EXHIBIT 10.5
CONTRIBUTION AGREEMENT
DATED
FEBRUARY 9, 2000
TABLE OF CONTENTS
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INTRODUCTION...................................................................1
SECTION 1 GENERAL..............................................................1
SECTION 2 CONTRIBUTION OF SMARTGATE FOR PUBCO STOCK............................2
2.1 Issuance and Delivery of Pubco Stock...............................2
2.2 Issuance of Pubco Options..........................................2
2.3 No Lien or Encumbrances on Pubco Stock.............................2
2.4 Fractional Shares..................................................2
2.5 No Registration of the Pubco Stock; Legend.........................2
SECTION 3 CLOSING..............................................................3
3.1 Closing of Transaction.............................................3
3.2 Deliveries at Signing of Agreement.................................3
3.3 Deliveries at Closing by SmartGate.................................3
3.4 Deliveries at Closing by Pubco.....................................3
3.5 Deliveries at Closing by SmartGate Shareholders....................4
3.6 Filings; Cooperation...............................................4
SECTION 4 REPRESENTATIONS AND WARRANTIES BY SMARTGATE..........................4
4.1 Organization and Good Standing of SmartGate........................4
4.2 Capitalization.....................................................4
4.3 Subsidiaries.......................................................4
4.4 Financial Statements...............................................4
4.5 Absence of Undisclosed Liabilities.................................5
4.6 Litigation.........................................................5
4.7 Compliance with Laws...............................................5
4.8 Absence of Certain Changes.........................................5
4.9 Assets.............................................................6
4.10 Tax Matters........................................................6
4.11 Contracts..........................................................6
4.12 Insurance..........................................................7
4.13 Permits............................................................7
4.14 Books and Records..................................................7
4.15 Authority to Execute Agreement.....................................7
4.16 Finder's, Broker's Fees............................................7
4.17 Disclosure.........................................................7
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SECTION 5 REPRESENTATIONS AND WARRANTIES BY PUBCO..............................8
5.1 Organization and Good Standing.....................................8
5.2 Capitalization.....................................................8
5.3 Authority to Execute Agreement.....................................8
5.4 Subsidiaries.......................................................8
5.5 Financial Statements...............................................8
5.6 Absence of Financial Changes.......................................8
5.7 Absence of Certain Changes.........................................9
5.8 Assets.............................................................9
5.9 Absence of Undisclosed Liabilities................................10
5.10 Litigation........................................................10
5.11 Compliance with Laws..............................................10
5.12 Contracts.........................................................10
5.13 Tax Matters.......................................................10
5.14 To the Best of Pubco's Knowledge, Pubco...........................11
5.15 Books and Records.................................................11
5.16 Investment Intent.................................................11
5.17 Finder's Fee......................................................11
5.18 Disclosure........................................................11
SECTION 6 ACCESS AND INFORMATION..............................................11
6.1 As to SmartGate...................................................11
6.2 As to Pubco.......................................................12
SECTION 7 CONDUCT OF PARTIES PENDING CLOSING..................................12
7.1 Conduct of SmartGate Business Pending Closing.....................12
7.2 Conduct of Pubco Pending Closing..................................12
SECTION 8 CONTRIBUTION OF CAPITAL FOR PUBCO SHARES............................13
8.1 Contribution of Pubco Shares......................................13
8.2 Pubco's Private Placement.........................................13
8.3 Expenses for Transaction..........................................13
8.4 Private Offering Memorandum.......................................13
8.5 Recipient of Pubco Stock..........................................14
8.6 Indemnification...................................................14
SECTION 9 CONDITIONS PRECEDENT TO CLOSING.....................................15
9.1 Conditions Precedent to Pubco's Obligations.......................15
9.2 Conditions Precedent to SmartGate's and the SmartGate
Shareholder Obligations...........................................16
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SECTION 10 ADDITIONAL COVENANTS OF THE PARTIES................................18
10.1 Cooperation.......................................................18
10.2 Expenses..........................................................18
10.3 Confidential Information..........................................18
10.4 Publicity.........................................................19
10.5 Name Change.......................................................19
10.6 Post-Closing Covenants............................................19
10.7 Registration Rights...............................................20
10.8 Budget and Approved Expenditures..................................20
10.9 Insurance.........................................................20
10.10 Amendment of Articles.............................................20
10.11 Loan in Recognition of Tax Liability..............................20
SECTION 11 REMEDIES...........................................................21
11.1 Mutual Termination................................................21
11.2 Defaults Permitting Termination...................................21
11.3 Post-Closing Covenants Benefit Third Parties......................21
11.4 Arbitration.......................................................21
SECTION 12 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS..............21
12.1 As to SmartGate...................................................21
12.2 As to Pubco.......................................................21
SECTION 13 MISCELLANEOUS......................................................22
13.1 Entire Agreement; Amendments......................................22
13.2 Binding Agreement.................................................22
13.3 Attorney's Fees...................................................22
13.4 Severability......................................................22
13.5 Governing Law.....................................................22
13.6 Notices...........................................................22
13.7 Counterparts......................................................23
EXHIBIT LIST..................................................................25
SCHEDULE LIST.................................................................25
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT ("Agreement") is entered into on this 9th
day of February 2000 by and between SmartGate, Inc., a Nevada corporation
("Pubco"), SmartGate, L.C., a Florida Limited Liability Company ("SmartGate"),
and shareholders of SmartGate listed on the signature pages hereto, being the
only shareholders of SmartGate (the "SmartGate Shareholders, SmartGate
Stockholders or SmartGate Members") and who are joining this Agreement only for
purposes of Section 1, 2, 3, 9.2 and 10.7 as of the date this Agreement is
executed.
INTRODUCTION
The transaction contemplated by this Agreement is intended to be an
integral part of a "tax free" contribution of property under Section 351 of the
Internal Revenue Code of 1986 as amended. As a single consolidated transaction,
Pubco will simultaneously exchange shares of its stock (the "Pubco Stock") for
100% of the outstanding stock of SmartGate and $1,187,000 of capital. The
acquisition by Pubco of SmartGate is contingent upon, simultaneous with and
indivisible from Pubco's acquisition of $1,187,000 of capital; likewise, Pubco's
acquisition of $1,187,000 of capital is contingent upon, simultaneous with and
indivisible from Pubco's acquisition of SmartGate. As a result of this
transaction, Pubco shall issue capital stock of Pubco in exchange for said
property representing more than 80% of the Pubco stock outstanding immediately
after closing.
AGREEMENT
SECTION 1
GENERAL
Issuance of shares of Pubco shall be part of a single consolidated
transaction which has two integral components, each of which will close
simultaneously, will be contingent upon each other and will be indivisible from
each other. The two components of this transaction are: (i) the SmartGate
Stockholders, as of the date of closing as such term is defined in Section 3
hereof (the "Closing" or the "Closing Date") shall contribute to Pubco at
Closing certificates representing 100% of the outstanding shares of SmartGate.
The transfer of SmartGate shares shall be made free and clear of all liens,
mortgages, prejudices, encumbrances or charges, whether disclosed or undisclosed
except as the SmartGate shareholders and Pubco shareholders have otherwise
agreed in writing. The SmartGate shareholders shall receive approximately
7,743,548 shares of Pubco stock representing no less than 74% of the outstanding
capital stock of Pubco immediately after Closing in exchange for the delivery of
said property; and (ii) suitable and sophisticated parties shall contribute a
minimal $1,187,000 to Pubco in the form of cash in exchange for approximately
657,952 shares of capital stock of Pubco which will be outstanding immediately
after Closing. The contribution of SmartGate Shares for Pubco shares shall be
governed by this Agreement while the contribution of $1,187,000 for Pubco shares
shall be governed by the private placement memorandum and separate subscription
agreements which are expressly incorporated into this Agreement and which are
expressly made a part of this Agreement. Accordingly, after the conclusion of
the transaction, Pubco shall, in exchange for the foregoing described property
(i.e. 100% of the outstanding stock of SmartGate and $1,187,000 in cash
investment), issue stock representing more than 80% of the capital stock of
Pubco immediately after Closing. The shareholders of Pubco not participating in
this transaction
shall hold less than 20% of the capital of Pubco immediately after closing. All
shareholders of Pubco, immediately following closing of this Agreement, shall be
set forth on Schedule 1.
SECTION 2
CONTRIBUTION OF SMARTGATE FOR PUBCO STOCK
2.1 Issuance and Delivery of Pubco Stock. Subject to the
terms and conditions contained in this Agreement, at the Closing, Pubco shall
acquire from the SmartGate Shareholders, and each SmartGate Shareholder, shall
contribute to Pubco, that number of shares of SmartGate Stock set forth on
Schedule 4.2. Subject to the provisions below regarding fractional shares, as
consideration for the transfer, assignment, conveyance and delivery of the
SmartGate Stock hereunder, at the Closing, Pubco shall issue to SmartGate
Shareholders that number of shares of Pubco reflected on Schedule 4.2,
representing approximately 7,743,548 shares of Pubco Common Stock which shall
represent not less than 74% of the outstanding Common Stock of Pubco immediately
following the Closing of this Agreement (hereafter referred to as the "Exchange
Transaction").
2.2 Issuance of Pubco Options. As further consideration for
this transaction Pubco shall, at closing, issue options of Pubco in the amount
and terms set forth on Schedule 4.2 to replace the outstanding options of
SmartGate which represents 491,191 shares at an exercise price per share of
$1.00
2.3 No Lien or Encumbrances on Pubco Stock. The issuance of
the Pubco Stock shall be made free and clear of all liens, mortgages, pledges,
encumbrances or charges, whether disclosed or undisclosed, except as the
SmartGate Shareholders and Pubco shall have otherwise agreed in writing.
2.4 Fractional Shares. Notwithstanding any other term or
provision of this Agreement, no fractional share of Pubco Common Stock and no
certificates or scrip therefor, or other evidence of ownership thereof, will be
issued and neither shall any SmartGate Shareholder have any right to receive
cash in lieu thereof. Each SmartGate Shareholder's pro rata share of Pubco
Common Stock shall be rounded up to the nearest whole number of shares.
2.5 No Registration of the Pubco Stock; Legend. None of the
Pubco Stock issued to the SmartGate Shareholders shall, at the time of Closing,
be registered under federal or state securities laws but, rather, shall be
issued pursuant to an exemption therefrom and shall be considered "restricted
stock" within the meaning of Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act"). The Pubco Common Stock so issued shall
bear a legend worded substantially as follows:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND ARE
"RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED
UNDER THE SECURITIES ACT. THE SHARES REPRESENTED BY THE
CERTIFICATE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, TRANSFERRED OR ASSIGNED EXCEPT (1) PURSUANT TO A
REGISTRATION STATEMENT THEN IN EFFECT UNDER THE SECURITIES ACT,
(2) IN COMPLIANCE WITH RULE 144, OR (3) PURSUANT TO AN OPINION
OF COUNSEL TO THE ISSUER HEREOF, SATISFACTORY IN FORM AND
SUBSTANCE TO THE ISSUER, THAT SUCH REGISTRATION OR COMPLIANCE
IS NOT REQUIRED AS TO SUCH SALE, OFFER TO SELL, PLEDGE,
HYPOTHECATION, TRANSFER OR ASSIGNMENT"
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Pubco's transfer agent shall annotate its records to reflect the restrictions on
transfer embodied in the legend set forth above.
SECTION 3
CLOSING
3.1 Closing of Transaction. The Closing of the Exchange
Transaction (the "Closing" or "Closing Date") shall take place on February 9,
2000 at 4:00 p.m. E.S.T. unless another time shall be mutually agreed upon by
the parties. The Closing shall take place at the offices of SmartGate located at
0000 Xxxxxxxxxxxx Xxxxx, Xxxxxxxx, XX.
3.2 Deliveries at Signing of Agreement. Prior to executing
this Agreement, Pubco and SmartGate shall provide the other with their
respective Board Minutes or consents approving the terms of this Agreement and
the transaction contemplated herein.
3.3 Deliveries at Closing by SmartGate. SmartGate shall
deliver or cause to be delivered to Pubco at the Closing a copy of a consent of
SmartGate's Board of Directors (as used herein SmartGate's Board of Directors
shall mean SmartGate's managers) authorizing SmartGate to take the necessary
steps toward Closing the transaction described by this Agreement; and
3.4 Deliveries at Closing by Pubco.
3.4.1 Pubco shall deliver or cause to be delivered
to SmartGate at the Closing:
3.4.1.0 a copy of the consent of Pubco's
Board of Directors authorizing Pubco to take the necessary
steps toward Closing the transaction described by this
Agreement;
3.4.1.1 a copy of a Certificate of Good
Standing for Pubco issued not more than 90 days prior to the
Closing by the Nevada Secretary of State; and
3.4.1.2 a legal opinion of Pubco's legal
counsel satisfactory to SmartGate.
3.4.1.3 irrevocable instructions to the
Pubco transfer agent confirming the reservation and issuance of
stock certificates to the SmartGate L.C. unit holders as
provided herein.
3.4.1.4 director's resolution implementing
the year 2000 Employee Stock Option Agreements and issuance of
Options to specified employees of SmartGate L.C.
3.4.1.5 Executed employment agreements
between Pubco and current employees of SmartGate L.C. as
provided in this Agreement.
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3.5 Deliveries at Closing by SmartGate Shareholders.
SmartGate Shareholders shall deliver to Pubco at the Closing certificates
representing all shares of the SmartGate Stock as described in Section 1 and
Schedule 4.2, endorsed in blank by the registered owner.
3.6 Filings; Cooperation. SmartGate and Pubco shall, on
request and without further consideration, cooperate with one another by
furnishing or using their best efforts to cause others to furnish any additional
information and/or executing and delivering or using their best efforts to cause
others to execute and deliver any additional documents and/or instruments, and
doing or using their best efforts to cause others to do any and all such other
things as may be reasonably required by the parties or their counsel to
consummate or otherwise implement the transactions contemplated by this
Agreement.
SECTION 4
REPRESENTATIONS AND WARRANTIES BY SMARTGATE
Subject to the schedules, attached hereto and incorporated
herein by this reference, SmartGate represents and warrants to Pubco as follows:
4.1 Organization and Good Standing of SmartGate. The
Articles of Organization of SmartGate and all amendments thereto as presently in
effect, certified by the Florida Secretary of State, and the Operating Agreement
of SmartGate as presently in effect, certified by the President and Secretary of
SmartGate, have been delivered to Pubco and are complete and correct and since
the date of such delivery, there has been no amendment, modification or other
change thereto.
4.2 Capitalization. For the purposes of this Agreement,
the term "SmartGate Stock" shall include SmartGate Membership Units and the term
"SmartGate Stockholders and SmartGate Shareholder" shall include SmartGate
members. SmartGate stock issued and outstanding as of the Closing Date will be
8,252,857 shares subject to Schedule 4.2. All of such outstanding shares are
validly issued, fully paid and non-assessable. SmartGate has no other
securities, or rights, or options, or warrants to purchase or acquire securities
outstanding, and has no currently outstanding promissory notes, other securities
or debt instruments, except as set forth in Schedule 4.2.
4.3 Subsidiaries. SmartGate has no subsidiaries and no other
material investments, directly or indirectly, or other material financial
interests in any other corporation or business organization, joint venture or
partnership of any kind whatsoever.
4.4 Financial Statements. Attached hereto as Schedule 4.4
are SmartGate's unaudited financial statements (or tax returns) for the fiscal
years ended December 31, 1997, December 31, 1998 and December 31, 1999
(collectively referred to as the "Financial Statements"). Other than changes in
the usual and ordinary conduct of the business since December 31, 1999, or as
otherwise provided herein, there have been no material adverse changes in such
financial statements.
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4.5 Absence of Undisclosed Liabilities. SmartGate has no
liabilities which are not adequately reflected or reserved against in the
SmartGate Financial Statements or otherwise reflected in this Agreement and
SmartGate shall not have as of the Closing Date, any liabilities, secured or
unsecured and whether accrued, absolute, contingent, direct, indirect or
otherwise, which were incurred after December 31, 1999 other than those
incurred in the ordinary course of business and which, either individually or in
the aggregate, are not material to the results of operations or financial
condition of SmartGate as of the Closing Date.
4.6 Litigation. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, governmental or regulatory body or
arbitration tribunal against SmartGate or its properties. There are no actions,
suits or proceedings pending, or, to the knowledge of SmartGate, threatened
against or affecting SmartGate, any of its officers or directors relating to
their positions as such, or any of its properties, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, in
connection with the business, operations or affairs of SmartGate, which might
result in any material adverse change in the operations or financial condition
of SmartGate.
4.7 Compliance with Laws. To the best of SmartGate's
knowledge, the operations and affairs of SmartGate do not violate any law,
ordinance, rule or regulation currently in effect, or any order, writ,
injunction or decree of any court or governmental agency, the violation of which
would substantially and adversely affect the business, financial condition or
operations of SmartGate.
