DEVELOPMENT AND PURCHASE AGREEMENT
504
This Agreement ("Agreement") is made effective this 13th day of June,
1996 by and between Canton Financial Services Corporation, (hereinafter referred
to as "Canton"), a Nevada corporation with offices at 268 West 400 South, Suite
310, Salt Lake City, Utah 84101 and, Bust-It Records, a California corporation
(hereinafter referred to as "Client"), with an address as described below under
Item 18(e)(iv) with respect to the following:
RECITALS
WHEREAS, Canton , among other things, and through its subsidiary,
CyberMall, Inc. is in the business of building and selling Mall sites on the
internet and providing necessary support and maintenance services to and for
companies that desire to market and/or promote their products or services on the
Internet;
WHEREAS, Client is in the business of marketing and promoting products
and services relating to the music business;
WHEREAS, Client desires that Canton, through its subsidiary, CyberMall,
Inc., develop and sell to Client, a Mall site on the Internet to promote and
market products and services associated with its business; and
WHEREAS, for the purposes of this Agreement, "Client" shall also mean
to include entities and individuals owned, affiliated with or represented by
Client as listed in Exhibit "A" attached hereto, if applicable.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which is expressly acknowledged, Client and Canton agree
as follows:
1. Sale and purchase
Canton agrees to sell to Client and Client agrees to purchase from
Canton, a wholly owned subsidiary of Canton Financial Services Corporation,
knows as (A Cyber Company to named, Inc. ("CY"), which among other things, shall
include a Mall site on the Internet which Canton will develop and tailor to meet
Bust-It Records' specific needs. Said mall shall include, but not be limited to
the following:
a. Use of Canton's T-1 access line; use of computer hardware and
software; use of a graphic design team; use of a copy writing and
editing team; use of computer programmers; use of scanning
systems, facsimile systems, photocopiers; and use of Canton's
proprietary search engine and shopping cart when such products
become available. All of the above are specifically for the
purpose of developing and servicing CY.
b. Canton shall supply CY with the necessary vendor contracts and
forms.
c. Within 15 days of this Agreement, Canton shall provide Client and
CY a detailed list of the conditions pursuant to item 1 (a) as
well as a list of additional services that it will provide
pursuant to the development and servicing of this mall.
2. Purchase Price.
The purchase price for said subsidiary and Mall site shall be Fifteen
Million Dollars ($15,000,000).
3. Terms of Sale
a. Pursuant to a Consulting Agreement between Canton and Client
dated June 13th, a copy of --------- which is attached hereto as
exhibit "B" ("CONSULTING AGREEMENT"), Canton shall assist client
with, among other things, forming a new Nevada corporation
("NEWCO") and preparing the documents for raising capital through
a public offering(s) of NEWCO's stock pursuant to Rule 504 of
Regulation D ("OFFERING(s)"). Pursuant to Item 2 (d) of the
CONSULTING AGREEMENT, Canton shall receive the first Seventy-Five
Thousand Dollars ($75,000) cash raised from the OFFERING(s) as
compensation for other services provided by Canton to Client
under CONSULTING AGREEMENT.
i. Under the terms of this DEVELOPMENT and PURCHASE
AGREEMENT herein, Canton shall receive the next One
Hundred and Fifty Thousand Dollars ($150,000) cash
raised from the aforementioned OFFERING(s).
ii. Canton shall further receive Five Hundred Thousand
(500,000) free-trading shares of NEWCO, under the
OFFERING(s). For the purpose of this Agreement, Said
shares shall be valued at One Million Three Hundred
Thousand Fifty Dollars ($1,350,000).
b. The balance of Thirteen Million Five Hundred Thousand Dollars
($13,500,000) shall be paid as follows:
i. Client shall execute a Promissory Note for Thirteen
Million Five Hundred Thousand Dollars ($13,500,000)
in favor of Canton ("Note"). This Note shall be
secured by the CY corporate stock (which shall remain
in the possession of Canton until said Note has been
paid in full) and shall be due and payable in full
within three years form the date of this Agreement.
