EXCHANGE AGREEMENT
This Exchange Agreement (the "Agreement") is entered into effective as of
December 31, 2004, by and among VT Gaming Services, Inc., an Arizona corporation
("VTG") and Dynasig Corporation, an Arizona corporation ("Dynasig").
RECITALS
A. Dynasig is a development stage company that has a pen-based
authentication system that utilizes the dynamic signature characteristics
generated by a specifically designed writing instrument which has imbedded
highly sophisticated sensors that can measure pressure, angle, tilt, speed and
acceleration (the "Bio-Pen") of a user's writing behavior, hence; these
characteristics are unique to that person and provide very accurate recognition.
The highly encrypted output of a Bio-Pen interacts with software either locally;
on an intranet or over the Internet to verify that the signature produced by the
Bio-Pen is the signature of a registered user of a signature verification
system. Revenues from the Bio-Pen and software are expected to be obtained
through the sale of Bio-Pens plus the licensing of the verification software or
DynaSig may develop a transaction based payment model for each Bio-Pen signature
verified (the "Business").
B. The Board of Directors of Dynasig has approved, subject to the terms
of this Agreement, the transfer of all of the outstanding stock of Dynasig to
VTG.
C. The Board of Director of VTG has approved, subject to the terms of
this Agreement, the acquisition of the stock of Dynasig in exchange for common
stock and preferred stock of VTG.
D. VTG, Dynasig and Dynasig Shareholders hereby enter into this
Agreement to effectuate the foregoing on the terms and conditions set forth
herein.
AGREEMENTS
Now, therefore, in consideration of the mutual promises and covenants
herein contained, Dynasig and VTG and hereby agree as follows:
ARTICLE 1 - EXCHANGE
1.1 Stock to be Exchanged. On the Closing Date (as defined herein) Dynasig
shall assign and deliver to VTG, and VTG shall acquire from Dynasig, all of all
classes of the outstanding stock of Dynasig (the "Dynasig Shares"). The names,
addresses and social security numbers of the holders of Dynasig Shares are
attached as Schedule 1.1.
1.2 Acquisition Price. In consideration for the acquisition of the
Dynasig Shares, VTG shall issue the Dynasig Shareholders 40,275,277 shares of
VTG common stock and 496,096 shares of VTG Series A preferred stock as specified
on Schedule 1.2. The Series A preferred stock to be issued will start to accrue
dividends on January 1, 2005.
1.3 Closing Date. The issuance and acquisition provided for herein
shall be consummated and closed (the "Closing") at the offices of VTG, 00000 X.
00xx Xxxxxx, Xxxxxxx, Xxxxxxx 00000, at 1:00 P.M., local time, on December 31,
2004 (herein referred to as the "Closing Date").
1.4 No-Competition Covenants. Upon the Closing, Xxxxxxx Xxx shall
become an officer and director of VTG as contemplated in Section 6.2(e) hereof
and shall execute an Executive Employment Agreement attached hereto as Exhibit
1.4. Such agreement shall include non competition covenants.
1.5 Reorganization Status. The parties intend that the transactions
contemplated under this Agreement qualify as a "B reorganization" as defined in
I.R.C. Sec. 368(a)(1)(B) and shall file all required elections and returns to
report this transaction consistent with such intent.
ARTICLE 2 - ADDITIONAL TERMS
2.1 Private Placement. VTG shall, immediately prior to the Closing,
designate 2,000,000 undesignated preferred shares as shares of its Series A
Preferred Stock which shall have the rights, privileges and restrictions as set
forth in the Certificate of Designation attached hereto as Exhibit 2.1(a). VTG
shall enter into an agreement in the form of Exhibit 2.1(b) attached hereto with
Visitalk Capital Corporation d/b/a Aztor Capital ("Aztor ") to advise VTG
regarding the private placement of the Series A Preferred shares in a placement
that qualifies under Rule 506 of Regulation D as promulgated under the
Securities Act of 1933 as amended ("Securities Act").
2.2 Other Agreements. At the Closing, VTG shall enter into that that
certain Shareholder's Agreement in form attached hereto as Exhibit 2.2.
2.3 Eligibility for Trading of Company Common Shares. After Closing,
VTG shall use its commercially reasonable efforts, to cause VTG's common stock
to be listed for trading at its sole option with the OTC Bulletin Board or other
national exchange or trading market with greater eligibility requirements
("Primary Market"). In furtherance thereof, subject to VTG's ability utilizing
commercially reasonable efforts to obtain appropriate accounting information,
VTG shall (i) on or before January 1, 2006, prepare and file with the Securities
and Exchange Commission a Form 10-SB, (ii) coordinate and facilitate the filing
on or before January 1, 2006 a Form 15c211 by a qualified market maker and (iii)
on or before January 1, 2006, use its commercially reasonable efforts to cause
VTG to be listed in a recognized manual of securities and shall provide all
required information with respect to such listing. Upon listing on the Primary
Market, VTG shall (i) timely file all reports as required under the Securities
Exchange Act of 1934 to maintain the status of VTG as a reporting company under
such act, (ii) maintain and update as required its listing in a recognized
securities manual and (iii) not take or allow any other person to take any
action which would be reasonably expected to result in the delisting or
suspension of VTG common stock on the Primary Market. VTG shall pay all fees and
expenses in connection with satisfying its obligations under this Section. The
foregoing not withstanding, the requirements set forth above do not include any
obligation on VTG to register any VTG common stock under the Securities Act of
1933, nor shall VTG be required to raise any additional capital or take any
steps to increase its net worth other than those that may be required under this
Agreement, to accomplish either clause (ii) or (iii) of the second sentence of
this Section.
2.4 Name Change. Shortly after the Closing Date, and in any event,
before the VTG lists its common stock on the Primary Market, VTG shall change
its name to Dynamic Biometric Systems, Inc.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF DYNASIG
As an inducement to VTG to enter into and perform this Agreement, Dynasig
covenants, represents and warrants to, and agrees with, VTG as follows:
3.1 Authority. Dynasig has the full legal power and authority to enter
into and perform this Agreement, and the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
violate any provision of law, Dynasig's Articles of Incorporation or Dynasig's
bylaws. Dynasig has or at the Closing Date will have taken all necessary action
(including action of Dynasig's board of directors and shareholders, as required)
to authorize and approve the execution and delivery of this Agreement and the
performance of the transactions contemplated hereby.
3.2 Organization and Good Standing. Dynasig is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Arizona, and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Dynasig does not own, directly or indirectly, any of the capital stock of any
other corporation or any equity, profit sharing, participation, or other
interest in any corporation, partnership, joint venture, or other entity.
3.3 No Violation. Dynasig has not received notice of any violation of
any applicable zoning regulation, ordinance or other law, order, regulation or
requirement relating to their operations or properties; to the best knowledge
and belief of Dynasig, no such violation presently exists; and all buildings,
improvements and other structures owned or used by Dynasig in the Business
conform to all applicable laws, ordinances, codes and regulations, including,
without limitation, the Americans With Disabilities Act ("ADA"). To the best
knowledge and belief of Dynasig, Dynasig and its services, practices, xxxxxxxx,
properties, equipment, machinery, buildings and operations relating to the
Business are in full compliance with all applicable federal, state and local
laws, statutes, ordinances, codes, regulations, rules, orders, restrictions and
requirements, governmental, administrative, judicial and otherwise, including,
without limitation, those relating to wages, prices, equal opportunity,
environmental protection, safety, health, building and zoning, and the ADA, and
to the best knowledge and belief of Dynasig, no changes in any such laws,
statutes, ordinances, codes, regulations, rules, orders, restrictions or
requirements have been proposed or are in process with which VTG could not
comply after the Closing Date without materially adversely affecting the
Business, and the Acquired Assets or their operation or profitability.
3.4 Licenses, Permits and Approvals. Dynasig holds all licenses,
permits, franchises, authorizations, approvals, consents and rights from all
appropriate federal, state, local or other public governmental or administrative
or judicial authorities necessary in connection with the operation of the
Business by Dynasig.
3.5 Taxes. Dynasig has not filed with appropriate federal, state and
local governmental agencies all tax returns and reports required to be filed by
Dynasig. To the best knowledge and belief of Dynasig, Dynasig has paid all
taxes and assessments which became due prior to the date hereof. Dynasig
warrants that it will file those returns and reports as soon as reasonably
practical and that is will provide such evidence as VTG shall reasonably require
to prove it has complied with this Section 3.5. This warranty survives the
Closing Date until after all returns and reports are filed.
3.6 Contracts. Dynasig has, to the best knowledge of Dynasig and the
Dynasig Shareholders, performed all obligations required to be performed by it
to date and is not in default under, and no event has occurred which, with the
lapse of time or action by a third party, could result in a default under, any
outstanding indenture, mortgage, deed of trust, contract, agreement, lease or
other commitment to which it is a party or by which it is bound and relates to
the Business or under any provision of Dynasig's Articles of Incorporation or
by-laws.
3.7 Conduct of Business. Except as set forth on Schedule 3.7 hereto,
Dynasig has not:
(a) experienced any material adverse change in the assets, liabilities
or business relating to the Business;
(b) suffered the filing, or learned of any basis for the institution
of, any action, suit, proceeding or governmental investigation, with respect to
the business, properties, assets or goodwill relating to the Business;
(c) entered into any contract to provide or reserve any future use of
the Business by any persons;
(d) billed any accounts relating to the Business in advance or
collected any advance payment or deposit under any contract relating to the
future use of the Business; or
(e) entered into any other transaction relating to the sale, lease or
other disposition of the Business.
3.8 Insurance. Dynasig has in effect the insurance coverage with
respect to the Business described in Schedule 3.8 attached hereto, which
description includes the name of the insurer, the policy number, the name of the
insured, the type and amount of coverage and risks insured, and Dynasig has
delivered to VTG complete and accurate copies of all such insurance policies.
To the best of Dynasig's knowledge and belief, such insurance coverage, as to
amounts and types of coverage and risks insured, is adequate for the Business as
presently conducted.
3.9 Litigation. Except as set forth in Schedule 3.9, Dynasig is not
engaged in or threatened with any claim, action, litigation, investigation,
audit, arbitration, dispute or proceeding relating to the Business, and Dynasig
are not now subject to any order, decree or other governmental restriction
adversely affecting the business or assets of the Business or which would
prevent or hamper the consummation of the transactions contemplated by this
Agreement.
3.10 Patents, Copyrights, Trademarks, Etc.
(a) Dynasig owns all patents or exclusive rights to use patents on a
worldwide basis, trademarks and copyrights, if any, necessary to conduct the
Business, or possesses adequate licenses or other rights, if any, therefore, to
the best of Dynasig's knowledge and belief, without conflict with the rights of
others. Schedule 3.10 attached hereto is a true and correct description of the
following (together with the Intellectual Property, the "Proprietary Rights"):
(i) All trademarks, trade names, service marks and other trade
designations, including common-law rights, registrations and applications
therefore, and all patents, copyrights and applications currently owned, in
whole or in part, by the Company, and all licenses, royalties, assignments and
other similar agreements relating to the foregoing to which Dynasig is a party
(including expiration dates if applicable); and
(ii) All agreements relating to technology, know-how or processes that
Dynasig is licensed or authorized to use by others, or which it licenses or
authorizes others to use.
(b) Dynasig has the sole and exclusive right to use the
Proprietary Rights identified in Schedule 3.10. To the best of Dynasig's
knowledge and belief, Dynasig has the right to use the Proprietary Rights
without infringing or violating the rights of any third parties. No claim has
been asserted by any person to the ownership of or right to use any Proprietary
Right or challenging or questioning the validity or effectiveness of any such
license or agreement, and Dynasig does not know of any valid basis for any such
claim. Each of the Proprietary Rights is valid and subsisting, has not been
canceled, abandoned or otherwise terminated and, if applicable, has been duly
issued or filed.
(c) Dynasig has no knowledge of any claim that, or inquiry as to
whether, any product, activity or operation of Dynasig infringes upon or
involves, or has resulted in the infringement of, any Proprietary Right of any
other person, corporation or other entity; and, to the best of Dynasig's
knowledge and belief, no proceedings have been instituted, are pending or are
threatened which challenge the rights of Dynasig with respect thereto. Dynasig
has not given and is not bound by any agreement of indemnification for any
Proprietary Right as to any property manufactured, used or sold by Dynasig.
3.11 Financial Statements. Schedule 3.11 attached hereto sets forth
the financial statements delivered to VTG by Dynasig. To the best knowledge of
Dynasig, all such financial statements are true, accurate and complete and
present fairly the financial position of Dynasig as of the dates stated and
results of operations of Dynasig for the periods depicted.
3.12 Employee Benefits. Dynasig has not issued nor approved, nor
sponsor, maintain, or otherwise is a party to, or is in default under, or has
any accrued obligations under any pension, profit sharing or other retirement
plan, fringe benefit plan, health, group insurance or other welfare benefit
plan, or other similar plan, agreement, policy or understanding, including,
without limitation, any "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether formal or informal and whether legally binding or not.
