U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
General Form for Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934
NDS SOFTWARE, INC.
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(Name of Small Business Issuer in its Charter)
Nevada 87-0397464
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2241 Park Place, Suite E, Minden, Nevada 89423-8602
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(Address of Principal Executive Offices) (Zip Code)
(702) 782-2977
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value
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(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
DESCRIPTION OF BUSINESS
General
NDS Software (the "Company/NDS") is a leading provider of online
residential real estate information for use by home buyers, real estate agents,
mortgage and title insurance companies. Through HomeSeekers(R) ("HomeSeekers"),
the Company's proprietary Internet product available at www.homeseekers.com, or
through HomeSeekers/CityNet(TM) ("HomeSeekers/CityNet), the Company's
proprietary Intranet (direct, via modem) product, users can search for a home
within a specified geographical area and with desired features such as number of
bedrooms and baths, security, and other added features, apply for and arrange
for a mortgage and title insurance, and track the process of a closing.
Currently, public access to residential real estate has taken many
forms on the Internet. There are thousands of sites on the Internet advertising
homes for sale. Brokerage chains such as Century 21, Coldwell Banker, RE/MAX,
and others have developed their own Websites. Individual franchises of these
firms and individual real estate agents have also created their own Websites.
City based websites are carrying a subset of real estate listings. However, the
quality of the data presented on certain of these websites is highly selective
and not comprehensive. The Company believes that it has developed a quality
database on which it can build in order to provide nationwide residential real
estate information.
In November 1997, the Company entered into an agreement with IBM to
offer the "IBM/NDS Total Solution" for real estate agents. The NDS/IBM Total
Solution package includes a hardware and software package with an IBM ThinkPad,
connectivity on the IBM Internet services, a color ink jet printer, a digital
camera, and certain of the Company's proprietary software including HomeSeekers,
H.S.Passport (an e-mail and productivity package), Realty 2000(R) (a real estate
customer and property database) and three years of advertising on the
HomeSeekers website. See "Products and Services - IBM/NDS Total Solution."
The Company has also formed a limited liability company with an
affiliate of Century 21 to provide real estate information in Mexico and has
recently acquired Focus Publications, which publishes regional demographic data
magazines for real estate agents and brokers. In addition to its online services
and computer packages, the Company's Technical Services Division develops
computer software applications for the real estate and mortgage banking
industries.
NDS expects to generate revenues from a number of sources including (i)
advertising via HomeSeekers and HomeSeekers City/Net, (ii) the sale of IBM/NDS
Total Solution packages, and (iii) referral fees from mortgage applications and
processing. See "Sales."
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The Company's administrative office is located at 2241 Park Place,
Suite E, Minden, Nevada 89423; telephone no. (702) 782-2977. The Company also
maintains its HomeSeekers office at 2745 Saturn Street, Brea, California 92621;
telephone no. (714) 993-4295. The Company's fiscal year end is June 30.
Background
The predecessor of the Company, XRF Corporation, was organized under
the laws of the State of Utah on January 31, 1983 under the name of Aurora
Energy, Inc. In July 1994, XRF Corporation merged with NDS Software, Inc., (a
Nevada corporation which was absorbed into the Utah corporation) and changed its
name to NDS Software, Inc. On October 4, 1994, the Company's state of
incorporation changed from Utah to Nevada through a separate merger into NDS
Software, Inc., a wholly-owned subsidiary of XRF Corporation, which was
organized under Nevada law on September 28, 1994 solely for the purpose of
accomplishing this reincorporation.
On May 8, 1996, the Company acquired 100% of the outstanding capital
stock of Virtual Listings, Inc. ("VLI"), a California corporation organized in
1992. On August 11, 1997, the Company acquired FOCUS Publications, Inc.
("Focus") which was finalized on December 31, 1997. Focus produces regional
relocation information including economic, housing, education, entertainment and
other related information of interest to businesses and individuals relocating
to the area in paperback form for sale to realtors, title companies and
individuals relocating in the area.
The Industry and Market
The real estate industry has historically distributed information on
residential listings for sale to the public through real estate agents who draw
on inventories of homes residing in a common data base maintained by a local
Multiple Listing Service (MLS) and controlled by a local Board of Realtors
("Boards"). Boards are volunteer organizations whose members include real estate
agents and companies which provides services to its membership. These Boards
often contract the majority of their operations through one of the regional
providers of property listing information, including InterRealty with
approximately 53% of the market, Moore Data Systems, Risco, and other smaller
organizations. Typically, a real estate agent pays dues to a local Board for
access to this inventory, and up to now, the home buyer has little control over
which properties are presented.
In the United States, there are approximately 1.7 million listings at
any one time controlled by approximately 900 MLS/Board organizations. It is
estimated that these listings turn over approximately 2.4 times in the course of
a year, resulting in four million homes sold in a given year at an average value
of $125,000 nationwide. There are 70 major markets which represent approximately
two-thirds of the listing inventory. In order to provide public access on a
national basis, the Company believes that it will need to penetrate a
significant number of these 70 markets.
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Additionally, in the United States, there are approximately 5 million
new mortgages entered into annually in connection with the purchase of homes and
a comparable number of refinance mortgages. Typically, mortgage referral fees
are 50 basis points (one basis point is 1/100 of 1%). See "Sales" Moreover,
within 90 days following the purchase of a home, approximately 10% of the value
of the home is often expended on ancillary purchases such as furniture, window
covering, flooring, carpets, appliances, paint and wall paper and landscaping.
These providers of ancillary goods and services are logical advertisers for the
Company.
Business Strategy
The Company's business strategy is to provide high quality,
comprehensive, and reliable services that presents to home buyers and real
estate professionals a comprehensive up-to-date national database of residential
real estate listings and complementary services. In order to achieve these
goals, the Company will seek to enter into agreements with MLS/Boards of
Realtors in 25 of the major real estate markets within the next twelve months
(for a total of approximately 50 markets included in the Company's databases),
and, expand the number of local, regional and national companies advertising on
the HomeSeekers and HomeSeekers/CityNet databases. The Company expects to attain
these goals by raising additional funds to finance its growth and then hiring
additional marketing, sales and support personnel to help generate additional
revenues.
NDS Software Products and Services
Overview
The Company's current products and services include (i) HomeSeekers and
HomeSeekers/CityNet products, (ii) Realty 2000(R) ("Realty 2000"), a software
package that provides real estate customer and property database geared to real
estate agents, (iv) H.S. Passport, an e-mail and productivity tool, and (iii)
the IBM/NDS Total Solution package which may include the Company's proprietary
HomeSeekers, Realty 2000(R), and H.S. Passport software, and (iv) publishing
regional demographic data magazines for real estate agents and brokers through
its newly acquired Focus division. Additionally, the Company provides listing
information of real estate owned by financial institutions on the Internet
through its REOSeekers product. Through RealtySeekers International, Ltd., the
Company also has entered into a limited liability company arrangement to provide
Internet-based real estate listing information for residential and vacation
properties in Mexico.
HomeSeekers-HomeSeekers/CityNet Product
Through the Company's proprietary Internet product, HomeSeekers
(available at HomeSeekers.com), and its Intranet product (direct, via modem),
HomeSeekers/CityNet, the Company provides potential home buyers access to all
homes for sale in a subscribing MLS geographical region. HomeSeekers and
HomeSeekers/CityNet employ a sophisticated search engine with over 50 searchable
fields to allow both broadly and narrowly defined searches. The systems
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will search, find and display all listings that match a prospective buyer's
criteria including, among others, a desired location within a city or state,
number of bedrooms and baths, and other desired features. The Company's new
feature, "Let the Listings Find You(sm)", allows users to enter their search,
save it, and automatically search for updated inventory, thus increasing Company
website hits. The systems also permit users to apply for and arrange for a
mortgage, title insurance, and securely track the progress of the closing for
the property, no matter where the user is located.
In order to attain its inventory of residential listings, the Company
has entered into agreements with 36 MLS/Board of Realtors representing more than
185,000 real estate agents and approximately 400,000 home listings in 25 of the
major markets in the United States. This approach, along with its
quality/integrity control systems, allows HomeSeekers and HomeSeekers/CityNet to
maintain accurate and up-to-date information available to potential home buyers,
which in turn, may lead to increased potential advertising and usage fee
revenue. See "Sales." Unlike certain of the Company's competitors including
RealSelect and Cyberhomes who the Company believes update their listing
approximately every ten days, the Company believes that HomeSeekers is the only
website that is able to update its listing data on a daily basis. See
"Competition." As a result, in markets shared with the Company's competition,
realtors often reference HomeSeekers as an "online" database and its competitors
as "historical" databases.
The Company also licenses its proprietary systems to MLS/Boards as an
enhancement to a Board's existing MLS data systems under a three-year contract.
The license agreement does not require a financial commitment from a Board, but
allows the Company access to content which can be directly related to revenue
generation through advertising contracts, scanning services, software
manufacture and upgrading. Additionally, MLS/Boards and advertisers have access
to detailed reports on website usage, which allows the Company to provide market
feedback and value-added performance measures. The Company has also developed
monitoring tools to maximize server availability to better than 99.5% uptime.
The Company has developed automated processes which allow the Company
to bring a new MLS/Board of Realtor organization on as quickly as within a few
hours (if the data format is similar to the Company's) and within one to three
days for those organizations with a different data format.
Since offering HomeSeekers and HomeSeekers/CityNet, the number of homes
viewed have increased from 800,000 in January 1996 to over 4,900,000 as of
December 1997. Site accesses ("hits") have grown from 472,000 in January 1996 to
10,200,000 in December 1997. Presently, over 200,000 separate users access the
HomeSeekers site per month, staying an average of 36 minutes and viewing in
excess of 32 homes per visit.The Company currently offers multiple listing
information in 27 states, Mexico and Chile.
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Realty 2000
Realty 2000, the Company's first product, is a software package
targeted at real estate agents for use on personal computers (PCs). Realty 2000
has since developed into the third largest software product for the real estate
vertical market. Realty 2000 is a labor intensive product to support. Management
believes the Company's efforts will be more lucrative developing the advertising
and mortgage referral business. Realty 2000 provides customer and property data
bases; personal income and expense tracking; a time management system for real
estate agents and staff, internal word processing; estimates of closing costs,
net proceeds and annual property operating data; buyer qualification data and
mortgage lead data; comparative marketing analysis; and an import option that
downloads up-to-the-minute data from local or nationwide MLS services directly
to the property data base. Versions of Realty 2000 have been developed by the
Company to run on networks in offices, thereby permitting real estate agents to
readily share their files and exchange information. Realty 2000 is currently
being updated and may be used in the IBM/NDS Total Solution package.
H.S. Passport E-mail and Real Estate Agent Productivity Tool
H.S. Passport is a proprietary e-mail and real estate agent
productivity tool that provides real estate agents direct access to leads from
interested home buyers. By using H.S. Passport, agents are able to gather data
relating to the market positioning of all properties. H.S. Passport provides
each subscribing real estate agent a web page, a scanned photograph of the agent
and a biography.
IBM/NDS "Total Solutions" Package
In November 1997, the Company, as licensor, entered into a license
agreement with IBM to license Realty 2000, H.S. Passport and HomeSeekers, to IBM
to be included in the IBM/NDS Total Solutions package which will be targeted to
real estate agents. The package also will include a personal Internet Home Page
for real estate agents designed by NDS, a hot link to agent listings and
supplemental photographs, audio clips, and other services. In addition to
certain of the Company's software packages, the Total Solution package will also
include a portable IBM ThinkPad with Internet capability, connectivity to the
Internet via the IBM Internet services, a color ink jet printer, a digital
camera, a real estate productivity package, and three years of advertising on
the HomeSeekers website.
FOCUS Publications
On August 11, 1997, the Company acquired FOCUS Publications, Inc.
("Focus") which was finalized on December 31, 1997. Focus produces regional
relocation information including economic, housing, education, entertainment,
employment and other relevant information of interest to persons relocating in a
county in the Southern California region, in paperback form for sale to
businesses and individuals relocating in the area, as well as to realtors, title
companies and other organizations that in turn use the publication as an
additional marketing and promotional tool. In the future, the Company
anticipates that in addition to publication of the data in paperback book
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form, it will also be digitized and added to the HomeSeekers website to generate
additional advertising and end-user revenues. Revenues from Focus are generated
from advertising and book sales.
NDS Technical Services
NDS Technical Services, a division of the Company, provides technical
support, and on a project basis, is targeted at small to medium-based
businesses. In particular, NDS Technical Services provides Internet/Intranet
Solutions, including designing an Internet presence; management, architecture
and planning, which includes designing and assessing hardware, software,
operating systems and other product needs; systems analysis and design, which
includes developing a system blueprint with flexibility for future requirements;
database design, network design, administration and installation, which includes
providing installation and fine tuning of software solutions along with software
development, testing and implementation of software. The Company's current
programming staff provides the technical resources for the NDS Technical
Services division.
Strategic Alliances
In December, 1997 the Company entered into an agreement with Stewart
Title of California, an affiliate of Stewart Information Services Corporation
(NYSE: STC), to provide comparable home sales information through HomeSeekers,
making it easily available to the public without the need to request this
information through a realtor for the first time. Until now, this information
has been available only to licensed real estate professionals.
In October 1997, Baca Landata, a wholly owned subsidiary of Stewart
Title entered into an exclusive three-year marketing alliance agreement with NDS
to market the HomeSeekers product on behalf of the Company to MLS's in the State
of Texas. In consideration for the services performed by Baca Landata, NDS will
pay Boca Landata a commission, based on sales.
In January 1998, the Company formed a Nevada limited liability company
with Finet Holdings, Inc. to establish a website for consumers to view
information pertaining to real estate and to provide consumers an opportunity to
pre-qualify for, apply for and close residential home loans. Finet is one of the
nation's leading independent mortgage brokers and currently a sponsor in
multiple locations at the Company's HomeSeeker's website. Revenues will be
generated from transaction fees resulting from the processing of loans and from
advertising.
Marketing
The Company has both in-house and outside direct sales personnel that
market its products directly to Boards of Realtors. The Company will use
primarily two sales channels, seminars and direct sales, to market its products
and generate revenues. The sales seminar channel will consist of a team to set
up and present approximately 15 seminars targeted at realtors and real estate
agents interested in marketing their services via the Internet each month
throughout the United States. The
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intent is to market and sell the IBM/NDS Total Solution Package and/or
HomeSeekers or HomeSeekers/CityNet, as well as advertising. The Company
anticipates that its seminar team will have a per seminar quota of $5,700. The
direct sales channel includes promoting, marketing and selling the IBM/NDS Total
Solutions Package an/or HomeSeekers or HomeSeekers/CityNet to larger real estate
organizations throughout the United States. Each sales person will have an
initial month sales quota of $24,000.
Additionally, the Company has signed marketing agreements with each of
its major Board providers. These agreements provide MLS vendors with an
introduction fee for facilitating a presentation to their respective MLS Boards.
By partnering with the MLS vendor contact, the Company can reduce its sales
costs and shorten its sales cycle by appealing to affiliates of MLS providers
such as title companies, mortgage brokers and insurance agencies.
Sales
The Company expects to generate revenues (i) through advertising by
companies selling their services to home buyers including mortgage brokers,
financial institutions, title companies, real estate agents, local retailers and
services providers, and other businesses seeking exposure to a broad base of
home buyers, (ii) through user fees from mortgage referrals (typically 50 basis
points or 50/100 of 1%), (iii) by providing real estate agent services, such as
referrals, e-mail and other services, and (iv) through the sale of products
including the IBM/NDS Total Solution package. The Company also provides
technical consulting services for which it receives fees through NDS Technical
Services to third parties to develop industry-specific computer software
applications for the real estate and mortgage banking industry as well as
clients developing innovative business opportunities in other business fields on
the Internet.
Trademarks, Copyrights and Proprietary Rights
Presently, the Company has not sought patent protection for its
proprietary software system, although it may apply for patents on various
aspects of its programs in the future. The Company, rather, will seek to
maintain its proprietary rights by trade secret protection, copyright notices,
non-competition and non-disclosure agreements with its employees and, as
required, with its vendors. The Company may file for further copyrights and/or
patents for its software program applications and obtain patents where
cost-effective and feasible. There can be no assurance that meaningful
proprietary protection can be attained as a result of such filing, and any
proprietary rights that the Company could choose to protect through legal action
may involve substantial costs.
The Company believes that the technology edge it currently enjoys will
likely lessen over time and in order to be competitive, it must provide a high
quality, continually improving, complete solution to home buyers, real estate
agents and the MLS Boards. The Company believes its core technical competence of
computer programming and knowledge of the real estate market will allow it to
maintain a leading edge product that will have value in the marketplace. The
Company obtained
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federal trademark protection for its Realty 2000 mark in 1990 and has applied
for federal trademark protection for its HomeSeekers-CityNet and HomeSeekers
marks.
Competition
The Company is engaged in a highly competitive segment of the real
estate data processing industry. The Company competes or may subsequently
compete, directly or indirectly, with a large number of companies which may
provide various levels of services or products comparable with those provided by
the Company. Many present or prospective competitors including RealSelect and
Cyberhomes (a division of Moore Data Services), have Internet websites, are, in
some cases, better capitalized, more established and have greater access to
resources necessary to produce a competitive advantage. Additionally, brokerage
chains such as Century 21, Coldwell Banker, Re/MAX, as well as individual real
estate agents, have developed their own websites. Although the Company believes
that its software systems and services may be on the leading edge of technology
and can ultimately occupy an attractive market position, there can be no
assurance that the Company will continue to compete effectively in its market.
Employees
The Company currently has 50 full-time employees, 15 of which are in
administration/management, 14 are in sales and marketing, 5 are in technical
support and 16 are in programming.
DESCRIPTION OF PROPERTY.
The Company currently leases approximately 6,325 square feet of office
space at its Minden, Nevada location. Its monthly lease payments are $6,273
subject to yearly adjustments based on the Consumer Price Index for All Urban
Consumers all items, U.S. City average (1982-1984). The lease term, which
commenced on September 15, 1994, is for five years with an option to renew for
an additional five-year term.
The Company leases approximately 3,250 square feet of office and
storage space in Brea, California for its HomeSeekers operations. The term of
the lease is for three years, commencing August 21, 1996 and the monthly rental
for the space is $2,200 for the first year, $2,300 for the second year and
$2,400 for the third year. The Company has a right of first refusal to purchase
the building in the event that the lessor wishes to sell it.
Focus, a division of NDS, rents 1,215 square feet of space in Orange
County, California, at a monthly rate of $1,396. The term of the lease commenced
on September 15, 1997 through April 1, 1998. The Company is currently looking
for expanded facilities which will accommodate both HomeSeekers and Focus.
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DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following table sets forth the names, positions with the Company
and ages of the executive officers and directors of the Company. Directors of
the Company will be elected at the Company's annual meeting of stockholders and
serve for two years or until their successors are elected and qualify. Officers
are elected by the Board and their terms of office are, except to the extent
governed by employment contract, at the discretion of the Board.
<TABLE>
<CAPTION>
Name Age Position Director Since
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<S> <C> <C>
Greg Johnson 45 Chairman of the Board of Directors 1988
Chief Executive
Officer, Secretary,
Treasurer
John Giaimo 42 President, Chief 1996
Operating Officer
Director
Douglas Swanson 53 Vice Chairman, 1996
Executive Vice President
Scott Berry 39 Chief Financial Officer N/A
Larry Ross 46 Vice President, Marketing N/A
Dr. John C. Kelly 61 Director 1994
</TABLE>
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Greg Johnson, the Company's founder, has served as the Company's Chairman of the
Board of the Company since August 6, 1996, its Chief Executive Officer ("CEO"),
and a Director of the Company since 1988, and its President from 1988 through
August 5, 1996. Mr. Johnson has been involved in all phases of management of the
Company. Mr. Johnson is a licensed real estate broker/agent in Nevada and has
extensive experience in the marketing and sales of real estate.
John Giaimo has served as the Company's President, Chief Operating Officer
("COO") and a Director since August 6, 1996. He was the President of Visual
Listings, Inc., and (now part of the HomeSeekers division) since July 1990 and
the Chief Executive Officer of VLI from July 1990 to August 5, 1996. Mr. Giaimo
was the subject of a recent chapter 7 personal bankruptcy which became final on
September 12, 1996 and involved three computer stores where he was the sole
proprietor. The bankruptcy was the result of the computer stores' inability to
sustain profitability and positive cash flows in order to meet the obligations
of the stores and Mr. Giaimo when they became due.
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Douglas Swanson has served as Vice Chairman of the Board of Directors and
Executive Vice President of the Company since October 31, 1995. His current
responsibilities for the Company include working with major investors of the
Company and implementing the HomeSeekers marketing division. Between 1990 and
October 30, 1995, Mr. Swanson served as Chairman and was founder of
Remington-Fox, Inc. (OTC: RFOX), a company engaged in the business of medical
transcribing. Remington-Fox filed for bankruptcy protection under Chapter 11 in
June 1996 and is no longer in operation. Because of personal guarantees
associated with Remington-Fox, Mr. Swanson also filed for personal bankruptcy
protection under Chapter 11 in June 1996.
Scott Berry has served as Chief Financial Officer of the Company since October
1997 and is responsible for investor relations, accounting, financial planning
and control. Between 1994 and October 1997, Mr. Berry served as Controller of
several business including Dennis Banks Construction Company from February 1997
to October 1997, Advanced Plastic Molding, Inc. from April 1996 to January 1997,
and Siller Brothers, Inc. from December 1994 to February 1996. From July 1993 to
August 1994, Mr. Berry served as Vice president of Finance for Precision
Resource Corporation, a software developer and computer hardware reseller. From
September 1988 through June 1993, Mr. Berry was Chief Financial Officer of
Lansmont Corporation, a developer and manufacturer of computer-based product and
package test equipment.
Larry Ross has served as Vice President of Marketing since September 1997. From
May 1989 to May 1996, Mr. Ross served as the Regional Director/Chief Operating
Officer for Century 21 Region V, which comprises the eastern half of Los Angeles
County, Riverside County and San Bernardino County, California, one of the top
five regions of 45 nationwide that are consistently ranked first in "per office"
productivity, where he was responsible for 185 offices with 7,000 real estate
agents and managed a corporate staff of 35. Between 1990 and 1992, he served as
Regional Director Representative to the National Advertising Fund committee
which helped set direction for the Century 21 advertising fund of $40 million.
Additionally, from 1993 to 1994, he was one of three Regional Directors
appointed to serve on the President's National Top Brokers Task Force which
contributed input to the Chief Executive Officer of Century 21.
Dr. John C. Kelly has served as a member of the Board of Directors of the
Company since July 6, 1994. Dr. Kelly is a medical doctor, specializing in
family practice and is the Chairman of the Department of Family Practices at
Washoe Medical Center. Dr. Kelly began his medical career in the Navy in 1961
and is currently practicing medicine at Washoe Medical Center, Reno, Nevada.
There are no family relationships among any of the executive officers
or directors.
The Company's officers are elected annually by the Company Board of
Directors. Directors are entitled to reimbursement for reasonable travel and
other out-of-pocket expenses incurred in connection with attendance of Board of
Directors meetings, but receive no set fees or benefits as directors, although a
director may receive certain options upon a Director's acceptance of the
position as a director of the Company. See "Remuneration of Directors and
Officers."
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REMUNERATION OF DIRECTORS AND OFFICERS
Executive Compensation as of June 30, 1997
Below is the aggregate annual remuneration of each of the three highest
paid persons who are officers or directors as a group as of June 30, 1997.
Capacities in Which
Name of Individual or Remuneration Aggregate
Identity of Group Was Received Remuneration
- --------------------- ------------------- ------------
Greg Johnson Chairman & CEO $118,277(1)
Doug Swanson Vice Chairman $118,277(1)
John Giaimo President & COO $118,277(1)
- ------------
(1) Includes a car allowance of $7,200 which has been accrued but unpaid.
Employment Agreements
Greg Johnson, Chairman and CEO. In June 1996, the Company entered into a five
year employment agreement with Greg Johnson whereby Mr. Johnson continued to
serve as the President/CEO of the Company and received a signing bonus of
$34,664. Subsequently, Mr. Johnson resigned as President of the Company, however
no written modification has been made to his employment agreement to date.
Effective September 1, 1996, Mr. Johnson's annual salary was increased to
$100,000 and subsequently on March 4, 1997, Mr. Johnson's employment agreement
was again amended to increase his annual salary to $144,000 however, he did not
begin receiving this increased rate until September 1997. The amount earned, but
not paid to Mr. Johnson has been recorded as a liability on the books of the
Company. Mr. Johnson is also entitled to receive (i) an annual bonus equal to 4%
of the pre-tax earnings of the Company and (ii) options to purchase Common Stock
of the Company equal to 4% of the pre-tax earnings of the Company, which
exercise price shall be the bid price of the Company's Common Stock on the date
of such grant. Mr. Johnson also has the right to receive a monthly automobile
allowance of $600.00.
Douglas Swanson, Vice Chairman. In June 1996, the Company entered into a five
year employment agreement with Mr. Swanson whereby Mr. Swanson continued to
serve as the Vice Chairman of the Company, and received a signing bonus of
$35,402. Effective September 1, 1996, Mr. Swanson's annual salary was increased
to $100,000 and subsequently on March 4, 1997, Mr. Swanson's employment
agreement was again amended to increase his annual salary to $144,000 however,
he did not begin receiving this increased rate until September 1997. The amount
earned, but not paid to Mr. Swanson has been recorded as a liability on the
books of the Company. Mr. Swanson is also entitled to receive (i) an annual
bonus equal to 4% of the pre-tax earnings of the Company and (ii) options to
purchase Common Stock of the Company equal to 4% of the pre-tax earnings of the
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Company, which exercise price shall be the bid price of the Company's Common
Stock on the date of such grant. Mr. Swanson also has the right to receive a
monthly automobile allowance of $600.00.
John Giaimo, President, COO and a Director. In May 1996, the Company entered
into a five year employment agreement with John Giaimo whereby Mr. Giaimo was
appointed President and COO of the Company and received a signing bonus of
$50,000. Effective September 1, 1996, Mr. Giaimo's annual salary was increased
to $100,000 and subsequently on March 4, 1997, Mr. Giaimo's employment agreement
was again amended to increase his annual salary to $144,000 however, he did not
begin receiving this increased rate until September 1997. The amount earned, but
not paid to Mr. Giaimo has been recorded as a liability on the books of the
Company. Mr. Giaimo is also entitled to receive (i) an annual bonus equal to 4%
of the pre-tax earnings of the Company and (ii) options to purchase Common Stock
of the Company equal to 4% of the pre-tax earnings of the Company, which
exercise price shall be the bid price of the Company's Common Stock on the date
of such grant. Mr. Giaimo also has the right to receive a monthly automobile
allowance of $600.00.
Incentive and Non-Qualified Stock Option Plan
On October 9, 1996, the Board of Directors ratified a stock option plan
called the "1996 Stock Option Plan (the "Plan") and on December 21, 1996, the
stockholders approved the Plan. On December 18, 1997, at the annual meeting of
the Company stockholders whereby a majority of the Company's stockholders and
members of the Board of Directors voted to amended the Plan to increase the
number of options to 5,500,000.
The Company believes the Plan will work to increase the proprietary
interest in the Company of its directors, officers, employees and consultants,
and to align more closely their interests with the interests of the Company's
stockholders. The Plan will also maintain the Company's ability to attract and
retain the services of experienced and highly qualified employees and directors.
Under the Plan, the Company has reserved an aggregate of 5,500,000
shares of Common Stock for issuance pursuant to options granted under the Plan
("Plan Options"). The Board of Directors of the Company administers the Plan
including, without limitation, the selection of the persons who will be granted
Plan Options under the Plan, the type of Plan Options to be granted, the number
of shares subject to each Plan Option and the Plan Option price.
The Plan authorizes the issuance of incentive stock options ("ISOs") as
defined in Section 422A of the Internal Revenue Code of 1986, non-qualified
stock options ("NQSOs") and together with ISOs,"Options"). In addition, the Plan
also allows for the inclusion of a reload option provision ("Reload Option"),
which permits an eligible person to pay the exercise price of the Plan Option
with shares of Common Stock owned by the eligible person and receive a new Plan
Option to purchase shares of Common Stock equal in number to the tendered
shares.
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<PAGE>
Any ISO granted under the Plan must provide for an exercise price of
100% of the fair market value of the underlying shares on the date of such
grant, but the exercise price of any ISO granted to an eligible person owning
more than 10% of the Company's Common Stock must be at least 110% of such fair
market value as determined on the date of the grant. The aggregate fair market
value of the shares covered by the ISOs granted under the Plan that become
exercisable by a Plan participant for the first time in any calendar year is
subject to a $100,000 limitation. The exercise price of each NQSO is determined
by the Board of Directors or a committee thereof, in its discretion, provided
that the exercise price of an NQSO is not less than 75% of the fair market value
of the Common Stock on the date of the grant. The Board of Directors (or
committee thereof), shall determine the term of the Options; provided, however,
that in no event may an Option be exercisable more than 10 years after the date
of its grant and, in the case of an Incentive Option granted to an eligible
employee owning more than 10% of the Company's Common Stock, no more than five
years after the date of the grant. Any option which is granted shall be vested
and exercisable at such time as determined by the Board of Directors or a
committee thereof.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
As of December 31, 1997, there were options outstanding to purchase an
aggregate of 3,500,700 shares granted pursuant to the Plan.
Options, Warrants and Rights
<TABLE>
<CAPTION>
Title and Amount of
Securities Called For By
Name of Holder Options, Warrants or Rights Exercise Price Date of Exercise
- -------------- --------------------------- -------------- ----------------
<S> <C> <C> <C>
Greg Johnson 726,000 options $1.47 Through January 13, 2003
John Giaimo 475,000 options $1.47 Through January 13, 2003
Dr. John C. Kelly 300,000 options $1.47 Through January 13, 2003
16,500 warrants(1) $3.00 Through December 15, 1998
Douglas Swanson 1,001,000 options $1.47 Through January 13, 2003
William Tomerlin 27,500 options $2.00 Through January 26, 1999
</TABLE>
- --------------
(1) Purchased pursuant to a private offering undertaken by the Company.
See "Part II - Sale of Unregistered Securities."
14
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
Principal Shareholders
The following table sets forth certain information regarding the
Company's shares ("Shares") of common stock, par value $.001 ("Common Stock")
beneficially owned as of December 31, 1997 for (i) each stockholder known by the
Company to be the beneficial owner of five (5%) percent or more of the Company's
outstanding Common Stock, (ii) each of the Company's directors, and (iii) all
executive officers and directors as a group. At December 31, 1997, there were
5,896,029 shares of Common Stock outstanding. Except as specifically set forth
in the notes below, does not include (a) the conversion of the convertible
redeemable promissory notes ("Notes") into an aggregate of 198,750 shares of
Common Stock, (b) the exercise of warrants to purchase 1,563,001 shares of
Common Stock, (c) the exercise of options to purchase an aggregate of 3,500,700
shares of Common Stock, (d) 1,849,200 shares of Common Stock reserved for
issuance pursuant to the Company's Stock Option Plan, and (e) the conversion of
the Company's Series A Preferred Stock into an aggregate of 1,664,000 shares of
Common Stock.
Name and Address or Amount and Nature of Percentage
Beneficial Owner(1) Beneficial Ownership(2) of Class
------------------- ----------------------- ----------
Greg Johnson(3) 1,107,170 16.7%
John Giaimo(4) 534,882 8.4%
Dr. John C. Kelly(5) 701,507 11.3%
Douglas Swanson(6) 1,002,502 14.5%
Scott Berry -0- -0-
Larry Ross -0- -0-
All directors and officers
as a group (six persons) 3,346,061 39.8%
William Tomerlin(7) 455,942 7.7%
- ----------
(1) Unless otherwise indicated, the address of each of the listed
beneficial owners identified is 2241 Park Place, Suite E, Minden,
Nevada 89423. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all the Shares beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days upon the exercise of warrants or
options. Each beneficial owner's percentage ownership is determined by
assuming that warrants or options that are held by such person (but not
those held by any other person) and that are exercisable within 60 days
have been exercised.
(3) Mr. Greg Johnson is Chairman of the Board of Directors and Chief
Executive Officer of the Company. Includes options to purchase 726,000
Shares at $1.47 per Share through January 13, 2003. Does not include
1,626 Shares underlying warrants or the Notes at $2.00 per Share,
convertible into 1,626 Shares owned by Janet Gookin and Brandon Wilson,
the sister and nephew of Mr. Johnson. Also does not include options to
purchase 6,000 Shares at $1.47 per Share issued to Jeannie Johnson, the
wife of Mr. Johnson and is employed
15
<PAGE>
by the Company. Mr. Johnson's percentage was based on 6,622,029 shares
(giving effect to the exercise of the options described herein).
(4) Mr. John Giaimo is President, Chief Operating Officer and a Director of
the Company. Includes options to purchase 475,000 Shares at $1.47 per
Share through January 13, 2003. Does not include 69,492 Shares owned by
Melinda Giaimo, the wife of Mr. Giaimo and an employee of the Company.
Mr. Giaimo's percentage was based on 6,371,029 shares (giving effect to
the exercise of the options described herein). Mr. Giaimo's address is
2745 Saturn Street, Brea California 92821.
(5) Dr. John Kelly is a Director of the Company. Includes options to
purchase 300,000 Shares at $1.47 per Share through January 13, 2003.
Dr. Kelly's percentage was based on 6,212,529 Shares (giving effect to
the exercise of the options and warrants described herein).
(6) Mr. Douglas Swanson is Vice Chairman of the Board of Directors and
Executive Vice President of the Company. Includes options to purchase
1,001,000 Shares at $1.47 per Share through January 13, 2003. Mr.
Swanson's percentage was based on 6,897,029 shares (giving effect to
the exercise of the options described herein).
(7) Mr. William Tomerlin is the former Chairman of the Board of Directors
of the Company. He retired from this position in August 1996. Includes
options to purchase 27,500 Shares at $2.00 per Share through January
26, 1999. Mr. Tomerlin's percentage was based on 5,923,529 Shares
(giving effect to the exercise of the options described herein).
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Family Relationships
As a result of the purchase and exchange agreement in May 1996 with
Visual Listings, Inc., whereby the Company acquired Visual Listings, Inc. (VLI)
for 280,000 shares of Common Stock of the Company to acquire the technology
necessary to compete in the Internet market and to enable the Company to make
its HomeSeekers-CityNet (then known as "HomeSearch 2000") product available via
the Internet, Melinda Giaimo, an employee of the Company and the wife of John
Giaimo, the President, Chief Operating Officer and a director of the Company and
VLI, received 68,500 Shares of the Company in exchange for VLI common stock held
by Ms. Giaimo. Additionally, Donna Emory, the sister of Mr. Giaimo received
6,000 Shares in connection with the Company's acquisition of VLI.
Loans to the Company
During fiscal year 1997, the Company received a personal loan of
$100,000 jointly from Mr. Greg Johnson, the Chief Executive Officer and Chairman
of the Board of Directors, and Dr. John Kelly, a Director. The funds were
borrowed personally from a bank by Mr. Johnson and Dr. Kelly and advanced to the
Company. The interest rate charged by the bank is variable, and has been 10% per
annum to date. Interest is passed on to the Company for payment. As of December
31, 1997, the Company had repaid $60,000 of this loan and all accrued interest.
16
<PAGE>
As of December 31, 1997, the principal amount of $10,000 of loans, due
on demand to Dr. Kelly, was outstanding to the Company, at 12% interest per
annum. As of December 31, 1997, an on-demand loan in the principal amount of
$10,000 at 12% interest per annum was outstanding and due to Jeannie Johnson, an
employee, and the wife of Greg Johnson.
Transactions with Promoters
In May 1996, the Company entered into an agreement with The Armand
Group, which later changed their name to Griffin Partners, for corporate finance
advisory services for a period of 12 months. As consideration for business,
advisory and other consulting services performed on behalf of the Company,
Griffin Partners received $78,750 in cash, 50,000 Shares and Warrants (the
"Armand Warrants") to purchase (i) 150,000 Shares at $1.75 per Share through May
22, 2001; (ii) 150,000 Shares at $3.00 per Share through May 22, 2001; and (iii)
150,000 Shares at $4.00 per Share through May 22, 2001. The $1.75 Warrant and
the $3.00 Warrant are redeemable at their exercise price at the option of the
Company in the event the closing price of the Company's Common Stock exceeds
$5.00 per Share for twenty consecutive business days. The $4.00 Warrant is
redeemable at the its exercise price at the option of the Company in the event
the closing price of the Company's Common Stock exceeds $12.00 per Share for
twenty consecutive business days. See "Description of Securities - Warrants." In
February, 1997 Griffin Partners exercised their $1.75 warrant.
In September 1996, the Company entered into an agreement with John L.
Crary for corporate finance advisory services for an initial term of 90 days.
During early 1997, the Company continued to use Mr. Crary's services on a
month-to-month basis. As consideration for business, advisory and other
consulting services performed on behalf of the Company, Mr. Crary received
$24,355 in cash, is currently owed $6,130 on account, received 2,000 Shares, and
warrants (the "Crary Warrants") to purchase 50,000 Shares at $6.00 per Share
through September 14, 1999, which vesting periods are as follows: (i) warrants
to purchase 10,000 shares immediately vest; (ii) warrants to purchase 10,000
shares will vest upon each successive six month anniversary commencing September
14, 1996.
In September 1997, the Company entered into an agreement with CB
Business Consulting, whose principal is Thomas Payne, for financial public
relations services for a one year term. The agreement can be canceled by either
party with one months notice after March 1, 1998. The terms of the agreement
call for payment of $5,000 per month plus the issuance of an option to purchase
70,000 Shares at $3.00 per share through October 15, 1997 and an option to
purchase 200,000 Shares at $4.25 per share through October 1, 2000. Both options
vested immediately. Thomas Payne exercised the $3.00 option on October 15, 1997.
DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 50,000,000 shares of
Common Stock, $.001 par value, of which 5,896,029 shares were outstanding as of
December 31, 1997. The Company is also authorized to issue up to (i) 5,000,000
shares of Class A Preferred Stock, $.001,
17
<PAGE>
of which 1,000,0000 shares have been designated as Series A Preferred Stock and
of which 832,000 shares were issued and outstanding at December 31, 1997, and
(ii) 200,000 shares of Class B preferred stock, $10.00 par value, of which no
shares were issued and outstanding at December 31, 1997.
Common Stock
The Company is currently authorized to issue up to 50,000,000 shares of
Common Stock, $.001 par value, 5,896,029 shares of which were issued and
outstanding at December 31, 1997. Subject to the dividend rights of the holders
of Preferred Stock, holders of shares of Common Stock are entitled to share, on
a ratable basis, such dividends as may be declared by the Board of Directors out
of funds, legally available therefor. Upon liquidation, dissolution or winding
up of the Company, after payment to creditors and holders of Preferred Stock
that may be outstanding, the assets of the Company will be divided pro rata on a
per share basis among the holders of the Common Stock.
Each share of Common Stock entitles the holders thereof to one vote.
Holders of Common Stock do not have cumulative voting rights which means that
the holders of more than 50% of the shares voting for the election of Directors
can elect all of the Directors if they choose to do so, and, in such event, the
holders of the remaining shares will not be able to elect any Directors. The
By-Laws of the Company require that only a majority of the issued and
outstanding Shares of the Company need be represented to constitute a quorum and
to transact business at a stockholders' meeting. The Common Stock has no
preemptive, subscription or conversion rights and is not redeemable by the
Company.
Preferred Stock
As of December 31, 1997, the Company has designated two Classes of
Preferred Stock, Class A Preferred Stock and Class B Convertible Preferred
Stock, of which 5,000,000 shares, $.001 par value and 200,000 shares, $10.00 par
value were authorized, respectively.
Class A Preferred Stock
In December 1994, the Board of Directors of the Company issued an
initial series of Class A Preferred Stock, which was denominated as "Class A,
Series A Preferred Stock" (the "Series A Preferred Stock") of which 832,000
shares were issued and outstanding as of December 31, 1997. The shares of Series
A Preferred Stock have been given a value of $2.00 per share and yield dividends
of 15% per year, payable in cash or in Common Stock of the Company and which
dividends are cumulative, when and as declared by the Company, but do not bear
interest. The shares of Series A Preferred Stock are redeemable at the Company's
option at $2.00 per share, plus all accrued dividends. Each share of Series A
Preferred Stock is also convertible into two shares of Common Stock, at the
Preferred stockholder's option. The holder of each share of Series A Preferred
Stock is entitled to five (5) votes per share. The Series A Preferred Stock has
a liquidation preference of $2.00 per share.
18
<PAGE>
Class B Convertible Preferred Stock
There are 200,000 shares of Class B Convertible Preferred Stock ("Class
B Preferred Stock"), $10.00 par value authorized, none of which are issued and
outstanding.
Common Stock Purchase Warrants
In connection with the Company's private offering of certain of the
Company's securities in July 1996 and October 1996, the Company issued warrants
to purchase an aggregate of 750,000 and 290,500 Common Stock, respectively
(collectively the "PPM Warrants"). These PPM Warrants are exercisable at $3.00
per share on or prior to December 15, 1998.
In May 1996, the Company issued warrants (the Armand Warrants) to
purchase an aggregate of 450,000 Shares for a period of 5 years from the date of
issuance, 150,000 of which are exercisable at $1.75 per Share, 150,000 of which
are exercisable at $3.00 per Share, and 150,000 of which are exercisable at
$4.00 per Share. The Armand Warrants are redeemable by the Company only when the
price of the underlying common shares have been above $5.00 per share (closing
price) for twenty consecutive business days. The $4.00 Armand Warrant cannot be
redeemed by the Company unless the underlying shares exceeds $12.00 per Share
for twenty consecutive business days. The warrant period was extended by six
months to November 22, 2001 by the Board of Directors on January 14, 1998.
On September 15, 1996, the Company issued warrants (the "Crary
Warrants") to purchase an aggregate of 50,000 Shares for a period of 3 years
from the date of issuance which are exercisable ratably based on defined events
at $6.00 per Share through September 14, 1999, which vesting periods are as
follows:(i) warrants to purchase 10,000 shares immediately vest; (ii) warrants
to purchase 10,000 shares will vest upon each successive six month anniversary
commencing September 14, 1996; provided warrants to purchase 20,000 shares will
be exercisable in the event (a) the Company's outstanding Convertible Redeemable
Promissory Notes described below and related Warrants are converted and
exercised, or (b) of $5,000,000 in cumulative financing is completed by the
Company, or (iii) 40,000 options will vest in the event $10,000,000 in
cumulative financing is completed by the Company. The warrant period was
extended by six months to March 14, 2000 by the Board of Directors on January
14, 1998.
On August 18, 1997, the Company issued warrants to purchase an
aggregate of 100,001 shares at $3.00 per Share for a period of three years. On
September 2, 1997, the Company granted warrants to purchase 15,000 Shares at
$3.50 per Share for a period of three years. On November 1, 1997, the Company
issued warrants to purchase 50,000 Shares at $5.00 per Share for a period of
three years and these warrants were re-priced to $1.47 per share by the Board of
Directors on January 14, 1998. The warrant period for all warrants was extended
by six months by the Board of Directors on January 14, 1998.
19
<PAGE>
Warrant holders do not have any voting or any other rights as
stockholders of the Company. The Company's outstanding warrants provide for
adjustment of the exercise price and for a change in the number of shares
issuable upon exercise to protect holders against dilution in the event of a
stock dividend, stock split, combination or reclassification of the Common
Stock. The Warrants may be exercised upon surrender of the Warrant Certificate
on or prior to the expiration date (or earlier redemption date, as applicable)
of such Warrant at the offices of the Company's transfer agent, with the form of
"Election to Purchase" completed and executed as indicated, accompanied by
payment of the full exercise price (by certified or bank check, payable to the
order of the Company), for the number of shares with respect to which the
Warrant is being exercised. Shares issued upon exercise of Warrants and paid for
in accordance with the terms of the Warrants.
Options
As of December 31, 1997, the Company had options outstanding to
purchase an aggregate of 3,500,700 Shares of the Company at prices ranging from
$1.47 to $6.50 per Share and for exercise periods ranging from two years to five
years from the date of issuance that have been issued to employees, consultants,
potential advisory board members and lenders of the Company. On January 14,
1998, the Board of Directors repriced all employee and director stock options
and selected vendor stock options to $1.47 per share. Additionally, the option
period was extended by 6 months. All management options were extended to expire
on January 13, 2003.
Convertible Redeemable Promissory Notes
In connection with the completion of the Company's private offerings of
certain of its securities in July 1996 and December 1996, respectively, the
Company issued aggregate of $1,500,000 and $581,000 Principal Amount Convertible
Redeemable Promissory Notes (collectively the "Notes"), respectively. Each Note
is due and payable on June 1, 1999 unless redeemed by the Company prior thereto
or converted into shares of Common stock at $2.00 per Share at the holder's
discretion, subject to the conditions discussed below. The Notes are unsecured.
No mandatory redemption is imposed on the Company with respect to the Notes
prior to maturity, nor is there any sinking fund.
Interest at an annual rate of 12% will be paid semi-annually commencing
December 1, 1996. The interest payment to each investor will be for the period
commencing on receipt of each investor's investment through maturity at June 1,
1999.
Each Note is convertible into Common Stock of the Company commencing
September 15, 1996, at a conversion price of $2.00 per share and at the option
of the Note holder. Commencing at anytime following November 1, 1996, the
Company shall have the right to redeem the Notes together with accrued interest,
provided all of the Shares underlying the Notes have been registered for resale
under the Securities Act of 1933, as amended (the "Securities Act"). Any
redemption notice shall be given for all the Notes then outstanding, and 30
days' prior written notice shall be
20
<PAGE>
provided in connection with any such redemption. Proportioned adjustments shall
be made for stock splits, dividends, mergers, recapitalizations and similar
transactions.
Currently, there are $397,500 of Notes outstanding.
21
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board under
the symbol "NDSS" and commenced its trading on January 13, 1983. The following
table sets forth the high and low bid quotations for the Common Stock for the
periods indicated. These quotations reflect prices between dealers, do not
include retail mark-ups, mark-downs, commissions and may not necessarily
represent actual transactions.
Period High Low
- ------ ---- ---
Second Quarter ended 12/31/94 $3.84 $3.84
Third Quarter ended 3/31/95 $4.08 $3.72
Fourth Quarter ended 6/30/95 $3.75 $2.50
First Quarter ended 9/30/95 $2.75 $2.00
Second Quarter ended 12/31/95 $2.00 $1.25
Third Quarter ended 3/31/96 $2.87 $1.37
Fourth Quarter ended 6/30/96 $5.38 $1.69
First Quarter ended 9/30/96 $9.50 $4.62
Second Quarter Ended 12/31/96 $10.87 $4.87
Third Quarter ended 3/31/97 $9.50 $4.00
Fourth Quarter ended 6/30/97 $5.00 $3.16
First Quarter ended 9/30/97 $6.31 $3.06
Second Quarter ended 12/31/97 $5.87 $1.50
January 1, 1998 to February 18, 1998 $2.38 $1.34
- ---------------
As of December 31, 1997, there were approximately 600 holders of record
of the Company's Common Stock, of which 5,896,029 shares were issued and
outstanding. The closing bid price for the Common Stock was $2.19 per share. The
transfer agent for the Shares is Atlas Stock Transfer Co., 5899 South State
Street, Salt Lake City, Utah 84107, telephone (801) 266-7151.
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. The future dividend policy will depend on the
Company's earnings, capital requirements, expansion plans, financial condition
and other relevant factors.
22
<PAGE>
ITEM 2. LEGAL PROCEEDINGS.
The Company is involved in legal proceedings arising in the ordinary
course of business. The Company is not involved in any legal proceedings that it
believes will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or results of operations.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On January 20, 1997, Grant Thornton, L.L.P. ("Grant Thornton") resigned
as the Company's independent auditors and was replaced by Albright, Persing &
Associates, Ltd. ("Albright"), as determined by the Company's management.
Neither Grant Thornton's report of audit for the fiscal years ended June 30,
1995 and June 30, 1996 or Albright's report of audit for the fiscal year ended
June 30, 1997 of the Company contains any adverse opinions, disclaimers of
opinion, nor has any opinion been qualified as to uncertainty , audit scope or
accounting principles, with the exception of a "going concern" qualification.