After the end of three (3) years form the date of
this Agreement, Canton may, at its option, convert
any unpaid balance into 29% of CY's common stock in
lieu of full payment.
ii. As an incentive for early payment in full on this
Note, Client may pay to Canton Eight Million Dollars
($8,000,000) cash within the first twelve months
from the date of this Agreement, Or, Client may pay
Ten Million Dollars ($10,000,000) cash within the
twenty-four months from the date of this Agreement
which amount shall represent payment in full on this
Note. Additionally, any amount paid in the first
twelve months shall be applied pro-rata towards the
($10,000,000) to be paid within the twenty-four
month period. Additionally, any amount paid in the
first twenty-four months shall be applied pro-rata
towards the ($13,500,000) to be paid within the
three year period.
c. Further, Canton shall receive 2% of the gross quarterly revenues
of Cy, in perpetuity, which is to be disbursed on a quarterly
basis.
d. Once $9 million in gross revenues have been achieved from CY,
Client shall issue an additional 100,000 shares of free trading
stock of NEWCO to Canto or designees pursuant to a Form S-8 under
the Securities Exchange Act of 1933, as amended, for services
rendered.
e. Before each issuance of stock , or exchange of stock pursuant to
this Agreement, Canton shall provide Client with a list of
designees ("List of Designees") specifying which entities will
provide or have provided services under this Agreement, and the
amount of stock each is to be compensated. Such list must bear
the notarized signature of an officer of Canton to be valid. All
shares issued pursuant to this Agreement shall be issued pursuant
to Canton's instruction.
4. Expenses.
a. Client shall be responsible for all costs associated with the
development and service of CY. Consultant shall provide Client
monthly itemized invoices and statements of all costs it has
incurred on behalf of CY. Client shall have the option to pay
expenses in cash or with NEWCO stock. In the event that Client
chooses to pay in stock, said payment shall be made in free
trading stock of NEWCO and subject to Item 3(e) above. In the
event Client chooses to pay in cash, it shall receive a
Twenty-Five Percent (25%) discount from the amount of invoice
paid in cash.
b. All time spent on each matter by any independent employee of
CyberMall or any of its subsidiaries, is recorded and charged at
an hourly rate and is subject to periodic review based on the
status of the person performing the work. In the event there are
any unpaid compensation or expenses, they shall bear interest at
the annual rate of 18%, compounded annually; any invoice unpaid
after thirty (30) days shall bear interest as indicated above and
may be settled by the issuance of additional shares of the common
stock of Clients' of equivalent value, at the option of Canton.
c. For a period of sixty-days from the date of this Agreement,
Consultant shall waive development expenses for Client. However,
Consultant shall provide Client with an accounting of its costs
for Client's review so client may have the opportunity to
ascertain the level of quality of Consultant's work and the
fairness of Consultant's billings. Any dispute shall be subject
to Item 4 (d) below.
d. In the event of a dispute over expenses to be paid by Client to
Consultant, Client shall present to Consultant, in writing, the
nature of the dispute. Consultant and Client shall first attempt
to resolve the matter among themselves. If, after 30 days from
the date of Client's dispute letter, the matter has not been
resolved in writing and signed by both parties, it shall next be
submitted to arbitrations. Each party shall select a member to
represent them on the board of arbitration. The two chosen
arbitrators shall then select a third member. Any resolution
provided under arbitration shall be final and binding.
