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As filed with the Securities and Exchange Commission on January 10, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DAEDALUS BUILDING SYSTEMS, INC.
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Delaware 5039 54-1950671
(State of Incorporation) (SIC) (Employer I.D.#)
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8653 RICHMOND HIGHWAY
ALEXANDRIA, VA 22309-4206
TEL: (703) 360-5700
(Address and telephone number of principal
executive offices and principal place of business)
Edward A. McCulloch
President and CEO
8653 Richmond Highway
Alexandria, VA 22309-4206
(703) 360-5700
(Name, address and telephone number of agent for service)
Copies to:
Carl A. Generes, Esq.
The Law Office of Carl A. Generes
4315 West Lovers Lane
Dallas, Texas 75209
Tel: 214-352-8674
Fax: 214-350-2142
Herbert S. Rosenblum
Attorney and Counselor at Law
526 King Street, Suite 211
Alexandria, VA 22313-0058
Tel: 703-684-0060
Fax: 703-684-0072
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Approximate date of commencement or proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
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If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: [ ]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS
OF SECURITIES AMOUNT TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SHARE PRICE FEE
======================= ================ ========== ======== ============
Common stock ($0.01 par
value per share) (1) 1,500,000 shares $.375(2) $562,500 $170.45
(1) Shares of common stock of the registrant being distributed to shareholders
of Empiric Energy, Inc.
(2) Based upon discounted market value, as of January 4, 2000, of the
unregistered common stock of Empiric Energy, Inc., solely for purposes of
calculating the registration fee pursuant to Rule 457(f)(1).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
DAEDALUS BUILDING SYSTEMS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 404 and Item 501 of Regulation S-B)
.........................
Item in Form SB-2 .. Caption or Heading In Prospectus
Form SB-2
1 ..... Front of the Registration Statement Outside Front Cover Page
and Front Outside Cover Page of Prospectus
2 ..... Inside Front and Outside Back Outside Front Cover Page; Table of
Cover Pages of Prospectus Contents; Additional Information
3 .... Summary Information and Risk Factors Prospectus Summary;
Risk Factors
4 .... Use of Proceeds Not Applicable
5 .... Determination of Offering Price The Distribution; Description of
Securities of Daedalus
6 .... Dilution Not Applicable
7 .... Selling Security Holder Not Applicable
8 .... Plan of Distribution The Distribution
9 .... Legal Proceedings Business of Daedalus
10 .... Directors, Executive Officers, Promoters, Management of Daedalus
and Control Persons
11 .... Security Ownership of Certain Beneficial Principal Shareholders of Daedalus
Owners and Management
12 .... Description of Securities Description of Securities of Daedalus
13 .... Interest of Named Experts and Counsel Not Applicable
14 .... Disclosure of Commission Position on Management of Daedalus, Securities
Indemnification for Act Liabilities
Indemnification of Directors and Officers;
Additional Information
15 .... Organization Within Last Five Years Business of Daedalus; The
Distribution; Management of Daedalus;
Principal Shareholders of Daedalus;
Management's Discussion and Analysis
and Results of Operations; Financial
Statements
16 .... Description of Business Business of Daedalus; Risk Factors;
Management's Discussion and Analysis
and Results of Operations
17 .... Management's Discussion and Analysis or Plan
of Operation Management's Discussion and Analysis
and Results of Operations
18 .... Description of Property Business of Daedalus
19 .... Certain Relationships and Related Transactions Related Transactions; Management of
Daedalus
20 .... Market for Common Equity and Related Risk Factors; The Distribution
Stockholder Matters
21 .... Executive Compensation Management of Daedalus
22 .... Financial Statements Financial Statements Attached to
Prospectus
23 .... Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure Not Applicable
SUBJECT TO COMPLETION DATED JANUARY 10, 2000
DAEDALUS BUILDING SYSTEMS, INC.
DAEDALUS
PROSPECTUS
DIVIDEND DISTRIBUTION OF
1,500,000 SHARES OF COMMON
STOCK
To the shareholders of Empiric Energy, Inc.
Of record, ______________ 2000 Daedalus is a new company that will
manufacture and sell innovative, low cost
housing with materials made primarily from
recycled plastics and foam-filled, metal
panels. Our target markets are
principally within developing countries.
On the basis of one Daedalus
share for each ____ Empiric This is our initial public offering and no
Common shares and one Daedalus public market currently exists for our
share for each Empiric Series shares. We cannot guarantee that any
"B" Preferred share market will develop for our shares. We
will apply for listing on the
over-the-counter Bulletin Board under the
symbol "DBSI".
The Daedalus shares involve a high degree of risk. You should carefully consider
the information appearing under the caption "Risk Factors".
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
______________, 2000
DAEDALUS BUILDING SYSTEMS, INC.
PROSPECTUS
TABLE OF CONTENTS
AVAILABLE INFORMATION
CAUTIONARY STATEMENTS
QUESTIONS AND ANSWERS ABOUT THE
DISTRIBUTION AND DAEDALUS
PROSPECTUS SUMMARY
RISK FACTORS
USE OF PROCEEDS
CAPITALIZATION
DIVIDEND POLICY
INFORMATION CONCERNING EMPIRIC
THE DISTRIBUTION
Exchange Agreement
Treatment of Indebtedness; Expenses
Record date
Manner of Distribution
Trading Market
FEDERAL INCOME TAX CONSEQUENCES
OF THE DISTRIBUTION
BUSINESS OF DAEDALUS
Business Overview
Products
Market
Customers
Competition
Raw Materials
Marketing and Sales
Facilities
Employees
Environmental
Litigation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT OF DAEDALUS
Executive Compensation
1999 Stock Option Plan
Indemnification of Directors and Officers
RELATED TRANSACTIONS
PRINCIPAL SHAREHOLDERS OF DAEDALUS
SELLING SHAREHOLDER
DESCRIPTION OF SECURITIES OF DAEDALUS
Authorized Capital Stock
Description of common stock
Description of Preferred Stock
Defenses Against Hostile Takeovers
Reports to Shareholders
Transfer and Warrant Agent
LEGAL MATTERS
EXPERTS
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
-2-
WHERE YOU CAN FIND MORE
Daedalus Building Systems, Inc. filed with the Securities and Exchange
Commission a registration statement on Form SB-2 to register the shares of
Daedalus common stock to be distributed to the Empiric shareholders.
The registration statement and the exhibits and schedules may be inspected and
copied (at prescribed rates) at the Public Reference Section of the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549.
Please call 1-800-SEC-0330 for further information on the public reference rooms
in other locations. Also, you can review this information at the Commission's
Electronic Data Gathering Analysis and Retrieval System, which is publicly
available through the Commission's Web site (http://www.sec.gov).
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits thereto. Statements contained in this
prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the registration
statement for a more complete description of the matter involved, each such
statement being qualified in its entirety by such reference. Daedalus will
provide without charge to each person who receives this prospectus, upon written
or oral request of such person, a copy of any of the information that is
incorporated by reference herein (excluding exhibits to the information that is
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference) by contacting Daedalus at 8653 Richmond Highway,
Alexandria, VA 22309-4206, Attention: Chief Financial Officer, telephone:
703.360.5700.
Daedalus has not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information. This prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful. The information in this
prospectus is current as of December 31, 1999.
CAUTIONARY STATEMENTS
This prospectus contains statements relating to future results of Daedalus
(including certain projections and business trends) that are "forward-looking
statements". Actual results may differ materially from those projected as a
result of certain risks and uncertainties, including but not limited to, changes
in political and economic conditions, regulatory conditions, integration of
acquisitions and competitive pricing pressures.
Factors that may cause actual results to differ from projections include, for
example:
1. The success or failure of the Daedalus Building System;
2. Our ability to raise sufficient capital to manufacture and market the
Daedalus Building System;
3. Our ability to manufacture the Daedalus Building System in volume;
4. The effect of changing economic conditions;
5. Changes in government regulations, import/export taxes and similar matters;
6. Competition from other low cost housings producers;
7. Our ability to attract and retain quality employees; and
8. Other risks that may be described in our future filings with the SEC.
We do not promise to update forward-looking information to reflect actual
results or changes in the assumptions or other factors upon which we based these
forward looking statements.
-3-
QUESTIONS AND ANSWERS
ABOUT THE DIVIDEND DISTRIBUTION
To avoid confusion, as used in this prospectus, "Empiric" means Empiric Energy,
Inc., and "Daedalus" means Daedalus Building Systems, Inc.
Q: What is the purpose of the Distribution?
A: To make Daedalus a public company and to satisfy one of the conditions of the
Agreement between Empiric and Daedalus. See "The Distribution".
Q: What do I get in the Distribution?
A: You will receive one share of Daedalus common stock for every ______ Empiric
common shares and one share of Daedalus common stock for every ____ Empiric
Series "B" preferred shares you own when the Distribution occurs. Daedalus will
not issue any fractional share. The number of Daedalus shares you receive will
be rounded up to the nearest whole number by Empiric
Q: When will the Distribution occur?
A: The Distribution is expected to occur on or about _____________ 2000.
Q: What are my shares of Daedalus common stock worth?
A: The actual trading value of the Daedalus common stock and will depend on many
factors. Until an orderly trading market develops, the market price for Daedalus
common stock may fluctuate significantly. Please obtain current market
quotations prior to deciding whether to purchase or sell Daedalus common stock.
Q: Do I have to pay taxes on the Daedalus common stock, which I receive in the
Distribution?
A: The Distribution and Daedalus common stock you receive in the Distribution
may be taxed to you as ordinary income. To review the tax consequences to you in
more detail, see "Federal Income Tax Consequences of the Distribution".
Q: What do I have to do to participate in the Distribution?
A: You do not need to do anything to participate in the Distribution.
Q: When will I receive my Daedalus common stock?
A: If you are a record owner of Empiric stock at the record date, your Daedalus
common stock will be registered in book-entry form in the records of Daedalus'
transfer agent. Following the Distribution, Daedalus will deliver certificates
to you, upon request. If you own your Empiric stock in street name, your
Daedalus common stock should be credited to your brokerage account; contact your
broker for more information.
Q: When will I be able to buy and sell Daedalus common stock?
A: You may buy and sell Daedalus common stock once the Distribution occurs. You
should consult your broker or financial advisor before you attempt to sell
your Daedalus common stock.
Q: Where will the Daedalus common stock trade?
A: We expect that public trading in the Daedalus common stock to begin on
Over-the-counter Bulletin Board shortly following the Distribution, but there
can be no assurance that such a market will develop.
-4-
Q: Will Daedalus pay dividends on its shares of Daedalus common stock?
A: We do not intend to pay any cash dividends in the near term. We intend to
reinvest available cash in our business.
Q: What will be the relationship between Daedalus and Empiric after the
Distribution?
A: Empiric will continue to own _______ shares of Daedalus
common stock. The Empiric shares will represent approximately _____% of
Daedalus' outstanding shares of common stock.
Q: Who should I call with questions?
A: If you have questions about the Distribution, you may contact either
Daedalus Investor Liaison at (703) 360-5700, or Empiric's Chief Financial
Officer at(972)387-4100.
-5-
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. It is not complete and may not contain all the information that is
important to you. You should read the entire prospectus carefully, including the
risk factors and financial statements.
Daedalus Building Systems, Inc.
===============================
On October 28, 1999, Edward A. McCulloch formed Daedalus Building Systems, Inc.
as a Delaware corporation. Mr. McCulloch is Daedalus' principal and controlling
shareholder.
Reason for formation
====================
Daedalus was formed to (i) acquire Daedalus Composites, Inc., an Ontario, Canada
corporation ("DCI") and (ii) to make the stock exchange agreement with Empiric
Energy, Inc. ("Empiric") that provides for the spin-off dividend distribution of
at least 1,000,000 shares of the Daedalus common stock (the "Distribution") that
is covered by this prospectus, and (iii) to focus efforts upon providing
extremely low cost shelter and low cost housing to the vast portion of the
worlds population who are homeless or without adequate housing, through the
Daedalus Building System.
Daedalus business
=================
Daedalus has not had any material operations or sales as of the date of this
prospectus. Daedalus will now begin to manufacture and offer for sale, under a
License Agreement, low cost housing, utilizing innovative technology employing
recycled plastic composites and other materials. We call our product the
Daedalus Building System.
Daedalus Composites, Inc.
=========================
On October 31, 1999, Daedalus acquired all of the stock of Daedalus Composites,
Inc. (DCI), a Canadian corporation, as well as the exclusive, nontransferable
right to license, manufacture, use, market, and sell and otherwise to
commericalize the patents, potential patents, technology, information and
processes, and the improvements (the "Technology") throughout the world, related
to residential housing units, from a company under common control, The Daedalus
Project, Inc., in exchange for a royalty of five percent of gross sales in which
the Technology is embedded, and the issuance of 8,500,000 shares of common
stock, 250,000 shares of Series "A" preferred stock and 1,000,000 shares of
Series "B" preferred stock of Daedalus, to the shareholders of The Daedalus
Project, Inc.
Daedalus-Cambridge, Inc. (formerly Cambridge Unique Associates, Inc.)
=====================================================================
On October 30, 1999, Daedalus acquired the assets of Cambridge Unique
Associates, Inc., (Cambridge), a Canadian corporation, in exchange for 200,000
shares of common stock of Daedalus and 1,000,000 shares Series "C" preferred
stock and 375,000 shares of Series "D" preferred stock in Daedalus. Cambridge
has worldwide manufacturing and distribution rights for a metal building system
patented under US Patent No. 08/988,697 Load Bearing Prefabricated Building
Construction Panel, which is a polyurethane foam filled metal panel building
system that will be used to fabricate houses to complement the composite
structures of Daedalus Building System at a slightly higher socioeconomic level.
Daedalus Building System
========================
With the acquisition of Daedalus-Cambridge, The Daedalus Building System was
expanded to include two components: the original, composite housing system,
manufactured principally from recycled plastics, and a foam-filled metal panel
system.
License Agreement
=================
The Daedalus Project, Inc., an affiliated Virginia corporation ("TDP"),
developed the Daedalus Building System technology. TDP granted Daedalus an
exclusive license to manufacture and sell the Daedalus Building System in
exchange for a 5% royalty on gross sales of Daedalus. E. A. McCulloch is the
principal shareholder and CEO of TDP.
-6-
Existing Daedalus shareholders
==============================
When Daedalus was formed, the shareholders of TDP acquired proportionate
ownership in Daedalus pursuant their original subscription agreements with TDP,
with the exception of E. A. McCulloch, who agreed to take a reduced amount
subject to certain "earn-out" provisions
Daedalus' principal shareholders
================================
Mr. McCulloch owns 3,336,982 shares of Daedalus common stock, 250,000 shares of
Daedalus Series A preferred stock, and 1,000,000 share of Daedalus Series B
preferred stock, each of which has one vote on matters pertaining to preferred
shareholders. Additionally, each share of the Series "A" preferred stock has 30
votes on all matters submitted to shareholders of common stock; and, each common
share has one vote. Therefore, after the distribution, Mr. McCulloch will own
32.72% of the outstanding common stock, 33.33% of the preferred stock, 61.23% of
the common voting rights and 33.33% of the preferred voting rights. Therefore,
Mr. McCulloch will have, as a practical matter, control of Daedalus.
THE DISTRIBUTION
Securities To be distributed
============================
Empiric will distribute ("Distribution") to the Empiric shareholders of at least
1,000,000 shares of Daedalus common stock.
The Daedalus shares will represent approximately ____% of the outstanding
Daedalus common stock. After the Distribution, Empiric will continue to own
approximately _______ shares of Daedalus common stock.
No consideration will be paid by shareholders of Empiric nor will they be
required to surrender or exchange shares of Empiric common stock or take any
other action to receive shares of Daedalus common stock in the Distribution.
Distribution Ratio; Fractional Shares
=====================================
One share of Daedalus common stock for every _____ shares of Empiric common
stock and one share of Daedalus common stock for every _____ shares of Empiric
Series "B" preferred stock. The number of shares of Daedalus common stock to be
distributed to each Empiric shareholder will be rounded to the nearest whole
number. No fractional shares of Daedalus common stock will be distributed.
Empiric will provide any shares required for purposes of "rounding-up."
Record date
===========
The record date for the Distribution is the close of business on ______, 2000.
Distribution Date
=================
The Distribution is expected to occur at the close of business on the
Distribution Date, i.e., on or about __________ 2000. On or about the
Distribution Date, the Distribution Agent will commence mailing account
statements reflecting ownership of shares of Daedalus common stock to holders of
Empiric common stock and Series "B" preferred stock as of the close of business
on the record date.
Distribution Agent; Transfer Agent and Registrar; Warrant Agent
===============================================================
Daedalus will initially serve as the: (1) Distribution Agent for the
Distribution; and (2) transfer agent and registrar ("Transfer Agent") for the
Daedalus common stock. The address of Daedalus Building Systems, Inc. is 8653
Richmond Highway, Alexandria, VA 22309, and its telephone number is (703)
360-5700.
-7-
Direct (Book-entry) Registration; Share and Warrant Certificates
================================================================
Empiric shareholders of record will initially have their ownership of Daedalus
common stock registered only in book-entry form in which no certificates are
issued. On the Distribution Date, each Empiric shareholder as of the close of
business on the record date will be credited through book-entry in the records
of the Transfer Agent with the number of shares of Daedalus common stock
distributed to such shareholder. Each Empiric shareholder will receive an
account statement indicating the number of shares of Daedalus common stock that
the shareholder owns. Empiric shareholders who hold their Empiric stock in
street name will have their Daedalus common stock credited to their brokerage
accounts. Following the Distribution Date, any Empiric shareholder may obtain at
any time without charge a certificate to represent his Daedalus securities.
Federal Income Tax Consequences
===============================
With respect to the shareholders of Empiric receiving the distribution of
Daedalus shares, Section 301 of the Internal Revenue Code provides that the
amount of distribution shall be the fair market value of the property
distributed. To the extent the distribution is treated as a dividend, the amount
distributed shall be included in the gross income of the shareholder as ordinary
taxable income. To the extent the distribution is not a dividend, the amount
distributed shall be applied to reduce the shareholder's adjusted basis in the
shares of Empiric, any excess is treated as gain from the disposition of the
Empiric stock.
The status of the distribution as a dividend cannot be determined at this time.
Section 316 of the Internal Revenue Code provides generally that a corporate
distribution will be treated as a dividend to the extent the distribution is
paid out of earnings and profits accumulated since February 28, 1913, or out of
earnings and profits for the year of the distribution. Based upon the retained
earnings of Empiric, Empiric believes that there are no accumulated earnings and
profits in the corporation. However, no detailed computation has yet been
performed to ascertain the amount of any earnings and profits for tax purposes.
If there are no accumulated earnings and profits, the distribution will be
taxable as an ordinary dividend to the extent of earnings and profits for the
year of the distribution. The year of distribution will be 2000. Empiric is
unable to project, at this time, whether there will be earnings and profits in
the year 2000.
Trading Market for the Daedalus common stock
============================================
There is no current public trading market for the Daedalus common stock. We will
apply for admission of Daedalus common stock for quotation on the
Over-The-Counter Bulletin Board ("OTC Bulletin Board") after the Distribution.
We expect trading in the Daedalus common stock to commence shortly after the
Distribution Date.
Management Of Daedalus
======================
Edward A. McCulloch, President and CEO David Lightbody, Executive Vice President
and Chief Financial Officer Patricia Espino-Nayar, Vice President, Secretary,
Treasurer, and Controller Norio Sakai, Vice President, Abbey Nash, Vice
President, Production and Engineering
Risk Factors
============
The business of Daedalus and investment in Daedalus common stock are subject to
significant risks. Such risks include:
No operating history Unproven, novel product Undercapitalization No firm orders
Unstable foreign markets The Daedalus Building System housing has never before
been built in any country.
-8-
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
Daedalus Building Systems, Inc. and Subsidiaries
Consolidated Balance Sheet
October 31, 1999
...................................................
ASSETS
Current assets
Total current assets ..................... 112,982
Equipment ............................................. 1,887,917
Patent ................................................ 1,575,000
Total assets ............................. $ 3,575,899
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Total current liabilities 39,067
Commitments and contingencies (notes 3, 4, and 5)
Stockholders' equity
Additional paid-in capital ........................ 896,959
Accumulated deficit ............................... (72,127)
Total stockholders' equity ............... 3,536,832
Total liabilities and stockholders' equity $ 3,575,899
-9-
CONSOLIDATED STATEMENT OF OPERATIONS
For the Period May 20, 1999 (Inception) to October 31, 1999
Net Sales $ 38,296
Cost of Goods Sold 23,788
Gross Profit 14,508
Operating Expenses 86,635
Net (loss) (72,127)
Basic (loss) per share $ (0.01)
(Loss) per Common share, assuming ful dilution $ (0.01)
Weighted average shares outstanding 8,700,000
-10-
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) In Cash
For The Period May 20, 1999 (Inception) to October 31, 1999
Cash flows from operating activities:
Net (loss) ............................................... $ (72,127)
Changes in assets and liabilities (net)
1,038
Net cash (used) by operating activities ......... (71,089)
Cash flows from financing activities:
Contributed capital....................................... 50,922
Stock issued for cash..................................... 95,120
Net cash provided by financing activities ....... 146,042
Net change in cash 74,953
Cash at beginning of period -----------
Cash at end of period ........................................ $ 74,953
Assets and liabilities of subsidiaries acquired (assumed),
excluding cash, through issuance of stock ..................... $ 3,462,917
-11-
RISK FACTORS
============
Investing in Daedalus shares is very risky. You should be able to bear a
complete loss of your investment. You should carefully consider the following
factors, among others.
We have had insignificant sales revenues and incurred losses since we recently
began doing business.
================================================================================
Daedalus was organized in October 1999 and acquired Daedalus Composites, Inc.
("DCI") that operates a plastic waste recycling plant in leased facilities in
Ontario, Canada.. Daedalus also acquired an exclusive license to manufacture and
sell the Daedalus Building System, which is our principal product. However, we
have not produced or delivered any housing to date.
Daedalus and DCI, on a consolidated basis, has incurred losses of $72,127.00 for
the period from May 20,1999, DCI's inception, to October 31, 1999
Our limited operating history makes it difficult to evaluate our business.
===============================================================================
We have not received any purchase orders to buy our Daedalus Building System
housing under our existing contracts.
Daedalus commenced limited manufacturing of composite panels for the Daedalus
Building System during the week of 13 December, 1999. Although we have a
contract to sell up to 36,000 units over three years to a private sector company
in Lima, Peru, that contract is subject to the creditworthiness of the buyer in
order to obtain financing from the Export-Import Bank of the United States and
other conditions that may prove difficult to meet.
Because of our limited operating history, it is extremely difficult to evaluate
our business and prospects. Our product is novel and unique. Our revenue and
income potential are unproven. We cannot be certain that the Daedalus Building
System technology will be successful or that we will be able to produce and
deliver enough units to make Daedalus profitable.
We need additional capital.
==========================
We need additional capital. We cannot assure you that we will be able to raise
any additional funds. If we cannot, Daedalus may not succeed. If we do sell
additional shares of equity securities, your ownership of Daedalus may be
diluted to the extent of the presently authorized shares of common stock. See
"Management's Discussion and Analysis of Results of Operations."
Our business may not succeed because our product is novel and unproven.
======================================================================
As of the date of this prospectus, production has only commenced on a limited
basis. None has been employed in the field and used as shelter. We cannot assure
you that widespread acceptance of our product will occur.
If we lose Edward A. McCulloch and other key personnel, we may not succeed.
==========================================================================
Our future success depends, in part, on the continued service of our key
personnel, particularly Edward A. McCulloch our president and CEO and Dr. David
Lightbody, our executive vice-president and chief financial officer. Their loss,
or the loss of other key employees, could seriously impair our growth and
chances for success.
Daedalus believes that its success also will depend in large part upon Daedalus'
ability to attract and retain highly skilled managerial, technical, and sales
and marketing personnel, who are in demand. There can be no assurance that
Daedalus will be successful in attracting and retaining such personnel.
-12-
Mr. McCulloch has, as a practical matter, control of Daedalus.
==============================================================
After the Distribution, Mr. McCulloch will own approximately 61% of Daedalus'
common stock voting rights. Accordingly, Mr. McCulloch will continue to be able
to elect Daedalus' directors and thereby control the management policies, as
well as determine the outcome of the corporate actions requiring shareholder
approval by majority action, regardless of how other Daedalus shareholders may
vote. This voting control may have the effect of delaying or preventing a change
in control of Daedalus and may adversely affect the rights of the shareholders
of Daedalus' common stock. See "Principal Shareholders of Daedalus".
We expect competition from other low cost housing companies.
============================================================
If we become successful, we will attract competition from companies that build
low-cost housing utilizing other or similar technologies. These other companies
will likely have greater financial and human resources than Daedalus.
If low cost housing technology changes, our business may be hurt.
=================================================================
Daedalus' business is dependent upon its innovative composite and foam-filled,
metal panel technologies. If significant changes in low cost building technology
occur, Daedalus' business growth may be adversely effected.
RISKS ASSOCIATED WITH DAEDALUS COMMON STOCK
No foreseeable cash dividends.
=============================
We do not anticipate paying cash dividends in the foreseeable future. We will
re-invest any profits in our business.
There has not been a prior market for our common stock. An active trading market
may not develop following the Distribution.
================================================================================
There is currently no public trading market for Daedalus common stock and there
can be no assurance that such a market will develop after completion of the
Distribution. Although Daedalus will attempt to list the stock on the OTC
Bulletin Board, Daedalus cannot be certain that the Daedalus stock will be
actively traded. In addition, we cannot predict what the market price for the
Daedalus common stock might be. Until an orderly trading market develops, the
market price for the Daedalus stock may fluctuate significantly. You should not
view the current trading price of Empiric shares as a reflection of what the
trading price of the Daedalus common stock will be.
We will apply for listing on the OTC Electronic Bulletin Board, which can be a
volatile market. We may be subject to "penny stock" regulation.
================================================================================
We will apply for listing our common stock on the OTC Electronic Bulletin Board,
a NASD sponsored and operated quotation system for equity securities. It is a
more limited trading market than the NASDAQ Smallcap. Timely, accurate
quotations of the price of our common stock may not always be available. You
should expect trading volume to be low in such a market. Consequently, the
activity of only a few shares may affect the market and may result in wide
swings in price and in volume.
The SEC has adopted regulations which generally define "penny stock" to be any
equity security that has a market price (as defined) less than $5.00 per share.
If our common stock trades below $5.00 per share, our common stock may become
subject to rules that impose additional sales practice requirements on
broker-dealers who sell lower priced securities to persons other than
established customers and accredited investors (generally, those persons with
assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. In addition, for any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a risk disclosure document mandated by the SEC relating to the
penny stock market. The broker-dealer also must disclose the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell Daedalus shares and may affect
the ability of Daedalus' shareholders to sell Daedalus common stock in the
secondary market.
-13-
In the event that Daedalus is unable to qualify its securities for listing on
the OTC Bulletin Board, Daedalus may attempt to have its securities traded in
the NQB "pink sheets". In such event, holders of Daedalus common stock may
encounter substantially greater difficulty in disposing of their shares and/or
in obtaining accurate quotations of the price of Daedalus shares.
Future sales of our common stock may cause our stock price to decline.
======================================================================
Upon completion of the Distribution, there will be 10,200,000 shares of Daedalus
common stock outstanding and 19,800,000 shares of authorized but not issued
Daedalus common stock available for issuance without further stockholder
approval. As a result, any issuance of additional shares of Daedalus common
stock may cause the current Daedalus shareholders to suffer significant
dilution, which may adversely affect the market.
Our current shareholders own "restricted" Daedalus shares. When they are able to
sell their Daedalus shares in the public market - subject to certain
restrictions - following the Distribution, the market price of our common stock
could decline. We believe that our current shareholders may be able to sell
their shares into the market, beginning October 31, 2000, pursuant to and upon
compliance with SEC Rule 144, as amended.
Rule 144 provides, in essence, that a person holding "restricted securities" for
a period of one year may sell every three months a number of shares equal to the
greater of (a) one percent of the issued and outstanding shares of Daedalus, or
(b) the average weekly volume of sales during the four calendar weeks preceding
the sale. The amount of "restricted securities" which a person who is not
affiliated with Daedalus may sell is not so limited, since non-affiliates may
sell without regard to any volume limitation if their shares are held for a
period of two years. Nonaffiliated persons who hold for the two year period
described above may sell unlimited shares upon completion of their holding
period.
-14-
CAPITALIZATION
The following table sets forth the capitalization of Daedalus (i) as of December
31, 1999, (ii) as adjusted to reflect the issuance of 1,500,000 shares to
Empiric and the Distribution of at least 1,000,000 shares of Daedalus common
stock to the Empiric shareholders. This table should be read in conjunction with
the Financial Statements and notes thereto included elsewhere in this
prospectus.
.............................................................................
As
Actual Adjusted
Shareholders' Equity
Preferred Stock, $1.00 par value,
3,000,000 shares authorized,
250,000 Series "A" issued and outstanding ...................................... 250,000 250,000
1,000,000 Series "B" issued and outstanding .................................... 1,000,000 1,000,000
1,000,000 Series "C" issued and outstanding .................................... 1,000,000 1,000,000
375,000 Series "D" issued and outstanding ...................................... 375,000 375,000
Common stock, $0.01 par value,
30,000,000 shares authorized,
8,700,000 shares issued and outstanding, before the Distribution and ............ 87,000
10,200,000 shares issued and outstanding after the Distribution ................. 102,000
Additional paid-in capital ...................................................... 896,959 2,396,959
Retained Earnings ............................................................... (72,127) (72,127)
Total capitalization ................................................... 3,536,832 5,051,832
DIVIDEND POLICY
Daedalus has not paid any cash dividends on its common stock and does not expect
to pay any dividends for the foreseeable future. Daedalus intends to re-invest
any profits that may be earned into Daedalus' business. Any future payments of
dividends, and the amount thereof will be dependent upon Daedalus' results of
operations, financial condition, cash requirements, future prospects and other
factors deemed relevant by the Board of Directors of Daedalus from time to time.
-15-
INFORMATION CONCERNING EMPIRIC
General
=======
Empiric Energy, Inc., a Delaware corporation, is an independent oil and gas
exploration and development company.
Outstanding Securities
======================
On _________ 2000, the record date of the Distribution, Empiric had outstanding
_________ shares of its $.01 par value common stock and _____shares of its $0.05
par value preferred stock. The common stock of Empiric is currently traded on
the OTC Bulletin Board under the symbol "EMPE". As of the record date, Empiric
had _______ and _______record owners, and estimates that it had ______ and
______ beneficial owners of its common stock and Series "B" preferred stock,
respectively.
THE DISTRIBUTION
Empiric Agreement.
==================
On October 1, 1999, Daedalus entered into an agreement with Empiric Energy, Inc.
to exchange securities consisting of 1,500,000 common shares and 750,000
Warrants, (each allowing the purchase of one share of common stock for $2.00 per
share for three years) for Empiric securities consisting of 1,500,000 in
preferred stock, convertible to 750,000 shares of common and, 750,000 Warrants,
each allowing the purchase of one common share at $2.00 per share for three
years.
The Agreement provides that Empiric distribute to its shareholders as a
dividend, i.e., the Distribution, at least 1,000,000 shares of the 1,500,000
shares of the Daedalus common stock received by Empiric. The number of shares of
Daedalus common stock to be distributed to each Empiric common or preferred
shareholder will be rounded to the nearest whole number. No fractional shares of
Daedalus common stock will be distributed. Empiric will provide any shares
required for purposes of "rounding-up."
Record date.
===========
The record date for the Distribution is the close of business on
____________, 2000. The Distribution is expected to occur at the close of
business on the Distribution Date, i.e., on or about _______________, 2000. On
or about the Distribution Date, _______________________, the Distribution Agent,
will commence mailing account statements reflecting ownership of shares of
Daedalus common stock to holders of Empiric common stock as of the close of
business on the record date.
Manner of Distribution.
======================
Empiric shareholders of record will initially have their ownership of Daedalus
common stock registered only in book-entry form in which no certificates are
issued. On the Distribution Date, each Empiric shareholder as of the close of
business on the record date will be credited through book-entry in the records
of the Transfer Agent with the number of shares of Daedalus common stock
distributed to such shareholder. Each Empiric shareholder will receive an
account statement indicating the number of shares of Daedalus common stock that
the shareholder owns. Empiric shareholders that hold their Empiric stock in
street name will have their Daedalus common stock credited to their brokerage
accounts. Following the Distribution Date, any Empiric shareholder may obtain at
any time without charge a certificate to represent his Daedalus stock.
You will not be required to pay any cash or other consideration to receive the
Daedalus common stock in the Distribution, nor will you need to surrender your
Empiric common stock certificates or take other any action in order to receive
such Daedalus common stock. Your ownership of the Daedalus common stock will
initially be registered in book entry form only, in which no certificates are
issued. You may at any time thereafter obtain a certificate to evidence your
Daedalus securities without charge.
-16-
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
=====================================================
The Distribution of Daedalus common stock to the Empiric shareholders may be
taxable as a distribution subject to the provisions of Section 301 of the
Internal Revenue Code of 1986, as amended (the "Code"). With respect to the
shareholders of Empiric receiving the Distribution of Daedalus shares, Section
301 of the Internal Revenue Code provides that the amount of distribution shall
be the fair market value of the property distributed. To the extent the
Distribution is treated as a dividend, the amount distributed shall be included
in the gross income of the shareholder as ordinary taxable income. To the extent
the Distribution is not a dividend, the amount distributed shall be applied to
reduce the shareholder's adjusted basis in the shares of Empiric, any excess is
treated as gain from the disposition of the Empiric stock.
The status of the Distribution as a dividend cannot be determined at this time.
Section 316 of the Internal Revenue Code provides generally that a corporate
distribution will be treated as a dividend to the extent the distribution is
paid out of earnings and profits accumulated since February 28, 1913, or out of
earnings and profits for the year of the distribution. Based upon the retained
earnings of Empiric, Empiric believes that there are no accumulated earnings and
profits in the corporation. However, no detailed computation has yet been
performed to ascertain the amount of any earnings and profits for tax purposes.
If there are no accumulated earnings and profits, the distribution will be
taxable as an ordinary dividend to the extent of earnings and profits for the
year of the distribution. The year of distribution will be 2000. Empiric is
unable to project, at this time, whether there will be earnings and profits in
the year 2000.Holders of Empiric common stock will be treated as having received
a distribution taxable as ordinary income equal to the fair market value of the
Daedalus common stock received in the Distribution, to the extent of Empiric's
current and accumulated earnings and profits, computed as of the close of the
tax year during which the Distribution occurs, i.e. 2000. Empiric's tax year
ends December 31. Empiric does not have any retained earnings. Therefore, if
Empiric does not have ordinary income for calendar year 2000, the Distribution
will be treated as a liquidating dividend of Empiric.
Empiric has not obtained, nor does it intend to obtain, an advance ruling from
the IRS as to the valuation of the Daedalus common stock to be distributed as a
dividend by Empiric to its shareholders, and the IRS is not bound by the Empiric
Board's determination of fair market value. In the event the Internal Revenue
Service determines the Daedalus common stock to have a higher value, then the
Empiric shareholders may have to pay income tax on the Distribution based on
such higher value.
Corporate holders of Empiric shares (other than S Corporations) may be entitled
to the dividends-received deduction, which would generally allow such
shareholders a deduction, subject to certain limitations, from their gross
income of either 70% or 80% of the amount of the dividend depending upon their
ownership percentage in Empiric.
