SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended October 31, 1999.
[ ] Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ____________ to ____________.
Commission file number 0-011228
DIGITAL COMMERCE INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 02-0337028
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
815 Hornby Street, Suite 404,
Vancouver, British Columbia V6Z 2E6
(Address of principal executive office) (Zip Code)
604.899.0411
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
------------------- -------------------
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [X] No [ ], and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant. The aggregate market value
shall be computed by reference to the price at which the common equity was sold,
or the average bid and asked prices of such common equity, as of a specified
date within 60 days prior to the date of filing: $93,934,688.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 12,967,500.
Part I
Item 1. Business.
(a) General.
Digital Commerce International, Inc. ("The Company") is a financial
services holding company. The Company engaged in two primary types of business
activities during fiscal year 1999. First, it facilitated the issuance of a
merchant number to a company listed on the Nasdaq bulletin board. Second, the
Company acted as a sales agent for an independent sales organization named
Intercontinental Financial Services. In the future, the Company intends to
provide a variety of banking, bankcard processing, and financial services
through its wholly-owned, diversified internet operating subsidiaries.
The Company's operations are conducted through its wholly-owned
subsidiaries, including Digital Commerce Inc., Digital Commerce Bank Inc.,
Digital Commerce Merchant Services Inc., and Digital Commerce Canada Ltd.
- Digital Commerce Bank Inc. During fiscal year 1999, Digital Commerce
Bank Inc. acted as a sales agent for an independent sales organization
named Intercontinental Financial Services. The Company hopes that in
the future, Digital Commerce Bank Inc. will deliver international
banking services through its Class I Offshore Banking Charter, which
it has obtained from the government of Saint Vincent and the
Grenadines. The Company intends for the bank to focus on the
settlement of merchant accounts for international bankcard processing
and private banking for high net worth individuals.
- Digital Commerce Merchant Services Inc. Digital Commerce Merchant
Services Inc. did not generate revenues in fiscal year 1999. However,
Digital Commerce Merchant Services Inc. is now a registered
Independent Sales Organization and Merchant Services Provider for
Humboldt Bank. The Company anticipates that in the future, Digital
Commerce Merchant Services Inc. will provide bankcard processing
services to domestic and international merchants on behalf of United
States and international acquiring banks.
- Digital Commerce Inc. Digital Commerce Inc. acts as a sales agent for
organizations engaged in the processing of credit card transactions
for international merchants.
- Digital Commerce Canada Ltd. Digital Commerce Canada Ltd., which did
not generate revenues during fiscal year 1999, is the Company's
technology development division. Through this division, the Company
attempts to expand its technological capabilities through research and
development. Digital Commerce Canada Ltd. also provides administrative
services to the Digital Commerce International, Inc. group of
companies.
The Company hopes to provide United States and international clients
with financial and banking services. To that end, the Company is currently
pursuing the acquisition of a federal/state banking charter. While the Company
cannot offer any assurance that the contemplated acquisition will be
consummated, it expects to conclude this acquisition during fiscal year 2000.
(b) Corporate History
The Company was incorporated in July, 1982, as Systems Assurance
Corporation. From 1992 through June 15, 1999, the Company did not conduct any
active business operations, but pursued business opportunities to merge with or
acquire other businesses. On June 15, 1999, the Company entered into an
agreement for the acquisition of all the outstanding capital securities of
Digital Commerce Inc., a banking and financial services organization ("DCI") in
exchange for 5,000,000 shares of the Company's common stock and 500,000 shares
of the Company's convertible Class A preferred stock. (Preferred stock has been
approved by the board of directors and shareholders, but the Company has not
amended its Articles of Incorporation and the preferred shares have not been
created and registered with the State of Delaware. The Company is in the process
of having such shares registered.) As a result of the acquisition, Digital
Commerce Inc. became the Company's wholly-owned subsidiary and the former
shareholders of DCI became the Company's majority shareholders. At that time,
the Company changed its name from Systems Assurance Corporation to Digital
Commerce International Inc., and obtained a new CUSIP number and trading symbol
(THBK) for its common stock.
The combination of Digital Commerce International Inc. and Digital
Commerce Inc. was recorded as a recapitalization of Digital Commerce
International Inc. In conjunction with the acquisition and recapitalization, a
prior director surrendered back to and the Company canceled 14,340,744 shares of
common stock. After the recapitalization there were 11,740,000 shares of common
stock outstanding with approximately 57 percent of those shares being held by
former stockholders of the Company.
Michael Kang, the Company's Chief Executive Officer and President,
and John W. Combs, the Company's Executive Vice President and Secretary, each
received 2,000,000 shares of the Company's common stock and 250,000 shares of
the Company's preferred stock as a result of the acquisition, representing 48%
of the Company's outstanding shares as of October 31, 1999, on a fully-diluted
basis. Each share of preferred stock issued to Messrs. Kang and Combs is
convertible into 10 shares of common stock if certain performance criteria are
met.
Pursuant to the acquisition of Digital Commerce Inc., Messrs. Kang
and Combs were appointed to the Company's Board of Directors, each of whom is to
serve until his respective successor has been duly elected and qualified, or
until their respective earlier resignation or retirement.
(c) Operations
The Company is a developing company. In the future the Company hopes to
provide a variety of banking and financial services through its wholly-owned,
diversified internet operating subsidiaries. The Company's operations are
conducted through its wholly-owned subsidiaries, including through Digital
Commerce Bank Inc., Digital Commerce Merchant Services Inc, Digital Commerce
Inc., and Digital Commerce Canada Ltd.
Digital Commerce Bank Inc.
Digital Commerce Bank Inc. ("DCB"), one of the Company's wholly-owned
subsidiaries, was incorporated on August 19th, 1999 in the country of Saint
Vincent and the Grenadines, where it is based. Digital Commerce Bank, Inc. was
incorporated as a subsidiary of Digital Commerce International, Inc. ("DCII")
and operates as a wholly-owned subsidiary of the Company. DCB was granted a
Class I Offshore Banking License by Saint Vincent and the Grenadines on August
23rd, 1999. Under the conditions of the licensing agreement, Digital Commerce
Bank, Inc. was required to post a security deposit in the amount of $100,000
with the Government of Saint Vincent. The deposit remains an asset of DCB, to be
released only upon cancellation or surrender of the license. The deposit is held
by the International Finance Authority of Saint Vincent in an interest bearing
account to the benefit of DCB.
DCB has been established to facilitate a broad range of banking, trust,
and merchant service functions on a fee for service basis for international
clients. Since the granting of its license, DCB has arranged for the facilities
and established the strategic relationships necessary to provide the full range
of services required by international merchant and private banking clients,
including internet banking. DCB also serves as an independent sales agent for
Intercontinental Financial Services, for whom the Company provide third-party,
online, real time processing for international merchants. The Company hopes that
Digital Commerce Bank, Inc will be fully operational within the second fiscal
quarter of the year 2000.
Digital Commerce Merchant Services Inc. (D/B/A. "Bankthat.com")
Digital Commerce Merchant Services, Inc. ("DCMS"), another of the
Company's wholly owned subsidiaries, was incorporated in the State of Delaware
in November 1999. It operates under the trade name of "Bankthat.com" and
maintains its principal business operations in Salt Lake City, Utah. The Company
intends to develop DCMS in the near term into an Independent Sales Organization,
assembling merchant portfolios on behalf of United States acquiring banks to
facilitate bankcard processing for domestic merchants.
On November 8, 1999, the Company entered into an agreement with Humboldt Bank of
Eureka, California to be an Independent Sales Organization on their behalf.
Under the terms of the agreement, commission revenues are to be split equally
between the parties.
Digital Commerce Merchant Services, Inc. did not generate revenues in fiscal
year 1999. The Company hopes that during fiscal year 2000, Digital Commerce
Merchant Services, Inc. will provide a broad array of merchant services,
generating fees and commissions from bankcard transactions and from sales of
bankcard processing equipment to United States and international merchants.
Digital Commerce Inc.
Digital Commerce Inc. was incorporated on November 17, 1998 in the island nation
of Nevis and is based in the province of British Columbia, Canada. On June 15,
1999 the Company acquired this subsidiary through the issuance of 5,000,000
shares of its common stock and 500,000 shares of its preferred stock in exchange
for all of the outstanding common stock of Digital Commerce Inc. (Preferred
stock has been approved by the board of directors and shareholders, but the
Company has not amended its Articles of Incorporation and the preferred shares
have not been created and registered with the State of Delaware. The Company is
in the process of having such shares registered.)
This subsidiary acts as a sales agent for organizations engaged in the
processing of credit card transactions for international merchants. Due to the
formation of additional subsidiaries, the Company is currently in the process of
liquidating this subsidiary.
Digital Commerce Canada Ltd.
Digital Commerce Canada Ltd. was incorporated on October 18, 1999 in the
province of British Columbia, Canada, where it is based. This subsidiary
provides administrative and technological services for the Company and its
subsidiaries.
(d) Operations
Currently, the Company acts as an Independent Sales Agent for Intercontinental
Financial Services and provides third-party, on-line, real time processing for
international merchants. In the U.S., the Company is a registered ISO for
Humboldt bank of Eureka, California. Together with Humboldt and its third-party
providers, the Company is able to offer U.S. online merchants solutions to the
challenges of e-commerce transaction processing. Upon completion of the initial
phases of its operation, the Company believes that its control over third-party
providers will increase, time-to-delivery will improve, and its operating
margins will widen; however, all of this will be transparent to the Company's
merchant-customers. For them, the key benefits of the Company's anticipated
services may include:
- Fast time-to-market. The Company's third-parties' services and
technical support may enable online merchants to begin processing
transactions without lengthy or costly integration efforts. Services
are invoked by a single common interface, installed on a merchant's
commerce server. Typically, new merchants can be approved, have their
software installed, and be operating online, generating revenues in as
little as 72 hours from the time that their completed applications are
received.
- Access to comprehensive suite of services. The Company may be able to
deliver to merchants on-demand, online access to services that address
a broad spectrum of e-commerce transaction processing issues related
to global payment processing, fraud prevention, tax calculation,
export compliance, delivery address verification, and fulfillment
management.
- Simplify the Merchant's Operations. The Company hopes to provide a
suite of e-commerce transaction services designed to simplify
merchants' operations and allow them to focus on marketing and
merchandising tasks required for their online businesses. The
Company's services are transparent to the merchant's customers.
- Global reach. The Company hopes to obtain access to third-parties'
services used by merchants in many countries around the globe. Through
them, the Company hopes to obtain access to an established network of
virtual network access points in various countries on multiple
continents. In addition, the Company hopes to be able to support over
100 currencies and provide sales tax/VAT calculations for all United
States jurisdictions, Canadian provinces and all countries in the
European Union.
- Reduced overall costs. The Company hopes that its services will enable
merchants to effectively process online transactions without the cost
of developing and maintaining their own complex transaction processing
systems and infrastructure.
(d) Banking Regulations Generally
International Banking Regulation. Digital Commerce Bank Inc. is
currently authorized to provide international banking services through its Class
I Offshore Banking Charter obtained from the government of Saint Vincent and the
Grenadines ("Saint Vincent"). Under the International Banks Act, 1996 of Saint
Vincent, offshore banking business may be transacted from within Saint Vincent,
only upon obtaining a license from the Saint Vincent and the Grenadines Offshore
Finance Authority (the "Authority"). The Company's ability to continue to
conduct an offshore banking business depends upon its ability to maintain its
license. This requires the Company to have a resident director in Saint Vincent;
to be incorporated, subsisting or continued under the Companies Act, 1994 or
under the International Business Companies Act of 1996; and to be engaged solely
in the offshore banking business. As an offshore banking business, the Company
is prohibited from taking a deposit from any resident of Saint Vincent,
investing in any asset which represents a claim on any resident of Saint
Vincent, and purchasing bonds or other securities issued by the Government of
Saint Vincent.
The Company operates under a Class I Offshore Banking License for the
purpose of carrying on its offshore banking business. In order to maintain its
license the Company must have and maintain a fully paid-up capital of not less
than five hundred thousand dollars ($500,000) or its equivalent in another
currency, or such greater sum as may be determined by the Authority. In
addition, the Company must have deposited or invested the sum of one hundred
thousand ($100,000) or its equivalent in another currency, in such manner as the
may be prescribed.
As an offshore banking business, the Company is required to send an
annual audit to the Authority within three months of the end of its financial
year. The Company has not yet sent an annual audit to the Authority for fiscal
year 1999 but is in the process of having such audit prepared and intends to
provide it to the Authority as soon as it has been completed. In addition, the
Company is required to have no fewer than two directors, who must be approved by
the Authority. The Authority could withhold the approval of its directors, which
would result in its inability to continue to do business as an offshore banking
business in Saint Vincent.
As an offshore banking business under the Bank Act, the Company is not
required to pay income tax, capital gains tax or other direct tax to the State
of Saint Vincent or any political subdivision thereof.
U.S. Banking Regulation. Revisions to existing or adoption of new laws
or regulations could subject the Company to more demanding regulatory compliance
requirements and could adversely affect its ability to conduct, or its cost of
conducting, business. If the Company is successful in obtaining a banking
charter, it will be subject to certain restrictions imposed by the Federal or
State banking regulators. Digital Commerce Bank, Inc. (the Company's banking
subsidiary) will be regulated by the FDIC. The Company will also be subject to
various laws and regulations relating to commercial and consumer transactions
generally, such as the Uniform Commercial Code, as well as the electronic funds
transfer rules which are contained in Regulation E, issued by the Federal
Reserve Board. Any of these agencies, or other governmental or regulatory
authorities, could revise existing regulations or adopt new regulations at any
time. Legislation and regulatory initiatives containing wide-ranging proposals
for altering the structure, regulation and competitive relationships of
financial institutions are introduced regularly. The Company cannot predict
whether or in what form a proposed statute or regulation will be adopted or the
extent to which it may affect its business. Furthermore, given the rapid
expansion of the electronic commerce market, many regulatory bodies are adopting
measures to ensure that their regulations are keeping pace. For example,
Congress has held hearings on whether to regulate the electronic commerce
market, while numerous states are considering adopting their own laws to
regulate internet banking. Furthermore, bank regulators are considering
proposing new laws relating to customer privacy. If enacted, these laws, rules
and regulations could force the Company to comply with more complex and perhaps
more burdensome regulatory requirements, which could materially adversely affect
the Company's business, financial condition, results of operations, and cash
flows.
Internet Regulation. The Company's ability to conduct and/or its cost
of conducting business may also be adversely affected by a number of legislative
and regulatory proposals concerning other aspects of the internet, which are
currently under consideration by federal, state, local and foreign governmental
organizations. These proposals include, but are not limited to, the following
matters: on-line content, user privacy, taxation, access charges, liability of
third-party activities and jurisdiction. Moreover, the Company does not know how
existing laws relating to these issues will be applied to the internet. The
adoption of new laws or the application of existing laws could decrease the
growth in the use of the internet, which could in turn decrease the demand for
the Company's anticipated products and services, increase its cost of doing
business, or otherwise have a material adverse effect on its business, financial
condition, results of operations, or cash flows. Furthermore, government
restrictions on internet content could slow the growth of internet use and
decrease acceptance of the internet as a communications and commercial medium
and thereby have a material adverse effect on our business, financial condition
and results of operations. Some local telephone carriers have asserted that the
growing popularity and use of the internet has burdened the existing
telecommunications infrastructure and caused interruptions in telephone service
in areas with high internet use. These carriers have petitioned the Federal
Communications Commission to impose access fees on internet service providers
and commercial on-line service providers. If the Federal Communications
Commission imposes access fees, the costs of transacting business over the
internet could increase substantially, potentially slowing the growth in use of
the internet. This could in turn decrease demand for the Company's anticipated
services or increase its cost of doing business, and thus have a material
adverse effect on the Company's business, financial condition, results of
operations, and cash flows.
Internet Privacy. Internet user privacy has become an issue both in the
United States and abroad. The Federal Trade Commission has proposed model
legislation that would force companies to comply with specified core information
practices. It is possible that Congress could adopt either legislation similar
to that proposed by the Federal Trade Commission or other privacy legislation
that could have a material adverse effect on the way in which the Company is
allowed to conduct its business, especially those aspects that involve the
collection or use of personal information. At the international level, the
European Union has adopted a directive that permits European Union member
countries to impose restrictions on the collection and use of personal data.
This directive could, among other things, affect United States companies that
collect information over the internet from individuals in European Union member
countries and may impose restrictions that are more stringent than current
internet privacy standards in the United States. In response to this directive,
on November 4, 1998, the United States Department of Commerce published for
comment a set of safe harbor principles regarding privacy protection for
personally identifiable data. These principles were revised on April 19, 1999.
(e) Future Marketing Strategies
The Company hopes to employ a multifaceted marketing strategy to
aggressively market its products and services to both domestic and international
markets. The Company expects its revenue-generating products and services to
include online retail, commercial, and private banking services, as well as
merchant services. This strategy will utilize the internet platform as its
primary means of integrating and marketing these offerings.
The use of the internet as the Company's common delivery channel
supports its commitment to providing 24 hours, 7 days a week access and
availability of its products and services to its domestic and international
clients. To complement this, the Company anticipates using alternative delivery
channels including the telephone, automated banking machines and the postal
services as a means of increasing the availability and convenience of its
products and services.
The Company intends to develop a flagship web site at
www.thatbank.com. The Company hopes that this site will serve as a comprehensive
multipurpose hub or portal site providing access to the services described
above. The Company is attempting to create a site that will be appealing,
versatile, and informative to its existing and potential clients by offering a
number of complimentary value-added services including free email accounts, web
site personalization features, timely Industry specific news, investment
portfolio tools, and internet search engine capabilities. The Company's
anticipated direct marketing activities may include the use of an internal sales
force as well as outsourced sales activities and direct advertising. The
Company's anticipated indirect marketing activities would include the use of
strategic partnership and alliance agreements with suitable businesses as well
as co-branding activities.
The Company considers its ongoing attempts to develop and provide
complimentary services such as those described above to be an important to its
future growth. The Company further anticipates that such services, if the
Company is able to provide them, will help build customer loyalty, web site
traffic, and help grow its database of subscribers, which will be integrated
into its direct marketing efforts.
(f) Employees
At October 31, 1999, the Company had 7 full-time employees and no
part-time employees. The Company considers its relations with its employees to
be excellent. The Company's employees are not represented by any collective
bargaining group, and the Company is not aware of any efforts among its
employees to organize. The Company's future success depends in significant part
upon the continued service of its key technical and senior management personnel
and its continuing ability to attract and retain highly qualified technical and
managerial personnel.
(g) Competition
The Company believes that the principal competitive factors in the banking
industry are market presence, customer service, convenience, interest rates and
product offerings. While the banking industry is highly competitive, the Company
believes it can compete effectively with its principal competitors, which are
traditional banks, internet banks, and other financial services providers. The
Company believe that its low cost structure, which will allow it to offer
attractive interest rates and low fees, gives us a competitive advantage over
traditional banks, which must support a physical branch structure. Furthermore,
the Company hopes to be able to offer a broader array of products and services
than many non-bank financial services providers. However, most of the Company's
competitors have larger customer bases, greater name recognition and brand
awareness, greater financial and other resources, and longer operating histories
than the Company does. Additionally, new competitors and competitive factors are
likely to emerge, particularly in view of the rapid development of internet
commerce.
Item 2. Description of Properties
The Company occupies 2,500 square feet of commercial space at 815
Hornby Street, Suite 404, Vancouver, British Columbia. The terms of the leasing
agreement are on a month-to-month basis, renewable under the same terms upon
notice. The Company's current monthly rent for this facility is US $3,100.
The Company also occupies 2,000 square feet of commercial space at 4049
South Highland Drive, Salt Lake City, Utah. The terms of the leasing agreement
are on a month-to-month basis, renewable under the same terms upon notice. The
Company's current monthly rent for this facility is US $1,000.
The Company maintains 2000 square feet of premises in Kingstown, Saint
Vincent, West Indies. The terms of the leasing agreement are on a month-to-month
basis, renewable under the same terms upon notice. The Company's current monthly
rent for this facility is US $3,000.
The Company believes its office space is adequate for its current
needs.
Item 3. Legal Proceedings.
On January 5, 2000, the Company and Directors Kang and Combs were made
defendants to a lawsuit by a former business partner. In that case, the
plaintiff, the former business partner, alleged breach of a statutory duty owed
by Kang and Combs to the plaintiff. He claims that he was not made part of
certain corporate opportunities and was not included in certain corporate
changes and the benefits therefrom. The Company believes the claims of the
plaintiffs regarding the Company are without merit. In addition, the Company
believes that any decision granted in favor of the plaintiff would only affect
the shares held by Kang and Combs and would not affect Digital Commerce
International, Inc. directly.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of the fiscal year ended October 31, 1999.
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information.
Prior to the acquisition of Digital Commerce, Inc., the Company's
common stock traded on the Nasdaq Over-The-Counter Bulleting Board under the
symbol "SYAE." Systems Assurance did not have any trading volume for FY 1998 and
the first two quarters of FFY 1999. On June 17, 1999, the Company's common stock
commenced trading on the Nasdaq Over-The-Counter Bulletin Board under the symbol
"THBK". The following table sets forth the range of high and low bid quotations
for the Company's common stock for each of the periods indicated as reported by
the Nasdaq Over-The-Counter Bulletin Board. Bid quotations reflect inter-dealer
prices, without retail markup, markdown or commission and may not necessarily
represent actual transactions. on June 17, 1999.
Quarter Ended High Low
------------- ---- ---
July 31, 1999(1) $12 $0.125
October 31, 1999 $12 $10
(1) For the period commencing on June 17, 1999, and concluding on July 31,
1999.
On January 24, 1997, the Company's stockholders approved a
one-for-seventy (1:70) reverse common stock split, and on December 19, 1997, the
Company's stockholders approved a one-for-five (1:5) reverse common stock split,
and changed the par value of the common shares from $.01 to $.001. In January,
1997, the Company's stockholders approved the creation of three classes of
preferred stock, par value $.001, with rights and privileges to be set by the
Board of Directors. The Board of Directors authorized 500,000 shares of Class A
Preferred Stock on February 9, 2000. When and if the Board declares a dividend
or distribution with respect to the then outstanding shares of Common Stock, the
holders of the Series A Preferred shares shall be entitled to the amount of
dividends per share in an amount equal to ten times the amount, and in the same
form, as they would have received if they held an equal number of Common Shares.
(Preferred stock has been approved by the board of directors and shareholders,
but the Company has not amended its Articles of Incorporation and the preferred
shares have not been created and registered with the State of Delaware. The
Company is in the process of having such shares registered.)
(b) Security Holders
The approximate number of record holders of shares of the Company's
common stock as of October 31, 1999 was 1555.
(c) Dividends
The Company has not paid dividends within the last three years and does
not anticipate or contemplate paying cash dividends in the foreseeable future.
The Company presently intends to utilize all available funds for the development
and growth of its business and operations.
(d) Recent Sales of Unregistered Securities
The Company has entered into six transactions in the past three years
involving the issuance of its securities under certain exempt transactions under
the Securities Act of 1933.
On February 4, 1997, the Company issued 80,000 shares of its common
stock to an investment firm to in order to pay a $52,829 promissory note.
On January 5, 1998, the Company issued 20,000,000 shares of its common
stock to its sole officer and director in exchange for services rendered. These
shares were valued at $90,000.
On January 9, 1998, the Company issued 900,000 shares of its common
stock in exchange for $9,000 cash consideration.
On June 15, 1999, the Company issued to Messrs. Kang and Combs
5,000,000 shares of its common stock and 500,000 shares of its Series A
Preferred Stock in exchange for all of the issued and outstanding capital
securities of Digital Commerce Inc. (Preferred stock has been approved by the
board of directors and shareholders, but the Company has not amended its
Articles of Incorporation and the preferred shares have not been created and
registered with the State of Delaware. The Company is in the process of having
such shares registered.)
In May and June, 1999, the Company issued l,227,500 shares of its
common stock at a price of $1.00 per share, for a total purchase price of
$1,227,500, to twenty two investors. The Company believes that each of these
twenty two investors was an "accredited investor."
In February, 2000, the Company issued 200,000 shares of its common
stock to Theodore Swindells, for a total purchase price of $500,000.
In connection with each of these isolated issuances of securities, each
purchaser represented and warranted to the Company that it (i) was aware that
the securities had not been registered under federal securities laws, (ii)
acquired the securities for its own account for investment purposes and not with
a view to or for resale in connection with any distribution for purposes of the
federal securities laws, (iii) understood that the securities would need to be
indefinitely held unless registered or an exemption from registration applied to
a proposed disposition, (iv) was aware that the certificate representing the
securities would bear a legend restricting their transfer, and (v) was aware
that there was no public market for the securities. The Company believes that,
in light of the foregoing, and in light of the sophisticated nature of each of
the acquirers, the sale of its securities to the respective acquirers did not
constitute the sale of an unregistered security in violation of the federal
securities laws and regulations by reason of the exemption provided under
Section 4(2) and Regulation S of the Securities Act, and the rules and
regulations promulgated thereunder.
Item 7. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Special Note Regarding Forward-Looking Statements. Certain statements in this
report and elsewhere (such as in our other filings with the Securities and
Exchange Commission ("SEC"), press releases, presentations by our management and
oral statements) may constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
and "should," and variations of these words and similar expressions, are
intended to identify these forward-looking statements. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements. Factors that might cause or contribute to such differences include,
among others, competitive pressures, the growth rate of the banking, merchant
services and electronic commerce industries, constantly changing technology and
market acceptance of our products and services. The Company does not undertake
any obligation to publicly release the result of any revisions to these
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Overview
The Company did not conduct any active business operations from 1992 through
June 15, 1999. The Company is a developing company. It hopes to become an
internet banking and financial services company, specializing in providing a
variety of banking and financial services, including the integration of banking
services, both commercial and private, bankcard processing, and merchant
services with an emphasis on the internet as the common platform for delivery.
The Company operates through four wholly owned subsidiaries, two of which
generated revenues during fiscal year 1999. In November 1999, the Company
incorporated Digital Commerce Merchant Services, Inc., a Delaware corporation,
as its domestic based Independent Sales Organization (ISO) to provide merchant
bankcard transactions for domestic clients in settling credit card transactions.
In the future, the Company hopes to establish domestic banking operations and
hopes to offer a full range of retail banking services.
Results of Operations
The Company earned operating revenues of $255,000 in the year ended
October 31st, 1999. These revenues consisted primarily of commission revenues
from the Company's role as a sales agent for credit card transactions. The
Company received $190,000 of such revenues through its issuance of a merchant
numbers and $65,000 of such revenues as commissions received in its capacity as
sales agent for organizations engaged in the processing of credit card
transactions for international merchants. The Company hopes to recognize an
increase in commission revenue in the future due to the establishment and
integration of its operating divisions together with increased sales and
marketing efforts.
Operating Expenses
The Company's operating expenses have increased in each quarter since
its acquisition of Digital Commerce Inc. in June, 1999. The Company believes
that operating expenses will continue to increase in the future as the Company
continues to develop, implement, and deploy its services and operations.
General and administrative expenses for the year ended October 31, 1999
totaled $806,861. General and administrative expenses for the year were
comprised primarily of compensation for personnel, fees for outside
professionals, telecommunications, bank licensing fees and other overhead costs,
including travel and entertainment expenses.
Liquidity and Capital Resources
The Company financed its operations primarily through private
placements of its common stock which provided net proceeds of approximately
$1,227,500. At October 31st, 1999, the Company had approximately $431,000 in
cash and cash equivalent in short-term investments. The Company has no debt
facilities.
The Company has no material commitments, other than those employment
agreements described elsewhere herein. The Company hopes to realize an increase
in its working capital, and anticipates a substantial increase in its capital
expenditures due to the anticipated expansion of its business units, in the year
2000.
Net cash used by operating activities during the year ended October
31st, 1999 was $769,000. The Company's principal uses of cash were to fund its
net loss from operations and to finance the increases in receivables and other
assets.
Net cash used by investing activities consisted of $27,535 paid
principally for acquisition of capital assets.
Net cash provided by financing activities was $1,227,500 derived
primarily from capital contributions. Of the capital contributions, $1,227,500
was recorded from private sales of restricted stock.
Management believes that the combination of revenues and capital
contributions will be sufficient to fund operations for the upcoming fiscal
year. To the extent that the Company requires additional funds to support its
operations or the expansion of its business, the Company may sell additional
equity, issue debt, or obtain credit facilities through financial institutions.
Any sale of additional equity securities will result in dilution to the
Company's stockholders. There can be no assurance that additional financing, if
required, will be available to the Company in amounts or on terms acceptable to
us.
Impact of Inflation
The impact that inflation may have upon the Company differs from the
potential impact of inflation upon an industrial company, because substantially
all of the Compay's assets and liabilities will be monetary in nature, and
interest rates and inflation rates do not always move in concert. The Company
believes that the impact of inflation on financial results depends upon its
ability to manage interest rate sensitivity and, by such management, reduce the
inflationary impact upon performance. The most direct impact of an extended
period of inflation would be to increase interest rates and to place upward
pressure on the Company's operating expenses. The actual effect of inflation on
the Company's net interest income, however, would depend on the extent to which
the Company was able to maintain a spread between the average yield on its
interest-earning assets and the average cost of its interest-bearing
liabilities, which would depend to a significant extent on the Company's
asset-liability sensitivity. As discussed above, the Company will seek to manage
the relationship between interest-sensitive assets and liabilities to protect
against wide interest rate fluctuations, including those resulting from
inflation. The effect of inflation on the Company's results of operations for
the past three years has been minimal.
Year 2000 Issue
Many existing computer programs, hardware, and peripherals use only two
digits to identify a year in the date field. These programs and systems were
designed without considering the impact of the upcoming change in the century.
If not corrected, these computer applications and systems could fail or create
erroneous results by, at, or after the year 2000. Based on the preliminary
review of the computer programs the Company currently uses, management does not
anticipate that the Company will incur material operating expenses or be
required to incur material costs to be year 2000 compliant. To the extent the
Company's systems are not fully year 2000 compliant, there can be no assurance
that potential systems interruptions or the cost necessary to update software or
hardware would not have a material effect on its business, financial condition,
results of operations, or business prospects. In addition, in the event that the
Company's significant suppliers do not successfully and timely achieve year 2000
compliance, its business or operations could be adversely affected.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Reference is made to "Interest Rate Sensitivity Management" in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Item 8. Financial Statements and Supplementary Data.
<PAGE>
DIGITAL COMMERCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
OCTOBER 31, 1999
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET 3
STATEMENT OF OPERATIONS 4
STATEMENT OF STOCKHOLDERS' EQUITY 5
STATEMENT OF CASH FLOWS 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
----------------------------
The Directors and Stockholders of
Digital Commerce International, Inc.
