U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to __________
COMMISSION FILE NUMBER 1-11568
TADEO HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4228470
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
5 HANOVER SQUARE - 24TH Floor
New York, New York 10004
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 271-8511
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
Check 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, AND (2) HAS BEEN SUBJECT TO SUCH FILINGS REQUIREMENTS FOR
THE PAST 90 DAYS. YES X No ___
Check if there is no disclosure of delinquent filers in response to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. X
The aggregate market value of the voting stock held by non-affiliates for
the issuer as of September 15, 1999 was $ 17,483,928.
The number of shares outstanding of the issuer's Common Stock, $.0001 par
value, as of September 15, 1999 was 15,848,529.
Documents incorporated by reference: None
PART I
ITEM 1. BUSINESS
PRIOR OPERATIONS
Tadeo Holdings, Inc. ("Tadeo" or the "Company"), incorporated in Delaware
on May 27, 1989 as Universal Self Care, Inc. and changed its name to Tadeo
Holdings, Inc. on February 2, 1998. Prior to the Company's acquisition of
Astratek and the creation of Tadeo E-Commerce, the Company supplied and
distributed both prescription and non-prescription medications and durable
medical equipment and supplies principally to persons suffering from diabetes.
On January 28, 1998, the Company sold its operating assets and the stock of
its two principal operating subsidiaries, Diabetes Self Care, Inc. ("Diabetes")
and USCI Healthcare Management Solutions, Inc. ("HMS"), to Gainor Medical
Management, LLC, a privately held Georgia company ("Gainor"), for a gross
purchase price of $34 million in cash, as reduced by $8,725,226 of specified
liabilities of the Company, and $17,000,000 by the delivery of a Gainor
convertible subordinated promissory note (the "Note"). Out of the cash received
at closing, the Company satisfied an aggregate of $4,451,136 in liabilities to
permit the required transfer of assets to Gainor free and clear of encumbrances.
The Note bore interest at a simple rate of 7% per annum through December 31,
1998 and 8% thereafter until payment in full of the principal balance no later
than January 28, 2003. Prior to its maturity, the Note was convertible into
equity securities of Gainor, at the election of the Company, upon the successful
completion of a public offering of such equity securities by Gainor, subject to
certain restrictions. The Company's stockholders approved the sale of its
business at their Annual Meeting held on January 26, 1998 in Livonia, Michigan,
at which time they also approved an amendment to the Company's certificate of
incorporation changing its name to Tadeo Holdings, Inc. The sale of the
Company's operating business to Gainor shall hereinafter be referred to as the
"Transaction".
In addition to offsets for customary indemnification's under the Asset
Purchase Agreement among the parties, dated November 14, 1997, the principal
amount of the Note was subject to reduction in the event that (i) such principal
amount did not equal at least 75% of Gainor's revenues from operation of
Diabetes during calendar 1998, in which event the Note would be reduced by the
difference between 75% of such revenues and $17,000,000, (ii) Gainor would not
able to collect at least $5.75 million from the accounts receivable sold to
Gainor as part of the Transaction during the one-year period succeeding the
closing, in which event the Note would be reduced by the difference between
$5.75 million and the amount of receivables actually collected, and (iii) prior
to July 28, 1998 fewer than 3,334 former customers of PCS, Inc. - West will be
customers of Gainor, in which event the Note would be reduced by $600 for each
former customer of PCS, Inc. - West less than the minimum 3,334 who fails to
transfer to Gainor, up to a maximum amount of $2,000,000.
Prior to the Note's maturity, in April 1999, the Note was prepaid by Gainor
for a cash payment of $9,300,000.
GENERAL
Tadeo is a holding company which, through its two active subsidiaries,
Astratek, Inc. ("Astratek") and Tadeo E - Commerce Corporation ("Tadeo E"), is
involved in (i) the development of computer software products and the provisions
of computer network related services for the management of distributed
client/server networks operating on systems such as Microsoft Windows NT,
through Astratek, and (ii) the provision of consulting, technical and related
services to clients for the development of electronic commerce business on the
Internet, including consulting and development services for the maintenance,
design and enhancement of electronic commerce Internet sites through Tadeo E.
Products and services provided by Astratek have included software solutions for
systems management, Year 2000 compliance, security management and network-wide
problem management and resolution.
On October 27, 1998, the Company acquired Astratek, Inc., a New York
corporation, pursuant to a merger of our wholly-owned subsidiary into Astratek
being the surviving corporation and becoming a wholly-owned subsidiary of Tadeo.
On May 25, 1999, the Company incorporated Tadeo E - Commerce Corporation in
Delaware as a wholly-owned subsidiary of Tadeo to be active in the electronic
commerce industry.
Tadeo is the parent corporation for the following wholly-owned
subsidiaries: Physicians Support Services, Inc., a California corporation
("PSS"); Clinishare Diabetes Centers, Inc. d/b/a SugarFree Centers, Inc.
("SugarFree"), USC-Michigan, Inc. a Michigan corporation and its wholly-owned
subsidiary, PCS, Inc.-West (collectively identified as "Patient Care Services"),
a Michigan Corporation. Depending upon the context, the term "Company" refers to
either Tadeo alone, or Tadeo and one or more of its subsidiaries. The
subsidiaries have discontinued operations.
INDUSTRY OVERVIEW
ASTRATEK, INC.
The use of distributed, client/server networks has grown tremendously in
the last ten years, with the increase in PC-based Local Area Networks ("LANs")
being one of the fastest-growing aspects of the client/server market. These
LANs, largely dependent on servers running network operating systems ("NOS")
provided by companies such as Microsoft, are enabling a new generation of
client/server applications, such as e-mail and group collaboration software such
as Microsoft Exchange and Lotus Notes. As a result, LANs which were originally
intended to be used as relatively simple workgroup systems, have lost their
"local" characteristic and have developed into mission-critical platforms for
enterprise-scale applications. As LANs, and the network operating systems that
support them, have been used to operate mission-critical applications and
services, organizations have become increasingly dependent upon them.
Additionally, we believe that the average number of users supported by these
LANs has been increasing. As LANs have grown larger and technically more
complex, the problems associated with maintaining their security and integrity
have increased and become more difficult for Information Technology ("IT")
departments to manage. As a result, network security and integrity are
increasingly at risk and the Total Cost of Ownership (the initial purchase price
and the ongoing cost of upgrades, maintenance and support) for client/server
computing has often climbed far beyond management's expectations when the
networks were initially installed. Therefore, reducing the Total Cost of
Ownership has become a strategic initiative for many IT organizations, which
have sought systems management software to manage the operations of these
networks, including the diagnosis and remediation of failures in specific
applications that may be distributed across networks. The management challenges
associated with maintaining the security and integrity of LANs include:
SYSTEMS ADMINISTRATION. Systems administrators within IT departments need
to resolve a wide range of issues and problems on a daily basis, including
managing the configuration of network servers, administering users and groups
and managing disk space on critical servers and workstations. Problems such as
these may not be solved quickly, placing the availability of the network at risk
and the use of mission-critical, client/server applications throughout an
enterprise in jeopardy. Additionally, the implementation of new or upgraded NOS
will result in increased strain on an organization's IT resources. Microsoft is
planning to ship a major new release of its NOS by the end of this year. Each
NOS upgrade adds levels of complexity and we believe this will be particularly
true of the next major upgrade of Windows NT.
SECURITY. Computer security breaches are a pervasive and growing problem.
Although many IT organizations have installed firewalls and implemented security
management strategies focusing on preventing "hacking in" from outside the
organization, these efforts do not address the most serious security-related
losses which are the result of unauthorized access by insiders.
YEAR 2000 ASSESSMENT. Although many organizations have focused upon the
mainframe issues of the Year 2000 exposure, the costs of bringing distributed
computing into compliance are now estimated by some sources at as much as nearly
half of the total cost to fix mainframe systems. Year 2000 compliance issues on
the LAN include problems with PC hardware, firmware and applications.
IT departments are faced with conflicting pressures both to: (i) manage
increasing complexity and guarantee better service for users who are demanding
assurance of high productivity and availability and (ii) reduce the Total Cost
of Ownership for client/server computing. Adding to this challenge is a lack of
qualified IT personnel. Pressure to reduce the Total Cost of Ownership and the
increasing difficulty and expense in locating qualified IT personnel has driven
IT management to establish processes and develop or purchase tools to manage IT
assets.
Historically, IT organizations have addressed LAN system management
problems through a combination of manual processes, custom-built tools and
third-party software. Manual processes, such as performing a security audit, an
inventory of network assets or a Year 2000 project assessment are costly,
time-consuming and prone to human error. Many IT organizations custom-build
their own systems management tools. However, these custom-built solutions (i)
are generally developed by costly and hard-to-find programmers, (ii) take time
to develop and thoroughly test, (iii) are frequently designed for a single
purpose and cannot be used for other tasks and (iv) often need to be rewritten
with new versions of the NOS.
Most organizations have purchased at least some third-party software
solutions to manage their networks and are budgeting to purchase more. Many
third-party tools, including traditional "LAN Suites," focus on management of
the desktop, but not on management of the NOS. Most tools that have been
designed for the LAN - including point products for security management, disk
space management and other systems management tasks - were built for managing
single servers or small workgroups, and do not scale to manage efficiently
networks as they grow enterprise-wide to thousands or tens of thousands of
users. Finally, many third-party products can often alert the IT staff that a
problem has occurred but do not provide the diagnostic software to find the root
cause of the problem or fix it. As an organization's dependence upon its LAN
infrastructure increases, its IT department must be able both proactively and
reactively to diagnose and repair its LAN-based computing resources.
As networks have grown, so have the challenges of deploying, upgrading,
managing and changing the configuration of these networks. Organizations seek
software solutions that (i) can quickly and proactively diagnose and fix a wide
range of problems, (ii) are comprehensive in scope and can be used effectively
by a wide range of the organization's existing IT personnel, (iii) scale to
manage large, complex networks, (iv) address the unique aspects of each NOS they
support and (v) can be easily deployed and maintained.
Astratek's mission is: (i) to provide customized professional services to
clients by designing new or altering existing LAN configurations or by
developing customized systems management tools that manage the security and
integrity of the clients' distributed client/server networks as they increase in
size and complexity, and remediate discovered network problems, all of which
leads to reduced Total Cost of Ownership for their enterprise computing, as well
as (ii) to develop, market (either on its own or through third-party
distributors) and support "shrink wrapped" software products that accomplish the
same network management goals.
TADEO E-COMMERCE CORPORATION
The Internet is an increasingly significant global medium for
communications. The increasing functionality, accessibility and overall usage of
the Internet, and online service providers such as America Online and The
Microsoft Network, have made the Internet an attractive commercial medium. The
portion of the Internet known as the Web, which has become almost synonymous
with the Internet as a whole, has experienced the fastest growth and the most
acceptance among ordinary users. Matrix Information and Director Services
currently estimates that total world-wide Internet usage is expected to grow
from 57 million in 1997 to more than 700 million in 2001. According to a report
in ZD Market Intelligence, 53% of all PCs in the United States (workplace and
residential) are connected to the Internet, representing a 35% increase in
connections during 1998. ZD Market Intelligence further reported that in 1998
Internet penetration increased to 30% of all households in the United States,
with a noticeable trend toward longer Internet connection times as more
E-commerce activities are conducted. Growth in Internet usage has been fueled by
a number of factors, including:
<TABLE>
<CAPTION>
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o the availability of a growing number of useful products and services via the Internet;
o the large and growing installed base of personal computers in the workplace and home;
o advances in the performance and speed of personal computers and modems;
o improvements in Internet network infrastructure;
o easier and cheaper access to the Internet; and
o increased awareness of the Internet among businesses and consumers.
</TABLE>
As Internet accessibility, usage and functionality continue to grow, the
Internet is increasingly being used as a medium for direct communication among
users, such as e-mail and bulletin boards, as well as a rapidly growing sales
and marketing channel. A growing number of users has transacted business over
the Web, such as trading securities, buying goods, purchasing airline tickets
and paying bills. According to Nielsen Media Research, as of October 1998, more
than 20% of United States Internet users have made a purchase over the Web. As
E-commerce increases, advertisers and direct marketers are increasingly seeking
to use the Web to locate customers, advertise and facilitate transactions. In an
article published by Cyberatlas, it was reported that online advertising
spending will reach $32 billion in 2005. Rapid escalation in online spending
through 2000, with online spending for 1999 approaching $2 billion, was further
predicted. Moreover, according to the Technology User Profile 1998 Mid-Year
Study by ZD Market Intelligence, Internet penetration increases with higher
household income and education levels, as almost a third of United States
households connected to the Internet has an annual income of $75,000 or greater,
and over a quarter has completed post-graduate studies.
Given the size of the projected number of Internet transactions and the
demographics of existing and projected Internet users, we believe that a large
market exists for the provision of services by companies, like Tadeo E-Commerce,
that have the capacity to design, maintain and operate a commercial presence on
the Internet (through web design, hosting and other arrangements) and to provide
further technical and consulting services related to additional aspects of a
client's electronic commerce operations on the Internet.
CURRENT OPERATIONS
ASTRATEK, INC.
On October 27, 1998 we acquired Astratek, a New York corporation, pursuant
to a merger of our wholly-owned subsidiary into Astratek, with Astratek being
the surviving corporation and becoming a wholly-owned subsidiary of Tadeo.
Astratek began operations in 1995, developing software and related products
for Internet and intranet technology and providing consulting and professional
services for several companies. It originally was formed as the Advanced
Technology Consulting group at Bankers Trust and split off from Bankers Trust
and began operating independently in April 1997.
Astratek and Bankers Trust negotiated a transfer of assets whereby the bank
obtained rights to certain products which had been developed by Astratek, the
most significant of which was Visual LAN Probe. Visual LAN Probe is a diagnostic
tool which monitors computer network activity and troubleshoots computer network
problems. In turn, Astratek retained the product Visual Audit for Excel, a
software product for use principally in analyzing spread sheet and other
patterns and remediating discovered problems, including Year 2000 issues.
Bankers Trust receives a royalty from Astratek based on a percentage of sales of
Visual Audit products, which is capped at $500,000 in the aggregate. To date,
Bankers Trust has been paid approximately $62,000 in such royalties. Products
Astratek has entered into a Software License Agreement with Viasoft, Inc.
("Viasoft") dated as of November 14, 1997, which has been amended four times,
most recently as of January 12, 1999 (as amended, the "Software License
Agreement"), whereby Astratek granted exclusive rights to Viasoft to certain
Astratek products, principally the Visual Audit product. Beginning in February
1998, Viasoft has promoted, marketed and distributed the Visual Audit products
as part of its OnMark 2000 Workbench suite of products. OnMark 2000 Workbench
for Excel, which includes Visual Audit for Excel, is a PC-based software program
that discovers, analyzes and repairs Year 2000 problems in Microsoft Excel
spreadsheet applications. This product has been successfully marketed to Fortune
1000 companies for their desktop PC-based software Year 2000 compliance needs.
Astratek's Visual Audit product for Access has also been released by Viasoft as
the OnMark 2000 Workbench for Access product. According to the terms of the
Software License Agreement, Viasoft pays a royalty fee to Astratek equal to 25%
of the gross revenues generated by the sales of Astratek's products which have
been licensed to Viasoft (the "Licensed Products"). Astratek is obligated under
the terms of the Software License Agreement to provide Viasoft with enhancements
to the Licensed Products and is obligated to devote "significant resources"
(i.e. man hours) to the development of such enhancements. The Agreement sets an
absolute limit for such support to a dollar value, at $100 per man hour, equal
to 40% of royalties received by Astratek. Through June 30, 1999, Astratek
received $635,000 in prepayments under the Software License Agreement, which
amount has already been completely credited against royalties payable to
Astratek. As of the end of the fiscal quarter ended June 30, 1999, Astratek was
owed by Viasoft approximately $121,000 in additional royalty payments.
Under the Software License Agreement, Viasoft has a right of first
negotiation such that, if Astratek desires either to sell ownership rights to
its technology not already subject to the Software License Agreement or to
distribute such technology exclusively through another third-party distributor,
Astratek is obligated first to negotiate in good faith exclusively for a period
of fifteen days with Viasoft for such sale or distribution. The right of first
negotiation does not apply to products Astratek distributes on a non-exclusive
basis, except that Astratek is obliged to make available to Viasoft equal terms.
Astratek is also obligated to grant what is termed Level 2 support to Viasoft
customers who purchase Licensed Products, subject to Viasoft's option to assign
to Astratek its maintenance contracts for Level 1 support of Licensed Products
under certain circumstances. Level 1 support is defined as initial questions and
reports from customers. Level 2 support is more technical, engineering-type
support provided after Viasoft has been unable to respond to a customer's
immediate needs or questions. Problems requiring Level 2 support usually involve
more in-depth review and may require a number of days to resolve. The Software
License Agreement with Viasoft terminates on June 30, 2001 and is automatically
renewable for successive one-year periods unless either party provides the other
with written notice of cancellation at least 90 days prior to the applicable
expiration date.
PROFESSIONAL SERVICES
Astratek provides professional services to clients encompassing all aspects
of distributed systems applications, including multi-tier client/servers,
Internet-enabled applications, network security, systems management and
performance enhancement. Astratek has performed these services for several major
software companies and financial institutions and has acted as a development
partner for ISVs, including Microsoft, by assisting them in building their
computer software products. Astratek has performed the following services for
the following companies:
o Astratek has helped IBM develop a global single sign-on product
allowing a user to log into and open simultaneously heterogeneous
computer systems;
o AstraTek developed the software Registration Wizard for
Microsoft's Windows 2000 and Windows 98 operating systems. The
Registration Wizard allows customers to use the Internet to
register Windows and other Microsoft products.
o AstraTek developed a software testing system called the Test
Harness for Microsoft. The Test Harness is an automated framework
that controls testing across distributed systems. Its capabilities
include multi-threaded test scheduling, unattended installation of
software on test clients, and automatic re-creation of testing
environments for regression testing.
o AstraTek is developing the Stress Harness for Microsoft to improve
the quality of its software testing process. The Stress Harness is
intended to complement the previously developed Test Harness by
monitoring systems under test and collecting log files and other
data made available by plug-in diagnostic probes. The collected
data will be stored in a repository, to be processed by error
analysis tools for generation of statistical data.
o AstraTek has developed and enhanced the encryption functionality
of the WinFrame product for Citrix. The work leveraged industry
standard encryption technologies from RSA Data Security. The
enhanced encryption abilities allow WinFrame to be used in secure
application markets.
Astratek recently entered into a consulting and professional services
agreement with 4th Peripheral Technologies, Inc. ("4TH Peripheral"), pursuant to
which Astratek is engaged to provide executive advisory consulting services, as
requested, and on a fee SCHEDULE TO BE NEGOTIATED AT THE TIME AN ASSIGNMENT IS
MADE, INTENDED TO INCREASE 4TH Peripheral's value and strategic position in
connection with its business as a developer of cyber extension technology to
provide remote access to data from handheld devices. In AN EFFORT TO STRENGTHEN
ASTRATEK'S STRATEGIC RELATIONSHIPS WITH 4TH Peripheral, we purchased in a
private placement of securities 250,000 SHARES OF 4TH Peripheral Common Stock
for $250,000.
