<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3/A
REGISTRATION STATEMENT
Under
The Securities Act of 1933
(Amendment No. 1)
-------------------
CHEQUEMATE INTERNATIONAL, INC. DBA C-3D DIGITAL, INC.
(Exact name of registrant as specified in its charter)
-------------------
Utah 3663 76-0279816
(State or other jurisdiction of (Primary Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
57 West 200 South, Suite 350
Salt Lake City, Utah 84101
(801) 322-1111
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
J. Michael Heil
CEO
Chequemate International, Inc.
57 West 200 South, Suite 350
Salt Lake City, Utah 84101
(801) 322-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
It is respectfully requested that the Commission send copies of all notices,
orders and communications to:
Bruce L. Dibb
Jensen, Duffin, Carman, Dibb & Jackson
311 South State Street, Suite 380
Salt Lake City, Utah 84111
(801) 531-6600
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this registration statement becomes effective.
i
<PAGE>
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Share Offering Price Registration Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 2,600,000(1) $2.84(2) $7,384,000 $2,053
Augustine Fund LP
- -------------------------------------------------------------------------------------------------
Common Stock issuable
upon exercise of 24,753 $3.64(3) $90,101 $26
1998 Warrant
- -------------------------------------------------------------------------------------------------
Common Stock issuable
upon exercise of 84,750 $3.54(3) $300,015 $84
1999 Warrants
- -------------------------------------------------------------------------------------------------
Coleman Capital Shares 100,000 $3.54(4) $354,000 $99.00
- -------------------------------------------------------------------------------------------------
TOTAL 2,809,503 $8,128,116 $2,262
=================================================================================================
</TABLE>
(1) Estimated pursuant to the provisions of paragraph 7(a) of the 1999
Subscription Agreement, which require the registrant to register 200%
of the number of shares issuable upon the conversion of the debentures
based upon the lowest closing bid price of the registrant's stock for
the 60 trading days prior to the date of the execution of the 1999
Subscription Agreement. The lowest closing bid price for the stated
period was $2.50 per share.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
Although the conversion of the debentures may take place at any time
during the three year period following the dates of the subscription
ii
<PAGE>
agreements entered into by the registrant, this estimated amount is the
average of the bid and asked price as of February 18, 1999 (which is
within 5 business days prior to the date of the original filing of this
registration statement).
(3) The exercise price of the Warrants is used for the purpose of
calculating the amount of the registration fee in accordance with Rule
457(g) under the Securities Act.
(4) Employing estimated 1999 valuation as set-out in note 2 above for Rule
457 (c) computation proposes.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH A DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
iii
<PAGE>
SELLING SECURITY HOLDER PROSPECTUS
CHEQUEMATE INTERNATIONAL, INC.
57 West 200 South, Suite 350
Salt Lake City, Utah 84101
(801) 322-1111
2,809,503 SHARES OF COMMON STOCK
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES REGULATORY AGENCY, NOR HAS THE
COMMISSION OR ANY STATE AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This registration is for 2,809,503 shares of the Company's common stock to be
issued: 100,000 pursuant to a private placement registration right and the
balance pursuant to the exercise of convertible debentures and stock warrant
rights which were privately sold by the Company by subscription agreements
entered on December 21, 1998, February 9, 1999 and June 4, 1999. For clarity,
the Company will sometimes refer to the first 100,000 shares as the "Coleman
Capital Placement" the December 21, 1998 subscription agreement as the "1998
Subscription Agreement;" and to the February 9, 1999 and the June 4, 1999
subscription agreements as the "1999 Subscription Agreements."
THIS PROSPECTUS IS INTENDED ONLY TO REGISTER THE SHARES RESULTING FROM THE
COLEMAN CAPITAL PLACEMENT AND CONVERSION OF THE DEBENTURES FOR OTHER EXISTING
SELLING SECURITY HOLDERS, AND PERSONS WHO MAY PURCHASE FROM THEM, AND NOT TO
RAISE NEW CAPITAL FOR THE COMPANY.
The exact number of shares to be issued pursuant to the debentures will depend
upon the market price of the stock of the Company on the five trading days prior
to any conversion of the debentures. To create a sufficient pool of registered
shares in the event of the conversion of the debentures, the Company has agreed
to register 200% of the number of shares listed in field C(2) in the table below
under Terms of the Offering. If all warrants are exercised, 109,503 additional
shares will be issued.
SEE TERMS OF THE OFFERING.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
The Common Stock of the Company is traded on the AMEX under the symbol DDD. On
June 24, 1999, the last price for the Common Stock was $2.75 per share.
The date of this Prospectus is July ___, 1999.
<PAGE>
SUMMARY OF THE OFFERING
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
ABOUT THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS RELATES ONLY TO THE SECURITIES OFFERED IN AND
DESCRIBED IN THIS DOCUMENT. ADDITIONALLY, THE SECURITIES ARE NOT OFFERED FOR
SALE IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE BY IT WILL, UNDER ANY
CIRCUMSTANCES, CREATE ANY SUGGESTION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS AT THE COMPANY SINCE THE DATE OF THIS DOCUMENT, OR THAT THE INFORMATION
CONTAINED IN THIS PROSPECTUS REMAINS CORRECT.
The number of shares which may be issued upon conversion of any debentures will
depend upon the market price of the stock of the Company on the five trading
days prior to any conversion of each debenture. For example, a range of shares
which may be issued in a transaction described in this Prospectus is described
in the table below. Because the number of shares is dependent upon a fluctuating
market price, it is not possible to state with certainty the number of shares
which will actually be issued (see "Risk Factors"). The table provides a
historical basis for a reasonable estimate of the number of shares which may be
issued based on past stock prices. In the 60 trading days prior to the date of
the February 9, 1999 Subscription Agreement, the market price of the stock of
the Company obtained a high of $3.60 and a low of $2.50. Although the historical
record of stock prices is no assurance of future performance, it creates a
reasonable basis for estimating a range of the possible number of shares which
may be issued pursuant to the convertible debentures.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1 2 3 4
-------------------------------------------------------------------------------
Assumed No. of Shares Issued No. of Shares Estimated Total No.
Market If all debentures are If all warrants of Shares which may
Price Fully exercised Are exercised Be issued
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A $3.60 (1) 912,195 (2) 109,503 1,021,698
- -----------------------------------------------------------------------------------
B $3.00 (3) 1,083,334 109,503 1,192,837
- -----------------------------------------------------------------------------------
C $2.50 (4) 1,300,000 109,503 1,409,503
- -----------------------------------------------------------------------------------
</TABLE>
(1) The highest closing bid price for the Company's stock for the 60
trading days prior to the date of the February 9, 1999 Subscription
Agreement.
(2) The number of shares reflected taking into consideration a maximum
conversion price of $3.54 which creates a floor for the minimum number
of shares which may be issued pursuant to the 1999 Debentures.
(3) The Closing bid price on the day prior to the date of the February 9,
1999 Subscription Agreement.
(4) The lowest closing bid price for the Company's stock for the 60 trading
days prior to the date of the 1999 Subscription Agreement.
2
<PAGE>
The Company does not intend to employ any sales representatives in this offering
or pay any commissions. Estimated costs of the offering are $41,000 and include
attorney fees, accounting, registration, printing and distribution costs. The
Company will pay all costs of the offering.
RISK FACTORS
THE FOLLOWING IS MANAGEMENT'S IDEA ABOUT SOME OF THE MOST IMPORTANT
RISKS OF INVESTING IN THE COMPANY THAT YOU, AS A POTENTIAL INVESTOR,
SHOULD CONSIDER. YOU SHOULD ALSO UNDERSTAND THAT NO LISTING OF RISKS
WILL DESCRIBE EVERY POSSIBLE RISK.
- - THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. "FORWARD-LOOKING" STATEMENTS ARE MANAGEMENTS'
PROJECTIONS OR REASONED PREDICTIONS ABOUT FUTURE PERFORMANCES BY THE
COMPANY. NO GUARANTEE CAN BE MADE THAT THESE PREDICTIONS ABOUT THE
FUTURE WILL COME TO PASS.
- - BASED UPON THE ABOVE DESCRIPTION OF FORWARD-LOOKING STATEMENTS, THE
STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT PURELY HISTORICAL
ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, INCLUDING
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, ESTIMATES,
INTENTIONS AND STRATEGIES ABOUT THE FUTURE. WORDS SUCH AS
"ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS,"
"ESTIMATES," "PROJECTS", "PREDICTS" OR VARIATIONS OF SUCH WORDS AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS, BUT THEIR ABSENCE DOES NOT MEAN THE STATEMENT IS NOT
FORWARD-LOOKING.
- - THESE FORWARD-LOOKING STATEMENTS ARE NEVER GUARANTEES OF FUTURE
PERFORMANCE AND THERE ARE ALWAYS CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT. THE FAILURE OF ANY
FORWARD-LOOKING EVENT TO OCCUR CAN CAUSE ALL FORWARD-LOOKING
PREDICTIONS TO FAIL. THEREFORE, ACTUAL RESULTS MAY AND USUALLY DO
DIFFER FROM THOSE EXPRESSED OR FORECAST IN ANY FORWARD-LOOKING
STATEMENTS.
- - IT IS NOT A REQUIREMENT THAT THE COMPANY CONTINUALLY UPDATE THIS
PROSPECTUS. AS A RESULT, SOME INFORMATION IN THIS PROSPECTUS COULD
BECOME OUT OF DATE - OR BE SUPERCEDED BY CHANGING CIRCUMSTANCES. AS A
RESULT, IT IS SUGGESTED THAT ANY POTENTIAL INVESTOR INQUIRE OF
MANAGEMENT AS TO ANY MATERIAL CHANGES IN THE COMPANY'S CIRCUMSTANCES
BEFORE INVESTING.
3
<PAGE>
- - POTENTIAL INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK
FACTORS BEFORE MAKING A DECISION TO INVEST IN THE SHARES OFFERED
HEREBY.
A. GENERAL BUSINESS RISKS.
1. DEVELOPMENT STAGE. The Company has changed over time by acquiring or
being acquired by other companies, generally called "predecessors". The Company,
by including its surviving predecessors, can trace its original organization
back to April 21, 1989. However, since it has not had any profitable operations
in any of its activities and has only engaged in its present business for
approximately the past two years, the Company must be considered a development
stage enterprise (a company just beginning any active business) with limited
prior operating history. Each investor is advised that, historically,
development stage businesses constitute a greater risk of loss of investment
than investment in a seasoned company.
2. SUCCESS OF PRODUCT AND SERVICES. The Company's products may not be
accepted in the market place or the ideas may be used by competitors without the
consent of the Company. The Company is engaged in the development and marketing
of what must be considered as novel and experimental new products and
innovations. Each investor should consider, as a risk factor, the possibility
that the investor could invest in this Offering and not receive any return of
investment, or lose his entire investment if the products are not successfully
marketed or otherwise not commercially accepted.
3. COMPETITION. There is substantial competition, both locally and
internationally, in the electronics and media industries in which the Company
operates. No assurance can be made, despite the best efforts of management, that
other companies may not produce competitive programs, services, or devices at a
lower price or a better product which could cause the Company to be commercially
unprofitable.
4. GOVERNMENT REGULATION. Various activities in the industry in which
the Company operates have been subject to government regulation, such as
regulation by the Federal Communications Commission (FCC) as to broadcasts, the
Federal Trade Commission (FTC) on trade practices, as well as other national and
local governmental agencies. Various changes by regulatory agencies, or the tax
treatment of the Company or its operations, could have serious negative effects
upon the Company and its profitability.
5. YEAR 2000 COMPLIANCE. The Company is concerned that the entire
electronics and media industries may be substantially and adversely interrupted
by various possible failures of computer systems and programs in or shortly
after the beginning of the year 2000. These interruptions or adverse results may
arise from the failure of computers and their software systems to properly
recognize or adjust to the change to the year 2000 within their systems.
Affected computers may cease to function, function erroneously and/or lose data.
It is not possible to describe all potential adverse results, but it is believed
that such adverse impacts, if they occur, may be most significant in the
broadcast industries which could directly bear upon the Company's future
operations.
The Company believes it has reviewed and corrected its own computer
systems to work through the year 2000 (Y2K), but adverse results could easily
result from various media, or other
4
<PAGE>
companies through or with which the Company intends to engage in business or in
selling products. Since these risks cannot realistically be measured, each
investor should consider these as unknown and undetermined Y2K risk factors.
Please consider the further review and discussion of Y2K compliance and issues
under "Managements' Discussion and Analysis of Financial Conditions" in the
incorporated and amended Form 10-QSB report of the Company for the quarter ended
December 31, 1998.
B. PARTICULAR RISKS OF THIS OFFERING.
1. OPERATING LOSSES. As you should note in the Financial Statements for
the Company, the Company, to date, has a net operating loss from limited sales;
that is to say, it has always lost money in its business operations. While start
up companies frequently have operating losses, each investor should consider
losses as a risk. Further, the auditors have reserved an opinion as to whether
the Company may be deemed a "going concern," that is continue to operate without
profits.
2. ARBITRARY OFFERING PRICE. The Offering price of the Company's stock
has been arbitrarily determined (determined without objective criteria or
ratios) and does not reflect any computed value or net worth of or in the
Company.
3. NEW PRODUCTS AND CONCEPTS. The new products and services of the
Company do not have established or proven customers or markets. As a
consequence, there can be no certainty the Company will be commercially
successful in its intended efforts to produce and market its new products or
services. Moreover, even if fully protected, there is no certainty the Company
will be successful in its marketing efforts for the new products and services,
that a market demand will be created for such new products or services, or that
its products may not have inherent defects or problems making them unsuitable.
All of these potential problems must be considered as risks.
4. SUBSTANTIAL DILUTION. Investors in this Offering will suffer an
immediate and substantial loss in the value of their shares from the purchase
price. This dilution is the amount by which the value of the investor's shares
is reduced from the purchase price of the shares immediately after the offering.
In the event the Company is required to raise subsequent capital for its
products or operations, it is probable that shares will be sold on terms
different than offered herein, and investors may incur subsequent dilutions, as
well as a decrease in voting control. Dilution will also result from the
exercise of option rights at prices below the price at which the shares are
issued in this Offering.
5. OPTIONS AND OTHER PRIVATE PLACEMENT. There are options (future
rights at a fixed price) to purchase stock in the Company granted to management
and other parties which would afford such holders the right to potentially
acquire future shares at prices which may be below the market price for the
Company's shares or less than the price at which shares are to be sold pursuant
to this registration. To the extent such options are exercised, or subsequent
registrations completed, such transactions may result in additional "dilution"
to existing shareholders and will, in all events, result in a decrease in voting
control to the investors in this Offering.
6. MINORITY STATUS. Investors acquiring shares in this Offering must
understand they will acquire a minority position, less then 50% of voting
shares. That is, other shareholders will continue to hold the majority of the
issued and outstanding shares; and, thereby, control the Company.
5
<PAGE>
7. LACK OF ADEQUATE CAPITALIZATION. The funds being raised in
concurrent Regulation "S" offerings, the recently completed convertible
debenture Private Placement offering resulting in this registration, and other
anticipated registrations, may not adequately fund the intended business
purposes and products, and subsequent funding may not be available. The Company
currently has limited assets, working capital or net worth. See the incorporated
Financial Statements of the Company.
8. REGISTRATION RIGHTS. The investors in the recently completed
convertible debenture private placement offerings have the right to require the
Company to register their shares acquired in that offering. This Offering has
been created by the Company because of the initial exercise of those
registration rights. As a result, the Company will incur considerable expense in
completing the registration of all these shares as converted. Further, the
registration of these shares will create more free trading stock which could
depress the future market price of the Company's shares for investors in this
Offering.
9. CONTINUING SERVICES OF MANAGEMENT. While the Chief Executive Officer
(CEO) and other officers intend to serve the Company on a full-time basis, there
is no assurance or warranty that the present management may not retire, resign,
or otherwise leave the Company at some future date, resulting in the risks
inherent in a change of management to a start-up company. Further, the Company
may need to acquire other full-time officers or employees.
10. COMPENSATION OF MANAGEMENT. At present, management is being paid
substantial compensation from capital. This means a significant portion of money
raised, rather than being applied to create products, services or facilities,
may be used to pay salaries before there are sufficient revenues to fully cover
salaries and other compensation.
11. SECURITY INTERESTS IN STRATA TECHNOLOGY AND ASSETS. The Company
anticipates acquiring the Strata technology through acquisition and foreclosure
of security interests in the technology. There exists potential risk of adverse
claims or redemptive rights to this technology. The Company has analyzed these
potential risks through its legal counsel and does not deem such risks to be
significant.
