SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to ____________
Commission File Number: 1-12536
STRATEGIC SOLUTIONS GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-2964894
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
326 First Street, Suite 100
Annapolis, Maryland 21403
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (410) 263-7761
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Securities registered pursuant to Section 12(b) of the Act: Common Stock,
$.0001 par value
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Securities registered pursuant to Section 12(g) of the Act: None
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulations S-K (ss.229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
As of March 27, 1998 the aggregate market value of the voting stock
held by non-affiliates, approximately 2,777,000 shares of Common Stock, $.0001
par value, was approximately $3,992,000 based on the closing sales price of $1
7/16 for one share of Common Stock on the Nasdaq Small Cap Market on such date.
The number of shares outstanding of the Registrant's Common Stock, as of March
27, 1998 was 2,821,463.
Documents incorporated by reference: Portions of the Registrant's
definitive Proxy Statement regarding its 1998 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
During 1997, the Company was a full service provider of technology based
solutions and computer systems integration and support services, including the
sale of hardware and software products, specializing in the development of
software applications related to work group and work flow computing solutions
and custom interactive multimedia software. The Company's systems integration
division was comprised of the business of U.S. Technologies, Inc. ("UST"), a
wholly owned subsidiary, which the Company acquired in July 1996. UST is a Lotus
Premium Business Partner that develops software applications used in conjunction
with, and provides services related to the use of Lotus Notes(R) and Domino(TM),
and was an IBM Industry Remarketer of AS/400(R) and RS/6000(R) midrange
computers. The Company's multimedia division designs, develops, and markets
custom multimedia software used to deliver computer-based and web-based
training, electronic performance support systems, multimedia manuals, sales and
marketing presentations, and corporate communications. For the year ended
December 31, 1997, approximately 81% of the Company's revenue was attributable
to the systems integration division and approximately 19% to the multimedia
division. References to the "Company" herein refer to Strategic Solutions Group,
Inc. and its subsidiaries.
In April 1998, UST was merged into and with SSGI-UST Acquisition
Corporation, an existing corporation formed on March 5, 1998 and owned by the
President of UST and other third parties. UST continued as the surviving
corporation; accordingly, SSGI-UST Acquisition Corp. ceased to exist. Effective
upon the merger, the Company's ownership in UST was reduced from 100% to
approximately 14%. See "Systems Integration Services Merger of UST" below and
the Notes to the Consolidated Financial Statements. Accordingly, after that
date, the Company's operations will comprise the multimedia division only.
SYSTEMS INTEGRATION SERVICES
The Company acquired UST, a full-service provider of computer systems
integration and support services, in July 1996. Products and services included
the sale of hardware and software products and the development of software
applications for and providing services related to work group and work flow
computing solutions. UST is a Lotus Premium Business Partner that develops
software applications used in conjunction with, and provides services related to
the use of Lotus Notes(R) and Domino(TM). Through June 30, 1997, UST was also an
IBM Industry Remarketer of AS/400(R) and RS/6000(R) midrange computers. However,
effective June 30, 1997, UST chose to no longer sell the IBM AS/400(R) and
RS/6000(R) midrange computers due to gross margins being lower than originally
anticipated.
LOTUS PREMIUM BUSINESS PARTNER. Lotus Notes(R) and Domino(TM) are
proprietary groupware and messaging software products developed by Lotus
Development Corporation that enable users to communicate and collaborate over a
local area network or telecommunications link and access
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documents and data residing on a shared computer, or server. As a Lotus Premium
Business Partner, UST develops a wide variety of custom software applications
expanding the applicability of Lotus Notes(R)/Domino(TM) to a particular
customer's needs. Such applications have included numerous project, time, sales,
and database management applications. For example, UST recently has developed a
sales force automation system for a publisher and distributor of secondary
education products and a quality control application for an international
manufacturer of consumer goods. UST also provides a full complement of services
related to the use of Lotus Notes(R)/Domino(TM), including the integration,
design, development and installation of computer systems, intranet and Internet
services, and education and support services.
DEVELOPMENT AND SERVICES. At the outset of each systems integration
project, UST provides each of its customers with a statement of work that
details the products and services that UST will provide, sets forth a good faith
estimate of the amount UST will charge, and provides a work and payment
schedule. The payment schedule varies from customer to customer, but usually
includes some form of up-front payment and either weekly or monthly payments or
payments based upon the completion of phases of the project. UST generally
charges an aggregate of $10,000 to $250,000 for systems integration services
(including the purchase of hardware) and the amount of time required to complete
such services ranges from several days to a year. Post-installation support
services are billed separately, usually on an hourly basis.
Because of the extensive testing and evaluation procedures that are
undertaken in conjunction with its customers with respect to the Company's
systems integration services, the Company does not provide warranties with
respect to such services. Lotus Development Corporation and IBM, as well as
other equipment manufacturers, provide the Company's customers with limited
warranties on their products.
IBM INDUSTRY REMARKETER. In November 1996, UST became an IBM Industry
Remarketer for the AS/400(R) and RS/6000(R) midrange computers. Midrange
computers generally are the most powerful computers frequently used by mid-sized
companies (companies with annual sales of $25 to $250 million). During the
fourth quarter of 1996, UST entered into an agreement with Support Net, Inc.,
IBM's largest Managing Industry Remarketer, that enabled UST to sell the
AS/400(R) and RS/6000(R) midrange computers on a non-exclusive basis to end
users of those computers located in the United States. However, effective June
30, 1997, UST chose to no longer sell the IBM AS/400(R) and RS/6000(R) midrange
computers due to gross margins being lower than originally anticipated.
Accordingly, these agreements were terminated. Total product sales by UST for
the year ended December 31, 1997 was approximately $2.1 million, of which
approximately 64% was attributable to the sales of the IBM AS/400(R) and
RS/6000(R) midrange computers.
MERGER OF UST. In April 1998, UST was merged into and with SSGI-UST
Acquisition Corporation, an existing Florida company owned by the President of
UST and other third parties, and UST continued as the surviving corporation.
Accordingly, after that date, the Company's operations will not include the
operations of UST. UST will be immediately pursuing a private placement of its
equity securities for approximately $2,000,000 and has long-term plans to pursue
a public offering of its equity securities.
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In consideration for the merger, SSGI received the following:
(1) 100,000 shares of common stock of UST valued at $500,000 or
$5.00 per share. These shares are subject to a registration
rights agreement giving the Company the right to demand
registration or a piggy back registration of UST's shares;
(2) A promissory note from UST in the principal amount of $600,000
with 6% interest due the earlier of the closing of the
$2,000,000 private placement or 60 days from the closing of
the merger. The promissory note is secured by all the assets
of UST and the pledge of all of the outstanding stock of UST;
and
(3) A 6% subordinated convertible debenture in the principal
amount of $927,000 (to be increased for any funding provided
by the Company to UST after February 6, 1998, the date the
merger was agreed to). The debenture is due the earlier of a
public offering of UST's securities or 18 months from the date
of the merger. In addition, the Company has the option to
convert the debenture into shares of UST's common stock at a
20% discount to market value conversion ratio at the time of
conversion.
CUSTOM MULTIMEDIA SOFTWARE
The Company's multimedia division (the "division") provides technical
consulting services that include analysis, design, and development of
technology-based solutions and specializes in providing training solutions.
Technology-based training encompasses a wide range of emerging technologies in
the area of employee training, and can come in the form of computer-based
training, web-based training, electronic performance support systems, and
multimedia manuals. In addition to training, the division also designs and
develops software for sales and marketing applications and corporate
communications.
Depending on a customer's needs, the division can produce multimedia
software that includes interactive computer animation, full motion video, audio,
high-end color graphics, text and hypertext providing vivid and effective
instruction and information. The software developed by the division can be
distributed over multiple platforms including MSWindows(TM) and DOS and can be
delivered on diskette or CD-ROM. The Company believes that it can adapt its
services using new and emerging technologies, such as internal corporate
intranets or the Internet using the World Wide Web ("Web"). In addition, the
incorporation of Web-Based training ("WBT") allows users to have access from
anywhere in the world. The Company believes that the Internet and intranets will
become increasingly important delivery methods in the future.
According to a market research firm, International Data Corp. ("IDC"),
companies spent approximately $18 billion worldwide in training for their
workers in 1996 and by the year 2001 that annual bill is expected to grow to
approximately $27.9 billion. In addition, according to IDC, offering employee
training via the Internet and corporate intranets is a business that could grow
at annual rates greater than 100% over the next few years.
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COMPUTER-BASED TRAINING ("CBT"). The division designs and develops custom
computer-based training software, which provides an interactive learning
experience to instruct employees how to use complex equipment or to understand
complicated industrial processes by simulating operation and production
procedures. The division's software typically replaces or supplements technical
manuals and operating documentation and provides interactive self-paced
training. It also often incorporates cut-away views of equipment that would be
difficult or impossible to display in a real-world setting and enables users to
learn complex processes by viewing them in real or lapsed time or in slow
motion. Based on studies conducted and published by the American Society for
Training and Development, management believes that CBT enables users to master
skills and retains information more effectively than traditional instructor-led
training.
WEB-BASED TRAINING. Recent technological developments and advances in
computer network technology enable the Company to deliver computer-based
training over corporate intranets or the Internet via the Web. Web-based
materials can be text-based (such as, lecture notes, case studies, and
assignments) or they may be much like sophisticated CBT courseware. As a result
of rapidly advancing Web browsers, high-speed communications, and innovative
instructional design, it is possible that real-time animation, video, audio, and
conferencing could be features included in a WBT solution. In addition, the
incorporation of WBT allows users to have access from anywhere in the world. The
Company believes that the Internet and intranets will become increasingly
important delivery methods in the future.
ELECTRONIC PERFORMANCE SUPPORT SYSTEMS ("EPSS"). The goal of an EPSS is
to provide whatever information is necessary to accelerate performance and
learning at the moment of need - commonly referred to as HELP SYSTEMS. The
division designs and develops custom EPSS software to enable users to perform
better at their jobs. This software provides computer-based support that is
integrated into a workstation or work environment, and acts as a combination
coach/trainer/job aid/reference. The Company believes that EPSS increases
employee productivity by providing needed information and training when and
where it is needed - and in an amount and format that is the most useful to the
user.
MULTIMEDIA MANUALS. The division provides turn-key multimedia manual
services, using an internally developed software product known as TechShelf(TM).
TechShelf(TM) enables the division to convert customer manuals, reference
guides, or other technical materials into interactive multimedia software,
including full-motion video, audio, animation and interaction. The Company
believes that these services enable customers to obtain a technology-based
solution in less time and at a relatively low cost as compared to traditional
custom software services.
SALES AND MARKETING. The division designs and develops custom sales and
marketing software which enables manufacturers and distributors to demonstrate
their products to potential customers at trade shows or in kiosks. This software
can enhance sales and marketing presentations by encouraging customer
participation through the use of interactive product demonstrations.
CORPORATE COMMUNICATIONS. The division designs and develops custom
multimedia software for internal and external corporate communications. Examples
include software used to
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disseminate corporate policies and procedures and information about a company's
products and services. The Company believes that its custom multimedia
development services can be used to create a technology-based solution,
including web-based, that is comprehensive and cost-effective and delivers
lively and compelling messages to large groups of employees in disparate
locations.
DEVELOPMENT AND SERVICES. The Company's custom multimedia services for
the above technology-based solutions include needs analysis, design
specification and product development. Needs analysis typically takes from three
to ten days and the charges for such services can range from $5,000 to $15,000.
The design phase lasts from four to six weeks and the charges for such services
can range from $20,000 to $40,000. Depending upon a project's scope and
features, the time required to complete software development can range anywhere
from one month to several years and the charges for such services can range from
$10,000 to $1 million.
At the outset of each project, the Company provides the customer with a
statement of work that details the services that the Company will provide, sets
forth the amount that the Company will charge, and provides a work and payment
schedule. Any changes to the project that will result in additional charges are
submitted to the customer for approval prior to providing the services. The
payment schedule varies from customer to customer, but usually includes some
form of up-front payment and progress payments based upon the completion of
phases of the project. To date, the Company has not experienced any significant
difficulties in delivering its custom software products to customers in
accordance with schedules.
The Company's contracts with respect to its services include an express
warranty that usually terminates upon acceptance of the software by the
customer. However, the Company generally will service the software to ensure
that it performs as set forth in the statements of work for a one-year period.
Because of the extensive testing and evaluation procedures performed in
conjunction with the customer that are undertaken during the development
process, to date, servicing cost after customer acceptance has been
insignificant. Post-development support services are available and are billed
separately, usually on an hourly basis.
CUSTOMERS AND BACKLOG
Systems integration services customers are generally mid to large size
companies that have or require at least 50 individual computers to be attached
to a network. These customers represent a wide variety of industries and service
organizations. While a substantial percentage of the systems integration
revenues historically have been generated by customers located within Florida,
where UST is located, this percentage has decreased as UST markets its products
and services to customers located outside of the state.
The Company's multimedia customers traditionally have been comprised
primarily of large manufacturers who must train employees to use complex
equipment or understand complicated industrial processes. To date, such
customers have represented a broad range of industries, including the
automotive, packaging, electronics, pharmaceutical, beverage bottling, and
fitness and food manufacturing industries, as well as government agencies
located throughout the United States. As part of its strategy to grow revenues,
the multimedia division has identified strategic
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vertical markets with business-critical needs that can be addressed by the
Company's technology-based solutions. The multimedia division has implemented a
new sales and marketing strategy which targets its efforts on the manufacturing
and transportation industries. The division intends to leverage its existing
relationships and expand its sales and marketing efforts to increase market
share in these industries.
During fiscal 1997, there were no customers that accounted for at least
10% of the Company's consolidated revenue. During fiscal 1996, one systems
integration customer, Data Systems International, accounted for approximately
10% of the Company's consolidated revenue. During fiscal 1995, three customers,
Bell & Howell, TRW, Inc., and Mack Trucks, Inc., accounted for approximately
17%, 17%, and 13%, respectively, of the Company's revenue.
As of December 31, 1997, backlog (i.e., the difference between the fees
payable to the Company set forth in existing contracts and the amount of such
fees that had been recognized as revenue on the Company's financial statements)
of its custom multimedia software services totaled approximately $400,000, all
of which is expected to be earned during 1998. As of December 31, 1997, backlog
of UST's systems integration services and product sales totaled approximately
$450,000, of which approximately $150,000 is expected to be earned by the
Company during 1998 prior to the merger. There can be no assurance that
contracts reflected in backlog will not be canceled or delayed. Accordingly, the
Company believes that backlog is not a reliable measure of future revenue.
RESEARCH AND DEVELOPMENT
For the years ended December 31, 1997 and 1996, costs associated with
research and development activities totaled approximately $323,000 and $252,000,
respectively. Historically, research and development activities included the
development of a library of reusable applications, codes, utilities, and tools
that the Company can utilize in the early stages of development of many of its
software applications. To date, no costs have been capitalized due to the
expenditures for any one reusable application, code, utility, or tool not
totaling a material amount. The Company believes that costs for research and
development will continue in the future at consistent levels as the Company
plans to continue improving its existing reusable applications, codes,
utilities, and tools, as well as the development of new reusable applications,
codes, utilities, and tools. In addition, future research and development
efforts may include the development of products to be sold.
SALES AND MARKETING
As of February 28, 1998, the Company employed 10 people involved in sales
who receive a combination of salary and commission (6 by UST and 4 by the
multimedia division). The direct sales force focuses on large customers and
leverages its industry experience to access target organizations within
particular vertical markets. These markets are characterized by business areas
to which the Company's services and technology are particularly well-suited, and
by participants who possess the financial resources and scale of operations
necessary to support the types of services provided the Company. The Company
also employs other business development
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and marketing techniques to communicate directly with current and prospective
clients. These techniques include exhibiting at trade shows, authoring articles
and presenting papers regarding the Company's solutions and technology, trade
journal advertising, telemarketing, and direct mail marketing.
In addition, as described above under "Systems Integration Services,"
UST's strategy includes being a Lotus Premium Business Partner and may receive
leads from Lotus Development Corporation.
In order to increase revenues, the multimedia division has recently
implemented a more focused sales and marketing strategy which targets its
efforts to providing technology-based training solutions to the manufacturing
and transportation industries. In addition, the division will endeavor to become
a Microsoft Solutions Provider which requires that the Company maintain two
certified Microsoft professionals on staff. The Company believes that this
affiliation may provide sales leads for its services.
Existing clients are also an important component of the Company's
marketing strategy. Follow-on projects leverage sales and marketing resources
and strengthen the Company's client relationships. The Company believes that it
has good relationships with its existing customer base and expects that these
contacts will enable it to successfully pursue this strategy.
COMPETITION
The information technology consulting, software development, and business
solution markets include a large number of participants, are subject to rapid
change, and are highly competitive. The Company competes with and faces
potential competition for clients and experienced personnel from a number of
companies that have substantially greater financial, technical, sales,
marketing, and other resources, and generate greater revenues, as well as have
greater name recognition than the Company. These markets are highly fragmented
and served by numerous firms, many of which serve only their respective local
markets. In addition, clients may elect to use their internal information
systems resources to satisfy their needs for software and application
development and consulting services, rather than using those offered by the
Company.
The Company's systems integration business competes with Lotus
Development Corporation, IBM, other Lotus Business Partners and IBM Industry
Remarketers, companies that manufacture and market midrange computers that
compete with the AS/400(R) and RS/6000(R) and their remarketing agents,
companies that manufacture software that competes with Lotus Notes(R)/Domino(TM)
and their business partners, and numerous other providers of systems integration
and consulting services.
The Company's custom multimedia software business competes with companies
that produce interactive training software (custom and off-the-shelf) and other
third-party suppliers of training and marketing materials, as well as internal
training and information systems resources of potential customers.
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The Company's clients primarily consist of large organizations, including
agencies of the federal government, and there are an increasing number of
professional services firms seeking information technology consulting and
software development engagements from that client base. The Company believes
that the principal competitive factors in the information technology consulting
and software development industry include responsiveness to client needs,
project completion time, quality of service, price, project management
capability, and technical expertise. The Company believes that it presently
competes favorably with respect to each of these factors. However, the Company's
markets are still evolving and there can be no assurance that the Company will
be able to compete successfully against current and future competitors and the
failure to do so successfully will have a material adverse effect upon the
Company's business, operating results, and financial condition. The Company
believes that its ability to compete also depends in part on a number of
competitive factors outside its control, including, the ability of its
competitors to hire, retain and motivate personnel; the development by others of
software that is competitive with the Company's services; the price at which
others offer comparable services; and the extent of its competitor's
responsiveness to customer needs.
INTELLECTUAL PROPERTY
Most of the Company's contracts state that its software is proprietary
and that title to and ownership of its software generally reside with the
Company. The Company grants nonexclusive licenses to customers for software
developed by the Company for such customers. Like many software firms, the
Company has no patents. The Company attempts to protect its rights with a
combination of copyright, trade secret laws, and employee and third-party
nondisclosure agreements. Despite these precautions, it may be possible for
unauthorized third parties to copy certain portions of the Company's products or
obtain and use information that the Company regards as proprietary, such as
source codes or programming techniques.
As the number of software products increases and their functionality
further overlaps, the Company believes that software programs will increasingly
become the subject of infringement claims. Although the Company's products have
never been the subject of an infringement claim, there can be no assurance that
third parties will not assert infringement claims against the Company in the
future or that any such assertion may not require the Company to enter into
royalty arrangements or result in costly litigation.
PRODUCT LIABILITY INSURANCE
The Company does not currently carry product liability insurance and
there can be no assurance that such coverage, if obtainable, would be adequate
in terms and scope to protect the Company against material adverse effects in
the event of a successful product liability claim. Although the Company has not
been subject to any product liability claims, such claims could arise in the
future. There can be no assurance that the Company would have sufficient
resources to satisfy any liability resulting from these claims or would be able
to have its customers indemnify the Company against such claims.
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EMPLOYEES
As of February 28, 1998, the Company had 44 full-time employees, 10 of
whom were in administration (4 for UST), 10 of whom were in sales and marketing
(6 for UST), and 24 of whom held professional technical positions (16 for UST).
None of the Company's employees are represented by unions. Management believes
the Company's employee relations are good.
The Company's success will depend upon its ability to attract, retain,
and motivate highly-skilled employees, particularly project managers and other
senior technical personnel. Qualified personnel are in particularly great demand
and are likely to remain a limited resource for the foreseeable future. However,
the Company believes that it has been successful in its efforts to attract and
retain the number and quality of professionals needed to support present
operations and future growth. Although the Company expects to continue to
attract sufficient numbers of highly skilled employees and to retain its
existing technical personnel for the foreseeable future, there can be no
assurance that the Company will be able to do so.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases office space in Annapolis and Rockville, Maryland;
Tampa and Orlando, Florida; and Atlanta, GA. The leases require the Company to
pay monthly rent of approximately $4,400, $3,900, $3,000, $2,200, and $950,
respectively, and expire at various times through 2000. In addition, the Company
leases office space in Redmond, Washington, for a monthly rent of approximately
$9,500, which is subleased to an unaffiliated third party through the end of the
Company's lease term in May 1998 due to the consolidation of the multimedia
division. Management believes that its current office facilities are adequate
and suitable for the Company's current operations.
ITEM 3. LEGAL PROCEEDINGS.
In January 1998, the company redeemed its 6% Subordinated Convertible
Debenture ("the Debenture") and issued 1,052,624 shares of the Company's common
stock as payment for the $1,710,514 redemption amount. The holder of the
Debenture refused to accept the shares as payment and filed suit against the
Company alleging that the terms of the Debenture permit the Company to pay the
redemption price only in cash and as a result, the redemption by the Company and
the issuance of the Company's common stock is invalid. The holder is seeking a
determination to that effect and that the Company has forfeited its right to
redeem the debenture. The complaint also seeks damages resulting from the
Company's failure to honor the plaintiff's attempted post-redemption conversion
of $115,000 principal amount of the Debenture. In April 1998, the Company and
the holder began negotiation discussions to settle this litigation out of court.
If the Company is unable to negotiate a settlement with the holder, a court
hearing will be held on April 15, 1998. If the court hearing is held, the
Company will vigorously defend this action. However, the Company cannot predict
the outcome of the court hearing. See Note 16 to the Consolidated Financial
Statements.
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The Company is not subject to any other legal proceedings other than
claims that arise in the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been listed on the Nasdaq Small Cap Market
under the symbol "SSGI" and on the Boston Stock Exchange under the symbol "STG."
Before November 11, 1993, the Company's Common Stock traded in Nasdaq's
over-the-counter market and was quoted in the "Pink Sheets."
In February 1998, the Company was notified by Nasdaq that it was not in
compliance with Nasdaq's new net tangible assets requirement and that the
Company's securities were scheduled for delisting. However, the Company has
requested a temporary exemption to the new requirements by its submission of a
proposed compliance plan. The Company is awaiting the decision of Nasdaq
regarding its request and until a decision is reached by Nasdaq the delisting
action has been stayed.
The following table shows the high and low sale prices for the Company's
Common Stock, for the periods indicated, based upon information supplied to the
Company from Nasdaq.
Year High Low
---- ---- ---
1997
----
1st Quarter $15.625 $12.00
2nd Quarter $13.125 $4.50
3rd Quarter $7.125 $3.375
4th Quarter $5.375 $0.75
1996
----
1st Quarter $10.875 $8.875
2nd Quarter $13.75 $9.625
3rd Quarter $13.375 $10.625
4th Quarter $15.00 $12.25
The closing bid price for the Company's Common Stock on March 27, 1998,
was $1 7/16.
The Company had approximately 167 holders of record of Common Stock as of
March 13, 1998. Management believes that the number of beneficial holders of the
Company's Common Stock as of March 13, 1998, was approximately 3,000.
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No cash dividends have been paid by the Company on its Common Stock and
no such payment is anticipated in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING PARAGRAPHS CONTAIN CERTAIN FORWARD LOOKING STATEMENTS, WHICH ARE
WITHIN THE MEANING OF AND MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE FORWARD LOOKING STATEMENTS
INCLUDE, WITHOUT LIMITATION, THOSE REGARDING THE PROSPECTS FOR AND FACTORS
AFFECTING FUTURE REVENUES AND PROFITABILITY, LIKELIHOOD OF ADDITIONAL FINANCING,
MARKETING, AND CASH REQUIREMENTS FOR FUTURE OPERATIONS. READERS ARE CAUTIONED
THAT FORWARD LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES, AND FACTORS THAT
MAY AFFECT THE COMPANY'S BUSINESS AND PROSPECTS, INCLUDING WITHOUT LIMITATION
THOSE DESCRIBED BELOW AS WELL AS THE RISKS ASSOCIATED WITH: THE NATURE OF
COMPETITION; TECHNOLOGICAL DEVELOPMENTS; AND EFFECTIVE MARKETING; ALL AS
DISCUSSED IN THE COMPANY'S FILINGS WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION.
OVERVIEW
The Company's revenue are comprised of service fees, product sales, and
royalties. Service fees are for systems integration services provided by UST,
the Company's subsidiary acquired in July 1996, and for the development of
custom multimedia software. Product sales are for software and hardware products
primarily sold by UST. Pursuant to the merger described in "Description of
Business - Systems Integration Services" and Note 16 to the Consolidated
Financial Statements, in April 1998, UST was merged into a separate operating
entity and accordingly, its revenues and results of operations will not be
included in the Company's results of operations after that date. Royalties are
paid to the Company by customers who resell copies of software developed by the
Company for such customers.
