SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 8, 2001
EMPYREAN COMMUNICATIONS, INC. Formerly DIRECTION TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Nevada 0-30118 88-0413417
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
PMB 723, 250 "H" Street, Blaine, Washington 98230
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including are code: (604) 683-6648
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Not applicable
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(Former name or former address, if changed since last report)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Empyrean Communications, Inc.
We have audited the accompanying balance sheet of Empyrean Communications, Inc.
(a development stage company), as of December 31, 2000, and the related
statements of operations, shareholders' equity (deficit), and cash flows for the
period from inception (November 1, 2000) to the year ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the Unites States of America. 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 Empyrean Communications, Inc.
as of December 31, 2000, and the results of its operations, stockholders'
equity, and its cash flows for the period from inception (November 1, 2000) to
the year ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During the initial period ended
December 31, 2000, the Company incurred net losses of $69,008, and remains in
the development stage at December 31, 2000. Recovery of the Company's assets is
dependent upon future events, the outcome of which is indeterminable. In
addition, successful completion of the Company's development program and its
transition, ultimately, to the attainment of profitable operations is dependent
upon obtaining adequate financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's cost structure.
These factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Dickey, Rush, Duncan, Ansell & Co., P.C.
Houston, Texas
May 21, 2001
EMPYREAN COMMUNICATIONS, INC.
(A Development Stage Company)
Financial Statements
As of and for the Year Ended December 31, 2000
and for the Period from Inception (November 1, 2000)
to December 31, 2000
Page 1
Table of Contents
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Cash Flows 4
Statement of Shareholders' Equity (Deficit) 5
Notes to Financial Statements 6 - 7
Page 2
Empyrean Communications, Inc.
(A Development Stage Company)
BALANCE SHEET
December 31, 2000
CURRENT ASSETS
Cash $ 1,000
--------
TOTAL CURRENT ASSETS 1,000
--------
TOTAL ASSETS $ 1,000
========
CURRENT LIABILITIES
Professional Fees Payable $ 67,200
Accrued Expenses 1,808
--------
TOTAL CURRENT LIABILITIES 69,008
--------
TOTAL LIABILITIES 69,008
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY(DEFICIT)
Common Stock; no par value; 15,000,000 shares
authorized; 15,000,000 issued and outstanding 1,000
Deficit Accumulated during Development Stage (69,008)
--------
TOTAL SHAREHOLDERS' EQUITY (68,008)
--------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 1,000
========
/s/Dale Renaud /s/George Burks
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President/Director Director
See accompanying notes and accountants' report
Page 3
Empyrean Communications, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
For the Period from Inception (November 1, 2000)
to December 31, 2000
Revenues $ -
Operating Expenses
Consulting Fees 67,200
Travel and Entertainment 1,808
--------
Total Operating Expenses 69,008
--------
Loss from Operations (69,008)
Provision for Income Taxes -
Net Loss $ (69,008)
========
See accompanying notes and accountants' report
Page 4
Empyrean Communications, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Period from Inception (November 1, 2000)
to December 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (69,008)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Increase in Accounts Payable 69,008
-------
NET CASH USED BY OPERATING ACTIVITIES 0
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from Issuance of Common Stock 1,000
-------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,000
-------
NET INCREASE IN CASH 1,000
CASH AT BEGINNING OF PERIOD 0
-------
CASH AT END OF PERIOD $ 1,000
=======
See accompanying notes and accountants' report
Page 5
Empyrean Communications, Inc.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period from Inception (November 1, 2000)
to December 31, 2000
Deficit
Accumulated
During The
Common Stock Development
----------------------
Shares Amount Stage Total
---------- ----------- ----------- --------
Issued upon incorporation
for cash 15,000,000 $ 1,000 $ $ 1,000
Net Loss from inception to
December 31, 2000 (69,008) (69,008)
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Balance - December 31, 2000 15,000,000 $ 1,000 $(69,008) $(68,008)
========== =========== =========== ========
See accompanying notes and accountants' report
Page 6
Empyrean Communications, Inc.
Notes to Financial Statements
December 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
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Organization
Empyrean Communications, Inc. (the "Company") is a Texas corporation, and was
organized on October 30, 2000. Initial funding of the Company and commencement
of development stage operations began December 1, 2000.
Business Operations
The Company plans to be engaged in the telecommunications industry in the
process of "lighting up" broadband lines in ten major cities in the United
States. As of December 31, 2000, the Company was in the process of raising
capital for this purpose.
Cash and Cash Equivalents
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For purposes of reporting cash flows, cash and cash equivalents include cash and
interest bearing deposits with original maturities of three months or less.
Estimates
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The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Income Taxes
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No provision has been made in the accompanying financial statements for income
taxes, as the Company sustained losses for both financial and tax reporting
purposes for the period ended December 31, 2000.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company has entered into contracts with three of its corporate officers to
provide legal, financial and administrative services for the Company on a month
to month basis.
Page 7
NOTE 2 - RELATED PARTY TRANSACTIONS (continued)
As of December 31, 2000, the Company has incurred a total of $67,200 in expenses
related to these contracts and owes $22,400 to each of these officers.
In December 2000, the Company entered into a long-term agreement with its
majority shareholder, VNet Investment Company. As of December 31, 2000, VNet
Investment Company owned 12,500,000 or 83.3% of the Company's outstanding common
shares. (See Note 3)
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company has entered into a ten (10) year contractual agreement with VNet
Investment Company of Oklahoma City, Oklahoma for the purchase and development
of broadband capacity and more specifically for dark fiber bandwidth consisting
of five (5) OC-48 lines between ten (10) major United States cities for a total
of 50 OC-48 lines. The estimated cost to "light up"the broadband is $82,000,000
and is payable to VNet. The Company also expects to incur additional costs of
$500,000 per city to install the necessary connections.
NOTE 4 - SUBSEQUENT EVENTS
On February 23, 2001, the Company's Board of Directors approved a plan of
reorganization. Pursuant to the plan, the stockholders of Empyrean
Communications, Inc. surrendered 100% of their common shares in exchange for
equal numbers of common shares in Direction Technologies, Inc., a Nevada
corporation, on March 8, 2001.
Item 2. Acquisition or Disposition of Assets
On March 8, 2001, Direction Technologies, Inc. (the "Company" or "Direction")
acquired Empyrean Communications, Inc., a Texas corporation with offices in
Houston, Texas ("Empyrean"), through a tax-free, stock-for-stock reorganization.
Direction issued 15,000,000 shares of its common stock for all of the shares of
Empyrean.
Empyrean is an international broadband provider capable of delivering fiber
capacity to OC-192 levels. Empyrean is currently working to "light up" the
29,000 miles of fiber-optical digital broadband it currently has under contract.
Empyrean also currently has five OC-48 Bandwidth dark fiber circuits under
contract in ten U.S. cities for ten years.
The description of the transaction set forth above is qualified in its entirety
by the provisions of the Agreement and Plan of Reorganization for the
Acquisition of All of the Outstanding Shares of Common Stock of Empyrean
Communications, Inc. by Direction Technologies, Inc. dated February 28, 2000,
which is filed as Exhibit 10.1 to this Form 8-K and incorporated herein by
reference.
Statements in this report that are not strictly historical are "forward-looking"
statements which should be considered subject to the many uncertainties that
exist in the Company's operations and business environment. These
uncertainties, which include economic conditions, market demand and pricing,
competitive and cost factors, and the like, are included in this release.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired
It is not practicable to include the financial statements of Empyrean as
required by Rule 3-05(b) of Regulation S-X at this time. The Company intends to
file such information on or before May 7, 2000.
(b) Pro forma financial information
It is not practicable to include the pro forma financial information as required
by Article 11 of Regulation S-X at this time. The Company intends to file such
information on or before May 7, 2000.
(c) Exhibits
10.1 Agreement and Plan of Reorganization for the Acquisition of All of the
Outstanding Shares of Common Stock of Empyrean Communications, Inc. by Direction
Technologies, Inc. dated February 28, 2000.
The Company agrees to furnish supplementally to the Securities and Exchange
Commission a copy of the exhibits to the Agreements and Plans of Reorganization
upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DIRECTION TECHNOLOGIES, INC.
/s/Dale Renaud
------------------------------
Dale A. Renaud,
Chief Executive Officer
Date: March 19, 2001
EXHIBIT INDEX
Exhibit 10.1
Agreement and Plan of Reorganization for the Acquisition of All of the
Outstanding Shares of Common Stock of Empyrean Communications, Inc. by Direction
Technologies, Inc. dated February 28, 2000.
