-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UfKlY6SOsJG48CG7sKZPNzSdQ4guMmULNHoKl2mACJjCkJoMkr0bHDCFTr86FIxd uDfgsnf44OOo5A52b7vsaQ== 0000950169-98-000422.txt : 19980420 0000950169-98-000422.hdr.sgml : 19980420 ACCESSION NUMBER: 0000950169-98-000422 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980415 DATE AS OF CHANGE: 19980417 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STRATEGIC SOLUTIONS GROUP INC CENTRAL INDEX KEY: 0000851943 STANDARD INDUSTRIAL CLASSIFICATION: 7371 IRS NUMBER: 112964894 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12536 FILM NUMBER: 98595036 BUSINESS ADDRESS: STREET 1: 326 FIRST ST STE 100 CITY: ANNAPOLIS STATE: MD ZIP: 21403 BUSINESS PHONE: 4102637761 MAIL ADDRESS: STREET 1: 326 FIRST STREET STE 100 CITY: ANNAPOLIS STATE: MD ZIP: 21403 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC ANIMATED IMAGING CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC ANIMATED IMAGING CORPORATION DATE OF NAME CHANGE: 19910814 FORMER COMPANY: FORMER CONFORMED NAME: TRANS AM CAPITAL CORP DATE OF NAME CHANGE: 19910227 10-K 1 STRATEGIC SOLUTIONS GROUP, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _____________ to ____________ Commission File Number: 1-12536 STRATEGIC SOLUTIONS GROUP, INC. (Exact name of Registrant as specified in its charter) Delaware 11-2964894 - - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 326 First Street, Suite 100 Annapolis, Maryland 21403 - - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (410) 263-7761 -------------- Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.0001 par value - - -------------------------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: None - - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] As of March 27, 1998 the aggregate market value of the voting stock held by non-affiliates, approximately 2,777,000 shares of Common Stock, $.0001 par value, was approximately $3,992,000 based on the closing sales price of $1 7/16 for one share of Common Stock on the Nasdaq Small Cap Market on such date. The number of shares outstanding of the Registrant's Common Stock, as of March 27, 1998 was 2,821,463. Documents incorporated by reference: Portions of the Registrant's definitive Proxy Statement regarding its 1998 Annual Meeting of Stockholders are incorporated by reference in Part III of this Report. PART I ITEM 1. DESCRIPTION OF BUSINESS. GENERAL During 1997, the Company was a full service provider of technology based solutions and computer systems integration and support services, including the sale of hardware and software products, specializing in the development of software applications related to work group and work flow computing solutions and custom interactive multimedia software. The Company's systems integration division was comprised of the business of U.S. Technologies, Inc. ("UST"), a wholly owned subsidiary, which the Company acquired in July 1996. UST is a Lotus Premium Business Partner that develops software applications used in conjunction with, and provides services related to the use of Lotus Notes(R) and Domino(TM), and was an IBM Industry Remarketer of AS/400(R) and RS/6000(R) midrange computers. The Company's multimedia division designs, develops, and markets custom multimedia software used to deliver computer-based and web-based training, electronic performance support systems, multimedia manuals, sales and marketing presentations, and corporate communications. For the year ended December 31, 1997, approximately 81% of the Company's revenue was attributable to the systems integration division and approximately 19% to the multimedia division. References to the "Company" herein refer to Strategic Solutions Group, Inc. and its subsidiaries. In April 1998, UST was merged into and with SSGI-UST Acquisition Corporation, an existing corporation formed on March 5, 1998 and owned by the President of UST and other third parties. UST continued as the surviving corporation; accordingly, SSGI-UST Acquisition Corp. ceased to exist. Effective upon the merger, the Company's ownership in UST was reduced from 100% to approximately 14%. See "Systems Integration Services Merger of UST" below and the Notes to the Consolidated Financial Statements. Accordingly, after that date, the Company's operations will comprise the multimedia division only. SYSTEMS INTEGRATION SERVICES The Company acquired UST, a full-service provider of computer systems integration and support services, in July 1996. Products and services included the sale of hardware and software products and the development of software applications for and providing services related to work group and work flow computing solutions. UST is a Lotus Premium Business Partner that develops software applications used in conjunction with, and provides services related to the use of Lotus Notes(R) and Domino(TM). Through June 30, 1997, UST was also an IBM Industry Remarketer of AS/400(R) and RS/6000(R) midrange computers. However, effective June 30, 1997, UST chose to no longer sell the IBM AS/400(R) and RS/6000(R) midrange computers due to gross margins being lower than originally anticipated. LOTUS PREMIUM BUSINESS PARTNER. Lotus Notes(R) and Domino(TM) are proprietary groupware and messaging software products developed by Lotus Development Corporation that enable users to communicate and collaborate over a local area network or telecommunications link and access 1 documents and data residing on a shared computer, or server. As a Lotus Premium Business Partner, UST develops a wide variety of custom software applications expanding the applicability of Lotus Notes(R)/Domino(TM) to a particular customer's needs. Such applications have included numerous project, time, sales, and database management applications. For example, UST recently has developed a sales force automation system for a publisher and distributor of secondary education products and a quality control application for an international manufacturer of consumer goods. UST also provides a full complement of services related to the use of Lotus Notes(R)/Domino(TM), including the integration, design, development and installation of computer systems, intranet and Internet services, and education and support services. DEVELOPMENT AND SERVICES. At the outset of each systems integration project, UST provides each of its customers with a statement of work that details the products and services that UST will provide, sets forth a good faith estimate of the amount UST will charge, and provides a work and payment schedule. The payment schedule varies from customer to customer, but usually includes some form of up-front payment and either weekly or monthly payments or payments based upon the completion of phases of the project. UST generally charges an aggregate of $10,000 to $250,000 for systems integration services (including the purchase of hardware) and the amount of time required to complete such services ranges from several days to a year. Post-installation support services are billed separately, usually on an hourly basis. Because of the extensive testing and evaluation procedures that are undertaken in conjunction with its customers with respect to the Company's systems integration services, the Company does not provide warranties with respect to such services. Lotus Development Corporation and IBM, as well as other equipment manufacturers, provide the Company's customers with limited warranties on their products. IBM INDUSTRY REMARKETER. In November 1996, UST became an IBM Industry Remarketer for the AS/400(R) and RS/6000(R) midrange computers. Midrange computers generally are the most powerful computers frequently used by mid-sized companies (companies with annual sales of $25 to $250 million). During the fourth quarter of 1996, UST entered into an agreement with Support Net, Inc., IBM's largest Managing Industry Remarketer, that enabled UST to sell the AS/400(R) and RS/6000(R) midrange computers on a non-exclusive basis to end users of those computers located in the United States. However, effective June 30, 1997, UST chose to no longer sell the IBM AS/400(R) and RS/6000(R) midrange computers due to gross margins being lower than originally anticipated. Accordingly, these agreements were terminated. Total product sales by UST for the year ended December 31, 1997 was approximately $2.1 million, of which approximately 64% was attributable to the sales of the IBM AS/400(R) and RS/6000(R) midrange computers. MERGER OF UST. In April 1998, UST was merged into and with SSGI-UST Acquisition Corporation, an existing Florida company owned by the President of UST and other third parties, and UST continued as the surviving corporation. Accordingly, after that date, the Company's operations will not include the operations of UST. UST will be immediately pursuing a private placement of its equity securities for approximately $2,000,000 and has long-term plans to pursue a public offering of its equity securities. 2 In consideration for the merger, SSGI received the following: (1) 100,000 shares of common stock of UST valued at $500,000 or $5.00 per share. These shares are subject to a registration rights agreement giving the Company the right to demand registration or a piggy back registration of UST's shares; (2) A promissory note from UST in the principal amount of $600,000 with 6% interest due the earlier of the closing of the $2,000,000 private placement or 60 days from the closing of the merger. The promissory note is secured by all the assets of UST and the pledge of all of the outstanding stock of UST; and (3) A 6% subordinated convertible debenture in the principal amount of $927,000 (to be increased for any funding provided by the Company to UST after February 6, 1998, the date the merger was agreed to). The debenture is due the earlier of a public offering of UST's securities or 18 months from the date of the merger. In addition, the Company has the option to convert the debenture into shares of UST's common stock at a 20% discount to market value conversion ratio at the time of conversion. CUSTOM MULTIMEDIA SOFTWARE The Company's multimedia division (the "division") provides technical consulting services that include analysis, design, and development of technology-based solutions and specializes in providing training solutions. Technology-based training encompasses a wide range of emerging technologies in the area of employee training, and can come in the form of computer-based training, web-based training, electronic performance support systems, and multimedia manuals. In addition to training, the division also designs and develops software for sales and marketing applications and corporate communications. Depending on a customer's needs, the division can produce multimedia software that includes interactive computer animation, full motion video, audio, high-end color graphics, text and hypertext providing vivid and effective instruction and information. The software developed by the division can be distributed over multiple platforms including MSWindows(TM) and DOS and can be delivered on diskette or CD-ROM. The Company believes that it can adapt its services using new and emerging technologies, such as internal corporate intranets or the Internet using the World Wide Web ("Web"). In addition, the incorporation of Web-Based training ("WBT") allows users to have access from anywhere in the world. The Company believes that the Internet and intranets will become increasingly important delivery methods in the future. According to a market research firm, International Data Corp. ("IDC"), companies spent approximately $18 billion worldwide in training for their workers in 1996 and by the year 2001 that annual bill is expected to grow to approximately $27.9 billion. In addition, according to IDC, offering employee training via the Internet and corporate intranets is a business that could grow at annual rates greater than 100% over the next few years. 3 COMPUTER-BASED TRAINING ("CBT"). The division designs and develops custom computer-based training software, which provides an interactive learning experience to instruct employees how to use complex equipment or to understand complicated industrial processes by simulating operation and production procedures. The division's software typically replaces or supplements technical manuals and operating documentation and provides interactive self-paced training. It also often incorporates cut-away views of equipment that would be difficult or impossible to display in a real-world setting and enables users to learn complex processes by viewing them in real or lapsed time or in slow motion. Based on studies conducted and published by the American Society for Training and Development, management believes that CBT enables users to master skills and retains information more effectively than traditional instructor-led training. WEB-BASED TRAINING. Recent technological developments and advances in computer network technology enable the Company to deliver computer-based training over corporate intranets or the Internet via the Web. Web-based materials can be text-based (such as, lecture notes, case studies, and assignments) or they may be much like sophisticated CBT courseware. As a result of rapidly advancing Web browsers, high-speed communications, and innovative instructional design, it is possible that real-time animation, video, audio, and conferencing could be features included in a WBT solution. In addition, the incorporation of WBT allows users to have access from anywhere in the world. The Company believes that the Internet and intranets will become increasingly important delivery methods in the future. ELECTRONIC PERFORMANCE SUPPORT SYSTEMS ("EPSS"). The goal of an EPSS is to provide whatever information is necessary to accelerate performance and learning at the moment of need - commonly referred to as HELP SYSTEMS. The division designs and develops custom EPSS software to enable users to perform better at their jobs. This software provides computer-based support that is integrated into a workstation or work environment, and acts as a combination coach/trainer/job aid/reference. The Company believes that EPSS increases employee productivity by providing needed information and training when and where it is needed - and in an amount and format that is the most useful to the user. MULTIMEDIA MANUALS. The division provides turn-key multimedia manual services, using an internally developed software product known as TechShelf(TM). TechShelf(TM) enables the division to convert customer manuals, reference guides, or other technical materials into interactive multimedia software, including full-motion video, audio, animation and interaction. The Company believes that these services enable customers to obtain a technology-based solution in less time and at a relatively low cost as compared to traditional custom software services. SALES AND MARKETING. The division designs and develops custom sales and marketing software which enables manufacturers and distributors to demonstrate their products to potential customers at trade shows or in kiosks. This software can enhance sales and marketing presentations by encouraging customer participation through the use of interactive product demonstrations. CORPORATE COMMUNICATIONS. The division designs and develops custom multimedia software for internal and external corporate communications. Examples include software used to 4 disseminate corporate policies and procedures and information about a company's products and services. The Company believes that its custom multimedia development services can be used to create a technology-based solution, including web-based, that is comprehensive and cost-effective and delivers lively and compelling messages to large groups of employees in disparate locations. DEVELOPMENT AND SERVICES. The Company's custom multimedia services for the above technology-based solutions include needs analysis, design specification and product development. Needs analysis typically takes from three to ten days and the charges for such services can range from $5,000 to $15,000. The design phase lasts from four to six weeks and the charges for such services can range from $20,000 to $40,000. Depending upon a project's scope and features, the time required to complete software development can range anywhere from one month to several years and the charges for such services can range from $10,000 to $1 million. At the outset of each project, the Company provides the customer with a statement of work that details the services that the Company will provide, sets forth the amount that the Company will charge, and provides a work and payment schedule. Any changes to the project that will result in additional charges are submitted to the customer for approval prior to providing the services. The payment schedule varies from customer to customer, but usually includes some form of up-front payment and progress payments based upon the completion of phases of the project. To date, the Company has not experienced any significant difficulties in delivering its custom software products to customers in accordance with schedules. The Company's contracts with respect to its services include an express warranty that usually terminates upon acceptance of the software by the customer. However, the Company generally will service the software to ensure that it performs as set forth in the statements of work for a one-year period. Because of the extensive testing and evaluation procedures performed in conjunction with the customer that are undertaken during the development process, to date, servicing cost after customer acceptance has been insignificant. Post-development support services are available and are billed separately, usually on an hourly basis. CUSTOMERS AND BACKLOG Systems integration services customers are generally mid to large size companies that have or require at least 50 individual computers to be attached to a network. These customers represent a wide variety of industries and service organizations. While a substantial percentage of the systems integration revenues historically have been generated by customers located within Florida, where UST is located, this percentage has decreased as UST markets its products and services to customers located outside of the state. The Company's multimedia customers traditionally have been comprised primarily of large manufacturers who must train employees to use complex equipment or understand complicated industrial processes. To date, such customers have represented a broad range of industries, including the automotive, packaging, electronics, pharmaceutical, beverage bottling, and fitness and food manufacturing industries, as well as government agencies located throughout the United States. As part of its strategy to grow revenues, the multimedia division has identified strategic 5 vertical markets with business-critical needs that can be addressed by the Company's technology-based solutions. The multimedia division has implemented a new sales and marketing strategy which targets its efforts on the manufacturing and transportation industries. The division intends to leverage its existing relationships and expand its sales and marketing efforts to increase market share in these industries. During fiscal 1997, there were no customers that accounted for at least 10% of the Company's consolidated revenue. During fiscal 1996, one systems integration customer, Data Systems International, accounted for approximately 10% of the Company's consolidated revenue. During fiscal 1995, three customers, Bell & Howell, TRW, Inc., and Mack Trucks, Inc., accounted for approximately 17%, 17%, and 13%, respectively, of the Company's revenue. As of December 31, 1997, backlog (i.e., the difference between the fees payable to the Company set forth in existing contracts and the amount of such fees that had been recognized as revenue on the Company's financial statements) of its custom multimedia software services totaled approximately $400,000, all of which is expected to be earned during 1998. As of December 31, 1997, backlog of UST's systems integration services and product sales totaled approximately $450,000, of which approximately $150,000 is expected to be earned by the Company during 1998 prior to the merger. There can be no assurance that contracts reflected in backlog will not be canceled or delayed. Accordingly, the Company believes that backlog is not a reliable measure of future revenue. RESEARCH AND DEVELOPMENT For the years ended December 31, 1997 and 1996, costs associated with research and development activities totaled approximately $323,000 and $252,000, respectively. Historically, research and development activities included the development of a library of reusable applications, codes, utilities, and tools that the Company can utilize in the early stages of development of many of its software applications. To date, no costs have been capitalized due to the expenditures for any one reusable application, code, utility, or tool not totaling a material amount. The Company believes that costs for research and development will continue in the future at consistent levels as the Company plans to continue improving its existing reusable applications, codes, utilities, and tools, as well as the development of new reusable applications, codes, utilities, and tools. In addition, future research and development efforts may include the development of products to be sold. SALES AND MARKETING As of February 28, 1998, the Company employed 10 people involved in sales who receive a combination of salary and commission (6 by UST and 4 by the multimedia division). The direct sales force focuses on large customers and leverages its industry experience to access target organizations within particular vertical markets. These markets are characterized by business areas to which the Company's services and technology are particularly well-suited, and by participants who possess the financial resources and scale of operations necessary to support the types of services provided the Company. The Company also employs other business development 6 and marketing techniques to communicate directly with current and prospective clients. These techniques include exhibiting at trade shows, authoring articles and presenting papers regarding the Company's solutions and technology, trade journal advertising, telemarketing, and direct mail marketing. In addition, as described above under "Systems Integration Services," UST's strategy includes being a Lotus Premium Business Partner and may receive leads from Lotus Development Corporation. In order to increase revenues, the multimedia division has recently implemented a more focused sales and marketing strategy which targets its efforts to providing technology-based training solutions to the manufacturing and transportation industries. In addition, the division will endeavor to become a Microsoft Solutions Provider which requires that the Company maintain two certified Microsoft professionals on staff. The Company believes that this affiliation may provide sales leads for its services. Existing clients are also an important component of the Company's marketing strategy. Follow-on projects leverage sales and marketing resources and strengthen the Company's client relationships. The Company believes that it has good relationships with its existing customer base and expects that these contacts will enable it to successfully pursue this strategy. COMPETITION The information technology consulting, software development, and business solution markets include a large number of participants, are subject to rapid change, and are highly competitive. The Company competes with and faces potential competition for clients and experienced personnel from a number of companies that have substantially greater financial, technical, sales, marketing, and other resources, and generate greater revenues, as well as have greater name recognition than the Company. These markets are highly fragmented and served by numerous firms, many of which serve only their respective local markets. In addition, clients may elect to use their internal information systems resources to satisfy their needs for software and application development and consulting services, rather than using those offered by the Company. The Company's systems integration business competes with Lotus Development Corporation, IBM, other Lotus Business Partners and IBM Industry Remarketers, companies that manufacture and market midrange computers that compete with the AS/400(R) and RS/6000(R) and their remarketing agents, companies that manufacture software that competes with Lotus Notes(R)/Domino(TM) and their business partners, and numerous other providers of systems integration and consulting services. The Company's custom multimedia software business competes with companies that produce interactive training software (custom and off-the-shelf) and other third-party suppliers of training and marketing materials, as well as internal training and information systems resources of potential customers. 