The holding period for the Empiric shareholders for the Daedalus common stock
they receive in the Distribution will commence on the date of the Distribution.
The preceding discussion is a general summary of current Federal income tax
consequences of the Distribution as presently interpreted, and a shareholder's
particular tax consequences may vary depending on his individual circumstances.
You are urged to consult your own tax advisor as to the particular tax
consequences to you of the distribution and transactions described herein,
including without limitation, the applicability and effect of any state, local
or foreign tax laws, and the possible effects of changes of applicable tax laws.
-17-
BUSINESS OF DAEDALUS
Background. The Daedalus Building System was developed to help alleviate two of
the world's intractable and growing population-related problems: the disposal of
plastics, particularly in municipal solid waste, and the vast world homeless
population for whom there is a critical shortage of adequate shelter and
low-cost housing.
The world's population is projected to increase from the current six billion to
approximately 10 billion people in the next 35-50 years. Virtually all growth
will occur in developing countries where housing requirements are predicted to
be more than doubled by the middle of the twenty-first century. This growth in
the numbers of housing is going to be greatly complicated by shortages in
conventional materials, financial constraints, intensified land competition, and
increased poverty.
The United Nations estimates that there are nearly one billion people in the
world that are homeless or without adequate shelter. That situation carries with
it the potential for dire social and economic consequences. Consistent with
those figures is the estimate for housing. Housing requirements for the Asian
region alone are predicted to reach 700 million units during the next 35-50
years. Business as usual will not be possible and the use of natural materials
and resources simply will not sustain the expansion that is necessary.
Estimates today are that in the United States, the per capita usage of materials
of all kinds is approximately 100 kg. per day, or 36.5 tons per year. As the
developing world moves toward the increased utilization of materials, consistent
with the US or western model, the demand for materials will rise astronomically
- - just to meet the requirements of the increase in population. The impact upon
the demand for housing materials to construct basic shelters and low-cost house
will be similarly increased.
Millions of tons of plastics are produced each year throughout the world.
Authoritative estimates are that less than five percent of the amount produced
each year is recycled. Most of the recycled plastics are of homogeneous types;
only an extremely small fraction of recycled plastics consists of
non-homogeneous plastic waste. Even a smaller portion of combined industrial,
commercial, and post-consumer plastic waste is recycled to produce such items as
speed bumps and plastic wood for livestock stalls, marine applications, and park
benches. The majority of plastic waste is committed to landfills, where its
non-biodegradable nature complicates its disposal, or it is left lying where its
utility ceased.
Neither homelessness nor waste plastic is new; however, we believe this is the
first time that any project of this nature has been devised to address both
problems. Similarly, the technology to process plastic waste into useful,
after-market products has been available for years; however, little attention
has been given to providing for the "have-nots" of this world from the excesses
of the "haves." Through the innovative combination of proven technologies, novel
design, and advanced composite compounding, Daedalus offers the Daedalus
Building System, an environmentally responsible and socially conscious
utilization of recycled industrial, commercial and post-consumer plastics,
combined with other materials, to produce composite construction material for
the fabrication of low-cost structures.
In addition to the foregoing, a foam-filled metal panel system has been
incorporated into the business to pursue a slightly higher socioeconomic sector
of the world housing market.
Industry definition and description. The international industry for housing,
including low-cost housing, is enormous - by any measure. Most of the statistics
for housing and construction within developing nations are inadequate. The
figures do not adequately address the world market for housing, rather they
support the growth of the more conventionally recognized housing industry within
developed and developing countries. As illustration, in the case of Central
America, the wake of hurricane Mitch left approximately three million homeless.
Assuming an occupancy rate of 5 people per house, a requirement was created for
600,000 houses, little of which has been supplied satisfactorily over the last
year.
-18-
The figures that are more relevant for the industry sector that Daedalus is
addressing, i.e., those without adequate housing, or at the very lowest rung on
the low-cost housing ladder, are those derived from the respective countries.
The following are several examples of the requirements for low-cost housing:
Peru - 2.75 million
South Africa - 3.0 million
Philippines - 3.75 million
Sri Lanka - 1.0 million
Madagascar - 35,000
India - 31-33.0 million
The requirement for the aforementioned countries is approximately 41 million
low-cost homes. In each of the foregoing, the low-cost house is roughly the
equivalent of Daedalus' three-unit house, or a total of 123 million basic
structural units.
Current industry status. Daedalus views its participation in the international
housing industry, in most cases, at the lowest level of the socioeconomic
spectrum, although the structures are suitable for the conventional construction
and building industry throughout the world. That view is likely to alter in the
long term as more of Daedalus' structures are assembled and as the building
system gains greater acceptance. Generally, the industry - as an organized body
focused upon the lowest cost sector of the housing market - is not well
organized nor serviced. Most low-cost building systems do not focus on that
sector of the housing market.
Future and historical trends. The enormous worldwide demand for housing creates
significant opportunity. One of the most factors in that opportunity is to
identify replacements fr conventional materials, namely wood. The impact of
deforestation upon the environment has already raised public consciousness. As
example of the enormity of this opportunity, the projection for houses for the
Asian region over the next 35-50 years, is approximately 700 million homes. The
amount of wood necessary to contruct even minimal structures to meet that
requirement will place further demands upon an already stress environment.
Accordingly, without the intervention of other factors, the novel building
materials that Daedalus proposes may gain general acceptance as the requirement
for alternatives to conventional materials increases. In response, other firms,
with greater capital resources, may enter into this field.
PRODUCTS
========
With the acquisition of Daedalus-Cambridge, The Daedalus Building System was
expanded to include two components: the original, composite housing system,
manufactured principally from recycled plastics, and a foam-filled metal panel
system.
COMPOSITE SYSTEM. Daedalus is currently marketing and has commenced limited
manufacturing operations of low-cost structures comprised of composite panels.
Panels will be fabricated principally from recycled polyolefins, compounded with
various additives designed to increase performance parameters and the typical
attributes of composites such as strength, flexibility, durability, and
permanence.
COMPONENTS. The technology of the composite housing system consists of four
principal components: Composites, Structural panels, Structures, Production
technologies.
COMPOSITES. Panels will be fabricated principally from recycled polyolefins,
primarily polyethylene, with various additives, including glass fiber and talc,
to increase performance parameters and the typical attributes of composites such
as strength, flexibility, durability, and permanence.
STRUCTURAL PANELS. The structural units are comprised of panels that are formed
by various plastic forming technologies. All of the panels can be produced from
the same basic mold in which fiber-reinforcement and the use of and
naturally-occurring materials, are options.
STRUCTURES. The basic structural unit is the building block of this system. Each
basic structural unit will consist of approximately 60 single panels, 1.25 X
1.25 meters square. The panels are assembled three panels in width to form a
structure 2.5 meters high by 3.75 meters on each side. The area of the basic
structural unit is approximately 14 square meters or 150 square feet. Basic
structural units can be combined to achieve various configurations of multiple
unit structures.
PRODUCTION TECHNOLOGIES. Panels may be produced using three principal production
technologies: compression, injection-compression, and Panelform.(indent)
INJECTION-COMPRESSION TECHNOLOGY. One of the advantages of this system is that
allows a significant improvement of the material properties through the
introduction of reinforcing long fibers and impact modifiers.
COMPRESSION TECHNOLOGY. Compression technology is labor-intensive and
accommodates large-size additives well, permitting a broad array of additives
and compounding.
PANELFORM TECHNOLOGY. This production method has the advantage of reducing the
requirement for heavy presses and large compression forces while achieving
production objectives and reducing capital for production equipment.
-19-
METAL BUILDING SYSTEM. Daedalus' acquistion of Cambridge Unique, Inc., of
Ontario Canada, and the worldwide rights to to the production and distribution
under US Patent No. 08/988, 697, Load Bearing Pre-fabricated Building
Construction Panel - a polyurethane foam filled metal panel system - provided a
system that will be used to fabricate houses, and other structures complementing
those of the composite system at a slightly higher socio-economic level. The
metal system is capable of forming multi-story structures to four stories,
without additional framework and The metal building system is in compliance with
several various testing standards and codes.
FUTURE DEVELOPMENTS. In addition to the constituent plastics, the panels may
contain various amounts of other natural or synthetic recyclable or virgin
materials such as rubber, glass, fiberglass, paper, fiber, and metal in
proportions that may contribute to their structural integrity while remaining
compatible with the basic manufacturing processes. For example, Daedalus intends
to use additives, such as ground glass, volcanic ash, fly ash, rice husks, sand,
and other materials that occur naturally in the countries of interest. Daedalus'
compounding techniques are designed to place Daedalus in the forefront of the
development of polymer alloys to meet shortages in conventional materials.
Recycled Composites. Although Daedalus Composites Inc. was formed for the
purposes of acquiring one of the largest recycling facilities in North America,
principally for supplying Daedalus with quality recycled materials, plans for
the facility include utilization of material processing capacity and the
production of other, value-added products to increase profitability.
MARKET
======
The primary market for Daedalus' composite structures is divided into four
parts. These sectors of the primary market can be accommodated without change to
the design of the basic construction panels, and thereby do not create a need
for an expensive change of mold design. They are:
low-cost and socialized housing programs
programs for those without adequate housing
programs for the homeless
disaster relief programs
With the addition of the metal building system, Daedalus is provided with
increased access to the worldwide market for housing.
A secondary market for all Daedalus' structures is the commercial market, which
is currently being probed by Daedalus throughout the United States and the rest
of the world. Of particular interest in the United States is the market for
residential outbuildings, such as garden sheds, etc.
CUSTOMERS
=========
Daedalus is actively marketing throughout the international marketplace,
communicating with nearly 300 private and public-sector entities in over 100
countries. Currently the firm has two contracts with a private-sector
organization in Lima, Peru, the World Business Investors Group(WBIG), Ing. Edgar
Espinoza-Chacon, Chairman of the Board, that are subject to WBIG qualifiying for
financing by the Export-Import Bank of the United States or other institutions.
The first contract is for a minimum of 36,000 basic structural units over three
years, utilizing composite material, and a minimum sales value of $67.5 million.
The second contract is for the purchase of 22 million square feet of the metal
system over one year for a total of $121 million. The Export-Import Bank of the
US provided a letter of interest to Daedalus with regard to the first contract
and verbally expressed the same interest in the second, noting the same
requirements qualification by the foreign buyer for Ex-Im Bank financing. As of
the date of this prospectus, Daedalus' contracts to buy its housing products are
subject to the conditions noted and there is no certainty that either of these
contracts will be consummated.
COMPETITION
===========
The low-cost housing market is, by definition, very price sensitive and Daedalus
success in this market, on a competitive basis is not assured. Daedalus has not
encountered a competitive product that has the same features and benefits within
the same price range as its composite housing, but other firms may enter into
this market sector with greater capital resources and the ability to be more
competitive. More importantly, where competition exists from any type of
low-cost structure, the emphasis of the competition has only been upon the
features of the product and not the important components of the Daedalus
Building System, which are: humanitarian, environment, material, and most
important, economic.
-20-
RAW MATERIALS
=============
The primary raw materials used in the manufacture of the composite housing
system are recycled polyolefins, primarily polyethylene and polypropylene, with
various additives, including glass fiber and talc. The types of material
required may be derived from both post-industrial and post-consumer waste
streams, both of which are readily available.
Daedalus Composites, Inc., was established - in Ontario, Canada - for the
purpose of acquiring and processing approximately 125,000 pounds per day of
recycled plastics to meet the material requirements of the composite building
system. That facility will have the capacity to provide recycled materials to
satisfy the production requirements for the Peruvian contract and beyond. In the
case of the metal building system, there is a plentiful supply of light gauge
steel for production of the structural panels.
PRODUCTION
==========
Daedalus has commenced limited production of panels for the composite building
system. Daedalus plans to produce composite panels at the Canadian facility,
which has sufficient space and utility capacity. Panels for the metal building
system will be produced initially on a contract basis. Daedalus-Cambridge is
currently negotiating with the economic development authority of Prince Edward
Island (PEI), in Canada, to establish its manufacturing operations in that
location. The projected cost of production equipment and facility at that
location approximately $2.0 million (USD). Upon confirmation of financial
support for the PEI facility, Daedalus-Cambridge would establish a facility
there. If that financial support is not forthcoming, there is no guarantee that
the facility could be established at that location.
MARKETING AND SALES
===================
Although to date Daedalus has not successfully delivered any of its building
systems, its principal marketing objective is to reach sales of 100,000 shelters
per year by the end of the third year of operations and to establish an
equivalent production capacity for the metal panels within that period.
Daedalus intends to sell structural panels - composite and metal - through
strategic sales partners - organizations and individuals acting in their own
interest to market Daedalus' products - in those countries of greatest promise.
Daedalus intends to identify and select strategic partners with a strong
interest in handling all aspects of the relationship with Daedalus, including
all interface with public and private sector individuals and organizations.
Daedalus will seek individuals and organizations that are well connected in both
the private and public sectors; are experienced in the housing and construction
industries; are experienced in contracting with public-sector organizations;
and, possess the requisite financial strength to complement Daedalus'
performance. Daedalus marketing staff will be expanded and organized to
interface with the strategic partners, to service their requirements, and
provide demonstrations and practical training regarding the technical aspects of
Daedalus' products and applications.
FACILITIES
==========
Daedalus and its subsidiaries operate from the following leased facilities:
Alexandria, Virginia 4,556 square feet - Office, Marketing, and Sales
Brantford, Ontario, Canada 55,000 square feet - Office, Marketing, Sales,
Manufacturing and Warehousing
EMPLOYEES
=========
As of December 31, 1999, Daedalus employs approximately 20 people, with twelve
working in Canada. No employee is represented by a labor union or trade council.
Daedalus considers its employee relations to be very good.
ENVIRONMENTAL
=============
Daedalus is subject to a wide range of federal, foreign, state, and local law
and regulations relating to the pollution and protection of the environment.
Among the many the many environmental requirements applicable to Daedalus are
laws relating to air emissions, wastewater discharges and the handling, disposal
and release of solid and hazardous substances and wastes. Based upon continuing
internal review and advice from independent consultants, Daedalus believes that
it is currently in substantial compliance with applicable environmental
requirements.
-21-
Most of Daedalus' manufacturing processes are mechanical and are therefore
considered to be environmentally benign. The polyolefin resins used as raw
materials are readily recyclable and are typically reclaimed within Daedalus'
own operations. As a result, Daedalus does not currently anticipate any adverse
effect on its operations, financial condition, or competitive position as a
result of its efforts to comply with environmental requirements. Some risk of
environmental liability is inherent, however, in the nature of Daedalus'
business, and there can be no assurance that environmental liabilities will not
arise. Future developments in environmental regulation could lead to
unanticipated costs of environmental compliance.
LITIGATION
==========
Daedalus is not currently a party to any claim or legal action.
-22-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our financial
statements including the related notes, which appear elsewhere in this
prospectus. The following discussion contains forward-looking-statements that
reflect Daedalus' plans, estimates and beliefs. Actual results may differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include those discussed below and
elsewhere in this prospectus, particularly in "Risk Factors."
LIQUIDITY AND CAPITAL RESOURCES. We need to raise substantial additional capital
to begin to manufacture in volume of the Daedalus Building System. Daedalus is
presently considering all available options to generate adequate cash to meet
its needs. We are unable to predict accurately how much additional capital will
be required to reach positive cash flow, or if we will be able to reach positive
cash flow. Furthermore, to the extent we produce revenue in the future, we
anticipate significant increases in our working capital requirements. We will
also need to raise additional capital to fully execute our business plan. If
additional funds are raised though the sale of equity or convertible debt
securities, your percentage of ownership will be reduced, you may experience
additional dilution, and these securities may have rights, preferences or
privileges senior to yours. There can be no assurance that additional financing
will be available or, if so, will be available on terms favorable to us. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund expansion, take advantage of unanticipated opportunities,
develop or enhance products or otherwise respond to competitive pressures could
be significantly limited. Our business may be harmed by these limitations.
RESULTS OF OPERATIONS. We formed Daedalus Building Systems. Inc., on October 28,
1999 and have not yet commenced significant operations. Thus, Daedalus has no
operating history. The reported loss on the consolidated balance sheet was
generated from the acquired subsidiary as of the date of acquisition, October
31, 1999. Daedalus believes the results of operations of the acquired subsidiary
are not indicative of future expectations but rather the results highlight that
of a start-up operation and do not adequately represent a facility that shall be
fully operational in the near future. Daedalus Composites, Inc., began recycling
plastics for certain clients prior to acquisition and it is Daedalus' intention
that Daedalus Composite continue providing this service to customers.
Production costs are expected to increase as we commence manufacturing of the
composite system in our Canadian facility. Presently we anticipate a cash outlay
of approximately $2,500,000 for capital expenditures necessary to manufacture
the panels of the composite system and a similar amount for those of the metal
system.
General and administrative expenses are expected to increase as we expand our
staff and incur additional costs to support the growth of the business.
INCOME TAXES. We were incorporated on October 28, 1999 and have not yet filed a
federal income tax return. Our 1999 fiscal year will end on April 30, 2000. We
expect to have operating losses for the foreseeable future and do not expect to
have any federal, state or foreign income tax liability until we are profitable
and have utilized our accumulated net operating loss.
NET LOSS. As a result of the factors discussed above, primarily relating to the
general corporate and production expenses expected to be incurred in our
start-up activities, we expect to incur net losses for the foreseeable future.
YEAR 2000 DISCLOSURE. Daedalus has assessed the impact of the Year 2000 issue on
its operations, including the development and implementation of project plans
and cost estimates to make its information systems Year 2000 compliant. Daedalus
out sources its financial and evaluation functions and has received written
representation from every significant vendor supplying software of services
including revenue checks that each vendors information systems is year 2000
compliant. Therefore, we believe that anticipated spending necessary to become
Year 2000 compliant will not have a material effect upon the financial position,
cash flows, or results of operations of Daedalus. There can be no assurance,
however, as to the ultimate effect that the Year 2000 issue may have upon
Daedalus.
-23-
MANAGEMENT OF DAEDALUS
The following are the officers and directors of Daedalus:
Name Age Position
Edward A. McCulloch 56 President, Chief Executive Officer
David Lightbody 43 Executive Vice President and Chief Financial Officer
Patricia L. Espino-Nayar 30 Vice President, Secretary-Treasurer, and Controller
Abbey Nash 72 Vice President, Production and Engineering and,
Director, Daedalus Composites, Inc. (Canada)
Norio Sakai 70 Vice President, Design
Directors
James A. Lyons, Jr. 72 Chairman
Edward A. McCulloch 56
Grant L. Hopkins 52
Ralph O. Hutchison 76
David Lightbody 43
George C. Montgomery 55
Norio Sakai 70
Robert J. Salmon 57
Walker A. Williams 59
Following are the biographical summaries of the officers and directors.
OFFICERS
========
EDWARD A. MCCULLOCH, President, CEO, Director, and founder of Daedalus, has a
diverse technological background and broad experience in development and
management of private and public sector organizations, both foreign and
domestic, involving concept and product development, strategic planning,
research and development, test and evaluation, and commercialization.
In the private sector, Mr. McCulloch has had broad exposure and experience
within the field of international marketing, commercialization
industrialization, and business development, with particular emphasis upon those
areas requiring a strong scientific and technical background, including joint
ventures and strategic partnerships with foreign organizations. In 1985, Mr.
McCulloch founded the group of companies that eventually led to the formation of
Daedalus Building Systems, Inc. Within the public sector, he has managed a
variety of naval and civilian, government organizations with specialized
experience in interagency and international programs.
Mr. McCulloch's private sector experience, in non-defense-related, international
marketing and business development includes: concept, product, and market
development across a broad spectrum of technologies including: immunochemicals,
biological raw material; medical diagnostics; contraceptive devices;
radioluminescent lighting; magnetohydrodynamics; computerized terrain mapping;
commercial applications of multi-sensing satellites; polymers; special coatings;
metal ion removal through water-soluble polymers and hollow-fiber membrane
technology; absorbent polymer extraction of primary aromatics; low-cost drinking
water systems for developing countries; absorbent and super absorbent polymers
for the recovery of a variety of hazardous and non-hazardous liquids; and,
lasers.
In addition to the development of technical marketing experience, Mr. McCulloch
developed extensive marketing plans for small businesses, including: development
of a unique business model directly related to population-based, critical,
non-discretionary products, processes and technologies for small business
participation within the global economy; and, a methodology for the innovative
application of existing technologies to user problems. He has maintained a
general contracting license for construction and commercial renovation and has
recent and relevant experience in disaster response planning in foreign
countries.
-24-
Within the area of defense-related marketing and business development, Mr.
McCulloch represented the interests of defense contractors in the areas of:
command, control, communications, and intelligence; electronic warfare; foreign
material acquisition and exploitation; foreign weapons systems; specialized
communication projects; thermal signature reduction of ships, aircraft, and
land-based installations against various sensors; underwater and field
radiography equipment; and, the application of deception and psychological
operations to the drug interdiction role.
Mr. McCulloch is a former U. S. Navy Commander with an extensive background in
strategic planning, naval operations; plans and policy; intelligence; special
operations; research and development; master planning and program development in
anti-air and anti-submarine warfare; counter-terrorism; technology transfer;
covert and clandestine collection operations; vulnerabilities exploitation;
cover and deception; acoustic and electronic warfare; nuclear weapons;
underwater and surface demolition; experimental explosive techniques;
anti-swimmer technologies; foreign underwater weapons; mine countermeasures and
clearance diving. During his naval career, in addition to his operational
assignments, he was responsible for conceptual design, management, and
development of intelligence programs, including vulnerability exploitation,
special operations and technologies, foreign material acquisition and
exploitation, requirements generation, collection, analysis, and dissemination
of tactical intelligence, scientific intelligence, inter-agency program
management, and the application of special intelligence to general war plan
review. In his operational assignments, he was designated by the Navy as a
sub-specialist in the areas of explosive ordnance disposal, diving, naval
tactical data systems-surface missile systems, anti-submarine warfare,
politico-military affairs, strategic planning, and naval and joint intelligence.
Mr. McCulloch is an accomplished public speaker with experience in a wide
variety of settings including the uniformed services and Department of Defense,
intelligence community, Congress, the Executive Office, and diplomatic corps. He
was the principal author of master planning documents across a broad range of
military and non-military subjects, including the US Navy Anti-Air Warfare and
Operational Deception Master plans, intelligence publications in both scientific
and technical and operational intelligence.
Mr. McCulloch's career experience includes:
1985-present President, The Chesapeake group of companies:
The Daedalus Project, Inc.
The Chesapeake Group, International
Programs in Applied Technology, Inc.
Chesapeake Services Corporation
Chesapeake BioProducts, Inc.
Aquafine Corporation
The Daedalus Foundation
1993-1997 President, Micro-Set, Inc., Polymer producer
and Industrial Partner to Los Alamos National
Laboratory.
1989-1991 President and Director,
Sinonewtech Biologic (USA), Inc.,
(joint venture sponsored by the
Chinese Academy of Sciences)
1988-1989 Hydrodynamics Corporation, Consultant
Vector Microwave Research Corporation, Consultant
1982-1987 Naval Intelligence Support Center, Director, Navy
Foreign Materiel Program; Deputy Director,
Technology Directorate
1967-1982 United States Navy, various appointments
including: Special Projects Officer under the
Director, Naval Warfare; Staff Officer, Office
of the Chief of Naval Operations; Surface Warfare
Officer, afloat commands; Exchange Officer,
Royal Navy, Joint Services Bomb Disposal School;
Surface Warfare Officer School Command, ASW
School, U.S. Naval Guided Missile School,
Underwater Swimmers School, Army Chemical
School and Explosive Ordnance Disposal School.
-25-
Mr. McCulloch has a BS in Finance from California State University, Long Beach,
and an MA, in International Relations from the University of Southern
California, where he is currently studying Planning and Development with a
direct relationship to low-cost housing in the developing world. He is a member
of Phi Kappa Phi, National Scholastic Honor Society, the Association of
Corporate Growth, the World Future Society, and Toastmasters,International,
where he was the 1998 recipient of the Toastmaster of the Year and 1998 Man on
the Move awards from Komen Toastmasters, Washington, DC. Mr. McCulloch was the
principal organizational recipient of a 1998 Innovation Award from Virginia's
Center for Innovative Technology (for the Daedalus World Shelter Project). Under
his leadership, Micro-Set, Inc. was selected, through national competition, as
the organizational representative and strategic partner to Los Alamos National
Laboratory for the commercialization of International R & D, Award-winning
technology for the removal of metal ions from aqueous-based waste streams. Mr.
McCulloch is credited with patent and product development in: specialized
non-woven fabrics and superabsorbent polymers; absorbent, thermoplastic
elastomers; blood treatment technologies; and, polymer composite building
materials
DR. DAVID LIGHTBODY, Executive Vice President, Chief Financial Officer, and
Director is a Polymer Chemist who participated, along with Mr. McCulloch, in the
development of Daedalus' composite housing concept nearly from its inception.
Dr. Lightbody completed his Ph.D. in 1981 at the University of Strathclyde in
Scotland and Riso National laboratory in Denmark. That was followed by a
four-year period as a polymer technologist with British Petroleum, during which
time he led a product development team working with a range of plastic products
and processes. In particular, he was part of the team that developed
polyethylene pipe systems for use in gas and water distribution.
With sponsorship from the Scottish Development Agency, Dr. Lightbody took the
opportunity to obtain an MBA from Strathclyde Graduate Business School,
graduating in 1987. He then relocated to the United States to become the Vice
President of the Scottish Development Agency. After three years in that
position, he went on to successfully establish and develop U.S.
manufacturing/sales operations on behalf of two U.K. clients - a semi-conductor
packaging business, Reel Service Inc. in San Jose, California, and a thermal
transfer labeling company, Donprint, Inc., in Chicago. Subsequently, Donprint
was sold to a group of investors for over $90 million.
In 1993, Dr. Lightbody began work as Chief Scientist with Micro-Set, Inc., an
environmental start-up company. Micro-Set brought to market an innovative
polymer technology for use in the treatment of pollution spills and the
remediation of contaminated land. Micro-Set had three products approved and
listed on the EPA National Contingency Product List. Additionally, he was
instrumental in the company being selected as the Industrial Partner to Los
Alamos National Laboratory. When that company was purchased by Polymer Group,
the second largest manufacturer of absorbent fabrics, he was retained to manage
and implement the product development program. Polymer Group took a portion of
the business that contained Micro-Set public and raised approximately $275
million in an IPO conducted on the NYSE.
Returning to the UK in 1995, Dr. Lightbody joined British Polythene Industries
PLC-a $750 million per year firm-the largest polyethylene film company in Europe
and a leader in the field of plastics recycling, to manage a plastics recycling
business that processes over 5000 tons per year. In that position, he developed
a business built around several innovative recycled products, which are used
primarily in the material handling and construction industries.
Dr Lightbody is acknowledged as one of the worlds few experts in plastics
recycling that has experience and education in polymer chemistry, plastics
recycling operations, production of molded products, financial, personnel, and
production management.
Dr. Lightbody and Mr. McCulloch collaborated on the product and patent
developments in specialized non-woven fabrics and super absorbent polymers and
absorbent, thermoplastic elastomers.
PATRICIA ESPINO-NAYAR, Vice President, Secretary-Treasurer, and Controller, has
been a principal in The Daedalus Project, Inc. since 1997 and with affiliated
companies for nearly four years. Ms. Espino-Nayar is a Chemical Engineer who has
made significant progress toward an MBA degree and has considerable experience
in the management of all facets of the company, with particular emphasis upon
financial management, planning, and project development. She was instrumental in
negotiation of Daedalus' first contract with Peru.
In addition to her domestic responsibilities for Daedalus, Ms. Espino-Nayar
established, and is the Managing Director of, Daedalus Construction, Inc., a
Philippine-based affiliate of Daedalus formed for the purposes of contracting
with the Philippine Housing and Urban Development Coordinating Council. Under
her direction, the Daedalus Building System received accreditation under
AITECH, the Philippine program of Accreditation for Innovative Technologies for
socialized and low-cost housing programs. She was instrumental in Daedalus
receiving an Innovation Award from Virginia's Center for Innovative Technology
for the Daedalus World Shelter Project, the forerunner of the present
corporation and the Daedalus Building System.
Ms. Espino-Nayar has been the Secretary-Treasurer of The Chesapeake Group and
General Manager of one of its subsidiaries, Chesapeake BioProducts, Inc. since
1996. Under her leadership, Chesapeake BioProducts, provides immunochemicals and
biological raw material to science and industry.
From 1994-1996 Ms. Espino-Nayar was the Product Manager for Nike International
Philippines, Incorporated. In that capacity she represented Nike Philippines in
the annual Nike International Conference in Oregon and at the semi-annual Nike
Product Selection in Hong Kong with key officers of the corporation. In the
semi-annual product selection, Ms. Espino-Nayar represented three subsidiaries
in selecting products to be introduced to the Philippine market.
Ms. Espino-Nayar has a BS in Chemical Engineering, with a minor in Chemistry,
from De La Salle University, Republic of the Philippines, 1990, with
considerable progress toward an MBA in Marketing/Management at Ateneo Graduate
School of Business, RPI. She will complete her education in the United States.
-26-
ABBEY NASH, Vice President, Production and Engineering, Director, Daedalus
Composites, Inc. (Canada), and ex-officio member, Daedalus Building Systems,
Inc., Board of Directors, is unique in his background and experience as it
relates directly to the business of Daedalus. Mr. Nash has direct and relevant
experience in the plastics recycling industry, holds patents on several articles
that can be fabricated from recycled composites, is experienced in the
production of plastic molded products, and, uniquely, is experienced in the
modular and low-cost housing projects, worldwide. Mr. Nash was responsible for
the acquisition of Cambridge Unique, Inc. by Daedalus.
Mr. Nash is the co-founder, Executive Vice President, Chief Technology Officer,
director and minority shareholder of Palletronix, Inc., Ontario, Canada. From
1993 to 1995, Mr. Nash developed a plastic pallet system utilizing recycled
plastic and modularity of construction which provides lower shipping costs and
repair. Mr. Nash received a "Utility" patent for the technology developed.
Prior to the establishment of Palletronix, Mr. Nash was a co-founder and
Executive Vice President for Marketing of Eaglebrook Environmental Corporation
of Toronto. Mr. Nash was a strategic planning consultant specializing in the
material handling and waste management industries, that includes: recycled waste
pickle liquors from steel companies; solid waste pickle liquors to municipal
waste and water treatment plants; phosphate removal - flocculating
agent-oxidizing agent; and solid waste acid by-product of pickling process to
anodizers. Mr. Nash was responsible for the delivery and sales of virgin acids,
hydrochloric and sulfuric, utilizing the same equipment used to pick-up the
waste acid, which produced volume worth $10 million.
From 1981 to 1984, Mr. Nash was the owner and President of Vita Stat, Inc. in
Brownsville, Texas. The company manufactured automatic blood pressure sensing
equipment for medical and retail markets producing $2 million. Mr. Nash sold the
company in 1981.
Acting as Senior Strategic Planning Consultant to Allied Chemical Corporation
from 1976 to 1979, Mr. Nash was responsible for developing strategic planning
specializing in statistical maintenance programs. Among Allied Chemicals'
clients was Van Duesan Aircraft, the largest distributor of equipment and parts
for private aviation.
From 1964 to 1976, Mr. Nash acquired Smash Proof Corporation, located in
Ashtabula, Ohio, that manufactured materials handling equipment for automotive,
baking, warehousing, and appliances and was considered to be one of the largest
manufacturers of "automotive creepers". Mr. Nash's responsibilities included the
design of specialty handling products for specific segments of the industry. The
company was sold in 1975.
Mr. Nash has a BS in Education (American History) from Seton Hall and obtained
an MA in Philosophy from Fordham University.
NORIO SAKAI, Vice President, Design and Director, has participated with Mr.
McCulloch as the chief architect of the project since its early days,
participating in basic design of the structural components (panels) of the
Daedalus Building System and designing its most elaborate structures, and
providing engineering drawings for the fabrication of molds. His work on
comprehensive community planning figured prominently in discussions with Turkish
officials after the earthquake in August of 1999. Mr. Sakai's work provided the
basis for disaster response-related community planning, which was unique in the
international responses offered to the disaster.
Mr. Sakai is among the most accomplished of the Daedalus team. He has been an
architectural consultant for more than thirty years. His consulting services
have been provided internationally in the areas of urban planning, real estate
development, property acquisitions, operations management, international
start-up operations, business development, marketing/sales and alliance
building. The Embassy of Japan in Washington D.C. selected Mr. Sakai to design
and supervise construction of its Chancery. Similarly, as a consultant in
Ascona, Switzerland from 1995-1997 Mr. Sakai was selected as coordinator for the
design process of the new Chancery for the Embassy of Japan in Bern,
Switzerland.
Mr. Sakai's broad personal experience brought greater depth to the Daedalus
Building System than simply design of prefabricated, modular, or panel systems.
His experience in community design - featured in both Life and Time magazines -
has permitted Daedalus to capitalize upon demographically-driven community
design as a fundamental and competitive aspect of Daedalus' composite and metal
panel systems.
Mr. Sakai established a European subsidiary company for a Japanese electronic
component manufacturer involving 40 corporate clients in eight European
Countries, marketed throughout Europe and doubled sales volume within three
years. Recently, as a consultant in McLean, Virginia he designed and coordinated
expansion of the NHK ( Japan Broadcasting Corp.)
As General Manager for SAGAM Europe, Brussels, Belgium from 1992 - 1995 he
established European marketing bases in Germany and Belgium, developed and
expanded the sales network, and served corporate customer such as Phillips,
Thompson, Grundie, Matra, Nokia, etc., in Belgium, France, Germany, Austria, the
Netherlands and Finland.
Mr. Sakai was Corporate Advisor and Executive Vice President of TOBISHIMA
Corporation, Tokyo, Japan and Vienna, Virginia from 1987-1991. He established a
subsidiary office in the U.S. to pursue commercial real estate development
opportunities and provided project management for Japanese investors building
U.S. factories.
-27-
Mr. Sakai was a founding partner of I. & S Associates, Inc., an architectural
design firm formed in Vienna, Virginia. He was a Principal and Chairman from
1984-1992. I&S provided services to the Embassy of Japan in Washington, D.C. for
Chancellery redevelopment (210,000 square feet, $22 Million in 1984).
As Vice President and Principal for Design of the Benham Group, East, in Vienna,
Virginia he was in charge of the Smithsonian Institution concept study for
Oriental and African Art Museum, Washington, DC He designed the Nuremberg Army
Hospital Dental Clinic in Germany, the Bad Hersfeld, Health & Dental Clinic,
Germany. He designed the Bethseda Metro Center in Maryland. The Embassy of Japan
engaged the group for a chancery redevelopment project, requiring 39 hearings by
the U.S. government and the public to gain approval. He designed the
electromagnetic development lab for the Naval Research Laboratory for the U.S.
Navy, Washington DE and a Naval Air Development Center in Westminster,
Pennsylvania.
From 1970-1973 he was Chief Designer with Aranyi, Murell and Associates,
Virginia Beach, Virginia, designing offices, community buildings and multiple
housing projects.
Mr. Sakai was Collaborating Architect for PLANEMAK, Sao Paulo, Brazil from
1960-1969 and was in charge of design and development of numerous commercial
buildings, manufacturing facilities, base towns for the Juauguari Reservoir,
Paraibuna Plant, the Centrais Electricas de Sao Paul, SA. Hydro-electric plant
control tower, dam and lock, and for the Ilha Solteria Plant (3,200,000 kw).
