File
Number 333-_____
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
INTERNET MEDIA SERVICES,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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5961
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22-3956444
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(State
or other jurisdiction
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(Primary
Industrial
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(I.R.S.
Employer
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of
Incorporation)
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Classification
Code)
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Identification
No.)
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1434
6
th
Street
Suite
9
Santa
Monica, California 90401
(310)
295-1922
(Address,
including zip code, and telephone number,
including
area code, of registrant's principal executive offices)
Raymond
Meyers
Chief
Executive Officer
1434
6
th
Street
Suite
9
Santa
Monica, California 90401
(310)
295-1922
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
Copies of
all communications, including all communications sent to the agent
for
service,
should be sent to:
Law
Office of Gary A. Agron
5445 DTC
Pkwy., Suite 520
Greenwood
Village, Colorado 80111
(303)
770-7254
Approximate date of commencement of
proposed sale to the public: From time to time after the effective
date of this registration statement.
If any of the securities being
registered on this form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933 check the following box.
|X|
If this form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
If this form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act Registration Statement number of the
earlier effective registration statement for the same offering. |_|
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of "large accelerated
filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large Accelerated Filer |_| Accelerated
Filer |_| Non-accelerated Filer |_| (Do not check if a small reporting company.)
Smaller Reporting Company |X|
CALCULATION
OF REGISTRATION FEE
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Proposed
MaximumOffering
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Amount
of
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Title
of Each Class of
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Amount
to be
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Offering
Price Per
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Aggregate
Offering
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Registration
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Securities To Be Registered
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Registered
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Share (1)
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Price
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Fee(2)
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Common
Stock
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7,500,000
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$0.001
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$7,500
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$6.00
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[1] No
exchange or over-the-counter market exists for the Registrant's common stock.
The offering price was arbitrarily established by the Registrant’s management
and does not reflect market value, assets or any established criteria of
valuation.
[2]
Estimated solely for purposes of calculating the registration fee under Rule
457(c).
THE REGISTRANT HEREBY AMENDS THIS
REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
EXPLANATORY
NOTE
This Registration Statement has been
prepared on a prospective basis on the assumption that the distribution of
7,500,000 shares of the Registrant’s common stock to the stockholders of
Document Security Systems, Inc. (as described in the Prospectus which is a part
of this Registration Statement) and the related transactions contemplated to
occur prior to or contemporaneously with the distribution will be consummated as
contemplated by the Prospectus. There can be no assurance, however, that such
transaction will occur or will occur as so contemplated. Any significant
modifications to or variations in the transactions contemplated will be
reflected in an amendment or supplement to this Registration
Statement.
SUBJECT
TO
COMPLETION THE
DATE OF THIS PROSPECTUS IS APRIL 9, 2010
INTERNET
MEDIA SERVICES, INC.
7,500,000
SHARES OF COMMON STOCK
The 7,500,000 shares of our common
stock will be distributed pro rata by Document Security Systems, Inc. (“DSS”),
to its shareholders based upon each DSS shareholder’s beneficial ownership of
DSS shares on the record date, which is the close of business (local time) on
__________, 2010 (the "Record Date"). The shares are not listed on any national
securities exchange nor are the shares quoted on the Over-the-Counter Electronic
Bulletin Board or any other quotation service. This Prospectus covers
the distribution of the shares and their resale.
The Offering involves substantial
risk. Please see the “Risk Factors” section beginning on page
5.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or passed upon the adequacy or accuracy of the prospectus. Any
representation to the contrary is a criminal offense.
The information in this prospectus is
not complete and may be changed. Holders may not sell these securities until the
registration statement and any amendment thereto is filed with the Securities
and Exchange Commission and is declared effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
April 9,
2010
TABLE
OF CONTENTS
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Page
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Summary
of Offering
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1
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Selected
Financial Information
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2
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Questions
and Answers About the Distribution
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3
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Special
Note Regarding Forward-Looking Statements
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4
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Risk
Factors
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5
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Use
of Proceeds
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15
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Determination
of Offering Price
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15
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Selling
Security Holders
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15
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Plan
of Distribution
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15
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Description
of Securities
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15
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Interest
of Named Experts and Counsel
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17
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Business
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17
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Market
Price of Common Stock and Related Stockholder Matters
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20
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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21
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Management
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22
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Corporate
Governance
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26
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Security
Ownership of Certain Beneficial Owners and Management
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26
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Related
Party Transactions
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26
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Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
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26
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Where
You Can Find More Information
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27
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Financial
Statements
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F-1
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SUMMARY
OF OUR OFFERING
OUR
BUSINESS
We are in the business of acquiring,
building and monetizing Internet Web properties. We have identified
several vertical business channels we believe present the best opportunity for
development. Our business strategy is to acquire existing Web
properties within vertical channels we believe are currently
underdeveloped. These acquired Web properties will serve as the
anchor for the build out of each vertical channel. A vertical channel
is defined as a business category such as "automotive," "legal,” or
"travel." On October 8, 2009, we completed our first vertical channel
acquisition in the legal channel with the asset purchase of the Web property
LegalStore.com from Document Security Systems, Inc. in exchange for 7,500,000
shares of our common stock.
We were incorporated in March 2007 as a
Delaware corporation and refer to ourself herein as “we”, “us”, the “Company” or
“IMS.” We conduct our operations in Rochester, New York and Santa
Monica, California. Our corporate office is located at 1434 6
th
Street, Suite 9, Santa Monica, CA 90401 and our telephone number is (310)
295-1922. Our website addresses are
www.internetmediaservices.com
and
www.legalstore.com
.
Information contained on our websites is not a part of this
Prospectus.
THE
OFFERING
We intend to distribute to the
shareholders of DSS , on a pro rata basis, an aggregate of 7,500,000 shares of
our common stock based upon each DSS shareholder’s beneficial ownership of DSS
shares on the Record Date (_____________). The distribution will be pro rata and
the shareholders will not be required to pay any type of consideration in order
to participate.
SELECTED
FINANCIAL DATA
The following financial information
summarizes the more complete historical financial information at the end of this
prospectus.
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As
of December 31, 2009
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Balance
Sheet
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Total
Assets
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$
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349,192
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Total
Liabilities
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$
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60,363
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Shareholders
Equity
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$
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288,829
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Statement
of Operations
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Revenue
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$
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111,022
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Cost
of Revenue
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$
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80,983
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Operating
Expense
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$
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104,211
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Net
(Loss)
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$
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(74,172
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)
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QUESTIONS
AND ANSWERS ABOUT THE DISTRIBUTION
WHY
IS THE DISTRIBUTION STRUCTURED AS A DIVIDEND, RETURN OF CAPITAL, OR CAPITAL
GAIN?
In connection with our asset purchase
of the LegalStore.com from DSS, we issued to DSS 7,500,000 shares of our common
stock and agreed to distribute these shares directly to DSS shareholders on a
pro rata basis. This distribution may constitute either a dividend,
return of capital, or capital gain to DSS shareholders. You should
consult your tax advisor.
HOW
WILL THE DISTRIBUTION OCCUR?
DSS will distribute to those
shareholders owning shares of DSS common stock all 7,500,000 shares of our
common stock owned by DSS.
HOW
MANY SHARES OF OUR COMMON STOCK WILL I RECEIVE?
You will receive shares of our common
stock based upon your beneficial ownership of DSS shares on the Record Date.
WHAT
IS THE RECORD DATE FOR THE DISTRIBUTION?
The record date for stockholders
entitled to receive shares of our common stock is
__________________.
WHAT
IS THE DISTRIBUTION DATE?
We intend to distribute our shares as
soon as possible following the effective date of this registration
statement.
WHAT
IF I WANT TO SELL MY INTERNET MEDIA SERVICES SHARES?
You should first consult your financial
advisor. Currently, there is no public market for our common stock, and there
can be no assurance that any public market will develop in the
future.
WILL
THE NUMBER OF SHARES OF COMMON STOCK I OWN IN DSS CHANGE AS A RESULT OF THE
DISTRIBUTION?
No. The number of shares of DSS that
you own will not change as a result of the distribution.
ARE
THERE RISKS TO OWNING SHARES OF OUR COMMON STOCK?
Yes. Our business is subject to risks
which are set forth in this Prospectus.
WHAT
ARE THE REASONS FOR THE DISTRIBUTION?
On October 8, 2009, we purchased
certain assets of the LegalStore.com from DSS for 7,500,000 shares of our common
stock. As a part of the purchase, we agreed to register the 7,500,000
shares so that DSS could distribute the shares on a pro rata basis to its
shareholders.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission
encourages companies to disclose forward-looking information so that investors
can better understand a company's future prospects and make informed investment
decisions. This prospectus contains such "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements may be made directly in this prospectus, and they may also be made a
part of this prospectus by reference to other documents filed with the
Securities and Exchange Commission, which is known as "incorporation by
reference."
Words such as "may," "anticipate,"
"estimate," "expects," "projects," "intends," "plans," "believes" and words and
terms of similar substance used in connection with any discussion of future
operating or financial performance identify forward-looking statements. All
forward-looking statements are management's present expectations of future
events and are subject to a number of risks and uncertainties that could cause
actual results to differ materially from those described in the forward-looking
statements. Forward-looking statements might include one or more of the
following:
o Anticipated results of
operations;
o Anticipated pricing of goods and
services;
o Anticipated market
demand;
o Description of plans or objectives of
management for future operations;
o Forecasts of future economic
performance; and
o Descriptions or assumptions
underlying or relating to any of the above items.
In light of these assumptions, risks
and uncertainties, the results and events discussed in the forward-looking
statements contained in this prospectus or in any document incorporated by
reference might not occur. Investors are cautioned not to place undue reliance
on the forward-looking statements, which speak only as of the date of this
prospectus or the date of the document incorporated by reference in this
prospectus. We are not under any obligation, and we expressly disclaim any
obligation, to update or alter any forward-looking statements, whether as a
result of new information, future events or otherwise. All subsequent
forward-looking statements attributable to us or to any person acting on our
behalf are expressly qualified in their entirety by the cautionary statements
contained or referred to in this section.
RISK
FACTORS
Investors should carefully consider the
risks described below before making an investment decision. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial
may also impair our business operations. If any of the following risks actually
occur, our business could be materially adversely affected. In such case, we may
not be able to proceed with our planned operations and your investment may be
lost entirely. The securities offered hereby should only be acquired by persons
who can afford to lose their entire investment without adversely affecting their
standard of living or financial security.
Risks
Related to the Company
Economic
conditions could reduce our revenue and adversely affect our customers and our
working capital.
The U.S. economy has been in a downward
cycle that began in 2007 and substantially deepened in 2008. As most, if not
all, of our proposed vertical segments rely on Internet generated sales of goods
and services, or Internet revenue generated through the sales of online
advertising, the reduced consumer and advertiser demand resulting from the
economic downturn may negatively affect our revenues or negatively impact our
ability to grow our revenues. We cannot predict when the current economic
downturn will end or reverse. There also could be a number of follow-on effects
from the credit crisis and current economic environment on our business,
including insolvency of customers and the inability for us to raise additional
working capital economically to support the growth of our
operations.
We
have a limited operating history and may not be able to achieve financial or
operational success.
We were founded in March 2007, and we
initiated our first operating business by acquiring LegalStore.com in October
2009. We have a limited operating history with respect to this or any
newly acquired business. As a result, we may not be able to achieve
sustained financial or operational success, given the risks, uncertainties,
expenses, delays and difficulties associated with an early-stage business in an
evolving market.
Our
growth strategy includes acquisitions that entail significant execution,
integration and operational risks.
We are pursuing a growth strategy based
in part on acquisitions, with the objective of creating a combined company that
we believe can achieve increased cost savings and operating efficiencies through
economies of scale especially in the integration of back office
services. We closed on our first acquisition in October
2009. We will seek to make additional acquisitions in the future to
increase our revenue.
This growth strategy involves
significant risks. For example, there is significant competition for acquisition
targets in our markets. Consequently, we may not be able to identify suitable
acquisitions or may have difficulty finding attractive businesses for
acquisition at reasonable prices. If we are unable to identify future
acquisition opportunities, reach agreement with such third parties or obtain the
financing necessary to make such acquisitions, we could lose market share to
competitors who are able to make such acquisitions. This loss of market share
could negatively impact our business, revenues and future growth.
Even if we are able to complete
acquisitions that we believe will be successful, we may be unable to achieve the
anticipated benefits of a particular acquisition, the anticipated benefits may
take longer to realize than expected, or we may incur greater costs than
expected in attempting to achieve anticipated benefits. Significant risks to
these transactions, which could have an adverse effect on our business,
prospects, financial condition, operating results or cash flow,
include:
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use
of substantial portions of our available cash to pay all or a portion of
the purchase prices of future acquisitions;
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diversion
of our attention from normal daily operations of our business to acquiring
and assimilating new website businesses;
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entry
into new markets in which we have limited or no prior experience and in
which competitors may have stronger market positions, which may result in
errors or failures by us in the conception, structure or implementation of
our strategies to take advantage of available opportunities in these new
markets;
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failure
to understand the needs and behaviors of the audience for a newly acquired
website or other product;
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unwillingness
by consumers and advertisers to accept our current or future pricing
models or our inability to implement pricing models that maximize our
revenues;
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redundancy
or overlap between existing products and services, on the one hand, and
acquired products and services, on the other hand;
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failure
of the market to accept the products and services of an acquired
business;
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difficulty
assimilating operations, technologies, products and policies of acquired
businesses;
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failure
to improve our operation, infrastructure, financial and management
controls, procedures and policies in step with our growth;
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potential
loss of key employees from an acquired company, in such areas as
technology development, marketing, sales and content;
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failure
to integrate, train, supervise and manage our expanding work force
effectively;
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assuming
liabilities, including unknown and contingent liabilities, of acquired
businesses; and
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potential
impairment of acquired assets.
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In addition, the issuance of equity or
convertible debt securities to finance or otherwise complete acquisitions may
dilute the ownership of our then-existing stockholders. Failure of our
acquisition-based growth strategy to yield anticipated benefits would likely
harm our operating results.
If
any of our relationships with Internet search websites terminate or if such
websites’ methodologies are modified, traffic to our websites and corresponding
consumer origination volumes could decline.
We depend in part on various Internet
search websites, such as Google, MSN and Yahoo!, and other websites to direct a
significant amount of traffic to our websites and to generate customer referrals
for our customer referral activities. Search websites typically provide two
types of search results, algorithmic and purchased listings. Algorithmic
listings cannot be purchased and, instead, are determined and displayed solely
by a set of formulas designed by search engine companies. Other listings can be
purchased and are displayed if particular word searches are performed on a
search engine. We rely primarily on algorithmic search results to direct a
substantial share of the visitors to our websites and the advertiser customers
we serve.
Our ability to maintain the flow of
visitors directed to our websites by search websites and other Internet websites
is not entirely within our control. For example, search websites frequently
revise their algorithms in an attempt to optimize their search result listings.
Changes in the methodologies used by search websites to display results could
cause our websites to receive less favorable placements, which could reduce the
number of users who link to our websites from these search websites. Any
reduction in the number of users directed to our websites would negatively
affect our ability to earn revenue. If traffic on our websites declines, we may
need to resort to more costly sources to replace lost traffic, and such
increased expense could adversely affect our business and
profitability.
Increases
in the price of online marketing or the modification or termination of our
relationships with Internet search websites and other Internet websites could
have a negative impact on our revenues, margins and customer
referrals.
Prices charged to us for online
marketing have increased as a result of increased demand for advertising
inventory, which has caused our advertising expenses to increase and our margins
to decline. Our advertising contracts with online search engines and other
Internet websites are typically short-term. If one or more Internet search
websites or other Internet websites on which we rely for marketing modifies or
terminates its relationship with us, our marketing expenses could further
increase, the amount of website traffic and the number of customer referrals we
generate could decrease, and our related revenues or margins could decline. As
the number of customer referrals that we require to meet customer demand has
increased, we have increased our levels of marketing to meet those requirements.
However, we cannot assure you that an increase in marketing will result in an
increase in customer referrals.
We expect to face increasing
competition that could result in a loss of users and reduced profit
margins.
The
market within our designated vertical channels is anticipated to be highly
competitive, and we expect competition to significantly increase in the
future. We compete or intend to compete with a wide variety of
companies and web-based services, including well established
websites. We also anticipate that a number of companies are or will
be attempting to enter the vertical channels we have identified, either directly
or indirectly, some of which may become significant competitors in the future.
As we broaden our services and evolve into a multi-channel company, we may be
faced with increasing competition within each vertical channel we are
in.
Some of
our competitors have longer operating histories, greater name and brand
recognition, larger user bases, significantly greater financial, technical,
sales and marketing resources, and engage in more extensive research and
development than we do. We anticipate some of our competitors will
also have lower customer acquisition costs than we do and offer a wider variety
of services. If our competitors are more successful than we are in
attracting customers, our ability to maintain a large and growing customer base
will be adversely affected.
More
intense competition could also require us to increase our marketing
expenditures, thereby reducing our profit margins and any
profitability.
If
we are unable to compete effectively, our business, revenues and future growth
may suffer.
We
contend with a variety of Internet and traditional offline
competitors. Many of our current and potential online and traditional
store-based or print publication-based competitors have longer operating
histories, more industry experience, larger customer or user bases, greater
brand recognition and significantly greater financial, marketing and other
resources than we do. These current and potential competitors may be
able to devote substantially greater resources to Internet websites and systems
development than we can, including through acquisitions, investments and joint
ventures. Our competitors may also be able to secure products from vendors on
more favorable terms, fulfill customer orders more efficiently, adopt more
aggressive pricing or devote more resources to marketing and promotional
campaigns. In addition, traditional store-based and print publication-based
retailers are able to offer customers the experience to see and feel products in
a manner that is not possible over the Internet.
We cannot
assure you that we will be able to compete successfully against current or
future competitors. Competitive pressures may result in increased marketing
costs, decreased prices for our advertising products and services, and decreased
website traffic and loss of market share, which would adversely affect our
business, revenues and future growth.
If we are not successful in
increasing the number of our customers or having customers actively engage in
revenue producing activities through our websites, products and services, our
business and financial results will suffer.
The
success of our business depends upon our ability to increase our base of
customers actively engaged in revenue generating activities through our
websites, products or services. Our ability to increase our base of
customers is dependent upon attracting new customers to our
websites. We may not be able to increase the level of new customers
visiting our websites. Failure to increase or maintain our base of
customers would reduce our revenue and our ability to implement our
strategies.
Our
success is dependent upon our ability to enhance the quality and scalability of
our various products and services in a changing environment. If we
are unable to do so, we may be unable to generate revenue growth.
Our
customers use a wide variety of constantly changing hardware and software. We
will continue to invest significant resources to develop products and services
for new or emerging software and hardware platforms that may develop from time
to time. However, there is a risk that a new hardware or software platform for
which we do not provide products or services could rapidly grow in popularity.
As a result, we may not be in a position to develop products or services for
such platforms or may be late in doing so. If we fail to introduce new products
or services that address the needs of emerging market segments or if our new
products or services do not achieve market acceptance as a result of delays in
development or other factors, our future growth and revenue opportunity could
suffer.
If we are unable to develop new or
enhanced features or fail to predict or respond to emerging trends, our revenue
and any profitability will suffer.
Our
future success will depend in part on our ability to modify or enhance our
website features to meet user’s demands, add features and address technological
advancements. If we are unable to predict preferences or industry changes, or if
we are unable to modify our website features in a timely manner, we may lose
members. New features may be dependent upon our obtaining needed technology or
services from third parties, which we may not be able to obtain in a timely
manner, upon terms acceptable to us, or at all. We spend significant resources
developing and enhancing our features. However, new or enhanced features may
have technological problems or may not be accepted by users. If we are unable to
successfully develop, acquire or implement new features or enhance our existing
features in a timely and cost-effective manner, our revenue and any
profitability will suffer.
We do not currently maintain
redundant capabilities and a catastrophic event could result in a significant
disruption of our services.
Our
computer equipment and the telecommunications infrastructure of our third-party
network provider are vulnerable to damage from fires, earthquakes, floods, power
loss, telecommunications failures, terrorism and similar events. Our servers are
also vulnerable to computer viruses, worms, physical and electronic break-ins,
sabotage and similar disruptions from unauthorized tampering of our computer
systems. We do not currently maintain redundant capabilities and a catastrophic
event could result in a significant and extended disruption of our services.
Currently, we do not have a disaster recovery plan to address these and other
vulnerabilities. As a result, it would be difficult to operate our business in
the event of a disaster. Any prolonged disruption of our services due to these,
or other events, would severely impact or shut down our business. We do not
carry earthquake or flood insurance, and the property, business interruption and
other insurance we do carry may not be sufficient to cover, if at all, losses
that may occur as a result of any events which cause interruptions in our
services.
If
we fail to develop and diversify our website features, functionality and product
and service offerings, we could lose market share.
Internet
content, user tools and business models are evolving rapidly due to low barriers
to entry and continuous technology innovations. To remain competitive, we must
continue to improve the ease of use, responsiveness, functionality and features
of our websites, develop content, new products and services, and continually
improve the consumer’s purchasing experience. The time, expense and effort
associated with such development may be greater than anticipated, and any
features, functions, and products and services actually developed and introduced
may not achieve consumer or advertiser acceptance or enhance user loyalty.
Furthermore, our efforts to meet changing customer needs may require the
development or licensing of increasingly complex technologies at great expense.
If we are unable to develop and bring to market additional features, functions,
content, products and services, we could lose market share to competitors, which
could negatively impact our business, revenues and future growth.
Technological
advances and changes in customer demands or industry standards could result in
increased costs or render our products and services obsolete or less
competitive.
The
market for our products and services is characterized by rapid technological
advances, changes in customer requirements, changes in protocols and evolving
industry standards. Our efforts to keep up with such advances, requirements,
protocol and standards may lead to increased product and service development
costs and costly changes to our procedures and methodologies. If we fail in such
efforts, our products and services may become obsolete or less
competitive. There is no assurance that we will be successful in
keeping up with technological advances and changes in customer demands and
industry standards, and our failure to do so may have a negative impact on our
business, prospects and financial condition.
If
we are unable to obtain or maintain key website addresses, our ability to
operate and grow our business may be impaired.
Our
website addresses, or domain names, are critical to our business. However, the
regulation of domain names is subject to change, and it may be difficult for us
to prevent third parties from acquiring domain names that are similar to ours,
that infringe our trademarks or that otherwise decrease the value of our brands.
If we are unable to obtain or maintain key domain names for the various areas of
our business, our ability to operate and grow our business may be
impaired.
Assertions by any third party that we
infringe its intellectual property could result in costly and time-consuming
litigation, expensive licenses or the inability to operate as
planned.
The
software and technology industries are characterized by the existence of a large
number of patents, copyrights, trademarks and trade secrets and by frequent
litigation based on allegations of infringement or other violations of
intellectual property rights. As we face increasing competition, the possibility
of intellectual property rights claims against us may grow. Our services or
technologies may not be able to withstand third-party claims or rights
restricting their use. Companies, organizations or individuals, including our
competitors, may hold or obtain patents or other proprietary rights that would
prevent, limit or interfere with our ability to provide our services or develop
new services and features, which could make it more difficult for us to operate
our business.
If we are
determined to have infringed upon a third party’s intellectual property rights,
we may be required to pay substantial damages, stop using technologies or
services found to be in violation of a third party’s rights or seek to obtain a
license from the holder of the infringed intellectual property right, which
license may not be available on reasonable terms, or at all, and may
significantly increase our operating expenses or may require us to restrict our
business activities in one or more respects. We may also be required to develop
alternative non-infringing technologies or services that could require
significant effort and expense or may not be feasible. In the event of a
successful claim of infringement against us and our failure or inability to
obtain a license to the infringed technology or service, our business and
results of operations could be harmed.
Our business will be adversely
affected if we are unable to protect our intellectual property rights from
unauthorized use or infringement by third-parties.
We rely
on a combination of trademark, patent, trade secret and copyright law, license
agreements and contractual restrictions, including confidentiality agreements
and non-disclosure agreements with employees, contractors and suppliers, to
protect our proprietary rights, all of which provide only limited
protection.
In
addition, effective patent, trademark, copyright and trade secret protection may
not be available in every country in which our technologies and services are
available. Legal standards relating to the validity, enforceability and scope of
protection of intellectual property rights in Internet-related industries are
uncertain and still evolving.
Government
regulations and legal uncertainties concerning the Internet could hinder our
business operations.
Laws
applicable to the Internet and online privacy generally are becoming more
prevalent. New laws and regulations may be adopted regarding the Internet or
other online services in the United States and foreign countries that could
limit our business flexibility or cause us to incur higher compliance costs.
Such laws and regulations may address:
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pricing,
fees and taxes;
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content
and the distribution of content;
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intellectual
property rights;
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characteristics
and quality of products and
services;
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online
advertising and marketing, including email marketing and unsolicited
commercial email.
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There can
be no assurance that future laws will not impose taxes or other regulations on
Internet commerce, which could substantially harm our business, results of
operations and financial condition. The nature of such laws and regulations and
the manner in which they may be interpreted and enforced is uncertain. The
adoption of additional laws or regulations, either domestically and abroad, may
decrease the popularity or impede the expansion of Internet marketing, restrict
our present business practices, require us to implement costly compliance
procedures or expose us and/or our customers to potential liability, which, in
turn, could adversely affect our business. Furthermore, the applicability of
existing laws to the Internet is unsettled with regard to many important issues,
including intellectual property rights, export of encryption technology,
personal privacy, libel and taxation. It may take years to determine whether and
how such existing and future laws and regulations apply to us. If we are
required to comply with new regulations or new interpretations of existing
regulations, or if we are unable to comply with these regulations, our business
could be harmed.
Changes
in the legal regulation of the Internet may have specific negative effects on
our business and operating results. For example, we may be considered to
“operate” or “do business” in states where our customers conduct their business,
resulting in regulatory action. Alternatively, we may be subject to claims under
state consumer protection statutes if our customers are dissatisfied with the
quality of our services, customer referrals or contract cancellation policies.
These claims could result in monetary fines or require us to change the manner
in which we conduct our business, either of which could adversely affect our
business and operating results. Any of these types of claims, regardless of
merit, could be time-consuming, harmful to our reputation and expensive to
litigate or settle.
The
increased security risks of online advertising and e-commerce may cause us to
incur significant expenses and may negatively impact our credibility and
business.
A
significant prerequisite of online commerce, advertising, and communications is
the secure transmission of confidential information over public networks.
Concerns over the security of transactions conducted on the Internet, consumer
identity theft and user privacy have been significant barriers to growth in
consumer use of the Internet, online advertising, and e-commerce. A significant
portion of our sales is billed directly to our customers’ credit card accounts.
We rely on encryption and authentication technology licensed from third parties
to effect secure transmission of confidential information. Encryption technology
scrambles information being transmitted through a channel of communication to
help ensure that the channel is secure even when the underlying system and
network infrastructure may not be secure. Authentication technologies, the
simplest example of which is a password, help to ensure that an individual user
is who he or she claims to be by “authenticating” or validating the individual’s
identity and controlling that individual’s access to resources. Despite our
implementation of security measures, however, our computer systems may be
potentially susceptible to electronic or physical computer break-ins, viruses
and other disruptive harms and security breaches. Advances in computer
capabilities, new discoveries in the field of cryptography or other developments
may specifically compromise our security measures. Any perceived or actual
unauthorized disclosure of personally identifiable information regarding website
visitors, whether through breach of our network by an unauthorized party,
employee theft or misuse, or otherwise, could harm our reputation and brands,
substantially impair our ability to attract and retain our audiences, or subject
us to claims or litigation arising from damages suffered by consumers, and
thereby harm our business and operating results. If consumers experience
identity theft after using any of our websites, we may be exposed to liability,
adverse publicity and damage to our reputation. To the extent that identity
theft gives rise to reluctance to use our websites or a decline in consumer
confidence in financial transactions over the Internet, our businesses could be
adversely affected. Alleged or actual breaches of the network of one of our
business partners or competitors whom consumers associate with us could also
harm our reputation and brands. In addition, we could incur significant costs in
complying with the multitude of state, federal and foreign laws regarding the
unauthorized disclosure of personal information. For example, California law
requires companies that maintain data on California residents to inform
individuals of any security breaches that result in their personal information
being stolen. Because our success depends on the acceptance of online services
and e-commerce, we may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by such breaches. Internet
fraud has been increasing over the past few years, and fraudulent online
transactions, should they continue to increase in prevalence, could also
adversely affect the customer experience and therefore our business, operating
results and financial condition.
We
depend on key management, technical and marketing personnel for continued
success.
Our
success and future growth depend, to a significant degree, on the skills and
continued services of our management team, including Raymond Meyers, our Chief
Executive Officer, and Michael Buechler, our Executive Vice
president. Our ongoing success also depends on our ability to
identify, hire and retain skilled and qualified technical and Internet marketing
personnel in a highly competitive employment market. As we develop
and acquire new products and services, we will need to hire additional
employees. Our inability to attract and retain well-qualified
managerial, technical and Internet sales and marketing personnel may have a
negative effect on our business, operating results and financial
condition.
We may be required to seek additional
funding, and such funding may not be available on acceptable terms or at
all.
We may
need to obtain additional funding due to a number of factors beyond our
expectations or control, including a shortfall in revenue, increased expenses,
increased need for working capital due to growth, increased investment in
capital equipment or the acquisition of businesses, services or technologies. If
we do need to obtain funding, it may not be available on acceptable terms or at
all. If we are unable to obtain sufficient funding, our business would be
harmed. Even if we were able to find outside funding sources, we might be
required to issue securities in a transaction that could be highly dilutive to
our investors or we may be required to issue securities with greater rights than
the securities we have outstanding today. We may also be required to take other
actions that could lessen the value of our common stock, including borrowing
money on terms that are not favorable to us. If we are unable to generate or
raise capital that is sufficient to fund our operations, we may be required to
curtail operations, reduce our services, defer or cancel expansion or
acquisition plans or cease operations in certain jurisdictions or
completely.
Risks
Related to our Securities
Our common stock is not listed on any
stock exchange and may never be, is not currently traded or may not ever be, and
no public or private market exists for our stock.
We intend
to seek to list our common stock for quotation on the Over-the-Counter
Electronic Bulletin Board. There can be no assurance that the shares will be
quoted on the Bulletin Board and, even if quoted, there may be extremely limited
trading activity and liquidity.
Our
common stock may be considered “penny stock”, which will further reduce the
liquidity of our common stock. Our common stock is likely to fall
under the definition of “penny stock,” trading in the common stock is limited
because broker-dealers are required to provide their customers with disclosure
documents prior to allowing them to participate in transactions involving the
common stock. These disclosure requirements are burdensome to broker-dealers and
may discourage them from allowing their customers to participate in transactions
involving our common stock, thereby further reducing the liquidity of our common
stock.
Penny
stocks” are equity securities with a market price below $5.00 per share other
than a security that is registered on a national exchange, included for
quotation on the NASDAQ system or whose issuer has net tangible assets of more
than $2,000,000 and has been in continuous operation for greater than three
years. Issuers who have been in operation for less than three years must have
net tangible assets of at least $5,000,000.
