (2) years thereafter Employee will not, directly, indirectly, or
as an agent on behalf of or in conjunction with any person, firm, partnership,
corporation or other entity, own, manage, control, join, or participate in the
ownership, management, operation, or control of, or be financially interested in
or advise, lend money to, or be employed by or provide consulting services to,
or be connected in any manner with any person engaged in Business within a 60
mile radius of any area within the United States of America which the Company is
engaging in its Business or has immediate plans to engage in its Business.
8.2 NON-INTERFERENCE. Employee agrees that during the Term of
this Agreement and, in the case of a termination "Not For Cause", for a period
of one (1) year thereafter (and in the case of a termination "For Cause", for a
period of two (2) years thereafter), Employee will not, directly, indirectly or
as an agent on behalf of or in conjunction with any person, firm, partnership,
corporation or other entity, induce or entice any employee of the Company to
leave such employment or cause anyone else to do so.
8.3 SEVERABILITY. If any covenant or provision contained in
Article VIII is determined to be void or unenforceable in whole or in part, it
shall not be deemed to affect or impair the validity of any other covenant or
provision. If, in any arbitral or judicial proceeding, a tribunal shall refuse
to enforce all of the separate covenants deemed included in this Article
10
<PAGE> 11
VIII, then such unenforceable covenants shall be deemed eliminated from the
provisions hereof for the purpose of such proceedings to the extent necessary to
permit the remaining separate covenants to be enforced in such proceedings.
ARTICLE IX
INDEMNIFICATION
9.1. INDEMNIFICATION. The Employer shall to the full extent permitted by law
indemnify, defend and hold harmless Employee from and against any and all
claims, demands, liabilities, damages, losses and expenses (including reasonable
attorney's fees, court costs and disbursements) arising out of the performance
by him of his duties hereunder except in the case of his willful misconduct and
will carry directors and officers' insurance of $10,000,000 with $250,000
deductible.
ARTICLE X
BOARD OF DIRECTORS
10.1 ELECTION AS CHAIRMAN OF THE BOARD. As a condition to
Employee's obligations hereunder, he will be elected to the Company's Board of
Directors. The Company will cause the Employee to be nominated to serve in such
capacities.
ARTICLE XI
MISCELLANEOUS
11.1 NO WAIVERS. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver of any such
provision, nor prevent such party thereafter from enforcing such provision or
any other provision of this Agreement.
11.2 NOTICES. Any notice to be given to the Company and
Employee under the terms of this Agreement may be delivered personally, by
telecopy, telex or other form of written electronic transmission, or by
registered or certified mail, postage prepaid, and shall be addressed as
follows:
IF TO THE COMPANY: 2710 Rew Circle
Suite 100
Ocoee, Florida 34761
IF TO EMPLOYEE: 9668 Woodmont Place
Windermere, Florida 34786
11
<PAGE> 12
Either party may hereafter notify the other in writing of any change in
address. Any notice shall be deemed duly given (i) when personally delivered,
(ii) when telecopied, telexed or transmitted by other form of written electronic
transmission (upon confirmation of receipt) or (iii) on the third day after it
is mailed by registered or certified mail, postage prepaid, as provided herein.
11.3 SEVERABILITY. The provisions of this Agreement are
severable and if any provision of this Agreement shall be held to be invalid or
otherwise unenforceable, in whole or in part, the remainder of the provisions,
or enforceable parts thereof, shall not be affected thereby.
11.4 SUCCESSORS AND ASSIGNS. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company, including the survivor upon any
merger, consolidation, share exchange or combination of the Company with any
other entity. Employee shall not have the right to assign, delegate or otherwise
transfer any duty or obligation to be performed by him hereunder to any person
or entity.
11.5 ENTIRE AGREEMENT. This Agreement supersedes all prior and
contemporaneous agreements and understandings between the parties hereto, oral
or written, and may not be modified or terminated orally. No modification,
termination or attempted waiver shall be valid unless in writing, signed by the
party against whom such modification, termination or waiver is sought to be
enforced. This Agreement was the subject of negotiation by the parties hereto
and their counsel. The parties agree that no prior drafts of this Agreement
shall be admissible as evidence (whether in any arbitration or court of law) in
any proceeding which involves the interpretation of any provisions of this
Agreement.
11.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Florida without
reference to the conflict of law principles thereof.
11.7 SECTION HEADINGS. The section headings contained herein
are for the purposes of convenience only and are not intended to define or limit
the contents of said sections.
11.8 FURTHER ASSURANCES. Each party hereto shall cooperate and
shall take such further action and shall execute and deliver such further
documents as may be reasonably requested by the other party in order to carry
out the provisions and purposes of this Agreement.
11.9 GENDER. Whenever the pronouns "he" or "his" are used
herein they shall also be deemed to mean "he" or "his" or "it" or "its" whenever
applicable. Words in the singular shall be read and construed as though in the
plural and words in the plural shall be read and construed as though in the
singular in all cases where they would so apply.
11.10 COUNTERPARTS. This Agreement may be executed in
counterparts, all of which taken together shall be deemed one original.
12
<PAGE> 13
ARTICLE XII
SURVIVAL
12.1 SURVIVAL. The provisions of Articles VI, VII, VIII, and
X, of this Agreement shall survive the termination of this Agreement.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
Compass Knowledge Holdings, Inc.,
a Florida Corporation,
By:
-----------------------------------------
Title:
----------------------------------
EMPLOYEE
--------------------------------------------
Daniel J. Devine
14
<PAGE> 1
EXHIBIT 10.5
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
COMPASS KNOWLEDGE HOLDINGS, INC.,
a Nevada corporation,
AND
UNIVERSITY OF FLORIDA FOUNDATION, INC.,
a Florida corporation
<PAGE> 2
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is entered into this
______ day of December, 1999 by and between COMPASS KNOWLEDGE HOLDINGS, INC., a
Nevada corporation ("Compass") and UNIVERSITY OF FLORIDA FOUNDATION, INC.,
("UFF").
RECITALS:
In consideration of the mutual covenants and agreements contained in
this Agreement, and intending to be legally bound hereby, Compass and UFF agree
as follows:
ARTICLE I.
PURCHASE AND SALE OF UFF INTEREST
1.1. Purchase and Sale of Shares. Subject to the terms and conditions
of this Agreement, on the Closing Date (as hereinafter defined) UFF shall sell
to Compass and Compass shall purchase from UFF the percentage of ownership
interest, (i.e., 35 percent) which UFF owns in Intelicus, L.C., a Florida
limited liability company (the "Membership Interest").
ARTICLE II.
PURCHASE PRICE - PAYMENT
2.1. PURCHASE PRICE. The purchase price (the "Purchase Price") to be
paid by Compass for the Membership Interest shall be:
(a) Stock. Four hundred and sixty five thousand (465,000)
shares of voting common stock in Compass (the "Acquisition Shares"). Rights to
obtain any additional equity interest in Intelicus by UFFI (i.e., options,
warrants, convertible debentures, etc.) immediately prior to the Acquisition
shall be terminated and thereafter they shall be null and void, AD INITIO.
2.2. DELIVERY AND PRICE OF MEMBERSHIP INTEREST.
(a) On the Closing Date and subject to the terms and
conditions of this Agreement, Compass will deliver the Purchase Price in the
form described in Section 2.1 above and UFF will deliver to Compass, with an
appropriate instrument of conveyance, a certificate representing the Membership
Interest. If the certificate evidencing the Membership Interest has been lost,
stolen or destroyed, UFF will deliver to Compass an indemnity agreement and an
affidavit providing such certificate is lost, stolen or destroyed.
2.5 CLOSING. Consummation of the contemplated transaction (the
"Closing") shall take place in the offices of Compass in Ocoee, Florida on
December____, 1999 or on such other date or at such other time or place as may
be mutually agreed upon in writing by the parties hereto (the "Closing Date").
Notwithstanding the foregoing Closing Date, the parties hereby agree that unless
otherwise agreed in writing the Closing shall be effective on December 1, 1999
(the "Effective Date").
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF UFF
UFF makes the following representations and warranties to Compass, each
of which is true and correct on the date hereof, shall remain true and correct
to and including the Closing Date, shall be unaffected by any investigation
heretofore or hereafter made by Compass, or any knowledge of Compass
1
<PAGE> 3
other than as specifically disclosed in the disclosure schedules delivered to
Compass, and shall survive the Closing of the transactions provided for herein
for a period of twelve (12) months. Notwithstanding anything herein to the
contrary, if Compass, by written notice prior to the expiration of the said
twelve (12) month period, advises UFF of its question, dispute, debate, variance
or contention relative to any specific representation or warranty of UFF such
survival period shall be extended until such time as the matter in question is
resolved.
3.1. MEMBERSHIP INTEREST. UFF is the owner of the Membership Interest.
The Membership Interest is validly issued to UFF, fully paid and nonassessable.
Upon delivery of the Membership Interest, Compass will receive good and
unencumbered title free and clear of all liens, restrictions, charges,
encumbrances, and other security interests of any kind or nature whatsoever.
3.2. CONSENTS. The execution, delivery and performance by UFF with
respect to this Agreement and the consummation by UFF of the transactions
contemplated hereby do not require any consent that has not been received prior
to the date hereof.
3.3. BROKERS. UFF does not have any liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Compass or Intelicus could
become liable or obligated.
3.4. DISCLOSURE. To the best information, knowledge and reasonable
belief of UFF, no representation or warranty by UFF in this Agreement, nor any
statement, certificate, schedule, document or exhibit hereto furnished or to be
furnished by or on behalf of UFF pursuant to this Agreement or in connection
with transactions contemplated hereby, contains or shall contain any untrue
statement of material fact or omits or shall omit a material fact necessary to
make the statements contained therein not materially misleading.
3.5. POWER AND AUTHORITY; DUE AUTHORIZATION. UFF has full capacity,
ability, power and authority to execute and deliver this Agreement and each of
the Closing Documents to which it is or will be a party and to consummate the
Transactions. No corporate proceeding which has not already been taken is
necessary to approve the Transactions. Assuming that this Agreement and each of
the Closing Documents to which Compass is a party constitutes a valid and
binding agreement of Compass, this Agreement and each of the Closing Documents
to which UFF is a party constitutes, or will constitute when executed and
delivered, a valid and binding agreement of UFF in each case enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by applicable bankruptcy, insolvency or other similar laws relating to the
enforcement of creditors' rights generally and by the applicable of general
principles of equity.
3.6 NO VIOLATION. Neither the execution and delivery of this Agreement
or the other documents and instruments to be executed and delivered by UFF in
connection with this Agreement, nor the consummation by UFF of the contemplated
transactions will (i) violate any statute, law or regulation, or any order,
injunction or decree of any court or governmental authority; (ii) require any
authorization, consent, approval, or other action by any court or governmental
agency; or (iii) violate or conflict with, or constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
any contract, understanding or arrangement, to which UFF may be bound, or which
may result in the creation of any lien, charge or encumbrance upon the
Membership Interest.
3.7 LICENSES AND PERMITS. Except as set forth in Schedule 3.11, to the
actual knowledge of UFF (without any investigation on the part of UFF), neither
UFF or Intelicus has received notice of any violations in respect of any
licenses, permits, concessions, grants, franchises, approvals or authorizations
2
<PAGE> 4
necessary or required for the use or (without having made any investigation)
ownership of Intelicus' assets and the operation of its business of which
Compass is not aware. To the actual knowledge of UFF (without having made any
investigation) no proceeding is pending or, to the actual knowledge of UFF,
threatened, which seeks revocation or limitation of any such licenses, permits,
concessions, grants, contracts, franchises, approvals or authorizations.