12. CUMULATIVE VOTING, PREEMPTIVE RIGHTS AND CONTROL. There are no
preemptive rights (generally the right to participate in new share offerings in
proportion to your existing stock percentage) in connection with the shares of
Common Stock being offered. Cumulative voting (the right to cast all votes a
shareholder may have in electing the Board for one director) in the election of
directors is not permitted. Accordingly, the holders of a majority of the shares
of Common Stock present in person or by proxy, will be able to elect all of the
Company's Board of Directors and control the Company.
13. NON-ARM'S LENGTH TRANSACTION. The number of shares of Common Stock
issued to certain present shareholders of the Company for cash and property, and
the price for these shares, was set without reference to any value and may not
be considered the product of a freely negotiated transaction between independent
persons with substantially equal bargaining power, an arm's length transaction.
6
<PAGE>
14. LITIGATION. As disclosed in the incorporated reports of the
Company, the Company or its subsidiaries have been engaged in certain law suits
which have resulted in ongoing expenditures and may result in financial
obligations for the subsidiaries of the Company. The Chairman of the Company is
also named as a defendant in one of the suits . The most significant suit has
been settled and requires the Company to make monthly payments of forty thousand
dollars each for the months of February through September of 1999. Each investor
should review the Litigation Section.
15. DILUTIVE AND OTHER EFFECTS OF SUBSCRIPTION AGREEMENTS. While the
Subscription Agreements have helped provide the Company with financing, the sale
of shares and the Units and the issuance of shares pursuant to the conversion of
the Debentures and the exercise of the Warrants have and will reduce the net
worth per share of other stockholders of the Company. Further, the Company's net
income per share could be materially decreased in future periods, and the market
price of the Common Stock could be adverse affected. In addition, the Common
Stock may be issued in this subscription at a discount to the then prevailing
market price of the Common Stock. These discounted sales could have an immediate
negative effect on the market price of the Common Stock. The Debentures and the
Warrants contain provisions that attempt to protect against dilution to their
holders, such as by adjustment of the exercise price and the number of shares
issuable thereunder upon the occurrence of certain events, such as a merger,
stock split or reverse stock split, stock dividend or recapitalization. These
protections, if effective, could increase the dilution to existing stockholders.
16. NO FORESEEABLE DIVIDENDS. The Company has not paid dividends (a
distribution of a share of net earnings by the Company to its shareholders) on
its Common Stock and does not anticipate paying dividends on its Common Stock in
the foreseeable future. No dividend can be considered until there are earnings.
17. ABILITY TO ISSUE SHARES WITHOUT SHAREHOLDER APPROVAL. The Company
has the ability to issue shares of preferred and common stock without
shareholder approval. The issuance of such shares could have a deterrent effect
upon third parties attempting to take control of the Company, and a dilutive
affect on existing shareholders.
C. SECURITIES RISK FACTORS.
1. LIMITED MARKET. Each prospective investor in this Offering should
understand the Company has very limited stock trading markets and no assurance
can be given that the price of the stock may not be at risk or affected by the
completion of this registration, or that the price will remain the same as
currently quoted. Further, because the markets are very thinly traded, any
additional shares issued by the Company may have significant impacts upon those
markets.
2. PRESENT SEC REVIEW STANDARDS. The Company has been informed, through
its counsel, that the SEC is currently critically reviewing various offering
types, like this Offering, which have convertible debentures with subsequent
registration rights. In the popular financial literature, an offering type
similar to the Company's present convertible debenture offering (with preferred
registration rights and conversion based upon a formula), have been described as
"toxic convertible" offerings. While not prohibited by the SEC, each investor
should clearly understand that the SEC will most likely critically review any
type of offering of this nature. Such review and comments may cause
unanticipated and unusual delays in the clearance of any subsequent registration
rights or any subsequent offerings by the Company. Moreover, this type of
offering may be subject to a higher
7
<PAGE>
level of administrative review and potential administrative actions or
investigations by the Securities and Exchange Commission.
3. REQUIREMENTS OF SEC WITH REGARD TO LOW-PRICED SECURITIES. The Common
Stock of the Company, based upon the minimal net worth of the Company, limited
public trading, and low stock price, is subject to a special set of regulatory
rules related to sales by brokers as administered by the Securities and Exchange
Commission. Specifically, the Common Stock is subject to Rule 15g-9 under the
Exchange Act, which imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with net worths in
excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, the
rule may make it more difficult for any broker-dealers to sell the Common Stock
that you purchase in this Offering and may adversely affect the ability of
purchasers in this Offering to sell any of their Shares.
4. SHARES ELIGIBLE FOR FUTURE SALE. Sale of substantial amounts of the
Company's Common Stock in the public market, or the prospect of such sales,
could materially and adversely affect the market price of the Common Stock. As
of June 10, 1999, the Company had outstanding 22,693,932 shares of Common Stock
(including shares which were subject to paid subscription agreements, but not
yet issued), warrants to purchase 109,503 additional shares of Common Stock and
debentures convertible into an indeterminate number of shares of Common Stock
pursuant to the 1998 and 1999 Subscription Agreements. In addition, as of this
date, the Company had vested options to purchase 51,000 shares of Common Stock
under its Incentive Stock Option Plan (the "Stock Option Plan") and 444,412
shares pursuant to non-qualified option plans. All of the shares purchased under
the Stock Option Plan are available for sale in the public market, but are
subject in some cases to volume and other limitations.
Resales of these shares into public markets may cause the current stock prices
to decline. A substantial number of the Company's presently outstanding shares
of Common Stock are "restricted" securities and may be sold in compliance with
Rule 144 or Regulation S adopted under the Securities Act, if certain
requirements are met. Rule 144 essentially provides that after one year from the
date of acquisition, a person, including affiliates of the Company (or persons
whose shares are aggregated), may sell an amount up of to one percent (1%) of
the issued and outstanding shares of Common Stock of the Company within any
three month period, provided that certain current public information about the
Company is available. A person who has not been an affiliate of the Company (or
persons whose shares are not to be aggregated for the purpose of the resale of
the securities), who has owned restricted shares of Common Stock for at least
two years is entitled to sell such shares under Rule 144 without regard to any
of the limitations described above. Therefore, in each three month period after
the date of this offering, a significant number of shares of Common Stock could
be sold under Rule 144 by each person having held the securities for at least
one year. Also, any shares of Common Stock currently held by non-residents of
the United States may be sold after a one-year holding period subject to the
same volume restrictions as Rule 144 under Regulation S. Investors should be
aware of the possibility that sales under Rule 144 or shares issued pursuant to
Regulation S may, in the future, have a depressing effect on the price of the
Common Stock.
8
<PAGE>
5. EFFECT UPON MARKET PRICE OF SHARES TO BE ISSUED UPON CONVERSION. In
conjunction with the Subscription Agreements in its current private offering to
the Augustine Fund L.P., the Company issued to the Selling Shareholder thirteen
Units, comprised of the Debentures and the Warrants. The Selling Shareholder may
convert the Debentures into Shares of Common Stock at a conversion price equal
to the lesser of eighty percent (80%) of the average closing bid price of the
Common Stock for the five trading days immediately preceding the date the
Debentures are presented for conversion or a fixed dollar amount per share as
provided in the Debentures. The 1998 Warrant entitles the Selling Shareholder to
purchase 24,753 shares of Common Stock of the Company at a price of $3.64 per
share and the 1999 Warrants entitles the Selling Shareholder to purchase 84,750
shares of Common Stock of the Company at a price of $3.54 per share. The
Warrants are exercisable at any time during the three years following their
issuance to the Selling Shareholder. This offering represents a registration of
these initial conversion shares, as well as 100,000 shares for Coleman Capital
Partnership, which is an unrelated party.
Under the foregoing conversion formula for the Debentures, the number of shares
of Common Stock issuable upon conversion will increase if the market price of
the Common Stock decreases. The Company cannot determine accurately the number
of Shares which may be issued to the holders of the Debentures as such number is
based upon the market price of the Common Stock prior to the conversion date.
To the extent the Selling Shareholder converts a portion of the Debentures and
then sells the shares of Common Stock received upon conversion, the market price
of the Common Stock may decrease even further due to the additional shares in
the market which would allow the Selling Shareholder to convert other portions
of the Debentures into greater amounts of Common Stock and further depress the
price of the Common Stock. There may also be an incentive for debenture holders
to decrease the price of the Company's stock which should be considered an
additional risk factor.
Sales in the public market of substantial amounts of Common Stock, including
sales of Shares issued upon conversion of the Debentures and exercise of the
Warrants, or the perception that such sales could occur, could depress
prevailing market prices for the Common Stock. The existence of the Debentures
and the Warrant and any other options, debentures or warrants may prove to be a
hindrance to future equity financing by the Company. Further, the holders of
such debentures, warrants and options may exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
pursuant to this Prospectus. For further information, reference is made to the
Registration Statement. In addition, the Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files quarterly, annum and periodic reports
and other information with the Commission. The Registration Statement, such
reports and other information may be inspected and copies may be obtained, at
prescribed rates, at the Commission's Public Reference Section, Judiciary Plaza,
450 Fifth Street, NW, Washington, D.C. 20549, as well as the following regional
offices: 7 World Trade
9
<PAGE>
Center, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission maintains a Website that contains
reports and other information regarding reporting companies under the Exchange
Act, including the Company, at http:// www.sec.gov.
This Prospectus constitutes a part of the Registration Statement. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and to the
exhibits relating thereto for further information with respect to the Company
and the Common Stock. Any statements contained herein concerning the provisions
of any documents are not necessarily complete, and reference is made to the copy
of such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission and
are hereby incorporated by reference into this Prospectus: (i) Amended Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1998, (ii) Quarterly
Reports of the Company, and amendments thereto, on Form 10-QSB for the quarters
ended June 31, 1998, September 30, 1998 and December 30, 1998; and (iii) the
Company's Form 8-K dated December 23, 1998 relating to the acquisition of
certain assets of Alpha Broadcasting Communications, which are used in the C-3D
Digital III pay-per-view division of the Company. All other documents and
reports filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of this
offering shall be deemed to be incorporated by reference in this Prospectus and
to be made a part hereof from the date of the filing of such reports and
documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or supersede shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all documents which are incorporated herein by reference (not
including exhibits to such documents, unless such exhibits are specifically
incorporated by reference in the document which this Prospectus incorporates).
Requests should be directed to Mr. Steven Anderson, Chief Financial Officer, at
the Company's principal executive offices located at 57 West 200 South, Suite
350, Salt Lake City, Utah 84101, telephone number (801) 322-1111.
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The PSLRA
provides a "safe harbor" for such statements to encourage companies to provide
prospective information about themselves so long as such information is
identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those
10
<PAGE>
projected in the information. All statements other than statements of historical
fact made in this Prospectus or incorporated by reference are forward-looking.
In particular, the statements herein regarding the availability of adequate
funding and progress in the development of its various business segments are
forward-looking statements. Forward-looking statements represent management's
current expectations and are inherently uncertain. Investors are warned that the
Company's actual results may differ significantly from management's expectations
and, therefore, from the results discussed in such forward-looking statements.
Factors that might cause such differences include, but are not limited to, the
"Risk Factors" described herein.
THE COMPANY
The Company is a pioneer in bringing virtual reality to computer and television
screens. The Company is pursuing activities in three divisions designated at
C-3D Digital III, 3D.Com and C-3D Realeyes. As described below under the heading
"Recent Developments," the Company anticipates establishing a fourth division to
be known as C-3D Strata. C-3D Digital III is believed to be the first television
network to exclusively offer 3D programming to satellite dish owners, cable TV
subscribers and the patrons of the lodging industry through a pay-per-view
delivery system. 3D.Com is establishing new entertainment and e-commerce
paradigms on the internet. C-3D Realeyes is the patented hardware technology
that turns any TV into a 3D virtual reality station. The anticipated Strata
division is based upon the work of a ten year pioneer in 3D software, providing
technologies for content creation and internet delivery. These four
interconnected components - television, the web, hardware and software - provide
the Company with the critical links between 3D technology and the consumer. The
Company's principal executive offices are located at 57 West 200 South, Suite
350; Salt Lake City, Utah, 84101, and its telephone number is (801) 322-1111.
RECENT DEVELOPMENTS
CORPORATE NAME CHANGE
The Company has filed in the state of Utah an application to conduct business
under the assumed name of C-3D Digital, Inc. This name is more in keeping with
the Company's focus on its entertainment and communications business related to
3D technology. At the time of the next meeting of shareholders of the Company,
management contemplates submitting a proposal to amend the Articles of
Incorporation to reflect this new name.
AMEX LISTING
On June 9, 1999, the Common Stock of the Company began trading on AMEX. The new
trading symbol for the stock of the Company is DDD, reflective of the Company's
focus on 3D products and services.
STRATA BUSINESS
During calendar year 1998, management of the Company has been introduced to
Strata, Inc., a St. George, Utah corporation, engaged in software development.
Essentially all of the Strata products are complimentary to the 3-dimensional
business applications of the Company and the Company has
11
<PAGE>
examined various strategies to either license or acquire the Strata technology.
In the event the Company is successful in acquiring ownership of the Strata
technology, the Company anticipates (a) incorporating the technology in its
current products and services, and (b) marketing, in a new division called C-3D
Strata, the principal products formerly offered by Strata, Inc.
Strata, Inc. is one of the early pioneers in 3D software. The Strata tool line
has been used for such well-known projects as the game "MYST"-C-; television
shows like the "'98 MTV Movie Awards"-C-, "Hercules"-C- and "Xena"-C-; the NBC
dancing peacocks; the Warner Bro.'s and Blockbuster web sites; the films
"Contact"-C-, "5th Element"-C-, "Batman Forever"-C-, and many others. These
tools and the Strata development team would provide C-3D Digital with some of
the most advanced 3D technology available and should enhance C-3D Digital's
position in 3D media and technology.
Strata is in the business of providing 3D centric graphical software
applications to professionals and non-professionals alike. The Strata tools are
used to create content for the web, television, feature films, multimedia and
print. Non-professionals use Strata applications for home video, desktop
publishing, visualization and recreation. Strata develops, publishes, packages,
markets, sells and supports these software applications.
The core products offered by Strata, Inc. have been the following:
STUDIOPRO. StudioPro is the premier Strata 3D product and is available for Apple
Macintosh, Windows 98 and NT. StudioPro has a retail price of $1,495 and is
available in the US at the "street price" of approximately $950. StudioPro is
used for creating 3D images and animations for the web, video, movies, print,
games and multimedia. StudioPro is well know for being used to create the
graphics for the world's best selling CD-Rom game Myst-C-. Recently StudioPro
has been used on projects such as the Blockbuster Video Web site, the NBC
dancing peacocks and the movie Contact. An upcoming release will add special
stereographic 3D features. StudioPro has an installed base of approximately
60,000.
VISION 3D. Vision 3D is an entry level 3D product and is based directly on
StudioPro. Vision 3D is presently available only on Apple Macintosh computers.
Vision 3D is priced at $395 retail with a $295 street price. Vision 3D is used
by professionals and non-professionals alike. Vision 3D is used for print, Web,
video and multimedia - as well as recreational purposes. Vision 3D has an
installed base of approximately 40,000.
VIDEOSHOP. VideoShop is a professional quality non-linear video editor and
presently runs only on Apple Macintosh computers. VideoShop is priced at $495
retail with a $395 street price. VideoShop is used primarily for multimedia, web
and desktop video tasks. VideoShop has been bundled on select Macintosh
computers for over five years and has developed an installed base of well over
one million customers through this process.
MEDIAPAINT. MediaPaint is a video painting and effects application. MediaPaint
is available for Apple Macintosh, Windows 98 and NT. MediaPaint is priced at
$695 retail with a $395 street price. MediaPaint is used for professional
projects on the Web, multimedia and broadcast video. MediaPaint has an installed
base of approximately 6,000 users.
12
<PAGE>
On December 10, 1998, the Company purchased for cash the secured position of
Zions Bank, NA in receivables, certain equipment and general intangibles of
Strata, Inc. The general intangibles collateral interest of Zions Bank would
constitute a first lien position in all or some of the Strata technology. The
Company has also purchased the secured positions of five additional creditors
having secured interests in the Strata technology (the "Additional Secured
Creditors"), including secured interests in the registered copyrights of Strata,
Inc. in its software intellectual property. The total debt secured by the
interests of the Additional Secured Creditors exceeds $4.0 million. The
positions of the Additional Secured Creditors were purchased by the issuance of
353,333 shares of restricted Common Stock of the Company. All of the described
debt is delinquent and the collateral is subject to foreclosure.