Exhibit A - Schedule of EMPYREAN Stockholders
Exhibit B-1 - Letter of Resignation of Rolf Papsdorf
Exhibit B-2 - Letter of Resignation of Dieter Schindelhauer
Exhibit B-3 - DIRECTION Resolutions Electing New Board
Exhibit C - EMPYREAN Resolutions Electing Liebscher
Exhibit D - Qiblah Spin-Off Terms
Exhibit E - Declaration and Power of Attorney to Stockholder Representative
Exhibit F-1- Legal Opinion of DIRECTION Counsel
Exhibit F-2 -- Legal Opinion of EMPYREAN Counsel
Exhibit G - Schedule of Exceptions of EMPYREAN
Exhibit H -- Resolutions of EMPYREAN -- Authorization
Exhibit I - Financial Statement of EMPYREAN
Exhibit J -- Legal Descriptions of Real Property of EMPYREAN
Exhibit K - List of Personal Property of EMPYREAN
Exhibit L - Patents, Trademarks, Service Marks of EMPYREAN
Exhibit M - EMPYREAN Insurance Policies
Exhibit N - EMPYREAN Bank Accounts and Signatories Therefor
Exhibit O -- Schedule of Exceptions of DIRECTION
Exhibit P -- Resolutions of DIRECTION -- Authorization
Exhibit Q -- Rights to Acquire DIRECTION Stock
Exhibit R -- Financial Statements of DIRECTION
Exhibit S - DIRECTION Annual Report
Exhibit T - DIRECTION Proxy Statement
Exhibit U - Patents, Trademarks, Service Marks of DIRECTION
Exhibit V - DIRECTION Insurance Policies
Exhibit W - DIRECTION Bank Accounts and Signatories Therefor
Exhibit 10.1
AGREEMENT AND PLAN OF REORGANIZATION
FOR THE ACQUISITION OF ALL OF THE OUTSTANDING SHARES OF
COMMON STOCK OF EMPYREAN COMMUNICATIONS, INC.
BY DIRECTION TECHNOLOGIES, INC.
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TABLE OF CONTENTS
PAGE
RECITALS 1
ARTICLE I - THE REORGANIZATION 2
ARTICLE II - EXCHANGE OF SHARES 5
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF EMPYREAN 6
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF DIRECTION 15
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS 23
ARTICLE VI - MISCELLANEOUS 25
EXHIBITS:
Schedule of EMPYREAN Stockholders "A"
Letter of Resignation of Rolf Papsdorf "B-1"
Letter of Resignation of Dieter Schindelhauer "B-2"
DIRECTION Resolutions Electing New Board "B-3"
EMPYREAN Resolutions Electing Liebscher "C"
Qiblah Spin-Off Terms "D"
Declaration and Power of Attorney to Stockholder Representative "E"
Legal Opinion of DIRECTION Counsel "F-1"
Legal Opinions of EMPYREAN Counsel "F-2"
Schedule of Exceptions of EMPYREAN "G"
Resolutions of EMPYREAN--Authorization "H"
Financial Statements of EMPYREAN "I"
Legal Descriptions of Real Property of EMPYREAN "J"
List of Personal Property of EMPYREAN "K"
Patents, Trademarks, Service Marks of EMPYREAN "L"
EMPYREAN Insurance Policies "M"
EMPYREAN Bank Accounts and Signatories Therefor "N"
Schedule of Exceptions of DIRECTION "O"
Resolutions of DIRECTION--Authorization "P"
Rights to Acquire DIRECTION Stock "Q"
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Financial Statements of DIRECTION "R"
DIRECTION Annual Report "S"
DIRECTION Quarterly Report "T"
Patents, Trademarks, Service Marks of DIRECTION "U"
DIRECTION Insurance Policies "V"
DIRECTION Bank Accounts and Signatories Therefor "W"
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Page 1
AGREEMENT AND PLAN OF REORGANIZATION
FOR THE ACQUISITION OF ALL OF THE OUTSTANDING SHARES OF
COMMON STOCK OF EMPYREAN COMMUNICATIONS, INC.
BY DIRECTION TECHNOLOGIES, INC.
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of
the 28th day of February, 2001, by and among only the common stockholders of
EMPYREAN COMMUNICATIONS, INC. who are signatories to this Agreement and whose
names are listed in Exhibit "A," a copy of which is attached hereto and
incorporated herein by this reference (the "Stockholders"), EMPYREAN
COMMUNICATIONS, INC. ("EMPYREAN"), a Texas corporation, and DIRECTION
TECHNOLOGIES, INC. ("DIRECTION"), a Nevada corporation.
RECITALS:
A. WHEREAS, the transactions described in this Agreement are related to
the transactions contemplated in the Letter of Intent between DIRECTION and
EMPYREAN dated January 4, 2001 (the "LOI"), and the parties hereto acknowledge
that the terms of this Agreement are intended to supersede the terms set forth
in the LOI; and
B. WHEREAS, the Stockholders together own, beneficially and of record,
the issued and outstanding shares of the common stock of EMPYREAN (hereinafter
the shares of common stock are referred to as the "Empyrean Shares") as set
forth in the schedule attached hereto and incorporated herein by this reference
as Exhibit "A;" and
C. WHEREAS, DIRECTION desires to acquire from the Stockholders all of
the outstanding Empyrean Shares owned by them solely in exchange for an
aggregate of 15,000,000 shares (the "Direction Shares") of the common stock of
DIRECTION and the Stockholders desire to exchange their Empyrean Shares for the
Direction Shares, the number of the Empyrean Shares being surrendered and the
number of Direction Shares being received by the Stockholders are as set forth
in Exhibit "A" hereto; and
D. WHEREAS, DIRECTION is acting through KENNETH B. LIEBSCHER
("LIEBSCHER"), as authorized by the Board of Directors, and the Stockholders are
acting through DALE A. RENAUD ("RENAUD"), a member of the Board of Directors and
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the President of EMPYREAN, (RENAUD is sometimes referred to as the "Stockholder
Representative"); and
E. WHEREAS, the parties hereto desire to set forth the definitive terms
and conditions upon which the Stockholders shall exchange with DIRECTION, and
DIRECTION shall exchange with the Stockholders, the stock owned by each of them;
and
F. WHEREAS, it is intended that EMPYREAN, DIRECTION, and their
respective stockholders will recognize no gain or loss for U.S. federal income
tax purposes under Section 368 (a)(1)(B) of the Internal Revenue Code of 1986,
as amended (the "Code"), and the regulations promulgated thereunder as a result
of the Reorganization; and
G. WHEREAS, the parties hereto have entered into or may enter into other
agreements simultaneously with the execution of this Agreement which are not
intended to influence the tax-free result of exchange of the Empyrean Shares for
the Direction Shares;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties, covenants and agreements contained herein, and in
accordance with the applicable provisions of state law, the parties hereto
covenant and agree as follows:
ARTICLE I
THE REORGANIZATION
1.1 The Reorganization. On and as of the Closing (as defined in
Section 1.3 below) of this Agreement, the Stockholders shall surrender all of
the Empyrean Shares in exchange for the Direction Shares in the amounts set
forth in Exhibit "A." The transactions contemplated hereby are intended to
qualify as a tax-free reorganization under 368(a)(1)(B) of the Code and the
regulations promulgated thereunder and the parties hereto agree to report them
as such.
1.2 Escrow. The parties shall establish an escrow (the "Escrow") with
Gibson, Haglund & Paulsen, counsel to DIRECTION, at 2 Park Plaza, Suite 450,
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Irvine, California 92614 (the "Escrow Holder") to facilitate the reorganization
as further set forth herein.
1.3 Closing. The closing of the Reorganization (the "Closing") shall
take place (i) at the offices of Gibson, Haglund & Paulsen, counsel to
DIRECTION, at 2 Park Plaza, Suite 450, Irvine, California 92614 at 2:00 p.m.,
local time, on March 8, 2001; or (ii) at such other time and place and on such
other date as the Stockholder Representative, EMPYREAN, and DIRECTION agree (the
"Closing Date"). The Closing Date shall be the "Effective Date" of the
Reorganization.