We have audited the accompanying consolidated balance sheet of Digital Commerce
International, Inc. and Subsidiaries as of October 31, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Digital
Commerce International, Inc. and Subsidiaries as of October 31, 1999, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/
Grant Thorton LLC
Salt Lake City, Utah
January 14, 2000
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Digital Commerce International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
October 31, 1999
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 430,803
Accounts receivable, no allowance deemed necessary (Note G)
Trade 244,358
Other 9,099
Receivable from shareholders 18,587
--------------
Total current assets 702,847
EQUIPMENT, AT COST $ 27,535
Less accumulated depreciation (7,083) 20,452
-------------- --------------
DEPOSITS 203,731
--------------
$ 927,030
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 177,891
Accrued liabilities 73,587
--------------
Total current liabilities 251,478
COMMITMENTS AND CONTINGENCIES (Notes C and E) -
STOCKHOLDERS' EQUITY (Notes B, E and i)
Preferred stock to be issued $ -
Common stock, $0.001 par value; 30,000,000 shares
authorized, 12,967,500 shares issued and outstanding 12,967
Additional paid-in capital 1,214,404
Accumulated deficit (551,819)
--------------
Total stockholders' equity 675,552
--------------
$ 927,030
==============
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended October 31, 1999
Revenues $ 255,042
Operating expenses
Salaries $ 198,654
Professional services 195,425
Travel 97,842
Licensing fees 92,300
Occupancy and telecommunications 50,230
Advertising 21,919
Depreciation and amortization 15,873
Website 11,691
Other 122,928 806,861
----------- ------------
Loss before income taxes (551,819)
Income taxes (Note F) -
------------
NET LOSS $ (551,819)
============
Loss per common share (Note D)
Basic $ (0.61)
Diluted (0.61)
Weighted-average common and dilutive
common equivalent shares outstanding
Basic 9,111,579
Diluted 9,111,579
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
Digital Commerce International, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Year ended October 31, 1999
Common stock Additional
------------------------- paid-in Accumulated
Number Amount capital deficit Total
------------ --------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 1, 1998 21,080,755 $ 21,080 $10,142,134 $ (10,172,133) $ (8,919)
Recapitalization of Company (Note B) (9,340,755) (9,341) (10,154,002) 10,172,133 8,790
Issuance of common stock for cash 1,227,500 1,228 1,226,272 - 1,227,500
Net loss - - - (551,819) (551,819)
------------ --------- ------------ -------------- ----------
Balance at October 31, 1999 12,967,500 $ 12,967 $ 1,214,404 $ (551,819) $ 675,552
============ ========= ============ ============== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended October 31, 1999
Increase (decrease) in cash
Cash flows from operating activities
Net loss $ (551,819)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 15,873
Changes in assets and liabilities
Accounts receivable (253,457)
Receivable from shareholders (18,587)
Deposits (203,731)
Accounts payable 168,972
Accrued liabilities 73,587
-------------
Total adjustments (217,343)
-------------
Net cash used in
operating activities (769,162)
-------------
Net cash flows from investing activities -
Purchase of property and equipment (27,535)
-------------
Cash flows from financing activities
Proceeds from issuance of common stock 1,227,500
-------------
Net increase in cash 430,803
Cash at beginning of year -
-------------
Cash at end of year $ 430,803
=============
Supplemental disclosures of cash flow information
- -------------------------------------------------
The Company did not pay interest expense or income taxes during 1999.
Noncash investing and financing activities
- ------------------------------------------
On June 15, 1999, the Company acquired Digital Commerce, Inc. in a
transaction accounted for as a recapitalization. In the recapitalization
goodwill was recorded totaling $8,920, which was subsequently expensed
(Note B).
The accompanying notes are an integral part of this statement.
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
1. Organization and business activity
Digital Commerce International Inc. (the Company) is a Delaware
corporation that has been inactive from October 31, 1991 through June 15,
1999. On June 15, 1999 the Company acquired Digital Commerce Inc. This
acquisition was accounted for as a recapitalization (Note B). The Company
is headquartered in Vancouver, Canada and currently processes credit card
transactions. One subsidiary, Digital Commerce Bank, Inc., holds a class
I banking license in St. Vincent and the Grenadines.
2. Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Digital Commerce Inc., Digital
Commerce Bank, Inc., Digital Commerce Canada Ltd. and MBS Acquisition
Corp. On January 6, 2000, MBS Acquisition Corp. changed its name to
Digital Commerce Merchant Services, Inc. (d.b.a. "Bankthat.com"). All
significant intercompany accounts and transactions have been eliminated
in consolidation.
3. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenditures during the reporting period. Actual results could differ
from those estimates.
4. Cash and cash equivalents
The Company considers all highly liquid debt instruments with original
maturity dates of three months or less when purchased, to be cash
equivalents.
5. Revenue recognition
The Company recognizes transaction processing revenues and merchant
set-up fees as the related services are performed.
6. Depreciation and amortization
Depreciation of property and equipment is provided on the straight-line
method over the estimated useful lives of the assets of two years.
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
7. Fair value of financial instruments
The carrying value of the Company's accounts and related party
receivables, accounts payable and accrued liabilities approximate their
fair values.
8. Income taxes
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect, when the differences are expected to
reverse. An allowance against deferred tax assets is recorded, when it is
more likely than not that such tax benefits will not be realized.
9. Advertising costs
Advertising and marketing costs are expensed as incurred.
10. Net earnings (loss) per share
Basic earnings (loss) per common share (BEPS) is based on the weighted
average number of common shares outstanding during each period. Diluted
earnings (loss) per common share are based on shares outstanding
(computed as under BEPS) and dilutive potential common shares. Potential
common shares included in the dilutive earnings (loss) per share
calculation include stock options awarded.
NOTE B - RECAPITALIZATION
In June 1999 the Company changed its name from Systems Assurance
Corporation to Digital Commerce International Inc. DCI was originally
formed on November 17, 1998. On June 15, 1999 the Company acquired
Digital Commerce Inc. (DCI), a Nevis Corporation based in Vancouver,
Canada. DCI was acquired through the issuance of 5,000,000 shares of the
Company's common stock and 500,000 shares of the Company's preferred
stock to the shareholders of DCI in exchange for all of the outstanding
common stock of DCI. Preferred stock has been approved by the board of
directors and shareholders, but the Company has not amended its Articles
of Incorporation and the preferred shares have not been created and
registered with the State of Delaware. The acquisition agreement
indicates that each preferred share will carry 10 votes at shareholder
meetings, and will have the same rights to dividends and other
distributions as a common share. Once the Company has achieved gross
transaction volume of $240 million (the "Trigger Event"), each preferred
share will be convertible at the option of its holder into 10 common
shares. The conversion right will expire if the "Trigger Event" has not
occurred by the end of the Company's second complete fiscal year
following the acquisition.
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999
NOTE B - RECAPITALIZATION - CONTINUED
Upon issuance of the preferred stock, certain reclassifications may be
made within the stockholders' equity section to reflect the terms of the
preferred stock issued.
The combination of Digital Commerce International Inc. and Digital
Commerce Inc. was recorded as a recapitalization of Digital Commerce
International Inc. In conjunction with the acquisition and
recapitalization, a prior director surrendered back to and the Company
canceled 14,340,744 shares of common stock. After the recapitalization
there were 11,740,000 shares of common stock outstanding with
approximately 57 percent of those shares being held by former
stockholders of the Company.
NOTE C - COMMITMENTS AND CONTINGENCIES
1. Employment agreements
The Company has employment agreements with certain officers of the
Company. Total salaries covered by these agreements increase from
$250,000 in the first year to $450,000 annually over five years. The
agreements are exclusive of bonuses, benefits, and other compensation.
The agreements may be modified until a secondary offering of the Company
is completed and the Company receives funds totaling $20,000,000 or the
Company achieves a market capitalization of $150,000,000. The modified
salary would be $10,000 a month with a deferral of the remaining balance
until the underwriting or market capitalization occur.
2. Litigation
The Company is engaged in certain litigation in the ordinary course of
business. In the opinion of management, based upon the advice of counsel,
the ultimate outcome of this litigation should not have a material impact
on its financial position.
NOTE D - LOSS PER COMMON SHARE
The following data show the shares used in computing loss per common
share including dilutive potential common stock.
<TABLE>
<CAPTION>
<S> <C>
Common shares outstanding during the entire period 6,740,011
Weighted-average common shares issued during the period 2,371,568
-----------------
Weighted-average number of common shares used in basic EPS 9,111,579
Dilutive effect of options -
-----------------
Weighted-average number of common shares and dilutive potential common
stock used in diluted EPS 9,111,579
=================
</TABLE>
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999
NOTE D - LOSS PER COMMON SHARE - CONTINUED
Shares from the exercise of the outstanding options (Note E) were not
included in the computation of diluted loss per share because their
inclusion would have been antidilutive for the year ended October 31,
1999.
NOTE E - OPTIONS
During 1999, the board of directors approved a stock option plan. The
maximum number of shares of common stock that may be issued under the
plan is 4,000,000 shares. All employees, directors, officers and
consultants of the Company are eligible. Awards of options are given to
eligible participants at the discretion of the board of directors and
will be based on present and potential contributions of a particular
individual to the success of the Company and other factors, which the
Board may deem proper and relevant. The plan is a non-qualified plan, and
the options granted thereunder are non-qualified stock options.
Under the plan, options vest in the following manner: directors and
advisory board members vest 50 percent upon grant and 50 percent one year
after grant date, senior officers, to vice president vest three percent
at the end of each calendar month from grant date, employees vest nine
percent at the end of the later of the first three months or the stated
probation period and three percent at the end of each calendar month
thereafter. Other holders vest 10 percent at the end of the first 30 days
of their engagement, 20 percent upon completion of 50 percent of the
term, where there is a particular term, or upon 50 percent of the project
completion, where project specific, and the remainder upon completion,
and for a period of 90 days thereafter.
Options granted to an officer, director, or more than 10 percent
shareholder of the Company shall not become exercisable until at least
six months following the date of grant.
The Company has granted options to purchase 1,530,000 shares of the
Company's common stock. The options were granted to the following:
Shares
------------
Advisory board 100,000
Executive officers, including officers who are directors 1,150,000
Other employees 280,000
------------
1,530,000
============
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999
NOTE E - OPTIONS - CONTINUED
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(FAS 123). Therefore, the Company continues to account for stock based
compensation under Accounting Principles Board Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for
the stock based compensation been determined based upon the fair value of
the awards at the grant date consistent with the methodology prescribed
by FAS 123, the Company's net loss and loss per share would have been
increased to the following pro forma amounts:
Net loss As reported $ (551,819)
Pro forma (607,324)
Loss per share - basic and diluted
As reported (0.61)
Pro forma (0.61)
The fair value of these options was estimated at the date of grant using
the modified Black-Scholes American option-pricing model with the
following weighted-average assumptions for 1999: expected volatility of
52 percent; risk-free interest rate of 5.75 percent; and expected life of
10 years. The weighted-average fair value of options granted was $0.68.
Option pricing models require the input of highly subjective assumptions
including the expected stock price volatility. Also, the Company's
employee stock options have characteristics significantly different from
those of traded options, and changes in the subjective input assumptions
can materially affect the fair value estimate. Management believes the
best input assumptions available were used to value the options and that
the resulting option values are reasonable.
Changes in the Company's stock options are as follows:
<TABLE>
<CAPTION>
Weighted-
average
Stock Exercise exercise
options price price
------------- ---------------- -------------
<S> <C> <C> <C>
Outstanding at November 1, 1998 - $ - $ -
Granted 1,530,000 0.50 - 3.00 0.68
Exercised - - -
Canceled or expired - - -
-------------
Outstanding at October 31, 1999 1,530,000 0.50 - 3.00 0.68
=============
Exercisable at October 31, 1999 83,600 $0.50 - 3.00 $ 1.80
=============
</TABLE>
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999
NOTE E - OPTIONS - CONTINUED
A summary of the status of the options outstanding under the Company's
stock option plan at October 31, 1999 is presented below:
<TABLE>
<CAPTION>
Weighted-
average Weighted- Weighted-
remaining average average
Number contractual exercise Number exercise
Range of exercise prices outstanding life (years) price exercisable price
------------------------ ------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 0.50 1,420,000 1.69 $ 0.50 40,000 $ 0.50
$ 3.00 110,000 1.69 3.00 43,600 3.00
------------ -----------
$ 0.50 - $3.00 1,530,000 83,600
============ ===========
</TABLE>
NOTE F - INCOME TAXES
The Company has sustained a net operating loss in the period presented.
There were no deferred tax assets or income tax benefits recorded in the
financial statements for net deductible temporary differences or net
operating loss carryforwards because the likelihood of realization of the
related tax benefits cannot be established. Accordingly, a valuation
allowance has been recorded to reduce the net deferred tax asset to zero
and consequently, there is no income tax provision or benefit for the
period presented. The increase in the valuation allowance was $122,365
for the year ended October 31, 1999.
As of October 31, 1999, the Company had net operating loss carryforwards
for tax reporting purposes of approximately $385,000 in various taxable
jurisdictions. The taxable jurisdictions, estimated net operating losses,
and expiration dates are as follows: United States, $345,000, 2019,
Canada, $40,000, 2006. Utilization of approximately $39,000 of the total
net operating loss is dependent on the profitable operation of Digital
Commerce International, Inc. in the future under the separate return
limitation rules and limitations on the carryforward of net operating
losses after a change in ownership according to the US Internal Revenue
Code.
Income tax expense differs from the amounts computed by applying the U.S.
Federal income tax rate of 34 percent to pretax income from continuing
operations as a result of the following:
Computed tax benefit $ (187,618)
Foreign net operating losses with no current tax benefit 65,253
Change in valuation allowance 122,365
------------
$ -
============
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999
NOTE F - INCOME TAXES - CONTINUED
Deferred income tax assets and liabilities are as follows:
Deferred tax assets
Benefit of net operating loss carryforwards - U.S. $ 117,584
Benefit of net operating loss carryforwards - Foreign 18,144
--------------
135,728
Less valuation allowance (135,728)
--------------
Net deferred tax asset (liability) $ -
==============
NOTE G - CONCENTRATIONS AND PRIMARY CUSTOMERS
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of accounts receivable.
Approximately 96 percent of accounts receivable are with two different
customers. The Company routinely evaluates the financial strength of its
customers and monitors each account to minimize the risk of loss.
The Company has two customers which account for more than 10 percent of
revenues. The Company's major customers and revenue received therefrom
are as follows:
Company A $ 190,000
Company B $ 59,742
NOTE H - BUSINESS SEGMENTS
The Company has two reportable segments for the year ended October 31,
1999, namely processing services and banking services. The accounting
policies of the segments are the same as those described in the summary
of significant accounting policies. The Company evaluates performance of
each segment based on earnings or loss from operations. Identifiable
assets by segment are reported below. The Company allocates certain
general and administrative expenses, consisting primarily of management
and utilities.
Processing Banking Consolidated
services services balance
------------- ------------ --------------
Revenues $ 255,042 $ - $ 255,042
Operating loss (132,028) (45,947) (177,975)
Administration expense - - (373,844)
-------------
Net loss $ (551,819)
=============
<PAGE>
Digital Commerce International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999
NOTE H - BUSINESS SEGMENTS - CONTINUED
Identifiable assets
<TABLE>
<CAPTION>
Processing Banking Consolidated
services services Corporate balance
------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
Current assets $ 206,036 $ 69,122 $ 237,690 $ 512,848
Non-current assets 290,000 103,730 - 393,730
Capital assets 10,450 - 10,002 20,452
------------ ------------ ----------- --------------
Total assets $ 506,486 $ 172,852 $ 247,692 $ 927,030
============ ============ =========== ==============
</TABLE>
NOTE I - SUBSEQUENT EVENTS
In 2000, the Company initiated two private placements. The Company has
received approximately $500,000 toward the purchase of 200,000 common
shares at $2.50 per share. The Company has also received approximately
$195,000 toward the purchase of 50,000 common shares at $3.00 per share.
<PAGE>
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
On December 6, 1999, the Company's Board of Directors authorized the engagement
of Grant Thornton LLP ("GT") as its auditor for the fiscal year ended October
31, 1999. ThE decision to change accountants was prompted by the ability of GT
to provide audit services to the Company on an international scale. GT entered
into an engagement letter with the Company on December 7, 1999 and concurrently
with that engagement, the Company dismissed Crouch Bierwolf & Chisholm, P.C.
("Crouch Bierwolf"), which had served as the Company's independent accountants
since 1998, as its auditor within the meaning of Item 304(a)(1)(i) of Regulation
S-K of the Securities and Exchange Commission.
The reports of Crouch Bierwolf on the financial statements for fiscal
year 1998 contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
The Board of Directors participated in and approved the decision to change
independent accountants. In connection with its audit for the fiscal year ended
1998, and through December 6, 1999, there were no disagreements with Crouch
Bierwolf on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Crouch Bierwolf would have caused Crouch
Bierwolf to make reference thereto in their report on the financial statements
for such year. During the fiscal year ended October 31, 1998, and through
December 6, 1999, there were no reportable events as that term is defined in
Item 304 (a)(1)(v)of Regulation S-K.
During the fiscal year ended October 31, 1998, and through December 6,
1999, the Company had not consulted with GT regarding either: (i) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's financial statements, and neither a written report was provided to
us nor oral advice was provided that GT concluded was an important factor
considered by us in reaching a decision as to the accounting, auditing or
financial reporting issue; or (ii) any matter that was either the subject of a
disagreement, as that term is defined in Item 304 (a)(1)(iv) of Regulation S-K
and the related instructions to Item 304 of Regulation S-K, or a reportable
event, as that term is defined in Item 304 (a) (1) (v) of Regulation S-K.
Part III
Item 10. Directors and Executive Officers of the Registrant
The Company's directors, executive officers and key employees, as of
the date hereof, and their respective ages and positions with the Company, are
set forth below. Biographical information for each of the senior management
members and directors is also presented below. There are no family relationships
between or among any of the Company's directors or executive officers. The
Company's board of directors is currently comprised of two members. Executive
officers are chosen by, and serve at the discretion of, the board of directors:
(a) Directors and Executive Officers
MICHAEL Y. H. KANG - CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT. Michael
Y.H. Kang, 39, a resident of Vancouver, British Columbia, is the Company's
Chairman and Chief Executive Officer, and is a cofounder of Digital Commerce
Inc., which the Company acquired in June, 1999. Born in Korea, Mr. Kang spent
his early years in Korea and Brazil, then moved to Toronto where he earned a
Bachelor of Commerce degree from the University of Toronto in 1981. He was hired
by Continental Illinois National Bank and Trust Company of Chicago to the
position of foreign exchange trader and credit analyst, stationed in Seoul,
Korea. Subsequently, Mr. Kang returned to Canada to assume the position of
General Manager of his family's chain of convenience stores. When the stores
were eventually sold, Mr. Kang moved to Phoenix, Arizona and purchased Prisma
Graphics Inc., a sheet feed printer in the State of Arizona. In 1995, Mr. Kang
returned to Vancouver to co-found several private investment and capital
management firms, subsequently leading to the development of Digital Commerce
International, Inc.
Mr. Kang's term of office as a director is until the next annual
meeting of stockholders. He has served as a director since June 15, 1999.
JOHN W. COMBS - DIRECTOR, EXECUTIVE VICE PRESIDENT AND SECRETARY. Jack Combs,
54, a resident of Vancouver, British Columbia, is the Company's Executive
Vice-President and Secretary and is a co-founder of Digital Commerce Inc., which
the Company acquired in jUNE, 1999. In collaboration with Mr. Kang, Mr. Combs
co-founded several private investment and capital management firms and is a
shareholder in Combs Group, a family commercial real estate corporation in
Toronto. He is also the owner of Brockton Realty Inc., a Vancouver based real
estate and development Company which has been involved in all phases of the
development process, including planning, financing, development, construction
management and marketing. Born in New York, Mr. Combs moved with his family to
Toronto where he earned a Bachelor of Arts degree from the University of Toronto
in 1969. Prior to joining Mr. Kang in the founding of Digital Commerce
International Inc. Mr. Combs has been active in the real estate development
business in Ontario and British Columbia since the early 1970's. Throughout this
time Mr. Combs has developed for his own and investors' interests and maintained
a high level of contract services for such companies as Quadrant Development
Corp., a division of Weyerhauser Canada Ltd. and Webb & Knapp Canada Ltd.
Mr. Combs' term of office as a director is until the next annual
meeting of the Company's stockholders. He has served as a director since June
15, 1999.
(b) Advisory Board
The Company has formed an advisory board for the purpose of assisting
it in the identification of market and product development opportunities,
reviewing with management the progress of its specific projects, recruiting and
evaluating its management and operational systems and, in general, assisting the
Company in its regulatory and strategic planning. Members of the advisory board
are leaders in the fields of business, banking, and internet commerce, and
generally meet with the Company's management on an informal basis.
Andrew G. Smith, 28, has served on the advisory board of the Company
since June 1999. He has been the President of DietSmart.com since November of
1999. DietSmart.com is a leading online weight loss and fitness destination,
offering consumers diet and fitness programs tailored to their individual needs.
Prior to founding DietSmart.com, Mr. Smith was the Vice President of
Sponsorships and Strategic Development for iVillage.com, a top 25 site and the
number one women's network on the internet. Mr. Smith was responsible for a
number of the iVillage's largest strategic relationships, including those with
AT&T, Visa, First USA, and PNC Bank. He holds a B.A. in Religion from Dartmouth
College, 1994.
George Reznik, 34, has served on the Company's advisory board since
June 1999. He is currently the Director of Finance, Pivotal Corporation, where
he is responsible for all finance activities for Pivotal including regulatory
filings, preparation of financial information, business plans and budgets and
treasury management functions. Mr. Reznik was instrumental in Pivotal's
successful initial public offering on the Nasdaq Stock Market on August 5, 1999.
Prior to joining Pivotal in early 1999, Mr. Reznik was a Senior Manager in the
Corporate Finance practice with Deloitte & Touche leading the business valuation
practice based from the Vancouver office in Canada. Mr. Reznik has significant
international corporate finance experience having worked on numerous
international projects in various industries. Mr. Reznik has a Bachelor of
Commerce Degree (Honours) from the University of Manitoba (1988) and was a
medallist in obtaining his Chartered Accountant ("CA") designation in 1990. Mr.
Reznik also obtained the Chartered Business Valuator ("CBV") designation in
1995.
Brian Flynn, 30, has served on the Company's advisory board since June,
1999. He has nine years of experience in marketing and communications, including
product development, branding, advertising/public relations, database marketing,
and interactive communications. Brian has been the Chief Executive Officer of
Annotate.net, an internet company that develops software to enhance and simplify
the web user experience, since August, 1999. Prior to joining Annotate.net, he
was a Senior Vice President, Management Director at Foote, Cone & Belding (FCB)
in New York, a top worldwide advertising and communications company. During the
previous three years, Brian was Vice President, Director of Marketing
Communications for Citibank in North America. Brian developed and launched
Citibank's internet Banking product. He also serves as the Marketing Advisor for
SOHOnet, a provider of web content management solutions. Brian holds a degree in
business from Georgetown University in Washington, D.C.
Kevin Fortuna, 28, has served on the Company's Advisory Board since
January of 1999. He is currently Director of Business Development at NBC
internet, where he manages NBCi's east coast business development group and is
responsible for several of NBCi's largest strategic alliances. He has also held
senior business development and electronic commerce positions at Juno Online
Services, and has worked in the internet industry for the past five years. He
graduated summa cum laude from Georgetown University with a degree in English
and History.
(c) Involvement in Certain Legal Proceedings
On January 5, 2000, the Company and Directors Kang and Combs were made
defendants to a lawsuit by a former business partner. The plaintiff, the former
business partner, alleged breach of a statutory duty owed by Kang and Combs to
the plaintiff (a fellow director and shareholder). He claims that he was not
made part of certain corporate opportunities and was not included in certain
corporate changes and the benefits therefrom. The Company believes the claims of
the plaintiffs regarding the Company are without merit. In addition, the Company
believes that any decision granted in favor of the plaintiff would only affect
the shares held by Kang and Combs and would not affect the Company directly.
Aside from the above mentioned action, the Company is not aware of any
other material legal proceedings involving any director, director nominee,
promoter, or control person including criminal convictions, pending criminal
matters, pending or concluded administrative or civil proceedings limiting one's
participation in the securities or banking industries, or finding of securities
or commodities law violations.
(d) Section 16(a): Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons owning ten percent of the Company's common stock (collectively,
"Reporting Persons") to file reports of ownership with the Securities and
Exchange Commission. Reporting Persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed. Based solely
on a review of the copies of such reports furnished to the Company and written
representations that no other reports were required, the Company believes that
all Reporting Persons during fiscal year 1999 complied on a timely basis with
all applicable filing requirements under Section 16(a) of the Exchange Act, with
the exception of Mr. Kang, a member of the Board of Directors and the Company's
Chief Executive Officer, and Mr. Combs, a member of the Board of Directors and
the Company's Executive Vice President, each of whom, the Company believes, was
delinquent in the filing of a report covering the issuance of shares of our
common and preferred stock and options to purchase shares of common stock in
connection with the acquisition of Digital Commerce, Inc. The Company believes
that each Reporting Person is now making efforts to effect such filings and
satisfy all reporting obligations.
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table
The Company did not conduct active business operations from 1992
through June 15, 1999. The following table summarizes the total compensation of
the Chief Executive Officer and the Company's other most highly compensated
executive officers (collectively, the Named Executive Officers") earning in
excess of $100,000 for the year ended October 31, 1999.
Name and Principal Year Salary $ Other Annual Securities Underlying
Position Compensation Options/SARS
Michael Y H Kang 1999 $120,000 $10,932 575,000
CEO
John W Combs 1999 $120,000 $10,882 575,000
Executive VP
The additional compensation received reflects an automobile allowance.
The salary and other annual compensation amounts in the table above represent
annualized amounts for the period between June 15, 1999 to October 31, 1999.
Stock Option Grants
The following table provides information relating to stock options
awarded to each of the Named Executive Officers during the fiscal year ended
October 31, 1999.
<TABLE>
<CAPTION>
Individual Grants
----------------- Potential Realizable
Value at Assumed Annual Rate
Number of Percent of Total of Stock Appreciation for
Securities Options Granted Exercise Option Term(3)
Underlying to Employees in Price Per Expiration ---------------
Name Options Granted (#) Fiscal Year(1) Share(2) Date 5%($) 10%($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael Y H Kang 575,000 37.58% $.50 June 18 2009 $223,003 $302,257
John W Combs 575,000 37.58% $.50 June 18, 2009 $223,003 $302,257
</TABLE>
(1) Based on options for an aggregate of 1,530,000 shares of common stock
granted during the fiscal year ended October 31, 1999.
(2) On the date of the grant of the options for the shares of common stock, our
Board of Directors estimated that the fair market value of that stock to be
$0.25.
(3) Potential realizable value is based on the assumption that the shares of
our common stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the option term. These
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect our estimate of
future stock price growth.
Fiscal Year-End Option Value
The following table provides information regarding the number and value
of options to acquire shares of common stock held by the Named Executive
Officers on October 31, 1999.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Fiscal Year-End (#) Fiscal Year-End(1)
--------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Kang 0 575,000 0 $5,534,375
John Combs 0 575,000 0 $5,534,375
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For purposes of determining the values of the options held by the Named
Executive Officers, the Company assumed that the shares of common stock
underlying the option granted had a value of $10.125 per share on October
31, 1999, which is the estimated fair market value the Board of Directors
attributed to that stock on October 31, 1999. The option value is based on
the difference between the fair market value of such shares on October 31,
1999, and the option exercise price per share, multiplied by the number of
shares subject to the options.
Employment Agreements
The Company has adopted a policy of entering into employment agreements
with each of its senior management and key personnel, and has either entered
into an employment agreement with each of those persons or has approved the
terms of such agreements. The employment agreements generally have initial terms
of five years. Under the agreements, the employee is entitled to a base salary
($250,000 for Mr. Kang, $250,000 for Mr. Combs), plus incentive bonuses (as
determined by the Board of Directors), standard benefits such as health and life
insurance, and reimbursement of reasonable expenses. The base salary payable to
Mr. Kang and Mr. Combs increases by $50,000 every year to a maximum of $450,000.
The agreements also provide for moving allowances in some instances. The
employment agreements for a number of the Company's senior management also
provide for the grant of options.
The Company may terminate the employment contracts for cause (which is
defined in the agreements) or without cause. In addition, the employee can
terminate the contract on notice to the Company ranging from 90 to 180 days. If
the contract is terminated without cause or as a result of a "change of
control," as defined in the agreements, the employee is entitled to receive
severance pay of up to 36 months salary, depending on the particular agreement.
The agreements also contain non-competition, non-solicitation and assignment of
inventions provisions which the Company believes are consistent with industry
practice.
Limitations of Liability and Indemnification
The Company's Certificate of Incorporation limits the personal
liability of directors and officers for monetary damages to the maximum extent
permitted by Delaware law. Under Delaware law, such limitations include monetary
damages for any action taken or failed to be taken as an officer or director
except for (i) an act or omission that involves intentional misconduct or a
knowing violation of the law, or (ii) payment of improper distributions.
Delaware law also permits a corporation to indemnify any current or former
director, officer, employee or agent if the person acted in good faith and in a
manner in which he reasonably believed to be in or not opposed to the best
interest of the corporation. In the case of a criminal proceeding, the
indemnified person must also have had no reasonable cause to believe that his
conduct was unlawful.
The Company's Bylaws provide that, to the full extent permitted by its
Certificate of Incorporation and the Delaware General Corporation Law, the
Company will indemnify (and advance expenses to) its officers, directors and
employees in connection with any action, suit or proceeding (civil or criminal)
to which those persons are made party by reason of their being a director,
officer or employee. Any such indemnification is in addition to the advancement
of expenses.
Compensation of Directors
Directors do not receive cash compensation for serving on the Board of
Directors or any committee of the Board, or for any other services rendered to
the Company in their capacity as directors of the Company, but are reimbursed
for expenses they incur in connection with attending Board or committee
meetings. There are no other arrangements for compensation to the Board of
Directors' members.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The table below sets forth information, as of October 31, 1999, with
respect to beneficial ownership of the Company's common stock by each person
known by the Company to be the beneficial owner of more than 5% of its
outstanding common stock, by each of its directors, by each Named Executive
Officer, and by all of the Company's officers and directors as a group. Unless
otherwise noted, each shareholder has sole investment and voting power over the
shares owned.
<TABLE>
<CAPTION>
Title of Class Name of Beneficial Owner Amount and Nature of Percent of Class
Beneficial Owner
<S> <C> <C> <C>
Common John W Combs(1) 1,845,000 14.22%
Common Michael Y H Kang(2) 1,845,000 14.22%
</TABLE>
(1) Includes 1,845,000 shares held by West Point Asset Management Ltd for the
benefit of Mr. Combs and his family.
(2) Includes 1,845,000 shares held by Raging Bull Asset Management Ltd for the
benefit of Mr. Kang and his family.
<PAGE>
(b) Security Ownership of Named Executive Officers
Title of Class Name and Address of Amount and nature of Percent of Class
Beneficial Owner Beneficial Owner
Class A Preferred Michael Y H Kang 250,000 50%
Class A Preferred John W Combs 250,000 50%
Item 13. Certain Relationships and Related Transactions
Digital Commerce Bank Inc. is the holder of the Company's bank charter. John W
Combs, as nominee of the Company's bank, applied for the bank charter and
contributed the charter to our bank once the application was approved. Following
the contribution, the capital securities of Digital Commerce Bank were
transferred to the Company.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements
The Company's consolidated financial statements and its subsidiary are
included elsewhere in this Report.
(b) Financial Statement Schedules
No schedules are required in connection with the filing of this Report as
amounts are either immaterial or are otherwise disclosed in the financial
statements.
(c) Exhibits
INDEX TO EXHIBITS
Exhibit No. Exhibit Page
- ---------- ------- ----
3.1 Certificate of Incorporation of EZ Data Systems, Inc.
3.2 Bylaws
3.3 Certificate of Amendment of Certificate of Incorporation of EZ Data
Systems, Inc.
3.4 Certificate of Amendment of Certificate of Incorporation of Systems
Assurance Corporation.
3.5 Certificate of Amendment of Certificate of Incorporation of Systems
Assurance Corporation.
3.6 Certificate of Amendment of Certificate of Incorporation of Systems
Assurance Corporation.