FISCAL 1997 COMPARED TO FISCAL 1996
Total revenues for the year ended December 31, 1997 were $4,791,823 as
compared to $1,588,094 for the same period of 1996, an increase of approximately
$3.2 million. This increase was primarily attributable to the inclusion of
twelve months of UST revenues of approximately $3.9 million in 1997 as compared
to the inclusion of six months of UST revenues of approximately $960,000 in the
prior year following its acquisition by the Company in July 1996, as well as an
increase in UST's revenue from product sales. In addition, revenue from the
Company's custom software services increased by approximately $303,000 from the
prior year. The net loss and net loss per share were $2,900,356 and $1.70 per
share, respectively, for the year ended December 31, 1997 as compared to a net
loss and net loss per share of $3,823,621 and $2.58 per share, respectively, for
the prior year.
11
<PAGE>
During the year ended December 31, 1997, revenue from services fees for
systems integration and software development services provided by UST was
$1,802,643 as compared to $603,366 in the prior year, an increase of
approximately $1.2 million. The increase is due to the inclusion of twelve
months of UST revenues in 1997 as compared to only six months in the prior year
following its acquisition by the Company in July 1996. In addition, UST's
revenues increased during 1997 due to improved sales focus achieved after the
acquisition.
During the year ended December 31, 1997, revenue from custom multimedia
software development services was $855,766 as compared to $552,397 for the prior
year, an increase of approximately $303,000 or 55%. The increase was primarily
due to an increase in the size of new contracts the Company was able to secure.
The Company's strategy to grow revenue from custom multimedia software
development services includes continuing to pursue larger contracts.
During the year ended December 31, 1997, revenue from sales of products
was $2,095,218, as compared to $372,256 in the prior year, an increase of
approximately $1.7 million. This revenue represents sales of computer hardware
and software products by UST as part of their systems integration services. The
increase is due to the inclusion of twelve months of UST revenues in 1997 as
compared to only six months in the prior year following its acquisition by the
Company in July 1996. In addition, UST's revenues increased during 1997 due to
the sales of IBM AS/40 and RS/6000 midrange computers under UST's Industry
Remarketer Agreement with IBM through June 30, 1997. Sales of the IBM midrange
computers accounted for approximately 70% of the revenue from product sales
through June 30, 1997. However, effective June 30, 1997, UST chose to no longer
sell the IBM AS/400 and RS/6000 midrange computers due to gross margins being
lower than anticipated. UST continues to sell miscellaneous computer hardware
and software as part of their systems integration business. Accordingly, revenue
from product sales decreased in the second half of 1997 and is expected to stay
at similar levels through the date of the merger.
The Company has entered into agreements that allow certain customers to
resell copies of the Company's software products in exchange for royalty
payments. Royalties were $38,196 during the year ended December 31, 1997 as
compared to $60,075 for the prior year, a decrease of approximately $22,000 or
36%. The Company generally expects royalty revenue to decrease due to the aging
shelf life of products for which the Company currently receives royalties.
However, the Company continually explores additional marketing and development
partners to increase revenues generated from royalty arrangements.
During the year ended December 31, 1997, total operating expenses were
$7,342,245 as compared to $5,419,016 in the prior year, an increase of
approximately $1.9 million, or 35%. The prior year expenses included
approximately $867,000 for the write-offs of purchased research and development
and goodwill in connection with the acquisitions of Forsight and UST.
Accordingly, the increase from the prior year excluding the write-offs was
approximately $2.8 million. This increase is primarily due to the inclusion of
twelve months of UST operating expenses in 1997 as compared to only six months
in the prior year following its acquisition by the Company in July 1996. In
addition, the first six months of 1997 included the cost of product
12
<PAGE>
sales related to the sale of IBM AS/40 and RS/6000 midrange computers under
UST's Industry Remarketer Agreement with IBM.
During the year ended December 31, 1997, the cost of service fees for
systems integration services provided by UST was $1,054,825 as compared to
$602,718 in the prior year, resulting in gross margins of approximately 41% and
0%, respectively. The improved gross margin for 1997 is due to an increase in
revenue for services and improvements in UST's project bidding and tracking
procedures. The break-even gross margin for the 1996 period was primarily due to
the lower than anticipated level of sales for that period, as well as employee
turnover as a result of the July 1996 acquisition of UST by the Company.
During the year ended December 31, 1997, the cost of service fees for
custom multimedia software services was $623,879 as compared to $782,413 in the
prior year, resulting in gross margins of approximately 27% and (42%),
respectively. The improvement in gross margins is primarily due to the
consolidation of the multimedia related operations into one location, as well as
an increase in revenue. The consolidation of the Redmond, Washington office was
completed by December 31, 1996. Gross margins are expected to be positive in
future periods when there are increases in revenues.
Cost of product sales was $1,848,385 for the year ended December 31,
1997, as compared to $223,498 in the prior year, resulting in gross margins of
approximately 12% and 40%, respectively. The lower gross margin for 1997 is due
to UST's attempt to enter the IBM AS/400 and RS/6000 midrange computer market by
making sales at low gross margins. As discussed above, UST discontinued the sale
of these computers effective June 30, 1997. Although UST will continue to sell
miscellaneous computer hardware and software items as part of their systems
integration business, gross margins are not expected to be significant in future
periods. The gross margin for 1996 was unusually high due to an unusual one-time
transaction related to the sale of an IBM mid-range computer recognized during
1996 by UST.
During the year ended December 31, 1997, research and development
expenses were $323,002 as compared to $251,778 for the prior year. Research and
development expenses included improvements on existing tools and the development
of software tools and applications to be sold.
During the year ended December 31, 1997, selling, general and
administrative expenses were $3,492,154 as compared to $2,691,483 in the prior
year, an increase of approximately $800,000, or 30%. The increase is primarily
due to the inclusion of twelve months of UST operations in 1997 as compared to
only six months in the prior year following its acquisition by the Company in
July 1996.
During the year ended December 31, 1997, total other income (expense)
increased by approximately $357,000 from the prior year primarily due to a
beneficial conversion interest charge of approximately $339,000 recognized in
1997 in connection with the Company's 6% subordinated convertible debenture. In
addition interest expense increased due to the inclusion of twelve months of
interest on UST's obligations to a bank in 1997 as compared to only six months
13
<PAGE>
in the prior year following its acquisition by the Company in July 1996 and
interest expense for the Company's 6% debentures issued in October 1997.
FISCAL 1996 COMPARED TO FISCAL 1995
Total revenues for the year ended December 31, 1996 were $1,588,094 as
compared to $708,652 for the same period of 1995, an increase of approximately
$879,000. This increase was primarily attributable to the inclusion of six
months of UST revenues of approximately $960,000 following its acquisition by
the Company in July 1996, offset by a decrease in sales of the Company's custom
software products of approximately $81,000. The net loss and net loss per share
were $3,823,621 and $2.58 per share, respectively, for the year ended December
31, 1996 as compared to a net loss and net loss per share of $1,949,415 and
$3.52 per share, respectively, for the prior year.
During the year ended December 31, 1996, revenue from services fees for
systems integration and software development services provided by UST following
its acquisition by the Company in July 1996 was $603,366, as compared to $0 in
the prior year.
During the year ended December 31, 1996, revenue from custom multimedia
software development services was $552,397 as compared to $633,092 for the prior
year, a decrease of approximately $81,000 or 13%. The decrease was primarily due
to the number and size of new contracts the Company was able to secure and to
ongoing delays in certain contracts with customers, particularly the Company's
subcontract with TRW. During the first quarter of 1997, the Company was notified
that TRW's contract with the State of California was terminated; accordingly,
the Company's subcontract with TRW was terminated. The Company recognized
approximately $134,000 in revenue from this contract during 1996 as compared to
approximately $118,000 during 1995.
During the year ended December 31, 1996, revenue from sales of products
was $372,256, as compared to $21,739 in the prior year, an increase of
approximately $350,000. Approximately $357,000 of the revenue for the year ended
December 31, 1996, represents six months of sales of computer hardware and
software products by UST. UST sells computer hardware and software products as
part of their systems integration services. The remaining $15,000 in revenue for
the year ended December 31, 1996 and all of the revenue for the year ended
December 31, 1995 represents sales of two consumer off-the-shelf products which
the Company began marketing during the last quarter of 1995 when it initiated
test market mailing programs for certain products. Both mailings generated low
response rates; accordingly, the Company does not plan to perform any additional
mailings for these products.
The Company has entered into agreements that allow certain customers to
resell copies of the Company's software products in exchange for royalty
payments. Royalties were $60,075 during the year ended December 31, 1996 as
compared to $53,821 for the prior year, an increase of approximately $6,000 or
12%. The Company generally expects royalty revenue to decrease due to the aging
shelf life of products for which the Company currently receives royalties.
14
<PAGE>
However, the Company continually explores additional marketing and development
partners to increase revenues generated from royalty arrangements.
During the year ended December 31, 1996, total operating expenses were
$5,419,016 as compared to $2,697,069 in the prior year, an increase of
approximately $2.7 million. The acquisitions of Forsight, Inc. ("Forsight") and
UST in February 1996 and July 1996, respectively, primarily accounted for the
increase. The increase includes the write-off of purchased research and
development in connection with the acquisition of Forsight, which totaled
approximately $289,000, and the write-off of goodwill in connection with the
acquisition of UST, which totaled approximately $578,000.
For the years ended December 31, 1996 and 1995, the cost of service fees
for custom multimedia software exceeded custom multimedia software revenue,
resulting in negative gross margins of approximately (42%) and (14%),
respectively. The negative gross margin for 1996 is primarily due to the lower
than anticipated level of sales of the Company's custom multimedia software
services, particularly for sales expected in connection with the acquisition of
Forsight.
Cost of service fees for systems integration services provided by UST
following its acquisition by the Company was approximately $603,000 for the year
ended December 31, 1996, resulting in an approximate break-even gross margin for
1996. The break-even gross margin for the 1996 period was primarily due to the
lower than anticipated level of sales of UST's services, as well as employee
turnover as a result of the merger.
Cost of product sales was $223,498 for the year ended December 31, 1996,
as compared to $11,253 in the prior year. Approximately $219,000 of these costs
for the year ended December 31, 1996 was from the sale of products by UST
following its acquisition by the Company and resulted in a gross margin of
approximately 40%, an unusually high margin due to a one-time transaction
related to the sale of an IBM mid-range computer recognized during 1996.
Approximately $5,000 of these costs for the year ended December 31, 1996 and all
of the costs for the prior year are the costs associated with the consumer
off-the-shelf marketing initiative discussed above.
During the year ended December 31, 1996, research and development
expenses were $251,778 as compared to $257,979 for the prior year. Research and
development expenses were consistent with the prior year as the Company
continued to improve on existing tools as needed and develop modified versions
of traditional custom software products to be sold to a broad range of
commercial customers.
During the year ended December 31, 1996, selling, general and
administrative expenses were $2,691,483 as compared to $1,707,521 in the prior
year, an increase of approximately $984,000, or 58%. Approximately $922,000 of
the increase is due to the acquisitions of Forsight and UST. The remaining
increase is due to the Company's increased sales and marketing efforts.
During the year ended December 31, 1996, total other income (expense)
decreased by approximately $32,000 from the same period of the prior year due to
losses recognized during
15
<PAGE>
1996 related to the consolidation of the multimedia division, the write off of
certain obsolete inventory and computer equipment, as well as interest expense
on UST's line-of-credit and bank note.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
The Report of Independent Accountants on the 1997 consolidated financial
statements of the Company includes an explanatory paragraph stating that the
recurring losses from operations and the existing cash resources may be
insufficient to fund planned operations and that these conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company incurred a net loss of $2,900,356 for the year ended December 31,
1997, and as of December 31, 1997 had an accumulated deficit of $13,566,315. In
addition, the Company is in litigation with the holder of its subordinated
convertible debenture related to the redemption of the debenture and the
issuance of 1,052,624 shares of the Company's common stock in January 1998 (See
"Legal Proceedings" and Note 15 to the Consolidated Financial Statements.) As
discussed in Note 1 to the Notes to the Consolidated Financial Statements and
under STRATEGY TO ACHIEVE PROFITABLE OPERATIONS below, the Company plans to
implement certain actions to address the losses and liquidity matters. However,
there can be no assurance that such actions will generate sufficient cash flow
to ensure the continued existence of the Company; or that additional financing
will be available from any sources at terms and conditions suitable to the
Company.
For the year ended December 31, 1997, the Company used cash of
approximately $2.2 million in operations. In addition to the net loss of
approximately $2.9 million, the Company experienced an increase in accounts
receivable and a corresponding increase in accounts payable and accrued
expenses. Net cash of approximately $474,000 was provided from proceeds received
at maturity of U.S. government securities, offset by net cash of approximately
$87,000 used for the purchase of equipment. Net cash of approximately $2.0
million was provided by financing activities representing approximately $2.3
million provided by the issuance of the Company's 6% Subordinated Convertible
debenture and the exercise of common stock options and warrants, offset by
approximately $334,000 used to make payments on UST's obligations to a bank.
For the year ended December 31, 1996, the Company used cash of
approximately $2.8 million in operations, primarily due to the net loss of
approximately $3.8 million, net of amortization and depreciation and the
write-offs of purchased research and development and goodwill in connection with
the acquisitions of Forsight and UST, which totaled approximately $1.1 million.
Net cash of approximately $634,000 was used for investing activities for the
purchase of U.S. government securities, equipment, and Forsight. Net cash of
approximately $200,000 was provided by the exercise of 28,571 common stock
options, offset by approximately $43,000 used to make payments on UST's
obligations to a bank.
For the year ended December 31, 1995, the Company used cash of
approximately $1.8 million in operating activities. In addition to the net loss,
the Company experienced increases in accounts receivables and other assets. Net
cash of approximately $1.7 million was provided by investing activities
primarily from proceeds received at maturity of liquid investment securities.
Net cash of
16
<PAGE>
approximately $3.8 million was provided from financing activities as a result of
net proceeds received from the December 1995 public offering of 920,000 shares
of the Company's Common Stock. Working capital at December 31, 1995 was
approximately $4.1 million.
Working capital of approximately $650,000 at December 31, 1997, together
with funds to be generated from investment income and future revenues are not
expected to provide sufficient liquidity to meet anticipated cash needs on
either a short-term or long-term basis. On April 8, 1998, the Company completed
the divestiture of its wholly owned subsidiary, UST, as described in
"Description of Business - Systems Integration Services" and Note 16 to the
Notes to the Consolidated Financial Statements. Consideration received by the
Company includes (i) 100,000 shares of common stock of UST valued at $500,000 or
$5.00 per share; (ii) a $600,000 promissory note due the earlier of the closing
of a $2,000,000 private placement or sixty days of the closing of the merger;
and (iii) a convertible debenture for $927,000 due the earlier of 18 months from
the closing of the merger or at the time of a public offering by UST. In
addition, in February 1998, the Company was notified by Nasdaq that it was not
in compliance with Nasdaq's new net tangible assets requirement and that the
Company's securities were scheduled for delisting. However, the Company has
requested a temporary exemption to the new requirements by its submission of a
proposed compliance plan. The Company is awaiting the decision of Nasdaq
regarding its request and until a decision is reached by Nasdaq the delisting
action has been stayed. Management recognizes that the Company will require
additional financing until such time that revenues are of sufficient volume to
generate positive cash flows from operations. Although the Company will be
seeking financing from placements of equity or debt securities, there can be no
assurances that such financing will be available, or if available, will be under
terms and conditions suitable to the Company.
STRATEGY TO ACHIEVE PROFITABLE OPERATIONS
Subsequent to the merger and resulting divestiture of UST in April 1998,
the Company's strategy to increase revenue, which solely comprises the
multimedia division, includes the implementation of an operating plan built
around the division's mission statement - "We optimize human performance using
leading edge technology-based training solutions to eliminate the barriers of
time and space."
The plan also includes the implementation of a more focused sales and
marketing strategy which targets the division's sales and marketing efforts of
technology-based training solutions to the manufacturing and transportation
industries. Existing clients are also an important component of the Company's
marketing strategy. Follow-on projects leverage sales and marketing resources
and strengthen the Company's client relationships. The Company believes that it
has good relationships with its existing customer base and expects that these
contacts will enable it to successfully pursue this strategy.
In addition, the division will endeavor to become a Microsoft Solutions
Provider which requires that the Company maintain two certified Microsoft
professionals on staff. The Company believes that it can acquire this
certification during 1998 and that this affiliation will provide sales leads for
its services.
17
<PAGE>
In the normal course of business, the Company evaluates the acquisition
of businesses, products and technologies that complement the Company's business.
In addition, the Company may also evaluate other strategic alliances and joint
ventures that can provide the Company with additional complementary capabilities
or further broaden its base of customers requiring the products and services
currently provided. The Company has no present commitments or agreements with
respect to any such transaction. However, the Company may acquire businesses,
products, or technologies in the future.
There can be no assurance that the strategies addressed above and
elsewhere herein will generate sufficient revenues and cash flow for the Company
to reach profitability or to ensure the continued existence of the Company.
IMPACT OF INFLATION
Inflation has not had any significant effect of the Company's operations.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," in June 1997, which are both effective for
the year ending December 31, 1998. SFAS No. 130 establishes standards for
reporting comprehensive income in a full set of general purpose financial
statements either in the income statement or in separate statement. The Company
will begin reporting comprehensive income in the first quarter of 1998. SFAS No.
131 establishes standards for reporting information about operating segments,
including related disclosures about products and services, geographic areas and
major customers. The Company will begin making the disclosure required by SFAS
No. 131 in the financial statements for the year ended December 31, 1998.
In October 1997, the AICPA issued Statement of Position ("SOP") 97-2,
Software Revenue Recognition, which will supercede SOP 91-1 effective January 1,
1998. Management has assessed this new statement and believes that its adoption
will not have a material effect on the timing of the Company's revenue
recognition or cause changes to its revenue recognition policies.
IMPACT OF YEAR 2000 ISSUE
The Company is in the process of assessing its computer applications to
ensure their functionality with respect to the "Year 2000" millennium change. At
present, the Company does not anticipate that material incremental costs will be
incurred in any single future year.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: THE STATEMENTS CONTAINED IN THIS DOCUMENT AND OTHER STATEMENTS WHICH ARE
NOT HISTORICAL FACTS ARE FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING, THE SUCCESS OF NEWLY IMPLEMENTED SALES AND MARKETING
STRATEGIES; THE CONTINUED EXISTENCE OF AGREEMENTS WITH CUSTOMERS; MARKET
ACCEPTANCE OF THE COMPANY'S PRODUCTS AND SERVICES;
18
<PAGE>
THE ABILITY TO OBTAIN A LARGER NUMBER AND SIZE OF CONTRACTS; THE TIMING OF
CONTRACT AWARDS; WORK PERFORMANCE AND CUSTOMER RESPONSE; THE IMPACT OF
COMPETITIVE PRODUCTS AND PRICING; TECHNOLOGICAL DEVELOPMENTS BY THE COMPANY'S
COMPETITORS OR DIFFICULTIES IN THE COMPANY'S RESEARCH AND DEVELOPMENT EFFORTS;
AND OTHER RISKS AS DETAILED IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION
FILINGS.
ITEM 7. FINANCIAL STATEMENTS
The information required by Item 7 begins at page F-1 that appears
after this page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
19
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Report of Coopers & Lybrand L.L.P, Independent Accountants, on the
December 31, 1997 and 1996 Consolidated Financial Statements F-2
Consolidated Balance Sheets, December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years
ended December 31, 1997, 1996, and 1995 F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1996, and 1995 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996, and 1995 F-6
Notes to Consolidated Financial Statements F-7 - F-18
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Strategic Solutions Group, Inc.
We have audited the accompanying consolidated balance sheets of Strategic
Solutions Group, Inc. and its subsidiaries (the Company) as of December 31, 1997
and 1996 and the consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years ended in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1997 and 1996 and the consolidated results of their operations and
their cash flows for each of the three years ended in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, has a significant accumulated deficit, and its existing cash
resources are insufficient to fund planned operations. In addition, as discussed
in Notes 1 and 15 to the consolidated financial statements, the Company is
involved in litigation with the holder of its convertible debenture. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans to address these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P
McLean, Virginia
March 27, 1998, except for Note 16 for which the date is April 8, 1998
F-2
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- ---------------
<S><C>
ASSETS
Current assets
Cash and cash equivalents $ 1,149,372 $ 939,281
Investment in U.S. government securities -- 474,144
Accounts receivable, net of allowance for doubtful accounts
of $75,000 and $40,201, respectively 666,841 411,220
Prepaid expenses and other current assets 137,618 189,471
--------------- ---------------
Total current assets 1,953,831 2,014,116
--------------- ---------------
Property and equipment, at cost
Computers, furniture and equipment 1,058,313 990,105
Less accumulated depreciation 701,390 490,193
--------------- ---------------
Net property and equipment 356,923 499,912
--------------- ---------------
Other assets 1,446,066 55,681
--------------- ---------------
$ 3,756,820 $ 2,569,709
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 1,027,935 $ 796,729
Deferred revenue 66,558 66,088
Note payable to bank 40,334 34,989
Line of credit -- 320,833
Other current liabilities 168,700 111,074
--------------- ---------------
Total current liabilities 1,303,527 1,329,713
Note payable to bank -- 18,253
Convertible subordinated debenture 1,487,864 --
Other long-term liabilities -- 149,125
--------------- ---------------
Total liabilities 2,791,391 1,497,091
--------------- ---------------
Commitments and contingencies
Stockholders' equity
Common stock, $.0001 par value. Authorized 5,000,000
shares; issued and outstanding 1,768,839 and 1,518,880
shares as of December 31, 1997 and 1996 177 152
Additional paid-in capital 14,647,910 11,893,549
Accumulated deficit (13,566,315) (10,665,959)
Deferred compensation (116,343) (155,124)
--------------- ---------------
Total stockholders' equity 965,429 1,072,618
--------------- ---------------
$ 3,756,820 $ 2,569,709
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
-------------- -------------- ---------------
<S><C>
Revenue
Service fees $ 2,658,409 $ 1,155,763 $ 633,092
Product sales 2,095,218 372,256 21,739
Royalties 38,196 60,075 53,821
-------------- -------------- ---------------
Total revenue 4,791,823 1,588,094 708,652
-------------- -------------- ---------------
Expenses
Cost of service fees 1,678,704 1,385,131 720,316
Cost of product sales 1,848,385 223,498 11,253
Research and development 323,002 251,778 257,979
Selling, general and administrative 3,492,154 2,691,483 1,707,521
Write-off of purchased research and development -- 289,330 --
Write-off of goodwill related to purchase of
U.S. Technologies, Inc. -- 577,796 --
-------------- -------------- ---------------
Total operating expenses 7,342,245 5,419,016 2,697,069
-------------- -------------- ---------------
Loss from operations (2,550,422) (3,830,922) (1,988,417)
Other (expense) income, net (349,934) 7,301 39,002
============== ============== ===============
Net loss $ (2,900,356) $ (3,823,621) $ (1,949,415)
============== ============== ===============
Net loss per common share - basic and diluted $ (1.70) $ (2.58) $ (3.52)
============== ============== ===============
Weighted average number of common shares outstanding 1,705,228 1,483,831 553,687
============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
---------- -------- ------------- -------------- ------------ -------------
<S><C>
Balance, December 31, 1994 520,739 52 7,551,490 (4,892,923) -- 2,658,619
Exercise of incentive stock options 285 -- 2,250 -- -- 2,250
Net proceeds from public offering of
shares of common stock, $5.25 per share,
net of offering costs of $1,103,104 920,000 92 3,726,884 -- -- 3,726,976
Net loss -- -- -- (1,949,415) -- (1,949,415)
---------- -------- ------------- -------------- ----------- -------------
Balance, December 31, 1995 1,441,024 144 11,280,624 (6,842,338) -- 4,438,430
Exercise of stock options 32,856 3 238,424 -- -- 238,427
Stock issued for services 25,000 3 193,904 -- (193,907) --
Stock issued in connection with
Forsight acquisition 20,000 2 159,373 -- -- 159,375
Adjustment to 1995 offering costs -- -- 21,224 -- -- 21,224
Amortization of deferred compensation -- -- -- -- 38,783 38,783
Net loss -- -- -- (3,823,621) -- (3,823,621)
---------- -------- ------------- -------------- ----------- -------------
Balance, December 31, 1996 1,518,880 152 11,893,549 (10,665,959) (155,124) 1,072,618
Exercise of stock options and warrants 111,071 11 792,606 -- -- 792,617
Grant of stock options in connection with
financial consulting agreement -- -- 1,150,000 -- -- 1,150,000
Exercise of stock options in connection with
financial consulting agreement 100,000 10 188,979 -- -- 188,989
Stock issued for services 38,888 4 171,246 -- -- 171,250
Warrants issued in connection with
convertible subordinated debenture -- -- 112,136 -- -- 112,136
Value of beneficial conversion feature on
convertible subordinated debenture -- -- 339,394 -- -- 339,394
Amortization of deferred compensation -- -- -- -- 38,781 38,781
Net loss -- -- -- (2,900,356) -- (2,900,356)
========== ======== ============= ============== =========== =============
Balance, December 31, 1997 1,768,839 $ 177 $ 14,647,910 $ (13,566,315) $ (116,343) $ 965,429
========== ======== ============= ============== =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------------ ------------- -------------
<S><C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,900,356) $ (3,823,621) $ (1,949,415)
Adjustments to reconcile net loss to net cash used in
operating activities, net of effects from purchases
of Forsight, Inc. and U.S. Technologies, Inc.
