SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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 Pursuant to Rule 14a-11(c) or Rule 14a-12
DELTA MUTUAL, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| 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:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| 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:
ii
DELTA MUTUAL, INC.
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 30, 2004
Sellersville, Pennsylvania
July 30, 2004
The Annual Meeting of Stockholders (the "Annual Meeting") of Delta Mutual,
Inc., a Delaware corporation (the "Company"), will be held at the offices of the
Company, 111 North Branch Street, Sellersville, PA 18960, on Monday, August 30,
2004, at 10:00 A.M. (local time) for the following purposes:
1. To re-elect Peter F. Russo as sole director (Proposal No. 1);
2. To amend the Certificate of Incorporation of the Company to increase
the authorized number of shares of Common Stock from 20,000,000 shares, par
value $.0001 per share, to 100,000,000 shares, par value $.0001 per share
(Proposal No. 2);
3. To amend the Certificate of Incorporation of the Company to authorize a
new class of 5,000,000 shares of preferred stock, par value $.0001 per share,
and to authorize the Board of Directors to issue one or more series of the
preferred stock with such designations, rights, preferences, limitations and/or
restrictions as it should determine by vote of a majority of such directors
(Proposal No. 3);
4. To approve a new 2004 Stock Option Plan and to reserve 10,000,000
shares of Common Stock for issuance under the Plan (Proposal No. 4); and
5. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on July 27, 2004,
as the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof. Shares
of Common Stock can be voted at the meeting only if the holder is present at the
meeting in person or by valid proxy. All stockholders are cordially invited to
attend the Annual Meeting in person. However, whether or not you expect to
attend the Annual Meeting in person, you are urged to mark, date, sign and
return the enclosed proxy card as promptly as possible in the postage-prepaid
envelope provided to ensure your representation and the presence of a quorum at
the Annual Meeting. If you send in your proxy card and then decide to attend the
Annual Meeting to vote your shares in person, you may still do so. Your proxy is
revocable in accordance with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors,
Peter F. Russo
President and Chief Executive Officer
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE OF
RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU
MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY
DELTA MUTUAL, INC.
111 North Branch Street
Sellersville, PA 18960
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board") of Delta Mutual, Inc., a Delaware
corporation (the "Company"), of proxies in the enclosed form for use in voting
at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at the
offices of the Company, 111 North Branch Street, Sellersville, PA 18960, on
Monday, August 30, 2004, at 10:00 A.M. (local time), and any adjournment or
postponement thereof.
Only holders of record of the Company's Common Stock, par value $.0001 per
share (the "Common Stock"), on July 27, 2004 (the "Record Date") will be
entitled to vote at the Annual Meeting. At the close of business on the Record
Date, the Company had outstanding 13,590,688 shares of Common Stock.
Any person giving a proxy in the form accompanying this Proxy Statement
has the power to revoke it prior to its exercise. Any proxy given is revocable
prior to the Annual Meeting by an instrument revoking it or by a duly executed
proxy bearing a later date delivered to the Secretary of the Company. Such proxy
is also revoked if the stockholder is present at the Annual Meeting and elects
to vote in person.
The Company will bear the entire cost of preparing, assembling, printing
and mailing the proxy materials furnished by the Board of Directors to
stockholders. Copies of the proxy materials will be furnished to brokerage
houses, fiduciaries and custodians to be forwarded to the beneficial owners of
the Common Stock. In addition to the solicitation of proxies by use of the mail,
some of the officers, directors and regular employees of the Company may
(without additional compensation) solicit proxies by telephone or personal
interview, the costs of which the Company will bear.
This Proxy Statement and the accompanying form of proxy is being sent or
given to stockholders on or about July 30, 2004.
Stockholders of the Company's Common Stock are entitled to one vote for
each share held. Such shares may not be voted cumulatively.
Each validly returned proxy (including proxies for which no specific
instruction is given) which is not revoked will be voted "FOR" each of the
proposals as described in this Proxy Statement and, at the proxy holders'
discretion, on such other matters, if any, which may come before the Annual
Meeting (including any proposal to adjourn the Meeting).
Determination of whether a matter specified in the Notice of Annual
Meeting of Stockholders has been approved will be determined as follows.
As to Proposal No. 1, the nominee for director will be elected as the sole
director of the Company if he receives a plurality of the votes cast at the
Annual Meeting in person or by proxy and entitled to vote on the election.
Accordingly, abstentions or directions to withhold authority will have no effect
on the outcome of the vote.
Proposal No. 2, approval of an amendment of the Certificate of
Incorporation of the Company to increase the authorized number of shares of
Common Stock, par value $.0001 per share, from 20,000,000 to 100,000,000,
requires for approval the affirmative vote of the holders of a majority of the
outstanding shares of the Company's Common Stock.
Proposal No. 3, approval of an amendment of the Certificate of
Incorporation of the Company to authorize a new class of 5,000,000 shares of
preferred stock, par value $.0001 per share, and to authorize the Board of
Directors to issue one or more series of the preferred stock with such
designations, rights, preferences, limitations and/or restrictions as it should
determine by vote of a majority of such directors requires for approval the
affirmative vote of the holders of a majority of the outstanding shares of the
Company's Common Stock.
For Proposal No. 4, approval of the Company's 2004 Stock Option Plan and
to reserve 10,000,000 shares of Common Stock for issuance thereunder (which
proposal is subject to approval by the stockholders of the Company of the
proposal to amend the Certificate of Incorporation to increase the authorized
number of shares of Common Stock), the matter would be approved by the
affirmative vote of the majority of shares present in person or represented by
proxy at the meeting.
Abstentions will be considered shares present in person or by proxy and
entitled to vote and, therefore, except as to the election of the director, will
have the effect of a vote against the matter. Broker non-votes will be
considered shares not present for this purpose and will have no effect on the
outcome of the vote. Directions to withhold authority to vote for directors,
abstentions and broker non-votes will be counted for purposes of determining
whether a quorum is present for the Annual Meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTOR
Nominees
At the Annual Meeting, the stockholders will elect one (1) director to
serve a one year term or until his successor is elected and qualified.
In the event the nominee is unable or unwilling to serve as a director at
the time of the Annual Meeting, the proxies may be voted for any substitute
nominee designated by the present Board or the proxy holders to fill such
vacancy. The Board has no reason to believe that the person named below will be
unable or unwilling to serve as a nominee or as a director if elected.
Assuming a quorum is present, the nominee receiving the highest number of
affirmative votes of shares entitled to be voted for him or her will be elected
as a director of the Company for the ensuing year. Unless marked otherwise,
proxies received will be voted "FOR" the election of the nominee named below. In
the event that additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them in such a manner as
will ensure the election of the nominee listed below.
Name Age Position
- -------------- --- ---------------------------
Peter F. Russo 61 President, CEO and Director
2
Peter F. Russo joined the Company on March 11, 2003 as President and a director,
and was elected Chief Executive Officer in June 2003. Mr. Russo had been an
independent consultant to several private businesses during the period from
August 2001 until he joined the Company. In that capacity, he developed business
and operating strategies and plans for a start-up, new concept modular housing
company focused on the affordable housing market. In that assignment, he
developed proposals for low-income housing projects under the federal Section 42
tax credit program in Philadelphia, Baltimore and Washington D.C. In another
assignment, Mr. Russo was instrumental in structuring a new U.S. holding company
with affiliated real estate service operations in Europe. From June 2000 to July
2001, Mr. Russo served as President and Chief Operating Officer for Bartram
Healthcare Financial Services, Inc., a start-up healthcare services company
providing financial systems and services. From January 1998 to June 2000, Mr.
Russo was an independent consultant for projects that included the development
of new market penetration strategies in various regions of the former
Yugoslavia, that included securing a U.S. export grant and providing
environmental technologies to Eastern European power generating stations.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 2003, the Board of Directors of
the Company held three (3) meetings and acted by unanimous written consent on
thirteen (13) occasions. No director nominated for election at the Annual
Meeting attended fewer than 100% of the total number of meetings of the Board of
Directors during the last fiscal year.
Our directors are elected by the stockholders and our officers are
appointed by our board of directors. Our officers hold office until their
successors are elected and qualified. Vacancies in our board are filled by the
board itself. There are currently two vacancies on our board of directors.
We do not have an audit committee, although we intend to establish such a
committee, with an independent "financial expert" member as defined in the rules
of the Securities and Exchange Commission.
We do not have a nominating committee or a committee performing the
functions of a nominating committee. Our Board of Directors, which consists of
one director, fulfills the role of a nominating committee. It is the position of
our Board of Directors that it is appropriate for us at this time not to have a
separate nominating committee in light of the fact that we have only one
director, and that new candidates for membership on the Board will be evaluated
and contacted by our sole Board member over the coming year. Moreover, at
present we are not required to have a nominating committee until such time as we
are listed on a stock exchange in which event we would have to abide by the
applicable rules and regulations of such exchange. We do not expect to be listed
on an exchange in the near future. If we do create a nominating committee prior
to our 2005 annual meeting, our proxy statement for our 2005 annual meeting will
provide information regarding this committee, including functions held by the
committee and the names of directors who are members.
There are no formal procedures for stockholders to nominate persons to
serve as directors; however, the Board will consider nominations from
stockholders, which should be addressed to Martin G. Chilek, Chief Financial
Officer, at the Company's address set forth above.
Stockholder Communications with the Board of Directors
Our stockholders may communicate with our Board of Directors by writing
directly to the Board of Directors or to Martin G. Chilek, Chief Financial
Officer, at the Company's address set forth above.
Our corporate officer will deliver stockholder communications to the Board
of Directors.
3
COMPENSATION OF DIRECTORS
Directors currently receive no compensation for meetings attended and are
reimbursed for reasonable out-of-pocket expenses incurred in connection with
attendance at meetings of the Board or any committee thereof they attend.
The proxy holders intend to vote the shares represented by proxies for the
Board's nominee, except to the extent authority to vote for the nominee is
withheld.
RECOMMENDATION OF THE BOARD:
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE
NOMINEE NAMED ABOVE.
MANAGEMENT
Executive Officers and Directors
The following table sets forth the names and ages of the Directors and
Executive Officers of the Company, as well as the positions held by such
persons:
Name Age Position (1)
- ----------------- --- --------------------------------
Peter F. Russo 61 President, CEO and Director
Martin G. Chilek 54 Vice President, Chief
Financial Officer, Treasurer and
Assistant Secretary
Jerome Kindrachuk 59 Vice President--International
No director or executive officer of the Company has any family
relationship with any other director or executive officer of the Company.
4
Executive Compensation
The following table sets forth certain information regarding the annual
compensation for services in all capacities to us for the years ended December
31, 2003 and 2002:
Summary Compensation Table
Annual Compensation Awards Payouts
- ----------------------------------------- -------------------- ---------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other Restricted Securities
and Annual Stock Underlying LTIP All Other
Principal Year Salary Bonus Comp. Awards Options/ Payouts Comp.
Position (1) ($) ($) ($) ($) SARs(#) ($) ($)
---- -------- -------- -------- ---------- -------- -------- ----------
Peter F
Russo 2003 $ 31,800 $ 6,000 $ 31,938
President (2)
Gary T 2003 $ 20,000 $ 93,625
Robinson (2)
(1) Fiscal years ended December 31, 2003 and 2002.
(2) The other compensation for Peter F. Russo was fees for consulting work
completed prior to his employment. The restricted stock value for Gary T.
Robinson was for compensation earned during his tenure as CEO.
None of our officers or directors received any compensation for services
from our date of inception (November 17, 1999) to December 31, 2002.
EMPLOYMENT AGREEMENTS
On March 11, 2003, we entered into a contract with Peter F. Russo to serve
as President. It provides for three years' employment from March 11, 2003, at a
salary of $10,000 per month through June 30, 2003, and $15,000 per month
thereafter, payable in bi-monthly installments, plus benefits. We also have an
employment contract with Jerome Kindrachuk, effective July 2003 prior to Mr.
Kindrachuk's appointment as an officer of the Company. It provides for three
years' employment from July 1, 2003, at a salary of $10,000 per month, payable
in bi-monthly installments, plus benefits. All other officers are employed by us
on an at will basis, and the terms and conditions of employment are subject to
change.
5
Option/SAR Grants in Last Fiscal Year
We have not adopted any other deferred compensation, pension, profit
sharing, stock option plan or programs for the benefit of our officers or
employees. During the second quarter of 2003, the Company established a health
insurance benefit plan that is offered to all employees.
There were no option/SAR grants in our last fiscal year and, at that
fiscal year end, there were no unexercised options held by officers of the
Company.
No officer or director exercised any options in the fiscal year ended
December 31, 2003.
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of July 27, 2004, with respect to
the beneficial ownership of the Company's Common Stock by each person known by
the Company to be the beneficial owner of more than five percent (5%) of the
outstanding Common Stock and by directors and officers of the Company, both
individually and as a group, based on 13,590,688 shares of our Common Stock
outstanding on July 27, 2004:
Beneficial Owner Number Percentage(1)
---------- -------------
Officers, Directors and 5% Beneficial Owners
- --------------------------------------------
Peter F. Russo (1) 100,000 *
Martin G. Chilek (1) 100,000 *
Jerome Kindrachuk (1) 100,000 *
Ivano Angelastri (2) 1,504,000 11.1%
Neil Berman (3) 1,260,000 9.3%
All Officers and Directors as a Group (3 persons) 300,000 2.2%
- ----------
*Less than 1%.
(1) The address of each director or executive officer in the table is c/o
Delta Mutual, Inc., 111 North Branch Street, Sellersville, PA 18960.
(2) The address of Mr. Angelastri is Alte Bergstrasse 171, 8707 Uetikon am
See, Switzerland.
(3) The address of Mr. Berman is 21346 St. Andrews Street, #421, Boca Raton,
FL 33433.
6
TRANSACTIONS WITH MANAGEMENT
On March 6, 2003, Gary T. Robinson, our Former Chief Executive Officer,
loaned the Company $100,000 for payment to a consultant. On June 30, 2003, Mr.
Robinson agreed to release the Company from the note and assume the
responsibility for recovering the amount paid to the consultant.
On March 11, 2003, we entered into a contract with Peter F. Russo to serve
as President. It provides for three years' employment from March 11, 2003, at a
salary of $10,000 per month through June 30, 2003, and $15,000 per month
thereafter, payable in bi-monthly installments, plus benefits. We also have an
employment contract with Jerome Kindrachuk, effective July 2003 prior to Mr.
Kindrachuk's appointment as an officer of the Company. It provides for three
years' employment from July 1, 2003, at a salary of $10,000 per month, payable
in bi-monthly installments, plus benefits.
During the first and second quarters of 2003, the Company paid consulting
fees of $31,938 owed to Peter F. Russo for services rendered prior to his
employment.
PROPOSAL NO. 2
APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON
STOCK, PAR VALUE $.0001 PER SHARE, FROM 20,000,000 TO 100,000,000
The Board of Directors of the Company has adopted a resolution unanimously
approving and recommending to the Company's stockholders for their approval an
amendment to the Company's Certificate of Incorporation to provide for an
increase of the number of shares of Common Stock that the Company is authorized
to issue from 20,000,000 to 100,000,000.
The Board of Directors recommends the proposed increase in the authorized
number of shares of Common Stock to insure that a sufficient number of
authorized and unissued shares is available (i) for the proposed 10,000,000
shares to be reserved under our 2004 Option Plan; (ii) to raise additional
capital for the operations of the Company; and (iii) to make options and shares
available to employees, future non-employee directors and consultants of the
Company as an incentive for services provided to the Company. Such shares would
be available for issuance by the Board of Directors of the Company without
further action by the stockholders, unless required by the Company's Certificate
of Incorporation or by the laws of the State of Delaware. Neither the presently
authorized shares of Common Stock nor the additional shares of Common Stock that
may be authorized pursuant to the proposed amendment carry preemptive rights.
As of July 27, 2004, with 20,000,000 shares of common stock authorized, we
had 13,590,688 shares of common stock issued and outstanding, and therefore we
had 6,409,312 shares available for issuance for the corporate purposes described
above(including 600,000 shares held in the treasury).
Except as described above with respect to the proposal discussed below
(Proposal No. 4) to adopt the 2004 Stock Option Plan and to reserve up to
10,000,000 shares of common stock for issuance upon the exercise of options
granted thereunder, there are currently no set plans or arrangements relating to
the possible issuance of any additional shares of Common Stock proposed to be
authorized.
7
The additional shares of Common Stock, if issued, would have a dilutive
effect upon the percentage of equity of the Company owned by present
stockholders. The issuance of such additional shares of Common Stock might be
disadvantageous to current stockholders in that any additional issuances would
potentially reduce per share dividends, if any. Stockholders should consider,
however, that the possible impact upon dividends is likely to be minimal in view
of the fact that the Company has never paid dividends, has never adopted any
policy with respect to the payment of dividends and does not intend to pay any
cash dividends in the foreseeable future. In addition, the issuance of such
additional shares of Common Stock, by reducing the percentage of equity of the
Company owned by present stockholders, would reduce such present stockholders'
ability to influence the election of directors or any other action taken by the
holders of Common Stock.
If Proposal No. 2 is approved by the Company's stockholders, the Board of
Directors expects to file a Certificate of Amendment to the Company's
Certificate of Incorporation increasing the number of authorized shares of
Common Stock as soon as practicable after the date of the Annual Meeting. The
Certificate of Amendment would amend Article FOURTH of the Company's Certificate
of Incorporation to read as set forth in the text of the proposed Amendment to
our Certificate of Incorporation attached as Exhibit A to this Proxy Statement.
PROPOSAL NO. 3
APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
AUTHORIZE A NEW CLASS OF 5,000,000 SHARES OF PREFERRED STOCK, PAR
VALUE $.0001 PER SHARE
The Board of Directors of the Company has adopted a resolution unanimously
approving and recommending to the Company's stockholders for their approval an
amendment to the Company's Certificate of Incorporation to authorize a new class
of 5,000,000 shares of preferred stock, par value $.0001 per share, and to
authorize the Board of Directors to issue one or more series of the preferred
stock with such designations, rights, preferences, limitations and/or
restrictions as it should determine by vote of a majority of such directors.
The Company's Certificate of Incorporation currently only permits the
Company to issue shares of Common Stock. This, the Company believes, has limited
the Company's flexibility in seeking additional working capital. The Board of
Directors has recommended that the Certificate of Incorporation be amended to
authorize a class of 5,000,000 shares of Preferred Stock and to allow the Board
of Directors of the Company the widest possible flexibility in setting the terms
of Preferred Stock that may be issued in the future. The Company will,
therefore, be afforded the greatest flexibility possible in seeking additional
financing, as the Board of Directors deems appropriate in the exercise of its
reasonable business judgment. The Company currently has no commitments or plans
for the issuance of any shares of Preferred Stock.
If the Amendment is approved, the Board of Directors will have the right,
without further stockholder approval or action, to issue up to 5,000,000 shares
of Preferred Stock, having such rights and preferences, including voting rights,
as the Board of Directors may determine. The ability of the Company to issue
such shares of Preferred Stock may, under certain circumstances, make it more
difficult for a third party to gain control of the Company (e.g., by means of a
tender offer), prevent or substantially delay such a change of control,
discourage bids for the Common Stock at a premium, or otherwise adversely affect
the market price of the Common Stock.
* * *
8
The vote required for approval of the Proposals to amend the Certificate of
Incorporation is the affirmative vote of the holders of a majority of the
outstanding shares of the Company's Common Stock.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS TO AMEND THE
CERTIFICATE OF INCORPORATION.
PROPOSAL NO. 4
APPROVAL OF THE 2004 STOCK OPTION PLAN
At the Annual Meeting, the Company's stockholders are being asked to
approve the 2004 Stock Option Plan (the "2004 Option Plan") to authorize
10,000,000 shares to be reserved for the issuance of options thereunder.
Approval of the 2004 Stock Option Plan would be subject to approval by the
stockholders of the proposal to amend the Certificate of Incorporation to
increase the authorized number of shares of Common Stock
The following is a summary of principal features of the 2004 Option Plan.
The summary, however, does not purport to be a complete description of all the
provisions of the 2004 Option Plan a copy of which, as amended, is attached
hereto as Exhibit B.
General
The 2004 Option Plan was adopted by the Board of Directors on June 14,
2004. The Board of Directors reserved 10,000,000 shares of Common Stock for
issuance under the 2004 Option Plan, subject to the approval of the stockholders
of the Company.
Reasons for Adoption of the 2004 Stock Option Plan
One of the primary purposes of the 2004 Option Plan is to advance the
interests of the Company and its stockholders by aiding the Company in
attracting and retaining qualified personnel. Another important purpose of the
2004 Option Plan is to support the achievement of the Company's business
objectives by providing stock-based incentives which focus participants in the
Plan on the Company's long-term objectives and link the participants' interests
with the interests of the Company's stockholders. The 2004 Option Plan is also
designed to respond to applicable tax laws, accounting rules and securities
regulations.
The Board of Directors of the Company believes that the 2004 Stock Option
Plan, providing for the reservation of 10,000,000 shares of Common Stock for the
issuance of options is advisable. This is due to the Company's belief that the
remaining 1,463,000 shares available for grant under the Company's 2001 Employee
Stock Option Plan is not sufficient for the Company's projected needs for
incentive shares for management and other permitted purposes.
9
Description of the 2004 Option Plan
The following is a summary of certain provisions of the 2004 Option Plan
and is qualified in its entirety by reference to the complete text of the 2004
Option Plan set forth in Exhibit B to this Proxy Statement.
Under the 2004 Option Plan, options may be granted which are intended to
qualify as Incentive Stock Options ("ISOs") under Section 422 of the Internal
Revenue Code of 1986 (the "Code") or which are not ("Non-ISOs") intended to
qualify as Incentive Stock Options thereunder.
The 2004 Option Plan also provides for restricted stock awards to an
Employee representing shares of Common Stock ("Restricted Shares") that are
issued subject to such restrictions on transfer and other incidents of ownership
and such forfeiture conditions as the Committee (as defined below) may determine
("Restricted Stock Awards"). In connection with issuance of any Restricted
Shares, the Committee may (but shall not be obligated to) require the payment of
a specified purchase price (which price may be less than Fair Market Value).
The 2004 Option Plan is administered by the Board of Directors or a
committee (the "Committee") which is appointed by the Board of Directors from
those of its members who are "non-employees" of the Company as defined in Rule
16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act"). Subject to
the provisions of the 2004 Option Plan, the Board of Directors, or the
Committee, if one is appointed, has full authority to determine the persons to
be granted options or Restricted Stock Awards under the 2004 Option Plan and the
terms of Restricted Stock Awards, the number and purchase price of the shares
represented by each option, the time or times at which the options may be
exercised, and the terms and provisions of each option, which need not be
uniform for all options.
Key employees of the Company or its subsidiaries, as determined by the
Board or Committee, and non-employee directors of and consultants to the Company
or its subsidiaries are eligible to receive options or Restricted Stock Awards
under the 2004 Option Plan. The 2004 Option Plan authorizes the Committee to
grant, over a ten-year period, options or Restricted Stock Awards to purchase up
to a maximum of 10,000,000 shares of the Company's Common Stock, subject to
adjustment as described below. If any option expires or is terminated prior to
its exercise in full and prior to the termination of the 2004 Option Plan, the
shares subject to such unexercised option shall again be available for the grant
of new options under the 2004 Option Plan. Further, any shares used as full or
partial payment by an optionee upon exercise of an option may subsequently be
used by the Company to satisfy other options granted under the 2004 Option Plan,
subject to limitations on the total number of shares authorized to be issued
under the 2004 Option Plan. The 2004 Option Plan provides that the purchase
price per share for ISO's may not be less than 100% of the fair market value of
the Common Stock at the time of grant. The purchase price is to be paid in cash
or Common Stock of the Company held for at least six (6) months and with a
market value equivalent to that of the shares being acquired or, in the
discretion of the Committee, any combination of these.
The term of each option will not be more than ten (10) years from the date
of grant. Options granted under the 2004 Option Plan may be exercised only
during the continuance of the Participant's employment with the Company or one
of its subsidiaries. The 2004 Option Plan permits an outstanding ISO option to
be exercised after termination of employment only to the extent that the option
was exercisable on the date of termination but in no event beyond the original
term of the option (i) within one year by the estate or rightful heir(s) of the
optionee if the optionee's employment is terminated due to the optionee's death;
(ii) within one year after the date of such termination if the termination is
due to the optionee's Disability (as defined in the 2004 Option Plan); or (iii)
within three months after the date of such termination if the termination was
due to the optionee's Retirement (as defined in the 2004 Option Plan) or was for
reasons other than death or Disability and other than "for cause" (as defined in
the 2004 Option Plan). Upon termination of an optionee's employment "for cause,"
any unexercised options held by the Optionee will be forfeited. In the event of
the dissolution, liquidation or sale of all or substantially all of the assets
of the Company, to the extent it has not been previously exercised an option
will terminate immediately prior to the consummation of such proposed action. In
the event of the merger of the Company with or into another corporation, the
option shall be assumed or an equivalent option shall be substituted by such
successor corporation or, if such successor corporation does not agree to assume
the option or substitute an equivalent option, the Board shall provide for the
option holder to have the right to exercise the option as to all of the optioned
shares, including shares as to which the option would not otherwise be
exercisable.
10
The number of shares subject to options and the option prices will be
appropriately adjusted in the event of changes in the outstanding Company Common
Stock by reason of stock dividends, recapitalizations, mergers, consolidations,
stock splits and combinations of shares, and the like. The Board of Directors
may at any time terminate or modify the 2004 Option Plan, except that without
further approval of the shareholders the Board may not make any changes to the
2004 Option Plan which would materially increase the number of shares that may
be issued under the 2004 Option Plan, materially modify the eligibility
requirements for participation in the Plan, or require shareholder approval
under the Delaware General Corporation Law, the Exchange Act, or the Code.
Options granted under the Plan may be in the form of "incentive stock
options" which qualify as such under Section 422 of the Code or non-qualified
stock options which do not meet the criteria for incentive stock options under
Section 422. The tax treatment of stock options qualifying as incentive stock
options may be more favorable to employees than that afforded to non-qualified
stock options. Options granted under the 2004 Option Plan are, generally,
transferable only by will or by the laws of descent and distribution, and may be
exercised during the lifetime of the optionee only by the optionee or by his
legal representative in the event of his Disability. In its sole discretion,
however, the Committee may permit an optionee to make certain transfers of
non-qualified stock options, provided that the transfers are to "family members"
and are not for value, as defined in the General Instructions to Form S-8 under
the Securities Act of 1933, as amended (the "Securities Act").
Certain Federal Income Tax Consequences Associated with the 2004 Option Plan
The following discussion of tax considerations relates only to certain
U.S. federal individual income tax matters with regard to ISO's and is based
upon current income tax laws, regulations and rulings. The discussion is general
in nature and does not take into account a number of considerations that may
apply in light of an optionee's particular circumstances.
Generally, upon the exercise of an ISO, the optionee will recognize no
income for U.S. federal income tax purposes. The difference between the exercise
price of the ISO and the fair market value of the stock at the time of purchase
is, however, an item of tax preference that may require payment of an
alternative minimum tax. On the sale of shares acquired by exercise of an
incentive stock option (assuming that the sale does not occur within two (2)
years of the date of grant of the option or within one (1) year from the date of
exercise), any gain will be taxed to the optionee as long-term capital gain. In
contrast, upon the exercise of a non-qualified option, the optionee recognizes
taxable income (subject to withholding) in an amount equal to the difference
between the fair market value of the shares on the date of exercise and the
exercise price. Upon any sale of such shares by the optionee, any difference
between the sale price and the fair market value of the shares on the date of
exercise of the non-qualified option will be treated generally as capital gain
or loss. Under rules applicable to U.S. corporations, no deduction is usually
available to the employer corporation upon the grant or exercise of an incentive
stock option (although a deduction may be available if the employee sells the
shares so acquired before the applicable holding period expires). By contrast,
upon the exercise of a non-qualified stock option, the employer corporation is
entitled to a deduction in an amount equal to the income recognized by the
employee, subject to certain limitations imposed by the Code in the case of
highly compensated employees.