Prior to moving to Brazil, Mr. Sakai was and architect in Japan providing
services for design of numerous residences and commercial projects.
Mr. Sakai has a degree in Architecture from Tokyo University of Arts, and
graduate studies in Urban Affairs from Virginia Polytechnic Institute and State
University. H is fluent in English, Japanese and Portuguese with a strong
working knowledge of Spanish, French and German.
All current officers and directors serve until the next annual meeting of
shareholders or until they are elected and qualified. Each executive officer and
director of Daedalus holds office until a successor is elected, or until the
earliest of death, resignation or removal. All officers serve at the discretion
of the Board of Directors. No family relationships exist between or among any of
Daedalus' officers or directors. Daedalus officers receive compensation from
Daedalus.
-28-
DIRECTORS
=========
ADMIRAL JAMES A. LYONS, Jr., USN (Ret.) Chairman of the Board of Directors, is
President and CEO of LION Associates, an international consulting firm. That
enterprise provides technical expertise in the areas of international marketing
and trade, foreign policy and security affairs along with defense and commercial
procurement. Additionally, Admiral Lyons is Chairman, President, and CEO of Guam
Industrial Services, Inc. and Guam Shipyard, Inc., providing ship repair and
maintenance services to deployed units of the U.S. Pacific Fleet.
As Chairman of the Board of SABAYCO Admiral Lyons signed an exclusive agreement
to develop a plan for making Subic Bay in the Philippines a major international
and domestic hub for ship container and break bulk operations in the Pacific
Basin, with Philippine President Ramos presiding at the signing.
Admiral Lyons served as an officer in the U.S. Navy for thirty-six years, in
command and staff positions culminating in command of the U.S. Pacific Fleet -
the largest single military command in the world - contributing directly to the
economic stability and humanitarian understanding in the Pacific and Indian
Ocean Regions. Other command positions were at the numbered Fleet, Tactical
Group and Unit level. Staff positions included assignment as Deputy Chief of
Naval Operations (Plans, Policy and Operations) with extensive responsibility
for plans and policy within the U.S. Navy, JCS, and Senior U. S. Military
Representative to the United Nations.
As Commander-in-Chief, U.S. Pacific Fleet 1985-1987 he directed and controlled a
force of more than 250,000 personnel. He instituted a new North Pacific
strategy, a new anti-submarine warfare policy and new long range strike
concepts. As Deputy Chief of Naval Operations 1983-1985 he was responsible for
all-maritime plans, policies and operations throughout the world, including
conducting the Incidents at Sea talks with the Soviet Union in Moscow, 1984.
During Admiral Lyons assignment as Commander, Second Fleet and Striking Force
Atlantic, he developed the U.S. Navy's Norwegian Sea Strategy, initiated and
published fighting instructions that now comprise the basic source of war
fighting and tactics.
Admiral Lyons graduated from the Naval Academy with a BS in 1952, the Naval War
College in 1964 and with a MS from the National War College in 1971.
Admiral Lyons is a member of the following boards:
Chairman, Daedalus Projects, Inc.
Chairman, Daedalus Building Systems, Inc.
Director, Wilson UTC
Director, SHIPINVEST, II
Director, Defense Intelligence Scientific and Technical Advisory Board
Director, The National Coalition for Defense Advisory Board
Member, Advisory Committee National Foundation for Cancer Research
Admiral Lyons Awards and Medals include Distinguished Service Medals, the
Defense Superior Service Medal, the Legion of Merit, Meritorious Service Medal,
and various other personal decorations from France, Philippines, Korea and
Thailand
GRANT L. HOPKINS is CEO of Combined Area Studies of Pittsburgh, Pennsylvania.
CAS is a strategic facilitator of relationships within the defense, national
security and technology sectors. It has a number of domestic and foreign
clients, most recently the Republic of Yemen.
Prior to CAS Mr. Hopkins was employed for over a decade by the Washington DC
based petroleum consultancy, The Petroleum Finance Company, Ltd. where he headed
Special Projects and founded its Studies & Observations Group- which used the
tested and proven use of the intelligence cycle to provide clients with real
time information on events affecting petroleum markets thus allowing them to
make independent market related assessments related to supply, production and
commercial trading. His clients included major oil and trading companies as well
as numerous foreign governments oil entities and foreign ministries.
Mr. Hopkins held a variety of management positions in the international oil
industry beginning with Gulf Oil Corporation where he worked from 1971-80 as an
advisor to the Chairman on international politics and then in various management
positions in supply and trading in Pittsburgh, Houston, Vienna, London and the
Middle East. He was subsequently employed abroad by a subsidiary company of
Coastal States, Getty Oil Company and Paris based Fretoil.
Mr. Hopkins received a B.A cum laude from Washington & Jefferson College and an
MA magna cum laude in East Asian Studies from the University of Michigan. He was
awarded a graduate fellowship in cultural and social anthropology by Rice
University for the academic calendar 1985-87. He has lectured on petroleum and
political maters throughout his career at various institutions including the
Council on Foreign relations, Harvard's Center for Russian Studies, The MBA
programs at Michigan and the Wharton School of Business at the University of
Pennsylvania.
-29-
RALPH O. HUTCHISON has served for twenty-eight years as President and CEO of
National Stonehenge Corporation, a management consulting firm that provides
management audits, acquisition analysis and evaluation, operations analysis,
financial and management controls to improve profits. The company also provides
asset audits for refinancing, production planning and management. Under his
guidance and direction, National Stonehenge Corporation served as a consultant
to a large European company in acquiring a $500,000,000 U.S. consumer products
company and recently completed an evaluation study for a large Korean company to
build a $750,000,000 manufacturing plant in four stages to be located in
Georgia.
Mr. Hutchison organized United Real Estate Management Corporation (UREMCO) in
1989 and serves as President and CEO of this real estate management company
UREMCO providing institutional management, property evaluations and feasibility
studies, corporate and partnership workouts, takeover procedures, computerized
accounting and reporting systems.
National Stonehenge Corporation and UREMCO acted as advisors to major banks,
trusts, pension funds and the FDIC since 1972. Stonehenge has an active
partnership with the FDIC for asset and institutional management and has
completed assignments as managers of Pacific Savings Bank and Beverly Hills
Business Bank in California. Stonehenge directed management and disposition of
more than 4000 assets exceeding $750,000,0000 in value for the Resolution Trust
Corporation.
In 1976 Mr. Hutchison was appointed Federal Trustee in proceedings for the
reorganization of Carolina Caribbean Corporation (CCC), a public company,
pursuant to the Chapter X Bankruptcy Code. He developed and executed a business
plan for this 9000-acre development with improvements and assets valued in
excess of $40,000,0000.
In 1977 Mr. Hutchison was appointed Honorary Consul for the Grande-Duche' de
Luxembourg for the Southeastern United States. He acted as advisor to the
cabinet of ministers for development of national industrial development
policies, procedures and action programs. Unemployment was reduced and has
remained at 2.3% - 2.7% - producing the second highest standard of living in
Europe.
Mr. Hutchison joined Great Southwest Corporation in 1966 as Vice President of
Acquisitions. By 1970 he had progressed to Executive Vice President and Chief
Operating Officer. In this capacity he was responsible for the company's
industrial parks, Six Flags Amusement Parks and directed their planning,
financing, engineering, construction and operation of industrial income
producing properties. These properties included 2 million square feet of
industrial/warehousing space in a 4,600 acre industrial park in Arlington, Texas
and operations of three Six Flags Amusement parks with revenues in excess of
$100 Million.
Mr. Hutchison joined Ling Temco Vought, Dallas, Texas in 1960 as Field Director
of Operations Task Force reporting to the Executive Vice President. He was
responsible for field direction and coordination of 10-12 senior staff
executives in analysis, evaluation and immediate executive action as required in
divisions and subsidiaries in a loss position. He was directly responsible for
all phases of financial and operating management with special emphasis on sales
expansion, new products, improved management controls production, and new
techniques for manufacturing plants.
From 1955 to 1960, Mr. Hutchison was Executive Assistant to the Chairman of the
Board, Morehead Patterson, and Vice Chairman, General Walter Bedell Smith, of
American Machine and Foundry (AMF). Mr. Hutchison was General Smith's
Confidential Assistant in his liaison with the Executive Branch (President
Eisenhower) on special assignments. His responsibilities involved
recommendations on: trouble shooting for management, financial and long range
planning, cost reductions and management controls, preparation of top management
reports on: operations of divisions and subsidiaries, sales and acquisitions for
corporate enterprises, production planning and management of manufacturing
plants.
Mr. Hutchison has a BS in Chemical. Engineering from University of Louisville,
Louisville, Kentucky, and an MS, Chemical Engineering (Nuclear Metallurgy) from
the Oak Ridge Institute of Nuclear Studies/University of Tennessee. He is a
licensed Professional Engineer in South Carolina, Georgia and Texas, and is
listed in "Who's Who in America."
-30-
AMB. GEORGE C. MONTGOMERY graduated from the University of Virginia in 1966 and
was commissioned an Ensign in the U.S. Navy. He served aboard destroyers and in
1971 served as Advisor to the Navy of the Republic of Vietnam. He resigned in
1972 to enter Vanderbilt Law School where he specialized in International Law.
Upon graduation in 1976 he became a member of the Bar of the District of
Columbia and joined the staff of Senator Howard Baker, Jr.
In 1977, he became Senator Howard Baker's Chief Legislative Assistant, and was
made Counsel to the Majority Leader of the United States Senate in 1981. In
addition to serving as senior foreign policy advisor to the Majority Leader and
as the principal liaison between the Senate Leadership and the Executive Branch,
Mr. Montgomery traveled widely with, and on behalf of, the Senate leadership,
including numerous trips to the Middle East, Japan and East Asia. In 1985 he was
nominated by President Reagan and became the United States Ambassador to the
Sultanate of Oman.
In February of 1989, he returned from Oman and became a partner in the
Washington office of Baker, Donelson, Bearman and Caldwell where he is managing
partner. He remains a Captain in the United States Naval Reserve. Mr. Montgomery
is a member of the Council on Foreign Relations and the Board of Visitors of the
Georgetown University School of Business.
ROBERT J. SALMON has been a management consultant since 1994. Mr. Salmon has
developed medical insurance, emergency procedures, equipment and supplies
outfitting and a medical management plan for NESCOR Incorporated, a private
natural resources company operating in the Gobi Desert region of Mongolia and
China. He also developed a medical facility design review methodology for a
hospital construction project in Santiago, Chile.
As a management consultant he has prepared portions of a business plan for a
joint private/public developer of a medical facility in San Iisidro, Argentina,
and also prepared a business improvement plan and publicity for a private
foundation sponsoring medical education. He has provided research services and
reports to a private sponsor of medical facilities food disaster relief. In
addition to consulting services provided for the medical field, he also
participated in the refinancing of a private auto parts manufacturer.
In 1993-1994 he was a Senior Associate of Medical Service Corp., INT. (MSCI)
where he was Developer and Project Manager for EXXON Chad/Cameroon malaria
control; including recruitment of paramedical personnel for emergency and
disaster relief activities; development of specifications for emergency medical
supplies; and vendor networks for: turnkey hospitals, medical equipment and
supplies; pharmaceuticals and drugs necessary to support emergency medical
services and mortuary services.
Additionally he has coordinated management, transportation and logistics of
USAID sponsored international medical service programs.
As an independent consultant from 1992-1993, Mr. Salmon conducted seminars in
medical service analysis, scoping, and contracting in the public sector for the
American College of Healthcare Executives, the University of California and
other corporations.
Mr. Salmon served in the United States Navy as Commanding Officer for
international mobile medical operations from 1991-1993. He directed a 200 person
staff in engineering design, integration, procurement, assembly, transportation,
storage and maintenance off the Navy's seventeen 250- and 500-bed fleet
hospitals.
During Operations Desert Shield and Desert Storm Mr. Salmon was responsible for
the transporting of three hospitals from sites in Norway, Japan, and the British
Indian Ocean Territory and directing them in Saudi Arabia and Bahrain;
completing their erection in 14-19 days; and providing medical, food, vehicle
and industrial supplies for the duration of those operations.
As Deputy Assistant Chief, Navy Bureau of Medicine and Surgery and Deputy
Commander, Naval Medical Command, he analyzed requirements, conceived and
implemented programs, directed procurements and contracts for all new
construction, capital equipment and health care service contracts, ranging from
off-premises laboratory testing to complete clinic and emergency room
operations.
Mr. Salmon has a BS, Foreign Service from Georgetown University and has
additional education in Military Logistics by the U.S. Navy, Financial
Management from Georgetown University, and in Total Quality Management from the
Naval Postgraduate School.
-31-
WALKER A. WILLIAMS has worked with Daedalus over the past two years, first as a
consultant and then as a Director of the Daedalus Project, to advance the
company's objectives of with specific emphasis upon the District of Columbia,
west and south Africa and humanitarian programs directed toward solution of the
worldwide housing shortage, such as Habitat for Humanity International.
Mr. Williams is an urban affairs, public relations and international marketing
specialist with over two decades of experience working with private, public and
institutional corporations. His areas of expertise include international
development, finance, small business development, corporate management, economic
development and fund raising.
Mr. Williams is President of Education Africa USA, a non-profit, non-political
501(c)3 organization committed to providing quality educational opportunities
within South Africa. Education Africa's US mandate is to provide assistance to
the programs and projects initiated in South Africa by Education Africa SA.
Education Africa USA provides fundraising and public affairs assistance in the
United States in support of educational programs in South Africa.
Walker Williams is also president of Alternative Marketing Access, a
full-service communications and management-consulting firm, specializing in
marketing, public relations, legislative guidance, event management, fund
raising, and tourism development. Alternative Marketing Access manages the
day-to-day operations of U.S./South Africa Trade Association (USSATA), a
non-profit trade association established to export and promote U.S. agricultural
products into South Africa. USSATA through a grant from the U.S. Department of
Agricultures Market Promotion Program (MPP) to conduct marketing research on
South Africa. USSATA also conducted a trade mission to South Africa through its
MPP agreement and a reverse South African Trade Mission to the Food Marketing
Institute (FMI) International Supermarket Industry Convention Chicago in 1995.
USSATA, at the time, was the only minority organization participating in USDA's
MPP program.
Mr. Williams left the presidency of UniWorld Washington, a full service
communications and management-consulting firm, specializing in public affairs,
legislative guidance, event management, fund raising, and tourism development in
1993.
Prior to UniWorld, he was president of Walker A. Williams & Company serving over
250 clients. These included such federal agencies as the U.S. Department of
Housing and Urban Development, Commerce, Education, State, and local municipal
governments. UniWorld is the largest ethnic advertising agency in the United
States.
From 1977 to 1985, he served as executive director of the non-profit Caribbean
Council. Its programs focused on initiatives to link minority American
businesses with Caribbean businesses in the areas of communications, tourism,
agriculture, transportation, and training. Mr. Williams has developed,
implemented, and coordinated eight trade and investment missions to the
following Caribbean countries: Barbados, Dominican Republic, Grenada, Jamaica,
St. Lucia, Trinidad and Tobago, and Haiti. Over 475 business people participated
in these missions and over $95 million in intra-regional transactions were
completed. The majority of these transactions have been joint ventures. In
support of these activities, Walker Williams also conducted numerous country
briefings for potential U.S. contractors, investors, and exporters.
As TransWorld Airlines' Manager for Special Markets (1964 to 1968), he was
responsible for the development of ethnic markets in the United States and
Africa. His wide range of involvement in the developing world also included his
participation as a development and management consultant to Nigeria's FESTAC in
1977; launch of AFRICARE; passage of the Caribbean Basin Initiative (CBI);
development of the Peace Corps Caribbean Basin Initiative programs, etc.
Walker Williams was born in New Jersey, earned a Communications degree (public
relations) from Boston University, where he was in the fraternity Kappa Alpha
Psi. He also attended Seton Hall's and Rutger University's graduate schools of
Business Administration.
-32-
EXECUTIVE COMPENSATION
======================
The following table sets forth the executive officers of Daedalus whose
aggregate compensation for the year ended December 31, 2000 is expected to
exceed $100,000 per year:
Name Position Compensation
Edward A. McCulloch President and Chief Executive Officer and $225,000
Director
David Lightbody Executive Vice President and Chief Financial $130,000
Officer and Director
All officers and directors $553,000
as a group (5 officers)
RELATED TRANSACTIONS
====================
The Daedalus Project, Inc. is affiliated with Daedalus Building Systems, Inc.
Edward A. McCulloch is the principal shareholder and President of The Daedalus
Project, Inc. Initial ownership and distribution of common shares in Daedalus
Building Systems, Inc. - on October 28, 1999 - was pursuant to the original
subscription agreements with investors in The Daedalus Project, Inc., which
provided, inter alia, for the ownership by those shareholders of any other
entities created by The Daedalus Project, Inc. for public or distributed
ownership. Thus, with the exception of the equity position of Mr. McCulloch -
who agreed to take a reduction - the initial equity positions of the owners of
Daedalus Building Systems, Inc., reflect their absolute ownership of The
Daedalus Project, Inc. Mr. McCulloch received 3,447,150 shares of Daedalus
Building Systems, Inc. common stock, all 250,000 shares of Daedalus Series A
Preferred and all 1,000,000 shares of Daedalus Series B preferred, the latter
containing certain "earn-out" provisions pertaining to the performance of the
company and their conversion to common stock.
On October 31, 1999, The Daedalus Project, Inc. and Daedalus Building Systems,
Inc., entered into agreement to transfer all rights to the composite housing
technology of the Daedalus Building System, developed by Mr. McCulloch and
advanced by The Daedalus Project, Inc., and the capital stock of Daedalus
Composites, Inc., its Canadian subsidiary, in exchange for a royalty on the
gross sales of Daedalus Building Systems, Inc.
Mr. McCulloch is also the principal shareholder of Chesapeake Services
Corporation. Daedalus leases approximately 4,556 square feet of office space in
Alexandria, Virginia from Chesapeake for approximately $82,000 per year, under a
five-year lease. Mr. McCulloch owns all of Chesapeake Services Corporation
through its parent corporation, The Chesapeake Group, International Programs In
Applied Technology, Inc.
PRINCIPAL SHAREHOLDERS OF DAEDALUS COMMON STOCK
(Before the Distribution - 8,700,000 common shares issued)
Common Shares Owned Percentage Owned
Name and Address of Beneficial Owner Beneficially
Edward A. McCulloch 2 3,336,982 38.36%
7514 Ridgecrest Drive
Alexandria, VA 22308
Robert J. Salmon 1,000,000 11.49%
3623 Raymond Street
Chevy Chase, MD 20815
Steve Stone and William Johns, Sr. 819,000 9.41%
25802 Novi Road
Novi, MI 48375
All officers and directors as a group (11 persons) 5,414,482 62.24%%
-33-
DESCRIPTION OF SECURITIES OF DAEDALUS
Authorized Capital Stock
Description of common stock
Authorized: 30,000,000 shares, $0.01 par value per share
Issued and Outstanding: 8,700,000 shares
Preferred Stock
Authorized: 3,000,000 shares, $1.00 par value per share, issuable in series,
with the 250,000 shares Series "A" and 1,000,000 shares of Series
"B", "C", and "D" preferred stock having the general terms as
hereinafter set forth, and the remaining 375,000 shares of
authorized preferred stock being issuable in one or more series,
as designated and determined from time to time by the board of
directors of Daedalus. Except for the above mentioned Series "A",
"B", "C", and "D", preferred stock, each subsequently designated
series of preferred stock shall consist of the number of shares so
designated for such series, and shares of that series shall have
the rights, preferences and other features as so determined and
designated.
Designated, Issued and Outstanding:
Series "A"
No. of Shares Designated: 250,000
No. of Shares Issued and Outstanding: 250,000
Liquidation Preference: $1.00 per share
Ranking: Pari passu with the Series "B" preferred stock of Daedalus, and
senior to all other series of preferred stock of Daedalus
designated at any time subsequent to Closing of this Agreement.
Conversion Rights: Each share of Series "A" preferred stock may, at the option of the
holder, be converted into one (1) share of common stock of
Daedalus at any time within twenty (20) years following the
Closing of this Agreement.3
Voting Rights: Each share of Series "A" preferred stock shall have and be
entitled to cast thirty (30) votes, in common with the votes to
which holders of common stock of Daedalus then outstanding shall
be entitled to cast (one vote per share) on all matters submitted
for, or required to be submitted for action by the stockholders,
as set forth in the Certificate of Incorporation of Daedalus or
applicable provisions of the General Corporation Law of Delaware.
Additionally, holders of Series "A" preferred stock shall be
entitled to cast one (1) vote for each share of such Series "A"
preferred stock on all matters submitted for, or required to be
submitted for, voting by holders of such Series "A" preferred
stock, as a separate class of stock, as set forth in the
certificate of incorporation or the General Corporation Law of the
State of Delaware.
Dividends: None
Redemption Rights: Provided funds are legally available therefore, each share of
Series "A" preferred stock then outstanding shall be mandatorily
redeemed by Daedalus at the option of the holder thereof, at any
time upon demand of such holder, at a price of $1.00 per share.
Call Provisions: Provided funds are legally available therefore, all shares of
Series "A" preferred stock outstanding on the twentieth (20th)
anniversary of their issue shall be mandatory to call and redeemed
by Daedalus at a price of $1.00 per share.
Series "B"
No. of Shares Designated: 1,000,000
No. of Share Issued & Outstanding: 1,000,000
Liquidation Preference: $2.50 per share
Ranking: Pari passu with the Series "A" preferred stock, and senior to all
other series of preferred stock of Daedalus designated at any time
subsequent to their issue.
Conversion Rights: Subject to Daedalus's satisfying the conditions pertaining to its
"Pre-Tax Earnings" (hereinafter defined) as hereinafter set
forth, during the following prescribed periods and subject to the
following quantity limitations, the shares of Series "B"
Preferred Stock may, at the option of the holder thereof, be
converted into shares of common stock of Daedalus upon reaching
the following earning plateaus on or before December 31, 2003:4
(1) 333,333 Series "B" shares can be converted into 1,666,665
Daedalus common shares, upon record of $5,000,000 pre-tax
earnings.
-34-
(2) Upon record of an additional $5,000,000 in pre-tax earnings
(a total of $10,000,000 pre-tax earnings), an additional 333,333
Series "B" shares can be converted into 1,666,665 Daedalus common
shares.
(3) Upon the record of an additional $6,000,000 (a total of
$16,000,000 pre-tax earnings), and additional 333,334 Series "B"
shares can be converted into 1,666,670 Daedalus common shares.
Series "C"
No. of Shares Designated: 1,000,000
No. of Share Issued & Outstanding: 1,000,000
Liquidation Preference: $2.50 per share
Ranking: Subsequent to Series "A" and Series "B" preferred stock of
Daedalus designated at any time subsequent to closing of this
Agreement.
Dividends: None
Voting Rights: None
Conversion Rights: Each share of Series "C" preferred stock may, at the option of
the holder, be converted into one (1) share of common stock of
Daedalus at $2.00 per share at any time within twenty (20) years
following the Closing of this Agreement.
Series "D" No. of Shares Designated: 375,000
No. of Share Issued & Outstanding: 375,000
Liquidation Preference: $2.50 per share
Ranking: Subsequent to Series "A" and Series "B" preferred stock of
Daedalus designated at any time subsequent to Closing of this
Agreement.
Dividends: None
Voting Rights: None
Conversion Rights: Subject to Daedalus' satisfying the conditions pertaining to its
"Pre-Tax Earnings" (hereinafter defined) as hereinafter set
forth, during the following prescribed periods and subject to the
following quantity limitations, the shares of Series "D"
Preferred Stock may, at the option of the holder thereof, be
converted into shares of common stock of Daedalus at $2.00 per
share upon reaching the following earning plateaus on or before
December 31, 2003:
(1) 125,000 Series "D" shares can be converted into 62,500
Daedalus common shares, upon record of $10,000,000 pre-tax
earnings.
(2) Upon record of an additional $10,000,000 in pre-tax earnings
(a total of $20,000,000 pre-tax earnings), an additional 125,000
Series "D" shares can be converted into 62,500 Daedalus common
shares.
(3) Upon the record of an additional $10,000,000 (a total of
$30,000,000 pre-tax earnings), and additional 125,000 Series "D"
shares can be converted into 62,500 Daedalus common shares.
Warrants
Daedalus Series "A" Common Stock Warrants
Number To Be Authorized: 750,000
Number To Be Issued & Outstanding: 750,000
Expiration Date: Three (3) years following Closing
Rights (General): The holder of each Series "F" Warrant has the right to purchase
one (1) share of common stock of Daedalus at a price of $2.00 per
share.
Call Provisions: Daedalus shall have the right to call for redemption all Series
"F" Warrants then outstanding if and when the Average Market
Price (meaning for the purpose of this Exhibit, the mean between
the bid and asked price at Closing) of Daedalus' common stock is
at least $3.00 per share for a period of ten (10) consecutive
market days. The redemption price is $0.10 per warrant.
-35-
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the common stock may be adversely affected by the sale, or
availability for sale, of substantial amounts of the common stock in the public
market following the Distribution. The 1,500,000 shares included in the
Distribution will be freely tradable.
All of the 8,700,000 outstanding shares of common stock may be sold in the
public market only if registered or pursuant to Rule 144 of the Securities Act.
The provisions of Rules 144 provide that these securities will be available for
sale in the public market on October 31, 2000 which is one year from the date
they were issued, subject to the volume limitations and other conditions of Rule
144.
We also have outstanding 250,000 shares of Series A Preferred Stock, that are
owed by Mr. McCulloch and that are convertible into a like number of shares of
common stock. Mr. McCulloch also owns 1,000,000 outstanding shares of our Series
B Preferred Stock that are convertible into as many as 5,000,000 shares of
common stock, in accordance with a pre-tax earnings formula. We also have
outstanding 1,000,000 shares of Series C Preferred Stock that are convertible
into 500,000 shares of common stock and 375,000 shares of Series D Preferred
Stock that are convertible into 187,500 shares of common stock if certain
pre-tax earnings levels are achieved. These shares of common stock that become
outstanding upon any conversion of the said preferred stock may also be sold in
the public market pursuant to Rule 144.
RULE 144
========
In general, under Rule 144, a person who has owned shares of our common stock
for at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- - one percent of the number of shares of common stock then outstanding, which
will equal approximately 102,000 shares immediately after the Distribution; or
- - the average weekly trading volume of the common stock on the National
Association of Securities Dealers Over-the-Counter Electronic Bulletin Board
during the four calendar weeks preceding the filing of a notice on Form 144 with
respect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about
Daedalus.
-36-
LEGAL MATTERS
The validity of the common stock covered by this prospectus will be passed upon
for us by our counsel, Herbert S. Rosenblum, Esq., Alexandria, Virginia. Carl A.
Generes, Esq., Dallas, Texas, has acted as special securities counsel to
Daedalus.
EXPERTS
This registration statement includes the financial statements of Daedalus as of
October 31, 1999 and for the period May 20, 1999 (inception) to October 31, 1999
and of Daedalus Composites, Inc. as of October 31, 1999 and for the period May
20, 1999 (inception) to October 31, 1999, which have been audited by Pannell
Kerr Foster PC, independent certified public accountants. These financials have
been included herein in reliance upon the audit reports appearing elsewhere
herein, given upon the authority of said firm as experts in accounting and
auditing.
DISCLOSURE OF COMPANY POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our certificate of incorporation and by-laws provide that we shall indemnify all
of our directors and officers to the fullest extent permitted by Delaware Law.
Under such provisions, any director or officer, who in his capacity as such is
made or threatened to be made, party to any suit or proceeding, shall be
indemnified if it is determined that such director or officer acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests Daedalus. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and persons
controlling Daedalus pursuant to the foregoing provision, or otherwise, we have
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
We maintain directors' and officers' liability insurance providing aggregate
coverage of $______________.
-37-
DAEDALUS BUILDING SYSTEMS, INC.
Financial Statements
For The Period May 20, 1999 (Inception)
To October 31, 1999
Table of Contents
...........................................
Independent Auditor'Report .................... 1
Consolidated Balance Sheet .................... 2
Consolidated Statement of Operations .......... 3
Consolidated Statement of Stockholders' Deficit 4
Consolidated Statement of Cash Flows .......... 5
Notes to Consolidated Financial Statements .... 6
-38-
Pannell Kerr Foster PC
Fairfax, Virginia
Independent Auditors' Report
To the Stockholders and Board of Directors
Daedalus Building Systems, Inc.
Alexandria, Virginia
We have audited the accompanying consolidated balance sheet of Daedalus Building
Systems, Inc. and subsidiaries as of October 31, 1999, and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the period May 20, 1999 (inception) to October 31, 1999. These financial
statements are the responsibility of Daedalus' management. Our responsibility is
to express an opinion on these financial statements based on 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Daedalus Building Systems, Inc. and subsidiaries at October 31, 1999, and the
results of their operations and their cash flows for the period May 20, 1999
(inception) to October 31, 1999, in conformity with generally accepted
accounting principles.
/s/
Pannell Kerr Foster PC
December 10, 1999
-39-
Daedalus Building Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
October 31, 1999
Assets
Current assets
Cash ....................................................... $ 74, 953
Accounts receivable trade ................................. 18,272
Inventories ................................................ 11,596
Prepaid expenses ........................................... 8,161
Total current assets ................................. 112,982
Equipment (note 1) ............................................. 1,887,917
Patent (note 1) ................................................ 1,575,000
Total assets .............................................. $ 3,575,899
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses ...................... $ 39,067
Total current liabilities ............................ 39,067
Commitments and contingencies (notes 3, 4, and 5)
Stockholders' equity (note 2)
Common stock, par value $0.01 per share, authorized
30,000,000 shares; issued and outstanding,
8,700,000 shares ........................................... 87,000
Series A convertible preferred stock, par value
$1.00 per share,250,000 shares authorized and
outstanding, $250,000 liquidation preference............... 250,000
Series B convertible preferred stock, par value
$1.00 per share,1,000,000 shares authorized and
outstanding, $2,500,000 liquidation preference.............. 1,000,000
Series C convertible preferred stock, par value
$1.00 per share,1,000,000 shares authorized and
outstanding, $2,500,000 liquidation preference.............. 1,000,000
Series D convertible preferred stock, par value
$1.00 per share,375,000 shares authorized and \
outstanding, $937,500 liquidation preference................ 375,000
Additional paid-in capital ................................. 896,959
Accumulated deficit ........................................ (72,127)
Total stockholders' equity ................................. 3,536,832
Total liabilities and stockholders' equity ................. $ 3,575,899
See notes to consolidated financial statements
-40-
Daedalus Building Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
For The Period May 20, 1999 (Inception) to October 31, 1999
...........................................
Net Sales ..................................... $ 38,296
Cost of goods sold ............................ 23,788
Gross profit ............................. 14,508
Operating expenses
General and administrative ............... 32,238
Repairs and maintenance .................. 5,046
Utilities ................................ 16,412
Property tax ............................. 24,480
Insurance ................................ 4,073
Other .................................... 4,386
Total operating expenses ............. 86,635
Net (loss) ........................... $ (72,127)
Basic (loss) per share ........................ $ (0.01)
(Loss) per common share, assuming full dilution $ (0.01)
Weighted average shares outstanding ........... 8,700,000
See notes to consolidated financial statements
-41-
Daedalus Building Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For The Period May 20, 1999 (Inception) to October 31, 1999
..................
Acquisition of Acquisition of Contributed
Balance Cambridge Daedalus Capital Net Balance
10-28-99 Unique, Inc. omposites, Inc (note 5) (loss) 10-31-99
Common Stock
Shares ............ -- 200,000 8,500,000 -- -- 8,700,000
Amount at Par ..... -- $ 2,000 85,000 -- -- 87,000
Series A........... -- -- -- -- -- --
Shares............. -- -- 250,000 -- -- 250,000
Amount at Par ..... -- -- 250,000 -- -- 250,000
Series B .......... -- -- -- -- -- --
Shares ............ -- -- 1,000,000 1,000,000
Amount at Par ..... -- -- 1,000,000 1,000,000
Series C .......... -- -- -- -- -- --
Shares ............ -- 1,000,000 -- -- -- 1,000,000
Amount at Par ..... -- $ 1,000,000 -- -- -- 1,000,000
Series D .......... -- -- -- -- -- --
Shares ............ -- 375,000 -- -- -- 375,000
Amount at Par ..... -- $ 375,000 -- -- -- 375,000
Additional Paid-in .. -- -- -- -- -- --
Capital ......... $ 198,000 648,037 50,922 896,959
Accumulated ...... -- -- -- -- -- --
Deficit .......... -- -- $ (71,505) -- (622) (72,127)
Total ............ $ -- $ 1,575,000 $ 1,911,532 $ 50,922 $ (622) $ 3,356,832
See notes to consolidated financial statements
-42-
Daedalus Building Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) In Cash
For The Period May 20, 1999 (Inception) to October 31, 1999
Cash flows from operating activities:
Net (loss) .................................................................... $ (72,127)
Adjustments to reconcile net (loss) to net cash (used) by operating activities:
Changes in assets and liabilities (net)
Net cash (used) by operating activities
1,038
(71,089)
Cash flows from financing activities:
Contributed capital ........................................................... 50,922
Stock issued for cash ......................................................... 95,120
Net cash provided by financing activities .............................. 146,042
Net change in cash ................................................................... 74,953
Cash at beginning of period .......................................................... __-__
Cash at end of period ................................................................ $ 74,953
Supplemental disclosure of non-cash investing and financing activities:
Assets and liabilities of subsidiaries acquired (assumed),excluding cash,
through issuance of stock .................................................. $ 3,462,917
See notes to consolidated financial statements
-43-
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 1999
Note 1 - Nature of business and significant accounting policies
Nature of business
==================
Daedalus Building Systems, Inc., (Daedalus) is marketing and commencing
manufacturing operations for the production of low-cost structures comprised of
panels that are formed by advanced composite technology, the Daedalus Building
System. Daedalus recycles plastic waste. Panels will be fabricated principally
from recycled polyolefins, compounded with various additives to form polymer
alloys and to increase performance parameters and the typical attributes of
composites such as strength, flexibility, durability, and permanence.
Additionally, Daedalus recently acquired the worldwide rights to the production
and distribution of a polyurethane foam filled metal panel building system that
will complement the marketing efforts of the low-cost composite structures in a
slightly higher socioeconomic sector of the worldwide market.
Basis of presentation
=====================
The accompanying consolidated financial statements are prepared on the basis of
generally accepted accounting principles and include the accounts of Daedalus
and its subsidiaries, all of which are wholly owned. All material inter-company
accounts have been eliminated in consolidation. 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 at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Daedalus is a Delaware corporation incorporated on October 28, 1999. Daedalus
entered into the following acquisitions immediately
after incorporation.
Acquisition of Cambridge Unique Associates, Inc.
================================================
On October 30, 1999, Daedalus acquired the assets of Cambridge Unique
Associates, Inc., (Cambridge), a Canadian corporation, in exchange for 200,000
shares of common stock of Daedalus and 1,000,000 shares Series "C" preferred
stock and 375,000 shares of Series "D" preferred stock in Daedalus. The
acquisition was accounted for using the purchase method. The purchase price of
$1,575,000 was allocated solely to the patent which was the only asset of
Cambridge. Cambridge has worldwide manufacturing and distribution rights for a
metal building system patented under US Patent No. 08/988,697 Load Bearing
Pre-fabricated Building Construction Panel, which is a polyurethane foam filled
metal panel building system that will be used to fabricate houses to complement
those of Daedalus Building System at a slightly higher socioeconomic level. The
inventor of the metal building system assigned the patent in return for certain
royalty payments, as defined in the assignment agreement.