4.8 Absence of Certain Changes. Except as reflected in
Schedule 4.8, the Financial Statements, or as otherwise disclosed in writing to
Pubco, since December 31, 1999:
4.8.1 other than in the normal course of business,
SmartGate has not entered into any material transaction;
4.8.2 there has been no material adverse change in
the condition (financial or otherwise), business, property,
prospects, assets or liabilities of SmartGate as shown on the
SmartGate Financial Statements, other than changes that both
individually and in the aggregate do not have a consequence
that is materially adverse to such condition, business,
property, prospects, assets or liabilities;
4.8.3 there has been no material damage to,
destruction of or loss of any of the properties or assets of
SmartGate (whether or not covered by insurance) materially and
adversely affecting the condition (financial or otherwise),
business, property, prospects, assets or liabilities of
SmartGate;
4.8.4 SmartGate has not declared or paid any
dividend or made any distribution on its capital stock,
redeemed, purchased or otherwise acquired any of its capital
stock, granted any options to purchase shares of its stock, or,
issued any shares of its capital stock except as provided in
Schedule 4.2;
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4.8.5 to the best of SmartGate's knowledge, there
has been no material change, except in the ordinary course of
business, in the contingent obligations of SmartGate by way of
guaranty, warranty or otherwise;
4.8.6 there have been no loans made by SmartGate to
its employees, officers or directors;
4.8.7 other than in the normal course of business,
the Pubco employment agreements as negotiated or as reflected
in the Private Offering Memorandum, there has been no
extraordinary increase in the compensation of any of SmartGate
employees with the exception of a SmartGate bonus of $30,000 to
Mr. Michael and $30,000 to Xx. Xxxxxx, approved by Pubco;
4.8.8 to the best of SmartGate's knowledge, there
has been no other event or condition of any character which
might reasonably be expected either to result in a material
adverse change in the condition (financial or otherwise)
business, property, prospects, assets or liabilities of
SmartGate or to impair materially the ability of SmartGate to
conduct the business now being conducted.
4.9 Assets. All of the assets reflected on the SmartGate
Financial Statements as being owned or acquired and held as of the Closing Date,
other than any capital leases, are, and on the Closing Date will be, owned by
SmartGate. Except as set forth in Schedule 4.9, SmartGate owns outright and has
good and marketable title, or holds valid and enforceable leases, to all of such
assets, and no liens exist, except for liens placed upon the property at the
time of purchase or lease or through one or more financing transactions. To the
best of SmartGate's knowledge, none of SmartGate's equipment has any material
defects and in all material respects is in good operating condition and repair,
except for ordinary, routine maintenance and repair. Except to the extent
disclosed in Schedule 4.9 to this Agreement or reserved against on its balance
sheet as of December 31, 1999 neither SmartGate nor any of the SmartGate
Shareholders have any reason to believe that any of the accounts and contracts
receivable existing would be uncollectible in whole or material part.
4.10 Tax Matters. All federal, state and local tax returns,
and reports required to be filed before the closing by or with respect to the
activities of SmartGate have been filed. All federal, state and local tax
returns which will be required to be filed regarding SmartGate following the
Closing will be timely filed. To the best of its knowledge, such returns and
reports are true and correct in all material respects insofar as they relate to
the activities of SmartGate. Except as set forth in Schedule 4.10 since
December 31, 1999, SmartGate has not, to its knowledge, incurred any liability
with respect to any federal, state or local taxes except in the ordinary and
regular course of business and with respect to such tax or assessment SmartGate
is not delinquent and no deficiencies for any amount of such tax have been
proposed or assessed.
4.11 Contracts. Set forth on Schedule 4.11 hereto is a true
and complete list of all material contracts or agreements to which SmartGate is
a party. To the best of its knowledge, all such material contracts and
agreements are valid and binding on SmartGate in accordance with their
respective terms.
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4.12 Insurance. To the best of its knowledge, SmartGate, will at closing,
have insurance coverage, which is in full force, and effect which provides for
coverage that is usual and customary in its business as to amount and scope.
4.13 Permits. To the best of its knowledge and except as set forth on
Schedule 4.13, SmartGate has all material governmental certificates and
licenses, permits, authorizations and approvals ("Permits") required to conduct
its business as presently conducted.
4.14 Books and Records. To the best of its knowledge, the books and
records of SmartGate are complete and correct and accurately present, in all
material respects, all of the transactions therein described.
4.15 Authority to Execute Agreement. The Board of Directors of SmartGate,
pursuant to the power and authority legally vested in it, has duly authorized
the execution and delivery by SmartGate of this Agreement, and has duly agreed
to each of the transactions hereby contemplated. SmartGate has the power and
authority to execute and deliver this Agreement, to approve the transactions
hereby contemplated and to take all other actions required to be taken by it
pursuant to the provisions hereof. Subject to obtaining the approval of
SmartGate's shareholders to this Agreement and the transactions contemplated
hereby, SmartGate has taken all actions required by law, its Articles of
Organization, as amended, or otherwise to authorize the execution and delivery
of this Agreement. This Agreement is valid and binding upon SmartGate and upon
execution by the SmartGate Stockholders, upon the SmartGate Shareholders in
accordance with its terms. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will constitute a
violation or breach of the Articles of Organization, as amended, or the
Operating Agreement, as amended, of SmartGate, or of any agreement, injunction,
law, rule or regulation applicable to SmartGate or any of the SmartGate
Shareholders.
4.16 Finder's, Broker's Fees. Neither SmartGate nor the SmartGate
Shareholders are liable or obligated to pay any finder's, agent's or broker's
fee arising out of or in connection with this Agreement or the transactions
contemplated by this Agreement.
4.17 Disclosure. To the best of SmartGate's knowledge, SmartGate has
disclosed all events, conditions and facts materially affecting the business and
prospects of SmartGate. To the best of SmartGate's knowledge, no representation
or warranty by SmartGate in this Agreement nor in any certificate, exhibit,
schedule or other written document, furnished to Pubco by SmartGate in
connection with the transactions contemplated by this Agreement, taken in the
context made or given, contains any untrue material statement of a material fact
or omits to state a material fact necessary to be stated in order to make the
statements contained herein or therein not misleading.
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SECTION 5
REPRESENTATIONS AND WARRANTIES BY PUBCO
Pubco represents and warrants to SmartGate and the SmartGate Shareholders
as follows:
5.1 Organization and Good Standing. Pubco is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has full corporate power and authority to own or lease its properties
and to carry on its business as now being conducted and as proposed to be
conducted.
5.2 Capitalization. Pubco's authorized capital stock consists of
25,000,000 shares of $.001 par value Common Stock (defined above as "Pubco
Common Stock"), of which 2,000,000 shares of Pubco Common Stock are outstanding
at the date of this Agreement and held by approximately 49 shareholders.
Attached as Schedule 5.2 is a list of Pubco's shareholders and their respective
share ownership as of December 31, 1999. Pubco is not authorized to issue any
class or classes of stock other than such above-described Common Stock. Before
giving full effect to the Private Placement contemplated in Section 8, there
will be immediately prior to the Closing approximately 2,000,000 shares of Pubco
Common Stock outstanding representing less than 20% of Pubco shares outstanding
immediately after closing. No other warrants, options or other rights to acquire
Pubco Shares outstanding or contemplated except as otherwise provided herein.
5.3 Authority to Execute Agreement. The Board of Directors of Pubco,
pursuant to the power and authority legally vested in it, has duly authorized
the execution and delivery by Pubco of this Agreement, and has duly agreed to
each of the transactions hereby contemplated. Pubco has the power and authority
to execute and deliver this Agreement, to approve the transactions hereby
contemplated and to take all other actions required to be taken by it pursuant
to the provisions hereof. Pubco has taken all actions required by law, its
Certificate of Incorporation, as amended, or otherwise to authorize the
execution and delivery of this Agreement and this Agreement is valid and binding
upon Pubco. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will constitute a violation
or breach of the Certificate of Incorporation, as amended, or the Bylaws, as
amended, of Pubco, or any agreement, stipulation, order, writ, injunction,
decree, law, rule or regulation applicable to Pubco.
5.4 Subsidiaries. Pubco has no subsidiaries and no investments, directly
or indirectly, or other financial interest in any other corporation or business
organization, joint venture or partnership of any kind whatsoever.
5.5 Financial Statements. Pubco has delivered to SmartGate copies of
all Pubco's audited financial statements for the fiscal year ended March 31,
1999 and its unaudited financial statements for the period ended January 31,
2000 (collectively, the "Pubco Financial Statements"), all of which are true,
accurate, and complete.
5.6 Absence of Financial Changes. Since December 31, 1999, there has
been no material change in Pubco's financial condition, assets or liabilities,
except capital contributions and the incurring of expenses in connection with
the acquisition of SmartGate and conducting of the Private
8
Placement, which expenses, incurred prior to the Closing, shall be paid by Pubco
prior to the Closing and shall not be the responsibility of Pubco thereafter.
Upon the Closing, Pubco shall have no debt not reflected on the Pubco Financial
Statements, except as described in Schedule 5.6.
5.7 Absence of Certain Changes. Except as set forth in Schedule 5.7
and except for the transaction contemplated in Pubco's private placement as
provided in Section 8 or as otherwise disclosed in writing to Pubco, since
December 31, 1999:
5.7.1 other than in the normal course of business, Pubco
has not entered into any material transaction;
5.7.2 there has been no material adverse change in the
condition (financial or otherwise), business, property, prospects, assets
or liabilities of Pubco as shown on the Pubco Financial Statements, other
than changes that both individually and in the aggregate do not have a
consequence that is materially adverse to such condition, business,
property, prospects, assets or liabilities;
5.7.3 there has been no material damage to, destruction
of or loss of any of the properties or assets of Pubco (whether or not
covered by insurance) materially and adversely affecting the condition
(financial or otherwise), business, property, prospects, assets or
liabilities of Pubco;
5.7.4 Pubco has not declared or paid any dividend or made
any distribution on its capital stock, redeemed, purchased or otherwise
acquired any of its capital stock, granted any options to purchase shares
of its stock, or, other than current issuance's to certain individuals as
set forth in Schedule 5.7.4, issued any shares of its capital stock;
5.7.5 there has been no material change, except in the
ordinary course of business, in the contingent obligations of Pubco by way
of guaranty, warranty or otherwise;
5.7.6 there have been no loans made by Pubco to its
employees, officers or directors;
5.7.7 other than in the normal course of business, there
has been no extraordinary increase in the compensation of any of Pubco's
employees;
5.7.8 there has been no other event or condition of any
character which might reasonably be expected either to result in a material
adverse change in the condition (financial or otherwise) business,
property, prospects, assets or liabilities of Pubco or to impair materially
the ability of Pubco to conduct the business now being conducted.
5.8 Assets. All of the assets reflected on the Pubco Financial
Statements or acquired and held as of the Closing Date, other than any capital
leases, are, and on the Closing Date will be, owned by Pubco. Except as set
forth in Schedule 5.8, Pubco owns outright and has good and marketable title, or
holds valid and enforceable leases, to all of such assets, and no liens exist,
except for liens placed upon the property at the time of purchase or lease or
through one or more financing
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transactions. To the best of Pubco's knowledge, none of Pubco's equipment has
any material defects and in all material respects is in good operating condition
and repair, except for ordinary, routine maintenance and repair. Except to the
extent disclosed in Schedule 5.8 to this Agreement or reserved against on its
balance sheet as of December 31, 1999, neither Pubco nor any of the Pubco
Shareholders have any reason to believe that any of the accounts and contracts
receivable existing would be uncollectible in whole or material part.
Immediately following the closing, Pubco, after giving effect to the
simultaneous closing of the private placement described in Section 8, (but
before adjustment for the simultaneous closing of SmartGate) shall have
uncommitted and unreserved cash or cash equivalents on hand in an amount equal
to $1,177,000 in excess of any and all debts, liabilities, expenses or
obligations of Pubco ("Minimum Cash At Closing"). SmartGate L.C. may, in its
discretion waive or reduce the minimum cash at closing requirement subject to
acceptable arrangements with Pubco and/or Pubco shareholders which arrangements
could modify the representations of Section 4.2.
5.9 Absence of Undisclosed Liabilities. Except to the extent reflected
in Pubco's balance sheet as of December 31, 1999, Pubco has no other
liabilities, as of such date, of any nature, whether accrued, absolute,
contingent, or otherwise.
5.10 Litigation. There are no outstanding orders, judgments, injunctions,
awards or decrees of any court, governmental or regulatory body or arbitration
tribunal against Pubco or its properties. There are no actions, suits or
proceedings pending, or, to the knowledge of Pubco, threatened against or
relating to Pubco. Pubco is not in default under or with respect to any
judgment, order, writ, injunction or decree of any court or of any federal,
state, municipal or other governmental authority, department, commission, board,
agency or other instrumentality.
5.11 Compliance with Laws. To the best of Pubco's knowledge, and except
as set forth in Schedule 5.11, the operations and affairs of Pubco do not
violate any law, ordinance, rule or regulation currently in effect, or any
order, writ, injunction or decree of any court or governmental agency, the
violation of which would substantially and adversely affect the business,
financial condition or operations of Pubco.
5.12 Contracts. Except for this Agreement and the transactions
contemplated hereby (including the Memorandum of Understanding between the
parties dated September 13, 1999) Pubco is not a party to any contract, nor is
Pubco a party to any written or oral commitment for capital expenditures. Pubco
has in all material respects performed all obligations required to be performed
by it to date and is not in default in any material respect under any agreements
or other documents to which it was a party.
5.13 Tax Matters. All federal, foreign, state and local tax returns,
reports and information statements required to be filed by or with respect to
the activities of Pubco have been filed for all the years and periods for which
such returns and statements were due, including extensions thereof. Pubco has
not incurred any liability with respect to any federal, foreign, state or local
taxes except in the ordinary and regular course of business. Pubco is not
delinquent in the payment of any such tax or assessment, and no deficiencies for
any amount of such tax have been proposed or assessed.
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5.14 To the Best of Pubco's Knowledge, Pubco:
5.14.1 is in compliance with Federal securities law and its
SEC filings are current, accurate and complete.
5.14.2 is not in any violation of any applicable State
securities law and the transaction contemplated herein will not be in violation
of any Federal or applicable State securities law.
5.14.3 Has not received any shareholder complaints or
shareholder actions and there is no outstanding shareholder litigation nor does
Pubco have any knowledge of any pending lawsuits
5.14.4 The private placement as provided in Section 8 will be
in full compliance with the rules and regulations of the SEC and all other
applicable agencies and
5.14.5 The transaction contemplated by this Agreement will
comply with all the rules and regulations of the SEC and all other governmental
agencies or bodies.
5.15 Books and Records. The books and records of Pubco are complete and
correct and accurately present, in all material respects, all of the
transactions therein described.
5.16 Investment Intent. Pubco is acquiring the SmartGate Stock from the
SmartGate Shareholders for investment and not with a view to or for sale in
connection with any distribution thereof.
5.17 Finder's Fees. Pubco is not liable or obligated to pay finder's,
agent's or broker's fee arising out of or in connection with this Agreement or
the transactions contemplated by this Agreement except for such broker's
commissions, if any, payable by Pubco in connection with the Private Placement,
all of which shall be paid and satisfied solely by Pubco.
5.18 Disclosure. Pubco has disclosed all events, conditions and facts
materially affecting the business and prospects of Pubco. No representation or
warranty by Pubco in this Agreement nor in any certificate, exhibit, schedule or
other written document, furnished to SmartGate by Pubco in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary to be stated in order
to make the statements contained herein or therein not misleading.
SECTION 6
ACCESS AND INFORMATION
6.1 As to SmartGate. Subject to the protections provided by Section
10.3 herein, SmartGate shall give to Pubco, its accountants and other
representatives full access during normal business hours throughout the period
prior to the Closing, to all of SmartGate's properties, books, contracts,
commitments, and records, including information concerning its customer base and
sales and manufacturing, and shall furnish Pubco during such period with all
such information concerning SmartGate's affairs as Pubco shall reasonably
request.
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6.2 As to Pubco. Pubco shall give to SmartGate, their accountants and
other representatives, full access, during normal business hours throughout the
period prior to the Closing, to all of Pubco's books and records concerning
Pubco's affairs as SmartGate and the SmartGate Shareholders shall reasonably
request.
SECTION 7
CONDUCT OF PARTIES PENDING CLOSING
7.1 Conduct of SmartGate Business Pending Closing. SmartGate and the
SmartGate Shareholders, covenant that pending the Closing:
7.1.1 SmartGate's business will be conducted only in the ordinary
course.
7.1.2 No change will be made in SmartGate's Articles of
Organization or Operating Agreements and, no change will be made in
SmartGate's issued shares of stock, other than as permitted herein or such
changes as may be first approved in writing by Pubco.