5. Nondisclosure of Confidential Information
a. In consideration for the Client entering into this Agreement,
Canton agrees that the following items used in the Client's
business are secret, confidential, unique and valuable, were
developed by Client at great cost and over a long period of time,
and disclosure of any of the items to anyone other than Client's
officers, agents, or authorized employees will cause Client
irreparable injury:
(i) non-public financial information, accounting
information, plan of operations, possible mergers or
acquisitions prior to the public announcement;
(ii) customer lists, call lists, and other confidential
customer data;
(iii) memoranda, notes, records concerning the technical
processes conducted by Client;
(iv) sketches, plans, drawings and other confidential
research and development data; or
(v) manufacturing processes, chemical formulae, and/or
the composition of Client's products.
b. Canton shall have no liability to the Client with respect to the
use or disclosure to others not party to this Agreement, of such
information as Canton can establish to:
(i) have been publicly known;
(ii) have become known, without fault on the part of
Canton, subsequent to disclosure by Client of such
information to Canton;
(iii) have been otherwise known by Canton prior to
communication by the Client to Canton of such
information; or
(iv) have been received by Canton at any time from a
source other than Client lawfully having possession
of such information.
6. Term of Service and Development:
Notwithstanding any early termination pursuant to Section 7, Canton
shall be obligated to provide all services necessary to achieve the development
of CY to Client's specifications for a period of one year form the date of this
agreement. After this period, this Agreement can be extended on a month to month
basis (the "Extension Period") by mutual agreement of the parties executed in
writing specifying the compensation for the Extension Period. Such notice of
either extension or termination shall be in writing and shall be delivered via
U.S. certified mail, when applicable, effective ten (10) days after delivery to
the other party.
7. Termination of Agreement by Either Party
a. Either party retains the right to terminate this Agreement if in
the judgment of the Board of Directors of either part, the other
party's actions or conduct make it unreasonable to perform under
this Agreement. Such acts include, but are not limited to,
engaging in or threatening to engage in illegal or unethical
activities.
c. Either party retains the right to terminate this Agreement if the
other party misrepresents its corporate standing, its power to
enter and bind itself to this Agreement, its guarantees as
indicated below, or any other material fact which would decrease
the binding effect of this Agreement.
d. Either party retains the right to terminate this Agreement if an
unanticipated material change in federal or state laws and/or
regulations makes continued performance under this Agreement
unreasonable.
e. Canton retains the right to terminate this Agreement upon
Client's lack of payment pursuant to Item 4, if such delinquency
continues for thirty (30) days after due hereunder.
f. Notwithstanding the termination of this Agreement by either
party, Canton shall be entitled to receipt of the charges for the
work actually performed at its normal consulting rates, and shall
retain or continue to be entitled to any stock either issued or
authorized to be issued to Canton or its designees. Canton shall
also be entitled to reimbursement of any expenses incurred.
8. Non-Circumvention
Client agrees that it will not enter into any transaction involving a
business opportunity introduced to Client by Canton, without compensating Canton
pursuant to this Agreement. Neither will Client terminate this Agreement solely
as a means to avoid paying Canton compensation earned or to be earned, or in any
other way attempt to circumvent Canton or this Consulting Agreement.
9. Due Diligence
Client shall supply and deliver to Canton all information relating to
its business as may be reasonable requested by Canton to enable Canton to make
an investigation of Client and its business prospects, and Client shall make
available to Canton names, addresses and telephone numbers as Canton may need to
verify or substantiate any such information provided. Client shall be under an
affirmative obligation to update Canton of any potentially material changes it
experiences.
10. Best Efforts Basis
Canton agrees that it will at all times faithfully, to the best of its
experience, ability and talents, perform all the duties that may be required of
and form Canton pursuant to the terms of this Agreement. Canton does not
guarantee that its efforts will have any impact on Client's business or that any
subsequent financial improvement will result form Canton's efforts. Client
understands and acknowledges that the success or failure of Canton's efforts
will be predicated on Client's assets and operating results. 11. Canton's
Employees
11. Canton's Employees
Client is put on notice that agreements presently exist between Canton
and certain employees of Canton prohibiting future employment with clients in
general. Client agrees not to circumvent or frustrate the obligations of the
parties to these agreements.