11
Required Vote
The approval of the 2004 Stock Option Plan providing for the reservation
of 10,000,000 shares of Common Stock for issuance pursuant to options granted
thereunder requires the affirmative vote of the holders of a majority of the
shares of the Company's Common Stock present at the Annual Meeting in person or
by represented by proxy.
The approval of the 2004 Stock Option Plan is subject to approval by the
stockholders of the Company of the proposal to amend the Certificate of
Incorporation to increase the authorized number of shares of Common Stock.
The proxy holders intend to vote the shares represented by proxies to
approve the 2004 Stock Option Plan, unless the proposal to amend the Certificate
of Incorporation to increase the authorized number of shares of Common Stock is
not approved.
RECOMMENDATION OF THE BOARD:
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF
THE 2004 STOCK OPTION PLAN.
DISSENTERS' OR APPRAISAL RIGHTS
Under Delaware law, our stockholders do not have any dissenters' or
appraisal rights with respect to the approval of the Certificate of Amendment or
the 2004 Option Plan.
INDEPENDENT AUDITORS
Wiener, Goodman & Company, P.C., Eatontown, New Jersey, has served as the
Company's independent auditors since our 2000 fiscal year and has been appointed
by the Board to continue as the Company's independent auditors for the fiscal
year ending December 31, 2004. Wiener, Goodman & Company, P.C. has no interest,
financial or otherwise, in the Company. A representative of Wiener, Goodman &
Company, P.C. is not expected to be present at the Annual Meeting.
Audit Fees
The aggregate fees billed by our independent auditors for the last two
years were as follows: 2002-$39,848; and 2003-$55,698.
12
Audit related fees
Audit related fees were $37,848 for 2002 and $52,698 for 2003.
Tax fees
For 2002, fees for tax compliance, tax advice and tax planning were
$2,000; such fees were $2,000 for 2003. Our independent auditors' services were
related to our corporate tax returns.
All other fees
There were no other fees billed by our independent auditors for 2002 and
2003.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
Proposals of stockholders intended to be presented at next year's Annual
Meeting of Stockholders must be received by Martin G. Chilek, Chief Financial
Officer, Delta Mutual, Inc., 111 North Branch Street, Sellersville, PA 18960, on
or before March 1, 2005.
OTHER PROPOSED ACTION
The Board of Directors is not aware of any other business which will come
before the Annual Meeting, but if any such matters are properly presented, the
proxies solicited hereby will be voted in accordance with the best judgment of
the persons holding the proxies. All shares represented by duly executed proxies
will be voted at the Annual Meeting.
APPENDIX - FORM 10-KSB
The Company's 2003 Form 10-KSB containing all financial statements is
attached to this proxy statement as an Appendix.
FINANCIAL INFORMATION - INCORPORATED BY REFERENCE
The Company's report on Form 10-QSB for the three months ended March 31,
2004, as well as Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the Form 10-QSB, is incorporated herein by
reference.
AVAILABILITY OF CERTAIN DOCUMENTS REFERRED TO HEREIN
THIS PROXY STATEMENT AND THE APPENDIX HERETO REFER TO CERTAIN DOCUMENTS OF
THE COMPANY THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS
ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY
STATEMENT IS DELIVERED, UPON ORAL OR WRITTEN REQUEST, WITHOUT CHARGE, DIRECTED
TO MARTIN G. CHILEK, CHIEF FINANCIAL OFFICER, DELTA MUTUAL, INC., 111 NORTH
BRANCH ROAD, SELLERSVILLE, PA 18960, TELEPHONE NUMBER (215) 258-2800. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, SUCH REQUESTS SHOULD BE MADE BY
AUGUST 19, 2004.
13
OTHER MATTERS
The Board of Directors knows of no other business that will be presented
to the Annual Meeting. If any other business is properly brought before the
Annual Meeting, proxies in the enclosed form will be voted in respect thereof as
the proxy holders deem advisable.
It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope. By Order of the
Board of Directors,
/s/ Peter F. Russo
----------------------------------------
Sellersville, Pennsylvania Peter F. Russo,
July 30, 2004 President and Chief Executive Officer
14
FORM OF PROXY
PROXY FOR ANNUAL MEETING OF
DELTA MUTUAL, INC.
111 NORTH BRANCH STREET, SELLERSVILLE, PA 18960
(215) 258-2800
SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS OF
DELTA MUTUAL, INC.
THE UNDERSIGNED hereby appoint(s) Peter F. Russo and Martin G. Chilek, or
either of them, with full power of substitution, to vote at the Annual Meeting
of Stockholders of Delta Mutual, Inc., a Delaware corporation (the "Company"),
to be held on August 30, 2004, at 10:00 A.M., Eastern Daylight Time, at the
offices of the Company at 111 North Branch Street, Sellersville PA 18960, or any
adjournment thereof, all shares of the common stock which the undersigned
possess(es) and with the same effect as if the undersigned was personally
present, as follows:
PROPOSAL (1): ELECT DIRECTOR.
Peter F. Russo
( ) For the Nominee Listed Above ( ) Withhold Authority to Vote
(except as marked to the contrary below) for the Nominee Listed Above
- --------------------------------------------------------------------------------
(To withhold vote for any nominee or nominees, print the name(s) above.)
PROPOSAL (2): APPROVE AMENDMENT TO THE COMPANY'S CERTIFICATE OF
NCORPORATION TO INCREASE AUTHORIZED COMMON STOCK FROM 20,000,000 SHARES TO
100,000,000 SHARES.
( ) For ( ) Against ( ) Abstain
PROPOSAL (3): APPROVE AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO AUTHORIZE A NEW CLASS OF 5,000,000 SHARES OF PREFERRED STOCK.
( ) For ( ) Against ( ) Abstain
PROPOSAL (4): APPROVE THE COMPANY'S 2004 STOCK OPTION PLAN.
( ) For ( ) Against ( ) Abstain
PROPOSAL (5): TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING.
15
( ) In their discretion, the proxy-holders are ( ) Withhold Authority
authorized to vote upon such other business
as may properly come before the meeting or
any adjournment thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 , 3 AND 4 AND IN THE
DISCRETION OF THE PROXIES NOMINATED HEREBY ON ANY OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING.
(Please sign exactly as name appears hereon. If the stock is registered in the
names of two or more persons, then each should sign. Executors, administrators,
trustees, guardians, attorneys and corporate officers should include their
capacity or title.)
Please sign, date and promptly
return this Proxy in the enclosed
envelope.
- ---------------------------------- --------------------------
Signature Date
- ---------------------------------- --------------------------
Signature Date
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DELTA MUTUAL, INC.
Pursuant to Section 242 of the General Corporation Law of the State of
Delaware, Delta Mutual, Inc. (the "corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: That the Board of Directors of the corporation on June 14, 2004,
adopted resolutions proposing and declaring advisable the following amendment to
the Certificate of Incorporation of the corporation:
RESOLVED, that the Board of Directors declares advisable, and recommends
to the stockholders for adoption, the following amended Fourth Article to
replace, in its entirety, the Fourth Article of the corporation's Certificate of
Incorporation:
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is One Hundred Five Million (105,000,000), of
which One Hundred Million (100,000,000) are Common Stock, having a par value
each of One-hundredth of One Cent ($0.0001) per share, and Five Million
(5,000,000) are Preferred Stock, having a par value each of One-hundredth of One
Cent ($0.0001) per share.
Authority is hereby expressly vested in the Board of Directors of
the corporation, subject to the provisions of this Fourth Article and to the
limitations prescribed by law, to authorize the issue from time to time of one
or more series of Preferred Stock and with respect to each such series to fix by
resolution or resolutions adopted by the affirmative vote of a majority of the
whole Board of Directors providing for the issue of such series, the voting
powers, full or limited, if any, of the shares of such series and the
designations, preferences and relative, participating, optional or other special
rights and the qualifications, limitations or restrictions thereof. The
authority of the Board of Directors with respect to each series shall include,
but not be limited to, the determination or fixing of the following:
(a) The number of shares constituting the series and the designation of such
series;
(b) The dividend rate on the shares of such series, the conditions and
dates upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or classes or
series of the corporation's capital stock, and whether such dividends shall be
cumulative or non-cumulative;
(c) Whether the shares of such series shall be
subject to redemption by the corporation at the option of either the corporation
or the holder or both or upon the happening of a specified event, and, if made
subject to any such redemption, the times or events, prices and other terms and
conditions of such redemption;
1
(d) The terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such series;
(e)Whether or not the shares of such series shall be convertible into, or
exchangeable for, at the option of either the holder or the corporation or upon
the happening of a specified event, shares of any other class or classes or any
other series of the same or any other class or classes of the corporation's
capital stock, and, if provision be made for conversion or exchange, the times
or events, prices, rates, adjustments, and other terms and conditions of such
conversions or exchanges;
(f) The restrictions, if any, on the issue or reissue of any additional
Preferred Stock;
(g) The rights of the holders of the shares of such series upon the voluntary or
involuntary liquidation, dissolution or winding up of the corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
(h) The provisions as to voting, optional and/or other special rights and
preferences, if any.
Dividends on outstanding shares of Preferred Stock shall be paid or declared and
set apart for payment before any dividends shall be paid or declared and set
apart for payment on the Common Stock with respect to the same dividend period.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the assets available for distribution to holders
of shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
SECOND: That the amendment was fully approved and adopted by the
affirmative vote of the majority of the outstanding stock entitled to vote
thereon at the Annual Meeting of Stockholders held on August 30, 2004, in
accordance with the provisions of Sections 211 and 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the corporation has caused this Certificate of
Amendment of Certificate of Incorporation to be signed by its President and
attested to by its Secretary this 30th day of August 2004.
Delta Mutual, Inc.
By:
------------------------------------
President
ATTEST:
- ------------------------------------
Secretary
EXIBIT B
DELTA MUTUAL, INC.
2004 STOCK OPTION PLAN
1. Purpose
The proper execution of the duties and responsibilities of the executives,
directors, and key employees of Delta Mutual, Inc. (the "Corporation"), as well
as consultants to the Corporation, is a vital factor in the continued growth and
success of the Corporation. Toward this end, it is necessary to attract and
retain effective and capable individuals to assume positions and provide
services that contribute materially to the successful operation of the business
of the Corporation. It will benefit the Corporation, therefore, to bind the
interests of these persons more closely to its own interests by offering them an
attractive opportunity to acquire a proprietary interest in the Corporation and
thereby provide them with added incentive to remain in the service of or provide
services to the Corporation and to increase the prosperity, growth, and earnings
of the Corporation. This stock option plan is intended to serve these purposes.
2. Definitions
The following terms wherever used herein shall have the meanings set forth
below.
"Board of Directors" or "Board" shall mean the Board of Directors of the
Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
"Committee" shall mean a committee to be appointed by the Board of
Directors in accordance with Section 4(a) of the Plan.
"Common Stock" shall mean the shares of common stock of the Corporation,
including both the voting and non-voting classes of stock.
"Corporation" shall mean Delta Mutual, Inc., a Delaware corporation.
"Employee" shall mean a common law employee of the Corporation or a Parent
or a Subsidiary.
"Employment" means periods during which an Employee qualifies as an
Employee.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of the Common Stock on any date shall be (a) the
average on that date of the high and low prices of a share of Common Stock on
the principal national securities exchange on which shares of Common Stock of
the same class are then trading, or, if shares were not traded on such date,
then on the next preceding date on which a trade occurred; or (b) if Common
Stock is not traded on a national securities exchange but is quoted on the
National Association of Securities Dealers, Inc. Authorized Quotation System
("NASDAQ") or a successor quotation system, the last reported sale price on such
date as reported by NASDAQ or such successor quotation system; or (c) if Common
Stock is not traded on a national securities exchange and is not reported on
NASDAQ or a successor quotation system, the closing bid price (or average of bid
prices) last quoted on such date by an established quotation service for
over-the-counter securities; or (d) if Common Stock is not traded on a national
securities exchange, is not reported on NASDAQ or a successor quotation system
and is not otherwise publicly traded on such date, the fair market value of a
share of the same class of Common Stock as established by the Board of Directors
or Committee acting in good faith and taking into consideration all factors
which it deems appropriate, including, without limitation, the Corporation's net
book value and recent sale or offer prices for the Common Stock in private
arm's-length transactions. During periods when the Fair Market Value of a share
of Common Stock cannot be determined under any of the methods specified in
clauses (a), (b) and (c), above, the Board of Directors or Committee shall have
the authority to establish the Fair Market Value of the Common Stock as of the
beginning of (or periodically during) each fiscal year of the Corporation and to
use such value for all transactions occurring thereafter within such fiscal
year.
"Immediate Family Member" shall mean each of (a) the children, step
children or grandchildren of the Employee to whom the Option is granted, (b) the
spouse or any parent of the Employee to whom the Option is granted, (c) any
trust solely for the benefit of any such family members, and (iv) any
partnership or other entity in which such family members are the only partners
or other equity holders.
"Incentive Stock Option" shall mean any Option granted pursuant to the
Plan that is designated as an Incentive Stock Option and which satisfies the
requirements of Section 422(b) of the Code.
"Nonstatutory Stock Option" shall mean any Option granted pursuant to the
Plan that is not an Incentive Stock Option.
"Option" or "Stock Option" shall mean a right granted pursuant to the Plan
to purchase shares of Common Stock, and shall include the terms "Incentive Stock
Option" and "Nonstatutory Stock Option".
"Optionee" shall mean an Employee who is granted an Option under this
Plan.
"Option Agreement" shall mean a written agreement representing Options
granted pursuant to the Plan, as contemplated by Section 7 of the Plan.
"Option Holder" means the Optionee or, if applicable, the person to whom
the Optionee's rights under the Option Agreement shall have been validly
transferred.
"Parent" shall mean a "parent company" of the Corporation, whether now or
hereafter existing, as defined in Section 424(e) of the Code.
"Plan" shall mean the Delta Mutual, Inc. 2004 Employee Stock Option Plan
as originally approved by the Board of Directors on June 14, 2004, as embodied
in this document, and as the same may be amended from time to time.
"Restricted Share" shall have the meaning set forth in Section 4(c).
"Restricted Stock Award" shall have the meaning set forth in Section 4(c).
"Share" shall mean a share of the Common Stock of the Corporation that is
subject to an Option or Restricted Stock Award, as adjusted in accordance with
Section 9 of the Plan.
"Subsidiary" shall mean a "subsidiary corporation" of Corporation or a
Parent, whether now or hereafter existing, as defined in Section 424(f) of the
Code.
3. Effective Date of the Plan
The Plan shall become effective upon stockholder approval pursuant to
Section 15 of the Plan, provided that such approval is received before the
expiration of one year from the date the Plan is approved by the Board of
Directors, and provided further that the Board of Directors may grant Options
pursuant to the Plan prior to stockholder approval if such Options by their
terms are contingent upon subsequent stockholder approval of the Plan.
4. Administration
(a) Procedure.
(i) Administration With Respect to Directors and Officers. With
respect to grants of Options to Employees who are also officers or directors of
the Corporation, the Plan shall be administered by (A) the Board, if the Board
may administer the Plan in compliance with Rule 16b-3 promulgated under the
Exchange Act or any successor thereto ("Rule 16b-3") with respect to a plan
intended to qualify thereunder as a discretionary plan, or (B) a committee
designated by the Board to administer the Plan, which committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
Plan may be administered by different bodies with respect to directors,
non-director officers and Employees who are neither directors nor officers.
(iii) Administration With Respect to Other Employees. With respect
to grants of Options to Employees who are neither directors nor officers of the
Corporation, the Plan shall be administered by (A) the Board or (B) a Committee
designated by the Board, which committee shall be constituted in such a manner
as to satisfy the legal requirements relating to the administration of incentive
stock option plans, if any, of Delaware corporate and securities laws and of the
Code (the "Applicable Laws"). Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefore, fill vacancies, however caused, and
remove all members of the Committee and thereafter directly administer the Plan,
all to the extent permitted by the Applicable Laws.
(b) Powers of the Board. Subject to the provisions of the Plan, the Board
(or the Committee) shall have the authority, in its discretion: (i) to grant
Incentive Stock Options, Nonstatutory Stock Options or Restricted Stock Awards;
(ii) to determine, upon review of relevant information the fair market value of
the Common Stock in each class; (iii) to determine the exercise price per Share
of Options to be granted, which exercise price shall be determined in accordance
with Section 7(b) of the Plan and the price of Restricted Shares; (iv) to
determine the regular, full-time Employees and non-employee directors or other
consultants to whom, and the time or times at which, Options or Restricted Stock
Awards shall be granted and the number of Shares to be represented by each
Option or Restricted Stock Award; (v) to interpret the Plan; (vi) to prescribe,
amend and rescind rules and regulations relating to the Plan; (vii) to determine
the rules and provisions of each Option or Restricted Stock Award granted (which
need not be identical) and, with the consent of the holder thereof, modify or
amend each Option or Restricted Stock Award; (viii) to accelerate or defer (with
the consent of the Option Holder) the exercise date of any Option, consistent
with the provisions of Section 7 of the Plan; (ix) to authorize any person to
execute on behalf of the Corporation any instrument required to effectuate the
grant of an Option or Restricted Stock Award previously granted by the Board or
Committee; and (x) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Grant of Restricted Stock Awards. The Board or Committee shall have
the power to issue a restricted stock award to an Employee or non-employee
director or consultant representing shares of Common Stock ("Restricted Shares")
that are issued subject to such restrictions on transfer and other incidents of
ownership and such forfeiture conditions as the Board or Committee may determine
("Restricted Stock Awards"). In connection with issuance of any Restricted
Shares, the Board or Committee may (but shall not be obligated to) require the
payment of a specified purchase price (which price may be less than Fair Market
Value). Grant of a Restricted Stock Award shall result in a decrease in the
number of Shares that thereafter may be available for purposes of the Plan by
the number of Restricted Shares included in the Restricted Stock Award.
(d) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board (or the Committee designated by the Board to
administer the Plan) shall be final and binding on all Optionees, Option Holders
of any Options and holders of Restricted Stock Awards under the Plan.
5. Participation in the Plan
(a) Participation in the Plan shall be limited to those Employees who are
designated for payroll purposes as full-time, permanent employees of the
Corporation and any Parent or Subsidiary and those persons who shall be
designated by the Committee and approved by the Board of Directors as
participants in the Plan. The Plan shall not confer upon any Optionee any right
with respect to continuation of Employment, nor shall it interfere in any way
with his or her right or the Corporation's right to terminate his or her
employment at any time, with or without cause.
(b) A member of the Board of Directors or consultant who is not also an
Employee shall be eligible to participate in the Plan but shall not be eligible
to receive Incentive Stock Options hereunder.
6. Stock Subject to the Plan
(a) Subject to Section 9 of the Plan, there shall be reserved for the
granting of Options pursuant to the Plan and for issuance and sale pursuant to
such Options or Restricted Stock Awards Ten Million (10,000,000) Shares of
Common Stock, par value $.0001 per share. To determine the number of Shares of
either the voting or non-voting class of Common Stock that is available at any
time for the granting of Options, there shall be deducted from the total number
of reserved shares of that class of Common Stock, the number of shares of that
class of Common Stock in respect of which Options have been granted pursuant to
the Plan that are still outstanding or have been exercised. The Shares of Common
Stock to be issued pursuant to the Plan shall be made available from the
authorized but unissued shares of Common Stock or reacquired Common Stock. If
for any reason Shares of Common Stock as to which an Option has been granted
cease to be subject to purchase thereunder, then such Shares of Common Stock
again shall (unless the Plan shall have been terminated) be available for
issuance pursuant to the exercise of Options pursuant to the Plan.
Notwithstanding any other provision of the Plan, Shares issued under the Plan
and later repurchased by the Corporation shall not become available for future
grant or sale under the Plan.
(b) Proceeds from the purchase of shares of Common Stock upon the exercise
of Options granted pursuant to the Plan or from Restricted Stock Awards shall be
used for the general business purposes of the Corporation.
7. Terms and Conditions of Options
(a) Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options and may be for the purchase of either voting or
non-voting Common Stock, all as determined by the Board of Directors or
Committee at its discretion and as designated in the terms of the Option
Agreement. However, notwithstanding such designations, to the extent that the
aggregate fair market value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Corporation) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of the prior sentence, Options shall be taken into account in the order
in which they were granted, and the fair market value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) The per Share exercise price for the Shares to be issued pursuant to
exercise of an Option shall be such price as is determined by the Board of
Directors or Committee at the time of the grant, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option:
(A) which is granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Corporation or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) which is granted to any other Employee, the per Share
exercise price shall be no less than 100% of the fair market value per Share on
the date of grant.
(ii) In the case of Nonstatutory Stock Option
(A) which is granted to a person who, at the time of the grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Corporation or any Parent or
Subsidiary, the per Share exercise price shall be as determined by the Board of
Directors or Committee.
(B) granted to any other person, the per Share exercise price
shall be as determined by the Board of Directors or Committee.
For purposes of this Section 7(b), in the event that an Option is
amended to reduce the exercise price, the date of grant of such Option shall
thereafter be considered to be the date of such amendment.
If the Board of Directors or Committee does not establish a specific
exercise price per share at the time of grant, the exercise price per share
shall be equal to the Fair Market Value of a share of Common Stock on the date
of grant of the Options.
(c) Each Option, subject to the other limitations set forth in the Plan,
may extend for a period of up to but not exceeding 10 years from the date on
which it is granted. The term of each Option shall be determined by the Board of
Directors or Committee at the time of grant of the Option and specified in the
Option Agreement, provided that if no term is specified by the Board or
Committee the term of the Option shall be the maximum term permitted under this
Section measured from the date on which it is granted. Notwithstanding anything
to the contrary, in the case of an Option granted to an Optionee who, at the
time the Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Corporation or any Parent or
Subsidiary, (a) if the Option is an Incentive Stock Option, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Incentive Stock Option Agreement, or (b) if the
Option is a Nonstatutory Stock Option, the term of the Option shall be five (5)
years and one (1) day from the date of grant thereof or such shorter term as may
be provided in the Nonstatutory Stock Option Agreement.
(d) The Board of Directors or Committee may provide in the Option
Agreement that the right to exercise each Option for the number of shares
subject to each Option shall vest in the Optionee over such period of time as
the Board or Committee, in its discretion, shall determine for each Optionee.
(e) Options shall be nontransferable and nonassignable and may not be
sold, pledged, assigned, hypothecated, transferred, or disposed in any manner,
except that (1) Options may be transferred by testamentary instrument or by the
laws of descent and distribution, and (2) subject to the terms and conditions of
the Option Agreement or any other terms and conditions imposed by the Board of
Directors or Committee from time to time, Options may be transferred in
accordance with Section 7(l) of the Plan if the applicable Option Agreement or
other action of the Board or Committee expressly provides that the Options are
transferable.
(f) Upon voluntary or involuntary termination of an Optionee's active
Employment for any reason (including disability), his Option and all rights
thereunder shall terminate effective at the close of business on the date the
Optionee ceases to be an active, regular employee of the Corporation or any of
its subsidiaries, except (1) to the extent previously exercised and (2) as
provided in Sections 7 (g), (h), (i) and (j) of the Plan.
(g) In the event an Optionee takes a leave of absence from the Corporation
or any Parent or Subsidiary for personal reasons or as a result of entry into
the armed forces of the United States, or any of the departments or agencies of
the United States government, the Committee may consider his or her case and may
take such action in respect of the related Option Agreement as it may deem
appropriate under the circumstances in its absolute discretion, including
accelerating the time previously-granted Options may be exercised and extending
the time following the Optionee's termination of Employment during which the
Option Holder is entitled to purchase the Shares of Common Stock subject to such
Options, provided that in no event may any Option be exercised after the
expiration of the term of the Option or more than ninety (90) days after the
Optionee's termination of Employment.
(h) If an Optionee's Employment terminates as a result of his or her total
and permanent disability (as defined in Section 22(e)(3) of the Code), the
Option Holder may exercise his or her Option within no more than the twelve (12)
month period beginning on the date of his or her termination of Employment (to
the extent the Option Holder was entitled to exercise the Option at the date of
the Optionee's termination of Employment and provided that in no event may any
Option be exercised after the expiration of the term of the Option), after which
the Option shall lapse.
(i) If an Optionee dies during the term of his or her Option without the
Option having been fully exercised, the executor or administrator of the
Optionee's estate or the person who inherits the right to exercise the Option by
bequest or inheritance shall have the right within one (1) year of the
Optionee's death to purchase the number of Shares of Common Stock that the
deceased Optionee was entitled to purchase at the date of death, after which the
Option shall lapse, provided that in no event may any Option be exercised after
the expiration of the term of the Option.
(j) If an Optionee terminates employment without having fully exercised
the Option due to the Optionee's retirement at or after age 60 and with the
consent of the Corporation, then the Option Holder shall have the right within
ninety (90) days of the Optionee's termination of Employment to purchase the
number of shares of Common Stock that the Option Holder was entitled to purchase
at the date of termination of the Optionee's Employment, after which the Option
shall lapse, provided that in no event may any Option be exercised after the
expiration of the term of the Option. The Board of Directors or Committee may
cancel an Option during the ninety day period referred to in this paragraph, if
the Optionee engages in employment or activities contrary, in the opinion of the
Board or Committee, to the best interests of the Corporation. The Board or
Committee shall determine in each case whether a termination of Employment shall
be considered a retirement with the consent of the Corporation, and, subject to
applicable law, whether a leave of absence shall constitute a termination of
Employment. Any such determination of the Board or Committee shall be final and
conclusive, unless the Committee is overruled by the Board.
(k) The granting of an Option pursuant to the Plan shall not constitute or
be evidence of any agreement or understanding, express or implied, on the part
of the Corporation or any of its subsidiaries to retain or employ the Optionee
for any specified period.
(l) The Board of Directors or Committee may provide, in the original grant
of a Nonqualified Stock Option or in an amendment or supplement to a previous
grant, that some or all of the Nonqualified Stock Options granted under the Plan
are transferable by the Optionee to an Immediate Family Member of the Optionee,
provided that (i) the Option Agreement, as it may be amended from time to time,
expressly so provides or the Board or Committee otherwise designates the Option
as transferable, (ii) the transfer by the Optionee is a bona fide gift without
consideration, (iii) the transfer is irrevocable, (iv) the Optionee and any such
transferee provides such documentation or other information concerning the
transfer or the transferee as the Board of Directors or Committee or any
Employee of the Corporation acting on behalf of the Board or Committee may from
time to time request, and (v) the Optionee or the Option Holder complies with
all of the terms and conditions (including, without limitation, any further
restrictions or limitations) included in the Option Agreement. Any Nonqualified
Stock Option transferred in accordance with the terms and conditions provided in
this Section 7(l) shall continue to be subject to the same terms and conditions
that were applicable to such Nonqualified Stock Option prior to the transfer.
Notwithstanding any other provisions of the Plan, the Corporation shall not be
required to honor any exercise by an Immediate Family Member of an Option
transferred in accordance with the terms and conditions provided in this Section
7(l) unless and until payment or provision for payment of any applicable
withholding taxes has been made.