During the Company's two most recent fiscal years and subsequent
interim periods preceding the change in independent auditors, there were not any
disagreements with Grant Thornton on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In June 1995, Greg Johnson, the Company's CEO, President and, then a
Director, William Tomerlin, the then Chairman of the Board of Directors, John C.
Kelly, a Director of the Company, and Les Lorentzen, then a Director of the
Company exchanged an aggregate of $636,479 of principal and interest accrued at
15% per annum due by the Company to them for an aggregate of 662,500 shares of
Series A Preferred Stock, which is convertible into two shares of Common Stock
for every one share of Preferred Stock. As of the date hereof, 150,000 shares of
the Series A Preferred Stock had been converted. These securities were issued to
stockholders who were accredited or otherwise knowledgeable investors, had
pre-existing relationships with the Company and had relevant information
concerning the Company and the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of the Securities Act.
In July and August 1995, the Company issued Common Stock to two
employees in connection with certain services performed by each of them. These
included 50,000 shares issued to Frank Katsuda, the then Chief Financial Officer
in consideration for $5,000 of services and 35,000 shares issued to an employee
of the Company in consideration for $3,500 of services. These securities were
issued to stockholders who were accredited or otherwise knowledgeable investors,
had pre-existing relationships with the Company and had relevant information
concerning the Company and the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of the Securities Act.
23
<PAGE>
In October 1995, the Company sold 250,000 Shares in connection with an
Offshore Securities Subscription Agreement with a non-U.S. person pursuant to
Regulation S of the Securities Act. The purchaser tendered an international
certificate of deposit in the amount of $500,000 that was to mature on April 14,
1996. The bank defaulted on the certificate of deposit and the Company made a
demand of the purchaser for the full amount due or to return the Common Stock
issued. During September 1996, the purchaser returned the shares to the Company
and the Company canceled the offering. All persons involved were provided with
information and had access to relevant information concerning the Company.
Accordingly, the issuance of the securities was exempt from registration
requirements pursuant to the exemption set forth in Section 4(2) and Regulation
S of the Securities Act.
Since October 1995, the Company has issued options to purchase
4,005,800 Shares to various key employees, officers, Directors, potential board
of advisors, and consultants of the Company and of which options to purchase
290,100 shares of the Company's Common Stock had been exercised and options to
purchase 405,000 shares of the Company's Common Stock have been canceled.
Inasmuch as all of such persons were either accredited or otherwise qualified
investors, or had a pre-existing relationships with the Company and had access
to relevant information concerning the Company, the issuance of such securities
was exempt from the registration requirements pursuant to the exemption set
forth in Sections 4(2) of the Securities Act.
On December 15, 1995, and as part of a financing arrangement with LNB
Investment Corporation ("LNB"), the Company issued 40,500 shares of Series B
convertible preferred stock to LNB for which it received $70,000 in cash,
$60,000 of other consideration and a $275,000 note which LNB later defaulted on.
Additionally, the Company issued 2,500,000 shares of the Company's Common Stock
on August 25, 1995 to the investor as collateral in exchange for fourteen weekly
funding commitments of $135,000 each and final funding of $110,000, totaling
$2,000,000. No funding occurred in conjunction with the funding schedule and the
investor defaulted on the agreement in fiscal year 1996. As a result of the
default, the Company filed a complaint on May 21, 1996 against the investor
whereby it demanded the return of the 2,500,000 Shares and certain of the Series
B convertible preferred stock. Since then, 100% of the Common Stock and 100% of
the Series B convertible preferred stock has been returned to the Company. On
September 25, 1997 the Company issued 35,000 Shares to Bruce and Linda Goldman,
the principals of LNB, as consideration for the $70,000 received from LNB. LNB
had access to relevant information, including financial, concerning the Company
and as such, the securities were issued pursuant to Section 4(2) of the
Securities Act.
In May 1996, the Company issued warrants to purchase an aggregate of
450,000 Shares (the "Armand Warrants") in consideration for certain business,
advisory and consulting services performed by the Armand Group Ltd. on behalf of
the Company. The Armand Group is an accredited investor and had access to all
relevant information concerning the Company and thus, these Armand Warrants were
issued pursuant to Section 4(2) of the Securities Act.
24
<PAGE>
In June 1996, the Company issued 16,553 Shares each to Dr. John C.
Kelly and to Mr. Douglas Swanson, each a Director of the Company for Shares
which would have been issued to them from XRF Corporation (the predecessor of
the Company) before it merged with the Company. Inasmuch as each of such persons
were either accredited or otherwise qualified investors, or had a pre-existing
relationships with the Company and had access to relevant information concerning
the Company, the issuance of such securities was exempt from the registration
requirement of the Securities Act pursuant to the exemption set forth in Section
4(2) and of the Securities Act.
Pursuant to a private offering of certain of the Company's securities
in the July 1996 (the "July 1996 Offering"), the Company issued an aggregate of
60 units at $25,000 per unit to a limited group of accredited and otherwise
qualified investors based on their financial resources and knowledge of
investments. In addition, each of the investors was provided with information
and had access to relevant information concerning the Company. Accordingly, the
issuance of the securities was exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 4(2) and Rule 506
of the Securities Act. Each unit consisted of (i) a $25,000 Note and (ii)
warrants to purchase 12,500 Shares exercisable at $3.00 per share through
December 15, 1998. Investors included Janet Gookin and Brandon Wilson, the
sister and nephew of Greg Johnson, the Company's CEO and Chairman of the Board,
who purchased .13 units for $3,252; Dr. John C. Kelly, a Director of the
Company, who purchased 1.320 units for $33,000; and Ruth Swanson, the mother of
Douglas Swanson, a principal stockholder of the Company who purchased .8 units
for $20,000. The Company received gross cash proceeds of $1,386,000, and a total
of $114,000 in other forms of consideration, of which (i) $35,000 was in
satisfaction of certain funds loaned to the Company by an unrelated third party,
(ii) $50,000 was in exchange for a portion of the Company's lease obligations
for its facility, and (iii) $29,000 was in consideration for certain business,
advisory and other consulting services performed on behalf of the Company.
Between July 1, 1994 and December 31, 1997, the Company issued an
aggregate of 128,932 Shares to certain persons in connection with certain
business, advisory and other consulting services performed by each of them on
behalf of the Company. Inasmuch as each of the consultants had a pre-existing
relationship with the Company and access to relevant information concerning the
Company, the issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) of the Securities Act.
On May 1, 1996, the Company entered into an Agreement and Plan of
Reorganization (the "May Agreement") with Visual Listings, Inc. ("VLI"), a
California corporation pursuant to a plan of reorganization whereby in exchange
for all of the issued and outstanding capital stock of VLI, the Company issued
an aggregate of 280,000 Shares of the Company, subject to adjustments. These
shares were issued to a limited group of accredited or otherwise qualified
investors based on their financial resources and knowledge of investments. In
addition, each of the stockholders were provided with information and had access
to relevant information concerning the Company. Accordingly, the issuance of the
shares was exempt from the registration requirements of the Securities Act
pursuant to the exemption set forth in Section 4(2) of the Securities Act. The
stockholders of VLI included, among others, John Giaimo, the Company's
President, Chief
25
<PAGE>
Operating Officer and a Director and Mr. Giaimo's wife, Melinda. The closing
occurred on May 8, 1996. The May Agreement provided that in the event the
Company transfers or sells its interest in VLI, John Giaimo shall have the right
of first refusal to match any such offer within five years of the date of the
May Agreement.
In June 1996, the Company issued an aggregate of 32,903 Shares in
consideration for loans made by The Pacific Acquisition Group, Inc. ("PAG") and
a limited number of accredited or otherwise qualified investors based on their
financial resources and knowledge of investments in an aggregate amount of
$113,000 plus interest accruing at 11% per annum. In addition, each of the
investors were provided with information and had access to relevant information
concerning the Company. Accordingly, the issuance of the Shares was exempt from
the registration requirements of the Securities Act pursuant to the exemption
set forth in Section 4(2) of the Securities Act. On August 19, 1996, the Company
satisfied all of the obligations described herein..
In August 1996, options to purchase 10,000 shares of the Company's
Common Stock were exercised by an option holder and to which the Company
received $20,000. Inasmuch as the option holder had a pre-existing relationship
with the Company and access to relevant information concerning the Company, the
issuance of such securities was exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 4(2) of the
Securities Act.
In August 1996, the Company sold a total of 300,000 Shares whereby the
Company received gross proceeds of $600,000 pursuant to two stock purchase
agreements. The purchasers were considered to be accredited or otherwise
qualified investors based on their financial resources and knowledge of
investments. In addition, each of the investors were provided with information
and had access to relevant information concerning the Company. Accordingly, the
issuance of the shares was exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 4(2) of the
Securities Act
In September 1996, the Company issued 94,000 shares of the Company's
Common Stock to two consultants, pursuant to agreements whereby the consultants
are to provide for certain business, advisory and other consulting services on
behalf of the Company. Inasmuch as the consultants had a pre-existing
relationships with the Company and access to relevant information concerning the
Company, the issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) of the Securities Act.
In September 1996, the Company issued warrants (the Crary Warrants) to
purchase an aggregate of 50,000 Shares to a consultant in consideration for
certain financial advisory services performed by the consultant on behalf of the
Company. Inasmuch as the option holder had a pre-existing relationship with the
Company and access to relevant information concerning the Company, the issuance
of such securities was exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 4(2) of the
Securities Act.
26
<PAGE>
The Company issued an aggregate of 23.24 units at $25,000 per unit in
connection with a private offering of certain of the Company's securities in the
October 1996 (the "October 1996 Offering"). These units were issued to a limited
group of accredited or otherwise qualified investors based on their financial
resources and knowledge of investments. In addition, each of the investors were
provided with information and had access to relevant information concerning the
Company. Accordingly, the issuance of the shares was exempt from the
registration requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of the Securities Act. Each unit consisted of a $25,000
convertible promissory note at $2.00 per Share and warrants to purchase 12,500
Shares exercisable at $3.00 per share through December 15, 1998. The Company
received gross proceeds of $581,000.
In October 1996, the Company issued 16,695 Shares at $6.50 pursuant to
the acquisition of certain technology. Inasmuch as the seller had a pre-existing
relationship with the Company and access to relevant information concerning the
Company, the issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) of the Securities Act.
In December, 1996, the Company issued 13,897 Shares as payment of
accrued interest, at the option of the debt holders, on a portion of the
outstanding Convertible Redeemable Promissory Notes issued in both the July 1996
Offering and the October 1996 Offering. These shares were issued to a limited
group of accredited or otherwise qualified investors based on their financial
resources and knowledge of investments. Accordingly, the issuance of the shares
was exempt from the registration requirements of the Securities Act pursuant to
the exemption set forth in Section 4(2) of the Securities Act.
In February, 1997, Griffin Partners exercised the Armand Warrants for
150,000 shares of common stock at $1.75 per share. Griffin Partners is an
accredited investor and had access to all relevant information concerning the
Company and thus, these Armand Warrants were issued pursuant to Section 4(2) of
the Securities Act.
Between June, 1997, and November, 1997, convertible redeemable
promissory note holders converted approximately $1,800,000 of debt and accrued
interest into 885,367 Shares. These holders had access to or otherwise were
provided with information, including financial, of the Company and accordingly,
the securities were exempt from the registration requirements pursuant to the
exemption set forth in Section 4(2) of the Securities Act.
In August, 1997, the Company sold a total of 100,000 Shares to three
investors whereby the Company received gross proceeds of $300,000. The
purchasers were considered to be accredited or otherwise qualified investors
based on their financial resources and knowledge of investments. In addition,
each of the investors were provided with information and had access to relevant
information concerning the Company. Accordingly, the issuance of the shares was
exempt from the registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of the Securities Act.
27
<PAGE>
In August, 1997, the Company issued 12,934 Shares to employees as
compensation for a temporary salary decrease. Inasmuch as the employees had a
pre-existing relationship with the Company and access to relevant information
concerning the Company, the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of the Securities Act.
During September and October, 1997, employees exercised options to
purchase 23,100 Shares at option prices from $2.00 per share to $5.62 per share
whereby the Company received gross proceeds of $124,300. Inasmuch as the
employees had a preexisting relationship with the Company and access to relevant
information concerning the Company, the issuance of such securities was exempt
from the registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of the Securities Act.
During October, 1997, Thomas Payne, a principal of CB Consulting and a
consultant to the Company, exercised his option to purchase 70,000 Shares at
$3.00 per share, with the Company receiving $210,000 in gross proceeds. Inasmuch
as the option holder had a pre-existing relationship with the Company and access
to relevant information concerning the Company, the issuance of such securities
was exempt from the registration requirements of the Securities Act pursuant to
the exemption set forth in Section 4(2) of the Securities Act.
During November, 1997, one investor purchased 40,000 Shares for
$120,000 and a second investor purchased 50,000 Shares for $150,000. Inasmuch as
the investors had a preexisting relationship with the Company and access to
relevant information concerning the Company, the issuance of such securities was
exempt from the registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of the Securities Act.
During December, 1997, two investors purchased 20,000 Shares for
$60,000. The investors were considered to be accredited or otherwise qualified
investors based on their financial resources and knowledge of investments. In
addition, each of the investors were provided with information and had access to
relevant information concerning the Company. Accordingly, the issuance of the
shares was exempt from the registration requirements of the Securities Act
pursuant to the exemption set forth in Section 4(2) of the Securities Act.
During December, 1997, Mr. William Tomerlin, the former Chairman of the
Board and principle stockholder of the Company who is also a beneficial owner of
more than 5% of the outstanding securities of the Company, purchased 134,500
shares of Series A Preferred Stock for $269,000. Inasmuch as Mr. Tomerlin had a
pre-existing relationship with the Company and access to relevant information
concerning the Company, the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of the Securities Act.
During December, 1997, an investor purchased 45,000 shares of Series A
Preferred Stock as consideration for satisfying $90,819 of debt and accrued
interest owed to a note holder. Inasmuch
28
<PAGE>
as the investor had a pre-existing relationship with the Company and access to
relevant information concerning the Company, the issuance of such securities was
exempt from the registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of the Securities Act.
During February, 1998 Mr. William Tomerlin, the former Chairman of the Board and
principle stockholder of the Company who is also a beneficial owner of more than
5% of the outstanding securities of the Company, converted 150,000 shares of his
Series A Preferred Stock into 300,000 Common Shares. Inasmuch as Mr. Tomerlin
had a pre-existing relationship with the Company and access to relevant
information concerning the Company, the issuance of such securities was exempt
from the registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of the Securities Act.
No underwriters were involved in any of the transactions described
above, nor were any commissions paid in connection therewith except as indicated
above.
ITEM 5: INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 78.751 of the Nevada General Corporation Law, a corporation
provides as follows:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a Director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a Director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if
29
<PAGE>
he acted in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation. Indemnification may not be
made for any claim, issue or matter as to which such a person has been adjudged
by a court of competent jurisdiction, after exhaustion of all appeals therefrom,
to be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a Director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a
court or advanced pursuant to subsection 5, must be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the Director, officer, employee or agent is proper under the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of Directors by majority vote of a quorum
consisting of Directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of Directors who
were not parties to the act, suit or proceeding so orders, by independent legal
counsel in a written opinion; or
(d) If a quorum consisting of Directors who were not parties
to the act, suit or proceeding cannot be obtained, by independent legal counsel
in a written opinion.
5. The articles of incorporation, the bylaws or an agreement made by
the corporation may provide that the expenses of officers and Directors incurred
in defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the Director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than Directors or
officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
30
<PAGE>
(a) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under the
articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested Directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to subsection 5, may not be made to or on
behalf of any Director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a Director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Article IX of the Company's Revised Bylaws provides as
follows:
Every person who was or is a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that
he or a person of whom he is the legal representative is or was a
Director or officer of the Corporation or is or was serving at the
request of the Corporation or for its benefit as a Director or officer
of another corporation, or as its representative in a partnership,
joint venture, trust or other enterprise, shall be indemnified and held
harmless to the fullest extent legally permissible under the General
Corporation Law of the State of Nevada from time to time against all
expenses, liability and loss (including attorneys' fees, judgments,
fines and amounts paid or to be paid in settlement) reasonably incurred
or suffered by him in connection therewith. Such right of
indemnification shall be a contract right which may be enforced in any
manner desired by such person. Such right of indemnification shall not
be exclusive of any other right which such Directors, officers or
representatives may have or hereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their
respective rights of indemnification under any by-law, agreement, vote
of Shareholders, provision of law or otherwise, as well as their rights
under this Article.
The Board of Directors may cause the Corporation to purchase and
maintain insurance on behalf of any person who is or was a Director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a Director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other
enterprise against any liability asserted against such person and
incurred in any such capacity or arising out of such status, whether or
not the Corporation would have the power to indemnify such person.
The indemnification provisions above provided shall include, but not be
limited to, reimbursement of all fees, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred, in
connection with the defense or settlement of any
31
<PAGE>
action or suit if such party to be indemnified acted in good faith and
in a matter reasonably believed to be in or not opposed to the best
interests of the Corporation. Indemnification may not be made for any
claim, issue or matter as to which the person claiming after exhaustion
of all appeals therefrom to be liable to the Corporation or for amounts
paid in settlement to the Corporation unless and only to the extent
that the court in which the action or suit was brought or other court
of competent jurisdiction determines upon application that the person
is fairly and reasonably entitled to indemnify for such expenses as the
court deems proper.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as express in the act and is therefore
unenforceable.
PART F/S
FINANCIAL STATEMENTS AND EXHIBITS
The following audited Financial Statements for the Company include the
audited balance sheet at June 30, 1997 and the related audited statements of
income, changes in Shareholders' equity and cash flows for each of the years in
the two year period ended June 30, 1997. The following unaudited Financial
Statements for the Company include the unaudited balance sheets as of December
31, 1996 and 1997, and the related unaudited statements of income, cash flows
and stockholders equity for the six months ended December 31, 1996 and 1997.
NDS Software, Inc.
32
<PAGE>
<TABLE>
<CAPTION>
NDS Software, Inc.
Consolidated Balance Sheets UNAUDITED
December 31,
1997 1996
----------------- ---------------
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 58,151 $ 324,086
Accounts receivables, net of allowance for uncollectible accounts
of $4,413 in 1997 and -0- in 1996 157,154 105,695
Inventories - 16,220
Prepaid expenses 10,341 21,433
Investments 1,508,000 A) -
----------------- ---------------
Total current assets 1,733,646 467,434
Property and equipment, net 431,594 478,644
Goodwill, net 425,129 552,669
Other assets 133,343 22,734
----------------- ---------------
$ 2,723,712 $ 1,521,480
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 446,652 $ 116,066
Accrued liabilities 316,883 283,235
Current portion of capital lease obligations 4,540 29,610
Notes payable 284,698 44,698
Notes payable - related parties 147,103 276,762
Deferred revenue 768,863 60,975
----------------- ---------------
Total Current liabilities 1,968,739 811,346
Convertible debt 397,500 2,081,000
Stockholders' deficit:
Series A convertible preferred stock, $0.001 par value, 5,000,000
shares authorized; 887,000 shares and 662,500 issued and outstanding
at December 31, 1997 and 1996, respectively 887 663
Series B convertible preferred stock, $10.00 par value, 200,000 shares
authorized; 0 shares and 13,000 shares issued and
outstanding at December 31, 1997 and 1996, respectively - 130,000
Common stock, $.001 par value, 50,000,000 shares authorized; 5,896,029
shares and 4,429,418 shares issued and outstanding at December 31,
1997 and 1996, respectively 5,896 4,429
Additional paid-in capital 8,679,545 4,964,420
Accumulated deficit (8,328,855) (6,470,378)
----------------- ---------------
Total stockholders' equity (deficit) 357,473 (1,370,865)
----------------- ---------------
$ 2,723,712 $ 1,521,480
================= ===============
</TABLE>
A) The company has accepted stock in leu of cash for a sales transaction
totaling $700,000. This transaction was with a Nevada Corporation that
is substantially owned by NDS stockholders. The stock received is
currently restricted stock and is not currently being traded on any
stock exchange or over-the-counter market. The stock has been included
on this balance sheet in "Investments" at $1.00 per share, which is
management's best estimate of their value once they begin trading.
These 700,000 shares can not be converted into cash until the shares
are publicly traded, which management anticipates to be sometime in
1998.
F-1
<PAGE>
<TABLE>
<CAPTION>
NDS Software, Inc.
Consolidated Statements of Operation
Six Months Ended December 31,
UNAUDITED
1997 1996
-------------------- ----------------------
<S> <C> <C>
Net Sales $ 1,121,940 $ 713,567
Cost of sales 104,429 62,580
-------------------- ----------------------
Gross Profit 1,017,511 650,987
Selling, general and administrative expenses 1,685,756 1,549,244
-------------------- ----------------------
Net loss from operations (668,245) (898,257)
Other income (expense):
Interest expense (86,847) (126,770)
Other
294 6,745
-------------------- ----------------------
Loss before provision for income taxes (754,798) (1,018,282)
Provision for income taxes
55 -
-------------------- ----------------------
Net loss $ (754,853) $ (1,018,282)
==================== ======================
Net loss per common share ($0.14) ($0.23)
==================== ======================
Shares used in per share calculations 5,352,206 4,509,350
==================== ======================
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
NDS Software, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
Series A Series B
Preferred Stock Preferred Stock Common Stock
--------------------------- ------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
------------- ------------ ----------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1996 662,500 663 13,000 130,000 4,258,723 4,259
Issuance of common stock to vendors
for payment of goods/services - - - - 110,695 111
Issuance of common stock through
a private placement offering - - - - 50,000 50
Issuance of common stock for stock
options exercised. - - - - 10,000 10
Conversion of Debt and accrued interest
to common stock - - - - - -
Unrealized Loss on Securities
Net loss
------------- ------------ ----------- ------------ --------------- -----------
Balance at December 31, 1996 662,500 $ 663 13,000 $ 130,000 4,429,418 $ 4,429
============= ============ =========== ============ =============== ===========
Balance at July 1, 1997 662,500 663 13,000 130,000 4,605,815 4,606
Issuance of common stock to vendors
for payment of goods/services - - (13,000) (130,000) 53,237 53
Issuance of common stock to employees
for payment of wages 12,934 13
Issuance of common stock for stock
warrants exercised. 18,750 19
Issuance of common stock through
private stock sales 179,500 179 - - 202,326 202
Issuance of common stock for stock
options exercised. - - - - 130,100 130
Conversion of Debt and accrued interest
to common stock 45,000 45 - - 872,867 873
Unrealized Loss on Securities reversal
Net loss
------------- ------------ ----------- ------------ --------------- ----------
Balance at December 31, 1997 887,000 $ 887 - $ - 5,896,029 $ 5,896
============= ============ =========== ============ =============== ==========
(TABLE CONTINUED)
Additional Receivable Unrealized
Paid in from Loss on Accumulated
Capital Stockholder Securities Deficit Total
---------------- --------------- --------------- ---------------- -------------
Balance at July 1, 1996 4,510,078 (500,000) - (5,452,095) (1,307,095)
Issuance of common stock to vendors
for payment of goods/services 304,402 - - - 304,513
Issuance of common stock through
a private placement offering 99,950 500,000 - - 600,000
Issuance of common stock for stock
options exercised. 19,990 - - 20,000
Conversion of Debt and accrued interest
to common stock 30,000 - - 30,000
Unrealized Loss on Securities -
Net loss (1,018,283) (1,018,283)
------------- --------------- --------------- ---------------- -----------------
Balance at December 31, 1996 $ 4,964,420 $ - $ - $ (6,470,378) (1,370,865)
============= =============== =============== ================ =================
Balance at July 1, 1997 5,334,895 - (330,775) (7,574,001) (2,434,612)
Issuance of common stock to vendors
for payment of goods/services 193,429 - - - 63,482
Issuance of common stock to employees
for payment of wages 46,766 46,779
Issuance of common stock for stock
warrants exercised. 37,481 37,500
Issuance of common stock through
private stock sales 833,094 - - (1) 833,474
Issuance of common stock for stock
options exercised. 354,370 - - - 354,500
Conversion of Debt and accrued interest
to common stock 1,879,510 - - - 1,880,428
Unrealized Loss on Securities reversal 330,775 330,775
Net loss (754,853) (754,853)
------------- --------------- --------------- ---------------- -----------------
Balance at December 31, 1997 $ 8,679,545 $ - $ - $ (8,328,855) $ 357,473
============= =============== =============== ================ =================
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
NDS Software, Inc.
Consolidated Statements of Cash Flows
Six months ended December 31,
1997 1996
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (754,853) $ (1,018,282)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 138,230 62,570
Common stock issued for goods and services - 12,000
Common stock issued for employee compensation 6,278 -
Changes in operating assets and liabilities:
Trade receivables (57,328) (49,426)
Inventories 2,951 13,998
Prepaid expenses (10,341) 27,050
Accounts payable 43,524 (210,404)
Accrued liabilities (175,010) (14,033)
Deferred revenue (444,881) (124,660)
--------------------------------
Net cash used in operating activities (1,251,429) (1,301,187)
--------------------------------
Cash flows from investing activities:
Purchase of property and equipment (70,550) (213,428)
Net change in other assets (97,703) (64)
--------------------------------
Net cash used in investing activities (168,253) (213,492)
Cash flows from financing activities:
Proceeds from convertible debt - 619,252
Principal payments on capital lease obligations (12,259) (10,305)
Proceeds from notes payable - related parties 118,000 -
Payments on notes payable - related parties (128,000) (1,246)
Proceeds from notes payable 250,000 200,000
Payments on notes payable (28,210) (113,000)
Net proceeds from exercise of stock options 354,500 20,000
Net proceeds from exercise of stock warrants 37,500 -
Net proceeds from sale of stock 854,081 458,295
Decrease in receivable from stockholder - 500,000
--------------------------------
Net cash provided by financing activities 1,445,612 1,672,996
--------------------------------
Net (decrease) increase in cash 25,929 158,317
Cash at beginning of fiscal year (July 1) 32,222 165,769
--------------------------------
Cash at end of year $ 58,151 $ 324,086
================================
</TABLE>
F-4
<PAGE>
Consolidated Financial Statements and Report
of Independent Certified Public Accountants
NDS SOFTWARE, INC.
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants..................... F-6
Consolidated Balance Sheet at June 30, 1996 and 1997................... F-7
Consolidated Statements of Operations for the years ended June 30,
1996 and 1997........................................................ F-8
Consolidated Statements of Stockholders' Deficit for the years ended
June 30, 1996 and 1997............................................... F-9
Consolidated Statements of Cash Flows for the years ended June 30,
1996 and 1997........................................................ F-10-11
Notes to Consolidated Financial Statements............................. F-12
F-5
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of NDS Software, Inc.:
We have audited the accompanying consolidated balance sheet of NDS Software,
Inc. (a Nevada corporation) as of June 30, 1997, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial statements of NDS Software, Inc.
for the year ended June 30, 1996, were audited by other auditors whose report
thereon, dated August 31, 1996, expressed a qualified opinion due to a going
concern uncertainty.
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 consolidated financial position of NDS Software, Inc.
as of June 30, 1997, and the consolidated results of its operations and its
consolidated cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1, the Company's ability
to generate sufficient cash flows to meet its obligations and sustain its
operations, either through future revenues and/or additional debt or equity
financing, cannot be determined at this time. These uncertainties raise
substantial doubt about the Company's ability to continue as a going concern.
Managements's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Reno, Nevada
November 13, 1997
F-6
<PAGE>
<TABLE>
<CAPTION>
NDS Software, Inc.
Consolidated Balance Sheets
June 30,
1997 1996
-------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 32,222 $ 165,769
Accounts receivables, net of allowance for uncollectible accounts
of $4,413 in 1997 and -0- in 1996 99,826 56,269
Inventories 2,951 30,218
Prepaid expenses - 48,483
-------------------------------
Total current assets 134,999 300,739
Investments 477,225 -
Account receivable - related party (to be converted into cash beyond twelve months) 484,197 -
Property and equipment, net 433,711 327,593
Goodwill, net of accumulated amortization of $148,797 in 1997 and $21,257 in 1996 488,899 616,439
Other assets 35,640 22,670
-------------------------------
$ 2,054,671 $ 1,267,441
===============================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 403,128 $ 326,470
Accrued liabilities 491,893 297,268
Current portion of capital lease obligations 16,799 23,115
Notes payable 150,616 44,698
Notes payable - related parties 157,103 218,803
Deferred revenue 1,213,744 185,635
-------------------------------
Total Current liabilities 2,433,283 1,095,989
Convertible debt 2,056,000 1,461,748
Long-term portion of capital lease obligations - 16,800
Commitments - -
Stockholders' deficit:
Series A convertible preferred stock, $0.001 par value,
5,000,000 shares authorized; 662,500 shares issued and outstanding
at June 30, 1997 and 1996 663 663
Series B convertible preferred stock, $10.00 par value,
200,000 shares authorized; 13,000 shares issued and outstanding
at June 30, 1997 and 1996 130,000 130,000
Common stock, $.001 par value, 50,000,000 shares authorized;
4,605,815 shares and 4,258,723 shares issued and outstanding at
June 30, 1997 and 1996, respectively 4,606 4,258
Additional paid-in capital 5,334,895 4,510,078
Receivable from stockholder - (500,000)
Accumulated deficit (7,574,001) (5,452,095)
Unrealized loss on securities (330,775) -
-------------------------------
Total stockholders' deficit (2,434,612) (1,307,096)
-------------------------------
$ 2,054,671 $ 1,267,441
===============================
</TABLE>
F-7
<PAGE>
NDS Software, Inc.
Consolidated Statements of Operation
Years Ended June 30,
1997 1996
---- ----
Net Sales $1,589,658 $526,618
Cost of sales 223,624 87,170
----------- -----------
Gross Profit $1,366,034 $439,448
Operating expenses:
Selling, general and administrative 2,882,161 2,446,880
Research and development 339,072 192,645
----------- -----------
3,221,233 2,639,525
Net loss from operations ($1,855,199) ($2,200,077)
Other income (expense):
Interest expense (290,331) (119,390)
Other 23,624 7,508
----------- -----------
Loss before provision for income taxes ($2,121,906) ($2,311,959)
Provision for income taxes - -
Net loss ($2,121,906) ($2,311,959)
=========== ===========
Net loss per common share ($0.48) ($0.65)
=========== ===========
Shares used in per share calculations 4,438,333 3,548,232
F-8
<PAGE>
<TABLE>
<CAPTION>
NDS Software, Inc.
Consolidated Statements of Stockholders' Deficit
Series A Series B
Preferred Stock Preferred Stock Common Stock
--------------------------- ------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
------------- ------------ ----------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1995 $ 662,500 $ 663 - $ - 3,122,352 $ 3,122
Issuance of preferred stock - - 13,000 130,000 - -
Issuance of common stock - - - - 246,621 247
Issuance of common stock through
a private placement offering - - - - 250,000 250
Issuance of common stock through
a private placement offering - - - - 324,750 324
Issuance of common stock for purchase
of VLI - - - - 280,000 280
Issuance of common stock through
employment agreements - - - - 35,000 35
Net loss - - - - - -
------------- ------------ ----------- ------------ -------------- -----------
Balance at June 30, 1996 662,500 663 13,000 130,000 4,258,723 4,258
Issuance of common stock to vendors
for payment of goods/services - - - - 124,592 125
Issuance of common stock through
a private placement offering - - - - 200,000 200
Issuance of common stock for
stock options exercised. - - - - 10,000 10
Conversion of Debt and accrued interest
to common stock - - - - 12,500 13
Unrealized Loss on Securities - - - - - -
Net loss - - - - - -
------------- ------------ ----------- ------------ -------------- -----------
Balance at June 30, 1997 $ 662,500 $ 663 13,000 $ 130,000 4,605,815 $ 4,606
============= ============ =========== ============ ============== ===========
(TABLE CONTINUED)
Additional Receivable Unrealized
Paid in from Loss on Accumulated
Capital Stockholder Securities Deficit Total
--------------- --------------- --------------- ---------------- ----------------
Balance at July 1, 1995 $ 2,392,209 $ - $ - $ (3,140,136) $ (744,142)
Issuance of preferred stock - - - 130,000
Issuance of common stock 426,784
Issuance of common stock through - - 427,031
a private placement offering 499,750
Issuance of common stock through (500,000) - -
a private placement offering 628,150 - - 628,474
Issuance of common stock for purchase
of VLI 559,720 - - 560,000
Issuance of common stock through
employment agreements 3,465 - - 3,500
Net loss - - (2,311,959) (2,311,959)
---------------- --------------- --------------- --------------- ----------------
Balance at June 30, 1996 4,510,078 (500,000) - (5,452,095) (1,307,096)
Issuance of common stock to vendors
for payment of goods/services 387,540 - - 387,664
Issuance of common stock through
a private placement offering 362,300 500,000 - 862,500
Issuance of common stock for
stock options exercised. 19,990 - - 20,000
Conversion of Debt and accrued interest
to common stock 54,988 - - 55,000
Unrealized Loss on Securities - - (330,775) - (330,775)
Net loss - - - (2,121,906) (2,121,906)
--------------- ---------------- --------------- --------------- ----------------
Balance at June 30, 1997 $ 5,334,895 $ - $ (330,775) $ (7,574,001) $ (2,434,612)
=============== ================ =============== =============== ================
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
NDS Software, Inc.
Consolidated Statements of Cash Flows
Years Ended June 30,
1997 1996
---------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,121,906) $ (2,311,959)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 263,923 99,401
Common stock issued for goods and services 287,665 497,863
Preferred stock issued for goods and services - 20,000
Convertible debt issued for goods and services - 32,510
Common stock received in exchange for services (298,000) -
Changes in operating assets and liabilities:
Trade receivables (527,754) (31,122)
Inventories 27,267 33,709
Prepaid expenses 48,483 1,517
Accounts payable 76,658 (157,646)
Accrued liabilities 194,625 135,933
Deferred revenue 518,109 (226,178)
---------------------------------
Net cash used in operating activities (1,530,930) (1,905,972)
---------------------------------
Cash flows from investing activities:
Purchase of property and equipment (138,915) (149,790)
Net change in other assets
(16,556) (10,996)
Cash received in acquisition and merger - 1,427
---------------------------------
Net cash used in investing activities (155,471) (159,359)
---------------------------------
Cash flows from financing activities:
Proceeds from convertible debt 619,252 1,347,748
Principal payments on capital lease obligations (23,116) (23,256)
Proceeds from notes payable - related parties 130,000 369,143
Payments on notes payable - related parties (191,700) (188,077)
Proceeds from notes payable 200,000 59,700
Payments on notes payable (94,082) (49,700)
Net proceeds from sale of common stock 912,500 561,143
Net proceeds from sale of preferred stock-series B - 70,000
(Increase) decrease in receivables from officers/stockholders - 67,241
---------------------------------
Net cash provided by financing activities 1,552,854 2,213,942
---------------------------------
Net (decrease) increase in cash (133,547) 148,611
Cash at beginning of year 165,769 17,158
---------------------------------
Cash at end of year $ 32,222 $ 165,769
=================================
</TABLE>
F-10
<PAGE>
NDS Software, Inc.
Consolidated Statements of Cash Flows - Continued
Years ended June 30,
1997 1996
------------------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 59,886 $ 71,898
=========== ===========
Supplemental disclosure of noncash investing and financing activities:
During 1997, the Company canceled the issuance of 250,000 shares of common stock
when a certificate of deposit in the amount of $500,000 received by the Company
for the stock purchase became uncollectible. (Note 10).
During 1997, the Company issued 12,500 shares of common stock in redemption of a
convertible debt note in the amount of $25,000.
During 1997, the Company wrote down certain securities classified as
available-for-sale in the amount of $330,775.
During 1997, the Company issued 124,592 shares of common stock in exchange for
goods and services.
During 1996, the Company purchased all of the outstanding stock of Visual
Listings, Inc. by issuing 280,000 shares of common stock valued at $2 per share
in exchange for $38,379 in assets and $116,075 in liabilities.
During 1996, the Company issued 213,515 shares of common stock at $2 per share
for goods and services.
See accompanying notes.
F-11
<PAGE>
NDS Software, Inc.
Notes to Consolidated Financial Statements
June 30, 1997 and 1996
1. Description of Business and Financing Requirements
NDS Software, Inc. ("NDS") was originally incorporated under the Laws of Nevada
on October 28, 1987. On July 20, 1994, NDS merged with XRF Corporation ("XRF"),
which was incorporated in Utah. Through the terms of the merger agreement, XRF,
the surviving entity, acquired all of the outstanding common stock of NDS and
NDS ceased to exist. However, due to the substance of the transaction, the
merger has been treated as a purchase of XRF by NDS (Note 3). Subsequent to the
merger, XRF changed its name to NDS Software, Inc. and has been re-domiciled in
the state of Nevada.
Effective May 8, 1996, NDS acquired 100% of the outstanding stock of Visual
Listings, Inc. ("VLI") located in Brea, California. The acquisition of VLI has
been accounted for as a purchase which resulted in the Company recording
$637,696 of goodwill (Note 3).
NDS offers desktop software products used by real estate professionals to manage
information, contacts and listings. VLI provides public access to the Multiple
Listing Service via the Internet through its HomeSeekers.com Internet site. The
Internet site allows potential home buyers to view multiple listings using a
standard Internet dial up connection. VLI also provides an alternative access to
the Multiple Listing Service on HomeSeekers and CityNet, a product that opens
the same data to a non-Internet connected home buyer that has a computer and
modem.
The consolidated financial statements include the accounts of NDS and its
division (the "Company"). All significant inter-company balance and transactions
have been eliminated in consolidation.
The Company has not yet generated significant revenue and has funded its
operation primarily through the issuance of equity and convertible debt.
Accordingly, the Company's ability to accomplish its business strategy and to
ultimately achieve profitable operations is dependent upon its ability to obtain
additional financing and execute its business plan. There can be no assurance
that the Company will be able to obtain additional funding, and if available,
will be obtained on terms favorable to or affordable by the Company. The
Company's management is exploring several funding options and expects to raise
additional capital in 1998 and to continue to develop the Company's operations
around its products. Ultimately, however, the Company will need to achieve
profitable operations in order to continue as a going concern. The Company
incurred net losses of $2,311,959 and $2,121,906 for the years ended June 30,
1996 and 1997, respectively. The Company has an accumulated deficit of
$7,574,001 as of June 30, 1997.
F-12
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
1. Description of Business and Financing Requirements (continued)
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
2. Significant Accounting Policies
Revenue Recognition
Revenues from sales of software licenses are recognized upon shipment of the
related product, net of revenues attributable to insignificant customer
obligations, if any. Advertising revenues are recognized ratably over the term
of the advertising agreement beginning at the time the advertisement first is
displayed on the Company's internet site. Payments received from customers prior
to the Company shipping product or displaying advertisements are recorded as
deferred revenue.
In accordance with Statement of Position 91-1, the Company accounts for certain
software transactions for which there is no reasonable basis of estimating the
degree of collectibility of related receivables using the installment method of
accounting, effectively recording the transaction as deferred revenue until the
collectibility is probable.
Software Development Costs
The Company accounts for the costs of developing software products to be sold in
accordance with Statement of Financial Accounting Standards 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" which
requires the capitalization of costs only during the period from the
establishment of technological feasibility to the time at which the product is
available for general release to customers. These costs are not material to the
Company's financial position or results of operations, and have been charged to
research and development expense in the accompanying statements of operations.
Concentrations
Concentrations of Credit Risk - Financial instruments which potentially subject
the Company to credit risk consist primarily of cash in bank, trade receivables,
and receivables from officers/stockholders. The Company maintains its cash in
bank deposit accounts which, at times, may exceed federally insured limits. At
June 30, 1997, substantially all of the accounts receivables are due from
customers within the real estate and related industries.
F-13
<PAGE>
NDS Software, Inc.
Notes to Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
2. Significant Accounting Policies (continued)
Concentrations of Operations - All of the Company's current products are
designed for operation in the national domestic real estate market. Any
recessionary pressures or other disturbances in the national real estate market
could have an adverse effect on the Company's operations. In addition,
approximately 47% of the Company's revenues were received from an agreement for
advertising with one customer for the year ended June 30, 1996. The customer has
not renewed the contract for subsequent years. Additionally, for the year ended
June 30, 1997, 32% of the Company's revenues were received from one customer
from an agreement to access the Company's customer list and 19% of the Company's
revenues were received from a related party for a one-time option payment for
the right to market software.
Financial Statement Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures 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 these estimates.
Fair Values of Financial Instruments
Effective July 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("SFAS No. 107"). The Carrying amounts reported in the balance sheet for cash
and cash equivalents approximate those assets' fair values. Active markets for
the Company's other financial instruments that are subject to the fair value
disclosure requirements of SFAS No. 107, which consist of privately-issued
convertible debt and notes payable, do not exist and there are no quoted market
prices for these instruments. Accordingly, it is not practicable to estimate the
fair values of such financial instruments because of the limited information
available to the Company and because of the significance of the cost to obtain
independent appraisals for this purpose.
F-14
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
2. Significant Accounting Policies (continued)
Marketable Securities
The Company's securities investments that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities. Trading securities are recorded at fair value in the balance sheet
in current assets, with the change in fair value during the period included in
earnings.
Securities investments that the Company has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and recorded at
amortized cost in investments and other assets. Securities investments not
classified as either held-to-maturity or trading securities are classified as
available-for-sale securities. Available-for-sale securities are recorded at
fair value in investments and other assets on the balance sheet, with the change
in fair value during the period excluded from earnings and recorded net of tax
as a separate component of equity.
The Company's investments in marketable equity securities are held for an
indefinite period and thus are classified as available-for-sale.
For the year ended June 30, 1997, the Company had $477,225 in available-for-sale
securities.
Inventory
Inventory is recorded at the lower of cost (first-in, first-out method) or
market and consists primarily of diskettes, manuals and packaging products.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method over estimated useful lives of 5 years, or the lease term,
whichever is shorter.
F-15
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
2. Significant Accounting Policies (continued)
Goodwill
The Company has classified as goodwill the cost in excess of fair value of the
net assets of VLI acquired in a purchase transaction. Goodwill is being
amortized on a straight-line method over 5 years. Amortization charged to
continuing operations amounted to $21,257 and $127,540 for the years ended June
30, 1996 and 1997, respectively. Accumulated amortization at June 30, 1997 was
$148,797. At each balance sheet date, the Company evaluates the realizability of
goodwill based upon expectations of nondiscounted cash flows and operating
results of VLI. Based upon its most recent analysis, the Company believes that
no material impairment of goodwill exists at June 30, 1997.
Income Taxes
The liability method is used to account for income taxes. Under this method,
deferred income tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that are scheduled to be in effect
when the differences are expected to reverse.
Advertising
The Company periodically places advertisements in newspapers and magazines.
Costs of advertising are expensed when paid. Total advertising costs for the
years ended June 30, 1996 and 1997 were $197,116 and $49,045, respectively.
Net Loss Per Share
Net loss per share is based on the weighted average number of shares of common
stock and dilutive common stock equivalents outstanding during the period. Other
common stock issuable upon the conversion of convertible preferred stock,
convertible redeemable promissory notes and upon the exercise of certain common
stock warrants and stock options have been excluded from the computation because
their inclusion would be anti-dilutive.
F-16
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
2. Significant Accounting Policies (continued)
Stock Options
The Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which
is effective for fiscal years beginning after December 15, 1995, or earlier as
permitted. As provided by SFAS No. 123, the Company will continue to account for
employee stock options under Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. The Company has disclosed the proforma
net loss and earnings per share effect, as if the Company had used the fair
value based method prescribed under SFAS No. 123 in Note 11.
3. Business Acquisitions
On July 20, 1994, the Company merged with XRF Corporation, (XRF), (a Utah
Corporation). Through the terms of the merger agreement, XRF, the surviving
entity, acquired all of the outstanding common stock of NDS and NDS ceased to
exist. The existing stockholders of XRF retained their 1,192,352 shares and the
stockholders of NDS received shares of XRF at a ratio of 76.5 to 1 for a total
of 1,700,000 shares. Due to majority ownership of the Company after the
transaction by NDS stockholders and XRF's lack of substantial assets,
liabilities, or marketable products, the transaction was treated as a reverse
acquisition of XRF by NDS using the purchase method for accounting purposes.
Effective May 8, 1996, Visual Listings, Inc. (a California corporation) became a
division of NDS as part of an agreement in which NDS acquired all of the
outstanding shares of VLI in return for 280,000 shares of NDS' common stock
valued at $560,000. The acquisition was accounted for as a purchase and resulted
in the assumption of net liabilities of $77,696.
The unaudited consolidated results of operations on a pro-forma basis as though
VLI had been acquired as of the beginning of the Company's fiscal year ended
June 30, 1996 are as follows:
1996
----
Net Sales $606,796
Net Loss (2,429,534)
Net Loss Per Common Share (0.68)
F-17
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
4. Investments
Investments in securities are summarized as follows at June 30, 1997:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Gain Unrealized Loss Fair Value
--------------- --------------- ----------
<S> <C> <C> <C>
Available for sale securities:
Common Stock $ - $(330,775) $477,225
================ ========== ========
</TABLE>
As of June 30, 1997, the Company has written down common stock it received as
payment for services rendered from $808,000 to $477,225. The common stock is
classified on the balance sheet as securities available-for-sale at its
estimated realizable value of $477,225 as of June 30, 1997. Stockholders' equity
as of June 30, 1997 includes an unrealized loss on available-for-sale securities
of $330,775. The Company may be issued additional shares in the future if
several conditions are met, which could have the effect of increasing the value
of these marketable investments back up to $808,000.
F-18
<PAGE>
NDS Software, Inc.
Notes to Consolidated Financial Statements
(Continued)
<TABLE>
<CAPTION>
5. Property and Equipment
Year End June 30,
Property and equipment consist of the following: 1997 1996
---- ----
<S> <C> <C>
Computer equipment $ 534,240 $ 398,037
Software 100,000 -
Furniture and office equipment 65,758 63,046
Leasehold improvements 13,542 13,542
Equipment under capital lease 68,758 68,9976
-------------- --------------
782,516 543,601
Less:
Accumulated depreciation and amortizatio (314,991) (195,989)
Accumulated amortization under capital l (33,814) (20,019)
-------------- --------------
$ 433,711 $ 327,593
============== ==============
6. Accrued Liabilities
Year End June 30,
Accrued liabilities consist of the following: 1997 1996
---- ----
<S> <C> <C>
Accrued payroll and related expenses $ 271,877 $ 125,889
Accrued consulting - 142,638
Other accrued liabilities 220,016 28,741
-------------- ---------------
$ 491,893 $ 297,268
-------------- ---------------
</TABLE>
F-19
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
7. Notes Payable
On May 30, 1996, the Company issued a $44,698 short-term note payable to a
vendor in exchange for advertising services. The term of the note is one year
and includes simple interest at 12% per annum which is payable in monthly
installments beginning June 1, 1996. The entire principle amount of the note
became due and payable May 30, 1997 and was paid off in full subsequent to June
30, 1997.
During December 1996, the Company issued $200,000 in promissory notes to an
unrelated third party in return for cash. Interest at 12% and principal was due
on or before January 15, 1997. As of June 30, 1997, principal and interest of
$100,000 was repaid with a remaining principal balance of $105,918 plus accrued
interest.
8. Notes Payable to Related Parties
During 1996, the Company received advances for working capital from certain
stockholders, officers, and directors totaling $120,000. The Company incurred
interest at rates between 10% and 18% on these advances. At June 30, 1997,
$120,000 remains outstanding to four stockholders.
During August and September of 1995, the Company issued $113,000 in promissory
notes to a group of investors in return for cash. Interest at 11% is payable
quarterly, commencing November 1, 1995. The notes and unpaid interest are due
August 1, 1996. The terms of the agreement call for a total loan commitment of
$250,000 as well as financial and business management advice for a two-year
period in return for 4.9% of the total of each and every type of stock which was
outstanding as of June 2, 1995 (estimated at a total of 156,800 shares). The
group of investors were able to raise only 113,000 of the committed $250,000.
Therefore, a pro-rata amount of 70,874 shares were issued, and any remaining
business relationship was terminated. The Company recognized consulting fees in
an amount equal to the fair market value of the stock issued, and accordingly,
$141,748 of consulting fees were charged to the results of operations for the
year ended June 30, 1996.