3.8 LITIGATION. Except as set forth in Schedule 3.12 to the actual
knowledge and reasonable belief of UFF (without having made any investigation),
(i) there are no pending (served) actions, proceedings or regulatory agency
investigations against Intelicus or threatened against Intelicus of which
Compass is not aware, and (ii) no such action, proceeding, or regulatory agency
investigation has been pending (served) during the three-year period preceding
the date of this Agreement for which Compass, its subsidiaries or any of its
officers, directors or employees has or will have any responsibility or will
incur any costs or expenses. No assertion has ever been made to UFF, of which
Compass is not aware, to the effect that Compass, any of its subsidiaries or any
of its officers, directors or employees has or will have any liability as to a
third party claim, and UFF has no knowledge of any basis for such an assertion.
3.10 SECURITIES REPRESENTATIONS. UFF hereby represents and warrants to
Compass as follows, recognizing that the information contained herein is being
furnished to Compass in order to induce Compass to enter into the Transactions.
UFF understands that (a) Compass will rely on the information contained herein,
(b) the Acquisition Shares will not be registered under the Act in reliance upon
exemptions from registration afforded under the Act, which may include
Regulation D promulgated thereunder ("Regulation D"), and (c) except as
otherwise provided in the Registration Rights Agreement (as set forth in Section
6.8), the Acquisition Shares will not be registered and/or otherwise qualified
under any state securities laws.
A. UFF is willing and able to bear the economic risk of an
investment in the Acquisition Shares. UFF has adequate means of providing for
current needs and contingencies, has no need for liquidity in the investment,
and is able to bear the economic risk of an investment in Compass of the size
contemplated. In making this statement, UFF considered whether UFF could afford
to hold the Acquisition Shares for an indefinite period and whether, at this
time, UFF could afford a complete loss of an investment in the Acquisition
Shares.
B. UFF's purchase of the Acquisition Shares will be solely for
UFF's own account and not for the account of any other person.
C. The Acquisition Shares are being acquired by UFF in good
faith for investment and not without a view to distributing such Acquisition
Shares to others or otherwise reselling said Acquisition Shares or any portion
thereof. UFF understands that the substance of the above representations is (i)
that UFF does not presently intend to sell or otherwise dispose of all or any
part of the Acquisition Shares; (ii) that UFF does not now have in mind the sale
or other disposition of all or any part of the Acquisition Shares on the
occurrence or nonoccurrence of any predetermined event; and (iii) that Compass
is relying upon the truth and accuracy of the representations.
D. UFF understands that the purchase of the Acquisition Shares
is subject to risks as stated in the Due Diligence Materials (as hereinafter
defined) or as otherwise may be applicable to similar investments.
E. UFF has reviewed the Due Diligence Materials and has
engaged in an independent investigation of Compass, and no oral or written
representations beyond those representations set forth herein or in the Due
Diligence Materials have been made to or been relied upon by UFF.
3
<PAGE> 5
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF COMPASS
Compass hereby makes the following representations and warranties to
UFF, each of which Compass represents to be true and correct on the date hereof,
shall remain true and correct to and including the Effective Date, shall be
unaffected by any investigation heretofore or hereafter made by UFF, or any
knowledge of UFF other than as specifically disclosed in the disclosure
schedules delivered to UFF, and shall survive the Closing of the transactions
provided for herein for a period of twelve (12) months. Notwithstanding anything
herein to the contrary, if UFF, by written notice prior to the expiration of the
said twelve (12) month period, advises Compass of any question, dispute, debate,
variance or contention relative to any specific representation or warranty of
Compass such survival period shall be extended until such time as the matter in
question is resolved.
4.1. ORGANIZATION. Compass is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and is not
required to be qualified or licensed as a foreign corporation in any other
jurisdiction in which it has not done so already. Compass has the full power and
authority to own all its assets and to conduct its business as and where its
business is presently conducted.
4.2. AUTHORITY AND APPROVAL OF AGREEMENT.
(a) The execution and delivery of this Agreement by Compass
and the performance of all Compass's obligations hereunder have been duly
authorized and approved by all requisite corporate action on the part of Compass
pursuant to applicable law. Compass has the power and authority to execute and
deliver this Agreement and to perform all its obligations hereunder.
(b) This Agreement and each of the other documents,
instruments and agreements executed by Compass in connection herewith constitute
the valid and legally binding agreements of Compass, enforceable against Compass
in accordance with their terms, except that: (i) enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
of general application affecting the enforcement of the rights and remedies of
creditors; and (ii) the availability of equitable remedies as may be limited by
equitable principles.
4.3. NO VIOLATIONS. Neither the execution, delivery or performance of
this Agreement or any other documents, instruments or agreements executed by the
Compass in connection herewith, nor the consummation of the transactions
contemplated hereby: (a) constitutes a violation of or default under (either
immediately, upon notice or upon lapse of time) the Articles of Incorporation or
Bylaws of Compass, any provision of any contract to which Compass or its assets
may be bound, any judgment to which Compass is bound or any law applicable to
Compass; or (b) results in the creation or imposition of any encumbrance upon,
or give any third person any interest in or right to, any or all of the
Acquisition Shares or any of the assets of Compass; or (c) results in the loss
or adverse modification of, or the imposition of any fine or penalty with
respect to, any license, permit or franchise granted or issued to, or otherwise
held by or for the use of, Compass. Compass and its shareholders have received
all necessary consents from Pioneer Venture Associates Limited Partnership and
its affiliates to the issuance and transfer to UFF of the Acquisition Shares.
4.4. CONSENTS. The execution, delivery and performance by Compass of
this Agreement and the consummation by Compass of the transactions contemplated
hereby do not require any consent that has not been received prior to the date
hereof.
4
<PAGE> 6
4.5. BROKERS. Compass has no liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which the UFF or the Company could become
liable or obligated.
4.6 OTHER REPRESENTATIONS AND WARRANTIES. (a) Compass has delivered to
UFF a true and complete copy of its (i) audited financial statements for the
fiscal years ended December 31, 1998 and 1997, and unaudited interim financial
statements for the period ended October 31, 1999 (the "Compass Financial
Statements"). The Compass Financial Statements are complete, accurate and fairly
present the financial condition of Compass as of the dates thereof and the
results of its operations for the periods then ended. There are no material
liabilities or obligations either fixed or contingent not reflected therein. The
Compass Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as may be
indicated therein or in the notes thereto) and fairly present the financial
position of Compass as of the dates thereof and the results of its operations
and changes in financial position for the periods then ended.
(b) Since October 31, 1999, there have not been any material
adverse changes in the financial condition of Compass.
(c) Neither Compass nor any Compass subsidiary (hereinafter a
"Compass Sub") is a party to or the subject of any pending litigation, claims,
or governmental investigation or proceeding not reflected in the Compass
Financial Statements or otherwise disclosed herein, and there are no lawsuits,
claims, assessments, investigations, or similar matters, to the best knowledge
of Compass, threatened or contemplated against or affecting a Compass Sub,
Compass, its management or its properties.
(d) Compass and each Compass Sub have filed all federal,
state, county and local income, excise, property and other tax, governmental
and/or related returns, forms, or reports, which are due or required to be filed
by it prior to the date hereof and have paid or made adequate provision in the
Compass Financial Statements for the payment of all taxes, fees, or assessments
which have or may become due pursuant to such returns or pursuant to any
assessments received. Neither Compass nor any Compass Sub is delinquent or
obligated for any tax, penalty, interest, delinquency or charge.
(e) Compass's authorized capital stock presently consists of:
(i) 50,000,000 shares of Common Stock, $.001 par value, of which 14,750,000
(500,000 of which have been reserved for UFF) shares are presently issued and
outstanding and 5,000 shares of Series A preferred stock, $.001 par value, of
which 2,000 shares are issued and outstanding. All outstanding shares of capital
stock of Compass and Compass Sub are, or shall be at Closing, validly issued,
fully paid and nonassessable. Other than as set forth in the Certificate of
Designation for the Series A Preferred Stock and described in Schedule 4.6(e),
there are no existing options, calls, warrants, preemptive rights, registration
rights or commitments of any character relating to the issued or unissued
capital stock or other securities of either Compass or Compass Sub.
(f) Compass has (and at the Closing will have) disclosed in
writing all events, conditions and facts materially affecting the business,
financial conditions or results of operations of either Compass or a Compass
Sub.
(g) The corporate financial records, minute books, an
Information Statement dated November 1, 1999, a Private Placement Memorandum
dated November 1, 1999, the Investment Agreement together with all exhibits
entered into with Pioneer Venture Associates Limited Partnership dated November
5, 1999, the Agreement and Plan of Merger by and between Compass and Compass
Knowledge Group, Inc. dated November 18, 1999 together with all exhibits and
schedules and other documents and records of
5
<PAGE> 7
Compass and Compass Sub (the "Due Diligence Materials") have been made available
to UFF prior to the Closing and to the best knowledge of Compass, all
information contained therein is accurate.
(h) Neither Compass nor a Compass Sub has breached, nor is
there any pending, or to the knowledge of management, any threatened claim that
Compass has breached, any of the terms or conditions of any agreements,
contracts or commitments to which it is a party or by which it or its properties
is bound. The execution and performance hereof will not violate any provisions
of applicable law or any agreement to which Compass is subject. Compass hereby
represents that it is not a party to any material contract or commitment other
than as described herein, disclosed in the Due Diligence Materials or reflected
in the appointment documents with its transfer agent, and that it has disclosed
to UFF all material relationships or dealings with related parties or
affiliates.
(i) To the best of its knowledge, Compass has complied with
applicable provisions of the Securities Act of 1933 and all applicable blue sky
laws. There are no outstanding, pending or threatened stop orders or other
actions or investigations relating thereto.
(j) To the best knowledge of Compass, all information
regarding Compass which has been provided to UFF by Compass or set forth in any
document disseminated to the public or filed with the NASD or the Securities and
Exchange Commission is true, complete and accurate in all material respects.
4.7. FULL DISCLOSURE. To the best knowledge of Compass, no
representation or warranty by Compass in this Agreement or in any of the Due
Diligence Materials, nor any statement, certificate, schedule, document or
exhibit hereto furnished or to be furnished by or on behalf of Compass pursuant
to this Agreement or in connection with transactions contemplated hereby,
contains or shall contain any untrue statement of material fact or omits or
shall omit a material fact necessary to make the statements contained therein
not materially misleading. It is further acknowledged that Compass has available
to it information with respect to Intelicus and except as otherwise set forth
herein, Compass has not relied on any representations by UFF regarding
Intelicus.
4.8. BOARD SEAT. Prior to or concurrently with the Closing, one (1)
nominee of UFF, which shall initially be Robert Frank, Dean of the College of
Health Professionals, shall be elected a director of Compass for a one (1) -year
term. So long as UFF shall own at least 1% of Compass's issued and outstanding
stock, as calculated on a fully diluted basis, Compass shall nominate and
include in the list of candidates for directors recommended by the Board of
Directors, and use its reasonable best efforts to have elected one nominee of
UFF. In furtherance of the foregoing, Rogers W. Kirven, Jr. and Daniel Devine,
or any trusts, or other entities or affiliates (collectively "Principal
Shareholders") holding the voting rights to their shares, shall vote their
shares in a manner to satisfy the provisions of this Section. Should a UFF
nominee decline to be nominated as elected, any UFF designee shall have the
right to attend any and all meetings of the board of directors of Compass, and
Compass shall be required to deliver notice of any such meetings to UFF and such
designee as if such designee were a director.