Rules
promulgated by the Securities and Exchange Commission under
Section 15(g) of the Exchange Act require broker-dealers engaging in
transactions in penny stocks, to first provide to their customers a series of
disclosures and documents including:
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A
standardized risk disclosure document identifying the risks inherent in
investment in penny stocks;
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All
compensation received by the broker-dealer in connection with the
transaction;
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Current
quotation prices and other relevant market data; and o Monthly account
statements reflecting the fair market value of the
securities.
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These
rules also require that a broker-dealer obtain financial and other
information from a customer, determine that transactions in penny stocks are
suitable for such customer and deliver a written statement to such customer
setting forth the basis for this determination.
Our directors and executive officers
will continue to exert significant control over our future direction, which
could reduce the sale value of our Company.
Upon
completion of the distribution, members of our Board of Directors and our
executive officers will own 65.02% of our outstanding common
stock. Accordingly, these stockholders, if they act together, will be
able to control all matters requiring approval of our stockholders, including
the election of directors and approval of significant corporate transactions.
This concentration of ownership, which could result in a continued concentration
of representation on our Board of Directors, may delay, prevent or deter a
change in control and could deprive our stockholders of an opportunity to
receive a premium for their common stock as part of a sale of our
assets.
Investors should not anticipate
receiving cash dividends on our common stock.
We have
never declared or paid any cash dividends or distributions on our common stock
and intend to retain future earnings, if any, to support our operations and to
finance expansion. Therefore, we do not anticipate paying any cash dividends on
the common stock in the foreseeable future.
Our
indemnification of officers and directors and limitations on their liability
could limit our recourse against them.
Our
Certificate of Incorporation and Bylaws contain broad indemnification and
liability limiting provisions regarding our officers, directors and employees,
including the limitation of liability for certain violations of fiduciary
duties. Shareholders therefore will have only limited recourse
against these individuals.
If we fail to implement and maintain
proper and effective internal controls and disclosure controls and procedures,
our ability to produce accurate and timely financial statements and public
reports could be impaired, which could adversely affect our operating results,
our ability to operate our business and investors’ views of
us.
We must
ensure that we have adequate internal financial and accounting controls and
procedures in place so that we can produce accurate financial statements on a
timely basis. We will be required to spend considerable effort
establishing and maintaining our internal controls, which will be costly and
time-consuming and will need to be re-evaluated frequently. We are in
the process of documenting, reviewing and, if appropriate, improving our
internal controls and procedures in anticipation of being a reporting company
and eventually being subject to Section 404 of the Sarbanes-Oxley Act of 2002,
which will require annual management assessments of the effectiveness of our
internal control over financial reporting. Under current regulations,
we expect that the first year for this assessment, as well as an audit of our
internal controls over financial reporting by our independent registered public
accounting firm, will be fiscal 2011. As we begin the assessment
process in anticipation of being subject to these Section 404 requirements and,
as part of that documentation and testing, we may identify areas for further
attention and improvement. We are in the process of developing
disclosure controls and procedures designed to ensure that information required
to be disclosed by us in our public reports and filings is recorded, processed,
summarized and reported within the time periods specified by applicable SEC
rules and forms.
Implementing
any appropriate changes to our internal controls and disclosure controls and
procedures may entail substantial costs to modify our existing financial and
accounting systems and internal policies, take a significant period of time to
complete, and distract our officers, directors and employees from the operation
of our business. These changes may not, however, be effective in establishing or
maintaining the adequacy of our internal controls or disclosure controls, and
any failure to maintain that adequacy, or a consequent inability to produce
accurate financial statements or public reports on a timely basis, could
materially adversely affect our business. Further, investors’ perceptions that
our internal controls or disclosure controls are inadequate or that we are
unable to produce accurate financial statements may seriously affect the price
of our common stock.
We
have additional common stock and preferred stock available for issuance, which,
if issued, could adversely affect the rights of the holders of our common
stock.
Our
Certificate of Incorporation authorizes the issuance of up to 25,000,000 shares
of our common stock and up to 10,000,000 shares of preferred
stock. The common stock and the preferred stock can be issued by the
Board of Directors, without stockholder approval. Any future
issuances of common stock, an increase in the authorized shares of common stock
or preferred stock would further dilute the percentage ownership of the Company
held by our investors.
USE
OF PROCEEDS
The shares included in this
registration statement will be distributed as a dividend to the shareholders of
DSS pro rata as of the Record Date. We will not receive any proceeds from the
sale of the shares offered by this prospectus.
DETERMINATION
OF OFFERING PRICE
There is no established public market
for the shares of common stock being registered. As a result the offering price
of the shares of common stock offered hereby has been arbitrarily determined by
us to be $0.001 per share, and does not necessarily bear any relationship to
assets, earnings, book value or any other objective criteria of value. In
addition, no investment banker, appraiser or other independent third party has
been consulted concerning the offering price for the shares or the fairness of
the offering price.
SELLING
SECURITY HOLDERS
DSS intends to distribute all 7,500,000
shares being registered hereby to its shareholders on a pro rata
basis.
PLAN
OF DISTRIBUTION
The securities to be registered will be
distributed by DSS to its shareholders as of the Record Date on a pro rata
basis.
DESCRIPTION
OF SECURITIES
GENERAL
The following is a summary of
information concerning our capital stock. The summaries and descriptions below
do not purport to be complete statements of the relevant provisions of our
Certificate of Incorporation and all amendments thereto. The summary is
qualified by these documents, which you must read for complete information on
our capital stock. The Certificate of Incorporation and all amendments thereto
and by-laws of the Company are included as exhibits to the registration
statement, of which this Prospectus is a part.
COMMON
STOCK
We are authorized to issue 25,000,000
shares of Common Stock, $.001 par value authorized, of which 20,501,000 are
issued and outstanding as of March 31, 2010.
VOTING
RIGHTS
Each outstanding share of common stock
entitles the holder thereof to one vote per share on matters submitted to a vote
of stockholders. Stockholders do not have preemptive rights to purchase shares
in any future issuance of our common stock.
The holders of shares of our common
stock are entitled to dividends out of funds legally available when and as
declared by our Board of Directors. Our Board of Directors has never declared a
dividend. Should we decide in the future to pay dividends, it will be at the
discretion of the Board of Directors and will be dependent upon then existing
conditions, including the Company’s financial condition and the results of
operations, capital requirements, contractual restrictions, business prospects,
and other factors that the Board of Directors considers relevant. Each share is
entitled to the same dividend. In the event of our liquidation,
dissolution or winding up, holders of our common stock are entitled to receive,
ratably, the net assets available to stockholders after payment of all
creditors.
All of the issued and outstanding
shares of our common stock are duly authorized, validly issued, fully paid and
non-assessable. To the extent that additional shares of our common stock are
issued, the relative interests of existing stockholders will be
diluted.
PREFERRED
STOCK
We
are authorized to issue up to 10,000,000 shares of $.001 par value preferred
stock in one or more series with such designations, voting powers, if any,
preferences and relative, participating, optional or other special rights, and
such qualifications, limitations and restrictions, as are determined by
resolution of our Board of Directors. The issuance of preferred stock
may have the effect of delaying, deferring or preventing a change in control of
our Company without further action by stockholders and could adversely affect
the rights and powers, including voting rights, of the holders of common
stock. In certain circumstances, the issuance of preferred stock
could depress the market price of the common stock. No shares of preferred stock
have been issued.
DIVIDENDS
We have not declared any dividends, and
we do not plan to declare any cash dividends in the foreseeable future.
WARRANTS,
OPTIONS AND CONVERTIBLE DEBT.
There are no outstanding options,
warrants or convertible debt.
TRANSFER
AGENT
Our transfer agent is
Corporate Stock Transfer, Inc., Denver,
Colorado.
INTEREST
OF NAMED EXPERTS AND COUNSEL
The validity of the securities offered
hereby will be passed upon by the Law Office of Gary A. Agron. The financial
statements of the Company and the business aquired (Legalstore.com) appearing in
this Prospectus have been audited by Freed Maxick & Battaglia, CPAs, PC, our
independent registered public accounting firm.
BUSINESS
Our
Objective
Our plan
is to build a targeted multi-faceted Internet media company specializing in
acquiring, developing and enhancing Web properties through the use of technology
and advanced marketing techniques.
Our
objectives include:
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Acquiring
existing Web properties, generic and/or recognizable domain names with
existing Web traffic and revenue
streams.
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Starting
with LegalStore.com, and using our newly acquired domain names as
anchor names, creating vertical segments in which to sell products,
advertising, and marketing
services.
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Developing
innovative and distinctive advertising and marketing programs to
continually increase the monetization of all domain
names.
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Using
cross promotion traffic promotion techniques to increase the profitability
of the Web properties.
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To
be successful we believe we must:
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Identify
quality Web properties for acquisition that generate, now or in the
future, targeted premium Web
traffic.
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Acquire
these Web properties in a manner that is supported by our business
model.
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Integrate
the acquired Web properties into our vertical channel in order to generate
additional traffic to the acquired Web
properties.
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Develop
new products and services that are pushed down the vertical
channels.
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Effectively
manage the growth, both traffic and revenue, throughout the Company's
lifecycle.
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We believe risks associated with our
objectives and strategies can be minimized by:
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Acquiring
quality Web properties that are currently producing a revenue stream that,
in our estimation, have the potential to be
increased.
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Utilizing
our management experience to manage the growth of the
organization.
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Using
our understanding of the marketplace to develop techniques and processes
that maximize the revenue generated from all vertical
channels.
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Creating
automated processes, wherever possible, throughout to increase accuracy
and reduce labor cost.
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Our Strategy
We will
seek to acquire existing Web properties within our identified vertical markets
that we believe are currently underdeveloped. IMS uses an acquisition
model that seeks opportunities that have some the following
characteristics:
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Web-based
service offering where the customer accesses our application server via
the Internet
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Cash
flow positive (post transaction)
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Undervalued,
based on potential growth
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In
need of automation or process
improvement
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Synergistic
to other owned properties
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Recurring
revenue model
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These
acquired Web properties will serve as the anchor for the build out of the
identified vertical channel. A vertical channel is defined as a
business category such as "automotive," "legal,” or "travel.” We have
identified several vertical channels that will be explored for possible
development. We anticipate identifying additional vertical channels
in the future. Therefore will not be limited to develop the vertical
channels we have currently identified. We will only develop those
channels we feel will allow the best opportunity for growth. Some of
our identified vertical channels are:
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Computers
and Technology
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Movies,
Music, and Films
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We intend to concentrate our initial
efforts on developing the Legal and the Internet Marketing
channel. Our first Web property acquisition, www.legalstore.com, will
serve as the anchor for the Legal vertical. We will seek to acquire
additional domain names with associated Web traffic and either redirect the
traffic to the Legalstore.com website or use the domain names to develop
supporting Web properties.
The
LegalStore.com
On
October 8, 2009, we completed our first vertical channel acquisition with the
asset purchase of LegalStore.com consisting of the e-commerce site
www.legalstore.com
; leased
warehouse and office space in Rochester, New York; a 15,000 customer name list;
cash and accounts receivable; current inventory; certain fixed assets; and
assumed certain accounts payables. LegalStore.com offers legal
supplies, legal forms, and related legal products. Using our channel
strategy detailed above, LegalStore.com will serve as the anchor Web property
for our Legal channel.
Since
acquiring the property we have upgraded the Website’s look and
feel. We have also been able to identify and acquire other key domain
names that will be used in the building of the legal channel, including the
domain names willsupplies.com, exhibitlabel.com and
securitypaper.com.
Our 2010
objectives for the Legal channel include:
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Lowering
the “Cost of Goods Sold” by contracting with lower cost
suppliers.
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Launching
additional Web sites focused on specific products thereby building a
network of sites enhancing the probability of better search engine
ranking.
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Introducing
the first technology based service – providing leads to
lawyers.
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Introducing
a consumer oriented legal product service which allows the consumer to
prepare certain legal forms and
documents.
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Competition
The
markets within our designated vertical channels are highly competitive, and we
expect competition to significantly increase in the future. We
compete or intend to compete with a wide variety of companies and Web-based
services, including well established Websites. We also anticipate
that a number of companies are or will be attempting to enter the vertical
channels we have identified, either directly or indirectly, some of which may
become significant competitors in the future. As we broaden our
services and evolve into a multi-channel company, we may be faced with
increasing competition within each vertical channel we are in.
Some of
our competitors have longer operating histories, greater name and brand
recognition, larger user bases, significantly greater financial, technical,
sales and marketing resources, and engage in more extensive research and
development than we do. We anticipate some of our competitors will
also have lower customer acquisition costs than we do and offer a wider variety
of services. If our competitors are more successful than we are in
attracting customers, our ability to maintain a large and growing customer base
will be adversely affected.
Employees
At March
31, 2010, we had five full-time employees, and one part-time
employee. Three of the full-time employees were located at our
Rochester, NY location, and the balance of our employees are located at our
Santa Monica, CA office. None of our employees are represented by a
labor union or are party to a collective bargaining agreement, and we consider
our relationships with our employees to be good.
Facilities
We lease
approximately 4,000 square feet of office and warehouse space at 320 North
Goodman Street, Suite 209, in Rochester, NY for our LegalStore.com
business unit for $1,750 per month on a five year lease expiring October 31,
2010. Our corporate offices are located at 1434 6
th
Street, Suite 9, Santa Monica, CA and consist of 2,000 square feet under a one
year lease for $2,000 per month, which expires January 31, 2011.
MARKET
PRICE FOR COMMON STOCK AND RELATED
STOCKHOLDER
MATTERS
There is currently no public trading
market for our common stock. We intend to apply for quotation of our common
stock on the Bulletin Board. We can provide no assurance that we will
be able to list our stock for quotation on the Bulletin Board.
Upon distribution of the shares
included in this registration statement to the DSS shareholders, there will be
approximately 5,500 holders of our common stock.
We have not declared any cash dividends
on our common stock since our inception and do not anticipate doing so in the
foreseeable future.
We do not have any equity compensation
plan.
MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
GENERAL
We were
incorporated on March 26, 2007 and did not have operations until we acquired the
LegalStore.com on October 8, 2009. We are in the business of
acquiring, building, and monetizing Internet web properties in vertical business
channels identified by us. We then use these web properties as an
anchor to build within that vertical channel.
On
October 8, 2009 we completed our first acquisition in the Legal vertical channel
through the purchase of assets and assumption of certain liabilities of
LegalStore.com from Lester Levin, Inc., a New York corporation and wholly owned
subsidiary of Document Security Systems, Inc. in exchange for 7,500,000 shares
of our common stock. LegalStore.com is an Internet based company that
primarily sells legal supplies and legal forms to the legal
community. We currently operate in one business segment.
During
2009, our Chief Executive Officer advanced IMS $23,929 for working
capital. These advances are unsecured, non-interest bearing, and are
due on demand. The advances are included in current liabilities on
our balance sheet as of December 31, 2009.
RESULTS
OF OPERATIONS
For The
Year Ended December 31, 2009
We did
not have any revenue in 2009 until the completion of our acquisition of the
LegalStore.com on October 8, 2009. Accordingly, revenue comparisons
in prior periods are not meaningful. Revenue for the three month
period subsequent to the acquisition date through December 31, 2009 totaled
$111,022. Costs of revenue for this period totaled $80,983 resulting
in a gross profit of $30,039. During this period we incurred
operating expenses totaling $104,211. As a result, we had a net loss
from operations of $74,172. The 2009 unaudited pro-forma results of
operations had the acquisition occurred January 1, 2009 are presented later in
this Prospectus.
LIQUIDITY
AND CAPITAL RESOURCES
At
December 31, 2009, we had cash totaling $7,777, accounts receivable of $33,246,
inventory of $90,829, and prepaid expenses of $5,251. Current assets
totaled $137,103. Total assets totaled $349,192.
At
December 31, 2009, we had accounts payable of $26,922, accrued expenses of
$9,781, and advances from related party of $23,929. Total current
liabilities were $60,363 at December 31, 2009.
At
December 31, 2009, we had a working capital surplus of $76,740.
We expect
to use our existing cash and revolving line of credit to support our current
operations and our efforts to achieve consistent positive cash flow from
operations
,
although there is no guarantee the Company will be able to do
so. The Company’s ability to fund its capital requirements out
of its available cash, cash generated from operations and revolving line of
credit depends on a number of factors. Some of these factors include
our ability to (i) increase sales of our existing core products in the Legal
channel; (ii) successful introduction of new business-to-business products and
services for the Legal channel; and (iii) successful introduction of a
business-to-consumer product line for the Legal channel. If the
Company cannot generate sufficient cash from its current operations, the Company
may need to raise additional funds in the future in order to fund its working
capital needs.
We
anticipate additional financing will be needed to facilitate future growth
through the acquisition of Internet Web properties. Our future
financing needs may be met through either a debt or equity
offering.
SUBSQUENT
EVENTS
Subsequent
to December 31, 2009, additional advances from our Chief Executive Officer of
$41,063 for working capital were received by us upon the same terms as the 2009
advances. On April 8, 2010, the aggregate advances of $64,992 have
been formalized with the execution of a $200,000 revolving line of credit
agreement between the Company and our Chief Executive Officer.
OFF
BALANCE SHEET ARRANGEMENTS
We do not
have any off-balance sheet arrangements.
MANAGEMENT
Directors
and Executive Officers
|
Name
|
Age
|
Position
|
Director/Officer Since
|
|
|
|
|
|
|
Raymond
J. Meyers
|
53
|
Chief
Executive Officer, President,
|
April
2008
|
|
|
|
Treasurer
,and Director
|
|
|
|
|
|
|
|
Michael
Buechler
|
37
|
Executive
Vice President, Secretary,
|
June
2009
|
|
|
|
and
Director
|
|
|
|
|
|
|
|
Alexander
A. Orlando
|
47
|
Director
|
April
2008
|
|
|
|
|
|
|
Patrick
White
|
56
|
Director
|
October
2009
|
|
|
|
|
|
|
Philip
Jones
|
40
|
Director
|
October
2009
|
The principal occupations for at least
the past five years of each of our directors and executive officers are as
follows:
Raymond Meyers
founded IMS in
March 2007 and has been Chief Executive Officer and President since the
Company’s inception. Mr. Meyers is a results-driven technology
industry executive bringing over 30 years of entrepreneurial, Internet,
technology, financial, operating and management experience to the
Company. Throughout his career, he has been successful by combining
expertise in marketing, business development, strategic planning, P&L
management and SEC regulatory requirements with excellent organizational,
leadership, team building and operations management
qualifications. Mr. Meyers founded and operated several
technology-based companies, with the most recent one being eBoz, Inc., an
Internet marketing tools company, which he sold to Web.com (NasdaqGM: WWWW) in
2005. He was previously (from December 1996 to December 1999) CEO and
President of a NASDQ listed company. He is a graduate of Rutgers
University with continuing education at UCLA.
Michael Buechler
joined
IMS in March 2009 and
is currently its Executive Vice President – Web Properties. Mr.
Buechler is an Internet specialist who is experienced in the development and
marketing of innovative Web-based products services. He brings over
15 years experience to IMS in areas of technology, operations, management and
entrepreneurial ventures. Mr. Buechler co-founded Linkbuddies.com
banner exchange which was one of the first and largest banner exchanges in the
world. Linkbuddies had over 250,000 members and displayed over
10,000,000 banner impressions a day. Linkbuddies.com was acquired by
iBoost, Inc. in 2000. Mr. Buechler was Vice President – Web
Properties at eBoz, Inc., an Internet marketing tools company and was
instrumental in eBoz’s sale to Web.com in 2005. At Web.com, he held
the title of Director – Product Strategy and was responsible for product
strategy for this NASDAQ listed Web services company. Mr. Buechler
also managed the team that was responsible for the technical integration of
newly acquired product lines.
Alexander A. Orlando
has over
25 years experience implementing operational and financial strategies for
growing organizations. He has extensive experience in a number of
entrepreneurial ventures. Mr. Orlando's professional experience
includes; Chief Financial Officer and Treasurer for Eagle International
Institute, Inc., a member of the Rochester Top 100 fastest growing companies and
recognized as one of INC. 5000 fastest growing companies in the U.S., Vice
President for eBoz, Inc., a start up Internet venture purchased sold to Web.com
in 2005, General Manager and Controller for Foley-PLP, Senior
Executive for ITT Industries-Goulds Pumps, Managing Partner of Wagner's Tax and
Consulting Services and Owner of several Subway Sandwich Franchises and Real
Estate Investments. He is a graduate of Ithaca College with a BS in
Finance and Accounting, with continuing education at Geneseo State
College.
Patrick White
founded
Document Security Systems, Inc. in 2002 and serves as Chief Executive Officer
and a Director. DSS is an AMEX Exchange listed company. Under Mr.
White's direction, in 2008 and 2009 Document Security Systems was named
"Technology Fast 500" which is a list published by Deloitte LLP for the fastest
growing technology companies in the USA. Mr. White is a forward thinking,
results-driven, security technology industry executive who brings over 25 years
of private and public company operating, financial, and management experience to
DSS. He has extensive experience building organizations through combining his
expertise in strategic planning, capital raising, product design and
development, sales and marketing, mergers and acquisitions, and operations
management. Mr. White currently sits on the board of several privately-held
technology companies and is a frequent speaker at industry functions.
Previously, he has held executive and financial positions at Citizens Bank
(formerly Rochester Community Savings Bank), and several commercial printing
companies. Mr. White received his Bachelors of Science (Accounting) degree and
Masters of Business Administration from Rochester Institute of
Technology.
Philip. Jones
is a CPA and
holds an MBA from Rochester Institute of Technology. He has 13 years
experience in both the public and private accounting and finance sectors,
including positions at Arthur Anderson and PricewaterhouseCoopers, American
Fiber Systems (Controller), and Zapata (NYSE:ZAP)(Accounting Manager and
Director of Finance). Prior to his role at Document Security Systems, Mr. Jones
was Controller at American Fiber Systems, Inc. (AFS), a rapidly growing
telecommunications company based in Rochester, NY. At AFS, he was
responsible for all facets of financial and accounting management with
anticipation of an Initial Public Offering. At Zapata, Mr. Jones was responsible
for all SEC reporting requirements, which included the successful spin-off and
IPO of the company's Internet subsidiary. Mr. Jones joined DSS in
2005 and is currently its Chief Financial Officer. At DSS, Mr. Jones
combines his technical SEC reporting experience with his hands-on operational
experience, including directing systems and process implementations and general
financial controls.
Term
of Office
Directors
are elected to hold office until the next annual meeting of shareholders and
until their successors are elected and qualified. Annual meetings of
the shareholders, for the selection of directors to succeed those whose terms
expire, are held at such time each year as designated by the Board of
Directors. Officers of the Company are elected by the Board of
Directors, which is required to consider that subject at its first meeting after
every annual meeting of shareholders. Each officer holds office until
his successor is elected and qualified or until his earlier resignation or
removal.
Executive
Compensation
We do not
have employment agreements with our executive officers, Mr. Meyers and Mr.
Buechler. We currently pay Mr. Meyers and Mr. Buechler $3,000 per
month each. We do not have key person life insurance on the lives of
any of our executive officers.
The
following table discloses compensation received by our Chief Executive Officer
and acting Chief Financial Officer, and our Executive Vice-President, also
referred to herein as our “named executive officers,” for the fiscal years ended
December 31, 2009 and 2008.
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards ($)
|
|
Option
Awards ($)
|
|
All
Other Compensation ($)
|
|
Total
($)
|
|
Raymond
J Meyers,
|
|
2009
|
|
$7,500
|
|
—
|
|
—
|
|
—
|
|
—
|
|
$7,500
|
|
Chief
Executive Officer, acting Chief Financial Officer
|
|
2008
|
(1)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Buechler,
|
|
2009
|
|
$7,500
|
|
—
|
|
—
|
|
—
|
|
—
|
|
$7,500
|
|
Executive
Vice President
|
|
2008
|
(1)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
1. During 2008, Mr.
Meyers and Mr. Buechler were not employees and did not receive any compensation
from the Company
.
Director
Compensation
Our
non-employee directors do not currently receive compensation for their services
as directors although they are provided reimbursement for out-of-pocket expenses
incurred in attending Board meetings. We may pay cash and stock-based
compensation to our directors in the future.
Board
Committees
We do not
have any committees of the Board of Directors. We consider a majority
of our Board members (Messrs. Orlando, White and Jones) to be independent
directors under rules of the Securities and Exchange Commission.
Equity
Incentive Plan
We intend
to adopt an equity incentive plan, which we refer to as our Plan, which will
provide for the grant of options intended to qualify as “incentive stock
options” and “non-statutory stock options” within the meaning of
Section 422 of the Internal Revenue Code of 1986, together with the grant
of bonus stock and stock appreciation rights, at the discretion of our Board of
Directors. Incentive stock options are issuable only to our eligible officers,
directors and key employees. Non-statutory stock options are issuable only to
our non-employee directors and consultants. We have not determined the aggregate
maximum number of shares of common stock or appreciation rights that may be
issued under the Plan. The Plan will be administered by our full Board of
Directors. Under the Plan, the Board will determine which individuals shall
receive options, grants or stock appreciation rights, the time period during
which the rights may be exercised, the number of shares of common stock that may
be purchased under the rights and the option price.
Limitation
on Liability and Indemnification of Officers and Directors
Our
Certificate of Incorporation provides that liability of directors to us for
monetary damages is eliminated to the full extent provided by Delaware law.
Under Delaware law, a director is not personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director
except for liability (i) for any breach of the director’s duty of loyalty
to us or our stockholders; (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law;
(iii) for authorizing the unlawful payment of a dividend or other
distribution on our capital stock or the unlawful purchases of our capital
stock; (iv) a violation of Delaware law with respect to conflicts of interest by
directors; or (v) for any transaction from which the director derived any
improper personal benefit.
The
effect of this provision in our Certificate of Incorporation is to eliminate our
rights and our stockholders’ rights (through stockholders’ derivative suits) to
recover monetary damages from a director for breach of the fiduciary duty of
care as a director (including any breach resulting from negligent or grossly
negligent behavior) except in the situations described in clauses
(i) through (v) above. This provision does not limit or eliminate our
rights or the rights of our security holders to seek non-monetary relief, such
as an injunction or rescission, in the event of a breach of a director’s duty of
care or any liability for violation of the federal securities laws.
CORPORATE
GOVERNANCE
We do not have an audit committee,
compensation committee or nominating committee.
As we grow and evolve into a SEC
registrant, our corporate governance structure is expected to be
enhanced.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ND MANAGEMENT
As of the date of this Prospectus,
there are 20,501,000 shares of common stock outstanding. The following table
sets forth certain information regarding the beneficial ownership of the
outstanding shares as of the date of this Prospectus by (i) each person who
is known by us to own beneficially more than 5% of our outstanding common stock;
(ii) each of our executive officers and directors; and (iii) all of
our executive officers and directors as a group. Except as otherwise indicated,
each such person has investment and voting power with respect to such shares,
subject to community property laws where applicable. The address of our
executive officers and directors is in care of us at 1434 6
th
Street, Suite9, Santa Monica, CA 90401.
|
Name of Beneficial Owner
|
|
Shares Beneficially Owned
|
|
|
Percentage Beneficially
Owned
|
|
|
Raymond
J. Meyers
|
|
|
9,000,000
|
|
|
|
43.90
|
%
|
|
Document
Security Systems, Inc.
|
|
|
7,500,000
|
|
|
|
36.58
|
%
|
|
Michael
Buechler
|
|
|
4,000,000
|
|
|
|
19.51
|
%
|
|
Alexander
A. Orlando
|
|
|
1,000
|
|
|
|
%
|
*
|
|
Patrick
White (1)
|
|
|
320,000
|
|
|
|
1.7
|
%
|
|
Philip
Jones (1)
|
|
|
10,000
|
|
|
|
%
|
*
|
|
All
executive officers and directors
|
|
|
|
|
|
|
|
|
|
as
a group (five persons)
|
|
|
13,330,000
|
|
|
|
65.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
*Less
than 1%
|
|
|
|
|
|
|
|
|
(1)
Represents shares to be received upon completion of the distribution to DSS
shareholders.
RELATED
PARTY TRANSACTIONS
During
2009, our Chief Executive Officer advanced the Company $23,929. The
advances are unsecured, non–interest bearing, have no stated repayment terms and
are due on demand. The advances are included in current liabilities
in the accompanying balance sheet as of December 31, 2009. Subsequent
to December 31, 2009, additional advances of $41,063 were received from our
Chief Executive Officer by the Company for working capital and upon the same
terms as the 2009 advances. On April 8, 2010, the aggregate advances
of $64,992 have been formalized with the execution of a $200,000 revolving line
of credit agreement between the Company and our Chief Executive
Officer.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION
FOR
SECURITIES ACT LIABILITIES
The Company provides indemnification
for all reasonable actions taken by a director or officer in good faith to the
fullest extent permitted under Delaware law. In addition, under
Delaware law, officers and directors are not liable for monetary damages unless
an officer’s or director's breach of or failure to perform duties as a director
constitutes a violation of the criminal law or involves a transaction from which
the director derived an improper personal benefit either directly or
indirectly.
Insofar as indemnification for
liabilities arising under the Securities Act may be available to directors,
officers and controlling persons of the Registrant pursuant to any provision or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
WHERE
YOU CAN FIND MORE INFORMATION
We have filed a registration statement
on Form S-1 with the SEC with respect to the shares of our common stock being
registered hereunder. This prospectus, which is a part of such registration
statement, does not include all of the information that you can find in such
registration statement or the exhibits to such registration statement. You
should refer to the registration statement, including its exhibits and
schedules, for further information about us and our common stock. Statements
contained in this prospectus as to the contents of any contract or document are
not necessarily complete and, if the contract or document is filed as an exhibit
to a registration statement, is qualified in all respects by reference to the
relevant exhibit.
After the distribution, we will file
annual, quarterly and current reports, proxy statements and other information
with the SEC. The registration statement is, and any of these future filings
with the SEC will be, available to the public over the Internet on the SEC's
website at www.sec.gov . You may read and copy any filed document at the SEC's
public reference rooms in Washington, D.C. at 100 F Street, N.E., Washington,
D.C. 20549 and at the SEC's regional offices. Please call the SEC at
1-800-SEC-0330 for further information about the public reference
rooms.
PART
II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13.
Other Expenses of Issuance and
Distribution
The estimated expenses of registration
and distribution will be borne exclusively by the Registrant and
include:
|
Registration
fee
|
|
$
|
|
|
|
Transfer
agent fees
|
|
$
|
10,000
|
|
|
Legal
fees
|
|
$
|
50,000
|
|
|
Accounting
fees
|
|
$
|
16,500
|
|
|
Miscellaneous
expenses
|
|
$
|
5,000
|
|
|
Total
|
|
$
|
81,500
|
|
RECENT
SALE OF UNREGISTERED SECURITIES
Item 14. Indemnification
of Directors and Officers
Our Certificate of Incorporation
provides that liability of directors to us for monetary damages is eliminated to
the full extent provided by Delaware law. Under Delaware law, a
director is not personally liable to us or our stockholders for monetary damages
for breach of fiduciary duty as a director except for liability (i) for any
breach of the director’s duty of loyalty to us or our stockholders;
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (iii) for authorizing the
unlawful payment of a dividend or other distribution on our capital stock or the
unlawful purchases of our capital stock; (iv) a violation of Delaware law with
respect to conflicts of interest by directors; or (v) for any transaction
from which the director derived any improper personal benefit.