The Company has three notes payable to related parties totaling 37,103 at June
30, 1997, which were acquired in the acquisition of VLI. Interest accrues at
annual rates of 16.65% to 18% and principle and interest is payable on demand.
At June 30, 1997, the weighted average interest rate on all short-term
borrowings including related party borrowings was 12%. The Company incurred
$94,865 and $26,806 in related party interest expense for the years ended June
30, 1996, and 1997, respectively.
F-20
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
9. Convertible Redeemable Promissory Notes with Warrants
During March of 1996, the Company commenced a $1.5 million, 60 unit private
placement of unsecured convertible redeemable promissory notes (the "Notes")
with attached redeemable common stock purchase warrants (the AWarrants@) priced
at $25,000 per unit. A unit includes a redeemable promissory note and a Warrant,
as discussed below. At June 30, 1996, the Company had placed approximately 58.47
units in the amount of $1,461,748. In July 1996, the Company completed the
placement and received an additional $38,252, resulting in the placement of all
60 units.
In August 1996, the Company commenced and completed a $500,000, 20 unit private
placement of unsecured convertible redeemable promissory notes with attached
redeemable common stock purchase warrants priced at $25,000 per unit. A unit
includes a redeemable promissory note and a warrant. At June 30, 1997, the
Company had placed 23.24 units and received $581,000.
The Notes mature June 1, 1999 and accrue interest at 12% per annum payable
semi-annually beginning December 1, 1996. The Notes are convertible at the
option of the note holder beginning September 15, 1996 at the rate of one share
of the Company's common stock per $2 of indebtedness. The Notes are redeemable
at the option of the Company at the same rate above at any time subsequent to
November 1, 1996 provided that a registration statement covering the shares of
common stock issuable upon the conversion of the Notes is effective with the
Securities and Exchange Commission.
Each unit also consists of a Warrant to purchase 12,500 shares of the Company's
common stock at an exercise price of $3 per share at any time prior to June 15,
1998. The Warrants are redeemable at the option of the Company at a price per
common share of $0.01 provided that a registration statement covering the shares
of common stock issuable upon the exercise of the Warrants is effective with the
Securities and Exchange Commission and the market price of the Company's common
stock is $6 per share for 10 consecutive trading days. At June 30, 1996,
Warrants to purchase 730,874 shares of the Company's common stock have been
issued to the note holders. In July 1996, the Company issued Warrants to
purchase an additional 19,126 shares of the Company's common stock in completion
of the placement.
F-21
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
10. Stockholders' Deficit
Common Stock
As of June 30, 1997 the Company has reserved a total of 6,358,800 shares of
common stock pursuant to outstanding warrants, options, convertible preferred
stock and convertible redeemable promissory notes.
In November 1994, the Company commenced a Regulation D - Rule 504 offering under
the Securities Act of 1933 where it sold 180,000 shares of common stock at $2
per share producing net proceeds of $358,140, of which $6,000 was tendered in
services to the Company as of June 30, 1995. The offering was completed in
February 1996 when it sold 324,750 shares of common stock at $2 per share
producing net proceeds of $628,475 of which $67,332 was tendered in services to
the Company.
On October 19, 1995, the Company sold 250,000 shares of common stock in a
Regulation S offering under the Securities Act of 1933. The purchaser tendered
an international certificate of deposit in the amount of $500,000 that was to
mature on April 14, 1996. The bank defaulted on the certificate of deposit and
the Company made a demand of the purchaser for the full amount due or to return
the common stock issued. At June 30, 1996, the certificate of deposit was still
in default, and the Company converted the amount of the certificate of deposit
into a receivable from the shareholder. Subsequent to year end, the Company
recovered the common stock certificate from the stockholder and canceled the
offering.
Redeemable Common Stock Warrants
In May 1996, and in consideration for assisting the Company in raising at least
$2,500,000 in financing which included the convertible redeemable promissory
notes (Note 9) and placement of the certificate of deposit (discussed above),
the Company entered into a consulting agreement with a partnership to perform
business advisory services in exchange for three (3) redeemable warrants to
purchase 150,000 shares of common stock each, 50,000 shares of common stock and
$50,000. The warrants each have a five year life from the date of issuance and
are exercisable at $1.75, $3 and $4 per share. On February 12, 1997, this
partnership exercised 150,000 of these warrants at $1.75 per share.
F-22
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
10. Stockholders' Deficit (continued)
Preferred Stock
Series A preferred stock has a par value of $.001 and is entitled to a
cumulative dividend, when declared, of 15% per annum based upon a value of $2
per share. At the option of the board of directors, each share of stock can be
redeemed at $2 per share or can be converted to common stock at a rate of one
share of common for each share of preferred. Each share of series A preferred
stock is entitled to the voting rights of five shares of common stock.
On June 30, 1995, the Company converted short and long-term notes payable to
officers and stockholders of $535,613 and related interest of $100,866 (at a
rate of 15%) into 662,500 shares of series A preferred stock.
Series B convertible preferred stock has a par value of $10 and is entitled to a
cumulative dividend, when declared, of 9% per annum based upon a value of $10
per share. At the option of the board of directors, each share of stock can be
redeemed at $10 per share or can be converted to common stock at a rate of five
shares of common for each share of preferred. Conversion to common stock cannot
occur until at least six months after issuance and if the listed price of the
Company's common stock has been at least $3 for at least ten consecutive trading
days with an aggregate volume of no less than 20,000 shares. Series B
convertible preferred stock is not entitled to the voting rights of common
stock.
As of June 30, 1997, no dividends have been declared on the Series A or Series B
convertible preferred stock.
During fiscal year 1996 and as part of a financing arrangement with a private
company (the "Investor"), the Company issued 40,500 shares of Series B
convertible preferred stock to the investor for which it received $70,000 in
cash, $60,000 of other consideration and a $275,000 note receivable which was
not paid as of June 30, 1996. Additionally, the Company issued 2,500,000 shares
of the Company's common stock on August 25, 1995 to the investor as collateral
in exchange for fourteen weekly funding commitments of $135,000 each and a final
funding of $110,000, totaling $2,000,000. No funding occurred in conjunction
with the funding schedule and the investor defaulted on the agreement in fiscal
year 1996. As a result of the default, the Company filed a complaint on May 21,
1996 against the investor whereby it demanded the return of the 2,500,000 shares
of common stock and certain of the Series B preferred shares. Subsequent to year
end, the investor returned the 2,500,000 shares of common stock to the Company.
The suit was mediated to a settlement on August 21, 1996, which allows the
Company to reclaim 27,500 shares of Series B preferred stock.
F-23
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
10. Stockholders' Deficit (continued)
Preferred Stock (continued)
The financial statements reflect 13,000 shares of Series B preferred stock
outstanding at June 30, 1996 and no amounts have been recorded for the related
note receivable due to the mediated settlement subsequent to year end which did
not provide for its collection. See Note 14, "Lawsuits" for the final resolution
of this issue.
11. 1996 Stock Option Plan
On October 9, 1996, the Company's Board of Directors ratified a stock option
plan under which the Company may grant incentive and non-statutory stock options
to employees, directors, and consultants. As part of the provisions of the Plan,
the Company may grant, but is not obligated to grant, options that include
reload features. The Company has reserved 2,500,000 shares of its common stock
for issuance under the Plan. Options granted generally have terms from one to
five years from the date of grant and generally vest immediately or ratably over
their terms. The exercise price of incentive stock options granted under the
Plan may not be less than 100% of the fair market value of the Company's common
stock on the date of the grant. The exercise price of non-statutory stock
options granted under the Plan may not be less than 75% of the fair market value
of the Company's common stock on the date of the grant. For a person, who, at
the time of the grant, owns stock representing 10% of the voting power of all
classes of the Company's stock, the exercise price of the incentive stock
options granted under the Plan may not be less than 110% of the fair market
value of the common stock on the date of the grant.
The Company applies APB Opinion 25 in accounting for its fixed stock option
plan. Accordingly, since the market value and the option price of the Company's
stock were equal on the measurement date, no compensation cost has been
recognized for the plan in 1997 or 1996. Had compensation cost been determined
on the basis of fair value pursuant to FASB Statement No. 123, net income (loss)
and earnings per share would have been impacted as follows:
F-24
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
11. 1996 Stock Option Plan (continued)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C>
Net Income (Loss)
-----------------
As reported $(2,121,906) $(2,311,959)
============ ============
Professional forma $(5,842,768) $(4,913,379)
============ ============
Primary Earnings Per Share
--------------------------
As reported $ (.48) $ (.65)
================ ===============
Professional forma $ (1.32) $ (1.38)
================ ===============
Fully Diluted Earnings Per Share
--------------------------------
As reported $ (.48) $ (.65)
================ ===============
Professional forma $ (1.32) $ (1.38)
================ ===============
</TABLE>
For purposes of estimating the fair value of each option granted in accordance
with FASB 123, the Black-Scholes Model was used. The following assumptions were
made in estimating fair value:
Dividend yield 0%
Risk-free interest rate 8.50%
Expected life 3 years
Expected volatility 100.99%
Compensation expense that would have been charged to operations had the
provisions of FASB 123 been applied were $3,720,862 in 1997 and $2,601,420 in
1996.
F-25
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
11. 1996 Stock Option Plan (continued)
Following is a summary of the status of options outstanding during the years
ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED 6-30-97 YEAR ENDED 6-30-96
------------------ ------------------
# of Shares Weighted # of Shares Weighted
----------- Average ----------- Average
Exercise Exercise
Price Price
----- -----
<S> <C> <C> <C> <C> <C>
Outstanding at July 1 2,040,800 $ 2.01 -0- $ -
Granted 980,000 5.06 2,090,800 2.01
Canceled (30,000) 6.38 (50,000) 2.00
Exercised (25,000) 2.00 - -
-------- ---- ---------- ---------
Outstanding at June 30 2,965,800 2.97 2,040,800 2.01
Options exerciseable at June 30 2,965,800 2.97 2,040,800 2.01
Weighted average fair value of options 3.92 1.27
granted during 1997 and 1996
</TABLE>
F-26
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
12. Income Taxes
Deferred taxes result from temporary differences in the recognition of certain
revenue and expense items for income tax and financial reporting purposes. The
significant components of the Company's deferred taxes as of June 30, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
Deferred tax assets:
1997 1996
---- ----
<S> <C> <C> <C>
Net operating loss carryover
$1,773,441 $1,300,283
Deferred revenue 424,810 64,972
Capitalized software costs - 24,482
Employee salaries issued in stock 14,175 -
Allowance for bad debts
1,544 -
----------- ------------
2,213,970 1,389,737
Deferred tax liabilities
Depreciation
(6,816) (1,750)
------------ -------------
2,207,154 1,387,987
Less: Valuation allowance
(2,207,154) (1,387,987)
------------ --------------
Net deferred taxes:
$ -0- $ -0-
============ ==============
</TABLE>
The increase in the valuation allowance was $819,167 and $649,759 for the years
ended June 30, 1997 and 1996, respectively.
The Company has available at June 30, 1997, $5,066,973 of unused operating loss
carryforwards that may be applied against future taxable income and that expire
in various years from 2008 to 2012.
F-27
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
12. Income Taxes (continued)
The principal reasons for the difference between the effective income tax rate
and the federal statutory income tax rate are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Federal benefit expected at statutory rate $ (742,667) $ (809,186)
Operating losses with no current benefit 390,545 881,455
Taxable deferred revenue 359,838 (79,163)
Amortization of software costs (22,472) (24,884)
Depreciation (14,627) 16,604
Employee salaries issued in stock 14,175 -
Allowance for bad debts 1,544 -
Non-deductible expenses 13,664 15,174
---------- -----------
$ -0- $ -0-
========== ===========
</TABLE>
13. Commitments
Leases
The Company leases its facilities under two non-cancelable operating leases. One
facility lease includes an escalation clause based on the consumer price index
and is adjusted on an annual basis and has a term of five years. The other
facility lease has a term of three years where the monthly rental payment
increases $100 annually on top of a stated base rate. The Company also leases
certain equipment under capital and operating lease agreements. The following is
a schedule, by years, of the future minimum lease payments under both capital
and operating leases, together with the present value of the net minimum lease
payments as of June 30, 1997.
F-28
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
13. Commitments
Leases (continued)
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
Years ending June 30,
1998 $18,650 $121,913
1999 - 115,422
2000 - 24,392
------------- ------------
Net minimum lease payments $18,650 $261,727
Amount representing interest (1,851)
-------------
Present value of net minimum lease payments 16,799
Current portion of capital lease obligations 16,799
-------------
Present value of capital lease obligations - non-current $ -0- =
portion =============
</TABLE>
Rental expense for all operating leases was $84,261 and $119,000 for the years
ended June 30, 1996 and 1997, respectively. Amortization expense under capital
leases was $13,795 and $13,795 for the years ended June 30, 1996 and 1997,
respectively.
Employment Agreements
During May and June of 1996, the Company entered into employment agreements with
three officers. The agreements are for a five-year period and call for an annual
salary for each officer of $70,00 and an annual bonus of 4% of pre-tax earnings.
Effective September 1, 1996, each officer's annual salary increased to $100,000.
An additional increase called for in the agreements to $144,000 effective March
4, 1997 has been accrued as a liability in the financial statements.
F-29
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
13. Commitments (continued)
Past Due Obligations
The Company is currently in default under the terms of its notes payable to
outside third parties wherein the required payments at the maturity dates of the
notes payable in the amount of $150,616 have not been paid. The Company is
currently working with its two lenders to extend the maturity dates.
In addition, the Company is currently delinquent in the payment of employer and
employee payroll taxes and a number of accounts payable. The Company is
attempting to payoff these outstanding obligations as soon as practicable given
its cash flow requirements.
14. Subsequent Events
Equity & Debt Transactions
In July, 1997, the Company issued 22,659 shares of stock to convertible debt
holders for payment of interest due on the debt. The Company also issued 13,439
shares of stock in July to employees as consideration for a temporary wage
reduction. A portion of the issuance relieved an accrued liability for wages at
June 30, 1997. Also in July, the Company amended its articles of incorporation
for capitalization, authorizing a total of 60 million shares, broken down into
50 million common shares at $.001 par value, 5 million Class A preferred stock
at $.001 par value, 200,000 Class B preferred stock at $10.00 par value, and
4,800,000 undesignated preferred shares at $.001 par value.
In August, 1997, the Company borrowed $68,000 from related parties with interest
at 12% per annum. Two notes, totaling $18,000 are demand notes, and the
remaining note for $50,000 matures in August, 1998. All notes are unsecured.
Also in August, the Company sold a total of 100,000 shares of common stock
priced at $3.00 per share to three investors and received gross proceeds of
$300,000. These investors were given stock warrants to purchase 100,000 shares
of NDS common stock at $3.00 per share. A portion of these warrants were for
consideration in this funding transaction, and a portion were for consulting
services. The Company also issued 15,937 shares of common stock in August as
payment for vendor accounts payable.
F-30
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
14. Subsequent Events (continued)
Equity & Debt Transactions (continued)
In September 1997, the Company raised $250,000 of debt due in five years, with
interest at 14%, collateral includes 202,000 shares of Finet Holdings common
stock, and a warrant to purchase 15,000 shares of Company common stock at $3.50
per share. Also in September, employees exercised options on shares for total
gross proceeds of $94,500 to the Company. Per share amounts ranged from $2.00 to
$3.62 per share. The Company also received $60,000 from three stock option
holders for the exercise of their stock options at $2.00 per share.
In September, 1997, the Company accepted 700,000 shares of restricted common
stock from a related party for payment on an outstanding account receivable.
In October 1997, an option holder exercised his option to purchase 70,000 shares
of common stock at $3.00 per share, with the Company receiving $210,000 of gross
proceeds.
During the months of July through October, the Company issued options to
purchase 625,000 shares of its common stock at prices ranging from $3.00 to
$5.62. Directors, stockholders and employees received options to purchase
355,000 shares, and investment bankers received options to purchase 270,000
shares.
Between July 1, 1997, and November 11, 1997, the Company converted, at the
request of it debt holders, $1,613,252 of convertible debt into equity at the
rate of one share of common stock for every $2.00 of indebtedness.
Lawsuits
On September 30 1997, the Company settled a lawsuit it had brought against two
individuals who had committed to a $2,000,000 private placement to the Company,
but then defaulted on their agreement after an initial funding of $70,000. The
settlement provided for return of 40,500 shares of the Company's Series B
Preferred Stock. In return, the Company issued 35,000 shares of common stock as
compensation for the $70,000 cash that the individuals paid to the Company. (See
Note 9).
F-31
<PAGE>
NDS Software, Inc.
Notes To Consolidated Financial Statements
June 30, 1997 and 1996
(Continued)
14. Subsequent Events (continued)
Lawsuits (continued)
In October 1997, the Company settled a lawsuit against it from the software
developer who developed the HomeSeekers product. The Company is to make up any
difference between the $108,513 owed and the amount that the software developer
obtains from selling 16,695 shares of the Company's common stock. This will most
likely be about $40,000, which has been included in accounts payable at June 30,
1997.
Acquisitions and New Business Agreements
On August 22, 1997, the Company formed a Limited Liability Company (LLC) to
conduct international expansion of its current line of business.
Also during August, 1997, the Company formed a LLC to develop the real estate
foreclosure market on the internet.
As of November 11, 1997, the Company was in the final stages of acquiring a
small publishing company for 20,000 shares of common stock.
F-32
<PAGE>
<TABLE>
<CAPTION>
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibits Description of Document
- -------- -----------------------
<S> <C>
3.1(a) Articles of Incorporation of Aurora Energy, Inc. dated January 13, 1983(1).
3.1(b) Amendment to Articles of Incorporation of Aurora Energy, Inc. dated March 23,
1983 to change name to Aurora Tech, Inc.(1)
3.1(c) Amendment to Articles of Incorporation of Aurora Tech, Inc. dated June 25, 1984
re: governance(1)
3.1(d) Amendment to Articles of Incorporation of Aurora Tech, Inc. dated May 12, 1988
changing the name to XRF Corporation(1)
3.1(e) Articles of Incorporation of NDS Software dated September 29, 1994(1)
3.1(f) Amendment to the Articles of Incorporation of NDS Software dated November 15,
1995(1)
3.2(a) Bylaws of Aurora Tech, Inc.(1)
3.2(b) Bylaws of NDS Software(1)
4.1 Certificate of Designation for Class A, Series A Preferred Stock.(1)
4.2 Amendment to Certificate of Designation for Class A Series A Preferred Stock.(2)
4.3 Certificate of Designation for Class B Convertible Preferred Stock(1)
6.1 Stock Option Plan dated October 9, 1996(1).
6.2 Articles, Plan and Agreement of Merger between XRF Corporation and NDS Software dated June
13, 1994(1)
6.3 Agreement and Plan of Reorganization between NDS Software and Visual Listings,
Inc. dated May 8, 1996(1)
6.4 Agreement and Plan of Reorganization between the Company and Focus
Publications, Inc. dated August 11, 1997 including Articles of Exchange filed
December 31, 1997(1)
6.5 Articles, Plan and Agreement of Merger between NDS Software, Inc., a Utah Corporation
and NDS Software, Inc., a Nevada Corporation, dated September 26, 1994 (1)
6.6 Employment Agreement between the Company and John Giaimo dated May 8,
1996(1)
6.7 Employment Agreement between the Company and Greg Johnson dated June 13,
1996(1)
6.8 Employment Agreement between the Company and Doug Swanson dated June 13,
1996(1)
6.9 Amendment to Stock Option Plan dated October 9, 1996 (2)
27 Financial Data Schedule
</TABLE>
- -------------
(1) Filed herewith.
(2) To be filed by amendment.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this Amendment to its Form 10-SB to be signed on its
behalf by the undersigned, thereunto duly authorized.
NDS SOFTWARE, INC.
Date: 2/20/98 By: /s/Greg Johnson
-------------------------------------
Greg Johnson, Chief Executive Officer
ARTICLES OF INCORPORATION
OF
AURORA ENERGY, INC.
We, the undersigned natural persons of the age of twenty-one years or
more, acting as incorporators of the corporation under the provisions of the
Utah Business Corporation Act (hereinafter called the "Act"), do hereby adopt
the following Articles of Incorporation for such Corporation.
ARTICLE I
Name. The name of the Corporation (hereinafter called the
"Corporation") is AURORA ENERGY, INC.
ARTICLE II
Period of Duration. The period of duration of the Corporation is
perpetual.
ARTICLE III
Purposes and Powers. The purpose for which this Corporation is
organized is to invest in all forms of investments, including real and personal
property, stocks and bonds, minerals
<PAGE>
and oil, and to acquire options to purchase such properties, and to engage in
all other lawful business.
ARTICLE IV
Capitalization. The Corporation shall have the authority to issue
50,000,000 (fifty million) shares of stock each having a par value of one-tenth
of one cent ($0.001). All stock of the Corporation shall be of the same class
and shall have the same rights and preferences. Fully paid stock of this
Corporation shall not be liable for further call or assessment. The authorized
trading shares shall be issued at the discretion of the Directors.
ARTICLE V
Incorporators. The name and post office address of each incorporator is:
Thomas P. Peterson
2569 East Woodland Drive
Ogden, UT 84403
Edward R. Keller
2008 East 1700 South
Salt Lake City, UT 84108
Gene Van Shaar
901 Compton Road
Farmington, UT 84025
2
<PAGE>
ARTICLE VI
Directors. The Corporation shall be governed by a Board of Directors
consisting of no less than three (3) and no more than nine (9) directors.
Directors need not be stockholders of the Corporation. The number of Directors
constituting the initial Board of Directors is three (3) and the names and post
office addresses of the persons who shall serve as Directors until their
successors are elected and qualified are:
Thomas P. Peterson
2569 East Woodland Drive
Ogden, UT 84403
Edward R. Keller
2008 East 1700 South
Salt Lake City, UT 84108
Gene Van Shaar
901 Compton Road
Farmington, UT 84025
ARTICLE VII
Commencement of Business. The Corporation shall not commence business
until at least One Thousand Dollars ($1,000) has been received by the
Corporation as consideration for the issuance of its shares.
ARTICLE VIII
Preemptive Rights. There shall be no preemptive rights to acquire
unissued and/or treasury shares of the stock of the Corporation.
3
<PAGE>
ARTICLE IX
Voting of Shares. Each outstanding share of common stock of the
Corporation shall be entitled to one vote on each matter submitted to a vote at
the meeting of the stockholders. Each stockholder shall be entitled to vote his
or its shares in person or by proxy, executed in writing by such stockholders,
or by his duly authorized attorney-in-fact. At each election of Directors, every
stock holder entitled to vote in such election shall have the right to vote, in
person or by proxy, the number of shares owned by him or it for as many persons
as there are Directors to be elected and for whose election he or it has the
right to vote, but the Shareholder shall have no right to accumulate his or its
votes with regard to such election.
ARTICLE X
Initial Registered Office and Initial Registered Agent. The address of
the initial registered office of the Corporation is 2569 East Woodland Drive,
Ogden, Utah 84403, and the initial Registered Agent at such office is Thomas P.
Peterson.
STATE OF UTAH )
: ss.
COUNTY OF salt lake )
On the 12th day of January 1983, personally appeared before me THOMAS
P. PETERSON, EDWARD R. KELLER, AND GENE VAN SHAAR, and duly acknowledged to me
that they are the persons
4
<PAGE>
who signed the foregoing Articles of Incorporation as incorporators and that
they have read the foregoing Articles of Incorporation and know the contents
thereof, and that the same is true of their knowledge as to those matters upon
which they operate on information and belief, and as to those matters believe
them to be true.
/s/ Thomas P. Peterson
--------------------------
Thomas P. Peterson
/s/ Edward R. Keller
--------------------------
Edward R. Keller
/s/ Gene Van Shaar
--------------------------
Gene Van Shaar
SUBSCRIBED AND SWORN TO before me this 12th day of January, 1983.
/s/ Pauline Love
---------------------------
NOTARY PUBLIC
Residing at Salt Lake City Utah
My Commission Expires:
2/22/85
5
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
AURORA ENERGY, INC.
Pursuant to the provisions of the Utah Code Annotated (1953) Section 16-10-57,
et seq., as amended, the undersigned corporation hereby adopts the following
Articles of Amendment to its Articles of Incorporation:
1. The name of the corporation is AURORA ENERGY, INC.
2. The following amendments to the Articles of Incorporation were
adopted by the shareholders of the corporation on the 23rd day of March, 1983,
in the manner prescribed by the provisions of the Utah Business Corporation Act:
ARTICLE I
Name. The name of the corporation (hereinafter called the
"Corporation") is AURORA TECH, INC.
3. The number of shares of the corporation outstanding at the time of
such adoption was 2,080,394 and the number of shares entitled to vote thereon
was 2,080,394. All of the shares were common shares of the same class with like
rights and preferences.
4. All of the above shares were voted for the above amendments as
follows:
No. of Shares Shares Voted "For" Shares Voted "Against"
- ------------- ------------------ ----------------------
2,080,394 2,080,394 None
5. The manner in which an exchange of issued shares shall be effected
is as follows: No exchange.
6. The manner in which such amendments effects a change in
<PAGE>
and oil, and to acquire options to purchase such properties, and to engage in
all other lawful business. ARTICLE IV
Capitalization. The Corporation shall have the authority to issue
50,000,000 (fifty million) shares of stock each having a par value of one-tenth
of one cent ($0.001). All stock of the Corporation shall be of the same class
and shall have the same rights and preferences. Fully paid stock of this
Corporation shall not be liable for further call or assessment. The authorized
trading shares shall be issued at the discretion of the Directors.
ARTICLE V
Incorporators. The name and post office address of each incorporator is:
Thomas P. Peterson
2569 East Woodland Drive
Ogden, Utah 84403
Edward R. Keller
2008 East 1700 South
Salt Lake City, Utah 84108
Gene Van Shaar
901 Compton Rd
Farmington, Utah 84025
Articles of Amendment
to the
Articles of Incorporation
of
Aurora Tech, Inc.
Pursuant to the provision of the Utah Code Annotated (1953 Section 16-10-57, et
seq., as amended, the undersigned corporation hereby adopts the following
Articles of Amendment to its Articles of Incorporation:
1. The name of the corporation is Aurora Tech, Inc.
2. The following amendments to the Articles of Incorporation were
adopted by the shareholders of the corporation on the 25th day of June, 1984, in
the manner prescribed by the provision of the Utah Business Corporation Act:
Article XI
Committees
The Board of Directors shall have the power, by resolution passed by a
majority thereof, or as provided in the bylaws, to designate one or more
committees, each committee to consist of two or more directors, which, to the
extent provided by the resolution or bylaws, shall have the powers of the Board
of Directors in the management of the business and affairs of the Corporation,
and may have the power to affix the seal of the Corporation to all papers which
may require it.
Article XII
Ratification of Contracts
Any contract, transaction or act of the Corporation or of the directors
of any committee which shall be ratified by the holders of a majority of the
shares of stock present, in person or by proxy, and entitled to vote at any
annual meeting, or special meeting
<PAGE>
called for that purpose, shall, insofar as permitted by law, be as valid and
binding as though ratified by every stockholder of the Corporation, whether or
not the contract, transaction or act would otherwise be open to legal challenge
on the grounds of directors' interest or otherwise. This provision shall impose
no obligation to present any matter for ratification, and the failure of the
shareholders to ratify any matter shall not invalidate the same or deprive the
Corporation, its officers or directors of their rights to proceed with such
transaction, contract or act.
Article XII
Tender offers
If any person, firm, or corporation, hereinafter referred to as the
Tender Offeror, or any person, firm, or corporation controlling the Tender
Offeror, controlled by the Tender Offeror, or under common control with the
Tender Offeror, or any group of which the Tender Offeror or any of the foregoing
persons, firms, or corporations are members, or any other group controlling the
Tender Offeror, controlled by the Tender Offeror, or under common control with
the Tender Offeror owns of record, or owns beneficially, directly or indirectly,
more than 10% of any class of equity security of this Company, then any merger
of consolidation of the Company with the Tender Offeror or any sale, lease, or
exchange of substantially all of the assets of this Company or the Tender
Offeror to the other may not be effected without the approval of the board of
directors unless a meeting of the shareholders of this Company is held to act
thereon and the votes of the holders of voting securities of this Company
representing not less than 80% of the votes entitled to vote thereon voted in
favor thereof. As used herein, the term group includes persons, firms, and
corporations acting in concert, whether or not as a formal group, and the term
equity security means any share or similar security; or any security
convertible, with or without consideration, into such a security; or any such
warrant or right. The foregoing provision is in addition to the requirements of
the New Jersey Corporation Law and may not be amended or repealed without an 80%
vote. In the event that the board of directors approves of a tender offer or
merger or sale as described above then any shareholders vote in excess of 50
percent approves the action.
Article XIV
Interested Directors
No contract or other transaction between the Corporation and any other
corporation and no other act of the Corporation with relation to any other
corporation shall, in the absence of fraud, in any way be invalidated or
otherwise affected by the fact that any one or more of the directors of the
Corporation are pecuniarily or otherwise interested in, or are the directors or
officers of, such other corporation. In any such case, any director having such
2
<PAGE>
an interest in any other corporation may be counted in determining the existence
of a quorum at any meeting of the Board of Directors which shall authorize any
such contract or transaction, and may vote therat to authorize such transaction
or contract.
3. The number of shares of the corporation outstanding at the time of
such adoption was 6,057,289 and the number of shares entitled to vote thereon
was 6,057,289. All of the shares were common shares of the same class with like
rights and preferences.
4. All of the shares were voted for the above amendments as follows:
No. of Shares Shares Voted "For" Shares Voted "Against"
- ------------- ------------------ ----------------------
6,057,289 3,343,555 -0-
5. The manner in which an exchange of issued shares shall be effected
is as follows: No Exchange.
6. The manner in which such amendments effects a change in the amount
of stated capital, and the amount of stated capital as changed by such amendment
is as follows: No Change.
DATED this 25th day of June, 1984.
AURORA TECH, INC.
By: /s/ Ronald E. Horrooks
---------------------------
President
By: /s/ Gene Van Shaar
---------------------------
Secretary
<PAGE>
STATE OF UTAH )
) ss
County of Salt Lake )
On the 25th day of June, 1984, personally appeared before me Ronald E.
Horrooks and Gene Van Shaar, the signers of the within and foregoing instrument,
and duly acknowledged to me that they executed the same.
/s/ Venna L Cora
---------------------------
Notary Public
Residing in Bountiful, Utah
My commission expires:
December 8, 1985
Articles of Amendment
To the Articles of Incorporation of
ATI, Inc.
Pursuant to the provisions of the Utah Business Corporation Act, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation, effective May 12, 1988:
FIRST: The following Amendments to the Articles of Incorporation were
adopted by the Shareholders of ATI, Inc. effective May 12, 1988 in the manner
prescribed by the Utah Business Corporation Act:
Article I of the Articles of Incorporation is amended to read in its
entirety as follows:
Article I
The name of this Corporation is XRF Corporation.
Article XII
Ratification of Contracts
Any contract, transaction or act of the Corporation or of the directors
of any committee which shall be ratified by the holders of a majority of the
shares of stock present, in person or by proxy, and entitled to vote at any
annual meeting, or special meeting called for that purpose, shall, insofar as
permitted by law, be as valid and binding as though ratified by every
stockholder of the Corporation, whether or not the contract, transaction or act
would otherwise be open to legal challenge on the grounds of directors' interest
or otherwise. This provision shall impose no obligation to present any matter
for ratification, and the failure of the shareholders to ratify any matter shall
not invalidate the same or deprive the Corporation, its officers or directors of
their rights to proceed with such transaction, contract or act.
SECOND: The number of shares of common stock of the Corporation
outstanding at the time of such adoption was
<PAGE>
27,785,420 and the number of shares entitled to vote thereon was 27,785,420.
THIRD: The number of shares voted for such amendment was 23,302,007 and
the number of shares voted against such amendment was 10,000.
DATED effective as of the 12th day of May, 1988.
ATI, Inc.
By:/s/ James S. Petersen
---------------------
Its: President
Attested and verified:
/s/
- ------------------------
Secretary
State of Utah )
: ss.
County of Salt Lake )
On the 12th day of May, 1988, personally appeared before me, James S.
Petersen, who, being by me duly sworn, did say that he is the President of ATI,
Inc., and that said instrument was signed in behalf of said corporation by
authority of its Bylaws and by resolution of its Board of Directors and
shareholders, as the case may be, and said James S. Petersen acknowledged to me
that said corporation executed the same, and that the statements contained
therein are true.
/s/ Marnie Bowden
--------------------------
Notary Public
Residing at Salt Lake City
My commission expires:
1/16/92
2
<PAGE>
State of Utah )
: ss.
County of Salt Lake )
On the 12th day of May, 1988, personally appeared before me Jack E.
Peake, who, being by me duly sworn, did say that he is the Secretary of ATI,
Inc., and that said instrument was signed in behalf of said corporation by
authority of its Bylaws and by resolution of its Board of Directors and
shareholders, as the case may be, and said Jack E. Peake acknowledges to me that
said corporation executed the same, and that the statements contained therein
are true.
/s/ Marnie Bowden
---------------------------
Notary Public
Residing at Salt Lake City
My Commission expires:
1/16/92
3
Articles of Incorporation
of
NDS Software, Inc.
Pursuant to the provisions of Nevada Revised Statutes ("NRS") Section 78.035,
the undersigned Corporation adopts these Articles of Incorporation.
ARTICLE I
NAME
The name of the Corporation shall be NDS Software, Inc.
ARTICLE II
REGISTERED OFFICE
The name of the resident agent and the street address of the registered office
in the State of Nevada where process may be served upon the Corporation is
Scarpello & Alling, Ltd., 600 E. William Street, Suite 3000, Carson City, Nevada
89701-4052. The Corporation may, from time to time, in the manner provided by
law, change the resident agent and the registered office within the State of
Nevada. The Corporation may also maintain an office or offices for the conduct
of its business, either within or without the State of Nevada.
ARTICLE III
PURPOSES
The purpose for which the Corporation is formed is to engage in any lawful
business or activity under the laws of the State of Nevada.
ARTICLE IV
CAPITAL STOCK
Section 1. Authorized Shares. The total number of shares of stock which the
Corporation shall have authority to issue is Fifty Million (50,000,000) shares
of common stock, par value one-tenth of
1
<PAGE>
one cent ($.001) per share. Such stock may be issued by the Corporation from
time to time by the Board of Directors thereof.
Section 2. Common Stock.
(a) Dividend Rate. The holders of Common Stock shall be entitled to receive
dividends when, as and if declared by the board of directors out of assets
legally available therefor.
(b) Voting Rights. The holders of the issued and outstanding shares of Common
Stock shall be entitled to one vote for each share of Common Stock.
(c) Liquidation Rights. In the event of liquidation, dissolution, or winding
up of the affairs of the Corporation, whether voluntary of involuntary, the
Common Stock shareholders shall share equally and ratably in the Corporation's
assets available for distribution according to the laws of the State of Nevada.
(d) No Cumulative Voting, Conversion, Redemption, or Preemptive Rights.
The holders of Common Stock shall not have any cumulative voting, conversion,
redemption, or preemptive rights.
Section 3. Stockholders.
(a) Special Meetings of Stockholders. Special meetings of stockholders of the
Corporation may be called only in the manner provided in the Bylaws.
(b) Action of Stockholders. Any action required or permitted to be taken by
the holders of the Common Stock of the Corporation may be effected at a duly
called annual or special meeting of such holders or by the written consent of a
majority of the shareholders entitled to vote.
2
<PAGE>
ARTICLE V
DIRECTORS AND OFFICERS
Section 1. Number of Directors. The members of the governing board of the
Corporation are styled as directors. The authorized number of directors of the
Corporation shall be fixed from time to time (and increased or decreased) as
provided in the Bylaws of the Corporation.
Section 2. Current Directors. The names and post office boxes or street
addresses of the current directors of the Board of Directors, which are five (5)
in number, are:
NAME ADDRESS
---- -------
William Tomerlin Post Office Box 1328
Minden, Nevada 89410
Greg Johnson Post Office Box 1421
Gardnerville, Nevada 89410
Lester Lorentzen Post Office Box 1328
Minden, Nevada 89410
Jack Kelly, M.D. 75 Pringle Way, Suite 1009
Reno, Nevada 89502
Douglas Swanson 6490 So. McCarran, #29
Reno, Nevada 89509
Section 3. Classified Board. The directors shall be classified, with respect
to the time for which they severally hold office, into three classes, as nearly
equal in number as possible, as shall be provided in the manner specified in the
Bylaws, one class to hold office initially for a term expiring at the 1995
annual meeting of stockholders, another class to hold office initially for a
term expiring at the 1996 annual meeting of stockholders, and another class to
hold office initially for a term expiring at the 1997 annual meeting of
stockholders, with the members of each class to hold office until their
successors have
3
<PAGE>
been duly elected and qualified. At each annual meeting of stockholders, the
successors to the class of directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the annual meeting of stockholders
held in the third year following the year of their election and until their
successors have been duly elected and qualified.
Section 4. Newly Created Directorships and Vacancies. Newly created
directorships resulting from any increase in the authorized number of directors
and any vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall be filled
by a majority vote of the directors then in office, and directors so chosen
shall hold office for a term expiring at the next Annual Meeting of Stockholders
at which the term of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
Section 5. Removal. Any director or directors may be removed from office at
any time by the affirmative vote of the holders of greater than fifty percent
(50%) of the voting power of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
Section 6. Limitation of Personal Liability. No director or officer of the
Corporation shall be personally liable to the Corporation or its stockholders
for damages for breach of fiduciary duty as a director or officer; provided,
however, that the
4
<PAGE>
foregoing provision shall not eliminate or limit the liability of a director or
officer of the Corporation for:
(a) Acts of omissions which involve intentional misconduct, fraud or a knowing
violation of law; or
(b) The payment of distributions in violation of Nevada Revised Statutes
Section 78.300.
Section 7. Payment of Expenses. In addition to any other rights of
indemnification permitted by the laws of the State of Nevada as may be provided
for by the Corporation in its Bylaws or by agreement, the expenses of officers
and directors incurred in defending a civil or criminal action, suit or
proceeding, involving alleged acts or omissions of such officer or director in
his or her capacity as an officer or director of the Corporation, must be paid,
by the Corporation or through insurance purchased and maintained by the
Corporation or through insurance purchased and maintained by the Corporation or
through other financial arrangements made by the Corporation, as they are
incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount of it is ultimately determined by a court of
competent jurisdiction that he or she is not entitled to be indemnified by the
Corporation.
Section 8. Repeal And Conflicts. Any repeal or modification of Sections 6 or 7
above approved by the stockholders of the Corporation shall be prospective only.
In the event of any conflict between Sections 6 or 7 of this Article and any
other Article of the Corporation's Articles of Incorporation, the terms and
provisions of Sections 6 or 7 of this Article shall control.
5
<PAGE>
ARTICLE VI
NON-ASSESSMENT OF STOCK
The capital stock of this Corporation, after the amount of the subscription
price has been paid in money, property or services, as the directors shall
determine, shall not be subject to assessment to pay the debts of the
Corporation, nor for any other purpose, and no stock issued as fully paid shall
ever be assessable or assessed, and the Articles of Incorporation shall not be
amended in this particular.
ARTICLE VII
DURATION
The corporation shall have perpetual existence.
ARTICLE VIII
AMENDMENTS
These Articles of Incorporation may be amended only in compliance with Chapter
78 of the Nevada Revised Statutes.
ARTICLE IX
INCORPORATOR
The name and address of the incorporator is as follows:
Lisa Grady
Post Office Box 3390
Stateline, Nevada 89449
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation as of the 27 day of September, 1994.
/s/ Lisa Grady
---------------------
Incorporator
6
<PAGE>
STATE OF NEVADA )
)ss.
COUNTY OF DOUGLAS )
On this 27th day of September, 1994, personally appeared before me, a Notary
Public, LISA GRADY, Incorporator of NDS Software, Inc. and acknowledged to me
that he/she executed the foregoing instrument on behalf of said Corporation.
/s/ Beth Buenafe
-------------------
NOTARY PUBLIC
7
Certificate of Amendment Of The Articles Of Incorporation
Of
NDS Software, Inc.
A Nevada Corporation
NDS Software, Inc., a Nevada corporation, by its President and Secretary, does
hereby certify:
That pursuant to the unanimous written consent of the Directors of NDS
Software, Inc., dated November 15th, 1995, and the majority written consent of
the Shareholders of NDS Software, Inc., a Nevada corporation, dated November
15th, 1995, a copy of which is attached hereto, the Shareholders of this
corporation have adopted and approved the following amendment to the Articles of
Incorporation:
That the Articles of Incorporation of the Corporation be amended to replace
Article IV, Section 1, which shall read in its entirety as follows:
Section 1. Authorized Shares. The total number of shares of
stock which the Corporation shall have authority to issue is
Fifty-Five Million Two Hundred Thousand (55,200,000) shares,
consisting of par value One-Tenth of One Cent ($.001) per
share (the "Common Stock"), Five Million (5,000,000) shares of
Class A preferred stock, par value One-Tenth of One Cent
($.001) per share (the "Class A Preferred Stock"), and Two
Hundred Thousand (200,000) shares of Class B preferred stock,
par value Ten Dollars ($10.00) per share (the "Class B
Preferred Stock"). The voting powers, designations,
preferences, optional and other rights, and the
qualifications, limitations, or restrictions thereof, of the
Class A and Class B Preferred Stock shall hereinafter be
prescribed by resolution of the Board of Directors pursuant to
Section 4 of this Article IV.
That the Articles of Incorporation of the Corporation shall be amended to add
Section 4 to Article IV, which shall read in its entirety as follows:
Section 4. Preferred Stock.
(a) Consideration. The Board of Directors is hereby vested
with the authority from time to time
1
<PAGE>
to provide by resolution for the issuance of shares of
Preferred Stock in one or more classes or series not exceeding
the aggregate number of shares of Preferred Stock authorized
by these Articles of Incorporation, as amended from time to
time, and to determine with respect to each such class or
series the voting powers, if any (which voting powers if
granted may be full or limited), designations, preferences,
and relative, participating, optional, or other special
rights, and the qualifications, limitations, or restrictions
relating thereto, including without limiting the generality of
the foregoing, the voting rights relating to shares of vary
over time and which may be applicable generally only upon the
happening and continuance of stated facts or events or
ascertained outside dividend to which holders of Preferred
Stock of any class or series may be entitled (which may be
cumulative or non-cumulative), the rights of holders of
Preferred Stock of any class or series in the event of
liquidation, dissolution, or winding up of the affairs of the
Corporation, the rights, if any, of holders of Preferred Stock
of any class or series to convert or exchange such shares of
Preferred Stock of such class or series for shares of any
other class or series of capital stock or the Corporation or
any subsidiary (including the determination of the price or
prices or the rate or rates applicable to such rights to
convert or exchange and the adjustment thereof, the time or
times during which the right to convert or exchange shall be
applicable, and the time or times during which a particular
price or rate shall be applicable).
(b) Certificate. Before the Corporation shall issue any shares
of Preferred Stock of any class or series, a certificate
setting forth a copy of the resolution or resolutions of the
Board of Directors, fixing the voting powers, designations,
preferences, the relative, participating, optional, or other
rights, if any, and the qualifications, limitations, and
restrictions, if any, relating to the shares of Preferred
Stock of such class or series, and the number of shares of
Preferred Stock of such class or series authorized by the
Board of Directors to be issued shall be made and signed by,
acknowledged and filed in the manner prescribed by the Nevada
Revised Statutes. The Board of
2
<PAGE>
Directors is further authorized to increase or decrease (but
not below the number of such shares of such class or series
then outstanding) the number of shares of any class or series
subsequent to the issuance of shares of that class or series.
That the Articles of Incorporation of the Corporation be amended to replace
Article V, Section 3, which shall read in its entirety as follows:
Section 3. Classified Board. The Directors shall be
classified, with respect to the time for which they severally
hold office, into two classes, as nearly equal in number as
possible, as shall be provided in the manner specified in the
Bylaws, one class to hold office initially for a term expiring
at the 1995 annual meeting of stockholders, and another class
to hold office initially for a term expiring at the 1996
annual meeting of stockholders, with the members of each class
to hold office until their successors have been duly elected
and qualified. At each annual meeting of stockholders, the
successors to the class of directors whose term expires at
that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the
second year following the year of their election and until
their successors have been duly elected and qualified.
That the officers of this Corporation are hereby authorized, empowered and
directed to take any and all further acts or proceedings to effectuate this
amendment.
IN WITNESS WHEREOF, this Certificate of Amendment of the Articles of
Incorporation of NDS Software, Inc., a Nevada corporation, has bee executed this
15th day of November, 1995.
(Signatures on following page).
3
<PAGE>
/s/ GREG JOHNSON
-----------------------
GREG JOHNSON, President
STATE OF NEVADA )
: ss
COUNTY OF DOUGLAS )
On November 15th, 1995, personally appeared before me, a notary public, Greg
Johnson, personally known (or proved) to me to be the person whose name is
subscribed to the above instrument who acknowledged that he executed the
instrument.
/s/ Sandy Storke
---------------------
NOTARY PUBLIC
/s/ WILLIAM TOMERLIN
---------------------------
WILLIAM TOMERLIN, Secretary
STATE OF NEVADA )
: ss
COUNTY OF DOUGLAS )
On November 15th, 1995, personally appeared before me, a notary public,
William Tomerlin, personally known (or proved) to me to be the person whose name
is subscribed to the above instrument who acknowledged that he executed the
instrument.
/s/ Sandy Storke
---------------------
NOTARY PUBLIC
4
Bylaws
of
Aurora Tech, Inc.
Article I
Offices
The Corporation shall maintain a principal office in the State of Utah
as required by law. The Corporation may also have offices in such other places
either within or without the State of Utah as the Board of Directors may from
time to time designate or as the business of the Corporation may require.
Article II
The seal of the Corporation shall be circular in form and shall have
the name of the Corporation on the circumference and the words and numerals
"Corporate Seal 1983 Utah" in the center.
Article III
Meetings of the Stockholders
Section 1. Place. Meetings of the stockholders of the Corporation shall
be held at such place either within or without the State of Utah as may from
time to time be designated by the Board of Directors and stated in the notice of
the meeting.
Section 2. Annual Meeting. Commencing in 1985, an annual meeting of the
stockholders of the Corporation shall be held in each year on the fourth
Wednesday in April (or if that be a legal holiday, then on the next business
day) between the hours of 9 a.m. and 4 p.m. for the election of directors and
for the transaction of such other business as may be brought before the meeting.
<PAGE>
Section 3. Special Meetings. Special meetings of the stockholders may
be called on the order of the President or of a majority of the Board of
Directors.
Section 4. Notice. Written notice of all meetings of the stockholders
shall be mailed to or delivered to each stockholder at least ten days prior to
the meeting. Notice of any special meeting shall state in general terms the
purposes for which the meeting is to be held.
Section 5. Quorum. The holders of the majority of the issued and
outstanding shares of the capital stock of the Corporation entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders except as
may otherwise be provided by law, by the Articles of Incorporation or by these
Bylaws; but if there be less than a quorum, the holders of a majority of the
stock so present or represented may adjourn the meeting from time to time.
Section 6. Voting. a) At all meetings of the stockholders, every
registered owner of shares entitled to vote may vote in person or by proxy and
shall have one vote for each such share standing in his name on the books of the
Corporation. At all elections of directors, the voting shall be by ballot. The
Board of Directors, or, if the Board shall not have made the appointment, the
chairman presiding at any meeting of stockholders, shall have power to appoint
two or more persons to act as inspectors or tellers, to receive, canvass, and
report the votes cast by the stockholders at such meeting; but no candidate for
the office of director shall be appointed as inspector of teller at any meeting
for the election of directors.
b) Shares outstanding in the name of any person as trustee, pledgee, or
other fiduciary may be voted, and all rights incidental thereto may be
exercised, only by the trustee, pledgee or fiduciary in person or by proxy,
without proof of authority.
c) Shares standing in the name of any person adjudged to be incompetent
may be voted and all rights incidental thereto exercised, only by the guardian,
in person or by proxy.
d) Shares standing in the name of a deceased person may be voted and
all rights, incidental thereto exercised only by the executor, administrator or
legal representative, in person or by proxy.
