UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 7, 1999
Zeros & Ones, Inc.
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(Exact name of registrant as specified in its charter)
Nevada
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(State or other jurisdiction of incorporation)
33-26531LA 88-0241079
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(Commission File Number) (I.R.S. Employer
Identification No.)
39 East Walnut Street, Pasadena, California 91103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 584-4040
COMMERCIAL LABOR MANAGEMENT, INC.
137 N. Larchmont, #507
Los Angeles, California 90004
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(Former name, former address & former fiscal year, if changed since last report)
Total number of pages in this document: 167
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TABLE OF CONTENTS
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.....................................3
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.................................8
ITEM 3. BANKRUPTCY OR RECEIVERSHIP...........................................8
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT........................8
ITEM 5. OTHER EVENTS ........................................................8
ITEM 6. RESIGNATION OF DIRECTORS AND APPOINTMENT OF
NEW DIRECTORS....................................................8
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS ...................................9
SIGNATURES ...................................................................11
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
General. The statements made in this Report are qualified in their
entirety by the financial statements and exhibits included in Item 7 of this
Report, which are incorporated herein in their entirety by reference.
Cautionary Statements. This Report may contain forward looking
statements. Any forward looking statements are made subject to the following
summary disclosure of risks and uncertainties in accordance with the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. Forwarding
looking statements regarding Zeros & Ones, Inc., a Nevada corporation (formerly
Commercial Labor Management, Inc.)(the "Company"), its subsidiaries, its assets,
its business, its financial condition, or its operating results involve a number
of risks and uncertainties. There is no assurance that the Company will
experience the actual results described in forward looking statements. Actual
results may differ materially from those anticipated due to risk factors that
include but are not limited to lack of timely development of products and
services by the Company; lack of market acceptance of the Company's products,
services and technologies; inadequate capital; adverse government regulation;
competition; lack of operating experience; inability to earn revenue or profits;
dependence on certain individuals in management; inability to obtain or protect
intellectual property rights; risks associated with customer concentration;
inability to obtain NASDAQ Small Cap Market or any other listing for the
Company's securities; lower sales and higher operating costs than expected;
technological obsolescence of the Company's products; limited operating history;
and risks inherent in the entertainment, telecommunication, and Internet markets
and business.
Acquisition Agreements. On July 2, 1999, effective as of July 1, 1999,
Commercial Labor Management, Inc., a Nevada corporation (now named Zeros & Ones,
Inc.), entered into a Plan of Reorganization and Asset Purchase Agreement with
Zeros & Ones, Inc., a Delaware corporation ("ZOI"), Robert Holtz, Mark J.
Richardson, and Edward L. Torres, and Plans of Reorganization and Exchange
Agreements with (1) Quantum Arts, Inc., a California corporation ("Quantum") and
Steve Schklair, (2) EKO Corporation, a Delaware corporation ("EKO"), and Robert
Holtz, (3) Polyganol Research Corporation, a Delaware corporation ("Polyganol"),
Robert Holtz and Bernie Butler-Smith, (4) KidVision, Inc., a Delaware
corporation ("KidVision"), and Charles Overton, and (5) Wood Ranch Technology
Group, Inc., a Delaware corporation ("Wood Ranch"), Robert Holtz, and William
Burnsed. The Plans of Reorganization are collectively referred to herein as the
AAcquisition Agreements." Quantum, EKO, Polyganol, KidVision and Wood Ranch are
collectively referred to herein as the "Subsidiaries."
Pursuant to the Acquisition Agreements, the Company acquired 100% of
the assets of ZOI and 100% of the total issued and outstanding capital stock of
Quantum, EKO, Polyganol, KidVision and Wood Ranch, in exchange for the issuance
by the Company of a total of 3,050,000 new shares of the Company's common stock
to Robert Holtz (900,000 shares), Steve Schklair (850,000 shares), William
Burnsed (500,000 shares), Charles Overton (500,000 shares) and Bernie Butler
Smith (300,000 shares). As part of the overall reorganization, the Company has
also agreed to and is making an exchange offer to the shareholders of Pillar
West Entertainment, Inc. ("PWE") pursuant to which the Company seeks to acquire
100% of the total issued and outstanding capital stock of PWE in consideration
for the issuance to the shareholders of PWE of (a) approximately 1,745,000 new
shares of the Company's common stock, and (b) approximately 320,000 warrants
<PAGE>
(the "Warrants") to purchase approximately 320,000 additional shares of the
Company's common stock for a purchase price of $3.00 per share, exercisable at
any time until July 1, 2002. In connection with the Acquisition Agreements and
the overall reorganization of the Company with ZOI, Quantum, EKO, Polyganol,
KidVision, Wood Ranch, the Company has the right, effective July 1, 1999, to
issue up to an additional 1,317,059 shares of the Company's common stock,
resulting in a total of 7,000,000 shares of the Company's common stock and
approximately 320,000 Warrants outstanding upon the completion of the
transaction.
Pursuant to the Acquisition Agreements, Mark J. Richardson and Edward
L. Torres, two principal shareholders of the Company, each agreed to surrender
to the Company for cancellation 1,850,000 shares of the Company's common stock.
Effective July 1, 1999, Edward L. Torres resigned as the President, Chief
Financial Officer and Secretary of the Company, and appointed Robert Holtz as
the Chief Executive Officer, Steve Schklair as the President and Chief Financial
Officer, and Charles Overton as the Secretary of the Company. As soon as
permitted under Section 14(f) of the Securities Exchange Act of 1934, as
amended, Edward L. Torres will resign as the sole director of the Company and
has agreed to appoint Robert Holtz as Chairman of the Board of Directors, and
Steve Schklair and Charles Overton as additional directors of the Company. The
Company may add William Burnsed and Bernie Butler Smith as directors of the
Company at a later date.
Robert Holtz is indemnifying the Company against any liabilities of
ZOI, and the Company is not assuming any of ZOI's liabilities. Each of Quantum,
EKO, Polyganol, KidVision and Wood Ranch will continue to operate as separate
100% owned subsidiaries of the Company, while the Company plans to dissolve PWE
and acquire its assets after its completes the exchange offer for PWE's
outstanding capital stock. While the Company believes that it will achieve
exchanges for virtually all of the outstanding capital stock of PWE, there is no
assurance regarding the actual number of outstanding shares of PWE that will be
tendered to the Company in exchange for the Company's common stock.
Until July 1, 1999, Mr. Torres and Mr. Richardson, as co-plaintiffs with
the Company in the lawsuit against CNG Communications, Inc. and Paul Bishop, the
sole shareholder of CNG Communications, Inc., for breach of contract and fraud,
have borne the expenses of the lawsuit. The lawsuit is being handled by legal
counsel for Mr. Torres, Mr. Richardson and the Company on a contingent fee basis
(i.e., generally one third of the recovery), plus out-of-pocket expenses. Under
the Acquisition Agreements, the Company has agreed to begin bearing the
out-of-pocket expenses of the lawsuit. The net proceeds payable to the
plaintiffs from the lawsuit, if any, will be allocated 50% to the Company, 25%
to Mr. Torres and 25% to Mr. Richardson. There is no assurance that the Company
will prevail in the lawsuit or receive any recovery or award from the lawsuit.
Under the Acquisition Agreements, the Company has agreed to pay to Mr.
Richardson and Mr. Torres a total of $87,500 in cash, paid by issuance of a
promissory note in the principal amount of $87,500, dated July 1, 1999, bearing
simple interest at the rate of 10% per annum and payable principal and accrued
interest in full on or before July 31, 1999.
<PAGE>
Business. The Company is engaged in the business of providing technical
consulting services to major technology developers, conducting e-commerce on the
Internet, developing quality Websites, and creating core technologies that other
software and hardware developers can integrate into their own products. Through
its newly acquired wholly owned Subsidiaries, the Company is also engaged in
CD-ROM programming production and development, and research and development of
proprietary products for digital image compression and three dimensional high
definition television technology. In 1996, ZOI established a division called
Studio Subzero to design and develop Websites and multimedia content. In mid
1997, ZOI commenced licensing Websuites(TM) Technologies, and in 1998, it opened
its FineItems.COM Website for the sale of upscale products on the Internet. An
agreement with Amazon.com, Inc. in early 1999 is expected to enhance the
e-commerce business of FineItems.COM in the future.
Quantum is a media consulting and production company located in
Pasadena, California. Quantum specializes in digital asset development and
production for information and entertainment purposes. Quantum also has a
research and development program for three dimensional high definition ("3dHD")
television technology. EKO is developing an Internet based commerce oriented
online service and virtual community for entertainment professionals. KidVision
plans to market the Kids Education Network ("K.E.N."), a portal Website, and to
be a distributor of educational products through its own mail order catalog.
KidVision also plans to operate an e-commerce catalog on the Kids Educational
Network through which it will distribute its educational products. Wood Ranch
provides consulting services for the building of television facilities and has
designed the Company's planned Advanced Media Production Center. Polygonal is
the developer of an image compression technology called Dynamic Polygonal
Compression ("DPC"). Polygonal plans to manufacture products that utilize the
DPC engine. The Company is also currently in the process of entering into
exchange agreements with the shareholders of PWE. If successful, the Company
will dissolve PWE and absorb its assets. PWE is an independent production
company that develops and produces educational and entertaining children's
programming for the Internet and for television, including the Kids Educational
Network. The Company believes that by consolidating the technical experts of all
these companies, the Company will be in a unique position to create core
technologies and advanced media services.
The executive offices of the Company are located at 39 East Walnut
Street, Pasadena, California 91103, and its telephone number is (626) 584-4040.
Management. The following paragraphs summarize the background and
qualifications of the executive officers, prospective executive officers and
prospective directors (upon compliance with Section 14(f) of the Securities
Exchange Act of 1934, as amended, anticipated to be in July 1999) of the
Company:
Robert Holtz has been the Chief Executive Officer of the Company since
the closing of its acquisition of the assets of ZOI effective July 1, 1999, and
is expected to become the Chairman of the Board of Directors of the Company in
July 1999. Mr. Holtz is also the Chairman of the Board of Directors, President,
Chief Financial Officer and Secretary of ZOI, positions which he has held since
April 1994. From October 1991 until founding ZOI in April 1994, Mr. Holtz was
the Director of Special Projects for Action Video, Inc., a prominent
post-production facility. At Action Video, Inc., Mr. Holtz developed several new
tools such as "Sally," a software based product that enables a specialized
animation/edit system to be used as a final assembly point by giving it the
intelligence to understand EDLS (a worldwide standard protocol for storing and
<PAGE>
transmitting Edit Decisions from one system to another). He also developed a
system called "Pipeline," a precursor to HTTP that connects multiple unlike
devices. From January 1989 until October 1991, Mr. Holtz headed a small business
that created custom hardware and software solutions. Mr. Holtz' projects
included the creation of a completely automated credit card clearing and
merchant protection service center, the creation of an Emergency Response
Locator system which locates physicians and specialists by geographical
proximity for emergency response, and the creation of the first fully automated
credit card commerce system for the nationwide sale of movie theater admission
tickets. Mr. Holtz has worked on the design of several international products
lines such as Microsoft Visual C++, Microsoft Windows 95, Studio Venice, and
Hurricane from Gentris Images of France. Mr. Holtz also participated in
Microsoft's Win32J Group. Mr. Holtz is an active member of the Society of Motion
Picture and Television Engineers, the Institute of Electrical and Electronic
Engineers, the Society of Television Engineers, the Association of Computing
Machinery, and the International Multimedia Association (Charter Member).
Steve Schklair has been the President and Chief Financial Officer of
the Company since the acquisition by the Company of Quantum Arts, Inc. effective
July 1, 1999, and is expected to become a director of the Company in July 1999.
Mr. Schklair has also been the owner, Chairman of the Board of Directors, Chief
Executive Officer, and President of Quantum Arts, Inc., a Subsidiary of the
Company, since the inception of its predecessor-in-interest in December 1997.
From 1995 to 1997, Mr. Schklair was the Vice President and General Manager of
New Media for Digital Domain, a special effects company in Venice, California.
His responsibilities at Digital Domain included co-managing the facility,
streamlining development and production processes, overseeing asset development
and management, staffing key positions, managing contract negotiations, managing
marketing and public relations, and managing client, partner, and publisher
relationships. At Digital Domain, Mr. Schklair negotiated a joint venture with
Mattel to create CD-ROM titles based on Mattel's licensed properties. The first
title, Barbie Fashion Designer, has already sold over 2,000,000 units. From 1993
to 1995, Mr. Schklair was an Executive Producer and Creative Director at
R/Greenberg Associates, a commercial production company with offices in Los
Angeles, California and New York, New York. He Joined R/Greenberg as a visual
effects and process consultant providing creative direction on Terminator II 3D
for Universal Studios. At R/Greenberg, he designed and produced interactive
projects for clients such as AT&T, FCB, Levis, Silicon Graphics, Activation,
Phillips, IBM, Universal Studios, and Princess Cruises. From 1990 to 1993, Mr.
Schklair was an Executive Producer and Project Manager for Synapse Technologies,
a computer graphics company in Los Angeles, California. At Synapse Technologies,
he developed and produced several interactive multimedia titles, including
Columbus: Encounter, Discovery and Beyond, Evolution and Revolution, and Air
Power. In 1981, Mr. Schklair co-founded Infinity Filmworks. During his ten year
tenure as President of Infinity Filmworks, he produced and photographed several
films, music videos, and commercials, including the award winning Sensorium for
Six Flags Power Plant in Baltimore, Maryland and the award winning To Dream of
Roses, created for the 1990 Osaka World Exposition. Mr. Schklair received a
Bachelor of Fine Arts from California State University in 1979 and a Master in
Fine Arts from the University of Southern California School of Cinema/Television
in 1982.
Bernie Butler-Smith is expected to become the Vice President of Imaging
Technology and a director of the Company in July 1999. Mr. Butler-Smith has also
been the Chairman and Chief Executive Officer of Polygonal Research Corporation,
a Subsidiary of the Company, since its inception in August 1998. For the past
twelve years Mr. Butler-Smith has designed real-time image processing products
<PAGE>
for various applications. In May 1998, Mr. Butler-Smith formed a research and
development company called ICU Security. Prior to co-founding Polygonal Research
Corporation, he was the Vice President of Engineering at Digi-Spec Corporation
for eleven years. At Digi-Spec Corporation he designed 35 image processing
products, including pixel level video motion detectors, time lapse recorders,
and digital switching and routing equipment. In an independent study conducted
by Sandia National Labs and commissioned by the U.S. Department of Energy, Mr.
Butler-Smith's motion detector products received the highest ranking. Mr.
Butler-Smith has also done research in several disciplines of mathematics and
high performance digital pipelining structures. Among the companies that
currently use his designs are Microsoft for external security, Pheizer
Pharmaceutical for security, the U.S. Department of Defense for strategic
applications, the U.S. Navy for strategic applications, the Hoosier Dome for
security, Boeing for employee safety, the Environmental Protection Agency for
detecting pollution leakage, and the Federal Aviation Agency for detection
functions at airports.
William Burnsed is expected to become the Vice President of Advanced
Media Group and a director of the Company in July 1999. Mr. Burnsed has also
been the Chairman and Chief Executive Officer of Wood Ranch Technology Group,
Inc., a Subsidiary of the Company, since its inception in 1998. In 1995, Mr.
Burnsed founded Digital Video Engineering, a sole proprietorship engaged in
computer systems design and installation for television and film special
effects. Digital Video Engineering has been combined with Wood Ranch Technology
Group, Inc. From January 1996 until July 1996, Mr. Burnsed was the Director of
New Business Development for Discreet Logic Systems in North and South America.
While with Discreet Logic Systems and Digital Video Engineering, Mr. Burnsed
built online random access edit rooms for the Fox Network and high level
telecine for Advanced Digital. In August 1991 he founded Hollywood Digital, a
television post production company which Mr. Burnsed operated through 1994. In
February 1982, Mr. Burnsed founded B&B Systems, Inc., an equipment manufacturing
and turn key television systems engineering and construction contracting
company. During his eleven year tenure as President of B&B, B&B designed and
built several large facilities, including the J.C. Penny World Headquarters, 525
Post Production, the Financial News Network, Lorimar Studios, Post Pro Video,
Multimedia Services, the Shop Television Network, and the California State
Assembly Television Network. From May 1979 to February 1982, Mr. Burnsed was the
Director of Engineering for Editel where he was responsible for the design and
construction of five online edit bays, three rank telecines, one audio mixing
room, and one insert stage. From 1976 to 1979, he was the Engineering Supervisor
for TAV/Merv Griffin Productions where he supervised a department of engineers
who were responsible for the installation and maintenance of television
equipment used for videotaping the Merv Griffin Show. From 1973 to 1976, Mr.
Burnsed was the General Manager of Shelter Vision Mobile Video where he was
responsible for the video systems operation of a television mobile truck which
traveled to various cities videotaping musical shows. From 1971 to 1973, he was
the Director of Studio Operations for Transworld Communications, a division of
Columbia Pictures. At Transworld, Mr. Burnsed was responsible for the design,
installation, and operation of seven custom studios in cities from Honolulu to
London.
Charles Overton has been the Secretary of the Company since the
acquisition of Kidvision, Inc. effective July 1, 1999, and is expected to become
a director of the Company in July 1999. Mr. Overton has also been the Chief
Executive Officer and President of KidVision, Inc., a Subsidiary of the Company,
since its inception in 1998, and of Pillar West Entertainment, Inc. since its
inception in 1996. In 1995, Mr. Overton co-founded Randall-Overton Productions
where he contributed to the concept of the Kids Educational Network. From 1996
to 1997, he was the Executive Producer and co-owner of the syndicated television
series Gotta Sweat. In 1991, he joined G.C.O Pictures as the Executive Producer
<PAGE>
of Season of Fear, a full length feature film distributed domestically by MGM/UA
staring Ray Wise and Clancy Brown. In 1991, Mr. Overton and other individuals
founded Paragon Arts International, a feature film production company that
released Witchboard. Witchboard is one of the top hundred highest grossing
independent films of all time. Mr. Overton began his career in production
working on such films as Thief starring James Caan, and The Blues Brothers
staring John Belushi and Dan Ackroyd. He also has several years of experience
developing and implementing outbound telemarketing sales operations. He has
developed a series of training guides in this area. Mr. Overton is a graduate of
the Goodman School of Drama at DePaul University in Chicago.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
See AItem 1. Changes in Control of Registrant" in this Report.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
None.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
The Company presently utilizes Armando C. Ibarra, Certified Public
Accountants, as its independent certified public accountants. The independent
certified public accounting firm of Stonefield Josephson, Inc. issued audit
reports for Quantum Arts (the predecessor to Quantum Arts, Inc.), and Digital
Video Engineering (the predecessor to Wood Ranch Technology Group, Inc.), copies
of which are included with this Report under Exhibits 7(a)(2) and 7(a)(3).
Accordingly, the Company intends to engage Stonefield Josephson, Inc. in the
future to be the Company's independent certified public accounting firm. The
Company is not aware of any disagreements that it has or has had with Armando C.
Ibarra, Certified Public Accountants, and the Company is not changing certified
public accounting firms due to any disagreements with its prior independent
certified public accountants.
ITEM 5. OTHER EVENTS
See "Item 1. Changes in Control of Registrant" in this Report.
ITEM 6. RESIGNATION OF DIRECTORS AND APPOINTMENT OF NEW DIRECTORS
See "Item 1. Changes in Control of Registration" in this Report.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
(1) Statement of Assets of Zeros & Ones, Inc. as of June 25, 1999,
accompanied by the audit report of Armando C. Ibarra, Certified
Public Accountants, dated June 24, 1999.
(2) Financial Statements of Quantum Arts (Sole Proprietorship),
predecessor of Quantum Arts, Inc., as of and for the year ended
December 31, 1998, accompanied by the audit report of Stonefield
Josephson, Inc., Certified Public Accountants, dated May 21, 1999.
(3) Financial Statements of Digital Video Engineering (Sole
Proprietorship), predecessor of Wood Ranch Technology Group, Inc.,
as of and for the years ended December 31, 1996, 1997 and 1998,
accompanied by the audit report of Stonefield Josephson, Inc.,
Certified Public Accountants, dated June 3, 1999.
(b) Proforma Financial Information.
(1) Proforma combined compiled financial statements of Zeros & Ones,
Inc., a Delaware corporation, as of December 31, 1998 and related
income statement for the twelve months ended December 31, 1998,
accompanied by the compilation report of Armando C. Ibarra,
Certified Public Accountants, dated June 25, 1999.
(c) Exhibits:
7.1 Plan of Reorganization and Exchange Agreement, dated as of July 1, 1999,
by and between Commercial Labor Management, Inc., a Nevada corporation, Zeros &
Ones, a Delaware corporation, Charles Overton, and KidVision, Inc., a Delaware
corporation.
7.2. Plan of Reorganization and Exchange Agreement, dated as of July 1, 1999,
by and between Commercial Labor Management, Inc., a Nevada corporation, Zeros &
Ones, Inc., a Delaware corporation, Robert Holtz, William Burnsed and Wood Ranch
Technology Group, Inc., a Delaware corporation.
<PAGE>
7.3. Plan of Reorganization and Exchange Agreement, dated as of July 1, 1999,
by and between Commercial Labor Management, Inc., a Nevada corporation, Bernie
Butler Smith, Zeros & Ones, Inc., a Delaware corporation, and Polygonal Research
Corporation, a Delaware corporation.
7.4. Plan of Reorganization and Exchange Agreement, dated as of July 1, 1999,
by and between Commercial Labor Management, Inc., a Nevada corporation, Zeros &
Ones, Inc., a Delaware corporation, Steve Schklair, and Quantum Arts, Inc., a
California corporation.
7.5. Plan of Reorganization and Exchange Agreement, dated as of July 1, 1999,
by and between Commercial Labor Management, Inc., a Nevada corporation, Zeros &
Ones, Inc., a Delaware corporation, Robert Holtz, and EKO Corporation, a
Delaware corporation.
7.6. Plan of Reorganization and Asset Purchase Agreement, dated as of July 1,
1999, by and between Zeros & Ones, Inc., a Delaware corporation, Commercial
Labor Management, Inc, a Nevada corporation, Robert Holtz, Mark J. Richardson
and Edward L. Torres.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ZEROS & ONES, INC.
(Formerly Commercial Labor Management, Inc.)
-------------------------------------
(Registrant)
Date: July 7, 1999 By: /s/ ROBERT HOLTZ
---------------------------------
Robert Holtz, Chief Executive Officer
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANTS
( A Professional Corporation)
Armando C. Ibarra, C.P.A. Members of the
Armando Ibarra, Jr., C.P.A. California Society of
Lawrence Hayman, C.P.A., Ret Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Zeros and Ones, Inc.
We have audited the accompanying statement of assets of Zeros and Ones, Inc.
This statement of assets is the responsibility of Company's management. Our
responsibility is to express an opinion on the statement of assets based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance that the statement of assets is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statement of assets. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared to present the assets of Zeros and Ones,
Inc. and is not intended to be a complete presentation of the Company's assets,
liabilities, revenues, and expenses.
In our opinion, the accompanying statement of assets presents fairly, in all
material respects, the assets of Zeros and Ones, Inc. as of June 25, 1999, in
conformity with generally accepted accounting principles.
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ARMANDO C. IBARRA, CPA
June 24, 1999
637 Third Avenue, Suite H, Chula Vista, CA 91910
Tel: (619) 422-1348 Fax: (619) 422-1465
<PAGE>
ZEROS & ONES, INC.
STATEMENT OF ASSETS
As of June 25, 1999
Current Assets
Cash in Banks $ 337,709
Accounts Receivable 578,500
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Total Current Assets 916,209
Property and Equipment
Equipment & vehicles 1,891,485
Less accumulated depreciation (1,062,201)
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Net Property and Equipment 829,284
TOTAL ASSETS $ 1,745,493
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See Auditors' Report and Notes to the Financial Statements
<PAGE>
ZEROS AND ONES, INC.
NOTES TO STATEMENT OF ASSETS
AS OF JUNE 25, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Name of Operations
Zeros and Ones, Inc., (a Delaware Corporation) was incorporated in
1994. Zeros and Ones Inc., "The Company", provides technical consulting
services to major information technology developers. The Company has
developed and maintained websites, provided post production services to
the entertainment industry, and developed a new image compression
technology called Dynamic Polygonal Compression.
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.
Accordingly, actual amounts could differ from these estimates.
Revenue Recognition
Revenue from contract services and the related cost of contract
services are recognized when the services are performed for the
customer. Payments received in advance for contract services to be
provided are recorded as unearned contract revenue. Expenses incurred
which are associated with unearned contract revenue are recorded as
prepaid contract expenses.
Depreciation
Depreciation is provided for in amounts sufficient to allocate the cost
of depreciable assets to operations over their estimated useful lives
using the straight-line methods.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the
straight-line method over estimated useful lives or underlying lease
terms for building and improvements, 7 years for machinery and
equipment and for furniture and fixtures, and 5 years for Company's
vehicles. Expenditures for maintenance and repairs are charged to
expense to expense as incurred. Major improvements are capitalized.
<PAGE>
NOTE 3 - ACCOUNTS RECEIVABLE
There is a concentration of accounts receivable with one major
customer. Randall Overton Productions' balance outstanding as of June
25, 1999 is $552,200.
NOTE 4 - LONG-TERM DEBT SECURED BY ASSETS
At June 25, long-term notes payable consisted of the following:
Auto loan payable to Chase Auto Finance, secured by a BMW 328iC payable
in monthly installments of
$528.66 including interest. $5,459
NOTE 5 - REORGANIZATION AND EXCHANGE AGREEMENT
The Company has entered into a plan of reorganization with Commercial
Labor Management, Inc., ("CLMI"), a public reporting company trading on
the OTC Bulletin Board. The assets and operations of the Company will
be transferred to CLMI in Exchange for stock.
The Company has also entered into other agreements to acquire 100% of
the outstanding Stock of the following companies: Quantum Arts, Inc.,
EKO Corporation, Polyganol Research Corporation, Wood Ranch Technology
Group, Inc., and Kidvision, Inc.
The closing date for all of the above agreements is June 30, 1999.
<PAGE>
QUANTUM ARTS
(A Sole Proprietorship)
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
CONTENTS
Page
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Independent Auditors' Report 1
Financial Statements:
Balance Sheet 2
Statement of Income and Proprietor's Capital 3
Statement of Cash Flows 4
Notes to Financial Statements 5-9
Independent Auditors' Report on Supplemental Information 10
Supplemental Information:
Schedule of Revenues 11
Schedule of Operating and Administrative Expenses 12
<PAGE>
Stonefield
2600 Olympic Boulevard, Suite 400 South
Santa Monica, CA 90402
(310) 453-9400
INDEPENDENT AUDITORS' REPORT
Mr. Steve Schklair
Quantum Arts
Pasadena, California
We have audited the accompanying balance sheet of Quantum Arts (a sole
proprietorship) as of December 31, 1998, and the related statements of income
and proprietor's capital and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Quantum Arts as of December 31,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
May 21, 1999
<PAGE>
QUANTUM ARTS
(A Sole Proprietorship)
BALANCE SHEET - DECEMBER 31, 1998
ASSETS
Current assets:
Cash $ 28,258
Accounts receivable 23,441
Prepaid expense 362
-------------
Total current assets $ 52,061
Property and equipment, net of
accumulated depreciation and amortization 20,181
-----------
$ 72,242
===========
LIABILITIES AND PROPRIETOR'S CAPITAL
Current liabilities:
Accrued expenses $ 21,315
Bank line of credit 5,231
Current maturities of obligations under capitalized leases 5,087
-------------
Total current liabilities $ 31,633
Obligations under capitalized leases, less current maturities 7,687
Proprietor's capital 32,922
------------
$ 72,242
============
See accompanying independent auditors' report and notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
QUANTUM ARTS
(A Sole Proprietorship)
STATEMENT OF INCOME AND PROPRIETOR'S CAPITAL
YEAR ENDED DECEMBER 31, 1998
Amount Percent
<S> <C> <C>
Revenues $ 297,166 100.0%
Operating and administrative expenses 191,244 64.4
-------------- ------
Net income 105,922 35.6%
======
Proprietor's capital, beginning of year -
Proprietor's draw (73,000)
--------------
Proprietor's capital, end of year $ 32,922
==============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
QUANTUM ARTS
(A Sole Proprietorship)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<S> <C> <C>
Cash flows provided by (used for) operating activities:
Net income $ 105,922
Adjustments to reconcile net income to net cash
provided by (used for) operating activities -
depreciation and amortization $ 5,738
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (23,441)
Prepaid expenses (362)
Increase in liabilities -
accrued expenses 21,315
--------
Total adjustments 3,250
-------
Net cash provided by operating activities 109,172
Cash flows used for investing activities -
payments to acquire property and equipment (9,244)
Cash flows provided by (used for) financing activities:
Proceeds from bank line of credit 5,231
Payments on obligations under capitalized leases (3,901)
Draws by proprietor (73,000)
-----------
Net cash used for financing activities (71,670)
--------
Net increase in cash 28,258
Cash, beginning of year -
-------
Cash, end of year $ 28,258
=======
Supplemental disclosure of cash flow information -
interest paid $ 2,689
=============
Supplemental disclosure of non-cash investing activities -
The Company acquired $16,675 property and equipment through capitalized
leases.
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>
QUANTUM ARTS
(A Sole Proprietorship)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
(1) Summary of Significant Accounting Policies:
General:
Quantum Arts (the "Company") was founded in the State of
California in January of 1998 as a sole proprietorship. The
sole proprietor is personally liable for all federal and state
income taxes.
Business Activity:
The Company designs and develops children's entertainment and
educational interactive software for distributors and
publishers of software products. In addition to fees generated
from development of software products, the Company also
receives royalty income from sales of certain software
products developed for others. The accompanying financial
statements represent the results of operations of the Company
from January 9, 1998 to December 31, 1998.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash:
Concentration
The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts.
Equivalents
Cash includes time deposits, certificates of deposit, and all
highly liquid debt instruments with original maturities of
three months or less which are not securing any corporate
obligations.