7.1.3 Other than in the ordinary course of business or otherwise
permitted herein, no contract or commitment will be entered into by or on
behalf of SmartGate or indebtedness otherwise incurred, except with notice
in writing to and approval by Pubco.
7.1.4 No dividends shall be declared, no stock bonuses or options
shall be granted and no extraordinary increases in compensation to
employees, including officers, shall be declared and no new employment
agreement shall be entered into with officers or directors of SmartGate
except with notice in writing to and approval by Pubco.
7.1.5 Except as otherwise requested by Pubco, SmartGate and the
its best efforts to preserve SmartGate's business organization intact; to
keep available to SmartGate the services of its present officers and
employees; and to preserve the goodwill of those having business relations
with SmartGate.
7.2 Conduct of Pubco Pending Closing. Pubco covenants that, pending the
Closing:
7.2.1 Pubco will conduct business only in the ordinary course.
7.2.2 No change will be made in Pubco's Certificate of
Incorporation or bylaws or in Pubco's authorized shares of stock except as
may be first approved in writing by SmartGate.
7.2.3 No dividends shall be declared, no stock options granted
(other than as provided herein) and no employment agreements shall be
entered into with officers or directors of Pubco, except as may be first
approved in writing by SmartGate.
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7.2.4 Except as otherwise requested by SmartGate, Pubco and the
Pubco Shareholders will use their best efforts to preserve Pubco's business
organization intact; to keep available to SmartGate the services of its
present officers and employees; and to preserve the goodwill of those
having business relations with Pubco.
7.2.5 Pubco will comply with all Federal Securities Laws,
applicable State Securities Laws and blue sky requirements in connection
with this Agreement and Section 8 herein.
7.2.6 The $250,000 note contemplated in Exhibit 7.2.6 will be
executed and funded simultaneously with the execution of this Agreement.
$240,000 was funded under the Promissory Note and accepted by SmartGate as
substantial compliance. The $240,000 funding will not be included as part
of the Minimum Cash At Closing as required in Section 5.8.
SECTION 8
CONTRIBUTION OF CAPITAL FOR PUBCO SHARES
8.1 Contribution of Pubco Shares. As part of the overall transaction
contemplated by this Agreement and subject to Section 4.8, Pubco shall issue
approximately 657,952 shares representing approximately 6% of Pubco shares
outstanding after the Closing of this Agreement in exchange for a contribution
of $1,187,000. The exchange of shares under this Section 8 is an indivisible
part of, contingent upon and simultaneous with the exchange of shares to acquire
SmartGate as describe in Section 2 of this Agreement. The legal aspects of the
exchange of Pubco for $ 1,187,000 shall be governed by certain state and
federal securities laws, and accordingly, will be embodied in the Private
Placement Memorandum described herein and related subscription agreements which
are expressly incorporated into this Agreement and made a part hereof.
8.2 Pubco's Private Placement. Simultaneous with and as a condition of
closing this Agreement, Pubco shall use its best efforts to arrange for the
contribution of $1,187,000 (net of associated private placement costs) in
exchange for approximately 657,952 shares of Pubco Common Stock representing
approximately 6% of the Pubco stock outstanding immediately after closing
("Private Placement"). The Private Placement will be offered exclusively to
suitable and sophisticated investors who are "accredited investors" within the
meaning of Regulation D under the Securities Act. Investors under the Private
Placement shall buy for investment and not with an existing view to resell or
distribute the shares.
8.3 Expenses of Transaction. Prior to closing, Pubco shall pay all of
the fees, costs and expenses incurred in connection with the Private Placement
without reducing the minimum net proceeds of $ 1,187,000.
8.4 Private Offering Memorandum. Pubco shall proceed in good faith
toward preparation of a private offering memorandum (the "Private Offering
Memorandum") to be used in connection with the Private Placement. Pubco shall
have complete and exclusive responsibility to prepare the Private Offering
Memorandum and related documents, which shall include such information
concerning the offering, business, financial condition, results of operations
and other matters concerning Pubco and this Agreement as may reasonably be
determined by Pubco. Pubco shall be solely and exclusively responsible for the
form and substance of the Private Offering Memorandum,
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the offer and sale of shares of Pubco as contemplated in the Private Offering
Memorandum and for compliance with all applicable securities laws relating to
the Private Offering Memorandum or the offer or sale of Pubco shares. Pubco
shall cause the Private Offering Memorandum to be accurate and complete in all
respects and to contain no misstatements. Pubco shall conduct the Private
Placement in compliance with all applicable securities laws. While Pubco shall
have complete and exclusive responsibility for the preparation of the Private
Offering Memorandum, any information in the Private Offering Memorandum
concerning SmartGate, including without limitation, the business, risks factors
involving SmartGate and the offering, its management, the financial condition
and results of operations of SmartGate, which was furnished by SmartGate
expressly for use in the Private Offering Memorandum shall, to the extent used
in the Private Offering Memorandum in a complete fashion, be the sole
responsibility of SmartGate. Pubco's costs, expenses, and legal fees incurred in
connection with the preparation of the Agreement and the Private Offering
Memorandum shall not be the obligation of SmartGate but shall be paid by Pubco
before closing without reducing the agreed upon Minimum Cash At Closing as
provided for in Section 5.8.
8.5 Recipient of Pubco Stock. Recipients of Pubco stock, pursuant to the
Private Placement memorandum, shall for all purposes be considered as recipients
of Pubco Stock in exchange for a contribution to Pubco pursuant to this
Agreement. Said recipients shall, as part of the Private Placement Memorandum,
express their intent to hold the Pubco shares so received for investment
purposes without the present intent to resell or distribute said Pubco shares.
8.6 Indemnification.
8.6.1 Pubco shall indemnify and hold harmless SmartGate, its
officers and directors and shareholders against any losses, claims, damages or
liabilities, joint or several, to which any of them may become subject which
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Private Offering Memorandum or any
amendment or supplement thereto, the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and violations of any securities,
broker-dealer registration, or other laws, regulations, or administrative
rulings, or any liability rising out of or related to the prior acts of Pubco or
the actions of Pubco in connection in any fashion with the Private Placement or
with the transaction contemplated in this Agreement and shall reimburse them for
any legal or other expenses reasonably incurred by them in connection defending
any such loss, claim, damage, liability or action; provided, however, that Pubco
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in the Private
Offering Memorandum or any such amendment or supplement thereto, in reliance
upon, and in conformity with, information provided by SmartGate, and shall
reimburse SmartGate for any legal or other expenses reasonably incurred by
SmartGate in connection with defending any such loss, claim, damage, liability
or action. This indemnity agreement shall survive the Closing for two (2) years
shall be in addition to any liabilities which Pubco may otherwise have.
8.6.2 SmartGate agrees to indemnify and hold harmless Pubco, its
officers and directors against any losses, claims, damages or liabilities, joint
or several, to which any of them may become subject which arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Private Offering Memorandum or any amendment
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or supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission is based
upon information which was provided by SmartGate for the expressed inclusion in
the Private Offering Memorandum and only to the extent that such information was
included in the Private Offering Memorandum in an accurate and complete form and
shall reimburse Pubco for any legal or other expenses reasonably incurred by
Pubco in connection with defending any such loss, claim, damage, liability or
action. This indemnity agreement shall survive the Closing for two (2) years and
shall be in addition to any liabilities, which SmartGate may otherwise have.
8.6.3 This indemnification is only applicable if the transaction
closes as contemplated by this Agreement and will survive the Closing for two
(2) years or such time that Pubco has controlling interest in SmartGate,
whichever occurs first.
SECTION 9
CONDITIONS PRECEDENT TO CLOSING
9.1 Conditions Precedent to Pubco's Obligations. The obligations of
Pubco to consummate the transaction contemplated herein are subject to the
fulfillment, prior to or at the Closing, of all conditions elsewhere herein set
forth, including, but not limited to, its receipt of all deliveries required by
Section 3 herein, and fulfillment, prior to the Closing, of each of the
following conditions:
9.1.1 SmartGate's representations, warranties and covenants
contained in this Agreement shall be materially true at the time of Closing
as though such representations, warranties and covenants were made at such
time.
9.1.2 SmartGate and the SmartGate Shareholders shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by each prior to or at the
Closing.
9.1.3 The SmartGate Shareholders acquiring Pubco Stock will be
required, at Closing, to submit to Pubco an investment letter (the
"Investment Letter") in substantially the form as Exhibit A confirming to
Pubco (if true) the information provided therein, including that all the
Pubco Stock received will be acquired for investment and not with a view
to, or for sale in connection with, any distribution thereof. Neither the
foregoing provision nor anything in the Investment Letter shall prohibit
the registration of those shares at any time following the Closing.
9.1.4 Holders of a sufficient number of SmartGate Shares consent
to the receipt of Pubco shares therefor so that following the Closing Pubco
will own at least 100% of the outstanding capital stock of SmartGate.
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9.1.5 There shall be no material adverse change in the business,
assets, financial condition or prospects of SmartGate through the Closing
Date.
9.1.6 Pubco shall have reasonably satisfied itself that, since
the date of this Agreement, the business of SmartGate has been conducted in
the ordinary course; that, no withdrawals of cash or other assets have been
made and no indebtedness has been incurred since the date of this
Agreement, except which have occurred in the ordinary course of business or
with respect to services rendered or expenses incurred in connection with
the Closing of this Agreement, unless said withdrawals or indebtedness were
either authorized by the terms of this Agreement or subsequently disclosed
in writing by the parties.
9.1.7 Appropriate confirmation shall be given as to compliance
with representations, warranties and covenants.
9.1.8 SmartGate and the SmartGate Shareholders shall have
granted to Pubco (acting through its management personnel, counsel,
accountants or other representatives designated by it) full opportunity to
examine SmartGate's books and records, properties, plants and equipment,
proprietary rights and other instruments, rights and papers of all kinds in
accordance with Section 6 hereof and Pubco shall be reasonably satisfied to
proceed with the transactions contemplated by this Agreement upon
completion of such examination and investigation.
9.1.9 Pubco shall have satisfied itself that all transactions
contemplated by this Agreement shall be legal and binding under applicable
statutory and case law of the States of Nevada and Florida, respectively,
including, but not limited to all other applicable state securities laws.
9.2 Conditions Precedent to SmartGate's and the SmartGate Shareholder
Obligations. The obligations of SmartGate and the SmartGate Shareholders to
consummate the transaction contemplated by this agreement are subject to the
fulfillment prior to or at the Closing, of all conditions elsewhere herein set
forth, including, but not limited to, their receipt of all deliveries required
by Section 3 herein, and fulfillment, prior to the Closing, of each of the
following conditions:
9.2.1 Pubco shall simultaneously complete both the exchange of
shares contemplated in Section 2 and the exchange of shares contemplated in
Section 8 as part of a single transaction.
9.2.2 As a result of the exchange of Pubco shares contemplated
by this Agreement, immediately following the Closing of this Agreement, the
recipients of shares under Section 2 and Section 8 of this Agreement shall,
in the aggregate, hold more than 80% of the outstanding shares of Pubco.
9.2.3 Receipt of all necessary approvals of regulatory
authorities having jurisdiction over the Acquisition.
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9.2.4 There shall be no material adverse change in the
business, assets, financial condition or prospects of Pubco through the
Closing date and, upon the Closing, Pubco shall have no balance sheet debt in
excess of $1,000.
9.2.5 Appropriate confirmations shall be given as to
compliance with representations, warranties and covenants.
9.2.6 Written confirmation to SmartGate that there will
be immediately prior to the Closing no more than approximately 2,000,000
shares of Pubco Common Stock outstanding representing less than 20% of Pubco
shares outstanding immediately after closing. No outstanding options, warrants
or stock rights except as permitted herein.
9.2.7 SmartGate and the SmartGate Shareholders shall have
reasonably satisfied themselves that, since the date of this Agreement, the
business of the Pubco has been conducted in the ordinary course; no
withdrawals of cash or other assets have been made and no indebtedness has
been incurred since the date of this Agreement, except which have occurred in
the ordinary course of business or with respect to services rendered or
expenses incurred in connection with the Closing of this Agreement, unless
said withdrawals or indebtedness were either authorized by the terms of this
Agreement or subsequently disclosed in writing by the parties.
9.2.8 Pubco shall have granted SmartGate and the
SmartGate Shareholders (acting through its management personnel, counsel,
accountants or other representatives designated by it) full opportunity to
examine its books and records, properties, plants and equipment, proprietary
rights and other instruments, rights and papers of all kinds in accordance
with Section 6 hereof and SmartGate and the SmartGate Shareholders shall be
reasonably satisfied to proceed with the transactions contemplated by this
Agreement upon completion of such examination and investigation.
9.2.9 SmartGate and the SmartGate Shareholders shall have
reasonably satisfied themselves that all transactions contemplated by this
Agreement shall be legal and binding under applicable statutory and case law
of the State of Nevada and the State of Florida respectively, including, but
not limited to all other applicable state securities laws.
9.2.10 Pubco at closing will fully satisfy the
requirements of Section 5.8 regarding the Minimum Pubco Cash At Closing.
9.2.11 Employment/Consulting Agreements for Messrs.
Xxxxxxx, Xxxxxx and Xxxx in form and substance suitable to SmartGate shall
have been executed and accepted.
9.2.12 Pubco, at closing, will have entered into a
consulting contract with G.M. Capital Partners, Ltd. satisfactory to all
parties.
9.2.13 Pubco shall have loaned to SmartGate $240,000
pursuant to the note attached as Exhibit 7.2.6.
17
9.2.14 SmartGate has completed its due diligence inquiry
of Pubco and Pubco documents.
9.2.15 The execution of this Agreement by all SmartGate
Stockholders unless otherwise agreed by Pubco.
SECTION 10
ADDITIONAL COVENANTS OF THE PARTIES
10.1 Cooperation. SmartGate, the SmartGate Shareholders and Pubco
will cooperate with each other and their respective agents in carrying out the
transactions contemplated by this Agreement, and in delivering all documents
and instruments deemed reasonably necessary or useful by the other party.
10.2 Expenses. Prior to closing and prior to satisfying the
Minimum Pubco Cash At Closing requirement as provided in Section 5.8 and the
condition set forth in Section 9.2.10, Pubco shall pay all of its respective
costs and expenses (including attorneys' and accountants' fees, finder's fees,
costs and expenses) incurred in connection with the Acquisition, this
Agreement, the Private Placement, and the consummation of the transactions
contemplated herein.
10.3 Confidential Information. Pubco agrees that all
"Confidential Information" (as hereinafter defined) so provided by SmartGate
shall be treated by Pubco as confidential, and all such information will be
utilized by Pubco for the sole and limited purpose of its due diligence
investigation relating to the Acquisition, and shall not be disclosed to any
third party other than Pubco's attorneys, accountants, officers or other
authorized agents, all of whom shall have been placed under an identical
confidentiality obligation by Pubco, if Pubco should decide not to go forward
with the Acquisition. Furthermore, if the Closing does not occur, Pubco shall
promptly return all written Confidential Information (and all copies thereof)
in its possession or will certify to SmartGate and Shareholders that all of
such documents not returned to SmartGate have been destroyed by Pubco,
whichever disposition SmartGate directs.
10.3.1 The Confidential Information supplied to Pubco by
SmartGate shall be kept confidential for a period of two (2) years from the
date hereof and except as provided herein or required by law will not, without
the prior written consent of the parties supplying the information, be
disclosed by the receiving party or its representatives during such two (2)
year period, in any manner, whatsoever, in whole or in part, and will not be
used by the receiving party or its representatives directly or indirectly for
any purpose other than evaluating the proposed Acquisition; provided, however,
that nothing herein shall preclude Pubco or its representatives from using
Confidential Information in connection with the Private Placement and to
discuss Confidential Information with potential investors in connection
therewith and upon the execution by Pubco and SmartGate of this Agreement,
Pubco and its representatives will be free to use Confidential Information in
any subsequent filings with federal or state authorities relative to the
Acquisition or the Private Placement. Each party agrees to transmit the
Confidential Information only to those of its representatives who need to know
the Confidential Information for the purpose of advising it regarding any of
the purposes for which it is permitted to use the Confidential Information
under the terms of this Agreement, who are informed by the party supplying
such information of the
18
confidential nature of the Confidential Information, and who are directed by
such party to comply with the terms of this Agreement. Each party will be
responsible for any material breach of this Agreement by its representatives.
