SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material under Section 240.14a-12
DYNAMIC ASSOCIATES, INC.
- -----------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- -----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
( ) No fee required
( ) Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction
applies: Common Shares
2) Aggregate number of securities to which transaction
applies: 5,341,666
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined): $0.01 which is the average
of the high and low prices reported on March 6, 2001, by
the OTC Bulletin Board.
4) Proposed maximum aggregate value of transaction: $53,417
5) Total fee paid: $15
(X) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
DYNAMIC ASSOCIATES, INC.
6617 N. Scottsdale Road, Suite 103
Scottsdale, Arizona 85250
May 30, 2001
Dear Shareholder:
You are cordially invited to attend the annual meeting of
shareholders of Dynamic Associates, Inc., which will be held
on June 11, 2001 at 10:00 a.m., Pacific Standard Time at
Suite 500, 2300 West Sahara Avenue, Las Vegas, Nevada 89102.
Details of the business to be conducted at the annual
meeting are given in the attached Notice of Annual Meeting
of Shareholders and Proxy Statement.
Whether or not you attend the annual meeting it is important
that your shares be represented and voted at the meeting.
Therefore, I urge you to sign, date, and promptly return the
enclosed proxy. If you decide to attend the annual meeting
and vote in person, you will of course have that
opportunity.
On behalf of the board of directors, I would like to express
our appreciation for your continued interest in the affairs
of Dynamic Associates, Inc.
Sincerely,
/s/ Jan Wallace
Jan Wallace
CEO and Chairman
DYNAMIC ASSOCIATES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 30, 2001
To the Shareholders:
Notice is hereby given that the annual meeting of the
holders of shares of common stock of Dynamic Associates,
Inc., a Nevada corporation ("Dynamic Associates") will be
held at Suite 500, 2300 West Sahara Avenue, Las Vegas,
Nevada 89102 on June 11, 2001 at 10:00 a.m., Pacific Standard
Time, for the following purposes:
1. To consider and vote upon the merger of Tele-Lawyer,
Inc., a Nevada corporation, with Dynamic Associates wherein
Dynamic Associates will be the surviving entity and Tele-
Lawyer will become a wholly owned subsidiary.
2. To allow for the postponement of the shareholder meeting
for the solicitation of additional votes, if necessary.
3. To approve the amendment to the articles of incorporation
to change the name of the Company to "Legal Access Technologies,
Inc.".
4. To approve a reverse stock split at a rate of 153 to 1,
consistent with the requirements of the merger.
5. To ratify a stock option plan approved by the board of
directors, consistent with the requirements of the merger.
6. To elect the members of the board of directors.
7. To transact such other business as may properly come
before the meeting.
Only shareholders of record at the close of business on
April 30, 2001 are entitled to notice of, and to vote at,
this meeting.
Rights of dissenting shareholders:
With respect to the proposed merger, shareholders are
entitled to assert dissenters' rights under Nevada Revised
Statutes 92A.300 to 92A.500. A discussion of these rights
is included in the proxy statement included herewith, which
discussion is incorporated into this Notice by this
reference. Also incorporated into this Notice by reference
is a copy of Nevada Revised Statutes 92A.300 to 92A.500
which is attached to the enclosed proxy statement as
Appendix B.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Jan Wallace
Jan Wallace
CEO and Chairman
Las Vegas, Nevada
May 30, 2001
IMPORTANT
Whether or not you expect to attend in person, we urge you
to sign, date, and return the enclosed Proxy at your
earliest convenience. This will ensure the presence of a
quorum at the meeting. PROMPTLY SIGNING, DATING, AND
RETURNING THE PROXY WILL SAVE DYNAMIC ASSOCIATES THE EXPENSE
AND EXTRA WORK OF ADDITIONAL SOLICITATION. Sending in your
Proxy will not prevent you from voting your stock at the
meeting if you desire to do so, as your Proxy is revocable
at your option.
DYNAMIC ASSOCIATES, INC.
6617 N. Scottsdale Road, Suite 103
Scottsdale, Arizona 85250
May 30, 2001
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD June 11, 2001
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROXY STATEMENT IN CONNECTION WITH THE SOLICITATION OF
PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY DYNAMIC ASSOCIATES OR ANY OTHER PERSON.
SUMMARY TERM SHEET FOR THE MERGER
This summary term sheet for the merger highlights selected
information from this proxy statement regarding the merger
and the merger agreement and may not contain all of the
information that is important to you as a Dynamic Associates
shareholder. Accordingly, we encourage you to carefully
read this entire document and the documents to which we have
referred you.
You are being asked to consider and vote upon a proposal to
approve the merger of Dynamic Associates, Inc., a Nevada
corporation ("Dynamic Associates") with Tele-Lawyer, Inc., a
Nevada corporation ("Tele-Lawyer") pursuant to the terms and
conditions of the merger agreement and the first, second and
third amendment to merger agreement (collectively, "merger
agreement"), attached to this proxy statement as Appendices
A1, A2, A3 and A4 respectively. As you consider how to vote,
it is important that you understand the following:
* Before the merger takes place, it is a requirement that
Dynamic Associates pay off or settle all of its
liabilities, including any notes that might be
outstanding. To accomplish this it will be necessary
for Dynamic Associates to issue additional common
shares of stock in exchange for the cancellation of
debt. This will dilute your current stock position.
Part or all of this condition may be waived by Tele-
Lawyer. See the discussion under the heading "MERGER
DESCRIPTION" beginning on page 20.
* Before the merger takes place, no more than 500,000
common shares of Dynamic Associates can be issued and
outstanding. If all of the note holders of Dynamic
convert their debt to common stock, there will be
approximately 76,229,768 shares of Dynamic common stock
issued and outstanding at the time the merger is
consummated. Therefore, Dynamic Associates common stock
will need to undergo a reverse split on a basis of one
share for every 153 shares presently
1
outstanding. See the discussion under the heading "MERGER
DESCRIPTION" beginning on page 20, and "REVERSE STOCK SPLIT"
beginning on page 29.
* Other than the potential beneficial economic impact to
Dynamic Associates brought about by the acquisition of
Tele-Lawyer, in the merger you will receive no
consideration by virtue of your position as a
shareholder of Dynamic Associates. After the merger
you will continue to own the Dynamic Associates shares
you now own after giving effect to the reverse split.
See the discussion under the heading "MERGER
DESCRIPTION" beginning on page 20.
* In the merger, Dynamic Associates will issue
approximately 5,354,999 common shares in exchange for
all of the shares of Tele-Lawyer presently outstanding.
After the merger, Dynamic Associates will own 100% of
Tele-Lawyer and the present Dynamic Associates
shareholders will own as a group approximately 9.3% of
Dynamic Associates. See the discussion under the
heading "MERGER DESCRIPTION" beginning on page 20.
* The board of directors of Dynamic Associates
unanimously supports the merger. See the discussion
under the heading "DYNAMIC ASSOCIATES' BOARD
RECOMMENDATION" beginning on page 23.
* The annual meeting will be held at 10:00 a.m. Pacific
Standard Time on June 11, 2001, at Suite 500, 2300 West
Sahara Avenue, Las Vegas, Nevada 89102. You can vote
by attending the meeting or by filling out and sending
in your proxy. See the discussions under the headings
"GENERAL" at page 3 and "VOTE REQUIRED AND VOTING" at
page 4.
* If you send in your proxy and then, sometime before the
meeting, change your mind about how you want to vote,
you can revoke your proxy. See the discussion under the
heading "REVOCATION OF PROXY" at page 5.
* If you do not agree with the merger and the merger
takes place, you can demand and receive payment for
your Dynamic Associates shares at their market value
immediately before the merger. To receive payment, you
must take certain actions describe on page 5 under the
heading "RIGHTS OF DISSENTING SHAREHOLDERS", and as
described in Appendix B.
* You can receive information about Dynamic Associates in
addition to the information in this proxy statement by
contacting Dynamic Associates or the SEC or the web
site of the SEC. See the discussions under the
headings "RECORDS AVAILABLE TO UNAFFILIATED
SHAREHOLDERS" at page 23 and "WHERE YOU CAN FIND MORE
INFORMATION" at page 40.
* This proxy statement contains forward-looking
statements based upon expectations of the future
success of Tele-Lawyer. External factors could cause
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actual results to differ. See the discussion under the
heading "FORWARD-LOOKING STATEMENTS" beginning on page 40.
THE ANNUAL MEETING
GENERAL
This proxy statement is furnished in connection with the
solicitation of proxies by the board of directors of Dynamic
Associates to be voted at the annual meeting of shareholders
of Dynamic Associates (the "annual meeting"), which will be
held at 10:00 a.m. Pacific Standard Time on June 11, 2001, at
Suite 500, 2300 West Sahara Avenue, Las Vegas, Nevada 89102.
The purpose of the annual meeting is to consider and vote
upon the merger of Tele-Lawyer with and into Dynamic
Associates wherein Dynamic Associates will be the surviving
entity and certain other matters upon which the merger is
conditioned. A copy of the merger agreement and the first,
second and third amendment to the merger agreement are attached
to this proxy statement as Appendices A1, A2, A3 and A4. This
proxy statement and the enclosed form of proxy are first
being mailed to Dynamic Associates shareholders on or about
May 30, 2001.
RECORD DATE; SOLICITATION OF PROXIES
The board of directors of Dynamic Associates has fixed the
close of business on April 30, 2001 as the record date for
the determination of shareholders entitled to notice of and
to vote at the annual meeting. At the record date, there
were approximately 61,511,435 shares of common stock issued,
outstanding, and entitled to vote at the annual meeting.
Holders of common stock are entitled to one vote at the
annual meeting for each share of common stock held of record
at the record date. There are no separate voting groups or
separate series of stock.
In addition to the solicitation of proxies by the board of
directors through use of the mails, proxies may also be
solicited by Dynamic Associates and its directors, officers
and employees (who will receive no additional compensation
therefor) by telephone, telegram, facsimile transmission or
other electronic communication, and/or by personal
interview. Dynamic Associates will reimburse banks,
brokerage houses, custodians and other fiduciaries who hold
shares of common stock in their name or custody, or in the
name of nominees for others, for their out-of-pocket
expenses incurred in forwarding copies of the proxy
materials to those persons for whom they hold such shares.
Dynamic Associates will bear the costs of the annual meeting
and of soliciting proxies therefor, including the cost of
printing and mailing this proxy statement and related
materials. Dynamic Associates has spent approximately $6,000
in legal and other expenses in the preparation of this proxy
statement and other expenses connected with the solicitation
of security holders. It is anticipated that Dynamic
Associates will spend an additional $5,000 in solicitation
of security holders before the meeting is held.
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Any questions or requests for assistance regarding Dynamic
Associates' proxies and related materials may be directed in
writing to Grace Sim, at 6617 N. Scottsdale Road, Suite 103
Scottsdale, Arizona 85250.
VOTE REQUIRED AND VOTING
In order to obtain shareholder approval of the merger, fifty
percent (50%) of the issued and outstanding shares of common
stock entitled to vote as of the record date, represented in
person or by proxy, is required to vote in favor of the
merger at the annual meeting. Any other matter that may be
properly brought before the meeting may be approved if only
a quorum of twenty-five percent (25%) of the issued and
outstanding shares of common stock entitled to vote as of
the record date are represented in person or by proxy, and
fifty percent (50%) of the shares so represented vote in
favor of the matter or matters. Abstentions may be
specified and will be counted as present for the purpose of
determining the existence of a quorum.
You can vote by either attending the annual meeting in
person or by filling out and sending in your proxy. Shares
of common stock that are represented by properly executed
proxies, unless such proxies shall have previously been
properly revoked (as provided herein), will be voted in
accordance with the instructions indicated in such proxies.
If no contrary instructions are indicated, such shares will
be voted FOR the merger, and in the discretion of the
persons named in the proxy as proxy appointees, as to any
other matter that may properly come before the annual
meeting (of which Dynamic Associates is not presently
aware). Shares represented by proxies that have voted
against the propositions presented at the meeting cannot be
used to postpone or adjourn the meeting in order to solicit
more votes for the proposition.
Brokers who hold shares in a street name have the authority
to vote when they have not received instructions from the
beneficial owners. Brokers who do not receive instructions
but who are present, in person or by proxy, at the annual
meeting will be counted as present for quorum purposes.
OTHER MATTERS
It is not expected that any matters other than those
referred to in this proxy statement will be brought before
the annual meeting. If other matters are properly
presented, however, the persons named as proxy appointees
will vote in accordance with their best judgment on such
matters. The grant of a proxy also will confer discretionary
authority on the persons named as proxy appointees to vote
in accordance with their best judgment on matters incident
to the conduct of the annual meeting.
In the event a material condition of the merger agreement is
waived following the shareholder vote, Dynamic Associates
would call a new meeting of shareholders in which the issue
of the merger, including the waived condition, would once
again be put to a vote as required by state and federal law.
This would not include a waiver of Dynamic's
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obligation to extinguish its debt in the event of waiver by
Tele-Lawyer as provided in the merger agreement.
REVOCATION OF PROXY
Any shareholder may revoke his, her or its proxy (other than
an irrevocable proxy coupled with an interest) at any time
before it is voted, by: (1) filing with the corporate
secretary of Dynamic Associates an instrument revoking the
proxy; (2) returning a duly executed proxy bearing a later
date; or (3) attending the annual meeting and voting in
person. Attendance at the annual meeting will not by itself
constitute revocation of a proxy.
RIGHTS OF DISSENTING SHAREHOLDERS
With respect to the proposed merger, shareholders are
entitled to assert dissenters' rights under Nevada Revised
Statutes 92A.300 to 92A.500. A copy of Nevada Revised
Statutes 92A.300 to 92A.500 is attached to this proxy
statement as Appendix B. It is important that all
shareholders review all of the provisions of Appendix B in
order to be aware of all of their rights with respect to the
proposed merger.
A shareholder who wishes to assert dissenter's rights must
deliver to Dynamic Associates before the vote is taken at
the annual meeting, notice of his or her intent to demand
payment for his or her shares if the merger is consummated
and must not vote his or her shares in favor of the proposed
action, otherwise his or her right to dissent and receive
payment for his or her shares is lost. Said notice may be
delivered to the attention of the secretary of Dynamic
Associates, Grace Sim, at 6617 N. Scottsdale Road, Suite
103, Scottsdale, Arizona 85253 or may be delivered in person
at the location of the annual meeting immediately prior to
the start of the annual meeting.
If the merger is authorized at the annual meeting, Dynamic
Associates will within 10 days of the approval provide a
dissenters' notice to all shareholders who complied with the
terms and conditions of the preceding paragraph. The
dissenters' notice will give instructions to each dissenter
as to how to make demand for and receive payment for his
common shares. Note that to obtain payment for shares, the
instructions set forth above must be followed. It is not
sufficient to merely vote against the merger at the annual
meeting.
5
THE MERGER
THE COMPANIES
Dynamic Associates
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Dynamic Associates is engaged in managing the operation of
psychiatric/geriatric units for various hospitals through
Perspectives Health Management Corp., a Nevada corporation
and a wholly owned subsidiary of Dynamic Associates
("PHMC"). PHMC provides elderly healthcare and gero-
psychology services to small healthcare facilities unable to
provide these services in house. The program conforms to
the guidelines of the JCAHO Accreditation Manual for
Hospitals and Medical Standards. The program is reimbursed
at cost by Medicare when established as a distinct part unit
of a Hospital that qualifies for an exemption from the
Medicare Prospective Payment System ("PPS"). The PPS
exemption provides for a cost plus reimbursement system for
the unit, which allows the hospital to receive full
reimbursement of the direct operating expenses, plus an
allocation to the unit of a substantial portion of the
hospital's overall overhead and capital costs. This amount,
however, has been capped by recent changes in federal law
imposed by the Balanced Budget Act and the Balanced Budget
Relief Act. This cap has made it increasingly more
difficult for PHMC to generate a profit.
Currently, management plans to sell Perspectives. The
assets held by Perspectives are comprised of approximately
20 contracts to service inpatient and outpatient facilities
located throughout the Southern United States. These
contracts carry no book value but have annual billings
that range from $60,000 to $420,000. In December 1999,
Dynamic's management determined that the approximate amount
Dynamic expected to realize from the sale of Perspectives
was $1,590,000 and Dynamic wrote down the goodwill on its
books accordingly. Dynamic's efforts to
sell Perspectives in 2000 were unsuccessful. Through
negotiations, the managements of Tele-Lawyer and Dynamic have
determined that $1,500,000 is a reasonable purchase price for
the assets and liabilities of Dynamic.
On November 28, 2000, Dynamic entered into a Brokerage
Agreement for the sale of Perspectives. The management of
Tele-Lawyer expects to continue this Brokerage Agreement as
part of the plan of merger. Tele-Lawyer expects to sell
Perspectives sometime during the third or fourth quarter of
2001 if the merger is consummated.
Dynamic Associates is a Nevada corporation. Its executive
offices are located at 6617 N. Scottsdale Road, Suite 103,
Scottsdale, Arizona 85253; telephone (480) 315-8600.
Financial information about Dynamic Associates is attached
hereto as Appendix C1.
Tele-Lawyer
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Historically, Tele-Lawyer has been in the business of
arranging for the provision of legal advice and information
to consumers of legal services through licensed attorneys.
Tele-Lawyer also produces and sells specialized phone
conferencing applications to
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professionals and associations.
The specialized phone conference applications are most often
in the form of continuing education programs for attorneys
called Tele-Seminars. More recently, Tele-Lawyer has
changed its business focus by concentrating on the
development of strategic partnerships with various non-
profit associations and government agencies in order to
create a number of statewide hubs for access to legal
services. This process has involved the expansion of Tele-
Lawyer's product and service offerings, as well as its
geographic coverage, including a:
1. Web Based Case Management System;
2. Web Based Phone System;
3. Web and Phone Based Unbundled Legal Services, Including:
a. Legal Information
b. Referrals
c. Filing Services
d. Legal Forms
e. Form Preparation
f. Mediation (Dispute Resolution)
g. Legal Advice
h. Documentation Services
i. Tele-Seminar Phone Conferencing
j. Attorney Virtual Office Rentals
k. Bidding for Attorneys
l. Legal Books
Tele-Lawyer is a Nevada corporation. Its executive offices
are located at 2300 W. Sahara Ave., Suite 5000, Las Vegas,
NV 89102; telephone (702) 312-6252. Financial information
about Tele-Lawyer is attached hereto as Appendix C2.
History & Development
Tele-Lawyer was formed in May of 1989 and opened for
business in October 1989 as the first pay-as-you-go legal
information and advice phone service. As originally
conceived and still offered today, the Tele-Lawyer service
provides consumers quick, convenient access to legal advice
and information over the telephone. The client/caller
phones into the service, tells an operator what kind of
legal question they have, and then the operator directs the
call to a licensed, experienced attorney. The attorney
reviews the facts with the client, and then answers
questions and provides general legal advice and information.
Publicity and attention to the service from inception was
significant, with positive stories finding their way into
most of the major newspapers throughout the country within
the first year of operation. In addition, Tele-Lawyer
quickly was recognized and received numerous awards from
several different legal, phone and consumer organizations,
including the American Bar Association's prestigious Louis
M. Brown award for access to legal services in 1995.
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Notwithstanding the praise and acknowledgement of the press
and related organizations, it quickly became evident that
traditional means of marketing could not generate the volume
of calls necessary to support and grow the business. As a
result, Tele-Lawyer went through a series of changes in
operation and direction. One such change was the creation
of its Tele-Seminar and Tele-Meeting services in 1992 and
1993.
Tele-Seminars are continuing education programs offered to
professionals over the phone. Currently, Tele-Lawyer offers
both live and recorded programs produced by various non-
profit organizations. These organizations will typically
find the speakers, design the program content and do the
marketing. Tele-Lawyer will then handle everything else to
present and operate the program over the phone.
Currently, Tele-Lawyer is involved in expanding its business
operations to increase the number, type and geographic
coverage of the services it offers in order to create a
central hub or starting place for access to legal services
nationwide. This expansion includes selling website and
phone services to legal service providers, bar associations
and federal and state courts as well as creating a range of
unbundled legal services available to the
general public through these non-profit groups and Tele-Lawyer's
own website and hotline phone service. Tele-Lawyer's direct
consumer website services can be found at www.internetlawcenter.com.
Tele-Lawyer's direct consumer phone services can be accessed at
1-800 835-3529.
Competition
While direct competition to all the Tele-Lawyer services is
currently few, indirect competition is plentiful and active.
A few providers of pay-as-you-go legal advice and
information services exist, including Divorce Help Line in
Santa Cruz, California and the Legal Advice Line in
Baltimore, Maryland. These companies, to one extent or
another, provide legal advice over the phone for a fee.
Limitations are generally centered on the geographic region
and the legal subject matter covered. In addition, there
are virtually hundreds of legal aid and other non-profit
services that offer legal advice either over the phone or in
person, generally for free and only to low income qualifying
individuals in a specific geographic region for certain
types of legal problems.
With regard to the Tele-Seminar service, there are a number
of conferencing companies that offer services similar to
Tele-Lawyer's Tele-Seminar programs. While the competition
in conferencing services in general is strong and getting
stronger, there are only a few conferencing services that
seek out and market to the continuing education market as
part of their product offerings.
On the Internet, there are virtually thousands of legal and
law related sites. For consumers, some offer legal
information for free or on a subscription basis. Some offer
forms and to a limited extent form preparation, and some
even provide legal advice through e-mail exchanges. Finder
and referral lists can also be found in plenty for persons
seeking attorneys and other legal sources of information.
Lawyers also have access to
8
these sites as well as a number
of sites specifically designed for their legal research and
referrals.
A short sample listing of legal websites include the
following:
* Findlaw.com
* Uslaws.com
* Lawguru.com
* Priweb.com
* Lawyersweekly.com
* Law.Cornell.edu
* Legal.gsa.gov
* Westlaw.com
* Martindale.com
* Lawyers.com
* Lawoffice.com
* Legal-bid.com
* Probono.net
* Legaladviceline.com
* Ask-a-Lawyer.com
* Divorce-Forms.com
* Mylawyer.com
* Thelaw.com
Marketing
Tele-Lawyer's marketing efforts are centered on sales to,
and strategic partnerships with, non-profit associations and
government agencies, such as legal aids, bar associations
and the nation's courts. A sampling of Tele-Lawyer's
clientele would include, AARP Foundation, the Washington Bar
Association, Nevada Legal Services and Central Florida Legal
Services. These clients are contacted by Tele-Lawyer sales
representatives at conferences and through direct mail
efforts and sold on the concept of using Tele-Lawyer's
technology and services as part of their operations.
Employees
Tele-Lawyer currently has 9 full time employees including
its President and CEO Michael Cane, Vice President and
Director of Business Development Elliot Schear, and
Treasurer and Chief Financial Officer Steven Fellows. There
are also two directors employed by Tele-Lawyer -- Sara
Wessells the Director of Operations, and Alfredo Gonzalez
the Director of Technology.
In addition, Tele-Lawyer contracts for the services of a
number of independent consultants and programmers in its
operations.
9
None of Tele-Lawyer's employees are subject to collective
bargaining agreements, nor have they been on strike, or
threatened to strike, within the past three years. Tele-
Lawyer has no supplemental benefit or incentive arrangements
with its employees other than an incentive stock option and
health care plan.
Trademarks and Intellectual Property
Tele-Lawyer holds a number of US trademarks issued by the US
Patent and Trademark Office. These include:
1. TELE-LAWYER -- both word and design
2. INFOLAW
3. 1-900 ATTORNEY
4. INTERNETLAWCENTER.COM
In addition, without holding a specified US trademark,
Tele-Lawyer uses the following marks that it believes it has
rights to under common law:
1. TELELAW
2. TELE-SEMINARS
Research and Development Expenditures
Tele-Lawyer has not conducted any research and development
activities.
Subsidiaries
Tele-Lawyer does not have any subsidiaries
Duration of Operations
Tele-Lawyer has been in business since 1989, providing legal
related services to consumers and attorneys through various
relationships with the legal community.
Most Recent Tele-Lawyer Results of Operations
For the most recent nine-month period ended January 31,
2001, Tele-Lawyer reported $389,892 in revenues, up from the
$78,618 reported in the first nine months ended January 31,
2000. This increase in revenues was largely attributable to
increased sales of continuing legal education programs in
California. In the year 2000, the California Bar
Association re-established its mandatory continuing
education requirements for attorneys, creating an increased
demand for programs sold by Tele-Lawyer. This revenue is
seasonal, growing in the fall and winter months through
January, as the California MCLE compliance deadlines are set
for January 31 of each year.
10
The loss from operations for the year-ended April 30, 2000
was $48,755, up from $36,214 reported for the year-ended
April 30, 1999. The difference reflected both an increase
in revenues as well as operating costs and expenses in 2000.
Revenues increased by 59%, from $128,684 in 1999 to $204,720
in 2000, while operating costs and expenses increased 53%
from $164,898 in 1999 to $253,475 in 2000. The largest
percentage increase in operating costs and expenses was from
initial software research and development costs related to
Tele-Lawyer's development of it's new website services.
The loss from operations for the most recent nine-month
period ended January 31, 2001, however, was $875,974, up
from the gain of $16,496 reported in the first nine months
ended January 31, 2000. This reflected the increased costs
incurred as Tele-Lawyer began the implementation of its new
business plan and direction in early 2000. A large percent
of these increased costs, $559,052, were from software
research and development costs, and from increased selling,
general and administrative expenses of $583,994. This
resulted in an accumulated deficit of $1,283,358 at January
31, 2001, up from an accumulated deficit of $430,681 at
fiscal year-end April 30, 2000.
Tele-Lawyer has funded its growth and loss from operations
largely through the sale of its common stock in two private
offerings exempt from registration under rule 506 of
Regulation D of the Securities Act of 1933. In April 2000,
Tele-Lawyer sold 341,666
shares of common stock at $3 per share to two investors for
a total of $1,024,998. Then during the first quarter of 2001, it
sold an additional 13,333 shares of common stock at $3 per share
to five investors for a total of $39,999. Additionally, Tele-Lawyer
generated $389,892 in gross revenues from its operations
during the nine months ended January 31, 2001. Tele-Lawyer
anticipates that over the next twelve months it will need to
obtain additional financing through the sale of equity
securities or debt to grow its business operations
consistent with its business plan and meet its near term
liquidity obligations. Tele-Lawyer anticipates arranging a
private offering for convertible debt or common stock
following the consummation of the merger. At this time,
however, Tele-Lawyer does not have any specific plans as to
the terms of any such offering, or when or in what manner it
will be made. No agreements as to financing have been made
and Tele-Lawyer can provide no assurance that such financing
will be available when needed.
Call Handling Capabilities
Currently, Tele-Lawyer has internal facilities to handle an
estimated 15,000 calls per month. However, as part of Tele-
Lawyer's business plan, Tele-Lawyer expects to receive a far
larger number of calls as it implements its contracts with
non-profit legal service providers. Tele-Lawyer has
developed a three-prong approach to support this expected
growth. First, it has developed a relationship with a large
existing operator center in Reno Nevada, Northwest Nevada
Telco (NNT), in which NNT has agreed to handle any call
volume in excess of Tele-Lawyer's capacity. In addition,
Tele-Lawyer systems allow for operators and customer support
personnel to take calls from remote locations, such as their
homes. Tele-Lawyer intends to pursue the development of
such a virtual operator pool that will work outside of Tele-
Lawyer's premises. Finally, as
11
volume and contracts justify,
Tele-Lawyer expects to expand its operating facilities to
increase its call handling capacities.
The costs of using NNT would correspond to income generated
from the calls and thus not require a capital expense or
financing. However, the costs of hiring and training
virtual operators as well as any expansion of Tele-Lawyer's
facilities and personnel would require additional financing.
The amount and extent such financing will be needed will
depend on the amount and speed with which growth occurs.
Based on the existing business plan, Tele-Lawyer anticipates
that it will need an additional $750,000 in financing to
support call handling growth over the next twelve months,
most of which would be spent during the second half of 2001.
Recent Offering of Tele-Lawyer Stock
From January to March, Tele-Lawyer conducted a private
offering of 300,000 shares of its common stock at a price of
$3 per share. This offering was exempt from registration
under rule 506 of regulation D of the Securities Act. Of
the shares offered, Tele-Lawyer sold 13,333 shares to 5
accredited investors for total proceeds of $40,000.
Risk Factors Associated With The Tele-Lawyer Business
As Dynamic shareholders will be acquiring the Tele-Lawyer
business operations, the following risk factors related to
such operations should be considered.
1. Need for Additional Financing
Tele-Lawyer has only a limited amount of cash and liquid
assets and will not be able to expand its operations in the
future without obtaining additional financing. As of
January 31, 2001, Tele-Lawyer had $169,652 in cash in its
accounts. If financing is not available or obtainable,
shareholders may lose a substantial portion or all of their
investment. Tele-Lawyer has no immediate means for
obtaining additional financing. There can be no assurance
that such additional financing, when and if necessary, will
be available to Tele-Lawyer on acceptable terms, or at all.
2. Limited Operating History, Risks of a New Business Venture
While Tele-Lawyer has been in business since May of 1989 and
operating its legal advice service consistently since
October of 1989, it has only recently begun developing its
new website operations and services, and, to date, has had
no experience in providing and selling the various new legal
services it plans to offer over the Internet. Shareholders
should be aware that there is a substantial risk of failure
associated with new business operations as a result of
problems encountered in connection with their formation and
commencement. These problems include, but are not limited
to:
* Unanticipated problems relating to the marketing and sale
of a new product in the marketplace;
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* The entry of new competition; and
* Unknown or unexpected additional costs and expenses that
may exceed current estimates.
There is only a limited operating history upon which to base
any projection as to the likelihood that Tele-Lawyer will
prove successful in its current business plan, and thus
there can be no assurance that Tele-Lawyer will achieve
profitable operations or even generate any operating
revenues.
3. Market risks
Any time a new product or service is introduced into a
market, as in the case of a number of the new services being
developed by Tele-Lawyer, there is a substantial risk that
sales will not meet expectations or even cover the cost of
operations. General market conditions might be such that
sales will be slow or even non-existent, and/or the service
itself might not fit the needs of buyers enough to induce
sales. Tele-Lawyer has already
experienced one such effect when it discovered that the sales
cycle to non-profit legal services groups was longer than the
sixty days it had anticipated in its business plan.