TADEO E-COMMERCE CORPORATION
Tadeo E was established on May 25, 1999. It was formed to provide technical
and consulting services to companies in electronic commerce (including Web site
design, development, maintenance, enhancement and hosting or operation) and
other Internet-based activities, as well as to develop its own proprietary
electronic commerce businesses. As part of its operating activities, in order to
further strategic alliances generally with companies for which it is providing
consulting and technical services, Tadeo may make working capital loans to or
equity investments in such partners. To date, Tadeo E has entered into the
following two significant contracts for its services:
On May 28, 1999, as amended by agreements dated as of June 1, 1999, Tadeo E
entered into a Web Design and Consulting Agreement with Azurel, Ltd. ("Azurel"),
a public company engaged in the business of manufacturing and distributing
cosmetics and other related products (the "Azurel Web Agreement"). Under the
terms of the Azurel Web Agreement, based upon the fee schedule to be included in
that agreement, Tadeo E agreed to provide all necessary consulting and
development services to design, maintain and enhance Azurel's electronic
commerce Internet sites and other related electronic commerce marketing
vehicles. Tadeo E paid Azurel $500,000 for Azurel's provision of content and
marketing consulting services in connection with assistance provided to Tadeo
E's electronic commerce development activities for Azurel and other clients. At
the same time, to enhance the strategic relationship between Azurel, Tadeo and
Tadeo E, Tadeo E lent to Azurel an aggregate of $1,528,166.67 under the terms of
a Credit Agreement, as amended, dated as of June 1, 1999 (with part of the
aggregate principal reflecting the restructuring of a March 31, 1999 short-term
$500,000 promissory note), with interest payable at the rate of 8% per annum,
payable monthly, and with all principal and accrued interest due on May 28, 2001
(the "Credit Agreement"). Repayment of amounts outstanding under the Credit
Agreement is secured by a pledge of approximately 66.66% of the outstanding
shares of certain Azurel operating subsidiaries, under the terms of a Pledge
Security Agreement, as amended, by and between Azurel, Tadeo and Tadeo E. In
further consideration for its advances to Azurel under the Credit Agreement,
Tadeo E received from Azurel warrants to acquire 500,000 shares of Azurel common
stock, exercisable at $1.50 per share, with the shares acquired upon exercise of
such Warrants being subject to registration rights provided under the terms of
Registration Rights Agreement, as amended, dated as of June 1, 1999. On
May 12, 1999, Tadeo extended a $500,000 loan to Azurel, due August 1999, bearing
interest at 20.8% (the "Note"). The $500,000 Note was later amended on August
12, 1999 to (i) extend the due date to June 2000, (ii) reduce the interest rate
to 10%, and (iii) increase the principal of the Note from $500,000 to $550,000
for accrued interest of $26,580 and a premium of $23,420 for extending the
maturity date and lowering the interest rate.
Under agreements dated as of June 30, 1999, Tadeo E entered into both a Web
Design and Consulting Agreement and an Online Hosting Agreement with StyleSite
Marketing, Inc. ("Style", formerly Diplomat Direct Marketing Corporation), a
public company engaged in the business of distributing women's and children's
fashion apparel and related accessories through catalogue sales, including the
Lew Magam and Brownstone studios catalogues, and over the Internet ("Style Web
Agreements"). Under the terms of the Style Web Agreements, based upon the fee
schedules provided in those agreements, Tadeo E is providing all necessary
consulting and development services to design, maintain and enhance Style's
electronic commerce Internet sites and other related electronic commerce
marketing vehicles, as well as to host those sites on behalf of Style. Tadeo E
paid Style $500,000 for Style's provision of content and marketing consulting
services in connection with assistance provided to Tadeo E's electronic commerce
development activities for Style and other clients. In addition to payments by
Style for the services provided under the Style Web Agreements, in further
consideration for its services to Style under the Web Agreements Tadeo E will
receive royalties from Style based upon Style's ongoing electronic commerce
businesses (the "Royalties"). The Royalties are equal to 5% of Style's
electronic commerce revenues, until $500,000 has been paid to Tadeo E, and
thereafter 20% of certain Style electronic commerce net income in perpetuity.
Contemporaneously with the above, to enhance the strategic relationship
between Style, Tadeo and Tadeo E, Tadeo E (i) purchased, for $1,000,000, 10,000
shares of Style's Series G Convertible Redeemable Preferred Stock (which is
redeemable for the $1,000,000 purchase price plus accrued and unpaid dividends
out of the proceeds of a secondary offering of Style common stock which has been
filed with the Securities and Exchange Commission) (the "Preferred Stock") and
(ii) exchanged $1,000,000 approximate market value of its common stock (285,715
shares) for $1,000,000 approximate market value of Style common stock (1,066,098
shares), under the terms of the Securities Purchase Agreement, dated as of June
30, 1999, by and between Tadeo, Tadeo E and Style. The shares of Style common
stock acquired upon conversion of the Preferred Stock and the Style shares
received in exchange for Tadeo common stock are subject to the terms of a
Registration Rights Agreement between Style and Tadeo E dated as of June 30,
1999, and Style's obligations to Tadeo E as a holder of the Preferred Stock
(e.g., redemption payments) are secured under the terms of a Pledge Security
Agreement, dated as of June 30, 1999, by and between Tadeo-E, Style and the
Rubin Family Irrevocable Stock Trust (the "Trust"), with the pledge by the Trust
of 300,000 shares of Tadeo common stock held by the Trust (the "Pledge
Agreement"). In September 1999, the Company released the Trust's obligation
under the Pledge Agreement and substituted the personal guarantee of Robert M.
Rubin, the principal settlor of the Trust, as collateral for all of Style's
obligations previously secured under the terms of the Pledge Agreement. See Item
13. "Certain Relationships and Related Transactions" for information concerning
certain other relationships between Tadeo, Tadeo E, the Trust and Style.
Tadeo E recently entered into an agreement with Business Talk Radio.Net,
Inc. ("Business Talk") under which, for a payment of $250,000, Tadeo E obtained
an assignable credit for the purchase of advertising time on radio programs
operated by Business Talk having a value of $1,200,000, and shares of Series C
Preferred Stock convertible into 5% of the currently outstanding capital stock
of Business Talk. As part of the transaction, Tadeo E obtained an option to
acquire an equivalent number of shares of Business Talk capital stock for an
exercise price of $250,000, as well as the right to "stream" the content of
Business Talk programming on its and its affiliates web sites during the course
of a three-year period without an additional payment to Business Talk. Business
Talk creates and distributes the content of its business-oriented radio
programming for broadcasting on third-party operated radio stations in a variety
of markets throughout the United States.
OTHER ACTIVITIES
We acquired and have retained for investment purposes 543,334 shares, or
approximately 4.2%, of ViewCast.com, Inc.'s ("ViewCast", formerly MultiMedia
Access Corporation) common stock. The stock was initially acquired on September
24, 1998 as part of a stock-for-stock swap whereby ViewCast acquired 1,240,310
shares of the common stock of Tadeo and Tadeo acquired 1,000,000 shares of
ViewCast's common stock. ViewCast is a public company that designs, develops and
manufactures video communications systems that provide enterprise-wide solutions
for business customers. We view this investment as a way to promote a strategic
alliance, as we believe that the convergence of personal computers, video
technologies and increased utilization of the Internet and corporate intranets
will generate new products and increased use of videocom products and services.
COMPETITION
The market for our products and services is highly competitive. We
anticipate that competition will continue to intensify as the use of computers
and the use of the Internet grows. The tremendous potential of the Internet has
attracted many companies from start-ups to well-established businesses.
Astratek faces competition from providers of security analysis and audit
products such as Axent Technologies, Inc. and Security Dynamics Technologies,
Inc., and from companies which make desktop management products such Microsoft
and Intel Corporation. Astratek also competes with makers of Year 2000
compliance assessment products such as Network Associates, Inc., Computer
Associates and Greenwich Mean-Time-UTA, L.C. We expect competition for
Astratek's products to grow as new companies enter the market and current
competitors expand their line of products and services. ISVs, such as Microsoft,
can also enhance existing products to include the systems management and
functionality aspects which we currently provide in our own proprietary products
and in our services.
The markets for Astratek professional services and Tadeo E's electronic
commerce services are highly fragmented and are attracting many newer companies,
as there are few barriers to entry to the professional services and Internet
technology businesses. ISVs such as IBM and Microsoft are competitive in this
area, as well as numerous consulting firms.
We believe that we will continue to create and offer innovative products
and creative professional services, and that we will continue to attract new
clients in need of our value-added electronic commerce services. However, there
is no assurance that our competitors will not introduce comparable products and
services at similar or more attractive prices in the future or that certain
companies may not create products which they can integrate directly into their
software and NOS. Increased competition could erode the marker for our products
and services and have a material adverse affect on our business, financial
condition and results of operation.
FUTURE STRATEGY
To date, we have not actively advertised our products and services but have
relied on our reputation and contacts in the financial and computer world for
our source of business. We have had significant repeat business from Microsoft
and believe that such companies and other large institutions will be a source of
revenues in the future. To date, we have preferred to rely on the services of
companies like Viasoft and their significant connections, marketing contacts and
expertise to promote and distribute our products.
We believe that our Web-based and other products and services will give us
greater exposure to the marketplace and will help us more efficiently to develop
products that meet the needs of and reach a greater corporate and home-user
audience in need of our various diagnostic tools and other services.
PATENTS AND TRADEMARKS
All Astratek employees are required to sign agreements which protect
Astratek's rights in its intellectual property, and which assign to Astrtek
certain rights to intellectual property developed by such employees. Tadeo is a
party to a Software License Agreement with Viasoft through which it is has
granted an exclusive license to use the name Visual Audit and AstraTek. Astratek
has pending trademarks for the following: Astratek, Datemorphing, Testwatch,
Testwatch 2000 and Applications instrumentation wizard.
EMPLOYEES
As of September 15, 1999, the Company employed 13 full-time employee. Five
of whom are members of management. One position consists of corporate accounting
and reporting, including: bank relations, year- end audit liaison and other
miscellaneous functions. The Company believes that its relationship with the
employees are good.
In order to permit Astratek to maintain its full-time staff at a minimum
level, and to enhance Astratek's ability to generate net income, Astratek has
entered into contracts with Professional Access Ltd. and Infinix Corp. for the
provision to Astratek of computer professionals acting as independent
contractors who are engaged to perform specified assignments for designated
professional services and product development projects on an as-needed basis. As
of the end of July 1999, Astratek employed 3 contract consultants.
INSURANCE COVERAGE
The Company maintains general liability insurance, which includes directors
and officers liability coverage, in amounts deemed adequate by the Board of
Directors.
(The remainder of this page has been intentionally left blank)
ITEM 2. DESCRIPTION OF PROPERTIES
The Company does not own any real property. The following table sets
forth information as to the material properties which the Company leases.
Expiration Annual Size/Square Purchase
LOCATION AND USE DATE RENTAL FEET OPTION
11585 Farmington Road (1) September 2002 $113,928 6,600 Yes
Livonia, Michigan 48150
(former executive, sales
and administrative offices)
5 HANOVER SQUARE, 24TH Floor November 2002 $126,169 6,729 No
New York, New York 10004
(executive, sales and
administration offices)
(1) On August 1, 1999 the Company subleased 3,400 square feet to a tenant that
is paying $3,967 a month in base rent, plus an additional 42.5% of the common
area expenses. The sublease ends October 31, 2002.
ITEM 3. LEGAL PROCEEDINGS
DEPARTMENT OF HEALTH SERVICES
Tadeo's wholly-owned subsidiary underwent an audit by the California State
Controller's Office, Division of Audits, for the purpose of determining
compliance with guidelines of the California Department of Health Services
("Medi-Cal") and the California State Board of Equalization. The Controller's
Office issued a report to the effect that the subsidiary owed, and issued a
Letter of Demand for, $1.3 million, contending that for the period July 1, 1990
to June 30, 1993, the subsidiary practiced unfair pricing to its customers.
Additionally, accrued interest on the amount demanded is also sought by the
Controller's Office. The subsidiary has appealed the ruling, which has been
upheld. An appeal to the California Court of Appeals is pending. The subsidiary
has provided a reserve of $1,400,000. There is no other material litigation
against Tadeo or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
The principal market for trading the Company's securities is the Nasdaq
Small Cap Market ("Nasdaq"), although the Company's Common Stock and Class A
Warrants are also traded on the Boston Stock Exchange.
PRICE RANGE OF OUTSTANDING COMMON STOCK
On December 18, 1992, the Common Stock began trading on Nasdaq and has been
quoted on Nasdaq at all times since that date.
The following table sets forth the high and low bid prices for each fiscal
quarter during the fiscal years ended June 30, 1998 and 1999, as reported by
Nasdaq. Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and do not necessarily represent actual transactions.
FISCAL YEAR ENDED JUNE 30, 1998 HIGH BID LOW BID
First Quarter ended September 30, 1997 2-7/8 2-1/8
Second Quarter ended December 31, 1997 2-13/16 1-13/32
Third Quarter ended March 31, 1998 2-1/8 1-13/32
Fourth Quarter ended June 30, 1998 1-11/16 7/8
FISCAL YEAR ENDED JUNE 30, 1999
-------------------------------
First Quarter ended September 30, 1998 1-7/16 1-3/8
Second Quarter ended December 31, 1998 1-1/16 1
Third Quarter ended March 31, 1999 1-1/8 1
Fourth Quarter ended June 30, 1999 4 3-13/16
On September 15, 1999, the last trade price for a share of Common Stock was
$3-1/2, as reported on Nasdaq, and the Company had 75 shareholders of record of
its Common Stock. The Company estimates it has in excess of 300 beneficial
holders of its Common Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future, but rather intends
to retain future earnings, if any, for reinvestment in its future business. Any
future determination to pay cash dividends will be in compliance with the
Company's contractual obligations, and otherwise at the discretion of the Board
of Directors and based upon the Company's financial condition, results of
operations, capital requirements and such other factors as the Board of
Directors deems relevant.
During the fiscal year end June 30, 1999, the Company had outstanding an
aggregate of one million (1,000,000) shares of Series B Redeemable Preferred
Stock, $.0001 par value per share (the "Series B Preferred Stock"). Subsequent
to the end of the fiscal year ended June 30, 1999, all shares of Series B
Redeemable Stock were converted into 500,000 shares of Common Stock.
See Part III, "Item 10., Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16 (a)", and "Item 12., Security
Ownership of Certain Beneficial Owners and Management," for information
concerning the redemption of the Company's Series A Preferred Stock in September
1998.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Tadeo Holdings, Inc.
Selected Financial Data
Years ended June 30,
in (000's)
1999 1998 1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues ..................... 1,514 997 455 0 0
Income loss from continuing operations (478) (1,153) (608) (1,381) (800)
Income loss from continuing operations
per share .............................. (0.03) (0.10) (0.06) (0.23) (0.21)
Total assets ........................... 16,488 9,913 18,299 18,209 17,132
Long term debt ......................... 18 664 4,628 2,316 1,520
Redeemable preferred stock ............. 0 1,219 1,830 2,246 2,276
Dividends per share common stock ....... 0 0 0 0 0
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
YEAR 2000
Over the course of the last half of the fiscal year ended June 30, 1999,
the Company has been evaluating various acquisitions. This effort has
incorporated an analysis of the Year 2000 issues, and that appropriate and
timely action will be taken to minimize the negative impact of year 2000 issues
on acquisitions by the Company. The year 2000 issue results from the inability
of many computer systems and applications to recognize the year 2000 as the year
following 1999. This could cause systems to process critical information
incorrectly. Currently, the Company is not materially affected by year 2000
issues. The Company plans to implement new systems and technology solutions to
these issues in connection with any future acquisitions of operating businesses.
The Company plans to work with its future customers, suppliers and third party
service providers to identify external weaknesses and to provide solutions which
will prevent the disruption of business activities following future acquisitions
of operating businesses. The Company does not expect the cost of implementation
to have a material adverse effect on its future results of operations, liquidity
or capital resources.
FORWARD-LOOKING STATEMENTS
When used in the Form 10-K and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result"
and "the Company expects," "will continue," "is anticipated," "estimated,"
"project," or "outlook" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, each of which
speaks only as of the date made. Such statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
has no obligation to publicly release the results of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
relative percentages that certain income and expense items bear to net sales.
YEAR ENDED JUNE 30,
1999 1998
Net sales..................................................... 100% 100%
COST OF SALES................................................. 46 25
---- ----
Gross profit.................................................. 54 75
Selling, general & administrative ............................ 224 227
Research and development costs................................ 11 7
PROVISION FOR STATE AUDITS ................................... 46 --
---- ----
Income (loss) from operations ................................ (182) (161)
Interest income .............................................. 39 45
Total income (loss) from discontinued operations ............. 98 303
NET INCOME (LOSS) ............................................ 67 % 187%
FISCAL YEARS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Revenues for the year ended June 30, 1999 were $1,514,849, an increase of
$518,376, or 52%, from the year ended June 30, 1998. Several factors contributed
to this ncrease. Revenue associated with the Visual Audit product that is
distributed by Viasoft on behalf of the Company increased by $57,988 for the
year ended June 30, 1999, or a 13% increase over the year ended June 30, 1998,
and revenue associated with professional services provided to various clients
increased by $570,900 for the year ended June 30, 1999, or a 235% increase over
the year ended June 30, 1998.
Total cost of goods sold for the year ended June 30, 1999 were $700,254,
representing costs of approximately 46% of revenues for the period, while total
cost of goods sold for the year ended June 30, 1998 were $248,261 or
approximately 25% of revenue. This 21% unfavorable variance as a percent of
revenue is in part the result of increased utilization of outside consultants in
completing time sensitive, single occurrence professional services projects.
Selling, general and administrative expenses for the year ended June 30,
1999 increased to $3,387,874 from $2,259,349 for the year ended June 30, 1998.
Contributing to the Company's unfavorable variance is $1,250,000 in advertising
and marketing expenses associated with services provided by various Internet
organizations that the Company has determined beneficial to market its products
and services.
Net interest income increased for the year ended June 30, 1999 to $590,092
from $452,016 for the year ended June 30, 1998. This increase is primarily due
to quarterly interest from the Note (See "Item 1 Prior Operations," Part I for
information concerning the Note).
Net income decreased to $1,013,412 for the year ended June 30, 1999
from $1,865,288 for the year ended June 30, 1998. This decrease is primarily due
to the gain from the sale of the discontinued operations which occurred in the
1998 fiscal year.