10.3.2 As used herein "Confidential Information" means all
information included in the due diligence booklets delivered by SmartGate to
Pubco pursuant to the memorandum of understanding and all information provided
by SmartGate to Pubco after the date hereof that is not specifically
identified and marked "NOT CONFIDENTIAL" by SmartGate and not otherwise in the
public domain or generally available to the public and this Agreement shall be
inoperative as to such portions of the Confidential Information which (i)
become generally available to the public other than as a result of a
disclosure by the receiving party or its representatives which is not required
by law; (ii) become available to the receiving party from a source with no
obligation of confidentiality to the other party; (iii) describe technology
independently developed by the receiving party; or (iv) are known to the
receiving party on a non-confidential basis prior to its disclosure to the
receiving party by the supplying party or one of its representatives.
10.3.3 In the event that a receiving party or any of its
representatives is required or becomes legally compelled (by written or oral
interrogatories, subpoena, civil investigative demand or similar process) to
disclose any of the Confidential Information for purposes not permitted by
this Agreement, the receiving party will provide the supplying party with
prompt written notice so that the supplying party may seek a protective order
or other appropriate remedy and/or waive compliance with the provisions of
this Agreement. In the event that such protective order or other remedy is not
obtained, or that the supplying party waives compliance with the provisions of
this Agreement, the receiving party will furnish only that portion of the
Confidential Information which is legally required, and will exercise good
faith efforts to obtain reliable assurance that confidential treatment will be
accorded the Confidential Information.
10.3.4 Each party to this Agreement agrees that the other
party shall be entitled to equitable relief, including injunction and specific
performance, in the event of any breach of the provisions of this Section 10.3.
Such remedies shall not be deemed to be the exclusive remedies for a
breach of this Section 10.3 by either party or its representatives but shall
be in addition to all other remedies available at law or equity.
10.3.5 It is further understood and agreed that no failure
or delay by either party in exercising any right, power or privilege under
this Section 10.3 shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege hereunder.
10.4 Publicity. Pubco shall not without prior written consent of
SmartGate publish any press releases or disseminate any news regarding this
Agreement or transaction contemplated herein prior to closing unless required
to do so by law.
10.5 Name Change. Pubco will amend its articles of incorporation
prior to closing to change its name to a name chosen by SmartGate and eligible
for filing with the Secretary of State of Nevada.
10.6 Post-Closing Covenants. The parties hereto agree to the
following covenants to Pubco's operation after the Closing:
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10.6.1 SmartGate shall remain a wholly owned subsidiary of
Pubco for a minimum two (2) years, unless otherwise mutually agreed between
SmartGate and Pubco.
10.6.2 For a period of two (2) years from and after the
Closing, Pubco shall not effect a reverse split of its outstanding capital
stock unless such reverse split is required by the underwriters in a
registered public offering of Pubco or such reverse split is necessary to
obtain approval for quotation of Pubco's common stock on NASDAQ or such split
is determined by the Board of Directors to be in the best interest of Pubco.
10.6.3 With a view to making the benefits of certain rules
and regulations of the Securities and Exchange Commission ("SEC") that permit
the sale of Pubco Common Stock to the public without registration, following
the closing, Pubco shall cause Pubco following the Closing to continue to:
10.6.3.1 File with the Securities and Exchange
Commission in a timely manner all reports and other documents required of
Pubco under the Securities Act and the Exchange Act as a company registered
under Section 15(d) of the Exchange Act;
10.6.3.2 Promptly following the Closing, file
necessary documents and make required submissions to comply with 15c2.11
under the Exchange Act and Standard and Poor and/or Xxxxx'x listings and
requests to permit Pubco's eligible unvested stock to be traded
over-the-counter on NASD's electronic bulletin board. The Board of Directors
of Pubco shall allow public trading and quotes to commence over the NASD
electronic bulletin board on a timely basis subject to due consideration to
the various factors deemed relevant by the Board affecting the Company's
trading market and the best interest of the Company and its stockholders.
10.7 Registration Rights. Upon demand of a majority of the
SmartGate Stockholders, Pubco shall cause a registration statement, at Pubco's
cost, to be filed in connection with said placement.
10.8 Budget and Approved Expenditures. Pubco and SmartGate agree
to use the proceeds from the private placement as disclosed in Exhibit 10.8
unless otherwise agreed before closing or approved by the Pubco Board of
Directors after closing.
10.9 Insurance. At closing Pubco will exercise its best efforts
to have D&O insurance in place.
10.10 Amendment to Articles. To the extent necessary, Pubco will
amend its articles of incorporation and its Bylaws so that the indemnification
provided to Officers and directors is to the broadest interpretation available
under the Laws of Nevada.
10.11 Loan in Recognition of Tax Liability. In the event
shareholders of SmartGate experience income tax liabilities relating to
recapture or other tax issues as part of this transaction, Pubco shall make a
loan bearing interest at the prevailing Applicable Federal Rate ("AFR") to
SmartGate Stock Holders requesting same in an amount equal to the calculated
amount of said income tax liability. Unless otherwise agreed by Pubco, said
loans to all SmartGate Stock Holders shall not in the aggregate exceed
$200,000 with interest being paid annually or as otherwise agreed and
principal being repaid at the first to occur of five years from the date of
Closing or the sale of shares pursuant to Section 10.7 in sufficient amount to
repay said loan.
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SECTION 11
REMEDIES
11.1 Mutual Termination. SmartGate, the SmartGate Shareholders
and Pubco may agree to mutually terminate this Agreement prior to Closing
without any liability to each other.
11.2 Defaults Permitting Termination. If either SmartGate or Pubco
materially default in the due and timely performance of any of their warranties,
covenants, or agreements under this Agreement, or upon failure of a condition
precedent, the non-defaulting party or parties may on or prior to the Closing
Date give notice of termination of this Agreement, in the manner provided in
Section 13.6. The notice will specify with particularity the default or defaults
on which the notice is based. The termination will be effective five business
days after the addressee receives the notice, unless the specified default or
defaults have been cured on or before the effective date for termination. Except
as otherwise expressly provided herein, upon termination here under neither
party shall continuing have any responsibility to the other party.
11.3 Post-Closing Covenants Benefit Third Parties. The
post-closing covenants of Section 10 are expressly intended to benefit the
shareholders of SmartGate, any one or more of whom may seek to enforce the
same on his own behalf or on behalf of shareholders similarly situated.
11.4 Arbitration. Any controversy or claim arising from or
relating to this Agreement, or its making, performance, or interpretation,
will be exclusively and solely settled by binding arbitration before one
arbitrator under the commercial arbitration rules of the American Arbitration
Association then existing. Judgment on the arbitration award may be entered in
any court having jurisdiction over the subject matter of the controversy. The
arbitration shall be exclusively held in Sarasota, Florida.
SECTION 12
SURVIVAL OF REPRESENTATIONS,
WARRANTIES AND COVENANTS
12.1 As to SmartGate. The representations, warranties and
covenants of SmartGate contained herein shall survive the execution and
delivery of this Agreement, the Closing and the consummation of the
transactions called for by this Agreement for a period of two years from the
Closing.
12.2 As to Pubco. The representations, warranties and covenants
of Pubco contained herein shall survive the execution and delivery of this
Agreement, the Closing and the consummation of the transactions called for by
this Agreement of two years from the Closing; provided, however, that
21
the covenants specified in Section 10.3 shall survive for the period specified
therein and if no period is so specified, shall survive for a period of five
years from the Closing.
SECTION 13
MISCELLANEOUS
13.1 Entire Agreement; Amendments. This Agreement contains the
entire agreement between the parties with respect to the transactions
contemplated hereby, and supersedes all negotiations, representations,
warranties, commitments, offers, contracts, and writings prior to the date
hereof. No waiver and no modification or amendment of any provision of this
Agreement shall be effective unless specifically made in writing and duly
signed by the parties to this Agreement bound thereby.
13.2 Binding Agreement. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective assigns and
successors in interest; provided, that neither this Agreement nor any right
hereunder shall be assignable by Pubco, or SmartGate without the prior written
consent of the other parties.
13.3 Attorney's Fees. Except as otherwise provided herein, in the
event of any controversy, claim or dispute among the parties to this Agreement
arising out of or relating to this Agreement or breach thereof, each party
hereto shall pay his, her or its own legal expenses, attorney's fees and
costs. Messrs. Xxxxxx and Xxxxx, who are stockholders and officers of
SmartGate are licensed as attorneys and from time to time have and may in the
future provide legal services or other non-legal consulting services to
SmartGate and may deliver similar services to Pubco following closing. Pubco
and SmartGate waive conflict of interest arising from the described
relationships as an officer and shareholder. It is understood that reasonable
expenses and fees may be paid to said attorneys or their affiliates in
connection with services or consulting provided to SmartGate or Pubco after
closing.
13.4 Severability. If any provision hereof shall be held invalid
or unenforceable by any court of competent jurisdiction or as a result of
future legislative action, such holding or action shall be strictly construed
and shall not affect the validity or effect on any other provisions hereof.
13.5 Governing Law. In any action or proceeding arising out of or
related to this Agreement, the law of the State of Florida shall be followed.
13.6 Notices. All notices or other communications required
hereunder shall be in writing and shall be sufficient in all respects and
shall be deemed delivered after 3 days if sent via registered or certified
mail, postage prepaid; the next day if sent by overnight courier service; or
upon completion of transmission if sent by facsimile:
To SmartGate:
22
To Pubco:
SmartGate, Inc.
000 X. Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
Fax: 000-000-0000
or if by facsimile to the facsimile number provided by the party, or by
personal delivery.
13.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of, which may be deemed an original, but all of which
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
SmartGate, Inc. SmartGate, L.C.,
a Nevada corporation a Florida Limited Liability company
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
------------------------ ------------------------
Authorized Signatory Authorized Signatory
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
X.X. Xxxxxxx Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
/s/ X.X. XXXXXXXX
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
H.R. William Family Limited Partnership /s/ XXXXXX X. XXXX
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
H.R. William Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
/s/ XXXXXX X. XXXXXXXXX
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
H.R. William Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
/s/ XXXXXXX X. XXXXX
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
/s/ XXXX XXXXX
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
X.X. Xxxxxxx Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
H.R. William Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
/s/ XXXXXX X. XXXXXXXXX 1-25-2000
--------------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
/s/ XXXXX XXXXXXXXX
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
X.X. Xxxxxxx Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
H.R. William Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
/s/ XXXXX XXXXXXXX
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
H.R. William Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
/s/ XXXXXXX X. XXXXX, as trustee
-------------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
/s/ XXXXXXX X. XXXXXXX
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
H.R. William Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
/s/ XXXXXX X. XXXXXXX
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
X.X. Xxxxxxx Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
X.X. Xxxxxxx Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By: /s/ X.X. XXXXXXXX
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
/s/ XXXXX XXXXXXXXX
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
X.X. Xxxxxxx Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
/s/ XXXXXXX X. XXXXXXX
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
/s/ Xxxxxx X. Xxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
X.X. Xxxxxxx Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
/s/ XXXXXXX X. XXXXX
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
X.X. Xxxxxxx Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
/s/ XXXXXXX X. XXXXX, as trustee
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
X.X. Xxxxxxx Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
/s/ XXXXXXX X. XXXXX, as trustee
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
H.R. William Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
Shareholders signed only as to and limited to Sections 1, 2, 3, 9.2 and 10.7:
/s/ XXXXXXX X. XXXXXXX
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxx Xxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx, Trustee of the
Xxxxxxxxx Xxxxxxxx Xxxxxx Irrevocable
Trust under Agreement dated the
29th day of July, 1998
--------------------------- -------------------------------------
Xxxxxx X. Xxxx Xxxx Xxxxx
--------------------------- -------------------------------------
Xxxxx Xxxxxxxxx Xxxxxx X. Xxxxxxx
H.R. William Family Limited Partnership
-------------------------------------
Xxxxxx X. Xxxx
By:
------------------------ -------------------------------------
X.X. Xxxxxxxx
--------------------------- -------------------------------------
Xxxxxxx X. Xxxxx, Trustee Xxxxx Xxxxxxxx
of the Xxxxx Xxxxxx Trust
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx Xxxxxxx X. Xxxxx
--------------------------- -------------------------------------
Xxxxxx X. Xxxxxxxxx X.X. Xxxxxxxx
EXHIBIT LIST
Exhibit A: Form of Investment Letter
Exhibit 7.2.6 Note
Exhibit 10.8 Budget & Approved Expenditures
SCHEDULE LIST
Schedule 4.2: Capitalization
Schedule 4.4: Financial Statements
Schedule 4.6 Litigation
Schedule 4.8: Absence of Financial Changes
Schedule 4.9: Asset Ownership Exceptions
Schedule 4.10: Tax Liabilities
Schedule 4.11: List of Material Contracts
Schedule 4.13: Operating Permits/Licenses Exceptions
Schedule 5.2: Capitalization
Schedule 5.5 Financial Statements - Pubco
Schedule 5.6: Absence of Financial Changes
Schedule 5.7 Absence of Certain Changes
Schedule 5.8 Assets
Schedule 5.11 Compliance with Laws
EXHIBIT A
Form of Investment Letter
INVESTMENT LETTER
A. The undersigned, constituting a recipient of the common
stock (the "Shares") of SmartGate, Inc. a Nevada corporation (the
"Corporation"), pursuant to the Contribution Agreement dated ____________,
1999, is purchasing the shares for his/her own account and not with a view to,
or for sale in connection with, any distribution of the Shares.
B. The undersigned is a bona fide resident and domiciliary, and
not a temporary transient resident of, and has his/her principal residence in
the State of Florida and does not have any present intention of moving his/her
principal residence from such state.
C. The undersigned is a current or previous employee, or
founder of SmartGate LC, a Florida Limited Liability Company ("SmartGate"),
which is being acquired by the Corporation and/or has sufficient experience
with SmartGate, and/or has other business and financial experience sufficient
so that he/she could be reasonably assume to have the capacity to protect
his/her interests in connection with this transaction.
D. The undersigned acknowledges and understands that none of
the shares of the Corporation which he/she shall receive in exchange for
his/her shares of SmartGate shall at receipt, be registered under federal or
state securities laws, but shall be considered "restricted stock" within the
meaning of Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). The foregoing does not restrict or alter any
registration rights which the undersign may otherwise have by virtue of the
Investment Agreement.
E. The undersigned acknowledges that the share certificate of
the Corporation shall bear a restrictive legend stating that the Shares have
not been registered under the Securities Act and are "restricted securities"
as defined in Rule 144 promulgated under the Securities Act, and have not been
registered under the securities or blue sky laws of Nevada, or Florida or any
other state and may not be sold, offered for sale, pledged, hypothecated,
transferred or assigned except (1) pursuant to a registration statement then
in effect under the Securities Act, (2) in compliance with Rule 144; or (3)
pursuant to an opinion of counsel to the Corporation, satisfactory in form and
substance to the Corporation, that such registration or compliance is not
required as to such sale, offer to sell, pledge, hypothecation, transfer or
assignment. The undersigned also acknowledges that such restrictive legend
will be noted in the Corporation's stock records.
F. The undersigned has not seen or received any advertisement
or general solicitation in connection with the sale of the shares.
Dated: , 1999
----------------------
----------------------------
[Signature]
----------------------------
[Print Name)
Residence Address:
----------------------------
----------------------------
----------------------------
EXHIBIT 7.2.6
Promissory Note
PROMISSORY NOTE
$250,000.00 October __, 1999
FOR VALUE RECEIVED, the undersigned, SmartGate L.C., a Florida Corporation, of
0000 Xxxxxxxxxxxx Xxxxx, Xxxxxxxx, XX 00000 ("Borrower") promises to pay to the
order of SmartGate Inc., a Nevada Corporation, at 000 X. Xxxxxxxx Xxxxxx, Xxxxx
000, Xxxxxxxxxx, XX 00000 ("Lender") or such other place as the holder may
designate in writing to the undersigned, the principal sum of two hundred fifty
thousand United States dollars ($250,000 USD), together with interest thereon
from date hereof until paid, at the rate of six percent (6%) per annum as
follows: The entire principal amount shall be repaid on December 31, 1999.
Payments shall be applied first to accrued interest and the balance to
principal.
All or any part of the aforesaid principal sum may be prepaid at any time and
from time to time without penalty.
At the Option of the Borrower, full payment, including accrued interest may be
made by the issuance of 250,000 shares of the Borrower's membership units to the
Lender and/or assignees.
In the event of any default by the undersigned in the payment of principal or
interest when due or in the event of the suspension of actual business,
insolvency, assignment for the benefit of creditors, adjudication of bankruptcy,
or appointment of a receiver, of or against the undersigned, the unpaid balance
of the principal sum of this promissory note shall at the option of the holder
become immediately due and payable.
No collateral will be provided.
The maker and all other persons who may become liable for the payment hereof
severally waive demand, presentment, protest, notice of dishonor or nonpayment,
notice of protest, and any and all lack of diligence or delays in collection
which may occur, and expressly consent and agree to each and any extension or
postponement of time of payment hereof from time to time at or after maturity or
other indulgence, and waive all notice thereof.