The
effect of this provision in our Certificate of Incorporation is to eliminate our
rights and our stockholders’ rights (through stockholders’ derivative suits) to
recover monetary damages from a director for breach of the fiduciary duty of
care as a director (including any breach resulting from negligent or grossly
negligent behavior) except in the situations described in clauses
(i) through (v) above. This provision does not limit or
eliminate our rights or the rights of our security holders to seek non-monetary
relief, such as an injunction or rescission, in the event of a breach of a
director’s duty of care or any liability for violation of the federal securities
laws.
Insofar
as indemnification for liabilities arising under the Act may be permitted to our
directors, officers and controlling persons pursuant to the foregoing
provisions, or otherwise, we have been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
Item 15. Recent
Sales of Unregistered Securities
In the last three years, we have issued
the following unregistered securities:
|
Date
|
Name
|
Shares
|
Price
per Share
|
|
May
11, 2009
|
Raymond
Meyers
|
9,000,000
|
$.001
|
|
May
11, 2009
|
Alexander
Orlando
|
1,000
|
$.001
|
|
May
11, 2009
|
Michael
Buechler
|
4,000,000
|
$.001
|
|
October
8, 2009
|
Document
Security Systems, Inc.
|
7,500,000
|
Exchanged
for Assets in LegalStore.com
|
All
of the shares issued above were issued pursuant to the exemption from
registration provided in Section 4(2) of the Securities Act of 1933, as
amended. The shares were issued to only four investors, three of whom
were officers and/or directors of the Company and the fourth was Document
Security Systems, Inc. a public company which is also a control stockholder of
the Company.
Item
16. Exhibit Index
|
|
3.1
|
Certificate
of Incorporation of the Registrant, as amended
|
|
|
3.2
|
By-laws
of the Registrant
|
|
|
5.1
|
Opinion
on legality
|
|
|
10.1
|
Lease
(Santa Monica)
|
|
|
10.2
|
Agreements
with DSS
|
|
|
23.1
|
Consent
of independent registered public accounting firm
|
|
|
23.2
|
Consent
of Gary A. Agron (See Exhibit 5.1)
|
Item
17. Undertakings
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To
include any prospectus required by section 10(a)(3) of the Securities Act of
1933;
ii. To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 12% change in the maximum aggregate
offering price set forth in the “Calculation of registration Fee” table in the
effective registration statements; and
iii. To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 (the
“Act”) may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) That,
for the purpose of determining liability under the securities Act of 1933 to any
purchaser:
(i)
Pursuant to Rule 430B:
(A) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to
be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
(B) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)9i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the registration statement as
of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall be
deemed to be the initial
bona
fide
offering thereof.
Provided, however,
that no
statement made in a registration statement or prospectus that is part of the
registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
effective date, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such effective date;
or
(6) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the
securities:
The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
(ii) Any free
writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The portion of any
other free writing prospectus relating to the offering containing material
information about the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
(iv) Any other
communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
(7) Upon
effectiveness of this registration statement, the Registrant will provide to DSS
certificates in such denominations and registered in such names as required to
permit prompt distribution to the named shareholders of DSS.
(8) In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of
the Securities Act of 1933, the Registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements of filing on Form S-1
and authorized this registration statement to be signed on its behalf by the
undersigned, in the City of Santa Monica, State of California on April 9,
2010.
|
|
Internet
Media Services, Inc.
|
|
|
|
|
|
By:
/s/ Raymond J.
Meyers
|
|
|
Chief
Executive Officer
|
In accordance with the requirements of
the Securities Act of 1933, this registration statement was signed by the
following persons in the capacities on April 9, 2010
|
/s/ Raymond J. Meyers
|
Chief
Executive Officer and Principal Accounting
Officer
and Director
|
|
Raymond
J. Meyers
|
|
|
|
|
|
/s/ Michael Buechler
|
Executive
Vice President and Director
|
|
Michael
Buechler
|
|
|
|
|
|
/s/ Alexander A. Orlando
|
Director
|
|
Alexander
A. Orlando
|
|
|
|
|
|
/s/ Patrick White
|
Director
|
|
Patrick
White
|
|
|
|
|
|
/s/ Philip Jones
|
Director
|
|
Philip
Jones
|
|
EXHIBIT
INDEX
Exhibits.
|
|
3.1
|
Certificate
of Incorporation of the Registrant, as amended
|
|
|
3.2
|
By-laws
of the Registrant
|
|
|
5.1
|
Opinion
on legality
|
|
|
10.1
|
Lease
(Santa Monica)
|
|
|
10.2
|
Agreements
with DSS
|
|
|
23.1
|
Consent
of independent registered public accounting firm
|
|
|
23.2
|
Consent
of Gary A. Agron (See Exhibit
5.1)
|
FINANCIAL
STATEMENTS
INTERNET
MEDIA SERVICES, INC.
DECEMBER
31, 2009
CONTENTS
|
|
Page
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
|
|
|
Consolidated
Financial Statements:
|
|
|
|
|
|
Balance
Sheet
|
F-3
|
|
|
|
|
Statement
of Operations and Accumulated Deficit
|
F-4
|
|
|
|
|
Statement
of Cash Flows
|
F-5
|
|
|
|
|
Notes
to the Consolidated Financial Statements
|
F-6
- F-11
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Internet
Media Services, Inc. and Subsidiary
We have
audited the accompanying consolidated balance sheet of Internet Media Services,
Inc. and Subsidiary as of December 31, 2009, and the related consolidated
statements of operations and accumulated deficit, and cash flows for the year
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor have we been engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Internet Media Services,
Inc. and Subsidiary as of December 31, 2009, and the results of its operations
and its cash flows for the year then ended, in conformity with U.S. generally
accepted accounting principles.
/s/
Freed Maxick & Battaglia, CPAs, PC
Buffalo,
New York
April 9,
2010
|
INTERNET
MEDIA SERVICES, INC.
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEET
|
|
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
|
|
$
|
7,777
|
|
|
Accounts
receivable
|
|
|
33,246
|
|
|
Inventory
|
|
|
90,829
|
|
|
Prepaid
expenses
|
|
|
5,251
|
|
|
Total
current assets
|
|
|
137,103
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
26,922
|
|
|
Other
intangibles, net
|
|
|
165,750
|
|
|
Goodwill
|
|
|
19,417
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
349,192
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable
|
|
$
|
26,653
|
|
|
Accrued
expenses
|
|
|
9,781
|
|
|
Advances
from related party
|
|
|
23,929
|
|
|
Total
current liabilities
|
|
|
60,363
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
Common
stock, $.001 par value, 25,000,000 shares authorized,
|
|
|
|
|
|
20,501,000
shares issued and outstanding
|
|
|
20,501
|
|
|
Additional
paid in capital
|
|
|
342,500
|
|
|
Accumulated
deficit
|
|
|
(74,172
|
)
|
|
|
|
|
288,829
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
349,192
|
|
See
accompanying notes.
|
INTERNET
MEDIA SERVICES, INC.
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
|
|
For
the Year Ended December 31, 2009
|
|
|
|
|
|
|
Revenue
|
|
$
|
111,022
|
|
|
|
|
|
|
|
|
Costs
of revenue
|
|
|
80,983
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
30,039
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
104,211
|
|
|
|
|
|
|
|
|
Net
loss and accumulated deficit - end of year
|
|
$
|
(74,172
|
)
|
See
accompanying notes.
|
INTERNET
MEDIA SERVICES, INC.
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|
|
|
|
For
the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
Net
loss
|
|
$
|
(74,172
|
)
|
|
Adjustments
to reconcile net loss to net
|
|
|
|
|
|
cash
used by operating activities:
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
5,739
|
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
Accounts
receivable
|
|
|
(2,085
|
)
|
|
Inventory
|
|
|
10,182
|
|
|
Prepaid
expenses
|
|
|
(5,251
|
)
|
|
Increase
in liabilities:
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
36,434
|
|
|
Net
cash used by operating activities
|
|
|
(29,153
|
)
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
Advances
from related party
|
|
|
23,929
|
|
|
Proceeds
from sale of common stock
|
|
|
13,001
|
|
|
Net
cash provided by financing activities
|
|
|
36,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
- end of year
|
|
$
|
7,777
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities during the year
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of the business through issuance of common stock
|
|
$
|
350,000
|
|
See
accompanying notes.
INTERNET
MEDIA SERVICES, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of
Business -
Internet Media Services, Inc. (the Company) is in the business
of acquiring, building and monetizing internet web properties through the
acquisition of existing web properties in vertical business channels identified
by management and using these web properties as an anchor to build within that
vertical market. On October 8, 2009, the Company completed its first
acquisition in the legal vertical market through the purchase of the assets and
assumption of certain liabilities of Legalstore.com (see Note
2). Legalstore.com is an internet based company that primarily sells
legal supplies and legal forms, including security paper. The Company
also sells products and supplies for use in the medical and educational
fields. The Company was incorporated on March 26, 2007 and did not
have operations until the acquisition in 2009.
Principles of
Consolidation
- The consolidated
financial statements include the accounts of Internet Media Services, Inc. and
its wholly-owned subsidiary (Legalstore.com, Inc.). All intercompany
balances and transactions have been eliminated in consolidation.
Use of
Estimates
- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates and be based on events different from those assumptions. Future
events and their effects cannot be predicted with certainty; estimating,
therefore, requires the exercise of judgment. Thus, accounting estimates change
as new events occur, as more experience is acquired or as additional information
is obtained.
Accounts
Receivable
- The Company provides credit in the normal course of business
to the majority of its customers. The Company performs periodic
credit evaluations of its customers’ financial condition and generally does not
require collateral. Management closely monitors outstanding balances
and writes off amounts that it believes are uncollectible after reasonable
collection efforts have been made. No allowance for doubtful accounts
was considered necessary at
December
31, 2009.The Company does not accrue interest on past due accounts
receivable.
Inventory
- Inventories consist of legal supplies held for resale and are stated at the
lower of cost or market on the first-in, first-out (“FIFO”) method.
Fixed
Assets
-
Fixed
assets are recorded at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, ranging from 1 to 7 years.
Expenditures for renewals and betterments are capitalized. Expenditures for
minor items, repairs and maintenance are charged to operations as
incurred. Any gain or loss upon sale or retirement due to obsolescence is
reflected in the operating results in the period the event takes
place.
Intangible
Assets
- Intangible assets consist of a customer list and domain name
acquired pursuant to the asset purchase agreement (see Note 2).
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
|
Useful life
|
|
|
Amount
|
|
|
Amortization
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain
name
|
|
10
|
|
|
$
|
50,000
|
|
|
$
|
1,250
|
|
|
$
|
48,750
|
|
|
Customer
list
|
|
10
|
|
|
|
120,000
|
|
|
|
3,000
|
|
|
|
117,000
|
|
|
Total
|
|
|
|
|
$
|
170,000
|
|
|
$
|
4,250
|
|
|
|
165,750
|
|
INTERNET
MEDIA SERVICES, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(CONTINUED)
Amortization
expense related to these intangible assets amounted to $4,250 for the year ended
December 31, 2009. The expected future amortization expense for the
next five years is $17,000 per year.
Impairment of
Long-Lived Assets
- The Company reviews long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net undiscounted
cash flows expected to be generated by the asset including its ultimate
disposition. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Goodwill
-
Goodwill is the excess of cost of an acquired entity over the fair value of
amounts assigned to assets acquired and liabilities assumed in a business
combination. The Company does not amortize goodwill, rather it is tested for
impairment annually, and will be tested for impairment between annual tests if
an event occurs or circumstances change that would indicate the carrying amount
may be impaired. An impairment loss generally would be recognized when the
carrying amount of the reporting unit’s net assets exceeds the estimated fair
value. The Company performs annual assessments of potential impairment and
has determined that no impairment is necessary as of December 31,
2009.
Income
Taxes
– The Company accounts for income taxes with the recognition of
estimated income taxes payable or refundable on income tax returns for the
current year and for the estimated future tax effect attributable to temporary
differences and carryforwards. Measurement of deferred income items
is based on enacted tax laws including tax rates, with the measurement of
deferred income tax assets being reduced by available tax benefits not expected
to be realized in the immediate future.
The Company reviews tax positions taken
to determine if it is more likely than not that the position would be sustained
upon examination resulting in an uncertain tax position. The Company
did not have any material unrecognized tax benefit at December 31,
2009. The Company recognizes interest accrued and penalties related
to unrecognized tax benefits in tax expense. During the year ended
December 31, 2009, the Company recognized no interest and
penalties.
The Company files U.S. federal tax
returns and tax returns in various states. The tax years 2007 through
2009 remain open to examination by the taxing jurisdictions to which the Company
is subject.
Revenue
Recognition
-
Sales of legal products are recognized when a product or service is
delivered, shipped or provided to the customer and all material conditions
relating to the sale have been substantially performed.
Fair Value of
Financial Instruments
- The Company discloses fair value information
about financial instruments. Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to
management as of December 31, 2009.
INTERNET
MEDIA SERVICES, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(CONTINUED)
These
financial instruments include cash, accounts receivable, accounts payable,
accrued liabilities and short term advances. Fair values were assumed to
approximate carrying values for these financial instruments since they are
short-term in nature and their carrying amounts approximate fair values or they
are receivable or payable on demand. The fair value of the short term advances
is estimated based upon the carrying value which approximates the fair value of
the advance.
Advertising
Costs-
Generally consist of online,
keyword
advertising with various search engines with additional amounts spent on certain
targeted advertising
.
Advertising
costs are expensed as incurred and amounted to approximately $6,500 for the year
ended December 31, 2009.
Subsequent
Events
- These financial statements have not been updated for subsequent
events occurring after April 9, 2010, which is the date these financial
statements were available to be issued.
NOTE
2. – ACQUISITION OF BUSINESS
On
October 8, 2009, the Company entered into an Asset Purchase Agreement with
Lester Levin Inc. (“LLI”), a New York corporation and wholly owned subsidiary of
Document Security Systems, Inc. (“DSS”), whereby the Company purchased the
assets and liabilities of Legalstore.com (constituting the Business), a division
of DSS, in exchange for 7,500,000 shares of common stock of the
Company.
Pursuant to the Asset Purchase
Agreement, the Company agreed to purchase all the assets of Legalstore.com,
including, cash and cash equivalents, accounts receivable, inventories, fixed
assets, customer lists, and domain names. In addition to issuing the
common stock, the Company agreed to assume certain liabilities associated with
Legalstore.com, including an existing office lease.
The Company accounted for the
acquisition in accordance with ASC 805-10 “Business Combinations”, whereby the
Company measured the identifiable assets acquired and liabilities assumed based
on the acquisition date fair value. The Company is required to
recognize and measure any related goodwill acquired in the business combination
or a gain from a bargain purchase. In order to determine the goodwill
or gain from a bargain purchase, the Company is required to determine the fair
value of the consideration transferred in a business combination. The
fair value is calculated as the sum of the acquisition date fair value of the
assets transferred by the Company, the liabilities incurred by the Company and
the equity interest issued by the Company. The Company had no
activity or value prior to the acquisition and the consideration paid for the
common stock issued prior to the acquisition was based on par value and not a
reliable indication of fair value. Therefore, the Company determined
that the fair value of the interest in the Business acquired is a more reliable
measure. As a result, the Company valued the Business acquired using
a discounted cash flow model and compared it to the fair value assigned to the
identifiable assets and liabilities acquired to determine the amount of goodwill
to record in connection with the business combination, which will be deductible
for income tax purposes. All the operations of the Business are
included in the accompanying statement of operations beginning with the date of
the Asset Purchase Agreement.
INTERNET
MEDIA SERVICES, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2. – ACQUISITION OF BUSINESS (CONTINUED)
In
connection with the Asset Purchase Agreement, the Company and a majority
shareholder of the Company also entered into a Registration Rights Agreement and
a Stock Pledge and Escrow Agreement (collectively, the
Agreements). In connection with the Agreements, the Company is
required to file a registration statement on Form S-1, on a best efforts basis,
with respect to the 7,500,000 shares of common stock issued pursuant to the
terms of the Agreements, as well as raise at least $200,000 to be used for
working capital in the Company. If the Company fails to secure registration of
at least 20% of the 7,500,000 shares of common stock within 360 days of the
closing, and fails to meet certain working capital thresholds contained in the
Agreements, then the Company will be considered to be in default. In the event
of a default by the Company, Document Security Systems, Inc may receive up to an
additional 12,500,000 shares of the Company’s Common Stock currently issued and
outstanding and owned by the principal shareholders. These shares are
currently held in escrow as collateral.
In
addition to the Agreements, the Company’s principal shareholders, the Company
and Document Security Systems, Inc entered into a voting agreement whereby the
principal shareholders of the Company agreed to vote all common stock held by
them so as to elect two nominees designated by Lester Levin Inc. or Document
Security Systems, Inc as members of the Company’s Board of Directors, which
consists of five members.
The fair value of assets and
liabilities acquired as a result of this business combination were as
follows:
|
Fair
value of the consideration transferred
|
|
$
|
350,000
|
|
|
|
|
|
|
|
|
Fair
value of identifiable assets acquired
|
|
|
|
|
|
and
liabilities assumed:
|
|
|
|
|
|
Accounts
receivable
|
|
|
31,161
|
|
|
Inventory
|
|
|
101,011
|
|
|
Fixed
assets
|
|
|
28,411
|
|
|
Domain
name
|
|
|
50,000
|
|
|
Customer
list
|
|
|
120,000
|
|
|
Total
|
|
|
330,583
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
19,417
|
|
NOTE
3. - FIXED ASSETS
Fixed
assets consist of the following at December 31, 2009:
|
Machinery
and equipment
|
|
$
|
18,050
|
|
|
Furniture
and fixtures
|
|
|
7,820
|
|
|
Leasehold
improvements
|
|
|
2,541
|
|
|
|
|
|
28,411
|
|
|
Less:
accumulated depreciation
|
|
|
(1,489
|
)
|
|
|
|
|
|
|
|
|
|
$
|
26,922
|
|
Depreciation
expense was $1,489 for the year ended December 31, 2009.
INTERNET
MEDIA SERVICES, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4. STOCKHOLDERS’ EQUITY
During the year ended December 31,
2009, the Company issued 13,001,000 shares of common stock in exchange for
$13,001, the par value of the shares issued.
Subsequent
to December 31, 2009, the Company approved for issuance up to 10,000,000 shares
of $.001 par value preferred stock. The rights and preferences of the
preferred stock will be determined by board resolution upon
issuance. As of April 9, 2010, no preferred shares have been
issued.
NOTE
5. - ADVANCES FROM RELATED PARTY
During 2009, a stockholder advanced the
Company $23,929 for working capital needs. The advances are
unsecured, non-interest bearing, have no stated repayment terms and are due on
demand. The advances are included in current liabilities in the
accompanying balance sheet as of December 31, 2009. Subsequent to
December 31, 2009, additional advances of $41,063 were received from the
stockholder by the Company. On April 8, 2010, the aggregate advances
were formalized with the execution of a $200,000 revolving credit
agreement. This credit agreement matures on April 8,
2011, bears interest at an annual rate of 6% above
Libor, and is secured by all of the assets of the Company.
NOTE
6. - INCOME TAXES
Following
is a summary of the components giving rise to the income tax provision (benefit)
for the year ended December 31, 2009:
|
Deferred:
|
|
|
|
|
Federal
|
|
|
(24,071
|
)
|
|
State
|
|
|
(4,964
|
)
|
|
Total
deferred
|
|
|
(29,035
|
)
|
|
|
|
|
|
|
|
Less
increase in allowance
|
|
|
29,035
|
|
|
Net
deferred
|
|
|
|
|
|
Total
income tax provision
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Individual
components of deferred taxes are as follows as of December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
28,182
|
|
|
Depreciable
and amortizable assets
|
|
|
853
|
|
|
Total
|
|
|
29,035
|
|
|
Less
valuation allowance
|
|
|
(29,035
|
)
|
|
|
|
|
|
|
|
Gross
deferred tax assets
|
|
$
|
-
|
|
INTERNET
MEDIA SERVICES, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6. - INCOME TAXES (CONTINUED)
The
Company has approximately $68,700 in net operating loss carryforwards (“NOL’s”)
available to reduce future taxable income. These carryforwards begin
to expire in year 2029. Due to the uncertainty as to the Company’s
ability to generate sufficient taxable income in the future and utilize the
NOL’s before they expire, the Company has recorded a valuation allowance to
reduce the net deferred tax asset to zero. The difference between the
statutory federal tax rate and the effective tax rate is due to the state income
tax rate and the change in the valuation allowance.
NOTE
7. - COMMITMENTS
Facilities
- The Company leases office and warehouse space with a monthly rental of $1,740.
This lease was assumed by the Company according to the asset purchase agreement
as discussed in Note 2. Lease expense for year ended December 31,
2009 was $3,740. The lease expires in October 2010, although renewal
options exist to extend lease agreements. Subsequent to December 31,
2009, the Company entered into a second lease for corporate office space, which
requires monthly payments of $2,000 and expires on January 31,
2011. Total approximate future lease commitments under both of these
leases are as follows:
|
2010
|
$
|
39,400
|
|
|
2011
|
$
|
2,000
|
|
FINANCIAL
STATEMENTS
LEGALSTORE.COM
(A
DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
DECEMBER
31, 2008
LEGALSTORE.COM
(A
DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
CONTENTS
|
|
Page
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-3
|
|
|
|
|
|
|
|
Carve-Out
Financial Statements:
|
|
|
Balance
Sheets
|
F-4
|
|
Statements
of Operations
|
F-5
|
|
Statements
of Cash Flows
|
F-6
|
|
Statements
of Changes in Divisional Equity
|
F-7
|
|
|
|
|
|
|
|
Notes
to the Carve-Out Financial Statements
|
F-8
- F-17
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors of
Document
Security Systems, Inc.
We have
audited the accompanying carve-out balance sheets of Legalstore.com (a division
of Document Security Systems, Inc.) as of December 31, 2008 and 2007, and the
related carve-out statements of operations, cash flows and changes in divisional
equity for the years then ended. These financial statements are the
responsibility of Legalstore.com’s management. Our responsibility is to express
an opinion on these carve-out financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material
misstatement. Legalstore.com is not required to have, nor have we
been engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of Legalstore.com’s internal control over financial
reporting. Accordingly we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the carve-out financial position of Legalstore.com (a
division of Document Security Systems, Inc.) as of December 31, 2008 and 2007,
and the results of its carve-out operations, cash flows and changes in
divisional equity for the years then ended, in conformity with U.S. generally
accepted accounting principles.
As
discussed in Note 8 to the carve-out financial statements, on October 8, 2009
Document Security Systems, Inc. entered into an asset purchase agreement to sell
the assets associated with Legalstore.com (a division of Document Security
Systems, Inc.).
/s/ FREED
MAXICK & BATTAGLIA, CPAs, PC
Buffalo,
New York
December
11, 2009
|
LEGALSTORE.COM
|
|
(a
Division of Document Security Systems, Inc.)
|
|
Carve-Out
Balance Sheets
|
|
As
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
18,186
|
|
|
$
|
6,797
|
|
|
$
|
137,734
|
|
|
Accounts
receivable
|
|
|
31,434
|
|
|
|
22,319
|
|
|
|
35,407
|
|
|
Inventory
|
|
|
92,521
|
|
|
|
95,014
|
|
|
|
116,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
142,141
|
|
|
|
124,130
|
|
|
|
289,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
|
32,218
|
|
|
|
46,718
|
|
|
|
49,961
|
|
|
Goodwill
|
|
|
81,013
|
|
|
|
81,013
|
|
|
|
81,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
255,372
|
|
|
$
|
251,861
|
|
|
$
|
420,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND DIVISIONAL EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
18,563
|
|
|
$
|
19,709
|
|
|
$
|
40,671
|
|
|
Accrued
liabilities
|
|
|
35,833
|
|
|
|
34,688
|
|
|
|
34,688
|
|
|
Current
portion of capital lease obligations
|
|
|
-
|
|
|
|
346
|
|
|
|
980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
54,396
|
|
|
|
54,743
|
|
|
|
76,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (see Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divisional
equity
|
|
|
200,976
|
|
|
|
197,118
|
|
|
|
343,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and divisional equity
|
|
$
|
255,372
|
|
|
$
|
251,861
|
|
|
$
|
420,223
|
|
See accompanying notes.
|
LEGALSTORE.COM
|
|
|
|
|
|
(a
Division of Document Security Systems, Inc.)
|
|
|
Carve-out
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended September 30,
|
|
|
For
the Nine Months Ended September 30,
|
|
|
For
the Year Ended December 31,
|
|
|
For
the Year Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
357,397
|
|
|
$
|
482,553
|
|
|
$
|
609,807
|
|
|
$
|
682,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of revenue
|
|
|
177,544
|
|
|
|
271,296
|
|
|
|
351,769
|
|
|
|
373,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
179,853
|
|
|
|
211,257
|
|
|
|
258,038
|
|
|
|
308,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
130,028
|
|
|
|
151,862
|
|
|
|
201,819
|
|
|
|
203,356
|
|
|
Marketing
and advertising
|
|
|
1,250
|
|
|
|
22,483
|
|
|
|
27,667
|
|
|
|
53,286
|
|
|
Rent
and utilities
|
|
|
20,516
|
|
|
|
17,716
|
|
|
|
23,570
|
|
|
|
23,394
|
|
|
Depreciation
|
|
|
8,250
|
|
|
|
8,118
|
|
|
|
10,824
|
|
|
|
5,340
|
|
|
Other
|
|
|
16,623
|
|
|
|
13,715
|
|
|
|
23,732
|
|
|
|
41,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
176,667
|
|
|
|
213,894
|
|
|
|
287,612
|
|
|
|
326,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,186
|
|
|
$
|
(2,637
|
)
|
|
$
|
(29,574
|
)
|
|
$
|
(18,393
|
)
|
See
accompanying notes.
|
LEGALSTORE.COM
|
|
|
(a
Division of Document Security Systems, Inc.)
|
|
|
Carve-out
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended September 30,
|
|
For
the Nine Months Ended September 30,
|
|
For
the Year Ended
December
31,
|
|
|
|
|
2009
|
|
2008
|
|
2008
|
|
2007
|
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,186
|
|
$
|
(2,637
|
)
|
$
|
(29,574
|
)
|
$
|
(18,393
|
)
|
|
Adjustments to reconcile net income (loss) to net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
provided (used) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
14,705
|
|
|
11,583
|
|
|
15,787
|
|
|
10,412
|
|
|
Stock
based compensation
|
|
|
7,326
|
|
|
7,326
|
|
|
9,768
|
|
|
3,196
|
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(9,115
|
)
|
|
(3,412
|
)
|
|
13,088
|
|
|
2,399
|
|
|
Inventory
|
|
|
2,493
|
|
|
17,868
|
|
|
21,094
|
|
|
(30,743
|
)
|
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
3,654
|
|
|
3,811
|
|
|
(25,762
|
)
|
|
5,648
|
|
|
Accrued
liabilities
|
|
|
1,145
|
|
|
(222
|
)
|
|
-
|
|
|
1,202
|
|
|
Net
cash provided (used) by operating activities
|
|
|
23,394
|
|
|
34,317
|
|
|
4,401
|
|
|
(26,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
(5,005
|
)
|
|
(5,944
|
)
|
|
(7,744
|
)
|
|
(16,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(5,005
|
)
|
|
(5,944
|
)
|
|
(7,744
|
)
|
|
(16,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
of capital lease obligations
|
|
|
(346
|
)
|
|
(728
|
)
|
|
(981
|
)
|
|
(901
|
)
|
|
Transfers
from (to) parent
|
|
|
(6,654
|
)
|
|
(103,128
|
)
|
|
(126,613
|
)
|
|
181,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used) provided by financing activities
|
|
|
(7,000
|
)
|
|
(103,856
|
)
|
|
(127,594
|
)
|
|
180,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash
|
|
|
11,389
|
|
|
(75,483
|
)
|
|
(130,937
|
)
|
|
137,734
|
|
|
Cash
beginning of period
|
|
|
6,797
|
|
|
137,734
|
|
|
137,734
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
end of period
|
|
$
|
18,186
|
|
$
|
62,251
|
|
$
|
6,797
|
|
$
|
137,734
|
|
See
accompanying notes.
|
LEGALSTORE.COM
|
|
|
(a
Division of Document Security Systems, Inc.)
|
|
|
Carve-out
Statements of Changes in Divisional Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
$
|
177,368
|
|
|
Transfers
from parent, net
|
|
|
181,366
|
|
|
Stock
based compensation
|
|
|
3,196
|
|
|
Net
loss
|
|
|
(18,393
|
)
|
|
Balance,
December 31, 2007
|
|
|
343,537
|
|
|
Transfers
to parent, net
|
|
|
(126,613
|
)
|
|
Stock
based compensation
|
|
|
9,768
|
|
|
Net
loss
|
|
|
(29,574
|
)
|
|
Balance,
December 31, 2008
|
|
|
197,118
|
|
|
Transfers
to parent, net (unaudited)
|
|
|
(6,654
|
)
|
|
Stock
based compensation (unaudited)
|
|
|
7,326
|
|
|
Net
income (unaudited)
|
|
|
3,186
|
|
|
Balance,
September 30, 2009 (unaudited)
|
|
$
|
200,976
|
|
See
accompanying notes.
LEGALSTORE.COM
(A
DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
NOTES
TO THE CARVE-OUT FINANCIAL STATEMENTS
NOTE
1. – BACKGROUND AND BASIS OF PRESENTATION
The
accompanying carve-out financial statements of Legalstore.com (the
“Legalstore.com” and “Business”), as a division of Lester Levin, Inc, a New York
corporation, have been prepared from the historical accounting records of Lester
Levin, Inc. Lester Levin, Inc was 100% owned by Document Security
Systems during the years ended December 31, 2008 and 2007 and for the nine
months ended September 30, 2009. Legalstore.com primarily sells legal
supplies and documents, including security paper and products for the users of
legal documents and supplies in the legal, medical and educational
fields. These carve-out financial statements for Legalstore.com are
presented on a carve-out basis from the consolidated financial statements of
Document Security Systems, Inc. These carve-out financial statements
have been prepared to facilitate the sale of Legalstore.com assets to Internet
Media Services, Inc. (IMS) and the expected subsequent filing of the Form S-1 by
IMS (See Note 9). All material assets and liabilities specifically
identified with the Business have been presented in the balance sheets; all
material revenues and expenses specifically identified with the Business and
allocations of corporate expenses have been presented in the statements of
operations.