The sale of marketable securities resulted in $1,689,664 in revenue for the
year ended June 30, 1999, a 100% increase over the year ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999 the Company's existing cash consisted of approximately
$7.6 million. See Part I, "Item 1., Business, General," for information
concerning the sale of the Company's operating assets to Gainor in the
Transaction and the prepayment of the Note.
The Company currently receives on average $22,250 a month in interest from
its various money market and certificate of deposit accounts.
The Company's material ongoing fixed expenses are as follows: 1) monthly
rent expense net of sublease of approximately $ 17,000 (See Part I, "Item 2.,
Description of Property," for information concerning the location and
description of the leaseholds), 2) $ 7,633 a month to Mr. Buchholz's under his
employment termination agreement, an aggregate of $ 280,209 remaining as of June
30, 1999 (See Part III, "Section 1., Employment and Consulting Agreements," for
information concerning the agreement) and 3) approxmately $ 32,000 monthly for
employee salaries and benifets.
In July 1998, the Company completed a private placement of 136,837 shares
of Common Stock at $1.50 per share to an accredited investor, for $205,256.
Additionally, in July 1998 the Company was able to terminate its employment
agreements with Messrs. Brian Bookmeier, Alan Korby and Matthew B. Gietzen (See
Part III, Item 12, "Employment and Consulting Agreements," for information
concerning termination agreements) and reduce cash payments of $ 17,307 every
two weeks, or $450,000 a year. In connection with such employment terminations,
the Company reduced ongoing payments and issued an aggregate of approximately
250,000 shares of Common Stock to Messrs, Korby, Gietzen and Bookmeier.
An aggregate sum of 229,950 shares of Series A Redeemable Preferred Stock,
$.0001 par value per share (the "Series A Preferred Stock") was redeemed,
evidencing all outstanding shares of Series A Preferred Stock, in September
1998. The Company was able to redeem the outstanding Series A Preferred Stock,
which otherwise would have obligated the Company to pay $1,149,745 in aggregate
redemption payments through March 2001, by converting such Series A Preferred
Stock, under the terms of the corporate charter, into 1,363,163 shares of Common
Stock.
In 1999, all outstanding shares of Series B Preferred Stock were
converted into an aggregate 500,000 shares of Common Stock in accordance with
the corporate charter and at the request of the holders of such shares.
See Part I, Business, "Current Operations,'- Astratek, Inc.' and '-Tadeo
E-Commerce Corporation'", for more information concerning additional loans,
investments and other cash advances made by Tadeo.
CASH FLOW
As of June 30, 1999 the Company had working capital of $5,365,143 compared
to a working capital of $776,694 at June 30, 1998. The increase in working
capital during the year is primarily due to the prepayment of the Note (See
"Item 1 Prior Operations," Part I for information concerning the Note).
NET OPERATING LOSS CARRY FORWARD
During the year ended June 30, 1999, the Company utilized approximately
$3,100,000 of available net operating loss carryforwards. Astratek has
approximately $1,200,000 of net operating loss carryforwards subject to
limitations on annual utilization because there was "equity structure shifts" or
"owner shifts" involving 5% stockholders (as these terms are defined in Section
382 of the Internal Revenue Code), which have resulted in a more than 50% change
in ownership.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
<PAGE>
<TABLE>
<CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TADEO HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
<S> <C>
Page Number
--------------
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED BALANCE SHEETS AS OF F-2
JUNE 30, 1999 AND 1998
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
CONSOLIDATED STATEMENT OF CHANGES IN F-4
STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
JUNE 30, 1999, 1998 AND 1997
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997 F-5-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7-19
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
Tadeo Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Tadeo
Holdings, Inc. and Subsidiaries as of June 30, 1999 and 1998, and the related
statements of operations, changes in stockholders' equity and cash flows for the
years ended June 30, 1999, 1998 and 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tadeo Holdings, Inc. and
Subsidiaries as of June 30,1999 and 1998 and the results of its operations and
its cash flows for the years ended June 30,1999, 1998 and 1997 in conformity
with generally accepted accounting principles.
/S/ FELDMAN SHERB HOROWITZ & CO., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
September 15, 1999
New York, New York
F-1
<PAGE>
<TABLE>
<CAPTION>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS 1999 1998
---------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ...................................................... $ 7,618,259 $ 2,575,356
Interest receivable ............................................................ 25,521 276,005
Accounts receivable ............................................................ 45,750 11,550
Prepaid expenses and other assets .............................................. 30,000 --
Note receivable - other ........................................................ 500,000 162,627
---------- -----------
TOTAL CURRENT ASSETS .................................................. 8,219,530 3,025,538
---------- -----------
LONG-TERM NOTE RECEIVABLE ............................................................ 1,528,167 6,000,000
INVESTMENTS - Marketable Securities .................................................. 5,533,177 --
PROPERTY AND EQUIPMENT, net .......................................................... 71,938 79,966
CAPITALIZED SOFTWARE COSTS, net ...................................................... 1,091,793 696,871
DEFERRED FINANCE COSTS ............................................................... -- 67,079
DEPOSITS AND OTHER ASSETS ............................................................ 43,058 43,058
---------- -----------
$ 16,487,663 $ 9,912,512
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................... $ 421,179 $ 451,106
Accrued expenses ............................................................... 125,000 150,425
Income tax payable ............................................................. 628,000 --
Notes payable - current portion ................................................ -- 163,260
State audit reserves ........................................................... 1,400,000 700,000
Accrued termination costs, short-term .......................................... 280,209 784,053
---------- -----------
TOTAL CURRENT LIABILITIES ............................................. 2,854,388 2,248,844
ACCRUED TERMINATION COSTS, long-term ................................................. -- 280,209
LONG TERM NOTES PAYABLE, net of current portion ...................................... 17,675 663,853
REDEEMABLE PREFERRED STOCK, Series A ................................................. -- 1,219,141
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, Series B Cumulative Convertible, $.0001 par value,
10,000,000 shares authorized, 1,000,000 shares issued and outstanding ...... 505,000 505,000
Common stock, $.0001 par value, 100,000,000 shares authorized, 15,348,528 shares
issued and outstanding as of June 30, 1999 and 12,019,479 issued and outstanding
as of June 30, 1998 ........................................................ 1,535 1,202
Additional paid-in capital ..................................................... 18,797,382 14,115,213
Unrealized gain on securities .................................................. 2,446,509 --
Accumulated deficit ............................................................ (8,134,826) (9,120,950)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY ............................................ 13,615,600 5,500,465
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................ $ 16,487,663 $ 9,912,512
========== ===========
See notes to consolidated financial statements.
F - 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES ........................................................................$ 1,514,849 $ 997,433 $ 454,771
COST OF GOODS SOLD .............................................................. 700,254 248,261 73,188
-------------- -------------- --------------
GROSS PROFIT .............................................................. 814,595 749,172 381,583
-------------- -------------- --------------
OPERATING EXPENSES:
Selling, general and administrative ....................................... 3,387,874 2,259,349 985,663
Research and development .................................................. 161,709 71,424 5,000
Depreciation and amortization ............................................. 23,279 23,716 1,709
-------------- -------------- --------------
TOTAL OPERATING EXPENSES .................................................. 3,572,862 2,354,489 992,372
-------------- -------------- --------------
LOSS FROM OPERATIONS ............................................................ (2,758,267) (1,605,317) (610,789)
GAIN ON SALE OF MARKETABLE SECURITIES ........................................... 1,689,664 -- --
INTEREST INCOME ................................................................. 590,092 452,016 2,673
-------------- -------------- --------------
LOSS FROM CONTINUING OPERATIONS ................................................. (478,511) (1,153,301) (608,116)
-------------- -------------- --------------
DISCONTINUED OPERATIONS
Loss from discontinued operations ......................................... -- (2,122,296) (1,816,337)
Gain from disposal, including operating lossess, through
disposal date, of $1,489,272 (less applicable income taxes of $1,104,000) 1,491,923 5,140,885 --
-------------- -------------- --------------
TOTAL INCOME (LOSS) FROM DISCONTINUED OPERATIONS .......................... 1,491,923 3,018,589 (1,816,337)
-------------- -------------- --------------
NET INCOME (LOSS) ............................................................... 1,013,412 1,865,288 (2,424,453)
PREFERRED STOCK DIVIDENDS ....................................................... (27,288) (186,150) (211,780)
-------------- -------------- --------------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHARE HOLDERS ......................................................$ 986,124 $ 1,679,138 $ (2,636,233)
============== ============== ==============
NET INCOME (LOSS) PER SHARE:
Continuing operations .....................................................$ (0.03)$ (0.11)$ (0.08)
Discontinued operations ................................................... 0.10 0.25 (0.17)
-------------- -------------- --------------
NET INCOME (LOSS) PER SHARE - basic and diluted .................................$ 0.07 $ 0.14 $ (0.25)
============== ============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTATION ....................................................... 14,728,969 12,019,479 10,379,178
============== ============== ==============
NET INCOME (LOSS) ...............................................................$ 1,013,412 $ 1,865,288 $ (2,424,453)
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains on available-for-sale securities ......................... 2,446,509 -- --
-------------- -------------- --------------
COMPREHENSIVE INCOME (LOSS) .....................................................$ 3,459,921 $ 1,865,288 $ (2,424,453)
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F- 3
<PAGE>
<TABLE>
<CAPTION>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Preferred Stock Series B Common Stock Additional Unrealized Total
------------------- ------------------ Paid-In Gain Accumulated Stockholders'
Shares Amount Shares Amount Capital On Securities Deficit Equity
----------- ------- ----------- ------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1996 .................. 1,000,000 $505,000 10,182,906 $ 1,018 10,693,171 $ -- $ (8,163,855)$ 3,035,334
Shares issued in connection with private
offering ................................ -- -- 500,000 50 999,950 -- -- 1,000,000
Shares issued in connection with private
offering ................................ -- -- 250,000 25 499,975 -- -- 500,000
Debt converted as consideration for
exercise of options ..................... -- -- 1,009,415 101 2,018,729 -- -- 2,018,830
Dividends paid on redeemable preferred
stock series A -- -- -- -- -- -- (211,780) (211,780)
Various expenses associated with
private placement ....................... -- -- -- -- (100,004) -- -- (100,004)
Various expenses associated with
consulting services -- -- 1,700 -- 3,400 -- -- 3,400
Shares issued in connection with expenses
associated with debt conversion .......... -- -- 75,458 8 (8) -- -- --
Net loss .................................. -- -- -- -- -- -- (2,424,453) (2,424,453)
----------- -------- ---------- ------- ----------- --------- ---------- -----------
Balance - June 30, 1997 ................... 1,000,000 505,000 12,019,479 1,202 14,115,213 -- (10,800,088) 3,821,327
Dividends paid on redeemable preferred
stock series A -- -- -- -- -- -- (186,150) (186,150)
Net lncome ................................ -- -- -- -- -- -- 1,865,288 1,865,288
----------- -------- ---------- ------- ----------- --------- ---------- ----------
Balance - June 30, 1998 ................... 1,000,000 505,000 12,019,479 1,202 14,115,213 -- (9,120,950) 5,500,465
Shares issued upon converting
redeemable preferred stock series A ...... -- -- 1,363,163 136 1,149,609 -- -- 1,149,745
Shares issued in connection with private
offering ................................. -- -- 136,837 14 205,242 -- -- 205,256
Shares issued to employees in connection
with termination of employment agreements . -- -- 168,334 17 168,317 -- -- 168,334
Shares issued to an employee in connection
with exercise of stock option ............ -- -- 84,167 8 84,159 -- -- 84,167
Shares issued in connection with Stock
Purchase Agreement ....................... -- -- 30,523 3 74,997 -- -- 75,000
Shares of Common Stock exchanged with
ViewCast ................................. -- -- 1,240,310 124 1,999,876 -- -- 2,000,000
Changes in unrealized gain on securities
available-for-sale ....................... -- -- -- -- -- 2,446,509 -- 2,446,509
Shares issued in connection with repayment
of promissary note ....................... -- -- 20,000 2 (2) -- -- --
Shares of common stock exchanged with
Diplomat ................................. -- -- 285,715 29 999,971 -- -- 1,000,000
Dividends paid on Preferred Stock Series A -- -- -- -- -- -- (27,288) (27,288)
Net lncome ................................ -- -- -- -- -- -- 1,013,412 1,013,412
========== ======== =========== ======= =========== ========= =========== ===========
Balance - June 30, 1999 .................. 1,000,000 $505,000 15,348,528 $1,535 18,797,382 $2,446,509 $ (8,134,826)$13,615,600
========== ======== =========== ======= =========== ========= =========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
<TABLE>
<CAPTION>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
1999 1998 1997
----------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................ $ 1,013,412 $ 1,865,288 $ (2,424,453)
----------- ------------ -------------
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation ........................................... 23,279 244,443 652,860
Amortization of deferred finance costs and debt discount 105,993 84,507 --
Amortization of capitalized software costs ............. 312,966 82,674 20,489
Settlement of employment contracts (non-cash) .......... 327,501 -- --
Gain on sale of marketable securities .................. (1,689,664) -- --
Gain on sale of operations ............................. -- (5,140,885) --
Gain on collection of note ............................. (3,300,000) -- --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable .................. (34,200) 132,884 (144,434)
Decrease (Increase) in interest receivable .................. 250,484 (276,005) --
Additions to capitalize software costs ...................... -- (654,660) --
Increase in prepaid expenses ................................ (30,000) -- --
Increase in deferred finance costs .......................... (108,000) (105,000) --
Increase in other assets .................................... -- (18,224) (15,000)
Increase in accounts payable ................................ (29,927) 325,244 84,593
Increase in state audit reserve ............................. 700,000 -- --
(Decrease) increase in accrued expenses ..................... (25,425) 46,628 103,797
Increase in income tax payable .............................. 628,000 -- --
Changes in operating assets and liabilities of discontinued
operations ................................................ -- 2,002,440 (2,221,612)
Decrease in accrued termination costs ....................... (784,053) -- --
----------- ------------ -------------
Total adjustments ...................................... (3,653,046) (3,275,954) (1,519,307)
----------- ------------ -------------
NET CASH USED IN OPERATING ACTIVITIES ...................... (2,639,634) (1,410,666) (3,943,760)
----------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash proceeds from the sale of operation ......................... -- 8,065,336 --
Cash proceeds from the sale of securities ........................ 2,739,996 -- --
Capital expenditures ............................................. (718,425) (730,148) (420,749)
Collection on note receivable .................................... 9,300,000 -- --
Purchase of convertible preferred stock ......................... (1,000,000) -- --
Increase in note receivable ...................................... (2,028,167) -- --
----------- ------------ -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ......... 8,293,404 7,335,188 (420,749)
----------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in notes payable ............................. (163,260) 488,149 --
Repayment/ (issuance) of related party loans ..................... (162,627) -- (60,000)
Proceeds from debt financing ..................................... 183,230 658,351 --
Borrowing of revolving credit line ............................... -- -- 4,365,410
Repayment of revolving credit line ............................... -- (4,365,410) --
Net proceeds from (repayment of) long-term debt .................. (646,178) (239,656) 96,927
Issunace of common stock, net of expenses ........................ 205,256 2,005 1,403,499
Dividends paid on Series A Preferred Stock ....................... (27,288) (186,150) (211,780)
Redemption of Series A Preferred Stock ........................... -- (610,517) (416,551)
----------- ------------ -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ......... (610,867) (4,253,228) 5,177,505
----------- ------------ -------------
NET INCREASE IN CASH ................................................... 5,042,903 1,671,294 812,996
CASH AT BEGINNING OF YEAR .............................................. 2,575,356 904,062 91,066
----------- ------------ -------------
CASH AT END OF YEAR ....................................................$ 7,618,259 $ 2,575,356 $ 904,062
=========== ============ =============
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
<TABLE>
<CAPTION>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ......................................................... $ 84,507 $550,201 $ 623,804
========== ======== ============
Cash paid for income taxes ..................................................... $ 476,269 $ - $ --
========== ======== ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Convertible notes converted to common stock .................................... $ 20,000 $ - $ 2,018,830
========== ======== ============
Redeemable series "A" preferred stock converted to common stock ................ $1,149,745 $ - $ --
========== ======== ============
Private offering of common stock ............................................... $ 205,256 $ - $ --
========== ======== ============
Issuance of common stock in conjunction with termination of employment contracts $ 168,334 $ - $ --
========== ======== ============
Issuance of common stock in conjunction with exercise of stock option .......... $ 84,167 $ - $ --
========== ======== ============
Issuance of common stock in conjunction with retirement of debt ................ $ 75,000 $ - $ --
========== ======== ============
Exchange of common stock with another company's common stock ................... $2,000,000 $ - $ --
========== ======== ============
Exchange of common stock with another company's common stock ................... $1,000,000 $ - $ --
========== ======== ============
</TABLE>
See notes to consolidated financial statements.
F - 6
<PAGE>
TADEO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Tadeo Holdings, Inc. ("Tadeo" or the "Company"), incorporated in
Delaware on May 27, 1989 as Universal Self Care, Inc. and changed its
name to Tadeo Holdings, Inc. on February 2, 1998. Prior to the
Company's acquisition of Astratek and the creation of Tadeo
E-Commerce, the Company supplied and distributed both prescription and
non-prescription medications and durable medical equipment and
supplies principally to persons suffering from diabetes
On October 27, 1998, the Company acquired Astratek, Inc., a New York
corporation, pursuant to a merger of a wholly-owned subsidiary of the
Company into Astratek, with Astratek being the surviving corporation
and becoming a wholly-owned subsidiary of Tadeo. The accompanying
financial statements and footnotes are presented to reflect the
acquisition under the pooling of interests method of accounting, which
requires the restatement of prior years' financial statements as if
the acquisition was consummated at the beginning of all periods
presented.
On May 25, 1999, the Company incorporated Tadeo E - Commerce
Corporation ("Tadeo E") in Delaware as a wholly-owned subsidiary of
Tadeo to be active in the electronic commerce industry.
Tadeo is the parent corporation for the following wholly-owned
subsidiaries: Physicians Support Services, Inc., a California
corporation ("PSS"); Clinishare Diabetes Centers, Inc. d/b/a SugarFree
Centers, Inc. ("SugarFree"), a California corporation; USC-Michigan,
Inc. a Michigan corporation and its wholly-owned subsidiary, PCS,
Inc.-West (collectively identified as "Patient Care Services"), a
Michigan Corporation. Depending upon the context, the term "Company"
refers to either Tadeo alone, or Tadeo and one or more of its
subsidiaries. The SugarFree, PSS and Patient Care Services
subsidiaries have discontinued operations.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation - The financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant inter-company transactions have been eliminated.
B. Revenue Recognition - The Company licenses software to end users
under license agreements. The Company has recognized revenues in
accordance with Statement of Position 97-2 entitled "Software Revenue
Recognition" ("SOP 97-2), issued by the American Institute of Certified
Public Accountants ("AICPA").