Depreciation and amortization 284,917 308,524 146,867
Loss on disposal of assets 4,666 22,634 21,022
Provision for bad debt expense 119,096 28,981 6,000
Interest expense associated with beneficial conversion
feature on convertible subordinated debentures 339,394 -- --
Noncash expense for services 171,250 -- --
Write-off of purchased research and development -- 289,330 --
Write-off of goodwill -- 577,796 --
Increase (decrease) in cash from changes in assets and liabilities
Accounts and interest receivable (374,717) (31,119) (109,073)
Prepaid expenses and other current assets 51,853 (27,009) 68,586
Other assets 2,415 25,276 (48,102)
Accounts payable and accrued liabilities 231,206 (1,146) 17,322
Other liabilities (91,029) (130,659) 62,100
------------ ------------- -------------
Net cash used in operating activities (2,161,305) (2,761,013) (1,784,693)
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of U.S. government securities -- (474,144) --
Proceeds from maturity of U.S. government securities 474,144 -- 1,698,319
Capital expenditures (86,570) (134,033) (46,462)
Proceeds from sales of property and equipment -- 11,200 14,038
Payment for purchase of Forsight, Inc., net of cash acquired -- (46,424) --
Cash acquired from purchase of U.S. Technologies, Inc. -- 9,549 --
------------ ------------- -------------
Net cash provided by (used in) investing activities 387,574 (633,852) 1,665,895
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of convertible subordinated debenture 1,335,957 -- --
Net proceeds from exercise of options and warrants 981,606 199,997 2,250
Net proceeds from sale of common stock -- -- 3,788,321
Payments on line of credit (290,833) (26,886) --
Payments on notes payable to bank (42,908) (16,499) --
------------ ------------- -------------
Net cash provided by financing activities 1,983,822 156,612 3,790,571
------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents 210,091 (3,238,253) 3,671,773
Cash and cash equivalents, beginning of year 939,281 4,177,534 505,761
------------ ------------- -------------
Cash and cash equivalents, end of year $ 1,149,372 $ 939,281 $ 4,177,534
============ ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH PAID:
Interest $ 33,901 $ 22,701 $ --
Income taxes -- -- --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Stock issued as payment for unearned professional fees $ 1,150,000 $ 193,907 $ --
Stock issued as payment for services 171,250 -- --
Stock options exercised in lieu of payment for professional fees -- 38,430 --
Stock issued in connection with acquisition of Forsight -- 159,375 --
Adjustment to 1995 offering costs -- 21,224 --
Discount on convertible subordinated debenture 112,136 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS. Strategic Solutions Group, Inc. (formerly,
Pacific Animated Imaging Corporation) and its subsidiaries (the "Company") are
full-service providers of technology based software solutions and computer
systems integration (including the sale of hardware and software products) and
support services. The Company's Multimedia division specializes in the
development of custom interactive multimedia software for use in the areas of
process enhancement, technical documentation, training, and performance support
for a variety of commercial and industrial end-users. The Company's wholly owned
subsidiary, U.S. Technologies, Inc. ("UST"), specializes in computer systems
integration and support services and in the development of software applications
related to work group and work flow computing solutions.
GOING CONCERN. The Company's financial statements for the year ended
December 31, 1997 have been prepared on a going concern basis which contemplates
the realization of assets and the settlement of liabilities and commitments in
the normal course of business. The Company incurred a net loss of $2,900,356 for
the year ended December 31, 1997, and as of December 31, 1997 had an accumulated
deficit of $13,566,315. The Company is in litigation with the holder of its
subordinated convertible debenture related to the redemption of the debenture
and the issuance of 1,052,624 shares of the Company's common stock in January
1998 (see Note 15.) In addition, in February 1998, the Company was notified by
Nasdaq that it was not in compliance with Nasdaq's new net tangible assets
requirement and that the Company's securities were scheduled for delisting.
However, the Company has requested a temporary exemption to the new requirements
by its submission of a proposed compliance plan. The Company is awaiting the
decision of Nasdaq regarding its request and until a decision is reached by
Nasdaq the delisting action has been stayed. Management recognizes that in order
to develop and market its services effectively, the Company will require
additional financing until such time that service fees are of sufficient volume
to generate positive cash flows from operations. Although the Company may seek
financing from placements of its equity securities or placements of debt, there
can be no assurances that such financing will be available or, if available,
will be under terms and conditions suitable to the Company. Management's plans
to address the losses and liquidity matters include (i) disposing of the
Company's wholly owned subsidiary, UST, for securities and short and long-term
notes receivable (see Note 16); (ii) growing the multimedia operations by
implementing a more focused marketing and sales program; and (iii) pursuing an
acquisition program of related businesses. However, no assurances can be given
that these measures, even if successful, will ensure the continued existence of
the Company. The Company's financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Strategic Solutions Group, Inc. and its wholly owned
subsidiaries.
REVENUE RECOGNITION. Revenues from hardware and software product sales
are recognized on delivery. Revenues from software development, consulting and
training services are recognized as services are performed. Revenues from
certain custom multimedia software products are recognized using the percentage
of completion method due to the significant customization involved in their
development. Cost estimates are reviewed periodically as work progresses, and
adjustments to revenue are reflected in the period in which revisions to such
estimates are deemed necessary. Revenues from royalties are recognized in the
period for which the royalties are earned. Software products generally are
delivered without post sale vendor obligations and without a significant
obligation to the customer. Deferred revenue represents amounts advanced by
customers and is recognized as revenue upon delivery of the products or services
and is adjusted on a quarterly basis to reflect the status of projects.
F-7
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and contingent liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
INVESTMENTS IN U.S. GOVERNMENT SECURITIES. The Company anticipates that
any investments in U.S. Government securities, composed of U.S. Treasury Bills
and Notes, would be available for sale in response to the Company's liquidity
needs, if necessary. Accordingly, these securities are principally considered as
available-for-sale as defined by Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." As of December 31, 1996, amortized cost approximated market,
therefore, no adjustment was made to stockholders' equity. Interest income is
accrued as earned.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. The Company has estimated the useful lives
of computer hardware and software to be three years and furniture and fixtures
to be seven years. Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the estimated useful life of the
improvements or the remaining lease term. When assets are retired or disposed,
the cost and the related accumulated depreciation are removed from the accounts,
and any resulting gain or loss is recognized in operations for the period.
PER SHARE DATA. Effective December 31, 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." Basic earnings per share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing the net loss by the weighted average
number of common shares outstanding after giving effect to all dilutive
potential common shares that were outstanding during the period. Potential
common shares include stock options, warrants, or other convertible securities
that could be exercised or converted into common stock and are not included in
the computation of dilutive earnings per share if they are anti-dilutive. The
Company did not have any dilutive potential common shares for any of the years
presented. Net loss available to common stockholders was not adjusted for any of
the years presented. Earnings per share for all periods presented conforms to
SFAS No. 128.
RESEARCH AND DEVELOPMENT EXPENSES AND SOFTWARE DEVELOPMENT COSTS.
Statement of Financial Accounting Standards No. 86, "Accounting for the Cost of
Computer Software to be Sold, Leased or Otherwise Marketed" (SFAS 86) requires
the capitalization of certain software development costs once technological
feasibility is established, which the Company generally defines as the
completion of a working model. Capitalization ceases when the products are
available for general release to customers, at which time amortization of the
capitalized costs begins on a straight-line basis over the estimated product
life, or on the ratio of current revenues to total projected product revenues,
whichever is greater. To date, software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs with respect to its continuing
operations. In addition, research and development costs including software
development costs prior to technological feasibility are expensed in the period
in which they are incurred.
CONCENTRATION OF CREDIT RISK. The Company had approximately $950,000 and
$750,000 on deposit in money market funds with strong credit ratings and
checking accounts at various commercial banking institutions in excess of
insured amounts at December 31, 1997 and 1996, respectively. The Company has not
experienced losses on these investments.
F-8
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
The Company provides hardware and software products, develops software,
and performs services for its customers located throughout the United States.
The customer base of one of the Company's subsidiaries, which accounted for
approximately 81% and 60% of the Company's 1997 and 1996 revenues, respectively,
is located primarily throughout Florida. The Company provides credit in the
normal course of business and, to date, has not experienced significant losses
related to receivables from individual customers or groups of customers in a
particular industry or geographic area. In addition, for certain orders for
custom multimedia software development projects, the Company requires advances
or deposits of at least one-third of the price of the custom software with
additional amounts due at certain milestones during the custom software
development process. Due to these factors, management believes no additional
credit risk beyond amounts provided for in the doubtful account allowance is
inherent in the Company's accounts receivable.
For the year ended December 31, 1997, no one customer accounted for 10%
of the Company's revenue. For the year ended December 31, 1996, one customer, a
systems integrator, accounted for 10% of the Company's revenue. For the year
ended December 31, 1995, three customers, an automobile parts distribution
company, a government contractor, and a truck manufacturer, accounted for 17%,
17%, and 13%, respectively, of the Company's revenue. At December 31, 1997, one
customer, an insurance company, accounted for approximately 12% of accounts
receivable. At December 31, 1996, two customers, a government contractor and a
department store, accounted for approximately 14% and 18%, respectively, of
accounts receivable.
RECOVERABILITY OF LONG-LIVED ASSETS. The Company evaluates the
recoverability of the carrying value of property and equipment and intangible
assets in accordance with the provisions of Statement of Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of".
The Company considers historical performance and anticipated future results in
its evaluation of potential impairment. Accordingly, when indicators of
impairment are present, the Company evaluates the carrying value of these assets
in relation to the operating performance of the business and future and
undiscounted cash flows expected to result from the use of these assets.
Impairment losses are recognized when the sum of expected future cash flows are
less than the assets' carrying value. On December 31, 1996, the Company
recognized an impairment loss of approximately $578,000 related to the write-off
of goodwill that resulted from the purchase of UST (see Note 2). Factors leading
to the impairment were a combination of historical losses, anticipated future
losses, and inadequate cash flows.
STOCK SPLIT. On January 30, 1997, the Board of Directors of the Company
voted and approved a three-for-two split of the Company's common stock. The
split was voted and approved by the shareholders at the annual meeting of
shareholders held on May 22, 1997. However, the Board of Directors exercised its
discretionary authority and voted affirmatively with respect to a shareholder
proposal to postpone the effective date of the three-for-two split until such
time deemed appropriate by the Board of Directors. Neither the par value of the
stock nor the number of authorized shares will be affected by the split. Had the
additional shares resulting from the proposed stock split been outstanding
during the years ended December 31, 1997 and 1996, net loss per share would have
been as follows: 1997, $1.13 and 1996, $1.72. Financial information contained
elsewhere in this report has not been adjusted to reflect the impact of the
proposed common stock split.
INCOME TAXES. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
F-9
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
FAIR VALUE OF FINANCIAL INSTRUMENTS. During 1995, the Company adopted
Statement of Financial Accounting Standards No. 107, "Disclosure of Fair Value
of Financial Instruments" ("SFAS 107"). The Company believes that for all
financial instruments, as defined by SFAS 107, the carrying amount, as reported
in the balance sheet approximates fair value.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure
About Segments of an Enterprise and Related Information," in June 1997, which
are both effective for the year ending December 31, 1998. SFAS No. 130
establishes standards for reporting comprehensive income in a full set of
general purpose financial statements either in the income statement or in
separate statement. The Company will begin reporting comprehensive income in the
first quarter of 1998. SFAS No. 131 establishes standards for reporting
information about operating segments, including related disclosures about
products and services, geographic areas and major customers. The Company will
begin making the disclosure required by SFAS No. 131 in the financial statements
for the year ended December 31, 1998.
In October 1997, the AICPA issued Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," which will supercede SOP 91-1 effective January
1, 1998. Management has assessed this new statement and believes that its
adoption will not have a material effect on the timing of the Company's revenue
recognition or cause changes to its revenue recognition policies.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified
to correspond to the current year presentation.
2. ACQUISITIONS
During 1996, the Company acquired the entities described below, which
were accounted for by the purchase method of accounting. The results of
operations of the acquired companies are included in the Company's statement of
income for the period in which they were owned by the Company.
ACQUISITION OF FORSIGHT, INC.
Effective February 2, 1996, the Company acquired substantially all the
assets of Forsight, Inc. ("Forsight"), a closely held corporation engaged in the
business of developing and selling interactive multimedia software to the
business communications and the consumer publishing market for a total purchase
price of approximately $375,000, plus direct expenses of the acquisition which
totaled approximately $23,000. The Company acquired cash, fixtures and
equipment, accounts receivable, intellectual property, and other miscellaneous
assets for the assumption of certain liabilities of Forsight, which totaled
approximately $200,000, and 20,000 unregistered shares of common stock of the
Company. Other terms of the acquisition included the employment by the Company
of certain of Forsight's key employees, who will continue as part of the
Company's senior management team; and the acquisition of all of the shares of
Series A Convertible Preferred Stock of Forsight from Circa Pharmaceuticals,
Inc. in an amount equal to thirty percent of the net income each year for three
years of Forsight's operations up to a maximum value of $600,000, payable in
unregistered shares of common stock of the Company. The Series A Convertible
Preferred Stock of Forsight was canceled after the acquisition. The Company
allocated approximately $109,000 to identifiable tangible assets and wrote-off
approximately $289,000 as in process research and development on the date of
acquisition. The acquisition did not meet materiality thresholds for separate
pro forma disclosure.
ACQUISITION OF U.S. TECHNOLOGIES, INC.
Effective July 19, 1996, U.S. Technologies Inc. Acquisition Corporation,
a wholly owned subsidiary of the Company, merged with and into U.S.
Technologies, Inc. ("UST"), with UST being the surviving
F-10
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
corporation. As a result of the merger, the Company owns 100% of UST.
Consideration at the time of purchase amounted to approximately $642,000 which
represents the excess of UST's liabilities over its assets as of the date of the
merger. On December 31, 1996, the Company wrote-off approximately $578,000,
which represented the purchase consideration of approximately $642,000, net of
approximately $64,000 of accumulated amortization, as an impairment loss (see
Note 1).
In addition, under the terms of the merger, the former 100% owner of UST
has the ability to earn up to 31,068 shares of common stock in the Company (the
market value of which was $400,000 as of the date of the merger), provided
certain financial milestones are met by UST. The value of the shares of common
stock will be accounted for as compensation at the time of issuance. As of
December 31, 1997, no shares of the Company's common stock had been earned by
the former 100% owner of UST. Also in connection with the acquisition, the
Company made a commitment to provide working capital to UST. Through December
31, 1997, working capital provided to UST totaled approximately $2.3 million.
If the acquisition of UST had occurred on January 1, 1995, management
estimates that on an unaudited pro forma consolidated basis, revenues, total
operating expenses, net loss, and net loss per common share would have been as
follows:
1996 1995
---- ----
Revenues $2,918,235 $5,361,617
Total operating expenses $6,945,473 $7,741,381
Net loss ($4,036,851) ($2,379,764)
Net loss per common share - basic and diluted ($2.72) ($4.39)
These estimates were based on assumptions that management deems
appropriate, but the results are not necessarily indicative of those that might
have occurred had the acquisition taken place on January 1, 1995.
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of December 31, 1997 and 1996
consist of the following:
DECEMBER 31,
1997 1996
---- ----
Accounts payable $ 673,417 $ 398,273
Payroll and related expense 192,552 171,262
Other 161,966 227,194
---------- ----------
$1,027,935 $ 796,729
============ =========
4. LINE OF CREDIT
As of December 31, 1996, UST had $320,833 of short-term debt outstanding
under a line of credit with a bank. This line of credit was collateralized by
accounts receivable as well as the personal guarantee of the former sole
stockholder of UST. In July 1996, in connection with the acquisition of UST,
this line of credit was renegotiated and required twelve monthly principal
payments, which were guaranteed by the Company, of $5,833 plus interest through
July 1997. Interest was at the bank's prime rate plus 2%. The remaining unpaid
principal balance was due on August 18, 1997. In August 1997, UST paid $250,000
toward the unpaid balance of approximately $280,000. Effective October 23, 1997,
the remaining balance on the line of credit of approximately $30,000 was
consolidated with the then outstanding balance of the note payable. As of
December 31, 1997, this is reflected in Note Payable to Bank (see Note 5).
F-11
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
5. NOTE PAYABLE TO BANK
As of December 31, 1997 and 1996, UST had notes payable to a bank, as
follows:
DECEMBER 31, DECEMBER 31,
1997 1996
---- ----
Note payable to bank in monthly payments of
$10,000, including interest at 10.5% through
April 1998; collateralized by equipment,
inventory, and accounts receivable (see Note 4) $ 40,334 --
Note payable to bank in monthly payments of
$3,222, including interest at 9.75% through
June 1998; collateralized by equipment,
inventory, and accounts receivable -- $ 53,242
Less current portion (40,334) (34,989)
-------- --------
Note payable to bank, less current portion $ -- $ 18,253
======== ========
6. LONG-TERM DEBT
On October 31, 1997, the Company issued a $1,600,000 6% Convertible
Subordinated Debenture (the "Debenture"). The Debenture accrues interest from
the date of issuance and is due and payable on October 31, 1999; or, at the
option of the Company, the principal of, and interest on, the Debenture are
payable in shares of the Company's common stock. The Debenture is subordinated
to all indebtedness and obligations of the Company for borrowed money, under
financing leases, for all obligations issued or assumed as full or partial
payment for property, and any trade obligation entered into in the ordinary
course of business. The holder of the Debenture is entitled, at its option, to
convert, in $50,000 increments, at any time commencing the earlier of (a)
December 30, 1997 or (b) the effective date of a Registration Statement filed
with the Securities and Exchange Commission. The Company filed a Form S-3 with
the Securities and Exchange Commission which was declared effective January 29,
1998. The conversion price for each share of common stock is equal to the lesser
of (a) $4.24 (the "Maximum Price") or (b) 80% of the average market price on the
five trading days immediately preceding the conversion date provided that in no
event shall the conversion price be less than a defined percentage of the
Maximum Price. The Company recognized interest expense of approximately $339,000
in 1997 resulting from the beneficial conversion feature. Debt issuance costs
approximate $264,000 and are being expensed over the term of the debt using the
straight-line method. See Note 15 for a discussion regarding litigation
involving the Debenture.
In connection with the issuance of the Debenture, the Company also issued
40,000 Warrants (the "Warrants") exercisable at a price of $4.5375. The Company
ascribed a fair value of $112,136 to the Warrants at the time of issuance. The
debt will be written up to its face value of $1,600,000 and the corresponding
discount will be expensed using the straight-line method, which approximates the
interest method, over the term of the debt.
F-12
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
7. COMMON STOCK
In connection with the Company's public offering of 920,000 shares of its
common stock in December 1995, a warrant to purchase 80,000 shares of its common
stock was issued to the underwriter. The warrant is exercisable at the option of
the holder, in whole or in part, at a price of $7.09 per share at any time
during the period December 15, 1996 through December 15, 2000. These warrants
were exercised in February, 1997 for which the Company received net proceeds of
approximately $540,000.
In connection with the Company's public offering of 171,428 shares of its
common stock in November 1993, a warrant to purchase 17,142 shares of its common
stock was issued to the underwriter. The warrant is exercisable at the option of
the holder, in whole or in part, at a price of $39.20 per share at any time
during the period November 10, 1994 through November 9, 1998.
8. STOCK OPTION PLANS
INCENTIVE STOCK OPTION PLANS
In 1992, the shareholders approved the Company's Incentive Stock Option
Plan ("ISO Plan No. 1") for its employees to purchase up to a total of 39,222
registered shares of the Company's common stock. In 1994, the shareholders
approved the Company's Incentive Stock Option Plan No. 2 ("ISO Plan No. 2") for
its employees to purchase up to a total of 28,571 registered shares of the
Company's common stock. In 1997, the shareholders approved the Company's
Incentive Stock Option Plan No. 3 ("ISO Plan No. 3") for its employees to
purchase up to a total of 80,000 shares of the Company's common stock. For the
Incentive Stock Option Plans, the option price per share may not be less than
the fair market value of the stock on the date of the grant, the terms of the
options are ten years from the date of grant, and options vest over a five-year
period beginning on the date of grant. If immediately before a grant an employee
owns more than 10% of the total combined voting stock of the Company, the
exercise price shall be at least 110% of the fair market value of the stock on
the date of the grant and the options expire five years from the date of grant.
A summary of option activity since December 31, 1994 under ISO Plans No.
1, No. 2, and No. 3 is as follows:
NUMBER WEIGHTED AVERAGE
OF OPTIONS OPTION PRICES
---------- ----------------
Options outstanding at December 31, 1994 22,282 $ 8.10
Granted 41,138 $11.37
Exercised (285) $ 7.87
Expired (7,999) $ 8.34
-------
Options outstanding at December 31, 1995 55,136 $10.57
Granted 37,711 $10.50
Exercised -- --
Expired (45,708) $10.75
--------
Options outstanding at December 31, 1996 47,139 $10.00
Granted 57,426 $ 6.34
Exercised -- --
Expired (57,139) $10.95
--------
Options outstanding at December 31, 1997 47,426 $ 4.44
======
F-13
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
NONQUALIFIED STOCK OPTION PLANS
In 1992, the shareholders approved the Company's Nonqualified Stock
Option Plan ("Nonqualified Plan") for its directors to purchase up to a total of
8,571 registered shares of the Company's common stock. Effective in 1994, the
Company adopted Nonqualified Stock Option Plan No. 2, under which the Company
authorized the issuance of options to consultants for the purchase of up to a
total of 71,428 registered shares of its common stock. Effective in 1995, the
Company adopted Nonqualified Stock Option Plan No. 3, under which the Company
authorized the issuance of options to consultants for the purchase of up to a
total of 13,571 shares of its common stock. Effective in 1996, the Company
adopted Nonqualified Stock Option Plans No. 4, 5, and 6 under which the Company
authorized the issuance of options to employees and consultants for the purchase
of up to a total of 32,500, 100,000, and 150,000 shares, respectively, of its
common stock. Effective in 1997, the Company adopted Nonqualified Stock Option
Plan No. 7 under which the Company authorized the issuance of options to
consultants for the purchase of up to a total of 100,000 registered shares of
its common stock. Options granted under Nonqualified Stock Option Plan No. 7
will be accounted for based upon their fair value at the date of their issuance.
The option price per share under these plans may be greater than or less than
the fair market value of the stock on the date of the grant. Both the option
price and the terms of the options are determined by the Board of Directors or a
committee of the Board as of the date of the grant. Generally, the terms of the
options are ten years from the date of grant, and options vest 100% on the date
of grant.
A summary of option activity since December 31, 1994 under the
Nonqualified Plans is as follows:
NUMBER WEIGHTED AVERAGE
OF OPTIONS OPTION PRICES
---------- ----------------
Options outstanding at December 31, 1994 37,142 $ 7.20
Granted 46,426 $ 8.88
Exercised -- --
Expired -- --
--------
Options outstanding at December 31, 1995 83,568 $ 8.14
Granted 182,500 $10.67
Exercised (32,856) $ 7.26
Expired (28,500) $ 5.25
--------
Options outstanding at December 31, 1996 204,712 $11.04
Granted 443,284 $ 4.69
Exercised (131,071) $ 3.44
Expired (244,284) $10.48
--------
Options outstanding at December 31, 1997 272,641 $ 4.80
========
The weighted average fair value per share of options granted during 1997
and 1996 was $4.59 and $6.95, respectively. The following table summarizes
additional information about the stock options outstanding under the Company's
ISO Plans and Nonqualified Plans at December 31, 1997:
<TABLE>
<CAPTION>
Weighted Weighted
Average Weighted Average
Remaining Average Exercise
Range of Exercise Number Contractual Exercise Number Price of
Prices Outstanding Life Price Exercisable Exercisable
----------------- ----------- ----------- -------- ----------- -----------
<S><C>
$4.44 - $4.44 288,710 9.9 $4.44 266,651 $4.44
$7.00 - $10.50 31,357 8.7 $7.63 31,357 $7.63
------ --- ----- ------ -----
320,067 9.7 $4.75 298,008 $4.77
======= === ===== ======= =====
</TABLE>
F-14
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
PERFORMANCE BASED STOCK PLANS
During 1994, the Company adopted a Performance Stock Plan under which
certain officers and key employees of the Company may be granted awards of up to
an aggregate of 85,714 Performance Shares upon the attainment of certain
performance objectives. Each awarded Performance Share is convertible to one
share of the Company's common stock at the earlier of December 31, 1997, death,
total disability, termination of the plan, or other event as determined by the
Executive Compensation and Stock Option Committee of the Board of Directors. As
of December 31, 1997, no Performance Shares had been awarded and the plan was
terminated.
In connection with the acquisition of UST, the Company established a
Phantom Stock Plan for UST's key employees. Pursuant to the plan, UST's key
employees have the ability to earn up to 46,602 shares of the Company's common
stock, the market value of which was $600,000 as of the date of the merger. The
ability to earn these shares is subject to UST meeting certain financial
milestones. As of December 31, 1997, no shares had been awarded.