4.9. ACCESS. Subject to the execution of an appropriate confidentiality
agreement, for so long as UFF owns one (1%) percent or more of Compass's common
stock on a fully diluted basis, Compass shall afford to the officers, attorneys,
accountants and other authorized representatives of UFF and/or its assigns free
and full access, during regular business hours and upon prior reasonable written
notice, to the books, records, personnel, accountants, attorneys, and properties
of Compass so that UFF may have full opportunity to make such review,
examination and investigation as it may desire of the business and affairs of
Compass. Compass will cause its employees, accountants, and attorneys to
cooperate fully with said review, examination and investigation and subject to
the execution of an appropriate confidentiality agreement, shall make full
disclosure to UFF of all material facts affecting its financial condition and
6
<PAGE> 8
business operation. Nothing herein shall limit the rights of UFF and/or its
assigns which are available under or granted by applicable statutes with respect
to access, review, examination and investigations.
4.10 BOOKS OF RECORD AND ACCOUNT. (a) Compass shall maintain at all
times proper books of record and account in accordance with generally accepted
accounting principles ("GAAP"), consistently applied. For so long as UFF owns
one (1%) percent or more of Compass' common stock, as calculated on a fully
diluted basis, Compass will permit, subject to the execution of an appropriate
confidentiality agreement, any of UFF's officers or any of their authorized
representatives or accountants to visit, upon prior reasonable written notice,
and inspect offices and properties, examine its books of account and other
records, and discuss its affairs, finances and accounts with its appropriate
officers, accountants and auditors, all at such reasonable times and reasonable
frequency as UFF may request. (b) In addition, UFF shall be provided with copies
of quarterly and annual financial statements no later than 45 days after the end
of each fiscal quarter and 120 days after the end of each fiscal year. The
financial statements shall consist of balance sheets, statements of operations,
statements of cash flows, statements of changes in stockholders equity and notes
thereto all prepared in accordance with GAAP. The annual financial statements
shall be audited in accordance with GAAP by an accounting firm.
ARTICLE V.
INTERPRETATION; SURVIVAL OF
REPRESENTATIONS AND WARRANTIES; AND INDEMNIFICATION
5.1. INTERPRETATION. Except where indicated otherwise, each warranty
and representation made by a party in this Agreement or pursuant hereto is
independent of all other warranties and representations made by the same party
in this Agreement or pursuant hereto (whether or not covering identical, related
or similar matters) and must be independently and separately satisfied. Except
where indicated otherwise, exceptions or qualifications to any such warranty or
representation shall not be construed as exceptions or qualification to any
other warranty or representation.
5.2. SURVIVAL. All representations and warranties made in this
Agreement or pursuant hereto shall survive the date hereof and the Closing for a
period of twelve (12) months as set forth herein. Notwithstanding anything
herein to the contrary, if an indemnitee under this Agreement, by written notice
prior to the expiration of the said twelve (12) month period, advises an
indemnitor of its question, dispute, debate, variance or contention relative to
any specific representation warranty or other matter which is subject to the
indemnity provisions of this Section, such survival period shall be extended
until such time as the matter in question is resolved.
5.3. INDEMNIFICATION.
(a) By UFF. UFF hereby agrees to indemnify, defend and hold
harmless Compass, and its directors, officers, employees and controlled and
controlling persons (hereinafter "Compass's affiliates"), from and against all
Claims (as hereinafter defined) asserted against, resulting to, imposed upon, or
incurred by Compass, Compass's affiliates, their businesses or their assets,
directly or indirectly, by reason of, arising out of or resulting from (x) the
inaccuracy or breach of any representation or warranty of UFF contained in or
made pursuant to this Agreement; and (y) the breach of any covenant of UFF
contained in this Agreement. As used in this section, the term "Claim" shall
include (i) all liabilities; (ii) all losses, damages, judgments, awards,
settlements, reasonable costs and expenses (including, without limitation,
interest including prejudgment interest in any litigated matter), penalties,
court costs and reasonable attorneys fees and expenses); and (iii) all demands,
claims, actions, costs of investigation, causes of action, proceedings and
assessments ultimately determined to be valid.
7
<PAGE> 9
(b) By Compass. Compass hereby agrees to indemnify, defend and
hold harmless UFF and its directors, officers, employees and controlled and
controlling persons (hereinafter "UFF's affiliates") from and against all Claims
asserted against, resulting to, imposed upon or incurred by any such person,
directly or indirectly, by reason of or resulting from (x) the inaccuracy or
breach of any representation or warranty of Compass contained in or made
pursuant to this Agreement; and (y) the breach of any covenant of Compass
contained in this Agreement.
(c) Materiality. The parties recognize that many of the
representations, warranties and covenants set forth in this Agreement are
qualified by the term "material". For purposes of this Agreement, the parties
hereby agree that a "material" event(s) has occurred if the impact of such
event(s) has resulted or is reasonably likely to result in costs, expenses
and/or damages for any event(s) singularly or in the aggregate in excess of
Fifty Thousand Dollars ($50,000.00)
5.4. LIMITATION. The parties agree that the indemnification provisions
set forth in this Article shall be limited to all Claims in excess of Fifty
Thousand Dollars ($50,000.00) (the "Threshold"). Once a Claim exceeds the
Threshold, if a party is entitled to indemnification under Section 5.3, such
party shall recover all appropriate funds, as provided in Section 5.3, with no
reduction for the Threshold amount. Further, the indemnitors shall not be liable
for any liabilities resulting from Claims that are covered by any insurance
policy or other indemnity or contribution agreement unless, and only to the
extent that, the full limit of such insurance policy, indemnity or contribution
agreement has been exceeded.
ARTICLE VI.
OTHER COVENANTS
6.1. OTHER ACTION. Compass and UFF shall use all reasonable efforts to
cause the fulfillment at the earliest practicable date of all of the conditions
to the parties' obligations to consummate the transactions contemplated in this
Agreement.
6.2 DISCLOSURE SCHEDULE. Compass and UFF shall have a continuing
obligation up and until Closing to promptly notify each other in writing with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the disclosure schedules, but no such disclosure shall cure any
breach of any representation or warranty which is inaccurate.
6.3 CONDUCT OF BUSINESS PENDING ACQUISITION. Compass and UFF covenant
and agree that, except as otherwise set forth in this Agreement, between the
date of this Agreement and the Closing, the business of Intelicus shall be
conducted only in, and neither party shall take any action except in the
ordinary course of business and in a manner consistent with past practice; and
Compass and UFF will use their best efforts to preserve intact Intelicus'
business organization, to keep available the services of its present officers,
employees and consultants and to preserve its present relationships with
customers, suppliers and other persons with which they have significant business
relations.
6.4 EXPENSES. All of the expenses incurred by UFF in connection with
authorization, preparation, execution and performance of this Agreement and
other agreements referred to in this Agreement, including, without limitation,
all fees and expenses of agents, representatives, brokers, counsel and
accountants for UFF, shall be paid by UFF, and all of the expenses incurred by
Compass in connection with the authorization, preparation, execution and
performance of this Agreement and other agreements referred to in this
Agreement, including without limitation, all reasonable fees and expenses of
advisors, agents, representatives, brokers, counsel and accountants, shall be
paid by Compass.
8
<PAGE> 10
6.5 NOTIFICATION OF CERTAIN MATTERS.
(a) Compass shall give prompt written notice to UFF of the
following:
(i) the occurrence or nonoccurrence of any event
whose occurrence or nonoccurrence would be reasonably likely to cause either (A)
any representation or warranty of Compass contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Closing (assuming that each representation and warranty was re-affirmed as
of each day between the date hereof and the Closing Date, inclusive), or (B)
directly or indirectly, any Material Adverse Effect (as defined below); or
(ii) any material failure of Compass or any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder.
(b) UFF shall give prompt written notice to Compass of the
following:
(i) the occurrence or nonoccurrence of any event
whose occurrence or nonoccurrence would be reasonably likely to cause either (A)
any representation or warranty of UFF contained in this Agreement to be untrue
or inaccurate in any material respect at any time from the date hereof to the
Closing (assuming that each representation and warranty was re-affirmed as of
each day between the date hereof and the Closing Date, inclusive); or (B)
directly or indirectly, any Material Adverse Effect;
(ii) any material failure of UFF or any employee or
agent thereof to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder.
(c) In the event that either Compass or UFF is required to
deliver a written notice pursuant to subsection (a) or (b) above, respectively,
such party shall, immediately after delivery of such notice, deliver to the
other party a revised Schedule updating such representation or warranty. The
receiving party shall review the Schedule and within twenty-four (24) hours
after its receipt elect to either (i) approve the Schedule for attachment to
this Agreement and treat such Schedule as if it had been delivered and attached
to this Agreement as of the Schedule Delivery Date, or (ii) treat such Schedule
and the events giving rise to such Schedule as a breach of such related
representation or warranty in accordance with the terms of this Agreement;
provided, however, that any events which are permitted to occur between the date
hereof and the Closing, pursuant to the terms of this Agreement, shall in no
event be treated as a breach of a representation or warranty hereunder.
(d) Notwithstanding the foregoing, the delivery of any notice
pursuant to this Section shall not waive or release Compass or UFF, as the case
may be, from its representations, warranties, covenants or agreements under this
Agreement, except as they may be modified and approved in accordance with this
Agreement.
(e) Material Adverse Effect" shall mean a material adverse
effect on the financial condition, business, earnings, results of operations,
assets, liabilities of, Intelicus, Compass and/or UFF, as the case may be, or
the transactions contemplated by this Agreement.
9
<PAGE> 11
6.6 PUBLIC ANNOUNCEMENTS.
(a) Except for and to the extent of any public announcement or
disclosures relating to the Transactions as may be required by law, as permitted
by Compass or UFF pursuant to Section 11.12 hereof or as provided in this
Section 6.6, Compass and UFF agree that until the consummation of the
Transactions or the termination of this Agreement, as the case may be, each
party will not, and will direct its directors, officers, employees,
representatives and agents who have knowledge of the Transaction not to,
disclose to any Person who is not a participant in discussions concerning the
Transactions (other than Persons whose consent is required to be obtained
hereunder), any of the terms, conditions or other facts with respect to the
Transactions, except as may be required by law or court order.
(b) This Section 6.6 shall not restrict either Compass or UFF
in any actions by such parties which are necessary or appropriate to enforce
their respective rights under this Agreement.
6.7 CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. Subject to compliance
with applicable law, UFF and Compass will (a) cooperate with one another (i) in
promptly determining whether any filings are required to be made or consents,
approvals, permits or authorizations are required to be obtained under any
federal, state or foreign law or regulation and (ii) in promptly making any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such consents, approvals, permits or authorization and (b)
provide one another with copies of all filings made by such party with any
governmental authority in connection with this Agreement.
6.8 REGISTRATION RIGHTS. At the Closing the parties will enter into a
Registration Rights Agreement in the form attached hereto as Schedule 6.8 with
respect to the registration on Form S-3 or other appropriate form (the
"Registration Statement") of 425,000 of the Acquisition Shares issued and
delivered to UFF in connection with this Agreement.