7 The Company's clients primarily consist of large organizations, including agencies of the federal government, and there are an increasing number of professional services firms seeking information technology consulting and software development engagements from that client base. The Company believes that the principal competitive factors in the information technology consulting and software development industry include responsiveness to client needs, project completion time, quality of service, price, project management capability, and technical expertise. The Company believes that it presently competes favorably with respect to each of these factors. However, the Company's markets are still evolving and there can be no assurance that the Company will be able to compete successfully against current and future competitors and the failure to do so successfully will have a material adverse effect upon the Company's business, operating results, and financial condition. The Company believes that its ability to compete also depends in part on a number of competitive factors outside its control, including, the ability of its competitors to hire, retain and motivate personnel; the development by others of software that is competitive with the Company's services; the price at which others offer comparable services; and the extent of its competitor's responsiveness to customer needs. INTELLECTUAL PROPERTY Most of the Company's contracts state that its software is proprietary and that title to and ownership of its software generally reside with the Company. The Company grants nonexclusive licenses to customers for software developed by the Company for such customers. Like many software firms, the Company has no patents. The Company attempts to protect its rights with a combination of copyright, trade secret laws, and employee and third-party nondisclosure agreements. Despite these precautions, it may be possible for unauthorized third parties to copy certain portions of the Company's products or obtain and use information that the Company regards as proprietary, such as source codes or programming techniques. As the number of software products increases and their functionality further overlaps, the Company believes that software programs will increasingly become the subject of infringement claims. Although the Company's products have never been the subject of an infringement claim, there can be no assurance that third parties will not assert infringement claims against the Company in the future or that any such assertion may not require the Company to enter into royalty arrangements or result in costly litigation. PRODUCT LIABILITY INSURANCE The Company does not currently carry product liability insurance and there can be no assurance that such coverage, if obtainable, would be adequate in terms and scope to protect the Company against material adverse effects in the event of a successful product liability claim. Although the Company has not been subject to any product liability claims, such claims could arise in the future. There can be no assurance that the Company would have sufficient resources to satisfy any liability resulting from these claims or would be able to have its customers indemnify the Company against such claims. 8 EMPLOYEES As of February 28, 1998, the Company had 44 full-time employees, 10 of whom were in administration (4 for UST), 10 of whom were in sales and marketing (6 for UST), and 24 of whom held professional technical positions (16 for UST). None of the Company's employees are represented by unions. Management believes the Company's employee relations are good. The Company's success will depend upon its ability to attract, retain, and motivate highly-skilled employees, particularly project managers and other senior technical personnel. Qualified personnel are in particularly great demand and are likely to remain a limited resource for the foreseeable future. However, the Company believes that it has been successful in its efforts to attract and retain the number and quality of professionals needed to support present operations and future growth. Although the Company expects to continue to attract sufficient numbers of highly skilled employees and to retain its existing technical personnel for the foreseeable future, there can be no assurance that the Company will be able to do so. ITEM 2. DESCRIPTION OF PROPERTY. The Company leases office space in Annapolis and Rockville, Maryland; Tampa and Orlando, Florida; and Atlanta, GA. The leases require the Company to pay monthly rent of approximately $4,400, $3,900, $3,000, $2,200, and $950, respectively, and expire at various times through 2000. In addition, the Company leases office space in Redmond, Washington, for a monthly rent of approximately $9,500, which is subleased to an unaffiliated third party through the end of the Company's lease term in May 1998 due to the consolidation of the multimedia division. Management believes that its current office facilities are adequate and suitable for the Company's current operations. ITEM 3. LEGAL PROCEEDINGS. In January 1998, the company redeemed its 6% Subordinated Convertible Debenture ("the Debenture") and issued 1,052,624 shares of the Company's common stock as payment for the $1,710,514 redemption amount. The holder of the Debenture refused to accept the shares as payment and filed suit against the Company alleging that the terms of the Debenture permit the Company to pay the redemption price only in cash and as a result, the redemption by the Company and the issuance of the Company's common stock is invalid. The holder is seeking a determination to that effect and that the Company has forfeited its right to redeem the debenture. The complaint also seeks damages resulting from the Company's failure to honor the plaintiff's attempted post-redemption conversion of $115,000 principal amount of the Debenture. In April 1998, the Company and the holder began negotiation discussions to settle this litigation out of court. If the Company is unable to negotiate a settlement with the holder, a court hearing will be held on April 15, 1998. If the court hearing is held, the Company will vigorously defend this action. However, the Company cannot predict the outcome of the court hearing. See Note 16 to the Consolidated Financial Statements. 9 The Company is not subject to any other legal proceedings other than claims that arise in the ordinary course of its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has been listed on the Nasdaq Small Cap Market under the symbol "SSGI" and on the Boston Stock Exchange under the symbol "STG." Before November 11, 1993, the Company's Common Stock traded in Nasdaq's over-the-counter market and was quoted in the "Pink Sheets." In February 1998, the Company was notified by Nasdaq that it was not in compliance with Nasdaq's new net tangible assets requirement and that the Company's securities were scheduled for delisting. However, the Company has requested a temporary exemption to the new requirements by its submission of a proposed compliance plan. The Company is awaiting the decision of Nasdaq regarding its request and until a decision is reached by Nasdaq the delisting action has been stayed. The following table shows the high and low sale prices for the Company's Common Stock, for the periods indicated, based upon information supplied to the Company from Nasdaq. Year High Low ---- ---- --- 1997 ---- 1st Quarter $15.625 $12.00 2nd Quarter $13.125 $4.50 3rd Quarter $7.125 $3.375 4th Quarter $5.375 $0.75 1996 ---- 1st Quarter $10.875 $8.875 2nd Quarter $13.75 $9.625 3rd Quarter $13.375 $10.625 4th Quarter $15.00 $12.25 The closing bid price for the Company's Common Stock on March 27, 1998, was $1 7/16. The Company had approximately 167 holders of record of Common Stock as of March 13, 1998. Management believes that the number of beneficial holders of the Company's Common Stock as of March 13, 1998, was approximately 3,000. 10 No cash dividends have been paid by the Company on its Common Stock and no such payment is anticipated in the foreseeable future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THE FOLLOWING PARAGRAPHS CONTAIN CERTAIN FORWARD LOOKING STATEMENTS, WHICH ARE WITHIN THE MEANING OF AND MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE FORWARD LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, THOSE REGARDING THE PROSPECTS FOR AND FACTORS AFFECTING FUTURE REVENUES AND PROFITABILITY, LIKELIHOOD OF ADDITIONAL FINANCING, MARKETING, AND CASH REQUIREMENTS FOR FUTURE OPERATIONS. READERS ARE CAUTIONED THAT FORWARD LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES, AND FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS AND PROSPECTS, INCLUDING WITHOUT LIMITATION THOSE DESCRIBED BELOW AS WELL AS THE RISKS ASSOCIATED WITH: THE NATURE OF COMPETITION; TECHNOLOGICAL DEVELOPMENTS; AND EFFECTIVE MARKETING; ALL AS DISCUSSED IN THE COMPANY'S FILINGS WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION. OVERVIEW The Company's revenue are comprised of service fees, product sales, and royalties. Service fees are for systems integration services provided by UST, the Company's subsidiary acquired in July 1996, and for the development of custom multimedia software. Product sales are for software and hardware products primarily sold by UST. Pursuant to the merger described in "Description of Business - Systems Integration Services" and Note 16 to the Consolidated Financial Statements, in April 1998, UST was merged into a separate operating entity and accordingly, its revenues and results of operations will not be included in the Company's results of operations after that date. Royalties are paid to the Company by customers who resell copies of software developed by the Company for such customers. FISCAL 1997 COMPARED TO FISCAL 1996 Total revenues for the year ended December 31, 1997 were $4,791,823 as compared to $1,588,094 for the same period of 1996, an increase of approximately $3.2 million. This increase was primarily attributable to the inclusion of twelve months of UST revenues of approximately $3.9 million in 1997 as compared to the inclusion of six months of UST revenues of approximately $960,000 in the prior year following its acquisition by the Company in July 1996, as well as an increase in UST's revenue from product sales. In addition, revenue from the Company's custom software services increased by approximately $303,000 from the prior year. The net loss and net loss per share were $2,900,356 and $1.70 per share, respectively, for the year ended December 31, 1997 as compared to a net loss and net loss per share of $3,823,621 and $2.58 per share, respectively, for the prior year. 11 During the year ended December 31, 1997, revenue from services fees for systems integration and software development services provided by UST was $1,802,643 as compared to $603,366 in the prior year, an increase of approximately $1.2 million. The increase is due to the inclusion of twelve months of UST revenues in 1997 as compared to only six months in the prior year following its acquisition by the Company in July 1996. In addition, UST's revenues increased during 1997 due to improved sales focus achieved after the acquisition. During the year ended December 31, 1997, revenue from custom multimedia software development services was $855,766 as compared to $552,397 for the prior year, an increase of approximately $303,000 or 55%. The increase was primarily due to an increase in the size of new contracts the Company was able to secure. The Company's strategy to grow revenue from custom multimedia software development services includes continuing to pursue larger contracts. During the year ended December 31, 1997, revenue from sales of products was $2,095,218, as compared to $372,256 in the prior year, an increase of approximately $1.7 million. This revenue represents sales of computer hardware and software products by UST as part of their systems integration services. The increase is due to the inclusion of twelve months of UST revenues in 1997 as compared to only six months in the prior year following its acquisition by the Company in July 1996. In addition, UST's revenues increased during 1997 due to the sales of IBM AS/40 and RS/6000 midrange computers under UST's Industry Remarketer Agreement with IBM through June 30, 1997. Sales of the IBM midrange computers accounted for approximately 70% of the revenue from product sales through June 30, 1997. However, effective June 30, 1997, UST chose to no longer sell the IBM AS/400 and RS/6000 midrange computers due to gross margins being lower than anticipated. UST continues to sell miscellaneous computer hardware and software as part of their systems integration business. Accordingly, revenue from product sales decreased in the second half of 1997 and is expected to stay at similar levels through the date of the merger. The Company has entered into agreements that allow certain customers to resell copies of the Company's software products in exchange for royalty payments. Royalties were $38,196 during the year ended December 31, 1997 as compared to $60,075 for the prior year, a decrease of approximately $22,000 or 36%. The Company generally expects royalty revenue to decrease due to the aging shelf life of products for which the Company currently receives royalties. However, the Company continually explores additional marketing and development partners to increase revenues generated from royalty arrangements. During the year ended December 31, 1997, total operating expenses were $7,342,245 as compared to $5,419,016 in the prior year, an increase of approximately $1.9 million, or 35%. The prior year expenses included approximately $867,000 for the write-offs of purchased research and development and goodwill in connection with the acquisitions of Forsight and UST. Accordingly, the increase from the prior year excluding the write-offs was approximately $2.8 million. This increase is primarily due to the inclusion of twelve months of UST operating expenses in 1997 as compared to only six months in the prior year following its acquisition by the Company in July 1996. In addition, the first six months of 1997 included the cost of product 12 sales related to the sale of IBM AS/40 and RS/6000 midrange computers under UST's Industry Remarketer Agreement with IBM. During the year ended December 31, 1997, the cost of service fees for systems integration services provided by UST was $1,054,825 as compared to $602,718 in the prior year, resulting in gross margins of approximately 41% and 0%, respectively. The improved gross margin for 1997 is due to an increase in revenue for services and improvements in UST's project bidding and tracking procedures. The break-even gross margin for the 1996 period was primarily due to the lower than anticipated level of sales for that period, as well as employee turnover as a result of the July 1996 acquisition of UST by the Company. During the year ended December 31, 1997, the cost of service fees for custom multimedia software services was $623,879 as compared to $782,413 in the prior year, resulting in gross margins of approximately 27% and (42%), respectively. The improvement in gross margins is primarily due to the consolidation of the multimedia related operations into one location, as well as an increase in revenue. The consolidation of the Redmond, Washington office was completed by December 31, 1996. Gross margins are expected to be positive in future periods when there are increases in revenues. Cost of product sales was $1,848,385 for the year ended December 31, 1997, as compared to $223,498 in the prior year, resulting in gross margins of approximately 12% and 40%, respectively. The lower gross margin for 1997 is due to UST's attempt to enter the IBM AS/400 and RS/6000 midrange computer market by making sales at low gross margins. As discussed above, UST discontinued the sale of these computers effective June 30, 1997. Although UST will continue to sell miscellaneous computer hardware and software items as part of their systems integration business, gross margins are not expected to be significant in future periods. The gross margin for 1996 was unusually high due to an unusual one-time transaction related to the sale of an IBM mid-range computer recognized during 1996 by UST. During the year ended December 31, 1997, research and development expenses were $323,002 as compared to $251,778 for the prior year. Research and development expenses included improvements on existing tools and the development of software tools and applications to be sold. During the year ended December 31, 1997, selling, general and administrative expenses were $3,492,154 as compared to $2,691,483 in the prior year, an increase of approximately $800,000, or 30%. The increase is primarily due to the inclusion of twelve months of UST operations in 1997 as compared to only six months in the prior year following its acquisition by the Company in July 1996. During the year ended December 31, 1997, total other income (expense) increased by approximately $357,000 from the prior year primarily due to a beneficial conversion interest charge of approximately $339,000 recognized in 1997 in connection with the Company's 6% subordinated convertible debenture. In addition interest expense increased due to the inclusion of twelve months of interest on UST's obligations to a bank in 1997 as compared to only six months 13 in the prior year following its acquisition by the Company in July 1996 and interest expense for the Company's 6% debentures issued in October 1997. FISCAL 1996 COMPARED TO FISCAL 1995 Total revenues for the year ended December 31, 1996 were $1,588,094 as compared to $708,652 for the same period of 1995, an increase of approximately $879,000. This increase was primarily attributable to the inclusion of six months of UST revenues of approximately $960,000 following its acquisition by the Company in July 1996, offset by a decrease in sales of the Company's custom software products of approximately $81,000. The net loss and net loss per share were $3,823,621 and $2.58 per share, respectively, for the year ended December 31, 1996 as compared to a net loss and net loss per share of $1,949,415 and $3.52 per share, respectively, for the prior year. During the year ended December 31, 1996, revenue from services fees for systems integration and software development services provided by UST following its acquisition by the Company in July 1996 was $603,366, as compared to $0 in the prior year. During the year ended December 31, 1996, revenue from custom multimedia software development services was $552,397 as compared to $633,092 for the prior year, a decrease of approximately $81,000 or 13%. The decrease was primarily due to the number and size of new contracts the Company was able to secure and to ongoing delays in certain contracts with customers, particularly the Company's subcontract with TRW. During the first quarter of 1997, the Company was notified that TRW's contract with the State of California was terminated; accordingly, the Company's subcontract with TRW was terminated. The Company recognized approximately $134,000 in revenue from this contract during 1996 as compared to approximately $118,000 during 1995. During the year ended December 31, 1996, revenue from sales of products was $372,256, as compared to $21,739 in the prior year, an increase of approximately $350,000. Approximately $357,000 of the revenue for the year ended December 31, 1996, represents six months of sales of computer hardware and software products by UST. UST sells computer hardware and software products as part of their systems integration services. The remaining $15,000 in revenue for the year ended December 31, 1996 and all of the revenue for the year ended December 31, 1995 represents sales of two consumer off-the-shelf products which the Company began marketing during the last quarter of 1995 when it initiated test market mailing programs for certain products. Both mailings generated low response rates; accordingly, the Company does not plan to perform any additional mailings for these products. The Company has entered into agreements that allow certain customers to resell copies of the Company's software products in exchange for royalty payments. Royalties were $60,075 during the year ended December 31, 1996 as compared to $53,821 for the prior year, an increase of approximately $6,000 or 12%. The Company generally expects royalty revenue to decrease due to the aging shelf life of products for which the Company currently receives royalties. 