PRO FORMA INFORMATION IN ACCORDANCE WITH SFAS 123
The Company applies Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its equity participation programs. Accordingly, no compensation
cost has been recognized for its incentive and nonqualified stock option plans
related to stock options granted to employees. However, the Company has adopted
the disclosure-only provisions of Statements of Financial Accounting Standards
No. 123, "Accounting for Stock-based Compensation" ("SFAS 123") as they pertain
to the recognition of compensation expense attributable to option grants. If the
Company had elected to recognize compensation cost for the Company's incentive
and nonqualified stock option plans consistent with the method of accounting
under SFAS No. 123, the Company's net loss and net loss per share on a pro forma
basis would be:
1997 1996
---- ----
Net loss - as reported $2,900,356 $3,823,621
Net loss - pro forma $3,945,620 $4,861,148
Net loss per share (basic and diluted) - as reported $1.70 $2.58
Net loss per share (basic and diluted) - pro forma $2.31 $3.28
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for each year:
1997 1996
---- ----
Risk-free interest rate 6.11% 6.28%
Expected life of options - years 5.0 3.9
Expected stock price volatility 88% 66%
Expected dividend yield 0% 0%
F-15
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
9. INCOME TAXES
The tax effects of the primary temporary differences and carryforwards
which give rise to net deferred tax assets are as follows as of December 31,
1997 and 1996:
DECEMBER 31,
1997 1996
---- ----
Net operating loss carryforwards $ 4,618,000 $ 3,574,000
Other 297,000 273,000
----------- -----------
4,915,000 3,847,000
Valuation allowance (4,915,000) (3,847,000)
----------- -----------
-- --
=========== ===========
Realization of deferred tax assets at the balance sheet date are
dependent on the Company's ability to generate future taxable income which is
uncertain. Accordingly, management has provided a full valuation allowance
against the Company's deferred tax assets as of December 31, 1997 and 1996.
The change in the deferred tax asset valuation allowance is primarily
attributable to the increase in net operating loss carryforwards. As of December
31, 1997, net operating loss carryforwards total approximately $11.9 million
which expire at various times through 2012. As a result of certain changes in
ownership, the use of these carryforwards to offset future taxable income may be
limited.
10. RELATED PARTY TRANSACTIONS
Prior to the acquisition, UST's sole stockholder advanced amounts to UST
to fund working capital needs. The amounts due are non-interest bearing and are
to be repaid upon availability of funds and after all amounts due to the bank
are repaid in full by UST. These loans are considered short-term obligations as
of December 31, 1997 which are included in other current liabilities and
long-term obligations as of December 31, 1996 which are included in other
long-term liabilities. The amount due as of December 31, 1997 and 1996 was
$120,579.
11. LEASES
The Company leases office space and automobiles under separate
noncancelable operating leases which expire at various dates through 2000. The
agreements generally require that the Company pay applicable utility, property
taxes, maintenance, and insurance costs. Certain excess office space is
subleased to a third party. The future annual minimum rental payments, net of
sublease income, under these leases at December 31, 1997 are as follows: 1998,
$159,049; 1999, $75,870; 2000, $23,654; and thereafter, $0. Rental expense for
the years ended December 31, 1997, 1996, and 1995, was approximately $211,000,
$297,000, and $170,000, respectively.
12. RETIREMENT AND OTHER BENEFIT PLANS
Effective January 1, 1994, the Company established a defined contribution
retirement plan covering eligible full-time employees. Under this plan,
participants can contribute up to the lesser of 15% of their compensation or the
maximum allowable by IRS regulations, currently $9,500. Employees may direct the
investment of their contributions among several mutual fund options. The Company
may make discretionary contributions out of current or accumulated net profit.
Expense for the years ended December 31, 1997 and 1996 totaled approximately
$2,050 and $1,250, respectively.
F-16
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
During 1994, the Company entered into split dollar agreements with two
officers whereby the Company pays the premiums on split dollar life insurance
policies held by these individuals. Under the agreements, the Company has an
interest in the policy equal to the cumulative value of all premiums paid by the
Company and will be reimbursed for these premiums upon death, termination of the
agreement, or termination of employment. However, since it is possible that the
Company at its discretion may waive this requirement, no asset for the premium
has been recorded. The Company paid approximately $15,000 and $15,000,
respectively, in premiums for the years ended December 31, 1997 and 1996.
Effective June 14, 1995, this plan was terminated with respect to one officer in
connection with his resignation from the Company.
13. TITLELINK JOINT VENTURE
In December 1996, the Company's subsidiary, UST, entered into an
agreement with Interliant to form a joint venture, Titlelink, L.L.C. Under the
terms of the agreement, the joint venture will be owned equally and managed by
both members, UST and Interliant. Interliant has been appointed as the
Administrative Member which has the right, power, and authority to act on behalf
of the joint venture all things necessary to carry out the business of the joint
venture. The joint venture owns and markets Titlelink, an on-line software
application designed to streamline the real estate closing process. The Company
accounts for UST's investment in the joint venture on the equity basis. The
initial investment in the joint venture totaled $26,000 and has been reduced by
UST's proportionate share of the joint venture's operating results. UST's
proportionate share of the joint venture's operating results are reflected in
the Company's consolidated statements of operations, which for the year ended
December 31, 1997 total a loss of approximately $215,000. Total revenue,
expenses, and net loss for the joint venture for the year ended December 31,
1997 were $44,990, $474,520, and $429,530, respectively.
14. COMMITMENTS
In connection with the development of certain software products, UST has
entered into royalty agreements with developers that require UST to pay
approximately one-third of gross revenue from sales of the products. Amounts are
payable once a certain amount advanced to the developer has been recovered. As
of December 31, 1997, no amounts have been accrued or paid to developers.
On March 20, 1997, the Company entered into a financial consulting
agreement ("consulting agreement") with First Cambridge Securities Corporation
("First Cambridge"). The terms of the agreement included that First Cambridge
receive 100,000 stock options at an exercise price of $2.00 per share. First
Cambridge vested immediately in the 100,000 options and exercised their options
on March 28, 1997. The consulting agreement permitted the assignment by First
Cambridge of its obligation to perform financial consulting services thereunder.
First Cambridge has assigned its obligation to another party (the "assignee")
and the Company has accepted the assignment. The assignee is required to review
materials provided by the Company, perform financial consulting services, and
advise the Company and provide at least 50 hours of service per month on a
yearly average. The consulting agreement is for the five year period January 1,
1998 - December 31, 2002. Accordingly, the Company will be recognizing an
expense of $1,150,000, using the straight-line method over the term of the
consulting agreement, or approximately $20,000 per month, beginning January 1,
1998. As of December 31, 1997, the Company had a deferred asset of $1,150,000
arising from this transaction. However, if the services by the assignee are not
deemed satisfactory or the assignee is unable to perform the services, the
Company may be required to immediately expense the deferred asset.
F-17
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
15. LITIGATION
In January 1998, the company redeemed its Debenture described in Note 6
and issued 1,052,624 shares of the Company's common stock as payment for the
$1,710,514 redemption amount. The holder of the Debenture refused to accept the
shares as payment and filed suit against the Company alleging that the terms of
the Debenture permit the Company to pay the redemption price only in cash and as
a result, the redemption by the Company and the issuance of the Company's common
stock is invalid. The holder is seeking a determination to that effect and that
the Company has forfeited its right to redeem the debenture. The complaint also
seeks damages resulting from the Company's failure to honor the plaintiff's
attempted post-redemption conversion of $115,000 principal amount of the
Debenture. In April 1998, the Company and the holder began negotiation
discussions to settle this litigation out of court. If the Company is unable to
negotiate a settlement with the holder, a court hearing will be held on April
15, 1998. If the court hearing is held, the Company will vigorously defend this
action. However, the Company cannot predict the outcome of the court hearing.
16. SUBSEQUENT EVENTS
On April 8, 1998, the Company merged UST into SSGI-UST Acquisition Corp.,
an existing Florida corporation formed on March 5, 1998 and owned by the
President of UST and other third parties. UST continued as the surviving
corporation; accordingly, SSGI-UST Acquisition Corp ceased to exist.
Consideration payable to the Company for the merger consists of (i) 100,000
shares of UST's Common Stock valued at $500,000, or $5.00 per share; (ii) a
promissory note from USTin the principal amount of $600,000 with 6% interest due
the earlier of the closing of a $2,000,000 private placement of UST's equity
securities or 60 days after the closing of the merger; and (iii) a 6%
subordinated convertible debenture in the principal amount of $927,000 (which
will be increased for any additional funding provided by the Company to UST) due
the earlier of a public offering of UST's common stock or the 545th day after
the closing of the merger. The promissory note is secured by all of the assets
of UST and the pledge of all of the outstanding stock of UST. The Company has
the option to convert the $927,000 debenture upon the occurrence of the first
public offering into shares of Common Stock of UST at a conversion price for
each share of Common Stock equal to the public offering price of the Common
Stock less twenty (20%) percent. As a result of this transaction, the Company's
direct ownership in UST was reduced from 100% to approximately 14%.
The business of UST has not been presented as a discontinued operation as
of and for the year ended December 31, 1997 because (i) the principal
consideration in the above transaction is dependent on the ability of UST to
generate sufficient working capital and (ii) the Company will retain a total
ownership interest in UST of approximately 33% (direct and indirect).
The following represents the condensed unaudited balance sheet of UST as
of December 31, 1997:
Current assets $435,202 Current liabilities $ 934,737
Other assets $256,914 Note payable to bank 40,334
-------- Payable to the Company 1,888,858
-----------
Total liabilities 2,863,929
Total stockholders' deficit (2,153,813)
-----------
$710,116 $ 710,116
======== ===========
F-18
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth certain information concerning the
directors and executive officers of the Company as of March 27, 1998.
NAME AGE POSITION
- - ---- --- --------
John J. Cadigan 67 Chairman of the Board, President, Chief
Executive Officer, Secretary, and
Treasurer of the Company
Suzanne C. Brown 32 Chief Financial and Accounting Officer
of the Company
Ernest A. Wagner 37 President of the Company's Multimedia
Division
A. David Rossin, Ph.D. 66 Director
Nagesh S. Mhatre, Ph.D. 65 Director
JOHN J. CADIGAN has been Chairman, Chief Executive Officer, Secretary,
Treasurer, and a director of the Company since February, 1991. He assumed the
position of President in July 1995. Prior to joining the Company, Mr. Cadigan
served as Chairman of PAI from its inception in 1989 until it was merged into
the Company in February, 1991.
SUZANNE C. BROWN, C.P.A. has been with the Company since February,
1994. In January 1996, Ms. Brown was promoted to Chief Financial Officer. From
August, 1988 to February, 1994, Ms. Brown was with KPMG Peat Marwick, an
international accounting firm.
ERNEST A. WAGNER has been with the Company since February, 1994. In
1998, Mr. Wagner was promoted to President of the Company's Multimedia Division.
From 1985 to February, 1994, Mr. Wagner served in various engineering and
management positions with SuperFlow Corporation, a manufacturer of computerized
engine and vehicle testing equipment.
DR. A. DAVID ROSSIN has been a director of the Company since February,
1991. Dr. Rossin is currently the Center Affiliated Scholar at the Center for
International Security of Arms Control at Stanford University. He has been
employed since August 1987 as President of Rossin and Associates, a California
consulting firm which specializes in nuclear energy matters. Dr. Rossin served
as Assistant Secretary of the U.S. Energy Department from 1986 to 1987.
DR. NAGESH S. MHATRE currently serves on the Boards of three small
business ventures. Dr. Mhatre served as President and a Director of the
Becton-Dickinson Co., a multibillion dollar international company in the medical
and hospital equipment field from 1979 to 1984. Dr. Mhatre
20
<PAGE>
has held senior management, CEO, and corporate officer positions in the
biomedical and biotechnology fields and has worked with numerous startup
companies during the period from 1975 to 1979.
BOARD OF DIRECTORS
The Company's Certificate of Incorporation and Bylaws, as
amended, divide the Company's directors into three classes designated as Class
I, Class II and Class III, that serve staggered three-year terms that expire at
the annual meeting of the Stockholders in the final year of the term. Each class
consists, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. Directors serve for their
term and until their successors are duly elected, or until their earlier
resignation, removal from office, or death. The remaining directors may fill any
vacancy in the Board of Directors for an unexpired term.
There are presently three directors serving on the Board. A. David
Rossin has been designated as a Class I director and his term expires in 1999.
Nagesh Mhatre has been designated as a Class II director and his term expires in
2000. John J. Cadigan has been designated as a Class III director and his term
expires in 1998.
The Company has two standing committees, the Executive Compensation and
Stock Option Committee and the Audit Committee. Dr. Rossin and Dr. Mhatre are
the members of both the Executive and Stock Option and the Audit Committees. The
Executive Compensation and Stock Option Committee has the power and authority to
designate, recommend and/or review compensation of the Company's executive
officers and other employees, including salaries, bonuses, fringe benefits and
the grant of stock options. The Audit Committee has the power and authority to
recommend the engagement of independent accountants, review external and
internal auditing procedures and policies, review compensation paid to auditors
and make recommendations and/or implement changes with respect to the foregoing.
Officers are elected by the Board of Directors at the annual meeting of
directors following the annual shareholders meeting and serve until their
successors are duly elected, subject to earlier removal by the Board of
Directors.
ITEM 10. EXECUTIVE COMPENSATION
This information will be contained in the definitive proxy statement of
the Company for the 1998 Annual Meeting of Stockholders under the captions
"Directors' Compensation", "Executive Compensation", "Employment Agreements",
and "Executive and Other Employee Benefit Plans" and is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will be contained in the definitive proxy statement of
the Company for the 1998 Annual Meeting of Stockholders under the caption
"Security Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.
21
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be contained in the definitive proxy statement of
the Company for the 1998 Annual Meeting of Stockholders under the caption
"Transactions Involving Directors and Officers" and is incorporated herein by
reference.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a)(1)(2) Financial Statements
A list of the Financial Statements filed as a part of this Report is set
forth in Item 7 and appears at Page F-1 of this Report; which list is
incorporated herein by reference.
(a)(3) Exhibits
1(A) Stock Purchase Agreement with Forsight, Inc. (6)
1(B) Asset Purchase Agreement with Forsight, Inc. (6)
2 Plan of Merger between U.S. Technologies, Inc. Acquisition
Corporation and U.S. Technologies, Inc (7)
2(A) Articles of Merger of U.S. Technologies, Inc and U.S.
Technologies, Inc. Acquisition Corporation (7)
2(B) Agreement and Plan
of Merger Among Strategic Solutions Group and U.S.
Technologies, Inc. (11)
2(B)(i) "State of Florida Articles of Merger"
2(C) Promissory Note (11)
2(D) Pledge Agreement (11)
2(E) General Security Agreement for Promissory Note (11)
2(F) Secured Subordinated Debenture (11)
2(G) General Security Agreement for Debenture (11)
2(H) Registration Rights Agreement (11)
3 Certificate of Incorporation and Amendment thereto (1)
3(B) By-Laws (1)
3(C) Form of Amendments to Certificate of Incorporation and Bylaws
dated October 20, 1995 (5)
10 Form of Indemnification Agreement executed in favor of each
officer and director of the Company (1)
10(A) Form of Indemnification Agreement Amendment executed in
favor of certain officers and directors of the Company (6)
10(B) Form of Indemnification Agreement executed in favor of each
officer and director of the Company (6)
10(C) Securities Purchase Agreement, for 6% Convertible Subordinated
Debentures (10)
10(D) Form of Debenture (10)
10(E) Registration Rights Agreement (10)
10(F) Form of Common Stock Purchase Warrant (10)
10(H) Employment Agreement with John J. Cadigan dated September 1,
1995 (5)
10(I) Amendment to Employment Agreement with John J. Cadigan (11)
10(U) Employment Agreement (7/15/96) - Peter S. Steele (9)
10(V) Loan Renewal and Modification Agreement (9)
21 Subsidiaries of Registrant (2)
23 Consent of Coopers & Lybrand L.L.P. (11)
99 Incentive Stock Option Plan No. 1 (4)
99(A) Nonqualified Stock Option Plan No. 1(4)
99(B) Incentive Stock Option Plan No. 2 (5)
99(D) Phantom Stock Performance Stock Plan (3)
99(E) Nonqualified Stock Option Plan No. 2 (5)
99(F) Nonqualified Stock Option Plan No. 3 (5)
99(H) Split Dollar Plan Agreement (11/21/94) - John J. Cadigan (3)
99(I) Nonqualified Stock Option Plan No. 4 (6)
99(J) Nonqualified Stock Option Plan No. 5 (9)
99(K) Nonqualified Stock Option Plan No. 6 (9)
99(L) Nonqualified Stock Option Plan No. 7 (8)
99(M) Incentive Stock Option Plan No. 3 (11)
- - -------------------
(1) Incorporated by reference to Form S-1 Registration Statement, File No.
33-68826
(2) JMC Company, Inc. and Forsight, Inc., are wholly owned subsidiaries of
the Company incorporated under the laws of the State of Maryland. U.S.
Technologies, Inc. is a wholly owned subsidiary incorporated under the
laws of the State of Florida.
(3) Incorporated by reference to December 31, 1994 Form 10-K.
22
<PAGE>
(4) Incorporated by reference to Form S-8 Registration Statement, File No.
33-53536.
(5) Incorporated by reference to Original Form SB-2, File No. 33-97776.
(6) Incorporated by reference to December 31, 1995 Form 10-K.
(7) Incorporated by reference to Form 8-K, dated July 19, 1996.
(8) Incorporated by reference to Form S-8 Registration Statement, File No.
333-23777.
(9) Incorporated by reference to December 31, 1996 Form 10-KSB.
(10) Incorporated by reference to Form 8-K, dated October 31, 1997
(11) Filed herewith.
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the three months ended
December 31, 1997: October 31, 1997 - Other Events - Issuance of
$1,600,000 6% Convertible Subordinated Debentures.
23
<PAGE>
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
STRATEGIC SOLUTIONS GROUP, INC.
BY: /s/ John J. Cadigan Dated: April 15, 1998
______________________
John J. Cadigan, Chief Executive Officer & President
/s/ Suzanne C. Brown Dated: April 15, 1998
______________________
Suzanne C. Brown, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
- - --------- ----- ----
/s/ John J. Cadigan Chairman of the Board, April 15, 1998
________________________ President, Chief Executive
John J. Cadigan Officer, Secretary and
Treasurer
/s/ Dr. A. David Rossin Director April 15, 1998
________________________
Dr. A. David Rossin
/s/ Dr. Nagesh S. Mhatre Director April 15, 1998
________________________
Dr. Nagesh S. Mhatre
24
Exhibit 2(B)
AGREEMENT AND PLAN OF MERGER
AMONG
STRATEGIC SOLUTIONS GROUP, INC.
AND
U.S. TECHNOLOGIES, INC.
AND
SSGI-UST ACQUISITION CORPORATION
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated March , 1998 by
and among STRATEGIC SOLUTIONS GROUP, INC., a Delaware corporation, ("SSGI"),
U.S. TECHNOLOGIES, INC., a Florida corporation ("UST") and SSGI-UST ACQUISITION
CORPORATION, a Florida corporation ("SUAC")
RECITALS
WHEREAS, contemporaneously with the merger contemplated herein, UST and/or
SUAC has received funding assurances from H.J. Meyers & Co., Inc. as placement
agent for the purpose of completing a private placement of at least $2,000,000
for UST and/or SUAC and the completion of an initial public offering of the
securities of UST and/or SUAC in an amount of approximately $5,000,000 to be
underwritten by one or more qualified underwriters.
WHEREAS, in reliance of the foregoing recital, the respective Boards of
Directors of SSGI, UST, and SUAC have determined that it is in their respective
best interests to merge SUAC with and into UST, and take all other necessary
action to effectuate such merger, on the terms and subject to the conditions of
this Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and intending to be legally bound thereby, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. As of the Effective Time, as defined herein, and on
the terms and subject to the conditions hereof, and in accordance with the
relevant provisions of the Florida Business Corporation Law ("FBCL"), SUAC shall
be merged with and into UST (the "Merger"). Following the Merger, UST shall
continue as the surviving corporation (the "Surviving Corporation") and shall
continue its existence under the laws of the State of Florida, and the separate
corporate existence of SUAC shall cease.
SECTION 1.2 EFFECTIVE TIME. The Merger shall be consummated by filing with
the Department of State of the State of Florida articles of SUAC substantially
in the form of Exhibit 1.2 (the "Articles of Merger") in accordance with the
FBCL (the later of the time of such filing and the time specified in the
Articles of Merger being the "Effective Date".
SECTION 1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Title 23D, Chapter 23B.11 of the FBCL.
<PAGE>
SECTION 1.4 ARTICLES OF INCORPORATION AND BY-LAWS. The Articles of
Incorporation and the By-Laws of SUAC, as amended through the date hereof and as
further amended by the Articles of Merger, shall be the Articles of
Incorporation and By-Laws of the Surviving Corporation until further amended as
provided therein or by law.
SECTION 1.5 DIRECTORS AND OFFICERS. The Director of UST immediately after
the Effective Time shall be Peter S. Steele. The President, Treasurer and
Secretary of UST immediately after the Effective Time shall be Peter S. Steele.
SECTION 1.6 CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of SSGI, UST, SUAC or the holders of
any of the following securities:
(a) Each SUAC share of Common Stock outstanding immediately prior to the
Effective Date shall be converted into 1,000 shares of UST and SSGI shall be
issued 92,500 shares of UST Common Stock such that SSGI will own a total of
100,000 shares of UST Common Stock after the merger.
(b) In addition to the foregoing, SUAC and/or UST shall pay to SSGI
additional compensation for the merger equal to the following:
(i) a promissory note in the principal amount of $600,000 with six
percent (6%) interest compounded monthly payable in full upon the earlier of the
closing of the $2,000,000 private placement or sixty (60) days from the Closing
Date and secured by all of the assets of UST and a pledge of all of the
outstanding shares of stock of UST pursuant to the Promissory Note, Security
Agreement and Pledge Agreement attached hereto and made a part hereof
collectively as Exhibit "1.6A"; plus
(ii) a subordinated secured convertible debenture in the face amount of
$927,000 (or such higher amount to reflect additional funding by SSGI for UST
after February 6, 1998) bearing interest at the rate of 6% per annum, payable in
full on the 545th day after the Closing (as hereinafter defined), which shall be
convertible into shares of stock of SUAC pursuant to the Form of Debenture
attached hereto and made a part hereof as Exhibit "1.6B".
SECTION 1.7 CLOSING. Upon the terms and subject to the conditions hereof,
as soon as practicable after the respective requisite vote of the shareholders
and directors of UST and SUAC in favor of the approval of the Merger has been
obtained and the other conditions set forth in Article VI hereof have been
satisfied or, if permissible, waived, UST and SUAC (and SSGI if appropriate)
shall execute and deliver to the Department of State of the State of Florida
duly executed Articles of Merger, as required by the FBCL, and the parties shall
take all such other and further actions as may be required by law to make the
Merger effective. Prior to the filings referred to in this Section 1.7, a
closing (the "Closing") will be held at the offices of SSGI, 326 First Street,
Suite 100, Annapolis, Maryland (or such other place as the parties may agree)
for the
<PAGE>
purpose of facilitating, effecting and confirming all the foregoing (the date of
the Closing being sometimes referred to as the "Closing Date"). Subject to the
terms hereof and to the requirements of law, the parties agree to use their
reasonable best efforts to effect the Closing on or about March 25, 1998 at
10:00 a.m. EST.
SECTION 1.8 SUBSEQUENT ACTIONS. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either UST or SUAC acquired or to be acquired or
maintained by the Surviving Corporation as a result of, or in connection with,
the Merger or otherwise to carry out this Agreement, the officers and directors
of the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of each of UST and SUAC all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of UST and SUAC all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out this Agreement.
ARTICLE II
EXCHANGE OF SHARE CERTIFICATES
SECTION 2.1 EXCHANGE OF SHARE CERTIFICATES.
(a) At Closing, SUAC or its designated agent shall deliver to SSGI the
certificates representing the shares of UST constituting a portion of the Merger
Consideration.
(b) UST Shares being issued hereunder, are being issued without
Registration under the Securities Act (as hereinafter defined) or Applicable
Laws (as hereinafter defined) and, except as provided in the Registration Rights
Agreement attached hereto and made a part hereof as Exhibit "2.1", the shares
have not been and are not being registered under the 1933 Act, and may not be
transferred unless (A) subsequently registered thereunder or (B) SUAC shall have
delivered to SSGI an opinion of counsel, reasonably satisfactory in form, scope
and substance, to the effect that the securities to be sold or transferred may
be sold or transferred pursuant to an exemption from such registration. No
federal or state agency has reviewed the transaction set forth herein or
approved or disapproved SUAC Shares for investment or any other purpose.
(i) The term "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder; and the term
"Applicable Laws" means any applicable state securities laws, the
Securities Exchange Act of 1934, as amended, and the rules and
regulations under the foregoing.
<PAGE>
(ii) The following legend will be placed on the front of SUAC
Certificates representing SUAC Shares to be issued to SSGI
hereunder, and stop-transfer instructions will be issued to any
transfer agent of such SUAC Shares to insure compliance with the
provisions of the Securities Act and the Applicable Laws:
"These Shares have not been registered under the Securities Act of
1933, as amended, or under applicable state securities laws, and
they may not be offered, sold, pledged, hypothecated or otherwise
transferred in the absence of (1) effective registrations under
all such laws or (2) an opinion of counsel to the Corporation that
such registration is not required."
(c) The parties hereto agree to enter into the Registration
Rights Agreement in substantially the form attached hereto as Exhibit "2.1.",
on or before the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF UST
As an inducement to SUAC to enter into this Agreement, UST represents and
warrants to SUAC that, except as set forth in the UST disclosure letter of even
date herewith (the "UST Disclosure Letter") that:
SECTION 3.1 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER. UST is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Florida and is duly licensed or qualified to transact
business as a foreign corporation and is in good standing in each jurisdiction
in which the failure to be so licensed or qualified would have a material
adverse effect on UST and its subsidiaries taken as a whole. UST has the
corporate power and authority to own and hold its properties and to carry on its
business as presently conducted.
