SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
May 12, 2000
Date of Report
(Date of Earliest Event Reported)
VHS NETWORK, INC.
(Exact Name of Registrant as Specified in its Charter)
6705 Tomken Road, Unit 12-14
Mississauga, Ontario, Canada
(Address of principal executive offices)
416/366-3571
905/795-9682 (fax)
Registrant's telephone number
EXODUS ACQUISITION CORPORATION
19900 MacArthur Boulevard, Suite 660
Irvine, California 92612
Former name and former address
Florida ________ 65-0656668
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to an Agreement and Plan of Reorganization (the
"Acquisition Agreement") dated May 6, 2000, VHS Network, Inc., ("VHSN" or the
"Company"), a Florida Corporation, acquired all the outstanding shares of common
stock of Exodus Acquisition Corporation ("Exodus"), a California corporation,
from shareholders thereof in an exchange for an aggregate of 500,000 shares of
common stock of VHSN (the "Acquisition"). As a result, Exodus became a wholly
owned subsidiary of VHSN.
The Acquisition was adopted by the unanimous consent of the Board of
Directors of VHSN on May 6, 2000. The Acquisition is intended to qualify as a
reorganization within the meaning of Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended.
Prior to the Acquisition, VHSN had 19,035,268 shares of common stock
issued and outstanding, and 19,535,268 shares issued and outstanding following
the Acquisition.
Upon effectiveness of the Acquisition, pursuant to Rule 12g-3(a) of the
General Rules and Regulations of the Securities and Exchange Commission, VHSN
became the successor issuer to Exodus for reporting purposes under the
Securities Exchange Act of 1934 (the "Act") and elects to report under the Act
effective May 12, 2000.
A copy of the Acquisition Agreement is filed as an exhibit to this Form
8-K and is incorporated in its entirety herein. The foregoing description is
modified by such reference.
(b) The following table contains information regarding the
shareholdings of VHSN's current directors and executive officers and those
persons or entities who beneficially own more than 5% of its common stock
(giving effect to the exercise of the warrants held by each such person or
entity):
Number of shares of Percent of
Common Stock Common Stock
Name Beneficially Owned Beneficially Owned (1)
Elwin D. Cathcart 9,270,000(2) 48.7%
President, Chairman, Chief
Executive Officer and Chief
Financial Officer
1400 Dixie Road
Mississauga, Ontario
Canada L5E 3E1
2
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Gang Chai 1,048,502(3) 5.5%
Director, Chief Operating Officer
89 Drewry Avenue
Toronto, Ontario
Canada M2M 1E1
David Smelsky 685,000(4) 3.4%
Director, Secretary
RR#4
Rockwood, Ontario
Canada N0B 2K0
Thomas Roberts 500,000(5) 2.6%
Director
P.O. Box 128
Fayette AL 35555
Rouge-Mountain Corp. 1,399,992 5%
13065 Riverdale Drive NW
Coon Rapids, MN 55448
Forte Management Corp. 2,475,000(6) 13%
Buckingham Square, Penthouse
West Bay Road, SMB
P.O. Box 1159GT
West Bay Road, SMB
Grand Cayman, Cayman Islands, BWI
Paul D. Winters 2,083,333 10.9%
109 E. Lancaster Avenue
Downington, PA 19335
Charles He 1,274,000(7) 6.7%
56 Temperance Street
Suite 501
Toronto, Ontario
M5H 3V5
(1) The following percentages are based upon 19,035,268 shares of the
Company's common stock outstanding.
(2) This figure includes 7,900,000 common shares owned by Groupmark
Canada Limited
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which is a wholly owned corporation of Elwin D. Cathcart and 370,000
shares of common stock held by and options to purchase 250,000
common shares granted to Elwin D. Cathcart at a strike price of
$0.35 per share until December 31, 2000 and options to purchase
750,000 shares of common stock at an exercise price of $0.40 per
share until December 31, 2002.
(3) This figure includes conversion privileges into 698,502 shares of
common stock. VHSN acquired China eMall Corporation pursuant to a
share exchange agreement wherein the shareholders of China eMall
including, Dr. Chai received preference shares of China eMall
Corporation that are exchangeable on a one for one basis into common
shares of VHSN.
(4) This figure includes options to purchase 250,000 common shares
granted to Mr. Smelsky at a strike price of $0.35 per shares until
December 31, 2000 and options to purchase 250,000 common shares at a
strike price of $0.40 per share until December 31, 2002.
(5) This figure includes options to purchase 250,000 shares of common
stock granted to Mr. Roberts at an exercise price of $0.35 per share
until December 31, 2000 and options to purchase 250,000 shares of
common stock at an exercise price of $0.40 per share until December
31, 2002.
(6) This includes 1,225,000 share purchase warrants to purchase up to
1,225,000 shares of common stock of the Company and 550,000 shares
of common stock.
(7) This consists of conversion privileged into 1,274,000 shares of
common stock.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a)The consideration exchanged pursuant to the Acquisition Agreement
was negotiated between Exodus and VHSN.
In evaluating VHSN as a candidate for the proposed Acquisition, Exodus
used criteria such as the value of the assets of VHSN, VHSN's ability to compete
in the information technology market, the increased use of the Internet as a
sales market, VHSN's current and anticipated business operations, and VHSN's
business reputation in the e-commerce community. In evaluating Exodus, VHSN
placed a primary emphasis on Exodus' lack of liabilities, simplistic structure
and status as a reporting company under the Section 12(g) of the Act and
Exodus's facilitation of VHSN's becoming a reporting company under the Act.
(b) The Company intends to strengthen its position in the Internet
electronic commerce and smartCARD marketing business by further developing its
World Wide Web technologies and by placing the primary emphasis on Internet
niche properties and products that share the focus and quality specific to the
Company's current lines of businesses. The Company intends to achieve this goal
by enhancing growth at its existing facilities and selectively acquiring
additional Internet properties and customer base.
BUSINESS
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COMPANY
VHS Network, Inc. (the "Company") was incorporated in the
State of Florida on December 18, 1995, as Ronden Vending Corp. On December 24,
1996 the Company incorporated a wholly owned subsidiary called Ronden
Acquisition, Inc. a Florida corporation. Ronden Acquisition, Inc. then merged
with Video Home Shopping, Inc. (a Tennessee corporation) and filed articles of
merger on December 27, 1996 with Ronden Acquisition, Inc. as the surviving
Florida corporation. Pursuant to this merger all of the shareholders of Video
Home Shopping, Inc. received in aggregate 10,462,750 shares of common stock of
the Company and employees of Video Home Shopping, Inc. had reserved for them
137,250 shares of the Company for future issuance pursuant to a stock option
plan. After giving effect to this merger, 12,041,000 shares of the Company were
issued and outstanding on a fully diluted basis. At the time, Video Home
Shopping, Inc. was a network marketing and distribution company which offered a
wide range of products and services to consumers through the medium of video
tape and after the merger it was intended that video home shopping be the
principal focus of the Company.
On January 9, 1997, Articles of Merger were filed for th
Company as the surviving corporation of a merger between the Company and its
wholly owned subsidiary Ronden Acquisitions, Inc. This step completed the
forward triangular merger between Video Home Shopping, Inc., Ronden Acquisition,
Inc. and the Company.
On January 9, 1997, Articles of Amendment were filed to change
the name of the Company from Ronden Vending Corp. to VHS Network, Inc. On April
9, 1997 the Company incorporated VHS Acquisition, Inc. as a wholly-owned
subsidiary.
In April, 1997 the Company was restructured by way of a
reverse short form merger, by which the Company merged into its wholly-owned
subsidiary, VHS Acquisition, Inc. a Florida corporation. Pursuant to the reverse
short form merger, the sole shareholder of VHS Network Inc. (the Manitoba
corporation), Groupmark Canada Limited, received 8,000,000 common shares of the
Company and a secured promissory note for US$500,000 and thus became the
controlling shareholder of the Company. As a result of the reverse take-over all
the former directors of the Company, except Thomas Roberts, resigned and Elwin
D. Cathcart and David Smelsky were appointed directors of the Company.
On or about April 28, 1997 the Company, under its curren
management, commenced a private placement of its common shares under Rule 504 of
Regulation D promulgated under the Securities Act of 1933, for a maximum
aggregate offering of $890,000 US. The Company raised proceeds of $416,492.50
under this offering.
On November 20, 1997 the board of directors of the Company
approved a reverse stock split of the issued and outstanding common shares on a
20 for 1 basis.
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On March 31, 1998 the promissory note payable to Groupmark
Canada Limited in the amount of US$500,000 was converted to 5,000,000 restricted
shares of the Company's common stock. In May, 1998, 1,399,992 restricted shares
of common stock were issued in an arm's length transaction for the purchase of
inventory for resale.
On December 21, 1999, the Company commenced a private
placement of its common stock under Rule 504 of Regulation D promulgated under
the Securities Act of 1933 and section 203 (t) of the Pennsylvania Securities
Act of 1972. The Company raised proceeds of $809,000 pursuant to this offering.
A copy of the Private Placement Offering Materials is filed as an
exhibit to this Form 8-K and is incorporated in its entirety by reference.
On April 12, 2000, VHS Network, Inc., acquired all of th
issued and outstanding common stock of China eMall Corporation pursuant to a
share exchange agreement made between VHS Network, Inc., China eMall
Corporation, Uphill Capital Inc., GDCT Investment Inc., Gang Chai, Qin Lu Chai,
Qing Wang, Tai Xue Shi, Charles He and Forte Management Corp. (the "Share
Exchange Agreement"). The common stock of China eMall were held by five
individual shareholders and three corporations. Two of the corporate
shareholders, GDCT Investment Limited and Uphill Capital Inc., were holding
companies whose only activities were holding shares of China eMall. VHS Network,
Inc., purchased all the issued and outstanding shares of GDCT Investment Limited
and Uphill Capital Inc., and thus indirectly acquired the shares of China eMall
held by these companies. The shareholders of GDCT Investment Limited and Uphill
Capital Inc., received common stock in VHS Network, Inc., pursuant to the Share
Exchange Agreement. The other corporate shareholder, Forte Management Corp.,
received common stock of VHS Network, Inc., in exchange for its shares of China
eMall. All the shareholders of Chine-eMall who are individuals received Class B
Special Shares of China eMall that are exchangeable on a one for one basis for
common stock of VHS Network, Inc. In total, VHS issued 2,100,000 shares of
common stock on closing and has allotted 4,015,000 shares of common stock for
issuance when the Class B Special Shares are exchanged into shares of common
stock of VHS Network, Inc.
A copy of the Share Exchange Agreement is filed as an exhibit to this
Form 8-K and is incorporated in its entirety by reference.
CURRENT OPERATIONS
Over the last two years the Company believes that it has positioned
itself to identify technologies and market opportunities in the United States,
Canada and abroad in Internet and smartCARD loyalty marketing. The Company
currently operates and/or develops two lines of business as follows:
SmartCARD. The Company is developing to engage in the sale of
computer chip-based plastic access cards that utilize the Company's proprietary
smartCARD technology. This technology enables the cards to be used for
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identification purposes and as debit or charge cards. The Company intends to
focus its marketing efforts on companies that wish to distribute these cards to
their customers as a reward for their loyalty. Groupmark Canada Limited owns the
registered trade-mark "smartCARD" in Canada and has a pending application in the
United States. Groupmark Canada has granted the Company a license to use the
trademark smartCARD and the know-how related to the sourcing, production,
manufacture and marketing of the chip-based plastic access cards, pursuant to a
License Agreement dated January 1, 2000. The license granted to the Company
allows the Company to manufacture and market smartCARDs worldwide on a
non-exclusive basis for a term of 10 years and to utilize the technology and
other know-how related to smartCARDs in exchange for royalty of 5% of the
Company's wholesale selling price of the product. Under the License Agreement,
the Company must pay the royalty to Groupmark Canada on a quarterly basis based
on income received in each quarter.
A copy of the License Agreement is filed as an exhibit to this Form 8-K
and is incorporated in its entirety herein. The foregoing description is
modified by such reference.
o Competition
There are approximately twelve to fifteen companies who
manufacture chip-based cards, all of which have vast financial, personnel,
marketing and sales resources in comparison with the Company. However, these
companies focus the marketing of these cards for security purposes and debit or
charge cards, whereas the Company will be focusing its marketing of these cards
as a loyalty reward to a company's customers.
o Supplier
The Company's success as a marketer of e-commerce products
depends on its ability to obtain a reliable source of products and then locate
retailers who wish to purchase these products. The Company believes it can
obtain smartCARDS from up to six different suppliers depending on the type of
card that is needed. There are however other suppliers that would be able to
supply the products.
China eMall Corporation ("China eMall"). Through its recently acquired
subsidiary China eMall Corporation, an Ontario, Canada corporation, the Company
provides Internet marketing and information services to facilitate trade between
Chinese and western businesses. The Company's primary focus will be to establish
an on-line presence to facilitate the export of Chinese products. Through its
multi-functional portal, Chinese suppliers can post their products and services
in a format that is easy for searching, quoting and tracking, and that gives a
western buyer access to multiple suppliers for the best quality and price, and
direct communication. Realizing the difference in business culture and financial
systems, China eMall will allocate substantial amount of resources in assisting
in the communications, export/import processing, financial transaction and
product services. China eMall's business will make use of Internet technology to
speed up the export process and broaden the sales channels for Chinese goods and
services, and more importantly, bring customers into direct contact with Chinese
producers who can constantly upgrade their products to meet customers' needs.
China eMall has an agreement with Wangfujing Department Store Ltd., the "Wal
Mart" of China, as its prime product supplier. With the tremendous resources and
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expertise in retail business, Wangfujing can make the identification,
organization and exporting of Chinese products a lot more efficient and
economic. China eMall has the following business goals:
1. To provide an online business to business portal for both the
suppliers and purchasers to engage in direct business
communications and transactions
2. To provide the much more critical assistance to both the
suppliers and purchasers to complete the business
transactions;
3. To offer various China based services to western customers;
and
4. To create a market place for China-related goods that can
attract a broad range of companies for advertisement.
o Market
China is one of the largest economies in the world. It is a
huge market for export of consumer goods and services. International trade has
mushroomed during the last decades since China began its economic reform and
started open door policy to foreign economies. Revenue from export is as much as
200 billion US dollars last year. The Company believes capturing a piece of the
export market could transfer into tremendous economic value.
o History
China eMall was established by Dr. Gang Chai, and two partners, Dr.
Charles He, a computer expert, and Ms. Qing Wang, a veteran Chinese
businesswoman, and incorporated in February of 1999. In April 1999, the initial
eMall website, based on a software platform, Intershop, was built and began test
functioning. In May 1999, Dr. Chai made initial contact to Wanfujing Dept. Store
Group Ltd., for business cooperation and received a welcoming response. Other
manufacturers were also contacted and were very enthusiastic about joining China
eMall as product suppliers. In August 1999, China eMall signed an initial supply
agreement with Wangfujing. In the mean time, China eMall supplied personnel to
assist in product photo-sampling, scanning and data inputting. An upgraded
version of China eMall website was built. China eMall began to contact more
suppliers and broaden its product lines. In November 1999, China eMall
introduced services to its product line and was planning to emphasize the
services part in the future. On February 12, 2000, VHSN acquired China eMall
pursuant to a share exchange arrangement.
o Products and Services
Manufactured goods:
China eMall offers a complete spectrum of products from various
sectors. They are presented in two ways. One is based on the nature of products
under different categories. Another is based on specific companies that appear
as in trade show format. The home page shows products in 20 categories, such as
Agriculture, Apparel, Arts & Crafts, Chemical Industry, Communications&
Transportation, Construction & Decoration, Electronics, Energy & Mineral
Resources, Entertainment, Food, Health & Medicine, Home & Garden, Industrial
Supplies, Jewelry, Clocks & Watches, Office Supplies, Pet Supplies, Security,
Sports, Textile, Silk, and Toys.
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Internet Services:
One distinctive feature of China eMall business mode is that
the company offers a broad line of China based services such as high tech
projects, legal services, translation services, etc. The service part will be
the main emphasis of China eMall's product offering and revenue generator. The
following shows the services available at present:
Business Information Services
Macro- and micro- economy of China
Update of various sectors of industry and business opportunities
Special industrial reports for individual companies
Posting of government services Government policies, laws and
regulations Update of the changes of government's
administration system Investment projects from
various levels of government Engineering projects
from various levels of government Other available
projects from the government
Professional services
Construction and Engineering services for projects abroad
Business consulting for western companies
Technical and labor exchange, including providing
technical personnel and
skillful workers
Financial services
Services for companies to get listed in foreign stock exchanges
Financing, including stocks and loans, training of financial
personnel
Other services
Traveling services for both Chinese and Foreigners
Immigration
Studying abroad
Investment abroad
o Business Strategy
China eMall's management intends to establish a major e-commerce center to link
China and Western business markets in the following strategies:
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Short Term:
* Select entry products from brand suppliers as a base for the initial
establishment. Outsourcing exporting duties to suppliers and importing
job to importing agencies. China eMall will mainly coordinate the
process in order to better fulfilling its supply side of objective. The
Company believes that this will ensure the variety and quality of goods
and timely delivery of products to customers.
*Building up marketing and sales infrastructure by establishing a sales
force and by acquiring a few existing exporting business for the
initial sale and customer base, as well as expertise in related fields.
China eMall will expand the sales side by providing wider ranges of
products in each category, streamline the exporting importing process,
and marketing and sales infrastructure.
* Identify and establish services that many Western companies are anxious
to access and of immediate values to those companies. At the near
future, China eMall is planning on services like business consulting,
traveling and translation.
* Through active marketing, we try to establish China eMall as a brand
e-commerce name in North America to broaden its viewers.
Long Term:
* Broaden product bases to have a full chain of merchandise for customers
outside of China.
* Increase the proportion of retail purchase. * Expand offering of
services as the company is established and accepted by Western
customers. The company aims to provide most available services to
become a China e-commerce center.
* Start hosting of Chinese business in China eMal s web site by renting
out web space as well as offer web service to provide China eMall's
Chinese tenants with more standard web pages.
o Marketing strategies
China eMall intends to use various marketing channels to build up its
name and obtain market shares for its products and services.
Internet Marketing:
China eMall will actively post its web site to various search engines;
it will also advertise its site in the most popular portals or other
popular web sites to attract the maximum numbers of visitors.
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Business-Business:
Easy to realize at lower costs as there are only limited number of
business compared to individual consumers; marketing can be done
through posting to various business associations or other distributors.
Business-Government
Western government may want to help its companies for China related
business Government may provide special channels for various reasons
Other Channels
The acquisition by VHSN gives China eMall immediate advantage through
broadcasting through news releases Professional marketing companies
will also be hired to do marketing Media: traditional marketing
TRADEMARKS AND PATENTS
The Company has no registered or pending patents and trademarks.
PROPERTY
Since September 1999, the Company's principal executive office is
located at 6705 Tomken Road, Unit 12-14 Mississauga, Ontario, Canada, a 1,200
square foot facility for which it pays rent on a month to month basis of $10.00
per square foot per year or $1,000 per month. All operations including system
development, control and maintenance are performed at this facility. The Company
shares the facility with Groupmark Canada Limited. The Company believes these
facilities are adequate for its operations for the foreseeable future.
China-eMall maintains its office at 56 Temperance St. Toronto, Canada.
China e-Mall shares the premises with another tenant on a month to month basis
at the annual rent of $18,000 or $1,500 per month. It is the Company's intention
to find suitable accommodation where VHSN could house both smartCARD operation
and China e-Mall operation at the same facility.
The principal offices of Exodus are as set forth in a copy of the
Exodus Form 10-SB.
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LITIGATION
There is no outstanding litigation in which the Company is involved and
the Company is unaware of any pending actions or claims against it. The Company
is aware that the Internal Revenue Service subpoenaed records from its transfer
agent. Through telephone conversations with the IRS the Company has been
informed that the investigation is focused on a director of a corporation that
merged with the Company.
EMPLOYEES
The Company has 5 full time employees and one part time employee. All
employees are employed and paid by Groupmark and their services are provided to
VHS as needed and billed through the Groupmark-VHS management services
agreement.
DESCRIPTION OF SECURITIES
The Company has an authorized capitalization of 100,000,000 shares of
common stock, $.001 par value per share, of which 19,035,268 shares have been
issued and are outstanding, and 25,000,000 shares of preferred stock, $.001 par
value per share, of which no shares are issued and outstanding. Exodus is
authorized to issue 50,000,000 shares of common stock, 5,000,000 of which are
issued and outstanding, all 5,000,000 shares of Exodus are owned by the Company.
Common Stock. Each common share entitles the holder thereof to one vote on each
matter with respect to which shareholders have the right to vote, to fully
participate in all shareholder meetings, and to share ratably in the net assets
of the corporation upon liquidation or dissolution, but each such share shall be
subject to the rights and preferences of the preferred shares. Subject to the
preferences of any Preferred Stock that may be issued in the future, the holders
of Common Stock are entitled to receive such dividends as may be declared by the
Board of Directors. All outstanding shares of Common Stock are fully paid and
non-assessable. Preferred Shares. Subject to the provisions of the Articles of
Incorporation and limitations prescribed by law, the Board of Directors has the
authority to issue up to 25,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend right, dividend rates, conversion rates, voting rights, terms
of redemption, redemption prices, liquidation preferences and the number of
shares constituting any series or the designation of such series, which may be
superior to those of the Common Stock, without further vote or action by the
shareholders. There will be no shares of Preferred Stock outstanding upon the
filing of the Form 8-K and the Company has no present plans to isue any
Preferred Stock.
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Dividends. Dividends, if any, will be contingent upon the Company's revenues and
earnings, if any, capital requirements and financial conditions. The payment of
dividends, if any, will be within the discretion of the Company's Board of
Directors. The Company presently intends to retain all earnings, if any, for use
in its business operations and accordingly, the Board of Directors does not
anticipate declaring any dividends prior to a business combination.
TRANSFER AGENT
Florida Atlantic Stock Transfer, Inc., Tamarac, Florida, acts as
transfer agent for the Common Stock of the Company.
MARKET FOR THE COMPANY'S SECURITIES
The Company has been a non-reporting publicly traded company with
certain of its securities exempt from registration under the Securities Act of
1933 pursuant to Rule 504 of Regulation D of the General Rules and Regulations
of the Securities and Exchange Commission. The Company's common stock is traded
on the NASD OTC Bulletin Board under the symbol VHSN. The Nasdaq Stock Market
has implemented a change in its rules requiring all companies trading securities
on the NASD OTC Bulletin Board to become reporting companies under the
Securities Exchange Act of 1934.
The Company was required to become a reporting company by the close of
business on May 17, 2000. VHSN acquired all the outstanding shares of Exodus to
become successor issuer to it pursuant to Rule 12g-3 in order to comply with the
reporting company requirements implemented by the Nasdaq Stock Market.
The following table represents the high and low bid prices for the
Company's common stock:
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Closing Bid
-----------
Quarter High $ Low $
------- ------ -----
1998
First Quarter 1.03 0.13
Second Quarter 3.25 0.31
Third Quarter 3.44 1.50
Fourth Quarter 2.16 0.44
1999
First Quarter 0.88 0.16
Second Quarter 0.59 0.13
Third Quarter 0.27 0.06
Fourth Quarter 0.20 0.12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Groupmark Canada Limited, the controlling shareholder of the Company
that is wholly owned by Elwin D. Cathcart, a director of the Company, provides
executive management personnel and services to the Company, pursuant to the
Management Services Agreement between Groupmark Canada Limited and VHS Network,
Inc. under which all personnel services for VHSN are paid by Groupmark and are
provided to VHSN as needed and billed through the Management Services Agreement.
During the fiscal year ended December 31, 1998 the Company accrued a debt of
US$672,000 payable to Groupmark Canada Limited for management fees, and during
the nine months ended September 30, 1999 the Company accrued a debt of
US$336,000 payable to Groupmark Canada Limited for such services.
A copy of the Management Services Agreement is filed as an exhibit to
this Form 8-K and is incorporated in its entirety herein. The foregoing
description is modified by such reference.
Dr. Gang Chai's service is provided to the Company through G.D.
Consulting and Investment Company pursuant to the Consulting Service Agreement
between G.D. Consulting and Investment Company (the "Consultant"), Dr. Chai and
the Company. Pursuant to the Consulting Service Agreement, the Company agrees to
pay to the Consultant during the term of this Agreement for the services of Dr.
Chai for a monthly fee of CDN $7,833.34, plus applicable goods and services tax,
payable on the first day of each month for the term of the Consulting Service
Agreement, the initial term of which is one year.
A copy of the Consulting Services Agreement is filed as an exhibit to
this Form 8-K and is incorporated in its entirety herein. The foregoing
description is modified by such reference.
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MANAGEMENT
The Executive officers of the Company are as follows:
Name Age Title
---- --- -----
Elwin Cathcart 73 Chairman and Chief
Executive Officer, Chief
Executive Officer, Director
Thomas Roberts 64 Director
Gang Chai 41 Chief Operating Officer,
Director
David Smelsky 42 Secretary, Director
ELWIN D. CATHCART has been Chairman and Chief Executive Officer of the
Company since April 1997. Mr. Cathcart also serves as Chairman and Chief
Executive Officer of Groupmark Canada Limited over the last 5 years, a private
marketing company specializing in direct mail service products which he founded
in 1970. From 1970 to 1972, Mr. Cathcart also served as President of the
Canadian Direct Mail Marketing Association, a Toronto based company he helped
found in 1969, and where he continues to serve in an advisory capacity as a Life
Member. From 1960 to 1970, Mr. Cathcard served as National Sales Manager for
Canada and then became National Sales Manager for the United States for a
private, direct mail marketing company known as R.L. Polk & Co., located in
Detroit, Michigan. Mr. Cathcart has served on the board of several public
companies including Equity Investment Corp., a financial marketing company;
TelSoft Mobile Data Inc., a company which purchased priority software for
Motorola. The Equity Group, a holding company for Equity Investments Corp. and
TelSoft Mobile Data Inc.; and Pacific Gold Corp., a west coast mining company.
Mr. Cathcart attended Riverdale College from 1942 to 1943 and received a
Bachelors Degree in Industrial Design from Ontario College of Aft in 1950.
THOMAS ROBERTS has been a director of the Company since April 1997. For
the past 37 years he has been an accountant in private practice. Mr. Roberts
attended Albersom Graughon College and the University of Alabama Birmingham
in1954 and 1955, respectively.
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GANG CHAI received his Bachelor and Master degrees in geoscience from
China University in 1987 and 1985 respectively. After moving to Canada in 1987,
Dr. Chai went to the University of Toronto and received a Ph.D. in economic
geology in 1992. Dr. Chai had worked for private Canadian companies and both the
Ontario and Federal governments prior to founding China eMall. In addition to
his duties on the board of VHSN and China eMall, Dr. Chai also sits on the board
of McVicar Minerals Ltd. (CDNX, Canada) which he founded in 1997 and currently
acts as the CEO of the company.
DAVID SMELSKY has been the Secretary and a director of the Company
since April 1997. He was the Chief Financial Officer of Groupmark from November
1994 to October 1999. Since October 1999 he has been the Manager of Finance and
Administration for Halton Hills Hydro Commission. Mr. Smelsky received his
certification as Certified Management Accountant from the Society of Management
Accountants of Ontario in 1985.
EXECUTIVE COMPENSATION
Elwin Cathcart, Chairman and CEO, and David Smelsky, Secretary, receive
no salary. The Company issued 370,000 and 185,000 shares of Common Stock to Mr.
Cathcart and Mr. Smelsky in lieu of salary for their services to the Company
1999.
