FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report September 23, 1999
-----------------------------------------------------------------
Online International Corporation
- --------------------------------------------------------------------------------
(Exact Name of registrant as specified in its charter)
NEVADA 33-20966 NO. 760251547
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File No) (IRS Employer
incorporation) Identification No.)
150 LASER COURT
HAUPPAUGE, NEW YORK 11788
- --------------------------------------------------------------------------------
(Address of Principal Executive Officers) (Zip Code)
Registrant's telephone number, including area code 516-231-7575
-----------------------------
Condor West Corporation 909 Frostwood, Suite 261 Houston, Texas 77024
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
COPIES OF ALL COMMUNICATIONS TO:
Steve Larson-Jackson, Esquire
W. Kwame Anthony, Esquire
Law Firm of Larson-Jackson, P.C.
1275 K Street, NW, Suite 1101
Washington, D.C. 20005
Tel.: (202) 408-8180
Fax.: (202) 789-2216
ITEM 1: Change in Control of Registrant
The Company is a Nevada corporation formerly known as Condor West
Corporation. In December 1988, pursuant to a Form S-1 registration statement,
the Company's registration statement became effective. From 1989 to 1994 Condor
remained inactive. In May 1995 the Company began to develop a business plan for
the financing and establishment of a chain of retail brake and installation
outlets. The Company operated under the name of Super Brakes, Inc. From May 1996
to the September 1999 the Company had no material assets, liabilities or
business activities. In August 1999, the majority of shareholders of Condor
approved a plan of merger with Online International Corporation. Online
International Corporation controls the company as a result of the merger between
the two companies. Control of the company was acquired by Stanley James White,
Leslie Nochomovitz and Alex Igelman and Victoria Danseglio through Online. The
amount of the consideration was $275,000 and the source of the payment came from
Online International Corporation. The payment was made on September 9, 1999 and
no part of the consideration was a loan. The transaction is best described as a
reverse takeover pursuant to a plan of merger wherein Online was merged into
Condor. The officers and directors do not beneficially own, directly or
indirectly, any of the common stock of the corporation. The control block of
common stock consists of 201,000 shares, which are beneficially owned by the
company, Online International Corporation. The officers and directors received
rights to receive stock options. The options will not vest until the
expiration of one year or after September 9, 2000. The identity of the
persons from whom control was acquired is as follows: Carl D. Nation;
<PAGE>
Dr. Everett Renger: Steven R. Paige; Wade D. Althen; Terrance Rasmussen; David
Christman; Berton A. Johnson; Dennis L. Swenson; and Everrett Renger, Sr.
ITEM 6: Resignations of Registrant's Directors
As a condition of the transaction, the directors tendered their
resignations and the resignations were accepted by the Chairman of the Board of
Directors on August 4, 1999. On September 9, 1999 three new directors nominated
by Online. The new directors are Stanley James White, Leslie Nochomovitz and
Alex Igelman.
ITEM 7. Exhibits and Financial Statements
<PAGE>
INDEX TO FINANCIAL STATEMENTS REQUIRED BY ITEM 7
INDEX
A. FINANCIAL STATEMENTS
Report of independent certified public accountants
Balance sheets, January 31, 1999 and 1998
Statement of income for the periods ended
January 31, 1999 and 1998
Statement of stockholder's equity for the years
ended January 31, 1999, 1998 and 1997
Statement of cash flows for the periods ended
January 31, 1999 and 1998
Notes to consolidated statements
Exhibits
Ex. 2 PLAN OF MERGER
Ex. 10 LOCK-UP AGREEMENT
Ex. 99 STOCK OPTION PLAN
<PAGE>
PANETH, HABER & ZIMMERMAN LLP
CERTIFIED PUBLIC ACCOUNTANTS [Letterhead]
600 Third Avenue
New York, NY 10016-1938
Telephone 212/503-8800
Facsimile 212/370-3759
INDEPENDENT AUDITORS' REPORT
Board of Directors
Online International Corporation
We have audited the accompanying consolidated balance sheet of Online
International Corporation and Subsidiaries, as of January 31, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity and cash
flows for the years ended January 31, 1999 and 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Online
International Corporation and Subsidiaries as of January 31, 1999 and 1998, and
the consolidated results of their operations and cash flows for the years ended
January 31, 1999 and 1998, in conformity with generally accepted accounting
principles.
/s/ Paneth, Haber & Zimmerman LLP
-----------------------------------------
Paneth, Haber & Zimmerman LLP
New York, NY
March 18, 1999
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
January 31,
-------------------
1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 605,111 $ 842,134
Accounts receivable, less allowance for doubtful
accounts of $55,630 in 1999 and $-0- in 1998 687,673 1,092,720
Inventories 610,846 588,444
Note receivable 5,000 18,750
Prepaid expenses and other current assets 134,740 273,456
Due from employee 82,296 5,000
Deferred income taxes -- 108,300
Total Current Assets 2,125,666 2,928,804
----------- -----------
PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation 867,913 1,069,554
----------- -----------
OTHER ASSETS
Investment in foreign lottery operation 100,000 --
Due from former subsidiary 206,673 276,081
Deferred income taxes 174,600 --
Deferred compensation trusts 128,083 29,750
Note receivable, less current portion 30,000 30,000
Deposits 27,762 27,762
----------- -----------
Total Other Assets 667,118 363,593
----------- -----------
$ 3,660,697 $ 4,361,951
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line-of-credit $ 530,000 $ --
Current portion of obligations under capital leases 45,878 41,359
Accounts payable 429,851 564,224
Accrued expenses and other current liabilities 176,363 106,053
Deferred income taxes -- 69,500
----------- -----------
Total Current Liabilities 1,182,092 781,136
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 153,689 199,567
DEFERRED COMPENSATION 128,083 29,750
----------- -----------
Total Liabilities 1,463,864 1,010,453
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
5% preferred stock, no par value; 7,800,156 shares issued in
1999 and 1998 ($23,400,000 liquidation preference) 1,584,855 1,584,855
Common stock, $.001 par value; 100,000,000 shares authorized,
5,507,244 shares issued in 1999 and 1998 5,507 2,754
Additional paid-in capital 1,436,870 1,439,623
Retained earnings (accumulated deficit) (830,399) 324,266
----------- -----------
Total Stockholders' Equity 2,196,833 3,351,498
----------- -----------
$ 3,660,697 $ 4,361,951
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended
January 31,
------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
NET SALES $ 8,376,075 $ 10,066,262
COST OF GOODS SOLD 6,925,092 8,452,131
------------ ------------
GROSS PROFIT 1,450,983 1,614,131
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (2,033,640) (1,886,377)
LOSS ON INVESTMENT IN FOREIGN LOTTERY OPERATION (705,000) --
------------ ------------
LOSS FROM OPERATIONS (1,287,657) (272,246)
------------ ------------
OTHER INCOME (EXPENSE)
Miscellaneous income 19,652 17,104
Gain on sale of assets -- 106,141
Interest expense (36,584) (42,365)
Gain on sale of unconsolidated subsidiaries -- 223,033
Gain on investment in deferred compensation trusts 23,083 --
------------ ------------
Total Other Income 6,151 303,913
------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES (1,281,506) 31,667
INCOME TAX BENEFIT (126,841) (36,360)
------------ ------------
NET (LOSS) INCOME $ (1,154,665) $ 68,027
============ ============
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------------------- ----------------------- Additional
Number of Par Number Par Paid-in
Shares Value of Shares Value Capital
------------- ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1997, as previously
reported 2,486,950 $ 2,487 250 $ 1,693,223 $ 1,331,522
2-for-1 common stock split effective July 14, 1998 2,486,950 -- -- -- --
33,334-for-1 preferred stock split effective
July 14, 1998 -- -- 8,333,250 -- --
----------- ----------- ----------- ----------- -----------
Balance at January 31, 1997, as restated 4,973,900 2,487 8,333,500 1,693,223 1,331,522
Conversion of preferred stock 533,344 267 (533,344) (108,368) 108,101
Net Income for Year Ended January 31, 1998 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at January 31, 1998 5,507,244 2,754 7,800,156 1,584,855 1,439,623
Change in par value resulting from July 14, 1998
stock split -- 2,753 -- -- (2,753)
Net Loss for Year Ended January 31, 1999 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity at January 31, 1999 5,507,244 $ 5,507 7,800,156 $ 1,584,855 $ 1,436,870
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Retained
Earnings Total
-------- -----
<S> <C> <C>
Balance at January 31, 1997, as previously
reported $ 256,239 $ 3,283,471
2-for-1 common stock split effective July 14, 1998 2,486,950 --
33,334-for-1 preferred stock split effective
July 14, 1998 -- --
----------- -----------
Balance at January 31, 1997, as restated 256,239 3,283,471
Conversion of preferred stock -- --
Net Income for Year Ended January 31, 1998 68,027 68,027
----------- -----------
Balance at January 31, 1998 324,266 3,351,498
Change in par value resulting from July 14, 1998
stock split -- --
Net Loss for Year Ended January 31, 1999 (1,154,665) (1,154,665)
----------- -----------
Total Stockholders' Equity at January 31, 1999 $ (830,399) $ 2,196,833
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
January 31,
-----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(1,154,665) $ 68,027
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Gain on sale of property and equipment -- (106,141)
Depreciation and amortization 272,029 266,258
Gain on sale of subsidiaries -- (223,032)
Loss on investment in foreign lottery operation 705,000 --
Deferred taxes (135,800) (93,508)
Change in:
Accounts receivable 405,047 (7,467)
Inventories (22,402) 190,287
Prepaid expenses and other current assets 61,420 (222,297)
Deferred compensation trust (98,333) (29,750)
Accounts payable (134,373) (796,565)
Accrued expenses and other current liabilities 70,310 54,976
Deposits -- 14,135
Deferred compensation 98,333 29,750
----------- -----------
Net Cash Provided by (Used in) Operating Activities 66,566 (855,327)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of (additions to) notes receivable 13,750 (10,000)
Investment in foreign lottery operation (805,000) --
Acquisitions of property and equipment (70,388) (153,234)
Proceeds from sale of property and equipment -- 137,490
Proceeds from sale of unconsolidated subsidiary 69,408 453,592
----------- -----------
Net Cash (Used in) Provided by Investing Activities (792,230) 427,848
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank line-of-credit 530,000 --
Payments of long-term debt -- (22,686)
Payments of obligations under capital leases (41,359) (301,397)
----------- -----------
Net Cash Provided by (Used in) Financing Activities 488,641 (324,083)
----------- -----------
NET DECREASE IN CASH (237,023) (751,562)
CASH
Beginning of year 842,134 1,593,696
----------- -----------
End of year $ 605,111 $ 842,134
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 50,827 $ 69,773
=========== ===========
Interest $ 34,352 $ 42,365
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
Description of Business and Revenue Recognition
The Company's operations consist of the design and manufacture of
lottery tickets and play slips for automated on-line contractors and parimutuels
(on track and off track betting), as well as lottery management consultation and
operation.
Sales are recorded on the date of shipment of the merchandise. Revenue
from lottery management consultation and operation is recognized as services are
rendered.