In case suit or action is instituted to collect this note, or any portion
hereof, the maker promises to pay such additional sum, as the court may adjudge
reasonable, attorneys' fees in said proceedings.
This note is made and executed under, and is in all respects governed by, the
laws of the State of Florida.
SmartGate L.C.
By: /s/ XXXXXXX XXXXXXX
------------------------
Xxxxxxx Xxxxxxx
President
EXHIBIT 10.8
Budget and Approved Expenditures
USE OF PROCEEDS
Marketing(1)............................................... 500,000
Manufacturing, inventory and Accounts Receivable(2)........ 1,000,000
New product research, development and testing(3)........... 500,000
Loan and accrued expenses(4)............................... 300,000
Accrued Development Expenses(5)............................ 200,000
Working Capital(6)......................................... 500,000
Reserves(7)................................................ 1,000,000
-----------
Total.................................. 4,000,000
1. Includes articles in trade journals, attendance at trade shows, direct
mail, video preparation and media support.
2. Includes parts inventory, work in process, finished goods and accounts
receivable.
3. Includes budget for finalizing new products and product testing.
4. Repayment of loan and accrued legal expenses due to related companies.
5. Repayment of officers for accrued non-accountable expenses.
6. Available for administrative staff and overhead.
7. Until required, reserves will be held in government T-bills or insured
interest bearing bank accounts.
8. In the event that the available funds for budget are less than
$4,000,000, the use of proceeds will be revised in the discretion of the
Board of Directors.
SCHEDULE 4.2
There are outstanding options for the purchase of 491,191 of the Company's
Units of Ownership at $1.00 per Unit as follows:
CONVERSION TO
NO. OF SHARES
NO. OF SHARES OF EXERCISE EXPIRATION OF SMARTGATE,
NAME SMARTGATE, XX XXXXX DATE CONDITIONS INC.
---- ----------------- -------- ----------- ----------- ----------------
X.X. Xxxxxxxx 476,191 1.00 Dec. 2001 None 403,035
Family Limited
Partnership
Xxxxxxx Xxxx 15,000 1.00 Oct. 2001 Options to Xxxxxxx Xxxx cannot 12,696
be exercised for one year and are
subject to a one-year Consulting
Agreement.
Xx Xxxxxxxxx -- -- Xx. Xxxxxxxxx has been granted
options with the number of said
shares being tied to his
performance and with the
purchase price being at market at
the closing of the transaction
estimated at approximately $3.00
per share.
Total 491,191
In accordance with SmartGate L.C.'s contractual arrangements with
SmartGate member and sublessor X.X. Xxxxxxxx Family Limited Partnership,
SmartGate, L.C., in SmartGate, L.C.'s discretion, has the right to pay rent at
its facility in the form of stock in the amount of 9,180 shares per month or in
cash. As of November 2, 1999 the Company will have issued 93,018 shares in rent
payment and said 93,018 shares have been included in the issued and outstanding
shares reflected in Section 4.2 of the Agreement. SmartGate, L.C.'s management
anticipates continuing to pay rent in the form of stock or cash until closing
and reserves the right to pay rent with stock, both before and after closing in
the exercise of its discretion. Accordingly, additional shares may be issued to
X.X. Xxxxxxxx Family Limited Partnership at the rate of 9,180 SmartGate, L.C.
shares (or Pubco equivalent post-closing shares) for each month until closing
and thereafter.
List of Members and Membership Units Owned
APPROX. % OF SHARES OF
MEMBERSHIP SMARTGATE, LC SMARTGATE,
UNITS OF OUTSTANDING INC. TO BE
MEMBER SMARTGATE LC(1) UNITS RECEIVED
---------------------------- ------------------ ----------------- ----------------
Xxxxxxx X. Xxxxxxx .................................... 2,580,027 31.262228 2,420,809
Xxxxxxx X. Xxxxx, Trustee of the Xxxxxxx Xxxxxxx
Xxxxxx Irrevocable Trust under Agreement dated the
29th day of July, 1998 ................................ 1,356,666.5 16.438750 1,272,944
Xxxxxxx X. Xxxxx, Trustee of the Xxxxxxxxx Xxxxxxxx
Xxxxxx Irrevocable Trust under Agreement dated the
29th day of July, 1998 ................................ 1,356,666.5 16.438750 1,272,944
Xxxxxxx X. Xxxxx ...................................... 386,666 4.685238 362,804
Xxxxxx X. Xxxx ........................................ 686,667 8.320355 644,292
Xxxx Xxxxx ............................................ 160,000 1.938723 150,126
Xxxxx Xxxxxxxxx ....................................... 6,667 .080784 6,256
X.X. Xxxxxxxx Family Limited Partnership .............. 476,191 5.770014 446,804
Xxxxxx X. Xxxxxxx ..................................... 125,000 1.514627 117,286
Xxxxxxx X. Xxxxxxx .................................... 375,000 4.543881 351,858
Xxxxxx X. Xxxx ........................................ 210,000 2.544573 197,040
Xxxxxxx X. Xxxxx, Trustee of the Xxxxx Xxxxxx Trust ... 125,000 1.514627 117,286
Xxxxx Xxxxxxxx ........................................ 250,000 3.029254 234,572
Xxxxx Xxxxxxxxx ....................................... 10,000 .121170 9,383
Xxxxxx X. Xxxxxxxxx ................................... 10,000 .121170 9,383
Xxxxxxx X. Xxxxx ...................................... 2,500 .030293 2,346
Xxxxxx X. Xxxxxxxxx ................................... 2,500 .030293 2,346
X.X. Xxxxxxxx ......................................... 133,306 1.615270 125,079
TOTAL 8,252,857 100% 7,743,558
(1) Certain Units are subject to restrictions, pursuant to separate agreement.
SCHEDULE 4.4
FINANCIAL STATEMENTS
Financial Statements of SmartGate, L.C. for the year ended 12/31/97
Financial Statements of SmartGate, L.C. for the year ended 12/31/98
Financial Statements of SmartGate, L.C. for the 11 months ended 11/30/99
Form 1065 U.S. PARTNERSHIP RETURN OF INCOME OMB No. 1545-0099
For calendar year 1997, or tax year beginning__________, and ending_________. ---------------------
Department of the Treasury > See separate instructions. 1997
Internal Revenue Service
-----------------------------------------------------------------------------------------------------------------------------------
A Principal business activity Use the Name of partnership D Employer identification number
Manufacturer IRS label. PU 00-0000000 DEC97 S07 9999 LP I 00-0000000
------------------------------- Otherwise, SMARTGATE LC R ------------------------------------
B Principal product or service please print XXXXXX XXXXXX S GEN PTR S E Date business started
Elect Sensor or type. 0000 0XX XX XXX 000
------------------------------- XXXXXXXX XX 00000 1/01/98
C Business code number ------------------------------------
3600 F Total assets
(see page 10 of the instructions)
$ 33,457
-----------------------------------------------------------------------------------------------------------------------------------
G Check applicable boxes: (1) [X] Initial return (2) [ ] Final return (3) [ ] Change in address (4) [ ] Amended return
H Check accounting method: (1) [ ] Cash (2) [X] Accrual (3) [ ] Other (specify) >
--------------------------
I Number of Schedules K-1. Attach one for each person who was a partner at any
time during the tax year > 4
--------------------------
------------------------------------------------------------------------------------------------------------------------------------
Caution: Include only trade or business income and expenses on lines 1a through 22 below. See the instructions for more information.
------------------------------------------------------------------------------------------------------------------------------------
1a Gross receipts or sales............................................................ 1a 11,774
b Less returns and allowances........................................................ 1b 7 1c 11,767
2 Cost of goods sold (Schedule A, line 8)........................................................ 2 80,209
3 Gross profit. Subtract line 2 from line 1c..................................................... 3 -68,442
Income 4 Ordinary inc. (loss) from other partnerships, estates, & trusts (att. sch.).................... 4
5 Net farm profit (loss) (attach Schedule F (Form 1040))......................................... 5
6 Net gain (loss) from Form 4797, Part II, line 18............................................... 6
7 Other income (loss) (attach schedule).......................................................... 7
8 Total income (loss). Combine lines 3 through 7................................................. 8 -68,442
------------------------------------------------------------------------------------------------------------------------------------
9 Salaries and wages (other than to partners) (less employment credits)........................... 9 116,541
10 Guaranteed payments to partners................................................................. 10
11 Repairs and maintenance......................................................................... 11 1,936
12 Bad debts....................................................................................... 12
Deductions 13 Rent............................................................................................ 13 26,750
(see page 14 Taxes and licenses..................................................................See Schedule 14 9,212
11 of the 15 Interest........................................................................................ 15 9,780
instructions 16a Depreciation (if required, attach Form 4562)....................................... 16a 2,268
for b Less depreciation reported on Schedule A and elsewhere on return................... 16b......... 16c 2,268
limitations) 17 Depletion (Do not deduct oil and gas depletion.)................................................ 17
18 Retirement plans, etc. ......................................................................... 18
19 Employee benefit programs....................................................................... 19
20 Other deductions (attach schedule) .................................................See Schedule 20 43,618
21 Total deductions. Add the amounts shown in the far right column for lines 9
through 20...................................................................................... 21 210,105
------------------------------------------------------------------------------------------------------------------------------------
22 Ordinary income (loss) from trade or business activities. Subtract line 21
from line 8..................................................................................... 22 -278,547
------------------------------------------------------------------------------------------------------------------------------------
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and
statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of
preparer (other than general partner or limited liability company member) is based on all information of which
PLEASE preparer has any knowledge.
SIGN
HERE
> >
------------------------------------------------------------------------------- ----------------------------------
Signature of general partner or limited liability company member Date
-----------------------------------------------------------------------------------------------------------------------------------
PAID Preparer's Date Check if Preparer's social security no.
PREPARER'S Signature > /s/ [ILLEGIBLE] CPA 10/14/98 self-employed > [ ] ###-##-####
USE ONLY -------------------------------------------------------------------------------------------------------
Firm's name (or Xxxx & Xxxxxxx, PA EIN > 00-0000000
yours if self-employed) > ---------------------------------------------------------------------------------------------
and address 0000 Xxxxx Xxxx Xxxxx 000
Xxxxxxxx, XX ZIP code > 34231
-----------------------------------------------------------------------------------------------------------------------------------
For Paperwork Reduction Act Notice, see separate instructions. Form 1065 (1997)
DAA
Form 1065 (1997) Smartgate, L.C. 00-0000000 Page 2
--------------------------------------------------------------------------------
SCHEDULE A COST OF GOODS SOLD (see page 13 of the instructions)
--------------------------------------------------------------------------------
1 Inventory at beginning of year............................................................................. 1
2 Purchases less cost of items withdrawn for personal use.................................................... 2 63,865
3 Cost of labor.............................................................................................. 3 36,484
4 Additional section 263A costs (attach schedule)............................................................ 4
5 Other costs (attach schedule).............................................................................. 5
6 Total. Add lines 1 through 5............................................................................... 6 100,349
7 Inventory at end of year................................................................................... 7 20,140
8 Cost of goods sold. Subtract line 7 from line 6. Enter here and on page 1, line 2.......................... 8 80,209
9a Check all methods used for valuing closing inventory:
(i) [X] Cost as described in Regulations section 1.471-3
(ii) [ ] Lower of cost or market as described in Regulations section 1.471-4
(iii) [ ] Other (specify method used and attach explanation) >................................................................
b Check this box if there was a writedown of "subnormal" goods as described in
Regulations section 1.471-2(c).................................................................................... > [ ]
c Check this box if the LIFO inventory method was adopted this tax year for any goods (if checked,
attach Form 970).................................................................................................. > [ ]
d Do the rules of section 263A (for property produced or acquired for resale) apply to the partnership?...........[X] Yes [ ] No
e Was there any change in determining quantities, cost, or valuations between opening and closing inventory?......[ ] Yes [X] No
If "Yes," attach explanation.
--------------------------------------------------------------------------------
SCHEDULE B OTHER INFORMATION
--------------------------------------------------------------------------------
1 What type of entity is filing this return? Check the applicable box: Yes No
--- --
a [ ] General partnership b [ ] Limited partnership c [X] Limited liability company
d [ ] Other (see page 14 of the instructions) >.........................................................
2 Are any partners in this partnership also partnerships?................................................ X
3 Is this partnership a partner in another partnership?.................................................. X
4 Is this partnership subject to the consolidated audit procedures of sections 6221 through 6233? If
"Yes," see Designation of Tax Matters Partner below.................................................. X
5 Does this partnership meet ALL THREE of the following requirements?
a The partnership's total receipts for the tax year were less than $250,000;
b The partnership's total assets at the end of the tax year were less than $600,000; AND
c Schedules K-1 are filed with the return and furnished to the partners on or before the due date
(including extensions) for the partnership return.
If "Yes," the partnership is not required to complete Schedules L, M-1, and M-2; Item F on page 1
of Form 1065; or Item J on Schedule K-1............................................................ X
6 Does this partnership have any foreign partners?..................................................... X
7 Is this partnership a publicly traded partnership as defined in section 469(k)(2)?................... X
8 Has this partnership filed, or is it required to file, Form 8264, Application for Registration of
a Tax Shelter?..................................................................................... X
9 At any time during calendar year 1997, did the partnership have an interest in or a signature or
other authority over a financial account in a foreign country (such as a bank account, securities
account, or other financial account)? See page 14 of the instructions for exceptions and filing
requirements for Form TD F 90-22.1. If "Yes," enter the name of the foreign country. > ............ X
10 During the tax year, did the partnership receive a distribution from, or was it the grantor of, or
transferor to, a foreign trust? If "Yes," the partnership may have to file Form 3520 or 926. See
page 14 of the instructions........................................................................ X
11 Was there a distribution of property or a transfer (e.g., by sale or death) of a partnership
interest during the tax year? If "Yes," you may elect to adjust the basis of the partnership's
assets under section 754 by attaching the statement described under Elections Made By the
Partnership on page 6 of the instructions.......................................................... X
--------------------------------------------------------------------------------
DESIGNATION OF TAX MATTERS PARTNER (see page 15 of the instructions)
Enter below the general partner designated as the tax matters partner (TMP)
for the tax year of this return:
Name of Identifying
designated TMP > Xxxxxx Xxxxxx number of TMP > ###-##-####
--------------------------------------------------------------------------------
Address of 0000 Xxxxxx Xxxxxx
designated TMP > Xxxxxxxx, XX 00000
--------------------------------------------------------------------------------
DAA
Form 1065 (1997) Smartgate, L.C. 00-0000000 Page 3
--------------------------------------------------------------------------------
Schedule K Partners' Shares of Income, Credits, Deductions, etc.