14 However, the Company continually explores additional marketing and development partners to increase revenues generated from royalty arrangements. During the year ended December 31, 1996, total operating expenses were $5,419,016 as compared to $2,697,069 in the prior year, an increase of approximately $2.7 million. The acquisitions of Forsight, Inc. ("Forsight") and UST in February 1996 and July 1996, respectively, primarily accounted for the increase. The increase includes the write-off of purchased research and development in connection with the acquisition of Forsight, which totaled approximately $289,000, and the write-off of goodwill in connection with the acquisition of UST, which totaled approximately $578,000. For the years ended December 31, 1996 and 1995, the cost of service fees for custom multimedia software exceeded custom multimedia software revenue, resulting in negative gross margins of approximately (42%) and (14%), respectively. The negative gross margin for 1996 is primarily due to the lower than anticipated level of sales of the Company's custom multimedia software services, particularly for sales expected in connection with the acquisition of Forsight. Cost of service fees for systems integration services provided by UST following its acquisition by the Company was approximately $603,000 for the year ended December 31, 1996, resulting in an approximate break-even gross margin for 1996. The break-even gross margin for the 1996 period was primarily due to the lower than anticipated level of sales of UST's services, as well as employee turnover as a result of the merger. Cost of product sales was $223,498 for the year ended December 31, 1996, as compared to $11,253 in the prior year. Approximately $219,000 of these costs for the year ended December 31, 1996 was from the sale of products by UST following its acquisition by the Company and resulted in a gross margin of approximately 40%, an unusually high margin due to a one-time transaction related to the sale of an IBM mid-range computer recognized during 1996. Approximately $5,000 of these costs for the year ended December 31, 1996 and all of the costs for the prior year are the costs associated with the consumer off-the-shelf marketing initiative discussed above. During the year ended December 31, 1996, research and development expenses were $251,778 as compared to $257,979 for the prior year. Research and development expenses were consistent with the prior year as the Company continued to improve on existing tools as needed and develop modified versions of traditional custom software products to be sold to a broad range of commercial customers. During the year ended December 31, 1996, selling, general and administrative expenses were $2,691,483 as compared to $1,707,521 in the prior year, an increase of approximately $984,000, or 58%. Approximately $922,000 of the increase is due to the acquisitions of Forsight and UST. The remaining increase is due to the Company's increased sales and marketing efforts. During the year ended December 31, 1996, total other income (expense) decreased by approximately $32,000 from the same period of the prior year due to losses recognized during 15 1996 related to the consolidation of the multimedia division, the write off of certain obsolete inventory and computer equipment, as well as interest expense on UST's line-of-credit and bank note. CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES The Report of Independent Accountants on the 1997 consolidated financial statements of the Company includes an explanatory paragraph stating that the recurring losses from operations and the existing cash resources may be insufficient to fund planned operations and that these conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company incurred a net loss of $2,900,356 for the year ended December 31, 1997, and as of December 31, 1997 had an accumulated deficit of $13,566,315. In addition, the Company is in litigation with the holder of its subordinated convertible debenture related to the redemption of the debenture and the issuance of 1,052,624 shares of the Company's common stock in January 1998 (See "Legal Proceedings" and Note 15 to the Consolidated Financial Statements.) As discussed in Note 1 to the Notes to the Consolidated Financial Statements and under STRATEGY TO ACHIEVE PROFITABLE OPERATIONS below, the Company plans to implement certain actions to address the losses and liquidity matters. However, there can be no assurance that such actions will generate sufficient cash flow to ensure the continued existence of the Company; or that additional financing will be available from any sources at terms and conditions suitable to the Company. For the year ended December 31, 1997, the Company used cash of approximately $2.2 million in operations. In addition to the net loss of approximately $2.9 million, the Company experienced an increase in accounts receivable and a corresponding increase in accounts payable and accrued expenses. Net cash of approximately $474,000 was provided from proceeds received at maturity of U.S. government securities, offset by net cash of approximately $87,000 used for the purchase of equipment. Net cash of approximately $2.0 million was provided by financing activities representing approximately $2.3 million provided by the issuance of the Company's 6% Subordinated Convertible debenture and the exercise of common stock options and warrants, offset by approximately $334,000 used to make payments on UST's obligations to a bank. For the year ended December 31, 1996, the Company used cash of approximately $2.8 million in operations, primarily due to the net loss of approximately $3.8 million, net of amortization and depreciation and the write-offs of purchased research and development and goodwill in connection with the acquisitions of Forsight and UST, which totaled approximately $1.1 million. Net cash of approximately $634,000 was used for investing activities for the purchase of U.S. government securities, equipment, and Forsight. Net cash of approximately $200,000 was provided by the exercise of 28,571 common stock options, offset by approximately $43,000 used to make payments on UST's obligations to a bank. For the year ended December 31, 1995, the Company used cash of approximately $1.8 million in operating activities. In addition to the net loss, the Company experienced increases in accounts receivables and other assets. Net cash of approximately $1.7 million was provided by investing activities primarily from proceeds received at maturity of liquid investment securities. Net cash of 16 approximately $3.8 million was provided from financing activities as a result of net proceeds received from the December 1995 public offering of 920,000 shares of the Company's Common Stock. Working capital at December 31, 1995 was approximately $4.1 million. Working capital of approximately $650,000 at December 31, 1997, together with funds to be generated from investment income and future revenues are not expected to provide sufficient liquidity to meet anticipated cash needs on either a short-term or long-term basis. On April 8, 1998, the Company completed the divestiture of its wholly owned subsidiary, UST, as described in "Description of Business - Systems Integration Services" and Note 16 to the Notes to the Consolidated Financial Statements. Consideration received by the Company includes (i) 100,000 shares of common stock of UST valued at $500,000 or $5.00 per share; (ii) a $600,000 promissory note due the earlier of the closing of a $2,000,000 private placement or sixty days of the closing of the merger; and (iii) a convertible debenture for $927,000 due the earlier of 18 months from the closing of the merger or at the time of a public offering by UST. In addition, in February 1998, the Company was notified by Nasdaq that it was not in compliance with Nasdaq's new net tangible assets requirement and that the Company's securities were scheduled for delisting. However, the Company has requested a temporary exemption to the new requirements by its submission of a proposed compliance plan. The Company is awaiting the decision of Nasdaq regarding its request and until a decision is reached by Nasdaq the delisting action has been stayed. Management recognizes that the Company will require additional financing until such time that revenues are of sufficient volume to generate positive cash flows from operations. Although the Company will be seeking financing from placements of equity or debt securities, there can be no assurances that such financing will be available, or if available, will be under terms and conditions suitable to the Company. STRATEGY TO ACHIEVE PROFITABLE OPERATIONS Subsequent to the merger and resulting divestiture of UST in April 1998, the Company's strategy to increase revenue, which solely comprises the multimedia division, includes the implementation of an operating plan built around the division's mission statement - "We optimize human performance using leading edge technology-based training solutions to eliminate the barriers of time and space." The plan also includes the implementation of a more focused sales and marketing strategy which targets the division's sales and marketing efforts of technology-based training solutions to the manufacturing and transportation industries. Existing clients are also an important component of the Company's marketing strategy. Follow-on projects leverage sales and marketing resources and strengthen the Company's client relationships. The Company believes that it has good relationships with its existing customer base and expects that these contacts will enable it to successfully pursue this strategy. In addition, the division will endeavor to become a Microsoft Solutions Provider which requires that the Company maintain two certified Microsoft professionals on staff. The Company believes that it can acquire this certification during 1998 and that this affiliation will provide sales leads for its services. 17 In the normal course of business, the Company evaluates the acquisition of businesses, products and technologies that complement the Company's business. In addition, the Company may also evaluate other strategic alliances and joint ventures that can provide the Company with additional complementary capabilities or further broaden its base of customers requiring the products and services currently provided. The Company has no present commitments or agreements with respect to any such transaction. However, the Company may acquire businesses, products, or technologies in the future. There can be no assurance that the strategies addressed above and elsewhere herein will generate sufficient revenues and cash flow for the Company to reach profitability or to ensure the continued existence of the Company. IMPACT OF INFLATION Inflation has not had any significant effect of the Company's operations. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," in June 1997, which are both effective for the year ending December 31, 1998. SFAS No. 130 establishes standards for reporting comprehensive income in a full set of general purpose financial statements either in the income statement or in separate statement. The Company will begin reporting comprehensive income in the first quarter of 1998. SFAS No. 131 establishes standards for reporting information about operating segments, including related disclosures about products and services, geographic areas and major customers. The Company will begin making the disclosure required by SFAS No. 131 in the financial statements for the year ended December 31, 1998. In October 1997, the AICPA issued Statement of Position ("SOP") 97-2, Software Revenue Recognition, which will supercede SOP 91-1 effective January 1, 1998. Management has assessed this new statement and believes that its adoption will not have a material effect on the timing of the Company's revenue recognition or cause changes to its revenue recognition policies. IMPACT OF YEAR 2000 ISSUE The Company is in the process of assessing its computer applications to ensure their functionality with respect to the "Year 2000" millennium change. At present, the Company does not anticipate that material incremental costs will be incurred in any single future year. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: THE STATEMENTS CONTAINED IN THIS DOCUMENT AND OTHER STATEMENTS WHICH ARE NOT HISTORICAL FACTS ARE FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, THE SUCCESS OF NEWLY IMPLEMENTED SALES AND MARKETING STRATEGIES; THE CONTINUED EXISTENCE OF AGREEMENTS WITH CUSTOMERS; MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS AND SERVICES; 18 THE ABILITY TO OBTAIN A LARGER NUMBER AND SIZE OF CONTRACTS; THE TIMING OF CONTRACT AWARDS; WORK PERFORMANCE AND CUSTOMER RESPONSE; THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING; TECHNOLOGICAL DEVELOPMENTS BY THE COMPANY'S COMPETITORS OR DIFFICULTIES IN THE COMPANY'S RESEARCH AND DEVELOPMENT EFFORTS; AND OTHER RISKS AS DETAILED IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS. ITEM 7. FINANCIAL STATEMENTS The information required by Item 7 begins at page F-1 that appears after this page. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 19 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page No. Report of Coopers & Lybrand L.L.P, Independent Accountants, on the December 31, 1997 and 1996 Consolidated Financial Statements F-2 Consolidated Balance Sheets, December 31, 1997 and 1996 F-3 Consolidated Statements of Operations for the years ended December 31, 1997, 1996, and 1995 F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996, and 1995 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995 F-6 Notes to Consolidated Financial Statements F-7 - F-18 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Strategic Solutions Group, Inc. We have audited the accompanying consolidated balance sheets of Strategic Solutions Group, Inc. and its subsidiaries (the Company) as of December 31, 1997 and 1996 and the consolidated statements of operations, stockholders' equity, and cash flows for each of the three years ended in the period ended December 31, 1997. 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1997 and 1996 and the consolidated results of their operations and their cash flows for each of the three years ended in the period ended December 31, 1997 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has a significant accumulated deficit, and its existing cash resources are insufficient to fund planned operations. In addition, as discussed in Notes 1 and 15 to the consolidated financial statements, the Company is involved in litigation with the holder of its convertible debenture. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans to address these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. COOPERS & LYBRAND L.L.P McLean, Virginia March 27, 1998, except for Note 16 for which the date is April 8, 1998 F-2 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, 1997 1996 --------------- --------------- ASSETS Current assets Cash and cash equivalents $ 1,149,372 $ 939,281 Investment in U.S. government securities -- 474,144 Accounts receivable, net of allowance for doubtful accounts of $75,000 and $40,201, respectively 666,841 411,220 Prepaid expenses and other current assets 137,618 189,471 --------------- --------------- Total current assets 1,953,831 2,014,116 --------------- --------------- Property and equipment, at cost Computers, furniture and equipment 1,058,313 990,105 Less accumulated depreciation 701,390 490,193 --------------- --------------- Net property and equipment 356,923 499,912 --------------- --------------- Other assets 1,446,066 55,681 --------------- --------------- $ 3,756,820 $ 2,569,709 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities $ 1,027,935 $ 796,729 Deferred revenue 66,558 66,088 Note payable to bank 40,334 34,989 Line of credit -- 320,833 Other current liabilities 168,700 111,074 --------------- --------------- Total current liabilities 1,303,527 1,329,713 Note payable to bank -- 18,253 Convertible subordinated debenture 1,487,864 -- Other long-term liabilities -- 149,125 --------------- --------------- Total liabilities 2,791,391 1,497,091 --------------- --------------- Commitments and contingencies Stockholders' equity Common stock, $.0001 par value. Authorized 5,000,000 shares; issued and outstanding 1,768,839 and 1,518,880 shares as of December 31, 1997 and 1996 177 152 Additional paid-in capital 14,647,910 11,893,549 Accumulated deficit (13,566,315) (10,665,959) Deferred compensation (116,343) (155,124) --------------- --------------- Total stockholders' equity 965,429 1,072,618 --------------- --------------- $ 3,756,820 $ 2,569,709 =============== ===============
The accompanying notes are an integral part of these consolidated financial statements. F-3 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, --------------------------------------------------- 1997 1996 1995 -------------- -------------- --------------- Revenue Service fees $ 2,658,409 $ 1,155,763 $ 633,092 Product sales 2,095,218 372,256 21,739 Royalties 38,196 60,075 53,821 -------------- -------------- --------------- Total revenue 4,791,823 1,588,094 708,652 -------------- -------------- --------------- Expenses Cost of service fees 1,678,704 1,385,131 720,316 Cost of product sales 1,848,385 223,498 11,253 Research and development 323,002 251,778 257,979 Selling, general and administrative 3,492,154 2,691,483 1,707,521 Write-off of purchased research and development -- 289,330 -- Write-off of goodwill related to purchase of U.S. Technologies, Inc. -- 577,796 -- -------------- -------------- --------------- Total operating expenses 7,342,245 5,419,016 2,697,069 -------------- -------------- --------------- Loss from operations (2,550,422) (3,830,922) (1,988,417) Other (expense) income, net (349,934) 7,301 39,002 ============== ============== =============== Net loss $ (2,900,356) $ (3,823,621) $ (1,949,415) ============== ============== =============== Net loss per common share - basic and diluted $ (1.70) $ (2.58) $ (3.52) ============== ============== =============== Weighted average number of common shares outstanding 1,705,228 1,483,831 553,687 ============== ============== ===============
The accompanying notes are an integral part of these consolidated financial statements. F-4 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL --------------------- PAID-IN ACCUMULATED DEFERRED SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL ---------- -------- ------------- -------------- ------------ ------------- Balance, December 31, 1994 520,739 52 7,551,490 (4,892,923) -- 2,658,619 Exercise of incentive stock options 285 -- 2,250 -- -- 2,250 Net proceeds from public offering of shares of common stock, $5.25 per share, net of offering costs of $1,103,104 920,000 92 3,726,884 -- -- 3,726,976 Net loss -- -- -- (1,949,415) -- (1,949,415) ---------- -------- ------------- -------------- ----------- ------------- Balance, December 31, 1995 1,441,024 144 11,280,624 (6,842,338) -- 4,438,430 Exercise of stock options 32,856 3 238,424 -- -- 238,427 Stock issued for services 25,000 3 193,904 -- (193,907) -- Stock issued in connection with Forsight acquisition 20,000 2 159,373 -- -- 159,375 Adjustment to 1995 offering costs -- -- 21,224 -- -- 21,224 Amortization of deferred compensation -- -- -- -- 38,783 38,783 Net loss -- -- -- (3,823,621) -- (3,823,621) ---------- -------- ------------- -------------- ----------- ------------- Balance, December 31, 1996 1,518,880 152 11,893,549 (10,665,959) (155,124) 1,072,618 Exercise of stock options and warrants 111,071 11 792,606 -- -- 792,617 Grant of stock options in connection with financial consulting agreement -- -- 1,150,000 -- -- 1,150,000 Exercise of stock options in connection with financial consulting agreement 100,000 10 188,979 -- -- 188,989 Stock issued for services 38,888 4 171,246 -- -- 171,250 Warrants issued in connection with convertible subordinated debenture -- -- 112,136 -- -- 112,136 Value of beneficial conversion feature on convertible subordinated debenture -- -- 339,394 -- -- 339,394 Amortization of deferred compensation -- -- -- -- 38,781 38,781 Net loss -- -- -- (2,900,356) -- (2,900,356) ========== ======== ============= ============== =========== ============= Balance, December 31, 1997 1,768,839 $ 177 $ 14,647,910 $ (13,566,315) $ (116,343) $ 965,429 ========== ======== ============= ============== =========== =============