Document
Security Systems, Inc.’s, equity in the Business has been presented in lieu of
shareholders' equity in the carve-out financial statements. The
financial information presented in these carve-out financial statements also
reflects certain allocations from Document Security Systems that are directly
related to the Business and are based on historical activity
levels. As such, the carve-out financial statements may not
necessarily reflect the financial position, results of operations or cash flows
that the Business might have had in the past, or might have in the future, if
the Business had existed as a separate, stand-alone business during the periods
presented.
The
allocations consist of bookkeeping, financial and executive management time,
liability insurance, and accounting software costs incurred on behalf of the
Business by Document Security Systems, Inc.. In addition, the
allocations include stock based compensation expense for options to purchase
Document Security Systems, Inc. common stock that was granted to the Business’s
employees along with accrued payroll taxes related to grants of common stock of
Document Security Systems, Inc.. Management of Document Security
Systems, Inc. believes that these allocations and contributions have been made
on a reasonable basis. Payments made by Document Security Systems, Inc. to the
Business or to Document Security Systems, Inc. from the Business are
presented as transfers to and from parent as a component of divisional
equity.
Interim Financial
Information
– The carve-out financial information at September 30, 2009
and the nine months ended September 30, 2009 and 2008 is unaudited but, in the
opinion of management, has been prepared on the same basis as the annual
carve-out financial statements and includes all adjustments (consisting only of
normal recurring adjustments) that the Business considers necessary for a fair
presentation of the financial position at such date and the operating result,
cash flow and divisional equity for such periods. Interim results are not
necessarily indicative of results expected for a full
year. These financial statements have not been updated for
subsequent events occurring after December 11, 2009.
NOTE
2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of
Accounting
- The carve-out financial statements have been prepared in
accordance with accounting principles generally accepted in the United States.
The Business's significant accounting policies are summarized
below.
LEGALSTORE.COM
(A
DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
NOTES
TO THE CARVE-OUT FINANCIAL STATEMENTS
NOTE
2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of
Estimates
- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates and be based on events different from those assumptions. Future
events and their effects cannot be predicted with certainty; estimating,
therefore, requires the exercise of judgment. Thus, accounting estimates change
as new events occur, as more experience is acquired or as additional information
is obtained.
Cash
–
Cash includes bank deposits. At times, bank balances may exceed
federally insured limits. The Business has not experienced any losses
in such accounts and believes it is not exposed to any significant risk with
respect to cash.
Accounts
Receivable
- The Business provides credit in the normal course of
business to the majority of its customers. The Business performs
periodic credit evaluations of its customers’ financial condition and generally
does not require collateral. Management closely monitors outstanding
balances and writes off amounts that it believes are uncollectible after
reasonable collection efforts have been made. No allowance for
doubtful accounts was considered necessary at
December
31, 2008 and 2007 and September 30, 2009. The Business does not
accrue interest on past due accounts receivable.
Inventory
- Inventories consist of legal supplies held for resale and are stated at the
lower of cost or market on the first-in, first-out (“FIFO”) method.
Fixed
Assets
-
Fixed
assets are recorded at cost. Depreciation is computed using the straight-line
method over the estimated useful lives or lease period of the assets whichever
is shorter. Expenditures for renewals and betterments are capitalized.
Expenditures for minor items, repairs and maintenance are charged to operations
as incurred. Any gain or loss upon sale or retirement due to obsolescence
is reflected in the operating results in the period the event takes
place.
Goodwill
-
Goodwill is the excess of cost of an acquired entity over the fair value of
amounts assigned to assets acquired and liabilities assumed in a business
combination. The Business has elected the push-down method of accounting whereby
the net assets acquired that were adjusted to fair market value with the excess
cost recorded as goodwill on the financial statements of Document Security
Systems, Inc. have been pushed down to these carve-out financial
statements. The Business does not amortize goodwill, rather it is
tested for impairment annually, and will be tested for impairment between annual
tests if an event occurs or circumstances change that would indicate the
carrying amount may be impaired. An impairment loss generally would be
recognized when the carrying amount of the reporting unit’s net assets exceeds
the estimated fair value. The Business performs annual assessments of
potential impairment and has determined that no impairment is necessary as of
December 31, 2008 and 2007 and September 30, 2009.
Impairment of
Long-Lived Assets
- The Business reviews long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net undiscounted
cash flows expected to be generated by the asset including its ultimate
disposition. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Fair value
is determined based on discounted cash flows or appraised values, depending on
the nature of the assets.
LEGALSTORE.COM
(A
DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
NOTES
TO THE CARVE-OUT FINANCIAL STATEMENTS
NOTE
2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of
Financial Instruments
- The Business discloses fair value information
about financial instruments. Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to
management as of December 31, 2008 and 2009 and September 30,
2009.
These
financial instruments include cash, accounts receivable, accounts payable,
accrued liabilities and capital leases. Fair values were assumed to approximate
carrying values for these financial instruments since they are short-term in
nature and their carrying amounts approximate fair values or they are receivable
or payable on demand. The fair value of the Business’s capitalized lease
obligation is estimated based upon the carrying value which approximates the
fair value of the debt instrument in 2008 and 2007.
Share-Based
Payments
- The Business accounts for compensation expense for stock
option awards granted under Document Security System’s Stock Incentive Plans
over the requisite service period based on the grant date fair value of the
awards. During the year ended December 31, 2007, the
Business’s employees were issued a total of 4,500 options to purchase shares of
stock of the Business’s parent company, Document Security Systems, Inc. at
various prices. There were no options issued to the Business’s
employees during the year ended December 31, 2008 or the nine-months ended
September 30, 2009. Legalstore.com employees have 5,500 options
outstanding as of December 31, 2008 and 2007 and September 30, 2009,
respectively, which includes 1,000 options outstanding as of December 31,
2006.
Compensation
expense for the Business’s employees from stock option grants for the years
ended December 31, 2008 and 2007, and for the period ended September 30, 2009
and 2008, was $9,768, $3,196 $7,326 and $7,326,
respectively. The Business uses the Black-Scholes option
pricing model for determining the estimated fair value for stock-based awards
with the following assumptions:
|
|
Period
Ended September 30, 2009
|
|
Year
Ended December 31, 2008
|
|
Year
Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
na
|
|
na
|
|
|
4.05
|
%
|
|
Volatility
|
na
|
|
na
|
|
|
54
|
%
|
|
Expected
dividend yield
|
na
|
|
na
|
|
|
0
|
%
|
|
Expected
life
|
na
|
|
|
|
3.75
years
|
|
Estimated
forfeiture rate
|
na
|
|
na
|
|
|
0
|
%
|
The
Business calculates expected volatility for a share-based grant based on
historic daily stock price observations of Document Security Systems, Inc.’s
common stock during the period immediately preceding the grant that is equal in
length to the expected term of the grant. For estimating the expected term of
share-based grants, the Business has adopted the simplified method.
LEGALSTORE.COM
(A
DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
NOTES
TO THE CARVE-OUT FINANCIAL STATEMENTS
NOTE
2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition
-
Sales of legal products are recognized when a product or service is
delivered, shipped or provided to the customer and all material conditions
relating to the sale have been substantially performed.
Advertising
Costs
– Generally consist of online, keyword advertising with Google with
additional amounts spent on certain print media in targeted industry
publications
.
Advertising
costs were approximately $22,000 in 2008 ($48,000 – 2007).
Income
Taxes
- Through September 30, 2009, the Business was not a separate
taxable entity for federal, state, or local income tax purposes, and its
operations were included in the consolidated tax returns of Document Security
Systems, Inc. Accordingly, all tax attribute carryforwards, such as
tax credits and net operating losses, are retained by Document Security Systems,
Inc., with no allocation to the Business. The Business has calculated
the tax provision on the separate return basis to illustrate the impact on the
Business. Accordingly, deferred income taxes are recognized for differences
between the financial statement and tax basis of assets and liabilities at
enacted statutory tax rates in effect for the years in which the differences are
expected to reverse. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment
date. In addition, a valuation allowance is established to the extent
necessary to reduce deferred income tax assets to amounts that more likely than
not will be realized.
The
Business’s adoption of accounting for uncertainty in income tax did not have a
material impact on the Business’s results of operations and financial position,
and therefore, the Business did not have any adjustments to the January 1, 2007
beginning balance of divisional equity. The Business reviews the
financial statement recognition and measurement for income tax positions that
Document Security Systems, Inc. has taken or expects to take in its consolidated
income tax returns on behalf of the Business that were
uncertain. As of December 31, 2008 and 2007 and 2007 and
September 30, 2009 and 2008, the Business determined that it did not have any
uncertain tax positions. In addition, the Business did not have any
material unrecognized tax benefit at December 31, 2008 and 2007 and periods
ending September 30, 2009 and 2008. The Business would have
recognized interest accrued and penalties related to unrecognized tax benefits
in tax expense. During the years ended December 31, 2008 and 2007 and
periods ending September 30, 2009 and 2008, the Business recognized no interest
and penalties.
Recent Accounting
Pronouncements
- In September 2006, the FASB issued SFAS No. 157 (“SFAS
157”), “Fair Value Measurements.” SFAS 157, now Accounting Standards
Codification (“ASC”) 820, as amended, defines fair value, establishes a
framework for measuring fair value and expands disclosures regarding fair value
measurements. ASC 820 does not require any new fair value measurements but
rather eliminates inconsistencies in guidance found in various prior accounting
pronouncements. ASC 820 was effective for fiscal years beginning after
November 15, 2007. However, on December 14, 2007, the FASB issued proposed
FSP FAS 157-2 which delayed the effective date of ASC 820 for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually), to fiscal years beginning after November 15, 2008.
Accordingly, the Business’s adoption of this standard in 2008 was limited to
financial assets and liabilities and did not have a material effect on the
Business’s financial condition or results of operations. The adoption of
the portion of this statement related to nonfinancial assets and liabilities in
2009 did not have a material effect on the Business’s financial
statements.
LEGALSTORE.COM
(A
DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
NOTES
TO THE CARVE-OUT FINANCIAL STATEMENTS
NOTE
2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June
2009, the FASB issued Statement of Financial Accounting Standard (SFAS)
No. 168, The FASB Accounting Standard Codification and the Hierarchy of the
Generally Accepted Accounting Principles — a replacement of SFAS No. 162
(SFAS 168), now Accounting Standards Codification (ASC) 105, to become the
source of authoritative U.S. generally accepted accounting principles (“GAAP”)
recognized by the FASB to be applied by nongovernmental entities. ASC 105 is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009 and first adopted in the quarterly financial
statements for the period ended September 30, 2009. The Business does
not believe the adoption of ASC 105 had a material impact on the financial
statements.
In
April 2009, the FASB staff issued FSP No. FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments (“FSP No. FAS
107-1 and APB 28-1”), now ASC 825. ASC 825 amends prior standards to require
disclosures about fair value of financial instruments in interim financial
statements as well as in annual financial statements. The provisions of ASC 825
became effective on April 1, 2009, are being applied prospectively
beginning September 30, 2009 and did not have a material impact on the
Business’s financial statements. See “Fair Value of Financial Instruments”
included in “Note 2 for the related disclosure.
In
May 2009, the FASB issued Statement No. 165, Subsequent Events (“FAS
165”), now ASC 855. The provisions of ASC 855 set forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may have occurred for potential recognition or
disclosure in the financial statements, the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date
in its financial statements and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. The
provisions of ASC 855 became effective for the Business on April 1, 2009,
are being applied prospectively beginning September 30, 2009 and did not have a
material impact on the Business’s financial statements.
LEGALSTORE.COM
(A
DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
NOTES
TO THE CARVE-OUT FINANCIAL STATEMENTS
NOTE
3. - FIXED ASSETS
Fixed
assets consisted of the following at December 31:
|
|
Estimated
Useful Life
|
|
Purchased
|
|
Under
Capital Leases
|
|
Purchased
|
|
Under
Capital Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
& equipment
|
5
years
|
|
$
|
24,905
|
|
$
|
4,289
|
|
$
|
24,905
|
|
$
|
4,289
|
|
|
Leasehold
improvements
|
10
years(1)
|
|
|
4,026
|
|
|
-
|
|
|
4,026
|
|
|
-
|
|
|
Furniture
& fixtures
|
7
years
|
|
|
20,743
|
|
|
-
|
|
|
20,743
|
|
|
-
|
|
|
Software
& websites
|
3
years
|
|
|
28,995
|
|
|
-
|
|
|
16,451
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
|
78,669
|
|
|
4,289
|
|
|
66,125
|
|
|
4,289
|
|
|
Less
accumulated depreciation
|
|
|
|
32,380
|
|
|
3,860
|
|
|
17,451
|
|
|
3,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
$
|
46,289
|
|
$
|
429
|
|
$
|
48,674
|
|
$
|
1,287
|
|
(1)
Expiration of lease term
Fixed
assets consisted of the following at September 30, 2009
(Unaudited):
|
|
Estimated
Useful Life
|
|
Purchased
|
|
Under
Capital Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery
& equipment
|
5
years
|
|
24,905
|
|
|
4,289
|
|
|
Leasehold
improvements
|
10
years(1)
|
|
4,026
|
|
|
-
|
|
|
Furniture
& fixtures
|
7
years
|
|
20,743
|
|
|
-
|
|
|
Software
& websites
|
3
years
|
|
28,995
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
78,669
|
|
|
4,289
|
|
|
Less
accumulated depreciation
|
|
|
46,451
|
|
|
4,289
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
32,218
|
|
|
-
|
|
(1)
Expiration of lease term
NOTE
4. - INCOME TAXES
The net
operating income and losses incurred and tax credits earned since inception
attributable to the operations of the Business, a division of Lester Levin,
Inc., were included in the consolidated income tax returns filed by Document
Security Systems, Inc. Accordingly, all tax attribute carryforwards,
such as tax credits and net operating losses, are retained by Document Security
Systems, Inc. with no allocation to the Business.
LEGALSTORE.COM
(A
DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
NOTES
TO THE CARVE-OUT FINANCIAL STATEMENTS
NOTE
4. - INCOME TAXES (CONTINUED)
Deferred
income taxes are recognized for differences between the financial statements and
the tax basis of assets and liabilities at enacted statutory tax rates in effect
for the years in which the differences are expected to reverse. The
effect on deferred taxes of a change in tax rates is recognized in income in the
year that includes the enactment date. In addition, valuation
allowances are established when necessary to reduce deferred tax asset to the
amount expected to be realized.
The
provision (benefit) for income taxes shown in the Business’s statement of
operations for the year ended December 31, 2008 and 2007consist of the
following:
|
|
|
2008
|
|
|
2007
|
|
|
Currently
payable:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
Total
currently payable
|
|
|
-
|
|
|
|
-
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(4,483
|
)
|
|
|
(3,616
|
)
|
|
State
|
|
|
(1,197
|
)
|
|
|
(1,193
|
)
|
|
Total
deferred
|
|
|
(5,680
|
)
|
|
|
(4,809
|
)
|
|
Less
increase in allowance
|
|
|
5,680
|
|
|
|
4,809
|
|
|
Net
deferred
|
|
|
-
|
|
|
|
0
|
|
|
Total
income tax provision (benefit)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual
components of deferred taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
2008
|
|
|
|
2007
|
|
|
Net
operating loss carry forwards
|
|
$
|
23,631
|
|
|
$
|
18,988
|
|
|
Equity
issued for services
|
|
|
2,902
|
|
|
|
1,026
|
|
|
Total
|
|
|
26,533
|
|
|
|
20,014
|
|
|
Less
valuation allowance
|
|
|
(25,337
|
)
|
|
|
(19,657
|
)
|
|
Gross
deferred tax assets
|
|
$
|
1,196
|
|
|
$
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
1,196
|
|
|
$
|
357
|
|
|
Gross
deferred tax liabilities
|
|
$
|
1,196
|
|
|
$
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
Had the
Business filed stand alone tax returns, as of December 31, 2008, Net Operating
Losses (NOL’s) of approximately $123,000 would have been available to reduce
future taxable income. Due to the uncertainty as to the Business’s
ability to generate sufficient taxable income in the future and utilize the
NOL’s before they expire, the Business has recorded a valuation
allowance. On a stand-alone basis, it is assumed that the
Business is not a member of a controlled group and therefore, had a Federal tax
rate of 15%.
LEGALSTORE.COM
(A
DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
NOTES
TO THE CARVE-OUT FINANCIAL STATEMENTS
NOTE
4. - INCOME TAXES (CONTINUED)
The provision (benefit) for income
taxes consists of the following at September 30, 2009:
|
|
|
2009
|
|
|
Currently
payable:
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
State
|
|
|
-
|
|
|
Total
currently payable
|
|
|
-
|
|
|
Deferred:
|
|
|
|
|
|
Federal
|
|
|
(3,626
|
)
|
|
State
|
|
|
(1,197
|
)
|
|
Total
deferred
|
|
|
(4,823
|
)
|
|
Less
increase in allowance
|
|
|
4,823
|
|
|
Net
deferred
|
|
|
-
|
|
|
Total
income tax provision (benefit)
|
|
$
|
0
|
|
The
accompanying unaudited income tax footnote has been prepared in accordance with
U.S. generally accepted accounting principles for interim financial
information. Accordingly this footnote does not include all of the
information required by U.S. generally accepted accounting principles for
complete financial statements.
NOTE
5. - DEFINED CONTRIBUTION PENSION PLAN
The
Business’s employees participate in an Employee savings plan (the “401(k) Plan”)
sponsored by Document Security Systems, Inc. which qualifies as a deferred
salary arrangement under Section 401(k) of the Internal Revenue
Code. Employees become eligible to participate in the Plan at the
beginning of the following quarter after the employee’s hire
date. Employees may contribute up to 20% of their pay to the Plan,
subject to the limitations of the Internal Revenue Code. The
Business’s matching contributions are discretionary. Pursuant to the
401(k) Plan, employees may elect to defer a portion of their salary on a pre-tax
basis. For employees who participated in the plan, the Business matched
the employer’s contribution in 2007 pursuant to the Safe Harbor Provisions of
Section 401(k) of the Internal Revenue Code up to 4% in 2007 of the
participating employee’s annual compensation. During the period ended
September 30, 2009 and the year ended December 31, 2008, the Business did not
make any matching contributions. During the year ended December 31,
2007 the Business contributed approximately $5,000 to the 401(k) plan for its
employees.
LEGALSTORE.COM
(A
DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
NOTES
TO THE CARVE-OUT FINANCIAL STATEMENTS
NOTE
6. - COMMITMENTS
Facilities
- The Business leases 3,829 square feet of office and warehouse space with a
monthly rental of approximately $1,700. Lease expense for years ended December
31, 2008 and 2007 was approximately $21,000 and $21,000,
respectively. The lease expires on October 31, 2010, although renewal
options exist to extend lease agreements for up to an additional 4
years. Total approximate lease commitments with this lease as of
December 31, 2008 are as follows:
|
2009
|
|
$
|
21,000
|
|
|
2010
|
|
$
|
19,000
|
|
NOTE
7. – RELATED PARTY TRANSACTIONS
Funding
–
The Business’s cash requirements are funded by Document Security Systems, Inc.
which are not subject to formal financing arrangements and do not bear
interest. Transfers to and from Document Security
Systems, Inc. are recorded as transfers to/from affiliate as a component of
divisional equity because amounts are not expected to be
repaid. Included in divisional equity are amounts charged by
Document Security Systems for allocated corporate services.
Corporate
Services
–
In accordance with SAB No. 55, corporate expense allocations have been reflected
in these financial statements. The corporate expenses have been
allocated based on a direct relationship to the Business’s operations and are
primarily related to accounting and finance operations performed by Document
Security Systems personnel on behalf of the Business and liability insurance and
for costs associated with the shared use of Document Security Systems accounting
and ERP system. In addition, the allocations include stock
based compensation expense for options to purchase Document Security Systems’
common stock that was granted to the Business’s employees along with accrued
payroll taxes related to grants of common stock of Document Security Systems,
Inc.. Management believes that the basis used for allocating
corporate services is reasonable. However, the terms of these
transactions may differ from those that would have resulted from transactions
among related parties.
NOTE
8. - SUBSEQUENT EVENTS
On October 8, 2009, Lester Levin Inc., a
New York corporation (“LLI”) and wholly owned subsidiary of Document Security
Systems, Inc., entered into an Asset Purchase Agreement with Internet Media
Services, Inc., a Delaware corporation (“IMS”), whereby LLI agreed to sell the
assets associated with its LegalStore.com business (“LegalStore”) to
IMS.
Pursuant
to the Asset Purchase Agreement, LLI agreed to sell to IMS all the assets of
LegalStore, (including, but not limited to, equipment, inventories, contracts,
domain names, accounts receivable, and certain cash and cash equivalents. In
consideration of the sale and transfer of the Acquired Assets, IMS agreed to
issue 7,500,000 shares of common stock, par value $.001 per share, of IMS (“IMS
Common Stock”) (the “Purchase Price”) to Document Security Systems, Inc.,
representing 37% of the then outstanding shares. In addition to
issuing the new IMS Common Stock, IMS agreed to assume certain liabilities
associated with LegalStore, including an existing office lease, trade payables
and accrued payroll. Certain liabilities presented in the
accompanying carve-out financial statements will not be assumed by
IMS.
LEGALSTORE.COM
(A
DIVISION OF DOCUMENT SECURITY SYSTEMS, INC.)
NOTES
TO THE CARVE-OUT FINANCIAL STATEMENTS
NOTE
8. - SUBSEQUENT EVENTS (CONTINUED)
Within
180 days of closing, IMS intends to file a registration statement on Form S-1
with respect to the IMS Common Stock pursuant to the terms of the Asset Purchase
Agreement and Registration Rights Agreement executed by IMS and Document
Security Systems, Inc concurrently with the Asset Purchase Agreement. Pursuant
to the terms of the Asset Purchase Agreement, Registration Rights Agreement, and
the Stock Pledge and Escrow Agreements executed by IMS’ principal shareholders,
IMS, LLI and Document Security Systems, Inc, if IMS fails to secure registration
of at least 20% of the IMS Common Stock within 360 days of closing, and to meet
certain working capital thresholds contained in the Asset Purchase Agreement,
then IMS will be in default. In the event of a default by IMS with respect to
the registration of the IMS Common Stock, if IMS has failed to satisfy the
working capital requirements provided for in the Asset Purchase Agreement,
Document Security Systems, Inc may take back the collateral, consisting of up to
12,500,000 additional shares of IMS Common Stock owned by the IMS shareholders
identified in the Pledge Agreements. If IMS is in default with
respect to the registration of IMS Common Stock, and IMS has satisfied the
working capital requirements contained in the Asset Purchase Agreement, Document
Security Systems, Inc may take back the collateral, consisting of up to
5,250,000 additional shares of IMS Common Stock owned by the IMS shareholders
identified in the Pledge Agreements.
In
addition to the Asset Purchase Agreement, the Registration Rights Agreement, and
the Pledge Agreements, IMS’ principal shareholders, IMS and Document Security
Systems, Inc entered into a voting agreement whereby the principal shareholders
of IMS agreed to vote all IMS Common Stock held by them so as to elect two
nominees designated by LLI or Document Security Systems, Inc as members of the
IMS Board of Directors.
Unaudited
Pro Forma Financial Statement
The
following table sets forth our summary unaudited pro forma consolidated
financial data as of December 31, 2009 as if the LegalStore.com assets had been
purchased as of January 1, 2009. The pro forma data for the twelve
months ended December 31, 2009 has been derived by adding our audited
consolidated financial data for the year ended Decemebr 31, 2009 and the
unaudited LegalStore.com (a Division of Document Security Systems, Inc.)
carve-out financial statements for the period prior to the asset purchase
agreement. The summary consolidated financial data as of December 31,
2009 have been derived from and should be read together with our audited
consolidated financial statements and the related notes incorporated by
reference in this prospectus. The summary consolidated financial data
of LegalStore,com for the the period prior to the asset purchase agreement have
been derived from and should be read together with the unaudited LegalStore.com
consolidated financial statements and the related notes incorporated by
reference in this prospectus. The unaudited condensed consolidated
financial statements have been prepared on the same basis as our audited
consolidated financial statements and, in the opinion of our management, reflect
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods
presented.
The
unaudited pro forma condensed combined financial information should not be
considered illustrative of what our results of operations would have been had
the LegalStore.com acquisition been completed on the dates
indicated. The results presented below are not necessarily indicative
of the results to be expected for any future period, and the results for any
interim period are not necessarily indicative of the results that may be
expected for a full year. We therefore caution you not to place undue reliance
on the unaudited pro forma condensed combined financial
information. You should read the following tables together with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included elsewhere in this prospectus and our historical
consolidated financial statements and the related notes incorporated by
reference herein.
|
INTERNET
MEDIA SERVICES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma Consolidated Statement of Operations
|
|
|
For
the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LegalStore.com
(a Division of Document
Security Systems, Inc.
)
|
|
|
Internet
Media Services, Inc.
|
|
|
Adjustments
|
|
|
Pro
forma Total For the Year Ended December 31,
|
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
357,397
|
|
|
$
|
111,022
|
|
|
$
|
-
|
|
|
$
|
468,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of revenue
|
|
|
177,544
|
|
|
|
80,983
|
|
|
|
-
|
|
|
|
258,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
179,853
|
|
|
|
30,039
|
|
|
|
-
|
|
|
|
209,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
176,667
|
|
|
|
104,211
|
|
|
|
|
|
|
|
280,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,186
|
|
|
$
|
(74,172
|
)
|
|
$
|
-
|
|
|
$
|
(70,986
|
)
|
Exhibit 3.2
BY
LAWS
OF
INTERNET
MEDIA SERVICES, INC.
ARTICLE
I – MEETINGS OF STOCKHOLDERS
1.
PLACE OF
MEETINGS.
All annual meetings of Stockholders and all other
meetings of Stockholders shall be held at any place or places within or without
the State of Delaware which may be designated either by the President of the
Corporation or the Board of Directors, or by the written consent of all
Stockholders entitled to vote thereat, given either before or after the meeting
and filed with the Secretary of the Corporation.
2.
ANNUAL
MEETINGS.
The annual meeting of the Stockholders shall be held
within twelve months of the first Monday of the month in which the Corporation’s
initial Certificate of Incorporation was first filed with the Secretary of
State. If such day falls on a legal holiday, then the annual meeting
of the Stockholders shall be held on the next business day. The
Stockholders shall elect the Board and transact such other business as may
properly come before said meeting.
Written notice of each annual meeting
signed by the President or Vice President, or the Secretary, or an Assistant
Secretary, or by such other person or persons as the Directors shall designate,
shall be given to each Stockholder entitled to vote thereat either personally or
by mail or other means of written communication, charges prepaid, addressed to
such Stockholder at the address appearing on the books of the Corporation or
given to the Corporation for the purpose of notice. If a Stockholder
gives no address, notice shall be deemed to have been given if sent by mail or
other means of written communication addressed to the place where the Resident
Agent of the Corporation is situated, or if published at least once in some
newspaper of general circulation in the county in which said Resident Agent is
located. All such notices shall be sent to each Stockholder entitled
thereto not less than ten (10) nor more than sixty (60) calendar days before
each annual meeting, and shall specify the place, the day and the hour of such
meeting the means of remote communications, if any, by which Stockholders and
proxy holders may be deemed present in person and vote at such
meetings. Any Stockholder may waive notice of any meeting either
before, during or after the meeting.
3.
SPECIAL
MEETING.
Special
meetings of the Stockholders, for any purpose or purposes whatsoever, may be
called at any time by the President, Vice President or by a majority of the Boar
of Directors, or by one or more Stockholders holding a majority in amount of the
entire capitol stock of the Corporation issued and outstanding and entitled to
vote. Except in special cases where other express provision is made
by statute, notice of such special meetings shall be given in the same manner as
for annual meetings of Stockholders. Notices of any special meeting
shall specify, in addition to the place or means of remote communication, the
day and hour of such meetings, the purpose or purposes for which the meeting is
called.
4.
ADJOURNED
MEETINGS AND NOTICE THEREOF.
Any Stockholders’ meeting,
annual or special whether or not a quorum is present, may be adjourned from time
to time by the vote of a majority of the shares, the holders of which are either
present in person or represented by proxy thereat, but in the absence of
a quorum no other business may be transacted at any such meeting.
Other than by announcement at the
meeting at which such adjournment is taken, it shall not be necessary to give
any notice of an adjournment or of the business to be transacted at an adjourned
meeting. However, when any Stockholders’ meeting, either annual or
special, is adjourned for thirty (30) days or more, notice of the adjourned
meeting shall be given as in the case of an original meeting.
5.
ENTRY OF
NOTICE.
Whenever any Stockholder entitled to vote has been
absent from any meeting of Stockholders, whether annual or special, an entry in
the minutes to the effect that notice has been duly given shall be conclusive
and incontrovertible evidence that due notice of such meeting was given to such
Stockholders, as required by law and the Bylaws of thee
Corporation.
6.
VOTING.
At
all meetings of Stockholders, every Stockholder entitled to vote shall have the
right to vote, in person or by proxy, on each matter to come before the meeting,
the number of shares standing in that person’s own name on the stock records of
the Corporation. There shall be no cumulative voting. Such
vote may be by voice or by ballot upon demand made by a Stockholder at any
election and before the voting begins.
7.
QUORUM.
The
presence in person or by proxy of the holders of a majority of the shares
entitled to vote at any meeting shall constitute a quorum for the transaction of
business. The Stockholders present at a duly called or held meeting
at which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough Stockholders to leave less than a
quorum.
8.
CONSENT
OF ABSENTEES.
The transactions of any meeting of Stockholders,
either annual or special, however called and noticed, shall be as valid as
though a meeting had been duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each of the Stockholders entitled to vote, not present in person or by
proxy, sign a written waiver or notice, or a consent to the holding of such
meeting, or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the Corporate records or made a part
of the minutes of the meeting.
9.
PROXIES.
Every person entitled to
vote or execute consents shall have the right to do so either in person or by an
agent or agents authorized by a written proxy executed by such person or duly
authorize agent and filed with the Secretary of the
Corporation. However, no such proxy shall be valid after the
expiration of three (3) years from the date of its execution, unless the
Stockholder executing it specifies therein the length of time for which such
proxy is to continue in force, which in no case shall exceed seven (7) years
from the date of it’s execution.
10.
ACTION WITHOUT A
MEETING.
10.1
Any action
which may be taken by vote of Stockholders at a meeting may be taken without a
meeting if authorized by the written consent of Stockholders holding at least a
majority of the voting power, provided:
10.1.1
That if any
greater portion of voting powers is required for such action at a
meeting, then such greater proportion of written consents shall be
required;
10.1.2
That this
general provision for action by written consent shall not supersede any specific
provision for action by written consent contained in Title 8 of the Delaware
Code; and
10.1.3
In no
instance where action is authorized by written consent need a meeting of
Stockholders be called or noticed.
11.
TELEPHONE
MEETINGS.
At any meeting held pursuant to these Bylaws,
Stockholders may participate by means of a telephone conference or similar
method of communication by which all persons participating in the meeting can
hear each other. Participation in such a meeting constitutes presence
in person at the meeting.
ARTICLE
II – DIRECTORS
1.
POWERS.