F-7
<PAGE>
C. Property and Equipment - Property and equipment is stated at cost
and is depreciated on a straight-line basis over the estimated useful
lives of the assets. Leasehold improvements are amortized over the term
of their respective leases or service lives of the improvements,
whichever is shorter.
D. Income (loss) per Common Share - Basic earnings per share has been
calculated based upon the weighted average number of common shares
outstanding. Convertible preferred stock has been excluded as common
stock equivalents in the diluted earnings per share because they are
either antidilutive, or their effect is not material.
E. Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that effect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F. Cash and Cash Equivalents - The Company considers all highly liquid
temporary cash investments with an original maturity of three months or
less when purchased, to be cash equivalents.
G. Stock Based Compensation - The Company accounts for employee stock
transactions in accordance with APB Opinion No. 25, "Accounting For
Stock Issued To Employees." The Company has adopted the proforma
disclosure requirements of Statement of Financial Accounting Standards
No. 123, "Accounting For Stock-Based Compensation."
H. Fair Value of Financial Instruments - The carrying amounts reported
in the balance sheet for cash, trade receivables, accounts payable and
accrued expenses approximate fair value based on the short-term
maturity of these instruments.
I. Impairment of Long-Lived Assets - The Company reviews long-lived
assets for impairment whenever circumstances and situations change such
that there is an indication that the carrying amounts may not be
recovered. At June 30, 1999, the Company believes that there has been
no impairment of its long-lived assets.
J. Capitalized Software Costs - The Company accounts for costs of
developing computer software for sale in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", under
which costs incurred prior to the establishment of a product's
technological feasibility are expensed as research and development and
costs incurred from the point of technological feasibility through the
point that a product is ready for market are capitalized and amortized
in the greater of the relations that revenues earned bear to total
expected revenues over the life of the product or straight-line over
the life of the product. Capitalized software costs are evaluated
periodically and written down to net realizable value when necessary.
Amortization of capitalized software costs for the periods ended June
30, 1999, 1998, and 1997 were $312,966, $82,674, and $20,489,
respectively.
F-8
<PAGE>
K. Comprehensive Income - The Company has adopted Statement of
Financial Accounting Standards No. 130 ("SFAS 130) "Reporting
Comprehensive Income". Comprehensive income is comprised of net income
(loss) and all changes to the statements of stockholders' equity,
except those due to investments by stockholders, changes in paid-in
capital and distribution to stockholders.
2. DISCONTINUED OPERATIONS
On January 28, 1998, the Company sold its operating assets and the
stock of its two principal operating subsidiaries, Diabetes Self Care,
Inc. ("Diabetes") and USCI Healthcare Management Solutions, Inc.
("HMS"), to Gainor Medical Management, LLC, a privately held Georgia
company ("Gainor"), for a gross purchase price of $34 million in cash,
as reduced by $8,725,226 of specified liabilities of the Company, and
$17,000,000 by the delivery of a Gainor convertible subordinated
promissory note (the "Note"). Out of the cash received at closing, the
Company satisfied an aggregate of $4,451,136 in liabilities to permit
the required transfer of assets to Gainor free and clear of
encumbrances. The Note bore interest at a simple rate of 7% per annum
through December 31, 1998 and 8% thereafter until payment in full of
the principal balance no later than January 28, 2003. Prior to its
maturity, the Note was convertible into equity securities of Gainor,
at the election of the Company, upon the successful completion of a
public offering of such equity securities by Gainor, subject to
certain restrictions. The Company's stockholders approved the sale of
its business at their Annual Meeting held on January 26, 1998 in
Livonia, Michigan, at which time they also approved an amendment to
the Company's certificate of incorporation changing its name to Tadeo
Holdings, Inc. The sale of the Company's operating business to Gainor
shall hereinafter be referred to as the "Transaction".
In addition to offsets for customary indemnification's under the Asset
Purchase Agreement among the parties, dated November 14, 1997, the
principal amount of the Note was subject to reduction in the event
that (i) such principal amount did not equal at least 75% of Gainor's
revenues from operation of Diabetes during calendar 1998, in which
event the Note would be reduced by the difference between 75% of such
revenues and $17,000,000, (ii) Gainor would not able to collect at
least $5.75 million from the accounts receivable sold to Gainor as
part of the Transaction during the one-year period succeeding the
closing, in which event the Note would be reduced by the difference
between $5.75 million and the amount of receivables actually
collected, and (iii) prior to July 28, 1998 fewer than 3,334 former
customers of PCS, Inc. West will be customers of Gainor, in which
event the Note would be reduced by $600 for each former customer of
PCS, Inc. West less than the minimum 3,334 who fails to transfer to
Gainor, up to a maximum amount of $2,000,000.
In September 1998, Gainor notified the Company that the assignment of
benefits provision is currently at the maximum adjustment level of
$2,000,000. Gainor
F-9
<PAGE>
made a $559,800 downward adjustment to the Note principal, and granted
an extension until November 21, 1998 of the time for a sufficient
number of assignments of benefits to be received by Gainor in order to
avoid further downward adjustment to the Note principal. Gainor had
previously reduced the Note balance by approximately $145,000, for what
were claimed to be unrecorded purchase date accruals, as an adjustment
to the closing balance sheet under the Asset Purchase Agreement. In
addition, Gainor notified the Company that as of August 31, 1998, (i)
its collection of receivables purchased from the Company pursuant to
the Asset Purchase Agreement were behind schedule that, an annualized
basis, would result in collecting more than $5.75 million of such
account, and (ii) its generation of revenues from operations of the
purchased business was not as anticipated, either of which could result
in additional downward adjustments to the Note principal under the
terms of the Asset Purchase Agreement.
As a result of the aforementioned, the Company reduced the carrying
basis of the Note to $6,000,000 at June 30, 1998 based on what
management believed would be the value of the Note if it were to be
sold to an unrelated third party in an arms-length transaction.
Accordingly, the Company reduced the gain on the disposal of the
discontinued business by $11,000,000.
In April 1999, the Note was prepaid by Gainor in the amount $9,300,000
and the Company recognized a gain of $3,300,000 on the collection of
such Note.
In connection with the Company's sale of Diabetes, the accompanying
financial statements have been restated to present such businesses as
discontinued operations.
The revenue of the discontinued businesses was $19,136,465 and
$34,001,626 for the fiscal years ended June 30, 1998 and 1997,
respectively.
3. BUSINESS ACQUISITION
On October 27, 1998, the Company completed the acquisition of Astratek,
Inc. a New York corporation ("Astratek"). The Company acquired Astratek
pursuant to a merger (the "Merger") of Astratek Acquisition Corp.
("AAC"), a wholly-owned subsidiary of the Company, with and into
Astratek, with Astratek becoming the wholly-owned subsidiary of the
Company, as the surviving corporation of the Merger. The Merger was
effected in accordance with the Agreement and Plan of Merger ( the
"Merger Agreement"), dated as of October 23, 1998, among the Company,
AAC, Astratek, and the shareholders of Astratek.
Astratek develops software tools and related products for internet and
intranet technology and provides consulting and professional services
for several major companies. As per the Merger Agreement delivered to
Astratek shareholders, the
F-10
<PAGE>
Company issued 2,294,900 shares of the Company's common stock in
exchange for cancellation of all the issued and outstanding shares of
the capital stock of Astratek prior to the Merger and the issuance of
100 shares of Astratek common stock to the Company post-merger. The
acquisition is accounted for as a pooling of interests business
combination. Accordingly, the Company's prior years' financial
statements are restated as if the acquisition was consummated at the
beginning of all periods presented. The revenue and net income for
Tadeo and Astratek from July 1, 1998 through October 27, 1998, and the
fiscal years ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
July 1, 1998 through Year Ended June 30,
---------------------------------------------------------------------
October 27, 1998 1998 1997
-------------------------------- -------------------------------- ---------------------------------
Tadeo Astratek Tadeo Astratek Tadeo Astratek
-------------- ------------- --------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue $ - $ 363,594 $ - $ 996,473 $ - $ 454,771
Net income (loss) (461,879) (211,116) 2,394,351 (529,063) (2,653,231) 228,778
</TABLE>
4. MARKETABLE SECURITIES
On September 24, 1998, the Company completed a Stock Purchase Agreement
between ViewCast.com Inc. (VCST) and Tadeo (the "Purchase" Agreement").
VCST purchased $2,000,000 worth of restricted Tadeo common stock valued
at $2,000,000 for $2,000,000 worth of VCST common stock. The Company
issued 1,240,310 shares of Tadeo common stock at the sale price of
$1.6125 per share and received 1,000,000 shares of VCST's common stock
for the purchase price of $2.00 per share. In the case of each
corporation, the number of shares issued was less than 20% of the
outstanding common stock of the issuer on September 24, 1998. On April
23, 1999, the Company sold approximately 460,000 shares of VCST for
$6.00 a share in a private transaction. The Company realized a net gain
of approximately $1,690,000 after brokerage commissions from this sale.
In June 1999, the Company exchanged $1,000,000 market value of its
common stock, $.0001 par value, for $1,000,000 market value of shares
of common stock, $.0001 par value, of a direct marketing company under
the terms of a Securities Purchase Agreement. In addition, the Company
purchased 10,000 shares of convertible preferred stock at $100.00 per
share from the same direct marketing company.
The aforementioned marketable securities have been classified as
available for sale securities at June 30, 1999 and accordingly, the
unrealized gain resulting from valuing such securities at market value
is reflected as a component of stockholders' equity.
F-11
<PAGE>
5. ASSET PURCHASE AGREEMENT
In August 1997, the Company executed an agreement with Bankers Trust,
under which the Company acquired the rights to certain software, which
was under development by certain principals of the Company in their
capacity as employees of Bankers Trust. In connection with the
agreement, Bankers Trust is owed $100,000 and an approximate quarterly
revenue share amount of $25,000 (which are included in June 30, 1999
year end accruals). The quarterly accrual is related to asset purchase
agreement, in which Bankers Trust will receive 10 percent of all
revenues associated with the Visual Audit for Excel product until such
time as Bankers Trust has received $250,000 and 5 percent of all
revenues associated with the Visual Audit for Excel product until such
time as Bankers Trust has received $500,000.
6. NOTE RECEIVABLE
The Company provided a cosmetic manufacturing and marketing company
with $1,528,167 in loan financing through the issuance of one note
bearing interest at 8% due in May 2001, and $500,000 through
the issuance of a note bearing interest at 20.8% due in August 1999.
The $500,000 note was later amended on August 12, 1999 to (i) extend
the due date to June 2000, (ii) reduce the interest rate to 10%, and
(iii) increase the principal of the note from $500,000 to $550,000 for
accrued interest of $26,580 and a premium of $23,420 for for extending
the maturity date and lowering the interest rate. In addition, the
Company received warrants to acquire 500,000 shares of common stock of
such company at an exercise price of $1.50 per share.
7. PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment are as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Furniture and fixtures $ 20,906 $ 20,906
Computer software 7,862 6,450
Computer equipment 92,424 75,360
Machinery and equipment - 3,227
------------------ ------------------
121,192 105,943
Less: accumulated depreciation (49,254) (25,977)
================== ==================
$ 71,938 $ 79,966
================== ==================
</TABLE>
F-12
<PAGE>
8. NOTES PAYABLE
Notes payable at June 30, 1999 and June 30, 1998 respectively consist of the
following:
JUNE 30,
CREDITOR MATURITY DATE INTEREST RATE 1999 1998
-------- ------------- ------------- ------------------------
Officer (B) None $ 17,675 77,500
Former March 31, 1999(C) 10% $ - 109,021
Owner
TRUST (A) JUNE 1, 2000 FLOATING PRIME $ - 640,592
------------------------
$ 17,675 827,113
LESS: SHORT TERM - 163,260
------------------------
LONG TERM NOTES $ 17,675 663,853
========================
(A) Agreement dated June 1, 1997, subsequently assigned to a Trust, the
beneficiaries of which are relatives of an officer, shareholder and
director, to provide maximum funding of $750,000, collateralized by
substantially all of Astratek, Inc.'s assets. The debt went into a
default because of the non-payment of interest. On October 22, 1998,
Astratek, Inc. obtained a waiver from the holder to forebear any action
through November 30, 1998. In exchange, the Company agreed to pay a fee
of $10,000 and to convert $350,000 of the principal into 378,829 shares
of common stock
(B) To be repaid out of future profits, if any, at a maximum aggregate
amount of $2,000 per month.
(C) Due to a former owner of a subsidiary, unsecured, payable monthly.
9. CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at a financial institutions located
in New York. Accounts at the institution are insured by Federal Deposit
Insurance Corporation up to $100,000. The Company's cash balances
exceeded such insured limits.
10. COMMITMENTS, CONTINGENCIES, AND OTHER AGREEMENTS
The Company is obligated under two leases for base annual rent of
approximately $114,000 (Michigan) and $126,000 (New York City) through
September 2002 and November 2002, respectively. A portion of the
Michigan location has been subleased for rent of $47,592 annually, plus
an allocation of 42.5% of common area expenses under the master lease.
F-13
<PAGE>
Department of Health Services - One of the Company's discontinued
wholly-owned subsidiaries underwent an audit by the California State
Controller's Office, Division of Audits, for the purpose of determining
compliance with guidelines of the California Department of Health
Services ("Medi-Cal") and the California State Board of Equalization.
The Controller's Office issued a report to the effect that the
subsidiary owed, and issued a Letter of Demand for, $1.3 million,
contending that for the period July 1, 1990 to June 30, 1993, the
subsidiary practiced unfair pricing to its customers. Additionally,
accrued interest on the amount demanded is also sought by the
Controller's Office. The subsidiary has appealed the ruling, which has
been upheld. An appeal to the California Court of Appeals is pending.
The Company has provided a reserve of $1,400,000, $700,000 of which was
accrued in the year ended June 30, 1999. There is no other material
litigation against Tadeo or its subsidiaries.
On May 28, 1999, as amended by agreements dated as of June 1, 1999,
Tadeo E entered into a Web Design and Consulting Agreement with Azurel,
Ltd. ("Azurel"), a public company engaged in the business of
manufacturing and distributing cosmetics and other related products
(the "Azurel Web Agreement"). Under the terms of the Azurel Web
Agreement, based upon the fee schedule to be included in that
agreement, Tadeo E agreed to provide all necessary consulting and
development services to design, maintain and enhance Azurel's
electronic commerce Internet sites and other related electronic
commerce marketing vehicles. Tadeo E paid Azurel $500,000 for Azurel's
provision of content and marketing consulting services in connection
with assistance provided to Tadeo E's electronic commerce development
activities for Azurel and other clients. At the same time, to enhance
the strategic relationship between Azurel, Tadeo and Tadeo E, Tadeo E
lent to Azurel an aggregate of $1,528,167 under the terms of a Credit
Agreement, as amended, dated as of June 1, 1999 (with part of the
aggregate principal reflecting the restructuring of a March 31, 1999
short-term $500,000 promissory note), with interest payable at the rate
of 8% per annum, payable monthly, and with all principal and accrued
interest due on May 28, 2001 (the "Credit Agreement"). Repayment of
amounts outstanding under the Credit Agreement is secured by a pledge
of approximately 66.66% of the outstanding shares of certain Azurel
operating subsidiaries, under the terms of a Pledge Security Agreement,
as amended, by and between Azurel, Tadeo and Tadeo E. In further
consideration for its advances to Azurel under the Credit Agreement,
Tadeo E received from Azurel warrants to acquire 500,000 shares of
Azurel common stock, exercisable at $1.50 per share, with the shares
acquired upon exercise of such Warrants being subject to registration
rights provided under the terms of Registration Rights Agreement, as
amended, dated as of June 1, 1999. On May 12, 1999, Tadeo extended a
$500,000 loan to Azurel, due August 1999,bearing interest at 20.8% (the
"Note"). The $500,000 Note was later amended on August 12, 1999 to (i)
extend the due date to June 2000, (ii) reduce the interest rate to
10%, and (iii) increase the principal of the Note from $500,000 to
$550,000 for accrued interest of $26,580 and a premium of $23,420 for
extending the maturity date and lowering the interest rate.
Under agreements dated as of June 30, 1999, Tadeo E entered into both a
Web Design and Consulting Agreement and an Online Hosting Agreement
with Diplomat Direct Marketing Corporation ("Diplomat"), a public
company engaged in the business of distributing women's and children's
fashion apparel and related accessories through catalogue sales and
over the Internet ("Diplomat Web Agreements"). Under the terms of the
Diplomat Web Agreements, based upon the
F-14
<PAGE>
fee schedules provided in those agreements, Tadeo E is providing all
necessary consulting and development services to design, maintain and
enhance Diplomat's electronic commerce Internet sites and other related
electronic commerce marketing vehicles, as well as to host those sites
on behalf of Diplomat. Tadeo E paid Diplomat $500,000 for Diplomat's
provision of content and marketing consulting services in connection
with assistance provided to Tadeo E's electronic commerce development
activities for Diplomat and other clients. In addition to payments by
Diplomat for the services provided under the Diplomat Web Agreements,
in further consideration for its services to Diplomat under the Web
Agreements Tadeo E will receive royalties from Diplomat based upon
Diplomat's ongoing electronic commerce businesses (the "Royalties").
The Royalties are equal to 5% of Diplomat's electronic commerce
revenues, until $500,000 has been paid to Tadeo E, and thereafter 20%
of certain Diplomat electronic commerce net income in perpetuity.
On June 30, 1999, Tadeo E entered into an agreement with Business Talk
Radio.Net, Inc. ("Business Talk") under which, for a payment of
$250,000, Tadeo E obtained an assignable credit for the purchase of
advertising time on radio programs operated by Business Talk having an
agreed-upon value of $1,200,000, and shares of Series C Preferred
Stock convertible into 5% of the currently outstanding capital stock of
Business Talk. As part of the transaction, Tadeo E obtained an option
to acquire an equivalent number of shares of Business Talk capital
stock for an exercise price of $250,000, as well as the right to
"stream" the content of Business Talk programming on its and its
affiliates web sites during the course of a three-year period without
an additional payment to Business Talk. Business Talk creates and
distributes the content of its business-oriented radio programming for
broadcasting on third party operated radio stations in a variety of
markets throughout the United States.
11. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No.
109"). SFAS No. 109 requires the recognition of deferred tax assets
and liabilities for both the expected impact of differences between
the financial statements and tax basis of assets and liabilities, and
for the expected future tax benefit to be derived from tax loss and
tax credit carryforwards. SFAS No. 109 additionally requires the
establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets.