3.13 Commitments.
(a) As of the date hereof, except as specified on Schedule 3.13,
Dynasig has not entered into nor are its assets or business bound by, whether or
not in writing, any (i) partnership or joint venture agreement; (ii) deed of
trust or other security agreement; (iii) guaranty or surety ship,
indemnification or contribution agreement or performance bond; (iv) employment,
consulting or compensation agreement or arrangement, including the election or
retention in office of any director or officer; (v) labor or collective
bargaining agreement; (vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent to another; (vii) deed
or other document evidencing an interest in or contract to purchase or sell real
property; (viii) agreement with dealers or sales or commission agents, public
relations or advertising agencies, accountants or attorneys; (ix) lease of real
or personal property, whether as lessor, lessee, sublessor or sublessee; (x)
agreement relating to any matter or transaction in which an interest is held by
a person or entity which is an affiliate of Dynasig; (xi) any agreement for the
acquisition of services, supplies, equipment, or other personal property entered
into other than in the ordinary course of business and involving more than
$5,000.00 in the aggregate; (xii) powers of attorney; (xiii) contracts
containing noncompetition covenants; (xiv) agreement relating to any material
matter or transaction in which an interest is held by a person or entity which
is an "affiliate" of Dynasig as that term is defined in Rule 144(a)(i) of the
Securities and Exchange Commission under the securities Act of 1933, or any
"associate" of any such affiliate as that term is defined in Regulation 14A of
the general rules and regulations under the Securities Exchange Act of 1934;
(xv) any other contract or arrangement that involves either an unperformed
commitment in excess of $5,000.00 or that terminates more than one year from the
date hereof; or (xvi) any other agreement or commitment not made in the ordinary
course of business or that is material to the business or financial condition of
Dynasig (all of the foregoing are hereinafter collectively referred to as the
"Commitments"). True, correct and complete copies of the written Commitments,
and true, correct and complete written descriptions of the oral Commitments,
have heretofore been delivered to VTG. To the best of Dynasig's knowledge and
belief, there are no existing defaults, events of default or events, occurrences
or acts that, with the giving of notice or lapse of time or both, would
constitute defaults, and no penalties have been incurred nor are amendments
pending, with respect to the Commitments. The Commitments are in full force and
effect and are valid and enforceable obligations of the parties thereto in
accordance with their terms, and no defenses, off-sets or counterclaims have
been asserted or, to the best of the knowledge of Dynasig, may be made by any
party thereto, nor has Dynasig waived any rights thereunder. Dynasig is not a
party to, and none of its assets are subject to or otherwise affected by, any
agreement or instrument, or any charter or other restriction, or any judgment,
order, writ, injunction, decree, rule or regulation, that could or does
materially adversely affect its assets or business.
(b) Except as contemplated herein, Dynasig has not received notice
of any plan or intention of any other party to any Commitment to exercise any
right to cancel or terminate any Commitment or agreement, and Dynasig does not
know of any fact that would justify the exercise of such right. Dynasig does not
currently contemplate, nor have reason to believe any other person or entity
currently contemplates, any amendment or change to any Commitment. None of the
customers or suppliers of Dynasig has refused, or communicated that it will or
may refuse to purchase or supply goods or services, as the case may be, or has
communicated that it will or may substantially reduce the amounts of goods or
services that it is willing to purchase from, or sell to, Dynasig.
3.14 Disclosure. No representation or warranty made herein by Dynasig
and no written statement, certificate, schedule or document, including without
limitation any projection, report or summary given or to be given to VTG
pursuant to this Agreement, or with respect to the transactions contemplated
hereunder, contains or will contain any untrue statement of a material fact, or
will omit to state a material fact necessary to make the statements contained
herein or therein under the circumstances under which they were made not
misleading, and Dynasig have made, and will make in good faith through the
Closing Date, full disclosure of all material facts with respect to the
Business, including, without limitation, the operations, assets and prospects
which a prudent VTG would deem relevant.
3.15 Investment Intent. The shares of VTG's common and preferred stock
transferred to Dynasig's shareholders in exchange for the Dynasig stock are
being acquired by the Dynasig Shareholders for their own account, with the
intention of holding for investment and with no present intention of dividing or
allowing others to participate in this investment or of reselling or otherwise
participating directly or indirectly in a distribution of such shares. Dynasig
understands that such shares are "restricted securities" as defined under Rule
144 as promulgated under the Securities Act and will bear an appropriate legend
indicating that such shares can not be sold or transferred without registration
under the Securities Act or pursuant to applicable exemption from such
registration.
3.16 Updating of Schedules. There has been no material adverse change
in any of the matters reflected in any Schedule made a part of this Agreement
from the respective dates thereof to and including the date of this Agreement,
nor will there be any material adverse change in such matters from the date
hereof to and including the Closing Date. All Schedules attached hereto are
true, accurate and complete in all material respects and will be updated by
Dynasig to include information as of such date as may be requested by VTG and
delivered to VTG prior to or on the Closing Date with any and all changes marked
so that all such Schedules are true, accurate and complete in all respects.
3.17 Basis for Representations and Warranties. Prior to executing this
Agreement, Dynasig has made such affirmative and thorough reviews, searches,
inspections and inquiries relating to Dynasig and the Business, and have
consulted with such third parties, which a prudent person might deem necessary
or advisable in order to gain knowledge concerning the matters to which the
representations and warranties relate. With respect to the subject matter of
any representation and warranty which is subject to the "best knowledge and
belief" of Dynasig or similar qualification, such representation or warranty
shall be deemed to include matters which Dynasig should have known with respect
to the subject matter of such representations and warranties.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF VTG
As an inducement to Dynasig to enter into and perform this Agreement, VTG
and Visitalk Capital Corporation ("VCC") covenant, represent and warrant to, and
agree with Dynasig as follows:
4.1 Authority. VTG has the full legal power and authority to enter
into and perform this Agreement, and the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
violate any provision of law, VTG's Articles of Incorporation or VTG's bylaws.
VTG has taken all necessary action (including action of VTG's board of
directors, as required but excluding consent of VTG's shareholders) to authorize
and approve the execution and delivery of this Agreement and the performance of
the transactions contemplated hereby.
4.2 Organization and Good Standing. VTG is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Arizona and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
4.3 Capitalization.
(a) Authorized Capital Stock. As of the Closing Date (i) the
authorized capital stock of VTG consists of 200,000,000 shares of common stock
with no par value and 10,000,000 shares of preferred stock, undesignated as to
other attributes, with a par value of $.001 per share, and (ii) VTG has issued
and outstanding a total of 5,000,000 shares of common stock and has designated
2,000,000 shares of preferred stock as Series A Preferred stock pursuant to
Schedule 2.1(a). Additional shares of Common Stock will be issued under the
Bankruptcy Plan confirmed by the Bankruptcy Court on August 27, 2004 (the
"Plan") in accordance with the Plan's rounding provisions.
(b) Warrants Outstanding. VTG was formed in accordance with the Second
Joint Plan of Reorganization of Xxxxxxxx.xxx, Inc. under the auspices of the
Bankruptcy Court (the "Plan") and is committed to issue under the Plan a maximum
of approximately 8,900,000 of Series A Warrants and 8,900,000 Series B Warrants,
each of which entitle the holder thereof to purchase one share of VTG's common
stock at $2.00 per share and which expire on February 17, 2006; a maximum of
approximately 8,900,000 of Series C Warrants and 8,900,000 Series D Warrants
each of which entitle the holder thereof to purchase one share of VTG's common
stock at $3.00 per share and which expire on February 17, 2006; and a maximum of
approximately 8,900,000 Series E Warrants and 8,900,000 Series F Warrants each
of which entitle the holder thereof to purchase one share of VTG's common stock
at $4.00 per share and which expire on February 17, 2006. The exact number of
Warrants will be determined in accordance with the Plan.
(c) Duly Issued. All of the outstanding shares of capital stock of VTG
are duly and validly authorized and issued, fully paid and non-assessable and
all outstanding warrants representing binding obligations of VTG to issue
additional shares in accordance with the terms thereof.
(d) No Pre-Emptive Rights. Except for the Warrants and Class A
preferred stock, VTG has no outstanding obligations for the issuance of or
conversion into any shares of its capital stock and there are no pre-emptive or
other rights held by any current or former shareholder of VTG with respect to
the issuance of any shares of its capital stock.
4.4 Valid Issue. Upon issuance, the 40,275,277 shares of common stock
and 496,096 shares of Series A preferred stock of VTG issued in exchange for the
Dynasig capital stock shall be duly and validly authorized and issued, fully
paid and non-assessable.
4.5 Taxes. VTG has filed with appropriate federal, state and local
governmental agencies all tax returns and reports required to be filed by VTG
and has paid all taxes and assessments which became due prior to the date hereof
and shall pay all such taxes and assessments which become due on or prior to the
Closing Date.
4.6 Litigation. VTG is not engaged in or threatened with any claim,
action, litigation, investigation, audit, arbitration, dispute or proceeding,
and VTG is not now subject to any order, decree or other governmental
restriction adversely affecting its business or assets or which would prevent or
hamper the consummation of the transactions contemplated by this Agreement or
VTG's intended use or operation of the Acquired Assets.
4.7 Financial Statements. Schedule 4.7 attached hereto sets forth the
financial statements delivered to Dynasig by VTG. All such financial statements
are true, accurate and complete and present fairly the financial position of VTG
as of the dates stated and results of operations of Dynasig for the periods
depicted.
4.8 Disclosure. No representation or warranty made herein by VTG and
no written statement, certificate, schedule or document, including without
limitation any projection, report or summary given or to be given to Dynasig
pursuant to this Agreement, or with respect to the transactions contemplated
hereunder, contains or will contain any untrue statement of a material fact, or
will omit to state a material fact necessary to make the statements contained
herein or therein under the circumstances under which they were made not
misleading, and VTG has made, and will make in good faith through the Closing
Date, full disclosure of all material facts with respect to its operations,
assets and prospects which a prudent VTG would deem relevant.
4.9 Updating of Schedules. There has been no material adverse change
in any of the matters reflected in any Schedule made a part of this Agreement
from the respective dates thereof to and including the date of this Agreement,
nor will there be any material adverse change in such matters from the date
hereof to and including the Closing Date. All Schedules attached hereto are
true, accurate and complete in all material respects and will be updated by VTG
to include information as of such date as may be requested by Dynasig and
delivered to Dynasig prior to Closing Date with any and all changes marked so
that all such Schedules are true, accurate and complete in all respects.
4.10 Basis for Representations and Warranties. Prior to executing this
Agreement, VTG has made such affirmative and thorough reviews, searches,
inspections and inquiries relating to VTG, and has consulted with such third
parties, which a prudent person might deem necessary or advisable in order to
gain knowledge concerning the matters to which the representations and
warranties relate. With respect to the subject matter of any representation and
warranty which is subject to the "best knowledge and belief" of VTG a similar
qualification, such representation or warranty shall be deemed to include
matters which VTG should have known with respect to the subject matter of such
representations and warranties.
4.11 Consent and Authority of VCC. VCC consents to this Agreement.
VCC has the full legal power and authority to enter into and perform this
Agreement, and the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not violate any provision of law,
VCC's Articles of Incorporation or VCC's bylaws. VCC has taken all necessary
action (including action of VCC's board of directors, as required but excluding
consent of VCC's shareholders) to authorize and approve the execution and
delivery of this Agreement and the performance of the transactions contemplated
hereby. VCC further represents and warrants that this Agreement does not
adversely affect any VCC obligations or contracts.
ARTICLE 5 - ADDITIONAL AGREEMENTS
5.1 Access to Records and Properties. Upon execution of this Agreement
and through the Closing Date, VTG and Dynasig, and their respective accountants,
counsel and other representatives, shall have full access to all of the
properties, assets, books, records, tax returns, leases, contracts and
agreements, and all information concerning the business and properties of the
other as each may request. Each party shall provide reasonable assistance to
the other in connection with the conduct of the due diligence review of the
business, properties and financial condition of the other.
ARTICLE 6 - CONDITIONS PRECEDENT
6.1 Conditions Precedent to the Obligations of VTG. Notwithstanding
any other provision of this Agreement, the obligation of VTG to consummate the
transactions hereunder shall be subject to the satisfaction on the Closing Date
of the following conditions precedent, unless waived in writing by VTG:
(a) Representations, Warranties and Covenants. The representations and
warranties of Dynasig contained in Article 3 hereof shall be true and correct as
of the date when made and as of the Closing Date, except to the extent necessary
to reflect the consummation of the transactions provided for herein and except
as otherwise contemplated by this Agreement. Dynasig shall have duly performed
and complied with all agreements, covenants and conditions required by this
Agreement to be performed or complied with by them prior to or on the Closing
Date.
(b) Licenses, Permits, Approvals, Etc. VTG shall have applied for and
obtained all governmental, administrative and other licenses, permits,
approvals, consents and authorizations, which, in the opinion of VTG, are
required or desirable in connection with VTG's acquisition of the Dynasig
capital stock, and its intended use and operation of the Business and which
could not be transferred directly from Dynasig to VTG, all of which shall be in
full force and effect and not subject to appeal.