SECTION 3.2 AUTHORITY. UST has all requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby, subject to approval of the Merger by the holders of a
majority of the UST Shares outstanding as of the record date for the meeting of
its shareholders to be held to consider and act upon the proposal to approve the
Merger. The execution and delivery of this Agreement by UST and the consummation
by UST of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of UST and no other corporate proceedings
on the part of UST are necessary to authorize this Agreement or to consummate
the transactions so contemplated, other than such approval by UST's
shareholders. The person(s) executing and
<PAGE>
delivering this Agreement on UST's behalf have been duly and validly authorized
so to act by the Board of Directors of UST. Provided this Agreement constitutes
a valid and binding obligation of SSGI and SUAC, this Agreement constitutes a
valid and binding agreement of UST, enforceable against UST in accordance with
its terms.
SECTION 3.3 VALIDITY, ETC. On the date hereof and on the Closing Date,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (a) conflict with or result in the breach
of any provision of the Articles of Incorporation or By-Laws of UST, (b)
violate, conflict with or result in the breach or termination of, or otherwise
give any other contracting party the right to terminate, or constitute a default
(by way of substitution, novation or otherwise) under, or result in the
acceleration of the maturity of any payment date of any of the obligations of
UST or increase or otherwise affect the obligations of UST under the terms of,
any mortgage, bond, indenture, agreement, franchise or other instrument or
obligation to which UST is a party or by which it is bound or to which any of
its assets is subject, (c) result in the creation of any claim upon the
properties or assets of UST, (d) violate any judgment, order, injunction, decree
or award of any court, administrative agency or governmental body against, or
binding upon UST or to which the securities, property or business of it is
subject, (e) constitute a violation by UST of any law or regulation of any
jurisdiction as such law or regulation relates to it or to its securities,
property or business, (or result in a breach of any of the terms or conditions
of, constitute a default under, or otherwise cause any impairment of, any
license or permit which, whether or not cured, would have a material adverse
effect, individually or in the aggregate, whether or not insured against, on the
assets, liabilities, operations, business or prospects of UST.
SECTION 3.4 CAPITALIZATION. As of the date hereof the authorized capital
stock of UST consists exclusively of 10,000,000 shares of Common Stock, $.0001
per share par value, of which 7,500 shares are as of the date hereof, and as of
the Closing Date, validly issued and outstanding, fully paid and nonassessable.
There are no holders of subscriptions, warrants, options, convertible
securities, or other rights of any character with respect to UST securities. UST
has no obligation (contingent or other) to purchase, redeem or otherwise acquire
any of its securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
All of the outstanding securities of UST were issued in compliance with all
applicable federal, state, local and foreign laws, rules and regulations.
SECTION 3.5 OUTSTANDING COMMITMENTS WHICH MAY EFFECT SSGI ADVERSELY. Except
for the commitments to Support Net and Merisel, UST reports that there are no
other existing material contract, agreement, instrument, franchise, mortgage,
indenture, and other commitment, whether written or oral, to which UST is a
party or by which any of its assets may be subject and which in each case is
material to UST and which has or may have an adverse effect on SSGI. With
respect to such commitments which have or may have an adverse effect on SSGI,
UST has satisfied in all material respects its liabilities and obligations which
have become due and payable thereunder, and are not in material default under
any of them.
<PAGE>
SECTION 3.6 UST COMMITMENTS TO SSGI. Other than the consideration set forth
in Section 1.6 hereof and the obligations of and relating to Support Net, UST
has no debt or obligations due to SSGI.
SECTION 3.7 FULL DISCLOSURE. This Agreement and all documents, schedules
and certificates required to be delivered by UST to SUAC pursuant to this
Agreement do not contain any untrue statement of a material fact and do not omit
to state any material fact necessary to make the statements contained herein and
therein, in light of the circumstances in which made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SUAC
As an inducement to SSGI, as the sole shareholder of UST, to enter into
this Agreement, SUAC hereby represents and warrants to SSGI, except as set forth
in the SUAC disclosure letter of even date herewith (the "SUAC Disclosure
Letter") that:
SECTION 4.1 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER. SUAC is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Florida and is duly licensed or qualified to transact
business as a foreign corporation and is in good standing in each jurisdiction
in which the failure to be so licensed or qualified would have a material
adverse effect on SUAC and its subsidiaries taken as a whole. SUAC has the
corporate power and authority to own and hold its properties and to carry on its
business as presently conducted.
SECTION 4.2 AUTHORITY. SUAC has all requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby subject to approval of the Merger by the holders of a
majority of the SUAC's shares outstanding as of the record date for the meeting
of its shareholders to be called for the purpose of considering and acting upon
a proposal to approve the Merger. The execution and delivery of this Agreement
by SUAC and the consummation by SUAC of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of SUAC and no
other corporate proceedings on the part of SUAC are necessary to authorize this
Agreement or to consummate the transactions so contemplated other than such
approval by SUAC's shareholders. The person(s) executing and delivering this
Agreement have been duly and validly authorized so to act by the Boards of
Directors of SUAC. Assuming this Agreement constitutes a valid and binding
obligation of SSGI and UST, this Agreement constitutes a valid and binding
agreement of SUAC, enforceable against each of them in accordance with its
terms.
SECTION 4.3 VALIDITY, ETC. On the date hereof and on the Closing Date,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated
<PAGE>
hereby will (a) conflict with or result in the breach of any provision of the
Articles of Organization or By-Laws of SUAC, or the Articles of Incorporation or
By-Laws of SUAC, (b) violate, conflict with or result in the breach or
termination of, or otherwise give any other contracting party the right to
terminate, or constitute a default (by way of substitution, novation or
otherwise) under, or result in the acceleration of the maturity of any payment
date of any of the obligations of any SUAC Company or increase or otherwise
affect the obligations of any SUAC Company under the terms of, any mortgage,
bond, indenture, agreement, franchise or other instrument or obligation to which
any SUAC Company is a party or by which it is bound or to which any of its
assets is subject, (c) result in the creation of any claim upon the properties
or assets of any SUAC Company, (d) violate any judgment, order, injunction,
decree or award of any court, administrative agency or governmental body
against, or binding upon any SUAC Company or to which the securities, property
or business of it is subject, (e) constitute a violation by any SUAC Company of
any law or regulation of any jurisdiction as such law or regulation relates to
it or to its securities, property or business, (or result in a breach of any of
the terms or conditions of, constitute a default under, or otherwise cause any
impairment of, any license or permit) which, whether or not cured, would have a
material adverse effect, individually or in the aggregate, whether or not
insured against, on the assets, liabilities, operations, business or prospects
of the SUAC Companies taken as a whole.
SECTION 4.4 CAPITALIZATION. As of the date hereof the authorized capital
stock of SUAC consists exclusively of 1000 shares of Common Stock, 0.01 par
value and are as of the date hereof, and as of the Closing Date, validly issued
and outstanding, fully paid and nonassessable. There are no holders of
subscriptions, warrants, options, convertible securities, or other rights of any
character with respect to SUAC securities. SUAC has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any of its securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
All of the outstanding securities of SUAC were issued in compliance with
all applicable federal, state, local and foreign laws, rules and regulations,
and none of such securities were issued in violation of, or are subject to, any
preemptive rights.
All shares of SUAC Common Stock deliverable hereunder shall be voting
stock, duly authorized, validly issued, fully paid and nonassessable, free and
clear of all claims.
SECTION 4.5 FULL DISCLOSURE. This Agreement and all documents, schedules
and certificates required to be delivered by SUAC pursuant to this Agreement do
not contain any untrue statement of a material fact and do not omit to state any
material fact necessary to make the statements contained herein and therein, in
light of the circumstances in which made, not misleading.
ARTICLE V
COVENANTS
<PAGE>
SECTION 5.1 CONDUCT OF BUSINESS. Except as contemplated by this Agreement
or as consented to in writing by the other parties hereto, during the period
from the date of this Agreement to the Effective Time, UST and SUAC shall
conduct their respective operations and affairs according to their ordinary and
usual courses of business consistent with past practices. Without limiting the
generality of the foregoing, and except as otherwise expressly provided in this
Agreement or as consented to in writing by the other parties hereto, prior to
the Effective Time, neither UST nor SUAC shall, except as contemplated by the
Disclosure Letters, (i) issue, sell or pledge, or authorize or propose the
issuance, sale or pledge of (A) additional shares of capital stock of any class
or securities convertible into any such shares or (B) any rights, warrants or
options to acquire any such shares or other convertible securities, or grant or
accelerate any right to convert or exchange any securities for shares of capital
stock; (ii) redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of its outstanding securities; (iii) declare,
set aside, make or pay any dividend or distribution (whether in cash, stock or
property) on or in respect of any shares of capital stock; (iv) except as
contemplated by the Disclosure Letters and except for sales and purchases of
inventory in the ordinary course of business, make any acquisition of assets or
securities, any disposition of assets or securities or any change in
capitalization; (v) enter into any contract or release or relinquish any
contract or other rights in excess of $10,000 in amount; (vi) incur any
long-term debt for borrowed money or any short-term debt for borrowed money
other than in the ordinary course of business consistent with past practice in
excess of $10,000 in amount; (vii) propose or adopt any Charter or By-Laws
amendments; (viii) other than as contemplated or permitted by this Agreement,
enter into any new employment agreements with any directors, officers or
employees or grant any increases in the compensation or benefits to, or agree to
pay any bonus, severance or termination payment or other special compensation
to, directors, officers and employees other than scheduled merit increases in
the ordinary course of business consistent with past practice; (ix) make any
loan or advance to any of its directors, officers, employees, consultants, or
agents or to any member of their families or any other loan or advance otherwise
than in the ordinary course of business consistent with past practices; (x) make
or incur any charitable contributions or any nonbusiness expense; or (xi) agree
in writing or orally to take any of the foregoing actions or any other action
which would make any representation or warranty in this Agreement untrue on the
date hereof or on the Closing Date.
SECTION 5.2 NO SOLICITATION OR DISCUSSION. Except for the transactions
contemplated by this Agreement and as described in Section 5.1, the parties
hereto shall use their best efforts to cause their directors, officers,
employees, representatives, agents and affiliates not to, directly or
indirectly, encourage, solicit, initiate or participate in any way in
discussions or negotiations with, or knowingly provide any information to, any
person (other than the parties to this Agreement or any affiliate thereto
concerning any merger, purchase or sale of assets, purchase or sale of
securities, exchange offer, consolidation, combination or similar transaction
involving UST or SUAC. SUAC or UST shall promptly communicate to the other
parties hereto the terms of any proposal or inquiry which it may receive, or of
any such information requested from it or of any such negotiations or
discussions being sought to be initiated with it in respect of any such
transaction.
SECTION 5.3 ACCESS TO INFORMATION.
<PAGE>
(a) Between the date of this Agreement and the Effective Time, each
party shall (i) give to the other and its authorized representatives access
during regular business hours upon reasonable notice to such party's plants,
offices, warehouses and other facilities and to all of its books and records,
(ii) permit the other and its authorized representatives to make such
inspections as it may require, (iii) cause its officers and those of its
subsidiaries to furnish the other and its authorized representatives with such
financial and operating data and other information with respect to its business
and properties and that of its subsidiaries as such party may from time to time
request, (iv) furnish such party promptly with a copy of each report, schedule
and other documents filed or received by it pursuant to federal or state
securities law, if any, and (v) notify the other promptly in writing of the
occurrence of any event or the existence of any circumstance which would have
made any of its representations and warranties set forth herein untrue. No
information provided pursuant to this Section 5.3 or otherwise, nor any
investigation by any party, shall affect or be deemed to modify any
representation or covenant herein contained.
(b) SSGI, UST and SUAC agree that, in the event that the transactions
contemplated hereby shall not be consummated, each will treat in confidence all
documents, materials and other information which either shall have obtained
during the course of the negotiations leading to this Agreement, the
investigation of the other party hereto and the preparation of this Agreement
and other documents relating to this Agreement, and shall return to the other
party all copies of non-public documents and materials which have been furnished
in connection therewith.
SECTION 5.4 REASONABLE BEST EFFORTS. Subject to the terms and conditions
hereof, each of the parties hereto agrees to use its reasonable best efforts to
take, or cause to be taken, all appropriate action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. In case at any time after the Effective Time any further action
is necessary or useful to carry out the purposes of this Agreement, the parties
shall use their reasonable best efforts to cause their respective proper
officers, employees and representatives to take all such necessary action.
SECTION 5.5 SHAREHOLDERS AND DIRECTORS MEETINGS. UST and SUAC shall
promptly take all action necessary in accordance with the laws of their states
of incorporation, their Articles of Incorporation and By-Laws to convene a
meeting of its shareholders and directors to consider and vote on the Merger.
SECTION 5.6 PUBLIC ANNOUNCEMENTS. UST, SUAC and SSGI shall to the
fullest extent practicable consult with one another before issuing any press
release or otherwise making any public statement with respect to the Merger and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by law after consultation with
counsel.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
<PAGE>
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver, where permissible, as of the Effective Time, of the
following conditions:
(a) The Merger shall have been approved by the affirmative vote of the
shareholders of UST and SUAC by the votes respectively required;
(b) no statute, rule, regulation, order, decree or injunction shall
have been enacted, entered, promulgated or enforced by any court or governmental
authority which is in effect and has the effect of prohibiting or delaying the
consummation of the Merger;
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF UST TO EFFECT THE MERGER. The
obligation of UST to effect the Merger is further subject to the satisfaction as
of the Effective Time, of the following conditions, each of which may be waived
by UST in its sole discretion:
(a) the representations and warranties of the SUAC Companies set forth
in this Agreement shall be true in all material respects as if made at the
Effective Time and SUAC shall have performed all obligations and covenants
required by the Agreement to be performed or complied with by it.
(b) All proceedings in connection with the transactions contemplated
hereby, and all legal matters, documents and instruments incident thereto, shall
be reasonably satisfactory in substance and in form to UST and its counsel, and
UST and its counsel shall have received all such documents and instruments, or
copies thereof, certified if requested, as may be reasonably requested.
SECTION 6.3. CONDITIONS TO OBLIGATIONS OF SUAC TO EFFECT THE MERGER. The
obligations of SUAC to effect the Merger is further subject to the satisfaction
on or prior to the Effective Time, of the following conditions, each of which
may be waived by SUAC in its sole discretion:
(a) The representations and warranties of UST set forth in this
Agreement shall be true in all material respects as if made at the Effective
Time and UST shall have performed all obligations and covenants required by the
Agreement to be performed or complied with by it.
(b) All proceedings in connection with the transactions contemplated
hereby, and all legal matters, documents and instruments incident thereto, shall
be reasonably satisfactory in substance and in form to SUAC and its Counsel, and
SUAC and its counsel shall have received all such documents and instruments, or
copies thereof, certified if requested, as may be reasonably requested.
<PAGE>
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
SECTION 7.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the shareholders of UST and SUAC:
(a). by mutual written consent duly authorized by the Boards of
Directors of SUAC and SSGI;
(b). by SUAC or SSGI if:
(i) any court of competent jurisdiction or other
governmental body shall have issued an order, decree or ruling, or
taken any other action restraining, enjoining or otherwise
prohibiting the Merger or any portion thereof, provided that the
Agreement shall not be terminated pursuant to this paragraph
unless the party terminating this Agreement has utilized its
reasonable best efforts to oppose the issuance of such order,
decree or ruling or the taking of such action;
(ii) any of the conditions specified in Section 6.1 shall
not be satisfied; or
(iii) the Merger shall not have been consummated on or
prior to March 11, 1998, or such later date as may be agreed upon
by the parties, for any reason other than the breach of any
provision of this Agreement by the party terminating this
Agreement; or
(iv) the other party willfully breaches any of its material
representations, warranties or covenants contained herein and, if
such breach is curable, it is not cured within five business days
after written notice thereof.
(c) by SSGI on account of the failure of any condition specified
in Section 6.2; or
(d) by SUAC on account of the failure of any condition specified
in Section 6.3.
Upon the occurrence of any of the events specified in this Section 7.1
(other than by mutual written consent) and the determination of a party to
terminate this Agreement, written notice of termination shall forthwith be given
by the terminating party to the other, whereupon this Agreement shall terminate.
SECTION 7.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and of no further effect, without
<PAGE>
any liability on the part of any party or its directors, officers, shareholders
or representatives (except for the provisions of Sections 5.3(b), 7.1, and 8.10,
which shall remain in effect). Nothing in this Section shall relieve any party
to this Agreement of liability for breach of this Agreement.
SECTION 7.3 AMENDMENT. To the extent permitted by applicable law, this
Agreement may be amended by action taken by or on behalf of the Boards of
Directors of UST and SUAC at any time before or after approval of this Agreement
by the shareholders of UST and SUAC. This Agreement may not be amended except by
an instrument in writing signed on behalf of the parties by their duly
authorized representatives.
SECTION. 7.4 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken by or on behalf of the respective Boards of
Directors of SSGI and SUAC may (i) extend the time for the performance of any of
the obligations or other acts of the other party, (ii) waive any inaccuracies in
the representations and warranties contained herein by the other party or in any
document, certificate or writing delivered pursuant hereto by or on behalf of
the other party or (iii) waive compliance with any of the agreements or
conditions contained herein, if permitted by applicable law. Any agreement on
the part of any party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party by its duly
authorized representative.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in this Agreement shall survive after the Effective
Time for a period of two (2) years. This Section 8.1 shall not limit any
covenant or agreement of the parties hereto which by its terms contemplates
performance after the Effective Time.
SECTION 8.2 ENTIRE AGREEMENT, ASSIGNMENT. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.
SECTION 8.3 ENFORCEMENT OF THE AGREEMENT. Each of the parties acknowledges
and agrees that the rights acquired by the other hereunder are unique and that
immediate, severe and irreparable damage would occur in the event that any of
the provisions of this Agreement to be performed by it were not performed in
accordance with its specific terms or were otherwise breached. Accordingly each
party agrees that the other shall be entitled to an injunction or injunctions
and other appropriate equitable relief to prevent breaches of this Agreement by
it and to enforce specifically the terms and provisions hereof in any federal or
state court of competent jurisdiction, this being in addition to any other
remedy to which the parties may be entitled at law or in equity or otherwise.
<PAGE>
SECTION 8.4 VALIDITY. The invalidity or unenforceability of any provision
of this Agreement under any circumstances shall not affect the validity or
enforceability of the same provision under other circumstances or of any other
provision of this Agreement, all of which shall remain in full force and effect.
SECTION 8.5 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by cable, telegram, telecopier or telex, or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties as follows:
If to SUAC and/or UST:
8160 Woodland Business Center
Waters Avenue
Tampa, Florida 33614
Attention: Peter S. Steele
With a copy to:
Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A.
911 Chestnut Street
Clearwater, Florida 34617-1368
Attention: Michael T. Cronin, Esquire
If to SSGI:
326 First Street, Suite 100
Annapolis, Maryland 21403
Attention: John J. Cadigan
With a copy to:
Palmarella & Sweeney, P.C.
2 Radnor Corporate Center, Suite 310
Radnor, Pennsylvania 19087
Attention: Ernest D. Palmarella, Esquire
or to such other address as the party to whom notice is given may have
previously furnished to the other in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereto.
<PAGE>
SECTION 8.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the substantive law of the State of Delaware
regardless of the laws that might otherwise govern under principles of conflicts
of laws applicable thereto, except the effectiveness of the statutory merger
contemplated hereby shall be governed by and construed in accordance with the
FBCL.
SECTION 8.7 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 8.8 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement. Nothing
in this Agreement shall be construed to create any rights or obligations except
among the parties hereto, and no person or entity shall be regarded as a
third-party beneficiary of this Agreement.
SECTION 8.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
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SECTION 8.10 EXPENSES. All costs and expenses incurred in connection with
the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all at or on
the day and year first above written.
Attest: U.S. TECHNOLOGIES, INC.
/s/ PETER S. STEELE By: /s/ PETER S. STEELE
__________________________ ____________________________
Peter S. Steele, Secretary Peter Steele, President
Attest: STRATEGIC SOLUTIONS GROUP, INC.
/s/ JOHN J. CADIGAN By: /s/ JOHN J. CADIGAN
__________________________ ____________________________
John J. Cadigan, Secretary John J. Cadigan, President
Attest: SSGI-UST ACQUISITION CORPORATION
/s/ PETER S. STEELE By: /s/ PETER S. STEELE
__________________________ ____________________________
Peter S. Steele, Secretary Peter S. Steele, President
Exhibit 2(B)(i)
STATE OF FLORIDA
ARTICLES OF MERGER
OF
SSGI-UST ACQUISITION CORPORATION, a Florida corporation
INTO
U.S. TECHNOLOGIES, INC., a Florida corporation
Pursuant to Section 607.1101 and 607.1105 of the Florida Business Corporation
Act, the undersigned corporations adopt the following Articles of Merger for the
purposes of merging SSGI-UST Acquisition Corporation into U.S.
Technologies, Inc.:
FIRST: The Plan of Merger attached hereto as Exhibit A was adopted by the Board
of Directors and shareholders of SSGI-UST Acquisition Corporation, a Florida
corporation ("SUAC"), on the 26th day of March, 1998, and was adopted by the
Board of Directors and shareholders of U.S. Technologies, Inc., a Florida
corporation ("UST"), on the 26th day of March, 1998.
SECOND: The Merger is effective at 5:00 P.M. on March 26, 1998 or the time of
filing of these Articles of Merger, whichever shall be later ("Effective Date").
THIRD: As provided in the Plan of Merger, the Articles of Incorporation of UST
as in effect immediately prior to the Effective Date shall be the Articles of
Incorporation of UST, the surviving corporation.
Prepared by:
Michael T. Cronin, Esquire
Johnson, Blakely, Pope, Bokor,
Ruppel & Burns, P.A.
911 Chestnut Street
Clearwater, Florida 33756
Bar No. 0469841
(813) 461-1818
IN WITNESS WHEREOF, each of the undersigned has caused these Articles of Merger
to be signed in its corporate name on the 26th day of March, 1998.
SSGI-UST ACQUISITION CORPORATION, U.S. TECHNOLOGIES, INC.,
a Florida Corporation a Florida corporation
By: /s/ Peter S. Steele By: /s/ John J. Cadigan
________________________ __________________________
Name: Peter S. Steele Name: John Cadigan
Title: President Title: Secretary
Exhibit 2(C)
PROMISSORY NOTE
---------------
$600,000.00 DATE: MARCH 20, 1998
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, SSGI-UST
ACQUISITION CORPORATION and U.S. TECHNOLOGIES, INC. (hereinafter
collectively referred to as "Maker"), jointly and severally promise to
pay to the order of STRATEGIC SOLUTIONS GROUP, INC. (hereinafter referred to as
"Payee"), the principal sum of SIX HUNDRED THOUSAND ($600,000.00) DOLLARS
payable in accordance with the following until paid in full.
1. THE LOAN
--------
1.1 PRINCIPAL. The principal amount due hereunder shall be the face
amount hereof.
1.2 INTEREST. The principal shall bear annual interest at the rate of
six percent (6.0%) compounded monthly.
1.3 PAYMENT OF PRINCIPAL AND INTEREST. The principal of this Note, and
all accrued interest thereon, shall be payable in full upon the earlier of the
closing of Maker's $2,000,000 private placement or sixty (60) days from the date
hereof.
1.4 SECURITY. To secure the payment of this Note and the indebtedness
evidenced hereby, Maker has granted a first priority security interest to Payee
in all their assets as more fully described in the General Security Agreement
dated of even date herewith. The terms, conditions, premises and promises of
said General Security Agreement are incorporated herein by reference.
In addition to the foregoing, the Shareholders of Maker (other than
Payee), in consideration of Payee's loan to Maker hereunder, have pledged all of
their shares of stock in Maker pursuant to the Pledge Agreements dated of even
date herewith. The terms, conditions, premises and promises of said Pledge
Agreements are incorporated herein by reference. Maker warrants and represents
to Payee that there are no other Shareholders of either Maker other than Payee,
Trent On Dorchester Limited Liability Company, Starr Securities and Peter S.
Steele.
In addition to the foregoing, Maker has delivered to Payee the stock
ledgers of Maker and the certificates representing all of the authorized and
unissued shares of stock of Maker. Until this Note is paid in full, Maker
irrevocably appoints Payee as Maker's transfer agent and hereby agrees that
Maker will not without the express written approval of Payee issue additional
shares of stock in Maker, sell, assign or transfer shares of stock in Maker,
merge or consolidate with another company (other than the contemplated
<PAGE>
merger between Maker), print or have printed new share certificates, or in any
other manner create or issue any instrument which evidences equity ownership in
Maker or convertable into any equity ownership in Maker. Upon the repayment of
the indebtedness evidenced by this Note with all accrued interest thereon and
all expenses accruing herein, Payee shall deliver the stock ledgers and
certificates to Maker.
2. EVENTS OF DEFAULT. The occurrence of any one or more of the following shall
constitute an "Event of Default" hereunder.
2.1 The failure to pay when due, any amount payable or any liability
arising under this Note (hereinafter referred to as the "Liabilities").
2.2 The breach by Maker of any term of this Agreement.
2.3 The appointment of a receiver, liquidator, assignee, custodian,
trustee or similar official for any substantial part of Maker's property; the
ordering of the winding-up or liquidation of Maker's affairs.