Property and Equipment:
Property and equipment are stated at cost. Depreciation and
amortization are computed straight line over the estimated
useful lives of the assets.
See accompanying independent auditors' report.
<PAGE>
QUANTUM ARTS
(A Sole Proprietorship)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
(1) Summary of Significant Accounting Policies, Continued:
Revenue Recognition:
Work for Hire Agreements
The Company recognizes revenues at various stages of a project
upon delivery of the completed work product of the respective
particular stage as set forth in the "Work for Hire"
agreements.
Royalty Income
The Company earns royalty income from the net revenues of
products designed and developed by the Company at various
royalty rates ranging from 5% to 30% of net revenues using
various tiered methods of computation as set forth in the
development agreements. Pursuant to some agreements, the
Company also receives non-refundable advances that will be
offset against future royalty income. Royalty income is
recorded when reported by the payer on a periodic basis. The
distributors of the products have the right to recoup any and
all justifiable distribution costs prior to making payments to
the Company.
Comprehensive Income:
Effective December 1, 1997, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which establishes new
rules for the reporting and display of comprehensive income
and its components; however, the adoption had no impact on the
Company's net income. Comprehensive income consisted of net
income only.
Income Taxes:
No provision has been made in the accompanying financial
statements for federal and state income taxes because, as a
sole proprietorship, the results of operations are included in
the tax returns of the sole owner.
(2) Major Customers:
During the year ended December 31, 1998, revenues from two customers
amounted to approximately $286,000. At December 31, 1998, one customer
accounted for the entire accounts receivable balance, which was fully
collected as of May 21, 1999.
See accompanying independent auditors' report.
<PAGE>
<TABLE>
<CAPTION>
QUANTUM ARTS
(A Sole Proprietorship)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
(3) Property and Equipment:
A summary is as follows:
<S> <C>
Computer equipment under capitalized leases $ 16,675
Computer equipment 9,244
--------------
25,919
Less accumulated depreciation and amortization 5,738
--------------
$ 20,181
==============
</TABLE>
Depreciation expense for the year ended December 31, 1998 amounted to
$5,738, of which $4,422 depreciation expense was on capitalized leases.
(4) Bank Line of Credit:
The Company has a $10,000 revolving line of credit with its bank,
personally guaranteed by the sole proprietor, which accrues interest on
the outstanding balance at varying rates not to exceed 14.0% per annum
and expires on February 3, 2003. At December 31, 1998, the outstanding
balance on the line of credit was $5,231 and the interest rate was
13.25%. The entire balance was subsequently paid off in May 1999.
Interest expense related to this bank line of credit for the year ended
December 31, 1998 amounted to $625.
(5) Obligations under Capitalized Leases:
The Company leases computer equipment from unrelated parties under
capitalized leases which are secured by the related assets. The
following is a schedule by year of future minimum lease payments
required under capitalized leases together with the present value of
the net minimum lease payments as of December 31, 1998:
Year ending December 31,
1999 $ 7,140
2000 7,140
2001 1,581
--------------
Total minimum lease payments 15,861
Less amounts representing interest 3,087
--------------
Present value of net minimum lease payments 12,774
Less current maturities 5,087
--------------
$ 7,687
==============
See accompanying independent auditors' report.
<PAGE>
QUANTUM ARTS
(A Sole Proprietorship)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
(5) Obligations under Capitalized Leases, Continued:
Interest expense related to obligations under capitalized lease for the
year ended December 31, 1998 amounted to $ 2,065.
(6) Commitments:
Royalty Agreement
The Company has a verbal agreement with one of its contractors to pay
20% of royalty income earned by the Company from a certain product.
Included in accrued expenses is accrued royalties in the amount of
$8,240 as of December 31, 1998. Royalty expense for the year ended
December 31, 1998 amounted to $8,240.
Facility
The Company rents office space on a month to month basis at a monthly
rate of $1,975. The Company is also required to maintain insurance
coverage as prescribed in the agreement.
Potential Claim
The sole proprietor received a claim from a former employee for back
pay of approximately $37,000. The proprietor disputes such claim and
will defend this claim vigorously due to the lack of merit. The Company
did not accrue the amount of the disputed back pay on its financial
statements for the year ended December 31, 1998, due to the outcome of
the claim is uncertain.
(7) Subsequent Events:
Incorporation
On April 13, 1999, Quantum Arts was incorporated in the State of
California. The new company (Quantum Arts, Inc.) has authorized 100,000
shares of common stock, of which 1,500 shares were issued and
outstanding as of May 21, 1999. All shares were held by one
shareholder.
Reorganization and Exchange Agreement
On April 30, 1999, the Company entered into a reorganization and
exchange agreement with Zeroes & Ones, Inc. ("ZOI"). Pursuant to this
agreement, the sole shareholder of Quantum Arts, Inc. exchanged 1,500
shares of his outstanding common stock in exchange for 850,000 shares
of ZOI's $.01 par value common stock. ZOI also agreed to pay the sole
shareholder $300,000 in cash as reimbursement of expenses personally
incurred by the sole shareholder of Quantum Arts, Inc. on or before
December 31, 1999. The agreement also specified certain revenue sharing
arrangements on projects developed prior to the reorganization and
exchange agreement.
See accompanying independent auditors' report.
<PAGE>
QUANTUM ARTS
(A Sole Proprietorship)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
(7) Subsequent Events, Continued:
Line of Credit
The new company obtained a new revolving line of credit from a
financial institution in the amount of $15,000. This line is unsecured,
due on demand upon default in excess of 10 days after the minimum
payment due date and bears interest at prime plus 6.0%. This line is
personally guaranteed by the only shareholder of the new company. The
outstanding balance on the line of credit as of May 21, 1999 amounted
to approximately $9,500.
See accompanying independent auditors' report.
<PAGE>
Stonefield
2600 Olympic Boulevard, Suite 400 South
Santa Monica, CA 90402
(310) 453-9400
Mr. Steve Schklair
Quantum Arts
Pasadena, California
Our report on our audit of the basic financial statements of Quantum Arts (a
sole proprietorship) for the year ended December 31, 1998 appears on page 1.
That audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information is presented
for purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
May 21, 1999
<PAGE>
QUANTUM ARTS
(A Sole Proprietorship)
SCHEDULE OF REVENUES
YEAR ENDED DECEMBER 31, 1998
Amount Percent
Revenues:
Projects and consulting $ 249,605 84.0%
Royalties 41,200 13.9
Other 6,361 2.1
--------------- -------
$ 297,166 100.0%
=============== =======
See accompanying independent auditors' report on supplemental information.
<PAGE>
QUANTUM ARTS
(A Sole Proprietorship)
SCHEDULE OF OPERATING AND ADMINISTRATIVE EXPENSES
YEAR ENDED DECEMBER 31, 1998
Amount Percent
------ -------
Advertising and public relations $ 887 .3%
Automobile expense 813 .3
Bank charges 217 .1
Contributions 297 .1
Depreciation and amortization 5,738 1.9
Dues and subscriptions 1,720 .6
Entertainment 2,129 .7
Equipment rental 1,399 .5
Insurance:
General 725 .2
Medical 3,447 1.2
Worker's Comp. 513 .2
Interest expense 2,690 .9
Miscellaneous 646 .2
Office supplies and expense 4,744 1.6
Outside services 78,076 26.3
Parking 108
Payroll expense 53,600 18.0
Payroll fees 840 .3
Payroll taxes 5,092 1.7
Postage and delivery 478 .2
Printing and reproduction 700 .2
Professional fees 2,580 .9
Rent 8,250 2.8
Royalties 8,240 2.8
Telephone 6,104 2.0
Travel 1,211 .4
--------------- -------
$ 191,244 64.4%
=============== =======
See accompanying independent auditors' report on supplemental information.
<PAGE>
DIGITAL VIDEO ENGINEERING
(A Sole Proprietorship)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
CONTENTS
Page
----
Independent Auditors' Report 1
Financial Statements:
Balance Sheets 2
Statements of Income and Proprietor's Capital 3
Statements of Cash Flows 4
Notes to Financial Statements 5-6
Independent Auditors' Report on Supplemental Information 7
Supplemental Information:
Schedules of Operating and Administrative Expenses 8
<PAGE>
Stonefield
2600 Olympic Boulevard, Suite 400 South
Santa Monica, CA 90402
(310) 453-9400
INDEPENDENT AUDITORS' REPORT
Mr. William Burnsed
Digital Video Engineering
Pasadena, California
We have audited the accompanying balance sheets of Digital Video Engineering (a
sole proprietorship) as of December 31, 1998, 1997 and 1996, and the related
statements of income and proprietor's capital and cash flows for the years then
ended. These financial statements are the responsibility of the Company's owner.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Digital Video Engineering as of
December 31, 1998, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
June 3, 1999
<PAGE>
<TABLE>
<CAPTION>
DIGITAL VIDEO ENGINEERING
(A Sole Proprietorship)
BALANCE SHEETS
ASSETS December 31, December 31, December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current assets -
accounts receivable $ 18,000 $ 35,000 $ -
Property and equipment, net of
accumulated depreciation and amortization 1,194 10,264 8,924
------------ -------------- ------------
$ 19,194 $ 45,264 $ 8,924
============ ============== ============
PROPRIETOR'S CAPITAL
Proprietor's capital $ 19,194 $ 45,264 $ 8,924
============ ============== ============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
DIGITAL VIDEO ENGINEERING
(A Sole Proprietorship)
STATEMENTS OF INCOME AND PROPRIETOR'S CAPITAL
Year ended Year ended Year ended
December 31, 1998 December 31, 1997 December 31, 1996
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 67,500 100.0% $ 171,070 100.0% $ 194,425 100.0%
Operating and administrative expenses 17,109 25.3 59,487 34.8 63,342 32.6
---------- -------- ---------- -------- --------- -------
Net income 50,391 74.7% 111,583 65.2% 131,083 67.4%
======== ======== =======
Proprietor's capital, beginning of year 45,264 8,924 -
Proprietor's draw (76,461) (75,243) (122,159)
---------- ---------- ---------
Proprietor's capital, end of year $ 19,194 $ 45,264 $ 8,924
========== ========== =========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
DIGITAL VIDEO ENGINEERING
(A Sole Proprietorship)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Year ended Year ended Year ended
December 31, December 31 December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows provided by (used for) operating activities:
Net income $ 50,391 $ 111,583 $ 131,083
-------------- ------------- -------------
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation 1,340 2,119 1,588
Loss on disposal of property and equipment 9,085 2,341 -
Changes in assets:
(Increase) decrease in assets -
accounts receivable 17,000 (35,000) -
-------------- ------------- -------------
Total adjustments 27,425 (30,540) 1,588
-------------- ------------- -------------
Net cash provided by operating activities 77,816 81,043 132,671
-------------- ------------- -------------
Cash flows used for investing activities -
payments to acquire property and equipment (1,355) (5,800) (10,512)
-------------- ------------- -------------
Cash flows used for financing activities -
draws by proprietor (76,461) (75,243) (122,159)
-------------- ------------- -------------
Net increase in cash - - -
Cash, beginning of year - - -
Cash, end of year $ - $ - $ -
============== ============= =============
Supplemental disclosure of cash flow information:
Interest paid $ - $ - $ -
============== ============= =============
Income taxes paid $ - $ - $ -
============== ============= =============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>
DIGITAL VIDEO ENGINEERING
(A Sole Proprietorship)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(1) Summary of Significant Accounting Policies:
General:
Digital Video Engineering (the "Company") was founded in the
State of California in January of 1996 as a sole
proprietorship. The sole proprietor is personally liable for
all federal and state income taxes.
Business Activity:
The Company designs post production studios and develop
special effects for television and film production companies
worldwide.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Property and Equipment:
Property and equipment are stated at cost. Depreciation and
amortization are computed straight line over the estimated
useful lives of the assets.
Revenue Recognition:
The Company recognizes revenues when services are performed.
Comprehensive Income:
The Company has adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which establishes new rules for the reporting and
display of comprehensive income and its components; however,
the adoption had no impact on the Company's net income.
Comprehensive income consisted of net income only.
Income Taxes:
No provision has been made in the accompanying financial
statements for federal and state income taxes because, as a
sole proprietorship, the results of operations are included in
the tax returns of the sole proprietor.
See accompanying independent auditors' report.
<PAGE>
DIGITAL VIDEO ENGINEERING
(A Sole Proprietorship)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(2) Major Customers:
A summary is as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues for the year from
major customer (customers) $ 67,500 $ 160,000 $ 176,000
============== =============== ==============
Number of major customer (customers) 1 1 2
============== =============== ==============
Accounts receivable balance of the major
customer as of year end $ 18,000 $ 35,000 $ -
============== =============== ==============
</TABLE>
(3) Property and Equipment:
A summary is as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computer equipment $ 1,355 $ 13,385 $ 10,512
Less accumulated depreciation 161 3,121 1,588
-------------- --------------- --------------
$ 1,194 $ 10,264 $ 8,924
============== =============== ==============
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and
1996 amounted to $1,340, $2,119 and $1,588, respectively.
(4) Subsequent Events:
During April 1999, the Company merged with Wood Ranch Technology Group,
Inc. ("WRTG"). WRTG was incorporated in the State of Delaware on
January 22, 1996 and remained inactive until this merger. Immediately
following the merger, WRTG entered into a Reorganization and Exchange
agreement with Zero's and Ones, Inc. ("ZOI"), whereby, ZOI issued
950,000 shares of common stock to the shareholders of WRTG in exchange
for all of the outstanding common stock of WRTG.
See accompanying independent auditors' report.
<PAGE>
Stonefield
2600 Olympic Boulevard, Suite 400 South
Santa Monica, CA 90402
(310) 453-9400
Mr. William Burnsed
Digital Video Engineering
Pasadena, California
Our report on our audit of the basic financial statements of Digital Video
Engineering (a sole proprietorship) for the years ended December 31, 1998, 1997
and 1996 appears on page 1. That audit was conducted for the purpose of forming
an opinion on the basic financial statements taken as a whole. The supplemental
information is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
June 3, 1999
<PAGE>
<TABLE>
<CAPTION>
DIGITAL VIDEO ENGINEERING
(A Sole Proprietorship)
SCHEDULE OF OPERATING AND ADMINISTRATIVE EXPENSES
YEAR ENDED DECEMBER 31, 1998
Year ended Year ended Year ended
December 31, 1998 December 31, 1997 December 31, 1996
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Automobile expense $ - $ 2,060 1.2% $ 4,867 2.5%
Depreciation 1,340 2.0 2,119 1.2 1,588 .8
Keogh plan contribution - 6,467 3.8 3,970 2.1
Meals and entertainment - 3,633 2.1 3,800 2.0
Office supplies and expense 1,983 2.9 2,456 1.4 2,246 1.1
Payroll expense - 6,000 3.5 -
Professional fees 105 .2 4,910 2.9 2,485 1.3
Taxes and licenses - 519 .3 -
Telephone 4,596 6.8 2,722 1.6 5,525 2.8
Travel - 25,635 15.0 37,864 19.5
Tools - 625 .4 997 .5
Loss on disposal of property and
equipment 9,085 13.4 2,341 1.4 -
----------- -------- ------------ ------- ----------- -------
$ 17,109 25.3% $ 59,487 34.8% $ 63,342 32.6%
=========== ======== ============ ======= =========== ======
</TABLE>
See accompanying independent auditors' report on supplemental information.
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANTS
( A Professional Corporation)
Armando C. Ibarra, C.P.A. Members of the
Armando Ibarra, Jr., C.P.A. California Society of
Lawrence Hayman, C.P.A., Ret Certified Public Accountants
To the Shareholders of
Zeros and Ones, Inc.
We have compiled the accompanying balance sheet of Zeros and Ones, Inc. (a
Delaware corporation) as of December 31, 1996 and the related income statement
and retained earnings for the twelve months ended, in accordance with Statements
of Standards for Accounting and Review Services issued by the American Institute
of Certified Public Accountant.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements, and accordingly, do not express
an opinion or any other form of assurance on them.
Management has elected to omit the statement of cash flows ordinarily included
in financial statements prepared on the cash basis of accounting. If the omitted
disclosures were included in the financial statements, they might influence the
user's conclusions about the company's assets, liabilities, equity, revenues,
and expenses. Accordingly, these financial statements are not designed for those
who are not informed about such matters
- ----------------------------
ARMANDO C. IBARRA, CPA
June 25, 1999
Chula Vista, CA
<PAGE>
<TABLE>
<CAPTION>
ZEROS AND ONES, INC.
COMBINED FINANCIAL STATEMENT
AS OF DECEMBER 31, 1998
Digital
Zeros & Video Quantum
ACCOUNTS CLMI Ones Enging. Arts TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Cash 0 69,452 0 28,258 97,710
Accounts receivable 0 617,724 18,000 23,441 659,165
Prepaid expenses 0 0 0 362 362
Property & equipment 0 1,825,700 1,355 25,919 1,852,974
Accumulated depreciation 0 (1,062,201) (161) (5,738) (1,068,100)
====================================================================================
Total Assets 0 1,450,675 19,194 72,242 1,542,111
====================================================================================
Liabilities:
Accounts payable 57,750 0 0 21,315 79,065
Line of Credit 0 0 0 5,231 5,231
Short-term of loan 0 6,120 0 5,087 11,207
Loans/Notes payable 0 7,829 0 7,687 15,516
------------------------------------------------------------------------------------
Total Liabilities 57,750 13,949 0 39,320 111,019
EQUITY (57,750) 1,436,726 19,194 32,922 1,431,092
====================================================================================
Total Liabilities & Equity 0 1,450,675 19,194 72,242 1,542,111
====================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ZEROS AND ONES, INC.
COMBINED FINANCIAL STATEMENT
AS OF DECEMBER 31, 1998
Digital Video
Zeros & Quantum
ACCOUNTS CLMI Ones Enging. Arts TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES 0 725,394 67,500 297,166 1,090,060
Expenses:
Admin. & temp. service 0 82,205 0 0 82,205
Adv. & promotion 0 2,000 0 1,184 3,184
Auto exp. 0 2,465 0 921 3,386
Bank charges 0 80 0 217 297
Consulting services 0 54,923 0 0 54,923
Contract services 0 198,940 0 78,076 277,016
Dedicated internet service 0 4,900 0 0 4,900
Depreciation 0 365,139 1,340 5,738 372,217
Dues & subscriptions 0 0 0 1,720 1,720
Equipment rental 0 0 0 1,399 1,399
Insurance 0 0 0 4,685 4,685
Interest expense 0 1,230 0 2,690 3,920
Loss on disposal of equip. 0 0 9,085 0 9,085
Marketing 0 4,500 0 700 5,200
Miscellaneous 0 0 0 646 646
Office supplies 0 34,717 1,983 4,744 41,444
Payroll fees & taxes 0 0 0 5,932 5,932
Postage & delivery 0 1,781 0 478 2,259
Professional fees 31,875 78,500 105 2,580 113,060
Rent 0 39,000 0 8,250 47,250
Repairs & maint. 0 6,334 0 0 6,334
Royalties 0 0 0 8,240 8,240
Salaries & wages 0 0 0 53,600 53,600
Tax benefit write-off 202,326 0 0 0 202,326
Telephone & Utilities 0 11,324 4,596 6,104 22,024
Travel & entertainment 0 3,633 0 3,340 6,973
------------------------------------------------------------------------------------
234,201 891,671 17,109 191,244 1,334,225
====================================================================================
Net Income (loss) (234,201) (166,277) 50,391 105,922 (244,165)
====================================================================================
</TABLE>
EXHIBIT 7.1
<PAGE>
Plan of Reorganization and Exchange Agreement
This Plan of Reorganization and Exchange Agreement (the "Agreement") is
made and entered into as of the 1st day of July 1999 by and between Commercial
Labor Management, Inc., a Nevada corporation ("CLMI"), Zeros & Ones, Inc., a
Delaware corporation ("ZOI"), Charles Overton, an individual ("Overton"), and
KidVision, Inc., a Delaware corporation ("KidVision"), with respect to the
following facts:
RECITALS
A. This Agreement hereby supercedes and replaces the Plan of
Reorganization and Exchange Agreement made and entered into as
of March 26, 1999 by and between Zeros & Ones, Inc., a
Delaware corporation ("ZOI"), Overton, and KidVision.
B. Overton own 100% of the total issued and outstanding capital
stock of KidVision.
C. KidVision is engaged in the business of operating an
e-commerce catalog through which it distributes educational
products and markets K.e.N.: The Kids Educational Network, a
portal Web site.
D. CLMI is a public reporting company trading on the OTC Bulletin
Board. CLMI was incorporated for the purpose of engaging in
any lawful business.
E. CLMI desires to acquire 100% of the total issued and
outstanding stock of KidVision in exchange for 500,000 shares
of the common stock of CLMI, to be issued to Overton in
accordance with this Agreement.
F. The plan of reorganization evidenced by this Agreement is
intended to be a tax free reorganization under Section 368 of
the Internal Revenue Code of 1986, as amended. It is part of
an overall tax free plan of reorganization pursuant to which
CLMI is also acquiring 100% of the assets of ZOI and 100% of
the total issued and outstanding stock of Quantum Arts, Inc.,
Wood Ranch Technology Group, Inc., Polygonal Research
Corporation, EKO Corporation and Pillar West Entertainment,
Inc.
-1-
<PAGE>
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency to which are hereby acknowledged by the parties to this Agreement,
and in light of the above recitals to this Agreement, the parties to this
Agreement hereby agree as follows:
1. Exchange of Equity Interests
----------------------------
In consideration for the issuance of a total of 500,000 shares of the
Common Stock, par value $.001 per share, of CLMI to Overton and the other
covenants of CLMI in this Agreement, Overton hereby agrees to convey to CLMI all
of Overton's capital stock and right, title and interest in and to KidVision,
effective as of the date first above written.
2. Closing and Further Acts
------------------------
The closing of the exchange (the "Closing") will occur as soon
practicable after the execution of this Agreement by all parties hereto, but not
later than July 1, 1999 (the "Closing Date"). At the Closing, Overton will
tender to CLMI certificates and any other documents evidencing 100% of Overton's
ownership in KidVision, and CLMI will deliver to Overton a stock certificate
evidencing a total of 500,000 shares of the Common Stock, par value $.001 per
share, of CLMI being issued to Overton pursuant to this Agreement. All parties
to this Agreement hereby agree to execute all other documents and take all other
action which are reasonably necessary or appropriate in order to effect all of
the transactions contemplated by this Agreement.
3. Covenants of CLMI
-----------------
3.1 Management of CLMI and KidVision After Closing.
----------------------------------------------
After the Closing, Overton will be a director and the Chief Executive
Officer of KidVision. CLMI agrees that for the first year after the Closing,
KidVision will have a Board of Directors consisting of three to five members,
one of which will be Overton, one of which will be designated by Robert Holtz,
and the other one or more of whom will be mutually agreed upon by Robert Holtz
and Overton.
3.2 Percentage Ownership in CLMI.
----------------------------
After the Closing and after the acquisition by CLMI of the assets or
outstanding stock of ZOI, Quantum Arts, Inc., EKO Corporation, Polygonal
Research Corporation, Wood Ranch Technology Corporation and Pillar West
<PAGE>
-2-
Entertainment, Inc., CLMI will have a total of 7,000,000 shares of its Common
Stock outstanding, and 320,000 warrants to purchase an additional 320,000 shares
of CLMI's Common Stock for a purchase price of $3.00 per share for a period of
three years from the date of issue of the Warrants, which is expected to occur
on or about July 1, 1999. CLMI will have no other equity securities or
securities convertible into equity securities of CLMI outstanding on the Closing
Date.
4. Representations and Warranties of Kidvision and Overton. KidVision and
-----------------------------------------------------------------------
Overton represent and warrant to CLMI as follows:
------------------------------------------------
4.1 Power and Authority; Binding Nature of Agreement.
------------------------------------------------
KidVision and Overton have full power and authority to enter into this
Agreement and to perform their obligations hereunder. The execution, delivery
and performance of this Agreement by them has been duly authorized by all
necessary action on their part. Assuming that this Agreement is a valid and
binding obligation of each of the other parties hereto, this Agreement is a
valid and binding obligation of KidVision and Overton.
4.2 Subsidiaries.
------------
There is no corporation, general partnership, limited partnership,
joint venture, association, trust or other entity or organization which
KidVision directly or indirectly controls or in which KidVision directly or
indirectly owns any equity or other interest.
4.3 Good Standing.
-------------
KidVision (i) is duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated, (ii) has all
necessary power and authority to own its assets and to conduct its business as
it is currently being conducted, and (iii) is duly qualified or licensed to do
business and is in good standing in every jurisdiction (both domestic and
foreign) where such qualification or licensing is required.
4.4 Charter Documents and Corporate Records.
---------------------------------------
KidVision has delivered to CLMI complete and correct copies of (i) the
articles of incorporation, bylaws and other charter or organizational documents
of KidVision, including all amendments thereto, (ii) the stock records of
KidVision, and (iii) the minutes and other records of the meetings and other
proceedings of the shareholders and directors of KidVision. KidVision is not in
-3-
<PAGE>
violation or breach of (i) any of the provisions of its articles of
incorporation, bylaws or other charter or organizational documents, or (ii) any
resolution adopted by its shareholders or directors. There have been no meetings
or other proceedings of the shareholders or directors of KidVision that are not
fully reflected in the appropriate minute books or other written records of
KidVision.
4.5 Capitalization.
--------------
The authorized capital stock of KidVision consists of fifteen hundred
(1,500) shares of common stock, no par value, of which 1,500 shares are issued
and outstanding. All of the outstanding shares of the capital stock of KidVision
are validly issued, fully paid and nonassessable, and have been issued in full
compliance with all applicable federal, state, local and foreign securities laws
and other laws. There are no (i) outstanding options, warrants or rights to
acquire any shares of the capital stock or other securities of KidVision, (ii)
outstanding securities or obligations which are convertible into or exchangeable
for any shares of the capital stock or other securities of KidVision, or (iii)
contracts or arrangements under which KidVision is or may become bound to sell
or otherwise issue any shares of its capital stock or any other securities.
4.6 Financial Statements.
--------------------
KidVision has delivered to CLMI the following financial statements (the
"KidVision Financial Statements"): the unaudited balance sheet of KidVision as
of December 31, 1998 (the "December 31, 1998 Balance Sheet"). Except as stated
therein or in the notes thereto, the KidVision Financial Statements: (a) present
fairly the financial position of KidVision as of the respective dates thereof;
and (b) have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered.
4.7 Absence of Changes.
------------------
Except as otherwise disclosed to CLMI in writing in Exhibit A to this
Agreement, since December 31, 1998:
-4-
<PAGE>
(a) There has not been any material adverse change in the
business, condition, assets, operations or prospects of KidVision and
no event has occurred that might have an adverse effect on the
business, condition, assets, operations or prospects of KidVision.
(b) KidVision has not (i) declared, set aside or paid any
dividend or made any other contribution in respect of any shares of
capital stock, nor (ii) repurchased, redeemed or otherwise reacquired
any shares of capital stock or other securities.
(c) KidVision has not sold or otherwise issued any shares of
capital stock or any other securities.
(d) KidVision has not amended its articles of incorporation,
bylaws or other charter or organizational documents, nor has it
effected or been a party to any merger, recapitalization,
reclassification of shares, stock split, reverse stock split,
reorganization or similar transaction.
(e) KidVision has not formed any subsidiary or contributed any
funds or other assets to any subsidiary.
(f) KidVision has not purchased or otherwise acquired any
assets, nor has it leased any assets from any other person, except in
the ordinary course of business consistent with past practice.
(g) KidVision has not made any capital expenditure outside the
ordinary course of business or inconsistent with past practice, or in
an amount exceeding three thousand dollars ($3,000), and the total
amount of the capital expenditures made by KidVision has not exceeded
ten thousand dollars ($10,000).
(h) KidVision has not sold or otherwise transferred any assets
to any other person, except in the ordinary course of business
consistent with past practice and at a price equal to the fair market
value of the assets transferred.
-5-
<PAGE>
(i) There has not been any loss, damage or destruction to any
of the properties or assets of KidVision (whether or not covered by
insurance).
(j) KidVision has not written off as uncollectible any
indebtedness or accounts receivable, except for write-offs that were
made in the ordinary course of business consistent with past practice
and that involved less than one hundred dollars ($100) singly and less
than one thousand dollars ($1,000) in the aggregate.
(k) KidVision has not leased any assets to any other person
except in the ordinary course of business consistent with past practice
and at a rental rate equal to the fair rental value of the leased
assets.
(l) KidVision has not mortgaged, pledged, hypothecated or
otherwise encumbered any assets, except in the ordinary course of
business consistent with past practice.
(m) KidVision has not entered into any contract or incurred
any debt, liability or other obligation (whether absolute, accrued,
contingent or otherwise), except for (i) contracts that were entered
into in the ordinary course of business consistent with past practice
and that have terms of less than six months and do not contemplate
payments by or to KidVision which will exceed, over the term of the
contract, three thousand dollars ($3,000) in the aggregate, and (ii)
current liabilities incurred in the ordinary course of business
consistent with the past practice.
(n) KidVision has not made any loan or advance to any other
person, except for advances that have been made to customers in the
ordinary course of business consistent with past practice and that have
been properly reflected as "accounts receivables."
(o) KidVision has not paid any bonus to, or increased the
amount of the salary, fringe benefits or other compensation or
remuneration payable to, any of the directors, officers or employees of
KidVision.
-6-
<PAGE>
(p) No contract or other instrument to which KidVision is or
was a party or by which KidVision or any of KidVision's assets are or
were bound has been amended or terminated, except in the ordinary
course of business consistent with past practice.
(q) KidVision has not discharged any lien or discharged or
paid any indebtedness, liability or other obligation, except for
current liabilities that (i) are reflected in the December 31, 1998
Balance Sheet or have been incurred since December 31, 1998 in the
ordinary course of business consistent with past practice, and (ii)
have been discharged or paid in the ordinary course of business
consistent with past practice.
(r) KidVision has not forgiven any debt or otherwise released
or waived any right or claim, except in the ordinary course of business
consistent with past practice.
(s) KidVision has not changed its methods of accounting or its
accounting practices in any respect.