ARTICLE VII.
CONDITIONS PRECEDENT TO UFF'S OBLIGATIONS
Notwithstanding the execution and delivery of this Agreement or the
performance of any part hereof, UFF's obligations to consummate the transaction
contemplated by this Agreement shall be subject to the satisfaction of each of
the conditions set forth in this Article VII, except to the extent that such
satisfaction is waived in writing by UFF.
7.1. REPRESENTATIONS AND WARRANTIES OF COMPASS. All representations and
warranties made by Compass in this Agreement and the Schedules hereto shall be
true and correct in all material respects on the date hereof, and shall be true
and correct in all material respects at the time of the Effective Date as though
such representations were again made, without exception or deviation, at the
time of the Effective Date.
7.2. PERFORMANCE OF THIS AGREEMENT. Compass shall have duly performed
or complied with all the obligations under this Agreement to be performed or
complied with by Compass on or prior to the Closing Date.
ARTICLE VIII.
CONDITIONS PRECEDENT TO COMPASS OBLIGATIONS
Notwithstanding the execution and delivery of this Agreement or the
performance of any part hereof, Compass's obligations to consummate the
transaction contemplated by this Agreement shall be
10
<PAGE> 12
subject to the satisfaction of each of the conditions set forth in this Article
VIII, except to the extent that such satisfaction is waived by Compass in
writing.
8.1. REPRESENTATIONS AND WARRANTIES OF UFF. All representations and
warranties made by UFF contained in this Agreement and the disclosure schedules
hereto shall be true and correct in all material respects on the date hereof,
and shall be true and correct in all material respects at the time of the
Effective Date as though such representations were again made, without exception
or deviation, at the time of the Effective Date.
8.2. PERFORMANCE OF THIS AGREEMENT. UFF shall have duly performed or
complied with all the obligations under this Agreement to be performed or
complied with by UFF on or prior to the Closing Date.
8.3 CONTRACT EXTENSIONS. The amendment of those certain contracts with
the University of Florida, College of Pharmacy as set forth in Schedule 8.3
extending the terms of said contracts to rolling five (5) year terms shall be
consummated and closed prior to or contemporaneous with the closing of the
transactions contemplated by this Agreement.
ARTICLE IX.
OBLIGATIONS AT CLOSING
9.1. OBLIGATIONS OF COMPASS TO UFF AT CLOSING. Compass hereby covenants
and agrees to deliver or cause to be delivered to UFF, on the Closing Date or,
if agreed, as soon thereafter as is reasonably possible the following:
(a) The fully paid, non-assessable stock certificates
evidencing the Acquisition Shares as provided in Section 2.1;
(b) A certification by Compass's president that Compass is
authorized to execute, deliver and perform this Agreement and consummate the
transactions contemplated hereby;
(c) The Registration Rights Agreement; and
(d) Such other documents and instruments as UFF may reasonably
request in order to effectuate the terms of this Agreement.
9.2. OBLIGATIONS OF UFF TO COMPASS AT CLOSING. UFF hereby covenant and
agree to deliver or cause to be delivered to Compass on or before the Closing
Date or, if agreed, as soon thereafter as is reasonably possible the following:
(a) Duly executed certificates representing the Membership
Interest, free and clear of all encumbrances together with any documentary
stamps required in connection with such transfer and such other appropriate
documents and instruments of transfer as Compass may reasonably request;
(b) A certification by an officer of UFF that UFF is
authorized to execute, deliver and perform this Agreement and consummate the
transactions contemplated hereby;
(c) The Registration Rights Agreement; and
11
<PAGE> 13
(d) Such other documents and instruments as Compass may
reasonably request in order to effectuate the terms of this Agreement.
ARTICLE X.
TERMINATION
10.1. TERMINATION PRIOR TO CLOSING DATE. If, prior to the Closing Date:
(a) A party hereto shall materially breach or default in the
full and timely performance and satisfaction of any of its representations and
warranties or obligations under this Agreement, and such breach or default is
not cured on or before the fifth (5th) day (or such reasonably longer period if
five (5) days is an unreasonable period to cure such breach or default) after
the date notice is given by the non-defaulting party to the defaulting party
specifying the nature of such breach or default, then the non-defaulting party
may terminate this Agreement at anytime following the period for curing such
breach or default. The Closing Date will be extended for such reasonable period
necessary to allow the defaulting party to cure the breach or default.
(b) If any of the conditions set forth in Article VII and
Article VIII hereof are not satisfied on or before December_____, 1999 then
Compass or UFF may terminate this Agreement by notifying all parties in writing
of its/his election to terminate this Agreement. The Closing Date will be
extended for such reasonable period necessary to allow for the satisfaction of
such conditions.
ARTICLE XI.
MISCELLANEOUS
11.1. NOTICES. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given if the same shall be in
writing and shall be delivered personally or sent by registered or certified
mail, postage prepaid, or by overnight mail, and addressed as set forth below:
If to UFF: University of Florida Foundation, Inc.
The University of Florida
Post Office Box 100185
Gainesville, Florida 32610
With a copy to: M. Richard Lewis, Jr., Esq.
Smith Hulsey & Busey
1800 First Union Bank Tower
225 Water Street
Jacksonville, FL 32202
If to Compass: Compass Knowledge Holdings, Inc.
2710 Rew Circle
Suite 100
Ocoee, FL 34761
11.2. ENTIRE AGREEMENT. This Agreement, including the disclosure
schedules attached hereto and the documents delivered pursuant hereto, sets
forth all the promises, covenants, agreements,
12
<PAGE> 14
conditions and understandings among the parties hereto with respect to the
subject matter hereof, and supersedes all prior and contemporaneous agreements,
understandings, inducements or conditions, expressed or implied, oral or
written, except as herein contained. No changes of or modifications or additions
to this Agreement shall be valid unless same shall be in writing and signed by
the parties hereto.
11.3. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
the parties hereto, their beneficiaries, heirs and administrators. No party may
assign or transfer its interests herein, or delegate its duties hereunder,
without the written consent of the other parties.
11.4. AMENDMENT. The parties hereby irrevocably agree that no attempted
amendment, modification or change (collectively, "Amendment") of this Agreement
shall be valid and effective, unless the parties shall unanimously agree in
writing to such Amendment.
11.5. NO WAIVER. No waiver of any provision of this Agreement shall be
effective unless it is in writing and signed by the party against whom it is
asserted, and any such written waiver shall only be applicable to the specific
instance to which it relates and shall not be deemed to be a continuing or
future waiver.
11.6. GENDER AND USE OF SINGULAR AND PLURAL. All pronouns shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the party or parties or their personal representatives, successors
and assigns may require.
11.7. COUNTERPARTS. This Agreement and any amendments may be executed
in one or more counterparts, each of which shall be deemed an original and all
of which together shall constitute one and the same instrument.
11.8. HEADINGS. The article and section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of the Agreement.
11.9. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Florida, and any litigation pertaining or related
to this Agreement shall, to the extent permitted by law, be held in Alachua
County, Florida.
11.10. FURTHER ASSURANCES. The parties hereto shall execute and deliver
such further instruments and do such further acts and things as may be
reasonably required to carry out the intent and purposes of this Agreement.
11.11. LITIGATION. If any party hereto is required to engage in
litigation or arbitration against any other party hereto, either as plaintiff or
as defendant, in order to enforce or defend any of its or his rights under this
Agreement, and such litigation results in a final judgment in favor of such
party (the "Prevailing Party"), then the party or parties against whom said
final judgment is obtained shall reimburse the Prevailing Party for all direct,
indirect or incidental expenses incurred by the Prevailing Party in so enforcing
or defending its or his rights hereunder, including, but not limited to, all
attorneys' fees, paralegal' fees, court costs and other expenses incurred
throughout all negotiations, trials or appeals undertaken in order to enforce
the Prevailing Party's rights hereunder.
11.12. CONFIDENTIALITY. Except for discussions of the transactions
contemplated by this Agreement among the parties hereto and their
representatives and counsel participating in this transaction, and except as may
required of Compass or UFF pursuant to federal securities laws or applicable
state Public Records or Sunshine Laws, each party hereto shall, unless all other
parties hereto shall otherwise
13
<PAGE> 15
agree, keep confidential and not, directly or indirectly, disclose to any person
the existence of this Agreement, the transaction contemplated by this Agreement
or any of the terms thereof, and each party hereto shall use its good faith
efforts to cause its employees, agents, officers, directors and representatives
to abide by the foregoing restrictions on disclosure.
ARTICLE XII.
PROTECTION OF MARKS
As additional consideration for the Membership Interest, Compass
hereby agrees that it shall not use the name, symbols, logos, trademarks or
other representations of the University of Florida (the "University") or its
athletic teams on advertisements, promotional materials, correspondence, or
other written documents or materials distributed or made available to the public
without the express written consent of the University. All such materials shall
be presented to a designated representative of the University for approval in
advance of publication. In the case of promotional materials for Intelicus
certificate programs, the following standards shall be followed by the
University in reviewing such materials for approval:
1. The UF logo shall not compromise more than 25 percent of the
page on which it appears:
2. The name INTELICUS will be prominently displayed to indicate
its sponsorship of the program; and
3. The Intelicus/University of Florida Foundation relationship
will be described as an affiliation rather than a partnership
in the Intelicus logo and mark.
14
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year set forth above.
WITNESSES: COMPASS KNOWLEDGE HOLDINGS, INC.
By:
-----------------------------------
Print name: Rogers W. Kirven, Jr., CEO
UNIVERSITY OF FLORIDA FOUNDATION, INC.
By:
- ----------------------------------- -----------------------------------
Print name:
The undersigned hereby execute this Agreement for the sole purpose of
agreeing to be bound by the provisions of Section 4.8 of this Agreement.
- ----------------------------------- -----------------------------------
Print name: Rogers W. Kirven, Jr.
- ----------------------------------- -----------------------------------
Print name: Daniel Devine
15
<PAGE> 1
13
EXHIBIT 10.6
REGISTRATION RIGHTS AGREEMENT
FOR
UNIVERSITY OF FLORIDA FOUNDATION, INC.
Dated as of December ___, 1999
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of December ___, 1999, (this
"Agreement"), between Compass Knowledge Holdings, Inc., a Florida corporation
(the "Company") and University of Florida Foundation, Inc., a Florida not for
profit corporation ("UFF").
WHEREAS, the Company and UFF have entered into Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement'),
pursuant to which UFF will acquire 465,000 shares of the common stock, par value
$.001 per share, of the Company; and
WHEREAS, it is a condition precedent to consummation of the Agreement
that the Company provide certain registration rights to UFF with respect to
425,000 of such shares (hereinafter the "Securities").
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS
SECTION 1.1 Definitions. The following terms shall have the meanings
ascribed to them below:
"Agreement" means this Agreement, as amended, modified or supplemented
from time to time and all attachments hereto.
"Business Day" means any day that is not a Saturday, Sunday or a day on
which banking institutions in New York, New York are authorized or obligated by
law, executive order or government decree to be closed.
"UFF" has the meaning ascribed thereto in the introduction hereof.
"Commission" means the United States Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Controlling Person" has the meaning ascribed thereto in Section 4.1.
"Compulsory Registration" has the meaning ascribed thereto in Section
2.1(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Holder' means any Person who now holds or shall hereafter acquire and
hold Registrable Securities.