Subject
to the limitations of the Certificate of Incorporation, of the Bylaws, and the
provisions of Title 8 of the Delaware Code as to action to be authorized or
approved by the Stockholders, and subject to the duties of Directors as
prescribed by the Bylaws, the business and affairs of the Corporation shall be
controlled by, the Board of Directors. Without prejudice to such
general powers, but subject to the same limitations, it is hereby expressly
declared that the Directors shall have the following powers.
First.
To select
and remove all Officers, Agents and employees of the Corporation, prescribe such
powers and duties for them as may not be inconsistent with law, with the
Certificate of Incorporation or the Bylaws, fix their compensation, and require
from them security of faithful service.
Second.
To conduct,
manage and control the affairs and business of the Corporation, and to make such
rules and regulations therefore not inconsistent with law, with the Certificate
of Incorporation or the Bylaws, as they may deem best.
Third.
To fix and
locate from time to time one or more offices of the Corporation within or
without the State of Delaware; to designate any place within or without the
State of Delaware for the holdings of any Stockholders’ meeting or meetings; and
to adopt, make and use a Corporate seal, and to prescribe the forms of
certificates of stock, and to alter the form of such seal and of such
certificates from time to time, as in their judgment they may deem best,
provided such seal and such certificates shall at all times comply with the
provisions of law.
Fourth.
To
authorize the issuance of shares of stock of the Corporation from time to time,
upon such terms as may be lawful, in consideration of money paid, labor done or
service actually rendered, debts or securities cancelled, or tangible or
intangible property actually received, or in the case of shares issued as a
dividend, against amounts transferred from surplus to stated
capital.
Fifth.
To borrow
money and incur indebtedness for the purpose of the Corporation, and to cause to
be executed and delivered therefore, in the Corporate name, promissory notes,
bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other
evidence of debt and securities therefore.
Sixth.
To appoint
an executive committee and other committees, and to delegate to the executive
committee any of the powers and authority of the Board in the management of the
business and affairs of the Corporation. The executive committee
shall be composed of one or more Directors.
2.
NUMBER
AND QUALIFICATION OF DIRECTORS.
The authorized number of
Directors of the Corporation shall be one (1) or more. The
number of Directors may be increased or decreased by a duly adopted resolution
of the Board of Directors.
3.
ELECTION
AND TERM OF OFFICE.
An least one-third of the Directors shall
be elected at each annual meeting of Stockholders, but if any such annual
meeting is not held, or the Directors are not selected at such meeting, the
Directors may be elected at any special meeting of Stockholders. All
Directors shall hold office until their respective successors are
elected.
4.
VACANCIES.
Vacancies
in the Board of Directors may be filled by a majority of the remaining
Directors, though less than a quorum, or by a sole remaining
Director. Directors so elected shall hold office until their
successors are elected at an annual or a special meeting of the
Stockholders.
A vacancy or vacancies in the Board of
Directors shall be deemed to exit in case of the death, resignation or removal
of any Director, or if the authorized number of Directors be increased, or if
the Stockholders, at any annual or special meeting of Stockholders at which any
Director or Directors are elected, fail to elect the full authorized number of
Directors to be voted for at that meeting, or if the original Incorporators
shall fail to designate the total authorized number of Directors for the initial
Board of Directors.
The Stockholders may elect a Director
or Directors at any time to fill any vacancy or vacancies not filled by the
Directors. If the Board of Directors accepts the resignation of a
Director tendered to take effect at future time, the Board of the Stockholders
shall have power to elect a successor to take office when the resignation is to
become effective.
5.
PLACE OF
MEETING.
Regular meetings of the Board of Directors shall be
held at any place within or without the State of Delaware which has been
designated from time to time by resolution of the Board or by written consent of
all members of the Board. Special meetings of the Board may be held
at a place so designated.
6.
ANNUAL
MEETING.
Immediately following each annual meeting of
Stockholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, election of Officers, and the transaction of other
business. Notice of such meetings is hereby dispensed
with.
7.
SPECIAL
MEETINGS.
Special meetings of the Board of Directors for any
purpose or purposes may be called at any time by the President, or, if absent or
unable or refuses to act, by any Vice President or by any two (2)
Directors.
Written notice of the time and place of
special meetings shall be delivered personally to the Directors or sent to each
Director by mail, facsimile machine (if the recipient has a facsimile machine
properly connected to a telephone line), a commercially reasonable overnight
express service, or other form of written communication, charges prepaid,
addressed to the address shown upon the records of the Corporation, or if it is
not so shown on such records or is not readily ascertainable, at the place in
which the meetings of the Directors are regularly held. In case the
notice is mailed, it shall be deposited in the United States mail at least three
days before the meeting. If the notice is sent by an overnight
express service, it must be sent at least one day before the
meeting. If the notice is personally delivered or sent by facsimile
machine, it shall be so delivered at least twenty-four (24) hours before the
meeting. Such mailing or delivery as above provided shall be due,
legal and personal notice to such Director. Notice of a meeting need
not be given to any Director who submits a Waiver of Notice, whether before or
after the meeting, or who attends the meeting without protesting prior thereto
or alt its commencement the lack of notice to said Director.
8.
NOTICE OF
ADJOURNMENT.
Notice of the time and place of holding an
adjourned meeting need not be given to absent Directors if the time and place
were fixed at the meeting adjourned.
9.
ENTRY OF
NOTICE.
Whenever any Director has been absent from any special
meeting of the Board of Directors, an entry in the minutes to the effect that
notice has been duly given shall be conclusive and incontrovertible evidence
that due notice of such special meeting was given to such Director, as required
by law and the Bylaws of the Corporation.
10.
WAIVER OF
NOTICE.
The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though a meeting had been duly held after regular call and notice, if a quorum
be present, and if, either before or after the meeting, each of the Directors
not present sign a written waiver of notice or a consent to holding such meeting
or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the Corporate records or made a part of the
minutes of the meeting.
11.
ACTION
WITHOUT A MEETING.
Any action required or permitted to be
taken at a meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if a written consent thereto is signed by all the
members of the Board of such committee. Such written consent shall be
filed with the minutes of the proceedings of the Board or
committee.
12.
QUORUM.
A
majority of the total number of Directors shall be necessary to constitute a
quorum for the transactions of business, except to adjourn as hereinafter
provided. Every act or decision made by a majority of the Directors
present at a meeting fully held at which a quorum is present shall be regarded
as the act of the Board of Directors, unless a greater number be required by law
or by the Certificate of Incorporation.
13.
ADJOURNMENT.
A
quorum of the Directors may adjourn any Directors’ meeting to meet again at a
stated day and hour. However, in the absence of a quorum, a majority
of the Directors present at any Directors’ meeting, either regular or special,
may adjourn from time to time until time fixed for the next regular meeting of
the Board.
14.
FEES AND
COMPENSATION.
Directors shall not receive any stated salary
for their services as Directors, but by resolution of the Board, a fixed fee,
with or without expenses of attendance, may be allowed for attendance at each
meeting. Nothing herein contained shall be construed to preclude any
Director from serving the Corporation in any other capacity as an Officer,
Agent, employee or otherwise, and receiving the compensation
therefrom.
15.
REMOVAL.
Any
Director may be removed from office without cause by the vote of Stockholders
holding a majority of the issued and outstanding stock at a meeting duly called
for that purpose at any time.
16.
TELEPHONIC
MEETINGS.
At any meeting held pursuant to these Bylaws,
Directors may participate by means of a telephone conference or similar method
of communication by which all persons participating in the meeting can hear each
other. Participating in such a meeting constitutes presence in person
at the meeting.
ARTICLE
III - OFFICERS
1.
OFFICERS.
The
Officers of the Corporation shall be a President, a Secretary and a
Treasurer. The Corporation may also have, at the discretion of the
Board of Directors, a Chairman of the Board of Directors, one or more Vice
Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers,
and such other Officers as may be appointed in accordance with the provisions of
Section 3 of this Article. Officers other than the Chairman of the
Board need not be Directors. One person may hold two or more
offices.
2.
ELECTION.
The
Officers of the Corporation, except such Officers as may be appointed in
accordance with the provisions of Section 3 or Section 5 of this Article, shall
be chosen annually by the Board of Directors and each shall hold office until
resigning or being removed or otherwise disqualified to serve until a successor
shall be elected and qualified.
3.
SUBORDINATE
OFFICERS, ETC.
The Board of Directors may appoint such other
Officers as the business of the Corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the Bylaws or as the Board of Directors may from time to time
determine.
4.
REMOVAL
AND RESIGNATION.
Any Officer may be removed, either with or
without cause, by a majority of the Directors at the time in office, at any
regular or special meeting of the Board.
Any Officer may resign at any time by
giving written notice to the Board of Directors or to the President, or to the
Secretary of the Corporation. Any such resignation shall take effect
at the date of the receipt of such notice or at any later time specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
5.
VACANCIES.
A
vacancy in any office because of death, resignation, removal, disqualification
or any other cause shall be filled in the manner prescribed in the Bylaws for
regular appointments to such office.
6.
CHAIRPERSON
OF THE BOARD.
The Chairperson
of the Board shall preside at all meetings of the Board of Directors and
exercise and perform such other powers and duties as may be from time to time
assigned by the Board of Directors or prescribed by the Bylaws.
7.
PRESIDENT.
Subject
to such supervisory powers, if any, as may be given by the Board of Directors to
the Chairman of the Board, the President shall be the Chief Executive Officer of
the Corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction and control of the business and Officers of
the Corporation. The President shall preside at all meetings of the
Stockholders, and in the absence of the Chairman of the Board, at all meetings
of the Board of Directors. The President shall have the general
powers and duties of management usually vested in the Office of President of a
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or by the Bylaws.
8.
VICE
PRESIDENTS.
In the absence or disability of the President, the
Vice President or Vice Presidents, if any, I order of their rank as fixed y the
Board of Directors, shall perform all the duties of the President, and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the President. The Vice Presidents shall have such other powers
and perform such other duties as may from time to time be prescribed for them
respectively by the Board of Directors or the Bylaws.
9.
SECRETARY.
The
Secretary shall keep, or cause to be kept, a book of minutes at the registered
office of all meetings of Directors and Stockholders, setting forth the time and
place of each meeting, whether the meeting is regular or special, and if
special, how authorized, the manner by which notice was given, the names of
those present, the number of shares present or represented at Stockholders’
meetings and the proceedings thereof.
The Secretary shall keep, or cause to
be kept, at the registered office in this state (as described in NRS 78.105), a
stock ledger or duplicate stock ledger showing the names of the Stockholders at
the number of shares held by each. The Secretary shall also keep at
said registered office certified copies of the Certificate of Incorporation and
the Bylaws, both with all amendments.
The Secretary shall give, or cause to
be given, notice of all meetings of the Stockholders and of the Board of
Directors required by the Bylaws or by law to be given, and shall keep the seal
of the Corporation in safe custody, and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or the
Bylaws.
10.
TREASURER.
The
Treasurer shall keep and maintain, or cause to be kept and maintained, adequate
and correct accounts of the properties and business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus and shares. The books
of account shall at all times be open to inspection by an Director.
The
Treasurer shall deposit all monies and other valuables in the name to the credit
of the Corporation with such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation
as may be ordered by the Board of Directors, shall render to the President and
Directors, whenever they request it, an account of all transactions of such an
office and of the financial conditions of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or the Bylaws.
ARTICLE
IV - STOCK
1.
CERTIFICATES
OF STOCK.
A certificate or certificates for shares of the
capital stock of the Corporation shall be issued to each Shareholder when any
such shares are fully paid up. All such certificates shall be signed
by the President or a Vice President and the Secretary or an Assistant
Secretary, or be authenticated by facsimiles of the signatures of the President
and the written signature of the Secretary or an Assistant
Secretary. Every certificate authenticated by a facsimile of a
signature must be countersigned by a transfer agent or transfer clerk and a
registrar.
Certificates for shares may be issued
before full payment under such restrictions and for such purposes as the Board
of Directors or the Bylaws may provide. However, any such certificate
so issued before full payment shall state the amount remaining unpaid and the
terms of payment thereof.
2.
SIGNATURES
OF STOCK.
Even though an Officer or a person whose signature
as, or on behalf of, the transfer agent or transfer clerk has been written,
printed or stamped on a certificate for stock ceases, by death, resignation or
otherwise, to be an Officer of the Corporation or to be a person authorized to
sign such certificate, the certificate shall be valid and shall be countersigned
by the signature of a transfer agent or transfer clerks.
3.
TRANSFER
ON THE BOOKS.
Upon surrender to the Secretary of the
Corporation or transfer agent of the Corporation of a certificate for stock duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Corporation must issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books.
4.
LOST,
STOLEN OR DESTROYED CERTIFICATES.
The Board of Directors may
direct, or may authorize the Secretary of the Corporation to direct, a new
certificate or certificates to be issued in place of any stock certificate or
certificates alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming that the certificate is lost,
stolen or destroyed. When authorizing an issue of a new certificate
or certificates, the Board of Directors or Secretary may in discretion, and as a
condition preceded to the issuance thereof, require the owner of the lost or
destroyed certificate or certificates, or legal representative, to advertise the
same in such manner as it shall require and/or give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate.
5.
TRANSFER
AGENTS AND REGISTRARS.
The
Board of Directors may appoint one or more transfer agents or transfer clerks,
and one or more registrars, who may be the same person, and may be the Secretary
of the Corporation, or an incorporated bank or trust company, either domestic or
foreign, who shall be appointed at such times and places as the requirements of
the Corporation may necessitate and the Board of Directors may
designate.
6.
RECORD
DATE AND CLOSING STOCK BOOKS.
The Board of Directors may fix a
time in the future, which shall not be more than sixty (60) nor less than ten
(10) days before the date of any meeting of Stockholders, and which shall not be
more than sixty (60) nor less than ten (10) days before the date fixed for the
payment of any dividend or distribution or for the allotment of rights, or when
any change or conversion or exchange of shares shall go into effect, as a record
date for the determination of the Stockholders entitled to notice of and vote at
any such meeting, or entitled to receive any such dividend distribution, or any
such allotment of rights, or to exercise the rights in respect to any such
change, conversion or exchange of shares. Only Stockholders of record
on the date so fixed shall be entitled to notice of and to vote at such
meetings, or to receive such dividend distribution, or allotment of rights, or
to exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after any record date. The
Board of Directors may close the books of the Corporation against transfers of
shares during the whole or any part of any such period.
7.
RECORD
OWNERSHIP.
The Corporation is entitled to recognize the
exclusive right of a person registered on the books of the Corporation as the
owner of shares of the Corporation’s stock, to receive dividends, and to vote as
the owner. The Corporation is not bound to recognize any equitable or
other claim to or interest in the shares on the part of any other person,
whether or not the Corporation has express or other notice thereof, except as
otherwise provided by law.
ARTICLE
V – ASSESSMENT OF SHARES
The stock of the Corporation, after the
amount of the subscription price has been paid, in money, property or services,
as the Directors shall determine, shall not be subject to any assessment to pay
the debts of the Corporation, not for any other purpose, and not stock issued as
fully paid shall ever be assessable or assessed, and the Bylaws shall not be
amended in this particular.
ARTICLE
VI – PREEMPTIVE RIGHTS
The Stockholders of the Corporation
shall not be entitled to preemptive or preferential rights, as such rights are
defined by law, other than to the extent, if any, the Board of Directors, in its
discretion may determine from time to time.
ARTICLE
VII – PERPETUAL EXISTENCE
This Corporation shall have perpetual
existence.
ARTICLE
VIII - MISCELLANEOUS
1.
INSPECTION
OF CORPORATE RECORDS.
Stockholders shall have the right to
inspect such Corporate records at such times and based upon such limitations of
such rights as may be set forth in Title 8, Section 220 of the Delaware Code
(1953) from time to time.
2.
CHECKS,
DRAFTS, ETC.
All checks, drafts or other orders for payment of
money, notes or other evidence of indebtedness, issued in the name of or payable
to the Corporation, shall be signed or endorsed by such person or persons in
such manner as, from time to time, shall be determined by resolution of the
Board of Directors.
3.
ANNUAL
REPORT.
The Board of Directors of the Corporation may cause an
annual report to be made available to the Stockholders not later than one
hundred twenty (120) days after the close of the fiscal or calendar
year.
4.
CONTRACTS
AND THEIR EXECUTION.
The Board of Directors, except as in the
Bylaws otherwise provided, may authorize an Officer or Officers, Agent or Agents
to enter into any contract, deed or lease or execute any instrument in the name
of and on behalf of the Corporation, and such authority may be general or
confined to specific instances. Unless so authorized by the
Board of Directors, no Officer, Agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit to render it liable for any purpose or to any amount.
5.
REPRESENTATION
OF SHARES OF OTHER CORPORATIONS.
The President or any Vice
President and the Secretary or Assistant Secretary of this Corporation are
authorized to vote, represent and exercise on behalf of this Corporation all
rights incident to any and all shares of any other corporation or corporations
standing I n the name of this Corporation. The authority herein
granted to said Officers to vote or represent on behalf of this Corporation any
and all shares held by this Corporation in any other corporation or corporations
may be exercised either by such Officers in person or by any person authorized
to do by proxy or power of attorney duly executed by said Officers.
6.
INSPECTION
OF BYLAWS.
The Corporation shall keep in its registered office
the original or a copy of the Bylaws as amended or otherwise altered to date,
certified by the Secretary, which shall be open to inspection by the
Stockholders at all reasonable times during office hours.
ARTICLE
IX - AMENDMENTS
1.
POWER OF
STOCKHOLDERS.
New Bylaws may be adopted or these Bylaws may be
amended or repealed by the vote of Stockholders entitled to exercise a majority
of the voting power of the Corporation or by the written assent of such
Stockholders.
2.
POWER OF
DIRECTORS.
Subject to the right of Stockholders as provided in
Section 1 of this Article VII to adopt, amend or repeal Bylaws, Bylaws may be
adopted, amended or repealed by the Board of Directors.
ARTICLE
X – CORPORATE SEAL
The seal
of the Corporation shall bear the name of the Corporation, the year of its
organization and the words “CORPORATE SEAL, DELAWARE” or “OFFICIAL CORPORATE
SEAL, DELAWARE”. The seal may be used by causing it to be impressed
directly on the instrument or writing to be sealed, or upon adhesive substance
affixed thereto. The seal on the certificates for shares or on any
Corporate obligation for the payment of money may be a facsimile or, in the
alternative, engraved or printed.
ARTICLE
XI - INDEMNIFICATION
1.
This
Corporation does hereby indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the Corporation, by reason of the fact
that the person is or was a Director, Officer, Agent or employee of this
Corporation, or is or was serving at the request of this Corporation as
director, officer, agent or employee of another corporation, against expenses,
including attorneys’ fees, judgment, fines and amounts paid in settlement
actually and reasonably incurred by said person in connection with the action,
suit or proceeding if the same acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of this Corporation, and,
with respect to a criminal action or proceeding, had no reasonable cause to
believe such conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendre or its equivalent, does not, of itself, create a presumption that
the person did not act in good faith and in a manner reasonably believed to be
in or not opposed to the best interest of this Corporation, and that, with
respect to any criminal action or proceeding, said person had reasonable cause
to believe that such conduct was unlawful.
2.
This
Corporation does hereby indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of this Corporation to procure a judgment in its favor
by reason of the fact that said person is or was a Director, Officer, Agent or
employee of this Corporation, or is or was serving at the request of this
Corporation as a director, officer, agent or employee of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including amounts paid in settlement and attorneys’ fees actually and reasonably
incurred by him in connection with the defense or settlement of the actions or
suit if acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of this Corporation. Indemnification
may not be made for any claim, issue or matter as to which such a person has be
adjudged by a court or competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable to this Corporation or for amounts paid in settlement to
this Corporation, unless and only to the extent that the court in which the
action or suit was brought or other court of competent jurisdiction determines
upon application that in view of all the circumstances of the case, the person
is fairly and reasonably entitled to indemnity for such expenses as the court
deems proper.
3.
To
the extent that a Director, Officer, Agent or employee of this Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in sections 1 and 2, or in defense of any claim, issue or
matter therein, said person must be indemnified by this Corporation against
expenses, including attorneys’ fees, actually and reasonably incurred by the
same in connection with the defense.
4.
Any
indemnification under sections 1 and 2, unless ordered by a court or advanced
pursuant to section 5 below, must be made by this Corporation only as authorized
in the specific case upon a determination that indemnification of the Director,
Officer, Agent or employee is proper in the circumstances. The
determination must be made:
4.1
By
the Stockholders;
4.2
By
the Board of Directors by majority vote of a quorum consisting of Directors who
were not parties to the act, suit or proceeding;
4.3
If
a quorum consisting of directors who were not parties to the act, suit or
proceeding cannot be obtained, by independent legal counsel in a written
opinion.
5.
The
expenses of Officers and Directors incurred in defending a civil or criminal
action, suit or proceeding shall be paid by this Corporation as they are
incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the Director or
Officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that said person is not entitled to be indemnified by
this Corporation. The provisions of this subsection do not affect any
rights to advancement of expenses to which Corporate personnel other than
Directors or Officers may be entitled under any contract or otherwise by
law.
6.
The
indemnification and advancement of expenses authorized in or ordered by a court
pursuant to this Article:
6.1
Does
not eliminate or limit the liability of a director;
6.1(a)
for
any breach of the directors duty of loyalty to the corporation or its
stockholders;
6.1(b)
for
acts or omissions not in good faith in which involve intentional misconduct or a
knowing violation of law;
6.1(c)
under
Title 8, section 174 of the Delaware Code;
6.1(d)
for
any transaction from which the director derived an improper personal benefit;
or
6.1(e)
for
any act or omission occurring prior to the date when these bylaws become
effective.
6.2
Does
not exclude any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation or
any Bylaw, agreement, vote of Stockholders or disinterred Directors or
otherwise, for either an action in official capacity or an action in another
capacity while holding office, except that indemnification, unless ordered by a
court pursuant to section 2 above or for the advancement of expenses made
pursuant to section 5 above, may not be made to or on behalf of any Director of
Officer if a final adjudication established that acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and was material
to the cause of action.
6.3
Continues
for a person who has ceased to be a Director, Officer, Agent or employee and
inures to the benefit of the heirs, executors and administrators of such a
person.
Exhibit
10.1
COMMERCIAL
LEASE
THIS
LEASE, dated for reference purposes only 1/13/10, is made by and between SC
Sunrise LLC (hereinafter “Landlord”) and Internet Media Services/Raymond John
Meyers (hereinafter “Tenant”).
1. Premises. Landlord
hereby leases to Tenant and Tenant hereby leases from Landlord that certain
premises commonly known as 1434 6th Street #9, Santa Monica, CA 90401 (the
“Premises”). This Lease is subject to the terms, covenants and
conditions herein set forth, each of which is a material part of the
consideration for this Lease. The breach of any term, covanent or
condition of this Lease shall be considered a material default.
2. Use. Tenant
shall use and occupy the Premises for General Office only, and shall not use,
occupy or permit the Premises to be used or occupied for any other purpose
without the prior written consent of Landlord.
3. Term. The
term of this Lease (“Lease Term”) shall be One Year commencing on February 1,
2010 (“Commencement Date”), and ending on January 31, 2011 (“Termination Date”),
unless sooner terminated pursuant to any provision
hereof. Notwithstanding said Commencement Date, if for any reason
Landlord cannot deliver possession of the Premises to Tenant on said
Commencement Date, Landlord shall not be subject to any liability therefore, nor
shall such failure affect the validity of this Lease or the obligations of
Tenant hereunder or extend the Lease Term, but in such case Tenant shall not be
obligated to pay rent or perform any other obligation of Tenant under the terms
of this Lease, except as may be otherwise provided in this Lease, until
possession of the Premises is tendered to Tenant; provided, however that if
Landlord is unable to deliver possession of the Premises within ninety (90) days
from said Commencement Date, either Landlord or Tenant, without any liability to
the other, may cancel this Lease on written notice thereof. On the
other hand, if Tenant occupies the Premises prior to said Commencement Date,
such occupancy shall be subject to all provisions of this Lease, such occupancy
shall not advance the Termination Date, and Tenant shall pay rent for such
period at the initial monthly rates set for below. Tenant’s taking
possession of the Premises shall constitute Tenant’s acknowledgement that the
Premises is in good and clean condition. Tenant acknowledges that
neither Landlord nor Landlord’s agent has made any representation or warranty as
to the present or future suitability of the Premises for the conduct of Tenant’s
business. Any delay in occupancy shall not extend the Termination
Date of this Lease.
4. Security
Deposit. Tenant shall deposit with Landlord upon execution thereof
$2,000.00 as security for Tenant’s faithful performance of the terms, covenants
and conditions of this Lease. Should Tenant faithfully perform all of
the items, covenants and conditions of this Lease, Landlord shall, within 21
days following the Termination Date, repay Tenant the amount of the Security
Deposit. If Tenant defaults with respect to any provision of this
Lease, including, but not limited to the provisions relating to the payment of
rent, Landlord may (but shall not be required to) use, apply or retain all or
any part of this Security Deposit for the payment of any rent or any other sum
in default, or for the payment of any amount which Landlord may spend
or become obligated to spend by reason of Tenant’s default, or to compensate
Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant’s default. If any portion of said deposit is so used or
applied, Tenant shall, within five (5) days after written demand therefore,
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount and Tenant’s failure to do so shall constitute a
default under this Lease. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such deposit. In the event Landlord transfers
his interest in the Premises to a subsequent landlord, Landlord shall transfer
said deposit to the subsequent landlord and Tenant shall look solely to the
subsequent landlord for repayment of this Security Deposit. No trust
relationship is created herein between Landlord and Tenant with respect to
Security Deposit.
5. Rent. Tenant
shall pay to Landlord rent for the premises monthly payments of $2,000.00 in
advance, on the first day of each month of the Lease Term. Rent for
any period during the Lease Term which is for less than one month shall be a pro
rata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to the Landlord at the address stated herein
or to such other persons or at such other places as Landlord may designate in
writing.
6. Yearly
rent increase during the lease and option period. (Section
Deleted)
7. Uses
Prohibited. Tenant shall not do or permit anything to be done in or
about the Premises nor bring or keep anything therein which will in any way
increase the existing rate of or affect any fire or other insurance upon the
property or any of its contents, or cause a cancellation of any insurance policy
covering said property or any part thereof, or any of its
contents. Tenant shall not do or permit anything to be done in or
about the Premises which will in any way obstruct or interfere with the rights
of other tenants or occupants of the property or injure or annoy them, or use or
allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose; nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or allow to be
committed any waste in or upon the Premises. Tenant agrees to keep
all rubbish and trash from accumulating in or upon the Premises and will keep
the area surrounding the property thereon free and clear at all
times.
8. Compliance
With Law. Tenant shall not use the Premises, or permit anything to be
done in or about the Premises, which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost
and expense, promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements of any board of fire
underwriters or other similar bodies now or hereafter constituted relating to or
affecting the condition, use or occupancy of the Premises, excluding structural
changes not related or affected by Tenant’s improvements or acts. The
judgment of any court of competent jurisdiction or the admission of Tenant in
any action against Tenant, whether Landlord be a party thereto or not, that
Tenant has violated any law, statute, ordinance or governmental rule, regulation
or requirement shall be conclusive of that fact as between the Landlord and
Tenant.
9. Alterations
and Additions. Tenant shall not make or allow to be made any
alterations, additions or improvements to or of the Premises, or any part
thereof, without first obtaining the written consent of Landlord. If
Landlord shall give its consent, the consent shall be deemed conditioned upon
Tenant’s acquiring a permit to do so from any and all appropriate governmental
agencies. Any alterations, additions or improvements to or of said
Premises, including, but not limited to, wall covering, paneling and built-in
cabinet work, but excepting movable furniture and trade fixtures, shall at once
become a part of the realty and belong to the Landlord, and upon termination
this Lease shall be surrendered with the Premises without compensation to
Tenant. In the event Landlord consents to the making of any
alterations, additions or improvements to the Premises by Tenant, the same shall
be made by Tenant at Tenant’s sole cost and expense. Upon the
expiration or sooner termination of the Lease Term, Tenant shall, upon written
demand by Landlord given at least thirty (30) days prior to such termination, at
Tenant’s sole cost and expense, forthwith and with all due diligence, remove any
alterations, additions improvements made by Tenant designated by Landlord to be
removed, and Tenant shall forthwith and with all due diligence, at its sole cost
and expenses, repair any damage to the Premises caused by such
removal.
10. Liens. Tenant
shall keep the Premises and the property in which the Premises are situated free
from any liens arising out of any work performed, materials furnished or
obligations incurred by or on behalf of Tenant. Landlord may require,
at Landlord’s sole option, that Tenant shall provide to Landlord, at Tenant’s
ole cost and expense, al lien and completion bond in an amount equal to
one-and-one half (1-1/2) times the estimated cost of any improvements, additions
or alterations in the Premises which the Tenant desires to make to insure
Landlord against any liability for mechanic’s and materialmen’s liens and to
ensure completion of work.
11. Repairs.
(a) Tenant
acknowledges that immediately prior to execution of this Lease, Tenant has
inspected the Premises and every part thereof, and is accepting said Premises in
an “As Is” condition. Tenant shall, at all times and at Tenant’s sole
cost and expense, keep the Premises and every part thereof in good condition and
repair, including, without limitation, the maintenance, replacement and repair
of any storefront doors, windows, ceiling, glazing, plumbing, pipes, electrical
writing and conduits, or heating and air conditioning (if
any). Tenant shall, upon the expiration or sooner termination of the
Lease Term, surrender the Premises to Landlord in good condition, broom clean,
ordinary wear and tear excepted. Any damage to the adjacent premises
caused by Tenant’s use of the Premises shall be repaired at the sole cost and
expense of Tenant. If Tenant fails to perform Tenant’s obligations
under this paragraph, Landlord may enter upon the Premises after prior written
notice to Tenant (except in the case of emergency, in which case no notice shall
be required) and perform such obligations on Tenant’s behalf and put the
Premises in good order, condition and repair, and the cost thereof,
together with interest thereon at the maximum rate then allowed by law, shall be
due and payable as additional rent to Landlord, together with Tenant’s next
rental installment.
(b) Notwithstanding
the provisions of paragraph 11(a) above, Landlord shall repair and maintain the
exterior walls and roof, Tenant shall immediately notify Landlord in writing of
the need of any repairs or maintenance of said exterior walls or roof, and
Landlord shall use his best efforts to perform the necessary corrections or
repairs within a reasonable time after receipt of the foregoing notice from
Tenant. Landlord shall not be liable for the cost, however, in the
event such maintenance or repairs are caused in part or in whole be the act,
neglect, fault or omission of any duty of Tenant, its agents, servants,
employees or invitees, or any damage caused by breaking and entering, in which
case Tenant shall pay to Landlord the actual cost of such maintenance and
repairs. In any event, there shall be no abatement of rent and no
liability of Landlord for damages or loss of any kind or nature when such damage
or loss is caused by accident, breakage, repairs, strikes, lockout or other
labor disturbances, or any other cause beyond the reasonable control of
Landlord. Tenant waives the right to make repairs at Landlord’s
expense under any law, statute or ordinance now or hereafter in
effect.