While Tele-Lawyer anticipates the ability to sell the
products and services it develops, there is no way to
predict the volume of sales that will occur or even if sales
will be sufficient to support the future operations of Tele-
Lawyer. Numerous factors beyond the control of Tele-Lawyer
may affect the marketability of the services offered and
developed. These factors include:
* Consumer demand,
* Market fluctuations,
* The proximity and capacity of vendors, and
* Government regulations, including regulations relating to:
* Prices,
* Taxes, and
* Royalties
The exact effect of these factors cannot be accurately
predicted, but it's possible they may result in Tele-Lawyer
not receiving an adequate return on its invested capital.
4. Professional Liability and Licensing in the Practice of Law
Most of the revenue Tele-Lawyer expects to generate from its
operations is from services related to law. While any
services requiring a license to practice law are to be
offered only by licensed attorneys, Tele-Lawyer's
relationship with these attorneys entails a risk of
professional liability claims as well as ethical and other
actions by state bar associations or other state regulatory
organizations. Consequently, Tele-Lawyer may be named as a
co-defendant in professional liability claims or involved in
charges of ethical
13
violations against lawyers who provide
some of the legal services connected to its website or phone
operations. In addition, services provided directly by Tele-
Lawyer to its callers and website users, such as automated
form preparation, access to certain published legal
information or referrals to third party legal services,
among others, may create similar liability for injuries
incurred in connection with using the service.
Tele-Lawyer's exposure to such liability is reduced, but not
eliminated, because participating attorneys will be required
to buy and carry their own malpractice insurance. Moreover,
Tele-Lawyer currently plans to maintain insurance for its
business in amounts management deems adequate to cover
potential claims. Even so, judgments against Tele-Lawyer
with respect to all such claims in the future could have an
adverse effect on Tele-Lawyer's financial condition, results
of operations and cash flow.
In addition, it should be noted that all states within the
United States maintain laws regarding the licensure of the
practice of law. In general, individuals or entities that
provide services that come within the definition of "the
practice of law" in a particular state must be licensed.
Failure to have a license can result in civil as well as
criminal charges against the offending individuals.
Unfortunately, the determination of what
constitutes "the practice of law" is rarely clear, opening up
the potential for liability under these state laws for any
unlicensed service that offers consumers assistance in the area
of law. While Tele-Lawyer believes its operations will be
consistent with such licensure laws, because of the inherent
vagueness of the law, Tele-Lawyer's extensive law related services,
and the fact that Tele-Lawyer is not itself licensed, Tele-
Lawyer may be a target of actions or claims by state bar
associations or other state government regulatory
organizations for violations of these licensure statutes.
Such actions could have a substantially adverse effect on
Tele-Lawyer's financial condition, operations and cash flow
in the future.
5. Concentration of Ownership
Upon completion of the merger, current stockholders of Tele-
Lawyer will own a majority of Dynamic's common stock. As a
result, such persons will have the ability to elect the
board of directors of Dynamic and therefore control and
direct its affairs and business.
6. Competitiveness of Industry
Competition in the area of legal services, both on and off
the Internet, is intense and is expected to increase.
Furthermore, Tele-Lawyer will face competition from numerous
companies that currently market, or are developing, products
and services similar to those it has developed. Some of
these companies have significantly greater development
capabilities and marketing, financial and managerial
resources than Tele-Lawyer. There can be no assurance that
competitors will not succeed in developing and distributing
products and services that will render Tele-Lawyer's
products and services noncompetitive. Generally, this will
have a significant negative effect on Tele-Lawyer's bottom
line profits.
14
7. Potential Legal, Regulatory and/or Compliance Risk
Tele-Lawyer's ability to carry on business and expand may be
impacted by new government regulation. Due to the
increasing popularity and use of the Internet, new laws and
regulations may be adopted with respect to the Internet
generally or legal services specifically, covering issues
such as user privacy, pricing, qualification of providers
and characteristics and quality of products and services.
Similarly, the growth and development of the market for
Internet commerce may prompt calls for more stringent
consumer protection laws that may impose additional burdens
on those companies conducting business over the Internet.
The adoption of any additional laws or regulations may
decrease the growth of commerce over the Internet and may
increase the cost of doing business or otherwise have a
harmful effect on business.
In addition, Tele-Lawyer may have to qualify to do business
in other jurisdictions. As its services are expected to be
available over the Internet in multiple states and foreign
countries, such jurisdictions may claim that it is required
to qualify to do business as a foreign company in each such
state or foreign country. Failure to qualify as a foreign
company in a jurisdiction where this is required could
subject Tele-Lawyer to taxes and penalties.
8. Forward Looking Assessments Prepared by the Current
Management of Tele-Lawyer
The ability of Tele-Lawyer to accomplish its objectives, and
whether or not Tele-Lawyer will be financially successful is
dependent upon numerous factors, each of which could have a
material effect on the results obtained. Some of these
factors are within the discretion and control of management
and others are beyond management's control. The assumptions
and hypothesis used in preparing any forward-looking
assessments of profitability made by management presented to
shareholders are considered reasonable. There can be no
assurance, however, that any projections or assessments
provided to shareholders or Dynamic will be realized or
achieved at any level.
9. Loss of key persons and/or suppliers
Due to the highly technical nature of Tele-Lawyer's
business, having certain key personnel is essential to the
creation and operations of its services and thus to the
entire business itself. Consequently, the loss of any of
those individuals may have a substantial effect on Tele-Lawyer's
future success or failure.
Moreover, Tele-Lawyer is dependent on the principal members
of its management staff, the loss of any of who could impair
the development of Tele-Lawyer's products and projects.
Tele-Lawyer's success will be largely dependent on the
decisions made by members of its management. Furthermore,
Tele-Lawyer may depend on its ability to attract and retain
additional qualified personnel to manage certain business
interests. Tele-Lawyer may have to recruit qualified
personnel with competitive compensation packages, equity
participation and other benefits that may affect the working
capital available for Tele-Lawyer's operation(s). Tele-
Lawyer's management will seek to obtain
15
outside independent
professionals to assist them in assessing the merits and
risks of any business proposals as well as assisting in the
development and operation of many Tele-Lawyer projects. No
assurance, however, can be given that Tele-Lawyer will be
able to obtain such needed assistance on acceptable terms.
10. Limited Assets of Tele-Lawyer
As of the date of this proxy statement, Tele-Lawyer has
limited assets and will require significant capital to
complete the development of its website and expansion of its
services. The success of Tele-Lawyer is largely dependent
upon the success of future financings, either from the sale
of common stock, loans, the sale of Perspectives or the
collection of the Perspectives' accounts receivable.
Moreover, even if financing is obtained through any of these
means, there is still no assurance that the proceeds will be
sufficient to facilitate Tele-Lawyer's ultimate needs.
11. Protection of Intellectual Property Rights
Tele-Lawyer's success will depend, in part, on its ability
to obtain and enforce intellectual property rights over its
name, trademark and technology in both the United States and
other countries. To date, Tele-Lawyer has obtained several
trademark registrations, including "Tele-Lawyer" and
"InternetLawCenter.com". No assurance can be given that any
intellectual property rights owned by Tele-Lawyer will not
be challenged, invalidated or circumvented, that any rights
granted will provide competitive advantages to Tele-Lawyer,
or that Tele-Lawyer's competitors will not independently
develop technologies that are substantially equivalent or
superior.
Intellectual property litigation is expensive and time-
consuming, and can be used by well-funded adversaries as a
strategy for depleting the resources of a small company such
as Tele-Lawyer. There is no assurance that Tele-Lawyer will
have sufficient resources to successfully prosecute its
interests in any litigation that may be brought.
12. Recognition of the Website
Tele-Lawyer believes that development and awareness of its
website is critical to the success of its business.
Furthermore, it believes that the importance of customer
awareness will increase as low barriers to entry encourage
the proliferation of websites. If Tele-Lawyer is
unsuccessful in building strong name recognition for its
website, its business will be harmed.
Tele-Lawyer intends to maximize its marketing and
advertising expenditures in order to attract and retain
users, and to promote and maintain awareness of its website
in response to competitive pressures. These marketing
efforts, however, may not be successful in increasing
consumer awareness or increasing traffic to the site.
16
13. Dependence on Third Parties
Tele-Lawyer depends on several third parties in conducting
its operations, including the following:
* Tele-Lawyer does not own a gateway onto the Internet,
but instead relies on Interland, Inc. and Electric
Lightwave, Inc., Internet service providers, to connect its
website to the Internet;
* The website depends on an operating system, database
and server software that has been developed, produced by and
licensed from third parties.
* The development of the website itself is being done, in
part, by independent third party contractors; and
* Third party service bureaus or contractors operate a
number of the phone services provided by Tele-Lawyer,
including certain of the conferencing, 900 and recorded
services.
Tele-Lawyer has limited control over these third parties and
has no long-term relationships with any of them. If it is
unable to develop and maintain satisfactory relationships
with such third parties on acceptable commercial terms, or
if the quality of products and services provided by such
third parties falls below a satisfactory standard, Tele-
Lawyer's business operations could be harmed. Also, the
loss of or inability to maintain or obtain upgrades to
certain technology licenses could result in delays in
developing systems until equivalent technology can be
identified, licensed or developed, and integrated.
14. Rapid Changes to Electronic Commerce Market
The market for Internet products and services is
characterized by rapid technological developments, evolving
industry standards and consumer demands, and frequent new
product introductions and enhancements that could render
Tele-Lawyer's website technology and services obsolete.
These market characteristics are exacerbated by the emerging
nature of the market and the fact that many companies are
expected to introduce new Internet products and services in
the near future. Moreover, the widespread adoption of
developing multimedia-enabling technologies could require
fundamental and costly changes in Tele-Lawyer's technology.
Tele-Lawyer's future success will depend on its ability to
respond to technological advances, emerging industry
standards and new market demands on a timely and
cost-effective basis.
15. Dependence on Continued Development of the Internet and
Website
Growth of the Internet generally. Tele-Lawyer's success
depends, in large part, on the development of the Internet
infrastructure and related enabling technologies, including
performance improvements and security measures for providing
reliable Internet access and services. The Internet could
suffer from performance problems or outages due to
17
continued
growth in Internet users and their bandwidth requirements.
Any of these problems could lead to decreased usage or
growth in usage of Tele-Lawyer's website. Also, the ability
to increase the speed with which service is provided to
users and to increase the scope of such services is limited
by and dependent upon the speed and reliability of the
Internet. Consequently, the emergence and growth of the
market for Tele-Lawyer's services is dependent on future
improvements to the entire Internet.
Growth of Tele-Lawyer's systems in particular. Tele-
Lawyer's revenues will depend upon the number of visitors
who use its website and phone services. Tele-Lawyer may be
required to add additional hardware and software and further
develop and upgrade its existing technology and network
infrastructure to accommodate increased traffic on the
website and phone systems. Failure to make such upgrades or
expansions could have a substantial negative effect on Tele-
Lawyer's business and results of operations.
16. Systems failure
Substantially all of Tele-Lawyer's communications hardware
and computer hardware is located at a leased facility in Las
Vegas, Nevada. These systems are vulnerable to
damage from earthquake, fire, floods, power loss, telecommunications
failures, break-ins and similar events. Despite implementation of
network security measures, Tele-Lawyer's servers are also vulnerable
to computer viruses, physical or electronic break-ins, attempts by third
parties to deliberately exceed the capacity of its systems and similar
disruptive problems. Tele-Lawyer's insurance coverage limits
on its property and business insurance may not cover or be
adequate to compensate for all losses that may occur.
BACKGROUND OF THE MERGER
One hundred percent of the business operations of Dynamic
Associates are through its wholly owned subsidiary PHMC.
Operating revenues are generated primarily from Medicare
reimbursements to hospitals. Over the past few years,
however, changes in the Medicare payment system imposed by
the Balanced Budget Act and the Balanced Budget Relief Act,
have made it increasingly difficult to achieve profitable
operations in PHMC. These federal law changes, among other
things, reduced the maximum Medicare reimbursement from
$20,000 to $8,500. In large, this has placed substantial
limitations on what PHMC can charge hospitals for its
services and still keep the hospital under its authorized
Medicare reimbursement limit. Dynamic Associates management
has therefore determined to sell PHMC. Absent the
acquisition of some other business or product, upon the sale
of PHMC, Dynamic Associates would be without business
operations or significant assets.
Recognizing the need for a new business, in January of 2000,
Dynamic's president, Jan Wallace, knowing of the Tele-Lawyer
business, contacted Michael Cane, Dynamic's attorney and the
President of Tele-Lawyer, Inc. by phone to discuss the
reorganization of Dynamic and possible merger with Tele-
Lawyer. At this time, Ms Wallace was already in negotiations
for the sale of the PHMC business to its management team.
18
Mr. Cane had been one of Dynamic's attorneys since November
1998, handling mostly business and securities matters for
Dynamic. To avoid any conflicts of interest, Ms. Wallace
obtained outside counsel to assist her in the negotiations
regarding any potential merger with Tele-Lawyer.
Negotiations between Tele-Lawyer and Dynamic continued over
the phone, through email and letters until March 2000 when
they were discontinued because the parties failed to reach
agreement on the relative valuations of the companies. In
the meantime, the negotiations for the sale of the PHMC
business continued, resulting in a contract in August 2000.
Under this agreement, PHMC was to sell all of its assets in
exchange for:
1. Twenty thousand dollars and no cents ($20,000) as
the first installment of sixty (60) equal monthly
payments in accordance with the Promissory Note
described in paragraph (2) below.
2. A promissory note secured by the assets of
PHMC in the stated principal amount of
$1,737,657.80 payable in 60 monthly installments
of $20,000 each together with interest accrued
thereon at the simple interest rate of eight
percent (8%) per annum.
3. The Purchaser's agreement to assume and discharge
in a timely manner the obligations of Perspectives
under all contracts, accounts payable, and
agreements transferred by Perspectives to the
Purchaser.
4. The Purchaser's agreement that in the event it
merged or consolidated with another entity or sold
substantially all of its assets, it would pay the
entire amount of the principle and interest then
owing under the promissory note, plus:
a. 50% of the net proceeds of any sale of the
assets, if the transaction was entered into or
closed on or before September 1, 2002; and
b. 25% of the net proceeds of any sale of the
assets, if the transaction was entered into or
closed after September 1, 2002, but on or
before September 1, 2003.
The agreement was subject to the approval of the Dynamic
note holders to: (a) the sale, and (b) the exchange of their
existing notes for a pro rata share of the promissory note
and other consideration.
By mid-October, however, the parties to this agreement had
verbally decided to terminate the sale. At that time,
negotiations began anew between Dynamic and Tele-Lawyer with
regard to the merger. These negotiations, involving several
phone conferences, letters and emails, led to the merger
agreement and a formal termination of the PHMC sales
agreement on November 28, 2000.
19
Dynamic Associates' management believes the business of
Tele-Lawyer is a viable business concept with a potentially
bright future. Through the merger, Dynamic Associates would
acquire Tele-Lawyer's business operations as Dynamic
Associates faces the prospect of selling PHMC. Management
hopes this will revive Dynamic Associates' future financial
prospects.
MERGER DESCRIPTION
Tele-Lawyer will be merged with and into Dynamic Associates
with Dynamic Associates being the surviving entity and Tele-
Lawyer either ceasing to exist or operating as a wholly
owned subsidiary of Dynamic. The merger calls for each of
the Tele-Lawyer shareholders to receive one share of Dynamic
Associates common stock for each share of Tele-Lawyer common
stock they hold. In addition, each holder of an option or
warrant to purchase Tele-Lawyer common stock under its
incentive stock option plan shall be entitled to receive an
option to purchase the same number of shares of Dynamic
Associates stock under the same terms as provided in their
option or warrant agreement.
Currently, Tele-Lawyer has issued options to purchase
285,000 common shares at $1 per share and options to
purchase an additional 451,231 common shares at $3 per
share. In addition, Tele-Lawyer has issued warrants to
purchase 450,000 common shares at $3 per share.
In brief, the merger agreement is conditioned, among other
things, upon the following:
* Dynamic Associates shall extinguish all of its
outstanding debt, including all existing notes, through
a conversion to common stock or otherwise.
* Dynamic Associates shall have settled and/or paid all
outstanding claims, liabilities, actions or lawsuits to
the satisfaction of Tele-Lawyer.
* Dynamic Associates shall have extinguished all of its
outstanding warrants, options and any other rights to
acquire any shares of its common stock.
* After conversion of all debt to equity, settlement of
all liabilities, extinguishments or exercise of all
warrants and options, and after all other actions so
that the issuance of further capital shares of Dynamic
Associates is unnecessary to accomplish the objectives
of the bullet points set forth immediately above,
Dynamic Associates shall enact a reverse split of its
shares so as to have at the consummation of the merger
no more than 500,000 shares of common stock
outstanding.
The conversion of the note holder's debt to equity has been
proceeding since December 2000 and is almost complete. As
of May 14, 2001, $8,214,000 of the 7.5% notes and $148,000
of the remaining 10% notes held by 57 note holders had been
converted to common stock. All notes were converted at the
rate of $.15 of debt for each share of common stock. No
other material terms of these conversions applied. This is
a reduction of over 96% of this debt from year-end December
31, 2000. The current amount remaining on the notes payable
at May 14, 2001 is:
$ 203,500 10%
111,000 7.5%
-------------
$ 314,500
20
Negotiations are continuing on this remaining debt and
management expects to reach a final agreement with these
note holders shortly. Whatever debt remains at the time
of the merger, if any, would remain an obligation of
Dynamic notwithstanding the consummation of the merger.
The condition of the merger that Dynamic extinguish all its
debt may be waived in whole or in part by Tele-Lawyer, but
all conversions that have been made are final and are not
conditioned or contingent upon the consummation of the merger.
Dynamic Associates shareholders will receive no
consideration in the merger. It should be noted, however,
that the number of Dynamic Associates shares held by a
shareholder as of the merger date will be reverse split on a
1 for 153 basis prior to the consummation of the merger. No
fractional shares will be issued. Shareholders will receive
one additional share for any fractional shares resulting
from the reverse split.
Shareholders with less than 153 shares will be paid the
value of their shares based on the closing price for
Dynamic's common stock on April 30, 2001, the record date for
the determination of the shareholder's right to vote at the
annual meeting. The closing price on this date was $0.01
per share, and thus a shareholder with 100 shares on this
date would receive $1.00 in exchange for their shares.
By operation of the merger, Tele-Lawyer shareholders will
then be issued approximately 5,354,999 Dynamic Associates
common shares in exchange for their shares in Tele-Lawyer.
Accordingly, following the merger, current Dynamic
Associates shareholders will own approximately 9.3% of the
post merger company. Other than as set forth herein with
respect to the number of shares, shares held by Dynamic
Associates shareholders after the merger will have the same
rights and preferences as shares held prior to the merger.
The numbers in the preceding paragraph are approximations.
If Dynamic Associates finds it necessary to issue additional
common shares prior to the merger for purposes of retiring
notes or other debt and liabilities, it is likely the
reverse split of Dynamic Associates shares prior to the
merger will be greater than 1 for 153, giving a Dynamic
Associates shareholder a smaller percentage ownership of the
post merger company. Also, Tele-Lawyer continues to raise
money at the present time pursuant to a private
offering. If Tele-Lawyer is successful in raising additional funds
through the sale of its stock prior to the merger, current
Dynamic Associates shareholders will own less of the post
merger company than as set forth in the preceding paragraph.
CHANGE IN CONTROL
Pursuant to the terms and conditions of the merger
agreement, immediately following the merger, the officers
and directors of Dynamic Associates will be replaced by the
officers and directors of Tele-Lawyer.
21
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Mr. Michael Cane, the principal shareholder of Tele-Lawyer
is a practicing attorney and securities counsel to Dynamic
Associates. Other than as securities counsel, he has had no
business relationship with Dynamic Associates. In the
merger, Mr. Cane he will receive one share of Dynamic
Associates common stock for each share of Tele-Lawyer common
stock that he holds, the same consideration given every
other shareholder of Tele-Lawyer. He will also receive an
option to purchase shares of Dynamic common stock in
exchange for his current option to purchase shares of Tele-
Lawyer common stock at the same price and on the same terms.
This is the same consideration given every other option
holder of Tele-Lawyer. As a current officer and director of
Tele-Lawyer, following the merger he will be an officer and
director of Dynamic Associates. Mr. Cane has not and will
not be representing Dynamic Associates with regard to the
merger.
There are no other business relationships, other than the
merger described herein, between Dynamic Associates and
Tele-Lawyer, nor between them and any of the affiliates of
the other. Also, there will be no securities purchased from
any officer, director or affiliate of Tele-Lawyer in
connection with the merger.
ACCOUNTING TREATMENT AND FEDERAL TAX CONSEQUENCES
The merger between Dynamic Associates and Tele-Lawyer will
be accounted for as a reverse acquisition. The merger will
be measured at the estimated fair market value of Dynamic
Associates immediately prior to the transaction. We do not
anticipate any federal income tax consequences as a result
of the merger that are material to Dynamic Associates or to
the shareholders of Dynamic Associates.
STOCK ISSUED TO TELE-LAWYER SHAREHOLDERS
The shareholders of Tele-Lawyer will be receiving common
shares of Dynamic Associates in the merger, which shares are
exempt from registration under Section 4(2) of the
Securities Act of 1933. The corporate charter of Dynamic
Associates does not authorized the issuance of preferred
shares nor does it allow the issuance of common shares
pursuant to more than one designation and that designation
may not be issued in series. All common shares are allowed
one vote per share on any matter that comes before the
shareholders and votes may not be cumulated in the election
for directors. No common shares have preemption rights and
in the event of liquidation, no common shares
have preference over any other shares. Neither the charter nor
the bylaws of Dynamic Associates contain any provision that
would delay, defer or prevent a change in control of Dynamic
Associates.
Dynamic Associates will take steps reasonably necessary to
assure that Dynamic Associates common shares received by
Tele-Lawyer shareholders in the merger will be eligible for
trading on the OTC Bulletin Board under Dynamic Associates'
symbol, DYAS. As issued, however, the Dynamic Associates
common stock to be received by Tele-Lawyer shareholders will
be restricted and will require the filing of a registration
22
statement with the Securities Exchange Commission or
compliance with rule 144 prior to trading of the shares.
MANAGEMENT AGREEMENT WITH TELE-LAWYER
Pursuant to the merger agreement, on December 1, 2000,
Dynamic and Tele-Lawyer entered into a short-term management
agreement that ended on March 31, 2001. Under this
agreement, Tele-Lawyer has provided general administrative
services for Dynamic at no cost which almost exclusively
involved assisting Dynamic in obtaining the necessary note
conversions for the merger and reviewing Dynamic's corporate
filings. Dynamic further notes that the day to day
business operations of PHMC, Dynamic's only active
business, were and are being handled by the PHMC management
staff.
RECORDS AVAILABLE TO UNAFFILIATED SHAREHOLDERS
Dynamic Associates will upon written request make available
to any unaffiliated shareholder, at no charge, copies of any
corporate records available to the public generally or which
do not contain information proprietary to Dynamic Associates
and which may be helpful to such shareholder in making his
or her voting decision. Dynamic Associates will not obtain
counsel or appraisal services at its expense for individual
unaffiliated shareholders.
COMPLIANCE WITH REGULATORY REQUIREMENTS
There are no federal or state regulatory requirements that
must be complied with or federal or state regulatory
approvals that must be obtained in connection with the
merger.
IN THE EVENT THE MERGER IS NOT APPROVED
In the event the shareholders do not approve the merger,
Dynamic Associates will seek to sell its subsidiary
business, Perspectives Health Management Corp. and then seek
other business opportunities. At this time, Dynamic has no
specific plan on how or when it will seek any other such
business opportunities. Dynamic currently has a brokerage
agreement in which it is actively attempting to sell PHMC,
and it expects to continue to do so even in the event that
the merger is not approved. The brokerage agreement provides
for a commission to the broker of one-half the net proceeds
obtained from the sale of PHMC over $2.1 million, upon
procuring a ready, willing and able buyer. It is expected
that shareholder approval for the sale of Perspectives will
not be required if the merger is consummated.
DYNAMIC ASSOCIATES' BOARD RECOMMENDATION
The Board of Directors of Dynamic Associates recommends that
shareholders of Dynamic Associates vote in favor of the
merger at the annual meeting of shareholders. The
determination of the Board to approve the Merger Agreement
was based upon its consideration of a number of factors.
The following list includes some of the material factors
considered by the Board in its evaluation of the Merger:
23
(1) the Board's familiarity with the business, operations,
competitive position and prospects of Dynamic, and the
nature of the industry in which Dynamic participates, both
on a historical and a prospective basis. In particular, the
Board considered the impact of recent regulatory changes to
the health care management business;
(2) the Board's consideration of, among other things,
information with respect to the financial condition, results
of operations and business of Dynamic, on both a historical
and a prospective basis, and the influence of current
industry, economic, market and regulatory conditions. In
particular, the Board considered the current limitations of
management to carry out its duties;
(3) the Board's consideration over the last several months
of a variety of strategic alternatives, including a number
of proposed business combination transactions, which could
not be consummated, and the Board's belief that none of the
various potential strategic alternatives believed by the
Board to be available to Dynamic at the time the Merger
Agreement was executed appeared to the Board to be as
favorable to Dynamic and its shareholders as the Merger with
Tele-Lawyer. In particular, the failed attempt to merge
with ACS in 1999;
(4) the Board's review of the historical and prospective
market prices of Dynamic's Common Stock to be issued to the
Tele-Lawyer Stockholders as part of the Merger;
(5) the Board's review of presentations by, and discussion
of the terms and conditions of the Merger with
representatives of Dynamic's Note Holders;
(6) the acceptance by Dynamic's Note Holders of an offer to
replace their notes with shares of Dynamic's Common
Stock.
In view of the wide variety of material factors considered
in connection with its evaluation of the Merger, the Board
did not find it practicable to, and did not attempt to,
specifically quantify or otherwise attempt to assign
relative weights to the specific factors described above in
reaching its determination. However, in considering the
benefits of the merger to shareholders, the board assessed
the fairness of the transaction by considering a number of
valuation factors concerning each company. These factors
included the following:
Dynamic's Valuation:
1. Liquidation Value. Dynamic's liquidation value was
examined by looking at its assets and liabilities.
At September 30, 2000, Dynamic reported the following
Current Assets:
Cash and cash equivalents 579,775
Accounts receivable, net 2,242,949
Prepaid expenses and other current assets 18,755
-----------
Total current assets 2,841,479
24
Accounts receivable were recorded net of an allowance for
doubtful accounts of $1,157,472. Per review of the aging of
accounts receivable at September 30, 2000, 88% were
delinquent or otherwise unpaid and over half were not paid
for over six months. In addition, $2,622,181.46 in accounts
receivable were written off during the nine months ended
September 30, 2000 and $1,843,675.46 were written off in
1999. The collectability of Dynamic's accounts receivable
were therefore considered a major problem. On the other
hand, PHMC management has recently taken steps to set up a
payment plan with one of its existing accounts receivable
debtors representing approximately $390,000 of the
outstanding receivables. This arrangement is believed by
management to be a positive step toward some collection of
some of these receivables and may be replicated with some of
the other accounts receivable debtors. In another attempt
to collect a portion of these outstanding receivables, a
lawsuit has been brought against one of the existing
accounts receivable debtors representing approximately
$703,000 of the outstanding receivables. The results of this
suit can not be accurately predicted at this time, but
management remains optimistic that a recovery will occur.
Dynamic also reported $83,408 in property, plant and
equipment that was primarily comprised of automobiles.
Other assets, including deferred debt, issue costs and
goodwill had no tangible value and would both be written off
in a restructuring.
At September 30, 2000, Dynamic reported the following
current liabilities:
Accounts payable 14,482
Accrued expenses 725,241
Current portion of long-term debt 13,098
Accrued interest payable 846,449
-------------
Total current liabilities 1,599,270
Dynamic has been in continued default of its debt obligations,
and consequently is attempting to sell the Perspectives business.
Dynamic also recorded long-term debt of $9,095 and
Convertible notes of $8,676,500.
With limited liquidation value to the accounts receivable
and current liabilities exceeding the remaining current
assets, the conclusion of the board was that Dynamic had a
negative realizable net asset value.
2. Value as a going concern. The Value of Dynamic as a
going concern was examined by looking at the market
valuation of Dynamic and then determining whether this
valuation was reasonable based on cash flows.
Dynamic traded at a 30-day average of $.0156 per share
during the month of November when there was 18,386,429
shares of record. Therefore, Dynamic's market valuation at
the time was $286,828.
25
Since the merger agreement was signed, most of the
outstanding notes were converted into stock, yet, rather
than causing the price of the stock to move up, the price
declined to $0.01 where it has remained for more than the
last 30 days. If the outstanding notes were all converted
as planned, there would be 76,229,768 shares outstanding.
At the current $0.01 per share market valuation, this would
result in a market valuation of $762,230.
On the other hand, the board was mindful that attempts by
management to sell PHMC could generate cash for Dynamic
greatly in excess of this amount. This would require
finding a very specific type of buyer for the business who
could realize value from the business operations in excess
of what appeared in the financials.
3. Cash Flows. For the nine months ended September 30, 2000,
Dynamic reported a $399,587 increase in net cash used by
operating activities. This increase in cash flow, however,
was funded through current liabilities; i.e. a $520,325
increase in accounts payable and accrued expenses and a
$46,565 increase in bad debts offset by operating losses and
an increase in accounts receivable. If the impact of the
increase in current liabilities was removed, Dynamic would
have an operating cash flow deficit of $252,337 during the
nine months ended September 30, 2000. Dynamic had a
negative operating cash flow of $293,024 in 1999.
Moreover, management fee income was $4,834,805 for the nine
months ended September 30, 2000 compared to $6,569,302 for
the same period in 1999. This represented a 26% decrease
from 1999. The main reasons for the decline was that 4
fewer contracts existed in 2000 than in 1999, and there was
a reduction in fees because the hospitals were unable to pay
the higher contracted amounts due to the cap on Medicare
reimbursements.
Based on the historical results of operations and cash flows
and the future outlook of Medicare legislation, the board
had difficulty assessing any value to Dynamic based on
projected cash flows.
Tele-Lawyer's Valuation:
Based on Tele-Lawyer's business plan and prospects versus
Dynamic's shrinking business operations, the board
considered the valuation of Tele-Lawyer at approximately 20
times Dynamic to be reasonable at the time the merger
agreement. No specific calculation was made in coming to
this relative valuation and Dynamic and Tele-Lawyer
did not assign values to each other in making this determination.
The respective boards reviewed the financial and other
information provided by each company and negotiated the
terms of the reverse split and resulting relative ownership
of the merged company based on the factors identified below.