"Indemnified Party" means an Indemnified Party as defined in Section
4.3.
1
<PAGE> 3
"Indemnifying Party" means an Indemnifying Party as defined in Section
4.3
"Person" means any individual, entity or group, including without
limitation, any corporation, limited liability company, limited or general
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"Piggy-Back Registration" has the meaning ascribed thereto in Section
2.1(a).
"Prospectus" means the prospectus included in any Registration
Statement (including without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the securities covered by such Registration
Statement, and all other amendments and supplements to the prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such prospectus.
"Registrable Securities" means (i) the Securities as defined in the
introductory portion of this Agreement, and (ii) any other shares of the
Securities acquired as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events relating to the shares
described in clause (i) above, in each case until such time as (x) a
Registration Statement covering such shares of the Securities has been declared
effective by the Commission and such Securities have been disposed of pursuant
to such effective Registration Statement, or (y) such Securities would be
eligible for sale pursuant to Rule 144 under the Securities Act (or any similar
provisions then in force), with regard to the volume limitations set forth in
Rule 144(e), or (z) such Securities have been otherwise transferred and the
Company has delivered a new certificate or other evidence of ownership for such
Securities not bearing a restrictive legend and not subject to any stop transfer
or similar restrictive order and all of such Securities may be resold by the
Person receiving such certificate without complying with the registration
requirements of the Securities Act.
"Registration Statement" means any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such registration
statement.
"Securities" has the meaning ascribed thereto in the introduction
hereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Selling Holder' means a Holder who is or may be selling Registrable
Securities pursuant to a Registration Statement under the Securities Act.
"Selling Holders Counsel" means the counsel selected to represent the
Selling Holders as set forth in Section 3.1(c).
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
2
<PAGE> 4
"Underwriter's Cutback" shall mean a reduction in the number of
Registrable Securities to be included in any underwritten offering as the result
of receipt of written notice from the representative of the Underwriters to the
effect that adverse marketing factors require a limitation on the number of
Registrable Securities to be underwritten.
ARTICLE 2.
REGISTRATION RIGHTS
SECTION 2.1. (a) Piggy-Back Registration. If at any time the Company
proposes to file a Registration Statement under the Securities Act with respect
to an offering by the Company for its own account or for the account of any of
its security holders other than (x) a Registration Statement on Form S-4 or Form
S-8 (or any substitute form that may be adopted by the Commission) or on any
other form inappropriate for an underwritten public offering or related solely
to securities to be issued in a merger, acquisition of the stock or assets of
another entity or in a similar transaction or (y) a Registration Statement
pursuant to a Compulsory Registration in accordance with Section 2.1(b) below,
then the Company shall give written notice of such proposed filing to the
Holders as soon as practicable (but in no event less than 30 days before the
anticipated filing date), and such notice shall offer such Holders the
opportunity to register such number of Registrable Securities as each such
Holder may request (which request shall specify the number of shares and the
type of Registrable Securities intended to be disposed of by such Holder and
shall also state the firm intent of the Holder to offer Registrable Securities
for sale) (a "Piggy-Back Registration"). The Company shall use its reasonable
best efforts to cause the managing Underwriter or Underwriters of a proposed
underwritten offering to permit the Registrable Securities requested to be
included in a Piggy-Back Registration on the same terms and conditions as any
similar securities of the Company or any other security holder included therein
and to permit the sale or other disposition of such Registrable Securities in
accordance with the intended method of distribution thereof. Any Holder shall
have the right to withdraw its request for inclusion of its Registrable
Securities in any Registration Statement pursuant to this Section 2.2 by giving
written notice to the Company of its request to withdraw. The Company may
withdraw a Piggy-Back Registration at any time prior to the time it becomes
effective and such withdrawn Piggy-Back Registration shall not be counted for
purposes of Section 2.1(a) of this Agreement.
(b) Compulsory Registration. If within twelve (12) months of the
Closing of the Stock Purchase Agreement, a Piggy-Back Registration Statement has
not been filed with the Commission or is not being diligently pursued by the
Company, the Company shall within thirty (30) days of demand made at any time
thereafter by Holders owning more than 89 percent of the Securities file with
the Commission a Registration Statement seeking to register for sale all the
Registrable Securities. The Holders shall be entitled to withdraw all or any
part of the Registrable Securities from a Registration Statement at any time
prior to the effective date of such Registration Statement.
(c) Notwithstanding any other provision of this Section 2.1, if the
Underwriter advises the Company in writing that, in such firm's opinion,
marketing factors prohibit or require a limitation of the number of shares to be
underwritten, the Underwriter or the Company may exclude the Registrable
Securities in the same proportion, as nearly as practicable, to other selling
shareholders of the Company who have obtained shares pursuant to an acquisition
or otherwise or the Underwriter or the Company may limit the number of
Registrable Securities to be included in the registration and underwriting to a
specified percentage of the Registrable Securities to be distributed through the
underwriting in the same proportion, as nearly as practicable, to other
3
<PAGE> 5
selling shareholders of the Company who have obtained shares pursuant to an
acquisition or otherwise. The Company shall so advise all Holders of Registrable
Securities which would otherwise be registered and underwritten under this
subsection, and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Holders who hold those securities in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities entitled to inclusion in the
registration held by such Holders at the time the registration statement is
filed. Any Holder disapproving of the terms of any such underwriting may elect
to withdraw from it by written notice to the Company and the Underwriter.
(d) Notwithstanding any other provision of this Agreement to the
contrary, the Company shall not be required to include any of the Registrable
Securities in a registration statement relating to an underwritten offering of
the Company's securities unless the Holders accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (provided
such terms are usual and customary for selling stockholders), including, without
limitation, any Underwriter's Cutback, and the Shareholders agree to promptly
execute and/or deliver such documents in connection with such registration as
the Company or the managing underwriter may reasonably request.
(e) Notwithstanding any other provision of this Agreement to the
contrary, if requested in writing by the Company and an Underwriter, the Holders
shall agree not to sell or otherwise transfer or dispose of any Registrable
Securities held by the Holders for a period set by the underwriter following the
effective date of a registration statement of the Company filed under the
Securities Act, PROVIDED that officers and directors of the Company are subject
to a similar lock-up.
(f) Notwithstanding any other provision of this Agreement to the
contrary, a Compulsory Registration requested by a Holder pursuant to Section
2.1(b) shall not be determined to have been effected (and therefore not demanded
for the purposes of Section 2.1(b)): (A) if it is withdrawn based upon material
adverse information relating to the Company that is different from the
information (x) known to Holders requesting registration at the time of their
request for registration, or (y) promptly disclosed by the Company to the
Holders at the time of their request for registration; (B) if, when effective it
includes fewer than ninety (90%) percent of the Registrable Securities which
were the subject matter of the request; (C) if after it has become effective,
such registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court for
any reason other than a misrepresentation or an omission by such Holder and, as
a result thereof, less than ninety (90%) percent of the Registrable Securities
requested can be completely distributed in accordance with the plan of
distribution set forth in the related registration statement.
(g) Upon receipt of written notice from the Holders who make a demand
pursuant to Section 2.1(b) hereof, the Company shall, within five (5) days, give
prompt written notice to all other Holders of Registrable Securities of such
notice and its intent to effect the registration of Registrable Securities
pursuant to Section 2.1(b) of this Agreement. Such notice shall offer each such
Holder the opportunity to include in such registration statement such number of
Registrable Securities as each such Holder may request.
(h) Notwithstanding any other provision of this Agreement to the
contrary, the Holders shall not for a period of one year after the date of the
effective date of a Registration Statement registering the Securities (the
"Restricted Sale Period") within any weekly trading period, offer to sell,
contract to sell, hypothecate, negotiate, pledge, assign, encumber, loan,
4
<PAGE> 6
pledge, grant any rights with respect to or otherwise dispose of, directly or
indirectly (collectively, a "Disposition"), a number of the Securities which
exceeds 5 percent of the average weekly trading volume (which shall be
calculated without the inclusion of any Dispositions) of the Company's common
stock during the four (4) calendar weeks preceding the date of any such
Disposition, other than a Disposition (i) to other Holders who are bound by the
terms of this Agreement, (ii) to any donees who receive such Securities as a
bona fide gift and who are bound by the terms of this Agreement, (iii) to any
affiliate of the Holders who is bound by the terms of this Agreement, or (v)
pursuant to proportionate co-sale rights otherwise provided for herein.
The parties acknowledge and agree that the foregoing restriction also
expressly precludes the Holders from engaging in any hedging, shorting or other
transactions which is designed to or reasonably expected to lead to or result in
a Disposition of shares of the Securities during the Restricted Sale Period,
even if such shares would be disposed of by someone other than the Holders. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale, show of any
shares or grant of any right (including, without limitation, any put or call
option) with respect to any shares of common stock of the Company or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from the
Company's common stock.
It is agreed that the Holders shall submit each certificate for the
Securities to the Company for imprinting of the following legends thereon:
"The sale, transfer, hypothecation, negotiation,
pledge, assignment, encumbrance or other disposition of this
share certificate and the shareholdings represented hereby are
subject to all of the terms, conditions and provisions of a
Registration Rights Agreement dated as of ______________,
1999, by and among the holder of this certificate and Compass
Knowledge Holdings, Inc., a copy of which may be obtained from
the Secretary of Compass Knowledge Holdings, Inc."
In furtherance of the foregoing, the Company and its transfer agent and
registrar are hereby authorized to decline to make any transfer of shares of the
Securities if such transfer would constitute a violation or breach of this
Agreement.
ARTICLE 3.
REGISTRATION PROCEDURES
SECTION 3.1. Filings; Information. Whenever the Company is required to
effect or cause the registration of Registrable Securities pursuant to Section
2.1 hereof, the Company will use its reasonable best efforts to effect the
registration of such Registrable Securities in accordance with the intended
method(s) of disposition thereof as quickly as practicable, and in connection
with any such request:
(a) The Company will prepare and file with the Commission a
Registration Statement with respect to the offer and sale of such securities and
use its reasonable best efforts to cause such Registration Statement to become
and remain effective until the completion of the distribution contemplated
thereby; provided, however, the Company shall not be required to keep such
Registration Statement effective for more than 12 months (or such shorter period
which will terminate when all Registrable Securities covered by such
Registration have been sold, but not
5
<PAGE> 7
prior to the expiration of the applicable period referred to in Section 4(3) of
the Securities Act and Rule 174 thereunder, if applicable).
(b) The Company will prepare and file with the Commission such
amendments and post-effective amendments to the Registration Statement as may be
necessary to keep such Registration Statements effective for as long as such
registration is required to remain effective pursuant to the terms hereof; cause
the Prospectus to be supplemented by any required Prospectus supplement, and, as
so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act applicable to it with respect
to the disposition of all Registrable Securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Selling Holders set forth in such Registration Statement
or supplement to the Prospectus.