1.4 Taking of Necessary Actions. The Stockholder Representative
(acting on behalf of the Stockholders), EMPYREAN, and DIRECTION shall each take
all such actions as may be reasonably necessary or appropriate in order to
effectuate the transactions contemplated hereby and to make the Reorganization
effective as of the Effective Date. If at any time after the Effective Date any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest DIRECTION with full title to all of the Empyrean Shares,
the Stockholder Representative, on behalf of the Stockholders, and the officers
and directors of EMPYREAN and DIRECTION, at the expense of the DIRECTION, shall
take all such necessary or appropriate action. To effect the intents and
purposes of this Agreement, the following actions shall be taken at the Closing,
shall be deemed to occur simultaneously, and the accomplishment of which actions
by the parties whose duty it is to perform such actions is duly acknowledged by
the execution of this Agreement by the parties hereto:
1.4.1 Election of New DIRECTION Board; Election of LIEBSCHER to
EMPYREAN Board. As a condition to the Closing, the current members of the Board
of Directors of DIRECTION other than LIEBSCHER shall resign as members of the
Board of Directors of DIRECTION, which letters of resignation are attached
hereto as Exhibits "B-1" and "B-2,"and LIEBSCHER, in accordance with the
Unanimous Written Consent of DIRECTION attached hereto as Exhibit "B-3" as the
sole DIRECTION Board member, shall elect the following persons to fill the
vacancies on the DIRECTION Board of Directors: RENAUD, GEORGE BURKS ("BURKS")
and ROBERT L. LEE ("LEE"). As a condition to the Closing, the current members of
the Board of Directors of EMPYREAN shall reconstitute the Board of Directors of
EMPYREAN so that its members shall be RENAUD, BURKS, LEE and LIEBSCHER as set
forth in the Unanimous Written Consent of EMPYREAN attached hereto as Exhibit
"C."
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1.4.2 Election of New Officers of DIRECTION. As a condition to
the Closing, the officers of DIRECTION shall resign as set forth in Exhibits
"B-1" and "B-2," and the Board of Directors of DIRECTION shall elect RENAUD as
President and Chief Executive Officer and BURKS as Secretary as set forth in the
Unanimous Written Consent of DIRECTION attached hereto as Exhibit "B-3."
1.4.3 Spin-Off of Qiblah Locator Assets. The parties acknowledge
that it is their intention to spin-off the assets of DIRECTION related to the
Qiblah Locator to Qiblah International Technologies Ltd. as described in Exhibit
"D."
1.4.4 Delivery of Executed Agreement and Empyrean Shares. The
Stockholders, on their own behalf or through the Stockholder Representative,
shall deliver their Empyrean Shares, an executed copy of this Agreement, and an
executed copy of the Power of Attorney attached hereto as Exhibit "E" to the
Escrow Holder prior to the Closing. If the Closing does not occur on or before
March 31, 2001, the Escrow Holder shall return the executed copy of this
Agreement and the Empyrean Shares to the Stockholder Representative.
Notwithstanding the foregoing, the parties agree that as long as 80% of the
Empyrean Shares have been delivered to Escrow Holder prior to the Closing, then
the Closing may proceed and the period for delivering the remaining 20% of the
Empyrean Shares shall be extended for 30 days.
1.4.5 Lock-Up of Direction Shares. The Stockholders agree that any
of their Direction Shares shall be sold in accordance with the provisions of
Rule 144 promulgated under the Securities Act of 1933.
1.4.6 Due Diligence by the Parties. DIRECTION and its agents,
attorneys, and representatives acknowledge that they have had full and free
access to the properties, books, and records of EMPYREAN for purposes of
conducting investigations of the EMPYREAN business. EMPYREAN and its agents,
attorneys, and representatives acknowledge that they have had full and free
access to the properties, books, and records of DIRECTION for purposes of
conducting investigations of the DIRECTION business. DIRECTION and EMPYREAN
acknowledge by their execution of this Agreement the satisfactory results of
their respective due diligence reviews.
1.4.7 Power of Attorney. RENAUD, as Stockholder Representative,
shall deliver to DIRECTION copies of the power of attorney in the form attached
hereto as Exhibit "E," providing for the appointment of the Stockholder
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Representative as attorney-in-fact for the individual Stockholders to effect the
exchange of certificates of the Empyrean Shares for the Direction Shares and to
take such other actions at the Closing as may be necessary to consummate this
Agreement. Each of the Stockholders shall execute and deliver to the Escrow
Holder a copy of Exhibit "E" together with their signature and delivery of this
Agreement to DIRECTION.
1.4.8 Legal Opinions. At the Closing, counsel to DIRECTION and
counsel to EMPYREAN shall each deliver an opinion of counsel pertaining to good
standing, authorization and valid issuance of the shares of their respective
clients, the capitalization of their respective clients, the due authorization
of the Reorganization, and such other matters as are customary in transactions
of this type, in the form of Exhibit "F-1," for DIRECTION's counsel, and Exhibit
"F-2," for EMPYREAN's counsel, copies of which are attached hereto.
ARTICLE II
EXCHANGE OF SHARES
2.1 Exchange of Shares. Subject to the terms and conditions of this
Agreement, and assuming that all actions have been taken as set forth in Section
1.4 above on the Closing Date, by virtue of the Reorganization and without any
further action on the part of the Stockholders, EMPYREAN, or DIRECTION, all of
the Empyrean Shares, with respect to which the respective Stockholders owning
such Empyrean Shares shall have executed a signature page of this Agreement,
shall be exchanged for the Direction Shares in the amounts set forth in Exhibit
"A" for such Stockholders. Each share of the Direction Shares shall be validly
issued, duly authorized, fully paid, and nonassessable shares of the Common
Stock of DIRECTION as of the Closing Date.
2.2 Exchange of Certificates. In advance of the Closing, DIRECTION
shall present and deliver to the Escrow Holder the stock certificates
representing all of the Direction Shares. Also in advance of the Closing, the
Stockholders or the Stockholder Representative shall present and deliver to the
Escrow Holder all of the certificates representing the Empyrean Shares, or lost
certificate affidavits in a form acceptable to DIRECTION. At the Closing, the
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Escrow Holder shall present and deliver to the Stockholder Representative the
stock certificates representing all of the Direction Shares. Also at the
Closing, the Escrow Holder shall present and deliver to DIRECTION all of the
certificates representing the Empyrean Shares, or lost certificate affidavits.
2.3 No Further Rights. From and after the Closing Date, holders of
certificates formerly evidencing the Empyrean Shares shall cease to have any
rights as stockholders of EMPYREAN, except as provided herein or by applicable
law.
2.4 Stockholder Approval. The Closing shall be contingent upon the
agreement of Stockholders holding a minimum of 80% of the outstanding Empyrean
Shares. At such time as Stockholders holding a minimum of 80% of the Empyrean
Shares have entered into this Agreement, the parties shall proceed with the
Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EMPYREAN
Except as set forth in the Schedule of Exceptions attached hereto and
incorporated herein by reference as Exhibit "G," EMPYREAN represents and
warrants to, and covenants with, DIRECTION, as of the date hereof and as of the
Closing Date, as follows:
3.1 Organization and Corporate Power. EMPYREAN is a corporation duly
organized, in good standing, and validly existing under the laws of Texas.
EMPYREAN has all requisite corporate power and authority to conduct its business
as now being conducted and to own and lease the properties, which it now owns
and leases. The charter documents of EMPYREAN as amended to date and the
resolutions of EMPYREAN's stockholders (if necessary) and directors authorizing
the execution, delivery, and performance of this Agreement, all certified by the
President and the Secretary, which have previously been provided to DIRECTION by
EMPYREAN, are true and complete copies thereof as currently in effect.
3.2 Authorization. EMPYREAN has full corporate power, legal capacity,
and authority to enter into this Agreement, to execute all attendant documents
and instruments contemplated hereby, and to perform all of its obligations
hereunder. This Agreement, and each and every other agreement, document and
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instrument to be executed by EMPYREAN in connection herewith, has been
effectively authorized by all necessary action on the part of EMPYREAN,
including without limitation the approval of EMPYREAN's Board of Directors (and
stockholders, if necessary), which authorizations remain in full force and
effect, have been duly executed and delivered by EMPYREAN. A copy of the
resolutions of the EMPYREAN Board of Directors and (stockholders, if necessary)
authorizing the execution, delivery, and performance of this Agreement, all
certified by the Secretary of EMPYREAN, are attached hereto as Exhibit "H." No
other authorizations or proceedings on the part of EMPYREAN or Stockholders, or
otherwise, are required to authorize this Agreement and/or the transactions
contemplated hereby. This Agreement constitutes the legal, valid and binding
obligation of EMPYREAN and is enforceable against EMPYREAN in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, priority or other laws or court decisions relating to or
affecting generally the enforcement of creditors' rights or affecting generally
the availability of equitable remedies.
3.3. No Conflicts; No Consents. Other than that set forth in the
Schedule of Exceptions, neither the execution and delivery of this Agreement,
nor the consummation by EMPYREAN or the Stockholders of any of the transactions
contemplated hereby, or compliance with any of the provisions hereof, will (i)
conflict with or result in a material breach of, violation of, or default under,
any of the terms, conditions or provisions of any material note, bond, mortgage,
indenture, license, lease, credit agreement or other agreement, document,
instrument, permit, authorization, or obligation (including, without limitation,
any of its charter documents) to which EMPYREAN is a party or by which it or any
of its assets or properties may be bound, or (ii) violate any judgment, order,
injunction, decree, statute, rule or regulation applicable to EMPYREAN or its
assets or properties, the violation of which would have a material adverse
effect upon the business, properties, or assets, or in the condition (financial
or otherwise) of EMPYREAN. No authorization, consent or approval of any public
body or authority was or is necessary for the consummation by EMPYREAN or the
Stockholders of the transactions contemplated by this Agreement.