16
<PAGE>
<TABLE>
<CAPTION>
Compensation Table For 1997 and 1998
Name and
Principle Stock
Position Year Salary Bonus Options
- -------- ---- ------ ----- -------
<S> <C> <C> <C> <C>
Elwin D. Cathcart, CEO 1997 $0.00 $0.00 250,000 shares
1998 $0.00 $0.00 750,000 shares
David J. Smelsky, CFO 1997 $0.00 $0.00 250,000 shares
1998 $0.00 $0.00 250,000 shares
Options in Last Two Fiscal Years
Number Exercise or Expiration
Name Securities Options Base Price Date
- ---- ------------------ ---------- ----
Elwin D. Cathcart 250,000 $0.35 December 31, 2001
750,000 $0.40 December 31, 2002
David J. Smelsky 250,000 $0.35 December 31, 2001
250,000 $0.40 December 31, 2002
Thomas B. Roberts 250,000 $0.35 December 31, 2001
250,000 $0.40 December 31, 2002
</TABLE>
The Company does not provide any health, dental or life insurance to
its employees.
17
<PAGE>
RISK FACTORS
LIMITED HISTORY OF OPERATIONS; HISTORY OF LOSSES. The Company and its
subsidiaries have only a limited history of operations with periods of net
operating losses. During the period from January 30, 1999 to September 30, 1999,
the Company experienced a loss from its operations in the amount of $369,568.
The Company experienced a net loss of $2,207,818 on revenues of $794 for the
year ended December 31, 1998. The Company experienced a net loss of $14,833 on
$0 revenue for the year ended December 31, 1997. The Company's operations are
subject to the risks and competition inherent in the establishment of a
relatively new business enterprise in a competitive field of Internet start-up
companies. There can be no assurance that future operations will be profitable.
Revenues and profits, if any, will depend upon various factors, including market
acceptance of its concepts, market awareness, its ability to expand its
electronic commerce business, reliability and acceptance of the Internet
commerce, and general economic conditions. There is no assurance that the
Company will achieve its expansion goals and the failure to achieve such goals
would have an adverse impact on it.
ADVERSE ECONOMIC CONDITIONS OR A CHANGE IN GENERAL MARKET PATTERNS. A
weak economic environment could adversely affect the Company sales and
promotional efforts. General economic conditions impact Internet based and
related commerce and demand and interest for the Company's Internet services may
decline at any time, especially during recessionary periods. The Company's
operating results have fluctuated in the past, and are expected to continue to
fluctuate in the future, due to a number of factors, many of which are outside
the Company's control. These factors include (i) the Company's ability to
attract new customers at a steady rate, manage its inventory mix and the mix of
products offered meet certain pricing targets, liquidate its inventory in a
timely manner, maintain gross margins and maintain customer satisfaction, (ii)
the availability and pricing of merchandise from vendors, (iii) product
obsolescence and pricing erosion, (iv) consumer confidence in encrypted
transactions in the Internet environment, (v) the timing, cost and availability
of advertising on other entities' Web sites, (vi) the amount and timing of costs
relating to expansion of the Company's operations, (vii) the announcement or
introduction of new types of merchandise, service offerings or customer services
by the Company or its competitors, (viii) technical difficulties with respect to
consumer use of the Company's Web sites, (ix) delays in revenue recognition at
the end of a fiscal period as a result of shipping or logistical problems, (x)
delays in shipments as a result of strikes or other problems with the Company's
delivery service providers or the loss of the Company's credit card processor,
(xi) the level of merchandise returns experienced by the Company, and (xii)
general economic conditions and economic conditions specific to the Internet and
electronic commerce. As a strategic response to changes in the competitive
18
<PAGE>
environment, the Company may from time to time make certain service, marketing
or supply decisions or acquisitions that could have a material adverse effect on
the Company's quarterly results of operations and financial condition. The
Company also expects that in the future, like other retailers, it may continue
to experience seasonality in its business.
RELIANCE ON FUTURE ACQUISITIONS STRATEGY. The Company expects to
continue to rely on acquisitions as a component of its growth strategy. The
Company regularly engages in evaluations of potential target candidates,
including evaluations relating to acquisitions that may be material in size
and/or scope. There is no assurance that the Company will continue to be able to
identify potentially successful companies that provide suitable acquisition
opportunities or that the Company will be able to acquire any such companies on
favorable terms. Also, acquisitions involve a number of special risks including
the diversion of management's attention, assimilation of the personnel and
operations of the acquired companies, possible loss of key employees. There is
no assurance that the acquired companies will be able to successfully integrate
into the Company's existing infrastructure or to operate profitably. There is
also no assurance given as to the Company's ability to obtain adequate funding
to complete any contemplated acquisition or that such acquisition will succeed
in enhancing the Company's business and will not ultimately have an adverse
effect on the Company's business and operations.
LOSS OF THE COMPANY KEY EMPLOYEES MAY ADVERSELY AFFECT GROWTH
OBJECTIVES. The Company success in achieving its growth objectives depends upon
the efforts of Elwin Cathcart, Chairman and Chief Executive Officer of the
Company since its inception as well as other key management personnel. Their
experience and industry-wide contacts significantly benefit the Company. The
loss of the services of these individuals could have a material adverse effect
on the Company business, financial condition and results of operations. There is
no assurance that the Company will be able to maintain and achieve its growth
objectives should it lose any of its key management members' services.
COMPETITION FROM LARGER AND MORE ESTABLISHED COMPANIES MAY HAMPER
MARKETABILITY. The competition in the Internet and electronic commerce industry
is intense. The Company's smartCard business competes with approximately 12 to
15 companies all of which manufacture chip-based cards and have possess more
financial, personnel, marketing and sales resources than the Company. However,
these companies are focusing their marketing of these cards for security
purposes and debit or charge cards, whereas the Company will be focusing its
marketing of these cards as a loyalty reward to a company's customers.
19
<PAGE>
The business of China eMall Corporation competes with the traditional
export market including wholesalers and distributors as well as with other
Internet wholesalers and distributors, such as the midChina.com. This industry
hosts a number of well-established competitors, including national, regional and
local companies within and outside China possessing greater financial,
marketing, personnel and other resources than China eMall. There is no assurance
that the Company will be able to market or sell its products if faced with
direct product and services competition from these larger and more established
wholesalers and distributors.
FAILURE TO ATTRACT QUALIFIED PERSONNEL. A change in labor market
conditions that either further reduces the availability of employees or
increases significantly the cost of labor could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's business is dependent upon its ability to attract and retain highly
trained and qualified technical personnel and corporate management. There is no
assurance that the Company will be able to employ a sufficient number of
qualified training personnel in order to achieve its growth objectives.
VOTING CONTROL BY THE OFFICERS AND DIRECTORS OF THE COMPANY'S
COMMON STOCK. The Company's executive officers and directors beneficially own
substantially all of the outstanding shares of Common Stock. Mr. Cathcart owns
over 48.7% of the outstanding shares of Common Stock. The Company's officers and
directors currently are, and in the foreseeable future will continue to be, in a
position to control the Company by being able to nominate and elect the
Company's Board of Directors. The Board of Directors establishes corporate
policies and has the sole authority to nominate and elect the Company's officers
to carry out those policies. Prospective investors therefore will have limited
participation in the Company's affairs.
NO DIVIDENDS. The Company has never paid any cash or other dividends on
its Common Stock. Payment of dividends on the Common Stock is within the
discretion of the Board of Directors and will depend upon our earnings, our
capital requirements and financial condition, and other factors deemed relevant
by the Board. For the foreseeable future, the Board intends to retain future
earnings, if any, to finance the Company's business operations and does not
anticipate paying any cash dividends with respect to the Common Stock.
INELIGIBILITY FOR LISTING ON NASDAQ. The Nasdaq Stock Market has
implemented a change in its rules ("Eligibility Rules") requiring all companies
trading securities on the NASD OTC Bulletin Board to become reporting companies
under the Securities Exchange Act of 1934.
20
<PAGE>
Under the Eligibility Rules, the Company is required to become a reporting
company by the close of business on May 17, 2000. Although the Company has
acquired all the outstanding shares of Exodus to become successor issuer to it
pursuant to Rule 12g-3 in order to comply with the reporting company
requirements implemented by the Nasdaq Stock Market, no assurance exists that
the Company will be deemed in compliant of the Eligibility Rule by the OTCBB in
time to meet the May 17, 2000 deadline. In the event the Company is not deemed
to meet the Eligibility Rules prior to the May 17, 2000 deadline, its securities
could be delisted. Any such delisting could cause a precipitous decline in the
market price of the Company's Common Stock, if any, and adversely affect their
liquidity.
ISSUANCE OF FUTURE SHARES MAY DILUTE INVESTOR SHARE VALUE. The
Articles of Incorporation, as amended, of the Company authorizes the issuance of
100,000,000 shares of common stock and 25,000,000 shares of preferred stock. The
future issuance of all or part of the remaining authorized common stock and/or
all or part of the preferred stock may result in substantial dilution in the
percentage of the Company's common stock held by the its then existing
shareholders. Moreover, any common stock issued in the future may be valued on
an arbitrary basis by the Company. The issuance of the Company's shares for
future services or acquisitions or other corporate actions may have the effect
of diluting the value of the shares held by investors, and might have an adverse
effect on any trading market, should a trading market develop for the Company's
common stock.
PENNY STOCK REGULATION. Penny stocks generally are equity securities
with a price of less than $5.00 per share other than securities registered on
certain national securities exchanges or quoted on the Nasdaq Stock Market,
provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system. The Company's
securities may be subject to "penny stock rules" that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the "penny stock rules" require the delivery, prior
to the transaction, of a disclosure schedule prescribed by the Commission
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements must be
sent disclosing recent price information on the limited market in penny stocks.
Consequently, the "penny stock rules" may restrict the ability of broker-dealers
21
<PAGE>
to sell the
Company's securities. The foregoing required penny stock restrictions will not
apply to the Company's securities if such securities maintain a market price of
$5.00 or greater. There can be no assurance that the price of the Company's
securities will reach or maintain such a level.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation and Bylaws provide that the
Company shall indemnify any person, who was or is a party to a proceeding by
reason of the fact that he is or was a director or officer of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, and may indemnify any person, who was or is a party to a proceeding
by reason of the fact that he is or was an employee or agent of the Corporation
or is or was serving at the request of the Corporation as an employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with such proceeding if he acted in good faith and in a manner
he reasonably believed to be or not opposed to the best interests of the
Company, in accordance with, and to the full extent permitted by law.
PROJECTIONS AND FORWARD-LOOKING STATEMENTS
This 8-K contains statements regarding matters that are not historical
facts and constitute forward-looking statements within the meaning of Section
27A of the Act and Section 21E of the Securities Exchange Act of 1934. These
statements often refer to the Company's future plans, projections, objectives,
expectations and intentions and the assumptions underlying or relating to these
statements. These statements are generally identified by reference to such words
as "expects," "anticipates," "hopes," "plans," "intends," "believes" and similar
expressions evidencing future intentions. Because the outcome of the events
described in such forward-looking statements is subject to risks and
uncertainties and in the nature of projections or predictions of future events
which may not occur, actual results may differ materially from those expressed
in or implied by such forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are based
upon reasonable assumptions, it can give no assurances that its expectations
will be achieved. The level of future revenues of the Company, and its
profitability, if any, are impossible to accurately predict due to uncertainty
as to possible changes in economic, market and other circumstances. Certain of
the factors that could cause actual results to differ from the Company's
expectations are set forth in these Risk Factors. Prospective investors are
urged to consent with their own advisors with respect to any revenue, financial,
business and other projections contained herein.
22
<PAGE>
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Successor Issuer Election.
Pursuant to Rule 12g-3(a) of the General Rules and Regulations of the
Securities and Exchange Commission, upon effectiveness of the Acquisition, the
Company became the successor issuer to Exodus for reporting purposes under the
Securities Exchange Act of 1934 and elects to report under the Act effective May
12, 2000.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Tim T. Chang, the President and Chief Executive Officer and one of two
directors of Exodus, resigned as an officer and director, as part of a change of
control of Exodus on May 6, 2000. Patrick R. Boyd, the only other Director and
the Secretary and Chief Financial Officer of Exodus also resigned as part of the
acquisition of Exodus on May 6, 2000. There are no disputes with Messrs. Boyd or
Chang. Elwin Cathcart was appointed the sole director and the President, CEO,
Secretary and CFO of Exodus upon the resignation of Messrs. Chang and Boyd.
ITEM 7. FINANCIAL STATEMENTS
The Company is required to file additional financial statements by
amendment hereto not later than 60 days after the date that this Current Report
on Form 8-K must be filed. The audited financial statements of Exodus and the
financial statements of the Company are attached herewith.
23
<PAGE>
<TABLE>
<CAPTION>
VHS NETWORK, INC.
Consolidated Balance Sheets
As of December 31,1999 and 1998
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
Cash $ 533 $ 18,191
Receivables -- 11,000
Inventory 1,399,992 1,399,992
----------- -----------
Total current assets 1,400,525 1,429.183
----------- -----------
Prepaids and Deposits 67,774 67,774
----------- -----------
Total assets 1,468,299 $ 1,496,957
=========== ===========
LIABILITIES
Accounts payable $ 101,867 $ 40,842
----------- -----------
Accrued expenses
Total current liabilities 101,867 40,842
----------- -----------
Notes payable --
Notes payable, related party 1,645,868 1,331,674
Reserve for loss contingencies 350,000 350,000
----------- -----------
1,995,868 1,681,674
----------- -----------
Total liabilities 2,097,735 1.722,516
----------- -----------
SHAREHOLDERS' EQUITY
Common stock: 100,000,000 shares authorized;
10,429,435 and 10,429,435 issued and outstanding,
respectively 10,429 10,429
Preferred stock; 5,000,000 shares authorized;
none issued or outstanding
Additional paid-in-capital 2,441,663 2,441,663
Accumulated deficit (3,081,528 (2,677,651)
----------- -----------
Total shareholders' equity (629,436) (225.559)
----------- -----------
Total liabilities and shareholders' equity $ 1,468,299 $ 1,496.957
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements,
F-2
<PAGE>
VHS NETWORK, INC.
Consolidated Statements of Operations
for the years ended December 31,1999 and 1998
1999 1998
------- -------
Income:
Sales $ -- $ --
Cost of goods sold -- --
Gross margin -- --
Operating Expenses:
Agency fees 9,190 21,634
Consulting fees 2,833 53,253
General and administrative 37,686 50,413
Management fees 336,000 672,000
Professional fees 18,168 16,647
Other -- 2,767
Depreciation and amortization
------- -------
Total operating expenses 403,877 816,714
------- -------
Other (Income) and Expenses:
Interest (income) and expense -- 328
Other (income) and expense, net -- (596)
------- -------
Total other (income) and expense -- (268)
------- -------
Net loss before taxes 403,877 816,446
------- -------
Income taxes
Net toss $ 403,877 $ 816,446
========= =========
Net loss per common share -
Basic $ $
========= =========
Net loss per common share -
Diluted $ $
========= =========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
VHS NETWORK, INC.
Consolidated Statements or Shareholders' Equity
for the years ended December 31, 1999 and 1998
Common Preferred Additional Accumulated
Stock Stock paid-in-capital Deficit Total
----- ----- --------------- ------- -----
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 1,240,721 $ 1,241 -- $ -- $ 214,859 $(1,861,205) $(1,645,105)
---------- ----------- ----------- ----------- ----------- ----------- ------------
Sale of stock 2,788,722 2,789 -- -- 336,000 -- 338,789
-- -- -- -- (2,789) -- (2,789)
Offering costs
5,000,000 5,000 -- -- 495,000 -- 500,000
Conversion of debt
Acquisition of inventory 1,399,992 1,399 -- -- 1,398,593 -- 1,399,992
Net loss -- -- -- -- -- (816,446) (816,446)
---------- ----------- ----------- ----------- ----------- ----------- ------------
Balance December 31, 1998 10,429,435 10,429 -- -- 2,441,663 (2,677,651) (225,559)
---------- ----------- ----------- ----------- ----------- ----------- ------------
Net foss -- -- -- -- -- (403,877) (403,877)
---------- ----------- ----------- ----------- ----------- ----------- ------------
Balance December 3l, 1999 10,429,435 $ 10,429 -- $ -- $ 2,441,663 $ (3,081,528) $ (629,436)
========== =========== =========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
VHS NETWORK, INC.
Consolidated Statements of Cash Flows
for the years ended December 31,1999 and 1998
1999 1998
----------- -----------
<S> <C> <C>
Net income (loss) $ (403,877) $ (816,446)
Depreciation and amortization -- --
----------- -----------
Net use of cash from operations $ (403,877) $ (816,446)
----------- -----------
Cash flow from operating activities:
Changes in assets and liabilities
Inventory $ -- $(1,399,992)
Receivables 11,000 (11,000)
Prepaids and deposits -- (67,774)
Accounts payable 61,025 33,668
Accrued expenses -- --
----------- -----------
Cash flow generated by (used in) operating activities $ (331,852) $(2,261,544)
----------- -----------
Cash flow from investing activities:
Net cash generated by (used in) investing activities $ -- $ --
----------- -----------
Cash flow from financing activities:
Borrowings under notes payable $ 314,194 $ 43,685
Notes payable converted to stock -- 500,000
Offering costs -- (2,789)
Inventory acquired for common stock -- 1,399,992
Proceeds from sale of stock -- 338,789
----------- -----------
Net cash generated by (used in) financing activities $ 314,194 $ 2,279,677
(17,658) 18,133
Balance at beginning of year 18,191 58
----------- -----------
Balance at end of year $ 533 $ 18,191
=========== ===========
Supplemental disclosure:
Cash paid for interest $ -- $ --
----------- -----------
Cash paid for taxes $ -- $ --
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF FEBRUARY 24, 2000
<PAGE>
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
--------
PAGE F-1 INDEPENDENT AUDITORS' REPORT
PAGE F-2 BALANCE SHEET AS OF FEBRUARY 24, 2000
PAGE F-3 STATEMENT OF OPERATIONS FOR THE PERIOD FROM FEBRUARY 15, 2000
(INCEPTION) TO FEBRUARY 24, 2000
PAGE F-4 STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY FOR THE PERIOD FROM
FEBRUARY 15, 2000 (INCEPTION) TO FEBRUARY 24, 2000
PAGE F-5 STATEMENT OF CASH FLOWS FOR THE PERIOD FROM FEBRUARY 15, 2000
(INCEPTION) TO FEBRUARY 24, 2000
PAGES F-6-F-8 NOTES TO FINANCIAL STATEMENTS AS OF FEBRUARY 24, 2000
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of:
Exodus Acquisition Corporation
(A Development Stage Company)
We have audited the accompanying balance sheet of Exodus Acquisition Corporation
(a development stage company) as of February 24, 2000 and the related statement
of operations, changes in stockholder's equity and cash flows for the period
from February 15, 2000 (inception) to February 24, 2000. 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 Exodus Acquisition Corporation (a
development stage company) as of February 24, 2000, and the results of its
operations and its cash flows for the period from February 15, 2000 (inception)
to February 24, 2000 in conformity with generally accepted accounting
principles.
By:/s/Weinberg & Company, P.A.
------------------------------
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
February 29, 2000
F-1
<PAGE>
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF FEBRUARY 24, 2000
-----------------------
2
ASSETS
------
Cash $ 2,000
-------
TOTAL ASSETS $ 2,000
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Accounts payable $ 750
-------
STOCKHOLDER'S EQUITY
Common Stock, no par value, 50,000,000
shares authorized, 5,000,000 issued
and outstanding 2,000
Additional paid-in capital 358
Deficit accumulated during development stage (1,108)
-------
Total Stockholder's Equity 1,250
-------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,000
=======
See accompanying notes to financial statements
F-2
<PAGE>
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
-----------------------
February 15, 2000
(Inception) to February
24, 2000
--------
Income $ --
Expenses
Legal fees 750
Organization expense 358
----------
Total expenses 1,108
----------
NET LOSS $ (1,108)
==========
LOSS PER SHARE - BASIC AND DILUTED $ (0.0002)
==========
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC AND
DILUTED 5,000,000
==========
See accompanying notes to financial statements
F-3
<PAGE>
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM FEBRUARY 15, 2000 (INCEPTION)
TO FEBRUARY 24, 2000
--------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING
ISSUED PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Common Stock Issuance 5,000,000 $ 2,000 $ -- $ -- $ 2,000
Fair value of expenses contributed -- -- 358 -- 358
Net loss for the period ended
February 24, 2000 -- -- -- (1,108) (1,108)
--------- --------- --------- --------- ---------
BALANCE, FEBRUARY 24, 2000 5,000,000 $ 2,000 $ 358 $ (1,108) $ 1,250
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
-----------------------
February 15, 2000
(Inception) to February
24, 2000
--------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (1,108)
Adjustment to reconcile net loss to
net cash used by operating activities
Increase in accounts payable 750
Capitalized expenses 358
------
Net cash used by operating activities --
------
CASH FLOWS FROM INVESTING
ACTIVITIES --
------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock 2,000
------
Net cash provided by financing activities 2,000
------
INCREASE IN CASH AND CASH
EQUIVALENTS 2,000
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD --
------
CASH AND CASH EQUIVALENTS - END OF
PERIOD $ 2,000
======
See accompanying notes to financial statement.
F-5
<PAGE>
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF FEBRUARY 24, 2000
-----------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A Organization and Business Operations
---------------------------------------
Exodus Acquisition Corporation (a development stage company)
("the Company") was incorporated in California on February 15,
2000 to serve as a vehicle to effect a merger, exchange of
capital stock, asset acquisition or other business combination
with a domestic or foreign private business. At February 24,
2000, the Company had not yet commenced any formal business
operations, and all activity to date relates to the Company's
formation and proposed fund raising. The Company's fiscal year
end is December 31.
The Company's ability to commence operations is contingent
upon its ability to identify a prospective target business and
raise the capital it will require through the issuance of
equity securities, debt securities, bank borrowings or a
combination thereof.
B Use of Estimates
-------------------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
C Cash and Cash Equivalents
----------------------------
For purposes of the statement of cash flows, the Company
considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents.
D Earning per Share
--------------------
Net loss per common share for the period from February 15,
2000 (inception) to February 24, 2000 is computed based upon
F-6
<PAGE>
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF FEBRUARY 24, 2000
-----------------------
the weighted average common shares outstanding as defined be
Financial Accounting Standards No. 128 "Earnings Per Share".
There were no common stock equivalents outstanding at February
24, 2000.
E Income Taxes
--------------
The Company accounts for income taxes under the Financial
Accounting Standards Board of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("Statement 109").
Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. There were no current or deferred income tax
expense or benefits due to the Company not having any material
operations for the period ended February 24, 2000.
NOTE 2 STOCKHOLDER'S EQUITY
----------------------------
A Common Stock
--------------
The Company is authorized to issue 50,000,000 shares of common
stock with no par value. The Company issued 5,000,000 shares
of its common stock to BAC Consulting Corporation ("BAC") for
an aggregate consideration of $2,000.
B Additional Paid-In Capital
----------------------------
Additional paid-in capital at February 24, 2000 represents the
fair value of the amount of organization costs incurred by BAC
on behalf of the Company. (See Note 3)
F-7
<PAGE>
EXODUS ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF FEBRUARY 24, 2000
-----------------------
NOTE 3 AGREEMENTS
-----------------
(A) Consulting
--------------
On February 24, 2000, the Company signed an agreement with
BAC, a related entity (See Note 4). The Agreement calls for
BAC Consulting Corporation to provide the following services,
without reimbursement from the Company, until the Company
enters into a business combination as described in Note 1A:
1. Preparation and filing of required documents with the
Securities and Exchange Commission.
2. Location and review of potential target companies.
3. Payment of all corporate, organizational, and other costs
incurred by the Company.
(B) Legal
On February 21, 2000, the Company signed an agreement with
Boyd and Chang, LLP, a related entity (see Note 4). The
agreement calls for Boyd and Chang, LLP to provide legal
services at standard rates and provide secretarial and office
support at a flat rate of $250 per month.
NOTE 4 RELATED PARTIES
-----------------------
Legal counsel to the Company is a firm owned by the directors
of the Company who also owns a controlling interest in the
outstanding stock of BAC. (See Note 3)
F-8
<PAGE>
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable. The Company has a fiscal year ending on December 31.
EXHIBITS
2.1. Agreement and Plan of Reorganization between VHS, Network, Inc. and
Exodus Acquisition Corporation, dated May 6, 2000.
3.1. Articles of Incorporation of VHS Network, Inc., Articles of Merger and
Articles of amendment for VHS Network.
3.2. By-Laws of VHS Network, Inc.
10.1 Share Exchange Agreement between VHS Network, Inc., China eMall
Corporation, Uphill Capital Inc., GDCT Investment Inc., Gang Chai and
Qin Lu Chai, Qing Wang and Tai Xue Shi, Charles He, and Forte
Management Corp. dated April 12, 2000.
10.2 Consulting Services Agreement between VHS Network, Inc., G.C.
Consulting and Investment Corp. and Gang Chai dated March 1, 2000.
10.3 License Agreement between Groupmark Canada Limited and VHS Network,
Inc. dated January 1, 2000.
10.4 Management Services Agreement between Groupmark Canada Limited and VHS
Network, Inc.
10.5 Stephen Rossi Consulting Agreement between VHS Network, Inc., and
Stephen Rossi dated December 20, 2000.
10.6 Agreement and Plan of Merger dated as of December 26, 1996 made among
Ronden Vending Corp., Ronden Acquisition, Inc., Video Home Shopping,
Inc. (a Tennessee corporation), Progressive Media Group, Inc. and
Pamela Wilkerson.
10.7 Agreement and Plan of Merger dated as of December 30, 1996 between
Ronden Vending Corp. and Ronden Acquisition, Inc.
*10.8 Private Placement Offering Materials and Subscription Agreement dated
December 21, 1999.
23.1 Consent of Accountants.
27.1 Financial Data schedule.
(a) VHS Network Financial Statements
24
<PAGE>
(b) Exodus Acquisition Financial Statements
99.1 Form 10SB of Exodus Acquisition Corporation (File No. 33-0893488).
- -------------------------
*To be filed by amendment
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report on Form 8-K to be signed on
its behalf by the undersigned hereunto duly authorized.
VHS NETWORK, INC.
By /s/ Elwin Cathcart
------------------
Elwin Cathcart
Chairman and Chief Executive Officer
Date: January 12, 2000
25
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") among EXODUS
ACQUISITION CORPORATION, a Delaware corporation ("Exodus"), VHS NETWORKS, INC.,
a Florida corporation ("VHSN") and BAC Consulting Corporation, a California
corporation (the "Shareholders"), being the owners of record of all of the
issued and outstanding stock of Exodus.
Whereas, VHSN wishes to acquire and the Shareholders wish to transfer
all of the issued and outstanding securities of Exodus in a transaction intended
to qualify as a reorganization within the meaning of Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, Exodus, VHSN and the Shareholders adopt this plan of
reorganization and agree as follows:
1. EXCHANGE OF STOCK
1.1. NUMBER OF SHARES. Upon execution of x, the Shareholders
agree to transfer to VHSN 5,000,000 shares of common stock of Exodus, no par
value per share in an exchange for an aggregate of 500,000 shares of voting
common stock of VHSN.
1.2. EXCHANGE OF CERTIFICATES. Each holder of an outstanding
certificate or certificates theretofore representing shares of Exodus common
stock shall surrender such certificate(s) for cancellation to VHSN, and shall
receive in exchange a certificate or certificates representing the number of
full shares of VHSN common stock into which the shares of Exodus common stock
represented by the certificate or certificates so surrendered shall have been
converted. The transfer of Exodus shares by the Shareholders shall be effected
by the delivery to VHSN at the Closing of certificates representing the
transferred shares endorsed in blank or accompanied by stock powers executed in
blank.
1.3. FRACTIONAL SHARES. Fractional shares of VHSN common stock
shall not be issued, but in lieu thereof VHSN shall round up fractional shares
to the next highest whole number.
1.4. FURTHER ASSURANCES. At the Closing and from time to time
thereafter, the Shareholders shall execute such additional instruments and take
such other action as VHSN may request in order more effectively to sell,
transfer, and assign the transferred stock to VHSN and to confirm VHSN's title
thereto.