(c) The Company, at least ten (10) Business Days prior to filing a
Registration Statement or a Prospectus or any amendment or supplement to such
Registration Statement or Prospectus, will furnish to (i) each Selling Holder,
(ii) not more than one counsel representing all Selling Holders ("Selling
Holders Counsel"), to be selected by a majority-in-interest of such Selling
Holders, and (iii) each Underwriter, if any, of the Registrable Securities
covered by such Registration Statement, copies of such Registration Statement as
proposed to be filed, together with exhibits thereto (whether or not
incorporated by reference in such Registration Statement), which documents will
be subject to review and approval by each of the foregoing within ten (10)
Business Days after delivery (except that such review and approval of any
Prospectus or any amendment or supplement to such Registration Statement or
Prospectus must be within five (5) Business Days after delivery), and
thereafter, furnish to such Selling Holders, Selling Holders' Counsel and
Underwriters, if any, at the Company's expense, such number of conformed copies
of such Registration Statement, each amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by reference
therein), the Prospectus included in such Registration Statement (including each
preliminary Prospectus) and such other documents or information as such Selling
Holders, Selling Holders' Counsel or Underwriters may reasonably request in
order to facilitate the disposition of the Registrable Securities (it being
understood that the Company consents to the use of the Prospectus and any
amendment or supplement thereto by each Selling Holder and the Underwriters, if
any, in connection with the offering and sale of the Registrable Securities
covered by such Prospectus or any amendment or supplement thereto). The Company
shall provide the Holders' counsel and each Underwriter, if any, a copy of any
and all transmittal letters or other correspondence to, or received from, the
Commission or any other governmental body having jurisdiction relating to the
offering.
(d) The Company will use its reasonable best efforts to prevent the
entry of any stop order or to remove it at the earliest possible moment if
entered.
(e) [Section Reserved].
(f) The Company will promptly notify each Selling Holder, Selling
Holders' Counsel and any Underwriter in writing, (i) of any request by the
Commission or other regulatory body having jurisdiction over the Registration
Statement for any amendment or supplement to any Registration Statement or other
document relating to the offering and sale of the Registrable Securities (ii)
when a Prospectus or any Prospectus supplement or post-effective amendment has
been filed and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of a Registration
Statement or the initiation or threatening of any proceedings for that purpose,
(iv) of the happening of any event which makes any statements
6
<PAGE> 8
made in a Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated by reference therein untrue in a
material respect or which required the making of any changes in such
Registration Statement, Prospectus or documents so that they will not contain
any untrue statements of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements in the
Registration Statement and Prospectus not misleading in light of the
circumstances in which they were made; and, as promptly as practicable
thereafter, prepare and file with the Commission and furnish a supplement or
amendment to such Prospectus so that, as thereafter deliverable to the buyers of
such Registrable Securities, such Prospectus will not contain any untrue
statements of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, such amendment to be subject to the Holders' review under
Section 3.1(c).
(g) The Company will make generally available an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act no later than
120 days after the end of the 12 month period beginning with the first day of
the Company's first fiscal quarter commencing after the effective date of a
Registration Statement, which earnings statement shall cover said 12 month
period, and which requirement will be deemed to be satisfied if the Company
timely files complete and accurate information on Forms 10-QSB, 10-KSB and 8-KSB
under the Exchange Act and otherwise complies with Rule 158 under the Securities
Act.
(h) The Company will enter into customary agreements (including, if
applicable, an underwriting agreement in customary form and which is reasonably
satisfactory to the Company) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities.
(i) The Company, during the period when the Prospectus is required to
be delivered under the Securities Act, will file all documents required to be
filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act.
(j) The Company will use its reasonable best efforts to cause all such
Registrable Securities to be listed on each securities exchange or quoted on any
automated quotation system on which similar securities of the Company are then
listed or quoted and enter into customary agreements, including a listing
application in customary form; provided that the applicable listing requirements
are satisfied, and to provide a transfer agent and register for such Registrable
Securities covered by the Registration Statement no later than the effective
date of such Registration Statement.
(k) The Company will make available for inspection by any Holder of
Registrable Securities covered by the Registration Statement, any Underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney, accountant, or other agent retained by any such Holder or
underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company as such Inspector
shall deem necessary or desirable in order to permit it to conduct a reasonable
investigation within the meaning of Section 11 of the Securities Act and cause
the Company's officers, directors and employees to supply all information and
respond to all inquiries reasonably requested by any such Inspector in
connection with such Registration Statement.
(1) The Company will, to the extent required in connection with an
underwritten offering, (i) use its reasonable best efforts to furnish an opinion
of counsel for the Company addressed to the Underwriter and each Selling Holder
and dated the date of the closing under the
7
<PAGE> 9
underwriting agreement (if any) (or if such offering is not underwritten, dated
the effective date of the Registration Statement), and (ii) use its reasonable
best efforts to furnish a "cold comfort" letter addressed to each Selling
Holder, if permissible under applicable accounting practices, and signed by the
independent public accountants who have audited the Company's financial
statements included in such Registration Statement, in each such case covering
substantially the same matters with respect to such Registration Statement (and
the Prospectus included therein) as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten pubic offerings of securities and such other matters as the Selling
Holders may reasonably request and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements.
(m) The Company will, not later than the effective date of the
Registration Statement, provide a CUSIP number for all Registrable Securities,
and provide the applicable transfer agents with printed certificates for the
Registrable Securities, which are in a term eligible for deposit with The
Depository Trust Company.
Each Selling Holder agrees that, upon receipt of any notice in writing
from the Company of the happening of any event of the kind described in Section
3.1(f) hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3.1(f) hereof, and,
if so directed by the Company, such Selling Holder will deliver to the Company
all copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent Prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective (including the period referred to in
Section 3.1(a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 3.1(f) hereof to
the date when the Company shall make available to the Selling Holders covered by
such Registration Statement a Prospectus supplemented or amended to conform with
the requirements of Section 3.1(f) hereof.
SECTION 3.2. Registration Expenses. The Company shall pay all expenses
in connection with any Registration pursuant to Article 2 or Article 3 hereof or
incident to the Company's performance of or compliance with this Agreement
including, without limitation: (i) all registration and filing fees, (ii) the
fees and expenses of compliance with the securities or blue sky laws (including
fees and disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities), (iii) all printing, messenger and delivery
expenses, (iv) the Company's internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), (v) the fees and expenses incurred in connection with the
listing or quotation, as appropriate, of the Registrable Securities, (vi) the
fees and disbursements of counsel for the Company and the fees and expenses for
independent certified public accountants retained by the Company (including the
expenses of any special audit or cold comfort letter), (vii) the fees and
expenses of any special experts retained by the Company in connection with such
registration, and (viii) the fees and expenses of counsel for the Selling
Holders up to $10,000.00.
8
<PAGE> 10
ARTICLE 4.
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1 Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the fullest extent permitted by law, each
Selling Holder, its general partners, limited partners, managers, officers,
directors, employees, advisors and agents, and each Person, if any, who
controls, is controlled by or is under common control with such Selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the general partners, limited partners, managers,
officers, directors, employees, advisors and agents of such controlling Person
(collectively the "Controlling Persons"), from and against any loss, claim,
damage, liability, reasonable attorneys' fees, cost or expense and costs and
expenses of investigating and defending any such claim (collectively, the
"Damages") and any action in respect thereof to which such Selling Holder, its
general partners, managing partners, managers, officers, directors, employees,
advisors and agents, and any such Controlling Person may become subject under
the Securities Act, the Exchange Act, state blue sky laws, common laws or
otherwise, insofar as such Damages (or proceedings in respect thereof) arise out
of, or are based upon, (x) any untrue statement of a material fact contained in
any Registration Statement or Prospectus, or any amendment or supplement
thereto, or any preliminary or summary Prospectus, or in any document
incorporated by reference in such Registration Statement or Prospectus, any
amendment or supplement thereto, or any preliminary or Summary Prospectus (y)
any omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are based upon information furnished in writing to the Company by a Selling
Holder expressly for use therein, or (z) any violation by the Company of any
federal, state or common law rule or regulation applicable to the Company and
relating to action required of or inaction by the Company in connection with any
such registration, and the Company shall reimburse each Selling Holder, its
partners, officers, directors, employees, advisors and agents, and each such
Controlling Person for any legal and other expenses reasonably incurred by that
Selling Holder, its partner, officers, directors, employees, advisors and
agents, or any such Controlling Person in investigating or defending or
preparing to defend against any such Damages or proceedings; provided, however,
that the Company shall not be liable to any Selling Holder or other indemnitee
to the extent that any such Damages arise out of or are based upon an untrue
statement or omission based solely upon information provided in writing to the
Company by the Selling Holder. The Company also agrees to indemnify any
Underwriters of the Registrable Securities, their officers and directors and
each Person who controls such Underwriters on substantially the same basis as
that of the indemnification of the Selling Holders provided in this Section 4.1.
This indemnity will survive the transfer of the Registrable Securities by the
Holder thereof for a period of two (2) years.
SECTION 4.2. Indemnification by Selling Holders. Each Selling
Shareholder agrees, severally but not jointly to indemnify and hold harmless,
the Company, its officers, directors, employees, advisors and agents, and each
Controlling Person of the Company, if any, together with the partners, officers,
directors, employees, advisors and agents of such Controlling Person, from and
against any Damages and any action in respect thereof to which the Company and
any such Controlling Person may become subject under the Securities Act, the
Exchange Act, state blue sky laws, common laws or otherwise, insofar as such
Damages (or proceedings in respect thereof) arise out of, or are based upon, (x)
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement or Prospectus or any preliminary or summary
Prospectus, or (y) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that such untrue statement
of material fact is contained in, or such
9
<PAGE> 11
material fact relating to the Selling Holder is omitted from, information
related to such Selling Holder, or its plan of distribution, furnished in
writing to the Company by such Selling Holder expressly for use in any
Registration Statement or Prospectus, or any amendment or supplement thereto, or
any preliminary or summary Prospectus; provided, however, that such Selling
Holder shall not be liable in any such case to the extent that prior to the
filing of any such Registration Statement or Prospectus or amendment or
supplement thereto, such Selling Holder has furnished in writing to the Company
information expressly for use in such Registration Statement or Prospectus or
any amendment or supplement thereto which corrected or made not misleading
information previously furnished to the Company. The Selling Holder shall
reimburse the Company and each such Controlling Person for any legal and other
expenses reasonably incurred by the Company or any such Controlling Person in
investigating or defending or preparing to defend against any such Damages or
proceedings. In no event shall the liability of any Selling Holder be greater in
amount that the dollar amount of the proceeds received by such Selling Holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation. This indemnity will survive the transfer of the Registrable
Securities by the Holder thereof for a period of two (2) years.
SECTION 4.3. Conduct of Indemnification Proceedings. Promptly after
receipt by any Person in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party') of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the Person against whom such indemnity may be
sought (an "Indemnifying Party"), notify the Indemnifying Party in writing of
the claim or the commencement of such action; provided that the failure to
notify the Indemnifying Party shall not relieve it from any liability which it
may have to an Indemnified Party otherwise than under Section 4.1 or 4.2 except
to the extent of any actual prejudice resulting therefrom. If any such claim or
action shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified Indemnifying Party, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; provided that the Indemnified Party shall
have the right to employ separate counsel to represent the Indemnified Party and
its Controlling Persons who may be subject to liability arising out of any claim
in respect to which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(ii) in the opinion of counsel to such Indemnified Party, representation of both
parties by the same counsel would be inappropriate due to actual or potential
conflicts of interest between them, it being understood, however, that the
Indemnifying Party shall not, in connection with any one such claim or action or
separate but substantially similar or related claims or actions in the same
jurisdiction arising out of the same allegations or circumstances, be liable for
the fees and expenses of more than one separate firm of attorneys (together with
local counsel) at any time for all Indemnified Parties. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any claim or pending or threatened proceeding in respect of which
the Indemnified Party is or could have been a party and indemnity could have
been sought hereunder by such Indemnified Party, unless such settlement includes
an unconditional release of such Indemnified Party from all liability arising
out of such claim or proceeding. Whether or not the defense of any claim or
action is assumed by the Indemnifying Party, such Indemnifying Party will not be
subject to any
10
<PAGE> 12
liability for any settlements made without its consent, which consent will not
be unreasonably withheld. In all instances, the Indemnified Party shall
cooperate fully with the Indemnifying Party or its counsel in the defense of
each claim or action.