The accompanying notes are an integral part of these consolidated financial statements. F-5 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 1996 1995 ------------ ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(2,900,356) $ (3,823,621) $ (1,949,415) Adjustments to reconcile net loss to net cash used in operating activities, net of effects from purchases of Forsight, Inc. and U.S. Technologies, Inc. Depreciation and amortization 284,917 308,524 146,867 Loss on disposal of assets 4,666 22,634 21,022 Provision for bad debt expense 119,096 28,981 6,000 Interest expense associated with beneficial conversion feature on convertible subordinated debentures 339,394 -- -- Noncash expense for services 171,250 -- -- Write-off of purchased research and development -- 289,330 -- Write-off of goodwill -- 577,796 -- Increase (decrease) in cash from changes in assets and liabilities Accounts and interest receivable (374,717) (31,119) (109,073) Prepaid expenses and other current assets 51,853 (27,009) 68,586 Other assets 2,415 25,276 (48,102) Accounts payable and accrued liabilities 231,206 (1,146) 17,322 Other liabilities (91,029) (130,659) 62,100 ------------ ------------- ------------- Net cash used in operating activities (2,161,305) (2,761,013) (1,784,693) ------------ ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of U.S. government securities -- (474,144) -- Proceeds from maturity of U.S. government securities 474,144 -- 1,698,319 Capital expenditures (86,570) (134,033) (46,462) Proceeds from sales of property and equipment -- 11,200 14,038 Payment for purchase of Forsight, Inc., net of cash acquired -- (46,424) -- Cash acquired from purchase of U.S. Technologies, Inc. -- 9,549 -- ------------ ------------- ------------- Net cash provided by (used in) investing activities 387,574 (633,852) 1,665,895 ------------ ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from issuance of convertible subordinated debenture 1,335,957 -- -- Net proceeds from exercise of options and warrants 981,606 199,997 2,250 Net proceeds from sale of common stock -- -- 3,788,321 Payments on line of credit (290,833) (26,886) -- Payments on notes payable to bank (42,908) (16,499) -- ------------ ------------- ------------- Net cash provided by financing activities 1,983,822 156,612 3,790,571 ------------ ------------- ------------- Net increase (decrease) in cash and cash equivalents 210,091 (3,238,253) 3,671,773 Cash and cash equivalents, beginning of year 939,281 4,177,534 505,761 ------------ ------------- ------------- Cash and cash equivalents, end of year $ 1,149,372 $ 939,281 $ 4,177,534 ============ ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH PAID: Interest $ 33,901 $ 22,701 $ -- Income taxes -- -- -- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Stock issued as payment for unearned professional fees $ 1,150,000 $ 193,907 $ -- Stock issued as payment for services 171,250 -- -- Stock options exercised in lieu of payment for professional fees -- 38,430 -- Stock issued in connection with acquisition of Forsight -- 159,375 -- Adjustment to 1995 offering costs -- 21,224 -- Discount on convertible subordinated debenture 112,136 -- --
The accompanying notes are an integral part of these consolidated financial statements. F-6 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 1. THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS. Strategic Solutions Group, Inc. (formerly, Pacific Animated Imaging Corporation) and its subsidiaries (the "Company") are full-service providers of technology based software solutions and computer systems integration (including the sale of hardware and software products) and support services. The Company's Multimedia division specializes in the development of custom interactive multimedia software for use in the areas of process enhancement, technical documentation, training, and performance support for a variety of commercial and industrial end-users. The Company's wholly owned subsidiary, U.S. Technologies, Inc. ("UST"), specializes in computer systems integration and support services and in the development of software applications related to work group and work flow computing solutions. GOING CONCERN. The Company's financial statements for the year ended December 31, 1997 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred a net loss of $2,900,356 for the year ended December 31, 1997, and as of December 31, 1997 had an accumulated deficit of $13,566,315. The Company is in litigation with the holder of its subordinated convertible debenture related to the redemption of the debenture and the issuance of 1,052,624 shares of the Company's common stock in January 1998 (see Note 15.) In addition, in February 1998, the Company was notified by Nasdaq that it was not in compliance with Nasdaq's new net tangible assets requirement and that the Company's securities were scheduled for delisting. However, the Company has requested a temporary exemption to the new requirements by its submission of a proposed compliance plan. The Company is awaiting the decision of Nasdaq regarding its request and until a decision is reached by Nasdaq the delisting action has been stayed. Management recognizes that in order to develop and market its services effectively, the Company will require additional financing until such time that service fees are of sufficient volume to generate positive cash flows from operations. Although the Company may seek financing from placements of its equity securities or placements of debt, there can be no assurances that such financing will be available or, if available, will be under terms and conditions suitable to the Company. Management's plans to address the losses and liquidity matters include (i) disposing of the Company's wholly owned subsidiary, UST, for securities and short and long-term notes receivable (see Note 16); (ii) growing the multimedia operations by implementing a more focused marketing and sales program; and (iii) pursuing an acquisition program of related businesses. However, no assurances can be given that these measures, even if successful, will ensure the continued existence of the Company. The Company's financial statements do not include any adjustments that might result from the outcome of this uncertainty. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Strategic Solutions Group, Inc. and its wholly owned subsidiaries. REVENUE RECOGNITION. Revenues from hardware and software product sales are recognized on delivery. Revenues from software development, consulting and training services are recognized as services are performed. Revenues from certain custom multimedia software products are recognized using the percentage of completion method due to the significant customization involved in their development. Cost estimates are reviewed periodically as work progresses, and adjustments to revenue are reflected in the period in which revisions to such estimates are deemed necessary. Revenues from royalties are recognized in the period for which the royalties are earned. Software products generally are delivered without post sale vendor obligations and without a significant obligation to the customer. Deferred revenue represents amounts advanced by customers and is recognized as revenue upon delivery of the products or services and is adjusted on a quarterly basis to reflect the status of projects. F-7 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. INVESTMENTS IN U.S. GOVERNMENT SECURITIES. The Company anticipates that any investments in U.S. Government securities, composed of U.S. Treasury Bills and Notes, would be available for sale in response to the Company's liquidity needs, if necessary. Accordingly, these securities are principally considered as available-for-sale as defined by Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As of December 31, 1996, amortized cost approximated market, therefore, no adjustment was made to stockholders' equity. Interest income is accrued as earned. PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. The Company has estimated the useful lives of computer hardware and software to be three years and furniture and fixtures to be seven years. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the estimated useful life of the improvements or the remaining lease term. When assets are retired or disposed, the cost and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in operations for the period. PER SHARE DATA. Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic earnings per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the net loss by the weighted average number of common shares outstanding after giving effect to all dilutive potential common shares that were outstanding during the period. Potential common shares include stock options, warrants, or other convertible securities that could be exercised or converted into common stock and are not included in the computation of dilutive earnings per share if they are anti-dilutive. The Company did not have any dilutive potential common shares for any of the years presented. Net loss available to common stockholders was not adjusted for any of the years presented. Earnings per share for all periods presented conforms to SFAS No. 128. RESEARCH AND DEVELOPMENT EXPENSES AND SOFTWARE DEVELOPMENT COSTS. Statement of Financial Accounting Standards No. 86, "Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed" (SFAS 86) requires the capitalization of certain software development costs once technological feasibility is established, which the Company generally defines as the completion of a working model. Capitalization ceases when the products are available for general release to customers, at which time amortization of the capitalized costs begins on a straight-line basis over the estimated product life, or on the ratio of current revenues to total projected product revenues, whichever is greater. To date, software development costs qualifying for capitalization have been insignificant. Accordingly, the Company has not capitalized any software development costs with respect to its continuing operations. In addition, research and development costs including software development costs prior to technological feasibility are expensed in the period in which they are incurred. CONCENTRATION OF CREDIT RISK. The Company had approximately $950,000 and $750,000 on deposit in money market funds with strong credit ratings and checking accounts at various commercial banking institutions in excess of insured amounts at December 31, 1997 and 1996, respectively. The Company has not experienced losses on these investments. F-8 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- The Company provides hardware and software products, develops software, and performs services for its customers located throughout the United States. The customer base of one of the Company's subsidiaries, which accounted for approximately 81% and 60% of the Company's 1997 and 1996 revenues, respectively, is located primarily throughout Florida. The Company provides credit in the normal course of business and, to date, has not experienced significant losses related to receivables from individual customers or groups of customers in a particular industry or geographic area. In addition, for certain orders for custom multimedia software development projects, the Company requires advances or deposits of at least one-third of the price of the custom software with additional amounts due at certain milestones during the custom software development process. Due to these factors, management believes no additional credit risk beyond amounts provided for in the doubtful account allowance is inherent in the Company's accounts receivable. For the year ended December 31, 1997, no one customer accounted for 10% of the Company's revenue. For the year ended December 31, 1996, one customer, a systems integrator, accounted for 10% of the Company's revenue. For the year ended December 31, 1995, three customers, an automobile parts distribution company, a government contractor, and a truck manufacturer, accounted for 17%, 17%, and 13%, respectively, of the Company's revenue. At December 31, 1997, one customer, an insurance company, accounted for approximately 12% of accounts receivable. At December 31, 1996, two customers, a government contractor and a department store, accounted for approximately 14% and 18%, respectively, of accounts receivable. RECOVERABILITY OF LONG-LIVED ASSETS. The Company evaluates the recoverability of the carrying value of property and equipment and intangible assets in accordance with the provisions of Statement of Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of". The Company considers historical performance and anticipated future results in its evaluation of potential impairment. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of these assets in relation to the operating performance of the business and future and undiscounted cash flows expected to result from the use of these assets. Impairment losses are recognized when the sum of expected future cash flows are less than the assets' carrying value. On December 31, 1996, the Company recognized an impairment loss of approximately $578,000 related to the write-off of goodwill that resulted from the purchase of UST (see Note 2). Factors leading to the impairment were a combination of historical losses, anticipated future losses, and inadequate cash flows. STOCK SPLIT. On January 30, 1997, the Board of Directors of the Company voted and approved a three-for-two split of the Company's common stock. The split was voted and approved by the shareholders at the annual meeting of shareholders held on May 22, 1997. However, the Board of Directors exercised its discretionary authority and voted affirmatively with respect to a shareholder proposal to postpone the effective date of the three-for-two split until such time deemed appropriate by the Board of Directors. Neither the par value of the stock nor the number of authorized shares will be affected by the split. Had the additional shares resulting from the proposed stock split been outstanding during the years ended December 31, 1997 and 1996, net loss per share would have been as follows: 1997, $1.13 and 1996, $1.72. Financial information contained elsewhere in this report has not been adjusted to reflect the impact of the proposed common stock split. INCOME TAXES. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. F-9 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- FAIR VALUE OF FINANCIAL INSTRUMENTS. During 1995, the Company adopted Statement of Financial Accounting Standards No. 107, "Disclosure of Fair Value of Financial Instruments" ("SFAS 107"). The Company believes that for all financial instruments, as defined by SFAS 107, the carrying amount, as reported in the balance sheet approximates fair value. NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," in June 1997, which are both effective for the year ending December 31, 1998. SFAS No. 130 establishes standards for reporting comprehensive income in a full set of general purpose financial statements either in the income statement or in separate statement. The Company will begin reporting comprehensive income in the first quarter of 1998. SFAS No. 131 establishes standards for reporting information about operating segments, including related disclosures about products and services, geographic areas and major customers. The Company will begin making the disclosure required by SFAS No. 131 in the financial statements for the year ended December 31, 1998. In October 1997, the AICPA issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition," which will supercede SOP 91-1 effective January 1, 1998. Management has assessed this new statement and believes that its adoption will not have a material effect on the timing of the Company's revenue recognition or cause changes to its revenue recognition policies. RECLASSIFICATIONS. Certain prior year amounts have been reclassified to correspond to the current year presentation. 2. ACQUISITIONS During 1996, the Company acquired the entities described below, which were accounted for by the purchase method of accounting. The results of operations of the acquired companies are included in the Company's statement of income for the period in which they were owned by the Company. ACQUISITION OF FORSIGHT, INC. Effective February 2, 1996, the Company acquired substantially all the assets of Forsight, Inc. ("Forsight"), a closely held corporation engaged in the business of developing and selling interactive multimedia software to the business communications and the consumer publishing market for a total purchase price of approximately $375,000, plus direct expenses of the acquisition which totaled approximately $23,000. The Company acquired cash, fixtures and equipment, accounts receivable, intellectual property, and other miscellaneous assets for the assumption of certain liabilities of Forsight, which totaled approximately $200,000, and 20,000 unregistered shares of common stock of the Company. Other terms of the acquisition included the employment by the Company of certain of Forsight's key employees, who will continue as part of the Company's senior management team; and the acquisition of all of the shares of Series A Convertible Preferred Stock of Forsight from Circa Pharmaceuticals, Inc. in an amount equal to thirty percent of the net income each year for three years of Forsight's operations up to a maximum value of $600,000, payable in unregistered shares of common stock of the Company. The Series A Convertible Preferred Stock of Forsight was canceled after the acquisition. The Company allocated approximately $109,000 to identifiable tangible assets and wrote-off approximately $289,000 as in process research and development on the date of acquisition. The acquisition did not meet materiality thresholds for separate pro forma disclosure. ACQUISITION OF U.S. TECHNOLOGIES, INC. Effective July 19, 1996, U.S. Technologies Inc. Acquisition Corporation, a wholly owned subsidiary of the Company, merged with and into U.S. Technologies, Inc. ("UST"), with UST being the surviving F-10 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- corporation. As a result of the merger, the Company owns 100% of UST. Consideration at the time of purchase amounted to approximately $642,000 which represents the excess of UST's liabilities over its assets as of the date of the merger. On December 31, 1996, the Company wrote-off approximately $578,000, which represented the purchase consideration of approximately $642,000, net of approximately $64,000 of accumulated amortization, as an impairment loss (see Note 1). In addition, under the terms of the merger, the former 100% owner of UST has the ability to earn up to 31,068 shares of common stock in the Company (the market value of which was $400,000 as of the date of the merger), provided certain financial milestones are met by UST. The value of the shares of common stock will be accounted for as compensation at the time of issuance. As of December 31, 1997, no shares of the Company's common stock had been earned by the former 100% owner of UST. Also in connection with the acquisition, the Company made a commitment to provide working capital to UST. Through December 31, 1997, working capital provided to UST totaled approximately $2.3 million. If the acquisition of UST had occurred on January 1, 1995, management estimates that on an unaudited pro forma consolidated basis, revenues, total operating expenses, net loss, and net loss per common share would have been as follows: 1996 1995 ---- ---- Revenues $2,918,235 $5,361,617 Total operating expenses $6,945,473 $7,741,381 Net loss ($4,036,851) ($2,379,764) Net loss per common share - basic and diluted ($2.72) ($4.39) These estimates were based on assumptions that management deems appropriate, but the results are not necessarily indicative of those that might have occurred had the acquisition taken place on January 1, 1995. 