This relative valuation was re-visited on April 5, 2001 at a
meeting of the parties. At that time, it was decided to
decrease the relative value of Tele-Lawyer to approximately
10 times Dynamic due to the decreasing market for technology
company stocks and the fact that income projections had not
yet materialized.. This increase was reflected in the
26
reduction of the reverse split of Dynamic shares from
approximately 305 to 1 to 153 to 1. The Dynamic and Tele-
Lawyer boards agreed upon this revision without assigning
any specific valuation to each other's company.
Summarized below were six points that the board felt were
key to Tele-Lawyer's business strategy and valuation.
1. Proven Revenue Model: Based on audited historical
revenues, Tele-Lawyer had operating margins of over 65%
and generated significant revenues from calls that came
into its legal services applications.
2. Barriers to Entry through Contracts: Tele-Lawyer's
contracts with the legal services organizations ranging
from 1-5 years will create barriers to entry in the
marketplace.
3. Barriers to Entry through Advanced Technologies: Tele-
Lawyer offers advanced computer telephony integration
(CTI) capabilities, Voice over IP (VOIP), web-based
reporting, IVR (Interactive Voice Response), and
unified skills-based-routing for voice, chat, email and
fax. Tele-Lawyer has the only truly web-based case
management system with computer telephony integration
that is currently in this market.
4. Unbundled Services: Tele-Lawyer's services include
intelligent intake of customer calls, simultaneous
voice and data transfer to remote attorneys for legal
advice over the phone, web-based legal information,
attorney bidding, document preparation, document
filing, mediation, self-help and other services. These
services are offered to legal services organizations
and direct to consumers, unbundled and fully
integrated.
5. Management Team: The Tele-Lawyer management team is
experienced, competent and committed. Michael Cane,
founder and CEO, is a recognized leader in the field of
delivery of legal services through advanced
technologies, having been appointed to state bar
committees in California and Nevada, as well as the
American Bar Association, and a regular invited speaker
and paid consultant to a number of legal service
organizations and national associations. The
management team also includes individuals highly
skilled in the areas of technology, finance and
operations.
6. Market Conditions: The legal services market appears
ready and anxious for the Tele-Lawyer services and
Tele-Lawyer is the "first-to-market" with its services.
The Tele-Lawyer technology provides a turnkey solution
that allow legal service organizations to provide legal
services to their clients more effectively and at a
lower cost than how they are currently operating.
It should be noted that to date, Tele-Lawyer's new and pending
business contracts are not considered material and have not
generated any financial income or business results, and
27
therefore, Tele-Lawyer is at present unable to ascertain its
valuation or project its future income with any degree of
assurance to shareholders or investors.
Negative Effects of the Merger
Shareholders should note that there are a number of effects
of the proposed merger that may be perceived as negative to
existing shareholders. Among those the board was able to
identify are:
1. The existing shareholders of Dynamic will no longer
have voting control over the company. Existing Dynamic
shareholders after the merger will retain only
approximately 9.3% of Dynamic Associates as a group.
Tele-Lawyer's existing shareholders, of whom there are
only a few, would obtain over 90% of the voting power.
2. The existing board members of Dynamic, who the
shareholders elected, will be replaced with Tele-
Lawyer's current board members who along with their
appointed officers, will have complete control over the
day to day operations and business planning of Dynamic
Associates, including control over the business of
Perspectives.
3. The existing shareholders of Dynamic will obtain a
substantially smaller percentage of any future
dividends or liquidation proceeds distributed to
stockholders.
4. The current value of Dynamic's business and operations
may be lost due to the risks associated with Tele-
Lawyer's business, including the 16 risk factors
identified in the section entitled "Risk Factors
Associated With The Tele-Lawyer Business" beginning on
page 12 above.
5. Dynamic will be subject to Tele-Lawyer's debts,
contractual obligations and expenses of operation, but
will benefit to the extent of any present or future
income from Tele-Lawyer's business. See Tele-Lawyer's
attached financial statements for more information.
The board believes that the upside of Tele-Lawyer under the
terms defined in the merger agreement is a very attractive
alternative to the Dynamic shareholders, regardless of these
negative effects. The board also believes that the issuance
of shares under the merger agreement as amended is a
reasonable relative valuation of the respective companies
given the reality of Dynamic's current financial situation.
Therefore the directors approved the terms of the merger
unanimously by written consent.
It should be noted that no officer, director or controlling
shareholder of Dynamic will obtain any benefit beyond or
different than any other Dynamic shareholder as a result of
28
this merger. It should also be noted that neither Dynamic
nor Tele-Lawyer considered any other specific possible
alternative partner for this merger.
POSTPONEMENT OF THE SHAREHOLDER MEETING
In the event that there is an insufficient number of
shareholders present at the meeting, in person or
represented by proxy, to approve the merger or other matter
properly presented at the meeting, the shareholders present
may wish to postpone the meeting to a later date in order to
solicit and obtain the necessary shareholder vote to take
the desired action.
The attached proxy card allows you to indicate whether you
wish to vote in favor of any such postponement, if
necessary. By not checking a box on the proxy card, you
will be taken as voting in favor of any such postponement
that is proposed for these reasons.
The board of directors of Dynamic Associates recommends that
shareholders of Dynamic vote in favor of the postponement of
the shareholder meeting for the solicitation of additional
votes, if necessary to approve the merger. This
recommendation is based on the efficiencies and cost savings
Dynamic will gain by not having to file new proxy materials
with the Securities and Exchange Commission and then send
out new meeting notices to all shareholders in the event
there are insufficient shares present at the meeting to
approve the merger and other matters presented for a vote.
AMENDMENT TO THE ARTICLES TO CHANGE THE NAME OF DYNAMIC TO
LEGAL ACCESS TECHNOLOGIES, INC.
Anticipating a change in business direction, the board of
directors has voted in favor of changing Dynamic's name
to "Legal Access Technologies, Inc." as recommended by Tele-
Lawyer and consistent with the Second Amendment to the
Merger Agreement attached hereto as Appendix A3. Under
Nevada law, a change in the name of the corporation must be
done by the amendment of Dynamic's articles of
incorporation, which requires the affirmative vote of a
majority of the shareholders of Dynamic.
The change in business direction that is anticipated by the
board, is the business of Tele-Lawyer as described above
under the section entitled THE MERGER.
You have an opportunity to vote in favor or against this
name change. By not checking a box on the proxy card, you
will be taken as voting in favor of this name change.
For the above reasons, the board recommends a vote in favor
of the name change.
REVERSE STOCK SPLIT
Before the merger can take place, no more than 500,000
common shares of Dynamic Associates can be issued and
outstanding. If all of the note holders of Dynamic convert
their debt to common stock, there will be approximately
76,229,768 shares of Dynamic
29
common stock issued and
outstanding at the time the merger is consummated.
Therefore, Dynamic Associates common stock will need to
undergo a reverse split on a basis of one share for every
153 shares presently outstanding in order to consummate the
merger. Approval of this reverse stock split will
effectively reduce the number of shares held by each
shareholder as well as the total number of shares
outstanding. The percentage of outstanding shares owned by
each shareholder prior to the merger, however, will remain
the same.
You have an opportunity to vote in favor or against this
reverse stock split by checking the appropriate box on the
attached proxy card. By not checking a box on the proxy
card, you will be taken as voting in favor of the reverse
stock split.
For the reasons described in the board's recommendation to
approve the merger, the board recommends a vote in favor of
the reverse stock split.
EMPLOYEE STOCK OPTION PLAN
Under the merger agreement, each holder of an option to
purchase Tele-Lawyer common stock under its current
incentive stock option plan will be entitled to receive an
option to purchase the same number of shares of Dynamic
Associates stock under the same terms as provided in their
option agreement, if, and when, the merger is consummated.
Currently, Tele-Lawyer has issued options to purchase
285,000 common shares at $1 per share and options to
purchase an additional 451,231 common shares at $3 per
share.
In furtherance of this agreement, on April 5, 2001, the
board of directors created and approved an incentive stock
option plan in the form and content attached to this
document as Appendix D. The stated purpose of this Plan is
to strengthen the Company by providing incentive stock
options as a means to attract, retain and motivate key
corporate personnel, through ownership of stock of the
Company, and to attract individuals of outstanding ability
to render services to and enter the employment of the
Company or its subsidiaries.
The board has not as yet issued any options under this Plan.
In summary, this Plan provides as follows:
Types of Stock Options
There are two types of Stock Options that may be granted:
(1) Options intended to qualify as Incentive Stock Options
under Section 422 of the Internal Revenue Code ("Qualified
Stock Options"), and (2) Options not specifically authorized
or qualified for
favorable income tax treatment under the Internal Revenue Code
("Non-Qualified Stock Options").
30
Administration of the Plan
The Plan is administered by a Plan Administrator serving at
the pleasure of the Board of Directors. Currently the Plan
Administrator is Jan Wallace. Subject to the provisions of
the Plan, the Plan Administrator has authority to construe
and interpret the Plan, to promulgate, amend, and rescind
rules and regulations relating to its administration, to
select, from time to time, among the eligible employees and
non-employee consultants of the Company and its subsidiaries
those employees and consultants to whom Stock Options will
be granted, to determine the duration and manner of the
grant of the Options, to determine the exercise price, the
number of shares and other terms covered by the Stock
Options, to determine the duration and purpose of leaves of
absence which may be granted to Stock Option holders without
constituting termination of their employment for purposes of
the Plan, and to make all of the determinations necessary or
advisable for administration of the Plan. The interpretation
and construction by the Board of any provision of the Plan,
or of any agreement issued and executed under the Plan, is
final and binding upon all parties. No member of the Board,
or the Plan Administrator, can be held liable for any action
or determination undertaken or made in good faith with
respect to the Plan or any agreement executed pursuant to
the Plan.
Grant of Options
The Company is authorized to grant Incentive Stock Options
as defined in section 422 of the Code to any employee or
director of the Company, or of any of its subsidiaries;
provided, however, that no person who owns stock possessing
more than 10% of the total combined voting power of all
classes of stock of the Company, or any of its parent or
subsidiary corporations, shall be eligible to receive an
Incentive Stock Option under the Plan unless at the time
such Incentive Stock Option is granted the Option price is
at least 110% of the fair market value of the shares subject
to the Option, and such Option by its terms is not
exercisable after the expiration of five years from the date
such Option is granted.
An employee may receive more than one Option under the Plan.
Non-Employee Directors are eligible to receive Non-Qualified
Stock Options in the discretion of the Plan Administrator.
In addition, Non-Qualified Stock Options may be granted to
Consultants who are selected by the Plan Administrator.
Stock Subject to Plan
The stock available for grant of Options under the Plan are
shares of the Company's authorized but un-issued, or
reacquired, Common Stock. The aggregate sales price, or
amount of securities sold, during any 12 month period may
not exceed the greater of: (1) $1 million, (2) 15% of the
total assets of the Company, or (3) 15% of the issued and
outstanding common stock of the company, including shares
previously issued under the
Plan or other stock option plans created by the Company,
whichever is greater. The maximum number of shares for which
an Option may be granted to any Optionee during any calendar
year may not exceed 250,000 shares. In the event that any
outstanding
31
Option under the Plan for any reason expires or
is terminated, the shares of Common Stock allocable to the
unexercised portion of that Option shall again be available
for issuance under the Plan as if no Option had been granted
with regard to such shares.
Terms and Conditions of Options
Specific requirements for the terms and conditions of all
Option Agreements entered into are detailed in the Plan.
Termination or Amendment of the Plan
The Board may at any time terminate or amend the Plan;
provided that, without approval of the shareholders, the
board cannot: (a) increase the total number of shares
covered by the Plan, (b) change the class of persons
eligible to receive options, (c) reduce the exercise price
of Options granted under the Plan, or (d) extend the latest
date upon which Options may be exercised. In addition,
without the consent of the Optionee, the board may not make
any amendments that would adversely affect any outstanding
or unexercised option agreements.
Indemnification
The Plan Administrator is indemnified by the Company under
the Plan against reasonable expense, including attorney's
fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding for which he
is a party by reason of any action taken or failure to act
under or in connection with the Plan or any Option. He is
also indemnified against any and all amounts paid by him in
settlement, or for any amounts paid by him in satisfaction
of a judgment in any such action, suit, or proceeding,
except in relation to matters in which he is judged liable
for negligence or misconduct in the performance of his
duties.
Effective Date and Term of the Plan
This Plan became effective (the "Effective Date") on the
April 5, 2001, the date of adoption by the board of
directors. Options granted under the Plan prior to
shareholder approval are subject to cancellation by the Plan
Administrator if shareholder approval is not obtained within
12 months of the date of adoption. Unless sooner terminated
by the Board in its sole discretion, this Plan will expire
on December 31, 2010.
You have an opportunity to vote in favor or against the
approval of this stock option plan by checking the
appropriate box on the attached proxy card. By not checking
a box on the proxy card, you will be taken as voting in
favor of approval of this stock option plan.
For the reasons described in the board's recommendation to
approve the merger, the board recommends a vote in favor of
approval of the stock option plan.
32
ELECTION OF DIRECTORS
Two directors are to be elected at the annual meeting, to
hold office for one year until the next annual meeting of
shareholders, and until their successors are elected and
qualified. It is intended that the accompanying proxy will
be voted in favor of the following persons to serve as
directors unless the shareholder indicates to the contrary
on the proxy. Management expects that each of the nominees
will be available for election, but if any of them is not a
candidate at the time the election occurs, it is intended
that such proxy will be voted for the election of another
nominee to be designated by the board of directors to fill
any such vacancy.
It should be noted that if the merger with Tele-Lawyer is
consummated, the nominees for director identified below will
resign and the existing officers and directors of Tele-
Lawyer will be appointed as officers and directors of
Dynamic. The Current officers of Perspectives will remain
unchanged, but the directors of Perspectives will likely be
changed.
NOMINEES
Name Age Position
- ---- --- --------
Jan Wallace 44 Director, President
Grace Sim 40 Secretary, Treasurer, Director
Jan Wallace is a director, President and Chief Operating
Officer of Dynamic. Dynamic has employed Ms. Wallace since
April 1995, when she was elected to the board of directors
and accepted the position of Chief Operating Officer. Ms.
Wallace was previously Vice President of Active Systems,
Inc. a Canadian Company specializing in SGML Software an ISO
standard in Ottawa, Ontario. Prior to that she was
President and Owner of Mailhouse Plus, Ltd., an office
equipment distribution company that was sold to Ascom
Corporation. She has also been in management with Pitney
Bowes Canada and Bell Canada where she received its highest
award in Sales and Marketing. Ms. Wallace was educated at
Queens University in Kingston, Ontario and Carleton
University, Ottawa, Ontario in Political Science with a
minor in Economics. Ms. Wallace is also the President and a
Director of MW Medical, Inc., a publicly held company.
Grace Sim is the Secretary/Treasurer and a director of
Dynamic. She is also currently the Secretary/Treasurer of
MW Medical, Inc., a publicly held company. Ms. Sim joined
Dynamic in January 1997. Before joining Dynamic, Ms. Sim
owned Sim Accounting, an accounting consulting company in
Ottawa, Ontario, Canada. Between 1993 and 1994, she worked
as the controller with Fulline, an office equipment company
and with Mailhouse Plus Ltd. between 1990 and 1992. Ms. Sim
received her Bachelor of Mathematics with honors from the
University of Waterloo in Waterloo, Ontario.
Mr. Clay Deardorff was appointed to the board in 1999, but
then resigned in the first quarter of 2000.
33
INFORMATION REGARDING THE BOARD
Dynamic's board of directors (the "Board") has no
Committees. The Board met eleven times during the last
fiscal year as issues were raised. All directors attended
75% or more of the aggregate number of Board meetings. The
current Board includes Jan Wallace and Grace Sim. Jan
Wallace and Grace Sim have held their positions on the Board
since the last annual meeting. Clayton Deardorff resigned
as of February 2000 and no replacement has been appointed
for him, to the date of this proxy statement. Basic
background information on Clay Deardorff who is the current
President of Perspectives follows:
Clayton V. Deardorff, 54, was a director of Dynamic and
is the President and a Director of Perspectives Health
Management Corporation. Mr. Deardorff is also currently
President of GeroCare Consultants, LLC, a start-up health
care consultant company. He was formerly Chief Operating
Officer of Genesis Health Management Corporation and later
its President before Genesis and Geriatric Care Centers of
America, Inc. merged with Perspectives. Between 1994 and
1997, Mr. Deardorff built Clay Care, Inc., a healthcare
management company, from scratch and served as its
president. Additionally, Mr. Deardorff was employed by the
United States Navy between 1965 and 1985. He served as an
Administrator and Educator for the Navy's Alcohol and Drug
Abuse Treatment Programs, receiving numerous Letters of
Commendation. Mr. Deardorff received his bachelors in
psychology, summa cum laude, from St. Leo College, Florida
and his masters in education from Old Dominion University in
Norfolk, Virginia.
Pursuant to agreements with Dynamic, the directors were
each to be paid $10,000 per year and $750 for each Board
meeting where their physical presence was required and they
actually attended. These amounts, however, have not been
paid since the first quarter of fiscal year 1998. At a
meeting of the Board on March 24, 1999, all directors agreed
to waive any rights they had to any such compensation and no
compensation has been paid since that time to any director.
The following table provides information on the annual
compensation received by the Executive Officers and
Directors of Dynamic:
34
Annual Compensation Table
-------------------------
Annual Compensation Long Term Compensation
------------------- ----------------------
Other All
Annual Other
Com- Com-
pen- Restricted pen-
sa- Stock Options/ LTIP sa-
Name Title Year Salary Bonus tion Awarded SARs*(#)payouts($)tion
- ---- ----- ---- -------- ----- ------ ------- ------- --------- ----
Jan 1998 $180,000 0 3,250 0 100,000 0 0
Wallace Director, 1999 $108,958 0 0 0 0 0 0
CEO, and 2000 $ 0 0 0 0 0 0 0
President
Grace
Sim Director, 1998 $105,067 0 0 0 50,000 0 0
Sec., and 1999 $ 64,000 0 0 0 0 0 0
Treasurer 2000 $ 0 0 0 0 0 0 0
Terms of Office
Dynamic's directors are appointed for one-year terms to hold
office until the next annual general meeting of the
stockholders or until removed from office in accordance with
its by-laws. Officers are appointed by the board of
directors and hold office until removed by the board.
Section 16(a) Beneficial Ownership Reporting Compliance
The following persons have failed to file, on a timely
basis, the identified reports required by section 16(a) of
the Exchange Act during the most recent fiscal year.
Number Transactions Known Failures
Of late Not Timely To File a
Name and principal position Reports Reported Required Form
- --------------------------- ------- ------------ --------------
None
Options
- -------
In 1999 and 2000, there were no options granted or exercised
by the Dynamic's officers or directors.
The board recommends a vote in favor of the named nominees.
35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of April 30, 2001,
information regarding the beneficial ownership of shares by
each person known by Dynamic Associates to own five percent
or more of the outstanding shares, by each of the directors
and by the officers and by each director and officer as a
group.
Title Amount and
Of Name of Nature of Percentage
Class Beneficial Owner Beneficial Ownership of Class
- -------------- ----------------- -------------------- ----------
Class A Common Giano Capital Ltd
C/O Caledonian Bank
& Trs 8,551,860 14.98%
Caledonian House
PO Box 1043
Grand Cayman, BWI
Voting Power: Jamal
Young and Niels Heck
Class A Common The Upper Mill Capital
Appreciation Fund
The Upper Mill 6,536,667 11.45%
Kingston Rd.
Ewell
Surry, KT17F UK
Voting Power: Richard Garaventa
Class A Common VMR High Octane Fund Ltd
C/O Morgan Stanley & Co. 5,655,262 9.91%
One Pierrepont Plaza
7th Floor
Brooklyn, NY 11201
Voting Power: Richard Hubbard
Class A Common Jan Wallace 550,000 0.96%
(President & Director)
6929 East Cheney
Paradise Valley, AZ 85253
Class A Common Grace Sim 20,000 0.03%
(Secretary/Treasurer, Director)
6617 North Scottsdale Road,
Suite 103
Scottsdale, AZ 85250
Class A Common All officers and
Directors 570,000 0.99%
as a group (2 persons)
- ---------------------------------------------------------------------------
36
It should be noted that it is likely there will be a change
in control of Dynamic Associates in the near future. The
merger agreement calls for the merger of Tele-Lawyer into
Dynamic Associates on or before 15 days following the
approval of the merger by Dynamic Associates' shareholders.
Immediately following the merger, the officers and directors
of Dynamic Associates will be replaced by the officers and
directors of Tele-Lawyer.
The following are the names of the officers and directors of
Tele-Lawyer, their present positions with the Company, and
some brief information about their background.
Name Age Offices Held
- ---- --- ------------
Michael Cane 46 Director, President
Elliot Schear 49 Director, Vice President of
Business Development
Steven Fellows 32 Treasurer and Chief Financial
Officer
Alfredo Gonzalez 28 Director of Technology
Sara Wessells 38 Director of Legal Services
Michael Cane has been the President, Chief Executive Officer
and a director of Tele-Lawyer since its inception in 1989.
Mr. Cane attended the University of California, Irvine where
he received a B.A. degree in Economics in June 1975 with high
honors. He then went on to receive his Juris Doctor degree
from the University of Southern California School Of Law in
May of 1978, also receiving high honors. Among these honors
were Order of the Coif, Phi Beta Kappa, Summa Cum Laude,
Dean's Honor List, and The American Jurisprudence Award in
Constitutional Law. He is a licensed member of the Nevada,
Washington, California and Hawaii State Bars, the U.S. Tax
Court and maintains Real Estate Broker licenses in Nevada,
California and Hawaii. In addition to his role with Tele-
Lawyer, during the past several years, Mr. Cane has also been
a Professor of law at Western State University School of Law
(August 1991 to July 1997) and the managing member of Cane
and Company, a private law practice (August 1998 to present).
He is also the author of four books in the Five Minute Lawyer
books series published by Dell in May of 1995 (Divorce,
Taxes, Bankruptcy and Estate Planning).
Elliot Schear has been a director of Tele-Lawyer since 1999
and involved in its marketing efforts of Tele-Lawyer's Tele-
Seminar products since 1994. Mr. Schear graduated from
University of California, Los Angeles with a BA degree in
Political Science in 1974 and then received his Masters in
Public Relations from the University of Southern California
in 1978. Over the past several years, Mr. Schear has
created and sold several businesses, including a network of
metal working trade publications known as the Machine
Shopper, and a local community newspaper in the Los Angeles
area. From 1989 to 1999, Mr. Schear was an owner of a
business brokerage company in Los Angeles known as
International Business Sales.
Steven D. Fellows has been Tele-Lawyer's Chief Financial
Officer since May 2000. Mr. Fellows received his Masters of
Accountancy from Brigham Young University in Provo, Utah.
From 1991-1993, he worked as an independent systems
consultant performing systems implementation and financial
accounting services for small
37
businesses. From 1993 - 1998, he worked for Arthur Anderson LLP
in San Francisco, CA where he received an early promotion to manager
and handled the accounts of private and publicly held companies,
including Fortune 500 businesses. From 1998 to 2000, Mr. Fellows
was Chief Financial Officer of VROOM.com in Dallas, TX, where he
oversaw all financial and accounting aspects of the business.
Alfredo Gonzalez has been Tele-Lawyer's Director of
Technology since August 2000. Mr. Gonzalez received a
degree in electronics engineering from San Juan College in
San Juan, Puerto Rico. He brings over 10 years of
experience in technology design, development and
implementation to Tele-Lawyer. In 1990, he founded
Professional Audio Designers, a leading edge audio company
specializing in computer controlled sound reinforcement
systems. In 1996, he founded Pro Auction Systems, Inc., an
online trading company. In 1997, he became the Director of
Technology of A-1 Audio, Inc. where he managed all MIS
functions and developed and managed the company's web
presence. Mr. Gonzalez has also used his skills to consult
with a number of companies nationwide, specializing in
computer networks and the Internet, including the concept,
design, and programming of web sites.
Sara Wessells has been Tele-Lawyer's Director of Operations
since October of 2000. Ms. Wessells brings over 15 years of
experience in technology development and training. Most
recently, she was the President of Information Services
Associates, a consulting firm specializing in software
customization and training for the Legal Industry. She
holds a Bachelor's Degree in Economics from the University
of California, Santa Cruz and is certified to work with a
variety of software packages designed for the Legal Market.
The following table sets forth, as of April 30, 2001,
information regarding the beneficial ownership of shares by
each person known by Tele-Lawyer, Inc. to own five percent
or more of the outstanding shares, by each of the directors
and by the officers and by each director and officer as a
group.
Title
Of Name of Amount of Percentage
Class Beneficial Owner Beneficial Ownership of Class
- -------------- ----------------- -------------------- ----------
Common Stock Michael A. Cane 2,843,750(1) 53.10%
(President, Director)
2300 W. Sahara Ave.,
Suite 500
Las Vegas, NV 89102
Common Stock Brian Mekelburg 625,000 11.67%
8631 West 3rd St., #1035
Los Angeles, CA 90048
Common Stock Myrna Lee Mekelburg 600,000 11.20%
3111 Belair Dr., #17G
Las Vegas, NV 89109
38
Common Stock VMR 333,333 6.22%
AM Kronberger Hang 5
65824 Schwalbach am Taunus
Germany
Voting Power: Kevin Devine
Common Stock Herb Cane 312,500 5.83%
2636 Arimo
Henderson, NV
Common Stock Elliot Schear 0(2) 0%
(Director)
23915 Strathern St.
West Hills, CA 91304
Common Stock Stephen Fellows 0(3) 0%
(CFO)
2300 W. Sahara Ave., Suite 500
Las Vegas, NV 89102
Common Stock Alfredo Gonzalez 0(4) 0%
(Director of Technology)
2300 W. Sahara Ave., Suite 500
Las Vegas, NV 89102
Common Stock Sara Wessells 0(5) 0%
(Director of Operations)
2300 W. Sahara Ave., Suite 500
Las Vegas, NV 89102
Common Stock All Officers and Directors 2,843,750 53.10%
as a Group (5 persons)
- ---------------------------------------------------------------------------
* Based on 5,354,999 shares of common stock outstanding as of April 30, 2001.
(1) Mr. Cane also holds stock options to purchase 50,000 shares at a price
of $1.00.
(2) Mr. Schear also holds stock options to purchase 50,000
shares at a price of $1.00 and 50,000 shares at a price of
$3.00 per share.
(3) Mr. Fellows also holds stock options to purchase 100,000
shares at a price of $3.00, part of which are not yet
vested.
(4) Mr. Gonzalez also holds stock options to purchase 60,000
shares at a price of $3.00, part of which are not yet
vested.
(5) Ms. Wessells also holds stock options to purchase 60,000
shares at a price of $3.00, part of which are not yet
vested.
AUDIT FEES
Dynamic has been billed $17,500 for professional services
rendered for the audit of its annual financial statements
for the most recent fiscal year and the reviews of its
quarterly financial statements.
39
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed by Dynamic's auditors for:
(a) directly or indirectly operating, or supervising the
operation of, Dynamic's information system or managing
Dynamic's local area network; or (b) designing or
implementing a hardware or software system that aggregates
source data underlying the financial statements or generates
information that is significant to Dynamic's financial
statements taken as a whole. As there were no fees billed or
expended for the above services, Dynamic's board of
directors did not consider whether such expenditures were
compatible with maintaining the auditor's independence from
Dynamic.
FORWARD -LOOKING STATEMENTS
This proxy statement includes statements that are not
historical facts. These statements are "forward-looking
statements" as defined in the Private Securities Litigation
Reform Act of 1995 and are based, among other things, on our
current plans and expectations relating to expectations of
anticipated growth in the future and future success under
various circumstances. As such, these forward-looking
statements involve uncertainty and risk. External factors
that could cause our actual results to differ materially
from our expectations include:
* Tele-Lawyer's ability to develop its business plan to
the extent anticipated;
* The public's willingness to accept the delivery of
legal services in the manner and by the methods being
proposed by Tele-Lawyer; and
* Tele-Lawyer's ability to compete successfully within
the legal services industry.
Other factors and assumptions not identified above could
also cause the actual results to differ materially from
those set forth in any forward-looking statement. We do not
undertake any obligation to update the forward-looking
statements contained in this proxy statement to reflect
actual results, changes in assumptions, or changes in other
factors affecting these forward-looking statements.
FUTURE STOCKHOLDER PROPOSALS
It is anticipated that the release date for Dynamic
Associates' proxy statement and form of proxy for its next
annual meeting of shareholders will be June 11, 2002. The
deadline for submittals of shareholder proposals to be
included in that proxy statement and form of proxy is 120
days prior to that date. The date after which a notice of a
shareholder proposal submitted independent of Dynamic
Associates' proxy statement and form of proxy is considered
untimely is 45 days prior to June 11, 2002.
WHERE YOU CAN FIND MORE INFORMATION
Dynamic Associates is subject to the informational
requirements of the Securities Exchange Act of 1934, as
amended. Dynamic Associates files reports, proxy statements
and other information with the SEC. You may read and copy
these reports, proxy statements and other information at the
SEC's Public Reference Section at 450 Fifth
40
Street, N.W.,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet website,
located at www.sec.gov, that contains reports, proxy
statements and other information regarding companies and
individuals that file electronically with the SEC.
By Order of the Board of Directors
of Dynamic Associates, Inc.
/s/ Jan Wallace
_______________________________
Jan Wallace
CEO and Chairman
41
DYNAMIC ASSOCIATES, INC.
PROXY
FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF DYNAMIC ASSOCIATES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jan Wallace with full power of
substitution as proxy to vote the shares which the undersigned is
entitled to vote at the annual meeting of Dynamic Associates, Inc., a
Nevada corporation ("Dynamic Associates"), to be held at Suite 500,
2300 West Sahara Avenue, Las Vegas, Nevada 89102, on June 11, 2001 at
10:00 a.m. Pacific Standard Time, and at any adjournments thereof.
Please mark your votes as indicated [X]
Total Number of Shares Held: ______________
This proxy when properly signed will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED IN FAVOR OF THE MERGER, POSTPONEMENT FOR THE
SOLICITATION OF ADDITIONAL PROXIES, IF NECESSARY, THE NAME CHANGE,
THE REVERSE STOCK SPLIT, THE STOCK OPTION PLAN AND THE ELECTION OF
THE NAMED NOMINEES TO THE BOARD.