12. Client's Representations
Client represents, warrants and covenants to Canton that each of the
following are true and complete as of the date of this Agreement:
a. Corporate Existence. Client is a corporation duly organized,
validly existing, and in good standing under the laws of the
state of its incorporation, with full corporate power and
authority and all necessary governmental authorization to own,
lease and operate property and carry on its business as it is now
being conducted. Client is duly qualified to do business in and
is in good standing in every jurisdiction in which the nature of
its business or the property owned or leased by it makes such
qualifications necessary.
b. Client's Authority for Agreement. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by the Client. This
Agreement has been duly executed and delivered by Client and
constitutes the valid and legally binding obligation of Client
enforceable in accordance with its terms, except to the extent
that enforceability may be subject to or limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditor rights generally. The execution and delivery
of this Agreement and the consummation of the transactions
contemplated herein will not conflict with or result in the
violation of any provision of Client's Articles of Incorporation
or Bylaws. To the best of Client's knowledge, after due inquiry,
the execution and delivery of this Agreement and the consummation
of the transactions contemplated herein will not conflict with
any mortgage, indenture, lease, contract commitment, agreement,
or other instrument, permit, concession, grant, franchise,
license, judgement, order, decree, statute, law, ordinance, rule
or regulation applicable to Client or any of its properties or
assets.
c. Consents and Authorizations. Any consent, approval order or
authorization of, or registration, declaration, compliance with
or filing with any governmental or regulatory authority required
in connection with the execution and delivery of this Agreement
to permit the consummation by Client and Canton of the
transactions contemplated herein shall be accomplished in a
timely manner and in accordance with federal and/or state laws
where applicable. Client herein guarantees that at the time and
at the date of trade, should its stock fall below the value as
previously established at the time and on the date this Agreement
was consummated, that Client will correct any difference to
Canton so that Canton would have been put in the same position
should the stock have been trading at the same value when this
Agreement was consummated.
d. Litigation. There are no judicial or administrative actions,
suits, proceedings or investigations pending or, to the knowledge
of Client, threatened which may result in any liability on the
part of Client other than what has already been disclosed to
Canton.
e. Involvement in Proceedings or Investigations by Securities
Regulatory Authorities. Client, its officers, 10% of
shareholders, and any entity which Client or its affiliates or
officers control, has not been previously involved in any
litigation, investigations or proceedings with the SEC or any
other State of Foreign Securities Regulatory organization, and is
not presently indicted and/or was never convicted of fraud or any
similar crime involving any allegation of dishonesty or theft,
nor found guilty or is currently involved in legal proceedings of
such conduct in a civil context, other than as disclosed and with
full and complete details attached hereto.
f. Minute Books. The minute books of Client contain full and
complete minutes of all annual, special and other meetings (or
written consents in lieu thereof) of the directors and committees
of directors and shareholders of Client; the signatures on such
minutes and written consents are the true signatures of the
persons purporting to have signed them; and the stock ledger of
Client with respect to shares of Client's common stock issued or
transferred is complete and no documentary stamp taxes are
required to be affixed and canceled in connection with the
transfer of issuance of the shares.
g. Disclosure Documents. Client has or will cause to be delivered,
concurrent with the execution of this Agreement, copies of its
entity records as requested to effectuate any transaction
contemplated herein. Documents which Client agrees to provide to
Canton shall include but not be limited to audited financial
statements for the past three years of Client's operations or as
long as Client has been in operation, whichever is less, which
have been audited by a SEC peer approved financial auditor, any
entity resolutions and any and all other documents which may in
any way relate to the transactions contemplated in this
Agreement.
h. Nature of Representations. No representation or warranty made by
Client in this Agreement, nor any document or information
furnished or to be furnished by Client to the Canton in
connection with this Agreement, contains or will contain any
untrue statement of material fact, or omits or will omit to state
any material fact necessary to make the statements contained
therein not misleading, or omits to state any material fact
relevant to the transactions contemplated by this Agreement.