(c) Due Diligence of VTG. VTG shall have conducted such diligence
checks as desired and shall have affirmatively elected to proceed with the
transactions contemplated under this Agreement.
(d) Consents. All required consents, authorizations and approvals of
third parties to the consummation of the transactions contemplated hereby, shall
have been obtained by Dynasig in form and substance satisfactory to VTG.
(e) No Adverse Changes. There shall have been no adverse changes in
the operations, conditions (financial or otherwise), properties, assets,
business or prospects of the Business.
(f) Legal Matters. There shall have been furnished to the general counsel
for VTG certified copies of such corporate records of Dynasig and copies of such
other documents as such counsel may reasonably have requested. All legal
matters and proceedings in connection with this Agreement and the transactions
contemplated hereby shall have been approved by such counsel.
(g) Receipt of Closing Documents. VTG shall have received all of the
closing documents referred to in Section 7.1 hereof.
6.2 Conditions Precedent to the Obligation of Dynasig. Notwithstanding
any other provision of this Agreement, the obligation of Dynasig to consummate
the transactions contemplated hereby shall be subject to the satisfaction on the
Closing Date of the following conditions precedent, unless waived in writing by
Dynasig:
(a) Representations, Warranties and Covenants. The representations and
warranties of VTG contained in Article 4 hereof shall be true and correct in all
material respects as of the date when made and as of the Closing Date, except to
the extent necessary to reflect the consummation of the transactions provided
for herein and except as otherwise contemplated by this Agreement. VTG shall
have duly performed and complied with all agreements, covenants and conditions
required by this Agreement to be performed or complied with by VTG prior to or
on the Closing Date.
(b) Due Diligence of Dynasig. Dynasig shall have conducted the due
diligence checks desired and shall have affirmatively elected to proceed with
the transactions contemplated under this Agreement.
(c) No Adverse Changes. There shall have been no adverse changes in
the operations, conditions (financial or otherwise), properties, assets,
business or prospects of the VTG.
(d) Officers and Directors. VTG shall cause Xxxxxxx X. Xxxxxxxx to tender
his resignation as an officer of VTG. At the conclusion of the Closing, the
following persons shall be members of the Board of Directors and the officers of
the corporation:
Xxxxxxx X. Xxx Chief Executive Officer, Director
Xxxxxxx X. Xxxxxxxx Chairman of the Board, Director
Xxxxx X. Xxxx Secretary, Treasurer and Director
(e) Receipt of Closing Documents. Dynasig shall have received all of
the closing documents referred to in Section 7.2 hereof.
ARTICLE 7 - CLOSING DOCUMENTS
7.1 Section Documents to be Delivered by Dynasig. Dynasig agrees to
deliver to VTG on the Closing Date the following:
(a) Good Standing Certificate for Dynasig. A certificate of good
standing of Dynasig issued by the applicable authority of the State of Arizona
dated not more than 10 days prior to the Closing Date.
(b) Certificate of Secretarial Officer of Dynasig. Certificate of the
Secretary of Dynasig dated the Closing Date with respect to corporate
proceedings authorizing this Agreement and the transactions contemplated
thereunder.
(c) Other Documents. Such other documents and showings as shall
reasonably be requested by VTG.
7.2 Documents to Be Delivered by VTG. VTG agrees to deliver to Dynasig
on the Closing Date the following:
(a) Certificate of Secretarial Officer of VTG. Certificate of the
Secretary of VTG dated the Closing Date with respect to corporate proceedings
authorizing this Agreement and the transactions contemplated thereunder.
(b) Other Documents. Such other documents and showings as shall
reasonably be requested by Dynasig.
ARTICLE 8
TERMINATION, AMENDMENTS, WAIVER AND ASSIGNMENT
8.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) By mutual consent of VTG and Dynasig;
(b) By VTG (i) if in good faith opinion of VTG, upon written notice
with reasonable rights to cure within a minimum of five days from such notice,
Dynasig has breached any of the representations, warranties or covenants of this
Agreement or (ii) if any of the conditions precedent as set forth in Section 6.1
above have not been performed by the Closing Date;
(c) By Dynasig (i) if in good faith opinion of Dynasig, upon written
notice with reasonable rights to cure within a minimum of five days from such
notice, VTG has breached any of the representations, warranties or covenants of
this Agreement or (ii) if any of the conditions precedent as set forth in
Section 6.2 above have not been performed by the Closing Date.
8.2 Effect of Termination. In the event of termination of this
Agreement pursuant to Section 8.1 hereof, there shall be no liability on the
part of either party to the other, provided, however, that (a) this Section 8.2
shall not preclude liability attaching to a party who has caused the termination
hereof by willful act or willful failure to act in violation of the terms and
provisions of this Agreement, and (b) termination of this Agreement shall not
terminate or affect the agreements of the parties hereto set forth in Sections
9.3 or 9.5 hereof. [double check these]
8.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.4 Waiver. Any terms or provisions of this Agreement may be waived in
writing at any time by the party which is entitled to the benefits thereof. The
failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect such party's right at a later time to
enforce the same. No waiver by any party of a condition or of the breach of any
term, covenant, representation or warranty contained in this Agreement, whether
by conduct or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition or of the breach of any other term, covenant,
representation or warranty of this Agreement.
8.5 Assignment. This Agreement shall not be assigned by either party
without the prior written consent of the other party and any attempted
assignment without such written consent shall be null, void and without legal
effect.
ARTICLE 9 - GENERAL PROVISIONS
9.1 Indemnification.
(a) Dynasig's Indemnification. Dynasig agrees to indemnify and hold
harmless VTG, from and against any claim, loss, damage, cost or expense
whatsoever, including attorneys' fees and expenses of litigation, which VTG may
incur or suffer by reason, either directly or indirectly, of any of the
following:
(i) The inaccuracy of any representation or warranty made by Dynasig
hereunder;
(ii) The breach of any of the agreements or covenants of Dynasig
contained herein or in any certificate or other document delivered by Dynasig to
VTG in accordance with the terms hereof;
(iii) All litigation, suits, claims, demands, proceedings or matters
relating to the operation of the Business on or prior to the Closing Date. VTG
may contest any claim or liability, which, if established, would be the subject
of indemnification hereunder, and in such event all legal fees, disbursements
and other costs and expenses of such contest shall also be an item of
indemnification by Dynasig hereunder.
(b) VTG's Indemnification. VTG agrees to indemnify and hold harmless
Dynasig from and against, any claim, loss, damage, cost or expense whatsoever,
including attorneys' fees and expenses of litigation, which Dynasig may incur or
suffer by reason, either directly or indirectly of the following:
(i) The inaccuracy of any representation or warranty made by VTG
hereunder;
(ii) The breach of any of the agreements or covenants of VTG contained
herein or in any certificate or other document delivered by VTG to Dynasig in
accordance with the terms hereof, and
9.2 Brokerage Commission. Each party hereto represents and warrants
that it has not had any negotiations or dealings with any advisors, brokers or
finders, and that no obligation or liability, contingent or otherwise, for
advisory, brokerage or finder's commissions or fees has been incurred in
connection with the transactions contemplated hereunder. The parties each
further agree to indemnify and hold the other harmless from and against the
claims of any person, firm or corporation claiming any brokerage commission,
finder's fee or similar compensation based on any alleged negotiations or
dealings with the indemnity contrary to the foregoing representations.
9.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by such party by like notice):
If to Dynasig:
Dynasig Corporation
c/o Xxxxxxx Xxx
00000 Xxxxxx Xxxx
Xxxxxxxxxx, XX 00000
If to VTG:
Visitalk Capital Corporation
00000 Xxxxx 00xx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxx
Written notice given by any other method shall be deemed effective only
when actually received by the party to whom given.
9.4 Expenses. Except as set forth below, the parties shall bear their
own respective legal, accounting, title and other related expenses in connection
with this Agreement and the issuance and acquisition provided for hereunder. In
the event of termination of this Agreement under Section 8.1 by Dynasig without
reasonable cause, Dynasig agrees to reimburse VTG for its costs and expenses
incurred in connection with preparation of this Agreement. The parties agree
that it would be difficult to determine the exact amount of damages and
therefore agree that in the event of such a termination, that Dynasig shall pay
liquidated damages to VTG in the amount of $50,000.
9.5 Legal Representation. The parties hereto acknowledge they have
been advised to seek independent legal and accounting advice in connection with
this Agreement and the transactions contemplated herein and have obtained such
advice to the extent desired by them.
9.6 Miscellaneous. This Agreement (a) constitutes the entire agreement
and supersedes all other prior agreements and undertakings, both written and
oral, between the parties, with respect to the subject matter hereof; (b) is not
intended to confer upon any other person any rights or remedies hereunder; (c)
shall be binding upon and inure to the benefit of VTG and Dynasig, and their
respective successors and assigns; and (d) shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Arizona as applied without regard to conflict of law principles. This Agreement
may be executed in counterparts which together shall constitute a single
agreement. Article headings and Section headings as contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 Gender. Where in this Agreement masculine pronouns are used, such
words shall be considered feminine or neuter pronouns where the context
indicates the propriety of such use.
9.8 Illegality. In the event that any provision of this Agreement
shall be held to be invalid, illegal or unenforceable, such provision shall be
deemed modified to the least extent necessary to cause such provision to be
valid, legal or enforceable, and the validity, legality and enforceability of
the other provisions of the Agreement shall not be affected or impaired thereby.
9.9 Effect of Attachments. Each Schedule referred to herein shall be
deemed a part of this Agreement to the same extent as if each such Schedule was
set forth herein in its entirety.
In Witness Whereof, this Agreement has been executed by the parties hereto
as of the day and year first written above.