F-15
<PAGE>
The benefit for income taxes from continuing operations differs from
the amount computed applying the statutory federal income tax rate to
loss before income taxes as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------- --- ---------------- ---- ------------------
1999 1998 1997
--------------- ---------------- ------------------
<S> <C> <C> <C>
$ (248,000) $ (392,000) $ (207,000)
Income tax benefit computed at statutory rate
Income tax benefit not recognized 248,000 392,000 207,000
--------------- ---------------- ------------------
Income tax benefit $ - $ - $ -
=============== ================ ==================
</TABLE>
During the year ended June 30, 1999, the Company utilized approximately
$3,100,000 of available net operating loss carryforwards. Astratek has
approximately $1,200,000 of net operating loss carryforwards subject to
limitations on annual utilization because there was "equity structure
shifts" or "owner shifts" involving 5% stockholders (as these terms are
defined in Section 382 of the Internal Revenue Code), which have
resulted in a more than 50% change in ownership. The resulted deferred
tax asset from such net operating loss carryforwards has been fully
reserved for.
12. STOCKHOLDERS' EQUITY
A. Preferred Stock - The Certificate of Incorporation of the
Company authorizes the issuance of a maximum of 10,000,000 shares of
preferred stock. The Company's Board of Directors is vested with the
authority to divide the class of preferred shares into series and to
fix and determine the relative rights and preferences of shares of any
such series to the extent permitted by the laws of the State of
Delaware and the Articles of Incorporation.
B. Redeemable Preferred Stock Series A - In April 1995, in connection
with the acquisition of PCS, Inc. -West, the Company issued 580,000
shares of Series A Redeemable Preferred Stock. The shares contained a
liquidation preference of $5 per share and paid no dividends. They are
mandatorily redeemable at $5 per share, over a five-year period in
equal monthly installments beginning in October 1995. The Company
recorded the present value of the required future payments as a
liability utilizing a discount rate of 9%. The portion of the monthly
redemption installments which are attributed to this discounting
factor are accounted for as preferred stock dividends. At June 30,
1998, there were 229,950 shares outstanding. In August 1998, the
Company amended the certificate of designation to allow for the
conversion of the Series A Preferred Stock and the remaining balance
was converted into 1,363,163 shares of Common Stock in September 1998.
F-16
<PAGE>
C. In April 1995, in connection with the Acquisition of PCS, the
Company issued 1,000,000 shares of Series B Cumulative Convertible
Preferred Stock. Each share contains a liquidation preference of $1.00
per share. Each share was convertible into common stock at the rate of
two shares for one common share and paid a cumulative dividend at the
rate of from $.02 per share annually, beginning in September 1996,
increasing to $.12 per share through June 30, 2000. However, such
dividend only become payable if, in the immediate preceding fiscal
year, the Company had pre-tax income of at least $500,000. In August
1999, all Series B Preferred Stock was converted into 500,000 shares
of Common Stock in accordance with the Corporate charter and at the
request of the holders.
D. In connection with its December 1992 public offering, the
Company has 1,143,800 Class A warrants outstanding to purchase Common
Stock at $3.30 per share which expire in December 1999.
13. STOCK OPTION PLAN
A. The Company's 1992 Employee Stock Option Plan (the "1992 Plan")
was approved by the Company's Board of Directors and stockholders in
June 1992. On July 28, 1993, 210,000 stock options, exercisable at
$1.50 per share, for a period of ten years, were issued under the
1992 Plan. Options granted under the 1992 plan may include those
qualified as incentive stock options under Section 422A of the
Internal Revenue Code of 1986, as amended, as well as non-qualified
options. Employees as well as other individuals, such as outside
directors, who provide necessary services to the Company are eligible
to participate in the 1992 Plan. Non-employees and part-time
employees may receive only non-qualified stock options. The maximum
number of shares of common stock for which options may be granted
under the 1992 Plan is 500,000 shares.
B. The Company's Management Non-Qualified Stock Option Plan (the
Management Plan") was approved by the Company's Board of Directors in
December 1992. On July 28, 1993, 100,000 stock options, exercisable
at $1.50 per share, for a period of ten years, were issued under the
Management Plan. Management and key employees, as well as outside
directors and other individuals who provide necessary services to the
Company, are eligible to participate in the Management Plan. Options
granted under the Management Plan are nonqualified options. The
maximum number of shares of Common Stock for which options may be
granted under the Management Plan is 550,000.
C. In November 1997, the Company established the 1997 Stock Option
Plan for Non-employee Directors, which authorizes the issuance of up
to 300,000 options to purchase Common Stock at an exercise price of
100% of the Common Stock's market price. Subsequent to its adoption
at the annual meeting in February 1998, 30,000 five-year options were
granted under this plan at an exercise price of $1.81 per share. On
each of July 1, 1999 and 1998, an additional
F-17
<PAGE>
30,000 five year options were granted at an exercise price of $3.78
and $.97 per share, respectively.
14. ACCOUNTING FOR STOCK OPTIONS
The Company accounts for stock options issued to employees under APB
Opinion No. 25, "Accounting for Stock Issued to Employees", under
which no compensation expense is recognized if the exercise price
equals the stock market value on the measurement date (generally the
grant date). The Company has adopted the proforma disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation."
For disclosure purposes, the fair value of each option is measured at
the grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions used for stock options granted
during the years ended June 30, 1999, 1998 and 1997, respectively;
annual dividends of $0.00 for all years; expected volatility of 50%
for the year ended June 30, 1999, and 86.3% for the years ended June
30, 1998 and 1997; risk free interest rate of 5.7% for the year ended
June 30, 1999, and 7.0% for the years ended June 30, 1998 and 1997,
and expected life of five years for all years.
If the Company had recognized compensation cost in accordance with
SFAS No. 123, the Company's pro forma net loss and net loss per share
would have been $3.1 million and $.30 for fiscal 1997. The effect for
fiscal 1999 and 1998 would not be material.
The following table summarizes the changes in options outstanding and
the related price ranges:
Weighted
Average Range of
SHARES EXPECTED PRICE EXERCISE PRICE
Outstanding at June 30, 1996 1,081,667 $ 1.33 $1.00 - $1.50
GRANTED 275,999 1.72 1.70 - 1.50
------- ---- -------------
Balance June 30, 1997 1,357,666 1.41 1.00 - 2.25
GRANTED 55,000 2.15 1.81 - 2.50
---------- ---- -------------
Balance June 30, 1998 1,412,666 1.44 1.00 - 2.50
Granted 306,167 .99 .94 - 1.00
EXERCISED (84,167) 1.00 1.00
---------- ---- -------------
BALANCE JUNE 30, 1999 1,634,666 1.27 $ .93 - 2.50
========= =============
F-18
<PAGE>
The following table summarizes information about stock options
outstanding at June 30, 1999:
Weighted Average
Range of Average Remaining Contractual
EXERCISE PRICES OUTSTANDING LIFE IN YEARS
$.93 - $5.50 1,634,666 4.45
------------ --------- ----
Options exercisable at June 30, 1999 and 1998 were 1,490,666 and
1,412,666 respectively.
15. NOTE RECEIVABLE - OFFICER
On November 25, 1998, Tadeo Holdings, Inc. advanced $70,000 to Brian
Bookmeier, Tadeo's President, in exchange for a note receivable,
which bore interest at the rate of 10% per annum. This note was paid
in full during the fiscal year ended June 30, 1999.
16. TERMINATION AGREEMENTS
The Company entered into the following contracts subsequent to the
disposal of its business:
A. The Company agreed to make severance payments aggregating $708,000
to a former operating officer. An initial payment of $250,000 was paid
and the remaining $458,000 was to be paid in sixty equal monthly
installments of $7,633 commencing March 1998 and continuing through
March 2003. The Company recorded the present value of this contract at
$359,265. The balance which was $280,209 at June 30, 1999 is currently
payable since the note due from Gainor was prepaid (Note 2).
Additionally, Tadeo will continue to pay quarterly premiums on the
officer's existing $350,000 life insurance policy through December 31,
1999.
B. The Company entered into agreements with three former officers in
July 1998, for an aggregate consideration of $862,498, with $385,000
paid in August 1998, $225,000 settled through the issuance of notes
payable due in January 2000, bearing interest at 7% per annum and the
$252,490 balance settled by exchanging cash severance payments for the
direct issuance of 168,334 shares of Common Stock (at $1.00 value per
share) and the exercise price of concurrently granted options to
acquire 84,167 shares of Common Stock at $1.00 per share. The Company
has retired these contracts as of June 30, 1999.
F-19
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of September 28, 1999 are
as follows:
NAME AGE POSITION WITH THE COMPANY
Brian D. Bookmeier 41 President of Tadeo Holdings,
Inc., Director, Acting Chief
Financial Officer and Acting Accounting Officer
Alexander Kalpaxis 46 Executive Vice President, Chief Technology Officer
And Director
James Linesch 45 Director
Damon Testaverde 51 Director
Set forth below is a brief background of the officers, directors and key
employees of the Company, based on information supplied by them.
BRIAN D. BOOKMEIER. Mr. Bookmeier is an investor and Vice President of
Seven Sons, Inc., d/b/a Las Vegas Golf & Tennis. Seven Sons, Inc. is in the
business of franchised retailing of golf and tennis products. Mr. Bookmeier has
held this position since August 1997. Mr. Bookmeier has served as President,
Chief Executive Officer and a director of the Company since July 1995. From
September 1989 until its Merger into the Company Mr. Bookmeier served as
Executive Vice President and a Director of Patient Care Services, a home medical
equipment supply company that specialized in diabetes management, and the sale
of related equipment and supplies. He has been a Director of the American
Diabetes Association since June 1995.
ALEXANDER KALPAXIS. Since November 1998, Mr. Kalpaxis has been the
Company's Chief Technology officer, Executive Vice President and Director. From
April 1997 to October 1998, Mr. Kalpaxis was the CEO, President of Astratek,
Inc. From October 1984 to April 1997 Mr. Kalapxis was Bankers Trust Chief
Technology scientist. Mr. Kalpaxis led projects in infrastructure development,
LAN systems, databases and tools, object technology, and engineering. Prior to
Bankers Trust, Mr. Kalpaxis was a research electrical engineer for Photonics
Laser Institute at the City University of New York. He has received several
awards, including the Simon Sokin Medal for Excellence in Experimental Physics.
JAMES LINESCH. Since February 1997, Mr. Linesch has served as a Director of
the Company. Mr. Linesch is currently the President, Chief Executive Officer and
Chief Financial Officer of CompuMed, a public computer company involved with
computer assisted diagnosis of medical conditions, which he joined in April 1996
as Vice President and Chief Financial Officer. Mr. Linesch served as a Vice
President, Chief Financial Officer and Controller of the Company from August
1991 to April 1996. From May 1988 to August 1991, Mr. Linesch served as the
Chief Financial Officer of Science Dynamics Corp., a corporation involved in the
development of computer software.
DAMON TESTAVERDE. Mr. Testaverde has been a director since January 19,
1998. From May 1991 until June 1995, Mr. Testaverde served as President and
Chief Executive Officer of the Company. From 1989 to March 1991, Mr. Testaverde
served as the principal stockholder of H. R. Damon & Company, Inc., a former
full service securities broker-dealer which ceased operations in March 1991.
Since March 1994, Mr. Testaverde has been a registered representative with
Network One Financial Services, Inc., a full service securities broker-dealer.
From 1980 to 1986, Mr. Testaverde served in the capacity of President of S. D.
Cohn & Co., Inc. A full service securities broker-dealer with active investment
banking and brokage operations.
Mr. Testaverde is also a former director of American Complex Care,
Incorporated, a public company formerly engaged in the provision of home health
care infusion therapies and as a distributor of Medicare Part B products. In
March 1995, American Complex Care, Incorporated's operating subsidiaries made
assignments of their assets for the benefit of their creditors, without resort
to bankruptcy proceedings.
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
_____________________________________________________________________________
Annual Compensation Awards Payouts
___________________________________ _______________ _______
OTHER
Name and ANNUAL RESTRICTED ALL
Principal COPEN- Stock OPTIONS/ LTIP OTHER
POSITION YEAR SALARY BONUS SATION AWARDS SARS(#) PAYOUTS COMPISATION
- -------- ---- ------ ----- ------ ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brian Bookmeier 1997 $116,667 0 $ 9,000 $ 0 $ 0 $ 0 $ 0
President and 1998 $ 87,500 0 $ 1,000 $ 0 $ 0 $ 0 $ 0
Chief Executive 1999 $ 17,308 0 $ 0 $ 0 $ 0 $128,333 $ 0
Officer and
Director
Alex Kalpaxis 1997 $160,000 0 $ 0 $ 0 $ 0 $ 0 $ 0
Executive V.P. 1998 $160,000 0 $ 0 $ 0 $ 0 $ 0 $ 0
Chief 1999 $160,000 0 $ 0 $ 0 $ 0 $ 0 $ 0
Technology Officer
</TABLE>
EMPLOYMENT AND CONSULTING AGREEMENTS
Mr. Edward Buchholz entered into a three year employment contract on
December 16, 1996, effective on January 1, 1997, the term of which ended on
December 31, 1999. Mr. Buchholz's was the President and Chief Executive Officer
of Healthcare Management Solution, Inc., a former subsidiary of the Company. Mr.
Buchholz's employment agreement provides him with an annual base salary of $
150,000. In connection with his employment agreement, Mr. Buchholz was granted
options to acquire 175,000 shares of common stock at an exercise price of $1.70
per share (fair market value on the date of grant), vested on the date of grant.
On January 28, 1998, the Company and Mr, Edward Buchholz entered into a
termination agreement with respect to his employment agreement (the
"Agreement"). In mutual consideration of the promises contained in the
Agreement, the Company agreed to make severance payments aggregating $708,000 to
Mr. Buchholz, (i) $250,000 paid by Tadeo Holdings, Inc. as the initial payment
and (ii) $458,000 to be paid by Tadeo Holdings, Inc. in sixty equal monthly
installments of $7,633.33. Additionally, Tadeo Holdings, Inc. will continue to
pay quarterly premiums on Mr. Buchholz's existing $350,000 life insurance policy
through December 31, 1999.
On July 10, 1998, the Company and each of Messrs. Brian Bookmeier, Alan
Korby and Matthew Gietzen, entered into employment termination agreements (the
"Termination Agreements"). Messrs Korby and Gietzen are former officers and
Directors of the Company. In mutual consideration of the promises contained in
the Termination Agreements severance payments were made as follows: (i)
$128,333.33 was paid to each and (ii) each received a $75,000 promissory note
bearing 7% annual interest with principal payable on January 1, 2000. Messrs.
Korby and Gietzen were each issued 84,166 shares of Tadeo Common Stock for the
purchase price of $1 per share (which subscription were paid for in exchange for
additional severance payments of $84,166 under the Termination Agreements) and
(iv) Mr. Bookmeier was granted stock options under the Tadeo Employee Stock
Option Plan to purchase 84,167 shares of Common Stock exercisable at $1.00 per
share (which options were exercised by Mr. Bookmeier in exchange for an
additional $84,167 severance payment under the Termination Agreements).
On October 1, 1998, the Company entered into a three year employment
contract with Mr. Kalapxis. Mr. Kalpaxis is Executive Vice President and Chief
Technology Officer of the Company. Mr. Kalpaxis's employment agreement provides
him with an annual base salary of $ 160,000. Additionally, Mr. Kalpaxis will
receive a performance bonus based upon the operating results of Astratek, Inc, a
wholly-owned subsidiary of Tadeo Hoildings, Inc., in which Earnings Before Taxes
Interest Depreciation and Amortization, ("EBITDA") equals or exceed one million
dollars.
Each director of the Company receives a $25,000 annual directors fees for
attendance at Board meetings, as well as reimbursement for the actual expenses
incurred in attending such meetings. Officers and key employees of the Company
receive employment benefits (e.g., health insurance, automobile allowances)
other than cash compensation and interests in the Company's employee stock
option plan.
In November 1997, the Company established the 1997 Stock Opyion Plan for
Non-employee Directors, which authorizes the issuance of up to 300,000 options
to purchase Common Stock at an exercise price of 100% of the Common Stock's
market price. Subsequent to its adoption at the annual meeting in February 1998,
30,000 five- year options were granted under this plan at an exercise price of
$1.81 per share.
The following table sets forth information concerning individual grants
of stock options made during the last completed fiscal year to each of the
executive officers named in the Summery Compensation Table.
Potential realizable
Number of Percent of Value at assumed
Securities Total Options/ Annual rates of
Underlying SAR's Granted Exercise or stock price
Options/SAR's In Fiscal Base Price appreciation
Name Granted (#) Year (S/Sh) for option term
(a) (b) (c) (d) 5% 10%
- ---------------- ------------- --------------- ------------ --------------------
Brian Bookmeier 84,167 22% 1.00 259,603 271,965
- ---------------- ------------- --------------- ------------ ---------- ---------
10,000 3% .9375 31,500 33,000
- ---------------- ------------- --------------- ------------ ---------- ---------
The following table sets forth information concerning options exercised and
the number of unexercised options, and the value of such unexercised options,
for any persons named in the Summary Compensation Table.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISED
IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
<S> <C> <C> <C> <C>
- ----------------------- --------------------- -------------------- ----------------------- ----------------------
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED ON VALUE REALIZED OPTIONS/SARS AT OPTIONS/SARS AT
NAME EXERCISE (#) ($) FY-END(#) FY-END($)
(A) (B) (C) (D) (E)
- ----------------------- --------------------- -------------------- ----------------------- ----------------------
EXERCISABLE/ EXERCISABLE/
UNEXECISABLE UNEXERCISABLE
Brian Bookmeier 84,167 0 84,167/0 247,240/0
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table identifies each person or entity known to the
Company to be the beneficial owner of more than five percent of the Company's
common stock on September 15, 1999, each director of the Company and all the
directors and officers of the Company as a group, and sets forth the number of
shares of the Company's common stock beneficially owned by each such person and
such group and the percentage of the shares of the Company's outstanding common
stock owned by each such person and such group. In all cases, the named person
has sole voting power and sole investment power of the securities, unless
otherwise specified.
Percentage of
Name and Address Number of Shares of Common Outstanding
OF BENEFICIAL OWNER STOCK BENEFICIALLY OWNED(1) COMMON STOCK OWNED
Brian D. Bookmeier 327,867 2.0%
16223 Ford Road
Canton, MI 48187 (2)
Estate of Fred Kassner 2,809,455 17.6%
59 Spring Street
Ramsey, NJ 07446 (3)
Alexander Kalpaxis 773,083 4.9%
8827 82nd Avenue
Glendale, NY 11385 (4)
James Linesch 166,823 1.0%
3401 Walnut Avenue
Manhattan Beach, CA 90266 (5)
Damon D. Testaverde 659,189 4.1%
580 Oak Dale Street
Staten Island, NY 30312 (3)(5)
ViewCast.Com 1,240,310 7.8%
2665 Villa Creek Drive, Suite 200
Dallas, TX 75234
The Rubin Family Irrevocable 1,263,798 7.9%
Stock Trust
25 Highland Blvd.
Dix Hills, NY 11747
ALL OFFICERS AND DIRECTORS 1,926,962 11.9%
--------- ------
as a group (4 persons)
(2)(4)(5)
(1) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the
power to dispose or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or
otherwise, including a right to acquire such power(s) during the next 60
days. Unless otherwise noted, beneficial ownership consists of sole
ownership, voting and investment rights.