<PAGE>
e) Shares standing in the name of a minor may be voted and all rights
incidental thereto exercised by the guardian of the minor, in person or by
proxy, or, in the absence of representation by the guardian, by the minor, in
person or by proxy, regardless of whether or not the Corporation has notice,
actual or constructive, of the status of the minor, or the appointment of a
guardian, and whether or not a guardian has in fact been appointed.
f) Shares standing in the name of a corporation may be voted, and all
rights incidental thereto exercised on behalf of the corporation by any of the
following;
1) Any officer authorized so to do by the Corporation's
Bylaws.
2) Any person authorized so to do by a resolution of the Board
of Directors of the Corporation.
3) Any person authorized so to do by proxy or power of
attorney executed by the President, or Vice President and the Secretary or
Assistant Secretary of the Corporation.
g) Every person entitled to vote or execute consents may do so in
person or by proxy executed in writing. Such proxy shall be filed with the
secretary of the Corporation. No proxy shall be valid for more than eleven (11)
months after its execution unless the person executing it specifies a longer
period of time, which in no event shall exceed seven (7) years from the date of
execution.
A proxy may be revoked prior to its expiration by the person executing
it by filing a written revocation thereof with the Secretary of the Corporation.
A proxy is not revoked by the death or incapacity of its maker, unless, prior to
the vote is counted or the authority exercised, written notice of the maker's
death of incapacity is delivered to the Corporation. Notwithstanding that a
valid proxy is outstanding, the powers of the proxy holder are suspended, except
in the case of a proxy coupled with an interest which clearly states that fact
on its face, if the maker of the proxy is present at the meeting and elects to
vote in person.
If any proxy appoints two or more persons to act as proxy, the shares
shall be voted in accordance with the majority of the persons named as proxies,
in the absence of any provision to the contrary in the proxy, or unless any
court order appointing a trustee, administrator, executor or other fiduciary
directs otherwise.
Section 7. Chairman of Meeting. The President or in his absence, a Vice
President shall preside at all meetings of the stockholders; and, in the absence
of the President and Vice President, the Board of Directors may appoint any
stockholder to act as chairman of the meeting.
<PAGE>
Section 8. Secretary of Meeting. The Secretary of the Corporation shall
act as secretary of all meetings of the stockholders; and, in absence, the
chairman may appoint any person to act as secretary of the meeting.
Article IV
Board of Directors
Section 1. Management of Corporation. The property, business, and
affairs of the Corporation shall be managed and controlled by its Board of
Directors.
Section 2. Classification of Board. The Board of Directors shall
consist of not less than 3 nor more than 154 members who shall be divided into
three classes in respect of term of office, each class to contain as near as may
be one-third of the whole number of the Board. Of the first board of Directors,
the members of the second class shall serve until the annual meeting of
stockholders held in the year following their election, the members of the
second class shall serve until the annual meeting of stockholders held two years
following their election, and the members of the third class shall serve until
the annual meeting of stockholders held three years following their election;
provided, however, that in each case directors shall continue to serve until
their successors shall be elected and shall qualify. At each annual meeting of
stockholders following election of the first Board of Directors, one class of
directors shall be elected to serve until the annual meeting of stockholders
held three years next following and until their successors shall be elected and
shall qualify. Each director shall be a stockholder of the Corporation.
Section 3. Vacancy. Whenever any vacancy shall occur in the Board of
Directors, by reason of death, resignation, or increase in the number of
directors or otherwise, it may be filled by a majority of the remaining
directors, though less than a quorum, for the balance of the term.
Section 4. Annual Meeting. The annual meeting of the Board of
Directors, of which no notice shall be necessary, shall be held immediately
following the annual meeting of the stockholders or immediately following the
annual meeting of the stockholders or immediately following any adjournment
thereof for the purpose of the organization of the Board and the election or
appointment of officers for the ensuing year and for the transaction of such
other business as may conveniently and properly be brought before such meeting.
<PAGE>
Section 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at least quarterly. Written notice of regular meetings shall be
given to each director at least one week prior to the date set.
Section 6. Special Meetings. Special meetings of the Board of Directors
may be called by order of the Chairman of the Board, the President, or by
one-third of the directors for the time being in office. The Secretary shall
give notice of the time, place, and purpose or purposes of each special by
mailing the same at least two days before the meeting or by telephoning or
telegraphing the same at least one day before the meeting to each director.
Section 7. Conduct of Meetings. At meetings of the Board of Directors,
the Chairman of the Board, the President, or a designated Vice President shall
preside. A majority of the members of the Board of Directors shall constitute a
quorum for the transaction of business, but less than a quorum may adjourn any
meeting from time to time until a quorum shall be present, whereupon the meeting
may be held, as adjourned, without further notice. At any meeting at which every
director shall be present, even though without any notice any business may be
transacted.
Section 8. Validation of Defective Meetings. The transactions of any
regular or special meeting, however called or noticed or wherever held, are as
valid as though called and held pursuant to regular notice, if at such meeting a
quorum is present and if, either before or after such meeting, each director not
present signs a written waiver of notice, a consent to the holding of such
meeting or an approval of the minutes thereof. All such waivers, consents, or
approvals shall be made a part of the minutes of filed with the records of the
Corporation.
Section 9. Increase or Decrease of Board. The Board of Directors may
increase of decrease the size of the Board within the limits specified hereby.
The Board shall fill newly created vacancies, the newly appointed director to
serve until the next annual shareholders meeting. At that time the newly created
position shall be filled by the shareholders for a term designed most nearly to
maintain an equal division of the terms of the directors. No decrease in the
size of the Board shall be effective until the expiration of the term of the
director being eliminated. Increases or decreases in the size of the Board shall
be submitted for shareholder approval at the next annual shareholders meeting.
<PAGE>
Section 10. Action Without Meeting. Any action required or permitted to
be taken by the Board of Directors may be taken if all members of the Board
shall consent in writing, individually or collectively, to the action proposed
to be taken. Any consents given shall be made a part of the minutes or filed
with the records of the Corporation. Any action taken pursuant to such consent
shall have the effect of action taken upon unanimous vote of the directors.
Section ll. Compensation. The directors shall received such
compensation for their services as directors and as members of any committee
appointed by the Board as may be prescribed by the Board of Directors and shall
be reimbursed by the Corporation for ordinary and reasonable expenses incurred
in the performance of their duties.
Section 12. Manifestation of Dissent. A director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Article V
Committees
Section 1. Executive Committee. The Board of Directors may appoint from
among its members an Executive Committee of not less than two nor more than
seven members, one of whom shall be the President, and shall designate one of
such members as Chairman. The Board may also designate one of such members as
Chairman. The Board may also designate one or more of its members as alternates
to serve as a member or members of the Executive Committee in the absence of a
regular member or members. The Board of Directors reserves to itself alone the
power to declare dividends, issue stock, recommend to stockholders any action
requiring their approval, change the membership of any committee at any time,
fill vacancies therein, and discharge any committee either with or without cause
at any time. Subject to the foregoing limitations, the Executive Committee shall
possess and exercise all other powers of the Board of Directors during the
internals between meetings.
<PAGE>
Section 2. Finance Committee. The Board of Directors may appoint a
Finance Committee of three or more directors, at least a majority of whom shall
be neither officers nor otherwise employed by the Corporation. The Board shall
designate one director as Chairman of the Committee, and may designate one or
more directors as alternate members of the Committee, who may replace any absent
or disqualified member at any meeting of the Committee. The Committee shall have
the power to fix from time to time the compensation of all principal officers of
the Corporation (other than the Chairman of the Board and the President, whose
compensation shall be fixed from time to time by the Board) and shall otherwise
exercise such powers as may be specifically delegated to it by the Board and act
upon such matters as may be referred to it from time to time for study and
recommendation by the Board or the President.
Section 3. Other Committees. The Board of Directors may also appoint
from among its own members such other committees as the Board may determine,
which shall in each case consist of not less than two directors, and which shall
have such powers and duties as shall from time to time be prescribed by the
Board. The President shall be a member ex officio of each committee appointed by
the Board of Directors.
Section 4. Rules of Procedure. A majority of the members of any
committee may fix its rules of procedure. All action by any committee shall be
reported to the Board of Directors at a meeting succeeding such action and shall
be subject to revision, alteration, and approval by the Board of Directors;
provided that no rights or acts of third parties shall be affected by any such
revision or alteration.
Article VI
Operating Divisions of the Corporation
Section 1. Advisory Board. The Board of Directors of the Corporation
may appoint individuals who may but need not be directors, officers, or
employees of the Corporation to serve as members of an Advisory Board of
Directors of one or more operating divisions of the Corporation and may fix fees
or compensation for attendance at meetings of any such Advisory Boards. The
members of any such Advisory Board may adopt and from time to time may amend
rules and regulations for the conduct of their meetings and shall keep minutes
which shall be submitted to the Board of Directors of the Corporation. The term
of office of any member of the Advisory Board of Directors shall be at the
pleasure of the Board of Directors of the Corporation and shall expire the day
of the annual meeting of the stockholders of the Corporation. The function of
any such Advisory Board of Directors shall be to advise with respect to the
affairs of the operating divisions of the Corporation to which it is appointed.
<PAGE>
Section 2. Titles. The Board of Directors of the Corporation may from
time to time confer on the employees of the Corporation assigned to any
operating division of the Corporation, or discontinue, the title of President,
Vice President, and any other titles deemed appropriate. The designation of any
such official titles for employees assigned to operating divisions of the
Corporation shall not be permitted to conflict in any way with any executive or
administrative authority established from time to time by the Corporation. Any
employee so designated as an officer of an operating division shall have
authority, responsibilities, and duties with respect to his operating division
corresponding to those normally vested in the comparable officer of the
Corporation by these Bylaws, subject to such limitations as may be imposed by
the Board of Directors of the Corporation.
Article VII
Officers
Section 1. Election. The Board of Directors may elect from its own
number a Chairman of the Board and shall elect a President from its own number
and such Vice Presidents (who may or may not be directors) as in the opinion of
the Board the business of the Corporation requires, a Comptroller, a Treasurer,
a Secretary, and a General Counsel; and it shall elect or appoint from time to
time such other or additional officers as in its opinion are desirable for the
conduct of the business of the Corporation. Any two offices, except those of
President and Secretary, may be held by the same person.
Section 2. Removal. In its discretion the Board of Directors, by a vote
of a majority of the whole Board, may leave unfilled for any such period as it
may fix by resolution any office except those of President, Comptroller,
Treasurer, and Secretary. Any officer or agent shall be subject to removal at
any time by the affirmative vote of a majority of the whole Board of Directors.
Any officer, agent, or employee, other than officers appointed by the Board of
Directors, shall hold office at the discretion of the officer appointing them.
Section 3. Duties of Chairman. The Chairman of the Board of Directors
if elected, or failing his election, the President, shall preside at all
meetings of the Board of Directors and shall perform such other duties as may be
prescribed from time to time by the Board of Directors or by the Bylaws.
<PAGE>
(Sections 4 through part of 8 apparently missing.)
Corporation in such bank or banks or depositories as the Board of Directors may
designate. He may sign, with the President, or such other person or persons as
may be designated for the purpose by the Board of Directors, all bills of
exchange or promissory notes of the Corporation. He shall enter or cause to be
entered regularly in the books of the Corporation full and accurate account of
all moneys received and paid by him on account of the Corporation; shall at all
reasonable times exhibit his books and accounts to any director of the
Corporation upon application at the office of the Corporation during business
hours; and, whenever required by the Board of Directors or the President, shall
render a statement of his accounts. He shall perform such other duties as may be
prescribed from time to time by the Board of Directors or by the Bylaws. He
shall give a bond for the faithful performance of his duties in such sum and
with such surety as shall be approved by the Board of Directors.
Section 9. Secretary. The Secretary shall, subject to the direction of
the President, keep the minutes of all meetings of the stockholders and of the
Board of Directors, and to the extent ordered by the Board of Directors or the
President, the minutes of meetings of all committees. He shall cause notice to
be given of meetings of stockholders, of the Board of Directors, and of any
committee appointed by the Board. He shall have custody of the corporate seal
and general charge of the records, documents, and papers of the Corporation not
pertaining to the performance of the duties vested in other officers, which
shall at all reasonable times be open to the examination of any director. He may
sign or execute contracts with the President of a Vice President thereunto in
the name of the Corporation and affix the seal of the Corporation thereto. He
shall perform such other duties as may be prescribed from time to time by the
Board of Directors or by the Bylaws. He shall be sworn to the faithful discharge
of his duties.
Section 10. Counsel. The General Counsel shall advise and represent the
Corporation generally in all legal matters and proceedings and shall act as
counsel to the Board of Directors and the Executive Committee. The General
Counsel may sign and execute pleadings, powers of attorney pertaining to legal
matters, and any other contracts and documents in the regular course of his
duties.
Section 11. Bank Accounts. In addition to such bank accounts as may be
authorized in the usual manner by resolution of the Board of Directors, the
Treasurer or the Comptroller of the Corporation with the approval of the
President or the Executive Vice President may authorize such bank accounts to be
opened or maintained in the name and on behalf of the Corporation as he may deem
necessary or appropriate, payments from such bank
<PAGE>
accounts to be made upon and according to the check of the Corporation which may
be signed jointly or singly by either the manual or facsimile signature or
signatures of such officer or bonded employee or such officers or bonded
employees of the Corporation as shall be specified in the written instruction of
the Treasurer or the Comptroller of the Corporation with the approval of the
President or the Executive Vice President of the Corporation.
Section 12. Vacancies. In case any office shall become vacant, the
Board of Directors shall have power to fill such vacancies. In case of the
absence or disability of any officer, the Board of Directors may delegate the
powers or duties of any officer to another officer or a director for the time
being.
Section 13. Exercise of Rights as Stockholders. Unless otherwise
ordered by the Board of Directors, the President or a Vice President thereunto
duly authorized by the President shall have ful power and authority on behalf of
the Corporation to attend and to vote at any meeting of stockholders of any
corporation in which this Corporation may hold stock, and may exercise on behalf
of this Corporation any and all of the rights and powers incident to the
ownership of such stock at any such meeting, and shall have power and authority
to execute and deliver proxies and consents on behalf of this Corporation in
connection with the exercise by this Corporation of the rights and powers
incident to the ownership of such stock. The Board of Directors, from time to
time, may confer like powers upon any other person or persons.
Article VIII
Indemnification of Officers and Directors
Section 1. Indemnification. The Corporation shall indemnify each
officer and director, his heirs and personal representatives against expenses
reasonably incurred or liability incurred by him in connection with any action,
suit, or proceeding to which he may be made a party by virtue of his being or
having been an officer or director of the Corporation, except in relation to
matters as to which he shall finally be adjudged in such action, suit or
proceeding to be liable for fraud or misconduct. In the event of settlement if
any action, suit or proceeding, indemnification shall be provided only in
connection with such matters covered by the settlement as to which the
Corporation is advised by counsel that the person to be indemnified was not
guilty of fraud or misconduct. The right of indemnification shall not exclude
other rights to which any officer or director may be entitled.
<PAGE>
Section 2. Insurance. The Board of Directors may authorize the purchase
of such policy or policies of insurance as it deems necessary or advisable to
provide the indemnification required by this Article, and also to protect the
Corporation from loss due to the fraud or misconduct of any officer, director,
employee or agent.
Article IX
Capital Stock
Section 1. Stock Certificates. Certificates for stock of the
Corporation shall be in such form as the Board of Directors may from time to
time prescribe and shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary. If certificates are signed by a Transfer
Agent, acting in behalf of the Corporation, and a Registrar, the signatures of
the officers of the Corporation may be facsimile.
Section 2. Transfer Agent. The Board of Directors shall have power to
appoint one or more Transfer Agents and Registrars for the transfer and
registration or certificates of stock of any class, and may require that stock
certificates shall be countersigned and registered by one or more of such
Transfer Agents and Registrars.
Section 3. Transfer of Stock. Shares of capital stock of the
Corporation shall be transferrable on the books of the Corporation only by the
holder of record thereof in person or by a duly authorized attorney, upon
surrender and cancellation of certificates for a like number of shares.
Section 4. Lost Certificates. In case any certificates for the capital
stock of the Corporation shall be lost, stolen, or destroyed, the Corporation
may require such proof of the fact and such indemnity to be given to it and to
its Transfer Agent and Registrar, if any, as shall be deemed necessary or
advisable by it.
Section 5. Holder of Record. The Corporation shall be entitled to treat
the holder of record of any shares or shares of stock as the holder thereof in
fact and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise expressly provided by
law.
<PAGE>
Section 6. Closing of Books. The Board of Directors shall have power to
close the stock transfer books of the Corporation for a period not exceeding 50
days preceding the date of any meeting of stockholders of the date for payment
of any dividend or the date for the allotment of rights or the date when any
change or conversion or exchange of capital stock shall go into effect; provided
that, in lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date, not exceeding 50 days preceding the date of any meeting
of stockholders, or the date for the payment of any dividend or the date for
allotment of rights, or the date when any change or conversion or exchange of
capital stock shall go into effect, as a record date for the determination of
the stockholders entitled to notice of and to vote at any such meeting, or
entitled to receive payment of any such dividends, or any such allotment of
rights, or to exercise the rights in respect to any such change, conversion, or
exchange of capital stock, and in such case only stockholders of record on the
date so fixed shall be entitled to such notice of and to vote at such meeting,
or to receive payment of such dividend, or allotment of rights, or exercise such
rights, as the case may be, and notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as herein provided.
Article X
Corporate Records and Reports
Section 1. Minutes of Corporate Meetings. The Corporation shall keep,
at its principle office, or such other place as the Board of Directors may
order, a book of minutes of all meetings of its directors and shareholders, with
the time and place of meeting, whether regular or special, how authorized, the
notice given, the names of those present at directors' meetings, the number of
shares represented at shareholders' meetings, and an account of the proceedings.
Section 2. Books of Account. The Corporation shall keep and maintain
correct and adequate accounts of its properties and transactions, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, surplus and shares.
Section 3. Share Register. The Corporation shall keep at its principle
office or the office of its transfer agent, a share register showing the names
and addresses of the shareholders, the classes and shares of each held by them,
the number and date of the certificates representing such shares and the number
and date of each certificate canceled. This information may be kept on punch
cards, magnetic tape or any other information storage system capable of
reproducing the information in clearly legible form for inspection as provided
herein.
<PAGE>
Section 4. Inspection of Records. a) The share register, books of
account and minutes of the Board of Director's, Execution Committee's and
Shareholders' meetings shall be open to inspection by any shareholder or holder
of a voting trust, upon written demand of such holder, at any reasonable time
and for a purpose reasonably related to his interests as a shareholder or holder
of a voting trust. Such inspection may be made by the shareholder or holder of a
voting trust, or his agent or attorney, and the right of inspection includes the
right to make extracts. The aforementioned records shall also be opened for
inspection upon the demand of ten percent (10%) or more of the shares
represented at any shareholder's meeting. Demand for inspection, except at a
shareholder's meeting, shall be made upon the President, Secretary or Assistant
Secretary.
b) Every director shall have the absolute right at any reasonable time
to inspect the books, records, documents and physical properties of the
Corporation, and also of its subsidiaries. Such inspection may be made by the
director, his agent or attorney and includes the right to make extracts.
Section 5. Reports to Shareholders. a) The Board of Directors shall
cause an annual report to be sent to the shareholders not later than 120 days
after the close of the fiscal year. The annual report shall include a balance
sheet as of the close of the fiscal year, and a statement of profit of loss for
the year ended on such closing date. These financial statements shall be
prepared from the books and in accordance therewith, shall be in a form
sanctioned by sound accounting practices of the business of the Corporation, and
shall be certified by the President, Treasurer or a Certified Public Accountant.
b) Upon the written request of any shareholder, the Corporation shall
mail to him a copy of the latest annual, semi-annual or quarterly financial
statement, together with a copy of the certificate, if any, of the Corporation's
auditors on such statements.
Article XI
Miscellaneous
Section 1. Fiscal Year. The Board of Directors shall have power to fix,
and from time to time change, the fiscal year of the Corporation. Unless
otherwise fixed by the Board, the calender year shall be the fiscal year.
<PAGE>
Section 2. Waiver of Notice. Any notice required to be given under the
provisions of these Bylaws or otherwise may be waived by the stockholder,
director, or officer to whom such notice is required to be given.
Article XII
Inspection and Amendment of Bylaws
Section 1. Inspection. These Bylaws, together with amendments thereto
and the certificate of the Secretary as to their completeness, shall be open to
inspection by shareholders, holders of voting trusts or directors at all
reasonable times during regular business hours.
Section 2. Amendment by Shareholders. These Bylaws may be amended,
modified, or repealed and new Bylaws adopted upon affirmative vote of a majority
of the voting power of the shareholders entitled to vote at a meeting called for
that purpose. Provided, however, that such amendments, modifications or new
Bylaws shall not be in conflict with the Articles of Incorporation or law.
Section 3. Amendment by Directors. Subject to the right of shareholders
to adopt, amend, modify, or repeal these Bylaws, the Board of Directors may
adopt, amend, modify or repeal Bylaws, provided that such adoption, amendment,
or modification is not in conflict with the Articles of Incorporation or law.
REVISED BYLAWS
OF
NDS SOFTWARE, INC.
ARTICLE I - OFFICES
The principal office of the Corporation shall be located in the City and State
designated as the registered office in the Articles of Incorporation. The
Corporation may also maintain offices at such other places within or without the
United States as the Board of Directors may, from time to time, determine.
ARTICLE II - MEETINGS OF SHAREHOLDERS
Section 1 - Annual Meetings:
The annual meeting of the Shareholders of the Corporation shall be held on a
date and at a time selected by the Board of Directors and at such place as
designated by the Board of Directors each year, for the purpose of electing
Directors of the Corporation to serve during the ensuing year and for the
transaction of such other business as may be brought before the meeting.
Section 2 - Notice of Annual Meetings:
At least ten (10) days written notice specifying the day and hour and place,
when and where the annual meeting shall be convened, shall be mailed in a United
States Post Office, addressed to each of the Shareholders of record at the time
of issuing the notice, at his or her or its address last known, as the same
appears on the books of the Corporation.
If the address of any Shareholders do not appear upon the books of the
Corporation, it will be sufficient to address any notice to such Shareholder at
the last address furnished by such Shareholder to the Secretary of the
Corporation.
Nevertheless, a failure to give such notice, or any irregularity in such notice,
shall not affect the validity of annual meetings or any proceedings had at such
meeting, and in such event these Bylaws shall be, and shall be deemed to be,
sufficient notice of such meeting without requirement of further notice.
Section 3 - Special Meetings:
Special meetings of the Shareholders may be held at the office of the
Corporation in the State of Nevada, or elsewhere, whenever called by the
Chairman, or by a majority of the Board of Directors, or by vote of, or by an
instrument in writing signed by the holders of at least fifty-one percent (51%)
of the issued and outstanding capital stock of the Corporation.
1
<PAGE>
Section 4 - Notice of Special Meetings:
At least ten (10) days written notice of such meeting, specifying the day and
hour and place, when and where such meeting shall be convened, and the objects
for calling the same, shall be mailed in the United States Post Office,
addressed to each of the Shareholders of record at the time of issuing the
notice, at his or her or its address last known, as the same appears on the
books of the Corporation.
If the address of any Shareholders do not appear upon the books of the
Corporation, it will be sufficient to address any notice to such Shareholder at
the last address furnished by such Shareholder to the Secretary of the
Corporation.
The written certificate of the officer or officers calling any special meeting
setting forth the substance of the notice, and the time and place of the mailing
of same to the several Shareholders, and the respective addresses to which the
same were to be mailed, shall be prima facie evidence of the manner and fact of
the calling and giving such notice.
Section 5 - Place of Meetings:
All meetings of Shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
Section 6 - Waiver of Notice:
If all the Shareholders of the Corporation shall waive notice of special
meetings, no notice of such meeting shall be required, and whenever all the
Shareholders shall meet in person or by proxy such meeting shall be valid for
all purposes without call or notice and at such meeting any corporate action may
be taken.
Section 7 - Quorum:
At all Shareholders' meetings, the holders of fifty-one percent (51%) in amount
of the entire issued and outstanding capital stock of the Corporation shall
constitute a quorum for all the purposes of such meetings.
If the holders of the amount of stock necessary to constitute a quorum shall
fail to attend, in person or by proxy, at the time and place fixed by these
Bylaws for any annual meeting, or fixed by a notice as above provided for any
annual meeting, or fixed by a notice as above provided for a special meeting, a
majority in interest of the Shareholders present in person or by proxy may
adjourn from time to time without notice other than by announcement at the
meeting, until holders of the amount of stock requisite to constitute a quorum
shall attend. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted as originally
called.
2
<PAGE>
Section 8 - Voting:
At each meeting of the Shareholders, every Shareholder shall be entitled to vote
in person or by his duly authorized proxy appointed by instrument in writing
subscribed by such Shareholder. Each Shareholder shall have one (1) vote for
each share of stock standing registered in his or her or its name on the books
of the Corporation, ten (10) days preceding the day of such meeting. The votes
for Directors, and upon demand by any Shareholder, the votes upon any question
before the meeting, shall be by roll call vote.
At each meeting of the Shareholders, a full, true and complete list, in
alphabetical order, of all the Shareholders entitled to vote at such meeting,
and indicating the number of shares held by each, certified by the Secretary of
the Corporation, shall be furnished, which list shall be prepared at least ten
(10) days before such meeting, and shall be open to the inspection of the
Shareholders, or their agents or proxies, at the place where such meeting is to
be held, and for ten (10) days prior thereto. Only the persons in whose names
shares of stock are registered on the meeting, as evidenced by the list of
Shareholders so furnished, shall be entitled to vote at such meeting. Proxies
and powers of attorney to vote must be filed with the Secretary of the
Corporation before an election or a meeting of the Shareholders, or they cannot
be used at such election or meeting.
Section 9 - Order of Business:
At the Shareholders' meetings, the regular order of business shall be as
follows:
1. Reading and approval of the Minutes of previous meeting or meetings;
2. Reports of yearly activity to Shareholders, to be prepared and provided by
the Board of Directors;
3. Election of Directors;
4. Financial review;
5. Appointment of auditors;
6. Unfinished business;
7. New business;
8. Adjournment.
Section 10 - Conduct of Election:
At each meeting of the Shareholders, the polls shall be opened and closed; the
proxies and ballots issued, received, and be taken in charge of, for the purpose
of the meeting; and all questions touching the qualifications of voters and the
validity of proxies,
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<PAGE>
and the acceptance or rejection of votes, shall be decided
by two (2) inspectors. Such inspectors shall be appointed at the meeting by the
presiding officer of the meeting.
ARTICLE III - BOARD OF DIRECTORS
Section 1 - Number:
The number of Directors which shall constitute the whole board shall be five (5)
all of whom shall be of full age and at least one (1) of whom shall be a citizen
of the United States. The number of Directors may from time to time be decreased
to not less than one (1) or increased by amending this section of the Bylaws.
The Directors shall be elected at the annual meeting of the Shareholders and
except as provided in Section 2 of this Article, each Director elected shall
hold office until his successor is elected and qualified. Directors need not be
Shareholders.
Section 2 - Classification and Elections
The Directors shall be classified with respect to the time for which they
severally hold office, into two classes, as nearly equal in number as possible
as the then total number of Directors constituting the entire board permits,
pursuant to the provisions of Section 1 hereof. At each annual meeting of the
Shareholders, the successors to the class of Directors whose term expires at
that meeting shall be elected, by a plurality of the votes cast, to hold office
for a term expiring at the annual meeting of the Shareholders held in the second
year following the year of their election and until their successors have been
duly elected and qualified. Any Director may resign at any time upon notice to
the Corporation. Directors need not be Shareholders.
Section 3 - Initial Classification of Board of Directors.
The five (5) members of the current Board of Directors shall be classified as
follows:
(a) The first class shall be composed of two (2) Directors and shall hold
office for a term expiring at the 1995 annual meeting of Shareholders, Dr. Jack
Kelly and Douglas Swanson shall be the initial directors in this class of
directors;
(b) The second class shall be composed of three (3) Directors and shall
hold office for a term expiring at the 1996 annual meeting of Shareholders.
William Tomerlin, Greg Johnson and Lester Lorentzen shall be the initial
directors in this class of directors;
Each successor to any of the foregoing Directors shall be classified within his
predecessor's class of Directors. The Directors shall determine, at the first
meeting of the Board of Directors, the class to which each Director shall
belong.
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<PAGE>
Section 4 - Duties and Powers:
The Board of Directors is invested with the complete and unrestrained authority
in the management of all the affairs of the Corporation, and is authorized to
exercise for such purpose as the General Agent of the Corporation, its entire
corporate authority.
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Certificate of Incorporation or
by statute expressly conferred upon or reserved to the Shareholders.
The Chairman of the Board of Directors shall make a report to the Shareholders
at annual meetings of the Shareholders of the condition of the Corporation, and
shall, on request, furnish each of the Shareholders with a true copy thereof.
The Board of Directors, in its discretion, may submit any contract or act for
approval or ratification at any annual meeting of the Shareholders called for
the purpose of considering any such contract or act, which, if approved, or
ratified by the vote of the holders of a majority of the capital stock of the
Corporation represented in person or by proxy at such meeting, provided that a
lawful quorum of Shareholders be there represented in person or by proxy, shall
be valid and binding upon the Corporation and upon all the Shareholders thereof,
as if it has been approved or ratified by every Shareholder of the Corporation.
Section 5 - Place of Meetings:
Meetings of the Directors may be held at the principal office of the Corporation
in the State of Nevada, or elsewhere, at such place or places as the Board of
Directors may, from time to time, determine.
Section 6 - Annual Meeting of Directors; Notice:
Immediately following each annual meeting of Shareholders, the Board of
Directors shall hold a regular meeting for the purpose of organization, election
of officers, and the transaction of other business. Notice of such meeting is
hereby dispense with.
Section 7 - Regular Meetings of Directors; Notice:
The time for other regular meetings of the Board of Directors, if and when held,
shall be as determined by the Board of Directors. If any regular meeting date
shall fall on a legal holiday, then the regular meeting date shall be the
business day next following. The time for the next regularly scheduled meeting
of the Board of Directors may be changed by a majority vote of the Directors at
any preceding meeting of the Directors.
No notice shall be required to be given of any regular meeting of
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the Board of Directors, but each Director shall take notice thereof.
Section 8 - Special Meetings of Directors: Notice:
A special meeting of the Board of Directors shall be held whenever called by the
Chairman or by two (2) Directors. Any and all business may be transacted at a
special meeting. Each call for a special meeting shall be in writing, signed by
the person or persons making the same, addressed and delivered to the Secretary,
and shall state the time and place of such meeting.
Notice of each special meeting of the Board of Directors shall be given to each
of the Directors by mailing to each of them a copy of such notice at least seven
(7) days prior to the time fixed for such meeting to the address of such
Director as shown on the books of the Corporation. If his address does not
appear on the books of the Corporation, then such notice shall be addressed to
him at NDS Software, 1657 Highway 395, Post Office Box 1328, Gardnerville,
Nevada, 89410.
Section 9 - Waiver of Notice:
When all the Directors of the Corporation are present at any meeting of the
Board of Directors, however called or noticed, and sign a written consent
thereto on the record of such meeting, or if the majority of the Directors are
present, and if those not present sign in writing a waiver of notice of such
meeting, whether prior to or after the holder of such meeting, which said waiver
shall be filed with the Secretary of the Corporation, the transactions of such
meeting are as valid as if had at a meeting regularly called and noticed.
Section 10 - Quorum and Adjournments:
A majority of the Board of Directors in office shall constitute a quorum for the
transaction of business; but if at any meeting of the Board there be less than a
quorum present, a majority of those present may adjourn from time to time, until
a quorum shall be present, and no notice of such adjournment shall be required.
The Board of Directors may prescribe rules not in conflict with these Bylaws for
the conduct of its business.
Section 11 - Manner of Acting:
(a) At all meetings of the Board of Directors, each Director present shall have
one (1) vote, irrespective of the number of shares of stock, if any, which he
may hold.
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or by these Bylaws, the action of a majority of the Directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors. Any action authorized, in writing, by all of the Directors
entitled to vote thereon and filed with the Minutes of the Corporation shall be
the act of the Board
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of Directors with the same force and effect as if the same had been passed by
unanimous vote at a duly called meeting of the Board.
Section 12 - Action by Unanimous Written Consent of Directors:
Any action required or permitted to be taken by the Board of Directors may be
taken without a meeting if all members of the Board shall individually or
collectively consent in writing to such action. Such written consent or consents
shall be filed with the Minutes of the proceedings of the Board, and such action
by written consent shall have the same force and effect as a unanimous vote of
such Directors. Any certificate or other document which relates to action so
taken shall state that the action was taken by unanimous written consent of the
Board of Directors without a meeting, and that these Bylaws authorize the
Directors to so act.
Section 13 - Order of Business:
The regular order of business at meetings of the Board of Directors shall be as
follows:
1. Roll call of Directors.
2. Approval of agenda.
3. Approval of the Minutes of the prior Director's meeting and action on any
recommendations of any standing committee.
4. Report by the Treasurer on financial condition of the Corporation and
financial operating results since the last meeting.
5. Report by the President on operating results.
6. General counsel report.
7. Other items requiring Board action, including any committee reports.
8. Reports by selected members of management as requested by the Chairman of the
Board.
9. Special report on operating or financial date requested by Directors.
l0. Old business.
11. New business.
12. Open discussion.
13. Adjournment.
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Section 14 - Telephonic Meetings:
Nothing herein contained shall prevent or render void any action taken by the
Board of Directors through the use of telephones, telegraphs, computers, word
processing machines or other electronic devices so long as such action is
otherwise consistent with these Bylaws.
Section 15 - Vacancies:
When any vacancy occurs among the Directors by death, resignation,
disqualification or other cause, the Shareholders, at any regular or special
meeting, or at any adjourned meeting thereof, or the remaining Directors, by the
affirmative vote of a majority thereof, shall elect a successor to hold office
for the unexpired portion of the term of the Director whose place shall have
become vacant and until his successor shall have been elected and shall qualify.
Section 16 - Resignation:
Any Director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
Section 17 - Removal:
Any Director may be removed with or without cause at any time by the affirmative
vote of Shareholders holding of record in the aggregate at least a majority of
the outstanding shares of the Corporation at a special meeting of the
Shareholders called for that purpose, and may be removed for cause by action of
the Board.
Section 18 - Contracts:
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any Director
be liable in any way be reason of the fact that any one or more of the Directors
of this Corporation is or are interested in or is a director of officer, or are
directors or officers of such other Corporation provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any Director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no Director
shall be liable in any way be reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such Director) of a
majority of a quorum, notwithstanding the presence of any such Director at
the meeting at which such action is taken. Such Director or Directors may be
counted in determining
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the presence of a quorum at such meeting. This Section shall not be construed to
impair or invalidate or in any way affect any contract or other transaction
which would otherwise be valid under the law (common, statutory or otherwise)
applicable thereto.
(c) No agreement, contract, franchise, lease or obligation (other than checks in
payment of indebtedness incurred by authority of the Board of Directors)
involving the payment of monies or the credit of the Corporation in excess of
that level established by the Board of Directors, shall be made without the
authority of the Board of Directors duly constituted and acting as such.
(d) Unless otherwise ordered by the Board of Directors, all agreements and
contracts shall be signed by the President, Secretary or the Chairman of the
Board of Directors in the name and on behalf of the Corporation, and if
required, shall have the corporate seal thereto attached.
(e) No note, draft, acceptance, endorsement or other evidence of indebtedness
shall be valid as or against the Corporation unless the same shall be signed by
the President and attested by the Secretary or an Assistant Secretary, or signed
by the Treasurer or an Assistant Treasurer, and countersigned by the President,
or Secretary, or by the Chairman of the Board of Directors and attested by the
Secretary or Assistant Secretary except that the Treasurer or an Assistant
Treasurer may, without countersignature, sign payroll checks and make
endorsements for deposit to the credit of the Corporation in all its duly
authorized depositories. No check or order for money shall be signed in blank by
more than one officer of the Corporation.
(f) No loan or advance of money shall be made by the Corporation to any
Shareholder, Director or Officer therein, unless the Board of Directors shall
otherwise authorize.
Section 19 - Encumbering or Conveying Corporate Property:
The Directors shall power to authorize and cause to be executed, mortgages and
liens without limit as to amount upon the property and franchise of this
Corporation, and pursuant to the affirmative vote, either in person or by proxy,
of the holders of a majority of the capital stock issued and outstanding; the
Directors shall have authority to dispose in any manner of the whole property of
this Corporation.
Section 20 - Committees:
The Board of Directors may, by resolution adopted by a majority of the whole
Board, designate one (1) or more standing committees of the Board of Directors.
Each committee shall consist of a Chairperson and another member. All actions of
the committees shall nevertheless require full Board of Directors' action at the
next succeeding meeting of the full Board of Directors unless specifically
provided for to the contrary.
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Section 21 - Salaries:
The Directors may be paid their expenses of attendance of each meeting of the
Board of Directors and at any standing committee meeting of the Board of
Director, and shall be paid a fixed sum for attendance at each meeting of the
Board of Directors and each standing committee of the Board of Directors and a
stated retainer as Director. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
reimbursement and compensation for attending committee meetings. Compensation
shall not be paid to members of ad hoc committees.
ARTICLE IV - OFFICERS
Section 1 - Number:
The Officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other Officers as the Board of Directors may from time to
time deem advisable. Any two (2) or more offices may be held by the same person.
Section 2 - Election:
The Board of Directors at its first meeting after the annual meeting of
Shareholders, shall elect a President, a Secretary and a Treasurer, to hold
office for one (1) year next coming, and until their successors are elected and
qualify. The Treasurer and Secretary need not be Directors; the offices of the
Secretary and Treasurer may be held by one person.
The Board of Directors may from time to time, by resolution, appoint Vice
Presidents and additional Assistant Secretaries, Assistant Treasurers and
Transfer Agents of the Corporation as it may deem advisable; prescribe their
duties and fix their compensation, and all such appointed officers shall be
subject to removal at anytime by the Board of Directors. All officers, agents
and factors of the Corporation shall be chosen and appointed in such manner and
shall hold their offices for such terms as the Board of Directors may by
resolution prescribe.
Section 3 - Term of Office:
Each Officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
Section 4 - Resignation:
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt
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thereof by the Board of Directors or by such officer, and the acceptance of such
resignation shall not be necessary to make it effective.
Section 5 - Removal:
Any officer may be removed, either with or without cause, and a successor
elected by a majority vote of the Board of Directors at any time.
Section 6 - Vacancies:
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by a majority vote of the Board of Directors.
Section 7 - Duties of Officers:
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these Bylaws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the Chief Executive Officer of
the Corporation.
Section 8 - Chairman of the Board:
The Chairman of the Board of Directors shall be responsible for scheduling all
Board of Directors meetings, annual Shareholder meetings, Board of Directors
retreats and other activities pertaining to the Board of Directors. He shall
also insure that meeting agendas cover all matters of importance to the Board
and be responsible for making all arrangements for meetings, to include proper
notice as provided for herein. The Chairman of the Board of Directors shall also
insure that the agenda of meetings is followed and be responsible for
communication between the Board of Directors and management, during the period
between meetings of the Board. The Chairman shall also serve a member of each
committee of the Board of Directors and attend such committee meetings in
addition to monitoring the performance of the Board of Directors as a collective
body and as individual members and shall further be responsible for strategic
and financial planning and shall otherwise insure the setting and maintaining of
policies and procedures adopted by the Board of Directors.
Section 9 - The President as Chief Executive Officer:
The President/Chief Executive Officer of the Corporation shall have the
supervision and, subject to the control of the Board of Directors, the direction
of the Corporation's affairs, with full power to execute all resolutions and
orders of the Board of Directors not especially entrusted to some other officer
of the Corporation. He shall sign the Certificates of Stock issued by the
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Corporation, shall conduct meetings in the absence of the Chairman, and shall
perform such other duties as shall be prescribed by the Board of Directors.
Unless otherwise ordered by the Board of Directors, the President as Chief
Executive Officer shall have full power and authority on behalf of the
Corporation, to attend and to act and to vote at any meetings of the
Shareholders of any Corporation in which the Corporation may hold stock, and at
any such meetings, shall possess and may exercise any and all rights and powers
incident to the ownership of such stock, and which as the new owner thereof, the
Corporation might have possessed and exercised if present. The Board of
Directors may, by resolution, from time to time, confer like powers on any
person or persons in place of the President as Chief Executive Officer to
represent the Corporation for the purposes in this Section mentioned.
Section 10 - The Treasurer:
The Treasurer shall have the custody of all the funds and securities of the
Corporation. When necessary or proper, he shall endorse on behalf of the
Corporation for collection, checks, notes, and other obligations; he shall
deposit all monies to the credit of the Corporation in such bank or banks or
other depositary as the Board of Directors may designate; he shall sign all
receipts and vouchers for payments made by the Corporation except as herein
otherwise provided; he shall jointly with such other officer as shall be
designated by those Bylaws, sign all checks made by the Corporation, and shall
pay out and dispose of the same under the direction of the Board of Directors.
He shall sign with the President all bills of exchange and promissory notes of
the Corporation; he shall also have the care and custody of the stocks, bonds,
certificates, vouchers, evidences of debt securities, and such other property
belonging to the Corporation as the Board of Directors shall designate; he shall
sign all papers required by law or these Bylaws or the Board of Directors to be
signed by the Treasurer. Whenever required by the Board of Directors, he shall
perform all acts incident to the position of Treasurer subject to the control of
the Board of Directors.
The Treasurer shall, if required by the Board of Directors, give bond to the
Corporation conditioned for the faithful performance of all his duties as
Treasurer in such sum, and with such security as shall be approved by the Board
of Directors, and the expense of such bond to be borne by the Corporation.
Section 11 - The Secretary:
The Secretary shall keep the Minutes of all meetings of the Board of Directors
and the Minutes of all meetings of the Shareholders and of the Executive
Committee in books provided for that purpose. The Secretary shall attend to the
giving and serving of all notices of the Corporation; he/she may sign with the
President or a Vice President, in the name of the Corporation, all contracts
authorized by the Board of Directors or Executive Committee; the Secretary
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shall affix the corporate seal of the Corporation to any documents when so
authorized by the Board of Directors or Executive Committee; he/she shall affix
the corporate seal to all certificates of stock duly issued by the Corporation;
he/she shall have charge of the Stock Certificate Books, Transfer Books and
Stock Ledgers, and such other books and papers as the Board of Directors or the
Executive Committee may direct, all of which shall at all reasonable times be
open to the examination of any Director(s) upon application at the office of the
Corporation during business hours, and he/she shall, in general, perform all the
duties incident to the office of the Secretary.
Section 12 - The Other Officers:
The Board of Directors may appoint other officers who shall have such powers and
perform such duties as may be prescribed for him/her by the Board of Directors.
ARTICLE V - SHARES OF STOCK
Section 1 - Certificates of Stock:
Ownership of stock in the Corporation shall be evidenced by certificates of
stock in such forms as shall be prescribed by the Board of Directors, and shall
be under the seal of the Corporation and signed by the President and also by the
Secretary or by an Assistant Secretary.
All certificates shall be consecutively numbered; the name of the person owning
the shares represented thereby with the number of such shares and the date of
issue shall be entered on the Corporation's books.
No certificate shall be valid unless it is signed by the President and by the
Secretary or Assistant Secretary.
All certificates surrendered to the Corporation shall be canceled and no new
certificate shall be issued until the former certificate for the same number of
shares shall have been surrendered or canceled.
Section 2 - Issuance:
The capital stock of the Corporation shall be issued in such manner and at such
times and upon such conditions as shall be prescribed by the Board of Directors.
Section 3 - Lost or Destroyed Certificates:
Any person or persons applying for a certificate of stock in lieu of one alleged
to have been lost or destroyed, shall make affidavit or affirmation of the fact,
and shall deposit with the Corporation an affidavit. Whereupon, at the end of
six (6) months after the deposit of said affidavit and upon such person or
persons giving Bond of Indemnity to the Corporation with surety to be approved
by
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the Board of Directors in double the current value of the stock against any
damage, loss, or inconvenience to the Corporation, which may or can arise in
consequence of a new or duplicate certificate being issued in lieu of the one
lost or missing, the Board of Directors may cause to be issued to such person or
persons a new certificate, or a duplicate of the certificate so lost or
destroyed. The Board of Directors may, in its discretion, refuse to issue such
new or duplicate certificate save upon the order of some court having
jurisdiction in such matter, anything herein to the contrary notwithstanding.
Section 4 - Transfer of Shares:
No transfer of stock shall be valid as against the Corporation except on
surrender and cancellation of the certificate therefor, accompanied by an
assignment or transfer by the owner therefor, made either in person or under
assignment, a new certificate shall be issued therefor.
Whenever any transfer shall be expressed as made for collateral security and not
absolutely, the same shall be so expressed in the entry of said transfer on the
books of the Corporation.
Section 5 - Record Date:
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty (50) days, nor less than ten
(10) days, as the record date for the determination of Shareholders entitled to
receive notice of, or to vote at, any meeting of Shareholders, or to consent to
any proposal without a meeting, or for the purpose of determining Shareholders
entitled to receive payment of any dividends, or allotment of any rights, or for
the purpose of any other action. If no record date is fixed, the record date for
the determination of Shareholders entitled to notice of or to vote at a meeting
of Shareholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining Shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the Directors relating thereto is adopted. When a determination of Shareholders
of record entitled to notice of or to vote at any meeting of Shareholders has
been made as provided for herein, such determination shall apply to any
adjournment thereof, unless the Directors fix a new record date for the
adjourned meeting.
ARTICLE VI - DIVIDENDS
The Board of Directors shall have power to reserve over and above the capital
stock paid in, such an amount in its discretion as it may deem advisable to fix
as a reserve fund, and may, from time to time, declare dividends from the
accumulated profits of the Corporation in excess of the amounts so reserved, and
pay the same o the Shareholders of the Corporation, and may also, if it deems he
same advisable, declare stock dividends of the unissued capital
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stock of the Corporation.
ARTICLE VII - AMENDMENTS
Section 1 - BY Shareholders:
Amendments and changes of these Bylaws may be made by a vote of, or a consent in
writing signed individually or collectively by the holders of fifty-one percent
(51%) of the issued and outstanding capital stock.
Section 2 - By Directors:
Amendments and changes of these Bylaws may be made at any regular or special
meeting of the Board of Directors by a vote of not less than all of the entire
Board, or may be made by a consent in writing signed individually or
collectively by the not less than all of the entire Board.
ARTICLE VIII - CORPORATE SEAL
The Corporation shall have a corporate seal, the design thereof being as
follows:
ARTICLE IX - INDEMNIFICATION
Every person who was or is a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation or for its
benefit as a director or officer of another corporation, or as its
representative in a partnership, Joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the General Corporation Law of the State of Nevada from time to time against all
expenses, liability and loss (including attorneys' fees, judgments, fines and
amounts paid or to be paid in settlement) reasonably incurred or suffered by him
in connection therewith. Such right of indemnification shall be a contract right
which may be enforced in any manner desired by such person. Such right of
indemnification shall not be exclusive of any other right which such directors,
officers or
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representatives may have or hereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any by-law, agreement, vote of Shareholders, provision
of law or otherwise, as well as their rights under this Article.
The Board of Directors may cause the Corporation to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out of
such status, whether or not the Corporation would have the power to indemnify
such person.
The indemnification provisions above provided shall include, but not be limited
to, reimbursement of all fees, including amounts paid in settlement and
attorneys' fees actually and reasonably incurred, in connection with the defense
or settlement of any action or suit if such party to be indemnified acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Corporation. Indemnification may not be made for any
claim, issue or matter as to which the person claiming indemnity has been
adjudged by a court of competent jurisdiction, after exhaustion of all appeals
therefrom to be liable to the Corporation or for amounts paid in settlement to
the Corporation unless and only to the extent that the court in which the action
or suit was brought or other court of competent jurisdiction determines upon
application that the person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper.
ARTICLE X - GENERAL PROVISIONS
Section 1 - Depositories:
All monies of the Corporation shall be deposited when as received by the
Treasurer in such bank or banks or other depositary as may from time to time be
designated by the Board of Directors, and such deposits shall be made in the
name of the Corporation.
Section 2 - Other Securities:
The Corporation may take, acquire, hold, mortgage, sell, or otherwise deal in
stocks or bonds or securities of any other corporation, if and as often as the
Board of Directors.