3.4 Capitalization. The authorized capital stock of EMPYREAN consists
of 15,000,000 shares of common stock, no par value per share. As of the
Effective Date, there are 15,000,000 shares of common stock issued and
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outstanding. No options or warrants to purchase common stock of EMPYREAN have
been granted or are outstanding. EMPYREAN does not have any contracts or
obligations to issue, redeem, repurchase, or otherwise reacquire any equity
security of EMPYREAN. All of the Empyrean Shares are duly authorized, validly
issued and outstanding, fully paid, and nonassessable and have been issued in
conformity with all applicable laws.
3.5 No Pending Material Litigation or Proceedings. There are no
actions, suits or proceedings pending or, to the best knowledge of EMPYREAN,
threatened against or affecting EMPYREAN affecting the Stockholders' rights in
the Empyrean Shares (including actions, suits or proceedings where liabilities
may be adequately covered by insurance) at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, court,
board, bureau, agency or instrumentality, domestic or foreign, or affecting any
of the officers, directors of EMPYREAN or the Stockholders in connection with
the business, operations or affairs of either of them, which might reasonably be
expected to result in any material adverse change in the business, properties or
assets, or in the condition (financial or otherwise) of EMPYREAN, or which
question or challenge the Reorganization. EMPYREAN is not subject to any
voluntary or involuntary proceeding under federal bankruptcy laws and has not
made an assignment for the benefit of creditors.
3.6 Financial Statements; Absence of Undisclosed Liabilities and
Certain Developments. Attached hereto as Exhibit "I" are the unaudited and
internally prepared financial statements of EMPYREAN, for the year ended
December 31, 2000, consisting of EMPYREAN's balance sheets as of such dates (the
"Empyrean Balance Sheets"), the related statements of profit or loss for the
periods then ended, and the respective notes thereto. Such financial statements
(and the notes related thereto) are herein sometimes collectively referred to as
the "Empyrean Financial Statements." The Empyrean Financial Statements (i) are
derived from the books and records of EMPYREAN, which books and records have
been consistently maintained in a manner which reflects, and such books and
records do fairly and accurately reflect, the assets and liabilities of
EMPYREAN, and (ii) fairly present in all material respects the financial
condition of EMPYREAN on the date of such statements and the results of its
operations for the periods indicated, except as may be disclosed in the notes
thereto. Except as and to the extent reflected or reserved against in the
Empyrean Balance Sheets, and as to matters arising in the ordinary course of its
business since the respective date of the Empyrean Balance Sheets, EMPYREAN has
no liability or obligation of a type required by generally accepted accounting
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principles to be reflected in the Empyrean Balance Sheets (whether accrued, to
become due, contingent or otherwise) which individually or in the aggregate
could have a materially adverse effect on the business, assets, condition
(financial or otherwise) or prospects of EMPYREAN. Except as set forth in
Exhibit "G," since December 31, 2000, there has been (a) no declaration, setting
aside or payment of any dividend or other distribution with respect to the
Empyrean Shares or redemption, purchase or other acquisition of any of the
Empyrean Shares or any split-up or other recapitalization relative to any of the
Empyrean Shares or any action authorizing or obligating EMPYREAN to do any of
the foregoing, (b) no material loss, destruction or damage to any material
property or asset of EMPYREAN whether or not insured, (c) no acquisition or
disposition of assets (or any contract or arrangement therefor), or any other
transaction by EMPYREAN otherwise than for fair value and in the ordinary course
of business, (d) no discharge or satisfaction by EMPYREAN of any lien or
encumbrance or payment of any obligation or liability (absolute or contingent)
other than current liabilities shown on the Empyrean Balance Sheets, or current
liabilities incurred since the date thereof in the ordinary course of business,
(e) no sale, assignment or transfer by EMPYREAN of any of its tangible or
intangible assets except in the ordinary course of business, cancellation by
EMPYREAN of any debts, claims or obligations, or mortgage, pledge, subjection of
any assets to any lien, charge, security interest or other encumbrance, or
waiver by EMPYREAN of any rights of value which, in any such case, is material
to the business of EMPYREAN, (f) no payment of any bonus to or change in the
compensation of any director, officer or employee, whether directly or by means
of any bonus, pension plan, contract or commitment, (g) no write-off or material
reduction in the carrying value of any asset which is material to the business
of EMPYREAN, (h) no disposition or lapse of rights as to any intangible property
which is material to the business of EMPYREAN, (i) except for ordinary travel
advances, no loans or extensions of credit to stockholders, officers, directors
or employees of EMPYREAN, (j) no agreement to do any of the things described in
this Section 3.6, and (k) no material adverse change in the condition (financial
or otherwise) of EMPYREAN or in its assets, liabilities, properties, business,
or prospects. Except as set forth in the Empyrean Financial Statements or in
Exhibit "G," there are no payments, liabilities, or obligations of any kind due
any of the Stockholders.
3.7 Applicable Permits; Compliance with Laws. EMPYREAN (i) holds all
licenses, franchises, permits, and authorizations necessary for the lawful
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conduct of its business as presently conducted and which the failure to so hold
would have a material adverse effect upon the business, properties, or assets,
or the condition (financial or otherwise) of EMPYREAN, and (ii) has complied
with all applicable statutes, laws, ordinances, rules, and regulations of all
governmental bodies, agencies and subdivisions having, asserting or claiming
jurisdiction over it, which the failure to comply with would have a material
adverse effect upon the business, properties, or assets, or the condition
(financial or otherwise) of EMPYREAN.
3.8 Disclosure. Neither this Agreement, nor any material certificate,
exhibit, or other written document or statement, furnished to DIRECTION by or on
behalf of EMPYREAN or, to its knowledge, the Stockholders in connection with the
transactions contemplated by this Agreement contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary to be stated in order to make the statements contained herein or
therein, when taken as a whole, not misleading. Neither EMPYREAN nor, to its
knowledge, the Stockholders has any knowledge of any fact which has not been
disclosed in writing to DIRECTION which may reasonably be expected to materially
and adversely affect the business, properties, or assets, or the condition
(financial or otherwise) of EMPYREAN or title of the Stockholders to the
Empyrean Shares or his ability to perform all of the obligations to be performed
by him under this Agreement and/or any other agreement between EMPYREAN, the
Stockholders, and DIRECTION to be entered into pursuant to any provision of this
Agreement.
3.9 Ownership of EMPYREAN. EMPYREAN issued each Stockholder that
number of Shares set forth opposite the Stockholders' respective names on
Exhibit "A," which shares, as of the Closing Date, shall constitute issued and
outstanding shares of the capital stock of EMPYREAN. The Shares are duly
authorized, validly issued and outstanding, fully paid and nonassessable and
were issued by EMPYREAN in conformity with all applicable laws.
3.10 Subsidiaries. EMPYREAN has no subsidiaries and no investments,
directly or indirectly, or other financial interest in any other corporation or
business organization, joint venture or partnership of any kind whatsoever
except as reflected in the Empyrean Financial Statements.
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3.11 Real Property. Exhibit "J," attached hereto and incorporated
herein by this reference, contains a complete and accurate legal description or
street address of each parcel of real property owned by, or leased to and
occupied or subleased by EMPYREAN, and EMPYREAN neither owns or leases, nor
occupies, any other real property. The building and all fixtures and
improvements located on such real property are in good operating condition,
ordinary wear and tear excepted. To the best of its knowledge, EMPYREAN is not
in violation of any material zoning, building or safety ordinance, regulation or
requirement, or other law or regulation applicable to the operation of owned or
leased properties, and EMPYREAN has not received any notice of violation with
which its has not complied. All leases of real property to which EMPYREAN is a
party and which are material to the business of EMPYREAN are fully effective in
accordance with their respective terms and afford EMPYREAN peaceful and
undisturbed possession of the subject matter of the lease, and, to the best
knowledge of EMPYREAN, there exists no default on the part of EMPYREAN or
termination thereof.