3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities as of December 31, 1997 and 1996 consist of the following: DECEMBER 31, 1997 1996 ---- ---- Accounts payable $ 673,417 $ 398,273 Payroll and related expense 192,552 171,262 Other 161,966 227,194 ---------- ---------- $1,027,935 $ 796,729 ============ ========= 4. LINE OF CREDIT As of December 31, 1996, UST had $320,833 of short-term debt outstanding under a line of credit with a bank. This line of credit was collateralized by accounts receivable as well as the personal guarantee of the former sole stockholder of UST. In July 1996, in connection with the acquisition of UST, this line of credit was renegotiated and required twelve monthly principal payments, which were guaranteed by the Company, of $5,833 plus interest through July 1997. Interest was at the bank's prime rate plus 2%. The remaining unpaid principal balance was due on August 18, 1997. In August 1997, UST paid $250,000 toward the unpaid balance of approximately $280,000. Effective October 23, 1997, the remaining balance on the line of credit of approximately $30,000 was consolidated with the then outstanding balance of the note payable. As of December 31, 1997, this is reflected in Note Payable to Bank (see Note 5). F-11 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 5. NOTE PAYABLE TO BANK As of December 31, 1997 and 1996, UST had notes payable to a bank, as follows: DECEMBER 31, DECEMBER 31, 1997 1996 ---- ---- Note payable to bank in monthly payments of $10,000, including interest at 10.5% through April 1998; collateralized by equipment, inventory, and accounts receivable (see Note 4) $ 40,334 -- Note payable to bank in monthly payments of $3,222, including interest at 9.75% through June 1998; collateralized by equipment, inventory, and accounts receivable -- $ 53,242 Less current portion (40,334) (34,989) -------- -------- Note payable to bank, less current portion $ -- $ 18,253 ======== ======== 6. LONG-TERM DEBT On October 31, 1997, the Company issued a $1,600,000 6% Convertible Subordinated Debenture (the "Debenture"). The Debenture accrues interest from the date of issuance and is due and payable on October 31, 1999; or, at the option of the Company, the principal of, and interest on, the Debenture are payable in shares of the Company's common stock. The Debenture is subordinated to all indebtedness and obligations of the Company for borrowed money, under financing leases, for all obligations issued or assumed as full or partial payment for property, and any trade obligation entered into in the ordinary course of business. The holder of the Debenture is entitled, at its option, to convert, in $50,000 increments, at any time commencing the earlier of (a) December 30, 1997 or (b) the effective date of a Registration Statement filed with the Securities and Exchange Commission. The Company filed a Form S-3 with the Securities and Exchange Commission which was declared effective January 29, 1998. The conversion price for each share of common stock is equal to the lesser of (a) $4.24 (the "Maximum Price") or (b) 80% of the average market price on the five trading days immediately preceding the conversion date provided that in no event shall the conversion price be less than a defined percentage of the Maximum Price. The Company recognized interest expense of approximately $339,000 in 1997 resulting from the beneficial conversion feature. Debt issuance costs approximate $264,000 and are being expensed over the term of the debt using the straight-line method. See Note 15 for a discussion regarding litigation involving the Debenture. In connection with the issuance of the Debenture, the Company also issued 40,000 Warrants (the "Warrants") exercisable at a price of $4.5375. The Company ascribed a fair value of $112,136 to the Warrants at the time of issuance. The debt will be written up to its face value of $1,600,000 and the corresponding discount will be expensed using the straight-line method, which approximates the interest method, over the term of the debt. F-12 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 7. COMMON STOCK In connection with the Company's public offering of 920,000 shares of its common stock in December 1995, a warrant to purchase 80,000 shares of its common stock was issued to the underwriter. The warrant is exercisable at the option of the holder, in whole or in part, at a price of $7.09 per share at any time during the period December 15, 1996 through December 15, 2000. These warrants were exercised in February, 1997 for which the Company received net proceeds of approximately $540,000. In connection with the Company's public offering of 171,428 shares of its common stock in November 1993, a warrant to purchase 17,142 shares of its common stock was issued to the underwriter. The warrant is exercisable at the option of the holder, in whole or in part, at a price of $39.20 per share at any time during the period November 10, 1994 through November 9, 1998. 8. STOCK OPTION PLANS INCENTIVE STOCK OPTION PLANS In 1992, the shareholders approved the Company's Incentive Stock Option Plan ("ISO Plan No. 1") for its employees to purchase up to a total of 39,222 registered shares of the Company's common stock. In 1994, the shareholders approved the Company's Incentive Stock Option Plan No. 2 ("ISO Plan No. 2") for its employees to purchase up to a total of 28,571 registered shares of the Company's common stock. In 1997, the shareholders approved the Company's Incentive Stock Option Plan No. 3 ("ISO Plan No. 3") for its employees to purchase up to a total of 80,000 shares of the Company's common stock. For the Incentive Stock Option Plans, the option price per share may not be less than the fair market value of the stock on the date of the grant, the terms of the options are ten years from the date of grant, and options vest over a five-year period beginning on the date of grant. If immediately before a grant an employee owns more than 10% of the total combined voting stock of the Company, the exercise price shall be at least 110% of the fair market value of the stock on the date of the grant and the options expire five years from the date of grant. A summary of option activity since December 31, 1994 under ISO Plans No. 1, No. 2, and No. 3 is as follows: NUMBER WEIGHTED AVERAGE OF OPTIONS OPTION PRICES ---------- ---------------- Options outstanding at December 31, 1994 22,282 $ 8.10 Granted 41,138 $11.37 Exercised (285) $ 7.87 Expired (7,999) $ 8.34 ------- Options outstanding at December 31, 1995 55,136 $10.57 Granted 37,711 $10.50 Exercised -- -- Expired (45,708) $10.75 -------- Options outstanding at December 31, 1996 47,139 $10.00 Granted 57,426 $ 6.34 Exercised -- -- Expired (57,139) $10.95 -------- Options outstanding at December 31, 1997 47,426 $ 4.44 ====== F-13 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- NONQUALIFIED STOCK OPTION PLANS In 1992, the shareholders approved the Company's Nonqualified Stock Option Plan ("Nonqualified Plan") for its directors to purchase up to a total of 8,571 registered shares of the Company's common stock. Effective in 1994, the Company adopted Nonqualified Stock Option Plan No. 2, under which the Company authorized the issuance of options to consultants for the purchase of up to a total of 71,428 registered shares of its common stock. Effective in 1995, the Company adopted Nonqualified Stock Option Plan No. 3, under which the Company authorized the issuance of options to consultants for the purchase of up to a total of 13,571 shares of its common stock. Effective in 1996, the Company adopted Nonqualified Stock Option Plans No. 4, 5, and 6 under which the Company authorized the issuance of options to employees and consultants for the purchase of up to a total of 32,500, 100,000, and 150,000 shares, respectively, of its common stock. Effective in 1997, the Company adopted Nonqualified Stock Option Plan No. 7 under which the Company authorized the issuance of options to consultants for the purchase of up to a total of 100,000 registered shares of its common stock. Options granted under Nonqualified Stock Option Plan No. 7 will be accounted for based upon their fair value at the date of their issuance. The option price per share under these plans may be greater than or less than the fair market value of the stock on the date of the grant. Both the option price and the terms of the options are determined by the Board of Directors or a committee of the Board as of the date of the grant. Generally, the terms of the options are ten years from the date of grant, and options vest 100% on the date of grant. A summary of option activity since December 31, 1994 under the Nonqualified Plans is as follows: NUMBER WEIGHTED AVERAGE OF OPTIONS OPTION PRICES ---------- ---------------- Options outstanding at December 31, 1994 37,142 $ 7.20 Granted 46,426 $ 8.88 Exercised -- -- Expired -- -- -------- Options outstanding at December 31, 1995 83,568 $ 8.14 Granted 182,500 $10.67 Exercised (32,856) $ 7.26 Expired (28,500) $ 5.25 -------- Options outstanding at December 31, 1996 204,712 $11.04 Granted 443,284 $ 4.69 Exercised (131,071) $ 3.44 Expired (244,284) $10.48 -------- Options outstanding at December 31, 1997 272,641 $ 4.80 ======== The weighted average fair value per share of options granted during 1997 and 1996 was $4.59 and $6.95, respectively. The following table summarizes additional information about the stock options outstanding under the Company's ISO Plans and Nonqualified Plans at December 31, 1997:
Weighted Weighted Average Weighted Average Remaining Average Exercise Range of Exercise Number Contractual Exercise Number Price of Prices Outstanding Life Price Exercisable Exercisable ----------------- ----------- ----------- -------- ----------- ----------- $4.44 - $4.44 288,710 9.9 $4.44 266,651 $4.44 $7.00 - $10.50 31,357 8.7 $7.63 31,357 $7.63 ------ --- ----- ------ ----- 320,067 9.7 $4.75 298,008 $4.77 ======= === ===== ======= =====
F-14 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- PERFORMANCE BASED STOCK PLANS During 1994, the Company adopted a Performance Stock Plan under which certain officers and key employees of the Company may be granted awards of up to an aggregate of 85,714 Performance Shares upon the attainment of certain performance objectives. Each awarded Performance Share is convertible to one share of the Company's common stock at the earlier of December 31, 1997, death, total disability, termination of the plan, or other event as determined by the Executive Compensation and Stock Option Committee of the Board of Directors. As of December 31, 1997, no Performance Shares had been awarded and the plan was terminated. In connection with the acquisition of UST, the Company established a Phantom Stock Plan for UST's key employees. Pursuant to the plan, UST's key employees have the ability to earn up to 46,602 shares of the Company's common stock, the market value of which was $600,000 as of the date of the merger. The ability to earn these shares is subject to UST meeting certain financial milestones. As of December 31, 1997, no shares had been awarded. PRO FORMA INFORMATION IN ACCORDANCE WITH SFAS 123 The Company applies Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees", and related interpretations in accounting for its equity participation programs. Accordingly, no compensation cost has been recognized for its incentive and nonqualified stock option plans related to stock options granted to employees. However, the Company has adopted the disclosure-only provisions of Statements of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS 123") as they pertain to the recognition of compensation expense attributable to option grants. If the Company had elected to recognize compensation cost for the Company's incentive and nonqualified stock option plans consistent with the method of accounting under SFAS No. 123, the Company's net loss and net loss per share on a pro forma basis would be: 1997 1996 ---- ---- Net loss - as reported $2,900,356 $3,823,621 Net loss - pro forma $3,945,620 $4,861,148 Net loss per share (basic and diluted) - as reported $1.70 $2.58 Net loss per share (basic and diluted) - pro forma $2.31 $3.28 The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for each year: 1997 1996 ---- ---- Risk-free interest rate 6.11% 6.28% Expected life of options - years 5.0 3.9 Expected stock price volatility 88% 66% Expected dividend yield 0% 0% F-15 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 9. INCOME TAXES The tax effects of the primary temporary differences and carryforwards which give rise to net deferred tax assets are as follows as of December 31, 1997 and 1996: DECEMBER 31, 1997 1996 ---- ---- Net operating loss carryforwards $ 4,618,000 $ 3,574,000 Other 297,000 273,000 ----------- ----------- 4,915,000 3,847,000 Valuation allowance (4,915,000) (3,847,000) ----------- ----------- -- -- =========== =========== Realization of deferred tax assets at the balance sheet date are dependent on the Company's ability to generate future taxable income which is uncertain. Accordingly, management has provided a full valuation allowance against the Company's deferred tax assets as of December 31, 1997 and 1996. The change in the deferred tax asset valuation allowance is primarily attributable to the increase in net operating loss carryforwards. As of December 31, 1997, net operating loss carryforwards total approximately $11.9 million which expire at various times through 2012. As a result of certain changes in ownership, the use of these carryforwards to offset future taxable income may be limited. 10. RELATED PARTY TRANSACTIONS Prior to the acquisition, UST's sole stockholder advanced amounts to UST to fund working capital needs. The amounts due are non-interest bearing and are to be repaid upon availability of funds and after all amounts due to the bank are repaid in full by UST. These loans are considered short-term obligations as of December 31, 1997 which are included in other current liabilities and long-term obligations as of December 31, 1996 which are included in other long-term liabilities. The amount due as of December 31, 1997 and 1996 was $120,579. 11. LEASES The Company leases office space and automobiles under separate noncancelable operating leases which expire at various dates through 2000. The agreements generally require that the Company pay applicable utility, property taxes, maintenance, and insurance costs. Certain excess office space is subleased to a third party. The future annual minimum rental payments, net of sublease income, under these leases at December 31, 1997 are as follows: 1998, $159,049; 1999, $75,870; 2000, $23,654; and thereafter, $0. Rental expense for the years ended December 31, 1997, 1996, and 1995, was approximately $211,000, $297,000, and $170,000, respectively. 12. RETIREMENT AND OTHER BENEFIT PLANS Effective January 1, 1994, the Company established a defined contribution retirement plan covering eligible full-time employees. Under this plan, participants can contribute up to the lesser of 15% of their compensation or the maximum allowable by IRS regulations, currently $9,500. Employees may direct the investment of their contributions among several mutual fund options. The Company may make discretionary contributions out of current or accumulated net profit. Expense for the years ended December 31, 1997 and 1996 totaled approximately $2,050 and $1,250, respectively. F-16 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- During 1994, the Company entered into split dollar agreements with two officers whereby the Company pays the premiums on split dollar life insurance policies held by these individuals. Under the agreements, the Company has an interest in the policy equal to the cumulative value of all premiums paid by the Company and will be reimbursed for these premiums upon death, termination of the agreement, or termination of employment. However, since it is possible that the Company at its discretion may waive this requirement, no asset for the premium has been recorded. The Company paid approximately $15,000 and $15,000, respectively, in premiums for the years ended December 31, 1997 and 1996. Effective June 14, 1995, this plan was terminated with respect to one officer in connection with his resignation from the Company. 13. TITLELINK JOINT VENTURE In December 1996, the Company's subsidiary, UST, entered into an agreement with Interliant to form a joint venture, Titlelink, L.L.C. Under the terms of the agreement, the joint venture will be owned equally and managed by both members, UST and Interliant. Interliant has been appointed as the Administrative Member which has the right, power, and authority to act on behalf of the joint venture all things necessary to carry out the business of the joint venture. The joint venture owns and markets Titlelink, an on-line software application designed to streamline the real estate closing process. The Company accounts for UST's investment in the joint venture on the equity basis. The initial investment in the joint venture totaled $26,000 and has been reduced by UST's proportionate share of the joint venture's operating results. UST's proportionate share of the joint venture's operating results are reflected in the Company's consolidated statements of operations, which for the year ended December 31, 1997 total a loss of approximately $215,000. Total revenue, expenses, and net loss for the joint venture for the year ended December 31, 1997 were $44,990, $474,520, and $429,530, respectively. 14. COMMITMENTS In connection with the development of certain software products, UST has entered into royalty agreements with developers that require UST to pay approximately one-third of gross revenue from sales of the products. Amounts are payable once a certain amount advanced to the developer has been recovered. As of December 31, 1997, no amounts have been accrued or paid to developers. On March 20, 1997, the Company entered into a financial consulting agreement ("consulting agreement") with First Cambridge Securities Corporation ("First Cambridge"). The terms of the agreement included that First Cambridge receive 100,000 stock options at an exercise price of $2.00 per share. First Cambridge vested immediately in the 100,000 options and exercised their options on March 28, 1997. The consulting agreement permitted the assignment by First Cambridge of its obligation to perform financial consulting services thereunder. First Cambridge has assigned its obligation to another party (the "assignee") and the Company has accepted the assignment. The assignee is required to review materials provided by the Company, perform financial consulting services, and advise the Company and provide at least 50 hours of service per month on a yearly average. The consulting agreement is for the five year period January 1, 1998 - December 31, 2002. Accordingly, the Company will be recognizing an expense of $1,150,000, using the straight-line method over the term of the consulting agreement, or approximately $20,000 per month, beginning January 1, 1998. As of December 31, 1997, the Company had a deferred asset of $1,150,000 arising from this transaction. However, if the services by the assignee are not deemed satisfactory or the assignee is unable to perform the services, the Company may be required to immediately expense the deferred asset. F-17 STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 15. LITIGATION In January 1998, the company redeemed its Debenture described in Note 6 and issued 1,052,624 shares of the Company's common stock as payment for the $1,710,514 redemption amount. The holder of the Debenture refused to accept the shares as payment and filed suit against the Company alleging that the terms of the Debenture permit the Company to pay the redemption price only in cash and as a result, the redemption by the Company and the issuance of the Company's common stock is invalid. The holder is seeking a determination to that effect and that the Company has forfeited its right to redeem the debenture. The complaint also seeks damages resulting from the Company's failure to honor the plaintiff's attempted post-redemption conversion of $115,000 principal amount of the Debenture. In April 1998, the Company and the holder began negotiation discussions to settle this litigation out of court. If the Company is unable to negotiate a settlement with the holder, a court hearing will be held on April 15, 1998. If the court hearing is held, the Company will vigorously defend this action. However, the Company cannot predict the outcome of the court hearing. 