i. Independent Legal and Financial Advice. Canton is not a law firm;
neither is it an accounting firm. Canton does, however, employ
professionals in those capacities to better enable Canton to
provide consulting services. Client represents that it has not
nor will it construe any of Canton's representations to be
statements of law. Client has and will continue to seek the
independent advice of legal and financial counsel regarding all
material aspects of the transactions contemplated by this
Agreement, including the review of all documents provided by
Canton to Client and all opportunities Canton introduces to
Client. Client acknowledges that no representation or warranty
has been given to Client by Canto as to any legal, tax,
accounting, financial or other aspect of the transactions
contemplated by this Agreement.
13. Canton's Disclosure
Canton makes no warranties or representations with respect to the value or
potential value or earnings potential, of the proposed Mall site. 14. All prior
Agreements Terminated
14. All Prior Agreements Terminated
This Agreement comprises the entire agreement and understanding between the
parties hereto at the date of this Agreement as to the subject matter hereof and
supersedes and replaces all proposals, prior negotiations and agreements,
whether oral or written, between the parties hereto in connection with the
subject matter hereof. None of the parties hereto shall be bound by any
conditions, definitions, warranties or representations with respect to the
subject matter of this Agreement other than as expressly provided in this
Agreement unless the parties hereto subsequently agree to vary this Agreement in
writing, duly signed by authorized representatives of the parties hereto.
15. Canton is not an Agent or Employee of Client
Canton's obligations under this Agreement consist solely of the
Consulting Services described herein. In no event shall Canton be considered to
act as an employee or agent of Client or otherwise represent or bind Client. For
the purpose of this Agreement, Canton is an independent contractor. All final
decisions with respect to acts of Client whether or not made pursuant to or in
reliance on information or advice furnished by Canton hereunder, shall be those
of Client or its affiliates and Canton, its employees or agents shall under no
circumstances be liable for any expense incurred or loss suffered by Client as a
consequence of such action or decisions.
16. Utilization of Attorneys
Canton utilizes attorneys to assist it in preparing the documentation
required to effectuate the transactions contemplated by this Agreement. The
attorneys utilized by Canton represent only Canton, and Canton's interest in
providing consulting services and do not in anyway represent the interests of
any party to this Agreement other than Canton's. Client is advised, and has
represented, that it will seek independent legal counsel to review all
documentation provided to Client by Canton.
17. Continue Operations in Substantially Same Manner
Client will not transfer, sell or hypothecate, assign or distribute any
of the assets currently in its possession except upon the written agreement of
the parties to this Agreement, and will continue operations in substantially the
same manner as it is presently functioning, until this agreement has been
consummated.
18. Miscellaneous
a. Authority. The execution and performance of this Agreement have
been duly authorized by all requisite corporate action. This
Agreement constitutes a valid and binding obligation of the
parties hereto.
b. Amendment. This Agreement may be amended or modified only by an
instrument in writing executed by the parties hereto.
c. Waiver. No term of this Agreement shall be considered waived and
no breach excused by either party unless made in writing. No
consent waiver or excuse by either party, express or implied
shall constitute a subsequent consent, waiver or excuse.
d. Assignment
(i) The rights and obligations of the Canton under this
Agreement shall inure to the benefit of and shall be
binding upon its successors and assigns. There shall
be no rights of transfer or assignment of this
Agreement by Client except with the prior written
consent of the Canton.