Recapitalization
On January 31, 1997, Online International, Inc. (Online) issued 250
shares of Series A convertible preferred stock in exchange for all issued and
outstanding shares of Printing Associates, Inc. (PAI). A change in control of
PAI to Online shareholders did not occur as a result of this transaction, due to
the rights retained by the former common shareholder through its ownership of
the preferred stock.
This transaction was accounted for as a recapitalization (similar to a
reverse acquisition) of the Company's equity in accordance with the consensus of
the Emerging Issues Task Force No. 88-16. The application of the consensus under
88-16 requires that the historic basis of PAI's assets and liabilities be used,
since there was no change in control to Online's shareholders. As a result, PAI
is recording the issuance of Common stock for the $1,320,000 of net monetary
assets of Online at January 31, 1997. The common stock owned by the former
shareholder is recorded as if it was converted to preferred stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Online
International Corporation, its wholly- owned subsidiaries, Printing Associates,
Inc. and Printing Associates of Florida, Inc. for the years ended January 31,
1999 and 1998 collectively referred to as "The Company". All material
intercompany transactions and balances have been eliminated in consolidation.
Unconsolidated Subsidiaries
During 1998, the Company sold two of its subsidiaries, PAP Security
Printing, Inc. (PAP), which is located in Pennsylvania, and Wintex
International, Inc., which is located in Texas, in which it owned 49% and 60%,
respectively. The sale of PAP was for $268,608, all of which was collected by
the Company in 1998. The sale of Wintex International, Inc. includes an
agreement in which the former subsidiary is required to pay the Company 3.5% of
gross sales for each of the next five years, as well as other charges such as
consideration of stock, debt, and unpaid dividends. The Company has estimated
the total as $493,000. The five-year receivable was discounted to present value
to total $461,065 as the sale price of the subsidiary. As of January 31, 1999,
the Company has a receivable of $206,673. Due to the inherent uncertainties in
estimating the future gross sales of Wintex International, Inc., it is at least
reasonably possible that the estimate of the amount to be collected, and
therefore, the fair value of the receivable, will change in the near term. The
January 31, 1999 fair values that are reasonably possible range from $100,000 to
$300,000.
During the year ended January 31, 1999, Online common stock split on a
two for one basis and Online preferred stock split on a 33,334 for one basis.
Such stock split has been reflected on the financial statements.
- 6 -
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Inventories are stated at the lower of cost or market with cost
determined by the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed by both the straight-line and declining
balance methods over the estimated useful lives of the assets indicated in Note
6. Leasehold improvements are amortized on a straight-line basis over the life
of the lease.
Maintenance and repairs are charged to income as incurred. Renewals and
replacements of a routine nature are charged to income, while those which
significantly improve or extend the life of existing property are capitalized.
Upon sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts and the
related gain or loss is included in current income.
Stock Options
Stock based compensation is recognized using the intrinsic value method
under which compensation cost for stock options is measured as the excess, if
any, of market value of the Company's stock at the measurement date over the
exercise price. For disclosure purposes, pro-forma net income is provided as if
the fair value method had been applied.
Reclassifications
Certain 1998 amounts have been reclassified to conform with 1999
classifications.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
3. MAJOR CUSTOMERS
The lottery and pari-mutuel products industry is controlled by a
limited number of contractors. The Company's sales to its three significant
contractors were:
<TABLE>
<CAPTION>
Year Ended
January 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
Significant contractor No. 1 59% 40%
Significant contractor No. 2 16% 32%
Significant contractor No. 3 11% 11%
----- -----
86% 83%
===== =====
</TABLE>
- 7 -
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
3. MAJOR CUSTOMERS (Continued)
The Company's accounts receivable from one significant contractor
amounted to approximately $343,000 and $402,000 at January 31, 1999 and 1998,
respectively.
4. CASH
Included in cash at January 31, 1999 are funds on deposit at two banks
in New York totaling $625,341 (including outstanding checks of $32,002 against
such funds). Of these funds, $200,000 is insured by the FDIC.
Included in cash at January 31, 1998 are funds on deposit at three
banks in New York totaling $1,062,948 (including outstanding checks of $232,090
against such funds). Of these funds, $300,000 is insured by FDIC.
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
January 31,
--------------------
1999 1998
--------- --------
<S> <C> <C>
Raw materials $172,111 $278,159
Work-in-process 68,192 99,175
Finished goods 370,543 211,110
-------- --------
$610,846 $588,444
======== ========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated Useful
January 31 Life In Years
------------------------- ----------------
1999 1998
---- ----
<S> <C> <C> <C>
Machinery and equipment $ 2,477,303 $ 2,422,902 7
Furniture and office equipment 271,307 255,320 5-7
Leasehold improvements 204,512 204,512 7-13
------------- ------------
2,953,122 2,882,734
Less: Accumulated depreciation and
amortization 2,085,209 1,813,180
------------- ------------
$ 867,913 $ 1,069,554
============= ============
</TABLE>
- 8 -
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
7. DEFERRED COMPENSATION
The Company has a deferred compensation plan for key employees of the
Company. Contributions to the Plan are at the discretion of the Board of
Directors. Annual contributions for each beneficiary are placed in a trust with
a third party fiduciary. At a predetermined date, the beneficiary is entitled to
receive the assets of the trust, including investment earnings and appreciation.
The Company has access to the assets of each trust in certain limited
circumstances but should still be liable to the beneficiary for the assets
removed. The investment earnings of the trusts are recorded as income to the
Company and the Company's income is reduced by deferred compensation expense,
which equals the contributions to the trust plus the earnings of the trust. The
securities held by the trust are considered trading securities and carried at
fair value. Deferred compensation expense amounted to $98,333 and $29,750 for
the years ended January 31, 1999 and 1998, respectively.
Following is a summary of marketable securities held in the above
deferred compensation trusts:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Aggregate cost $105,000 $ 29,750
Realized and unrealized gains 23,083 --
-------- --------
Aggregate Fair Value $128,083 $ 29,750
======== ========
</TABLE>
8. INVESTMENT IN FOREIGN LOTTERY OPERATION
During the year ended January 31, 1999, the Company entered into an
agreement with a company that holds a license to the Cambodian Lottery (partly
owned by an entity affiliated with a director of the Company). The Company
advanced $805,000 to this foreign corporation in the form of a non-interest
bearing loan which is payable as cash flow is available and prior to the payment
of certain fees by the foreign corporation. The agreement also calls for the
Company to receive a management fee for managing the lottery. This management
fee is not payable until the Company first recovers its loan. Despite the legal
form of a loan, the transaction is being recorded as an equity investment as the
payments are first to be recouped out of the investee's cash flow. Management
now believes that the $805,000 investment will not be completely recovered. The
Company has recorded a charge to income to reduce the investment to its
estimated fair value at January 31, 1999 of $100,000. This fair value represents
management's current estimate of what it would be willing to pay for the same
rights with their current knowledge. Because of the inherent uncertainties in
making such an estimate, it is at least reasonably possible that it will change
in the near term.
9. BANK LINE-OF-CREDIT
Printing Associates, Inc. has an agreement with a bank that provides
for a $750,000 line-of-credit for short- term loans, of which $220,000 is
unused.
The above commitment bears interest at the bank's prime rate (the prime
rate was 7.75% at January 31, 1999). The agreement is secured by all existing
and future accounts receivable of Printing Associates, Inc.
- 9 -
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
10. PREFERRED STOCK
The 5% non-cumulative preferred stock is convertible into 1 share of
common stock for each share of preferred. Dividends, when declared, are payable
semi-annually and commence July 31, 1999. Upon conversion, the holder of these
shares is limited to retaining a maximum of twenty percent of the then issued
and outstanding common stock. The preferred shareholders are entitled to a
liquidation preference, upon which the 5% non-cumulative preferred dividend is
calculated, of $3 per preferred share.
11. STOCK OPTIONS
In July 1998, the Company granted 900,000 options to certain officers
and employees. Each option gives the holder the right to purchase one share of
common stock at $1.10. The options expire in July 2008. 20% of the options
granted become exercisable on each of the first, second, third, fourth and fifth
anniversaries of the grant. Each recipient will forfeit any options that are
unexercised when employment with the Company ceases.
As described in Note 2, the Company accounted for the granting of stock
options under the intrinsic value method and accordingly, no compensation cost
has been recognized for stock options in these financial statements. There would
not, however, have been any material effect had the Company determined
compensation cost, based on fair value at the date of the grant. This was
because under the "minimum value" method of determining fair value (which is
required for privately held companies) the option would have had no material
value at the date of grant.
12. NON-CASH INVESTING AND FINANCING TRANSACTIONS
A capital lease obligation was incurred for the acquisition of
equipment in the amount of $250,613 in 1998.
A stock split in the amount of $2,753 of common stock was converted
during 1998 on a two for one basis.
A note receivable of $276,081 was received on the sale of subsidiaries
during 1998.
13. LEASES
The Company is the lessee of certain equipment under operating and
capital leases as well as lessee of office and warehouse space in New York.
At January 31, 1999, the future minimum lease payments for all leases
are as follows:
<TABLE>
<CAPTION>
Operating Obligations under
Leases Capital Leases
------ --------------
<S> <C> <C>
2000 $ 198,000 $ 64,512
2001 181,500 64,512
2002 -- 64,512
Remaining years -- 48,384
------------- ------------
$ 379,500 241,920
============= ============
</TABLE>
- 10 -
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
13. LEASES (Continued)
<TABLE>
<CAPTION>
Operating Obligations under
Leases Capital Leases
--------- -----------------
<S> <C> <C>
Less amount representing interest 42,353
-------------
Present value of minimum lease payments 199,567
Less current portion 45,878
-------------
Long-term portion $ 153,689
=============
</TABLE>
Rent expense for the year ended January 31, 1999 and 1998 amounted to
$253,082 and $224,110.
Equipment held under capitalized leases at January 31, 1999 consists of
the following:
<TABLE>
<S> <C>
Machinery and equipment $ 257,399
Less: Accumulated amortization 55,157
-------------
$ 202,242
=============
</TABLE>
14. INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
January 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Current
Federal $ (17,698) $ 20,113
State and foreign 26,657 35,968
--------- --------
8,959 56,081
--------- --------
Deferred
Relating to current net operating loss
Federal (91,000) --
State (40,000) (91,400)
--------- --------
(131,000) (91,400)
--------- --------
Other
Federal 2,200 4,216
State (7,000) (5,257)
--------- --------
(4,800) (1,041)
--------- --------
(135,800) (92,441)
--------- --------
$ (126,841) $ (36,360)
========= ========
</TABLE>
- 11 -
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
14. INCOME TAXES (Continued)
<TABLE>
<CAPTION>
Year Ended
January 31,
---------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Deferred income taxes consists of the following:
Gross deferred tax assets $ 233,800 $ 108,300
========== ===========
Gross deferred tax liabilities $ 59,200 $ 69,500
========== ===========
</TABLE>
The 1999 deferred tax asset balances primarily relate to a consolidated
federal net operating loss carryover and a New York State net operating loss
carryover for Online International Corp.
The 1998 deferred tax asset balances primarily relate to a net
operating loss for Online International for New York State. The liabilities in
both years are primarily a result of temporary differences in the recognition of
the gain on sale of subsidiary.