3.7 Certificate of Change of Location of Registered Office and/or Registered
Agent of Systems Assurance Corporation
3.8 Certificate of Change of Location of Registered Office and/or Registered
Agent of Systems Assurance Corporation
4.1 Certificate Establishing and Designating the Rights, Preferences and
Restrictions of Series A Preferred Stock of Digital Commerce, Inc.
10.1 Certificate of Ownership and Merger Merging EZ Data, Inc. into EZ Data
Systems, Inc.
10.2 Certificate of Ownership and Merger Merging Systems Assurance Corporation
into Unidata Systems, Inc.
10.3 Acquisition Agreement by and between Assurance Corporation and Digital
Commerce, Inc. 10.4 1999 Stock Option Plan
10.5 Employment Agreement with Michael Kang
10.6 Employment Agreement with John W. Combs
10.7 Humboldt Bank Independent Sales Organization (ISO) Agreement
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule
(d) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended October 31,
1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Digital Commerce International, Inc.
February 14, 2000 By: /s/ Michael Y H Kang,
---------------------
Chairman and Chief Executive Officer
Digital Commerce International, Inc.
February 14, 2000 By: /s/ John W. Combs,
------------------
Director and Executive Vice President
DIRECTORS
February 14, 2000 By: /s/ Michael Y H Kang
--------------------
February 14, 2000 By: /s/ John W. Combs
-----------------
CERTIFICATE OF INCORPORATION
OF
EZ DATA SYSTEMS, INC.
(a Delaware corporation)
The undersigned, in order to form a corporation pursuant to the provisions
of the General Corporation Law of the State of Delaware, hereby certifies as
follows:
1. The name of the corporation is EZ Data Systems, Inc.
2. The address of its registered office in the State of Delaware is 100
West Tenth Street, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted are:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares which the corporation shall have authority to
issue is 10,000 shares of common stock with a par value of $.01 per share.
5. The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ----------------
Stephen L. Pritchard c/o Herrick & Smith
100 Federal Street, 29th Floor
Boston, Massachusetts 02110
6. The name and address of the person who is to serve as director until the
first annual meeting of stockholders or until his successors are elected and
qualified is as follows:
Name Mailing Address
---- ---------------
James E. Cook c/o E Z Data, Inc.
Newington Industrial Park
Newington, New Hampshire 03801
The Bylaws of the corporation may be amended, altered or repealed by the
Board of Directors at any regular or special meeting or by written consent
pursuant to Section 141(f) of the General Corporation Law of Delaware, and may
be amended by the stockholders at any annual or special meeting or by written
consent pursuant to Section 228 of said General Corporation Law.
IN WITNESS WHEREOF, the undersigned has signed this certificate this 15th
day of July, 1982.
---------------------------
Stephen L. Pritchard
BYLAWS
OF
EZ DATA, INC.
A Delaware Corporation
ARTICLE I
Offices
1. Registered Office. The registered office of the corporation within the
State of Delaware shall be in the City of Wilmington, County of New Castle.
2. Other Offices. The corporation may have other offices either within or
outside the State of Delaware.
ARTICLE II
Stockholders
1. Annual Meeting. The annual meeting of stockholders shall be held each
year at such time and place as is designated by the board of directors. The
purpose of the meeting shall be to elect directors and transact any other proper
business.
2. Special Meetings. A special meeting of stockholders may be called at any
time by the board of directors, by the president, or upon written request by the
holders of at least 25% of the stock entitled to vote with respect to the
business to be transacted at the meeting. No business or corporate actions shall
be taken at a special meeting other than those stated in the notice of the
meeting.
3. Notice of Meetings. At least 10 days and not more than 60 days before
any meeting of stockholders, written notice stating the time and place of the
meeting, and also its purpose in the case of a special meeting, shall be
delivered personally to, or mailed with postage prepaid to the last known
address of, each stockholder of record entitled to vote at the meeting.
If a meeting is adjourned to another time or place, notice of the adjourned
meeting must be given to all the stockholders entitled to vote at the adjourned
meeting if (i) the adjournment is for more than 30 days, (ii) a new record date
is fixed for the adjourned meeting, or (iii) the time and place of the adjourned
meeting are not announced at the meeting at which the adjournment is taken. The
stockholders may transact any business at the adjourned meeting which could have
been transacted at the original meeting.
4. Waiver of Notice. A stockholder may waive notice of any or all meetings
by delivering to the corporation a written waiver signed by such person. The
stockholder may deliver the waiver before, after, or at the time when it is
stated to be effective.
The attendance of a stockholder at any meeting shall be deemed a waiver of
notice of the meeting by such person, unless the attendance is only for the
purpose of objecting that the meeting was unlawfully convened and the person so
objects at the start of the meeting.
5. Quorum. A majority of the shares entitled to vote, either present in
person or represented by proxy, shall constitute a quorum for the transaction of
any business at a meeting of stockholders.
6. Voting. Each share of stock shall entitle the holder of record to one
vote. With respect to matters other than the election of directors, the vote of
a majority of the shares present in person or represented by proxy shall prevail
and be considered an act of the stockholders. A plurality of the same shall be
sufficient for the election of directors.
7. Representation by Proxy. Any stockholder may authorize another person or
persons to act for it by proxy in all matters in which the stockholder is
entitled to participate. The proxy shall be in writing, dated, and signed by the
stockholder or its authorized agent. The proxy shall be valid, unless sooner
revoked, until the expiration of the period stated in the proxy, or until 3
years after the date of the proxy if no period is stated. A proxy shall be
irrevocable if it so states, but only if and so long as it is coupled with an
interest in the stock itself or the corporation in general.
8. Action by Consent. Any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting and without prior notice
if a sufficient number of stockholders deliver to the corporation, within a
60-day period, properly executed written consents to the action. A consent shall
be properly executed if it is signed by the stockholder, bears the date of
signature, and sets forth the action taken. The number of stockholders which is
sufficient for this purpose shall be any number which represents at least the
minimum number of votes that would be required were the action to be taken at a
meeting at which all the shares entitled to vote on the matter were present and
voted. Any action taken as described in this paragraph has the same effect as an
action taken at a duly called and convened meeting of stockholders.
9. Record Date. The record date for determining the stockholders entitled
to notice of or to vote at any meeting of stockholders shall be determined in
accordance with Article V, paragraph 5.
10. List of Stockholders. At least 10 days before any meeting of
stockholders, the secretary shall make a list of all stockholders entitled to
vote at the meeting, arranged in alphabetical order and showing each
stockholder's address and the number of shares registered in such person's name.
The secretary shall make the list available for the inspection of any
stockholder for purposes germane to the meeting, for a period of at least 10
days prior to the meeting, during ordinary business hours, and at a place within
the city where the meeting is to be held which is specified in the notice of the
meeting. The list shall also be produced at the meeting and made available for
inspection then by any stockholder who is present.
ARTICLE III
Board of Directors
1. General Powers. Subject to any limitations in the certificate of
incorporation, the board of directors shall manage and direct the business and
affairs of the corporation. The board of directors shall have the authority to
fix the compensation of its members.
2. Number, Election, and Term of Office. The board of directors shall
consist of two persons. Directors shall be elected at the annual meeting of
stockholders for a term of one year, and shall hold office until their
successors are elected and qualify, or until their death, resignation, or
removal as provided in these bylaws.
3. Vacancies. Any vacancy in the board of directors occurring by
resignation, removal, or otherwise may be filled by the vote of a majority of
the remaining directors, though less than a quorum; or by the stockholders at
their next annual meeting or a special meeting. Each director so elected shall
hold office until his or her successor is elected and qualified.
4. Resignations. Any director may resign at any time by giving written
notice to the corporation. Resignation shall take effect immediately upon
receipt of the notice, or at such other time as is specified in the notice.
Unless required by the notice, acceptance of the resignation is not needed to
make it effective.
5. Removal of Directors. Except as may otherwise be required by statute,
any director or the entire board of directors may be removed, with or without
cause, by the holders of a majority of the outstanding stock of the corporation.
6. Annual and Other Regular Meetings. The board of directors shall meet as
soon as practicable after the annual meeting of stockholders. The board shall
also hold other regular meetings at the times and places determined from time to
time by the board. Notice of annual and other regular meetings need not be given
to the directors.
7. Special Meetings. Special meetings of the board of directors may be
called by the president or by any director. Written, oral, or any other mode of
notice of the time and place of special meetings shall be given at least 48
hours prior to any such meeting.
8. Quorum, Voting, and Manner of Acting. A majority of the directors in
office shall constitute a quorum for the transaction of business. Except as
otherwise provided in these bylaws, the act of a majority of the directors
present shall be the action of the board of directors. The directors shall act
only as a board, and the individual directors shall have no power as such.
9. Action by Consent. Any action required or permitted to be taken by the
board of directors may be taken without a meeting if all the directors consent
to the action in writing, and the writing is filed with the minutes of the board
of directors.
10. Telephonic Meeting. Any member of the board of directors may
participate in a meeting of the board of directors by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
11. Committees. The board of directors may, by resolution passed by a
majority of the directors in office, designate 1 or more committees, each
committee to consist of 1 or more directors who shall serve at the pleasure of
the board.
(a) The board may designate 1 or more directors to act as alternate
members of any committee to replace any absent or disqualified member of a
committee. If a member is absent or disqualified and an alternate member is
not available, the members present at the meeting who are not disqualified
from voting may unanimously appoint (whether or not they constitute a
quorum) another member of the board of directors to act in the place of the
absent or disqualified member.
(b) The board of directors shall designate by resolution the extent to
which the powers and authority of the board may be exercised by a
committee; provided, however, that a committee shall not have the power to
(i) amend the certificate of incorporation; (ii) adopt an agreement of
merger or consolidation; (iii) recommend to the stockholders the sale,
lease, or exchange of all or substantially all the corporation's property
and assets; (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of dissolution; (v) amend the bylaws or
certificate of incorporation; or (vi) declare a dividend, authorize an
issuance of stock, or adopt a certificate of ownership and merger.
(c) Paragraphs 6 through 10 of this Article III shall also apply to
committees.
ARTICLE IV
Officers
1. Number and Qualifications. The board of directors shall appoint by
resolution the officers of the corporation, who shall consist of a president and
a secretary. Other officers, including a chairman of the board, one or more vice
presidents, and a treasurer may also be appointed by the board of directors from
time to time. Any person may hold two or more offices, and no officer except the
chairman of the board need also be a director. Each officer shall hold office
until his or her successor is duly elected and qualified, or until his or her
death, resignation, or removal. The board of directors shall have authority to
fix the compensation of all the officers of the corporation.
2. Duties. The duties of the officers shall be the duties usually imposed
upon such officials of corporations, the duties required by law, and the duties
assigned to them by the board of directors. The secretary or his or her delegate
shall record in writing all the proceedings of all meetings of stockholders,
directors, and committees of directors.
3. Assistant Officers. An officer may appoint one or more assistant
officers if so authorized by the board of directors.
4. Resignations. Any officer or assistant officer of the corporation may
resign at any time by giving written notice of resignation to the corporation.
Resignation shall take effect immediately upon receipt of the notice, or at such
other time as is specified in the notice. Unless required by the notice,
acceptance of the resignation is not needed to make it effective.
5. Removal. The board of directors may remove any officer or assistant
officer of the corporation at any time, with or without cause.
6. Vacancies. Any vacancies in office arising from death, resignation,
removal, or otherwise may be filled by the board of directors.
ARTICLE V
Capital Stock
1. Issuance or Sale by the Corporation. The capital stock of the
corporation shall not be issued or sold without authorization by the board of
directors. The board shall determine the price at which the corporation will
issue or sell its stock, the form of consideration to be paid, the manner of
payment, and the value of any consideration paid.
2. Certificates. Except as provided in paragraph 3 of this Article V,
shares of stock in the corporation shall be represented by certificates. Each
certificate shall set forth the number of shares registered in the stockholder's
name, and shall be signed in the name of the corporation by the chairman of the
board, the president, or a vice president, and also by the treasurer, the
secretary, or an assistant secretary. Any signature on a certificate may be a
facsimile. If an officer who has signed or whose facsimile signature has been
placed upon a certificate shall cease to hold such office before the certificate
is issued, the corporation may nonetheless issue the certificate with the same
effect as if such person still held the office at the date of issue.
3. Uncertificated Shares. The board of directors may provide by resolution
that any class or series of stock shall be uncertificated. Nonetheless, any
holder of uncertificated shares shall be entitled, upon demand, to have a
certificate specifying the information and prepared in accordance with paragraph
2 of this Article V.
4. Transfers of Stock. Shares of stock in the corporation shall be
transferable or assignable only on the stock ledger of the corporation and only
upon presentation of proper evidence of succession, assignment, or authority to
transfer, accompanied with the certificate for the shares (if one was issued)
duly indorsed by the holder or its duly authorized attorney; provided, however,
that the corporation shall be entitled to recognize and enforce any lawful
restriction on transfer. The board of directors may appoint, or authorize any
officer to appoint, one or more transfer agents and one or more registrars.
5. Fixing the Record Date. For the purpose of determining the stockholders
entitled to:
(a) Notice of, or to vote at, any meeting of stockholders or any
adjournment of such a meeting;
(b) Express consent to corporate action in writing without a meeting;
(c) Receive payment of any dividend or distribution, or allotment of
any rights;
(d) Exercise any rights in respect of any change, conversion, or
exchange of stock;
or for any other lawful purpose, the board of directors may fix in advance a
record date, which shall not be more than 60 days nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action.
If the board of directors does not fix a record date with respect to any
meeting, the record date shall occur at the close of business on the day before
notice of the meeting is given, or at the close of business on the day prior to
the meeting if notice is waived. The record date applicable for any meeting
shall also apply to an adjournment of such meeting, unless the board of
directors fixes a new record date for the adjourned meeting.
6. Distributions. Subject to the provisions of statute and the certificate
of incorporation, the board of directors may declare distributions with respect
to the shares of stock of the corporation at any regular or special meeting, and
may cause them to be paid in cash, property, or shares of stock of the
corporation.
7. Registered Stockholders. The corporation shall be entitled to recognize
the exclusive right of a person registered on its records as the owner of shares
of stock to receive dividends and to vote as such owner, and, except as
otherwise provided by the laws of Delaware, shall not be bound to recognize any
equitable or other claim to, or interest in, such share or shares of stock on
the part of any other person.
8. Lost, Destroyed, or Mutilated Certificates. The board of directors may
in its discretion authorize the issuance of one or more new stock certificates
in place of any certificate alleged to be lost, stolen, or destroyed. The board
may, however, require the holder or its representative to give the corporation a
bond sufficient to indemnify it against any claim which might be made against
the corporation on account of the alleged loss, theft, or destruction of the old
certificate or the issuance of the new certificate.
ARTICLE VI
Indemnification
1. General. The corporation shall indemnify every person who was or is a
party, or is or was threatened to be made a party, to any action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, by reason
of the fact that he or she is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise, against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit, or
proceeding, to the fullest extent permitted by applicable law. Such
indemnification may, in the discretion of the board of directors, include
advances of the person's expenses in advance of final disposition of such
action, suit, or proceeding, subject to the provisions of any applicable
statute.
2. Rights Not Exclusive. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in the
indemnified party's official capacity and as to action in another capacity while
holding such office.
3. Insurance. The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against any liability
incurred by such person in such capacity, or arising out of such person's
capacity, whether or not the corporation would have the power to indemnify the
person against the liability under the provisions of this Article VI.
4. Definition of "corporation." For the purposes of this Article VI,
references to "the corporation" include any constituent corporation absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
and agents as well as the resulting or surviving corporation. As a result, any
person who is or was a director, officer, employee, or agent of such a
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise shall stand in the same
position under the provisions of this Article VI with respect to the resulting
or surviving corporation as he or she would if he or she had served the
resulting or surviving corporation in the same capacity.
5. Survival of Rights. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article VI shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
ARTICLE VII
Amendments
1. The power to adopt, amend, or repeal any provision of the bylaws is
vested in the stockholders of the corporation entitled to vote.
2. In accordance with the certificate of incorporation, the board of
directors is also empowered to adopt, amend, or repeal any provision of the
bylaws.
ARTICLE VIII
General Provisions
1. Checks, Notes, Drafts, etc. All checks, notes, drafts, or other orders
for the payment of money of the corporation shall be signed, endorsed, or
accepted in the name of the corporation by such officers or other persons as
from time to time are designated by the board of directors or an officer
authorized by the board of directors to make such designation.
2. Execution of Contracts, Deeds, etc. The board of directors may authorize
one or more officers or agents to enter into or execute and deliver, in the name
and on behalf of the corporation, any and all deeds, bonds, mortgages,
contracts, and other obligations or instruments. Such authority may be general
or confined to specific instances.
3. Inspection of Books and Records. Any stockholder of record, upon making
written demand under oath stating the purpose of the demand, shall have the
right to inspect during normal business hours the corporation's stock ledger,
its list of stockholders, and its other books and records, and to make copies of
the same, for any purpose reasonably related to such person's interest as a
stockholder.
4. Seal. The corporation may adopt a seal, which shall be in a form
approved by the board of directors.
5. Fiscal Year. The fiscal year of the corporation shall be the calendar
year, or otherwise as fixed by resolution of the board of directors.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
EZ DATA SYSTEMS, INC.
EZ DATA SYSTEMS, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Certificate of Incorporation of said corporation is hereby
amended by changing Paragraph 1 thereof to read in its entirety as follows:
1. The name of the corporation is Unidata Systems, Inc.
SECOND: That said amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, EZ Data Systems, Inc. has caused this certificate to be
signed by James E. Cook, its President, and attested by James E. Lambert, its
Assistant Secretary, this 13th day of October, 1982.
EZ Data Systems, Inc.
By____________________________________
President
ATTEST:
By_________________________
Assistant Secretary
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SYSTEMS ASSURANCE CORPORATION
SYSTEMS ASSURANCE CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Systems Assurance
Corporation, resolutions were duly adopted setting forth a proposed amendment to
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and directing that said amendment be considered at the next
annual meeting of the stockholders of said corporation. The resolution setting
forth the proposed amendment is as follows:
RESOLVED: That this Board of Directors hereby declares it advisable that
the Certificate of Incorporation of the Corporation be amended by
deleting paragraph 4 thereof in its entirety and substituting therefor
the following:
4. The total number of shares of capital stock which this
Corporation shall have authority to issue is fifteen million
(15,000,000) shares of Common Stock, and the par value of each
such share is one cent ($.01).
SECOND: That thereafter, an annual meeting of the stockholders of said
corporation was duly called and held, upon notice in accordance with section 222
of the General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of the
aforesaid amendment.
THIRD: That said amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation will not be reduced by reason
of the aforesaid amendment.
IN WITNESS WHEREOF, Systems Assurance Corporation has caused this
certificate to be signed by Ronald A. Grant, its President, and attested by Lea
B. Pendleton, its Assistant Secretary this 7th day of June, 1984.
SYSTEMS ASSURANCE CORPORATION
By:____________________________________
Ronald A. Grant, President
ATTEST:
By:________________________
Lea B. Pendleton,
Assistant Secretary
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SYSTEMS ASSURANCE CORPORATION
SYSTEMS ASSURANCE CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Systems Assurance
Corporation, resolutions were duly adopted setting forth a proposed amendment to
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and directing that said amendment be considered at the next
annual meeting of the stockholders of said corporation. The resolution setting
forth the proposed amendment is as follows:
RESOLVED: That this Board of Directors hereby declares it advisable that
the Certificate of Incorporation of the Corporation be amended by
deleting paragraph 4 thereof in its entirety and substituting therefor
the following:
4. The total number of shares of capital stock which this
Corporation shall have authority to issue is fifteen million
(15,000,000) shares of Common Stock, and the par value of each
such share is one cent ($.01).
SECOND: That thereafter, an annual meeting of the stockholders of said
corporation was duly called and held, upon notice in accordance with section 222
of the General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of the
aforesaid amendment.
THIRD: That said amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation will not be reduced by reason
of the aforesaid amendment.
IN WITNESS WHEREOF, Systems Assurance Corporation has caused this
certificate to be signed by Ronald A. Grant, its President, and attested by Lea
B. Pendleton, its Assistant Secretary this 7th day of June, 1984.
SYSTEMS ASSURANCE CORPORATION
By:_________________________________________
Ronald A. Grant, President
ATTEST:
By:______________________
Lea B. Pendleton,
Assistant Secretary
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION
OF
SYSTEMS ASSURANCE CORPORATION
Systems Assurance Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware:
DOES HEREBY CERTIFY:
7. That the Board of Directors of Systems Assurance Corporation duly
adopted a resolution setting forth the proposed amendment of the Certificate of
Incorporation of said corporation, declaring said amendment to be advisable and
taking action of the stockholders of said corporation for consideration thereof.
The resolution setting forth the proposed amendment is as follows:
FIRST: The name for the corporation is Digital Commerce International, Inc.
8. That said amendments were duly adopted by shareholder consent
in accordance with the provisions of Sections 228 and 242 of the General
Corporation Laws of the State of Delaware.
IN WITNESS HEREOF, said Systems Assurance Corporation has caused this
Certificate to be signed by its authorized officer this 11th day of June, 1999.
By:_________________________________
Dean H. Becker, President
STATE OF UTAH_____ )
_________ : ss.
COUNTY OF SALT LAKE )
On the 11th day of June, 1999, Dean H. Becker personally appeared before
me, a Notary Public, who acknowledged that he executed the foregoing Certificate
of Amendment on behalf of the above entity.
------------------------------------
Notary Public
My Commission Expires:
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED
OFFICE AND/OR REGISTERED AGENT
OF
SYSTEMS ASSURANCE CORPORATION
The Board of Directors of Systems Assurance Corporation , a Corporation of
Delaware, on this 13th day of March, A.D. 1995, do hereby resolve and order that
the location of the Registered Office of this Corporation within this State be,
and the same hereby is 103 Springer Building, 3411 Silverside Road, Wilmington,
in the County of New Castle.
The name of the Registered Agent therein and in charge thereof upon whom
process against this Corporation may be served is Organization Services, Inc.
Systems Assurance Corporation, a corporation of Delaware, doth hereby
certify that the foregoing is a true copy of the resolution adopted by the Board
of Directors at a meeting held as herein stated.
IN WITNESS WHEREOF, said Corporation has caused this certificate to be
signed by its Treasurer this 13th day of March, A.D. 1995.
By:________________________________
Thomas R. Petree, Treasurer
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED
OFFICE AND REGISTERED AGENT
OF
SYSTEMS ASSURANCE CORPORATION
The Board of Directors of Systems Assurance Corporation , a
Corporation of Delaware, on this 17th day of June, A.D. 1997, do hereby resolve
and order that the location of the Registered Office of this Corporation within
this State be, and the same hereby is 25 Greystone Manor, Lewes, DE 19958,
County of Sussex.
The name of the Registered Agent therein and in charge thereof
upon whom process against this Corporation may be served is Harvard Business
Services, Inc. The address of the Registered Agent is 25 Greystone Manor, Lewes,
DE 19958, County of Sussex.
Systems Assurance Corporation, a corporation of Delaware, does
hereby certify that the foregoing is a true copy of a resolution adopted by the
Board of Directors at a meeting held as herein stated.
IN WITNESS WHEREOF, said Corporation has caused this
certificate to be signed by its Treasurer this 17th day of June, A.D. 1995.
By:_______________________________
Name:_____________________________
Title:____________________________
CERTIFICATE ESTABLISHING AND DESIGNATING
THE RIGHTS, PREFERENCES AND RESTRICTIONS OF
SERIES A PREFERRED STOCK OF
DIGITAL COMMERCE INTERNATIONAL, INC.
Pursuant to the provisions of Section 151 of the General Corporation
Code of the State of Delaware, as amended, and pursuant to the authority
expressly vested in the Board of Directors of Digital Commerce International,
Inc., a Delaware corporation (the "Corporation"), by Article IV of the
Certificate of Incorporation of the Corporation, the Board of Directors of the
Corporation, acting by unanimous written consent dated as of _________, fixed
and determined the voting rights, designations, preferences, qualifications,
privileges, limitations, restrictions, options and other special or relative
rights of a series of the Corporation's Series A Preferred Stock, hereinafter
designated as the "Series A Preferred Stock," consisting of 500,000 shares of
the Corporation's total ________shares of authorized preferred stock, not of
which (prior to the filing of this Certificate) have been designated.
The undersigned, the duly elected and acting president and secretary of
the Corporation, respectively, hereby certify and acknowledge that the
resolutions set forth immediately below were duly adopted as such written
consent resolution:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by the Corporation's Certificate of Incorporation,
as amended, a series of preferred stock of the Corporation be, and hereby is,
created out of the authorized but unissued shares of the capital stock of the
Corporation, such series to be designated Series A Preferred Stock, to consist
of 500,000 shares, par value $0.001 per share, of which the preferences and
relative and other rights, and the qualifications, limitations or restrictions
thereof, shall be (in addition to those set forth in the Corporation's
Certificate of Incorporation, as amended) as follows:
1. Designation.
500,000 shares of preferred stock shall be designated and known as the
"Series A Preferred Stock." Such number of shares may be increased or decreased
by resolution of the Board of Directors of the Corporation after obtaining the
consent of a majority in interest of the holder(s) of the then-outstanding
shares of Series A Preferred Stock; provided, that no decrease shall reduce the
number of shares of Series A Preferred Stock to a number less than the number of
shares then outstanding plus the number of such shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
2. Dividend Provisions.
a. From and after the date hereof, when and if the Board of
Directors of the Corporation shall declare a dividend or
distribution payable with respect to the then-outstanding shares
of Common Stock of the Corporation, the holders of the Series A
Preferred Stock shall be entitled to the amount of dividends per
share in an amount equal to ten times the amount, and in the same
form, as such Common Stock dividends that would be payable on the
largest number of whole shares of Common Stock into which a
holder's aggregate shares of Series A Preferred Stock could then
be converted pursuant to Section 4 hereof (such number to be
determined as of the record date for the determination of holders
of Common Stock entitled to receive such dividend).
b. In addition to Section 2(a) above, each share of Series A
Preferred Stock, shall be entitled to receive a mandatory
dividend equal to ___% per year of the Original Issue Price (as
defined below) thereof. Such dividend shall be payable
semi-annually on each succeeding six and 12 month anniversary of
the first issuance, solely by the issuance of additional shares
of Series A Preferred Stock, at a price per share equal to the
Original Issue Price thereof, and not in cash.
3. Liquidation Preference; Seniority
(a) The Corporation may not issue any additional classes or series of
preferred stock with a liquidation preference, dividend or other rights senior
or in pari pasu to the Series A Preferred Stock except pursuant to Section 10
hereof.
(b) In the event of any liquidation, dissolution or winding-up of the
affairs of the Corporation, whether voluntary or involuntary, (collectively, a
"Liquidation"), before any payment of cash or distribution of other property
shall be made to the holders of the Common Stock or any other class or series of
stock subordinate in liquidation preference to the Series A Preferred Stock, the
holders of the Series A Preferred Stock shall be entitled to receive out of the
assets of the Corporation legally available for distribution to its
shareholders, the Original Issue Price per share (as appropriately adjusted for
any combinations or divisions or similar recapitalizations affecting the Series
A Preferred Stock after issuance) and accrued and unpaid dividends thereon (the
"Series A Liquidation Preference"). As used herein, the "Original Issue Price"
per share is $____.
c. If, upon any Liquidation, the assets of the Corporation available
for distribution to its shareholders shall be insufficient to pay
the holders of the Series A Preferred Stock the full amounts to
which they shall be entitled, the holders of the Series A
Preferred Stock shall share ratably in any distribution of assets
in proportion to the respective amounts which would be payable to
them in respect of the shares held by them if all amounts payable
to them in respect of such were paid in full pursuant to Section
3(b).
d. After the distributions described in Section 3(c) above have been
paid, subject to the rights of other series of preferred stock
that may from time to time come into existence, the remaining
assets of the Corporation available for distribution to
shareholders shall be distributed among the holders of Common
Stock pro rata based on the number of shares of Common Stock held
by each.
4. Conversion.
The holders of the Series A Preferred Stock shall have conversion rights,
through and including the Conversion Termination Date (as defined below), as
follows (the "Conversion Rights"):
(a) Automatic Conversion. Each outstanding share of Series A Preferred
Stock shall automatically be converted, without any further act of the
Corporation or its stockholders, into ten (10) fully paid and nonassessable
shares of Common Stock upon the occurrence of either (i) the acquisition of
control of the Company by a party not affiliated with current management, or
(ii) the achievement of the Company of a cumulative credit card transaction
volume exceeding $2 billion ($2,000,000,000).
(b) Conversion Ratio. Each share of Series A Preferred Stock shall be
converted into ten (10) shares of Common Stock (the "Conversion Ratio"). The
Conversion Ratio shall be subject to adjustment as set forth in subparagraph
4(e). No payment or adjustment shall be made for any dividends on the Common
Stock issuable upon such conversion.
(c) Mechanics of Conversion. Upon the occurrence of the event specified in
subparagraph (b), the outstanding shares of Series A Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided that the Corporation shall not
be obligated to issue to any such holder certificates evidencing the shares of
Common Stock issuable upon such conversion unless certificates evidencing the
shares of Series A Preferred Stock are either delivered to the Corporation or
any transfer agent of the Corporation. Conversion shall be deemed to have been
effected on the date of the occurrence of the event specified in subparagraph
4(a), as the case may be, and such date is referred to herein as the "Conversion
Date." Subject to the provisions of subparagraph 4(e)(vii), as promptly as
practicable thereafter the Corporation shall issue and deliver to or upon the
written order of such holder a certificate or certificates for the number of
full shares of Common Stock to which such holder is entitled and a check or cash
with respect to any fractional interest in a share of Common Stock as provided
in subparagraph 4(e). Subject to the provisions of subparagraph 4(e)(vii), the
person in whose name the certificate or certificates for Common Stock are to be
issued shall be deemed to have become a holder of record of such Common Stock on
the applicable Conversion Date.
(d) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Series A Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
(ii) Upon the occurrence of each adjustment or readjustment of
the Series A Conversion Price pursuant to Section 4(e), the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of shares of Series
A Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Series A Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustment and readjustment, (ii) the
Series A Conversion Price at the time in effect, and (iii) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of Series A Preferred Stock.
(e) Conversion Ratio Adjustments. The Conversion Ratio shall be
subject to adjustment from time to time as follows:
(i) Common Stock Issued at Less Than the Conversion Ratio. If
the Corporation shall issue any Common Stock without consideration or for a
consideration per share less than the Conversion Ratio in effect immediately
prior to such issuance, the Conversion Ratio in effect immediately prior to each
such issuance shall immediately (except as provided below) be adjusted so that
the owners of the Series A Preferred Stock are not diluted in terms of their
ownership of the Corporation.
(ii) Stock Dividends, Subdivisions, Reclassifications or
Combinations. If the Corporation shall (i) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii) subdivide
or reclassify the outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify the outstanding Common Stock into a
smaller number of shares, the Conversion Ratio in effect at the time of the
record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be proportionately adjusted
so that the holder of any shares of Series A Preferred Stock surrendered for
conversion after such date shall be entitled to receive the number of shares of
Common Stock which he would have owned or been entitled to receive had such
Series A Preferred Stock been converted immediately prior to such date.
Successive adjustments in the Conversion Ratio shall be made whenever any event
specified above shall occur.