(ii) Nothing in this Agreement, expressed or implied, is
intended to confer upon any person other than the
parties and their successors, any rights or remedies
under this Agreement.
e. Notices. Any notice or other communication required or permitted
by this Agreement must be in writing and shall be deemed to be
properly given when delivered in person to an officer of the
other party, when deposited in the United States mails for
transmittal by certified or registered mail, postage prepaid, or
when deposited with a public telegraph Corporation for
transmittal or when sent by facsimile transmission, charges
prepaid provided that the communication is addressed:
(i) In the case of Canton to:
Canton Financial Services Corporation
268 West 400 South, Suite 300
Salt Lake City, Utah 84101
(801) 575-8073
(801) 575-8092 (fax)
Attention: Richard Surber, President
(ii) In the case of Client to:
Bust-It Records
P.O. Box 2165
Oakland, CA 94621
510-535-7010
510-535-7015 (fax)
or to such other person or address designated by Client in
writing to receive notice.
f. Headings and Captions. The headings of paragraphs are included
solely for convenience. If a conflict exists between any heading
and the text of this Agreement, the text shall control.
g. Entire Agreement. This instrument and the exhibits to this
instrument contain the entire agreement between the parties with
respect to the transaction contemplated by the Agreement. It may
be executed in any number of counterparts but the aggregate of
the counterparts together constitute only one and the same
instrument.
h. Effect of Partial Invalidity. In the event that any one or more
of the provisions contained in this Agreement shall for any
reason be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality or unenforceability shall
not affect any other provisions of this Agreement, but his
Agreement shall be constructed as if it never contained any such
invalid, illegal or unenforceable provisions.
i. Controlling Law. The validity, interpretation, and performance of
this Agreement shall be governed by the laws of the State of Utah
without regard to its law on the conflict of laws. Any dispute
arising out of this Agreement shall be brought in a court of
competent jurisdiction in Salt Lake County, Utah. The parties
exclude any and all statutes, law and treaties which would allow
or require any dispute to be decided in another forum or by other
rules of decision than provided in this Agreement.
j. Attorney's Fees. If any action at law or in equity, including an
action for declaratory relief, is brought to enforce or interpret
the provisions of this Agreement the prevailing party shall be
entitled to recover actual attorney's fees court costs, and other
costs incurred in proceeding with the action from the other
party. The attorney's fees, court costs or other costs, may be
ordered by the court in its decision of any action described in
this paragraph or may be enforced in a separate action brought
for determining attorney's fees, court costs, or other costs.
Should either party be represented by in-house counsel all
parties agree that party may recover attorney's fees incurred by
that in-house counsel in an amount equal to that attorney's
normal fees for similar matters, or, should that attorney not
normally charge a fee, by the prevailing rate charged by
attorney's with similar background in that legal community.
k. Time is of the Essence. Time is of the essence of this Agreement
and of each and every provision hereof.
l. Mutual Cooperation. The parties hereto shall cooperate with each
other to achieve the purpose of this Agreement, and shall execute
such other and further documents and take such other and further
actions as may be necessary or convenient to effect the
transactions described herein.
m. Indemnification. Client and Canton agree to indemnify, hold
harmless and, at the party seeking indemnification's sole option,
defend the other form and against all demands, claims, actions,
losses, damages, liabilities, costs and expenses, including
without limitation, interest, penalties, court fees, and
attorney's fees and expenses asserted against or imposed or
incurred by either party by reason of or resulting from a breach
of any representation, warranty, covenant condition or agreement
of the other party to this Agreement. Neither party shall be
responsible to the other party for any consequential or punitive
damages.
n. No Third Party Beneficiary. Nothing in this Agreement, expressed
or implied, is intended to confer upon any person, other than the
parties hereto and their successors, any rights or remedies under
or by reason of this Agreement, unless this Agreement
specifically states such intent.
o. Facsimile Counterparts. If a party signs this Agreement and
transmits an electronic facsimile of the signature page to the
other party, the party who receives the transmission may rely
upon the electronic facsimile as a signed original of this
Agreement. Further, this Agreement may be executed in
counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement ono the date
herein above written.
Canton Financial Services Corporation Bust-It Records
/s/ Richard Surber /s/Louis K. Burrell
Richard Surber, President Louis K. Burrell, President