(t) KidVision has not entered into any transaction outside the
ordinary course of business or inconsistent with past practice.
(u) KidVision has not agreed or committed (orally or in
writing) to do any of the things described in clauses (b) through (t)
of this Section 4.7.
4.8 Absence of Undisclosed Liabilities.
----------------------------------
KidVision has no debt, liability or other obligation of any nature
(whether due or to become due and whether absolute, accrued, contingent or
otherwise) that is not reflected or reserved against in the December 31, 1998
Balance Sheet, except for obligations incurred since December 31, 1998 in the
ordinary course of business consistent with past practice.
4.9 Contracts.
---------
KidVision has delivered to CLMI complete and correct copies of all of
the contracts and other instruments including all amendment hereto. All of such
-7-
<PAGE>
contracts and other instruments are valid and in full force and effect, and are
enforceable in accordance with their terms. There is no existing default by any
person under any of said contracts or other instruments, and there exists no
condition or set of circumstance which, with notice or lapse of time or both,
would constitute such a default.
4.10 Title to Personal Property.
--------------------------
KidVision has good, valid and marketable title to all of its personal
property (both tangible and intangible) and interests therein, including without
limitation all of the personal property reflected in the December 31, 1998
Balance Sheet. All of such personal property and interests therein are owned
free and clear of any liens, pledges, security interests, claims, equities,
options, charges, encumbrances or restrictions.
4.11 Tax Matters.
-----------
All federal, state, local and foreign tax returns required to be filed
by KidVision have been properly prepared and duly filed, and all taxes required
to be paid by, or claimed by any federal, state, local or foreign taxing
authority to be payable by, the Company have been paid in full. The provisions
for taxes reflected in the December 31, 1998 Balance Sheet are adequate for all
taxes payable with respect to the period prior to December 31, 1998. There is no
(i) pending audit or examination of KidVision (or of any of the tax returns
thereof) being conducted by any federal, state, local or foreign taxing
authority, (ii) pending or threatened claim or dispute relating to the payment
of any taxes by KidVision, (iii) basis upon which any federal, state, local or
foreign taxing authority may make any claim for the payment of additional taxes
by KidVision, or (iv) outstanding agreement or waiver extending the statutory
limitations period applicable to the payment of any taxes by KidVision.
4.12. Compliance With Laws; Licenses and Permits.
------------------------------------------
KidVision, to its knowledge, is not in violation of, nor has it failed
to conduct its business in full compliance with, any applicable federal, state,
local or foreign laws, regulations, rules, treaties, rulings, orders, directives
or decrees. KidVision has delivered to CLMI complete and correct copies of all
of the licenses, permits, authorizations and franchises to which KidVision is
-8-
<PAGE>
subject and all said licenses, permits, authorizations and franchises are valid
and in full force and effect. Said licenses, permits, authorizations and
franchises constitute all of the licenses, permits, authorizations and
franchises necessary to permit KidVision to conduct its business in the manner
in which it is now being conducted, and KidVision is not in violation or breach
of any of the terms, requirements or conditions of any of said licenses,
permits, authorizations or franchises.
4.13. Title to Overton's Stock.
------------------------
Overton has good, valid and marketable title to all of Overton's stock
in KidVision, and can convey good title to said stock to CLMI free and clear of
any liens, claims, encumbrances or security interests.
4.14. Litigation.
----------
There is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to KidVision's knowledge,
threatened against or with respect to KidVision which (i) if adversely
determined would have an adverse effect on the business, condition, assets,
operations or prospects of KidVision, or (ii) challenges or would challenge any
of the actions required to be taken by the KidVision under this Agreement. There
exists no basis for any such action, suit, proceeding, dispute, litigation,
claim, complaint or investigation.
4.15 Non-Contravention.
-----------------
Neither (a) the execution and delivery of this Agreement, nor (b) the
performance of this Agreement will: (i) contravene or result in a violation of
any of the provisions of the articles of incorporation, bylaws or other charter
or organizational documents of KidVision; (ii) contravene or result in a
violation of any resolution adopted by the shareholders or directors of
KidVision; (iii) result in a violation or breach of, or give any person the
right to declare (whether with or without notice or lapse of time) a default
under or to terminate, any agreement or other instrument to which KidVision or
Overton is a party or by which KidVision or any of its assets or Overton is
-9-
<PAGE>
bound; (iv) give any person the right to accelerate the maturity of any
indebtedness or other obligation of KidVision; (v) result in the loss of any
license or other contractual right of KidVision; (vi) result in the loss of, or
in a violation of any of the terms, provisions or conditions of, any
governmental license, permit, authorization or franchise of KidVision; (vii)
result in the creation or imposition of any lien, charge, encumbrance or
restriction on any of the assets of KidVision or on Overton's stock in
KidVision; (viii) result in the reassessment or revaluation of any property of
KidVision or by any taxing authority or other governmental authority; (ix)
result in the imposition of, or subject KidVision to any liability for, any
conveyance or transfer tax or any similar tax; or (x) result in a violation of
any law, rule, regulation, treaty, ruling, directive, order, arbitration award,
judgment or decree to which KidVision or any of its assets or any of Overton's
stock in KidVision is subject.
4.16. Approvals.
---------
No authorization, consent or approval of, or registration or filing
with, any governmental authority or any other person is required to be obtained
or made by KidVision or Overton in connection with the execution, delivery or
performance of this Agreement, including the sale to CLMI of the shares of
Overton's stock in KidVision being acquired by CLMI hereunder.
4.17. Brokers.
-------
KidVision has not agreed to pay any brokerage fees, finder's fees or
other fees or commissions with respect to the transactions contemplated by this
Agreement, and, to KidVision's knowledge, no person is entitled, or intends to
claim that it is entitled, to receive any such fees or commissions in connection
with such transaction.
4.18. Full Disclosure.
---------------
Neither this Agreement (including the exhibits hereto) nor any
statement, certificate or other document delivered to CLMI by or on behalf of
KidVision or Overton contains any untrue statement of a material fact or omits
to state a material fact necessary to make the representations and other
statements contained herein and therein not misleading.
-10-
<PAGE>
4.19. Representations True on Closing Date.
------------------------------------
The representations and warranties of KidVision and Overton set forth
in this Agreement are true and correct on the date hereof, and will be true and
correct on the Closing Date as though such representations and warranties were
made as of the Closing Date.
4.20 Non-Distributive Intent.
-----------------------
The shares of CLMI stock being acquired by Overton pursuant to this
Agreement are not being acquired by Overton with a view to the public
distribution of them. Overton acknowledges and agrees that the CLMI stock
acquired by him pursuant to this Agreement has not been registered or qualified
under federal or state securities laws, and may not be sold, conveyed,
transferred, assigned or hypothecated without being registered under the
Securities Act of 1933, as amended, and applicable state law, or in the
alternative submission of evidence reasonably satisfactory to CLMI that an
exemption from registration is available.
5. Representations and Warranties of CLMI.
--------------------------------------
CLMI represents and warrants to KidVision and Overton as follows:
5.1 Power and Authority; Binding Nature of Agreement.
------------------------------------------------
CLMI has full power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement by CLMI has been duly authorized by all necessary action on its
part. Assuming that this Agreement is a valid and binding obligation of each of
the other parties hereto, this Agreement is a valid and binding obligation of
CLMI.
5.2 Good Standing.
-------------
CLMI (i) is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated, (ii) has all necessary
power and authority to own its assets and to conduct its business as it is
currently being conducted, and (iii) is duly qualified or licensed to do
-11-
<PAGE>
business and is in good standing in every jurisdiction (both domestic and
foreign) where such qualification or licensing is required.
5.3 Charter Documents and Corporate Records.
---------------------------------------
CLMI has delivered to Overton and KidVision complete and correct copies of
(i) the articles of incorporation, bylaws and other charter or organizational
documents of CLMI, including all amendments thereto, (ii) the stock records of
CLMI, and (iii) the minutes and other records of the meetings and other
proceedings of the shareholders and directors of CLMI. CLMI is not in violation
or breach of (i) any of the provisions of its articles of incorporation, bylaws
or other charter or organizational documents, or (ii) any resolution adopted by
its shareholders or directors. There have been no meetings or other proceedings
of the shareholders or directors of CLMI that are not fully reflected in the
appropriate minute books or other written records of the Company.
5.4 Capitalization.
--------------
The authorized capital stock of CLMI consists of 50,000,000 shares of
common stock, par value $.001 per share, of which 7,000,000 shares will be
issued and outstanding as indicated in Section 3.2 of this Agreement, and
2,000,000 shares of preferred stock par value $.001 per shares, none of which is
issued and outstanding. All of the outstanding shares of the capital stock of
CLMI are validly issued, fully paid and nonassessable, and have been issued in
full compliance with all applicable federal, state, local and foreign securities
laws and other laws. Except as disclosed in Section 3.2 or pursuant to Section
5.5 or elsewhere in this Agreement, there are no (i) outstanding options,
warrants or rights to acquire any shares of the capital stock or other
securities of CLMI, (ii) outstanding securities or obligations which are
convertible into or exchangeable for any shares of the capital stock or other
securities of CLMI, or (iii) contracts or arrangements under which CLMI is or
may become bound to sell or otherwise issue any shares of its capital stock or
any other securities.
-12-
<PAGE>
5.5 Financial Statements.
--------------------
CLMI has delivered to Overton and KidVision the following financial
statements (the "CLMI Financial Statements"): (i) the balance sheet of CLMI as
of December 31, 1998; and (ii) the statements of income and retained earnings,
stockholders' equity and changes in financial position of CLMI for the year
ended December 31, 1998; and (iii) supporting supplemental schedules. Except as
stated therein or in the notes thereto, the CLMI Financial Statements: (a)
present fairly the financial position of CLMI as of the respective dates thereof
and the results of operations and changes in financial position of CLMI for the
respective periods covered thereby; and (b) have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods covered.
5.6 Absence of Changes.
------------------
Except as otherwise disclosed to Overton or KidVision in writing in
Exhibit A to this Agreement, since December 31, 1998, there has not been any
material adverse change in the business, condition, assets, operations or
prospects of CLMI and no event has occurred that might have an adverse effect on
the business, condition, assets, operations or prospects of CLMI.
-13-
<PAGE>
5.7 Absence of Undisclosed Liabilities.
----------------------------------
CLMI has no debt, liability or other obligation of any nature (whether
due or to become due and whether absolute, accrued, contingent or otherwise)
that is not reflected or reserved against in the December 31, 1998 Balance
Sheet, except for obligations incurred since December 31, 1998 in the ordinary
course of business consistent with past practice.
5.8 Litigation.
----------
There is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to CLMI's knowledge, threatened
against or with respect to CLMI which (i) if adversely determined would have an
adverse effect on the business, condition, assets, operations or prospects of
CLMI, or (ii) challenges or would challenge any of the actions required to be
taken by CLMI under this Agreement. There exists no basis for any such action,
suit, proceeding, dispute, litigation, claim, complaint or investigation.
5.9 Non-Contravention.
-----------------
Neither (a) the execution and delivery of this Agreement, nor (b) the
performance of this Agreement will: (i) contravene or result in a violation of
any of the provisions of the articles of incorporation, bylaws or other charter
or organizational documents of CLMI; (ii) contravene or result in a violation of
any resolution adopted by the shareholders or directors of CLMI; (iii) result in
a violation or breach of, or give any person the right to declare (whether with
or without notice or lapse of time) a default under or to terminate, any
agreement or other instrument to which CLMI is a party or by which CLMI or any
of its assets are bound; (iv) give any person the right to accelerate the
maturity of any indebtedness or other obligation of CLMI; (v) result in the loss
of any license or other contractual right of CLMI; (vi) result in the loss of,
or in a violation of any of the terms, provisions or conditions of, any
governmental license, permit, authorization or franchise of CLMI; (vii) result
in the creation or imposition of any lien, charge, encumbrance or restriction on
any of the assets of CLMI; (viii) result in the reassessment or revaluation of
any property of CLMI by any taxing authority or other governmental authority;
-14-
<PAGE>
(ix) result in the imposition of, or subject CLMI to any liability for, any
conveyance or transfer tax or any similar tax; or (x) result in a violation of
any law, rule, regulation, treaty, ruling, directive, order, arbitration award,
judgment or decree to which CLMI or any of its assets is subject.
5.10 Approvals.
---------
No authorization, consent or approval of, or registration or filing
with, any governmental authority or any other person is required to be obtained
or made by CLMI in connection with the execution, delivery or performance of
this Agreement.
5.11 Brokers.
-------
CLMI has not agreed to pay any brokerage fees, finder's fees or other
fees or commissions with respect to the transactions contemplated by this
Agreement, and, to CLMI's knowledge, no person is entitled, or intends to claim
that it is entitled, to receive any such fees or commissions in connection with
such transactions.
5.12 Full Disclosure.
---------------
Neither this Agreement (including the exhibits hereto) nor any
statement, certificate or other document delivered to Overton or KidVision by or
on behalf of CLMI contains any untrue statement of a material fact or omits to
state a material fact necessary to make the representations and other statements
contained herein and therein not misleading.
5.13 Representations True on Closing Date.
------------------------------------
The representations and warranties of CLMI set forth in this Agreement
are true and correct on the date hereof, and will be true and correct on the
Closing Date as though such representations and warranties were made as of the
Closing Date.
-15-
<PAGE>
6. Injunctive Relief
-----------------
6.1. Damages Inadequate.
------------------
Each party acknowledges that it would be impossible to measure in money
the damages to the other party if there is a failure to comply with any
covenants and provisions of this Agreement, and agrees that in the event of any
breach of any covenant or provision, the other party to this Agreement will not
have an adequate remedy at law.
6.2. Injunctive Relief.
-----------------
It is therefore agreed that the other party to this Agreement who is
entitled to the benefit of the covenants and provisions of this Agreement which
have been breached, in addition to any other rights or remedies which they may
have, shall be entitled to immediate injunctive relief to enforce such covenants
and provisions, and that in the event that any such action or proceeding is
brought in equity to enforce them, the defaulting or breaching party will not
urge a defense that there is an adequate remedy at law.
7. Waivers.
-------
If any party shall at any time waive any rights hereunder resulting
from any breach by the other party of any of the provisions of this Agreement,
such waiver is not to be construed as a continuing waiver of other breaches of
the same or other provisions of this Agreement. Resort to any remedies referred
to herein shall not be construed as a waiver of any other rights and remedies to
which such party is entitled under this Agreement or otherwise.
8. Successors and Assigns.
----------------------
Each covenant and representation of this Agreement shall inure to the
benefit of and be binding upon each of the parties, their personal
representatives, assigns and other successors in interest.
9. Entire and Sole Agreement.
-------------------------
This Agreement supercedes and replaces the Plan of Reorganization and
Exchange Agreement made and entered into on March 26, 1999 by and between ZOI,
Overton, and KidVision. This Agreement constitutes the entire agreement between
the parties and supersedes all other agreements, representations, warranties,
statements, promises and undertakings, whether oral or written, with respect to
the subject matter of this Agreement. This Agreement may be modified or amended
-16-
<PAGE>
only by a written agreement signed by the parties against whom the amendment is
sought to be enforced.
10. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, and the venue for any action hereunder
shall be in the appropriate forum in the County of Los Angeles, State of
California.
11. Counterparts.
------------
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
12. Attorneys' Fees and Costs.
-------------------------
In the event that either party must resort to legal action in order to
enforce the provisions of this Agreement or to defend such action, the
prevailing party shall be entitled to receive reimbursement from the
nonprevailing party for all reasonable attorneys' fees and all other costs
incurred in commencing or defending such action, or in enforcing this Agreement,
including but not limited to post judgment costs.
13. Assignment.
----------
This Agreement shall not be assignable by any party without prior
written consent of the other parties.
14. Remedies.
--------
Except as otherwise expressly provided herein, none of the remedies set
forth in this Agreement are intended to be exclusive, and each party shall have
all other remedies now or hereafter existing at law, in equity, by statute or
otherwise. The election of any one or more remedies shall not constitute a
waiver of the right to pursue other available remedies.
15. Section Headings.
----------------
The section headings in this Agreement are included for convenience
only, are not a part of this Agreement and shall not be used in construing it.
-17-
<PAGE>
16. Severability.
------------
In the event that any provision or any part of this Agreement is held
to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall not affect the validity or enforceability of any other
provision or part of this Agreement.
17. Notices.
-------
Each notice or other communication hereunder shall be in writing and
shall be deemed to have been duly given on the earlier of (i) the date on which
such notice or other communication is actually received by the intended
recipient thereof, or (ii) the date five (5) days after the date such notice or
other communication is mailed by registered or certified mail (postage prepaid)
to the intended recipient at the following address (or at such other address as
the intended recipient shall have specified in a written notice given to the
other parties hereto);
If to CLMI:
----------
Commercial Labor Management, Inc.
c/o Richardson & Associates
1299 Ocean Avenue, Suite 900
Santa Monica, California 90401
Telephone: (310) 393-9992
Facsimile: (310) 393-2004
If to ZOI:
---------
Zeros & Ones, Inc.
16861 Ventura Boulevard, Suite 205
Encino, California 91436
Attention: Robert Holtz, President
Telephone: (805) 677-1561
Facsimile: (818) 380-0258
-18-
<PAGE>
If to KidVision or Overton:
--------------------------
Charles Overton
KidVision, Inc.
16861 Ventura Boulevard, Suite 300
Encino, California 91436
Telephone: (818) 380-0256
Facsimile: (818) 380-0258
18. Publicity.
---------
No press release, notice to any third party or other publicity
concerning the transactions contemplated by this Agreement shall be issued,
given or otherwise disseminated without the prior approval of each of the
parties hereto; provided, however, that such approval shall not be unreasonably
withheld.
-19-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been entered into as of the date
first above written.
CLMI: COMMERCIAL LABOR MANAGEMENT, INC.
By: --------------------------------------
Edward L. Torres, President
ZOI: ZEROS & ONES, INC.
By: --------------------------------------
Robert Holtz, President
Overton: By: --------------------------------------
Charles Overton
KidVision: KIDVISION, INC.
By: --------------------------------------
Charles Overton, President
-20-
<PAGE>
EXHIBIT A
MATERIAL CHANGES
None.
EXHIBIT 7.2
<PAGE>
Plan of Reorganization and Exchange Agreement
This Plan of Reorganization and Exchange Agreement (the "Agreement") is
made and entered into as of the 1st day of July 1999 by and between Commercial
Labor Management, Inc., a Nevada Corporation ("CLMI"), Zeros & Ones, Inc., a
Delaware corporation ("ZOI"), Robert Holtz, an individual ("Holtz"), William
Burnsed, an individual ("Burnsed"), and Wood Ranch Technology Group, Inc., a
Delaware corporation ("Wood Ranch"), with respect to the following facts:
RECITALS
A. This Agreement hereby supercedes and replaces the Plan of
Reorganization and Exchange Agreement made and entered into as
of March 26, 1999 by and between Zeros & Ones, Inc. ("ZOI"),
Holtz, Burnsed and Wood Ranch.
B. Holtz and Burnsed own 100% of the total issued and outstanding
capital stock of Wood Ranch.
C. Wood Ranch is engaged in the business of providing consulting
services for the building of television facilities.
D. CLMI is a public reporting Company trading on the OTC Bulletin
Board. CLMI was incorporated for the purpose of engaging in
any lawful business.
E. CLMI desires to acquire 100% of the total issued and
outstanding stock of Wood Ranch in exchange for a total of
875,000 shares of the Common Stock of CLMI, to be issued
375,000 shares to Holtz and 500,000 shares to Burnsed in
accordance with this Agreement.
F. The plan of reorganization evidenced by this Agreement is
intended to be a tax free reorganization under Section 368 of
the Internal Revenue Code of 1986, as amended. It is part of
an overall tax free plan of reorganization pursuant to which
CLMI is also acquiring 100% of the assets of ZOI and 100% of
the total issued and outstanding stock of Quantum Arts, Inc.,
Kidvision, Inc., Pillar West Entertainment, Inc., Polygonal
Research Corporation and EKO Corporation.
-1-
<PAGE>
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency to which are hereby acknowledged by the parties to this Agreement,
and in light of the above recitals to this Agreement, the parties to this
Agreement hereby agree as follows:
1. Exchange of Equity Interests
----------------------------
In consideration for the issuance of a total of 875,000 shares of the
Common Stock, par value $.001 per share, of CLMI to Holtz and Burnsed and the
other covenants of CLMI in this Agreement, Holtz and Burnsed hereby agree to
convey to CLMI all of Holtz' and Burnsed's capital stock and right, title and
interest in and to Wood Ranch, effective as of the date first above written.
2. Closing and Further Acts
------------------------
The closing of the exchange (the "Closing") will occur as soon
practicable after the execution of this Agreement by all parties hereto, but not
later than July 1, 1999 (the "Closing Date"). At the Closing, Holtz and Burnsed
will tender to CLMI certificates and any other documents evidencing 100% of
Holtz' and Burnsed's ownership in Wood Ranch, and CLMI will deliver to Holtz a
stock certificate evidencing 375,000 shares of the Common Stock of CLMI and will
deliver to Burnsed a stock certificate evidencing 500,000 shares of the Common
Stock of CLMI being issued to Holtz and Burnsed pursuant to this Agreement. All
parties to this Agreement hereby agree to execute all other documents and take
all other action which are reasonably necessary or appropriate in order to
effect all of the transactions contemplated by this Agreement.
3. Covenants of CLMI
-----------------
3.1 Management of CLMI and Wood Ranch After Closing.
-----------------------------------------------
After the Closing, Holtz will be a director of CLMI and a director of
Wood Ranch, and Burnsed will be a director of CLMI and the President and
director of Wood Ranch. CLMI agrees that for the first year after the Closing,
Wood Ranch will have a Board of Directors consisting of three to five members,
one of which will be Burnsed, one of which will be designated by Holtz, and the
other one or more of whom will be mutually agreed upon by Holtz and Burnsed.
3.2 Percentage Ownership in CLMI.
----------------------------
After the Closing and after the acquisition by CLMI of the assets or
outstanding stock of Polygonal Research Corporation, EKO Corporation, Kidvision,
Inc., Quantum Arts, Inc., ZOI, and Pillar West Entertainment, Inc., CLMI will
have a total of 7,000,000 shares of its Common Stock outstanding, and 320,000
warrants to purchase an additional 320,000 shares of CLMI's Common Stock for a
-2-
<PAGE>
purchase price of $3.00 per share for a period of three years from the date of
issue of the Warrants, which is expected to occur on or about July 1, 1999. CLMI
will have no other equity securities or securities convertible into equity
securities of CLMI outstanding on the Closing Date.
4. Representations and Warranties of Wood Ranch, Holtz and Burnsed.
---------------------------------------------------------------
Wood Ranch, Holtz and Burnsed represent and warrant to CLMI as follows:
4.1 Power and Authority; Binding Nature of Agreement.
------------------------------------------------
Wood Ranch, Holtz and Burnsed have full power and authority to enter
into this Agreement and to perform their obligations hereunder. The execution,
delivery and performance of this Agreement by them has been duly authorized by
all necessary action on their part. Assuming that this Agreement is a valid and
binding obligation of each of the other parties hereto, this Agreement is a
valid and binding obligation of Wood Ranch, Holtz and Burnsed.
4.2 Subsidiaries.
------------
There is no corporation, general partnership, limited partnership,
joint venture, association, trust or other entity or organization which Wood
Ranch directly or indirectly controls or in which Wood Ranch directly or
indirectly owns any equity or other interest.
4.3 Good Standing.
-------------
Wood Ranch (i) is duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated, (ii) has all
necessary power and authority to own its assets and to conduct its business as
it is currently being conducted, and (iii) is duly qualified or licensed to do
business and is in good standing in every jurisdiction (both domestic and
foreign) where such qualification or licensing is required.
4.4 Charter Documents and Corporate Records.
---------------------------------------
Wood Ranch has delivered to CLMI complete and correct copies of (i) the
articles of incorporation, bylaws and other charter or organizational documents
of Wood Ranch, including all amendments thereto, (ii) the stock records of Wood
-3-
<PAGE>
Ranch, and (iii) the minutes and other records of the meetings and other
proceedings of the shareholders and directors of Wood Ranch. Wood Ranch is not
in violation or breach of (i) any of the provisions of its articles of
incorporation, bylaws or other charter or organizational documents, or (ii) any
resolution adopted by its shareholders or directors. There have been no meetings
or other proceedings of the shareholders or directors of Wood Ranch that are not
fully reflected in the appropriate minute books or other written records of Wood
Ranch.
4.5 Capitalization.
--------------
The authorized capital stock of Wood Ranch consists of fifteen hundred
(1,500) shares of common stock, no par value per share, of which 1,500 shares
are issued and outstanding. All of the outstanding shares of the capital stock
of Wood Ranch are validly issued, fully paid and nonassessable, and have been
issued in full compliance with all applicable federal, state, local and foreign
securities laws and other laws. There are no (i) outstanding options, warrants
or rights to acquire any shares of the capital stock or other securities of Wood
Ranch, (ii) outstanding securities or obligations which are convertible into or
exchangeable for any shares of the capital stock or other securities of Wood
Ranch, or (iii) contracts or arrangements under which Wood Ranch is or may
become bound to sell or otherwise issue any shares of its capital stock or any
other securities.
4.6 Financial Statements.
--------------------
Wood Ranch has delivered to CLMI the following financial statements
(the "Wood Ranch Financial Statements"): (i) the balance sheet of Wood Ranch as
of December 31, 1998; and (ii) the statements of income and retained earnings,
stockholders' equity and changes in financial position of Wood Ranch for the
year ended December 31, 1998; and (iii) supporting supplemental schedules.
Except as stated therein or in the notes thereto, the Wood Ranch Financial
Statements: (a) present fairly the financial position of Wood Ranch as of the
respective dates thereof and the results of operations and changes in financial
position of Wood Ranch for the respective periods covered thereby; and (b) have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered.
-4-
<PAGE>
4.7 Absence of Changes.
------------------
Except as otherwise disclosed to CLMI in writing in Exhibit A to this
Agreement, since December 31, 1998:
(a) There has not been any material adverse change in the
business, condition, assets, operations or prospects of Wood Ranch and
no event has occurred that might have an adverse effect on the
business, condition, assets, operations or prospects of Wood Ranch.
(b) Wood Ranch has not (i) declared, set aside or paid any
dividend or made any other contribution in respect of any shares of
capital stock, nor (ii) repurchased, redeemed or otherwise reacquired
any shares of capital stock or other securities.
(c) Wood Ranch has not sold or otherwise issued any shares of
capital stock or any other securities.
(d) Wood Ranch has not amended its articles of incorporation,
bylaws or other charter or organizational documents, nor has it
effected or been a party to any merger, recapitalization,
reclassification of shares, stock split, reverse stock split,
reorganization or similar transaction.
(e) Wood Ranch has not formed any subsidiary or contributed
any funds or other assets to any subsidiary.
(f) Wood Ranch has not purchased or otherwise acquired any
assets, nor has it leased any assets from any other person, except in
the ordinary course of business consistent with past practice.
(g) Wood Ranch has not made any capital expenditure outside
the ordinary course of business or inconsistent with past practice, or
in an amount exceeding three thousand dollars ($3,000), and the total
amount of the capital expenditures made by Wood Ranch has not exceeded
ten thousand dollars ($10,000).
(h) Wood Ranch has not sold or otherwise transferred any
assets to any other person, except in the ordinary course of business
-5-
<PAGE>
consistent with past practice and at a price equal to the fair market
value of the assets transferred.
(i) There has not been any loss, damage or destruction to any
of the properties or assets of Wood Ranch (whether or not covered by
insurance).
(j) Wood Ranch has not written off as uncollectible any
indebtedness or accounts receivable, except for write-offs that were
made in the ordinary course of business consistent with past practice
and that involved less than one hundred dollars ($100) singly and less
than one thousand dollars ($1,000) in the aggregate.
(k) Wood Ranch has not leased any assets to any other person
except in the ordinary course of business consistent with past practice
and at a rental rate equal to the fair rental value of the leased
assets.
(l) Wood Ranch has not mortgaged, pledged, hypothecated or
otherwise encumbered any assets, except in the ordinary course of
business consistent with past practice.
(m) Wood Ranch has not entered into any contract or incurred
any debt, liability or other obligation (whether absolute, accrued,
contingent or otherwise), except for (i) contracts that were entered
into in the ordinary course of business consistent with past practice
and that have terms of less than six months and do not contemplate
payments by or to Wood Ranch which will exceed, over the term of the
contract, three thousand dollars ($3,000) in the aggregate, and (ii)
current liabilities incurred in the ordinary course of business
consistent with the past practice.
(n) Wood Ranch has not made any loan or advance to any other
person, except for advances that have been made to customers in the
ordinary course of business consistent with past practice and that have
been properly reflected as "accounts receivables."
(o) Wood Ranch has not paid any bonus to, or increased the
amount of the salary, fringe benefits or other compensation or
-6-
<PAGE>
remuneration payable to, any of the directors, officers or employees of
Wood Ranch.
(p) No contract or other instrument to which Wood Ranch is or
was a party or by which Wood Ranch or any of Wood Ranch's assets are or
were bound has been amended or terminated, except in the ordinary
course of business consistent with past practice.
(q) Wood Ranch has not discharged any lien or discharged or
paid any indebtedness, liability or other obligation, except for
current liabilities that (i) are reflected in the December 31, 1998
Balance Sheet or have been incurred since December 31, 1998 in the
ordinary course of business consistent with past practice, and (ii)
have been discharged or paid in the ordinary course of business
consistent with past practice.
(r) Wood Ranch has not forgiven any debt or otherwise released
or waived any right or claim, except in the ordinary course of business
consistent with past practice.
(s) Wood Ranch has not changed its methods of accounting or
its accounting practices in any respect.
(t) Wood Ranch has not entered into any transaction outside
the ordinary course of business or inconsistent with past practice.
(u) Wood Ranch has not agreed or committed (orally or in
writing) to do any of the things described in clauses (b) through (t)
of this Section 4.7.