(iii) Other Distributions. In case the Corporation shall fix a
record date for the making of a distribution to all holders of shares of its
Common Stock (i) of shares of any class other than its Common Stock or (ii) of
evidence of indebtedness of the Corporations or any Subsidiary or (iii) of
assets (excluding cash dividends or distributions, and dividends or
distributions referred to in subparagraph 5(f) (iii) above), or (iv) of rights
or warrants (excluding those referred to in subparagraph 4(e)(i) above), in each
such case the Conversion Ratio in effect immediately prior thereto shall be
reduced immediately thereafter to the price determined by dividing (1) an amount
equal to the difference resulting from (A) the number of shares of Common Stock
outstanding on such record date multiplied by the Conversion Ratio per share on
such record date, less (B) the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of said shares or evidences
of indebtedness or assets or rights or warrants to be so distributed, by (2) the
number of shares of Common Stock outstanding on such record date. Such
adjustment shall be made successively whenever such a record date is fixed. In
the event that such distribution is not so made, the Conversion Ratio then in
effect shall be readjusted, effective as of the date when the Board of Directors
determines not to distribute such shares, evidences of indebtedness, assets,
rights or warrants, as the case may be, to the Conversion Ratio which would then
be in effect if such record date had not been fixed.
(iv) Consolidation, Merger, Sale, Lease or Conveyance. In case
of any consolidation with or merger of the Corporation with or into another
corporation, or in case of any sale, lease or conveyance to another corporation
of the assets of the Corporation as an entirety or substantially as an entirety,
each share of Series A Preferred Stock shall after the date of such
consolidation, merger, sale, lease or conveyance be convertible into the number
of shares of stock or other securities or property (including cash) to which the
Common Stock issuable (at the time of such consolidation, merger, sale, lease or
conveyance) upon conversion of such share of Series A Preferred Stock would have
been entitled upon such consolidation, merger, sale, lease or conveyance; and in
any such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holders of the shares of Series A
Preferred Stock shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the conversion of the shares of Series A
Preferred Stock.
(f) Rounding of Calculations; Minimum Adjustment. All calculations under
this subparagraph (f) shall be made to the nearest cent or to the nearest one
hundredth (1/100th) of a share, as the case may be. Any provision of this
paragraph 5 to the contrary notwithstanding, no adjustment in the Conversion
Ratio shall be made if the amount of such adjustment would be less than $0.05,
but any such amount shall be carried forward and an adjustment with respect
thereto shall be made at the time of and together with any subsequent adjustment
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $0.05 or more.
(g) Timing of Issuance of Additional Common Stock Upon Certain Adjustments.
In any case in which the provisions of this subparagraph (e) shall require that
an adjustment shall become effective immediately after a record date for an
event, the Corporation may defer until the occurrence of such event (A) issuing
to the holder of any share of Series A Preferred Stock converted after such
record date and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion by reason of the adjustment required
by such event over and above the shares of Common Stock issuable upon such
conversion before giving effect to such adjustment and (B); provided that the
Corporation upon request shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(h) Statement Regarding Adjustments. Whenever the Conversion Ratio shall be
adjusted as provided in subparagraph 4(e), the Corporation shall forthwith file,
at the office of any transfer agent for the Series A Preferred Stock and at the
principal office of the Corporation, a statement showing in detail the facts
requiring such adjustment and the Conversion Ratio that shall be in effect after
such adjustment, and the Corporation shall also cause a copy of such statement
to be sent by mail, first class postage prepaid, to each holder of shares of
Series A Preferred Stock at its address appearing on the Corporation's records.
Each such statement shall be signed by the Corporation's Chief Financial
Officer, if applicable. Where appropriate, such copy may be given in advance and
may be included as part of a notice required to be mailed under the provisions
of subparagraph 4(j).
(i) Notice to Holders. In the event the Corporation shall propose to take
any action of the type described in clause (i) (but only if the action of the
type described in clause (i) would result in an adjustment in the Conversion
Ratio), (iii), (iv) or (v) of subparagraph 4(e), the Corporation shall give
notice to each holder of shares of Series A Preferred Stock, in the manner set
forth in subparagraph 4(i), which notice shall specify the record date, if any,
with respect to any such action and the approximate date on which such action is
to take place. Such notice shall also set forth such facts with respect thereto
as shall be reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Conversion
Ratio and the number, kind or class of shares or other securities or property
which shall be deliverable upon conversion of shares of Series A Preferred
Stock. In the case of any action which would require the fixing of a record
date, such notice shall be given at least 10 days prior to the date so fixed,
and in case of all other action, such notice shall be given at least 15 days
prior to the taking of such proposed action. Failure to give such notice, or any
defect therein, shall not affect the legality or validity of any such action.
(j) Treasury Stock. For the purposes of this paragraph 5, the sale
or other disposition of any Common Stock theretofore held in the Corporation's
treasury shall be deemed to be an issuance thereof.
(k) Costs. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock upon conversion of any shares of Series A Preferred
Stock; provided that the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than that of the
holder of the shares of Series A Preferred Stock in respect of which such shares
are being issued.
(l) Reservation of Shares. The Corporation shall reserve at all times so
long as any shares of Series A Preferred Stock remain outstanding, free from
preemptive rights, out of its treasury stock (if applicable) or its authorized
but unissued shares of Common Stock, or both, solely for the purpose of
effecting the conversion of the shares of Series A Preferred Stock, sufficient
shares of Common Stock to provide for the conversion of all outstanding shares
of Series A Preferred Stock.
(m) Approvals. If any shares of Common Stock to be reserved for the purpose
of conversion of shares of Series A Preferred Stock require registration with or
approval of any governmental authority under any Federal or state law before
such shares may be validly issued or delivered upon conversion, then the
Corporation will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be. If, and so long as,
any Common Stock into which the shares of Series A Preferred Stock are then
convertible is listed on any national securities exchange, the Corporation will,
if permitted by the rules of such exchange, list and keep listed on such
exchange, upon official notice of issuance, all shares of such Common Stock
issuable upon conversion.
(n) Valid Issuance. All shares of Common Stock which may be issued upon
conversion of the shares of Series A Preferred Stock will upon issuance by the
Corporation be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof, and the
Corporation shall take no action which will cause a contrary result (including
without limitation, any action which would cause the Conversion Ratio to be less
than the par value, if any, of the Common Stock).
5. No Impairment. The Corporation will not, by amendment of its Certificate
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all the
provisions hereof and in the taking of all such action as may be necessary or
appropriate in order to protect the Series A Conversion Rights and Exchange
Right of the holders of the Series A Preferred Stock against impairment.
6. Notices.
Any notice required by the provisions hereof to be given to the holders of
shares of Series A Preferred Stock shall be deemed given on the date of service
if served personally on the party to whom notice is to be given, or on the date
of transmittal of services by facsimile transmission to the party to whom notice
is to be given, and addressed to each holder of record at his address appearing
on the books of the Corporation.
7. Voting Rights. Holders of Series A Preferred Stock shall have voting
rights equal to that of ten (10) Common Shares on all matters, including with
respect to the election of directors of the Corporation.
8. Protective Provisions
(a) Subject to the rights of any series of preferred stock that may from
time to time come into existence, so long as any shares of Series A Preferred
Stock are outstanding, the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of all of the holders
of at least a majority of the then-outstanding shares of Series A Preferred
Stock, voting separately as a series:
(i) Amend its Certificate of Incorporation so as to affect
adversely the shares of Series A Preferred Stock or any holder thereof
(including by creating any additional classes or series of preferred stock with
a liquidation preference, dividend or other rights senior to the Series A
Preferred
(ii) Change the rights of the holders of the Series A Prefered
Stock in any other respect.
8. Status of Converted Stock. In the event any shares of Series A Preferred
Stock shall be converted pursuant to Section hereof, the shares so converted or
exchanged shall be canceled and shall not be reissuable by the Corporation. The
Certificate of Incorporation of the Corporation shall be appropriately amended
to effect the corresponding reduction in the Corporation's authorized capital
stock."
IN WITNESS WHEREOF, said Digital Commerce International, Inc. has caused
this Certificate of Designation to be signed by Michael Kang, its Chief
Executive Officer and John W. Combs, its Secretary this _____ day of February,
2000.
Digital Commerce International, Inc.
By:
-------------------------------------
Michael Kang, Chief Executive Officer
By:
-------------------------------------
John W. Combs, Secretary
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
E Z DATA, INC.
INTO
EZ DATA SYSTEMS, INC.
E Z Data, Inc., a corporation organized and existing under the laws of the
State of New Hampshire,
DOES HEREBY CERTIFY:
FIRST: That this Corporation was incorporated on January 11, 1978, pursuant
to the laws of the State of New Hampshire, which permit a New Hampshire
corporation to merge with a corporation of another jurisdiction.
SECOND: That this Corporation owns all of the outstanding shares of capital
stock of EZ Data Systems, Inc., a corporation incorporated on July 16, 1982,
pursuant to the General Corporation Law of the State of Delaware.
THIRD: That this Corporation, by the votes annexed hereto as Exhibit A and
duly adopted by its Board of Directors at a special meeting held on August 19,
1982, determined to merge itself into said EZ Data Systems, Inc.
FOURTH: That the merger has been approved by the holders of a majority of
the outstanding stock of this Corporation entitled to vote thereon at a meeting
thereof duly called and held on September 17, 1982, and after 20 days' notice of
the purpose of the meeting mailed to each shareholder of this Corporation at his
address as it appears on the records of this Corporation.
IN WITNESS WHEREOF, said E Z Data, Inc. has caused this certificate to be
signed by James E. Cook, its President, and attested by Robert A. Shaines, its
Secretary, this 17th day of September, 1982.
E Z DATA, INC.
By___________________________________
James E. Cook, President
ATTEST:
By_________________________________
Robert A. Shaines, Secretary
<PAGE>
EXHIBIT A
E Z DATA, INC.
Votes Adopted at the Special Meeting of the Board
Directors held on August 19, 1982
- --------------------------------------------------------------------------------
VOTED: That the Corporation be merged into EZ Data Systems, Inc., a
Delaware corporation, and a wholly-owned subsidiary of the
Corporation, under and according to the provisions of Section
253 of the General Corporation Law of the State of Delaware
and the provisions of Section 78 of the New Hampshire Business
Corporation Act.
VOTED: That the Plan of Merger of E Z Data, Inc. into EZ Data
Systems, Inc. (the "Plan of Merger"), which is hereby
incorporated in this vote by reference and made a part hereof,
in the form presented to the meeting be, and it hereby is,
approved.
VOTED: That this Board of Directors, believing the same to be in the
best interests of the Corporation and its shareholders, does
hereby recommend that the shareholders of the Corporation
approve the Plan of Merger.
PLAN OF MERGER
OF
E Z DATA, INC.
INTO
EZ DATA SYSTEMS
Section 1. Merger; Surviving Corporation
E Z Data, Inc., a New Hampshire corporation ("EZNE"), shall merge with and
into EZ Data Systems, Inc., a Delaware corporation ("EZDEL") and wholly-owned
subsidiary of EZNH, pursuant to Section 253 of the General Corporation Law of
the State of Delaware and Section 78 of the New Hampshire Business Corporation
Act (the "NHCA"). EZDEL shall be the surviving corporation in the merger and is
sometimes hereinafter referred to as the Surviving Corporation.
Section 2. Effectiveness of the Merger
As soon as practicable after the approval of this Plan by the shareholders
of EXNH, Articles of Merger shall be prepared and filed with the Secretary of
State of New Hampshire and a Certificate of Ownership and Merger shall be
prepared and filed with the Secretary of State of Delaware. The merger shall
become effective upon the filing of said Articles and said Certificate,
whichever shall last occur (the "Effective Time"). The merger, from and after
the Effective Time, shall have all the effects provided by applicable Delaware
and New Hampshire law.
Section 3. Certificate of Incorporation, By-Laws, Directors, Officers
a. The Certificate of Incorporation of EZDEL as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation.
b. The by-laws of EZDEL as in effect immediately prior to the
Effective Time shall be the by-laws of the Surviving Corporation.
c. The persons who shall serve as directors of the Surviving
Corporation until
their successors are elected and qualified are as follows:
James E. Cook
Peter B. Garsoe
James E. Lambert
Robert A. Shaines
Harold S. Stone
d. The persons who shall serve as officers of the Surviving
Corporation until their successors are elected and qualified are as follows:
Chairman of the Board James E. Cook
President James E. Cook
Treasurer James E. Lambert
Vice President of Finance and
Administration James E. Lambert
Vice President of Marketing R. Gregory Wing
Vice President of Engineering G. Venkatesh
Secretary Robert A. Shaines
Assistant Secretary James E. Lamberg
Section 4. Manner and Basis of Converting Shares
a. At the Effective Time, (i) each share of common stock without
par value of EZNH ("EZNH Common Stock") outstanding immediately prior to the
Effective Time (other than shares of EZNH Common Stock in respect of which
dissenters' rights shall properly have been exercised in accordance with the
NHCA) shall be virtue of the merger and without further action be converted into
and shall become 5,000 shares of the common stock, $.01 par value, of EZDEL
("EZDEL Common Stock"), and any fraction of a share of EZDEL Common Stock which
would otherwise be issuable to any stockholder after such conversion shall be
increased to one whole share of EZDEL Common Stock, and (ii) each share of EZDEL
Common Stock outstanding immediately prior to the Effective Time, all of which
are held by EZNH, shall, by virtue of the merger and without further action, be
cancelled and extinguished.
b. At the Effective Time, each share of EZNH Common Stock
authorized but unissued immediately prior to the Effective Time shall, by virtue
of the merger and without further action, be cancelled and extinguished.
c. Each outstanding option to purchase shares of EZNH Common Stock
(an "Old Option") shall be converted into an option to purchase that number of
shares of EZDEL Common Stock equal to the number of shares covered by the Old
Option multiplied by 5,000, at a per share exercise price equal to the per share
exercise price of the Old Option divided by 5,000.
d. After the Effective Time, each holder of an outstanding
certificate representing shares of EZNH Common Stock (other than shares of EZNH
Common Stock in respect of which dissenters' rights shall properly have been
exercised in accordance with the NHCA) shall surrender the same to EZDEL, and
each such holder shall be entitled upon such surrender to receive in exchange
stock certificate(s) representing the number of shares of EZDEL Common Stock
into which shares of EZNH Common Stock have been converted. Until so
surrendered, certificate(s) purporting to represent such previously issued
shares of EZNH Common Stock shall be deemed and treated for all purposes as
representing the shares of EZDEL Common Stock into which such shares of EZNH
haveen converted. No cash or stock dividend payable,k and no certificate
representing split shares deliverable in the event that any such split shal be
declared, to holders of record of EZDEL Common Stock as of any date after the
Effective Time shall be paid or delivered to the holder of any certificate which
before the Effective Time represented EZNH Common Stock, unless and until such
certificate is surrendered as hereinabove provided, but upon such surrender
there shall be paid or delivered to the registered holder of record of the
certificate for EZDEL Common Stock issued in exchange therefore the amount of
any such cash dividend or a certificate for the whole number of shares of EZDEL
Common Stock resulting from any such stock dividend or split (without interest
thereon) which shall have theretofore become payable or deliverable with respect
to such EZDEL Common Stock. The holders of record of EZDEL Common Stock for
which shares of EZNH Common Stock have been exchanged, who have not physically
surrendered the certificate representing such shares of EZNH Common Stock, shall
not be entitled to exercise any rights to vote with respect to such shares until
such certificate is surrendered as hereinabove provided. All shares of EZDEL
Common Stock into which shares of EZNH Common Stock shall have been converted
pursuant to this Plan shall be deemed to have been issued in full satisfaction
of all rights pertaining to such converted shares. When the merger becomes
effective, the holders of certificates representing EZNH Common Stock
outstanding prior to the Effective Time shall cease to have any rights with
respect to such stock and their sole rights shall be with respect to the EZDEL
Common Stock into which their shares of EZNH Common Stock are to be converted by
the merger. Upon the Effective Time, the stock transfer books of EZNH shall be
closed and no transfer of shares of EZNH Common Stock outstanding immediately
prior to the Effective Time shall thereafter be made or consummated.
Section 5. Signing Authority
If at any time after the Effective Time the Surviving Corporation shall
consider it to be advisable that any further conveyances, agreements, documents,
instruments and assurances of law or any other things are necessary or desirable
to vest, perfect, confirm or record in the Surviving Corporation the title to
any property, rights, assets, privileges, immunities, powers and franchises of
ezne or otherwise to carry out the provisions of this Plan, the proper directors
and officers of EZNH last in office shall execute and deliver, upon the
Surviving Corporation's request, any and all proper conveyances, agreements,
documents, instruments and assurances of law, and do all things necessary or
proper to vest, perfect or confirm title to such property, rights, assets,
privileges, immunities, powers and franchises in the Surviving Corporation, and
otherwise to carry out the provisions of this Plan, and the proper directors and
officers of the Surviving Corporation are fully authorized in the name of EZNH
or otherwise to take any and all such action.
Section 6. Termination
This Plan may be terminated and the merger contemplated herein may be
abandoned at any time before the Effective Time by vote of the Board of
Directors of EZNH, regardless of whether or not this Plan shall have been
approved by the shareholders of EZNH.
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
SYSTEMS ASSURANCE CORPORATION
INTO
UNIDATA SYSTEMS,INC.
Pursuant to Section 253
of the General Corporation Law
of the State of Delaware
- --------------------------------------------------------------------------------
Unidata Systems, Inc., a Delaware corporation ("Unidata"), hereby certifies
as follows:
FIRST: Unidata was incorporated under the General Corporation Law of the
State of Delaware (the "General Corporation Law") on July 16, 1982.
SECOND: Unidata owns at least ninety percent (90%) of the outstanding
shares of Systems Assurance Corporation ("Systems"), a corporation incorporated
under the General Corporation Law of the State of Delaware on February 23, 1984.
THIRD: The merger contemplated by this Certificate of Ownership and Merger
is permitted by Section 253 of the General Corporation Law.
FOURTH: Unidata, by resolutions of its Board of Directors, duly adopted by
unanimous written consent dated February 11, 1984, which resolutions are
attached hereto as Exhibit 1 and which have not been amended or rescinded and
are now in full force and effect, determined to and did merge Systems with and
into Unidata.
IN WITNESS WHEREOF, Unidata has caused this Certificate to be signed by
Ronald A. Grant, its President, and attested to by Michael S. Moroney, its
Secretary, this 9th day of February, 1984.
UNIDATA, INC.
By:_______________________________________
President
Attest:
By:______________________________
Secretary
EXHIBIT 1
WHEREAS, Unidata Systems, Inc., a Delaware corporation ("Unidata"), owns in
excess of ninety percent (90%) of the outstanding shares of common stock of
Systems Assurance Corporation, a Delaware corporation ("Systems"), which common
stock is the only class of stock with shares outstanding; and
WHEREAS, Unidata wishes to merge Systems into Unidata;
NOW, THEREFORE, be it:
RESOLVED that Systems be merged into Unidata pursuant to Section 253 of the
General Corporation Law of the State of Delaware ("Merger"), said Merger to
become effective upon the filing of a duly executed and acknowledged Certificate
of Ownership and Merger with the Secretary of State of Delaware (the date and
time of such filing being hereinafter referred to as the "Effective Time of the
Merger");
FURTHER RESOLVED that the terms and conditions of the Merger are as
follows:
9. Systems will Merge with and into Unidata;
10. At the Effective Time of the Merger, Unidata shall become the surviving
corporation (the "Surviving Corporation") and shall acquire all of the assets of
and assume all of the liabilities and obligations, if any, of Systems;
11. At the Effective Time of the Merger, the corporate name of the
Surviving Corporation shall be changed to Systems Assurance Corporation;
12. The outstanding shares of common stock of Systems which shall be issued
and outstanding immediately prior to the Effective Time of the Merger shall, by
virtue of the Merger and without any action on the part of the owner thereof, be
cancelled and cease to exist;
13. After the Effective Time of the Merger, the shares of common stock of
Systems held in the treasury of Systems will be cancelled and cease to exist.
FURTHER RESOLVED that at the Effective Time of the Merger, the Surviving
Corporation shall thereupon and thereafter possess all of the rights,
privileges, powers and franchises, and be subject to all of the restrictions,
disabilities and duties of each of the constituent corporations, and all
property and things in action belonging to each of the constituent corporations
shall be vested in the Surviving Corporation without further act or deed, and
all debts, liabilities and duties of the respective constituent corporations, if
any, shall thenceforth attach to the Surviving Corporation (not pursuant to
contract but by operation of law), all in the manner and to the full extent
provided by the General Corporation Law of the State of Delaware.
FURTHER RESOLVED that as of the Effective Time of the Merger the assets and
liabilities of Systems shall be taken up or continued, as the case may be, on
the books of the Surviving Corporation and the surplus of the constituent
corporations which was available for the payment of dividends or of other
distributions to stockholders immediately prior to the Merger shall continue to
be available to the Surviving Corporation for such payments to the same extent
as before the Merger, except as otherwise required by law.
FURTHER RESOLVED that the proper officers of Unidata be, and they hereby
are, directed to make, execute and acknowledge a Certificate of Ownership and
Merger which sets forth a copy of the resolutions to merge Systems into Unidata
and the date of the adoption thereof,k to cause the same to be filed with the
Secretary of State of the State of Delaware, to cause a certified copy thereof
to be recorded in the Office of the Recorder of Deeds of New Castle County and
to do all acts and things whatsoever, whether within or without the State of
Delaware, which may be in any wise necessary or proper to effect said Merger.
FURTHER RESOLVED that the proper officers of the Surviving Corporation be,
and they hereby are, authorized and directed to take any action to execute and
deliver any and all letters, certificates, documents or other writing that such
officer or officers may deem necessary, appropriate or desirable in order to
assume the obligations and liabilities, if any, of Systems and to effectuate
fully the Merger and to carry out the purposes and intentions of the foregoing
resolutions.
FURTHER RESOLVED that the Certificate of Incorporation and By-Laws of
Unidata shall, on and after the effective time of Merger, be the Certificate of
Incorporation and By-Laws of the Surviving Corporation, until amended as
provided by law, and the corporate name of Unidata shall, on and after the
effective time of the Merger, be changed to Systems Assurance Corporation.
FURTHER RESOLVED that the directors and officers of Unidata shall, on and
after the effective time of the Merger, be the directors and officers of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation or as otherwise provided
by law.
FURTHER RESOLVED that anything herein or elsewhere to the contrary
notwithstanding, the Merger may be terminated and abandoned by the Board of
Directors of Systems or Unidata at any time prior to the filing of the
Certificate of Ownership and Merger with the Secretary of State of the State of
Delaware.
ACQUISITION AGREEMENT
This Agreement is entered into by, between and among systems Assurance
Corporation, a corporation organized under the laws of the State of Delaware
(hereinafter the "Purchaser"), Dean H. Becker, the President of the Purchaser
entering into this Agreement in his personal capacity, and the equity owners
("the Shareholders") of Digital Commerce Inc., a Nevis corporation (hereinafter
"the Company").
WITNESSETH:
WHEREAS, Purchaser wishes to acquire, and Shareholders are willing to sell,
all of the outstanding equity ownership of the Company in exchange for common
stock of the Purchaser;
NOW, THEREFORE, in consideration of the mutual terms and covenants set
forth herein, Purchaser and Shareholders approve and adopt this Acquisition
Agreement and mutually covenant and agree with each other as follows:
ARTICLE I
Shares to be Transferred and Shares to be Issued
1.1 a. On the closing date the Shareholders shall transfer to Purchaser
certificates representing the equity of the Company described in Schedule "A",
attached hereto and incorporated herein, which in the aggregate shall represent
all of the issued and outstanding shares of the Company (the "Shares"). Such
certificates shall be duly endorsed to the Purchaser by Shareholders or
accompanied by duly executed certificate powers transferring to the Purchaser
with signatures guaranteed. Alternatively, the Shareholders may assign their
rights to the Shares if the Shares have not been physically issued in the form
of certificates.
b. In exchange for the transfer of the equity of the Company pursuant to
sub-section 101a. hereof, Purchaser shall on the closing date and
contemporaneously with such transfer of the equity of the Company to it by the
Shareholders, or rights thereto, issue and deliver to the Shareholders: (i)
5,000,000 of Common shares of the Purchaser in accordance with Schedule "B"
hereof; and (ii) 500,000 convertible Preference shares in accordance with
Schedule "C" hereof.
1.2 The parties intend that this acquisition and exchange of equity is to
be an exchange/transaction pursuant to Section 368(a)(1)(b) of the Internal
Revenue Code of the United States.
ARTICLE II
Representations and Warranties of Shareholders
2.1 Ownership of Equity.
Shareholders are the record owners and holders of the number of fully paid
and non-assessable Shares of the Company listed in Schedule "A" hereto, as of
the date hereof and will continue to own such Shares of the Company until the
delivery thereof to the Purchaser on the closing date and all such Shares are or
will be on the closing date owned free and clear of all liens, encumbrances,
charges and assessments of every nature and subject to no restrictions with
respect to transferability. The Shareholders will have full power and authority
to assign and transfer their Shares of the Company in accordance with the terms
hereof.
ARTICLE III
Representations and Warranties of the Company and its Shareholders
3.1 Capitalization.
Except for this Agreement, there are no outstanding options, contracts,
calls, commitments, agreements or demands of any character relating to the
Shares of the Company owned by its Shareholders.
3.2 Organization and Authority.
a. The Company currently is a corporation duly organized, validly existing
and in good standing under the laws of the Island of Nevis, with all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted, is duly qualified and in good
standing in every jurisdiction in which the property owned, leased or operated
by it, or the nature of the business conducted by it, makes such qualification
necessary to avoid material liability or material interference in its business
operations, and is not subject to any agreement, commitment or understanding
which restricts or may restrict the conduct of its business in any jurisdiction
or location.
b. The outstanding Shares of the Company are legally and validly issued,
fully paid and non-assessable.
c. The Company does not own five percent (5%) or more of the outstanding
stock of any corporation except as set out in the disclosure statement completed
by the Company and attached as Schedule "D" (the "Company Disclosure
Statement.").
d. The minute book of the Company made available to Purchaser contains
complete and accurate records of all meetings and other corporate actions of the
Shareholders and the directors (and any committee thereof) of the Company.
e. The Company Disclosure Statement contains a list of the directors,
officers, and Shareholders of Company and copies of the Certificates of
Incorporation and Bylaws currently in effect of the Company.
f. The execution and delivery of this Agreement does not, and the
consummation of the transaction contemplated hereby will not, subject to the
approval and adoption by the Shareholders of the Company, violate any provision
of the certificate/articles of incorporation or bylaws of the Company, or any
provisions thereof, or result in the acceleration of any obligation under, any
mortgage, lien, lease, agreement, instrument, court order, arbitration award,
judgment or decree to which the Company is a party, or by which it is bound, and
will not violate any other restriction of any kind or character to which it is
subject.
g. The authorized capital of the Company is ten (10) shares of stock, of
which ten (10) share shall be outstanding at the time of the acquisition.
3.3 Financials.
a. Financial statements (hereafter "financial statements") of the Company
will be delivered by Company to the Purchaser within thirty days of this
Agreement. Said financial statements are true and correct in all material
respects and present an accurate and complete disclosure of the financial
condition of the Company as of its date and for the periods covered.
b. All accounts receivable, if any, (net of reserves for doubtful accounts)
of the Company shown on the books of account on the statement date and as
incurred in the normal course of business since that date, are collectible in
the normal course of business.
c. The Company has good and marketable title to all of its assets, business
and properties including, without limitation, all such properties reflected in
the balance sheet as of the statement date except as disposed of in the normal
course of business, free and clear of any mortgage, lien, pledge, charge, claim
or encumbrance, except as shown on said balance sheet as of the statement date
and, in the case of real properties except for rights-of-way and easements which
do not adversely affect the use of such property.
d. All currently used property and assets of the Company, or in which it
has an interest, or which it has in possession, are in good operating condition
and repair subject only to ordinary wear and tear.
3.4 Changes Since the Statement Date. Since the financial statement date,
except as disclosed in the Company disclosure Statement, there will not have
been any material negative change in the financial position or assets of the
Company.
3.5 Liabilities. There are no material liabilities of the Company, whether
accrued, absolute, contingent or otherwise, which arose or relate to any
transaction of the Company, its agents or servants occurring prior to the
statement date, which are not disclosed by or reflected in said financial
statements, except as disclosed in the Company Disclosure Statement. There are
no such liabilities of the Company which have arisen or relate to any
transaction of the Company, its agents or servants, occurring since the
statement date, other than normal liabilities incurred in the normal conduct of
the business of the Company, and none of which have a material adverse effect on
the business or financial condition of the Company, except as disclosed in the
Company Disclosure Statement. As of the date hereof, there are no known
circumstances, conditions, happenings, events or arrangements, contractual or
otherwise, which may hereafter give rise to liabilities, except in the normal
course of business of the Company, except as disclosed in the Company Disclosure
Statement.
3.6 Taxes. All federal, provincial, county and local income, ad valorem,
excise, profits, franchise, occupation, property, sales, use gross receipts and
other taxes (including any interest or penalties relating thereto) and
assessments which are due and payable have been duly reported, fully paid and
discharged as reported by the Company, and there are no unpaid taxes which are,
or could become a lien on the properties and assets of the Company, except as
provided for in the financial statements of their date, or have been incurred in
the normal course of business of the Company since that date. All tax returns of
any kind required to be filed have been filed and the taxes paid or accrued.
3.7 Accuracy of All Statements Made by The Company. No representation or
warranty by the Company and Shareholders in this Agreement, nor any statement,
certificate, schedule or exhibit hereto furnished or to be furnished by or on
behalf of the Shareholders pursuant to this Agreement, nor any document or
certificate delivered to Purchaser pursuant to this Agreement or in connection
with actions contemplated hereby, contains or shall contain any untrue statement
of material fact or omits or shall omit a material fact necessary to make the
statement contained therein not misleading.