3.12 Tangible Personal Property. Exhibit "K" attached hereto sets forth
a complete list of all items of tangible personal property owned or leased and
used by EMPYREAN in the current conduct of its business, where the original cost
was in excess of $1,000. EMPYREAN has good and marketable title to, or in the
case of leased equipment a valid leasehold interest in, and is in possession of,
all such items of personal property owned or leased by it, free and clear of all
title defects, mortgages, pledges, security interests conditional sales
agreements, liens, restrictions or encumbrances, the presence of which would
result in a material adverse change in the business, properties, or assets, or
the condition (financial or otherwise) of EMPYREAN. Included in Exhibit "K" is
a list of all outstanding equipment leases and maintenance agreements to which
EMPYREAN is a party as lessee and which individually provide for future lease
payments in excess of $1,000 per month, with the identities of the other parties
to all such leases and agreements shown thereon. All leases of tangible
personal property to which EMPYREAN is a party and which are material to the
business of EMPYREAN are fully effective in accordance with their respective
terms, and, to the best knowledge of EMPYREAN, there exists no default on the
part of EMPYREAN or termination thereof, the presence of which would result in
a material adverse change in the business, properties, or assets, or the
condition (financial or otherwise) of EMPYREAN. Each item of capital equipment
reflected in the Empyrean Balance Sheets which is used in the current conduct of
EMPYREAN's business is in good operating and usable condition and repair,
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ordinary wear and tear excepted, and is and will be suitable for use in the
ordinary course of EMPYREAN's business and fit for its intended purposes.
3.13 Tax Matters. EMPYREAN has, since its inception, duly filed all
material federal, state, municipal, local, and other tax returns required to
have been filed by it in those jurisdictions where the nature or conduct of its
business requires such filing and where the failure to so file would be
materially adverse to EMPYREAN. Copies of all such tax returns have been made
available for inspection by DIRECTION prior to the execution hereof. All
federal, state, municipal, local, and other taxes shown to be due on such
returns have been paid or will be paid prior to the time they become delinquent.
The amounts reflected in the Empyrean Balance Sheets as liabilities or reserves
for taxes which are due but not yet payable are sufficient for the payment of
all accrued and unpaid taxes of the types referred to hereinabove and EMPYREAN
has no knowledge of any proposed liability for taxes to be imposed upon its
properties or assets for which there is not adequate reserve reflected in the
Empyrean Financial Statements.
3.14 Contracts and Commitments. EMPYREAN has no contract, agreement,
obligation or commitment, written or oral, expressed or implied, which involves
a commitment or liability of EMPYREAN in excess of $1,000 (other than
obligations which are included in accounts payable), and no union contracts,
employee or consulting contracts, financing agreements, debtor or creditor
arrangements, licenses, franchise, manufacturing, distributorship or dealership
agreements, leases, or bonus, health or stock option plans, except as described
in Exhibits "G" and "I." True and complete copies of all such contracts and
other agreements listed in Exhibits "G" and "I" which involve a commitment or
liability of EMPYREAN in excess of $1,000 have been made available to DIRECTION
prior to the execution hereof. As of the date hereof, to the best of their
knowledge, there exist no circumstances that would affect the validity or
enforceability of any of such contracts and other agreements in accordance with
their respective terms. EMPYREAN has performed and complied in all material
respects with all obligations required to be performed by it to date under, and
is not in default (without giving effect to any required notice or grace period)
under, or in breach of, the terms, conditions or provisions of any of such
contracts and other agreements. The validity and enforceability of any contract
or other agreement described herein has not been and shall not be materially and
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adversely affected by the execution and delivery of this Agreement without any
further action. EMPYREAN has no contract, agreement, obligation or commitment
which to the best knowledge of EMPYREAN requires or will require future
expenditures (including internal costs and overhead) in excess of reasonably
anticipated receipts, nor which is likely to be materially adverse to EMPYREAN's
business, assets, condition (financial and otherwise), or prospects.
3.15 Proprietary Information. Except as disclosed in Exhibit "L."
EMPYREAN does not have any patents, applications for patents, trademarks,
applications for trademarks, trade names, licenses or service marks relating to
the business of EMPYREAN, nor does any present or former stockholder, officer,
director or employee of EMPYREAN own any patent rights relating to any products
manufactured, rented or sold by EMPYREAN To the best knowledge of EMPYREAN,
EMPYREAN has the unrestricted right to use, free and clear of any claims or
rights of others, all trade secrets, customer lists, and manufacturing and
secret processes reasonably necessary to the manufacture and marketing of all
products made or proposed to be made by EMPYREAN, except for any rights the
presence of which would not result in a material adverse change in the business,
properties, or assets, or the condition (financial or otherwise) of EMPYREAN,
and, to the best knowledge of EMPYREAN, the continued use thereof by DIRECTION
following the Closing will not conflict with, infringe upon, or otherwise
violate any rights of others. EMPYREAN has not used and is not making use of
any confidential information or trade secrets of any present or past employee of
EMPYREAN.
3.16 Arrangements with Employees; Labor Relations. No stockholder,
director, officer or employee of EMPYREAN is presently a party to any
transaction with EMPYREAN, including without limitation any contract, loan or
other agreement or arrangement providing for the furnishing of services by, the
rental of real or personal property from or to, or otherwise requiring loans or
payments to, any such stockholder, director, officer or employee, or to any
member of the family of any of the foregoing, or to any corporation,
partnership, trust or other entity in which any stockholder, director, officer
or employee or any member of the family of any of them has a substantial
interest or is an officer, director, trustee, partner or employee, except as
disclosed in Exhibit "G". There are no bonus, pension, profit sharing,
commission, deferred compensation or other plans or arrangements in effect as of
the date of this Agreement. EMPYREAN has no obligations under any collective
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bargaining agreement or other contract with a labor union, under any employment
contract or consulting agreement, or under any executive's compensation plan,
agreement or arrangement, nor is any union, labor organization or group of
employees of EMPYREAN presently seeking the right to enter into collective
bargaining with EMPYREAN on behalf of any of its employees, except as disclosed
in Exhibit "G". EMPYREAN has furnished DIRECTION with a copy of all written
personnel policies, including without limitation vacation, severance, bonus,
pension, profit sharing, and commissions policies applicable to any of
EMPYREAN's employees.
3.17 Insurance. A true and complete listing and general description of
each of EMPYREAN's insurance policies as currently in force is set forth in
Exhibit "M" attached hereto. Unless otherwise noted, all such insurance
policies currently are in full force and effect.
3.18 Bank Accounts. All bank and savings accounts, and other accounts
at similar financial institutions, of EMPYREAN existing at date of Closing are
listed on Exhibit "N." Exhibit "N" sets forth the balance(s) of such bank
account(s) as of January 31, 2001 and contains a list of the name of each person
or entity authorized to sign on the bank accounts, borrow money, or incur or
guarantee indebtedness on behalf of EMPYREAN. All expenditures from such bank
accounts after January 31, 2001 to the date of this Agreement are set forth in
Exhibit "N."
3.19 Powers of Attorney. Other than that set forth in the Schedule of
Exceptions of EMPYREAN, no valid powers of attorney from EMPYREAN to any person
or entity exist as of the date of this Agreement.
3.20 Absence of Questionable Payments. To the best of its knowledge,
neither EMPYREAN nor any stockholder, director, officer, agent, employee,
consultant or other person associated with or acting on behalf of any of them,
has (i) used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any direct or indirect unlawful payments to governmental officials or
others from corporate funds, engaged in any payments or activity which would be
deemed a violation of the Foreign Corrupt Practices Act or rules or regulations
promulgated thereunder, or (iii) established or maintained any unlawful or
unrecorded accounts.
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3.21 Reporting Requirements. EMPYREAN has complied with and will
maintain its compliance with all of the reporting requirements under the Act and
the Securities Exchange Act of 1934, as amended, through the Closing Date.
3.22 Relationships with Customers and Suppliers. No present
substantial customer or substantial supplier to EMPYREAN has indicated an
intention to terminate or materially and adversely alter its existing business
relationship therewith, and, to the best knowledge of EMPYREAN, none of the
present customers of or substantial suppliers to EMPYREAN intends to do so.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DIRECTION
Except as set forth in the Schedule of Exceptions attached hereto and
incorporated herein by this reference as Exhibit "O," DIRECTION hereby
represents and warrants to, and covenants with, the Stockholder and EMPYREAN as
follows:
4.1 Organization and Corporate Power. DIRECTION is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada, and is duly qualified and in good standing to do business as a foreign
corporation in each jurisdiction in which such qualification is required and
where the failure to be so qualified would have a materially adverse effect upon
DIRECTION. DIRECTION has all requisite corporate power and authority to conduct
its business as now being conducted and to own and lease the properties, which
it now owns and leases. The Articles of Incorporation as amended to date,
certified by the Secretary of State of Nevada, the Bylaws of DIRECTION as
amended to date, and the resolutions of DIRECTION's stockholders and directors
authorizing the execution, delivery, and performance of this Agreement, all
certified by the President and the Secretary of DIRECTION, which have previously
been provided to EMPYREAN by DIRECTION, are true and complete copies thereof as
currently in effect.