(m) In addition to the general terms and conditions set forth in this
Section 7 in respect of Options granted pursuant to the Plan, Incentive Stock
Options granted pursuant to the Plan shall be subject to the following
additional terms and conditions:
(i) "Incentive Stock Options" shall be granted only to individuals
who, at the date of grant of the Option, are regular, full-time Employees of the
Corporation or any Parent or Subsidiary;
(ii) No Employee who owns beneficially more than 10% of the total
combined voting power of all classes of stock of the Corporation shall be
eligible to be granted an "Incentive Stock Option", unless the exercise price
per Share is at least 110% of the Fair Market Value of the Common Stock subject
to the Option on the date of grant of the Option and the Option, by its terms,
is not exercisable after the expiration of five years from the date the Option
is granted.
(iii) To the extent that the aggregate fair market value (determined
at the time the Option is granted) of the shares of Common Stock in respect of
which an Option is exercisable for the first time by the Optionee during any
calendar year (and taking into account all "incentive stock option" plans of the
Corporation and its subsidiaries) exceeds $100,000, that number of whole shares
for which an Option issued hereunder is exercisable with an aggregate fair
market value in excess of this $100,000 limit shall not be treated as having
been granted under an "incentive stock option"; and
(iv) Any other terms and conditions specified by the Committee that
are not inconsistent with the Plan, except that such terms and conditions must
be consistent with the requirements for "incentive stock options" under Section
422 of the Code.
8. Methods of Exercise of Options
(a) An Optionee (or other Option Holder, if any, entitled to exercise an
Option hereunder) desiring to exercise an Option granted pursuant to the Plan as
to all or part of the Shares of Common Stock covered by the Option shall (i)
notify the Corporation in writing at its principal office to that effect,
specifying the number of Shares of Common Stock to be purchased and the method
of payment therefore, and (ii) make payment or provision for payment for the
shares of Common Stock so purchased in accordance with this Section 8. Such
written notice may be given by means of a facsimile transmission. If a facsimile
transmission is used, the Option Holder should mail the original executed copy
of the written notice to the Corporation promptly thereafter. An Option may not
be exercised for as fraction of a share of Common Stock.
(b) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the Board
of Directors and may consist entirely of cash, check, promissory note, other
shares of Common Stock which (i) either have been owned by the Option Holder for
more than six (6) months on the date of surrender or were not acquired, directly
or indirectly, from the Corporation, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, or any combination of such methods of
payment, or such other consideration and method of payment for the issuance of
Shares to the extent permitted under the laws of Delaware. In making its
determination as to the type of consideration to accept, the Board shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Corporation.
(c) An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Corporation in accordance with the terms of the
Option by the Option Holder and full payment for the Shares with respect to
which the Option is exercised has been received by the Corporation. Full payment
may, as authorized by the Board of Directors, consist of any consideration and
method of payment allowable under Section 8(b) of the Plan. Until the issuance
(as evidenced by the appropriate entry on the books of the Corporation or of a
duly authorized transfer agent of the Corporation) of the stock certificate
evidencing such Shares, no right to vote (in the case of voting stock) or
receive dividends or any other rights as a shareholder shall exist with respect
to the optioned Shares, notwithstanding the exercise of the Option. The
Corporation shall issue (or cause to be issued) such stock certificate promptly
upon exercise of the Option. In the event that the exercise of an Option is
treated in part as the exercise of a Nonstatutory Stock Option, the Corporation
shall issue a separate stock certificate evidencing the Shares of each class
treated as acquired upon exercise of an Incentive Stock Option and a separate
stock certificate evidencing the Shares of each class treated as acquired upon
exercise of a Nonstatutory Stock Option, and shall identify each such
certificate accordingly in its stock transfer records. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 9 of the
Plan.
(d) An Option Holder at any time may elect in writing to abandon an Option
in respect of all or part of the number of Shares of Common Stock as to which
the Option shall not have been exercised.
(e) Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
9. Adjustments Upon Changes in Capitalization or Merger
Subject to any required action by the shareholders of the Corporation, the
number of Shares of Common Stock covered by each outstanding Option, and the
number of Shares of Common Stock which have been authorized for issuance under
the Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share of Common Stock covered by each such outstanding Option,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Corporation; provided, however,
that conversion of any convertible securities of the Corporation shall not be
deemed to have been "effected without receipt of consideration." Such adjustment
shall be made by the Board of Directors, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
of Common Stock subject to an Option.
In the event of the proposed dissolution, liquidation or sale of all or
substantially all of the assets of the Corporation, the Board shall notify the
Optionee or other Option Holder at least fifteen (15) days prior to such
proposed action. To the extent it has not been previously exercised, the Option
will terminate immediately prior to the consummation of such proposed action. In
the event of the merger of the Corporation with or into another corporation, the
Option shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless such successor corporation does not agree to assume the Option or to
substitute an equivalent option, in which case the Board shall, in lieu of such
assumption or substitution, provide for the Option Holder to have the right to
exercise the Option as to all of the optioned Shares, including Shares as to
which the Option would not otherwise be exercisable. If the Board makes an
Option fully exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify the Optionee or other Option
Holder that the Option shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option will terminate upon the
expiration of such period.
10. Time of Granting Options
The date of grant of an Option shall, for all purposes, be the date on
which the Board of Directors or Committee makes the determination granting such
Option. Notice of the determination shall be given to each Optionee within a
reasonable time after the date of such grant.
11. Amendments and Discontinuance of the Plan
(a) The Board of Directors shall have the right at any time and from time
to time to amend, modify, or discontinue the Plan in such respects as the Board
may deem advisable; provided that, unless approved by the Corporation's
shareholders in accordance with Section 15, no such amendment, modification, or
discontinuance of the Plan shall (i) revoke or alter the terms of any valid
Option previously granted pursuant to the Plan, (ii) increase the number of
shares of Common Stock to be reserved for issuance and sale pursuant to Options
granted pursuant to the Plan, (iii) change the maximum aggregate number of
shares of Common Stock that may be issued upon the exercise of Options granted
pursuant to the Plan to any single individual, (iv) decrease the price
determined pursuant to the provisions of Section 7(b), (v) change the class of
persons to whom Options may be granted pursuant to the Plan, (vi) provide for
Options exercisable more than 10 years after the date granted, (vii) if the
Corporation has a class of equity securities registered under Section 12 of the
Exchange Act at the time of such revision or amendment, any material increase in
the benefits accruing to participants under the Plan.
(b) Shareholder Approval. If any amendment requiring shareholder approval
under Section 15(a) of the Plan is made at a time when any class of equity
securities by the Corporation is registered under Section 12 of the Exchange
Act, such shareholder approval shall be solicited as described in Section 15 of
the Plan.
(c) Effect of Amendment or Termination. Any such amendment or termination
of the Plan shall not affect Options already granted and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee or other
Option Holder and the Board of Directors, which agreement must be in writing and
signed by the Option Holder and the Corporation.
12. Plan Subject to Governmental Laws and Regulations
The Plan and the grant and exercise of Options and grant of Restricted
Stock Awards pursuant to the Plan shall be subject to all applicable
governmental laws and regulations. Notwithstanding any other provision of the
Plan to the contrary, the Board of Directors may in its sole and absolute
discretion make such changes in the Plan as may be required to conform the Plan
to such laws and regulations. Shares shall not be issued pursuant to the
exercise of an Option or Restricted Shares pursuant to a Restricted Stock Award
unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto or the issuance of the Restricted Shares pursuant to the
Restricted Stock Award shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Corporation with
respect to such compliance.
As a condition to the exercise of an Option or issuance of Restricted
Shares pursuant to a Restricted Stock Award, the Corporation may require the
person exercising such Option or receiving such Restricted Shares to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Corporation, such a representation
is required by any of the aforementioned relevant provisions of law.
13. Reservation of Shares
The Corporation, during the term of this Plan, will at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
The inability of the Corporation to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Corporation's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Corporation of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
14. Option Agreements and Restricted Stock Awards
Options and Restricted Stock Awards shall be evidenced by written option
or restricted stock award agreements in such form as the Committee shall
determine from time to time.
15. Shareholder Approval
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Corporation within twelve (12) months before or after the
date the Plan is adopted.
(b) The required approval of the shareholders of the Corporation shall be
solicited substantially in accordance with Section 14 of the Exchange Act and
the rules and regulations promulgated thereunder.
16. Term of Plan
The Plan shall become effective upon the earlier to occur of its adoption
by the Board of Directors or its approval by the shareholders of the Corporation
as described in Section 15 of the Plan. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 11 of the Plan.
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APPENDIX
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-30563
DELTA MUTUAL, INC.
(Name of small business issuer in its charter)
DELAWARE 14-1818394
--------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 North Branch Street, Sellersville, Pennsylvania 18960
(Address of principal executive offices) (Zip Code)
---------------------------------------------
(Former Address)
(215) 258-2800
(Registrant's telephone number)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK (par value $0.0001 per share)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to the filing requirements for the past 90 days. Yes [X] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for its fiscal year ended December 31, 2003: $-0-
Aggregate market value of the voting and non-voting common shares held
by non-affiliates of the registrant as of March 31, 2004: $7,817,068 (See Item
5)
Number of shares outstanding of registrant's Common Stock, par value
$.0001, as of March 31, 2004: 11,695,688 shares of Common Stock (See Item 11)
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format (check one): Yes__ No _X_
PART I
NOTE REGARDING FORWARD LOOKING STATEMENTS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report contains historical information as well as
forward-looking statements. Statements looking forward in time are included in
this Annual Report pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks and uncertainties that may cause our actual results in future
periods to be materially different from any future performance suggested herein.
We wish to caution readers that in addition to the important factors described
elsewhere in this Form 10-KSB, the following forward-looking statements, among
others, sometimes have affected, and in the future could affect, our actual
results and could cause our actual consolidated results during 2004, and beyond,
to differ materially from those expressed in any forward-looking statements made
by or on our behalf.
Forward-looking statements include, but are not limited to, statements
under the following headings; (i) "Business Plan," about the development of
certain projects and business opportunities and the Company's attempts to
convert these plans and opportunities into operating businesses that generate
revenues and profits; (ii) "Business Plan," about the intentions of the Company
to fund its businesses and operations by borrowings and the successful placement
of debt and equity financings; (iii) "Results of Operations"; (iv) "Liquidity
and Capital Resources," about the Company's plan to raise additional capital;
(v) "Liquidity and Capital Resources," about the contingent nature of the
consummation of any agreements with its contracting, joint venture and
partnership parties.
ITEM 1. DESCRIPTION OF BUSINESS
Unless the context otherwise requires, the terms "the Company," "we," "our" and
"us" refers to Delta Mutual, Inc.
GENERAL
We were incorporated under the name Delta Mutual, Inc. on November 17,
1999, in the State of Delaware. We are planning to establish business operations
focused on providing construction and environmental technologies and services to
specific geographic areas in Puerto Rico, the Middle East, Africa and the Far
East. We have made a strategic decision to minimize our activities in Eastern
Europe and to maintain a small passive investment in the area that can be
expanded in the future should circumstances change.
Our offices are located at 111 North Branch Street, Sellersville, PA
18960. Our telephone number is (215) 258-2800.
Prior Operations
At the time of the Company's formation, prior Company management
intended to provide mortgage services through the Internet to borrowers with
substandard credit. Prior Company management intended to offer varied levels of
mortgage and lending services by capitalizing on the popularity of
Internet-based financial services companies and secured the domain name rights
to the name deltamutual.com.
During our first year of existence, prior Company management believed
that it would be able to fund our intended operations through the sale of our
common stock. Our common stock is quoted on the Over-the-Counter Electronic
Bulletin Board under the symbol "DLTM". At the time of our formation, companies
with Internet-based businesses were treated favorably in the capital markets. In
2000, however, the market for the stock of Internet-based businesses
deteriorated substantially and many such companies went out of business because
they were unable to generate sufficient revenue and were unable to raise
additional capital.
From inception through December 31, 2002, prior to initiating our
current plan of operations, we raised a limited amount of capital through the
sale of our common stock. These funds were not sufficient to capitalize any of
our planned business activities in that period.
In April 2001, Kelcon, Inc. ("Kelcon"), a Company newly organized for
the purpose by Kenneth A. Martin, acquired a controlling interest (450,000
shares) in Delta with a view to acquiring the assets of Enterprises Solutions,
Inc. ("Enterprises"). Kelcon's Delta shares were acquired from two of Delta's
directors, James E. Platek (300,000 shares) and Bonnie Cunningham (150,000), for
which Kelcon paid a total of $450,000. Mr. Martin supplied $75,000 of the
purchase price for Delta's shares, and an overseas investor who had previously
invested in Enterprises supplied $375,000, for which Kelcon issued a 20%
promissory note due October 31, 2001. The investor had the right to convert
$100,000 principal amount of the note into 100,000 shares of Kelcon's Delta
stock. As part of this transaction, Mr. Platek, Ms. Cunningham, and Delta's
third director, Robert Franz, resigned and appointed Mr. Martin as Delta's sole
director. Mr. Martin then appointed Mr. Sailor H. Mohler and Mr. Phillip Chung
as additional directors.
In May 2000, prior Company management entered into an Agreement of Sale
pursuant to which Delta was to acquire substantially all Enterprises' assets in
exchange for approximately 11,068,307 shares of Delta's common stock. In June
2001, prior Company management prepared and filed with the Securities and
Exchange Commission a registration statement for the shares to be issued to
Enterprises' stockholders, with a view to consummating the acquisition.
Due to the death of Enterprises' president, the Agreement of Sale with
Enterprises was terminated and the Company's registration statement was
withdrawn. Shortly thereafter, Messrs. Sailor H. Mohler and Phillip Chung
resigned as directors of the Company.
In August, 2002, prior Company management executed a letter of intent
to merge with Helvetia Pharmaceuticals, Inc. After a due diligence period, prior
Company management terminated negotiations and that proposed transaction was
never consummated.
Change of Control
In November, 2002, Kelcon, Inc. sold its 450,000 shares of our common
stock to Mr. Gary T. Robinson, a New York businessman, pursuant to an agreement
providing for a total purchase price of $275,000 in a private transaction. Mr.
Robinson paid $50,000 of the purchase price in connection with the execution of
the purchase agreement. We have viewed this transaction as representing a
"Change in Control" of our Company. As part of this transaction, on March 10,
2003, Kenneth A. Martin appointed Gary T. Robinson and Mr. Peter F. Russo to
serve as members of our Board of Directors. On March 11, 2003, Mr. Robinson was
appointed Chief Executive Officer and Chairman of the Board of Directors, and
Mr. Russo was appointed as President and Secretary. Thereafter, on March 11,
2003, Mr. Martin resigned as an officer and director of the Company.
On June 11, 2003, Mr. Robinson resigned as Chief Executive Officer and
Mr. Russo was appointed to that office. On November 28, 2003, Mr. Robinson
resigned as a director.
Business Plan
Since the change in control, new Company management has embarked upon a
new mission and strategic direction, through the establishment of joint ventures
and a limited partnership. This structure is primarily for the establishment of
business operations focused on providing construction and environmental
technologies and services to specific geographic areas in Puerto Rico, the
Middle East, Africa and the Far East. The Company, simultaneously, made a
strategic decision to minimize its activities in Eastern Europe and to maintain
a small passive investment in the area that can be expanded in the future should
circumstances change. While the potential for significant environmental
remediation activity remains, the local government priorities for use of very
limited hard currency relegates these to a low status, requiring the Company to
devote substantial time and investment that can be deployed in other geographic
areas to achieve faster and more predictable results.
Access to technologies has been secured primarily through strategic
alliance agreements with the manufacturers and/or patent license holders. These
agreements enable the Company, in most cases, to utilize the technology holder
as the sub-contractor for the projects thereby minimizing the need for Company
trained employees.
On February 28, 2003, the Company entered into a Letter Of Intent with
CEVA International, Inc., a company whose primary business was providing
environmental services and technologies to public and private entities in
Central and Eastern Europe. Following the period within which the companies had
agreed to cooperate with each other in the performance of due diligence
investigations aimed at the opportunity to purchase certain assets, licenses
and/or permits, the Company decided not to pursue this opportunity. As
stipulated in the Letter Of Intent, the Company exercised its option to
terminate the activities.
On April 2, 2003, we entered into a technology license agreement with
Joseph Friedman and Sons International, Inc. ("Friedman"). The license territory
included all of the republics of the former Soviet Union where Friedman has
business experience. Based on the termination of certain technology rights
licensed to us, as well as our strategic decision to minimize our activities in
Eastern Europe, on March 30, 2004, we notified Friedman of termination of this
license agreement. Friedman has made certain demands under this license
agreement. See "Item 3. Legal Proceedings" below.
The United States
We have entered into strategic alliance agreements with several United
States-based entities with technologies in the environmental technology field to
support the geographic activities.
On March 18, 2003 we entered into a Letter Of Intent with Hi Tech
Consulting and Construction, Inc. to form a joint venture to provide
environmental technology services for certain business sectors located in the
Middle East and Africa. The joint venture agreement was concluded January 14,
2004, and the joint venture company is registered in the State of Virginia.
On March 6, 2003 the Company entered into a consulting agreement with
M.U.R.G. LLC ("M.U.R.G.") , a Florida-based real estate consulting firm. The
consultant was to provide advisor services in connection with a proposed
construction of approximately 500 homes in Puerto Rico by the Company. We
advanced M.U.R.G. $100,000 against its future commission compensation and
M.U.R.G. delivered to us its promissory note payable on demand with interest
accruing at the rate of 5% per annum. Gary T. Robinson, Former Chief Executive
Officer and Former Chairman of the Board, loaned the Company $100,000 that
enabled us to make the advance to M.U.R.G. The project did not go forward and on
June 16, 2003 Mr. Robinson agreed to assume the promissory note from M.U.R.G.
and eliminate the loan amount due him from the Company.
On April 25, 2003, the Company entered into a Letter Of Intent with Ms.
Jamie Burrows and Burrows Consulting, Inc., a Texas based corporation
(collectively referred to as "Burrows") to form a joint venture company to be
known as Delta Specialty Services. Delta Specialty Services was to be based in
Houston, Texas and was to engage in providing waste remediation technologies and
services on a project basis to the United States Government, foreign governments
and their respective departments, agencies, political sub-divisions as well as
to private entities around the world. As of September 30, 2003 the Company had
advanced $75,000 to Burrows. On September 4, 2003, an announcement was made
regarding the execution of the first legal contract establishing the business
relationship with Burrows. The joint venture was officially scheduled to be
consummated on October 31, 2003 and operated under the assumption that, if all
conditions were met, which included the execution and delivery of legal
documents defining the rights of the parties and requiring certain funding
commitments, the operation of the joint venture would commence. This was not
accomplished on the established timetable and the joint venture company has not
commenced operations.
On January 22, 2004, the Company announced the conclusion of a
strategic alliance agreement between Delta-Envirotech, Inc. and ZAFF
International, Ltd., an advanced technology company located in Saudi Arabia. The
strategic alliance states that the two companies will jointly pursue projects
related to soil and water reclamation requirements in the Middle East. Under the
terms of the agreement, the strategic alliance is to transition to a joint
venture as soon as possible within the formation and registration process of
Saudi Arabia.
On January 20, 2004, the Company announced the formation of a joint
venture project to develop government sponsored, Section 124 low income housing
in the Commonwealth of Puerto Rico. The Company is the General Partner and
majority owner of a limited partnership that is the majority shareholder of
Delta Developers Corp., a Puerto Rico corporation, formed to manage the
construction and related activities required to build approximately 270 low
income homes under Section 124.
COMPETITION
We will remain a development-stage company until we have commenced
business operations in accordance with our business plan and have successfully
obtained debt or equity financing to fund our projected business operations.
There are many established environmental remediation companies that have
significantly greater financial and personnel resources and technical expertise
than we do. There are well-capitalized environmental services and technology
companies as well as highly capitalized housing development companies in our
target marketplaces that will continue to retain their dominance and competitive
advantages over us.
EMPLOYEES
Currently, we have five employees: Peter F. Russo, President and Chief
Executive Officer; Martin G. Chilek, Vice President and Chief Financial Officer;
Jerome Kindrachuk, Vice President--International; John Latza, Vice
President-Puerto Rico Operations and Judith Dallas, Corporate Office Manager.
Assuming that we obtain the necessary funding to operate our planned businesses,
we will hire several additional personnel to support our projected business
operations.
RISK FACTORS
Our business is subject to numerous risk factors, including the following:
NO REVENUE AND MINIMAL ASSETS.
We have no operations or revenues. The Company's ability to continue as a going
concern is dependent upon its ability to obtain funds to meet its obligations on
a timely basis, obtain additional financing or refinancing as may be required,
and ultimately to attain profitability. There are no assurances that the Company
will be able to obtain any additional financing or, if it is able to obtain
additional financing, that such financing will be on favorable terms. The
inability to obtain additional financing when needed would have a material
adverse effect on operating results.
OUR BUSINESS IS IN THE DEVELOPMENTAL STAGE AND WE EXPECT TO INCUR LOSSES IN THE
FUTURE.
Our operations have not generated any revenue nor are they profitable. We have
incurred net operating losses from the formation of our company through December
31, 2003, of $1,789,400, and expect that we will continue to incur operating
losses in the future. Failure to achieve or maintain profitability may
materially and adversely affect the future value of our common stock.
WE HAVE ONLY A LIMITED OPERATING HISTORY AND HAVE NOT OPERATED PROFITABLY SINCE
INCEPTION. WE WILL BE REQUIRED TO RAISE SUBSTANTIAL AMOUNTS OF CAPITAL.
Our operations have never been profitable, and it is expected that we
will continue to incur operating losses in the future. In 2003, we generated no
revenue, incurred operating expenses of $1,209,853 and had a net loss of
$1,249,509. As of March 30, 2004, we had approximately $21,000 of cash on hand
to fund operations. There is no assurance that we will operate profitably in the
future.
We will have to obtain significant additional capital to continue
development of our proposed business. There is no assurance that we will be able
to obtain sufficient capital to develop our proposed environmental remediation
and housing businesses and market our services successfully.
WE HAVE BEEN THE SUBJECT OT A GOING CONCERN OPINION FROM OUR INDEPENDENT
AUDITORS, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE
OBTAIN ADDITIONAL FUNDING.
Our independent auditors have added an explanatory paragraph to their
audit opinions, issued in connection with our financial statements, which states
that our ability to continue as a going concern is uncertain due to our
continued operating losses, the excess of our liabilities over our assets and
uncertain conditions we face in our day-to-day operations. Our financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION FOR OUR PROPOSED
ENVIRONMENTAL REMEDIATION OPERATIONS.
Each aspect of our proposed environmental remediation business is subject to
significant international and U.S. federal, state and local environmental
regulations. No assurances can be given that such environmental laws or
regulations, or that future changes in environmental laws, regulations, or
interpretations currently applicable to the Company or changes in the nature of
the Company's operations, will not adversely impact our proposed operations or
have a material adverse effect on the financial condition, operations and
liquidity of the Company.
AS A HOUSING DEVELOPER WE FACE ECONOMIC AND MARKET RISKS.
Many factors which are beyond our control will affect our proposed business as a
developer of housing, including, among others, general economic and real estate
market conditions, competitive factors, the availability and cost of borrowed
funds, real estate tax rates, federal and state income tax laws, operating
expenses (including maintenance and insurance), energy costs, government
regulations, and potential liability under and changes in environmental and
other laws, as well as the successful management of the properties.
Our success as a developer of housing will also be subject to certain
additional risks including, but not limited to, (i) competition for existing and
future projects from other developers in the areas of our developed properties,
(ii) adverse changes in mortgage interest or terms of governmental financing,
(iii) possible adverse changes in general economic conditions and adverse local
conditions, such as competitive over-bidding, a decrease in employment or
adverse changes in real estate zoning laws, and (iv) other circumstances over
which we may have little or no control.
OUR MARKETS ARE VERY COMPETITIVE.
Virtually all of our current and potential competitors have significantly
greater financial, marketing and technical resources than we have. As a result,
they may be able to leverage a customer base, adapt more quickly to new
technologies and changes in customer requirements, or devote greater resources
to the promotion and sale of their services and products than we can.
WE DO NOT EXPECT TO PAY DIVIDENDS.
We have never paid dividends on our common stock. Current Company management
anticipates that any earnings generated from our operations will be used to
finance our working capital requirements, develop services and products and
marketing. For the foreseeable future, cash dividends will not be paid to
holders of our common stock.
VOLATILITY OF STOCK PRICE.
The market price of our common stock, as is the case for companies without
established operations, is extremely volatile due to our future prospects and
general market and economic conditions. During the fifteen month period ended
March 1, 2004, the closing per share price of our common stock has fluctuated
from $7.21 to $0.11 per share. Our common stock currently trades in the OTC
Bulletin Board market.
"PENNY" STOCK REGULATION OF BROKER-DEALER SALES OF OUR SECURITIES.
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in "penny stocks." Generally, penny stocks are equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the NASDAQ system). If our
shares are traded for less than $5.00 per share, as they currently are, the
shares will be subject to the SEC's penny stock rules unless: (1) our net
tangible assets exceed $5,000,000 during our first three years of continuous
operations or $2,000,000 after our first three years of continuous operations;
or (2) we have had average revenue of at least $6,000,000 for the last three
years. The penny stock rules require a broker-dealer, prior to a transaction in
a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document prescribed by the SEC that provides information about
penny stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. In addition, the penny
stock rules require that prior to a transaction in a penny stock not otherwise
exempt from those rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
requirements may have the effect of reducing the level of trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
As long as our common stock is subject to the penny stock rules, the holders of
the common stock may find it difficult to sell our common stock.
ITEM 2. DESCRIPTION OF PROPERTY.
We currently lease office space consisting of approximately 1,700 square feet in
an office building located in Sellersville, Pennsylvania. We are obligated to
pay a monthly rent of $650 as well as pay for the utilities serving the
premises. Our lease is for a period of three years from March 1, 2003 to
February 28, 2006. We anticipate that our current office space will accommodate
our operations for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
We have no pending legal proceedings; however, the two claims discussed below
are currently under negotiation.
Joseph Friedman and Sons International, Inc.
In April 2003, the Company entered into a License Agreement (the "License
Agreement") with Joseph Friedman and Sons International, Inc. ("Friedman") for
the purpose of developing environmental remediation projects in the territory of
the former Soviet Union. Under the License Agreement, certain technologies that
were licensed to Delta Mutual, Inc. under an agreement with the owner of the
technologies were in turn licensed to Friedman, which was to develop the
projects, and, among other things, Friedman was issued 288,638 shares of the
Company's common stock and obtained certain rights to a seat on the Company's
board of directors. No projects were ever commenced under the License Agreement.
Due to actions taken against the technology owner by its creditors during the
latter part of 2003, the underlying agreement with respect to these technologies
was terminated. Accordingly, the Company considers the License Agreement
terminated pursuant to its force majeure clause and so notified Friedman on
March 30, 2004.
In October 2003, Friedman requested that a nominee be appointed to the board of
directors of the Company. Friedman has also made demands against the Company
seeking the payment of certain expenses and consulting fees which Friedman
claims the Company is obligated to pay under or in connection with the License
Agreement, as well as demands for the issuance to Friedman of an indeterminate
but substantial number of shares of common stock, now and in the future, in
connection with any future issuances of common stock by the Company. The Company
believes that such claims regarding the issuance of additional shares of common
stock and entitlement to a board seat are without merit and intends to
vigorously contest such claims.
B. Michael Pisani
In January 2003, the Company borrowed $15,000 from B. Michael Pisani ("Pisani"),
as evidenced by a promissory note in such principal amount, which was payable
with interest on January 27, 2003. This note provided for the issuance of 25,000
shares of common stock for each month that amounts due and owing were not paid
by the Company. Although the Company's position is that the terms of the note
were amended in May 2003 to eliminate requirement of additional shares, Pisani
disputes the validity of such amendment and has made a demand for the issuance
of 350,000 shares of common stock. In March 2004, the Company repaid the
principal and interest due under the terms of the amended note, which payment
was accepted by Pisani with reservations regarding the validity of his claims
with respect to additional shares of common stock. The Company is presently
attempting to resolve this dispute. If the matter can not be resolved, the
Company intends to vigorously defend such claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock has been quoted on the Over-the-Counter Bulletin Board operated
by the National Association of Securities Dealers, since approximately February
1, 2001. Our shares are listed under the symbol "DLTM". The quotations in the
table below reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions.