"VTG" "DYNASIG"
VT Gaming Services, Inc. DynaSig Corporation
/s/ X. X. Xxxxxxxx /s/ Xxxxxxx X. Xxx
By: Xxxxxxx X. Xxxxxxxx By: Xxxxxxx Xxx
Its: President Its: President
"VCC"
Visitalk Capital Corporation
/s/ X. X. Xxxxxxxx
By: Xxxxxxx X. Xxxxxxxx
Its: President
LIST OF EXHIBITS OR SCHEDULES
1.1 Dynasig Shareholders; addresses and SS#
1.2 Shares to be issued in the exchange
1.4 Executive Employment Agreement
2.1(a) Certificate of Designation
2.1(b) Financial Services Advisory Agreement
2.2 Shareholder's Agreement
3.7 Adverse Claims
3.8 Insurance Policies
3.9 Litigation
3.10 Proprietary Rights
3.11 Financial Statements of DynaSig
3.13 Commitments
4.7 Financial Statements of VTG
EXHIBIT 1.1
DYNASIG SHAREHOLDERS; ADDRESSES AND SS#
SCHEDULE 1.1 TO THE EXCHANGE AGREEMENT
DYNASIG SHAREHOLDER INFORMATION
NAME ADDRESS CITY ST ZIP
Xxxxxxx X. Xxx 00000 X. Xxxxxx Xx. Xxxxxxxxxx XX 00000
Xxxxx X. Xxx 0000 Xxxxx Xxxxxxx Xx. Xxx. 000 Xxxxxxxx XX 00000
Zezen-Zakur Holdings, LLC, Xxxxxxx X. Xxxxxxxx, President 00000 X. 00xx Xxxxxx, Xxx 000 Xxxxxxx XX 00000
Xxxxx-Xxxx Rho 0000 X. Xxxxxxxxx Xx. Xxxxxxx XX 00000
Xxxxx Xxxx & Xxxxx Xxxxxxx Xxxx 0000 Xxxxxxxxx Xxxxx Xxxxxxx XX 00000
Xxxxx Xxxxxxx 00 Xxxxxx Xxxxxx, Xxxxxx Xxxx Xxxxxx X.X. X0 0XX
Xxxxxx Xxxxxx 000 X. Xxx Xxxxx Xxxx Xxxxxx XX 00000
First Electronics, Inc., Xxxxx Xxx, President 000 X. Xxxxxx Xx. Xxxxx XX 00000
Xxxxxxx X. Xxxx 0000 X. Xxxxxx Xxxxxx Xx. Xxxxxxx XX 00000
Xxxxxxx Xxx 0000 X. Xx. Xxxx Xx., #0000 Xxxxxxxx XX 00000
Xxxx Xxxxxx 000 X. Xxxxxxxx Xxx Xxxxxxxx XX 00000
Xxxx Xxxxxxx 000 Xxxx Xx., Xxxxx Xxxxx Xxx Xxxxxxxxx XX 00000
Xxxxxx Xxxxxx XX Xxx 00000 Xxxx XX 00000
Xxxxxxx Xxxxx Xxx & Xxxxxx X.Xxx 0000 Xxxxxxxx Xx. Xxxxxxx XX 00000
Xxxxxx Xxxx-Xxx or Xxxx Xxxx 0000 Xxx Xxxxxx Xx. Xxxxxxxx XX 00000
Xxxxx Xxxx & Xxxxx Xxxxxxx Xxxx 0000 Xxxxxxxxx Xxxxx Xxxxxxx XX 00000
Xxxxxx Xxxxxx XX Xxx 00000 Xxxx XX 00000
Kadae (Xxxxxxxx) Kang 00000 Xxxxxx Xx. Xxxxxxxxxx XX 00000
Xxxxxx Xxx & Xxxxxxxx Xxx 0000 Xxxxxxxx Xxx. Xxx Xxxx XX 00000
Xxxxxx X. Xxxxxxx 0000 Xxxx Xxxx Xxxxx Xxxxxxxx XX 00000
Xxxxx X. & Xxxxxxx X. Xxxx 0000 Xxxx Xx Xxxxxxxx Xxxxxx XX 00000
NAME PHONE CELL
Xxxxxxx X. Xxx 000-000-0000 000-000-0000
Xxxxx X. Xxx 000-000-0000 000-000-0000
Zezen-Zakur Holdings, LLC, Xxxxxxx X. Xxxxxxxx, President 000-000-0000 000-000-0000
Xxxxx-Xxxx Rho 000-000-0000 000-000-0000
Xxxxx Xxxx & Xxxxx Xxxxxxx Xxxx 000-000-0000 000-000-0000
Xxxxx Xxxxxxx 44 2083470400 44 7971881661
Xxxxxx Xxxxxx 000-000-0000 000-000-0000
First Electronics, Inc., Xxxxx Xxx, President 480-730-1900
Xxxxxxx X. Xxxx 000-000-0000 000-000-0000
Xxxxxxx Xxx 000-000-0000 000-000-0000
Xxxx Xxxxxx 000-000-0000
Xxxx Xxxxxxx 415-397-2700 925-519-3139
Xxxxxx Xxxxxx 000-000-0000 000-000-0000
Xxxxxxx Xxxxx Xxx & Xxxxxx X.Xxx 000-000-0000 000-000-0000
Xxxxxx Xxxx-Xxx or Xxxx Xxxx 000-000-0000 000-000-0000
Xxxxx Xxxx & Xxxxx Xxxxxxx Xxxx 000-000-0000 000-000-0000
Xxxxxx Xxxxxx 000-000-0000 000-000-0000
Kadae (Xxxxxxxx) Xxxx 000-000-0000 000-000-0000
Xxxxxx Xxx & Xxxxxxxx Xxx 000-000-0000 000-000-0000
Xxxxxx X. Xxxxxxx (000) 000-0000 (000) 000-0000
Xxxxx X. & Xxxxxxx X. Xxxx 000-000-0000 000-000-0000
------
EXHIBIT 1.2
-----------
SHARES TO BE ISSUED IN THE EXCHANGE
45,000,000
% TOTAL % OF CLASS VTG SERIES A PREFFERED ISSUED VTG SHARES % TOTAL
-------- ----------- ----------------------------- ----------- ------------
Common
Xxxxxxx X. Xxx 4,000,000 80.00% 87.43% 87.432% 35,213,356
Xxxxx X. Xxx 350,000 7.00% 7.65% 7.650% 3,081,168
Zezen-Zakur Holdings, LLC 100,000 2.00% 2.19% 2.186% 880,334
Xxxxx-Xxxx Rho 35,000 0.70% 0.77% 0.765% 308,117
Xxxxx Xxxx & Xxxxx Xxxxxxx Xxxx 20,000 0.40% 0.44% 0.437% 176,067
Xxxxx Xxxxxxx 12,500 0.25% 0.27% 0.273% 110,042
Xxxxxx Xxxxxx 12,500 0.25% 0.27% 0.273% 110,042
First Electronics, Inc. 10,000 0.20% 0.22% 0.219% 88,033
Xxxxxxx X. Xxxx 10,000 0.20% 0.22% 0.219% 88,033
Xxxxxxx Xxx 10,000 0.20% 0.22% 0.219% 88,033
Xxxx Xxxxxx 5,000 0.10% 0.11% 0.109% 44,017
Xxxx Xxxxxxx 5,000 0.10% 0.11% 0.109% 44,017
Xxxxxx Xxxxxx 5,000 0.10% 0.11% 0.109% 44,017
-
Sub-Total Common: 4,575,000 91.50% 100.00% 100.000% 40,275,277
check ==> 40,275,275
------------
VTG Shareholders
PREFERRED A DYNASIG CONVERT $ AS CONVERTED
------------------------------- --------- ----------- ------------
Xxxxxx Xxxx-Xxx or Xxxx Xxxx 70,000 1.40% 16.47% 84,815 0.105 807,763
Xxxxxx Xxxx-Xxx or Xxxx Xxxx 10,000 0.20% 2.35% 12,116 0.105 115,395
Xxxxxx Xxxx-Xxx or Xxxx Xxxx 20,000 0.40% 4.71% 24,167 0.105 230,163
Xxxxxx Xxx & Xxxxxxxx Xxx 10,000 0.20% 2.35% 11,882 0.105 113,164
Xxxxxx X. Xxxxxxx 5,000 0.10% 1.18% 5,921 0.105 56,386
Xxxxx X. & Xxxxxxx X. Xxxx 5,000 0.10% 1.18% 5,898 0.105 56,171
Xxxxxxx Xxxxx Xxx & Xxxxxx Xxx 20,000 0.40% 4.71% 23,510 0.105 223,901
Xxxxx Xxxx 20,000 0.40% 4.71% 23,427 0.105 223,118
Xxxxx Xxxx & Xxxxx Xxxxxxx Xxxx 100,000 2.00% 23.53% 116,685 0.105 1,111,285
Xxxxxxx Xxxxx Xxx & Xxxxxx Xxx 100,000 2.00% 23.53% 115,658 0.105 1,101,500
Xxxxxxx Xxxxx Xxx & Xxxxxx Xxx 20,000 0.40% 4.71% 22,967 0.105 218,735
Xxxxxx Xxxxxx 45,000 0.90% 10.59% 49,050 0.105 467,143
Sub-Total Common: 425,000 8.50% 100.00% 496,096 4,724,723
-
------------
Total 5,000,000 100.00% 45,000,000
Common
Xxxxxxx X. Xxx 78.252
Xxxxx X. Xxx 6.847
Zezen-Zakur Holdings, LLC 1.956
Xxxxx-Xxxx Rho 0.685
Xxxxx Xxxx & Xxxxx Xxxxxxx Xxxx 0.391
Xxxxx Xxxxxxx 0.245
Xxxxxx Xxxxxx 0.245
First Electronics, Inc. 0.196
Xxxxxxx X. Xxxx 0.196
Xxxxxxx Xxx 0.196
Xxxx Xxxxxx 0.098
Xxxx Xxxxxxx 0.098
Xxxxxx Xxxxxx 0.098 4,181,585
Sub-Total Common: 89.501
VTG Shareholders 0.000
PREFERRED A
-------------------------------
Xxxxxx Xxxx-Xxx or Xxxx Xxxx 1.795
Xxxxxx Xxxx-Xxx or Xxxx Xxxx 0.256
Xxxxxx Xxxx-Xxx or Xxxx Xxxx 0.511
Xxxxxx Xxx & Xxxxxxxx Xxx 0.251
Xxxxxx X. Xxxxxxx 0.125
Xxxxx X. & Xxxxxxx X. Xxxx 0.125
Xxxxxxx Xxxxx Xxx & Xxxxxx Xxx 0.498
Xxxxx Xxxx 0.496
Xxxxx Xxxx & Xxxxx Xxxxxxx Xxxx 2.470
Xxxxxxx Xxxxx Xxx & Xxxxxx Xxx 2.448
Xxxxxxx Xxxxx Xxx & Xxxxxx Xxx 0.486
Xxxxxx Xxxxxx 1.038
Sub-Total Common: 10.499
-
Total 100.000
EXHIBIT 1.4
-----------
EXECUTIVE EMPLOYMENT AGREEMENT
The Executive Employment Agreement is included under Exhibit 10.2 of this Form
10-SB and incorporated herein by reference.
EXHIBIT 2.1 (A)
---------------
CERTIFICATE OF DESIGNATION
------
VT GAMING SERVICES, INC.
------------------------
EXHIBIT A TO THE CERTIFICATE OF DESIGNATION OF
THE SERIES A PREFERRED SHARES
CERTIFICATE OF DESIGNATION
NAME. The name of the corporation is VT Gaming Services, Inc., an Arizona
corporation (the "Corporation").
TEXT OF RESOLUTION. The Board of Directors (the "Board") of the Corporation
duly adopted a resolution in the form attached hereto as Exhibit A and
incorporated herein by this reference, establishing and designating the Series A
15% Cumulative Convertible Preferred Stock of the Corporation, and fixing and
determining the relative preferences, privileges and voting powers of the shares
of such Series and the restrictions and qualifications thereof, all as set forth
in such resolution.
STATEMENT AND DATE OF ADOPTION. The aforementioned resolution was duly adopted
by the Board effective as of December 31, 2004.
IN WITNESS WHEREOF, the undersigned hereby certify this 31st day of December,
2004, that the foregoing statement has been duly adopted by and on behalf of the
Corporation as set forth above.
/s/ Xxxxxxx X. Xxxxxxxx
-----------------------
Xxxxxxx X. Xxxxxxxx, President ATTEST:
/s/ Xxxxx X. Xxxx
-----------------
Xxxxx X. Xxxx, Secretary
RESOLUTION OF DESIGNATION OF
SERIES A 15% CUMULATIVE CONVERTIBLE PREFERRED STOCK OF
VT GAMING SERVICES, INC.
RESOLVED, that pursuant to the authority granted to the Board of
Directors (the "Board") of VT Gaming Services, Inc. (the "Company") and in
accordance with the provisions of the Articles of Incorporation of the Company,
the Board hereby creates a series of preferred stock designated as Series A 15%
Cumulative Convertible Preferred Stock with a Preference Amount equal to $1.00
per share, states the number of shares thereof to be 2,000,000 shares and fixes
the relative rights, preferences and limitations of such shares as follows:
1. DEFINITIONS.
For purposes of this Resolution, the following definitions shall apply:
1.1. Accrual Date shall mean each March 31st, June 30th, September 30, and
December 31 starting March 31, 2005, for so long as any Shares remain
outstanding. Such accrual shall commence when cash equivalent funds are
accepted for the purchase of Shares and in the case of an event which occurs
other than on an Accrual Date, including but not limited to Liquidation Events
or establishing a Redemption Price, or other similar event, on such actual date.
1.2. Audited Net Revenues shall mean revenues, net of any allowances
for returns, allowances or other adjustments required by Generally Acceptable
Accounting Principals, consistently applied, as reported by a independent
accounting firm which is both qualified to prepare reports for companies
reporting to the SEC and mutually acceptable to a majority of the Holders. Such
revenues will be calculated from Company annual reports delivered within 91 days
of the end of the Company's fiscal year.
1.3. Board shall mean the Board of Directors of the Company.
1.4. Common Stock shall mean the common stock of the Company.
1.5. Common Stock Equivalent shall mean any securities convertible into
Common Stock or exercisable for the purchase of Common Stock whose conversion
price, exercise price, or equivalent is less than or equal to the Conversion
Price.
1.6. Company shall mean VT Gaming Services, Inc., an Arizona
corporation or any successor.
1.7. Controlling Holders shall mean Holders which own a majority of the
Shares issued under this Certificate of Designation as indicated on the records
of the Company.
1.8. Conversion Date shall mean the date on which the Shares are
converted to Common Stock whereupon the rights of the Record Holders will cease
with respect to the Shares and certificates for shares of Common Stock will be
issued to such Record Holders who will become the holders of record of the
Shares of Common Stock represented thereby.
1.9. Conversion Price shall mean the initial price of $ 0.105 but which
may be adjusted in accordance with Section 5.
1.10. Cumulative Dividend shall mean a dividend with respect to the
Shares accruing from the date of payment of consideration for the Shares to the
Accrual Date at a rate of 15% per annum of the Preference Amount ($.15 per Share
per year).
1.11. Demand Event shall mean (a) anytime after July 1, 2006, if the
Company fails to maintain trading status on the OTC Bulletin Board or other
national exchange or trading market with greater eligibility requirements or
(b) any breach in the terms of this Certificate of Designation.
1.12. Distribution shall mean the transfer of cash or property without
consideration, by way of dividend or otherwise (except a dividend in shares of
the capital stock of the Company), or the purchase or redemption of shares of
capital stock of the Company for cash or property, excluding the repurchase of
any shares from a terminated employee or consultant of the Company within terms
of the agreement providing such repurchase.
1.13. Exchange Act shall mean the Securities Exchange Act of 1934, as
amended.
1.14. Liquidation Event shall mean any liquidation, dissolution or
winding up of the Company or the sale or transfer of all or substantially all of
the assets of the Company, whether voluntary or involuntary. This shall include
a merger where the common shareholders of the Company do not hold a majority of
the equity in the surviving entity.