4.2 Authorization. DIRECTION has full corporate power, legal capacity
and corporate authority to enter into this Agreement, to execute all attendant
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documents and instruments contemplated hereby, to enter into this
Reorganization, and to perform all of its obligations hereunder. This
Agreement, and each and every other agreement, document and instrument to be
executed by DIRECTION in connection herewith, has been effectively authorized by
all necessary action on the part of DIRECTION, including without limitation the
approvals of DIRECTION's Board of Directors (and stockholders, if necessary)
which authorizations remain in full force and effect, have been duly executed
and delivered by DIRECTION. A copy of the resolutions of the DIRECTION board of
directors and stockholders authorizing the execution, delivery, and performance
of this Agreement, all certified by the Secretary of DIRECTION, are attached
hereto as Exhibit "P." No other authorizations or proceedings on the part of
DIRECTION, or otherwise, are required to authorize this Agreement and/or the
transactions contemplated hereby. This Agreement constitutes the legal, valid,
and binding obligation of DIRECTION and is enforceable against DIRECTION in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, priority or other laws or court decisions relating
to or affecting generally the enforcement of creditors' rights or affecting
generally the availability of equitable remedies.
4.3. No Conflicts; No Consents. Neither the execution and delivery of
this Agreement, nor the consummation by DIRECTION of any of the transactions
contemplated hereby, or compliance with any of the provisions hereof, will (i)
conflict with or result in a material breach of, violation of, or default under,
any of the terms, conditions or provisions of any material note, bond, mortgage,
indenture, license, lease, credit agreement or other agreement, document,
instrument or obligation (including, without limitation, any of its charter
documents) to which DIRECTION is a party or by which it or any of its assets or
properties may be bound, or (ii) violate any judgment, order, injunction,
decree, statute, rule or regulation applicable to DIRECTION or its assets or
properties, the violation of which would have a material adverse effect upon the
business, properties, or assets, or in the condition (financial or otherwise) of
DIRECTION. No authorization, consent or approval of any public body or
authority was or is necessary for the consummation by DIRECTION of the
transactions contemplated by this Agreement.
4.4 Capitalization. The authorized capital stock of DIRECTION consists
of 50,000,000 shares of common stock, par value $.001, and 10,000,000 shares of
preferred stock. As of the date hereof, there are 10,231,000 shares of common
stock issued and outstanding. All of the shares of common stock issued and
outstanding are duly authorized, validly issued, fully paid, and nonassessable.
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Except as disclosed in Exhibit "Q," there are no outstanding contracts or other
rights to subscribe for or purchase, or contracts or obligations to issue or
grant any rights to acquire any equity security of DIRECTION. DIRECTION does
not have any contracts or obligations to redeem, repurchase or otherwise
reacquire any equity security of DIRECTION. All of the Direction Shares, when
issued to the Stockholders, will be duly authorized, validly issued and
outstanding, fully paid and nonassessable and shall have been issued in
conformity with all applicable laws.
4.5 Financial Statements of DIRECTION; Absence of Undisclosed
Liabilities; No Adverse Changes. Attached hereto as Exhibit "R" are the audited
financial statements of DIRECTION for the years ended December 31, 1999 and 1998
and the unaudited financial statements of DIRECTION for the nine months and
fiscal quarter ended September 30, 2000, consisting of DIRECTION's balance sheet
as of such dates (the "Direction Balance Sheets"), the related statements of
profit or loss for the periods then ended, and the respective notes thereto.
Such financial statements (and the notes related thereto) are herein sometimes
collectively referred to as the "Direction Financial Statements." The
Direction Financial Statements (i) are derived from the books and records of
DIRECTION, which books and records have been consistently maintained in a manner
which reflects, and such books and records do fairly and accurately reflect, the
assets and liabilities of DIRECTION, (ii) fairly and accurately present the
financial condition of DIRECTION on the date of such statements and the results
of its operations for the periods indicated, except as may be disclosed in the
notes thereto, and (iii) have been prepared in all material respects in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved (except as otherwise disclosed in the notes
thereto). Except as and to the extent reflected or reserved against in the
Direction Balance Sheets, and as to matters arising in the ordinary course of
its business since the respective dates of the Direction Balance Sheets,
DIRECTION has no liability or obligation (whether accrued, to become due,
contingent or otherwise) which individually or in the aggregate could have a
materially adverse effect on the business, assets, condition (financial or
otherwise) or prospects of DIRECTION. Except as set forth in Exhibit "R," since
the dates of the respective Direction Balance Sheets, there has been (a) no
declaration, setting aside or payment of any dividend or other distribution with
respect to the common stock of DIRECTION or redemption, purchase or other
acquisition of any of the common stock of DIRECTION or any split-up or other
recapitalization relative to any of the common stock of DIRECTION or any action
authorizing or obligating DIRECTION to do any of the foregoing, (b) no loss,
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destruction or damage to any material property or asset of DIRECTION, whether or
not insured, (c) no acquisition or disposition of assets (or any contract or
arrangement therefor), or any other transaction by DIRECTION otherwise than for
fair value and in the ordinary course of business, (d) no discharge or
satisfaction by DIRECTION of any lien or encumbrance or payment of any
obligation or liability (absolute or contingent) other than current liabilities
shown on the Direction Balance Sheets, or current liabilities incurred since the
date thereof in the ordinary course of business, (e) no sale, assignment or
transfer by DIRECTION of any of its tangible or intangible assets except in the
ordinary course of business, cancellation by DIRECTION of any debts, claims or
obligations, or mortgage, pledge, subjection of any assets to any lien, charge,
security interest or other encumbrance, or waiver by DIRECTION of any rights of
value which, in any such case, is material to the business of DIRECTION, (f) no
payment of any material bonus to or material change in the compensation of any
director, officer or employee, whether directly or by means of any bonus,
pension plan, contract or commitment, (g) no write-off or material reduction in
the carrying value of any asset which is material to the business of DIRECTION,
(h) no disposition or lapse of rights as to any intangible property which is
material to the business of DIRECTION, (i) except for ordinary travel advances,
no loans or extensions of credit to stockholders, officers, directors or
employees of DIRECTION, (j) no agreement to do any of the things described in
this Section 4.5, and (k) no material adverse change in the condition (financial
or otherwise) of DIRECTION or in its assets, liabilities, properties, business,
or prospects.
4.6 Tax Matters. DIRECTION has, since its inception, accurately
prepared and duly filed all federal, state, county and local tax returns
required to have been filed by it in those jurisdictions where the nature or
conduct of its business requires such filing and where the failure to so file
would be materially adverse to DIRECTION. Copies of all such tax returns have
been made available for inspection by EMPYREAN and the Stockholders prior to the
execution hereof. All federal, state, county and local taxes, including but not
limited to those taxes due with respect to DIRECTION's properties, income, gross
receipts, excise, occupation, franchise, permit, licenses, sales, payroll, and
inventory due and payable as of the date of the Closing by DIRECTION have been
paid or will be paid prior to the time they become delinquent. The amount
reflected in the Direction Balance Sheets as liabilities or reserves for taxes,
which are due but not yet payable, is sufficient for the payment of all accrued
and unpaid taxes of the types referred to hereinabove.
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4.7 No Pending Material Litigation or Proceedings. There are no
actions, suits or proceedings pending or, to the best knowledge of DIRECTION,
threatened against or affecting DIRECTION (including actions, suits or
proceedings where liabilities may be adequately covered by insurance) at law or
in equity or before or by any federal, state, municipal or other governmental
department, commission, court, board, bureau, agency or instrumentality,
domestic or foreign, or affecting any of the Stockholders, officers or directors
of DIRECTION in connection with the business, operations or affairs of
DIRECTION, which might result in any material adverse change in the business,
properties or assets, or in the condition (financial or otherwise) of DIRECTION,
or which question or challenge the Reorganization. DIRECTION is not subject to
any voluntary or involuntary proceeding under applicable bankruptcy laws and has
not made an assignment for the benefit of creditors.
4.8 Compliance with Laws. DIRECTION (i) holds all licenses,
franchises, permits and authorizations necessary for the lawful conduct of its
business as presently conducted and which the failure to so hold would have a
material adverse effect upon the business, properties, or assets, or the
condition (financial or otherwise) of DIRECTION, and (ii) has complied with all
applicable statutes, laws, ordinances, rules and regulations of all governmental
bodies, agencies and subdivisions having, asserting or claiming jurisdiction
over it, which the failure to comply with would have a material adverse effect
upon the business, properties, or assets, or the condition (financial or
otherwise) of DIRECTION.