--------------------------------------------------------------------------------
(a) Distributive share Items (b) Total amount
------------------------------------------------------------------------------------------------------------------------------------
1 Ordinary income (loss) from trade or business activities (page 1, line 22).............. 1 -278,547
2 Net income (loss) from rental real estate activities (attach Form 8825)................. 2
3a Gross income from other rental activities.................................... 3a
b Expenses from other rental activities........................................ 3b
c Net income (loss) from other rental activities. Subtract line 3b from line 3a........... 3c
4 Portfolio income (loss):
a Interest income......................................................................... 4a
Income (loss) b Dividend income......................................................................... 4b
c Royalty income.......................................................................... 4c
d Net short-term capital gain (loss) (attach Schedule D (Form 1065))...................... 4d
e Net long-term capital gain (loss) (attach Schedule D (Form 1065)):
(1) 28% rate gain (loss) > ............................ (2) Total for year......... > 4e(2)
f Other portfolio income (loss) (attach schedule)......................................... 4f
5 Guaranteed payments to partners......................................................... 5
6 Net section 1231 gain (loss) (other than due to casualty or theft) (attach Form 4797):
a 28% rate gain (loss) > ................................ b Total for year......... > 6b
7 Other income (loss) (attach schedule)................................................... 7
------------------------------------------------------------------------------------------------------------------------------------
8 Charitable contributions (attach schedule).............................................. 8
Deductions 9 Section 179 expense deduction (attach Form 4562)........................................ 9 0
10 Deductions related to portfolio income (itemize)........................................ 10
11 Other deductions (attach schedule)...................................................... 11
------------------------------------------------------------------------------------------------------------------------------------
12a Low-income housing credit:
(1) From partnerships to which section 42(j)(5) applies for property placed in service
before 1990......................................................................... 12a(1)
(2) Other than on Line 12a(1) for property placed in service before 1990................ 12a(2)
(3) From partnerships to which section 42(j)(5) applies for property placed in service
Credits after 1989.......................................................................... 12a(3)
(4) Other than on line 12a(3) for property placed in service after 1989................. 12a(4)
b Qualified rehabilitation expenditures related to rental real estate act. (att. Form 3468) 12b
c Credits (other than cr. shown on ln. 12a and 12b) related to rental real estate
activities.............................................................................. 12c
d Credits related to other rental activities.............................................. 12d
13 Other credits........................................................................... 13
------------------------------------------------------------------------------------------------------------------------------------
Investment 14a Interest expenses on investment debts................................................... 14a
Interest b (1) Investment income included on lines 4a, 4b, 4c, and 4f above........................ 14b(1)
(2) Investment expenses included on line 10 above....................................... 14b(2)
------------------------------------------------------------------------------------------------------------------------------------
Self- 15a Net earnings (loss) from self-employment................................................ 15a
Employment b Gross farming or fishing income......................................................... 15b
c Gross nonfarm income.................................................................... 15c
------------------------------------------------------------------------------------------------------------------------------------
16a Depreciation adjustment on property placed in service after 1986........................ 16a 663
Adjustments b Adjusted gain or loss................................................................... 16b
and Tax c Depletion (other than oil and gas)...................................................... 16c
Preference d (1) Gross income from oil, gas, and geothermal properties............................... 16d(1)
Items (2) Deductions allocable to oil, gas and geothermal properties.......................... 16d(2)
e Other adjustments and tax preference items (attach schedule)............................ 16e
------------------------------------------------------------------------------------------------------------------------------------
17a Type of income > .......................................................................
b Name of foreign country or U.S. possession > ...........................................
c Total gross income from sources outside the United States (attach sch.)................. 17c
Foreign Taxes d Total applicable deductions and losses (attach schedule)................................ 17d
e Total foreign taxes (check one): > [ ] Paid [ ] Accrued............................ 17e
f Reduction in taxes available for credit (attach schedule)............................... 17f
g Other foreign tax information (attach schedule)......................................... 17g
------------------------------------------------------------------------------------------------------------------------------------
18 Section 59(a)(2)
expnd.: a type....................................................................b Amt. > 18b
19 Tax-exempt interest income.............................................................. 19
Other 20 Other tax-exempt income................................................................. 20
21 Nondeductible expenses......................................................See Schedule 21 416
22 Distributions of money (cash and marketable securities)................................. 22
23 Distributions of property other than money.............................................. 23
24 Other items and amounts required to be reported separately to partners (attach schedule)
------------------------------------------------------------------------------------------------------------------------------------
DAA
Form 1065(1997) Smartgate, L.C. 00-0000000 Page 4
------------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NET INCOME (LOSS)
------------------------------------------------------------------------------------------------------------------------------------
1 Net income (loss). Combine Schedules K, lines 1 through 7 in column (b). From the result, subtract the
sum of Schedule K, lines 8 through 11, 14a, 17e, and 18b 1 -278,547
Analysis by (I) Corporate (II) Individual (III) Individual (IV) Partnership (V) Exempt (VI) Nominee/Other
partner type: (active) (passive) organization
a General partners
b Limited partners -244,712 -33,835
------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE L BALANCE SHEETS PER BOOKS (Not required if Question 5 on Schedule B is answered "Yes.")
------------------------------------------------------------------------------------------------------------------------------------
Beginning of year End of tax year
------------------------- --------------------------
Assets (a) (b) (c) (d)
1 Cash................................................ 3,963
2a Trade notes and accounts receivable................. 5,111
b Less allowance for bad debts........................ 5,111
3 Inventories......................................... 12,825
4 U.S. government obligations.........................
5 Tax-exempt securities...............................
6 Other current assets....................See Schedule 587
7 Mortgage and real estate loans......................
8 Other investments...................................
9a Buildings and other depreciable assets.............. 11,709
b Less accumulated depreciation....................... 2,268 9,441
10a Depletable assets...................................
b Less accumulated depletion..........................
11 Land (net of any amortization)......................
12a Intangible assets (amortizable only)................
b Less accumulated amortization.......................
13 Other assets............................See Schedule 1,530
14 Total assets........................................ 33,457
Liabilities and Capital
15 Accounts payable....................................
16 Mortgages, notes, bonds payable in
less than 1 year....................................
17 Other current liabilities...............See Schedule 9,148
18 All nonrecourse loans...................See Schedule 310,000
19 Mortgages, notes, bonds payable in
1 year or more......................................
20 Other liabilities...................................
21 Partners' capital accounts.......................... -285,692
22 Total liabilities and capital....................... 33,457
------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE M-1 RECONCILIATION OF INCOME (LOSS) PER BOOKS WITH INCOME (LOSS) PER RETURN (Not required if Question 5 on Schedule B is
answered "Yes." See page 23 of the instructions.)
------------------------------------------------------------------------------------------------------------------------------------
1 Net income (loss) per books....................... -286,278 6 Income recorded on books this year not in-
2 Income included on Sch. K, 1n. 1 through cluded on Schedule K, lines 1 through 7 (itemize):
4, 6, and 7, not recorded on books this a Tax-exempt interest $.............................
year (itemize):.......................See Schedule
7,315 7,315
3 Guaranteed payments (other than 7 Deductions included on Schedule K, lines 1
health insurance)................................. through 11, 14a, 17e, and 18b, not charged
4 Expenses recorded on books this year not against book income this year (itemize):
included on Schedule K, lines 1 through a Depreciation $...................................
11, 14a, 17e, and 18b (itemize):
a Depreciation $........................
b Travel and entertainment $ 409................
See Schedule 8 Add lines 6 and 7.................................
7 416 9 Income (loss) (Analysis of Net income, (loss),
5 Add lines 1 through 4............................. -278,547 line 1). Subtract line 8 from line 5..............-278,547
------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE M-2 ANALYSIS OF PARTNERS' CAPITAL ACCOUNTS (Not required if Question 5 on Schedule B is answered "Yes.")
------------------------------------------------------------------------------------------------------------------------------------
1 Balance at beginning of year....................... 6 Distributions: a Cash..........................
2 Capital contributed during year.................... 587 b Property......................
3 Net income (loss) per books........................ -286,278 7 Other decreases (itemized):.......................
4 Other increases
(itemize):.........................................
8 Add lines 6 and 7.................................
5 Add lines 1 through 4 -285,691 9 Balance at end of year, Subtract ln. 8 from ln. 5 -285,691
------------------------------------------------------------------------------------------------------------------------------------
DAA
10114
Form 1065 U.S. PARTNERSHIP RETURN OF INCOME OMB No. 1545-0000
For calendar year 1998, or tax year ----------------------------
Department of beginning....................... and ending........................ 1998
the Treasury * See separate instructions.
Internal Revenue
Service
------------------------------------------------------------------------------------------------------------------------------------
Principal business activity Use the Name of partnership D Employer Identification Number
manufacturer IRS Smartgate, L.C. 00-0000000
-------------------------- label. -----------------------------------------------------------
Principal product or service Other- Number, street and room or suite number. If a P.O. Box, E Date business started
Elect Sensor wise, see page 10 of the instructions. 1/23/97
-------------------------- please 0000 Xxxxxxxxxxxx Xxxxx
NEW business code no. print --------------------------------------------------------------------------------------------
(see pages 25-27 of Instr.) or type. City or town, state, and ZIP code F Total assets (see page 10 of
335900 Xxxxxxxx XX 00000 the instructions)
$34,219
------------------------------------------------------------------------------------------------------------------------------------
Check applicable boxes: (1) [ ] Initial return (2) [ ] Final return (3) [ ] Change in address (4) [ ] Amended return
Check accounting method: (1) [ ] Cash (2) [X] Accrual (3) [ ] Other (specify)
.............................
Number of Schedules K-1. Attach one for each person who was a partner at any time during the tax year 7
.............................
------------------------------------------------------------------------------------------------------------------------------------
Caution: Include only trade or business income and expenses on lines 1a through 22 below. See the instructions for more information.
------------------------------------------------------------------------------------------------------------------------------------
1a Gross receipts or sales.................................................... 1a 18,958
----------------
b Less returns and allowances................................................ 1b 205 1c 18,753
-------------------------------------
2 Cost of goods sold (Schedule A line 8)....................................................... 2 59,470
--------------------
3 Gross profit. Subtract line 2 from line 1c................................................... 3 -40,717
--------------------
Income 4 Ordinary Inc. (loss) from other partnerships, estates, & trusts (att. sch.).................. 4
--------------------
5 Net farm profit (loss) (attach Schedule F (Form 1040))....................................... 5
--------------------
6 Net gain (loss) from Form 4787, Part II, line 18............................................. 6
--------------------
7 Other income (loss) (attach schedule)....................................................... 7
--------------------
8 Total income (loss). Combine lines 3 through 7............................................. 8 -40,717
------------------------------------------------------------------------------------------------------------------------------------
9 Salaries and wages (other than to partners) (less employment credits)..................... 9 28,125
--------------------
10 Guaranteed payments to partners........................................................... 10
--------------------
11 Repairs and maintenance................................................................... 11 307
--------------------
12 Bad debts................................................................................. 12
--------------------
Deductions 13 Rent...................................................................................... 13 16,000
(see page 11 --------------------
of the 14 Taxes and licenses............................................................See Schedule 14 3,070
instructions --------------------
for 15 Interest.................................................................................. 15 21,589
limitations) --------------------
15a Depreciation (if required, attach Form 4562)................................ 16a 3,679
----------------
b Less depreciation reported on Schedule A and elsewhere on return............ 16b 16c 3,679
-------------------------------------
17 Depletion (Do not deduct oil and gas depletion.).......................................... 17
--------------------
18 Retirement plans, etc. ................................................................... 18
--------------------
19 Employee benefit programs................................................................ 19
--------------------
20 Other deductions (attach schedule).............................................See Schedule 20 63,445
--------------------
21 Total deductions. Add the amounts shown in the far right column for lines 9 through 20..... 21 136,215
------------------------------------------------------------------------------------------------------------------------------------
22 Ordinary income (loss) from trade or business activities. Subtract line 21 from line 8 22 -176,932
------------------------------------------------------------------------------------------------------------------------------------
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and
PLEASE statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer
SIGN (other than general partner or limited liability company member) is based on all information of which preparer
HERE has any knowledge.
/s/ [Illegible], President 9-9-99
--------------------------------------------------------------------------- --------------------------------
Signature of general partner or limited liability company member Date
------------------------------------------------------------------------------------------------------------------------------------
Preparer's Date Check if Preparer's social security no.
signature /s/ [Illegible], CPA 9/3/99 self-employed [ ] ###-##-####
Paid -------------------------------------------------------------------------------------------------------------------
Preparer's Firm's name (or Xxxx & Xxxxxxx, PA EIN 00-0000000
Use Only yours if self-employed) -----------------------------------------------------------------------------------------
and address 0000 Xxxxx Xxxx Xxxxx 000
Xxxxxxxx, XX ZIP CODE 34231
------------------------------------------------------------------------------------------------------------------------------------
Paperwork Reduction Act Notice, see separate instructions. Form 1065(1998)
DAA
Form 1065 (1998) Smartgate, L.C. 00-0000000 Page 2
---------------------------------------------------------------------------------------------------------------------------------
SCHEDULE A Cost of Goods Sold (see page 14 of the instructions)
---------------------------------------------------------------------------------------------------------------------------------
1 Inventory at beginning of year ........................................................................ 1 20,140
2 Purchases less cost of items withdrawn for personal use ............................................... 2 33,026
3 Cost of labor ......................................................................................... 3 26,712
4 Additional section 263A costs (attach schedule) ....................................................... 4
5 Other costs (attach schedule) ............................................................See Schedule. 5 1,699
6 Total. Add lines 1 through 5 .......................................................................... 6 81,577
7 Inventory at end of year .............................................................................. 7 22,107
8 Cost of goods sold. Subtract line 7 from line 6. Enter here and on page 1, line 2 ..................... 8 59,470
9a Check all methods used for valuing closing inventory:
(i) [X] Cost as described in Regulations section 1.471-3
(ii) [ ] Lower of cost or market as described in Regulations section 1.471-4
(iii) [ ] Other (specify method used and attach explanation)...............................................................
b Check this box if there was a writedown of "subnormal" goods as described in Regulations section 1.471-2(c) ..........[ ]
c Check this box if the LIFO Inventory method was adopted this tax year for any goods (if checked, attach Form 970) ....[ ]
d Do the rules of section 263A (for property produced or acquired for resale) apply to the partnership? ........[X] Yes [ ] No
e Was there any change in determining quantities, cost, or valuations between opening and closing inventory? ...[ ] Yes [ ] No
If "Yes" attach explanation.
---------------------------------------------------------------------------------------------------------------------------------
SCHEDULE B Other Information
---------------------------------------------------------------------------------------------------------------------------------
1 What type of entity is filing this return? Check the applicable box: Yes No
--- --
a [ ] General partnership b [ ] Limited partnership c [X] Limited liability company
d [ ] Limited liability partnership e [ ] Other .........................................................
2 Are any partners in this partnership also partnerships? ................................................ X
3 Is this partnership a partner in another partnership? .................................................. X
4 Is this partnership subject to the consolidated audit procedures of sections 6221 through 6233?
If "Yes", see Designation of Tax Matters Partner below.................................................. X
5 Does this partnership meet ALL THREE of the following requirements?
a The partnership's total receipts for the tax year were less than $250,000;
b The partnership's total assets at the end of the tax year were less than $600,000; AND
c Schedules K-1 are filed with the return and furnished to the partners on or before the due date
(including extensions) for the partnership return.
If "Yes," the partnership is not required to complete Schedules L, M-1 and M-2; Item F on page 1 of
Form 1065; or Item J on Schedule K-1.................................................................... X
6 Does this partnership have any foreign partners?........................................................ X
7 Is this partnership a publicly traded partnership as defined in section 469(k)(2)?...................... X
8 Has this partnership filed, or is it required to file, Form 8264, Application for Registration of a
Tax Shelter?............................................................................................ X
9 At any time during calendar year 1998, did the partnership have an interest in or a signature or other
authority over a financial account in a foreign country (such as a bank account, securities account,
or other financial account)? See page 14 of the instructions for exceptions and filing requirements
for Form TD F90-22.1. If "Yes," enter the name of the foreign country. ................................... X
10 During the tax year, did the partnership receive a distribution from, or was it the grantor of, or
transferor to, a foreign trust? If "Yes," the partnership may have to file Form 3520. See page 15 of
the instructions ....................................................................................... X
11 Was there a distribution of property or a transfer (e.g., by sale or death) of a partnership interest
during the tax year? If "Yes," you may elect to adjust the basis of the partnership's assets under
section 754 by attaching the statement described under Elections Made By the Partnership on page 6
of the instructions .................................................................................... X
---------------------------------------------------------------------------------------------------------------------------------
DESIGNATION OF TAX MATTERS PARTNER (see page 15 of the instructions)
Enter below the general partner designated as the tax matters partner (TMP) for
the tax year of this return:
Name of Identifying
designated TMP Xxxxxxx X Xxxxxxx number of TMP ###-##-####
-------------------------------------------------------------------------------
Address of
designated TMP 000 X. Xxxxxxxxx Xxxxxx
------------------------------------------------------------
Xxxxxxxx, XX 00000
-------------------------------------------------------------------------------
DAA
Form 1065 (1998) Smartgate, L.C. 00-0000000 Page 3
--------------------------------------------------------------------------------
SCHEDULE K PARTNERS' SHARES OF INCOME, CREDITS, DEDUCTIONS, ETC.