(2) Includes 182,867 shares of Common Stock held by Mr. Bookmeier. Also
includes options to purchase 125,000 shares of Common Stock at $1.35 per
share, granted in connection with the waiver of certain cash compensation
in 1996, options to acquire 10,000 shares of Common Stock granted under the
1992 Employee's Stock Option Plan at $.9375 per share and options to
purchase 10,000 shares of Common Stock granted under the Company's 1997
Non-Employee Director's Stock Option Plan at $3.78 per share. 39,179 of the
shares of Common Stock issued to Mr . Bookmeier have been pledged to
Barbara Milinko to secure a $325,000 note payable to Ms. Milinko by Alan
Korby, Mr. Bookmeier and Matthew Gietzen.
(3) For the Estate of Mr. Kassner, includes 40 shares of Common Stock
underlying the Company's publicly-traded Class A Warrants and 100,000
shares of Common Stock underlying Warrants granted in connection with
certain financial accommodations granted by Mr. Kassner related to the
release of security interests in Company assets. For Mr. Testaverde,
includes the shares underlying 50,000 warrants granted in connection with
the waiver of defaults under then existing indebtedness exercisable at
$1.00 per share and 100,000 options granted under the 1992 Employee Stock
Option Plan exercisable at $1.50 per share.
(4) Does not include an aggregate of 530,000 shares of Common Stock transferred
by Mr. Kalpaxis to four employees of Astratek, Inc. which shares are held
in escrow for varying periods of time and returned to Mr. Kalpaxis
under specified circumstances.
(5) Includes 30,000 options granted to each of Messrs. Linesch and Testaverde
(10,000 exercisable at $1.81 per share of Common Stock,10,000 exercisable
at $ .9375 per share of Common Stock and 10,000 exercisable at $ 3.78 per
share of Common Stock) under the Company's 1997 Non-Employee Director's
Stock Option Plan. Includes 20,000 options granted to Mr. Bookmeier (10,000
exercisable at $3.78 per share of Common Stock and 10,000 exercisable at $
.9375 per share of Common Stock) under the Company's 1997 Non-Employee
Director's Stock Option Plan and 1992 Employee Stock Option Plan,
respectively.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 25, 1998, Tadeo Holdings, Inc. advanced $70,000 to Brian
Bookmeier, Tadeo's President, in exchange for a note receivable which bore
interest at the rate of 10% per annum. This note was paid in full during the
fiscal year ended June 30, 1999.
In September 1998, Tadeo acquired and retained for investment purposes
approximately 9.2% of the Common Stock of ViewCast.com. In May 1999, as amended
as of June 1999, Tadeo E entered into a Web Design and Consulting Agreement with
Azurel. In June 1999, Tadeo E entered into both a Web Design and Consulting
Agreement and a Online Hosting Agreement with Style. See "Part I, Business-Other
Activities", "Current Operations-Astratek, Inc." and "Tadeo E Commerce
Corporation" for further information regarding these and other loan
transactions. Mr. Testaverde, who is a director of Tadeo, is also a director and
officer of Network 1 Financial, Inc. ("Network"), which has acted over the last
year and currently acts as a market maker for the common stock of Tadeo,
ViewCast.com., Azurel and Style.
In July 1998, Tadeo terminated its employment agreement with Mr. Bookmeier.
See Item 12, "Employment and Consulting Agreement" of Part III for further
information.
See Item 6. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for information concerning loans made to the Company
by certain members of Company management and by principal stockholders of the
Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES - SEE, ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA."
(B) EXHIBITS,
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
3.1(a) Certificate of Incorporation of the Company. (1)
3.1(b) Certificate of Renewal of Charter of the Company. (1)
3.1(c) Certificate of Amendment of Charter of the Company. (3)
3.1(d) Certificate of Amendment of Charter of the Company.
3.1(e) Certificate of Amendment to Certificate of Designations of Charter of the Company.
3.2 By-Laws of the Company. (3)
3.3 Certificate of Designations, Preferences and Relative, Participating, Optional or other special rights of Series A
Redeemable Preferred Stock. (9)
3.4 Certificate of Designations, Preferences and Relative, Participating, Optional or other special rights of Series B
Convertible Preferred Stock. (9)
4.1(a) Specimen Certificate of the Company's Common Stock. (2)
4.1(b) Specimen of Redeemable Common Stock Purchase Warrant. (4)
4.2 Form of Warrant Agent Agreement between the Company and American Stock Transfer Company. (2)
4.3 Form of Underwriter's Warrant Agreement. (5)
4.4 1992 Employee Incentive Stock Option Plan, including form of Incentive Stock Option Agreement. (2)
4.5 1998 Non-Employee Director Stock Option Plan. (9)
10.1 Warrant Agreement, dated April 28, 1995, by and between the Company and Fred Kassner ("Lender"). (7)
10.2 Registration Rights Agreement, dated April 28, 1995, by and between the Company and Lender. (7)
10.3 Warrant Agreement, dated July 14, 1995, by and between the Company and Lender. (6)
10.4 Registration Rights Agreement, dated July 14, 1995, by and between the Company and Lender. (6)
10.5 Agreement and Plan of Merger between the Company and Gainor Medical Management, LLC, as amended, dated November
14, 1997.(8)
10.6 Closing Agreement dated January 28, 1998. (9)
10.7 Termination Agreement of Edward Buchholz, dated January 28, 1998. (9)
10.8 Employment Termination Agreement, dated July 10, 1998, by and among the Company and Messrs. Alan Korby. (10)
10.9 Employment Termination Agreement, dated July 10, 1998, by and among the Company and Messrs. Matthew Gietzen. (10)
10.10 Employment Termination Agreement, dated July 10, 1998, by and among the Company and Messrs. Brian Bookmeier. (10)
10.11 CONSULTING AND PROFESSIONAL SERVICES AGREEMENT WITH 4TH Peripheral, Inc.
10.12 Form of Web Site Design and Consulting Agreement, dated as of June 1, 1999, by and between Azurel, E Commerce Corp.
10.13 Credit Note, dated May 28, 1999 made by Azurel in favor of Tadeo Holdings, Inc. ("Tadeo") (the "Credit Note").(11)
10.14 First Allonge to Credit Note, made by Azurel in favor of Tadeo E, dated June 1, 1999. (11)
10.15 Credit Agreement, dated May 28, 1999, by and between Tadeo and Azurel. (11)
10.16 Pledge Security Agreement, dated May 28, 1999, by and between Tadeo and Azurel. (11)
10.17 Warrants, to acquire 300,000 shares of Azurel common stock, dated May 28, 1999. (11)
10.18 First Amendment to Credit Agreement, dated June 1, 1999, by and between Tadeo, Tadeo E and Azurel. (11)
10.19 Registration Rights Agreement, dated May 28, 1999, by and between Tadeo and Azurel. (11)
10.20 Warrants, to acquire 200,000 shares of Azurel common stock, dated June 1, 1999. (11)
10.21 Form of On-Line Hosting Agreement, dated as of June 30, 1999, by and between Tadeo E and Style Site Marketing
Inc.("Style"). (11)
10.22 Web Site and Consulting Agreement, dated as of June 30, 1999, by and between Tadeo E and Style. (11)
10.23 Security Purchase Agreement, dated June 30, 1999, by and between Tadeo, Tadeo E and Style. (11)
10.24 Registration Rights Agreement, dated June 30, 1999, by and between Tadeo E and Style. (11)
10.25 Pledge Security Agreement, dated June 30, 1999, by and between Tadeo E, The Rubin Family Irrevocable Trust and Style. (11)
10.26 Agreement dated June 30, 1999, between Tadeo and BusinessTalkRadio.Net, Inc.
10.27 Guarantee of Robert M. Rubin for certain liabilities of Style to Tadeo E.
22. Subsidiaries.
27. Financial Data Schedule
</TABLE>
- -----------------
1. Incorporated by reference, filed as an exhibit to the Registrant's
Registration Statement on Form S-1 filed on August 3, 1992, SEC File
No. 33-50426.
2. Incorporated by reference, filed as an exhibit to Amendment No. 1 to
the Registrant's Registration Statement on Form S-1 filed on October
13, 1992.
3. Incorporated by reference, filed as an exhibit to Amendment No. 2 to
the Registrant's Registration Statement on Form S-1 filed on November
10, 1992.
4. Incorporated by reference, filed as an exhibit to Amendment No. 4 to
the Registrant's Registration Statement on Form S-1 filed on December
4, 1992.
5. Incorporated by reference, filed as an exhibit to Amendment No. 5 to
the Registrant's Registration Statement on Form S-1 filed on December
8, 1992.
6. Incorporated by reference, filed as an Exhibit to the Company's
Current Report on Form 8-K, filed on July 26, 1995.
7. Incorporated by reference, filed as an exhibit to the Registrant's
Registration Statement on Form SB-2, filed on July 31, 1995, SEC File
No. 33-95222.
8. Incorporated by reference, filed as an exhibit to the Company's
definmitive Proxy Statement, filed on December 24, 1998.
9. Incorporated by reference, filed as an exhibit to the Company's Report
on Form 10-Q, filed on December 24, 1998.
10. Incorporated by reference, filed as an Exhibit to the Company's
Current Report on Form 10-K, filed on October 13, 1998.
11. Incorporated by reference, filed as an Exhibit to the Company's
Current Report on Form 8-K, filed on July 30, 1999.
(B) EXHIBITS LIST OF REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter ended June 30,
1999.
(The remainder of this page has been intentionally left blank)
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DATED: OCTOBER 13, 1999 TADEO HOLDINGS, INC.
BY:\S\Brian Bookmeier
Brian Bookmeier, President
In accordance with the Securities Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated
SIGNATURES TITLE DATE
__/s/Brian Bookmeier_________ President, Chief October 13, 1999
Brian Bookmeier Executive Officer and
Acting Chief Financial
and Chief Accounting Officer
and Director
____________________________ Executive Vice President, October 13, 1999
Alexander Kalpaxis Chief Technology Officer
and Director
__/s/Michael F. Niles________ Secretary, Controller October 13, 1999
Michael F. Niles
_/s/James Linesch____________ Director October 13, 1999
James Linesch
_/s/Damon Testaverde_________ Director October 13, 1999
Damon Testaverde
8/31/99
CONSULTING & PROFESSIONAL SERVICES AGREEMENT
THIS CONSULTING & PROFESSIONAL SERVICES AGREEMENT ("Agreement"), dated
as of __________ between Astratek a Delaware corporation, (ASTRA) and 4th
Peripheral Technologies, Inc, a Delaware corporation (the "Company").
Background
The Company is engaged in the creation, development and implementation
of certain Internet-Telephony related projects and concepts, and desires to
obtain certain services from ASTRA in connection therewith. The Company
anticipates that "end-users" will wish to create applications which utilize CTI
systems, IVR systems, Auralized WEB content, and Voice-over IP technology and
that ASTRA is willing to provide such services to the Company, all on the terms
and conditions hereinafter set forth. The parties hereto agree as follows:
1. Consulting Services.
1.1 Services Provided by ASTRA. ASTRA shall provide to the Company, on
an independent contractor basis, executive advisory consulting services, as
requested, in an effort to increase the value and strategic position of the
Company (the "Professional Services"). Examples of the Professional Services
relate but are not limited to: telephony switching, legacy to emerging platform
integration, middleware, database connectivity, real-time database
administration, and include:
- Providing software (source code) development talent -
Delivering and implementing the code at the end users site -
Assist the company in the overall planning and design flow
per project
- E-Commerce Systems and Fulfillment Strategy and Operations
- Deliver data content (financial quotes, stock quotes etc.)
- Provide technical support for the products used by the
end-user
1.2 Fees for Professional Services. Based on each individual project,
it's duration, size, scope, and complexity, the Company and ASTRA will create a
"project team". Based on the skills, and talent, of the individual team members,
ASTRA and the Company will price each team member's value in terms of an hourly
wage, i.e. a time and materials model. Depending on the size of the project
ASTRA and the Company may decide to accept a "fixed price" model. Authorization
for any project, including the specific terms and conditions for that project,
will be evidenced by a project proposal that includes a signature of
authorization from the Company and from ASTRA. Each project proposal will be
attached as an exhibit to this Agreement and will contain a schedule of
milestones and deliverables. All amounts to be paid by the Company to ASTRA
pursuant to this paragraph shall be paid in the form of cash, after
predetermined and pre-agreed to milestones, as detailed in the accompanying
project proposal, are achieved by ASTRA.
<PAGE>
-2-
1.2 Expenses. The Company shall within 30 days of receipt of an
itemized invoice reimburse ASTRA for those reasonable expenses incurred by ASTRA
as a result of or in connection with ASTRA's provision of services under this
Agreement (including, but not limited to, airfare, lodging, meals, and
transportation). Such expenses shall be approved by the Company in advance. The
Company, at it's own discretion, shall decide to pay for unauthorized expenses.
2. Finder's Fees for Products & Services. In consideration of ASTRA's provision
of potential clients for the Company's products, the Company shall pay to ASTRA
a fee (the "Finder's Fee") equal to but not exceed five percent (5%) of revenue
generated through introductions by ASTRA or its affiliates. The Finder's Fee
shall be payable upon the Company's receipt of the funds.
3. Service Guarantees. While ASTRA will use its commercially reasonable efforts
in the provision of the Professional Services described in this Agreement, ASTRA
can make no guarantee as to performance, outcome or success, of the products
developed by the Company. ASTRA will have liability to the Company for any
willful or negligent acts or omissions of ASTRA's employees or agents in any way
related to the performance of ASTRA's obligations under this Agreement.
4. Information Flow. Both parties agree to remain in close and constant
communication i.e. weekly status meetings etc., with respect to each project.
The intent is to provide the highest level of service to the end-user.
5. Non Exclusive Relationship. The Company acknowledges and agrees that the
arrangement created by this Agreement is non-exclusive and ASTRA and its
affiliates retain the right to provide similar services to other persons and
entities.
6. Source Code Ownership Upon the completion of each project ASTRA will deliver
the Sourcecode developed during the process of the implementation, to the
end-user in the form of magnetic media, hardcopy listing, and shall be complete
and fully documented, so that the Company's staff may support and maintain the
product. The source code shall become the property of the Company, unless it is
a pre-existing piece of code, which may be licensed to the Company and whose
ownership rights may reside with ASTRA. The terms and conditions for licensing
pre-existing source code will be negotiated separately, and are not within the
scope of this Agreement.
7. Maintenance. Depending upon the conditions set forth by the end-user, ASTRA
and the Company shall negotiate, on a case, by case basis the sharing of
maintenance revenue. In order to satisfactorily maintain and support the client,
ASTRA and/or the Company may request the source code, and utilize it upon the
expressed permission of the end-user.
8. Co-marketing, Joint Application Development of Products. Where opportunities
may arise during the course of the relationship between the parties, both
entities may co-develop, co-license, or cross-license on a retail, or OEM basis,
existing products, and market these products to their respective sales channels.
<PAGE>
-3-
9. Term.
(a) The term of this Agreement shall begin on the date hereof
(the "Effective Date") and shall continue for a period of 12 months thereafter
(the "Period") in full force and effect until it is terminated in accordance
with this Section 9.
(b) The Company or ASTRA, if such party is not in default of
the terms of this Agreement, may extend the term of this Agreement for an
additional one year ("Additional Period"); provided, the extending party gives
the other party at least sixty (60) days advance written notice before the end
of the Period. If either party elects to extend the Agreement for the Additional
Period, all other terms and conditions of this Agreement shall continue during
the Additional Period; and provided further, that any Finder's Fee granted to
ASTRA as part of this Agreement shall continue in full force and effect in
accordance with its terms notwithstanding any termination of this Agreement by
any party hereto pursuant to the terms of this Section 9 or otherwise.
(c) ASTRA shall have the right (but not the obligation) to
terminate this Agreement and the rights granted to the Company hereunder if:
(i) The Company is in material breach of any of
its obligations hereunder, which breach is not cured within ten days of receipt
of written notice from ASTRA of such breach;
(ii) The Company is the subject of a voluntary
petition in bankruptcy or any voluntary proceeding relating to insolvency,
receivership, liquidation or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within 60 days of filing, or becomes the
subject of any involuntary petition in bankruptcy or any involuntary proceeding
relating to insolvency, receivership, liquidation or composition for the benefit
of creditors, if such petition or proceeding is not dismissed within 60 days of
filing;
(iii) The Company involuntarily dissolves or is
dissolved;
(iv) The Company is judicially adjudicated
insolvent or generally is unable to pay its debts as they mature or makes an
assignment for the benefit of its creditors; or
(v) Upon ASTRA giving the Company at least sixty (60)
days advance written notice of termination of this Agreement.
(d) The Company shall have the right (but not the obligation)
to terminate this Agreement and the rights granted to ASTRA hereunder if:
(i) ASTRA is in material breach of any of its
obligations hereunder, which breach is not cured within ten days of receipt of
written notice from the Company of such breach;
<PAGE>
-4-
(ii) ASTRA is the subject of a voluntary petition
in bankruptcy or any voluntary proceeding relating to insolvency, receivership,
liquidation or composition for the benefit of creditors, if such petition or
proceeding is not dismissed within 60 days of filing, or becomes the subject of
any involuntary proceeding relating to insolvency, receivership, liquidation or
composition for the benefit of creditors, if such petition or proceeding is not
dismissed within 60 days of filing.
(iii) ASTRA involuntarily dissolves or is
dissolved;
(iv) ASTRA is judicially adjudicated insolvent or
generally is unable to pay its debts as they mature or makes an assignment for
the benefit of its creditors; or
(v) Upon the Company giving ASTRA at least sixty
(60) days advance written notice of termination of this Agreement.
(e) ASTRA will have the right (but not the obligation) to
terminate this Agreement and the rights granted to the Company hereunder, upon
60 days written notice to the Company, following the acquisition of all or
substantially all of the assets of the Company by any third party, or the
acquisition of the beneficial ownership of at least 20% (the "Threshold") of the
voting power represented by the voting securities of the Company, any successor
thereto or any person or "group" within the meaning of Sections 13(d)(3) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor provision to either of the foregoing, including any
group acting for the purpose of acquiring, holding or disposing of securities
within the meaning of Rule 13d-5(b)(1) under the Exchange Act or any successor
provision thereof (a "group"). For purposes of this Agreement, (i) the term
"beneficial ownership" shall have the meaning set forth in Rule 13d-3 of the
Exchange Act or any successor provisions thereof, (ii) the term "voting
securities' means the common Stock, par value $.001 per share, of the Company
and any other securities issued by the Company having the power to vote
generally in the election of directors of the Company and (iii) the term
"affiliate" means a person or entity directly or indirectly controlled by,
controlling or under common control with another person. For purposes of this
Section 3, an acquisition shall not include (A) the acquisition by a person of
voting securities of the Company pursuant to an involuntary disposition through
foreclosure or similar event, or (B) the acquisition by a person of voting
securities of the Company pursuant to a dividend intended to be on a tax-free
basis (a "Tax-Free Spin-Off") under the Internal Revenue Code of 1986, as
amended from time to time, but shall include a subsequent acquisition of voting
securities pursuant to a disposition by the person that acquired the voting
securities in such involuntary disposition or such Tax-Free Spin-Off. In the
event any person acquires beneficial ownership of voting power in excess of the
Threshold as a result of a transaction described in the immediately preceding
sentence, the Threshold with respect to such person shall be adjusted to an
amount equal to the percentage of beneficial ownership held by such person
immediately following such transaction.