1. Merger by and between Dynamic Associates and Tele-Lawyer, Inc., a
Nevada corporation
FOR merger NOT FOR merger
[_] [_]
2. Postponement for the solicitation of additional votes, if necessary
FOR postponement NOT FOR postponement
[_] [_]
3. Name Change to Legal Access Technologies, Inc.
FOR name change NOT FOR name change
[_] [_]
4. Reverse Stock Split
FOR reverse stock split NOT FOR reverse stock split
[_] [_]
5. Stock Option Plan
FOR stock option plan NOT FOR stock option plan
[_] [_]
6. Election of Directors: Nominees -- Jan Wallace and Grace Sim
FOR Election NOT FOR Election
of nominees of nominees
[_] [_]
Except vote withheld from following nominee listed above.
___________________________ ________________________
In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
IMPORTANT - PLEASE SIGN AND RETURN PROMPTLY. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title as such.
If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in
partnership name by an authorized person.
Signature(s) Dated: ________________, 2001
___________________________ ___________________________
APPENDIX A1
AGREEMENT AND PLAN OF MERGER
between
DYNAMIC ASSOCIATES, INC.
"Dynamic"
and
TELE-LAWYER, INC.
"Tele-Lawyer"
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered
into on November 28, 2000, by and between DYNAMIC ASSOCIATES, INC.,
a Nevada corporation ("Dynamic"), and TELE-LAWYER, INC., a Nevada
corporation ("Tele-Lawyer").
R E C I T A L S:
----------------
WHEREAS, the parties believe that a business combination
between Dynamic and the Tele-Lawyer is in the best interest of the
parties to this Agreement and their respective stockholders; and
WHEREAS, the respective Boards of Directors and shareholders
of the parties have approved, or will meet to consider and approve,
the merger of Tele-Lawyer with and into Dynamic, upon the terms and
conditions set forth in this Agreement and Plan of Merger in
accordance with Chapter 92A "Mergers and Exchanges of Interest" of
the Nevada Revised Statutes; and
WHEREAS, each party hereto wishes to adopt this Agreement and
Plan of Merger, together with the forms of Certificates of Merger
attached hereto as Exhibit A (the "Certificates of Merger") as a
"plan of reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code, and to cause the Merger to qualify as a
reorganization under the provision of Section 368(a)(1)(A) of the
Code, whereby each share of capital stock of Tele-Lawyer (the
"Tele-Lawyer Common Stock") will be canceled and whereby Dynamic
will be the surviving entity of a merger with Tele-Lawyer.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound hereby,
agree as follows:
ARTICLE I. THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section
1.3 hereof) and subject to and upon the terms and conditions of
this Agreement, Tele-Lawyer will be merged with and into Dynamic
(the "Merger"). Following the Merger, Dynamic will continue as the
surviving entity under the name "Dynamic Acquisition Corporation"
and the separate corporate existence of Tele-Lawyer will cease.
(Dynamic and Tele-Lawyer are sometimes referred to collectively
herein as the "Constituent Companies").
1.2 Effects of the Merger. At the Effective Time, Tele-
Lawyer will be a wholly owned subsidiary of Dynamic. At the
Effective Time, Dynamic will, without any other action, possess all
the rights, privileges, powers and franchises, of a public as well
as of a private nature, and be subject to all the restrictions,
disabilities and duties of Tele-Lawyer. All property, rights,
privileges, powers and franchises, and all and every other interest
will be thereafter as effectually the property of Dynamic as they
were of Tele-Lawyer, and the
2
title to any real estate vested by deed or otherwise in Tele-Lawyer
will not revert or be in any way impaired by reason of the Merger.
All rights of creditors and all liens upon any property of Tele-Lawyer
will be preserved unimpaired, and all debts, liabilities and duties of
Tele-Lawyer will thenceforth attach to Dynamic.
1.3 Closing; Effective Time and Transaction Effective Date.
The closing of the Merger (the "Closing") will take place on a date
to be specified by the parties, but in no event more than fifteen
(15) business days following approval of the Merger by the
shareholders of Dynamic (the "Closing Date"), subject to
satisfaction or waiver of the conditions set forth in this
Agreement, at 2300 W. Sahara Blvd., Suite 500, Las Vegas, NV 89102.
The Merger will become effective at the time of the filing of the
Certificate of Merger with the offices of the Secretary of State of
the State of Nevada in accordance with the provisions of applicable
law, which Certificates of Merger will be so filed as soon as
practicable after the Closing. The date and time when the Merger
will become effective shall be at such time as the Certificates of
Merger are duly filed with the Nevada Secretary of State or such
later date as mutually agreeable by the parties and specified in
the Certificates of Merger (the "Effective Time").
1.4 Certificate of Incorporation. The Articles of
Organization and Bylaws of Dynamic in effect immediately prior to
the Effective Time will remain the Articles of Organization and
Bylaws of Dynamic until amended in accordance with the provisions
of the applicable corporate law.
1.5 Directors and Officers. The officers and directors of
Dynamic immediately following the Effective Time will be the
officers and directors of Tele-Lawyer, until their successors have
been duly elected and qualified in accordance with the Articles of
Incorporation and Bylaws of Dynamic.
ARTICLE II. STATUS AND CONVERSION OF SECURITIES
2.1 Conversion of Securities. At the Effective Time, each
share of Tele-Lawyer Common Stock issued and outstanding
immediately prior to the Effective Time will, by virtue of the
Merger and without any action on the part of the holders thereof,
automatically be canceled, retired and extinguished, and each
outstanding share of Tele-Lawyer Common Stock will be converted
into a share of Dynamic Common Stock ("Merger Consideration").
In addition, each holder of an option or warrant to purchase Tele-
Lawyer common stock under its incentive stock option plan or
otherwise shall be entitled to receive an option to purchase the
same number of shares of Dynamic stock under the same terms as
provided in their option or warrant agreement.
2.2 Delivery of Merger Consideration. Dynamic shall deliver
the Merger Consideration to each holder of Tele-Lawyer Common Stock
within five (5) business days of Closing or within five (5)
business days after surrender of certificates (the "Certificates")
representing all shares of Tele-Lawyer Common Stock owned by such
individual, whichever is later. By accepting delivery of the
Merger Consideration, each such holder
3
will be deemed to have represented to Dynamic that such stockholder
has no present intention of selling or otherwise disposing of any of
its interest in the Dynamic Common Stock received as part of the
Merger Consideration, except as contemplated under that certain
Registration Rights Agreement referenced in Section 2.8.
(1) Certificates. The Certificates shall forthwith be
canceled upon surrender. Until surrendered as contemplated by this
Section 2.3, each such Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive
upon such surrender that pro rata portion of the Merger
Consideration applicable thereto. No interest will be paid or will
accrue on any portion of the Merger Consideration.
(2) No Further Ownership Rights in Tele-Lawyer Common
Stock. All shares of Dynamic Common Stock issued upon the surrender
for exchange of the Certificates in accordance with the terms of
this Article II shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to Tele-Lawyer Common
Stock theretofore represented by such Certificates, and there shall
be no further registration or transfer of the shares of Tele-Lawyer
Common Stock after the Effective Time.
(3) No Fractional Shares. No certificates or scrip
representing fractional shares of Dynamic Common Stock shall be
issued upon the surrender of certificates of Tele-Lawyer Common
Stock for exchange. Notwithstanding any other provision of this
Agreement, each holder of Tele-Lawyer Common Stock exchanged
pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Dynamic Common Stock (after taking
into account all Certificates delivered by such holder) will
promptly receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Dynamic Common
Stock multiplied by the per share closing price of such Dynamic
Common Stock as reported on the Nasdaq Over-The-Counter Bulletin
Board on the date of the Effective Time.
(4) Lost Certificates. In the event any Certificates
have been lost, stolen or destroyed, upon the making of an
affidavit of that fact, in form and substance reasonably
satisfactory to Dynamic, by the person claiming such certificate to
be lost, stolen or destroyed, Dynamic will issue in exchange for
such lost, stolen or destroyed Certificate the shares of Dynamic
Common Stock and cash in lieu of fractional shares, deliverable in
respect thereof pursuant to this Agreement.
2.3 Cancellation of Treasury Shares. Any authorized but un-
issued shares of Tele-Lawyer Common Stock as of the Effective Time
shall automatically be canceled and retired and shall cease to
exist, and no Dynamic Common Stock, cash or other consideration
will be delivered in exchange therefor.
2.4 Securities Exemptions. Dynamic hereby represents,
warrants and covenants that all the shares of Dynamic Common Stock
comprising the Merger Consideration will be issued pursuant to an
exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"). Each
share certificate representing the Dynamic Common Stock so issued
will be endorsed with a legend stating that the shares have been
issued pursuant to an exemption from registration provided by
4
the Securities Act and may not be sold without an exemption from
registration or an effective registration statement.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF TELE-LAWYER
As an inducement to Dynamic to enter into this Agreement and to
consummate the Merger, Tele-Lawyer represents and warrants to
Dynamic, which representations will be true and correct at Closing,
as follows:
3.1 Organization, Qualification and Authority. Tele-Lawyer
is a corporation duly organized, validly existing and in good
standing in the State of Nevada, and is not required to be
qualified to do business as a foreign corporation in any other
jurisdiction. Tele-Lawyer does not own stock or equity interests
in and does not control, directly or indirectly, any corporation,
partnership, joint venture, association or business organization.
Since the date of its organization and incorporation, Tele-Lawyer
has consistently observed and operated within the corporate
formalities of the jurisdiction in which it is incorporated and/or
conducts its business, and has consistently observed and complied
with the general corporation law of such jurisdiction. Tele-Lawyer
has the full corporate power and authority to own, lease and
operate its properties and assets as presently owned, leased and
operated and to carry on its business as it is now being conducted.
Subject to obtaining certain third party consents, Tele-Lawyer has
the full right, power and authority to execute, deliver and carry
out the terms of this Agreement and all documents and agreements
necessary to give effect to the provisions of this Agreement.
Subject to obtaining certain third party consents, the execution,
delivery and consummation of this Agreement and all other
agreements and documents executed in connection herewith by Tele-
Lawyer have been duly authorized by all necessary corporate action
on the part of Tele-Lawyer and no other action on the part of Tele-
Lawyer or any other person or entity is necessary to authorize the
execution, delivery or consummation of this Agreement. This
Agreement and all other agreements and documents executed in
connection herewith by Tele-Lawyer, upon due execution and delivery
thereof, will constitute the valid and binding obligations of Tele-
Lawyer, enforceable in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights
generally and by general principles of equity.
3.2 Capitalization and Stock Ownership
(1) Common Stock. The authorized capital stock of Tele-
Lawyer consists of twenty five million (25,000,000) shares, $0.001
par value, of common stock. Tele-Lawyer has issued the number of
shares, options and warrants as provided in Exhibit 3.1 attached
hereto. The Tele-Lawyer Stock is not subject to preemptive or
comparable rights. The Tele-Lawyer Stock has been issued in
accordance with all applicable federal and state securities laws.
(2) Related Agreements. There are no voting trusts,
voting agreements, shareholders' agreements or other comparable
commitments or understandings to which Tele-Lawyer is a party or by
which Tele-Lawyer is bound with respect to the voting of any Tele-
Lawyer Stock.
5
3.3 Absence of Default. The execution, delivery and
consummation of this Agreement, and all other agreements and
documents executed in connection herewith, by Tele-Lawyer will not
constitute a violation of, be in conflict with, or, with or without
the giving of notice or the passage of time, or both, result in a
breach of, constitute a default under, or create (or cause the
acceleration of the maturity of) any debt, indenture, obligation or
liability or result in the creation or imposition of any security
interest, lien, charge or other encumbrance upon any of the assets
of Tele-Lawyer under: (a) any term or provision of the Certificate
of Incorporation or Bylaws of Tele-Lawyer; (b) any material
contract, lease, purchase order, agreement, document or other
commitment, oral or written, to which Tele-Lawyer is a party or by
which Tele-Lawyer is bound.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF DYNAMIC
As an inducement Tele-Lawyer to enter into this Agreement and to
consummate the Merger, and as an inducement to the Original Tele-
Lawyer Stockholders to approve of and consummate the Merger,
Dynamic hereby represents and warrants to each such party, which
representations and warranties will be true and correct at Closing,
as follows. Any representation, warranty or covenant of or
relating to Dynamic is hereby deemed to also be a representation,
warranty or covenant of or relating to any and all of the Dynamic
Subsidiaries (as defined in Section 4.1).
4.1 Organization, Qualification and Authority. Dynamic is a
corporation duly organized, validly existing and in good standing
in the State of Nevada, and is not required to be qualified to do
business as a foreign corporation in any other jurisdiction.
Dynamic does not own stock or equity interest in and does not
control, directly or indirectly, any corporation, partnership,
joint venture, association or business organization other than the
entity set forth on Exhibit 4.1 attached hereto (the "Dynamic
Subsidiary"). Since the date of its organization and incorporation
or formation, Dynamic has consistently observed and operated within
the corporate formalities of the jurisdictions in which it is
organized and/or conducts its business, has consistently observed
and complied with the general corporation law of such jurisdictions
and has been duly qualified to do business as a foreign corporation
in all relevant jurisdictions. All outstanding shares of capital
stock of the Dynamic Subsidiaries consist solely of common stock
and have been validly issued in accordance with all applicable
federal and state securities laws and are owned by Dynamic free and
clear of all liens, charges, encumbrances, claims and options of
any nature. Dynamic has the full right, power and authority to
own, lease and operate its properties and assets as presently
owned, leased and operated and to carry on its business as it is
now being conducted. Subject to obtaining requisite approval of the
shareholders of Dynamic, Dynamic has the full right, power and
authority to execute, deliver and carry out the terms of this
Agreement and all documents and agreements necessary to give effect
to the provisions of this Agreement, to consummate the transactions
contemplated on the part of Dynamic hereby, and to take all actions
necessary to permit or approve the actions Dynamic is to take in
connection with this Agreement. Subject to obtaining requisite
approval of the shareholders of Dynamic, the execution, delivery
and consummation of this Agreement and all other agreements and
documents executed in connection herewith by Dynamic have been duly
authorized by all necessary corporate action on the part of
6
Dynamic. No other action on the part of Dynamic, or any other
person or entity is necessary to authorize the execution, delivery
and consummation of this Agreement and all other agreements and
documents executed in connection herewith, other than such
shareholder approval. This Agreement and all other agreements and
documents executed in connection herewith by Dynamic, upon due
execution and delivery thereof, will constitute the valid and
binding obligations of Dynamic as the case may be, enforceable in
accordance with their respective terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general
principles of equity.
4.2 Capitalization and Stock Ownership.
(1) Common Stock. The authorized capital stock of
Dynamic (the "Dynamic Common Stock") consists of 100,000,000
shares, $0.001 par value, of common stock, of which 18,386,429
shares are currently issued and outstanding as of the date hereof.
The Dynamic Common Stock, along with the securities referenced in
clause (2) below, constitutes all current issued and outstanding
securities of Dynamic, and are duly authorized, validly issued,
fully paid and non-assessable. The convertible notes issued by
Dynamic in July 1999 constitute all past securities of Dynamic not
currently outstanding, were duly authorized and validly issued, and
no party has any rights or claims with respect thereto. The
Dynamic Common Stock is not subject to preemptive or comparable
rights. The Dynamic Common Stock and all other currently or
previously outstanding securities of Dynamic have been issued in
accordance with all applicable federal, state and foreign
securities laws.
(2) Other Securities. As of the date hereof, 8,575,000
shares of Dynamic Common Stock are reserved for issuance upon the
exercise of outstanding warrants (the "Dynamic Warrants"), 117,500
shares of Dynamic Common Stock are reserved for issuance upon
exercise of outstanding options (the "Dynamic Options"), all of
which have been granted under the 1997 Stock Option Plan, 8,325,000
shares of Dynamic Common Stock are reserved for issuance upon
conversion of certain replacement 7.5% convertible subordinated
notes (the "Dynamic Secured Notes"), and no other shares of Dynamic
Common Stock are or need to be reserved for any other purpose other
than as Merger Consideration. Dynamic has issued the Dynamic
Secured Notes in the aggregate principal amount of $8,325,000 which
Notes are convertible into that number of shares of Dynamic Common
Stock equal to the principal amount of such notes divided by $1.00.
The redemption of the original Notes and the issuance of the
Dynamic Secured Notes in replacement thereof was effected in full
compliance with law. True and correct fully executed copies of all
documents regarding the redemption and issuance of the convertible
Notes by Dynamic have been provided to Tele-Lawyer. Except for the
Dynamic Warrants, the Dynamic Options and the Dynamic Secured Notes
referenced in this clause (2) there are not any existing options,
warrants, calls, subscriptions, stock appreciation rights or other
rights or agreements or commitments obligating Dynamic to issue,
transfer or sell any capital stock or other security of it or any
Dynamic Subsidiary, or any other security convertible into or
evidencing the right to subscribe for any such security.
(3) Related Agreements. There are no voting trusts,
voting agreements, shareholders' or other comparable commitments or
understandings, oral or written, to
7
which Dynamic or any holder of Dynamic securities is a party or by
which Dynamic or any such holder is bound with respect to the voting
of any Dynamic Common Stock or the capital stock or securities of any
Dynamic Subsidiary, either before or after Closing of the Merger.
(4) Dynamic Common Stock. On the Closing Date, Dynamic
will have a sufficient number of authorized but un-issued and/or
treasury shares of Dynamic Common Stock available for issuance to
the Original Tele-Lawyer Stockholders in accordance with the
provisions of this Agreement. The Dynamic Common Stock to be
issued as Merger Consideration pursuant to the Agreement will, when
so delivered, be duly and validly issued in accordance with all
applicable federal and state securities laws, will be exempt from
registration requirements of the 1933 Act and state "blue sky"
laws, will be fully paid and non-assessable, and will be free and
clear of preemptive or comparable rights.
4.3 Convertible Unsecured Debt; Refinancing. The Dynamic
Secured Notes and the convertible notes they replaced were offered,
sold and issued in compliance with law, including but not limited
to applicable federal, state and foreign securities laws. The
Trust Indenture Act of 1939, as amended, did not apply to the
offer, sale, issuance or ownership of either the Dynamic Secured
Notes or the convertible notes they replaced.
4.4 Absence of Default. The execution, delivery and
consummation of this Agreement, and all other agreements and
documents executed in connection herewith by Dynamic will not
constitute a violation of, be in conflict with, or, with or without
the giving of notice or the passage of time, or both, result in a
breach of, constitute a default under, or create (or cause the
acceleration of the maturity of) any debt, indenture, obligation or
liability or result in the creation or imposition of any security
interest, lien, charge or other encumbrance upon any of the assets
of Dynamic under: (a) any term or provision of the Charter or
Bylaws of Dynamic; (b) any material contract, lease, purchase
order, agreement, document or other commitment, oral or written, to
which Dynamic is a party or by which Dynamic is bound (collectively
the "Dynamic Contracts"); (c) any judgment, decree, order, writ,
injunction or rule of any court or regulatory authority; or (d), to
the knowledge of Dynamic, any law, statute, rule or regulation to
which Dynamic is subject.
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ARTICLE V. COVENANTS OF PARTIES
5.1 Preservation of Business and Assets. From the date
hereof until the Closing, each party will use its best efforts and
will do or cause to be done all such acts and things as may be
necessary to preserve, protect and maintain intact the operation of
its respective business and assets as a going concern consistent
with prior practice and not other than in the ordinary course of
business, including preserving, protecting and maintaining the
goodwill of the suppliers, employees, clientele, patients and
others having business relations with such party. Each party will
use its best efforts to retain its employees in their current
positions up to Closing. Through Closing, other than consistent
with the terms of this Agreement, no party will acquire or sell or
agree to acquire or sell by merging or consolidating with, or by
purchasing or selling a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other
business organization or division thereof. Except as expressly set
forth in this Agreement or any related Agreement, the execution,
delivery and consummation of this Agreement and the transactions
contemplated hereunder will not give rise to any obligation of any
party hereto, or any right of any holder of any security of any
party hereto to require such party, to purchase, offer to purchase,
redeem or otherwise prepay or repay any capital stock or other
security, or deposit any funds to affect the same. All parties
will use their best efforts to facilitate the consummation of the
Merger as contemplated hereunder, including obtaining requisite
approval of stockholders and third parties. Through Closing,
except as expressly set forth in this Agreement and except for the
exercise or termination of any outstanding Dynamic Warrants,
Dynamic Options, the conversion of Dynamic Secured Notes, or the
sale of Tele-Lawyer Common Stock, no party will issue, deliver or
sell, or authorize or propose to issue, deliver or sell, any shares
of its capital stock of any class, any voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible
securities. Through Closing, except with the exception of a reverse
split of Dynamic Common Stock described herein, no party will
split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital
stock, or repurchase, redeem or otherwise acquire any shares of its
capital stock. From the date hereof until the Closing, no party
will pay any dividend or distribution to its stockholders as such,
and no party will sell, discard or dispose of any of its assets,
except for the sale of the assets of the Dynamic Subsidiary.
5.2 Absence of Material Change. From the date hereof until
the Closing, no party will make any change in its business or in
the utilization of its assets and will not enter into any contract
or commitment or any other transaction with respect to its business
or its assets which is contrary to its representations, warranties
and obligations as set forth in this Agreement.
5.3 Material Transactions. Except as contemplated by this
Agreement, prior to the Effective Time, each party hereto,
including its respective subsidiaries, if any, will not, without
first obtaining the written consent of the other parties hereto:
9
(1) dispose of or encumber any asset or enter into any
transaction or make any contract commitment relating to the
properties, assets and business of such entity, other than in the
ordinary course of business or as otherwise disclosed herein;
(2) enter into any employment contract which is not at
will or terminable upon notice of thirty (30) days or less, without
penalty;
(3) enter into any contract or agreement (i) which
cannot be performed within three months or less, or (ii) which
involves the expenditure of over $10,000.00, except in the ordinary
course of business;
(4) except as contemplated herein, issue or sell, or
agree to issue or sell, any shares of capital stock or other
securities of such entity;
(5) make any payment or distribution under any bonus,
pension, profit-sharing or retirement plan or incur any obligation
to make any such payment or contribution which is not in accordance
with such entities usual past practice, or make any payment or
contributions or incur any obligation pursuant to or in respect of
any other plan or contract or arrangement of providing for bonuses,
executive incentive compensation, pensions, deferred compensation,
retirement payments, profit-sharing or the like, establish or enter
into any such plan, contract or arrangement, or terminate any plan;
(6) extend credit to anyone except in the ordinary
course of business consistent with prior practice;
(7) guarantee the obligation of any person, firm or
corporation;
(8) amend its charter or bylaws, or applicable
organizational documents;
(9) set aside or pay any cash dividend or any other
distribution on or in respect of its capital stock or any
redemption, retirement or purchase with respect to its capital
stock or issue any additional shares of its capital stock; or
engage in any stock split, re-capitalization, reorganization or
comparable transaction;
(10) discharge or satisfy any lien, charge, encumbrance
or indebtedness outside the ordinary course of business;
(11) institute, settle or agree to settle any litigation,
action or proceeding before any court or governmental body;
(12) authorize any compensation increase of any kind
whatsoever for any employee, consultant or other representative; or
(13) engage in any extraordinary transaction.
10
5.4 Preparation of the Proxy Statement; Stockholders Meetings.
(1) As soon as practicable, Dynamic shall prepare and
file with the SEC and any appropriate foreign governmental
authorities a proxy statement relating to the meeting of Dynamic's
shareholders to be held in connection with obtaining the approval
of Dynamic's shareholders (as the same may be amended or
supplemented from time to time, the "Proxy Statement"). Dynamic
will cause the Proxy Statement to be mailed to the holders of
Dynamic Common Stock as promptly as practicable thereafter.
Dynamic shall also take any action (other than qualifying to do
business in any jurisdiction in which it is not now so qualified or
to file a general consent to service of process) required to be
taken under any applicable state or foreign securities laws in
connection with the issuance of the Dynamic Common Stock in the
Merger, and Tele-Lawyer shall furnish all information concerning
Tele-Lawyer and the Original Tele-Lawyer Stockholders as may be
reasonably requested in connection with any such action. No filing
of, or amendment or supplement to, the Proxy Statement will be made
by Dynamic without providing Tele-Lawyer and its counsel ample
opportunity to review and comment thereon. Dynamic will advise
Tele-Lawyer of the time when the Proxy Statement is filed, the
Proxy Statement is mailed to shareholders, any supplement or
amendment has been filed or mailed, or comments thereon and
responses thereto or requests by governmental authorities for
additional information. If at any time prior to the Effective Time
any information relating to Dynamic or Tele-Lawyer, or any of their
respective affiliates, officers or directors, should be discovered
by Dynamic or Tele-Lawyer which should be set forth in an amendment
or supplement to the Proxy Statement so that such document would
not include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, the party which discovers such information shall
promptly notify the other parties hereto and an appropriate
amendment or supplement describing such information shall be
promptly filed and, to the extent required by law, disseminated to
the stockholders of Dynamic.
(2) Dynamic shall, as promptly as reasonably practicable
after the date hereof give notice of, convene and hold a meeting of
its shareholders (the "Dynamic Shareholders Meeting") in accordance
with Chapter 78 "Private Corporations" and Chapter 92A "Mergers and
Exchanges of Interest" of the Nevada Revised Statutes
(collectively, the "Nevada Acts") and the requirements of the
Nasdaq Over-The-Counter Bulletin Board and any applicable foreign
authorities for the purpose of obtaining Dynamic's shareholder
approval of the Merger and shall, through its Board of Directors,
recommend to its shareholders that they approve of the Merger in
all respects.
(3) As an integral part of its obligations Dynamic will
comply with the provisions of Rule 144(c) under the Securities Act
in order that affiliates of Tele-Lawyer may resell the Dynamic
Common Stock they receive pursuant to the Merger pursuant to Rule
145(d) under the Securities Act, and agrees that the registration
statements to be filed will include such information as may be
requested by Tele-Lawyer to permit re-sales of such Dynamic Common
Stock by persons who may be deemed to be underwriters of Dynamic
Common Stock pursuant to Rule 145 under the Securities Act.
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5.5 Certain Tax Matters.
(1) During the period from the date hereof through the
Effective Time, no party will knowingly or negligently take or fail
to take any action that would jeopardize the treatment of the
Merger as a "reorganization" within the meaning of Section
368(a)(1)(A) of the Code (and any comparable provisions of
applicable state law). Each party hereto shall report the Merger,
and the Exchange, as a reorganization under Section 368(a) of the
Code, and shall not take any position inconsistent with this
characterization except in the event of a contrary final
determination of the Internal Revenue Service. If any party
receives notice of any contrary position by the Internal Revenue
Service any party hereto may, at its option and sole expense,
contest such position, in which event the other parties hereto
shall cooperate with such contest as reasonably requested by the
contesting party.
(2) Each party hereto shall provide to the other
parties, at the expense of the requesting party, with such
assistance as may reasonably be requested by any of them in
connection with the preparation of any tax return, any audit or
other examination by any regulatory authority, or any judicial or
administrative proceedings relating to liability for taxes, and
each party will retain and provide the requesting party with any
records or information that may be relevant to any of the
foregoing.
5.6 Legal Conditions to Merger. Each party hereto will take
all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to the Merger
and will promptly cooperate with and furnish information to each
other party in connection with any such requirements imposed upon
either any of them in connection with the Merger.
5.7 Preserve Accuracy of Representations and Warranties.
Each party hereto will refrain from taking any action which would
render any of its representations and warranties contained in this
Agreement untrue, inaccurate or misleading as of Closing and the
Effective Time. Through Closing, each party will promptly notify
the other parties of any lawsuit, claim, audit, investigation,
administrative action or other proceeding asserted or commenced
against such party that may involve or relate in any way to
another party to this Agreement. Each party hereto will promptly
notify the other parties of any facts or circumstances that come to
its attention and that cause, or through the passage of time may
cause, any of a party's representations, warranties or covenants
to be untrue or misleading at any time from the date hereof through
Closing.
5.8 Notice of Subsequent Events. Each party hereto shall
notify the other parties of any changes, additions or events of
which it has knowledge which would cause any material change in or
material addition to this Agreement (including but not limited to
the Exhibits attached hereto and thereto) promptly after occurrence
of the same. If the effect of such change or addition would,
individually or in the aggregate with the effect of changes or
additions previously disclosed pursuant to this Section, constitute
a material adverse effect on the notifying party, any non-notifying
party may, within ten (10) days after receipt of such notice, elect
to terminate this Agreement. If no non-notifying party gives
written notice of such termination with such 10-day period, the
non-notifying parties shall be deemed to have consented to such
change or addition and shall not be entitled to terminate this
Agreement by reason thereof.
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5.9 Medicare and Medicaid Reporting. Through Closing, the
parties will timely file or cause to be filed all reports and
claims of every kind, nature or description, required by law or by
written or oral contract to be filed with respect to the purchase
of services by third party payors, including, but not limited to,
Medicare, Medicaid and Blue Cross.
5.10 Current Return Filing. Each party will be responsible
for the preparation and filing of all of such party's own tax
returns which were due on or before the Closing, and the payment of
all taxes due.
5.11 Maintain Books and Accounting Practices. From the date
hereof until the Closing, each party will maintain its books of
account in the usual, regular and ordinary manner on a basis
consistent with prior years and will make no change in its
accounting methods or practices.
5.12 Compliance with Laws and Regulatory Consents. From the
date hereof until the Closing, (a) each party will comply with all
applicable statutes, laws, ordinances and regulations, (b) each
party will keep, hold and maintain all Licenses, (c) each party
will use its reasonable efforts and will cooperate fully with the
other parties hereto to obtain all consents, stockholder and other
approvals, exemptions and authorizations of third parties, whether
governmental or private, necessary to consummate the Merger, and
(d) each party will make and cause to be made all filings and give
and cause to be given all notices which may be necessary or
desirable on their part under all applicable laws and under their
respective contracts, agreements and commitments in order to
consummate the Merger.
5.13 Maintain Insurance Coverage. From the date hereof until
the Closing, each party will maintain and cause to be maintained in
full force and effect all its currently existing insurance on such
party's assets and the operations of such party's business.
5.14 Closing Deliveries. At Closing, the parties hereto will
deliver or cause to be delivered the following, fully executed and
in form and substance reasonably satisfactory to the receiving
party:
(1) Tele-Lawyer will deliver to Dynamic stock
certificates of Tele-Lawyer, duly endorsed by the original Tele-
Lawyer Stockholders or with stock powers attached, representing all
of the issued and outstanding shares of Tele-Lawyer Common Stock;
provided, however, that a failure by Tele-Lawyer to deliver the
same will not be deemed a breach of this Agreement.