High Low
---- ---
2002: 1st Quarter .45 .11
2nd Quarter 1.01 .03
3rd Quarter 5.05 .16
4th Quarter 7.21 .51
2003: 1st Quarter 2.80 2.10
2nd Quarter 2.00 .65
3rd Quarter 1.35 .63
4th Quarter .95 .17
2004: 1st Quarter 1.09 .49
(through March 31, 2004)
During the last two fiscal years, no cash dividends have been declared on
Delta's common stock and current Company management does not anticipate that
dividends will be paid in the foreseeable future. As of March 31, 2004, there
were 50 record holders of our common stock.
RECENT SALES OF UNREGISTERED SECURITIES
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
Date Title and Amount Purchasers Principal Total Offering
Underwriter Price/Underwriting Discounts
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
December, 2002 300,000 shares of common Private Investor NA $.10 per share/NA
stock
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
May 23, 2003 20,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.50 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
May 23, 2003 240,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.1667 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
May 23, 2003 100,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.25 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
May 23, 2003 100,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.25 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
May 23, 2003 288,638 shares of common Licensee NA Services under License
stock issued for Agreement valued at $.139
consulting services per share/NA
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
May 23 and 800,000 shares of common Private Investors NA Purchase of $250,000
September 5, 2003 stock principal amount note,
valued at $.3125 per share/NA
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
May 23, 2003 50,000 shares of common Private Investor NA Interest on loan valued at
stock, issued as payment $.275 per share/NA
of interest on
outstanding debt
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
Date Title and Amount Purchasers Principal Total Offering
Underwriter Price/Underwriting Discounts
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
May 23, 2003 37,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.405 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
May 23, 2003 3,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.50 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
May 23, 2003 50,000 shares of common Private Investor NA Interest on loan valued at
stock, issued as payment $.333 per share/NA
of interest on
outstanding debt
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
August 1, 2003 200,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.20 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
August 8, 2003 100,000 shares of common Private Investor NA $.50 per share/NA
stock
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
July 23, 2003 37,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.405 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
July 23, 2003 3,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.50 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
August 11, 2003 50,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.4375 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
August 11, 2003 25,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.4375 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
August 11, 2003 15,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.4375 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
August 11, 2003 10,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.4375 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
August 22, 2003 250,000 shares of common Private Investor NA $.20 per share/NA
stock
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
November 15, 2003 100,000 shares of common Private Investor NA $.125 per share/NA
stock
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
November 15, 2003 100,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.085 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
November 21, 2003 50,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.035 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
Date Title and Amount Purchasers Principal Total Offering
Underwriter Price/Underwriting Discounts
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
November 21, 2003 50,000 shares of common Consultant NA Consulting Services valued
stock issued for at $.035 per share/NA
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
December 15, 2003 10,000 shares of common Consultant NA $.085 per share/NA
stock issued for
consulting services
- -------------------- -------------------------- ------------------ ------------------- ------------------------------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion of our financial condition and results of operations
should be read in conjunction with the financial statements and notes thereto
and the other financial information included elsewhere in this report.
Certain statements contained in this report, including, without limitation,
statements containing the words "believes," "anticipates," "expects" and words
of similar import, constitute "forward looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks and uncertainties. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including our ability to create, sustain, manage
or forecast our growth; our ability to attract and retain key personnel; changes
in our business strategy or development plans; competition; business
disruptions; adverse publicity; and international, national and local general
economic and market conditions.
GENERAL
We were incorporated in the State of Delaware on November 17, 1999 and remain a
development stage company that will require additional capital to execute our
planned business operations.
RESULTS OF OPERATIONS
During the fiscal year ended December 31, 2003 we incurred a net loss of
$1,249,509, because we had no revenue to offset operating expenses. During the
fiscal year ended December 31, 2002 we incurred a net loss of $325,384 that was
primarily attributable to bad debts in the aggregate amount of $96,625,
consulting expenses of approximately $71,000 and professional fees in the
approximate amount of $114,500. From inception (November 17, 1999) to December
31, 2003, we had a net loss of $1,789,400.
The Independent Auditors' Report and Note 1 of the Notes to Financial Statements
accompanying this report state that substantial doubt has been raised about our
ability to continue as a going concern. Our present business operations do not
generate any revenue with which to cover our expenses. We will have to raise
capital through the placement of our securities in order to remain viable. We
are continuing to incur management and administrative costs, professional fees
and other expenses. If we are unable to raise capital we will be unable to fund
our plan of operations. Because we will continue to incur net losses, we may
have to cease operations entirely. This factor, among others, raises substantial
doubt about our ability to continue as a going concern.
Our ability to continue as a going concern is dependent upon our ability to
obtain funds to meet our obligations on a timely basis, obtain additional
financing or refinancing as may be required, and ultimately to attain
profitability. There are no assurances that we will be able to obtain any
additional financing or, if we are able to obtain additional financing, that
such financing will be on terms favorable to us. The inability to obtain
additional financing when needed would have a material adverse effect on our
operating results.
2003 COMPARED TO 2002
The net loss increased from approximately $325,000 in 2002 to approximately
$1,250,000 for the twelve months ended December 31, 2003.
The items of significant increase or decrease in the twelve months ended
December 31, 2003 over the comparable period of the prior year were an increase
in general and administrative expense from approximately $322,000 in 2002 to
approximately $1,210,000 for the twelve months ended December 31, 2003, and an
increase in interest expense from approximately $3,700 in 2002 to approximately
$40,000 for the twelve months ended December 31, 2003.
PLAN OF OPERATION
Since the Change in Control, new Company management has embarked upon a new
mission and strategic direction, by establishing joint venture subsidiaries and
a limited partnership, primarily to establish business operations focused on
providing construction and environmental technologies and services in Puerto
Rico, the Middle East, Africa and the Far East.
Puerto Rico
The Company formed a majority owned joint venture in Puerto Rico to manage the
construction and related activities required to build low income homes in Puerto
Rico under the Federal Government's Section 124 low income housing program. In
December 2003, the Company secured the purchase rights to 36 acres that are
designated Section 124 eligible. Approximately 270 low-income homes are planned
for construction on this property.
Middle East, Africa and Far East
We intend to establish local operating joint ventures in specific countries in
the Middle East and the Far East primarily aimed at soil and water reclamation.
The initial step of forming a strategic alliance leading to a joint venture has
been established with a local organization in Saudi Arabia, and discussions are
underway in Kuwait and Indonesia. The Company intends to provide environmental
remediation services only in Africa as these projects are primarily funded by
international financial institutions.
Central and Eastern Europe
The Company has made a strategic decision to minimize its activities in Eastern
Europe and to maintain a small passive investment in the area that can be
expanded in the future if current circumstances change. While the potential for
significant environmental remediation activity remains, local government
priorities and hard currency shortages relegate these activities to a low
status.
The U.S. Government has scheduled a program for disposal of specific military
related waste products that require not only specialized disposal facilities,
but also state of the art identification and tracking systems. The disposal
requirement is the outcome of a number of weapons destruction treaties that are
currently in effect. We had planned to establish a joint venture to address this
very specific market during the fourth quarter of 2003. However, this was not
accomplished and the joint venture has not been formed.
We are currently dependent on equity investments from private investors to pay
our operating expenses. There are no assurances that such investors will
continue to advance funds or invest in the Company's securities. In the event we
are unable to obtain additional capital or funding we may be unable to pursue
our business plans. Due to the fact that we have limited operations at this
time, it is anticipated that our cash requirements will be limited, and that all
necessary capital, to the extent required, will be provided by investors. We
anticipate that we will be required to raise capital in the approximate amount
of $1,800,000 in the next 12 months in order to continue to fund our limited
operations and to finance our planned business operations.
LIQUIDITY
We have no current operations that have generated any revenue. We must rely
entirely on private placements of Company stock to pay operating expenses.
At December 31, 2003 and 2002, we had working capital deficits of $623,423 and
$235,483, respectively. The increase in our working capital deficit is a result
of the net loss incurred during the year ended December 31, 2003. Since we have
no source of revenue, our working capital deficit will continue to increase as
we incur additional operating expenses. Presently, we have no external sources
of cash and we are dependent upon private placements of our stock for funding.
In 2003, we raised $112,500 of equity capital, through the sale of 450,000
shares of common stock. In addition, we borrowed $100,000 from our Former Chief
Executive Officer in March 2003 to make a payment of an identical amount to a
consultant. On June 30, 2003, the Former Chief Executive Officer agreed to
release the Company from the note and assume the responsibility for recovering
the amount paid to the Consultant.
ASSETS
At December 31, 2003, we had total assets of $84,702, compared to total assets
of $2,871 at December 31, 2002. The increase in assets as of December 31, 2003
was due to an increase in cash, an increase in fixed assets and an investment in
a subsidiary.
CRITICAL ACCOUNTING ISSUES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of the financial statements, requires
the Company to make estimates and judgments that effect the reported amount of
assets, liabilities, and expenses, and related disclosures of contingent assets
and liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to intangible assets, income taxes and contingencies and
litigation. The Company bases its estimates on historical experience and on
various assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
Other Matters
Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations and costs associated with the retirement of tangible long-lived
assets. The Company adopted SFAS 143 on January 1, 2003. The adoption of SFAS
No.143 did not have a material impact on the Company's results of operations or
financial position.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
This statement eliminates the automatic classification of gain or loss on
extinguishment of debt as an extraordinary item of income and requires that such
gain or loss be evaluated for extraordinary classification under the criteria of
Accounting Principles Board No. 30 "Reporting Results of Operations". This
statement also requires sales-leaseback accounting for certain lease
modifications that have economic effects that are similar to sales-leaseback
transactions, and makes various other technical corrections to existing
pronouncements. This statement will be effective for the Company for the year
ending December 31, 2003. Management believes that adopting this statement will
not have a material effect on the Company's results of operations or financial
position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan. The Company adopted SFAS
No. 146 on January 1, 2003. The adoption of SFAS No. 146 did not have a material
impact on the Company's result of operations or financial position.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123".
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. It also requires disclosure in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS No. 148 is effective
for annual and interim periods beginning after December 15, 2002. The Company
will continue to account for stock-based employee compensation under the
recognition and measurement principle of APB Opinion No. 25 and related
interpretations. The Company complied with the additional annual and interim
disclosure requirements effective December 31, 2002 and September 30, 2003.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement is effective for contracts
entered into or modified after June 30, 2002, and for hedging relationships
designated after June 30, 2003. Management believes that adopting this statement
will not have a material effect on the Company's results of operations or
financial position.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and interpretation of FASB
Statements No. 5, 57,and 107 and Rescission of FASB Interpretation No. 34. FIN
45 clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies, relating to the guarantor's accounting for, and disclosure of,
the issuance of certain types of guarantees. This interpretation clarifies that
a guarantor is required to recognize, at the inception of certain types of
guarantees, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in this interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company adopted FIN 45 on January 1, 2003. The adoption
of FIN 45 did not have a material impact on the Company's results of operations
or financial position.
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, "Consolidation of Variable Interest Entities," which addresses
consolidation by business enterprises of variable interest entities. In general,
a variable interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. A
variable interest entity often holds financial assets, including loans or
receivables, real estate or other property. A variable interest entity may be
essentially passive or it may engage in research and development or other
activities on behalf of another company. The objective of Interpretation No. 46
is not to restrict the use of variable interest entities but to improve
financial reporting by companies involved with variable interest entities. Until
now, a company generally has included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
Interpretation No. 46 changes that by requiring a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. The consolidation
requirements of Interpretation No. 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
older entities in the first fiscal year or interim period beginning after June
15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. The Company does not have any variable interest
entities, and, accordingly, adoption is not expected to have a material effect
on the Company's results or operations or financial position.
In May 2003, the FASB issued SFAS No. 150 "Accounting for Financial Instruments
with the Characteristics of Both Liabilities and Equities". SFAS No. 150
establishes standards regarding the manner in which an issuer classifies and
measures certain types of financial instruments having characteristics of both
liabilities and equity. Pursuant to SFAS No. 150, such freestanding financial
instruments (i.e. those entered into separately from an entity's other financial
instruments or equity transactions or that are legally detachable and separately
exercisable) must be classified as liabilities or, in some cases, assets. In
addition, SFAS No. 150 requires that financial instruments containing
obligations to repurchase the issuing entity's equity shares and, under certain
circumstances, obligations that are settled by delivery of the issuer's shares
be classified as liabilities. The Statement is effective for financial
instruments entered into or modified after May 31, 2003 and for other
instruments at the beginning of the first interim period after June 15, 2003.
Management believes adopting this statement will not have a material effect on
the statement of operations or financial position.
Quantitative and Qualitative Disclosures About Market Risk
Fair Value of Financial Instruments - The following disclosure of the estimated
fair value of financial instruments is made in accordance with the requirements
of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments". The estimated fair values of financial
instruments have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.
The Company has not entered into, and does not expect to enter into, financial
instruments for trading or hedging purposes. The Company does not currently
anticipate entering into interest rate swaps and/or similar instruments.
The Company's carrying values of cash, marketable securities, accounts
receivable, accounts payable and accrued expenses are a reasonable approximation
of their fair value.
ITEM 7. FINANCIAL STATEMENTS.
The Company's Financial Statements and Notes to Financial Statements are
attached hereto as Exhibit A and incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with the Company's independent
auditors during the last two years.
ITEM 8A. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures:
Based on his evaluation as of a date within 90 days of the filing date of this
report, Peter F. Russo, our President, and Martin G. Chilek, our principal
financial officer, have concluded that our Company's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") are sufficiently effective
to ensure that the information required to be disclosed by the Company in the
reports that we file under the Exchange Act is gathered, analyzed and disclosed
with adequate timeliness, accuracy and completeness.
Changes in internal controls:
There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation referred to above, nor were there any significant deficiencies or
material weaknesses in the Company's internal controls. Accordingly, no
corrective actions were required or undertaken.
Limitations on the effectiveness of controls:
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues, if any,
within a company have been detected.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
DIRECTORS AND EXECUTIVE OFFICERS
At March 31, 2004 the executive officers and director of Delta Mutual, Inc. were
as follows:
NAME AGE TITLE(S)
- ---- --- --------
Peter F. Russo 61 President, CEO and Director
Martin G. Chilek 53 Vice President, Chief
Financial Officer and
Assistant Secretary
Jerome Kindrachuk 59 Vice President--International
Peter F. Russo joined the Company on March 11, 2003 as President and a director,
and was elected Chief Executive Officer in June 2003. Mr. Russo had been an
independent consultant to several private businesses during the period from
August 2001 until he joined the Company. In that capacity, he developed business
and operating strategies and plans for a start-up, new concept modular housing
company focused on the affordable housing market. In that assignment, he
developed proposals for low-income housing projects under the federal Section 42
tax credit program in Philadelphia, Baltimore and Washington D.C. In another
assignment, Mr. Russo was instrumental in structuring a new U.S. holding company
with affiliated real estate service operations in Europe. From June 2000 to July
2001, Mr. Russo served as President and Chief Operating Officer for Bartram
Healthcare Financial Services, Inc., a start-up healthcare services company
providing financial systems and services. From January 1998 to June 2000, Mr.
Russo was an independent consultant for projects that included the development
of new market penetration strategies in various regions of the former
Yugoslavia, that included securing a U.S. export grant and providing
environmental technologies to Eastern European power generating stations.
Martin G. Chilek joined the Company as Vice President and CFO in January 2004.
Prior to joining the Company, from June 2003 to December 2003, he was an
independent consultant providing transitional management, strategic planning and
financial management services to privately held and public companies. During the
past five years, Mr. Chilek also served as Vice President-Operations of
MicroTech Leasing Corporation from October 2000 through May 2003. From October
1999 through October 2000, Mr. Chilek was employed by Acquisitions Management
Services, Inc., King of Prussia, Pennsylvania, a merger and acquisitions
services company, as Director of Business Development. From December 1998 to
October 1999, Mr. Chilek was an independent consultant to privately held
companies. Mr. Chilek filed for personal bankruptcy in February 2000, and
discharged in July 2000, as a protective measure due to stockholder suits
following the bankruptcy of U.S. Physicians, Inc. in October 1998. Mr. Chilek
was Senior Vice President-Administration of U.S. Physicians, Inc. at the time it
filed its petition in bankruptcy and was employed by U.S. Physicians in that
capacity from July 1997 until November 1998.
Jerome Kindrachuk joined the Company in July 2003 as Vice President-Finance and
Administration and in January 2004 was appointed as Vice President-
International and an officer of the Company. Prior to joining the Company, Mr.
Kindrachuk served, from March 2002 to September 2002, as director of finance for
CEVA International, Inc., a company that provided environmental services and
technologies to countries in Central and Eastern Europe. From October 2002 to
June 2003, Mr. Kindrachuk was a consultant to the Company for market penetration
strategies in Eastern Europe. During the past five years, he also served as
Chief Executive Officer of Winner Automotive Group (from February 2000 to
February 2002) and as Chief Executive Officer for the Former Soviet Union and
the Baltics for Joseph E. Seagram & Sons (from May 1997 to January 2000). Over
the course of his career, Mr. Kindrachuk has held senior executive positions for
several multi-national companies operating in Ukraine, Tashkent, Kazakhstan and
Russia.
Our directors are elected by the stockholders and our officers are appointed by
our board of directors. Our officers hold office until their successors are
elected and qualified. Vacancies in our board are filled by the board itself.
There is currently one vacancy on our board of directors.
We do not have an audit committee, although we intend to establish such a
committee, with an independent "financial expert" member as defined in the rules
of the Securities and Exchange Commission.
There are no family relationships between any of our executive officers and/or
directors.
We have a corporate code of conduct in place, which provides for internal
procedures concerning the reporting and disclosure of corporate matters that are
material to our business and to our stockholders. Our corporate code of conduct
includes a code of ethics for our officers and employees as to workplace
conduct, dealings with customers, compliance with laws, improper payments,
conflicts of interest, insider trading, company confidential information, and
behavior with honesty and integrity.
LEGAL PROCEEDINGS
Except as disclosed above with respect to our officers, to the best of our
knowledge, during the past five years no director, person nominated to become a
director, executive officer, promoter or control person of the Company has: (1)
had any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; (2) had any conviction in a
criminal proceeding or has been subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses); (3) been subject to any
order, judgment, or decree, not subsequently reversed, suspended or vacated, of
any court of competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; or (4) been found by a court of
competent jurisdiction (in a civil action), the Securities and Exchange
Commission or the Commodity Futures Trading Commission, to have violated a
federal or state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Number Transactions Known Failures
Of late Not Timely To File a
Name and principal position Reports Reported Required Form
- --------------------------- ----------- ------------ --------------
Peter F. Russo, President 2 2 --
ITEM 10. EXECUTIVE COMPENSATION.
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other
and Annual Restricted Securities LTIP All Other
Principal Year Salary Bonus Comp. Stock Underlying Options/ Payouts Comp.
Position (1) ($) ($) ($) ($) Awards SARs(#) ($) ($)
- -------------- ---- ------ ----- ------ ---------- ---------- ------- ------------------
Peter F. Russo 2003 $31,800 $6,000 $31,938
President (2)
Gary T. 2003 $20,000 $93,625
Robinson (2)
(1) Fiscal years ended December 31, 2003 and 2002.
(2) The other compensation for Peter F. Russo was fees for consulting work
completed prior to his employment. The restricted stock value for Gary T.
Robinson was for compensation earned during his tenure as CEO.
None of our officers or directors received any compensation for services from
our date of inception (November 17, 1999) to December 31, 2002.
EMPLOYMENT AGREEMENTS
On March 11, 2003, we entered into a contract with Peter F. Russo to serve as
President. It provides for three years' employment from March 11, 2003, at a
salary of $10,000 per month through June 30, 2003, and $15,000 per month
thereafter, payable in bi-monthly installments, plus benefits. We also have an
employment contract with Jerome Kindrachuk, effective July 2003 prior to Mr.
Kindrachuk's appointment as an officer of the Company. It provides for three
years' employment from July 1, 2003, at a salary of $10,000 per month, payable
in bi-monthly installments, plus benefits. All other officers are employed by us
on an at will basis, and the terms and conditions of employment are subject to
change.
DIRECTORS' COMPENSATION
We do not compensate directors in their capacity as such nor do we compensate
our directors for attendance at meetings. We do reimburse our officers and
directors for reasonable expenses incurred in the performance of their duties .
COMPENSATION PLANS
2001 EMPLOYEE STOCK OPTION PLAN.
In December 2001, the Company's stockholders approved a stock option plan
entitled the 2001 Employee Stock Option Plan (the "Plan"). The Plan authorizes
the Board of Directors (the "Board"), or a committee comprised of non-employee
directors ("Committee"), to grant, over a 10-year period, options to purchase up
to 2,000,000 shares of the Company's common stock. Persons eligible to receive
options under the Plan include key employees and directors who are also
employees of the Company or any subsidiary, as determined by the Board or
Committee. The persons to be granted options under the Plan and the number and
purchase price of the shares represented by each option, the time or times at
which the options may be exercised, and the terms and provisions of each option
(which need not be uniform for all options) will be determined by the Board or
Committee. The purchase price per share may not be less than 100% of the fair
market value of the Company's stock at the time of grant. The purchase price may
be paid in cash or common stock of the Company held for at least six months with
a market value equal to that of the shares being acquired or, in the discretion
of the board or committee, any combination of these. Options granted under the
Plan may be in the form of "incentive stock options" which qualify as such under
Section 422 of the Internal Revenue Code or non-qualified stock options which do
not meet the criteria for incentive stock options under Section 422. The tax
treatment afforded stock options qualifying as incentive stock options is
generally more favorable to employees than that afforded to non-qualified stock
options, in that the exercise of an incentive stock option does not require the
optionee to recognize income for federal income tax purposes at the time of
exercise. (The difference between the exercise price of the incentive stock
option and the fair market value of the stock at the time of purchase is,
however, an item of tax preference which may require payment of an alternative
minimum tax.).
Options granted under the Plan are, generally, transferable only by
will or by the laws of descent and distribution, and may be exercised during the
lifetime of the optionee only by the optionee or by his legal representative in
the event of his disability. In its sole discretion, however, the Board or
Committee may permit an optionee to make certain transfers of non-qualified
stock options, provided that the transfers are to "family members" and are not
for value, as defined in the General Instructions to Form S-8 under the
Securities Act of 1933.
The term of each option cannot be more than 10 years from the date of
grant, and options can be exercised only during the participant's employment
with the Company or one of its subsidiaries. If any option expires or is
terminated prior to its exercise in full and prior to the termination of the
Plan, the shares subject to such unexercised option will be available for the
grant of new options under the Plan. Further, any shares used as full or partial
payment by an optionee upon exercise of an option may subsequently be used by
the Company to satisfy other options granted under the Plan, subject to the
limitation on the total number of shares authorized to be issued under the Plan.
The Plan permits an outstanding option to be exercised after
termination of employment only to the extent that the option was exercisable on
the date of termination but in no event beyond the original term of the option
(i) within one year by the estate or rightful heir(s) of the optionee if the
optionee's employment is terminated due to the optionee's death; (ii) within one
year after the date of such termination if the termination is due to the
optionee's Disability (as defined in the Plan); or (iii) within three months
after the date of such termination if the termination was due to the optionee's
Retirement (as defined in the Plan) or was for reasons other than death or
Disability and other than "for cause" (as defined in the Plan). Upon termination
of an optionee's employment "for cause," any unexercised options held by the
optionee will be forfeited. In the event of the dissolution, liquidation or sale
of substantially all the Company's assets, options issued under the Plan will be
deemed terminated to the extent not previously exercised. In the event the
Company merges with or into another corporation, outstanding options will be
assumed or an equivalent option substituted by the successor corporation or, if
such successor corporation does not agree to assume the option or substitute an
equivalent option, the Board will provide for the option holder to have the
right to exercise the option as to all of the optioned shares, including shares
as to which the option would not otherwise be exercisable.
Upon termination of an optionee's employment "for cause," any
unexercised options held by the optionee will be forfeited. Unexercised options
will terminate in the event of the Company's dissolution, liquidation, or sale
of all or substantially all of its assets. In the event of our merger with
another corporation, the option would be assumed or an equivalent option
substituted by the successor corporation or, if such successor corporation does
not agree to assume the option or substitute an equivalent option, the Board can
provide for the option holder to have the right to exercise the option as to all
of the optioned shares, including shares as to which the option would not
otherwise be exercisable. The number of shares subject to options and the option
prices will be appropriately adjusted in the event of changes in our outstanding
common stock by reason of stock dividends, recapitalizations, mergers,
consolidations, stock splits and combinations of shares, and the like. The Board
may at any time terminate or modify the Plan except, that without further
approval of the stockholders, the Board may not make any changes to the Plan
which would materially increase the number of shares that may be issued under
the Plan, materially modify the eligibility requirements for participation in
the Plan, or require stockholder approval under the Delaware General Corporation
Law, the Exchange Act, or the Internal Revenue Code.
On December 1, 2003, the Plan was amended to give the Board the power
to issue a restricted stock award to an Employee representing shares of Common
Stock that are issued subject to such restrictions on transfer and other
incidents of ownership and such forfeiture conditions as the Board may determine
("Restricted Shares"). In connection with issuance of any Restricted Shares, the
Board may (but shall not be obligated to) require the payment of a specified
purchase price (which price may be less than Fair Market Value as defined in the
Plan).
We have not adopted any other deferred compensation, pension, profit
sharing, stock option plan or programs for our officers or employees. During the
second quarter of 2003, the Company established a health insurance benefit plan
that is offered to all employees.
There were no option/SAR grants in our last fiscal year and, at that
fiscal year end, there were no unexercised options held by officers of the
company.
No officer or director exercised any options in the fiscal year ended
December 31, 2003.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information, as of March 31, 2004, with respect
to the beneficial ownership of the Company's Common Stock by each person known
by the Company to be the beneficial owner of more than five percent (5%) of the
outstanding Common Stock and by directors and officers of the Company, both
individually and as a group:
Number Percentage(1)
------ -------------
BENEFICIAL OWNER
Officers, Directors and 5%
Beneficial Owners
Peter F. Russo 100,000 *
Jerome Kindrachuk 100,000 *
Ivano Angelastri 1,250,000 10.69%
Neil Berman 1,710,000 14.62%
All officers and directors as a group 200,000 1.71%
- ----------------
*Less than 1%.
- ----------------
(1) Based on 11,695,688 shares outstanding on March 31, 2004.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information with respect to our common
stock issued and available to be issued under outstanding options, warrants and
rights as of December 31, 2003.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
(a) (b) (c)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation plans
(excluding securities
reflected in column (a))
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans
approved by security holders 1,642,000
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
approved by security holders
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Total 1,642,000
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 6, 2003, Gary T. Robinson, our Former Chief Executive Officer, loaned
the Company $100,000 for payment to a consultant. On June 30, 2003, Mr. Robinson
agreed to release the Company from the note and assume the responsibility for
recovering the amount paid to the consultant.
On March 11, 2003, we entered into a contract with Peter F. Russo to serve as
President. It provides for three years' employment from March 11, 2003, at a
salary of $10,000 per month through June 30, 2003, and $15,000 per month
thereafter, payable in bi-monthly installments, plus benefits. We also have an
employment contract with Jerome Kindrachuk, effective July 2003 prior to Mr.