------------------------------------------------------------------------------------------------------------------------------------
(a) Distributive share items (b) Total amount
------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS)
1 Ordinary income (loss) from trade or business activities (page 1, line 22)...................................... 1 -176,932
2 Net income (loss) from rental real estate activities (attach Form 8825)......................................... 2
3a Gross income from other rental activities....................................................... 3a
b Expenses from other rental activities (att. sch.)............................................... 3b
c Net income (loss) from other rental activities. Subtract line 3b from line 3a................................... 3c
4 Portfolio income (loss):
a Interest income................................................................................................. 4a 2
b Ordinary dividends.............................................................................................. 4b
c Royalty income.................................................................................................. 4c
d Net short-term capital gain (loss) (attach Schedule D (Form 1085)).............................................. 4d
e Net long-term capital gain (loss) (attach Schedule D (Form 1085)):
(1) 28% rate gain (loss) ........... (2) Total for year ........................................................ 4e(2)
f Other portfolio income (loss) (attach schedule)................................................................. 4f
5 Guaranteed payments to partners................................................................................. 5
6 Net section 1231 gain (loss) (other than due to casualty or theft) (attach Form 4797)........................... 6
7 Other income (loss) (attach schedule)........................................................................... 7
------------------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS
8 Charitable contributions (attach schedule)...................................................................... 8
9 Section 179 expense deduction (attach Form 4562)................................................................ 9
10 Deductions related to portfolio income (itemize)................................................................ 10
11 Other deductions (attach schedule).............................................................................. 11
------------------------------------------------------------------------------------------------------------------------------------
CREDITS
12a Low-income housing credit:
(1) From partnerships to which section 42(j)(5) applies for property placed in service before 1990.............. 12a(1)
(2) Other than on line 12a(1) for property placed in service before 1990........................................ 12a(2)
(3) From partnerships to which section 42(j)(5) applies for property place in service after 1989................ 12a(3)
(4) Other than on line 12a(3) for property placed in service after 1989......................................... 12a(4)
b Qualified rehabilitation expenditures related to rental real estate act. (att. Form 3468)....................... 12b
c Credits (other than ?. shown on lines 12a & 12b) related to rental real estate activities....................... 12c
d Credits related to other rental activities...................................................................... 12d
13 Other credits................................................................................................... 13
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INTEREST
14a Interest expense on investment debts............................................................................ 14a
b (1) Investment income included on lines 4a, 4b, 4c, and 4f above................................................ 14b(1)
(2) Investment expenses included on line 10 above............................................................... 14b(2)
------------------------------------------------------------------------------------------------------------------------------------
SELF-EMPLOYMENT
15a Net earnings (loss) from self-employment........................................................................ 15a
b Gross farming or fishing income................................................................................. 15b
c Gross nonfarm income............................................................................................ 15c
------------------------------------------------------------------------------------------------------------------------------------
ADJUSTMENTS AND TAX PREFERENCE ITEMS
16a Depreciation adjustment on property placed in service after 1986................................................ 16a 8
b Adjusted gain or loss........................................................................................... 16b
c Depletion (other than oil and gas).............................................................................. 16c
d (1) Gross income from oil, gas,and geothermal properties........................................................ 16d(1)
(2) Deductions allocable to oil, gas, and geothermal properties................................................. 16d(2)
e Other adjustments and tax preference items (attach schedule).................................................... 16e
------------------------------------------------------------------------------------------------------------------------------------
FOREIGN TAXES
17a Type of income.................................................................................................. 17a
b Name of foreign country or U.S. possession...................................................................... 17b
c Total gross income from sources outside the United States (attach sch.)......................................... 17c
d Total applicable deductions and losses (attach schedule)........................................................ 17d
e Total foreign taxes (check one): [ ] Paid [ ] Accrued....................................................... 17e
f Reduction in taxes available for credit (attach schedule)....................................................... 17f
g Other foreign tax information (attach schedule)................................................................. 17g
------------------------------------------------------------------------------------------------------------------------------------
OTHER
18 Section 59(a)(2) expenditures:
a Type ...................................................................................... b Amount 18b
19 Tax-exempt interest income....................................................................................... 19
20 Other tax-exempt income.......................................................................................... 20
21 Nondeductible expenses....................................................................... See Schedule ...... 21 1,???
22 Distributions of money (cash and marketable securities).......................................................... 22
23 Distributions of property other than money....................................................................... 23
24 Other items and amounts required to be reported separately to partners (attach schedule)......................... 24
------------------------------------------------------------------------------------------------------------------------------------
Form 1065 (1998) Smartgate, L.C. 00-0000000 Page 4
------------------------------------------------------------------------------------------------------------
ANALYSIS OF NET INCOME (LOSS)
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
1 Net Income (loss), Combine Schedules K, lines 1 through 7 in column (b). From the result, subtract the
sum of Schedule K, lines 8 through 11, 14a, 17a, and 18b 1 -176.930
------------------------------------------------------------------------------------------------------------
Analysis by (i)Corporate (ii)Individual (iii)Individual (iv)Partnership (v)Exempt (vi)Nominee/Other
partner type: (active) (passive) organ-
ization
------------------------------------------------------------------------------------------------------------
a General partners
b Limited partners -114,173 -31,972 -30,785
------------------------------------------------------------------------------------------------------------
SCHEDULE L BALANCE SHEETS PER BOOKS (Not required if Question 6 on Schedule B is answered "Yes.")
------------------------------------------------------------------------------------------------------------
Beginning of tax year End of tax year
---------------------------------------------------------------------------
Assets (a) (b) (c) (d)
---------------------------------------------------------------------------
1 Cash.................... 3,963 583
---------------------------------------------------------------------------
2a Trade notes and accounts
receivable............. 5,111 8,564
---------------------------------------------------------------------------
b Less allowance for bad
debts.................. 5,111 8,564
---------------------------------------------------------------------------
3 Inventories............. 12,825 17,378
---------------------------------------------------------------------------
4 U.S. government obli-
gations................
---------------------------------------------------------------------------
5 Tax-exempt securities...
---------------------------------------------------------------------------
6 Other current assets SEE SCHEDULE
(attach schedule)....... 587 587
---------------------------------------------------------------------------
7 Mortgage and real estate
loans..................
---------------------------------------------------------------------------
8 Other investments
(attach schedule).......
---------------------------------------------------------------------------
9a Buildings and other
depreciable assets..... 11,709 11,709
---------------------------------------------------------------------------
b Less accumulated
depreciation 2,268 9,441 5,947 5,762
---------------------------------------------------------------------------
10a Depletable assets.......
---------------------------------------------------------------------------
b Less accumulated
depletion..............
---------------------------------------------------------------------------
11 Land (net of any
amortization...........
---------------------------------------------------------------------------
12a Intangible assets
(amortizable only).....
---------------------------------------------------------------------------
b Less accumulated
amortization...........
---------------------------------------------------------------------------
13 Other assets SEE SCHEDULE
(attach schedule)....... 1,530 1,34?
---------------------------------------------------------------------------
14 Total assets............ 33,457 34,21?
---------------------------------------------------------------------------
Liabilities and Capital
---------------------------------------------------------------------------
Accounts payable........ 30,64?
---------------------------------------------------------------------------
Mortgages, notes, bonds
payable in less than
1 year.................
---------------------------------------------------------------------------
Other current
liabilities SEE SCHEDULE 9,148 59,32?
(attach schedule)...... ---------------------------------------------------------------------------
18 All nonrecourse loans...SEE SCHEDULE 310,000 330,50?
---------------------------------------------------------------------------
19 Mortgages, notes, bonds
payable in 1 year or more
---------------------------------------------------------------------------
20 Other liabilities
(attach schedule)...... ---------------------------------------------------------------------------
21 Partners' capital
accounts............... -285,691 -386,24?
---------------------------------------------------------------------------
22 Total liabilities and
capital................ 33,457 34,21?
------------------------------------------------------------------------------------------------------------
SCHEDULE M-1 RECONCILIATION OF INCOME (LOSS) PER BOOKS WITH INCOME (LOSS) PER RETURN
(Not required if Question 5 on Schedule B is answered "Yes." See page 23 of the Instructions.)
------------------------------------------------------------------------------------------------------------
1 Net Income (loss) per -175,556 6 Income recorded on books
books................. this year not included on
2 Income included on Sch. K ln. 1 Schedule K, lines 1 through 7
through 4, 6, and 7, not recorded on (Itemize):
books this year (Itemize):.......... a Tax-exempt interest $.........
.................................... .............................
3 Guaranteed payments (other than health .............................
insurance).......................... 7 Deductions included on Schedule K,
4 Expenses recorded on books this year lines 1 through 11, 14a, 17a, and 18b,
not included on Schedule K, lines 1 not charged against book income this
through 11, 14a, 17a, and 18b year (Itemize):
(Itemize): a Depreciation $...........
a Depreciation $.................... ....SEE SCHEDULE..............
b Travel and .....................2,586... 2,5??
Entertainment $..................69 8 Add lines 6 and 7............ 2,5??
........SEE SCHEDULE................. 9 Income (loss) (Analysis of Net
................................1,143 1,212 Income (Loss), line 1). Subtract
5 Add lines 1 through 4................ -174,344 line 8 from line 5 -176,9??
------------------------------------------------------------------------------------------------------------
SCHEDULE M-2 ANALYSIS OF PARTNERS' CAPITAL ACCOUNTS (Not required if Question 5 on Schedule B is
answered "Yes.")
------------------------------------------------------------------------------------------------------------
1 Balance at beginning of year................ -285,691 6 Distributions: a Cash.....
b Property..
2 Capital contributed during year............. 75,000 7 Other decreases
(Itemize):...................
Net Income (loss) per books................. -175,556 .............................
Other increases 8 Add lines 6 and 7............
(Itemize):.................................. 9 Balance at end of year.
............................................ Xxxxxxxx xx.0 xxxx xx.0 ....
Add lines 1 through 4....................... -386,247 ............................ -386,??
SmartGate, L.C.
Profit and Loss
December 1999
Dec '99
-----------
Income/Expense
Income
Sales 1,759.24
Shipping/Handling Reimbursement 50.25
-----------
Total Income 1,809.49
Cost of Goods Sold
Cost of Goods Sold 721.38
COGS-Wages 1,482.50
Shipping & Handling 697.66
-----------
Total COGS 2,901.54
-----------
Gross Profit (1,092.05)
Expenses
Alarm Expense 149.75
Advertising Expense 2,182.92
Bank Service Charge 51.00
Cleaning & Maintenance 108.40
Dues and Subscriptions 325.00
Equipment Rental 483.00
Interest Exp-Regions 301.83
Interest Expense-HRW 180.42
Interest Expense-RMI 1,550.00
Freight & Delivery (in) 491.95
Professional-Management Fees 448.43
Professional-Patent Legal Fees 262.50
Professional-Consulting 6,500.00
Rent or Lease Expense 4,140.90
Postage and Delivery 124.20
* T&E-Travel 3,413.76
T&E-Meals & Entertainment 646.27
Telephone 1,291.56
Telephone-ISDN 83.23
Trash & Water 41.57
Office Supplies 993.41
Coffee & Water Svc 44.47
Salary-Officer 4,500.00
Salary-Office & R&D 9,125.13
Royalties-Inventor 278.00
R&D Shop Expenses 83.44
R&D Products & Materials 10.44
* Marketing & Trade Shows 10,095.00
Taxes-Payroll 1,110.73
Taxes-Payroll Unemployment Exp. 91.91
-----------
Total Expenses 49,109.22
-----------
Net Income (Loss) (50,201.27)
===========
* T&E expenses incur during Zurich trip
* Marketing & Trade Show expense for upcoming Booth fees for Fence Tech2000 &
IPI Conf in Ft. Lauderdale
Page 1 of 1
Smartgate, L.C.
Balance Sheet
As of December 31, 1999
DEC 31, '99
-----------
ASSETS
Current Assets
Checking/Savings
First Union Checking 104,378.21
Regions Bank Checking 75.33
-----------
Total Checking/Savings 104,453.54
Accounts Receivable
Accounts Receivable 7,943.15
-----------
Total Accounts Receivable 7,943.15
Other Current Assets
Subsc Rec-S Xxxxxxx 245.00
Subsc Rec-Xxxxxx Revoc Trust 245.00
Subsc Rec-Xxxxx 35.00
Subsc Rec-R Xxxx 62.12
Inventory Asset-Finished 15,535.10
Inventory Asset-Parts 75,728.67
-----------
Total Other Current Assets 91,850.89
-----------
Total Current Assets 204,247.58
Fixed Assets
Furniture & Fixtures 3,086.23
Computer Equpmt & Software 10,351.05
Shop Equipment 5,141.69
Office Equipment 2,189.89
Leasehold Improvements 309.58
Accum Depreciation-Furniture (313.00)
Accum Depreciation-Comptr Eqt (2,101.00)
Accum Depreciation-Shop Equpmt (2,353.00)
Accum Depreciation-Off Equpmt (1,120.00)
-----------
Total Fixed Assets 15,151.23
Other Assets
Deposits 8,010.90
-----------
Total Other Assets 8,010.90
-----------
TOTAL ASSETS 227,408.71
===========
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
Accounts Payable 49,344.00
-----------
Total Accounts Payable 49,344.00
Page 1 of 2
Smartgate, L.C.
Balance Sheet
As of December 31, 1999
DEC. 31, '99
------------
Other Current Liabilities
Accrued Interest Payable-HRW 1,618.43
Accrued Interest Payable-RMI 48,914.68
Payroll Liabilities 4,298.46
FUTA Tax Payable 88.74
SUTA Tax Payable 342.09
Regions LOC 42,947.00
-----------
Total Other Current Liabilities 98,209.40
-----------
Total Current Liabilities 147,553.40
Long Term Liabilities
Due to Radio Metrix 2,765.00
N/P-RMI 330,500.00
N/P-HRWFLP 25,000.00
N/P-SGI 175,000.00
Affiliated Co. Advances 6,121.35
-----------
Total Long Term Liabilities 539,386.35
-----------
Total Liabilities 686,939.75
Equity (Deficit)
Opening Bal Equity 1,000.00
Retained Earnings (385,246.85)
Net Income (310,725.69)
Member Capital-Xxxxxxxxx 820.50
Member Capital-Movizzo 125,000.00
Member Capital-HRWFP 110,622.00
-----------
Total Equity (Deficit) (458,530.04)
-----------
TOTAL LIABILITIES & EQUITY 227,409.71
===========
Page 2 of 2
SCHEDULE 4.6
LITIGATION
SmartGate has received notice of a potential legal proceeding concerning a
personal injury in the matter of Xxxxxxxxx & Xxxxxx Xxxxxxxx. Should a legal
action be brought against SmartGate, L.C., the Company intends to aggressively
defend same. Additional information regarding the potential claim will be
provided upon request.
SCHEDULE 4.8
ABSENCE OF CERTAIN CHANGES
NONE
SCHEDULE 4.9
ASSETS
NONE
SCHEDULE 4.10
TAX MATTERS
NONE
SCHEDULE 4.11
List of material contracts or agreements to which SmartGate is a party.
[] Operating Agreement by and among SmartGate, L.C. and its members
[] Employment Agreement with Xxxxxx X. Xxxxxx
[] Employment Agreement with Xxxxxxx X. Xxxxxxx
[] Employment Agreement with Xxxxx X. Xxxxxxxxx
[] Employment Agreement with Xxxxxx X. Xxxxxxxxx
[] Confidentiality/Waiver of Interest Agreement and Covenant Not to Compete
Agreement with Xxxxxx X. Xxxx
[] Confidentiality/Waiver of Interest Agreement and Covenant Not to Compete
Agreement with Xxxxxxx X. Xxxxx
[] Confidentiality/Waiver of Interest Agreement and Covenant Not to Compete
Agreement with Xxxxxxx Xxxxx
[] Confidentiality/Waiver of Interest Agreement and Covenant Not to Compete
Agreement with Xxxxxx X. Xxx xxXxx
[] Confidentiality/Waiver of Interest Agreement and Covenant Not to Compete
Agreement with Xxxxxx Xxxxxxx and GM Capital Partners Ltd.
[] Confidentiality/Waiver of Interest Agreement and Covenant Not to Compete
Agreement with GM Capital Partners, Ltd.
[] Confidentiality/Waiver of Interest Agreement and Covenant Not to Compete
Agreement with Knight Financial Ltd.
[] Confidentiality/Waiver of Interest Agreement and Covenant Not to Compete
Agreement with Xxxxx Xxxxxx Xxxx
[] Non-Disclosure Agreement with Xxxxxx Xxxxx
[] Non-Disclosure Agreement with Xxxxxxx X. Xxxxxx
[] Non-Disclosure Agreement with Pablo Santa Xxxx
[] Non-Disclosure Agreement with X. X. Xxxxxx
[] Consulting Agreement with Xxxxxxx Xxxx
[] Sublicense Agreement between Radio Metrix, Inc. and SmartGate, L.C.
[] Royalty Agreement between Radio Metrix, Inc. and Xxxx Xxxxxxxxx (under which
SmartGate, L.C. has royalty payment obligations)
[] Royalty Agreement between Radio Metrix, Inc. and Xxxx Xxxxxxx (under which
SmartGate, L.C. has royalty payment obligations)
SCHEDULE 4.11 (CONTINUED)
[] Sublease Agreement with X.X. Xxxxxxxx Family Limited Partnership
[] Office furniture and equipment lease with Xxxxxx & Xxxxx, P.A.
[] Line of Credit Agreement with Regions Bank, N.A.