On May 5, 1999, the Company obtained a judgement against Strata in the amount of
$4,798,810.71 and held a foreclosure sale on the collateral (including the
Strata technology), pledged to secure the debt owing on the promissory notes and
leases acquired by the Company. The judicial sale on the judgement was completed
on Wednesday, June 16, 1999 and the Company acquired ownership of the
collateral.
One other creditor had a security interest junior to that of Zions Bank, and
possibly senior to some of the obligations of the Additional Secured Creditors.
The claim of this single intervening creditor does not exceed $35,000 and does
not jeopardize the judicial sale. Such creditor was advised of the sale and did
not appear at the sale to bid against the security interests acquired by the
Company. As a result of the events which transpired at the June 16th judicial
sale, the risk of adverse claims or redemptive rights being asserted by other
creditors of Strata are now considered to be remote, and the Company has
successfully acquired ownership of the technology previously owned by Strata .
SUMMARY OF THE OFFERING
On December 21, 1998, February 9, 1999 and on June 4,1999, the Company entered
into the subscription agreements with the Selling Shareholder pursuant to which
the Company issued a total of thirteen units. Each unit is comprised of $250,000
in aggregate principal amount of 8% Convertible Redeemable Debentures and a
warrant to purchase shares of Common Stock of the Company (the "Units"). For
purposes of clarity, the December 21, 1998 subscription agreement will be
referred to as the "1998 Subscription Agreement", and the debentures and
warrants issued under the 1998 Subscription Agreement will be referred to as the
1998 Debentures and the 1998 Warrants. The February 9, 1999 and June 4, 1999
subscription agreements will be referred collectively to as the "1999
Subscription Agreements", and the debentures and warrants issued under the 1999
Subscription Agreements will be referred to as the 1999 Debentures and the 1999
Warrants. Except for the February 9th and June 4th dates of the 1999
Subscription Agreements, Debentures and Warrants, the terms of the February 9th
and June 4th documents are identical. When the 1998 and 1999 documents are
referred to collectively, they will be respectively called the Subscription
Agreements, the Debentures and the Warrants.
Although the terms of the 1998 and 1999 Debentures are nearly identical, the
dates of the Debentures are different as well as the amount of the maximum
conversion price. Similarly, the terms of the 1998 and 1999 Warrants are nearly
identical, except for the number of shares covered by the Warrants, the dates of
exercise and the exercise price.
13
<PAGE>
Pursuant to the 1998 Subscription Agreement, the Company sold to the Augustine
fund, L.P. (the "Augustine Fund") three Units as of December 21, 1998 consisting
of $750,000 in principal amount of the 1998 Debentures and the 1998 Warrant for
24,753 shares. Shares are obtainable by the Augustine Fund on conversion of the
1998 Debentures at a conversion price equal to the lesser of eighty percent
(80%) of the average closing bid price of the Common Stock for the five (5)
trading days immediately preceding the conversion date or $3.64 per share. The
1998 Warrant may be exercised at any time up to December 21, 2001 at an exercise
price of $3.64 per share. Pursuant to the 1999 Subscription Agreements, the
Company sold to the Selling Shareholder eight Units as of February 9, 1999 and
two Units as of June 4, 1999 consisting of $2,500,000 in principal amount of the
1999 Debentures. The total number of shares available under the 1999 Warrants is
84,750. Shares are obtainable by the Augustine Fund on conversion of the 1999
Debentures at a conversion price equal to the lesser of eighty percent (80%) of
the average closing bid price of the Common Stock for the five (5) trading days
immediately preceding the conversion date or $3.54 per share. The February 9,
1999 Warrant may be exercised for as many as 67,800 shares at any time up to
February 9, 2002 at an exercise price of $3.54 per share. The June 4, 1999
Warrant may be exercised for as many as 16,950 shares at any time up to June 4,
2002 at an exercise price of $3.54 per share.
The Augustine Fund acquired the Debentures and the Warrants pursuant to the
Subscription Agreements from the Company for cash. Upon conversion of the
Debentures or exercise of Warrants, the Augustine Fund may offer for sale, by
use of this Prospectus, the Shares of Common Stock issued under such Debentures
and Warrants. The Coleman shares may also be sold pursuant to this prospectus.
In addition to the debenture/option investor, Coleman Capital was sold 100,000
shares being registered by agreement under this Registration.
<TABLE>
<S> <C>
Securities Offered by the Augustine Fund.....................estimated at not more
than 2,709,503 shares
Common Stock
Securities Offered by Coleman Capital..................100,000 shares Common stock
Common Stock Outstanding or
Subscribed for as of March 10, 1999..........................22,693,932 shares (1)
Risk Factors..........................................Any investment in the Shares
offered hereby involves a high
degree of risk. See "Risk
Factors."
</TABLE>
(1) Does not include: (a) the shares issuable upon conversion of the Debentures
which are the subject of the Subscription Agreements or the Warrants; (b)
444,412 shares of Common Stock issuable upon exercise of stock options
outstanding as of June 10, 1999; or (c) shares of Common Stock that may be
issued under the Company's Incentive Stock Option Plan.
14
<PAGE>
USE OF PROCEEDS
The Selling Shareholders will receive all of the proceeds from the sale
of the Common Stock offered hereby. The Company will not receive any of the
proceeds from such sale.
DETERMINATION OF OFFERING PRICE
The Common Stock offered by this Prospectus may be offered for sale by the
Selling Shareholders from time to time in transactions on the over-the-counter
market, in negotiated transactions, or otherwise, or by a combination of these
methods, at fixed prices which may be changed, at market prices at the time of
sale, at prices related to market prices or at other negotiated prices. As such,
the offering price is indeterminate as of the date of this Prospectus. See "Plan
of Distribution."
SELLING SHAREHOLDERS
The Selling Shareholders are the Coleman Capital Partners Ltd. and the Augustine
Fund L.P. (the "Augustine Fund"), the holder of the Debentures and the Warrants.
The Augustine Fund acquired the Debentures and Warrants for cash pursuant to the
Subscription Agreements with the Company. The following table sets forth certain
information regarding ownership by Coleman and by the Augustine Fund Warrants as
of June 10, 1999 and the number of Shares that may be offered for the account of
the Selling Shareholders or their transferees or distributees from time to time
upon conversion of the Debentures and exercise of the Warrant.
<TABLE>
<CAPTION>
Name Shares Beneficially Owned Shares Offered Shares Beneficially Owned
Before Offering /(1)/ for Sale After Offering /(1)/
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
No. of Percent No. of Shares Percent
Shares /(1)/ /(2)/ /(2)/
------------------------ -------------------------
Augustine Fund, L.P. 2,709,503 10.7 % -0- -0-
Coleman Capital 100,000 0.4 % 0 0
Partners Ltd.
</TABLE>
(1) The Augustine Fund is deemed to beneficially own the shares of Common Stock
into which the Debentures held by it are convertible and the shares of Common
Stock issuable upon exercise the Warrants. As discussed in greater detail in the
Terms of the Offering Section of this Prospectus, the number of shares of stock
which may be issued upon the conversion of the Debentures is dependent upon the
market price of the stock of the Company on the five trading days prior to the
conversion of each separate Debenture. The number of shares listed in the table
above is the total of (a) the 109,503 shares which may be acquired pursuant to
the Warrants, and (b) the 2,600,000 shares which may be acquired by the Selling
Shareholder pursuant to the Debentures and which are being registered pursuant
to the Form S-3 registration statement, of which this Prospectus is a part. The
2,600,000 shares referred to represents a computed 200% of the number of shares
which would be issued if the conversion price on all Debentures was $2.50 per
share. This per share price was the lowest closing bid price of the Company's
stock during the arbitrarily selected period of the 60 trading days prior to
15
<PAGE>
the date of the February 9, 1999 Subscription Agreement, and may have no
relationship to the market price of the Company's stock at the conversion dates
of any of the Debentures.
(2) Total shares of Common Stock outstanding for the purpose of this percentage
calculation includes the Common Stock into which the Debentures are convertible
and the 109,503 shares issuable upon exercise of the Warrant, but does not
include 444,412 shares of Common Stock issuable on exercise of outstanding stock
options or shares of Common Stock that may be granted under the Company's
Incentive Stock Option Plan.
Coleman Capital has been engaged by the Company to render certain services for
the Company. The 100,000 shares of the Common Stock of the Company to be sold by
Coleman pursuant to this Prospectus constitute part of the consideration paid
for such services. Coleman also received a fee of 6% of the gross investment of
the Augustine Fund. Except as disclosed in this paragraph,the Selling
Shareholders have not had any material relationship with the Company, or any of
its affiliates, within the past three years.
The Selling Shareholders have represented to the Company that they purchased the
shares or Units for their own account for investment only and not with a view
towards the public sale or distribution thereof, except pursuant to sales
registered under the Securities Act or exemptions therefrom. In recognition of
the fact that the Selling Shareholders, even though purchasing the Units for
investment, may wish to be legally permitted to sell their Shares when they deem
appropriate, the Company agreed with the Selling Shareholders to file with the
Commission under the Securities Act the Registration Statement with respect to
the sale of the Shares from time to time in transactions in the over-the-counter
market, in privately negotiated transactions, or through a combination of such
methods of sale, and has agreed to prepare and file such amendments and
supplements to the Registration Statement as may be necessary to keep the
Registration Statement effective until the Shares are no longer required to be
registered for the sale thereof by the Selling Shareholder. The natural persons
who control the Augustine Fund are John Porter, Brian Porter and Thomas
Duszynski. Coleman Capital Partners is controlled by Coleman & Company
Securities, a registered broker/dealer; Douglas Layton and Michael Novielle. In
the event the registration of additional shares is necessary, the Company has
agreed to prepare and file such additional registration statements as may be
necessary to allow the Augustine Fund to sell all of its Shares.
PLAN OF DISTRIBUTION
All of the Shares offered hereby may be sold from time to time by the Selling
Shareholders, or by their pledgees, donees, distributees, transferees or other
successors-in-interest. The sale of the Shares by the Selling Shareholders may
be effected from time to time in transactions in the over-the-counter market, or
on one or more other securities markets and exchanges, in privately negotiated
transactions, or through a combination of such methods of sale, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at prices
relating to such prevailing market prices or at negotiated prices. The Selling
Shareholders may effect the above-mentioned transactions by selling the Shares
directly to purchasers, acting as principals for their own accounts, or by or
through broker-dealers acting as agents for the Selling Shareholders, or to
broker-dealers who may purchase Shares as principals and thereafter sell such
Shares from time to time in transactions on any exchange or market on which such
securities are listed or quoted, as applicable, in negotiated transactions,
through a combination of such methods of sale, or otherwise. Such broker-dealers
may receive compensation in
16
<PAGE>
the form of discounts, concessions or commissions from the Selling Shareholders
and/or the purchasers of the Shares for whom such broker-dealer may act as
agents or to whom they may sell as principals, or both (which compensation as to
a particular broker-dealer may be in excess of customary commissions). Any
broker-dealer may act as a broker-dealer on behalf of the Selling Shareholders
in connection with the offering of certain of the shares by the Selling
Shareholders. None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. In addition, any of the Shares
that qualify for sale pursuant to Rule 144 promulgated under the Securities Act
may be sold in transactions complying with such Rule, rather than pursuant to
this Prospectus.
The Company has the right to suspend use of this Prospectus for a discrete
period of time under certain circumstances.
To the extent required, the amount of the Shares to be sold, purchase prices,
public offering prices, the names of any agents, dealers or underwriters, and
any applicable commissions or discounts with respect to a particular offer will
be set forth by the Company in a Prospectus Supplement accompanying this
Prospectus or, if appropriate, a post-effective amendment to the Registration
Statement.
The Selling Shareholders may be deemed to be statutory underwriters under the
Securities Act. Also any broker-dealers who act in connection with the sale of
the Shares hereunder may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any commissions received by them and
profit on any resale of the Shares as principal may be deemed to be underwriting
discounts and commissions under the Securities Act. The Company has agreed to
bear all expenses (other than selling commissions and fees and stock transfer
taxes) in connection with the registration and sale of the Shares being offered
by the Selling Shareholder. The Company has agreed to indemnify the Augustine
Fund against certain liabilities, including liabilities under the Securities
Act.
Offers or sales of the Shares have not been registered or qualified under the
laws of any country, other than the United States. To comply with certain
states' securities laws, if applicable, the Shares will be offered or sold in
such jurisdictions only through registered or licensed brokers or dealers.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Shares may be limited in its ability to engage
in market activities with respect to such Shares. In addition and without
limiting the foregoing, the Selling Shareholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of any of the Shares by
the Selling Shareholders. The foregoing may affect the marketability of the
Shares.
There can be no assurance that the Selling Shareholders will sell any or all of
the Shares offered by them hereunder.
17
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is presently authorized to issue 500,000,000 shares of its Common
Stock. As of June 10, 1999, there were 22,693,932 shares issued, outstanding and
subscribed for shares. The holders of Common Stock are entitled to one vote per
share on each matter submitted to a vote at any meeting of shareholders. Shares
of Common Stock do not carry cumulative voting rights and, therefore, a majority
of the outstanding shares of Common Stock will be able to elect the entire Board
of Directors. If they do so, minority shareholders would not be able to elect
any members to the Board of Directors.
Shareholders of the Company have no preemptive rights to acquire additional
shares of Common Stock or other securities. The Common Stock is not subject to
redemption and carries no subscription or conversion rights. In the event of
liquidation of the Company, the shares of Common Stock are entitled to share
equally in corporate assets after satisfaction of all liabilities. The Shares,
when issued, will be fully paid and non-assessable.
WARRANTS
The 1998 Warrant will entitle the holder to purchase 24,753 shares of Common
Stock at a price of $3.64 per share. The Warrant is exercisable at any time
beginning on December 21, 1998 and ending on December 21, 2001. The shares of
Common Stock underlying the Warrant, when issued upon exercise of the Warrant in
whole or in part, will be fully paid and nonassessable.
The 1999 Warrants will entitle the holder to purchase 84,750 shares of Common
Stock at a price of $3.54 per share. The February 9, 1999 Warrant is exercisable
at any time beginning on February 9, 1999 and ending on February 9, 2002. The
June 4, 1999 Warrant is exercisable at any time beginning on June 4, 1999 and
ending on June 4, 2002 The shares of Common Stock underlying the Warrants, when
issued upon exercise of the Warrant in whole or in part, will be fully paid and
nonassessable.
DEBENTURES
The 8% Redeemable Convertible Debentures, are convertible at any time after the
effective date of the Registration Statement. The conversion price for the 1998
Debentures is the lesser of eighty percent (80%) of the average closing bid
price of the Common Stock for the five (5) trading days prior to the date on
which the Debentures are presented for conversion or $3.64 per share. The
conversion price for the 1999 Debentures is the lesser of eighty percent (80%)
of the average closing bid price of the Common Stock for the five (5) trading
days prior to the date on which the Debentures are presented for conversion or
$3.54 per share.
The Debentures and the Warrants contain provisions that protect the holder
against dilution by adjustment of the exercise price. Such adjustments will
occur in the event, among others, of a merger, stock split or reverse stock
split, stock dividend or recapitalization. The holder of the Debenture and the
Warrant will not possess any rights as a shareholder of the Company until such
holder converts the Debenture or exercises the Warrants.
18
<PAGE>
For the life of the Debentures and the Warrants, the holder thereof has the
opportunity to profit from a rise in the market price of the Common Stock
without assuming the risk of ownership of the shares of Common Stock issuable
upon conversion of the Debentures or the exercise of the Warrants. The Warrant
holder may be expected to exercise the Warrants at a time when the Company
would, in all likelihood, be able to obtain any needed capital by an offering of
Common Stock on terms more favorable than those provided for by the Warrants.
Furthermore, the terms on which the Company could obtain additional capital
during the life of the Warrants may be adversely affected.
LIMITATION ON LIABILITY AND DISCLOSURE OF COMMISSION'S POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The by-laws of the Company provide for indemnification of the Company's
directors and officers to the fullest extent permitted by law. Insofar as
indemnification for liabilities under the Securities Act may be permitted to
directors, officers or controlling persons of the Company pursuant to the
Company's Articles of Incorporation, as amended, by-laws and Utah law, the
Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, deemed to be unenforceable by the Commission.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for the
Company by Bruce L. Dibb, P.C.; Salt Lake City; Utah.