The reconciliation between the actual and expected Federal tax is as
follows:
<TABLE>
<CAPTION>
Year Ended
January 31,
-----------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Income tax provision at 34% $ (163,652) $ 10,767
State and local income taxes net of
Federal income tax effect 17,132 (36,876)
Change in estimate of prior year Federal
income tax 16,504 (14,659)
Effect of nondeductible expenses 3,175 4,408
----------- ----------
Actual income tax provision $ (126,841) $ (36,360)
============ ===========
</TABLE>
15. COMMITMENTS
The Company has entered into employment contracts with the president of
PAI and other key employees that expire at various dates through October 22,
2001. Future minimum payments, excluding certain fringe benefits, relating to
these agreements are as follows:
<TABLE>
<S> <C>
2000 $ 240,000
2001 240,000
2002 180,000
---------------
$ 660,000
===============
</TABLE>
- 12 -
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments ("SFAS 107") requires entities to disclose
the fair values of financial instruments except when it is not practicable to do
so. Under SFAS 107, it is not practicable to make this disclosure when the costs
of formulating the estimated values exceed the benefit when considering how
meaningful the information would be to financial statement users.
The Company's financial instruments, and the related amounts recorded
on the balance sheet, to which SFAS 107 would be applied include the following:
<TABLE>
<CAPTION>
Carrying Amount
---------------------------------
Year Ended
January 31,
---------------------------------
1999 1998
------------ ----------
<S> <C> <C>
Assets:
Cash $ 605,111 $ 842,134
Notes receivable 35,000 38,750
Due from employees 82,296 5,000
Investment in foreign lottery operation 100,000 --
Due from former subsidiary 206,673 276,081
Deferred compensation trusts 128,083 29,750
Liabilities:
Bank line-of-credit 530,000 --
</TABLE>
The fair values of cash, notes receivable, due from employees, deferred
compensation trusts and bank line-of-credit do not differ materially from their
carrying amounts. See Notes 2 and 8, respectively, for more information about
the balance due from the former subsidiary and the investment in foreign lottery
operation.
None of the above are derivative financial instruments and none, except
the deferred compensation trusts, are held for trading purposes.
17. NET ASSETS OUTSIDE THE U.S.
As of January 31, 1998 and 1999, net assets outside the U.S. were
$210,462 and $281,601, respectively. Net assets in Canada were not material at
January 31, 1998 and 1999.
18. SEGMENT INFORMATION
As described in Note 1, the Company's operations have been classified
into two segments, the design and manufacture of lottery tickets and lottery
management consultation. Summarized information by business segment for 1999 and
1998 is as follows:
- 13 -
<PAGE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
18. SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------- --------------------------------------------
Design and Lottery Design and Lottery
Manufacture Management Total Manufacture Management Total
----------- ---------- ----- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 8,118,659 $ 257,416 $ 8,376,075 $ 10,056,262 $ 10,000 $ 10,066,262
============ ============ ============ ============ ============ ============
Operating income (loss) $ 517,349 $ (1,805,006) $ (1,287,657) $ 737,278 $ (1,009,524) $ (272,246)
Gain on sale of assets -- -- -- 106,141 -- 106,141
Gain on sale of subsidiary -- -- -- 223,033 -- 223,033
Interest expense (23,805) (12,779) (36,584) (42,365) -- (42,365)
Miscellaneous income 33,404 9,331 42,735 17,104 -- 17,104
------------ ------------ ------------ ------------ ------------ ------------
Pre-tax income (loss) 526,948 (1,808,454) (1,281,506) 1,041,191 (1,009,524) 31,667
Income tax expense
(benefit) (48,106) (78,735) (126,841) 8,040 (44,400) (36,360)
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ 575,054 $ (1,729,719) $ (1,154,665) $ 1,033,151 $ (965,124) $ 68,027
============ ============ ============ ============ ============ ============
Total Assets $ 3,317,796 $ 342,901 $ 3,660,697 $ 4,075,794 $ 286,157 $ 4,361,951
============ ============ ============ ============ ============ ============
Depreciation and
amortization $ 270,519 $ 1,510 $ 272,029 $ 264,748 $ 1,510 $ 266,258
============ ============ ============ ============ ============ ============
Capital expenditures $ 70,388 $ -- $ 70,388 $ 396,297 $ 7,550 $ 403,847
============ ============ ============ ============ ============ ============
</TABLE>
19. SUBSEQUENT EVENT
As of March 18, 1999, Printing Associates, Inc. has borrowed an
additional $90,000 against the line-of-credit mentioned in Note 9.
- 14 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: 9/23/99 Online International Corporation
(Registrant)
/s/ Stanley James White
---------------------------------------
Stanley James White
Chief Executive Officer, President &
Secretary
PLAN OF MERGER
This Agreement and Plan of Merger, dated September 9, 1999 by and
between Online International Corporation (hereinafter referred to as "Online"),
and Condor West Corporation (hereinafter referred to as "Condor").
Online International Corporation is duly organized and existing under
the laws of the State of Nevada, having an authorized capital stock of
100,000,000 shares, par value $.001, of which 5,507, 244 shares of common stock
are issued and outstanding, and 7,800,156 shares of Series A preferred stock are
issued and outstanding; and
Condor West is a corporation duly organized and existing under the laws
of the State of Nevada, having an authorized capital stock consisting of
35,000,000 shares of common stock, par value$.001, of which 311,238 shares are
issued and outstanding. Condor has 5,000,000 preferred shares authorized, of
which none are issued or outstanding.
Whereas, the board of directors of each of the constituent corporations
deems it advisable, for the general welfare and advantage of the corporations
and their respective shareholders, that Online merge with and into Condor; and
The board of directors of each of the constituent corporations has
approved this Agreement of Merger.
The parties agree, in accordance with the provisions of the Nevada
Revised Statutes Annotated, that Online and Condor shall be, and they hereby
are, merged into a single corporation. The terms and conditions of the merger
and the mode of carrying the merger into effect and the manner of converting the
shares of each of the constituent corporations into shares of the surviving
corporation, shall be as set forth in this Plan of Merger. The Amended Articles
of Incorporation of Condor West, upon the effective date of this agreement shall
be duly filed with the Secretary of State of Nevada.
ARTICLE I
CORPORATE EXISTENCE OF SURVIVING CORPORATION
Except as otherwise specifically set forth in this agreement, the
identity, existence, purposes, powers, franchises, rights and immunities of
Condor shall continue unaffected and unimpaired by the merger, and the corporate
identity, existence, purposes, powers, franchises, rights and immunities of
Online. Online shall cease to exist and will be merged into Condor. The separate
corporate existence of Online shall be extinguished as soon as this agreement
becomes effective, and Condor and Online shall become a single corporation
("Surviving Corporation"). Condor and Online are sometimes referred to as the
"Constituent Corporations," and the time at which the Constituent Corporations
become a single corporation is referred to as the "effective date of this
agreement."
<PAGE>
The parties hereto agree, any stock option plan in existence for a
period greater than one month prior to the execution of the instant agreement
shall and hereby is canceled forthwith.
As soon as practicable on or following the effective date of this
Agreement, Condor and Online will cause the Articles of Merger to be delivered
to the Secretary of State of Nevada.
ARTICLE II
AMENDMENT OF ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION
The Amended Articles of Incorporation of the Surviving Corporation, as
amended, shall, upon the effective date of this agreement, be and be deemed to
be further amended to read as follows the term "Corporation" (as used in this
article referring to the "Surviving Corporation");
First: The name of the Corporation is Online International Corporation.
Second: The principal office of the Corporation is located at 150 Laser
Court, Hauppauge, New York.
Third: The Corporation is formed for the purpose of the design and
manufacture of lottery tickets and play slips for automated on-line contractors
and parimutuels (on track and off track betting) as well as lottery management,
investments in the lottery business, consultation and operation and for doing
all things of every kind incident to the business, including but not limited to:
Engage in any lawful activity and to manufacture, purchase or otherwise
acquire, invest in, own mortgage, pledge, sell, assign and transfer or otherwise
dispose of, trade, deal in and deal with goods, wares and merchandise and
personal property of every class and description;
To hold, purchase and convey real and personal estate and to mortgage
or lease any such real and personal estate with its franchises and to take the
same devise or bequest;
To acquire, and pay for in cash, stocks, bonds or any other security of
this Company, the good will, rights assets and property and to undertake or
assume the whole or any part of the obligations or liabilities for any person,
firm, association or corporation;
To acquire, hold use, sell, lease, grant license in respect of,
mortgage or otherwise dispose of letters of patents of the United States or any
foreign country, patent rights, licenses and privileges, inventions, improvement
and processes, copyright , trade marks and trade names relating to our useful in
connection with any business in this Corporation;
To borrow money and contract debts when necessary for the transaction
of its business, or for the exercise of its corporate rights, privileges or
franchises, or for any other lawful purpose of its incorporation ; to issue
bonds, promissory notes, bills of exchange, debentures and other obligations and
evidence of indebtedness, payable at specified time or times or payable upon the
2
<PAGE>
happening of a specified event or events, whether secured by mortgage, pledge or
otherwise, or unsecured for money borrowed, or in payment for property
purchased, or acquired, or for any other lawful objects;
To do all and everything necessary and proper for the accomplishment of
the objects enumerated in this plan or necessary or incidental to the protection
and benefit of the Corporation and, in general, to carry on any lawful business
necessary or incidental to the attainment of the objects of the Corporation,
whether or not such business is similar in nature to the objects herein set
forth above.
Fourth: Section 1. The maximum number of shares which the Corporation
is authorized to have outstanding is 100,000,000 shares, which shall be
classified as common stock.
Section 2. The express terms and provisions of the shares of preferred
stock are as follows
Subject to the limitations and restrictions set forth in this Article
Fourth, the board of directors is authorized and empowered at one time or from
time to time.
(1) To create one or more series of preferred stock and to authorize the
issuance of preferred stock in such series, and to fix or alter in respect of
any particular series, the following express terms and provisions of any
authorized and unissued shares of preferred stock (whether or not such shares
shall have been previously designated as shares of a particular series):
(a) The designation of the series;
(b) The number of shares of the series, which number may at any time or
from time to time be increased or decreased by the board of directors,
notwithstanding that shares of the series may be outstanding at the time of such
increase or decrease, unless the board of directors shall have otherwise
provided in creating such series;
(c) The dividend rate, not exceeding, however, 5% per annum;
(d) The dates at which dividends, if declared, shall be payable;
(e) The redemption price if any, may be fixed by the board of
directors, plus accrued dividends to the date of redemption;
(f) The liquidation price, in the case of voluntary dissolution,
liquidation or winding up, shall be, if any, fixed for redemption, plus accrued
dividends to the date of distribution, and in the case of involuntary
dissolution, liquidation or winding up shall be $5.00 per share plus accrued
dividends to the date of distribution;
(2) To make the preferred stock of any one or more series convertible
into or exchangeable for common stock of the Corporation, and in any such event,
prior to the issuance, to fix or alter the conversion price or prices or the
rate or rates of exchange and adjustments, if any, at which such conversion or
exchange may be made, including provisions for protection against dilution or
3
<PAGE>
impairment of the rights of conversion or exchange, and any other terms and
provisions in respect to conversion or exchange, not repugnant to law; and
(3) To adopt amendments to the Articles of Incorporation as may be
required or permitted by law to accomplish the foregoing purposes.