Kindrachuk's appointment as an officer of the Company. It provides for three
years' employment from July 1, 2003, at a salary of $10,000 per month, payable
in bi-monthly installments, plus benefits.
During the first and second quarters, the Company paid consulting fees of
$31,938 owed to Peter F. Russo for services rendered prior to his employment.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. Description of Exhibits
- ------------ ------------------------------------------------------------
3.1 Articles of Incorporation of the Company, as currently in
effect, incorporated herein by reference to Exhibit 3.1 to
Amendment No. 1 to the Company's Registration Statement on
Form 10-SB filed with the Commission on June 15, 2000.
3.2 By-Laws of the Company. Incorporated herein by reference to
Exhibit 3.2 to Amendment No. 1 to the Company's Registration
Statement on Form 10-SB filed with the Commission on June
15, 2000.
3.2a Amendment to Article III, Section I of the By-Laws.
Incorporated herein by reference to the Company's quarterly
report on Form 10-QSB, filed with the Commission on November
21, 2000.
4.1 Delta Mutual, Inc. 2001 Employee Stock Option Plan,
incorporated herein by reference to Appendix B to the
Company's definitive Information Statement pursuant to
Section 14C of the Exchange Act, filed with the Commission
on November 9, 2001.
4.2 Delta Mutual, Inc. 2001 Employee Stock Option Plan, as
amended December 1, 2003, filed herewith.
10.1 Agreement of Sale with Enterprises Solutions, Inc. dated May
11, 2001, and amendments. Incorporated herein by reference
to Exhibit 10.2 to the Company's current report on Form 8-K,
filed with the Commission on May 23, 2001.
10.2 Promissory note from Enterprises Solutions, Inc. dated
October 31, 2001. Incorporated by reference to Exhibit 10.3
to the Company's annual report on Form 10-KSB, filed with
the Commission on April 16, 2002.
10.3 Promissory Note to Rosanne Solomon dated November 27, 2001.
Incorporated herereference to Exhibit 10.1 to Amendment No.
3 to the Company's registration statement on Form S-4,filed
with the Commission on November 30, 2001.
10.4 License Agreement with Enterprises Solutions, Inc. dated
December 11, 2001. Incorporated by reference to Exhibit 10.5
to the Company's annual report on Form 10-KSB, filed with
the Commission on April 16, 2002.
10.5 Employment Agreement between Kenneth A. Martin and the
Company. Incorporated by reference to Exhibit 10.6 to the
Company's annual report on Form 10-KSB, filed with the
Commission on April 16, 2002.
10.6 Agreement, dated January 13, 2003, between the Company and
Kenneth A. Martin. Incorporated by reference to Exhibit 10.7
to the Company's registration statement on Form S-8, filed
with the Commission on February 13, 2003.
10.7 Agreement, dated February 3, 2003, between the Company and
Peter F. Russo. Incorporated by reference to Exhibit 10.8 to
the Company's registration statement on Form S-8, filed with
the Commission on February 13, 2003.
10.8 Agreement, dated February 4, 2003, between the Company and
J. Dapray Muir. Incorporated by reference to Exhibit 10.9 to
the Company's registration statement on Form S-8, filed with
the Commission on February 13, 2003.
10.9 Executive Employment Agreement, effective March 11, 2003, by
and between the Company and Peter F. Russo. Incorporated
herein by reference to Exhibit 10.8 to the Company's Annual
Report on Form 10-KSB, filed with the Commission on April
14, 2003.
10.10 Consulting Agreement, effective February 28, 2003, between
M.U.R.G., LLC and Delta Mutual, Inc. Incorporated herein by
reference to Exhibit 10.9 to the Company's Annual Report on
Form 10-KSB, filed with the Commission on April 14, 2003.
10.11 Agreement, March 31, 2003, between the Company and Burrows
Consulting Inc. Incorporated herein by reference to Exhibit
10.3 to the Company's current report on Form 8-K, filed with
the Commission on April 25, 2003.
10.12 License Agreement with Joseph Friedman and Sons,
International, Inc., dated April 2, 2003. Incorporated
herein by reference to Exhibit 10.7 to the Company's Annual
Report on Form 10-KSB, filed with the Commission on April
14, 2003.
10.13 Agreement, dated July 1, 2003, between the Company and Gary
T. Robinson. Incorporated herein by reference to Exhibit
10.10 to the Company's registration statement on Form S-8,
filed with the Commission on August 20, 2003.
10.14 Agreement, August 29, 2003, between the Company an Burrows
Consulting Inc. Incorporated herein reference to the
Company's current report on Form 10.15 8-K, filed with the
Commission on September 4, 2003.
10.15 Strategic Alliance Agreement, dated September 10, 2003,
between Delta-Envirotech, Inc. and ZAFF International Ltd.
Incorporated herein by reference to Exhibit 99.2 to the
Company's current report on Form 8-K, filed with the
Commission on January 22, 2004.
10.16 Agreement, dated January 14, 2004, by and between Delta
Mutual, Inc. and Hi Tech Consulting and Construction, Inc.,
filed herewith.
10.17 Agreement to Purchase Stock, dated January 14, 2004, between
Delta Mutual, Inc. and Hi Tech Consulting and Construction,
Inc., as sellers, and Ali Razmara, as purchaser, filed
herewith.
31.1 Certification of Chief Executive Officer Pursuant to
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
filed herewith.
31.2 Certification of Chief Financial Officer Pursuant to
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
filed herewith.
32.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, filed herewith.
32.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, filed herewith.
(b) Reports on Form 8-K.
No current reports on Form 8-K were filed in the Company's fiscal
quarter ended December 31, 2003.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(1) Aggregate fees for the last two years: $95,546
(2) Audit related fees: $91,546
(3) Tax fees: $4,000
(4) All other fees: NA
(5) Audit committee pre-approval processes, percentages of services approved by
audit committee, percentage of hours spent on audit engagement by persons other
than principal accountant's full time employees: NA
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DELTA MUTUAL, INC.
Dated: April 6, 2004
By: /s/ Peter F. Russo
----------------------------
Peter F. Russo
President, Chief Executive Officer and Director
By: /s/ Martin G. Chilek
----------------------------
Martin G. Chilek
Vice President and Chief Financial Officer
Principal Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
- ----------------- ------------ --------
/s/ Peter F. Russo
- ------------------------
Peter F. Russo President April 6, 2004
And Director
DELTA MUTUAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Accountants' Report 1 - 2
Financial Statements:
Consolidated Balance Sheet as of December 31, 2003 3
Consolidated Statement of Operations for the years ended December 31, 2003 and
2002 and for the period November 17, 1999 (Date of Formation) through
December 31, 2003 4
Consolidated Statement of Stockholders' Deficiency for the period
November 17, 1999 (Date of Formation) through December 31, 2003 5
Consolidated Statement of Cash Flows for the years ended December 31, 2003 and
2002 and for the period November 17, 1999 (Date of Formation) through December 31, 2003 6 - 7
Notes to Consolidated Financial Statements 8 - 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Delta Mutual, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Delta Mutual,
Inc. and Subsidiaries (a development stage company) (the "Company") as of
December 31, 2003, and the related consolidated statements of operations,
stockholders' deficiency and cash flows for each of the two years in the period
ended December 31, 2003 and for the period November 17, 1999 (Date of Formation)
through December 31, 2003. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Delta Mutual Inc. and Subsidiaries
at December 31, 2003, and the results of its operations and their cash flows for
each of the two years ended December 31, 2003 and for the period November 17,
1999 (Date of Formation) through December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.
-1-
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company is a development stage
enterprise. Since a change in control, new Company management has embarked upon
a new mission and strategic direction intending to establish a series of
subsidiaries and joint ventures, primarily for the establishment of business
operation focusing upon providing technologies and services in the environmental
remediation industry and utilizing certain construction technologies to
participate in selected housing development projects. As more fully explained in
Note 1, to the financial statements the Company needs to obtain additional
financing to fulfill its proposed activities and achieve a level of sales
adequate to support its cost structure.
These uncertainties raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans are also described in Note 1.
The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties should the
Company be unable to continue as a going concern.
WIENER, GOODMAN & COMPANY, P.C.
Certified Public Accountants
Eatontown, New Jersey
March 13, 2004
-2-
DELTA MUTUAL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
ASSETS
December 31,
2003
------------
Current Assets:
Cash $ 14,057
Prepaid expenses 3,962
Total Current Assets 18,019
-----------
Fixed assets - net 32,233
Investment in joint venture 33,800
Other assets 650
-----------
TOTAL ASSETS $ 84,702
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $ 186,592
Accrued expenses 265,286
Loan from former officer/stockholder 56,364
Loan to related parties 122,000
Due to related party 11,200
-----------
Total Current Liabilities 641,442
-----------
Minority interest 150
-----------
Commitments and Contingencies
Stockholders' Deficiency:
Common stock $0.0001 par value - authorized
20,000,000 shares, 9,361,688 and 857,000
shares outstanding at December 31, 2003
and 2002, respectively 936
Additional paid-in-captial 1,231,574
Deficit accumulated during the
development state (1,789,400)
-----------
Total Stockholders' Deficiency (556,890)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 84,702
===========
See notes to financial statements.
-3-
DELTA MUTUAL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Period from
November 17, 1999
Years Ended December 31, (Date of Formation)
------------------------------- through
2003 2002 December 31, 2003
----------- ----------- -----------------
Costs and Expenses
General and administrative
expenses $ 1,209,853 $ 321,732 $ 1,746,092
Interest expense 39,656 3,652 43,308
----------- ----------- -----------
Net loss $ 1,249,509 $ 325,384 $ 1,789,400
----------- ----------- -----------
Loss per common share-
basic and diluted $ (0.19) $ (0.57)
=========== ===========
Weighted average number of
common shares outstanding-
basic and diluted 6,734,384 569,329
=========== ===========
See notes to financial statements.
-4-
DELTA MUTUAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Deficit
Number of Accumulated
Common Common Paid in During Development
Shares Stock Capital Stage Total
--------- --------- --------- ---------- ---------
Balance at formation
(November 17, 1999) -- -- $ -- $ -- $ --
Sale of common stock
(at $0.0001 - $0.10 per share) 485,000 49 3,501 -- 3,550
Deficit for the period from
November 17, 1999
(Date of formation) through
December 31, 1999 -- -- -- (5,831) (5,831)
--------- --------- --------- ---------- ---------
Balance, December 31, 1999 485,000 49 3,501 (5,831) (2,281)
Sale of common stock
(at $0.10 per share) 72,000 7 7,193 7,200
Net (loss) (32,986) (32,986)
--------- --------- --------- ---------- ---------
Balance, December 31, 2000 557,000 56 10,694 (38,817) (28,067)
Forgiveness of debt to former
shareholder -- -- 37,528 -- 37,528
Net (loss) -- -- -- (175,690) (175,690)
--------- --------- --------- ---------- ---------
Balance, December 31, 2001 557,000 56 48,222 (214,507) (166,229)
Sale of common stock
(at $0.10per share) 300,000 30 29,970 -- 30,000
Forgiveness of debt by former -- -- --
shareholder -- -- 17,500 17,500
Contribution of note receivable
in connection with termination -- -- --
agreement 208,630 208,630
Net (loss) (325,384) (325,384)
--------- --------- --------- ---------- ---------
Balance, December 31, 2002 857,000 86 304,322 (539,891) (235,483)
See notes to financial statements.
-5-
DELTA MUTUAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Deficit
Number of Accumulated
Common Common Paid in During Development
Shares Stock Capital Stage Total
----------- ----------- ----------- ----------- -----------
Issuance of common stock
for interest
(valued at $0.275 - $0.30 per share) 100,000 10 28,740 -- 28,750
Issuance of common stock
for services
(valued at $0.09 - $0.50 per share) 950,000 95 244,499 -- 244,594
Issuance of common stock in lieu
of payment of officer loan
(valued at $0.33 per share) 280,000 28 93,597 -- 93,625
Sale of common stock
(at $0.13 - $0.50 per share) 450,000 45 112,455 -- 112,500
Issuance of common stock for
investment in joint venture
(valued at $0.15 per share) 50,000 5 7,495 -- 7,500
Issuance of common stock
for debt
(valued at $0.10 - $0.693
per share 520,000 52 127,074 -- 127,126
Stock split February 24, 2003
(five for one) 4,708,050 471 (471) -- --
Issuance of common stock
for license agreement
(valued at $0.14 per share) 288,638 28 39,972 40,000
Issuance of common stock
for promissory note
(valued at $0.31 per share) 800,000 80 249,920 -- 250,000
Issuance of common stock awards from the
Company's stock option plan
(valued at $.07 per share) 358,000 36 23,964 -- 24,000
Net (loss) (1,249,509) (1,249,509)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 9,361,688 $ 936 $ 1,231,567 $(1,789,400) $ (556,897)
=========== =========== =========== =========== ===========
See notes to financial statements.
-6-
DELTA MUTUAL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Period
November 17, 1999
Years Ended December 31, (Date of Formation)
------------------------------- through
2003 2002 December 31, 2003
----------- ----------- -----------------
Cash flows from operating activities:
Net loss $(1,249,509) $ (325,384) $(1,789,400)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 1,759 -- 1,759
Non-cash compensation 337,344 89,669 427,012
Bad debt -- 96,625 96,625
Changes in operating assets
and liabilities 429,666 87,820 440,357
----------- ----------- -----------
Net cash used in operating activities (480,740) (51,270) (823,647)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (33,992) -- (33,992)
Minority interest 150 -- 150
Advances to joint ventures (115,100) -- (115,100)
Advances to ESI -- (30,000) --
----------- ----------- -----------
Net cash used in
investing activities (148,942) (30,000) (148,942)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock 112,500 30,000 153,250
Proceeds from loan -- -- 540,744
Repayment of loan -- -- (540,744)
Proceeds from former officer
and stockholder 515,383 17,500 570,411
Repayment for former officer
and stockholder (109,015) -- (109,015)
Proceeds from related party 187,000 -- 187,000
Repayment to related parties (65,000) -- (65,000)
Proceeds from convertible debt -- -- 250,000
----------- ----------- -----------
Net cash provided by
financing activities 640,868 47,500 986,646
----------- ----------- -----------
Net increase (decrease) in cash 11,186 (33,770) 14,057
Cash - Beginning of year 2,871 36,641 --
----------- ----------- -----------
Cash - End of year $ 14,057 $ 2,871 $ 14,057
=========== =========== ===========
See notes to financial statements.
-7-
DELTA MUTUAL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(Continued)
Period
November 17, 1999
Years Ended December 31, (Date of Formation)
---------------------------- through
2003 2002 December 31, 2003
--------- --------- -----------------
Supplementary information:
Cash paid during year for:
Interest $ -- $ --
========= =========
Income taxes $ -- $ --
========= =========
Changes in operating assets and liabilities consists of:
(Increase) decrease in prepaid expenses (3,962) 8,000 (3,962)
Increase in other assets (650) -- (650)
Increase in accounts payable
and accrued expenses 434,278 79,820 444,969
--------- --------- ---------
$ 429,666 $ 87,820 $ 440,357
========= ========= =========
Non-cash financing activities:
Issuance of common stock for
promissory note $ 250,000 $ 208,630 $ 458,630
========= ========= =========
Offset of note receivable and convertible
debt in connection with termination
agreement $ -- $ 253,630 $ 253,630
========= ========= =========
Forgiveness of debt to former
shareholders $ -- $ 17,500 $ 398,653
========= ========= =========
Offset of note receivable to
liquidate loan to officer $ 350,000 $ -- $ 350,000
========= ========= =========
Issuance of common stock for debt $ 127,126 $ -- $ 414,497
========= ========= =========
Issuance of common stock for investment
in unconsolidated subsidiary $ 7,500 $ -- $ 7,500
========= ========= =========
Issuance of common stock in lieu of
payment of accrued expenses $ 93,625 $ -- $ 93,625
========= ========= =========
See notes to financial statements.
-8-
DELTA MUTUAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis Of Presentation
The Company's financial statements for the year ended December 31, 2003
have been prepared on a going concern basis which contemplates the realization
of assets and settlement of liabilities and commitments in the normal course of
business. Management recognizes that the Company's continued existence is
dependent upon its ability to obtain needed working capital through additional
equity and/or debt financing and the commencement of its planned principal
operations. At December 31, 2003 operations had not yet commenced and no revenue
has been derived; accordingly the Company is considered a development stage
enterprise. There is no assurance the Company will achieve a profitable level of
operations.
The Company's business is subject to most of the risks inherent in the
establishment of a new business enterprise. The likelihood of success of the
Company must be considered in light of the expenses, difficulties, delays and
unanticipated challenges encountered in connection with the formation of a new
business, raising operating and development capital, and the marketing of a new
product.
The Company presently does not have sufficient liquid assets to finance
its anticipated funding needs and obligations. The Company's continued existence
is dependent upon its ability to obtain needed working capital through
additional equity and/or debt financing and achieve a level of sales adequate to
support its cost structure. Management is actively seeking additional capital to
ensure the continuation of its development activities and complete the proposed
joint ventures. However, there is no assurance that additional capital will be
obtained and the joint ventures will be profitable. These uncertainties raise
substantial doubt about the ability of the Company to continue as a going
concern. The accompanying financial statements do not include any adjustments
that might result from the outcome of these uncertainties should the Company be
unable to continue as a going concern.
Organization
The Company was incorporated under the name Delta Mutual, Inc. ("Delta"
or the "Company") on November 17, 1999 in the State of Delaware. The Company is
a development stage company and at that time prior Company management intended
to provide mortgage services through the Internet to borrowers having
substandard credit. Prior management intended to offer varied levels of mortgage
and lending services by capitalizing on the popularity of Internet based
financial services companies and secured the domain name rights to the name
deltamutual.com.
-9-
During its first year of existence, prior management believed that it
would be able to fund the Company's intended operations through the sale of its
common stock. The Company's common stock is quoted on the Over-the-Counter
Electronic Bulletin Board under the symbol "DLTM". At the time of its formation,
companies with Internet based businesses were treated favorably in the capital
markets. In 2000, however, the market for the stock of Internet based businesses
deteriorated substantially and many such companies went out of business because
they were unable to generate sufficient revenues and were unable to raise
additional capital.
From inception through December 31, 2003, the Company raised a limited
amount of capital through the sale of common stock: during the period from
inception through December 31, 2001, it raised $10,750 through such private
placements, and raised $30,000 in December, 2002 and raised $112,500 in 2003
through investments. These funds were not sufficient to capitalize any of the
Company's business plans.
Prior Operations
In April 2001, Kelcon, Inc. ("Kelcon"), a company newly organized by
Kenneth A. Martin, acquired a controlling interest (450,000 shares) in Delta
with a view to acquiring the assets of Enterprises Solutions, Inc.
("Enterprises"). Kelcon's Delta shares were acquired from two of Delta's
directors, James E. Platek (300,000 shares) and Bonnie Cunningham (150,000), for
which Kelcon paid a total of $450,000. Mr. Martin paid $75,000 of the purchase
price for Delta's shares, and an overseas investor who had previously invested
in Enterprises paid $375,000, for which Kelcon issued a 20% promissory note due
October 31, 2001. The investor had the right to convert $100,000 principal
amount of the note into 100,000 shares of Kelcon's Delta stock. As part of this
transaction, Mr. Platek, Ms. Cunningham, and Delta's third director, Robert
Franz, resigned and appointed Mr. Martin as Delta's sole director. Mr. Martin
then appointed Mr. Sailor H. Mohler and Mr. Phillip Chung as additional
directors.
In May 2000, prior Company management entered into an Agreement of Sale
pursuant to which Delta was to acquire substantially all Enterprises' assets in
exchange for approximately 11,068,307 shares of Delta's common stock. In June
2001, prior Company management prepared and filed with the Securities and
Exchange Commission a registration statement for the shares to be issued to
Enterprises' stockholders, with a view to consummating the acquisition.
Due to the death of Enterprises' president, the Agreement of Sale with
Enterprises was terminated and the Company's registration statement was
withdrawn. Shortly thereafter, Messrs. Sailor H. Mohler and Phillip Chung
resigned as directors of the Company.
-10-
In August, 2002, prior Company management executed a letter of intent
to merge with Helvetia Pharmaceuticals, Inc. After a due diligence period, prior
Company management terminated negotiations and that proposed transaction was
never consummated.
Change of Control
In November, 2002, Kelcon, Inc. sold its 450,000 Company common shares
to Mr. Gary T. Robinson, a New York businessman, for $275,000 in a private
transaction. This transaction represented a "Change in Control" for the Company.
As part of this transaction, on March 10, 2003, Kenneth A. Martin appointed Mr.
Gary Robinson and Mr. Peter Russo to serve as members of the Board of Directors.
On March 11, 2003, Mr. Robinson was appointed as Chief Executive Officer and
Chairman of the Board of Directors, and Mr. Russo was appointed as President and
Secretary. Thereafter, on March 11, 2003, Mr. Martin resigned as an officer and
director of the Company. On June 11, 2003 Mr. Robinson resigned as Chief
Executive Officer and Mr. Russo was appointed to that office. On November 28,
2003 Mr. Robinson resigned as a director.
Business Plan
Since the change in control, new Company management has embarked upon a
new mission and strategic direction, by establishing joint venture subsidiaries
and a limited partnership, primarily to establish business operations focused on
providing construction and environmental technologies and services in Puerto
Rico, the Middle East, Africa and the Far East.
Puerto Rico
The Company formed a majority owned joint venture in Puerto Rico to
manage the construction and related activities required to build low income
homes in Puerto Rico under the Federal Government's Section 124 low income
housing program. In December 2003, the Company secured the purchase rights to 36
acres that are designated Section 124 eligible. Approximately 270 low-income
homes are planned for construction on this property.
Middle East, Africa and Far East
The Company intends to establish local operating joint ventures in
specific countries in the Middle East and the Far East primarily aimed at soil
and water reclamation. The initial step of forming a strategic alliance leading
to a joint venture has been established with a local organization in Saudi
Arabia, and discussions are underway in Kuwait and Indonesia, The Company
intends to provide environmental remediation services only in Africa as these
projects are primarily funded by international financial institutions.
Central and Eastern Europe
The Company has made a strategic decision to minimize its activities in
Eastern Europe and to maintain a small passive investment in the area that can
be expanded in the future if current circumstances change. While the potential
for significant environmental remediation activity remains, local government
priorities and hard currency shortages relegate these activities to a low
status.
-11-
United States
The U.S. Government has scheduled a program for disposal of specific
military related waste products that require not only specialized disposal
facilities, but also state of the art identification and tracking systems. The
disposal requirement is the outcome of a number of weapons destruction treaties
that are currently in effect. The Company had planned to establish a joint
venture to address this very specific market during the fourth quarter of 2003.
However, this was not accomplished and the joint venture has not been formed.
The Company is currently dependent on equity investments from private
investors to pay its operating expenses. There are no assurances that such
investors will continue to advance funds or invest in the Company's securities.
In the event the Company is unable to obtain additional capital or funding it
may be unable to pursue its business plans. Due to the fact that the Company has
limited operations at this time, it is anticipated that its cash requirements
will be limited, and that all necessary capital, to the extent required, will be
provided by investors. The Company anticipates that it will be required to raise
capital in the approximate amount of $1,800,000 in the next 12 months in order
to continue to fund its limited operations and to finance its planned business
operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All intercompany transactions and balances have
been eliminated.
INVESTMENTS
The Company has investments of less than 20% in associated companies that
are accounted for under the equity method and are included in Investment in
Joint Ventures on the Company's balance sheet at December 31, 2003. Investments
in associated companies where the Company has a controlling interest are
consolidated with the Company's operations unless otherwise disclosed.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the period. Actual results could differ from those
estimates
LOSS PER SHARE
Basic and diluted loss per common share is computed by dividing net
loss by the weighted average number of common shares outstanding during the
year. Potential common shares are excluded from the loss per share calculation,
because the effect would be antidilutive. Potential common shares relate to the
convertible debt. There were no potential common shares outstanding as of
December 31, 2003 and 2002.
-12-
EVALUATION OF LONG-LIVED ASSETS
The Company reviews property and equipment for impairment whenever
events or changes in circumstances indicate the carrying value may not be
recoverable in accordance with guidance in SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." If the carrying value of the
long-lived asset exceeds the present value of the related estimated future cash
flows, the asset would be adjusted to its fair value and an impairment loss
would be charged to operations in the period identified.
DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation is provided for
by the straight-line method over the estimated useful lives of the related
assets.
STOCK OPTION PLAN
The Company accounts for equity-based compensation issued to employees
in accordance with Accounting Principles Board ("APB") Opinion No. 25
"Accounting for Stock Issued to Employees". APB No. 25 requires the use of
intrinsic value method, which measures compensation cost as the excess, if any,
of the quoted market price of the stock at the measurement date over the amount
an employee must pay to acquire the stock. The Company makes disclosures of pro
forma net earnings and earnings per share as if the fair-value-based method of
accounting had been applied as required by SFAS No.123 "Accounting for
Stock-Based Compensation-Transition and Disclosure".
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure an amendment of FASB
Statement No. 123". SFAS No. 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. It also requires disclosure in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS No. 148
is effective for annual and interim periods beginning after December 15, 2002.
The Company will continue to account for stock-based employee compensation under
the recognition and measurement principle of APB Opinion No. 25 and related
interpretations.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No.123) for stock options issued to employees.
The Company is also authorized to make stock awards to its employees
from the Plan. The Company has adopted the expense provisions of SFAS No. 123 in
the issuance of stock awards. Stock awards are expensed at the time of issuance
as the common stock issued has no restrictions to the employees. The Company
issued stock awards to four employees totaling 358,000 shares from the Plan. The
shares were issued at fair market value for past compensation due to the
employees. The Company recorded compensation expense of $24,000 and is included
in the Company's statement of operations for the year ended December 31, 2003.
-13-
STOCK-BASED COMPENSATION
The Company issues shares of its common stock to employees and
non-employees as stock-based compensation. The Company accounts for the services
using the fair market value of the services rendered. For the years ended
December 31, 2003 and 2002 the Company issued 950,000 and -0- common shares,
respectively, and recorded compensation expense of $244,594 and $-0-,
respectively, in connection with the issuance of these shares.
INCOME TAXES
The Company accounts for income taxes using an asset and liability
approach under which deferred taxes are recognized by applying enacted tax rates
applicable to future years to the differences between financial statement
carrying amounts and the tax basis of reported assets and liabilities. The
principal item giving rise to deferred taxes are future tax benefits of certain
net operating loss carryforwards.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For financial instruments including cash, accounts payable, accrued
expenses, and convertible debt, it was assumed that the carrying amount
approximated fair value because of the short maturities of such instruments.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts to
conform to the current year presentation.
NEW FINANCIAL ACCOUNTING STANDARDS
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This statement eliminates the automatic classification of gain or
loss on extinguishment of debt as an extraordinary item of income and requires
that such gain or loss be evaluated for extraordinary classification under the
criteria of Accounting Principles Board No. 30 "Reporting Results of
Operations". This statement also requires sales-leaseback accounting for certain
lease modifications that have economic effects that are similar to
sales-leaseback transactions, and makes various other technical corrections to
existing pronouncements. This statement did not have a material effect on the
Company's results of operations or financial position.
-14-
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement requires recording
costs associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan. The Company adopted SFAS
No. 146 on January 1, 2003. The adoption of SFAS No. 146 did not have a material
impact on the Company's result of operations or financial position.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
No. 133 on Derivative Instruments and Hedging Activities." This statement amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement is effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. Management believes that this statement did not
have a material impact on the Company's results of operations or financial
position.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and interpretation of FASB
Statements No. 5, 57,and 107 and Rescission of FASB Interpretation No. 34. FIN
45 clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies, relating to the guarantor's accounting for, and disclosure of,
the issuance of certain types of guarantees. This interpretation clarifies that
a guarantor is required to recognize, at the inception of certain types of
guarantees, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in this interpretation
were effective for financial statements of interim or annual periods ending
after December 15, 2002. The Company adopted FIN 45 on January 1, 2003. The
adoption of FIN 45 did not have a material impact on the Company's results of
operations or financial position.