2.4 The commencement by Maker of a voluntary case under the federal
bankruptcy laws or any other applicable federal or state bankruptcy, insolvency
or other similar law; the consent by Maker to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, or other
similar official for any substantial part of Maker's property; the creation by
Maker of any assignment for the benefit of creditors, or the failure of Maker
generally to pay its debts as they become due.
2.5 The occurrence of any default under the General Security Agreement
or Pledge Agreements dated of even date herewith securing Maker's indebtedness
to Payee.
2.6 The occurrence of any violation of the terms of that certain
Employment Agreement between UST and Peter S. Steele dated on or about July 15,
1996, which the respective parties understand and agree shall remain in full
force and effect until the satisfaction in full of Maker's indebtedness in Payee
hereunder.
3. PAYEE'S RIGHT UPON DEFAULT. Upon the occurrence of an Event of Default:
3.1 The entire unpaid principal balance of the Note, together with all
other Liabilities due or owed by the Maker under this Note shall without
additional notice to or demand on the Maker, become due and payable immediately
with interest.
3.2 After the default and until Maker's indebtedness to the Payee is
paid in full, including the period following entry of any judgment, interest
shall accrue at the rate of twelve (12%) percent per year ("Default Rate"). The
Maker shall also be liable for all costs incurred for the collection of this
Note, including attorneys' fees, and such amounts may be enforced and recovered
by confessing judgment on this Note and the issuance of execution on the
judgment.
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<PAGE>
3.3 The Payee may exercise any rights and remedies available to Payee
under applicable law.
4. CUMULATIVE REMEDIES. The remedies of the Payee provided in this Note or
otherwise available to the Payee at law or in equity and the warrants of
attorney herein or therein contained, shall be cumulative and concurrent, and
may be pursued singly, successively, and together at the sole discretion of the
Payee, and may be exercised as often as occasion therefor shall occur. The
failure to exercise any right or remedy shall in no event be construed as a
waiver or release of the right or remedy.
5. WAIVER OF PRESENTMENT. Maker waives presentment for payment, demand, notice
of nonpayment, notice of protest, and protest of this Note, and all other
notices in connection with the delivery, acceptance, performance, default or
enforcement of the payment of this Note, except such notices as are specifically
provided for herein and agrees that its liability shall be unconditional without
regard to the liability of any other party and shall not be in any manner
effected by an indulgence, extension of time, renewal, waiver or modification
granted or consented to by Payee.
Payee shall not by an act of omission or commission be deemed to waive
any of its rights or remedies hereunder unless such waiver be in writing and
signed by Payee, and then only to the extent specifically set forth therein; a
waiver on one event shall not be construed as a bar to or waiver of such right
or remedy on a subsequent event.
6. PAYMENT OF COSTS. The Maker shall pay the cost of any revenue, tax, or other
stamps required by law at any time to be affixed to this Note and if any taxes
be imposed with respect to debts secured by financing statements or with respect
to notes evidencing debts so secured, Maker agrees to pay the holder upon demand
the amount of such taxes, and hereby waives any contrary provisions of any laws
or rules of court now or hereafter in effect. If Maker fails or refuses or is
not legally permitted to pay or reimburse Payee for such taxes as aforesaid,
Payee may at its option accelerate this Note to maturity as in the case of
default of Maker.
7. PARTIES. The words "Payee" and "Maker" in this Note shall be deemed and
construed to include the respective successors and assigns of the Payee and the
Maker.
8. INVALID PROVISION. If any provision hereof is found by a court of competent
jurisdiction to be prohibited or unenforceable, it shall be ineffective only to
the extent of such prohibition or unenforceability, and such prohibition or
unenforceability shall not invalidate the balance of such provision to the
extent it is not prohibited or unenforceable, nor invalidate the other
provisions hereof, all of which shall be liberally construed in favor of Payee
in order to effect the provisions of the Note.
9. CONSTRUCTION. The parties to this Agreement and their respective counsel have
reviewed this Agreement and have had the opportunity to revise this Agreement,
and the normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement.
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<PAGE>
10. GOVERNING LAW. This instrument shall be construed according to and governed
by the laws of the State of Florida.
IN WITNESS WHEREOF, the Maker has duly executed this Note on the 20th
day of MARCH, 1998.
Attest: SSGI-UST
ACQUISITION CORPORATION, MAKER
/s/ PETER S. STEELE By: /s/ PETER S. STEELE
__________________________ _____________________________
Peter S. Steele, Secretary Peter S. Steele, President
Attest: U.S. TECHNOLOGIES, INC.
MAKER
/s/ PETER S. STEELE By: /s/ PETER S. STEELE
__________________________ ____________________________
Peter S. Steele, Secretary Peter Steele, President
STATE OF FLORIDA :
: SS.
COUNTY OF HILLSBOROUGH :
Sworn to and subscribed before me this 7TH date of April,
1998.
/s/ VANESSA L. SCHMIDT
___________________________
Notary Public
4
Exhibit 2(D)
PLEDGE AGREEMENT
This Agreement made this 3RD day of APRIL , 1998 by and BETWEEN PETER S.
STEELE (herein called "Pledgor"), and STRATEGIC SOLUTIONS GROUP, INC., a
Delaware corporation (herein called "Pledgee"), relating to the shares of stock
of U.S. TECHNOLGIES, INC., a Florida corporation and SSGI-UST ACQUISITION
CORPORATION, a Florida corporation (herein collectively "Company").
W I T N E S S E T H
WHEREAS, Company is duly indebted to Pledgee in the principal amount of Six
Hundred Thousand ($600,000.00) Dollars ("Loan") evidenced by a Promissory Note
of Company ("Note") of even date herewith; and
WHEREAS, in order to induce Pledgee to make the Loan to Company as
evidenced by the Note and as a part of the security for the prompt payment of
the Note in accordance with its terms, Pledgor has agreed to pledge all of his
shares of stock in Company (the "Shares"), which together with the shares of
stock owned by Pledgee, Trent On Dorchester Limited Liability Company and Starr
Securities, Inc., constitute one hundred percent (100%) of the issued and
outstanding shares of stock of Company; and
WHEREAS, Pledgor has recognized and will recognize a substantial benefit
from the Loan and hereby represents to Pledgee that such benefit constitutes
significant and substantial consideration for Pledger's pledge of the Shares
hereunder.
NOW, THEREFORE, in consideration of the promises and premises herein set
forth and the consideration cited above and for other good and valuable
consideration the receipt and sufficiency which is hereby acknowledged by the
parties, and intending to be legally bound hereby, the parties agree as follows:
1. In consideration of the foregoing, the Pledgor herewith pledges,
delivers and assigns to the Pledgee all of his right, title and interest in the
Shares, duly endorsed in blank, and does hereby appoint Pledgee, or its nominee,
Pledgor's true and lawful attorney and in his name, place and stead, to cause
the Shares to be transferred to the name of the Pledgee at the sole option of
the Pledgee.
2. The Pledgor does hereby represent and warrant:
(a) that, except as pledged herein, Pledgor has not sold, assigned,
transferred, pledged, granted any security interest in or otherwise hypothecated
the Shares in any manner whatsoever and that the Shares are pledged herewith
free and clear of any and all liens, encumbrances, pledges, restrictions,
security interest and agreements; and
<PAGE>
(b) that Pledgor has full power and authority to execute and deliver
this Pledge Agreement and to pledge the Shares hereunder, that this Agreement
constitutes the valid and binding obligation of Pledgor enforceable in
accordance with its terms, and that the pledge of the Shares contained herein is
not in violation of any agreement, undertaking or obligation of Pledgor.
3. Pledgee shall hold the Shares as security for the payment of the Note
and will not at any time dispose of or encumber the same except as herein
provided. While Pledgee is the holder of the Shares, it shall not collect
dividends thereon and the Pledgor shall have the right to cast any vote on the
Shares so long as an Event of Default, as defined herein, has not occurred and,
if Pledgee has exercised its right to have the Shares registered in its name as
aforesaid, Pledgee agrees to execute any and all proxies in favor of Pledgor
that may be required. Upon the payment of the Note in full, Pledgee shall
re-transfer or re-deliver the Shares to Pledgor.
4. Upon the occurrence of an Event of Default, as defined herein, Pledgee
shall become the one hundred percent (100%) owner of the Shares and shall
thereafter have the right to vote the shares, and further Pledgee is hereby
granted all of the rights and remedies accorded a secured party under the
Uniform Commercial Code and may, upon ten (10) days prior written notice to
Pledgor, sell, lease or otherwise dispose of the Shares pledged, at any time or
from time to time, in whole or in part, at public or private sale, without
advertisement or notice of sale, all of which are hereby waived. Any purchaser
at any such sale (which terms shall include the Pledgee in the case of a public
sale) shall receive the Shares free and clear of all rights of redemption or
other rights or claims of Pledgor, all of which are hereby waived.
Notwithstanding the foregoing, Pledgor shall not be liable for any deficiency in
the event that the proceeds of any such sale are not sufficient to satisfy the
Note.
5. An Event of Default hereunder is defined as an Event of Default under
the terms of the Note or any breach by Pledgee of any term herein.
6. This is the entire agreement between the parties hereto and may be
changed only by a written instrument signed by the party against whom any charge
is sought to be enforced.
7. This Agreement is made and shall be governed by and construed in
accordance with the laws of the State of Florida.
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<PAGE>
8. This Agreement shall be binding upon and inure to the benefit of the
parties hereto, their respective heirs, personal representatives, successors and
assigns.
EXECUTED the day and year first above written.
/s/ SHERYL TUCKER By: /s/ PETER S. STEELE
_______________________________ ___________________
Witness Peter S. Steele
Accepted:
/s/ JOHN J. CADIGAN
_______________________________
Strategic Solutions Group, Inc.
by John J. Cadigan, President
3
Exhibit 2(E)
GENERAL SECURITY AGREEMENT
THIS AGREEMENT, made this ____ day of March, 1998, by and between U.S.
TECHNOLOGIES, INC., a Florida Corporation, and SSGI-UST ACQUISITION CORPORATION,
a Florida Corporation (hereinafter individually and collectively referred to as
"Debtor") and STRATEGIC SOLUTIONS GROUP, INC., a Delaware Corporation
(hereinafter referred to as "Secured Party").
WITNESSETH:
WHEREAS, Debtor is duly indebted to Secured Party in the principal
amount of Six Hundred Thousand ($600,000.00) Dollars evidenced by a Promissory
Note of Debtor of even date herewith and incorporated herein by reference (the
"Obligation");
WHEREAS, Secured Party desires to secure the Debtor's payment of the
Obligation taking a security interest in all of Debtor's property.
NOW, THEREFORE, intending to be legally bound by this Agreement, Debtor
and Secured Party mutually covenant and agree as follows:
1. SECURITY INTEREST. Debtor hereby grants and conveys to Secured Party
a first priority continuing security interest in and lien upon the Collateral
(as hereinafter defined), all in accordance with the provisions of the Uniform
Commercial Code as enacted in the State of Florida (the "UCC"). Such security
interest is granted as security for the payment of all amounts due by Debtor to
Secured Party.
2. COLLATERAL. For purposes of this agreement, "Collateral" shall be
defined to include all of the assets of Debtor, including Debtor's interest
in Titlelink, and the substitution
<PAGE>
therefor and proceeds thereof.
3. DEBTOR'S WARRANTIES, REPRESENTATIONS AND AGREEMENTS.
The Debtor represents and warrants to Secured Party and agrees that:
(a) Except for the security interest herein granted, Debtor is
the owner of the Collateral free from any adverse lien, security interest or
encumbrance; no financing statement covering any of the Collateral or any
proceeds therefor is on file in any public office; and the Debtor will defend
the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein;
(b) The Collateral is and will be used for business purposes;
(c) The offices where Debtor keeps the Books and Records (as
defined in subparagraph 3(d) below) relating to the Collateral is the business
address of Debtor, and Debtor shall not remove the Books and Records or keep
them at any other place without giving Secured Party thirty (30) days prior
written notice thereof;
(d) Debtor shall keep complete and accurate Books and Records
(as used herein, the term "Books and Records" shall be defined to include all
books of original and final entry, including computer programs, software, stored
material and data banks associated with or arising out of Debtor's business or
recordkeeping) and make all necessary entries therein to reflect the quantities,
costs, value and location of the Collateral. Debtor agrees to mark its Books and
Records in such fashion as to indicate the security interest granted to Secured
Party herein. Debtor shall permit Secured Party, its employees and agents, to
have access during regular business hours to all of Debtor's Books and Records
and any other records pertaining to Debtor's business which Secured
2
<PAGE>
Party may request, and shall cause all persons including computer service
bureaus, bookkeeping services, accountants and the like, to make all such Books
and Records available to Secured party, its officers, employee and agents and,
if deemed necessary by Secured Party in Secured Party's sole discretion, permit
Secured Party, its officers, employees and agents to duplicate, at Debtor's
expense, the Books and Records at Debtor's place of business or any other place
where they may be found. Secured Party's right to inspect and duplicate Debtor's
Books and Records shall be enforceable at law by action of replevin or by any
other appropriate remedy at law or in equity, but shall not entitle Secured
Party to inspect and duplicate Debtor's Books and Records more frequently than
two times during any calendar year.
(e) The Collateral is and will be kept at the business
location of Debtor. If Debtor removes any of the Collateral from such locations,
or changes the location of its business, Debtor will give to Secured Party prior
written notice of such intended removal or change, as well as of Debtor's intent
to close its business or to establish any new locations;
(f) Debtor shall immediately notify Secured Party in writing
of any event causing deterioration, loss or depreciation in value of the
Collateral and the amount of such loss or depreciation. Debtor shall permit
Secured Party, its officers, employees and agents, access to the Collateral
during normal business hours from time to time, as and when requested by Secured
Party, but no more frequently than two times during any twelve month period, for
the purposes of examination, inspection and appraisal hereof and verification of
Debtor's Books and Records pertaining thereto. Debtor will promptly notify
Secured Party in writing if there is any change in the status of any Collateral.
3
<PAGE>
(g) Debtor will not sell, exchange, lease, rent or otherwise
dispose of any of the Collateral or of any Debtor's rights therein, other than
in the ordinary course of Debtor's business, without the prior written consent
of Secured Party;
(h) Until the occurrence of an Event of Default (as this term
is defined below), Debtor may use the Collateral in any lawful manner not
inconsistent with this Agreement or other agreements referred to herein or with
the terms and condition of any policy of insurance thereon;
(i) No Event of Default has occurred and no event has occurred
which, with the passage of time or the giving of notice or both, could be an
Event of Default hereunder;
(j) Debtor will notify the Secured Party in writing prior to
beginning to engage in business in any corporate or fictitious name other than
its present corporate name;
(k) Debtor will not use the Collateral in violation of any
federal, state or local statute or ordinance;
(l) Debtor will not hereafter grant a security interest in the
Collateral to any person, firm or corporation until such time as Debtor has paid
the Obligation in full to Secured Party and Secured Party has terminated this
Agreement;
(m) If any of the Collateral or any of Debtor's Books and
Records are at any time to be located on premises leased by Debtor or on
premises owned by Debtor subject to a mortgage or other lien, Debtor shall
obtain and deliver or cause to be delivered to Secured Party prior to delivery
of any Collateral or Books and Records concerning the Collateral to said
premises, an agreement, in form satisfactory to Secured Party, waiving the
landlord's, mortgagee's or lienholder's rights to enforce any claim against
Debtor for moneys due under the landlord's lien, mortgagee's
4
<PAGE>
mortgage or other lien by levy of distraint or other similar proceeding against
the Collateral or Debtor's Books and Records and assuring Secured Party's
ability to have access to the Collateral and Debtor's Books and Records in order
to exercise Secured Party's rights to take possession thereof and to remove them
from such premises;
4. TERM. This Agreement shall be effective as of the date first above
written and shall continue in effect until such time as the Obligation is
satisfied in full or this Agreement is otherwise terminated whichever is
earlier.
5. USE OF COLLATERAL; CASUALTY. Until the occurrence of an Event of
Default, Debtor may use the Collateral in the course of its business.
6. EVENT OF DEFAULT. The occurrence of any one or more of the following
shall be an "Event of Default" hereunder:
(a) The failure of Debtor at any time to observe or perform
any of its warranties, representations or agreements contained in this
Agreement, and upon notice of such failure by Secured Party, Debtor does not
cure such failure within ten (10) days of its mailing of notice by Secured
Party;
(b) Debtor's default under the terms of the Obligation, or;
(c) The subjection of the Collateral or any rights therein to
or the threat of any judicial process, or forfeiture proceedings.
7. SECURED PARTY'S RIGHTS AND REMEDIES. Upon or after the occurrence of
any Event of Default, Secured Party may do any or all of the following, all of
which rights and remedies shall be cumulative and any and all of which may be
exercised from time to time and as often
5
<PAGE>
as Secured Party shall deem necessary or desirable:
(a) Exercise any and all rights, privileges and remedies available to
Secured Party under this Agreement, the Obligation, and of a secured party under
the UCC, or any other applicable law, including without limitation the right to
require the Debtor to assign the Collateral to Secured Party;
(b) Notify account debtors to make all payments directly to Secured
Party;
(c) Cure any default in any reasonable manner and add the costs of any
such cure to the amount due under the Obligation and accrue interest thereon at
the prime rate then being charged by Wilmington Trust, Wilmington, Delaware;
(d) Retain all of Debtor's Books and Records;
(e) Upon five (5) days prior written notice to Debtor, which notice
Debtor acknowledges is sufficient, proper and commercially reasonably, Secured
Party may sell, or otherwise dispose of the Collateral, at any time and from
time to time, in whole or in part, at public or private sale, without
advertisement or notice of sale, all of which are hereby waived and apply the
proceeds of any such sale:
(i) first, to the expenses of Secured party in
preparing the Collateral for sale, selling and the like, including without
limitation reasonably attorneys' fees and expenses incurred by Secured Party
(including fees and expenses of any litigation incident to any of the
foregoing);
(ii) second, to the payment in full of all sums owing
to Secured Party under the Obligation; and
(iii) any excess shall be paid to Debtor. The waiver
of any Event of Default, or Secured Party's failure to exercise any right or
remedy
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<PGE>
hereunder, shall not be deemed a waiver of any subsequent Event of Default or of
the right to exercise that or any other right or remedy available to Secured
Party.
8. MISCELLANEOUS. The rights and privileges of Secured Party under this
Agreement shall inure to the benefit of its endorsers, successors and assigns.
All representations, warranties and agreements of Debtor contained in this
Agreement shall survive this Agreement. If any provision of this Agreement shall
for any reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof, but this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein. This Agreement shall be construed with and under the laws of
the State of Florida.
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<PAGE>
9. NOTICES. All notices, requests, demands, deliveries and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if mailed, postage prepaid, by registered or certified mail, return
receipt requested to the parties at their current addresses or at such other
address as may be designated in writing by a party hereto.
IN WITNESS WHEREOF, Debtor and Secured Party have caused this Security
Agreement to be duly executed and sealed as of the day and year first above
written.
Attest: U.S. TECHNOLOGIES, INC.,
Debtor
/s/ PETER S. STEELE By: /s/ PETER S. STEELE
______________________________ ______________________________
Peter S. Steele, Secretary Peter S. Steele, President
Attest: SSGI-UST ACQUISITION CORPORATION,
Debtor
/s/ PETER S. STEELE By: /s/ PETER S. STEELE
______________________________ ______________________________
Peter S. Steele, Secretary Peter S. Steele, President
STRATEGIC SOLUTIONS GROUP, INC.,
Secured Party
/s/ JOHN J. CADIGAN By: /s/ JOHN J. CADIGAN
______________________________ ______________________________
John J. Cadigan, Secretary John J. Cadigan, President
8
Exhibit 2(F)
SECURED SUBORDINATED DEBENTURE
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF
COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED.
No. US $
SSGI-UST ACQUISITION CORPORATION
6% CONVERTIBLE DEBENTURE DUE ON THE 545TH DAY AFTER THE CLOSING
DATE OF THE MERGER OF SSGI-UST ACQUISITION CORPORATION
WITH AND INTO U.S. TECHNOLOGIES, INC.
WHEREAS, STRATEGIC SOLUTIONS GROUP, INC., a corporation duly organized
and existing under the laws of the State of Delaware ("SSGI"), proposes to
effectuate a merger of its wholly-owned subsidiary, U.S. TECHNOLOGIES, INC., a
corporation duly organized and existing under the laws of the State of Florida
("UST") with SSGI-UST Acquisition Corporation ("SUAC"), a corporation duly
organized and existing under the laws of the State of Florida.
WHEREAS, pursuant to the terms of the Agreement and Plan of Merger
entered into contemporaneously with this Debenture, SUAC shall be merged with
and into UST with UST being the surviving corporation (the "Merger") and for
which this Debenture constitutes a portion of the merger consideration payable
to SSGI.
NOW, THEREFORE, intending to be legally bound, the parties hereto
mutually agree as follows:
FOR VALUE RECEIVED, SUAC promises to pay to SSGI, its successor or
assign, the registered holder hereof (the "Holder"), the principal sum of
$927,000.00 (as increased for any funding provided by SSGI to UST after February
6, 1998) due on the earlier of the closing of a public offering of the shares of
stock of UST or SUAC or 545th day after the Closing of the Merger (the "Maturity
Date") and to pay interest on the principal sum outstanding in arrears upon
conversion as provided herein at the rate of 6% per annum accruing from the date
of initial issuance. Accrual of interest shall commence on the first business
day to occur after the date hereof until payment in full of the principal sum
has been made or duly provided for. Subject to the provisions of Section 4
below, the principal of, and interest on, this Debenture are payable at the
option of the Holder, in
<PAGE>
shares of common stock, 0.01 par value, of SUAC ("Common Stock"), or in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts, at the address last
appearing on the Debenture Register of SUAC as designated in writing by the
Holder from time to time. SUAC will pay the principal of and interest upon this
Debenture on the Maturity Date to the Holder addressed to the Holder at the last
address appearing on the Debenture Register. The issuance of registered Common
Stock or the forwarding of a check, as the Holder shall elect, shall constitute
a payment of principal and interest hereunder and shall satisfy and discharge
the liability for principal and interest on this Debenture to the extent of the
value of the Common Stock or sum represented by the check. As security for the
repayment of the principal of and interest on this Debenture, SUAC hereby grants
SSGI a security interest in all of its assets pursuant to a General Security
Agreement of even date herewith.
SUBORDINATION
1. Subordination of Debenture to Senior Indebtedness. All
indebtedness evidenced by this Debenture shall, to the
extent and in the manner hereinafter set forth, be
subordinated and junior in right of payment to the prior
payment in full of all amounts due under the Senior
Indebtedness (as hereinafter defined). For the purposes
of this Section, the term "Senior Indebtedness" shall mean
all indebtedness and obligations of SUAC under financing
leases, conditional sale and other title retention agreements
and all obligations issued or assumed as full or partial
payment for property, whether or not secured by a purchase
money mortgage, whether outstanding on the date hereof or
hereafter created or incurred by SUAC or UST, which is not
by its terms subordinate and junior to or on a parity with
this Debenture. The term "Senior Indebtedness" shall also
include any obligation of SUAC to any trade creditor entered
into in the ordinary course of business of SUAC or the
assignee of any trade creditor provided that such assignment
was in the ordinary course of business of SUAC.
2. Priority of Senior Indebtedness on Distribution of
Assets. Upon (a) any payment being required to be made by
SUAC under this Debenture upon any declaration of
acceleration of the principal amount hereof or (b) any
payment or distribution of assets of SUAC of any kind or
character, whether in money, property or securities, to
creditors upon any dissolution or winding up or total or
partial liquidation or reorganization of SUAC, whether
voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to
become due upon, all Senior Indebtedness of SUAC shall
first be paid in full, or payment thereof provided for in
money, before any payment is made on this Debenture; and
upon any such declaration of acceleration or dissolution or
winding up or liquidation or reorganization, any
distribution of assets of SUAC of any kind or character,
whether in money, property or securities, to which the
holder - of this Debenture would be entitled except for the
provisions hereof shall be paid by SUAC or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other
person making such payment or distribution, or by the
holder of this Debenture if received by it directly, to the
holders of Senior Indebtedness (pro rata to each such holder
on the basis of the respective amounts of such Senior
Indebtedness held by such holder), or its representatives, to
the extent necessary to pay all such Senior Indebtedness in
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<PAGE>
full, in money, after giving effect to any concurrent
payment or distribution to or for the benefit of the
holders of such Senior Indebtedness, before any payment or
distribution is made hereunder to holder of this Debenture.
3. Treatment of Mistaken Payments and Distributions. If any
payment or distribution of assets of SUAC of any kind or
character, whether in money, property or securities, not
permitted by the foregoing shall be received by the Holder of
this Debenture, such payment or distribution shall be held
for the benefit of, and shall be paid over or delivered
to, the holders of such Senior Indebtedness, or their
representatives, or to the trustee or trustees under
any indenture pursuant to which any instruments evidencing
any of such Senior Indebtedness may have been issued or
under which such instruments are pledged or secured,
as their respective interests may appear, for application
to the payment of all Senior Indebtedness remaining unpaid
to the extent necessary to pay all such Senior Indebtedness
in full in accordance with its terms, after giving effect to
any concurrent payment or distribution to or for the holders
of such Senior Indebtedness.
4. Subrogation. Subject to the payment in full of all Senior
Indebtedness, the Holder of this Debenture shall be subrogated
to the rights of the holders of Senior Indebtedness to receive
payment or distributions of assets of SUAC applicable to the
Senior Indebtedness until this Debenture shall be paid in
full, and no such payment or distribution to the holders of
Senior Indebtedness shall, as among SUAC, its creditors other
than the holders of Senior Indebtedness, and the Holder of
this Debenture, be deemed to be a payment by SUAC to or on
account of this Debenture.