ARTICLE IV
Representations and Warranties of Purchaser
The Purchaser and Dean H. Becker, acting in his personal capacity,
represent and warrant as follows:
4.1 Organization and Authority.
The Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full power and authority
to enter into and perform the transactions contemplated by this Agreement, and
with all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted, is duly
qualified and in good standing in every jurisdiction in which the property
owned, leased or operated by it, or the nature of the business conducted by it,
makes such qualification necessary to avoid material liability or material
interference in its business operations, and is not subject to any agreement,
commitment or understanding which restricts or may restrict the conduct of its
business in any jurisdiction or location.
a. The Purchaser is currently not operating any business.
b. The Purchaser does not own five percent (5%) or more of the outstanding
stock of any corporation.
c. The minute book of the Purchaser made available to the Company and
Shareholders contains complete and accurate records of all meetings and other
corporate actions of the shareholders and the Board of Directors (and any
committee thereof) of the Purchaser.
d. The disclosure statement prepared by the Purchaser and attached as
Schedule "E" (the "Purchaser's Disclosure Statement") contains a list of the
officers, directors and shareholders of the Purchaser and copies of the articles
of incorporation and by-laws currently in effect of the Purchaser.
e. The execution and delivery of this Agreement does not, and the
consummation of the transaction contemplated hereby will not, violate any
provision of the certificate/articles of incorporation or bylaws of the
Purchaser, or result in a default or the acceleration of any obligation under,
any mortgage, lien, lease, agreement, instrument, court order, arbitration
award, judgment or decree to which the Purchaser is a party, or by which it is
bound, and will not violate any other restriction of any kind or character to
which it is subject.
f. The authorized capital stock of the Purchaser consists of: (i) thirty
million (30,000,000) Common shares, each with a par value of $.001, of which ***
(***) shares of such stock will be issued and outstanding at the time of closing
(exclusive of the shares issued pursuant to the acquisition as set out in
Schedule "B"); and (ii) *** (***) Preferred shares, $.001 par value, of which
500,000 (five hundred thousand) shares of class A stock will be issued and
outstanding at the time of closing (inclusive of the shares issued pursuant to
the acquisition as set out in Schedule "C"). As at the time of closing, all such
issued share capital will have been duly and validly allotted and issued and
will be outstanding as fully paid and non-assessable shares in the capital of
the Purchaser. Except for this Agreement, no options, warrants or other rights
to purchase shares or other securities of the Purchaser have been authorized or
agreed to be issued or are outstanding.
g. There is no suit, action, litigation, arbitration proceeding or
governmental proceeding, including appeals and applications for review, in
progress, pending or threatened against or relating to or affecting the
Purchaser or affecting its business which might materially and adversely affect
the properties, business, future prospects or financial condition of the
Purchaser, and there is not presently outstanding against the Purchaser any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator.
h. Except to the extent reflected in or reserved against in the Purchaser's
financial statements attached to the Purchaser's Disclosure Statement, such
financial statements comprising (i) financial statements dated October 31, 1998
and audited by certified public accountants, and (ii) unaudited financial
statements for the period beginning November 1, 1998 and ending February 29,
1999 and examined and certified by certified public accountants (the
"Purchaser's Financial Statements"), the Purchaser is not liable for any
federal, state, provincial or municipal or local taxes, assessments or other
imposts in respect of its income, business or property or for the payment of any
tax installment due in respect of its current taxation year and, except as
aforesaid, no such taxes, assessments, imposts or penalties are required to be
reserved against. The Purchaser is not, except in respect of the current
taxation year, required to file or in default in filing any tax returns or
reports, including, without limitation, any returns or reports covering any of
the aforementioned taxes. Federal income tax assessments have been issued to the
Purchaser covering all past periods through the fiscal year ended October 31,
1998 (and such assessments, if any amounts were owing in respect thereof, have
been paid) and only the fiscal years subsequent to such year remain open for
reassessment of additional taxes.
i. Except as set out in the Purchaser's Disclosure Statement, the Purchaser
is not a party to or bound by any presently existing oral or written contract or
commitment which obligates the Purchaser to make expenditures or exposes the
Purchaser to liabilities in excess of $10,000 or which imposes obligations on
the Purchaser for a period of 30 days or more, including without limitation,
liens, charges or encumbrances, or equipment or other personal property leases
and agreements. The contracts and agreements listed in the Purchaser's
Disclosure Statement are all in full force and effect unamended and no material
default exists in respect thereof on the part of any of the parties thereto.
Such contracts and agreements include all the presently outstanding material
contracts entered into by the Purchaser in the course of carrying on its
business and all quotations, orders or tenders for such contracts which remain
open for acceptance. The Purchaser has the capacity, including the necessary
personnel, equipment and supplies, to perform all its obligations thereunder.
j. There are no written contracts of employment entered into with any
employees employed by the Purchaser.
k. The Purchaser has not given or agreed to give, and is not a party or
bound by, any guarantee of indebtedness or other obligations of third parties.
l. Liabilities. There are no material liabilities of the Purchaser, whether
accrued, absolute, contingent or otherwise, which arose or relate to any
transaction of the Purchaser, its agents or servants occurring prior to the
Purchaser Financial Statement date, which are not disclosed by or reflected in
said financial statements, except as disclosed in the Purchaser" Disclosure
Statement. There are no such liabilities of the Purchaser which have arisen or
relate to any transaction of the Purchaser, its agents or servants, occurring
since the last date covered by the Purchaser" Financial Statements, other than
normal liabilities incurred in the normal conduct of the business of the
Purchaser, and none of which have a material adverse effect on the business or
financial condition of the Purchaser, except as disclosed in the Purchaser's
Disclosure Statement. As of the date hereof, there are no known circumstances,
conditions, happenings, events or arrangements, contractual or otherwise, which
may hereafter give rise to liabilities, except in the normal course of business
of the Purchaser, except as disclosed in the Purchaser's Disclosure Statement.
4.02 Performance of This Agreement. The execution and performance of this
Agreement and the issuance of stock contemplated hereby have been duly and
properly authorized by the board of directors of Purchaser.
4.03 Financials.
a. True copies of the Purchaser's Financial Statements as described in
subsection 4.01(h) are attached to the Purchaser's Disclosure Statement. The
Purchaser's Financial Statements are true and correct in all material respects
and present an accurate and complete disclosure of the financial condition and
earnings of the Purchaser for the periods covered, in accordance with generally
accepted accounting principles applied on a consistent basis.
b. All accounts receivable, if any, (net of reserves for doubtful accounts)
of the Purchaser shown on the Purchaser's Financial Statements, and as incurred
in the normal course of business since that date, are collectible in the normal
course of business.
c. The Purchaser has good and marketable title to all of its assets,
business and properties including, without limitation, all such properties
reflected in the Purchaser's Financial Statements, except as disposed of in the
normal course of business, free and clear of any mortgage, lien, pledge, charge,
claim or encumbrance, except as shown in the Purchaser's Financial Statements,
and, in the case of real properties, except for rights-of-way and easements
which do not adversely affect the use of such property.
4.04 Absence of Change. Since the latest date covered by the Purchaser's
Financial Statements there has not been:
a. any change in the condition or operations of the business, assets or
financial condition of the Purchaser other than changes in the ordinary and
normal course of business, none of which has been materially adverse; or
b. any damage, destruction or loss, labour trouble or other event,
development or condition of any character (whether or not covered by insurance)
materially and adversely affecting the business, assets, properties or future
prospects of the Purchaser.
4.05 Absence of Unusual Transactions. Since the latest date covered by the
Purchaser's Financial Statements the Purchaser has not:
a. transferred, assigned, sold or otherwise disposed of any of the assets
shown in the Purchaser's Disclosure Statement and except unsecured current
obligations and liabilities incurred in the ordinary and normal course of
business;
b. incurred or assumed any obligation or liability (fixed or contingent),
except those listed in the Purchaser's Disclosure Statement and except unsecured
current obligations and liabilities incurred in the ordinary and normal course
of business;
c. issued or sold any shares in its capital stock or any warrants, bonds,
debentures or other corporate securities of the Purchaser or issued, granted or
delivered any right, option or other commitment for the issuance of any such or
other securities (other than as contained in this Agreement);
d. discharged or satisfied any lien or encumbrance, or paid any obligation
or liability (fixed or contingent) other than current liabilities included in
the Purchaser's Financial Statements, current liabilities incurred since the
date thereof in the ordinary and normal course of business and liabilities
required to be satisfied hereunder prior to the Closing Time;
e. declared or made any payment of any dividend or other distribution in
respect of its capital or purchased or redeemed any of the shares thereof or
split; consolidated or reclassified any such shares in its capital, except as
set out in the Purchaser's Disclosure Statement;
f. suffered an operating loss or any material extraordinary loss, or waived
any rights of substantial value, or entered into any material commitment or
transaction not in the ordinary and usual course of business;
g. amended or changed or taken any action to amend or change its charter or
by-laws, except as set out in the Purchaser's Disclosure Statement;
h. made any general wage or salary increases in respect of personnel which
it employs;
i. mortgaged, pledged, subjected to lien, granted a security interest in or
otherwise encumbered any of its assets or property, whether tangible or
intangible; or
j. authorized or agreed or otherwise have been committed to do any of the
foregoing.
4.06 Accuracy of All Statements Made by Purchaser. No representation or
warranty by the Purchaser in this Agreement, nor any statement, certificate,
schedule or exhibit hereto furnished or to be furnished by the Purchaser
pursuant to this Agreement, nor any document or certificate delivered to the
Company or the Shareholders pursuant to this Agreement or in connection with
actions contemplated hereby, contains or shall contain any untrue statement of
material fact or omits or shall omit a material fact necessary to make the
statement contained therein not misleading to a prospective purchaser of the
shares of the Purchaser seeking full information as to the Purchaser and its
properties, business and affairs.
4.07 No Covenant as to Tax Consequences. It is expressly understood and
agreed that neither Purchaser nor its officers or agents has made any warranty
or agreement, expressed or implied, as to the tax consequences of the
transactions contemplated by this Agreement or the tax consequences of any
action pursuant to or growing out of this Agreement.
4.08 Securities Matters. The Purchaser is not aware of any formal or
informal investigation of the Purchaser or its securities by any governmental or
non-governmental regulatory agency.
ARTICLE V
Additional Covenants
5.01 Access to Information. The Purchaser and the Company shall have full
access during normal business hours to all properties, books, records, contracts
and documents of each other, and shall furnish or cause to be furnished to each
other all information with respect to their respective affairs and business as
the other may reasonably request.
5.02 Actions Prior to Closing. From and after the date of this Agreement
and until the closing date, the Purchaser and the Company shall not materially
alter their respective business or affairs except as contemplated by this
Agreement.
5.03 Limitation of Subsequent Corporation Actions. It is expressly
understood and agreed that the Company, the Shareholders, and their affiliates,
will use their best efforts to ensure that for a period of eighteen months:
a. There shall be no reverse split of the Company's common stock;
b. that the assets of the Company shall remain in the Company as part of
its business operations;
c. that the Company will not issue shares for any consideration less than
$2 per share.
ARTICLE VI
Conditions Precedent to Purchaser's Obligations
Each and every obligation of Purchaser to be performed on the closing date
shall be subject to the satisfaction of the Purchaser of the following
conditions (each of which is hereby acknowledged to be inserted for the
exclusive benefit of the Purchaser and may be waived by it in whole or in part):
6.01 Truth of Representations and Warranties. The representations and
warranties made by the Company and Shareholders in this Agreement or given on
its behalf hereunder shall be substantially accurate in all material respects on
and as of the closing date with the same effect as though such representations
and warranties had been made or given on and as of the closing date.
6.02 compliance with Covenants. Shareholders shall have performed and
complied with all obligations under this Agreement which are to be performed or
complied with by them prior to or on the closing date, including the delivery of
the closing documents specified hereafter.
6.03 Absence of Suit. No action, suit or proceedings before any court or
any governmental or regulatory authority shall have been commenced or threatened
and, no investigation by any governmental or regulatory authority shall have
been commenced, against the Shareholders, the Company or any of the affiliates,
associates, officers or directors of any of them, seeking to restrain, prevent
or change the transactions contemplated hereby, or questioning the validity or
legality of any such transactions, or seeking damages in connection with any of
such transactions.
6.04 Receipt of Approvals, Etc. All approvals, consents and/or waivers that
are necessary to effect the transactions contemplated hereby shall have been
received.
6.05 No Material Adverse Change. As of the closing date there shall not
have occurred any material adverse change which materially impairs the ability
of the Company to conduct its business or the earning power thereof on the same
basis as in the past.
6.06. Accuracy of Financial Statement. Purchaser and its representatives
shall be satisfied as to the accuracy of all balance sheets, statements of
income and other financial statements of the Company furnished to Purchaser.
6.07 Proceedings and Instruments Satisfactory: Certificates. All
proceedings, corporate or otherwise, to be taken in connection with the
transactions contemplated by this Agreement shall have occurred and all
appropriate documents incident thereto as Purchaser may request shall have been
delivered to Purchaser. The Company and the Shareholders shall have delivered
certificates in such detail as Purchaser may request as to compliance with the
conditions set forth in this Article.
ARTICLE VII
Conditions Precedent to Obligations of the Company and Shareholders
Each and every obligation of the Company and Shareholders to be performed
on the closing date shall be subject to the satisfaction prior thereto of the
following conditions (each of which is hereby acknowledged to be inserted for
the exclusive benefit of the Purchaser and may be waived by it in whole or in
part):
7.01 Truth of Representations and Warranties. The representations and
warranties or Purchaser and Dean H. Becker, contained in this Agreement shall be
true at and as of the closing date as though such representations and warranties
were made at and as of the transfer date.
7.02 Purchaser's Compliance with Covenants. Purchaser shall have performed
and complied with its obligations under this Agreement which are to be performed
or complied with by it prior to or on the closing date.
7.03 Absence of Suit. No action, suit or proceedings before any court or
any governmental or regulatory authority shall have been commenced or threatened
and, no investigation by any governmental or regulatory authority shall have
been commenced against Purchaser, or any of the affiliates, associates, officers
or directors of the Purchaser seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with any of such
transactions.
7.04 Receipt of Approvals, Etc. All approvals, consents and/or waivers that
are necessary to effect the transactions contemplated hereby shall have been
received.
7.05 No Material Adverse Change. As of the closing date there shall not
have occurred any material adverse change which materially impairs the ability
of the Purchaser to conduct its business or the earning power thereof on the
same basis as in the past.
7.06 Accuracy of Financial Statements. The Company and the Shareholders
shall be satisfied as to the accuracy of all balance sheets, statements of
income and other financial statements of the Purchaser furnished to the Company
herewith.
7.07 Proceedings and Instruments Satisfactory; Certificates. All
proceedings, corporate or otherwise, to be taken in connection with the
transactions contemplated by this Agreement shall have occurred and all
appropriate documents incident thereto as Company may request shall have been
delivered to the Company. The Purchaser shall have delivered certificates in
such detail as the Shareholders may request as to compliance with the conditions
set forth in this Article.
7.08 Settlement of Claims. The Purchaser shall deliver to the Company and
the Shareholders, and the Company and the Shareholders shall be satisfied with,
the following:
a. Documentation evidencing the settlement and release of the Bureau of
Land Management claim identified in the Purchaser's Financial Statements;
b. Documentation evidencing the settlement and release of the directors'
fees claim identified in the Purchaser's Financial Statements;
c. Documentation evidencing the Purchaser's discharge from bankruptcy.
7.09 Legal Opinion. The Company and the Shareholders shall have received an
opinion dated the date of Closing, in form and substance satisfactory to them,
acting reasonably, from counsel for the Purchaser, confirming the matters
warranted in the first paragraph of Section 4.01 and the following subsections
of Section 4.01:(c), (d), (e), and (f), and in Section 4.02 hereof and such
other matters as the Vendor may reasonably request, provided that, insofar as
the opinions expressed with respect to such matters are based on matters of
fact, such opinions may be based upon certificates of public officials and
officers of the Purchaser and such other evidence as such counsel may reasonably
deem appropriate and, as to matters involving the laws of jurisdictions in which
such counsel is not qualified to practice, on opinions of recognized local
counsel in such jurisdictions.
ARTICLE VIII
Indemnification
8.01 The Company shall indemnify Purchaser for any loss, cost, expense or
other damage suffered by Purchaser resulting from, arising out of, or incurred
with respect to the falsity or the breach of any representation, warranty or
covenant made by the Company herein, and any claims arising from the operations
of the Company prior to the closing date. Purchaser shall indemnify and hold the
Company and Shareholders harmless from and against any loss, cost, expense or
other damage (including, without limitation, attorneys' fees and expenses)
resulting from, arising out of, or incurred with respect to, or alleged to
result from, arise out of or have been incurred with respect to, the falsity or
the breach of any representation, covenant, warranty or agreement made by
Purchaser herein and any claims arising from the operations of the Purchaser
prior to the closing date.
ARTICLE IX
Security Act Provisions
9.01 Restrictions on Disposition of Shares. Shareholders covenant and
warrant that the shares received are acquired for their own accounts and not
with the present view towards the distribution thereof and will not dispose of
such shares except (i) pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or (ii) in any other transaction which, in
the opinion of counsel, acceptable to Purchaser, is exempt from registration
under the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission thereunder. In order to effectuate the
covenants of this sub-section, an appropriate endorsement will be placed upon
each of the certificates of stock of the Purchaser at the time of distribution
of such shares pursuant to this Agreement, and stop transfer instructions shall
be placed with the transfer agent for the securities.
9.02 Notice of Limitation Upon Disposition. Each Shareholder is aware that
the shares distributed pursuant to this Agreement will not have been registered
pursuant to the Securities Act of 1933, as amended; and, therefore, under
current interpretations and applicable rules, the shareholder will probably have
to retain such shares for a period of at least one year and at the expiration of
such one year period sales may b confined to brokerage transactions of limited
amounts requiring certain notification filings with the Securities and Exchange
Commission and such disposition may be available only if the Purchaser is
current in its filings with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, or other public disclosure requirements, and
the other limitations imposed thereby on the disposition of shares of the
Purchaser. Additionally, "affiliates" owning shares will be subject to
additional restrictions limiting sales.
9.03 Limited Public Market for Common Shares. Each Shareholder acknowledges
that the common shares being issued pursuant to this agreement currently has a
limited public market in which the shares may be liquidated and there is no
assurance that such public market will grow or develop.
ARTICLE X
Closing
10.01 Time. The closing of this transaction ("closing") shall be effective
June 15, 1999, or such other date as the parties may agree in writing. Such date
is referred to in this agreement as the "closing date." Provided, however, that
additional documents necessary to complete the transaction may be executed and
provided subsequent to the closing date.
10.02 Documents to be Delivered by Shareholders. At the closing
Shareholders shall deliver to Purchaser the following documents:
a. Certificates or assignments for all Shares of ownership of the Company
in the manner and form required by sub-section 1.01 hereof.
b. A certificate signed by the directors of the Company that the
representations and warranties made by the Company in this Agreement are true
and correct on and as of the closing date with the same effect as though such
representations and warranties had been mad eon or given on and as of the
closing date and that Shareholders have performed and complied with all of their
obligations under this Agreement which are to be performed or complied with by
or prior to or on the closing date.
c. A copy of the Bylaws of the Company certified by its secretary and a
copy of the Articles of Incorporation of the Company certified by the applicable
governmental authority.
d. Certificates or letters from Shareholders evidencing the receipt of the
Common and Preference Shares of the Purchaser in accordance section 1.01 of this
Agreement and their understanding of the restrictions thereunder.
e. Such other documents of transfer, certificates of authority and other
documents as Purchaser may reasonably request.
10.03 Documents to be Delivered by Purchaser. At the closing Purchaser
shall deliver to Shareholders the following documents;
a. Certificates for the number of shares of stock of Purchaser as
determined in Article 1 hereof.
b. A certified copy of the duly adopted resolutions of the Board of
Directors of Purchaser authorizing or ratifying the execution and performance of
this Agreement and authorizing or ratifying the acts of its officers and
employees in carrying out the terms and provisions hereof..
c. A copy of the Bylaws of the Purchaser certified by its current secretary
and a copy of the Articles of Incorporation of the Purchaser certified by the
applicable governmental authority.
d. A certificate signed by the current directors and officers of the
Purchaser that the representations and warranties made by the Purchaser and Dean
H. Becker in this Agreement are true and correct on and as of the closing date
with the same effect as though such representations and warranties had been made
on or given on and as of the closing date and that the Purchaser has performed
and complied with all of its obligations under this Agreement which are to be
performed or complied with by or prior to or on the closing date.
e. The opinion from counsel for the Purchaser referred to in Section 7.09.
f. Documents evidencing the resignations of the Purchaser's current board
of directors and the appointment of the Shareholders as the only directors of
the Purchaser as at the closing date.
g. Such other documents of issuance, certificates of authority and other
documents as the Shareholders may reasonably request.
ARTICLE XI
Termination and Abandonment
11.01 This Agreement may be terminated and the transaction provided for by
this Agreement may be abandoned without liability on the part of any part to any
other, at any time before the closing date:
a. By mutual consent of Purchaser, the Company and the Shareholders;
b. By Purchaser if any of the conditions provided for in Article 6 of this
Agreement have not been met and have not been waived in writing by Purchaser.
c. By the Company if any of the conditions provided for in Article 7 of
this Agreement have not been met and have not been waived in writing by the
Company.
In the event of termination and abandonment by any party as above provided
in this Article, written notice shall forthwith be given to the other party, and
each party shall pay its own expenses incident to preparation for the
consummation of this Agreement and the transactions contemplated hereunder.
ARTICLE XII
Miscellaneous
12.01 Notices. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given, if delivered by hand or
mailed, certified or registered mail with postage prepaid:
a. If to The Company, Inc., or its Shareholders, to Michael Kang at 815
Homby Street, Suite 404, Vancouver, BC V6Z 2E6, or to such other person and
place as the Company and its Shareholders shall furnish to Purchaser in writing.
b. If to Purchaser, to Nathan W. Drage at 6975 South Union Park Center,
Suite 600, Salt Lake City, Utah 84047, or to such other person and place as
Purchaser shall furnish to Company in writing.
12.02 Announcements. Announcements concerning the transactions provided for
in this Agreement by either the Company or Purchaser shall be subject to the
approval of the other in all essential respects, except that the approval of the
Company shall not be required as to any statements and other information which
Purchaser may submit to its shareholders.
12.03 Default. Should any party to this Agreement default in any of the
covenants, conditions, or promises contained herein, the defaulting party shall
pay all costs and expenses, including a reasonable attorney's fee, which may
arise or accrue from enforcing this Agreement, or in pursuing any remedy
provided hereunder or by the statutes of the State of Utah, United States or
America.
12.04 Assignment. This Agreement may not be assigned in whole or in part by
the parties hereto without the prior written consent of the other party or
parties, which consent shall not be unreasonably withheld.
12.05 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their successors and assigns.
12.06 Holidays. If any obligation or act required to be performed hereunder
shall fall due on a Saturday, Sunday or other day which is a legal holiday
established by the State of Utah, such obligation or act may be performed on the
next succeeding business day with the same effect as if it had been performed
upon the day appointed.
12.07 Computation of Time. The time in which any obligation or act provided
by this Agreement is to be performed is computed by excluding the first day and
including the last, unless the last day is a holiday, in which event such day
shall also be excluded.
12.08 Governing Law and Venue. This Agreement shall be governed by and
interpreted pursuant to the laws of the State of Utah. Any action to enforce the
provisions of this Agreement shall be brought in a court of competent
jurisdiction within the State of Utah and in no other place.
12.09 Partial Invalidity. If any term, covenant, condition or provision of
this Agreement or the application thereof to any person or circumstance shall to
any extent be invalid or unenforceable, the remainder of this Agreement or
application of such term of provision to persons or circumstances other than
those as to which it is held to be invalid or unenforceable shall not be
affected thereby and each term, covenant, condition or provision of this
Agreement shall be valid and shall be enforceable to the fullest extent
permitted by law.
12.10 No Other Agreements. This Agreement constitutes the entire Agreement
between the parties and there are and will be no oral representations which will
be binding upon any of the parties hereto.
12.11 Rights are Cumulative. The rights and remedies granted hereunder
shall be in addition to and cumulative of any other rights or remedies provided
under the laws of the State of Utah.
12.12 Waiver. No delay or failure in the exercise of any power or right
shall operate as a waiver thereof or as an acquiescence in default. No single or
partial exercise of any power or right hereunder shall preclude any other or
further exercise thereof or the exercise of any other power or right.
12.13 Survival. All representations, warranties, covenants and agreements
herein contained on the part of each of the parties hereto shall survive the
closing date, the execution and delivery hereunder of share or security transfer
instruments or other documents of title and the payment of the consideration
therefor, provided that such representations and warranties, except with respect
to tax matters (which shall continue without limitation), shall only survive for
a period of five years from the closing date after which time, if no claim
shall, prior to the expiry of the said five-year-period, have been made
hereunder against a party hereto with respect to any incorrectness in or breach
of any representation or warranty made herein by such party, such party shall
have no further liability hereunder with respect to such representation or
warranty.
12.14 Further Action. The parties hereto agree to execute and deliver such
additional documents and to take such other and further action as may be
required to carry out fully the transaction(s) contemplated herein.
12.15 Amendment. This Agreement or any provision hereof may not be changed,
waived, terminated or discharged except by means of a written supplemental
instrument signed by the party or parties against whom enforcement of the
change, waiver, termination, or discharge is sought.
12.16 Headings. The descriptive headings of the various Sections or parts
of this Agreement are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
12.17 Counterparts. This agreement may be executed in two or more partially
or fully executed counterparts, each of which shall be deemed an original and
shall bind the signatory, but all of which together shall constitute but one and
the same instrument, provided that Purchaser shall have no obligations hereunder
until all Shareholders have become signatories hereto.
IN WITNESS WHEREOF, the parties hereto executed the foregoing Acquisition
Agreement effective the _____ day of June, 1999.
Purchaser:
SYSTEMS ASSURANCE CORPORATION
By: ________________________________
Dean H. Becker, President
Company:
DIGITAL COMMERCE INTERNATIONAL, INC.
By: ________________________________
Michael Kang, President
____________________________________
Dean Becker (in his personal
capacity)
Shareholders:
____________________________________
Michael Kang
____________________________________
Jack Combs
List of Schedules to be Attached
--------------------------------
Schedule "A" Equity of the Company
Schedule "B" Common Shares of the Purchaser to be issued
Schedule "C" preference shares of the Purchaser to be issued
Schedule "D" Company Disclosure Statement
Schedule "E" Purchaser Disclosure Statement
SCHEDULE A
NAME SHARES TO BE PURCHASED
Michael Kang (or his nominee) 5
Jack Combs (o his nominee) 5
Total 10
SCHEDULE B
COMMON SHARES IN THE CAPITAL STOCK OF
NAME THE PURCHASER TO BE ISSUED
---- --------------------------
Michael Kang (or his nominee) 2,000,000
Jack Combs (or his nominee) 2,000,000
Oro Gold International Ltd. 500,000
WFM, Inc. Profit Sharing Plan 250,000
Cambridge Industries Corporation 250,000
Total 5,000,000
SCHEDULE C
CONVERTIBLE PREFERENCE SHARES IN THE
NAME CAPITAL STOCK OF THE PURCHASER TO BE ISSUED
---- -------------------------------------------
Michael Kang (or his nominee) 250,000
Jack Combs (or his nominee) 250,000
Total 500,000
Each convertible Preference share in the capital stock of the Purchaser will
have the following attributes:
1. It will carry the right of ten votes at meetings of shareholders of the
Purchaser;
2. It will carry the same rights to dividends and other distributions as a
Common share in the capital stock of the Purchaser;
3. It will have no par value.
4. a. Subject to subsection (b), once the Company has achieved a cumulative
gross transaction processing volume equaling in the aggregate $240 Million (the
"Trigger Event"), each Preference share will be convertible, at the option of
its holder and for no additional consideration, into 10 common shares in the
capital stock of the Purchaser (the "Conversion Right"). (For greater clarity,
upon the occurrence of the Trigger Event a holder of Preference shares may at
his sole option from time to time exercise the Conversion Right in respect of
all or a portion of those shares).
b. The conversion Right will expire and become null and void if the Trigger
Event has not occurred by the end of the Company's second complete fiscal year
following the closing of the Acquisition Agreement between the purchaser and the
Company to which this Schedule C is attached (the "Expiry Date").
5. Upon the Trigger Event occurring on or before the Expiry Date, each
Preference share will become transferable and assignable by its holder, and
unless and until the Trigger Event occurs on or before the Expiry Date each
Preference share will not be transferable or assignable by its holder.
6. For purposes of this Schedule and the terms and conditions, rights and
obligations associated with the preference shares and specifically for the
purposes of Section 4(a) of the Schedule, "Company" shall mean and include the
purchaser (Systems Assurance Corporation, Digital Commerce International, Inc.,
Digital Commerce Inc., Digital Commerce Bank Card, Caribbean Inc., and Digital
Commerce Merchant Services Inc.).
DIGITAL COMMERCE INTERNATIONAL, INC.
1999 STOCK OPTION PLAN
SECTION 1
INTRODUCTION
1.1 Establishment. Digital Commerce International, Inc., a Delaware Corporation,
hereby establishes the Digital Commerce International, Inc. 1999 Stock Option
Plan (the "Plan") for employees, officers, consultants, directors, advisory
board and other advisors associated with the Company whom the Board wishes to
incentivize. Digital Commerce International, Inc., together with its affiliated
corporations, as defined in Section 2.1(a) hereafter, are referred to as the
"Company", except where the context otherwise requires. 1.2 Purposes. The
purpose of the Plan is to provide the Eligible Participants selected for
participation in the Plan with added incentives to continue in the long-term
service of the Company and to create in such persons a more direct interest in
the future success of the operations of the Company by relating incentive
compensation to increases in stockholder value, so that rewards for the Eligible
Participants is more closely aligned with the pursuit of value for the Company
and the Company's stockholders. The Plan is also designed to attract Eligible
Participants and to retain and motivate such persons by providing an opportunity
for investment in the Company.
SECTION 2
DEFINITIONS
2.1 Definitions. The following terms will have the meanings set forth below:
"Affiliated Corporation" means any corporation or other entity (including, but
not limited to, a partnership) that is affiliated with Digital Commerce
International, Inc. through stock ownership or otherwise and is treated as a
common employer under the provisions of Code Sections 414(b) and (c).
"Board" means the Board of Directors of Digital Commerce International, Inc.
"Code" means the Internal Revenue Code of 1986, as it may be amended form time
to time. "Effective Date" means the effective date of the Plan, which will be
17th June 1999.
"Eligible Participants" means all employees (including, without limitation, all
officers), directors, consultants and all other advisors whom the Board wishes
to incentivize to contribute to the fortunes of the Company.
"Fair Value" means the value of a Share of Stock as determined by the Stock
Option Committee acting in good faith and in its sole discretion.
Notwithstanding the above, if the Stock is actively traded in an established
stock or quotation market, "Fair Value" will mean the officially quoted closing
price of the Stock on such exchange (a "National Exchange") on a particular date
selected by the Stock Option Committee in establishing the purchase price of
Shares of the Option.
"Stock Option Committee" means the Board, as defined in Section 2.1.
"Non-Statutory Option" means an Option granted under this Plan in accordance
with the requirements of Code Section 83. "Option" means a right to purchase
Stock granted under this Plan at a stated price for a specified period of time.
"Option Price" means the price at which shares of Stock subject to an Option may
be purchased, determined in accordance with Section 6.2(b) "Option Holder" means
an Eligible Participant designated by the Stock Option Committee from time to
time during the term of the Plan to receive one or more Options under the Plan.
"Share" or "Shares" means a share or shares of Stock. "Stock" means the common
stock, par value $0.001, of the Company. 2.2 Gender and Number. Except where
otherwise indicated by the context, the masculine gender also will include the
feminine gender, and the definition of any term herein in the singular also will
include the plural. II. SECTION 3
PLAN ADMINISTRATION
3.1 Stock Option Committee. The Stock Option Committee will administer the Plan.
In accordance with the provisions of the Plan, the Stock Option Committee will,
in accordance with policies approved by the Board and otherwise in its sole
discretion, select the Eligible Participants to whom Options will be granted,
the form of each Option, the amount of each Option, and any other terms and
conditions of each Option as the Stock Option Committee may deem necessary and
consistent with the terms of the Plan. The Stock Option Committee will determine
the form or forms of the agreements with Option Holders. The agreements will
evidence the particular provisions, terms, conditions, rights and duties of the
Company and the Option Holders with respect to Options granted pursuant to the
Plan, which provisions need not be identical except as may be provided herein.
The Stock Option Committee may from time to time adopt such rules and
regulations for carrying out the purposes of the Plan as it may deem proper and
in the best interests of the Company. The Stock Option Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or in any
agreement entered into hereunder in the manner and to the extent it may deem
expedient and it will be the sole and final judge of such expediency. No member
of the Stock Option Committee will be liable for any action or determination
made in good faith, and all members of the Committee will, in addition to their
rights as directors, be fully protected by the Company with respect to any such
action, determination or interpretation. The determinations, interpretations and
other actions of the Stock Option Committee pursuant to the provisions of the
Plan will be binding and conclusive for all purposes and on all persons.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. 4,000,000 Shares are authorized for issuance under the
Plan in accordance with the provisions of the Plan. Shares that may be issued
upon the exercise of Options will be applied to reduce the maximum number of
Shares remaining available under the Plan and while any Options are outstanding,
the Company will retain as authorized and un-issued Stock at least the number of
Shares from time to time required under the provisions of the Plan or otherwise
assure itself of its ability to perform its obligations hereunder. 4.2 Unused
and Forfeited Stock. Any Shares that are subject to an Option under this Plan
that are not used because the terms and conditions of the Option are not met or
any Shares that are used for full or partial payment of the purchase price of
Shares with respect to which an Option is exercised or any Shares retained by
the Company for any purpose of this Plan automatically will be returned to the
Plan pool and become available for use under the Plan.