1.15. Person shall mean an individual, a partnership, a joint venture,
a limited liability company, a corporation, a trust, an unincorporated
organization or government or any department or any agency thereof.
1.16. Preference Amount shall mean $1.00 per Share.
1.17. Record Holder or Holder shall mean any Person who has legal title
to the Shares as set forth by the stock ownership records of the Company as of
the particular record date.
1.18. Redemption Date shall mean the date fixed by the Redemption
Notice for the Company to exercise its optional Redemption Rights.
1.19. Redemption Demand shall mean the notification by the Controlling
Holders that the Company has caused a Demand Event.
1.20. Redemption Notice shall mean a written notice mailed to each
Holder 45 days in advance of the Redemption Date.
1.21. Redemption Price shall mean the cash amount of the Preference
Amount per Share and, in addition, an amount in cash equal to all accrued and
unpaid dividends on the Shares accumulated as provided in Paragraph 2.1 to and
including the date fixed for redemption, and theretofore unpaid.
1.22. Redemption Rights shall mean the right of the Company to
repurchase the Shares upon proper notice.
1.23. SEC shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act or the
Exchange Act.
1.24. Securities Act shall mean the Securities Act of 1933, as amended.
1.25. Share shall mean a share of Series A Preferred Stock.
1.26. Shareholder shall mean any Person who has legal title to the
Common Stock, the Series A Preferred Stock or any other series of preferred
stock of the Company designated with the right to receive liquidation proceeds
of the Company as set forth by the stock ownership records of the Company as of
the particular record date.
2. DIVIDENDS.
2.1. General Obligation. When and as declared by the Board, the
Company shall pay dividends to the Record Holders. Except as otherwise provided
herein, Cumulative Dividends on each Share will accrue on each Accrual Date
after consideration for the Shares are received whether or not such dividends
shall have been declared or whether or not there are profits, surplus or other
funds of the Company legally available for the payment of such dividends,
provided, however, dividends will be paid only at such time as both (i) funds of
the Company are legally available for payment thereof and (ii) the Board
declares and authorizes such payment.
2.2. Priority. The Shares are senior to all other capital stock of the
Company, including the Common Stock any other series or class of stock as may be
designated by the Board from time to time, in right of priority to Distributions
paid as dividends or otherwise. No dividends or other Distributions with
respect to any other series or class of capital stock of the Company shall be
declared or paid prior to the declaration and payment in full of all Cumulative
Dividends accrued as of the last proceeding Accrual Date.
3. LIQUIDATION EVENT AND REDEMPTION.
3.1. Upon Liquidation. Upon occurrence of a Liquidation Event, the
Record Holders will be entitled to be paid, before any payment or other
Distribution is made upon any other equity securities of the Company, an amount
in cash equal to the Preference Amount plus any accrued but unpaid dividends
thereon up to the date of occurrence of the Liquidation Event. Depending on the
date of the of the Liquidation Event, after the Preference Amount plus accrued
dividends have been paid on all outstanding Shares any remaining funds and
assets of the Company legally available for distribution to the Shareholders
will be distributed ratable among the Shareholders in accordance with their
Common Stock holdings on an as converted basis. This means the Holders will
participate with the holders of the Common Stock in the balance of the
Distribution in an amount equal to the number of shares of Common Stock the
Holders would have received if the Shares had converted immediately prior to the
Liquidation Event. For example, if the Shares outstanding at the time of the
Liquidation Event converted into 10% of the Company, then the Holders of such
Shares would get their Preference Amount and any accrued and unpaid dividends
and then receive 10% of the amount to be distributed to the Common Stock
Shareholders thereafter. This right to share on a "as converted" basis shall be
limited to each Record Holder receiving twenty (20) times the amount they paid
to purchase their Shares until December 31, 2006, but thereafter this right to
participate is unlimited. The Holders, in their sole option, always have the
right to convert their Shares and participate in the proceeds from the
Liquidation Event as Common Stock. Any dispute regarding the Distribution
proceeds between the Holders and the Company shall be determined by an appraisal
by a mutually agreed upon appraiser. The Company and the Holders shall each pay
one-half of the cost of this appraisal.
3.2. If upon any Liquidation Event the assets of the Company to be
distributed among the Record Holders are insufficient to permit payment in full
to each Record Holder of the Preference Amount plus any accrued and unpaid
dividends thereon, then the entire assets to be distributed will be distributed
ratably among such Record Holders. The Company will mail written notices of a
Liquidation Event not less than 20 days prior to the payment date stated therein
to each Record Holder.
3.3. Company Redemption.
3.3.1. The Company may at any time it may lawfully do so, at the option of
the Board of Directors, redeem all, but not less than all, of the Shares by
paying the Redemption Price in cash.
3.3.2. At least 45 days prior to the date fixed for any redemption of the
Shares the Company shall mail, postage prepaid, a Redemption Notice to each
Record Holder at such Record Holder's post office address last shown on the
records of the Company, stating the Company's intention to redeem the Shares.
Such Redemption Notice shall specify the Redemption Date, the date on which the
Record Holders' conversion rights relating to the Shares terminate and call upon
the Record Holders to surrender to the Company, in the manner and at the place
designated, the certificates representing the Shares to be redeemed. On or
after the Redemption Date, each Record Holder of the Shares to be redeemed shall
surrender the certificate or certificates representing the Shares to the Company
in the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price shall be paid to the order of the person whose
name appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be cancelled. From and after the Redemption Date,
unless there shall be a default in the payment of the Redemption Price, all
rights of the Record Holders of the Shares, except the right to receive the
Redemption Price without interest thereon upon the surrender of their
certificate or certificates, shall cease. Such Shares shall not thereafter be
transferable on the books of the Company or be deemed outstanding for any
purpose whatsoever.
3.3.3. On or prior to the Redemption Date, the Company shall deposit the
Redemption Price of all Shares then outstanding with one of the largest 50 banks
in the United States, or any affiliate bank thereof, as a trust fund for the
benefit of the Record Holders. Any moneys so deposited by the Company relating
to Shares converted into Common Stock shall be immediately returned to the
Company no later than the day after the Redemption Date. The Company may
request release of the funds upon voluntary conversions. Any moneys remaining
unclaimed at the expiration of one year following the Redemption Date shall be
returned to the Company upon its request expressed in a resolution of the
Company's Board of Directors. If no claim is submitted within three years of
the Redemption Date, the Company may cancel the Shares and the Holder shall have
no further claim on the Company.
3.4. Optional Holder Redemption. Upon the occurrence of any Demand
Event, at the sole option of the Controlling Holders, such Holders may elect,
in their sole discretion, to demand the Company pay within five business days
from the date of the Notice all the Holders the Redemption Price. The
Controlling Holders may appoint an agent and such agent's acts will bind all
other Holders.
3.4.1. Default on the Redemption Demand. If the Company fails to pay the
Redemption Price of a Redemption Demand when due, upon 10 days notice the
Controlling Holders or their agent, if one has been appointed, may declare a
default in the Redemption Demand and thereafter an amount equal to 120% of the
Redemption Price shall be payable to the Holders and shall be evidenced by a
note or notes issued by the Company (the "Redemption Notes"). Such Redemption
Notes shall bearing annual interest at a rate of 20% per annum payable monthly
and will be due on demand. The Company will, immediately upon notice, execute
documentation to secure its liability under the Redemption Notes by a pledge of
all its assets.
3.4.2. Power of attorney. Upon the declaration of a default under the prior
section, an agent representing a majority of the Holders shall have the right to
act as the attorney in fact for the Company for the purpose of issuing the notes
and executing security interests and pledges on all of the Company's assets.
3.4.3. Right to additional Board seats. Upon the conversion of the Shares
into a Note or Notes under this section, if necessary, the Company's by-laws
shall be deemed amended and the Holders shall have the right to immediately and
without further notice appoint a majority of the Company's Board of Directors.
4. CONVERSION.
4.1. Voluntary Conversion. At any time prior to a Redemption Date, but
not thereafter, Record Holders of Shares shall have the right to convert the
Shares and any accumulated dividends into shares of Common Stock in accordance
with Section 4.3 or 4.4 hereof.
4.2. Automatic conversion. Starting one year after the Company's
Common Stock starts trading on either the OTC Bulletin Board or the NASDAQ, if
the asking price of the Common Stock on the OTC Bulletin Board or the NASDAQ
exceeds five times the Conversion Price for 60 consecutive trading days, the
Shares and any accumulated dividends will automatically convert into Common
Stock in accordance with Section 4.3 hereof. The Company shall send a notice to
Holders upon such automatic conversion.
4.3. Conversion Ratio. Upon conversion of the Shares, Record Holders
shall receive the number of shares of Common Stock equal to (i) the Preference
Amount plus all accrued and unpaid dividends divided by (ii) the Conversion
Price, unless the Holders elect to have such dividends paid in cash under
Section 4.4 hereof.
4.4. Mechanics of Conversion. Each Record Holder who converts Shares
into Common Stock shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or of any transfer agent for the Shares
and shall give written verification to the Company of the number of Shares being
converted. Thereupon, the Company shall promptly issue and deliver by overnight
delivery to such Record Holder a certificate or certificates for the number of
shares of Common Stock to which such Record Holder is entitled. Upon the
surrender of any Share certificate the Holder may elect through a written notice
to have undeclared cumulative Dividends as accrued under the provisions of
Section 2, paid in cash within 30 days of surrender of the Share certificate.
4.5. Fractional Shares. Any fractional shares of Common Stock to be
issued upon the conversion of the Shares shall be rounded up to the next whole
share of common stock.
5. ANTI-DILUTION ADJUSTMENTS.
The Conversion Price and the number and kind of Shares shall be subject to
adjustment from time to time upon the happening of certain events as provided in
this Article 5.
5.1 Mechanical Adjustments.
5.1.1 In the event the Company at any time or from time to time prior to the
exercise of the conversion of all the Shares shall declare or pay any dividend
on the Common Stock payable in Common Stock or Common Stock Equivalents, or
effect a subdivision or combination of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in Common Stock
or Common Stock Equivalents), then and in any such event, the Conversion Price
shall be adjusted by multiplying the Conversion Price prior to the adjustment by
the number of shares of Common Stock (including all Common Stock issuable in
exchange for Common Stock Equivalents, if applicable) outstanding immediately
prior to the effective time of such event and dividing the result by the number
of shares of Common Stock outstanding immediately after the effective time of
such event, effective in the case of such dividend, immediately after the close
of business on the record date for the determination of holders of Common Stock
entitled to receive such dividend, or in the case of a subdivision or
combination, at the close of business immediately prior to the date upon which
such corporate action becomes effective.
5.1.2 In the event the Company at any time or from time to time prior to the
exercise of the conversion rights of all the Shares makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in capital stock of the Company other
than shares of Common Stock or Common Stock Equivalents, then and in each such
event provision shall be made so that the Holders shall receive upon exercise of
their conversion rights, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities which such Holders would have
received had they exercised their conversion rights prior to such effective
record date.
5.1.3 All calculations under this Section 5.1 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
5.2 Notices of Adjustment. Whenever the number of Shares or the Conversion
Price is adjusted as herein provided, the Company shall prepare and deliver
forthwith to the Holders a certificate signed by (i) its Chief Executive Officer
and President; and (ii) any Vice President, Treasurer or Secretary. Such
certificate shall set forth the adjusted number of Common Shares purchasable
upon the conversion of the Shares and the Conversion Price of such Shares after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
5.3 No Adjustment for Cash Dividends. Except as provided in Section 5.1 of
this Agreement, no adjustment in respect of any cash dividends shall be made
while the Shares are outstanding. However, Holder's shall receive a written
notice of such declaration of such dividend payable at least 20 days prior to
the Record Date. Holders have the right but not the obligation to notify the
Company of their election to convert before the Record date and receive such
Dividend.
Preservation of Purchase Rights in Certain Transactions. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock (other than a subdivision or combination of the outstanding
Common Stock and other than a change in the par value of the Common Stock) or in
case of any consolidation or merger of the Company with or into another
corporation (other than merger with a subsidiary in which the Company is the
continuing corporation and that does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon the conversion of the Shares) or in the case of any sale,
lease, transfer or conveyance to another corporation of the property and assets
of the Company as an entirety or substantially as an entirety, the Company
shall, as a condition precedent to such transaction, cause such successor or
purchasing corporation, as the case may be, to execute an agreement granting all
Holders the right thereafter to convert the Shares into the kind and amount of
shares, and other securities and property which the Holder would have owned or
have been entitled to receive after the happening of such reclassification,
change, consolidation, merger, sale or conveyance had the conversion right been
exercised immediately prior to such action. Such agreement shall provide for
adjustments in respect of such shares of stock, and other securities and
property, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 5. In the event that in connection
with any such reclassification, capital reorganization, change, consolidation,
merger, sale or conveyance, additional shares of Common Stock shall be issued in
exchange, conversion, substitution or payment, in whole or in part, for, or of,
a security of the Company other than Common Stock, any such issue shall be
treated as an issue of Common Stock covered by the provisions of Article 5. The
provisions of this Section 5.4 shall similarly apply to successive
reclassifications, capital reorganizations, consolidations, mergers, sales or
conveyances.