5. Conversion Rights Not Subject to Subordination.
Notwithstanding anything to the contrary set forth above, the
subordination provisions of this Debenture will have no force
and effect and will be deemed null and void upon the
conversion or attempted conversion of this Debenture, in whole
or in part, by the Holder in accordance with the terms hereof.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of One Hundred Thousand
Dollars (US$100,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder surrendering the same. No
service charge will be made for such registration or transfer or exchange.
2. SUAC shall be entitled to withhold from all payments of principal
of, and interest on, this Debenture any amounts required to be withheld under
the applicable provisions of the United States income tax laws or other
applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of
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<PAGE>
any proposed transfer of this Debenture, SUAC may require, prior to issuance of
a new Debenture in the name of such other person, that it receive reasonable
transfer documentation including opinions that the issuance of the Debenture in
such other name does not and will not result in a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, SUAC and any agent of SUAC may treat the person in
whose name this Debenture is duly registered on SUAC's Debenture Register as the
owner hereof for the purpose of receiving payment as herein provided and for all
other purposes, whether or not this Debenture be overdue, and neither SUAC nor
any such agent shall be affected by notice to the contrary.
4. A. Subject to the other provisions of this Section 4, the Holder of
this Debenture is entitled, at its option, to convert at the time of the first
public offering of the Common Stock of SUAC subsequent to the date of this
Debenture, all or a portion of the then principal amount and accrued interest of
this Debenture into shares of Common Stock of SUAC at a conversion price for
each share of Common Stock (the "Conversion Price") equal to the public offering
price of the Common Stock less twenty (20%) percent. SUAC agrees to notify the
Holder hereof prior to the public offering mentioned herein at such time SUAC
has signed a letter of intent relating thereto. After notice of SUAC's proposed
public offering, SUAC will not without the express written approval of the
Holder attempt to repay all or a portion of the principal or interest due
hereunder.
B. Conversion shall be effectuated by surrendering the Debentures to be
converted to SUAC with the form of conversion notice attached hereto as Exhibit
"A", executed by the Holder of the Debenture evidencing such Holder's intention
to convert this Debenture or a specified portion (as above provided) hereof, and
accompanied, if required by SUAC, by proper assignment hereof in blank. Interest
accrued or accruing from the date of issuance to the date of conversion shall,
at the option of the Holder, be paid in cash or Common Stock (based on the same
Conversion Price) upon conversion at the Conversion Date. No fraction of Shares
or scrip representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded to the nearest whole share. The date
on which notice of conversion is given (the "Conversion Date") shall be deemed
to be the date on which the Holder has delivered this Debenture, with the
conversion notice duly executed, to SUAC or, the date set forth in such
facsimile delivery of the notice of conversion if the Debenture is received by
SUAC within three (3) business days therefrom. Certificates representing Common
Stock upon conversion will be delivered within three (3) business days from the
close of the public offering date.
C. The shares of stock of SUAC subject to the conversion rights of
Holder herein shall be subject to the Registration Rights Agreement between SUAC
and SSGI of even date herewith.
5. The terms of the Agreement and Plan of Merger, dated March 20 , 1998
(the "Merger Agreement"), is incorporated herein by reference. No provision of
this Debenture shall alter or impair the obligation of SUAC, which is absolute
and unconditional, to pay the principal of, and interest on, this Debenture at
the time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture and all other Debentures now or hereafter issued of similar terms are
direct obligations of SUAC.
6. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of SUAC or any successor
4
<PAGE>
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
7. If SUAC merges or consolidates with another corporation or sells or
transfers all or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, SUAC and any such successor,
purchaser or transferee agree that the Debenture may thereafter be converted on
the terms and subject to the conditions set forth above into the kind and amount
of stock, securities or property receivable upon such merger, consolidation,
sale or transfer by a holder of the number of shares of Common Stock into which
this Debenture might have been converted immediately before such merger,
consolidation, sale or transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable. In the event of any proposed merger,
consolidation or sale or transfer of all or substantially all of the assets of
SUAC (a "Sale"), the Holder hereof shall have the right to convert by delivering
a Notice of Conversion to SUAC within fifteen (15) days of receipt of notice of
such Sale from SUAC. In the event the Holder hereof shall elect not to convert,
SUAC may prepay all outstanding principal and accrued interest on this
Debenture, less all amounts required by law to be deducted, upon which tender of
payment following such notice, the right of conversion shall terminate.
8. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
9. This Debenture shall be governed by and construed in accordance with
the laws of the State of Delaware for contracts to be wholly performed in such
state and without regard to the principles thereof regarding the conflict of
laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of Wilmington or the state courts
of the State of Delaware sitting in the City of Wilmington in connection with
any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on FORUM
NON COVENIENS, to the bringing of any such proceeding in such jurisdictions.
5
<PAGE>
10. The following shall constitute an "Event of Default":
a. SUAC shall default in the payment of principal or interest
on this Debenture and such default shall remain unremedied
for ten (10) business days after SUAC has been notified of
the default in writing by a Holder; or
b. Any of the representations or warranties made by SUAC
herein, in the Merger Agreement, or in any certificate or
financial or other written statements furnished by SUAC in
connection with the execution and delivery of this
Debenture or the Merger Agreement shall be false or
misleading in any material respect at the time made; or
c. SUAC fails to issue shares of Common Stock to the
Holder or to cause its Transfer Agent to issue shares
of Common Stock upon exercise by the Holder of the
conversion rights of the Holder in accordance with the
terms of this Debenture, fails to transfer or to cause
its Transfer Agent to transfer any certificate for
shares of Common Stock issued to the Holder upon
conversion of this Debenture and when required by
this Debenture or the Registration Rights Agreement,
or fails to remove any restrictive legend or to cause its
Transfer Agent to transfer on any certificate or any
shares of Common Stock issued to the Holder upon
conversion of this Debenture as and when required by
this Debenture, the Merger Agreement or the Registration
Rights Agreement and any such failure shall continue
uncured for five (5) business days after SUAC has been
notified of such failure in writing by Holder; or
d. SUAC shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of SUAC under this Debenture and
such failure shall continue uncured for a period of thirty
(30) days after written notice from the Holder of such
failure; or
e. SUAC shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for
the benefit of creditors or commence proceedings for its
dissolution; or (3) apply for or consent to the
appointment of a trustee, liquidator or receiver for its
or for a substantial part of its property or business; or
f. A trustee, liquidator or receiver shall be appointed for
SUAC or for a substantial part of its property or business
without its consent and shall not be discharged within
ninety (90) days after such appointment; or
g. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of SUAC
and shall not be dismissed within ninety (90) days
thereafter; or
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<PAGE>
h. Any unappealable money judgment, writ or warrant of
attachment, or similar process in excess of Two Hundred
Thousand ($200,000) Dollars in the aggregate shall be
entered or filed against SUAC or any of its properties or
other assets and shall remain unpaid, unvacated, unbonded
or unstayed for a period of ninety (90) days or in any
event later than five (5) days prior to the date of any
proposed sale thereunder; or
i. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or against SUAC and, if instituted
against SUAC, shall not be dismissed within ninety (90)
days after such institution or SUAC shall by any action or
answer approve of, consent to, or acquiesce in any such
proceedings or admit the material allegations of, or
default in answering a petition filed in any such
proceeding;
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
11. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of SUAC, unless and to
the extent converted in accordance with the terms hereof.
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<PAGE>
12. Immediately after the Merger, UST shall be replaced for SUAC each and every
time the name appears herein and all obligations of SUAC herein shall be deemed
assumed by UST and this Form of Debenture shall be replaced by a new Form of
Debenture naming UST as the Maker hereunder.
IN WITNESS WHEREOF, SUAC has caused this instrument to be duly executed
by an officer thereunto duly authorized.
Dated: 4/3/98 , 1998
SSGI-UST ACQUISITION CORPORATION
By: /s/ PETER S. STEELE
________________________________
Peter S. Steele
___________________________________
(Print Name)
President
___________________________________
(Title)
AGREED AND ACCEPTED BY U.S.
TECHNOLOGIES, INC. & PETER S. STEELE,
PRESIDENT OF U.S. TECHNOLOGIES, INC.
/s/ PETER S. STEELE
___________________________________
Peter S. Steele
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<PAGE>
EXHIBIT "A"
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________
of the principal and interest amount of the above Debenture No. ___ into shares
of Common Stock of SSGI-UST ACQUISITION CORPORATION (the "Company") according to
the conditions hereof, as of the date written below. In converting the Debenture
No. ______________, the undersigned hereby confirms and acknowledges that the
shares of Common Stock are being acquired solely for the account of the
undersigned and not a nominee for any other party, and that the undersigned will
not offer, sell or otherwise dispose of any such shares of Common Stock, except
under circumstances that will not result in a violation of the Securities Act of
1933, as amended.
Date of Conversion*
_____________________________________________________________
Applicable Conversion Price
____________________________________________________
Signature
______________________________________________________________________
[Name]
Address:
______________________________________________________________________
______________________________________________________________________
* This original Debenture and Notice of Conversion must be received by SSGI-UST
ACQUISITION CORPORATION by the third business date following the Date of
Conversion.
Exhibit 2(G)
GENERAL SECURITY AGREEMENT
THIS AGREEMENT, made this ____ day of March, 1998, by and between U.S.
TECHNOLOGIES, INC., a Florida Corporation, and SSGI-UST ACQUISITION CORPORATION,
a Florida Corporation (hereinafter individually and collectively referred to as
"Debtor") and STRATEGIC SOLUTIONS GROUP, INC., a Delaware Corporation
(hereinafter referred to as "Secured Party").
WITNESSETH:
WHEREAS, Debtor is duly indebted to Secured Party in the principal
amount of Nine Hundred Twenty-Seven Thousand ($927,000.00) Dollars, or as
increased pursuant to the Secured Subordinated Debenture ("Debenture" of even
date herewith), evidenced by the Debenture and incorporated herein by reference
(the "Obligation");
WHEREAS, Secured Party desires to secure the Debtor's payment of the
Obligation taking a security interest in all of Debtor's property.
NOW, THEREFORE, intending to be legally bound by this Agreement, Debtor
and Secured Party mutually covenant and agree as follows:
1. SECURITY INTEREST. Debtor hereby grants and conveys to Secured Party
a subordinated security interest in and lien upon the Collateral (as hereinafter
defined), all in accordance with the provisions of the Uniform Commercial Code
as enacted in the State of Florida (the "UCC"). Such security interest is
granted as security for the payment of all amounts due by Debtor to Secured
Party.
2. COLLATERAL. For purposes of this agreement, "Collateral" shall be
defined
<PAGE>
to include all of the assets of Debtor, including Debtor's interest in
Titlelink, and the substitution therefor and proceeds thereof.
3. DEBTOR'S WARRANTIES, REPRESENTATIONS AND AGREEMENTS. The Debtor
represents and warrants to Secured Party and agrees that:
(a) Except for the security interest herein granted and the
secured interest granted to the Secured Party to become a $600,000 indebtedness,
Debtor is the owner of the Collateral free from any adverse lien, security
interest or encumbrance; no financing statement covering any of the Collateral
or any proceeds therefor is on file in any public office; and the Debtor will
defend the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein;
(b) The Collateral is and will be used for business purposes;
(c) The offices where Debtor keeps the Books and Records (as
defined in subparagraph 3(d) below) relating to the Collateral is the business
address of Debtor, and Debtor shall not remove the Books and Records or keep
them at any other place without giving Secured Party thirty (30) days prior
written notice thereof;
(d) Debtor shall keep complete and accurate Books and Records
(as used herein, the term "Books and Records" shall be defined to include all
books of original and final entry, including computer programs, software, stored
material and data banks associated with or arising out of Debtor's business or
recordkeeping) and make all necessary entries therein to reflect the quantities,
costs, value and location of the Collateral. Debtor agrees to mark its Books and
Records in such fashion as to indicate the security interest granted to Secured
Party herein. Debtor shall permit
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<PAGE>
Secured Party, its employees and agents, to have access during regular business
hours to all of Debtor's Books and Records and any other records pertaining to
Debtor's business which Secured Party may request, and shall cause all persons
including computer service bureaus, bookkeeping services, accountants and the
like, to make all such Books and Records available to Secured party, its
officers, employee and agents and, if deemed necessary by Secured Party in
Secured Party's sole discretion, permit Secured Party, its officers, employees
and agents to duplicate, at Debtor's expense, the Books and Records at Debtor's
place of business or any other place where they may be found. Secured Party's
right to inspect and duplicate Debtor's Books and Records shall be enforceable
at law by action of replevin or by any other appropriate remedy at law or in
equity, but shall not entitle Secured Party to inspect and duplicate Debtor's
Books and Records more frequently than two times during any calendar year.
(e) The Collateral is and will be kept at the business
location of Debtor. If Debtor removes any of the Collateral from such locations,
or changes the location of its business, Debtor will give to Secured Party prior
written notice of such intended removal or change, as well as of Debtor's intent
to close its business or to establish any new locations;
(f) Debtor shall immediately notify Secured Party in writing
of any event causing deterioration, loss or depreciation in value of the
Collateral and the amount of such loss or depreciation. Debtor shall permit
Secured Party, its officers, employees and agents, access to the Collateral
during normal business hours from time to time, as and when requested by Secured
Party, but no more frequently than two times during any twelve month period, for
the purposes of examination, inspection and appraisal hereof and verification of
Debtor's Books and Records
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<PAGE>
pertaining thereto. Debtor will promptly notify Secured Party in writing if
there is any change in the status of any Collateral.
(g) Debtor will not sell, exchange, lease, rent or otherwise
dispose of any of the Collateral or of any Debtor's rights therein, other than
in the ordinary course of Debtor's business, without the prior written consent
of Secured Party;
(h) Until the occurrence of an Event of Default (as this term
is defined below), Debtor may use the Collateral in any lawful manner not
inconsistent with this Agreement or other agreements referred to herein or with
the terms and condition of any policy of insurance thereon;
(i) No Event of Default has occurred and no event has occurred
which, with the passage of time or the giving of notice or both, could be an
Event of Default hereunder;
(j) Debtor will notify the Secured Party in writing prior to
beginning to engage in business in any corporate or fictitious name other than
its present corporate name;
(k) Debtor will not use the Collateral in violation of any
federal, state or local statute or ordinance;
(l) Except for the security interest granted to Secured Party
to secure a $600,000 indebtedness and except for Senior Indebtedness described
in the Debenture, Debtor will not hereafter grant a security interest in the
Collateral to any person, firm or corporation until such time as Debtor has paid
the Obligation in full to Secured Party and Secured Party has terminated this
Agreement;
(m) If any of the Collateral or any of Debtor's Books and
Records are at any time to be located on premises leased by Debtor or on
premises owned by Debtor subject to a mortgage or other lien, Debtor shall
obtain and deliver or cause to be delivered to Secured Party prior to
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<PAGE>
delivery of any Collateral or Books and Records concerning the Collateral to
said premises, an agreement, in form satisfactory to Secured Party, waiving the
landlord's, mortgagee's or lienholder's rights to enforce any claim against
Debtor for moneys due under the landlord's lien, mortgagee's mortgage or other
lien by levy of distraint or other similar proceeding against the Collateral or
Debtor's Books and Records and assuring Secured Party's ability to have access
to the Collateral and Debtor's Books and Records in order to exercise Secured
Party's rights to take possession thereof and to remove them from such premises;
4. TERM. This Agreement shall be effective as of the date first above
written and shall continue in effect until such time as the Obligation is
satisfied in full or this Agreement is otherwise terminated whichever is
earlier.
5. USE OF COLLATERAL; CASUALTY. Until the occurrence of an Event of
Default, Debtor may use the Collateral in the course of its business.
6. EVENT OF DEFAULT. The occurrence of any one or more of the following
shall be an "Event of Default" hereunder:
(a) The failure of Debtor at any time to observe or perform
any of its warranties, representations or agreements contained in this
Agreement, and upon notice of such failure by Secured Party, Debtor does not
cure such failure within ten (10) days of its mailing of notice by Secured
Party;
(b) Debtor's default under the terms of the Obligation, or;
(c) The subjection of the Collateral or any rights therein to
or the threat of any judicial process, or forfeiture proceedings.
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<PAGE>
7. SECURED PARTY'S RIGHTS AND REMEDIES. Upon or after the occurrence of
any Event of Default, Secured Party may do any or all of the following, all of
which rights and remedies shall be cumulative and any and all of which may be
exercised from time to time and as often as Secured Party shall deem necessary
or desirable:
(a) Exercise any and all rights, privileges and remedies available to
Secured Party under this Agreement, the Obligation, and of a secured party under
the UCC, or any other applicable law, including without limitation the right to
require the Debtor to assign the Collateral to Secured Party;
(b) Notify account debtors to make all payments directly to Secured
Party;
(c) Cure any default in any reasonable manner and add the costs of any
such cure to the amount due under the Obligation and accrue interest thereon at
the prime rate then being charged by Wilmington Trust, Wilmington, Delaware;
(d) Retain all of Debtor's Books and Records;
(e) Upon five (5) days prior written notice to Debtor, which notice
Debtor acknowledges is sufficient, proper and commercially reasonably, Secured
Party may sell, or otherwise dispose of the Collateral, at any time and from
time to time, in whole or in part, at public or private sale, without
advertisement or notice of sale, all of which are hereby waived and apply the
proceeds of any such sale:
(i) first, to the expenses of Secured party in
preparing the Collateral for sale, selling and the like, including without
limitation reasonably attorneys' fees and expenses incurred by Secured Party
(including fees and expenses of any litigation incident to any of the
foregoing);
(ii) second, to the payment in full of all sums owing
to Secured Party
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<PAGE>
under the Obligation; and
(iii) any excess shall be paid to Debtor. The waiver
of any Event of Default, or Secured Party's failure to exercise any right or
remedy hereunder, shall not be deemed a waiver of any subsequent Event of
Default or of the right to exercise that or any other right or remedy available
to Secured Party.
8. MISCELLANEOUS. The rights and privileges of Secured Party under this
Agreement shall inure to the benefit of its endorsers, successors and assigns.
All representations, warranties and agreements of Debtor contained in this
Agreement shall survive this Agreement. If any provision of this Agreement shall
for any reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof, but this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein. This Agreement shall be construed with and under the laws of
the State of Florida.
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<PAGE>
9. NOTICES. All notices, requests, demands, deliveries and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if mailed, postage prepaid, by registered or certified mail, return
receipt requested to the parties at their current addresses or at such other
address as may be designated in writing by a party hereto.
IN WITNESS WHEREOF, Debtor and Secured Party have caused this Security
Agreement to be duly executed and sealed as of the day and year first above
written.
Attest: U.S. TECHNOLOGIES, INC., Debtor
S/PETER S STEELE By: S/PETER S. STEELE
__________________________ ___________________________
Peter S. Steele, Secretary Peter S. Steele, President
Attest: SSGI-UST ACQUISITION CORPORATION,
Debtor
S/PETER S. STEELE By: S/PETER S. STEELE
__________________________ ___________________________
Peter S. Steele, Secretary Peter S. Steele, President
STRATEGIC SOLUTIONS GROUP, INC.,
Secured Party
S/JOHN J. CADIGAN By: S/JOHN J. CADIGAN
__________________________ ____________________________
John J. Cadigan, Secretary John J. Cadigan, President
8
Exhibit 2(H)
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of March 20,
1998, is made by and between SSGI-UST ACQUISITION CORPORATION, a Florida
corporation ("the Company") and STRATEGIC SOLUTIONS GROUP, INC., a Delaware
corporation (the "Holder").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Agreement and Plan of Merger ("the Agreement") together with the Form of
Debenture (the "Debenture") of even date herewith between the Holder and the
Company, the Company has agreed to issue to the Holder one or more 6.0%
Convertible Debentures of the Company, in an aggregate principal amount of
$927,000.00 (subject to adjustment as set forth in the Debenture) plus shares of
Common Stock, 0.01 par value, of the Company valued at $500,000 on the date of
delivery (such that SSGI will own 100,000 shares of UST Common Stock immediately
following the merger)(the "Shares");
WHEREAS, the Debenture is convertible into shares of stock of
the Company, at the option of the Holder upon the terms and subject to the
conditions of the Debenture; and
WHEREAS, to induce the Holder to execute and deliver the
Agreement, the Debenture and the Shares, the Company, its successor or assign
have agreed to provide certain registration rights under the Securities Act of
1933, as amended, and the rules and regulations thereunder, or any similar
successor statute (collectively, the "Securities Act"), with respect to the
Registrable Securities; and
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Holder hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Holder" means Strategic Solutions Group, Inc. and
any permitted transferee or assignee who agrees to become bound by the
provisions of this Agreement in accordance with Section 10 hereof.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
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(iii) "Registrable Securities" means (i) the Common Stock of
the Company registered in the name of the Holder, (ii) the Common Stock of the
Company issuable to the Holder upon the conversion of the Debenture at the
option of the Holder, and (iii) any securities issued or to be issued with
respect to the securities referred to above by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when they
have been (a) effectively registered under the 1933 Act and disposed of in
accordance with the registration statement covering them, or (b) transferred
pursuant to Rule 144 (or any similar provision then in force).
(iv) "Registration Expenses" means all expenses incident to
the Company's performance of or compliance with this Registration Rights
Agreement, including without limitation all registration and filing fees, fees
and expenses in compliance with securities and blue sky laws, printing expenses,
messenger and delivery expenses, expenses and fees for listing the securities to
be registered on exchanges or electronic quotation systems on which similar
securities issued by the Company are then listed, and fees and disbursements of
counsel for the Company and of all independent certified public accountants,
underwriters and other persons retained by the Company.
(v) "Registration Statement" means a registration statement of
the Company under the Securities Act.
2. DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION.Following the first anniversary of the
date hereof and further provided a sale is not authorized under Rule 144 of the
Securities Act, the Holder and such other holders holding in the aggregate at
least 50% of the Registrable Securities may demand registration (a "Demand
Registration") of all or any portion of the Registrable Securities on Form S-3
(or, if Form S-3 is not available, on such other form as may be appropriate
under the federal securities laws) with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Act. In order to accomplish such
demand, such holder shall send written notice of the demand to the Company, and
such notice shall specify the number of Registrable Securities sought to be
registered.
(b) NOTICE TO STOCKHOLDERS. Within ten (10) days after receipt of such
a demand, the Company will give written notice of such requested registration to
all other holders of Registrable Securities and will include in such
registration, subject to the allocation provisions below, all other Registrable
Securities with respect to which the Company has received written requests for
inclusion within fifteen (15) days after the Company's mailing of such notice,
plus any securities the Company chooses to include on its own behalf.
(c) EXPENSES. In a Demand Registration, the Company will pay the
Registration Expenses, but the Underwriting Commissions will be shared equally
by the Company and those
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holders of Registrable Securities whose Registrable Securities are included in
the Demand Registration in proportion to any securities included on their
behalf.
(d) PRIORITY ON DEMAND REGISTRATIONS. If a Demand Registration is
underwritten and the managing underwriters advise the Company in writing that in
their opinion the number of Registrable Securities requested to be included
exceeds the number that can be sold in such offering, at a price reasonably
related to fair value, the Company will include in such Demand Registration (i)
first, the Registrable Securities requested to be included in such Demand
Registration by the Holder; (ii) second, any securities that the Company desires
to include on its own behalf; and (iii) any shares of Common Stock held by any
other stockholder of the Company to whom registration is offered.
(e) SELECTION OF UNDERWRITERS.If any Demand Registration is
underwritten, the selection of investment banker(s) and manager(s) and the other
decisions regarding the underwriting arrangements for the offering will be made
by the Company and the Holder.
(f) CONTEMPORANEOUS DEMAND. If any holder of the Company's securities
that is not a holder of Registrable Securities under this Registration Rights
Agreement exercises demand registration rights to have the Company register its
securities under the Securities Act (a "Non-Stockholder Registration") within a
period of thirty (30) days before or after the time the Holder shall have
requested a Demand Registration, then the Holder's Demand Registration shall
have priority over the Non-Stockholder Registration.
3. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register any
of its securities under the Securities Act, and the registration form to be used
may be used for the registration of Registrable Securities (a "Piggyback
Registration"), the Company will give prompt written notice to the Holder and
will include in such Piggyback Registration all Registrable Securities with
respect to which the Company has received written requests for inclusion within
fifteen (15) days after the Company's mailing of such notice. The Company shall
not select a form of registration statement which imposes, for its use,
limitations on the maximum value or number of securities to be registered if
these limitations would preclude registration of the Registrable Securities that
the Company has been requested to include in such registration.
(b) PIGGYBACK EXPENSES. In all Piggyback Registrations, the Company
will pay the Registration Expenses related to the Registrable Securities, but
the Holder will pay the Underwriting Commissions related to their Registrable
Securities.