EXPERTS
The consolidated financial statements of the Company contained herein for the
year ended March 31, 1998, have been audited by Jones, Jensen & Co. as set forth
in their report thereon (which contains an explanatory paragraph describing
conditions that raise substantial doubt about the Company's ability to continue
as a going concern as described in Note 1 to the consolidated financial
statements included therein). Such consolidated financial statements are
contained herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
19
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
<TABLE>
<CAPTION>
- --------------------
TABLE OF CONTENTS PAGE
<S> <C>
Risk Factors......................................................................................................3
Available Information.............................................................................................9
Incorporation of Certain Documents by Reference..................................................................10
Recent Developments..............................................................................................11
Summary of the Offering..........................................................................................13
Use of Proceeds..................................................................................................15
Determination of Offering Price .................................................................................15
Selling Shareholder..............................................................................................15
Plan of Distribution.............................................................................................16
Description of Securities........................................................................................18
Limitation on Liability and Disclosure of Commission Position on
Indemnification For Securities Act Liabilities..........................................................19
Legal Matters....................................................................................................19
Experts..........................................................................................................19
</TABLE>
2,809,503 SHARES OF
COMMON STOCK
CHEQUEMATE INTERNATIONAL, INC.
P R O S P E C T U S
July , 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses in connection with the issuance and distribution of the securities
being registered, other than underwriting discounts and commissions, will be
paid by the Company. Such expenses are estimated as follows:
<TABLE>
<S> <C>
Registration fee................................................................................... $ 6,930
Legal fees and expenses............................................................................ $ 30,000
Accounting fees and expenses....................................................................... $ 3,000
Miscellaneous...................................................................................... $ 1,070
---------------
Total...................................................................................... $ 41,000
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Restated Articles of Incorporation provide that the Company must
indemnify each of its directors and officers, to the fullest extent permitted
under the Utah Revised Business Corporation Act against all liabilities incurred
by reason of the fact that the person is or was a director or officer of the
Company or a fiduciary of an employee benefit plan, or is or was serving at the
request of the Company as a director or officer, or fiduciary of an employee
benefit plan, of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
The effect of these provisions is potentially to indemnify the Company's
directors and officers from all costs and expenses of liability incurred by them
in connection with any action, suit or proceeding in which they are involved by
reason of their affiliation with the Company.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
II-1
<PAGE>
ITEM 16. EXHIBITS
4.1 Subscription Agreement between the Company and Augustine Fund,
LP dated as of December 21, 1998. (Incorporated by reference
from Form 8-K (Film No. 98774706) filed by the Company with
the Commission on December 23, 1998).
4.2 Subscription Agreement between the Company and Augustine Fund,
LP dated as of February 9, 1999. (Incorporated by reference
from Form 10-QSB (Film No. 99541584) filed by the Company with
the Commission on February 16, 1999).
4.3 Form of 1998 Debentures. (Incorporated by reference from Form
8-K (Film No. 98774706) filed by the Company with the
Commission on December 23, 1998).
4.4 Form of 1998 Warrant. (Incorporated by reference from Form 8-K
(Film No. 98774706) filed by the Company with the Commission
on December 23, 1998).
4.5 Form of 1999 Debentures. Incorporated by reference from Form
10-QSB (Film No. 99541584) filed by the Company with the
Commission on February 16, 1999).
4.6 Form of 1999 Warrant. Incorporated by reference from Form
10-QSB (Film No. 99541584) filed by the Company with the
Commission on February 16, 1999).
4.7 Subscription Agreement between the Company and Augustine Fund,
LP dated as of June 4, 1999.
5.1 Opinion of Bruce L. Dibb, P.C.(Incorporated by reference from
initial Form S-3 (Film No. 99547723) filed by the Company
with the Commission on February 23, 1999).
23.1 Consent of Jones, Jensen & Company
23.2 Consent of Bruce L. Dibb, P.C.(Incorporated by reference from
initial Form S-3 (Film No. 99547723) filed by the Company
with the Commission on February 23, 1999).
24.1 Powers of Attorney (Incorporated by reference from initial
Form S-3 (Film No. 99547723) filed by the Company with the
Commission on February 23, 1999).
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
II-2
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the end of the
offering.
(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Salt Lake City, Utah, on July 2, 1999.
CHEQUEMATE INTERNATIONAL, INC.
By /s/ Terrell A. Lassetter, Sr.
-----------------------------
J. Michael Heil
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Terrell A. Lassetter, Sr., for July 2, 1999
- ---------------------------------------------
Blaine Harris, Chairman of the Board
/s/ Terrell A. Lassetter, Sr., for July 2, 1999
- ---------------------------------------------
John Bartholomew, Director
/s/ Terrell A. Lassetter, Sr., for July 2, 1999
- ---------------------------------------------
Hal Glick, Director
/s/ Terrell A. Lassetter, Sr., for July 2, 1999
- ---------------------------------------------
Andre Peterson, Director
/s/ Terrell A. Lassetter, Sr., for July 2, 1999
- ---------------------------------------------
Robert E. Warfield, Director
/s/ Steven Anderson July 2, 1999
- ---------------------------------------------
Steven Anderson, Chief Financial Officer
and Principal Accounting Officer
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
4.1 Subscription Agreement between the Company and Augustine Fund,
LP dated as of December 21, 1998. (Incorporated by reference
from Form 8-K (Film No. 98774706) filed by the Company with
the Commission on December 23, 1998).
4.2 Subscription Agreement between the Company and Augustine Fund,
LP dated as of February 9, 1999 (Incorporated by reference
from Form 10-QSB (Film No. 99541584) filed by the Company with
the Commission on February 16, 1999).
4.3 Form of 1998 Debentures (Incorporated by reference from Form
8-K (Film No. 98774706) filed by the Company with the
Commission on December 23, 1998).
4.4 Form of 1998 Warrant (Incorporated by reference from Form 8-K
(Film No. 98774706) filed by the Company with the Commission
on December 23, 1998).
4.5 Form of 1999 Debentures (Incorporated by reference from Form
10-QSB (Film No. 99541584) filed by the Company with the
Commission on February 16, 1999).
4.6 Form of 1999 Warrant (Incorporated by reference from Form 10-QSB
(Film No. 99541584) filed by the Company with the Commission on
February 16, 1999).
4.7 Subscription Agreement between the Company and Augustine Fund,
LP dated as of June 4, 1999...........................................................II-7
5.1 Opinion of Bruce L. Dibb, P.C (Incorporated by reference from initial Form S-3
(Film No. 99547723) filed by the Company with the Commission on February 23, 1999).
23.1 Consent of Jones, Jensen & Co........................................................II-51
23.2 Consent of Bruce L. Dibb, P.C. (included in Exhibit 5.1) (Incorporated by reference
from initial Form S-3 (Film No. 99547723) filed by the Company with the Commission
on February 23, 1999).
II-5
<PAGE>
24.1 Powers of Attorney (Incorporated by reference from
initial Form S-3 (Film No. 99547723) filed by the Company
with the Commission on February 23, 1999).
II-6
</TABLE>
<PAGE>
EXHIBIT 4.7
Date: June 4, 1999
Chequemate International, Inc.
75 West 200 South
Suite 350
Salt Lake City, Utah 84101
Attention: Mr. J. Michael Heil, CEO
Re: SUBSCRIPTION AGREEMENT FOR 8% CONVERTIBLE REDEEMABLE DEBENTURES
Dear Sirs:
Pursuant to a private offering by Chequemate International, Inc., a Utah
corporation (the "Company"), the undersigned (the "Subscriber") hereby tenders
his or her subscription for the Company's units (the "Units"), each Unit
consisting of (i) the Company's 8% Convertible Redeemable Debentures
(collectively, the "Debentures" and each, a "Debenture") in the principal amount
of two hundred fifty thousand dollars ($250,000) and (ii) a warrant
(collectively, the "Warrants" and each, individually, a "Warrant") to purchase
eight thousand four hundred seventy-five (8,475) shares of the Company's common
stock, with a $0.0001 par value ("Common Stock"), at a purchase price of two
hundred fifty thousand dollars ($250,000) per Unit. As used in this Agreement,
the term "Conversion Shares" shall mean the shares of Common Stock issuable upon
conversion of the Debentures, the term "Warrant Shares" shall mean the shares of
Common Stock issuable upon exercise of the Warrants, the term "Shares" shall
mean the Warrant Shares and the Conversion Shares, and term "Securities" shall
mean the Units, the Debentures, the Warrants and the Shares. The maturity date
and conversion price of the Debentures and the exercise price of the Warrants
shall be determined in the manner provided in the form of Debenture and Warrant
included in the Disclosure Documents, as hereinafter defined.
The Company is offering the Debentures to a limited number of accredited
investors, as defined in Rule 501 of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to an exemption from the registration requirements of the
Securities Act provided by Sections 4(2) and 4(6) of the Securities Act and Rule
506 of the Commission under the Securities Act.
In consideration of the mutual covenants and agreements set forth herein, the
Company and the Subscriber hereby agree as follows:
II-7
<PAGE>
- The Subscriber hereby agrees to purchase from the Company, and the
Company agrees to sell to the Subscriber, not less than two Units at a
purchase price of five hundred thousand dollars ($500,000). Payment of
the purchase price shall be made by check payable to the order of the
Company, or by wire transfer to the account of the Company.
- The purchase price for the Units shall be payable within
five (5) business days of the date of this Agreement. The date
the Unit is purchased is referred to as the "Closing Date."
- Proceeds from the sale of the Debentures will be held
until checks have cleared, after which the proceeds will be
disbursed.
- There is no placement agent in connection with the
offering of the Debentures. The Company has engaged Coleman
Capital Partners, Ltd. ("Coleman") as a consultant in
connection with this Offering, to which the Company will pay
compensation pursuant to an agreement between the Company and
Coleman.
- The Company shall have the right, on written notice to the
Subscriber, to terminate the Subscriber's obligation to
purchase Units, provided, however, that such termination shall
not affect the Company's obligations pursuant to Paragraphs 6
and 7 of this Agreement, which shall continue in full force
and effect, except that the Company's obligations pursuant to
Paragraph 6(b) shall terminate at such time (prior to the date
set forth therein) as all of the Conversion Shares which have
been issued or are issuable upon conversion of outstanding
Debentures shall have been sold.
- The Company represents and warrants to the Subscriber as
follows:
- ORGANIZATION AND QUALIFICATION. The Company is (i) a
corporation duly organized and existing in good standing under
the laws of the State of Utah and has the requisite corporate
power to own its properties and to carry on its business as
now being conducted and (ii) qualified to conduct business as
a foreign corporation to do business and in good standing in
every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary and where
the failure so to qualify would have a Material Adverse
Effect. As used in this Agreement, the term "Material Adverse
Effect" means any material adverse effect on (A) the
Securities; (B) the ability of the Company
II-8
<PAGE>
to perform its obligations under this Agreement or under the
Securities, or (C) the business, operations, properties or
financial condition of the Company. The Company does not have
any equity investment or other interest, direct or indirect,
in, nor any outstanding loans, advances or guarantees to, any
domestic or foreign corporation, association, partnership,
limited liability company, joint venture or other entity,
except for the equity interest in the Company's wholly owned
subsidiary, Chequemate Technologies, Inc. and except as
reflected on the Financial Statements referenced in Paragraph
2(f) herein.
- AUTHORIZATION; ENFORCEMENT. The Company has the
requisite corporate power and authority to enter into and
perform its obligations under this Agreement, to issue and
sell the Units pursuant to this Agreement and to issue the
Shares in accordance with the terms of the Debentures and
Warrants, as the case may be. The execution, delivery and
performance of this Agreement, the Debentures and the Warrants
and the consummation by the Company of the transactions
contemplated by this Agreement, the Debentures and the
Warrants (including without limitation the issuance of the
Debentures and Warrants and the issuance and reservation for
issuance of the Shares) have been duly authorized by the
Company's board of directors and no further consent or
authorization of the Company, its board of directors, or its
stockholders is required. This Agreement has been duly
executed and delivered by the Company and constitutes the
valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
- CAPITALIZATION. The authorized capital stock of the
Company consists of 500,000,000 shares of Common Stock, of
which 20,651,951 shares are issued and outstanding. The
document entitled "Capital Stock" in the Disclosure Documents
includes a description of the rights, preferences and
privileges of holders of the Common Stock and a listing of all
shares of Common Stock which are reserved for issuance. No
person has any preemptive rights, rights of first refusal or
any other similar rights of any stockholders of the Company,
whether by statute, pursuant to the certificate of
incorporation or by-laws of the Company or pursuant to any
agreement (collectively, "Preemptive Rights") with respect to
the issued and outstanding shares of Common Stock or with
respect to the Debentures, the Warrants or the Shares. No
person has the right to nominate or designate directors or
officer of
II-9
<PAGE>
the Company, including any stockholders or voting trust
agreements. Except as noted in the Disclosure Documents, all
of the outstanding shares of Capital Stock have been, or upon
issuance will be, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company
(including the Shares, if and when issued) are or will be
subject to any Preemptive Rights.
- ISSUANCE OF SHARES.
- The Shares are duly authorized and reserved
for issuance, and upon conversion of the Debentures
or upon exercise of the Warrants, as the case may be,
in accordance with the respective terms thereof, will
be validly issued, fully paid and non-assessable,
will be free from all taxes, liens, claims and
encumbrances and will not be subject to Preemptive
Rights of stockholders of the Company and or subject
the holder to personal liability.
- Except as noted in the Disclosure Documents,
all of the outstanding shares of Common Stock have
been duly and validly authorized and issued, fully
paid and nonassessable and were not issued in
violation of any Preemptive Rights, and were issued
in transaction that were either registered pursuant
to the Securities Act or exempt from the registration
requirements of the Securities Act.
- NO CONFLICTS. The execution, delivery and
performance of this Agreement by the Company, the
performance by the Company of its obligations under this
Agreement and the Securities, and the consummation by the
Company of the transactions contemplated by this Agreement
(including, without limitation, the issuance of the
Securities and the Shares) will not (i) result in a
violation of the Company's certificate of incorporation and
by-laws, as currently in effect (the "Organizational
Documents") or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights
of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company
is a party or by which it is bound, or result in a
violation of any law, rule, regulation, order, judgment or
decree (including, based on the accuracy the Subscriber's
representations and warranties set forth in this Agreement,
Federal and state securities laws and regulations)
applicable to the Company or by which any of the
II-10
<PAGE>
Company's property or assets are bound or affected.
The Company is not in violation of its Organizational
Documents, and the Company is not in default (and no
event has occurred which, with notice or lapse of
time or both, would put the Company in default)
under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of
termination, amendment, acceleration or cancellation
of, any Contract, as hereinafter defined, to which
the Company is a party or by which it is bound,
except for possible defaults or rights as would not,
individually or in the aggregate, have a Material
Adverse Effect. The business of the Company is not
being conducted in violation of any law, ordinance or
regulation of any governmental entity. The Company is
not required to obtain any consent, approval,
authorization or order of, or make any filing or
registration with, any court or governmental agency
or any regulatory or self regulatory agency or other
party (each of the foregoing being referred to as a
"consent") in order for it to execute, deliver or
perform any of its obligations under this Agreement
or the Securities, in each case in accordance with
the terms hereof or thereof other than filings
required pursuant to the Securities Act and
applicable state securities laws and except where the
failure to obtain any such consent would not have a
Material Adverse Effect.
- FINANCIAL STATEMENTS. The Company's financial
statements for the years ended March 31, 1998 and
1997, which have been certified by Jones, Jensen &
Company, and the unaudited financial statements for
the period ended December 31, 1998, including, in
each case, a balance sheet and the related statements
of income, stockholders' equity and cash flows,
together with the related notes (collectively, the
"Financial Statements"), have been delivered to the
Subscriber. The Financial Statements were prepared in
accordance with all books, records and accounts of
the Company, are true, correct and complete and have
been prepared in accordance with generally accepted
accounting principles, consistently applied. Jones,
Jensen & Company is independent as to the Company
under the rules of the Commission pursuant to the
Securities Act. The Financial Statements present
fairly the financial position of the Company at the
respective balance sheet dates, reflect all
liabilities, contingent or other, of the Company of
the type required to be reflected on corporate
balance sheets prepared in accordance with generally
accepted accounting principles as at such dates, and
fairly present the results of the Company's
operations, changes in stockholders' equity and cash
II-11
<PAGE>
flows for the periods covered. The unaudited
financial statements for the period ended December
31, 1998 include all adjustments (which include only
normal recurring adjustments) necessary to present
fairly the information for such period. Except as
provided in Schedule 2(f) or as set forth in the
March 31, 1998 Financial Statements, the Company has
no material liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary
course of business subsequent to the date of such
Financial Statements and (ii) obligations under
contracts and commitments incurred in the ordinary
course of business and not required under generally
accepted accounting principles to be reflected in
such financial statements, none of which are material
to the Company.