12. Assignment. Tenant
shall not either voluntarily, or by operation of law, assign, transfer, pledge,
hypothecate or encumber this Lease or any interest therein, and shall not sublet
the said Premises or any part thereof, or any right or privilege appurtenant
thereto, or allow any other person (the employees, agents, servants and invitees
of Tenant excepted) to occupy or use the Premises, or any portion thereof
without Landlord’s prior written consent. Landlord will not
unreasonably withhold such consent; among other things, Landlord must be
satisfied that the financial position of any proposed assignee is equal to or
greater than that of Tenant and that proposed assignee’s use of the Premises
would not be in conflict with any of the other tenants on the Premises or in the
surrounding area and would not cause an increase in insurance
premiums. Any attempted assignment, subletting or occupancy without
Landlord’s prior written consent shall void and shall, at the option of
Landlord, constitute a default under the terms of this Lease. Regardless of
Landlord’s consent, no such assignment shall release Tenant or Tenant’s
obligations hereunder or alter the primary liability of Tenant to pay rent and
perform all other obligations to be performed by Tenant
hereunder. Consent to one assignment shall not be deemed consent to
any subsequent assignment. In the event of default by any assignee in
the performance of any of the terms hereof, Landlord may proceed directly
against Tenant without exhausting remedies against said
assignee. Landlord may consent to subsequent assignments, amendment
or modifications to this Lease with assignees without notifying Tenant or any
prior successor of Tenant, and without obtaining its or their consent thereto,
and such action shall not relieve Tenant of liability under this
Lease.
Tenant
aggress to reimburse Landlord for Landlord’s reasonable costs, including
attorneys’ fees, incurred in conjunction with the processing and documentation
of any such requested transfer, assignment, subletting, mortgage, pledge,
hypothecation or encumbrance of the Lease. Each such transfer,
assignment, subletting, mortgage, pledge, hypothecation or encumbrance to which
there has been consent shall be by an instrument in form satisfactory to
Landlord and shall be executed by the transferor, assignor, sublessor,
mortgagor, pledgor, hypothecator or encumbrancer and the transferee assignee,
sublessee, mortgagee, pledgee, hypothecate or beneficiary in each instance, as
the case may be; and each transferee, assignee or sublessee shall agree in
writing for the benefit or Landlord to assume, to be bound by and to perform the
terms, covenants and conditions of this Lease to be done, kept and performed by
tenant. One executed copy of such instrument shall be delivered to
Landlord.
13. Collection
of Rent From Any Occupant. If the Premises is sublet or occupied by
anyone other than Tenant and Tenant is in default hereunder, of if this Lease is
assigned by Tenant, Landlord may collect the rent from the assignee, subtenant
or occupant, and apply the net amount collected to the rent herein
reserved. No such collection shall be deemed a waiver of the covenant
herein against assignment and subletting, or the acceptance of such assignee,
subtenant or occupant as Tenant, or a release of Tenant from further performance
of the covenants herein contained.
14. Hold
Harmless. Tenant shall indemnify and hold Landlord harmless against
any from any and all claims arising from Tenant’s use of the Premises or from
the conduct of its business, or from any activity, work, or other things done,
permitted or suffered by the Tenant in or about the Premises, and shall further
indemnify and hold Landlord harmless against and from any and all claims arising
from any breach or default in the performance of any obligation on Tenant’s part
to be performed under the terms of this Lease, or arising from any act or
omission of the Tenant, or any officer, agent, employee, guest or invitee of
Tenant, and from all costs, attorneys’ fees and liabilities incurred in or about
the defense of any such claim, or any action or proceeding brought thereon; and
in case any action or proceeding be brought against Landlord by reason of such
claim, Tenant upon notice from Landlord shall defend the same at Tenant’s
expense by counsel designated by Landlord. Tenant, as a material part
of the consideration to Landlord, hereby assumes all risk or damage to property
or injury to persons in, upon or about the Premises from any cause other than
Landlord’s negligence or gross or intentional misconduct; and Tenant hereby
waives all claims in respect thereof against Landlord. Tenant shall
give prompt notice to Landlord in case of casualty or accidents on the
Premises.
Landlord
or its agents shall not be liable for any loss or damage to persons or property,
or Tenant’s business, resulting from fire, explosion, falling plaster, steam,
gas, electricity, water or rain which may leak from any part of the property or
from the pipes, appliances or plumbing works thereon, or from the roof, street
or subsurface, or from any other place resulting from dampness or any other
cause whatsoever, unless caused by or due to the negligence of Landlord, its
agents, servants or employees. Landlord or its agents shall not be
liable for interference with the light or air, for any latent defect in the
Premises for any damages arising from any act or neglect of any other tenant,
occupant or user, nor for any damages arising from the failure of Landlord to
enforce the provisions or any other lease agreement.
15.
Subrogation. As long as their respective insurers so permit, Landlord
and Tenant hereby mutually waive their respective rights of recovery against
each other for any loss insured by fire, extended coverage and other property
insurance policies existing for the benefit of the respective
parties. Each party shall apply to their insurers to obtain said
waivers. Each party shall obtain any special endorsements, if
required by their insurer, to evidence compliance with the aforementioned
waiver.
16. Insurance. Tenant
shall, at Tenant’s expense, obtain and keep in force during the Lease Term the
following insurance policies/coverage:
(a) Liability
Insurance: A policy of comprehensive public liability insurance
insuring Landlord and Tenant against any liability arising out of the ownership,
use, occupancy or maintenance of the Premises, and all areas appurtenant
thereto. Such insurance shall be Combined Single Limited of not less than
$1,000,000.00 per occurrence, bodily injury and property damage. The
limit of any such insurance shall not, however, limit the liability of the
Tenant hereunder. If Tenant shall fail to procure a maintain said
insurance, Landlord may, but shall not be required to, procure and maintain
same, but at the expense of Tenant. Insurance required hereunder
shall be in companies rated “AA” or better in Bests’ Key Rating
Guide. Tenant shall deliver to Landlord, prior to right of entry,
copies of policies of liability insurance required herein or certificates of
endorsements evidencing the existence and amounts of such insurance, naming
Landlord as additional insured. No policy shall be cancellable or
subject or reduction of coverage without prior written notice of
Landlord. All such policies shall be written as primary policies not
contributing with and not in excess of coverage which Landlord may
carry.
(b)
Additional Insurance: Tenant agrees to procure and maintain, at his
own expense, insurance to cover any loss or damage to Tenant’s personal
properties at the Premises and to any improvements by Tenant to the Premises
resulting form vandalism, theft, flood, fire, earthquake or water incidents of
any kind. Furthermore, Tenant shall keep in force at all times glass
insurance for all plate glass located on the Premises. A copy of said
policies, certificates and endorsements shall be delivered to Landlord prior to
Tenant’s taking possession.
17. Utilities. Tenant
shall pay for all water, gas, heat, light, power, sewage and telephone services,
and all other services and utilities supplied to the Premises, together with any
taxes thereon. If any such services are not separately metered to
Tenant, Tenant shall pay a reasonable proportion to be determined by Landlord of
said charges jointly metered with other premises. Landlord shall not
be liable for any reason for any loss or damage resulting from an interruption
of any of the above service or utilities. Landlord pays for water,
sewage and garbage only.
18. Personal
Property Taxes. Tenant shall pay, or cause to be paid, before
delinquency any and all taxes levied or assessed, and which become payable
during the Lease Term upon all Tenant’s leasehold improvements, equipment,
furniture, fixtures and any other personal property located in the Premises .
When possible, Tenant shall cause said trade fixtures, furnishings, equipment,
and all other personal property to be assessed and billed separately from the
real property.
19. Rules
and Regulations. Tenant shall faithfully observe and comply with the
rules and regulations that Landlord may from time to time promulgate and/or
modify. The rules and regulations shall be binding from the Tenant
upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance of any said rules and regulations
by any other tenants or occupants.
20. Holding
Over. If Tenant remains in possession of the Premises, or any other
part thereof, after the expiration of the Lease Term, with the express written
consent of Landlord, such occupancy shall be a tenancy from month-to-month at a
rental rate as notified by Landlord in writing. Each party shall give
the other notice of its intention to terminate such tenancy at least thirty (30)
days prior to the date of termination of such monthly tenancy.
21. Entry
by Landlord. Tenant shall permit Landlord and his agents to enter
into and upon the Premises at all reasonable times for the purpose of inspecting
the same, and for the purpose of making repairs, alterations or additions to any
portion of the Premises (including the erection and maintenance of such
scaffolding, canopies, fences and props as may be required), and for the purpose
of posting Notices of Non-Responsibility for alterations, additions or repairs,
and for the purpose of placing upon or within the property within which the
Premises are located any usual or ordinary “For Sale” signs, and for the purpose
of showing the Premises to prospective purchasers, and for any purpose
whatsoever related to the safety, protection, preservation or improvement of the
Premises or Landlord’s interest therein, Landlord may do any or all of said acts
without any rebate of rent and without any liability to Tenant for any loss of
occupancy or quite enjoyment of the Premises. Tenant shall permit
Landlord and his agents at any time within ninety (90) days prior to expiration
of the Lease Term, to show the Premises to prospective Tenants and to place upon
or within the Premises any usual or ordinary “For Lease” and/or “For Rent”
signs.
22. Tenant’s
Default. The occurrence of any one or more of following events shall
constitute a default and breach of this Lease by Tenant:
(a) The
vacating or abandonment of the Premises by Tenant.
(b) The
failure by Tenant to make any payment of rent or any other payment required to
be made by Tenant hereunder as and when due, where such failure shall continue
for a period of three (3) days after written notice thereof from Landlord to
Tenant.
(c) The
failure by Tenant to observe, keep or perform any of the covenants, conditions
or provisions of this Lease to be observed or performed by the Tenant, other
than described in paragraph 22(b) above, where such failure shall continue for a
period of fifteen (15) days after written notice thereof by Landlord to Tenant;
provided, however, that if the nature of Tenant’s default is such that more than
fifteen (15) days are reasonable required for its cure, then Tenant shall not be
deemed to be in default if Tenant commences such cure within said fifteen (15)
day period and thereafter diligently prosecutes such cure to
completion.
(d)
The making by Tenant or any general assignment or general arrangement for the
benefit of creditors; or the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt, or a petition for reorganization or other
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days, or
the appointment of a trustee or a receiver to take possession of substantially
all of Tenant’s assets located at the Premises or of Tenant’s interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant’s assets located the Premises or of Tenant’s interest in this Lease,
where such seizure is not discharged within thirty (30) days; or the inability
or admission in writing by Tenant of its inability to pay its debts as such
debts come due.
(e) The
discovery by Landlord that any financial information given to Landlord by
Tenant, any assignee of Tenant, any subtenant of Tenant, any successor in
interest of Tenant or any guarantor of Tenant’s obligations hereunder was
falsely provided.
23. Remedies
in Default. In the event of any such default or breach by Tenant,
Landlord may at any time thereafter, in his sole discretion with or without
notice or demand and without limiting Landlord in the exercise of a right or
remedy which Landlord may have by reason of such default or breach:
(a) Terminate
Tenant’s right to possession of the Premises by any lawful means, in which case
this Lease shall terminate and Tenant shall immediately surrender possession o f
the Premises to Landlord. In such event Landlord shall be entitled to
recover from Tenant all damages incurred by Landlord by reason of Tenant’s
default, including, but not limited to, the cost of recovering possession of the
Premises; expenses of reletting, including necessary renovation and alteration
of the Premises; reasonable attorneys’ fees; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent and
other charges and adjustments called for herein for the balance of the Lease
Term after the time of such award exceeds the amount of such loss for the same
period that Tenant proves could be reasonably avoided; and that portion of any
leasing commission paid by Landlord and applicable to the unexpired Lease
Term. Unpaid installments of rent or other sums shall bear interest
form the date due at the maximum legal rate.
(b) Maintain
Tenant’s right to possession, in which case this Lease shall continue in effect
whether or not Tenant shall have abandoned the Premises. In such
event, Landlord shall be entitled to enforce all of Landlord’s rights and
remedies under this Lease, including the right to recover the rent, and any
other charges and adjustments as may become due hereunder.
(c) Pursue
any other remedy now or hereafter available to Landlord under the laws or
judicial decisions of the State in which Premises are located.
24. Default
by Landlord. Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event later than thirty (30) days after written notice by Tenant to Landlord
specifying wherein Landlord has failed to perform such obligation; provided,
however, that if the nature of Landlord’s obligation is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
25. Reconstruction
of Premises. If the Premises or the property wherein the same are
situated is substantially damaged by any cause insured against by Landlord, then
Landlord shall within a reasonable time from the date of such damage commence to
repair the Premises and complete the work of repair within a reasonable time
thereafter, except that if the work of repair would reasonable cost more than
fifty percent (50%) of the value of the structure prior to the damage, or the
work of repair would require more than sixty (60) days from the date of the
damage to complete the work of repair, or the damage occurs within the last
twenty-four (24) months of the Lease Term, Landlord may, upon written notice to
Tenant given within thirty (30) after the date of damage, terminate this
Lease. In the even of termination by Landlord as herein
provided, the Termination Date shall be the date upon which the damage occurred
to the Premises became untenable. If the Premises or the property
wherein the same are situated shall be damaged or destroyed by any cause other
than a cause insured against, then Landlord shall have the right, by written
notice to Tenant within thirty (30) days after such damage or destruction, to
terminate this Lease effective as of the date of such damage or
destruction. In the event Landlord repairs or restores the Premises
pursuant to the provisions of this paragraph 25, the rent payable hereunder for
the period during which damage, repair or restoration continues shall be abated
in proportion to the degree to which Tenant’s use of the Premises is
impaired. Except for any abatement of rent, Tenant shall have no
claim against Landlord for any damage suffered by reason of any such damage,
destruction, repair or restoration.
26. Condemnation
Clause. If any part of the Premises shall be taken or condemned for a
public or quasi-public use, or sold under threat of the exercise of said power,
and a part thereof remains which is susceptible of occupation hereunder, this
Lease shall, as to the part taken, terminate as of the date title shall vest in
the condemner and the rent payable hereunder shall be adjusted so that the
Tenant shall be required to pay, for the remainder of the Lease Term, only that
portion of such rent as the area of the part remaining after the condemnation
bears to the area of the entire Premises at the date of condemnation; but in
such event, Landlord shall have the option to terminate this Lease as of the
date when title to the part so condemned vests to the condemner. If
all of the demised Premises, or such part thereof, be taken or condemned so that
there does not remain a portion susceptible for occupation hereunder, this Lease
shall thereupon terminate. If a part or all of the demised Premises
be taken or condemned, all compensation award upon such condemnation or taking
shall go to the Landlord and the Tenant shall have not claim thereto, and the
Tenant hereby irrevocably assigns and transfers to the Landlord any right to
compensation or damages to which the Tenant may become entitled during the term
hereof by reason of the condemnation of all, or a part of, the demised
Premises.
27. Parking. Tenant
shall be entitled to two (2) vehicle parking spaces. Parking spaces
shall be assigned from time to time by Landlord. Tenant shall not
permit or allow any vehicles that belong to or controlled by Tenant, or Tenant’s
employees, suppliers, shippers, servants or agents, to be loaded, unloaded or
parked in areas other than those designated by Landlord. The parking
spaces may be re-assigned by the Landlord/Agent at any time, at the discretion
of the Landlord/Agent.
28. Signs. Tenant
shall not place any signs on or about the Premises without the written consent
of Landlord. Landlord shall not unreasonably withhold such written
consent, but any sign placed by Tenant must conform to the general architecture
plan of the whole or the property of the Landlord. Any sign so placed
on or about the Premises herein leased with the written of Landlord shall be at
the sole expense of Tenant. Furthermore, all such signs shall comply
with the rules, regulations and ordinances in force in the City of Santa
Monica.
29. Late
Charges. (Section Deleted)
30. Brokers. There
was no real estate broker or finder involved in this Lease, and not broker’s or
finder’s commission relates to this Agreement. If there was any
broker acting on behalf of Tenant, Tenant shall request in writing that Landlord
approve in writing the terms of any commission or fee. Tenant shall
indemnify Landlord against and from any and all claims for finder’s or broker’s
fees or commissions arising as a result of the efforts of a broker or agent
acting on Tenant’s behalf with respect to Premises. Said
indemnification shall include, without limitation, all costs, attorneys’ fees
and liabilities incurred in or about the defense of any such claim or action or
preceding brought thereon, and in case any action or proceeding be brought
against Landlord by reason of such claim, Tenant upon notice from Landlord shall
defend the same at Tenant’s expense by counsel designated by
Landlord.
31. Estoppel
Certificate.
(a) Tenant
shall at any time upon not less than ten (10) days’ prior written notice from
Landlord execute, acknowledge and deliver to Landlord a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that the Lease,
as so modified, is in full force and effect) and the date to which the rent and
other changes are paid in advance if any, and (ii) acknowledging that there are
not, to Tenant’s knowledge, any incurred defaults on the part of Landlord, or
specifying such defaults if any are claimed. Any such statement may
be conclusively relied upon by any prospective purchaser or encumbracer of the
Premises or of the business of Landlord.
(b) At
Landlord’s option, the failure to deliver such statement within such time shall
be a material default of this Lease by Tenant, without any further notice, or it
shall be conclusive upon Tenant that (i) this Lease is in full force and effect
without modification, except as may be represented by Landlord, (ii) there are
no uncured defaults in Landlord’s performance, and (iii) not more than month’s
rent has been paid in advance.
(c) If
Landlord desires to finance, refinance or sell the Premises, or any part
thereof, Tenant hereby agrees to deliver to any lender or purchaser designated
by Landlord such financial statements of Tenant as may be reasonably required by
such lender or purchaser. Such statements shall include the past
three (3) years’ financials statements of Tenant. All such financial
statements shall be received by Landlord and such lender or purchaser in
confidence, and shall be used only for the purposes herein set
forth.
32. Landlord’s
Liability. The term “Landlord” as used herein shall mean only the
owner or owners, at the time in question, of the fee title in the Premises, and
in the event of any transfer of such title or interest, Landlord herein named
(and in case of any subsequent transfers, then the grantor) shall be relived
from and after the date of such transfer of all liability as respects Landlord’s
obligations thereafter to be performed, provided that any funs in the hands of
Landlord or then grantor at the time of such transfer in which Tenant has an
interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Landlord shall, subject as aforesaid,
be binding on Landlord’s successors and assigns, only during their respective
periods of ownership.
33. Severability. The
invalidity of any provision of this Lease as determined by a court of competent
jurisdiction shall in no way affect the validity of any other provision
hereof.
34. Time
of Essence. Time is of essence with respect to the obligations to be
performed under this Lease.
35. Incorporation
of Prior Agreement; Amendments. This Lease contains all agreements of
the parties with respect to any matter mentioned herein. No prior or
contemporaneous agreement or understanding pertaining to any such matter shall
be effective. This Lease may be modified in writing only, signed by
the parties in interest at the time of the modification. Except as
otherwise stated in this Lease, Tenant hereby acknowledges that neither the
Landlord, nor any employee or agent of Landlord, has made any oral or written
warranties or representations to Tenant relative to the condition or use by
Tenant of the Premises, and Tenant acknowledges that the Tenant assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with applicable laws and
regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
36. Notices. Any
notice required or permitted to be given hereunder shall be in writing and may
be given by personal delivery or by certified mail, and if given personally or
by mail, shall be deemed sufficiently given if addressed to Tenant or to
Landlord at the address noted below the signature of the respective parties, as
the case may be. Either party may by notice to the other specify a
different address for notice purposes, except that upon Tenant’s taking
possession of the Premises, the Premises shall constitute Tenant’s address for
notice purposes. A copy of all notices required or permitted to be
given to Landlord hereunder shall be concurrently transmitted to such party or
parties at such addresses as Landlord may from time to time hereafter designate
by notice to Tenant.
37. Waiver. The
waiver by Landlord or any term, covenant or condition herein contained shall not
be deemed to be a waiver of such term, covenant or condition, or any subsequent
breach of the same or any other term, covenant or condition herein
contained. The subsequent acceptance of rent hereunder by Landlord
shall not be deemed to be a waiver of any preceding default by Tenant of any
term, covenant or condition of this Lease, other than the failure of Landlord’s
knowledge of such preceding default at the time of the acceptance of such
rent.
38. Cumulative
Remedies. No remedy or election hereunder shall be deemed exclusive,
but shall, wherever possible, be cumulative with all other remedies at law or in
equity.
39. Blinding
Effect; Choice of Law. Subject to any provision hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
32, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of
the State where the Premises are located, and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Premises is located.
40. Subordination.
(a)
This Lease, and any Option granted hereby, at Landlord’s option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Premises and to any
and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Tenant’s right to quiet
possession of the Premises shall not be disturbed if Tenant is not in default
and so long as Tenant shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. If any mortgage, trustee, or ground lessor shall elect to
have this Lease and any Options granted hereby prior to the lien of its
mortgage, deed of trust or ground lease, and shall give written notice thereof
to Tenant, this Lease and such Options shall be deemed prior to such mortgage,
deed of trust or ground lease, whether this Lease or such Options are dated
prior or subsequent to the date of said mortgage, deed of trust or ground lease
or the date of recording thereof.
(b) Tenant
agrees to execute any documents required to effectuate an attornment or
subordination or to make this Lease or any Option granted herein prior to the
lien of any mortgage, deed of trust or ground lease, as the case may
be. Tenant’s failure to execute such documents within ten (10) days
after written demand shall constitute a material default by Tenant hereunder
without further notice to Tenant or, at Landlord’s option, Tenant shall execute
such documents on behalf of Tenant as Tenant’s
attorney-in-fact. Tenant does hereby make, constitute and irrevocably
appoint Landlord as Tenant’s attorney-in-fact and in Tenant’s name, place and
stead, to execute such documents in accordance with this paragraph.
41. Attorneys’
Fees. If either party brings an action to enforce the terms hereof or
declare rights hereunder, the prevailing party in any such action, or trial or
appeal, shall be entitled to his reasonable attorneys’ fees to be paid by the
losing party as fixed by the court.
42. Merger. The
voluntary or other surrender of this Lease by Tenant, or a mutual cancellation
thereof, or a termination by Landlord, shall not work a merger, and shall, at
the option of the Landlord, terminate all or any existing subtenancies or may,
at the option of Landlord, operate as an assignment to Landlord of any or all
such subtenancies..
43. Quite
Possession. Upon Tenant paying the rent for the premises and
observing and performing all of the covenants, conditions and provisions of
Tenant’s part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
44. Authority. If
Tenant is a corporation, trust, or general or limited partnership, each
individual executing this Lease on behalf of such entity represents and warrants
that he or she is duly authorized to execute and deliver this Lease on behalf of
said entity. If Tenant is a corporation, trust or partnership, Tenant
shall, prior to execution of this Lease, deliver to Landlord evidence of such
authority satisfactory to Landlord.
45. Offer. Preparation
of this Lease by Landlord or Landlord’s agent and submission of same to Lessee
shall not be deemed an offer to lease. This Lease shall become
binding upon Landlord and Tenant only when fully executed by Landlord and
Tenant.
46. Joint
Obligation. If there be more than one Tenant the obligations
hereunder imposed shall be joint and several.
47. Headings. The
headings and titles to the paragraphs of this Lease are not a part of the Lease
and shall have no effect upon the construction or interpretation of any part
thereof.
48. Option.
(a) During
the option period, if the lessee fails to inform the Lessor with two months
notice of vacating the Premises in advance, it is assumed that the Lessee has
taken the option and the rent will increase automatically to the amount stated
in the Lease. This option shall be subject to the same terms,
warrants, and conditions herein contained.
(b) In
the event that Tenant does not extend the term of this Lease as herein provided
and holds over beyond the expiration of the term hereof, such holding over shall
be governed by paragraph 20 of this Lease.
49. Tenant
Improvement Charge. As additional consideration for the covenants of
Landlord hereunder, Tenant shall pay to Landlord, prior to taking possession of
the Premises, the Tenant Improvement Charge equal to the sum of
$______________.00.
50. Real
Property Taxes. (Section Deleted)
LANDLORD
AND TENANT HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
1. There
is no hot water.
2. There
is no janitorial service.
3. Tenant
is required to furnish Landlord with certificate of insurance as required in
Paragraph 16.
4. Lessor
is not responsible for water damage from any source.
5. The
premise is accepted in “As Is” condition.
6. Late
Payment Charge. Your rent is due on the 1st of each month, there is a
$100 late fee for each month’s rent that is not received in full by the 1st of
that month.
7. $20.00
will be charged for each returned check and the landlord may request that the
future payment be made by Cashier’s Check or money order.
8. During
the lease and option period, the annual rent increase will be
_____%.
9. Clauses
#6, #29, & #50 of this lease are deleted.
|
Prorated
rent 02/01/10 to 02/28/10
|
|
$
|
2,000.00
|
|
|
Security
Deposit
|
|
$
|
2,000.00
|
|
|
Last
month rent
|
|
|
|
|
|
Remote
Control Deposit (Number 2)
|
|
Waived
|
|
|
Credit
Check $25.00
|
|
(paid)
|
|
|
Others:
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,000.00
|
|
Lessor
/s/ Scott
Shu
1/15/10
Tenant
/s/
Raymond Meyers
1/15/10
Exhibit
10.2
DRAFT
10/7/09
ASSET
PURCHASE AGREEMENT
by
and between
INTERNET
MEDIA SERVICES, INC.,
as
Buyer,
and
LESTER
LEVIN INC.,
as
Seller
Dated
October 8, 2009
|
ARTICLE
II.
|
PURCHASE
AND SALE
|
4
|
|
|
2.3
|
Assumed
Liabilities
|
5
|
|
ARTICLE
III.
|
CONSIDERATION
|
7
|
|
|
3.2
|
Legend
on IMS Common Certificate
|
7
|
|
|
3.3
|
Allocation
of Purchase Price
|
7
|
|
ARTICLE
IV.
|
REPRESENTATIONS
AND WARRANTIES OF SELLER
|
7
|
|
|
4.1
|
Organization,
Qualification and Authority
|
8
|
|
|
4.7
|
Intellectual
Property
|
9
|
|
|
4.10
|
Tax
Returns; Taxes
|
11
|
|
|
4.11
|
Affiliate
Interests
|
12
|
|
ARTICLE
V.
|
REPRESENTATIONS
AND WARRANTIES OF BUYER
|
12
|
|
|
5.1
|
Organization,
Qualification and Authority
|
12
|
|
|
5.3
|
Broker’s
or Finder’s Fee
|
13
|
|
|
5.7
|
Contracts
and other Commitments
|
14
|
|
|
5.8
|
Registration
Rights
|
14
|
|
|
5.10
|
Absence
of Borrowed Indebtedness and Assets; Unclosed
Liabilities
|
14
|
|
|
5.11
|
Material
Liabilities
|
14
|
|
|
5.12
|
Environmental
Laws
|
14
|
|
|
5.13
|
Tax
Returns; Taxes
|
15
|
|
ARTICLE
VI.
|
CERTAIN
COVENANTS
|
15
|
|
|
6.1
|
Further
Assurances
|
15
|
|
|
6.2
|
Board
of Directors
|
15
|
|
|
6.4
|
Registration
of Shares
|
16
|
|
|
6.5
|
Certain
Employee Matters
|
16
|
|
|
6.6
|
Extension
of Health and Dental Insurance
|
16
|
|
|
6.7
|
Non-Competition,
Non-Disclosure, Non-Solictation
|
16
|
|
|
6.8
|
Corporate
Existence
|
18
|
|
|
6.9
|
Certain
Negative Covenants; Misc.
|
18
|
|
ARTICLE
VII.
|
INDEMNIFICATION
|
19
|
|
|
7.2
|
Indemnification
Procedures – Third Party Claims
|
20
|
|
|
7.3
|
Indemnification
Procedures – Other Claims, Indemnification
Generally21
|
|
ARTICLE
VIII.
|
MISCELLANEOUS
|
22
|
|
|
8.4
|
Non-Assignable
Assets
|
23
|
|
|
8.5
|
Waivers
and Amendments
|
23
|
|
|
8.8
|
Governing
Law; Severability
|
23
|
|
|
8.10
|
Negotiated
Agreement
|
24
|
|
|
8.12
|
Third
Party Beneficiary
|
24
|
|
EXHIBITS
|
|
|
|
|
|
Exhibit A
|
Copyrights
and Trademarks
|
|
Exhibit
B
|
Form
of Assignment of Domain Name
|
|
Exhibit
C
|
Form
Bill of Sale
|
|
Exhibit
D
|
Form
Registration Rights Agreement
|
|
Exhibit
E
|
Form
Voting Agreement
|
|
Exhibit
F
|
Form
Stock Pledge and Escrow Agreement
|
|
Exhibit
G
|
Form
Lock-Up Agreement
|
|
Exhibit
H
|
Assignment
and Assumption Agreement
|
|
|
|
|
|
|
|
SCHEDULES
|
|
|
|
|
|
Schedule
2.1(a)
|
Equipment
|
|
Schedule
2.1(b)
|
Inventory
|
|
Schedule
2.1(c)
|
Contracts
|
|
Schedule
2.1(e)
|
Proprietary
Rights
|
|
Schedule
2.1 (f)
|
Trade
Accounts Receivable
|
|
Schedule
2.1(h)
|
Cash
and Cash Equivalents
|
|
Schedule 2.2
|
Excluded
Assets
|
|
Schedule 2.3
|
Assumed
Liabilities
|
|
Schedule
2.4(a)(v)
|
Closing
Balance Sheet
|
|
Schedule 3.3
|
Purchase
Price Allocation
|
|
Schedule 4.1
|
Shareholders
of Seller
|
|
Schedule
4.2
|
Consent
|
|
Schedule 4.6
|
Litigation
|
|
Schedule 4.7
|
Intellectual
Property
|
|
Schedule
4.8
|
Insurance
|
|
Schedule
4.11
|
Affiliate
Interests
|
|
Schedule
5.6
|
IMS
Stockholders
|
ASSET
PURCHASE AGREEMENT
ASSET
PURCHASE AGREEMENT (“
Agreement
”) dated
October 8, 2009 (the “
Effective Date
”), by
and among Internet Media Services, Inc., a Delaware corporation (“
Buyer
”), and Lester
Levin Inc., a New York corporation (“
Seller
”).
R E C I T
A L S:
WHEREAS,
Seller markets and sells legal supplies, legal forms and legal documents through
the Internet Web site named LegalStore.com (the “
Business
”);
WHEREAS,
Seller wishes to sell the certain assets of the LegalStore.com to the Buyer, and
Buyer is willing to acquire certain assets of the LegalStore.com;
NOW,
THEREFORE, in consideration of the premises and mutual covenants contained in
this Agreement and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound hereby, agree as follows:
Article
I. Definitions
1.1
Definitions
. For
purposes of this Agreement, the following terms shall have the respective
meanings set forth below:
“
Affiliate
” of any
specified Person means (i) any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such specified Person and (ii) any 5% stockholder or member of such
Person. For purposes of this definition, “control” when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms “controlling” and
“controlled” have meanings correlative to the foregoing.