4.9 Disclosure. Neither this Agreement, nor any certificate, exhibit,
or other written document or statement, furnished to EMPYREAN or the
Stockholders by or on behalf of DIRECTION in connection with the transactions
contemplated by this Agreement contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary to be
stated in order to make the statements contained herein or therein, when taken
as a whole, not misleading. DIRECTION has no knowledge of any fact which has
not been disclosed in writing to EMPYREAN or the Stockholders which may
reasonably be expected to materially and adversely affect the business,
properties, operations, and/or prospects of DIRECTION or the ability of
DIRECTION to perform all of the obligations to be performed by DIRECTION under
this Agreement and/or any other agreement between EMPYREAN and DIRECTION to be
entered into pursuant to any provision of this Agreement. A copy of DIRECTION's
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Annual Report on Form 10-KSB for the year ended December 31, 1999 (the "Annual
Report") and Quarterly Report on Form 10-QSB are attached hereto as Exhibits "S"
and "T."
4.10 Subsidiaries. DIRECTION has no subsidiaries and no investments,
directly or indirectly, or other financial interest in any other corporation or
business organization, joint venture or partnership of any kind whatsoever
except as reflected in the Direction Financial Statements.
4.11 Offering. Subject to the accuracy of the Stockholders'
representations in Section 5.4 hereof, the offer, sale, and issuance of the
Direction Shares to be issued in conformity with the terms of this Agreement and
the transactions contemplated hereby, constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, and from all applicable state registration or qualification
requirements.
4.12 Real Property. The Annual Report attached hereto as Exhibit "S"
contains a description of the real property leased to and occupied by DIRECTION,
and except as set forth in Exhibit "O," DIRECTION neither owns or leases, nor
occupies, any other real property. The building and all fixtures and
improvements located on such real property are in good operating condition,
ordinary wear and tear excepted. To the best of its knowledge, DIRECTION is not
in violation of any material zoning, building or safety ordinance, regulation or
requirement, or other law or regulation applicable to the operation of owned or
leased properties, and DIRECTION has not received any notice of violation with
which its has not complied. All leases of real property to which DIRECTION is a
party and which are material to the business of DIRECTION are fully effective in
accordance with their respective terms and afford DIRECTION peaceful and
undisturbed possession of the subject matter of the lease, and, to the best
knowledge of DIRECTION, there exists no default on the part of DIRECTION or
termination thereof.
4.13 Tangible Personal Property. DIRECTION has good and marketable
title to, or in the case of leased equipment a valid leasehold interest in, and
is in possession of, all such items of personal property owned or leased by it,
free and clear of all title defects, mortgages, pledges, security interests
conditional sales agreements, liens, restrictions or encumbrances, the presence
of which would result in a material adverse change in the business, properties,
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or assets, or the condition (financial or otherwise) of DIRECTION. All leases of
tangible personal property to which DIRECTION is a party and which are material
to the business of DIRECTION are fully effective in accordance with their
respective terms, and, to the best knowledge of DIRECTION, there exists no
default on the part of DIRECTION or termination thereof, the presence of which
would result in a material adverse change in the business, properties, or
assets, or the condition (financial or otherwise) of DIRECTION. Each item of
capital equipment reflected in the Direction Balance Sheets which is used in the
current conduct of DIRECTION's business is in good operating and usable
condition and repair, ordinary wear and tear excepted, and is and will be
suitable for use in the ordinary course of DIRECTION's business and fit for its
intended purposes.
4.14 Contracts and Commitments. DIRECTION has no contract, agreement,
obligation or commitment, written or oral, expressed or implied, which involves
a commitment or liability of DIRECTION in excess of $1,000, and no union
contracts, employee or consulting contracts, financing agreements, debtor or
creditor arrangements, licenses, franchise, manufacturing, distributorship or
dealership agreements, leases, or bonus, health or stock option plans, except as
described in Exhibit "O." True and complete copies of all such contracts and
other agreements listed in Exhibit "O" have been made available to EMPYREAN
prior to the execution hereof. DIRECTION has performed and complied in all
material respects with all obligations required to be performed by it to date
under, and is not in default (without giving effect to any required notice or
grace period) under, or in breach of, the terms, conditions or provisions of any
of such contracts and other agreements. The validity and enforceability of any
contract or other agreement described herein has not been and shall not be
materially and adversely affected by the execution and delivery of this
Agreement without any further action. DIRECTION has no contract, agreement,
obligation or commitment which requires or will require future expenditures
(including internal costs and overhead) in excess of reasonably anticipated
receipts, nor which is likely to be materially adverse to DIRECTION's business,
assets, condition (financial and otherwise), or prospects.
4.15 Proprietary Information. DIRECTION does not have any patents,
applications for patents, trademarks, applications for trademarks, trade names,
licenses or service marks relating to the business of DIRECTION, nor does any
present or former stockholder, officer, director or employee of DIRECTION own
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any patent rights relating to any products manufactured, rented or sold by
DIRECTION except as disclosed in Exhibit "U." To the best knowledge of
DIRECTION, DIRECTION has the unrestricted right to use, free and clear of any
claims or rights of others, all trade secrets, customer lists, and manufacturing
and secret processes reasonably necessary to the manufacture and marketing of
all products made or proposed to be made by DIRECTION, except for any rights the
presence of which would not result in a material adverse change in the business,
properties, or assets, or the condition (financial or otherwise) of DIRECTION,
and, to the best knowledge of DIRECTION, the continued use thereof by DIRECTION
following the Closing will not conflict with, infringe upon, or otherwise
violate any rights of others. DIRECTION has not used and is not making use of
any confidential information or trade secrets of any present or past employee of
DIRECTION.
4.16 Insurance. A true and complete listing and general description of
each of DIRECTION's insurance policies as currently in force is set forth in
Exhibit "V" attached hereto. Unless otherwise noted, all such insurance
policies currently are in full force and effect.
4.17 Arrangements with Employees; Labor Relations. Except as set forth
in Exhibit "O," no stockholder, director, officer or employee of DIRECTION is
presently a party to any transaction with DIRECTION, including without
limitation any contract, loan or other agreement or arrangement providing for
the furnishing of services by, the rental of real or personal property from or
to, or otherwise requiring loans or payments to, any such stockholder, director,
officer or employee, or to any member of the family of any of the foregoing, or
to any corporation, partnership, trust or other entity in which any stockholder,
director, officer or employee or any member of the family of any of them has a
substantial interest or is an officer, director, trustee, partner or employee.
There are no bonus, pension, profit sharing, commission, deferred compensation
or other plans or arrangements in effect as of the date of this Agreement.
DIRECTION has no obligations under any collective bargaining agreement or other
contract with a labor union, under any employment contract or consulting
agreement, or under any executive's compensation plan, agreement or arrangement,
nor is any union, labor organization or group of employees of DIRECTION
presently seeking the right to enter into collective bargaining with DIRECTION
on behalf of any of its employees. DIRECTION has furnished DIRECTION with a
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copy of all written personnel policies, including without limitation vacation,
severance, bonus, pension, profit sharing, and commissions policies applicable
to any of DIRECTION's employees.
4.18 Bank Accounts. All bank and savings accounts, and other accounts
at similar financial institutions, of DIRECTION existing at date of Closing are
listed on Exhibit "W." Exhibit "W" contains a list of the name of each person
or entity authorized to sign on the bank accounts, borrow money, or incur or
guarantee indebtedness on behalf of DIRECTION.
4.19 Powers of Attorney. Other than that set forth in the Schedule of
Exceptions of DIRECTION, no valid powers of attorney from DIRECTION to any
person or entity exist as of the date of this Agreement.
4.20 Absence of Questionable Payments. To the best of its knowledge,
neither DIRECTION nor any stockholder, director, officer, agent, employee,
consultant or other person associated with or acting on behalf of any of them,
has (i) used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any direct or indirect unlawful payments to governmental officials or
others from corporate funds, engaged in any payments or activity which would be
deemed a violation of the Foreign Corrupt Practices Act or rules or regulations
promulgated thereunder, or (iii) established or maintained any unlawful or
unrecorded accounts.
4.21 Reporting Requirements. DIRECTION has complied with and will
maintain its compliance with all of the reporting requirements under the Act and
the Securities Exchange Act of 1934, as amended, through the Closing Date.
4.22 Relationships with Customers and Suppliers. No present
substantial customer or substantial supplier to DIRECTION has indicated an
intention to terminate or materially and adversely alter its existing business
relationship therewith, and, to the best knowledge of DIRECTION, none of the
present customers of or substantial suppliers to DIRECTION intends to do so.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
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Each of the Stockholders, severally and not jointly, represents and
warrants to and covenants with DIRECTION, as of the date hereof, as follows:
5.1 Authority. Each Stockholder has full rights, power, and authority
to enter into this Agreement; the execution, delivery, and performance of this
Agreement by the Stockholder and the consummation by the Stockholder of the
transactions contemplated hereby will not conflict with or result in a breach of
any agreement to which the Stockholder is a party and which a conflict or breach
thereof would have a material adverse effect upon the Stockholder or the
Stockholder's properties or assets.