4.8 Absence of Undisclosed Liabilities.
----------------------------------
Wood Ranch has no debt, liability or other obligation of any nature
(whether due or to become due and whether absolute, accrued, contingent or
otherwise) that is not reflected or reserved against in the December 31, 1998
Balance Sheet, except for obligations incurred since December 31, 1998 in the
ordinary course of business consistent with past practice.
-7-
<PAGE>
4.9 Contracts.
---------
Wood Ranch has delivered to CLMI complete and correct copies of all of
the contracts and other instruments including all amendment hereto. All of such
contracts and other instruments are valid and in full force and effect, and are
enforceable in accordance with their terms. There is no existing default by any
person under any of said contracts or other instruments, and there exists no
condition or set of circumstance which, with notice or lapse of time or both,
would constitute such a default.
4.10 Title to Personal Property.
--------------------------
Wood Ranch has good, valid and marketable title to all of its personal
property (both tangible and intangible) and interests therein, including without
limitation all of the personal property reflected in the December 31, 1998
Balance Sheet. All of such personal property and interests therein are owned
free and clear of any liens, pledges, security interests, claims, equities,
options, charges, encumbrances or restrictions.
4.11 Tax Matters.
-----------
All federal, state, local and foreign tax returns required to be filed by
Wood Ranch have been properly prepared and duly filed, and all taxes required to
be paid by, or claimed by any federal, state, local or foreign taxing authority
to be payable by, the Company have been paid in full. The provisions for taxes
reflected in the December 31, 1998 Balance Sheet are adequate for all taxes
payable with respect to the period prior to December 31, 1998. There is no (i)
pending audit or examination of Wood Ranch (or of any of the tax returns
thereof) being conducted by any federal, state, local or foreign taxing
authority, (ii) pending or threatened claim or dispute relating to the payment
of any taxes by Wood Ranch, (iii) basis upon which any federal, state, local or
foreign taxing authority may make any claim for the payment of additional taxes
by Wood Ranch, or (iv) outstanding agreement or waiver extending the statutory
limitations period applicable to the payment of any taxes by Wood Ranch.
-8-
<PAGE>
4.12. Compliance With Laws; Licenses and Permits.
------------------------------------------
Wood Ranch, to its knowledge, is not in violation of, nor has it
failed to conduct its business in full compliance with, any applicable federal,
state, local or foreign laws, regulations, rules, treaties, rulings, orders,
directives or decrees. Wood Ranch has delivered to CLMI complete and correct
copies of all of the licenses, permits, authorizations and franchises to which
Wood Ranch is subject and all said licenses, permits, authorizations and
franchises are valid and in full force and effect. Said licenses, permits,
authorizations and franchises constitute all of the licenses, permits,
authorizations and franchises necessary to permit Wood Ranch to conduct its
business in the manner in which it is now being conducted, and Wood Ranch is not
in violation or breach of any of the terms, requirements or conditions of any of
said licenses, permits, authorizations or franchises.
4.13. Title to Holtz and Burnsed's Stock.
----------------------------------
Holtz and Burnsed have good, valid and marketable title to all of Holtz
and Burnsed's stock in Wood Ranch, and can convey good title to said stock to
CLMI free and clear of any liens, claims, encumbrances or security interests.
4.14. Litigation.
----------
There is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to Wood Ranch's knowledge,
threatened against or with respect to Wood Ranch which (i) if adversely
determined would have an adverse effect on the business, condition, assets,
operations or prospects of Wood Ranch, or (ii) challenges or would challenge any
of the actions required to be taken by the Wood Ranch under this Agreement.
There exists no basis for any such action, suit, proceeding, dispute,
litigation, claim, complaint or investigation.
4.15 Non-Contravention.
-----------------
Neither (a) the execution and delivery of this Agreement, nor (b) the
performance of this Agreement will: (i) contravene or result in a violation of
any of the provisions of the articles of incorporation, bylaws or other charter
-9-
<PAGE>
or organizational documents of Wood Ranch; (ii) contravene or result in a
violation of any resolution adopted by the shareholders or directors of Wood
Ranch; (iii) result in a violation or breach of, or give any person the right to
declare (whether with or without notice or lapse of time) a default under or to
terminate, any agreement or other instrument to which Wood Ranch, Holtz or
Burnsed is a party or by which Wood Ranch or any of its assets or Holtz or
Burnsed is bound; (iv) give any person the right to accelerate the maturity of
any indebtedness or other obligation of Wood Ranch; (v) result in the loss of
any license or other contractual right of Wood Ranch; (vi) result in the loss
of, or in a violation of any of the terms, provisions or conditions of, any
governmental license, permit, authorization or franchise of Wood Ranch; (vii)
result in the creation or imposition of any lien, charge, encumbrance or
restriction on any of the assets of Wood Ranch or on Holtz and Burnsed's stock
in Wood Ranch; (viii) result in the reassessment or revaluation of any property
of Wood Ranch or by any taxing authority or other governmental authority; (ix)
result in the imposition of, or subject Wood Ranch to any liability for, any
conveyance or transfer tax or any similar tax; or (x) result in a violation of
any law, rule, regulation, treaty, ruling, directive, order, arbitration award,
judgment or decree to which Wood Ranch or any of its assets or any of Holtz and
Burnsed's stock in Wood Ranch is subject.
4.16. Approvals.
---------
No authorization, consent or approval of, or registration or filing
with, any governmental authority or any other person is required to be obtained
or made by Wood Ranch, Holtz or Burnsed in connection with the execution,
delivery or performance of this Agreement, including the sale to CLMI of the
shares of Holtz and Burnsed's stock in Wood Ranch being acquired by CLMI
hereunder.
4.17. Brokers.
-------
Wood Ranch has not agreed to pay any brokerage fees, finder's fees or
other fees or commissions with respect to the transactions contemplated by this
Agreement, and, to Wood Ranch's knowledge, no person is entitled, or intends to
claim that it is entitled, to receive any such fees or commissions in connection
with such transaction.
-10-
<PAGE>
4.18. Full Disclosure.
---------------
Neither this Agreement (including the exhibits hereto) nor any
statement, certificate or other document delivered to CLMI by or on behalf of
Wood Ranch, Holtz, or Burnsed contains any untrue statement of a material fact
or omits to state a material fact necessary to make the representations and
other statements contained herein and therein not misleading.
4.19. Representations True on Closing Date.
------------------------------------
The representations and warranties of Wood Ranch, Holtz and Burnsed set
forth in this Agreement are true and correct on the date hereof, and will be
true and correct on the Closing Date as though such representations and
warranties were made as of the Closing Date.
4.20 Non-Distributive Intent.
-----------------------
The shares of CLMI stock being acquired by Holtz and Burnsed pursuant
to this Agreement are not being acquired by Holtz and Burnsed with a view to the
public distribution of them. Holtz and Burnsed acknowledge and agree that the
CLMI stock acquired by them pursuant to this Agreement has not been registered
or qualified under federal or state securities laws, and may not be sold,
conveyed, transferred, assigned or hypothecated without being registered under
the Securities Act of 1933, as amended, and applicable state law, or in the
alternative submission of evidence reasonably satisfactory to CLMI that an
exemption from registration is available.
5. Representations and Warranties of CLMI.
--------------------------------------
CLMI represents and warrants to Wood Ranch, Holtz and Burnsed as
follows:
5.1 Power and Authority; Binding Nature of Agreement.
------------------------------------------------
CLMI has full power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement by CLMI has been duly authorized by all necessary action on its
-11-
<PAGE>
part. Assuming that this Agreement is a valid and binding obligation of each of
the other parties hereto, this Agreement is a valid and binding obligation of
CLMI.
5.2 Good Standing.
-------------
CLMI (i) is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated, (ii) has all necessary
power and authority to own its assets and to conduct its business as it is
currently being conducted, and (iii) is duly qualified or licensed to do
business and is in good standing in every jurisdiction (both domestic and
foreign) where such qualification or licensing is required.
5.3 Charter Documents and Corporate Records.
---------------------------------------
CLMI has delivered to Holtz, Burnsed and Wood Ranch complete and correct
copies of (i) the articles of incorporation, bylaws and other charter or
organizational documents of CLMI, including all amendments thereto, (ii) the
stock records of CLMI, and (iii) the minutes and other records of the meetings
and other proceedings of the shareholders and directors of CLMI. CLMI is not in
violation or breach of (i) any of the provisions of its articles of
incorporation, bylaws or other charter or organizational documents, or (ii) any
resolution adopted by its shareholders or directors. There have been no meetings
or other proceedings of the shareholders or directors of CLMI that are not fully
reflected in the appropriate minute books or other written records of the
Company.
5.4 Capitalization.
--------------
The authorized capital stock of CLMI consists of 50,000,000 shares of
common stock, par value $.001 per share, of which 7,000,000 shares will be
issued and outstanding as indicated in Section 3.2 of this Agreement, and
2,000,000 shares of preferred stock, par value $.001 per share, none of which is
issued and outstanding. All of the outstanding shares of the capital stock of
CLMI are validly issued, fully paid and nonassessable, and have been issued in
full compliance with all applicable federal, state, local and foreign securities
laws and other laws. Except as disclosed in Section 3.2 or pursuant to Section
5.5 or elsewhere in this Agreement, there are no (i) outstanding options,
warrants or rights to acquire any shares of the capital stock or other
-12-
<PAGE>
securities of CLMI, (ii) outstanding securities or obligations which are
convertible into or exchangeable for any shares of the capital stock or other
securities of CLMI, or (iii) contracts or arrangements under which CLMI is or
may become bound to sell or otherwise issue any shares of its capital stock or
any other securities.
5.5 Financial Statements.
--------------------
CLMI has delivered to Holtz, Burnsed and Wood Ranch the following
financial statements (the "CLMI Financial Statements"): (i) the balance sheet of
CLMI as of December 31, 1998; and (ii) the statements of income and retained
earnings, stockholders' equity and changes in financial position of CLMI for the
year ended December 31, 1998; and (iii) supporting supplemental schedules.
Except as stated therein or in the notes thereto, the CLMI Financial Statements:
(a) present fairly the financial position of CLMI as of the respective dates
thereof and the results of operations and changes in financial position of CLMI
for the respective periods covered thereby; and (b) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered.
5.6 Absence of Changes.
------------------
Except as otherwise disclosed to Holtz, Burnsed or Wood Ranch in writing in
Exhibit A to this Agreement, since December 31, 1998, there has not been any
material adverse change in the business, condition, assets, operations or
prospects of CLMI and no event has occurred that might have an adverse effect on
the business, condition, assets, operations or prospects of CLMI.
5.7 Absence of Undisclosed Liabilities.
----------------------------------
CLMI has no debt, liability or other obligation of any nature (whether
due or to become due and whether absolute, accrued, contingent or otherwise)
that is not reflected or reserved against in the December 31, 1998 Balance
Sheet, except for obligations incurred since December 31, 1998 in the ordinary
course of business consistent with past practice.
-13-
<PAGE>
5.8 Litigation.
----------
There is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to CLMI's knowledge, threatened
against or with respect to CLMI which (i) if adversely determined would have an
adverse effect on the business, condition, assets, operations or prospects of
CLMI, or (ii) challenges or would challenge any of the actions required to be
taken by CLMI under this Agreement. There exists no basis for any such action,
suit, proceeding, dispute, litigation, claim, complaint or investigation.
5.9 Non-Contravention.
-----------------
Neither (a) the execution and delivery of this Agreement, nor (b) the
performance of this Agreement will: (i) contravene or result in a violation of
any of the provisions of the articles of incorporation, bylaws or other charter
or organizational documents of CLMI; (ii) contravene or result in a violation of
any resolution adopted by the shareholders or directors of CLMI; (iii) result in
a violation or breach of, or give any person the right to declare (whether with
or without notice or lapse of time) a default under or to terminate, any
agreement or other instrument to which CLMI is a party or by which CLMI or any
of its assets are bound; (iv) give any person the right to accelerate the
maturity of any indebtedness or other obligation of CLMI; (v) result in the loss
of any license or other contractual right of CLMI; (vi) result in the loss of,
or in a violation of any of the terms, provisions or conditions of, any
governmental license, permit, authorization or franchise of CLMI; (vii) result
in the creation or imposition of any lien, charge, encumbrance or restriction on
any of the assets of CLMI; (viii) result in the reassessment or revaluation of
any property of CLMI by any taxing authority or other governmental authority;
(ix) result in the imposition of, or subject CLMI to any liability for, any
conveyance or transfer tax or any similar tax; or (x) result in a violation of
any law, rule, regulation, treaty, ruling, directive, order, arbitration award,
judgment or decree to which CLMI or any of its assets is subject.
-14-
<PAGE>
5.10 Approvals.
---------
No authorization, consent or approval of, or registration or filing
with, any governmental authority or any other person is required to be obtained
or made by CLMI in connection with the execution, delivery or performance of
this Agreement.
5.11 Brokers.
-------
CLMI has not agreed to pay any brokerage fees, finder's fees or other
fees or commissions with respect to the transactions contemplated by this
Agreement, and, to CLMI's knowledge, no person is entitled, or intends to claim
that it is entitled, to receive any such fees or commissions in connection with
such transactions.
5.12 Full Disclosure.
---------------
Neither this Agreement (including the exhibits hereto) nor any
statement, certificate or other document delivered to Holtz and Burnsed or Wood
Ranch by or on behalf of CLMI contains any untrue statement of a material fact
or omits to state a material fact necessary to make the representations and
other statements contained herein and therein not misleading.
5.13 Representations True on Closing Date.
------------------------------------
The representations and warranties of CLMI set forth in this Agreement
are true and correct on the date hereof, and will be true and correct on the
Closing Date as though such representations and warranties were made as of the
Closing Date.
6. Injunctive Relief
-----------------
6.1. Damages Inadequate.
------------------
Each party acknowledges that it would be impossible to measure in money
the damages to the other party if there is a failure to comply with any
covenants and provisions of this Agreement, and agrees that in the event of any
breach of any covenant or provision, the other party to this Agreement will not
have an adequate remedy at law.
-16-
<PAGE>
6.2. Injunctive Relief.
-----------------
It is therefore agreed that the other party to this Agreement who is
entitled to the benefit of the covenants and provisions of this Agreement which
have been breached, in addition to any other rights or remedies which they may
have, shall be entitled to immediate injunctive relief to enforce such covenants
and provisions, and that in the event that any such action or proceeding is
brought in equity to enforce them, the defaulting or breaching party will not
urge a defense that there is an adequate remedy at law.
7. Waivers.
-------
If any party shall at any time waive any rights hereunder resulting
from any breach by the other party of any of the provisions of this Agreement,
such waiver is not to be construed as a continuing waiver of other breaches of
the same or other provisions of this Agreement. Resort to any remedies referred
to herein shall not be construed as a waiver of any other rights and remedies to
which such party is entitled under this Agreement or otherwise.
8. Successors and Assigns.
----------------------
Each covenant and representation of this Agreement shall inure to the
benefit of and be binding upon each of the parties, their personal
representatives, assigns and other successors in interest.
9. Entire and Sole Agreement.
-------------------------
This Agreement supercedes and replaces the Plan of Reorganization and
Exchange Agreement made and entered into as of March 26, 1999, by and between
ZOI, Holtz, Burnsed, and Wood Ranch. This Agreement constitutes the entire
agreement between the parties and supersedes all other agreements,
representations, warranties, statements, promises and undertakings, whether oral
or written, with respect to the subject matter of this Agreement. This Agreement
may be modified or amended only by a written agreement signed by the parties
against whom the amendment is sought to be enforced.
10. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, and the venue for any action hereunder
shall be in the appropriate forum in the County of Los Angeles, State of
California.
-16-
<PAGE>
11. Counterparts.
------------
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
12. Attorneys' Fees and Costs.
-------------------------
In the event that either party must resort to legal action in order to
enforce the provisions of this Agreement or to defend such action, the
prevailing party shall be entitled to receive reimbursement from the
nonprevailing party for all reasonable attorneys' fees and all other costs
incurred in commencing or defending such action, or in enforcing this Agreement,
including but not limited to post judgment costs.
13. Assignment.
----------
This Agreement shall not be assignable by any party without prior
written consent of the other parties.
14. Remedies.
--------
Except as otherwise expressly provided herein, none of the remedies set
forth in this Agreement are intended to be exclusive, and each party shall have
all other remedies now or hereafter existing at law, in equity, by statute or
otherwise. The election of any one or more remedies shall not constitute a
waiver of the right to pursue other available remedies.
15. Section Headings.
----------------
The section headings in this Agreement are included for convenience
only, are not a part of this Agreement and shall not be used in construing it.
16. Severability.
------------
In the event that any provision or any part of this Agreement is held
to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall not affect the validity or enforceability of any other
provision or part of this Agreement.
17. Notices.
-------
Each notice or other communication hereunder shall be in writing and
shall be deemed to have been duly given on the earlier of (i) the date on which
such notice or other communication is actually received by the intended
recipient thereof, or (ii) the date five (5) days after the date such notice or
-17-
<PAGE>
other communication is mailed by registered or certified mail (postage prepaid)
to the intended recipient at the following address (or at such other address as
the intended recipient shall have specified in a written notice given to the
other parties hereto);
If to ZOI:
---------
Zeros & Ones, Inc.
16861 Ventura Boulevard, Suite 205
Encino, California 91436
Attention: Robert Holtz, President
Telephone: (805) 677-1561
Facsimile: (818) 380-0258
If to Wood Ranch, Holtz or Burnsed:
----------------------------------
William Burnsed or Robert Holtz
Wood Ranch Technology Group, Inc.
16861 Ventura Boulevard, Suite 205
Encino, California 91436
Telephone: (805) 677-1561
Facsimile: (818) 380-0258
If to CLMI:
----------
Commercial Labor Management, Inc.
c/o Richardson & Associates
1299 Ocean Avenue, Suite 900
Santa Monica, California 90401
Telephone: (310) 393-9992
Facsimile: (310) 393-2004
18. Publicity.
---------
No press release, notice to any third party or other publicity
concerning the transactions contemplated by this Agreement shall be issued,
given or otherwise disseminated without the prior approval of each of the
parties hereto; provided, however, that such approval shall not be unreasonably
withheld.
-18-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been entered into as of the date
first above written.
CLMI: COMMERCIAL LABOR MANAGEMENT, INC.
By: --------------------------------
Edward L. Torres, President
ZOI: ZEROS & ONES, INC.
By: --------------------------------
Robert Holtz, President
Holtz: By: --------------------------------
Robert Holtz
Burnsed By: --------------------------------
William Burnsed
Wood Ranch: WOOD RANCH TECHNOLOGY GROUP, INC.
By: --------------------------------
Robert Holtz, President
-19-
<PAGE>
EXHIBIT A
MATERIAL CHANGES
None.
EXHIBIT 7.3
<PAGE>
Plan of Reorganization and Exchange Agreement
This Plan of Reorganization and Exchange Agreement (the "Agreement") is
made and entered into as of the 1st day of July 1999 by and between Commercial
Labor Management, Inc., a Nevada corporation ("CLMI"), Zeros & Ones, Inc., a
Delaware corporation ("ZOI"), Robert Holtz, an individual ("Holtz"), Bernie
Butler-Smith, an individual ("Butler-Smith"), and Polygonal Research
Corporation, a Delaware corporation ("Polygonal"), with respect to the following
facts:
RECITALS
A. This Agreement hereby supercedes and replaces the Plan of
Reorganization and Exchange Agreement made and entered into as
of March 26, 1999 by and between Zeros & Ones, Inc. ("ZOI"),
Holtz, Butler-Smith, and Polygonal.
B. Holtz and Butler-Smith own 100% of the total issued and
outstanding capital stock of Polygonal.
C. Polygonal is engaged in the business of developing an image
compression technology called Dynamic Polygonal Compression
("DPC"), and manufacturing products that utilize the DPC
engine.
D. CLMI is a public reporting company trading on the OTC Bulletin
Board. CLMI was incorporated for the purpose of engaging in
any lawful business.
E. CLMI desires to acquire 100% of the total issued and
outstanding stock of Polygonal in exchange for a total of
600,000 shares of the Common Stock of CLMI, to be issued
300,000 shares to Holtz and 300,000 shares to Butler-Smith in
accordance with this Agreement.
F. The plan of reorganization evidenced by this Agreement is
intended to be a tax free reorganization under Section 368 of
the Internal Revenue Code of 1986, as amended. It is part of
an overall tax free plan of reorganization pursuant to which
CLMI is also acquiring 100% of the assets of ZOI and 100% of
the total issued and outstanding stock of Quantum Arts, Inc.,
Wood Ranch Technology Group, Inc., Kidvision, Inc. EKO
Corporation, and Pillar West Entertainment, Inc.
-1-
<PAGE>
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency to which are hereby acknowledged by the parties to this Agreement,
and in light of the above recitals to this Agreement, the parties to this
Agreement hereby agree as follows:
1. Exchange of Equity Interests
----------------------------
In consideration for the issuance of a total of 600,000 shares of the
Common Stock, par value $.001 per share, of CLMI to Holtz and Butler-Smith, and
the other covenants of CLMI in this Agreement, Holtz and Butler-Smith hereby
agree to convey to CLMI all of Holtz' and Butler-Smith's capital stock and
right, title and interest in and to Polygonal, effective as of the date first
above written.
2. Closing and Further Acts
------------------------
The closing of the exchange (the "Closing") will occur as soon
practicable after the execution of this Agreement by all parties hereto, but not
later than July 1, 1999 (the "Closing Date"). At the Closing, Holtz and
Butler-Smith will tender to CLMI certificates and any other documents evidencing
100% of Holtz' and Butler-Smith's ownership in Polygonal, and CLMI will deliver
to Holtz and Butler-Smith each a stock certificate evidencing 300,000 shares of
the Common Stock, par value $.001 per share, of CLMI being issued to Holtz and
Butler-Smith pursuant to this Agreement. All parties to this Agreement hereby
agree to execute all other documents and take all other action which are
reasonably necessary or appropriate in order to effect all of the transactions
contemplated by this Agreement.
3. Covenants of CLMI
-----------------
3.1 Management of CLMI and Polygonal After Closing.
----------------------------------------------
After the Closing, Holtz will be a director of CLMI and a director of
Polygonal, and Butler-Smith will be a director of CLMI and the President and
Chairman of the Board of Directors of Polygonal. CLMI agrees that for the first
year after the Closing, Polygonal will have a Board of Directors consisting of
three to five members, one of which will be Butler-Smith, one of which will be
Holtz or another person designated by Holtz, and the other one or more of whom
will be mutually agreed upon by Holtz and Butler-Smith.
3.2 Percentage Ownership in CLMI.
----------------------------
After the Closing and after the acquisition by CLMI of 100% of the assets
of ZOI and 100% of the outstanding stock of Polygonal Research Corporation, EKO
Corporation, Kidvision, Inc., Wood Ranch Technology Corporation, and Pillar West
Entertainment, Inc., CLMI will have a total of 7,000,000 shares of its Common
Stock outstanding, and 320,000 warrants to purchase an additional 320,000 shares
-2-
<PAGE>
of CLMI's Common Stock for a purchase price of $3.00 per share for a period of
three years from the date of issue of the Warrants, which is expected to occur
on or about July 1, 1999. CLMI will have no other equity securities or
securities convertible into equity securities of CLMI outstanding on the Closing
Date.
4. Representations and Warranties of Polygonal, Holtz and Butler-Smith.
-------------------------------------------------------------------
Polygonal, Holtz and Butler-Smith represent and warrant to CLMI as
follows:
4.1 Power and Authority; Binding Nature of Agreement.
------------------------------------------------
Polygonal, Holtz and Butler-Smith have full power and authority to
enter into this Agreement and to perform their obligations hereunder. The
execution, delivery and performance of this Agreement by them has been duly
authorized by all necessary action on their part. Assuming that this Agreement
is a valid and binding obligation of each of the other parties hereto, this
Agreement is a valid and binding obligation of Polygonal, Holtz and
Butler-Smith.
4.2 Subsidiaries.
------------
There is no corporation, general partnership, limited partnership,
joint venture, association, trust or other entity or organization which
Polygonal directly or indirectly controls or in which Polygonal directly or
indirectly owns any equity or other interest.
4.3 Good Standing.
-------------
Polygonal (i) is duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated, (ii) has all
necessary power and authority to own its assets and to conduct its business as
it is currently being conducted, and (iii) is duly qualified or licensed to do
business and is in good standing in every jurisdiction (both domestic and
foreign) where such qualification or licensing is required.
4.4 Charter Documents and Corporate Records.
---------------------------------------
Polygonal has delivered to CLMI complete and correct copies of (i) the
articles of incorporation, bylaws and other charter or organizational documents
of Polygonal, including all amendments thereto, (ii) the stock records of
-3-
<PAGE>
Polygonal, and (iii) the minutes and other records of the meetings and other
proceedings of the shareholders and directors of Polygonal. Polygonal is not in
violation or breach of (i) any of the provisions of its articles of
incorporation, bylaws or other charter or organizational documents, or (ii) any
resolution adopted by its shareholders or directors. There have been no meetings
or other proceedings of the shareholders or directors of Polygonal that are not
fully reflected in the appropriate minute books or other written records of
Polygonal.
4.5 Capitalization.
--------------
The authorized capital stock of Polygonal consists of fifteen hundred
(1,500) shares of common stock, no par value per share, of which 1,500 shares
are issued and outstanding. All of the outstanding shares of the capital stock
of Polygonal are validly issued, fully paid and nonassessable, and have been
issued in full compliance with all applicable federal, state, local and foreign
securities laws and other laws. There are no (i) outstanding options, warrants
or rights to acquire any shares of the capital stock or other securities of
Polygonal, (ii) outstanding securities or obligations which are convertible into
or exchangeable for any shares of the capital stock or other securities of
Polygonal, or (iii) contracts or arrangements under which Polygonal is or may
become bound to sell or otherwise issue any shares of its capital stock or any
other securities.
4.6 Financial Statements.
--------------------
Polygonal has delivered to CLMI the following financial statements (the
"Polygonal Financial Statements"): the unaudited balance sheet of Polygonal as
of December 31, 1998 (the "December 31, 1998 Balance Sheet"). Except as stated
therein or in the notes thereto, the Polygonal Financial Statements: (a) present
fairly the financial position of Polygonal as of the respective dates thereof;
and (b) have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered.
4.7 Absence of Changes.
------------------
Except as otherwise disclosed to CLMI in writing in Exhibit A to this
Agreement, since December 31, 1998:
-4-
<PAGE>
(a) There has not been any material adverse change in the
business, condition, assets, operations or prospects of Polygonal and
no event has occurred that might have an adverse effect on the
business, condition, assets, operations or prospects of Polygonal.
(b) Polygonal has not (i) declared, set aside or paid any
dividend or made any other contribution in respect of any shares of
capital stock, nor (ii) repurchased, redeemed or otherwise reacquired
any shares of capital stock or other securities.
(c) Polygonal has not sold or otherwise issued any shares of
capital stock or any other securities.
(d) Polygonal has not amended its articles of incorporation,
bylaws or other charter or organizational documents, nor has it
effected or been a party to any merger, recapitalization,
reclassification of shares, stock split, reverse stock split,
reorganization or similar transaction.
(e) Polygonal has not formed any subsidiary or contributed any
funds or other assets to any subsidiary.
(f) Polygonal has not purchased or otherwise acquired any
assets, nor has it leased any assets from any other person, except in
the ordinary course of business consistent with past practice.
(g) Polygonal has not made any capital expenditure outside the
ordinary course of business or inconsistent with past practice, or in
an amount exceeding three thousand dollars ($3,000), and the total
amount of the capital expenditures made by Polygonal has not exceeded
ten thousand dollars ($10,000).
(h) Polygonal has not sold or otherwise transferred any assets
to any other person, except in the ordinary course of business
consistent with past practice and at a price equal to the fair market
value of the assets transferred.
-5-
<PAGE>
(i) There has not been any loss, damage or destruction to any
of the properties or assets of Polygonal (whether or not covered by
insurance).
(j) Polygonal has not written off as uncollectible any
indebtedness or accounts receivable, except for write-offs that were
made in the ordinary course of business consistent with past practice
and that involved less than one hundred dollars ($100) singly and less
than one thousand dollars ($1,000) in the aggregate.
(k) Polygonal has not leased any assets to any other person
except in the ordinary course of business consistent with past practice
and at a rental rate equal to the fair rental value of the leased
assets.
(l) Polygonal has not mortgaged, pledged, hypothecated or
otherwise encumbered any assets, except in the ordinary course of
business consistent with past practice.
(m) Polygonal has not entered into any contract or incurred
any debt, liability or other obligation (whether absolute, accrued,
contingent or otherwise), except for (i) contracts that were entered
into in the ordinary course of business consistent with past practice
and that have terms of less than six months and do not contemplate
payments by or to Polygonal which will exceed, over the term of the
contract, three thousand dollars ($3,000) in the aggregate, and (ii)
current liabilities incurred in the ordinary course of business
consistent with the past practice.
(n) Polygonal has not made any loan or advance to any other
person, except for advances that have been made to customers in the
ordinary course of business consistent with past practice and that have
been properly reflected as "accounts receivables."
(o) Polygonal has not paid any bonus to, or increased the
amount of the salary, fringe benefits or other compensation or
remuneration payable to, any of the directors, officers or employees of
Polygonal.
(p) No contract or other instrument to which Polygonal is or
was a party or by which Polygonal or any of Polygonal's assets are or
-6-
<PAGE>
were bound has been amended or terminated, except in the ordinary
course of business consistent with past practice.
(q) Polygonal has not discharged any lien or discharged or
paid any indebtedness, liability or other obligation, except for
current liabilities that (i) are reflected in the December 31, 1998
Balance Sheet or have been incurred since December 31, 1998 in the
ordinary course of business consistent with past practice, and (ii)
have been discharged or paid in the ordinary course of business
consistent with past practice.
(r) Polygonal has not forgiven any debt or otherwise released
or waived any right or claim, except in the ordinary course of business
consistent with past practice.
(s) Polygonal has not changed its methods of accounting or its
accounting practices in any respect.
(t) Polygonal has not entered into any transaction outside the
ordinary course of business or inconsistent with past practice.
(u) Polygonal has not agreed or committed (orally or in
writing) to do any of the things described in clauses (b) through (t)
of this Section 4.7.