(f) A party may exercise its right to terminate pursuant to
this Section 9 by sending appropriate written notice to the other party. No
exercise by a party of its rights under
-5-
<PAGE>
this Section will limit its remedies by reason of the other party's default, the
party's rights to exercise any other rights under this Section 9, or any of that
party's other rights.
10. Records and Accounts.
The Company will maintain accurate books, records and accounts of all
transactions relating to the Finder's Fee owed by it to ASTRA pursuant to this
Agreement. ASTRA may, at its own expense, examine and copy those books and
records as provided in this Section 10. Such books, records and accounts will be
maintained in a manner that allows ASTRA to separate these matters from those
relating to the Company's other operations. Such books, records and accounts
will reflect such information as would normally be examined by an independent
accountant in performing an audit pursuant to United States generally accepted
auditing standards for the purpose of certifying financial statements, and to
permit verification thereof by governmental agencies. ASTRA may make
examinations pursuant hereto during the Company's usual business hours, and at
the place in the continental United States where the Company regularly keeps
these books and records.
11. Independent Contractors.
The Company and ASTRA are independent contractors. There is no
relationship of partnership, joint venture, employment, franchise or agency
between the Company and ASTRA. Neither the Company nor ASTRA shall have the
power to bind the other or incur obligations on the other's behalf without the
other's prior written consent. When ASTRA's employees act under the terms of
this Agreement, they shall be deemed at all times to be under the supervision
and responsibility of ASTRA and no person employed by ASTRA and acting under the
terms of this Agreement shall be deemed to be acting as agent or employee of the
Company or any customer of the Company for any purpose whatsoever.
12. Confidentiality.
ASTRA and the Company each agree to hold in strict confidence, and to
use reasonable efforts to cause each of their employees and representatives to
hold in strict confidence, all confidential information concerning ASTRA or the
Company, as the case may be, furnished to or obtained by the other party, in the
course of performing the obligations provided for under this Agreement except to
the extent that (a) such information has been in the public domain or was held
by such other party prior to the date of this Agreement, in either case with
such result occurring through no fault of ASTRA or the Company, as the case may
be, (b) disclosure or release is compelled by judicial or administrative
process, or (c) in the opinion of counsel to ASTRA or the Company, as the as may
be, disclosure or release is necessary pursuant to requirements of law or the
requirements of any governmental entity including, without limitation,
disclosure requirements under the securities laws of the United States or
similar laws of other jurisdictions applicable to ASTRA or the Company, as the
case may be.
<PAGE>
-6-
13. Company Content.
(a) The Company assumes sole responsibility for (i) acquiring
any authorization(s) necessary for the use of proprietary information to be
supplied by the Company to ASTRA (not including ASTRA's own proprietary
information) for use in connection with ASTRA's performance of the Professional
Services (the "Company Material"), and (iii) ensuring that the Company Material
does not infringe or violate any right of any third party.
14. Warranties.
(a) ASTRA represents and warrants that ASTRA has the power and
authority to enter into and perform its obligations under this Agreement.
(b) The Company represents and warrants that: (i) the Company
has the power and authority to enter into and perform its obligations under this
Agreement; and (ii) the Company Material does not and shall not contain any
materials that infringe on or violate any applicable law, regulation or right of
a third party, including, without limitation, export laws, or any proprietary,
contract, moral, or privacy right or any other third party right, and that the
Company owns the Company Material or otherwise has the right to use and provide
the Company Material to ASTRA for use in connection with its provision of the
Professional Services.
(c) EXCEPT FOR THE LIMITED WARRANTY SET FORTH IN SECTION 6(a)
ABOVE AND IN THE SECTION OF THIS AGREEMENT ENTITLED "SERVICES GUARANTEES" ABOVE,
ASTRA MAKES NO WARRANTIES HEREUNDER, AND ASTRA EXPRESSLY DISCLAIMS ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
15. Indemnification.
(a) The Company agrees to indemnify, defend, and hold harmless
ASTRA, its directors, officers, employees and agents, and defend any action
brought against same with respect to any claim, demand, cause of action, debt or
liability, including reasonable attorneys' fees, to the extent that such action
is based upon a claim that: (i) if true, would constitute a breach of any of the
Company's representations, warranties, or agreements hereunder; (ii) arises out
of the gross negligence or willful misconduct of the Company; or (iii) any of
the Company Material to be provided by the Company hereunder infringes or
violates any rights of third parties, including without limitation, rights of
publicity, rights of privacy, patents, copyrights, trademarks, trade secrets,
and/or licenses.
(b) ASTRA agrees to indemnify, defend, and hold harmless the
Company, its directors, officers, employees and agents, and defend any action
brought against same with respect to any claim, demand, cause of action, debt or
liability, including reasonable attorneys'
<PAGE>
-7-
fees, to the extent that such action arises out of the gross negligence or
willful misconduct of ASTRA in connection with ASTRA's performance under this
Agreement.
16. Limitation of Liability.
ASTRA SHALL HAVE NO LIABILITY FOR UNAUTHORIZED ACCESS TO, OR
ALTERATION, THEFT OR DESTRUCTION OF THE COMPANY'S DATA FILES, PROGRAMS OR
INFORMATION THROUGH ACCIDENT, FRAUDULENT MEANS OR DEVICES. ASTRA SHALL HAVE NO
LIABILITY WITH RESPECT TO ASTRA'S OBLIGATIONS UNDER THIS AGREEMENT OR OTHERWISE
FOR CONSEQUENTIAL, EXEMPLARY, SPECIAL, INCIDENTAL, OR PUNITIVE DAMAGES EVEN IF
ASTRA HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN ANY EVENT, THE
LIABILITY OF ASTRA TO THE COMPANY FOR ANY REASON AND UPON ANY CAUSE OF ACTION
SHALL BE LIMITED TO THE AMOUNT ACTUALLY PAID BY THE COMPANY UNDER THIS AGREEMENT
DURING THE TWELVE (12) MONTHS IMMEDIATELY PRECEDING THE DATE ON WHICH SUCH CLAIM
ACCRUED. THIS LIMITATION APPLIES TO ALL CAUSES OF ACTION IN THE AGGREGATE,
INCLUDING, WITHOUT LIMITATION, TO BREACH OF CONTRACT, BREACH OF WARRANTY,
NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATIONS, AND OTHER TORTS.
17. Dispute Resolution.
(a) In the event that any party to this Agreement has any
claim, right or cause of action against any other party to this Agreement, which
the parties shall be unable to settle by agreement between themselves, such
claim, right or cause of action, to the extent that the relief sought by such
party is for monetary damages or awards, shall be determined by arbitration in
accordance with the Rules of the American Arbitration Association ("AAA"),
through the adjudication by a single arbitrator, in New York, New York, with the
decision of such arbitrator to be final and binding upon all parties. The
prevailing party's fees, costs and and expenses of such arbitration, as
submitted by the AAA, as well as the reasonable fees, costs and expenses of the
prevailing party's own counsel, accountants and other representatives incurred
in connection with the prosecution of such arbitration, shall be reimbursed by
the other party. The parameters of the AAA proceedings undertaken in accordance
with this Section 17 shall be prescribed such that a decision shall be rendered
within sixty (60) days following the initial written reference of the related
dispute to AAA arbitration.
(b) Notwithstanding any other provisions of this Section 17,
in the event that a party against whom any claim, right or cause of action is
asserted commences, or has commenced against it, bankruptcy, insolvency or
similar proceedings, the party or parties asserting such claim, right or cause
of action shall have no obligations under this Section 17 and may assert such
claim, right or cause of action in the manner and forum it deems appropriate,
subject to applicable laws. No determination or decision by the arbitrators
pursuant to this Section 9 shall limit or restrict the ability of any party
hereto to obtain or seek in any appropriate forum, any relief or remedy that is
not a monetary award or money damages.
<PAGE>
-8-
18. Miscellaneous.
(a) Neither party any assign this Agreement, or their
respective rights and obligations hereunder, in whole or in part, without the
other party's prior written consent; provided, however, that ASTRA shall be
entitled to assign all of its rights and obligations hereunder to any subsidiary
or affiliated entity without the consent of the Company. Any attempt to assign
this Agreement without such consent (if required) shall be void and of no effect
ab initio. Notwithstanding the immediately preceding sentence, either party may
assign this Agreement or all, but not less than all, of its rights and
obligations hereunder to any entity that acquires it by purchase of stock or by
merger or otherwise, or by obtaining all or substantially all of its assets (a
"Permitted Assignee"); provided, that any such Permitted Assignee thereafter
succeeds to all of the rights and is subject to all of the obligations of the
assignor under this Agreement; and provided, however, that the provisions of
this Section 18 (a) shall in no way modify the provisions of Section 9 (e).
(b) This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflicts of law principles of such State. Each party shall comply in all
respects with all laws and regulations applicable to its activities under this
Agreement.
(c) Notwithstanding the provisions of Section 16, each party
hereto irrevocably submits to the exclusive jurisdiction of (a) the courts of
the State of New York, New York County, or (b) the United States District Court
for the southern District of New York, for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby or thereby. Each of the Company and ASTRA agrees to commence any such
action, suit or proceeding either in the Untied States District Court for the
Southern District of New York, or if such suit, action or other proceeding may
not be brought in such court for jurisdictional reasons, in the courts of the
State of New York County. Each of the Company and ASTRA further agrees that
service of any process, summons, notice or documents by U.S. registered mail to
such party's respective address set forth below shall be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction in this Section 18(c). Each of
the Company and ASTRA irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby and thereby in (i) the courts
of the State of New York County, or (ii) the United States District Court for
the Southern District of New York, and hereby and thereby further irrevocably
and unconditionally waives and agrees not to plead or claim in any such court
that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
(d) If any provisions of this Agreement (or any portion
thereof) or the application of any such provision (or any portion thereof) to
any person or circumstance shall be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof (or the
<PAGE>
-9-
remaining portion thereof) or the application of such provision to any other
persons or circumstances.
(e) All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand, by
facsimile (with confirmation back), or sent, postage prepaid, by registered,
certified or express mail or nationally recognized overnight courier service and
shall be deemed given when so delivered by hand, by facsimile (with confirmation
back), or if mailed, three days after mailing (one business day in the case of
express mail or overnight courier service), as follows:
(i) if to ASTRA, at:
5 Hanover Square
New York, New York 10004
Attention: Alexander Kalpaxis, President
(ii) if to the Company, at:
39159 Paseo Padre Parkway, Suite 303
Fremont, CA 94538
Attention: Neil Mehta, President
(f) The provisions of Sections 9 through 18 hereof shall
survive any termination of this Agreement.
(g) No failure to either party to exercise or enforce any of
its rights under this Agreement shall act as a waiver of such right.
(h) This Agreement, along with the Exhibits which may be
appended hereto in accordance with the terms hereof, contain the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings
relating to such subject matter. Neither party shall be liable or bound to any
other party in any manner by any representations, warranties or covenants
relating to such subject matter expect as specifically set forth herein.
(i) This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to each of the other parties.
(j) This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
<PAGE>
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(k) This Agreement is for the sole benefit of the parties
hereto and nothing herein expressed or implied shall give or be construed to
give to any person, other than the parties hereto any legal or equitable rights
hereunder.
(l) The headings contained in this Agreement or in any Exhibit
hereto are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. All Exhibits annexed hereto or
referred to herein are hereby incorporated in and made a part of this Agreement
as if set forth in full herein. Any capitalized terms used in any Exhibit but
not otherwise defined therein, shall have the meaning as defined in this
Agreement. When a reference is made in this Agreement to a Section or an
Exhibit, such reference shall be to a Section of, or an Exhibit to, this
Agreement unless otherwise indicated.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ASTRATEK
Name: Alex Kalpaxis
Title: President/CEO
4TH PERIPHERAL TECHNOLOGIES, INC
Name: Neil Mehta
Title: Chairman/CEO
AGREEMENT
THIS AGREEMENT is made this 30th day of June, 1999 between
BusinessTalkradio.Net, Inc. ("BTR"), a Pennsylvania corporation with its
principal office at 10 Fawn Lane, Haverford, PA 19041, and Tadeo Holdings, Inc.
("Tadeo"), a Delaware corporation with its principal office at 5 Hanover Square,
New York, NY 10004 (together, the "Parties").
BACKGROUND
BTR is in the business of producing and syndicating radio programming
for broadcast by its affiliated radio station network. Tadeo is a holding
company, which through its subsidiaries is engaged in the development and/or
operation of certain commercial web sites on the Internet. In late May of 1999,
Tadeo contacted BTR concerning possible strategic alliances between the two
companies. In this context, the Parties have reached an agreement which the
terms set forth below describe in detail.
TERMS OF AGREEMENT
THEREFORE, in light of the foregoing and in consideration of the
promises and the representations and covenants given and made by the respective
parties hereto, the Parties, intending to be legally bound by this Agreement,
agree as follows:
1. Cash. Immediately following execution of this Agreement, Tadeo will deliver
Two Hundred and Fifty Thousand Dollars ($250,000) to the account designated
by BTR.
2. Advertising Credit. BTR shall issue to Tadeo an advertising credit (the
"Credit") in the amount of Two Hundred Thousand Dollars ($200,000) to be
used according to the Terms of the Tadeo Advertising Credit set forth in
Appendix 1 to this Agreement.
3. Shares of Common Stock. Immediately following execution of this Agreement,
BTR shall issue to Tadeo a number of shares of its Series C Preferred
Stock, par value $.0001, which, upon issuance, shall represent a 5% voting
interest in the affairs of BTR and a preference of $250,000 for a period
and then $125,000 for a subsequent period under the designations governing
the classes of BTR's preferred stock described in Schedule 1 to this
Agreement (the "Shares").
4. Stock Purchase Option. Tadeo shall have the right to purchase a number of
shares equal to and of the same class as the Shares (the "Option Shares")
any time prior to the first anniversary of this Agreement for an aggregate
exercise price of $250,000 (the "Option"); provided that Tadeo must
exercise the Option in its entirety if at all.
5. Early Termination of Option. The Option may be terminated by BTR any time
after six months from the date of this Agreement if not exercised before
the eleventh business day following written notice from BTR that it has
generated revenue of $500,000 or more for any
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 2 of 14
three month period during the term of the Option and that revenue in each
of the three months exceeded $125,000. (Revenues shall be determined on an
accrual basis and according to Generally Accepted Accounting Principals,
including a provision for doubtful accounts.)
6. Adjustment of Option Shares. In the event of any stock split, reverse stock
split or stock dividend occurring prior to Tadeo's exercising the Option,
the number of Option Shares shall be adjusted to preserve the proportionate
ownership interest represented by the Option Shares immediately prior to
the occurrence of such event. For so long as the Option remains unexercised
and has not been terminated, BTR shall give Tadeo 15 days notice prior to
the earlier of the record date or effectiveness date of any event which
requires such an adjustment. BTR shall additionally provide Tadeo with 15
days notice prior to the earlier of the record date or the effectiveness
date should BTR (1) declare a dividend of cash, evidences of indebtedness,
or warrants or other rights of subscription for the purchase of securities
or evidences of indebtedness, or (2) resolve to reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation, or sell, transfer or otherwise dispose of all or substantially
all its property, assets or business.
7. Reservation of Shares. BTR shall reserve and keep available for issue upon
the exercise of the Option the securities representing the Option Shares,
which when issued upon full payment of the exercise price of the Option
shall be duly and validly issued and fully paid and nonassessable.
8. Piggy-Back Registration. In the event BTR proposes to register any of its
securities under the Securities Act of 1933 other than pursuant to a
registration statement on Forms S-4 or S-8 or any successor to such forms,
Tadeo may elect to have included in such registration statement all or a
portion of the Shares and the Option Shares, when and if acquired by Tadeo,
subject to any lock-up, hold-back or cut-back requirements made by the
underwriter, if any, of the related offering and provided that no other
selling shareholder may be treated proportionately more favorably than
Tadeo(the "Piggy-Back Registration Right"). At least 21 days prior to the
filing with the Securities and Exchange Commission of the registration
statement covering such securities, BTR shall mail or deliver to Tadeo a
written notice of its intention to register such securities as well as all
other relevant information. In the event Tadeo chooses to have included in
such registration such number of securities as it is entitled to include
pursuant to this paragraph, Tadeo shall mail or deliver to BTR not more
than 10 days after the date of delivery to Tadeo of the registration notice
from BTR a written notice specifying the securities to be registered.
9. Blue Sky Registration. To the extent Tadeo elects to have any of its Shares
or Option Shares registered pursuant to the Piggy-Back Registration Right,
BTR shall additionally take such steps as are reasonably necessary and
feasible to cause such securities to additionally be registered under such
other securities or "blue sky" laws as shall be reasonably requested by
Tadeo.
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 3 of 14
10. Board Participation. Tadeo shall have the right to receive notice of and to
have a designee attend as an ex officio member any and all meetings of the
Board of Directors of BTR for the life of the Option. Furthermore, upon
exercising the Option, Tadeo shall have the right either to appoint one
director to the board of BTR for a period of three years from the date of
this Agreement or to continue to designate an ex officio member of the BTR
board for the same three year period.
11. Web Page Advertising For a period of three years from the date of this
Agreement, BTR will, at the request of Tadeo, provide a banner ad on its
web page which includes a hyperlink to the web page of Tadeo Holdings, Inc.
or such web page as Tadeo Holdings, Inc. directs for a fee equal to the
lowest fee paid for similar advertising by any of BTR's advertising
clients, where such fee may be paid as a charge against the Credit.
12. Audio Streaming For a period of three years from the date of this
Agreement, Tadeo shall have the right to stream BTR's live audio feed and
to archive and stream such portions of BTR's programming as it desires on
its own web page and the web pages of any of its Subsidiaries or such other
subsidiaries or affiliates to which BTR does not object based on reasonable
business concerns over propriety, competition, product integrity, corporate
image or the like.
13. Rights to Programming. Notwithstanding the right to use BTR's programming
granted in the preceding paragraph, BTR retains all rights to its
programming.
REPRESENTATIONS AND COVENANTS OF BTR
14. Organization and Standing. BTR is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania and is duly qualified as a foreign corporation in all
jurisdictions in which the failure to so qualify would have a material
adverse effect on the business, properties, prospects, condition (financial
or otherwise) or results of operations of BTR or on the consummation of any
of the transactions contemplated by this Agreement. A copy of BTR's
Articles of Incorporation and bylaws appear as Appendix 2 to this
Agreement.