5.2 Title. Each Stockholder has valid and marketable title to the
number of shares set forth opposite the Stockholder's name on Exhibit "A," free
and clear of any pledge, lien, security interest, or encumbrance other than
pursuant to this Agreement. As of the Closing Date and to the knowledge of the
Stockholder, there is no lien, charge, mortgage, pledge, conditional sale
agreement, or other encumbrance of any kind or nature recorded in the book of
registry of stockholders of EMPYREAN with respect to any of the Empyrean Shares
owned by the Stockholder and the Empyrean Shares set forth in Exhibit "A" are
duly registered in the name of the Stockholder as set forth in Exhibit "A."
5.3 Restricted Stock. Each Stockholder acknowledges that the Direction
Shares being issued to the Stockholder hereunder will be issued by DIRECTION
without registration or qualification or other filings being made under the Act,
or the securities or "blue sky" laws of any state, in reliance upon specific
exemptions therefrom, and in furtherance thereof the Stockholder represents that
he or she is acquiring and will hold the shares to be delivered hereunder for
his or her own account, for investment only, and not for distribution within the
meaning of the U.S. federal securities laws. The Stockholder acknowledges that
a legend, substantially in the following form, shall be placed upon the face of
each certificate representing any of Direction Shares being delivered to the
Stockholder hereunder:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), ARE
RESTRICTED SECURITIES, AND NO OFFER, SALE, TRANSFER OR OTHER DISPOSITION OF
THIS CERTIFICATE OR THE SECURITIES REPRESENTED HEREBY, OR OF ANY INTEREST
HEREIN, MAY BE MADE WITHOUT SUCH REGISTRATION UNLESS, IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY, AN EXEMPTION FROM REGISTRATION UNDER THE
ACT IS AVAILABLE.
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5.4 Lock-Up Agreement. The Stockholders agree that any of their
Direction Shares shall be sold in accordance with the provisions of Rule 144
promulgated under the Securities Act of 1933. The certificates evidencing the
Direction Shares owned by Stockholders who elect to be included in the
Registration Statement shall bear the following additional legend:
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
RESTRICTED IN ACCORDANCE WITH AN AGREEMENT BETWEEN THE STOCKHOLDER AND THE
COMPANY, AND NO OFFER, SALE, TRANSFER OR OTHER DISPOSITION OF THIS
CERTIFICATE OR THE SECURITIES REPRESENTED HEREBY, OR OF ANY INTEREST
HEREIN, MAY BE MADE WITHOUT AN OPINION OF COUNSEL TO THE COMPANY
EVIDENCING COMPLIANCE WITH SUCH AGREEMENT.
ARTICLE VI
MISCELLANEOUS
6.1 Taxes and Expenses.
6.1.1 Except as otherwise expressly provided in 6.1.2 immediately
below, each of DIRECTION and EMPYREAN shall pay all of their own respective
taxes due prior to the Closing, attorneys' fees and other costs and expenses
payable in connection with or as a result of the transactions contemplated
hereby and the performance and compliance with all agreements and conditions
contained in this Agreement respectively to be performed or observed by each of
them. The parties represent and warrant that no brokerage, finders' or other
similar fees are being paid by any of the parties in connection with this
Agreement.
6.1.2 The representations and warranties of EMPYREAN, the
Stockholders, and DIRECTION contained herein and in any other document or
instrument delivered by or on behalf of EMPYREAN and/or the Stockholders or on
behalf of DIRECTION pursuant hereto, as such may be qualified in Exhibits "G" or
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"O," respectively, shall survive the Closing and any investigations made by or
on behalf of DIRECTION made prior to the Closing, and shall remain in full force
and effect for a period of two full years from the date of the Closing the
("Warranty Period"), and thereupon expire.
6.2 Other Documents. Each of the parties hereto shall execute and
deliver such other and further documents and instruments, and take such other
and further actions, as may be reasonably requested of them for the
implementation and consummation of this Agreement and the transactions herein
contemplated.
6.3 Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, the heirs, personal representatives,
successors and assigns of DIRECTION, the Stockholder, and EMPYREAN, but shall
not confer, expressly or by implication, any rights or remedies upon any other
party.
6.4 Governing Law. This Agreement is made and shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Nevada.
6.5 Notices. Any notice or the delivery of any item to be delivered by
a party hereto shall be delivered personally, by U.S. mail, return receipt
requested, or by Federal Express, next-day delivery. Any personal delivery made
shall be deemed to have been made upon the execution of a receipt for the item
to be delivered by the party to whom delivery is made. Delivery by U.S. mail or
Federal Express shall be deemed to have been made when delivered by Federal
Express to the party to whom addressed. All such deliveries shall be made to
the following addresses, or such other addresses as the parties may have
instructed the others in accordance with the provisions of this Paragraph:
(a) If to DIRECTION: DIRECTION TECHNOLOGIES, INC.
250 "H" Street, Suite 723
Blaine, Washington 98230
With copies to: Bruce H. Haglund, Esq.
Gibson, Haglund & Paulsen
2 Park Place, Suite 450
Irvine, California 92614
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(b) If to EMPYREAN
or the Stockholders: EMPYREAN COMMUNICATIONS, INC.
2920 Shadowbriar Drive, Suite 1328
Houston, Texas 77082
With copies to: George A. Burks, Attorney
3000 Wilcrest, Suite 115
Houston, Texas 77042
Any party hereto may change its address by written notice to the other party
given in accordance with this Section 6.5.
6.6 Entire Agreement. This Agreement and the exhibits attached hereto
contains the entire agreement between the parties and supersede all prior
agreements, understandings and writings between the parties with respect to the
subject matter hereof and thereof. Each party hereto acknowledges that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party, or anyone acting with authority on behalf of any party,
which are not embodied herein or in an exhibit hereto, and that no other
agreement, statement or promise may be relied upon or shall be valid or binding.
Neither this Agreement nor any term hereof may be changed, waived, discharged or
terminated orally. This Agreement may be amended or any term hereof may be
changed, waived, discharged or terminated by an agreement in writing signed by
DIRECTION, EMPYREAN, and all of the Stockholders or the Stockholder
Representative acting on behalf of the Stockholders.
6.7 Severability. If any provision of this Agreement is determined to
be invalid, illegal or unenforceable by any court, department, official,
political subdivision, agency or other instrumentality of any government,
whether state, local or federal, the remaining provisions of this Agreement to
the extent permitted by law shall remain in full force and effect. To the
extent permitted by law, the parties hereto waive any provision of law that
renders any provision hereof invalid or unenforceable in any respect.
6.8 Headings. The captions and headings used herein are for
convenience only and shall not be construed as a part of this Agreement.
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6.9 Attorneys' Fees. In the event of any litigation between DIRECTION
and EMPYREAN, the non-prevailing party shall pay the reasonable expenses,
including the attorneys' fees, of the prevailing party in connection therewith.
6.10 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original but all of which taken together shall
constitute but one and the same document.
6.11 Gender. Whenever the content of this Agreement requires, the
masculine gender shall include the feminine or neuter, and the singular number
shall include the plural.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day and year first above written.
DIRECTION TECHNOLOGIES, INC. EMPYREAN COMMUNICATIONS, INC.
a Nevada corporation a Texas corporation
By: /s/ KENNETH B. LIEBSCHER By: /s/ DALE A. RENAUD
-------------------------------- --------------------------------
Kenneth B. Liebscher, Director and Dale A. Renaud,
Its Duly Authorized Agent President
STOCKHOLDERS:
VNET INVESTMENT COMPANY STARBRIGHT MMG LIMITED PARTNERSHIP
By: /s/ TOM SKIPPON By: /s/ ALBERT P. FOLSOM
-------------------------------- --------------------------------
TOM SKIPPON ALBERT P. FOLSOM
RENAUD FAMILY TRUST QUADRANT FINANCIAL INC.
By: /s/ GEORGE A. BURKS By: /s/ LUCILLE OEI
-------------------------------- --------------------------------
George A. Burks, Attorney LUCILLE OEI
Trustee
VINTAGE INTERNATIONAL INC.
By: /s/ PETER L. THOMPSON /s/ LANA M. CAMPBELL
-------------------------------- -----------------------------------
PETER L. THOMPSON LANA M. CAMPBELL
/s/ GEORGE J. RENAUD /s/ CHARLES KARPOWICZ
- ----------------------------------- -----------------------------------
GEORGE J. RENAUD CHARLES KARPOWICZ
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