Acquisition of Daedalus Composites, Inc.
========================================
On October 31, 1999, Daedalus acquired all of the stock of Daedalus Composites,
Inc. (DCI), a Canadian corporation, as well as the exclusive, nontransferable
right and license to manufacture, use, market, and sell and otherwise to
commercialize the patents, potential patents, technology, information and
processes, and the improvements (the "Technology") throughout the world, related
to residential housing units, from a company under common control, Daedalus
Project, Inc., in exchange for a royalty of five percent of gross sales in which
the Technology is embedded; and the issuance of 8,500,000 shares of common
stock, 250,000 shares of Series "A" preferred stock and 1,000,000 shares of
Series "B" preferred stock of Daedalus, to the stockholders of Daedalus
Projects, Inc. The purchase price of the acquisition was determined to be the
historical cost of the net assets of DCI, ($1,911,532) and no goodwill was
recognized with the transaction. The acquisition was accounted for as a
reorganization of entities under common control and, accordingly, the financial
statements for all periods presented have been adjusted to reflect the
combination of the entities at their historical bases.
-44-
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
Foreign currency translation
============================
The functional currency of Daedalus' subsidiaries is the Canadian dollar.
Because of the importance of Daedalus' financial activities in the United
States, the financial statements are presented in U.S. dollars. Assets and
liabilities of Daedalus' subsidiaries are translated at the exchange rate in
effect at period end. Income statement accounts are translated at the average
rate of exchange prevailing during the period. Translation adjustments arising
from differences in exchange rates from period to period from the subsidiaries
assets and liabilities are included in the foreign currency translation
adjustment account in stockholders' equity. There were no such adjustments
during the period ended October 31, 1999.
Revenue recognition
===================
Revenue is recognized at the time the ownership of goods transfers to the
customers and the earnings process is complete.
Cash
====
For purposes of reporting the statement of cash flows, Daedalus considers all
cash accounts, which are not subject to withdrawal restrictions or penalties and
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Inventories
===========
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Equipment
=========
Plant and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives ranging from three to
fifteen years.
Income taxes
============
To the extent that taxable income differs from financial reporting net income
due to temporary differences, deferred taxes are recognized. Income tax credits,
if any, are recognized by the flow through method.
Loss per share
==============
Basic loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding during the period.
Fair value of financial instruments
===================================
The carrying amounts of Daedalus' financial instruments, including cash,
accounts receivable, accounts payable, and accrued expenses, approximate fair
values because of the short maturities of these instruments.
Patent
======
Amortization of the patent is computed by the straight-line method over its
useful life of 17 (seventeen) years.
-45-
Note 2 - Capital stock
======================
Common stock
Authorized: 30,000,000 shares, par value per share $0.01
Issued and outstanding: 8,700,000
Preferred stock
Authorized: 3,000,000 shares, par value $1.00, issuable in series,
with the 250,000 shares Series "A" and 1,000,000 shares
of Series "B", 1,000,000 of Series "C", and 375,000 of
Series "D" preferred stock. The remaining 375,000
shares of authorized preferred stock being issuable in
one or more series, as designated and determined from
time to time by the Board of Directors of Daedalus.
Except for the above mentioned Series "A" and "B"
preferred stock, each subsequently designated series of
preferred stock shall consist of the number of shares
so designated for such series, and shares of that
series shall have the rights, preferences, and other
features as so determined and designated.
Designated, issued, and outstanding:
Series "A"
No. of shares designated: 250,000
No. of shares issued and outstanding: 250,000
Liquidation preference: $1.00 per share
Ranking: Pari passu with the Series "B" preferred stock and
senior to all other series of preferred stock.
Conversion rights: Each share of Series "A" preferred stock may, at the
option of the holder, be converted into one (1)
share of common stock of Daedalus at any time within
twenty (20) years following the Closing of the
Agreement with Empiric (see note 3).
Voting rights: Each share of Series "A" preferred stock shall have
and be entitled to cast thirty (30) votes, in common
with the votes to which holders of common stock then
outstanding shall be entitled to cast (one vote per
share) on all matters submitted for, or required to
be submitted for action by the stockholders, as set
forth in the Certificate of Incorporation of
Daedalus or applicable provisions of the General
Corporation Law of Delaware. Additionally, holders
of Series "A" preferred stock shall be entitled to
cast (1) vote for each share of such Series "A"
preferred stock on all matters submitted for, or
required to be submitted for, voting by holders of
such Series "A" preferred stock, as a separate class
of stock, as set forth in the Certificate of
Incorporation of Daedalus or applicable provisions
of the General Corporation Law of the State of
Delaware.
Dividends: None
Redemption rights: None
Call provisions: Provided funds are legally available therefore, all
shares of Series "A" preferred stock outstanding on
the twentieth (20th) anniversary of the Closing of
the Agreement with Empiric (note 3) shall be
mandatorily called and redeemed by Daedalus at a
price of $1.00 per share.
-46-
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
Note 2 - Capital stock (continued)
==================================
Series "B"
No. of shares designated: 1,000,000
No. of shares issued and outstanding: 1,000,000
Liquidation preference: $2.50 per share
Ranking: Pari passu with the Series "A" preferred stock,
and senior to all other series of preferred stock.
Conversion rights: Subject to Daedalus satisfying the conditions
pertaining to its "Pre-Tax Earnings", as described
below, during the following prescribed periods and
subject to the following quantity limitations, the
shares of Series "B" preferred stock may, at the
option of the holder thereof, be converted into
shares of common stock upon reaching the following
earning plateaus on or before December 31, 2003:
(1) 333,333 Series "B" shares can be converted into
1,666,665 common shares, upon achievement of
$5,000,000 pre-tax earnings
(2) Upon achievement of an additional $5,000,000
in pre-tax earnings (a total of $10,000,000
pre-tax earnings), an additional 333,333 Series
"B" shares can be converted into 1,666,665 common
shares.
(3) Upon achievement of an additional $6,000,000
(a total of $16,000,000 pre-tax earnings), an
additional 333,334 Series "B" shares can be
converted into 1,666,670 common shares.
-47-
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
Note 2 - Capital stock (continued)
==================================
Voting rights: Holders of Series "B" preferred stock shall be
entitled to cast (1) vote for each share of such
Series "B" preferred stock on all matters submitted
for, or required to be submitted for, voting by
holders of such Series "B" preferred stock, as a
separate class of stock, as set forth in the
Certificate of Incorporation of the General
Corporation Law of the State of Delaware.
Redemption rights None
Dividends: None
Series "C"
No. of shares designated: 1,000,000
No. of shares issued and outstanding: 1,000,000
Liquidation preference: $2.50 per share
Ranking: Subsequent to Series "A" and Series "B" preferred
stock.
Dividends: None
Voting rights: None
Redemption rights: None
Call provisions: None
Conversion rights: Subject to Daedalus satisfying the conditions
pertaining to its "Pre-Tax Earnings", as described
above, the shares of Series "C" preferred stock
may, at the option of the holder thereof, be
converted into shares of common stock at $2.00 per
share upon reaching the earning plateau of
$1,000,000.
-48-
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
Note 2 - Capital stock (continued)
==================================
Series "D"
No. of shares designated: 375,000
No. of shares issued and outstanding: 375,000
Liquidation preference: $2.50 per share
Ranking: Subsequent to Series "A", Series "B", and Series
"C" preferred stock.
Dividends: None
Voting rights: None
Redemption rights: None
Call provisions: None
Conversion rights: Subject to Daedalus satisfying the conditions
pertaining to its "Pre-Tax Earnings", as described
above, during the following prescribed periods and
subject to the following quantity limitations, the
shares of Series "D" preferred stock may, at the
option of the holder thereof, be converted into
shares of common stock at $2.00 per share upon
reaching the following earning plateaus on or
before December 31, 2003:
(1) 125,000 Series "D" shares can be converted into
62,500 common shares, upon achievement of
$10,000,000 in pre-tax earnings.
(2) Upon achievement of an additional $10,000,000 in
pre-tax earnings (a total of $20,000,000 pre-tax
earnings), an additional 125,000 Series "D" shares
can be converted into 62,500 common shares.
(3) Upon achievement of an additional $10,000,000
(a total of $30,000,000 pre-tax earnings), an
additional 125,000 Series "D" shares can be
converted into 62,500 common shares.
-49-
Daedalus Building Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
October 31, 1999
Note 3 - Commitments and contingencies
======================================
Exchange of equity securities with Empiric Energy, Inc.
=======================================================
Daedalus entered into an agreement with Empiric Energy, Inc. (Empiric) to
exchange Empiric securities of $1,500,000 in preferred stock, convertible to
750,000 shares of common and, 750,000 Series "G" Warrants, each allowing the
purchase of one common share at $2.00 per share for three years, for Daedalus
Building Systems, Inc. securities consisting of 1,500,000 common shares and
750,000 Warrants, each allowing the purchase of one share of common stock for
$2.00 per share for three years. A registration statement is being prepared by
Daedalus, and, upon approval by the Securities and Exchange Commission, a
minimum of 1,000,000 fully registered Daedalus Building Systems, Inc. shares
will be distributed by Empiric as a dividend to its shareholders. The agreement
will be consummated on the third business day following the date upon which the
registration statement is declared effective by the Securities and Exchange
Commission.
Note 4 - Risks and uncertainties
================================
Environmental
=============
Daedalus is subject to a wide range of federal, foreign, state, and local laws
and regulations relating to the pollution and protection of the environment.
Among the many environmental requirements applicable to Daedalus are laws
relating to air emissions, wastewater discharges, and the handling, disposal,
and release of solid and hazardous substances and wastes.
Daedalus does not currently anticipate any adverse effect on its operations,
financial condition, or competitive position as a result of its efforts to
comply with environmental requirements. Some risk of environmental liability is
inherent, however, in the nature of Daedalus' business, and there can be no
assurance that environmental liabilities will not arise. It is also possible
that future developments in environmental regulation could lead to material
environmental compliance or clean up costs.
Note 5 - Related party transactions
===================================
Daedalus Project, Inc. (Project) (note 1) contributed $50,922 to Daedalus to
commence operations. Project received no stock for this contribution and does
not require the amount to be repaid.
Daedalus has an exclusive license agreement with Project that conveys the
exclusive, nontransferable right and license to manufacture, use, market, sell
and otherwise commercialize the potential patents, technology, information and
process, and its improvements throughout the world for purposes of residential
housing units. Daedalus shall pay and deliver to The Daedalus Project, Inc., a
royalty of five percent of gross sales in which the Technology is embedded.
Daedalus shall render written statements thereof to Project on a quarterly
basis.
Note 6 - Subsequent events
==========================
On November 1, 1999 Daedalus entered into a lease agreement, as lessor, for
office space. The lessor is an entity under common control and the lease expires
October 31, 2004. Daedalus has the right to extend the term of the lease for
three optional periods of five years each. The lease provides for rent increases
based on the Consumer Price Index. Minimum annual rentals for each of the next
five years are: 2000 - $82,008; 2001 - $82,008; 2002 - $82,008; 2003 - $82,008;
and, 2004 - $82,008 for a total of $410,040.
Note 7 - Income taxes
=====================
Daedalus has approximately $72,000 of Canadian net operating losses which may be
used to offset future tax liabilities arising in Canada. The losses will expire,
if unused, in 2006. A deferred tax asset of approximately $28,000, attributable
entirely to these losses, has been fully reserved at October 31, 1999.
-50-
Daedalus Composites, Inc.
(A Company Incorporated in Canada)
Financial Statements
For The Period May 20, 1999 (Inception)
To October 31, 1999
-51-
Table of Contents
.............................................................
Page
Independent Auditors' Report ..................................... 1
Balance Sheet .................................................... 2
Statement of Operations .......................................... 3
Statement of Stockholders' Equity ................................ 4
Statement of Cash Flows .......................................... 5
Notes to Financial Statements .................................... 6
-52-
Pannell Kerr Foster PC
Fairfax, Virginia
Independent Auditors' Report
To the Stockholders and Board of Directors
Daedalus Composites, Inc.
Ontario, Canada
We have audited the accompanying balance sheet of Daedalus Composites, Inc. as
of October 31, 1999, and the related statements of operations, stockholders'
equity, and cash flows for the period May 20, 1999 (inception) to October 31,
1999. These financial statements are the responsibility of Company's management.
Our responsibility is to express an opinion on these financial statements based
on 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 Daedalus Composites, Inc. at
October 31, 1999, and the results of its operations and its cash flows for the
period May 20, 1999 (inception) to October 31, 1999, in conformity with
generally accepted accounting principles.
/s/
Pannell Kerr Foster PC
December 10, 1999
-53-
Daedalus Composites, Inc.
(A Company Incorporated in Canada)
BALANCE SHEET
October 31, 1999
ASSETS
Current assets
Cash $ 24,653
Accounts receivable trade 18,272
Inventories 11,596
Prepaid expenses 8,161
===========
Total current assets 62,682
Equipment 1,887,917
===========
Total assets $ 1,950,599
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 39,067
===========
Total current liabilities $ 39,067
===========
Contingencies (note 2)
Stockholders' equity
Common stock, no par value, authorized 2,500,000 shares;
issued and outstanding, 2,500,000 shares 1,983,037
Accumulated deficit (71,505)
===========
Total stockholders' equity 1,911,532
===========
Total liabilities and stockholders' equity $ 1,950,599
===========
See notes to financial statements
-54-
Daedalus Composites, Inc.
(A Company Incorporated in Canada)
STATEMENT OF OPERATIONS
For The Period May 20, 1999 (Inception) to October 31, 1999
Net sales $ 38,296
Cost of goods sold 23,788
Gross profit 14,508
Operating expenses
General and administrative 32,238
Repairs and maintenance 5,046
Utilities 16,412
Property tax 24,480
Insurance 4,073
Other
3,764
Total operating expenses 86,013
Net (loss) $ (71,505)
See notes to financial statements
-55-
Daedalus Composites, Inc.
(A Company Incorporated in Canada)
STATEMENT OF STOCKHOLDERS' EQUITY
For The Period May 20, 1999 (Inception) to October 31, 1999
Common Stock Accumulated
Shares Amount at Par Deficit Total
Balance May 20, 1999 ........ -- $ -- -- $ --
Shares issued to acquire ....2,499,999 1,887,917 -- 1,887,917
Equipment
Shares issued for cash ..... 1 95,120 -- 95,120
Net (loss) .............. -- -- (71,505) (71,505)
========= =========== ========= ===========
Balance October 31, 1999 2,500,000 $ 1,983,037 (71,505) $1,911,532
See notes to financial statements
-56-
Daedalus Composites, Inc.
(A Company Incorporated in Canada)
STATEMENT OF CASH FLOWS
Increase (Decrease) In Cash
For The Period May 20, 1999 (Inception) to October 31, 1999
.......................................................................
Cash flows from operating activities: ..................................... $ (71,505)
Net (loss)
Adjustments to reconcile net (loss) to net cash (used) by operating
activities:
Changes in assets and liabilities:
Accounts receivable trade ..................................... (18,272)
Inventories ................................................... (11,596)
Prepaid expenses .............................................. (8,161)
Accounts payable and accrued expenses ......................... 39,067
===========
Net cash (used) by operating activities ................. (70,467)
Cash flows from financing activities:
Stock issued for cash ................................................ 95,120
===========
Net increase in cash ..................................................... 24,653
Cash at beginning of period .............................................. --
Cash at end of period .................................................... $ 24,653
===========
Supplemental disclosure of non-cash investing and financing activities:
Equipment acquired through issuance of stock ......................... $ 1,887,917
===========
-57-
Daedalus Composites, Inc.
(A Company Incorporated in Canada)
Notes to Financial Statements
October 31, 1999
Note 1 - Nature of business and significant accounting policies
===============================================================
Nature of business
==================
Daedalus is a Canadian corporation incorporated on May 20, 1999.
Daedalus Composites, Inc., (Daedalus) is a manufacturing operation for the
production of low-cost structures comprised of panels that are formed by
advanced composite technology, the Daedalus Building System. Daedalus recycles
plastic waste. Panels will be fabricated principally from recycled polyolefins,
compounded with various additives to form polymer alloys and to increase
performance parameters and the typical attributes of composites such as
strength, flexibility, durability, and permanence. Substantially all of
Daedalus' revenue was with one customer.
Basis of presentation
=====================
The accompanying financial statements are prepared on the basis of United States
generally accepted accounting principles. 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 at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Foreign currency translation
============================
Daedalus' functional currency is the Canadian dollar. Because of the importance
of Daedalus' financial activities in the United States, the financial statements
are presented in U.S. dollars. Assets and liabilities are translated at the
exchange rate in effect at period end. Income statement accounts are translated
at the average rate of exchange prevailing during the period. Translation
adjustments arising from differences in exchange rates from period to period
from the assets and liabilities are included in the foreign currency translation
adjustment account in stockholders' equity. There were no such foreign currency
exchange rate adjustments during the period ended October 31, 1999.
Revenue recognition
===================
Revenue is recognized at the time the ownership of goods transfers to the
customers and the earnings process is complete.
Cash
====
For purposes of reporting the statement of cash flows, Daedalus considers all
cash accounts, which are not subject to withdrawal restrictions or penalties and
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Inventories
===========
Inventories are stated at a lower of cost (first-in, first-out method) or
market.
Equipment
=========
Equipment are stated at cost. Depreciation is computed on the straight-line
method over the estimated useful lives ranging from three to fifteen years.
Income taxes
============
To the extent that taxable income differs from financial reporting net income
due to temporary differences, deferred taxes are recognized. Income tax credits,
if any, are recognized by the flow through method.
Fair value of financial instruments
===================================
The carrying amounts of Daedalus' financial instruments, including cash,
accounts receivable, accounts payable, and accrued expenses, approximate fair
values because of the short maturities of these instruments.
-58-
Daedalus Composites, Inc.
(A Company Incorporated in Canada)
Notes to Financial Statements (continued)
October 31, 1999
Note 2 - Risks and uncertainties
================================
Environmental
=============
Daedalus is subject to a wide range of laws and regulations relating to the
pollution and protection of the environment. Among the many environmental
requirements applicable to Daedalus are laws relating to air emissions,
wastewater discharges, and the handling, disposal, and release of solid and
hazardous substances and wastes.
Daedalus does not currently anticipate any adverse effect on its operations,
financial condition, or competitive position as a result of its efforts to
comply with environmental requirements. Some risk of environmental liability is
inherent, however, in the nature of Daedalus' business, and there can be no
assurance that environmental liabilities will not arise. It is also possible
that future developments in environmental regulation could lead to material
environmental compliance or clean up costs.
Note 3 - Related party transactions
===================================
On October 31, 1999 all of Daedalus' stock was acquired from its shareholders by
Daedalus Building Systems, Inc., a company under common control. The acquisition
was accounted for by Daedalus Building Systems, Inc. as a reorganization of
entities under common control and, accordingly, the financial statements for all
periods presented have been adjusted to reflect the combination of the entities
at their historical bases.
Note 7 - Income taxes
=====================
Daedalus has approximately $72,000 of Canadian net operating losses which may be
used to offset future tax liabilities arising in Canada. The losses will expire,
if unused, in 2006. A deferred tax asset of approximately $28,000, attributable
entirely to these losses, has been fully reserved at October 31, 1999.
-59-
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") relates to Daedalus
Building Systems, Inc. (referred to herein as the "Company") which provides in
applicable part as follows:
145. Indemnification of Officers, Directors, Employees and Agents; Insurance.
=============================================================================
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had any reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner, which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of this section, or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
II-1
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall include,
in addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this section shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
The Court of Chancery is hereby vested with exclusive jurisdiction to hear and
determine all actions for advancement of expenses or indemnification brought
under this section or under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The Company's Certificate of Incorporation limits the liability of directors (in
their capacity as directors, but not in their capacity as officers) to the
Company or its stockholders to the fullest extent permitted by the DGCL, as
amended. Specifically, no director of the Company will be personally liable to
the Company or its stockholders for monetary damages for breach of the
director's fiduciary duty as a director, except as provided in Section 102 of
the DGCL for liability: (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith
and which involve intentional misconduct or knowing violation of law; (iii)
under Section 174 of the DGCL, which relates to unlawful payments of dividends
or unlawful stock purchases or redemptions; or (iv) for any transaction from
which the director derived an improper personal benefit. The inclusion of this
provision in the Company's Certificate of Incorporation may have the effect of
reducing the likelihood of derivative litigation against directors, and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such action, if
successful, might otherwise have benefited the Company and its stockholders.
II-2
Under the Company's Certificate of Incorporation and in accordance with Section
145 of the DGCL, the Company will indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than a "derivative" action by or in the right of the
Company) by reason of the fact that such person was or is a director or officer
of the Company, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such acts were unlawful. A
similar standard of care is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
such an action and then, where the person is adjudged to be liable to the
Company, only if and to the extent that the Court of Chancery of the State of
Delaware or the court in which such action was brought determines that such
person is fairly and reasonably entitled to such indemnity and then only for
such expenses as the court deems proper. The Company will indemnify, pursuant to
the standard set forth in Section 145 of the DGCL, any past or present officer
or director who was or is a party, or is threatened or be made a party, to any
threatened, pending or completed derivative action by or in the right of the
Company.
The Company's Certificate of Incorporation also provides that the Company may
pay for the expenses incurred by an indemnified director or officer in defending
the proceedings specified above in advance of their final disposition, provided
that, if the DGCL so requires, such indemnified person agrees to reimburse the
Company if it is ultimately determined that such person is not entitled to
indemnification. The Company's Certificate of Incorporation also allows the
Company, in its sole discretion, to indemnify any person who is or was one of
its employees and agents to the same degree as the foregoing indemnification of
directors and officers. To the extent that a director, officer, employee or
agent of the Company has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a) and (b) of
Section 145 of the DGCL, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith. In
addition, the Company may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against and incurred by such person in such
capacity, or arising out of the person's status as such whether or not the
Company would have the power or indemnify such person against such liability
under the provisions of the DGCL.
II-3
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses payable by Daedalus [and Empiric] in connection with the
issuance and distribution of the securities being registered are as follows:
SEC Registration and Filing Fee $ 170.45
Legal Fees and Expenses*
Accounting Fees and Expenses*
Financial Printing*
Transfer Agent Fees*
Miscellaneous*
===========
TOTAL $
===========
*Estimated
II-4
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On October 31, 1999, Daedalus acquired all of the stock of Daedalus Composites,
Inc. (DCI), a Canadian corporation, as well as the exclusive, nontransferable
right and license to manufacture, use, market, and sell and otherwise to
commercialize the patents, potential patents, technology, information and
processes, and the improvements (the "Technology") throughout the world, related
to residential housing units, from a company under common control, The Daedalus
Project, Inc., in exchange for a royalty of five percent of gross sales in which
the Technology is embedded; and the issuance of 8,500,000 shares of common
stock, 250,000 shares of Series "A" preferred stock and 1,000,000 shares of
Series "B" preferred stock of Daedalus, to the stockholders of The Daedalus
Projects, Inc., which occurred at the time of formation of Daedalus, 28 October,
1999, in accordance with the agreements between the parties. Daedalus relies
upon Section 4(2) of the Securities Act of 1933 as its exemption from the
registration requirements of such Act in connection with this transaction.
II-5
Item 27. Exhibits
The following exhibits are filed as part of this registration statement:
Exhibit Description of Document
Number
2. Agreement between Empiric Energy, Inc. and Daedalus dated
October 1, 1999.
3.1 Articles of Incorporation of Daedalus.
3.2 Bylaws of Daedalus.
4. Common Stock certificate of Daedalus.
5. Opinion of Counsel of Herbert S. Rosenblum.
10.1 Assignment of Contract dated October 31, 1999 between Daedalus and the
Daedalus Project, Incorporated.
10.2 Sales Contract dated March 27, 1999 between The Daedalus Project,
Incorporated and the World Business Investors Group, S.A. as extended
by letter agreement dated October 6, 1999.
10.3 Sales Contract dated October 27, 1999 between Daedalus and The World
Business Investors Group, S.A.
10.4 Stock Transfer and License Agreement dated October 31, 1999 between
Daedalus and The Daedalus Projects, Inc.
10.5 Employment Agreement dated December 1, 1999 between Daedalus and
Edward A. McCulloch.
10.6 Employment Agreement dated December 1, 1999 between Daedalus and
David Lightbody.
10.7 Lease dated November 1, 1999 between Chesapeake Services Corporation
and Daedalus.
21 Subsidiaries of Daedalus.
23.1 Consent of Pannell Kerr Foster PC.
23.2 Consent of Herbert S. Rosenblum, included in his opinion.
II-6
Item 28. UNDERTAKINGS.
1. To file, during any period in which offers or sales of the securities are
being made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a) (3) of the Securities
Act of 1933, as amended
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered may be reflected in the form of prospectus filed with the
Commission under Rule 424(b) if, in aggregate, the changes in the volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any additional or changed material information on the plan
of distribution.
2. That, for the purpose of determining liability under the Securities Act or
1933, it shall treat each post-effective amendment as a new registration
statement of the securities offered, and treat the offering of the securities at
that time as an initial bona fide offering.
3. To remove from registration by means of a post-effective amendment any of the
securities being registered which remains unsold at the termination of the
offering.
To the extent that indemnification for liabilities arising under the Securities
Act or 1933 may be permitted to directors, officers and controlling persons of
Daedalus pursuant to the provisions described in Item 24, or otherwise, Daedalus
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities, other than
the payment by Daedalus of expenses incurred or paid by a director, officer of
controlling person of Daedalus in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling person in
connection with the shares being registered hereby, Daedalus will, unless, in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question as to whether such
indemnification by Daedalus is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-7
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of
Alexandria, state of Virginia, on January 10, 2000.
DAEDALUS BUILDING SYSTEMS, INC.
Date: January 6, 2000
By: /s/
Edward A. McCulloch
President, Chief Executive Officer and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Date: January 10, 2000
By: /s/
Edward A. McCulloch
President, Chief Executive Officer and Director
Date: January 10, 2000
/s/
David Lightbody
Executive Vice President, Chief Financial Officer and Director
Date: January 10, 2000
/s/
James A. Lyons
Chairman of the Board of Directors
Date: January 10, 2000
/s/
Norio Sakai
Director
Date: January 10, 2000
/s/
Robert J. Salmon
Director
II-8
INDEX OF EXHIBITS
Exhibit 2. Agreement between Empiric Energy, Inc. dated October 1, 1999
Exhibit 3.1 Certificate of Incorporation of Daedalus Building Systems, Inc.
Exhibit 3.2 Bylaws of Daedalus Building Systems, Inc.
Exhibit 4. Common Stock Certificate of Daedalus
Exhibit 5. Opinion of Counsel of Herbert S. Rosenblum
Exhibit 10.1 Assignment of Contract between The Daedalus Project,
Incorporated, and Daedalus building Systems, Inc.
Exhibit 10.2 Sales Contract between The World Business Investors Group, S.A.
and The Daedalus Project, Incorporated
Exhibit 10.3 Sales Contract between World Business Investors Group and
Daedalus Building Systems
Exhibit 10.4 Stock Transfer and License Agreement between The Daedalus
Project, Inc. and Daedalus Building Systems, Inc.
Exhibit 10.5 Employment Agreement - Edward A. McCulloch
Exhibit 10.6 Employment Agreement - David Lightbody
Exhibit 10.7 Lease dated November 1, 1999 between Chesapeake Services
Corporation and Daedalus
Exhibit 21. Subsidiaries of Daedalus
Exhibit 23.1 Consent of Pannell Kerr Foster PC
Exhibit 23.2 Consent of Herbert S. Rosenblum, included in his opinion
II-9
EXHIBIT 2
AGREEMENT
THIS AGREEMENT, (the "Agreement") made and entered into as of the first day of
October, 1999, by and between EMPIRIC ENERGY, INC., a Delaware corporation
having principal offices at 12750 Merit Drive, Suite 750, Dallas, Texas
75251-1609 ("Empiric"), and DAEDALUS BUILDING SYSTEMS, INC., a Delaware
corporation, having principal offices at 8653 Richmond Highway, Alexandria,
Virginia 22309-4206 ("Daedalus").
WHEREAS, Empiric is a publicly held oil and gas exploration and production
company, having the authorized and presently issued and outstanding capital
structure as described and set forth in Exhibit "A" hereto; and
WHEREAS, the common stock of Empiric is registered under Section 12(b) of the
United States Securities and Exchange Act of 1934 (the "1934 Act") and is
currently traded in the Over-the-Counter Bulletin Board under the symbol "EMPE";
and
WHEREAS, Daedalus is a newly formed privately held entity which will engage in
the production, sale and assembly of manufactured dwelling units; and
WHEREAS, subject to the terms, conditions and provisions of this Agreement,
Empiric and Daedalus desire to enter into arrangements whereby, among other
things: (i) Daedalus will cause to be authorized and issued to parties specified
herein, certain of its capital stock and other securities, including the
issuance to Empiric of shares of Daedalus common stock and Daedalus Series "A"
common stock warrants; (ii) Empiric will designate, issue and deliver to
Daedalus shares of Empiric's Series "B" convertible preferred stock and certain
of Empiric's Series "F" common stock warrants; (iii) Empiric will cause a
portion of the shares of Daedalus common stock so received from Daedalus to be
distributed to the holders of Empiric's common stock; (iv) Daedalus will cause
its related company, The Daedalus Project, Inc., to issue and deliver to Empiric
certain shares of the common stock of The Daedalus Project, Inc.; and, (v) the
parties will cooperate fully in the preparation, filing and efforts to have
declared effective one or more registration statements with the United States
Securities and Exchange Commission (the "SEC") and all applicable State
securities regulatory authorities to enable the lawful issuance and distribution
of a portion of the Daedalus common stock to holders of common stock of Empiric
in compliance with the United States Securities Act of 1933 (the "1933 Act") and
applicable State regulatory authorities;
NOW THEREFORE, for and in consideration of the mutual agreements of the parties,
and upon and subject to the terms, conditions and provisions hereof, all as
herein set forth, it is agreed as follows:
1. Daedalus Corporate Action. As indicated in Exhibit "B", the capital structure
of Daedalus as set forth in its Certificate of Incorporation provides for
authorized capital stock consisting of 30,000,000 shares of common stock at
$0.01 par value per share and 3,000,000 shares of preferred stock, $1.00 par
value per share. Except for 250,000 shares of preferred stock designated as the
Series "A", and 1,000,000 shares of preferred stock designated as the Series "B"
preferred stock of Daedalus, both of which series have the terms, rights and
preferences set forth in Exhibit B, the remaining 1,750,000 shares of authorized
preferred stock of Daedalus shall be issuable in one or more other series and
shall bear the terms, rights, preferences and other features as shall be
determined and designated from time to time by the board of directors of
Daedalus.
As of October 1, 1999 and until Closing of this Agreement, Daedalus will have
issued and outstanding a total of approximately 8,500,000 shares of common
stock, 250,000 shares of its Series "A" Preferred Stock, and 1,000,000 shares of
its Series "B" Preferred Stock.
2. Issuance of Securities to Empiric. Daedalus shall issue and deliver or cause
to be issued and delivered, to Empiric at the "Closing", hereinafter defined,
the following Daedalus securities:
A. 1,500,000 shares of Daedalus common stock having the features described
in Exhibit "B" hereto (the "Daedalus Common Stock");
B. 750,000 Series "A" Daedalus common stock warrants having the features
set forth in Exhibit "B" hereto (the
"Daedalus Warrants").
C. 250,000 shares of common stock of THE DAEDALUS PROJECT, INC., no par
value.
3. Issuance of Securities to Daedalus. Empiric shall issue and deliver
to Daedalus at the "Closing" the following Empiric Securities:
A. $1,500,000 principal amount of Empiric Energy, Inc. convertible
preferred securities, with a conversion price of $2.00 per share, convertible
into 750,000 Common shares, preferences and other features described and set
forth in Exhibit C hereto (the "Empiric Series "B" Stock"); and
B. 750,000 Series "F" Warrants to purchase shares of common stock of
Empiric, such warrants having the features set forth in Exhibit D hereto (the
"Empiric Series "F" Warrants").
C. If Empiric reprices any of its previously issued warrants or issues new
warrants at a purchase price less than $2.00 per share, then the warrants issued
to Daedalus shall be repriced based upon a formula that decreases the price of
Daedalus warrants by the greater of the following:
(1) the same percentage of the decrease in the Empiric's warrants, or
(2) the price of the newly issued warrants.
4. Empiric's Distribution of Daedalus Common Stock. Contemporaneously with the
"Closing", Empiric shall cause a total of at least 1,000,000 shares of the
Daedalus Common Stock it receives from Daedalus to be issued to holders of
common stock of Empiric in proportion to the number of shares of common stock of
Empiric then held by each of them bears to the total number of common shares of
Empiric then issued and outstanding. The total number of such shares
outstanding, and the number of shares held by each holder shall both be
determined as of a record date on or near the date of Closing which will be
established by the Board of Directors of Empiric.
To facilitate the distribution of at least 1,000,000 shares of Daedalus Common
Stock to the holders of common stock of Empiric, Empiric shall provide to
Daedalus a listing of names, addresses, social security or federal tax
identification numbers, and number of shares of Daedalus Common Stock to be
distributed to each holder of common stock of Empiric, and Daedalus shall issue
such total of at least 1,000,000 shares to the parties and in the appropriate
amounts as set forth in such listing. Thereupon, certificates representing such
Daedalus Common Stock shall be delivered to Empiric at the Closing in the form
of the remaining shares to and in the name of Empiric, which shares shall be
retained and held by Empiric as its sole property, and the remaining 1,000,000
shares to be distributed to Empiric common stock holders in accordance with such
listing, and Empiric will, promptly following the Closing, transmit certificates
representing such shares to the proper recipients and in the proper amounts in
accordance with the above.
5. Daedalus Series "A" Convertible Preferred Stock. As of the date of this
Agreement Daedalus has created and designated a Series "A" Convertible Preferred
Stock consisting of a total of 250,000 shares of Preferred Stock having the
terms, rights and preferences set forth in Exhibit B hereto (the "Daedalus
Series A Preferred Stock"). The Daedalus Series "A" Preferred Stock shall be
issued to the persons or parties, and in the amounts, as set forth in Exhibit E
hereto.
6. Daedalus has Series "B" Convertible Preferred Stock. As of the date of this
Agreement Daedalus has created and designated a Series "B" Convertible Preferred
Stock consisting of a total of 1,000,000 shares of Preferred Stock of Daedalus
having the terms, rights and preferences set forth in Exhibit B hereto (the
"Daedalus Series "B" Preferred Stock"). The Daedalus Series "B" Preferred Stock
has been issued to the persons or parties, and in the amounts, as set forth in
Exhibit F hereto.
7. Registration. Promptly following the execution of this Agreement both Empiric
and Daedalus will undertake, and thereafter pursue with all diligence, and in a
fully cooperative fashion all efforts and steps necessary for the preparation
and filing with the SEC, and all applicable state securities bodies in those
states where legally required, one or more registration statements (and/or, in
the case of state compliance, applications, notifications or other appropriate
action) to enable the lawful distribution of at least 1,000,000 Daedalus Common
Shares to holders of Empiric common stock as herein provided. Such efforts and
steps will include, without limitation, Daedalus promptly causing independent
certified public accountants selected and engaged by it, to perform such audit
and other work necessary to provide certified financial statements with regard
to the financial condition, operations, affairs and otherwise of Daedalus as may
be necessary for inclusion in or in support of such registration process.