16
CERTIFICATION OF DESIGNATION
CLASS A, SERIES A PREFERRED STOCK
OF NDS SOFTWARE, INC.
NDS Software, Inc., (the "Corporation"), organized and existing under the laws
of the State of Nevada, certifies:
Pursuant to the authority as set forth in the Articles of Incorporation of the
Corporation, as amended, and Nevada Revised Statutes 78.195, the board of
directors has adopted, by unanimous written consent, the following resolution:
WHEREAS, under Section 1 of Article IV of the Articles of Incorporation of the
Corporation, as amended, the Corporation has authorized five million (5,000,000)
shares of preferred stock, par value One Tenth of One Cent ($.001), described as
"Class A Preferred Stock;" and
WHEREAS, pursuant to Section 4 of Article IV of the Articles of Incorporation
of the Corporation, as amended, the board of directors is permitted to issue
preferred stock in certain classes and series with such voting powers,
designations, preferences, relative participating, optional, or other rights and
qualifications, limitations, or restrictions relating thereto as may be fixed by
the board of directors; and
WHEREAS, the board of directors deems it advisable to issue an initial series
of Class A Preferred Stock at this time, and has determined to give the new
series, to be denominated "Class A, Series A Preferred Stock," the attributes
set forth below.
<PAGE>
RESOLVED, that a series of preferred stock consisting of one million
(1,000,000) shares of Class A Preferred Stock is hereby created, established and
designated as "Class A, Series A Preferred Stock;" and
RESOLVED, that the holders of such stock shall be entitled to receive, when
and as declared by the board of directors from funds legally available
therefore, dividends at the rate of fifteen percent (15%) per annum, based upon
a value of such shares in the amount of Two Dollars ($2.00) per share, which may
be paid in cash or in common stock of the Corporation. The dividends of these
stocks are cumulative and shall not bear interest, and are payable before any
dividends on the common stock are paid or set apart, so that if any year
dividends amounting to fifteen percent (15%) shall not have been paid thereon,
the deficiency is payable before any dividends are paid on or set apart for the
common stock; and
RESOLVED, that subject to the foregoing, dividends as may be determined by the
board of directors may be declared and paid from time to time on the shares of
any stock junior to the Class A, Series A Preferred Stock, without any right of
participation therein by the holders of Class A, Series A Preferred Stock; and
RESOLVED, that in the event of any liquidation, dissolution, or winding up,
whether voluntary or involuntary, of the Corporation, the holders of the Class
A, Series A Preferred Stock shall share equally, and be entitled to be paid out
of assets of the Corporation available for distribution to its shareholders,
before any payment is made to the holders of any junior class of
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capital stock, including the shareholders of common stock, an amount equal to
Two Dollars ($2.00) per share plus an amount equal to any accrued and unpaid
dividends thereon; and
RESOLVED, that the Class A, Series A Preferred Stock Is redeemable, at the
option of the board of directors, in whole or in part, at any time after
issuance and at a redemption price equal to the sum of Two Dollars ($2.00) per
share, plus an amount equal to all dividends accrued or in arrears on the shares
to be redeemed to the date fixed for redemption (the total amount to be so paid
being referred to as the redemption price).
Notice of each redemption will be mailed not less than thirty (30) days, nor
more than sixty (60) days prior to the date fixed for the redemption to each
holder of record of shares of the Class A, Series A Preferred Stock to be
redeemed, at each shareholder's address as the same may appear on the books of
the Corporation. In the case of redemption of a part only of the Class A, Series
A Preferred Stock, the shares to be redeemed will be selected pro rata or by lot
or in such other manner as the board of directors may determine. Except as
otherwise provided herein, the board of directors will have full power and
authority to prescribe the manner in which and the terms and conditions upon
which the Class A, Series A Preferred Stock may be redeemed from time to time.
If any notice of redemption shall have been duly given, dividends on the
shares of Class A, Series A Preferred Stock so called for redemption will
continue to accrue and be cumulative
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until the date fixed for redemption in the notice of redemption, and will cease
to accrue and be cumulative on the date the redemption price is paid. All rights
of the holders of the shares or Class A, Series A Preferred Stock so called for
redemption shall cease and terminate upon payment of the redemption price.
RESOLVED, that each one (1) share of Class A, Series Preferred Stock is
convertible at the option of the board of directors of the Corporation into one
(1) fully paid and non-assessable share of common stock of the Corporation. In
case any shares of Class A, Series A Preferred Stock are called for redemption,
the right of conversion ceases and terminates, as to the shares so called for
redemption, on the date fixed for redemption, unless default is made in the
payment of the redemption price. Upon conversion to common stock, adjustment in
the number of common shares issued will be made for dividends accrued and unpaid
on any shares of Class A, Series A Preferred Stock so converted.
RESOLVED, that the shares of Class A, Series A Preferred Stock will have
voting powers for all purposes equal to five (5) votes for each share held.
This certificate, duly approved by the board of directors of NDS Software,
Inc., has been executed by the undersigned, its President and Secretary,
respectively, this 5th day of December , 1995.
/s/ Greg Johnson
---------------------------
Greg Johnson, President
/s/ William Tomerlin
---------------------------
William Tomerlin, Secretary
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STATE OF NEVADA )
: ss
COUNTY OF DOUGLAS )
On December 6, 1995, personally appeared before me, 2 notary public, GREG
JOHNSON, personally known (or proved) to me to be the person whose name is
subscribed to the above instrument who acknowledged that he executed the
instrument.
/s/ Sandy Storke
----------------
NOTARY PUBLIC
STATE OF NEVADA )
: ss
COUNTY OF DOUGLAS )
On December 6, 1995, personally appeared before me, 2 notary public, WILLIAM
TOMERLIN, personally known (or proved) to me to be the person whose name is
subscribed to the above instrument who acknowledged that he executed the
instrument.
/s/ Sandy Storke
----------------
NOTARY PUBLIC
5
CERTIFICATION OF DESIGNATION
CLASS B CONVERTIBLE PREFERRED STOCK
OF NDS SOFTWARE, INC.
NDS Software, Inc., (the "Corporation"), organized and existing under the laws
of the State of Nevada, certifies:
Pursuant to the authority as set forth in the Articles of Incorporation of the
Corporation, as amended, and Nevada Revised Statutes 78.195, the board of
directors has adopted, by unanimous written consent, the following resolution:
WHEREAS, under Section 1 of Article IV of the Articles of Incorporation of the
Corporation, as amended, the Corporation has authorized two hundred thousand
(200,000) shares of preferred stock, par value Ten Dollars ($10.00), described
as "Class B Preferred Stock;" and
WHEREAS, pursuant to Section 4 of Article IV of the Articles of Incorporation
of the Corporation, as amended, the board of directors is permitted to issue
preferred stock in certain classes and series with such voting powers,
designations, preferences, relative participating, optional, or other rights and
qualifications, limitations, or restrictions relating thereto as may be fixed by
the board of directors; and
WHEREAS, the board of directors deems it advisable to designate the terms of
the Class B Preferred Stock at this time, and has determined to give such stock,
to be denominated "Class B Convertible Preferred Stock," the attributes set
forth below.
<PAGE>
RESOLVED, that Class B Preferred Stock shall consist of two hundred thousand
(200,000) shares, par value Ten Dollars (610.00) per share, and which be
designated as "Class B Convertible Preferred Stock;" and
RESOLVED, that the holders of such stock shall be entitled to receive, when
and as declared by the board of directors from funds legally available therefor,
dividends at the rate of nine percent (9%) per annum, based upon a value of such
shares in the amount of Ten Dollars ($10.00) per share, which may be paid in
cash or in common stock or the Corporation. The dividends of these stocks are
cumulative and shall not bear interest, and are payable before the dividends
payable on the Class A, Series A Preferred Stock of the Corporation and before
any dividends on the common stock are paid or set apart, so that if in any year
dividends amounting to nine percent (9%) shall not have beer paid thereon, the
deficiency is payable before any dividends are paid on or set apart for the
Class A, Series A Preferred Stock or the common stock; and
RESOLVED, that subject to the foregoing, dividends as may be determined by the
board of directors may be declared and paid from time to time or. the shares of
any stock junior to the Class B Convertible Preferred Stock, without any right
of participation therein by the holders of Class B Convertible Preferred Stock;
and
RESOLVED, that in the event of any liquidation, dissolution, or winding up,
whether voluntary or involuntary, of the Corporation, the holders of the Class B
Convertible Preferred Stock shall share equally, and be entitled to be paid out
of assets of
2
<PAGE>
the Corporation available for distribution to its shareholders, before any
payment is made to the holders of any junior class of capital stock, including
the shareholders of common stock, an amount equal to Ten Dollars ($10.00) per
share plus an amount equal to any accrued and unpaid dividends thereon;
provided, however, that such rights of the Class B Convertible Preferred
Shareholders shall be junior to the Class A, Series A Preferred Shareholders in
the event of liquidation, dissolution, or winding up of the Corporation; and
RESOLVED, that the Class B Convertible Preferred Stock is redeemable, at the
option of the board of directors, in whole or in part, at any time after
issuance and at a redemption price equal to the sum of Ten Dollars ($10.00) per
share, plus an amount equal to all dividends accrued or in arrears on the shares
to be redeemed to the date fixed for redemption (the total amount to be so paid
being referred to as the redemption price).
Notice of each redemption will be mailed not less than thirty (30) days, nor
more than sixty (60) days prior to the date fixed for the redemption to each
holder of record of shares of the Class B Convertible Preferred Stock to be
redeemed, at each shareholder's address as the same may appear on the books of
the Corporation. In the case of redemption of a part only of the Class B
Convertible Preferred Stock, the shares to be redeemed will be selected pro rata
or by lor or in such other manner as the board of directors may determine.
Except as otherwise provided herein, the board of directors will have full power
and authority to
3
<PAGE>
prescribe the manner in which and the terms and conditions upon which the Class
B Preferred Stock may be redeemed from time to time.
If any notice of redemption shall have been duly given, dividends on the
shares of Class B Convertible Preferred Stock so called for redemption will
continue to accrue and be cumulative until the date fixed for redemption in the
notice of redemption, and will cease to accrue and be cumulative on the date the
redemption price is paid. All rights of the holders of the shares of Class B
Convertible Preferred Stock so called for redemption shall cease and terminate
upon payment of the redemption price.
RESOLVED, that each one (1) share of Class B Convertible Preferred Stock is
convertible at the option of the board of directors of the Corporation into five
(5) fully paid and nonassessable snare of common stock of the Corporaticn. Such
conversion may not occur until (i) at least six (6) months after the issuance of
the Class B Convertible Preferred Stock and (ii) the listed price per share of
common stock of the corporation is not less than Three Dollars ($3.00) per
share, and has been at such price or greater for a period of at least ten (10)
consecutive trading days, with an aggregate volume of no less than twenty
thousand (20,000) shares. In case any shares of Class B Convertible Preferred
Stock are called for redemption, the right of conversion ceases and terminates,
as to the shares so called for redemption, on the date fixed for redemption,
unless default is made in the payment of the redemption price. Upon conversion
to
4
<PAGE>
common stock, adjustment in the number of common shares issued will be made
for dividends accrued and unpaid on any shares of Class B Convertible Preferred
Stock so conversed.
RESOLVED, that the shares of Class B Convertible Preferred Stock will not have
voting powers for the election of directors or for any other purpose, except as
may be required under the laws of the State of Nevada.
This certificate, duly approved by the board of directors of NDS Software,
Inc., has been executed by the undersigned, its President and Secretary,
respectively, this 5th day of December, 1995.
/s/ Greg Johnson
--------------------------
Greg Johnson, President
/s/ William Tomerlin
--------------------------
William Tomerlin, Secretary
5
<PAGE>
STATE OF NEVADA )
: SS
COUNTY OF DOUGLAS )
On December 6, 1995, personally appeared before me, a notary public, GREG
JOHNSON, personally known (or proved) to me to be the person whose name is
subscribed to the above instrument who acknowledged that he executed the
instrument.
/s/ Sandy Storke
---------------------
NOTARY PUBLIC
STATE OF NEVADA )
: ss
COUNTY OF DOUGLAS )
On December 6, 1995, personally appeared before me, a notary public, WILLIAM
TOMERLIN, personally known (or proved) to me to be the person whose name is
subscribed to the above instrument who acknowledged that he executed the
instrument.
/s/ Sandy Storke
----------------------
NOTARY PUBLIC
6
NDS SOFTWARE, INC.
1996 STOCK OPTION PLAN
1. Grant of Options; Generally. In accordance with the provisions hereinafter
set forth in this stock option plan, the name of which is the NDS SOFTWARE, INC.
1996 STOCK OPTION PLAN (the "Plan"), the Board of Directors (the "Board") or,
the Compensation Committee (the "Stock Option Committee") of NDS SOFTWARE, INC.
(the "Corporation") is hereby authorized to issue from time to time on the
Corporation's behalf to any one or more Eligible Persons, as hereinafter
defined, options to acquire shares of the Corporation's $.001 par value common
stock (the "Stock").
2. Type of Options. The Board or the Stock Option Committee is authorized to
issue options which meet the requirements of Section '422 of the Internal
Revenue Code of 1986, as amended (the "Code"), which options are hereinafter
referred to collectively as ISOs, or singularly as an ISO. The Board or the
Stock Option Committee is also, in its discretion, authorized to issue options
which are not ISOs, which options are hereinafter referred to collectively as
NSOs, or singularly as an NSO. The Board or the Stock Option Committee is also
authorized, but not obligated, to issue "Reload Options" in accordance with
Paragraph 8 herein, which options are hereinafter referred to collectively as
Reload Options, or singularly as a Reload Option. Except there the context
indicates to the contrary, the term "Optiori" or "Options" means ISOs, NSOs and
Reload Options.
3. Amount of Stock. The aggregate number of shares of Stock which may be
purchased pursuant to the exercise of Options shall be 2,500,000 shares. Of this
amount, the Board or the Stock Option Committee shall have the power and
authority to designate whether any Options so issued shall be ISOs or NSOs,
subject to the restrictions on ISOs contained elsewhere herein. If an Option
ceases to be exercisable, in whole or in part, the shares of Stock underlying
such Option shall continue to be available under this Plan. Further, if shares
of Stock are delivered to the Corporation as payment for shares of Stock
purchased by the exercise of an Option granted under this Plan, such shares of
Stock shall also be available under this Plan. If there is any change in the
number of shares of Stock on account of the declaration of stock dividends,
recapitalization resulting in stock split-ups, or combinations or exchanges of
shares of Stock, or otherwise, the number of shares of Stock available for
purchase upon the exercise of Options, the shares of Stock subject to any Option
and the exercise price of any outstanding Option shall be appropriately adjusted
by the Board or the Stock Option Committee. The Board or the Stock Option
Committee shall give notice of any adjustments to each Eligible Person granted
an Option under this Plan, and such adjustments shall be effective and binding
on all
<PAGE>
Eligible Persons. If because of one or more recapitalizations, reorganizations
or other corporate events, the holders of outstanding Stock receive something
other than shares of Stock then, upon exercise of an Option, the Eligible Person
will receive what the holder would have owned if the holder had exercised the
Option immediately before the first such corporate event and not disposed of
anything the holder received as a result of the corporate event.
4. Eligible Persons.
(a) With respect to ISOs, an Eligible Person means any individual who has been
employed by the Corporation or by any subsidiary of the Corporation, for a
continuous period of at least sixty (60) days.
(b) With respect to NSOs, an Eligible Person means (i) any individual who has
been employed by the Corporation or by any subsidiary of the Corporation, for a
continuous period of at least sixty (60) days, (ii) any director of the
Corporation or any subsidiary of the Corporation, (iii) any member of the
Corporation's advisory board member or of any of the Corporation's
subsidiar(ies), or (iv) any consultant of the Corporation or by any subsidiary
of the Corporation.
5. Grant of Options. The Board or the Stock Option Committee has the right to
issue the Options established by this Plan to Eligible Persons. The Board or the
Stock Option Committee shall follow the procedures prescribed for it elsewhere
in this Plan. A grant of Options shall be set forth in a writing signed on
behalf of the Corporation or by a majority of the members of the Stock Option
Committee. The writing shall identify whether the Option being granted is an ISO
or an NSO and shall set forth the terms which govern the Option. The terms shall
be determined by the Board or the Stock Option Committee, and may include, among
other terms, the number of shares of Stock that may be acquired pursuant to the
exercise of the Options, when the Options may be exercised, the period for which
the Option is granted and including the expiration date, the effect on the
Options if the Eligible Person terminates employment and whether the Eligible
Person may deliver shares of Stock to pay for the shares of Stock to be
purchased by the exercise of the Option. However, no term shall be set forth in
the writing which is inconsistent with any of the terms of this Plan. The terms
of an Option granted to an Eligible Person may differ from the terms of an
Option granted to another Eligible Person, and may differ from the terms of an
earlier Option granted to the same Eligible Person.
2
<PAGE>
6. Option Price. The option price per share shall be determined by the Board
or the Stock Option Committee at the time any Option is granted, and shall be
not less than (i) in the case of an ISO, the fair market value, (ii) in the case
of an ISO granted to a ten percent or greater stockholder, 110% of the fair
market value, or (iii) in the case of an NSO, not less than 75% of the fair
market value (but in no event less than the par value) of one share of Stock on
the date the Option is granted, as determined by the Board or the Stock Option
Committee. Fair market value as used herein shall be:
(a) If shares of Stock shall be traded on an exchange or over-the-counter
market, the closing price or the closing bid price of such Stock on such
exchange or over-the-counter market on which such shares shall be traded on that
date, or if such exchange or over-the-counter market is closed or if no shares
shall have traded on such date, on the last preceding date on which such shares
shall have traded.
(b) If shares of Stock shall not be traded on an exchange or over-the-counter
market, the value as determined by the Board of Directors or the Stock Option
Committee of the Corporation.
7. Purchase of Shares. An Option shall be exercised by the tender to the
Corporation of the full purchase price of the Stock with respect to which the
Option is exercised and written notice of the exercise. The purchase price of
the Stock shall be in United States dollars, payable in cash or by check, or in
property or Corporation stock, if so permitted by the Board or the Stock Option
Committee in accordance with the discretion granted in Paragraph 5 hereof,
having a value equal to such purchase price. The Corporation shall not be
required to issue or deliver any certificates for shares of Stock purchased upon
the exercise of an Option prior to (i) if requested by the Corporation, the
filing with the Corporation by the Eligible Person of a representation in
writing that it is the Eligible Person's then present intention to acquire the
Stock being purchased for investment and not for resale, and/or (ii) the
completion of any registration or other qualification of such shares under any
government regulatory body, which the Corporation shall determine to be
necessary or advisable.
8. Grant of Reload Options. In granting an Option under this Plan, the Board
or the Stock Option Committee may, but shall not be obligated to include, a
Reload Option provision therein, subject to the provisions set forth in
Paragraphs 20 and 21 herein. A Reload Option provision provides that if the
Eligible Person pays the exercise price of shares of Stock to be purchased
3
<PAGE>
by the exercise of an ISO, NSO or another Reload Option (the "Original Option")
by delivering to the Corporation shares of Stock already owned by the Eligible
Person (the "Tendered Shares"), the Eligible Person shall receive a Reload
Option which shall be a new Option to purchase shares of Stock equal in number
to the tendered shares. The terms of any Reload Option shall be determined by
the Board or the Stock Option Committee consistent with the provisions of this
Plan.
9. Stock Option Committee. The Stock Option Committee may be appointed from
time to time by the Corporation's Board of Directors. The Board may from time to
time remove members from or add members to the Stock Option Committee. The Stock
Option Committee shall be constituted so as to permit the Plan to comply in all
respects with the provisions set forth in Paragraph 20 herein. The members of
the Stock Option Committee may elect one of its members as its chairman. The
Stock Option Committee shall hold its meetings at such times and places as its
chairman shall determine. A majority of the Stock Option Committee's members
present in person shall constitute a quorum for the transaction of business. All
determinations of the Stock Option Committee will be made by the majority vote
of the members constituting the quorum. The members may participate in a meeting
of the Stock Option Committee by conference telephone or similar communications
equipment by means of which all members participating in the meeting can hear
each other. Participation in a meeting in that manner will constitute presence
in person at the meeting. Any decision or determination reduced to writing and
signed by all members of the Stock Option Committee will be effective as if it
had been made by a majority vote of all members of the Stock Option Committee at
a meeting which is duly called and held.
10. Administration of Plan. In addition to granting Options and to exercising
the authority granted to it elsewhere in this Plan, the Board or the Stock
Option Committee is granted the full right and authority to interpret and
construe the provisions of this Plan, promulgate, amend and rescind rules and
procedures relating to the implementation of the Plan and to make all other
determinations necessary or advisable for the administration of the Plan,
consistent, however, with the intent of the Corporation that Options granted or
awarded pursuant to the Plan comply with the provisions of Paragraph 20 and 21
herein. All determinations made by the Board or the Stock Option Committee shall
be final, binding and conclusive on all persons including the Eligible Person,
the Corporation and its stockholders, employees, officers and directors and
consultants. No member of the Board or the Stock Option Committee will be liable
for any act or omission in connection with the administration of this Plan
unless it is attributable to that member's willful misconduct.
4
<PAGE>
11. Provisions Applicable to ISOs. The following provisions shall apply to all
ISOs granted by the Board or the Stock Option Committee and are incorporated by
reference into any writing granting an ISO:
(a) An ISO may only be granted within ten (10) years from October ll, 1995,
the date that this Plan was originally adopted by the Corporation's Board of
Directors.
(b) An ISO may not be exercised after the expiration of ten (10) years from
the date the ISO is granted.
(c) The option price may not be less than the fair market value of the Stock
at the time the ISO is granted.
(d) An ISO is not transferable by the Eligible Person to whom it is granted
except by will, or the laws of descent and distribution, and is exercisable
during his or her lifetime only by the Eligible Person.
(e) If the Eligible Person receiving the ISO owns at the time of the grant
stock possessing more than ten (10%) percent of the total combined voting power
of all classes of stock of the employer corporation or of its parent or
subsidiary corporation (as those terms are defined in the Code), then the option
price shall be at least 110% of the fair market value of the Stock, and the ISO
shall not be exercisable after the expiration of five (5) years from the date
the ISO is granted.
(f) The aggregate fair market value (determined at the time the ISO is
granted) of the Stock with respect to which the ISO is first exercisable by the
Eligible Person during any calendar year (under this Plan and any other
incentive stock option plan of the Corporation) shall not exceed $100,000.
(g) Even if the shares of Stock which are issued upon exercise of an ISO are
sold within one year following the exercise of such ISO so that the sale
constitutes a disqualifying disposition for ISO treatment under the Code, no
provision of this Plan shall be construed as prohibiting such a sale.
(h) This Plan was ratified by the Corporation's Board of Directors on October
9, 1996 for all issuance of ISOs and NSOs by the Company on or subsequent to
December 31, 1995. Approval by the stockholders of the Corporation is to occur
prior to December 31, 1996.
5
<PAGE>
12. Determination of Fair Market Value. In granting ISOs under this Plan, the
Board or the Stock Option Committee shall make a good faith determination as to
the fair market value of the Stock at the time of granting the ISO.
13. Restrictions on Issuance of Stock. The Corporation shall not be obligated
to sell or issue any shares of Stock pursuant to the exercise of an Option
unless the Stock with respect to which the Option is being exercised is at that
time effectively registered or exempt from registration under the Securities Act
of 1933, as amended, and any other applicable laws, rules and regulations. The
Corporation may condition the exercise of an Option granted in accordance
herewith upon receipt from the Eligible Person, or any other purchaser thereof,
of a written representation that at the time of such exercise it is his or her
then present intention to acquire the shares of Stock for investment and not
with a view to, or for sale in connection with, any distribution thereof; except
that, in the case of a legal representative of an Eligible Person,
"distribution" shall be defined to exclude distribution by will or under the
laws of descent and distribution. Prior to issuing any shares of Stock pursuant
to the exercise of an Option, the Corporation shall take such steps as it deems
necessary to satisfy any withholding tax obligations imposed upon it by any
level of government.
14. Exercise in the Event of Death of Tenmination or Employment.
(a) If an optionee shall die (i) while an employee of the Corporation or a
Subsidiary or (ii) within three months after termination of his employment with
the Corporation or a Subsidiary because of his disability, or retirement or
otherwise, his Options may be exercised, to the extent that the optionee shall
have been entitled to do so on the date of his death or such termination of
employment, by the person or persons to whom the optionee's right under the
Option pass by will or applicable law, or if no such person has such right, by
his executors or administrators, at any time, or from time to time. In the event
of termination of employment because of his death while an employee or because
of disability, his Options may be exercised not later than the expiration date
specified in Paragraph 5 or one year after the optionee's death, whichever date
is earlier, or in the event of termination of employment because of retirement
or otherwise, not later than the expiration date specified in Paragraph 5 hereof
or one year after the optionee's death, whichever date is earlier.
(b) If an optionee's employment by the Corporation or a Subsidiary shall
terminate because of his disability and such optionee has not died within the
following three months, he may
6
<PAGE>
exercise his Options, to the extent that he shall have been entitled to do so at
the date of the termination of his employment, at any time, or from time to
time, but not later than the expiration date specified in Paragraph 5 hereof or
one year after termination of employment, whichever date is earlier.
(c) If an optionee's employment shall terminate by reason of his retirement in
accordance with the terms of the Corporation's tax-qualified retirement plans or
with the consent of the Board or the Stock Option Committee or involuntarily
other than by termination for cause, and such optionee has not died within the
following three months, he may exercise his Option to the extent he shall have
been entitled to do so at the date of the termination of his employment, at any
time and from to time, but not later than the expiration date specified in
Paragraph 5 hereof or thirty (30) days after termination of employment,
whichever date is earlier. For purposes of this Paragraph 14, termination for
cause shall mean termination of employment by reason of the optionee's
commission of a felony, fraud or willful misconduct which has resulted, or is
likely to result, in substantial and material damage to the Corporation or a
Subsidiary, all as the Board or the Stock Option Committee in its sole
discretion may determine.
(d) If an optionee's employment shall terminate for any reason other than
death, disability, retirement or otherwise, all right to exercise his Option
shall terminate at the date of such termination of employment.
15. Corporate Events. In the event of the proposed dissolution or liquidation
of the Corporation, a proposed sale of all or substantially all of the assets of
the Corporation, a merger or tender for the Corporation's shares of Common Stock
the Board of Directors shall declare that each Option granted under this Plan
shall terminate as of a date to be fixed by the Board of Directors; provided
that not less than thirty (30) days written notice of the date so fixed shall be
given to each Eligible Person holding an Option, and each such Eligible Person
shall have the right, during the period of thirty (30) days preceding such
termination, to exercise his Option as to all or any part of the shares of Stock
covered thereby, including shares of Stock as to which such Option would not
otherwise be exercisable. Nothing set forth herein shall extend the term set for
purchasing the shares of Stock set forth in the Option.
7
<PAGE>
16. No Guarantee of Employment. Nothing in this Plan or in any writing
granting an Option will confer upon any Eligible Person the right to continue in
the employ of the Eligible Person's employer, or will interfere with or restrict
in any way the right of the Eligible Person's employer to discharge such
Eligible Person at any time for any reason whatsoever, with or without cause.
17. Non-transferability. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the optionee, an Option shall be exercisable only by him.
18. No Rights as Stockholder. No optionee shall have any rights as a
stockholder with respect to any shares subject to his Option prior to the date
of issuance to him of a certificate or certificates for such shares.
l9. Amendment and Discontinuance of Plan. The Corporation's Board of Directors
may amend, suspend or discontinue this Plan at any time. However, no such action
may prejudice the rights of any Eligible Person who has prior thereto been
granted Options under this Plan. Further, no amendment to this Plan which has
the effect of (a) increasing the aggregate number of shares of Stock subject to
this Plan (except for adjustments pursuant to Paragraph 3 herein), or (b)
changing the definition of Eligible Person under this Plan, may be effective
unless and until approval of the stockholders of the Corporation is obtained in
the same manner as approval of this Plan is required. The Corporation's Board of
Directors is authorized to seek the approval of the Corporation's stockholders
for any other changes it proposes to make to this Plan which require such
approval, however, the Board of Directors may modify the Plan, as necessary, to
effectuate the intent of the Plan as a result of any changes in the tax,
accounting or securities laws treatment of Eligible Persons and the Plan,
subject to the provisions set forth in this Paragraph 19, and Paragraphs 20 and
21.
20. Compliance with Rule 16b-3. This Plan is intended to comply in all
respects with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to participants who are subject to Section 16 of
the Exchange Act, and any provision(s) herein that is/are contrary to Rule 16b-3
shall be deemed null and void to the extent appropriate by either the Stock
Option Committee or the Corporation's Board of Directors.
8
<PAGE>
21. Compliance with Code. The aspects of this Plan on ISOs are intended to
comply in every respect with Section 422 of the Code and the regulations
promulgated thereunder. In the event any future statute or regulation shall
modify the existing statute, the aspects of this Plan on ISOs shall be deemed to
incorporate by reference such modification. Any stock option agreement relating
to any Option granted pursuant to this Plan outstanding and unexercised at the
time any modifying statute or regulation becomes effective shall also be deemed
to incorporate by reference such modification and no notice of such modification
need be given to optionee.
If any provision of the aspects of this Plan on ISOs is determined to
disqualify the shares purchasable pursuant to the Options granted under this
Plan from the special tax treatment provided by Code Section 422, such provision
shall be deemed null and void and to incorporate by reference the modification
required to qualify the shares for said tax treatment.
22. Compliance With Other Laws and Regulations. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Corporation to sell
and deliver Stock under such options, shall be subject to all applicable federal
and state laws, rules, and regulations and to such approvals by any government
or regulatory agency as may be required. The Corporation shall not be required
to issue or deliver any certificates for shares of Stock prior to (a) the
listing of such shares on any stock exchange or over-the-counter market on which
the Stock may then be listed and (b) the completion of any registration or
qualification of such shares under any federal or state law, or any ruling or
regulation of any government body which the Corporation shall, in its sole
discretion, determine to be necessary or advisable. Moreover, no Option may be
exercised if its exercise or the receipt of Stock pursuant thereto would be
contrary to applicable laws.
23. Disposition of Shares. In the event any share of Stock acquired by an
exercise of an Option granted under the Plan shall be transferable other than by
will or by the laws of descent and distribution within two years of the date
such Option was granted or within one year after the transfer of such Stock
pursuant to such exercise, the optionee shall give prompt written notice thereof
to the Corporation or the Stock Option Committee.
24. Name. The Plan shall be known as the "NDS Software, Inc. 1996
Stock Option Plan."
9
<PAGE>
25. Notices. Any notice hereunder shall be in writing and sent by certified
mail, return receipt requested or by facsimile transmission (with electronic or
written confirmation of receipt) and when addressed to the Corporation shall be
sent to it at its office, 2241 Park Place, Suite E, Minden, Nevada 89423-8602
and when addressed to the Committee shall be sent to it 2241 Park Place, Suite
E, Minden, Nevada 89423-8602, subject to the right of either party to designate
at any time hereafter in writing some other address, facsimile number or person
to whose attention such notice shall be sent.
26. Headings. The headings preceding the text of Sections and subparagraphs
hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Plan nor shall they affect its meaning, construction
or effect.
27. Effective Date. This Plan, the NDS Software, Inc. 1996 Stock
Option Plan, yes adopted by the Board of Directors of the
Corporation on October 9, 1996. The effective date of the Plan
shall be the same date.
Dated as Of October 9, 1996.
NDS SOFTWARE, INC.
By:/s/ Greg Johnson
-------------------------------
Its: Chief Executive Officer
ARTICLES OF MERGER
XRF CORPORATION,
a Utah Corporation
and
NDS Software,
a Nevada corporation
Pursuant to the applicable provisions of the General Corporation Law of the
State of Nevada and the General Corporation Law of the State of Utah, XRF
Corporation, a Utah corporation ("XRF Corporation" or the "Surviving
Corporation") and NDS Software, a Nevada corporation ("NDS Software"),
collectively referred to as the "Constituent Corporations," have adopted a Plan
and Agreement of Merger and the following Articles of Merger for the purpose of
combining the Constituent Corporations:
1. XRF Corporation is a Utah corporation, in good standing under the General
Corporation Law of the State of Utah with total authorized capital stock of
fifty million (50,000,000) shares of Common Stock, and with one million one
hundred ninety-two thousand three hundred fifty-two (1,192,352) shares of Common
Stock currently issued and outstanding.
2. NDS Software is a Nevada corporation, duly organized and in good standing
under the General Corporation Law of the State of Nevada, with total authorized
capital stock of twenty-five thousand (25,000) shares of Common Stock, with
twenty-two thousand two hundred twenty-two (22,222) shares of Common Stock
currently issued and outstanding.
3. The Plan and Agreement of Merger has been duly approved and adopted by the
unanimous written consent of the Shareholders and the Board of Directors of NDS
Software.
4. The Plan and Agreement of Merger was duly approved and adopted by the
unanimous written consent of the Directors of SERF Corporation and submitted to
the Shareholders by the Directors and approved by a majority vote of the
Shareholders of XRF Corporation at the duly held Shareholders' meeting on the
6th day of July, 1994, as more fully set forth below:
<TABLE>
<CAPTION>
Total Outstanding Total Common Shares Total Common
Voting Common Shares Voting in Favor Shares Voting
Present of Merger Against Merger
-------------------- ------------------- ---------------
<S> <C> <C>
820,835 820,821 14
</TABLE>
5. XRF Corporation will be the Surviving Corporation of the merger.
<PAGE>
6. The number of shares cast in favor of the Plan and Agreement of Merger is
sufficient for approval by the Shareholders of voting common stock.
7. The Articles of Incorporation, without amendment, of XRF Corporation shall
be the Articles of Incorporation of the Surviving Corporation following the
Effective Date of the merger, as defined in the Plan and Agreement of Merger.
8. A complete, executed copy of the Plan and Agreement of Merger is on file at
the registered office of the Surviving Corporation in the State of Utah, located
at 341 South Main Street, Suite 302, Salt Lake City, Utah, with the registered
agent in charge thereof being R. Steven Chambers. A copy of the Plan and
Agreement of Merger shall be furnished by the Surviving Corporation on request
and without cost to any Shareholder of any Constituent Corporation.
9. The merger shall be effective on the calendar day of the filing of these
Articles of Merger in the State of Utah.
IN WITNESS WHEREOF, these Articles of Merger have been signed by the parties
on the 6th day of July, 1994.
XRF Corporation,
a Utah corporation
By: /s/
--------------------------
DR. JACK KELLY, President
By./s/
--------------------------
DR. JACK KELLY, Secretary
STATE OF NEVADA )
) : Ss.
County of Washoe )
On this 12th day of July 1994, personally appeared before me, the undersigned
Notary Public in and for the County and State aforesaid, DR. JACK KELLY, known
to me to be the person described in and who executed the foregoing instrument,
who acknowledged to me that he executed the same freely and voluntarily and for
the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the day and year in this certificate first above written.
/s/
NOTARY PUBLIC
<PAGE>
NDS Software,
a Nevada corporation
By: /s/
-----------------------
GREG JOHNSON
It's President
By./s/
-----------------------
WILLIAM TOMERLIN
It's Secretary
STATE OF NEVADA )
: ss.
County of Douglas )
On this 6th day of July 1994, personally appeared before me, the undersigned
Notary Public in and for the County and State aforesaid, GREG JOHNSON, known to
me to be the person described in and who executed the foregoing instrument, who
acknowledged to me that he executed the same freely and voluntarily and for the
uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the day and year in this certificate first above written.
/s/
----------------------
NOTARY PUBLIC
STATE OF NEVADA )
): ss.
County of Douglas )
On this 6th day of July 1994, _personally appeared before me, the undersigned
Notary Public in and for the County and State aforesaid, WILLIAM R. TOMERLIN,
known to me to be the person described in and who executed the foregoing
instrument, who acknowledged to me that he executed the same freely and
voluntarily and for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the day and year in this certificate first above written.
/s/
------------------
NOTARY PUBLIC
<PAGE>
PLAN AND AGREEMENT OF MERGER
BETWEEN
XRF CORPORATION, a Utah corporation,
and
NDS SOFTWARE, a Nevada Corporation
THIS PLAN AND AGREEMENT OF MERGER ( the "Agreement of Merger") made and
entered into on the 13th day of June, 1994, by and between XRF Corporation, a
Utah corporation ("XRF Corporation" or the "Surviving Corporation) and NDS
Software, a Nevada corporation ("NDS Software"), said corporations hereinafter
referred to jointly as the "Constituent Corporations", and the undersigned
persons described herein and collectively referred to as the "Shareholders", in
a transaction qualifying as a tax-free reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended.
W I T N E S E T H
WHEREAS, XRF Corporation is a corporation organized and existing under
General Corporation Law of the State of Utah, with the registered office of the
Corporation being located at 341 South Main Street, Suite 302, Salt Lake City,
Utah, and the name of its registered agent in charge thereof being R. Steven
Chambers.
WHEREAS, the total number of shares of stock which XRF Corporation has
authority to issue is Fifty Million, (50,000,000) shares of Common Stock, par
value $.001 per share, of which One Million One Hundred Ninety-Two Thousand,
Three Hundred Fifty-Two Dollars (1,192,352.00) common shares are
1
WHEREAS, NDS Software is a privately held corporation organized and in
good standing under the General Corporation Law of the State of Nevada, with its
registered office in the State of Nevada located at 600 East William Street,
Suite 300, Carson City, Nevada, and its registered agent at such address being
Scarpello & Alling.
WHEREAS, the total authorized capital stock of NDS Software as of the
Effective Date (as defined herein) shall be Twenty Five Thousand (25,000) shares
of Common Stock with no par value, of which Twenty Two Thousand Two Hundred
Twenty TWO (22,222), shares of Common Stock shall be issued and outstanding as
of the Effective Date; and
WHEREAS, the Board of Directors of each of the Constituent
Corporations have recommended to the shareholders of each Corporation that they
approve the transaction whereby NDS Software shall be merged into XRF
Corporation, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, covenants, and provisions hereinafter contained, XRF Corporation and
NDS Software have agreed, contingent upon the approval of the shareholders of
each of the Constituent Corporations and upon satisfaction of the
representations, warranties, and other conditions precedent as described herein
and in the Collateral Agreement executed between the Constituent Corporations
and the undersigned shareholders, of even date, in accordance with the General
Corporation Law of the State of Utah
2
<PAGE>
and the General Corporation Law of the State of Nevada, that NDS Software and
XRF Corporation shall be, at the Effective Date (as hereinafter defined), merged
(hereinafter called the"Merger") into a single corporation existing under the
laws of the State of Utah, to wit, XRF Corporation, which shall be the Surviving
Corporation, and the parties hereto adopt and agree to the following agreements,
terms, and conditions relating to the Merger and the mode of carrying the same
into effect.
ARTICLE I
If this Agreement of Merger is not terminated as provided herein or in
the Collateral Agreement, or abandoned as permitted by, the applicable
provisions of the General Corporation Law of the States of Nevada and Utah,
Articles of Merger shall be filed and recorded in accordance with the General
Corporation Law of the State of Utah and the State of Nevada. Such filings shall
be made on the same day, if possible. The Merger shall become effective on the
calendar day that the Secretary of State of the State of Utah issues a
certificate of merger, which date is herein referred to as the "Effective Date
of the Merger." Such Effective Date shall be no later than July 8, 1994, unless
otherwise agreed by the parties in writing.
ARTICLE 11
On the Effective Date of the Merger, the separate existence of XRF
Corporation and NDS Software shall cease, and NDS Software shall be merged into
XRF Corporation, in accordance with the applicable provisions of the General
Corporation Law of the State of Utah and the General Corporation Law of the
State of
3
<PAGE>
Nevada, by which XRF Corporation shall be the surviving Corporation.
The Merger shall be effected as follows:
1. The two Constituent Corporations shall be merged into a single
Surviving Corporation, which shall be XRF Corporation, and the separate
existence of NDS Software shall cease except to the extent required under the
General Corporation Law of the State of Nevada.
2. The shareholders of NDS Software agree to transfers to XRF
Corporation the number of shares of common stock of NDS Software shown opposite
their names in Exhibit "A", which shares constitute 100% of the outstanding
stock of NDS Software, excluding stock held by XRF CORPORATION, in exchange for
an aggregate of One Million Seven Hundred Thousand (1,700,000) shares of voting
common stock of XRF Corporation, $.001 par value per share, to be issued as soon
as practicable after the Effective Date, as herein described.|
3. The Surviving Corporation shall thereupon and thereafter possess all
the rights, privileges, immunities and franchises, of a public and a private
nature, of each of the Constituent Corporations; and all property, real,
personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all other chooses in action, and all and every
other interest of or belonging to or due to each of the Constituent Corporations
shall be taken and deemed to be vested in the Surviving Corporation without
further act or deed;
4. The Surviving Corporation shall thenceforth be responsible and
liable for all of the liabilities and obligations of each of the Constituent
Corporations; and any claim existing or
4
<PAGE>
action or proceeding pending by or against either of the Constituent
Corporations may be prosecuted to judgment as if the responsible corporation be
substituted in its place, and neither the rights of creditors or any liens upon
the property of either of the Constituent Corporations shall be impaired by the
Merger;
5. The aggregate amount of the net assets of the Constituent
Corporations which was available for the payment of dividends immediately prior
to the Merger, to the extent that the value thereof is not transferred to stated
capital by the issuance of shares or otherwise, shall continue to be available
to, the payment of dividends by the Surviving Corporation;
6. The Bylaws of XRF Corporation, as existed immediately prior to the
Effective Date of the Merger shall constitute the Bylaws of the Surviving
Corporation and are not be amended in any respect as a result of this Merger,
except as approved by the Board of Directors of NDS SOFTWARE, prior to that
Effective Date;
7. The existing Board of Directors and the Officers of XRF Corporation
shall, upon the Effective Date of the Merger, resign from their respective
positions as Officers and Directors of XRF Corporation, and the following
appointments shall become effective until their respective successors are duly
elected and qualified, pursuant to the bylaws of the Surviving Corporation:
(a) Officers
------------
President - Greg Johnson
Post Office Box 1328
Gardnerville NV 89410
Secretary - William Tomerlin
Post Office Box 1048
Gardnerville NV 89410
5
<PAGE>
Treasurer - Lester Lorentzen
Post Office Box 1328
Gardnerville NV 89410
(b) Directors
------------
Dr. Jack Kelly
6012-B Plumas Avenue
Reno NV 89502
Doug Swanson
6012-B Plumas Avenue
Reno NV 89502
Greg Johnson
Post Office Box 1042
Gardnerville NV 89410
William Tomerlin
Post Office Box. 1048
Gardnerville NV 89410
Lester Lorentzen
Post Office Box 1048
Gardnerville NV 89410
ARTICLE III
The Merger is being undertaken to enable NDS Software and XRF
Corporation to (1) attract capital investment; (2) expand product markets and
develop new technology; and (3) reduce administrative expenses and
inefficiencies.
ARTICLE IV
NDS Software hereby represents and warrants to XRF Corporation as
follows:
1. NDS Software is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada and is licensed or qualified
as a foreign corporation in all states in which the nature of its business or
the character or ownership of its properties makes such licensing or
qualification necessary.
2. As of the Effective Date, the authorized capital stock of NDS
Software will consist of 25,000 common shares of
6
<PAGE>
capital stock, having no par value, of which all shares issued and outstanding
are fully paid and non-assessable. There are presently outstanding no warrants
for the purchase of shares of NDS Software common stock and no other warrants,
options or other rights for the purchase of NDS Software common stock.
3. The audited financial statements of NDS Software furnished to XRF
Corporation consisting of balance sheets and the related statement of income,
attached hereto as Exhibit "B", are correct and fairly present the financial
condition of NDS Software as of the dates and for the periods involved, and such
statements were prepared in accordance with generally accepted accounting
principles consistently applied.
4. NDS Software has no liabilities of any nature except to the extent
reflected or reserved against it in the financial statements furnished in
Paragraph 3 above, whether accrued, absolute, contingent or otherwise,
including, without limitation, tax liabilities and interest due or to become
due, which liabilities are more particularly described in Exhibit "C", attached
hereto; and NDS Software's accounts receivable are collectible in accordance
with the terms of such accounts, except to the extent of the reserve therefore
as described in the financial statements provided herein.
5. Between the date of the latest balance sheet and the date of this
Agreement of Merger, there have not been, except as set forth in a list
certified by WILLIAM R. TOMERLIN and GREG JOHNSON and delivered to XRF
Corporation (1) any changes in the financial condition, assets, liabilities or
business of NDS Software which, in the aggregate, have been materially adverse;
(2)
7
<PAGE>
any damage, destruction or loss of or to the property of NDS Software,
whether or not covered by insurance; (3) any declaration or payment of any
dividend or other distribution in respect of the capital stock of NDS Software,
or any direct or indirect redemption, purchase or other acquisition or any such
stock; or (4) any increase paid or agreed to in the compensation, retirement
benefits or other commitments to employees.
6. NDS Software has good and marketable title to all properties and
assets, real and person, reflected in the latest balance sheets of NDS Software,
except as since sold or otherwise disposed of in the ordinary course of
business, and the properties and assets of NDS Software are subject to no
mortgage, pledge, lien or encumbrance, except for liens shown therein, with
respect to which no default exists.
7. There is no litigation or proceeding pending or, threatened, against
or relating to NDS Software, its properties or business, except as set forth in
Exhibit "D", attached hereto, certified as accurate by WILLIAM R. TOMERLIN and
GREG JOHNSON, to the best knowledge of NDS Software.
8. From the date of this Agreement of Merger to the Effective Date, NDS
Software will (1) give XRF Corporation and its representatives full access
during normal business hours to all of its offices, books, records, contracts
and other corporate documents and properties so that XRF Corporation may inspect
and audit them; and (2) to furnish such information concerning the properties
and affairs of ADS Software as XRF Corporation may reasonably request.
8
<PAGE>
9. Until the Effective Date (and permanently if there is no Effective
Date), NDS Software and its representatives will keep confidential any
information which they obtain from XRFCorporation concerning its properties,
assets and business. If the transactions contemplated by this Agreement of
Merger are rot consummated by July 8, 1994, NDS Software will return to XRF
Corporation all written matter with respect to XRF Corporation obtained in
connection with the negotiation or consummation of this Agreement of Merger.
10. The existing Shareholders of NDS Software are the owners, free and
clear of any liens and encumbrances, of all of the shares of the common stock of
NDS Software.
XRF Corporation hereby represents and warrants to NDS Software as
follows:
1. XRF Corporation. is a corporation duly organized, validly existing
and in good standing under the laws of the State of Utah and is licensed or
qualified as a foreign corporation in all states in which the nature of its
business or the character or ownership of its properties makes such licensing or
qualification necessary.
2. The authorized capital stock of XRF Corporation consists of fifty
million (50,000,000) common shares of capital stock, having a par value of .001
per share, of which One Million One Hundred Ninety-Two Thousand Three Hundred
Fifty-Two (1,192,352) shares are issued and outstanding, all fully paid and
non-assessable. There are presently outstanding no warrants for the purchase of
XRF Corporation common stock and no other warrants,
9
<PAGE>
options or other rights for the purchase of XRF Corporation common stock.
3. The audited financial statements of XRF Corporation furnished to NDS
Software consisting of balance sheets as of December 31, 1993, and the unaudited
balance sheet, and the related statement of income attached hereto as Exhibit
"E", are correct and fairly present the financial condition of XRF Corporation
as of the dates and for the periods involved, and such statements were prepared
in accordance with generally accepted accounting principles consistently
applied.
4. XRF Corporation has no liabilities of any nature except to the
extent reflected or reserved against it in the financial statements furnished in
Paragraph 3 above, whether ! accrued, absolute, contingent or otherwise,
including, without limitation, tax liabilities and interest due or to become
due, all of which liabilities are more particularly described in detail in
Exhibit "F", attached hereto and certified as accurate as of the Effective Date
by XRF CORPORATION and by DR. JACK KELLY and DOUGLAS SWANSON, individually, and
XRF Corporation's accounts receivable are collectible in accordance with the
terms of such accounts, except to the extent of the reserve therefore as
described in the financial statements provided herein.