Dilutive Issuance. Except as provided in Section 5.9 below, in the event
the Company shall issue additional shares of Common Stock or Common Stock
Equivalents without consideration or for a consideration per share less than the
Conversion Price in effect on the date of and immediately prior to such issuance
(a "Dilutive Price"), then, and upon such event, the then Conversion Price shall
be reduced concurrently with such issuance to the Conversion Price determined as
follows: (i) the number of shares of Common Stock and Common Stock Equivalents
outstanding immediately prior to the issuance that results in the adjustment,
shall be multiplied by (ii) such Conversion Price in effect immediately prior to
such issuance, and to the result (iii) shall be added the actual consideration
received for the additional shares of Common Stock and Common Stock Equivalents,
thereupon the resulting total (iv) shall be divided by the sum of (A) the number
of shares of Common Stock and Common Stock Equivalents outstanding immediately
prior to the issuance that results in the adjustment and (B) the number of
additional shares of Common Stock and Common Stock Equivalents resulting in the
adjustment. If the quotient thus obtained is less than the Conversion Price
then in effect, such quotient shall be the adjusted Conversion Price until
further adjusted as provided herein. In the event that the amount raised at the
Dilutive Price is greater than an accumulated amount of $500,000 since the date
of the approval of this Certificate of Designation and the average price paid
is less than the Conversion Price then in effect, then the Conversion Price
shall be adjusted to the lowest price paid for these securities without the
calculations required by this Section 5.5
Determination of Consideration. For purposes of Section 5.5, the
consideration received by the Company for the issuance of any additional shares
of Common Stock or Common Stock Equivalents shall be computed as follows:
5.6.1. all calculations under this Section 5.6 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
5.6.2. insofar as the consideration consists of cash, the aggregate amount
of cash received by the Company excluding amounts paid or payable for accrued
interest or accrued dividends;
5.6.3. insofar as the consideration consists of property other than cash, at
the fair value thereof at the time of such issue, as determined in good faith by
the Board; and
5.6.4. in the event additional shares of Common Stock are issued together
with other shares of securities or other assets of the Company for consideration
which covers both, the proportion of such consideration so received, computed as
provided in 5.6.2. and 5.6.3. above, as determined in good faith by the Board.
5.6.5. If the Controlling Holders dispute the finding of the Board, all such
determinations shall be made by a mutually agreed upon appraiser.
5.6.6. For the purpose of computing the initial adjustment of the Conversion
Price, in the event the Company Common Stock Equivalents, the consideration per
share received by the Company for such Common Stock Equivalents shall be
determined by dividing:
5.6.6.1. the total amount, if any, received or receivable by the Company as
consideration for the issue of such Common Stock Equivalents, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise or the conversion of exchange of such Common Stock Equivalents, or in
the case of options for convertible securities, the exercise of such options for
convertible securities and the conversion or exchange of such convertible
securities, by
5.6.6.2. the maximum number of shares of Common Stock issuable upon the
exercise of or the conversion or exchange of Common Stock Equivalents
5.6.6.3Issuance Costs. Any commission, fees, costs or other
expenses related to the issuance of any additional shares of Common Stock or
Common Stock Equivalents shall not be included in the consideration received by
the Company.
Adjustments for Other Dividends. In the event the Company at any time or
from time to time makes, or fixes a record date for the determination of holders
of Common Stock entitled to receive a dividend or other distribution payable in
capital stock of the Company other than shares of Common Stock, then and in each
such event, provision shall be made so that the Record Holders receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the which such Record Holders
would have received had the Shares been converted prior to such effective record
date.
Exceptions. Excluding issuances to Shareholders and affiliates of
Shareholders that own more than 20% of the Company's outstanding Common Stock
and voting Common Stock Equivalents, the foregoing provisions of this Article 5
notwithstanding, no adjustment shall apply to the issuance of up to 3,000,000
shares of Common Stock authorized for issuance under an employee stock ownership
plan.
"Tag Along" Rights. If any Holders receive an offer to purchase any of
their Shares by a third party, whereby such third party (including any affiliate
or person or persons that are acting in concert with such third party) would
have effective control of the outstanding voting shares of the Company, such
Holder shall not entertain, accept or otherwise negotiate such offer unless such
offer is extended to all of the Holders.
6. RIGHTS AND RESTRICTIONS.
6.1 Board Representation. For so long as the Shares remain
outstanding, the Board shall not exceed five members and the Holders shall elect
one member to the Board voting as provided in Article 8 below.
6.2 Restrictions. Without the affirmative approval of at least 67% of the
issued Shares, the Company may not
6.2.1 Issue Senior Securities. Authorize or issue, or obligate itself to
issue, any other equity security senior to or on a parity with the Series A
Preferred, as to dividend, liquidation preferences or conversion rights;
6.2.2 Change its Authorized Shares. Increased or decrease (other than by
redemption or conversion) the total number of authorized shares of Series A
Preferred Stock;
6.2.3 Change the rights of the Shares. Change, by amending the Company's
Articles of Incorporation, by-laws, or otherwise, any of the rights,
preferences, privileges or limitations provided for herein for the benefit of
the Shares.
6.2.4 Create a Preference to the Shares. Make any Distribution, as a
dividend, in liquidation or otherwise, in preference to the distribution rights
of the Shares.
6.3 Non limiting as to business combinations. Nothing in the Article
shall be construed as limiting the Company's ability to make any subdivision or
combination of the outstanding Common Stock or approving any merger,
consolidation, asset sale or stock sale.
7. RIGHT OF FIRST REFUSAL.
Excluding (a) a firmly underwritten stock offering with proceeds exceeding
$10,000,000; or (b) the issuance of shares of Common Stock upon the exercise of
the series A through F warrants; or (c) shares issued under a qualified employee
stock ownership plan; each Record Holder shall be given the right to purchase
such Record Holder's pro rata portion of any equity securities offered by the
Company (other than the warrants or options offered to employees and consultants
under the Incentive Stock Option Plan, shares issued in a merger or in
connection with obtaining a lease line, line of credit or a similar financing
transaction) on the same terms and conditions as the Company offers such
securities to other potential investors. The pro rata portion to which each
Record Holder is entitled shall be calculated based upon such Record Holder's
percentage of ownership of the Company's outstanding Common Stock assuming
conversion of all outstanding convertible securities and of the Shares as
provided in Section 4.3 hereof.
8. VOTING RIGHTS.
Each Share will vote on an "as converted" basis except the Shares shall
vote as a single class to elect one director to serve on the Company's board of
directors or other matters identified in Article 6. Any action to be taken by
the Record Holders as a class may be taken without a separate meeting, by
consent resolution of the Controlling Holders or the required percentage of
Shares as the case may be.
9. INFORMATION RIGHTS.
The Company shall provide to all Record Holders an audited annual report
containing a balance sheet, income statement and statement of cash flows for the
fiscal year within 90 days after the end of each fiscal year. Such financial
statements shall be prepared by an independent auditing firm acceptable to the
SEC.
10. NOTICES.
All notices referred to herein, except as otherwise expressly provided, will be
hand delivered or made by mail, postage prepaid, and will be deemed to have been
given when so hand delivered or mailed to the last known address of the Record
Holder as set forth on the stock ledger of the Company.
35
EXHIBIT 2.1 (B)
---------------
FINANCIAL SERVICES ADVISORY AGREEMENT
The Financial Services Advisory Agreement is included under Exhibit 10.3 of this
Form 10-SB and incorporated herein by reference.
------
EXHIBIT 2.2
-----------
SHAREHOLDER'S AGREEMENT
The Shareholder's Agreement is included under Exhibit 9.1 of this Form 10-SB and
incorporated herein by reference.
------
EXHIBIT 3.7
-----------
ADVERSE CLAIMS
None.
EXHIBIT 3.8
-----------
INSURANCE POLICIES
INSURANCE POLICIES
The following have been provided to VT Gaming Services, Inc.:
- $2 million liability insurance covering the property leased from Milicevic
in Scottsdale, AZ.
EXHIBIT 3.9
-----------
LITIGATION
None.
EXHIBIT 3.10
------------
PROPRIETARY RIGHTS
PROPRIETARY RIGHTS
The following have been provided to VT Gaming Services, Inc.:
- All DynaSig and Bio-Pen related material, design, and software has been
assigned to and is owned by DynaSig per agreements with Xxxxxxx Xxx and
OptiSense.
- OptiSense Agreement.
- Software licensing agreement from EzValidation.
- Assignment documents relating to two existing patent applications, owned
by Xxxxxxx Xxx, which have been assigned to DynaSig as well as all related
claims for inventions related to DynaSig. Future inventions covered by the R
Xxx employment agreement, which is part of the Exchange Agreement.
EXHIBIT 3.11
------------
FINANCIAL STATEMENTS OF DYNASIG
1
DYNASIG CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 2004
-UNAUDITED-
Prepared: December 31, 2004
-UNAUDITED-
These financial statements have not been audited or reviewed by independent
auditors and no opinion or any other form of assurance is provided. Although we
have made every effort to make full and complete disclosure, these financial
statements may omit disclosures required by GAAP. If omitted disclosures were
included in these financial statements, they might influence conclusions about
Company financial matters, and therefore are not designed for those who are not
informed about such matters.
11
DYNASIG CORPORATION
-------------------
BALANCE SHEET
DECEMBER 31, 2004
-UNAUDITED-
ASSETS
CURRENT ASSETS:
Cash $ 14,570
Accounts receivable 960
Inventories 18,206
Prepaid expenses and other current assets 2,600
Total current assets 36,336
MACHINERY AND EQUIPMENT, net 24,343
PATENT AND INTELLECTUAL PROPERTY RIGHTS, net 11,136
LICENSES AND TECHNOLOGY, net 9,000
OTHER ASSETS, net 475
$ 70,154
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 20,059
Due to related party 85,444
Notes payable 70,823
Other accrued liabilities 4,833
Total current liabilities 181,159
----------
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' DEFICIT:
Undesignated Preferred stock; authorized 4,000,000 shares, no shares issued and outstanding -
Series A Preferred; $1.00 liquidation preference, 1,000,000 shares authorized, 425,000 issued and outstanding 425,000
Common stock; no par value, authorized 10,000,000 shares, 4,575,000 shares issued and outstanding 4,575
Accumulated deficit (540,580)
Total stockholders' deficit (111,005)
----------
$ 70,154
----------
The accompanying notes are an integral part of this balance sheet.
2004 2003
---------- ----------
REVENUES $ 9,030 $ -
COSTS OF REVENUES 10,138 -
GROSS MARGIN/(LOSS) (1,108) -
---------- ----------
OPERATING EXPENSES:
Research and development 228,982 86,919
Selling and marketing 25,843 12,026
General and administrative 76,873 51,565
Legal and professional fees 12,634 28,528
Depreciation and amortization 10,786 834
Total operating expenses 355,118 179,872
----------
LOSS FROM OPERATIONS (356,226) (179,872)
OTHER INCOME/(EXPENSE):
Interest expense (4,694) (138)
Interest income 106 244
Total other income/(expense) (4,588) 106
NET LOSS $(360,814) $(179,766)
---------- ----------
The accompanying notes are an integral part of these financial statements.
------
4
DYNASIG CORPORATION
-------------------
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
-UNAUDITED-
(1) ORGANIZATION AND OPERATIONS
Dynasig Corporation (the "Company") was incorporated in Arizona on June 17,
2003. The Company develops and sells the Dynasig System. The Dynasig System
consists of a proprietary dynamic biometric capture device (the "Bio-Pen") plus
the proprietary registration and authentication software necessary to verify the
actual process of creating a signature using the Bio-Pen. The Bio-Pen measures
the signature process by translating speed, tilt, pressure and other variables
of the Bio-Pen as it is used into a highly secure, digital pattern. The
Bio-Pen's proprietary software decrypts the pattern and evaluates it against a
registration pattern to identify an authorized signer. The Company believes the
Dynasig System will be used for access control and authentication activities of
various types.
(2) GOING CONCERN
The Company faces many operating and industry challenges. There is no
meaningful operating history to evaluate the Company's prospects for successful
operations. The Company has incurred net losses and has had negative operating
cash flow since inception. Future losses are anticipated and the Company's
operations, even if successful, may not result in cash flow sufficient to
finance the continued expansion of its business. The Company's success is also
dependent on several key employees.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed, the Company
has incurred losses since inception and has not yet obtained capital needed to
achieve management's plans and support its operations and there is no assurance
that the Company will be able to raise such financing. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
In view of these matters, realization of a major portion of the assets is
dependent upon continued operations of the Company, which in turn is dependent
upon the Company's ability to meet its financing requirements and the success of
its future operations. The consolidated financial statements do not include any
adjustments that might result from this uncertainty.
On December 27, 2004, the Company entered into a secured line of credit
agreement (the "LOC") with Visitalk Capital Corporation ("VCC") (see Note 8).