In connection with the subject merger, the parties hereto acknowledge
the following representations related to the preferred share structure and
obligations within the capital structure of Online International Corporation to
the consummation of the subject merger. The parties hereto further acknowledge,
the preferred share structure shall continue as an integral part of the
surviving company.
DIVIDENDS TO PREFERRED
Online has issued Series A Preferred Shares. The Series A Preferred
Shares carry a fixed preferential non-cumulative cash dividend rate of 5%
payable semi-annually.
RIGHTS ON DISSOLUTION
The rights of the preferred shareholders upon dissolution or winding up
is the preferential right to participate in any distribution or liquidation or
dissolution of the Company.
VOTING RIGHTS
The Series A Preferred Shareholders have the right to vote in the same
manner and on the same matters as do the holders common stock, except in
circumstance where the Company is deemed to be in default of its obligations to
the holders of the Series A Preferred Shareholders. See paragraph 6 of this
article for the additional voting rights associated with the holders of
preferred shares.
DEFAULT
The Company is deemed to be in default of its obligations to the
holders of the Series A Preferred Shares if it fails to:
(I) provide such preferred shares with
(i) all regularly prepared annual and quarterly financial statements
of the Company;
(ii) reasonable access to the books and records of the Company;
(II) obtain prior written approval of the preferred shareholders of 51% of the
then issued and outstanding Series A Preferred Shareholders for any:
(i) appointment or compensation of all executive, management and
supervisory personnel;
(ii) capital expenditures in excess of $100,000;
(iii) acquisition(s) or merger(s); and
(iv) issuance of securities or non-trade debt, declaration of dividends
or adjustment to the Company's capital structure; or
4
<PAGE>
(III) maintain at all time a positive shareholder equity and working capital.
CONVERSION
Upon written notice to the Company of the intent to exercise such
conversion rights, a holder of Series A Preferred Shares may convert all or any
portion thereof into common shares of the surviving company at the rate of one
common share for each Series A Preferred Share held. However, this limitation
does will not apply in circumstances where the Company is deemed to be in
default of its obligations to the holders of the Series A Preferred Shares, as
set forth above.
SUBDIVISION B. GENERAL PROVISIONS APPLICABLE TO ALL SERIES.
The following general provisions shall apply to the preferred stock of
the Corporation, with the exception of the above described Seris A Preferred
shares.
1. Dividends. The holders of preferred stock of each series shall be
entitled to receive dividends, payable quarterly or annually on such dates as
may be fixed for such series, when and as declared by the board of directors, at
the rate fixed for such series and no more. Dividends on each share of each
series shall commence to accrue and be cumulative from the first day of the
current dividend period within which such share was issued. A "dividend period"
in respect of any share is the period between any two consecutive dividend
payment dates, including the first of these dates, as fixed for the series to
which the share shall belong. If for any past or current dividend period or
periods, dividends shall not have been paid or declared and set apart for
payment upon all outstanding shares of any series at the rate fixed for such
series, the deficiency shall be fully paid, or dividends in the amount of such
deficiency shall be declared and set apart for payment before, any dividend
shall be declared and paid upon common stock of the Corporation or upon any
other shares ranking junior to the preferred stock; provided, however, that
dividends in full shall not be declared and set apart for payment or paid on
preferred stock of any one series for any dividend period unless dividends in
full have been or are contemporaneously declared and set apart for payment or
paid on preferred stock of all series for the dividend periods terminating on
the same or an earlier date when dividends on preferred stock of any one or more
series are not paid in full at the stated rate, the preferred stock of all
series shall share ratably in any payments of dividends in accordance with the
sums which would be payable on the preferred stock if dividends for all dividend
periods terminating on the same or an earlier date were declared and paid in
full. Accumulations of dividends shall not bear interest.
After full cumulative dividends upon the preferred stock of all series
then outstanding for all past dividend periods and for the current dividend
period shall have been paid or declared and set apart for payment, then, and not
otherwise, dividends may be declared and paid upon shares ranking junior to the
preferred stock subject, however, to the restrictions set forth in paragraph 4
of this subdivision B.
"Accrued dividends" shall mean, in respect to each share of preferred
stock of any series, an amount equal to simple interest upon the par value of
such share at an annual rate equal to the rate fixed for such series from the
date from which dividends on such share became cumulative to the date of
computation, less the aggregate amount of dividends paid.
5
<PAGE>
2. Dissolution, Liquidation and Winding Up. Upon any voluntary
dissolution, liquidation or winding up of the Corporation, the holders of
preferred stock of each series shall be entitled to receive out of the assets of
the Corporation, whether capital or surplus, the liquidation price per share
fixed for the respective series and payable upon such voluntary dissolution,
liquidation or winding up, before any distribution of the assets to be
distributed shall be made to holders of common stock of the Corporation or of
any other shares ranking junior to the preferred stock.
If the assets distributable on such dissolution, liquidation or winding
up, whether voluntary or involuntary, shall be insufficient to permit the
payment to holders of preferred stock of the full amounts, then the assets shall
be distributed ratably among the holders of preferred stock of the respective
series in accordance with the sums which would be payable in respect of such
shares upon such dissolution, liquidation or winding up if all sums payable were
discharged in full. After payment to holders of preferred stock of the full
preferential amounts, the holders of preferred stock as such shall have no right
or claim to any of the remaining assets of the Corporation, which remaining
assets shall be distributed among the holders of shares ranking junior to the
preferred stock in accordance with their respective rights thereto. The sale of
all the property and assets of the Corporation to, or the merger or
consolidation of the Corporation into or with, any other corporation shall not
be deemed to be a dissolution, liquidation or winding up for the purposes of
this paragraph.
3. Redemption. At the option of the board of directors of the
Corporation, the Corporation may redeem any series of preferred stock, or any
part of any series, at any time at the redemption price fixed for such series;
provided, however, that not less than 30 days prior to the date fixed for
redemption a notice of the time and place shall be given to the holders of
record of the preferred stock, by mailing a copy of the notice to the holders at
their respective addresses as the same appear upon the books of the Corporation,
and, if the board of directors shall so determine, by publication of notice in
such manner as may be prescribed by resolution of the board of directors. In
case of redemption of less than all of the outstanding preferred stock of any
one series such redemption shall be made pro rata, or the shares of such series
to be redeemed shall be chosen by lot, in such manner as may be prescribed by
resolution of the board of directors.
If at any time the Corporation shall have failed to pay dividends in
full on preferred stock of any one or more series, thereafter, and until
dividends in full, including accumulations, on preferred stock of every series
shall have been paid or declared and set apart for payment, the Corporation
shall not redeem preferred stock except as a whole, or directly or indirectly
purchase any preferred stock. Subject to the foregoing, any preferred stock may
be purchased by the Corporation and, if purchased for the purpose or in
anticipation of redemption, may be redeemed by action of the board of directors.
Preferred stock which shall have been acquired by the Corporation through
conversion into or exchange for common stock shall have the same status as
shares which have been redeemed. Preferred stock which shall have been redeemed
shall not be reissued.
4. Restrictions on Payment of Dividends Upon Shares Ranking Junior to
the Preferred Stock. So long as any preferred stock is outstanding the
Corporation shall not pay or declare and set apart for payment any dividend, or
make any other distribution out of earnings, surplus or capital, on its common
stock or on any shares ranking junior to the preferred stock, or purchase or
acquire any of
6
<PAGE>
its common stock or any shares ranking junior to the preferred stock, if any
such action will result in any of the following:
(a) Reducing consolidated current assets below an amount equal to twice
consolidated current liabilities;
(b) Reducing consolidated surplus below an amount equal to two years
dividend requirements on outstanding preferred stock and any outstanding shares
ranking equally with or prior thereto and any outstanding preferred stocks of
subsidiaries, owned by others than the Corporation and its subsidiaries;
(c) Reducing consolidated net tangible assets to less than 200% of the
sum of an amount equal to $3.00 per share on outstanding preferred stock and the
amount received as consideration upon the issuance of any outstanding shares
ranking equally with or prior to the preferred stock and of any outstanding
preferred stocks of subsidiaries, owned by others than the Corporation and its
subsidiaries;
(d) Reducing consolidated net tangible assets plus consolidated
long-term debt to less than 175% of the sum of the consolidated long-term debt
and an amount equal to $5.00 per share on outstanding preferred stock and the
amount received as consideration upon the issuance of any outstanding shares
ranking equally with or prior to the preferred stock and of any outstanding
preferred stocks of subsidiaries, owned by others than the Corporation and its
subsidiaries.
A determination by the board of directors that the conditions of this
paragraph 4 have been complied with shall be binding and conclusive with respect
to all shareholders of the Corporation if, in making such determination, the
board of directors rely and act in good faith upon the books of the Corporation,
or upon any balance sheet, profit and loss statement and statement of assets of
the Corporation represented to the board of directors to be correct by the
president or the officer of the Corporation having charge of or supervision of
its accounts.
5. Action by Corporation Requiring Approval of a Majority of Preferred
Stock. The Corporation shall not, without the affirmative vote at a meeting, or
the written consent with or without a meeting, of the holders of at least a
majority of the then outstanding preferred stock as a class:
(a) Change the express terms and provisions of the preferred stock in
any manner substantially prejudicial to the holders thereof;
(b) Increase the authorized number of shares of preferred stock or
create any class of shares which shall rank equally with or prior to the
preferred stock;
(c) Sell, lease, exchange or otherwise dispose of all or substantially
all of its property and assets;
(d) Merge or consolidate into another corporation, or merge or
consolidate into itself any other corporation when such merger or consolidation
would involve any of the acts referred to in (a) or
7
<PAGE>
(b) of this paragraph 5;
(e) Create, assume or guarantee any mortgage on fixed assets, or permit
any subsidiary of the Corporation to do so, unless all the indebtedness secured
thereby be acquired and held by the Corporation or its subsidiaries; provided,
however, that the Corporation or any subsidiary may create purchase money
mortgages or other purchase money liens on fixed assets hereafter acquired, or
acquire fixed assets which at the time of acquisition are subject to existing
mortgages or other liens (and assume the same) and extend the time for payment
of such purchase money or existing mortgages or other liens, or renew the same,
or replace the same with other mortgages or liens upon the same fixed assets
solely for the purpose of providing funds for the payment of the obligations
secured by the mortgages or other liens thus replaced.
6. Voting Rights. The holders of preferred stock shall be entitled at
all times to one vote for each share of preferred stock held by them
respectively; provided, however, that if the Corporation shall be in default in
the payment of dividends on the preferred stock or any series thereof in an
amount equal to four quarterly dividends, the holders of preferred stock shall
be entitled, at all elections of directors, voting concurrently with the holders
of common stock and not as a separate class, to three votes for each share of
preferred stock so held. Upon the payment, or the declaration and setting apart
for payment, at any time of dividends in full on preferred stock of every series
outstanding, the right then vested in the holders of preferred stock to three
votes at all elections of directors shall cease and determine (subject to
revesting in the event of any subsequent default of the character and extent
above specified), and the holders of preferred stock shall thereafter be
entitled at all times to one vote for each share of preferred stock held by
them, respectively.