5. Between the date of the latest balance sheets and Effective Date of
the Merger, there have not been, except as set forth in a list certified as
accurate by DR. JACK KELLY and DOUGLAS SWANSON and delivered to NDS Software (1)
any changes in the financial conditions, assets, liabilities or business of XRF
Corporation which, in the aggregate, have been materially adverse;
10
<PAGE>
(2) any damage, destruction or loss of or to the property of XRF Corporation
whether or not covered by insurance; (3) any declaration or payment of any
dividend or other distribution in respect of the capital stock of XRF
Corporation, or any direct or indirect redemption, purchase or other acquisition
of any such stock; or (a) any increase paid or agreed to in the compensation
retirement benefits or other commitments to employees.
6. XRF Corporation has good and marketable title to all properties and
assets, real and personal, reflected in the latest balance sheet of XRF
Corporation, except as since sold or otherwise disposed of in the ordinary
course of business, and the properties and assets of XRF Corporation are subject
to no mortgage, pledge, lien or encumbrance, except for liens shown therein,
with respects to which no default exists.
7. There is no litigation or proceeding pending or threatened, against
or relating to XRF Corporation, its properties or business, except as set forth
in Exhibit "D", attached hereto, certified as accurate by DR. JACK KELLY and
DOUGLAS SWANSON of XRF Corporation, to the best of the knowledge of XRF
Corporation.
8. From the date of this Agreement of Merger to the Effective Date, XRF
Corporation will (1) give NDS Software and its representatives full access
during normal business hours to all of its offices, books, records, contracts
and other corporate documents and properties so that NDS Software may inspect
and audit them; and (2) to furnish such information concerning the properties
and affairs of XRF Corporation as NDS Software may reasonably request.
11
<PAGE>
9. Until the Effective Date (and permanently if there is no Effective
Date), XRF Corporation and its representatives will keep confidential any
information which they obtain from NDS Software concerning its properties,
assets and business. If the transactions contemplated by this Agreement of
Merger are not consummated by July 8, 1994, XRF Corporation will return to NDS
Software all written matter with respect to NDS Software obtained in connection
with the negotiation or consummation of this Agreement of Merger.
10. XRF Corporation is acquiring NDS Software under this Agreement of
Merger for investment and not with a view of the sale or distribution of the
assets of NDS Software, and XRF Corporation has no commitment or present
intention to liquidate NDS Software or to sell or otherwise dispose of its
assets.
11. XRF Corporation has full corporate power and authority to enter
into this Agreement of Merger and to carry out its obligations hereunder and
will deliver to NDS Software at least three (3) days prior to the Effective
Date, a certified copy of resolutions of its Board of Directors authorizing
execution of this Agreement of Merger by its Officers and performance thereunder
and requisite approval, certified as accurate, by the shareholders of XRF
Corporation.
12. Upon approval by the shareholders of XRF Corporation, execution of
this Agreement of Merger and performance by XRF Corporation hereunder shall be
duly authorized by all requisite Corporate action on the part of XRF
Corporation, and this Agreement of Merger shall constitute a valid and binding
obligation of XRF Corporation and performance hereunder will not violate any
12
<PAGE>
provision of XRF Corporation's Articles of Incorporation, Bylaws, agreements,
mortgages or other commitments.
13. XRF Corporation has no contract with any officer or employee with
respect to employment and it does not have and is not bound by any severance
pay, bonus, profit sharing or pension commitments with or to any officer,
director or employee. No contract to which XRF Corporation is a party, including
any contract mentioned in this Merger Agreement, is presently the subject of a
default by any party thereto, and XRF Corporation has no knowledge of any facts
which, with the passage of time, would cause such a default. XRF Corporation has
no subsidiaries except as specifically disclosed to NDS Software in writing at
least three (3) days prior to the Effective Date. XRF Corporation has filed with
all the appropriate governmental agencies, all tax returns or reports required
to be filed, and such returns and reports are accurate and complete. XRF
Corporation has paid in full or has made adequate provision for all taxes,
interest, penalties, or deficiencies shown to be due on such tax returns or
reports or claimed to be due by any taxing authority, including Utah taxing
authorities, and has made all withholdings of taxes required to be made under
all applicable tax laws and regulations, and such withholdings have either been
paid to the respective governmental agencies, or set aside in accounts for such
purpose.
NDS Software and XRF Corporation hereby represent and warrant to each
other that:
1. The Shareholders of NDS Software, in the aggregate, will acquire
stock of the Surviving Corporation equal in value to
13
<PAGE>
at least fifty percent (50%) of all the outstanding stock of NDS Software.
2. There is no plan or intention by the shareholders or NDS Software to
sell, exchange, or otherwise dispose of any of the shares of XRF Corporation to
be received in the Merger;
3. Immediately following consummation of the Merger, the shareholders
of NDS Software and XRF Corporation will own all of the outstanding XRF
Corporation Common Stock and will own such stock solely by reason of their
ownership of NDS Software and XRF Corporation Common Stock immediately prior to
the Merger;
4. Immediately following consummation of the Merger, XRF Corporation
will possess the same assets and liabilities, except assets used to pay expenses
incurred in connection with the Merger, as those possessed by NDS Software and
XRF Corporation immediately before the Merger. Assets used to pay expenses will,
in the aggregate, constitute less than one percent (1%) of the net assets of NDS
Software and XRF Corporation;
5. At the time of the Merger neither NDS Software nor XRF Corporation
will have outstanding any warrants, options, convertible securities, or any
other type of right pursuant to which any person could acquire stock in NDS
Software or XRF Corporation;
6. XRF Corporation has no plan or intention to reacquire any of its
stock issued in the Merger;
7. XRF Corporation has no plan or intention to sell or otherwise
dispose of any of the assets of NDS Software acquired in the Merger, except for
dispositions made in the ordinary course of business;
14
<PAGE>
8. The liabilities of NDS Software assumed by XRF plus the liabilities,
if any, to which the transferred assets are subject, were incurred by NDS
Software in the ordinary course of its business and are associated with the
assets transferred;
9. Following the Merger, XRF Corporation will continue the historic
business of NDS Software or use a significant portion of NDS Software's historic
business assets in a business;
10. NDS Software nor XRF Corporation is under the jurisdiction of a
court in a Title 11 bankruptcy case or any similar case within the meaning of
Section 368(a)(3)(A) of the Internal Revenue Code of 1986, as amended.
ARTICLE V
The Articles of Incorporation of XRF Corporation shall not be amended
in any respect, by reason of this Agreement of Merger, and said Articles of
Incorporation shall constitute the Articles of Incorporation of the Surviving
Corporation until further amended in the manner provided by law.
ARTICLE VI
The manner and basis of converting the shares of the common stock of
each of the Constituent Corporations and the nature and amount of securities of
the Surviving Corporation which the holders of NDS Software Common Stock are to
receive in exchange for such shares are as follows:
1. Each one (1) share of the Twenty Thousand (20,000) shares of NDS
Software's Common Stock that is issued and outstanding immediately before the
Effective Date of the Merger, excluding those shares held by XRF CORPORATION,
shall by virtue of the
15
<PAGE>
Merger, be converted into Eighty-Five (85) fully paid and non-assessable share
of Common Stock of XRF Corporation without any action on the part of the holder
thereof. Outstanding certificates representing shares of NDS Software shall
thereafter represent shares of XRF Corporation. After the Effective Date of the
merger, each owner of an outstanding certificate(s) representing shares of NDS
Software may, but need not, surrender such certificate(s) for a new certificate
bearing the name of XRF Corporation, reflecting the converted number of shares
of NDS Software as described above. Until so surrendered, each outstanding
certificate which, prior to the Effective Date of the Merger, represented shares
of NDS Software shall be deemed, for all corporate purposes, to represent the
ownership of the Common Stock of XRF Corporation on the basis hereinbefore
provided.
2. If between the date of this Agreement of Merger and the Effective
Date, the outstanding shares of XRF Corporation Common Stock are, without the
receipt of new consideration by XRF Corporation, increased, decreased, changed
into or exchanged for a different number or kind of shares or securities of XRF
Corporation through reorganizations, reclassification, stock dividend, stock
split, reverse split or similar change in XRF Corporation's capitalization, XRF
Corporation will issue and deliver to the Shareholders of NDS Software, in
addition to or in lieu of the XRF Corporation shares specified in Section 1
above, voting Common Stock of XRF Corporation in equitably adjusted amounts. In
the event of any such change in the capitalization of XRF Corporation, all
references to XRF Corporations common shares herein shall
16
<PAGE>
refer to the number of XRF Corporation common shares thus adjusted.
ARTICLE VII
All obligations of NDS Software under this Agreement of Merger are
subject, at the option of NDS Software, to the fulfillment, before or at the
Effective Date, of each of the following conditions:
1. NDS Software, its undersigned shareholders, officers and directors
will execute and deliver all exhibits described, herein, and will not, prior to
the Effective Date, declare or pay, any dividends on or make any distributions
with respect to its shares of stock, to incur any material amount of
indebtedness, except in the ordinary course of business, or to make any material
commitment in the ordinary course of business.
2. The representations and warranties of XRF Corporation contained in
this Agreement of Merger shall be deemed to have been made again at and as of
the Effective Date and shall then be true in all material respects.
3. XRF Corporation shall have performed and complied with all the terms
and conditions required by this Agreement of Merger to be performed or complied
with by them before the Effective Date.
4. XRF Corporation shall have delivered to NDS Software a certificate
signed by the President and Secretary of XRF Corporation and DR. JACK KELLY and
DOUGLAS SWANSON, individually, dated as of the Effective Date, certifying that
the representations in Sections 1 and 13 of Article IV regarding XRF Corporation
are true and correct in all respects except as specified in the
17
<PAGE>
certificate, the President and Secretary, DR. JACK KELLY and DOUGLAS SWANSON
know of no inaccuracy in the representations described therein.
5. XRF Corporation shall make available to NDS Software all books and
records of XRF Corporation, including minute books and stock transfer records.
6. XRF Corporation shall deliver to NDS Software certified copies of
resolutions of the Board of Directors of XRF Corporation, revoking as of the
Effective Date all prior authorizations, power of attorney designations and
appointments relating to the signing of checks, borrowing of funds, access to
corporate safe-deposit boxes and other similar matters, to the extent requested
by NDS Software.
7. There shall have been delivered to NDS Software the signed
resignations of the existing Directors and Officers of XRF Corporation,
effective as of the Effective Date.
8. The terms of this Agreement of Merger shall have been accepted by
the required number of Shareholders of XRF Corporation under the General
Corporations laws of the State of Utah, the accuracy of which shall be certified
by the President and Secretary of XRF Corporation.
All obligations of XRF Corporation under this Agreement of Merger are
subject, at the option of XRF Corporation, to the fulfillment, before or at the
Effective Date, of each of the following conditions:
1. XRF Corporation, its undersigned shareholders, officers and
directors will execute and deliver all exhibits described herein, and will not,
prior to the Effective Date,
18
<PAGE>
declare or pay any dividends on or make any distributions with respect to its
shares of stock, to incur any material amount of indebtedness, except in the
ordinary course of business, or to make any material commitment in the ordinary
course of business.
2. The representations and warranties of NDS Software contained in this
Agreement of Merger shall be deemed to have been made again at and as of the
Effective Date and shall then be true in all material respects.
3. NDS Software shall have performed and complied with all the terms
and conditions required by this Agreement of Merger to be performed or complied
with by it before the Effective Date.
4. XRF Corporation shall have been furnished with a certificate signed
by the President and Secretary of NDS Software, dated as of the Effective Date,
certifying that the representations in Sections 1 through 10 of Article IV
regarding NDS Software are correct in all respects and, except as specified in
the certificate, the President and Secretary know of no inaccuracy in the
representations.
5. NDS Software shall make available to XRF Corporation all books and
records of NDS Software, including minute books and stock transfer records.
6. The terms of this Agreement of Merger shall have been accepted by
the required number of Shareholders of NDS Software under the general
corporations law of the State of Nevada.
ARTICLE VIII
NDS Software agrees to indemnify XRF Corporation, its Officers,
Directors, and Shareholders, against any loss, damage, or expense (including
reasonable attorney's fees) suffered as a result
19
<PAGE>
of (1) any breach by NDS Software of this Agreement of Merger; (2) any
inaccuracy in or breach of any of the representations, warranties or covenants
by NDS Software herein, or in the Collateral Agreement.
XRF Corporation, DR. JACK KELLY and DOUGLAS SWANSON agree to indemnify
NDS Software, its Officers, Directors, and Shareholders, against any loss,
damage or expense (including reasonable attorney's fees) suffered as a result of
(1) any breach by XRF Corporation of this Agreement; or (2) any inaccuracy in or
breach of any of the representations, warranties or covenants by XRF
Corporation, its Officers, Directors, or Shareholders made herein or in the
Collateral Agreement.
Upon obtaining knowledge thereof, the indemnified party shall promptly
notify the indemnifying party of any claim which has given or could give rise to
a right of indemnification under this Agreement of Merger. If the right of
indemnification relates to a claim asserted by a third party against the
indemnified party, the indemnifying party shall have the right to employ counsel
acceptable to the indemnified party to cooperate in the defense of any such
claim. So long as the indemnifying party is defending any such claim in good
faith, the indemnified party will not settle such claim. If the indemnifying
party does not elect to defend any such claim, the indemnified party shall have
no obligation to do so.
ARTICLE IX
If at any time the Surviving Corporation shall consider or be advised
that any further assignment or assurance in law are necessary or desirable to
vest in the Surviving Corporation the
20
<PAGE>
title to any property or rights of NDS Software, the last acting Officers or
Directors NDS Software may, in the name of NDS Software, execute and deliver all
such proper assignments and assurance in law and do all things necessary or
proper to thus vest such property or rights in the Surviving Corporation, and
otherwise to carry out the purposes of this Agreement of Merger.
ARTICLE X
This Agreement of Merger may be terminated prior to the Effective Date:
(1) By mutual consent in writing, prior to the Effective Date;
(2) By either NDS Software or XRF Corporation if there has been a
material misrepresentation, omission, or material breach of any warranty,
representation, or covenant by the other party or failure to provide any of the
materials described herein at 1east ten (10) days prior to July 8, 1994;
(3) By either, NDS Software or XRF Corporation if the transaction has
not occurred on or before July 8, 1994, unless adjourned to a later date by
mutual consent in writing on or before the Effective Date;
(4) By either NDS Software or XRF Corporation in the event it is
determined in good faith by counsel for either part that the Merger cannot be
accomplished as contemplated in the letter of intent between the parties, dated
August 24, 1993 and in a manner that is tax-free to each party under the
Internal Revenue Code and under state laws, including state sales or use tax
laws of Nevada or Utah;
21
<PAGE>
(5) By either NDS Software or XRF Corporation in the event any material
litigation or proceeding has been or shall be instituted or threatened against
either of the Constituent Corporations, or any of their assets, which, in the
opinion of either party, renders the Merger inadvisable or undesirable;
(6) In the event any material information provided hereunder, or
obtained pursuant to a search of court records, secured creditor filings, or
review of other material information, or absence of such material information as
may reasonably have been requested by either party, prior to the Effective Date,
causes either party, in their reasonable discretion, to consider the Merger
inadvisable or undesirable;
(7) If either XRF Corporation or NDS Software enters into any
transaction other than those transactions involved in carrying on their
businesses in the usual manner;
(8) If between the date of this Agreement of Merger and the Effective
Date of the Merger there shall have been, in the reasonable opinion of either
party, any materially adverse change in the business or condition, financial or
otherwise, of either of the Constituent Corporations;
(9) In the event the number of shareholders of either Constituent
Corporation dissenting from the Merger makes the Merger, in the opinion of
either party, inadvisable or undesirable.
ARTICLE XI
1. At any time, and from time, after the Effective Date, each party
will execute such additional instruments and take such action as may be
reasonably requested by the other party to confirm
22
<PAGE>
or perfect title to any property transferred hereunder or otherwise to carry out
the intent and purposes of the Agreement of Merger.
2. Any failure on the part of either party hereto to comply with any of
its obligations, agreements, or conditions hereunder may be waived in writing by
the party to whom such compliance is owed.
3. Each party represents to the other party that no broker or agent has
acted for it in connection with this Agreement of Merger and agrees to indemnify
and hold harmless the other party against any fee, loss, or expense arising out
of claims by brokers or finders employed or alleged to have been employed by a
party to this Agreement of Merger.
4. All notices and other communications hereunder shall be in writing
and shall be deemed to have been given if delivered in person or sent by prepaid
first-class registered or certified mail, return receipt requested, as follows:
NDS Software XRF Corporation
c/o Greg Johnson c/o Dr. Jack Kelly
Post Office Box 1328 6012-B Plumas Avenue
Gardnerville, NV 89410 Reno, NV 89502
With copies to:
William Tomerlin Douglas Swanson
Post Office Box 1048 6012-B Plumas Avenue
Gardnerville, NV 89410 Reno, NV 89502
Peter Adamco, Esq.
Scarpello & Alling, Ltd.
Post Office Box 3390
Stateline, NV 89449
5. This Agreement of Merger, the Collateral Agreement, and the Letter
of Intent dated the 24th day of August, 1993, constitute the entire agreement
between the parties and supersede and cancel any other agreement,
representation, or communication,
23
<PAGE>
whether oral or written, between the parties hereto relating to the transactions
contemplated herein or the subject matter hereof.
6. The section and subsection headings in this Agreement of Merger are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement of Merger.
7. This Agreement of Merger shall be governed by and enforced in
accordance with the laws of the State of Nevada, except for those provisions
governed under Utah law as applicable to a surviving corporation in a merger and
as may otherwise be provided under the laws of the States of Utah and Nevada.
Jurisdiction and venue for any action commenced as a result of this Agreement of
Merger shall be in Douglas County, Nevada.
8. This Agreement of Merger shall inure to the benefit of, and be
binding upon, the parties hereto and their successors and assigns; provided,
however, that any assignment by either party of its rights under this Agreement
of Merger without the written consent of the other party shall be void.
9. This Agreement of Merger may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10. This Agreement of Merger may be amended, modified or supplemented
only by an instrument in writing executed by the party against which enforcement
of the amendment, modification or supplement is sought.
11. Whether or not the transactions contemplated herein are
consummated, Dr. Jack Kelly and Douglas Swanson agree to reimburse NDS Software
for all costs and expenses (including
24
<PAGE>
attorneys' fees) incurred with respect to the Merger and any transactions
related thereto. Each party hereto agrees to pay the costs and expenses,
including reasonable attorneys' fees, incurred by the other party in
successfully (i) enforcing any of the terms of this Agreement of Merger, or,
(ii) proving that the other party breached any of the terms of this Agreement of
Merger.
12. If any provision of this Agreement of Merger is held to be illegal,
invalid or unenforceable under present or future laws effective during the term
hereof, such provision shall be fully severable and this Agreement of Merger
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof; and the recalling provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance here from. Furthermore,
in lieu of such illegal, invalid or unenforceable provision, there shall be
added automatically as part of this Agreement of Merger, a provision as similar
in its terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
13. All representations, warranties, indemnifications, covenants and
agreements contained in this agreement or in any document delivered pursuant
hereto shall survive the Effective Date and shall be effective and enforceable
following the Effective Date. The representations and warranties set forth in
this agreement shall not be affected by any investigation, verification, or
approval by any party hereto, or anyone on behalf of any such
25
<PAGE>
party, except as specifically set forth in an exhibit or document delivered
pursuant to this agreement.
IN WITNESS WHEREOF, XRF Corporation, NDS Software, and the undersigned
shareholders have caused this Plan and Agreement of Merger to be executed by the
President and attested by the Secretary of each party hereto.
XRF CORPORATION, a Utah
corporation
By: /s/ Dr. Jack Kelly
-----------------------------
Dr. Jack Kelly, President
By:/s/ Dr. Jack Kelly
-----------------------------
Dr. Jack Kelly, Secretary
26
<PAGE>
State of Nevada )
: ss.
County of Douglas )
On June 13, 1994, personally appeared before me, a Notary Public, Dr.
Jack Kelly, personally known (or proved) by me to be the person whose name is
subscribed to the above instrument who acknowledged that he/she executed the
instrument.
/s/ Rhonda Blum
------------------------
NOTARY PUBLIC
State of Nevada )
: ss.
County of Douglas )
On June 13, 1994, personally appeared before me, a Notary Public, Dr.
Jack Kelly, personally known (or proved) by me to be the person whose name is
subscribed to the above instrument who acknowledged that he/she executed the
instrument.
/s/ Rhonda Blum
-----------------------
NOTARY PUBLIC
27
<PAGE>
NDS Software, a Nevada Corporation
By: /s/ Greg Johnson
------------------------------
Greg Johnson, President
By: /s/ William R. Tomerlin
------------------------------
William R. Tomerlin, Secretary
State of Nevada )
: ss.
County of Douglas )
On June 14, 1994, personally appeared before me, a Notary Public, Greg
Johnson, personally known (or proved) by me to be the person whose name is
subscribed to the above instrument who acknowledged that he/she executed the
instrument.
/s/ Debra S. York
------------------------------
NOTARY PUBLIC
State of Nevada )
: ss.
County of Douglas )
On June 14, 1994, personally appeared before me, a Notary Public,
William R. Tomerlin, personally known (or proved) by me to be the person whose
name is subscribed to the above instrument who acknowledged that he/she executed
the instrument.
/s/ Debra S. York
------------------------------
NOTARY PUBLIC
28
<PAGE>
SHAREHOLDERS:
/s/ GREG JOHNSON
-----------------------------
GREG JOHNSON
/s/ WILLIAM R. TOMERLIN
-----------------------------
WILLIAM R. TOMERLIN
/s/ LESTER LORENTZEN
-----------------------------
LESTER LORENTZEN
/s/ DR. JACK KELLY
-----------------------------
DR. JACK KELLY
/s/ DOUGLAS SWANSON
-----------------------------
DOUGLAS SWANSON
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT "A"
Number of NDS Number of XRF
Taxpayer Software Shares Corp. Shares to
Name of Shareholder Address I.D. No. to be Transferred be Received
- ------------------- ------- -------- ----------------- ---------------
<S> <C> <C> <C> <C>
Tomerlin Trust, William R.
Tomerlin and Marsha L.
Tomerlin, Trustees 10,000 850,000
Greg Johnson 5,000 425,000
Lester Lorentzen 5,000 425,000
</TABLE>
30
AGREEMENT AND PLAN OF REORGANIZATION
This Plan and Agreement of Reorganization ("Plan"), is made this 1st day of May,
1996, between NDS Software, Inc., a Nevada corporation ("NDS"), Visual Listings,
Inc., a California corporation ("VLI"), and John Giaimo and stockholders of VLI,
being the owners of record of all of the issued and outstanding stock of VLI
(hereinafter collectively called "Stockholders" and individually"Stockholder").
Whereas NDS wishes to acquire and the Stockholders wish to transfer all of the
issued and outstanding stock of VLI in a transaction intended to qualify as a
reorganization within the meaning of IRC Section 368(a)(1)(B), as amended;
Whereas, the parties hereto desire that VLI stock be exchanged for NDS stock
on the date and at the time herein provided; and,
Whereas, the parties hereto desire to set forth certain representations,
warranties and covenants herein contained;
Now, therefore, NDS and the Stockholders adopt this plan of reorganization
upon the terms and conditions as follows:
ARTICLE I
Exchange
1.1 Number of Shares. The Stockholders agree to transfer to NDS at the Closing
100,000 shares of the common stock of VLI, no par value, in exchange for an
aggregate of 280,000 shares of voting common stock of NDS, $.001 par value per
share, to be issued to the Stockholders at Closing in the numbers shown opposite
their names in Exhibit "A". The Stockholders and VLI agree to retire or satisfy
the notes payable by VLI to the Stockholders as set forth in VLI's balance sheet
(totaling $134,500) dated December 31, 1995, with a portion of the NDS shares
exchanged hereunder. In addition, NDS agrees to assume responsibility for the
VLI trade debt & notes of approximately $65,000 - $105,000 as listed in VLI's
balance sheet upon this Plan becoming effective.
<PAGE>
1.2 Delivery of Certificates by Stockholders. The transfer of VLI shares by
the Stockholders shall be effected at the Closing by the delivery to NDS of
certificates representing the transferred shares endorsed in blank or
accompanied by stock powers executed in blank, with all signatures guaranteed by
a national bank and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed.
1.3 Change in Conversion Ratio. NDS expects to register the shares of NDS
shares exchanged herein during the last quarter of 1996 to allow such shares to
be sold as free trading shares. At the time of such registration, if the market
value of the NDS shares is below $2.50 per share, NDS will issue additional
shares to the Stockholders equivalent to such value. In the event the number of
shares as so determined results in fractional shares, said number will be
rounded upward to the next higher whole number of shares.
1.4 Restrictions on NDS Stock. The Stockholders acknowledge, and irrespective
of any other term or provision herein, that the NDS stock exchanged hereunder is
restricted stock and subject to Securities and Exchange Commission "Rule 144".
No warranties or representations by NDS are made nor shall be implied herein
that such restrictions will be removed except by compliance with the applicable
requirements of Rule 144 or the Securities Act of 1933.
1.5 Purchase Option. The Stockholders and VLI acknowledge that NDSis entering
into this transaction with a concurrent expectation of obtaining additional
capital financing, and that NDS has provided the Stockholders and VLI with all
pertinent facts concerning the method and goals regarding NDS's capital finance
plan. If, within three hundred sixty five (365) days from the execution hereof,
NDSis unable to obtain additional capital financing in the amount of $1.5M, and
upon written notice thereof by NDS, the parties agree that John Giaimo has the
right to purchase 100% of the ownership of the VLI subsidarary in exchange for
280,000 shares of NDS common stock plus $25,000. This Purchase Option can only
be exercised in the event NDSis not able to obtain the $1.5M financing within
the 365 day period. This Purchase Option is void upon NDS obtaining the $1.5M
financing. In the event NDS transfers or sells its
<PAGE>
investment in VLI, John Giaimo would have the first right of refusal to match
any such offer within the five year period.
1.6 Infusion of Capital into VLI. Additional capital shall be infused into VLI
on a basis mutually agreeable between the Board of Directors of NDS and John
Giaimo.
ARTICLE II
Closing/Effective Date
The Closing contemplated by Section 1.1 shall be held on May 8, 1996, at the
principal offices of NDS, unless another place or time is agreed upon in writing
by the parties. This Plan shall become effective upon the filing of the
"Articles of Exchange" pursuant to applicable law and subject to the conditions
set forth herein.
ARTICLE III
Representations and Warranties of the Stockholder and VLI
3 1 Corporate Status. VLI is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Califomia.
3.2 Capitalization. The authorized capital stock of VLI consists solely of 1
Million shares of common stock, no par value, of which 100,00 shares are issued
and outstanding, all fully paid and nonassessable, and the shares to be
transferred at the Closing constitute all of the outstanding shares of VLI and
VLI has issued no other shares.
3.3 investment Intent. The Stockholders are acquiring the NDS shares to be
transferred to them under this Agreement for investment and not with a view to
the sale or distribution thereof, and the Stockholders have no commitment or
present intention to sell or otherwise dispose of such stock.
3.4 Financial Statements. All financial statements prepared by or on behalf of
VLI and submitted to NDS and all books of account and records of VLI are true
and correct, have been prepared in conformity with generally accepted accounting
principles, correctly reflect
<PAGE>
valid transactions and values, and present a true and correct statement, as of
their respective dates, of VLI's financial condition.
3.5 Undisclosed Liabilities. VLI had no liabilities of any nature except to
the extent reflected or reserved against VLI's latest financial statements
attached hereto as Exhibit "B".
3.6 Interim Changes. There has been no material adverse change in the
condition of VLI since the date of the financial records submitted to NDS,
except those arising from the normal and regular conduct of business of VLI.
3.7 Litigation. There is no litigation or proceeding pending, or to
Stockholder's knowledge threatened, against or relating to VLI, its properties
or business, except as set forth in a list certified by the president of VLI and
delivered to NDS.
3.8 Title to Property. VLI has good and marketable title to all properties and
assets, real, personal, and proprietary, and VLI's patents, patent applications,
copyrights, trade-marks and trade-names are valid and in good standing wherever
VLI sells products or services. VLI has not sold or granted any interest,
whether in total or in part, in any of its properties described herein to any
person or entity and the use of such properties do not conflict in any way with
the trade-marks, trade-names, or other proprietary rights of any other person or
entity. There are no liens, mortgages, pledge, or encumbrance with respect to
the properties described herein.
3.9 Title to Shares. The Stockholders are the owners, free and clear of liens
and encumbrances, of the number of VLI shares which the Stockholders have
contracted to exchange.
3.10 Access to Books and Records. From the date of this Agreement to the
Closing, the Shareholders will cause VLI (1) to give to NDS and its
representatives full access during normal business hours to all of its offices,
books, records, contracts, and other corporate documents and properties so that
NDS may inspect and audit them, and (2) to furnish such information concerning
VLI's properties and affairs as NDS may reasonably request.
3.11 Confidentiality. Until the Closing (and permanently if there is no
Closing), the Stockholders and their representatives will keep confidential any
information which they obtain
<PAGE>
from NDS concerning its properties, assets, proprietary assets, and business.
If this transaction is not completed, the Stockholders will return to NDS all
written matter with respect to NDS obtained by them in connection with the
negotiation or consummation of this Agreement.
3.12 Corporate Authority. VLI has full corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder, and will deliver
to NDS at the Closing a certified copy of resolutions of its Board of Directors
authorizing execution of this Agreement by its officers and performance
thereunder. This Agreement constitutes a valid and binding obligation of VLI and
performance hereunder will not violate any provision of VLI's Articles of
Incorporation, Bylaws, or other agreements or commitments.
ARTICLE IV
Representations and Warranties of NDS
4.1 Corporate Status. NDS is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Nevada.
4.2 Capitalization. The authorized capital stock of NDS consists solely of 50
million shares of common stock, nominal par value, of which 3,829,848 shares are
issued and outstanding. The NDS stock to be issued to Stockholders hereunder
will, upon the issuance thereon, be duly and validly issued, all fully paid and
nonassessable.
4.3 Annual Reports. NDS has heretofore delivered to the Stockholders true and
correct copies of its annual reports and consolidated financial statements for
each year. There have been have been no material adverse changes in the
condition of NDS, except those arising from the normal and regular conduct of
business of NDS, since the date of the financial documents provided by NDS.
4.4 Investment Intent. NDS is acquiring the VLI shares to be transferred to it
under this Agreement for investment and not with a view to the sale or
distribution thereof, and NDS has no commitment or present intention to
liquidate VLI or to sell or otherwise dispose of its stock.
<PAGE>
4.5 Corporate Authority. NDS has full corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder, and will deliver
to the Stockholders at the Closing a certified copy of resolutions of its Board
of Directors authorizing execution of this Agreement by its officers and
performance thereunder. This Agreement constitutes a valid and binding
obligation of NDS and performance hereunder will not violate any provision of
NDS's Articles of Incorporation, Bylaws, or other agreements or commitments.
4.6 Access to Books and Records. From the date of this Agreement to the
Closing, NDS will (1) give to the Stockholders and their representatives full
access during normal business hours to all of its offices, books, records,
contracts, and other corporate documents and properties so that the Stockholders
may inspect and audit them, and (2) furnish such information concerning NDS's
properties and affairs as the Stockholder may reasonably request.
4.7 Confidentiality. Until the Closing (and permanently if there is no
Closing), NDS will keep confidential any information which they obtain regarding
VLI concerning its properties, assests, proprietary assets, and business. If
this transaction is not completed, NDS will return to VLI or the Stockholders as
appropriate, all written matter with respect to VLI obtained by NDS in
connection with the negotiation or consummation of this Agreement.
ARTICLE V
Actions of Parties Pending Closing
5.1 Approvals. Within 7 days from the date of this Plan, or such longer period
as the parties shall agree upon in writing, this Plan shall be submitted for
approval and adoption by the holders of NDS and VLI Common Shares if and as may
be required by and pursuant to the applicable provisions of the laws of the
States of Nevada and California. If this Plan shall be so approved and adopted,
NDS and VLI shall, subject to the provisions herein, immediately proceed to
effectuate this Plan. If this Plan shall not be so approved and adopted, it
shall without further action by the parties, other than certification to the
other constituent corporation of the results of the vote by the Secretary or
Clerk, as the case may be, of the constituent corporation the Stockholders of
which shall not have approved or adopted this Plan,
<PAGE>
be canceled without liability from either party to the other in accordance
with Paragraph 12.2 herein.
5.2 Conduct Business. Prior to the Closing and pending the effective date
hereof, neither VLI, NDS, nor the Stockholders, without the prior written
consent of the other parties, will declare or pay any dividend on any shares of
its capital stock in excess of the amount paid thereon in the preceding calendar
quarter year, or make any other distribution of its assets, except in the
ordinary course of business, or increase the number of its shares of capital
stock outstanding except by reason of the conversion or redemption of presently
outstanding Class A Preferred Stock or Class B Convertible Stock of NDS. The
record dates for determining the holders of VLI Common Shares and the holders of
NDS Common Shares entitled to receive such dividends as the Board of Directors
of VLI and the Board of Directors of NDS, respectively, may, subject to the
preceding sentence, declare prior to the Closing, shall be the date hereof, and
no other dates.
5.3 Due Diligence. Subsequent to the execution of this Plan and prior to
Closing, the parties to this Agreement shall be responsible for their own due
diligence with regard to the extent and cost thereof; provided, however, that
the parties shall disclose all information necessary to comply with the terms
and provisions otherwise set forth in this Agreement.
ARTICLE VI
Articles of Exchange
Upon the approval and adoption of this Plan as provided in Article V, and
subject to the any other provisions herein, Articles of Exchange complying with
the applicable provisions of the laws of the States of Nevada and California, as
applicable, shall be duly executed by the appropriate officers of NDS and VLI
and shall be filed with the appropriate offices of the States of Nevada and
California. Immediately upon the completion of such filings, this Plan shall
become effective
<PAGE>
ARTICLE VII
Directors and Officers
7.1 Directors and Officers of NDS. Upon this Plan becoming effective, the
Directors and Officers of NDS shall be the same as the Directors and Officers of
NDS in office immediately prior to this Plan, and their respective terms of
office shall not be changed, except that John Giaimo shall be appointed as the
fifth Director of the Board of Directors of NDS.
7.2 Directors and Officers of VLI. Upon this Plan becoming effective, the
Directors and Officers of VLI shall be determined according to the Articles of
Incorporation or Bylaws of VLI, or as amended, except that John Giaimo shall
remain as President of VLI pursuant to a five (5) year employment agreement
mutually agreeable to NDS and John Giaimo. In addition, Mr. Brian Donnelly shall
be offered a continuing role as advisor to VLI subject to an employment
agreement mutually agreeable to NDS and John Giaimo.
ARTICLE VIII
Conditions Precedent - NDS
All obligations of NDS under this agreement are subject, at NDS's option, to
the fulfillment, before or at the Closing, of each of the following conditions:
8.1 Representations and Warranties True at Closing. The Stockholders'
representations and warranties contained in this Agreement shall be deemed to
have been made again at and as of the Closing and shall then be true in all
material respects.
8.2 Due Performance. The Stockholders shall have performed and complied with
all the terms and conditions required by this Agreement to be performed or
complied with by them before the Closing.
8.3 Opinion of Counsel. The Stockholders shall have delivered to NDS an
opinion of VLI's legal counsel, dated as of the Closing, to the effect that (1)
the representations in Article III, Paragraphs 3.1, 3.2, 3.4 through 3.9, and
3.12, are correct and that counsel knows of no inaccuracy in the
representations; and (2) the stock certificates, stock powers, and other
instruments delivered to NDS at the Closing are proper in form and substance,
are validly issued, fully paid, and nonassessable, and will vest in NDS good
title to all of the issued and outstanding
<PAGE>
shares of capital stock of VLI, free and clear as to all liens, charges, and
encumbrances, and not subject to any adverse claim.
8.4 Books and Records. The Stockholders shall have caused VLI to make
available to NDS all books and records of VLI as requested by NDS, including
minute books and stock transfer records.
8.5 Revocation of Prior Authorizations. The Stockholders shall have delivered
to NDS certified copies of resolutions of VLI's Board of Directors revoking as
of the Closing all prior authorization, powers of attorney, designations, and
appointments relating to the signing of checks, borrowing of funds, access to
corporate safe-deposit boxes and other similar matters, to the extent requested
by NDS.
8.6 Resignations. There shall have been delivered to NDS the signed
resignations of such directors of VLI as NDS shall request, dated as of the
Closing.
8.7 Officer's Certificate. NDS shall have been furnished with a certificate
signed by the President and Secretary of VLI, dated as of the Closing,
certifying that there has been no material adverse change in the financial
condition, business, or properties of VLI.
ARTICLE IX
Conditions Precedent- Stockholders and VLI
All obligations of the Stockholders and VLI under this agreement are subject,
at the Stockholder's and VLI's option, to the fulfillment, before or at the
Closing, of each of the following conditions:
9.1 Representations and Warranties True at Closing. ~DS's representations and
warranties contained in this Agreement shall be deemed to have been made again
at and as of the Closing and shall then be true in all material respects.
9.2 Due Performance. NDS shall have performed and complied with all the terms
and conditions required by this Agreement to be performed or complied with by it
before the Closing.
<PAGE>
9.3 Officer's Certificate. NDS shall have been furnished with a certificate
signed by the President and Secretary of NDS, dated as of the Closing,
certifying that there has been no material adverse change in the financial
condition, business, or properties of NDS.
ARTICLE X
Indemnification
10.1 Indemnification by the Stockholders. The Stockholders agree to indemnify,
defend, and hold NDS harmless from and against any loss, damage, or expense,
including attorney's fees, suffered or arising from (1) any breach by the
Stockholders of this Agreement, or (2) any inaccuracy in or breach of any of the
representations, warranties, or covenants by the Stockholders herein, provided,
however, that NDS shall give notice of any claims hereunder within twenty-four
months beginning on the date of the Closing. No loss, damage, or expense shall
be deemed to have been sustained by NDS to the extent of insurance proceeds paid
to, or tax benefits realizable by NDS or VLI as a result of the event giving
rise to such right to indemnification.
10.2 Indemnification by the Stockholders and VLI. The Stockholders, VLI, and
John Giaimo personally, agree to indemnify, defend, and hold NDS harmless from
and against any loss, damage, or expense, including attorney's fees, suffered or
arising from that certain obligation identified as a deferred income item in
VLI's balance sheet dated December 31, 1995, and described as the deposit from
First Franklin in the amount of $176,600. The parties acknowledge that this item
has been categorized as non-collectible and NDS intends to write off such item
as may be recommended by VLI.
10.3 Indemnification by NDS. NDS agrees to indemnify, defend, and hold the
Stockholders harmless from and against any loss, damage, or expense, including
attorney's fees, suffered or arising from (1) any breach by NDS of this
Agreement, or (2) any inaccuracy in or breach of any of the representations,
warranties, or covenants by NDS herein.
10.4 Defense of claims. Upon obtaining knowledge thereof, the indemnified
party shall promptly notify the indemnifying party of any claim which has given
or could give rise to a
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right of indemnification under this Agreement. If the right of indemnification
relates to a claim asserted by a third party against the indemnified party, the
indemnifying party shall have the right to employ counsel acceptable to the
indemnified party to cooperate in the defense of any such claim. If the
indemnifying party does not elect to defend any such claim, the indemnified
party shall have no obligation to do so.
ARTICLE XI
Non-competition
The Stockholders agree that for a period of five (5) years from the Closing,
they will not directly or indirectly solicit business from, engage in business
with, or divert business from any of VLI's current or future customers, and that
they will not participate as a shareholder, partner, employee, consultant, or
otherwise in any enterprise engaging in activities that would violate this
Article if engaged in by them directly. The Stockholders acknowledge and confirm
that this covenant is made to induce NDS to enter into this Agreement and is
required by NDS for the purpose of preserving the business and goodwill of VLI
for the benefit of NDS. This provision will become null & void in the event Mr.
Giaimo exercises his purchase option as reflected in section 1.5 of this
agreement. The Stockholders and NDS represent and confirm that no part of the
NDS shares to be issued under this Agreement have been allocated to this
covenant and that no separate consideration or value for this covenant had been
otherwise agreed upon by the parties, and they agree that they will not take any
position in their federal income tax returns that is inconsistent with this
representation.
ARTICLE XlI
General Provisions
12.1 Notice of Claims. Each of the parties hereto shall give the other
immediate notice of any claim, event or transaction which would or does
materially and adversely affect the business, properties, operations or
financial condition of the constituent corporations.
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12.2 Termination. This Agreement may be terminated: (1) by mutual consent in
writing; (2) by either the Stockholders of NDS if there has been a material
breach of any warranty or covenant by other parties; or (3) by either the
Stockholders of NDS if the Closing shall not have taken place, unless adjourned
by mutual consent in writing by the date set forth in Article II herein. In the
event of termination or abandonment of this Plan, each party shall pay the costs
and expenses incurred by it in connection with this Agreement and no party shall
be liable to any other party for any cost, expense, damage, or loss of
anticipated profits whatsoever incurred or claimed, and the obligations and
liabilities assumed hereunder shall be released, except as otherwise provided
herein.
12.3 No Other Rights in Third Parties. Except as otherwise expressly provided
in this Plan, nothing expressed or implied in this Plan is intended, or shall be
construed, to confer upon or to give any person, firm or corporation, other than
NDS and VLI and their respective Stockholders, any rights or remedies under or
by reason of this Plan.
12.4 Notice. Notices to or for the respective parties shall be given in
writing and delivered in person or mailed by certified or registered mail,
addressed to the respective party at the address as set out below, or at such
other address as either party may elect to provide in advance in writing, to the
other party:
NDS Software, Inc. Visual Listings, Inc.
Greg Johnson, President John Giaimo, President
2241 Park Place, Suite E 2745 Saturn Street
Minden, NV 89423 Brea, CA 92621
12.5 Governing Law. This Plan shall be construed and governed by the laws of
the State of Nevada and jurisdiction shall vest exclusively in the Ninth
Judicial District Court in and for the State of Nevada, located in Douglas
County. The parties acknowledge and agree that this Agreement is executed and to
be performed in Douglas County, State of Nevada.
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12.6 Surrender of Rights. Upon the Closing, the holders of VLI Common Shares
shall cease to have any rights in respect of the stock, except such rights, if
any, as they may have under the Corporation Laws of the State of California and
except as otherwise provided herein.
12.7 Further Assurances. At any time, and from time to time, after the
Closing, each party will execute such additional instruments and take such
action as may be reasonably requested by the other party to confirm or perfect
title to any property transferred hereunder or otherwise to carry out the intent
and purposes of this Agreement.
12.8 Waiver. Any failure on the part of either party hereto to comply with any
of their obligations, agreements, or conditions hereunder may be waived in
writing by the party to whom such compliance is owed.
12.9 Brokers. Each of the parties represents to the other parties that no
broker or finder has acted for them in connection with this Agreement and agrees
to indemnify and hold harmless the other parties against any fee, loss, or
expense arising out of claims by brokers or finders employed or alleged to have
been employed by such party.
12.10. Assignment. This Agreement and all of the terms and conditions hereof
shall inure to the benefit of, and be binding upon, the parties hereto and their
heirs, executors, administrators, successors, and assigns; provided, however,
that assignment by either party of its rights under this Agreement without the
written consent of the other party shall be null and void.
12.11 Entire Agreement This Agreement supersedes any and all other agreements,
either oral or in writing, between the parties hereto and contains all of the
covenants and agreements between the parties with respect to this matter. Each
party to this Agreement acknowledges that no representations, inducements,
promises, or agreements, orally or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein, and that no
other agreement, statement or promise not contained in this Agreement shall be
binding. Any modification of this Agreement will be effective only if it is in
writing, signed by the party to be charged specifically referencing this
Agreement.
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12.12 Interpretation. Whenever possible, each provision ofthisAgreement shall
be interpreted in such manner as to be valid and effective under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed and have caused the respective
corporate seals to be affixed on this Agreement the day and year first above
written.
NDS SOFTWARE, INC., a VISUAL LISTINGS, INC., a
Nevada Corporation, California Corporation,
By:/s/ GREG JOHNSON By:/s/ JOHN GIAIMO
- ------------------------- ----------------------------
GREG JOHNSON JOHN GIAIMO
President President
STOCKHOLDER STOCKHOLDER
/s/ John Giaimo /s/ Brian Donnelly
- ------------------------- ----------------------------
John Giaimo Brian Donnelly
STOCKHOLDER
/s/ Melinda Giaimo
- -------------------------
Melinda Giaimo
AGREEMENT AND PLAN OF REORGANIZATION
This Plan and Agreement of Reorganization ("Plan"), is made this 11th day
of August, 1997, between NDS Software, Inc., a Nevada corporation ("NDS"),
FOCUS: Publications, Inc., a Nevada corporation ("FOCUS"), Daniel J. Harrison
and Patricia A. Harrison being the owners of record of all of the issued and
outstanding stock of FOCUS (hereinafter collectively called "Stockholders").
Whereas NDS wishes to acquire and the Stockholders wish to transfer all of
the issued and outstanding stock of FOCUS in a transaction intended to qualify
as a reorganization within the meaning of IRC Section 368(a)(1)(B), as amended;
Whereas, the parties hereto desire that FOCUS stock be exchanged for NDS
stock on the date and at the time herein provided; and,
Whereas, the parties hereto desire to set forth certain representations,
warranties and covenants herein contained;
Now, therefore, NDS and the Stockholders adopt this plan of reorganization
upon the terms and conditions as follows:
ARTICLE I
Exchange
1.1 Number of Shares. The Stockholders agree to transfer to NDS at
the Closing 100% of the shares of the common stock of FOCUS, without par value,
in exchange for an aggregate of 20,000 shares of voting common stock of NDS,
$2.50 par value per share, to be issued to the Stockholders at Closing in the
numbers shown opposite their names in Exhibit "A".
1.2 Delivery of Certificates by Stockholders. The transfer of
FOCUS shares by the Stockholders shall be effected at the Closing by the
delivery to NDS of certificates representing the
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transferred shares endorsed in blank or accompanied by stock powers executed in
blank, with all signatures guaranteed by a national bank and with all necessary
transfer tax and other revenue stamps, acquired at the Stockholder's expense,
affixed.
1.3 Restrictions on NDS Stock. The Stockholders acknowledge, and
irrespective of any other term or provision herein, that the NDS stock exchanged
hereunder is restricted stock and subject to Securities and Exchange Commission
"Rule 144". No warranties or representations by NDS are made nor shall be
implied herein that such restrictions will be removed except by compliance with
the applicable requirements of Rule 144 or the Securities Act of 1933.
1.4 Unwind Provision. The Stockholders and FOCUS acknowledge that
NDS is entering into this transaction with a concurrent expectation of obtaining
additional capital financing, and that NDS has provided the Stockholders and
FOCUS with all pertinent facts concerning the method and goals regarding NDS's
capital finance plan. If, within one hundred and twenty (120) days from the
execution hereof, NDS is unable to obtain additional capital financing, and upon
written notice thereof by NDS, the parties agree that this Plan shall be
abandoned and of no further force or effect. In the event of such abandonment,
the parties shall take whatever action and execute whatever instruments
necessary to return the parties to the status quo existing prior to the
execution of this Plan. Further, neither NDS nor FOCUS shall file "Articles of
Exchange" with the Secretary of State of Nevada unless and until NDS obtains the
capital financing and all other contingencies of this Plan have been satisfied;
provided, however, that this Plan shall be submitted, immediately after
execution hereof, for approval by the constituent corporation shareholders as
may be required by law and all other action taken by the parties to complete
this Plan, save and except for the filing of the "Articles of Exchange" and the
contingency set forth in this Paragraph 1.5. Upon the abandonment of this Plan
pursuant to this Paragraph 1.4, the rights and obligations of the parties
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shall be terminated in accordance with Paragraph 12.2 herein, and the parties
shall comply with Paragraphs 3.11 and 4.7 herein which shall survive abandonment
of this Plan as a continuing obligation of the parties.
1.5. Piggyback Registration Rights. If at any time within two (2)
years after the execution hereof, NDS disposes to register any of its shares of
common stock under the Securities Act of 1933, as amended, NDS will give written
notice of its intention to do so to Stockholders, and on the written request to
Stockholders, given within thirty (30) days after the receipt of said notice,
NDS shall use its best efforts to cause the shares of NDS common stock held by
Stockholders to be included with the securities registered. Such request by
Stockholders shall be referred to as a "Piggyback Registration" request.