In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities. In December 2003, the FASB issued FIN No. 46 (Revised) ("FIN
46-R") to address certain FIN 46 implementation issues. This interpretation
requires that the assets, liabilities, and results of activities of a Variable
Interest Entity ("VIE") be consolidated into the financial statements of the
enterprise that has a controlling interest in the VIE. FIN 46R also requires
additional disclosures by primary beneficiaries and other significant variable
interest holders. For entities acquired or created before February 1, 2003, this
interpretation is effective no later than the end of the first interim or
reporting period ending after March 15, 2004, except for those VIE's that are
considered to be special purpose entities, for which the effective date is no
later than the end of the first interim or annual reporting period ending after
December 15, 2003. For all entities that were acquired subsequent to January 31,
2003, this interpretation is effective as of the first interim or annual period
ending after December 31, 2003. The adoption of FIN 46 did not have a material
impact on the Company's results of operations or financial position.
-15-
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
Previously, many of those financial instruments were classified as equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of the provisions of SFAS No.
150 did not have a material impact on the Company's financial position.
In December 2003, the FASB issued SFAS No. 132 (Revised) ("SFAS No.
132-R"), "Employer's Disclosure about Pensions and Other Postretirement
Benefits." SFAS No. 132-R retains disclosure requirements of the original SFAS
No. 132 and requires additional disclosures relating to assets, obligations,
cash flows, and net periodic benefit cost for defined benefit pension plans and
defined benefit post retirement plans. SFAS No. 132-R is effective for fiscal
years ending after December 15, 2003, except that certain disclosures are
effective for fiscal years ending after June 15, 2004. Interim period
disclosures are effective for interim periods beginning after December 15, 2003.
The adoption of the disclosure provisions of revised SFAS No. 132-R did not have
a material impact on the Company's historical disclosure.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of:
December 31,
2003
----
Equipment $ 985
Leasehold improvements 7,807
Deposit on land 25,200
-------
33,992
Less accumulated
depreciation 1,759
-------
$32,233
=======
Depreciation expense for the years ended December 31, 2003 and 2002
amounted to $1,759 and $-0-, respectively.
3. DUE FROM CEVA INTERNATIONAL INC.
On June 17, 2003, the Company and Dr. Louis Rose entered into an
agreement whereby Dr. Rose assigned all of his rights, title and interest in a
promissory note from CEVA International, Inc. ("CEVA") in the amount of $250,000
to the Company in exchange for an aggregate of 800,000 shares of the Company's
common stock. The note was guaranteed by Gary Robinson, formerly the Company's
largest shareholder. CEVA did not pay the note and the Company exercised its
right against the guarantor by reducing the amount owed on the revolving line of
credit with Gary Robinson in the amount of $250,000. See Note 6 of Notes to
Consolidated Financial Statements.
-16-
4. INVESTMENT IN JOINT VENTURES
a) In December 2003, the Company formed a joint venture project to develop
government sponsored, Section 124, low income housing in the
commonwealth of Puerto Rico. The Company became the general partner and
majority owner of a limited partnership, Delta Development Partners,
LP, that holds the majority share of Delta Developers Corp, a Puerto
Rico corporation, formed to manage the construction and related
activities required to build approximately 270 low income homes under
Section 124. The operations of the joint venture have been consolidated
with the Company for the year ended December 31, 2003.
From January 12, 2004 through March 26, 2004, Neil Berman, an investor,
purchased a 25% interest in Delta Development Partners, LP for
$148,000.
b) On March 18, 2003, the Company entered into a letter of intent with
Hi-Tech Consulting and Construction, Inc. ("Hi-Tech") to form a joint
venture to provide environmental technology services primarily to
markets in the Middle East and Africa. The joint venture company, named
Delta-Envirotech, Inc., is based in Virginia and focuses on
participating in foreign government sponsored pollution remediation
projects. The joint venture agreement was concluded May 15, 2003 and
Delta-Envirotech, Inc., a Delaware corporation, was formed. As of
December 31, 2003 the Company expensed $35,000 that was advanced to the
joint venture and is included in the Company's statement of operations
for the year ended December 31, 2003. The operations for the joint
venture for 2003 were minimal and have not been consolidated with the
Company's financial statements. In 2004, the Company was unable to make
payments due per the agreement but Hi-Tech has indefinitely extended
the date of the payments. On January 14, 2004, Delta and Hi-Tech agreed
to each sell 75 shares of the joint venture to Ali Razmara,
representing a ten (10%) percent interest, for $2.
On January 22, 2004, the Company announced the conclusion of a
strategic alliance agreement between Delta-Envirotech, Inc. and ZAFF
International, Ltd., an advanced technology company located in Saudi
Arabia. The strategic alliance states that the two companies will
jointly pursue projects related to soil and water reclamation
requirements in the Middle East.
c) On May 1, 2003, the Company entered into a joint venture in Romania,
forming a new Company, Delta TP Mediu, SRL. The joint venture, of which
the Company owns 10%, was organized to primarily pursue the sourcing,
treatment and processing of hydrocarbon based and other industrial
residuals and, where possible, to create alternative fuels and raw
materials for industrial use primarily in Romania. The Company invested
$33,800 in the joint venture, consisting of $15,100 in cash, the
issuance of 50,000 shares of the Company's common stock valued at
$7,500 and a cash obligation of $11,200 to the joint venture which is
included in Due to related party on the Company's balance sheet at
December 31, 2003.
-17-
d) On February 28, 2003, the Company entered into a letter of Intent with
CEVA International, Inc., a company whose primary business is to
provide environmental services and technologies to public and private
entities in Central and Eastern Europe. After the period within which
the companies had agreed to cooperate with each other in the
performance of due diligence investigations aimed at the opportunity to
purchase certain assets, licenses and/or permits, the Company decided
not to pursue this opportunity. As stipulated in the Letter of Intent,
the Company exercised the option to terminate the activities.
e) On April 25, 2003, the Company entered into a letter of intent with Ms.
Jamie Burrows and Burrows Consulting, Inc., a Texas based corporation
(collectively referred to as "Burrows") to form a joint venture company
to be known as Delta Specialty Services based in Houston, Texas and was
to engage in providing waste remediation technologies and services on a
project basis to the United States Government, foreign governments and
their respective departments, agencies, political sub-divisions as well
as to private entities around the world. The funding commitments were
not accomplished on the established timetable and the joint venture has
not commenced operations. The Company expensed $75,000 that had been
advanced to the joint venture and is included in the Company's
statement of operations for the year ended December 31, 2003.
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
2003
------------
Professional fees $ 20,000
Consulting fees 61,500
Interest expense 10,598
Payroll expense 158,224
Payroll tax expense 14,964
--------
$265,286
========
6. LOAN FROM FORMER OFFICER
During 2003, the Company entered into a revolving credit agreement with Gary
Robinson ("Robinson"), the former Chairman and Chief Executive Officer of the
Company, in the amount of $300,000. The credit agreement bears interest at the
prime rate (4% at December 31, 2003). Robinson advanced the Company $515,383 and
the Company repaid Robinson $109,015 during 2003.
Robinson was a guarantor on note receivable due the Company from CEVA. See Note
3 of Notes to Consolidated Financial Statements. CEVA did not pay the note and
the Company exercised its right by reducing the amount owed on the revolving
line of credit with Robinson in the amount of $250,000.
-18-
In March, 2003 the Company entered into a consulting agreement with M.U.R.G. and
advanced M.U.R.G. $100,000 against future compensation in the form of a
promissory note. The project did not go forward and on June 16, 2003, Robinson
agreed to assume the promissory note from M.U.R.G. and reduce the amount due
him.
The amount due Robinson at December 31, 2003 was $56,364. The Company recorded
interest expense of $7,968 for the year ended December 31, 2003 and $7,968 for
the period November 17, 1999 (date of formation) through December 31, 2003.
7. LOANS TO RELATED PARTIES
a) On January 7, 2003, the Company borrowed $15,000 from Michael Pisani
("Pisani") (a stockholder) of the Company. Pisani received 50,000 common
shares of the Company's common stock which represented the payment of
interest accruing on the unpaid principal balance through January 27,
2003, the maturity date. The Company recorded interest expense of $15,000
in 2003 for the issuance of the shares.
The Company did not pay the outstanding balance on the maturity date and
was required to pay monthly interest of one (1%) percent to Pisani. On
April 7, 2003, the Company repaid Pisani $5,000 against the outstanding
balance. The balance due Pisani at December 31, 2003 was $10,000. In May
2003, the note was amended. Subsequently, a dispute arose between the
parties about the validity of the amendment.
In March 2004, the Company repaid the principal and interest due under the
terms of the amended note. Pisani, through counsel, has informed the
Company that, by accepting repayment, he does not prejudice his position
regarding the validity of the original note. The Company is attempting to
resolve this dispute. If the matter can not be resolved and Pisani
prevails in a legal action against the Company, Pisani may be entitled to,
in addition to the principal amount and interest, an amount of the
Company's common stock that could be substantial.
The Company recorded interest expense of $1,500 for the year ended
December 31, 2003 and $1,500 for the period November 17, 1999 (date of
formation) through December 31, 2003.
b. On May 15, 2003, the Company borrowed $12,000 from Michael Fasci ("Fasci")
a stockholder of the Company. Fasci received 50,000 common shares of the
Company's common stock which represented the payment of interest through
May 26, 2003, the maturity date. The Company recorded interest expense of
$13,750 in connection with the issuance of the shares.
The Company did not pay the outstanding balance on the maturity date and
the amount of $12,000 was due as of December 31, 2003. In accordance with
the agreement the Company must pay monthly interest of one (1%) to Fasci.
The Company recorded interest expense in the amount of $840 and $840 for
the year ended December 31, 2003, and November 17, 1999 (date of
formation) through December 31, 2003. On February 27, 2004 the Company
issued 140,000 common shares in repayment of the loan plus interest and
penalty amounting to $18,705.
-19-
c. On October 17, 2003 the Company borrowed $60,000 from Mitchell Rosenthal,
a shareholder of the Company, with interest at six (6%) percent per annum.
The note was repaid in December 2003. The Company recorded interest
expense of $156 for the year ended December 31, 2003 and for the period
November 17, 1999 (date of formation) through December 31, 2003.
d. On December 30, 2003 the Company borrowed $50,000 from Edward Tuccio, a
shareholder of the Company. The note is due December 29, 2004, interest at
6 (6%) per annum. No interest expense was recorded for the year ended
December 31, 2003.
e. On December 11, 2003 the Company borrowed $50,000 from Neil Jones, a
shareholder of the Company. The note is due December 16, 2004 with
interest at six (6%) per annum. The Company recorded interest expense of
$132 for the year ended December 31, 2003 and for the period November 17,
1999 (date of formation) through December 31, 2003.
8. STOCKHOLDER'S DEFICIENCY
a. The former president of the Company purchased 300,000 shares of common
stock for $33 in November of 1999. Such shares were issued without
registration in reliance on an exemption in federal security laws that
permit issuance of stock up to $1 million without registration of the
securities.
b. In April 2001, Kelcon, Inc., a Delaware corporation, purchased 450,000
shares of common stock from former officers of the Company, in a private
transaction, effectively changing the ownership of the Company.
c. During November 2002, Gary Robinson acquired the controlling equity
position from Kelcon, Inc. in a private transaction.
d. On December 11, 2002, Cyberlinx Inc. purchased 300,000 restricted shares
of the Company's common stock for $30,000 at $.10 per share.
e. On January 12, 2003, the Company entered into an agreement with Ken
Martin, the Company's former controlling shareholder, to compensate him
for past services rendered to the Company in the amount of $12,454, all of
which was accrued at December 31, 2002. The Company issued 30,000 shares
of the Company's common stock on Form S-8 registration statement in full
payment of the Company's debt.
f. On February 4, 2003, the Company and J. Dapray Muir, Esq. ( the Company's
previous attorney) entered into an agreement to compensate him for past
services rendered to the Company in the amount of $34,669, all of which
was accrued at December 31, 2002. The Company issued 50,000 shares of the
Company's common stock on a Form S-8 registration statement in full
payment of the Company's debt.
-20-
g. On February 3, 2003, the Company and Peter Russo, an executive of the
Company, entered into an agreement to compensate him for past services
rendered to the Company in the amount $20,000, all of which was accrued at
December 31, 2002. The Company issued 40,000 shares of the Company's
common stock on Form S-8 registration statement in full payment of the
Company's debt
h. On February 10, 2003, the Company and Jerome Kindrachuk, an executive of
the Company, entered into an agreement to compensate him for past services
rendered to the Company in the amount of $20,000, all of which was accrued
at December 31, 2002. The Company issued 200,000 shares of the Company's
common stock in full payment of the Company's debt in February 2003.
i. On April 29, 2003, the Company and Peter Russo, the CEO of the Company,
entered into an agreement to compensate him in recognition of his
commitment for services in the amount of $22,500. The Company issued
100,000 shares of the Company stock in full payment of this debt.
j. On April 29, 2003, the Company and Jerry Kindrachuk, an executive of the
Company, entered into an agreement to compensate him in recognition of his
commitment for services in the amount of $22,500. The Company issued
100,000 shares of the Company stock in full payment of this debt.
k. On April 29, 2003 the Company and Steven L. Gray, entered into an
agreement to compensate him for past services rendered to the Company in
the amount of $50,000. The Company issued 100,000 shares of the Company
stock in full payment of this debt.
l. On April 29, 2003, the Company and Kevin Forcier, entered into an
agreement to compensate him for past services rendered to the Company in
the amount of $10,000. The Company issued 20,000 shares of the Company
stock in full payment of this debt.
m. On April 29, 2003, the Company and T&T Trading of Zurich, Switzerland,
entered into an agreement to compensate them for past services rendered in
the amount of $50,000. The Company issued 240,000 shares of the Company
stock in full payment of this debt.
n. On June 30, and July 23, 2003, the Company and Michael Kahn, entered into
an agreements to compensate him for past services rendered to the Company
in the amount of $15,000 and $15,000 respectively. The Company issued
74,000 shares of the Company stock in full payment of this debt.
o. On June 30 and July 23, 2003, the Company and Jeffrey Miller, entered into
an agreements to compensate him for past services rendered to the Company
in the amount of $1,500 and $1,500, respectively. The Company issued 6,000
shares of the Company stock in full payment of this debt.
-21-
p. On July 1, 2003, the Company entered into an agreement with Gary Robinson,
a stockholder, former CEO and former chairman, to compensate him for past
services rendered to the Company in the amount of $93,625, the fair value
of the services. The Company issued 280,000 shares of the Company's common
stock on Form S-8 registration statement in full payment of the Company's
debt.
q. On August 8, 2003 the Company and Joseph Tomasek entered into an
agreement to compensate him past services rendered in the amount of
$40,000. The Company issued 200,000 shares of the Company stock in full
payment of this debt.
r. On August 8, 2003, the Company and Mr. Hallam entered into an agreement to
sell 100,000 shares of the Company's common stock for $50,000.
s. On August 11, 2003, the Company and Joy Miller entered into an agreement
for compensation of services to the Company in the amount of $43,750. The
Company issued 100,000 shares of the Company stock in full payment of this
debt.
t. On August 22, 2003, the Company and Michael Kahn entered into an agreement
to sell 250,000 shares of the Company common stock for $50,000.
u. On November 15, 2003, the Company and Neil Berman entered into an
agreement to sell 100,000 shares of the Company common stock for $12,500.
On November 15 and December 15, 2003 the Company and Neil Berman entered
into consulting agreements for compensation and consulting for $8,500 and
$850 respectively. The Company issued 100,000 and 10,000 shares
respectively in full payment of this debt.
v. On November 21, 2003, the Company and Nela Pavaliou and Business Center
International entered into an agreement for compensation of services in
the $1,750 for each. The Company issued 100,000 shares of the Company
common stock in full payment of this debt.
w. On February 24, 2003, the Board of Directors effected a forward stock
split of five for one. All references to common stock after that date
reflect the forward stock split.
9. INCOME TAXES
At December 31, 2003, the Company has net operating loss carryforwards
of approximately $1,789,400 for financial reporting and for tax purposes, which
expire in various years through 2004. The difference between financial and tax
purposes results from temporary differences caused by capitalization of start-up
expenditures as required by Internal Revenue Code Section 195.
The utilization of the net loss carryforward may be limited as a result
of cumulative changes in the Company's stock ownership.
-22-
Deferred income taxes reflect the impact of net operating loss
carryforwards. In recognition of the uncertainty regarding the ultimate amount
of income tax benefits to be derived from the Company's net operating loss
carryforwards, the Company has recorded a valuation allowance for the entire
amount of the deferred tax asset. The deferred income tax asset is comprised of
the following at December 31, 2003 and 2002:
December 31,
2003 2002
---- ----
Gross deferred tax asset $ 608,000 $ 184,000
resulting from net operating
loss carryforward
Valuation allowance (608,000) (184,000)
--------- ---------
Net deferred income tax asset $ -- $ --
========= =========
The reconciliation of the effective income tax rate to the federal
statutory rate is as follows:
For the Year Ended
December 31,
2003 2002
---- ----
Federal income tax rate 34% 34%
Valuation allowance on net
operating loss carryforward (34)% (34)%
----- -----
Effective income tax rate --% --%
===== =====
10. STOCK OPTION PLAN
In December 2001, the Company's Board of Directors approved the 2001 Employee
Stock Option Plan (the "Plan"). The Plan authorizes the Board of Directors to
grant, over a ten year period, options to purchase up to 2,000,000 shares of the
Company's common stock. On February 1, 2003, the Company registered the
2,000,000 shares. The purchase price per share may not be less than 100% of the
fair market value of the Company's common stock at the date of grant. Options
granted under the Plan maybe in the form of incentive stock options or
non-qualified stock options which do not meet the criteria for incentive stock
options under Section 122 of the Internal Revenue Code. Compensation expense,
representing the difference between the exercise price and the fair market price
at the date of grant, is recognized in the year of grant. No options were
granted for the years ended December 31, 2003 and 2002.
The term of each option cannot be more than 10 years from the date of grant, and
options can be exercised only during the participant's employment with the
Company. The options vest immediately on the date of grant.
-23-
On December 1, 2003, the Plan was amended to give the Board of Directors the
power to issue a restricted stock award to an employee representing shares of
common stock that are issued subject to such restrictions on transfer and other
incidents of ownership and such forfeiture conditions as the Board may determine
("Restricted Shares"). In connection with issuance of any Restricted Shares, the
Board may (but shall not be obligated to) require the payment of a specified
purchase price (which price may be less than Fair Market Value as defined in the
Plan).
The Plan also authorizes the Board of Directors to grant and issue stock awards
to employees of the Company. The Board of Directors may (but shall not be
obligated to) require the stock award to be at a specified price (which price
may be less than fair market value). On December 11, 2003, the Board of
Directors granted and issued 358,000 shares as stock awards to four employees
for past compensation. The stock award totaled $24,000 (issued at $.067 per
share), the market price of the Company's common stock at the date of grant and
issuance. The compensation expense is included in the Company's statement of
operations for the year ending December 31, 2003.
A summary of the status of the Company's options and stock awards under the Plan
as of December 31, 2003, and changes during the year then ended, is presented
below:
2003
---------------------------------
Weighted-
Average
Exercise
Shares Price
---------------- -------------
Options out-
standing, begin-
ning of year -- $ --
Options granted -- $ --
Options exercised -- $ --
Stock awards granted 358,000 $ 0.067
Stock awards issued (358,000) $ (0.067)
Options cancelled/expired -- $ --
---------------
Options out-
standing, end
of year -- $ --
===============
Options price
range at end
of year
Options price
range for
exercised
shares --
Options available
for grant at end
of year 1,642,000
Weighted-
average fair
value of options
granted during
the year
-24-
9. COMMITMENTS AND CONTINGENCIES
a. Executive Employment Agreement
Effective March 11, 2003, the Company entered into an employment
agreement with Peter Russo for three years with a renewal option upon mutual
agreement. The agreement compensates Mr. Russo $10,800 per month. Additionally,
Mr. Russo will receive an incentive of 1.5% of adjusted net profits beginning
with the year 2003 and each fiscal year thereafter during the term of this
agreement, payable in stock. This agreement and Mr. Russo's employment may be
terminated by the Company at its discretion at any time after the initial term,
provided that the Mr. Russo be paid six months of his base compensation then in
effect. Effective June 15, 2003, Mr. Russo was appointed president and chief
executive officer and in recognition of his new responsibilities agreed to
compensation of $15,000 per month effective July 1, 2003.
b. License Agreements
(1) In April 2003, the Company entered into a License Agreement (the "License
Agreement") with Joseph Friedman and Sons International, Inc. ("Friedman") for
the territory of the Former Soviet Union. The License Agreement was predicated
upon technologies that were assigned to Delta Mutual, Inc. under an agreement
with the technology owner. Due to actions taken against the technology owner by
its creditors during the latter part of 2003, it lost its ability to assign the
technologies to the Company. Accordingly, the Company was unable to convey these
rights to Friedman.
The Company and Friedman executed an Addendum to the License Agreement (the
"Addendum") in April 2003 that Friedman shares of the Company's common stock and
a seat on the Company's board of directors. The Company issued Friedman 288,368
shares of common stock representing a value of $40,000 in consideration of
Friedman executing and delivering of the license agreement. In November 2003,
Friedman made a claim for additional shares of stock, citing the antidilution
language in the Addendum. Friedman also required that his nominee be appointed
to the Board of Directors.
In light of the events that have effected the License Agreement, the Company
notified Friedman on March 30, 2004, as provided in the License Agreement,
terminating the License Agreement and the Addendum. The Company has taken the
position that the termination of the License Agreement eliminates Friedman's
right to a board seat.
In the event that Friedman and the Company are not able to resolve any dispute
that may arise, Friedman may seek additional shares of the Company's common
stock that could be substantial.
As of December 31, 2003, the Company expensed the $40,000 in connection with the
terminated license agreement and the expense included in the Company's statement
of operations.
-25-
(2) The Company and Delta Envirotech ("Licensee") entered into a license
agreement permitting the licensee to utilize any and all technologies, licenses
and permits acquired by the Company to develop environmental remediation
projects. The license agreement included the Middle East, Africa, and the Far
East. The current license agreement lapsed and a new license agreement is
pending.
c. Financing Agreement
On July 8, 2003, the Company entered into an agreement with Rolan Jansen
and Ivano Angelastri ("J&A") to introduce and arrange equity debt or other
financing agreements with strategic partners, for the Company, or its affiliates
for a finders fee of 6.0% to Rolan Jansen and 2.0% to Ivano Angelastri of the
gross proceeds of the equity financing. For the year ended December 31, 2003, no
financing was introduced to the Company in connection with this agreement.
d. Investor Relations Agreement
On November 6, 2001 the Company entered into an agreement with Direct
Development Group, LLC ("Direct") for a period of four months, as its investor
relations and strategic communication consultant. Direct received a fee of
$8,000 for each of the years ended December 31, 2002 and 2001.
e. Leases
The Company entered in to a lease March 1, 2003 for a business office
space. The lease will require the Company to pay certain executory costs (such
as insurance and maintenance).
Future minimum lease payments for the operating lease is as follows:
Years Ending
December 31
-----------
2004 $ 7,800
2005 7,800
2006 1,300
2007 --
-------
16,900
=======
The rent expense for 2003 was $6,662. There was no rent expense for the
year ended December 31, 2002.
10. Subsequent Events
In January and February 2004, the Company sold 1,100,000 shares of restricted
common stock for $137,500, valued at $.13 per share, which was below the fair
market value at the time of issuance.
-26-
EXHIBIT 4.2
DELTA MUTUAL, INC.
2001 EMPLOYEE STOCK OPTION PLAN
(AS AMENDED DECEMBER 1, 2003)
DELTA MUTUAL, INC.
2001 EMPLOYEE STOCK OPTION PLAN
1. Purpose
The proper execution of the duties and responsibilities of the
executives and key employees of Delta Mutual, Inc. (the "Corporation") is a
vital factor in the continued growth and success of the Corporation. Toward this
end, it is necessary to attract and retain effective and capable individuals to
assume positions that contribute materially to the successful operation of the
business of the Corporation. It will benefit the Corporation, therefore, to bind
the interests of these persons more closely to its own interests by offering
them an attractive opportunity to acquire a proprietary interest in the
Corporation and thereby provide them with added incentive to remain in the
service of the Corporation and to increase the prosperity, growth, and earnings
of the Corporation. This stock option plan is intended to serve these purposes.
2. Definitions
The following terms wherever used herein shall have the meanings set
forth below.
"Board of Directors" or "Board" shall mean the Board of Directors of
the Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder.
"Committee" shall mean a committee to be appointed by the Board of
Directors in accordance with Section 4(a) of the Plan.
"Common Stock" shall mean the shares of common stock of the
Corporation, including both the voting and non-voting classes of stock.
"Corporation" shall mean Delta Mutual, Inc., a Delaware corporation.
"Employee" shall mean a common law employee of the Corporation or a
Parent or a Subsidiary.
"Employment" means periods during which an Employee qualifies as an
Employee.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of the Common Stock on any date shall be (a) the
average on that date of the high and low prices of a share of Common Stock on
the principal national securities exchange on which shares of Common Stock of
the same class are then trading, or, if shares were not traded on such date,
then on the next preceding date on which a trade occurred; or (b) if Common
Stock is not traded on a national securities exchange but is quoted on the
National Association of Securities Dealers, Inc. Authorized Quotation System
("NASDAQ") or a successor quotation system, the last reported sale price on such
date as reported by NASDAQ or such successor quotation system; or (c) if Common
Stock is not traded on a national securities exchange and is not reported on
NASDAQ or a successor quotation system, the closing bid price (or average of bid
prices) last quoted on such date by an established quotation service for
over-the-counter securities; or (d) if Common Stock is not traded on a national
securities exchange, is not reported on NASDAQ or a successor quotation system
and is not otherwise publicly traded on such date, the fair market value of a
share of the same class of Common Stock as established by the Board of Directors
or Committee acting in good faith and taking into consideration all factors
which it deems appropriate, including, without limitation, the Corporation's net
book value and recent sale or offer prices for the Common Stock in private
arm's-length transactions. During periods when the Fair Market Value of a share
of Common Stock cannot be determined under any of the methods specified in
clauses (a), (b) and (c), above, the Board of Directors or Committee shall have
the authority to establish the Fair Market Value of the Common Stock as of the
beginning of (or periodically during) each fiscal year of the Corporation and to
use such value for all transactions occurring thereafter within such fiscal
year.
"Immediate Family Member" shall mean each of (a) the children, step
children or grandchildren of the Employee to whom the Option is granted, (b) the
spouse or any parent of the Employee to whom the Option is granted, (c) any
trust solely for the benefit of any such family members, and (iv) any
partnership or other entity in which such family members are the only partners
or other equity holders.
"Incentive Stock Option" shall mean any Option granted pursuant to the
Plan that is designated as an Incentive Stock Option and which satisfies the
requirements of Section 422(b) of the Code.
"Nonstatutory Stock Option" shall mean any Option granted pursuant to
the Plan that is not an Incentive Stock Option.
"Option" or "Stock Option" shall mean a right granted pursuant to the
Plan to purchase shares of Common Stock, and shall include the terms "Incentive
Stock Option" and "Nonstatutory Stock Option".
"Optionee" shall mean an Employee who is granted an Option under this Plan.