2. FORM OF DOCUMENTS. Any copy, facsimile telecommunication or
other reliable reproduction of the writing or transmission required by this
1
<PAGE>
Agreement or any signature required thereon may be used in lieu of an original
writing or transmission or signature for any and all purposes for which the
original could be used, provided that such copy, facsimile telecommunication or
other reproduction shall be a complete reproduction of the entire original
writing or transmission or original signature.
3. UNEXCHANGED CERTIFICATES. Until surrendered, each outstanding
certificate that prior to the Closing represented Exodus common stock shall be
deemed for all purposes, other than the payment of dividends or other
distributions, to evidence ownership of the number of shares of VHSN common
stock into which it was converted. No dividend or other distribution shall be
paid to the holders of certificates of Exodus common stock until presented for
exchange at which time any outstanding dividends or other distributions shall be
paid.
4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders, individually and separately, represent and warrant as
follows:
4.1. TITLE TO SHARES. The Shareholders, and each of them,
are the owners, free and clear of any liens and encumbrances, of the number of
Exodus shares which are listed in the attached schedule and which they have
contracted to exchange.
4.2. LITIGATION. There is no litigation or proceeding
pending, or to any Shareholder's knowledge threatened, against or relating to
shares of Exodus held by the Shareholders.
5. REPRESENTATIONS AND WARRANTIES OF EXODUS. Exodus represents
and warrants that:
5.1. CORPORATE ORGANIZATION AND GOOD STANDING. Exodus is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California and is qualified to do business as a foreign
corporation in each jurisdiction, if any, in which its property or business
requires such qualification.
5.2. REPORTING COMPANY STATUS. Exodus has filed with the
Securities and Exchange Commission a registration statement on Form 10-SB which
became effective pursuant to the Securities Exchange Act of 1934 and is a
reporting company pursuant to Section12(g) thereunder.
5.3. REPORTING COMPANY FILINGS. Exodus has timely filed
and is current on all reports required to be filed by it pursuant to Section 13
of the Securities Exchange Act of 1934.
5.4. CAPITALIZATION. Exodus's authorized capital stock
consists of 50,000,000 shares of Common Stock, no par value, of which 5,000,000
shares are issued and outstanding.
2
<PAGE>
5.5. ISSUED STOCK. All the outstanding shares of its
Common Stock are duly authorized and validly issued, fully paid and
non-assessable.
5.6. STOCK RIGHTS. Except as set out by schedule attached
hereto, there are no stock grants, options, rights, warrants or other rights to
purchase or obtain Exodus Common or Preferred Stock issued or committed to be
issued.
5.7. CORPORATE AUTHORITY. Exodus has all requisite
corporate power and authority to own, operate and lease its properties, to carry
on its business as it is now being conducted and to execute, deliver, perform
and conclude the transactions contemplated by this Agreement and all other
agreements and instruments related to this Agreement.
5.8. AUTHORIZATION. Execution of this Agreement has been
duly authorized and approved by Exodus 's board of directors.
5.9. SUBSIDIARIES. Except as set out by the schedule
attached hereto, Exodus has no subsidiaries.
5.10. FINANCIAL STATEMENTS. Exodus's financial statements
dated as of February 26, 2000 copies of which will have been delivered by Exodus
to VHSN prior to the Closing Date (the "Exodus Financial Statements"), fairly
present the financial condition of Exodus as of the date therein and the results
of its operations for the periods then ended in conformity with generally
accepted accounting principles consistently applied.
5.11. ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved against in the Exodus Financial Statements, and except as
may be related to the demand by Exodus Communication Corporation, Exodus did not
have at that date any liabilities or obligations (secured, unsecured,
contingent, or otherwise) of a nature customarily reflected in a corporate
balance sheet prepared in accordance with generally accepted accounting
principles.
5.12. NO MATERIAL CHANGES. Except as set out by attached
schedule, there has been no material adverse change in the business, properties,
or financial condition of Exodus since the date of the Exodus Financial
Statements.
5.13. LITIGATION. Except as set out by attached schedule,
there is not, to the knowledge of Exodus , any pending, threatened, or existing
litigation, bankruptcy, criminal, civil, or regulatory proceeding or
investigation, threatened or contemplated against Exodus or against any of its
officers.
5.14. CONTRACTS. Except as set forth in its Form 10-SB,
Exodus is not a party to any material contract not in the ordinary course of
business that is to be performed in whole or in part at or after the date of
this Agreement.
3
<PAGE>
5.15. NO VIOLATION. The Closing will not constitute or result
in a breach or default under any provision of any charter, bylaw, indenture,
mortgage, lease, or agreement, or any order, judgment, decree, law, or
regulation to which any property of Exodus is subject or by which Exodus is
bound.
6. REPRESENTATIONS AND WARRANTIES OF VHSN.
VHSN represents and warrants that:
6.1. CORPORATE ORGANIZATION AND GOOD STANDING. VHSN is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Florida and is qualified to do business as a foreign
corporation in each jurisdiction, if any, in which its property or business
requires such qualification.
6.2. CAPITALIZATION. VHSN's authorized capital stock consists
of 100,000,000 shares of Common Stock, $.001 par value per share, of which
19,035,268 shares have been issued and are outstanding, and 25,000,000 shares of
Preferred Stock, $.001 par value per share of which no shares have been issued
and outstanding.
6.3. ISSUED STOCK. All the outstanding shares of its Common
Stock are duly authorized and validly issued, fully paid and non-assessable.
6.4. STOCK RIGHTS. Except as set out by attached schedule,
there are no stock grants, options, rights, warrants or other rights to purchase
or obtain VHSN Common or Preferred Stock issued or committed to be issued.
6.5. CORPORATE AUTHORITY. VHSN has all requisite corporate
power and authority to own, operate and lease its properties, to carry on its
business as it is now being conducted and to execute, deliver, perform and
conclude the transactions contemplated by this Agreement and all other
agreements and instruments related to this Agreement.
6.6. AUTHORIZATION. Execution of this Agreement has been duly
authorized and approved by VHSN's board of directors.
6.7. FINANCIAL STATEMENTS. VHSN's financial statements dated
as of March 31, 2000, copies of which will have been delivered by VHSN to Exodus
prior to the Closing Date (the "VHSN Financial Statements"), fairly present the
financial condition of VHSN as of the date therein and the results of its
operations for the periods then ended in conformity with generally accepted
accounting principles consistently applied.
6.8. ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved against in the VHSN Financial Statements, VHSN did not
have at that date any liabilities or obligations (secured, unsecured,
4
<PAGE>
contingent, or otherwise) of a nature customarily reflected in a corporate
balance sheet prepared in accordance with generally accepted accounting
principles.
6.9. NO MATERIAL CHANGES. Except as set out by attached
schedule, there has been no material adverse change in the business, properties,
or financial condition of VHSN since the date of the VHSN Financial Statements.
6.10. LITIGATION. Except as set out by attached schedule,
there is not, to the knowledge of VHSN, any pending, threatened, or existing
litigation, bankruptcy, criminal, civil, or regulatory proceeding or
investigation, threatened or contemplated against VHSN or against any of its
officers.
6.11. CONTRACTS. Except as set out by attached schedule,
VHSN is not a party to any material contract not in the ordinary course of
business that is to be performed in whole or in part at or after the date of
this Agreement.
6.12. TITLE. Except as set out by attached schedule, VHSN has
good and marketable title to all the real property and good and valid title to
all other property included in the VHSN Financial Statements. Except as set out
in the balance sheet thereof, the properties of VHSN are not subject to any
mortgage, encumbrance, or lien of any kind except minor encumbrances that do not
materially interfere with the use of the property in the conduct of the business
of VHSN.
6.13. TAX RETURNS. Except as set out by attached schedule, all
required tax returns for federal, state, county, municipal, local, foreign and
other taxes and assessments have been properly prepared and filed by VHSN for
all years for which such returns are due unless an extension for filing any such
return has been filed. Any and all federal, state, county, municipal, local,
foreign and other taxes and assessments, including any and all interest,
penalties and additions imposed with respect to such amounts have been paid or
provided for. The provisions for federal and state taxes reflected in the VHSN
Financial Statements are adequate to cover any such taxes that may be assessed
against VHSN in respect of its business and its operations during the periods
covered by the VHSN Financial Statements and all prior periods.
6.14. NO VIOLATION. The Closing will not constitute or result
in a breach or default under any provision of any charter, bylaw, indenture,
mortgage, lease, or agreement, or any order, judgment, decree, law, or
regulation to which any property of VHSN is subject or by which VHSN is bound.
7. NONE.
8. CONDUCT PENDING THE CLOSING
Exodus, VHSN and the Shareholders covenant that between the
date of this Agreement and the Closing as to each of them:
5
<PAGE>
8.1. No change will be made in the charter documents,
by-laws, or other corporate documents of Exodus .
8.2. Exodus will use its best efforts to maintain and preserve
its business organization, employee relationships, and goodwill intact, and will
not enter into any material commitment except in the ordinary course of
business.
8.3. No change will be made in the charter documents,
by-laws, or other corporate documents of VHSN.
8.4. VHSN will use its best efforts to maintain and preserve
its business organization, employee relationships, and goodwill intact, and will
not enter into any material commitment except in the ordinary course of
business.
8.5. None of the Shareholders will sell, transfer, assign,
hypothecate, lien, or otherwise dispose or encumber the Exodus shares of common
stock owned by them.
9. CONDITIONS PRECEDENT TO OBLIGATION OF THE SHAREHOLDERS
The Shareholder's obligation to consummate this exchange shall
be subject to fulfillment on or before the Closing of each of the following
conditions, unless waived in writing by the Shareholders as appropriate:
9.1. VHSN'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of VHSN set forth herein shall be true and
correct at the Closing as though made at and as of that date, except as affected
by transactions contemplated hereby.
9.2. VHSN'S COVENANTS. VHSN shall have performed all
covenants required by this Agreement to be performed by it on or before the
Closing.
9.3. BOARD OF DIRECTOR APPROVAL. This Agreement shall have
been approved by the Board of Directors of VHSN.
10. CONDITIONS PRECEDENT TO OBLIGATION OF VHSN
VHSN's obligation to consummate this exchange shall be subject
to fulfillment on or before the Closing of each of the following conditions,
unless waived in writing by VHSN:
10.1. SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Shareholders set forth herein shall be
true and correct at the Closing as though made at and as of that date, except as
affected by transactions contemplated hereby.
6
<PAGE>
10.2. SHAREHOLDERS' COVENANTS. The Shareholders shall have
performed all covenants required by this Agreement to be performed by them on or
before the Closing.
10.3. EXODUS'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Exodus set forth herein shall be true and
correct at the Closing as though made at and as of that date, except as affected
by transactions contemplated hereby.
10.4. EXODUS' COVENANTS. Exodus shall have performed all
covenants required by this Agreement to be performed by them on or before the
Closing.
10.5. BOARD OF DIRECTOR APPROVAL. This Agreement shall have
been approved by the Board of Directors of Exodus .
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Shareholders, VHSN and Exodus set out
herein shall survive the Closing for a period of 12 months.
12. ARBITRATION
12.1. SCOPE. The parties hereby agree that any and all claims
(except only for requests for injunctive or other equitable relief) whether
existing now, in the past or in the future as to which the parties or any
affiliates may be adverse parties, and whether arising out of this Agreement or
from any other cause, will be resolved by arbitration before the American
Arbitration Association within the State of California.
12.2. CONSENT TO JURISDICTION, SITUS AND JUDGEMENT. The
parties hereby irrevocably consent to the jurisdiction of the American
Arbitration Association and the situs of the arbitration (and any requests for
injunctive or other equitable relief) within the State of California. Any award
in arbitration may be entered in any domestic or foreign court having
jurisdiction over the enforcement of such awards.
12.3. APPLICABLE LAW. The law applicable to the arbitration
and this agreement shall be that of the State of California, determined without
regard to its provisions which would otherwise apply to a question of conflict
of laws.
12.4. DISCLOSURE AND DISCOVERY. The arbitrator may, in its
discretion, allow the parties to make reasonable disclosure and discovery in
regard to any matters which are the subject of the arbitration and to compel
compliance with such disclosure and discovery order. The arbitrator may order
the parties to comply with all or any of the disclosure and discovery provisions
of the Federal Rules of Civil Procedure, as they then exist, as may be modified
by the arbitrator consistent with the desire to simplify the conduct and
minimize the expense of the arbitration.
7
<PAGE>
12.5. RULES OF LAW. Regardless of any practices of arbitration
to the contrary, the arbitrator will apply the rules of contract and other law
of the jurisdiction whose law applies to the arbitration so that the decision of
the arbitrator will be, as much as possible, the same as if the dispute had been
determined by a court of competent jurisdiction.
12.6. FINALITY AND FEES. Any award or decision by the American
Arbitration Association shall be final, binding and non-appealable except as to
errors of law or the failure of the arbitrator to adhere to the arbitration
provisions contained in this Agreement. Each party to the arbitration shall pay
its own costs and counsel fees except as specifically provided otherwise in this
Agreement.
12.7. MEASURE OF DAMAGES. In any adverse action, the parties
shall restrict themselves to claims for compensatory damages and\or securities
issued or to be issued and no claims shall be made by any party or affiliate for
lost profits, punitive or multiple damages.
12.8. COVENANT NOT TO SUE. The parties covenant that under no
conditions will any party or any affiliate file any action against the other
(except only requests for injunctive or other equitable relief) in any forum
other than before the American Arbitration Association, and the parties agree
that any such action, if filed, shall be dismissed upon application and shall be
referred for arbitration hereunder with costs and attorney's fees to the
prevailing party.
12.9. INTENTION. It is the intention of the parties and their
affiliates that all disputes of any nature between them, whenever arising,
whether in regard to this Agreement or any other matter, from whatever cause,
based on whatever law, rule or regulation, whether statutory or common law, and
however characterized, be decided by arbitration as provided herein and that no
party or affiliate be required to litigate in any other forum any disputes or
other matters except for requests for injunctive or equitable relief. This
Agreement shall be interpreted in conformance with this stated intent of the
parties and their affiliates.
12.10. SURVIVAL. The provisions for arbitration contained
herein shall survive the termination of this Agreement for any reason.
13. GENERAL PROVISIONS.
13.1. FURTHER ASSURANCES. From time to time, each party will
execute such additional instruments and take such actions as may be reasonably
required to carry out the intent and purposes of this Agreement.
13.2. WAIVER. Any failure on the part of either 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.
8
<PAGE>
13.3. BROKERS. Each party agrees to indemnify and hold
harmless the other party against any fee, loss, or expense arising out of claims
by brokers or finders employed or alleged to have been employed by the
indemnifying party.
13.4. 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 certified mail, return receipt requested,
or recognized commercial courier service, as follows:
If to Exodus, to: Exodus Acquisition Corporation
19900 MacArthur Boulevard, Suite 660
Irvine, California 92612
If to VHSN, to: VHS Network, Inc.
6705 Tomken Road, Unit 12-14
Mississauga, Ontario, Canada
If to the Shareholders, to: BAC Consulting Corporation
19900 MacArthur Boulevard, Suite 660
Irvine, California 92612
13.5. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California.
13.6. ASSIGNMENT. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their successors and assigns;
provided, however, that any assignment by either party of its rights under this
Agreement without the written consent of the other party shall be void.
13.7. 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. Signatures sent by facsimile transmission shall be deemed to be
evidence of the original execution thereof.
13.8. EXCHANGE AGENT AND CLOSING DATE. The Exchange Agent
shall be the law firm of Boyd & Chang, LLP, 19900 MacArthur Boulevard, Suite
660, Irvine, California. The Closing shall take place upon the fulfillment by
each party of all the conditions of Closing required herein, but not later than
15 days following execution of this Agreement unless extended by mutual consent
of the parties.
13.9. REVIEW OF AGREEMENT. Each party acknowledges that it has
had time to review this Agreement and, as desired, consult with counsel. In the
interpretation of this Agreement, no adverse presumption shall be made against
any party on the basis that it has prepared, or participated in the preparation
of, this Agreement.
9
<PAGE>
13.10. SCHEDULES. All schedules attached hereto, if any, shall
be acknowledged by each party by signature or initials thereon and shall be
dated.
13.11. EFFECTIVE DATE. This effective date of this Agreement
shall be May 5, 2000.
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION AMONG EXODUS,
VHSN AND THE SHAREHOLDERS OF EXODUS.
IN WITNESS WHEREOF, the parties have executed this Agreement.
EXODUS ACQUISITION CORPORATION
By: /s/ Tim T. Chang
----------------
Tim T. Chang, President
VHS NETWORK, INC.
By: /s/ Elwin Cathart
-----------------
Elwin Cathart, Chairman and CEO
THE SHAREHOLDERS OF EXODUS
ACQUISITION CORPORATION:
BAC CONSULTING CORPORATION
By:/s/ Tim T. Chang
----------------
Tim T. Chang, President
10
<PAGE>
SCHEDULE 6.4
Directors Options: 2,000,000
China e-Mall Exchangeable Shares: 4,015,000
Warrants: 975,000
11
<PAGE>
SCHEDULE 6.10
Acquisition of China e-Mall Corporation
12
<TABLE>
<CAPTION>
EXHIBIT 3.2
BY-LAWS OF VHS NETWORK, INC.
(EFFECTIVE AS OF DECEMBER 18, 1995)
TABLE OF CONTENTS
<S> <C>
ARTICLE I - OFFICES....................................................................................-1-
Section 1. Principal Office.................................................................-1-
----------------
Section 2. Other Offices....................................................................-1-
-------------
ARTICLE II - STOCKHOLDERS.....................................................................-1-
Section 1. Annual Meeting..................................................................-1-
--------------
Section 2. Special Meetings................................................................-1-
----------------
Section 3. Place of Meeting................................................................-1-
----------------
Section 4. Notice of Meeting...............................................................-1-
-----------------
Section 5. Notice of Adjourned Meeting.....................................................-2-
---------------------------
Section 6. Waiver of Call and Notice of Meeting............................................-2-
------------------------------------
Section 7. Quorum..........................................................................-2-
------
Section 8. Adjournment.....................................................................-2-
-----------
Section 9. Voting on Matters Other than Election of Directors..............................-3-
--------------------------------------------------
Section 10. Voting for Directors.............................................................-3-
--------------------
Section 11. Voting Lists.....................................................................-3-
------------
Section 12. Voting of Shares.................................................................-3-
----------------
Section 13. Proxies..........................................................................-3-
-------
Section 14. Informal Action by Stockholders..................................................-4-
-------------------------------
Section 15. Inspectors.......................................................................-4-
----------
ARTICLE III - BOARD OF DIRECTORS ............................................................-4-
Section 1. General Powers...................................................................-4-
--------------
Section 2. Number, Election, Tenure and Qualifications......................................-5-
-------------------------------------------
Section 3. Annual Meeting...................................................................-5-
--------------
Section 4. Regular Meetings.................................................................-5-
----------------
Section 5. Special Meetings.................................................................-5-
----------------
Section 6. Notice...........................................................................-5-
------
Section 7. Quorum...........................................................................-6-
------
Section 8. Adjournment; Quorum for Adjourned Meeting........................................-6-
-----------------------------------------
Section 9. Manner of Acting.................................................................-6-
----------------
Section 10. Removal...........................................................................-6-
-------
Section 11. Vacancies.........................................................................-6-
---------
Section 12. Compensation......................................................................-6-
------------
Section 13. Presumption of Assent.............................................................-6-
---------------------
Section 14. Informal Action by Board..........................................................-6-
------------------------
Section 15. Meeting by Telephone, Etc.........................................................-7-
-------------------------
ARTICLE IV - OFFICERS.........................................................................-7-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BY-LAWS OF VHS NETWORK, INC.
(EFFECTIVE AS OF DECEMBER 18, 1995)
TABLE OF CONTENTS
<S> <C>
Section 1. Number............................................................................-7-
------
Section 2. Appointment and Term of Office....................................................-7-
------------------------------
Section 3. Resignation.......................................................................-7-
-----------
Section 4. Removal...........................................................................-7-
-------
Section 5. Vacancies.........................................................................-7-
---------
Section 6. Duties of Officers................................................................-8-
------------------
Section 7. Salaries..........................................................................-8-
--------
Section 8. Delegation of Duties..............................................................-8-
--------------------
ARTICLE V - EXECUTIVE AND OTHER COMMITTEES....................................................-8-
Section 1. Creation of Committees...........................................................-8-
----------------------
Section 2. Executive Committee..............................................................-8-
-------------------
Section 3. Other Committees.................................................................-9-
----------------
Section 4. Removal or Dissolution...........................................................-9-
----------------------
Section 5. Vacancies on Committees..........................................................-9-
-----------------------
Section 6. Meetings of Committees...........................................................-9-
----------------------
Section 7. Absence of Committee Members.....................................................-9-
----------------------------
Section 8. Quorum of Committees.............................................................-9-
--------------------
Section 9. Manner of Acting of Committees...................................................-9-
------------------------------
Section 10. Minutes of Committees............................................................-9-
---------------------
Section 11. Compensation....................................................................-10-
------------
Section 12. Informal Action.................................................................-10-
---------------
ARTICLE VI - INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................................-10-
Section 1. General..........................................................................-10-
-------
Section 2. Actions by or in the Right of the Corporation....................................-10-
---------------------------------------------
Section 3. Determination that Indemnification Is Proper.....................................-11-
--------------------------------------------
Section 4. Evaluation and Authorization.....................................................-12-
----------------------------
Section 5. Prepayment of Expenses...........................................................-12-
----------------------
Section 6. Obligation to Indemnify..........................................................-12-
-----------------------
Section 7. Nonexclusivity and Limitations...................................................-12-
------------------------------
Section 8. Continuation of Indemnification Right............................................-12-
-------------------------------------
Section 9. Insurance........................................................................-13-
---------
ARTICLE VII - INTERESTED PARTIES.............................................................-13-
Section 1. General..........................................................................-13-
-------
Section 2. Determination of Quorum..........................................................-13-
-----------------------
Section 3. Approval by Stockholders.........................................................-14-
------------------------
ARTICLE VIII - CERTIFICATES OF STOCK.........................................................-14-
Section 1. Certificates for Shares..........................................................-14-
-----------------------
Section 2. Signatures of Past Officers......................................................-15-
---------------------------
Section 3. Transfer Agents and Registrars...................................................-15-
------------------------------
Section 4. Transfer of Shares...............................................................-15-
------------------
Section 5. Lost Certificates................................................................-15-
-----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BY-LAWS OF VHS NETWORK, INC.
(EFFECTIVE AS OF DECEMBER 18, 1995)
TABLE OF CONTENTS
<S> <C>
ARTICLE IX - RECORD DATE.....................................................................-15-
Section 1. Record Date for Stockholder Actions..............................................-15-
-----------------------------------
Section 2. Record Date for Dividend and Other Distributions.................................-16-
------------------------------------------------
ARTICLE X - DIVIDENDS........................................................................-16-
ARTICLE XI - FISCAL YEAR.....................................................................-16-
ARTICLE XII - SEAL...........................................................................-16-
ARTICLE XIII - STOCK IN OTHER CORPORATIONS...................................................-16-
ARTICLE XIV - AMENDMENTS.....................................................................-17-
ARTICLE XV - EMERGENCY BY-LAWS...............................................................-17-
Section 1. Scope of Emergency By-laws.......................................................-17-
--------------------------
Section 2. Call and Notice of Meeting.......................................................-17-
--------------------------
Section 3. Quorum and Voting................................................................-17-
-----------------
Section 4. Appointment of Temporary Directors...............................................-17-
----------------------------------
Section 5. Modification of Lines of Succession..............................................-18-
-----------------------------------
Section 6. Change of Principal Office.......................................................-18-
--------------------------
Section 7. Limitation of Liability..........................................................-18-
-----------------------
Section 8. Amendment or Repeal..............................................................-18-
-------------------
ARTICLE XVI - PRECEDENCE OF LAW AND
ARTICLES OF INCORPORATION....................................................................-18-
</TABLE>
<PAGE>
BY-LAWS OF VHS NETWORK, INC.
(Effective as of December 18, 1995)
ARTICLE I - OFFICES
Section 1. Principal Office. The principal office of VHS NETWORK, INC.
(the "Corporation") shall be 1428 Brickell Avenue, 8th Floor, Miami, Florida
33131 or such place within or without the State of Florida as the Board of
Directors of the Corporation (the "Board of Directors" or the "Board") shall
from time to time determine.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Florida as the Board of
Directors or the officers of the Corporation acting within their authority may
from time to time determine or the business of the Corporation may require.
ARTICLE II - STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of the stockholders shall
be held between January 1 and December 31, inclusive, in each year for the
purpose of electing directors and for the transaction of such other proper
business as may come before the meeting. The exact date of the meeting shall be
established by the Board of Directors from time to time.
Section 2. Special Meetings. Special meetings of the stockholders may
be called, for any purpose or purposes, by the Board of Directors or the
President. Special meetings of the stockholders shall be called by the
President, the President or the Secretary if the holders of not less than ten
(10) percent of all the votes entitled to be cast on any issue proposed to be
considered at such special meeting sign, date and deliver to the Secretary one
or more written demands for a special meeting, describing the purpose(s) for
which it is to be held. Special meetings of the stockholders of the Corporation
may not be called by any other person or persons. Notice and call of any such
special meeting shall state the purpose or purposes of the proposed meeting, and
business transacted at any special meeting of the stockholders shall be limited
to the purposes stated in the notice thereof.
Section 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Florida, as the place of meeting
for any annual or special meeting of the stockholders. If no designation is
made, the place of meeting shall be the principal office of the Corporation.
Section 4. Notice of Meeting. Written notice stating the place, day and
hour of an annual or special meeting and, in the case of a special meeting, the
purpose or purposes for which it is called shall be given no fewer than ten (10)
nor more than sixty (60) days before the date of the meeting to each stockholder
entitled to vote at such meeting, except that no notice of a meeting need be
given to any stockholders for which notice is not required to be given under
-4-
<PAGE>
applicable law. Notice may be delivered personally, via United States mail,
facsimile or other electronic transmission, or by private mail carriers handling
nationwide mail services, by or at the direction of the President, the
Secretary, the Board of Directors, or the person(s) calling the meeting. If
mailed via United States mail, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the stockholder at the
stockholder's address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid. If the notice is mailed at least
thirty (30) days before the date of the meeting, the mailing may be by a class
of United States mail other than first class.
Section 5. Notice of Adjourned Meeting. If a stockholders' meeting is
adjourned to a different date, time or place, notice need not be given of the
new date, time or place if the new date, time or place is announced at the
meeting before an adjournment is taken; and any business may be transacted at
the adjourned meeting that might have been transacted on the original date of
the meeting. If, however, a new record date for the adjourned meeting is or must
be fixed under law, notice of the adjourned meeting must be given to persons who
are stockholders as of the new record date and who are otherwise entitled to
notice of such meeting.
Section 6. Waiver of Call and Notice of Meeting. Call and notice of any
stockholders' meeting may be waived by any stockholder before or after the date
and time stated in the notice. Such waiver must be in writing signed by the
stockholder and delivered to the Corporation. Neither the business to be
transacted at nor the purpose of any meeting need be specified in such waiver. A
stockholder's attendance at a meeting (a) waives such stockholder's ability to
object to lack of notice or defective notice of the meeting, unless the
stockholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting, and (b) waives such stockholder's ability
to object to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
stockholder objects to considering the matter when it is presented.
Section 7. Quorum. Except as otherwise provided in these By-laws or in
the Articles of Incorporation of the Corporation, a majority (based on voting)
of the outstanding shares of the Corporation entitled to vote, represented in
person or by proxy, shall constitute a quorum at any meeting of the
stockholders. Once a share is represented for any purpose at a meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting, unless a new record date is or must be set for that
adjourned meeting; and the withdrawal of stockholders after a quorum has been
established at a meeting shall not affect the validity of any action taken at
the meeting or any adjournment thereof.
Section 8. Adjournment; Quorum for Adjourned Meeting. If less than a
majority (based on voting) of the outstanding shares are represented at a
meeting, a majority (based on voting) 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, any business may be transacted which might
have been transacted at the meeting as originally noticed.