(2) Dynamic will deliver to the Original Tele-Lawyer
Stockholders' certificates representing the shares of Dynamic
Common Stock comprising the Merger Consideration set forth herein.
(3) Each party will deliver the Certificates of Merger
in form acceptable for filing with the applicable Secretaries of
State.
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(4) Each party shall deliver such customary certificates
of its officers and such other customary closing documentation as
may be reasonably requested by the other parties, including without
limitation:
(i) Certificates of Existence and/or "Good
Standing" regarding the delivering party
and its subsidiaries, certified by the appropriate
Secretary of State and dated within (10) business
days of Closing;
(ii) Incumbency Certificates certifying the identity
of the officers of the delivering party and its
subsidiaries; and
(iii) Charters, Operating Agreement or Certificates of
Incorporation, as certified by the appropriate
Secretary of State within ten (10) business days of
Closing, and Bylaws, as certified by an appropriate
officer as of Closing, of the delivering party and
its subsidiaries.
ARTICLE IVI.
CONDITIONS TO CLOSING
6.1 Conditions to Each Party's Obligation to Effect the
Merger. The obligation of each party hereto to effect the Merger
shall be subject to the fulfillment at or prior to the Closing of
the following conditions:
(1) Dynamic shall have purchased or caused to be
purchased on or before December 15, 2000, 100,000 shares of Tele-
Lawyer, Inc. stock at a price of $3 per share.
(2) This Agreement and the transactions contemplated
hereunder shall have been approved by shareholders of Dynamic in
the manner required by the applicable laws of the State of Nevada
and the Charter and Bylaws of Dynamic.
(3) The Original Tele-Lawyer Stockholders will have
executed and delivered such documents and performed such acts as
reasonably required to effectuate the Merger.
(4) Each party hereto shall have received from the other
parties copies of all resolutions and/or consent actions adopted by
or on behalf of the boards of directors and shareholders of such
other parties hereto, certified as of the date of Closing and
evidencing approval of this Agreement and the transactions
contemplated hereunder.
(5) No action or proceeding before a court or other
governmental body by any governmental agency or public authority
shall have been instituted or threatened to restrain or prohibit
the transactions contemplated under this Agreement or to obtain an
amount of damages or other material relief in connection with the
execution of this Agreement or any related agreements or the
consummation of the Merger; and no governmental agency shall have
given notice to any party hereto to the effect that consummation of
the transactions contemplated under this Agreement would constitute a
14
violation of any law or that it intends to commence proceedings
to restrain consummation of the Merger.
(6) All consents, authorizations, orders and approvals
of (or filings or registrations with) any governmental commission,
board or other regulatory body or any other third party (including
lenders and lessors) required in connection with the execution,
delivery and performance of this Agreement shall have been obtained
or made.
(7) Dynamic shall have extinguished all of its
outstanding debt, including all existing notes, through a
conversion to common stock or otherwise.
(8) Dynamic shall have settled any outstanding claims,
liabilities, actions or lawsuits to the satisfaction of Tele-
Lawyer.
(9) Dynamic shall have enacted through its board of
directors a reverse split of its shares so as to have after
conversion of its debt to equity at the Effective Time no more than
250,000 shares of Common Stock outstanding.
(10) Dynamic shall have extinguished all of its
outstanding warrants, options and any other rights to acquire any
shares of its Common Stock.
(11) The board of directors of Dynamic shall have created
an incentive stock option plan consistent with the current Tele-
Lawyer plan in which the existing option holders of Tele-Lawyer can
be granted comparable rights to purchase common shares of Dynamic
following consummation of the Merger.
(12) Dynamic shall have voted to amend its articles of
incorporation to change its name to Tele-Lawyer, Inc. or such
other name as approved by Tele-Lawyer, and such name change shall
have become effective.
(13) The parties shall each will have raised at
least $1,500,000 in capital through the sale of Tele-Lawyer common
stock. It is acknowledged that Tele-Lawyer is in the process of
raising a maximum of $9 million through the sale of 3 million
shares of its common stock and that such sale shall not be a
violation of this agreement.
(14) Tele-Lawyer shall have entered into a
management agreement with Dynamic to manage its business operations
at no cost to Dynamic during the period from the execution of this
Agreement to the Effective Time or termination date of this
Agreement as provided herein.
ARTICLE VII.
TERMINATION; AMENDMENT; EXTENSION AND WAIVER
7.1 Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the
Effective Time, before or after the approval of this Agreement by
Tele-Lawyer and/or Dynamic, by the mutual consent of the Boards of
Directors of Tele-Lawyer and Dynamic.
15
7.2 Termination by Certain Parties. Any party hereto may
terminate this Agreement at any time pursuant to Section 5.9. This
Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of Tele-Lawyer or Dynamic if: (a)
the Merger shall not have been consummated by April 1, 2000; (b)
the approval of the Merger by Dynamic's shareholders shall not have
been obtained by March 15, 2000 at a meeting duly convened therefor
or at any adjournment thereof; or (c) a United States federal or
state court of competent jurisdiction or United States federal or
state governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final
and non-appealable; provided, that the party seeking to terminate
this Agreement pursuant to this clause (c) shall have used all
reasonable efforts to remove such injunction, order or decree.
7.3 Termination by Dynamic. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective
Time, before or after the adoption and approval by the shareholders
of Dynamic, by action by the Board of Directors of Dynamic, if: (a)
there has been a breach by Tele-Lawyer of any representation or
warranty contained in this Agreement which would have or would be
reasonably likely to have a material adverse effect on the
operations of Tele-Lawyer; or (b) there has been a breach of any of
the covenants or agreements set forth in this Agreement on the part
of Tele-Lawyer, which breach is not curable or, if curable, is not
cured within thirty (30) days after written notice of such breach
is given by Dynamic to Tele-Lawyer.
7.4 Termination by Tele-Lawyer. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the
Effective Time, before or after adoption and approval of the
Original Tele-Lawyer Stockholders, by action of the Board of
Directors of Tele-Lawyer, if: (a) there has been a breach by
Dynamic or the Dynamic Subsidiary of any representation or warranty
contained in this Agreement which would have or would be reasonably
likely to have a material adverse effect on the operations of Tele-
Lawyer, or (b) there has been a breach of any of the covenants or
agreements set forth in this Agreement on the part of Dynamic or
the Dynamic Subsidiary, which breach is not curable or, if curable,
is not cured within thirty (30) days after written notice of such
breach is given by Tele-Lawyer to Dynamic.
7.5 Effect of Termination and Abandonment. Upon termination
of this Agreement pursuant to Section 5.9 or this Article VII, this
Agreement and all agreements and documents (including legal
opinions) related hereto shall be void and of no force or effect,
and there shall be no liability by reason of this Agreement or the
termination thereof on the part of any party hereto, or on the part
of the respective directors, officers, managers, employees, agents,
representatives or shareholders of any of them; provided that this
Section 7.5 will not relieve any party from liability for damages
incurred as a result of any willful breach by such party or by an
affiliate of such party of any of its respective representations,
warranties, covenants or obligations set forth in this Agreement.
7.6 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties hereto.
16
7.7 Extension; Waiver. At any time prior to the Effective
Time, any party hereto, by action taken by its Board of Directors
evidenced in writing, may, to the extent legally allowed: (a)
extend the time for the performance of any of the obligations or
other acts of the other parties hereto; (b) waive any inaccuracies
in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto; and (c) waive
compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such
party.
ARTICLE VIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
8.1 Survival. The covenants, obligations, representations
and warranties of each party contained in this Agreement, or in any
certificate or document delivered pursuant to this Agreement, will
be deemed to be material and to have been relied upon by the other
parties notwithstanding any investigation prior to the Closing,
will not be merged into any documents delivered in connection with
the Closing, and will terminate two (2) years after Closing;
provided however, that if a notice claiming indemnity is properly
delivered pursuant to Section 8.5, the indemnification obligations
will not expire with respect to such claim(s) until the same are
resolved as contemplated hereunder.
8.2 Indemnification by Dynamic. Dynamic shall indemnify,
defend and hold Tele-Lawyer its officers, directors, employees,
agents and representatives, and the Original Tele-Lawyer
Stockholders harmless against any and all losses, costs and
expenses (including reasonable cost of investigation, court costs
and legal fees actually incurred) and other damages resulting from:
(a) any breach by Dynamic or any Dynamic Subsidiary of any of their
covenants, obligations, representations or warranties or breach or
untruth of any representation, warranty, fact or conclusion
contained in this Agreement or any certificate or document of
Dynamic or any Dynamic Subsidiary delivered pursuant to this
Agreement, and (b) any claim that is brought or asserted by any
third party(ies) against the Original Tele-Lawyer Stockholders
arising out of the ownership, licensing, operation or conduct of
Dynamic and the Dynamic Subsidiaries through the Closing.
8.3 Indemnification by Tele-Lawyer. Tele-Lawyer shall
indemnify, defend and hold Dynamic and the Dynamic Subsidiaries,
their respective officers, directors, employees and representatives
harmless against any and all losses, costs and expenses (including
reasonable cost of investigation, court costs and legal fees
actually incurred) and other damages resulting from: (a) any breach
by Tele-Lawyer of any of its covenants, obligations,
representations or warranties or breach or untruth of any
representation, warranty, fact or conclusion contained in this
Agreement or any certificate or document of Tele-Lawyer delivered
pursuant to this Agreement, and (b) any claim that is brought or
asserted by any third party(ies) arising out of the ownership,
licensing, operation or conduct of Tele-Lawyer through Closing.
8.4 Exclusive Remedy. The indemnification obligations under
this Article are the sole and exclusive remedies available to Tele-
Lawyer and Dynamic with respect to this
17
Agreement and the transactions contemplated hereunder. The parties
hereto expressly acknowledge and agree that they may make no claim nor
institute any action against any Original Tele-Lawyer Stockholder with
respect to this Agreement, any related agreement or the transactions
contemplated hereunder and thereunder.
ARTICLE IX. MISCELLANEOUS
9.1 Other Expenses. Except as otherwise provided in this
Agreement, each party will pay all of its expenses in connection
with the negotiation, execution, and implementation of the
transactions contemplated under this Agreement.
9.2 Notices. All notices, requests, demands, waivers and
other communications required or permitted to be given under this
Agreement will be in writing and will be deemed to have been duly
given: (a) if delivered personally or sent by facsimile, on the
date received, (b) if delivered by overnight courier, on the day
after mailing, and (c) if mailed, five days after mailing with
postage prepaid. Any such notice will be sent as follows:
To Tele-Lawyer:
- ---------------
Tele-Lawyer, Inc.
2300 W. Sahara Blvd., Suite 500
Las Vegas, NV 89102
Attn: Michael Cane
To Dynamic:
- -----------
Dynamic Associates, Inc.
6617 N. Scottsdale Road, Suite 103
Scottsdale, AZ 85250
Attn: Jan Wallace
9.3 Confidentiality; Prohibition on Trading. All parties
agree to maintain the confidentiality of the existence of this
Agreement and the transactions contemplated hereunder, unless
disclosure is required by law and except for disclosures to be made
in connection with obtaining shareholder approval and third party
consents, and actions required to consummate the contemplated
transactions. Tele-Lawyer agrees not to trade in the securities of
Dynamic based upon any nonpublic information.
9.4 Controlling Law. This Agreement will be construed,
interpreted and enforced in accordance with the substantive laws of
the State of Nevada, without giving effect to its conflicts of laws
provisions.
9.5 Headings. Any table of contents and Section headings in
this Agreement are for convenience of reference only and will not
be considered or referred to in resolving questions of
interpretation.
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9.6 Benefit. This Agreement will be binding upon and will
inure to the exclusive benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns.
No party hereto may assign any rights or delegate any duties
hereunder without the prior written consent of the other parties
hereto and any prohibited assignment or delegation will be deemed
null and void.
9.7 Partial Invalidity. The invalidity or unenforceability
of any particular provision of this Agreement will not affect the
other provisions hereof, and this Agreement will be construed in
all respects as if such invalid or unenforceable provisions were
omitted. Further, there will be automatically substituted for such
invalid or unenforceable provision a provision as similar as
possible which is valid and enforceable.
9.8 Counterparts and Facsimiles This Agreement may be
executed simultaneously in two (2) or more counterparts each of
which will be deemed an original and all of which together will
constitute but one and the same instrument. The signature page to
this Agreement and all other documents required to be executed at
Closing may be delivered by facsimile and the signatures thereon
will be deemed effective upon receipt by the intended receiving
party.
9.9 Interpretation. All pronouns and any variation thereof
will be deemed to refer to the masculine, feminine, neuter,
singular or plural as the identity of the person or entity, or the
context, may require. Further, it is acknowledged by the parties
that this Agreement has undergone several drafts with the
negotiated suggestions of both; and, therefore, no presumptions
will arise favoring either party by virtue of the authorship of any
of its provisions or the changes made through revisions.
9.10 Entire Agreement; Waivers. This Agreement, including the
Exhibits and Attachments hereto and those portions incorporated
herein by reference, constitutes the entire agreement between the
parties hereto with regard to the matters contained herein and it
is understood and agreed that all previous undertakings,
negotiations and agreements between the parties are merged herein.
This Agreement may not be modified orally, but only by an agreement
in writing signed by the parties hereto. The failure of any party
to this Agreement to assert any of its rights under this Agreement
or otherwise will not constitute a waiver of such rights. Neither
the failure nor any delay on the part of any party hereto in
exercising any rights, power or remedy hereunder will operate as a
waiver thereof or of any right, power or remedy; nor will any
single or partial exercise of any right, power or remedy preclude
any further or other exercise thereof, or the exercise of any other
right, power or remedy.
9.11 Legal Fees and Costs. In the event any party hereto
incurs legal expenses to enforce or interpret any provision of this
Agreement, the prevailing party will be entitled to recover such
legal expenses, including, without limitation, attorney's fees,
costs and disbursements, in addition to any other relief to which
such party will be entitled.
9.12 Conflict of Interest - Michael Cane. The parties
acknowledge that Michael Cane has acted as legal counsel for
Dynamic and Perspectives in the past and is currently the
President, on the board of directors and a majority shareholder of
Tele-Lawyer, Inc. As a consequence, Mr. Cane has a conflict of
interest in regard to this agreement and has not acted
19
as attorney or counsel for Dynamic or Perspectives with regard to
this agreement in any respect. Further, Dynamic and Perspectives
have been advised and acknowledge that they have sought the advice
and services of independent counsel with regard to this agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement and Plan of Merger as of the date first above written.
Tele-Lawyer, Inc.
/s/ Michael Cane
By: ______________________________
President
Title: ______________________________
Dynamic Associates, Inc.
/s/ Jan Wallace
By: ______________________________
C.E.O.
Title: ______________________________
20
APPENDIX A2
FIRST AMENDMENT TO MERGER AGREEMENT
THIS AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER is entered into
as of the 8th day of March 2001, by and among DYNAMIC ASSOCIATES,
INC., a Nevada corporation ("Dynamic"), and TELE-LAWYER, INC.
("Tele-Lawyer"), a Nevada corporation.
WHEREAS, the parties entered into that certain Agreement and Plan
of Merger as of November 28, 2000 (the "Merger Agreement")
regarding the contemplated merger of Tele-Lawyer with and into
Dynamic (the "Merger"); and
WHEREAS, the parties desire to amend the Merger Agreement as set
forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained in the Merger Agreement and herein, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be
legally bound hereby, agree as follows:
1. Paragraph 1.1 shall be modified to read in its entirety:
"At the Effective Time (as defined in Section 1.3
hereof) and subject to and upon the terms and conditions
of this Agreement, Tele-Lawyer will be merged with and
into Dynamic (the "Merger"). Following the Merger,
Dynamic will continue as the surviving entity under the
corporate name to be determined by the board of
directors and Tele-Lawyer will continue as a subsidiary
of Dynamic (Dynamic and Tele-Lawyer are sometimes
referred to collectively herein as the "Constituent
Companies")."
2. The first paragraph of paragraph 2.1 shall be modified
to read: "At the Effective Time, each share of Tele-
Lawyer Common Stock issued and outstanding immediately
prior to the Effective Time will be traded for one share
of Dynamic Common Stock ("Merger Consideration").
3. The phrase at the end of the first paragraph of
paragraph 2.2 reading "except as contemplated under that
certain Registration Rights Agreement referenced in
Section 2.8" shall be deleted."
4. Paragraph 2.2(2) shall be modified to read in its
entirety: "All shares of Dynamic Common Stock issued
upon the surrender for exchange of the Certificates in
accordance with the terms of this Article II shall be
deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to Tele-Lawyer
Common Stock theretofore represented by such
Certificates."
5. Paragraph 2.3 shall be deleted.
6. Paragraph 7.2 shall be modified to read in its entirety:
"This Agreement may be terminated and the Merger may be
abandoned by action of the Board of Directors of Tele-
Lawyer or Dynamic if: (a) the Merger shall not have been
consummated by June 1, 2000; (b) the approval of the
Merger by Dynamic's shareholders shall not
have been obtained by May 15, 2000 at a meeting duly convened
therefor or at any adjournment thereof; or (c) a United
States federal or state court of competent jurisdiction
or United States federal or state governmental,
regulatory or administrative agency or commission shall
have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other
action shall have become final and non-appealable;
provided, that the party seeking to terminate this
Agreement pursuant to this clause (c) shall have used
all reasonable efforts to remove such injunction, order
or decree."
7. The paragraph in paragraph 6.1 dealing with the
extinction of the outstanding Dynamic warrants and
options shall be renumbered (10), and the paragraph in
paragraph 6.1 dealing with the creation of the Dynamic
stock option plan shall be renumbered (11).
8. Paragraph 6.1(13) shall be modified to read in its
entirety: "The parties shall each use their best efforts
to raise capital through the sale of Tele-Lawyer common
stock. It is acknowledged that Tele-Lawyer is in the
process of raising capital through the sale of its
common stock and that such sale shall not be a violation
of this agreement."
Other than as set forth in this First Amendment to Merger
Agreement, the Merger Agreement remains in full force and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment
to Merger Agreement as of the date set forth above.
Tele-Lawyer, Inc.
By: /s/ Michael Cane
Title: President
Dynamic Associates, Inc.
By: /s/ Jan Wallace
Title: President
APPENDIX A3
SECOND AMENDMENT TO MERGER AGREEMENT
THIS AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER is entered into
as of the 5th day of April 2001, by and among DYNAMIC ASSOCIATES,
INC., a Nevada corporation ("Dynamic"), and TELE-LAWYER, INC.
("Tele-Lawyer"), a Nevada corporation.
WHEREAS, the parties entered into that certain Agreement and Plan
of Merger as of November 28, 2000 and a First Amendment to Merger
Agreement on March 8, 2001 (collectively the "Merger Agreement")
regarding the contemplated merger of Tele-Lawyer with and into
Dynamic (the "Merger"); and
WHEREAS, the parties desire to amend the Merger Agreement as set
forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained in the Merger Agreement and herein, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be legally
bound hereby, agree as follows:
1. Paragraph 6.1(1) shall be deleted.
2. Paragraph 6.1(7) shall be modified to add the following
sentence to the end: "Tele-Lawyer shall have the right to
waive all or part of this condition in its sole
discretion."
3. Paragraph 6.1(9) shall be modified to change "250,000" to
"500,000".
4. Paragraph 6.1(12) shall be modified to change "Tele-
Lawyer, Inc." to "Legal Access Technologies, Inc." with
regard to Dynamic's future name change.
Other than as set forth in this Second Amendment to Merger
Agreement, the Merger Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Second Amendment
to Merger Agreement as of the date set forth above.
Tele-Lawyer, Inc.
By: /s/ Michael Cane
-------------------------
Title: President
-------------------------
Dynamic Associates, Inc.
By: /s/ Jan Wallace
-------------------------
Title: C.E.O
-------------------------
APPENDIX A4
THIRD AMENDMENT TO MERGER AGREEMENT
THIS AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER is entered into
as of the 24th day of May 2001, by and among DYNAMIC ASSOCIATES,
INC., a Nevada corporation ("Dynamic"), and TELE-LAWYER, INC.
("Tele-Lawyer"), a Nevada corporation.
WHEREAS, the parties entered into that certain Agreement and Plan
of Merger as of November 28, 2000, a First Amendment to Merger
Agreement on March 8, 2001 and a Second Amendment to Merger
Agreement on April 5, 2001 (collectively the "Merger Agreement")
regarding the contemplated merger of Tele-Lawyer with and into
Dynamic (the "Merger"); and
WHEREAS, the parties desire to amend the Merger Agreement as set
forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained in the Merger Agreement and herein, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be
legally bound hereby, agree as follows:
1. Paragraph 7.2 shall be modified to read in its entirety: "This
Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of Tele-Lawyer or Dynamic if: (a)
the Merger shall not have been consummated by July 1, 2001; (b)
the approval of the Merger by Dynamic's shareholders shall not
have been obtained by June 15, 2001 at a meeting duly convened
therefor or at any adjournment thereof; or (c) a United States
federal or state court of competent jurisdiction or United States
federal or state governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or
taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree, ruling or other action shall
have become final and non-appealable; provided, that the party
seeking to terminate this Agreement pursuant to this clause (c)
shall have used all reasonable efforts to remove such injunction,
order or decree."
Other than as set forth in this Third Amendment to Merger
Agreement, the Merger Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Third Amendment
to Merger Agreement as of the date set forth above.
Tele-Lawyer, Inc.
By: /s/ Michael Cane
Title: President
Dynamic Associates, Inc.
By: /s/ Jan Wallace
Title: CEO
APPENDIX B
RIGHTS OF DISSENTING OWNERS
NRS 92A.300 Definitions. As used in NRS 92A.300 to 92A.500,
inclusive, unless the context otherwise requires, the words and terms
defined in NRS 92A.305 to 92A.335, inclusive, have the meanings
ascribed to them in those sections.
(Added to NRS by 1995, 2086)
NRS 92A.305 "Beneficial stockholder" defined. "Beneficial
stockholder" means a person who is a beneficial owner of shares held in
a voting trust or by a nominee as the stockholder of record.
(Added to NRS by 1995, 2087)
NRS 92A.310 "Corporate action" defined. "Corporate action" means
the action of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.315 "Dissenter" defined. "Dissenter" means a stockholder
who is entitled to dissent from a domestic corporation's action under
NRS 92A.380 and who exercises that right when and in the manner
required by NRS 92A.400 to 92A.480, inclusive.
(Added to NRS by 1995, 2087; A 1999, 1631)
NRS 92A.320 "Fair value" defined. "Fair value," with respect to
a dissenter's shares, means the value of the shares immediately before
the effectuation of the corporate action to which he objects, excluding
any appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable.
(Added to NRS by 1995, 2087)
NRS 92A.325 "Stockholder" defined. "Stockholder" means a
stockholder of record or a beneficial stockholder of a domestic
corporation.
(Added to NRS by 1995, 2087)
NRS 92A.330 "Stockholder of record" defined. "Stockholder of
record" means the person in whose name shares are registered in the
records of a domestic corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee's certificate on file
with the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.335 "Subject corporation" defined. "Subject corporation"
means the domestic corporation which is the issuer of the shares held
by a dissenter before the corporate action creating the dissenter's
rights becomes effective or the surviving or acquiring entity of that
issuer after the corporate action becomes effective.
(Added to NRS by 1995, 2087)
NRS 92A.340 Computation of interest. Interest payable pursuant
to NRS 92A.300 to 92A.500, inclusive, must be computed from the
effective date of the action until the date of payment, at the average
rate currently paid by the entity on its principal bank
loans or, if it has no bank loans, at a rate that is fair and equitable
under all of the circumstances.
(Added to NRS by 1995, 2087)
NRS 92A.350 Rights of dissenting partner of domestic limited
partnership. A partnership agreement of a domestic limited partnership
or, unless otherwise provided in the partnership agreement, an
agreement of merger or exchange, may provide that contractual rights
with respect to the partnership interest of a dissenting general or
limited partner of a domestic limited partnership are available for any
class or group of partnership interests in connection with any merger
or exchange in which the domestic limited partnership is a constituent
entity.
(Added to NRS by 1995, 2088)
NRS 92A.360 Rights of dissenting member of domestic limited-
liability company. The articles of organization or operating agreement
of a domestic limited-liability company or, unless otherwise provided
in the articles of organization or operating agreement, an agreement of
merger or exchange, may provide that contractual rights with respect to
the interest of a dissenting member are available in connection with
any merger or exchange in which the domestic limited-liability company
is a constituent entity.
(Added to NRS by 1995, 2088)
NRS 92A.370 Rights of dissenting member of domestic nonprofit
corporation.
1. Except as otherwise provided in subsection 2, and unless
otherwise provided in the articles or bylaws, any member of any
constituent domestic nonprofit corporation who voted against the merger
may, without prior notice, but within 30 days after the effective
date of the merger, resign from membership and is thereby excused from
all contractual obligations to the constituent or surviving
corporations which did not occur before his resignation and is thereby
entitled to those rights, if any, which would have existed if there had
been no merger and the membership had been terminated or the member had
been expelled.
2. Unless otherwise provided in its articles of incorporation or
bylaws, no member of a domestic nonprofit corporation, including, but
not limited to, a cooperative corporation, which supplies services
described in chapter 704 of NRS to its members only, and no person who
is a member of a domestic nonprofit corporation as a condition of or by
reason of the ownership of an interest in real property, may resign and
dissent pursuant to subsection 1.
(Added to NRS by 1995, 2088)
NRS 92A.380 Right of stockholder to dissent from certain
corporate actions and to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a
stockholder is entitled to dissent from, and obtain payment of the fair
value of his shares in the event of any of the following corporate
actions:
(a) Consummation of a plan of merger to which the domestic
corporation is a party:
(1) If approval by the stockholders is required for the
merger by NRS 92A.120 to 92A.160, inclusive, or the articles of
incorporation and he is entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is
merged with its parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's
interests will be acquired, if he is entitled to
vote on the plan.
(c) Any corporate action taken pursuant to a vote of the
stockholders to the event that the articles of incorporation, bylaws or
a resolution of the board of directors provides that voting or
nonvoting stockholders are entitled to dissent and obtain payment for
their shares.
2. A stockholder who is entitled to dissent and obtain payment
under NRS 92A.300 to 92A.500, inclusive, may not challenge the
corporate action creating his entitlement unless the action is unlawful
or fraudulent with respect to him or the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.390 Limitations on right of dissent: Stockholders of
certain classes or series; action of stockholders not required for plan
of merger.
1. There is no right of dissent with respect to a plan of merger
or exchange in favor of stockholders of any class or series which, at
the record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting at which the plan of merger or
exchange is to be acted on, were either listed on a national securities
exchange, included in the national market system by the National
Association of Securities Dealers, Inc., or held by at least 2,000
stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the
shares provide otherwise; or
(b) The holders of the class or series are required under the
plan of merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash
in lieu of fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date
of the plan of merger or exchange, were either listed on a national
securities exchange, included in the national market system by the
National Association of Securities Dealers, Inc., or held of record
by a least 2,000 holders of owner's interests of record; or
(2) A combination of cash and owner's interests of the
kind described in sub-subparagraphs (I) and (II) of subparagraph (1) of
paragraph (b).
2. There is no right of dissent for any holders of stock of the
surviving domestic corporation if the plan of merger does not require
action of the stockholders of the surviving domestic corporation under
NRS 92A.130.
(Added to NRS by 1995, 2088)
NRS 92A.400 Limitations on right of dissent: Assertion as to
portions only to shares registered to stockholder; assertion by
beneficial stockholder.
1. A stockholder of record may assert dissenter's rights as to
fewer than all of the shares registered in his name only if he dissents
with respect to all shares beneficially owned by any one person and
notifies the subject corporation in writing of the name and address of
each person on whose behalf he asserts dissenter's rights. The rights
of a
partial dissenter under this subsection are determined as if the shares
as to which he dissents and his other shares were registered in the
names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to
shares held on his behalf only if:
(a) He submits to the subject corporation the written consent of
the stockholder of record to the dissent not later than the time the
beneficial stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the
beneficial stockholder or over which he has power to direct the vote.
(Added to NRS by 1995, 2089)
NRS 92A.410 Notification of stockholders regarding right of
dissent.
1. If a proposed corporate action creating dissenters' rights is
submitted to a vote at a stockholders' meeting, the notice of the
meeting must state that stockholders are or may be entitled to assert
dissenters' rights under NRS 92A.300 to 92A.500, inclusive, and be
accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken
by written consent of the stockholders or without a vote of the
stockholders, the domestic corporation shall notify in writing all
stockholders entitled to assert dissenters' rights that the action was
taken and send them the dissenter's notice described in NRS 92A.430.
(Added to NRS by 1995, 2089; A 1997, 730)
NRS 92A.420 Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is
submitted to a vote at a stockholders' meeting, a stockholder who
wishes to assert dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is
taken, written notice of his intent to demand payment for his shares if
the proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of
subsection 1 and NRS 92A.400 is not entitled to payment for his shares
under this chapter.
(Added to NRS by 1995, 2089; 1999, 1631)
NRS 92A.430 Dissenter's notice: Delivery to stockholders
entitled to assert rights; contents.
1. If a proposed corporate action creating dissenters' rights is
authorized at a stockholders' meeting, the subject corporation shall
deliver a written dissenter's notice to all stockholders who satisfied
the requirements to assert those rights.
2. The dissenter's notice must be sent no later than 10 days
after the effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and
when certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates
to what extent the transfer of the shares will be restricted after the
demand for payment is received;
(c) Supply a form for demanding payment that includes the date of
the first announcement to the news media or to the stockholders of the
terms of the proposed action and requires that the person asserting
dissenter's rights certify whether or not he acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the subject corporation must receive the
demand for payment, which may not be less than 30 nor more than 60 days
after the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500,
inclusive.
(Added to NRS by 1995, 2089)
NRS 92A.440 Demand for payment and deposit of certificates;
retention of rights of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenter's
notice for this certification; and
(c) Deposit his certificates, if any, in accordance with the
terms of the notice.
2. The stockholder who demands payment and deposits his
certificates, if any, before the proposed corporate action is taken
retains all other rights of a stockholder until those rights are
canceled or modified by the taking of the proposed corporate action.
3. The stockholder who does not demand payment or deposit his
certificates where required, each by the date set forth in the
dissenter's notice, is not entitled to payment for his shares under
this chapter.