Empiric shall prepare and provide all financial and other information,
statements or data concerning Empiric and its condition, properties, management,
operations or otherwise as may be reasonably required in connection with or in
furtherance of such registration process.
In addition to registration of such at least 1,000,000 shares of Daedalus common
stock to be distributed to holders of Empiric common stock, such registration
statement to be filed with the SEC will also seek to register for subsequent
sale by Daedalus (i.e., "shelf registration") of up to an additional 2,000,000
shares of common stock of Daedalus.
8. Transaction/Registration Costs. All costs and expenses relating or attendant
to the registration process outlined in Section 7 hereof, including, without
limitation, the cost of performing the audit work with respect to Daedalus as
referred to in this Agreement, all legal fees and expenses incurred in
connection with the preparation, filing, handling and processing with the SEC of
the registration statement and all amendments and exhibits thereto and the
response to all comments or question of the SEC related thereto, all costs of
printing of the registration statement and amendments and exhibits thereto, all
costs of printing preliminary and final prospectuses and stock certificates
evidencing the 1,500,000 shares of Daedalus common stock, all costs associated
with the listing of the Daedalus common stock with NASDAQ or any other exchange
upon which the parties mutually agree to apply for listing, and (except as
hereinafter provided) all other reasonable costs and expenses necessarily
incurred in connection with such registration process or the carrying out of the
terms, conditions and provisions of this Agreement shall be borne and paid by
Daedalus.
Notwithstanding the preceding paragraph Empiric shall bear and pay: (i) all
costs directly related to the providing of information or data concerning
Empiric as may be required in connection with such registration process; (ii)
one-half of the attorney's fees and expenses relating to the preparation and
execution of this Agreement, the remainder of which fees and expenses shall be
borne and paid by Daedalus; and (iii) the cost of providing the listing of
holders of Empiric common stock to whom the Daedalus common stock is to be
distributed, and the expense of mailing certificates therefore to such holders.
9. Daedalus Common Stock Listing. As soon as practicable following the filing of
the registration statement, Empiric and Daedalus shall make application for
listing and acceptance for trading of the Daedalus common stock with NASDAQ
National Market System or next highest NASDAQ category for which such stock
qualifies for trading. Additionally, the parties shall consider, and subject to
mutual agreement shall apply for, listing of such securities on the Boston or
other regional stock exchange. Upon the filing of such listing application(s),
the parties shall each, in cooperative fashion, exert their best efforts to
obtain approval thereof.
10. Post Closing Agreements. At all times following the Closing of this
Agreement, Empiric and Daedalus each mutually covenant and agree with and for
the benefit of the other, to prepare and file on a timely basis, all
post-effective amendments, registrations and reports with the SEC and NASDAQ or
any stock exchange upon which any of the securities of such party may be listed
or traded from time to time, that may be required of such party in compliance
with applicable provisions of the 1933 Act, the 1934 Act, or any such exchange
in order to maintain the respective status of each of them and their securities
in good standing and in full compliance with such Acts and all requirements,
rules and regulations of the SEC thereunder and all rules or requirements of
such exchange(s).
11. Closing. The closing and consummation of this Agreement shall take place at
the offices of Empiric at 12750 Merit Drive, Suite 750, Dallas, Texas 75251,
beginning at 10:00 am on the third (3rd) business day following the date upon
which the registration statement provided for in Section 7 is declared effective
by the SEC, and all of the other conditions of Closing provided for in Sections
17 and 18 hereof have been fully met and satisfied (except to the extent waived
as provided for in such Sections), or at such later time or such other location
as the parties may mutually agree. At the Closing:
A. Daedalus shall deliver to Empiric duly executed:
(1) stock certificates representing the 1,500,000 shares of Daedalus
Common Stock; and
(2) certificates representing the 750,000 Daedalus Series "A"
Warrants; and
(3) stock certificates representing the 250,000 shares of common stock
of The Daedalus Project, Inc.
B. Empiric shall deliver to Daedalus duly executed:
(1) stock certificates representing the $1,500,000 principal amount of
Empiric convertible preferred securities, with a conversion price of $2.00
per share, convertible into a total amount of 750,000 Common shares
(Empiric Series "B" Stock); and
(2) certificates representing the 750,000 Empiric Series "F" Warrants.
In addition to the foregoing, Empiric and Daedalus shall each execute and
deliver to the other, such certificates, resolutions or other written assurances
provided for in this Agreement or reasonably requested by either of the parties
to evidence and confirm the corporate authority of the other party with regard
to the due authorization, execution and delivery by the other party of the
foregoing securities or the performance by such other party of any act with
respect to the carrying out of such parties duties and responsibilities as set
forth in this Agreement.
12. Representations and Warranties of Empiric. Empiric represents and warrants
to Daedalus that:
12.1 Organization, Good Standing and Qualification. Empiric is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, its state of incorporation, has all requisite corporate power
and authority to carry on its business as now conducted, and is duly qualified
as a foreign corporation to transact business and is in good standing in each
jurisdiction in which the failure so to quality would have a material adverse
effect on its business or properties, considered in the aggregate.
12.2 Capitalization. The authorized and presently issued and outstanding capital
of Empiric is as reflected in Exhibit "A" hereto, all of which has been duly
authorized and, to the extent noted and set forth in Exhibit "A", all of such
capital stock designated as having been issued and presently outstanding, has
been duly issued, is presently outstanding and is fully paid and non-assessable.
12.3 Subsidiaries. Empiric does not presently own and control any substantial
percentage of the issued and outstanding shares of stock of any other
corporation.
12.4 Authorization. All corporate action on the part of Empiric, its officers,
directors and shareholders necessary for the authorization, execution and
delivery of this Agreement, the performance of all obligations of Empiric
hereunder and the authorization, issuance (or reservation for issuance) and
delivery of the Empiric Series "B" Stock and the Empiric Series "F" Warrants to
be issued hereunder, and the Common Stock issuable upon conversion of the
Empiric Series "B" Stock and the common stock issuable upon exercise of the
Empiric Series "F" Warrants have been taken or will be taken prior to the
Closing. This Agreement constitutes the valid and legally binding obligation of
Empiric, enforceable in accordance with its terms except as such enforcement may
be limited or affected by the availability of equitable remedies such as
specific performance, and by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting the enforcement of creditors'
rights, including court decisions and general equity principles relating
thereto.
12.5 Valid Issuance of Preferred and Common Stock and Warrants.
(a) The Empiric Series "B" Stock and the Empiric Series "F" Warrants
which are to be issued hereunder to Daedalus, when issued and delivered in
accordance with the terms hereof and for the consideration expressed
herein, will be duly and validly issued, fully paid and nonassessable and,
based in part upon the representations of Daedalus in this Agreement, will
be issued in compliance with all applicable federal and state securities
laws. The common stock issuable upon conversion of the Empiric Series "B"
Stock and the common stock issuable pursuant to exercise of the Empiric
Series "F" Warrants has been duly and validly reserved for issuance and,
when issued in accordance with the terms of the Certificate of
Incorporation and the agreements of Empiric covering the issuance of such
securities, and, in the case of common stock issued upon exercise of the
warrants, when the applicable purchase price therefore is received by
Empiric, will be duly and validly issued, fully paid and nonassessable.
(b) The shares of common stock and Series "A" preferred stock of
Empiric and the Series "A", Series "B", Series "C", Series "D" and Series
"E" Warrants of Empiric outstanding on the date of execution of this
Agreement are all duly and validly authorized and issued, fully paid and
nonassessable, and were issued in compliance with all applicable federal
and state securities laws.
12.6 Litigation. There is no action, suit, proceeding or investigation pending
or currently threatened against Empiric which questions the validity of this
Agreement or the right of Empiric to enter into it, or to consummate the
transactions contemplated hereby, or which might result, either individually or
in the aggregate, in any material adverse changes individually or in the
aggregate, in the assets, condition, affairs or prospects of Empiric, taken as a
whole, financially or otherwise, or any change in the current equity ownership
of Empiric, nor is Empiric aware that there is any basis for the foregoing.
Empiric is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
12.7 Compliance With Other Instruments. To the best knowledge of the officers of
Empiric, Empiric is not in violation or default of any provisions of its
Certificate of Incorporation or Bylaws or of any judgment, order, writ, or
decree, or any material instrument or contract to which it is a party or by
which it is bound or, to their knowledge, of any provision of federal or state
statute, rule or regulation applicable to Empiric or its assets or properties.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not result in any such violation or
be in conflict with or constitute, with or without the passage of time and
giving of notice, either a default under any such provision, judgment, order,
writ, or decree, or any such material instrument or contract, or an event which
results in the creation of any lien, charge or encumbrance upon any assets of
Empiric.
12.8 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby, and except
as disclosed in Empiric's Financial Statements (as defined in Section 12.10
hereof) there are no material agreements, understandings or proposed
transactions between Empiric and any of its officers, directors or
affiliates.
(b) Except as disclosed in the Financial Statements (as defined in
Section 12.10 hereof), Empiric is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Certificate of Incorporation or By-laws which materially and adversely
affect its business as now conducted.
12.9 Corporate Documents. Except for amendments necessary to satisfy Empiric's
obligations pursuant to this Agreement or representations and warranties or
conditions contained herein, the Certificate of Incorporation and By-laws of the
Company are in the form previously provided to Daedalus.
12.10 Financial Statements. Empiric has delivered to Daedalus its audited
financial statements as of September 30, 1999, including limited explanatory
notes to the financial statements (collectively, the "Financial Statements").
The Financial Statements accurately set out and describe the financial condition
and operating results of Empiric as of the dates and for the periods indicated
therein, subject to normal year-end audit adjustments. Except as set forth in
the Financial Statements, Empiric has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to the date of such unaudited interim financial statements; (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial Statements; which, individually and in the aggregate,
are not material to the financial condition or operating results of Empiric.
12.11 Changes. Since the date of such Financial Statements, except for the
transactions contemplated hereby, there has not been:
(a) any material change in the assets, liabilities, financial
condition or operating results of Empiric from those reflected in the
Financial Statements, except changes in the ordinary course of business,
which have not been, in the aggregate, materially adverse;
(b) any material damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of Empiric
(as such business is presently conducted);
(c) any waiver by Empiric of a material valuable right or debt owed to
it;
(d) any declaration, authorization or payment of any dividend or other
distribution of the assets of Empiric, or any agreement to declare,
authorize or pay any such dividend or distribution;
(e) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by Empiric, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Company taken as a whole,
as such business is presently conducted;
(f) any material change in any compensation arrangement or agreement
with any employee;
(g) to Empiric's knowledge, any other event or condition of any
character which might materially adversely affect the assets, properties,
financial condition, operating results or business of Empiric taken as a
whole (as such business is presently conducted).
12.12 Employee Benefit Plans. Empiric does not have any Employee Benefit Plan as
defined in the Employee Retirement Income Security Act of 1974.
12.13 Labor Agreements and Actions. Empiric is not bound by or subject to (and
none of its respective assets or properties are bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of
Empiric, has sought to represent any of the employees, representatives or agents
of Empiric. There is no strike or other labor dispute involving Empiric pending,
or to the knowledge of Empiric threatened, which could have a material diverse
effect on the assets, properties, financial condition, operating results, or
business of Empiric (as such business is presently conducted), nor is Empiric
aware of any labor organization activity involving its employees.
13. Representations and Warranties of Daedalus. Daedalus represents and warrants
to Empiric that:
13.1 License Agreement. Daedalus, as licensee, holds a license (the "License
Agreement") from The Daedalus Project, Inc., related to the use of the Daedalus
Building System(tm) for the production, manufacture, assembly, sale, use and
installation of dwelling units, utilizing any patents, techniques, methods,
technology and know-how developed by The Daedalus Project, Inc. The specific
terms, conditions and provisions of such license are set forth in a copy the
License Agreement, which has been provided to Empiric.
The License Agreement is presently, and upon Closing will be, paid current, in
full force and effect and in good standing in accordance with all terms,
conditions and provisions thereof as heretofore provided to Empiric.
13.2 Peruvian Contract. Daedalus has entered into contract to sell and provide a
minimum of 36,000 basic structural units, or other structures, of the Daedalus
Building Systems(tm), to the World Business Investors Group ("foreign buyer"),
which contract (the "Peruvian Contract") will produce gross revenues to Daedalus
of at least U.S. $67,500,000. Payments to Daedalus for its performance in
accordance with the terms of the Peruvian Contract are anticipated from the
Export-Import Bank of the United States and will be contingent upon the
financial strength of the foreign buyer, its supporting financial team, and its
supporting contracts with agencies of the Peruvian government or private sector
entities. Copies of the Peruvian Contract and related statements of funding
interest, provided to Empiric, are presently, and upon Closing will be, in full
force and in good standing in accordance with all terms, conditions and
provisions thereof as heretofore provided to Empiric.
13.3 Organizations, Good Standing and Qualifications. Daedalus is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware, its state of incorporation, has all requisite corporate power
and authority to carry on its business as now conducted, and is duly qualified
as a foreign corporation to transact business and is in good standing in each
jurisdiction in which the failure so to quality would have a material adverse
effect on its business or properties, considered in the aggregate.
13.4 Capitalization. Except for an additional amount of common stock (not to
exceed 500,000 shares) which may be issued by Daedalus prior to Closing, the
authorized and presently issued and outstanding capital of Daedalus is as
reflected in Exhibit B hereto, all of which has been duly authorized and, to the
extent noted and set forth in Exhibit B, all of such capital stock designated as
having been issued and presently outstanding, has been duly issued, is presently
outstanding and is fully paid and non-assessable.
13.5 Subsidiaries. As a result of agreement with the Daedalus Project, Inc.
Daedalus will own and control a substantial percentage of the issued and
outstanding shares of stock of subsidiaries in Canada.
13.6 Authorization. All corporate action on the part of Daedalus, its officers,
directors and shareholders necessary for the authorization, execution and
delivery of this Agreement, the performance of all obligations of Daedalus
hereunder and the authorization, issuance and delivery of the Daedalus Common
Stock and the Daedalus Series "A" Warrants to be issued hereunder, and the
Daedalus Common Stock issuable upon conversion of its Series "B" Convertible
Preferred Stock and the common stock issuable upon exercise of the Daedalus
Series "A" Warrants, have been taken or will be taken prior to the Closing. This
Agreement constitutes a valid and legally binding obligation of Daedalus,
enforceable in accordance with its terms except as such enforcement may be
limited or affected by the availability of equitable remedies such as specific
performance, and by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting the enforcement of creditors'
rights, including court decisions and general equity principles relating
thereto.
13.7 Valid Issuance of Daedalus Common Stock and Daedalus Series "A" Warrants.
(a) The Daedalus Common Stock and the Daedalus Series "A" Warrants
which are to be issued hereunder, when issued and delivered in accordance
with the terms hereof and for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and, based in part
upon the representations of Empiric in this Agreement, will be issued in
compliance with all applicable federal and state securities laws. The
common stock issuable upon exercise of the Daedalus Series "A" Warrants has
been duly and validly reserved for issuance and, when issued upon exercise
of such Warrants, and the applicable purchase price therefore is received
by Daedalus, will be duly and validly issued, fully paid and nonassessable.
(b) The approximately 8,500,000 shares of common stock of Daedalus to
be outstanding in accordance with the provisions of Section 1 (as increased
pursuant to Section 13.4) will, upon compliance with such provision and
upon the issuance thereof will all be duly and validly authorized and
issued, fully paid and nonassessable, and issued in compliance with all
applicable federal and state securities laws.
13.8 Litigation. There is no action, suit, proceeding or investigation pending
or currently threatened against Daedalus which questions the validity of this
Agreement or the right of Daedalus to enter into it, or to consummate the
transactions contemplated hereby, or which might result, either individually or
in the aggregate, in any material adverse changes individually or in the
aggregate, in the assets, condition, affairs or prospects of Daedalus, taken as
a whole, financially or otherwise, or, except as otherwise provided herein, any
change in the current equity ownership of Daedalus, nor is Daedalus aware that
there is any basis for the foregoing. Daedalus is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality.
13.9 Compliance With Other Instruments. To the best knowledge of the officers of
Daedalus, Daedalus is not in violation or default of any provisions of its
certificate or articles of incorporation or bylaws or of any judgment, order,
writ, or decree, or any material instrument or contract to which it is a party
or by which it is bound or, to their knowledge, of any provision of federal or
state statute, rule or regulation applicable to Empiric or its assets or
properties. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision, judgment,
order, writ, or decree, or any such material instrument or contract, or an event
which results in the creation of any lien, charge or encumbrance upon any assets
of Daedalus.
13.10 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby, and
except as will be disclosed in the Financial Statements of Daedalus
(as defined in Section 13.12 hereof) there are no material agreements,
understandings or proposed transactions between Daedalus and any of
its officers, directors or affiliates.
(b) Except as disclosed in writing to Empiric, Daedalus is not a
party to and is not bound by any contract, agreement or instrument, or
subject to any restriction under its certificate of incorporation or
bylaws which materially and adversely affects its business as now
conducted.
13.11 Corporate Documents. The certificate of incorporation and By-laws of
Daedalus are in the form previously provided to Empiric.
13.12 Financial Statements. As stated in Section 7, Daedalus shall, promptly
upon the execution of this Agreement, engage a firm of independent certified
public accountants to perform an audit of the balance sheet and financial
condition and affairs of Daedalus as agreed upon by the parties and required for
inclusion in or in support of the registration with the SEC referred to in such
Section 7. Daedalus shall keep Empiric apprised of the progress of such audit
work and shall provide Empiric with copies of all preliminary or draft
statements or reports prepared by such accountants as they are made available to
Daedalus. In any event, upon completion of their audit work and the delivery by
such accountants to Daedalus of the audited financial statements and opinion
thereon, copies of such audited statements and opinion (the "Daedalus Financial
Statements") shall be promptly provided to Empiric. The opinion of the
accountants contained in such Daedalus Financial Statements shall be
unqualified.
13.13 Changes. Since the date of such Daedalus Financial Statements to the date
of Closing, except for the transactions contemplated hereby, there shall not
have been:
(a) any material change in the assets, liabilities, financial
condition or operating results of Daedalus from those reflected in the
Daedalus Financial Statements, except changes in the ordinary course
of business, which have not been, in the aggregate, materially
adverse;
(b) any material damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets,
properties, financial condition, operating results, prospects or
business of Daedalus (as such business is presently conducted);
(c) any waiver by Daedalus of a material valuable right or debt
owed to it;
(d) any declaration, authorization or payment of any dividend or
other distribution of the assets of Daedalus, or any agreement to
declare, authorize or pay any such dividend or distribution;
(e) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by Daedalus, except in the
ordinary course of business and which is not material to the assets,
properties, financial condition, operating results or business of
Daedalus taken as a whole, as such business is presently conducted;
(f) any material change in any compensation arrangement or
agreement with any employee;
(g) to the knowledge of Daedalus, any other event or condition of
any character which might materially adversely affect the assets,
properties, financial condition, operating results or business of
Daedalus taken as a whole (as such business is presently conducted).
13.14 Employee Benefit Plans. Daedalus does not have any Employee
Benefit Plans as defined in the Employee Retirement Income Security
Act of 1974 other than a group medical and hospital service agreement
under Kaiser Permanente.
13.15 Labor Agreements and Actions. Daedalus is not bound by or subject to (and
none of its respective assets or properties are bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of
Daedalus, has sought to represent any of the employees, representatives or
agents of Daedalus. There is no strike or other labor dispute involving Daedalus
pending, or to the knowledge of Daedalus threatened, which could have a material
diverse effect on the assets, properties, financial condition, operating
results, or business of Daedalus (as such business is presently conducted), nor
is Daedalus aware of any labor organization activity involving its employees.
14. Daedalus Private Placement. Prior to the Closing of this Agreement, Daedalus
intends to undertake efforts to obtain financing through the private placement
and sale to a limited number of qualified and accredited investors of debt
and/or equity securities of Daedalus. The precise nature, amount and other
features of such private placement and securities to be offered thereby shall be
subject to the mutual agreement of Empiric and Daedalus. Upon reaching agreement
concerning such matters, the parties agree to cooperate fully in efforts to
successfully conclude such placement contemporaneously with the Closing of this
Agreement, or as soon thereafter as is practicable. To accomplish that end, it
is presently intended that subscribers to such private placement would deposit
funds for their purchase of such Daedalus securities in escrow pending the
Closing of this Agreement. Notwithstanding any other provision of this
Agreement, provided all minimum or other conditions to the closing of such
private placement have been met on the date of Closing of this Agreement, the
net proceeds of such private placement relating to the sale of Daedalus equity
securities which have been so deposited in escrow or otherwise irrevocably
committed to the satisfaction of Empiric at the time of Closing of this
Agreement shall be counted in determining the amount of shareholders' equity of
Daedalus for the purposes of Section 17. All costs, expenses and commissions
relating to such private placement shall be borne and paid by Daedalus. The
Daedalus securities issued as a result of such private placement, or other
activity agreed upon by the parties, shall be added to those represented by
Daedalus as issued and outstanding, or to be issued and outstanding on the date
of Closing, as set forth elsewhere in this Agreement.
15. Registration of Empiric Common Stock of Daedalus. In the event that
following the Closing, Daedalus converts the Empiric Series "B" Stock and/or
exercises the Empiric Series "F" Warrants so that Daedalus thereby becomes the
holder of a substantial number of shares of Empiric common stock, then subject
to the conditions of this Section 15, Daedalus shall have the right and option,
exercisable on only one occasion, to cause Empiric to prepare and file with the
SEC a registration statement for the immediate sale by Daedalus (or for the
shelf registration for subsequent sale by Daedalus) of all, (or, if less than
all, such portion as may be mutually acceptable to Empiric and Daedalus) of such
shares of Empiric common stock then held by Daedalus. Empiric and Daedalus shall
each provide all certified and unaudited interim financial statements, and all
other information and data concerning their respective financial condition,
results of operations, properties, management, affairs and other material
required by or with respect to them as may be required in support of or in
connection with such registration. Upon filing of such registration statement,
Empiric, with the cooperation and assistance of Daedalus. Shall exert all
reasonable efforts to have such registration declared effective by the SEC at
the earliest practicable date.
The cost and expense of preparation, filing, amendment, response to comments and
other efforts of Empiric and securities counsel toward the successful conclusion
of such registration shall be borne by Empiric; provided, however, Daedalus
shall bear and pay all costs and expenses of: (i) providing all financial and
other statements, data and information pertaining to the condition and affairs
of Daedalus required in connection with such registration; (ii) printing
preliminary and final prospectuses; (iii) all filing fees and legal expense
connected with registration or approval of state securities regulatory bodies;
and (iv) all commissions, underwriting fees and other selling expenses relating
to the sale of such stock.
Notwithstanding the foregoing provisions of this Section 15, Empiric shall not
be obligated to file for or otherwise conduct or pursue such registration at any
time during which: (i) certified financial statements of Empiric required in
support of the registration are not sufficiently current; or (ii) Empiric is in
the process of filing or preparing for and/or pursuing the registration of its
own offering of its securities and its proposed managing underwriter or
independent financial advisor determines that such demand registration of
Daedalus will likely be substantially detrimental to the success of Empiric's
own proposed offering.
16. Restricted Securities. Both Empiric and Daedalus understand that the (i)
shares of Daedalus Common Stock to be received by Empiric and not distributed to
its holders of common stock; (ii) the 750,000 Series "A" Daedalus Warrants to be
issued by Daedalus to Empiric; (iii) the 250,000 shares of common stock of The
Daedalus Project, Inc., to be issued to Empiric; (iv) the $1,500,000 principal
amount of Empiric Energy, Inc. convertible preferred securities, with a
conversion price of $2.00 per share, convertible into a total of 750,000 Common
shares (Empiric Series "B" Stock) to be issued by Empiric to Daedalus; (v) the
750,000 Empiric Series "F" Warrants to be issued to Daedalus; and (vi) all
shares of common stock of either Empiric or Daedalus issuable upon the
conversion of any of such convertible preferred stock or upon the exercise of
any such warrants; are all characterized (and hereinafter collectively referred
to herein) as "Restricted Securities" under the securities laws of the United
States inasmuch as they are being, or will be, acquired from the issuer in a
transaction not involving a public offering. Accordingly, such Restricted
Securities may be resold without registration under the 1933 Act only in certain
limited circumstances.
In addition to the warranties, representations and agreements of the parties
contained in other Sections of this Agreement, with regard to such Restricted
Securities, Empiric and Daedalus each mutually and specifically, warrant,
represent, acknowledge and agree as follows:
16.1 Purchase for Own Account. The Restricted Securities will be acquired for
investment for the respective recipient's own account or as a nominee or agent
for any related entities, and not with a view to the resale or distribution of
any part thereof. The recipient has, or upon issuance will have, no present
intention of selling, granting any participation in, or otherwise distributing
any of the Restricted Securities to be issued to it. The recipient does not
have, nor upon issuance will it have, any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to any
third person, with respect to any of the Restricted Securities.
16.2 Disclosure of Information. Each recipient believes it has received all the
information it considers necessary or appropriate for deciding whether to
acquire the Restricted Securities and has had an opportunity to ask questions
and receive answers from the issuer regarding the terms and conditions of the
offering of the Restricted Securities to be issued to it.
16.3 Investment Experience. Both Empiric and Daedalus are, among other things,
investors in securities of privately held companies and acknowledge that each is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of acquiring the Restricted
Securities to be issued to it.
16.4 Empiric and Daedalus each understand that no market exists or is likely to
develop in the foreseeable future with respect to the Restricted Securities.
Each certificate representing the Restricted Securities shall be inscribed with
a legend substantially in the following form:
"The [description of security] represented by this certificate may not be
offered for sale, sold or otherwise transferred except pursuant to an effective
registration statement under the Securities Act of 1933 (the "Act") and
applicable state law or pursuant to an exemption from registration under the Act
and applicable state law, the availability of which is to be established to the
satisfaction of the Company."
Additionally, with regard to the Restricted Securities and all common stock
issued pursuant to conversion of the preferred stock and/or exercise of the
warrants comprising the Restricted Securities, the issuer thereof shall cause
its transfer agent to
place a "stop order" thereon precluding any transfer thereof.
17. Conditions of Empiric's Obligations at Closing. The obligations of Empiric
under this Agreement are subject to the fulfillment on or before the Closing of
each of the following conditions, the waiver of which shall not be effective
against Empiric unless it consents in writing thereto:
17.1 Representations and Warranties. The representations and warranties of
Daedalus contained in this Agreement shall be true on and as of the Closing with
the same effect as though such representations and warranties had been made on
as of the date of such Closing.
17.2 Performance. Daedalus shall have performed and complied with all terms,
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
17.3 Registration Statement. The registration statement pertaining to the
issuance and distribution of the 1,000,000 shares of Daedalus Common Stock to
holders of Empiric common stock as provided for herein shall have been declared
effective by the SEC.
17.4 Qualifications. All registrations, qualifications, permits and approvals
required to be obtained by Daedalus and/or Empiric under applicable state
securities laws shall have been obtained for the issuance and delivery of the
1,000,000 shares of Daedalus Common Stock to holders of Empiric common stock,
all upon terms satisfactory to Empiric.
17.5 Proceedings and Documents. All corporate and other proceedings of Daedalus
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Empiric, and Empiric shall have received all such counterpart
original and certified or other copies of such documents as it may reasonably
request, including, without limitation, the following:
(a) certified copies of the resolutions adopted by Daedalus's Board of
Directors authorizing the execution, delivery and performance of this
Agreement; and
(b) certified copies of the Certificate of Incorporation and Bylaws of
Daedalus, as amended through the date of Closing.
17.6 Daedalus Shareholders' Equity. The shareholders' equity of Daedalus, as
stated in the Daedalus Financial Statements of Daedalus referred to in Section
13.12, as adjusted on a pro-forma basis to give effect to increases resulting
from the Closing of this Agreement and any increases pursuant to Section 14,
shall be at least $4,000,000.
17.7 Peruvian Contract. Empiric shall have satisfied itself, at its sole
discretion, that the Peruvian Contract, and all representations provided by
Daedalus relating thereto (are fully committed, in place)-are as represented and
in good standing as of the date of Closing.
17.8 Trading of Daedalus Stock. The 1,000,000 or more shares of Daedalus Common
Stock to be issued to holders of Empiric common stock shall have been approved
for trading on NASDAQ on either the National Market System or at another level
acceptable to Empiric, or approved for listing on a regional stock exchange
approved by Empiric, all upon terms and conditions satisfactory to Empiric.
18. Conditions of Daedalus's Obligations at Closing. The obligations of Daedalus
under this Agreement are subject to the fulfillment on or before the Closing of
each of the following conditions, the waiver of which shall not be effective
against Daedalus unless it consents in writing thereto:
18.1 Representations and Warranties. The representations and warranties of
Empiric contained in this Agreement shall be true on and as of the Closing with
the same effect as though such representations and warranties had been made on
as of the date of such Closing.
18.2 Performance. Empiric shall have performed and complied with all terms,
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
18.3 Registration Statement. The registration statement pertaining to the
issuance and distribution of at least 1,000,000 shares of Daedalus Common Stock
to holders of Empiric common stock as provided for herein shall have been
declared effective by the SEC.
18.4 Qualifications. All registrations, qualifications, permits and approvals
required to be obtained by Daedalus and/or Empiric under applicable state
securities laws of all states in which such securities shall be distributed
shall have been obtained for the issuance and delivery of at least 1,000,000
shares of Daedalus Common Stock to holders of Empiric common stock, all upon
terms satisfactory to Daedalus.
18.5 Proceedings and Documents. All corporate and other proceedings of Empiric
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Daedalus, and Daedalus shall have received all such counterpart
original and certified or other copies of such documents as it may reasonably
request, including, without limitation, the following:
(a) certified copies of the resolutions adopted by Empiric's
Board of Directors authorizing the execution, delivery and performance
of this Agreement; and
(b) certified copies of the Articles or Certificate of
Incorporation and Bylaws of Empiric, as amended through the date of
Closing.
18.6 Trading of Daedalus Stock. The 1,000,000 or more shares of Daedalus Common
Stock to be issued to holders of Empiric common stock shall have been approved
for trading on NASDAQ on either the National Market System or at another level
acceptable to Empiric, or approved for listing on a regional stock exchange
approved by Daedalus, all upon terms and conditions satisfactory to Daedalus.
19. Miscellaneous.
19.1 Survival of Warranties. The warranties, representations and covenants of
the respective parties hereto contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing.
19.2 Successors and Assigns. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
19.3 Governing Law. This agreement shall be governed by and construed under the
laws of the State of Delaware. Each party hereto agrees that any and all actions
brought between them shall be brought in the appropriate courts in the State of
Delaware.
19.4 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
19.5 Titles, Subtitles and Exhibits. The titles, subtitles and other headings
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement. All Exhibits referred
to herein are expressly incorporated by reference as a part of this Agreement as
though fully reproduced as a part of the text hereof.
19.6 Notices. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or five days after deposit
with the United States mail, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the address indicated for such
party on the signature page hereof, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
19.7 Expenses. Irrespective of whether the Closing is effectuated, except as
provided in Section 8, each party shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement.
19.8 Finder's Fee. Empiric agrees to indemnify and to hold harmless Daedalus
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which Empiric or any of its officers, partners,
employees, or representatives is responsible. Daedalus agrees to indemnify and
hold harmless Empiric from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which Daedalus or any of its officers,
employees or representatives is responsible.
19.9 Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of Empiric and Daedalus.
19.10 Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
19.11 Contents of Agreement. This Agreement together with the Exhibits hereto
and the documents referred to herein, sets forth the entire understanding of the
parties hereto with respect to the transaction contemplated hereby, and any
previous agreements or understandings between the parties regarding the subject
matter hereof are merged into and superseded by this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
EMPIRIC ENERGY, INC. DAEDALUS BUILDING SYSTEMS, INC.
By:/s/ By:/s/
James J. Ling Edward A. McCulloch
Chief Executive Officer president
Address: 12750 Merit Drive Address: 8653 Richmond Highway
Suite 750 Alexandria, Virginia 22309
Dallas, Texas 75251-1609
EXHIBIT A
EMPIRIC ENERGY, INC. (the "Company")
Present Capital Structure
...
Common Stock
Authorized: ...................... 20,000,000 shares, $0.01 par value per share
Issued and Outstanding: ......... 8,669,027 shares - as of September 30, 1999
Preferred Stock
Authorized:...................... 2,000,000 shares, $0.05 par value each, issuable in series, as determined and
designated from time to time by the board of directors. Each series shall consist
of the number of shares so designated for such series and shares of that series
shall have the rights, preferences and other features as so determined and designated
Designated, Issued and Outstanding
Series "A" Preferred Stock
No. of Shares Designated: ..57,500
No. Shares Issued & Outstanding: ..57,500
Liquidation Preference: $10.00 per share
Ranking: .................Senior to all other series of preferred stock of the Company.
Conversion Rights: .......Each share is convertible into three (3) shares of common stock of the Company.
Voting Rights: .......... None, except as otherwise provided in the Certificate of Incorporation of the Company or
pursuant to the General Corporation Law of the State of Delaware
Dividends: .............. None
Redemption Rights: ...... Holders have no rights to require redemption by the Company
Call Provisions: ........ The Company may at its option and on at least thirty (30) days' notice call all or any
part of the Series A Preferred Stock then outstanding for mandatory redemption, if and
when the "Average Market Price"meaning, for the purpose of this Exhibit "A", the mean
between the bid and asked price at closing) of the Company's common stock is at least
$4.165 per share for any period of ten (10) consecutive market days. If less than all
shares are called for redemption, shares shall be redeemed on a pro-rata basis from all
holders of Series "A" Preferred Stock then outstanding
Series "B" Convertible Preferred Stock
No. of Shares Designated: 750,000
No. To Be Issued & Outstanding at Closing: 750,000
Liquidation Preference: $2.00 per share
Ranking: .............. Inferior to the Series "A" convertible preferred stock, but senior to of preferred stock
of the Company thereafter designated after the Closing
Conversion Rights: .... Each share is convertible into one (1) share of common stock of the Company.
Voting Rights: ........ None, except as otherwise provided in the Certificate of Incorporation of the Company or
pursuant to the General Corporation Law of the State of Delaware
Dividends: ............ None
Redemption Rights: .... Holders have no rights to require redemption by the Company.