-5-
<PAGE>
Section 9. Voting on Matters Other than Election of Directors. At any
meeting at which a quorum is present, action on any matter other than the
election of directors shall be approved if the votes cast by the holders of
shares represented at the meeting and entitled to vote on the subject matter
favoring the action exceed the votes cast opposing the action, unless a greater
number of affirmative votes or voting by classes is required by law, the
Articles of Incorporation of the Corporation or these By-laws.
Section 10. Voting for Directors. Directors shall be elected by a
plurality of the votes cast by the shares entitled to vote at a meeting at which
a quorum is present.
Section 11. Voting Lists. At least ten (10) days prior to each meeting
of stockholders, the officer or agent having charge of the stock transfer books
for shares of the Corporation shall make a complete list of the stockholders
entitled to vote at such meeting, or any adjournment thereof, with the address
and the number, class and series (if any) of shares held by each. The list shall
be subject to inspection by any stockholder during normal business hours for at
least ten (10) days prior to the meeting. The list also shall be available at
the meeting and shall be subject to inspection by any stockholder at any time
during the meeting or its adjournment. The list shall be prima facie evidence as
to who are the stockholders entitled to examine such list or the transfer books
and to vote at any meeting of the stockholders. If the requirements of this
Section have not been substantially complied with, the meeting shall be
adjourned on the demand of any stockholder(in person or by proxy) until there
has been substantial compliance with the requirements. If no demand for
adjournment is made, failure to comply with the requirements of this Section
does not affect the validity of any action taken at the meeting.
Section 12. Voting of Shares. Except as otherwise provided in the
Articles of Incorporation of the Corporation, each stockholder entitled to vote
shall be entitled at every meeting of the stockholders to one vote in person or
by proxy on each matter for each share of voting stock held by such stockholder.
Such right to vote shall be subject to the right of the Board of Directors to
fix a record date for voting stockholders as hereinafter provided. Treasury
shares, and shares of stock of the Corporation owned directly or indirectly by
another corporation the majority of the voting stock of which is owned or
controlled by the Corporation, shall not be voted at any meeting and shall not
be counted in determining the total number of outstanding shares.
Section 13. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy, executed in writing and delivered to the Corporation in the
original or as a true and correct copy of the original or by the stockholder's
duly authorized attorney-in-fact. No proxy shall be valid after eleven (11)
months from its date, unless the proxy provides for a longer period. Each proxy
shall be filed with the Secretary before or at the time of the meeting. A proxy
may be revoked at the pleasure of the record owner of the shares to which it
relates, unless the proxy provides otherwise. In the event that a proxy shall
designate two or more persons to act as proxies, a majority of such persons
present at the meeting, or, if only one is present, that one, shall have all of
the powers conferred by the proxy upon all the persons so designated, unless the
instrument shall provide otherwise.
-6-
<PAGE>
Section 14. Informal Action by Stockholders. Unless otherwise provided
in the Articles of Incorporation of the Corporation, any action required or
permitted to be taken at a meeting of the stockholders may be taken by means of
one or more written consents that satisfy the requirements set forth below. In
such event, no meeting, prior notice or formal vote shall be required. To be
effective, a written consent (which may be in one or more counterparts) shall
set forth the action taken and shall be signed by stockholders holding shares
representing not less than the minimum number of votes of each voting group
entitled to vote thereon that would be necessary to authorize or take such
action at a meeting at which all voting groups and shares entitled to vote
thereon were present and voted. No written consent shall be effective unless,
within sixty (60) days of the date of the earliest dated consent delivered to
the Secretary, written consent signed by the number of stockholders required to
take action is delivered to the Secretary. If authorization of an action is
obtained by one or more written consents but less than all stockholders so
consent, then within ten (10) days after obtaining the authorization of such
action by written consents, notice must be given to each stockholder who did not
consent in writing and to each stockholder who is not entitled to vote on the
action. The notice shall fairly summarize the material features of the
authorized action and, if the action be such for which dissenters' rights are
provided under the Florida Business Corporation Act, the notice shall contain a
clear statement of the right of stockholders dissenting therefrom to be paid the
fair value of their shares upon compliance with the provisions of the Florida
Business Corporation Act regarding the rights of dissenting stockholders.
Section 15. Inspectors. For each meeting of the stockholders, the Board
of Directors or the President may appoint two inspectors to supervise the
voting. If inspectors are so appointed, all questions respecting the
qualification of any vote, the validity of any proxy and the acceptance or
rejection of any vote shall be decided by such inspectors. Before acting at any
meeting, the inspectors shall take an oath to execute their duties with strict
impartiality and according to the best of their ability. If any inspector shall
fail to be present or shall decline to act, the President shall appoint another
inspector to act in his or her place. In case of a tie vote by the inspectors on
any question, the presiding officer shall decide the issue.
ARTICLE III - BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by its Board of Directors, which may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by law, the
articles of Incorporation of the Corporation or these By-laws directed or
required to be exercised or done only by the stockholders.
Section 2. Number, Election, Tenure and Qualifications. The number of
directors of the Corporation shall be not less than one (1) nor more than seven
(7). The exact number of directors shall be fixed by resolution adopted by a
vote of a majority of the then authorized number of directors; provided that no
decrease in the number of directors shall have the effect of shortening the term
of any then incumbent director. At each annual meeting of stockholders, the
stockholders shall elect directors to hold office until the next succeeding
-7-
<PAGE>
annual meeting. Each director shall hold office until his or her term of office
expires and until such director's successor is elected and qualifies, unless
such director sooner dies, resigns or is removed by the stockholders at any
annual or special meeting. It shall not be necessary for directors to be
stockholders or residents of the State of Florida. All directors shall be
natural persons who are 18 years of age or older.
Section 3. Annual Meeting. Promptly after each annual meeting of
stockholders, the Board of Directors shall hold its annual meeting for the
purpose of the election of officers and the transaction of such other business
as may come before the meeting. If such meeting is held at the same place as and
immediately following such annual meeting of stockholders and if a majority of
the directors are present at such place and time, no prior notice of such
meeting shall be required to be given to the directors.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall be determined
from time to time by the Board of Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by the President or any two directors. The person or persons
authorized to call special meetings of the Board of directors may fix the place
for holding any special meetings of the Board of directors called by such person
or persons. If no such designation is made, the place of meeting shall be the
principal office of the Corporation.
Section 6. Notice. Whenever notice of a meeting is required, written
notice stating the place, day and hour of the meeting shall be delivered at
least two (2) days prior thereto to each director, either personally, or by
first-class United States mail, facsimile or other form of electronic
communication, or by private mail carriers handling nationwide mail services, to
the director's business address. If notice is given by first-class United States
mail, such notice shall be deemed to be delivered five (5) days after deposited
in the United States mail so addressed with postage thereon prepaid or when
received, if such date is earlier. If notice is given by facsimile transmission
or other form of electronic communication or by private mail carriers handling
nationwide mail services, such notice shall be deemed to be delivered when
received by the director. Any director may waive notice of any meeting, either
before, at or after such meeting. 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 the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened and so states at
the beginning of the meeting or promptly upon arrival at the meeting.
Section 7. Quorum. A majority of the total number of directors as
determined from time to time to comprise the Board of Directors shall constitute
a quorum.
Section 8. Adjournment; Quorum for Adjourned Meeting. If less than a
majority of the total number of directors are present at a meeting, a majority
of the directors so present may adjourn the meeting from time to time without
-8-
<PAGE>
further notice. At any adjourned meeting at which a quorum shall be present, any
business may be transacted that might have been transacted at the meeting as
originally noticed.
Section 9. Manner of Acting. If a quorum is present when a vote is
taken, the act of a majority of the directors present at the meeting shall be
the act of the Board of Directors unless otherwise provided in the Articles of
Incorporation of the Corporation.
Section 10. Removal. Any director may be removed by the stockholders,
with or without cause, at any meeting of the stockholders called expressly for
that purpose. Any such removal shall be without prejudice to the contract
rights, if any, of the person removed.
Section 11. Vacancies. Any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board of Directors, or by the
stockholders, unless otherwise provided in the Articles of Incorporation of the
Corporation. The term of a director elected to fill a vacancy shall expire at
the next following annual meeting of stockholders, and the person elected shall
hold office until such time and until such director's successor is elected and
qualifies, unless such director sooner dies, resigns or is removed by the
stockholders at any annual or special meeting.
Section 12. Compensation. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors, a stated salary as directors and/or such
other reasonable compensation as may be determined by the Board from time to
time. No payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
Section 13. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
such director objects at the beginning of the meeting (or promptly upon his or
her arrival) to the holding of the meeting or the transacting of specified
business at the meeting or such director votes against such action or abstains
from voting in respect of such matter.
Section 14. Informal Action by Board. Any action required or permitted
to be taken by any provisions of law, the Articles of Incorporation of the
Corporation or these By-laws at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if each and every member of the
Board or of such committee, as the case may be, signs a written consent thereto
and such written consent is filed in the minutes of the proceedings of the Board
or such committee, as the case may be. Action taken under this section is
effective when the last director signs the consent, unless the consent specifies
a different effective date, in which case it is effective on the date so
specified.
-9-
<PAGE>
Section 15. Meeting by Telephone, Etc. Directors or the members of any
committee thereof shall be deemed present at a meeting of the Board of Directors
or of any such committee, as the case may be, if the meeting is conducted using
a conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time.
ARTICLE IV - OFFICERS
Section 1. Number. The officers of the Corporation shall consist of a
President, a Secretary and a Treasurer, each of whom shall be appointed by the
Board of Directors. The Board of Directors may also appoint one or more vice
presidents, one or more assistant secretaries and assistant treasurers and such
other officers as the Board of Directors shall deem appropriate. The same
individual may simultaneously hold more than one office in the Corporation.
Section 2. Appointment and Term of Office. The officers of the
Corporation shall be appointed annually by the Board of Directors at its annual
meeting. If the appointment of officers shall not be made at such meeting, such
appointment shall be made as soon thereafter as is convenient. Each officer
shall hold office until such officer's successor is appointed and qualifies,
unless such officer sooner dies, resigns or is removed by the Board. The
appointment of an officer does not itself create contract rights. The failure to
elect a President, a Secretary or a Treasurer shall not affect the existence of
the Corporation.
Section 3. Resignation. An officer may resign at any time by delivering
notice to the Corporation. A resignation shall be effective when the notice is
delivered unless the notice specifies a later effective date. An officer's
resignation shall not affect the Corporation's contract rights, if any, with the
officer.
Section 4. Removal. The Board of Directors may remove any officer at
any time with or without cause. An officer's removal shall not affect the
officer's contract rights, if any, with the Corporation.
Section 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
Section 6. Duties of Officers. (a) The President of the Corporation
shall be the chief executive officer of the Corporation and shall, subject to
the direction of the Board, have general charge of the business and affairs of
the Corporation and shall preside at all meetings of the Board of Directors and
of the stockholders; (b) the Secretary shall be responsible for preparing
minutes of the directors' and stockholders' meetings and for authenticating
records of the Corporation; (c) the Treasurer shall (i) have charge and custody
of and be responsible for all funds of the Corporation and (ii) receive and give
receipts for monies due and payable to the Corporation from any source
whatsoever, and deposit monies in the name of the Corporation in the banks,
-10-
<PAGE>
trust companies or other depositories as shall be selected by the Corporation;
and (d) subject to the foregoing, the officers of the Corporation shall have
such powers and duties as ordinarily pertain to their respective offices and
such additional powers and duties specifically conferred by law, the Articles of
Incorporation of the Corporation and these Bylaws, or as may be assigned to them
from time to time by the Board of Directors or an officer authorized by the
Board of Directors to prescribe the duties of other officers.
Section 7. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors, and no officer shall be prevented from
receiving a salary by reason of the fact that the officer is also a director of
the Corporation.
Section 8. Delegation of Duties. In the absence or disability of any
officer of the Corporation, or for any other reason deemed sufficient by the
Board of Directors, the Board may delegate the powers or duties of such officer
to any other officer or to any other director for the time being.
ARTICLE V - EXECUTIVE AND OTHER COMMITTEES
Section 1. Creation of Committees.The Board of Directors may designate
an Executive Committee and one or more other committees. Each committee so
designated shall consist of two (2) or more of the directors of the Corporation.
Section 2. Executive Committee. The Executive Committee, if there
shall be one, shall consult with and advise the officers of the Corporation in
the management of its business. It shall have, and may exercise, except to the
extent otherwise provided in the resolution of the Board of Directors creating
such Executive Committee, such powers of the Board of Directors as can be
lawfully delegated by the Board. Included solely for information purposes, the
following is a list of the actions that, under Florida law in effect at the time
of the adoption of these By-laws, may not be delegated to a committee, but the
list shall be deemed automatically revised without further action by the Board
of Directors or the stockholders of this Corporation upon and to the extent of
any amendment to such law: (a) approve or recommend to stockholders actions or
proposals required by law to be approved by stockholders; (b) fill vacancies on
the Board of Directors or any committee of the Board; (c) adopt, amend or repeal
these By-laws; (d) authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the Board of Directors; or
(e) authorize or approve the issuance or sale of shares, or any contract to sell
shares, or designate the terms of a series or class of shares.
Section 3. Other Committees. Such other committees, to the extent
provided in the resolution or resolutions creating them, shall have such
functions and may exercise such powers of the Board of Directors as can be
lawfully delegated by the Board. Notwithstanding the foregoing, no committee
shall have the authority to take any action listed in subsections (a) through
(e), inclusive, of Section 2 of this Article V.
-11-
<PAGE>
Section 4. Removal or Dissolution. Any Committee of the Board of
directors may be dissolved by the Board at any meeting; and any member of such
committee may be removed by the Board of Directors with or without cause. Such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 5. Vacancies on Committees. Vacancies on any committee of the
Board of Directors shall be filled by the Board of Directors at any meeting.
Section 6. Meetings of Committees. Regular meetings of any committee of
the Board of Directors may be held without notice at such time and at such place
as shall from time to time be determined by such committee. Special meetings of
any such committee may be called by any member thereof upon two (2) days notice
of the date, time and place of the meeting given to each of the other members of
such committee, or on such shorter notice as may be agreed to in writing by each
of the other members of such committee. Notice shall be given either personally
or in the manner provided in Section 6 of Article III of these By-laws
(pertaining to notice for directors' meetings).
Section 7. Absence of Committee Members. The Board of Directors may
designate one or more directors as alternate members of any committee of the
Board of Directors, who may replace at any meeting of such committee any member
not able to attend.
Section 8. Quorum of Committees. At all meetings of committees of the
Board of Directors, a majority of the total number of members of the committee
as determined from time to time shall constitute a quorum for the transaction of
business.
Section 9. Manner of Acting of Committees. If a quorum is present
when a vote is taken, the act of a majority of the members of any committee of
the Board of Directors present at the meeting shall be the act of such
committee.
Section 10.Minutes of Committees. Each committee of the Board of
directors shall keep regular minutes of its proceedings and report the same to
the Board of Directors when requested.
Section 11.Compensation. Members of any committee of the Board of
Directors may be paid compensation in accordance with the provisions of Section
12 of Article III of these By-laws (pertaining to compensation of directors).
Section 12.Informal Action. Any committee of the Board of Directors may
take such informal action and hold such informal meetings as allowed by the
provisions of Sections 14 and 15 of Article III of these By-laws.
-12-
<PAGE>
ARTICLE VI - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. General.
-------
(a) To the fullest extent permitted by law and consistent with the
principles set forth in Section 1(c) below, the Corporation shall indemnify any
person who is or was a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or other type of proceeding (other
than an action by or in the right of the Corporation), whether civil, criminal,
administrative, investigative or otherwise, and whether formal or informal, by
reason of the fact that such person is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, trustee or fiduciary of another corporation, partnership,
joint venture, trust (including without limitation an employee benefit trust),or
other enterprise.
(b) To the fullest extent permitted by law and consistent with the
principles set forth in Section 1(c) below, the Corporation shall be entitled
but shall not be obligated to indemnify any person who is or was a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or other type of proceeding (other than an action by or in the right of the
Corporation), whether civil, criminal, administrative, investigative or
otherwise, and whether formal or informal, by reason of the fact that such
person is or was an employee or agent of the Corporation or is or was serving at
the request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
(c) Any person for whom indemnification is required or authorized under
Section 1(a) or Section 1(b) above shall be indemnified against all liabilities,
judgments, amounts paid in settlement, penalties, fines (including an excise tax
assessed with respect to any employee benefit plan) and expenses (including
attorneys' fees, paralegals' fees and court costs) actually and reasonably
incurred in connection with any such action, suit or other proceeding, including
any appeal thereof. Indemnification shall be available only if the person to be
indemnified acted in good faith and in a manner such person reasonably believed
to be in, or not opposed to, the best interests of the Corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful. The termination of any such action, suit or
other proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner that such person
reasonably believed to be in, or not opposed to, the best interests of the
Corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation.
---------------------------------------------
(a) To the fullest extent permitted by law and consistent with the
principles set forth in Section 2(c) below, the Corporation shall indemnify any
person who is or was a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or other type of proceeding (as
further described in Section 1 of this Article VI) by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director or officer of the Corporation or is or was serving
at the request of the Corporation as a director, officer, trustee or fiduciary
of another corporation, partnership, joint venture, trust or other enterprise.
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(b) To the fullest extent permitted by law and consistent with the
principles set forth in Section 2(c) below, the Corporation shall be entitled
but shall not be obligated to indemnify any person who is or was a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or other type of proceeding (as further described in Section 1 of this
Article VI) by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that such person is or was an employee or agent of
the Corporation or is or was serving at the request of the Corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(c) Any person for whom indemnification is required or authorized under
Section 2(a) or Section 2(b) above shall be indemnified against expenses
(including attorneys' fees, paralegals' fees and court costs) and amounts paid
in settlement not exceeding, in the judgment of the Board of directors, the
estimated expenses of litigating the action, suit or other proceeding to
conclusion, that are actually and reasonably incurred in connection with the
defense or settlement of such action, suit or other proceeding, including any
appeal thereof. Indemnification shall be available only if the person to be
indemnified acted in good faith and in a manner such person reasonably believed
to be in, or not opposed to, the best interests of the Corporation.
Notwithstanding the foregoing, no indemnification shall be made under this
Section 2 in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable unless, and only to the extent that, the court
in which such action, suit or other proceeding was brought, or any other court
of competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnification for such expenses
that such court shall deem proper.
Section 3. Determination that Indemnification Is Proper.
Indemnification pursuant to Section 1 or Section 2 of this Article VI, unless
made under the provisions of Section 6 of this Article VI or unless otherwise
made pursuant to a determination by a court, shall be made by the Corporation
only as authorized in the specific case upon a determination that the
indemnification is proper in the circumstances because the indemnified person
has met the applicable standard of conduct set forth in Section 1 or Section 2
of this Article VI. Such determination shall be made under one of the following
procedures: (a) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the action, suit or other
proceeding to which the indemnification relates; (b) if such a quorum is not
obtainable or, even if obtainable, by majority vote of a committee duly
designated by the Board of Directors (the designation being one in which
directors who are parties may participate) consisting solely of two or more
directors not at the time parties to such action, suit or other proceeding; (c)
by independent legal counsel (i) selected by the Board of directors in
accordance with the requirements of subsection (a) or by a committee designated
under subsection (b) or (ii) if a quorum of the directors cannot be obtained and
a committee cannot be designated, selected by majority vote of the full Board of
Directors (the vote being one in which directors who are parties may
participate); or (d) by the stockholders by a majority vote of a quorum
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consisting of stockholders who were not parties to such action, suit or other
proceeding or, if no such quorum is obtainable, by a majority vote of
stockholders who were not parties to such action, suit or other proceeding.
Section 4. Evaluation and Authorization. Evaluation of the
reasonableness of expenses and authorization of indemnification shall be made in
the same manner as is prescribed in Section 3 of this Article VI for the
determination that indemnification is permissible; provided, however, that if
the determination as to whether indemnification is permissible is made by
independent legal counsel, the persons who selected such independent legal
counsel shall be responsible for evaluating the reasonableness of expenses and
may authorize indemnification.
Section 5. Prepayment of Expenses. Expenses (including attorneys' fees,
paralegals' fees and court costs) incurred by a director or officer in defending
a civil or criminal action, suit or other proceeding referred to in Section 1 or
Section 2 of this Article VI shall be paid by the Corporation in advance of the
final disposition thereof, but only upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if such person is
ultimately found not to be entitled to indemnification by the Corporation
pursuant to this Article VI.
Section 6. Obligation to Indemnify. To the extent that a director or
officer has been successful on the merits or otherwise in defense of any action,
suit or other proceeding referred to in Section 1 or Section 2 of this Article
VI, or in the defense of any claim, issue or matter therein, such person shall,
upon application, be indemnified against expenses (including attorneys' fees,
paralegals' fees and court costs) actually and reasonable incurred by such
person in connection therewith.
Section 7. Nonexclusivity and Limitations. The indemnification and
advancement of expenses provided pursuant to this Article VI shall not be deemed
exclusive of any other rights to which a person may be entitled under any law,
By-law, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in such person's official capacity and as to action
in any other capacity while holding office with the Corporation. Such
indemnification and advancement of expenses shall continue as to any person who
has ceased to be a director or officer and shall inure to the benefit of such
person's heirs and personal representatives. The Board of Directors may, at any
time, approve indemnification of or advancement of expenses to any other person
that the Corporation has the power by law to indemnify. In all cases not
specifically provided for in this Article VI, indemnification or advancement of
expenses shall not be made to the extent that such indemnification or
advancement of expenses is expressly prohibited by law.
Section 8. Continuation of Indemnification Right.
-------------------------------------
(a) The right of indemnification and advancement of expenses under this
Article VI for directors and officers shall be a contract right inuring to the
benefit of the directors and officers entitled to be indemnified hereunder. No
amendment or repeal of this Article VI shall adversely affect any right of such
director or officer existing at the time of such amendment or repeal.
Indemnification and advancement of expenses as provided for in this article VI
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shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such
person.
(b) Unless expressly otherwise provided when authorized or ratified by
this Corporation, indemnification and advancement of expenses that have been
specifically authorized and approved by the Corporation for a particular
employee or agent shall continue as to a person who has ceased to bean employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
(c) For purposes of this Article VI, the term "corporation"includes, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger, so that
any person who is or was a director or officer of a constituent corporation, or
is or was serving at the request of a constituent corporation as a director,
officer, employee, agent, trustee or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, is in the same position
under this Article VI with respect to the resulting or surviving corporation as
such person would have been with respect to such constituent corporation if its
separate existence had continued.
Section 9. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, trustee, fiduciary, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise. Such
insurance may cover any liability asserted against such person and incurred by
such person in any such capacity or arising out of such person's status as such,
whether or not the Corporation is obligated to or would have the power to
indemnify such person against the liability under Section 1 or Section 2 of this
Article VI.
ARTICLE VII - INTERESTED PARTIES
Section 1. General. No contract or other transaction between the
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 are directors or
officers or are financially interested shall be either void or voidable because
of such relationship or interest, because such director or directors were
present at the meeting of the Board of Directors or of a committee thereof that
authorizes, approves or ratifies such contract or transaction, or because such
director's or directors' votes are counted for such purpose, as long as one or
more of the following requirements is satisfied: (a) the fact of such
relationship or interest is disclosed or known to the Board of Directors or
committee that authorizes, approves or ratifies the contract or transaction by a
vote or consent sufficient for the purpose without counting the votes or
consents of such interested directors; (b) the fact of such relationship or
interest is disclosed or known to the stockholders entitled to vote on the
matter, 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 as to the Corporation at the time it is authorized by the Board of
Directors, a committee thereof or the stockholders.
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Section 2. Determination of Quorum. Common or interested directors
maybe counted in determining the presence of a quorum at a meeting of the Board
of directors or a committee thereof that authorizes, approves or ratifies a
contract or transaction referred to in Section 1 of this Article VII.
Section 3. Approval by Stockholders. For purposes of Section 1(b) of
this Article VII, a conflict of interest transaction shall be authorized,
approved or ratified if it receives the vote of a majority of the shares
entitled to be counted under this Section 3. Shares owned by or voted under the
control of a director who has a relationship or interest in the transaction
described in Section 1 of this Article VII may not be counted in a vote of
stockholders to determine whether to authorize, approve or ratify a conflict of
interest transaction under Section 1(b) of this Article VII. The vote of the
shares owned by or voted under the control of a director who has a relationship
or interest in the transaction described in Section 1 of this Article VII shall
be counted, however, in determining whether the transaction is approved under
other sections of these By-laws and applicable law. A majority of those shares
that would be entitled, if present, to be counted in a vote on the transaction
under this Section 3 shall constitute a quorum for the purpose of taking action
under this Section 3.
ARTICLE VIII - CERTIFICATES OF STOCK
Section 1. Certificates for Shares. Shares may but need not be
represented by certificates. The rights and obligations of stockholders shall be
identical whether or not their shares are represented by certificates. If shares
are represented by certificates, each certificate shall be in such form as the
Board of Directors may from time to time prescribe and shall be signed (either
manually or in facsimile) by the President (and may be signed (either manually
or in facsimile) by the Secretary or an Assistant secretary and/or sealed with
the seal of the Corporation or its facsimile). Each certificate shall set forth
the holder's name and the number of shares represented by the certificate, and
shall state such other matters as may be required by law. The certificates shall
be numbered and entered on the books of the Corporation as they are issued. If
shares are not represented by certificates, then, within a reasonable time after
issue or transfer of shares without certificates, the Corporation shall send the
stockholder a written statement in such form as the Board of Directors may from
time to time prescribe, certifying as to the number of shares owned by the
stockholder and as to such other information as would have been required to be
on certificates for such shares. If and to the extent the Corporation is
authorized to issue shares of more than one class or more than one series of any
class, every certificate representing shares shall set forth or fairly summarize
upon the face or back of the certificate, or shall state that the Corporation
will furnish to any stockholder upon request and without charge a full statement
of: (a) the designations, relative rights, preferences and limitations of the
shares of each class or series authorized to be issued; (b) the variations in
rights, preferences and limitations between the shares of each such series, if
the Corporation is authorized to issue any preferred or special class in series
insofar as the same have been fixed and determined; and (c) the authority of the
Board of Directors to fix and determine the variations, relative rights and
preferences of future series.
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Section 2. Signatures of Past Officers. If the person who signed
(either manually or in facsimile) a share certificate no longer holds office
when the certificate is issued, the certificate shall nevertheless be valid.
Section 3. Transfer Agents and Registrars. The Board of Directors may,
in its discretion, appoint responsible banks or trust companies in such city or
cities as the Board may deem advisable from time to time to act as transfer
agents and registrars of the stock of the Corporation. When such appointments
shall have been made, no stock certificate shall be valid until countersigned by
one of such transfer agents and registered by one of such registrars.
Section 4. Transfer of Shares. Transfers of shares of the Corporation
shall be made upon its books by the holder of the shares in person or by the
holder's lawfully constituted representative, upon surrender of the certificate
of stock for cancellation if such shares are represented by a certificate of
stock or by delivery to the Corporation of such evidence of transfer as may be
required by the Corporation if such shares are not represented by certificates.
The person in whose name shares stand on the books of the Corporation shall be
deemed by the Corporation to be the owner thereof for all purposes; and the
Corporation 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, save as expressly provided by the laws of
the State of Florida.
Section 5. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation and alleged to have been lost
or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or the owner's
legal representative, to pay a reasonable charge for issuing the new
certificate, to advertise the matter in such manner as it shall require and/or
to give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost or destroyed.