“
Agreement
” means this
Agreement and includes all of the schedules and exhibits annexed
hereto.
“
Allocation
” has the
meaning set forth in Section 3.3.
“
Acquired Assets
” has
the meaning set forth in Section 2.1.
“
Assignment and Assumption
Agreement
” has the meaning set forth in Section 2.4(b)(ix).
“
Assumed Liabilities
”
has the meaning set forth in Section 2.3.
“
Bill of Sale
” means a
Bill of Sale from Seller in the form of
Exhibit C
attached
hereto and incorporated by this reference.
“
Business
” has the
meaning set forth in the recitals to this Agreement.
“
Business Books and
Records
” has the meaning set forth in Section 2.1(g).
“
By-Laws
” has the
meaning set forth in Section 5.6.
“
Certificate of
Incorporation
” has the meaning set forth in Section 5.6.
“
Closing
” means the
closing of the purchase and sale of the Acquired Assets contemplated by this
Agreement.
“
Closing Balance
Sheet
” means the pro forma balance sheet of the Business dated as of the
Closing Date.
“
Closing Date
” means
the Effective Date or such other time as Buyer and Seller mutually
agree.
“
Code
” means the
Internal Revenue Code of 1986, as amended.
“
Contracts
” has the
meaning set forth in Section 2.1(c).
“
DSS
” has the meaning
set forth in Section 3.1.
“
Effective Date
” means
the date hereof.
“
Encumbrance
” means
any lien, charge, security interest, mortgage, pledge or other encumbrance of
any nature whatsoever.
“
Environmental Laws
”
has the meaning set forth in Section 4.9.
“
Equipment
” has the
meaning set forth in Section 2.1 (a).
“
Excluded Assets
”
means all of the other assets of Seller that are specifically set forth on
Schedule 2.2,
and are not part of the Acquired Assets.
“
Excluded Liabilities
”
means all liabilities and obligations of Seller, except for Assumed Liabilities
set forth in Section 2.3.
“Former Real
Property
” has the meaning set forth in Section 4.9.
“
IMS Common Stock
” has
the meaning set forth in Section 3.1.
“
Indemnification
Acknowledgement
” has the meaning set forth in
Section 7.2(a)(ii).
“
Indemnitee
” has the
meaning set forth in Section 7.2(a).
“
Indemnitor
” has the
meaning set forth in Section 7.2(a).
“
Inventories
” has the
meaning set forth in Section 2.1(b).
“
Lock-Up Agreement
”
has the meaning set forth in Section 2.4(b)(vii).
“
Losses
” means any and
all out-of-pocket damages, costs, liabilities, losses (including consequential
losses), judgments, penalties, fines, expenses or other costs, including
reasonable attorney’s fees, incurred by an Indemnitee.
“
Material Adverse
Effect
” means a material adverse effect on either (i) the assets,
operations, personnel, condition (financial or otherwise) or prospects
of Seller, taken as a whole, or (ii) any of Seller’s or Buyer’s
(as applicable) ability to consummate the transactions contemplated
hereby.
“
Notice of Claim
” has
the meaning set forth in Section 7.2(a)(i).
“
Person
” means any
individual, partnership, limited liability company, limited liability
partnership, corporation, association, joint stock company, trust, joint
venture, unincorporated organization, governmental entity (or any department,
agency or political subdivision thereof) or any other type of legal
entity.
“
Pledge Agreement
” has
the meaning set forth in Section 2.4(b)(vi).
“
Proprietary Rights
”
has the meaning set forth in Section 2.1(e).
“
Purchase Price
” has
the meaning set forth in Section 3.1.
“
Permits
” has the
meaning set forth in Section 2.1(d).
“
Real Property
” has
the meaning set forth in Section 4.9.
“
Registration
Statement
” has the meaning set forth in Section 6.5.
“
Securities Act
” means
the Securities Act of 1933, as amended.
“
Tax
” means any
federal, state, local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
capital gain, intangible, environmental (pursuant to Section 59A of the
Code or otherwise), custom duties, capital stock, franchise, employee’s income
withholding, foreign withholding, social security (or its equivalent),
unemployment, disability, real property, personal property, sales, use,
transfer, value added, registration, alternative or add-on minimum, estimated or
other tax, including any interest, penalties or additions to tax in respect of
the foregoing, whether disputed or not, and any obligation to indemnify, assume
or succeed to the liability of any other Person in respect of the
foregoing.
“
Tax Return
” means any
return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
“
Third Party Claim
”
means a claim or demand made by any Person who is not a party hereto against an
Indemnitee.
“
Voting Agreement
” has
the meaning set forth in Section 2.4(a)(iii).
“
Whole Board
” means
the total number of directors which the Buyer’s Board of Directors would have if
there were no vacancies.
Article
II. Purchase and Sale
2.1
Purchase and
Sale
. Subject to Section 2.2, Seller agrees to sell,
transfer, assign, convey and deliver to Buyer, and Buyer agrees to purchase from
Seller, free and clear of all Encumbrances at the Closing for the consideration
specified below in Article III, all right, title and interest of
Seller in and to the following properties, assets and rights primarily related
to or used or held for use or sale by the Seller in connection with the Business
as they exist on the Closing Date (collectively, the “Acquired
Assets”):
(a)
All machinery, equipment, tools, vehicles, furniture, furnishings, leasehold
improvements, and similar property listed on Schedule 2.1(a), which is attached
and incorporated by reference (collectively, the “Equipment”);
(b)
All inventories of raw materials, work in process, finished products, goods,
spare parts, replacement and component parts, and office and other supplies
(collectively, the “Inventories”) wherever held or stored and as listed on
Schedule 2.1(b) to be attached and incorporated by reference as of the close of
business on the day immediately preceding the Closing Date;
(c)
All of Seller’s rights under all contracts, commitments, understandings, leases
and agreements listed on Schedule 2.1(c) which is attached and incorporated by
reference (collectively, the “Contracts”), including security deposits related
thereto, Seller’s right to receive payment for products sold pursuant to, and to
receive goods and services pursuant to, such contracts and to assert claims and
take other rightful actions to enforce the Contracts;
(d)
To the extent permitted by law, all governmental licenses, permits, approvals,
applications or registrations (collectively the “Permits”);
(e)
Any patents, trademarks, service marks or trade names, copyrights, websites,
domain names, URL’s and customer lists and databases of Seller, together with
all related applications or registrations listed on Schedule 2.1(e) which is
attached and incorporated by reference (collectively, the “Proprietary
Rights”);
(f)
All trade accounts receivable arising out of the conduct of the Business by the
Seller prior to the Closing as listed on the Closing Balance Sheet;
(g)
All books, records, manuals and other materials related solely to the Acquired
Assets and the operation of the Business, including sales and advertising
materials, sales and purchase correspondence, and customer records and files
(the “Business Books and Records”); and
(h) all
cash and cash equivalents in Seller’s account at Bank of America, Account No.
009442661376, as of the Closing Date, as adjusted in Seller’s sole discretion
for (i) any uncleared checks and deposits in transit outstanding as of the
Closing Date within five (5) business days after the Closing under customary
bank reconciliation and (ii) such amounts to cover any bank or credit card
fees.
Buyer
acknowledges that it has fully inspected the Acquired Assets. Except
as set forth in Article IV, the tangible Assets are being sold to Buyer in their
present physical condition, “AS IS,” “WHERE IS,” “WITH ALL FAULTS,” and WITH NO
WARRANTIES, INCLUDING THE IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE with respect to the physical condition of the tangible
Acquired Assets, and subject to normal wear and tear on the Acquired Assets up
to the Closing Date.
2.2
Excluded
Assets
. For the avoidance of doubt, the following are not
included in the Acquired Assets and Seller is not selling and Buyer is not
purchasing or assuming any obligations with respect to the following assets of
Seller (the “
Excluded
Assets
”), and following Closing, Buyer will not have any right, title,
interest or obligation with respect to the Excluded Assets:
(a)
Cash or cash equivalents, except as provided in Section 2.1(h);
(b) The
corporate seals, certificates of incorporation, minute books, stock books, tax
returns, books of account or other records having to do with the corporate
organization of Seller and the remaining operations and businesses conducted by
Seller;
(c) The
rights to any of Seller’s claims for any federal, state, local or foreign tax
refunds; and
(d) The
assets, properties or rights relating to the remaining operations and businesses
conducted by Seller and more fully set forth on Schedule 2.2 attached hereto and
incorporated by reference.
2.3
Assumed
Liabilities
. Buyer will not assume any liabilities of Seller,
known or unknown, contingent or matured, except as described on Schedule 2.3
attached hereto and incorporated by this reference (the “
Assumed
Liabilities
”).
2.4
Closing
. The
Closing shall take place on the Closing Date at the offices of Seller, or at
such other place or at such other time as Buyer and Seller shall
agree. The parties agree that in the event they do not meet
physically to close this transaction that faxed and couriered executed documents
shall be acceptable to close this transaction.
(a)
On the Closing Date Seller shall deliver to Buyer the following:
(i) One or more instruments of assignment and bills of sale dated the Closing
Date, in form and substance reasonably satisfactory to Buyer, conveying to Buyer
all of Seller’s right, title and interest in and to the Acquired
Assets.
(ii) A
Registration Rights Agreement, in the form attached hereto as Exhibit D,
executed on behalf of DSS and Seller.
(iii) A
Voting Agreement, in the form attached hereto as Exhibit E, executed on behalf
of DSS.
(iv)
Pledge Agreements, in the form attached hereto as Exhibit F, executed on behalf
of DSS and Lester Levin Inc.
(v)
Closing Balance Sheet, attached hereto as Schedule 2.4(a)(v).
(b)
On the Closing Date Buyer shall deliver to Seller the following:
(i) The
Purchase Price specified in Section 3.1 below by delivery of certificates
representing the IMS Common Stock (defined below) issuable to DSS
hereunder.
(ii) A
certificate of an officer duly authorized to provide the same, together with
true and correct copies of a resolution of the Board of Directors of Buyer
authorizing Buyer to enter into and consummate the transactions contemplated by
this Agreement and certified Certificate of Incorporation and By-Laws of Buyer,
together with a Good Standing Certificate issued by the State of Delaware, and
the names of the other officer or officers of Buyer authorized to sign this
Agreement, together with a sample of the true signature of each such
officer.
(iii) An
opinion of counsel to Buyer, dated the Closing Date and addressed to Seller, in
form and substance satisfactory to Seller.
(iv) A
Registration Rights Agreement, in the form attached hereto as Exhibit D,
executed on behalf of Buyer.
(v) A
Voting Agreement, in the form attached hereto as Exhibit E, executed on behalf
of Buyer and the IMS Stockholders.
(vi) Pledge
Agreements, in the form attached hereto as Exhibit F, executed on behalf of the
IMS Stockholders.
(vii) A
Lock-Up Agreement, in the form attached hereto as Exhibit G, executed on behalf
of the IMS Stockholders.
(viii)
the original stock certificates issued to Buyer’s shareholders representing the
IMS Common Stock shares pledged under the Pledge Agreements, to be held by an
escrow agent of Seller’s choice.
(ix) an
assignment and assumption agreement with respect to the Assumed Liabilities, in
the form attached hereto as Exhibit H.
(c)
On the Closing Date, Seller and Buyer shall deliver to each other the agreements
which are required to be executed and delivered under the terms and conditions
of this Agreement and in the form attached to this Agreement.
Article
III. Consideration
3.1
Purchase
Price
. In consideration of the sale and transfer of the
Acquired Assets, on the Closing Date, Buyer shall issue to Seller’s designee,
Document Security Systems, Inc., a New York corporation (“DSS”), 7,500,000
shares of newly-issued common stock, par value $.001 per share, of Buyer (“
IMS Common Stock
”)
(the “
Purchase
Price
”), which DSS intends to distribute as part of this transaction in
accordance with applicable securities laws.
3.2
Legend on IMS Common Stock
Certificate
. Each certificate representing shares issued
pursuant to this Agreement shall be endorsed with the following
legend:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE
WITH RULE 144 OR ITS SUCCESSOR RULE UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT EXEMPTIONS FROM SUCH
REGISTRATION ARE AVAILABLE.”
3.3
Allocation of Purchase
Price
. The Purchase Price shall be allocated among the
Acquired Assets in the manner set forth in Schedule 3.3. The
Purchase Price shall be deemed for all purposes (e.g., those relating to Taxes
and tax returns of any kind whatsoever, including, without limitation, Internal
Revenue Service Form 8594) to be allocated in accordance with the allocation
schedule to be mutually prepared by Buyer and Seller and attached hereto as
Schedule 3.3
within sixty (60) days after the Closing Date. Neither Buyer, Seller
nor any of their affiliates shall take any position (whether in audits, Tax
Returns or otherwise) that is inconsistent with such allocation unless required
to do so by applicable law.
Article
IV. Representations and Warranties of Seller
As a
material inducement to Buyer to enter into this Agreement and to consummate the
transactions contemplated hereby, Seller represents and warrants to Buyer as
follows:
4.1
Organization, Qualification
and Authority
. The Seller is a corporation duly organized and
validly existing under the laws of the State of New York, and is in good
standing and duly qualified to do business as a foreign corporation in all
jurisdictions where the operation of its respective business or the ownership of
its respective properties make such qualification necessary. Seller
has full power and authority to own, lease and operate their facilities and
assets as presently owned, leased and operated, and to carry on their business
as they are now being conducted. Seller owns no capital stock,
security, interest or other right, or any option or warrant convertible into the
same, of any Person. The shareholders of Seller as of the date hereof
are set forth on
Schedule 4.1
. Seller
has the full right, power and authority to execute, deliver and carry out the
terms of this Agreement and all documents and agreements necessary to give
effect to the provisions of this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and consummation of this
Agreement, and all other agreements and documents executed in connection
herewith by Seller, have been duly authorized by all necessary action on the
part of Seller. No other action, consent or approval on the part of
Seller or any other Person or entity is necessary to authorize each of Seller’s
due and valid execution, delivery and consummation of this Agreement and all
other agreements and documents executed in connection herewith. This
Agreement and all other agreements and documents executed in connection herewith
by Seller, upon due execution and delivery thereof, shall constitute the valid
and binding obligations of Seller, enforceable in accordance with their terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors’ rights generally and by general principles
of equity.
4.2
No
Violations
. Except as set forth on Schedule 4.2 attached
hereto, the execution and delivery of this Agreement and the performance by
Seller of their obligations hereunder, to the best knowledge of Seller
(i) do not and will not conflict with or violate any provision of the
articles of incorporation, bylaws, or similar organizational documents of
Seller, and (ii) do not and will not (a) conflict with or result in a
breach of the terms, conditions or provisions of, (b) constitute a default
under, (c) result in the creation of any Encumbrance upon the capital stock
or assets of Seller pursuant to, (d) give any third party the right to
modify, terminate or accelerate any obligation under, (e) result in a violation
of, or (f) require any authorization, consent, approval, exemption or other
action by or notice to any court or administrative, arbitration or governmental
body or other third party pursuant to, any law, statute, rule or regulation or
any contract, judgment or decree to which Seller is subject or by which any of
its assets are bound.
4.3
Real
Property
. Seller does not own any real property, but does
lease real property located at 320 North Goodman Street, Suite 209, Rochester,
New York 14607.
4.4
Personal
Property
. Seller has good and marketable title to the Acquired
Assets free and clear of all Encumbrances.
4.5
Contracts
. Except
as set forth on
Schedule 2.1,
Seller
is not a party to any contract in which the Acquired Assets are
subject.
4.6
Litigation
. Except
as set forth on
Schedule 4.6
(for
which Buyer assumes no liability), Seller has not received notice of any
violation of any law, rule, regulation, ordinance or order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation, legislation
and regulations applicable to environmental protection, civil rights, public
health and safety and occupational health). Except as set forth on
Schedule 4.6
(for which Buyer assumes no liability), there are no lawsuits, proceedings,
actions, arbitrations, governmental investigations, claims, inquiries or
proceedings pending or, to each of the Seller’s knowledge, threatened involving
Seller, any of the Acquired Assets or the Business, and no reasonable basis
exists for the bringing of any such claim. At Closing, Seller shall
indemnify and hold Buyer harmless from any Losses incurred by Buyer as a result
of the litigation described on
Schedule
4.6
.
4.7
Intellectual
Property
. All Proprietary Rights owned by Seller, and used in
connection with the Business are listed and described in
Schedule 4.7
. No
proceedings have been instituted or are pending or, to each of the Seller’s
knowledge, threatened which challenge the validity of the ownership by Seller of
any such Proprietary Rights. Other than to Buyer, Seller has not
licensed anyone to use any such Proprietary Rights and, to each of the Seller’s
knowledge, there has been no use or infringement of any of such Proprietary
Rights by any other person.
4.8
Insurance
. Seller
has in effect and has continuously maintained insurance coverage for all of its
operations, personnel and assets, and for the Acquired Assets and the
Business. A complete and accurate list of all such insurance policies
is set forth in
Schedule 4.8
,
which policies have previously been provided to Buyer.
Schedule 4.8
also sets forth a summary of Seller’s current insurance coverage (listing type,
carrier and limits), and includes a list of any pending insurance claims
relating to Seller. Seller is not in default or breach with respect
to any provision contained in any such insurance policies, nor has Seller failed
to give any notice or to present any claim thereunder in due and timely
fashion.
4.9
Environmental
Laws
. All of the Permits required under Environmental Laws for
the operation of the Business have been obtained and maintained in effect in
good standing by Seller. No material change in the facts or
circumstances reported or assumed in the applications for such Permits exists.
Seller is in compliance, and at all times has complied, with all Environmental
Laws applicable to the operations associated with the Business and each of the
properties currently owned, leased or operated by Seller (the “Real Property”)
and each of the properties formerly owned, leased or operated by Seller (the
“Former Real Property”) and with all of the Permits. Seller is not
aware of any violation with respect to any of the Permits, which violations are
outstanding or uncured as of the date hereof, and no proceeding is pending, or
to Seller’s knowledge, threatened, to revoke or limit any of the
Permits.
Seller
has not performed or suffered any act which could give rise to, or has otherwise
incurred, liability to any Person, including itself, under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.
(“CERCLA”) or any of the Environmental Laws, nor does Seller have notice of any
such liability or any claim therefor or submitted notice pursuant to Section 103
of CERCLA to any Governmental Authority nor provided information in response to
a request for information pursuant to Section 104(e) of CERCLA or any analogous
state or local information gathering authority.
Since
November 2005, no Hazardous Substances has been released, placed, dumped,
disposed of, manufactured, stored or otherwise come to be located in, on, at,
beneath or near any of the Real Property or the Former Real Property or any
surface waters or groundwaters thereon or thereunder in excess of the levels
prescribed or permitted under Environmental Laws.
To
Seller’s knowledge, there have been and are no aboveground or underground
storage tanks, polychlorinated biphenyls or asbestos-containing materials
located at or within the Real Property or the Former Real Property.
To
Seller’s knowledge, none of the Real Property or the Former Real Property is
identified or proposed for listing on the National Priorities List under 40
C.F.R. § 300 Appendix B, the Comprehensive Environmental Response Compensation
and Liability Inventory System (“CERCLIS”) or any analogous list of any
Government Authority and Seller is not aware of any conditions on such
properties which, if known to a Governmental Authority, would qualify such
properties for inclusion on any such list.
None of
the Real Property or the Former Real Property, or any current or previous
business operations conducted by Seller, is the subject of any pending or
threatened investigation or judicial or administrative proceeding, notice,
decree or settlement respecting any actual, potential or alleged violation of
any Environmental Law, or any Releases of Hazardous Substances into any surface
water, ground water, drinking water supply, soil, land surface or subsurface
strata, or ambient air (the “Environment”). Seller has not received from any
Governmental Authority, insurance company or other Person, any request for
information that Seller is the subject of an investigation under Environmental
Laws, notice of any potential or alleged violations of any Environmental Laws or
of any proposed order under any Environmental Laws or any order or proposed
order requiring any of such parties to prepare studies, action plans, or
clean-up strategies in respect of an Environmental Condition on any of the Real
Property or the Former Real Property. Seller has not received notice
of any inquiry or investigation by any Person concerning matters regulated by
Environmental Laws.
Seller
has not reported any violation of any applicable Environmental Laws to any
Governmental Authority. Since November 2005, no Releases have
occurred on any of the Real Property or Former Real Property which would require
reporting to any Governmental Authority under any Environmental
Laws.
Seller
has not sent, transported, or directly arranged for the transport of any
garbage, solid waste or Hazardous Substances, whether generated by Seller or
another Person, to any site listed on the National Priorities List or proposed
for listing on the National Priorities List or to a site included on the CERCLIS
list or any analogous state list of sites.
There is
not now, nor to Seller’s knowledge has there ever been, on or in any Real
Property or Former Real Property, any generation, treatment, recycling, storage
or disposal of any hazardous waste, as that term is defined under 40 C.F.R. Part
261 or any state or foreign equivalent, except in accordance with Environmental
Laws.
“Hazardous
Substances” means and includes any flammable explosives, radioactive materials
or hazardous, toxic or dangerous wastes, substances or related materials or any
other chemicals, materials or substances, exposure to which is prohibited,
limited or regulated by any federal, state, county, regional or local authority
including, but not limited to, asbestos, PCBs, petroleum products and
by-products (including, but not limited to, crude oil or any fraction thereof,
natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable
for fuel, or any mixture thereof), substances defined or listed as “hazardous
substances”, “hazardous materials”, ‘‘hazardous wastes”, “toxic substances”,
“hazardous air pollutants” or ‘‘waste’’ or similarly identified in, pursuant to,
or for purposes of, any Environmental Laws applicable to the operations of the
Buyer or Seller’s respective businesses or real property, as applicable, and
each of the properties formerly owned, leased or operated by Seller or Buyer,
and with all associated permits, as applicable.
“Environmental
Laws” means all federal, state and local environmental, health or safety laws,
ordinances, regulations, rules of common law or policies regulating Hazardous
Substances, including, without limitation, those governing the generation, use,
refinement, handling, treatment, removal, storage, production, manufacture,
transportation or disposal of Hazardous Substances, to the extent such laws,
ordinances, regulations, rules and policies may be in effect from time to time
and be applicable to the operations of Buyer or Seller’s respective businesses,
or Real Property, as applicable, and each of the properties formerly owned,
leased or operated by Seller or Buyer, as applicable, and with all associated
permits, including, without limitation, the Hazardous Materials Transportation
Act, as now or hereafter amended (49 U.S.C. Section 1801, et seq.); the Resource
Conservation and Recovery Act, as now or hereafter amended (42 U.S.C. Section
6901, et seq.); the Toxic Substance Control Act of 1976, as now or hereafter
amended (15 U.S.C. Section 2601 et seq.); the Clean Water Act, as now or
hereafter amended (33 U.S.C. Section 1251 et seq.); the Clean Air Act, as
now or hereafter amended (42 U.S.C. Section 7901 et seq.); any so-called
“Superfund” or “Superlien” law; or any other federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating to
or imposing liability or standards of conduct concerning any hazardous, toxic or
dangerous waste, substance or material.
4.10
Tax Returns;
Taxes
. DSS, on behalf of the consolidated group of which
Seller is a member, has filed or will timely file all federal, state and local
Tax Returns and Tax reports required by such authorities to be filed through
September 30, 2009. DSS has paid all Taxes, assessments, governmental
charges, penalties, interest and fines due or claimed to be due by any federal,
state or local authority through September 30, 2009. There is no
pending Tax examination or audit of, nor any action, suit, investigation or
claim asserted or, to Seller’s knowledge, threatened against any Seller by any
federal, state or local authority; and DSS has not been granted any extension of
the limitation period applicable to any Tax claims. All Taxes,
assessments, governmental charges, penalties, interest and fines due or claimed
to be due by any federal, state or local authority prior to or after September
30, 2009 by Seller with respect to the operation of the Business prior to the
Closing shall be the responsibility of Seller and shall be paid by
Seller.
4.11
Affiliate
Interests
. Except as set forth on Schedule 4.11, Seller is not
a party to any transaction with any Person or Affiliate that establishes any
right or interest in any of the Acquired Assets.
Article
V. Representations and Warranties of Buyer
As an
inducement to Seller to enter into this Agreement and to consummate the
transactions contemplated hereunder, Buyer hereby represents and warrants to
Seller and DSS as follows:
5.1
Organization, Qualification
and Authority
. Buyer, and its wholly-owned subsidiary Legal
Store.Com, Inc., are each corporations duly formed, validly existing and in good
standing under the laws of the State of Delaware. Buyer has the
requisite corporate power and authority to own, lease and operate its properties
and assets as presently owned, leased and operated and to carry on its business
as it is now being conducted. Buyer has the full corporate right,
power and authority to execute, deliver and carry out the terms of this
Agreement and all documents and agreements necessary to give effect to the
provisions of this Agreement and to consummate the transactions contemplated on
the part of Buyer hereby. The execution, delivery and consummation of
this Agreement and all other agreements and documents executed in connection
herewith by Buyer has been duly authorized by all necessary corporate action on
the part of Buyer. No other action, consent or approval on the part
of Buyer, any stockholder of Buyer, or any other person or entity is necessary
to authorize the execution, delivery and consummation of this Agreement and all
other agreements and documents executed in connection herewith. This
Agreement, and all other agreements and documents executed in connection
herewith by Buyer, upon due execution and delivery thereof, shall constitute the
valid binding obligations of Buyer, enforceable in accordance with their
respective terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors’ rights generally
and by general principles of equity. Other than Legal Store.Com,
Inc., Buyer does not own or control, directly or indirectly, any interest in any
other corporation, association, or other business entity. Buyer is
not a participant in any joint venture, partnership, or similar
agreement.
5.2
No
Violations
. The execution and delivery of this Agreement and
the performance by Buyer of its obligations hereunder (i) do not and will
not conflict with or violate any provision of the articles of incorporation or
similar organizational documents of Buyer or its subsidiary, and (ii) do
not and will not (a) conflict with or result in a breach of the terms,
conditions or provisions of, (b) constitute a default under,
(c) result in the creation of any Encumbrance upon the membership interests
of Buyer pursuant to, (d) give any third party the right to modify,
terminate or accelerate any obligation under, (e) result in a violation of, or
(f) require any authorization, consent, approval, exemption or other action by
or notice to any court or administrative, arbitration or governmental body or
other third party pursuant to, any law, statute, rule or regulation or any
contract, order, judgment or decree to which Buyer or its subsidiary is subject
or by which any of its assets are bound.
5.3
Broker’s or Finder’s
Fee
. Buyer has not employed nor is Buyer liable for the
payment of any fee to, any finder, broker, consultant or similar person in
connection with the transactions contemplated under this Agreement.
5.4
Working Capital.
Buyer represents that it has access to sufficient working capital of at
least $200,000 over the six (6) month period immediately following the Closing
Date of this Agreement in order to execute the provisions of this
Agreement.
5.5
IMS Common
Stock
. Buyer represents and warrants that it will deliver to
the Seller’s designee the IMS Common Stock free and clear of all mortgages,
liens, liabilities, security interests, pledges, restrictions, prior
assignments, leases, licenses, charges, claims, defects in title and title and
encumbrances of any kind or type whatsoever. Upon issuance the IMS Common Stock
will be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances other than securities law restrictions and shall
not be subject to preemptive rights or other similar rights of stockholders of
IMS.
5.6
Capitalization.
The
total authorized capital stock of Buyer consists of 25,000,000 shares of IMS
Common Stock, of which 13,001,000 shares are outstanding as of the date hereof.
The current stockholders of Buyer and the amount of IMS Common Stock held by
each is set forth on Schedule 5.6 attached hereto. There are no outstanding
securities which are convertible into shares of IMS Common Stock, whether such
conversion is currently convertible or convertible only upon some future date or
the occurrence of some event in the future. All of such outstanding
shares of capital stock are duly authorized, validly issued, fully paid and
nonassessable. No shares of capital stock of Buyer are subject to
preemptive rights or any other similar rights of the stockholders of Buyer or
any liens or encumbrances imposed through the actions or failure to act of
Buyer. As of the Effective Date of this Agreement, (i) there are no outstanding
options, warrants, scripts, rights to subscribe for, puts, calls, rights of
first refusal, agreements, understandings, claims or other commitments or rights
of any character whatsoever relating to, or securities or rights convertible
into or exchangeable for any shares of capital stock of Buyer or any of its
subsidiaries, or arrangements by which Buyer or any of its subsidiaries is or
may become bound to issue additional shares of capital stock of Buyer or any of
its subsidiaries, (ii) there are no agreements or arrangements under which Buyer
or any of its subsidiaries are obligated to register the sale of any of its or
their securities under the Securities Act and (iii) there are no anti-dilution
or price adjustment provisions contained in any security issued by Buyer (or in
any agreement providing rights to security holders) that will be triggered by
the issuance of the IMS Common Stock Buyer has furnished to Seller
and DSS true and correct copies of Buyer’s and its subsidiary’s Certificate of
Incorporation as in effect on the date hereof (“Certificate of Incorporation”),
Buyer’s and its subsidiary’s By-laws, as in effect on the date hereof (the
“By-Laws”), and the terms of all securities convertible into or exercisable for
any capital stock of Buyer and the material rights of the buyers thereof in
respect thereto. No further approval or authorization of any stockholder, the
Board of Directors of Buyer or others is required for the issuance and sale of
the IMS Common Stock. There are no stockholders agreements, voting
agreements or other similar agreements with respect to Buyer’s or its
subsidiary’s capital stock to which Buyer is a party or, to the knowledge of
Buyer, between or among any of Buyer’s stockholders.
5.7
Contracts and Other
Commitments
. Buyer and its subsidiary, Legal Store.Com, Inc.,
does not have any contract, agreement, lease, commitment, or proposed
transaction, written or oral, absolute or contingent.
5.8
Registration Rights
.
Except as provided in the Registration Rights Agreement, Buyer is not obligated
to register under the Securities Act any of its presently outstanding securities
or any of its securities that may subsequently be issued.
5.9
Litigation
. Buyer
has not received notice of any violation of any law, rule, regulation, ordinance
or order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality (including,
without limitation, legislation and regulations applicable to environmental
protection, civil rights, public health and safety and occupational
health). There are no lawsuits, proceedings, actions, arbitrations,
governmental investigations, claims, inquiries or proceedings pending or, to
Buyer’s knowledge, threatened involving Buyer or its subsidiary, or any of their
assets or capital stock, and no reasonable basis exists for the bringing of any
such claim.
5.10
Absence of Borrowed
Indebtedness and Assets; Undisclosed Liabilities
. Neither Buyer nor its
subsidiary have any indebtedness for borrowed money. Immediately
prior to the Closing, Buyer and its subsidiary will have no material tangible
assets. There is no real property owned or leased by Buyer or its
subsidiary. Buyer currently operates out of office space located at
4553 Glencoe Ave., Suite 325, Marina del Rey, California 90292, which is
utilized by permission from an unrelated third party for no
consideration. Raymond Meyers and Michael Buechler are
Buyer’s sole employees.