- SEC DOCUMENTS. The Company is required to
file with the Securities and Exchange Commission
annual, quarterly and periodic reports pursuant to
Section 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). The Company has
delivered to the Subscriber its Form 10-KSB Annual
Report, as amended by a Form 10-KSB Amendment, for
the fiscal year ended March 31, 1998, its amended
Form 10-QSB Quarterly Report for the quarter ended
September 30, 1998 and December 31, 1998, and all
other filings made with the Commission through the
date hereof, all of which are collectively referred
to as the "SEC Documents." The SEC Documents, taken
as a whole, do not contain any misstatement of fact
or omit any statement of fact necessary to make them
not materially misleading.
- FORM S-3 ELIGIBILITY. The Company meets each
of the requirements listed in General Instructions
1.A to Form S-3, and the Company is eligible to
register the Shares on a Form S-3, or other
appropriate registration form.
- NO BREACH OF CONTRACT. Except as provided in
Schedule 2(i) attached hereto, the Company is not in
breach or violation of any contracts, agreements,
leases or other instruments (each a "Contract") to
which the Company is a party or by which the Company
is bound or to which any of its properties or assets
is subject, which breach or violation would have a
Material Adverse Effect.
- ABSENCE OF CERTAIN CHANGES. Since December
31, 1998, there has been no material adverse change
in the business, properties, operations, financial
condition, or results of operations
II-12
<PAGE>
of the Company, or to the best of the Company's
knowledge, its prospects, except as disclosed in the
Financial Statements or the SEC Documents.
- ABSENCE OF LITIGATION. Except as disclosed in
the Financial Statements or the Disclosure Documents,
there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board,
government agency, self-regulatory organization or
body pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of
its respective directors or officers in their
capacities as such wherein an unfavorable decision,
ruling or finding would have a Material Adverse
Effect.
- INTELLECTUAL PROPERTY. Except as provided in
Schedule 2(l) or elsewhere in the Disclosure
Documents, the Company owns or is licensed to use all
patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights,
copyright applications, licenses, permits, know-how
(including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information,
systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles")
necessary for the conduct of its business as now
being conducted and as described in the Disclosure
Documents. Except as disclosed in the document "Risk
Factors" in the Disclosure Documents, the Company has
not received any formal or informal notice (including
any demand or request that the Company enter into a
license or other agreement in order to avoid any
claim of infringement) to the effect that any of its
products or any Intangibles infringe upon the
proprietary rights of any other person. To the best
knowledge of the Company, the Company does not
infringe or is in conflict with any right of any
other person with respect to any Intangibles which,
individually or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would
have a Material Adverse Effect.
- MANAGEMENT. The document entitled
"Management" in the Disclosure Documents sets forth
information concerning (i) each officer and director,
(ii) compensation information consistent with such
information required to be included in the Summary
Compensation Table pursuant to Item 402 of Regulation
S-B, (iii) a summary of all outstanding options and a
description of all outstanding stock option or other
equity-based incentive plans, and (iv) the
information to be provided by Items 403 and 404 of
II-13
<PAGE>
Regulation S-B. Such document shall update
information included in the Company's Form 10-KSB for
the fiscal year ended March 31,1998.
- FOREIGN CORRUPT PRACTICES. Neither the
Company, nor any director, officer, agent, employee
or other person acting on behalf of the Company has,
in the course of his actions for or on behalf of, the
Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any
direct or indirect unlawful payment to any foreign or
domestic government official or employee from
corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act
of 1977; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
- SUBSCRIBER'S LEGAL FEES. The Company will pay
Subscriber, upon request, dollars ($2,500) for its
legal fees.
- DISCLOSURE. All information relating to or
concerning the Company set forth in this Agreement or
included in the Disclosure Documents, as hereinafter
defined, taken together, is true and correct in all
material respects, and the Company has not omitted to
state any material fact necessary in order to make
the statements made herein or therein, in light of
the circumstances under which they were made, not
misleading. The Subscriber shall be entitled to rely
upon the Company's representations and warranties
contained in this Agreement, notwithstanding any
independent investigation made by the Subscriber.
- NO INTEGRATED OFFERING. Neither the Company
nor any of its affiliates, nor any person acting on
its or their behalf, has directly or indirectly made
any offers or sales of any securities or solicited
any offerers to buy any security under circumstances
that would require registration of the Units being
offered hereby under the Securities Act.
(r) SUPPLEMENTATION OF PRIOR DISCLOSURE. The
representations, warranties and Disclosure Documents of this Agreement,
supplement and supercede the representations, warranties and Disclosure
Documents of the February 9, 1999 and December 21, 1998 Subscription Agreement
entered into between the parties to this Agreement.
II-14
<PAGE>
- The Subscriber understands and agrees that, after the
Company's receipt of this Agreement, the Company will review
the Subscriber's eligibility and will determine whether to
accept or reject this subscription in whole or in part. The
Company may determine to reject this subscription in whole or
in part in its sole and absolute discretion. If this
subscription is accepted in whole, then the Company will issue
the Debentures subscribed for to the Subscriber. If this
subscription is rejected in whole, this Agreement and any
other subscription materials will be promptly returned to the
Subscriber and the Subscriber's subscription payment will be
refunded to the Subscriber without interest. In that event,
the Subscriber and the Company will have no further rights or
claims against each other by virtue of this Agreement. If this
subscription is accepted in part and rejected in part, the
Company is authorized to amend this Agreement to reflect the
number of Units for which this subscription is accepted, and
the Company will issue the Debentures and Warrants comprising
the Units as to which this subscription is accepted at the
same time as if this subscription had been accepted in whole.
- The Subscriber hereby represents and warrants to, and
covenants and agrees with, the Company as follows:
- The Subscriber understands that the offer and
sale of the Units is being made only by means of this
Agreement. In deciding to subscribe for Units, the
Subscriber has not considered any information other
than that contained in this Agreement and in the
documents listed in Exhibit A to this Agreement (the
"Disclosure Documents"), a copy of each of which has
been provided to the Subscriber and reviewed by the
Subscriber to the extent that the Subscriber deemed
necessary or advisable. In particular, the Subscriber
understands that the Company has not authorized the
use of, and the Subscriber confirms that he or she is
not relying upon, any other information, written or
oral, other than material contained in this Agreement
and the Disclosure Documents. THE SUBSCRIBER IS
AWARE THAT THE PURCHASE OF THE UNITS INVOLVES A HIGH
DEGREE OF RISK AND THAT THE SUBSCRIBER MAY SUSTAIN,
AND HAS THE FINANCIAL ABILITY TO SUSTAIN, THE LOSS OF
HIS OR HER ENTIRE INVESTMENT. THE SUBSCRIBER
UNDERSTANDS THAT THE COMPANY IS A DEVELOPMENT STAGE
CORPORATION, HAS INCURRED SIGNIFICANT LOSSES AND NO
ASSURANCE CAN BE GIVEN THAT THE COMPANY WILL BE
PROFITABLE IN THE FUTURE, THAT THE FAILURE OF THE
COMPANY TO RAISE FUNDS, IN ADDITION TO THE PROCEEDS
FROM THE SALE OF THE UNITS, MAY HAVE A MATERIAL
ADVERSE EFFECT UPON ITS BUSINESS AND, IF SUFFICIENT
ADDITIONAL FUNDS
II-15
<PAGE>
ARE NOT RAISED, THE COMPANY MAY NOT BE ABLE TO PAY
THE DEBENTURES WHEN DUE, AND THAT THERE IS NO
ASSURANCE THAT THERE WILL BE A MARKET FOR THE
COMPANY'S COMMON STOCK OR OTHER SECURITIES.
FURTHERMORE, IN SUBSCRIBING FOR THE UNITS, THE
SUBSCRIBER ACKNOWLEDGES THAT THE COMPANY HAS NOT
MADE, AND THE SUBSCRIBER IS NOT RELYING IN ANY MANNER
UPON, ANY PROJECTIONS OR FORECASTS OF FUTURE
OPERATIONS. The Subscriber has had the opportunity to
ask questions of, and receive answers from, the
Company's management regarding the Company.
- The Subscriber represents to the Company that
he or she (i) is an accredited investor within the
meaning of Rule 501 under the Securities Act, (ii)
understands that in order to be treated as an
accredited investor, the Subscriber must meet one of
the tests for an accredited investor set forth on
Exhibit B to this Agreement, and (iii) has read
Exhibit B and is an accredited investor as set forth
on the signature page of this Agreement. The
Subscriber further represents that he or she has such
knowledge and experience in financial and business
matters as to enable him or her to understand the
nature and extent of the risks involved in purchasing
the Units. The Subscriber is fully aware that such
investments can and sometimes do result in the loss
of the entire investment. The Subscriber can afford
to sustain the loss of his or her entire investment,
and the Subscriber's purchase of the Units is being
made from funds which the Subscriber has allocated to
high risk, illiquid investments and such funds are
not required by the Subscriber to meet his or her
normal expenses. The Subscriber has engaged his or
her own counsel and accountants to the extent that he
deems it necessary.
- The Subscriber acknowledges that the Company
is relying on the Subscriber's representations
contained in this Agreement in executing this
Agreement and issuing the Units and its counsel is
relying on such statements and representations in
rendering its opinion pursuant to Paragraph 5(a)(v)
of this Agreement, and the Subscriber agrees to
indemnify and hold harmless the Company, and its
officers, directors, controlling persons and counsel
from and against all manner of loss, liability,
damage or expense which they or any of them may incur
as a result of any material misstatement of fact or
omission of a material fact by the Subscriber in this
Agreement.
II-16
<PAGE>
- The Subscriber is acquiring the Units
pursuant to this Agreement for investment and not
with a view to the sale or distribution thereof, for
his or her own account and not on behalf of others;
has not granted any other person any interest or
participation in or right or option to purchase all
or any portion of the Units; is aware that the Units
are restricted securities within the meaning of Rule
144 of the Commission under the Securities Act, and
may not be sold or otherwise transferred other than
pursuant to an effective registration statement or an
exemption from registration; and understands and
agrees that the Units may bear the Company's standard
investment legend. The Subscriber understands the
meaning of these restrictions.
- The Subscriber will not transfer the
Securities except in compliance with all applicable
Federal and state securities laws and regulations.
The Subscriber understands and agrees that the
Company is not obligated to recognize any transfer of
any Securities unless it is satisfied in its
reasonable discretion that there has been compliance
with such securities laws and regulations, and, in
such connection, the Company may request an opinion
of counsel acceptable to the Company as to the
availability of any exemption.
- The Subscriber has been informed by the
Company that the issuance of the Units pursuant to
this Agreement will be exempt under Section 4(2) or
4(6) of the Securities Act and/or Regulation D, and
in particular, Rule 506, of the Commission under the
Securities Act and applicable exemption under state
securities laws, and the Subscriber understands that
such exemption is dependent upon the accuracy of the
information contained in the Subscriber's
representations set forth in this Agreement.
- The Subscriber represents and warrants that
it has engaged no broker and that no finder was
involved directly or indirectly in connection with
the Subscriber's purchase of the Units. The
Subscriber shall indemnify and hold harmless the
Company from and against any manner of loss,
liability, damage or expense, including fees and
expenses of counsel, resulting from a breach of the
Subscriber's warranty contained in this Paragraph
4(g).
- To the extent that the Subscriber has deemed
it necessary, the Subscriber has consulted his or her
own legal, accounting, tax, investment and other
advisors.
II-17
<PAGE>
- If the Subscriber is a corporation, all
corporate action necessary for the execution,
delivery and performance by the Subscriber has been
taken and the person executing this Agreement on
behalf of the Subscriber is an authorized officer of
the Subscriber. If the Subscriber is a limited
partnership or limited liability company, the person
executing this Agreement is a general partner or
managing member of the Subscriber. If the Subscriber
is a trust, estate or other fiduciary, the person
executing this Agreement is the trustee, executor,
administrator or other fiduciary.
(j) Neither the Subscriber nor its affiliates will sell
short or sell against the box any securities of the Company owned by
the undersigned or with respect to which the undersigned has the power
to vote or transfer such securities.
(k) The Subscriber shall not transfer the Units,
Debentures, or Warrants to another holder until after the effective
date of the Registration Statement. After the effective date of the
Registration Statement, any such transferee shall be required to make
in writing all of the representations and warranties set forth in
paragraph 4(a) through 4(j) hereof.
- It shall be a condition precedent to the
Subscriber's obligation to pay for the Units that the
following conditions shall have been met:
- The Company shall have delivered to the
Subscriber or his or her representative:
- A copy of the certificate of
incorporation of the Company, certified by
the Secretary of State of Utah as of a
current date.
- A copy of the by-laws of the
Company, certified by the Secretary of the
Company.
- Resolutions of the Company's board
of directors authorizing the transactions
contemplated by this Agreement, certified by
the Secretary of the Company.
- All of the Company's representations and
warranties set forth in this Agreement shall be
true and correct in all material respects on
such date with the same effect as if such
representations and warranties were made on such
II-18
<PAGE>
date, the Company shall have complied in all
material respects with all of its obligations to be
performed by it on or prior to the such date.
- No Material Adverse Change in the business or
financial condition of the Company shall have
occurred or be threatened since the date of this
Agreement, and no proceedings shall be threatened or
pending before any governmental entity or authority
which is likely to result in a restraint, prohibition
or the obtaining of damages or other relief in
connection with this Agreement or the consummation of
the transactions contemplated by this Agreement.
- The Company shall have delivered to the
Subscriber the certificate of its chief executive and
financial officers dated the Closing Date as to the
matters set forth in Paragraphs 5(a)(ii) and (iii) of
this Agreement.
- The Subscriber shall have received the
opinion of Bruce L. Dibb, counsel to the Company,
dated the Closing Date, that:
- The Company is a corporation
organized and existing in good standing
under the laws of the State of Utah with the
corporate power to conduct it business as
the same is presently conducted.
- All corporate action necessary
for the execution, delivery and performance
by the Company of this Agreement, the
Debentures and the Warrants has been taken,
and this Agreement, the Debentures and
Warrants constitute, the valid and binding
obligations of the Company, enforceable in
accordance with their respective terms,
except as enforceability may be affected by
customary principles governing equitable
relief generally and to any applicable
bankruptcy, moratorium, equitable
subordination, insolvency, fraudulent
conveyance, usury or other laws affecting
creditors' rights and their enforcement
generally, and except that no opinion is
given as to the enforceability of any
indemnification provisions.
II-19
<PAGE>
- The Shares have been reserved for
issuance and, when issued upon conversion of
the Debentures or exercise of the Warrants,
will be duly and validly authorized and
issued, fully paid and nonassessable and free
from Preemptive Rights.
- In reliance upon the accuracy of the
representations and warranties of the
Subscriber contained in this Agreement and
assuming that the Company files in a timely
manner a Form D pursuant to Regulation D of
the Commission pursuant to the Securities
Act, the sale of the Units is exempt from
the registration requirements of the
Securities Act.
- A Form D shall have been prepared for
filing with the Commission.
- The Company shall have paid to Coleman
the compensation due to Coleman.
- The Company hereby covenants and agrees with the
Subscriber that:
- The Company will, promptly, but in no event
later than three (3) business days after each
closing, file (i) the Form D with the Commission and
(ii) all documents and instruments required by the
state securities laws of any state in which any
purchaser of Units lives.
- During the period commencing on the Closing
Date and ending ninety (90) days after such Closing
Date, the Company will not, without the prior consent
of the holders of a majority of the principal amount
of Debentures then outstanding, issue or sell or
enter into any agreement to issue or sell any shares
of Common Stock or any Convertible Securities (I.E.,
any warrants or options or convertible debt or
equity securities or other securities upon the
exercise or conversion of which shares of Common
Stock may be issued), except that this Paragraph 6(b)
shall not be construed to prohibit the Company from
(i) issuing Common Stock or Convertible Securities in
connection with an acquisition or pursuant
II-20
<PAGE>
to options or warrants which are outstanding on such
Closing Date or (ii) entering into any agreement to
issue, or issuing, any convertible securities or
common stock pursuant to consulting agreement with
its 3D production team consultants or (iii) issue
restricted common stock with regard to a Regulation S
or Regulation D private placement with an individual
or his affiliates who are proposing to introduce the
products of the Company to the Chinese cable or TV
market or (iv) issuing options to employees or
consultants at an exercise price not less than the
fair market value on the date of grant pursuant to
the Company's present stock option plan and
performance stock plan or (v) issuing restricted
stock grants to employees or consultants pursuant to
the Company's present performance stock plan;
provided, however, that in no event shall the number
of options and stock grants issued during any such
ninety (90) day period exceed Three Hundred Thousand
(300,000) shares or (vi) issuing non-qualified
options to the directors, executive officers or
former employees of the Company. References to
consultants in this Paragraph 6(b) shall mean only
consultants who (x) perform functions that would
otherwise be performed by employees of the Company
and (y) whose services do not relate to the raising
of money.