4.8 Absence of Undisclosed Liabilities.
----------------------------------
Polygonal has no debt, liability or other obligation of any nature
(whether due or to become due and whether absolute, accrued, contingent or
otherwise) that is not reflected or reserved against in the December 31, 1998
Balance Sheet, except for obligations incurred since December 31, 1998 in the
ordinary course of business consistent with past practice.
4.9 Contracts.
---------
Polygonal has delivered to CLMI complete and correct copies of all of
the contracts and other instruments including all amendment hereto. All of such
contracts and other instruments are valid and in full force and effect, and are
enforceable in accordance with their terms. There is no existing default by any
person under any of said contracts or other instruments, and there exists no
-7-
<PAGE>
condition or set of circumstance which, with notice or lapse of time or both,
would constitute such a default.
4.10 Title to Personal Property.
--------------------------
Polygonal has good, valid and marketable title to all of its personal
property (both tangible and intangible) and interests therein, including without
limitation all of the personal property reflected in the December 31, 1998
Balance Sheet. All of such personal property and interests therein are owned
free and clear of any liens, pledges, security interests, claims, equities,
options, charges, encumbrances or restrictions.
4.11 Tax Matters.
-----------
All federal, state, local and foreign tax returns required to be filed
by Polygonal have been properly prepared and duly filed, and all taxes required
to be paid by, or claimed by any federal, state, local or foreign taxing
authority to be payable by, the Company have been paid in full. The provisions
for taxes reflected in the December 31, 1998 Balance Sheet are adequate for all
taxes payable with respect to the period prior to December 31, 1998. There is no
(i) pending audit or examination of Polygonal (or of any of the tax returns
thereof) being conducted by any federal, state, local or foreign taxing
authority, (ii) pending or threatened claim or dispute relating to the payment
of any taxes by Polygonal, (iii) basis upon which any federal, state, local or
foreign taxing authority may make any claim for the payment of additional taxes
by Polygonal, or (iv) outstanding agreement or waiver extending the statutory
limitations period applicable to the payment of any taxes by Polygonal.
-8-
<PAGE>
4.12. Compliance With Laws; Licenses and Permits.
------------------------------------------
Polygonal, to its knowledge, is not in violation of, nor has it failed
to conduct its business in full compliance with, any applicable federal, state,
local or foreign laws, regulations, rules, treaties, rulings, orders, directives
or decrees. Polygonal has delivered to CLMI complete and correct copies of all
of the licenses, permits, authorizations and franchises to which Polygonal is
subject and all said licenses, permits, authorizations and franchises are valid
and in full force and effect. Said licenses, permits, authorizations and
franchises constitute all of the licenses, permits, authorizations and
franchises necessary to permit Polygonal to conduct its business in the manner
in which it is now being conducted, and Polygonal is not in violation or breach
of any of the terms, requirements or conditions of any of said licenses,
permits, authorizations or franchises.
4.13. Title to Holtz and Butler-Smith's Stock.
---------------------------------------
Holtz and Butler-Smith have good, valid and marketable title to all of
Holtz and Butler-Smith's stock in Polygonal, and can convey good title to said
stock to CLMI free and clear of any liens, claims, encumbrances or security
interests.
4.14. Litigation.
----------
There is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to Polygonal's knowledge,
threatened against or with respect to Polygonal which (i) if adversely
determined would have an adverse effect on the business, condition, assets,
operations or prospects of Polygonal, or (ii) challenges or would challenge any
of the actions required to be taken by the Polygonal under this Agreement. There
exists no basis for any such action, suit, proceeding, dispute, litigation,
claim, complaint or investigation.
4.15 Non-Contravention.
-----------------
Neither (a) the execution and delivery of this Agreement, nor (b) the
performance of this Agreement will: (i) contravene or result in a violation of
any of the provisions of the articles of incorporation, bylaws or other charter
or organizational documents of Polygonal; (ii) contravene or result in a
-9-
<PAGE>
violation of any resolution adopted by the shareholders or directors of
Polygonal; (iii) result in a violation or breach of, or give any person the
right to declare (whether with or without notice or lapse of time) a default
under or to terminate, any agreement or other instrument to which Polygonal,
Holtz or Butler-Smith is a party or by which Polygonal or any of its assets or
Holtz or Butler-Smith is bound; (iv) give any person the right to accelerate the
maturity of any indebtedness or other obligation of Polygonal; (v) result in the
loss of any license or other contractual right of Polygonal; (vi) result in the
loss of, or in a violation of any of the terms, provisions or conditions of, any
governmental license, permit, authorization or franchise of Polygonal; (vii)
result in the creation or imposition of any lien, charge, encumbrance or
restriction on any of the assets of Polygonal or on Holtz and Butler-Smith's
stock in Polygonal; (viii) result in the reassessment or revaluation of any
property of Polygonal or by any taxing authority or other governmental
authority; (ix) result in the imposition of, or subject Polygonal to any
liability for, any conveyance or transfer tax or any similar tax; or (x) result
in a violation of any law, rule, regulation, treaty, ruling, directive, order,
arbitration award, judgment or decree to which Polygonal or any of its assets or
any of Holtz and Butler-Smith's stock in Polygonal is subject.
4.16. Approvals.
---------
No authorization, consent or approval of, or registration or filing
with, any governmental authority or any other person is required to be obtained
or made by Polygonal, Holtz or Butler-Smith in connection with the execution,
delivery or performance of this Agreement, including the sale to CLMI of the
shares of Holtz and Butler-Smith's stock in Polygonal being acquired by CLMI
hereunder.
4.17. Brokers.
-------
Polygonal has not agreed to pay any brokerage fees, finder's fees or
other fees or commissions with respect to the transactions contemplated by this
Agreement, and, to Polygonal's knowledge, no person is entitled, or intends to
claim that it is entitled, to receive any such fees or commissions in connection
with such transaction.
-10-
<PAGE>
4.18. Full Disclosure.
---------------
Neither this Agreement (including the exhibits hereto) nor any
statement, certificate or other document delivered to CLMI by or on behalf of
Polygonal, Holtz, or Butler-Smith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the representations and
other statements contained herein and therein not misleading.
4.19. Representations True on Closing Date.
------------------------------------
The representations and warranties of Polygonal, Holtz and Butler-Smith
set forth in this Agreement are true and correct on the date hereof, and will be
true and correct on the Closing Date as though such representations and
warranties were made as of the Closing Date.
4.20 Non-Distributive Intent.
-----------------------
The shares of CLMI stock being acquired by Holtz and Butler-Smith
pursuant to this Agreement are not being acquired by Holtz and Butler-Smith with
a view to the public distribution of them. Holtz and Butler-Smith acknowledge
and agree that the CLMI stock acquired by them pursuant to this Agreement has
not been registered or qualified under federal or state securities laws, and may
not be sold, conveyed, transferred, assigned or hypothecated without being
registered under the Securities Act of 1933, as amended, and applicable state
law, or in the alternative submission of evidence reasonably satisfactory to
CLMI that an exemption from registration is available.
5. Representations and Warranties of CLMI.
--------------------------------------
CLMI represents and warrants to Polygonal, Holtz and Butler-Smith as
follows:
5.1 Power and Authority; Binding Nature of Agreement.
------------------------------------------------
CLMI has full power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement by CLMI has been duly authorized by all necessary action on its
part. Assuming that this Agreement is a valid and binding obligation of each of
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<PAGE>
the other parties hereto, this Agreement is a valid and binding obligation of
CLMI.
5.2 Good Standing.
-------------
CLMI (i) is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated, (ii) has all necessary
power and authority to own its assets and to conduct its business as it is
currently being conducted, and (iii) is duly qualified or licensed to do
business and is in good standing in every jurisdiction (both domestic and
foreign) where such qualification or licensing is required.
5.3 Charter Documents and Corporate Records.
---------------------------------------
CLMI has delivered to Holtz, Butler-Smith and Polygonal complete and
correct copies of (i) the articles of incorporation, bylaws and other charter or
organizational documents of CLMI, including all amendments thereto, (ii) the
stock records of CLMI, and (iii) the minutes and other records of the meetings
and other proceedings of the shareholders and directors of CLMI. CLMI is not in
violation or breach of (i) any of the provisions of its articles of
incorporation, bylaws or other charter or organizational documents, or (ii) any
resolution adopted by its shareholders or directors. There have been no meetings
or other proceedings of the shareholders or directors of CLMI that are not fully
reflected in the appropriate minute books or other written records of the
Company.
5.4 Capitalization.
The authorized capital stock of CLMI consists of 50,000,000 shares of
common stock, par value $.001 per share, of which 7,000,000 shares will be
issued and outstanding as indicated in Section 3.2 of this Agreement, and
2,000,000 shares of preferred stock par value $.001 per share, none of which is
issued and outstanding. All of the outstanding shares of the capital stock of
CLMI are validly issued, fully paid and nonassessable, and have been issued in
full compliance with all applicable federal, state, local and foreign securities
laws and other laws. Except as disclosed in Section 3.2 or pursuant to Section
5.5 or elsewhere in this Agreement, there are no (i) outstanding options,
warrants or rights to acquire any shares of the capital stock or other
securities of CLMI, (ii) outstanding securities or obligations which are
convertible into or exchangeable for any shares of the capital stock or other
-12-
<PAGE>
securities of CLMI, or (iii) contracts or arrangements under which CLMI is or
may become bound to sell or otherwise issue any shares of its capital stock or
any other securities.
5.5 Financial Statements.
--------------------
CLMI has delivered to Holtz, Butler-Smith and Polygonal the following
financial statements (the "CLMI Financial Statements"): (i) the balance sheet of
CLMI as of December 31, 1998; and (ii) the statements of income and retained
earnings, stockholders' equity and changes in financial position of CLMI for the
year ended December 31, 1998; and (iii) supporting supplemental schedules.
Except as stated therein or in the notes thereto, the CLMI Financial Statements:
(a) present fairly the financial position of CLMI as of the respective dates
thereof and the results of operations and changes in financial position of CLMI
for the respective periods covered thereby; and (b) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered.
5.6 Absence of Changes.
------------------
Except as otherwise disclosed to Holtz, Butler-Smith or Polygonal in
writing in Exhibit A to this Agreement, since December 31, 1998, there has not
been any material adverse change in the business, condition, assets, operations
or prospects of CLMI and no event has occurred that might have an adverse effect
on the business, condition, assets, operations or prospects of CLMI.
5.7 Absence of Undisclosed Liabilities.
----------------------------------
CLMI has no debt, liability or other obligation of any nature (whether
due or to become due and whether absolute, accrued, contingent or otherwise)
that is not reflected or reserved against in the December 31, 1998 Balance
Sheet, except for obligations incurred since December 31, 1998 in the ordinary
course of business consistent with past practice.
5.8 Litigation.
----------
There is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
-13-
<PAGE>
governmental agency or arbitrator pending or, to CLMI's knowledge, threatened
against or with respect to CLMI which (i) if adversely determined would have an
adverse effect on the business, condition, assets, operations or prospects of
CLMI, or (ii) challenges or would challenge any of the actions required to be
taken by CLMI under this Agreement. There exists no basis for any such action,
suit, proceeding, dispute, litigation, claim, complaint or investigation.
5.9 Non-Contravention.
-----------------
Neither (a) the execution and delivery of this Agreement, nor (b) the
performance of this Agreement will: (i) contravene or result in a violation of
any of the provisions of the articles of incorporation, bylaws or other charter
or organizational documents of CLMI; (ii) contravene or result in a violation of
any resolution adopted by the shareholders or directors of CLMI; (iii) result in
a violation or breach of, or give any person the right to declare (whether with
or without notice or lapse of time) a default under or to terminate, any
agreement or other instrument to which CLMI is a party or by which CLMI or any
of its assets are bound; (iv) give any person the right to accelerate the
maturity of any indebtedness or other obligation of CLMI; (v) result in the loss
of any license or other contractual right of CLMI; (vi) result in the loss of,
or in a violation of any of the terms, provisions or conditions of, any
governmental license, permit, authorization or franchise of CLMI; (vii) result
in the creation or imposition of any lien, charge, encumbrance or restriction on
any of the assets of CLMI; (viii) result in the reassessment or revaluation of
any property of CLMI by any taxing authority or other governmental authority;
(ix) result in the imposition of, or subject CLMI to any liability for, any
conveyance or transfer tax or any similar tax; or (x) result in a violation of
any law, rule, regulation, treaty, ruling, directive, order, arbitration award,
judgment or decree to which CLMI or any of its assets is subject.
5.10 Approvals.
---------
No authorization, consent or approval of, or registration or filing
with, any governmental authority or any other person is required to be obtained
or made by CLMI in connection with the execution, delivery or performance of
this Agreement.
-14-
<PAGE>
5.11 Brokers.
-------
CLMI has not agreed to pay any brokerage fees, finder's fees or other
fees or commissions with respect to the transactions contemplated by this
Agreement, and, to CLMI's knowledge, no person is entitled, or intends to claim
that it is entitled, to receive any such fees or commissions in connection with
such transactions.
5.12 Full Disclosure.
---------------
Neither this Agreement (including the exhibits hereto) nor any
statement, certificate or other document delivered to Holtz, Butler-Smith or
Polygonal by or on behalf of CLMI contains any untrue statement of a material
fact or omits to state a material fact necessary to make the representations and
other statements contained herein and therein not misleading.
5.13 Representations True on Closing Date.
------------------------------------
The representations and warranties of CLMI set forth in this Agreement
are true and correct on the date hereof, and will be true and correct on the
Closing Date as though such representations and warranties were made as of the
Closing Date.
6. Injunctive Relief
-----------------
6.1. Damages Inadequate.
------------------
Each party acknowledges that it would be impossible to measure in money
the damages to the other party if there is a failure to comply with any
covenants and provisions of this Agreement, and agrees that in the event of any
breach of any covenant or provision, the other party to this Agreement will not
have an adequate remedy at law.
6.2. Injunctive Relief.
-----------------
It is therefore agreed that the other party to this Agreement who is
entitled to the benefit of the covenants and provisions of this Agreement which
have been breached, in addition to any other rights or remedies which they may
have, shall be entitled to immediate injunctive relief to enforce such covenants
and provisions, and that in the event that any such action or proceeding is
brought in equity to enforce them, the defaulting or breaching party will not
urge a defense that there is an adequate remedy at law.
-15-
<PAGE>
7. Waivers.
-------
If any party shall at any time waive any rights hereunder resulting
from any breach by the other party of any of the provisions of this Agreement,
such waiver is not to be construed as a continuing waiver of other breaches of
the same or other provisions of this Agreement. Resort to any remedies referred
to herein shall not be construed as a waiver of any other rights and remedies to
which such party is entitled under this Agreement or otherwise.
8. Successors and Assigns.
----------------------
Each covenant and representation of this Agreement shall inure to the
benefit of and be binding upon each of the parties, their personal
representatives, assigns and other successors in interest.
9. Entire and Sole Agreement.
-------------------------
This Agreement supercedes and replaces the Plan of Reorganization and
Exchange Agreement made and entered into on March 26, 1999 by and between ZOI,
Holtz, Butler-Smith, and Polygonal. This Agreement constitutes the entire
agreement between the parties and supersedes all other agreements,
representations, warranties, statements, promises and undertakings, whether oral
or written, with respect to the subject matter of this Agreement. This Agreement
may be modified or amended only by a written agreement signed by the parties
against whom the amendment is sought to be enforced.
10. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, and the venue for any action hereunder
shall be in the appropriate forum in the County of Los Angeles, State of
California.
11. Counterparts.
------------
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
-16-
<PAGE>
12. Attorneys' Fees and Costs.
-------------------------
In the event that either party must resort to legal action in order to
enforce the provisions of this Agreement or to defend such action, the
prevailing party shall be entitled to receive reimbursement from the
nonprevailing party for all reasonable attorneys' fees and all other costs
incurred in commencing or defending such action, or in enforcing this Agreement,
including but not limited to post judgment costs.
13. Assignment.
----------
This Agreement shall not be assignable by any party without prior
written consent of the other parties.
14. Remedies.
--------
Except as otherwise expressly provided herein, none of the remedies set
forth in this Agreement are intended to be exclusive, and each party shall have
all other remedies now or hereafter existing at law, in equity, by statute or
otherwise. The election of any one or more remedies shall not constitute a
waiver of the right to pursue other available remedies.
15. Section Headings.
----------------
The section headings in this Agreement are included for convenience
only, are not a part of this Agreement and shall not be used in construing it.
16. Severability.
------------
In the event that any provision or any part of this Agreement is held
to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall not affect the validity or enforceability of any other
provision or part of this Agreement.
17. Notices.
-------
Each notice or other communication hereunder shall be in writing and
shall be deemed to have been duly given on the earlier of (i) the date on which
such notice or other communication is actually received by the intended
recipient thereof, or (ii) the date five (5) days after the date such notice or
other communication is mailed by registered or certified mail (postage prepaid)
to the intended recipient at the following address (or at such other address as
the intended recipient shall have specified in a written notice given to the
other parties hereto);
-16-
<PAGE>
If to ZOI:
---------
Zeros & Ones, Inc.
16861 Ventura Boulevard, Suite 205
Encino, California 91436
Attention: Robert Holtz, President
Telephone: (805) 677-1561
Facsimile: (818) 380-0258
If to CLMI:
----------
Commercial Labor Management, Inc.
c/o Richardson & Associates
1299 Ocean Avenue, Suite 900
Santa Monica, California 90401
Telephone: (310) 393-9992
Facsimile: (310) 393-2004
If to Polygonal, Holtz or Butler-Smith:
--------------------------------------
Bernie Butler-Smith or Robert Holtz
Polygonal Research Corporation
16861 Ventura Boulevard, Suite 205
Encino, California 91436
Telephone: (805) 677-1561
Facsimile: (818) 380-0258
18. Publicity.
---------
No press release, notice to any third party or other publicity
concerning the transactions contemplated by this Agreement shall be issued,
given or otherwise disseminated without the prior approval of each of the
parties hereto; provided, however, that such approval shall not be unreasonably
withheld.
-18-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been entered into as of the date
first above written.
CLMI: COMMERCIAL LABOR MANAGEMENT, INC.
By: --------------------------------
Edward L. Torres, President
ZOI: ZEROS & ONES, INC.
By: --------------------------------
Robert Holtz, President
Holtz: By: --------------------------------
Robert Holtz
Butler-Smith By: --------------------------------
Bernie Butler-Smith
Polygonal: Polygonal Research Corporation
By: --------------------------------
Robert Holtz, President
-19-
<PAGE>
EXHIBIT A
MATERIAL CHANGES
None.
EXHIBIT 7.4
<PAGE>
Plan of Reorganization and Exchange Agreement
This Plan of Reorganization and Exchange Agreement (the "Agreement") is
made and entered into as of the 1st day of July 1999 by and between Commercial
Labor Management, Inc., a Nevada corporation ("CLMI"), Zeros & Ones, Inc., a
Delaware corporation ("ZOI"), Steve Schklair, an individual ("Schklair"), and
Quantum Arts, Inc., a California corporation ("QA"), with respect to the
following facts:
RECITALS
A. This Agreement hereby supercedes and replaces the Plan of
Reorganization and Exchange Agreement made and entered into as
of April 30, 1999 by and between Zeros & Ones, Inc. ("ZOI"),
Schklair, and QA.
B. Schklair owns 100% of the total issued and outstanding capital
stock of QA.
C. QA is engaged in the business of producing CD-ROM titles,
providing other multimedia consulting services, and conducting
research on three dimensional digital television.
D. CLMI is a public reporting company trading on the OTC Bulletin
Board. CLMI was incorporated for the purpose of engaging in
any lawful business.
E. CLMI desires to acquire 100% of the total issued and
outstanding stock of QA in exchange for 850,000 shares of the
common stock of CLMI, to be issued to Schklair in accordance
with this Agreement, and reimbursement by CLMI of Schklair's
costs.
F. The parties to this Agreement intend that the transactions
contemplated by this Agreement be a tax free reorganization
pursuant to Section 368 of the Internal Revenue Code of 1986,
as amended. It is part of an overall tax free plan of
reorganization pursuant to which CLMI is also acquiring 100%
of the assets of ZOI and 100% of the total issued and
outstanding stock of Wood Ranch Technology Group, Inc.,
Polygonal Research Corporation, EKO Corporation, Pillar West
Entertainment, Inc. and Kidvision, Inc.
-1-
<PAGE>
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency to which are hereby acknowledged by the parties to this Agreement,
and in light of the above recitals to this Agreement, the parties to this
Agreement hereby agree as follows:
1. Exchange of Equity Interests
----------------------------
In consideration for the issuance of a total of 850,000 shares of the
Common Stock, par value $.001 per share, of CLMI to Schklair and the other
covenants of CLMI in this Agreement, Schklair hereby agrees to convey to CLMI
all of Schklair's capital stock and right, title and interest in and to QA,
effective as of the date first above written.
2. Closing and Further Acts
------------------------
The closing of the exchange (the "Closing") will occur as soon
practicable after the execution of this Agreement by all parties hereto, but not
later than July 1, 1999 (the "Closing Date"). At the Closing, Schklair will
tender to CLMI certificates and any other documents evidencing 100% of
Schklair's ownership in QA, and CLMI will deliver to Schklair a stock
certificate evidencing 850,000 shares of the Common Stock, par value $.01 per
share, of CLMI being issued to Schklair pursuant to this Agreement. All parties
to this Agreement hereby agree to execute all other documents and take all other
action which are reasonably necessary or appropriate in order to effect all of
the transactions contemplated by this Agreement.
3. Covenants of CLMI
-----------------
3.1. Reimbursement of Expenses to Schklair.
-------------------------------------
CLMI agrees to pay Schklair $300,000 in cash as reimbursement of
expenses personally incurred by Schklair for QA from the inception of QA until
the Closing. CLMI will pay the reimbursement amount to Schklair as follows:
$100,000 on or before July 31, 1999, $100,000 on or before September 30, 1999
and $100,000 on or before December 31, 1999.
3.2 Management of CLMI and QA After Closing.
---------------------------------------
After the Closing, Schklair will be a director and the President of CLMI,
and the Chairman of the Board of Directors and Chief Executive Officer of QA.
Robert Holtz will be the Chairman of the Board of Directors and Chief Executive
Officer of CLMI. CLMI agrees that for the first year after the Closing, QA will
have a Board of Directors consisting of three to five members, one of which will
be Schklair, one of which will be designated by CLMI, and the other one or more
of whom will be mutually agreed upon by Robert Holtz and Schklair.
-2-
<PAGE>
3.3 Percentage Ownership in CLMI.
----------------------------
After the Closing and after the acquisition by CLMI of the assets or
outstanding stock of ZOI, Polygonal Research Corporation, EKO Corporation,
Kidvision, Inc., Wood Ranch Technology Group, Inc., and Pillar West
Entertainment, Inc., CLMI will have a total of 7,000,000 shares of its Common
Stock outstanding, and 320,000 warrants to purchase an additional 320,000 shares
of CLMI's Common Stock for a purchase price of $3.00 per share for a period of
three years from the date of issue of the Warrants, which is expected to occur
on or about July 1, 1999. CLMI will have no other equity securities or
securities convertible into equity securities of CLMI outstanding on the Closing
Date.
3.4 Research and Development Projects.
---------------------------------
Any material research and development projects to be undertaken by QA
will be subject to approval of CLMI's Board of Directors.
4. Representations and Warranties of QA and Schklair.
-------------------------------------------------
QA and Schklair represent and warrant to CLMI as follows:
4.1 Power and Authority; Binding Nature of Agreement.
------------------------------------------------
QA and Schklair have full power and authority to enter into this
Agreement and to perform their obligations hereunder. The execution, delivery
and performance of this Agreement by them has been duly authorized by all
necessary action on their part. Assuming that this Agreement is a valid and
binding obligation of each of the other parties hereto, this Agreement is a
valid and binding obligation of QA and Schklair.
4.2 Subsidiaries.
------------
There is no corporation, general partnership, limited partnership,
joint venture, association, trust or other entity or organization which QA
directly or indirectly controls or in which QA directly or indirectly owns any
equity or other interest.
4.3 Good Standing.
-------------
QA (i) is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated, (ii) has all necessary
power and authority to own its assets and to conduct its business as it is
-3-
<PAGE>
currently being conducted, and (iii) is duly qualified or licensed to do
business and is in good standing in every jurisdiction (both domestic and
foreign) where such qualification or licensing is required.
4.4 Charter Documents and Corporate Records.
---------------------------------------
QA has delivered or will deliver to CLMI complete and correct copies of
(i) the articles of incorporation, bylaws and other charter or organizational
documents of QA, including all amendments thereto, (ii) the stock records of QA,
and (iii) the minutes and other records of the meetings and other proceedings of
the shareholders and directors of QA. QA is not in violation or breach of (i)
any of the provisions of its articles of incorporation, bylaws or other charter
or organizational documents, or (ii) any resolution adopted by its shareholders
or directors. There have been no meetings or other proceedings of the
shareholders or directors of QA that are not fully reflected in the appropriate
minute books or other written records of QA.
4.5 Capitalization.
--------------
The authorized capital stock of QA consists of one hundred thousand
(100,000) shares of common stock, no par value, of which 1,500 shares are issued
and outstanding. All of the outstanding shares of the capital stock of QA are
validly issued, fully paid and nonassessable, and have been issued in full
compliance with all applicable federal, state, local and foreign securities laws
and other laws. Except as disclosed in Exhibit A to this Agreement, there are no
(i) outstanding options, warrants or rights to acquire any shares of the capital
stock or other securities of QA, (ii) outstanding securities or obligations
which are convertible into or exchangeable for any shares of the capital stock
or other securities of QA, or (iii) contracts or arrangements under which QA is
or may become bound to sell or otherwise issue any shares of its capital stock
or any other securities.
4.6 Financial Statements.
--------------------
QA has delivered or will deliver to CLMI the following financial
statements (the "QA Financial Statements"): the audited balance sheet of QA's
unincorporated predecessor-in-interest as of December 31, 1998, along with an
income and expense statement. Except as stated therein or in the notes thereto,
-4-
<PAGE>
the QA Financial Statements: (a) present fairly the financial position of QA as
of the respective dates thereof and the results of operations and changes in
financial position of QA for the respective periods covered thereby; and (b)
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered.
4.7 Absence of Changes.
------------------
Except as otherwise disclosed to CLMI in writing in Exhibit A to this
Agreement, since the date of QA's incorporation on April 13, 1999:
(a) There has not been any material adverse change in the
business, condition, assets, operations or prospects of QA and no event
has occurred that might have an adverse effect on the business,
condition, assets, operations or prospects of QA.
(b) QA has not (i) declared, set aside or paid any dividend or
made any other contribution in respect of any shares of capital stock,
nor (ii) repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities.
(c) QA has not sold or otherwise issued any shares of capital
stock or any other securities, otherwise than in connection with its
organization.
(d) QA has not amended its articles of incorporation, bylaws
or other charter or organizational documents, nor has it effected or
been a party to any merger, recapitalization, reclassification of
shares, stock split, reverse stock split, reorganization or similar
transaction.
(e) QA has not formed any subsidiary or contributed any funds
or other assets to any subsidiary.
(f) QA has not purchased or otherwise acquired any assets, nor
has it leased any assets from any other person, except in the ordinary
course of business consistent with past practice.
(g) QA has not made any capital expenditure outside the
ordinary course of business or inconsistent with past practice, or in
-5-
<PAGE>
an amount exceeding five thousand dollars ($5,000), and the total
amount of the capital expenditures made by QA has not exceeded ten
thousand dollars ($10,000).
(h) QA has not sold or otherwise transferred any assets to any
other person, except in the ordinary course of business consistent with
past practice and at a price equal to the fair market value of the
assets transferred.
(i) There has not been any loss, damage or destruction to any
of the properties or assets of QA (whether or not covered by
insurance).
(j) QA has not written off as uncollectible any indebtedness
or accounts receivable, except for write-offs that were made in the
ordinary course of business consistent with past practice and that
involved less than one hundred dollars ($100) singly and less than one
thousand dollars ($1,000) in the aggregate.
(k) QA has not leased any assets to any other person except in
the ordinary course of business consistent with past practice and at a
rental rate equal to the fair rental value of the leased assets.
(l) QA has not mortgaged, pledged, hypothecated or otherwise
encumbered any assets, except in the ordinary course of business
consistent with past practice.
(m) QA has not entered into any contract or incurred any debt,
liability or other obligation (whether absolute, accrued, contingent or
otherwise), except for (i) contracts that were entered into in the
ordinary course of business consistent with past practice and that have
terms of less than six months and do not contemplate payments by or to
QA which will exceed, over the term of the contract, three thousand
dollars ($3,000) in the aggregate, and (ii) current liabilities
incurred in the ordinary course of business consistent with the past
practice.
(n) QA has not made any loan or advance to any other person,
except for advances that have been made to customers in the ordinary
-6-
<PAGE>
course of business consistent with past practice and that have been
properly reflected as "accounts receivables."
(o) QA has not paid any bonus to, or increased the amount of
the salary, fringe benefits or other compensation or remuneration
payable to, any of the directors, officers or employees of QA.
(p) No contract or other instrument to which QA is or was a
party or by which QA or any of QA's assets are or were bound has been
amended or terminated, except in the ordinary course of business
consistent with past practice.
(q) QA has not discharged any lien or discharged or paid any
indebtedness, liability or other obligation, except for current
liabilities that (i) have been assumed from QA's
predecessor-in-interest or incurred since April 13, 1999 in the
ordinary course of business consistent with past practice, and (ii)
have been discharged or paid in the ordinary course of business
consistent with past practice.
(r) QA has not forgiven any debt or otherwise released or
waived any right or claim, except in the ordinary course of business
consistent with past practice.
(s) QA has not changed its methods of accounting or its
accounting practices in any respect.
(t) QA has not entered into any transaction outside the
ordinary course of business or inconsistent with past practice.
(u) QA has not agreed or committed (orally or in writing) to
do any of the things described in clauses (b) through (t) of this
Section 4.7.