Call Provisions: ....... May be called at any time. The Company shall have the right to call for conversion all
series "B"Convertible Preferred Stock then outstanding if and when the Average Market
Price (meaning for the purpose of this Exhibit, "C" the mean between the bid and asked
price at Closing) of the Company's common stock is at least $3.00 per share for a period
of ten (10) consecutive market days
Par Value: ........... $0.05 per share
Term: ................. Ten years. If not converted by the end of 10th year following Closing, Series "B"
Preferred will convert to common
Common Stock Warrants
Series "A" Warrants - No longer outstanding
Series "B" Warrants
Number Authorized: 327,400
Number Issued & Outstanding: 327,400
Expiration Date: May 13, 2001
Rights (General): ...... The holder of each Series "B" Warrant has the right to purchase one (1) share of common
stock of the Company at a price of $2.50 per share
Call Provisions: ....... The Company shall have the right to call for redemption all Series "B" Warrants then
outstanding if and when the Average Market Price of the Company's common stock is at
least $3.125 per share for a period of ten(10) consecutive market days. The redemption
price is $0.25 per warrant
Series "C" Warrants
Number Authorized: 215,000
Number Issued & Outstanding: 215,000
Expiration Date: May 13, 2001
Rights (General): ....... The holder of each Series "C" Warrant has the right to purchase one (1) share of common
stock of the Company at a price of $3.00 per share
Call Provisions: ...... The Company shall have the right to call for redemption all Series "C" Warrants then
outstanding if and when the Average Market Price of the Company's common stock is at
least $3.125 per share for a period of ten(10) consecutive market days. The redemption
price is $0.25 per warrant
* Series "D" Warrants
Number Authorized: 299,990
Number Issued & Outstanding: 299,990
Expiration Date: May 13, 2001
Rights (General): ..... The holder of each Series "D" Warrants has the right to purchase one (1) share of common
stock of the Company at a price of $1.50 per share
Call Provisions: ...... The Company shall have the right to call for redemption all Series "D" Warrants then
outstanding if and when the Average Market Price of the Company's common stock is at
least $1.875 per share for a period of ten (10)consecutive market days. The redemption
price is $0.10 per warrant
* Series "E" Warrants
Number Authorized: 200,000
Number Issued & Outstanding: 200,000
Expiration Date: ... May 13, 2002
Rights (General): ...... The holder of each Series "E" Warrant has the right to purchase one (1) share of common
stock of the Company at a price of $2.00 per share
Call Provisions: .... . The Company shall have the right to call for redemption all Series "E" Warrants then
outstanding if and when the Average Market Price of the Company's common stock is at
least $2.50 per share for a period of ten (10) consecutive market days. The redemption
price is $0.15 per warrant
EXHIBIT B
DAEDALUS BUILDING SYSTEMS, INC. ("DAEDALUS")
Capital Structure
Common Stock
Authorized: 30,000,000 shares, $0.01 par value per share
Issued and Outstanding: Approximately 8,500,000 shares - as of date to be established by the parties, 1,500,000
shares to be issued to Empiric Energy, Inc. ("Empiric") at Closing of this Agreement in
addition to any shares and or warrants issued in connection with planned private
placement memoranda.
Preferred Stock
Authorized: 3,000,000 shares, $1.00 par value per share, issuable in series, with the 250,000 shares
Series "A"and 1,000,000 shares of Series "B" preferred stock having the general terms as
hereinafter set forth, and the remaining 1,750,000 shares of authorized preferred stock
being issuable in one or more series, as designated and determined from time to time by
the board of directors of Daedalus. Except for the above mentioned Series "A" and "B"
preferred stock, each subsequently designated series of preferred stock shall consist of
the number of shares so designated for such series, and shares of that series shall have
the rights, preferences and other features as so determined and designated.
Designated, Issued and Outstanding:
Series "A"
No. of Shares Designated: 250,000
No. of Shares Issued and Outstanding: 250,000
Liquidation Preference: $1.00 per share
Ranking: Pari passu with the Series "B" preferred stock of
Daedalus, and senior to all other series of preferred
stock of Daedalus designated at any time
subsequent to Closing of this Agreement.
Conversion Rights: Each share of Series "A" preferred stock may, at the option of the holder, be converted
into one (1) share of common stock of Daedalus at any time within twenty (20) years
following the Closing of this Agreement.
Voting Rights: Each share of Series "A" preferred stock shall have and be entitled to cast thirty (30)
votes, in common with the votes to which holders of common stock of Daedalus then
outstanding shall be entitled to cast (one vote per share) on all matters submitted for,
or required to be submitted for action by the stockholders, as set forth in the
Certificate of Incorporation of Daedalus or applicable provisions of the General
Corporation Law of Delaware. Additionally, holders of Series "A" preferred stock shall
be entitled to cast one(1) vote for each share of such Series "A" preferred stock on all
matters submitted for, or required to be submitted for, voting by holders of such Series
"A" preferred stock, as a separate class of stock, as set forth in the certificate of
incorporation or the General Corporation Law of the State of Delaware.
Dividends: None
Redemption Rights: Provided funds are legally available therefore, each share of Series "A" preferred stock
then outstanding shall be mandatorily redeemed by Daedalus at the option of the holder
thereof, at any time upon demand of such holder, at a price of $1.00 per share.
Call Provisions: Provided funds are legally available therefore, all shares of Series "A" preferred stock
outstanding on the twentieth(20th) anniversary of the Closing of this Agreement shall be
mandatorily called and redeemed by Daedalus at a price of $1.00 per share.
Series "B"
No. of Shares Designated: 1,000,000
No. of Share Issued & Outstanding: 1,000,000
Liquidation Preference: $2.50 per share
Ranking: Pari passu with the Series "A" preferred stock, and senior to all other series of
preferred stock of Daedalus designated at any time subsequent to Closing of this
Agreement.
Conversion Rights: Subject to Daedalus's satisfying the conditions pertaining to its "Pre-Tax Earnings"
(hereinafter defined) as hereinafter set forth, during the following prescribed periods
and subject to the following quantity limitations, the shares of Series "B" Preferred
Stock may, at the option of the holder thereof, be converted into shares of common stock
of Daedalus upon reaching the following earning plateaus on or before December 31, 2003:
(1) 333,333 Series "B" shares can be converted into 1,666,665 Daedalus common
shares, upon record of $5,000,000 pre-tax earnings.
(2) Upon record of an additional $5,000,000 in pre-tax earnings (a total of
$10,000,000 pre-tax earnings), an additional 333,333 Series "B" shares can be
converted into 1,666,665 Daedalus common shares.
(3) Upon the record of an additional $6,000,000 (a total of $16,000,000 pre-tax
earnings), and additional 333,334 Series "B" shares can be converted into
1,666,670 Daedalus common shares.
Notes:
o The pre-tax earnings are cumulative and pro-rata for common share conversion.
To the extent that the earnings plateau are not met, E. A. McCulloch may convert
at $1.00 per share into one common share of Daedalus
o An interim audit may be requested at any time.
o Credit will be given for performance of the company or that of any affiliate
acquired by the company, the performance of which will be measured from the date
of acquisition to the end of the term of these Provisions.
o In the event control of the company passes to a non-related entity, the
earn-out provisions are waved and the rights to convert vest immediately
notwithstanding any earnings.
...
Warrants
Daedalus Series "A" Common Stock Warrants
Number To Be Authorized: 750,000
Number To Be Issued & Outstanding: 750,000
Expiration Date: Three (3) years following Closing
Rights (General): ..... The holder of each Series "F" Warrant has the right to purchase one (1) share of common
stock of the Company at a price of $2.00 per share .....................................
Call Provisions: ...... The Company shall have the right to call for redemption all Series "F" Warrants then
outstanding if and when the Average Market Price (meaning for the purpose of this
Exhibit, the mean between the bid and asked price at Closing) of the Company's common
stock is at least $3.00 per share for a period of ten (10)consecutive market days. The
redemption price is $0.10 per warrant
EXHIBIT C
EMPIRIC ENERGY INC., (the "Company")
Series "B" Convertible Preferred Stock
No. of Shares Designated: 750,000
No. Shares To Be Issued & Outstanding at Closing: 750,000
Liquidation Preference: $2.00 per share
Ranking:
Inferior to the Series "A" convertible preferred stock, but senior to
all other series of preferred stock of the Company thereafter
designated after the Closing.
Conversion Rights: Each share is convertible into one (1) share of common stock of the Company.
Voting Rights: None, except as otherwise provided in the Certificate of Incorporation of the Company or
pursuant to the General Corporation Law of the State of Delaware.
Dividends: None
Redemption Rights: Holders have no rights to require redemption by the Company.
Call Provisions: May be called at any time. The Company shall have the right to call for conversion all
series "B" Convertible Preferred Stock then outstanding if and when the Average Market
Price (meaning for the purpose of this Exhibit "C", the mean between the bid and asked
price at Closing) of the Company's common stock is at least $3.00 per share for a period
of ten (10) consecutive market days.
Term: Ten years. If not converted by the end of 10th year following Closing, Series "B"
Preferred will convert to common.
Par Value: $0.05 per share
EXHIBIT D
EMPIRIC ENERGY,INC., (the "Company")
Series "F" Warrants
Number To Be Authorized: 750,000
Number To Be Issued & Outstanding: 750,000
Expiration Date: Three (3) years following Closing
Rights (General): The holder of each Series "F" Warrant has the right to purchase one (1) share of common
stock of the Company at a price of $2.00 per share.
Call Provisions: The Company shall have the right to call for redemption all Series "F" Warrants then
outstanding if and when the Average Market Price (meaning for the purpose of this
Exhibit, the mean between the bid and asked price at (Closing) of the Company's common
stock is at least $3.00 per share for a period of ten (10) onsecutive market days. The
redemption price is $0.10 per warrant.
EXHIBIT E
DAEDALUS BUILDING SYSTEMS, INC.
SERIES "A" PREFERRED STOCK
Issued To Shares Issued
Edward A. McCulloch 250,000
7514 Ridgecrest Drive
Alexandria, Virginia 22309
EXHIBIT F
DAEDALUS BUILDING SYSTEMS, INC.
SERIES "B" PREFERRED STOCK
Issued To Shares Issued
Edward A. McCulloch 1,000,000
7514 Ridgecrest Drive
Alexandria, Virginia 22309
II-10
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
DAEDALUS BUILDING SYSTEMS, INC.
1. The name of the corporation is DAEDALUS BUILDING SYSTEMS, INC.
2. The address of its registered office in the State of Delaware is Three Mill
Road, Suite 104, in the City of Wilmington 19806, County of New Castle,
Delaware. The name of its registered agent at such address is The Incorporators
Ltd.
3. The nature of the business or purposes to be conducted or promoted is: To
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is Thirty-Three Million (33,000,000) of which stock, Thirty
Million (30,000,000) shares of the par value of One Cent ($0.01) each, amounting
in the aggregate to Three Hundred Thousand Dollars ($300,000.00) shall be Common
Stock, and of which Three Million (3,000,000) shares of the par value of One
Dollar ($1.00) each, amounting in the aggregate to Three Million Dollars
($3,000,000.00) shall be Preferred Stock.
The Board of Directors is authorized, subject to the provisions of this Article
4 and limitations prescribed by law, to provide for the issuance of shares of
Preferred stock in series, to determine the number of shares to be included in
each series and to fix and determine separately for the shares of each series
their relative rights and preferences, including, but not limited to, any one or
more of the following:
(1) The rate of dividends, whether dividends shall be cumulative or
non-cumulative, the times at and the terms and conditions on which dividends
shall be paid directly and any relative rights of priority of payment of
dividends on the shares in relation to dividends payable to any other class or
series of stock of the corporation;
(2) The terms and conditions for any redemption of the shares, including the
price at, and the date or dates after which, the shares may be redeemed and
relative rights of priority of redemption of such shares in relation to
redemption of any other class or series of stock of the corporation;
(3) The rights of the shares to any sinking fund or purchase fund for the
redemption or purchase of such shares, including the amount and the terms and
conditions of such sinking or purchase fund;
(4) Any rights of the shares in the event of voluntary or involuntary
liquidation, dissolution or winding up of the corporation, including the amount
payable upon the shares in such event, the terms and conditions of such payment
and the relative rights of priority of payment of such shares in relation to
payment of any other class or series of stock of the corporation;
(5) Any conversion privileges of the shares, including the price at, and the
terms and conditions on which, the shares may be converted into shares of any
other class or series of stock of the corporation and the relative rights of
priority of conversion of such shares in relation to conversion of any other
class or series of stock of the corporation;
(6) Any voting rights of the shares, including the number of votes per share,
the matters on which the shares can vote and the contingencies which make the
voting rights effective; and
(7) Any other relative rights and preferences. All shares of Common stock shall
have identical rights and privileges in every respect. Shares of any series of
Preferred stock which have been redeemed (whether through the operation of a
sinking or purchase fund or otherwise) or purchased by the corporation, or
which, if convertible of exchangeable, have been converted into or exchanged for
shares of stock of any other class or classes shall have the status of
authorized and unissued shares of Preferred stock and may be reissued as a part
of the series of which they were originally a part or may be reclassified and
reissued as part of a new series of Preferred stock to be created by resolution
or resolutions of the Board of Directors, or as part of any other series of
Preferred stock, subject to the conditions or restrictions on issuance set forth
in the resolution or resolutions adopted by the Board of Directors providing for
the issue of any series of Preferred stock and to any filing required by law.
5a. The name and mailing address of its incorporator is as follows:
Herbert S. Rosenblum
526 King Street, Suite 211
Post Office Box 58
Alexandria, Virginia 22313
5b. The name and mailing address of each person who is to serve as a director
until the first annual meeting of the stockholders or until a successor is
elected and qualified, is as follows:
Edward A. McCulloch
8653 Richmond Highway
Alexandria, Virginia 22309
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by statute, the
Board of Directors is expressly authorized: To make, alter or repeal By-Laws of
the corporation.
8. Elections of directors need not be by written ballot unless the By-Laws of
the corporation shall so provide. Meetings of stockholders may be held within or
without the State of Delaware, as the By-Laws may provide. The books of the
corporation may be kept (subject to any provisions contained in the statutes)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the By-Laws of the corporation.
9. The corporation reserves the right to amend, alter change or repeal any
provision in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
10. No director shall be personally liable to the corporation or any stockholder
for monetary damages for breach of fiduciary duty as a director, except for any
matter in respect of which such director shall be liable under Section 174 of
Title 8 of the Delaware Code (relating to the Delaware General Corporation Law)
or any amendment thereto or successor provision thereto or shall be liable by
reason that, in addition to any and all other requirements for such liability,
he: (i) shall have breached his duty of loyalty to the corporation or its
stockholders, (ii) shall not have acted in good faith, (iii) shall have acted in
a manner involving intentional misconduct or a knowing violation of law or, in
failing to act, shall have acted in a manner involving intentional misconduct or
a knowing violation of law, or (iv) shall have derived an improper personal
benefit. Neither the amendment nor repeal of this Article 10, nor the adoption
of any provision of the certificate of incorporation inconsistent with this
Article 10, shall eliminate or reduce the effect of this Article 10 in respect
of any matter occurring, or any course of action, suit or claim that, but for
this Article 10 would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision. I, the undersigned, being the
incorporator hereinbefore named, for the purpose of forming a corporation
pursuant to the General Corporation Law of the State of Delaware, do make this
certificate, hereby declaring and certifying this is my act and deed and the
facts herein stated are true, and accordingly, have hereunto set my hand this
28th day of October, 1999.
/s/
Herbert S. Rosenblum, Esquire
526 King Street, Suite 211
Post Office Box 58
EXHIBIT 3.2
BYLAWS OF
DAEDALUS BUILDING SYSTEMS, INC.
SECTION 1. OFFICES
==================
The principal office shall be in the County of Fairfax, State of Virginia. The
corporation may have offices and places of business at such other places within
and without the State of Virginia as shall be determined by the directors.
SECTION 2. ANNUAL MEETING
=========================
The annual meeting of the corporation shall be held in the principal office of
the corporation at 8653 Richmond Highway, Alexandria, VA 22309 on the 3rd Friday
of each year or at such other place as the officers and directors designate by
proper notice to the stockholders.
SECTION 3. SPECIAL MEETINGS
===========================
Special meetings of the shareholders for any purpose or purposes may be called
by the President, and must be called by the him or her on receipt of a written
request from the holders of twenty-five percent of the shares then outstanding
and entitled to vote.
SECTION 4. NOTICE OF ANNUAL OR SPECIAL MEETINGS
===============================================
Notice of the annual meeting or of a special meeting, state the time, place and
purpose or purposes thereof shall be given to each shareholder not less than ten
nor more than forty days prior to the meeting, but such notice may be waived in
writing at any time.
SECTION 5. QUORUM
=================
At any meeting of the shareholders the holders of a majority of the shares
entitled to vote then issued and not outstanding shall constitute a quorum,
except as otherwise provided by law.
SECTION 6. VOTING
=================
At each meeting of the shareholders every holder of a majority of shares then
entitled to vote may vote in person or by proxy, and shall have one vote for
each share registered in his or her name. However, it is understood that certain
preferred shares may have greater voting rights and those shares shall and can
be voted accordingly.
SECTION 7. NUMBER OF DIRECTORS, TENURE, VACANCIES
=================================================
The business and affairs of the corporation shall be managed and controlled by a
Board of Directors of not more than eleven directors, who shall be elected
annually by the shareholders at the annual meeting. Each director shall hold
office until the election of his or her successor. Any director may resign at
any time. Vacancies occurring among the directors may be filled by the
directors.
SECTION 8. REGULAR MEETING OF THE BOARD
=======================================
Immediately after each annual election of directors, the newly elected directors
may meet forthwith at the principal office of the corporations for the purpose
of organization and the transaction of other business; if a quorum of the
directors be then present no prior notice of such meeting shall be required.
Other regular meetings of the board may be held without notice at such times and
places as the directors may determine.
SECTION 9. SPECIAL MEETINGS
===========================
Special meetings of the directors may be called by the President and must be
called at the written request of two members of a majority of the members of the
Board.
SECTION 10. NOTICE OF SPECIAL MEETINGS
======================================
Notice of a special meeting shall be given to each director at least five days
prior to meeting, but such notice may be waived in writing at any time.
SECTION 11. QUORUM
==================
A majority of the Board of Directors shall constitute a quorum at all meetings
of the Board.
SECTION 12. OFFICERS
====================
The officers of the corporation shall be a President, a Vice President, a
Secretary, and a Treasurer, who shall be elected annually by the directors and
who shall hold office during the pleasure of the directors, and any other
assistants of the Board of Directors may determine to elect at any time. The
positions of (1) President and Treasurer, (2) Vice President and Treasurer, and
(3) Secretary and Treasurer may be united in one person. All vacancies occurring
among any of the above officers shall be filled by the directors. Any officer
may be removed at any time by the affirmative vote of a majority of the
stockholders at a special meeting of the stockholders called for the purpose.
SECTION 13. SUBORDINATE OFFICERS
================================
The board may appoint such other officers and agents with such powers and duties
as it shall deem necessary.
SECTION 14. THE PRESIDENT
=========================
The President shall preside at all meetings of the shareholders and directors.
He or she shall have general management and control of the business and affairs
of the corporation.
SECTION 15. THE VICE PRESIDENT
==============================
The Vice President shall, in the absence or disability of the President,
exercise the powers and perform the duties of the President. He or she shall
also generally assist the President and exercise such other powers and perform
such other duties as shall be prescribed by the directors.
SECTION 16. THE TREASURER
=========================
The Treasurer shall the custody of all funds, securities, evidences of
indebtedness and other personal property of the corporation and shall deposit
the same in such bank or trust company as shall be designated by the directors
of the corporation or the President. He shall receive and give receipts and
acquittances for monies paid in on account of the corporation and shall pay out
of the funds on hand all bills, payrolls and other just debts of the corporation
of whatever nature upon maturity of the same; he or she shall enter regularly in
books of the corporation to be kept by him or her for that purpose full and
accurate accounts of all monies received and paid out by him or her on account
of the corporation; and he or she shall perform all other duties incident to the
office of the Treasurer.
SECTION 17. THE SECRETARY
=========================
The Secretary shall keep the minutes of all proceedings of the directors and the
shareholders, he or she shall attend to the giving and serving of all notices to
the shareholders; or other notices required by law or these By-Laws; he or she
shall affix the seal of the corporation to deeds, contracts and other
instruments in writing requiring a seal, when duly signed; he or she shall have
charge of the certificate books and stock books and such other books and papers
as the Board may direct, and he or she shall perform all other duties incident
to the office of Secretary.
SECTION 18. SALARIES
====================
The salaries of all officers shall be fixed by the Board of Directors.
SECTION 19. CERTIFICATES OF STOCK
=================================
Certificates of stock shall be issued in numerical order from the stock
certificate book; they shall be signed by the President and by the Secretary of
the corporation and the corporate seal shall be affixed thereto. A record of
each certificate shall be kept on the stub thereof.
SECTION 20. TRANSFER OF SHARES
==============================
Shares may be transferred on the books of the corporation by the holder in
person or by his attorney upon the surrender and cancellation of certificates
for a like number of shares.
SECTION 21. BOARD TO DECLARE DIVIDENDS
======================================
The directors may from time to time, as they shall see fit, declare dividends
upon the capital surplus.
SECTION 22. SEAL
================
The directors shall provide a suitable corporate seal which shall be in charge
of the Secretary and shall be used as authorized by the directors.
SECTION 23. DEPOSITORIES
========================
The funds of the corporation shall be deposited in such bank or trust company,
and checks drawn against such funds shall be signed in such manner, as may be
determined from time to time by the directors.
SECTION 24. NOTICE AND WAIVER OF NOTICE
=======================================
Any notice required to be given by these Bylaws may be given by mailing or
telegraphing the same to the person entitled thereto at his or her address as
shown on the corporation's books and such notice shall be deemed to have been
given at the time of such mailing or telegraphing. Any notice required by these
Bylaws to be given may be waived by the person entitled to such notice.
SECTION 25. POWERS OF DIRECTORS TO AMEND, ETC.
==============================================
The Board of Directors shall have power to make, amend and repeal the Bylaws of
the corporation at any annual meeting or at a special meeting called for the
purpose and all Bylaws made by the directors may be altered or repealed by the
shareholders.
Adopted at the organizational meeting of the Board of
Directors of Daedalus Building Systems, Inc.
held on October 28, 1999
/s/
Secretary
EXHIBIT 4.
COMMON STOCK CERTIFICATE OF DAEDALUS.
(Front of Common Stock Certificate)
===================================
NUMBER ____ SHARES ____
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
Daedalus Building Systems, Inc.
30,000,000 SHARES PAR VALUE $.01 EACH
This is to certify that ______________is the owner of __________ FULLY PAID AND
NON-ASSESSABLE SHARES OF COMMON STOCK OF DAEDALUS BUILDING SYSTEMS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate propoerly
endorsed.
Witness, the seal of the Corporation and the signatures of its duly authorized
officers.
Dated:_________________
_______________Secretary/Treasurer _______________President
(Back of Common Stock Certificate)
==================================
The Following Abbreviations, When Used in the Inscription On the Face of the
Certificate, Shall be Construed as Though They Were Written Out in Full
According to Applicable Laws or Regulations:
TEN COM- as tenants in common
TEN ENT- as tenants by the entireties
JN TEN- as joint tenants with right of survivorship and not as tenants in common
UNIF GIFT MIN ACT - Custodian
(Cust) (Minor)
under Uniform Gifts to Minors Act
(State)
For value received ________ hereby sell, assign and transfer unto
_______________________________________________________________
PLEASE INSERT SOCAIL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________ (PLEASE
PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
____________________Shares represented by the within Certificate, and do hereby
irrevocably constitute and appoint ________________________ Attorney to
transfer the said Shares on the books of the within named Corporation with full
power of substitution in the premises.
Dated_______________ 19 ______
In presence of
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
EXHIBIT 5.
OPINION OF COUNSEL OF HERBERT S. ROSENBLUM
January 6, 2000
VIA FACSIMILE (703) 360-1974
Mr. E.A. McCulloch, President
Daedalus Building Systems, Inc.
8653 Richmond Highway
Alexandria, Virginia 22309
RE: Daedalus Building Systems, Inc.
Our File No. 2986/07
Dear Mr. McCulloch:
I have acted as counsel to Daedalus Building Systems, Inc. (the "Company") in
connection with the preparation of the registration statement on form SB-2
("registration statement") to be filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, relating to
the registration of 1,000,000 shares of common stock, par value $.01 per share
("Common Stock"), by the Company pursuant to its Agreement with Empiric Energy,
Inc. whereby the stock will be distributed to the Shareholders of Empiric.
In rendering this opinion, I have examined the following documents: (i) the
Company's Certificate of Incorporation and Bylaws, since the inception of the
Company, (ii) resolutions adopted by the Board of Directors related to the
Agreement and; (iii) the registration statement including all exhibits thereto.
I have assumed and relied, as to question of fact and mixed questions of law and
fact, on the truth, completeness, authenticity and due authorization of all
documents and records examined and the genuineness of all signatures.
I have not made any independent investigation in rendering this opinion other
than the document examination described. My opinion is therefore qualified in
all respects by the scope of that document examination. I make no representation
as to the sufficiency of our investigation for your purposes. This opinion is
limited to the Delaware Business Corporation Act. In rendering this opinion I
have assumed (i) compliance with all other laws, including federal laws, and
(ii) compliance with all Delaware securities and antitrust laws.
Based upon and subject to the foregoing, I am of the opinion that:
The shares of Common Stock of the Company which are being offered by the Company
pursuant to the registration statement, when transferred in the manner and for
the consideration contemplated by the registration statement, will be legally
issued, fully paid and non-assessable.
This opinion is given as of the date hereof. I assume no obligation to update or
supplement this opinion to reflect any facts or circumstances which may
hereafter come to my attention or any changes in laws which may hereafter occur.
This opinion is strictly limited to the matters stated herein and no other or
more extensive opinion is intended, implied or to be inferred beyond the matters
expressly stated herein.
I consent to the filing of this opinion as an exhibit to the registration
statement.
Cordially,
/s/
Herbert S. Rosenblum
HSR/jsm
EXHIBIT 10.1
ASSIGNMENT OF CONTRACT
THIS ASSIGNMENT OF CONTRACT, made and entered into this 31st day of October,
1999, by and among THE DAEDALUS PROJECT, INCORPORATED, a Virginia Corporation,
hereinafter referred to as "Assignor," and DAEDALUS BUILDING SYSTEMS, INC., a
Delaware Corporation, hereinafter referred to as "Assignee."
W I T N E S S E T H:
WHEREAS, Assignor desires to assign and convey the Contract by and between The
Daedalus Project, Incorporated and World Business Investors Group to Assignee
and Assignee desires to accept such assignment and conveyance.
NOW, THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00),
receipt of which is hereby acknowledged, and other valuable consideration, the
parties hereto agree as follows:
1. Assignor does hereby assign, transfer, and convey to Assignee all the right,
title, and interest under the aforesaid Contract Agreement, to have and to hold
the same unto Assignee, its successors, executors, and assigns, for and during
the remainder of the term of the aforesaid Contract Agreement and any renewals
or extensions therein provided or subsequently provided by in writing, subject
to the terms, covenants, conditions, and agreements contained therein and
subsequently agreed.
2. Assignee does hereby accept this Assignment of Contract and agrees to assume
all of the duties which the Assignor was obligated to perform under the said
Contract Agreements, for the balance of the term thereof and aforesaid renewals
or extensions.
3. The World Business Investors Group hereby acknowledges that the aforesaid
Contract Agreement is in full force and effect and no breaches or defaults exist
as of the date first above written, and consents to this Assignment of Contract
by the Assignor to the Assignee, but upon the express condition that such
consent from the Assignee shall not be deemed a waiver or relinquishment of the
future covenant against assignment, nor shall the acceptance of the Assignee to
the said contract be construed as releasing the Assignor from the full
performance of the provisions of said Contract Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Assignment of
Contract on the day and year first above
written.
ASSIGNOR:
THE DAEDALUS PROJECT, INCORPORATED,
a Virginia Corporation
______________________________
By: Edward A. McCulloch, President
ASSIGNEE:
DAEDALUS BUILDING SYSTEMS, INC.,
a Delaware Corporation
/s/
______________________________
By: Edward A. McCulloch, President
WORLD BUSINESS INVESTOR GROUP
/s/
By: Edgar Espinoza Chacon, President
EXHIBIT 10.2
Sales Contract
THIS SALES CONTRACT (the "Contract") is made and entered into as of the 27th day
of March, 1999, by and between The World Business Investors Group, S.A. (the
"Buyer"), an entity of legal status organized and existing to engage in commerce
under the laws of the country of Peru, and The Daedalus Project, Incorporated
(the "Seller"), a corporation organized and existing under the laws of the
Commonwealth of Virginia, United States of America. This Contract shall be
designated Contract Number 36-036-99.
WHEREAS, the Seller offered to sell and the Buyer has agreed to buy certain
structural units, components, finishings, and other items related to The
Daedalus Building System.
NOW THEREFORE, in consideration of the mutual covenants contained herein and
subject to the terms and conditions described herein, the Parties to this
Contract agree as follows:
1. Definitions. For the purpose of this Contract, the following terms shall have
the following meanings, unless otherwise defined; all other terms shall have the
usual and customary meaning ascribed to them.
a. "Dollars" or "$" shall mean the currency of the United States of America.
b. "Incoterms 1990" means the definition for the referenced term as adopted by
the International Chamber of Commerce in Paris in 1990 or subsequent adoptions.
c. "Unit" shall mean one (1) completely manufactured, unfinished and
unassembled, basic structural unit of the Daedalus Building System, multiples,
or special configurations thereof, as specified in the General Specifications
attached hereto as Annex A.
d. "Components" shall mean such items as panels of the Daedalus Building System
and related fasteners that are required for assembly of a structural unit, which
does not include tools required to complete assembly.
e. "Finishings" shall mean those materials used to finish the interior surfaces
of the structures and other items, such as sinks, showers, and toilets.
2. Unit Pricing. Unit pricing, as specified in Annex "B", attached hereto and
made a part hereof, shall be fixed for the term of the Contract. Pricing is
valid for all units ordered and shipped within the effective period of the
Contract. Prices may be adjusted if delivery extends beyond the period specified
in Paragraph 6.
3. Number of Units. The minimum number of Units provided under the Contract
Value will be 36,000 basic, unfinished structural units, or structural
equivalents, pursuant to Annex A.
4. Contract Value. The Contract Value shall be in dollars and is based upon the
Unit sales price as specified in Annex, "A" which shall form an integral part of
this contract. The minimum contract value is sixty seven million, five hundred
thousand and 00/100 Dollars ($67,500,000.00) and represents the purchase of a
minimum of 36,000 unfinished, basic structural units, pursuant to Annex A, over
three years, commencing at the date of this contract.
a. Freight. Freight will be arranged by the seller and added to the account of,
and paid by, the buyer. Freight is not considered as a part of the contract
value.
b. Insurance. Estimated insurance will be paid by the Seller and added to the
account of, and paid by, the buyer. Insurance is not considered as a part of the
contract value.
c. Additional Costs. All additional costs for freight, insurance, forwarding
fees, and any other expenses that are pre-advised, incurred by the seller and
added to the account of the buyer, or billed by the seller, are due and payable
by the buyer within 30 days of payment or billing by the seller. Additional
Costs are not considered as a part of the contract value.
5. Individual Purchase Orders. Execution of the Contract shall be through
issuance and use of Individual Purchase Orders, each Individual Purchase Order
issued for a minimum of 2,666 unfinished, basic structural units, or structural
equivalents, pursuant to Annex A.
6. Effective Date. This Contract will enter into full force and effect on the
date written above.
7. Duration. The duration of this Contract will be from the effective date and
extend 36 months from the issuance of the first Individual Purchase Order under
the Contract.
8. Termination Date. The Contract shall terminate and be of no further force and
effect on the earlier of: (i) the Contract Value being paid in full; or (ii)
pursuant to the provision of Paragraph 12 below; or (iii) in accordance with the
provided Duration.
9. Payment Terms. Payment of the Contract Value hereunder shall be made as set
forth below:
a. Medium Term Financing. The Seller will assist the Buyer in obtaining
Medium Term Financing. However, it is understood and agreed by the Parties that
no assurances of success in obtaining such Financing are made or offered by the
Seller. Payment of 85% of the value of the Individual Purchase Orders, under
Medium Term Financing, shall be financed under the Guarantee Program of the
Export-Import of the United States ("Ex-Im Bank") through a lending bank
acceptable to the Parties ("Lending Bank"). The term of the Medium Term
Financing shall be five years.
The Buyer shall be responsible for obtaining the remaining 15% non-Ex-Im Bank
financing portion of the Individual Purchase Orders. The 15% non-Ex-Im Bank
financing portion shall be the down payment portions of the Individual Purchase
Orders not covered by the Ex-Im Bank Medium Term Financing. The down payments
shall be paid coincident with issuance of the Individual Purchase Orders.
b. Payment. Payment of 85% of the Contract Value under Medium Term
Financing is
as follows. This 85% payment shall be divided into: (i) a 70% letter of credit;
and (ii) a 15% advance payment:
i. Seventy percent (70%) of the value of the Individual Purchase
Orders is to be paid under a confirmed Irrevocable Letter of Credit subject
to the Uniform Customs and Practice for Documentary Credits, Publication
500, as published and updated from time to time by the International
Chamber of Commerce. The Letter of Credit shall be confirmed by a financial
institution acceptable to the Seller. The amount of the Letter of Credit
shall be equal to seventy percent (70%) of the value of the Individual
Purchase Orders and shall be available for three hundred sixty (360) days.
Any Letter of Credit and amounts due thereunder are payable in U.S dollars.
The Beneficiary under all Letters of Credit shall be The Daedalus Project,
Incorporated, 8653 Richmond Highway, Alexandria, Virginia 22309-4206, USA.
A. The Letter of Credit shall be advised to the Beneficiary and
confirmed by a commercial bank acceptable to the Seller.
B. The Letter of Credit shall be negotiated by the Beneficiary
through the confirming bank
C. All fees with respect to the services rendered by the paying
and confirming bank in advising, confirming and negotiating the Letter
of Credit and the documents thereunder shall be for the account of the
Seller.
D. Partial drawing is to be permitted.
E. Documents to be presented for payment:
I. Commercial Invoice
II. Certificate of Origin
III. On Board Bill of Lading
IV. Sight Draft Drawn on the Buyer
ii. All amounts paid under the Letter of Credit in respect of Section
9. a.(i) above will be financed by the Lending Bank as follows:
A. All amounts paid under the Letter of Credit shall be evidenced
by a promissory note payable to the Lending Bank, in form and
substance acceptable to the Lending Bank, issued by the Buyer. Such
promissory note shall provide for principal repayment over a period of
five years. B. Equal payments of principal, with concurrent payments
of interest thereon, at an interest rate of ______ percent (%) per
annum (to be established by the Lending Bank), shall be payable no
less frequently than semiannually commencing no later than one hundred
eighty (180) days from the date of the On Board Bill of Lading,
evidencing the shipment of goods covered by the Contract Value.
iii. The promissory note, as described in Paragraph 8(b)(ii)(A) shall
be delivered by the Buyer to the Seller at the time of the Buyer's
presentation of a Individual Purchase Order as provided in Paragraph 11.b
hereof. Such promissory note is to be executed but is not to be dated with
respect to either the execution date or the first repayment date. Upon the
issuance of an On Board Bill of Lading, the Seller and/or Lending Bank will
complete the promissory note by inserting the date of the On Board Bill of
Lading as the execution date and one hundred eighty (180) days from the On
Board Bill of Lading date as the date of first repayment. The buyer will
sign any and all documents required to effect the foregoing and will
designate the seller and/or the lending bank the necessary authority to
complete and deliver the note.
iv. Advance Payment. Payment of fifteen percent (15%) of the value of
the Individual Purchase Orders will be made by the Buyer to the Seller, in
cash and in a form satisfactory to the Seller, evidencing an advance
payment on the Contract. The advance payment shall be due and payable at
the time of closing of the Medium Term Financing.
10. Terms of Sale. The sale of the Units shall be on Incoterms 1990, FOB
Washington, DC.
a. The Buyer will arrange for and prepay, as may be required,
transportation, insurance, and freight forwarding charges, which will be
added to the account of, and paid by, the buyer, as provided in Paragraph
4. The Buyer shall be responsible for obtaining insurance in such amounts
and types as required by the Lending Bank.
b. The Seller will assist the Buyer in providing all available
documentation necessary to clear the goods from customs as soon as
possible.