Stockholders shall be limited to one such Piggyback Registration request. NDS
shall only be obligated to include the shares in the registration statement if
the underwriter of such offering determines, in its sole discretion, that the
sale of such shares will not materially adversely effect the success of the
offering, provided that the underwriter shall not unreasonably withhold its
consent to the inclusion of Stockholders's shares in the registration statement.
In addition, Stockholders will be responsible for any additional costs incurred
by NDS as a result of the Piggyback registration. Stockholders will be deemed to
have waived its rights to Piggyback registration if it does not provide timely
notice to NDS of its intentions.
1.6 Employment Agreement. The parties acknowledge that the
Stockholders and NDS will enter into an Employment Agreement whereby the
Stockholders shall become employees of NDS pursuant to the terms thereof.
Although executed contemporaneously herewith, such Employment Agreement shall
not be a part hereof and the covenants and promises herein are separately
enforceable.
ARTICLE II
Closing/Effective Date
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The Closing contemplated by Section 1.1 shall be held forty-five
(45) days from execution hereof, at the principal offices of NDS, unless another
place or time is agreed upon in writing by the parties. This Plan shall become
effective upon the filing of the "Articles of Exchange" pursuant to applicable
law and subject to the conditions set forth herein.
ARTICLE III
Representations and Warranties of the Stockholder and FOCUS
3.1 Corporate Status: FOCUS is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Nevada.
3.2 Capitalization. The authorized capital stock of FOCUS consists
solely of two (2) shares of common stock, no par value, of which two (2) shares
are issued and outstanding, all fully paid and non-assessable, and the shares to
be transferred at the Closing constitute all of the outstanding shares of FOCUS
and FOCUS has issued no other shares.
3.3 Investment Intent. The Stockholders are acquiring the NDS shares
to be transferred to them under this Agreement for investment and not with a
view to the sale or distribution thereof, and the Stockholders have no
commitment or present intention to sell or otherwise dispose of such stock.
3.4 Financial Statements. All financial statements prepared by or
on behalf of FOCUS and submitted to NDS and all books of account and records of
FOCUS are true and correct, have been prepared in conformity with generally
accepted accounting principles, correctly reflect valid transactions and values,
and present a true and correct statement, as of their respective dates, of
FOCUS's financial condition. NDS acknowledges that the FOCUS does not have
audited financials.
3.5 Undisclosed Liabilities. FOCUS had no liabilities of any
nature except to the extent reflected or reserved against FOCUS's latest
financial statements attached hereto as EXHIBIT "B".
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3.6 Interim Changes. There has been no material adverse change in
the condition of FOCUS since the date of the financial records submitted to NDS,
except those arising from the normal and regular conduct of business of FOCUS.
3.7 Litigation. There is no litigation or proceeding pending, or
to Stockholder's knowledge threatened, against or relating to FOCUS, its
properties or business, except as set forth in a list certified by the president
of FOCUS and delivered to NDS.
3.8 Title to Property. FOCUS has good and marketable title to all
properties and assets, real, personal, and proprietary, and FOCUS's patents,
patent applications, copyrights, trade-marks and tradenames are valid and in
good standing wherever FOCUS sells products or services. FOCUS has not sold or
granted any interest, whether in total or in part, in any of its properties
described herein to any person or entity and the use of such properties do not
conflict in any way with the trade-marks, trade-names, or other proprietary
rights of any other person or entity. There are no liens, mortgages, pledge, or
encumbrance with respect to the properties described herein.
3.9 Title to Shares. The Stockholders are the owners, free and
clear of liens and encumbrances, of the number of FOCUS shares which the
Stockholders have contracted to exchange.
3.10 Access to Books and Records. From the date of this Agreement
to the Closing, the Shareholders will cause FOCUS (1) to give to NDS and its
representatives full access during normal business hours to all of its offices,
books, records, contracts, and other corporate documents and properties so that
NDS may inspect and audit them, and (2) to furnish such information concerning
FOCUS's properties and affairs as NDS may reasonably request.
3.11 Confidentiality. Until the Closing (and permanently if there is
no Closing), the Stockholders and their representatives will keep confidential
any information which they obtain from NDS concerning its properties, assets,
proprietary assets, and business. If this transaction is not completed, the
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Stockholders will return to NDS all written matter with respect to NDS obtained
by them in connection with the negotiation or consummation of this Agreement.
3.12 Corporate Authority. FOCUS has full corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, and will deliver to NDS at the Closing a certified copy of
resolutions of its Board of Directors authorizing execution of this Agreement by
its offcers and performance thereunder. This Agreement constitutes a valid and
binding obligation of FOCUS and performance hereunder will not violate any
provision of FOCUS's Articles of Incorporation, Bylaws, or other agreements or
commitments.
ARTICLE IV
Representations and Warranties of NDS
4.1 Corporate Status. NDS is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Nevada.
4.2 Capitalization. The authorized capital stock of NDS consists
solely of 60,000,000 shares of capital stock consisting of 50,000,000 shares of
Common Stock 5,000,000 shares of Class A Preferred Stock 200,000 shares of Class
A Preferred Stock and 4,800,000 shares of Series C $10, 6% Convertible
Cumulative Preferred Stock. The NDS stock to be issued to Stockholders hereunder
will, upon the issuance thereon, be duly and validly issued, all fully paid and
nonassessable.
4.3 Annual Reports. NDS has heretofore delivered to the Stockholders
true and correct copies of its annual reports and consolidated financial
statements for each year. There have been have been no material adverse changes
in the condition of NDS, except those arising from the normal and regular
conduct of business of NDS, since the date of the financial documents provided
by NDS.
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4.4 InvestmentIntent NDS is acquiring the FOCUS shares to be
transferred to it under this Agreement for investment and not with a view to the
sale or distribution thereof, and NDS has no commitment or present intention to
liquidate FOCUS or to sell or otherwise dispose of its stock.
4.5 Corporate Authority. NDS has full corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, and will deliver to the Stockholders at the Closing a certified copy
of resolutions of its Board of Directors authorizing execution of this Agreement
by its officers and performance thereunder. This Agreement constitutes a valid
and binding obligation of NDS and performance hereunder will not violate any
provision of NDS's Articles of Incorporation, Bylaws, or other agreements or
commitments.
4.6 Access to Books and Records. From the date of this Agreement
to the Closing, NDS will (1) give to the Stockholders and their representatives
full access during normal business hours to all of its offices, books, records,
contracts, and other corporate documents and properties so that the Stockholders
may inspect and audit them, and (2) furnish such information concerning NDS's
properties and affairs as the Stockholders may reasonably request.
4.7 Confidentiality. Until the Closing (and permanently if there
is no Closing), NDS will keep confidential any information which they obtain
regarding FOCUS concerning its properties, assets, proprietary assets, and
business. If this transaction is not completed, NDS will return to FOCUS or the
Stockholders, as appropriate, all written matter with respect to FOCUS obtained
by NDS in connection with the negotiation or consummation of this Agreement.
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ARTICLE V
Actions of Parties Pending Closing
5.1 Approvals. Within five (5) days from the date of this Plan, or
such longer period as the parties shall agree upon in writing, this Plan shall
be submitted for approval and adoption by the holders of NDS and FOCUS Common
Shares if and as may be required by and pursuant to the applicable provisions of
the laws of the States of Nevada and California. If this Plan shall be so
approved and adopted, NDS and FOCUS shall, subject to the provisions herein,
immediately proceed to effectuate this Plan. If this Plan shall not be so
approved and adopted, it shall, without any further action by the parties, other
than certification to the other constituent corporation of the results of the
vote by the Secretary or Clerk, as the case may be, of the constituent
corporation the Stockholders of which shall not have approved or adopted this
Plan, be canceled without liability from either party to the other in accordance
with Paragraph 12.2 herein.
5.2 Conduct of Business. Prior to the Closing and pending the
effective date hereof, neither FOCUS, NDS, nor the Stockholders, without the
prior written consent of the other parties, will declare or pay any dividend on
any shares of its capital stock in excess of the amount paid thereon in the
preceding calendar quarter year, or make any other distribution of its assets,
except in the ordinary course of business, or increase the number of its shares
of capital stock outstanding except by reason of the conversion or redemption of
presently outstanding Class A Preferred Stock or Class B Convertible Stock of
NDS. The record dates for determining the holders of FOCUS Common Shares and the
holders of NDS Common Shares entitled to receive such dividends as the Board of
Directors of FOCUS and the Board of Directors of NDS, respectively, may, subject
to the preceding sentence, declare prior to the Closing, shall be the date
hereof, and no other dates.
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5.3 Due Diligence. Subsequent to the execution of this Plan and
prior to Closing, the parties to this Agreement shall be responsible for their
own due diligence with regard to the extent and cost thereof; provided, however,
that the parties shall disclose all information necessary to comply with the
terms and provisions otherwise set forth in this Agreement.
ARTICLE VI
Articles of Exchange
Upon the approval and adoption of this Plan as provided in Article V,
and subject to the any other provisions herein, Articles of Exchange complying
with the applicable provisions of the laws of the States of Nevada and
California, as applicable, shall be duly executed by the appropriate officers of
NDS and FOCUS and shall be filed with the appropriate offices of the States of
Nevada and California. Immediately upon the completion of such filings, this
Plan shall become effective.
ARTICLE VII
Directors and Officers
7 .1 Directors and Officers of NDS. Upon this Plan becoming
effective, the Directors and Officers of NDS shall be the same as the Directors
and Officers of NDS in office immediately prior to this Plan, and their
respective terms of office shall not be changed.
7 .2 Directors and Officers of FOCUS. Upon this Plan becoming
effective, the Directors and Officers of FOCUS shall be determined according to
the Articles of Incorporation or Bylaws of NDS, or as amended.
ARTICLE VIII
Conditions Precedent- NDS
All obligations of NDS under this agreement are subject, at NDS's
option, to the fulfillment, before or at the Closing, of each of the following
conditions:
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8.1 Representations and Warranties True at Closing The
Stockholders' representations and warranties contained in this Agreement shall
be deemed to have been made again at and as of the Closing and shall then be
true in all material respects.
8.2 Due Performance. The Stockholders shall have performed and
complied with all the terms and conditions required by this Agreement to be
performed or complied with by them before the Closing.
8.3 Opinion of Counsel. The Stockholders shall have delivered to
NDS an opinion of FOCUS's legal counsel, dated as of the Closing, to the effect
that (1) the representations in Article III, Paragraphs 3.1, 3.2, 3.4 through
3.9, and 3.12, are correct and that counsel knows of no inaccuracy in the
representations; and (2) the stock certificates, stock powers, and other
instruments delivered to NDS at the Closing are proper in form and substance,
are validly issued, fully paid, and nonassessable, and will vest in NDS good
title to all of the issued and outstanding shares of capital stock of FOCUS,
free and clear as to all liens, charges, and encumbrances, and not subject to
any adverse claim.
8.4 Books and Records. The Stockholders shall have caused FOCUS to
make available to NDS all books and records of FOCUS as requested by NDS,
including minute books and stock transfer records.
8.5 Revocation of Prior Authorizations. The Stockholders shall
have delivered to NDS certified copies of resolutions of FOCUS's Board of
Directors revoking as of the Closing all prior authorization, powers of
attorney, designations, and appointments relating to the signing of checks,
borrowing of funds, access to corporate safe-deposit boxes and other similar
matters, to the extent requested by NDS.
8.6 Resignations. There shall have been delivered to NDS the
signed resignations of such directors of FOCUS as NDS shall request, dated as of
the Closing.
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8.7 Officer's Certificate. NDS shall have been furnished with a
certificate signed by the President and Secretary of FOCUS, dated as of the
Closing, certifying that there has been no material adverse change in the
financial condition, business, or properties of FOCUS.
ARTICLE IX
Conditions Precedent- Stockholders and FOCUS
All obligations of the Stockholders and FOCUS under this agreement
are subject, at the Stockholder's and FOCUS's option, to the fulfillment, before
or at the Closing, of each of the following conditions:
9.1 Representations and Warranties True at Closing NDS's
representations and warranties contained in this Agreement shall be deemed to
have been made again at and as of the Closing and shall then be true in all
material respects.
9.2 Due Performance. NDS shall have performed and complied with
all the terms and conditions required by this Agreement to be performed or
complied with by it before the Closing.
9.3 Officer's Certificate. NDS shall have been furnished with a
certificate signed by the President and Secretary of NDS, dated as of the
Closing, certifying that there has been no material adverse change in the
financial condition, business, or properties of NDS.
ARTICLE X
Indemnification
10. 1 Indemnification by the Stockholders. The Stockholders agree
to indemnify, defend, and hold NDS harmless from and against any loss, damage,
or expense, including attorney's fees, suffered or arising from (1) any breach
by the Stockholders of this Agreement, or (2) any inaccuracy in or breach of any
of the representations, warranties, or covenants by the Stockholders herein,
provided, however, that
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NDS shall give notice of any claims hereunder within twenty-four months
beginning on the date of the Closing. No loss, damage, or expense shall be
deemed to have been sustained by NDS to the extent of insurance proceeds paid
to, or tax benefits realizable by NDS or FOCUS as a result of the event giving
rise to such right to indemnification.
10.2 Indemnification by the Stockholders and FOCUS. The
Stockholders, FOCUS, Dan J. Harrison and Patricia A. Harrison personally, agree
to indemnify, defend, and hold NDS harmless from and against any loss, damage,
or expense, including attorney's fees, suffered or arising from ( 1 ) any breach
by FOCUS of this Agreement, or (2) any inaccuracy in or breach of any of the
representations, warranties, or covenants by FOCUS herein.
10.3 Indemnification by NDS. NDS agrees to indemnify, defend, and
hold the Stockholders harmless from and against any loss, damage, or expense,
including attorney's fees, suffered or arising from ( 1 ) any breach by NDS of
this Agreement, or (2) any inaccuracy in or breach of any of the
representations, warranties, or covenants by NDS herein.
10.4 Defense of claims. Upon obtaining knowledge thereof, the
indemnified party shall promptly notify the indemnifying party of any claim
which has given or could give rise to a right of indemnification under this
Agreement. If the right of indemnification relates to a claim asserted by a
third party against the indemnified party, the indemnifying party shall have the
right to employ counsel acceptable to the indemnified party to cooperate in the
defense of any such claim. If the indemnifying party does not elect to defend
any such claim, the indemnified party shall have no obligation to do so.
ARTICLE XI
Noncompetition
The Stockholders agree that for a period of two (2) years from the
Closing, they will not directly or indirectly solicit business from, engage in
business with, or divert business from any of NDS's current
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or future customers, and that they will not participate as a shareholder,
partner, employee, consultant, or otherwise in any enterprise engaging in
activities that would violate this Article if engaged in by them directly. The
Stockholders acknowledge and con firm that this covenant is made to induce NDS
to enter into this Agreement and is required by NDS for the purpose of
preserving the business and goodwill of NDS. The Stockholders and NDS represent
and confirm that no part of the NDS shares to be issued under this Agreement
have been allocated to this covenant and that no separate consideration or value
for this covenant had been otherwise agreed upon by the parties, and they agree
that they will not take any position in their federal income tax returns that is
inconsistent with this representation.
ARTICLE XII
General Provisions
12.1 Notice of Claims. Each of the parties hereto shall give the
other immediate notice of any claim, event or transaction which would or does
materially and adversely affect the business, properties, operations or
financial condition of the constituent corporations.
12.2 Termination. This Agreement may be terminated: (1) by mutual
consent in writing; (2) by either the Stockholders of NDS if there has been a
material breach of any warranty or covenant by other parties; or (3) by either
the Stockholders of FOCUS if the Closing shall not have taken place, unless
adjourned by mutual consent in writing by the date set forth in Article II
herein. In the event of termination or abandonment of this Plan, each party
shall pay the costs and expenses incurred by it in connection with this
Agreement and no party shall be liable to any other party for any cost, expense,
damage, or loss of anticipated profits whatsoever incurred or claimed, and the
obligations and liabilities assumed hereunder shall be released, except as
otherwise provided herein.
12.3 No Other Rights in Third Parties. Except as otherwise
expressly provided in this Plan, nothing expressed or implied in this Plan is
intended, or shall be construed, to confer upon or to give any
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person, firm or corporation, other than NDS and FOCUS and their respective
Stockholders, any rights or remedies under or by reason of this Plan.
12.4 Notice. Notices to or for the respective parties shall be
given in writing and delivered in person or mailed by certified or registered
mail, addressed to the respective party at the address as set out below, or at
such other address as either party may elect to provide in advance in writing,
to the other party:
NDS Software, Inc. FOCUS: Publications, Inc.
Greg Johnson, Chairman, CEO Patricia A. Harrison, President
2241 Park Place, Suite E 23151 Vista Way
Minden NV 89423 Lake Forest,CA92630
12.5 Governing Law. This Plan shall be construed and governed by
the laws of the State of Nevada and jurisdiction shall vest exclusively in the
Ninth Judicial District Court in and for the State of Nevada, located in Douglas
County. The parties acknowledge and agree that this Agreement is executed and to
be performed in Douglas County, State of Nevada.
12.6 Surrender of Rights. Upon the Closing, the holders of FOCUS
Common Shares shall cease to have any rights in respect of the stock, except
such rights, if any, as they may have under the Corporation Laws of the State of
California and except as otherwise provided herein.
12.7 Further Assurances. At any time, and from time to time, after
the Closing, each party will execute such additional instruments and take such
action as may be reasonably requested by the other party to confirm or perfect
title to any property transferred hereunder or otherwise to carry out the intent
and purposes of this Agreement.
14
<PAGE>
12.8 Waiver. Any failure on the part of either party hereto to
comply with any of their obligations, agreements, or conditions hereunder may be
waived in writing by the party to whom such compliance is owed.
12.9 Brokers, Each of the parties represents to the other parties
that no broker or finder has acted for them in connection with this Agreement
and agrees to indemnify and hold harmless the other parties against any fee,
loss, or expense arising out of claims by brokers or finders employed or alleged
to have been employed by such party.
12.10 Assignment. This Agreement and all of the terms and
conditions hereof shall inure to the benefit of, and be binding upon, the
parties hereto and their heirs, executors, administrators, successors, and
assigns; provided, however, that assignment by either party of its rights under
this Agreement without the written consent of the other party shall be null and
void.
12.11 Entire Agreement. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto and
contains all of the covenants and agreements between the parties with respect to
this matter. Each party to this Agreement acknowledges that no representations,
inducements, promises, or agreements, orally or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement or promise not contained in this
Agreement shall be binding. Any modification of this Agreement will be effective
only if it is in writing, signed by the party to be charged specifically
referencing this Agreement.
12.12 Interpretation. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be valid and effective under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed and have caused the
respective corporate seals to be affixed on this Agreement the day and year
first above written.
NDS Software, Inc., a FOCUS: Publications, Inc.,
Nevada Corporation a Nevada Corporation
By:/s/ GREG JOHNSON By:/s/ PATRICIA A. HARRISON
- ------------------------- ---------------------------
GREG JOHNSON PATRICIA A. HARRISON
Chairman, CEO President
STOCKHOLDER
/s/ DAN J. HARRISON
---------------------------
DAN J. HARRISON
16
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT entered into on this 11th day of August 1997 between
NDS SOFTWARE, INC., a Nevada Corporation, (hereinafter referred to as
"Employer") and Daniel J. Harrison and Patricia A. Harrison (hereinafter
collectively referred to as "Employees"), to be effective as of August 11, 1997.
WITNESSETH:
WHEREAS. Employer and Employees (as "Stockholder") entered into a
Plan and Agreement of Reorganization of even date hereof, whereby Employer
exchanged all the stock owned by Employees in FOCUS Publications. Inc., a Nevada
corporation, and the parties agreed to retain the services of Employees as set
forth therein and,
WHEREAS, Employer and Employees desire to enter into this Employment
Agreement to employ Employees and to set forth the rights and duties of the
parties hereto.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment Agreement. The Employer hereby agrees to employ
Employees, and Employees hereby agrees to serve as such Employees upon the terms
and conditions hereinafter set forth.
2. Term of Employment. Subject to the provisions for termination as
hereinafter provided, the term of the employment shall commence as of the date
of this Agreement and shall end five (5) years from that date. At the end the
term hereof, this agreement may be renewed by mutual agreement of the parties.
3. Employees Position and Duties. The terms of the Plan and Agreement
of Reorganization of even date hereof is hereby incorporated herein by reference
as though set forth fully, to the extent that Employees is obligated for
performance of any of the terms therein. Employees's breach of any of the terms,
or provisions thereof constitute a breach of this Agreement and will allow
Employer to terminate this
1
<PAGE>
agreement as hereinafter set forth. In addition to the obligations set forth in
said agreement, Employees agrees as follows:
a. Dan Harrison shall assume responsibility as President of FOCUS, a
division of NDS and the management and supervision thereof Patricia Hamson shall
be employed by FOCUS at the direction of Dan Harrison. Employees shall perform
any other duties relating to Employer's operations which may from time to time
be assigned by Employer or necessary for the successful operation of employers'
business, including but not limited to establishing a business plan for FOCUS
and establishing associated budgets as required to expand into additional
markets Employees shall be entitled to employ other Employees on terms approved
by the Board of Directors of NDS Software, Inc. (' NDS',) arid as needed to
reach the goals for the division as mutually agreed.
b. Employees shall perform all fiduciary duties related to the
management of FOCUS with the responsibility of making FOCUS a successful income
generating division of NDS.
c. During the term of this Employment Agreement, Employees shall, in
good faith, devote his best efforts and full time to their employment and
perform diligently and in good faith such duties as are or may be from time to
time required by the Employers which duties shall be consistent with his
position as set forth above, it being understood and acknowledged that the terms
"best efforts" and "full time" mean such effort and time commitment as is
necessary to achieve the success of the business.
d. It is not anticipated that Employees will assume any other duties
within NDS other than as set forth in this agreement, and any other duties
outside the scope of this Agreement will be subject to the mutual agreement of
the parties separately negotiated.
e. Employees shall not, without the prior written consent of Employer,
directly or indirectly, during the term of this agreement, whether for
compensation or otherwise render services of a business, professional or
commercial in nature to any person or firm that is engaged in a business similar
to
2
<PAGE>
that of the Employer or FOCUS, in accordance with the terms of the Plan and
Agreement for Reorganization.
4. Compensation and Benefits
During the term of employment hereunder, Employer shall compensate
Employee as follows:
a. Salary. For all services he may render to Employer during the term
of this Agreement, Employees shall each receive from Employer a base annual
salary while they are employed hereunder of Sixty-five Thousand Dollars
(S65,000) (a combined salary of One Hundred Thirty Thousand Dollars (S130,000)).
Salary is to be paid in accordance with the policy of Employer regarding payment
or salary to its other officers and directors.
b. Annual Bonus. Forty-five (45) days alter the end of each fiscal
year Employer shall pay a cash bonus to Employees equal to twenty-five (25%) of
the pre-tax net profits realized by FOCUS in excess of One Hundred Thousand
Dollars ($100,000). Net profits shall be calculated as the balance remaining
after deducting all expenses and a fee of seven percent (7%) of gross revenue to
NDS for providing payroll billing and collection services.
c. Additional Stock Option. Employees shell also receive on an annual
basis at the end of each fiscal year, stock options to purchase NDS Common Stock
in a number equal to the pre-tax profits of FOCUS divided by the market price of
NDS shares at the time when the option is vested, over the next Eve (5) years
pursuant to the fomwla described in 4.b. above. Example: a cash bonus in a year
of $100,000 would result in that amount being divided by the. market price at
the time the bonds was earned, resulting in the number of shares captioned, i e,
a stock price of $5 would remit in 90,000 shares issued. Of these pctential
options, one third options will be issued at the current market price at the
time of the Closing referred in the Agreement and Plan of Reorganization
incorporated herein, with the balance of two thirds
3
<PAGE>
of the options issued at the market pace when earned. The options are good for
three (3) years from the date of issue.
d. Benefit. Employees shall be entitled to receive medical
insurance comparable so that offered to other members of the Board of Directors
of NDS.
e. Car Allowance. Employees under this agreement shall be entitled
to a monthly car allowance in a combined total amount of Three Hundred Dollars
($300) per month.
5. Termination Of Employment
a. For Cause. The Employment of Employees under this Employment
Agreement, and the term hereof may be terminated by the Employer and) upon a
showing of cause. upon shirt), (30) days' written notice to Employees. The
"effective date of termination" shall be the date thirty (30) days after written
notice of termination is delivered to the Employees.
For purposes hereof, the term 'for cause' is hereby defined to mean
the following as determined by a majority vote of the Board of Directors upon
reasonable investigation for determination based upon objective facts:
i. An act or omission in the course of Employees's duties which is
dishonest or fraudulent;
ii An act or omission which constitutes willful misconduct or
gross negligence in the performance of duties or assignment,
iii. A breach of this Agreement by Employees,
iv. A breach of an,' term or the Plan and Agreement of
Reorganization, including without lunitation, the non-competition
provision.
4
<PAGE>
v. The continuous substandard performance and/or inattention to
duties required by this Agreement as determined in the sole
discretion of Employer: and
vi Engaging in competition with the Employer by Employees without
the prior express written consent of Employer.
vii. The inability of FOCUS to earn a profit based on the mutually
acceptable pro forma to be presented and agreed upon within thirty
(3 0) days of the execution of this Agreement. In the event NDS is
considering terminating either Employee, NDS shall provide the
Employee written notice of the basis of termination whereupon the
Employee shall be provided a seventy-two (72) hour period in which
to respond to the basis of termination which response shall be
provided to the Board prior to the actual decision regarding
termination. The Employees response shall include a plan to cure
the Employee's breach within a fifteen day period. It is the
intent of the parties that Employee be provided a reasonable
opportunity to respond to the basis of termination prior to the
decision being made but that nothing herein is to be construed as
limiting or otherwise effecting the discretion of the Board to
terminate either employee according to the terms of this
Agreement.
b. Disability or Death. The employment of Employees under this
Employment Agreement, and the term hereof, shall be terminated by the death or
partial or total disability of Employees. For purposes hereof the term
"disability" is hereby defined to mean any mental or physical disability which
renders Employees unable to perform his duties or assignment as determined by
the Board of Directors of Employer in the sole judgment and discretion of said
Board as determined by a majority vote of the members thereof.
c. Resignation. The employment of Employees under this Employment
Agreement and the term hereof will be terminated by the voluntary resignation of
Employees.
5
<PAGE>
6. Salary and Benefits Upon Termination. All salary and other
benefits shall terminate as of the effective date of termination and shall be
paid in accordance with Employer's normal pay period disbursements (Unless
precluded by law any medical and dental insurance coverage and life insurance
coverage and benefits shall continue tor thirty (30) days after termination or
until Employees is reemployed whichever shall first occur.
7. Reimbursable Expenses. The Employer, shall pay directly or
reimburse the Employees for the following expenses:
a. License fines and membership dues in associations or
organizations relative to the business of the Employer,
b. Subscriptions to journals or monthly service publications
relative to the business of the Employer
c. The Employees's necessary, travel, hotel, and entertainment
expenses incurred in connection with the business of the Employer or other
events that contribute to the benefit of the Employer in Amounts to be
determined and first approved by the Board of Directors
8. Non-Competition. Employees, as additional material
consideration hereunder, agree that during to term hereof and for a period of
two (2) years from termination of this Agreement, they will not directly or
indirectly solicit business from, engage in business with or divert business
from any of NDS's or FOCUS's current or future customers, and that they will not
participate as a shareholder, partner, Employees, consultant, or otherwise in
any enterprise engaging in activities that would violate this provision if
engaged in by them directly. This covenant shall be applicable to the entire
United States of America on the basis that NDS sells its products nationally and
Employees acknowledge and agree that the scope of this covenant is reasonable
given the special relationship of the parties as to the various agreements
executed by them. Employees acknowledge and confirm that this covenant is made
to induce NDS to enter
6
<PAGE>
into this Agreement, is considered material to NDS, and is required by NDS for
the purpose of preserving the business and goodwill of FOCUS and NDS.
9. Confidentiality Provision., Employees agree that, during the
term of this Agreement or any extensions and for a period of two (2) years
thereafter, they will keep confidential any information which they obtain from
NDS or FOCUS or any of said entities' subsidiaries, sister corporations or
concerns, now or hereafter existing or created, concerning their properties,
assets, proprietary assets, source codes, copyrights, business methods, and
trade secrets. Upon termination hereof, Employees will return to Employer all
written matter with respect to such businesses obtained by them in connection
with the negotiation, consummation, or performance of this Agreement. Employees
further agree that any work performed or created by Employees during the term
hereof shall be considered work for hire and owned solely by Employer and shall
be subject to the terms of this provision.
10. Modification. No change or modification of this Agreement
shall be valid unless the same be in writing and signed by all the parties
hereto.
11. Binding Effect. The contract shall be binding upon the heirs,
executors, administrators and assigns of the Employees and any successors in
interest of the Employer.
12. Notice. Except as expressly provided to the contrary herein,
notices or other communications required, permitted, or made necessary by the
terms of this Agreement may be given orally to the respective representatives of
the Employer and the Employees designed herein. Written notices shall be
personally delivered to the Employer's representative or the Employees's
representative, as appropriate or sent by the United States registered or
certified mail, postage prepaid, return receipt requested, addressed to the
party as designated below. Notices sent by mail shall be deemed made, delivered
and received on the date of the United States postmark thereon. Either party may
change its address or notice by giving notice of such change to the other party
in the manner specified in this section.
7
<PAGE>
For purposes of notice the addresses of the parties shall be:
If to Employer:
Greg Johnson, Chairman/CEO
NDS Software, Inc.
2241 Park Place, Suite E
Minden. NV 89423-8602
If to Employees:
Mr. and Mrs. Dan Harrison
23151 Vista Way
Lake Forest, CA 9263d
13. No Waiver. No waiver of any breach or default in any of the
terms and provisions of this Agreement shall be deemed to constitute or be
construed as a waiver of the subsequent breach or default of the same, similar
or dissimilar nature.
14. Choice of Law and Invalidity. The validity, construction,
performance and effect of this Agreement shall be governed by the laws of the
State of Nevada and jurisdiction shall vest exclusively in the Ninth Judicial
Distnct Court in and for the State of Nevada located in Douglas County. The
parties acknowledge and agree that this Agreement is executed and performance
hereof is due in Douglas County, State of Nevada In case any one or more of the
provisions contained herein shall for any reason be held to be invalid, illegal,
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal, or, unenforceable
provisions contained herein shall, for any reason, be held to be excessively
broad as to time, duration, geographical scope, activity or subject, said
provision shall be construed by limiting and reducing it so as to be enforceable
to the extent compatible with the then applicable law, it being the intent of
the parties hereto to give the maximum permitted effect to the restrictions set
forth herein.
8
<PAGE>
15. Assignment. This Agreement is one for personal services and
the Employees shall not have a right to assign any part or all of his respective
rights, duties or obligations hereunder.
16. Interpretation. If necessary to give effect to the terns and
provisions hereof, the masculine feminine, and neuter gender in the singular and
plural number shall each be deemed to include the other whenever the context so
indicates.
17. Headings Headings in this Agreement are inserted for
convenience and identification only, and are in no way intended to descnbe.
interpret, define or limit the scope, extent or intention of this Agreement or
any provision hereof.
18. Counterparts. This Agreement may be executed in any number of
counterparts, any of which may be constituted in the agreement between the
parties hereto. Executed copies of this Agreement may be delivered by
telefacsimile, and delivery of executed telefacsimile copies to he parties and
their counsel shall be deemed to be a delivery of a duplicate original and
sufficient delivery to result in entry to this Agreement by the transmitting
party; provided, however, that within ten (10) days thereafter a signed
duplicate original shall be forwarded to the party to whom a telefacsimile copy
was forwarded.
l9. Authority. The Employer warrants and represents that it is a
corporation organized and exists under the laws of the State of Nevada, that the
undersigned is authorized to execute this Agreement on behalf of the Employer,
that the employment of the Employees under the terms of this Agreement has been
duly authorized by the Employer.
20. Inurement. Each covenant and condition in this Agreement shall
be binding on, and shall insure solely to the benefit of the parties to it,
their respective heirs, legal representatives successors and assigns.
21. Entire Agreement. Except as otherwise provided herein, this
Agreement supersedes any and all other agreements, either oral or in writing,
between the parties hereto and contains all of the covenants
9
<PAGE>
and agreements between the parties with respect to this matter. Each party to
this Agreement acknowledges that no representations, inducements, promises, or
agreements, orally or otherwise, have been made by any party or anyone acting on
behalf of any party which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be binding.
IN WITNESS WHEREOF, the parties to this Employment Agreement have
duly executed it on the day and year first above written.
Employee: EMPLOYER:
/s/ DANIEL J. HARRISON
- ---------------------------- NDS SOFTWARE, INC.,
DANIEL J. HARRISON A Nevada Corporation
Employee:
By: /s/ GREG JOHNSON
----------------------------
/s/ PATRICIA A. HARRISON GREG JOHNSON, CEO
- ----------------------------
PATRICIA A. HARRISON
10
<PAGE>
STATE OF NEVADA
SECRETARY OF STATE
ARTICLES OF EXCHANGE
NDS Software, Inc.
Pursuant to NRS 92A.005 et seq., as amended, the undersigned, as the
acquiring corporation in a share exchange, hereby submits the following
information:
FIRST: The name of the acquiring and surviving corporation is NDS
Software, Inc., organized and governed under the laws of the State of Nevada.
SECOND: The name of the acquired constituent corporation is FOCUS
Publications, Inc., organized and governed under the laws of the State of
Nevada.
THIRD: A Plan of Reorganization dated the 11th day of August, 1997
(the "Plan") has been adopted by each of the above-identified constituent
corporations.
FOURTH: The Plan is not required to be submitted to the stockholders
pursuant to NRS 92A.130, however, the Plan was submitted to and duly approved by
a majority of the voting shareholders of NDS Software, Inc. as follows:
<TABLE>
<CAPTION>
Number of
Number of Number of Votes Undisputed Shares
Voting Group Outstanding Shares Entitled to be Cast Voting Approval
- ------------ ------------------ ------------------- ---------------
<S> <C> <C> <C>
Common Stock 5,737,568 5,737,568 1,324,825
Class A Preferred 662,500 3,312,500 3,226,425
------- --------- ---------
Total 6,400,068 9,050,068 4,551,250 (51%)
</TABLE>
The number of votes cast for approval of the Plan was sufficient for
approval by the identified voting groups.
1
<PAGE>
FIFTH: The Plan was submitted to and duly approved by shareholders of
FOCUS Publications, Inc. as follows:
<TABLE>
<CAPTION>
Number of
Number of Number of Votes Undisputed Shares
Voting Group Outstanding Shares Entitled to be Cast Voting Approval
- ------------ ------------------ ------------------- -----------------
<S> <C> <C> <C>
Common Stock 2 2 2
</TABLE>
The number of votes cast for approval of the Plan was sufficient for approval by
the identified voting groups.
SIXTH: The Articles of Incorporation of NDS Software, Inc., without
amendment and existing as of tile date hereof, shall be the Articles of
Incorporation of the Surviving Corporation following the Effective Date of the
merger, as defined in the Plan and Agreement of Merger.
SEVENTH: A complete, executed copy of the Plan is on file at the
registered office of the acquiring corporation and will be furnished on request,
and without cost, to any owner of the parties to the Plan.
IN WITNESS WHEREOF, these Articles of Exchange of NDS Software, Inc.,
a Nevada Corporation, has been executed by the constituent entities this 20th
day of October, 1997.
FOCUS Publications, Inc., NDS Software, Inc.,
a Nevada Corporation a Nevada Corporation
By: /s/ Patricia Harrison By: /s/ John Giaimo
- ------------------------------ ----------------------------------
Patricia Harrison, President John Giaimo, President
By: /s/ Dan Harrison By: /s/ Greg Johnson
- ------------------------------ ----------------------------------
Dan Harrison, Secretary Greg Johnson, Secretary/Treasurer
2
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On November 6, 1997, before me, a notary public, personally appeared
DAN HARRISON, personally known (or proved) to me to be the person whose name is
subscribed to the above instrument who acknowledged that he executed the
instrument.
/s/ Rita Lacroix
STATE OF CALIFORNIA ) ----------------------------------
) ss. Notary public
COUNTY OF ORANGE )
On November 6, 1997, before me, a notary public, personally appeared
PATRICIA HARRISON personally known (or proved) to me to be the person whose name
is subscribed to the above instrument who acknowledged that he executed the
instrument.
/s/ Rita Lacroix
STATE OF CALIFORNIA ) ----------------------------------
) ss. Notary public
COUNTY OF ORANGE )
On November 13, 1997, before me, a notary public, personally appeared
JOHN GIAIMO, personally known (or proved) to me to be the person whose name is
subscribed to the above instrument who acknowledged that he executed the
instrument.
/s/ John T. Schahn
STATE OF NEVADA ) ----------------------------------
) ss. Notary public
COUNTY OF DOUGLAS )
On December 3, 1997, before me, a notary public, personally appeared
GREG JOHNSON, personally known (or proved) to me to be the person whose name is
subscribed to the above instrument who acknowledged that he executed the
instrument.
/s/ Heather Clanton
----------------------------------
Notary public
3
ARTICLES OF MERGER
NDS Software, Inc.
A Utah Corporation
and
NDS Software, Inc.
A Nevada Corporation
(Surviving Corporation)
Pursuant to the applicable provisions of the General| Corporation Law of the
State of Nevada and the General Corporation Law of the State of Utah, N3S
Software, Inc., a Utah corporation ("NDS Software (Utah)") and NDS Software,
Inc., a Nevada corporation ("NDS Software (Nevada)" or the "Surviving
Corporation") collectively referred to as the "Constituent Corporations," have
adopted a Plan and Agreement of Merger and the following Articles of Merger for
the purpose of combining the Constituent Corporations:
1. NDS Software (Utah) is a Utah corporation, formally known as XRF
Corporation, is in good standing under the General Corporation Law of the State
of Utah with total authorized capital stock of fifty million (50,000,000) shares
of Common Stock, and with two million eight hundred ninety two thousand three
hundred fifty two (2,892,352) shares of Common Stock currently issued aid
outstanding.
2. NDS Software (Nevada) is a Nevada corporation, duly organized and in good
standing under the General Corporation Law of the State of Nevada, with total
authorized capital stock of fifty million (50,000,000) shares of Common Stock,
with one (l) share of Common Stock currently issued and outstanding.
3. The Plan and Agreement of Merger has been duly approved and adopted by the
unanimous written consent of the Shareholders and the Board of Directors of NDS
Software (Nevada).
4. The Plan and Agreement of Merger has been duly approved and adopted by the
unanimous written consent of the Directors of NDS Software (Utah) and submitted
to the Shareholders by the Directors and approved by a majority vote of the
Shareholders of XRF Corporation at the duly held Shareholders' meeting on the
19th day of September, 1994, as more fully set forth below:
Total Outstanding Total Common Shares Total Common
Voting Common Shares Voting in Favor Shares Voting
Present of Merger Against Merger
- -------------------- ------------------- --------------
2,704,116 2,704,116 -0-
5. NDS Software (Nevada) will be the Surviving Corporation of the merger.
1
<PAGE>
6. The number of shares Cast in favor of the Plan and Agreement of Merger is
sufficient for approval by the Shareholders of voting common stock of NDS
Software (Utah).
7. The Articles of Incorporation, without amendment, of NDS Software (Nevada)
shall be the Articles of Incorporation of the Surviving Corporation following
the Effective Date of the merger, as defined in the Plan and Agreement of
Merger.
8. A complete, executed copy of the Plan and Agreement of Merger is on file at
the registered office of the Surviving Corporation in the State of Nevada,
located at 600 East William Street, Suite 300, Carson City, Nevada 89701-40~2,
with the registered agent in charge thereof being Scarpello & Alling, Lid. A
copy of the Plan and Agreement of Merger shall be furnished by the Surviving
Corporation on request and without cost to any Shareholder of any Constituent
Corporation.
9. The merger shall be effective on the calendar day or the filing of these
Articles of Merger in the State of Nevada.
IN WITNESS WHEREOF, these Articles of Merger hare been signed by the parties
effective on the 26th day of September, 1994.
NDS Software, Inc.,
a Utah corporation
By: /s/ GREG JOHNSON
----------------------------
GREG JOHNSON, President
By: /s/ WILLIAM TOMERLIN
----------------------------
WILLIAM TOMERLIN, Secretary
STATE OF NEVADA )
) : ss.
COUNTY OF DOUGLAS )
This instrument was acknowledged before me on the 26th day of September, 1994
by GREG JOHNSON as President of NDS Software, Inc., a Utah corporation on behalf
of whom executed by NDS Software, Inc., a Utah corporation.
/s/ Rhonda Blum
---------------------------
NOTARY PUBLIC
STATE OF NEVADA )
) : ss.
COUNTY OF DOUGLAS )
This instrument was acknowledged before me on the 26th day of September, 1994
by WILLIAM R. TOMERLIN as President of NDS Software, Inc., a Utah corporation on
behalf of whom executed by NDS Software, Inc., a Utah corporation.
/s/ Rhonda Blum
---------------------------
NOTARY PUBLIC
2
<PAGE>
NDS Software, Inc.,
a Nevada corporation
By: /s/ GREG JOHNSON
----------------------------
GREG JOHNSON
Its: President
By: /s/ WILLIAM R. TOMERLIN
----------------------------
WILLIAM R. TOMERLIN
Its: Secretary
STATE OF NEVADA )
) : ss.
COUNTY OF DOUGLAS )
This instrument was acknowledged before me on the 26th day of September, 1994
by GREG JOHNSON as President of NDS Software, Inc., a Nevada corporation on
behalf of whom executed by NDS Software, Inc., a Nevada corporation.
/s/ Rhonda Blum
----------------------------
NOTARY PUBLIC
STATE OF NEVADA )
) : ss.
COUNTY OF DOUGLAS )
This instrument was acknowledged before me on the 26th day of September, 1994
by WILLIAM R. TOMERLIN as President of NDS Software, Inc., a Nevada corporation
on behalf of whom executed by NDS Software, Inc., a Nevada corporation.
/s/ Rhonda Blum
---------------------------
NOTARY PUBLIC
3
<PAGE>
PLAN AND AGREEMENT OF MERGER
BETWEEN
NDS SOFTWARE INC.,
A Nevada Corporation
and
NDS SOFTWARE, INC.
A Utah Corporation
THIS PLAN AND AGREEMENT OF MERGER is made and entered into on this 26th day of
September, 1994, by and between "NDS Software, Inc., a Nevada corporation
(hereinafter referred to as "NDS Software (Nevada)" or as the "Surviving
Corporation"), and NDS Software, Inc., a Utah corporation (hereinafter referred
to as "NDS Software (Utah)"), said corporations hereinafter referred to jointly
as the "Constituent Corporations", in a transaction qualifying as a tax-free
reorganization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code of 1986.
W I T N E S S E T H
WHEREAS, NDS Software (Nevada) is a corporation organized and existing under
the laws of the State of Nevada, its Articles o. Incorporation having been filed
in the Office of the Secretary of State of the State of Nevada on September
28th, 1994, and the registered office of the Corporation being located at the
Bank of America Center, 600 E. William Street, Suite 300, Carson City, Nevada,
89701-4052, and the name of its registered agent in charge thereof being
Scarpello & Alling, Ltd.
WHEREAS, the total number of shares of stock which ADS Software (Nevada) has
authority to issue is -fifty million (50,000,000) common shares, par value
$.001, of which one (l) stare
1
<PAGE>
is now issued and outstanding; and
WHEREAS, NDS Software (Utah) is a corporation organized and existing under the
laws of the State of Utah, its Articles of Incorporation having been filed in
the Office of the Secretary of State of the State of Utah on the 13th day of
January, 1983, and the registered office of that Corporation being located at
341 South Main Street, Suite 302, Salt Lake City, Utah, 84111, the| registered
agent in charge thereof being R. Steven Chambers.
WHEREAS, the aggregate number of shares which NDS Softwarei (Utah) has
authority to issue is fifty million (50,000,000) common shares, par value $.001,
with two million eight hundred ninety-two thousand three hundred fifty-two
(2,892,352) shares are issued ara outstanding; and
WHEREAS, the Board of Directors of each of the Constituent Corporations have
recommended and approved the transaction whereby NDS Software (Utah) shall be
merged into NDS Software (Nevada) on the terms and conditions hereinafter set
forth in accordance with the applicable provisions of the statutes of the states
of Nevada and Utah, respectively, which permit such merger;
NOW THEREFORE, in consideration of the promises and of the agreements,
covenants, and provisions hereinafter contained, NDS Software (Nevada) and NDS
Software (Utah) by their respective boards of directors and shareholders, have
agreed and do hereby agree each with the other as follows:
ARTICLE I
NDS Software (Nevada) and NDS Software (Utah) shall be merged into a single
corporation, in accordance with applicable provisions of the laws of the State
of Nevada and the State of Utah, by the
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NDS Software (Utah) merging into the NDS Software (Nevada), which shall be the
Surviving Corporation.
ARTICLE II
The Effective Date of the merger (the "Effective Date") of NDS Software
(Nevada) and NDS Software (Utah) shall be upon the acceptance for filing of
Articles of Merger by the Nevada secretary of State.
1. The two Constituent Corporations shall be a single corporation, which shall
be NDS Software, Inc., a Nevada corporation, as the Surviving Corporation, and
the separate existence OF NDS Software (Utah) shall cease except to the extent
provided by the laws of the State of Utah in the case OF a corporation after its
merger into another corporation.
2. The Surviving Corporation shall thereupon and thereafter possess all the
rights, privileges, immunities, and franchises of each of the Constituent
Corporations; and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all other choses in
action, and all and every other interest of or belonging to or due to each of
the Constituent Corporations shall be taken and deemed to be vested in the
Surviving Corporation without further act or deed; and the title to all real
estate, or any interest therein, vested in either of the Constituent
Corporations shall not revert or be in any way impaired by reason of the merger;
3. The Surviving Corporation shall thenceforth be responsible and liable for
all of the liabilities and obligations of each of the Constituent Corporations;
and any claim existing or action or proceeding pending by or against either of
the
3
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constituent Corporations may be prosecuted to judgment as if substituted in
its place, and neither the rights of creditors or any liens upon the property of
either of the Constituent Corporations shall be impaired by the merger;
4. The aggregate amount of the net assets of the Constituent Corporations
which was available for the payment of dividends immediately prior to the
merger, to the extent that the value thereof is not transferred to stated
capital by the issuance of shares or otherwise, shall continue to be available
for the payment of dividends by the Surviving Corporation;
5. The Bylaws of NDS Software (Nevada), as existing and constituted
immediately prior to the Effective Date of the merger shall constitute the
Bylaws or the Surviving Corporation;
6. The Board Of Directors, and the members thereof, and the officers of NDS
Software (Nevada) immediately prior to the Effective Date of the Merger shall be
the Board of Directors, and the members thereof, and the officers of the
Surviving Corporation.
7. The merger as described herein is being undertaken to (1) reflect the
location of the corporation's offices and principal place of business in the
State of Nevada and thereby reduce administrative expenses and inefficiencies,
and (2) take advantage of the corporate laws of the State of Nevada.