4.8 Absence of Undisclosed Liabilities.
----------------------------------
QA has no debt, liability or other obligation of any nature (whether
due or to become due and whether absolute, accrued, contingent or otherwise)
except for obligations incurred since December 31, 1998 in the ordinary course
of business consistent with past practice.
-7-
<PAGE>
4.9 Contracts.
---------
QA has delivered or will deliver to CLMI complete and correct copies of
all of the contracts and other instruments including all amendment hereto. All
of such contracts and other instruments are valid and in full force and effect,
and are enforceable in accordance with their terms. There is no existing default
by any person under any of said contracts or other instruments, and there exists
no condition or set of circumstance which, with notice or lapse of time or both,
would constitute such a default.
4.10 Title to Personal Property.
--------------------------
QA has good, valid and marketable title to all of its personal property
(both tangible and intangible) and interests therein. All of such personal
property and interests therein are owned free and clear of any liens, pledges,
security interests, claims, equities, options, charges, encumbrances or
restrictions.
4.11 Tax Matters.
-----------
All federal, state, local and foreign tax returns required to be filed by
QA have been properly prepared and duly filed, and all taxes required to be paid
by, or claimed by any federal, state, local or foreign taxing authority to be
payable by, the Company have been paid in full. There is no (i) pending audit or
examination of QA (or of any of the tax returns thereof) being conducted by any
federal, state, local or foreign taxing authority, (ii) pending or threatened
claim or dispute relating to the payment of any taxes by QA, (iii) basis upon
which any federal, state, local or foreign taxing authority may make any claim
for the payment of additional taxes by QA, or (iv) outstanding agreement or
waiver extending the statutory limitations period applicable to the payment of
any taxes by QA.
4.12. Compliance With Laws; Licenses and Permits.
------------------------------------------
QA, to its knowledge, is not in violation of, nor has it failed to
conduct its business in full compliance with, any applicable federal, state,
local or foreign laws, regulations, rules, treaties, rulings, orders, directives
or decrees. QA has delivered to CLMI complete and correct copies of all of the
licenses, permits, authorizations and franchises to which QA is subject and all
-8-
<PAGE>
said licenses, permits, authorizations and franchises are valid and in full
force and effect. Said licenses, permits, authorizations and franchises
constitute all of the licenses, permits, authorizations and franchises necessary
to permit QA to conduct its business in the manner in which it is now being
conducted, and QA is not in violation or breach of any of the terms,
requirements or conditions of any of said licenses, permits, authorizations or
franchises.
4.13. Title to Schklair's Stock.
-------------------------
Schklair has good, valid and marketable title to all of Schklair's
stock in QA, and can convey good title to said stock to CLMI free and clear of
any liens, claims, encumbrances or security interests.
4.14. Litigation.
----------
There is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to QA's knowledge, threatened
against or with respect to QA which (i) if adversely determined would have an
adverse effect on the business, condition, assets, operations or prospects of
QA, or (ii) challenges or would challenge any of the actions required to be
taken by the QA under this Agreement. There exists no basis for any such action,
suit, proceeding, dispute, litigation, claim, complaint or investigation.
4.15 Non-Contravention.
-----------------
Neither (a) the execution and delivery of this Agreement, nor (b) the
performance of this Agreement will: (i) contravene or result in a violation of
any of the provisions of the articles of incorporation, bylaws or other charter
or organizational documents of QA; (ii) contravene or result in a violation of
any resolution adopted by the shareholders or directors of QA; (iii) result in a
violation or breach of, or give any person the right to declare (whether with or
without notice or lapse of time) a default under or to terminate, any agreement
or other instrument to which QA or Schklair are a party or by which QA or any of
its assets or Schklair are bound; (iv) give any person the right to accelerate
the maturity of any indebtedness or other obligation of QA; (v) result in the
-9-
<PAGE>
loss of any license or other contractual right of QA; (vi) result in the loss
of, or in a violation of any of the terms, provisions or conditions of, any
governmental license, permit, authorization or franchise of QA; (vii) result in
the creation or imposition of any lien, charge, encumbrance or restriction on
any of the assets of QA or on Schklair's stock in QA; (viii) result in the
reassessment or revaluation of any property of QA or by any taxing authority or
other governmental authority; (ix) result in the imposition of, or subject QA to
any liability for, any conveyance or transfer tax or any similar tax; or (x)
result in a violation of any law, rule, regulation, treaty, ruling, directive,
order, arbitration award, judgment or decree to which QA or any of its assets or
any of Schklair's stock in QA is subject.
4.16. Approvals.
---------
No authorization, consent or approval of, or registration or filing
with, any governmental authority or any other person is required to be obtained
or made by QA or Schklair in connection with the execution, delivery or
performance of this Agreement, including the sale to CLMI of the shares of
Schklair's stock in QA being acquired by CLMI hereunder.
4.17. Brokers.
-------
QA has not agreed to pay any brokerage fees, finder's fees or other
fees or commissions with respect to the transactions contemplated by this
Agreement, and, to QA's knowledge, no person is entitled, or intends to claim
that it is entitled, to receive any such fees or commissions in connection with
such transaction.
4.18. Full Disclosure.
---------------
Neither this Agreement (including the exhibits hereto) nor any
statement, certificate or other document delivered to CLMI by or on behalf of QA
or Schklair contains any untrue statement of a material fact or omits to state a
material fact necessary to make the representations and other statements
contained herein and therein not misleading.
-10-
<PAGE>
4.19. Representations True on Closing Date.
------------------------------------
The representations and warranties of QA and Schklair set forth in this
Agreement are true and correct on the date hereof.
4.20 Non-Distributive Intent.
-----------------------
The shares of CLMI stock being acquired by Schklair pursuant to this
Agreement are not being acquired by Schklair with a view to the public
distribution of them. Schklair acknowledges and agrees that the CLMI stock
acquired by him pursuant to this Agreement has not been registered or qualified
under federal or state securities laws, and may not be sold, conveyed,
transferred, assigned or hypothecated without being registered under the
Securities Act of 1933, as amended, and applicable state law, or in the
alternative submission of evidence reasonably satisfactory to CLMI that an
exemption from registration is available.
5. Representations and Warranties of CLMI.
--------------------------------------
CLMI represents and warrants to QA and Schklair as follows:
5.1 Power and Authority; Binding Nature of Agreement.
------------------------------------------------
CLMI has full power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement by CLMI has been duly authorized by all necessary action on its
part. Assuming that this Agreement is a valid and binding obligation of each of
the other parties hereto, this Agreement is a valid and binding obligation of
CLMI.
5.2 Good Standing.
-------------
CLMI (i) is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated, (ii) has all necessary
power and authority to own its assets and to conduct its business as it is
currently being conducted, and (iii) is duly qualified or licensed to do
business and is in good standing in every jurisdiction (both domestic and
foreign) where such qualification or licensing is required.
-11-
<PAGE>
5.3 Charter Documents and Corporate Records.
---------------------------------------
CLMI has delivered to Schklair and QA complete and correct copies of
(i) the articles of incorporation, bylaws and other charter or organizational
documents of CLMI, including all amendments thereto, (ii) the stock records of
CLMI, and (iii) the minutes and other records of the meetings and other
proceedings of the shareholders and directors of CLMI. CLMI is not in violation
or breach of (i) any of the provisions of its articles of incorporation, bylaws
or other charter or organizational documents, or (ii) any resolution adopted by
its shareholders or directors. There have been no meetings or other proceedings
of the shareholders or directors of CLMI that are not fully reflected in the
appropriate minute books or other written records of the Company.
5.4 Capitalization.
--------------
The authorized capital stock of CLMI consists of 50,000,000 shares of
common stock, par value $.001 per share, of which 7,000,000 shares will be
issued and outstanding as indicated in Section 3.2 of this Agreement, and
2,000,000 shares of preferred stock par value $.001 per share, none of which is
issued and outstanding. All of the outstanding shares of the capital stock of
CLMI are validly issued, fully paid and nonassessable, and have been issued in
full compliance with all applicable federal, state, local and foreign securities
laws and other laws. Except as disclosed in Section 3.2 or pursuant to Section
5.5 or elsewhere in this Agreement, there are no (i) outstanding options,
warrants or rights to acquire any shares of the capital stock or other
securities of CLMI, (ii) outstanding securities or obligations which are
convertible into or exchangeable for any shares of the capital stock or other
securities of CLMI, or (iii) contracts or arrangements under which CLMI is or
may become bound to sell or otherwise issue any shares of its capital stock or
any other securities.
5.5 Financial Statements.
--------------------
CLMI has delivered to Schklair and QA the following financial
statements (the "CLMI Financial Statements"): (i) the audited balance sheet of
CLMI as of December 31, 1998; and (ii) the audited statements of income and
retained earnings, stockholders' equity and changes in financial position of
-12-
<PAGE>
CLMI for the year ended December 31, 1998; and (iii) supporting supplemental
schedules. Except as stated therein or in the notes thereto, the CLMI Financial
Statements: (a) present fairly the financial position of CLMI as of the
respective dates thereof and the results of operations and changes in financial
position of CLMI for the respective periods covered thereby; and (b) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered.
5.6 Absence of Changes.
------------------
Except as otherwise disclosed to Schklair or QA in writing in Exhibit A
to this Agreement, since December 31, 1998, there has not been any material
adverse change in the business, condition, assets, operations or prospects of
CLMI and no event has occurred that might have an adverse effect on the
business, condition, assets, operations or prospects of CLMI.
5.7 Absence of Undisclosed Liabilities.
----------------------------------
CLMI has no debt, liability or other obligation of any nature (whether
due or to become due and whether absolute, accrued, contingent or otherwise)
that is not reflected or reserved against in the December 31, 1998 Balance
Sheet, except for obligations incurred since December 31, 1998 in the ordinary
course of business consistent with past practice.
5.8 Litigation.
----------
There is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to CLMI's knowledge, threatened
against or with respect to CLMI which (i) if adversely determined would have an
adverse effect on the business, condition, assets, operations or prospects of
CLMI, or (ii) challenges or would challenge any of the actions required to be
taken by CLMI under this Agreement. There exists no basis for any such action,
suit, proceeding, dispute, litigation, claim, complaint or investigation.
-13-
<PAGE>
5.9 Non-Contravention.
-----------------
Neither (a) the execution and delivery of this Agreement, nor (b) the
performance of this Agreement will: (i) contravene or result in a violation of
any of the provisions of the articles of incorporation, bylaws or other charter
or organizational documents of CLMI; (ii) contravene or result in a violation of
any resolution adopted by the shareholders or directors of CLMI; (iii) result in
a violation or breach of, or give any person the right to declare (whether with
or without notice or lapse of time) a default under or to terminate, any
agreement or other instrument to which CLMI is a party or by which CLMI or any
of its assets are bound; (iv) give any person the right to accelerate the
maturity of any indebtedness or other obligation of CLMI; (v) result in the loss
of any license or other contractual right of CLMI; (vi) result in the loss of,
or in a violation of any of the terms, provisions or conditions of, any
governmental license, permit, authorization or franchise of CLMI; (vii) result
in the creation or imposition of any lien, charge, encumbrance or restriction on
any of the assets of CLMI; (viii) result in the reassessment or revaluation of
any property of CLMI by any taxing authority or other governmental authority;
(ix) result in the imposition of, or subject CLMI to any liability for, any
conveyance or transfer tax or any similar tax; or (x) result in a violation of
any law, rule, regulation, treaty, ruling, directive, order, arbitration award,
judgment or decree to which CLMI or any of its assets is subject.
5.10 Approvals.
---------
No authorization, consent or approval of, or registration or filing
with, any governmental authority or any other person is required to be obtained
or made by CLMI in connection with the execution, delivery or performance of
this Agreement.
5.11 Brokers.
-------
CLMI has not agreed to pay any brokerage fees, finder's fees or other
fees or commissions with respect to the transactions contemplated by this
Agreement, and, to CLMI's knowledge, no person is entitled, or intends to claim
that it is entitled, to receive any such fees or commissions in connection with
such transactions.
-14-
<PAGE>
5.12 Full Disclosure.
---------------
Neither this Agreement (including the exhibits hereto) nor any
statement, certificate or other document delivered to Schklair or QA by or on
behalf of CLMI contains any untrue statement of a material fact or omits to
state a material fact necessary to make the representations and other statements
contained herein and therein not misleading.
5.13 Representations True on Closing Date.
------------------------------------
The representations and warranties of CLMI set forth in this Agreement
are true and correct on the date hereof, and will be true and correct on the
Closing Date as though such representations and warranties were made as of the
Closing Date.
6. Conditions to Closing.
---------------------
6.1 Conditions Precedent to CLMI's Obligation To Close.
--------------------------------------------------
CLMI's obligation to close the plan of reorganization and exchange as
contemplated in this Agreement is conditioned upon the occurrence or waiver by
CLMI of the following:
(a) All representations and warranties of QA and Schklair made
in this Agreement or in any exhibit hereto delivered by QA and Schklair
shall be true and correct as of the Closing Date with the same force
and effect as if made on and as of that date.
(b) QA and Schklair shall have performed and complied with all
agreements, covenants and conditions required by this Agreement to be
performed or complied with by QA and Schklair prior to or at the
Closing Date.
(c) CLMI closes its Plan of Reorganization and Asset Purchase
Agreement, dated July 1, 1999, by and between ZOI, Commercial Labor
Management, Inc., Mark J. Richardson and Edward L. Torres.
-15-
<PAGE>
6.2 Conditions Precedent to QA's and Schklair's Obligation To Close.
---------------------------------------------------------------
QA's and Schklair's obligation to close the plan of reorganization and
exchange as contemplated in this Agreement is conditioned upon the occurrence or
waiver by QA or Schklair of the following:
(a) All representations and warranties of CLMI made in this
Agreement or in any exhibit hereto delivered by CLMI shall be true and
correct on and as of the Closing Date with the same force and effect as
if made on and as of that date.
(b) CLMI shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or complied
with by CLMI prior to or at the Closing Date.
(c) CLMI closes its Plan of Reorganization and Asset Purchase
Agreement, dated July 1, 1999, by and between ZOI, Commercial Labor
Management, Inc., Mark J. Richardson and Edward L. Torres.
7. Injunctive Relief
-----------------
7.1 Damages Inadequate.
------------------
Each party acknowledges that it would be impossible to measure in money
the damages to the other party if there is a failure to comply with any
covenants and provisions of this Agreement, and agrees that in the event of any
breach of any covenant or provision, the other party to this Agreement will not
have an adequate remedy at law.
7.2 Injunctive Relief.
-----------------
It is therefore agreed that the other party to this Agreement who is
entitled to the benefit of the covenants and provisions of this Agreement which
have been breached, in addition to any other rights or remedies which they may
have, shall be entitled to immediate injunctive relief to enforce such covenants
and provisions, and that in the event that any such action or proceeding is
brought in equity to enforce them, the defaulting or breaching party will not
urge a defense that there is an adequate remedy at law.
8. Waivers.
-------
If any party shall at any time waive any rights hereunder resulting
from any breach by the other party of any of the provisions of this Agreement,
such waiver is not to be construed as a continuing waiver of other breaches of
-16-
<PAGE>
the same or other provisions of this Agreement. Resort to any remedies referred
to herein shall not be construed as a waiver of any other rights and remedies to
which such party is entitled under this Agreement or otherwise.
9. Successors and Assigns.
----------------------
This Agreement supercedes and replaces the Plan of Reorganization and
Exchange Agreement made and entered into on April 30, 1999 by and between ZOI,
Schklair, and QA. Each covenant and representation of this Agreement shall inure
to the benefit of and be binding upon each of the parties, their personal
representatives, assigns and other successors in interest.
10. Entire and Sole Agreement.
-------------------------
This Agreement constitutes the entire agreement between the parties and
supersedes all other agreements, representations, warranties, statements,
promises and undertakings, whether oral or written, with respect to the subject
matter of this Agreement. This Agreement may be modified or amended only by a
written agreement signed by the parties against whom the amendment is sought to
be enforced.
11. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, and the venue for any action hereunder
shall be in the appropriate forum in the County of Los Angeles, State of
California.
12. Counterparts.
------------
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
13. Attorneys' Fees and Costs.
-------------------------
In the event that either party must resort to legal action in order to
enforce the provisions of this Agreement or to defend such action, the
prevailing party shall be entitled to receive reimbursement from the
nonprevailing party for all reasonable attorneys' fees and all other costs
incurred in commencing or defending such action, or in enforcing this Agreement,
including but not limited to post judgment costs.
-18-
<PAGE>
14. Assignment.
----------
This Agreement shall not be assignable by any party without prior
written consent of the other parties.
15. Remedies.
--------
Except as otherwise expressly provided herein, none of the remedies set
forth in this Agreement are intended to be exclusive, and each party shall have
all other remedies now or hereafter existing at law, in equity, by statute or
otherwise. The election of any one or more remedies shall not constitute a
waiver of the right to pursue other available remedies.
16. Section Headings.
----------------
The section headings in this Agreement are included for convenience
only, are not a part of this Agreement and shall not be used in construing it.
17. Severability.
------------
In the event that any provision or any part of this Agreement is held
to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall not affect the validity or enforceability of any other
provision or part of this Agreement.
18. Notices.
-------
Each notice or other communication hereunder shall be in writing and
shall be deemed to have been duly given on the earlier of (i) the date on which
such notice or other communication is actually received by the intended
recipient thereof, or (ii) the date five (5) days after the date such notice or
other communication is mailed by registered or certified mail (postage prepaid)
to the intended recipient at the following address (or at such other address as
the intended recipient shall have specified in a written notice given to the
other parties hereto);
If to ZOI:
---------
Zeros & Ones, Inc.
16861 Ventura Boulevard, Suite 205
Encino, California 91436
Attention: Robert Holtz, President
Telephone: (805) 677-1561
Facsimile: (818) 380-0258
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<PAGE>
If to QA or Schklair:
--------------------
Steve Schklair
Quantum Arts, Inc.
39 East Walnut Street
Pasadena, California 91103
Burbank, California 91505
Telephone: (626) 584-4040
Facsimile: (626) 584-3089
If to CLMI:
----------
Commercial Labor Management, Inc.
c/o Richardson & Associates
1299 Ocean Avenue, Suit 900
Santa Monica, California 90401
Telephone: (310) 393-9992
Facsimile: (310) 393-2004
19. Publicity.
---------
No press release, notice to any third party or other publicity
concerning the transactions contemplated by this Agreement shall be issued,
given or otherwise disseminated without the prior approval of each of the
parties hereto; provided, however, that such approval shall not be unreasonably
withheld.
-19-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been entered into as of the date
first above written.
CLMI: COMMERCIAL LABOR MANAGEMENT, INC.
By: --------------------------------
Edward L. Torres, President
ZOI: ZEROS & ONES, INC.
By: --------------------------------
Robert Holtz, President
SCHKLAIR: ------------------------------------
Steve Schklair
QA: QUANTUM ARTS, INC.
By: --------------------------------
Steve Schklair, President
-18-
<PAGE>
EXHIBIT "A"
TO
PLAN OF REORGANIZATION AND EXCHANGE AGREEMENT
DATED AS OF JULY 1, 1999
BY AND BETWEEN
COMMERCIAL LABOR MANAGEMENT, INC., A NEVADA CORPORATION,
STEVE SCHKLAIR, AN INDIVIDUAL
AND QUANTUM ARTS, INC., A CALIFORNIA CORPORATION
Section 4.7
-----------
1. Pursuant to agreements with certain key employees, QA's predecessor
in interest has agreed to pay 14% of total net revenues from the project
entitled "Secret Diary" to the producer (7%) and the lead programmer (7%) for
such project ("SD Project").
2. QA has assumed certain of the rights and obligations of its
predecessor in interest in connection with the SD Project.
3. QA has entered into negotiations with McGraw Hill for the
development of a new media project.
4. Pursuant to a contribution agreement between QA and Steve Schklair
in connection with the formation of QA, Mr. Schklair retained a portion of the
total net revenues payable in connection with the SD Project as follows: Mr.
Schklair retained 50% of such revenues (after payment of the participation to
the producer and lead programmer) until QA has received $250,000 in net revenues
from the SD Project at which point Mr. Schklair is entitled to retain 80% of
such revenues.
Section 4.8
-----------
QA maintains a bank line of credit which it anticipates will be drawn
down in the amount of $20,000 during May 1999.
Section 4.10
------------
Certain of QA's personal property, including computer and related
equipment is leased.
<PAGE>
Section 4.12
------------
As QA has recently relocated, QA is in the process of obtaining the
necessary permits and licenses, including any permits and licenses that may be
required by the City of Pasadena.
Section 4.14
------------
QA's predecessor in interest has received a claim relating to monies
owing to a former employee relating to the "Hot Wheels" project with Mattel,
Inc.
EXHIBIT 7.5
<PAGE>
Plan of Reorganization and Exchange Agreement
This Plan of Reorganization and Exchange Agreement (the "Agreement") is
made and entered into as of the 1st day of July 1999 by and between Commercial
Labor Management, Inc., a Nevada corporation ("CLMI"), Zeros & Ones, Inc., a
Delaware corporation ("ZOI"), Robert Holtz, an individual ("Holtz"), and EKO
Corporation, a Delaware corporation ("EKO"), with respect to the following
facts:
RECITALS
A. This Agreement hereby supercedes and replaces the Plan of
Reorganization and Exchange Agreement made and entered into as
of March 26, 1999 by and between ZOI, Holtz, and EKO.
B. Holtz owns 50% of the total issued and outstanding capital
stock of EKO and ZOI owns 50% of the total issued and
outstanding capital stock of EKO.
C. EKO is an Internet based commerce oriented online service and
virtual community for entertainment professionals.
D. ZOI is engaged in the business of providing Internet and media
consulting services, in designing and operating Internet
websites, building and licensing Internet core technology, and
providing software consulting services.
E. CLMI is a public reporting company trading on the OTC Bulletin
Board. CLMI was incorporated for the purpose of engaging in
any lawful business.
F. CLMI desires to acquire the 50% of the total issued and
outstanding stock of EKO owned by Holtz in exchange for 5,000
shares of the Common Stock of CLMI, to be issued to Holtz in
accordance with this Agreement.
G. The plan of reorganization evidenced by this Agreement is
intended to be a tax free reorganization under Section 368 of
the Internal Revenue Code of 1986, as amended. It is part of
an overall tax free plan of reorganization pursuant to which
CLMI is also acquiring 100% of the assets of ZOI and 100% of
the total issued and outstanding stock of Quantum Arts, Inc.
Wood Ranch Technology Group, Inc., Kidvision, Inc, Pillar West
Entertainment, Inc. and Polygonal Research Corporation.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency to which are hereby acknowledged by the parties to this Agreement,
-1-
<PAGE>
and in light of the above recitals to this Agreement, the parties to this
Agreement hereby agree as follows:
1. Exchange of Equity Interests
----------------------------
In consideration for the issuance of a total of 5,000 shares of the
Common Stock, par value $.001 per share, of CLMI to Holtz and the other
covenants of CLMI in this Agreement, Holtz hereby agrees to convey to CLMI all
of Holtz's capital stock and right, title and interest in and to EKO, effective
as of the date first above written.
2. Closing and Further Acts
------------------------
The closing of the exchange (the "Closing") will occur as soon
practicable after the execution of this Agreement by all parties hereto, but not
later than July 1, 1999 ("Closing Date"). At the Closing, Holtz will tender to
CLMI certificates and any other documents evidencing 100% of Holtz's ownership
in EKO, and CLMI will deliver to Holtz a stock certificate evidencing 5,000
shares of the Common Stock, par value $.001 per share, of CLMI being issued to
Holtz pursuant to this Agreement. All parties to this Agreement hereby agree to
execute all other documents and take all other action which are reasonably
necessary or appropriate in order to effect all of the transactions contemplated
by this Agreement.
3. Covenants of CLMI
-----------------
3.1 Management of CLMI and EKO After Closing.
----------------------------------------
After the Closing, Holtz will be a director of CLMI and the Chairman of
the Board of Directors of EKO. It is expected that Anthony Magliocco will be the
Chief Executive Officer of EKO. CLMI agrees that for the first year after the
Closing, EKO will have a Board of Directors consisting of three to five members,
all of whom will be designated by Holtz.
3.2 Percentage Ownership in CLMI.
----------------------------
After the Closing and after the acquisition by CLMI of the assets or
outstanding stock of Polygonal Research Corporation, Zeros & Ones, Inc.,
Kidvision, Inc., Wood Ranch Technology Group, Inc., Quantum Arts, Inc., and
Pillar West Entertainment, Inc., CLMI will have a total of 7,000,000 shares
of its Common Stock outstanding, and 320,000 warrants to purchase an additional
320,000 shares of CLMI's Common Stock for a purchase price of $3.00 per share
for a period of three years from the date of issue of the Warrants, which is
expected to occur on or about July 1, 1999. CLMI will have no other equity
securities or securities convertible into equity securities of CLMI outstanding
on the Closing Date.
-2-
<PAGE>
4. Representations and Warranties of Holtz, EKO and ZOI.
----------------------------------------------------
EKO, ZOI and Holtz represent and warrant to CLMI as follows:
4.1 Power and Authority; Binding Nature of Agreement.
------------------------------------------------
EKO, ZOI and Holtz have full power and authority to enter into this
Agreement and to perform their obligations hereunder. The execution, delivery
and performance of this Agreement by them has been duly authorized by all
necessary action on their part. Assuming that this Agreement is a valid and
binding obligation of each of the other parties hereto, this Agreement is a
valid and binding obligation of EKO, ZOI and Holtz.
4.2 Subsidiaries.
------------
There is no corporation, general partnership, limited partnership,
joint venture, association, trust or other entity or organization which EKO
directly or indirectly controls or in which EKO directly or indirectly owns any
equity or other interest.
4.3 Good Standing.
-------------
EKO (i) is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated, (ii) has all necessary
power and authority to own its assets and to conduct its business as it is
currently being conducted, and (iii) is duly qualified or licensed to do
business and is in good standing in every jurisdiction (both domestic and
foreign) where such qualification or licensing is required.
4.4 Charter Documents and Corporate Records.
---------------------------------------
EKO has delivered to CLMI complete and correct copies of (i) the
articles of incorporation, bylaws and other charter or organizational documents
of EKO, including all amendments thereto, (ii) the stock records of EKO, and
-3-
<PAGE>
(iii) the minutes and other records of the meetings and other proceedings of the
shareholders and directors of EKO. EKO is not in violation or breach of (i) any
of the provisions of its articles of incorporation, bylaws or other charter or
organizational documents, or (ii) any resolution adopted by its shareholders or
directors. There have been no meetings or other proceedings of the shareholders
or directors of EKO that are not fully reflected in the appropriate minute books
or other written records of EKO.
4.5 Capitalization.
--------------
The authorized capital stock of EKO consists of fifteen hundred (1,500)
shares of common stock, no par value, of which 1,500 shares are issued and
outstanding. All of the outstanding shares of the capital stock of EKO are
validly issued, fully paid and nonassessable, and have been issued in full
compliance with all applicable federal, state, local and foreign securities laws
and other laws. There are no (i) outstanding options, warrants or rights to
acquire any shares of the capital stock or other securities of EKO, (ii)
outstanding securities or obligations which are convertible into or exchangeable
for any shares of the capital stock or other securities of EKO, or (iii)
contracts or arrangements under which EKO is or may become bound to sell or
otherwise issue any shares of its capital stock or any other securities.
4.6 Financial Statements.
--------------------
EKO has delivered to CLMI the following financial statements (the "EKO
Financial Statements"): the balance sheet of EKO as of December 31, 1998 (the
"December 31, 1998 Balance Sheet"). Except as stated therein or in the notes
thereto, the EKO Financial Statements: (a) present fairly the financial position
of EKO as of the respective dates thereof; and (b) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered.
4.7 Absence of Changes.
------------------
Except as otherwise disclosed to CLMI in writing in Exhibit A to this
Agreement, since December 31, 1998:
(a) There has not been any material adverse change in the
business, condition, assets, operations or prospects of EKO and no
-4-
<PAGE>
event has occurred that might have an adverse effect on the business,
condition, assets, operations or prospects of EKO.
(b) EKO has not (i) declared, set aside or paid any dividend
or made any other contribution in respect of any shares of capital
stock, nor (ii) repurchased, redeemed or otherwise reacquired any
shares of capital stock or other securities.
(c) EKO has not sold or otherwise issued any shares of capital
stock or any other securities.
(d) EKO has not amended its articles of incorporation, bylaws
or other charter or organizational documents, nor has it effected or
been a party to any merger, recapitalization, reclassification of
shares, stock split, reverse stock split, reorganization or similar
transaction.
(e) EKO has not formed any subsidiary or contributed any funds
or other assets to any subsidiary.
(f) EKO has not purchased or otherwise acquired any assets,
nor has it leased any assets from any other person, except in the
ordinary course of business consistent with past practice.
(g) EKO has not made any capital expenditure outside the
ordinary course of business or inconsistent with past practice, or in
an amount exceeding three thousand dollars ($3,000), and the total
amount of the capital expenditures made by EKO has not exceeded ten
thousand dollars ($10,000).
(h) EKO has not sold or otherwise transferred any assets to
any other person, except in the ordinary course of business consistent
with past practice and at a price equal to the fair market value of the
assets transferred.
(i) There has not been any loss, damage or destruction to any
of the properties or assets of EKO (whether or not covered by
insurance).
-5-
<PAGE>
(j) EKO has not written off as uncollectible any indebtedness
or accounts receivable, except for write-offs that were made in the
ordinary course of business consistent with past practice and that
involved less than one hundred dollars ($100) singly and less than one
thousand dollars ($1,000) in the aggregate.
(k) EKO has not leased any assets to any other person except
in the ordinary course of business consistent with past practice and at
a rental rate equal to the fair rental value of the leased assets.
(l) EKO has not mortgaged, pledged, hypothecated or otherwise
encumbered any assets, except in the ordinary course of business
consistent with past practice.
(m) EKO has not entered into any contract or incurred any
debt, liability or other obligation (whether absolute, accrued,
contingent or otherwise), except for (i) contracts that were entered
into in the ordinary course of business consistent with past practice
and that have terms of less than six months and do not contemplate
payments by or to EKO which will exceed, over the term of the contract,
three thousand dollars ($3,000) in the aggregate, and (ii) current
liabilities incurred in the ordinary course of business consistent with
the past practice.