ARTICLE IX - RECORD DATE
Section 1. Record Date for Stockholder Actions. The Board of Director
is authorized from time to time to fix in advance a date as the record date for
the determination of the stockholders entitled to notice of and to vote at any
meeting of the stockholders and any adjournment thereof (unless a new record
date must be established by law for such adjourned meeting), or of the
stockholders entitled to give such consent or take such action, as the case
maybe. In no event may a record date so fixed by the Board of Directors precede
the date on which the resolution establishing such record date is adopted by the
Board of Directors; and such record date may not be more than seventy (70) nor
less than ten (10) days before the date of any meeting of the stockholders,
before a date in connection with the obtaining of the consent of stockholders
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for any purpose, or before the date of any other action requiring a
determination of the stockholders. Only those stockholders listed as
stockholders of record as of the close of business on the date so fixed as the
record date shall be entitled to notice of and to vote at such meeting and any
adjournment thereof, or to exercise such rights or to give such consent, as the
case may be, notwithstanding any transfer of any stock on the books of the
Corporation after any such record date fixed as aforesaid. If the Board of
Directors fails to establish a record date as provided herein, the record date
shall be deemed to be the date ten (10) days prior to the date of the
stockholders' meeting.
Section 2. Record Date for Dividend and Other Distributions. The Board
of Directors is authorized from time to time to fix in advance a date as the
record date for the determination of the stockholders entitled to receive a
dividend or other distribution. Only those stockholders listed as stockholders
of record as of the close of business on the date so fixed as the record date
shall be entitled to receive the dividend or other distribution, as the case
maybe, notwithstanding any transfer of any stock on the books of the Corporation
after any such record date fixed as aforesaid. If the Board of Directors fails
to establish a record date as provided herein, the record date shall be deemed
to be the date of authorization of the dividend or other distribution.
ARTICLE X - DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares of capital stock in the
manner and upon the terms and conditions provided by the Articles of
Incorporation of the Corporation and by law. Subject to the provisions of the
articles of Incorporation of the Corporation and to law, dividends may be paid
in cash or property, including shares of stock or other securities of the
Corporation.
ARTICLE XI - FISCAL YEAR
The fiscal year of the Corporation shall be the period selected by the
Board of Directors as the fiscal year. Unless and until changed by the Board of
directors, the fiscal year of the Corporation shall end on December 31 of each
year.
ARTICLE XII - SEAL
The corporate seal shall have the name of the Corporation and the word
"SEAL" inscribed thereon. It may be a facsimile, engraved, printed or
impressioned.
ARTICLE XIII - STOCK IN OTHER CORPORATIONS
Shares of stock in other corporations held by the Corporation shall be
voted by such officer or officers or other agent of the Corporation as the Board
of Directors shall from time to time designate for the purpose or by a proxy
thereunto duly authorized by said Board.
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ARTICLE XIV - AMENDMENTS
These By-laws may be altered, amended or repealed and new By-laws maybe
adopted either by the Board of Directors or by the holders of a majority of the
issued and outstanding shares of stock of the Corporation entitled to vote;
provided, however, that the Board of Directors may not alter, amend or repeal
any By-law adopted by the stockholders if the stockholders specifically provide
that the By-law is not subject to amendment or repeal by the Board.
ARTICLE XV - EMERGENCY BY-LAWS
Section 1. Scope of Emergency By-laws. The emergency By-laws provided
in this Article XV shall be operative during any emergency, notwithstanding any
different provision set forth in the preceding Articles hereof; provided,
however, that to the extent not inconsistent with the provisions of this Article
XV and the emergency By-laws, the By-laws provided in the preceding Articles
shall remain in effect during such emergency. For purposes of the emergency
By-law provisions of this Article XV, an emergency shall exist if a quorum of
the Corporation's directors cannot readily be assembled because of some
catastrophic event. Upon termination of the emergency, these emergency By-laws
shall cease to be operative.
Section 2. Call and Notice of Meeting. During any emergency, a meeting
of the Board of Directors may be called by any officer or director of the
Corporation. Notice of the date, time and place of the meeting shall be given by
the person calling the meeting to such of the directors as it may be feasible to
reach by any available means of communication. Such notice shall be given at
such time in advance of the meeting as circumstances permit in the judgment of
the person calling the meeting.
Section 3. Quorum and Voting. At any such meeting of the Board of
directors, a quorum shall consist of any one or more directors, and the act of
the majority of the directors present at such meeting shall be the act of the
Corporation.
Section 4. Appointment of Temporary Directors.
----------------------------------
(a) The director or directors who are able to be assembled at a meeting
of directors during an emergency may assemble for the purpose of appointing, if
such directors deem it necessary, one or more temporary directors (the
"Temporary Directors") to serve as directors of the Corporation during the term
of any emergency.
(b) If no directors are able to attend a meeting of directors during an
emergency, then such stockholders as may reasonably be assembled shall have the
right, by majority vote of those assembled, to appoint Temporary Directors to
serve on the Board of Directors until the termination of the emergency.
(c) If no stockholders can reasonably be assembled in order to conduct
a vote for Temporary Directors, then the President or his or her successor as
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determined under an emergency succession plan adopted by the Board of Directors
under Section 5 of this Article XV shall be deemed a Temporary Director of the
Corporation, and such President or his or her successor, as the case may be,
shall have the right to appoint additional Temporary Directors to serve with him
or her on the Board of Directors of the Corporation during the term of the
emergency.
(d) Temporary Directors shall have all of the rights, duties and
obligations of directors appointed pursuant to Article III hereof; provided,
however, that a Temporary Director may be removed from the Board of Directors at
any time by the person or persons responsible for appointing such Temporary
Director, or by vote of the majority of the stockholders present at any meeting
of the stockholders during an emergency. In any event, the Temporary Director
shall automatically be deemed to have resigned from the Board of Directors upon
the termination of the emergency in connection with which the Temporary Director
was appointed.
Section 5. Modification of Lines of Succession. Either before or during
any emergency, the Board of Directors may provide, and from time to time modify
lines of succession in the event that during such an emergency any or all
officers or agents of the Corporation shall for any reason be rendered incapable
of discharging their duties.
Section 6. Change of Principal Office. The Board of Directors may,
either before or during any such emergency, and effective during such emergency,
change the principal office of the Corporation or designate several alternative
head offices or regional offices, or authorize the officers of the Corporation
to do so.
Section 7. Limitation of Liability. No officer, director or employee
acting in accordance with these emergency By-laws during an emergency shall be
liable except for willful misconduct.
Section 8. Amendment or Repeal. These emergency By-laws shall be
subject to amendment or repeal by further action of the Board of Directors or by
action of the stockholders, but no such amendment or repeal shall modify the
provisions of Section 7 above with regard to actions taken prior to the time of
such amendment or repeal. Any amendment of these emergency By-laws may make any
further or different provision that may be practical or necessary under the
circumstances of the emergency.
ARTICLE XVI - PRECEDENCE OF LAW AND ARTICLES OF INCORPORATION
Any provision of the Articles of Incorporation of this Corporation
shall, subject to law, control and take precedence over any provision of these
By-laws inconsistent therewith.
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EXHIBIT 10.1
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT is made effective the 12th day of April, 2000,
BETWEEN
VHS NETWORK INC.,
--------------------------------------------
a corporation incorporated under the laws of
the State of Florida, (the "Purchaser")
- and -
CHINA EMALL CORPORATION,
an Ontario corporation, ("China eMall")
- and -
UPHILL CAPITAL INC.,
an Ontario corporation and a shareholder of China eMall, ("Uphill")
- and -
GDCT INVESTMENT INC.,
an Ontario corporation and a shareholder of China eMall, ("GDCT")
- and -
GANG CHAI and QIN LU CHAI,
individuals and shareholders of Uphill Capital Inc. and China eMall,
(collectively referred as "Uphill Vendors")
- and -
QING WANG and TAI XUE SHI,
individuals and shareholders of GDCT Investment Inc. and China eMall,
(collectively referred to as "GDCT Vendors")
- and -
CHARLES HE, an individual and shareholder of China eMall,
- and -
FORTE MANAGEMENT CORP.,
a Caymanian corporation and a shareholder of China eMall, ("Forte")
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WHEREAS the Parties desire to enter into a share exchange transaction
as contemplated by this Agreement in accordance with the terms and conditions of
this Agreement.
WHEREAS the Parties hereby confirm that this Amended and Restated Share
Exchange Agreement cancels and replaces the Share Exchange Agreement dated March
9, 2000 entered into by the Parties.
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT, in consideration of the mutual
covenants hereinafter contained and provided for and other good and valuable
consideration (the receipt and sufficiency of which is hereby acknowledged by
the Parties), the Parties agree as follows:
ARTICLE I
INTERPRETATION
--------------
1.1 Definitions. In this Agreement, unless the context otherwise requires, the
terms set forth in Schedule 1.1 shall have the meanings set forth therein.
1.2 Entire Agreement. This Agreement together with the agreements and other
documents to be delivered pursuant to this Agreement, constitute the entire
agreement between the Parties pertaining to the transactions contemplated by
this Agreement and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, and there are no warranties,
representations and other agreements between the Parties in connection with the
subject matter hereof except as specifically set forth in this Agreement or any
other agreement or document to be delivered pursuant to this Agreement.
1.3 Extended Meanings. In this Agreement, words importing the singular number
include the plural and vice versa; words importing the masculine gender include
the feminine and neuter genders.
1.4 Headings. The division of this Agreement into articles, sections,
subsections and paragraphs and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement.
1.5 References. References to an article, section, subsection, paragraph,
schedule or exhibit shall be construed as references to an article, section,
subsection, paragraph, schedule or exhibit to this Agreement, unless the context
otherwise requires.
1.6 Governing Law. This Agreement shall be governed and construed in accordance
with the laws of the Province of Ontario and the laws of Canada applicable in
that Province.
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1.7 Currency. Unless otherwise specified, the word "dollar", or the symbol
"$" refers to US currency.
1.8 Schedules. The following is a list of schedules attached to and incorporated
into this Agreement by reference and deemed as part of this Agreement.
SCHEDULE DESCRIPTION
1.1 Definitions
2.8 Exchangeable Shares
3.1 Support Agreement between Purchaser and China eMall
4.1 (e) Shareholders of China eMall
4.2 (e) Shareholders of Uphill
4.3 (e) Shareholders of GDCT
5.1 (m) China eMall Financial Statements
5.1 (p) China eMall Business Agreements
5.2 (m) Uphill Financial Statements
5.2 (p) Uphill Business Agreements
5.3 (m) GDCT Financial Statements
5.3 (p) GDCT Business Agreements
6.1 (k) Purchaser Litigation
6.1 (m) Purchaser Business Agreements
6.1 (n) Purchaser Financial Statements
6.1 (p) Purchaser Issued and Outstanding Shares
6.1 (u) Purchaser Tax Liability
ARTICLE II
SHARE CONVERSION AND ISSUANCE
-----------------------------
2.1 Agreement to Purchase and Convert. Upon the terms and subject to the
conditions contained in this Agreement, the Purchaser, China eMall, and the
China Vendors agree to undertake the following:
all the China Vendors, excluding Uphill, GDCT and Forte, shall convert
their existing common shares in the capital of China eMall (their
"China Shares") into Exchangeable Shares of China eMall on or prior to
Closing;
the Uphill Vendors shall cause Uphill to subdivide the existing 100
common shares of its capital into 700,000 common shares prior to the
Closing Date;
the Uphill Vendors shall sell and the Purchaser shall purchase, as of
and with effect from the opening of business on the Closing Date, the
Uphill Shares;
the GDCT Vendors shall sell and the Purchaser shall purchase, as of and
with effect from the opening of business on the Closing Date, the GDCT
Shares; and
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Forte shall sell and the Purchaser shall purchase, as of and with
effect from the opening of business on the Closing Date, the China
Shares held by Forte.
2.2 Share Conversion. The conversion of China Shares as contemplated in section
2.1 (a) above, shall be effected by the issuance of the Exchangeable Shares from
the treasury of China eMall to the China Vendors, excluding Uphill, GDCT and
Forte, (the "Share Conversion") in exchange for the China Shares, pursuant to
the issuer bid rules contained in paragraph 93 (3) (g) of the Securities Act
(Ontario) and pursuant to the prospectus and registration exemptions contained
in paragraph 35(1)(17) and Rule 45-501 (section 2.17) of the Securities Act
(Ontario).
2.3 Share Exchange. The purchase and sale of the Uphill Shares and the GDCT
Shares shall be effected by the issuance of common shares in the capital of the
Purchaser to the Uphill Vendors and the GDCT Vendors in exchange for the Uphill
Shares and GDCT Shares as the case may be, (the "Share Exchange") pursuant to
the prospectus and registration exemptions contained in paragraphs 72(1)(j) and
35(1)(16) of the Securities Act (Ontario), and Regulation S under the United
States Securities Act of 1933.
2.4 Share Exchange Forte. The purchase and sale of the China Shares held by
Forte shall be effected by the issuance of common shares in the capital of the
Purchaser to Forte in exchange for the China Shares held by Forte (the "Forte
Exchange") pursuant to Regulation S under the United States Securities Act of
1933.
2.5 Share Conversion Ratio. The Purchaser and the China Vendors have established
for the purposes of the Share Conversion a conversion ratio of 3.5 Exchangeable
Shares for every one of the China Shares held by the China Vendors, excluding
Uphill, GDCT and Forte.
2.6 Share Exchange Ratio The Purchaser and the China Vendors have established
for the purposes of the Share Exchange an exchange ratio of 1 common share in
the capital of the Purchaser for every one of the Uphill Shares and GDCT Shares
based on 700,000 common shares outstanding on the Closing Date in the capital of
each of Uphill and GDCT.
2.7 Share Exchange Ratio Forte. The Purchaser and the China Vendors have
established for the purposes of the Forte Exchange an exchange ratio of 3.5
common share in the capital of the Purchaser for every one of the China Shares
held by Forte based on 200,000 common shares held by Forte on the Closing Date
in the capital of China eMall.
2.8 Exchangeable Shares. Each Exchangeable Share may, on or after Closing, be
exchanged at the request of its holder for one common share of the Purchaser,
provided that in the event of a consolidation, split or other reorganization of
the capital stock of the Purchaser or China eMall, the number of the Purchaser's
common shares issuable for each one Exchangeable Share shall be adjusted
accordingly. The rights, privileges and restrictions of the Exchangeable Shares
shall be substantially as set out in Schedule 2.8.
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2.9 Acknowledgement of Resale Restrictions. The Vendors hereby acknowledge that
any Exchangeable Shares or common shares in the capital of the Purchaser that
they receive pursuant to this Agreement are restricted in accordance with the
United States Securities Act of 1933 and the Securities Exchange Act of 1934, as
amended, and the rules promulgated thereunder subject to the Purchaser's
covenants set out in section 8.10.
ARTICLE III
SUPPORT AGREEMENT
-----------------
3.1 Support Agreement. On Closing the Purchaser and China eMall will enter into
a Support Agreement substantially in the form as attached hereto as Schedule
"3.1"
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE VENDORS
---------------------------------------------
4.1 Representations and Warranties of the China Vendors. Each of the China
Vendors jointly and severally represents and warrants to the Purchaser as
follows (to the extent that the following representations and warranties relate
to that China eMall Shareholder) and acknowledges that the Purchaser is relying
on these representations and warranties in connection with the completion of the
transactions contemplated by this Agreement:
(a) Capacity to own China Shares - Each of the China Vendors has all
necessary power, authority and capacity to own the China Shares.
(b) Capacity to Enter Agreement - Each of the China Vendors has full power,
right and authority to enter into this Agreement and to perform their
obligations under it.
(c) Binding Obligation - This Agreement has been duly executed and
delivered by each of the China Vendors and constitutes a valid and
binding obligation of each of them.
(d) Absence of Conflict - None of the China Vendors is a party to, bound or
affected by any agreement which would be violated, breached or
terminated by, or which would result in creation or imposition of any
Encumbrance upon any of the China Shares as a consequence of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated in this Agreement.
(e) Title to China Shares - Each of the China Vendors is the legal and
beneficial owner of the China Shares as set forth in Schedule 4.1 (e),
with good and marketable title, free and clear of any Encumbrances.
(f) No Bankruptcy - No proceedings have been taken or authorized by any
China eMall Shareholder or by any other person in respect of the
bankruptcy, insolvency, liquidation, dissolution or winding up as
applicable, of any China eMall Shareholder.
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(g) No Option - No Person, other than the Purchaser under this Agreement,
has any agreement or any right capable of becoming an agreement or
option for the purchase from the China Vendors of any of the China
Shares.
(h) Disclosure - The representations and warranties of each of the China
Vendors in this Agreement are true, correct and do not contain any
untrue or misleading statement of a material fact or omit to state a
material fact necessary to make such representations and warranties not
misleading to the Purchaser.
(i) Non-Violation - The entering into of this Agreement and the
consummation of transactions contemplated herein do not and will not
conflict with, or result in a breach of, or constitute a default under
the terms or conditions of any constating document of China eMall or a
China eMall shareholder, any by-laws, any court or administrative order
or process, any agreement or instrument to which China eMall or a China
eMall shareholder is party or by which it is bound.
4.2 Representations and Warranties of the Uphill Vendors. Each of the Uphill
Vendors jointly and severally represents and warrants to the Purchaser as
follows (to the extent that the following representations and warranties relate
to that Uphill Shareholder) and acknowledges that the Purchaser is relying on
these representations and warranties in connection with the completion of the
transactions contemplated by this Agreement:
(a) Capacity to own Uphill Shares - The Uphill Vendors have all necessary
power, authority and capacity to own the Uphill Shares.
(b) Capacity to Enter Agreement - The Uphill Vendors have full power, right
and authority to enter into this Agreement and to perform their
obligations under it.
(c) Binding Obligation - This Agreement has been duly executed and
delivered by the Uphill Vendors and constitutes a valid and binding
obligation of each of them.
(d) Absence of Conflict - The Uphill Vendors are not a party to, bound or
affected by any agreement which would be violated, breached or
terminated by, or which would result in creation or imposition of any
Encumbrance upon any of the Uphill Shares as a consequence of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated in this Agreement.
(e) Title to Uphill Shares - The Uphill Vendors are the legal and
beneficial owners of the Uphill Shares as set forth in Schedule 4.2
(e), with good and marketable title, free and clear of any
Encumbrances.
(f) No Bankruptcy - No proceedings have been taken or authorized by any
Uphill eMall Shareholder or by any other person in respect of the
bankruptcy, insolvency, liquidation, dissolution or winding up as
applicable, of any Uphill eMall Shareholder.
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(g) No Option - No Person, other than the Purchaser under this Agreement,
has any agreement or any right capable of becoming an agreement or
option for the purchase from the Uphill Vendors of any of the Uphill
Shares.
(h) Disclosure - The representations and warranties of the Uphill Vendors
in this Agreement are true, correct and do not contain any untrue or
misleading statement of a material fact or omit to state a material
fact necessary to make such representations and warranties not
misleading to the Purchaser.
(i) Non-Violation - The entering into of this Agreement and the
consummation of transactions contemplated herein do not and will not
conflict with, or result in a breach of, or constitute a default under
the terms or conditions of any constating document of Uphill or an
Uphill Shareholder, any by-laws, any court or administrative order or
process, any agreement or instrument to which Uphill or an Uphill
Shareholder is party or by which it is bound.
4.3 Representations and Warranties of the GDCT Vendors. Each of the GDCT Vendors
jointly and severally represents and warrants to the Purchaser as follows (to
the extent that the following representations and warranties relate to that GDCT
Shareholder) and acknowledges that the Purchaser is relying on these
representations and warranties in connection with the completion of the
transactions contemplated by this Agreement:
(a) Capacity to own GDCT Shares - The GDCT Vendors have all necessary
power, authority and capacity to own the GDCT Shares.
(b) Capacity to Enter Agreement - The GDCT Vendors have full power, right
and authority to enter into this Agreement and to perform their
obligations under it.
(c) Binding Obligation - This Agreement has been duly executed and
delivered by the GDCT Vendors and constitutes a valid and binding
obligation of each of them.
(d) Absence of Conflict - The GDCT Vendors are not a party to, bound or
affected by any agreement which would be violated, breached or
terminated by, or which would result in creation or imposition of any
Encumbrance upon any of the GDCT Shares as a consequence of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated in this Agreement.
(e) Title to GDCT Shares - The GDCT Vendors are the legal and beneficial
owners of the GDCT Shares as set forth in Schedule 4.3 (e), with good
and marketable title, free and clear of any Encumbrances.
(f) No Bankruptcy - No proceedings have been taken or authorized by any
GDCT Shareholder or by any other person in respect of the bankruptcy,
insolvency, liquidation, dissolution or winding up as applicable, of
any GDCT Shareholder.
(g) No Option - No Person, other than the Purchaser under this Agreement,
has any agreement or any right capable of becoming an agreement or
option for the purchase from the GDCT Vendors of any of the GDCT
Shares.
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(h) Disclosure - The representations and warranties of the GDCT Vendors in
this Agreement are true, correct and do not contain any untrue or
misleading statement of a material fact or omit to state a material
fact necessary to make such representations and warranties not
misleading to the Purchaser.
(i) Non-Violation - The entering into of this Agreement and the
consummation of transactions contemplated herein do not and will not
conflict with, or result in a breach of, or constitute a default under
the terms or conditions of any constating document of GDCT or a GDCT
Shareholder, any by-laws, any court or administrative order or process,
any agreement or instrument to which GDCT or an GDCT Shareholder is
party or by which it is bound.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CHINA EMALL, THE CHINA
VENDORS, UPHIILL, THE UPHILL VENDORS, GDCT AND THE GDCT VENDORS
---------------------------------------------------------------
5.1 Representations and Warranties of China eMall and the China Vendors. China
eMall and the China Vendors jointly and severally represent and warrant to the
Purchaser as follows and acknowledge that the Purchaser is relying on these
representations and warranties in connection with this Agreement:
(a) Due Incorporation - China eMall is a corporation duly incorporated and
validly existing under the laws of Ontario.
(b) Capacity to Enter Agreement - China eMall has full corporate power and
authority to enter into this Agreement and to perform its obligations
under it.
(c) Due Authorization - The execution and delivery of this Agreement and
the consummation of the transactions contemplated under it have been
duly authorized by all necessary corporate action on the part of China
eMall.
(d) Binding Obligation - This Agreement has been duly executed and
delivered by China eMall and constitutes a valid and binding obligation
of it.
(e) Absence of Conflict - China eMall is not a party to, bound or affected
by any agreement which would be violated, breached or terminated by, or
which would result in the creation or imposition of any Encumbrance
upon any of the China Shares as a consequence of the execution and
delivery of this Agreement or the consummation of the transactions
contemplated in this Agreement.
(f) Regulatory Approvals - No governmental or regulatory authorization,
approval, order or consent is required on the part of China eMall, in
connection with the execution, delivery and performance of this
Agreement and the performance of China eMall's obligations under this
Agreement.
8
<PAGE>
(g) No Bankruptcy - No proceedings have been taken, are pending or
authorized by China eMall or by any other person in respect of the
bankruptcy, insolvency, liquidation, dissolution or winding up of China
eMall.
(h) Authorised and Issued Capital - The authorized capital of China eMall
consists of an unlimited number of common shares, of which 1,747,143
common shares are currently outstanding as fully paid and
non-assessable shares of China eMall and an unlimited number of special
shares of which none are issued and outstanding. There are no other
options or warrants or other rights of any kind in existence,
authorized or agreed to which could result in any further shares or
other securities of China eMall being allotted or issued or becoming
outstanding.
Minute Books - The minute books of China eMall contain accurate and
complete minutes of all meetings and resolutions of the directors and
the shareholders of China eMall held or passed by signature in writing,
respectively, since the date of its incorporation. All such meetings
have been duly called and held. China eMall share certificate books and
share registers are complete and accurate.
(j) No Subsidiaries - China eMall does not own any shares in or securities
of any corporate body and is not a partner of any partnership or a
member of any joint venture.
(k) China eMall's Capacity and Power - China eMall has full corporate
right, power and authority to own or lease its assets as now owned or
leased and to carry on the China eMall Business.
(l) Business - The only business carried on by China eMall is the China
eMall Business.
(m) China eMall Financial Statements - The China eMall Financial Statements
have been prepared in accordance with Canadian generally accepted
accounting principles applied on a consistent basis throughout the
periods indicated, and fairly and accurately present, subject to
immaterial variation, the financial position, assets and liabilities
(whether absolute, contingent, accrued or otherwise) of China eMall on
the dates thereof and the financial results of China eMall for the
periods referred to in the China eMall Financial Statements a copy of
which is attached hereto as Schedule 5.1 (m).
(n) No Guarantees etc. - China eMall is not a party to or bound by any
agreement of guarantee, indemnification, assumption or endorsement or
any like commitment of the obligations, liabilities (contingent or
otherwise) or indebtedness of any Person.
(o) Records -
(i) The China eMall Records are true and correct and present
fairly and disclose in all material respects the actual
results of the China eMall Business.
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<PAGE>
(ii) To the best of knowledge, all material financial transactions
of China eMall have been accurately recorded in the China
eMall Records. The China eMall Records (of a financial nature)
have been prepared in accordance with Canadian generally
accepted accounting principles consistently applied.
(iii) The files, documentation and information in writing provided
by China eMall to the Purchaser in connection with the
negotiation and completion of the transactions contemplated in
this Agreement are true and correct in all material respects.
(p) Business Agreements - There are no material agreements relating to the
China eMall Business except for those listed in Schedule 5.1 (p),
copies of which have been translated into English if necessary and
provided to the Purchaser on or before Closing.
(q) Litigation - There are no judgements, decrees, injunctions, ruling or
orders of any court, Governmental Authority or arbitration, or any
actions, suits, grievances or proceedings, (whether or not on behalf of
China eMall and, to the best of knowledge, pending or threatened or
involving China eMall, or the China eMall Business) which may
materially adversely affect the China eMall Business or China eMall's
assets.
(r) Disclosure - The representations and warranties of each of the China
Vendors in this Agreement are true, complete and correct and do not
contain any untrue or misleading statement of a material fact.
Non-Violation - The entering into of this Agreement and the
consummation of transactions contemplated herein do not and will not
conflict with, or result in a breach of, or constitute a default under
the terms or conditions of any constating document of China eMall, any
by-laws, any court or administrative order or process, any agreement or
instrument to which China eMall is party or by which it is bound.
Liabilities - There are no outstanding debts or liabilities of China
eMall other than as reflected in the audited financial statements for
the period ended August 31, 1999 and as reasonably incurred in the
ordinary course of business since August 31, 1999.
Tax - For all periods prior to the date of this Agreement, all federal,
state, provincial and foreign tax returns and tax reports required to
be filed by China eMall have been timely filed with the appropriate
governmental agencies in all jurisdictions in which such returns and
reports are required to be filed, and all of the foregoing are true,
correct and complete. Except for all taxes for the current fiscal year,
all taxes (including interest and penalties) due from China eMall have
been fully paid or, adequate provisions made therefor and no claim or
liability is pending or has been assessed or asserted against the China
eMall in connection with any such taxes and China eMall knows of no
basis for any such claim or liability.
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<PAGE>
5.2 Representations and Warranties of Uphill and the Uphill Vendors. Uphill and
the Uphill Vendors jointly and severally represent and warrant to the Purchaser
as follows and acknowledge that the Purchaser is relying on these
representations and warranties in connection with this Agreement:
(a) Due Incorporation - Uphill is a corporation duly incorporated and
validly existing under the laws of Ontario.
(b) Capacity to Enter Agreement - Uphill has full corporate power and
authority to enter into this Agreement and to perform its obligations
under it.
(c) Due Authorization - The execution and delivery of this Agreement and
the consummation of the transactions contemplated under it have been
duly authorized by all necessary corporate action on the part of
Uphill.
(d) Binding Obligation - This Agreement has been duly executed and
delivered by Uphill and constitutes a valid and binding obligation of
it.
(e) Absence of Conflict - Uphill is not a party to, bound or affected by
any agreement which would be violated, breached or terminated by, or
which would result in the creation or imposition of any Encumbrance
upon any of the Uphill Shares as a consequence of the execution and
delivery of this Agreement or the consummation of the transactions
contemplated in this Agreement.
(f) Regulatory Approvals - No governmental or regulatory authorization,
approval, order or consent is required on the part of Uphill, in
connection with the execution, delivery and performance of this
Agreement and the performance of Uphill's obligations under this
Agreement.