If notice in writing shall be given by any stockholder to the president
or a vice president of the Corporation not less than 24 hours before the time
fixed for holding a meeting for the election of directors that such stockholder
intends to cumulate his or her votes at such election, and if an announcement of
the giving of such notice is made upon the convening of the meeting, each
stockholder shall have the right to cumulate his or her votes and to give one
candidate as many votes as the number of directors to be elected multiplied by
the number of votes to which he is entitled equals, or to distribute them on the
same principle among as many candidates as such holder sees fit.
7. Preemptive Rights. No holder of preferred stock of any series shall
as such holder, have any preemptive right in, or preemptive right to subscribe
to any additional preferred stock of any series, or any shares of any other
class of stock, or any bonds, debentures or other securities convertible into or
exchangeable for shares of stock of any class or series.
8. Conversion or Exchange Rights. If the board of directors makes the
preferred stock of one or more series convertible into or exchangeable for
common stock of the Corporation pursuant to the provisions of this Agreement
then and in such event the preferred stock of such series shall be convertible
into or exchangeable for common stock of the Corporation at such conversion
price or prices or rate or rates of exchange, with provisions for protection
against dilution or impairment of such rights of conversion or exchange and such
other terms in respect of conversion or exchange in a manner not repugnant to
law.
8
<PAGE>
9. Definitions. As used in subdivision "b" of the above Section 2, the
following terms shall have the meanings respectively, stated.
(a) "Subsidiary" shall mean any corporation, trust or association of
which the Corporation shall own directly or indirectly more than 50% of the
capital stock or shares having the right to vote for directors of such
corporation, trust or association or persons performing similar functions,
except for the happening of a default or other contingency; provided, however,
that the term "subsidiary" shall not include any corporate limited liability
company, trust or association the accounts of which are not consolidated with
the accounts of the Corporation if the omission to consolidate such accounts is
approved as sound accounting practice by the independent certified public
accountants employed by the Corporation to audit or verify the annual financial
statements of the Corporation and its subsidiaries.
(b) "Long-term debt" shall mean as to any corporation all indebtedness of
whatsoever nature at any time contracted, made, issued, assumed or renewed by
such corporation, which shall be payable more than twelve months from the date
of the original creation, issuance or assumption. or any renewal thereof, as the
case may be, provided; however, that this definition shall not apply to any
contracts for service's or construction or for the purchase or sale of
commodities or merchandise in the ordinary course of conducting business or to
obligations incurred under lease or royalty agreements.
(c) "Consolidated long-term debt" shall mean the total long-term debt
of the Corporation and its subsidiaries after eliminating any of such debt as is
owed to the Corporation or its subsidiaries.
(d) "Consolidated net tangible assets shall mean the excess of all
assets (except patents trademarks copyrights trade names, goodwill, unamortized
discount and expense and other like intangibles) over all liabilities (including
contingent liabilities or proper reserves therefor), including all proper
reserves not otherwise deducted, but not deducting any interest in preferred
stocks of subsidiaries owned by others than the Corporation and its
subsidiaries, all as determined in accordance with sound accounting principles
approved by the independent accountants referred to above. For the purposes of
this definition, fixed assets owned by the Corporation and its subsidiaries as
at December 31, 1998, shall be taken at the amount appearing in the consolidated
balance sheet as at such date, subsequent additions to fixed assets to be taken
at cost to the Corporation or its subsidiaries, if acquired for cash and if
acquired for a consideration other than cash, then at the fair value thereof as
determined by the board of directors of the Corporation at the time of such
acquisition, in each case after deducting therefrom all proper reserves,
including reserves for depreciation and depletion and making other proper
deductions.
e) "Consolidated current assets and consolidated current liabilities
shall mean such assets and liabilities (including contingent liabilities or
proper reserves therefor) as may be properly so classified in accordance with
generally accepted accounting principle approved by the independent accountants
for the Corporation. For the purposes of this definition there shall not be
included in consolidated current assets any assets which are pledged or
deposited as security for, or for the purpose of paying any obligation which is
not included in consolidated current liabilities, and there shall not be
included in consolidated current liabilities at liabilities for the payment of
which cash has been irrevocably deposited in trust.
9
<PAGE>
Section 3. The express terms and provisions of the shares of common stock are as
follows:
1. Dividends. Out of the assets of the Corporation available for
dividends remaining after full dividends on all shares ranking prior to the
common stock shall have been paid or declared and set apart for payment, then,
and not otherwise, and subject to any restrictions or limitations contained in
the express terms and provisions of any shares ranking prior to the common
stock, dividends may be declared and paid upon the common stock, but only when
and as determined by the board of directors.
2. Dissolution. Liquidation and Winding Up. Upon any dissolution,
liquidation, or winding up of the Corporation, or any proceedings resulting in
any distribution of all its assets to its stockholders, after there shall have
been paid to or set apart for holders of all shares ranking prior to the common
stock the full preferential amounts to which they are respectively entitled, the
holders of common stock shall be entitled to receive pro rata all of the
remaining assets of the Corporation available for distribution to its
stockholders.
3. Voting Rights. The holders of common stock shall be entitled at all times to
one vote for each share of common stock held.
If notice in writing shall be given by any stockholder to the president
or a vice president of the Corporation not less than 24 hours before the time
fixed for holding a meeting for the election of directors that such stockholder
intends to cumulate his votes at such election, and if an announcement of the
giving of such notice is made upon the convening of the meeting each stockholder
shall have the right to cumulate his votes and to give one candidate as many
votes as the number of directors to be elected multiplied by the number of votes
to which he is entitled equals, or to distribute them on the same principle
among as many candidates as such holder sees fit.
4. Preemptive Rights. No holder of common stock shall, as such holder,
have any preemptive right in or preemptive right to subscribe to, any shares of
any other class, or any bonds, debentures or other securities convertible into
or exchangeable for shares of any other class, or any preferred stock authorized
by, and which may be made convertible into or exchangeable for common stock
pursuant to, the provisions of this Article Two.
ARTICLE III
BYLAWS OF SURVIVING CORPORATION
The bylaws of Online International Corporation as they shall exist on
the effective date of this agreement, shall be and remain the bylaws of the
Surviving Corporation until they shall be respectively altered, amended or
repealed.
ARTICLE IV
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
The names and addresses of the first directors of the Surviving
Corporation, who shall hold
10
<PAGE>
office until the annual meeting of shareholders in the year set opposite their
respective names below and until the election and qualification of their
successors. In the event of a vacancy, the remaining members of the board of
directors are empowered to fill the vacancy until the pending the next annual
meting.
DIRECTORS
<TABLE>
<CAPTION>
Name Address Term of Office
- ---- ------- --------------
<S> <C> <C>
Stanley James White 201 Center Street 1 year (August 5, 2000)
Pearl River, NY 10965
Leslie Nochomovitz 5 German Mill Road 1 year (August 5, 2000)
Thornhill, Ontario l3T4HH
Alex Igelman 101 Caines Avenue 1 year (August 5, 2000)
Toronto, Ontario M3N 2L6
</TABLE>
The names and addresses of the first officers of the Surviving
Corporation, who shall hold office until the first meeting of the board of
directors following the next annual meeting of shareholders and until their
successors are elected and qualified, are as follows:
OFFICERS
<TABLE>
<CAPTION>
Office Name Address Term of Office
- ------ ---- ------- --------------
<S> <C> <C> <C>
President, Stanley James 201 Center Street 1 year (August
Secretary White Pearl River, NY 10965 5, 2000)
Chief Financial Vicki Danseglio 27 Rocket Drive 1 year (August
Officer Islip, NY 11752 5, 2000)
</TABLE>
If on the effective date of this agreement or anytime thereafter a
vacancy shall exist on the board of directors of the Surviving Corporation or in
any of the above specified offices, by reason of the failure or inability of any
of the above named persons to accept a directorship in the Surviving Corporation
or the office to which he or she is designated, as the case may be, such vacancy
may be filled by the appointment of a successor by a majority of the remaining
members of the board of directors.
ARTICLE V
MANNER OF CONVERTING SHARES OF THE CONSTITUENT CORPORATIONS
INTO SHARES OF THE SURVIVING CORPORATION
The manner of converting the shares of common stock of Online and the
shares of common stock of Condor into shares of common stock, of the Surviving
Corporation shall be as follows:
11
<PAGE>
(a) Each share of common stock of Condor which shall be outstanding
(sum total of 311,238) on the effective date of this agreement shall be
converted into one share of common stock of the Surviving Corporation. After the
effective date of this agreement each holder of outstanding certificate or
certificates representing common stock shall be entitled, upon surrender of the
same to the Surviving Corporation, to receive in exchange certificates
representing the number of shares of common stock of the Surviving Corporation.
Until so surrendered for exchange for a certificate or certificates for common
stock of the Surviving Corporation, each outstanding certificate which prior to
the effective date of this agreement represented shares of common stock of shall
be deemed for all corporate purposes, including the payment of dividends, to
evidence the ownership of the shares of common stock of the Surviving
Corporation. Upon consummation of the merger, the 85,000 shares held by the
majority of the shareholders of Condor West shall be subject to the terms and
conditions of the lock-up agreement executed contemporaneously with the instant
agreement. The Post merger the share distribution shall be as follows: Online's
shareholders will own 201,458 shares of the Surviving Corporation; the majority
shareholders of the former Condor and their respective financial consultant will
beneficially own the sum of 85,000 shares of common stock. The former minority
shareholders of Condor will beneficially own the sum of 24,780 shares of the
common stock of the Surviving Corporation. The 5,507,244 shares of common stock
and the 7,800,156 shares of Series A preferred shares owned by the pre-merger
shareholders of Online respectively will be converted into shares of the
Surviving Corporation on a one for one share basis.
(b) The shareholders of Online represent they are not in possession of
their respective stock certificates and such certificates were, in fact, created
but not delivered. Counsel for Online will endeavor to secures said
certificates. In the absence of securing said certificates, the following steps
must be taken. Prior to the issuance of any certificates to the shareholders of
Online, each shareholder must warrant and swear he, she or it is in fact a bona
fide shareholder of Online and, as such, is entitled to the designated shares of
common stock of the Surviving Corporation. Such representation must be made with
the understanding that such representations, if false, constitute serious
violations of the federal securities laws and could result in imprisonment and
or cause the Company to become the subject of an enforcement proceeding by the
U.S. Securities and Exchange Commission.
(c) Upon satisfaction and compliance with the of the foregoing
paragraph, the surviving corporation shall without unnecessary delay issue
certificates of stock in a form the board of directors deems advisable and the
board shall provide and adopt rules and regulations as may be necessary or
proper for the issuing and transfer of the shares of the capital stock of the
consolidated corporation.
(d) Any and all shares held by the former directors of Online
International Corporation and Norla Russell (875,000), James Russell (875,000),
and Erik Fisher (750,000) shall be restricted and nontradeable for a period of
five years. Legal counsel for the Surviving Company shall hold said stock
certificates.