(n) EKO has not made any loan or advance to any other person,
except for advances that have been made to customers in the ordinary
course of business consistent with past practice and that have been
properly reflected as "accounts receivables."
(o) EKO has not paid any bonus to, or increased the amount of
the salary, fringe benefits or other compensation or remuneration
payable to, any of the directors, officers or employees of EKO.
(p) No contract or other instrument to which EKO is or was a
party or by which EKO or any of EKO's assets are or were bound has been
amended or terminated, except in the ordinary course of business
consistent with past practice.
-6-
<PAGE>
(q) EKO has not discharged any lien or discharged or paid any
indebtedness, liability or other obligation, except for current
liabilities that (i) are reflected in the December 31, 1998 Balance
Sheet or have been incurred since December 31, 1998 in the ordinary
course of business consistent with past practice, and (ii) have been
discharged or paid in the ordinary course of business consistent with
past practice.
(r) EKO has not forgiven any debt or otherwise released or
waived any right or claim, except in the ordinary course of business
consistent with past practice.
(s) EKO has not changed its methods of accounting or its
accounting practices in any respect.
(t) EKO has not entered into any transaction outside the
ordinary course of business or inconsistent with past practice.
(u) EKO has not agreed or committed (orally or in writing) to
do any of the things described in clauses (b) through (t) of this
Section 4.7.
4.8 Absence of Undisclosed Liabilities.
----------------------------------
EKO has no debt, liability or other obligation of any nature (whether
due or to become due and whether absolute, accrued, contingent or otherwise)
that is not reflected or reserved against in the December 31, 1998 Balance
Sheet, except for obligations incurred since December 31, 1998 in the ordinary
course of business consistent with past practice.
4.9 Contracts.
---------
EKO has delivered to CLMI complete and correct copies of all of the
contracts and other instruments including all amendment hereto. All of such
contracts and other instruments are valid and in full force and effect, and are
enforceable in accordance with their terms. There is no existing default by any
person under any of said contracts or other instruments, and there exists no
condition or set of circumstance which, with notice or lapse of time or both,
would constitute such a default.
-7-
<PAGE>
4.10 Title to Personal Property.
--------------------------
EKO has good, valid and marketable title to all of its personal
property (both tangible and intangible) and interests therein, including without
limitation all of the personal property reflected in the December 31, 1998
Balance Sheet. All of such personal property and interests therein are owned
free and clear of any liens, pledges, security interests, claims, equities,
options, charges, encumbrances or restrictions.
4.11 Tax Matters.
-----------
All federal, state, local and foreign tax returns required to be filed
by EKO have been properly prepared and duly filed, and all taxes required to be
paid by, or claimed by any federal, state, local or foreign taxing authority to
be payable by, the Company have been paid in full. The provisions for taxes
reflected in the December 31, 1998 Balance Sheet are adequate for all taxes
payable with respect to the period prior to December 31, 1998. There is no (i)
pending audit or examination of EKO (or of any of the tax returns thereof) being
conducted by any federal, state, local or foreign taxing authority, (ii) pending
or threatened claim or dispute relating to the payment of any taxes by EKO,
(iii) basis upon which any federal, state, local or foreign taxing authority may
make any claim for the payment of additional taxes by EKO, or (iv) outstanding
agreement or waiver extending the statutory limitations period applicable to the
payment of any taxes by EKO.
4.12. Compliance With Laws; Licenses and Permits.
------------------------------------------
EKO, to its knowledge, is not in violation of, nor has it failed to
conduct its business in full compliance with, any applicable federal, state,
local or foreign laws, regulations, rules, treaties, rulings, orders, directives
or decrees. EKO has delivered to CLMI complete and correct copies of all of the
licenses, permits, authorizations and franchises to which EKO is subject and all
said licenses, permits, authorizations and franchises are valid and in full
force and effect. Said licenses, permits, authorizations and franchises
constitute all of the licenses, permits, authorizations and franchises necessary
to permit EKO to conduct its business in the manner in which it is now being
conducted, and EKO is not in violation or breach of any of the terms,
-8-
<PAGE>
requirements or conditions of any of said licenses, permits, authorizations or
franchises.
4.13. Title to Holtz's Stock.
----------------------
Holtz has good, valid and marketable title to all of Holtz's stock in
EKO, and can convey good title to said stock to CLMI free and clear of any
liens, claims, encumbrances or security interests.
4.14. Litigation.
----------
There is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to EKO's knowledge, threatened
against or with respect to EKO which (i) if adversely determined would have an
adverse effect on the business, condition, assets, operations or prospects of
EKO, or (ii) challenges or would challenge any of the actions required to be
taken by the EKO under this Agreement. There exists no basis for any such
action, suit, proceeding, dispute, litigation, claim, complaint or
investigation.
4.15 Non-Contravention.
-----------------
Neither (a) the execution and delivery of this Agreement, nor (b) the
performance of this Agreement will: (i) contravene or result in a violation of
any of the provisions of the articles of incorporation, bylaws or other charter
or organizational documents of EKO; (ii) contravene or result in a violation of
any resolution adopted by the shareholders or directors of EKO; (iii) result in
a violation or breach of, or give any person the right to declare (whether with
or without notice or lapse of time) a default under or to terminate, any
agreement or other instrument to which EKO or Holtz are a party or by which EKO
or any of its assets or Holtz are bound; (iv) give any person the right to
accelerate the maturity of any indebtedness or other obligation of EKO; (v)
result in the loss of any license or other contractual right of EKO; (vi) result
in the loss of, or in a violation of any of the terms, provisions or conditions
of, any governmental license, permit, authorization or franchise of EKO; (vii)
result in the creation or imposition of any lien, charge, encumbrance or
-9-
<PAGE>
restriction on any of the assets of EKO or on Holtz's stock in EKO; (viii)
result in the reassessment or revaluation of any property of EKO or by any
taxing authority or other governmental authority; (ix) result in the imposition
of, or subject EKO to any liability for, any conveyance or transfer tax or any
similar tax; or (x) result in a violation of any law, rule, regulation, treaty,
ruling, directive, order, arbitration award, judgment or decree to which EKO or
any of its assets or any of Holtz's stock in EKO is subject.
4.16. Approvals.
---------
No authorization, consent or approval of, or registration or filing
with, any governmental authority or any other person is required to be obtained
or made by EKO or Holtz in connection with the execution, delivery or
performance of this Agreement, including the sale to CLMI of the shares of
Holtz's stock in EKO being acquired by CLMI hereunder.
4.17. Brokers.
-------
EKO has not agreed to pay any brokerage fees, finder's fees or other
fees or commissions with respect to the transactions contemplated by this
Agreement, and, to EKO's knowledge, no person is entitled, or intends to claim
that it is entitled, to receive any such fees or commissions in connection with
such transaction.
4.18. Full Disclosure.
---------------
Neither this Agreement (including the exhibits hereto) nor any
statement, certificate or other document delivered to CLMI by or on behalf of
EKO or Holtz contains any untrue statement of a material fact or omits to state
a material fact necessary to make the representations and other statements
contained herein and therein not misleading.
4.19. Representations True on Closing Date.
------------------------------------
The representations and warranties of EKO and Holtz set forth in this
Agreement are true and correct on the date hereof, and will be true and correct
on the Closing Date as though such representations and warranties were made as
of the Closing Date.
-10-
<PAGE>
4.20 Non-Distributive Intent.
-----------------------
The shares of CLMI stock being acquired by Holtz pursuant to this
Agreement are not being acquired by Holtz with a view to the public distribution
of them. Holtz acknowledges and agrees that the CLMI stock acquired by him
pursuant to this Agreement has not been registered or qualified under federal or
state securities laws, and may not be sold, conveyed, transferred, assigned or
hypothecated without being registered under the Securities Act of 1933, as
amended, and applicable state law, or in the alternative submission of evidence
reasonably satisfactory to CLMI that an exemption from registration is
available.
5. Representations and Warranties of CLMI.
--------------------------------------
CLMI represents and warrants to EKO and Holtz as follows:
5.1 Power and Authority; Binding Nature of Agreement.
------------------------------------------------
CLMI has full power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement by CLMI has been duly authorized by all necessary action on its
part. Assuming that this Agreement is a valid and binding obligation of each of
the other parties hereto, this Agreement is a valid and binding obligation of
CLMI.
5.2 Good Standing.
-------------
CLMI (i) is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated, (ii) has all necessary
power and authority to own its assets and to conduct its business as it is
currently being conducted, and (iii) is duly qualified or licensed to do
business and is in good standing in every jurisdiction (both domestic and
foreign) where such qualification or licensing is required.
5.3 Charter Documents and Corporate Records.
---------------------------------------
CLMI has delivered to Holtz and EKO complete and correct copies of (i)
the articles of incorporation, bylaws and other charter or organizational
documents of CLMI, including all amendments thereto, (ii) the stock records of
-11-
<PAGE>
CLMI, and (iii) the minutes and other records of the meetings and other
proceedings of the shareholders and directors of CLMI. CLMI is not in violation
or breach of (i) any of the provisions of its articles of incorporation, bylaws
or other charter or organizational documents, or (ii) any resolution adopted by
its shareholders or directors. There have been no meetings or other proceedings
of the shareholders or directors of CLMI that are not fully reflected in the
appropriate minute books or other written records of the Company.
5.4 Capitalization.
--------------
The authorized capital stock of CLMI consists of 50,000,000 shares of
common stock, par value $.001 per share, of which 7,000,000 shares will be
issued and outstanding as indicated in Section 3.2 of this Agreement, and
2,000,000 shares of preferred stock par value $.001 per share, none of which is
issued and outstanding. All of the outstanding shares of the capital stock of
CLMI are validly issued, fully paid and nonassessable, and have been issued in
full compliance with all applicable federal, state, local and foreign securities
laws and other laws. Except as disclosed in Section 3.2 or pursuant to Section
5.5 or elsewhere in this Agreement, there are no (i) outstanding options,
warrants or rights to acquire any shares of the capital stock or other
securities of CLMI, (ii) outstanding securities or obligations which are
convertible into or exchangeable for any shares of the capital stock or other
securities of CLMI, or (iii) contracts or arrangements under which CLMI is or
may become bound to sell or otherwise issue any shares of its capital stock or
any other securities.
5.5 Financial Statements.
--------------------
CLMI has delivered to Holtz and EKO the following financial statements
(the "CLMI Financial Statements"): (i) the balance sheet of CLMI as of December
31, 1998; and (ii) the statements of income and retained earnings, stockholders'
equity and changes in financial position of CLMI for the year ended December 31,
1998; and (iii) supporting supplemental schedules. Except as stated therein or
in the notes thereto, the CLMI Financial Statements: (a) present fairly the
-12-
<PAGE>
financial position of CLMI as of the respective dates thereof and the results of
operations and changes in financial position of CLMI for the respective periods
covered thereby; and (b) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered.
5.6 Absence of Changes.
------------------
Except as otherwise disclosed to Holtz or EKO in writing in Exhibit A
to this Agreement, since December 31, 1998, there has not been any material
adverse change in the business, condition, assets, operations or prospects of
CLMI and no event has occurred that might have an adverse effect on the
business, condition, assets, operations or prospects of CLMI.
5.7 Absence of Undisclosed Liabilities.
----------------------------------
CLMI has no debt, liability or other obligation of any nature (whether
due or to become due and whether absolute, accrued, contingent or otherwise)
that is not reflected or reserved against in the December 31, 1998 Balance
Sheet, except for obligations incurred since December 31, 1998 in the ordinary
course of business consistent with past practice.
5.8 Litigation.
----------
There is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to CLMI's knowledge, threatened
against or with respect to CLMI which (i) if adversely determined would have an
adverse effect on the business, condition, assets, operations or prospects of
CLMI, or (ii) challenges or would challenge any of the actions required to be
taken by CLMI under this Agreement. There exists no basis for any such action,
suit, proceeding, dispute, litigation, claim, complaint or investigation.
5.9 Non-Contravention.
-----------------
Neither (a) the execution and delivery of this Agreement, nor (b) the
performance of this Agreement will: (i) contravene or result in a violation of
any of the provisions of the articles of incorporation, bylaws or other charter
-13-
<PAGE>
or organizational documents of CLMI; (ii) contravene or result in a violation of
any resolution adopted by the shareholders or directors of CLMI; (iii) result in
a violation or breach of, or give any person the right to declare (whether with
or without notice or lapse of time) a default under or to terminate, any
agreement or other instrument to which CLMI is a party or by which CLMI or any
of its assets are bound; (iv) give any person the right to accelerate the
maturity of any indebtedness or other obligation of CLMI; (v) result in the loss
of any license or other contractual right of CLMI; (vi) result in the loss of,
or in a violation of any of the terms, provisions or conditions of, any
governmental license, permit, authorization or franchise of CLMI; (vii) result
in the creation or imposition of any lien, charge, encumbrance or restriction on
any of the assets of CLMI; (viii) result in the reassessment or revaluation of
any property of CLMI by any taxing authority or other governmental authority;
(ix) result in the imposition of, or subject CLMI to any liability for, any
conveyance or transfer tax or any similar tax; or (x) result in a violation of
any law, rule, regulation, treaty, ruling, directive, order, arbitration award,
judgment or decree to which CLMI or any of its assets is subject.
5.10 Approvals.
---------
No authorization, consent or approval of, or registration or filing
with, any governmental authority or any other person is required to be obtained
or made by CLMI in connection with the execution, delivery or performance of
this Agreement.
5.11 Brokers.
-------
CLMI has not agreed to pay any brokerage fees, finder's fees or other
fees or commissions with respect to the transactions contemplated by this
Agreement, and, to CLMI's knowledge, no person is entitled, or intends to claim
that it is entitled, to receive any such fees or commissions in connection with
such transactions.
5.12 Full Disclosure.
---------------
Neither this Agreement (including the exhibits hereto) nor any
statement, certificate or other document delivered to Holtz or EKO by or on
-14-
<PAGE>
behalf of CLMI contains any untrue statement of a material fact or omits to
state a material fact necessary to make the representations and other statements
contained herein and therein not misleading.
5.13 Representations True on Closing Date.
------------------------------------
The representations and warranties of CLMI set forth in this Agreement
are true and correct on the date hereof, and will be true and correct on the
Closing Date as though such representations and warranties were made as of the
Closing Date.
6. Injunctive Relief
-----------------
6.1. Damages Inadequate.
------------------
Each party acknowledges that it would be impossible to measure in money
the damages to the other party if there is a failure to comply with any
covenants and provisions of this Agreement, and agrees that in the event of any
breach of any covenant or provision, the other party to this Agreement will not
have an adequate remedy at law.
6.2. Injunctive Relief.
-----------------
It is therefore agreed that the other party to this Agreement who is
entitled to the benefit of the covenants and provisions of this Agreement which
have been breached, in addition to any other rights or remedies which they may
have, shall be entitled to immediate injunctive relief to enforce such covenants
and provisions, and that in the event that any such action or proceeding is
brought in equity to enforce them, the defaulting or breaching party will not
urge a defense that there is an adequate remedy at law.
7. Waivers.
-------
If any party shall at any time waive any rights hereunder resulting
from any breach by the other party of any of the provisions of this Agreement,
such waiver is not to be construed as a continuing waiver of other breaches of
the same or other provisions of this Agreement. Resort to any remedies referred
to herein shall not be construed as a waiver of any other rights and remedies to
which such party is entitled under this Agreement or otherwise.
-15-
<PAGE>
8. Successors and Assigns.
----------------------
Each covenant and representation of this Agreement shall inure to the
benefit of and be binding upon each of the parties, their personal
representatives, assigns and other successors in interest.
9. Entire and Sole Agreement.
-------------------------
This Agreement supercedes and replaces the Plan of Reorganization and
Exchange Agreement made and entered into on March 26, 1999 by and between ZOI,
Holtz, and EKO. This Agreement constitutes the entire agreement between the
parties and supersedes all other agreements, representations, warranties,
statements, promises and undertakings, whether oral or written, with respect to
the subject matter of this Agreement. This Agreement may be modified or amended
only by a written agreement signed by the parties against whom the amendment is
sought to be enforced.
10. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, and the venue for any action hereunder
shall be in the appropriate forum in the County of Los Angeles, State of
California.
11. Counterparts.
------------
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
12. Attorneys' Fees and Costs.
-------------------------
In the event that either party must resort to legal action in order to
enforce the provisions of this Agreement or to defend such action, the
prevailing party shall be entitled to receive reimbursement from the
nonprevailing party for all reasonable attorneys' fees and all other costs
incurred in commencing or defending such action, or in enforcing this Agreement,
including but not limited to post judgment costs.
13. Assignment.
----------
This Agreement shall not be assignable by any party without prior
written consent of the other parties.
-16-
<PAGE>
14. Remedies.
--------
Except as otherwise expressly provided herein, none of the remedies set
forth in this Agreement are intended to be exclusive, and each party shall have
all other remedies now or hereafter existing at law, in equity, by statute or
otherwise. The election of any one or more remedies shall not constitute a
waiver of the right to pursue other available remedies.
15. Section Headings.
----------------
The section headings in this Agreement are included for convenience
only, are not a part of this Agreement and shall not be used in construing it.
16. Severability.
------------
In the event that any provision or any part of this Agreement is held
to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall not affect the validity or enforceability of any other
provision or part of this Agreement.
17. Notices.
-------
Each notice or other communication hereunder shall be in writing and
shall be deemed to have been duly given on the earlier of (i) the date on which
such notice or other communication is actually received by the intended
recipient thereof, or (ii) the date five (5) days after the date such notice or
other communication is mailed by registered or certified mail (postage prepaid)
to the intended recipient at the following address (or at such other address as
the intended recipient shall have specified in a written notice given to the
other parties hereto);
If to ZOI:
---------
Zeros & Ones, Inc.
16861 Ventura Boulevard, Suite 305
Encino, California 91436
Attention: Robert Holtz, President
Telephone: (805) 677-1561
Facsimile: (818) 380-0258
-17-
<PAGE>
If to EKO or Holtz:
------------------
Robert Holtz
EKO Corporation
638 Lindero Canyon Road, #413
Agoura Hills, California 91377
Telephone: (805) 677-1561
Facsimile: (818) 380-0258
If to CLMI:
----------
Commercial Labor Management, Inc.
c/o Richardson & Associates
1299 Ocean Avenue, Suite 900
Santa Monica, California 90401
Telephone: (310) 393-9992
Facsimile: (310) 393-2004
18. Publicity.
---------
No press release, notice to any third party or other publicity
concerning the transactions contemplated by this Agreement shall be issued,
given or otherwise disseminated without the prior approval of each of the
parties hereto; provided, however, that such approval shall not be unreasonably
withheld.
-18-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been entered into as of the date
first above written.
CLMI: COMMERCIAL LABOR MANAGEMENT, INC.
By: --------------------------------
Edward L. Torres, President
ZOI: ZEROS & ONES, INC.
By: --------------------------------
Robert Holtz, President
Holtz: By: --------------------------------
Robert Holtz
EKO: EKO CORPORATION
By: --------------------------------
Robert Holtz, President
-19-
<PAGE>
EXHIBIT A
MATERIAL CHANGES
None.
EXHIBIT 7.6
<PAGE>
Plan of Reorganization and Asset Purchase Agreement
This Plan of Reorganization and Asset Purchase Agreement (the
"Agreement") is made and entered into as of the 1st day of July 1999 by and
between Zeros & Ones, Inc., a Delaware corporation ("ZOI"), Commercial Labor
Management, Inc., a Nevada corporation ("CLMI"), Robert Holtz, an individual
("Holtz"), Mark J. Richardson, an individual ("Richardson"), and Edward L.
Torres ("Torres"), an individual ("Torres"), with respect to the following
facts:
RECITALS
A. This Agreement hereby supercedes and replaces the Plan of
Reorganization and Exchange Agreement (the "Prior Agreement")
made and entered into as of April 30, 1999 by and between ZOI,
CLMI, the ZOI Shareholders (as defined in the Prior
Agreement), Richardson and
Torres.
B. Holtz owns 100% of the total issued and outstanding capital
stock of ZOI.
C. ZOI is engaged in the business of selling products on the
Internet, conducting the auction of products on the Internet,
providing Internet and media consulting services, designing
and operating Internet websites, building and licensing
Internet core technology, and providing software consulting
services.
D. CLMI is a public reporting company trading on the OTC Bulletin
Board.
E. ZOI desires to sell and CLMI desires to purchase the business
and substantially all of the assets of ZOI on the terms and
subject to the conditions set forth in this Agreement.
F. The plan of reorganization evidenced by this Agreement is
intended to be a tax free reorganization under Section 368 of
the Internal Revenue Code of 1986, as amended. It is part of
an overall tax free plan of reorganization pursuant to which
CLMI is also acquiring 100% of the total issued and
outstanding stock of Quantum Arts, Inc., Polyganol Research
Corporation, Wood Ranch Technology Group, Inc., Kidvision,
Inc. and Pillar West Entertainment, Inc.
-1-
<PAGE>
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency to which are hereby acknowledged by the parties to this Agreement,
and in light of the above recitals to this Agreement, the parties to this
Agreement hereby agree as follows:
1. Purchase and Sale of Assets.
---------------------------
On the terms and subject to the conditions set forth in this Agreement,
ZOI agrees to sell, convey, assign, transfer and deliver to CLMI and CLMI agrees
to purchase from ZOI, at the closing on July 1, 1999 ("Closing Date"), all of
the assets, properties and business of ZOI of every kind, whether tangible,
intangible, real, personal or mixed, and wherever located (collectively referred
to as the "Acquired Assets"), including without limitation, the following: its
business as a going concern; its leaseholds, furniture, fixtures, equipment and
supplies; its rights under leases, licenses, franchise agreements and other
contracts; its copyrights, trademarks and tradenames; its customers; stocks,
bonds, securities and other investments; certificates of deposit; all cash on
hand and money on deposit with banks and others; notes and accounts receivable;
insurance policies; causes of action, judgments, claims and demands; and all
other property and rights owned or held by ZOI on the Closing Date or then used
by it in its business, whether or not specifically referred to in this Agreement
unless specifically excluded in this Agreement.
2. Obligations and Liabilities.
---------------------------
On the Closing Date, Holtz shall assume any liabilities, obligations,
or payables of ZOI. CLMI will not assume or be obligated to satisfy or perform
any liabilities, obligations or payables of ZOI.
3. Purchase Price.
--------------
As consideration for the sale, conveyance, assignment, transfer and
delivery of the Acquired Assets to CLMI, CLMI agrees to issue and deliver to ZOI
on the Closing Date a total of two hundred and twenty thousand (220,000) shares
of its Common Stock, $.001 par value, to ZOI (collectively referred to as the
"Shares"). Immediately after the Closing, ZOI will distribute all of the Shares
to Holtz.
4. Closing and Further Acts.
------------------------
The closing of the exchange (the "Closing") will occur upon the
satisfaction or waiver of the conditions set forth in Section 9 of this
Agreement, but no later than July 1, 1999. At the Closing ZOI shall deliver to
CLMI such bills of sale, deeds, assignments and other instruments of sale,
conveyance, assignment and transfer as are sufficient in the opinion of CLMI and
its counsel to vest in CLMI and its successors or assigns the absolute, legal
and equitable title to all of the Acquired Assets. CLMI shall deliver to ZOI
stock certificates representing a total of two hundred and twenty thousand
-2-
<PAGE>
(220,000) shares of CLMI Common Stock (which, when issued, will equal
approximately 3.14% of the total number of shares of CLMI's Common Stock issued
and outstanding on the date of such issuance), which will then be distributed by
ZOI to Holtz. Upon the Closing, or as soon as permissible in accordance with
Section 14f of the Securities Exchange Act of 1934, as amended, whichever occurs
later, Edward L. Torres will resign as an officer and director of CLMI, and will
appoint new directors as designated by Holtz to fill the vacancies on CLMI's
Board of Directors. Upon the Closing, Richardson and Torres will each tender to
CLMI for redemption and cancellation 1,850,000 shares of CLMI Common Stock which
they currently own. All parties to this Agreement hereby agree to execute all
other documents and take all other action which are reasonably necessary or
appropriate in order to effect all of the transactions contemplated by this
Agreement.
5. Covenants of CLMI.
-----------------
5.1 Covenants of CLMI.
-----------------
A portion of the intangible assets and claims presently owned by CLMI,
equal to 50% of any award or proceeds, if any, received in its lawsuit against
CNG Communications, Inc. and Paul Bishop (the "Lawsuit") shall be retained by
CLMI after the Closing. Richardson and Torres will each be entitled to 25% of
any award or proceeds received in the Lawsuit, if any, in part in consideration
for their work in facilitating the Lawsuit on CLMI's behalf, regardless of who
the plaintiffs are in the Lawsuit or which claims are remaining. After the
Closing, CLMI will be responsible for any costs incurred in connection with the
Lawsuit. On the Closing, CLMI will have no more than 7,000,000 shares of its
Common Stock, par value $.001 per share, outstanding, and will not have
outstanding any preferred stock, warrants, options, or other securities
convertible into the common or preferred stock of CLMI, except as disclosed in
Exhibit C to this Agreement. Upon Closing, CLMI will have no accounts payable or
outstanding debt. On, or as soon as practicable after, the Closing, CLMI will
change its name to Zeros & Ones, Inc.
5.2 Covenants of Richardson and Torres.
----------------------------------
On the Closing, Richardson and Torres each covenant to tender for
cancellation 1,850,000 shares of the Common Stock of CLMI owned by them. Torres
agrees to resign as an officer and director of CLMI, effective on the Closing,
or as soon as permissible in accordance with Section 14f of the Securities
Exchange Act of 1934, as amended, whichever occurs later.
-3-
<PAGE>
6. Covenants of ZOI and Holtz.
--------------------------
6.1 ZOI Financial Condition.
-----------------------
ZOI and Holtz hereby covenant that (i) within 90 days after the
Closing, ZOI will have positive net stockholders' equity of at least $5,000,000,
and (ii) upon the Closing, ZOI will deliver to CLMI audited financial statements
for the Acquired Assets.
6.2 Cash Payment.
------------
ZOI has already tendered $120,000 in cash to CLMI, from which CLMI will
pay all accounts payable set forth on the CLMI Financial Statements (as
hereinafter defined), or which are incurred after December 31, 1998 until the
Closing Date, with the balance allocable as determined by CLMI in its sole and
absolute discretion. On or before July 31, 1999, CLMI will tender to Richardson
and Torres a payment in cash of $87,500 plus accrued simple interest thereon
from July 1, 1999 at the rate of 10% per annum to be allocated in the sole and
absolute discretion of Richardson and Torres. ZOI will make said check payable
as designated by Richardson and Torres. This debt of CLMI to Richardson and
Torres will be evidenced by a promissory note in the principal amount of
$87,500, bearing simple interest at the rate of 10% per annum, payable by CLMI
to Richardson and Torres.
7. Representations and Warranties of ZOI and Holtz.
-----------------------------------------------
ZOI and Holtz represent and warrant to CLMI as follows:
7.1 Power and Authority; Binding Nature of Agreement.
------------------------------------------------
ZOI and Holtz have full power and authority to enter into this
Agreement and to perform their obligations hereunder. The execution, delivery
and performance of this Agreement by them has been duly authorized by all
necessary action on their part. Assuming that this Agreement is a valid and
binding obligation of each of the other parties hereto, this Agreement is a
valid and binding obligation of ZOI and Holtz.
7.2 Subsidiaries.
------------
There is no corporation, general partnership, limited partnership,
joint venture, association, trust or other entity or organization which ZOI
directly or indirectly controls or in which ZOI directly or indirectly owns any
equity or other interest, other than those listed on Exhibit B to this
Agreement.
-4-
<PAGE>
7.3 Good Standing.
-------------
ZOI and its subsidiaries (i) are duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated,
(ii) have all necessary power and authority to own their assets and to conduct
their business as it is currently being conducted, and (iii) are duly qualified
or licensed to do business and are in good standing in every jurisdiction (both
domestic and foreign) where such qualification or licensing is required.
7.4 Charter Documents and Corporate Records.
---------------------------------------
ZOI and its subsidiaries have delivered to CLMI complete and correct
copies of (i) the articles of incorporation, bylaws and other charter or
organizational documents of ZOI and its subsidiaries, including all amendments
thereto, (ii) the stock records of ZOI and its subsidiaries, and (iii) the
minutes and other records of the meetings and other proceedings of the
shareholders and directors of ZOI and its subsidiaries. ZOI and its subsidiaries
are not in violation or breach of (i) any of the provisions of their articles of
incorporation, bylaws or other charter or organizational documents, or (ii) any
resolution adopted by their shareholders or directors. There have been no
meetings or other proceedings of the shareholders or directors of ZOI or its
subsidiaries that are not fully reflected in the appropriate minute books or
other written records of ZOI and its subsidiaries.
7.5 Capitalization.
--------------
The authorized capital stock of ZOI consists of 50,000,000 shares of
common stock, par value $.001 per share, of which 1,500 shares are issued and
outstanding. All of the outstanding shares of the capital stock of ZOI are
validly issued, fully paid and nonassessable, and have been issued in full
compliance with all applicable federal, state, local and foreign securities laws
and other laws. There are no (i) outstanding options, warrants or rights to
acquire any shares of the capital stock or other securities of ZOI, (ii)
outstanding securities or obligations which are convertible into or exchangeable
for any shares of the capital stock or other securities of ZOI, or (iii)
contracts or arrangements under which ZOI is or may become bound to sell or
otherwise issue any shares of its capital stock or any other securities.
-5-
<PAGE>
7.6 Financial Statements.
ZOI has delivered to CLMI the following financial statements relating
to ZOI on the Closing (the "ZOI Financial Statements"): (i) the audited assets
of ZOI as of June 25, 1999; and (ii) the unaudited balance sheets and statements
of income and retained earnings, stockholders' equity and changes in financial
position of ZOI for the years ended December 31, 1998, 1997 and 1996. Except as
stated therein or in the notes thereto, the ZOI Financial Statements:(a) present
fairly the financial position of ZOI as of the respective dates thereof and the
results of operations and changes in financial position of ZOI for the
respective periods covered thereby; and (b) have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods covered.