4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company at any time
increases or decreases the number of its outstanding Shares of Stock, or changes
in any way the rights and privileges of such Shares by means of the Payment of a
Stock dividend or any other distribution upon such Shares payable in Stock, or
through a stock split, subdivision, consolidation, combination, reclassification
or recapitialization involving the Stock, then, in relation to the Stock that is
affected by the above events, the provisions of this Section 4.3 will apply. In
such event, the numbers, rights and privileges of the following will be
increased, decreased or changed in like manner as if such shares had been issued
and outstanding, fully paid and non-assessable at the time of such event:
(i) adjustment to the shares of Stock as to which Options may be granted
under the Plan; and (ii)adjustment to the exercise price of each
outstanding Option granted hereunder.
4.4 General Adjustment Rules. If any adjustment or substitution provided for in
this Section 4 will result in the creation of a fractional Share under any
Option, the number of Shares subject to the option will be rounded to the next
higher Share.
4.5 Determination by Stock Option Committee, Etc. Adjustments under this Section
4 will be made by the Stock Option Committee, whose determinations with regard
thereto will be final and binding upon all parties.
SECTION 5
REORGANIZATION OR LIQUIDATION
5.1 Reorganization and Options. In the event that the Company is merged or
consolidated with another corporation (other than a merger or consolidation in
which the Company is the continuing corporation and that does not result in any
reclassification or change of outstanding Shares), or if all or substantially
all of the assets or more that 20% of the outstanding voting stock of the
Company is acquired by any other corporation, business entity or person (other
than by a sale or conveyance in which the Company continues as a holding company
of an entity or entities that conduct the business of businesses formerly
conducted by the Company), or in case of a reorganization (other than a
reorganization under the United States Bankruptcy Code) or liquidation of the
Company, the Stock Option Committee will have the power and discretion to
prescribe the terms and conditions for the exercise or modification of any
outstanding Options granted hereunder. By way of illustration, and not by way of
limitation, the Stock Option Committee may provide for the complete or partial
acceleration of the dates of exercise of the Options, or may provide that such
Options will be exchanged or converted into options to acquire securities of the
surviving or acquiring cooperation, or may provide for a payment or distribution
in respect of outstanding Options (or the portion thereof that currently is
exercisable) in cancellation thereof. The Stock Option Committee may provide
that Options must be exercised in connection with the closing of such
transaction and that if not so exercised such Options will expire. Any such
determinations by the Stock Option Committee may be made generally with respect
to all Option Holders, or may be made on a case-by-case bases with respect to
particular Option Holders. The provisions of this Section 5 will not apply to
any transaction undertaken for the purpose of reincorporating the Company under
the laws of another jurisdiction, if such transaction does not materially affect
the beneficial ownership of the Company's capital stock. Any determination by
the Stock Option Committee hereunder shall not amend the terms of any Option
without the consent of the Option Holder unless, in the opinion of the Committee
acting reasonably, such amendment is necessary to permit the alterations to the
Company to be effected and such is in the interest of shareholders generally.
SECTION 6
III. STOCK OPTIONS
6.1 Grant of Options. An Eligible Participant may be granted one or more
Options. Options granted under the Plan will be Non-Statutory Options. 6.2
Option Agreements. Each Option granted under the Plan will be evidenced by a
written stock option agreement that will be entered into by the Company and the
Eligible Participant to whom the Option is granted (the "Option Holder"), and
will contain the following terms and conditions, as well as such other terms and
conditions not inconsistent therewith, as the Stock Option Committee may
consider appropriate in each case. In the event of any inconsistency between the
provisions of the Plan and any such agreement entered into hereunder, the
provisions of the agreement will govern where not inconsistent with law.
However, the provisions of the Plan will govern where the agreement omits to
provide for a matter governed by the Plan and the agreement will not be complete
nor enforceable where it fails to provide for the following matters, unless such
matters are elsewhere provided or are herein provided by the terms of this Plan:
(a) Number of Shares. Each Stock option agreement will state that it covers a
specified number of Shares, as determined by the Stock Option Committee. (b)
Price. The price at which each Share covered by an Option may be purchased will
be determined by the Stock Option Committee and set forth in the stock option
agreement.
(c) Vesting Period. Each Stock Option will state the time and the amount of the
Shares of the Option which vest, and are exercisable thereafter, at specified
times during the Option Period. Unless otherwise provided in the Option
agreement, Options will vest and be exercisable for types of Option Holders as
follows:
(i) Directors and advisory board members - 50% of the amount of the Shares
under Option upon granting and 50% twelve months thereafter;
(ii) Senior officers to Vice-President - 3% at the end of each calendar
month;
(iii) Employees Generally - 9% at the end of the later of the first three
months or the stated probation period and 3% at the end of each calendar
month thereafter; and
(iv) Other Option Holders - 10% at the end of the first 30 days of
engagement, 20% upon completion of 50% of the term, where a particular
term, or upon 50% of project completion, where project contract specific,
and the remainder upon, and for a period of 90 days thereafter, the Company
certifying substantial satisfaction, acting reasonably, with contract
and/or project completion.
(d) Duration of Options. Each Stock option agreement will state the period of
time within which the Option may be exercised by the Option Holder (the "Option
Period"). The Option Period must expire, in all cases, not more than ten years
from the date an Option is granted. Unless otherwise stated, director and senior
officer Options shall be the lesser of five years or the term of their office
plus 60 days, employee Options the lesser of five years or the term of their
employment plus 60 days, and other Option Holders the lesser of five years or
the term of the engagement agreement plus 60 days. Notwithstanding any other
provisions hereof, unless otherwise determined by the Stock Option Committee,
any Option granted to an officer, director or more than 10% shareholder of the
Company hereunder shall not become exercisable until at least six months
following the date of grant. (e) Termination of Employment, Death, Disability
Etc. Except as otherwise determined by the Stock Option Committee, each Stock
Option agreement will provide as follows with respect to the exercise of the
Option upon termination of the employment or the death of the Option Holder:
(i) Termination. If the Option Holder's employment or office with the
Company is terminated within the Option Period for cause, as determined by
the Company in its sole discretion, or if the Option Holder resigns without
appropriate or agreed notice and agreed termination terms, the Option will
be void for all purposes immediately upon notice of termination or
resignation, as the case may be, unless otherwise agreed by the Company. As
used in this Section, "cause" means a gross violation, as determined by the
Company, of the Company's established policies and procedures. If the
Option Holder is terminated for another reason, not contemplated in this
agreement, then the Option shall be exercisable, as to the vested portion
only on the date of termination, for a period of 30 days after termination,
except as otherwise permitted by the Stock Option Committee or the Option
agreement and not to exceed the Option Period. The effect of this Section
will be limited to determining the consequences of a termination and
nothing in this Section will restrict or otherwise interfere with the
Company's discretion with respect to the termination of any employee.
(ii)Death or Disability. If the Option Holder's employment with the Company
is terminated within the Option Period because of the Option Holder's death
or disability (within the meaning of Code Section 22(e)) the Option will
remain exercisable, to the extent that it was vested and exercisable on the
date of the Option Holder's death or disability, for a period of twelve
months after such date; provided, however, that in no event may the Option
be exercised after the expiration of the Option Period. (iii) Non-Employees
or non-Office Holders. For all purposes under this Section, an Eligible
Participant who is not an employee or office holder of the Company will be
considered to have a termination at the conclusion of the relevant contract
or upon notice by the Company of termination for default or breach of
agreement. If the contract is terminated for breach or default then the
Option shall terminate immediately. Otherwise the Option shall terminate in
accordance with its terms or sections 6.2(c)(iii) and 6.2(d) above.
(f) Transferability of Option. Each stock option agreement will provide that the
Option and exercise rights granted therein are not transferable or subject to
assignment or lien for security purposes by the Option Holder except to the
Option Holder's legal representative, his estate, a family corporation or
personal holding corporation, a bona fide lender or in such other circumstance
as the Stock Option Committee may approve, subject to legal advice and at its
sole unfettered discretion which may be exercised contrary without reason. Each
assignment of an interest in an Option must be approved before such will be
enforceable. (g) Exercise, Payments, Etc. Each stock option agreement will
provide that the method for exercising the Option granted will be by delivery to
the office of the Corporate Secretary of the Company of written notice
specifying the particular Option (or portion thereof) that is being exercised
and the number of Shares with respect to which such Option is exercised,
together with payment of the Option Price. Such notice shall be in a form
satisfactory to the Stock Option Committee. The exercise of the Option will be
deemed effective upon receipt of such notice by the Corporate Secretary and
payment to the Company of the Option Price. The purchase of such Stock will take
place at the principal offices of the Company upon delivery of such notice. A
properly executed certificate or certificates representing the Stock will be
issued by the Company and delivered to the Option Holder. Unless restricted by
the Option agreement, the exercise price shall be paid by any of the following
methods or any combination of the following methods:
(i) in cash;
(ii) by cashier's check, certified check, or other acceptable banker's note
payable to the order of the Company; (iii) by net exercise notice whereby
the Option Holder will authorize the return to the Plan pool, and deduction
from the Option Holder's Stock Option, of sufficient Option Shares whose
net value (Share Fair Value less Option exercise price) is sufficient to
pay the Option Price of the Shares exercised. The Fair Value of the Shares
of the Option to be returned to the Plan pool as payment will be determined
by the closing price of the Company's Shares on the date notice is
delivered; (iv) by delivery to the Company of a properly executed notice of
exercise together with irrevocable instructions (referred to in the
industry as `delivery against payment') to a broker to deliver to the
Company promptly the amount of the proceeds of the sale of all or a portion
of the Stock or of a loan from the broker to the Option Holder necessary to
pay the exercise price; or (v) such other method as the Option Holder and
the Stock Option Committee may determine as adequate including delivery of
acceptable securities (including securities of the Company), set-off for
wages or invoices due, property, or other adequate value.
In the discretion of the Stock Option Committee, the Company may guarantee a
third-party loan obtained by an Option Holder to pay part or all of the Option
Price of the Shares provided that such loan or the Company's guaranty is secured
by the Shares.
(h) Date of Grant. An Option will be considered as having been granted on the
date specified in the grant resolution of the Stock Option Committee. 6.3
Stockholder Privileges. Prior to the exercise of the Option and the transfer of
Shares to the Option Holder, an Option Holder will have no rights as a
stockholder with respect to any Shares subject to any Option granted to such
person under this Plan and, until the Option Holder becomes the holder of the
record of such Stock, no adjustments, other than those described in Section 4,
will be made for dividends or other distributions or other rights to which there
is a record date preceding the date such Option Holder becomes the holder of
record of such Stock.
SECTION 7
IV. RIGHTS OF EMPLOYEES AND OPTION HOLDERS
7.1 Employment. Nothing contained in the Plan or in any Option will confer upon
any Eligible Participant any right with respect to the continuation of
employment by the Company, or interfere in any way with the right of the
Company, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of such Eligible Participant form the rate in existence at the
time of the grant of an Option.
SECTION 8
V. GENERAL RESTRICTIONS
8.1 Investment representations. The Company may require any person to whom an
Option is granted, as a condition of exercising such Option or receiving Stock
under the Option, to give written assurances, in substance and form satisfactory
to the Company and its counsel, to the effect that such person is acquiring the
Stock subject to the Option for his own account for investment and not with any
present intention of selling and to such other effects as the Company deems
necessary or appropriate in order to comply with U.S. and Canadian federal and
applicable state and provincial securities laws. Legends evidencing such
restrictions may be placed on the certificates evidencing the Stock.
8.2 Compliance with Securities Laws. Each Option will be subject to the
requirement that if at any time counsel to the Company determines that the
listing, registration or qualification of the Shares subject to such Option upon
any securities exchange or under any U.S. or Canadian provincial, state or
federal law, or the consent or approval of any governmental or regulatory body,
is necessary as a condition of, or in connection with, the issuance or purchase
of Shares thereunder, such Option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval will have
been effected or obtained on conditions acceptable to the Stock Option
Committee. Nothing herein will be deemed to require the Company to apply for or
to obtain such listing, registration or qualification.
SECTION 9
VI. OTHER EMPLOYEE BENEFITS
9.1 Benefits and Taxes. The amount of any compensation deemed to be received by
an Option Holder as a result of the exercise of an Option will not constitute
"earnings" with respect to which any other employee benefits of such Option
Holder are determined, including without limitation benefits under any pension,
profit sharing, life insurance or salary continuation plan. Any taxable
consequences of any Option are entirely the responsibility of the Option Holder
and no contribution shall be required of the Company and, further, if the
Company should suffer liability for unpaid taxes of an Option Holder then the
full amount of such shall be a debt of the Option Holder to the Company payable
immediately and for which the Company may seek judgment and, before judgment or
process, may set-off against any amounts due to the Option Holder or may
recover, again before judgment or process, by exercise of any Options of the
Option Holder on the Option Holder's behalf, at the discretion of the Stock
Option Committee.
SECTION 10
VII. PLAN AMENDMENT, MODIFICATION AND TERMINATION
10.1 Amendment. The Board may at any time terminate and, from time to time, may
amend or modify the Plan provided, however, that no amendment or modification
may become effective without approval of the amendment or modification by the
stockholders, if stockholder approval is required to enable the Plan to satisfy
any applicable statutory requirements, or if the Company, on the advice of
counsel, determines that stockholder approval otherwise is necessary or
desirable.
No amendment, modification or termination of the Plan will in
any manner adversely affect any Options theretofore granted under the Plan,
without the consent of the Option Holders holding such Options.
SECTION 11
WITHHOLDING
11.1 Withholding Requirement. The Company's obligations to deliver Shares upon
the exercise of an Option will be subject to the Option Holder's satisfaction of
all applicable federal, state and local income and other tax withholding
requirements.
11.2 Withholding With Stock. At the time an Option is granted the Stock Option
Committee, in its sole discretion, may permit the Option Holder to pay all such
amounts of tax withholding, or any part thereof, that is due upon exercise of
the Option by such adjustments as the Stock Option Committee determines,
including adjustment to a net exercise price or adjustment to the Option Price.
SECTION 12
BROKERAGE ARRANGEMENTS
12.1 Brokerage. The Stock Option Committee, in its discretion, may enter into
arrangements with one or more banks, brokers or other financial institutions to
facilitate the disposition of shares acquired upon exercise of Stock Options,
including, without limitation, arrangements for the simultaneous exercise of
Stock Options and sale of the Shares acquired upon such exercise.
SECTION 13
VIII. NONEXCLUSIVITY OF THE PLAN
13.1 Other Plans. The adoption of the Plan by the Board will not be construed as
creating any limitations on the power or authority of the Board to adopt such
other or additional incentive or other compensation arrangements of whatever
nature as the Board may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any class or group
of employees, that the Company or any Affiliated Corporation now has lawfully
put into effect, including, without limitation, any retirement, pension, savings
and stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
SECTION 14
IX. REQUIREMENTS OF LAW
14.1 Requirements of Law. The insurance of Stock and the payment of cash
pursuant to the Plan will be subject to all applicable laws, rules and
regulations.
14.2 Governing Law. The Plan and all agreements hereunder will be construed in
accordance with and governed by the laws of the State of Delaware. SECTION 15
DURATION OF THE PLAN
15.1 Termination. The Plan will terminate at such time as may be determined by
the Board, and no Option will be granted after such termination. If not sooner
terminated under the preceding sentence, the Plan will fully cease and expire at
midnight on June 17th, 2009. Options outstanding at the time of the Plan
termination may continue to be exercised in accordance with their terms.
THIS AGREEMENT DATED FOR REFERENCE THIS 17th DAY OF JUNE, 1999.
BETWEEN:MICHAEL Y.H. KANG, of the City of Vancouver, in the Province of British
Columbia. (the "Executive")AND: DIGITAL COMMERCE INTERNATIONAL, INC., a
corporation incorporated under the laws of the State of Delaware; ("DCII").
WHEREAS DCII is in the business of banking, transaction
processing, trust and investment services, with delivery of such services
principally through the Internet; and
WHEREAS DCII desires to obtain the services of an executive to
provide the services described in this Agreement; and
WHEREAS the Executive agrees to provide such services; and
WHEREAS DCII wishes to retain the Executive to provide such
services to DCII, and the Executive wishes to provide such services to DCII, in
accordance with and subject to the terms of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the parties agree as follows:
1. TERM
This Agreement has a term of five years beginning as of the date
hereof, unless terminated earlier as hereinafter provided.
2. DUTIES
The Executive agrees that the Executive will provide the services under
this Agreement. The Executive shall serve DCII and any subsidiaries of DCII in
such capacity or capacities and shall perform such duties and exercise such
powers pertaining to the management and operation of DCII and any subsidiaries
and associates of DCII as may be determined from time to time by the Board of
Directors of DCII, provided that same are consistent with the position of a
senior executive of DCII. Provided further and without limiting the foregoing,
the Executive shall:
a. occupy the office of Chief Executive Officer (CEO) of DCII;
b. devote his best efforts to the business and affairs of DCII;
c. perform those duties that may reasonably be assigned to the
Executive diligently and faithfully to the best of the Executive's abilities and
in the best interest of DCII; and
d. use his best efforts to promote the interests and goodwill of
DCII.
3. REPORTING PROCEDURES
The Executive shall report to the Board of Directors of DCII. The Executive
shall report fully on the management, operations and business affairs of DCII
and advise to the best of his ability and in accordance with reasonable business
standards on business matters that may arise from time to time during the term
of this Agreement.
4. REMUNERATION
a. The annual fee payable to the Executive for the performance of
its services shall be as follows:
Year 1: USD $250,000.00
Year 2: USD $300,000.00
Year 3: USD $350,000.00
Year 4: USD $400,000.00
Year 5: USD $450,000.00
exclusive of bonuses, benefits and other compensation. The annual fee
payable to the Executive pursuant to the provisions of this Section 4 shall
be payable in equal monthly installments in arrears on the 1st day of each
month or in such other manner as may be mutually agreed upon, less, in any
case, any deductions or withholdings required by law.
Payment may be modified, at the option of the Executive, as follows:
a. until such time as an underwriting (secondary offering) for the
company in the gross amount of US $20,000,000 has been completed and funds
received by the Company; or
b. until such time as the company achieves a market capitalization
of US $150,000,000;
whichever first occurs, the Executive, at the Executive's option, may agree
to a modification of the payment schedule for compensation. Specifically,
the Executive would, firstly, agree to accept the cash payment in the amount
of US $10,000 per month and accept a deferral of the balance outstanding
until such time as the underwriting or capitalization levels as detailed
above have been achieved.
Once said underwriting has been successfully completed or once the company
achieves the market capitalization as above the Executive shall immediately
be paid the outstanding accrued balance in a lump sum cash payment.
b. DCII shall provide the Executive with benefits comparable to
those provided by DCII from time to time to other senior executives of DCII and
shall permit the Executive to participate in any share option plan, share
purchase plan, retirement plan or similar plan offering by DCII from time to
time to its senior executives in the manner and to the extent authorized by the
board of directors of DCII. In addition to the annual remuneration of the
Executive, DCII may contribute to the retirement savings plan of the Executive
or similar plan offering by DCII from time to time to its senior executives for
each year of the term of this Agreement in an amount to be determined by the
Board of Directors of DCII.
5. PERFORMANCE BONUS
In addition to annual fee payable to the Executive, the Executive shall
participate in DCII's share option plan and executive bonus plan (the "Plan") or
similar plan offering by DCII from time to time to its senior executives as
determined by the board of directors of DCII.
6. FURTHER FEE ADJUSTMENTS
DCII and the Executive shall review, on a yearly basis, the Executive's annual
fee, and yearly bonus entitlement, if any, provided that there shall be no
change in the Executive's annual fee unless agreed to in writing by the parties.
7. VACATION
The Executive shall be entitled to eight weeks' vacation per fiscal
year of DCII at a time approved in advance by the Executive Committee, which
approval shall not be unreasonably withheld but shall take into account the
staffing requirements of DCII and the need for the timely performance of the
Executive's responsibilities. For greater certainty, such vacation will not
reduce the fees payable to the Executive pursuant to Section 4.
8. AUTOMOBILE
The Executive shall receive from DCII a car allowance of $1,500 per
month. In addition, DCII shall pay or reimburse the Executive for all reasonable
operating costs of its vehicle, insurance, maintenance, gas and oil, properly
incurred or to be incurred in connection with the Executive's carrying out its
duties hereunder. The Executive shall supply DCII with the originals of all
invoices or statements in respect of which the Executive seeks reimbursement.
9. DISABILITY, LIFE, KEY-MAN INSURANCE
DCII shall obtain and maintain a disability, life, key-man insurance
policy in respect of any disability of the Executive during the term of this
Agreement, which provides for benefits payable to the Executive in the amount of
75% of the Executive's annual fee, to be paid if possible without deductions for
tax, until the Executive reaches the age 65. This insurance policy shall
constitute a taxable benefit to the Executive.
10. EXPENSES
In addition to the automobile allowances contemplated by Paragraph 8
above, the Executive shall be reimbursed for all travel and other out-of-pocket
expenses incurred by it from time to time in connection with carrying out its
duties hereunder. For all such expenses the Executive shall furnish to DCII
originals of all invoices or statements in respect of which the Executive seeks
reimbursement.
11. TERMINATION
a. For Cause
DCII may terminate this Agreement before the end of its term, without
notice or any payment in lieu of notice, if:
the Executive disobeys reasonable instructions given by the Board of
Directors of DCII that are consistent with this Agreement, as follows:
at the request of the Board of Directors, the Executive shall attend at
the next meeting of the Board of Directors. At that time, the Executive
shall give reason for the failure to perform the instructions of the
Board of Directors. The Executive may then be directed to carry out the
instructions of the Board of Directors within no less than 15 days;
such term may be extended by the Board of Directors to whatever
reasonable term the Board of Directors decide (the "Period"). If at the
end of the Period, the Executive has failed to perform the instructions
of the Board of Directors, a Board of Directors meeting will be called,
and the Board of Directors will be deemed to have sufficient grounds to
terminate this Agreement for cause.
b. For Disability/Death
The Agreement may be immediately terminated by DCII if the Executive
becomes permanently disabled, or because of ill health, physical or
mental disability, or for other causes beyond the control of the
Executive, the Executive has been continuously unable, as determined by
two independent physicians of at least ten years' experience who are
members in good standing of the Royal College of Physicians and
Surgeons of Canada, to perform his duties for 180 consecutive days, or
if, during any 12 month period during the term of this Agreement, the
Executive has been unable, determined as set out above, to perform his
duties for a total of 270 days.
This Agreement shall terminate without notice or payment in lieu
thereof upon the death of the Executive.
12. SEVERANCE PAYMENTS
a. Upon termination of this Agreement:
i. for cause pursuant to Paragraph 11(a);
ii. by the voluntary termination of this Agreement by the
Executive; or
iii. by the non-renewal of this Agreement
The Executive shall not be entitled to any severance payment other than
compensation earned by the Executive before the date of termination,
calculated pro rata up to and including the date of termination.
b. If this Agreement is terminated for any reason other than the
reasons set forth in subsection 12(a), the Executive shall be entitled to
receive the greater of:
i. the total of:
A. 3 years' annual fees at the then applicable annual fee rate;
B. the present value, as determined by DCII's auditors, acting
reasonably, of the benefits described in Section 4(b) that would be enjoyed by
the Executive during the next 36 months assuming this Agreement was not
terminated and assuming the then current level of benefits were continued for
those 36 months; and
C. the present value, as determined by DCII's auditors, acting
reasonably, of the amount that DCII's auditors estimate would be the amount
payable to the Executive out of the Executive Bonus Pool assuming that this
Agreement was not terminated until the end of the current fiscal year and all
other participants of the Executive Bonus Pool continued their participation for
the full then current fiscal year, and
ii. the annual fees otherwise payable to the Executive for the
unexpired term of this Agreement.
c. If this Agreement is terminated as a result of the permanent
disability of the Executive or the Executive is thereafter in receipt of
disability insurance benefits, the Executive shall be entitled to receive,
within 30 days of the date of such cessation of such disability, the payment set
out in Subsection 12(b) hereof. In the event that the Executive is disentitled
from disability insurance benefits, the Executive shall be entitled to receive,
within 30 days of the notice of disentitlement, the payment set out in
Subsection 12(b) hereof. The Executive agrees to reasonably comply with all
requirements necessary for DCII to obtain disability insurance for the term of
this Agreement.
13. CHANGE OF CONTROL
In the event that more than 50% of the total shares of DCII
outstanding, other than those owned or controlled by the Executive, are
purchased by a third party, and DCII then breaches this Agreement in any way
including, without limiting the generality of the foregoing, reducing the
Executive's compensation or benefits under this Agreement or assigning duties to
the Executive which are not consistent with the position of a senior executive
at DCII, this Agreement shall be deemed to have been terminated by DCII pursuant
to Paragraph 12(b) of this Agreement and the payment set out therein shall be
provided to the Executive.
14. CONFIDENTIALITY
The Executive acknowledges and agrees that:
a. in the course of performing its duties and responsibilities
under this Agreement, it has had and will continue in the future to have access
to and has been and will be entrusted with detailed confidential information and
trade secrets (printed or otherwise) concerning past, present, future and
contemplated products, services, operations and marketing techniques and
procedures of DCII and its subsidiaries, including, without limitation,
information relating to clients, customers, suppliers and employees of DCII and
its subsidiaries (collectively, "Trade Secrets"), the disclosure of any of which
to competitors of DCII or to the general public, or the use of same by the
Executive or any competitor of DCII or any of its subsidiaries, would be highly
detrimental to the interests of DCII;
b. in the course of performing duties and responsibilities for
DCI, the Executive has been and will continue in the future to have significant
responsibility for maintaining and enhancing the goodwill of DCII with such
customers, clients and suppliers and would not have, except by virtue of his
employment with DCII, developed a close and direct relationship with the
customers, clients and suppliers of DCII;
c. the Executive, as an officer of DCII, owes fiduciary duties to
DCII, including the duty to act in the best interest of DCII; and
d. the right to maintain the confidentiality of the Trade Secrets,
the right to preserve the goodwill of DCII and the right to the benefit of any
relationships that have developed between the Executive and the customers,
clients, and suppliers of DCII by virtue of carrying out its obligations under
this Agreement with DCII constitute proprietary rights of DCII, which DCII is
entitled to protect.
In acknowledgment of the matters described above and in consideration
of the payments and benefits to be received by the Executive pursuant to this
Agreement, the Executive hereby agrees that it will not, during the term of this
Agreement or after its termination for any reason whatsoever, directly or
indirectly disclose to any person or in any way make use of (other than for the
benefit of DCII) in any manner any of the Trade Secrets, provided that such
Trade Secrets shall be deemed not to include information that is or becomes
generally available to the public other than as a result of disclosure by the
Executive.
15. NON-SOLICITATION
The Executive hereby agrees that he will not, either during his
employment by DCI or for two years following termination of his employment by
DCII for whatever reason, be a party to or abet any solicitation of existing
customers, clients or suppliers of DCII or any of its subsidiaries, to transfer
business from DCII or any of its subsidiaries to any other person, or seek in
any way to persuade or entice any employee of DCII or any of its subsidiaries to
leave that employment or to be a party to or abet any such action.
16. NON-COMPETITION
The Executive hereby agrees that it will not, either during the term of
this Agreement, or for 12 months following its termination for whatever reason,
directly or indirectly carry on, be engaged in or employed by or have an
interest in, a business in U.S.A. or the Canada which offers services or sells
products that compete with the services and products then offered by DCII.
17. CONFLICT OF INTEREST
During the term of this Agreement, the Executive shall promptly
disclose to the Executive Committee full information concerning any interest,
direct or indirect, of the Executive (as owner, shareholder, partner, lender or
other investor, director, officer, employee, consultant or otherwise) or any
affiliate or member of its family in any business that is reasonably known to
the Executive to purchase or otherwise obtain services or products from, or to
sell or otherwise provide services or products to DCII or to any of its
suppliers or customers.
18. RETURN OF MATERIALS
All files, forms, brochures, books, materials, written correspondence,
memoranda, documents, manuals, computers and related hardware, computer disks,
software products and lists (including lists of customers, suppliers, products
and prices) pertaining to the business of DCII or any of its subsidiaries and
associates that may come into the possession or control of the Executive shall
at all times remain the property of DCII or such subsidiary or associate, as the
case may be. On termination of this Agreement for any reason, the Executive
agrees to deliver promptly to DCII all such property of DCII in their possession
or directly or indirectly under their control. The Executive agrees not to make
for its personal or business use or that of any other party, reproductions or
copies of any such property or other property of DCII.
19. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Delaware, USA and the parties hereto do hereby attorn
to the jurisdiction of the courts of the said State.
20. SEVERABILITY
a. Subject to subsection (b), any provision of this Agreement
which is determined to be void and unenforceable shall be severable from all
other provisions hereof and shall not be deemed to affect or impair the
enforceability of any such other provisions.
b. If any restriction as to capacity, responsibility, activity,
period or geographic area imposed on a Party by this Agreement is finally
determined by a court of competent jurisdiction to be unenforceable (the
"Unenforceable Restriction"), and so often as the same shall occur, such Party
agrees that upon written notice from the other specifying for inclusion in this
Agreement of fewer capacities or responsibilities, or any activity of lesser
scope or of a lesser time or geographic area than now contained herein (the
"Lesser Restriction"), that this Agreement shall be deemed to be amended by the
substitution of the Lesser Restriction for the Unenforceable Restriction, with
retroactive effect to the date of this Agreement.
21. ENFORCEABILITY
The Executive hereby confirm and agree that the covenants and
restrictions pertaining to it contained in this Agreement, including, without
limitation, those contained in Sections 14, 15 and 16 hereof, are reasonable and
valid and hereby further acknowledge and agree that DCII would suffer
irreparable injury in the event of any breach by the Executive of its obligation
under any such covenant or restriction. Accordingly, the Executive hereby
acknowledges and agrees that damages would be an inadequate remedy at law in
connection with any such breach and that DCII shall therefore be entitled to
temporary and permanent injunctive relief enjoining and restraining the
Executive from any such breach, in addition to any other remedies available to
DCII at law.
22. NO ASSIGNMENT
The Executive may not assign, pledge or encumber its interests in this
Agreement nor assign any of its rights or duties under this Agreement without
the prior written consent of DCII.
23. SUCCESSORS
This Agreement shall be binding on and inure to the benefit of the
successors and assigns of DCII and the heirs, executors, personal legal
representative and permitted assigns of the Executive.
24. NOTICES
Any notice or other communications required or permitted to be given
hereunder shall be in writing and either delivered by hand or mailed by prepaid
registered mail. At any time other than during a general discontinuance of
postal service due to strike, lock-out or otherwise, a notice so mailed shall be
deemed to have been received three business days after it is so delivered. If
there is a general discontinuance of postal service due to strike, lock-out or
otherwise, a notice sent by prepaid registered mail shall be deemed to have been
received five business days after the resumption of postal service. Notices
shall be addressed as follows:
a. If to DCII:
b. If to the Executive:
25. EXECUTIVE COMMITTEE
During the term of this Agreement, if the Executive is also a director
of DCII, then he shall be required to be a member of the Executive Committee of
DCII. If at any time the Executive ceases to be a director of DCII or this
Agreement terminates, the Executive shall not be entitled to be a member of the
Executive Committee of DCII.