15. Authority; Validity and Enforceability. The execution of this Agreement as
well as the performance of the obligations imposed by this Agreement have
been duly and validly authorized by BTR and upon execution this Agreement
shall be valid and binding upon BTR and enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally.
16. Non-contravention. The execution and delivery by BTR of this Agreement and
the performance by BTR of the obligations imposed by this Agreement do not
and will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default (or an event which, with notice,
lapse of time or both, would constitute a default) under (i) the articles
of incorporation or by-laws of the Company [a copy of each or which has
been
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 4 of 14
provided as Appendix 2 of this Agreement] or (ii) any indenture, mortgage,
deed of trust or other material agreement or instrument to which BTR is a
party or by which its properties or assets are bound, or any law, rule,
regulation, decree, judgment or order of any court or public or
governmental authority having jurisdiction over BTR or any of the BTR's
properties or assets.
17. Capitalization. The authorized capital stock of BTR consists of 20,000,000
shares of Common Stock, $.0001 par value (the "Company Common Stock"), and
5,000,000 shares of preferred stock, par value $.0001. The number of
outstanding shares of BTR's preferred and common stock are set forth in
Schedule 1 to this Agreement. All of the issued and outstanding shares of
preferred stock and common stock have been duly authorized and validly
issued and are fully paid and non-assessable. As of the date hereof, BTR
has no outstanding stock options or warrants to purchase shares of Common
Stock except as specified in Schedule 2 of this Agreement. The Shares have
been duly and validly authorized and reserved for issuance by BTR, and when
issued pursuant to the terms of this Agreement will be duly and validly
issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder. No
preemptive, subscription, "call" or similar rights to acquire either
preferred or common stock of BTR have been issued or granted to any person.
18. Senior Classes of Preferred Stock. BTR shall not, prior to December 31,
1999, issue any shares of its Preferred Stock where such shares have been
designated to have a preference which is senior in priority to the
preference of BTR's Class C Preferred Stock.
REPRESENTATIONS OF TADEO
19. Organization and Standing. Tadeo is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
is duly qualified as a foreign corporation in all jurisdictions in which
the failure to so qualify would have a material adverse effect on the
business, properties, prospects, condition (financial or otherwise) or
results of operations of BTR or on the consummation of any of the
transactions contemplated by this Agreement.
20. Authority; Validity and Enforceability. The execution of this Agreement as
well as the performance of the obligations imposed by this Agreement have
been duly and validly authorized by Tadeo and upon execution this Agreement
shall be valid and binding upon Tadeo and enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally.
21. Non-contravention. The execution and delivery by Tadeo of this Agreement
and the performance by Tadeo of the obligations imposed by this Agreement
do not and will not conflict with or result in a breach by Tadeo of any of
the terms or provisions of, or constitute a default (or an event which,
with notice, lapse of time or both, would constitute a default) under (i)
the articles of incorporation or by-laws of the Company or (ii) any
indenture,
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 5 of 14
mortgage, deed of trust or other material agreement or instrument to which
the Company is a party or by which its properties or assets are bound, or
any law, rule, regulation, decree, judgment or order of any court or public
or governmental authority having jurisdiction over the Company or any of
the Company's properties or assets.
22. Investment Intent. Tadeo is purchasing the Shares and the Option Shares, if
Tadeo exercises the Option, for its own account, for investment purposes
only and not with a view towards or in connection with the public sale or
distribution thereof in violation of the Securities Act of 1933.
23. Investor Sophistication. Tadeo is (i) experienced in making investments of
the kind contemplated by this Agreement, (ii) capable, by reason of its
business and financial experience, of evaluating the merits and risks of an
investment in the Shares and the Option Shares, and (iii) able to afford
the loss of its investment in the Shares and the Option Shares.
24. Not a Public Offering or Sale. Tadeo understands that the Shares are being
sold by BTR in reliance on section 4(2) of the Securities Act of 1933, as
amended, and that the Company is relying upon the accuracy of, and Tadeo's
compliance with, each of Tadeo's representations, warranties and covenants,
respectively and severally, as set forth in this Agreement to determine the
applicability of referenced section 4(2) for Tadeo's purchase of the
Shares.
25. Access to Information. Tadeo acknowledges that it has been furnished with
or provided access to all materials relating to the business, financial
position and results of operations of BTR, and all other materials
requested by Tadeo, respectively, to enable it to make an informed
investment decision with respect to the Shares and that in making its
decision to purchase the Shares it has been given an opportunity to ask
questions of and to receive answers from BTR's executive officers,
directors and management personnel concerning the terms and conditions of
the Agreement and the operations and financial condition of BTR.
CERTAIN COVENANTS AND ACKNOWLEDGMENTS
26. Restrictive Legend. Tadeo acknowledges and agrees that, upon issuance
pursuant to this Agreement, the Shares and the Option Shares shall bear a
legend in substantially the following form (and a stop-transfer order may
be placed against transfer of such securities):
THESESECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF
ANY STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER
LAWS.
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 6 of 14
MISCELLANEOUS
27. Notices. Except as otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail,
postage prepaid, or by a nationally recognized overnight courier service,
and shall be deemed given when so delivered personally or by overnight
courier service, or, if mailed, three (3) days after the date of deposit in
the United States mails, as follows:
if to Tadeo, to:
Tadeo Holdings, Inc.
Hanover Square
New York, NY 10004
Attention: Alexander Kalpaxis, Executive Vice-President
with a copy to:
Nixon Peabody, LLP
Madison Avenue
New York, New York 10022-7001
Attention: Peter W. Rothberg, Esq.
if to BTR, to:
BusinessTalkradio.Net, Inc.
Fawn Lane
Haverford, PA 19041
Attention: Michael B. Pisani, CEO
28. Assignment. This Agreement shall be assignable by either of the Parties
only with the prior written consent of the other party which may be
withheld only where such assignment could cause material detriment to the
business purpose of the party solicited for consent, and any attempted
assignment contrary to the provisions hereby shall be null and void, except
that Tadeo need not obtain BTR's written consent to assignments of the
rights under this Agreement to any of its wholly owned subsidiaries listed
on Schedule 3 to this Agreement.
29. Severability. The provisions of this Agreement shall be severable, and if
any part of any provision shall be held invalid or unenforceable, or any
separate covenant contained in any provision is held to be unduly
restrictive and void by a final decision of any court or other tribunal of
competent jurisdiction, such part, covenant or provision shall be construed
or limited in scope to give maximum lawful validity, and the remaining
provisions of this Agreement shall nonetheless remain in full force and
affect.
30. Entire Agreement. This Agreement contains the entire agreement of the
Parties relating to the subject matter hereof, superseding and terminating
all prior agreements or understandings, whether oral or written, between
the Parties relative to the subject matter
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 7 of 14
hereof, and this Agreement may not be extended, amended, modified or
supplemented without the prior written consent of the Parties.
31. Waivers. Any waiver of the performance of the terms or provisions of this
Agreement shall be effective only if in writing and signed by the party
against whom such waiver is to be enforced. The failure of either party to
exercise any of his or its rights under this Agreement or to require the
performance of any term or provision of this Agreement, or the waiver of
any subsequent breach of the same or any other term or provision of this
Agreement, shall not prevent a subsequent exercise or enforcement of such
rights or be deemed a waiver of any subsequent breach of the same or any
other term or provision of this Agreement.
32. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the Commonwealth of Pennsylvania.
33. Choice of Forum and Limitations. Any action to resolve any dispute under
this Agreement may be brought only in a court of competent jurisdiction in
the Commonwealth of Pennsylvania. No action arising from a dispute based on
this Agreement may be brought more than one (1) year after the cause of
action has accrued.
34. Counterparts. This Agreement and any amendment or modification hereof may
be executed in two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
35. Facsimile Signatures. A copy of this Agreement bearing a facsimile
signature shall be deemed to bear an original signature in all states which
may have jurisdiction over this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 8 of 14
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement on the date first above written.
BUSINESSTALKRADIO.NET, INC.
By: ______________________________
Name: Michael B. Pisani
Title: Chief Executive Officer
TADEO HOLDINGS, INC.
By: ______________________________
Name: Alexander Kalpaxis
Title: Executive Vice President
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 9 of 14
APPENDIX 1
TERMS OF USE OF THE TADEO ADVERTISING CREDIT
1. Tadeo may utilize the Credit for advertising time to be broadcast any time
prior to 12:00 a.m. EST on the third anniversary of this agreement, subject
to availability and to BTR's right to preempt such advertising as limited
by paragraph 5, below; provided that, to the extent at least one third of
the Credit is not utilized by the second anniversary of this agreement,
that portion of the Credit will expire and further provided that, BTR may
refuse to provide advertising time representing a conversion of more than
one tenth of the original Credit in a single calendar month.
2. The Credit shall convert to advertising time at 16% of the rates specified
in BTR's Advertising Rate Card. (A copy of BTR's Advertising Rate Card is
attached to this Agreement as Appendix 2.)
3. In the event BTR's Advertising Rate Card changes, Tadeo shall be entitled
to purchase advertising time according to the replaced Advertising Rate
Card for a period of 120 days subsequent to BTR's notice to Corporation of
such change.
4. BTR may preempt advertising scheduled pursuant to the terms of the Credit
in favor of cash sales of advertising at or above 50% of the rates
specified for such spot in BTR's Advertising Rate Card.
5. Tadeo may guarantee any of the spots it schedules and thereby exempt its
scheduled spot from BTR's right of preemption by paying 64% of the rate
specified for such spot by the Advertising Rate Card.
6. Tadeo's right to guarantee its scheduled spots is limited such that Tadeo's
guaranteed spots may not constitute more than 10% of BTR's scheduled
advertising spots during the programming hours 6 a.m. to 9 p.m., Monday
through Friday.
7. The Credit shall be assignable by Tadeo only with the prior written consent
of BTR where such consent may be withheld only where such assignment could
cause material detriment to the business purpose of the party solicited for
consent, and any attempted assignment contrary to the provisions hereby
shall be null and void, except that Tadeo need not obtain BTR's written
consent to assignments of the Credit to any of its wholly owned
subsidiaries listed on Schedule 3 to this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 10 of 14
SCHEDULE 1
CAPITALIZATION OF BUSINESSTALKRADIO.NET, INC.
PRO FORMA
OUTSTANDING AFTER
TADEO PURCHASE
OUTSTANDING
- --------------------------------------------------------------------------------
LONG TERM DEBT 0 0
PREFERRED STOCK, PAR VALUE $.0001.
5,000,000 SHARES AUTHORIZED.
CLASS A 1,043,743 1,043,743
CLASS B 2,977,882 2,977,882
CLASS C 564,056
COMMON STOCK, PAR VALUE $.0001 5,588,334 5,588,334
20,000,000 SHARES AUTHORIZED.
* The shares to be issued to Tadeo were calculated on a fully diluted basis.
* BTR has made three designations within its authorized preferred stock -
Class A, Class B, and Class C. The distinctions among these three classes
of preferred stock lapse on December 31, 2000 at which time all preferred
and common stock shall have identical rights. At that time BTR shall
exchange the preferred stock certificates of each class for common stock
certificates representing a same number of respective shares. Until that
time, the distinction between any two classes will relate to the occurrence
of a Fundamental Transaction which shall mean any sale, liquidation, filing
by BTR for protection from its creditors under the Bankruptcy Code, or
similar event involving the exchange or modification of BTR's outstanding
common stock for value. Class B and Class C preferred stock share on a pari
passu basis a liquidation preference relative to Class A preferred stock
and common stock. Each share of Class C preferred stock shall have a
liquidation preference of $.4432 until January 1, 2000, at which time the
Class C preferred stock preference shall become $ .2217 per share. The
Class B preferred stock has a per share liquidation preference of $ .10.
Any distribution according to the preferences of the Class C and Class B
preferred stock shall be made on a pro rata basis derived from the
respective preference amounts at the time the Fundamental Event occurs.
Following fulfillment of the liquidation preferences for Classes B and C
preferred stock, Class A preferred stock shall have a $1.00 preference
relative to the common stock and the further participation of the Classes B
and C of the preferred stock. Once the Class A preferred stock liquidation
preference has been fulfilled, the common stock shares and the Class B and
Class C preferred stock shares will share
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 11 of 14
equally in the remaining proceeds of the Fundamental Event with no further
participation by the Class A preferred stock.
* 1.1 million shares of BTR's Preferred Stock have been designated Class A
shares of the Preferred Stock.
* 3 million shares of BTR's preferred stock have been designated Class B
shares of the Preferred Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 12 of 14
SCHEDULE 2
OUTSTANDING OPTIONS AND WARRANTS
HOLDER NO. OF SHARES EXERCISE PRICE TERM
- --------------------------------------------------------------------------------
Diane Cridland 564,056 $.05 3yrs
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 13 of 14
SCHEDULE 3
WHOLLY-OWNED SUBSIDIARIES OF TADEO HOLDINGS, INC.
1. Tadeo-E Commerce Corp.
2. Astratek, Inc.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Tadeo Holdings, Inc. Agreement
Page 14 of 14
APPENDIX 2
1. Articles of Incorporation
2. Articles of Amendment
3. By-Laws
GUARANTEE
September 29, 1999
Tadeo E-Commerce Corp.
5 Hanover Square
New York, New York 10004
Gentlemen:
For value received, the undersigned, ROBERT M. RUBIN, having an address
at 25 Highland Blvd., Dix Hills, NY 11746 (the "Guarantor") hereby guarantees to
you, TADEO E-COMMERCE CORP., a Delaware corporation ("Lender"), your successors
and assigns, the payment when due by acceleration or otherwise by Style-Site
Marketing, Inc. (formerly Diplomat Direct Marketing Corporation), a Delaware
corporation ("Debtor"), of all debts, liabilities and obligations of Debtor to
Lender, or to Lender's successor(s), as a holder of the Preferred Stock (as
hereinafter defined), pursuant to and under the Securities Agreement (as
hereinafter defined), including but not limited to obligations for redemption
and payment of cumulative dividends, which obligations are specified under the
terms of the Securities Agreement and the Certificate (as hereinafter defined)
and otherwise pursuant to the Certificate with respect to the Preferred Stock,
and all amendments to either, and any extensions and renewals thereof or a part
thereof, together with interest, fees, charges, expenses and costs of collection
(including but not limited to reasonable attorneys' fees), the payment of any
amounts received by you from Debtor which are recovered from you in any
bankruptcy or insolvency proceeding (whether by court order or by any
agreement), and the performance by Debtor of all its other obligations to be
performed under any of the Preferred Stock, the Securities Agreement and the
Certificate with respect to you (the "Liabilities).
For purposes of this Guarantee, the "Preferred Stock" means the 10,000
shares of Series G Preferred Stock, $.01 par value, of Debtor that was issued to
Lender under the terms of the Securities Agreement. For purposes of this
Guarantee, the "Securities Agreement" is the Securities Purchase Agreement,
dated as of June 30, 1999, between Lender, Debtor and Tadeo Holdings, Inc. For
purposes of this Guarantee, the "Certificate" means the Certificate of
Designation, as filed by Debtor with the Secretary of State of the State of
Delaware on June 11, 1999, which certificate sets forth the terms and conditions
of the Preferred Stock.
This Guarantee is an absolute, unconditional and irrevocable guarantee
of payment and performance and is not a guarantee of collection.
The Guarantor waives all rules of suretyship law, all notices to which
he may be entitled, and any other law whatsoever which is legally permitted to
be waived by him and which would, if not waived, impair your enforcement of or
release the Debtor from the Liabilities and/or the Guarantor from this
Guarantee. By way of example, and not by way of limitation, we agree that the
Liabilities shall not be impaired or released by reason of any changes
whatsoever made, with or without notice to the Guarantor, to the Debtor's debts,
liabilities or obligations to you, including, but not limited to the
Liabilities, any failure to perfect or enforce any security for the payment of
the Liabilities, any release or other impairment of such security, or any
release of or
<PAGE>
settlement with any person liable for payment of the Liabilities. Without
limitation, you do not have to give to the Guarantor notice of acceptance of
this Guarantee, the creation of any Liabilities, any action you take or do not
take regarding Debtor or any other person or any collateral securing the
Liabilities, or give us any demand or notice before you enforce this Guarantee
against the Guarantor. In addition, the Guarantor will not assert against you,
your successors and assigns, any defense, claim, counterclaim or setoff which
the Guarantor or the Debtor may have against you.
The Guarantor's liability hereunder is in addition to any other
liability which he has incurred or assumed, or may hereafter incur or assume, by
way of endorsement, separate guarantee agreement, or in any other manner, with
respect to all or any part of the Liabilities.
This Guarantee contains the entire agreement between you and the
Guarantor and cannot be changed orally. Any omissions or delay by you in
exercising any right hereunder shall not operate as a waiver, and the single or
partial exercise of any such right or rights shall not preclude any other or
further exercise thereof. This Guarantee shall be construed under the laws of
the State of New York without regard to any choice of law rule. The Guarantor
consents to the personal jurisdiction of the state and federal courts in New
York County, New York in any and all actions pertaining hereto, and the
Guarantor agrees that such jurisdiction shall be exclusive in such courts. The
Guarantor waives all rights to trial by jury in all actions pertaining to this
Guarantee. The Guarantor consents to service of process by certified or
registered mail sent to his address set forth above or to any changed address of
which he shall have given you written notice.
Very truly yours,
Robert M. Rubin
STATE OF __________ )
COUNTY OF _________ ) SS.:
On __________________, 1999 before me personally came Robert M. Rubin
to me known, who, being duly sworn, did depose and say that he resides in
_____________________; that he is the individual that executed the above
instrument, and that he signed his name thereto in the presence of the
undersigned.
Notary Public
EXHIBIT 22.
USC Michigan, Inc.
PCS,Inc. - West
Physician Support Services, Inc.
Clinishare Diabetes Centers, Inc.
Tadeo E-Commerce Corporation
Astratek, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000879465
<NAME> TADEO HOLDINGS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 7,618,259
<SECURITIES> 5,533,177
<RECEIVABLES> 45,750
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,219,530
<PP&E> 121,192
<DEPRECIATION> 49,254
<TOTAL-ASSETS> 16,487,663
<CURRENT-LIABILITIES> 2,854,388
<BONDS> 0
0
505,000
<COMMON> 1,535
<OTHER-SE> 13,109,065
<TOTAL-LIABILITY-AND-EQUITY> 16,487,663
<SALES> 1,514,849
<TOTAL-REVENUES> 1,514,849
<CGS> 700,254
<TOTAL-COSTS> 700,254
<OTHER-EXPENSES> 3,572,862
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (478,511)
<INCOME-TAX> 0
<INCOME-CONTINUING> (478,511)
<DISCONTINUED> 1,491,923
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,013,412
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
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