ARTICLE 5.
MISCELLANEOUS
SECTION 5.1. Participation in Underwritten Registrations. No Person may
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and these
registration rights.
SECTION 5.2. Rule 144 and 144A. The Company covenants that it will use
its reasonable best efforts to file any reports required to be filed by it under
the Securities Act and the Exchange Act and that it will take such further
action as any Holder may reasonably request, all to the extent required from
time to time to enable Holders to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 or Rule 144A under the Securities Act, or (b) any other
applicable exemption from the registration requirements of the Securities Act
adopted by the Commission. Upon the request of any Holder, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
SECTION 5.3. Amendment and Modification. Any provision of this
Agreement may be waived, provided that such waiver is set forth in a writing
executed by the party against whom the enforcement of such waiver is sought.
This Agreement may not be amended, modified or supplemented other than by a
written instrument signed by the holders of at least a majority of the
Registrable Securities (calculated on an as converted basis). No course of
dealing between or among any Persons having any interest in this Agreement will
be deemed effect to modify, amend or discharge any part of this Agreement or any
rights or obligations of any Person under or by reason of this Agreement.
SECTION 5.4. Successors and Assigns; Third Party Beneficiaries. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto, each subsequent Holder and their respective
successors and assigns and executors, administrators and heirs. Holders are
intended third party beneficiaries of this Agreement, and this Agreement may be
enforced by such Holders.
SECTION 5.5. Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
SECTION 5.6. Headings. Subject headings are included for convenience
only and shall not affect the interpretation of any provisions of this
Agreement.
SECTION 5.7. Notices. Any notice, demand, request, waiver, or other
communication under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if personally served or sent by
telecopy, on the Business Day after notice is delivered to
11
<PAGE> 13
a courier or mailed by express mail confirmed if sent by courier delivery
service or express mail for next day delivery and on the third day after mailing
if mailed to the party to whom notice is to be given, by first class mail,
registered, return receipt requested, postage prepaid and addressed to the
following:
If to the Company: Compass Knowledge Holdings, Inc.
2710 Rew Circle
Suite 100
Ocoee, Florida 34761
Attention: Rogers W. Kirven, Jr.
Telefax: (407) 656-4080
If to UFF: University of Florida Foundation, Inc.
Post Office Box 100185
Gainesville, Florida
With a copy to: Smith Hulsey & Busey
1800 First Union National Bank Tower
225 Water Street
Jacksonville, FL 32201-3315
Attention: M. Richard Lewis, Jr.
SECTION 5.8. Governing Law: Forum: Process. This Agreement shall be
governed by and construed in accordance with the laws of the State of Florida,
without regard to any choice-of-law principles thereof.
SECTION 5.9. Consent to Jurisdiction, Waiver of Immunities. The Company
and the Holders hereby irrevocably submit to the non-exclusive jurisdiction of
any court of the State of Florida or United States federal court sitting in
Alachua County, Florida, and any appellate court therefrom, in any action or
proceeding arising out of or relating to this Agreement and hereby irrevocably
agree that all claims in respect to such action or proceeding may be heard and
determined in such court. The Company and the Holders irrevocably waive, to the
fullest extent permitted by applicable law, the defense of an inconvenient forum
to the maintenance of such action or proceeding.
SECTION 5.10 Recapitalization, etc. In the event that any securities
are issued in respect of, in exchange for, or in substitution of, any
Registrable Securities by reason of any reorganization, reclassification,
merger, consolidation, spin-off, partial or complete liquidation, stock
dividend, stock split, sale of assets, distribution to stockholders or
combination of the shares of Registrable Securities or any other change in the
Company's capital structure, appropriate adjustments shall be made in the
percentages specified herein so as to fairly and equitably preserve as far as
practicable, the original rights and obligations of the parties hereto under
this Agreement, all in accordance with the terms and conditions set in the
Agreement.
SECTION 5.11. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same agreement.
SECTION 5.12. Severability. In the event that any one or more of the
immaterial provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable, the same shall not affect any other
provision of this Agreement, but this
12
<PAGE> 14
Agreement shall be construed in a manner which, as nearly as possible, reflects
the original intent of the parties.
SECTION 5.13. No Prejudice. The terms of this Agreement shall not be
construed in favor of or against any party on account of its participation in
the preparation hereof.
SECTION 5.14. Words in Singular and Plural Form. Words used in the
singular form in this Agreement shall be deemed to import the plural, and vise
versa, as the sense may require.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
COMPASS KNOWLEDGE HOLDINGS, INC.
a Florida corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
UNIVERSITY OF FLORIDA FOUNDATION, INC.
a Florida not for profit corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
13
<PAGE> 1
EXHIBIT 10.7
PROFESSIONAL SERVICES AGREEMENT
This PROFESSIONAL SERVICES AGREEMENT (the "Agreement") is effective as
of the 19th day of September between the UNIVERSITY OF FLORIDA ("University"),
for and on behalf of the Board of Regents of the State of Florida, for the
benefit of THE COLLEGE OF PHARMACY ("COP") and INTELICUS, L.C. ("Intelicus"), a
partnership of University of Florida Health Services, Inc. ("UFHSI") and
Rehabilitation Training Institute, Inc., ("RTI"), to provide administrative
services to COP in connection with the non-traditional degree program of the
College of Pharmacy entitled THE WORKING PROFESSIONAL PHARM. D. PROGRAM
("Program").
1. EXECUTIVE SUMMARY
WHEREAS, Intelicus was created by UFHSI and RTI for the purpose of
administering and marketing educational programs; and
WHEREAS, the regulations of Intelicus provide that the company may
enter into agreements for professional services with units of the University;
and
WHEREAS, COP and Intelicus have developed the Program and seek to
expand this state-of-the-art distance education degree program in the Lifelong
Learning Model; and
WHEREAS, University would like to contract with Intelicus to provide
administrative and marketing services to University for the Program in
CLEVELAND; and
WHEREAS, University would benefit from utilizing the expertise of
Intelicus in administering educational programs in connection with the Program
in CLEVELAND;
NOW THEREFORE, based on the foregoing, the parties agree as follows:
2. SPIRIT OF AGREEMENT
COP and Intelicus recognize that the optimum performance of this
Agreement requires a cooperative working environment established upon good
communications and good faith working relationship between both COP and
Intelicus. It is with this spirit that the COP and Intelicus enter this
Agreement.
3. DUTIES OF INTELICUS
Intelicus shall provide the following services for University for its
Program in CLEVELAND pursuant to this Agreement:
3.1. ADMINISTRATION OF PROGRAMS - Intelicus will manage the daily
administration of certain aspects of the Program including the
following:
<PAGE> 2
3.1.1 STUDENT REGISTRATION PREPROCESSING (NEW
STUDENTS)-Activities related to initial contact,
description of program, telephone marketing, mailing
of brochures, and notification of schedule.
Assistance will be given for verification of receipt
of information necessary for registration to be
completed by the COP, receipt of documentation for
forwarding to University for verification of
immunization, verification that the student has
completed the residency affidavit and provided
information needed for a residency determination to
be made by the University's office of admissions,
follow-up of incompleteness, and processing. Dates
regarding deadlines for registration will also be
established.
3.1.2 STUDENT REGISTRATION PREPROCESSING (RETURNING
STUDENTS)-Activities related to notification of
deadlines (established by the University), e-mail
updating, mailing of registration packets,
verifications of receipt of information, telephone
support in reapplication, processing of information,
and receipt of documentation for forwarding to
University for verification of appropriate
immunizations of current students.
3.1.3 STUDENT SUPPORT-Activities relating to receipt and
response to student requests for information,
additional video, additional schedules, and handouts
throughout semester.
3.1.4 ASSISTANCE IN CURRICULUM DEVELOPMENT - Activities
related to scheduling, promoting, and coordinating
deadlines to achieve required COP outcomes.
3.1.5 ADMINISTRATION OF MULTIMEDIA-Activities related to
receipt of master copy, duplication, dissemination to
students, quality control of materials, and surveying
results.
3.1.6 ADMINISTRATION OF HARDCOPY-Activities related to
receipt, duplications, dissemination of handouts,
schedules, and hardcopy as stipulated by COP.
3.1.7 DAILY MANAGEMENT OF THE INTELICUS STUDENT
DATABASE-Activities related to entry, coordination,
tracing, and control of the Intelicus student
database.
3.1.8 DAILY FINANCIAL MANAGEMENT-Activities related to
recording, tracking and paying vendors and suppliers.
3.1.9 DAILY PERSONNEL MANAGEMENT-Activities related to
hiring, firing and performance review of staff of
Intelicus.
2
<PAGE> 3
3.1.10 QUALITY CONTROL-Activities related to specification,
review, and acceptance of all products received by
suppliers, vendors, consultants, and extra-company
personnel.
3.1.11 FACILITIES MANAGEMENT-Activities related to funding
and managing Intelicus-based computers, software,
office space, telephone, e-mail, etc. for support of
the Program.
3.2 MARKETING OF THE PROGRAM
3.2.1 CONDUCTING MARKET STUDIES-Activities related to
determination of the marketplace acceptance, size and
probability, with specific sites of market studies
chosen in consultation with the COP.
3.2.2 DEVELOPING OF MARKET STRATEGIES-Activities related to
execution and confirmation of market research via
direct mail, telephone survey, in conjunction with
review by the COP, and specific benchmarks
established annually.
3.2.3 EXECUTION OF MARKET STRATEGY-Purchase and
dissemination of print and electronic materials.
3.2.4 DEVELOPMENT OF PROMOTIONAL LITERATURE-Design,
development, printing, and purchase of promotional
literature, with the approval of content by the COP.
3.2.5 DEVELOPMENT OF COLLATERAL MATERIALS-Design,
development, printing, formatting of materials in
both hardcopy and electronic formats, with approval
by the COP before final printing or release in
electronic format.
3.2.6 DEVELOPMENT OF MAILING LISTS-Purchase, development
and testing of both national and international lists,
both electronic and hardcopy.
3.2.7 MANAGEMENT OF MAILING LISTS-Database management of
electronic and hardcopy mailing lists for secondary
mailings with approval of the COP.
3.2.8 MANAGEMENT OF TELEPHONE DATABASE-Activities related
to creation of script and management of telephonic
contact with potential students.
3.3 CONFIDENTIALITY. Intelicus shall maintain the confidentiality
of all student records as required by state and federal law
including the Federal Education Rights Act and Privacy Act of
1974, as amended.
3.4 IMPLEMENT AND MAINTAIN FINANCIAL CONTROLS. Intelicus shall
manage and maintain internal financial controls according to
Generally Accepted
3
<PAGE> 4
Accounting Principles (GAAP) and report monthly by the 10th of
each month to the University in accordance with the
regulations of Intelicus.