16. SUBSEQUENT EVENTS On April 8, 1998, the Company merged UST into SSGI-UST Acquisition Corp., an existing Florida corporation formed on March 5, 1998 and owned by the President of UST and other third parties. UST continued as the surviving corporation; accordingly, SSGI-UST Acquisition Corp ceased to exist. Consideration payable to the Company for the merger consists of (i) 100,000 shares of UST's Common Stock valued at $500,000, or $5.00 per share; (ii) a promissory note from USTin the principal amount of $600,000 with 6% interest due the earlier of the closing of a $2,000,000 private placement of UST's equity securities or 60 days after the closing of the merger; and (iii) a 6% subordinated convertible debenture in the principal amount of $927,000 (which will be increased for any additional funding provided by the Company to UST) due the earlier of a public offering of UST's common stock or the 545th day after the closing of the merger. The promissory note is secured by all of the assets of UST and the pledge of all of the outstanding stock of UST. The Company has the option to convert the $927,000 debenture upon the occurrence of the first public offering into shares of Common Stock of UST at a conversion price for each share of Common Stock equal to the public offering price of the Common Stock less twenty (20%) percent. As a result of this transaction, the Company's direct ownership in UST was reduced from 100% to approximately 14%. The business of UST has not been presented as a discontinued operation as of and for the year ended December 31, 1997 because (i) the principal consideration in the above transaction is dependent on the ability of UST to generate sufficient working capital and (ii) the Company will retain a total ownership interest in UST of approximately 33% (direct and indirect). The following represents the condensed unaudited balance sheet of UST as of December 31, 1997: Current assets $435,202 Current liabilities $ 934,737 Other assets $256,914 Note payable to bank 40,334 -------- Payable to the Company 1,888,858 ----------- Total liabilities 2,863,929 Total stockholders' deficit (2,153,813) ----------- $710,116 $ 710,116 ======== =========== F-18 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The following table sets forth certain information concerning the directors and executive officers of the Company as of March 27, 1998. NAME AGE POSITION - - ---- --- -------- John J. Cadigan 67 Chairman of the Board, President, Chief Executive Officer, Secretary, and Treasurer of the Company Suzanne C. Brown 32 Chief Financial and Accounting Officer of the Company Ernest A. Wagner 37 President of the Company's Multimedia Division A. David Rossin, Ph.D. 66 Director Nagesh S. Mhatre, Ph.D. 65 Director JOHN J. CADIGAN has been Chairman, Chief Executive Officer, Secretary, Treasurer, and a director of the Company since February, 1991. He assumed the position of President in July 1995. Prior to joining the Company, Mr. Cadigan served as Chairman of PAI from its inception in 1989 until it was merged into the Company in February, 1991. SUZANNE C. BROWN, C.P.A. has been with the Company since February, 1994. In January 1996, Ms. Brown was promoted to Chief Financial Officer. From August, 1988 to February, 1994, Ms. Brown was with KPMG Peat Marwick, an international accounting firm. ERNEST A. WAGNER has been with the Company since February, 1994. In 1998, Mr. Wagner was promoted to President of the Company's Multimedia Division. From 1985 to February, 1994, Mr. Wagner served in various engineering and management positions with SuperFlow Corporation, a manufacturer of computerized engine and vehicle testing equipment. DR. A. DAVID ROSSIN has been a director of the Company since February, 1991. Dr. Rossin is currently the Center Affiliated Scholar at the Center for International Security of Arms Control at Stanford University. He has been employed since August 1987 as President of Rossin and Associates, a California consulting firm which specializes in nuclear energy matters. Dr. Rossin served as Assistant Secretary of the U.S. Energy Department from 1986 to 1987. DR. NAGESH S. MHATRE currently serves on the Boards of three small business ventures. Dr. Mhatre served as President and a Director of the Becton-Dickinson Co., a multibillion dollar international company in the medical and hospital equipment field from 1979 to 1984. Dr. Mhatre 20 has held senior management, CEO, and corporate officer positions in the biomedical and biotechnology fields and has worked with numerous startup companies during the period from 1975 to 1979. BOARD OF DIRECTORS The Company's Certificate of Incorporation and Bylaws, as amended, divide the Company's directors into three classes designated as Class I, Class II and Class III, that serve staggered three-year terms that expire at the annual meeting of the Stockholders in the final year of the term. Each class consists, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. Directors serve for their term and until their successors are duly elected, or until their earlier resignation, removal from office, or death. The remaining directors may fill any vacancy in the Board of Directors for an unexpired term. There are presently three directors serving on the Board. A. David Rossin has been designated as a Class I director and his term expires in 1999. Nagesh Mhatre has been designated as a Class II director and his term expires in 2000. John J. Cadigan has been designated as a Class III director and his term expires in 1998. The Company has two standing committees, the Executive Compensation and Stock Option Committee and the Audit Committee. Dr. Rossin and Dr. Mhatre are the members of both the Executive and Stock Option and the Audit Committees. The Executive Compensation and Stock Option Committee has the power and authority to designate, recommend and/or review compensation of the Company's executive officers and other employees, including salaries, bonuses, fringe benefits and the grant of stock options. The Audit Committee has the power and authority to recommend the engagement of independent accountants, review external and internal auditing procedures and policies, review compensation paid to auditors and make recommendations and/or implement changes with respect to the foregoing. Officers are elected by the Board of Directors at the annual meeting of directors following the annual shareholders meeting and serve until their successors are duly elected, subject to earlier removal by the Board of Directors. ITEM 10. EXECUTIVE COMPENSATION This information will be contained in the definitive proxy statement of the Company for the 1998 Annual Meeting of Stockholders under the captions "Directors' Compensation", "Executive Compensation", "Employment Agreements", and "Executive and Other Employee Benefit Plans" and is incorporated herein by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information will be contained in the definitive proxy statement of the Company for the 1998 Annual Meeting of Stockholders under the caption "Security Ownership of Certain Beneficial Owners and Management" and is incorporated herein by reference. 21 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information will be contained in the definitive proxy statement of the Company for the 1998 Annual Meeting of Stockholders under the caption "Transactions Involving Directors and Officers" and is incorporated herein by reference. PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a)(1)(2) Financial Statements A list of the Financial Statements filed as a part of this Report is set forth in Item 7 and appears at Page F-1 of this Report; which list is incorporated herein by reference. (a)(3) Exhibits 1(A) Stock Purchase Agreement with Forsight, Inc. (6) 1(B) Asset Purchase Agreement with Forsight, Inc. (6) 2 Plan of Merger between U.S. Technologies, Inc. Acquisition Corporation and U.S. Technologies, Inc (7) 2(A) Articles of Merger of U.S. Technologies, Inc and U.S. Technologies, Inc. Acquisition Corporation (7) 2(B) Agreement and Plan of Merger Among Strategic Solutions Group and U.S. Technologies, Inc. (11) 2(B)(i) "State of Florida Articles of Merger" 2(C) Promissory Note (11) 2(D) Pledge Agreement (11) 2(E) General Security Agreement for Promissory Note (11) 2(F) Secured Subordinated Debenture (11) 2(G) General Security Agreement for Debenture (11) 2(H) Registration Rights Agreement (11) 3 Certificate of Incorporation and Amendment thereto (1) 3(B) By-Laws (1) 3(C) Form of Amendments to Certificate of Incorporation and Bylaws dated October 20, 1995 (5) 10 Form of Indemnification Agreement executed in favor of each officer and director of the Company (1) 10(A) Form of Indemnification Agreement Amendment executed in favor of certain officers and directors of the Company (6) 10(B) Form of Indemnification Agreement executed in favor of each officer and director of the Company (6) 10(C) Securities Purchase Agreement, for 6% Convertible Subordinated Debentures (10) 10(D) Form of Debenture (10) 10(E) Registration Rights Agreement (10) 10(F) Form of Common Stock Purchase Warrant (10) 10(H) Employment Agreement with John J. Cadigan dated September 1, 1995 (5) 10(I) Amendment to Employment Agreement with John J. Cadigan (11) 10(U) Employment Agreement (7/15/96) - Peter S. Steele (9) 10(V) Loan Renewal and Modification Agreement (9) 21 Subsidiaries of Registrant (2) 23 Consent of Coopers & Lybrand L.L.P. (11) 99 Incentive Stock Option Plan No. 1 (4) 99(A) Nonqualified Stock Option Plan No. 1(4) 99(B) Incentive Stock Option Plan No. 2 (5) 99(D) Phantom Stock Performance Stock Plan (3) 99(E) Nonqualified Stock Option Plan No. 2 (5) 99(F) Nonqualified Stock Option Plan No. 3 (5) 99(H) Split Dollar Plan Agreement (11/21/94) - John J. Cadigan (3) 99(I) Nonqualified Stock Option Plan No. 4 (6) 99(J) Nonqualified Stock Option Plan No. 5 (9) 99(K) Nonqualified Stock Option Plan No. 6 (9) 99(L) Nonqualified Stock Option Plan No. 7 (8) 99(M) Incentive Stock Option Plan No. 3 (11) - - ------------------- (1) Incorporated by reference to Form S-1 Registration Statement, File No. 33-68826 (2) JMC Company, Inc. and Forsight, Inc., are wholly owned subsidiaries of the Company incorporated under the laws of the State of Maryland. U.S. Technologies, Inc. is a wholly owned subsidiary incorporated under the laws of the State of Florida. (3) Incorporated by reference to December 31, 1994 Form 10-K. 22 (4) Incorporated by reference to Form S-8 Registration Statement, File No. 33-53536. (5) Incorporated by reference to Original Form SB-2, File No. 33-97776. (6) Incorporated by reference to December 31, 1995 Form 10-K. (7) Incorporated by reference to Form 8-K, dated July 19, 1996. (8) Incorporated by reference to Form S-8 Registration Statement, File No. 333-23777. (9) Incorporated by reference to December 31, 1996 Form 10-KSB. (10) Incorporated by reference to Form 8-K, dated October 31, 1997 (11) Filed herewith. (b) Reports on Form 8-K The following report on Form 8-K was filed during the three months ended December 31, 1997: October 31, 1997 - Other Events - Issuance of $1,600,000 6% Convertible Subordinated Debentures. 23 SIGNATURES Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. STRATEGIC SOLUTIONS GROUP, INC. BY: /s/ John J. Cadigan Dated: April 15, 1998 ______________________ John J. Cadigan, Chief Executive Officer & President /s/ Suzanne C. Brown Dated: April 15, 1998 ______________________ Suzanne C. Brown, Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date - - --------- ----- ---- /s/ John J. Cadigan Chairman of the Board, April 15, 1998 ________________________ President, Chief Executive John J. Cadigan Officer, Secretary and Treasurer /s/ Dr. A. David Rossin Director April 15, 1998 ________________________ Dr. A. David Rossin /s/ Dr. Nagesh S. Mhatre Director April 15, 1998 ________________________ Dr. Nagesh S. Mhatre 24 EX-2 2 EXHIBIT 2(B) Exhibit 2(B) AGREEMENT AND PLAN OF MERGER AMONG STRATEGIC SOLUTIONS GROUP, INC. AND U.S. TECHNOLOGIES, INC. AND SSGI-UST ACQUISITION CORPORATION AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated March , 1998 by and among STRATEGIC SOLUTIONS GROUP, INC., a Delaware corporation, ("SSGI"), U.S. TECHNOLOGIES, INC., a Florida corporation ("UST") and SSGI-UST ACQUISITION CORPORATION, a Florida corporation ("SUAC") RECITALS WHEREAS, contemporaneously with the merger contemplated herein, UST and/or SUAC has received funding assurances from H.J. Meyers & Co., Inc. as placement agent for the purpose of completing a private placement of at least $2,000,000 for UST and/or SUAC and the completion of an initial public offering of the securities of UST and/or SUAC in an amount of approximately $5,000,000 to be underwritten by one or more qualified underwriters. WHEREAS, in reliance of the foregoing recital, the respective Boards of Directors of SSGI, UST, and SUAC have determined that it is in their respective best interests to merge SUAC with and into UST, and take all other necessary action to effectuate such merger, on the terms and subject to the conditions of this Agreement. NOW THEREFORE, in consideration of the premises and mutual covenants contained herein and intending to be legally bound thereby, the parties hereto agree as follows: ARTICLE I THE MERGER SECTION 1.1 THE MERGER. As of the Effective Time, as defined herein, and on the terms and subject to the conditions hereof, and in accordance with the relevant provisions of the Florida Business Corporation Law ("FBCL"), SUAC shall be merged with and into UST (the "Merger"). Following the Merger, UST shall continue as the surviving corporation (the "Surviving Corporation") and shall continue its existence under the laws of the State of Florida, and the separate corporate existence of SUAC shall cease. SECTION 1.2 EFFECTIVE TIME. The Merger shall be consummated by filing with the Department of State of the State of Florida articles of SUAC substantially in the form of Exhibit 1.2 (the "Articles of Merger") in accordance with the FBCL (the later of the time of such filing and the time specified in the Articles of Merger being the "Effective Date". SECTION 1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in Title 23D, Chapter 23B.11 of the FBCL. SECTION 1.4 ARTICLES OF INCORPORATION AND BY-LAWS. The Articles of Incorporation and the By-Laws of SUAC, as amended through the date hereof and as further amended by the Articles of Merger, shall be the Articles of Incorporation and By-Laws of the Surviving Corporation until further amended as provided therein or by law. SECTION 1.5 DIRECTORS AND OFFICERS. The Director of UST immediately after the Effective Time shall be Peter S. Steele. The President, Treasurer and Secretary of UST immediately after the Effective Time shall be Peter S. Steele. SECTION 1.6 CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger and without any action on the part of SSGI, UST, SUAC or the holders of any of the following securities: (a) Each SUAC share of Common Stock outstanding immediately prior to the Effective Date shall be converted into 1,000 shares of UST and SSGI shall be issued 92,500 shares of UST Common Stock such that SSGI will own a total of 100,000 shares of UST Common Stock after the merger. (b) In addition to the foregoing, SUAC and/or UST shall pay to SSGI additional compensation for the merger equal to the following: (i) a promissory note in the principal amount of $600,000 with six percent (6%) interest compounded monthly payable in full upon the earlier of the closing of the $2,000,000 private placement or sixty (60) days from the Closing Date and secured by all of the assets of UST and a pledge of all of the outstanding shares of stock of UST pursuant to the Promissory Note, Security Agreement and Pledge Agreement attached hereto and made a part hereof collectively as Exhibit "1.6A"; plus (ii) a subordinated secured convertible debenture in the face amount of $927,000 (or such higher amount to reflect additional funding by SSGI for UST after February 6, 1998) bearing interest at the rate of 6% per annum, payable in full on the 545th day after the Closing (as hereinafter defined), which shall be convertible into shares of stock of SUAC pursuant to the Form of Debenture attached hereto and made a part hereof as Exhibit "1.6B". SECTION 1.7 CLOSING. Upon the terms and subject to the conditions hereof, as soon as practicable after the respective requisite vote of the shareholders and directors of UST and SUAC in favor of the approval of the Merger has been obtained and the other conditions set forth in Article VI hereof have been satisfied or, if permissible, waived, UST and SUAC (and SSGI if appropriate) shall execute and deliver to the Department of State of the State of Florida duly executed Articles of Merger, as required by the FBCL, and the parties shall take all such other and further actions as may be required by law to make the Merger effective. Prior to the filings referred to in this Section 1.7, a closing (the "Closing") will be held at the offices of SSGI, 326 First Street, Suite 100, Annapolis, Maryland (or such other place as the parties may agree) for the purpose of facilitating, effecting and confirming all the foregoing (the date of the Closing being sometimes referred to as the "Closing Date"). Subject to the terms hereof and to the requirements of law, the parties agree to use their reasonable best efforts to effect the Closing on or about March 25, 1998 at 10:00 a.m. EST. SECTION 1.8 SUBSEQUENT ACTIONS. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either UST or SUAC acquired or to be acquired or maintained by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of each of UST and SUAC all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of UST and SUAC all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement. ARTICLE II EXCHANGE OF SHARE CERTIFICATES SECTION 2.1 EXCHANGE OF SHARE CERTIFICATES. (a) At Closing, SUAC or its designated agent shall deliver to SSGI the certificates representing the shares of UST constituting a portion of the Merger Consideration. (b) UST Shares being issued hereunder, are being issued without Registration under the Securities Act (as hereinafter defined) or Applicable Laws (as hereinafter defined) and, except as provided in the Registration Rights Agreement attached hereto and made a part hereof as Exhibit "2.1", the shares have not been and are not being registered under the 1933 Act, and may not be transferred unless (A) subsequently registered thereunder or (B) SUAC shall have delivered to SSGI an opinion of counsel, reasonably satisfactory in form, scope and substance, to the effect that the securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration. No federal or state agency has reviewed the transaction set forth herein or approved or disapproved SUAC Shares for investment or any other purpose. (i) The term "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations thereunder; and the term "Applicable Laws" means any applicable state securities laws, the Securities Exchange Act of 1934, as amended, and the rules and regulations under the foregoing. (ii) The following legend will be placed on the front of SUAC Certificates representing SUAC Shares to be issued to SSGI hereunder, and stop-transfer instructions will be issued to any transfer agent of such SUAC Shares to insure compliance with the provisions of the Securities Act and the Applicable Laws: "These Shares have not been registered under the Securities Act of 1933, as amended, or under applicable state securities laws, and they may not be offered, sold, pledged, hypothecated or otherwise transferred in the absence of (1) effective registrations under all such laws or (2) an opinion of counsel to the Corporation that such registration is not required." (c) The parties hereto agree to enter into the Registration Rights Agreement in substantially the form attached hereto as Exhibit "2.1.", on or before the Closing Date. ARTICLE III REPRESENTATIONS AND WARRANTIES OF UST As an inducement to SUAC to enter into this Agreement, UST represents and warrants to SUAC that, except as set forth in the UST disclosure letter of even date herewith (the "UST Disclosure Letter") that: SECTION 3.1 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER. UST is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Florida and is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the failure to be so licensed or qualified would have a material adverse effect on UST and its subsidiaries taken as a whole. UST has the corporate power and authority to own and hold its properties and to carry on its business as presently conducted. SECTION 3.2 AUTHORITY. UST has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby, subject to approval of the Merger by the holders of a majority of the UST Shares outstanding as of the record date for the meeting of its shareholders to be held to consider and act upon the proposal to approve the Merger. The execution and delivery of this Agreement by UST and the consummation by UST of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of UST and no other corporate proceedings on the part of UST are necessary to authorize this Agreement or to consummate the transactions so contemplated, other than such approval by UST's shareholders. The person(s) executing and delivering this Agreement on UST's behalf have been duly and validly authorized so to act by the Board of Directors of UST. Provided this Agreement constitutes a valid and binding obligation of SSGI and SUAC, this Agreement constitutes a valid and binding agreement of UST, enforceable against UST in accordance with its terms. SECTION 3.3 VALIDITY, ETC. On the date hereof and on the Closing Date, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) conflict with or result in the breach of any provision of the Articles of Incorporation or By-Laws of UST, (b) violate, conflict with or result in the breach or termination of, or otherwise give any other contracting party the right to terminate, or constitute a default (by way of substitution, novation or otherwise) under, or result in the acceleration of the maturity of any payment date of any of the obligations of UST or increase or otherwise affect the obligations of UST under the terms of, any mortgage, bond, indenture, agreement, franchise or other instrument or obligation to which UST is a party or by which it is bound or to which any of its assets is subject, (c) result in the creation of any claim upon the properties or assets of UST, (d) violate any judgment, order, injunction, decree or award of any court, administrative agency or governmental body against, or binding upon UST or to which the securities, property or business of it is subject, (e) constitute a violation by UST of any law or regulation of any jurisdiction as such law or regulation relates to it or to its securities, property or business, (or result in a breach of any of the terms or conditions of, constitute a default under, or otherwise cause any impairment of, any license or permit which, whether or not cured, would have a material adverse effect, individually or in the aggregate, whether or not insured against, on the assets, liabilities, operations, business or prospects of UST. SECTION 3.4 CAPITALIZATION. As of the date hereof the authorized capital stock of UST consists exclusively of 10,000,000 shares of Common Stock, $.0001 per share par value, of which 7,500 shares are as of the date hereof, and as of the Closing Date, validly issued and outstanding, fully paid and nonassessable. There are no holders of subscriptions, warrants, options, convertible securities, or other rights of any character with respect to UST securities. UST has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of its securities or any interest therein or to pay any dividend or make any other distribution in respect thereof. All of the outstanding securities of UST were issued in compliance with all applicable federal, state, local and foreign laws, rules and regulations. SECTION 3.5 OUTSTANDING COMMITMENTS WHICH MAY EFFECT SSGI ADVERSELY. Except for the commitments to Support Net and Merisel, UST reports that there are no other existing material contract, agreement, instrument, franchise, mortgage, indenture, and other commitment, whether written or oral, to which UST is a party or by which any of its assets may be subject and which in each case is material to UST and which has or may have an adverse effect on SSGI. With respect to such commitments which have or may have an adverse effect on SSGI, UST has satisfied in all material respects its liabilities and obligations which have become due and payable thereunder, and are not in material default under any of them. SECTION 3.6 UST COMMITMENTS TO SSGI. Other than the consideration set forth in Section 1.6 hereof and the obligations of and relating to Support Net, UST has no debt or obligations due to SSGI. SECTION 3.7 FULL DISCLOSURE. This Agreement and all documents, schedules and certificates required to be delivered by UST to SUAC pursuant to this Agreement do not contain any untrue statement of a material fact and do not omit to state any material fact necessary to make the statements contained herein and therein, in light of the circumstances in which made, not misleading. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SUAC As an inducement to SSGI, as the sole shareholder of UST, to enter into this Agreement, SUAC hereby represents and warrants to SSGI, except as set forth in the SUAC disclosure letter of even date herewith (the "SUAC Disclosure Letter") that: SECTION 4.1 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER. SUAC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Florida and is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the failure to be so licensed or qualified would have a material adverse effect on SUAC and its subsidiaries taken as a whole. SUAC has the corporate power and authority to own and hold its properties and to carry on its business as presently conducted. SECTION 4.2 AUTHORITY. SUAC has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby subject to approval of the Merger by the holders of a majority of the SUAC's shares outstanding as of the record date for the meeting of its shareholders to be called for the purpose of considering and acting upon a proposal to approve the Merger. The execution and delivery of this Agreement by SUAC and the consummation by SUAC of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of SUAC and no other corporate proceedings on the part of SUAC are necessary to authorize this Agreement or to consummate the transactions so contemplated other than such approval by SUAC's shareholders. The person(s) executing and delivering this Agreement have been duly and validly authorized so to act by the Boards of Directors of SUAC. Assuming this Agreement constitutes a valid and binding obligation of SSGI and UST, this Agreement constitutes a valid and binding agreement of SUAC, enforceable against each of them in accordance with its terms. SECTION 4.3 VALIDITY, ETC. On the date hereof and on the Closing Date, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) conflict with or result in the breach of any provision of the Articles of Organization or By-Laws of SUAC, or the Articles of Incorporation or By-Laws of SUAC, (b) violate, conflict with or result in the breach or termination of, or otherwise give any other contracting party the right to terminate, or constitute a default (by way of substitution, novation or otherwise) under, or result in the acceleration of the maturity of any payment date of any of the obligations of any SUAC Company or increase or otherwise affect the obligations of any SUAC Company under the terms of, any mortgage, bond, indenture, agreement, franchise or other instrument or obligation to which any SUAC Company is a party or by which it is bound or to which any of its assets is subject, (c) result in the creation of any claim upon the properties or assets of any SUAC Company, (d) violate any judgment, order, injunction, decree or award of any court, administrative agency or governmental body against, or binding upon any SUAC Company or to which the securities, property or business of it is subject, (e) constitute a violation by any SUAC Company of any law or regulation of any jurisdiction as such law or regulation relates to it or to its securities, property or business, (or result in a breach of any of the terms or conditions of, constitute a default under, or otherwise cause any impairment of, any license or permit) which, whether or not cured, would have a material adverse effect, individually or in the aggregate, whether or not insured against, on the assets, liabilities, operations, business or prospects of the SUAC Companies taken as a whole. SECTION 4.4 CAPITALIZATION. As of the date hereof the authorized capital stock of SUAC consists exclusively of 1000 shares of Common Stock, 0.01 par value and are as of the date hereof, and as of the Closing Date, validly issued and outstanding, fully paid and nonassessable. There are no holders of subscriptions, warrants, options, convertible securities, or other rights of any character with respect to SUAC securities. SUAC has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of its securities or any interest therein or to pay any dividend or make any other distribution in respect thereof. All of the outstanding securities of SUAC were issued in compliance with all applicable federal, state, local and foreign laws, rules and regulations, and none of such securities were issued in violation of, or are subject to, any preemptive rights. All shares of SUAC Common Stock deliverable hereunder shall be voting stock, duly authorized, validly issued, fully paid and nonassessable, free and clear of all claims. SECTION 4.5 FULL DISCLOSURE. This Agreement and all documents, schedules and certificates required to be delivered by SUAC pursuant to this Agreement do not contain any untrue statement of a material fact and do not omit to state any material fact necessary to make the statements contained herein and therein, in light of the circumstances in which made, not misleading. ARTICLE V COVENANTS SECTION 5.1 CONDUCT OF BUSINESS. Except as contemplated by this Agreement or as consented to in writing by the other parties hereto, during the period from the date of this Agreement to the Effective Time, UST and SUAC shall conduct their respective operations and affairs according to their ordinary and usual courses of business consistent with past practices. Without limiting the generality of the foregoing, and except as otherwise expressly provided in this Agreement or as consented to in writing by the other parties hereto, prior to the Effective Time, neither UST nor SUAC shall, except as contemplated by the Disclosure Letters, (i) issue, sell or pledge, or authorize or propose the issuance, sale or pledge of (A) additional shares of capital stock of any class or securities convertible into any such shares or (B) any rights, warrants or options to acquire any such shares or other convertible securities, or grant or accelerate any right to convert or exchange any securities for shares of capital stock; (ii) redeem, purchase or otherwise acquire, or propose to redeem, purchase or otherwise acquire, any of its outstanding securities; (iii) declare, set aside, make or pay any dividend or distribution (whether in cash, stock or property) on or in respect of any shares of capital stock; (iv) except as contemplated by the Disclosure Letters and except for sales and purchases of inventory in the ordinary course of business, make any acquisition of assets or securities, any disposition of assets or securities or any change in capitalization; (v) enter into any contract or release or relinquish any contract or other rights in excess of $10,000 in amount; (vi) incur any long-term debt for borrowed money or any short-term debt for borrowed money other than in the ordinary course of business consistent with past practice in excess of $10,000 in amount; (vii) propose or adopt any Charter or By-Laws amendments; (viii) other than as contemplated or permitted by this Agreement, enter into any new employment agreements with any directors, officers or employees or grant any increases in the compensation or benefits to, or agree to pay any bonus, severance or termination payment or other special compensation to, directors, officers and employees other than scheduled merit increases in the ordinary course of business consistent with past practice; (ix) make any loan or advance to any of its directors, officers, employees, consultants, or agents or to any member of their families or any other loan or advance otherwise than in the ordinary course of business consistent with past practices; (x) make or incur any charitable contributions or any nonbusiness expense; or (xi) agree in writing or orally to take any of the foregoing actions or any other action which would make any representation or warranty in this Agreement untrue on the date hereof or on the Closing Date. SECTION 5.2 NO SOLICITATION OR DISCUSSION. Except for the transactions contemplated by this Agreement and as described in Section 5.1, the parties hereto shall use their best efforts to cause their directors, officers, employees, representatives, agents and affiliates not to, directly or indirectly, encourage, solicit, initiate or participate in any way in discussions or negotiations with, or knowingly provide any information to, any person (other than the parties to this Agreement or any affiliate thereto concerning any merger, purchase or sale of assets, purchase or sale of securities, exchange offer, consolidation, combination or similar transaction involving UST or SUAC. SUAC or UST shall promptly communicate to the other parties hereto the terms of any proposal or inquiry which it may receive, or of any such information requested from it or of any such negotiations or discussions being sought to be initiated with it in respect of any such transaction. SECTION 5.3 ACCESS TO INFORMATION. (a) Between the date of this Agreement and the Effective Time, each party shall (i) give to the other and its authorized representatives access during regular business hours upon reasonable notice to such party's plants, offices, warehouses and other facilities and to all of its books and records, (ii) permit the other and its authorized representatives to make such inspections as it may require, (iii) cause its officers and those of its subsidiaries to furnish the other and its authorized representatives with such financial and operating data and other information with respect to its business and properties and that of its subsidiaries as such party may from time to time request, (iv) furnish such party promptly with a copy of each report, schedule and other documents filed or received by it pursuant to federal or state securities law, if any, and (v) notify the other promptly in writing of the occurrence of any event or the existence of any circumstance which would have made any of its representations and warranties set forth herein untrue. No information provided pursuant to this Section 5.3 or otherwise, nor any investigation by any party, shall affect or be deemed to modify any representation or covenant herein contained. (b) SSGI, UST and SUAC agree that, in the event that the transactions contemplated hereby shall not be consummated, each will treat in confidence all documents, materials and other information which either shall have obtained during the course of the negotiations leading to this Agreement, the investigation of the other party hereto and the preparation of this Agreement and other documents relating to this Agreement, and shall return to the other party all copies of non-public documents and materials which have been furnished in connection therewith. SECTION 5.4 REASONABLE BEST EFFORTS. Subject to the terms and conditions hereof, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. In case at any time after the Effective Time any further action is necessary or useful to carry out the purposes of this Agreement, the parties shall use their reasonable best efforts to cause their respective proper officers, employees and representatives to take all such necessary action. SECTION 5.5 SHAREHOLDERS AND DIRECTORS MEETINGS. UST and SUAC shall promptly take all action necessary in accordance with the laws of their states of incorporation, their Articles of Incorporation and By-Laws to convene a meeting of its shareholders and directors to consider and vote on the Merger. SECTION 5.6 PUBLIC ANNOUNCEMENTS. UST, SUAC and SSGI shall to the fullest extent practicable consult with one another before issuing any press release or otherwise making any public statement with respect to the Merger and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law after consultation with counsel. ARTICLE VI CONDITIONS TO CONSUMMATION OF THE MERGER SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligations of each party to effect the Merger are subject to the satisfaction or waiver, where permissible, as of the Effective Time, of the following conditions: (a) The Merger shall have been approved by the affirmative vote of the shareholders of UST and SUAC by the votes respectively required; (b) no statute, rule, regulation, order, decree or injunction shall have been enacted, entered, promulgated or enforced by any court or governmental authority which is in effect and has the effect of prohibiting or delaying the consummation of the Merger; SECTION 6.2 CONDITIONS TO OBLIGATIONS OF UST TO EFFECT THE MERGER. The obligation of UST to effect the Merger is further subject to the satisfaction as of the Effective Time, of the following conditions, each of which may be waived by UST in its sole discretion: (a) the representations and warranties of the SUAC Companies set forth in this Agreement shall be true in all material respects as if made at the Effective Time and SUAC shall have performed all obligations and covenants required by the Agreement to be performed or complied with by it. (b) All proceedings in connection with the transactions contemplated hereby, and all legal matters, documents and instruments incident thereto, shall be reasonably satisfactory in substance and in form to UST and its counsel, and UST and its counsel shall have received all such documents and instruments, or copies thereof, certified if requested, as may be reasonably requested. SECTION 6.3. CONDITIONS TO OBLIGATIONS OF SUAC TO EFFECT THE MERGER. The obligations of SUAC to effect the Merger is further subject to the satisfaction on or prior to the Effective Time, of the following conditions, each of which may be waived by SUAC in its sole discretion: (a) The representations and warranties of UST set forth in this Agreement shall be true in all material respects as if made at the Effective Time and UST shall have performed all obligations and covenants required by the Agreement to be performed or complied with by it. (b) All proceedings in connection with the transactions contemplated hereby, and all legal matters, documents and instruments incident thereto, shall be reasonably satisfactory in substance and in form to SUAC and its Counsel, and SUAC and its counsel shall have received all such documents and instruments, or copies thereof, certified if requested, as may be reasonably requested. ARTICLE VII TERMINATION; AMENDMENT; WAIVER SECTION 7.1 TERMINATION. This Agreement may be terminated and the Merger contemplated hereby may be abandoned at any time prior to the Effective Time, notwithstanding approval thereof by the shareholders of UST and SUAC: (a). by mutual written consent duly authorized by the Boards of Directors of SUAC and SSGI; (b). by SUAC or SSGI if: (i) any court of competent jurisdiction or other governmental body shall have issued an order, decree or ruling, or taken any other action restraining, enjoining or otherwise prohibiting the Merger or any portion thereof, provided that the Agreement shall not be terminated pursuant to this paragraph unless the party terminating this Agreement has utilized its reasonable best efforts to oppose the issuance of such order, decree or ruling or the taking of such action; (ii) any of the conditions specified in Section 6.1 shall not be satisfied; or (iii) the Merger shall not have been consummated on or prior to March 11, 1998, or such later date as may be agreed upon by the parties, for any reason other than the breach of any provision of this Agreement by the party terminating this Agreement; or (iv) the other party willfully breaches any of its material representations, warranties or covenants contained herein and, if such breach is curable, it is not cured within five business days after written notice thereof. (c) by SSGI on account of the failure of any condition specified in Section 6.2; or (d) by SUAC on account of the failure of any condition specified in Section 6.3. Upon the occurrence of any of the events specified in this Section 7.1 (other than by mutual written consent) and the determination of a party to terminate this Agreement, written notice of termination shall forthwith be given by the terminating party to the other, whereupon this Agreement shall terminate. SECTION 7.2 EFFECT OF TERMINATION. In the event of the termination of this Agreement pursuant to Section 7.1, this Agreement shall forthwith become void and of no further effect, without any liability on the part of any party or its directors, officers, shareholders or representatives (except for the provisions of Sections 5.3(b), 7.1, and 8.10, which shall remain in effect). Nothing in this Section shall relieve any party to this Agreement of liability for breach of this Agreement. SECTION 7.3 AMENDMENT. To the extent permitted by applicable law, this Agreement may be amended by action taken by or on behalf of the Boards of Directors of UST and SUAC at any time before or after approval of this Agreement by the shareholders of UST and SUAC. This Agreement may not be amended except by an instrument in writing signed on behalf of the parties by their duly authorized representatives. SECTION. 7.4 EXTENSION; WAIVER. At any time prior to the Effective Time, the parties hereto, by action taken by or on behalf of the respective Boards of Directors of SSGI and SUAC may (i) extend the time for the performance of any of the obligations or other acts of the other party, (ii) waive any inaccuracies in the representations and warranties contained herein by the other party or in any document, certificate or writing delivered pursuant hereto by or on behalf of the other party or (iii) waive compliance with any of the agreements or conditions contained herein, if permitted by applicable law. Any agreement on the part of any party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party by its duly authorized representative. ARTICLE VIII MISCELLANEOUS SECTION 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in this Agreement shall survive after the Effective Time for a period of two (2) years. This Section 8.1 shall not limit any covenant or agreement of the parties hereto which by its terms contemplates performance after the Effective Time. SECTION 8.2 ENTIRE AGREEMENT, ASSIGNMENT. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, among the parties or any of them with respect to the subject matter hereof. SECTION 8.3 ENFORCEMENT OF THE AGREEMENT. Each of the parties acknowledges and agrees that the rights acquired by the other hereunder are unique and that immediate, severe and irreparable damage would occur in the event that any of the provisions of this Agreement to be performed by it were not performed in accordance with its specific terms or were otherwise breached. Accordingly each party agrees that the other shall be entitled to an injunction or injunctions and other appropriate equitable relief to prevent breaches of this Agreement by it and to enforce specifically the terms and provisions hereof in any federal or state court of competent jurisdiction, this being in addition to any other remedy to which the parties may be entitled at law or in equity or otherwise. SECTION 8.4 VALIDITY. The invalidity or unenforceability of any provision of this Agreement under any circumstances shall not affect the validity or enforceability of the same provision under other circumstances or of any other provision of this Agreement, all of which shall remain in full force and effect. SECTION 8.5 NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by cable, telegram, telecopier or telex, or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows: If to SUAC and/or UST: 8160 Woodland Business Center Waters Avenue Tampa, Florida 33614 Attention: Peter S. Steele With a copy to: Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. 911 Chestnut Street Clearwater, Florida 34617-1368 Attention: Michael T. Cronin, Esquire If to SSGI: 326 First Street, Suite 100 Annapolis, Maryland 21403 Attention: John J. Cadigan With a copy to: Palmarella & Sweeney, P.C. 2 Radnor Corporate Center, Suite 310 Radnor, Pennsylvania 19087 Attention: Ernest D. Palmarella, Esquire or to such other address as the party to whom notice is given may have previously furnished to the other in writing in the manner set forth above (provided that notice of any change of address shall be effective only upon receipt thereto. SECTION 8.6 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the substantive law of the State of Delaware regardless of the laws that might otherwise govern under principles of conflicts of laws applicable thereto, except the effectiveness of the statutory merger contemplated hereby shall be governed by and construed in accordance with the FBCL. SECTION 8.7 DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 8.8 PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement shall be construed to create any rights or obligations except among the parties hereto, and no person or entity shall be regarded as a third-party beneficiary of this Agreement. SECTION 8.9 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] SECTION 8.10 EXPENSES. All costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be paid by the party incurring such expenses. IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all at or on the day and year first above written. Attest: U.S. TECHNOLOGIES, INC. /s/ PETER S. STEELE By: /s/ PETER S. STEELE __________________________ ____________________________ Peter S. Steele, Secretary Peter Steele, President Attest: STRATEGIC SOLUTIONS GROUP, INC. /s/ JOHN J. CADIGAN By: /s/ JOHN J. CADIGAN __________________________ ____________________________ John J. Cadigan, Secretary John J. Cadigan, President Attest: SSGI-UST ACQUISITION CORPORATION /s/ PETER S. STEELE By: /s/ PETER S. STEELE __________________________ ____________________________ Peter S. Steele, Secretary Peter S. Steele, President EX-2 3 EXHIBIT 2(B)(I) Exhibit 2(B)(i) STATE OF FLORIDA ARTICLES OF MERGER OF SSGI-UST ACQUISITION CORPORATION, a Florida corporation INTO U.S. TECHNOLOGIES, INC., a Florida corporation Pursuant to Section 607.1101 and 607.1105 of the Florida Business Corporation Act, the undersigned corporations adopt the following Articles of Merger for the purposes of merging SSGI-UST Acquisition Corporation into U.S. Technologies, Inc.: FIRST: The Plan of Merger attached hereto as Exhibit A was adopted by the Board of Directors and shareholders of SSGI-UST Acquisition Corporation, a Florida corporation ("SUAC"), on the 26th day of March, 1998, and was adopted by the Board of Directors and shareholders of U.S. Technologies, Inc., a Florida corporation ("UST"), on the 26th day of March, 1998. SECOND: The Merger is effective at 5:00 P.M. on March 26, 1998 or the time of filing of these Articles of Merger, whichever shall be later ("Effective Date"). THIRD: As provided in the Plan of Merger, the Articles of Incorporation of UST as in effect immediately prior to the Effective Date shall be the Articles of Incorporation of UST, the surviving corporation. Prepared by: Michael T. Cronin, Esquire Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. 