"Option Agreement" shall mean a written agreement representing Options
granted pursuant to the Plan, as contemplated by Section 7 of the Plan.
"Option Holder" means the Optionee or, if applicable, the person to
whom the Optionee's rights under the Option Agreement shall have been validly
transferred.
"Parent" shall mean a "parent company" of the Corporation, whether now
or hereafter existing, as defined in Section 424(e) of the Code.
"Plan" shall mean the Delta Mutual, Inc. 2001 Employee Stock Option
Plan as originally approved by the Board of Directors in December, 2001, as
embodied in this document, and as the same may be amended from time to time.
"Share" shall mean a share of the Common Stock of the Corporation that
is subject to an Option, as adjusted in accordance with Section 9 of the Plan.
"Subsidiary" shall mean a "subsidiary corporation" of Corporation or a
Parent, whether now or hereafter existing, as defined in Section 424(f) of the
Code.
3. Effective Date of the Plan
The Plan shall become effective upon stockholder approval pursuant to
Section 15 of the Plan, provided that such approval is received before the
expiration of one year from the date the Plan is approved by the Board of
Directors, and provided further that the Board of Directors may grant Options
pursuant to the Plan prior to stockholder approval if such Options by their
terms are contingent upon subsequent stockholder approval of the Plan.
4. Administration
(a) Procedure.
(i) Administration With Respect to Directors and Officers.
With respect to grants of Options to Employees who are also officers or
directors of the Corporation, the Plan shall be administered by (A) the Board,
if the Board may administer the Plan in compliance with Rule 16b-3 promulgated
under the Exchange Act or any successor thereto ("Rule 16b-3") with respect to a
plan intended to qualify thereunder as a discretionary plan, or (B) a committee
designated by the Board to administer the Plan, which committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(iii) Administration With Respect to Other Employees. With
respect to grants of Options to Employees who are neither directors nor officers
of the Corporation, the Plan shall be administered by (A) the Board or (B) a
Committee designated by the Board, which committee shall be constituted in such
a manner as to satisfy the legal requirements relating to the administration of
incentive stock option plans, if any, of Nevada corporate and securities laws
and of the Code (the "Applicable Laws"). Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board (or the Committee) shall have the authority, in its discretion: (i) to
grant Incentive Stock Options or Nonstatutory Stock Options; (ii) to determine,
upon review of relevant information the fair market value of the Common Stock in
each class; (iii) to determine the exercise price per Share of Options to be
granted, which exercise price shall be determined in accordance with Section
7(b) of the Plan; (iv) to determine the regular, full-time Employees to whom,
and the time or times at which, Options shall be granted and the number of
Shares to be represented by each Option; (v) to interpret the Plan; (vi) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vii)
to determine the rules and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to accelerate or defer (with the consent of the Option Holder)
the exercise date of any Option, consistent with the provisions of Section 7 of
the Plan; (ix) to authorize any person to execute on behalf of the Corporation
any instrument required to effectuate the grant of an Option previously granted
by the Board or Committee; and (x) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board (or the Committee designated by the Board to
administer the Plan) shall be final and binding on all Optionees and Option
Holders of any Options granted under the Plan.
5. Participation in the Plan
(a) Participation in the Plan shall be limited to those Employees (1)
who are designated for payroll purposes as full-time, permanent employees of the
Corporation and any Parents or Subsidiary and (2) who shall be designated by the
Committee and approved by the Board of Directors as participants in the Plan.
The Plan shall not confer upon any Optionee any right with respect to
continuation of Employment, nor shall it interfere in any way with his or her
right or the Corporation's right to terminate his or her employment at any time,
with or without cause.
(b) No member of the Board of Directors who is not also an Employee
shall be eligible to participate in the Plan.
6. Stock Subject to the Plan
(a) Subject to Section 9 of the Plan, there shall be reserved for the
granting of Options pursuant to the Plan and for issuance and sale pursuant to
such Options Two Million (2,000,000) Shares of Common Stock, par value $.0001
per share. To determine the number of Shares of either the voting or non-voting
class of Common Stock that is available at any time for the granting of Options,
there shall be deducted from the total number of reserved shares of that class
of Common Stock, the number of shares of that class of Common Stock in respect
of which Options have been granted pursuant to the Plan that are still
outstanding or have been exercised. The Shares of Common Stock to be issued upon
the exercise of Options granted pursuant to the Plan shall be made available
from the authorized but unissued shares of Common Stock or reacquired Common
Stock. If for any reason Shares of Common Stock as to which an Option has been
granted cease to be subject to purchase thereunder, then such Shares of Common
Stock again shall (unless the Plan shall have been terminated) be available for
issuance pursuant to the exercise of Options pursuant to the Plan.
Notwithstanding any other provision of the Plan, Shares issued under the Plan
and later repurchased by the Corporation shall not become available for future
grant or sale under the Plan.
(b) Proceeds from the purchase of shares of Common Stock upon the
exercise of Options granted pursuant to the Plan shall be used for the general
business purposes of the Corporation.
(c) Grant of Restricted Stock Awards. The Board shall have the power to
issue a restricted stock award to an Employee representing shares of Common
Stock that are issued subject to such restrictions on transfer and other
incidents of ownership and such forfeiture conditions as the Board may determine
("Restricted Shares"). In connection with issuance of any Restricted Shares, the
Board may (but shall not be obligated to) require the payment of a specified
purchase price (which price may be less than Fair Market Value).
7. Terms and Conditions of Options
(a) Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options and may be for the purchase of either voting or
non-voting Common Stock, all as determined by the Board of Directors or
Committee at its discretion and as designated in the terms of the Option
Agreement. However, notwithstanding such designations, to the extent that the
aggregate fair market value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Corporation) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of the prior sentence, Options shall be taken into account in the order
in which they were granted, and the fair market value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board of
Directors or Committee at the time of the grant, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option:
(A) which is granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Corporation
or any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) which is granted to any other Employee, the per
Share exercise price shall be no less than 100% of the fair market value per
Share on the date of grant.
(ii) In the case of Nonstatutory Stock Option
(A) which is granted to a person who, at the time of
the grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Corporation or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the fair
market value per Share on the date of the grant.
(B) granted to any other person, the per Share
exercise price shall be no less than 100% of the fair market value per Share on
the date of grant.
For purposes of this Section 7(b), in the event that an Option
is amended to reduce the exercise price, the date of grant of such Option shall
thereafter be considered to be the date of such amendment.
If the Board of Directors or Committee does not establish a
specific exercise price per share at the time of grant, the exercise price per
share shall be equal to the Fair Market Value of a share of Common Stock on the
date of grant of the Options.
(c) Each Option, subject to the other limitations set forth in the
Plan, may extend for a period of up to but not exceeding 10 years from the date
on which it is granted. The term of each Option shall be determined by the Board
of Directors or Committee at the time of grant of the Option and specified in
the Option Agreement, provided that if no term is specified by the Board or
Committee the term of the Option shall be the maximum term permitted under this
Section measured from the date on which it is granted. Notwithstanding anything
to the contrary, in the case of an Option granted to an Optionee who, at the
time the Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Corporation or any Parent or
Subsidiary, (a) if the Option is an Incentive Stock Option, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Incentive Stock Option Agreement, or (b) if the
Option is a Nonstatutory Stock Option, the term of the Option shall be five (5)
years and one (1) day from the date of grant thereof or such shorter term as may
be provided in the Nonstatutory Stock Option Agreement.
(d) The Board of Directors or Committee may provide in the Option
Agreement that the right to exercise each Option for the number of shares
subject to each Option shall vest in the Optionee over such period of time as
the Board or Committee, in its discretion, shall determine for each Optionee.
(e) Options shall be nontransferable and nonassignable and may not be
sold, pledged, assigned, hypothecated, transferred, or disposed in any manner,
except that (1) Options may be transferred by testamentary instrument or by the
laws of descent and distribution, and (2) subject to the terms and conditions of
the Option Agreement or any other terms and conditions imposed by the Board of
Directors or Committee from time to time, Options may be transferred in
accordance with Section 7(l) of the Plan if the applicable Option Agreement or
other action of the Board or Committee expressly provides that the Options are
transferable.
(f) Upon voluntary or involuntary termination of an Optionee's active
Employment for any reason (including disability), his Option and all rights
thereunder shall terminate effective at the close of business on the date the
Optionee ceases to be an active, regular employee of the Corporation or any of
its subsidiaries, except (1) to the extent previously exercised and (2) as
provided in Sections 7 (g), (h), (i) and (j) of the Plan.
(g) In the event an Optionee takes a leave of absence from the
Corporation or any Parent or Subsidiary for personal reasons or as a result of
entry into the armed forces of the United States, or any of the departments or
agencies of the United States government, the Committee may consider his or her
case and may take such action in respect of the related Option Agreement as it
may deem appropriate under the circumstances in its absolute discretion,
including accelerating the time previously-granted Options may be exercised and
extending the time following the Optionee's termination of Employment during
which the Option Holder is entitled to purchase the Shares of Common Stock
subject to such Options, provided that in no event may any Option be exercised
after the expiration of the term of the Option or more than ninety (90) days
after the Optionee's termination of Employment.
(h) If an Optionee's Employment terminates as a result of his or her
total and permanent disability (as defined in Section 22(e)(3) of the Code), the
Option Holder may exercise his or her Option within no more than the twelve (12)
month period beginning on the date of his or her termination of Employment (to
the extent the Option Holder was entitled to exercise the Option at the date of
the Optionee's termination of Employment and provided that in no event may any
Option be exercised after the expiration of the term of the Option), after which
the Option shall lapse.
(i) If an Optionee dies during the term of his or her Option without
the Option having been fully exercised, the executor or administrator of the
Optionee's estate or the person who inherits the right to exercise the Option by
bequest or inheritance shall have the right within one (1) year of the
Optionee's death to purchase the number of Shares of Common Stock that the
deceased Optionee was entitled to purchase at the date of death, after which the
Option shall lapse, provided that in no event may any Option be exercised after
the expiration of the term of the Option.
(j) If an Optionee terminates employment without having fully exercised
the Option due to the Optionee's retirement at or after age 60 and with the
consent of the Corporation, then the Option Holder shall have the right within
ninety (90) days of the Optionee's termination of Employment to purchase the
number of shares of Common Stock that the Option Holder was entitled to purchase
at the date of termination of the Optionee's Employment, after which the Option
shall lapse, provided that in no event may any Option be exercised after the
expiration of the term of the Option. The Board of Directors or Committee may
cancel an Option during the ninety day period referred to in this paragraph, if
the Optionee engages in employment or activities contrary, in the opinion of the
Board or Committee, to the best interests of the Corporation. The Board or
Committee shall determine in each case whether a termination of Employment shall
be considered a retirement with the consent of the Corporation, and, subject to
applicable law, whether a leave of absence shall constitute a termination of
Employment. Any such determination of the Board or Committee shall be final and
conclusive, unless the Committee is overruled by the Board.
(k) The granting of an Option pursuant to the Plan shall not constitute
or be evidence of any agreement or understanding, express or implied, on the
part of the Corporation or any of its subsidiaries to retain or employ the
Optionee for any specified period.
(l) The Board of Directors or Committee may provide, in the original
grant of a Nonqualified Stock Option or in an amendment or supplement to a
previous grant, that some or all of the Nonqualified Stock Options granted under
the Plan are transferable by the Optionee to an Immediate Family Member of the
Optionee, provided that (i) the Option Agreement, as it may be amended from time
to time, expressly so provides or the Board or Committee otherwise designates
the Option as transferable, (ii) the transfer by the Optionee is a bona fide
gift without consideration, (iii) the transfer is irrevocable, (iv) the Optionee
and any such transferee provides such documentation or other information
concerning the transfer or the transferee as the Board of Directors or Committee
or any Employee of the Corporation acting on behalf of the Board or Committee
may from time to time request, and (v) the Optionee or the Option Holder
complies with all of the terms and conditions (including, without limitation,
any further restrictions or limitations) included in the Option Agreement. Any
Nonqualified Stock Option transferred in accordance with the terms and
conditions provided in this Section 7(l) shall continue to be subject to the
same terms and conditions that were applicable to such Nonqualified Stock Option
prior to the transfer. Notwithstanding any other provisions of the Plan, the
Corporation shall not be required to honor any exercise by an Immediate Family
Member of an Option transferred in accordance with the terms and conditions
provided in this Section 7(l) unless and until payment or provision for payment
of any applicable withholding taxes has been made.
(m) In addition to the general terms and conditions set forth in this
Paragraph 7 in respect of Options granted pursuant to the Plan, Incentive Stock
Options granted pursuant to the Plan shall be subject to the following
additional terms and conditions:
(i) "Incentive Stock Options" shall be granted only
to individuals who, at the date of grant of the Option, are
regular, full-time Employees of the Corporation or any Parent
or Subsidiary;
(ii) No Employee who owns beneficially more than 10%
of the total combined voting power of all classes of stock of
the Corporation shall be eligible to be granted an "Incentive
Stock Option", unless the exercise price per Share is at least
110% of the Fair Market Value of the Common Stock subject to
the Option on the date of grant of the Option and the Option,
by its terms, is not exercisable after the expiration of five
years from the date the Option is granted.
(iii) To the extent that the aggregate fair
market value (determined at the time the Option is granted) of
the shares of Common Stock in respect of which an Option is
exercisable for the first time by the Optionee during any
calendar year (and taking into account all "incentive stock
option" plans of the Corporation and its subsidiaries) exceeds
$100,000, that number of whole shares for which an Option
issued hereunder is exercisable with an aggregate fair market
value in excess of this $100,000 limit shall not be treated as
having been granted under an "incentive stock option"; and
(iv) Any other terms and conditions
specified by the Committee that are not inconsistent with the
Plan, except that such terms and conditions must be consistent
with the requirements for "incentive stock options" under
Section 422 of the Code.
8. Methods of Exercise of Options
(a) An Optionee (or other Option Holder, if any, entitled to exercise
an Option hereunder) desiring to exercise an Option granted pursuant to the Plan
as to all or part of the Shares of Common Stock covered by the Option shall (i)
notify the Corporation in writing at its principal office to that effect,
specifying the number of Shares of Common Stock to be purchased and the method
of payment therefor, and (ii) make payment or provision for payment for the
shares of Common Stock so purchased in accordance with this Paragraph 8. Such
written notice may be given by means of a facsimile transmission. If a facsimile
transmission is used, the Option Holder should mail the original executed copy
of the written notice to the Corporation promptly thereafter. An Option may not
be exercised for as fraction of a share of Common Stock.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Board of Directors and may consist entirely of cash, check, promissory note,
other shares of Common Stock which (i) either have been owned by the Option
Holder for more than six (6) months on the date of surrender or were not
acquired, directly or indirectly, from the Corporation, and (ii) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, or any combination of
such methods of payment, or such other consideration and method of payment for
the issuance of Shares to the extent permitted under the laws of Nevada. In
making its determination as to the type of consideration to accept, the Board
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Corporation.
(c) An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Corporation in accordance with the terms of
the Option by the Option Holder and full payment for the Shares with respect to
which the Option is exercised has been received by the Corporation. Full payment
may, as authorized by the Board of Directors, consist of any consideration and
method of payment allowable under Section 8(b) of the Plan. Until the issuance
(as evidenced by the appropriate entry on the books of the Corporation or of a
duly authorized transfer agent of the Corporation) of the stock certificate
evidencing such Shares, no right to vote (in the case of voting stock) or
receive dividends or any other rights as a shareholder shall exist with respect
to the optioned Shares, notwithstanding the exercise of the Option. The
Corporation shall issue (or cause to be issued) such stock certificate promptly
upon exercise of the Option. In the event that the exercise of an Option is
treated in part as the exercise of a Nonstatutory Stock Option, the Corporation
shall issue a separate stock certificate evidencing the Shares of each class
treated as acquired upon exercise of an Incentive Stock Option and a separate
stock certificate evidencing the Shares of each class treated as acquired upon
exercise of a Nonstatutory Stock Option, and shall identify each such
certificate accordingly in its stock transfer records. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 9 of the
Plan.
(d) An Option Holder at any time may elect in writing to abandon an
Option in respect of all or part of the number of Shares of Common Stock as to
which the Option shall not have been exercised.
(e) Exercise of an Option in any manner shall result in a decrease in
the number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
9. Adjustments Upon Changes in Capitalization or Merger
Subject to any required action by the shareholders of the Corporation,
the number of Shares of Common Stock covered by each outstanding Option, and the
number of Shares of Common Stock which have been authorized for issuance under
the Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share of Common Stock covered by each such outstanding Option,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Corporation; provided, however,
that conversion of any convertible securities of the Corporation shall not be
deemed to have been "effected without receipt of consideration." Such adjustment
shall be made by the Board of Directors, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
of Common Stock subject to an Option.
In the event of the proposed dissolution, liquidation or sale of all or
substantially all of the assets of the Corporation, the Board shall notify the
Optionee or other Option Holder at least fifteen (15) days prior to such
proposed action. To the extent it has not been previously exercised, the Option
will terminate immediately prior to the consummation of such proposed action. In
the event of the merger of the Corporation with or into another corporation, the
Option shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless such successor corporation does not agree to assume the Option or to
substitute an equivalent option, in which case the Board shall, in lieu of such
assumption or substitution, provide for the Option Holder to have the right to
exercise the Option as to all of the optioned Shares, including Shares as to
which the Option would not otherwise be exercisable. If the Board makes an
Option fully exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify the Optionee or other Option
Holder that the Option shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option will terminate upon the
expiration of such period.
10. Time of Granting Options
The date of grant of an Option shall, for all purposes, be the date on
which the Board of Directors or Committee makes the determination granting such
Option. Notice of the determination shall be given to each Optionee within a
reasonable time after the date of such grant.
11. Amendments and Discontinuance of the Plan
(a) The Board of Directors shall have the right at any time and from
time to time to amend, modify, or discontinue the Plan in such respects as the
Board may deem advisable; provided that, unless approved by the Corporation's
shareholders in accordance with Section 15, no such amendment, modification, or
discontinuance of the Plan shall (i) revoke or alter the terms of any valid
Option previously granted pursuant to the Plan, (ii) increase the number of
shares of Common Stock to be reserved for issuance and sale pursuant to Options
granted pursuant to the Plan, (iii) change the maximum aggregate number of
shares of Common Stock that may be issued upon the exercise of Options granted
pursuant to the Plan to any single individual, (iv) decrease the price
determined pursuant to the provisions of Section 7(b), (v) change the class of
persons to whom Options may be granted pursuant to the Plan, (vi) provide for
Options exercisable more than 10 years after the date granted, (vii) if the
Corporation has a class of equity securities registered under Section 12 of the
Exchange Act at the time of such revision or amendment, any material increase in
the benefits accruing to participants under the Plan.
(b) Shareholder Approval. If any amendment requiring shareholder
approval under Section 15(a) of the Plan is made at a time when any class of
equity securities by the Corporation is registered under Section 12 of the
Exchange Act, such shareholder approval shall be solicited as described in
Section 15 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee or
other Option Holder and the Board of Directors, which agreement must be in
writing and signed by the Option Holder and the Corporation.
12. Plan Subject to Governmental Laws and Regulations
The Plan and the grant and exercise of Options pursuant to the Plan
shall be subject to all applicable governmental laws and regulations.
Notwithstanding any other provision of the Plan to the contrary, the Board of
Directors may in its sole and absolute discretion make such changes in the Plan
as may be required to conform the Plan to such laws and regulations. Shares
shall not be issued pursuant to the exercise of an Option unless the exercise of
such Option and the issuance and delivery of such Shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Corporation with respect to such compliance.
As a condition to the exercise of an Option, the Corporation may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Corporation, such a representation is required by any
of the aforementioned relevant provisions of law.
13. Reservation of Shares
The Corporation, during the term of this Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
The inability of the Corporation to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Corporation's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, shall relieve the Corporation of any liability in respect of
the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
14. Option Agreement
Options shall be evidenced by written option agreements in such form as
the Committee shall determine from time to time.
15. Shareholder Approval
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Corporation within twelve (12) months before or after the
date the Plan is adopted.
(b) The required approval of the shareholders of the Corporation shall
be solicited substantially in accordance with Section 14 of the Exchange Act and
the rules and regulations promulgated thereunder.
16. Information to Optionee
The Company shall provide to each Option Holder, during the period for which
such Option Holder has one or more Options outstanding, copies of all annual
reports and other information which are provided to all shareholders of the
Corporation. The Corporation shall not be required to provide such information
if the issuance of Options under the Plan is limited to Senior Executive
Officers whose duties in connection with the Corporation assure their access to
equivalent information.
17. Term of Plan
The Plan shall become effective upon the earlier to occur of its
adoption by the Board of Directors or its approval by the shareholders of the
Corporation as described in Section 15 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 11 of the
Plan.
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EXHIBIT 10.16
JOINT VENTURE AGREEMENT
This AGREEMENT, made and entered into this 14th day of January, 2004
By and existing between Delta Mutual, Inc., a corporation duly organized and
existing under the laws of the State of Delaware, and having its head office at
111 North Branch Street, Sellersville, PA 18960 (hereinafter referred to as
"Delta"), and Hi Tech Consulting and Construction, Inc., a corporation duly
organized and existing under the laws of the State of Virginia, and having its
head office presently located at 1725 Gosnell Road, Suite 203, Vienna, VA 22182
(hereinafter referred to as "Hi Tech').
WITNESSETH :
WHEREAS, Delta and its AFFILIATES (as hereinafter defined) are engaged,
inter-alia, in providing environmental SERVICES (as hereinafter defined), and
have accumulated unique knowledge and experience in that connection; and
WHEREAS, Hi Tech and Delta mutually agreed to establish a corporation
under the laws of the State of Delaware, in which each of them will be
shareholders, for the purpose of the sale of such SERVICES primarily in Middle
East and Africa;
NOW THEREFORE, for and in consideration of the premises and mutual
covenants herein contained, Delta and Hi Tech hereby set forth their agreement
as follows:
SECTION 1.00 DEFINITIONS
When used in the Agreement, each of the terms set forth in this SECTION
1.00 shall have the meaning indicated:
1.01 "NEWCO"
The stock corporation to be incorporated under the laws of the State of
Delaware by the parties hereto in the manner provided in Section 3.00 hereof,
and to be known as "Delta-Envirotech".
1.02 "EFFECTIVE DATE"
Those authorizations, validations, licenses, ruling or other
governmental approvals or actions required or permitted to be obtained pursuant
to SECTION 2.00 hereof.
1.03 "EFFECTIVE DATE"
The date on which both parties have agreed that all AUTHORIZATIONS have
been obtained and are satisfactory to both parties.
1.04 "ASSOCIATED AGREEMENTS"
Those agreements related to this Agreement which are to be executed
simultaneously herewith and which are listed in SECTION 4.00.
1.05 "SERVICES"
Providing SERVICES for the cleaning and recycling of polluted land and
water for industrial and civil applications. Where applicable, the rights to use
certain patents to produce alternative fuels from waste materials.
SECTION 2.00 AUTHORIZATIONS TO BE OBTAINED
2.01 Failure to Obtain AUTHORIZATIONS
In the event that the AUTHORIZATIONS shall not have been obtained
within one hundred twenty (120) days after the date of execution of this
Agreement, unless otherwise mutually agreed in writing between the parties
hereto, this Agreement and the ASSOCIATED AGREEMENTS shall terminate
automatically and rights, duties and obligations of each of the parties
hereunder to the other shall no longer exist, except as otherwise provided in
SECTION 11.00 hereof.
SECTION 3.0 FORMATION OF NEWCO
3.01 Organization and Registration
Promptly after the EFFECTIVE DATE, Hi Tech shall take steps necessary
to organize and register NEWCO under the laws of the State of Virginia. The
registered head office of NEWCO shall be located in the State of Virginia. The
parties hereto shall closely cooperate and consult with and assist each other
with respect to the procedures and particulars of the organization of NEWCO.
3.02 Articles of Incorporation of NEWCO
At the time of the organization and registration of NEWCO pursuant to
Paragraph 3.01 hereof, and parties hereto shall cause NEWCO to adopt as its
articles of incorporation the structure as established by the Secretary of State
of the State of Delaware.
3.03 Business Purposes of NEWCO
At the time of the organization and registration of NEWCO pursuant to
Paragraph 3.01 hereof, the articles of incorporation of NEWCO shall contain the
following business objectives and purposes:
3.03.01 To provide remediation and recycling services to
entities required to clean polluted areas.
3.03.02 To provide alternative fuels for industrial
applications from waste materials.
3.03.03 To engage in all business and activities related or
incidentalto any of the foregoing.
3.04 Total Paid-In Captial of NEWCO
NEWCO pursuant to Paragraph 3.01 hereof, NEWCO shall have an initial
paid-in capital of $750,000 as specified in Exhibit I.
3.05 Capital Contributions
Delta shall contribute to NEWCO, as its contribution to the initial
paid-in capital of NEWCO, the sum of $375,000 in cash. Additionally, Delta shall
issue to Mehran David Razmara, the appointee as President and C E O of NEWCO,
Fifty Thousand (50,000) shares of restricted common stock of Delta Mutual, Inc.
UPON SIGNING AND AN ADDITIONAL Fifty Thousand Shares 50,000 shares of its
restricted common stock no later than end March 2004. Hi Tech shall contribute
to NEWCO, as its contribution the amounts incurred in development of the
business structure as per Exhibit II and markets. In exchange for the
contributions described in this Paragraph 3.05, NEWCO shall issue SHARES of par
value of $0.001 per SHARE as follows: 1) to , Delta 750 SHARES; and 2) to Hi
Tech, 750 SHARES.
SECTION 4.00 ASSOCIATED AGREEMENTS
None
SECTION 5.00 MANAGEMENT OF NEWCO
5.01 Meeting of the Shareholders of NEWCO
Each shareholder of NEWCO shall be given timely notice of the time, date and
place of general meetings of shareholders, in no event later than thirty (30)
days prior to the date of convocation of each such meeting, in each case;
provided, however, that such period of notice maybe shortened for any particular
meeting with the unanimous consent of all the shareholders of record. Notices of
general meetings of shareholders of NEWCO given to shareholders who do not
reside in Virginia shall be sent by fax and confirmed by registered airmail or
courier. All such notices shall be accompanied by a complete agenda for the
meeting, in each case. An annual general meeting of shareholders shall be held
within ninety days after the close of each business year.
5.02 Resolutions of Shareholders
Except as otherwise required by mandatory provisions of law or
provided for in the articles of incorporation of NEWCO: 1) A
quorum for a general meeting of the shareholders of NEWCO
shall require the presence, in person or by proxy, of
shareholders of NEWCO holding two-thirds of the total issued
and outstanding SHARES of NEWCO entitled to vote; and 2)
Resolutions of general meetings of the shareholders of NEWCO
shall be adopted by the affirmative vote of two-thirds of the
SHARES represented in person or by proxy at a meeting at which
a quorum is present, including without limitation the
following:
1. Any amendment of the Articles of Incorporation;
2. Any alteration of the authorized capital or capital
reserves of the NEWCO;
3. Transfer of the whole or of an important part of the
business of NEWCO or taking over of the whole or a
part of the business of any other company or entry
into any joint venture or partnership;
4. Dismissal of Directors and statutory Auditor;
provided that a party shall only vote for the removal
of a director at the request of the party who
nominated that director;
5. Dismissal of and hiring (of new) Independent Public
Accountants;
6. Any other matters the adoption of which requires
special resolution of general shareholders meeting
under the Uniform Commercial Code.
5.03 The Board of Directors of NEWCO
Except as otherwise required by mandatory provisions of law or provided
for in the articles of incorporation of NEWCO, responsibility for the
management, direction and control of NEWCO shall be vested in the board
of directors of NEWCO. The articles of incorporation of NEWCO shall,
unless otherwise mutually agreed in writing between the parties hereto,
provide for the election of three (3) directors of NEWCO.