- As long as the Subscriber or any transferee
(other than a transferee pursuant to the Registration
Statement) shall own any Securities, (i) the Company
shall file all annual, quarterly and periodic reports
with the Commission not later than the last day on
which such filings may be made pursuant to the
Exchange Act, and (ii) the Company shall continue to
be eligible to use a Form S-3 or a Form SB-2
registration statement for the sale of the Shares.
- As long as the Subscriber shall own any
Securities, the Company will provide the Subscriber
with a copy of each Form 10- K or Form 10-KSB Annual
Report, Form 10-Q or Form 10-QSB Quarterly Report,
each current report on Form 8-K and any definitive
proxy material, at the times such filings are made
with the Commission and will in addition provide the
Subscriber with all materials that are mailed to
stockholders at such time as the materials are mailed
to the stockholders.
- The Company will comply with its obligations
pursuant to the Debentures and the Warrants.
II-21
<PAGE>
- Until the earlier of (i) July 1, 1999 or (ii)
such date as all of the principal and interest on the
Debentures shall have been paid in full or (iii) such
date as all of the Debentures shall have been
converted, neither the Company nor any of its
subsidiaries shall borrow any money or incur any
obligations pursuant to a certain proposed equity
line of credit agreement between Bristol Asset
Management, LLC (or a substitute lender) and the
Company, as the same may hereafter be modified,
amended or replaced. The present terms of such
agreement have been previously disclosed to the
Subscriber. This Paragraph 6(f) shall apply to any
credit line facility entered into by the Company
during the period between the date of this Agreement
and July 1, 1999.
- The Company shall (i) file or cause to be filed with
the Commission, not later than fourteen (14) days after the
Closing Date, an amended registration statement (the
"Registration Statement") on Form S- 3 or other applicable
form, providing for the sale by the Subscriber of all of the
Shares and (ii) use its best efforts to have the Registration
Statement declared effective by the Commission not later than
sixty (60) days from the Closing Date, time being of the
essence. The Registration Statement shall also provide for the
sale by the Subscriber of the shares available to the
Subscriber under the debentures issued to the Subscriber
pursuant to the December 21, 1998 and the February 9, 1999
subscription agreements (the "December and February
Agreements") of the parties to this Agreement. The Company and
the Subscriber agree that the time of the filing and effective
date of the registration statement, as provided in the
December and February Agreements, are extended to the dates
provided for in this Agreement. The Registration Statement
shall register such number of shares of Common Stock equal to
two hundred percent (200%) of the number of shares of Common
Stock which would be issuable upon conversion of the
Debentures and upon exercise of the Warrants provided for in
this Agreement and in the December and February Agreements in
the event such conversion or exercise occurred at the lowest
closing bid price of the Common Stock for the sixty (60)
trading days prior to the date of the execution of the
February Agreement. The Registration Statement shall cover the
issuance of the Shares and the sale by the Subscriber or the
Subscriber's transferee in the manner or manners designated by
the Subscriber. The Company agrees to keep the Registration
Statement continuously effective until all of the Shares have
been sold. References in this Paragraph 7 to the Subscriber
shall include, in addition to the Subscriber, any holder of
the Shares or the Securities, other than pursuant to the
Registration Statement. Such Shares shall be registered
regardless of whether, at the effective date of
II-22
<PAGE>
the Registration Statement, the Debentures shall have been
issued or converted or the Warrants shall have been issued or
converted. In the event the Registration Statement does not
register a sufficient number of shares to cover all the shares
underlying such the Debenture and Warrant, the Company shall
file an additional registration statement not later than
ninety (90) days from the date the Registration Statement is
declared effective by the Commission covering such number of
additional shares of Common Stock as the Subscriber may
reasonably request.
- The Company shall pay all expenses incident
to the Company's performance of or compliance with
its obligations under this Paragraph 7, including,
without limitation, all registration, filing,
listing, stock exchange, Nasdaq and NASD fees, all
fees and expenses of complying with state securities
or blue sky laws, all word processing, duplicating
and printing expenses, messenger and delivery
expenses, the fees, disbursements and other charges
of counsel for the Company and of its independent
public accountants, but excluding commissions and
applicable transfer taxes, if any, which commissions
and transfer taxes shall be borne by the seller or
sellers of Shares in all cases.
- In complying with its obligations pursuant to
Paragraph 7(a) of this Agreement, the Company shall,
as expeditiously as possible:
- Prepare and file with the
Commission the Registration Statement to
effect such registration and thereafter use
its best efforts to cause such registration
statement to become effective as promptly as
possible.
- Notify the Subscriber at any time
when a prospectus relating thereto is
required to be delivered under the
Securities Act, upon discovery that, or upon
the happening of any event as a result of
which, the prospectus included in the
Registration Statement, as then in effect,
includes an untrue statement of a material
fact or omits to state any material fact
required to be stated therein or necessary
to make the statements therein not
misleading in the light of the circumstances
under which they were made, and promptly,
but not later than ten (10) business days
after the happening of such event, prepare
and file with the Commission such amendments
and supplements to the Registration
Statement and the prospectus used in
II-23
<PAGE>
connection therewith as may be necessary to
keep the Registration Statement effective
and to comply with the provisions of the
Securities Act and the Exchange Act with
respect to the disposition of all Shares
until such time as all of the Shares have
been disposed of in accordance with the
method of disposition set forth in such
registration statement.
- Before filing the Registration
Statement or prospectus or any amendments or
supplements thereto, furnish to and afford
the Subscriber a reasonable opportunity
(unless waived in writing by the Subscriber)
to review copies of all such documents
(including copies of any documents to be
incorporated by reference therein and all
exhibits thereto) proposed to be filed (at
least five (5) business days prior to such
filing). The Company shall not file any
registration statement or prospectus or any
amendments or supplements thereto in respect
to the Shares if the holders of a majority
of the Shares included in the Registration
Statement shall reasonably object.
- Use its best efforts to obtain the
prompt withdrawal of any order suspending
the effectiveness of a registration
statement, and in any event shall, within
thirty (30) days of such cessation of
effectiveness, use its best efforts to amend
the Registration Statement in a manner
reasonably expected to obtain the withdrawal
of the order suspending the effectiveness
thereof, or file an additional registration
statement pursuant to Rule 415 covering all
of the Shares and use its best efforts to
cause the Registration Statement to be
declared effective as soon as practicable
after such filing and to remain effective as
provided in this Paragraph 7.
- In the event of any transfer of
Shares or Securities which requires a
supplement or post-effective amendment to
the Registration Statement or prospectus,
promptly file such supplement or
post-effective amendment and use its best
efforts to have such filing declared
effective by the Commission as promptly as
possible after the filing thereof.
- Furnish to the Subscriber such
number of copies of such drafts and final
conformed versions of such
II-24
<PAGE>
Registration Statement and of each such
amendment and supplement thereto (in each
case including all exhibits and any
documents incorporated by reference), such
number of copies of such drafts and final
versions of the prospectus contained in such
Registration Statement (including each
preliminary prospectus and any summary
prospectus) and any other prospectus filed
under Rule 424 under the Securities Act, in
conformity with the requirements of the
Securities Act, and such other documents, as
such seller may reasonably request in
writing.
- Use its best efforts (i) to
register or qualify all Shares under such
other securities or blue sky laws of not
more than 20 states or other jurisdictions
of the United States of America as the
Subscriber shall reasonably request in
writing, (ii) to keep such registration or
qualification in effect for so long as such
registration statement remains in effect,
(iii) to prevent the issuance of any order
suspending the effectiveness of a
registration statement or of any order
preventing or suspending the use of a
prospectus or suspending the qualification
(or exemption from qualification) of any of
the Shares for sale in any jurisdiction,
and, if any such order is issued, to use its
best efforts to obtain the withdrawal of any
such order at the earliest possible moment,
and (iv) to take any other action that may
be reasonably necessary or advisable to
enable such sellers to consummate the
disposition in such jurisdictions of the
securities to be sold by such sellers,
except that the Company shall not for any
such purpose be required to qualify
generally to do business as a foreign
corporation in any jurisdiction wherein it
would not but for the requirements of this
Paragraph 7(c)(vii) be obligated to be so
qualified, to subject itself to taxation in
such jurisdiction or to consent to general
service of process in any such jurisdiction.
- Use its best efforts to cause all
Shares to be registered with or approved by
such other federal or state governmental
agencies or authorities as may be necessary
in the opinion of counsel to the Company and
counsel to the Subscriber to enable the
seller or sellers thereof to consummate the
disposition of such Shares in the manner set
forth in the Registration Statement.
II-25
<PAGE>
- Otherwise comply with all
applicable rules and regulations of the
Commission and any other governmental agency
or authority having jurisdiction over the
offering, and make available to its security
holders, as soon as reasonably practicable,
an earnings statement covering the period of
at least twelve months, but not more than
eighteen months, beginning with the first
full calendar month after the effective date
of such Registration Statement, which
earnings statement shall satisfy the
provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated
thereunder, and furnish to each seller of
Shares at least ten days prior to the filing
thereof a copy of any amendment or
supplement to such Registration Statement or
prospectus.
- The Registration Statement, when declared
effective by the Commission or when subsequently
amended (by an amendment which is declared effective
by the Commission) or any prospectus in the form
included in the registration statement as declared
effective by the Commission or when subsequently
supplemented will not contain an untrue statement of
a material fact or omit to state a material fact
required to be stated therein or necessary to make
the statements therein, in light of the circumstances
under which they were made, not misleading.
- The Company may require the Subscriber to
furnish the Company such information regarding such
seller and the distribution of the securities covered
by the Registration Statement as the Company may from
time to time reasonably request in writing and as is
required by applicable laws and regulations.
- The Company hereby agrees to indemnify and
hold harmless the Subscriber, including any other
holder of Shares, and their respective directors,
officers, agents and advisers (collectively, the
"Agents") and each person, if any, who controls
within the meaning of Section 15 of the Securities
Act (the "Control Person") the Subscriber or any such
holder against any losses, claims, damages or
liabilities, joint or several, to which the
Subscriber, any such other holder of Shares, any such
Agent, or any such Control Person may become subject,
under the Securities Act, the Exchange Act or any
other Federal or state law, including common law,
insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained
in (A) a registration
II-26
<PAGE>
statement, including (I) any pre- or post-effective
amendments or supplements thereof and (II) any
preliminary prospectus or final prospectus contained
therein or any pre- or post-effective amendments or
supplements thereto, filed for any registration under
this Agreement, (B) in any Blue Sky Law application
or other document executed by the Company
specifically for such registration or (C) based upon
information furnished by the Company filed in any
state or other jurisdiction in order to qualify any
or all of the Shares under the securities laws
thereof (any such application, document or
information in (B) and (C) above being hereinafter
referred to as a "Blue Sky Application"); (ii) the
omission or alleged omission to state in such
registration statement or Blue Sky Application a
material fact required to be stated therein or
necessary to make the statements therein not
misleading; or (iii) any untrue statement or alleged
untrue statement of a material fact contained in such
registration statement or Blue Sky Application or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein, in the
light of the circumstances under which they were
made, not misleading, and will reimburse such parties
for any reasonable attorneys' fees or other expenses
reasonably incurred by them or any of them in
connection with investigating or defending against
any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the Company will not be
liable or responsible for reimbursement of expenses
in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon
and in conformity with written information furnished
to the Company by or on behalf of such indemnified
party specifically for use with reference to or in
the preparation of a registration statement, any such
pre- or post-effective amendment or supplement
thereof, or any Blue Sky Application. This indemnity
agreement is in addition to any liability which the
Company may otherwise have. The indemnity agreement
of the Company contained in this Paragraph 7(f) shall
remain operative and in full force and effect
regardless of any investigation made by or on behalf
of any of the Subscriber, any other holder of Shares,
any Agent or any Control Person and shall survive the
registration and sale of any Shares by the Subscriber
or any such holder.
- The Subscriber and each other holder of
Shares, by including such holder's Shares in the
Registration Statement, agrees, severally, to
indemnify and hold harmless the Company, its Agents
and the
II-27
<PAGE>
Control Persons thereof to the same extent as the
indemnity from the Company to the Subscriber, such
other holders, their respective Agents and Control
Persons but only with respect to any untrue statement
or alleged untrue statement or omission or alleged
omission made in reliance upon or in conformity with
written information relating to such person by such
person expressly for use in connection with any
registration statement, pre- or post-effective
amendment or supplement thereto or in any Blue Sky
Application filed pursuant to this Agreement. The
liability of any Holder under this Paragraph 7(g)
shall be limited to the amount of net proceeds to
such Holder from the Shares sold pursuant to the
registration statement which gives rise to such
liability. This indemnity agreement will be in
addition to any liability that the Subscriber or any
such other holder may otherwise have. The indemnity
agreement of the Subscriber and such other holders
contained in this Paragraph 7(g) shall remain
operative and in full force and effect regardless of
any investigation made by or on behalf of the Company
or any of its Control Persons and shall survive the
registration and sale of any Shares and the
expiration or termination of this Agreement.
- If any action or claim shall be brought or
asserted by a party entitled to indemnification under
Paragraph 7(f) or 7(g) (as the case may be) of this
Agreement (each an "Indemnified Party") in respect of
which indemnity may be sought from the responsible
party identified in said Paragraph 7(f) or 7(g) (as
the case may be) (the "Indemnifying Party"), the
Indemnified Party shall promptly notify the
Indemnifying Party in writing, and the Indemnifying
Party shall assume the defense thereof, including the
employment of counsel satisfactory to each
Indemnified Party and the payment of all reasonable
legal and other expenses. The failure of any
Indemnified Party to notify the Indemnifying Party
will not relieve the Indemnifying Party of any
liability for indemnification which it may have to
any Indemnified Party under this Paragraph 7 unless
the Indemnifying Party has been substantially
prejudiced by such failure and in no event will such
failure relieve the Indemnifying Party from any
liability it may have to any Indemnified Party
otherwise than under this Paragraph 7. Each
Indemnified Party shall have the right to employ
separate counsel in any such action and to
participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the employment
thereof has been specifically authorized by the
Indemnifying Party in writing, or (ii) the
Indemnifying Party has failed to assume the defense
and employ counsel or (iii) the named parties to any
such action (including any
II-28
<PAGE>
impleaded parties) include both (A) any Indemnified
Party and (B) the Indemnifying Party, and, in the
judgment of counsel to any Indemnified Party, it is
advisable for such Indemnified Party to be
represented by separate counsel (in which case the
Indemnifying Party shall not have the right to assume
the defense of such action on behalf of such
Indemnified Party; PROVIDED, HOWEVER, it being
understood that the Indemnifying Party shall, in
connection with any one such action or separate but
substantially similar or related actions in the same
jurisdiction arising out of the same general
allegations or circumstances, be liable for the
reasonable fees and expenses of only one separate
firm of attorneys at any time for each Indemnified
Party pursuant to this Agreement in each
jurisdiction, and each such firm shall be designated
in writing by such Indemnified Party holding a
majority of the Shares being registered for all
Indemnified Parties). The Indemnifying Party shall
not be liable for any settlement of any such action
effected by an Indemnified Party without the written
consent of the Indemnifying Party (which shall not be
withheld unreasonably in light of all factors of
importance to such Indemnified Party), but if settled
with such written consent, or if there be a final
judgment or decree for the plaintiff in any such
action by a court of competent jurisdiction and the
time to appeal shall have expired or the last appeal
shall have been denied, the Indemnifying Party agrees
to indemnify and hold harmless each Indemnified Party
from and against any loss or liability by reason of
such settlement or judgment.