[] Promissory Notes to Radio Metrix, Inc. in the aggregate amount of $330,500
[] Promissory Note to X.X. Xxxxxxxx - $25,000
[] Promissory Note to SmartGate, Inc., a Nevada corporation - $250,000
[] Option Agreement with Xxxxxx X. Xxxxxxxxx included in Employment Agreement
[] Restricted Stock Agreement with Xxxxxx X. Xxxx
[] Restricted Stock Agreement with Xxxxxxx X. Xxxxxxx
[] Restricted Stock Agreement with Xxxxxx X. Xxxxxx
[] Restricted Stock Agreement with Xxxxxx X. Xxxxxxxxx
[] Restricted Stock Agreement with X.X. Xxxxxxxx Family Limited Partnership
[] Restricted Stock Agreement with Xxxxx Xxxxxxxxx
[] Restricted Stock Agreement with Xxxxxxx X. Xxxxx
[] Restricted Stock Agreement with Xxxxxx X. Xxxxxxxxx
SCHEDULE 4.13
OPERATING PERMITS/LICENSES EXCEPTIONS
NONE
SCHEDULE 5.2
CAPITALIZATION
Attached certified shareholders' list dated February 9, 2000
SMARTGATE INC. - COMMON
SHAREHOLDER LISTING
1/24/00
SHAREHOLDER DEL CERTIF.# ISSUE DATE QUANTITY
----------- --- -------- ---------- --------
Cede & Co. Y 1042 05/05/99 450,000
1043 05/05/99 4,000
1044 05/11/99 1,000
RBC Dominion Securities Y 1038 04/16/99 100,000
Xxxxxxxx Xxxxxx Y 1012 03/22/99 1,000
Xxxxxx Xxxxxx Y 1011 03/22/99 1,000
D. Xxxxx Xxxxxx Y 2005 01/11/00 5,000
Xxxxx Xxxxxx Y 2008 01/11/00 15,000
Xxxxx Xxxxx Y 1036 03/22/99 1,000
Xxxxxx Xxxxxxxxx Y 2009 01/11/00 10,000
Xxxxx Xxxxxxx Y 02/18/00 10,000
GM Capital Partners Ltd. Y 1001 03/22/99 674,000
Xxxxxx Xxxxxxxx Y 2015 01/11/00 50,000
Huda Limited Y 1005 03/22/99 225,000
Intro Limited Y 2013 01/11/00 30,000
Xxxxx Xxxxxx Y 1032 03/22/99 1,000
Xxxx Xxxxxx Y 1030 03/22/99 1,000
Xxxxx Xxxxxx Y 1031 03/22/99 1,000
Xxxxxx Xxxxxx Y 1019 03/22/99 1,000
Xxxx Xxxxxx Y 1018 03/22/99 1,000
Xxxxx Xxxxxx Y 1033 03/22/99 1,000
Xxxxxxxxxx Xxxx Y 1021 03/22/99 1,000
Page 2
Xxxxx Xxxxx Y 1007 03/22/99 1,000
Xxxxxxx Xxxxx Y 1009 03/22/99 1,000
Xxx Xxxxx Y 1008 03/22/99 1,000
Xxxx Xx Y 2006 01/11/00 10,000
Xxxxx Xxxxx Y 1022 03/22/99 1,000
Xxxx-Xxxxx XxxXxxxxx Y 1024 03/22/99 1,000
Xxxxxx Xxxxxxxxxxx Y 2007 01/11/00 7,500
Xxxxxx Xxxxxxxx Y 1014 03/22/99 1,000
Rheece Metcalfe Y 1013 03/22/99 1,000
Xxx Xxxxxx Y 1027 03/22/99 1,000
Xxxxx Xxxxxx Y 1026 03/22/99 1,000
Roshan & Xxxxxx Xxxxxx Y 2003 01/11/00 15,000
Xxxxxxx Xxxxxx Y 1015 03/22/99 1,000
Xxxx Xxxxxx Y 1017 03/22/99 1,000
Xxxx Xxxxxx Y 1035 03/22/99 1,000
Xxxxxx Xxxxx Y 2010 01/11/00 10,000
Xxxxxxx X. Xxxxx Y 2004 01/11/00 15,000
Xxxxxxx X. Xxxxx Y 2012 01/11/00 10,000
Xxxxxx Xxxxxx Y 2016 01/11/00 10,000
Xxxxx Xxxxxxx Y 1037 03/22/99 1,000
Private Investment Co. Ltd. Y 2011 01/11/00 60,000
Xxxxxxx Xxxxxx Y 1010 03/22/99 1,000
Xxxxx X. Xxxxxx Y 2017 01/20/00 7,500
Page 3
Xxxxx Xxxx Y 1023 03/22/99 1,000
Xxxxxx Xxxx Y 1025 03/22/99 1,000
Xxxxxx X. Xxxxxx Y 2002 01/11/00 15,000
Tamarin Investment Group, Inc. Y 1006 03/22/99 225,000
Xxxxx Xxxxxx Y 2014 01/11/00 5,000
Xxx & Xxxx Xxxxxxxx Y 2001 01/11/00 10,000
Total Securities 2,000,000
SCHEDULE 5.5
FINANCIAL STATEMENTS - PUBCO
TORIK CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
PERIOD FROM INCEPTION
(JULY 9, 1998) THROUGH
MARCH 31, 1999
TORIK CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
TABLE OF CONTENTS
-----------------
PAGE
----
Independent Auditors' Report 3
Balance Sheet 4
Statement of Operations 5
Statement of Changes in Shareholders' Equity 6
Statement of Cash Flows 7
Notes to Financial Statements 8
[XXXXXX, XXXXXXXX & CO. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Torik Corporation
(A Company in the Development Stage)
We have audited the accompanying balance sheet of Torik Corporation (a Company
in the Development Stage) as of March 31, 1999, and the related statements of
operations, changes in shareholders' equity, and cash flows for the period from
inception (July 9, 1998) through March 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based upon our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Torik Corporation (a Company in the
Development Stage) as of March 31, 1999, and the results of its operations and
its cash flows for the period from inception (July 9, 1998) through March 31,
1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, the Company has suffered losses from operations that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 4. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ XXXXXX, XXXXXXXX & CO.
Denver, Colorado
June 11, 1999
TORIK CORPORATION
(A Company in the Development Stage)
BALANCE SHEET
MARCH 31, 1999
ASSETS
CURRENT ASSET - Cash $ 315
=========
SHAREHOLDERS' EQUITY
CONTINGENCY (Note 4):
SHAREHOLDERS' EQUITY (Note 2):
Common stock, $.001 par value, 25,000,000 shares authorized;
2,531,000 shares issued and outstanding $ 2,531
Additional paid in capital 12,119
Stock subscription receivable (150)
Deficit accumulated during the development stage (14,185)
--------
TOTAL SHAREHOLDERS' EQUITY 315
--------
$ 315
=========
The accompanying notes are an integral part of this statement. -4-
TORIK CORPORATION
(A Company in the Development Stage)
STATEMENT OF OPERATIONS
PERIOD FROM INCEPTION (JULY 9, 1998)
THROUGH MARCH 31, 1999
REVENUE $ --
EXPENSES: (Note 3)
Rent expense 220
Office expense 5,750
Management fees 2,450
Consulting fees 2,500
Transfer agent fees 700
Filing fees 685
General and Administrative 1,880
----------
NET LOSS $ (14,185)
==========
BASIC AND FULLY DILUTED LOSS PER COMMON SHARE $ (.01)
==========
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,383,642
==========
The accompanying notes are an integral part of this statement. -5-
TORIK CORPORATION
(A Company in the Development Stage)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
PERIOD FROM INCEPTION (JULY 9, 1998)
THROUGH MARCH 31, 1999
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
COMMON STOCK PAID-IN DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
------------ ------------ ------------ ------------ -------------
INCEPTION, July 9, 1998 -- $ -- $ -- $ -- $ --
Issuance of common stock,
July 10, 1998 (Note 2) 1,500,000 1,500 -- -- 1,500
Issuance of common stock,
August 13, 1998 1,000,000 1,000 9,000 -- 10,000
Issuance of common stock,
August 28, 1998 31,000 31 1,519 -- 1,550
Capital contributions -- -- 1,600 1,600
Stock subscription receivable -- -- (150) -- (150)
Net loss -- -- -- (14,185) (14,185)
--------- ------ ------- -------- --------
BALANCES,
March 31, 1999 2,531,000 $2,531 $11,969 $(14,185) $ 315
========= ====== ======= ======== ========
The accompanying notes are an integral part of this statement.
-6-
TORIK CORPORATION
(A Company in the Development Stage)
STATEMENT OF CASH FLOWS
PERIOD FROM INCEPTION (JULY 9, 1998)
THROUGH MARCH 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(14,185)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock $ 14,650
Stock subscription receivable (150)
--------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,500
NET INCREASE IN CASH 315
CASH, at beginning of period --
--------
CASH, at end of period $ 315
========
The accompanying notes are an integral part of this statement. -7-
TORIK CORPORATION
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Torik Corporation (the "Company") was incorporated in the state of Nevada on
July 9, 1998 and had no previous operations. Activities through March 31, 1999
include organization of the Company and the raising of equity capital. The
Company intends to complete detailed impact analysis on corporate information
systems to verify if the system will have date-related failures in the year
2000.
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 at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
NET LOSS PER SHARE OF COMMON STOCK
Net loss per share of common stock is based on weighted-average number of
shares of common stock outstanding during the period.
NOTE 2 - SHAREHOLDERS' EQUITY
The Company has the authority to issue 25,000,000 shares of common stock $0.001
par value. The Company issued 1,500,000 shares of common stock to one founder
for $1,500 and 1,000,000 shares of common stock to other shareholders for
$10,000 in August, 1998. The Company issued 31,000 shares of common stock in
connection with a private offering for $1,550 in August, 1998.
NOTE 3 - RELATED PARTY TRANSACTIONS
For the period ended March 31, 1999, the Company paid $5,750 in office expenses
and $4,950 in management and consulting fees to its original founding
shareholder and an affiliate of this shareholder.
NOTE 4 - GOING CONCERN
The Company has suffered recurring losses from operations that raises a
substantial doubt about its ability to continue as a going concern. The
continuation of the Company as a going concern is dependent upon the Company
attaining and maintaining profitable operations and raising additional capital.
Management's plans in this regard is to raise additional capital through an
equity offering. The financial statements do not include any adjustment
relating to the recovery and classification of recorded asset amounts or the
amount and classification of liabilities that might be necessary should the
Company discontinue operations.
SMARTGATE INC.
TABLE OF CONTENTS
PAGE
----
Financial Statements
Balance Sheet 1
Statement of Operations 2
Statement of Cash Flows 3
Statement of Shareholder's Equity 4
Notes to the Financial Statement 5
SMARTGATE INC.
(A Development Stage Company)
Balance Sheet (unaudited)
As at January 31, 2000
Notes January 31, 2000
----- ----------------
ASSETS
Current Assets - Cash $ 295
Advance to SmartGate, L.C. 230,000
TOTAL ASSETS $230,295
========
LIABILITIES
Current Liabilities $ 8,521
TOTAL LIABILITIES $ 8,521
--------
SHAREHOLDER'S EQUITY 1,2
Common Stock, $0.001 Par Value
Authorized 25,000,000 Shares
Issued and Outstanding
January 31, 2000 - 2,816,000 $ 2,816
Additional Paid in Capital 296,834
Retained Earnings (14,185)
Current Earnings (63,691)
TOTAL SHAREHOLDERS' EQUITY $221,774
--------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $230,295
========
The Accompanying Notes Are An Integral Part of These Financial Statements.
Page 1
SMARTGATE INC.
(A Development Stage Company)
Statement of Operations (unaudited)
For the Ten Month Period Ended January 31, 2000
For The Ten Month
Period Ended
Notes January 31, 2000
-------- -------------------
Revenue............................... $ --
---------------
General & Administrative Expenses..... (63,691)
---------------
Total Expenses........................ (63,691)
Net (Loss)............................ $ (63,691)
===============
Net (Loss) per Common Share........... 1 $ (0.03)
===============
Common Shares Outstanding............. 2 2,816,000
===============
The Accompanying Notes Are An Integral Part of These Financial Statements.
Page 2
SMARTGATE INC.
(A Development Stage Company)
Statement of Cash Flow (unaudited)
For the Ten Month Period Ended January 31, 2000
For the Ten Month
Period Ended
Notes January 31, 2000
-------- -------------------
Net (Loss)............................ $ (14,185)
Plus Items Not Affecting Cash Flow.... 8,521
Cash Flows From Operations............ (63,691)
---------------
Cash Flows From Investing Activities.. (230,590)
Cash Flows From Financing Activities.. --
Common Stock Issued For Cash....... 2 299,650
---------------
Total Cash Flow From Financing..... $ 299,650
===============
Net Increase (Decrease) in Cash....... $ 295
Cash at Beginning of Period........... 315
Cash at End of Period................. $ (25)
===============
The Accompanying Notes Are An Integral Part of These Financial Statements.
Page 3
SMARTGATE INC.
(A Development Stage Company)
Statement of Shareholders' Equity (unaudited)
For the Ten Month Period Ended January 31, 2000
Number of Capital Paid
Shares Common in excess of Accumulated
Notes Common Stock Par Value Deficits Total
---------- ---------- ------ ------------ ----------- -------
Balance at July 9, 1998 2 -- $ -- $ -- $ -- $ --
July 10, 1998 issue 1,500,000
shares of $0.001 par value
common stock for cash at $.001
per share 1,500,000 $1,500 $ -- $ -- $ 1,500
August 14, 1998 issue 1,000,000
shares of $0.001 par value
common stock for cash at $0.01
per share 1,000,000 $1,000 $ 9,000 $ -- $ 10,000
August 28, 1998 issue 32,000
shares of $0.001 par value
common stock for cash at $0.05
per share 31,000 $ 31 $ 1,519 $ 1,550
Additional Paid in Capital $ 1,600 $ 1,600
Stock Subscription Receivable $ (150) $ (150)
Net (Loss) -- $ -- $ -- $(14,185) $(14,185)
--------- ------ -------- -------- --------
Balance at August 31, 1998 2,531,000 $2,531 $ 11,969 $(14,185) $ 315
--------- ------ -------- -------- --------
Stock Subscription Receivable $ 150 $ -- $ 150
November 1, 1999 issue 285,000
shares of $0.001 par value
common stock for cash at $1.00
per share 2 285,000 $ 285 $284,715 $285,000
Net (Loss) $(63,691) $(63,691)
--------- ------ -------- -------- --------
Balance at January 31, 2000 2 2,816,000 $2,816 $296,834 $(77,876) $221,774
========= ====== ======== ======== ========
The Accompanying Notes Are An Integral Part of These Financial Statements.
Page 4
SMARTGATE INC.
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2000
(unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
On July 9, 1998, SmartGate, Inc. (the "Company") was incorporated under the laws
of Nevada and intends to complete detailed impact analysis on corporate
information systems to verify if the system will have date-related failures in
the year 2000. The Company has also decided to enter into the manufacturing and
distribution of safety sensors for closing devices.
Development Stage:
The Company is currently in the development stage and has no significant
operations to date.
Income Taxes:
Income Taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax basis
of assets and liabilities for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of those
difference, which will either be taxable or deductible when the assets and
liabilities are offset future taxable income and tax credits that are available
to offset federal income taxes. Due to the Company's net operating loss there
are no income taxes currently due. Also, there were no material differences
between recorded book basis and tax basis at January 31, 2000.
Statement of Cash Flow
For Purposes of the statement of cash flows, the Company considers demand
deposits and highly liquid-debt instruments purchased with a maturity of three
months or less to be cash equivalent.
Cash paid for interest and taxes in the period ended January 31, 2000 was $-0-.
Net (Loss) Per Common Share
The net (loss) per common share is computed by dividing the net (loss) for the
period by the weighted average number of shares outstanding at January 31, 2000.
NOTE 2 - CAPITAL STOCK
Common Stock:
NOTE 3 - SUBSEQUENT EVENTS
The Company has entered into a
Contribution Agreement (the "
Contribution
Agreement") to acquire SmartGate, L.C., a manufacturer and distributer of safety
systems for closing devices. Pursuant to the
Contribution Agreement, the
Company will acquire 100% of the outstanding stock of SmartGate L.C. in a
tax-free exchange for approximately 6,000,000 shares of the Company
Page 5
SMARTGATE INC.
(A Development Stage Company)
Notes to Financial Statements
At January 31, 2000
Outstanding options of approximately 1,476,191 of SmartGate L.C. will be
exchanged for similar options of the Company.
As a condition to the
Contribution Agreement with SmartGate L.C., the Company
loaned $250,000 to SmartGate L.C. As a further condition to the
Contribution
Agreement, unless otherwise agreed, the Company is required to have $3,750,000
in net liquid assets at the closing, which will be from the proceeds of an
offering of 2.1 million shares at $2.00/share. Should the tax free exchange not
close by November 30, 1999, or as mutually extended by the parties, at the
Option of SmartGate L.C., the loan may be repaid by SmartGate L.C.; (i) by the
repayment of $250,000 plus accrued interest at 6% or (ii) through the issuance
of shares of SmartGate L.C. stock at $1.00 per share on a pro rata basis to the
Company.
The Company and SmartGate L.C. have agreed to extend the
Contribution Agreement,
though no date has been set at this time.
Page 6
SCHEDULE 5.6
ABSENCE OF FINANCIAL CHANGES
None
SCHEDULE 5.7
ABSENCE OF CERTAIN CHANGES
None
SCHEDULE 5.8
ASSETS
None