11. Procedures. In addition to the operational and logistical procedures
described in other sections of this Contract, the Parties also agree as follows:
a. The Buyer agrees to obtain any and all necessary import permits and
to provide a copy of such permits to the Seller immediately upon receipt of
such Permits by the Buyer.
b. The Buyer agrees to submit an Individual Purchase Order to the
Seller to initiate each order under the Contract. The Individual Purchase
Order is required to be in the form of Annex C, attached hereto.
c. The Buyer agrees to timely consummate and enter into force all
Medium Term Financing for the first Individual Purchase Order, as provided
for in Paragraph 9.a, above, no later than one hundred twenty (120) days
from the Effective Date. Failure by the Buyer to fully consummate the
Medium Term Financing and pay the advance payment as provided for herein,
including the execution and entry into force of all applicable
documentation, shall cause this Contract to terminate immediately and
become null and void without notice to either the Buyer or Seller as of the
expiry date of such time period. Such termination will be deemed to be a
breach of contract and will not afford either the Buyer or the Seller any
claim for any damages whatsoever.
d. The Buyer agrees to submit an Individual Purchase Order for a
minimum of 2,666 unfinished, basic structural units, pursuant to Annex A,
or structural equivalents, and agrees to accept partial shipments.
e. The first container shipped in accordance with the initial
Individual Purchase Order of the Contract will contain articles designated
for "inspection and acceptance" in accordance with specifications agreed
upon by the Parties. Further shipments under the initial Individual
Purchase Order will commence upon completion of inspection and acceptance
of assembled structures, which both parties agree to assemble as soon and
as rapidly as possible.
f. Subject to the terms hereof and the availability of an ocean
vessel, the Seller agrees to ship a completed order within three hundred
sixty (360) days of receipt and acceptance by the Seller of a Individual
Purchase Order.
12. Cancellation and Termination. Other than by breach by the Parties hereto,
except as provided in Section 11.c. hereof, either party may cancel this
Contract after three hundred sixty (360) days from the Effective Date. Such
intent to cancel must be conveyed to the other Party in writing, as provided
herein, sixty (60) days prior to the date of cancellation.
13. Penalties. Material breach of this Contract by either Party shall give rise
to a claim by the damaged Party. Such claim shall be limited to the actual cost
of damages and expenses associated with the claim, but in no event shall such
claim exceed ten percent (10%) of the value of any Individual Purchase Order
hereunder. The Seller's obligation to repair or replace existing housing units
or components thereof shall be the Buyer's sole and exclusive remedy under the
Contract.
14. Force Majeure. In the event of a Force Majeure, which affects the
performance of either Party hereunder, the Contract shall be temporarily
suspended and automatically extended for the period of suspension. Force Majeure
shall only include war, natural catastrophes, and other occurrences, including
new legislation, which forecloses or prevents the possibility of further
performance under the Contract. Force Majeure shall not include labor disputes,
civil commotion or poll congestion.
15. Disputes. All disputes arising in connection with this contract shall be
finally settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed in
accordance with the Rules. The Parties hereto agree that all rulings under the
Rules shall be binding and enforceable with no further appeal whatsoever and any
right of judicial action on any matter subject to arbitration hereunder is
hereby waived. However, any judicial court may enforce the resolution of the
arbitrator(s) and any Party shall have the right to sue in court to enforce an
arbitration award. Notwithstanding any possible issue submitted for Arbitration,
in all cases the location of arbitration shall be in Northern Virginia. This
paragraph shall survive any termination of this Contract.
16. Notices. All notices to each Party under this Contract shall be in writing,
in the English language, and delivered to the address designated in the
signature block of this Contract. Notices shall be deemed given when sent by
registered mail or by telefax communications, which are electronically
acknowledged as received.
17. Warranty. All units sold under this Contract are warranted to be free from
defects in material and workmanship and shall conform to applicable U.S.
Standards. The warranty of the Seller does not apply to defects not caused by
the Seller, including but not limited to acts of God, abuse, improper assembly
or installation. All notices for claims of defects, under this warranty, must be
made to the Seller in writing within thirty (30) days of the discovery of the
defect by the Buyer. The sole responsibility of the Seller shall be, at its
option, to replace or repair the defective housing unit and auxiliary buildings.
This warranty shall commence from the date of transfer of title to the Buyer and
shall last for a period of one (1) year. All housing units and auxiliary
buildings and components thereof shall be deemed to be irrevocably accepted by
the Buyer, thirty (30) days after the date of installation at the site or sites.
With the exception of title, no other warranties, expressed or implied, whether
of merchantability or fitness for a particular purpose, other than those set
forth above, shall apply to the units or components thereof sold hereunder, and
no alteration or modification of the foregoing shall be binding against the
Seller unless signed by an executive officer of the Seller.
18. Law. This contract shall he governed by and construed in accordance with the
laws of the Commonwealth of Virginia, USA.
19. Assignment. This Contract is assignable by either Party upon receipt by the
assigning Party of an acceptance from the other Party of a written notice of
assignment from the assigning Party to the Party being notified. Such notice of
acceptance shall not unreasonably be withheld.
20. Authority. Each Party warrants and covenants to the other that it has full
power, authority, and legal right and has taken all other legal action necessary
to authorize the execution of this Contract and perform the undertakings
hereunder.
21. Amendment. Amendments to this Contract must be in writing and signed by an
executive officer of the Seller and the Buyer. No other actions or approvals
shall constitute amendments to this Contract.
22. Conflicts. This Contract, including the Annex attached hereto, and all
amendments hereto, may be executed in both English and Spanish language
versions. In the event of conflict between the versions, the English version
shall control. In the event of conflict between this Contract, including the
Annexes attached hereto, and any working drawings, plans, product descriptions,
publications or other representations, the Contract and Annex will control.
23. Entire Contract. This document represents the entire Contract between the
Parties. The Parties agree to enter into all other contracts, conform to all
local laws and requirements, and perform other actions, which are necessary to
fulfill their obligations under this Contract.
IN WITNESS THEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the date first written above.
For the Seller: _____/s/_________ For the Buyer: ______/s/__________
The Daedalus Project, Incorporated World Business Investors Group
Edward A. McCulloch Ing. Edgar Espinoza Chacon
President Presidente del Directorio
8653 Richmond Highway Alamanda 199 Surco
Alexandria, Virginia 22309 USA Lima, Peru
ANNEX A
General Specifications - Daedalus Building System
1. Daedalus Building System. The Daedalus Building System is a development of
The Daedalus Project, Inc., consisting of structural units assembled from
panels, which are fabricated from recycled composites.
2. Basic structural unit. The basic structural unit of the Daedalus Building
System is an unfinished structure, consisting of approximately 60 panels
fabricated from recycled composites. The structure consists of floor panels;
wall and mitered wall panels; windows and door panels; one door and three
windows; roof panels and roof ridge vent; and, all fasteners required for
assembly. No tools are provided.
3. Structural Panel. The standard structural panel of the Daedalus Building
System is a composite panel that is approximately 1.25 X 1.25 X .10 meters,
weighing approximately 10 kilograms.
4. Structural equivalent. A structural equivalent of the "basic structural unit"
is any structure that:
a. is combination or configuration of structures that would utilize the same, or
greater number of full size panels of the Daedalus Building System, i.e., 60
panels
b. sixty or more full size panels of the Daedalus Building System
ANNEX B
Pricing
Type Unit Dimensions Area Area Price (USD) Price Price Price (USD), Price Price (USD)
in feet sq. sq. unfinished (USD) per (USD) per finished (USD) per per square
meters feet structures square square structures square foot
meter foot meter
========= ========== ====== ===== ========== ======= ====== ========= ======== ===========
Basic 12.38 x 14 153.1 $1,875.00 $133.93 $12.24 $2,300.00 $164.29 $15.02
Structural 12.38
Unit,
single
Unit
Hybrid 16.51 x 18.75 201.7 $2,000.00 $106.67 $9.91 $2,500.00 $133.33 $12.39
Single 12.38
Unit
Enlarged 20.63 x 23.44 252.2 $2,300.00 $98.12 $9.12 $2,900.00 $123.72 $11.50
Single 12.38
Unit
Double 24.75 x 28.12 302.5 $2,750.00 $97.80 $9.09 $3,450.00 $122.69 $11.40
Unit 12.38
Triple 37.12 x 42.19 453.9 $3,900.00 $92.44 $8.59 $4,900.00 $116.14 $10.80
Unit 12.38
Peruvian 37.12 x 51.56 554.7 $4,750.00 $92.12 $8.56 $5,950.00 $115.39 $10.73
Special 12.38
Unit I
Peruvian 37.12 x 56.25 605.2 $5,150.00 $91.56 $8.51 $6,450.00 $114.67 $10.66
Special 12.38
Unit II
Annex C
Individual Purchase Order
World Business Investors Group
Individual Purchase Order No.:
Allamanda 199, Surco Date:
Lima - Peru
Telephone: 011-51-1- Facsimile: 011-51-1-
================================================================================
To: The Daedalus Project, Inc.
8653 Richmond Highway Contract Reference: 36-036-99
Alexandria, Virginia 22309 USA Daedalus Reference: Pro forma No.
Point of Contact: E. Espinoza C.
- --------------------------------------------------------------------------------
Item Quantity Model No. Description Unit Price Extension
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------
0 0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total FOB Washington, DC, USA : Export packed in 40 ft. container: $
Export processing, packaging, prepaid inland/ocean freight
to Lima, Peru & forwarder's handling charges ex-works: $
Freight and insurance $
Estimated total costs: $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Estimated gross weight: Estimated cube: 2560 cubic feet/73 cubic meters
4575kg./10100 lbs.
- --------------------------------------------------------------------------------
Banking Information
First Virginia Bank
International Department
6400 Arlington Blvd.
Falls Church, Virginia 22046 USA
Fax: 703-241-3464
ABA#: 056001118
Account #:
The Daedalus Project, Inc.
EXHIBIT 10.3
Sales Contract
THIS SALES CONTRACT (the "Contract") is made and entered into as of the 27th day
of October, 1999, by and between World Business Investors Group (the "Buyer"),
an entity of legal status organized and existing to engage in commerce under the
laws of the country of Peru, and Daedalus Building Systems, Incorporated (the
"Seller"), a corporation organized and existing under the laws of Delaware,
United States of America. This Contract shall be designated Contract Number
46-045-99.
WHEREAS, the Seller offered to sell and the Buyer has agreed to buy certain
structural units, components, finishings, and other items related to Daedalus
Building Systems.
NOW THEREFORE, in consideration of the mutual covenants contained herein and
subject to the terms and conditions described herein, the Parties to this
Contract agree as follows:
1. Definitions. For the purpose of this Contract, the following terms shall have
the following meanings, unless otherwise defined; all other terms shall have the
usual and customary meaning ascribed to them.
a. "Dollars" or "$" shall mean the currency of the United States of America.
b. "Incoterms 1990" means the definition for the referenced term as adopted by
the International Chamber of Commerce in Paris in 1990 or subsequent adoptions.
c. "Components" shall mean such items as panels of the Daedalus Building
Systems and related fasteners that are required for assembly of a structural
unit, which does not include tools required to complete assembly.
d. "Finishings shall mean those materials used to finish the interior surfaces
of the structures and other items, such as sinks, showers, and toilets.
2. Unit Pricing. Unit pricing, as specified in Annex "B", attached hereto and
made a part hereof, shall be fixed for the term of the Contract. Pricing is
valid for all units ordered and shipped within the effective period of the
Contract. Prices may be adjusted if delivery extends beyond the period specified
in Paragraph 6.
3. Purchase. The minimum amount of purchase provided under the Contract Value
will be 22,000,000 square feet (2,043,800 square meters) of panels of the
Daedalus Building Systems (Metal), pursuant to Annex A.
4. Contract Value. The Contract Value shall be in dollars and is based upon the
sales price as specified in Annex "A" which shall form an integral part of this
contract. The minimum contract value is one hundred twenty million and 00/100
Dollars ($120,000,000.00) and represents the purchase of a minimum of 22,000,000
square feet (2,043,800 square meters) of panels of the Daedalus Building Systems
(Metal), pursuant to Annex A, over three years, commencing at the date of this
contract.
a. Freight. Freight will be arranged by the seller and added to the account of,
and paid by, the buyer. Freight is not considered as a part of the contract
value.
b. Insurance. Estimated insurance will be paid by the Seller and added to the
account of, and paid by, the buyer. Insurance is not considered as a part of the
contract value.
c. Additional Costs. All additional costs for freight, insurance, forwarding
fees, and any other expenses that are pre-advised, incurred by the seller and
added to the account of the buyer, or billed by the seller, are due and payable
by the buyer within 30 days of payment or billing by the seller. Additional
Costs are not considered as a part of the contract value.
5. Individual Purchase Orders. Execution of the Contract shall be through
issuance and use of Individual Purchase Orders, each Individual Purchase Order
issued for a minimum of ________ of panels, pursuant to Annex A.
6. Effective Date. This Contract will enter into full force and effect on the
date written above.
7. Duration. The duration of this Contract will be from the effective date and
extend 36 months from the issuance of the first Individual Purchase Order under
the Contract.
8. Termination Date. The Contract shall terminate and be of no further force and
effect on the earlier of: (i) the Contract Value being paid in full; or (ii)
pursuant to the provision of Paragraph 12 below; or (iii) in accordance with the
provided Duration.
9. Payment Terms. Payment of the Contract Value hereunder shall be made as set
forth below:
a. Medium Term Financing. The Seller will assist the Buyer in obtaining Medium
Term Financing. However, it is understood and agreed by the Parties that no
assurances of success in obtaining such Financing are made or offered by the
Seller. Payment of 85% of the value of the Individual Purchase Orders, under
Medium Term Financing, shall be financed under the Guarantee Program of the
Export-Import of the United States ("Ex-Im Bank") through a lending bank
acceptable to the Parties ("Lending Bank"). The term of the Medium Term
Financing shall be five years.
The Buyer shall be responsible for obtaining the remaining 15% non-Ex-Im Bank
financing portion of the Individual Purchase Orders. The 15% non-Ex-Im Bank
financing portion shall be the down payment portions of the Individual Purchase
Orders not covered by the Ex-Im Bank Medium Term Financing. The down payments
shall be paid coincident with issuance of the Individual Purchase Orders.
b. Payment. Payment of 85% of the Contract Value under Medium Term Financing is
as follows. This 85% payment shall be divided into: (i) a 70% letter of credit;
and (ii) a 15% advance payment: i. Seventy percent (70%) of the value of the
Individual Purchase Orders is to be paid under a confirmed Irrevocable Letter of
Credit subject to the Uniform Customs and Practice for Documentary Credits,
Publication 500, as published and updated from time to time by the International
Chamber of Commerce. The Letter of Credit shall be confirmed by a financial
institution acceptable to the Seller. The amount of the Letter of Credit shall
be equal to seventy percent (70%) of the value of the Individual Purchase Orders
and shall be available for three hundred sixty (360) days. Any Letter of Credit
and amounts due thereunder are payable in U.S dollars. The Beneficiary under all
Letters of Credit shall be Daedalus Building Systems, Incorporated, 8653
Richmond Highway, Alexandria, Virginia 22309-4206, USA.
A. The Letter of Credit shall be advised to the Beneficiary and confirmed by a
commercial bank acceptable to the Seller.
B. The Letter of Credit shall be negotiated by the Beneficiary through the
confirming bank.
C. All fees with respect to the services rendered by the paying and confirming
bank in advising, confirming and negotiating the Letter of Credit and the
documents thereunder shall be for the account of the Seller.
D. Partial drawing is to be permitted.
E. Documents to be presented for payment:
I. Commercial Invoice
II. Certificate of Origin
III. On Board Bill of Lading
IV. Sight Draft Drawn on the Buyer
ii. All amounts paid under the Letter of Credit in respect of Section 9. a.(i)
above will be financed by the Lending Bank as follows:
A. All amounts paid under the Letter of Credit shall be evidenced by a
promissory note payable to the Lending Bank, in form and substance acceptable to
the Lending Bank, issued by the Buyer. Such promissory note shall provide for
principal repayment over a period of five years.
B. Equal payments of principal, with concurrent payments of interest thereon, at
an interest rate of ______ percent (%) per annum (to be established by the
Lending Bank), shall be payable no less frequently than semiannually commencing
no later than one hundred eighty (180) days from the date of the On Board Bill
of Lading, evidencing the shipment of goods covered by the Contract Value.
iii. The promissory note, as described in Paragraph 8(b)(ii)(A) shall be
delivered by the Buyer to the Seller at the time of the Buyer's presentation of
an Individual Purchase Order as provided in Paragraph 11.b hereof. Such
promissory note is to be executed but is not to be dated with respect to either
the execution date or the first repayment date. Upon the issuance of an On Board
Bill of Lading, the Seller and/or Lending Bank will complete the promissory note
by inserting the date of the On Board Bill of Lading as the execution date and
one hundred eighty (180) days from the On Board Bill of Lading date as the date
of first repayment. The buyer will sign any and all documents required to effect
the foregoing and will designate the seller and/or the lending bank the
necessary authority to complete and deliver the note.
iv. Advance Payment. Payment of fifteen percent (15%) of the value of the
Individual Purchase Orders will be made by the Buyer to the Seller, in cash and
in a form satisfactory to the Seller, evidencing an advance payment on the
Contract. The advance payment shall be due and payable at the time of closing of
the Medium Term Financing.
10. Terms of Sale. The sale of the Units shall be on Incoterms 1990, FOB
Ontario, Canada.
a. The Buyer will arrange for and prepay, as may be required, transportation,
insurance, and freight forwarding charges, which will be added to the account
of, and paid by, the buyer, as provided in Paragraph 4. The Buyer shall be
responsible for obtaining insurance in such amounts and types as required by the
Lending Bank.
b. The Seller will assist the Buyer in providing all available documentation
necessary to clear the goods from customs as soon as possible.
11. Procedures. In addition to the operational and logistical procedures
described in other sections of this Contract, the Parties also agree as follows:
a. The Buyer agrees to obtain any and all necessary import permits and to
provide a copy of such permits to the Seller immediately upon receipt of such
Permits by the Buyer.
b. The Buyer agrees to submit an Individual Purchase Order to the Seller to
initiate each order under the Contract. The Individual Purchase Order is
required to be in the form of Annex C, attached hereto.
c. The Buyer agrees to timely consummate and enter into force all Medium Term
Financing for the first Individual Purchase Order, as provided for in Paragraph
9.a, above, no later than one hundred twenty (120) days from the Effective Date.
Failure by the Buyer to fully consummate the Medium Term Financing and pay the
advance payment as provided for herein, including the execution and entry into
force of all applicable documentation, shall cause this Contract to terminate
immediately and become null and void without notice to either the Buyer or
Seller as of the expiry date of such time period. Such termination will be
deemed to be a breach of contract and will not afford either the Buyer or the
Seller any claim for any damages whatsoever.
d. The Buyer agrees to submit an Individual Purchase Order for a minimum of
_______ unfinished, basic structural units, pursuant to Annex A, or structural
equivalents, and agrees to accept partial shipments.
e. The first container shipped in accordance with the initial Individual
Purchase Order of the Contract will contain articles designated for "inspection
and acceptance" in accordance with specifications agreed upon by the Parties.
Further shipments under the initial Individual Purchase Order will commence upon
completion of inspection and acceptance of assembled structures, which both
parties agree to assemble as soon and as rapidly as possible.
f. Subject to the terms hereof and the availability of an ocean vessel, the
Seller agrees to ship a completed order within three hundred sixty (360) days of
receipt and acceptance by the Seller of a Individual Purchase Order.
12. Cancellation and Termination. Other than by breach by the Parties hereto,
except as provided in Section 11.c. hereof, either party may cancel this
Contract after three hundred sixty (360) days from the Effective Date. Such
intent to cancel must be conveyed to the other Party in writing, as provided
herein, sixty (60) days prior to the date of cancellation.
13. Penalties. Material breach of this Contract by either Party shall give rise
to a claim by the damaged Party. Such claim shall be limited to the actual cost
of damages and expenses associated with the claim, but in no event shall such
claim exceed ten percent (10%) of the value of any Individual Purchase Order
hereunder. The Seller's obligation to repair or replace existing housing units
or components thereof shall be the Buyer's sole and exclusive remedy under the
Contract.
14. Force Majeure. In the event of a Force Majeure, which affects the
performance of either Party hereunder, the Contract shall be temporarily
suspended and automatically extended for the period of suspension. Force Majeure
shall only include war, natural catastrophes, and other occurrences, including
new legislation, which forecloses or prevents the possibility of further
performance under the Contract. Force Majeure shall not include labor disputes,
civil commotion or poll congestion.
15. Disputes. All disputes arising in connection with this contract shall be
finally settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed in
accordance with the Rules. The Parties hereto agree that all rulings under the
Rules shall be binding and enforceable with no further appeal whatsoever and any
right of judicial action on any matter subject to arbitration hereunder is
hereby waived. However, any judicial court may enforce the resolution of the
arbitrator(s) and any Party shall have the right to sue in court to enforce an
arbitration award. Notwithstanding any possible issue submitted for Arbitration,
in all cases the location of arbitration shall be in Northern Virginia. This
paragraph shall survive any termination of this Contract.
16. Notices. All notices to each Party under this Contract shall be in writing,
in the English language, and delivered to the address designated in the
signature block of this Contract. Notices shall be deemed given when sent by
registered mail or by telefax communications, which are electronically
acknowledged as received.
17. Warranty. All units sold under this Contract are warranted to be free from
defects in material and workmanship and shall conform to applicable U.S.
Standards. The warranty of the Seller does not apply to defects not caused by
the Seller, including but not limited to acts of God, abuse, improper assembly
or installation. All notices for claims of defects, under this warranty, must be
made to the Seller in writing within thirty (30) days of the discovery of the
defect by the Buyer. The sole responsibility of the Seller shall be, at its
option, to replace or repair the defective housing unit and auxiliary buildings.
This warranty shall commence from the date of transfer of title to the Buyer and
shall last for a period of one (1) year. All housing units and auxiliary
buildings and components thereof shall be deemed to be irrevocably accepted by
the Buyer, thirty (30) days after the date of installation at the site or sites.
With the exception of title, no other warranties, expressed or implied, whether
of merchantability or fitness for a particular purpose, other than those set
forth above, shall apply to the units or components thereof' sold hereunder, and
no alteration or modification of the foregoing shall be binding against the
Seller unless signed by an executive officer of the Seller.
18. Law. This contract shall he governed by and construed in accordance with the
laws of the Commonwealth of Virginia, U.S.A.
19. Assignment. This Contract is assignable by either Party upon receipt by the
assigning Party of an acceptance from the other Party of a written notice of
assignment from the assigning Party to the Party being notified. Such notice of
acceptance shall not unreasonably be withheld.
20. Authority. Each Party warrants and covenants to the other that it has full
power, authority, and legal right and has taken all other legal action necessary
to authorize the execution of this Contract and perform the undertakings
hereunder.
21. Amendment. Amendments to this Contract must be in writing and signed by an
executive officer of the Seller and the Buyer. No other actions or approvals
shall constitute amendments to this Contract.
22. Conflicts. This Contract, including the Annex attached hereto, and all
amendments hereto, may be executed in both English and _______ language
versions. In the event of conflict between the versions, the English version
shall control. In the event of conflict between this Contract, including the
Annexes attached hereto, and any working drawings, plans, product descriptions,
publications or other representations, the Contract and Annex will control.
23. Entire Contract. This document represents the entire Contract between the
Parties. The Parties agree to enter into all other contracts, conform to all
local laws and requirements, and perform other actions, which are necessary to
fulfill their obligations under this Contract.
IN WITNESS THEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the date first written above.
For the Seller: ______/s/________ For the Buyer: _______/s/________
The Daedalus Project, Incorporated World Business Investors Group
Edward A. McCulloch Ing. Edgar Espinoza Chacon
President Presidente del Directorio
8653 Richmond Highway Alamanda 199 Surco
Alexandria, Virginia 22309 USA Lima, Peru
ANNEX A
General Specifications - Daedalus Building Systems (Metal)
1. Daedalus Building Systems (Metal). The Daedalus Building Systems (Metal)
consists of panels, consisting of structural units assembled from panels, which
are fabricated from recycled composites.
2. Basic structural unit. The basic structural unit of the Daedalus Building
Systems (Metal) is an unfinished structure, consisting of metal panels with
polyurethane.
3. Structural Panel. The standard structural panel of the Daedalus Building
Systems (Metal) is a composite panel that is approximately 1.25 X 1.25 X .10
meters, weighing approximately 10 kilograms.
4. Structural equivalent. A structural equivalent of the "basic structural unit"
is any structure that:
a. is combination or configuration of structures that would utilize the same, or
greater number of full size panels of the Daedalus Building Systems (Metal),
i.e., 60 panels
b. sixty or more full size panels of the Daedalus Building Systems (Metal)
Annex B
Pricing
Annex C
Individual Purchase Order
Name
Individual Purchase Order No.:
Address Date:
Country
Telephone: 011- Facsimile: 011-
================================================================================
To: The Daedalus Project, Inc.
8653 Richmond Highway Contract Reference: 00000000
Alexandria, Virginia 22309 USA Daedalus Reference: Pro forma No.
Point of Contact:
- --------------------------------------------------------------------------------
Item Quantity Model No. Description Unit Price Extension
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------
0 0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total FOB Ontario, Canada : Export packed in 40 ft. container: $
Export processing, packaging, prepaid inland/ocean freight
To ____________ & forwarder's handling charges ex-works: $
Freight and insurance $
Estimated total costs: $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Estimated gross weight: Estimated cube: 2,560 cubic feet/73 cubic meters
- --------------------------------------------------------------------------------
Banking Information
First Virginia Bank
International Department
6400 Arlington Blvd.
Falls Church, Virginia 22046 USA
Fax: 703-241-3464
ABA#:
Account #:
The Daedalus Project, Inc.
EXHIBIT 10.4
STOCK TRANSFER AND LICENSE AGREEMENT
AGREEMENT made October 31, 1999 between The Daedalus Project, Inc., a Virginia
Corporation (hereinafter called "TDP" and "Licensor") and Daedalus Building
Systems, Inc., a Delaware Corporation (hereinafter called "DBS" and "Licensee").
WITNESSETH:
WHEREAS, TDP is the owner of potential patents, technology, processes, and trade
secrets with respect to composite housing.
WHEREAS, TDP raised monies from investors to refine said technology and
processes and to acquire assets of a manufacturing facility in Ontario, Canada.
WHEREAS, TDP, in conjunction with the selling of its shares, promised and
covenanted that any subscriber shall receive an equal amount of shares in any
entity created for the purpose of public ownership.
WHEREAS, TDP created DBS for the purpose of manufacturing, marketing, and
selling composite and other housing systems, utilizing the information and
technology processed and developed by TDP.
WHEREAS, TDP created and funded Daedalus Composites, Inc., a Canadian company,
to own and operate the plant in Canada.
WHEREAS, DBS was created to be owned proportionately by the shareholders of TDP.
WHEREAS, the shares of DBS have been allocated to the shareholders of TDP
proportionately to their individual ownership in TDP, except Edward A. Mcculloch
as the majority shareholder and sole director of TDP has agreed to substantially
reduce and curtail his equity ownership until certain earnings have been
attained by DBS.
WHEREAS, the shares in DBS have been issued to its shareholders.
WHEREAS, the shares in DCI are to be transferred to DBS so that DBS may operate
the business herein contemplated.
It is therefore agreed:
1. Shares of Daedalus Composites, Inc. All shares, title, and ownership in the
shares of Daedalus Composites, Inc. are hereby irrevocably transferred and
assigned to DBS.
2. Purchase of Corporate Stock of Daedalus Composites, Inc.
2.1 Instruments of Assignment. The sale, assignment and transfer of the above
stock to DBS shall be effected by TDP's execution and delivery of the Stock
Certificates, assignments and other good and sufficient instruments of transfer
and conveyance as shall be satisfactory to DBS and its Counsel and shall be
effective to vest in DBS all of TDP's right, title and interest in the above
corporate stock.
2.2 Documentation. At or prior to Closing, TDP shall provide DBS with all
existing documentation available to TDP and necessary in the operation of
Daedalus Composites, Inc., including, but not limited to, copies of agreements
with suppliers, worksheets and invoices for 1999, all financials with respect to
this operations for year 1999, equipment records reflecting date of purchase,
warranties, maintenance and repair information, TDP's list of suppliers, and all
intangible rights.
2.3 Liabilities. DBS shall not be or become responsible for any debts, claims,
obligations, contracts or liabilities of TDP, with respect to Daedalus
Composites, Inc., accruing before October 31, 1999 until closing, whether known
or unknown, fixed or contingent, including but not limited to tax liabilities,
license fees, or assessments made by Federal, state or local governments, except
all liabilities of the Lease accruing after date of settlement.
2.4 Allocation of Purchase Price. TDP and DBS mutually agree that the stock of
DCI shall be allocated as follows:
The stock and the underlying assets of Daedalus Composites, Inc.
TOTAL $2,500,000.00
None of the parties hereto shall take for tax purposes any position inconsistent
with the allocation of valuation set forth above.
3. Bulk Sales Compliance
3.1 Notice to Creditors. If applicable, within five (5) days after execution of
this Agreement, but in no event less than fifteen (15) days prior to Closing,
TDP shall prepare and furnish to DBS a list of creditors of TDP which conforms
to all of the requirements of the Virginia Uniform Commercial Code -- Bulk
Transfers, in particular the requirements as to form set forth in Virginia Code
Section 8.6-104 and any Canadian equivalent statute.
4. Representations and Warranties of TDP. TDP represents and warrants to DBS as
follows:
4.1 Conduct of Business. At all times after execution of this Agreement, TDP
agrees to conduct the business of its Canadian subsidiary only in the ordinary
course, without incurring any obligations or liabilities which would affect its
obligations under this Agreement, up to the Closing.
4.2 Title to Assets. Except as otherwise provided herein, TDP through its
subsidiary has good and marketable title to all of the Assets, and none of the
Assets or use thereof: (i) is subject to any restrictions, liens, pledges,
claims, encumbrances, licenses or rights of others of any kind or nature; (ii)
encroaches or infringes on the property rights of another; or (iii) contravenes
any applicable law, ordinance or regulation.
4.3 Transfer. The transfer of the Corporate Stock of Daedalus Composites, Inc.
is not made with intent to delay, hinder or defraud creditors, DBS or other
persons, as defined in Virginia Code Section 55-80 or Canadian equivalent
statute.
4.4 Creditors. Except as provided herein all claims of creditors will be paid by
TDP when due.
4.5 Lease. DBS have been provided with a draft copy of the Lease (the "Lease")
for the Premises of Daedalus Composites, Inc. TDP represents that it is not in
default under the Lease in any respect and that the Lease is in full force and
effect in all respects and binding upon the Landlord and TDP.
4.6 Applicable Laws and Regulations. The Assets of Daedalus Composites, Inc. are
installed and are being maintained, and Daedalus Composites, Inc.'s business
has, at all times, operated in full compliance with all applicable health,
safety, zoning and land use, and other laws, rules and regulations and
contractual provisions, if any.
4.7 Environmental Laws and Regulations. TDP and Daedalus Composites, Inc. is in
compliance in all material respects with all applicable Federal, Provincial and
local laws and regulations relating to environmental protection and zoning
including, but not limited to, all laws and regulations governing the
generation, use, collection, discharge, or disposal of Hazardous Materials and
all laws and regulations with regard to record keeping, notification and
reporting requirements respecting Hazardous Materials. TDP and/or its subsidiary
has not been alleged to be in violation of, nor has it been subject to any
administrative or judicial proceeding pursuant to, such laws or regulations
either now or any time during the past three (3) years. There are no facts or
circumstances which TDP or its subsidiary reasonably expects could form the
basis for the assertion of any claim against TDP or its subsidiary relating to
environmental matters including, but not limited to, any claim arising from past
or present environmental practices asserted under any other Federal, Provincial
or local environmental statute, which TDP or its subsidiary believes might have
a material adverse change in the assets, properties, business, condition
(financial or otherwise), operation or prospects of TDP.
4.8 Permits and Licenses. TDP and/or its subsidiary has all necessary permits,
Certificates of Occupancy, licenses and approvals ("Permits") from all
governmental agencies required to own and use the Assets in, and operate the
business, and all Permits are in good standing and in full force and effect.
4.9 Information Furnished. Financial information, operating information,
contract information and data previously provided to DBS are complete and
accurate in all material respects.
4.10 Employees. There are no employee benefit plans of TDP or its subsidiary.
All payments of salary, benefits, insurance or taxes paid to or on behalf of
their employees are current, and there are no claims or causes of action by
employees or former employees of TDP or its subsidiary. All obligations, loans
or debts due any officer, employee, shareholder, director or related party to
any of the above is and shall be the sole obligation of TDP.
4.11 Notice of Breach or Adverse Action. TDP has not received notice and has no
knowledge of any breach of any contract, law, ordinance or regulation relating
to Daedalus Composites, Inc.'s business or the Premises or the Assets.
4.12 No Litigation. There are no actions, suits, investigations or proceedings
pending or threatened against or affecting TDP or TDP Shareholder (or any of
them) or any of their respective assets or properties, in any court or before
any arbitrator, or before or by any governmental department, commission, bureau,
board, agency or instrumentality, domestic or foreign, which, if adversely
determined, would adversely affect TDP's or Daedalus Composites, Inc.'s ability
to operate the business or the Assets, or would adversely affect its financial
condition in any material respect, or would impair the ability of TDP or
Daedalus Composites, Inc. to perform their respective obligations hereunder.
Furthermore, there are no defaults by TDP or Daedalus Composites, Inc. (or
either of them) under any applicable order, writ, injunction, decree or award of
any Court or arbitrator or any governmental department, board, agency or
instrumentality which would adversely affect TDP's or Daedalus Composites, Inc.
ability to operate its business or the Assets, or would adversely affect its
financial condition in any material respect, or would materially impair the
ability of TDP or Daedalus Composites, Inc. to perform their respective
obligations hereunder.
4.13 Tax Obligations. TDP has filed or caused to be filed, within the times and
in the manner prescribed by law, all Federal, state, local and foreign tax
returns and tax reports which are required to be filed by, or with respect to,
TDP. Such returns and reports reflect accurately the liability for taxes of TDP
for the periods covered thereby. All Federal, state, local and foreign income,
profits, franchise, sales, use, occupancy, excise and other taxes and
assessments (including interest and penalties) payable by, or due from, TDP have
been fully paid or adequately disclosed and fully provided for in the books and
financial statements of TDP. The Federal income tax liability of TDP has been
finally determined for all fiscal years to and including the fiscal year ended
December 31, 1998. No examination of any tax return or report of TDP or Daedalus
Composites, Inc. is currently in progress. There are no (i) audits or
investigations pending or threatened against TDP or TDP Shareholders in respect
to taxes asserted by any governmental authority, (ii) outstanding agreements or
waivers extending the statutory period of limitation applicable to any tax
return of TDP and (iii) agreements with any Federal, state, county or local
taxing authority that may affect the subsequent tax liabilities of TDP.
4.14 Organization, Authority. TDP is duly organized, validly existing, and in
good standing under the laws of the State of Virginia and has the corporate
power and authority to own its properties and to conduct the business now
conducted by it. TDP has full corporate power and authority to enter into this
Agreement and carry out its obligations hereunder.