(Added to NRS by 1995, 2090; A 1997, 730)
NRS 92A.450 Uncertificated shares: Authority to restrict
transfer after demand for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares
not represented by a certificate from the date the demand for their
payment is received.
2. The person for whom dissenter's rights are asserted as to
shares not represented by a certificate retains all other rights of a
stockholder until those rights are canceled or modified by the taking
of the proposed corporate action.
(Added to NRS by 1995, 2090)
NRS 92A.460 Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days
after receipt of a demand for payment, the subject corporation shall
pay each dissenter who complied with NRS 92A.440 the amount the subject
corporation estimates to be the fair value of his shares, plus accrued
interest. The obligation of the subject corporation under this
subsection may be enforced by the district court:
(a) Of the county where the corporation's registered office is
located; or
(b) At the election of any dissenter residing or having its
registered office in this state, of the county where the dissenter
resides or has its registered office. The court shall
dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a
fiscal year ending not more than 16 months before the date of payment,
a statement of income for that year, a statement of changes in the
stockholders' equity for that year and the latest available
interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under
NRS 92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2090)
NRS 92A.470 Payment for shares: Shares acquired on or after date
of dissenter's notice.
1. A subject corporation may elect to withhold payment from a
dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenter's notice as the date of the first
announcement to the news media or to the stockholders of the terms
of the proposed action.
2. To the extent the subject corporation elects to withhold
payment, after taking the proposed action, it shall estimate the fair
value of the shares, plus accrued interest, and shall offer to pay this
amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The subject corporation shall send with its offer a
statement of its estimate of the fair value of the shares, an
explanation of how the interest was calculated, and a statement of the
dissenters' right to demand payment pursuant to NRS 92A.480.
(Added to NRS by 1995, 2091)
NRS 92A.480 Dissenter's estimate of fair value: Notification of
subject corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of
his own estimate of the fair value of his shares and the amount of
interest due, and demand payment of his estimate, less any payment
pursuant to NRS 92A.460, or reject the offer pursuant to NRS
92A.470 and demand payment of the fair value of his shares and interest
due, if he believes that the amount paid pursuant to NRS 92A.460 or
offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to
this section unless he notifies the subject corporation of his demand
in writing within 30 days after the subject corporation made or offered
payment for his shares.
(Added to NRS by 1995, 2091)
NRS 92A.490 Legal proceeding to determine fair value: Duties of
subject corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject
corporation shall commence a proceeding within 60 days after receiving
the demand and petition the court to determine the fair value of the
shares and accrued interest. If the subject corporation does not
commence the proceeding within the 60-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the
district court of the county where its registered office is located. If
the subject corporation is a foreign entity without a resident agent in
the state, it shall commence the proceeding in the county where the
registered office of the domestic corporation merged with or whose
shares were acquired by the foreign entity was located.
3. The subject corporation shall make all dissenters, whether or
not residents of Nevada, whose demands remain unsettled, parties to the
proceeding as in an action
against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
4. The jurisdiction of the court in which the proceeding is
commenced under subsection 2 is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers have
the powers described in the order appointing them, or any amendment
thereto. The dissenters are entitled to the same discovery rights as
parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is
entitled to a judgment:
(a) For the amount, if any, by which the court finds the fair
value of his shares, plus interest, exceeds the amount paid by the
subject corporation; or
(b) For the fair value, plus accrued interest, of his after-
acquired shares for which the subject corporation elected to withhold
payment pursuant to NRS 92A.470.
(Added to NRS by 1995, 2091)
NRS 92A.500 Legal proceeding to determine fair value: Assessment
of costs and fees.
1. The court in a proceeding to determine fair value shall
determine all of the costs of the proceeding, including the reasonable
compensation and expenses of any appraisers appointed by the court. The
court shall assess the costs against the subject corporation, except
that the court may assess costs against all or some of the dissenters,
in amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously or not in good faith in
demanding payment.
2. The court may also assess the fees and expenses of the
counsel and experts for the respective parties, in amounts the court
finds equitable:
(a) Against the subject corporation and in favor of all
dissenters if the court finds the subject corporation did not
substantially comply with the requirements of NRS 92A.300
to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in
favor of any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by NRS
92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly
situated, and that the fees for those services should not be assessed
against the subject corporation, the court may award to those counsel
reasonable fees to be paid out of the amounts awarded to the dissenters
who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court
may assess the costs against the subject corporation, except that the
court may assess costs against all or some of the dissenters who are
parties to the proceeding, in amounts the court finds equitable, to the
extent the court finds that such parties did not act in good faith in
instituting the proceeding.
5. This section does not preclude any party in a proceeding
commenced pursuant to NRS 92A.460 or 92A.490 from applying the
provisions of N.R.C.P. 68 or NRS 17.115.
(Added to NRS by 1995, 2092)
APPENDIX C1
SMITH
&
COMPANY
A Professional Corporation of Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Dynamic Associates, Inc.
We have audited the accompanying consolidated balance sheet of
Dynamic Associates, Inc. (a Nevada corporation) and Subsidiary as
of December 31, 2000, and the related consolidated statements of
operations, changes in stockholders' equity (deficit), and cash
flows for the years ended December 31, 2000 and 1999. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Dynamic Associates, Inc. and Subsidiary as of
December 31, 2000, and the results of their operations, changes
in stockholders' equity (deficit), and their cash flows for the
years ended December 31, 2000 and 1999, in conformity with
accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As shown in the consolidated financial statements, the
Company has an accumulated deficit of $24,189,747 at December 31,
2000. As discussed in Note 4, the Company is in the process of
selling its subsidiary which will leave it with no operations or
revenue. The Company has suffered losses from operations and has
a substantial need for working capital. This raises substantial
doubt about its ability to continue as a going concern. The
accompanying consolidated financial statements do not include any
adjustments that may result from the outcome of this uncertainty.
/s/Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
April 7, 2001
10 West 100 South, Suite 700 * Salt Lake City, Utah 84101-1554
Telephone: (801) 575-8297 * Facsimile: (801) 575-8306
E-mail: smithco@dotplanet.com
Members: American Institute of Certified Public Accountants *
Utah Association of Certified Public Accountants
F-1
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 2000
2000
--------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 363,670
Accounts receivable
(less allowance for doubtful accounts of $1,157,710) 2,831,284
Other receivables 0
Prepaid expense and other current assets 817
--------------
TOTAL CURRENT ASSETS 3,195,771
PROPERTY, PLANT & EQUIPMENT (Note 5) 74,474
OTHER ASSETS
Deferred debt issue costs
(less amortization of $427,040) (Note 2) 450,157
Goodwill (Note 2) 1,590,000
--------------
2,040,157
--------------
$ 5,310,402
==============
LIABILITIES & EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 58,487
Accrued expenses 551,243
Current portion of long-term debt (Note 7) 10,015
Accrued interest payable (Note 8) 1,011,331
--------------
TOTAL CURRENT LIABILITIES 1,631,076
Long-term debt (Note 7) 6,046
Convertible notes (Note 8) 8,676,500
--------------
8,682,546
--------------
TOTAL LIABILITIES 10,313,622
Commitments and contingencies (Note 10)
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding 18,386,429 shares 18,386
Additional paid-in capital 19,168,141
Retained deficit (24,189,747)
--------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (5,003,220)
--------------
$ 5,310,402
==============
See Notes to Consolidated Financial Statements
F-2
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
--------------------------
2000 1999
------------- ------------
Management fees $ 6,669,048 $ 7,982,208
General & administrative expenses 5,413,111 6,683,691
Depreciation and amortization 138,775 2,572,207
Goodwill impairment (Notes 2 and 4) 0 15,459,495
Bad debts 264,465 3,124,796
------------- ------------
5,816,351 27,840,189
------------- ------------
NET OPERATING INCOME (LOSS) 852,697 (19,857,981)
OTHER INCOME (EXPENSE)
Interest income 59 3,825
Interest expense (612,180) (872,255)
Disposition of Subsidiary (83,330) 0
Loss on disposal of equipment 0 (109,022)
Unrealized decline in investment 0 (17,000)
------------- ------------
(695,451) (994,452)
------------- ------------
NET INCOME (LOSS) BEFORE INCOME TAXES 157,246 (20,852,433)
INCOME TAX EXPENSE (Note 9) 0 197,000
------------- ------------
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS 157,246 (21,049,433)
EXTRAORDINARY ITEM
Gain on restructuring of debt
(no applicable income tax)(Note 13) 11,596 7,955,831
------------- ------------
NET INCOME (LOSS)$ 168,842 $(13,093,602)
------------- ------------
NET INCOME (LOSS) PER SHARE
Basic and diluted net income (loss)
per weighted average share -
continuing operations $ .01 $ (1.19)
extraordinary item .00 .45
------------- ------------
$ .01 $ (.74)
============= ============
Weighted average number of common shares used to
compute net income (loss) per weighted
average share 18,386,429 17,747,799
============= ============
See Notes to Consolidated Financial Statements
F-3
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock Additional
Par Value $.001 Paid-in Retained
Shares Amount Capital Deficit
---------- --------- ------------ -----------
Balances at 12/31/98 14,223,929 14,224 18,512,330 (11,264,987)
Issuance of common
stock to restructure
debt 4,162,500 4,162 634,144
Net loss for year (13,093,602)
---------- --------- ------------ ----------
Balances at 12/31/99 18,386,429 18,386 19,146,474 (24,358,589)
Value of donated Services 21,667
Net income for year 168,842
---------- --------- ------------ ----------
Balances at 12/31/00 18,386,429 $ 18,386 $ 19,168,141 $(24,189,747)
========== ========= ============ ===========
See Notes to Consolidated Financial Statements
F-4
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
--------------------------
2000 1999
------------- ------------
OPERATING ACTIVITIES
Net (loss) $ 168,842 $(13,093,602)
Adjustments to reconcile net income (loss)
to cash used by operating activities:
Depreciation and amortization 138,775 18,158,501
Book value of assets sold/disposed 0 112,790
Bad debts 0 3,124,796
Non-cash debt restructuring 0 (7,955,831)
Unrealized decline in investment 0 17,000
Deferred taxes 0 300,000
Value of services donated 21,667 0
Changes in assets and liabilities:
Accounts receivable (695,667) (1,396,064)
Prepaid expenses and other 783 124,423
Accounts payable and accrued expenses (89,812) (172,372)
Accrued interest payable 645,026 487,335
------------- ------------
NET CASH USED BY OPERATING ACTIVITIES 189,614 (293,024)
INVESTING ACTIVITIES
Deposits 0 410
------------- ------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 0 410
FINANCING ACTIVITIES
Principal payments on debt (7,770) (3,978)
------------- ------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (7,770) (3,978)
------------- ------------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 181,844 (296,592)
Cash and cash equivalents at beginning of year 181,826 478,418
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 363,760 $ 181,826
============= ============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 4,801 $ 257,939
Cash paid for income taxes 0 0
During 2000, the Company purchased a vehicle in the amount of $13,625 by
incurring a loan in the same amount.
During 1999, the Company issued 4,162,500 shares of its restricted common
stock and 8,325,000 warrants to purchase stock at $1.50 per share until
December 31, 2000 to retire debt of $8,325,000 and accrued interest of
$912,881.
See Notes to Consolidated Financial Statements
F-5
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
NOTE 1: BUSINESS ACTIVITY
The Company was incorporated under the laws of the state of
Nevada on July 20, 1989 and is now engaged in the business of
managing the operation of geriatric/psychiatric units for
various hospitals in the states of Louisiana, Arkansas,
Mississippi, and Tennessee. The contracts range from one to
five years. At December 31, 2000, the Company had 20 active
contracts with monthly billings of $586,026.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principals of Consolidation
- ---------------------------
The consolidated financial statements for 2000 and 1999 include
the accounts of the Company; and its wholly owned subsidiary
Perspectives Healthcare Management Corporation ("Perspectives").
All significant intercompany balances and transactions have been
eliminated in consolidation.
Accounting Methods
- ------------------
The Company recognizes income and expenses based on the accrual
method of accounting.
Revenue Recognition
- -------------------
Revenues are recognized when services have been rendered, with
Appropriate provision for uncollectible accounts.
Dividend Policy
- ---------------
The Company has not yet adopted any policy regarding payment of
dividends.
Stock Options
- -------------
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its employee
stock options rather than adopting the alternative fair value
accounting provided for under Financial Accounting Standards
Board ("FASB") FASB Statement No. 123, Accounting for Stock
Based Compensation (SFAS 123).
Estimates
- ---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amount of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Allowance for Uncollectible Accounts
- ------------------------------------
The Company provides an allowance for uncollectible accounts
based upon prior experience and management's assessment of the
collectability of existing specific accounts.
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to
concentration of risk, consist of cash and investments. The
Company places its investments in highly rated commercial paper
obligations which limits the amount of credit exposure.
Historically, the Company has not experienced any losses related
to investments.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment is recorded at cost and is being
depreciated over a useful life of seventeen months to eight
years using the straight-line and accelerated methods.
Cash and Cash Equivalents
- -------------------------
For financial statement purposes, the Company considers all
highly liquid investments with an original maturity of three
months or less when purchased to be cash equivalents.
F-6
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Goodwill
- --------
In late 1999, the Company made the decision to reduce goodwill
to $1,590,000 which is the approximate amount it expected to
realize from the sale of Perspectives.
Deferred Debt Issue Costs
- -------------------------
These costs are associated with raising money by issuing
convertible notes. The costs are being amortized over the life
of the notes (ten years). In the event the notes are converted
to common stock, the remaining unamortized costs will be charged
to additional paid-in capital.
Income Taxes
- ------------
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences, and operating loss carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred
tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment. As
of December 31, 1999, temporary differences arose primarily from
differences in the timing of recognizing expenses for financial
reporting and income tax purposes. Such differences include
depreciation, bad debt allowance, and various accrued operating
expenses.
Net Income (Loss) per Share
- ---------------------------
Basic and diluted net income (loss) per common share is computed by
dividing net income (loss) by the weighted average shares outstanding
during each period. The convertible notes, which are convertible to
57,843,333 shares of common stock (as determined by the terms of the
current offer of conversion to the Note Holders), have not
been considered in the calculation as their inclusion would be
antidilutive.
NOTE 3: CAPITALIZATION
The Company's authorized stock includes 100,000,000 shares of
Class "A" common stock at $.001 par value.
During 1999, the Company issued 4,162,500 shares of its
restricted common stock and 8,325,000 warrants to purchase stock
at $1.50 per share until December 31, 2000 to retire debt of
$8,325,000 and accrued interest of $912,881. The warrants expired
unexercised.
During 1998, the Company sold 250,000 shares from options
registered under S-8 for $250,000 cash.
NOTE 4: EXPECTED SALE OF BUSINESS
In late 1999, the Company began negotiations to sell
Perspectives. On November 28, 2000, the Company entered into a
Brokerage Agreement for the sale of Perspectives. Under the
Brokerage Agreement, the Broker is entitled to one-half of any
net proceeds from the sale in excess of $2.1 million, upon procuring
a ready, willing, and able buyer. Associated with the sale of the
business, the Company is also finalizing an agreement with the
holders of notes in Dynamic in the amount of $8,676,500, to convert
the notes owed to them into the Company's common stock at the rate
of $.15 per share. This would result in approximately 57,843,333
new shares of the Company's common stock being issued, and the note
holders as a group would have voting control of the Company.
On November 28, 2000, the Company entered into an agreement and
plan of merger with Tele-Lawyer, Inc. ("Tele-Lawyer"). Tele-
Lawyer is a Nevada based technology company and application
services provider to the legal services industry. The merger is
subject to certain conditions which include the condition that
the Company extinguish all of its outstanding debt, including
all existing notes, through a conversion to common stock or
otherwise. If the conditions are met and the merger occurs, the
operations of Tele-Lawyer will become the operations of the
Company and the assets currently held in the Company will be
held for sale.
F-7
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000
NOTE 5: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of December 31, 2000 are
summarized as follows:
Accumulated Net Book
Cost Depreciation Value
---------- -------------- -----------
Transportation Equipment $ 164,561 $ 92,395 $ 72,166
Machinery & Equipment 0 0 0
Furniture & Fixtures 19,654 17,346 2,308
Leasehold Improvements 0 0 0
---------- -------------- -----------
$ 184,215 $ 109,741 $ 74,474
========== ============== ===========
Depreciation expense is calculated under straight-line and
accelerated methods based on the estimated service lives of
depreciable assets. Depreciation expense for the year ended
December 31, 2000 amounted to $28,167, ($26,927 in 1999).
NOTE 6: RELATED PARTY TRANSACTIONS
During 2000, no payments were made to officers and directors; however,
Additional paid-in capital was recognized in the amount of $21,667, the
estimated value of donated services provided during 2000.
During 1999, $108,958 was paid or accrued to the Company's Chief
Operating Officer and $64,000 was paid or accrued to the
Company's Secretary/Treasurer for services rendered to the
Company. Accrued amounts to the two individuals are $78,958 and
$40,000 respectively.
NOTE 7: LONG-TERM DEBT
8.95% Note payable to bank in monthly installments of
$424, including interest through February 12, 2002. $ 5,478
9.8% Note payable to bank in monthly installments of
$439, including interest, through February 15, 2003 10,583
-----------
16,061
Less current portion 10,015
-----------
$ 6,046
===========
Scheduled maturities of these obligations are as follows:
Year ending December 31,
------------------------
2001 $ 10,015
2002 5,179
2003 867
-----------
$ 16,061
===========
NOTE 8: CONVERTIBLE NOTES
At December 31, 2000, the Company owed $351,500 to various
entities in the form of convertible notes. The notes bear
interest at 10% per annum and the interest is payable on January
16 and July 16 of each year. The notes are part of an overall
maximum $18,500,000 indenture.
Conversion
- ----------
The holder of any Note will have the right anytime prior to
maturity, to convert the principal thereof (or any portion
thereof that is an integral multiple of $1,000) into shares of
Common Stock at the conversion price of US $2.75 (the
"Conversion Price"), except that if a Note is called for
redemption, the conversion right will terminate at the close of
business on the business day immediately preceding the date
fixed for redemption. Upon conversion, no adjustment will be
made for interest or dividends, but if any holder surrenders a
Note for conversion between the record date for the payment of
an installment of interest and the next interest payment date,
then, notwithstanding such conversion, the interest payment on
such interest payment date will be paid to the registered holder
of such Note on such record date. In such event, such Note
which surrendered for conversion, must be accompanied
F-8
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000
NOTE 8: CONVERTIBLE NOTES (continued)
by payment of an amount equal to the interest payable on such interest
payment date on the portion so converted. No fractional shares
will be issued upon conversion but a cash adjustment will be
made for any fractional interest.
At December 31, 2000, the $351,500 remaining of the original
$17,001,500 of notes could have been converted into 127,818
shares of the Company's common stock.
Optional Redemption
- -------------------
The Notes will be redeemable at the option of the Company, in
whole or in part, at any time and from time to time, on and
after September 15, 1997, on not less than 15 nor more than 60
days' notice by first class mail, at the following redemption
prices (expressed as percentages of the principal amount) if
redeemed during the twelve-month period beginning September 15
of the year indicated below, in each case, together with accrued
interest thereon to the redemption date:
Year Percentage
---- ----------
2001 105.00%
2002 103.75%
2003 102.50%
2004 101.25%
2005 100.00%
If less than all the Notes are to be redeemed, the Trustee will
select Notes for redemption in any manner the Trustee deems fair
and appropriate. If any Note is to be redeemed in part only, a
new Note or Notes in principal amount equal to the unredeemed
principal portion thereof will be issued.
Subordination of Notes
- ----------------------
The Notes will be subordinate in right of payment to the extent
set forth in the Indenture to all existing and future Senior
Indebtedness (as defined in the Indenture) of the Company,
whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed, or guaranteed. Upon any
distribution of assets of the Company in any dissolution,
winding up, liquidation, or reorganization of the Company
(whether in an insolvency or bankruptcy proceeding or
otherwise), payment in full must be made on such Senior
Indebtedness before any payment is made on or in respect of the
Notes. Upon the happening and during the continuance of a
default in payment of interest on or principal of Senior
Indebtedness, or any other default with respect to such Senior
Indebtedness permitting the holder thereof to accelerate the
maturity thereof, no payment may be made by the Company on or in
respect of the Notes. No such subordination will prevent the
occurrence of any Event of Default (as defined in the
Indenture).
"Senior Indebtedness" includes (i) all indebtedness of the
Company (a) for borrowed money, (b) which is evidenced by a
note, debenture or similar instrument (including a purchase
money mortgage) given in connection with the acquisition of any
property or assets (other than inventory or similar property
acquired in the ordinary course of business), including
securities, or (c) for the payment of money relating to a
Capitalized Lease Obligation (as defined in the Indenture); (ii)
any liability of others described in the preceding clause which
the Company has guaranteed or which is otherwise its legal
liability; and (iii) any amendment, renewal, extension, or
refunding of any such liability; provided, however, that Senior
Indebtedness will not include any indebtedness of the Company to
a subsidiary or any indebtedness or guarantee of the Company
which, by its terms or the terms of the instrument creating or
evidencing it, is not superior in right of payment to the Notes.
The Indenture will not limit the amount of additional
indebtedness, including Senior Indebtedness, which the Company
can create, incur, assume, or guarantee, nor will the Indenture
limit the amount of indebtedness which any subsidiary can incur.
As a result of these subordination provisions, in the event of
insolvency, holders of the Notes may recover less ratably than
general creditors of the Company.
On March 17, 1999, the Company announced the restructuring of
its convertible notes. $351,500 of the original $17,001,500 debt
remains unchanged in its terms. Holders of $16,650,000 of
original debt accepted the Company's offer to convert to
$8,325,000 of 7.5% secured convertible notes due December 31,
2006. The holders also received one share of Dynamic's common
stock for each $2 of original debt and one warrant to purchase
Dynamic's common stock at $1.50 per share until December 31,
2000, consequently, there were no warrants outstanding at
year-end.
F-9
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000
NOTE 8: CONVERTIBLE NOTES (continued)
Summary:
Before the transaction:
Principal Amount Interest Rate
---------------- -------------
$ 17,001,500 10.0%
After the transaction:
Principal Amount Interest Rate
---------------- -------------
$ 8,325,000 7.5%
351,500 10.0%
----------------
$ 8,676,500
================
The new convertible notes of $8,325,000 are secured by the
accounts receivable of Perspectives. The security interest is
subordinated to banks, financial institutions or any lender or
creditors as the Board of Directors may deem appropriate.
The holders of the new notes also waived the January, 1999
interest payment due under the terms of the old notes. Interest
expense during 2000 was $612,180, and accrued interest payable
was $1,011,331.
NOTE 9: INCOME TAXES
Components of income tax (benefit) are as follows:
2000 1999
-------------- ------------
Current
Federal $ 0 $ 0
State 0 (103,000)
-------------- ------------
0 (103,000)
-------------- ------------
Deferred
Federal 0 300,000
State 0 0
-------------- ------------
0 300,000
-------------- ------------
Income tax $ 0 $ 197,000
-------------- ------------
A reconciliation of the provision for income tax
expense with the expected income tax computed by
applying the federal statutory income tax rate to
income before provision for income taxes is as follows:
2000 1999
-------------- ------------
Income tax computed at federal
statutory tax rate $ 57,406 $ (4,384,800)
Net operating loss benefit (57,406) 0
Net operating loss benefit lost due
to debt cancellation 0 4,684,800
State taxes (net of federal benefit) 0 (103,000)
-------------- ------------
$ 0 $ 197,000
-------------- ------------
Significant components of the Company's deferred tax
liabilities and assets for income taxes consist of
the following:
2000 1999
-------------- ------------
Current deferred tax assets
Net operating loss $ 640,000 $ 697,406
Valuation allowance (640,000) (697,406)
Net deferred current tax assets $ 0 $ 0
The net change in the valuation allowance for the year
ended December 31, 2000 was $(57,406) ($432,206 in 1999).
F-10
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000
NOTE 10: COMMITMENTS AND CONTINGENCIES
Perspectives leases equipment under operating leases expiring
through 2002.
Future minimum lease payments are as follows:
Year Ending
-----------------
December 31, 2001 $ 4,859
December 31, 2002 3,645
------------
$ 8,504
============
Rental expense for the year ended December 31, 2000 was $31,279
($37,600 in 1999).
NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, loans, and
interest receivable, accounts payable, accrued expenses and
interest payable approximate fair value due to the short
maturity periods of these instruments. The fair value of the
Company's long-term debt, based on the present value of the
debt, assuming interest rates as follows at December 31, 2000
was:
Note at 9.8% $ 8,563
Note at 8.95% 4,935
Convertible notes at 10.0% 220,775
Convertible notes at 7.5% 5,315,693
------------
$ 5,549,966
============
NOTE 12: EXTRAORDINARY ITEM
As discussed in Note 8, the Company in early 1999 was able to
reduce its long-term convertible debt by almost half.
The Company recorded extraordinary item income of
$7,955,831. The gain was determined based on the amount
of debt forgiven less the value of the common stock given
to effect the transaction.
NOTE 13: SUBSEQUENT EVENTS
Subsequent to the balance sheet date, $5,747,250 of the holders
of Dynamic's 7.5% notes and $55,500 of the holders of Dynamic's
10% notes have converted their notes to common stock at the rate
of $.15 per share, increasing the number of common stock issued
and outstanding by 38,685,006 shares. If all of the note
holders of Dynamic convert their debt to common stock, there
will be approximately 76,229,768 shares of Dynamic common stock
issued and outstanding. The current amount remaining on the
notes payable at March 31, 2001 is:
$ 296,000 10%
2,577,750 7.5%
------------
$ 2,873,750
============
NOTE 14: GOING CONCERN CONSIDERATIONS
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As shown in the consolidated financial statements, the
Company has an accumulated deficit of $(24,189,747) at December 31,
2000. As discussed in Note 4, the Company is in the process of
selling its subsidiary which will leave it with no operations or
revenue. The Company has suffered losses from operations and has
a substantial need for working capital. This raises substantial
doubt about its ability to continue as a going concern. The
accompanying consolidated financial statements do not include any
adjustments that may result from the outcome of this uncertainty.
F-11
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
(Unaudited) (Audited)
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 258,479 $ 363,670
Accounts receivable (less
allowance for doubtful accounts
of $1,157,472) 3,129,422 2,831,284
Prepaid expense and other
current assets 63,017 817
------------ ------------
TOTAL CURRENT ASSETS 3,450,918 3,195,771
PROPERTY, PLANT & EQUIPMENT 68,096 74,474
OTHER ASSETS
Deferred debt issue costs (less
amortization of $454,692) 422,505 450,157
Investment in closely held
corporation 140,000 0
Goodwill 1,590,000 1,590,000
------------ ------------
2,152,505 2,040,157
------------ ------------
$ 5,671,519 $ 5,310,402
============ ============
LIABILITIES & (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 67,669 $ 58,487
Accrued expenses 637,749 551,243
Current portion of long-term debt 53,169 10,015
Accrued interest payable 388,150 1,011,331
------------ ------------
TOTAL CURRENT LIABILITIES 1,146,737 1,631,076
Long-term debt 7,175 6,046
Convertible notes 2,873,750 8,676,500
------------ ------------
2,880,925 8,682,546
------------ ------------
TOTAL LIABILITIES 4,027,662 10,313,622
STOCKHOLDERS'(DEFICIT)
Common Stock $.001 par value:
Authorized - 100,000,000 shares
Issued and outstanding: 57,071,435
shares at 3-31-01, and 18,386,429
shares at 12-31-00 57,071 18,386
Additional paid-in capital 25,584,956 19,146,474
Retained deficit (23,998,170) (24,168,080)
------------ ------------
TOTAL STOCKHOLDERS'(DEFICIT) 1,643,857 (5,003,220)
------------ ------------
$5,671,519 $ 5,310,402
============ ============
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
2001 2000
------------ ------------
Management fees $ 1,503,540 $ 1,692,199
------------ ------------
1,503,540 1,692,199
General & administrative expenses 1,271,277 1,418,123
Depreciation 6,375 3,786
Bad debts 0 100,000
------------ ------------
1,277,652 1,521,909
------------ ------------
NET OPERATING INCOME 225,888 170,290
OTHER INCOME (EXPENSE)
Interest expense (55,971) (194,335)
NET INCOME (LOSS) BEFORE INCOME TAXES 169,917 (24,045)
INCOME TAX EXPENSE 0 0
NET INCOME (LOSS) $ 169,917 $ (24,045)
============ ============
Basic net income (loss) per
weighted average share: $ .004 $ (.001)
============ ============
Diluted net income (loss) per
weighted average share: $ .004 $ (.001)
============ ============
Basic weighted average number
of common shares used to
compute net (loss) per weighted
average share 40,964,933 18,386,429
============ ============
Diluted weighted average number
of common shares used to
compute net (loss) per weighted
average share 41,177,785 18,386,429
============ ============
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 169,917 $ (24,045)
Adjustments to reconcile
net income (loss) to cash provided
(used) by operating activities:
Depreciation and amortization 34,030 31,438
Bad debts 0 100,000
Changes in assets and liabilities:
Accounts receivable (298,138) (406,773)
Prepaid expenses and other (62,200) 18,383
Accounts payable and accrued expenses 146,917 317,007
------------ ------------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (9,474) 36,010
INVESTMENT ACTIVITIES
Cash from (to) investments (140,000) 0
------------ ------------
NET CASH (USED) BY
INVESTMENT ACTIVITIES (140,000) 0
FINANCING ACTIVITIES
Principal payments on debt (38,699) (49,071)
Loans 82,982 0
------------ ------------
NET CASH (USED) BY
FINANCING ACTIVITIES 44,283 (49,071)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (105,191) (13,061)
Cash and cash equivalents at
beginning of period 363,670 181,826
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 258,479 $ 168,765
============ ============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 4,379 $ 16,303
Cash paid for income taxes 0 0
NON-CASH ITEMS
During the quarter ended March 31, 2001, the company issued 38,685,006
shares of common stock to extinguish debt of $5,802,750 and accrued
interest of $679,156.
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
SELECTED NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1: EXPECTED SALE OF SUBSIDIARIES
In late 1999, the Company began negotiations to sell
Perspectives. On November 28, 2000, the Company entered
into a Brokerage Agreement for the sale of Perspectives.