The purpose of the LOC is to provide working capital to allow the Company to
continue operations while seeking additional capital. The Company also expects
to offer additional shares of its Series A 15%, Cumulative, Convertible
Preferred stock for $1.00 per share (the "Offering"). A total of $425,000 was
raised during the years ended December 31, 2004 and 2003.
Although no assurances can be given, management believes that the borrowings
available under the LOC and anticipated proceeds from the Offering will allow
the Company to obtain sufficient capital for operations and to continue as a
going concern.
(3) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On June 17, 2003, Optisense Corporation ("Optisense"), which is 100% owned by
Xxxxxxx X. Xxx Ph.D., the Company's Chief Executive Officer and largest
shareholder, entered into an agreement with the Company to develop the Dynasig
System (see Note 7). Due to the related party nature of the transactions
between Optisense and the Company, all Optisense expenses have been recognized
by the Company. The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for transactions
involving entities under common control.
REVENUE RECOGNITION
The Company expects to derive revenues from the sale of various configurations
of the Dynasig System. Such systems may include a license to software products
under software license agreements. The Company recognizes revenues in
accordance with Statement of Position ("SOP") 97-2, Software Revenue
Recognition, and SOP 98-9, Modifications of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions. If customer contracts
contain multiple elements, and vendor-specific objective evidence exists for all
undelivered elements, the Company accounts for the delivered elements in
accordance with the "Residual Method" prescribed by SOP 98-9.
In the case of software license agreements, sales are recognized when persuasive
evidence of an arrangement exists, the fee is fixed or determinable, collection
is probable, and delivery and customer acceptance of the software products have
occurred. In the event the Company grants its customers the right to specified
upgrades, license revenue is deferred until delivery of the specified upgrade.
If vendor-specific objective evidence of fair value exists for the specified
upgrade, then an amount equal to this fair value is deferred. If
vendor-specific objective evidence of fair value for the upgrade does not exist,
then the entire license fee is deferred until the delivery of the specified
upgrade. In instances where vendor obligations remain, revenues are deferred
until the obligation has been satisfied.
COSTS OF REVENUES
Costs of revenues include materials and labor associated with the installation,
implementation, warranty and support of the Bio-Pen and components sold. In
addition, costs of revenues include a charge for inventory related to
discontinued or unsalable versions of the Bio-Pen, totaling $7,815 for the year
ended December 31, 2004.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all highly liquid investments
with maturity of three months or less when purchased.
ORGANIZATION COSTS
Organization costs are amortized on the straight-line basis over five years.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future, undiscounted, net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist primarily of cash, and obligations under accounts
payable and accrued expenses. The carrying amounts of cash, accounts payable
and accrued expenses approximate fair value because of the short maturity of
those instruments. The Company has applied certain assumptions in estimating
these fair values. The use of different assumptions or methodologies may have a
material effect on the estimates of fair value.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
PATENT AND INTELLECTUAL PROPERTY RIGHTS
The cost of any applications for patent and intellectual property rights and
their prosecution to final award will be capitalized and amortized over the
estimated remaining life of the respective patent and intellectual property
rights
STOCK BASED COMPENSATION
The Company applies the provisions of Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees, and provides the pro
forma net earnings and pro forma earnings per share disclosures for employee
stock option grants as if the fair-value-based method defined in Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, had been applied. In accordance with APB No. 25, compensation
expense is recorded on the date an option is granted only if the current market
price of the underlying stock exceeds the exercise price. The Company has
granted no employee stock options since inception.
LOSS PER SHARE
The Company has adopted SFAS No. 128, Earnings per Share, which supercedes XXX
Xx. 00. Basic EPS differs from primary EPS calculation in that basic EPS does
not include any potentially dilutive securities. Diluted EPS must be disclosed
regardless of dilutive impact to basic EPS.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets, including tax loss and credit carryforwards, and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Deferred income tax expense represents the change during the
period in the deferred tax assets and deferred tax liabilities. The components
of the deferred tax assets and liabilities are individually classified as
current and non-current based on their characteristics. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar to the approach described
in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. SFAS No. 123(R) will be effective for the Company in the first
interim or annual reporting period beginning after December 15, 2005. The
adoption of this standard may have a material impact on the Company's financial
statements assuming employee stock options are granted in the future.
(4) MACHINERY AND EQUIPMENT
Machinery and equipment as of December 31, 2004 is as follows:
Machinery and equipment $ 12,615
Office furniture and equipment 1,464
Capitalized molds 20,663
34,742
Less: Accumulated depreciation (10,399)
---------
$ 24,343
Depreciation expense totaled $9,646 and $752 for the years ended December 31,
2004 and 2003, respectively.
(5) PATENT AND INTELLECTUAL PROPERTY RIGHTS
Xxxxxxx X. Xxx Ph.D., the Company's Chief Executive Officer and largest
shareholder, is the original developer of the Dynasig System. Xx. Xxx has
assigned all his rights in the Dynasig System to the Company. On August 23,
2004, Xx. Xxx filed a formal patent application covering certain aspects of the
current version of the Dynasig System in the United States and filed a world
patent application under the Patent Cooperation Treaty (PCT) rules. Before
February 2007, the Company must select individual countries in which to seek
this extended patent protection and sustain the cost of such applications and
prosecutions. Xx. Xxx intends to file additional formal patents related to the
Dynasig System in the future, which will also be assigned to the Company.
The Company has also developed manufacturing processes and component designs
that it considers "trade secrets," and that it believes would make the Dynasig
System difficult to produce by other manufacturers. The Company has agreements
with its officers and will enter into agreements with any new employees that any
new features, trade secrets and patents developed in the future are owned
exclusively by the Company.
(6) LICENSES AND TECHNOLOGY
Licenses and technology as of December 31, 2004 consist of the following:
Purchased license rights $ 10,000
Less: Accumulated amortization (1,000)
==========
$ 9,000
Amortization expense totaled $1,000 and $-0- for the years ended December 31,
2004 and 2003, respectively. Amortization expense related to these intangible
assets is expected to be as follows for years ended December 31:
2005 $ 4,000
2006 4,000
2007 1,000
==========
$ 9,000
(7) DUE TO RELATED PARTY
Optisense Corporation ("Optisense") is 100% owned by Xxxxxxx X. Xxx Ph.D., the
Company's Chief Executive Officer and largest shareholder. On June 17, 2003,
Optisense entered into an agreement with the Company to develop the Dynasig
System (the "Optisense Agreement"). The Optisense Agreement required fixed
payments of $15,000 per month plus the reimbursement of certain out-of-pocket
related expenses. On December 31, 2003, the Optisense Agreement was amended to
allow Optisense to hire two employees dedicated to the Bio-Pen project and for
the Company to fully reimburse Optisense for this expense. Due to the related
party nature of this transaction, all Optisense expenses have been recognized by
the Company. Any amounts paid to Optisense over actual expenses have been
charged to research and development expenses as a management fee. This
management fee totaled $81,432 and $37,026 for the years ending December 31,
2004 and 2003, respectively. The Company owes Optisense $85,444 as of December
31, 2004. Other than this liability, the Company expects to perform all its own
development work in the future and have a very limited relationship with
Optisense.
(8) NOTES PAYABLE
Notes payable as of December 31, 2004 is as follows:
Line of Credit borrowings $ 25,000
Note payable to Milestone 45,823
==========
$ 70,823
On December 27, 2004, the Company entered into a line of credit agreement
("LOC") with VCC for up to $100,000. Any advances under the LOC are secured by
a lien on all of the Company's assets. Notes are issued under the LOC as
advances are made to the Company (the "LOC Notes"). Interest on the LOC Notes
accrues at 15% per annum. The LOC Notes and any accrued interest are
convertible into shares of Series A Preferred stock at a price of $1.00 per
share. During the year ended December 31, 2004, the Company borrowed $25,000
under the LOC. Accrued interest totaled $25 as of December 31, 2004. The LOC
expires on December 31, 2005.
The note payable to Milestone as of December 31, 2004 is payable to Milestone
Equity Partners Phoenix, LLC in the principal amount of $55,000 (the "Milestone
Note"). The Milestone Note was issued for a mutual release of all claims
arising from a Consulting Agreement between the Company and Milestone dated June
20, 2003. The Milestone Note is due on December 20, 2005, bears no stated
interest, is secured on all the assets of the Company, and has preemptive
conversion and acceleration rights related to capital raised by the Company
since its issuance. For accounting purposes, interest has been imputed at 10%
and the note principal originally recorded in the amount of $45,823. Interest
expense totaled $138 and $4,670 for the years ended December 31, 2004 and 2003,
respectively. Accrued interest totaled $4,808 as of December 31, 2004.
(9) STOCKHOLDERS' EQUITY
AUTHORIZED CAPITAL
The Company's authorized capital consists of 10,000,000 shares of common stock,
no par value, and 5,000,000 shares of preferred stock. The board of directors
of the Company, in its sole discretion, may establish par value, divide the
shares of preferred stock into series, and fix and determine the dividend rate,
designations, preferences, privileges, and ratify the powers, if any, and
determine the restrictions and qualifications of any series of preferred stock
as established. The holders of common stock are entitled to one vote for each
share held of record on each matter submitted to a vote of shareholders.
Holders of common stock have no preemptive rights or rights to convert their
common stock into any other securities. In June 2003, the board of directors of
the Company designated 1,000,000 shares of the Company's authorized preferred
stock as Series A Preferred stock.
SERIES A PREFERRED STOCK
As of December 31, 2004, 425,000 shares of Series A Preferred stock are issued
and outstanding. The Series A Preferred stock bears a 15% cumulative dividend
and has a per share liquidation preference equal to $1.00 plus any unpaid
dividends ("Liquidation Preference"). As of December 31, 2004, the board of
directors of the Company has declared no dividends. Dividends must be declared
by the board of directors of the Company to become payable. If cash dividends
were to be paid, the Series A Preferred stock would have preference in payment
of dividends over the common stock and any other series of preferred stock later
designated.
Each share of Series A Preferred stock and any accumulated dividends are
initially convertible into one shares of the Company's common stock. Holders of
shares of Series A Preferred stock may elect to convert at any time. Other
attributes of the Series A Preferred stock are priority of class, liquidation
preference, anti-dilution protection and adjustment, right of first refusal to
the holders, and voting rights on an as converted basis. The Series A Preferred
stock is senior to all other capital stock of the Company. In the event of
liquidation, the holders of Series A Preferred stock will be entitled to be paid
an amount in cash equal to the Liquidation Preference, before any other payment
or distribution is made. The Series A Preferred stock is protected from a
dilutive issuance of additional shares of stock at a per share less than the
conversion price at the date of such new issuance. Each share of Series A
Preferred stock votes with the shares of common stock as a single class on all
matters except for matters that affect the rights of the Series A Preferred
stock, in which case the Series A Preferred stock votes separately as a single
class.
COMMON STOCK TRANSACTIONS
The initial capitalization of the Company was 4,000,000 shares of common stock
issued to Xxxxxxx X. Xxx Ph.D., the Company's Chief Executive Officer and
largest shareholder for $4,000 cash. Between June and December 2003, the
Company issued 575,000 shares of common stock for consulting fees, valued at
$.001 per share, or $575, to 12 individuals and entities that assisted in the
start-up and development costs of the Company.
(10) INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has a
deferred income tax asset of $209,311 as of December 31, 2004. The net deferred
income tax asset has been reduced in its entirety by a valuation allowance. No
provision or benefit for income taxes has been reported in the accompanying
statements of operations since any current income tax benefit would be offset by
an equal increase in the valuation allowance. The valuation allowance increased
by $144,587 and $64,724 during the years ended December 31, 2004 and 2003
respectively.
(11) RELATED PARTIES
OPTISENSE CORPORATION
Optisense Corporation ("Optisense") is 100% owned by Xxxxxxx X. Xxx Ph.D., the
Company's Chief Executive Officer and largest shareholder. As discussed in Note
7, Optisense entered into an agreement with the Company to develop the Dynasig
System. The Company owes Optisense $85,444 as of December 31, 2004. Other than
this liability, the Company expects to perform all its own development work in
the future and have a very limited relationship with Optisense.
(12) COMMITMENTS AND CONTINGENCIES
EMPLOYMENT COMMITMENTS
The Company executed an employment agreement with Xxxxxxx X. Xxx Ph.D., the
Company's Chief Executive Officer and largest shareholder. This agreement
requires Xx. Xxx'x exclusive service to the Company in exchange for minimum
annual salary of $100,000. This agreement also provides for discretionary
bonuses determined by the board of directors of the Company and contains
customary non-compete covenants and the assignment by Xx. Xxx of any new
features, trade secrets and/or patents developed by the Company, in the future.
Upon termination for reasons other than for cause, the Company will be obligated
to Xx. Xxx for a 24 month severance payment equal to twice his average salary
and bonus paid out over a 24 month period. Therefore, the aggregate potential
commitment under this agreement is $200,000 as of December 31, 2004.