4.15 No Change in Business. Neither TDP nor Daedalus Composites, Inc. have any
knowledge or reason to know of any existing termination, cancellation,
limitation, modification or change or threat of any such termination,
cancellation, limitation, modification or change of the business relationship of
TDP with any customer, or any other person which would have a material impact on
the business presently conducted by TDP. Neither TDP or said Daedalus
Composites, Inc. has any knowledge of any specific reason (other than general
market conditions) why Daedalus Composites, Inc. customers would not continue to
do business with DBS in the future to the same or a greater extent as they have
done business with TDP and/or Daedalus Composites, Inc. in the past.
4.16 No Violation. The execution and delivery by TDP, of this Agreement, the
consummation by them of the transactions contemplated hereby, and compliance by
them with the terms hereof, will not:
(i) violate or result in the breach of or contravene any of the terms,
conditions or provisions of any law, regulation, order, writ, injunction,
decree, determination or award of any Court, governmental department, board,
agency or instrumentality, domestic or foreign, or any arbitrator, applicable to
TDP or Daedalus Composites, Inc. or to assets and properties of TDP or Daedalus
Composites, Inc.;
(ii) result in prohibited action under any term or provision of, or the material
breach of any term or provision of, the termination of, or the acceleration or
permitting the acceleration of the performance required by the terms of, or
constitute a default under or require the consent of any party to, any loan
agreement, indenture, mortgage, deed or trust or other contract, agreement or
instrument, to which TDP or Daedalus Composites, Inc., or any of them, is a
party or by which any is bound; or
(iii) conflict with the Articles of Incorporation or By-Laws of TDP or Daedalus
Composites, Inc. or any other agreements, licenses or permits of any kind
relating to the formation, management, operation or other activity of TDP or
Daedalus Composites, Inc.
5. Conditions Precedent to Obligations of DBS. The obligations of DBS under this
Agreement are subject to the conditions that, at or prior to the Closing Date,
the following conditions shall be satisfied.
5.1 TDP shall have signed this Agreement, obligating and committing TDP to sell
to DBS the corporate stock of Daedalus Composites, Inc. The individuals signing
this Agreement on behalf of Daedalus Composites, Inc. shall have authority to do
so. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby shall have been duly and validly authorized by
TDP's Board of Directors. Evidence of Director approval shall be provided to DBS
at Closing since Daedalus Composites, Inc. is the wholly owned subsidiary of
TDP.
5.2 The representations and warranties of TDP set forth in this Agreement in
connection with the transactions contemplated by this Agreement shall be true
and correct on the date when made and at Closing.
5.3 TDP shall have performed and complied with all agreements and conditions
contained in this Agreement required to be performed or complied with by it
prior to or contemporaneously with Closing.
5.4 TDP shall have taken all actions (whether corporate or otherwise) which, in
DBS reasonable judgment, are necessary or appropriate to authorize the execution
and delivery of this Agreement, the transactions contemplated by this Agreement,
and all documents and instruments incident to such transactions.
5.5 There shall be no suit, action, investigation, inquiry or other proceeding
by any governmental authority or any other person or any other legal or
administrative proceeding pending or threatened which questions the validity or
legality of the transactions contemplated by this Agreement, or seeks damages in
connection therewith.
5.6 There shall have been no fire, flood, or other casualty, which has a
materially adverse affect on the value of Daedalus
Composites, Inc.'s business.
5.7 All inventory and property, contracts, furniture, fixtures and equipment
shall not be damaged, assigned, conveyed, converted, or in any manner removed
from the Premises of Daedalus Composites, Inc.
5.8 The business conducted at the Premises shall continue to be an ongoing
business at the date of Closing, and there shall have been no material adverse
change to the existence, nature or quality of said business.
In the event that any of the foregoing conditions are not satisfied, TDP shall
have notice and opportunity to cure. Time to cure shall be fifteen (15) business
days. If the condition remains unsatisfied, at the option of DBS, this Agreement
shall be null and void and the parties shall have no further liability
hereunder.
6. Conditions Precedent to Obligations of TDP:
6.1 This Agreement shall have been signed by DBS, obligating and committing DBS
to purchase and TDP to sell the stock of Daedalus Composites, Inc. of TDP set
forth herein. The person signing the Agreement on behalf of TDP shall have the
authority to do so.
6.2 DBS shall have performed and complied with all agreements, conditions,
representations and warranties contained in the Agreement required to be
performed or complied with by it prior to or contemporaneously with Closing.
7. Closing. The sale and purchase of stocks provided for in this Agreement shall
be consummated by October 31, 1999. (The date and event of the sale of purchase,
respectively, hereinafter referred to as the "Closing Date" and the "Closing.")
The parties hereto acknowledge that they are entitled to be represented by
Counsel of their own choosing at the Closing.
8. Access to Information. The parties hereto acknowledge that prior to the
execution of this agreement, DBS have had the right to verify the Assets set
forth herein, interview employees, and to examine and/or copy all of the books
and records of TDP and Daedalus Composites, Inc., in person or by the agents,
attorneys or accountants and to observe the inventory and facilities of the
business.
9. Indemnification and Hold Harmless. TDP as herein identified shall and do
jointly and severally indemnify, defend and hold harmless DBS, their members,
officers, directors, shareholder, successors and assigns against any and all
losses, damages, demands, claims, assessments, actions, taxes, deficiencies,
penalties, interest, attorneys' fees, costs and expenses arising out of or
incident to any of the following:
(a) If any representation or warranty made by TDP or Daedalus Composites, Inc.
in this Agreement shall be untrue, or if any covenant of TDP or Daedalus
Composites, Inc. not be performed;
(b) Without limiting the generality of the foregoing, any claim asserted against
DBS, its successors or assigns, and alleged to arise out of any act, omission,
obligation or liability of TDP or Daedalus Composites, Inc. or any of their
employees (while employed by TDP or Daedalus Composites, Inc.) or agents
including, but not limited to, claims of ownership of or rights to the corporate
stock, taxes of all kinds except those assumed herein, any claim made under the
Bulk Transfers Title of the Uniform Commercial Code, any claim, damage or
liability resulting from negligence or products liability of TDP or of Daedalus
Composites, Inc., and any claim, damage or liability resulting from lack of
compliance by TDP or Daedalus Composites, Inc. with laws or governmental
regulations, whether Federal, state or local.
10. Post-Closing Covenants of Parties.
10.1 At the request of DBS, TDP and Daedalus Composites, Inc. shall deliver any
further instruments of transfer and take any and all action as may be in the
reasonable opinion of Counsel for DBS, necessary and appropriate to: (i) vest in
DBS good and marketable title to the corporate stock of Daedalus Composites,
Inc.; (ii) vest in DBS all rights in Daedalus Composites, Inc.
10.2 TDP shall do no act to dissolve, liquidate, or terminate the existence of
Daedalus Composites, Inc. at any time prior to the effective date of the Stock
Purchase Agreement. Until said date, TDP shall remain in good standing and
qualified to do business in Canada.
11. Expenses. TDP and DBS shall each pay their own expenses and costs, including
without limitation all Counsel fees, transfer taxes and taxes arising out of
this transaction.
12. Miscellaneous
12.1 Waiver of Breach. Any waiver by any party hereto of a breach of any of the
provisions of this Agreement by any other party shall not operate or be
construed as a waiver by the other parties of any of the rights and privileges
of said parties hereunder or of any subsequent breach.
12.2 Controlling Law. This Agreement shall be interpreted, construed and
administered according to the law of the Commonwealth of Virginia.
12.3 Survival of Representations and Warranties. This Agreement shall not be
deemed merged into any Bill of Sale or other document executed at or pursuant to
Closing. All of the representations and warranties of all parties set forth in
this Agreement shall survive the Closing Date and shall not be affected by any
investigation, verification or approval by any party hereto or by anyone on
behalf of any such parties.
12.4 Construction. The language in all parts of this Agreement shall in all
cases be construed as a whole, according to its fair meaning, and not strictly
for or against either party.
12.5 Further Acts. TDP shall, at any time and from time to time after the
Closing Date, upon request of DBS, do, execute, acknowledge and deliver all such
further acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may reasonably be required to convey, transfer to and vest in DBS,
and protect the right, title, interest in and enjoyment of, the assets of TDP
intended to be assigned, transferred and conveyed pursuant to this Agreement.
12.6 Counterparts. This Agreement may be executed and/or conformed in any number
of counterparts, each of which shall be deemed original.
12.7 Alteration. This Agreement may be altered, amended, modified or terminated
only by a writing signed by all of the parties
hereto.
13. License. The Licensor grants to the Licensee the exclusive, nontransferable
right and license to manufacture, use, market, sell and otherwise to
commercialize the patents, potential patents, technology, information and
processes, and the improvements (the "Technology") throughout the world related
to residential housing units. Such license includes the right to grant
sublicenses upon terms consistent with this agreement. The exclusive right and
license herein granted shall apply to all inventions, improvements, patent
application or letters patent, which the Licensor now owns or controls, or
hereafter shall own or control, relating to the Technology.
The current embodiment of the technology is in the form of panels that are
fabricated from advanced composite technology, principally from recycled
polyolefins, primarily polyethylene, with various additives, including glass
fiber and talc, to increase performance parameters and the typical attributes of
composites such as strength, flexibility, durability, and permanence. Production
technologies presently include compression, injection-compression, thermoforming
and various other plastic forming method.
14. Representations of Licensor. The Licensor represents the following:
a. that the licensor is the exclusive owner of all rights to any potential
patent, has the right to grant this exclusive license, and has not granted to
any other person, firm or corporation any right, license, shop right, or
privilege thereunder;
b. that the Licensor has at no time filed, or caused to be filed, applications
for letters patent, or obtained in its name, or caused to be obtained in the
name of others, any letters patent in the United States or elsewhere, relating
to the Invention or articles similar thereto.
15. Necessary Aid and Information. The Licensor shall furnish to the Licensee,
its nominees, or patent attorneys all information and documents relating to the
technology, trade secrets, potential patents, etc., which are necessary to
enable the Licensee to prosecute the patent applications and to conduct
operations under the terms of this agreement. The Licensor shall not reveal such
information or any information relating thereto to any other person without the
approval of the Licensee.
16. Patents. Any letters patent issued on such technology and its improvements
shall be the exclusive property of the Licensor, subject to the license hereby
granted. The Licensee shall prepare, file and prosecute, in the name of the
Licensor but at its own expense, applications for the letters patent of the
United States for the Invention and all improvements hereafter made by the
Licensor, Licensee or sublicensees. The Licensor shall, without further
consideration, at the request of the Licensee, do all acts necessary for
obtaining, sustaining, reissuing, or extending any letters patent and shall give
testimony and otherwise provide evidence in cases of interference.
17. License Year. A license year shall be a period of one-year starting on
January 1 of one year and ending on December 31 of the same year.
18. Royalties. The Licensee shall pay and deliver to the Licensor:
a. $1,000 by certified check upon the execution of this agreement.
b. Royalties equivalent to 5% of gross sales of any products in which the
Technology is embodied.
19. Payment of Royalties. The Licensee shall at all times keep an accurate
account of all operations under the scope of this license, shall render written
statements thereof to the Licensor within 30 days after every quarter-annual
period of each license year during the life of this agreement, and shall pay to
the Licensor with each such statement the amount of all royalties earned during
the corresponding quarter-annual period. The Licensor shall have the right, at
its own expense and not more often than once in each quarter-annual period, to
have the Licensee's books examined for the purpose of verifying such royalty
statements. In all sublicensing agreements, the Licensee shall procure for the
Licensor a similar right to have the books of the sublicensee examined for the
purpose of verifying royalty statements.
20. Covenants of licensee. The Licensee covenants as follows:
a. The Licensee shall in good faith and with diligence conduct all
manufacturing, marketing, and other operations in accordance with
the best business customs of its industry.
21. Term. This license shall continue indefinitely so long as revenues are
generated as a result of building systems technologies being brought to Daedalus
Building System, Inc., subject to the following:
a. If royalty payments to the Licensor are in arrears for 60 days after the due
date, or if the Licensee defaults in performing any of the other terms of this
agreement and continues in default for a period of 60 days, of if the Licensee
is adjudicated a bankrupt or becomes insolvent, or enters into a composition
with creditors, or if a receiver is appointed for it, then the Licensor shall
have the right to terminate this agreement upon giving notice to the Licensee
ten days before the time when such termination is to take effect, and if the
cause for such notice is not cured within the ten days, then at the expiration
of the ten days the agreement shall terminate, without prejudice to any moneys
due or to become due to the Licensor under this agreement, and without prejudice
to any other rights of the Licensor.
b. Upon termination of this agreement for any cause, the Licensee shall duly
account to the Licensor and shall transfer to him all rights which it may
possess in sublicenses, letters patent, inventions, trade names, and trademarks,
relating to the Invention/technology.
22. Infringement. The Licensee shall defend at its own expense all infringement
suits that may be brought against is on account of the manufacture, use or sale
of the Invention/technology, and when information is brought to its attention
indicating that others without license are unlawfully infringing on the rights
granted in this agreement, it shall prosecute diligently any infringer at its
own expense. In connection with such suits, the Licensor shall, at the expense
and at the request of the Licensee, give evidence and execute such documents as
the Licensee may require.
23. Notice. Any notice required or permitted to be given under this Agreement
shall be given in writing and sent by certified mail to the address of the party
set forth herein, unless that party shall give notice of a different address.
The date of notice shall be the date of mailing. Any notices under this
Agreement shall also be delivered to:
If to DBS: Daedalus Building Systems, Inc.
8653 Richmond Highway
Alexandria, Virginia 22309
If to TDP: The Daedalus Project, Inc.
8653 Richmond Highway
Alexandria, Virginia 22309
With copies to: Herbert S. Rosenblum, Esquire
Post Office Box 58
Alexandria, VA 22313-0058
24. Assignment. The Licensee shall not have the right to assign this agreement
without the prior written consent of the Licensor.
25. Arbitration. Any dispute under this agreement shall be settled in
Alexandria, Virginia by arbitration pursuant to the rules, then obtaining, of
the American Arbitration Association.
In witness whereof the parties have executed this agreement on the date first
set forth above.
SELLER AND LICENSOR:
The Daedalus Project, Inc.
/s/
Edward A. McCulloch
President
PURCHASER AND LICENSEE:
Daedalus Building Systems, Inc.
/s/
Patricia L. Espino-Nayar
Vice President
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter "Agreement") is made and entered into
effective as of the first day of December, 1999, by and between DAEDALUS
BUILDING SYSTEMS, INC, a Delaware Corporation (hereinafter "Employer") and
EDWARD A. McCULLOCH (hereinafter "Employee").
WHEREAS, Employer is engaged in the business of manufacturing and selling
building systems to build housing units worldwide, and desires to employ
Employee to act as President and CEO; and
WHEREAS, Employee desires to accept employment to act as President and CEO and
as an employee of Employer; and
WHEREAS, Employer has offered Employee reasonable compensation in consideration
for such employment pursuant to certain terms and conditions set forth herein
and Employee hereby accepts such offer.
NOW, THEREFORE, for and in consideration of the mutual promises and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Employer and Employee hereby agree
as follows:
1. Term. The term of Employee's employment under this Agreement shall commence
on December 1, 1999, and shall continue thereafter until November 30, 2002,
except as otherwise provided herein (the "Term").
2. Duties and Services. Employee agrees to devote appropriate time and attention
to the business of Employer for the benefit of Employer. The expenditure of
reasonable amounts of time for other business activities shall not be deemed a
breach of this Agreement, provided such activities do not materially interfere
with the services to be rendered hereunder. Any outside employment must be
pre-approved by the Employer, except for employment by companies now known as
Daedalus Products, Inc., Daedalus IT, Inc., or any of the Chesapeake companies.
3. Compensation. As compensation for services provided by Employee and as long
as Employee is not in default hereunder, Employer shall pay Employee per annum
as follows: Year 1 the sum of $ 225,000.00; Year 2 the sum of $ 275,000.00; Year
3 the sum of $ 325,000.00. The compensation shall be paid periodically in
accordance with Employer's normal payroll procedures; provided, however, that
compensation payable to Employee after the Term shall be payable in accordance
with Section 11 of this Agreement. Further, at the option of the Employer, the
Employee may be paid a bonus based upon the financial condition of the company
and upon consideration of Employee's contributions to the company.
4. Disclosure and Ownership of Information.
a. Employee recognized and agrees that the business of Employer and its business
interests require a confidential relationship between Employer and its employees
and the fullest practical protection and confidential treatment of its trade
secrets, trade practices, prospects, transactions, business lists, business
information, business files and other knowledge of business which will be or
have been conceived, developed or learned by Employee during Employee's course
of employment with Employer. Accordingly, during Employee's term of employment
with Employer and thereafter, Employee will: (i) keep secret and confidential
all such information, trade secrets, trade practices, prospects, transactions,
business lists, business information, business files and other business
practices of Employer; (ii) not use or aid others in using, directly or
indirectly, the same in competition with Employer; and (iii) will not contact or
solicit the customers, employees or creditors of Employer in any manner which
relates to any business engaged in by Employer.
b. Notwithstanding anything to the contrary in subsection (a) of this section,
Employer and Employee agree that all housing related inventions, housing related
ideas, housing related plans, housing related reports, or housing related
processes which are conceived, invented, prepared or developed primarily by
Employee during Employee's employment with the Employer shall be the sole and
exclusive property of Employer.
c. Employer and Employee agree that all inventions, ideas, plans, reports,
prospects or processes or other results of labor which are conceived, invented,
prepared or developed, in whole or in part, during Employee's employment with
the employer, by or with the assistance of Employee and with or without the
assistance of Employer or other employees of Employer shall be the sole and
exclusive property of Employer, and Employee shall, upon request by Employer at
any time, execute assignments of the same or other similar documents in favor of
Employer.
d. During the term of this Agreement, Employee shall have access to and become
acquainted with various trade secrets and/or confidential or proprietary
information, including but not limited to protocols, procedures, policies,
business or strategic plans, business accounts, financial information,
contracts, risk management or quality assurance information, and other records
of Employer (some of which may be developed in part by Employee under this
Agreement), which items are owned exclusively by Employer and, to the extent
created by Employee, shall be deemed work for hire, and used in the operation of
its business (the "Confidential Information"). Employee acknowledges that the
Confidential Information is secret, confidential and proprietary to Employer and
has been disclosed to and/or obtained by Employee in confidence and trust for
the sole purpose of using the same for the sole benefit of Employer. During his
employment and after the termination or expiration of his employment, Employee
shall not divulge any of the Confidential Information to any other person or
entity or use the Confidential Information for his own benefit or for the
benefit of any other person or entity, without the prior written consent,
Employer, which consent may be withheld in its sole discretion.
e. The parties agree that the terms of this Section 4 shall survive termination
or expiration of this Agreement. The existence of any claim or cause of action
against Employer by Employee, whether predicated on this Agreement or otherwise,
shall not constitute a defense to enforcement of this Section.
5. Covenant Not to Compete.
a. Employee agrees that while employed by Employer, Employee will not, directly
or indirectly, own, operate, participate in, undertake any employment with or
have any interest in any business enterprise which is competitive with the
business engaged in by Employer; provided, that this section shall not be
interpreted to limit the activities of the Employee when such Employee is acting
as the agent of Employer.
b. For a period of sixty (60) months following the termination of employment
hereunder, Employee shall not, directly or indirectly, own, operate, participate
in, undertake any employment with or have any interest in any business which is
involved in providing housing or dwelling units made of composites or other
materials.
6. Damages for Breach of Sections 6 and 7. In the event Employee breaches or
threatens to breach any of the covenants contained in Sections 6 or 7 hereof,
Employer shall have any and all rights and remedies at law or in equity against
Employee, including, but not limited to, the right to obtain compensatory
damages from Employee. Employer may offset any amounts due Employee from
Employer against amounts due Employer hereunder. The rights and remedies
provided in this Section are in addition to any and all rights and remedies
Employer has, including the right of injunction, pursuant to Section 16 hereof.
Upon request of Employer, Employee shall submit to arbitration as provided in
Section 19 hereof.
7. Reasonableness of Restrictions.
(a) Employee has carefully read and considered the provisions of Paragraph 6, 7
and 8 and, having done so, agrees that the restrictions set forth in these
paragraphs, including, but not limited to, the time period of restriction are
fair and reasonable and are reasonably required for the protection of the
interests of employer and its officer, directors, shareholders and other
employees.
(b) In the event that, notwithstanding the foregoing, any of the provisions of
Paragraphs 6, 7 and 8 shall be held to be invalid or unenforceable, the
remaining provisions thereof shall nevertheless continue to be valid and
enforceable as though the invalid or unenforceable parts had not been included
therein. In the event that any provision of the said Paragraphs relating to the
time period shall be declared by a court of competent jurisdiction to exceed the
maximum time period or areas or amount such court deems reasonable and
enforceable, the time period deemed reasonable and enforceable by the court
shall become and thereafter be the maximum time period.
8. Benefit Plans. Employee shall be provided the opportunity to participate in
any group health and life insurance plans, medical reimbursement plans, pension
plans, profit sharing plans, and any other employee benefit plans or other
fringe benefits available to other physician employees of Employer, whether now
existing or hereafter created. Additionally, the employee will be provided the
opportunity to participate in any program of higher education, at the expense of
the company, so long as it relates directly to the business of the Employer and
to the functions for which the Employee is employed.
9. Notices. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and either personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
employer at its principal place of business and to the Employee at his or her
last known residential address.
10. Arbitration; Injunctive Relief. Except as otherwise provided in Section 8
hereof, any dispute or controversy arising under this Agreement and relating to
damages shall be settled by submitting the same to arbitration under the
commercial rules of the American Arbitration Association, as then in effect, in
Alexandria, Virginia. Any decision or determination from such an arbitration
proceeding shall be final and binding and may be entered in any court having
jurisdiction thereof, unless the decision or determination is in manifest
disregard of the applicable law. Employee and Employer acknowledge, however,
that in many situations damages are an inadequate remedy at law for the breach
of many of the terms hereof (including, but not limited to, the covenants of
Employee contained in Sections 6 and 7 hereof) and, accordingly, Employer is
hereby granted and shall have the right of injunction (any requirements for
posting of bonds for injunction are hereby expressly waived), and such other and
further relief in equity as Employer may be entitled to receive under the laws
of the Commonwealth of Virginia, in the event Employee breaches or threatens to
breach any of the covenants or agreements contained herein. In the event any
provisions hereof shall be modified or held ineffective by any arbitrator or any
court in any respect, such determination or adjudication shall not invalidate or
render ineffective the balance of the provisions hereof, and the provisions
hereof shall be enforced to the maximum extent allowed by law.
11. Entire Agreement. The Agreement represents the entire and final agreement
between the parties. The parties hereto have read the terms and conditions of
their Agreement before signing the same, and hereby agree that no statement,
agreement or understanding, whether oral or written, not contained herein will
be recognized or enforced.
12. Miscellaneous. This Agreement shall be governed by the laws of the
Commonwealth of Virginia and shall be enforceable in Alexandria or Fairfax,
Virginia, and shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives. This Agreement may be amended only in a writing signed by
Employer and Employee. Any waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any part or of any other provision hereof. A waiver of any
of the terms and conditions hereof shall not be construed as a general waiver by
Employer, and employer shall be free to reinstate any such term or condition,
with or without notice to Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the first date stated above.
EMPLOYER
========
DAEDALUS BUILDING SYSTEMS, INC.
/s/
Name: PATRICIA L. ESPINO-NAYAR
Vice President
EMPLOYEE:
========
/s/
EDWARD A. McCULLOCH
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter "Agreement") is made and entered into
effective as of the first day of December, 1999, by and between DAEDALUS
BUILDING SYSTEMS, INC, a Delaware Corporation (hereinafter "Employer") and DAVID
LIGHTBODY (hereinafter "Employee").
WHEREAS, Employer is engaged in the business of manufacturing and selling
building systems to build housing units worldwide, and desires to employ
Employee to act as Executive Vice President; and
WHEREAS, Employee desires to accept employment to act as Executive Vice
President and as an employee of Employer; and
WHEREAS, Employer has offered Employee reasonable compensation in consideration
for such employment pursuant to certain terms and conditions set forth herein
and Employee hereby accepts such offer.
NOW, THEREFORE, for and in consideration of the mutual promises and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Employer and Employee hereby agree
as follows:
1. Term. The term of Employee's employment under this Agreement shall commence
on December 1, 1999, and shall continue thereafter until November 30, 2002,
except as otherwise provided herein (the "Term").
2. Duties and Services. Employee agrees to devote appropriate time and attention
to the business of Employer for the benefit of Employer. The expenditure of
reasonable amounts of time for other business activities shall not be deemed a
breach of this Agreement, provided such activities do not materially interfere
with the services to be rendered hereunder. Any outside employment must be
pre-approved by the Employer, except for employment by companies now known as
Daedalus Products, Inc., Daedalus IT, Inc., or any of the Chesapeake companies.
3. Compensation. As compensation for services provided by Employee and as long
as Employee is not in default hereunder, Employer shall pay Employee per annum
as follows: Year 1 the sum of $ 130,000.00; Year 2 the sum of $ 160,000.00; Year
3 the sum of $ 190,000.00. The compensation shall be paid periodically in
accordance with Employer's normal payroll procedures; provided, however, that
compensation payable to Employee after the Term shall be payable in accordance
with Section 11 of this Agreement. Further, at the option of the Employer, the
Employee may be paid a bonus based upon the financial condition of the company
and upon consideration of Employee's contributions to the company.
4. Disclosure and Ownership of Information.
a. Employee recognized and agrees that the business of Employer and its business
interests require a confidential relationship between Employer and its employees
and the fullest practical protection and confidential treatment of its trade
secrets, trade practices, prospects, transactions, business lists, business
information, business files and other knowledge of business which will be or
have been conceived, developed or learned by Employee during Employee's course
of employment with Employer. Accordingly, during Employee's term of employment
with Employer and thereafter, Employee will: (i) keep secret and confidential
all such information, trade secrets, trade practices, prospects, transactions,
business lists, business information, business files and other business
practices of Employer; (ii) not use or aid others in using, directly or
indirectly, the same in competition with Employer; and (iii) will not contact or
solicit the customers, employees or creditors of Employer in any manner which
relates to any business engaged in by Employer.
b. Notwithstanding anything to the contrary in subsection (a) of this section,
Employer and Employee agree that all housing related inventions, housing related
ideas, housing related plans, housing related reports, or housing related
processes which are conceived, invented, prepared or developed primarily by
Employee during Employee's employment with the Employer shall be the sole and
exclusive property of Employer.
c. Employer and Employee agree that all inventions, ideas, plans, reports,
prospects or processes or other results of labor which are conceived, invented,
prepared or developed, in whole or in part, during Employee's employment with
the employer, by or with the assistance of Employee and with or without the
assistance of Employer or other employees of Employer shall be the sole and
exclusive property of Employer, and Employee shall, upon request by Employer at
any time, execute assignments of the same or other similar documents in favor of
Employer.
d. During the term of this Agreement, Employee shall have access to and become
acquainted with various trade secrets and/or confidential or proprietary
information, including but not limited to protocols, procedures, policies,
business or strategic plans, business accounts, financial information,
contracts, risk management or quality assurance information, and other records
of Employer (some of which may be developed in part by Employee under this
Agreement), which items are owned exclusively by Employer and, to the extent
created by Employee, shall be deemed work for hire, and used in the operation of
its business (the "Confidential Information"). Employee acknowledges that the
Confidential Information is secret, confidential and proprietary to Employer and
has been disclosed to and/or obtained by Employee in confidence and trust for
the sole purpose of using the same for the sole benefit of Employer. During his
employment and after the termination or expiration of his employment, Employee
shall not divulge any of the Confidential Information to any other person or
entity or use the Confidential Information for his own benefit or for the
benefit of any other person or entity, without the prior written consent,
Employer, which consent may be withheld in its sole discretion.
e. The parties agree that the terms of this Section 4 shall survive termination
or expiration of this Agreement. The existence of any claim or cause of action
against Employer by Employee, whether predicated on this Agreement or otherwise,
shall not constitute a defense to enforcement of this Section.
5. Covenant Not to Compete.
a. Employee agrees that while employed by Employer, Employee will not, directly
or indirectly, own, operate, participate in, undertake any employment with or
have any interest in any business enterprise which is competitive with the
business engaged in by Employer; provided, that this section shall not be
interpreted to limit the activities of the Employee when such Employee is acting
as the agent of Employer.
b. For a period of sixty (60) months following the termination of employment
hereunder, Employee shall not, directly or indirectly, own, operate, participate
in, undertake any employment with or have any interest in any business which is
involved in providing housing or dwelling units made of composites or other
materials.
6. Damages for Breach of Sections 6 and 7. In the event Employee breaches or
threatens to breach any of the covenants contained in Sections 6 or 7 hereof,
Employer shall have any and all rights and remedies atlaw or in equity against
Employee, including, but not limited to, the right to obtain compensatory
damages from Employee. Employer may offset any amounts due Employee from
Employer against amounts due Employer hereunder. The rights and remedies
provided in this Section are in addition to any and all rights and remedies
Employer has, including the right of injunction, pursuant to Section 16 hereof.
Upon request of Employer, Employee shall submit to arbitration as provided in
Section 19 hereof.
7. Reasonableness of Restrictions.
(a) Employee has carefully read and considered the provisions of Paragraph 6, 7
and 8 and, having done so, agrees that the restrictions set forth in these
paragraphs, including, but not limited to, the time period of restriction are
fair and reasonable and are reasonably required for the protection of the
interests of employer and its officer, directors, shareholders and other
employees.
(b) In the event that, notwithstanding the foregoing, any of the provisions of
Paragraphs 6, 7 and 8 shall be held to be invalid or unenforceable, the
remaining provisions thereof shall nevertheless continue to be valid and
enforceable as though the invalid or unenforceable parts had not been included
therein. In the event that any provision of the said Paragraphs relating to the
time period shall be declared by a court of competent jurisdiction to exceed the
maximum time period or areas or amount such court deems reasonable and
enforceable, the time period deemed reasonable and enforceable by the court
shall become and thereafter be the maximum time period.
8. Benefit Plans. Employee shall be provided the opportunity to participate in
any group health and life insurance plans, medical reimbursement plans, pension
plans, profit sharing plans, and any other employee benefit plans or other
fringe benefits available to other physician employees of Employer, whether now
existing or hereafter created. Additionally, the employee will be provided the
opportunity to participate in any program of higher education, at the expense of
the company, so long as it relates directly to the business of the Employer and
to the functions for which the Employee is employed.
9. Notices. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and either personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
employer at its principal place of business and to the Employee at his or her
last known residential address.
10. Arbitration; Injunctive Relief. Except as otherwise provided in Section 8
hereof, any dispute or controversy arising under this Agreement and relating to
damages shall be settled by submitting the same to arbitration under the
commercial rules of the American Arbitration Association, as then in effect, in
Alexandria, Virginia. Any decision or determination from such an arbitration
proceeding shall be final and binding and may be entered in any court having
jurisdiction thereof, unless the decision or determination is in manifest
disregard of the applicable law. Employee and Employer acknowledge, however,
that in many situations damages are an inadequate remedy at law for the breach
of many of the terms hereof (including, but not limited to, the covenants of
Employee contained in Sections 6 and 7 hereof) and, accordingly, Employer is
hereby granted and shall have the right of injunction (any requirements for
posting of bonds for injunction are hereby expressly waived), and such other and
further relief in equity as Employer may be entitled to receive under the laws
of the Commonwealth of Virginia, in the event Employee breaches or threatens to
breach any of the covenants or agreements contained herein. In the event any
provisions hereof shall be modified or held ineffective by any arbitrator or any
court in any respect, such determination or adjudication shall not invalidate or
render ineffective the balance of the provisions hereof, and the provisions
hereof shall be enforced to the maximum extent allowed by law.
11. Entire Agreement. The Agreement represents the entire and final agreement
between the parties. The parties hereto have read the terms and conditions of
their Agreement before signing the same, and hereby agree that no statement,
agreement or understanding, whether oral or written, not contained herein will
be recognized or enforced.
12. Miscellaneous. This Agreement shall be governed by the laws of the
Commonwealth of Virginia and shall be enforceable in Alexandria or Fairfax,
Virginia, and shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives. This Agreement may be amended only in a writing signed by
Employer and Employee. Any waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any part or of any other provision hereof. A waiver of any
of the terms and conditions hereof shall not be construed as a general waiver by
Employer, and employer shall be free to reinstate any such term or condition,
with or without notice to Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the first date stated above.
EMPLOYER
========
DAEDALUS BUILDING SYSTEMS, INC.
/s/
EDWARD A. McCULLOCH
President
EMPLOYEE
========
/s/
DAVID LIGHTBODY
EXHIBIT 10.7
L E A S E
THIS LEASE, made in quadruplicate, this 1st day of November, 1999, by and
between CHESAPEAKE SERVICES CORPORATION, a Virginia Corporation, hereinafter
referred to as "Lessor", and DAEDALUS BUILDING SYSTEMS, INC., a Delaware
Corporation, hereinafter referred to as "Lessee."
W I T N E S S E T H:
1. PREMISES. The Lessor does demise and let unto the Lessee, and Lessee does
lease and take from the Lessor, for the term and upon the restrictions and
conditions as set forth in this Lease, the first floor of the premises,
consisting of 4,556 square feet, inclusive of land, building and structures,
located at 8653 Richmond Highway, Alexandria, Virginia 22309, together with all
alley rights and parking rights, if any, easements, rights of way, and
appurtenances in connection therewith or thereunto belonging.
2. USE OF LEASED PREMISES.
a. Use. Lessee shall occupy and use the demised premises for the operation of an
office and facilities for Lessee. Lessee shall not permit any conduct, which, in
the opinion of Lessor, is disreputable.
b. Compliance with Laws. The lessee shall comply with all federal, state, or
municipal laws, ordinances and regulations dealing with the use of the demised
premises, and will save the Lessor harmless from any damage, penalty, or charge
imposed or incurred for the violation of any such laws, ordinances, or
regulations, whether occasioned by the Lessee, its agents, or any other person
using or present upon the demised premises.
c. Waste and Quiet Conduct. The Lessee shall not commit or suffer to be
committed any waste or any nuisance upon the demised premises. The Lessee shall
keep the demised premises reasonably clean and free of trash, waste paper and
other litter.
d. Utilities and Service. Lessee shall, throughout the term of this Lease, pay
for all electricity, gas, water and every other service, commodity, or article
which may be furnished and supplied to it or to the demised premises.
e. Lessor's Right to Enter. The Lessee shall permit the Lessor and its
authorized agents, at all reasonable times during the period of this Lease, to
enter upon the demised premises for the purpose of inspecting them.
3. POSSESSION. The Lessor agrees to deliver to Lessee physical possession of the
demised premises upon the commencement of the term hereof, free and clear of all
tenants and occupants and the rights of either. Lessee agrees to deliver to the
Lessor physical possession of the demised premises upon the termination of the
term hereof or any extension thereof, in good condition, and repair, reasonable
wear, damage by fire, or damage from any other cause not directly attributable
to the negligence of Lessee excepted.
EXHIBIT 21
LIST OF SUBSIDIARIES
AND STATE OF INCORPORATION
Daedalus Composites, Inc. - Ontario, Canada
Daedalus-Cambridge, Inc. - Ontario, Canada
EXHIBIT 23.1
PANNELL KERR FOSTER PC
FAIRFAX, VIRGINIA
DECEMBER 30, 1999
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in the registration statement on Form SB-2 of
Daedalus Building Systems, Inc. (Daedalus), of our report dated December 10,
1999 on Daedalus' consolidated financial statements as of October 31, 1999 and
for the period May 20, 1999 (inception) to October 31, 1999, and to the
reference of our firm as experts.
/s/
Pannell Kerr Foster PC