3.5 SUBMIT TO YEARLY FINANCIAL AUDIT. In accordance with the
regulations of Intelicus, Intelicus will submit to University
a yearly external audit by an external auditor approved by
University and deliver the audit by June 30 of each year in
accordance with the regulations of Intelicus.
4. DUTIES OF UNIVERSITY
University, through COP and other units, shall perform the following
activities pursuant to this Agreement:
4.1 COORDINATION OF ACADEMIC MATERIALS AND PROGRAMMING. The COP
shall designate a Director for the Lifelong Learning Model
degree program. The COP may appoint Associate and Assistant
Directors upon growth of the Program. The Director, under the
direction of COP, is responsible for representing the parties
in all coursework and technical matters relating to the core
information given in the Program. The Director's work in
connection with the COP WPPD Task Force under this Agreement,
includes, but is not limited to:
4.1.1 Review of credential, appointment and coordination of
faculty and activities.
4.1.2 Providing information to the Department Chair in
connection with the performance reviews of faculty by
the Department Chair.
4.1.3 All issues, meetings, consultations and modifications
of core body knowledge provided in the programs
including product specifications and delivery
specifications of the Program.
4.1.4 Course management and direction of individual
regional Program sites.
4.1.5 Appointment of regional site coordinators.
4.1.6 Management and scheduling of site facilitators.
4.1.7 Management and maintenance of Internet content.
4.1.8 Creation of video content as well as editing and
enhancement.
4.1.9 Management of scheduling of clerkship offerings.
4.1.10 Management and scheduling of faculty.
4
<PAGE> 5
4.1.11 Handling all disclosure, receipts and return of
confidential information.
4.1.12 Coordinating, communicating and physically housing,
as required, accreditation materials, CEU
Certificates, certification materials and related
academic documentation.
4.2 CONTROL OF ACADEMIC CURRICULA AND CONTENT
Academic programming and content shall remain in the absolute
control of COP faculty. COP seeks to utilize current program
materials and will implement an appropriate Lifelong Learning
Model. The Lifelong Learning Model shall be updated, modified
and amended at the discretion of the COP faculty.
4.3 STUDENT ADMINISTRATION PROCESSES
4.3.1. University shall be responsible for all decisions
regarding the admission and registration of students
except as specifically delegated to Intelicus herein.
4.4 OTHER RESPONSIBILITIES OF UNIVERSITY
4.4.1 All other responsibilities and activities in connection
with the program not specifically delegated to Intelicus
herein.
5. COLLECTIONS OF STUDENT FEES
All student fees will be made payable to the University of Florida and
directly deposited into University of Florida approved Division of Continuing
Education accounts as directed by COP. In the event that Intelicus is in receipt
of student fees, all fees will be forwarded to the University's Division of
Continuing Education (DOCE) for deposit by DOCE.
5.1 APPOINTMENT OF PROCESSING COORDINATORS
5.1.1 For Intelicus: Intelicus designates David Colburn as
Processing Coordinator
5.1.2 For DOCE: DOCE designates Michael Brodeur or his
designee as Processing Coordinator.
5.2 DUTIES OF PROCESSING COORDINATORS
The Processing Coordinator is responsible for representing his
or her party in all technical matters relating to implementing
the Program. The Coordinator's work under this Agreement,
includes but are not limited to:
5
<PAGE> 6
5.2.1 Daily Management of Student Fees: Daily coordination
and management of collection and deposit of student
fees in both electronic and check forms.
Consultations and modifications of schedules in the
recording of fees, scheduling collections and
deposits, and communicating as required.
5.3 DUTIES OF INTELICUS
Intelicus will facilitate the collection of student fees for
deposit by DOCE. In the event that Intelicus is in receipt of
student fees, all fees will be forwarded to DOCE on a weekly
basis for deposit.
5.4 DUTIES OF DOCE
5.4.1 Receipt and Deposit of Student Fees: DOCE will
receive and deposit student fees on a daily basis
into appropriate University of Florida accounts.
5.4.2 Distribution of Intelicus Fees: University shall
forward to the State Comptroller a Payment
Authorization for the sums due to Intelicus under
this agreement within 5 days following receipt of a
proper invoice from Intelicus. University shall
provide written notification to Intelicus of the date
the Payment Authorization was forwarded to the
Comptroller. Payment to Intelicus shall be subject to
the provisions of section 215.422(3)(b), Florida
Statutes.
6. FEES TO BE PAID TO INTELICUS
As payment for its services provided herein, University shall
pay Intelicus pursuant to the attached three year budget,
which reflects the parties' best estimate of revenue and
expenses of the Program. The budgets shall be adjusted to
reflect actual payment to Intelicus of 38% of the total
revenue of the program calculated based on the actual number
of students enrolled. In the event a student withdraws from
the program, Intelicus shall refund to University 38% of the
sums refunded to the student.
7. CREATION OF MANAGEMENT COUNCIL
7.1 CREATION OF MANAGEMENT COUNCIL
COP and Intelicus shall establish a Management Council as
follows:
The Management Council shall be comprised of the following
individuals:
William H. Riffee, Ph.D., Dean, COP
Dan Devine, Chief Operating Officer, Intelicus
6
<PAGE> 7
A person chosen by the COP
A person chosen by Intelicus
A person chosen jointly by both COP and Intelicus
7.2 DUTIES OF MANAGEMENT COUNCIL
7.2.1 DESIGNATE WPPD PROGRAM COORDINATORS: The Management
Council shall appoint Dan Robinson as Program
Coordinator representing COP and Dan Devine
representing Intelicus. The Program Coordinators
will, subject to the terms of this Agreement,
coordinate the overall program management of the
Program.
7.2.2 REVIEW ADMINISTRATION PLAN. The Management Council
shall review the administration plan and instructions
for its implementation.
8. TERM AND TERMINATION
8.1 INITIAL TERM AND RENEWAL. The initial term of this Agreement
shall begin upon its execution and continue for a period of
three (3) years unless terminated in accordance with the terms
of this Agreement. The Agreement may be renewed for another
three (3) year term upon mutual agreement of the parties.
8.2 TERMINATION WITH CAUSE. Each party may terminate this
Agreement upon a material breach by the other if the matter is
not corrected within thirty (30) days of written notice of
intent to terminate.
8.3 EFFECT OF TERMINATIONS. Upon termination of the Agreement, all
fees to be paid to either party shall remain due in accordance
with the terms of this Agreement.
9. HOLD HARMLESS AGREEMENT
The University assumes any and all risks of personal injury and
property damage attributable to the negligent acts or omissions of the
University of Florida and the officers, employees, servants, and agents thereof
while acting within the scope of their employment by the University. Intelicus
assumes any and all risks of personal injury and property damage with respect to
the negligent acts or omissions of Intelicus' officers, employees, servants, and
agents, or other persons acting or engaged to act by Intelicus in furtherance of
the obligations of Intelicus under this agreement. University, as a state
agency, warrants and represents that it is self-funded for liability insurance,
both public and property, with said protection being applicable to officers,
employees, servants, and agents while acting within the scope of their
employment by the University. The University and Intelicus further agree that
nothing contained herein shall be construed or interpreted as (1) denying to
either party any remedy or defense available to such party under the laws of the
State of
7
<PAGE> 8
Florida: (2) the consent of the State of Florida or its agents and agencies to
be sued; or (3) a waiver of sovereign immunity of the State Florida beyond the
waiver provided in Section 768.28, Florida Statutes.
10. INTELLECTUAL PROPERTY
All intellectual property, including but not limited to course
materials, outlines, software, textbooks, and videotapes, developed by
University of Florida faculty in connection with the activities described in
this agreement shall be the sole property of the University of Florida subject
to its rules and policies related thereto.
11. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between COP and
Intelicus as it relates to the subject matter and supercedes all previous
writings and understandings. No term or provision of the Agreement shall be
varied or modified except that the COP and Intelicus agree in writing. The
Agreements and obligations made in this Agreement shall be binding upon and
shall inure to the benefit of the successor and assigns of COP and Intelicus
hereto.
12. NOTICES
All notices, requests, consents and other communications required or
permitted under this Agreement shall be in writing and shall be (as elected by
the person giving such notice) hand delivered by messenger or courier service,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
If to Intelicus: Intelicus, L.C.
Attn: Dan Devine
2714 Rew Circle, Suite 100
Ocoee, FL 34761
If to COP: College of Pharmacy
Attn: Bill Riffee, Dean
1600 S.W. Archer Rd.
P.O. Box 100014
Gainesville, FL 32610
13. GOVERNING LAW
This Agreement and all transactions contemplated by this Agreement
shall be governed by, and construed and enforced in accordance with, the
internal laws of the State of Florida without regard to principles of conflicts
of laws.
14. JOINT VENTURE
Nothing contained in this Agreement shall be construed to create a
joint venture, partnership, or other like relationship between the parties.
8
<PAGE> 9
15. PUBLIC RECORDS
University may terminate this Agreement at any time for refusal by
Intelicus to allow public access, mandated by law, to all documents, papers,
letters, or other non-exempt materials subject to the provisions of Chapter 119,
Florida Statutes, made or received by Intelicus or university in conjunction
with this Agreement.
16. SIGNATURES
The Agreement is not binding on the parties until the authorized
representatives of Intelicus and the University have signed it.
17. SEVERABILITY
This Agreement is severable such that should any provision of this
Agreement be or become invalid or unenforceable, the remaining provisions shall
continue to be fully enforceable.
18. AVAILABILITY OF FUNDS
The performance of University of any of its obligations under this
contract shall be subject to and contingent upon the availability of funds
appropriated by the legislature for the purposes of this Agreement for the
current and any future fiscal period.
9
<PAGE> 10
IN WITNESS WHEREOF, the University and Intelicus execute this Agreement
effective as of the day first above written:
UNIVERSITY OF FLORIDA, FOR
AND ON BEHALF OF THE BOARD OF REGENTS
OF THE STATE OF FLORIDA
- ----------------------------------- ---------------------------------
Dr. John V. Lombardi Witness
President
ACKNOWLEDGED:
- ------------------------------------ ---------------------------------
William H. Riffee, Ph.D. Witness
Dean, College of Pharmacy
- ------------------------------------- ---------------------------------
James Knight, Ph.D. Witness
Dean, Division of Continuing Education
INTELICUS, L.C.
- ----------------------------------- ---------------------------------
Daniel J. Devine Witness
Chief Operating Officer
Approved as to form and legality Approved
- ----------------------------------- ---------------------------------
Office of General Counsel Office of Administrative Affairs
University of Florida University of Florida
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN IT'S ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,781,033
<SECURITIES> 0
<RECEIVABLES> 495,848
<ALLOWANCES> 10,887
<INVENTORY> 0
<CURRENT-ASSETS> 5,441,105
<PP&E> 113,732
<DEPRECIATION> 27,980
<TOTAL-ASSETS> 6,825,524
<CURRENT-LIABILITIES> 960,142
<BONDS> 0
0
1,667,026
<COMMON> 14,750
<OTHER-SE> 4,183,606
<TOTAL-LIABILITY-AND-EQUITY> 6,825,524
<SALES> 2,659,306
<TOTAL-REVENUES> 2,659,306
<CGS> 616,101
<TOTAL-COSTS> 2,320,019
<OTHER-EXPENSES> 399
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,803
<INCOME-PRETAX> 344,546
<INCOME-TAX> 0
<INCOME-CONTINUING> 344,546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 155,432
<EPS-BASIC> 0.011
<EPS-DILUTED> 0.011
</TABLE>