26. CURRENCY
All reference to monetary amounts in this Agreement are referred
to/stated in legal currency of the United States of America.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
MICHAEL Y.H. KANG
DIGITAL COMMERCE INTERNATIONAL, INC.
by its authorized signatories
Per:
- ------------------------------
Per:
- ------------------------------
THIS AGREEMENT DATED FOR REFERENCE THIS 17th DAY OF JUNE, 1999 BETWEEN:
JOHN W. COMBS, of the City of Vancouver, in the Province of British
Columbia.(the "Executive") AND: DIGITAL COMMERCE INTERNATIONAL, INC., a
corporation incorporated under the laws of the State of Delaware; ("DCII")
WHEREAS DCII is in the business of banking, transaction
processing, trust and investment services, with delivery of such services
principally through the Internet; and
WHEREAS DCII desires to obtain the services of an executive to
provide the services described in this Agreement; and
WHEREAS the Executive agrees to provide such services; and
WHEREAS DCII wishes to retain the Executive to provide such
services to DCII, and the Executive wishes to provide such services to DCII, in
accordance with and subject to the terms of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
mutual covenants and agreements herein contained and for other good and valuable
consideration, the parties agree as follows:
1. TERM
This Agreement has a term of five years beginning as of the date
hereof, unless terminated earlier as hereinafter provided.
2. DUTIES
The Executive agrees that the Executive will provide the services under
this Agreement. The Executive shall serve DCII and any subsidiaries of DCII in
such capacity or capacities and shall perform such duties and exercise such
powers pertaining to the management and operation of DCII and any subsidiaries
and associates of DCII as may be determined from time to time by the Board of
Directors of DCII, provided that same are consistent with the position of a
senior executive of DCII. Provided further and without limiting the foregoing,
the Executive shall:
a. occupy the office of Chief Executive Officer (CEO) of DCII;
b. devote his best efforts to the business and affairs of DCII;
c. perform those duties that may reasonably be assigned to the
Executive diligently and faithfully to the best of the Executive's abilities and
in the best interest of DCII; and
d. use his best efforts to promote the interests and goodwill of
DCII.
3. REPORTING PROCEDURES
The Executive shall report to the Board of Directors of DCII. The Executive
shall report fully on the management, operations and business affairs of DCII
and advise to the best of his ability and in accordance with reasonable business
standards on business matters that may arise from time to time during the term
of this Agreement.
4. REMUNERATION
a. The annual fee payable to the Executive for the performance of
its services shall be as follows:
Year 1: USD $250,000.00
Year 2: USD $300,000.00
Year 3: USD $350,000.00
Year 4: USD $400,000.00
Year 5: USD $450,000.00
exclusive of bonuses, benefits and other compensation. The annual fee
payable to the Executive pursuant to the provisions of this Section 4 shall
be payable in equal monthly installments in arrears on the 1st day of each
month or in such other manner as may be mutually agreed upon, less, in any
case, any deductions or withholdings required by law.
Payment may be modified, at the option of the Executive, as follows:
a. until such time as an underwriting (secondary offering) for the
company in the gross amount of US $20,000,000 has been completed and funds
received by the Company; or
b. until such time as the company achieves a market capitalization
of US $150,000,000;
whichever first occurs, the Executive, at the Executive's option, may agree
to a modification of the payment schedule for compensation. Specifically,
the Executive would, firstly, agree to accept the cash payment in the amount
of US $10,000 per month and accept a deferral of the balance outstanding
until such time as the underwriting or capitalization levels as detailed
above have been achieved.
Once said underwriting has been successfully completed or once the company
achieves the market capitalization as above the Executive shall immediately
be paid the outstanding accrued balance in a lump sum cash payment.
b. DCII shall provide the Executive with benefits comparable to
those provided by DCII from time to time to other senior executives of DCII and
shall permit the Executive to participate in any share option plan, share
purchase plan, retirement plan or similar plan offering by DCII from time to
time to its senior executives in the manner and to the extent authorized by the
board of directors of DCII. In addition to the annual remuneration of the
Executive, DCII may contribute to the retirement savings plan of the Executive
or similar plan offering by DCII from time to time to its senior executives for
each year of the term of this Agreement in an amount to be determined by the
Board of Directors of DCII.
5. PERFORMANCE BONUS
Once said underwriting for the gross amount of US $20,000,000 has been
successfully completed and/or once the company achieves the market
capitalization of US $ 150,000,000 the Executive shall be entitled to a bonus of
US $ 150,000 which the Company shall pay to the Executive in a lump sum cash
payment in accordance with the Executive's instruction.
In addition to annual fee payable to the Executive, the Executive shall
participate in DCII's share option plan and executive bonus plan (the "Plan") or
similar plan offering by DCII from time to time to its senior executives as
determined by the board of directors of DCII.
6. FURTHER FEE ADJUSTMENTS
DCII and the Executive shall review, on a yearly basis, the Executive's annual
fee, and yearly bonus entitlement, if any, provided that there shall be no
change in the Executive's annual fee unless agreed to in writing by the parties.
7. VACATION
The Executive shall be entitled to eight weeks' vacation per fiscal
year of DCII at a time approved in advance by the Executive Committee, which
approval shall not be unreasonably withheld but shall take into account the
staffing requirements of DCII and the need for the timely performance of the
Executive's responsibilities. For greater certainty, such vacation will not
reduce the fees payable to the Executive pursuant to Section 4.
8. AUTOMOBILE
The Executive shall receive from DCII a car allowance of $1,500 per
month. In addition, DCII shall pay or reimburse the Executive for all reasonable
operating costs of its vehicle, insurance, maintenance, gas and oil, properly
incurred or to be incurred in connection with the Executive's carrying out its
duties hereunder. The Executive shall supply DCII with the originals of all
invoices or statements in respect of which the Executive seeks reimbursement.
9. DISABILITY, LIFE, KEY-MAN INSURANCE
DCII shall obtain and maintain a disability, life, key-man insurance
policy in respect of any disability of the Executive during the term of this
Agreement, which provides for benefits payable to the Executive in the amount of
75% of the Executive's annual fee, to be paid if possible without deductions for
tax, until the Executive reaches the age 65. This insurance policy shall
constitute a taxable benefit to the Executive.
10. EXPENSES
In addition to the automobile allowances contemplated by Paragraph 8
above, the Executive shall be reimbursed for all travel and other out-of-pocket
expenses incurred by it from time to time in connection with carrying out its
duties hereunder. For all such expenses the Executive shall furnish to DCII
originals of all invoices or statements in respect of which the Executive seeks
reimbursement.
11. TERMINATION
a. For Cause
DCII may terminate this Agreement before the end of its term, without
notice or any payment in lieu of notice, if:
the Executive disobeys reasonable instructions given by the Board of
Directors of DCII that are consistent with this Agreement, as follows:
at the request of the Board of Directors, the Executive shall attend at
the next meeting of the Board of Directors. At that time, the Executive
shall give reason for the failure to perform the instructions of the
Board of Directors. The Executive may then be directed to carry out the
instructions of the Board of Directors within no less than 15 days;
such term may be extended by the Board of Directors to whatever
reasonable term the Board of Directors decide (the "Period"). If at the
end of the Period, the Executive has failed to perform the instructions
of the Board of Directors, a Board of Directors meeting will be called,
and the Board of Directors will be deemed to have sufficient grounds to
terminate this Agreement for cause.
b. For Disability/Death
The Agreement may be immediately terminated by DCII if the Executive
becomes permanently disabled, or because of ill health, physical or
mental disability, or for other causes beyond the control of the
Executive, the Executive has been continuously unable, as determined by
two independent physicians of at least ten years' experience who are
members in good standing of the Royal College of Physicians and
Surgeons of Canada, to perform his duties for 180 consecutive days, or
if, during any 12 month period during the term of this Agreement, the
Executive has been unable, determined as set out above, to perform his
duties for a total of 270 days.
This Agreement shall terminate without notice or payment in lieu
thereof upon the death of the Executive.
12. SEVERANCE PAYMENTS
a. Upon termination of this Agreement:
i. for cause pursuant to Paragraph 11(a);
ii. by the voluntary termination of this Agreement by the
Executive; or
iii. by the non-renewal of this Agreement
The Executive shall not be entitled to any severance payment other than
compensation earned by the Executive before the date of termination,
calculated pro rata up to and including the date of termination.
b. If this Agreement is terminated for any reason other than the
reasons set forth in subsection 12(a), the Executive shall be entitled to
receive the greater of:
i. the total of:
A. 3 years' annual fees at the then applicable annual fee rate;
B. the present value, as determined by DCII's auditors, acting
reasonably, of the benefits described in Section 4(b) that would be enjoyed by
the Executive during the next 36 months assuming this Agreement was not
terminated and assuming the then current level of benefits were continued for
those 36 months; and
C. the present value, as determined by DCII's auditors, acting
reasonably, of the amount that DCII's auditors estimate would be the amount
payable to the Executive out of the Executive Bonus Pool assuming that this
Agreement was not terminated until the end of the current fiscal year and all
other participants of the Executive Bonus Pool continued their participation for
the full then current fiscal year, and
ii. the annual fees otherwise payable to the Executive for the
unexpired term of this Agreement.
c. If this Agreement is terminated as a result of the permanent
disability of the Executive or the Executive is thereafter in receipt of
disability insurance benefits, the Executive shall be entitled to receive,
within 30 days of the date of such cessation of such disability, the payment set
out in Subsection 12(b) hereof. In the event that the Executive is disentitled
from disability insurance benefits, the Executive shall be entitled to receive,
within 30 days of the notice of disentitlement, the payment set out in
Subsection 12(b) hereof. The Executive agrees to reasonably comply with all
requirements necessary for DCII to obtain disability insurance for the term of
this Agreement.
13. CHANGE OF CONTROL
In the event that more than 50% of the total shares of DCII
outstanding, other than those owned or controlled by the Executive, are
purchased by a third party, and DCII then breaches this Agreement in any way
including, without limiting the generality of the foregoing, reducing the
Executive's compensation or benefits under this Agreement or assigning duties to
the Executive which are not consistent with the position of a senior executive
at DCII, this Agreement shall be deemed to have been terminated by DCII pursuant
to Paragraph 12(b) of this Agreement and the payment set out therein shall be
provided to the Executive.
14. CONFIDENTIALITY
The Executive acknowledges and agrees that:
a. in the course of performing its duties and responsibilities
under this Agreement, it has had and will continue in the future to have access
to and has been and will be entrusted with detailed confidential information and
trade secrets (printed or otherwise) concerning past, present, future and
contemplated products, services, operations and marketing techniques and
procedures of DCII and its subsidiaries, including, without limitation,
information relating to clients, customers, suppliers and employees of DCII and
its subsidiaries (collectively, "Trade Secrets"), the disclosure of any of which
to competitors of DCII or to the general public, or the use of same by the
Executive or any competitor of DCII or any of its subsidiaries, would be highly
detrimental to the interests of DCII;
b. in the course of performing duties and responsibilities for
DCI, the Executive has been and will continue in the future to have significant
responsibility for maintaining and enhancing the goodwill of DCII with such
customers, clients and suppliers and would not have, except by virtue of his
employment with DCII, developed a close and direct relationship with the
customers, clients and suppliers of DCII;
c. the Executive, as an officer of DCII, owes fiduciary duties to
DCII, including the duty to act in the best interest of DCII; and
d. the right to maintain the confidentiality of the Trade Secrets,
the right to preserve the goodwill of DCII and the right to the benefit of any
relationships that have developed between the Executive and the customers,
clients, and suppliers of DCII by virtue of carrying out its obligations under
this Agreement with DCII constitute proprietary rights of DCII, which DCII is
entitled to protect.
In acknowledgment of the matters described above and in consideration
of the payments and benefits to be received by the Executive pursuant to this
Agreement, the Executive hereby agrees that it will not, during the term of this
Agreement or after its termination for any reason whatsoever, directly or
indirectly disclose to any person or in any way make use of (other than for the
benefit of DCII) in any manner any of the Trade Secrets, provided that such
Trade Secrets shall be deemed not to include information that is or becomes
generally available to the public other than as a result of disclosure by the
Executive.
15. NON-SOLICITATION
The Executive hereby agrees that he will not, either during his
employment by DCI or for two years following termination of his employment by
DCII for whatever reason, be a party to or abet any solicitation of existing
customers, clients or suppliers of DCII or any of its subsidiaries, to transfer
business from DCII or any of its subsidiaries to any other person, or seek in
any way to persuade or entice any employee of DCII or any of its subsidiaries to
leave that employment or to be a party to or abet any such action.
16. NON-COMPETITION
The Executive hereby agrees that it will not, either during the term of
this Agreement, or for 12 months following its termination for whatever reason,
directly or indirectly carry on, be engaged in or employed by or have an
interest in, a business in U.S.A. or the Canada which offers services or sells
products that compete with the services and products then offered by DCII.
17. CONFLICT OF INTEREST
During the term of this Agreement, the Executive shall promptly
disclose to the Executive Committee full information concerning any interest,
direct or indirect, of the Executive (as owner, shareholder, partner, lender or
other investor, director, officer, employee, consultant or otherwise) or any
affiliate or member of its family in any business that is reasonably known to
the Executive to purchase or otherwise obtain services or products from, or to
sell or otherwise provide services or products to DCII or to any of its
suppliers or customers.
18. RETURN OF MATERIALS
All files, forms, brochures, books, materials, written correspondence,
memoranda, documents, manuals, computers and related hardware, computer disks,
software products and lists (including lists of customers, suppliers, products
and prices) pertaining to the business of DCII or any of its subsidiaries and
associates that may come into the possession or control of the Executive shall
at all times remain the property of DCII or such subsidiary or associate, as the
case may be. On termination of this Agreement for any reason, the Executive
agrees to deliver promptly to DCII all such property of DCII in their possession
or directly or indirectly under their control. The Executive agrees not to make
for its personal or business use or that of any other party, reproductions or
copies of any such property or other property of DCII.
19. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Delaware, USA and the parties hereto do hereby attorn
to the jurisdiction of the courts of the said State.
20. SEVERABILITY
a. Subject to subsection (b), any provision of this Agreement which is
determined to be void and unenforceable shall be severable from all other
provisions hereof and shall not be deemed to affect or impair the enforceability
of any such other provisions.
b. If any restriction as to capacity, responsibility, activity, period
or geographic area imposed on a Party by this Agreement is finally determined by
a court of competent jurisdiction to be unenforceable (the "Unenforceable
Restriction"), and so often as the same shall occur, such Party agrees that upon
written notice from the other specifying for inclusion in this Agreement of
fewer capacities or responsibilities, or any activity of lesser scope or of a
lesser time or geographic area than now contained herein (the "Lesser
Restriction"), that this Agreement shall be deemed to be amended by the
substitution of the Lesser Restriction for the Unenforceable Restriction, with
retroactive effect to the date of this Agreement.
21. ENFORCEABILITY
The Executive hereby confirm and agree that the covenants and
restrictions pertaining to it contained in this Agreement, including, without
limitation, those contained in Sections 14, 15 and 16 hereof, are reasonable and
valid and hereby further acknowledge and agree that DCII would suffer
irreparable injury in the event of any breach by the Executive of its obligation
under any such covenant or restriction. Accordingly, the Executive hereby
acknowledges and agrees that damages would be an inadequate remedy at law in
connection with any such breach and that DCII shall therefore be entitled to
temporary and permanent injunctive relief enjoining and restraining the
Executive from any such breach, in addition to any other remedies available to
DCII at law.
22. NO ASSIGNMENT
The Executive may not assign, pledge or encumber its interests in this
Agreement nor assign any of its rights or duties under this Agreement without
the prior written consent of DCII.
23. SUCCESSORS
This Agreement shall be binding on and inure to the benefit of the
successors and assigns of DCII and the heirs, executors, personal legal
representative and permitted assigns of the Executive.
24. NOTICES
Any notice or other communications required or permitted to be given
hereunder shall be in writing and either delivered by hand or mailed by prepaid
registered mail. At any time other than during a general discontinuance of
postal service due to strike, lock-out or otherwise, a notice so mailed shall be
deemed to have been received three business days after it is so delivered. If
there is a general discontinuance of postal service due to strike, lock-out or
otherwise, a notice sent by prepaid registered mail shall be deemed to have been
received five business days after the resumption of postal service. Notices
shall be addressed as follows:
a. If to DCII:
b. If to the Executive:
25. EXECUTIVE COMMITTEE
During the term of this Agreement, if the Executive is also a director
of DCII, then he shall be required to be a member of the Executive Committee of
DCII. If at any time the Executive ceases to be a director of DCII or this
Agreement terminates, the Executive shall not be entitled to be a member of the
Executive Committee of DCII.
26. CURRENCY
All reference to monetary amounts in this Agreement are referred
to/stated in legal currency of the United States of America.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
JOHN W. COMBS
DIGITAL COMMERCE INTERNATIONAL, INC.
by its authorized signatories
Per:
- ------------------------------
Per:
- ------------------------------
HUMBOLDT BANK
INDEPENDENT SALES ORGANIZATION (ISO) AGREEMENT
THIS AGREEMENT (hereinafter "the Agreement") is made between
Humboldt Bank ("Bank"), a California state-chartered banking association with
its principal place of business at 701 Fifth Street, Eureka, California 95501
and Digital Commerce International, Inc. ("Contractor"), a Corporation with its
principal place of business at 404-815 Hornby Street, Vancouver, BC V6Z 2E6,
Canada, and is entered into this 8th day of November, 1999 (the "Effective
Date").
AGREEMENT
IN CONSIDERATION of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereto agree as follows:
PART 1. DEFINITIONS
SEC 1.1. DEFINITIONS. As used in this Agreement, unless the
context clearly indicates otherwise, the following terms have the meanings
hereinafter set forth:
(a) "Approached Merchant" means any Eligible Merchant that enters
into a Merchant Agreement with Bank for participation in the Program and
submitted by Contractor.
(b) "Business Day" means any day other than a Saturday, a Sunday
or a day on which the banks in the State of California are authorized by law to
close.
(c) "Card Association" means either VISA U.S.A., Inc. ("VISA") or
MasterCard International, Inc. ("MasterCard").
(d) "Card Association Rules" means the bylaws, rules, regulations
and directives of either VISA or MasterCard.
(e) "Debit Network" means the any regional or national debit
network which routes PIN-based transactions through Bank and with respect to
which Bank is either a direct or sponsored member.
(f) "Eligible Merchant" means a merchant which (i) is not a
merchant for which Bank is currently providing credit card deposit and account
reconciliation services; (ii) is solicited by Contractor to participate in the
Program; (iii) has not been previously submitted by any of the persons or
entities referred to in Section 2.1(b) of this Agreement; and (iv) meets, in
Bank's sole and absolute discretion, the criteria established by Bank in order
to participate in the Program.
(g) "Equipment" means any and all point-of-sale terminals,
printers for credit card vouchers and related equipment leased to an Approved
Merchant pursuant to one or more Leases.
(h) "FDC" means First Data Corporation, or any other provider of
similar services mutually agreed upon between the Parties.
(i) "ISO" means an Independent Sales Organization, which is a
title granted to an entity by VISA as the result of the entity qualifying the
VISA to solicit merchants on behalf of one or more financial institutions for
the collection and processing of credit card drafts.
(j) "Lease" means the finance lease entered into between Bank and
an Approved Merchant for the leasing by said Approved Merchant of the Equipment.
(k) "Lessee" means any merchant who, depending upon the context,
is submitting or has had approved by Bank, an application for a Lease of
Equipment.
(l) "Merchant Agreement" means that agreement entered into between
Bank and an Approved Merchant for participation in the Program.
(m) "Merchant Discount Amount" shall mean that portion of the
amount of bank card drafts or transactions submitted by Approved Merchants and
processed through the Program to be paid to Bank as determined by application of
the Merchant Discount Rate.
(n) "Merchant Discount Rate" means a percentage rate to be applied
to determine the portion of the face amount of a bank card draft or transaction
processed through the Program by Bank under this Agreement to be paid to Bank
pursuant to the Merchant Agreement with the Approved Merchant submitting such
bank card draft or transaction.
(o) "MSP" means a Member Service Provider which is a title granted
to an entity by MasterCard as the result of the entity qualifying with
MasterCard to solicit merchants on behalf of one or more financial institutions
for the collection and processing of credit card drafts.
(p) "Net Sales" equals gross sales minus returns of Visa and
MasterCard transactions. Net Sales specifically exclude transactions from any
other card types.
(q) "Program" means the activities conducted by Bank pursuant to
this Agreement, Card Association Rules and the rules and regulations of the
Debit Networks, whereby Bank acquires credit card and debit card sales drafts
and transactions from Approved Merchants and provides the necessary credit and
debit card processing services and support systems.
PART 2. ENGAGEMENT OF SERVICES
SEC. 2.1. ENGAGEMENT OF CONTRACTOR.
(a) Subject to the provisions of this Agreement, Bank grants to
Contractor and Contractor hereby accepts, the privilege and right to solicit
Eligible Merchants on behalf of Bank to participate in the Program as Approved
Merchants and/or to enter into Leases of the Equipment with Bank. Bank expressly
reserves the right to designate, in its sole discretion, the depository
financial institution in connection with each and every Merchant Agreement.
(b) Nothing in Section 2.1(a) or in any other provision of this
Agreement shall preclude Bank from entering into one or more similar agreements
with any other person or entity, nor the direct solicitation by Bank or any
third party of merchants to participate in Bank's bankcard transactions
processing activities (including Bank's Lease program).
PART 3. PROVISIONS RELATING TO BOTH MERCHANT BANKCARD AND LEASE SOLICITATIONS
SEC. 3.1. ADMINISTRATION BY BANK.
(a) Bank shall have administrative responsibility and control of
any and all matters in connection with this Agreement other than those expressly
stated to be the responsibility of Contractor pursuant to this Agreement.
(b) Bank will facilitate merchant deposits for each Approved
Merchant by opening the necessary merchant deposit accounts or providing
merchant deposit services through use of the Automated Clearing House (ACH).
(c) All applicable materials and information necessary or
appropriate for each application shall be provided Contractor by Bank or other
sources designated by Bank, in Bank's sole discretion. Bank will charge
Contractor a reasonable fee for said material.
SEC. 3.2. SOLICITATION BY CONTRACTOR.
(a) Contractor will solicit, on behalf of Bank, Eligible Merchants
to become Approved Merchants. Except with Bank's prior written approval, which
may be withheld in Bank's sole discretion, Contractor shall not knowingly
solicit any merchant which does not meet Bank's credit criteria for Eligible
Merchants then in effect and communicated in writing by Bank to Contractor.
Contractor acknowledges that such credit criteria may be changed by Bank from
time to time, in Bank's sole discretion.
(b) Contractor will solicit, on behalf of Bank, Eligible Merchants
who do not possess the necessary or appropriate equipment for proper
participation in the Program to enter into Leases of Equipment with Bank, and
will present to Bank all Leases executed thereby. Contractor understands that
all credit standards and funding and Lease factors applicable to Leases are at
Bank's sole discretion and may be changed from time to time. Bank will give
Contractor prior written notice of any such changes. Contractor further
understands, and agrees to so inform all merchants who submit executed Leases
under this Section 3.29b), that such submittals are applications only and that
all such applications are subject to acceptance by Bank at Bank's sole
discretion.
(c) Contractor shall disclose Bank's identity and location to each
merchant solicited by Contractor, and shall in no way suggest imply or infer
that Contractor itself is a member of the VISA and/or MasterCard networks and/or
any Debit Network; provided, however, that if Contractor is an ISO or MSP,
Contractor may identify itself as such.
(d) Contractor shall also initiate and conduct, in accordance with
all rules, regulations and laws governing the activities of Bank, such security
activities as are agreed to between Contractor and Bank in writing from time to
time.
(e) Contractor may not implement any marketing promotion for the
purpose of soliciting Eligible Merchants and Lessees, and/or establishing and
maintaining participation by Approved Merchants in the Program, without Bank's
prior written approval thereof. Except as otherwise expressly agreed in writing,
Contractor shall be solely responsible for its own expenses, of whatever nature,
incurred in developing and implementing its marketing promotions.
(f) Contractor shall submit to Bank, in legible form, all
materials and information required for Bank's review of an Eligible Merchant's
application including, but not limited to, (i) a proposed Merchant Agreement
and/or Lease, as the case may be, properly completed and executed by the
applicant, and (ii) properly completed, signed and verified training outlines
and setup forms, in such form and content as may be required by Bank from time
to time in Bank's sole and absolute discretion.
(g) Each proposed Merchant Agreement and/or Lease submitted by
Contractor to Bank shall include the genuine signature of an authorized
representative of the applicant. Additionally, Contractor shall certify with
respect to each Merchant Agreement and Lease submitted to Bank that (i)
Contractor or its authorized representative has completed a physical inspection
of the applicant's business premises and reviewed the detailed description of
the type of business provided on the merchant setup documentation, and (ii) to
the best of Contractor's knowledge, information and belief, the applicant is
legitimately engaged in a bona fide business operation and is not engaged to any
operation with the intent to defraud Bank or any other person or entity.
(h) Contractor may charge applicants whatever application fee
Contractor deems appropriate, and agrees to remit to Bank, for each applicant,
the application fee specified in Exhibit A, as amended. The application fee must
be clearly identified to the applicant as non-refundable. Any application
submitted without the application processing fee set forth in Exhibit A will be
deemed incomplete and placed on hold.
(i) Contractor shall cause each Approved Merchant to receive
complete training and terminals for use in connection with the Program within
two (2) weeks following receipt by Contractor from Bank of account setup
materials for such Approved Merchant, subject to equipment availability and
merchant authorization.
(j) Bank reserves the right to refuse any transaction offered by
Contractor.
SEC. 3.3. APPROVAL/CANCELLATION BY BANK OF MERCHANTS.
(a) Bank shall approve, approve subject to such limitations as
Bank may choose to impose, or disapprove the application of each applicant to
become an Approved Merchant and/or Lessee under the Program. All decisions
regarding the acceptance and/or conditions of acceptance of any such
application, entering into a Merchant Agreement or Lease with a merchant,
rejecting any such application, or refusing to accept one or more applications
for any reason whatsoever, shall be in the sole and absolute discretion of Bank.
(b) Bank agrees to use its best efforts to achieve merchant
approval or declination within forty-eight (48) hours of receipt from Contractor
of a completed and properly executed merchant application.
(c) Bank, in its sold and absolute discretion, may cancel any
Merchant Agreement between Bank and an Approved Merchant in accordance with its
terms and provisions as Bank deems appropriate, without prior consultation with
Contractor.
SEC. 3.4. OTHER DUTIES OF CONTRACTOR.
(a) Contractor shall be responsible for the payment of any
registration fee (including, but not limited to, any registration fee required
of an ISO or MSP, if applicable) required of it in order to perform its services
pursuant to this Agreement.
(b) Contractor shall be responsible, at Contractor's sole expense,
for all electronic terminal hardware installed at Approved Merchants' locations
and for all related charges and expenses including, but not limited to, purchase
installation, on-site training and ongoing maintenance for and customer service
to Approved Merchants. All Equipment installed at Approved Merchant locations
shall be of a type approved by Bank and compatible with Bank's credit card
processing system.
(c) Contractor shall timely furnish Bank any and all information
and materials that Bank may from time to time reasonably request in connection
with all matters contemplated by this agreement. Contractor also shall take all
such action as Bank may from time to time reasonably request in order to ensure
that all matters contemplated by this Agreement comply with applicable legal
requirements, of whatever nature.
(d) Contractor shall make available, within (7) days of any
request by Bank, VISA, MasterCard or any regulatory agency, all records and
documents within Contractor's control that relate to the services provided by
Contractor. Contractor agrees that Bank, VISA, MasterCard or an appropriate
regulatory agency each has the right to inspect any business location of
Contractor at any reasonable time to ensure full compliance by Contractor of the
provisions of this Agreement and of all applicable rules and regulations of VISA
and MasterCard. Contractor shall cooperate with any and all audits and/or
reviews of Contractor by Bank, VISA, MasterCard or such regulatory agency at any
time, and agrees to reimburse Bank for any amount Bank pays or is required to
pay to cover the cost of any inspection, audit or review.
PART 4. MERCHANT BANKCARD PROGRAM PROVISIONS
SEC. 4.1. MINIMUM NUMBER OF APPLICATIONS. Contractor shall submit
a minimum of 75 complete applications per month to Bank.
SEC. 4.2. FURTHER DUTIES OF BANK RELATING TO BANKCARD PROGRAM.
(a) Bank shall provide deposit and account reconciliation
services, chargeback processing, customer service, terminal support, risk
monitoring and collection services for all merchant accounts.
(b) Bank shall be responsible for, and shall pay, the following
fees and charges relating to this Agreement: (i) VISA, MasterCard and debit
interchange charges, transaction charges and frequency charges; (ii) all third
party processing charges (such as, but not limited to, those of FDC); and (iii)
Automated Clearing House (ACH) fees incurred in connection with the transmittal
by Bank of funds to Approved Merchants.
(c) On or before twentieth (20th) calendar day of each calendar
month, Bank shall provide all of the following information to Contractor for the
preceding calendar month: (i) the total number of open accounts of Approved
Merchants; (ii) Net Sales in dollars by all Approved Merchants for the prior
calendar month; (iii) the total Merchant Discount Amount and fees charged to and
collected from each Approved Merchant individually, and from all Approved
Merchants collectively; and (iv) that portion of the Merchant Discount Amount
and fees to be paid to Contractor by Bank for each Approved Merchant
individually, and for all Approved Merchants Collectively.
(d) Bank agrees that at all times hereunder it shall maintain in
good standing its memberships with VISA, MasterCard and any and all other
entities required to allow Bank to serve as an acquirer for Approved Merchants,
and will provide Contractor the authority to participate as a third party
merchant service provider.
SEC. 4.3. COMPENSATION.
(a) As compensation for the performance of its services pursuant
to this Agreement, Contractor shall be entitled to receive discount income a
specified on Exhibit A. Said compensation shall be computed daily by Bank and
paid to Contractor by the twentieth (20th) calendar day of the following
calendar month.
(b) Notwithstanding the termination of this Agreement, so long as
Contractor is not in violation of Section 7.7(a) Contractor shall be entitled to
continue to receive compensation as set forth in Exhibit A; provided, however,
that in the event Contractor violates, or permits the violation of, Section
7.7(a), Contractor shall not be entitled to any further compensation whatsoever
under this Agreement.
(c) The provisions of this Section shall survive termination of
this Agreement.
SEC. 4.4. RESPONSIBILITY FOR MERCHANT CHARGEBACKS AND OTHER
LOSSES. Bank shall have full recourse to Contractor, and Contractor shall be
liable to Bank, for fifty percent (50%) of any merchant chargeback or other loss
to Bank (including, without limitation, failure to properly provide services
pursuant to Sections 3.2 and
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SEC. 5.2. FUNDING OF LEASE.
(a) Bank agrees to purchase from Contractor all Equipment
appropriate to each Lease accepted and funded by Bank pursuant to this
Agreement, subject to lease price ceilings in effect at the time of purchase, at
the gross price set forth on Contractor's invoice therefor less that percentage
which is applicable to the Grade assigned to the Lessee, as such Grades and
percentages are set forth in Exhibit B (the net of which is referred to
hereinafter as the "Bank Purchase Price"). Bank's current lease price ceilings
are set forth in Exhibit B. Bank has the sole discretion to establish and/or
amend such lease price ceilings, Grade definitions and percentage discounts
relating thereto, at any time upon fourteen (14) days' advance written notice to
Contractor.