ARTICLE VI
MISCELLANEOUS PROVISIONS
1. This agreement shall be submitted to the respective majority
shareholders of the Constituent
12
<PAGE>
Corporations as provided by law, and upon its adoption by a majority of votes of
shareholders of Online and Condor representing the total number of shares of its
capital stock and by the vote of the holders of shares of entitling them to
exercise a majority of the voting power of such corporation, such facts shall be
duly certified by the respective presidents and secretaries, and this agreement
shall take effect and be deemed and taken to be the agreement and act of merger
of the Constituent Corporations and the merger shall be and become effective
upon the Articles of Merger being filed with the Secretary of State of Nevada.
2. At the first meeting of the board of directors of the Surviving
Corporation, which shall be held as soon as practicable thereafter the merger,
the directors or their successors shall elect or appoint the officers of the
surviving corporation.
3. Online International shall pay the expenses of carrying this
agreement of merger into effect and of accomplishing the merger.
4. On the effective date of this agreement the Surviving Corporation
shall without other transfer, succeed to all the rights, capacity, privileges
powers, franchises and immunities, as well of a public as of a private nature,
and be subject to all the restrictions, disabilities. liabilities, obligations
and duties of each of the Constituent Corporations, and all and singular the
rights, privileges, powers, franchises and immunities of each of the Constituent
Corporations and all property real, personal and mixed, and all debts,
obligations and liabilities due to either of the Constituent Corporations on
whatever account, as well for stock subscriptions as all other things in action
or belonging to each of the Constituent Corporations shall be vested in the
Surviving Corporation, and all property, rights, privileges, powers, franchises
and immunities, and all and every other interest shall be thereafter the
property of the Surviving Corporation and the title to any real estate in either
of the Constituent Corporations, shall not revert or be in any way impaired by
reason of the merger; provided that all rights of creditors and all liens upon
any property of each of the Constituent Corporations shall be preserved
unimpaired limited to the property affected by such liens at the time of the
merger, and all debts, liabilities and duties of the respective Constituent
Corporations shall then attach to the Surviving Corporation and may be enforced
against it to thesame extent as if said debts liabilities and duties had been
incurred or contracted by it.
5. If at any time the Surviving Corporation shall deem or be advised
that any further assignments or assurances in law or things are necessary or
desirable to vest or to perfect or confirm, of record or otherwise in the
Surviving Corporation the title to any property of Condor acquired or to be
acquired by reason of or as a result of the merger provided for by this
agreement, Condor and its proper officers and directors shall and will execute
and deliver any and all such proper documents as necessary in law and do all
things necessary or proper so to vest, perfect or confirm title to such property
in the Surviving Corporation and otherwise to carry out the purposes of this
agreement.
13
<PAGE>
CONDOR WEST CORPORATION
By: /s/ Carl D. Nation
-------------------------------------
Carl D. Nation
Title: Chief Executive Officer, President
Secretary
Online International Corporation
By: /s/ Stanley James White
-------------------------------------
Stanley James White
Title: Chief Executive Officer, President
Secretary
14
<PAGE>
LOCK-UP AGREEMENT
This agreement (the "Agreement") sets out the terms and conditions upon
which Online International Corporation shall cause the common stock controlled
by the shareholders of Condor West, to be locked-up, untradeable and restricted
in accordance with the terms and conditions of this agreement. The subject of
this agreement shall be the common stock held by certain officers and directors
after the merger between Online International Corporation and Condor West
Corporation.
This Agreement also sets out the terms and conditions of the agreement
for each of the persons listed on Schedule "A" attached hereto (each a
"Shareholder" and collectively, the "Shareholders") to deposit irrevocably and
unconditionally under the terms of this Agreement 286,000 common shares
presently owned beneficially and of record by such shareholders.
THE OFFER
Online offers the subject shareholders an opportunity to remain
shareholders of the surviving corporation following the subject merger. Online
shall tender to the shareholders or shareholders duly authorized representative
$275,000.00 (Two Hundred and Seventy Five-Thousand Dollars) for the opportunity
to merge the two corporations. The shareholders will be permitted to retain
85,000 shares of the surviving corporation.
TIMING
The merger partner, Online, agrees to offer cash to certain shareholders of
Condor West AS an incentive to effect the merger between the two companies. In
exchange, Online will be permitted to merge and control 90% of the issued and
outstanding shares of Condor. The closing of the subject transaction is on or
before September 9, 1999.
CONDITIONS PRECEDENT
4. Condor West must be current with all required filing with the U.S.
Securities and Exchange Commission; and all state and federal tax returns must
be filed and taxes, if any, due must be paid in full to any and all taxing
authorities. The officers and directors have represented that Condor West has no
assets or liabilities. However, if there is a change in financial condition
prior to the close of the contemplated merger, the officers and directors of
Condor West shall inform Online. The foregoing conditions are for the sole
benefit of Online and may be waived by Online in whole or in part.
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each shareholder hereby severally, and not on a joint or a joint and
several basis, represents and warrants to Online that: it is a corporation duly
incorporated and validly existing under the laws of Nevada, its jurisdiction of
incorporation. The sellers represent, the Condor has all the necessary corporate
power, authority, capacity and right, and has received all requisite approvals,
including the majority of its respective shareholders, to enter into this
Agreement and to complete the
<PAGE>
contemplated transactions. Upon the due execution and delivery of this Agreement
by the parties hereto, this Agreement shall be a legally valid and binding
agreement enforceable by Online against the shareholders in accordance with its
terms, subject, however, to the usual limitations with respect to enforcement
imposed by law in connection with similar proceedings and the availability of
equitable remedies. The shareholders are, at the time of deposit of the
securities under this agreement, the sole beneficial owner of the shareholder
securities listed opposite their names in Schedule "A" attached hereto and have
the unfettered ability, authorization, capacity and the exclusive right to
dispose of all such securities under the contemplated merger. The shareholders
are not a party to, bound or affected by or subject to, any agreement, charter
or by-law provision, statute, regulation, judgment, order, decree or law which
would be violated, contravened, breached by, or under which default would occur
as a result of, the execution and delivery or performance of this Agreement.
The common shares listed in Schedule "A" hereto opposite such
shareholder's name constitute 90% of the shares or other securities in the
capital of Condor owned beneficially by such shareholders on the date hereof.
Condor represents that no stock option plan exists now or heretofore, and to the
extent any prior stock option plan have existed in the past, such plan or plans
are hereby canceled. There are no stock options unexercised on the date hereof.
The shareholders own the securities with good and marketable title, free and
clear of any and all mortgages, liens, charges, pledges, encumbrances, claims,
security interests, restrictions or rights of others of any nature whatsoever.
The shareholders have not previously granted or agreed to grant any
proxy or other right to vote in respect of the shareholder's securities or
entered into any voting trust, vote pooling or other agreement with respect to
the right to vote, call meetings of shareholders or give consents or approvals
of any kind as to the shareholders' securities except those which are no longer
of any force or effect; there is no claim, action, lawsuit, arbitration,
mediation or other proceeding pending or, to the best of the actual knowledge
information and belief of the shareholders, threatened against the shareholders
or Condor, which relates to this Agreement or otherwise materially or impairs
the ability of the shareholders to consummate the transactions contemplated
hereby.
REPRESENTATIONS AND WARRANTIES OF MERGER CANDIDATE
The merger partner hereby represents and warrants that: the Online is
a corporation duly incorporated and validly existing under the laws of its
jurisdiction of incorporation; the merger partner has all necessary power,
authority, capacity and right, and received all requisite approvals from a
majority of its shareholders to complete the contemplated merger in accord with
this and other Agreements between the companies.
Upon the due execution and delivery of this Agreement by each of the
respective parties, this Agreement shall be a valid and binding agreement
enforceable by the shareholders against Online in accordance with its terms
subject however, to the usual limitations with respect to enforcement
2
<PAGE>
imposed by law in connection with bankruptcy or similar proceedings and the
availability of equitable remedies.
1. Online is not a party to, bound or affected by or subject to,
any agreement, charter or by-law provision, statute,
regulation, judgment, order, decree or law which would be
violated, contravened, breached by, or under which default
would occur as a result of, the execution, delivery and
performance of the terms and conditions of this Agreement and
which default, violation, contravention or breach would
materially impair or would prevent the Online from
consummating the transactions contemplated hereby. Online has
sufficient funds or financing arrangements in place to fulfill
its fiscal responsibilities in connection with the
contemplated merger.
COVENANTS OF THE SHAREHOLDERS
2. GENERAL. Each of the shareholders covered by the instant
agreement hereby covenants that once the common shares of the
surviving corporation commence to trade on any U.S. Exchange
operated by NASDAQ, the individual shareholders will:
(i) not sell, transfer, pledge, encumber, grant a security
interest in, hypothecate or otherwise convey, directly or
indirectly, the shareholder's securities to any person, or
agree to any of the foregoing; and,
(ii) not grant or agree to grant any proxy or other right to
vote in respect of the shareholders' securities, or enter into
any voting trust, vote pooling or other agreement with respect
to the right to vote the shareholders' securities, other than
pursuant to the terms of this Agreement; and
(iii) not initiate, solicit or encourage any inquiries,
submissions or offers as to or in connection with the making
of, or provide information to, or respond to any person
making, any offer or proposal with respect to:
(a) any other reverse takeover, tender offer or exchange
offer, merger, amalgamation, plan of arrangement,
reorganization, consolidation, business combination, sale of
assets, sale of securities, recapitalization, liquidation,
dissolution, winding-up, or similar transaction involving
Condor West.
The instant lockup agreement expressly covers a period not to exceed
twelve (12) consecutive months commencing on the initial date the stock of
Online trades. For the duration of the initial six (6) months following the
commencement of trading, the individual shareholders who beneficially own 85,000
shares of the common stock of the surviving corporation are expressly prohibited
from selling or disposing of said the common stock in the manner set forth
above; and
3
<PAGE>
Beginning on the seventh (7th) month following the commencement of
trading the common stock covered by the instant lockup agreement, the individual
shareholders shall be permitted to sell or dispose of their common stock in
increments equal to twenty percent (20%) on a monthly basis of the aggregate
shares of each individual shareholder until all of the original common stock has
been disposed of or until the expiration of the subsequent six (6) month period
or the earlier of the two preceding events. At the end of the lockup period, the
lock-up becomes null and void. Any and all securities pursuant to this lock-up
agreement shall be held in trust by the Law Firm of Larson-Jackson, PC. and
shall be released upon request of the owner in the applicable above referenced
increments without delay. The Law Firm of Larson-Jackson, P.C. shall absorb the
expense associated with sending the certificates to the owners via Federal
Express or other overnight delivery service.(See Schedule "A" Attached Hereto)
ADDITIONAL COVENANTS
3. Each of the shareholders hereby covenants with Online that
until the merger occurs, which is scheduled on or before the
end of September 9, 1999, the shareholders will: promptly
notify the Online orally and in writing of any material
adverse effect known to the shareholders; and request the
corporation or the transfer agent(s) of the Condor to prepare
a list of its shareholders.