Under the Brokerage Agreement, the Broker is entitled to
one-half of any net proceeds from the sale in excess of
$2.1 million, upon procuring a ready, willing, and able
buyer. Associated with the sale of the business, the
Company is also finalizing an agreement with the holders
of notes in Dynamic in the amount of $8,676,500, to
convert the notes owed to them into the Company's common
stock at the rate of $.15 per share. This would result
in approximately 57,843,333 new shares of the Company's
common stock being issued, and the note holders as a
group would have voting control of the Company.
As of May 14, 2001, $8,214,000 of the 7.5% notes and
$148,000 of the remaining 10% notes have been converted
to common stock at the rate of $.15 per share,
increasing the number of common stock issued and
outstanding by 55,745,000 shares for a total issued and
outstanding at May 14, 2001 of 74,131,429 shares. If
all of the note holders of Dynamic convert their debt to
common stock, there will be approximately 76,228,096
shares of Dynamic common stock issued and outstanding.
The current amount remaining on the notes payable at May
14, 2001 is:
$ 203,500 110
111,000 7.5%
-----------
$ 314,500
===========
On November 28, 2000, the Company entered into an
agreement and plan of merger with Tele-Lawyer, Inc.
("Tele-Lawyer"). Tele-Lawyer is a Nevada based
technology company and application services provider to
the legal services industry. The merger is subject to
certain conditions which include the condition that the
Company extinguish all of its outstanding debt,
including all existing notes, through a conversion to
common stock or otherwise. If the conditions are met
and the merger occurs, the operations of Tele-Lawyer
will become the operations of the Company and the assets
currently held in the Company will be held for sale.
APPENDIX C2
TELE-LAWYER, INC.
FINANCIAL
STATEMENTS
YEARS ENDED
APRIL 30, 2000
AND 1999
Piercy, Bowler,
Taylor & Kern
Certified Public Accountants
& Business Advisors
A Professional Corporation
Tele-Lawyer, Inc.
April 30, 2000 & 1999
CONTENTS
Page
Independent auditors' report 1
Financial statements:
Balance sheets 2
Statements of operations 3
Statements of stockholders' equity 4
Statements of cash flows 5
Notes to the financial statements 6 - 7
Piercy, Bowler,
Taylor & Kern
Certified Public Accountants & Business Advisors
Telephone: (702) 384-1120
Fax: (702) 870-2424
INDEPENDENT AUDITOR'S REPORT
Shareholders and Board of Directors
Tele-Lawyer, Inc.
Las Vegas, Nevada
We have audited the accompanying balance sheets of Tele-Lawyer, Inc. as
of April 30, 2000 and 1999 and the related statements of operations,
stockholders' equity and cash flows for the years then ended. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated 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 audits provide a reasonable basis for
our opinions.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Tele-Lawyer, Inc. as of April 30, 2000 and 1999 and the results of its
operations and cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/S/ Piercy, Bowler, Taylor & Kern
September 11, 2000
6100 Elton Avenue Suite 1000 Las Vegas, Nevada 89107
TELE-LAWYER, INC.
BALANCE SHEETS
APRIL 30, 2000 AND 1999
- -----------------------------------------------------------------------
2000 1999
-------- -------
ASSETS
Current Assets
Cash and cash equivalents $1,041,138 $8,213
Accounts receivable 4,371
---------- ------
1,045,509 8,213
Property and equipment, net of
accumulated depreciation of $38,704
in 2000 and 1999 3,394
---------- ------
$1,048,903 $8,213
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $54,585
----------
Stockholders' equity
Common stock,$0.001 par and no par,
25,000,000 and 100,000 shares authorized,
5,341,666 and 1,000 shares issued and
outstanding 5,342 $400,000
Additional paid-in capital 1,419,657
Accumulated deficit (430,681) (391,787)
---------- ------
994,318 8,213
---------- ------
$1,048,903 $8,213
See Notes to Financial Statements 2
TELE-LAWYER, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 2000 AND 1999
- -----------------------------------------------------------------------
2000 1999
-------- -------
Revenues
Legal support services $204,720 $128,684
---------- ------
Operating costs and expenses
Legal support services 63,796 50,598
Software research and development costs 51,696 355
Selling, general, and administrative 137,983 113,945
---------- ------
253,475 164,898
---------- ------
Loss from operations (48,755) (36,214)
Other income
Interest 8,462 644
Rentals 1,400
---------- ------
Net loss $ (38,893) $ (35,570)
---------- ------
See notes to financial statements 3
TELE-LAWYER, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 2000 AND 1999
Change in
number of
shares issued Common Additional
and out- Stock Par Paid-in Retained
standing Value Capital Earnings
---------- --------- ---------- --------
Balance,
Saturday,
May 01, 1999 1,000 $ $400,000 $391,788
Stock split of
5,000 to 1 4,999,000 5,000 (5,000)
Net loss (38,894)
Sale of common
Shares 341,666 342 1,024,657
---------- --------- ---------- --------
Balance, Sunday,
April 30, 2000 5,341,666 $5,342 $1,419,657 $352,894
---------- --------- ---------- --------
Balance, Friday,
May 01, 1998 1,000 $ $400,000 $(356,218)
Net income (loss) (35,570)
Balance, Saturday,
May 01, 1999 1,000 $ $400,000 $(391,788)
See notes to financial statements 4
TELE-LAWYER, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 2000 AND 1999
- -----------------------------------------------------------------------
2000 1999
-------- -------
Operating activities
Net cash provided by (used in)
operating activities $ 11,321 $(38,879)
---------- ---------
Investing activities
Purchase of property and equipment (3,395)
---------- ---------
Financing activities
Sale of common stock 1,024,999
---------- ---------
Net increase (decrease) in cash and
cash equivalents 1,032,925 (38,879)
Cash and cash equivalents,
beginning of year 8,213 47,092
---------- ---------
Cash and cash equivalents,
end of year $1,041,138 $ 8,213
---------- ---------
Reconciliation of net loss to net
cash provided by (used in)
operating activities
Net income (loss) $ (38,893) $(35,570)
Increase in operating (assets)
liabilities
Accounts receivable (4,371)
Accounts payable 54,585
Other operating liabilities (3,309)
---------- ---------
Net cash provided by (used in)
operating activities $ 11,321 $(38,879)
See notes to financial statements 5
TELE-LAWYER, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000 AND 1999
- -----------------------------------------------------------------------
1. Nature of operations and background information:
Business activities. Tele-Lawyer, Inc., a Nevada corporation, (the
Company) is in the business of arranging for the provision of legal
advice and information to consumers of legal services through licensed
attorneys. Other legal support services that the Company offers include
continuing professional education for attorneys and specialized
telephone conferencing services for professionals, associations and the
general public. The Company is in the process of further expanding its
legal support services and geographic coverage to create a more
comprehensive nationwide hub for access to these services.
Concentrations. Because the Company generates substantial revenue
from relatively few contracts with certain associations, a decline in
the size or number of these arrangements could adversely affect future
operations. For the most recent operating period presented, one
association accounted for approximately 74% of the Company's revenues.
This contract expires in December 2000. The renewal of the contract
and certain other terms are currently being negotiated. For the prior
operating period, four other customers accounted for approximately the
same percentage of the Company's revenues.
2. Summary of significant accounting policies:
Use of estimates. Timely preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
reported amounts, some of which may require revision
in future periods.
Cash equivalents. Cash equivalents consist of federally insured
money market instruments with initial maturities of three
months or less.
Property and equipment. Property and equipment are stated at cost.
Depreciation is computed using the straight-line and declining balance
methods over the estimated useful lives of the assets (generally two to
ten years).
Revenue recognition. Legal support services revenue is recognized as
the services are provided. Revenue from service contracts is
recognized ratably over the contract term. Customer charges for
service customization are generally recognized when the services are
completed.
Advertising expenses. Advertising (totaling $5,100 and $9,290 for the
most recent and prior year) is expensed as incurred and is also
included in selling, general and administrative expenses.
Software research and development costs. Costs incurred in creating
computer software are expensed when incurred until technological
feasibility has been established for the product. Thereafter, costs
are capitalized and amortized over the remaining expected economic life
of the product.
Stock compensation. The Company accounts for stock- based employee
compensation using the intrinsic value method described in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees.
3. Equity:
Common stock. In March 2000, pursuant to Rule 506 of Regulation D of
the Securities Act of 1933, the Company sold a total of 341,666 shares
of its common stock at $3 per share to two investors. The Company is
considering additional private placements to fund expansion plans,
however, there is no assurance that such funding or the expansion of
services will occur.
Negotiations with a partnering company. The Company is in the process
of reacquiring the rights to offer its legal support services in
certain midwestern states from a partnering company. Negotiations are
ongoing, and management believes that they will result in the issuance
of 100,000 shares or more, and / or warrants to purchase such shares,
of the Company's common stock.
Stock options, employment and consultancy agreements. In December
1999, the Company adopted an incentive stock option plan. The plan
authorizes the Company to issue options totaling up to 15% of the
outstanding shares of the Company, not to exceed 2,500,000. As of
the most recent balance sheet date presented, options to purchase
325,000 common shares at $1 per share have been issued and 91,666 have
vested with an additional 116,667 vesting on both June 15, 2000 and
December 15, 2000. The options expire on the earlier of three years
from the date of issuance or three months following termination of
employment or the business relationship. The estimated fair value of
the Company's common stock on the grant dates approximated the exercise
price. Accordingly, no compensation is recorded for these grants under
the intrinsic or fair value method, and no proforma information is
required for employee compensation under the alternative fair value
method.
Subsequent to the most recent balance sheet date, the Company entered
into employment or consultancy agreements with certain individuals for
unspecified periods. The agreements may be terminated by the Company
at any time without cause. Some require a nominal severance payment.
The agreements, among other things, provide for
6
TELE-LAWYER, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000 AND 1999
- -----------------------------------------------------------------------
base and incentive cash compensation and for the issuance of additional
options to purchase 448,748 common shares at exercise prices equal to
the most recent sales price of the Company's stock at or from the date
of the grant. 46,917 of the options are exercisable beginning June
2000, and additional options are exercisable beginning in December 2000
(146,750), June 2001 (146,750), and June 2002 (108,333). Under these
agreements, the base annual cash compensation for these individuals
total $649,000 plus approximately $150,000 payable in common stock of
the Company for the year ending April 30, 2001. Incentive cash
compensation for 2001 is generally limited to 5% of earnings before
interest, depreciation and taxes (EBITDA), provided that EBITDA is at
least $2,400,000.
4. Income taxes:
The Company's effective tax rate differs from the federal statutory
rate due to a 100% valuation allowance provided for any tax benefits
that may result from net operating losses incurred, because of
uncertainty regarding realizability.
As of the most recent balance sheet date presented, the Company has
available unused operating loss carryforwards expiring as follows:
Expiring in
2004 $291,370
2017 41,878
2019 37,624
2020 38,893
--------
$409,765
--------
5. Lease commitment:
The Company has an operating lease commitment for office facilities
expiring in May 2001. Rent expense for the most recent and prior
operating periods presented was approximately $21,000 and $3,000.
Future minimum lease payments total $154,000 ($138,000 for the year
ending April 30, 2001).
7
Tele-Lawyer, Inc.
Balance Sheets
January 31, 2000 and April 30, 2000
=================================================================
(unaudited)
31-Jan-01 30-Apr-00
----------- ----------
ASSETS
Current Assets
Cash and cash equivalents 169,652 1,041,138
Accounts receivable 10,000 4,371
----------- ----------
179,652 1,045,509
Property and equipment,
net of accumulated depreciation 87,033 3,394
----------- ----------
266,685 1,048,903
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 50,044 54,585
Stockholders' equity
Common stock, $0.001 par and no par,
25,000,000 shares authorized, 5,366,666
and 5,341,666 shares issued and
outstanding 5,417 5,342
Additional paid-in capital 1,494,582 1,419,657
Accumulated deficit (1,283,358) (430,681)
----------- ----------
216,641 994,318
----------- ----------
266,685 1,048,903
=========== ==========
Tele-Lawyer, Inc.
Quarterly Statements of Operations
for the Nine Months Ended January 31, 2001 and 2000
========================================================================
(unaudited) (unaudited)
Nine Months Ended Nine Months Ended
31-Jan-01 31-Jan-00
----------------- -----------------
Revenues
Legal support services 389,892 78,618
----------------- -----------------
Operating costs and expenses
Legal support services 122,820 20,688
Software research and
development costs 559,052 7,961
Selling, general, and
Administrative 583,994 33,473
----------------- -----------------
1,265,866 62,122
----------------- -----------------
Gain (Loss) from operations (875,974) 16,496
Other income
Interest 21,697 290
----------------- -----------------
1,600
----------------- -----------------
Net Gain (Loss) (852,677) 16,786
================= =================
Tele-Lawyer, Inc.
Statement of Cash Flows
Nine Months Ended January 31, 2001
Nine Months Ended Nine Months Ended
January 31, 2001 January 31, 2000
--------------- ---------------
Operating activities
Net cash provided by (used in)
operating activities $ (862,847) $ 16,786
--------------- ---------------
Investing activities
Purchase of property
and equipment (83,639) (3,572)
--------------- ---------------
Financing activities
Sale of common stock 75,000
---------------
Net increase (decrease) in
cash and cash equivalents (871,486) 13,214
Cash and cash equivalents,
April 30, 2000 1,041,138 8,213
--------------- ---------------
Cash and cash equivalents,
January 31, 2001 169,652 21,427
=============== ===============
Reconciliation of net loss to net cash provided by
(used in)operating activities
Net income (loss) $ (852,677) $ 16,786
Increase in operating
(assets) liabilities
Accounts receivable (5,629)
Accounts payable (4,541)
---------------
Net cash provided by
(used in) operating
activities (862,847) 16,786
=============== ===============
TELE-LAWYER, INC.
NOTES TO FINANCIAL STATEMENTS
THREE QUARTERS ENDED JANUARY 31, 2001
- -----------------------------------------------------------------------
1. Nature of operations and background information:
Business activities. Tele-Lawyer, Inc., a Nevada corporation, (the
Company) is in the business of arranging for the provision of legal
advice and information to consumers of legal services through licensed
attorneys. Other legal support services that the Company offers
include continuing professional education for attorneys and specialized
telephone conferencing services for professionals, associations and the
general public. The Company is in the process of further expanding its
legal support services and geographic coverage to create a more
comprehensive nationwide hub for access to these services.
Concentrations. Because the Company generates substantial revenue from
relatively few contracts with certain associations, a decline in the
size or number of these arrangements could adversely affect future
operations.
2. Summary of significant accounting policies:
Use of estimates. Timely preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported
amounts, some of which may require revision in future periods.
Cash equivalents. Cash equivalents consist of federally insured money
market instruments with initial maturities of three months or less.
Property and equipment. Property and equipment are stated at cost.
Depreciation is computed using the straight-line and declining balance
methods over the estimated useful lives of the assets (generally two to
ten years).
Revenue recognition. Legal support services revenue is recognized as
the services are provided. Revenue from service contracts is
recognized ratably over the contract term. Customer charges for
service customization are generally recognized when the services are
completed.
Advertising expenses. Advertising is expensed as incurred and is
included in selling, general and administrative expenses.
Software research and development costs. Costs incurred in creating
computer software are expensed when incurred until technological
feasibility has been established for the product. Thereafter, costs
are capitalized and amortized over the remaining expected economic life
of the product.
Stock compensation. The Company accounts for stock-based employee
compensation using the intrinsic value method described in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees.
3. Equity:
Common stock. In March 2000 and January 2001, pursuant to Rule 506 of
Regulation D of the Securities Act of 1933, the Company sold a total of
341,666 and 25,000 shares, respectively of its common stock at $3 per
share. The Company is considering additional private placements to
fund expansion plans, however, there is no assurance that such funding
or the expansion of services will occur.
Stock options, employment and consultancy agreements. In December
1999, the Company adopted an incentive stock option plan. The plan
authorizes the Company to issue options totaling up to 15% of the
outstanding shares of the Company, not to exceed 2,500,000. As of the
most recent balance sheet date presented, options to purchase 325,000
common shares at $1 per share have been issued and have fully vested.
The options expire on the earlier of three years from the date of
issuance or three months following termination of employment or the
business relationship. The estimated fair value of the Company's
common stock on the grant dates approximated the exercise price.
Accordingly, no compensation is recorded for these grants under the
intrinsic or fair value method, and no proforma information is required
for employee compensation under the alternative fair value method.
The Company has entered into employment or consultancy agreements with
certain individuals for unspecified periods.
1
TELE-LAWYER, INC.
NOTES TO FINANCIAL STATEMENTS
THREE QUARTERS ENDED JANUARY 31, 2001
- -----------------------------------------------------------------------
The agreements may be terminated by the Company at any time without
cause. Some require a nominal severance payment. As of the most
recent balance sheet date presented, the agreements, among other
things, provide for base and incentive cash compensation and for the
issuance of options to purchase 386,000 common shares at exercise
prices equal to the most recent sales price of the Company's stock at
or from the date of the grant. 118,666 of the options are exercisable.
Under these agreements, the base annual cash compensation for these
individuals totals $568,000. Incentive cash compensation for 2001 is
generally limited to 5% of earnings before interest, depreciation and
taxes (EBITDA), provided that EBITDA is at least $2,400,000.
As of the most recent balance sheet date presented, warrants to
purchase 450,000 common shares at $3 per share have been
issued and have fully vested.
4. Income taxes:
The Company's effective tax rate differs from the federal statutory
rate due to a 100% valuation allowance provided for any tax benefits
that may result from net operating losses incurred, because of
uncertainty regarding realizability.
As of the most recent balance sheet date presented, the Company has
available unused operating loss carryforwards expiring as follows:
Expiring in
2004 $ 291,370
2017 41,878
2019 37,624
2020 38,893
---------
$409,765
---------
5. Lease commitment:
The Company has an operating lease commitment for office facilities
expiring in May 2001. Future minimum lease payments total $154,000
($138,000 for the year ending April 30, 2001).
2
Tele-Lawyer, Inc.
Pro Forma Financial Statements
March 31, 2001
The following pro forma financial information has been derived from the
unaudited financial statements of Tele-Lawyer, Inc. (Tele-Lawyer) for the
quarter ending March 31, 2001 and the accompanying unaudited financial
statements of Dynamic Associates, Inc.(Dynamic) for the quarter ending
March 31, 2001. It is presented for informational purposes only and should
be read in conjunction with the accompanying notes thereto and historical
financial statements of Tele-Lawyer and Dynamic and the related notes
thereto. The pro forma balance sheet and statement of operations is adjusted
to give effect to the merger and related reverse acquisition as if they had
occurred on March 31, 2001. The pro forma loss per share data presented is
computed as if the number of shares outstanding immediately after the merger
were outstanding at March 31, 2001. Such pro forma loss per share data is
not indicative of actual results that might have been achieved had the
acquisition taken place as assumed for pro forma purposes or that might be
achieved in the future.
==========================================================================
PRO FORMA BALANCE SHEET
March 31, 2001
Tele-Lawyer Dynamic Post-MergerPost-Merger
----------- -------------------------------- --------- ---------
(unaudited) (unaudited)(unaudited)(unaudited)(unaudited)(unaudited)
31-Mar-01 31-Mar-01 Adjust- Adjusted Adjusted Pro-Forma
ments
---------- --------- ---------- --------- ----------
ASSETS
Current Assets
Cash and
cash equivalents 24,568 258,479 (258,479)(2) - 24,568
Accounts receivable 3,129,422 (587,901)(1)
Prepaid expense and (2,541,521)(2) -
other current assets 63,017 (63,017)(1) -
---------- --------- --------- ---------
24,568 3,450,918 - 24,568
Business Segment
Held for Sale 1,500,000(2) 1,500,000 1,500,000
Property and equipment,
net of accumulated
depreciation 115,952 68,096 (68,096)(1) - 115,952
Investment in closely
held corporation 140,000 (140,000)(1) -
Deferred debt issue
costs 422,505 (422,505)(1) -
Goodwill 1,590,000 (2,040,725)(1) -
450,725 (2)
---------- --------- ---------- ---------
115,952 2,220,601 1,500,000 1,615,952
----------- ---------
140,520 5,671,519 (4,171,519) 1,500,000 0 1,640,520
========== ========= ========= ========= ========= =========
Tele-Lawyer, Inc.
Pro Forma Financial Statements
March 31, 2001
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 14,880 67,669 (67,669)(2) - 14,880
Accrued expenses 25,000 637,749 (637,749)(2) 25,000
Current portion
of long-term debt 53,169 (53,169)(1) -
Accrued interest
payable 388,150 (388,150)(1) - 500,000(3) 500,000
---------- --------- --------- ---------
39,880 1,146,737 539,880
Long-term debt 7,175 (7,175)(1) -
Convertible Notes 2,873,750 (2,873,750)(1) -
Stockholders'
equity
Common stock 5,354 57,071 (57,701)(2)
500(2) 500 5,854
Additional
paid-in capital 1,599,645 25,584,956(25,584,956)(2)
1,499,500(2) 1,499,500 3,099,145
Accumulated
deficit (1,504,359)(23,998,170)23,998,170(2) (500,000)(3)(2,004,359)
---------- --------- ----------- ---------
100,640 1,643,857 1,500,000 1,100,640
---------- --------- ----------- ---------
--------- ---------
140,520 5,671,519 (4,171,519) 1,500,000 0 1,640,520
========== ========= ========= ========= ========= =========
Tele-Lawyer, Inc.
Pro Forma Financial Statements
March 31, 2001
Notes:
(1) Adjustments made to reflect the fair value of assets and
liabilities held by Dynamic.
The purchase price is $1,500,000, which will effectively be paid
by 500,000 shares of Tele-Lawyer common stock priced at $3 per share.
This amount is equivalent to the approximate fair value of the
tangible and identifiable intangible assets less liabilities and
the expected costs of disposal of the assets and accounts receivable.
The estimated fair market values of Dynamic's assets and liabilities
at March 31, 2001, net of estimated costs of disposal are listed below:
Cash and accounts receivable contracts, net of discount $2,800,000
Liabilities (800,000)
Negative Goodwill (500,000)
- ---------------------------------------------------------------------------
Purchase price 1,500,000
In December 1999, Dynamic's management determined that the approximate
amount the Company expected to realize from the sale of Perspectives was
$1,590,000 and the Company wrote down the goodwill accordingly.
The Company's efforts to sell Perspectives in 2000 were unsuccessful.
Through negotiations, the managements of Tele-Lawyer and Dynamic have
determined that $1,500,000 is a reasonable purchase price for the assets
and liabilities of Dynamic.
(2) Adjustments made to reflect business segment held for sale under
APB 30 and to record the estimated cost of disposal.
Tele-Lawyer management will adopt a plan to dispose of Perspectives
after the merger. The assets held in Perspectives are comprised of
approximately 20 contracts to service inpatient and outpatient facilities
located throughout the Southern United States and accounts receivable on
these contracts. These contracts carry no book value but have annual
billings that range from $60,000 to $420,000. The measurement date of
the disposal will be the date of the merger when the board of directors
of Tele-Lawyer takes control over the board of Dynamic.
On November 28, 2000, the Company entered into a Brokerage Agreement
for the sale of Perspectives. Under the Brokerage Agreement, the Broker
is entitled to one-half of any net proceeds from the sale in excess of
$2.1 million, upon procuring a ready, willing and able buyer. Tele-Lawyer
expects to continue this Brokerage Agreement as part of the plan of merger.
Tele-Lawyer expects to sell Perspectives sometime during the third or fourth
quarter of 2001.
During the reporting period, the operations of Perspectives were the sole
operations of Dynamic. Therefore, the income (loss) of Perspectives is
equivalent to the income (loss) of Dynamic during the year. The management
of Tele-Lawyer expects the operations of Perspectives to break even with no
gains or losses during the sales period.
Pursuant to APB 30, the disposal of Perspectives will qualify for discontinued
treatment as it meets the criteria in paragraph 14 of APB 30, which is that
management has authority to approve the disposal and has committed itself to
a formal plan of disposal by sale. The management of Tele-Lawyer will have
this authority following the consummation of the merger.
(3) The management of Tele-Lawyer expects to
incur brokerage fees of approximately $500,000 in order to
sell Perspectives.
Tele-Lawyer, Inc.
Pro Forma Financial Statements
March 31, 2001
==========================================================================
PRO FORMA STATEMENT OF OPERATIONS
Quarter ended March 31, 2001
(unaudited)
Tele-Lawyer (unaudited) Dynamic
----------- --------------------------------
Quarter Quarter (unaudited)(unaudited)(unaudited)
ended ended Adjust- Adjusted Pro-Forma
31-Mar-01 31-Mar-01 ments
---------- --------- ---------- --------- ----------
Revenues
Legal support services 210,099 210,099
Management fees 1,503,540 (1,503,540)(2)
---------- --------- ----------
210,099 1,503,540 210,099
Operating costs and expenses
Legal support services 63,999 63,999
Software research and
development costs 194,868 194,868
Selling, general, and
Administrative 176,486 1,271,277 (1,271,277)(2) 176,486
Depreciation and
Amortization 6,375 (6,375)(2)
---------- --------- ----------
435,353 1,277,652 435,353
---------- --------- ----------
Income (loss) from
Operations (225,254) 225,888 (225,254)
Other income (expense)
Interest income 775 775
Interest expense (55,971) 55,971(2)
Rentals 800 800
---------- --------- ----------
1,575 (55,971) 1,575
---------- --------- ----------
Net income (loss) from
continuing operations (223,679) 169,917 (169,917) (2) (223,679)
Basic and fully diluted
net loss per common
share (1) $ (0.04)
from continuing operations
Tele-Lawyer, Inc.
Pro Forma Financial Statements
March 31, 2001
Notes:
(1) The pro forma loss per share is computed as if the number of
shares outstanding immediately after the merger were outstanding
at December 31, 2000.
(2) Adjustments made to eliminate discontinued operations.
Tele-Lawyer, Inc.
Pro Forma Financial Statements
December 31, 2000
The following pro forma financial information has been derived from the
unaudited financial statements of Tele-Lawyer, Inc. (Tele-Lawyer) as of
December 31, 2000 and the accompanying audited financial statements of
Dynamic Associates, Inc. (Dynamic) as of December 31, 2000. It is presented
for informational purposes only and should be read in conjunction with the
accompanying notes thereto and historical financial statements of Tele-Lawyer
and Dynamic and the related notes thereto. The pro forma
statement of operations is adjusted to give effect to the merger and related
reverse acquisition as if they had occurred on December 31, 2000. The pro
forma loss per share data presented is computed as if the number of shares
outstanding immediately after the merger were outstanding at December 31,
2000. Such pro forma loss per share data is not indicative of actual results
that might have been achieved had the acquisition taken place as assumed for
pro forma purposes or that might be achieved in the future.
===============================================================================
PRO FORMA STATEMENT OF OPERATIONS
Year ended December 31, 2000
(unaudited)
Tele-Lawyer Dynamic
----------- --------------------------------
Year Ended Year Ended (unaudited)(unaudited)(unaudited)
31-Dec-00 31-Dec-00 Adjustments Adjusted Pro-Forma
(2)
----------- --------- ----------- ---------- ----------
Revenues
Legal support
Services 282,149 282,149
Management fees 6,669,048 (6,669,048)
----------- --------- ----------
282,149 6,669,048 282,149
Operating costs and
expenses
Legal support services 130,515 130,515
Software research and
development costs 515,782 515,782
Selling, general, and
Administrative 581,626 5,413,111 (5,413,111) 581,626
Depreciation and
Amortization 138,775 (138,775)
Bad Debts 264,465 (264,465)
----------- --------- ----------
1,227,923 5,816,351 1,227,923
----------- --------- ----------
Income (loss)
from operations (945,774) 852,697 (945,774)
Other income (expense)
Interest income 28,798 59 (59) 28,798
Interest expense (612,180) 612,180
Tele-Lawyer, Inc.
Pro Forma Financial Statements
December 31, 2000
Rentals 2,200 2,200
Disposition of
Subsidiary (83,330) 83,330
----------- --------- ----------
30,998 (695,451) 30,998
----------- --------- ----------
Net income (loss)
from continuing
operations (914,776) 157,246 (157,246) (914,776)
Basic and fully
diluted net loss
per common share (1) $ (0.16)
from continuing operations
Notes:
(1) The pro forma loss per share is computed as if the number of shares
outstanding immediately after the merger were outstanding at December 31,
2000.
(2) Adjustments made to eliminate discontinued operations.
APPENDIX D
STOCK OPTION PLAN OF
DYNAMIC ASSOCIATES, INC.
A Nevada Corporation
1. Purpose of the Plan
The purpose of this Plan is to strengthen Dynamic Associates, Inc.
(hereinafter the "Company") by providing incentive stock options as
a means to attract, retain and motivate key corporate personnel,
through ownership of stock of the Company, and to attract
individuals of outstanding ability to render services to and enter
the employment of the Company or its subsidiaries.
2. Types of Stock Options
There shall be two types of Stock Options (referred to herein as
"Options" without distinction between such different types) that may
be granted under this Plan: (1) Options intended to qualify as
Incentive Stock Options under Section 422 of the Internal Revenue
Code ("Qualified Stock Options"), and (2) Options not specifically
authorized or qualified for favorable income tax treatment under the
Internal Revenue Code ("Non-Qualified Stock Options").
3. Definitions
The following definitions are applicable to the Plan:
(a) Board. The Board of Directors of the Company.
(b) Code. The Internal Revenue Code of 1986, as amended from time to time.
(c) Common Stock. The shares of Common Stock of the Company.
(d) Company. Dynamic Associates, Inc., a Nevada corporation.
(e) Consultant. An individual or entity that renders professional
services to the Company as an independent contractor and is not
an employee or under the direct supervision and control of the
Company.
(f) Disabled or Disability. For the purposes of Section 7, a
disability of the type defined in Section 22(e)(3) of the Code.
The determination of whether an individual is Disabled or has a
Disability is determined under procedures established by the Plan
Administrator for purposes of the Plan.
(g) Fair Market Value. For purposes of the Plan, the "fair market
value" per share of Common Stock of the Company at any date shall
be: (a) if the Common Stock is listed on an established stock
exchange or exchanges or the NASDAQ National Market, the closing
price per share on the last trading day immediately preceding
such date on the principal exchange on which it is traded or as
reported by NASDAQ; or (b) if the Common Stock is not then listed
on an exchange or the NASDAQ National Market, but is quoted on
the NASDAQ Small Cap Market, the NASDAQ electronic bulletin board
or the National Quotation Bureau pink sheets, the average of the
closing
1
bid and asked prices per share for the Common Stock as
quoted by NASDAQ or the National Quotation Bureau, as the case
may be, on the last trading day immediately preceding such date;
or (c) if the Common Stock is not then listed on an exchange or
the NASDAQ National Market, or quoted by NASDAQ or the National
Quotation Bureau, an amount determined in good faith by the Plan
Administrator.