- If the indemnification provided for in this
Agreement is held by a court of competent
jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim,
damage or expense referred to therein, then the
Indemnifying Party, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a
result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party
on the one hand and of the Indemnified Party on the
other hand in connection with the statements or
omissions which resulted in such loss, liability,
claim, damage or expense as well as any other
relevant equitable considerations. The relevant fault
of the Indemnifying Party and the Indemnified Party
shall be determined by reference to, among other
things, whether the untrue or alleged untrue
statement of a material fact or the omission to state
a material fact relates to information supplied by
the Indemnifying Party or by the Indemnified Party
and the parties' relative intent, knowledge, access
to
II-29
<PAGE>
information and opportunity to correct or prevent
such statement or omission. Notwithstanding the
foregoing, the amount any Holder is obligated to
contribute pursuant to this Agreement shall be
limited to the net proceeds to such Holder from the
Shares sold pursuant to the Registration Statement
which gives rise to such obligation to contribute
(less the aggregate amount of any damages which the
Subscriber or such other holder has otherwise been
required to pay in respect of such loss, claim,
damage, liability or action or any substantially
similar loss, claim, damage, liability or action
arising from the sale of such Shares). The foregoing
contribution agreement shall in no way affect the
contribution liabilities of any persons having
liability under Section 11 of the Securities Act
other than the Company, the Subscriber and such other
holders. No contribution shall be requested with
regard to the settlement of any matter from any party
who did not consent to the settlement, PROVIDED,
HOWEVER, that such consent shall not be unreasonably
withheld in light of all factors of importance to
such party. Notwithstanding any provisions of this
Paragraph 7, no person guilty of a fraudulent
misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of
such fraudulent misrepresentation.
- All notices provided for in this Agreement shall be
in writing signed by the party giving such notice, and
delivered personally or sent by overnight courier or messenger
against receipt thereof or sent by registered or certified
mail (air mail if overseas), return receipt requested or by
telecopier if receipt of transmission is confirmed or if
transmission is confirmed by mail as provided in this
Paragraph 8. Notices shall be deemed to have been received on
the date of personal delivery or telecopy or, if sent by
certified or registered mail, return receipt requested, shall
be deemed to be delivered on the fifth (5th) business day
after the date of mailing. Notices shall be sent to the
Company at 75 West 200 South, Suite 350, Salt Lake City, Utah
84101, Attention: Mr. Michael Heil, CEO, telecopier (801)
322-1165, and to the Subscriber at his or her address and
telecopier number set forth on the signature page or to such
other address as any party shall designate in the manner
provided in this Paragraph 8.
- This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof,
superseding any and all prior or contemporaneous oral and
prior written agreements, understandings and letters of
intent. This Agreement may not be modified or amended nor may
any right be waived except by a writing which expressly refers
to this Agreement, states that it is a modification, amendment
or waiver and is
II-30
<PAGE>
signed by all parties with respect to a modification or
amendment or the party granting the waiver with respect to a
waiver. No course of conduct or dealing and no trade custom or
usage shall modify any provisions of this Agreement.
- This Agreement shall be governed by and
construed in accordance with the laws of the State of
New York applicable to agreements executed and to be
performed wholly within such state, without regard
for principles of conflicts of law. The Company
hereby (i) consents to the exclusive jurisdiction of
the United States District Court for the Southern
District of New York and Supreme Court of the State
of New York in the County of New York in any action
relating to or arising out of this Debenture, (ii)
agrees that any process in any such action may be
served upon it, in addition to any other method of
service permitted by law, by certified or registered
mail, return receipt requested, or by an overnight
courier service which obtains evidence of delivery,
with the same full force and effect as if personally
served upon him in New York City, and (iii) waives
any claim that the jurisdiction of any such tribunal
is not a convenient forum for any such action and any
defense of lack of IN PERSONAM jurisdiction with
respect thereto.
- Any termination of this Agreement shall not
affect in any manner the parties' obligations
pursuant to Paragraphs 6, 7, 8 and 9 of this
Agreement, which shall survive such termination.
- This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their
respective successors and permitted assigns.
- In the event that any provision of this
Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force
and effect without said provision.
- Each party shall, without payment of any
additional consideration by any other party, at any
time on or after the sale of the Units take such
further action and execute such other and further
documents and instruments as the other party may
request in order to provide the other party with the
benefits of this Agreement.
II-31
<PAGE>
- All references to any gender shall be deemed
to include the masculine, feminine or neuter gender,
the singular shall include the plural, and the plural
shall include the singular.
- This Agreement may be executed in two or more
counterparts, each of which shall be deemed an
original but all of which together shall constitute
one and the same document.
- The various representations, warranties, and
covenants set forth in this Agreement or in any other
writing delivered in connection therewith shall
survive the issuance of the Units.
II-32
<PAGE>
Please confirm your agreement with the foregoing by signing this
Agreement where indicated.
Very truly yours,
Number of Units
Subscribed for: two Augustine Fund LC
---------------------------------
Name of Subscriber
Total
Purchase Price: By:
$ 500,000 -----------------------------
(Signature)
Title, if applicable_____________
Address:
---------------------
- ------------------------------
Telecopier Number:
-----------
Social Security No. or Tax I.D. No.:
----------
The Subscriber is an accredited investor based on the following paragraphs of
Exhibit B to this Agreement:
--------------
Accepted this 4th day of
June, 1999
CHEQUEMATE INTERNATIONAL, INC.
By:
----------------------------
J. Michael Heil, CEO
II-33
<PAGE>
Exhibit A
Disclosure Documents
- Risk Factors
- Form 10-KSB for the fiscal year ended
March 31, 1998 and the unfiled amendment
thereto
- Form 10-QSB for the quarter ended
September 30, 1998; the Form 10-QSB
for the quarter ended December 31, 1998
and the unfiled amendment thereto
- Capital Stock
- Management
- Form of Debenture.
- Form of Warrant
Schedule 2(f)
Schedule 2(i)
Schedule 2(l)
II-34
<PAGE>
RISK FACTORS
THE FOLLOWING REPRESENTS MANAGEMENT'S VIEW OF THE MORE SIGNIFICANT RISK
FACTORS WHICH SHOULD BE CONSIDERED BY EACH INVESTOR, BUT DOES NOT PURPORT TO BE
A LISTING OF ALL POTENTIAL RISK FACTORS. CONSEQUENTLY, EACH INVESTOR SHOULD
REVIEW CAREFULLY ALL PARTS OF THE OFFERING MEMORANDUM IN ADDITION TO REVIEWING
THE FOLLOWING:
A. ADDITIONAL DISCLOSURE INFORMATION. The Company incorporates those risk
factors, and supplements the following information with the disclosures, which
are contained in the unfiled Form S-3 registration statement delivered to the
Subscriber, or its counsel, in May 1999.
B. GENERAL BUSINESS RISKS.
1. DEVELOPMENT STAGE. The Company was organized as a Texas corporation
on April 21, 1989 and changed its jurisdiction of incorporation on January 26,
1995 by becoming a Utah corporation. Since it has not sustained profitable
operations in any of its market sectors during the periods reflected in the
attached SEC reports, the Company must be considered a development stage
enterprise with limited prior operating history. Each investor should be advised
that, historically and statistically, development stage entities constitute a
greater risk of loss of investment than investment in a seasoned company.
2. SUCCESS OF PRODUCT AND SERVICES. There is no assurance or warranty
that the contemplated products and services will be commercially successful or
that the Company's proprietary interest in the products can be commercially
protected through copyrights, patents or other similar types of applications.
The Company is engaged in the development and marketing of what must be
considered as novel and experimental new products and innovations. Each investor
must consider, as a potential risk factor, the possibility that the investor
could invest in this Offering and not receive any return of investment, or lose
his entire investment if the product is not successfully marketed or otherwise
not commercially successful.
3. COMPETITION. There is substantial competition, both locally and
internationally, in the electronics industry in which the Company engages. No
assurance can be made, despite the best efforts of management, that other
companies may not produce competitive programs, services, or devices at a
competitive advantage which could cause the Company to be commercially
unprofitable.
II-35
<PAGE>
4. GOVERNMENT REGULATION. Various aspects of the industry in which the
Company has historically engaged have been subject to government regulation such
as regulation by the Federal Communications Commission (FCC), the Federal Trade
Commission (FTC), as well as local governmental agencies. Various changes by
regulatory agencies, or in the tax treatment of the Company or its applications,
could have significant impacts upon the Company and its profitability.
5. YEAR 2000 COMPLIANCE. The Company is concerned that the entire
electronics and media industries may be substantially and adversely impacted by
various failures of computer systems and programs to properly adjust to, or
account for the change to the year 2000 relevant to their computer based
operations. It is not possible to project the potential scope of adverse
impacts, if any, but it is believed that such adverse impacts, if they occur,
may be most significant in the broadcast industries which could directly bear
upon the Company's future operations. The Company does not believe it internally
has any computer program systems or configurations which are not presently
conformed to the year 2000 (Y2-K) standards, but adverse impacts could easily
result from various media companies with whom or through which the Company
intends to engage in business. Since this risk cannot realistically be measured,
each prospective investor should consider this as an unknown and undetermined
risk factor.
6. CORPORATE FORMALITIES. The Company has determined that certain stock
issuance transactions since January 1, 1998 have been discussed and approved by
senior management of the Company, but have not been formally documented by
corporate resolution of its directors. The Company is in the process of
documenting the omitted transactions and anticipates securing all formal
corporate approval prior to the effective date of the Registration Statement.
Listing on AMEX, as now pursued by the Company, may be delayed until these
formalities are completed.
C. PARTICULAR RISK OF THIS OFFERING.
1. OPERATING LOSSES. As you will note from the attached and
incorporated consolidated financial statements for the Company, the Company, to
date, has a net operating loss from limited sales. While start up companies
frequently have operating losses, each investor should consider the absence of
profits as a risk factor.
2. ARBITRARY OFFERING PRICE. The Offering price of the Company's stock
has been arbitrarily determined and does not purport to represent any intrinsic
value or net worth of the Company.
II-36
<PAGE>
3. NEW PRODUCTS AND CONCEPTS. The new products applications and
services attempted to be funded and marketed pursuant to this Offering does not
have an established market share. Neither do such products or applications have
a proven market share. As a consequence, there can be no assurance or warranty
that the Company will be commercially successful in its attempts to produce and
market the new products or services. Moreover, even if fully protected, there is
no absolute assurance that the Company will be successful in its marketing
efforts for the new products and services, that a market demand will be created
for such new products or services, or that it may not have inherent defects or
problems making it unsuitable for the purposes intended. All of these must be
considered as risk factors in any Offering attempting to develop and market new
products and services.
4. STRATA BUSINESS SEGMENT. The Company has announced its anticipation
to undertake the production and marketing of a line of products (the "Strata
Products") that were formerly sold by Strata, Inc., a St. George, Utah
corporation. As announced, such endeavor is partially outlined in an agreement
in principle. No binding agreement has been entered into to accomplish this
purpose. A key precondition to the successful completion of the Company's
objectives with regard to this new product line is the securing of the right to
use essentially all of the technology and intellectual property (including
copyrights), which were formerly used by Strata, Inc. in creating and marketing
the Strata Products. As of the date of this document, the Company has (a)
acquired, by assignment, the secured interest of Zions Bank in such assets; and
(b) is negotiating with four other entities which claim secured interests in the
same assets as collateral for debt which exceeds an aggregate amount of $3.8
million. The Company has purchased the Zions Bank secured interest for cash and
anticipates acquiring the other four secured interests through the issuance of
333,333 shares of restricted common stock of the Company, without any
registration rights. No assurance can be given that these efforts will be
successful, or that the ultimate acquisition of the secured interests will
ultimately result in the Company's ownership of the Strata technology and
intellectual property. Without the successful completion of such acquisitions,
the Company will likely be unable to pursue its plans to market the Strata
Products or recoup its investment costs which have presently been expended in
pursuing the Strata business segment.
5. SUBSTANTIAL DILUTION. Investments in this Offering will incur an
immediate and substantial dilution to the value of their shares. In the event
the Company is required to raise subsequent capital for its products or
operations, it is probable that shares will be sold on terms different than
offered herein and investors may incur subsequent dilution, both as to the value
of their shares and voting control. See "Dilution" section.
II-37
<PAGE>
6. TERMINATION OF THE OFFERING. There is a risk that the minimum number
of shares offered may not be promptly sold and investors would have their
investment funds held in escrow without earnings until the Offering Termination
Date. See "Terms of the Offering."
7. LACK OF ADEQUATE CAPITALIZATION. The funds being raised in this
Offering may not adequately fund the intended business purposes and products and
subsequent funding may not be available. The company currently has limited
assets or net worth. See Attached Financial statements.
8. CONTINUING SERVICES OF MANAGEMENT. While the CEO and other officers
intends to serve the Company on a full-time basis, there is no assurance or
warranty that the present management may not retire, resign, or otherwise
disengage at some future date resulting in the risk factors inherent in a change
of management to a start-up Company. Further, the Company may need to acquire
other full-time officers or employees.
9. COMPENSATION OF MANAGEMENT. At present management is being paid
substantial compensation from capital. As a result, a significant portion of
offering proceeds may be used to pay salaries before there are sufficient
revenues to fully cover salaries and other compensation.
10. OUTSTANDING LITIGATION. The Company has completed the settlement of
outstanding litigation with Ignite Advertising for a claim in the amount of
approximately $400,000.00. The Company has agreed to pay $40,000 in cash each
month for ten months to Ignite Advertising. Each prospective investor in the
Company should understand that this settlement may reduce the ability of the
Company to raise future capital. These matter and other litigation risks are
more fully discussed under the "Litigation Section."
D. SECURITIES RISK FACTORS.
1. LIMITED MARKET. Each prospective investor in this offering should
understand that the Company has very limited trading markets and no assurance
can be given that the price of the stock may not be at risk or effected by the
completion of this private placement offering, or that the price will be the
same as currently quoted. Further, because the markets are very thinly traded,
any additional shares issued by the Company may have significant impacts upon
those markets.
2. PRESENT SEC REVIEW STANDARDS. The Company has been informed through
its counsel that the SEC is currently critically reviewing various private
placement offering types and subsequent registration rights such as the present
offering. In various popular
II-38
<PAGE>
financial literature the offering similar to the present private offering with
preferred registration rights based upon various formulas have been described as
"toxic convertible" offerings. While not strictly prohibited by the SEC, each
investor should clearly understand that the SEC will most likely critically
review any type of offering of this nature and such review and comments may
cause unanticipated and unusual delays in the clearance of any subsequent
registration rights or any subsequent offerings by the Company. Moreover, this
type of offering may be subject to a higher level of administrative review and
potential administrative actions or investigations by the Securities and
Exchange Commission.
3. LIMITED TRANSFERABILITY. Securities issued pursuant to this Offering
have not been registered and are subject to very strict limitations on
subsequent transfers, resales, or assignments. These matters are more
particularly described under "Restricted Nature of Securities -
Transferability." In short, each individual investor should understand that
there may not develop any public markets through which reliance upon federal
rules for resale of restricted securities are often founded. Further, each
investor must understand that there may be substantial holding periods before
the securities can be resold, even if a public market is developed. IN ALL
EVENTS, TRANSFERABILITY WILL BE VERY LIMITED AND THE SHARES SHOULD BE PURCHASED
ONLY BY THOSE SEEKING LONG-TERM CAPITAL GROWTH.
4. LACK OF REGISTRATION REVIEW. Because this is not a registered
offering, no formal guidelines or requirements for review are or have been
imposed by most jurisdictions allowing the claim of exemption, or by the federal
government through the Securities and Exchange Commission (SEC). By contrast, in
a registered offering, the Offering would most likely be thoroughly review by an
independent agency, such as the SEC, or a state securities agency. Moreover,
various states impose requirements, known as "Merit Requirements" on various
aspects of offerings pursuant to registration in that jurisdiction such as
limitations on dilutions. Because this is a private placement, such review or
merit requirements are usually not imposed. Each prospective investor should
further consider, as a potential risk factor, the fact that all Company offering
terms were determined upon the sole judgment of management of the Company and
were not formulated or arrived upon from any particular disclosure perspective
or merit review requirements.
5. POTENTIAL SECURITIES ACTIONS. Management believes, though it can not
substantiate empirically, that offerings of this type may be more subject to
litigation by securities holders or government administrative actions, because
of the lack of registration, that would be the case in a registered offering.
Should a securities action or administrative proceeding be instituted, either by
a governmental agency or an individual investor,
II-39
<PAGE>
proceeds of this Offering may be expended to defend any such securities action,
whether or not the Company is successful. Any such action may, as a result,
substantially reduce funds available for business activities of the Company and
lead to a potentially insolvency or bankruptcy of the Company.
II-40
<PAGE>
CAPITAL STOCK
The Company has authorized 500,000,000 shares of common stock at a par
value of $0.0001. As of May 1, 1999, there are issued and outstanding (including
shares subscribed for), 21,937,742 shares. The Company has no preferred class of
stock.