COVENANTS OF THE PURCHASER
GENERAL. Online hereby covenants to its reasonable best efforts to
successfully complete the transactions contemplated by this Agreement, including
the merger, and shall in all material respects comply with the requirements of
applicable law, including the federal securities laws. The terms of the merger
agreement are consistent with the terms of this Agreement.
ACCEPTANCE OF OFFER
DEPOSIT. Each of the shareholders, who owns all or part of the share
certificates representing the 85,000 shares, hereby irrevocably and
unconditionally agrees to deposit with legal counsel for Online, the securities,
together with duly completed and executed letters of transmittal, immediately
following the consummation of the merger, on or before the third business day
after the date of the merger.
NO-WITHDRAWAL
Each of the shareholders hereby irrevocably and unconditionally agrees not to
withdraw or take any action to withdraw any of his or her securities deposited
with legal counsel notwithstanding any statutory rights or other rights under
the terms of the merger agreement or otherwise which he or she
4
<PAGE>
might have unless this Agreement is terminated by the shareholder due to Online
inability or unwillingness to perform in accordance with the terms and
conditions of the aforementioned merger agreement.
TERMINATION BY SHAREHOLDERS
Any of the Shareholders, when not in default in performance of its
obligations under this Agreement, may, without prejudice to any other rights,
terminate this Agreement by notice to the Online if: the Merger Agreement has
been terminated or common shares deposited under the terms of this Agreement
have not, for any reason whatsoever been executed and paid for on or before the
September 9, 1999.
TERMINATION BY PURCHASER
The Purchaser, when not in default in performance of its obligations
under this Agreement, may, without prejudice to any other rights, terminate this
Agreement by notice to the shareholders if: the Merger Agreement has been
terminated for any reason whatsoever, or otherwise expires in accordance with
its terms.
EFFECT OF TERMINATION
In the event of the termination of this Agreement, it shall become
void forthwith. There shall be no liability on the part of the Online, or the
shareholders hereunder except that nothing contained in this Agreement will
relieve any party from liability for any breach of any provision of this
Agreement which occurred on or before the date of such termination.
GENERAL SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the shareholders and the Online
contained herein shall survive the consummation of the Merger for a period of
time not to exceed two years. In the event one party has made material
misrepresentations to the other, the recourse shall be that provided by the
applicable law. No investigations made by or on behalf of the Online or any of
their authorized agents at any time shall have the effect of waiving,
diminishing the scope of or otherwise affecting any representation or warranty
or covenant made by the shareholders in or pursuant to this Agreement.
DISCLOSURE
Except as required by the federal securities laws or judicial
authority, none of the shareholders shall make any public disclosure of, or any
announcement of or statement with respect
5
<PAGE>
to, this Agreement without the prior written approval of the Online; provided,
however, that this section will not restrict any shareholder who is a director
or officer of the Condor West from authorizing or participating in any
disclosure by the Condor which is in accordance with the mandatory statutory
provisions of the State of Nevada.
ASSIGNMENT
This Agreement shall not otherwise be assignable by any party hereto.
TIME
All parties understand and agree time is of the essence in connection
with this Agreement.
CURRENCY
All sums of money referred to in this Agreement shall mean U.S.
currency.
GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Nevada and the federal securities laws.
ENTIRE AGREEMENT
This Agreement constitutes the entire agreement and understanding
between the parties hereto with respect to the lock-up of the securities and
supersedes any prior agreement, understanding and representation.
AMENDMENTS
This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by all of
the parties to this Agreement.
NOTICES
Any notice or other communication which may or is required to be given
pursuant to this Agreement shall be in writing and shall be sufficiently given
or made if delivered personally
6
<PAGE>
or sent by facsimile, in the case of Online, the communication must be addressed
as follows:
Attention: President
Stanley James White
150 Laser Court
Hauppauge, New York 11788
Telephone No.: 1-516-231-7575
Telecopier No.: 1-516-231-7601
with a copy of each to:
Steve Larson-Jackson
LAW FIRM OF LARSON-JACKSON, PC
1275 K Street, NW, Suite 1101
Washington, D.C. 20005
Telephone No.: (202) 408-8180
Telecopier No.: (202) 789-2216
and Condor West Corporation must be addressed as follows:
Attention: President
Carl D. Nation
8845 Main Street
North Richland Hills, Texas 76180
Telecopier No.: 1-817-581-6509
Telephone No.: 1-817-485-0236
with a copy of each to:
Mr. Patrick D. West, Esquire
3901 W. Vickery Blvd. Suite 1
Fort Worth, Texas 76107-5672
Telecopier No.: 1-817-923-9550
7
<PAGE>
Telephone No.: 1-817-923-9525
or to such other address as the relevant party may from time to time advise by
notice in writing given pursuant to this section. Any notice that is delivered
will be deemed to be delivered on the date of delivery to such address if
delivered on a business day prior to 5:00 p.m. (local time at the place of
receipt) or on the next business day if delivered after 5:00 p.m. or on a
non-business day. Any notice via facsimile will be deemed to be delivered on the
date of transmission (for which confirmed receipt is provided to the sender) if
delivered on a business day prior to 5:00 p.m. (local time at the place of
receipt) or the next business day if delivered after 5:00 p.m. or on a
non-business day.
SEVERAL LIABILITY
It is understood and agreed that the rights and obligations of each of
the shareholders under this Agreement shall be several and not joint or joint
and several and in no circumstances shall the action or omission of one of the
shareholders arising in connection with this Agreement constitute the action or
omission of the other shareholders or create any liability whatsoever on the
part of the other shareholders or affect in any respect the right of the other
shareholders to rely upon and enforce against Online the provisions of this
Agreement.
EXPENSES.
Each of the parties shall pay its legal, and accounting costs and
expenses incurred in connection with the preparation, execution and delivery of
this Agreement and all documents and instruments executed or prepared pursuant
hereto and any other costs and expenses whatsoever and howsoever incurred.
COUNTERPARTS
This Agreement may be executed in one or more counterparts which
together shall be deemed to constitute one valid and binding agreement and
delivery of the counterparts may be effected by means of a faxed transmission.
This Agreement may be executed by facsimile signature, and execution thereby
will constitute an original hereof.
If the terms and conditions of this Agreement are acceptable, please
so indicate by signing in the below space.
8
<PAGE>
CONDOR WEST CORPORATION
By: /s/ Carl D. Nation
-------------------------------------
Carl D. Nation
Title: Chief Executive Officer, President
Secretary
ONLINE INTERNATIONAL CORPORATION
By: /s/ Stanley James White
-------------------------------------
Stanley James White
Title: President & Secretary
<PAGE>
SCHEDULE "A"
Disbursement of 85,000 Condor Wst Shares retained by the Shareholder
Following the 48-1 reverse split and post merger.
<TABLE>
<CAPTION>
Pre-Reverse Split Shares Post Reverse Split
------------------------ ------------------
<S> <C> <C>
Carl D. Nation 5,325,000 26,335
8845 Main Street
North Richland Hills, TX 76180
Dr. Everett Renger 5,325,000 26,335
909 Frostwood, Suite 261
Houston, TX 77204
Steven R. Paige 1,000,000 4,945
8547 E. Arapahoe Road
Suite J-416
Englewood, CO 80112
Wade D. Althen 1,000,000 4,945
3505 Mc Cord
North Little Rock, AZ 72116
Terrance L. Rasmussen 300,000 1,484
3635 Vermilion Court North
Eagan, MN 55122
David Christman 200,000 989
645 Praire Dell
Lewisville, TX 75067
Berton A. Johnson 200,000 989
848 Decatur
Denver, CO 80204
Dennis L. Swenson 200,000 989
2625 Bennington Ct.
Grand Prairie, TX 76052
Everret Renger, Sr. 200,000 989
909 Frostwood Suite 261
Houston, TX 77204
Twentieth Century LLC 0 17,000
6521 West Calhoun Place
Littleton, CO 80123
---------- ------
Totals 13,750,000 85,000
</TABLE>
<PAGE>
ONLINE INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
SECTION ONE
PURPOSE
This Employee Stock Purchase Plan (the "plan") is intended as an
incentive and to encourage stock ownership by employees, officers and directors
of Online International Corporation (the "Company") so that they may acquire or
increase their proprietary interest in the growth and success of the Company,
and to encourage them to remain an employee, officer or director of the Company.
SECTION TWO
ADMINISTRATION
The plan shall be administered by a committee appointed by the board of
directors of the company and consisting of at least three of its members.
Members of the committee shall not be eligible to participate in the plan. The
committee shall have authority to make rules and regulations for the
administration of the plan; its interpretations and decisions shall be final and
conclusive unless otherwise determined by the board of directors. The board of
directors may from time to time remove members from, or add members to, the
committee. Vacancies on the committee, however caused, shall be filled by the
board of directors. The committee shall select one of its members as
chairperson, and shall hold meetings at such times and places as it may
determine. A majority of the committee at which a quorum is present, or acts
reduced to or approved in writing by a majority of the members of the committee,
shall be the valid acts of the committee. The committee is vested with the full
authority to make, administer, and interpret such equitable rules and
regulations regarding the plan as it may deem advisable, subject to the terms of
the plan. No member of the board of directors or the committee shall be liable
for any action or determination made in good faith with respect to the plan or
any option granted under it. The grant of options under the plan will be
automatic and nondiscretionary.
SECTION THREE
SHARES SUBJECT TO PLAN
The maxim aggregate number of shares which may be optioned under the Plan is one
million (1,000,000) common shares ( the "Pool"). The par value of the common
stock is $.001. The shares may be authorized, but unissued, or required common
shares. If any option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased shares shall become
available for future grant under the Plan. If the shares which were acquired
upon exercise of an option are subsequently repurchased by the Company,
<PAGE>
such shares will not in any event be returned to the plan and shall not become
available for future grant under the Plan.
SECTION FOUR
ELIGIBILITY
The full-time key employees, officers and directors (hereinafter "employee or
participant") of the Company and its subsidiaries, if any, with one or more
years of service to the Company shall be eligible to participate in the plan, in
accordance with such rules as may be prescribed from time to time, which rules,
however, shall neither permit nor deny participation in the plan contrary to the
requirements of the Internal Revenue Code and regulations promulgated under the
Code. No employee shall be granted an option if the employee, immediately after
the option is granted, owns five per cent (5%) or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the rules of Section 424(d) of the Internal
Revenue Code shall apply in determining the stock ownership of an employee, and
stock which the employee may purchase under outstanding options shall be treated
as stock owned by the employee. Employees of the Company who work less than
twenty (20) hours per week shall not be eligible to participate in this stock
purchase plan.
SECTION FIVE
GRANT OF OPTIONS
The committee will grant to eligible participants options to purchase such
number of shares and at such time or times as it will determine subject to the
limitations contained in this Stock Option Plan.
(a) All eligible participants shall enjoy equal rights and privileges
under the plan.
(b) In determining whether the stock ownership of an eligible
participants exceeds the five percent threshold limit, the rules of Section 424
(d) of the Internal Revenue Code, as amended, will apply and stock which the
eligible employee may purchase under the outstanding options, (whether or not
the options qualify for the special tax treatment of Section 421 (a) of the
Internal Revenue Code) shall be treated as stock owned by the eligible
participant. Of course, if the participant would not own more than five percent
(5%) immediately after the grant of the options the stock will not be deemed to
be owned by the participant.