(g) No Bankruptcy - No proceedings have been taken, are pending or
authorized by Uphill or by any other person in respect of the
bankruptcy, insolvency, liquidation, dissolution or winding up of
Uphill.
Authorised and Issued Capital - The authorized capital of Uphill
consists of an unlimited number of common shares, of which at the time
of signing of this Agreement, 100 common shares are currently
outstanding as fully paid and non-assessable shares of Uphill and an
unlimited number of special shares of which none are issued and
outstanding. There are no other options or warrants or other rights of
any kind in existence, authorized or agreed to which could result in
any further shares or other securities of Uphill being allotted or
issued or becoming outstanding.
Minute Books - The minute books of Uphill contain accurate and complete
minutes of all meetings and resolutions of the directors and the
shareholders of Uphill held or passed by signature in writing,
respectively, since the date of its incorporation. All such meetings
have been duly called and held. Uphill share certificate books and
share registers are complete and accurate.
11
<PAGE>
(j) No Subsidiaries - Uphill does not own any shares in or securities of
any corporate body, other than China Shares, and is not a partner of
any partnership or a member of any joint venture.
(k) Uphill's Capacity and Power - Uphill has full corporate right, power
and authority to own or lease its assets as now owned or leased and to
carry on the Uphill Business.
(l) Business -The only business carried on by Uphill is the Uphill
Business.
(m) Uphill Financial Statements - The Uphill Financial Statements have been
prepared in accordance with Canadian generally accepted accounting
principles applied on a consistent basis throughout the periods
indicated, and fairly and accurately present, subject to immaterial
variation, the financial position, assets and liabilities (whether
absolute, contingent, accrued or otherwise) of Uphill on the dates
thereof and the financial results of Uphill for the periods referred to
in the Uphill Financial Statements attached hereto as Schedule 5.2 (m).
(n) No Guarantees etc. - Uphill is not a party to or bound by any agreement
of guarantee, indemnification, assumption or endorsement or any like
commitment of the obligations, liabilities (contingent or otherwise) or
indebtedness of any Person.
(o) Records -
(i) The Uphill Records are true and correct and present fairly and
disclose in all material respects the actual results of the
Uphill Business.
(ii) To the best of knowledge, all material financial transactions
of Uphill have been accurately recorded in the Uphill Records.
The Uphill Records (of a financial nature) have been prepared
in accordance with Canadian generally accepted accounting
principles consistently applied.
(iii) The files, documentation and information in writing provided
by Uphill to the Purchaser in connection with the negotiation
and completion of the transactions contemplated in this
Agreement are true and correct in all material respects.
(p) Business Agreements - There are no material agreements relating to the
Uphill Business except for those listed in Schedule 5.2 (p), copies of
which have been provided to the Purchaser on or before closing.
(q) Litigation - There are no judgements, decrees, injunctions, ruling or
orders of any court, Governmental Authority or arbitration, or any
actions, suits, grievances or proceedings, (whether or not on behalf of
Uphill and, to the best of knowledge, pending or threatened or
involving Uphill, or the Uphill Business) which may materially
adversely affect the Uphill Business or Uphill's assets.
12
<PAGE>
(r) Disclosure - The representations and warranties of the Uphill Vendors
in this Agreement are true, complete and correct and do not contain any
untrue or misleading statement of a material fact.
Non-Violation - The entering into of this Agreement and the
consummation of transactions contemplated herein do not and will not
conflict with, or result in a breach of, or constitute a default under
the terms or conditions of any constating document of Uphill, any
by-laws, any court or administrative order or process, any agreement or
instrument to which Uphill is party or by which it is bound.
Liabilities - There are no outstanding debts or liabilities of Uphill.
Tax - For all periods prior to the date of this Agreement, all federal,
state, provincial and foreign tax returns and tax reports required to
be filed by Uphill have been timely filed with the appropriate
governmental agencies in all jurisdictions in which such returns and
reports are required to be filed, and all of the foregoing are true,
correct and complete. Except for all taxes for the current fiscal year,
all taxes (including interest and penalties) due from Uphill have been
fully paid or, adequate provisions made therefor and no claim or
liability is pending or has been assessed or asserted against Uphill in
connection with any such taxes and Uphill knows of no basis for any
such claim or liability.
5.3 Representations and Warranties of GDCT and the GDCT Vendors. GDCT and the
GDCT Vendors jointly and severally represent and warrant to the Purchaser as
follows and acknowledge that the Purchaser is relying on these representations
and warranties in connection with this Agreement:
(a) Due Incorporation - GDCT is a corporation duly incorporated and validly
existing under the laws of Ontario.
(b) Capacity to Enter Agreement - GDCT has full corporate power and
authority to enter into this Agreement and to perform its obligations
under it.
(c) Due Authorization - The execution and delivery of this Agreement and
the consummation of the transactions contemplated under it have been
duly authorized by all necessary corporate action on the part of GDCT.
(d) Binding Obligation - This Agreement has been duly executed and
delivered by GDCT and constitutes a valid and binding obligation of it.
(e) Absence of Conflict - GDCT is not a party to, bound or affected by any
agreement which would be violated, breached or terminated by, or which
would result in the creation or imposition of any Encumbrance upon any
of the GDCT Shares as a consequence of the execution and delivery of
this Agreement or the consummation of the transactions contemplated in
this Agreement.
13
<PAGE>
(f) Regulatory Approvals - No governmental or regulatory authorization,
approval, order or consent is required on the part of GDCT, in
connection with the execution, delivery and performance of this
Agreement and the performance of GDCT's obligations under this
Agreement.
(g) No Bankruptcy - No proceedings have been taken, are pending or
authorized by GDCT or by any other person in respect of the bankruptcy,
insolvency, liquidation, dissolution or winding up of GDCT.
Authorised and Issued Capital - The authorized capital of GDCT consists
of an unlimited number of common shares, of which at the time of
Closing, 700,000 common shares will be outstanding as fully paid and
non-assessable shares of GDCT and an unlimited number of special shares
of which none are issued and outstanding. There are no other options or
warrants or other rights of any kind in existence, authorized or agreed
to which could result in any further shares or other securities of GDCT
being allotted or issued or becoming outstanding.
Minute Books - The minute books of GDCT contain accurate and complete
minutes of all meetings and resolutions of the directors and the
shareholders of GDCT held or passed by signature in writing,
respectively, since the date of its incorporation. All such meetings
have been duly called and held. GDCT share certificate books and share
registers are complete and accurate.
(j) No Subsidiaries - GDCT does not own any shares in or securities of any
corporate body, other than China Shares, and is not a partner of any
partnership or a member of any joint venture.
(k) GDCT's Capacity and Power - GDCT has full corporate right, power and
authority to own or lease its assets as now owned or leased and to
carry on the GDCT Business.
(l) Business - The only business carried on by GDCT is the GDCT Business.
(m) GDCT Financial Statements - The GDCT Financial Statements have been
prepared in accordance with Canadian generally accepted accounting
principles applied on a consistent basis throughout the periods
indicated, and fairly and accurately present, subject to immaterial
variation, the financial position, assets and liabilities (whether
absolute, contingent, accrued or otherwise) of GDCT on the dates
thereof and the financial results of GDCT for the periods referred to
in the GDCT Financial Statements attached hereto as Schedule 5.3 (m).
(n) No Guarantees etc. - GDCT is not a party to or bound by any agreement
of guarantee, indemnification, assumption or endorsement or any like
commitment of the obligations, liabilities (contingent or otherwise) or
indebtedness of any Person.
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<PAGE>
(o) Records -
(i) The GDCT Records are true and correct and present fairly and
disclose in all material
respects the actual results of the GDCT Business.
(ii) To the best of knowledge, all material financial transactions
of GDCT have been accurately recorded in the GDCT Records. The
GDCT Records (of a financial nature) have been prepared in
accordance with Canadian generally accepted accounting
principles consistently applied.
(iii) The files, documentation and information in writing provided
by GDCT to the Purchaser in connection with the negotiation
and completion of the transactions contemplated in this
Agreement are true and correct in all material respects.
(p) Business Agreements - There are no material agreements relating to the
GDCT Business except for those listed in Schedule 5.3 (p), copies of
which have been provided to the Purchaser on or before closing.
(q) Litigation - There are no judgements, decrees, injunctions, ruling or
orders of any court, Governmental Authority or arbitration, or any
actions, suits, grievances or proceedings, (whether or not on behalf of
GDCT and, to the best of knowledge, pending or threatened or involving
GDCT, or the GDCT Business) which may materially adversely affect the
GDCT Business or GDCT's assets.
(r) Disclosure - The representations and warranties of the GDCT Vendors in
this Agreement are true, complete and correct and do not contain any
untrue or misleading statement of a material fact.
Non-Violation - The entering into of this Agreement and the
consummation of transactions contemplated herein do not and will not
conflict with, or result in a breach of, or constitute a default under
the terms or conditions of any constating document of GDCT, any
by-laws, any court or administrative order or process, any agreement or
instrument to which GDCT is party or by which it is bound.
Liabilities - There are no outstanding debts or liabilities of GDCT.
Tax - For all periods prior to the date of this Agreement, all federal,
state, provincial and foreign tax returns and tax reports required to
be filed by GDCT have been timely filed with the appropriate
governmental agencies in all jurisdictions in which such returns and
reports are required to be filed, and all of the foregoing are true,
correct and complete. Except for all taxes for the current fiscal year,
all taxes (including interest and penalties) due from GDCT have been
fully paid or, adequate provisions made therefor and no claim or
liability is pending or has been assessed or asserted against GDCT in
connection with any such taxes and GDCT knows of no basis for any such
claim or liability.
15
<PAGE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
6.1 Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to China eMall and the Vendors as follows and
acknowledges that China eMall and the Vendors are relying on those
representations and warranties in connection with this Agreement:
(a) Due Incorporation - The Purchaser is a corporation duly incorporated
and validly existing under the laws of the State of Florida.
(b) Capacity to Enter Agreement - The Purchaser has full power, right and
authority to enter into this Agreement and to perform the obligations
under it.
(c) Due Corporate Authorization - The execution and delivery of this
Agreement and the consummation of the transactions contemplated under
it have been duly authorized by all necessary corporate action on the
part of the Purchaser.
(d) Binding Obligation - This Agreement has been duly executed and
delivered by the Purchaser and constitutes a valid and binding
obligation of the Purchaser.
(e) Absence of Conflict - The Purchaser is not a party to, bound or
affected by or subject to any agreement which would be violated,
breached or terminated by, or which would result in the creation or
imposition of any Encumbrance upon any of the Exchangeable Shares as a
consequence of, the execution and delivery of this Agreement or the
consummation of the transactions contemplated in this Agreement.
(f) Regulatory Approvals - No governmental or regulatory authorization,
approval, order or consent is required on the part the Purchaser, in
connection with the execution, delivery and performance of this
Agreement and the performance of the Purchaser's obligations under this
Agreement.
(g) No Bankruptcy - No proceedings have been taken, are pending or
authorized by the Purchaser or by any other person in respect to the
bankruptcy, insolvency, liquidation, dissolution or winding up of the
Purchaser.
Minute Books - The minute books of the Purchaser contain accurate and
complete minutes of recent meetings and resolutions of the directors
and the shareholders of the Purchaser held or passed by signature in
writing, respectively.
(i) Absence of Material Changes - Since the execution of this Agreement:
(i) no changes have been made in the accounting methods,
practices, or policies followed by the Purchaser since
December 31, 1998 except that the financial statements for the
fiscal year 1998 were prepared according to generally accepted
auditing standards in Canada and the financial statements for
the fiscal year 1999 will be prepared by a United States
auditor;
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(ii) the Purchaser has not increased, incurred or guaranteed any
debt, obligation, or liability (whether absolute or contingent
and whether or not currently due and payable);
(iii) there has been no damage, destruction or loss, labour trouble,
or other event, development or condition of any character
(whether or not covered by insurance) which adversely affects,
or, may adversely affect, the properties or prospects of the
Purchaser; and
(iv) the Purchaser has not paid any amount or dividend, or
otherwise made any distribution or the payment of any kind or
nature whatsoever to any non-arm's length Person.
(j) Records - The files, documentation and information in writing provided
by the Purchaser to China eMall and the Vendors in connection with the
negotiation and completion of the transactions contemplated in this
Agreement are true and correct in all material respects.
Litigation - There are no judgements, decrees, injunctions, ruling or
orders of any court, Governmental Authority or arbitration, or any
actions, suits, grievances or proceedings (whether or not on behalf of
the Purchaser) pending or threatened of the Purchaser which may
materially adversely affect the Purchaser's assets other than those
disclosed in Schedule 6.1 (k).
Disclosure - The representations and warranties of the Purchaser in
this Agreement are true, complete and correct and do not contain any
untrue or misleading statement of a material fact or omit to state a
material fact necessary to make such representations and warranties not
misleading to Vendors.
Business Agreements - The are no material agreements relating to the
business of the Purchaser except as those listed in Schedule 6.1 (m)
attached hereto copies of which will be provided to the Vendors on or
before closing and which the Purchaser represents and warrants are in
good standing.
Purchaser's Financial Statements - The Purchaser's Financial Statements
have been prepared in accordance with Canadian generally accepted
accounting principles applied on a consistent basis throughout the
periods indicated, and fairly and accurately present, subject to
immaterial variation, the financial position, assets and liabilities
(whether absolute, contingent, accrued or otherwise) of the Purchaser
on the dates thereof and the financial results of the Purchaser for the
periods referred to in the Purchaser's Financial Statements a copy of
which is attached hereto as Schedule 6.1 (n).
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OTC Bulletin Board - The Purchaser is currently listed for trading on
the Nasdaq Over-the-counter bulletin board ("OTCBB") under the symbol
VHSN. The NASD Eligibility Rule provides that no issuer may be quoted
on the OTCBB unless it is required to make certain filings pursuant to
Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the
"Act"). In order to be required to make filings pursuant to Section 13
or 15 (d) of the Act, an issuer must register its class of securities
under the Securities Act of 1933 or the Securities Exchange Act of
1934. The Purchaser has until May 17, 2000 to have the Securities and
Exchange Commission ("SEC") declare a Form 10SB (or other registration
statement) effective, and have the SEC staff reach a position of no
further comment on the filing to avoid delisting.
Authorized and Issued Capital - The authorized capital of the Purchaser
consists of and will on Closing Date consist of 100,000,000 common
shares each with a par value of $0.001 and 25,000,000 preferred shares
each with a par value of $0.001, of which only 15,520,268 common shares
and no preferred shares are outstanding on April 12, 2000, as set out
in Schedule 6.1 (p) all of which issued common shares are fully paid
and non-assessable. Schedule 6.1 (p) also sets out the issued and
outstanding number of common shares on a fully diluted basis and there
are no other options, warrants or convertible instruments outstanding
other than as disclosed in Schedule 6.1 (p).
Purchaser's Capacity and Power - the Purchaser has full corporate
right, power and authority to own or lease its assets as now owned or
leased and to carry on the Purchasers Business.
Business - the only business carried on by the Purchaser is the Purchasers
Business.
Non-Violation - The entering into of this Agreement and the
consummation of transactions contemplated herein do not and will not
conflict with, or result in a breach of, or constitute a default under
the terms or conditions of any constating document of the Purchaser,
any by- laws, any court or administrative order or process, any
agreement or instrument to which the Purchaser is party or by which it
is bound.
Liabilities - There are no outstanding debts or liabilities of the
Purchaser other than as disclosed in the Purchaser's Financial
Statements, elsewhere in this Agreement or as otherwise disclosed in
writing to the China Vendors prior to Closing.
Tax - For all periods prior to the date of this Agreement, all federal,
state, provincial and foreign tax returns and tax reports required to
be filed by the Purchaser have been timely filed with the appropriate
governmental agencies in all jurisdictions in which such returns and
reports are required to be filed, and all of the foregoing are true,
correct and complete. Except for all taxes for the current fiscal year,
all taxes (including interest and penalties) due from the Purchaser
have been fully paid or, adequate provisions made therefor and no claim
or liability is pending or has been assessed or asserted against the
Purchaser in connection with any such taxes and the Purchaser knows of
no basis for any such claim or liability except as otherwise set out in
Schedule 6.1 (u) attached hereto.
Subsidiaries. The Purchaser has no other subsidiaries then VHS Acquisition Inc.
and VHS Network Inc.
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No Guarantees etc. The Purchaser is not a party to or bound by any
agreement of guarantee, indemnification, assumption or endorsement or
any like commitment of the obligations, liabilities (contingent or
otherwise) or indebtedness of any Person other than as provided in the
Articles of Incorporation and By-laws of the corporation or otherwise
in the normal course of business.
Groupmarkdebt. As of Closing there will be US$380,000 owed to Groupmark Canada
Limited by the Purchaser.
ARTICLE VII
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
-----------------------------------------------------
7.1 Subject to section 7.2, all representations and warranties contained in this
Agreement on the part of each of the Parties shall survive the Closing for a
period of one (1) year from the Closing Date, after which time, if no claim
shall have been made against a Party with respect to any incorrectness or breach
of any representation or warranty, that Party shall have no further liability
under this Agreement with respect to the representation or warranty.
7.2 The representations, warranties, covenants and indemnities of the
Parties relating to tax liability shall:
(a) unless resulting from any misrepresentation made or fraud committed in
filing a return or supplying information for the purposes of the Income
Tax Act (Canada), applicable provincial corporation tax legislation or
any other legislation imposing tax on China eMall Uphill, GDCT or the
Purchaser, terminate at the expiration of the last of the limitation
periods contained in the Income Tax Act (Canada), applicable provincial
corporation tax legislation or any other legislation imposing tax on
China eMall, Uphill, GDCT or the Purchaser; and
(b) if based upon misrepresentation made or fraud committed in filing a
return or in supplying information for the purposes of the Income Tax
Act (Canada), applicable provincial corporation tax legislation or any
other legislation imposing tax on China eMall, Uphill, GDCT or the
Purchaser, survive without limit as to time.
7.3 All statements contained in any certificate or any instrument delivered by
or on behalf of a Party pursuant to or in connection with the transactions
contemplated by this Agreement shall be deemed to be made by such Party under
this Agreement.
ARTICLE VIII
COVENANTS
---------
<PAGE>
8.1 Conduct of China eMall Business Prior to Closing. During the Interim
Period, China eMall shall:
(a) Conduct Business in Ordinary Course - except as otherwise contemplated
or permitted by this Agreement, conduct the China eMall Business
diligently and prudently and shall not, without the prior written
consent of the Purchaser, enter into any contracts, agreements,
commitments or leases, or undertake any activity (including allotment
or issuance of any further shares or securities of China eMall), except
in the ordinary course of the China eMall Business;
(b) Continue Insurance - continue in full force all existing insurance
policies;
(c) Comply with Laws - comply with all laws applicable to the China eMall
Business;
(d) Maintain Permits - apply for, maintain in good standing and renew all
permits, licenses, registrations and permits necessary to enable it to
carry on the China eMall Business as now conducted; and
(e) Distributions - not pay any amount or dividend or otherwise make any
distribution to its shareholders or any non-arm's length Person out of
the normal course.
8.2 Conduct of Uphill Business Prior to Closing. During the Interim Period,
Uphill shall:
(a) Conduct Business in Ordinary Course - except as otherwise contemplated
or permitted by this Agreement, conduct the Uphill Business diligently
and prudently and shall not, without the prior written consent of the
Purchaser, enter into any contracts, agreements, commitments or leases,
or undertake any activity (including allotment or issuance of any
further shares or securities of Uphill ), except in the ordinary course
of the Uphill Business;
(b) Continue Insurance - continue in full force all existing insurance
policies;
(c) Comply with Laws - comply with all laws applicable to the Uphill
Business;
(d) Maintain Permits - apply for, maintain in good standing and renew all
permits, licenses, registrations and permits necessary to enable it to
carry on the Uphill Business as now conducted; and
(e) Distributions - not pay any amount or dividend or otherwise make any
distribution to its shareholders or any non-arm's length Person out of
the normal course.
8.3 Conduct of GDCT Business Prior to Closing. During the Interim Period,
GDCT shall:
(a) Conduct Business in Ordinary Course - except as otherwise contemplated
or permitted by this Agreement, conduct the GDCT Business diligently
and prudently and shall not, without the prior written consent of the
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Purchaser, enter into any contracts, agreements, commitments or leases,
or undertake any activity (including allotment or issuance of any
further shares or securities of GDCT), except in the ordinary course of
the GDCT Business;
(b) Continue Insurance - continue in full force all existing insurance
policies;
(c) Comply with Laws - comply with all laws applicable to the GDCT
Business;
(d) Maintain Permits - apply for, maintain in good standing and renew all
permits, licenses, registrations and permits necessary to enable it to
carry on the GDCT Business as now conducted; and
(e) Distributions - not pay any amount or dividend or otherwise make any
distribution to its shareholders or any non-arm's length Person out of
the normal course.
8.4 Conduct of the Purchaser Prior to Closing. During the Interim Period,
the Purchaser shall comply with all laws applicable to the Purchaser.
8.5 Conduct of the Purchaser After Closing.
The Purchaser shall not transfer or cause Uphill or GDCT to transfer
any common shares of China eMall without providing at least 45 days'
written notice to the holders of the Exchangeable Shares outstanding at
that time, of such intention so that the holders of the Exchangeable
Shares have the option of exchanging their Exchangeable Shares at that
time.
(b) During the period from Closing until there are no longer any
Exchangeable Shares outstanding, the Purchaser shall not:
take actions that prejudice the holders of Exchangeable Shares, by
unduly diminishing the value of that which they are entitled to receive
on the conversion/exchange of their shares, provided that the Purchaser
shall not be liable hereunder for reasonable decisions made in the
ordinary course of business, or for fluctuations in market price caused
by factors beyond its control;
cause China eMall to commence, continue or complete any liquidation,
dissolution or winding-up of China eMall or other distribution of the
property or assets of China eMall among its shareholders for the
purpose of winding-up its affairs without the express written consent
of a majority of the votes attaching to the holders of Exchangeable
Shares outstanding from time to time; or
cause China eMall to sell or dispose of all or substantially all of its
assets or property without the express written consent of a majority of
the votes attaching to the holders of Exchangeable Shares outstanding
from time to time.
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(c) Notwithstanding the provisions in 8.5 (a) and (b) above the Purchaser
shall be entitled to complete statutory amalgamations between Uphill,
GDCT and/or China eMall without consent of the holders of Exchangeable
Shares provided that the amalgamated corporation has the same articles
and by-laws as China eMall.
8.5A Covenants of Vendors After Closing.
GDCT. Within 90 days after Closing the GDCT Vendors shall provide the
Purchasers with the Financial Statements and completed tax returns for
GDCT for the year ended January 31, 2000 and the interim period from
January 31, 2000 up to Closing.
Uphill. Within 90 days after Closing the Uphill Vendors shall provide
the Purchasers with the Financial Statements and completed tax returns
for Uphill for the last completed fiscal year and the interim period
from the last fiscal year end up to Closing.
8.6 Access for Investigation.
(a) The Purchaser, the China Vendors and China eMall shall permit the other
Parties and their Authorized Representatives, until the Closing Date,
to have reasonable access during normal business hours to their
respective premises and their respective Records to enable confirmation
of the accuracy of the Records and the matters represented and
warranted in Articles IV, V and VI .
(b) Until the Closing Date and, in the event the termination of this
Agreement without the completion of the transactions contemplated
hereby, each of the Parties shall thereafter, subject to subsection
8.6(c), use its best efforts to keep confidential and not use for its
own purpose (other than as contemplated by this Agreement) any
information obtained from any other Party with respect to the other
Party's affairs. If this Agreement is terminated, all documents,
working papers and other written material obtained by the Party from
the other party in connection with this Agreement and not previously
made public (and all copies thereof) shall be returned to the other
Party promptly after such termination.
(c) The obligation of each of the Parties under subsection 8.6(b) to keep
confidential and not use any information shall not apply to information
which:
(i) becomes generally available to the public other than as a
result of a disclosure by the Party or its representatives in
violation of this Agreement;
(ii) was available to the Party on a non-confidential basis prior
to its disclosure by the other party or their representatives;
(iii) becomes available to the party on a non-confidential basis
from a source other than the other Party or its
representatives, provided that such source is not bound by a
confidentiality agreement with the other Party; or
(iv) the Party is required by law to disclose.
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8.7 Closing Documents. The Ancillary Agreements shall be executed and
delivered by the Parties thereto at the Closing time.
8.8 Corporate Proceedings. On or before the Closing Date, each Party (which is a
corporation) shall provide to the other Parties certified copies of all
necessary proceedings and resolutions, corporate or otherwise, and all other
necessary actions, corporate or otherwise, authorizing the execution and
delivery of this Agreement and the matters contemplated in it.
8.9 Actions to Satisfy Closing Conditions. Each Party shall take all such
actions as are within its power to control, and shall use its best efforts to
cause other actions to be taken which are not within its power to control, so as
to ensure compliance with any conditions set forth in this Agreement which are
for the benefit of itself or any other Party.
8.10 Purchaser's Proceedings. The Purchaser shall, on or immediately following
Closing, complete and diligently pursue a Form 10SB, Form SB-2 or other suitable
filing with the US Securities and Exchange Commission ("SEC") so as to register
all the common shares of the Purchaser issued to or issuable to the China
Vendors, including the Uphill Vendors and the GDCT Vendors, pursuant to this
Agreement to permit such common shares to be freely tradeable. The Purchase
shall also maintain its reporting company status with the SEC while there are
Exchangeable Shares outstanding.
8.11 Exemption Order. After Closing the Purchaser shall make an application to
the Ontario Securities Commission for an exemption order to permit the resale of
common shares of the Purchaser that are issued to the China Vendors, including
the Uphill Vendors and the GDCT Vendors, with the expense being shared 50% by
the Purchaser and 50% by the China Vendors who consent to such an application
for their respective Exchangeable Shares.
8.12 Management Agreement. On or before the Closing Date, the Purchaser
shall enter into a management agreement with Gang Chai.
8.13 Director. On or before the Closing Date, the Purchaser shall cause the
appointment of Gang Chai as a director of the Purchaser.
ARTICLE IX
CONDITIONS OF CLOSING
---------------------
9.1 Conditions for the Purchaser's Benefit. The Purchaser shall not be obliged
to complete the transactions contemplated by this Agreement unless, on the
Closing Date, each of the following conditions shall have been satisfied:
(a) Accuracy of Representations - The representations and warranties of the
China Vendors and China eMall set forth in sections 4.1, 4.2, 4.3 5.1,
5.2 and 5.3, respectively, shall be true and correct at the Closing,
except as those representations and warranties may be affected by the
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occurrence of events or transactions expressly contemplated and
permitted by this Agreement, including, without limitation, those in
the ordinary course of business, and the Purchaser shall have received
a certificate from the Vendors and China eMall confirming the
foregoing.