II-41
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains certain information concerning the
nominees for the Board of Directors of the Company.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NAME AND PRINCIPLE OCCUPATION AGE FIRST SHARES OF COMMON PERCENTAGE OF
OR EMPLOYMENT BECAME A STOCK BENEFICIALLY COMMON STOCK
DIRECTOR OWNED OUTSTANDING
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Blaine Harris 60 1994 2,377,000 14%
Chairman
- -----------------------------------------------------------------------------------------------------------
Harold P. Glick 56 1995 528,962 3%
Partner in the real estate company of
Moore Warfield & Glick
- -----------------------------------------------------------------------------------------------------------
Robert E. Warfield 58 1995 1,000,000 6%
Partner in real estate company of Moore
Warfield & Glick
- -----------------------------------------------------------------------------------------------------------
Chuck Coonradt 54 1996 11,754 .1%
Chairman and CEO of the Game of Work,
Inc. a management consulting firm
- -----------------------------------------------------------------------------------------------------------
Andre Peterson 46 1998 119,586 1%
VP of Marketing and Chief Marketing
Officer of Cogito Incorporated
- -----------------------------------------------------------------------------------------------------------
John Bartholomew 40 1998 68,729 .4%
General Manager of The Kaizen Group
- -----------------------------------------------------------------------------------------------------------
</TABLE>
BUSINESS EXPERIENCE
BLAINE HARRIS. Chairman, Director. Mr. Harris is an alumnus of Idaho State
University, where he majored in Business and Marketing. Mr. Harris has extensive
experience in real estate with his primary focus being commercial and
residential project development. From 1986 to 1991, he served as Chief Executive
Officer and Chairman of the Board of Directors of Help-U-Sell, Inc. and was
involved with Help-U-Sell as a partner of Conquest Management, a Utah
partnership, which managed and owned a 49% interest in Help-U-Sell. During his
administration, Help-U-Sell grew from 118 franchises to 650 plus franchises and
was listed as the fastest growing real estate franchising organization in the
country. In 1991, the Help-U-Sell, Mutual Benefit Life, was taken over by the
New Jersey State Insurance Regulators and its subsidiaries were liquidated,
including Help-U-Sell, Inc. In 1991, Mr. Harris formulated and began development
of Chequemate International, Inc.
HAROLD P. GLICK. Director. Mr. Glick received his BS degree in accounting from
the University of Maryland in 1965 and became a Certified Public Accountant the
following year. Mr. Glick successfully built and managed a family owned retail
business prior to joining Mr. Robert Warfield as a partner in the real estate
Company of Moore, Warfield and Glick. Additionally, since 1988, Mr. Glico has
been a regional owner of Help-U-Sell Real Estate in Virginia, Maryland,
Washington D. C. and Delaware. Mr. Glico served as President of the Greater
Ocean City, Maryland, Board of Realtors in 1988, is a member of the Advisory
Board of Nations Bank and serves on the Maryland Governor's Economic Development
Committee.
ROBERT WARFIELD. Director. Mr. Warfield has a BS Degree in Economics from
Western Maryland College. He has an extensive background in real estate and
regional sales management with the Weyerhauser Corporation. Mr.
II-42
<PAGE>
Warfield first became licensed in real estate in 1962, and in 1975 started
Warfield Real Estate. He has been in the real estate and business development
business in Ocean City, Maryland since 1971. For the past 18 years Mr. Warfield
has been President of Moore, Warfield and Glick, Inc., with real estate sales
over $100 million and rentals of $12 million. Additionally, since 1988, Mr.
Warfield has been a regional owner of Help-U-Sell Real Estate in Virginia,
Maryland, Washington D.C. and Delaware. Mr. Warfield currently serves on the
Board of Directors of Atlantic General Hospital and Ocean City Golf and Yacht
Club. He has also served as a director of Second National Service Corp., and
Salisbury School.
CHUCK COONRADT. Director. Mr. Coonradt is Chairman of the Board and CEO of The
Game of Work, a Utah-based corporation engaged in providing management and
personnel training for its corporate clients in the fields of goal- setting and
profit improvement. Clients of the firm include Quaker Oats, Wendy's, The
Chicago Tribune, First Interstate bank, Dow Chemical and Pepsi-Cola.
ANDRE PETERSON. Director. Mr. Peterson is an alumnus of Brigham Young
University, where he majored in Business Management. He is currently the Vice
President of Marketing and Chief Marketing Officer for Cogito Incorporated, a
software technology development company. He was the VP of Marketing and a
Partner of The Kaizen Group, a marketing and development group for start-up
software companies from 1996 to present. He served as the President of Enhanced
Simulation Marketing from 1994 through 1996, marketing a newly patented motion
simulator for the entertainment industry. He was the VP of Marketing for
WordPerfect Corporation and Novell Corporation from 1983 to 1994. Mr. Peterson
was responsible for all aspects of sales and marketing for WordPerfect, taking
sales from one million in 1983, to over seven hundred million in 1994. Prior to
working for WordPerfect, Mr. Peterson was a member of the White House Staff for
four years.
JOHN V. BARTHOLOMEW. Director. Mr. Bartholomew has a BS degree in Computer
Science from Brigham Young University. He has extensive experience in the
application of technology in computers and complex systems. He has been involved
in the management of technology sales and marketing for more than a decade with
such companies as WordPerfect and Novell. He was the General Manager of The
Kaizen Group, a consulting organization for technology companies with such
customers as Microsoft, NetVision, PowerQuest, LogicalNet and Cogito, a
Knowledge based software solutions provider.
EXECUTIVE OFFICERS
The following table outlines the executive officers of the Company.
This table does not include those officers that serve as Directors.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
NAME AGE POSITION HELD CURRENT TERM OF OFFICE
OR DIRECTORSHIP AND
PERIOD OF SERVICE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
J. Michael Heil 44 CEO Current Term September
1998 to current. Service
since September 1998
- ----------------------------------------------------------------------------------
Ted Lassetter 60 President Current Term September
1998 to current. Service
since September 1998
- ----------------------------------------------------------------------------------
Steven B. Anderson 29 CFO Current Term September
1998 to current. Service
since July 1995.
- ----------------------------------------------------------------------------------
</TABLE>
II-43
<PAGE>
BUSINESS EXPERIENCE
J. MICHAEL HEIL. Mr. Heil has over 17 years in the satellite and television
business. Mr. Heil was formerly president of Skylink America, Inc. and Satellite
Cinema, successfully launching five digital video pay-per-view networks. During
his tenure he grew the business to $20 million in annual revenue and over
150,000 subscribers. He was the Director of Operations for Comsat Video
Enterprises, and Chairman & CEO of Television Entertainment Network, Inc., a
Canadian hotel pay-per-view company.
TED LASSETTER. Mr. Lassetter has spent over 34 years with IBM working as
Senior Engineer, product manager and vice president of data processing (DP)
manufacturing IBM World Trade Corp. He successfully managed all of IBM's DP
plants and technology plants outside of the U.S. He later became a private
consultant for such companies as Toyota MFG., Mutual Benefit Life and
Help-U-Sell, Inc.
STEVEN B. ANDERSON. CFO/Secretary/Treasurer. Mr. Anderson has a Masters of
Business Administration degree from the University of Utah. Mr. Anderson also
received his BA Degree in Accounting from the University of Utah. Mr. Anderson
has been with the Company since 1995 when he joined the Corporation as the
Assistant Controller. Mr. Anderson first distinguished himself through his
ability to provide projections and models that help with business decisions.
Since then his role with the Company has continually increased. Mr. Anderson
currently works on SEC reporting, financial statements, shareholder and investor
relations among other corporate responsibilities.
EXECUTIVE COMPENSATION
The following table sets forth the current salary information for
executive officers.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Name and Principal Position Current Yearly Salary
- -------------------------------------------------------------------------------
<S> <C>
Blaine Harris, Chairman $120,000
- -------------------------------------------------------------------------------
J. Michael Heil, CEO $120,000
- -------------------------------------------------------------------------------
Ted Lassetter, President $120,000
- -------------------------------------------------------------------------------
Steven B. Anderson, CFO $ 55,000
- -------------------------------------------------------------------------------
</TABLE>
The following chart shows the stock options granted to the current
executive officers of the Company.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Name and Principal Position Total Options Granted Total Options Vested
- -------------------------------------------------------------------------------
<S> <C> <C>
Blaine Harris, Chairman 70,000 42,000
- -------------------------------------------------------------------------------
Steven B. Anderson, CFO 30,000 9,000
- -------------------------------------------------------------------------------
</TABLE>
The following chart shows stock options granted to those other than
executive officers. The individuals named below received the referenced options
pursuant to the ATG technology transaction.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Name Total Options Granted
- -------------------------------------------------------------------------------
<S> <C>
Jerry Coleman 59,910
- -------------------------------------------------------------------------------
John Bartholomew 64,285
- -------------------------------------------------------------------------------
Bert Alvey 192,855
- -------------------------------------------------------------------------------
Carlos Bullos 200,000
- -------------------------------------------------------------------------------
Amber Davidson 64,285
- -------------------------------------------------------------------------------
Andre Peterson 58,571
- -------------------------------------------------------------------------------
Trilogy Design 16,667
- -------------------------------------------------------------------------------
</TABLE>
II-44
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 30,
1998 with respect to each person who owns of record, or is known to the Company
to beneficially own, more than 5% of the outstanding shares of voting common
stock, and the beneficial ownership of such securities by each officer and
director who owns any stock, and by all officers and directors as a group.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF OWNERSHIP PERCENT OF CURRENTLY ISSUED AND
OWNER OF VOTING STOCK SUBSCRIBED STOCK
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Blaine Harris 2,377,000(2) 14%
57 West 200 South Suite 350 Direct Ownership
Salt Lake City, Utah 84101
- ----------------------------------------------------------------------------------------------------------
Robert Warfield 1,000,000 6%
10481 Golf Course Road Direct Ownership
Ocean City, MD 21842
- ----------------------------------------------------------------------------------------------------------
Harold P. Glick 528,962 3%
10706 Piney Island Drive Direct Ownership
Bishopville, MD 21842
- ----------------------------------------------------------------------------------------------------------
Chuck Coonradt 11,754 .1%
3797 W. Blacksmith Road Direct Ownership
Park City, Utah 84060
- ----------------------------------------------------------------------------------------------------------
Andre Peterson 119,586(2) 1%
291 East 950 South Direct Ownership
Orem, Utah 84058
- ----------------------------------------------------------------------------------------------------------
John Bartholomew 68,759(2) .4%
291 East 950 South Direct Ownership
Orem, Utah 84058
- ----------------------------------------------------------------------------------------------------------
Steven B. Anderson 9,000(2) .1%
57 West 200 South Suite 350 Direct Ownership
Salt Lake City, Utah 84101
- ----------------------------------------------------------------------------------------------------------
CEDE & Co. 3,920,120 23%
PO Box 222
Bowling Green Station
New York, NY 10274
- ----------------------------------------------------------------------------------------------------------
Navada Holdings Ltd. 1,000,000 6%
C/0 Suite 1402 PDCP Bank Centre
8737 Paseo de Roxas
Makati Metro Manila
Philippines
- ----------------------------------------------------------------------------------------------------------
Officers and Directors as a group 4,115,061 24%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
(2) Includes shares which these individuals have the right to acquire within
sixty days pursuant to options granted through September 30, 1998 in the
following amounts; Harris 42,000, Peterson 58,571, Bartholomew 64,285, Anderson
9,000
II-45
<PAGE>
SCHEDULE 2(f)
1. The Company has entered into a stipulated settlement for cash payments to
satisfy the BH Productions litigation referred to in paragraph 1 of Schedule
2(i). Although this transaction may be considered to be in the normal course of
business of the Company, it is referenced here in the interests of more complete
disclosure.
2. The Company has entered into a loan transaction with Zions Bank of Utah,
in the initial amount of $163,790.88. The proceeds of the loan were used for the
purchase of the assignment of a security interest and promissory notes held by
Zions Bank in certain accounts receivable, equipment and intellectual property
of Strata, Inc., a St. George, Utah corporation. Since the date of the
referenced assignment, the outstanding balance on the loan to Zions Bank has
been increased in a net amount by more than $ 304,500 by advances made to Strata
under the loan documentation. Although this transaction may be considered to be
in the normal course of business of the Company, it is referenced here in the
interests of more complete disclosure.
II-46
<PAGE>
SCHEDULE 2(i)
LIST OF POSSIBLE BREACHES OF CONTRACTS AND LIST OF LEGAL PROCEEDINGS
1. BH PRODUCTIONS, INC., an Illinois Corp., d/b/a IGNITE ADVERTISING v.
CHEQUEMATE INTERNATIONAL, with a stipulated settlement of monthly payments.
2. NEWSPAPER AGENCY CORP., v. CHEQUEMATE ELECTRONICS, INC. a Utah Corporation,
formerly CHEQUEMATE THIRD DIMENSION, INC. Civil No. 980907238, Ralph Tate
Attorney for Plaintiff. Total of $13,132.56 plus interest and legal fees.
Payments of $2,569.11 on 09/29/98, $2,500.00 on 10/30/98, and $2,500 on 12/02/98
have been made against claim.
3. MARKO FOAM PRODUCTS, INC. v. CHEQUEMATE INTERNATIONAL, INC. Civil
No. 980908766, Ralph Tate Attorney for Plaintiff. Total of $20,590.89 plus
interest and legal fees. Payments of $3,000 on 09/29/98, $3,000 on 10/30/98,
$2,990.97 on 12/02/98 have been made against claim.
4. GOLDEN PACIFIC ELECTRONICS, INC. v. CHEQUEMATE ELECTRONICS, INC.;
Civil No. 980407246CV. Richard Frandsen Attorney for Plaintiff. Total of $9,070
plus interest and legal costs. Payments of $2,500 on 08/07/98, $2,500 on
09/29/98, $2,500 on 10/30/98, $1,570 on 12/02/98 have been made.
5. CENTRAL MEADOW PARK, L.P. v. Chequemate Tele-Services, Inc., Fred Boedeker,
and Blaine Harris. A retainer was paid to Langley & Branch to represent
Chequemate Tele-Services and Blaine in this lawsuit over a lease that was
entered into in Texas. Gregory M. Weistein is the attorney handling the claim
for Chequemate Tele-Services and Blaine. His phone number is (214) 953-7214.
No action has been taken by plaintiff in 1998 or 1999.
6. MARSHAL INDUSTRIES v. CHEQUEMATE INTERNATIONAL, INC., Civil No. 990901773
claiming payment of $18,360.83 for parts acquired either by Chequemate or ATG,
the licensee of the 3D technology.
II-47
<PAGE>
SCHEDULE 2(l)
The Company is in the process of filing a trademark application for the
use of the name "C-3D Digital," and presently is doing business as C-3D Digital,
Inc. in the State of Utah.
As reflected in the amended and incorporated Risk Factors section, the
Company is pursuing a foreclosure action in its security interests in assets and
technology of Strata, Inc. The judicial foreclosure sale is scheduled for June
16, 1999, and some possibility of adverse claimants does exist. However, legal
counsel of the Company anticipate that the Company will secure all of the Strata
technology.
II-48
<PAGE>
Exhibit B
A Subscriber who meets any one of the following tests is an accredited
investor:
(a) The Subscriber is an individual who has a net worth, or joint net
worth with the Subscriber's spouse, of at least $1,000,000.
(b) The Subscriber is an individual who had individual income of more
than $200,000 (or $300,000 jointly with the Subscriber's spouse) for the past
two years, and the Subscriber has a reasonable expectation of having income of
at least $200,000 (or $300,000 jointly with the Subscriber's spouse) for the
current year.
(c) The Subscriber is an officer or director of the Company.
(d) The Subscriber is a bank as defined in Section 3(a)(2) of the
Securities Act or any savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity.
(e) The Subscriber is a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934.
(f) The Subscriber is an insurance company as defined in Section 2(13)
of the Securities Act.
(g) The Subscriber is an investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act.
(h) The Subscriber is a small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958.
(i) The Subscriber is an employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(j) The Subscriber is a private business development company as
defined in Section 202(a)(22) of the Investment Advisers Act of 1940.
(k) The Subscriber is an organization described in Section 501(c)(3)
of the Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000.
II-49
<PAGE>
(l) The Subscriber is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person as described in
Rule 506(b)(2)(ii) of the Commission under the Securities Act.
(m) The Subscriber is an entity in which all of the equity owners are
accredited investors (I.E., all of the equity owners meet one of the tests for
an accredited investor).
If an individual investor qualifies as an accredited investor, such
individual may purchase the Units in the name of his individual retirement
account ("IRA").
II-50
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this amended Registration Statement on Form S-3 of our
report dated June 23, 1998, on form 10-KSB for Chequemate International, Inc.
for the year ended March 31, 1998. We also consent to the incorporation and to
the reference to us under the heading "Experts" in the Registration Statement.
/s/ Jones, Jensen and Company
-------------------------------
Jones, Jensen & Company
Salt Lake City, Utah
June 28, 1999
II-51