7.7 Absence of Changes.
------------------
Except as otherwise disclosed to CLMI in writing in Exhibit D to this
Agreement, since December 31, 1998:
(a) There has not been any material adverse change in the
business, condition, assets, operations or prospects of ZOI or its
subsidiaries and no event has occurred that might have an adverse
effect on the business, condition, assets, operations or prospects of
ZOI or its subsidiaries.
(b) ZOI or its subsidiaries have not (i) declared, set aside
or paid any dividend or made any other contribution in respect of any
shares of capital stock, nor (ii) repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities.
(c) ZOI or its subsidiaries have not sold or otherwise issued
any shares of capital stock or any other securities.
(d) ZOI or its subsidiaries have not amended their articles of
incorporation, bylaws or other charter or organizational documents, nor
have they effected or been a party to any merger, recapitalization,
reclassification of shares, stock split, reverse stock split,
reorganization or similar transaction.
-6-
<PAGE>
(e) ZOI has not formed any subsidiary or contributed any funds
or other assets to any subsidiary, other than as disclosed in Exhibit B
of this Agreement.
(f) ZOI has not purchased or otherwise acquired any assets,
nor has it leased any assets from any other person, except in the
ordinary course of business consistent with past practice.
(g) ZOI or its subsidiaries have not made any capital
expenditure outside the ordinary course of business or inconsistent
with past practice, or in an amount exceeding ten thousand dollars
($10,000), and the total amount of the capital expenditures made by ZOI
or its subsidiaries have not exceeded twenty thousand dollars
($20,000), without CLMI's consent.
(h) ZOI or its subsidiaries has not sold or otherwise
transferred any assets to any other person, except in the ordinary
course of business consistent with past practice and at a price equal
to the fair market value of the assets transferred.
(i) There has not been any loss, damage or destruction to any
of the properties or assets of ZOI or its subsidiaries (whether or not
covered by insurance).
(j) ZOI or its subsidiaries have not written off as
uncollectible any indebtedness or accounts receivable, except for
write-offs that were made in the ordinary course of business consistent
with past practice and that involved less than one hundred dollars
($100) singly and less than one thousand dollars ($1,000) in the
aggregate.
(k) ZOI or its subsidiaries have not leased any assets to any
other person except in the ordinary course of business consistent with
past practice and at a rental rate equal to the fair rental value of
the leased assets.
(l) ZOI or its subsidiaries have not mortgaged, pledged,
hypothecated or otherwise encumbered any assets, except in the ordinary
course of business consistent with past practice.
-7-
<PAGE>
(m) ZOI or its subsidiaries have not entered into any contract
or incurred any debt, liability or other obligation (whether absolute,
accrued, contingent or otherwise), except for (i) contracts that were
entered into in the ordinary course of business consistent with past
practice and that have terms of less than six months and do not
contemplate payments by or to ZOI or its subsidiaries which will
exceed, over the term of the contract, three thousand dollars ($3,000)
in the aggregate, and (ii) current liabilities incurred in the ordinary
course of business consistent with the past practice.
(n) ZOI or its subsidiaries have not made any loan or advance
to any other person, except for advances that have been made to
customers in the ordinary course of business consistent with past
practice and that have been properly reflected as "accounts
receivables."
(o) ZOI or its subsidiaries have not paid any bonus to, or
increased the amount of the salary, fringe benefits or other
compensation or remuneration payable to, any of the directors, officers
or employees of ZOI or its subsidiaries.
(p) No contract or other instrument to which ZOI or any of its
subsidiaries are or were a party or by which ZOI or any of its
subsidiaries or any of their assets are or were bound has been amended
or terminated, except in the ordinary course of business consistent
with past practice.
(q) ZOI or its subsidiaries have not discharged any lien or
discharged or paid any indebtedness, liability or other obligation,
except for current liabilities that (i) are reflected in the ZOI
Financial Statements as of December 31, 1998 or have been incurred
since December 31, 1998 in the ordinary course of business consistent
with past practice, and (ii) have been discharged or paid in the
ordinary course of business consistent with past practice.
(r) ZOI or its subsidiaries have not forgiven any debt or
otherwise released or waived any right or claim, except in the ordinary
course of business consistent with past practice.
-8-
<PAGE>
(s) ZOI or its subsidiaries have not changed its methods of
accounting or its accounting practices in any respect.
(t) ZOI or its subsidiaries have not entered into any
transaction outside the ordinary course of business or inconsistent
with past practice.
(u) ZOI or its subsidiaries have not agreed or committed
(orally or in writing) to do any of the things described in clauses (b)
through (t) of this Section 5.7.
7.8 Absence of Undisclosed Liabilities.
----------------------------------
ZOI and its subsidiaries have no debt, liability or other obligation of
any nature (whether due or to become due and whether absolute, accrued,
contingent or otherwise) that is not reflected or reserved against in the ZOI
Financial Statements as of December 31, 1998, except for obligations incurred
since December 31, 1998 in the ordinary course of business consistent with past
practice.
7.9 Contracts.
---------
ZOI and its subsidiaries have delivered to CLMI complete and correct
copies of all of the contracts and other instruments including all amendment
hereto. All of such contracts and other instruments are valid and in full force
and effect, and are enforceable in accordance with their terms. There is no
existing default by any person under any of said contracts or other instruments,
and there exists no condition or set of circumstance which, with notice or lapse
of time or both, would constitute such a default.
7.10 Acquired Assets.
---------------
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not to ZOI's
knowledge result in a breach of the terms and conditions of, or result
in a loss of rights under, or result in the creation of any lien,
charge or encumbrance upon, any of the Acquired Assets pursuant to (i)
ZOI's articles of incorporation, bylaws, or agreements of limited
partnership, as the case may be, (ii) any franchise, mortgage, deed of
trust, lease, license, permit, agreement, contract, instrument or
undertaking to which ZOI is a party or by which it or any of its
properties are bound, or (iii) any statute, rule, regulation, order,
judgment, award or decree.
(b) ZOI has good and marketable title to all of the Acquired
Assets, free and clear of all mortgages, liens, leases, pledges,
charges, encumbrances, equities or claims, except as expressly
disclosed in Exhibit A to this Agreement.
(c) To ZOI's knowledge the Acquired Assets are not subject to
any material liability, absolute or contingent, which is not listed as
a liability in Exhibit A to this Agreement, nor is ZOI subject to any
liability, absolute or contingent, which has not been disclosed to and
acknowledged by CLMI in writing prior to the Closing Date.
(d) The list of Acquired Assets set forth in Exhibit A of this
Agreement is an accurate description of all of the assets of ZOI.
(e) The list of Acquired Assets set forth in Exhibit A to this
Agreement contains a list of all contracts, agreements, licenses,
leases, arrangements, commitments and other undertakings to which ZOI
is a party or by which it or its property is bound. Except as specified
in Exhibit A, all of such contracts, agreements, leases, licenses and
commitments are valid, binding and in full force and effect, and are
assignable to CLMI without the consent of any other party.
(f) To ZOI's knowledge no consent is necessary to effect the
transfer to CLMI of any of the Acquired Assets and, upon the
consummation of the transactions contemplated hereby, CLMI will be
entitled to use the Acquired Assets to the full extent that CLMI used
the same immediately prior to the transfer of the Acquired Assets.
(g) All of the machinery, equipment, furniture and fixtures as
of the Closing Date will be in the same condition as on the date of
this Agreement, normal wear and tear excepted. ZOI hereby conveys to
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<PAGE>
conveys to CLMI (to the extent it is able under the applicable warranty
documents) any and all product warranty or similar rights that ZOI may
have against third parties in respect of the condition of any Acquired
Assets.
7.11 Compliance With Laws; Licenses and Permits.
------------------------------------------
ZOI and its subsidiaries, to their knowledge, are not in violation of,
nor have they failed to conduct their business in full compliance with, any
applicable federal, state, local or foreign laws, regulations, rules, treaties,
rulings, orders, directives or decrees. ZOI and its subsidiaries have delivered
to CLMI complete and correct copies of all of the licenses, permits,
authorizations and franchises to which ZOI or its subsidiaries are subject and
all said licenses, permits, authorizations and franchises are valid and in full
force and effect. Said licenses, permits, authorizations and franchises
constitute all of the licenses, permits, authorizations and franchises necessary
to permit ZOI and its subsidiaries to conduct their business in the manner in
which it is now being conducted, and ZOI and their subsidiaries are not in
violation or breach of any of the terms, requirements or conditions of any of
said licenses, permits, authorizations or franchises.
7.12 Litigation.
----------
There is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to ZOI's knowledge, threatened
against or with respect to ZOI or its subsidiaries which (i) if adversely
determined would have an adverse effect on the business, condition, assets,
operations or prospects of ZOI or its subsidiaries, or (ii) challenges or would
challenge any of the actions required to be taken by the ZOI under this
Agreement. There exists no basis for any such action, suit, proceeding, dispute,
litigation, claim, complaint or investigation.
7.13 Non-Contravention.
-----------------
Neither (a) the execution and delivery of this Agreement, nor (b) the
performance of this Agreement will: (i) contravene or result in a violation of
any of the provisions of the articles of incorporation, bylaws or other charter
-11-
<PAGE>
or organizational documents of ZOI or its subsidiaries; (ii) contravene or
result in a violation of any resolution adopted by the shareholders or directors
of ZOI or its subsidiaries; (iii) result in a violation or breach of, or give
any person the right to declare (whether with or without notice or lapse of
time) a default under or to terminate, any agreement or other instrument to
which ZOI or Holtz is a party or by which ZOI or its subsidiaries or any of
their assets or Holtz is bound; (iv) give any person the right to accelerate the
maturity of any indebtedness or other obligation of ZOI or its subsidiaries; (v)
result in the loss of any license or other contractual right of ZOI or its
subsidiaries; (vi) result in the loss of, or in a violation of any of the terms,
provisions or conditions of, any governmental license, permit, authorization or
franchise of ZOI or its subsidiaries; (vii) result in the creation or imposition
of any lien, charge, encumbrance or restriction on any of the assets of ZOI or
its subsidiaries or on Holtz' stock in ZOI; (viii) result in the reassessment or
revaluation of any property of ZOI or its subsidiaries; by any taxing authority
or other governmental authority; (ix) result in the imposition of, or subject
ZOI or its subsidiaries; to any liability for, any conveyance or transfer tax or
any similar tax; or (x) result in a violation of any law, rule, regulation,
treaty, ruling, directive, order, arbitration award, judgment or decree to which
ZOI or its subsidiaries or any of their assets or any of Holtz' stock in ZOI is
subject.
7.14 Approvals.
---------
No authorization, consent or approval of, or registration or filing
with, any governmental authority or any other person is required to be obtained
or made by ZOI or its subsidiaries or Holtz in connection with the execution,
delivery or performance of this Agreement, including the conveyance to CLMI of
the Acquired Assets.
7.15 Brokers.
-------
ZOI has not agreed to pay any brokerage fees, finder's fees or other
fees or commissions with respect to the transactions contemplated by this
Agreement, and, to ZOI's knowledge, no person is entitled, or intends to claim
-12-
<PAGE>
that it is entitled, to receive any such fees or commissions in connection with
such transaction.
7.16 Full Disclosure.
---------------
Neither this Agreement (including the exhibits hereto) nor any
statement, certificate or other document delivered to CLMI by or on behalf of
ZOI or Holtz contains any untrue statement of a material fact or omits to state
a material fact necessary to make the representations and other statements
contained herein and therein not misleading.
7.17 Representations True on Closing Date.
------------------------------------
The representations and warranties of ZOI and Holtz set forth in this
Agreement are true and correct on the date hereof, and will be true and correct
on the Closing Date as though such representations and warranties were made as
of the Closing Date.
7.18 Non-Distributive Intent.
-----------------------
The shares of CLMI stock being acquired by Holtz pursuant to this
Agreement are not being acquired by Holtz with a view to the public distribution
of them. Holtz acknowledges and agrees that the CLMI stock acquired by him
pursuant to this Agreement has not been registered or qualified under federal or
state securities laws, and may not be sold, conveyed, transferred, assigned or
hypothecated without being registered under the Securities Act of 1933, as
amended, and applicable state law, or in the alternative submission of evidence
reasonably satisfactory to CLMI that an exemption from registration is
available.
8. Representations and Warranties of CLMI.
--------------------------------------
CLMI represents and warrants to ZOI and Holtz as follows:
-13-
<PAGE>
8.1 Power and Authority; Binding Nature of Agreement.
------------------------------------------------
CLMI has full power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement by CLMI has been duly authorized by all necessary action on its
part. Assuming that this Agreement is a valid and binding obligation of each of
the other parties hereto, this Agreement is a valid and binding obligation of
CLMI.
8.2 Good Standing.
-------------
CLMI (i) is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated, (ii) has all necessary
power and authority to own its assets and to conduct its business as it is
currently being conducted, and (iii) is duly qualified or licensed to do
business and is in good standing in every jurisdiction (both domestic and
foreign) where such qualification or licensing is required.
8.3 Charter Documents and Corporate Records.
---------------------------------------
CLMI has delivered to Holtz and ZOI complete and correct copies of (i)
the articles of incorporation, bylaws and other charter or organizational
documents of CLMI, including all amendments thereto, (ii) the stock records of
CLMI, and (iii) the minutes and other records of the meetings and other
proceedings of the shareholders and directors of CLMI. CLMI is not in violation
or breach of (i) any of the provisions of its articles of incorporation, bylaws
or other charter or organizational documents, or (ii) any resolution adopted by
its shareholders or directors. There have been no meetings or other proceedings
of the shareholders or directors of CLMI that are not fully reflected in the
appropriate minute books or other written records of CLMI.
8.4 Capitalization.
--------------
The authorized capital stock of CLMI consists of 50,000,000 shares of
common stock, par value $.001 per share, of which 4,587,941shares are issued and
outstanding, and 2,000,000 share of preferred stock, none of which is issued or
outstanding. All of the outstanding shares of the capital stock of CLMI are
validly issued, fully paid and nonassessable, and have been issued in full
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<PAGE>
compliance with all applicable federal, state, local and foreign securities laws
and other laws. Except as disclosed in Exhibit C of this Agreement, there are no
(i) outstanding options, warrants or rights to acquire any shares of the capital
stock or other securities of CLMI, (ii) outstanding securities or obligations
which are convertible into or exchangeable for any shares of the capital stock
or other securities of CLMI, or (iii) contracts or arrangements under which CLMI
is or may become bound to sell or otherwise issue any shares of its capital
stock or any other securities.
8.5 Financial Statements.
--------------------
CLMI has delivered to ZOI and the ZOI Shareholders the following
financial statements (the "CLMI Financial Statements"): (i) the audited balance
sheet of CLMI as of December 31, 1998 and December 31, 1997; and (ii) the
audited statements of income and retained earnings, stockholders' equity and
changes in financial position of CLMI for the years ended December 31, 1998 and
December 31, 1997; and (iii) supporting supplemental schedules. Except as stated
therein or in the notes thereto, the CLMI Financial Statements: (a) present
fairly the financial position of CLMI as of the respective dates thereof and the
results of operations and changes in financial position of CLMI for the
respective periods covered thereby; and (b) have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods covered.
8.6 Absence of Changes.
------------------
Except as otherwise disclosed to ZOI in writing in Exhibit D to this
Agreement, since December 31, 1998, there has not been any material adverse
change in the business, condition, assets, operations or prospects of CLMI and
no event has occurred that might have an adverse effect on the business,
condition, assets, operations or prospects of CLMI.
8.7 Absence of Undisclosed Liabilities.
----------------------------------
CLMI has no debt, liability or other obligation of any nature (whether
due or to become due and whether absolute, accrued, contingent or otherwise)
that is not reflected or reserved against in the CLMI Financial Statements as of
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<PAGE>
December 31, 1998, except for obligations incurred since December 31, 1998 in
the ordinary course of business consistent with past practice.
8.8 Litigation.
----------
There is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to CLMI's knowledge, threatened
against or with respect to CLMI which (i) if adversely determined would have an
adverse effect on the business, condition, assets, operations or prospects of
CLMI, or (ii) challenges or would challenge any of the actions required to be
taken by CLMI under this Agreement. There exists no basis for any such action,
suit, proceeding, dispute, litigation, claim, complaint or investigation.
8.9 Non-Contravention.
-----------------
Neither (a) the execution and delivery of this Agreement, nor (b) the
performance of this Agreement will: (i) contravene or result in a violation of
any of the provisions of the articles of incorporation, bylaws or other charter
or organizational documents of CLMI; (ii) contravene or result in a violation of
any resolution adopted by the shareholders or directors of CLMI; (iii) result in
a violation or breach of, or give any person the right to declare (whether with
or without notice or lapse of time) a default under or to terminate, any
agreement or other instrument to which CLMI is a party or by which CLMI or any
of its assets are bound; (iv) give any person the right to accelerate the
maturity of any indebtedness or other obligation of CLMI; (v) result in the loss
of any license or other contractual right of CLMI; (vi) result in the loss of,
or in a violation of any of the terms, provisions or conditions of, any
governmental license, permit, authorization or franchise of CLMI; (vii) result
in the creation or imposition of any lien, charge, encumbrance or restriction on
any of the assets of CLMI; (viii) result in the reassessment or revaluation of
any property of CLMI by any taxing authority or other governmental authority;
(ix) result in the imposition of, or subject CLMI to any liability for, any
conveyance or transfer tax or any similar tax; or (x) result in a violation of
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<PAGE>
8.10 Approvals.
---------
No authorization, consent or approval of, or registration or filing
with, any governmental authority or any other person is required to be obtained
or made by CLMI in connection with the execution, delivery or performance of
this Agreement.
8.11 Brokers.
-------
CLMI has not agreed to pay any brokerage fees, finder's fees or other
fees or commissions with respect to the transactions contemplated by this
Agreement, and, to CLMI's knowledge, no person is entitled, or intends to claim
that it is entitled, to receive any such fees or commissions in connection with
such transactions.
8.12 Full Disclosure.
---------------
Neither this Agreement (including the exhibits hereto) nor any
statement, certificate or other document delivered to ZOI by or on behalf of
CLMI contains any untrue statement of a material fact or omits to state a
material fact necessary to make the representations and other statements
contained herein and therein not misleading.
8.13 Representations True on Closing Date.
------------------------------------
The representations and warranties of CLMI set forth in this Agreement
are true and correct on the date hereof, and will be true and correct on the
Closing Date as though such representations and warranties were made as of the
Closing Date.
<PAGE>
9. Conditions to Closing.
---------------------
9.1 Conditions Precedent to CLMI's Obligation To Close.
--------------------------------------------------
CLMI's obligation to close the plan of reorganization and exchange as
contemplated in this Agreement is conditioned upon the occurrence or waiver by
CLMI of the following:
(a) All representations and warranties of ZOI and Holtz made
in this Agreement or in any exhibit hereto delivered by ZOI and Holtz
shall be true and correct as of the Closing Date with the same force
and effect as if made on and as of that date.
(b) ZOI and Holtz shall have performed and complied with all
agreements, covenants and conditions required by this Agreement to be
performed or complied with by ZOI and Holtz prior to or at the Closing
Date.
9.2 Conditions Precedent to ZOI's and Holtz' Obligation To Close.
------------------------------------------------------------
ZOI's and Holtz' obligation to close the plan of reorganization and
exchange as contemplated in this Agreement is conditioned upon the occurrence or
waiver by ZOI or Holtz of the following:
(a) All representations and warranties of CLMI made in this
Agreement or in any exhibit hereto delivered by CLMI shall be true and
correct on and as of the Closing date with the same force and effect as
if made on and as of that date.
(b) CLMI shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or complied
with by CLMI prior to or at the Closing Date.
10. Further Assurances.
------------------
Following the Closing, ZOI and Holtz agree to take such actions and
execute, acknowledge and deliver to CLMI such further instruments of assignment,
assumptions, conveyance and transfer and take any other action as CLMI may
reasonably request in order to more effectively convey, sell, transfer and
assign to CLMI all of the Acquired Assets, to confirm the title of CLMI thereto,
to have Holtz assume all of the liabilities of ZOI and to indemnify CLMI
therefrom, and to assist CLMI in exercising its rights with respect to the
Acquired Assets.
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<PAGE>
11. Survival of Representations and Warranties.
------------------------------------------
All representations and warranties made by each of the parties hereto
shall survive the closing for a period of one year after the Closing Date.
12. Indemnification.
---------------
12.1 Indemnification by Holtz.
------------------------
Holtz agrees to indemnify, defend and hold harmless CLMI against any
and all claims, demands, losses, costs, expenses, obligations, liabilities and
damages, including interest, penalties and attorney's fees and costs, incurred
by CLMI arising, resulting from, or relating to any and all liabilities of ZOI,
any misrepresentation of a material fact or omission to disclose a material fact
made by ZOI or Holtz in this Agreement, any exhibits to this Agreement or in any
other document furnished or to be furnished by ZOI or Holtz under this
Agreement, or any breach of, or failure by ZOI or Holtz to perform, any of their
representations, warranties, covenants or agreements in this Agreement or in any
exhibit or other document furnished or to be furnished by ZOI or Holtz under
this Agreement.
12.2 Indemnification by CLMI.
-----------------------
CLMI agrees to indemnify, defend and hold harmless ZOI and Holtz
against any and all claims, demands, losses, costs, expenses, obligations,
liabilities and damages, including interest, penalties and attorneys' fees and
costs incurred by ZOI or Holtz arising, resulting from or relating to any breach
of, or failure by CLMI to perform, any of its representations, warranties,
covenants or agreements in this Agreement or in any exhibit or other document
furnished or to be furnished by CLMI under this Agreement.
13. Injunctive Relief.
-----------------
13.1 Damages Inadequate.
------------------
Each party acknowledges that it would be impossible to measure in money
the damages to the other party if there is a failure to comply with any
covenants and provisions of this Agreement, and agrees that in the event of any
breach of any covenant or provision, the other party to this Agreement will not
have an adequate remedy at law.
13.2 Injunctive Relief.
-----------------
It is therefore agreed that the other party to this Agreement who is
entitled to the benefit of the covenants and provisions of this Agreement which
have been breached, in addition to any other rights or remedies which they may
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<PAGE>
have, shall be entitled to immediate injunctive relief to enforce such covenants
and provisions, and that in the event that any such action or proceeding is
brought in equity to enforce them, the defaulting or breaching party will not
urge a defense that there is an adequate remedy at law.
14. Waivers.
-------
If any party shall at any time waive any rights hereunder resulting
from any breach by the other party of any of the provisions of this Agreement,
such waiver is not to be construed as a continuing waiver of other breaches of
the same or other provisions of this Agreement. Resort to any remedies referred
to herein shall not be construed as a waiver of any other rights and remedies to
which such party is entitled under this Agreement or otherwise.
15. Successors and Assigns.
----------------------
This Agreement supercedes and replaces the Plan of Reorganization and
Exchange Agreement made and entered into on April 30, 1999 by and between ZOI,
CLMI, the ZOI Shareholders (as defined in the Prior Agreement), Richardson, and
Torres. Each covenant and representation of this Agreement shall inure to the
benefit of and be binding upon each of the parties, their personal
representatives, assigns and other successors in interest.
16. Entire and Sole Agreement.
-------------------------
This Agreement constitutes the entire agreement between the parties and
supersedes all other agreements, representations, warranties, statements,
promises and undertakings, whether oral or written, with respect to the subject
matter of this Agreement. This Agreement may be modified or amended only by a
written agreement signed by the parties against whom the amendment is sought to
be enforced.
17. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, and the venue for any action hereunder
shall be in the appropriate forum in the County of Los Angeles, State of
California.
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<PAGE>
18. Counterparts.
------------
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
19. Attorneys' Fees and Costs.
-------------------------
In the event that either party must resort to legal action in order to
enforce the provisions of this Agreement or to defend such action, the
prevailing party shall be entitled to receive reimbursement from the
nonprevailing party for all reasonable attorneys' fees and all other costs
incurred in commencing or defending such action, or in enforcing this Agreement,
including but not limited to post judgment costs.
20. Assignment.
----------
This Agreement shall not be assignable by any party without prior
written consent of the other parties.
21. Remedies.
--------
Except as otherwise expressly provided herein, none of the remedies set
forth in this Agreement are intended to be exclusive, and each party shall have
all other remedies now or hereafter existing at law, in equity, by statute or
otherwise. The election of any one or more remedies shall not constitute a
waiver of the right to pursue other available remedies.
22. Section Headings.
----------------
The section headings in this Agreement are included for convenience
only, are not a part of this Agreement and shall not be used in construing it.
23. Severability.
------------
In the event that any provision or any part of this Agreement is held
to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall not affect the validity or enforceability of any other
provision or part of this Agreement.
-22-
<PAGE>
24. Notices.
-------
Each notice or other communication hereunder shall be in writing and
shall be deemed to have been duly given on the earlier of (i) the date on which
such notice or other communication is actually received by the intended
recipient thereof, or (ii) the date five (5) days after the date such notice or
other communication is mailed by registered or certified mail (postage prepaid)
to the intended recipient at the following address (or at such other address as
the intended recipient shall have specified in a written notice given to the
other parties hereto):
If to ZOI or Holtz:
------------------
Zeros & Ones, Inc.
16861 Ventura Boulevard, Suite 300
Encino, California 91436
Attention: Robert Holtz, President
Telephone: (818) 380-0133
Facsimile: (818) 380-0258
If to CLMI:
----------
Commercial Labor Management, Inc.
c/o Richardson & Associates
1299 Ocean Avenue, Suite 900
Santa Monica, California 90401
Telephone: (310) 393-9992
Facsimile: (310) 393-2004
-22-
<PAGE>
25. Publicity.
---------
No press release, notice to any third party or other publicity
concerning the transactions contemplated by this Agreement shall be issued,
given or otherwise disseminated without the prior approval of each of the
parties hereto; provided, however, that such approval shall not be unreasonably
withheld.
IN WITNESS WHEREOF, this Agreement has been entered into as of the date
first above written.
ZOI: ZEROS & ONES, INC.
By: --------------------------------
Robert Holtz, President
HOLTZ: ------------------------------------
Robert Holtz
CLMI: COMMERCIAL LABOR MANAGEMENT, INC.
By: --------------------------------
Edward L. Torres, President
RICHARDSON: -----------------------------------
Mark J. Richardson
TORRES: -----------------------------------
Edward L. Torres
-23-
<PAGE>
EXHIBIT A
LIST OF ACQUIRED ASSETS
<PAGE>
EXHIBIT A
LIST OF ACQUIRED ASSETS
-----------------------
1. Fifty percent (50%) of the outstanding stock of EKO Corporation.
2. Cash
3. Loan Receivable
4. Equipment
a. Office PCs
b. Desks and Furnishings
c. Silicon Graphics Crimson Elan
d. Silicon Graphics R4000 3D Workstation
e. Computer Graphics Workstation
f. Alias/Wavefront Maya
g. IBM Network File Server
h. Apache Internet/Web Server
i. Tektronix Large Media File Server
j. Apple Power Macintosh Systems
k. UMAX High-Resolution Image Scanner
l. High-Speed Fiber Optic Network
m. AT&T Office Telephone Systems
n. Xerox Document Center
o. BMW 3281 Automobile
5. Accounts Receivable
6. Contracts with Licensees of Websuites Technology
7. Charter Merchant relationship with Amazon.com
8. Direct Access Development Partnership with Microsoft
9. Website Hosting Auto-bill Commitments on over 30 commerce websites
10. Consultancy Retainer Agreements/Hourly and Per-Project.
11. Permanent Software Licenses for Alias/Wavefront Software.
12. Link Relationships with eToys.com, Beyond.com, Amazon.com, CBS
Sportsline, Tutorials.com, Omaha Steaks, Candy Direct, many others.
<PAGE>
13. Strategic Relationship with Website Results Corporation.
14. Ownership of several valuable domain names
a. TrainAtHome.com
b. MovieShopping.com
c. BuyMovieStuff.com
d. ShopforMovies.com
e. BuyBroadcast.com
f. SellBroadcast.com
g. HD.TV
h. ZTransact.com
i. Blocks.com
j. MicroBlocks.com
k. ExpressDomain.com
l. EKO.com
m. FineItems.COM
n. ZOZO.net
15. Ownership of "Creative Energy" and "RGB", proprietary development tools
created by and utilized exclusively by Zeros & Ones to build websites.
<PAGE>
EXHIBIT B
LIST OF ZOI SUBSIDIARIES
<PAGE>
EXHIBIT B
LIST OF ZOI SUBSIDIARIES
EKO Corporation, a 50% owned subsidiary.
<PAGE>
EXHIBIT C
OUTSTANDING WARRANTS
<PAGE>
EXHIBIT C
A. It is expected that on the Closing, 320,000 warrants in CLMI
will be outstanding pursuant to which the holder of each
warrant will be entitled to purchase one share of CLMI Common
Stock for a price of $3.00 per share for a period of three
years from the date of issue.
<PAGE>
EXHIBIT D
MATERIAL CHANGES SINCE DECEMBER 31, 1998
None.
<PAGE>
BILL OF SALE OF ASSETS
Zeros & Ones, Inc., a Delaware corporation ("ZOI") hereby sells and
conveys to Commercial Labor Management, Inc., a Nevada corporation ("CLMI"), all
of the tangible and intangible assets (the "Assets") to be transferred to CLMI
pursuant to the terms of that certain Plan of Reorganization and Asset Purchase
Agreement ("Agreement"), made and entered into as of July 1, 1999, by and
between ZOI, Robert Holtz, Mark J. Richardson, Edward L. Torres and CLMI, and
assigns the Assets to CLMI forever, free and clear of all liens and
encumbrances. All such Assets are listed on Exhibit A to the Agreement, which is
made a part hereof.
ZOI warrants and agrees to defend the title to all of the Assets for
the benefit of CLMI and assigns against all persons.
In Witness Whereof, ZOI has signed and delivered this Bill of Sale to
CLMI on July 1, 1999 at Los Angeles, California.
ZEROS & ONES, INC.
A Delaware corporation
By: ---------------------------
Robert Holtz, President