(h) Incentive Stock Option. Any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(i) Non-Qualified Stock Option. Any Stock Option that is not an
Incentive Stock Option.
(j) Optionee. The recipient of a Stock Option.
(k) Plan Administrator. The board or a committee designated by the
Board pursuant to Section 4 to administer and interpret the terms
of the Plan.
(l) Stock Option. Any option to purchase shares of Common Stock
granted pursuant to Section 7.
4. Administration of the Plan
This Plan shall be administered by a "Compensation Committee" or
"Plan Administrator" composed of members selected by, and serving at
the pleasure of, the Board of Directors. Subject to the provisions
of the Plan, the Plan Administrator shall have authority to construe
and interpret the Plan, to promulgate, amend, and rescind rules and
regulations relating to its administration, to select, from time to
time, among the eligible employees and non-employee consultants (as
determined pursuant to Section 5) of the Company and its
subsidiaries those employees and consultants to whom Stock Options
will be granted, to determine the duration and manner of the grant
of the Options, to determine the exercise price, the number of
shares and other terms covered by the Stock Options, to determine
the duration and purpose of leaves of absence which may be granted
to Stock Option holders without constituting termination of their
employment for purposes of the Plan, and to make all of the
determinations necessary or advisable for administration of the
Plan. The interpretation and construction by the Plan Administrator
of any provision of the Plan, or of any agreement issued and
executed under the Plan, shall be final and binding upon all
parties. No member of the Committee or Board shall be liable for any
action or determination undertaken or made in good faith with
respect to the Plan or any agreement executed pursuant to the Plan.
All of the members of the Committee shall be persons who, in the
opinion of counsel to the Company, are outside directors and
"non-employee directors" within the meaning of Rule l6b-3(b)(3)(i)
promulgated by the Securities and Exchange Commission. From time to
time, the Board may increase or decrease the size of the Committee,
and add additional members to, or remove members from, the
Committee. The Committee shall act pursuant to a majority vote, or
the written consent of a majority of its members, and minutes shall
be kept of all of its meetings and copies thereof shall be provided
to the Board. Subject to the provisions of the Plan and the
directions of the Board, the Committee may establish and follow such
rules and regulations for the conduct of its business as it may deem
advisable.
2
At the option of the Board, the entire Board of Directors of the
Company may act as the Plan Administrator during such periods of
time as all members of the Board are "outside directors" as defined
in Prop. Treas. Regs. 1.162-27(e)(3), except that this requirement
shall not apply during any period of time prior to the date the
Company's Common Stock becomes registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended.
5. Grant of Options
The Company is hereby authorized to grant Incentive Stock Options as
defined in section 422 of the Code to any employee or director
(including any officer or director who is an employee) of the
Company, or of any of its subsidiaries; provided, however, that no
person who owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, or any of its
parent or subsidiary corporations, shall be eligible to receive an
Incentive Stock Option under the Plan unless at the time such
Incentive Stock Option is granted the Option price is at least 110%
of the fair market value of the shares subject to the Option, and
such Option by its terms is not exercisable after the expiration of
five years frorn the date such Option is granted.
An employee may receive more than one Option under the Plan.
Non-Employee Directors shall be eligible to receive Non-Qualified
Stock Options in the discretion of the Plan Administrator. In
addition, Non-Qualified Stock Options may be granted to Consultants
who are selected by the Plan Administrator.
6. Stock Subject to Plan
The stock available for grant of Options under this Plan shall be
shares of the Company's authorized but unissued, or reacquired,
Common Stock. The aggregate sales price, or amount of securities
sold, during any 12 month period may not exceed the greater of: (1)
$1 million, (2) 15% of the total assets of the Company, or (3) 15%
of the issued and outstanding common stock of the company, including
shares previously issued under this Plan or other stock option plans
created by the Company, whichever is greater. The maximum number of
shares for which an Option may be granted to any Optionee during any
calendar year shall not exceed 250,000 shares. In the event that
any outstanding Option under the Plan for any reason expires or is
terminated, the shares of Common Stock allocable to the unexercised
portion of the Option shall again be available for Options under the
Plan as if no Option had been granted with regard to such shares.
7. Terms and Conditions of Options
Options granted under the Plan shall be evidenced by agreements
(which need not be identical) in such form and containing such
provisions that are consistent with the Plan as the Plan
Administrator shall from time to time approve. Such agreements may
incorporate all or any of the terms hereof by reference and shall
comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Option agreement shall specify the
number of shares subject to the Option.
(b) Option Price. The purchase price for the shares subject to any
Option shall be determined by the Plan Administrator at the time
of the grant, but shall not be less than 85% of Fair Market Value
per share. Anything to the contrary notwithstanding, the purchase
price for the shares subject to any Incentive Stock Option shall
not be less than 100% of the Fair Market Value
3
of the shares of Common Stock of the Company on the date the Stock
Option is granted. In the case of any Option granted to an employee who
owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, or any of its
parent or subsidiary corporations, the Option price shall not be
less than 110% of the Fair Market Value per share of the Common
Stock of the Company on the date the Option is granted. For
purposes of determining the stock ownership of an employee, the
attribution rules of Section 424(d) of the Code shall apply.
(c) Notice and Payment. Any exercisable portion of a Stock Option
may be exercised only by: (a) delivery of a written notice to the
Company prior to the time when such Stock Option becomes
unexercisable herein, stating the number of shares bring
purchased and complying with all applicable rules established by
the Plan Administrator; (b) payment in full of the exercise price
of such Option by, as applicable, delivery of: (i) cash or check
for an amount equal to the aggregate Stock Option exercise price
for the number of shares being purchased, (ii) in the discretion
of the Plan Administrator, upon such terms as the Plan
Administrator shall approve, a copy of instructions to a broker
directing such broker to sell the Common Stock for which such
Option is exercised, and to remit to the Company the aggregate
exercise price of such Stock Option (a "cash1ess exercise"), or
(iii) in the discretion of the Plan Administrator, upon such
terms as the Plan Administrator shall approve, shares of the
Company's Common Stock owned by the Optionee, duly endorsed for
transfer to the Company, with a Fair Market Value on the date of
delivery equal to the aggregate purchase price of the shares with
respect to which such Stock Option or portion is thereby
exercised (a "stock-for-stock exercise"); (c) payment of the
amount of tax required to be withheld (if any) by the Company, or
any parent or subsidiary corporation as a result of the exercise
of a Stock Option. At the discretion of the Plan Administrator,
upon such terms as the Plan Administrator shall approve, the
Optionee my pay all or a portion of the tax withholding by: (i)
cash or check payable to the Company, (ii) a cashless exercise,
(iii) a stock-for-stock exercise, or (iv) a combination of one or
more of the foregoing payment rnethods; and (d) delivery of a
written notice to the Company requesting that the Company direct
the transfer agent to issue to the Optionee (or his designee) a
certificate for the number of shares of Common Stock for which
the Option was exercised or, in the case of a cashless exercise,
for any shares that were not sold in the cashless exercise.
Notwithstanding the foregoing, the Company, in its sole
discretion, may extend and maintain, or mange for the extension
and maintenance of credit to any Optionee to finance the
Optionee's purchase of shares pursuant to the exercise of any
Stock Option, on such terms as may be approved by the Plan
Administrator, subject to applicable regulations of the Federal
Reserve Board and any other laws or regulations in effect at the
time such credit is extended.
(d) Terms of Option. No Option shall be exercisable after the
expiration of the earliest of: (a) ten years after the date the
Option is granted, (b) three months after the date the Optionee's
employment with the Company and its subsidiaries terminates, or a
Non-Employee Director or Consultant ceases to provide services to
the Company, if such termination or cessation is for any reason
other than Disability or death, (c) one year after the date the
Optionee's employment with the Company, and its subsidiaries,
terminates, or a Non-Employee Director or Consultant ceases to
provide services to the Company, if such termination or cessation
is a result of death or Disability; provided, however, that the
Option agreement for any Option may provide for shorter periods
in each of the foregoing instances. In the case of an Incentive
Stock Option granted to an
4
employee who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, or
any of its parent or subsidiary corporations, the term set forth
in (a) above shall not be more than five years after the date the
Option is granted.
(e) Exercise of an Option. No Option shall be exercisable during
the lifetime of the Optionee by any person other than the
Optionee. Subject to the foregoing, the Plan Administrator shall
have the power to set the time or times within which each Option
shall be exercisable and to accelerate the time or times of
exercise; provided however, the Option shall provide the right to
exercise at the rate of at least 20% per year over five years
from the date the Option is granted. Unless otherwise provided by
the Plan Administrator, each Option granted under the Plan shall
become exercisable on a cumulative basis as to one-third (1/3) of
the total number of shares covered thereby at any time after one
year from the date the Option is granted and an additional
one-third (1/3) of such total number of shares at any time after
the end of each consecutive one-year period thereafter until the
Option has become exercisable as to all of such total number of
shares. To the extent that an Optionee has the right to exercise
an Option and purchase shares pursuant hereto, the Option may be
exercised from time to time by written notice to the Company,
stating the number of shares being purchased and accompanied by
payment in full of the exercise price for such shares.
(f) No Transfer of Option. No Option shall be transferable by an
Optionee otherwise than by will or the laws of descent and
distribution.
(g) Limit on Incentive Stock Option. The aggregate Fair Market
Value (determined at the time the Option is granted) of the stock
with respect to which an Incentive Stock Option is granted and
exercisable for the first time by an Optionee during any calendar
year (under all Incentive Stock Option plans of the Company and
its subsidiaries) shall not exceed $100,000. To the extent the
aggregate Fair Market Value (determined at the time the Stock
Option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an
Optionee during any calendar year (under all Incentive Stock
Option plans of the Company and any parent or subsidiary
corporations) exceeds $100,000, such Stock Options shall be
treated as Non-Qualified Stock Options. The determination of
which Stock Options shall be treated as Non-Qualified Stock
Options shall be made by taking Stock Options into account in the
Order in which they were granted.
(h) Restriction on Issuance of Shares. The issuance of Options and
shares shall be subject to compliance with all of the applicable
requirements of law with respect to the issuance and sale of
securities, including, without limitation, any required
qualification under state securities laws. If an Optionee
acquires shares of Common Stock pursuant to the exercise of an
Option, the Plan Administrator, in its sole discretion, may
require as a condition of issuance of shares covered by the
Option that the shares of Common Stock be subject to restrictions
on transfer. The Company may place a legend on the share
certificates reflecting the fact that they are subject to
restrictions on transfer pursuant to the terms of this Section.
In addition, the Optionee may be required to execute a buy-sell
agreement in favor of the Company or its designee with respect to
all or any of the shares so acquired. In such event, the terms of
any such agreement shall apply to the optioned shares.
(i) Investment Representation. Any Optionee may be required, as a
condition of issuance of shares covered by his or her Option, to
represent that the shares to be acquired pursuant to exercise will
5
be acquired for investment and without a view toward
distribution thereof, and in such case, the Company may place a
legend on the share certificate(s) evidencing the fact that they
were acquired for investment and cannot be sold or transferred
unless registered under the Securities Act of 1933, as amended,
or unless counsel for the Company is satisfied that the
circumstances of the proposed transfer do not require such
registration.
(j) Rights as a Shareholder or Employee. An Optionee or transferee
of an Option shall have no right as a stockholder of the Company
with respect to any shares covered by any Option until the date
of the issuance of a share certificate for such shares. No
adjustment shall be made for dividends (Ordinary or
extraordinary, whether cash, securities, or other property), or
distributions or other rights for which the record date is prior
to the date such share certificate is issued, except as provided
in paragraph (m) below. Nothing in the Plan or in any Option
agreement shall confer upon any employee any right to continue in
the employ of the Company or any of its subsidiaries or interfere
in any way with any right of the Company or any subsidiary to
terminate the Optionee's employment at any time.
(k) No Fractional Shares. In no event shall the Company be required
to issue fractional shares upon the exercise of an Option.
(l) Exercise in the Event of Death. In the event of the death of
the Optionee, any Option or unexercised portion thereof granted
to the Optionee, to the extent exercisable by him or her on the
date of death, may be exercised by the Optionee's personal
representatives, heirs, or legatees subject to the provisions of
paragraph (d) above.
(m) Recapitalization or Reorganization of the Company. Except as
otherwise provided herein, appropriate and proportionate
adjustments shall be made (1) in the number and class of shares
subject to the Plan, (2) to the Option rights granted under the
Plan, and (3) in the exercise price of such Option rights, in the
event that the number of shares of Common Stock of the Company
are increased or decreased as a result of a stock dividend (but
only on Common Stock), stock split, reverse stock split,
recapitalization, reorganization, merger, consolidation,
separation, or like change in the corporate or capital structure
of the Company. In the event there shall be any other change in
the number or kind of the outstanding shares of Common Stock of
the Company, or any stock or other securities into which such
common stock shall have been changed, or for which it shall have
been exchanged, whether by reason of a complete liquidation of
the Company or a merger, reorganization, or consolidation with
any other corporation in which the Company is not the surviving
corporation, or the Company becomes a wholly-owned subsidiary of
another corporation, then if the Plan Administrator shall, in its
sole discretion, determine that such change equitably requires an
adjustment to shares of Common Stock currently subject to Options
under the Plan, or to prices or terms of outstanding Options,
such adjustment shall be made in accordance with such
determination.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustment shall be made by the
Plan Administrator, the determination of which in that respect
shall be final, binding, and conclusive. No right to purchase
fractional shares shall result from any adjustment of Options
pursuant to this Section. In case of any such adjustment, the
shares subject to the Option shall he rounded down to the nearest
whole share. Notice of any adjustment shall be given by the
Company to each Optionee whose Options shall have been so
adjusted and such
6
adjustment (whether or not notice is given) shall be effective
and binding for all purposes of the Plan.
In the event of a complete liquidation of the Company or a
merger, reorganization, or consolidation of the Company with any
other corporation in which the Company is not the surviving
corporation, or the Company becomes a wholly-owned subsidiary of
another corporation, any unexercised Options granted under the
Plan shall be deemed cancelled unless the surviving corporation
in any such merger, reorganization, or consolidation elects to
assume the Options under the Plan or to issue substitute Options
in place thereof; provided, however, that notwithstanding the
foregoing, if such Options would be cancelled in accordance with
the foregoing, the Optionee shall have the right exercisable
during a ten-day period ending on the fifth day prior to such
liquidation, merger, or consolidation to exercise such Option in
whole or in part without regard to any installment exercise
provisions in the Option agreement.
(n) Modification, Extension and Renewal of Options. Subject to the
terms and conditions and within the limitations of the Plan, the
Plan Administrator may modify, extend or renew outstanding
options granted under the Plan and accept the surrender of
outstanding Options (to the extent not theretofore exercised).
The Plan Administrator shall not, however, without the approval
of the Board, modify any outstanding Incentive Stock Option in
any manner that would cause the Option not to qualify as an
Incentive Stock Option within the meaning of Section 422 of the
Code. Notwithstanding the foregoing. no modification of an Option
shall, without the consent of the Optionee, alter or impair any
rights of the Optionee under the Option.
(o) Other Provisions. Each Option may contain such other terms,
provisions, and conditions not inconsistent with the Plan as may
be determined by the Plan Administrator.
8. Termination or Amendment of the Plan
The Board may at any time terminate or amend the Plan; provided
that, without approval of the holders of a majority of the shares of
Common Stock of the Company represented and voting at a duly held
meeting at which a quorum is present or the written consent of a
majority of the outstanding shares of Common Stock, there shall be
(except by operation of the provisions of paragraph (m) above) no
increase in the total number of shares covered by the Plan, no
change in the class of persons eligible to receive options granted
under the Plan, no reduction in the exercise price of Options
granted under the Plan, and no extension of the latest date upon
which Options may be exercised; and provided further that, without
the consent of the Optionee, no amendment may adversely affect any
then outstanding Option or any unexercised portion thereof.
9. Indemnification
In addition to such other rights of indemnification as they may have
as members of the Board Committee that administers the Plan, the
members of the Plan Administrator shall be indemnified by the
Company against reasonable expense, including attorney's fees,
actually and necessarily incurred in connection with the defense of
any action, suit or proceeding, or in connection with any appeal
therein to which they, or any of them, may be a party by reason of
any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against any and all
amounts paid by them in settlement thereof (provided such settlement
is approved by independent
7
legal counsel selected by the Company). In addition, such members
shall be indemnified by the Company for any amount paid by them in
satisfaction of a judgment in any action, suit, or proceeding, except
in relation to matters as to which it shall have been adjudged that
such member is liable for negligence or misconduct in the performance
of his or her duties, provided however that within 60 days after
institution of any such action, suit, or proceeding, the member shall
in writing offer the Company the opportunity, at its own expense, to
handle and defend the same.
10. Effective Date and Term of the Plan
This Plan shall become effective (the "Effective Date") on the date
of adoption by the board of directors as evidenced by the date and
signature below. Options granted under the Plan prior to
shareholder approval are subject to cancellation by the Plan
Administrator if shareholder approval is not obtained within 12
months of the date of adoption. Unless sooner terminated by the
Board in its sole discretion, this Plan will expire on December 31,
2010.
IN WITNESS WHEREOF, the Company by its duly authorized officer, has
caused this Plan to be executed this 5th day of April, 2001.
DYNAMIC ASSOCIATES, INC.
/s/ Jan Wallace
_____________________________________
By: Jan Wallace
Its: President
APPENDIX E
ITEM 6. Management's Discussion and Analysis or Plan of
Operation.
The consolidated financial statements for the fiscal year
ended December 31, 2000 include the accounts of the Company
and its wholly owned subsidiary, Perspectives Health
Management Corp. All significant inter-company balances
and transactions have been eliminated in the consolidation.
One hundred percent of the business operations of the
Company are through Perspectives. Operating revenues are
generated primarily from Medicare reimbursements to
hospitals. Over the past few years, however, changes in
the Medicare payment system imposed by the Balanced Budget
Act and the Balanced Budget Relief Act, have made it
increasingly difficult to achieve profitable operations in
Perspectives. These federal law changes, among other
things, reduced the maximum Medicare reimbursement from
$20,000 to $8,500. In large, this has placed substantial
limitations on what Perspectives can charge hospitals for
its services and still keep the hospital under its
authorized Medicare reimbursement limit. Management has
therefore determined to sell Perspectives. Absent the
acquisition of some other business or product, upon the
sale of Perspectives, the Company would be without business
operations or significant assets.
Recognizing the need for a new business, in January of
2000, the Company's president, Jan Wallace, contacted
Michael Cane, the Company's attorney and the President of
Tele-Lawyer, Inc., a Nevada based technology company and
application service provider to the legal services
industry. This discussion covered the possible
reorganization of Dynamic and merger with Tele-Lawyer. At
this time, Ms. Wallace was already in negotiations for the
sale of Perspectives to its management team led by Mr. Clay
Deardorff.
Mr. Cane had been one of the Company's attorneys since
November 1998, handling mostly business and securities
matters for Dynamic. To avoid any conflicts of interest,
Ms. Wallace obtained outside counsel to assist her in the
negotiations regarding any potential merger with Tele-
Lawyer.
Negotiations between Tele-Lawyer and the Company continued
over the phone, through email and letters until March 2000
when they were discontinued because the parties failed to
reach agreement on the relative valuations of the
companies. In the meantime, the negotiations for the sale
of Perspectives continued, resulting in a contract in
August 2000. Under this agreement, Perspectives was to
sell all of its assets in exchange for:
1. Twenty thousand dollars and no cents ($20,000) as
the first installment of sixty (60) equal monthly
payments in accordance with the Promissory Note
described in paragraph (2) below.
2. A promissory note secured by the assets of the
Company in the stated principal amount of
$1,737,657.80 payable in 60 monthly installments of
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$20,000 each together with interest accrued
thereon at the simple interest rate of eight
percent (8%) per annum.
3. The Purchaser's agreement to assume and discharge
in a timely manner the obligations of
Perspectives under all contracts, accounts
payable, and agreements transferred by
Perspectives to the Purchaser.
4. The Purchaser's agreement that in the event it
merged or consolidated with another entity or
sold substantially all of its assets, it would
pay the entire amount of the principle and
interest then owing under the promissory note,
plus:
a. 50% of the net proceeds of any sale of the
assets, if the transaction was entered into or
closed on or before September 1, 2002; and
b. 25% of the net proceeds of any sale of the
assets, if the transaction was entered into or
closed after September 1, 2002, but on or
before September 1, 2003.
This agreement was subject to the approval of the Dynamic
note holders to: (a) the sale, and (b) the exchange of
their existing notes for a pro rata share of the promissory
note and common stock in the Company.
The present value of this sales contract was approximately
$1,590,000. Therefore, $1,590,000 was determined to be the
fair market value of Perspectives from the future cash
flows expected to result from the payout on the note.
Goodwill impairment was recognized in an amount sufficient
to write-down the goodwill on the books to this $1,590,000
amount.
The sales price under this agreement was objectively
determined through negotiations occurring over a 9 month
period from November 1999 to August 2000 between the
management of Perspectives, certain of the Dynamic note
holders and the board of directors of Dynamic. As any
arrangement would call for note holder approval and any
proceeds would be distributed to the note holders who were
owed in excess of $8.6 million dollars, the primary focus
of Dynamic during negotiations were whether the arrangement
would be acceptable to its note holders. At the time the
agreement was made, it was believed that the note holders
would be willing to accept this arrangement. No formal
determination of fair value or analysis was made.
At the start of the negotiations Clay Deardorff was a
member of both management teams, but he resigned from the
management of Dynamic in February 2000 as the discussions
continued. Separate independent legal counsel represented
each side and the parties were unrelated individuals with
the exception of the fact that one group worked for a
subsidiary of the other. Perspective's management provided
almost all of the information regarding the results of
operations and financial positions of Perspectives to the
auditors in 1999 and 2000. The management of Perspectives
did not solicit this sale.
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By mid-October, however, the parties to this agreement had
verbally decided to terminate the sale. No note holder
approval had been obtained and discussions with significant
note holders that had not been part of the negotiations on
the deal had left management with the belief that such
approval would not be obtained. In general, this belief
was based on an understanding that the terms of the sale
were not generally satisfactory to these creditors because
of the lengthy pay out, and the fact that following the
sale there would be no business operations remaining in the
Company for which they would be obtaining stock.
Notwithstanding the termination of this agreement,
management believes that this amount is still the best
estimate of the value of the Company's good will. The
amount recorded for goodwill was written down to the best
estimate by management of its net realizable fair value at
that time. There is no evidence at this time to justify
any modification of this amount.
Upon this termination of the Perspectives' sale agreement,
negotiations began anew between Dynamic and Tele-Lawyer
with regard to a merger. These negotiations, involving
several phone conferences, letters and emails, led to a
merger agreement between the Company and Tele-Lawyer and a
formal written termination of the Perspectives' sales
agreement on November 28, 2000.
In brief, the merger agreement with Tele-Lawyer is
conditioned, among other things, upon the following:
* Dynamic must extinguish all of its outstanding debt,
including all existing notes, through a conversion to
common stock or otherwise.
* Dynamic must have settled and/or paid all outstanding
claims, liabilities, actions or lawsuits to the
satisfaction of Tele-Lawyer.
* Dynamic must have extinguished all of its outstanding
warrants, options and any other rights to acquire any
shares of its common stock.
* Dynamic must have enacted a reverse split of its
shares so as to have at the consummation of the merger
no more than 500,000 shares of common stock
outstanding.
Management believes the business of Tele-Lawyer is a viable
business concept with a potentially bright future. Through
the merger, Dynamic would acquire Tele-Lawyer's business
operations as Dynamic faces the prospect of selling
Perspectives. Management hopes this will revive Dynamics'
future financial prospects. While management is confident
that the merger will occur, the merger is conditioned upon
a number of things that are outside management's control,
and therefore management can provide no assurance that the
merger will occur. In addition, because the business of
Tele-Lawyer involves new technology applied in new
situations, management can provide no projections as to the
likelihood of success of the Company in the event a merger
is consummated.
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Assets
- ------
At December 31, 2000, the Company had cash of 363,670 as
compared to $181,826 as of December 31, 1999. This
increase was largely attributable to the Company's non-
payment of interest due its note holders during the year.
At December 31, 2000, accounts receivable (less allowance
for doubtful accounts of $1,157,710) was $2,831,284 as
compared with $2,065,028 (net of allowance for doubtful
accounts of $933,909) as of December 31, 1999. The Company
continues to maintain high accounts receiveable, which it
has been unable to collect largely due to hospital clients'
inability to pay. The Company has initiated action on one
large account and is currently working with its clients to
come up with innovative methods of paying down these
receivables.
Equipment, net of accumulated depreciation was $74,474 as
of December 31, 2000 as compared to $89,016 as of December
31, 1999.
Liabilities and Stockholders' Equity
- ------------------------------------
At December 31, 2000, the Company had accounts payable of
$58,487 as compared to $63,363 at December 31, 1999. In
addition, the Company had accrued expense of $551,243 at
December 31, 2000 as compared to $636,179 as of December
31, 1999. At December 31, 2000 the balance outstanding of
convertible notes owed by Company was $8,676,500 the same
as of December 31, 1999. Accrued interest payable on these
notes, however, grew from $366,305 at December 31, 1999 to
$1,011,331, due to the Company's non-payment of interest
owing on these notes during the year. The Company is in the
process of negotiating with its note holders to convert the
principal amount of their notes along with any accrued
interest owing into common stock at a rate of $0.15 of debt
for each share. To March 31, 2001, management has
substantially reduced the amounts owed under these notes,
reducing the principal amount of the note debt by 6,437,750
to approximately $2,238,750, for a decrease of
approximately 75% in the Company's note debt. Management
believes this conversion process, as part of the proposed
merger with Tele-Lawyer, is critical to moving the Company
onto a long-term track of success.
The Company's operations were largely funded by cash flow
generated by the Perspectives subsidiary.
Stockholders' equity was (5,003,220) as of December 31,
2000, as compared to ($5,193,729) as of December 31, 1999.
Results of Operations
- ---------------------
Derived from the operating results of Perspectives for year
2000, the Company generated $6,669,048 in management fees
as compared to $7,782,208 in 1999. The decrease primarily
related to cancelled hospital contracts and adjustments to
hospital billings made necessary by reductions in Medicare
reimbursements. This is discussed in further detail later
within this section. General and Administrative Expenses
were $5,391,444 in 2000
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as compared to $6,683,691 in 1999.
This is also described in further detail in this section.
The Company was able to reduce or eliminate some of its
expenses in 2000 to achieve the decline. In addition, the
Company reported a sharp decline in depreciation and
amortization expense of $138,775 for 2000 as compared to
$2,572,207 for 1999.
The Company worked aggressively to minimize its
administrative expenses in 2000, concluding that such
reductions were necessary due to the impact of the changes
in the Medicare reimbursement schedules as discussed below.
Medicare reductions and other problems also caused the
Company to record a bad debt expense for of $264,465 for
2000. However, it should be noted that this amount is down
significantly from $3,124,796 in bad debt reported for
1999.
Liquidity and Capital Resources
- -------------------------------
Cash Flows. At December 31, 2000 we maintained $363,670 in
cash and cash equivalents.
Capital Expenditures. Generally, we have spent little of
our resources on capital equipment.
Perspectives has been feeling the harsh negative effects of
the change in the Medicare rules contained in the Balanced
Budget Reconciliation Act of 1997 and has had to adjust its
operating contracts and reduce its expenses to continue
operations. Although Perspectives does not bill Medicare
directly, the sweeping effects of the changes to Medicare
reimbursement materially affected the subsidiary's revenue
with regard to its hospital agreements. In brief,
Perspectives has had to renegotiate its hospital agreements
to reflect such lower reimbursement amounts. This resulted
in bad debt expense of $264,465 for 2000. In addition,
Perspectives suffered additional loses as a result of
hospitals terminating their agreements in 1999 and 2000.
The Company took a charge to earnings due to the change
required in its contractual arrangements with hospitals.
The Company recognizes revenue on an accrual basis and
carefully monitors appropriate allowances for bad debt. The
allowance account is indirectly affected whenever the U.S.
government issues new policies regarding Medicare
reimbursement to its contracted hospitals. Such hospital
agreements require the Company to renegotiate its fee
agreements, and result in the recording of additional bad
debt via the adjustments to the allowance account due to
the change in the underlying Medicare reimbursement
schedules between the contracted hospitals and the U.S.
government.
The Company is dependent on the operating performance of
Perspectives. This subsidiary does not have any physician
practice management (PPM) relationships. As a material
segment of the business, Perspectives would be adversely
affected by the loss of one or more key hospital contracts.
In addition, Perspectives would be adversely affected by
changes in U.S. government polices regarding hospital
reimbursements under Medicare. Facing lower realization
with hospital billings to Medicare, Perspectives would be
5
required to further renegotiate its contracts with key
hospitals. Such Medicare policy changes would, therefore,
have an adverse impact on the Company. After December 31,
1998, the Company suffered various losses, including the
termination of contracts with a number of key hospitals.
The Company recorded losses incurred by the Company in 2000
as a direct result of such terminated hospital contracts as
the losses were realized.
Moreover, in 2000, the Company suffered losses with
increased competition in key markets. In addition to the
growing strength of its key competitors, Horizon Health
Management, Cornerstone Health Management, and Sunrise
Health Management, a large number of smaller competitors
entered the market. Such competitors offer hospitals a
narrowly targeted and limited consulting service in the
health management field. Such companies are able to
successfully compete with Perspectives when they provide a
smaller fee commitment associated with a more limited
engagement. This further forces management fees down and
thus reduces profits.
Recent Developments
- -------------------
Based on its current financial situation and future
prospects, management has been unable to support its
outstanding debt obligations. The Company was in default
of its debt service obligations for the entire year. As a
consequence, management is negotiating for the sale of the
Perspectives business. In addition, the Company has made
substantial progress in its attempts to arrange for the
conversion of its existing debt to equity.
Impact Of The Year 2000 Issue
- -----------------------------
The "Year 2000 Problem" arose because many existing
computer programs use only the last two digits to refer to
a year. Therefore, these computer programs do not properly
recognize a year that begins with "20" instead of the
familiar "19". If not corrected, many computer
applications were expected to fail or create erroneous
results. The Company did not experience any adverse
affect as a result of the Year 2000 Problem.
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