(b) Performance of Obligations - China eMall and the China Vendors shall
have performed all of the obligations hereunder to be performed by them
at or prior to the Closing. China eMall and the China Vendors shall not
be in breach of any agreement on its part contained herein;
(c) Deliveries - China eMall and the China Vendors shall have delivered or
caused to be delivered to the Purchaser the Ancillary Agreements;
(d) Approvals - All necessary approvals of the directors and/or
shareholders of China eMall, Uphill and GDCT shall have been obtained
or given, as the case may be, on or before the Closing Time;
(e) Completion of Investigations - The investigations and assessments
contemplated in section 8.6 shall have been completed and the Purchaser
shall be satisfied with the result of such investigations and
assessments including, without limitation, the accuracy of the Records
and matters represented and warranted in Articles IV and V;
(f) Consents, Authorizations and Registrations - All consents, approvals,
orders and authorizations of, from or notifications to any persons or
Governmental Authorities required in connection with the completion of
any of the transactions contemplated by this Agreement, the execution
of this Agreement, the Closing or the performance of any of the terms
and conditions of this Agreement shall have been obtained on or before
the Closing Date. There shall be no injunction or order issued
preventing, and no pending or threatened claim, action, litigation or
proceeding, judicial or administrative, or investigation against any
Party by any Governmental Authority or Person for the purpose of
enjoining or preventing the consummation of this Agreement, or
otherwise claiming that this Agreement or the consummation thereof is
improper or would give rise to proceedings under any statute or rule of
law;
(g) No Loss - During the Interim Period, there has been no material damage
to the assets of China eMall, the China eMall Business, GDCT, the GDCT
Business, Uphill, the Uphill Business by fire or other peril, whether
or not such damage is covered by insurance;
No Material Changes - There shall have been no material adverse changes
in the China eMall Business, the Uphill Business or the GDCT Business,
assets or financial condition of China eMall, Uphill or GDCT during the
Interim Period. For the purposes of this subsection, the term "material
adverse change" shall mean any change in the assets, liabilities or
financial condition of China eMall, GDCT, the China eMall Business,
Uphill, the Uphill Business or the GDCT Business that may involve
material reduction, damage, risk to or destruction of the assets,
whether or not the change is covered by insurance; and
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Legal Opinion - Counsel to China eMall and the China Vendors shall
deliver to counsel for the Purchaser an opinion confirming that China
eMall qualifies for the exemption from the provisions of Part XX of the
Securities Act (Ontario) set out in s.93(3)(g) and s.93(1)(d) of said
act and that GDCT and Uphill qualify for the exemption from the
provisions of Part XX of the Securities Act (Ontario) set out in s.
93(1)(d) of said act and an opinion as to other general matters to the
satisfaction of the Purchaser's counsel.
If any one or more of the foregoing conditions shall not have been fulfilled on
or before the Closing Date, the Purchaser may terminate this Agreement by notice
in writing to the other Parties in which event the Purchaser shall be released
from all obligations under this Agreement without any liability and (unless the
Purchaser can show that the condition relied upon could reasonably have been
performed by the other Parties) the other Parties shall also be released from
all obligations hereunder without any liability; provided, however, that the
Purchaser shall be entitled to waive compliance with any one or more of such
conditions in whole or in part if it shall see fit to do so, without prejudice
to its rights of termination in the event of the non-fulfilment of any other
condition in whole or in part.
9.2 Conditions for the Benefit of the Vendors. The China Vendors shall not be
obliged to complete the transactions contemplated by this Agreement unless, on
the Closing Date, each of the following conditions shall have been satisfied:
(a) Accuracy of Representations - The representations and warranties of
the Purchaser set forth in sections 6.1 shall be true and correct at
the Closing, except as those representations and warranties may be
affected by the occurrence of events or transactions expressly
contemplated and permitted by this Agreement, and the Vendors shall
have received certificates from the Purchaser confirming the foregoing.
(b) Performance of Obligations - the Purchaser shall have performed all
of the obligations hereunder to be performed by it at or prior to the
Closing and the Purchaser shall not be in breach of any agreement on
its part contained herein.
(c) Deliveries - China eMall shall have delivered or caused to be
delivered to China Vendors possession of the Exchangeable Shares, free
and clear of any Encumbrances.
(d) Approvals - All necessary approvals by the directors and/or
shareholders of the Purchaser shall have been obtained, completed or
given, as the case may be, on or before the Closing Time.
(e) Completion of Investigations - The investigations and assessments
contemplated in section 8.6 shall have been completed and the China
Vendors shall be satisfied with the results of such investigations and
assessments including, without limitation, the accuracy of the Records
and matters represented and warranted in Article VI.
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(f) Consents, Authorizations and Registrations - All consents,
approvals, orders and authorizations of, from or notifications to any
Persons or Governmental Authorities required in connection with the
completion of any of the transactions contemplated by this Agreement,
the execution of this Agreement, the Closing or the performance of any
of the terms and conditions of this Agreement shall have been obtained
on or before the Closing Date. There shall be no injunction or order
issued preventing, and no pending or threatened claim, action,
litigation or proceeding, judicial or administrative, or investigation
against any Party by any Governmental Authority or Person for the
purpose of enjoining or preventing the consummation of this agreement,
or otherwise claiming that this Agreement or the consummation thereof
is improper or would give rise to proceedings under any statute or rule
of law.
(g) No Loss - During the Interim Period, there has been no material
damage to the assets of the Purchaser by fire or other peril, whether
or not such damage is covered by insurance.
(h) No Material Changes - There shall have been, in the reasonable
opinion of China eMall and the China Vendors, no material adverse
changes in the assets or financial condition of the Purchaser during
the Interim Period. For the purposes of this subsection, the term
"material adverse change" shall mean any change in the assets,
liabilities or financial condition of the Purchaser that may, in the
reasonable opinion of China eMall and the China Vendors involve
material reduction, damage, risk to or destruction of the assets
whether or not the change is covered by insurance.
(i) Support Agreement - The Purchaser shall have executed the Support
Agreement on or before the Closing Date.
Legal Opinion - Florida counsel to the Purchaser shall provide an opinion
that the Purchaser is validly existing under the laws of Florida, that
no shareholder approval is required and other such general matters to
the satisfaction of counsel to China eMall and the Vendors.
Exchangeable Shares - Before closing the shareholders of China eMall
shall create the Exchangeable Shares by filing articles of amendment of
China eMall. The rights, privileges, restrictions and conditions of the
Exchangeable Shares shall be as is substantially set out in Schedule
2.8.
GDCT and Uphill Shares - Before Closing the Uphill Vendors shall cause
Uphill to file articles of amendment subdividing the 100 common shares
into 700,000 common shares.
Voting Trust - On Closing the Purchaser and the Vendors holding
Exchangeable Shares shall enter into a voting trust agreement in a
mutually agreeable form prepared by counsel to China eMall to provide
to a trustee, acting on behalf of all of the holders of Exchangeable
Shares, voting rights of shares in the capital of the Purchaser
equivalent to the voting rights of the common shares in the capital of
the Purchaser into which the Exchangeable Shares are exchangeable that
will be allotted for purposes of issuance with respect to the
Exchangeable Shares; or the Purchaser shall deposit a number of common
shares in the capital of the Purchaser equal at all times and from time
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to time to the number of common share in the capital of the Purchaser
into which the outstanding Exchangeable Shares are exchangeable,
provided that the voting rights of such shares shall be held by the
trustee of such voting trust pursuant to the terms and conditions of
such a voting trust agreement in a mutually agreeable form prepared by
counsel to China eMall for the benefit of the holders of the
outstanding Exchangeable Shares from time to time but all other rights
of such common shares in the capital of the Purchaser shall be held by
the trustee for the benefit of the Purchaser pursuant to the terms and
conditions of such a voting trust agreement in a mutually agreeable
form prepared by counsel to China eMall.
If any one or more of the foregoing conditions shall not have been fulfilled on
or before the Closing Date, the Vendors may terminate this Agreement by notice
in writing to the Purchaser in which event the Vendors shall be released from
all obligations under this Agreement without liability and (unless the Vendors
can show that the condition relied upon could reasonably have been performed by
the Purchaser) the Purchaser shall also be released from all obligations
hereunder without liability; provided, however, that the Vendors shall be
entitled to waive compliance with any one or more of such conditions in whole or
in part if they shall see fit to do so, without prejudice to their rights to
termination in the event of the non-fulfilment of any other condition in whole
or in part.
ARTICLE X
INDEMNIFICATION
---------------
10.1 Mutual Indemnifications for Breaches of Warranty, etc. Subject to section
10.3, the Purchaser hereby covenants and agrees with the Vendors and China eMall
and the Vendors and China eMall hereby covenant and agree severally with the
Purchaser (the parties covenanting and agreeing to indemnify another party under
this Article X are hereinafter individually referred to as "Indemnifying Party"
and the parties that are being indemnified by another Party under this Article X
are hereinafter individually referred to as the "Indemnified Party") to
indemnify and save harmless the Indemnified Party, effective as and from the
Closing Time, from and against any Claims which may be made or brought against
the Indemnified Party and/or which it may suffer or incur as a result of, or
arising out of any non-fulfilment of any covenant or agreement on the part of
the Indemnifying Party under this Agreement or any Ancillary Agreement or any
incorrectness in or breach of any representation or warranty of the Indemnifying
Party contained in this Agreement or any Ancillary Agreement.
10.2 Undisclosed Liabilities Indemnity. Notwithstanding section 10.1 and without
limiting the generality of section 10.1:
(a) the Vendors and China eMall shall indemnify the Purchaser from all
Claims arising from liabilities or obligations to Persons that arise
from any act or failure to act of China eMall or the Vendors prior to
the Closing Date that is not disclosed to the Purchaser pursuant to
Articles IV or V or otherwise prior to Closing; and
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(b) the Purchaser shall indemnify China eMall and the Vendors from all
Claims arising from liabilities or obligations to Persons that arise
from any act or failure to act of the Purchaser prior to the Closing
Date that is not disclosed to China eMall and the Vendors pursuant to
Articles V or VI or otherwise prior to Closing.
10.3 Limitation on Mutual Indemnification. The indemnification obligations
of each of the Parties pursuant to section 10.1 and 10.2 shall be subject to the
following:
(a) the applicable limitation mentioned in Article VII respecting the
survival of the representations and warranties of the Parties;
(b) the indemnity obligations under section 10.2 shall survive for a period
of one (1) year from the Closing Date;
(c) there shall be no limit as to amount in respect of breaches of the
representations and warranties of the Parties other than as
specifically limited by the provisions of the section; and
(d) an Indemnifying Party shall not be required to indemnify an Indemnified
Party until the aggregate Claims sustained by the Indemnified Party
exceeds a value of $5,000, in which case the Indemnifying Party shall
be obligated to the Indemnified party for all Claims without limit as
to amount.
10.4 Procedure for Indemnification. The following provisions shall apply to any
Claims for which an Indemnifying Party may be obligated to indemnify an
Indemnified Party pursuant to this Agreement:
(a) upon receipt from a third party by the Indemnified Party of notice of a
Claim or the Indemnified party becoming aware of a Claim in respect of
which the Indemnified Party proposes to demand indemnification from the
Indemnifying Party, the Indemnified Party shall give notice to that
effect to the Indemnifying Party with reasonable promptness, provided
that failure to give such notice shall not relieve an Indemnifying
Party from any liability it may have to the Indemnified Party except to
the extent that the Indemnifying Party is prejudiced thereby;
(b) in the case of Claims arising from third parties, the Indemnifying
Party shall have the right by notice to the Indemnified party not later
than thirty (30) days after receipt of the notice described in
paragraph (i) above to assume the control of the defence, compromise or
settlement of the Claims, provided that such assumption shall, by its
terms, be without costs to the Indemnified Party and the Indemnifying
Party shall at the Indemnified Party's request furnish it with
reasonable security against any costs or other liabilities to which it
may be or become exposed by reason of such defence, compromise or
settlement;
(c) upon the assumption of control by the Indemnifying Party as aforesaid,
the Indemnifying Party shall diligently proceed with the defence,
compromise or settlement of the Claims at its sole expense, including
27
<PAGE>
employment of counsel reasonably satisfactory to the Indemnified Party
and, in connection therewith, the Indemnified Party shall co-operate
fully, but at the expense of the Indemnifying Party, to make available
to the Indemnifying Party all pertinent information and witnesses under
the Indemnified Party's control, make such assignments and take such
other steps as in the opinion of counsel for the Indemnifying Party are
necessary to enable the Indemnifying Party to conduct such defence;
provided always that the Indemnified Party shall be entitled to
reasonable security from the Indemnifying Party for the expense, costs
of other liabilities to which it may be or may become exposed by reason
of such co-operation;
(d) the final determination of any such Claims arising from third parties,
including all related costs and expenses, will be binding and
conclusive upon the Parties as to the validity or invalidity, as the
case may be of such Claims against the Indemnifying Party hereunder;
and
(e) should the Indemnifying Party fail to give notice to the Indemnified
Party as provided in paragraph (ii) above, the Indemnified Party shall
be entitled to make such settlement of the Claims as in its sole
discretion may appear advisable, and such settlement or any other final
determination of the Claims shall be binding upon the Indemnifying
Party.
ARTICLE XI
CLOSING ARRANGEMENTS
--------------------
11.1 Closing. The Closing shall take place at the offices of Stewart &
Associates, Barristers and Solicitors, 1 First Canadian Place, Suite 700, 100
King Street West, Toronto M5X 1C7, Ontario, Canada at the Closing Time on the
Closing Date.
11.2 Closing Procedures. At the Closing Time or where specified, prior to the
Closing Time;
China eMall shall issue and deliver to the China Vendors' possession,
except GDCT, Uphill and Forte the Exchangeable Shares;
the China Vendors except GDCT, Uphill and Forte shall convert their
China Shares for the Exchangeable Shares;
GDCT and the Purchaser shall exchange the GDCT Shares and the common
shares in the capital of the Purchaser;
Uphill and the Purchaser shall exchange the Uphill Shares and the
common shares in the capital of the Purchaser;
Forte and the Purchaser shall exchange the China Shares held by Forte
and the common shares in the capital of the Purchaser; and
(e) the Parties shall take or shall have taken, as the case may be, the
other actions contemplated to be taken by them at or before the Closing
contemplated in this Agreement.
28
<PAGE>
11.3 Non-Waiver. No investigations made by or on behalf of the Purchaser, China
eMall and the China Vendors at any time shall have the effect of waiving or
diminishing the scope of or otherwise affecting any representation, warranty or
indemnity made by or imposed upon the Parties pursuant to this Agreement.
ARTICLE XII
GENERAL
-------
12.1 Termination.
(1) This agreement may be terminated at any time prior to the Closing Date:
by the mutual agreement of the Parties;
by the Purchaser within 14 days of the execution of this
Agreement if the Purchaser has any concerns whatsoever at its
own discretion with respect to the due diligence of Uphill or
GDCT; or
by the Parties if the transactions contemplated by this Agreement
would violate any non-appealable final order, decree or
judgement of any court or governmental body having competent
jurisdiction.
(2) If this Agreement is terminated by a Party under subsection 12.1(1),
such termination shall be without liability of either Party to the
other parties, or to any of their shareholders, directors, officers,
employees, agents, consultants or representatives provided that if such
termination shall result from the wilful failure of the Party to fulfil
a condition to the performance of the other Parties or to perform a
covenant of this agreement or from a wilful breach by the party to this
Agreement, the Party shall be fully liable for any and all damages,
costs and expenses (including, but not limited to, reasonable counsel
fees and disbursements) sustained or incurred by the other Parties.
12.2 Expenses Except as otherwise specified herein, all costs and expenses
(including the fees and disbursements of accountants and legal counsel) incurred
in connection with this Agreement and completion of the transactions
contemplated by this Agreement shall be paid by the Party incurring those
expenses.
12.3 Time of Essence. Time shall be of the essence in all respects of this
Agreement.
12.4 Notices. Any notice or other communication which is required or permitted
to be given or made by one Party to the others hereunder shall be in writing and
shall be either personally delivered to such Parties sent by facsimile.
Any notice shall be sent to the intended recipient at its address as
follows:
29
<PAGE>
(a) to the Purchaser:
c/o Elwin Cathcart
6705 Tomken Road
Unit 12-14
Mississauga, Ontario
L5T 2J6
Facsimile No.: (905) 795-9682
and to Stewart & Associates at:
c/o Adam K. Szweras
Stewart & Associates
Barristers & Solicitors
Suite 700, P.O. Box 160
1 First Canadian Place
100 King Street West
Toronto, Ontario
M5X 1C7
Facsimile No.: (416) 368-7805
to the China Vendors, except Forte Management Corp. at:
c/o Dr. Gang Chai
McVicar Minerals Ltd.
1 Dundas Street West
Suite 2402, Box 13
Toronto, Ontario
M5G 1Z3
Facsimile No.: (416) 977-8335
and to Dexter, Marrelli & Amenta at:
c/o James Marrelli
1 Dundas Street West
Suite 2402, Box 24
Toronto, Ontario
M5G 1Z3
Facsimile No.: (416) 971-7458
and to Vivan Wong, Barrister & Solicitor, at:
5400 Yonge Street Suite 401
North York, Ontario
M2N 5R5
Facsimile No.: (416) 222-8320
to Forte Management Corp. at:
Facsimile No. (441) 295-5491
30
<PAGE>
or at such other address as any Party may from time to time advise the others by
notice in writing. Any notice given by personal delivery shall be deemed to be
received on the date of delivery. Any notice sent by facsimile or similar method
of recorded communication shall be deemed to have been received on the next
Business Day following the date of its transmission.
12.5 Further Assurances. The Parties shall with reasonable diligence do all
things and provide all reasonable assurances as may be required to complete the
transactions contemplated by this Agreement, and each Party shall provide such
further documents or instruments required by any other Party as may be
reasonably necessary or desirable to give effect to this Agreement and carry out
its provisions, whether before or after the Closing.
12.6 Public Notice. All public notices to third parties and all other publicity
concerning the transactions contemplated by this Agreement shall be jointly
planned and co-ordinated by the Parties and no Party shall act unilaterally in
this regard without the prior written approval of the other Parties, such
approval not to be unreasonably withheld.
12.7 Amendment and Waiver. No supplement, modification, waiver or termination of
this Agreement shall be binding unless executed in writing by the party to be
bound. No waiver of any of the Provisions of this Agreement shall constitute a
waiver of any other provision (whether or not similar) nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
12.8 Assignment. This Agreement and the rights or obligations hereunder or
thereunder are not assignable by any Party without the prior written consent of
the other Parties, which consent shall not be unreasonably withheld. This
Agreement shall enure to the benefit of and be binding upon the Parties and
their respective successors and permitted assigns.
12.9 Severability. Any provision of this Agreement, which is prohibited or
unenforceable in any jurisdiction, shall not invalidate the remaining provisions
hereof. Any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
12.10 Governing Law. The Parties agree that this Agreement shall be governed by
the laws of the Province of Ontario, and the federal laws of Canada applicable
therein, that Ontario will be the proper forum for any controversy arising in
connection with this Agreement and that the courts of which will be the
exclusive forums for all such suits, actions or proceedings.
12.11 Counterparts. This Agreement may be executed by the Parties in one or
more counterparts, originally or by facsimile signature, each of which when so
31
<PAGE>
executed and delivered shall be deemed an original and such counterparts shall
together constitute one and the same instrument.
12.12 Prior Agreement Cancelled. The Parties have agreed that the Share Exchange
Agreement entered into among them on the 9th day of March, 2000 is hereby
cancelled and fully replaced by this present Agreement.
IN WITNESS WHEREOF this agreement has been executed by the Parties each
as of the day and year first before written.
THIS AGREEMENT IS HEREBY EXECUTED on the date set forth above.
VHS NETWORK, INC.
Per: _________________________________
A.S.O.
CHINA EMALL CORPORATION
Per: ___________________________
A.S.O.
FORTE MANAGEMENT CORP.
Per:
A.S.O.
UPHILL CAPITAL INC.
Per:__________________________
A.S.O.
GDCT INVESTMENT INC.
Per:_________________________
A.S.O.
29
<PAGE>
- ------------------------- -----------------------------
Witness Dr. Gang Chai
- ------------------------- -----------------------------
Witness Dr. Charles He
- ------------------------- -----------------------------
Witness Qing Wang
- ------------------------- -----------------------------
Witness Qin Lu Chai
- ------------------------- -----------------------------
Witness Tai Xue Shi
32
CONSULTING SERVICES AGREEMENT
THIS AGREEMENT made as of the 12th day of April, 2000.
B E T W E E N:
VHS NETWORK, INC.,
a company incorporated under the laws
of the State of Florida
(hereinafter called the "Company")
- and -
G.C. CONSULTING AND INVESTMENT CORP.,
a corporation incorporated under the laws of the Provinc
of
Ontario,
(hereinafter called the "Consultant")
- and -
GANG CHAI,
of Toronto, Ontario
(hereinafter called the "Executive")
WHEREAS the Company wishes to confirm that it has retained the
services of the Consultant effective March 1, 2000, and the Consultant has
agreed to accept such assignment, upon the terms and conditions hereinafter set
forth;
AND WHEREAS the Consultant has agreed with the Company to
appoint, exclusively, the Executive as the Consultant's representative to
perform the Consultant's obligations hereinafter set out;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration
of the premises and the mutual promises and agreements herein contained (the
receipt and sufficiency of which are hereby acknowledged by each of the
parties), the parties hereto covenant and agree as follows:
SECTION 1 e
Engagement e
------------
1.1 Engagement
The Company hereby engages the Consultant as a self-employed
independent contractor to provide the services of the Executive, and the
Consultant hereby agrees to accept such assignment, upon and subject to the
terms and conditions hereinafter set forth.
1.2 Duties of the Consultant and the Executive
1
<PAGE>
(a) The Consultant and the Executive agree to diligently perform such services,
duties and responsibilities as may from time to time be mutually agreed to with
the Company, with a standard of care, diligence and quality that is commensurate
with industry practice in Canada and the United States. Neither the Consultant
nor the Executive shall be under the direct control, management or supervision
of the Company in the performance of such services, but the Consultant will
accept direction from the Company's Chief Executive Officer in the performance
of the Consultant's duties and shall submit reasonable written reports to the
Company concerning the performance of such services, as the Company may request
from time to time.
(b) The Consultant and the Executive agree that any failure to discharge the
duties and responsibilities assigned to the Executive in accordance with Section
1.2(a) herein, if not remedied after reasonable notice, constitutes both a
breach of this Agreement and cause for termination of this Agreement without
notice or compensation in lieu of notice.
(c) While engaged on any matter, the Consultant shall cause the Executive
(except in the case of illness or accident) to devote such of his time,
attention and energy as is necessary to such matter. In order to perform the
duties and responsibilities hereunder, the Executive will be reasonably
available at such times and locations as the Consultant and the Company may
reasonably and mutually agree. Without limitation, the Company and the
Consultant may mutually agree that some of the services to be provided by the
Executive hereunder may be carried out at his home or personal office.
(d) The parties acknowledge and agree that the Executive is the sole holder of
common shares of the Consultant and a director of the Company and that the
Executive shall be performing the duties and responsibilities provided for
hereunder as the representative of the Consultant. The parties further
acknowledge and agree that the services herein covered are in addition to the
normal services and advice that would be provided by the Executive in his
capacity as a director of the Company.
(e) Each of the Consultant and the Executive shall, in performance of their
respective obligations pursuant to this Agreement, comply with all
applicable laws, rules, regulations and bylaws of Canada and of each
province and municipal subdivision thereof in which the Consultant or
the Executive is providing services to the Company. The Consultant and
the Executive shall be responsible for obtaining all necessary permits
and licenses and complying with all applicable codes and regulations in
connection with such permits and licences. The Consultant and the
Executive shall take reasonable safety and health precautions during
the provision of the services hereunder. Notwithstanding the
independence of the Consultant and the Executive in performing such
services, the Consultant and the Executive, in performing such
services, agree to comply with the policies, standards, procedures,
conventions, techniques, rules and regulations of the Company which are
from time to time in force, and which are brought to the attention of
the Consultant or the Executive or those of which the Consultant or the
Executive should reasonably be aware, including, without limitation,
workplace safety policies, human rights policies and legal requirements
2
<PAGE>
concerning all aspects of the dealings of the Consultant or the Executive
with the Company or the Company's employees.
1.3 Engaging in Other Activities
The Company and the Consultant acknowledge that the performance of the
duties of the Consultant hereunder is on a non-exclusive basis and that it is
free to perform other consulting activities, provided that same do not conflict
with the obligations of the Consultant to the Company and that such activities
are not for or on behalf of a competitor of the Company. The Consultant and the
Executive acknowledge and agree that any violation of this Section shall be
cause for termination of this Agreement without notice or compensation in lieu
of notice.
1.4 Corporate Information
The Company agrees to cooperate with the Consultant and to provide such
information, financial records and documents as may facilitate the performance
of the services hereunder.
SECTION 2
Remuneration and Expenses
-------------------------
2.1 Consulting Fee
The Company agrees to pay to the Consultant during the term of this
Agreement for the services provided hereunder a monthly fee (the "Fee") of CDN
$7,833.34, plus applicable goods and services tax, payable on the first day of
each month for the term of this Agreement. Provided, however, that the Company
shall not be obligated to make payment to the Consultant so long as the
Consultant has, in the reasonable opinion of the Company, failed to rectify in a
manner satisfactory to the Company any adverse departure from any performance
schedule applicable to any of the services or any breach of this Agreement.
2.2 Expenses
The Company shall compensate the Consultant for all reasonable,
documented out-of-pocket expenses incurred in performance of the services
hereunder including, but not limited to, travel expenses, long distance
telephone calls, computer time and supplies. Such expenses incurred by the
Consultant shall be reimbursed the Company against submission of appropriate
vouchers or invoices in accordance with such reasonable guidelines as may be
established by the board of directors of the Company from time to time provided
that any expense over $250.00 must be pre-approved in writing by the Company. In
addition the Consultant shall receive CDN $600 per month for automobile
expenses.
3
<PAGE>
SECTION 3
Term of Engagement
------------------
3.1 Term
The term of this Agreement shall commence with effect from March 1,
2000 for a term of one year and shall be renewed for successive one year terms
thereafter unless terminated in accordance with the provisions of this
Agreement.
SECTION 4
Termination
-----------
4.1 Termination
(a) This Agreement shall terminate upon the Executive's death and may be
terminated immediately at the option of the Company upon written notice
to the Consultant in the event that the Executive is unable to carry
out the services herein for a period of 150 consecutive business days
or more or for periods aggregating 180 business days in any period of
365 days.
(b) Notwithstanding anything in this Agreement, the Company may at its
option terminate this Agreement on thirty (30) days' written notice to
the Consultant if the Executive ceases to be the exclusive
representative of the Consultant under this Agreement.
(c) In the event that the Executive ceases to provide the services
described herein on behalf of the Consultant, the Company may at its
sole option permit the Consultant to name a successor Executive,
subject to the consent of the Company, who shall be subject to, and
shall execute a copy of this Agreement, and shall continue to perform
the services required of the Consultant hereunder.
(d) Except as otherwise provided in this Agreement, neither the Company,
the Consultant nor the Executive shall be entitled to terminate this
Agreement during the initial one (1) year term however, thereafter the
Company, the Consultant or the Executive may terminate this Agreement
by providing written notice to the other parties at least three (3)
months' prior to the commencement of a successive one year term.
Notwithstanding this Section, the Company may terminate this Agreement
upon prepaying to the Consultant the Fee in lieu of such notice
contemplated in this Section.
(e) The Company may terminate this Agreement for cause, at any time,
without notice or compensation in lieu of notice. It is understood and
agreed that cause includes, without limitation, any material breach of
the provisions of this Agreement by the Consultant or the Executive, or
any conduct of the Consultant or the Executive which in the opinion of
the Company, acting reasonably, tends to bring himself, itself or the
Company into disrepute.
(f) The parties confirm that the provisions contained in this Section 4 are
valid and reasonable and are fair and equitable and that the parties
agree that upon termination of this Agreement, in compliance with the
4
<PAGE>
provisions of this Agreement, neither the Consultant nor the Executive
shall have any action, cause of action, claim or demand against the
Company or any other person as a consequence of such termination.
SECTION 5
Confidentiality and Non-Competition
-----------------------------------
5.1 Confidentiality
(a) The Executive agrees that all information concerning the business and
affairs of the Company or its subsidiaries, affiliated corporations or
associates, which he may have learned while providing the services
hereunder ("Confidential Information"), is the property of the Company
and shall remain so and that the disclosure of any Confidential
Information would be highly detrimental to the best interests of the
Company and could severely damage the economic interests of the
Company. Except as otherwise herein provided, the Executive agrees that
during the term of this Agreement, and thereafter, the Executive will
hold in strictest confidence, will take all necessary precautions
against unauthorized disclosure of, and will not use or disclose to any
person, firm or company, without the written authorization of an
officer of the Company, any of the Confidential Information, except as
such use or disclosure may be required in connection with the work of
the Executive for the Company. The Executive understands that this
Agreement applies to computerized as well as written information.