(b) Upon funding a Lease Bank will transmit to a deposit account
designated by Contractor, by ACH transmission or direct deposit, said Bank
Purchase Price less: (i) the first month's payment due under the Lease; (ii) any
other amounts required as advance payments under the Lease, and (iii) applicable
taxes, which will be paid by Bank.
SEC. 5.3. PAYMENT OF TAXES. Bank shall pay all applicable state
and local sales and use taxes relating to the Equipment on each Lease presented
and accepted.
SEC. 5.4. MAINTENANCE/SERVICE OF THE EQUIPMENT. Contractor will
perform or cause to be performed, at no cost to Bank, all maintenance and
service on the Equipment required under warranties or any maintenance contacts.
After the expiration of such warranties or maintenance contractors, Contractor
will perform or cause to be performed all maintenance and service on the
Equipment reasonably requested by Bank at reasonable costs.
SEC. 5.5. FIRST PAYMENT DEFAULT. If any Lessee fails to pay in
full the first payment due, other than any payment made at the time of Lease
funding, within fifteen (15) days from its due date, or if a Lessee's first
authorized ACH debit is declined by its bank or other financial institution
(unless the reason for the decline was due to Bank's error), and if Bank's
normal collection efforts do not result in Bank's receipt of such full payment,
Contractor agrees to repurchase the Lease from Bank within fifteen (15) days
after notice thereof from Bank for the Bank Purchase Price (as defined in
Section 5.2(a)), plus a handling charge of one hundred dollars ($100.00).
Contractor agrees that, at Bank's option, such amount will be either (a)
separately remitted by Contractor to Bank within ten (10) calendar days after
demand therefor by check or other draft acceptable to Bank, or (b) charged by
Bank against other payments due Contractor from Bank. If such payment is not
received within fifteen (15) days of demand, the payoff amount will be the
greater of the amount set forth immediately above in this section or the net
payoff plus one hundred dollars ($100.00). If payment is not made within thirty
(30) days of demand, a Small Claims Court action will be filed by Bank.
SEC. 5.6. WARRANTIES RELATING TO LEASES. Contractor hereby agrees
that, by the presentation of any Lease by Contractor to Bank, Contractor is
warranting and representing to Bank all of the following:
(a) The Lessee, on or before executing the Lease, has received a
true copy of the Lease and has been informed in writing of the identity of the
supplier of the Equipment.
(b) The Equipment description in the Lease is complete and
accurate in all respects.
(c) (i) The Equipment described in the Lease is not defective;
(ii) Contractor has good and marketable title thereto; (iii) the Equipment is
not subject to any defense (including, without limitation, claims of
nonconformity or offset by the Lessee); and, (iv) following Bank's purchase
thereof, Bank will have good title to the Equipment free and clear of all
claims, liens or encumbrances except as previously disclosed in writing to Bank.
(d) No portion of the money required to commence the Lease has
been advanced, loaned or rebated by Contractor to the Lessee, and Contractor has
not entered into any separate agreement with the Lessee or any officer,
director, employee, agent or guarantor of the Lessee without the prior knowledge
and written approval of Bank.
(e) CONTRACTOR HAS MADE NO CLAIM OR REPRESENTATION WHICH IS NOT
SPECIFICALLY SET FORTH IN THE LEASE. Contractor further warrants to Bank that
all claims, representations, warranties or statements made by Contractor to Bank
and to the Lessee are true and correct and are not false, misleading or
fraudulent in any respect, whether by direct statement or omission. If there is
any claim of misrepresentation of either or both the Lease Agreement or the
Merchant Agreement, Contractor agrees to repurchase the Lease from Bank for the
total of the Lease payments remaining at the time of such claim (whether or not
such Lease payments are then currently due and payable), less the unearned
income thereon less fifteen percent (15%) of the Contractor's original invoice
therefore, plus a handling charge of one hundred dollars ($100.00). Contractor
agrees that, at Bank's option, such amount will be either (i) separately
remitted by Contractor to Bank within ten (10) calendar days after demand
therefor by check or other draft acceptable to Bank, or (ii) charged by Bank
against other payments due Contractor by Bank.
(f) All financial information and all trade, bank and credit
ratings received by Contractor have been provided to Bank. No negative financial
information or ratings have been altered, deleted from the package submitted to
Bank by Contractor, or otherwise withheld from Bank.
(g) All signed documents submitted to Bank by Contractor were duly
executed by the person(s) purported to have executed such documents, and all
such documents (i) are valid, legal, enforceable and binding on the Lessee or
guarantor, as the case may be; (ii) comply with all applicable laws; and (iii)
are complete, genuine and without alteration or omission.
(h) All signatures on each document were personally witnessed by
Contractor, or by an employee, agent or other authorized representative of
Contractor. If any claim of forgery, unauthorized signature or other matter
involving the authenticity of the Lessee's or any guarantor's signature arises
during the term of the Lease, Contractor agrees to repurchase the Lease from
Bank for the total of the Lease payments remaining at the time of such demand
(whether or not such Lease payments are then currently due and payable ), less
the unearned income thereon and less fifteen percent (15%) of the Contractor's
original invoice therefore, plus a handling charge of one hundred dollars
($100.00). Contractor agrees that, at Bank's option, such amount will be either
(1) separately remitted by Contractor to Bank within ten (10) calendar days
after demand therefor by check or other draft acceptable to Bank, or (2) charged
by Bank against other payments due Contractor by Bank.
PART 6. OTHER WARRANTIES AND INDEMNIFICATIONS
SEC. 6.1. MUTUAL WARRANTIES. Each Party to this Agreement warrants
to the other Party all of the following: (a) it is duly organized and validly
existing under the laws of the state wherein its principal offices re located
and is in good sanding in every other state where it is doing business; (b) it
has all necessary rights, title, license and authority to enter into this
Agreement; (c) the persons(s) signing this Agreement on its b4ehalf has full
authority to bind it to the terms and conditions hereof; (d) performance by it
of its duties and obligations under this Agreement has been duly authorized by
all necessary action, will not violate any provision of its organization
documents, or any amendment thereof, or constitute or result in a violation or
breach under, nor conflict with, any statute or other law, any order or ruling
of any court or tribunal, or any rule or regulation of any administrative agency
or regulatory authority; and (e) with or without the lapse of time after the
giving of notice by a third party, will not violate any provision of, nor
constitute or result in a violation or default under, or conflict with any
contract, agreement, lease instrument or other undertaking to which it is a
party or by which it or any of its properties or assets may be bound or
affected.
SEC. 6.2. SEPARATE WARRANTIES BY CONTRACTOR. Contractor hereby
represents and warrants to Bank all of the following: (a) it has received,
understands, and will comply fully with all requirements of VISA, MasterCard and
Debit Networks; (b) it will conform to and comply with all federal and state
laws and regulations that are applicable to Contractor's provision of service
and performance of its obligations set forth in this Agreement (provided,
Contractor may, in good faith, contest the applicability, validity or
construction of any law or regulation in connection with the provision of
services and performance of its obligations set forth in this Agreement when
expressly authorized by Bank to do so); (c) adequate and property training will
be provided to contractor's marketing representatives for the conduct of
on-premise investigations in accordance with Section 3.2(g), and that Contractor
shall maintain records reflecting such training; (d) in carrying out its
obligations hereunder, Contractor will perform all of its obligations set forth
in this Agreement to the best of its ability, that all information transmitted
to Bank by Contractor or by any agent, employee, subcontractor or other
representative of Contractor shall be accurate, and that all services provided
by Contractor shall be performed with due care.
SEC. 6.3. SEPARATE WARRANTY BY BANK. Bank hereby warrants to
Contractor that Bank will comply with all applicable laws and regulations
regulating banks as acquirer's of credit card and debit card transactions, and
commercial finance lessors.
SEC. 6.4. INDEMNIFICATION OF BANK BY CONTRACTOR. Contractor agrees
to indemnify, defend, and hold harmless Bank and Bank's employees, officers,
directors, shareholders, agents, corporate parents and affiliates against any
and all claims, liabilities, losses, damages, costs or expenses (including,
without limitation, fees and expenses of attorneys and consultants and court
costs) of third persons or entities either directly or indirectly related or
attributable to (a) Contractor's negligence or wrongful act in its performance
under, or Contractor's breach of, this Agreement or any provision hereof, or (b)
to any such action of Contractor in any way associated with or related to this
Agreement. This indemnification obligation of Contractor shall include, without
limitation, any and all claims for contractual, tortious, exemplary, punitive or
statutory damages of any nature whatsoever and any and all injunctive or other
equitable relief.
SEC. 6.5. SURVIVAL. The warranties and indemnifications set forth
in this Part6 shall survive any termination of this Agreement.
PART 7. GENERAL TERMS RELATING TO BOTH MERCHANT BANKCARD AND LEASE PROVISIONS
SEC. 7.1. RELATIONSHIP OF PARTIES.
(a) Contractor is an independent contractor. Nothing herein shall
be construed to imply the existence of a partnership or joint venture between
Contractor and Bank, nor to make Contractor an agent of Bank for tax or other
purposes, Neither Contractor nor any of its directors, officers, employees or
agents, under any circumstances or conditions, shall represent, claim to be or
imply that Contractor or any of its directors, officers, employees or agents or
directors, officers, employees or agents or Bank, nor that Contractor or any of
its directors, officers, employees or agents has any right, power or authority
to create any obligation, express or implied, on behalf of or binding upon Bank.
(b) Contractor may employ such personnel as Contractor deems
necessary to complete performance. Bank may not direct Contractor's employees.
Contractor takes full responsibility for paying all compensation and expenses of
its employees and/or subcontractors, including (but not limited to) all related
local, state and federal taxes, unemployment insurance, Social
Security/Medicare, disability insurance, and other applicable withholdings,
payroll taxes, and workers' compensation insurance premiums.
SEC. 7.2. EXPENSES OF CONTRACTOR. All expenses whatsoever incurred
by Contractor under this Agreement shall be Contractor's sole responsibility,
and neither Bank nor its assigns shall be liable therefore.
SEC. 7.3. TERM. This Agreement shall continue for a period of one
(1) year commencing on the Effective Date, but may be terminated without cause
by either Party upon ten (10) days' written notice, or sooner at the election of
he non-defaulting Party if a Party has materially breached this Agreement or any
other agreement between the Parties. Thereafter, unless earlier terminated, this
Agreement shall automatically renew for consecutive additional one (1) year
terms on each anniversary of the Effective De unless either Party gives written
notice to the other on or before thirty (3) calendar days immediately preceding
the expiration date of the then-current term.
SEC. 7.4. TERMINATION AND ADJUSTMENT PRIVILEGES. In addition to
the provisions of Section 7.3, it is expressly understood and agreed that this
Agreement may be terminated at any time during its initial term and any renewal
term as follows:
(a) Unless Contractor obtains the prior written approval of Bank,
which Bank may not unreasonably withhold, Bank may terminate this Agreement upon
thirty (3)) calendar days' written notice to Contractor upon the occurrence of
either of the following events: (i) Contractor merges or is consolidated, or
enters into an agreement to merge or consolidate, into or with any other entity;
or (ii) Contractor fails to maintain its good standing in each jurisdiction
where it conducts its business.
(b) Bank may, by giving written notice thereof to Contractor,
immediately terminate this Agreement upon the occurrence of an Event of Default.
For purposes of this Agreement, "Event of Default" shall mean the occurrence of
any of the following: (i) A representation made by Contractor in this Agreement
or otherwise in connection therewith proves to be false or misleading in any
material respect, or (ii) Contractor materially or repeatedly defaults in the
performance or observance of any of its duties and obligations under this
Agreement.
(c) Either Party may immediately terminate this Agreement at any
time if the other Party ceases conducting business in the ordinary course or
files any petition in bankruptcy or reorganization or debt consolidation under
federal bankruptcy laws or under any comparable law by or against the other
Party, or upon the other Party's making of an assignment of any of its assets
for the benefit of creditors, or upon the application by the other Party for the
appointment of a receiver or trustee of its assets.
(d) In the event that a change is made to the Program by Bank
which, in Contractor's reasonable judgment, is materially adverse to Contractor
under this Agreement and Bank fails to revoke such change within fifteen (15)
business days after a written request therefor from Contractor, Contractor may
upon at least thirty (3) calendar days' written notice to Bank terminate this
Agreement; provided that from and after any notice of termination given by
Contractor pursuant to this Subsection (d), Contractor's duties and obligations
under this Agreement s they existed immediately prior to such change shall be
unaffected by the change until such termination of this Agreement becomes
effective. For purposes of this Subsection, a change in the Program is
"materially adverse" if and only if; (i) the change is of a substantial and
material nature and materially impairs Contractor's ability to perform its
obligations under this Agreement as such existed immediately prior to such
change; and (ii) within thirty (30) calendar days of written notice from Bank
that the change or a substantially similar change is proposed to be made,
Contractor notifies Bank that, in Contractor's judgment, the proposed change
meets the standard specified in clause (i) immediately above.
(e) Bank may terminate this Agreement upon 30 calendar days'
written notice to Contractor (except where Bank reasonably believes such a delay
would cause serious adverse consequences to Bank, in which case Bank may act
immediately upon written notice to Contractor) if, at any time, Bank determines,
in its sole and absolute judgment, that (i) the business reputation of Bank is,
or is threatened to be, adversely affected by the quality of services rendered
by Contractor or its agents hereunder or by the reputation of Contractor, or
both, or (ii) that further performance of services by Contractor hereunder will
have an adverse financial impact upon Bank for any reason.
(f) In the event that the performance or observance by either
Party of any of the terms or provisions of this Agreement is determined to be
unlawful or in violation of any federal, state or local statute, law, ordinance,
regulation or rule, said Party shall seek to cure the illegality
or violation
within thirty (30) calendar days following the date that such Party is first
informed of such violation or illegality. If such cure is not effected within
such thirty (30) calendar day period, either Party may thereupon terminate this
Agreement upon written notice to the other Party.
(g) This Agreement shall terminate automatically in the event of
termination of Bank's applicable VISA and/or MasterCard license or its
membership in VISA and/or MasterCard, or both, or in the event of
de-registration of Contractor by VISA and/or MasterCard.
SEC. 7.5. BREACH; REMEDIES.
(a) In the event that either Party defaults in any of its
obligations under this Agreement, in addition to any other remedies provided by
this Agreement or applicable law (including, without limitation, termination),
the non-defaulting Party shall be entitled to recover from the defaulting Party
any and all costs, damages and liabilities which it incurs or may incur on
account of such default, including, without limitation, reasonable attorneys'
and consultants' fees and expenses and costs incurred in connection with any
proceeding relating to such default. The provisions of this Section 7.5(b) shall
survive any termination of this Agreement.
(b) Each Party specifically acknowledges and agrees that the
rights, interests and privileges of the other Party set forth in this Agreement
are unique attributes of that Party and may not be quantified in terms of
monetary value. The Parties each acknowledge and agree that any violation of its
covenants set forth herein is likely to result in a remedy for damages being
inadequate to protect the rights, interests and privileges of the injured Party
and is likely to result in irreparable harm. Accordingly, the Parties
specifically agree that, in addition to any and all rights and remedies for
damages, the injured Party shall have injunctive or similar equitable remedies
available to it for any such violation. The provisions of this Section 7.5(c)
shall survive any termination of this Agreement.
SEC. 7.6 SEPARATE BREACH PROVISIONS RELATING TO LEASES; REMEDIES.
With respect to any Lease, Contractor agrees that in the event that:
(a) Bank or any of its assigns discovers any breach of any
warranty or representation made by Contractor pursuant to the provisions of
Section 5.6 of this Agreement;
(b) Bank or any of its assigns discovers that Contractor
misrepresented any material fact pertaining to the Lessee, related Merchant
Agreement of the Lease; or (c) a Lessee claims that Contractor breached any
representation or warranty in connection with the Lease and/or Merchant
Agreement, then Contractor will unconditionally repurchase the Lease from Bank
or its assigns for an amount equal to the monthly Lease payment multiplied by
the number of remaining months due at the time of the repurchase demand, whether
or not such Lease payments are then currently due and payable, less the unearned
income thereon and less fifteen percent (15%) of the Contractor's original
invoice therefore, plus a handling charge of one hundred dollars ($100.00).
Contractor agrees to separately remit said repurchase amount to Bank by check or
other draft acceptable to Bank within ten (10) calendar days after demand
therefor.
SEC. 7.7. NON-INTERFERENCE BY CONTRACTOR
(a) So long as this Agreement remains in effect and for a period
of at least three years after termination of this Agreement, Contractor shall
not permit any subsidiary, affiliate or successor in interest, or any of its
shareholders, directors, officers, employees, agents or nominees, or members of
their immediate families, to interfere, in any manner whatsoever, either
directly or indirectly by any arrangement whatsoever, with Bank's contractual
rights and interests under any Merchant Agreement or Lease, or to cause or
attempt to cause any Approved Merchant to engage in bankcard transaction
processing through any person or entity other than Bank.
(b) Contractor agrees to exercise its best efforts to not violate
the provisions of Section 7.7(a) by its own act or omission or by permitting the
act or omission of any other person or entity described in Section 7.7(a);
however, if Contractor directly or indirectly violates the provisions of Section
7.7(a) and Bank so notifies Contractor, Contractor will have thirty (30)
calendar days to rectify the violation.
(c) This Section 7.7 shall survive termination of this Agreement.
SEC. 7.8. CONFIDENTIALITY
(a) Each party may, in the course of performance of its
obligations under this Agreement, find it necessary or appropriate to furnish to
the other Party, or may find it has access to, certain confidential information
about or proprietary material regarding the Program or regarding the customers,
business plans or other proprietary information of the other Party (hereinafter
referred to collectively as "Confidential Information"). Confidential
Information of each Party shall include, without limitation, that Party's
marketing philosophy and objectives, promotions, markets, materials, financial
results, technological developments, any and all lists of Approved Merchants'
names and addresses, and other similar confidential and/or proprietary
information and materials.
(b) Each Party shall at all times maintain, and cause its
directors officers, employees servants, agents and representatives to maintain,
the confidentiality of all Confidential Information. Neither Party shall sell or
otherwise convey any of the other Party's Confidential Information or materials
to any third party other than potential Eligible Merchants (with respect to
materials and information previously approved by Bank for such purposes) without
the prior written approval of the proprietor of such Confidential Information,
and each Party shall exercise all precautions reasonably necessary to prevent
access to such information or materials buy any such third party. Neither Party
shall disclose, furnish or use such information or materials for any purpose
whatsoever other than those specifically contemplated herein. Each Party agrees
that during the term of this Agreement and thereafter, it shall exercise its
best efforts to prevent its agents, employees and subcontractors from using any
Confidential information to which it becomes privy.
(c) All Confidential Information furnished by either Party to
the other Party in connection with this Agreement is the exclusive property of
the originating Party and, at the request of the originating Party or upon the
termination of this Agreement.
SEC. 7.9. USE OF TRADEMARKS. Contractor has no right to use and
shall not use Bank's trademark, name or any other proprietary designation of
Bank in advertisements, as a reference or otherwise, without the express written
permission of Bank. The provisions of this Section 7.9 shall survive any
termination of this Agreement
SEC. 7.10. NOTICES Any notice that either Party is required or may
desire to deliver shall be delivered as follows:
(a) If the notice relates to any breach or the termination of this
Agreement, by United States certified or registered mail, postage prepaid and
return receipt requested; by private carrier with guaranteed overnight delivery;
or by facsimile transmission with a confirming copy sent by United States
certified or registered mail, postage prepaid and return receipt requested,
addressed as set forth in Section 7.10(c).
(b) If the notice relates to any other matter, by facsimile or
e-mail transmission, addressed as set forth in Section 7.10(c).
(c) All notices shall be addressed as follows:
If to Bank: If to Contractor:
Humboldt Bank c/o Digital International Inc.
Merchant Services Jack Combs
605 K Street 404-815 Hornby Street
Eureka, CA 95501 Vancouver, BC V6Z 2E6
Fax No: (707) 445-4927 Canada
Attn: Ken Musante. V.P.
(d) In the event of transmission by facsimile, e-mail or private
carrier, such notice shall be deemed delivered on the first business day
following the transmission, provided that the sender can reasonably demonstrate
its receipt.
(e) Either party may designate a different address to which
notices are to be sent by a writing sent to the other Party as provided by this
Section 7.10.
SEC. 7.11. ASSIGNMENT. This Agreement is personal to Contractor
and may not be assigned, transferred, shared or divided, in any manner, without
the prior written consent of Bank, and any such attempt without Bank's written
consent shall be null and void. Subject to the foregoing, this Agreement shall
be binding upon and inure to the benefit of the Parties and their heirs,
personal representatives, successors and assigns.
SEC. 7.12. EXCUSABLE DELAYS AND FORCE MAJEURE. Any delay in
performance by either Party hereto of its obligations hereunder shall be excused
when such delay is due to any cause or event of any nature whatsoever beyond the
reasonable control of such Party including, without limitation, any act of God;
any fire, flood, or weather condition; any earthquake; or any act of a public
enemy, war insurrection, riot, explosion or strike; provided, that written
notice thereof must be given by such Party to the other Party within ten (10)
calendar days after occurrence of such cause or event.
SEC. 7.13. CONSTRUCTION OF AGREEMENT
(a) Any exhibit referred to herein and attached hereto is hereby
expressly incorporated herein in its entirety and made a part of this Agreement.
All defined terms under this Agreement shall have the same meanings in any
exhibit referred to herein, except that, in the event of any conflict between
any of the provisions of such exhibit and the provisions of this Agreement, the
provisions of this Agreement shall prevail.
(b) In the event of any inconsistency between any provision of
this Agreement with applicable Card Association rules, the applicable Card
Association rules shall be afforded precedence and shall apply.
(c) This Agreement shall be construed as to its fair meaning and
not strictly for or against either Party.
(d) The respective rights and remedies of Bank and Contractor
under this Agreement shall be cumulative, and the exercise or partial exercise
of any such right, remedy or privilege shall not preclude the exercise of any
other right, remedy or privilege. The non-exercise or partial exercise by either
Party of any right, remedy or privilege under this Agreement shall no impair or
preclude the future exercise by that Party of that same or any other right,
remedy or privilege under this Agreement. The provisions of this Section 7.13(d)
shall survive any termination of this Agreement.
(e) No failure or delay of either Party in exercising any right or
power given to it under this Agreement shall operate as a waiver thereof. No
waiver of any term, covenant, condition or obligation of this Agreement, or any
breach thereof, shall be effective unless granted in writing. The waiver by any
of the Parties of any term, covenant, condition or obligation herein contained,
or of any breach thereof, shall not be deemed to be a waiver of any other term,
covenant, condition or obligation herein contained or of any prior, concurrent
or subsequent right hereunder. The provisions of this Section 7.13(e) shall
survive any termination of this Agreement.
(f) Unless otherwise provided in this Agreement, consent and
approval, when required hereunder on the part of either Party, shall not be
unreasonably withheld.
(g) The captions in this Agreement are for convenience only and
shall not be considered a part hereof nor affect the construction or
interpretation of any provision hereof.
(h) This Agreement may be executed in multiple counterparts, each
of which shall be deemed to be an original and all of which, taken together,
shall constitute one and the same document.
SEC. 7.14. LAW GOVERNING; VENUE; ATTORNEYS' FEES
(a) This Agreement shall be interpreted and construed according to
the laws of the State of California.
(b) The Parties agree and consent that, in the event of any
litigation arising out of or related to this Agreement, any state or federal
court having jurisdiction in Humboldt County, State of California, shall have
jurisdiction and be the proper venue for the determination of all controversies
and disputes arising hereunder. The prevailing Party shall be entitled, in
addition to such other relief as may be granted, to recover its reasonable
attorneys' fees and costs at trial, and on any appeal therefrom.
SEC. 7.15. SEVERABILITY. If a court if competent jurisdiction
finds any provision of this Agreement to be invalid or unenforceable as to any
person or circumstances, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provisions shall be deemed to be modified to be within the limits of
enforceability or validity; provided, however, if the offending provision cannot
be so modified, it shall be stricken and all other provisions of this Agreement
in all other respects shall remain valid and enforceable.
SEC. 7.16. ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the Parties with respect to this subject matter, and shall
supersede and cancel all prior offers, negotiations and agreements between the
Parties thereon, whether written or oral. Accordingly, this Agreement now
constitutes the complete and exclusive statement of the terms and conditions
between the Parties covering the performance hereof, and may not be altered,
modified or supplemented except by a writing duly executed by each Party;
provided, notwithstanding the foregoing, that Bank shall have the right to amend
the provisions set forth in Exhibit A hereto upon thirty (30) calendar days'
notice to Contractor.
IN WITNESS WHEREOF, the Parties have executed and delivered this
Agreement by their respective officers as of the day and year set forth below.
Humboldt Bank Contractor
By: _________________________________ By: ________________________________
Title: ______________________________ Title: _____________________________
Date: _______________________________ Date: ______________________________
EXHIBIT A
ISO-50%
1. (a) As compensation for the performance of its services pursuant to this
Agreement, ISO shall be entitled to receive fifty percent (50%) of the net
profits of the Program. For purposes of this section, "net profits" are defined
to mean the total of all Merchant Discount Amounts and merchant discount rate
collected by Bank from Approved Merchants each month pursuant to Bank's
agreement with such Approved Merchants under the Program, but excluding
application income less any ACH rejects, merchant losses, chargebacks and
expenses incurred by Bank in the administration of the Program including, but
not limit4ed to, any and all VISA and for MasterCard costs or fees, third party
processor fees, and Bank Administrative fees.
(b) Should such amount be less than zero, then nothing shall be paid to ISO
until such time that the sum of the "net profits" for the immediately succeeding
months becomes positive. For example purposes only, should the "net profits"
during months 4, 5, 6, and 7 equal $50, ($75), ($25) and $200, then ISO shall be
paid $25, ($37.50), ($12.50), and 100 in each of those months respectively.
(c) Administrative Overhead Fees, including:
Item Item Cost Merchants'Cost
- ---- --------- --------------
Monthly Min $25.00
Statement Fee $10.00
Per Merchant ETC Help Desk
Monthly Statement
Merchant on File
Various FDR Reporting to Bank
On line Transactions
CD ROM's $3.50 per merchant/per month
FDR 56 KBPS Data Line
Merchant Assistance Voice Calls
Merchant Hot Call/Code 10
Sales Tax
Imprinter Plates
Discover Adds
Humboldt Bank Fraud Control $4.00 per merchant/month
Humboldt Bank Customer Service $4.00
Humboldt Bank Accounting $1.50
Bank Reporting $1.50
Humboldt Bank Chargeback Fee $15.00 $25.00
(d) Visa U.S.A. & MasterCard International Interchange Table:
Item Cost
- ---- -----
Visa
Visa CPS/Retail - Credit 1.38% + $0.05
Visa CPS/Retail - Ken-Entered 1.80% + $0.10
Visa Dues & Assessments .084%
FDR Authorization & Data Capture $0.10
Address Verification Service (AVS) Fee $0.05
MasterCard
MasterCard Merit III (70, 80) 1.36% + $0.10
MasterCard Key-Entered (92) 1.85% + $0.10
MasterCard Dues and Assessments .084%
FDR Authorization & Data Capture $0.10
Address Verification Service (AVS) Fee $0.05
2. Discount/Floor Limit: ISO shall be allowed to sign-on merchants at or
above the discount rate and transaction fees stated below for Retail, MO/TO, and
Internet Merchants:
Floor Limit Merchant Classification
1.60% + $0.15 For retail locations where at least 70% of the transactions
are swiped through the terminal.
1.52% + $0.18 For retail locations where at least 85% of the transactions
are swiped through the terminal and are contained on Humboldt
Bank's "Select Retail Merchant List."
2.29% + $0.23 For mail or telephone order merchant locations or any
merchants that swipe less than 70% of their transactions.
2.29% + $0.23 For Internet Merchants ("Note: Excludes CyberCash Transaction
Fee, see CyberCash below.)
3. Application Fees:
Item Cost
- ---- -------
Application Fee, per merchant application $40.00
Application Fee, additional location or Merchant Conversion* $15.00
Application Fee, Select Retail Program* $15.00
*Note: Reference Program description in Sales Manual, "Application Submission
Criteria."
4. Debit and Lighthouse Club Fees:
Item Cost
- ----- -----
Debit Monthly Minimum fee $7.50
Debit per Transaction Fee $0.35
Lighthouse Club Equipment and Supply Program Monthly Fee $9.50
5. Internet Gateway Fees:
Gateway Cost
- ------- ----
Authorize.Net
Authorize.Net Set-up Fee $99.00
Authorize.Net Monthly Internet Gateway Fee $12.50
eCHECK.Net
eCHECK.Net Set-up Fee $49.00
eCHECK.Net Minimum Fee $8.00
eCHECK.Net Discount Rate 1%
eCHECK.Net Transaction Fee $0.20
CyberCash
CyberCash Set-up Fee $159.00
CyberCash Internet Monthly Gateway Fee $17.50
CyberCash Transaction Fee $0.25
Signio
Signio Set-up Fee $75.00
Signio Internet Monthly Gateway Fee $17.50
G-Gate
G-Gate Set-up Fee $50.00
G-Gate Internet Monthly Gateway Fee $7.50
6. The ISO shall pay a registration fee of $11,000 to Bank for ISO program
plus any renewals or expenses.
7. Bank will provide collection service for a fee of 40% of the amount
collected.
8. ISO shall be entitled to 50% for every approved American Express
application and 50% of the net profit paid by American Express.
9. Rolling Reserve against losses: Ten (10) basis points on the total
processing amount of the portfolio. Ten percent (10%) per month would be taken
out to build the amount for the reserve.
10. Up-Front Reserve again losses. $25,000.000
EXHIBIT B
PORT 16
- --------------------------------------------------------------------------------
The terms are as follows:
1) Buy Rate: 48 months
A B C D E
-------------------------------------------------------------------
0.0300 0.0320 0.0360 0.0380 0.0480
2) Digital Commerce International, Inc. agrees to use Humboldt Bank Credit
system as a basis for underwriting leases. All leases of "E" or better will be
accepted by Humboldt Bank, subject to the conditions following:
a) at least 40% of all leases purchased by Buyer will receive a score
of "A",
b) at least 55% of all leases purchased by Buyer will receive a score
of "A" or "B",
c) no more than 22.5% of all leases purchased by Buyer will receive a
score of "C"
d) not more than 15% of all leases purchased by Buyer will achieve a
score of "D",
e) not more than 5% of all leases purchased by Buyer will achieve a
score of "E".
3) Digital Commerce International, Inc. will pay for First Payment Default.
4) Initial payment due is first month plus last month (to include taxes).
5) Lease-end options for merchant: - may return equipment - may elect
month-to-month extension at existing rate
6) Buyout at 10% of gross lease amount
7) Taxes administered by Humboldt Bank
- --------------------------------------------------------------------------------
To active this new program, please sign and return. A signed copy must be in the
file.
Name: Jack Combs, Norm Dority Humboldt Bank
Business Name: MBS Acquisition Corp. c/o Signature: ________________________
Digital Commerce International Inc. Date: ___________________________
Phone: (888) 505-5688
Fax: (604)-899-5495
Signature: ___________________________
Date: ________________________________
Subsidiaries of Digital Commerce International, Inc.
Name Description
- ---- ------------
Digital Commerce Bank Inc. International Banking Services,
international bankcard processing
and private banking
Digital Commerce Merchant Service Inc. Bankcard processing to domestic
and international merchants.
Digital Commerce Inc. Sales agent for organizations
engaged in processing of credit
card transactions for
international merchants
Digital Commerce Canada Inc. Technology Development
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