5.11
Material
Liabilities
. Neither Buyer nor its subsidiary have any
material liability or obligation, absolute or contingent (individually or in the
aggregate), except (i) obligations and liabilities incurred after the date of
incorporation in the ordinary course of business that are not material,
individually or in the aggregate, and (ii) obligations under contracts made in
the ordinary course of business that would not be required to be reflected in
financial statements prepared in accordance with generally accepted accounting
principles.
5.12
Environmental
Laws
. Buyer and its subsidiary are in compliance, and at all
times have complied, with all Environmental Laws applicable to them and each of
the properties currently owned, leased or operated by them and each of the
properties formerly owned, leased or operated by them and with all of the
Permits. Buyer is not aware of any violation with respect to any of
the Permits, which violations are outstanding or uncured as of the date hereof,
and no proceeding is pending, or to Buyer’s knowledge, threatened, to revoke or
limit any of the Permits.
Buyer has
not performed or suffered any act which could give rise to, or has otherwise
incurred, liability to any Person, including itself, under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.
(“CERCLA”) or any of the Environmental Laws, nor does Buyer have notice of any
such liability or any claim therefor or submitted notice pursuant to Section 103
of CERCLA to any Governmental Authority nor provided information in response to
a request for information pursuant to Section 104(e) of CERCLA or any analogous
state or local information gathering authority.
5.13
Tax Returns;
Taxes
. Buyer has conducted no business to
date. Buyer will file all federal, state and local Tax Returns and
Tax reports required by such authorities to be filed through September 30, 2009
within 30 days of the Closing. Buyer has paid all Taxes, assessments,
governmental charges, penalties, interest and fines due or claimed to be due by
any federal, state or local authority through September 30,
2009. There is no pending Tax examination or audit of, nor any
action, suit, investigation or claim asserted or, to Buyer’s knowledge,
threatened against any Buyer by any federal, state or local authority; and Buyer
has not been granted any extension of the limitation period applicable to any
Tax claims.
5.14
Disclosure
. Buyer has
provided each Seller and DSS with all the information reasonably available to it
without undue expense that each has requested for deciding whether to purchase
the IMS Common Stock and all information that Buyer believes is reasonably
necessary to enable such Seller and DSS to make such decision. To the
best of Buyer’s knowledge after reasonable investigation, neither this Agreement
nor any other written statements or certificates made or delivered in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading.
Article
VI. Certain Covenants
6.1
Further
Assurances
. From time to time after the Closing, the parties
agree to cooperate and to execute and deliver such instruments of sale,
transfer, conveyance, assignment and delivery, and such consents, assurances,
powers of attorney and other instruments as may be reasonably requested by one
or more of the other parties or its counsel in order to vest in Buyer all right,
title and interest of Seller in and to the Acquired Assets and otherwise in
order to carry out the purpose and intent of this Agreement.
6.2
Board of
Directors
. Upon the Effective Date of this Agreement, Buyer’s
Whole Board shall be expanded to five (5) directors. Seller shall
have the right to nominate for election two (2) of the five (5)
directors. Seller and DSS have informed Buyer that Seller’s and DSS’s
nominees for the two director seats are Patrick White and Philip
Jones. At the Closing, Buyer, DSS and the IMS Stockholders shall
enter into the Voting Agreement in the Form attached hereto as Exhibit E, in
connection with the appointment of said nominees to the Buyer’s board of
directors. In the event any vacancy occurs in a seat designed for a
nominee of Seller and DSS, Buyer and its Board of Directors shall take all
actions necessary to appoint a successor designated by Seller and DSS to fill
such vacancy.
6.3
Working
Capital
. Within 180 days of the Effective Date, the Buyer
shall raise cash net proceeds from a debt or equity financing of at least
$200,000 (the “
Initial
Financing
”). Buyer shall use the proceeds from the Initial
Financing for marketing, working capital and to pay the expenses for registering
the shares of IMS Common Stock with the SEC.
6.4
Registration of
Shares
. As soon as practicable but not later than 180 days
after the Closing Date, Buyer will file, on a best efforts basis, a Registration
Statement on Form S-1 with the Securities and Exchange Commission (“SEC”)
registering all the shares of IMS Common Stock issued to Seller and/or DSS under
the Agreement (the “Registration Statement”) and within 360 days after the
Closing Date shall have the Registration Statement covering at least twenty
percent (20%) of such shares declared effective, as provided in the Registration
Rights Agreement.
6.5
Certain Employee
Matters
. Effective as of the Closing Date, Buyer may, but
shall not be obligated to offer employment to all or some of Seller’s employees
who are actively at work immediately prior to the Closing Date, subject to
Buyer’s right to terminate the employment of any such employee(s) at any time
and for any reason in its sole discretion. It is specifically
understood that (i) Buyer shall have no obligation to hire any of the Seller’s
employees and (ii) no rights or entitlements shall vest in favor of any third
party (including any of the Seller’s employees) by virtue of this
Agreement.
6.6
Extension of Health and
Dental Insurance
. If requested by Buyer, Seller agrees to
continue health and dental insurance coverage, at Buyer’s sole expense, for a
period of up to three (3) months, for certain employees of Seller that have been
offered and accepted employment at Buyer’s company.
6.7
Non-Competition,
Non-Disclosure and Non-Solicitation
. For a period commencing
on the Closing Date and ending on the date that is two (2) years after the
Closing Date (the “Restricted Period”), and provided that Buyer is not in
default of the covenant in Section 6.4 (“Registration of Shares”) of this
Agreement, Seller shall, and Seller shall ensure that none of its respective
Affiliates shall, engage, directly or indirectly, in any business that markets
and sells legal supplies, legal forms and legal documents in the United States
(the “Restricted Area”). For the purposes of this Section 6.7,
Business shall not include the sale of “security paper” by the Seller via the
Seller’s direct sales channels of via the Internet or other electronic means of
communication. Both Seller and Buyer may actively engage in the
selling and marketing of “security paper” throughout the Restricted
Period. By way of further definition and explanation of the
foregoing, and without limiting the generality of the foregoing restriction,
during such Restricted Period, Seller and none of their respective Affiliates
shall devote any time or attention to acquiring, managing, operating, joining,
controlling, participating or becoming financially interested in, or being
connected with (in any capacity, whether as a partner, stockholder, investor,
consultant, independent contractor, agent, representative or otherwise), or
providing any direct or indirect financial assistance to, any Person that is
engaged, directly or indirectly, in any business that markets and sells legal
supplies, legal forms and legal documents within the Restricted
Area. Nothing contained herein, however, shall prohibit the Seller or
any of their respective Affiliates from acquiring and owning the IMS Common
Stock as contemplated by this Agreement, or from owning and acquiring, for
investment purposes only, up to five percent (5%) of the outstanding equity
securities of a Person engaged in an activity competitive with the Business if
such equity securities of any such Person are available to the general public on
a national securities exchange or the over-the-counter market.
Seller
hereby acknowledges, covenants and agrees that, from and after the date hereof,
it will hold any and all items constituting Business secrets communicated or
transmitted to, or otherwise obtained by, it in strictest
confidence. Seller shall not, regardless of the reason therefore,
directly or indirectly make use of, exploit, disclose or divulge any Business
secrets to any other Person (except to the extent such information is required
to be submitted to any Governmental Authority or to any other Person pursuant to
subpoena or other court process or as may be permitted herein), or knowingly
make any false statement or otherwise commit any act (including contacting any
customers of the Business) that could in any way be injurious or detrimental to
Buyer, the Business or to Buyer’s use of the Acquired Assets, including, without
limitation, Buyer’s image, business or customer relations.
During
the Restricted Period, Seller shall not, for its own benefit, or for the benefit
of any other Person, or for any reason, accept any business with respect to the
Business from, or interfere in any manner with the Buyer’s business relationship
with, any customer of Buyer or the Business. Without limiting the
generality of the foregoing, Seller shall not solicit or induce, or attempt to
solicit or induce, any business with respect to the Business (directly or
indirectly through any Person) from any current customer of the
Business. Furthermore, nothing contained in this Agreement shall be
construed to infer that Seller is, in any respect whatsoever, retaining any
rights to, or in respect of, the customer list or the Business, or any customer
information of the Business for direct or indirect use after the expiration of
the Restricted Period, it being understood and agreed that pursuant to this
Agreement Buyer is acquiring all of the Seller’s rights thereto without
limitation as to time or otherwise.
During
the Restricted Period, Seller shall not shall hire, solicit or induce, or
attempt to hire, solicit or induce (directly or indirectly through any Person),
for employment, or interfere in any manner with Buyer’s relationship with, any
employee, agent, consultant or other representative of Buyer or any of its
Affiliates. Except that the Seller may provide reference letters to unemployed
former employees.
The
invalidity or unenforceability of this Article 6 in any respect shall not affect
the validity or enforceability of this Article 6 in any other respect, or of any
other provision of this Agreement. In the event that any provision of
this Article 6 shall be held invalid or unenforceable by a court of competent
jurisdiction by reason of the geographic or business scope or the duration
thereof or for any other reason, such invalidity or unenforceability shall
attach only to the particular aspect of such provision found invalid or
unenforceable as applied and shall not affect or render invalid or unenforceable
any other provisions of this Article 6 or the enforcement of such provision in
other circumstances, and, to the fullest extent permitted by law, this Article 6
shall be construed as if the geographic or business scope or the duration of
such provision or other basis on which such provision has been challenged had
been more narrowly drafted so as not to be invalid or
unenforceable.
Seller
acknowledges and agrees that the agreements and covenants contained in this
Article 6 are of a unique and valuable nature and may, if breached, result in
irreparable damage to Buyer that may not be readily susceptible to monetary
valuation; and, accordingly, in the event of the breach of any covenant or
agreement contained in this Article 6, Buyer shall be entitled to seek and
obtain injunctive or other equitable relief, in addition to any other remedies
provided by law or equity, in furtherance of the enforcement
thereof. In no event shall the amount or value of any consideration
paid or given by Buyer for the covenants and agreements contained in this
Article 6, or otherwise in connection with this Agreement, be used to determine
the scope or extent of damages suffered by Buyer in the event of a breach by
Seller of such covenants and agreements.
6.8
Corporate Existence;
Reporting Status
.
(a) So long as Seller or DSS
beneficially owns any IMS Common Stock, Buyer shall maintain its corporate
existence and that of Legal Store.Com, Inc. in good standing;
(b) Buyer shall register its class of
common stock with the SEC under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), no later than eighteen months
after the date hereof and file with the SEC in a timely manner all reports and
other documents required of the Company under the Exchange Act so long as Seller
or DSS beneficially owns any IMS Common Stock; and
(c) Buyer shall have its class of
common stock approved for quotation on the OTCBB or for listing on a national
securities exchange no later than 360 days from the date hereof and to maintain
such listing or quotation so long as Seller or DSS beneficially owns any IMS
Common Stock;
6.9
Certain Negative Covenants;
Misc
. Until the earlier to occur of (x) 2 years from the
Effective Date and (y) the time that the Registration Statement is declared
effective by the SEC, without the approval of two-thirds of Buyer’s Whole Board,
which shall include during such time at least two directors designated by
DSS. The Buyer shall not, and shall not permit any of its
subsidiaries to, directly or indirectly:
(a) pay,
declare or set apart for such payment, any dividend or other distribution
(whether in cash, property or other securities) on shares of capital stock or
directly or indirectly or through any subsidiary of Buyer make any other payment
or distribution in respect of its capital stock;
(b)
redeem, repay, repurchase or otherwise acquire (whether for cash or in exchange
for property or other securities or otherwise) in any one transaction or series
of related transactions any shares of capital stock of Buyer or its subsidiary
or any warrants, rights or options to purchase or acquire any such
shares;
(c) enter into, create, incur,
assume, guarantee or suffer to exist any indebtedness for borrowed money of any
kind, including but not limited to, a guarantee, on or with respect to any of
its property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom;
(d) Except for the IMS Common
Stock to be issued to Seller pursuant to the Agreement, neither Buyer nor any
subsidiary shall issue shares of capital stock of the Buyer or any
securities of the Buyer or its subsidiaries which would entitle the holder
thereof to acquire, directly or indirectly, at any time capital stock of the
Buyer, including without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to
receive, capital stock of the Buyer;
(e) Enter into, amend, modify or
supplement any agreement, transaction, commitment, or arrangement with any of
its or any subsidiary’s officers, directors, employees, persons who were
officers or directors at any time during the previous two (2) years,
stockholders who beneficially own ten percent (10%) or more of the IMS Common
Stock, or Affiliates of any thereof, or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a ten percent (10%) or more beneficial interest,
except for customary employment arrangements and benefit programs and director
compensation on reasonable terms;
(f) Increase the size of Buyer’s
Whole Board to more than five (5) directors;
(g) Effect any sale, lease, assignment,
transfer, exclusive license or other conveyance of all or substantially all of
the assets of the Buyer or any of its subsidiaries or any domain name(s),
including legalstore.com, acquired as part of this Agreement, or effect any
consolidation or merger involving the Buyer or any of its subsidiaries, or
effect any reclassification or other change of any stock or any recapitalization
of the Buyer or any of its subsidiaries;
(h) Effect any amendment of its Certificate of Incorporation or
By-Laws;
(i) Use any proceeds from the
Initial Financing (i) to repay any of its corporate debt or other indebtedness,
(ii) to redeem any of its Common Stock or other securities, (iii) to settle any
outstanding litigation, or (iv) to repay any debt or obligation to any officer,
director or manager of Buyer, including but not limited to Buyer’s president,
chief executive officer, chief financial officer and chief operations officer,
and any of their affiliates or family members;
(j) Operate the Business out
of any location other than the existing Rochester, New York facility;
or
(k) enter into any agreement
with respect to any of the foregoing.
6.10
D&O
Insurance
. Upon the effectiveness of the Registration
Statement, the Buyer shall maintain a director’s and officer’s insurance policy
in the amount of at least $1.0 million.
Seller
acknowledges that Buyer would not have completed the transaction contemplated by
this Agreement absent the covenants and agreements set forth in this Article
6.
Article
VII. Indemnification
7.1
Indemnification
.
(a)
By
Seller
. Seller shall indemnify and hold harmless Buyer, and
its officers, directors, shareholders, employees, Affiliates and agents, at all
times from and after the Closing Date, against and in respect of Losses arising
from: (i) any breach of any of the representations or warranties made by
Seller in this Agreement (without regard to any materiality qualification
contained in any such representation or warranty); (ii) any breach of the
covenants and agreements made by Seller in this Agreement or any exhibit hereto
delivered by Seller in connection with the Closing; (iii) any Excluded
Liabilities; and (iv) any Excluded Assets up to a maximum aggregate amount
with respect to all such claims under this Section 7.1(a), of Three
Hundred Thousand Dollars ($300,000);
(b)
By
Buyer
. Buyer shall indemnify and hold harmless Seller and
their respective directors, officers, employees, Affiliates and agents at all
times from and after the Closing Date against and in respect of Losses arising
from or relating to: (i) any breach of any of the representations or
warranties made by Buyer in this Agreement (without regard to any materiality
qualification contained in any such representation or warranty); (ii) any
breach of the covenants and agreements made by Buyer in this Agreement or any
exhibit hereto delivered by Buyer in connection with the Closing; (iii) any
Assumed Liabilities; and (iii) the ownership of the Acquired Assets and
operation of the Business after the Closing Date.
7.2
Indemnification Procedures –
Third Party Claims
.
(b) The
rights and obligations of a party claiming a right of indemnification hereunder
(each, an “
Indemnitee
”) from a
party to this Agreement (each, an “
Indemnitor
”) in any
way relating to a third party claim shall be governed by the following
provisions of this Section 7.2.
(i) The
Indemnitee shall give prompt written notice to the Indemnitor of the
commencement of any claim, action suit or proceeding, or any threat thereof, or
any state of facts which Indemnitee determines will give rise to a claim by the
Indemnitee against the Indemnitor based on the indemnity agreements contained in
this Agreement setting forth, in reasonable detail, the nature and basis of the
claim and the amount thereof, to the extent known, and any other relevant
information in the possession of the Indemnitee (a “
Notice of
Claim
”). The Notice of Claim shall be accompanied by any
relevant documents in the possession of the Indemnitee relating to the claim
(such as copies of any summons, complaint or pleading which may have been served
and, or any written demand or document evidencing the same). No
failure to give a Notice of Claim shall affect, limit or reduce the
indemnification obligations of an Indemnitor hereunder, except to the extent
such failure actually prejudices such Indemnitor’s ability successfully to
defend the claim, action, suit or proceeding giving rise to the indemnification
claim.
(ii) In
the event that an Indemnitee furnishes an Indemnitor with a Notice of Claim,
then upon the written acknowledgment by the Indemnitor given to the Indemnitee
within 30 days of receipt of the Notice of Claim, stating that the Indemnitor is
undertaking and will prosecute the defense of the claim under such indemnity
agreements and confirming that as between the Indemnitor and the Indemnitee, and
that the claim covered by the Notice of Claim is subject to this
Article VII (an “
Indemnification
Acknowledgment
”), then the claim covered by the Notice of Claim may be
defended by the Indemnitor, at the sole cost and expense of the Indemnitor;
provided, however, that the Indemnitee is authorized to file any motion, answer
or other pleading that may be reasonably necessary or appropriate to protect its
interests during such 30 day period. However, in the event the
Indemnitor does not furnish an Indemnification Acknowledgment to the Indemnitee
or does not offer reasonable assurances to the Indemnitee as to Indemnitor’s
financial capacity to satisfy any final judgment or settlement, the Indemnitee
may, upon written notice to the Indemnitor, assume the defense (with legal
counsel chosen by the Indemnitee) and dispose of the claim, at the sole cost and
expense of the Indemnitor. Notwithstanding receipt of an
Indemnification Acknowledgment, the Indemnitee shall have the right to employ
its own counsel in respect of any such claim, action, suit or proceeding, but
the fees and expenses of such counsel shall be at the Indemnitee’s own cost and
expense, unless (A) the employment of such counsel and the payment of such fees
and expenses shall have been specifically authorized by the Indemnitor in
connection with the defense of such claim, action, suit or proceeding or (B) the
Indemnitee shall have reasonably concluded based upon a written opinion of
counsel that there may be specific defenses available to the Indemnitee which
are different from or in addition to those available to the Indemnitor, in which
case the costs and expenses incurred by the Indemnitee shall be borne by the
Indemnitor.
(iii) The
Indemnitee or the Indemnitor, as the case may be, who is controlling the defense
of the claim, action, suit or proceeding, shall keep the other fully informed of
such claim, action, suit or proceeding at all stages thereof, whether or not
such party is represented by counsel. The parties hereto agree to
render to each other such assistance as they may reasonably require of each
other in order to ensure the proper and adequate defense of any such claim,
action, suit or proceeding. Subject to the Indemnitor furnishing the
Indemnitee with an Indemnification Acknowledgment in accordance with
Section 7.2(a)(ii), the Indemnitee shall cooperate with the Indemnitor and
provide such assistance, at the sole cost and expense of the Indemnitor, as the
Indemnitor may reasonably request in connection with the defense of any such
claim, action, suit or proceeding, including, but not limited to, providing the
Indemnitor with access to and use of all relevant corporate records and making
available its officers and employees for depositions, pre-trial discovery and as
witnesses at trial, if required. In requesting any such cooperation,
the Indemnitor shall have due regard for, and attempt to not be disruptive of,
the business and day-to-day operations of the Indemnitee and shall follow the
requests of the Indemnitee regarding any documents or instruments which the
Indemnitee believes should be given confidential treatment.
(c) The
Indemnitor shall not make or enter into any settlement of any claim, action,
suit or proceeding which Indemnitor has undertaken to defend, without the
Indemnitee’s prior written consent (which consent shall not be unreasonably
withheld or delayed)), unless there is no obligation, directly or indirectly, on
the part of the Indemnitee to contribute to any portion of the payment for any
of the Losses, the Indemnitee receives a general and unconditional release with
respect to the claim (in form, substance and scope reasonably acceptable to the
Indemnitee), there is no finding or admission of any violation of law by, or
effect on any other claim that may be made against the Indemnitee and, in the
reasonable judgment of the Indemnitee, the relief granted in connection
therewith is not likely to have a Material Adverse Effect on the Indemnitee or
the Indemnitee’s reputation or prospects.
(d) Any
claim for indemnification that may be made under more than one subsection under
Section 7.1 may be made under the subsection that the claiming party may
elect in its sole discretion, notwithstanding that such claim may be made under
more than one subsection.
7.3
Indemnification Procedures –
Other Claims, Indemnification Generally
.
(e) A
claim for indemnification for any matter not relating to a third party claim
under Section 7.2 may be asserted by giving reasonable notice directly by
the Indemnitee to the Indemnitor. The Indemnitee shall afford the
Indemnitor access to all relevant corporate records and other information in its
possession relating thereto.
(f) If
any party becomes obligated to indemnify another party with respect to any claim
for indemnification hereunder and the amount of liability with respect thereto
shall have been finally determined, the Indemnitor shall pay such amount to the
Indemnitee in immediately available funds within ten days following written
demand by the Indemnitee.
Article
VIII. Miscellaneous
8.1
Publicity
. No
press release or other public announcement concerning this Agreement or the
transactions contemplated hereby shall be made without advance approval thereof
by Seller and Buyer, except as required by law.
8.2
Entire
Agreement
. This Agreement and the schedules and exhibits
delivered in connection herewith constitute the entire agreement of the parties
with respect to the subject matter hereof, and supersedes all other agreements
between the parties. The representations, warranties, covenants and
agreements set forth in this Agreement and in any schedules or exhibits
delivered pursuant hereto constitute all the representations, warranties,
covenants and agreements of the parties hereto and upon which the parties have
relied, and except as specifically provided herein, no change, modification,
amendment, addition or termination of this Agreement or any part thereof shall
be valid unless in writing and signed by or on behalf of the party to be charged
therewith.
8.3
Notices
. Any
and all notices or other communications or deliveries required or permitted to
be given or made pursuant to any of the provisions of this Agreement shall be
deemed to have been duly given or made for all purposes if (i) hand
delivered, (ii) sent by a nationally recognized overnight courier for next
business day delivery or (iii) sent by telephone facsimile transmission
(with prompt oral confirmation of receipt) as follows:
If to
Buyer:
Internet Media Services,
Inc.
4553 Glencoe Ave, Suite
325
Marina del Rey, California
90292
Attention: Raymond
Meyers
Telecopy No.: (310)
482-6969
with a copy to:
Law Office of Gary A.
Agron
5445 DTC Parkway, Suite
520
Greenwood Village, Colorado
80111
Attention: Gary A.
Agron
Telecopy No.: (303)
770-7257
If to
Seller:
Lester Levin Inc.
c/o Document Security Systems,
Inc.
28 East Main Street, Suite
1525
Rochester, New York 14614
Attention: Patrick White,
Chief Executive Officer
Telecopy
No.: (585) 325-2977
with a copy to:
Woods Oviatt Gilman LLP
700 Crossroads Building
Rochester, NY 14614
Attention: Gregory W. Gribben,
Esq.
Telecopy No.: (585)
987-2975
or at
such other address as any party may specify by notice given to the other party
in accordance with this Section 7.3. The date of giving of any
such notice shall be the date of hand delivery, the business day sent by
telephone facsimile, and the day after delivery to the overnight courier
service.
8.4
Non-Assignable
Assets
. Notwithstanding anything contained in this Agreement
to the contrary, this Agreement shall not constitute an agreement to transfer,
sublease or assign any Contract if any such attempted transfer, sublease or
assignment without the consent of any third party would constitute a breach
thereof or would in any way materially and adversely affect the rights of Buyer
or the obligations of Seller thereunder following the Closing. Seller
shall use commercially reasonable efforts to obtain the consent of any third
party or parties to such transfer, sublease or assignment in all cases in which
such consent is required.
8.5
Waivers and
Amendments
. This Agreement may be amended, superseded,
canceled, renewed or extended and the terms hereof may be waived only by a
written instrument signed by the parties or, in the case of a waiver, by the
party waiving compliance.
8.6
Survival
. The
representations and warranties contained in Sections 4.1, 4.2, 4.4, 5.1, 5.2,
5.5 and 5.6 shall survive the Closing indefinitely. All of the other
representations and warranties contained in Articles IV and V of this Agreement
shall survive the Closing until eighteen months from the date hereof.
Notwithstanding the foregoing if at the stated expiration of any representation
and warranty there shall then be pending any indemnification claim by a Person
made in accordance with the terms hereof, such Person shall continue to have the
right to pursue indemnification as provided herein with respect to such claim
notwithstanding such expiration. All covenants and agreements made in this
Agreement shall survive the Closing indefinitely (subject to any temporal
limitation expressly provided for in any such covenants and
agreements).
8.7
Counterparts
. This
Agreement may be executed by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument.
8.8
Governing Law;
Severability
. This Agreement shall be governed by, and
construed in accordance with the internal Laws of the State of New York, without
reference to the choice of law or conflicts of law principles
thereof. The parties hereby irrevocably (a) submit themselves to the
non-exclusive jurisdiction of the state and federal courts sitting in Monroe
County, New York and (b) waive the right and hereby agree not to assert by way
of motion, as a defense or otherwise in any action, suit or other legal
proceeding brought in any such court, any claim that it, he or she is not
subject to the jurisdiction of such court, that such action, suit or proceeding
is brought in an inconvenient forum or that the venue of such action, suit or
proceeding is improper. Each party irrevocably and unconditionally
consents to the service of any process, pleadings, notices or other papers in a
manner permitted by the notice provisions of Section 8.3. EACH PARTY
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF SUCH PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
8.9
Assignment
. This
Agreement shall be binding upon, and inure to the benefit of, the parties and
their respective heirs, administrators, successors and permitted
assigns. Neither this Agreement nor any rights or obligations
hereunder shall be assignable by either party; provided that Buyer may assign
its rights under this Agreement, subject to the covenants in Article VI of this
Agreement, (i) as security to any lender providing financing for the
transactions contemplated hereby (and any replacement thereof) and (ii)
following the Closing in connection with a sale of all or substantially all of
the Business.
8.10
Negotiated
Agreement
. The parties hereby acknowledge that the terms and
language of this Agreement were the result of negotiations among the parties
and, as a result, there shall be no presumption that any ambiguities in this
Agreement shall be resolved against any particular party. Any
controversy over construction of this Agreement shall be decided without regard
to events of authorship or negotiation.
8.11
Expenses;
Taxes
. Each of Buyer and Seller shall bear all of their own
expenses in connection with the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, including without limitation
all fees and expenses of its agents, representatives, counsel and
accountants. Any sales, transfer or similar taxes owing from the
transfer of the Acquired Assets shall be paid by Buyer.
8.12
Third Party
Beneficiary
. DSS shall be a third party beneficiary of the
representations and warranties, covenants, and other agreements between Buyer
and Seller contained herein.
8.13
Headings
. The
headings contained in this Agreement have been inserted for convenience of
reference only and shall in no way restrict or modify any of the terms or
provisions hereof.
* * * * *
* * *
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
first set forth above.
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BUYER:
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INTERNET
MEDIA SERVICES, INC.
|
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|
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By:/
s/Raymond Meyers
|
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Raymond
Meyers
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Chief
Executive Officer
|
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SELLER:
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LESTER
LEVIN INC.
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By:/
s/Patrick White
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Patrick
White
|
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Chief
Executive Officer
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Exhibit A
Copyrights
and Trademarks
None.
Exhibit B
Form of
Assignment of Domain Name
Attached.
Exhibit C
Form Bill
of Sale
Attached.
Form
Registration Rights Agreement
Exhibit
E
Form
Voting Agreement
Exhibit
F
Form
Stock Pledge and Escrow Agreement
Exhibit
G
Form
Lock-Up Agreement
Exhibit
H
Form
Assignment and Assumption Agreement
Schedule
2.1(a)
Equipment
Schedule
2.1(b)
Inventory
Schedule
2.1(c)
Contracts
Stern
Properties Office Lease dated 9/6/05
Schedule
2.1(e)
Proprietary
Rights
Schedule
2.1(f)
Trade
Accounts Receivable
Schedule
2.1(h)
Cash and
Cash Equivalents
Bank of
America Account No. 009442661376 – Balance $10,405.83
Schedule 2.2
Excluded
Assets
Outstanding
operating leases not related to the Business.
Net
Operating Loss carryovers.
Schedule 2.3
Assumed
Liabilities
Office
lease with Stern Properties dated September 6, 2005
Trade
payables listed on the Accounts Payable register as of the Closing
Date.
Accrued
Payroll of Legalstore.com employees Deanna Gadsby and John Lyon for the pay
period beginning on Monday October 5, , 2009 through Thursday, October 8, ,
2009.
Any
liabilities in connection with the Contracts assigned under Section
2.1(c).
[Any
liabilities listed on the Closing Balance Sheet]
Schedule
2.4(a)(v)
Closing
Balance Sheet
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LEGALSTORE.COM
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Carve-Out
Balance Sheets
|
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As
of
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|
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October
7,
|
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|
|
2009
|
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ASSETS
|
|
(unaudited)
|
|
|
|
|
|
|
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Current
assets:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
10,405
|
|
|
Accounts
receivable
|
|
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31,161
|
|
|
Inventory
|
|
|
101,011
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
142,577
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
|
32,218
|
|
|
Goodwill
|
|
|
81,013
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
255,808
|
|
|
|
|
|
|
|
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LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable
|
|
$
|
13,264
|
|
|
Current
portion of capital lease obligations
|
|
|
-
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
13,264
|
|
|
|
|
|
|
|
|
Divisional
equity
|
|
|
242,544
|
|
|
|
|
|
|
|
|
Total
liabilities and divisional equity
|
|
$
|
255,808
|
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Schedule 3.3
Purchase
Price Allocation
Asset
Amount
Total:
Schedule 4.1
Shareholders
of Seller
Document
Security Systems, Inc., a New York corporation
Schedule
4.2
Consent
Consent
for the transaction is required under the Office lease with Stern Properties
dated September 6, 2005
Schedule 4.6
Litigation
None
Schedule 4.7
Intellectual
Property
All of
Seller’ existing customer databases.
All of
Seller’ websites, domain names and URL’s, and all information and rights related
thereto
as
follows:
LegalStore.com
LegalStore.org
LegalStore.mobi
LegalStore.me
LegalStore.us
legalstore.biz
legalstore.info
legalstore.ws
legalstore.tv
Seller
will continue to own the domain name lesterlevin.com, but will direct web
traffic to legalstore.com. Email will continue to flow as it currently does to
lesterlevin.com.
Schedule
4.8
Insurance
Attached.
Schedule
4.11
Affiliate
Interests
The
internet domain names listed in Schedule 4.7 owned by Seller are registered in
the name of Patrick White and DSS and are to be assigned to Buyer at the
Closing.
Schedule
5.6
IMS
Stockholders
Name
Shares of IMS Common Stock
Held
Raymond
Meyers 9,000,000
Michael
Buechler 4,000,000
Alex
Orlando 1,000
Total
13,001,000