5.04 Election of Directors
The directors of NEWCO shall be elected at general meetings of
shareholders. It is understood and agreed by the parties hereto that
one (1) of the directors of NEWCO shall be individuals nominated by
Delta Mutual, Inc., and two (2) shall be individuals nominated by Hi
Tech. Each of the parties hereto hereby covenants and agrees to vote
its SHARES of NEWCO to cause the election of the directors nominated in
accordance with the foregoing. In the event of the death, incapacity,
resignation or other removal of a director prior to the end of his
term, each of the parties hereto agrees to vote its shares so as to
elect as his replacement a director nominated by the party hereto who
nominated the director whose death, incapacity, resignation or removal
was the cause of such vacancy.
5.05 Meetings of the Board of Directors of NEWCO
Each of the directors of NEWCO shall be given timely written notice of
the time, date and place of meetings of the board of directors of
NEWCO, in no event later than thirty (30) days prior to the date of
convocation of such meetings, in each case; provided, however, that
such period of notice maybe shortened or dispensed with for any
particular meeting by the unanimous written consent of all the
directors in office. Notices of meetings of the board of directors of
NEWCO given to directors who do not reside in Virginia shall be sent by
fax and confirmed by either registered airmail or courier. All such
notices shall be accompanied by a complete agenda for the meeting, in
each case. All directors of NEWCO shall receive copies of minutes of
all meetings of the board of directors.
5.06 Resolutions of Directors
Except as otherwise required by mandatory provisions of law, or by the
articles of incorporation of NEWCO, resolutions of the board of
directors shall be adopted only by the affirmative vote of a majority
of all of the directors of the company to be elected to office pursuant
to Paragraph 5.04 hereof, present in person, provided however, that the
following matters may only be approved by unanimous consent of all the
directors:
1. Adoption of a Three Year Operating Plan or approval
of any significant deviation from the Three Year
Operating Plan last approved by the shareholders;
2. The acceptance of any customer order that would
require additional facilities and investment or
substantial outside contracting for such order;
3. Incurring liabilities substantially in excess of
approved plan levels whether or not in the ordinary
course of business;
4. Extending credit, in terms of time or amounts, beyond
approved levels; and
5. Offering warranties or guarantees on product
performance beyond approved statements.
5.07 Representative Director
NEWCO shall have one (1) representative director who shall be appointed
by the board of directors of NEWCO from among the members of said board
and who shall be an individual nominated by Hi Tech and acceptable to
the Parties.
5.08 Officers
NEWCO shall have the following officers:
President and C E O
Each of the parties hereto hereby covenants and agrees to cause the
directors of NEWCO nominated by it to cast their votes so as to appoint
as officers of NEWCO individuals who qualify under the respective
sub-paragraph of this Paragraph 5.08. In the event of the death,
incapacity, resignation or other removal of an officer prior to the end
of his term, each of the parties hereto agrees to cause the directors
of NEWCO to cast their votes so as to appoint as his replacement a
nominee who qualifies under the foregoing provisions of this Paragraph
5.08.
5.09 Auditor
NEWCO shall have one statutory auditor who shall be approved by both
parties.
5.10 Accounting Period and Books of Account
5.10.1 Accounting Period and Books of Account
The accounting period of NEWCO shall commence of
January 1 of each year and end on December 31 of the
same year; provided, however, that the first
accounting period of NEWCO shall commence on the date
of organization of NEWCO pursuant to Paragraph 3.01
hereof and end on December 31 of the same year.
5.10.2 Books of Account
NEWCO shall keep true and accurate books of account
and records in accordance with sound accounting
practices, employing standards, procedures and form
in conformity with generally accepted accounting
practices.
5.11 Independent Public Accountants
At the end of each accounting period of NEWCO, the
books of account and records of NEWCO shall be
audited, at the expense of NEWCO, by a firm of
certified public accountants of international
reputation, competent to audit the books of NEWCO in
the manner required by Paragraph 5.10 hereof. Such
firm of independent public accountants shall certify
the annual financial reports of NEWCO suitable for
use by each of the parties hereto in connection with
its financial and tax reports.
5.12 Reporting and Inspection of NEWCO Records
NEWCO shall submit to its shareholders, copies of the
following reports:
Quarterly Statement of Profit and Loss.
Quarterly Balance Sheet and Statement of Accounts.
Quarterly Listing of Purchase Commitments by month.
Quarterly Forecast of Profit and Loss and Balance Sheet.
Further, NEWCO shall make available to each of the parties hereto, or
to their authorized representatives, its books of account and records,
if and when either party hereto shall so request.
SECTION 6.00 FACILITIES, PERSONNEL
6.01 Operating Facilities
As soon as possible after the EFFECTIVE DATE, NEWCO
shall complete any required office space. Additional
operating facilities maybe constructed by NEWCO in
the future, or acquired through purchase or lease, in
accordance with pertinent provisions of its articles
of incorporation.
6.02 Personnel
6.02.1 General
All personnel employed by NEWCO shall become
full-time regular employees of NEWCO, and shall not
be on loan or detached service from another employer
unless otherwise agreed between the parties. The
conditions of employment of such personnel, including
the remuneration thereof, shall be established in
work rules to be adopted by the board of directors of
NEWCO.
6.02.2 Recruiting
Hi Tech agrees to facilitate recruiting of
operational personnel by NEWCO so as to provide the
greatest possible assistance in the commencement and
development of operations of NEWCO.
6.02.3 Expatriate Personnel
If the parties decide that it is necessary to employ
non-US citizens in the operation of NEWCO, the
parties shall cooperate and mutually assist each
other in effecting same.
SECTION 7.00 FINANCING
7.01 Manner of Providing Additional Capital
The parties agree that, should it be determined by
agreement between them, in accordance with sound and
prudent business practices, that additional capital
is required for NEWCO beyond that to be contributed
pursuant to SECTION 3.00 hereof, and further beyond
credit facilities available directly to NEWCO such
additional capital will, except as otherwise provided
elsewhere in the SECTION 7.00, be provided by Delta
and Hi Tech and each in proportion to its equity
interest in NEWCO, and in like manner and on the same
terms and conditions, whether made in the form of
equity, debt or guarantees of loans authorized to be
taken by NEWCO or otherwise, unless the parties
otherwise mutually agree in writing.
7.02 Condition for Obligation of Additional Capital
Anything to the contrary in the SECTION 7.00
notwithstanding, the parties shall not be required to
provide any additional capital for NEWCO, whether in
the form of loans, equity, guarantees, or otherwise,
unless and until it shall first obtain such
governmental validations, authorizations, licenses or
other proposals as maybe necessary or desirable under
applicable laws or regulations in force at the time
such additional capital is to be provided.
7.03 Pre-emptive Rights
The parties hereto, as shareholders of NEWCO, shall
have pre-emptive rights to acquire any SECURITIES
which NEWCO may issue subsequent to its organization
and registration pursuant to Paragraph 3.01 hereof,
each in proportion to its equity interest in NEWCO.
Should either of the parties hereto decline such
right, the other party hereto shall have pre-emptive
rights to all such additional SECURITIES so declined
by the other; provided, however, that it is expressly
understood and agreed that the failure of to exercise
its pre-emptive rights, as aforesaid, for the reason
that any requisite authorization, license, or
approval, as maybe required by laws or regulations
then in effect, cannot be obtained therefore in form
and substance satisfactory to Delta shall not be
considered or deemed a waiver by of such pre-emptive
rights or an election by not to so subscribe, and Hi
Tech shall not therefore have the right to subscribe
to any portion whatsoever of such additional
SECURITIES including either its own portion or that
of.
8.0 TRANSFERS, ETC. OF SECURITIES
8.01 General Restriction of Transfers Etc.
Except as otherwise expressly provided for in the
SECTION 8.00, Delta and Hi Tech mutually covenant and
agree not to sell, assign, pledge or in any other
manner transfer title or rights to, or otherwise
encumber, any of the SECURITIES of NEWCO held by them
respectively, or to take any action leading to or
likely to result in any of the foregoing.
8.02 Transfers
Anything to the contrary in the SECTION 8.00
notwithstanding, neither Party shall have the right,
without obtaining the prior written consent of the
other Party, to transfer to any AFFILIATE of, or any
corporation acquiring all or substantially all of the
assets of, or any surviving or newly formed
corporation in connection with a merger or
amalgamation involving all or any portion of the
SECURITIES of NEWCO held by; provided, however, that
prior to any such transfer of the SECURITIES of NEWCO
by pursuant to this Paragraph 8.02, the other Party
shall be apprised and consulted concerning the
manner, timing and purpose of such transfer, and a
written undertaking by the prospective transferee of
the obligations of hereunder shall be obtained and
submitted to the other Party.
SECTION 9.00 ADDITIONAL UNDERTAKINGS AND COVENANTS
9.01 Performance of ASSOCIATED AGREEMENTS
The parties hereto agree to exercise their best
efforts to cause the full, timely and faithful
performance by NEWCO of all the terms and conditions
of the ASSOCIATED AGREEMENTS to which NEWCO shall
become a party pursuant to SECTION 4.00 hereof.
9.02 Industrial Property Rights
Hi Tech shall not, directly or indirectly, itself or
through any other person or firm controlled (directly
or indirectly) by it secure by this Agreement or any
ASSOCIATED AGREEMENT or by any of its actions
thereunder any right in or to any patent or patent
rights in any PRODUCT or any right in or to any
proprietary technology and know-how relating to any
PRODUCT disclosed by or its AFFILIATES pursuant to
this Agreement or any of the ASSOCIATED AGREEMENTS,
or in any trade names, trade or service marks,
copyrights, designs or any other property rights of
or its AFFILIATES, whether registered or not relating
to or used in connection with any PRODUCTS covered by
this Agreement or any ASSOCIATED AGREEMENT.
9.03 TRADEMARKS
Delta and Hi Tech expressly agree that all use of
trademarks and trade names in connection with
SERVICES provided by NEWCO, and matters related
thereto, shall be in strict accordance with the
ASSOCIATED AGREEMENTS contemplated by SECTION 4.00
hereof. Hi Tech shall not, directly or indirectly,
itself or through any other person or firm controlled
(directly or indirectly) by it, contest or aid others
in contesting or do anything which is likely to
impair or tend to impair the value or validity
(hereby acknowledge by Hi Tech) of any trade names,
trade and service marks of or its AFFILIATES relating
to the SERVICES and or the exclusive ownership or
rights of or its AFFILIATES therein. Upon request by
at any time during the term of this Agreement or
thereafter, Hi Tech shall take all steps necessary to
assign and transfer to any rights relating to any
names or marks of or its AFFILIATES which Hi Tech may
have obtained, inadvertently or otherwise. All
obligations of Hi Tech in this Paragraph 9.03 shall
survive any termination of this Agreement or any
ASSOCIATED AGREEMENT.
SECTION 10.0 PAYMENT AND TAXES
NEWCO shall be liable for any and all taxes related
to the provision of SERVICES provided by NEWCO.
SECTION 11.00 CONFIDENTIALITY OF INFORMATION; OTHER
RESTRICTIONS
11.01 Duty of Secrecy and Confidentiality
The parties hereto agree to keep strictly secret and
confidential and not to disclose to any third party,
except to the extent that disclosure to NEWCO maybe
required by this Agreement or by any of the
ASSOCIATED AGREEMENTS, any and all valuable and
proprietary information including, but not limited
to, technical, economic and marketing information,
acquired from either of the parties hereto, or from
NEWCO (unless disclosure of such information is
expressly permitted by this Agreement or by any
ASSOCIATED AGREEMENT). OBLIGATIONS RELATING TO ITS
UNPUBLISHED TECHNICAL DATA UNDER THIS agreement or
any ASSOCIATED AGREEMENT shall at all times be
subject to the Foreign Corrupt Practices Act and
other laws and regulations of the United States
Government and COMPANY B hereby gives its written
assurance that it will comply with said laws and
regulations as these maybe amended from time to time.
11.02 Restriction of Use
The parties hereto agree that they shall not use any valuable
and proprietary information obtained from the other party
hereto or from NEWCO for any purpose whatsoever except in a
manner expressly provided for in the Agreement or in any of
the ASSOCIATED AGREEMENTS, or upon the written consent of the
party disclosing such valuable and proprietary information.
11.03 Maintenance of Secrecy and Confidentiality by
Employees Of the Parties
The parties hereto agree to cause each of their respective
employees who shall be given access to valuable and
proprietary information obtained from the other party hereto
to treat such information in accordance with the obligations
of secrecy and confidentiality assumed by the parties pursuant
to Paragraphs 11.01 and 11.02 hereof.
11.04 Duty to Enforce Secrecy Commitments
Each party hereto agrees to take at its own expense all
reasonable action to compel compliance by its respective
employees with the provisions of Paragraph 11.03 hereof.
11.05 Limitation and Survival of Obligations
The obligations undertaken by the parties hereto pursuant to
this SECTION 11.00 shall not apply to any information obtained
from the other party hereto or from NEWCO which is or becomes
published or otherwise generally available to the public,
other than in consequence of the willful or negligent act or
omission of either of the parties hereto or NEWCO or either of
their or its employees, or which is, at the time of
disclosure, in the possession of the party to which such
information is furnished, and such obligations, as so limited,
shall survive termination of this Agreement or of any
ASSOCIATED AGREEMENT
SECTION 12.00 TERM AND TERMINATION
12.01 Term
This agreement shall become effective as of the date of
execution hereof by the last of the parties hereto to execute
this Agreement and shall continue in force and effect for an
indefinite term thereafter, until NEWCO shall be dissolved or
otherwise cease to exist as a separate entity, unless this
Agreement is sooner terminated pursuant to 12.01.1, 12.02,
12.03, or 12.04.
12.01.1 Either party may, on one year's written notice to the
other, terminate this Agreement. Such notice shall explain the
basis upon which the decision to terminate has been reached.
12.02 Bankruptcy, Etc., of a Party or NEWCO
Either party hereto may terminate this Agreement by written
notice to the other party hereto in the event that such other
party hereto shall:
12.02.1 Be declared insolvent or bankrupt;
12.02.2 Have all or any substantial portion of its capital
stock or Assets expropriated by any government; or
12.02.3 Be dissolved or liquidated, except in consequence of
a merger, amalgamation or other corporate
reorganization to which it maybe a party.
In case neither party is involved in any of the events enumerated in
subparagraphs 12.02.1 through 12.02.3, such party shall be obligated to
notify the other party of the occurrence of such event. Either party
hereto may terminate this Agreement by written notice to the other
party in the event that NEWCO shall be involved in any of the events
enumerated in subparagraphs 12.02.1 through 12.02.3, inclusive.
12. 2.4 Breach by a Party or NEWCO
In the event of a material breach of this Agreement or of any
ASSOCIATED AGREEMENT, including a breach by NEWCO of any
ASSOCIATED AGREEMENT to which it is a party, a party hereto
not in breach of this Agreement or of any ASSOCIATED AGREEMENT
to which it is a party shall be entitled to terminate this
Agreement by written notice to the other party hereto if,
within sixty (60) days after written notice is given by such
party not in breach complaining of a breach of this Agreement
or of any ASSOCIATED AGREEMENT, the breach as aforesaid shall
not have been corrected by the party in breach.
12.02.3 Governmental Alterations or Modification
If at any time during the term of this Agreement, any
government or agency thereof should require, directly or
indirectly, alteration or modification of any term or
condition of this Agreement or an ASSOCIATED AGREEMENT, or of
the performance of the parties hereunder or thereunder in a
manner which is significantly and substantially adverse to a
party hereto, then such party may, in good faith and at its
sole discretion, terminate this Agreement forthwith in its
entirety by giving written notice to that effect to the other
party hereto. It is expressly understood and agreed by the
parties hereto that in the event of such termination, the
party electing to terminate this Agreement pursuant to this
Paragraph 12.04 will incur no liability to the other party
hereto for any alleged default or breach in the performance of
this Agreement arising from the exercise of the right herein
provided to terminate this Agreement.
12.02.4 Rights of the Parties Upon Termination
In the event that either party hereto elects to exercise its
right of termination of this Agreement pursuant to Paragraphs
12.02, 12.03 or 12.04 the other party shall immediately
dissolve and liquidate NEWCO. In the event that either party
hereto elects to exercise its right of terminating of this
Agreement pursuant to subparagraph 12.01.1, the parties hereto
shall mutually arrange for the dissolution of NEWCO the
following year. Both parties shall fully cooperate in such
dissolution and liquidation of NEWCO. Nothing in this
paragraph 12.05 shall in any manner adversely affect the
remedies which either party may be entitled to under
applicable law in the event of termination of this Agreement
by either party hereto.
12.06 Force Majeure
With the exception of the obligations of NEWCO to make
payments to any of the parties hereto pursuant to this
Agreement or any of the ASSOCIATED AGREEMENTS, neither party
hereto shall be liable to the other party for any loss,
injury, delay, damages or other casualty suffered or incurred
by such other party hereto due to strikes, failures of
suppliers, riots, storms, fires, explosions acts of God, War,
or any other cause similar thereto which is beyond the
reasonable control of either party hereto, and any failure or
delay by either party hereto in performance of any of its
obligations under this Agreement or under any ASSOCIATED
AGREEMENT due to one or more of the foregoing causes shall not
be considered as a breach of this Agreement or of any
ASSOCIATED AGREEMENT, as the case maybe, for purposes of this
SECTION 12.00.
12.07 Non-Waiver
The waiver, express or implied, by either of the parties of
any right hereunder of any failure to perform or breach hereof
by the other party shall not constitute or be deemed as a
waiver of any other right hereunder or of any other failure to
perform or breach hereof by any such other party hereto,
whether of a similar or dissimilar nature thereto.
12.08 Survival of Rights, Duties and Obligations
Termination of this Agreement for any cause shall not release
either party from any liability which at the time of
termination has already accrued to the other party or which
thereafter may accrue in respect of any act or omission prior
to such termination. No shall any such termination of this
Agreement affect in any way the survival of any right, duty or
obligation of either party which is expressly stated elsewhere
in this Agreement to survive termination hereof any ASSOCIATED
AGREEMENT.
SECTION 13.00 INTERPRETATION
13.01 Applicable Law
The validity, construction and performance of this Agreement
shall be governed by and interpreted in accordance with the
laws of the State of Delaware.
13.02 Effect of Headings
The headings of SECTIONS and paragraphs of this Agreement
excepting those in SECTION 1.00, are to facilitate reference
only, do not form a part of this Agreement, and shall not in
anyway affect this interpretation hereof.
13.03 Modification, Etc. of Agreement
No oral explanation or oral information by either of the
parties hereto shall alter the meaning or interpretation of
this Agreement. No amendment or change hereof or addition
hereto shall be effective or binding on either of the parties
unless reduced to writing and executed by the respective duly
authorized representatives of each of the parties.
SECTION 14.00 MISCELLANEOUS
14.01 Assignment
This Agreement, and all rights and obligations hereunder, are
personal as to the parties hereto and shall not be assigned,
by either of the parties hereto to any third party without the
prior written consent of the other party; provided, however,
that either Delta or Hi Tech may assign this Agreement, in
connection with a transfer to its SECURITIES of NEWCO in
accordance with paragraphs 8.02 or 8.03 hereof, subject to the
assumption in writing by such transferee of all of the
obligations and duties of the assigning party set forth in
this Agreement.
14.02 Notices
Except as otherwise provided in this Agreement, all notices
required or permitted to be given hereunder shall be in
writing and shall be valid and sufficient if dispatch by fax
and either registered airmail or courier, addressed as
follows:
If to Hi Tech:
Hi Tech Consulting and Construction, Inc.
1725 Gosnell Road, Suite 203
Vienna, VA 22182
If to Delta:
Delta Mutual, Inc.
111 North Branch Street
Sellersville, PA 18960
Either party hereto may change its address by a notice given to the
other party hereto in the manner set forth above.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the day and year first set
forth.
WITNESS:
BY: /s/ Mehran David Razmara
------------------------ ---------------------------
Mehran David Razmara, President
Hi Tech Consulting and Construction, Inc.
WITNESS:
BY: /s/ Peter F. Russo
------------------------ ---------------------------
Peter F. Russo, President and CEO
Delta Mutual, Inc.
WITNESS:
------------------------
Exhibit I
Capital Contributions
Delta Mutual, Inc.
Cash Contributions to Capital $ 375,000
---------
Hi Tech Consulting and Construction, Inc.
Organization and Structure Expenses
Incurred, Contribution Value $ 129,720
Market and Client Access 245,280 $ 375,000
------- ---------
Total Capital Contributions $ 750,000
---------
Incentive Schedule
Delta Mutual, Inc. common stock shares will be issued to David Razmara at
no cost upon reaching the following objectives:
Receipt of the first $2.5 Million of orders/contracts not later than June
30, 2004 - 100,000 shares;
Receipt of the next $2.5 Million of orders/contracts not later than
October 31, 2004 - 200,000 shares; and
Receipt of the next $20 Million of orders/contracts not later than March
31, 2005 - 200,000 shares.
Exhibit II
Cash Contribution Schedule
Delta Mutual, Inc. Schedule of Cash Contributions:
On or Before Tuesday, January 2004 $ 50,000
On or Before February 5, 2004 $ 22,500
On or Before February 29, 2004 $ 27,500
On or Before March 31, 2004 $ 27,500
On or Before April 30, 2004 $ 27,500
On or Before May 31, 2004 $ 27,500
On or Before June 30, 2004 $ 27,500
On or Before July 31, 2004 $ 27,500
On or Before August 31, 2004 $ 27,500
On or Before September 30, 2004 $ 27,500
On or Before October 31, 2004 $ 27,500
On or Before November, 30, 2004 $ 27,500
On or Before December 31, 2004 $ 27,500
--------
Total Cash Contribution $375,000
========
EXHIBIT 10.17
AGREEMENT TO PURCHASE STOCK
THIS AGREEMENT made this 14th day of January, 2004 by and between Delta
Mutual, Inc. (a Delaware Corporation) and Hi Tech Consulting and Construction,
Inc. (a Virginia Corporation) (collectively the "Sellers") and Ali Razmara, an
individual (the "Purchaser").
WITNESSETH
WHEREAS, Sellers currently own one hundred percent (100%) of the issued and
outstanding common shares of Delta-Envirotech, Inc., a Delaware Corporation (the
"Corporation"), located at 1725 Gosnell Road, Vienna, VA 22182; and
WHEREAS, Sellers now desires to sell, and Purchaser desires to purchase, common
shares in the Corporation owned by Sellers:
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, and other good and valuable consideration the sufficiency of which is
hereby acknowledged, it is hereby agreed by and between the parties hereto as
follows:
1. Purchaser shall purchase and Sellers shall sell, assign, and
transfer, free and clear of all liens, encumbrances and liabilities, Sellers'
ten percent interest in the Corporation, said ten percent interest consisting of
one hundred fifty (150) shares of the common stock of the Corporation. Purchaser
shall purchase seventy-five (75) shares of the common stock of the Corporation
from each Seller.
2. Purchaser shall pay as the purchase price for the foregoing shares
the sum of two dollars ($2.00) in cash at closing.
3. The actions to be taken by the parties to close this transaction
shall take place on July 14, 2004 (the "Closing Date"). On the Closing Date,
Sellers shall deliver the shares hereinabove described to the Purchaser.
4. (a) Sellers agree to indemnify and hold Purchaser harmless against
any and all liabilities, directly or indirectly, whether accrued, absolute,
contingent, or otherwise, damages, losses, claims, costs and expenses (including
attorney's fees) arising out of or resulting from actions against Purchaser but
arising out of Sellers operation of the Corporation prior to the Closing Date
and against all actions, suits, proceedings, demands, assessments, judgments,
costs and expenses (including attorney's fees) connected therewith. Purchaser
will promptly notify Sellers in writing of any claim upon receipt thereof,
including copies of all documents received by Purchaser in connection with such
claims, made by third parties against Purchaser with respect to any of the
foregoing and afford Sellers an opportunity to defend, at Sellers expense,
against same.
(b) Purchaser hereby agrees to indemnify and hold Sellers
harmless against any and all liabilities, directly or indirectly, whether
accrued, absolute, contingent, or otherwise, damages, losses, claims, costs and
expenses (including attorney's fees) arising out of or resulting from any acts,
breach of warranty or misrepresentation by Purchaser, or the non-performance of
any covenant or obligation to be performed on the part of Purchaser under this
Agreement. Sellers will promptly notify Purchaser in writing of any claim upon
receipt thereof, including copies of all documents received by Sellers in
connection with such claims, made by third parties against Sellers with respect
to any of the foregoing and afford Purchaser an opportunity to defend, at
Purchaser's expense, against same.
5. The parties hereto agree, upon request, to make and deliver or cause
to be made and delivered such additional instruments as may be reasonably
necessary for the purpose of carrying out this Agreement and completing the
transfer provided herein.
6. This Agreement shall be binding upon the heirs, personal
representatives, successors, and assigns of the parties.
7. This Agreement and any accompanying instruments and documents
constitute the entire transaction between the parties and supercede any prior
oral or written agreements between them and there are no representations,
warranties, covenants or conditions which shall be binding upon the parties
hereto or which shall have any force or effect except those specified herein or
in accompanying instruments and documents.
8. This Agreement may not be amended except in writing signed by the
party to be charged therewith.
9. All covenants, warranties and representations herein shall survive
this Agreement and the Closing Date.
10. This Agreement shall be governed in all respects by the laws of the
State of Delaware.
11. This agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, and by authority duly given, the parties hereto have set
their hands, on the date first above written.
Delta Mutual, Inc. (Seller)
By: /s/ Peter F. Russo
--------------------------------
President
--------------------------------
Title
Hi Tech Consulting and Construction, Inc. (Seller)
By: /s/ David M. Razmara
--------------------------------
President
--------------------------------
Title
Ali Razmara (Purchaser)
By: /s/ Ali Razmara
--------------------------------
Exhibit 31.1
CERTIFICATION
I, Peter F. Russo, President and Chief Executive Officer of Delta Mutual,
Inc.(the "Company"), certify that:
1. I have reviewed this annual report on Form 10-KSB of Delta Mutual, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) evaluated the effectiveness of the Company's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the Company's internal control
over financial reporting that occurred during the Company's most recent
fiscal quarter (the Company's fourth quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting; and
5. The Company's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the Company's auditors and the audit committee of the Company's board
of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company's ability to record,
process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal control
over financial reporting.
Date: April 6, 2004 /s/ Peter Russo
--------------------------------
Peter F. Russo
President and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Martin G. Chilek, Chief Financial Officer of Delta Mutual, Inc. (the
"Company"), certify that:
1. I have reviewed this annual report on Form 10-KSB of Delta Mutual, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the company and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) evaluated the effectiveness of the Company's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the Company's internal control
over financial reporting that occurred during the Company's most recent
fiscal quarter (the Company's fourth quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting; and
5. The Company's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the Company's auditors and the audit committee of the Company's board
of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company's ability to record,
process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal control
over financial reporting.
Date: April 6, 2004 /s/ Martin Chilek
--------------------------------
Martin G. Chilek
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Delta Mutual, Inc. (the "Company") on
Form 10-KSB for the year ended December 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Peter F. Russo,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge: (1) The Report fully complies
with the requirements of section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Peter Russo
---------------------
Peter F. Russo
President and
Chief Executive Officer
April 6, 2004
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Delta Mutual, Inc. (the "Company") on
Form 10-KSB for the year ended December 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Martin G. Chilek,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that
to the best of my knowledge: (1) The Report fully complies with the requirements
of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and result of operations of the Company.
/s/ Martin Chilek
---------------------
Martin G. Chilek
Chief Financial Officer
April 6, 2004