8. NDS Software (Nevada) and NDS Software (Utah) hereby represent and warrant
to each other as follows:
(i) The fair market value of NDS Software (Nevada) common stock received by the
shareholders of NDS Software (Utah)will be approximately equal to the fair
market value of the NDS Software (Utah) common stock surrendered in the
exchange;
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(ii) There is no plan or intention by the shareholders of NDS Software (Utah)
to sell, exchange or otherwise dispose of any of the shares of NDS Software
(Nevada) common stock to be received in the merger;
(iii) Immediately following consummation of the merger, the shareholders of
NDS Software (Utah) will own all of the outstanding common stock of NDS Software
(Nevada) and will own such stock solely by reason of their ownership of NDS
Software (Utah) common stock immediately prior to the merger;
(iv) Immediately following consummation of the merger, NDS Software (Nevada)
will possess the same assets and liabilities, except the assets used to pay
expenses incurred in connection with the merger, as those possessed by NDS
Software (Utah) immediately before the merger. Assets used to pay expenses will,
in the aggregate, constitute less than one percent (1%) of the net assets of NDS
Software (Utah);
(v) At the time of the merger, NDS Software (Utah)will not have outstanding
any warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in NDS Software (Utah);
(vi) NDS Software (Nevada) has no plan or intention to re-acquire any of its
stock issued in the merger;
(vii) NDS Software (Nevada) has no plan or intention to sell or otherwise
dispose of any of the assets of NDS Software (Utah) acquired in the merger,
except for dispositions made in the ordinary course of business;
(viii) The liabilities of NDS Software (Utah) assumed by NDS Software
(Nevada), plus the liabilities, if any, to which the
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<PAGE>
transferred assets are subject, were incurred NDS Software (Utah) in the
ordinary course of business and are associated with the assets transferred;
(ix) Following the merger, NDS Software (Nevada) will continue the historic
business of NDS Software (Utah) or use a significant portion of NDS Software
(Utah's) historic business assets in the business; and
(xi) NDS Software (Utah) is not under the jurisdiction of a court in a Title
11 bankruptcy case or any similar case within the meaning of Section
368(a)(3)(A) of the Internal Revenue Code of 1986, as amended.
ARTICLE III
The Articles of Incorporation of NDS Software (Nevada) shall not be amended in
any respect, by reason of this Plan and Agreement of Merger, and said Articles
of Incorporation, as filed in the Office of the Secretary of State of the State
of Nevada on the 28th day of September, 1994, shall constitute the Articles of
Incorporation of the Surviving Corporation until further amended in the manner
provided by law.
ARTICLE IV
The manner and basis of converting the shares of each of the Constituent
Corporations into shares of the Surviving Corporation as follows:
1. The unissued common shares of stock of NDS Software (Utah) shall be
canceled and no shares of stock of the Surviving Corporation shall be issued in
respect thereto.
2. Each one (l) share of the two million eight hundred ninety-two thousand
three hundred fifty-two (2,892,352) common
6
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shares of NDS Software (Utah), par value $.001, issued and outstanding
immediately before the Effective Date of the Merger shall, by virtue of the
merger, be converted into one (l) fully paid and non-assessable share of capital
stock of NDS Software (Nevada), par value $.00l. Upon the surrender of
certificates representing shares of NDS Software (Utah) by the holders thereof,
certificates for an equal number of NDS Software (Nevada) shares shall be issued
in exchange by NDS Software (Nevada). There are no other securities of any class
outstanding with respect to NDS Software (Utah).
Shares of NDS Software (Nevada), par value $.001, outstanding at the date of
this merger shall not be converted or exchanged but shall be canceled.
ARTICLE V
NDS Software (Nevada), as the Surviving Corporation, shall pay all expenses of
carrying this Agreement or Merger into effect and accomplishing the merger
herein provided for.
ARTICLE VI
If at any time the Surviving Corporation shall consider or be advised that any
further assignment or assurance in law are necessary or desirable to vest in the
Surviving Corporation the title to any property or rights of NDS Software
(Utah), the proper officers and directors of NDS Software (Utah) shall, and will
execute and make all such proper assignments and assurances in law and do all
things necessary or proper to thus vest such property or rights in the Surviving
Corporation, and otherwise to carry out the purposes of this Plan and Agreement
of Merger.
7
<PAGE>
ARTICLE VII
This Plan and Agreement of Merger shall be submitted to the directors and
stockholders of each of the Constituent Corporations, as provided by law, and be
deemed and be taken to be the Plan and Agreement of Merger of said corporations
upon the approval or adoption thereof by the directors and stockholders of each
of the Constituent Corporations in accordance with the requirements of the laws
of the State of Nevada and the State of Utah, respectively, and upon the
execution, filing and recording of such documents and the doing of such acts and
things as shall be required for accomplishing the merger under the provisions of
the applicable statutes of the State of Nevada and of the State of Utah, as
heretofore amended and supplemented.
Anything herein or elsewhere to the contrary notwithstanding, this Plan and
Agreement of Merger may be abandoned by either of the Constituent Corporations
by an appropriate resolution of its board of directors at any time prior to its
approval or adoption by the shareholders thereof, or by the mutual consent of
the Constituent Corporations evidenced by appropriate resolution of their
respective boards of directors, at any time prior to the Effective Date of the
Merger.
For the convenience of the parties hereto and to facilitate the filing of this
Plan and Agreement of Merger, any number of counterparts hereof may be executed;
and each such counterpart shall be deemed to be an original instrument.
IN WITNESS WHEREOF, NDS Software (Nevada) and NDS Software (Utah) pursuant to
the approval and authority duly given by resolutions adopted by their respective
boards of directors and
8
<PAGE>
shareholders have caused this Plan and Agreement of Merger to be executed by the
President and Secretary of each party hereto.
NDS Software, Inc.
a Nevada corporation
By: /s/ GREG JOHNSON
----------------------------
GREG JOHNSON, President
By./s/ WILLIAM TOMERLIN
----------------------------
WILLIAM TOMERLIN, Secretary
STATE OF NEVADA )
) : ss.
County of Douglas )
On this 26th day of September 1994, personally appeared before me, the
undersigned Notary Public, GREG JOHNSON, known (or proved) to me to be the
President of the above named corporation, and upon oath, he did dispose and say
that he is the officer of the corporation as above designated, and acknowledged
to me that he executed the instrument freely and voluntarily and for the uses
and purposes therein mentioned.
/s/ Rhonda Blum
---------------------------
NOTARY PUBLIC
STATE OF NEVADA )
: ss.
County of Douglas )
On this 26th day of September 1994, personally appeared before me, the
undersigned Notary Public, WILLIAM R. TOMERLIN, known (or proved) to me to be
the Secretary of the above named corporation, and upon oath, he did dispose and
say that he is the officer of the corporation as above designated, and
acknowledged to me that he executed the instrument freely and voluntarily and
for the uses and purposes therein mentioned.
/s/ Rhonda Blum
---------------------------
NOTARY PUBLIC
9
<PAGE>
NDS Software, Inc.
a Utah Corporation
By: /s/ GREG JOHNSON
---------------------------
GREG JOHNSON, President
By./s/ WILLIAM TOMERLIN
---------------------------
WILLIAM TOMERLIN, Secretary
STATE OF NEVADA )
): ss.
County of Douglas )
On this 26th day of September 1994, personally appeared before me, the
undersigned Notary Public, GREG JOHNSON, known (or proved) to me to be the
President of the above named corporation, and upon oath, he did dispose and say
that he is the officer of the corporation as above designated, and acknowledged
to me that he executed the instrument freely and voluntarily and for the uses
and purposes therein mentioned.
/s/ Rhonda Blum
---------------------------
NOTARY PUBLIC
STATE OF NEVADA )
): ss.
County of Douglas )
On this 26th day of September 1994, personally appeared before me, the
undersigned Notary Public, WILLIAM R. TOMERLIN, known (or proved) to me to be
the Secretary of the above named corporation, and upon oath, he did dispose and
say that he is the officer of the corporation as above designated, and
acknowledged to me that he executed the instrument freely and voluntarily and
for the uses and purposes therein mentioned.
/s/ Rhonda Blum
----------------------------
NOTARY PUBLIC
10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into on this 1st day of May, 1996,
between NDS SOFTWARE, INC., a Nevada corporation, (hereinafter referred to as
"Employer") and JOHN GIAIMO (hereinafter referred to as "Employee"), to be
effective as of May 8, 1996.
W I T N E S S E T H:
WHEREAS, Employer and Employee (as "Stockholder") entered into a Plan and
Agreement of Reorganization dated May 1, 1996, whereby Employer exchanged all
the stock owned by Employee in Visual Listings, Inc., a California corporation,
and the parties agreed to retain the services of Employee as set forth therein:
and,
WHEREAS, Employer and Employee desire to enter into this Employment Agreement
to employ Employee and to set forth the rights and duties of the parties hereto.
NOW, THEREFORE, in consideration of the mutual promises herein contained, the
parties agree as follows:
1. Employment Agreement. The Employer hereby agrees to employ Employee, and
Employee hereby agrees to serve as such Employee upon the terms and conditions
hereinafter set forth.
2. Term of Employment. Subject to the provisions for termination as
hereinafter provided, the term of the employment shall commence as of the date
of this Agreement and shall end five (5) years from that date. At the end the
term hereof, this Agreement may be renewed by mutual agreement of the parties.
3. Employees's Position and Duties. The terms of the Plan and Agreement of
Reorganization dated May 1, 1996, is hereby incorporated herein by reference as
though set forth fully, to the extent that Employee is obligated for performance
of any of the terms therein. Employee's breach for any of the terms or
provisions thereof constitute a breach of this Agreement and will allow Employer
to terminate this
1
<PAGE>
Agreement as hereinafter set forth. In addition to the obligations set forth in
said agreement, Employee agrees as follows:
a. Employee shall assume responsibility as President of Visual Listings, Inc.
("VLI"), Employer's wholly owned subsidiary, and the management and supervision
thereof, and shall perform any other duties relating to Employer's operations
which may from time to time be assigned by Employer or necessary for the
successful operation of Employer's business. Employee shall be entitled to
employ Melinda Giaimo and other employees on terms approved by and as needed to
reach the goals set by the Board of Directors of NDS Software, Inc. ("NDS")
b. Employee shall also be elected to the Board of Directors of NDS during the
term of this Agreement, pursuant to the Articles of Incorporation and Bylaws of
NDS.
c. During the term of this Employment Agreement, Employee shall, in good
faith, devote his best efforts and full time to his employment and perform
diligently and in good faith such duties as are or may be from time to time
required by the Employer, which duties shall be consistent with his position as
set forth above; it being understood and acknowledged that, the terms "best
efforts" and "full time" mean such effort and time commitment as is necessary to
achieve the success of the business.
d. Employee shall not, without the prior written consent of Employer, directly
or indirectly, during the term of this Agreement, whether for compensation or
otherwise, render services of a business, professional or commercial nature to
any person or firm that is engaged in a business similar to that of the Employer
or VLI, in accordance with the terms of the Plan and Agreement for
Reorganization.
4. Compensation and Benefits.
During the term of employment hereunder, Employer shall compensate Employee as
follows:
a. Salary. For all services he may render to Employer during the term of this
Agreement, Employee shall receive from Employer a base annual salary while he is
employed hereunder of Seventy
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<PAGE>
Thousand Dollars ($70,000). Salary will increase to $100,000 beginning September
1, 1996. Salary is to be paid in accordance with the policy of Employer
regarding payment of salary to its other officers and directors.
b. Signing Bonus. Employer shall pay a signing bonus to Employee in the amount
of Fifty Thousand Dollars ($50,000). The bonus shall be payable at such time as
the Employee shall direct.
c. Annual Bonus. At the end of each taxable year, Employer shall pay a cash
bonus to Employee equal to four percent (4%) of the pre-tax earnings of NDS as
stated in the annual audit. (Example: if NDS earned $800,000 pre-tax, Employee
would receive a cash bonus in the amount of $32,000). Additional compensation
will be determined by a compensation committee designated by the Board of
Directors.
d. Additional Stock Option. Employee shall also receive, on an annual basis,
stock options to purchase NDS Common Stock equal to four percent (4%) of the
pre-tax earnings of NDS as stated in the annual audit. (Example: if NDS earned
$800,000 pre-tax, Employee would receive stock options of $32,000). The price
payable by Employee for each share of stock purchased under the stock option
described in this paragraph shall be set at the bid at the time of grant of each
annual option. Additional compensation will be determined by a compensation
committee designated by the Board of Directors.
e. Director's Compensation. During the time which Employee is a sitting member
of the Board of Directors of NDS, and properly fulfills his duties therefor,
Employer hereby provides to Employee a five (5) year option to purchase a total
of two Hundred Seventy Five Thousand (275,000) shares of NDS Common Stock at a
price of Two Dollars ($2.00) per share. This option shall commence upon the
effective date hereof and terminate five (5) years from such date.
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<PAGE>
f. Benefits. Employee shall be entitled to receive medical insurance
comparable to that offered to other employees of NDS. In addition, Employee
shall receive an automobile allowance sufficient to lease a Lincoln Continental.
5. Termination of Employment.
a. For Cause. The employment of Employee under this Employment Agreement, and
the term hereof, may be terminated by the Employer only upon a showing of cause,
upon thirty (30) days' written notice to Employee. The "effective date of
termination" shall be the date thirty (30) days after written notice of
termination is delivered to the Employee. Cause is defined as follows:
i. An act or omission in the course of Employee's duties which is
dishonest or fraudulent;
ii. An act or omission which constitutes willful misconduct or gross
negligence in the performance of duties or assignment;
iii. A breach of this Agreement by Employee;
iv. A breach of any term of the Plan and Agreement of
Reorganization, including without limitation, the non-competition
provision.
v. The continuous substandard performance and/or inattention to
duties required by this Agreement as determined in the sole discretion of
Employer; and
vi. Engaging in compensation with the Employer by Employee without
the prior express written consent of Employer.
b. Disability or Death. The employment of Employee under this Employment
Agreement, and the term hereof, shall be terminated by the death or partial or
total disability of Employee. For purposes hereof, the term "disability" is
hereby defined to mean any mental or physical disability which renders Employee
unable to perform his duties or assignment as determined by the Board of
Directors of
4
<PAGE>
Employer, in the sole judgment and discretion of said Board as determined by a
majority vote of the members thereof.
c. Resignation. The employment of Employee under this Employment Agreement,
and the term hereof, will be terminated by the voluntary resignation of
Employee.
6. Salary and Benefits Upon Termination. All salary and other benefits shall
terminate as of the effective date of termination if Employee resigns. If
involuntarily terminated for cause, the salary will continue for the initial
five year term of this Agreement. Unless precluded by law, any medical and
dental insurance coverage and life insurance coverage and benefits shall
continue for thirty (30) days after termination or until Employee is reemployed,
whichever shall first occur.
7. Reimbursable Expenses. The Employer shall pay directly or reimburse the
Employee for the following expenses:
a. License fees and membership dues in associations or organizations relative
to the business of the Employer;
b. Subscriptions to journals or monthly service publications relative to the
business of the Employer.
c. The Employee's necessary travel, hotel, and entertainment expenses incurred
in connection with the business of the Employer or other events that contribute
to the benefit of the Employer in amounts to be determined by the Board of
Directors.
8. Employee, as additional material consideration hereunder, agrees that
during the term hereof and for a period of five (5) years from termination of
this Agreement, he will not directly or indirectly solicit business from, engage
in business with, or divert business from any of NDS's or VLI's current or
future customers, and that they will not participate as a shareholder, partner,
employee, consultant, or otherwise in any enterprise engaging in activities that
would violate this provision if engaged
5
<PAGE>
in by them directly. This covenant shall be applicable to the entire United
States of America and Canada on the basis that NDS sells its products nationally
or internationally, and Employee acknowledges and agrees that the scope of this
covenant is reasonable given the special relationship of the parties as to the
various agreements executed by them. Employee acknowledges and confirms that
this covenant is made to induce NDS to enter into this Agreement, is considered
material to NDS, and is required by NDS for the purpose of preserving the
business and goodwill of VLI and NDS.
9. Confidentiality Provision. Employee agrees that, during the term of this
Agreement or any extensions and for a period of ten (10) years thereafter, he
will keep confidential any information which he obtains from NDS or VLI or any
of said entities' subsidiaries, sister corporations or concerns, now or
hereafter existing or created, concerning their properties, assets, proprietary
assets, source codes, copyrights, business methods, and trade secrets. Upon
termination hereof, Employee will return to Employer all written matter with
respect to such businesses obtained by him in connection with the negotiation,
consummation, or performance of this Agreement. Employee further agrees that any
work performed or created by Employee during the term hereof shall be owned
solely by Employer and shall be subject to the terms of this provision.
10. Modification. No change or modification of this Agreement shall be valid
unless the same be in writing and signed by all the parties hereto.
11. Binding Effect. The contract shall be binding upon the heirs, executors,
administrators, and assigns of the Employee and any successors in interest of
the Employer.
12. Notice. Except as expressly provided to the contrary herein, notices or
other communications required, permitted, or made necessary by the terms of this
Agreement may be given orally to the respective representatives of the Employer
and the Employee designed herein. Written notices shall be personally delivered
to the Employer's representative
6
<PAGE>
or the Employee's representative, as appropriate or sent by the United States
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party as designated below. Notices sent by mail shall be deemed
made, delivered and received on the date of the United States postmark thereon.
Either party may change its address or notice by giving notice of such change to
the other party in the manner specified in this section.
For purposes of notice the addresses of the parties shall be:
If to Employer:
NDS Software, Inc.
2241 Park Place, Suite E
Minden, NV 89423-8602.
If to Employee:
John Giaimo
2745 Saturn Street
Brea, CA 92621
13. No Waiver. No waiver of any breach or default in any of the terms and
provisions of this Agreement shall be deemed to constitute or be construed as a
waiver of the subsequent breach or default of the same, similar or dissimilar
nature.
14. Choice of Law and Invalidity. The validity, construction, performance and
effect of this Agreement shall be governed by the laws of the State of Nevada
and jurisdiction shall vest exclusively in the Ninth Judicial District Court in
and for the State of Nevada, located in Douglas County. The parties acknowledge
and agree that this Agreement is executed and performance hereof is due in
Douglas County, State of Nevada. In case any one or more of the provisions
contained herein shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal, or unenforceable provisions
contained herein shall, for any reason, be held to be excessively broad as to
time, duration, geographical scope, activity or subject, said provision shall be
construed by limiting
7
<PAGE>
and reducing it so as to be enforceable to the extent compatible with the then
applicable law, it being the intent of the parties hereto to give the maximum
permitted effect to the restrictions set forth herein.
15. Assignment. This Agreement is one for personal services and the Employee
shall not have a right to assign any part or all of his respective rights,
duties or obligations hereunder.
16. Interpretation. If necessary to give effect to the terms and provisions
hereof, the masculine, feminine, and neuter gender in the singular and plural
number shall each be deemed to include the other whenever the context so
indicates.
17. Headings. Headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret, define or
limit the scope, extent or intent of this Agreement or any provision hereof.
18. Counterparts. This Agreement may be executed in any number of
counterparts, any of which may be constituted in the agreement between the
parties hereto.
19. Authority. The Employer warrants and represents that it is a corporation
organized and existing under the laws of the State of Nevada, that the
undersigned is authorized to execute this Agreement on behalf of the Employer;
that the employment of the Employee under the terms of this Agreement has been
duly authorized by the Employer.
20. Inurement. Each covenant and condition in this Agreement shall be binding
on, and shall insure solely to the benefit of the parties to it, their
respective heirs, legal representatives successors and assigns.
21. Entire Agreement. Except as otherwise provided herein, this Agreement
supersedes any and all other agreements, either oral or in writing, between the
parties hereto and contains all of the covenants and agreements between the
parties with respect to this matter. Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, orally or
otherwise, have
8
<PAGE>
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement or promise not contained
in this Agreement shall be binding
IN WITNESS WHEREOF, the parties to this Employment Agreement have duly executed
it on the day and year first above written.
EMPLOYEE: EMPLOYER:
John Giaimo NDS SOFTWARE, INC.,
A Nevada Corporation,
/s/ John Giaimo
-------------------
Date: 7/15/96 By: /s/ Greg Johnson
-----------------------
President/CEO
9
<PAGE>
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT, effective as of March 4, 1997, hereby modifies and amends that
certain Employment Agreement entered into the 1st day of May 1996 between NDS
SOFTWARE, INC., a Nevada corporation, (hereinafter referred to as "Employer")
and JOHN GIAIMO (hereinafter referred to as "Employee").
The parties hereby agree that the following changes, modifications or
amendments shall be incorporated into the Employment Agreement:
1. Paragraph 4(a) shall be changed to read that the Employee shall be entitled
to a base annual salary in the amount of $144,000 beginning March 4, 1997.
2. Paragraph 6 shall be deleted and replaced with the following:
"6. Salary and Benefits Upon Termination. All salary and other
benefits shall terminate as of the effective date of
termination if Employee resigns. If involuntarily terminated
and in consideration for the obligations of Employee pursuant
to paragraphs 8 and 9 of the Employment Agreement, Employee
shall been titled to a termination or severance salary equal to
five (5) years of the annual base salary earned by Employee
immediately prior to termination. Employee shall have the
option to accelerate payments of the severance salary and
receive the full amount upon termination, in Employee's sole
discretion. Employer agrees that all unregistered stock
received or to be received by the Employee under any stock
option plan provided by Employer shall be registered as soon
after the termination date as possible, and in no event later
than six (6) months from the date of termination. Employee
shall have the right to exercise any stock option within
five
1
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(5) business days of the date of termination of Employee.
Unless precluded by law any medical and dental insurance
coverage and life insurance coverage and benefits shall
continue for thirty (30) days after termination or until
Employee is re-employed, whichever shall first occur."
3. A new subparagraph is added to Article 3 as follows:
e. The parties agree that during the performance of this Agreement
Employee shall remain located in Brea, California and Employer shall not require
Employee to change his principal place of residence for any reason.
IN WITNESS WHEREOF, the parties to this Amendment No. I to Employment Agreement
have duly executed it on the day and year first above written.
EMPLOYEE: EMPLOYER:
John Giaimo NDS SOFTWARE, INC.,
A Nevada Corporation,
/s/ John Giaimo
--------------------
By: /s/ Dr. Jack Kelly
---------------------------
Dr. Jack Kelly, Director
By: /s/ Greg Johnson
---------------------------
Greg Johnson, CEO
By: /s/ Doug Swanson
---------------------------
Doug Swanson, Vice Chairman
2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into on this 13th day of June, 1996,
between NDS SOFTWARE, INC., a Nevada corporation, (hereinafter referred to as
"Employer") and GREG JOHNSON (hereinafter referred to as "Employee"), to be
effective as of June 13th, 1996.
WITNESSETH:
WHEREAS, Employer and Employee desire to enter into this Employment Agreement
to employ Employee and to set forth the rights and duties of the parties hereto
NOW, THEREFORE, in consideration of the mutual promises herein contained, the
parties agree as follows:
1. Employment Agreement. The Employer hereby agrees to employ Employee, and
Employee hereby agrees to serve as such Employee upon the terms and conditions
hereinafter set forth.
2. Term of Employment. Subject to the provisions for termination as
hereinafter provided, the term of the employment shall commence as of the date
of this Agreement and shall end five (5) years from that date. At the end the
term hereof, this Agreement may be renewed by mutual agreement of the parties.
3. Employee's Position and Duties. Employee agrees as follows:
a. Employee shall initially as directed by the Board of Directors assume
responsibility as President/CEO of NDS Software, Inc. ("NDS"), and the
management and supervision thereof, and shall perform any other duties relating
to Employer's operations which may from time to time be assigned by the Board of
Directors and governed by the Bylaws of NDS, for the successful operation of
Employer's business.
b. It is contemplated that Employee shall also be on the Board of Directors of
NDS during the term of this Agreement, pursuant to the Articles of Incorporation
and Bylaws of NDS.
1
<PAGE>
c. During the term of this Employment Agreement, Employee shall, in good
faith, devote his best efforts and full time to his employment and perform
diligently and in good faith such duties as are or may be from time to time
required by the Employer, which duties shall be consistent with his position as
set forth above; it being understood and acknowledged that, the terms "best
efforts" and "full time" mean such effort and time commitment as is necessary to
achieve the success of the business.
d. Employee shall not, without the prior written consent of Employer, directly
or indirectly, during the term of this Agreement, whether for compensation or
otherwise, render services of a business, professional or commercial nature to
any person or firm that is engaged in a business similar to that of the Employer
or NDS.
4 Compensation and Benefits.
During the term of employment hereunder, Employer shall compensate Employee as
follows:
a. Salary. For all services he may render to Employer during the term of this
Agreement, Employee shall receive from Employer a base annual salary while he is
employed hereunder of Seventy Thousand Dollars ($70,000). Salary will increase
to $100,000 beginning September 1, 1996. Salary is to be paid in accordance with
the policy of Employer regarding payment of salary to its other officers and
directors.
b. Signing Bonus. Employer shall pay a signing bonus to Employee in the amount
of $26,011.75. The ho s shall be payable at such time as the Employee shall
direct.
c. Annual Bonus. At the end of each taxable year, Employer shall pay a cash
bonus toEmployee equal to four percent (4%) of the pre-tax earnings of NDS as
stated in the annual audit.
(Example: if NDS earned $800,000 pre-tax, Employee would receive a cash bonus
in the amount of $32,000). Additional compensation will be determined by a
compensation committee designated by the Board of Directors.
2
<PAGE>
d. Additional Stock Option. Employee shall also receive, on an annual basis,
stock options to purchase NDS Common Stock equal to four percent (4%) of the
pre-tax earnings of NDS as stated in the annual audit. (Example: if NDS earned
$800,000 pre-tax, Employee would receive stock options of $32,000). The price
payable by Employee for each share of stock purchased under the stock option
described in this paragraph shall be set at the bid at the time of grant of each
annual option. Additional compensation will be determined by a compensation
committee designated by the Board of Directors.
e. Director's Compensation. During the time which Employee is a sitting member
of the Board of Directors of NDS, and properly fulfills his duties therefor,
Employer hereby provides to Employee expenses only comparable to other Directors
of NDS.
f Benefits. Employee shall be entitled to receive medical insurance comparable
to that offered to other employees of NDS. In addition, Employee shall receive
an automobile allowance in the amount of $300. per month
5 Termination of Employment.
a. For Cause. The employment of Employee under this Employment Agreement, and
the term hereof, may be terminated by the Employer only upon a showing of cause,
upon thirty (30) days' written notice to Employee. The "effective date of
termination" shall be the date thirty (30) days after written notice of
termination is delivered to the Employee. Cause is defined as follows:
i. An act or omission in the course of Employee's duties which is
dishonest or fraudulent;
ii. An act or omission which constitutes willful misconduct or gross
negligence in the performance of duties or assignment,
iii. A breach of this Agreement by Employee;
3
<PAGE>
iv. A breach of any term of the Plan and Agreement of
Reorganization, including without limitation, the non-competition
provision.
v. The continuous substandard performance and/or inattention to
duties required by this Agreement as determined in the sole discretion of
Employer; and
vi. Engaging in compensation with the Employer by Employee without
the prior express written consent of Employer.
b. Disability or Death. The employment of Employee under this Employment
Agreement, and the term hereof, shall be terminated by the death or partial or
total disability of Employee. For purposes hereof, the term "disability" is
hereby defined to mean any mental or physical disability which renders Employee
unable to perform his duties or assignment as determined by the Board of
Directors of Employer, in the sole judgment and discretion of said Board as
determined by a majority vote of the members thereof
c. Resignation. The employment of Employee under this Employment Agreement,
and the term hereof, will be terminated by the voluntary resignation of
Employee.
6. Salary and Benefits Upon Termination. All salary and other benefits shall
terminate as of the effective date of termination if Employee resigns. If
involuntarily terminated for cause, the salary will continue for the initial
five year term of this Agreement. Unless precluded by law, any medical and
dental insurance coverage and life insurance coverage and benefits shall
continue for thirty (30) days after termination or until Employee is reemployed,
whichever shall first occur.
7. Reimbursable Expenses. The Employer shall pay directly or reimburse the
Employee for the following expenses:
a. License fees and membership dues in associations or organizations relative
to the business of the Employer,
4
<PAGE>
b Subscriptions to journals or monthly service publications relative to the
business of the Employer.
c. The Employee's necessary travel, hotel, and entertainment expenses incurred
in connection with the business of the Employer or other events that contribute
to the benefit of the Employer in amounts to be determined by the Board of
Directors.
8. Employee, as additional material consideration hereunder, agrees that
during the term hereof and for a period of five (5) years from termination of
this Agreement, he will not directly or indirectly solicit business from, engage
in business with, or divert business from any of NDS's or VLl's current or
future customers, and that they will not participate as a shareholder, partner,
employee, consultant, or otherwise in any enterprise engaging in activities that
would violate this provision if engaged in by them directly. This covenant shall
be applicable to the World on the basis that NDS sells its products nationally
or internationally. Employee acknowledges and agrees that the scope of this
covenant is reasonable given the special relationship of the parties as to the
various agreements executed by them. Employee acknowledges and confirms that
this covenant is made to induce NDS to enter into this Agreement, is considered
material to NDS, and is required by NDS for the purpose of preserving the
business and goodwill of VLI and NDS.
9. Confidentiality Provision. Employee agrees that, during the term of this
Agreement or any extensions and for a period of ten ( 10) years thereafter, he
will keep confidential any information which he obtains from NDS or VLI or any
of said entities' subsidiaries, sister corporations or concerns, now or
hereafter existing or created, concerning their properties, assets, proprietary
assets, source codes, copyrights, business methods, and trade secrets. Upon
termination hereof, Employee will return to Employer all written matter with
respect to such businesses obtained by him in connection with the negotiation,
consummation, or performance of this Agreement. Employee further agrees that any
work
5
<PAGE>
performed or created by Employee during the term hereof shall be owned solely by
Employer and shall be subject to the terms of this provision.
10. Modification. No change or modification ofthis Agreement shall be valid
unless the same be in writing and signed by all the parties hereto.
11. Binding Effect. The contract shall be binding upon the heirs, executors,
administrators, and assigns of the Employee and any successors in interest of
the Employer.
12. Notice. Except as expressly provided to the contrary herein, notices or
other communications required, permitted, or made necessary by the terms of this
Agreement may be given orally to the respective representatives of the Employer
and the Employee designed herein. Written notices shall be personally delivered
to the Employer's representative or the Employee's representative, as
appropriate or sent by the United States registered or certified mail, postage
prepaid, return receipt requested, addressed to the party as designated below.
Notices sent by mail shall be deemed made, delivered and received on the date of
the United States postmark thereon. Either party may change its address or
notice by giving notice of such change to the other party in the manner
specified in this section.
For purposes of notice the addresses of the parties shall be:
If to Employer:
NDS Software, Inc.
2241 Park Place, Suite E
Minden, NV 89423-8602.
If to Employee:
Greg Johnson
P.O. Box 1421
Gardnerville, NV 89410
6
<PAGE>
13 No Waiver. No waiver of any breach or default in any of the terms and
provisions of this Agreement shall be deemed to constitute or be construed as a
waiver of the subsequent breach or default of the same, similar or dissimilar
nature.
14. Choice of Law and invalidity. The validity, construction, performance and
effect of this Agreement shall be governed by the laws of the State of Nevada
and jurisdiction shall vest exclusively in the Ninth Judicial District Court in
and for the State of Nevada, located in Douglas County. The parties acknowledge
and agree that this Agreement is executed and performance hereof is due in
Douglas County, State of Nevada. In case any one or more ofthe provisions
contained herein shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal, or unenforceable provisions
contained herein shall, for any reason, be held to be excessively broad as to
time, duration, geographical scope, activity or subject, said provision shall be
construed by limiting and reducing it so as to be enforceable to the extent
compatible with the then applicable law, it being the intent of the parties
hereto to give the maximum permitted effect to the restrictions set forth
herein.
15. Assignment. This Agreement is one for personal services and the Employee
shall not have a right to assign any part or all of his respective rights,
duties or obligations hereunder.
16. Interpretation. If necessary to give effect to the terms and provisions
hereof, the masculine, feminine, and neuter gender in the singular and plural
number shall each be deemed to include the other whenever the context so
indicates.
17. Headings. Headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret, define or
limit the scope, extent or intent of this Agreement or any provision hereof
7
<PAGE>
18 Counterparts. This Agreement may be executed in any number of counterparts,
any of which may be constituted in the agreement between the parties hereto.
19. Authority. The Employer warrants and represents that it is a corporation
organized and existing under the laws of the State of Nevada, that the
undersigned is authorized to execute this Agreement on behalf of the Employer;
that the employment of the Employee under the terms of this Agreement has been
duly authorized by the Employer.
20. Inurement. Each covenant and condition in this Agreement shall be binding
on, and shall insure solely to the benefit of the parties to it, their
respective heirs, legal representatives successors and assigns.
21. Entire Agreement. Except as otherwise provided herein, this Agreement
supersedes any and all other agreements, either oral or in writing, between the
parties hereto and contains all of the covenants and agreements between the
parties with respect to this matter. Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, orally or
otherwise, have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement or promise
not contained in this Agreement shall be binding.
IN WITNESS WHEREOF, the parties to this Employment Agreement have duly
executed it on the day and year first above written.
EMPLOYEE: EMPLOYER:
Greg Johnson NDS SOFTWARE, INC.,
A Nevada Corporation,
By:/s/ Greg Johnson By:/s/ Bill Tomerlin
-------------------------
Bill Tomerlin
Chairman of the Board
8
<PAGE>
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT, effective as of March 4, 1997, hereby modifies and amends that
certain Employment Agreement entered into the 1 3th day of June 1996 between NDS
SOFTWARE, INC., a Nevada corporation, (hereinafter referred to as "Employer")
and GREG JOHNSON (hereinafter referred to as "Employee").
The parties hereby agree that the following changes, modifications or
amendments shall be incorporated into the Employment Agreement:
1. Paragraph 4(a) shall be changed to read that the Employee shall be entitled
to a base annual salary in the amount of $144,000 beginning March 4, 1997.
2. Paragraph 4(f) shall be changed by increasing the automobile allowance to
the amount of $600 per month.
3. Paragraph 6 shall be deleted and replaced with the following:
6. Salary and Benefits Upon Termination. All salary and other benefits
shall terminate as of the effective date of termination if Employee
resigns. If involuntarily terminated and in consideration for the
obligations of Employee pursuant to paragraphs8 and 9 of the Employment
Agreement, Employee shall be entitled to a termination or severance salary
equal to five (5) years of the annual base salary earned by Employee
immediately prior to termination. Employee shall have the option to
accelerate payments of the severance salary and receive the full amount
upon termination, in Employee's sole discretion. Employer agrees that all
unregistered stock received or to be received by the Employee under any
stock option plan provided by Employer shall be registered as soon after
the termination date as possible, and in no event later than six (6) months
from the date of termination. Employee shall have the right to exercise
1
<PAGE>
any stock option within five (5) business days of the date of termination
of Employee. Unless precluded by law, any medical and dental insurance
coverage and life insurance coverage and benefits shall continue for thirty
(30) days after termination or until Employee is reemployed, whichever
shall first occur."
4. A new subparagraph is added to Article 3 as follows:
The parties agree that during the performance of this Agreement Employee
shall remain located in Douglas County, Nevada and Employer shall not
require Employee to change his principal place of residence for any reason.
IN WITNESS WHEREOF, the parties to this Amendment No. I to Employment
Agreement have duly executed it on the day and year first above written.
EMPLOYEE: EMPLOYER:
Greg Johnson NDS SOFTWARE, INC.,
A Nevada Corporation,
By: /s/ Greg Johnson By: /s/ Dr. Jack Kelly
---------------------------------- -------------------------------
Dr. Jack Kelly, Director
By: /s/ Doug Swanson
-------------------------------
Doug Swanson, Vice Chairman
By: /s/ John Giaimo
-------------------------------
John Giaimo, President/COO
2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into on this 13th day of June, 1996,
between NDS SOFTWARE, INC., a Nevada corporation, (hereinafter referred to as
"Employer") and DOUG SWANSON (hereinafter referred to as "Employee"), to be
effective as of June 13th, 1996.
WITNESSETH:
WHEREAS, Employer and Employee desire to enter into this Employment Agreement
to employ Employee and to set forth the rights and duties of the parties hereto.
NOW, THEREFORE, in consideration of the mutual promises herein contained, the
parties agree as follows:
1. Employment Agreement. The Employer hereby agrees to employ Employee, and
Employee hereby agrees to serve as such Employee upon the terms and conditions
hereinafter set forth.
2. Term of Employment. Subject to the provisions for termination as
hereinafter provided, the term of the employment shall commence as of the date
of this Agreement and shall end five (5) years from that date. At the end the
term hereof, this Agreement may be renewed by mutual agreement of the parties.
3. Employee's Position and Duties. Employee agrees as follows:
a. Employee shall initially as directed by the Board of Directors assume
responsibility as Vice Chairman of NDS Software, Inc. ('`NDS"), and the
management and supervision thereof, and shall perform any other duties relating
to Employer's operations which may from time to time be assigned by the Board of
Directors and governed by the Bylaws of NDS, for the successful operation of
Employer's business.
b. It is contemplated that Employee shall also be on the Board of Directors of
NDS during the term of this Agreement, pursuant to the Articles of incorporation
and Bylaws of NDS.
c. During the term of this Employment Agreement, Employee shall, in good
faith, devote his best efforts and full time to his employment and perform
diligently and in good faith such duties as are or
1
<PAGE>
may be from time to time required by the Employer, which duties shall be
consistent with his position as set forth above; it being understood and
acknowledged that, the terms "best efforts" and "full time" mean such effort and
time commitment as is necessary to achieve the success of the business.
d. Employee shall not, without the prior written consent of Employer, directly
or indirectly, during the term of this Agreement, whether for compensation or
otherwise, render services of a business, professional or commercial nature to
any person or firm that is engaged in a business similar to that of the Employer
or NDS.
4. Compensation and Benefits.
During the term of employment hereunder, Employer shall compensate Employee as
follows:
a. Salary. For all services he may render to Employer during the term of this
Agreement, Employee shall receive from Employer a base annual salary while he is
employed hereunder of Seventy Thousand Dollars ($70,000). Salary will increase
to $100,000 beginning September 1, 1996. Salary is to be paid in accordance with
the policy of Employer regarding payment of salary to its other officers and
directors.
b. Signing Bonus. Employer shall pay a signing bonus to Employee in the amount
of $22,588.98. The bonus shell by payable at such time as the Employee shall
direct.
c. Annual Bonus. At the end Of each taxable year, Employer shall pay a cash
bonus to Employee equal to four percent (4%) of the pre-tax earnings of NDS as
stated in the annual audit. (Example: if NDS earned $800,000 pre-tax, Employee
would receive a cash bonus in the amount of $32,000). Additional compensation
will be determined by a compensation committee designated by the Board of
Directors.
d. Additional Stock Option. Employee shall also receive, on an annual basis,
stock options to purchase NDS Common Stock equal to four percent (4%) of the
pre-tax earnings of NDS as stated in
2
<PAGE>
the annual audit. (Example: if NDS earned $800,000 pre-tax, Employee would
receive stock options of $32,000). The price payable by Employee for each share
of stock purchased under the stock option described in this paragraph shall be
set at the bid at the time of grant of each annual option. Additional
compensation will be determined by a compensation committee designated by the
Board of Directors.
e. Director's Compensation. During the time which Employee is a sitting member
of the Board of Directors of NDS, and properly fulfills his duties therefor,
Employer hereby provides to Employee expenses only comparable to other Directors
of NDS.
f Benefits. Employee shall be entitled to receive medical insurance comparable
to that offered to other employees of NDS. In addition, Employee shall receive
an automobile allowance in the amount of $300 per month.
5. Termination of Emplovment.
a. For Cause. The employment of Employee under this Employment Agreement, and
the term hereof, may be terminated by the Employer only upon a showing of cause,
upon thirty (30) days' written notice to Employee. The "effective date of
termination" shall be the date thirty (30) days after written notice of
termination is delivered to the Employee. Cause is defined as follows:
i. An act or omission in the course of Employee's duties
which is dishonest or fraudulent;
ii. An act or omission which constitutes willful misconduct
or gross negligence in the performance of duties or
assignment,
iii. A breach of this Agreement by Employee;
iv. A breach of any term of the Plan and Agreement of
Reorganization, including without limitation, the
non-competition provision.
3
<PAGE>
v. The continuous substandard performance and/or inattention
to duties required by this Agreement as determined in the
sole discretion of Employer, and
vi. Engaging in compensation with the Employer by Employee
without the prior express written consent of Employer.
b. Disability or Death. The employment of Employee under this Employment
Agreement, and the term hereof, shall be terminated by the death or partial or
total disability of Employee. For purposes hereof, the term "disability" is
hereby defined to mean any mental or physical disability which renders Employee
unable to perform his duties or assignment as determined by the Board of
Directors of Employer, in the sole judgment and discretion of said Board as
determined by a majority vote of the members thereof.
c. Resignation. The employment of Employee under this Employment Agreement,
and the term hereof, will be terminated by the voluntary resignation of
Employee.
6. Salary and Benefits Upon Termination. All salary and other benefits shall
terminate as of the effective date of termination if Employee resigns. If
involuntarily terminated for cause, the salary will continue for the initial
five year term of this Agreement. Unless precluded by law, any medical and
dental insurance coverage and life insurance coverage and benefits shall
continue for thirty (30) days after termination or until Employee is reemployed,
whichever shall first occur.
7. Reimbursable Expenses. The Employer shall pay directly or reimburse the
Employee for the following expenses:
a. License fees and membership dues in associations or organizations relative
to the business of the Employer;
b. Subscriptions to journals or monthly service publications relative to the
business of the Employer.
4
<PAGE>
c. The Employee's necessary travel, hotel, and entertainment expenses incurred
in connection with the business of the Employer or other events that contribute
to the benefit of the Employer in amounts to be determined by the Board of
Directors.
8. Employee, as additional material consideration hereunder, agrees that
during the term hereof and for a period of five (5) years from termination of
this Agreement, he will not directly or indirectly solicit business from, engage
in business with, or divert business from any of NDS's or VLl's current or
future customers, and that they will not participate as a shareholder, partner,
employee, consultant, or otherwise in any enterprise engaging in activities that
would violate this provision if engaged in by them directly. This covenant shall
be applicable to the World on the basis that NDS sells its products nationally
or internationally. Employee acknowledges and agrees that the scope of this
covenant is reasonable given the special relationship of the parties as to the
various agreements executed by them. Employee acknowledges and confirms that
this covenant is made to induce NDS to enter into this Agreement, is considered
material to NDS, and is required by NDS for the purpose of preserving the
business and goodwill of VLI and NDS.
9. Confidentialiyv Provision. Employee agrees that, during the term of this
Agreement or any extensions and for a period of ten (10) years thereafter, he
will keep confidential any information which he obtains from NDS or VLI or any
of said entities' subsidiaries, sister corporations or concerns, now or
hereafter existing or created, concerning their properties, assets, proprietary
assets, source codes, copyrights, business methods, and trade secrets. Upon
termination hereof, Employee will return to Employer all written matter with
respect to such businesses obtained by him in connection with the negotiation,
consummation, or performance of this Agreement. Employee further agrees that any
work
5
<PAGE>
10 Modification. No change or modification of this Agreement shall be valid
unless the same be in writing and signed by all the parties hereto.
11. Binding Effect. The contract shall be binding upon the heirs, executors,
administrators, and assigns of the Employee and any successors in interest of
the Employer.
12. Notice. Except as expressly provided to the contrary herein, notices or
other communications required, permitted, or made necessary by the terms of this
Agreement may be given orally to the respective representatives of the Employer
and the Employee designed herein. Written notices shall be personally delivered
to the Employer's representative or the Employee's representative, as
appropriate or sent by the United States registered or certified mail, postage
prepaid, return receipt requested, addressed to the party as designated below.
Notices sent by mail shall be deemed made, delivered and received on the date of
the United States postmark thereon. Either party may change its address or
notice by giving notice of such change to the other party in the manner
specified in this section.
For purposes of notice the addresses of the parties shall be:
If to Employer:
NDS Software, Inc.
2241 Park Place, Suite E
Minden, NV 89423-8602.
If to Employee:
Doug Swanson
4350 Interlaken Court
Reno, NV 89509
13. No Waiver. No waiver of any breach or default in any of the terms and
provisions of this Agreement shall be deemed to constitute or be construed as a
waiver of the subsequent breach or default of the same, similar or dissimilar
nature.
6
<PAGE>
14. Choice of Law and Invaliditv. The validity, construction, performance and
effect of this Agreement shall be governed by the laws of the State of Nevada
and jurisdiction shall vest exclusively in the Ninth Judicial District Court in
and for the State of Nevada, located in Douglas County. The parties acknowledge
and agree that this Agreement is executed and performance hereof is due in
Douglas County, State of Nevada. In case any one or more ofthe provisions
contained herein shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal, or unenforceable provisions
contained herein shall, for any reason, be held to be excessively broad as to
time, duration, geographical scope, activity or subject, said provision shall be
construed by limiting and reducing it so as to be enforceable to the extent
compatible with the then applicable law, it being the intent of the parties
hereto to give the maximum permitted effect to the restrictions set forth
herein.
15. Assignment. This Agreement is one for personal services and the Employee
shall not have a right to assign any part or all of his respective rights,
duties or obligations hereunder.
16. interpretation. If necessary to give effect to the terms and provisions
hereof, the masculine, feminine, and neuter gender in the singular and plural
number shall each be deemed to include the other whenever the context so
indicates.
17. Headings. Headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret, define or
limit the scope, extent or intent of this Agreement or any provision hereof
18. Counterparts. This Agreement may be executed in any number of
counterparts, any of which may be constituted in the agreement between the
parties hereto.
19. Authority. The Employer warrants and represents that it is a corporation
organized and existing under the laws of the State of Nevada, that the
undersigned is authorized to execute this
7
<PAGE>
Agreement on behalf of the Employer; that the employment of the Employee under
the terms of this Agreement has been duly authorized by the Employer.
20. Inurement. Each covenant and condition in this Agreement shall be binding
on, and shall insure solely to the benefit of the parties to it, their
respective heirs, legal representatives successors and assigns.
21 . Entire Agreement. Except as otherwise provided herein, this Agreement
supersedes any and all other agreements, either oral or in writing, between the
parties hereto and contains all of the covenants and agreements between the
parties with respect to this matter. Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, orally or
otherwise, have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement or promise
not contained in this Agreement shall be binding
IN WITNESS WHEREOF, the parties to this Employment Agreement have duly
executed it on the day and year first above written.
EMPLOYEE: EMPLOYER:
Doug Swanson NDS SOFTWARE, INC.,
A Nevada Corporation,
/s/ Doug Swanson By: /s/ Bill Tomerlin
----------------------------
Bill Tomerlin
Chairman of the Board
8
<PAGE>
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT, effective as of March 4, 1997, hereby modifies and amends that
certain Employment Agreement entered into the 13th day of June 1996 between NDS
SOFTWARE, INC., a Nevada corporation, (hereinafter referred to as "Employer")
and DOUG SWANSON (hereinafter referred to as "Employee").
The parties hereby agree that the following changes, modifications or
amendments shall be incorporated into the Employment Agreement:
1. Paragraph 4(a) shall be changed to read that the Employee shall be entitled
to a base annual salary in the amount of $144,000 beginning March 4, 1997.
2. Paragraph 4(f) shall be changed by increasing the automobile allowance to
the amount of $600 per month.
3. Paragraph 6 shall be deleted and replaced with the following:
"6. Salary and Benefits Upon Termination. All salary and other
benefits shall terminate as of the effective date of
termination if Employee resigns. If involuntarily terminated
and in consideration for the obligations of Employee pursuant
to paragraphs 8 and 9 of the Employment Agreement, Employee
shall be entitled to a termination or severance salary equal
to five (5) years of the annual base salary earned by Employee
immediately prior to termination. Employee shall have the
option to accelerate payments of the severance salary and
receive the full amount upon termination, in Employee's sole
discretion. Employer agrees that all unregistered stock
received or to be received by the Employee under any stock
option plan provided by Employer shall be registered as soon
after the termination date as possible, and in no event later
than six (6) months from the date of termination. Employee
shall have the right to exercise any stock option within five
(5) business
1
<PAGE>
days of the date of termination of Employee. Unless precluded
by law, any medical and dental insurance coverage and life
insurance coverage and benefits shall continue for thirty (30)
days after termination or until Employee is shall first
occur."
4. A new subparagraph is added to Article 3 as follows:
e. The parties agree that during the performance of this Agreement Employee
shall remain located in Douglas County, Nevada and Employer shall not require
Employee to change his principal place of residence for any reason.
IN WITNESS WHEREOF, the parties to this Amendment No. 1 to Employment
Agreement have duly executed it on the day and year first above written.
EMPLOYEE: EMPLOYER:
Doug Swanson NDS SOFTWARE, INC.,
a Nevada Corporation,
/s/ Doug Swanson By: /s/ Dr. Jack Kelly
------------------------- -----------------------------
Dr. Jack Kelly, Director
By: /s/ Greg Johnson
-----------------------------
Greg Johnson, CEO
By: /s/ John Giaimo
-----------------------------
John Giaimo, President/COO
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 58,151
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0
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