(b) Upon or after the termination of this Agreement, the Executive agrees
that he will not take with him any Confidential Information that is in
written, computerized, machine-readable, model, sample, or other form
capable of physical delivery, without the prior written consent of an
officer of the Company. The Executive also agrees that upon the
termination of this Agreement, the Executive shall deliver promptly and
return to the Company all such materials, along with all other property
of the Company, in his possession, custody or control and the Executive
shall make no further use of same. Should any such items be discovered
by the Executive after the termination of this Agreement, the Executive
agrees to return them promptly to the Company without retaining copies
of any kind.
5.2 Non-Competition
The Consultant and the Executive agree that during the currency of this
Agreement, neither the Consultant nor the Executive shall, without the
express written consent of the Company, directly or indirectly, either
individually or in a partnership, or jointly or in conjunction with any
person, be engaged by, consult with or advise, manage, own shares in
the capital of, lend money to or guarantee the debts or obligations of,
or permit his name or any part thereof, to be used or employed by any
other business entity or person competitive with the Company's
business.
5
<PAGE>
SECTION 6
Miscellaneous
-------------
6.1 Agency
Nothing herein contained shall constitute the Corporatio or the
Consultant the agent of the other. The relationship herein created
shall be that of independent contractors acting at arm's length.
(a) Any notice required or permitted to be given to the Company shall be
sufficiently given if mailed by registered mail or sent by facsimile
transmission to the Company's Head Office at its address last known to
the Consultant.
(b) Any notice required or permitted to be given to the Consultant shall be
sufficiently given if delivered to the Executive personally or if
mailed by registered mail to the Executive's address last known to the
Company.
6.3 Severability
If any provision of this Agreement or its application to any party or
circumstance is restricted, prohibited or unenforceable, such
provisions shall, as to such jurisdiction, be ineffective only to the
extent of any such restriction, prohibition or unenforceability without
invalidating the remaining provisions hereof and without affecting the
validity or enforceability of such provision or application to other
parties or circumstances.
6.4 Counterparts
This Agreement may be executed in any number of counterparts by
original or facsimile signature, each of which when executed and
delivered shall be an original but such counterparts together shall
constitute one and the same instrument.
6.5 Governing Laws
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the laws of Canada applicable
therein.
6.6 Assignment and Successors
The rights which accrue to the parties under this Agreement shall be
binding upon and enure to the benefit of the heirs, executors,
administrators, successors and permitted assigns of the parties hereto
as the case may be.
6
<PAGE>
6.7 Independent Legal Advice
The parties hereby acknowledge that this provision shall serve as
notice to each party of being advised to arrange for such independent
legal advice with respect to this Agreement, each of the matters herein
and the implications thereof, as each party may independently deem
necessary, and that each party has either obtained such independent
legal advice or hereby waives the right thereto by signing this
Agreement.
6.8 Time of the Essence
Time shall be the essence of this Agreement and every part thereof.
6.9 Entire Agreement
This Agreement, including the recitals set out above which shall form
an integral part of this Agreement, constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties
hereto in connection with the subject matter hereof. No supplement,
modification, waiver or termination of this Agreement shall be binding,
unless executed in writing by the parties to be bound thereby.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the date first above written.
SIGNED, SEALED AND DELIVERED )
in the presence of ) VHS NETWORK, INC.
)
)
) Per: )
-----------------------------------------
A.S.O.
)
) G.C. CONSULTING AND
) INVESTMENT CORP.
)
) Per:
--------------------------------------------
) A.S.O.
)
)
- ---------------------- ) --------------------------------------------
Witness GANG CHAI
7
EXHIBIT 10.3
LICENCE AGREEMENT
This Agreement is made effective the 1st day of January, 2000
B E T W E E N :
GROUPMARK CANADA LIMITED,
an Ontario corporation,
(hereinafter called the "Licensor")
- and -
VHS NETWORK, INC.,
a Florida corporation,
(hereinafter called the "Licensee")
WHEREAS the Licensor has previously licensed the Licensee to use the trademark
smartCARD, however the parties wish to cancel the previous agreement and enter
into this agreement in its place.
AND WHEREAS the Licensor is the beneficial owner of the registered trademark
smartCARD as hereinafter described in Schedule "A" in Canada, a pending
application for the trademark smartCARD in the United States of America and the
common law trademark smartCARD.
AND WHEREAS the Licensor is the owner of certain know-how, technology,
confidential information, related matters and information which enables the
Licensor to manufacture and market smartCARDS.
AND WHEREAS the Licensee wishes to have the right to manufacture and market
smartCARDS employing the aforementioned know-how in the territory hereinafter
described in accordance with the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which is hereby mutually acknowledged, the parties hereto agree as follows:
1. DEFINITIONS
-----------
1.1 "Allowance" means any credit in respect of the wholesale price of future
orders received by the Licensee from any of its customers and which credit is
given to such customer as compensation for any damaged or defective Product
previously sold to such customer by the Licensee provided that the amount of
such credit shall not exceed the Wholesale Selling Price at which any such
damaged or defective product was sold;
1
<PAGE>
1.2 "Components" means all of those components of the Product which are required
to be used by the Licensee to produce the Product pursuant to the terms of this
Agreement including, but without limiting the generality thereof, portions of
the Product and all computer chips, and other parts intended or required to be
incorporated into the Product by the Licensor.
1.3 "Effective Date" shall be January 1, 2000.
1.4 "Know-How" means information, know-how, technology, trade secrets, drawings,
plans, specifications, blue prints, material lists, processes and methods,
techniques and other confidential information directly or indirectly relating to
the Components and the Product or required for the sourcing, production,
manufacture or marketing of the Components and the Product and all improvements,
modifications, extensions or variations of the same if, as and when developed by
either the Licensor or the Licensee during the currency of this Agreement and
shall include any patents or design patents now or hereafter obtained related to
the foregoing.
1.5 "Persons" means individuals, partnerships, corporations and other
associations whether incorporated or not incorporated.
1.6 "Product" means the chip-based plastic access cards used for identification
purposes and as a debit or charge cards.
1.7 "Records" means without limiting the generality thereof, all vouchers,
purchaser orders, delivery vouchers, bills of lading, bills of sale, statements
of account, receipts, ledgers, journals and other books of account and generally
all records and data maintained by the Licensee relating to the manufacture,
sale and/or distribution of the Product;
1.8 "Returns" means any damaged or defective Product returned to the Licensee by
any of its customers and for which the Licensee is required to refund to such
customer the Wholesale Selling Price at which such Product was sold.
1.9 "Royalty" means the royalty payable on the Wholesale Selling Price of
Product as set out in Section 10.1.
1.10 "Term" means the duration of this Agreement as set out in Section 12.1.
1.11 "Territory" means worldwide.
1.12 "Trade-marks" means those existing or future trade-marks which relate to
the Product, the Know-How or the Components.
1.13 "Wholesale Selling Price" means the gross amount received by the Licensee
as payment for the Product sold by it excluding only federal, state or municipal
sales taxes, value added taxes or other similar consumption taxes payable by the
Licensee.
2
<PAGE>
2. GRANT OF LICENCE
----------------
2.1 Subject to the covenants and provisions of this Agreement to be observed and
performed by the Licensee, the Licensor hereby grants to the Licensee the right
and license, in respect of the Trade-marks applicable in the Territory and the
Know-How, to manufacture and market the Product in the Territory during the Term
of this Agreement and to utilize the Know-How in the manufacturing and marketing
of the Product.
2.2 Licensor further agrees to make available to the Licensee the Know-How
relating to manufacture and marketing of the Product during the currency of this
Agreement and the Licensee acknowledges that such Know-How shall at all times
both during and after the currency of this Agreement remain the property of the
Licensor which may be used by the Licensee only in accordance with the terms and
conditions of this Agreement.
2.3 The Licensee hereby acknowledges that the Licensor will retain the right to
sell any Product in the Territory and the Licensee agrees to inform the Licensor
of all industries, customers or markets into which the Licensee sells Product.
2.4 The Licensor further agrees to communicate to the Licensee any new
development in the Know-How or Product occurring during the currency of this
Agreement for use by the Licensee without additional consideration subject to
the terms of this Agreement and in this regard should the Licensor register any
patents, or additional trademarks with respect to the Products, the Licensor
hereby grants a license to the Licensee for said patent or trademark under the
same terms herein for the duration of the term of this Agreement.
2.5 The Licensor further agrees that during the currency of this Agreement, it
shall specify to the Licensee the Components in accordance with the terms of
this Agreement and the Licensee agrees to purchase such Components in accordance
with the terms and conditions of this Agreement from the Licensor only or from
sources approved in writing by the Licensor.
2.6 The Licensor agrees that the Know-How shall not be communicated to any other
person for use within the Territory during the currency of this Agreement. The
Licensor and Licensee both undertake to use their best efforts to prevent any
unauthorized disclosure or use of the Know-How, except as authorized by the
terms of this Agreement.
3. SUB-LICENSING
-------------
3.1 The Licensee shall be permitted to grant to others the manufacturing rights
acquired by it under Section 2 in the Territory.
4. COMMUNICATION OF KNOW-HOW
-------------------------
4.1 After the Effective Date of this Agreement and within a reasonable time
after receipt of a request therefor from the Licensee and so on throughout the
currency of this Agreement, the Licensor shall, from time to time, deliver the
Know-How to Licensee as recorded in writing or in other tangible form. Such
delivery shall be effected at such locations as the parties agree upon either by
physical delivery or by other convenient means provided always that title and
risk of loss to the Know-How shall remain with the Licensor until delivery and
then shall pass to the Licensee.
3
<PAGE>
5. SECRECY OF KNOW-HOW
-------------------
5.1 The Licensee shall use all reasonable efforts to maintain the secrecy of the
Know-How which shall be disclosed only to those of its officers or employees
whose duties required them to know the same and only if such persons have given
to the Licensee an enforceable undertaking not to disclose any part of the
Know-How to any unauthorized third persons. Further, the Licensee shall not
disclose any part of the Know-How to any other persons or to any proposed
sub-licensees without the Licensor's written consent. The Licensee covenants and
agrees that it shall not, and covenants to use its best efforts to ensure that
its employees and subcontractors shall not disclose, distribute, sell, use or
otherwise make available to any person any of the Know-How. The Licensor shall
require its employees and subcontractors to execute a non- disclosure covenant
in a form approved by the Licensor. The Licensee further covenants and agrees
that it shall not contest, directly or indirectly, the validity of the ownership
of the Licensor to the Know-How or any other parties thereof or any trademark of
the Licensor or industrial design rights or any other proprietary rights whether
or not relating to the Know-How. The provisions of this section shall remain
binding upon the parties hereto notwithstanding any assignment of this Agreement
whether or not consented to by the Licensor. The Licensee and its employees and
subcontractors, as the case may be, shall be released from the obligations of
this clause only with respect to such portion of the Know-How which:
(i) is now available to the public in publication or tangible
form;
(ii) becomes available to the public in tangible for anywhere in
the world through no cause due to the Licensee, its employees,
agents or those whom they have a right to control or to whom
they have disclosed information;
(iii) is already in the possession of the Licensee from sources
other than the Licensor and there is documentary evidence to
that effect; or
(iv) has been received from a party who is not under an obligation
of confidence to the Licensor.
6. IMPROVEMENTS
------------
6.1 In the event that during the term of this Agreement, the Licensee develops
any improvements in or inventions relating to the Know-How, the Product or the
Components, it shall disclosure and make such improvements or inventions
available to the Licensor who shall have the right to use the same in all parts
of the world without charge. If such improvement developed by the Licensee is
eligible for protection under the patent or industrial design laws of any part
of the Territory the Licensee shall at the Licensor's request make or cause the
inventor to make the necessary applicable for patent or industrial design rights
for the same and shall pursue each application to final decision to the effect
that letters patent or industrial design registrations be issued upon such
improvement. At the request of the Licensor, the Licensee shall assign or
procure the assignment of any such registration or letters patent to the
Licensor in which event the Licensor shall reimburse the Licensee for all legal
fees, court costs, and filing fees incurred by Licensee in procurement of such
registration or letters patent.
4
<PAGE>
7. KNOW-HOW CONFIDENTIAL
---------------------
7.1 The Licensee hereby acknowledges that the Know-How is secret and
confidential, that its disclosure to Licensee is for the sole purpose of
enabling the Licensee to manufacture and market the Product using the Know-How
and the Components supplied or approved by the Licensor and that the Licensee
has no right to resell or transfer such Know-How but only to use the same in the
ordinary course of the business of manufacturing and marketing the Product to
customers in the Territory.
7.2 The Licensee shall ensure that all Know-How is recorded in tangible form and
all copies marked as being confidential and the property of the Licensor.
8. PROTECTION OF TRADE-MARKS, INDUSTRIAL DESIGNS AND TECHNICAL DATA
-----------------------------------------------------------------
8.1 The Licensor hereby expressly grants the Licensee the right to institute and
carry on in its name and for its own benefit any proceeding that may possibly be
brought in any court of competent jurisdiction in the Territory to prevent the
infringement of any trade-marks, industrial design registrations or design
patents that may exist or be obtained or to sustain the validity thereof to
prevent the unauthorized and wrongful use or disclosure of the Know-How in the
Territory and to claim damages or an accounting of profits in connection with
the foregoing. This clause shall not limit the Licensor's rights to carry on
proceedings for similar purposes. The Licensor agrees to diligently pursue the
registration of all outstanding applications for design registrations and
patents. The Licensor and Licensee agree to give each other such reasonable
assistance as the other may request in connection herewith and both parties
shall indemnify the other with respect to all costs or damages either may suffer
as a result of any action instituted by the other party hereunder.
9. WARRANTIES AND INDEMNITIES
--------------------------
9.1 The Licensor shall indemnify and hold harmless the Licensee, its servants,
agents or employees from any losses or damages, consequent upon any failure or
defect in the design or construction of any Components forming part of the
Product or the Know-How or from any breaches of the Licensors' warranties and
representations made herein or from any damages resulting from any negligent
acts or omissions of the Licensor its servants, agents or employees or from any
misuse of the Trade-mark or the Know-How by the Licensor, its servants, agents
or employees. Subject to the foregoing indemnity provided by the Licensor to the
Licensee, the Licensee shall indemnify and hold harmless the Licensor, its
servants, agents or employees from any and all claims which may be made against
the Licensor, its servants, agents or employees arising out of any breaches of
the Licensee's warranties and representations made herein or out of the use,
failure, or misuse of the Trade-mark, the Know-How, the Components or the
Product by the Licensee, its servants, agents or employees whether or not the
same results from any wrongful or negligent act of the Licensee and its
servants, agents or employees.
9.2 The Licensor represents and warrants to the Licensee that (i) it has the
right and power to grant the Licence herein provided for, (ii) it has not
granted the rights inconsistent with the rights herein granted to the Licensee
to any other person and that such rights are not subject to any liens or
encumbrances, and (iii) it is not aware of any claim made by any person relating
to the validity or enforceability of the Know-How or the Trade-mark.
5
<PAGE>
10. ROYALTIES
---------
10.1 In consideration of the grant of the Licence, the Licensee hereby covenants
and agrees to pay to the Licensor throughout the Term a Royalty of five (5%) per
cent of the Licensee's Wholesale Selling price of the Product, less any
deduction for legitimate Returns and Allowances, which Royalty shall be payable
at the times and in the manner hereinafter set forth.
10.2 No deductions shall be made or any costs incurred by the Licensee in the
manufacture, sale, distribution, advertisement or promotion of the Product or
for any uncollectible accounts receivable of the Licensee. With respect to the
sale of the Product by the Licensee to its customers, the Wholesale Selling
Price shall be deemed to have been received by the Licensee in respect of each
such customer either when a payment is actually made by the customer or on the
30th day next following the date of shipment of the Product to such customer,
whichever shall first occur.
10.3 In the event that the Wholesale Selling Price to be received by the
Licensee is in currency other than United States currency for the purposes of
this Agreement, it shall be deemed to be converted into United States currency
at the exchange rate in effect at the Licensee's bank with respect to such other
currencies on the date it is received, or pursuant to Section 10.2 above when it
is deemed to have been received, and the Royalty shall be calculated upon the
converted amount.
10.4 Subject to Section 13.3 herein, the Royalty shall be payable by the
Licensee to the Licensor quarterly in respect of the total Wholesale Selling
Price received or deemed to have been received by the Licensee in each calendar
quarter, on or before the end of the month next following the completion of each
such calendar quarter or part thereof. For greater certainty, the following
shall be the dates the Royalty shall be payable:
DATE ROYALTY TO BE
CALENDAR QUARTER RECEIVED BY LICENSOR
---------------- --------------------
(a) January, February, March April 30 following
(b) April, May, June July 31 following
(c) July, August, September October 31 following
(d) October, November, December January 31 following
10.5 In the event that the Licensee shall fail to pay to the Licensor, the
Royalty as herein set out by their respective due dates, the Licensee shall also
pay interest to the Licensor upon any and all amounts that are at any time
overdue calculated monthly at a rate equivalent to the rate of interest charged
from time to time by the Licensor's principal Chartered Banker to its most
favoured commercial customers plus one (1%) per cent per annum, such interest to
be calculated from the date of default of payment and compounded monthly.
6
<PAGE>
10.6 All royalties and payments to be made by the Licensee to the Licensor
hereunder shall be paid in United States currency and shall be sent to the
address hereinafter set out for the giving of notices.
11. BOOKS AND RECORDS
------------------
11.1 The Licensee covenants and agrees that it will throughout the Term and for
so long as any money is owned by it to the Licensor, maintain and keep true and
accurate Records which shall reflect such particulars in detail as are necessary
to enable the Royalty due to the Licensor to be property and accurately
determined.
11.2 With respect to each payment due as set out pursuant to the provisions
contained in Section 10.4 herein the Licensee shall submit detailed statements
in writing certified as accurate by the Licensee's Chief Executive Officer or
Chief Financial Officer setting out the manner in which the Royalty was
calculated. Such statements shall include, as a minimum, the total amount of the
Product sold during the quarter to which the statement relates, the Wholesale
Selling Price of the Product, the deductions for Returns and Allowances, if any,
the deductions for value added, consumption and/or sales or similar taxes, if
any, and the computation of the Royalty. The Licensee shall also provide to the
Licensor at the end of each year of the Term, a certified statement of the
Licensee's Auditor of the total amount of Product sold by the Licensee, the
total Wholesale Selling Price received by the Licensee for the sale of the
Product during such year and the amounts paid and owing to the Licensor.
11.3 The Licensor and its duly authorized agents and representatives may examine
the Licensee's records, as they relate to the Product at all reasonable times
and on reasonable notice without causing undue interference to the business of
the Licensee; provided however, that neither the Licensor nor the Licensee or
their respective agents or representatives shall, except under the compulsion of
law or as may be necessary to disclose the information in or in connection with
any arbitration or litigation, disclose to any other person, firm organization
or corporation any information acquired as a result of the examination of the
Licensee's records.
11.4 In the event that the Licensor discovers some error in the Licensee's
statement which discloses that the Licensee owes additional Royalty to the
Licensor, the Licensee shall immediately upon being notified of the amounts
outstanding pay the same to the Licensor together with interest as aforesaid,
and in the event that the amount owing to the Licensor is greater by two (2%)
per cent than the amount already paid by the Licensee to the Licensor, the
Licensee shall, in addition, immediately pay to the Licensor all costs
reasonably incurred by it with respect to its examination of the Licensee's
records.
12. TERM
----
12.1 Subject to the early termination of this Agreement as herein provided and
subject to the maintenance and observance of all the terms, covenants and
conditions required of the Licensee in this Agreement, the right and licence
hereby granted to the Licensee shall continue in effect for a Term of ten (10)
years.
13. TERMINATION
-----------
13.1 The Licensor shall have the right to terminate this Agreement upon the
happening of any one or more of the following events:
(a) The Licensee's failure to render statements and/or pay the
Royalties when due;
7
<PAGE>
(c) The Licensee's failure to comply with any of th other terms
and conditions contained herein on or before the (thirtieth)
30th day next following the date of its receipt of notice from
the Licensor of its failure to comply; or
(d) The bankruptcy or insolvency of the Licensee or the
appointment of a receiver of liquidator to take charge of the
affairs of the Licensee or the making of an assignment for the
benefit of the Licensee's creditors.
13.2 Upon termination of this Agreement for any reason or cause, the Licence
granted herein shall immediately cease and the Licensee shall immediately
discontinue manufacturing, distributing, promoting and selling the Product and
shall immediately discontinue and undertake not to use the trademark or any
other similar or related trademarks or trade names which may be confused with
the trademark or the trade name in association with any of its business or in
association with smartcards; provided, however, that if this Agreement shall be
terminated for any reason other than the effluxion of time the Licensee shall
have an additional sixty (60) days (hereinafter referred to as the "Holdover
Period") beyond the termination date to dispose of its inventory on hold (but
not work in progress) as at the date of termination; provided, further that such
inventory shall not be disposed of at a price substantially less than the price
charged immediately prior to the date of termination. The Licensee shall upon
termination provide the Licensor with a statement, certified by the Chief
Executive Officer of the Licensee, of its inventory and shall at the end of the
Holdover Period provide the Licensor with a second such statement of its
remaining inventory.
13.3 Notwithstanding the termination of this Agreement, the Licensee shall,
within thirty (30) days thereafter, pay to the Licensor all Royalties
outstanding to it as at the date of termination as well as all Royalties earned
from the sale of the Product after the date of termination, in accordance with
paragraph 13.2 herein, which fees shall be payable on or before the (thirtieth)
30th day next following the expiration of the Holdover Period. In addition to,
and together with the payments to be made hereunder, the Licensee shall also
provide the statements as required pursuant to the provisions contained in
paragraph 11.2 herein.
13.4 No failure on the part of the Licensor to exercise any right of termination
hereunder shall be construed to prejudice to eliminate such right or any
subsequent right of termination for the same or any other cause provided for
herein.
14. EFFECTIVE TERMINATION
---------------------
14.1 Upon termination of this Agreement, the obligations of the Licensor
hereunder to communicate any further Know-How shall forthwith terminate, the
Licensee shall cease all use of the Know-How and the Trade-marks and shall cease
the manufacture and marketing of the Product. The Licensee shall be continued to
be bound by the provisions of Section 2.6, 5, 7, 8 and 9 of this Agreement.
8
<PAGE>
15. LICENSES AND ASSIGNMENT
-----------------------
15.1 This Agreement and all rights or obligations arising hereunder may not be
assigned or otherwise transferred by the Licensee and shall not enure to the
benefit of any liquidator, trustee in bankruptcy, receiver or other successor in
title of the Licensee whether by operation of law or otherwise, unless the
Licensor has given its written consent thereto. Any such purported assignment or
transfer without the Licensor's written consent shall be null and void.
15.2 The Licensor may assign the burden and benefit of this Agreement to any
person who acquires substantially all of the Licensor's business and assets
insofar as that business relates to the provisions of the Components,
Trade-marks and Know-How as defined in this Agreement.
16. INFRINGEMENT
------------
16.1 The Licensor and the Licensee shall promptly notify each other in writing
of any infringement or perceived infringement of any proprietary interest either
may have arising from or with respect to the subject matter of this Agreement
and which comes to the attention of either of them. In the event that any party
(hereinafter referred to as the "Infringer") other than the Licensor, the
Licensee or any one else licensed by the Licensor, manufactures, distributes or
sells any other product or service identifying same with the Trademark or the
Trade Name or any similar or related trademark or trade name with infringes upon
he Licensor's proprietary interest in the Trademark, the Licensor shall have the
first right to institute proceedings against the Infringer and may add the
Licensee as a party thereto whereupon the cost of the proceedings shall be
shared equally; provided, however, that if the Licensee wishes to withdraw from
the proceedings it may do so on thirty (30) days' notice to the Licensor and in
such event, the Licensee shall incur no further costs related to the proceedings
and will relinquish all claims damages recovered by the Licensor and shall have
no right to make any claims against the Licensor. In the event that the Licensee
does not withdraw from the proceedings any damages recovered shall be shared by
the parties in such manner as the trier of the proceedings shall determine, or
in the absence of any such award in such manner as the parties may agree in
writing and failing their agreement in writing in such manner as may be
determined by arbitration.
16.2 In the event that the Licensor shall choose not to commence proceedings
against the Infringer, the Licensee may do so on its own behalf in which event
all costs incurred shall be borne entirely by the Licensee and all damages
recovered by the Licensee shall accrue solely for the benefit of the Licensee.
17. RELATIONSHIP OF THE PARTIES
---------------------------
17.1 The Licensor is a significant shareholder of the Licensee, however, the
Licensor and the Licensee are not and shall not be considered to be joint
venturers, partners or agents of each other and neither of them shall have the
power to bind or obligate the other except as set forth in this Agreement. The
Licensee specifically covenants and agrees that it shall in no way incur any
contractual or other obligation in the name of the Licensor and the Licensor
shall have no liability for any debts incurred by or on behalf of the Licensee.
18. SEVERABILITY
------------
18.1 Should any provision or provisions of this Agreement be illegal or
unenforceable, it or they shall be considered separate and severable from the
Agreement and its remaining provisions shall remain in force and be binding upon
the parties hereto as though the said illegal or unenforceable provision or
provisions had never been included.
9
<PAGE>
19. ENUREMENT
---------
19.1 This Agreement shall enure to the benefit of and be binding upon each of
the parties hereto and upon their respective successors and permitted assigns.
20. FURTHER ASSURANCES
------------------
20.1 The parties agree that they and their successors and permitted assigns
shall be bound to execute such further agreements, assurances, papers and
documents, and to cause such by-law and resolutions to be enacted and to
exercise such votes and influence and do and perform or cause to be done and
performed such further and other acts or things as may be necessary or desirable
from time to time in order to act in good faith and to give full effect to this
Agreement and every part thereof.
21. ENTIRE AGREEMENT
----------------
21.1 This Agreement constitutes the entire agreement between the parties hereto
and supersedes all prior negotiations, understandings and agreements of any
nature or kind whatsoever with respect to the subject matter hereof. Any
amendment or amendments to this Agreement to which the parties may agree from
time to time shall, in order to be binding, be made in writing.
22. NOTICES
-------
22.1 All notices, demand or other communications required to be made or given
pursuant to the terms of this Agreement shall be in writing and shall be
delivered personally, by facsimile transmission, by courier or by prepaid
registered post, to the parties at their respective addresses has hereinafter
set out, or such other addresses as the parties may subsequently advised in
writing. Any notice, demand or other communication mailed shall be deemed to be
received on the fifth day of business next following the date of mailing, if
delivered personally shall be deemed to have been received on the actual day of
delivery, if transmitted by facsimile on the day of transmission and if
delivered by courier shall be deemed to have been received on the first day of
business next following the date the same as delivered by the sender to the
courier. In the event that the Government postal service shall be disrupted due
to strike, lockout or otherwise, all notices, demands or other communications
shall be delivered by facsimile, personally or by courier. The following shall
be the addresses for the deliver of notices of each of the parties:
(a) For the Licensor:
Groupmark Canada Limited
6705 Tomken Road, Unit 12-14
Mississauga, Ontario
L5T 2J6
(b) For the Licensee:
VHS Network, Inc.
6705 Tomken Road, Unit 12-14
Mississauga, Ontario
L5T 2J6
10
<PAGE>
3. TIME
----
23.1 Time shall in all respects be the essence of this Agreement.
24. GOVERNING LAW
-------------
23.1 This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario, Canada.
IN WITNESS WHEREOF, the parties have executed this Agreement
under the lands of their duly authorized officers in that regard as of the day
and year first above written.
GROUPMARK CANADA LIMITED
Per:________________________________
A.S.O.
Per:________________________________
A.S.O.
VHS NETWORK, INC.
Per:________________________________
A.S.O.
Per:________________________________
A.S.O.
11
<PAGE>
SCHEDULE "A"
TRADEMARK
---------
1. Canadian trade-mark "SMARTCARD", registration number TMA 357417 for
plastic membership cards.
2. Pending application for the trade-mark "SMARTCARD" and design in the
United States, serial number 75134818, for marketing for others credit,
debit and membership cards for membership, reward and discount
purchases.