4. OBLIGATIONS OF THE COMPANY. Whenever the Holder has requested that
any Registrable Securities be registered pursuant to Section 2 or 3 above, the
Company will, as expeditiously as possible do each of the following:
(a) Prepare promptly, and file with the SEC a Registration Statement
with respect to not less than the number of such Registrable Securities, and
thereafter use its reasonable best efforts to cause each Registration Statement
relating to Registrable Securities to become effective and keep the
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Registration Statement effective at all times until the earliest (the
"Registration Period") of (i) the date when the Holder may sell all Registrable
Securities under Rule 144 or (ii) the date the Holder no longer owns any of the
Registrable Securities, which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
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 in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement as may
be necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the Holder set forth in
the Registration Statement;
(c) The Company shall permit a single firm of counsel designated by the
Holder to review the Registration Statement and all amendments and supplements
thereto a reasonable period of time prior to their filing with the SEC, and not
file any document in a form to which such counsel reasonably objects;
(d) Furnish to the Holder whose Registrable Securities are included in
the Registration Statement and its legal counsel identified to the Company, (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement, and
each amendment or supplement thereto and copies of the prospectus included
therein (including each summary, preliminary, final, amended or supplemented
prospectus) in conformity with the requirements of the Securities Act and copies
of such other documents as the Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Holder;
(e) Use its best efforts to register or qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions in the United States the Holder determines
is reasonably necessary to enable the Holder to consummate the disposition of
the Registrable Securities owned by it in compliance with the laws of such
jurisdiction.
(f) As promptly as practicable after becoming aware of such event,
notify the Holder of the happening of any event of which the Company has
knowledge, as a result of which is included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits 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, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to the Holder as may be reasonably requested;
(g) As promptly as practicable after becoming aware of such event,
notify the Holder who holds Registrable Securities being sold (or, in the event
of an underwritten offering, the managing underwriters) of the issuance by the
SEC of a Notice of Effectiveness or any notice of effectiveness
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<PAGE>
or any stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(h) Cause all of the Registrable Securities covered by the Registration
Statement to be listed or included on securities exchanges on which similar
securities issued by the Company are then listed or included;
(i) Provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(j) Obtain a "comfort" letter addressed to the Company from its
independent public accountants in customary form and covering such matters of
the type customarily covered by "comfort" letters;
(k) Cooperate with the Holder who holds Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Holder may reasonably
request, and, within three (3) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to
the Holder whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel; and
(l) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Holder of the Registrable Securities pursuant to
the Registration Statement.
5. [Reserved.]
6. OBLIGATIONS OF THE HOLDER. In connection with the registration of
the Registrable Securities, the Holder shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of the Holder that the Holder shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of the Registrable Securities held by
it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least ten (10) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify the Holder of the information the Company requires from the Holder
(the "Requested Information") if the Holder elects to have any of the Holder's
Registrable Securities included in the Registration Statement. If at least five
(5) business days prior to the filing date the Company has not received the
Requested Information from the Holder (a "Non-Responsive Holder"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Holder;
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(b) The Holder by such Holder's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless the Holder has notified the Company in writing of
the Holder's election to exclude all of the Holder's Registrable Securities from
the Registration Statement; and
6. INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder who holds such Registrable Securities, the directors, if
any, of such Holder, the officers, if any, of such Holder, each person, if any,
who controls any Holder within the meaning of the Securities Act or the Exchange
Act (each, an "Indemnified Person" or ?Indemnified Party?), against any losses,
claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to clause (b) of this Section 7, the Company shall
reimburse the Holders, promptly as such expenses are incurred and are due and
payable, for reasonable legal fees or other reasonable expenses incurred by them
in connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 7(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of such
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, (II)
be available to the extent such Claim is based on a failure of the Holder to
deliver or cause to be delivered the prospectus made available by the Company;
or (III) apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Each Holder will indemnify the Company and its
officers, directors and agents against any claims arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company, by or on behalf of such Holder, expressly
for use in connection with the preparation of the Registration Statement,
subject to such limitations and conditions as are applicable to the
Indemnification provided by the Company to this Section 7. Such indemnity shall
remain in full
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force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Holders pursuant to Section 10.
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 7 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 7, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel, with the reasonable fees and
expenses to be paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person or Indemnified Party and the indemnifying party would
be inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other person represented by such
counsel in such proceeding. In such event, the indemnifying party shall pay for
only one separate legal counsel for the Indemnified Party or Indemnified Person;
such legal counsel to be selected by the Indemnified Person or Indemnified
Party, (I) subject to the consent of the indemnifying party (which consent shall
not be unreasonably withheld or delayed), and (II) if the Indemnified Parties or
Indemnified Persons are Holders, by the Holders holding a majority in interests
of the Registrable Securities included in the Registration Statement to which
the Claim relates. Except as provided in the immediately preceding sentences, in
case any such action is brought against any Indemnified Person or Indemnified
Party, and it notifies the indemnifying party of the commencement thereof, after
notice from the indemnifying party to such Indemnified Person or Indemnified
Party of the indemnifying person?s election so to assume (alone or with other
indemnifying persons) the defense thereof, the indemnifying party will not be
liable to such Indemnified Person or Indemnified Party under this Section 7 for
reasonable legal or other out-of-pocket expenses subsequently incurred by such
Indemnified Person or Indemnified Party in connection with the defense thereof
other than reasonable costs of investigation, unless the indemnifying party
shall not defend such action to its final conclusion. The Indemnified Person or
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 out-of-pocket
expenses of such counsel shall not be at the expense of the indemnifying party
if the indemnifying party has assumed the defense of the action with counsel
reasonably satisfactory to the Indemnified Person or Indemnified Party. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under this
Section 7, except to the extent that the indemnifying party is prejudiced in its
ability to defend such action. The indemnification required by this Section 7
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
8. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 7 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances
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where the maker would not have been liable for indemnification under the fault
standards set forth in Section 7; (b) no seller of Registrable Securities guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
9. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Holders to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to the Holder so long as such Holder owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Holders to sell such securities pursuant to Rule 144 without registration.
10. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Holders to any transferee of the Registrable
Securities (or all or any portion of any Debenture of the Company which is
convertible into such securities) only if: (a) the Holder agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (b)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, and (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence the transferee or assignee agrees in
writing with the Company to be bound by all of the provisions contained herein
and the Form of Debenture of even date herewith.
11. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and Holders who hold an eighty (80%) percent
interest of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 11 shall be binding upon each Holder and the
Company.
12. MISCELLANEOUS.
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(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return receipt requested,
properly addressed and with proper postage pre-paid to the respective parties as
follows:
If to the Company:
SSGI-UST ACQUISTION CORPORATION
8160 Woodland Business Center
Waters Avenue
Tampa, Florida 33614
Attention: Peter S. Steele
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With a copy to:
Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A.
911 Chestnut Street
Clearwater, FL 34617-1368
Attention: Michael T. Cronin, Esquire
If to Holder:
STRATEGIC SOLUTIONS GROUP, INC.
326 First Street, Suite 100
Annapolis, MD 21403,
Attention: John J. Cadigan
With a copy to:
Palmarella & Sweeney, P.C.
993 Old Eagle School Rd., Suite 415
Wayne, PA 19087
Telecopier No.: (610) 687-8830
Attention: Ernest D. Palmarella, Esquire
If to any other Holder: At such address as such Holder shall have provided in
writing to the Company.
Or at such other address as each such party furnishes by notice given in
accordance with this Section 12(b), and shall be effective, when personally
delivered, upon receipt and, when so sent by registered or certified mail, four
(4) calendar days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Delaware for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws
(e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 10 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
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(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(j) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement thereof.
(k) Neither party shall be liable for consequential damages.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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13. EFFECT OF MERGER.
Immediately after the merger of SUAC with and into UST pursuant to the
Agreement as described in the recitals to this Registration Rights Agreement,
UST shall be replaced for SUAC each and every time the name appears herein and
all obligations of SUAC hereunder shall be deemed assumed by UST.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
ATTEST: SSGI-UST ACQUISTION CORPORATION
/s/ PETER S. STEELE By: /s/ PETER S. STEELE
__________________________ _____________________________
Peter S. Steele, Secretary Peter S. Steele, President
STRATEGIC SOLUTIONS GROUP, INC.
/s/ JOHN J. CADIGAN By: /s/ JOHN J. CADIGAN
__________________________ _____________________________
John J. Cadigan, Secretary John J. Cadigan, President
AGREED TO AND ACCEPTED BY U.S.
TECHNOLOGIES, INC. & PETER S. STEELE,
PRESIDENT OF U.S. TECHNOLOGIES, INC.
/s/ PETER S. STEELE
______________________________
Peter S. Steele
12
Exhibit 10(I)
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment is made this 10th day of February, 1998, to the
EMPLOYMENT AGREEMENT dated September 1, 1995 between STRATEGIC SOLUTIONS
GROUP, INC. (formerly PACIFIC ANIMATED IMAGING CORPORATION), a Delaware
corporation with its principal executive offices at 326 First Street, Suite
100, Annapolis, Maryland 21403 (the "Company"), and JOHN J. CADIGAN, residing
at 287 Longpoint Road, Crownsville, Maryland ("Employee").
WHEREAS, the Company and Employee desire to amend the Employment
Agreement pursuant to a resolution adopted by the Board of Directors at a
special meeting held on February 10, 1998;
WHEREAS, Section 14 permits an Amendment to the Employment Agreement if
in writing and signed by both parties.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained and the sum of $1.00 and other valuable
consideration and intending to be legally bound hereby, the Company and Employee
hereby amend the Employment Agreement as follows:
1. Section 1. Term of Employment. is amended by changing the
Termination Date from August 31, 1998 to August 31, 1999.
2. In all other respects, the EMPLOYMENT AGREEMENT dated
September 1, 1995, together with this AMENDMENT, is ratified, approved and
confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date and year first above written.
Witness: STRATEGIC SOLUTIONS GROUP, INC.
_________________________ By: /s/ A.DAVID ROSSIN
__________________________________________
A. David Rossin for the Board of Directors
EMPLOYEE:
_________________________ By: /s/ JOHN J. CADIGAN
__________________________________________
John J. Cadigan
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Strategic Solutions Group, Inc. (formerly Pacific Animated Imaging Corporation)
on Form S-8 (File Nos. 333-23777, 333-10399, 33-53536, 33-94078, 33-94150,
33-94148, and 33-94062) and Form S-3 (File Nos. 333-20997 and 333-42281) of our
report dated March 27, 1998, except for Note 16 for which the date is April 8,
1998, on our audits of the consolidated financial statements of Strategic
Solutions Group, Inc. as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997 which report is included in this
Annual Report on Form 10-KSB.
COOPERS & LYBRAND, L.L.P.
McLean, Virginia
April 15, 1998
Exhibit 99(M)
PACIFIC ANIMATED IMAGING CORPORATION
INCENTIVE STOCK OPTION PLAN NO. 3
Effective May 22, 1997
<PAGE>
1. Definitions.................................................. 1
-----------
2. Purpose...................................................... 1
-------
3. Administration............................................... 1
--------------
4. Shares Subject to Plan....................................... 2
----------------------
5. Eligible Employees........................................... 2
------------------
6. Restrictions on Eligibility.................................. 2
---------------------------
7. Allotment of Shares.......................................... 2
-------------------
8. Grant of Option.............................................. 2
---------------
9. Option Price................................................. 2
------------
10. Option Period................................................ 3
-------------
11. Termination of Option........................................ 3
---------------------
12. Rights in Event of Termination of Service, Retirement,
------------------------------------------------------
Disability or Death........................................ 3
-------------------
13. Payment and Notice of Exercise............................... 3
------------------------------
14. Exercise of Option........................................... 4
------------------
15. Changes in Capital Structures................................ 4
-----------------------------
16. Nontransferability........................................... 5
------------------
17. Transfers of Stock Received Upon Exercise.................... 5
-----------------------------------------
18. Re-Issuance of Shares........................................ 5
---------------------
19. Interpretation............................................... 5
--------------
20. Term of Plan, Amendment, Discontinuance...................... 5
---------------------------------------
21. Effect of the Plan, etc...................................... 6
------------------------
22. Governing Law................................................ 6
-------------
<PAGE>
PACIFIC ANIMATED IMAGING CORPORATION
------------------------------------
INCENTIVE STOCK OPTION PLAN NO. 3
---------------------------------
1. Definitions. As used herein, the following terms shall have
the following meanings:
(a) "Board" shall mean the Board of Directors of Pacific
Animated Imaging Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended. Reference herein to specific sections of the Code shall include
references to any successor provisions to such sections.
(c) "Committee" shall mean the committee appointed by the
Board pursuant to Section 3. of this Plan to administer this Plan.
(d) "Company" shall mean Pacific Animated Imaging Corporation
and its subsidiaries, if any.
(e) "Effective Date" shall mean the date this Plan is approved
by the stockholders of Pacific Animated Imaging Corporation, as provided in
Section 19. hereof.
(f) "Option Period" shall mean the period during which an
option granted under this Plan shall be exercisable, as set forth in Section 10.
hereof.
(g) "Subsidiary", for purposes of this Plan, shall mean any
corporation (or similar organization) of which the Company owns, directly or
indirectly, more than 50% of the total voting power of all classes of stock
entitled to vote therein.
2. Purpose. The purpose of this Plan is to increase the interest
in the welfare of the Company of those employees of the Company who have made
valuable contributions to the business of the Company, to furnish such employees
with an incentive to continue their services to the Company, and to attract able
personnel to the employ of the Company through the grant to such employees of
options to purchase shares of the Company's Common Stock. The Company intends
that options granted pursuant to the provisions of this Plan will qualify as
"incentive stock options" within the meaning of Section 422 of the Code.
3. Administration. This Plan shall be administered by the Board
or a committee (the "Committee") of not less than two (2) members of the Board.
Members of the Committee shall be appointed, and vacancies shall be filled, by
the Board. No member of the Board or Committee shall participate in any action
by the Board or Committee which allots or grants options to him/her personally.
<PAGE>
4. Shares Subject to Plan. Options may be granted from time to
time under this Plan providing for the purchase of not more than eighty thousand
(80,000) shares of the common stock, par value $.0001 per share, of the Company
("Common Stock"), as constituted on the Effective Date (subject to adjustment
pursuant to Section 15.), plus such number of such shares as may become
available for reissuance pursuant to Section 17. Shares of authorized and
unissued Common Stock reacquired by the Company and held in its Treasury, as
from time to time determined by the Board, may be issued upon exercise of
options granted under this Plan.
5. Eligible Employees. Except as provided in Section 6. hereof,
employees of the Company who are designated by the Board or the Committee shall
be eligible to be granted options under this Plan. Said designated employee
shall hereinafter be referred to as "Participant".
6. Restrictions on Eligibility. No option shall be granted under
this Plan to any employee who, immediately before the option is granted, owns
stock possessing more than ten (10%) percent of the total combined voting power
of all classes of stock of (i) the Company or (ii) any of the Company's
subsidiaries (within the meaning of Section 422(b)(6) of the Code and the
Treasury Regulations thereunder), unless (a) at the time of such grant the
option price is at least one hundred ten (110%) percent of the fair market value
of the shares represented by such option on that date, and (b) such option is
not exercisable after the expiration of five (5) years from the date of grant.
7. Allotment of Shares. The grant of an option to an eligible
employee under this Plan shall not be deemed either to entitle such employee to,
or to disqualify such employee from, participation in any other grant of options
under this Plan.
8. Grant of Option. Except as otherwise provided in Section 6.,
options may be granted under this Plan from time to time prior to the expiration
of ten (10) year period commencing with the Effective Date. The aggregate fair
market value (determined as of the date such options are granted) of the stock
with respect to which incentive stock options are exercisable for the first time
by such Participant in any calendar year under all stock option plans of the
Company and its subsidiaries shall not exceed one hundred thousand ($100,000)
dollars, or such other amount as may be specified from time to time in Section
422(b)(7) of the Code. Grants under this Plan shall be made only by resolution
adopted by Board or the Committee. The grant of an option under this Plan shall
commence to have legal force and effect at the time of adoption by the Board or
the Committee of the resolutions making the grant, and the employee to whom such
option is granted shall become a Participant in this Plan at such time.
9. Option Price. Except as otherwise provided in Section 6., the
price at which the Common Stock may be purchased upon the exercise of an option
granted under this Plan shall be fixed by the Board or the Committee but shall
be not less than the fair market value of such shares on the date on which the
option is granted. The fair market value of such shares shall be determined in
2
<PAGE>
accordance with the provisions of the Code and Treasury Regulations promulgated
thereunder.
10. Option Period. Subject to the provisions of Section 14.
below, an option granted under this Plan may be exercised during the period (the
"Option Period") which begins on the date the option is granted (or such other
time as may be determined by the Committee as set forth in the resolutions
evidencing the grant of the option) and which ends
(a) on the earlier of
(i) the expiration of 10 years (5 years in the
case of an employee described in Section 6.) after the date the option is
granted; or
(ii) the termination of the Participant's
employment with the Company (within the meaning of Section 422(a)(2) of the
Code) for any reason except as provided in Section 12. of this Plan; or
(b) such shorter period of time as may be determined by the
Board or the Committee, as set forth in the resolution evidencing the grant of
the option.
11. Termination of Option. All rights to exercise an option
granted under this Plan shall terminate at the end of the Option Period, as
described in Section 10. above.
12. Rights in Event of Termination of Service, Retirement,
Disability or Death. If a Participant terminates service with the Company,
retires from the Company on or after attainment of age 65, has his/her
employment by the Company terminated due to disability (within the meaning of
Section 22(e)(3) of the Code, as determined by the Board or the Committee) or
dies without having fully exercised an option granted under this Plan, the
Participant, his/her representative or custodian (in the event of his/her
incompetency), or the executors, administrators, legatees or distributees of
his/her estate (in the event of his/her death) shall have the right, for a
period of three (3) months after the date of his/her termination of service,
retirement or death or for a period of one (1) year after the date of his/her
termination of employment due to disability, to exercise the unexercised and
unexpired portion, if any, of such option, in whole or in part, to the same
extent that the Participant could have exercised such option before the
expiration of such three-month or one-year period had the Participant continued
to be an employee of the Company.
13. Payment and Notice of Exercise. Full payment of the purchase
price for shares purchased upon the exercise, in whole or in part, of an option
granted under this Plan shall be made at the time of such exercise. The purchase
price may be paid for with cash, stock in the Company, or a combination thereof.
No such shares shall be issued or transferred to a Participant until full
payment therefor has been made and the Participant has delivered his/her written
Notice of Exercise of the respective options to the Company at its principal
office, and a Participant who is not already a
3
<PAGE>
stockholder at the time of the issue shall have none of the rights of a
stockholder until shares are issued or transferred to him/her.
14. Exercise of Option. No option under this Plan shall be
exercisable at any time by a Participant to whom an "incentive stock option" (as
such term is defined in Section 422 of the Code) has previously been granted
prior to December 31, 1986 while such previously granted incentive stock option
is "outstanding" (within the meaning of Section 422 of the Code), in whole or in
part. Unless the Board or Committee otherwise directs, options granted hereunder
shall be exercisable by a Participant pursuant to the Vesting Formula defined
below, provided the Participant is employed by Company on the Allocation Dates
as defined below. On the original date of grant the Participant shall have the
right to purchase as much as twenty (20%) percent of the shares of Common Stock
which are the subject of his/her option. On the first anniversary of the
original date of grant and on the second, third and fourth anniversary of the
original date of grant thereafter, Participant shall have the right to purchase
as much as an additional twenty (20%) percent of the shares of Common Stock
which are the subject of his/her option. As of the fourth anniversary of the
original date of grant, Participant shall have given the right to purchase one
hundred (100%) percent of the shares of Common Stock which are the subject of
his/her option. The Allocation Dates are the above mentioned four (4)
anniversary dates of the original date of grant. Options granted under this Plan
shall otherwise be exercisable during the Option Period at such times, in such
amounts, in accordance with such terms and conditions, and subject to such
restrictions as may be determined by the Board or Committee, and as are set
forth in the resolutions and the Notice of Grant evidencing a Participant's
exercise of such options. In no event shall an option be exercised or shares be
issued pursuant to an option if any applicable laws shall not have been
conformed with or if requisite approval or consent of any governmental authority
having jurisdiction over the exercise of the options or the issue and sale of
the Common Stock shall not have been secured, unless in the opinion of counsel
for the Company, the exercise or issuance is exempt from the obligation to
obtain such approval or consent. Each Participant shall agree not to offer,
sell, pledge, hypothecate or otherwise transfer any shares of Common Stock
purchased pursuant to the exercise of an option granted under this Plan unless
the shares have been registered under applicable federal and state securities
laws or unless the proposed transaction is exempt from such registration in the
opinion of counsel for the Company. Each Participant shall, at the time of
purchase of shares of Common Stock upon the exercise of an option, if requested
by the Company upon advice of its counsel that the same is necessary or
desirable, deliver to the Company his/her written representation that he/she is
purchasing the shares for his/her own account for investment and not with a view
to public distribution or with any present intention of reselling any of such
shares, and deliver such other written representations as may be reasonably
requested by the Company to assure compliance with applicable laws. If a
Participant so requests, shares purchased upon the exercise of any option may be
issued in or transferred into the name of the Participant and another person
jointly with right of survivorship.
15. Changes in Capital Structures. In the event of the payment of
any dividend payable in, or the making of any distribution of, Common Stock of
the Company to holders of record of Common Stock of the Company, which increases
the outstanding Common Stock of the Company
4
<PAGE>
by more than twenty-five (25%) percent during the period any option granted
under this Plan is outstanding or in the event of any stock split, combination
of shares, recapitalization or other similar change in the authorized capital
stock of the Company during such period or in the event of the merger or
consolidation of the Company into or with any other corporation or the
reorganization, dissolution, liquidation or winding up of the Company during
such period, Participants shall be entitled, upon the exercise of any
unexercised option held by them, to receive such new, additional or other shares
of stock of any class, or other property (including cash), as they would have
been entitled to receive as a matter of law in connection with such payment,
distribution, stock split, combination, recapitalization, as the case may be,
had they held the shares of the Common Stock being purchased upon exercise of
such option on the record date set for such payment or distribution or on the
date of such stock split, combination, recapitalization, change, merger,
consolidation, reorganization, dissolution or liquidation, and the option price
under any such option shall be appropriately adjusted. In case any such event
shall occur during the term of this Plan, the number of shares that may be
optioned and sold under this Plan as provided in Section 4. shall be
appropriately adjusted. The decision of the Board or the Committee, with respect
to all such adjustments shall be conclusive.
16. Nontransferabiltiy. Options granted under this Plan shall not
be transferable other than by will or by the laws of descent and distribution,
and shall be exercisable only by the Participant or by Participant's heirs or
personal representatives in accordance with Section 12. of this Plan.
17. Transfers of Stock Received Upon Exercise. Pursuant to
423(a) of the Code, there shall be no income tax consequences incurred upon the
grant of an option or upon the exercise of an option, provided, a Participant
who has received stock pursuant to exercise of an option to purchase Common
Stock, does not dispose of such shares of stock for a period of 2 years from the
date of the grant of the option or for a period of 1 year from the date of
transfer of such stock to Participant, whichever is later.
18. Re-Issuance of Shares. Any shares of Common Stock which, by
reason of the expiration of an option or otherwise, are no longer subject to
purchase pursuant to an option granted under this Plan shall be available for
re-issuance under this Plan.
19. Interpretation. The Board or the Committee shall interpret
this Plan and prescribe, amend or rescind rules and regulations relating to it
and make any and all other determinations necessary or advisable for its
administration.
20. Term of Plan, Amendment, Discontinuance. This Plan shall be
or has been submitted for approval by the holders of at least a majority of the
shares called for that purpose within twelve months before or after adoption of
the Plan by the Board. Upon stockholder approval, the Plan shall be deemed
effective and adopted as of such date. This Plan, unless sooner terminated or
discontinued by the Board pursuant to this Section 19., shall expire on the
tenth anniversary of the Effective Date (except to the extent necessary for
administration of options exercisable but unexercised on that date), and no
options shall be granted under this Plan after that date. The Board may
terminate
5
<PAGE>
or discontinue this Plan at any time and may suspend this Plan or amend or
modify this Plan in any respect at any time or from time to time, without the
approval of the stockholders, except that the number of shares of Common Stock
that may be optioned and sold under this Plan, as provided in Section 4., above,
may not be changed (except pursuant to Section 15., above) and the class of
eligible employees to whom options may be granted, as provided in Sections 5.
and 6. above, may not be modified without the approval of the stockholders of
the Company and the Board or the Committee. No action of the Board, the
Committee or stockholders may alter or impair the rights of a Participant under
any option theretofore granted to him/her without his/her consent to such
action.
21. Effect of the Plan, etc. Neither the adoption of this Plan
nor any action of the Board or Committee, shall be deemed to give any employee
any right to be granted an option to purchase Common Stock of the Company or any
other rights hereunder unless and until the Board or Committee shall have
adopted a resolution granting such employee an option, and then only to the
extent and on such terms and conditions as may be set forth in such resolution;
the terms and conditions of options granted under this Plan may differ from one
another as the Board or Committee shall at its discretion determine, as long as
all options granted under the Plan satisfy the requirements in this Plan.
Date Adopted by Board: January 30, 1997
Date Approved by Shareholders: May 22, 1997
Effective Date: May 22, 1997
22. Governing Law. The validity, construction, interpretation and
effect of this instrument shall exclusively be governed by and determined in
accordance with the laws of the State of Delaware, except to the extent
preempted by federal law, which shall to such extent govern.
6
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<ARTICLE> 5
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,149,372
<SECURITIES> 0
<RECEIVABLES> 741,841
<ALLOWANCES> 75,000
<INVENTORY> 0
<CURRENT-ASSETS> 137,618
<PP&E> 1,058,313
<DEPRECIATION> 701,390
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<BONDS> 1,487,864
0
0
<COMMON> 177
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<TOTAL-LIABILITY-AND-EQUITY> 3,756,820
<SALES> 4,791,823
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<CGS> 3,527,089
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