EXHIBIT 3.13
------------
COMMITMENTS
COMMITMENTS
The following have been provided to VT Gaming Services, Inc.:
- Milestone Note and Security Agreement;
- The OptiSense Agreement;
- All mold cost from Plastic Tooling Co. were transferred to and assumed by
DynaSig.
EXHIBIT 4.7
-----------
FINANCIAL STATEMENTS OF VTG
9
VT GAMING SERVICES, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2004
-UNAUDITED-
Prepared: December 31, 2004
-UNAUDITED-
These financial statements have not been audited or reviewed by independent
auditors and no opinion or any other form of assurance is provided. Although we
have made every effort to make full and complete disclosure, these financial
statements may omit disclosures required by GAAP. If omitted disclosures were
included in these financial statements, they might influence conclusions about
Company financial matters, and therefore are not designed for those who are not
informed about such matters.
VT GAMING SERVICES, INC.
------------------------
BALANCE SHEET
DECEMBER 31, 2004
-UNAUDITED-
ASSETS
ASSETS
CURRENT ASSETS:
Cash $ 297
Total current assets 297
TECHNOLOGY RIGHTS -
OTHER ASSETS, net 647
$ 944
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ -
Total current liabilities -
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' DEFICIT:
Undesignated Preferred stock; authorized 10,000,000 shares, no shares issued and outstanding -
Common stock; no par value, authorized 200,000,000 shares, 5,046,779 shares issued and outstanding 1,000
Accumulated deficit (56)
Total stockholders' deficit (944)
-------
$ 944
-------
REVENUES $ -
COSTS OF REVENUES -
GROSS MARGIN/(LOSS) -
-----
OPERATING EXPENSES:
General and administrative 10
Depreciation and amortization 46
Total operating expenses 56
-----
LOSS FROM OPERATIONS (56)
OTHER INCOME/(EXPENSE):
Interest expense -
Interest income -
Total other income/(expense) -
NET LOSS $(56)
-----
The accompanying notes are an integral part to these financial statements.
------
VT GAMING SERVICES, INC.
------------------------
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2004
-UNAUDITED-
(1) ORGANIZATION AND OPERATIONS
VT Gaming Services, Inc. (the "Company") was incorporated in Arizona on
September 3, 2004 as a wholly owned subsidiary of Visitalk Capital Corporation
("VCC"). The Company was formed as part of the implementation of a confirmed
Chapter 11 reorganization plan (the "Visitalk Plan") of xxxxxxxx.xxx, Inc.
("Xxxxxxxx.xxx"). The Visitalk Plan was deemed effective by the Bankruptcy
Court on September 17, 2004 (the "Effective Date"). On September 22, 2004,
Xxxxxxxx.xxx was merged into VCC, which was authorized as the reorganized debtor
under the Visitalk Plan.
The Company's original intended business was to use Xxxxxxxx.xxx's technology to
facilitate peer-to-peer computer gaming activities. To enter this business, the
Visitalk Plan authorized the Company to acquire certain technology rights from
VCC as of the Effective Date. To acquire these rights, the Company issued VCC
5,000,000 shares of common stock, plus common stock purchase warrants allowing
holders to purchase additional shares of the Company's common stock (the "Plan
Warrants"). The number of Plan Warrants is subject to adjustment in accordance
with the Visitalk Plan (see Note 7).
The Visitalk Plan further authorized VCC to then distribute 839,368 of these
shares of common stock to approximately 240 creditors of Xxxxxxxx.xxx and all
the Plan Warrants to approximately 645 claimants of Xxxxxxxx.xxx, in various
ratios in accordance with the Visitalk Plan (see Note 10). After the
distribution of common stock and Plan Warrants, VCC owned approximately 83.2% of
the Company's outstanding common stock. Other than the issuance of its common
stock and Plan Warrants to VCC as described above, the Company has no
liabilities of any kind related to any Xxxxxxxx.xxx claimant or shareholder.
(2) GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred losses since
inception and has not yet obtained capital needed to achieve management's plans
and support its operations and there is no assurance that the Company will be
able to raise such financing. These factors raise substantial doubt about the
Company's ability to continue as a going concern. In view of these matters,
realization of a major portion of the assets is dependent upon continued
operations of the Company, which in turn is dependent upon the Company's ability
to meet its financing requirements and the success of its future operations.
The financial statements do not include any adjustments that might result from
this uncertainty. The Company relies on VCC to provide funds to meet its
operating requirements.
(3) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
As of December 31, 2004, the Company was a majority owned subsidiary of VCC.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for transactions involving entities
under common control. The Company had not commenced sales, marketing and
promotional activities as of December 31, 2004 and could be considered in the
development stage. The Company will continue in the development stage until it
is generating revenues from the sales of products or services.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all highly liquid investments
with maturity of three months or less when purchased.
ORGANIZATION COSTS
Organization costs are amortized on the straight-line basis over five years.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future, undiscounted, net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist primarily of cash, and obligations under accounts
payable and accrued expenses. The carrying amounts of cash, accounts payable
and accrued expenses approximate fair value because of the short maturity of
those instruments. The Company has applied certain assumptions in estimating
these fair values. The use of different assumptions or methodologies may have a
material effect on the estimates of fair value.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
STOCK BASED COMPENSATION
The Company applies the provisions of Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees, and provides the pro
forma net earnings and pro forma earnings per share disclosures for employee
stock option grants as if the fair-value-based method defined in Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, had been applied. In accordance with APB No. 25, compensation
expense is recorded on the date an option is granted only if the current market
price of the underlying stock exceeds the exercise price. The Company has
granted no employee stock options since inception.
LOSS PER SHARE
The Company has adopted SFAS No. 128, Earnings per Share, which supercedes XXX
Xx. 00. Basic EPS differs from primary EPS calculation in that basic EPS does
not include any potentially dilutive securities. Diluted EPS must be disclosed
regardless of dilutive impact to basic EPS.
INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires the use of an asset and
liability approach in accounting for income taxes. Deferred tax assets and
liabilities are recorded based on the differences between the financial
statement and tax bases of assets and liabilities and the tax rates in effect
when these differences are expected to reverse. SFAS No. 109 requires the
reduction of deferred tax assets by a valuation allowance, if, based on the
weight of available evidence, it is more likely than not that such portion of
the deferred tax asset will not be realized.
The Company filed a consolidated tax return under a tax sharing agreement with
VCC, from inception through December 31, 2004. Accordingly, the income tax
effect of the Company's operations are included in VCC's consolidated income tax
return. The current and deferred income tax expense and benefit are determined
and allocated to the Company as if it were a separate taxpayer.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar to the approach described
in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. SFAS No. 123(R) will be effective for the Company in the first
interim or annual reporting period beginning after December 15, 2005. The
adoption of this standard may have a material impact on the Company's financial
statements assuming employee stock options are granted in the future.
(4) TECHNOLOGY RIGHTS
As discussed in Note 1, the Company's original intended business was to use
Xxxxxxxx.xxx's technology to facilitate peer-to-peer computer gaming activities.
To enter this business, the Visitalk Plan authorized the Company to acquire
certain technology rights from VCC as of the Effective Date. To acquire these
rights, the Company issued VCC 5,000,000 shares of common stock, plus the Plan
Warrants. In accordance with generally accepted accounting principles for
transactions involving entities under common control, no value has been given to
the technology rights on the accompanying balance sheet. All future
expenditures for patents, intellectual property, and technology rights are
expensed as incurred. The Company has agreements with its officers and will
enter into agreements with key employees that any new features, trade secrets
and patents developed in the future are owned exclusively by the Company.
(5) STOCKHOLDERS' EQUITY
AUTHORIZED CAPITAL
The Company's authorized capital consists of 200,000,000 shares of common stock,
no par value, and 10,000,000 shares of preferred stock. The board of directors
of the Company, in its sole discretion, may establish par value, divide the
shares of preferred stock into series, and fix and determine the dividend rate,
designations, preferences, privileges, and ratify the powers, if any, and
determine the restrictions and qualifications of any series of preferred stock
as established. Except regarding the election of directors, the holders of
common stock are entitled to one vote for each share held of record on each
matter submitted to a vote of shareholders. Arizona corporate law allows
cumulative voting in the election of directors.
COMMON STOCK TRANSACTIONS
The initial capitalization of the Company was 40,000 shares of common stock
issued to VCC for $1,000 cash. In September 2004, the Company issued 5,000,000
shares of common stock to VCC to acquire the rights to certain peer-to-peer
computer gaming activities utilizing Xxxxxxxx.xxx's technology, as authorized by
the Visitalk Plan. The Visitalk Plan also provided for the issuance of
"rounding shares" so that, upon distribution of shares by VCC, no holder of
shares would have less than 100 shares as set forth in the Visitalk Plan. The
Company issued 6,779 shares for rounding at no recorded value (see Note 10).
(6) STOCK OPTION PLAN
The Company has an equity incentive plan ("2004 Plan") for employees,
non-employee directors and other service providers covering 3,000,000 shares of
Company common stock. Options granted under the 2003 Plan may be either
"incentive stock options", as defined in Section 422A of the Internal Revenue
Code, or "nonqualified stock options", subject to Section 83 of the Internal
Revenue Code, at the discretion of the board of directors and as reflected in
the terms of the written option agreement. The option price shall not be less
than 100% of the fair market value of the optioned common stock on the date the
option is granted. The option price shall not be less than 110% of the fair
market value of the optioned common stock for an optionee holding at the time of
grant, more than 10% of the total combined voting power of all classes of stock
of the Company. Options become exercisable based on the discretion of the board
of directors and must be exercised within ten years of the date of grant. No
options have been granted by the Company.
(7) COMMON STOCK WARRANTS
PLAN WARRANTS
In accordance with the Visitalk Plan, the Company has issued six series of
common stock purchase warrants allowing holders to purchase additional shares of
common stock ("Plan Warrants"). Each Plan Warrant provides for the purchase of
one share of common stock and is callable by the Company for a price of $.0001
per warrant at any time. The Plan Warrants are governed by a Warrant Agreement.
Currently, the Company is acting as the Warrant Agent but has the right to
appoint an alternative Warrant Agent. The board of directors of the Company can
extend the expiration date of the Plan Warrants or reduce the exercise price on
a temporary or permanent basis. The Company has actually issued 6,785,014 Plan
Warrants in each series to approximately 235 claimants under the Visitalk Plan.
In addition, up to 2,050,395 Plan Warrants in each series may be issued to a
maximum of 410 claimants under the Visitalk Plan only if such claimants execute
a release of claims against Xxxxxxxx.xxx as specified in the Visitalk Plan.
A summary of the Plan Warrants outstanding as of December 31, 2004 follows:
A & B C & D E & F
Warrants Warrants Warrants
------------- ------------- -------------
Warrants outstanding, December 31, 2004 13,570,028 13,570,028 13,570,028
Exercise price $ 2.00 $ 3.00 $ 4.00
Expiration date MAR 17, 2006 MAR 17, 2006 MAR 17, 2006
CONTINGENT WARRANT AGENT AGREEMENT
The Company will be seeking the right from the holders of the Plan Warrant to
act as or appoint a Contingent Warrant Agent. The Contingent Warrant Agent
would have the right to exercise any Plan Warrants, for any electing holders,
only for 30 days after the expiration of any Plan Warrants. In such event, the
Contingent Warrant Agent would then distribute any proceeds pro rata to all
holders of expired Plan Warrants.
(8) RELATED PARTIES
VISITALK CAPITAL CORPORATION
As discussed in Note 1, the Company was originally formed as a wholly owned
subsidiary of VCC. VCC, which operates as an investment and consulting company,
is the reorganized debtor of Xxxxxxxx.xxx. VCC holds various interests in
companies and provides corporate restructuring and consulting services. Xxxxxxx
X. Xxxxxxxx and Xxxxx X. Xxxx, officers and directors of the Company, are also
officers and directors of VCC. After the distribution of common stock and Plan
Warrants (see Note 10), VCC owned approximately 83.2% of the Company's
outstanding common stock as of December 31, 2004.
(9) COMMITMENTS AND CONTINGENCIES
The Company relies on VCC to provide funds to meet its operating requirements.
(10) DISTRIBUTION OF SECURITIES
As discussed in Note 1, the Company was formed as part of the implementation of
the Visitalk Plan. The Visitalk Plan authorized VCC to distribute 839,368 of
the Company's common stock to approximately 240 creditors of Xxxxxxxx.xxx and
all the Plan Warrants to approximately 645 claimants of Xxxxxxxx.xxx, in various
ratios in accordance with the Visitalk Plan. The Visitalk Plan stipulated that
no holder of shares or Plan Warrants would receive less than 100 shares or Plan
Warrants. Accordingly, the Company issued 6,779 shares for rounding at no
recorded value. In accordance with Section 1145 of the Bankruptcy Code, the
distribution of these securities under the Visitalk Plan, except those issued to
VCC and its affiliates, is exempt from registration under the Securities Act of
1933. As a result of the distribution of the Company's common stock, the
Company has approximately 240 shareholders who own approximately 16.8% of the
common stock of the Company as of December 31, 2004.