(c) No eligible participant shall be granted an option which permits
his or her rights to purchase stock under the stock option plan which permits
his or her right to purchase stock under the plan to exceed One Hundred Thousand
Dollars ($100,000) of the fair market value of the stock determined as of the
date the option is granted. In that the options are being granted prior to the
existence of any trading market or as the Company is currently closely held, no
grantee shall be permitted to purchase more than One Hundred Thousand Dollars
($100,000) of Common Stock of the Company pursuant to the instant option plan in
any one
<PAGE>
twelve month period. The exercise price of the per share will be one dollar
($1.00). In the event the company becomes publicly traded, the fair market value
will be determined in conjunction with the market price, however, no participant
shall be permitted to exercise stock option as a price less than one dollar.
(d) In the event of a recapitalization, reclassification or merger affecting
common stock, the number of shares which may subsequently issued under the pan,
the number of shares under option at that time, and the option price may be
appropriately adjusted as determined by the committee.
(e) The participant shall be notified by the Company of the grant of an option
or options to him or her. In order to participate in the plan, the eligible
employee must sign an acceptance of option form provided by the corporation
showing the number of shares that he or she elects to purchase and must deliver
it within thirty (30) days afer the date appearing on the form to the secretary
or other officers of the Company designated in the option. An eligible employee
may accept the option to purchase the number of shares specified in his or her
option or a less number of shares but in no event less than one thousand (1000)
shares of common stock of the Company.
SECTION SIX
PURCHASE PRICE
The purchase price per share will be one dollar ($1.00) per share unless the
committee determines otherwise. Once the Company becomes public, the committee
may, in its sole discretion, create a formula that corresponds to the fair
market value of the stock.
SECTION SEVEN
METHOD OF PAYMENT
Payment for the shares under the option pursuant to the instant plan made at the
election of the eligible participant may be either lump sum payments,
installments, or a combination of those payments.
(a) An eligible participant or employee who elects the lump sum method shall pay
by cash, money order or by cashier's check at the time of acceptance of option,
an amount equal to the total purchase price of all shares accepted under the
option. The participant or employee can elect to pay less than the full lumps
sum, but in no event can he or she tender payment for less than one thousand
shares. The remaining portion of the purchase price for all of the shares which
the eligible participant or employee has accepted may be installment payments.
(b) An eligible participant or employee may elect to pay all or part of the
purchase price on the installment method shall authorize the withholding and
deduction from his or her regular pay on a specified basis not less than
monthly, over the option period. Such sums, when
3
<PAGE>
accumulated will equal the amount necessary to acquire the shares. The
deductions shall be in uniform amounts in conformity with the employer's payroll
deduction schedule. Any excess amount shall be returned the participant or
employee within thirty (30) days.
SECTION EIGHT
INTEREST ON PAYMENTS
Interest shall be allowed on sums withheld from an eligible employee's pay for
purchase of shares under his plan pursuant an election by the employee or
participant. The interest shall be credited to each eligible employee's stock
purchase account until the date of exercise. For the purpose of computing
allowable interest, installment payments will be regarded as received as of the
first day of the month in which they are withheld. The rate of interest shall be
determined by the committee. The interest shall be compounded annually and shall
be paid to each eligible employee or participant as such times or times as the
board of directors shall determine.
SECTION NINE
WITHDRAWAL OF FUNDS
An employee may at any time and for any reason permanently withdraw out
the balance accumulated in the employee's account, including interest credited
on the account, and by that action withdraw from participation in the Stock
Option Plan. Partial withdrawals shall not be permitted.
SECTION TEN
NATURE OF
THE GRANT OF THE OPTIONS
(a) The options granted pursuant to the instant plan are limited to one million
common shares of the Company and this plan must be approved by the shareholders
of the corporation within 12 months before or after the date this plan is
adopted.
(b) By the specific terms of this plan the options shall not be exercisable
after ten (10) years from the date the options are granted.
(c) The option price is one dollar ($1.00) and the price is not less than the
fair market value.
SECTION ELEVEN
STOCK CERTIFICATES
Stock certificates shall only be issued to participating employees on their
request or in such number of shares as are credited to an employee's account or
upon the participating
4
<PAGE>
employee's withdrawal from the plan for any reason.
SECTION TWELVE
REGISTRATION OF CERTIFICATES
Certificates shall be registered in the name of the employee, or, if the
employee indicates on the employee's payroll deduction authorization form, in
the employee's name jointly with a member of the employee's family, with right
of survivorship. An employee who is a resident of a jurisdiction which does not
recognize such a joint tenancy may have certificates registered in the
employee's name as tenant in common with a member of the employee's family,
without right of survivorship.
SECTION THIRTEEN
PROTECTION FROM LIABILITY
Subject to the above, the board of directors and the committee in fixing the
option price shall have full authority and discretion and be fully protected
from any liability in doing so.
SECTION FOURTEEN
RIGHTS AS SHAREHOLDER
None of the rights or privileges of a shareholder of the company shall exist
with respect to shares purchased under this plan unless and until certificates
representing the full shares have been credited to the participating employee's
account.
SECTION FIFTEEN
RIGHTS ON RETIREMENT, DEATH, OR TERMINATION OF
EMPLOYMENT
In the event of a participating employee's retirement, death, or termination of
employment, no payroll deduction shall be taken from any pay due and owing to
the employee at that time and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, to the employee's
estate. Whether authorized leave of absence or absence for military or
governmental service shall constitute termination of employment, for the
purposes of the plan, shall, unless otherwise required by law, be determined by
the committee, which determination, unless overruled by the board of directors,
shall be final and conclusive. If, prior to one year of employment, an officer,
director, or employee's relationship with the corporation terminates, by the
employee or the corporation, with or without cause, or in the event of death,
incapacity or retirement of the participant, the participant's right to exercise
the option shall immediately terminate and all rights under this agreement shall
immediately cease. Notwithstanding the foregoing sentence, in the sole
discretion of the board of directors by an affirmative act thereof, the options
and the rights hereof can be extended after termination or separation from the
Company.
5
<PAGE>
SECTION SIXTEEN
RIGHTS NOT TRANSFERABLE
Rights under this plan are not transferable by participating employees and are
exercisable during the employee's lifetime only by the employee. Transfer of the
option by the employee by will or by the laws of descent and distribution shall
be effective to bind the corporation where the corporation has been furnished
with written notice of the transfer and a copy of the will or such other
evidence the corporation's board of directors deem necessary to establish the
validity of the transfer and the acceptance by the transferee or transferees of
the terms and conditions of the option.
SECTION SEVENTEEN
CANCELLATION OF ACCEPTANCE OF OPTION
At any time prior to, but in not event following, his or her date of exercise,
the eligible employee or participant who has elected to purchase shares may
cancel his or her acceptance of Option as to any or all of the shares by written
notice of cancellation delivered to the officer designated to received his or
her Acceptance of Option. If an employee cancels an Acceptance of Option as to
only apart of the shares, he or she shall continue to make the required
installments pay or shall make a lump sum payment as set forth above with
respect to the number shares for which the Acceptance of Option is not
cancelled.
(a) He or she may receive in one lump sum payment as soon as practicable after
delivery of the notice of cancellation, the amount credited to his or her
account with respect to the shares (including interest, as computed under this
agreement); or
(b) He or she may have the amount which is credited to his or her
account with respect to the shares at the time the cancellation becomes
effective applied to the purchase of the number of shares that amount will
purchase, not exceeding, however, the number of shares by which for the
Acceptance of Option is cancelled and receive the balance of the account in one
lump sum payment.
(c) The date on which payment for the share is completed shall be the date of
exercise with respect to the shares not cancelled.
SECTION EIGHTEEN
APPLICATION OF FUNDS
All funds received or held by the company under this plan may be used for any
corporate purpose.
6
<PAGE>
SECTION NINETEEN
ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON
STOCK
In the event of a subdivision of outstanding shares of common stock, ($.001) par
value, or the payment of a stock dividend on the shares, the number of shares
approved for this plan, and the share limitation, shall be increased or
decreased proportionately, and such other adjustment shall be made as may be
deemed equitable by the board of directors. In the event of any other change
affecting the common stock, such adjustment shall be made as may be deemed
equitable by the board of directors to give proper effect to that event.
SECTION TWENTY
PLAN AMENDMENT
The committee may, at any time, or from time to time, amend this plan in any
respect, except that, without the approval of the holders of a majority of the
shares of common stock of the Company then issued and outstanding and entitled
to vote, no amendment shall be made (i) increasing or decreasing the number of
shares approved for this plan (other than as provided in Section Three), (ii)
decreasing the purchase price per share, (iii) withdrawing the administration of
this plan from the committee, or (iv) changing the designation of eligible
participants in the plan.
SECTION TWENTY-ONE
PLAN TERMINATION
This plan and all rights of employees or participants under this plan shall
terminate:
(a) On the day that accumulated payroll deductions of participating employees
are sufficient to purchase a number of shares equal to or greater than the
number of shares remaining available for purchases. If the number of shares so
purchasable is greater than the shares remaining available, the available shares
shall be allocated by the committee among such participating employees in the a
manner it deems equitable; or
(b) Notwithstanding the foregoing, the Stock Option Plan shall terminate at 5:00
p.m., Eastern Time, on August 30, 2010.
(c) At any time, at the discretion of the board of directors.
7
<PAGE>
DEFINITIONS
As used herein, the following definitions will apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Common Shares" shall mean the commons shares of the Company.
(c) "Company" shall mean Online International Corporation, a Nevada corporation.
(d) "Director" shall mean a member of the Board of Director.
(e) "Employee" shall mean any person including officers and Directors, employed
by the Company or any current future subsidiary of the Company. The payment of a
director's fee by the Company shall not be sufficient in and of itself to
constitute employment by the Company.
(f) "Option" shall man a stock option granted pursuant to the instant Plan.
(g) "Optionee" shall mean any grantee of an option pursuant to the terms of this
Stock Option Plan.
(h) "Parent" shall mean a "parent corporation "whether now or hereafter
existing, as defined in Section 424 (g) of the Internal Revenue Code of 1999.
(i) "Plan" means this Stock Option Plan.
(j) "Share" means the common stock of the Company, as adjusted, if necessary.
(k) The phrase "average market price" means the average of the bid and asked
prices of the company's common stock as reported by the National Association of
Securities Dealers, Inc. on the last business day of a participating employee's
pay period or, if there were no bid and asked prices on that day, the average of
the bid and asked prices of the stock on the next preceding business day on
which quotations were available. If the stock is subsequently listed on an
established stock exchange or exchanges the fair market value shall be deemed to
be the highest closing price of the common stock on the stock exchange or
exchanges on the day the option is granted or if no sale of the company's common
stock is made on any stock exchange on that day, on the next preceding day on
which there was a sale of the stock
8
<PAGE>
PLAN QUALIFICATION
This plan is intended to quality as an Employee Stock Purchase Plan as defined
in Section 422 (b) of the Internal Revenue Code.
Online International Corporation
By: /s/ Stanley James White
-------------------------------------
Stanley James White
Chief Executive Officer, President
9