911 Chestnut Street Clearwater, Florida 33756 Bar No. 0469841 (813) 461-1818 IN WITNESS WHEREOF, each of the undersigned has caused these Articles of Merger to be signed in its corporate name on the 26th day of March, 1998. SSGI-UST ACQUISITION CORPORATION, U.S. TECHNOLOGIES, INC., a Florida Corporation a Florida corporation By: /s/ Peter S. Steele By: /s/ John J. Cadigan ________________________ __________________________ Name: Peter S. Steele Name: John Cadigan Title: President Title: Secretary EX-2 4 EXHIBIT 2(C) Exhibit 2(C) PROMISSORY NOTE --------------- $600,000.00 DATE: MARCH 20, 1998 FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, SSGI-UST ACQUISITION CORPORATION and U.S. TECHNOLOGIES, INC. (hereinafter collectively referred to as "Maker"), jointly and severally promise to pay to the order of STRATEGIC SOLUTIONS GROUP, INC. (hereinafter referred to as "Payee"), the principal sum of SIX HUNDRED THOUSAND ($600,000.00) DOLLARS payable in accordance with the following until paid in full. 1. THE LOAN -------- 1.1 PRINCIPAL. The principal amount due hereunder shall be the face amount hereof. 1.2 INTEREST. The principal shall bear annual interest at the rate of six percent (6.0%) compounded monthly. 1.3 PAYMENT OF PRINCIPAL AND INTEREST. The principal of this Note, and all accrued interest thereon, shall be payable in full upon the earlier of the closing of Maker's $2,000,000 private placement or sixty (60) days from the date hereof. 1.4 SECURITY. To secure the payment of this Note and the indebtedness evidenced hereby, Maker has granted a first priority security interest to Payee in all their assets as more fully described in the General Security Agreement dated of even date herewith. The terms, conditions, premises and promises of said General Security Agreement are incorporated herein by reference. In addition to the foregoing, the Shareholders of Maker (other than Payee), in consideration of Payee's loan to Maker hereunder, have pledged all of their shares of stock in Maker pursuant to the Pledge Agreements dated of even date herewith. The terms, conditions, premises and promises of said Pledge Agreements are incorporated herein by reference. Maker warrants and represents to Payee that there are no other Shareholders of either Maker other than Payee, Trent On Dorchester Limited Liability Company, Starr Securities and Peter S. Steele. In addition to the foregoing, Maker has delivered to Payee the stock ledgers of Maker and the certificates representing all of the authorized and unissued shares of stock of Maker. Until this Note is paid in full, Maker irrevocably appoints Payee as Maker's transfer agent and hereby agrees that Maker will not without the express written approval of Payee issue additional shares of stock in Maker, sell, assign or transfer shares of stock in Maker, merge or consolidate with another company (other than the contemplated merger between Maker), print or have printed new share certificates, or in any other manner create or issue any instrument which evidences equity ownership in Maker or convertable into any equity ownership in Maker. Upon the repayment of the indebtedness evidenced by this Note with all accrued interest thereon and all expenses accruing herein, Payee shall deliver the stock ledgers and certificates to Maker. 2. EVENTS OF DEFAULT. The occurrence of any one or more of the following shall constitute an "Event of Default" hereunder. 2.1 The failure to pay when due, any amount payable or any liability arising under this Note (hereinafter referred to as the "Liabilities"). 2.2 The breach by Maker of any term of this Agreement. 2.3 The appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for any substantial part of Maker's property; the ordering of the winding-up or liquidation of Maker's affairs. 2.4 The commencement by Maker of a voluntary case under the federal bankruptcy laws or any other applicable federal or state bankruptcy, insolvency or other similar law; the consent by Maker to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, or other similar official for any substantial part of Maker's property; the creation by Maker of any assignment for the benefit of creditors, or the failure of Maker generally to pay its debts as they become due. 2.5 The occurrence of any default under the General Security Agreement or Pledge Agreements dated of even date herewith securing Maker's indebtedness to Payee. 2.6 The occurrence of any violation of the terms of that certain Employment Agreement between UST and Peter S. Steele dated on or about July 15, 1996, which the respective parties understand and agree shall remain in full force and effect until the satisfaction in full of Maker's indebtedness in Payee hereunder. 3. PAYEE'S RIGHT UPON DEFAULT. Upon the occurrence of an Event of Default: 3.1 The entire unpaid principal balance of the Note, together with all other Liabilities due or owed by the Maker under this Note shall without additional notice to or demand on the Maker, become due and payable immediately with interest. 3.2 After the default and until Maker's indebtedness to the Payee is paid in full, including the period following entry of any judgment, interest shall accrue at the rate of twelve (12%) percent per year ("Default Rate"). The Maker shall also be liable for all costs incurred for the collection of this Note, including attorneys' fees, and such amounts may be enforced and recovered by confessing judgment on this Note and the issuance of execution on the judgment. 2 3.3 The Payee may exercise any rights and remedies available to Payee under applicable law. 4. CUMULATIVE REMEDIES. The remedies of the Payee provided in this Note or otherwise available to the Payee at law or in equity and the warrants of attorney herein or therein contained, shall be cumulative and concurrent, and may be pursued singly, successively, and together at the sole discretion of the Payee, and may be exercised as often as occasion therefor shall occur. The failure to exercise any right or remedy shall in no event be construed as a waiver or release of the right or remedy. 5. WAIVER OF PRESENTMENT. Maker waives presentment for payment, demand, notice of nonpayment, notice of protest, and protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Note, except such notices as are specifically provided for herein and agrees that its liability shall be unconditional without regard to the liability of any other party and shall not be in any manner effected by an indulgence, extension of time, renewal, waiver or modification granted or consented to by Payee. Payee shall not by an act of omission or commission be deemed to waive any of its rights or remedies hereunder unless such waiver be in writing and signed by Payee, and then only to the extent specifically set forth therein; a waiver on one event shall not be construed as a bar to or waiver of such right or remedy on a subsequent event. 6. PAYMENT OF COSTS. The Maker shall pay the cost of any revenue, tax, or other stamps required by law at any time to be affixed to this Note and if any taxes be imposed with respect to debts secured by financing statements or with respect to notes evidencing debts so secured, Maker agrees to pay the holder upon demand the amount of such taxes, and hereby waives any contrary provisions of any laws or rules of court now or hereafter in effect. If Maker fails or refuses or is not legally permitted to pay or reimburse Payee for such taxes as aforesaid, Payee may at its option accelerate this Note to maturity as in the case of default of Maker. 7. PARTIES. The words "Payee" and "Maker" in this Note shall be deemed and construed to include the respective successors and assigns of the Payee and the Maker. 8. INVALID PROVISION. If any provision hereof is found by a court of competent jurisdiction to be prohibited or unenforceable, it shall be ineffective only to the extent of such prohibition or unenforceability, and such prohibition or unenforceability shall not invalidate the balance of such provision to the extent it is not prohibited or unenforceable, nor invalidate the other provisions hereof, all of which shall be liberally construed in favor of Payee in order to effect the provisions of the Note. 9. CONSTRUCTION. The parties to this Agreement and their respective counsel have reviewed this Agreement and have had the opportunity to revise this Agreement, and the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 3 10. GOVERNING LAW. This instrument shall be construed according to and governed by the laws of the State of Florida. IN WITNESS WHEREOF, the Maker has duly executed this Note on the 20th day of MARCH, 1998. Attest: SSGI-UST ACQUISITION CORPORATION, MAKER /s/ PETER S. STEELE By: /s/ PETER S. STEELE __________________________ _____________________________ Peter S. Steele, Secretary Peter S. Steele, President Attest: U.S. TECHNOLOGIES, INC. MAKER /s/ PETER S. STEELE By: /s/ PETER S. STEELE __________________________ ____________________________ Peter S. Steele, Secretary Peter Steele, President STATE OF FLORIDA : : SS. COUNTY OF HILLSBOROUGH : Sworn to and subscribed before me this 7TH date of April, 1998. /s/ VANESSA L. SCHMIDT ___________________________ Notary Public 4 EX-2 5 EXHIBIT 2(D) Exhibit 2(D) PLEDGE AGREEMENT This Agreement made this 3RD day of APRIL , 1998 by and BETWEEN PETER S. STEELE (herein called "Pledgor"), and STRATEGIC SOLUTIONS GROUP, INC., a Delaware corporation (herein called "Pledgee"), relating to the shares of stock of U.S. TECHNOLGIES, INC., a Florida corporation and SSGI-UST ACQUISITION CORPORATION, a Florida corporation (herein collectively "Company"). W I T N E S S E T H WHEREAS, Company is duly indebted to Pledgee in the principal amount of Six Hundred Thousand ($600,000.00) Dollars ("Loan") evidenced by a Promissory Note of Company ("Note") of even date herewith; and WHEREAS, in order to induce Pledgee to make the Loan to Company as evidenced by the Note and as a part of the security for the prompt payment of the Note in accordance with its terms, Pledgor has agreed to pledge all of his shares of stock in Company (the "Shares"), which together with the shares of stock owned by Pledgee, Trent On Dorchester Limited Liability Company and Starr Securities, Inc., constitute one hundred percent (100%) of the issued and outstanding shares of stock of Company; and WHEREAS, Pledgor has recognized and will recognize a substantial benefit from the Loan and hereby represents to Pledgee that such benefit constitutes significant and substantial consideration for Pledger's pledge of the Shares hereunder. NOW, THEREFORE, in consideration of the promises and premises herein set forth and the consideration cited above and for other good and valuable consideration the receipt and sufficiency which is hereby acknowledged by the parties, and intending to be legally bound hereby, the parties agree as follows: 1. In consideration of the foregoing, the Pledgor herewith pledges, delivers and assigns to the Pledgee all of his right, title and interest in the Shares, duly endorsed in blank, and does hereby appoint Pledgee, or its nominee, Pledgor's true and lawful attorney and in his name, place and stead, to cause the Shares to be transferred to the name of the Pledgee at the sole option of the Pledgee. 2. The Pledgor does hereby represent and warrant: (a) that, except as pledged herein, Pledgor has not sold, assigned, transferred, pledged, granted any security interest in or otherwise hypothecated the Shares in any manner whatsoever and that the Shares are pledged herewith free and clear of any and all liens, encumbrances, pledges, restrictions, security interest and agreements; and (b) that Pledgor has full power and authority to execute and deliver this Pledge Agreement and to pledge the Shares hereunder, that this Agreement constitutes the valid and binding obligation of Pledgor enforceable in accordance with its terms, and that the pledge of the Shares contained herein is not in violation of any agreement, undertaking or obligation of Pledgor. 3. Pledgee shall hold the Shares as security for the payment of the Note and will not at any time dispose of or encumber the same except as herein provided. While Pledgee is the holder of the Shares, it shall not collect dividends thereon and the Pledgor shall have the right to cast any vote on the Shares so long as an Event of Default, as defined herein, has not occurred and, if Pledgee has exercised its right to have the Shares registered in its name as aforesaid, Pledgee agrees to execute any and all proxies in favor of Pledgor that may be required. Upon the payment of the Note in full, Pledgee shall re-transfer or re-deliver the Shares to Pledgor. 4. Upon the occurrence of an Event of Default, as defined herein, Pledgee shall become the one hundred percent (100%) owner of the Shares and shall thereafter have the right to vote the shares, and further Pledgee is hereby granted all of the rights and remedies accorded a secured party under the Uniform Commercial Code and may, upon ten (10) days prior written notice to Pledgor, sell, lease or otherwise dispose of the Shares pledged, at any time or from time to time, in whole or in part, at public or private sale, without advertisement or notice of sale, all of which are hereby waived. Any purchaser at any such sale (which terms shall include the Pledgee in the case of a public sale) shall receive the Shares free and clear of all rights of redemption or other rights or claims of Pledgor, all of which are hereby waived. Notwithstanding the foregoing, Pledgor shall not be liable for any deficiency in the event that the proceeds of any such sale are not sufficient to satisfy the Note. 5. An Event of Default hereunder is defined as an Event of Default under the terms of the Note or any breach by Pledgee of any term herein. 6. This is the entire agreement between the parties hereto and may be changed only by a written instrument signed by the party against whom any charge is sought to be enforced. 7. This Agreement is made and shall be governed by and construed in accordance with the laws of the State of Florida. 2 8. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, personal representatives, successors and assigns. EXECUTED the day and year first above written. /s/ SHERYL TUCKER By: /s/ PETER S. STEELE _______________________________ ___________________ Witness Peter S. Steele Accepted: /s/ JOHN J. CADIGAN _______________________________ Strategic Solutions Group, Inc. by John J. Cadigan, President 3 EX-2 6 EXHIBIT 2(E) Exhibit 2(E) GENERAL SECURITY AGREEMENT THIS AGREEMENT, made this ____ day of March, 1998, by and between U.S. TECHNOLOGIES, INC., a Florida Corporation, and SSGI-UST ACQUISITION CORPORATION, a Florida Corporation (hereinafter individually and collectively referred to as "Debtor") and STRATEGIC SOLUTIONS GROUP, INC., a Delaware Corporation (hereinafter referred to as "Secured Party"). WITNESSETH: WHEREAS, Debtor is duly indebted to Secured Party in the principal amount of Six Hundred Thousand ($600,000.00) Dollars evidenced by a Promissory Note of Debtor of even date herewith and incorporated herein by reference (the "Obligation"); WHEREAS, Secured Party desires to secure the Debtor's payment of the Obligation taking a security interest in all of Debtor's property. NOW, THEREFORE, intending to be legally bound by this Agreement, Debtor and Secured Party mutually covenant and agree as follows: 1. SECURITY INTEREST. Debtor hereby grants and conveys to Secured Party a first priority continuing security interest in and lien upon the Collateral (as hereinafter defined), all in accordance with the provisions of the Uniform Commercial Code as enacted in the State of Florida (the "UCC"). Such security interest is granted as security for the payment of all amounts due by Debtor to Secured Party. 2. COLLATERAL. For purposes of this agreement, "Collateral" shall be defined to include all of the assets of Debtor, including Debtor's interest in Titlelink, and the substitution therefor and proceeds thereof. 3. DEBTOR'S WARRANTIES, REPRESENTATIONS AND AGREEMENTS. The Debtor represents and warrants to Secured Party and agrees that: (a) Except for the security interest herein granted, Debtor is the owner of the Collateral free from any adverse lien, security interest or encumbrance; no financing statement covering any of the Collateral or any proceeds therefor is on file in any public office; and the Debtor will defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein; (b) The Collateral is and will be used for business purposes; (c) The offices where Debtor keeps the Books and Records (as defined in subparagraph 3(d) below) relating to the Collateral is the business address of Debtor, and Debtor shall not remove the Books and Records or keep them at any other place without giving Secured Party thirty (30) days prior written notice thereof; (d) Debtor shall keep complete and accurate Books and Records (as used herein, the term "Books and Records" shall be defined to include all books of original and final entry, including computer programs, software, stored material and data banks associated with or arising out of Debtor's business or recordkeeping) and make all necessary entries therein to reflect the quantities, costs, value and location of the Collateral. Debtor agrees to mark its Books and Records in such fashion as to indicate the security interest granted to Secured Party herein. Debtor shall permit Secured Party, its employees and agents, to have access during regular business hours to all of Debtor's Books and Records and any other records pertaining to Debtor's business which Secured 2 Party may request, and shall cause all persons including computer service bureaus, bookkeeping services, accountants and the like, to make all such Books and Records available to Secured party, its officers, employee and agents and, if deemed necessary by Secured Party in Secured Party's sole discretion, permit Secured Party, its officers, employees and agents to duplicate, at Debtor's expense, the Books and Records at Debtor's place of business or any other place where they may be found. Secured Party's right to inspect and duplicate Debtor's Books and Records shall be enforceable at law by action of replevin or by any other appropriate remedy at law or in equity, but shall not entitle Secured Party to inspect and duplicate Debtor's Books and Records more frequently than two times during any calendar year. (e) The Collateral is and will be kept at the business location of Debtor. If Debtor removes any of the Collateral from such locations, or changes the location of its business, Debtor will give to Secured Party prior written notice of such intended removal or change, as well as of Debtor's intent to close its business or to establish any new locations; (f) Debtor shall immediately notify Secured Party in writing of any event causing deterioration, loss or depreciation in value of the Collateral and the amount of such loss or depreciation. Debtor shall permit Secured Party, its officers, employees and agents, access to the Collateral during normal business hours from time to time, as and when requested by Secured Party, but no more frequently than two times during any twelve month period, for the purposes of examination, inspection and appraisal hereof and verification of Debtor's Books and Records pertaining thereto. Debtor will promptly notify Secured Party in writing if there is any change in the status of any Collateral. 3 (g) Debtor will not sell, exchange, lease, rent or otherwise dispose of any of the Collateral or of any Debtor's rights therein, other than in the ordinary course of Debtor's business, without the prior written consent of Secured Party; (h) Until the occurrence of an Event of Default (as this term is defined below), Debtor may use the Collateral in any lawful manner not inconsistent with this Agreement or other agreements referred to herein or with the terms and condition of any policy of insurance thereon; (i) No Event of Default has occurred and no event has occurred which, with the passage of time or the giving of notice or both, could be an Event of Default hereunder; (j) Debtor will notify the Secured Party in writing prior to beginning to engage in business in any corporate or fictitious name other than its present corporate name; (k) Debtor will not use the Collateral in violation of any federal, state or local statute or ordinance; (l) Debtor will not hereafter grant a security interest in the Collateral to any person, firm or corporation until such time as Debtor has paid the Obligation in full to Secured Party and Secured Party has terminated this Agreement; (m) If any of the Collateral or any of Debtor's Books and Records are at any time to be located on premises leased by Debtor or on premises owned by Debtor subject to a mortgage or other lien, Debtor shall obtain and deliver or cause to be delivered to Secured Party prior to delivery of any Collateral or Books and Records concerning the Collateral to said premises, an agreement, in form satisfactory to Secured Party, waiving the landlord's, mortgagee's or lienholder's rights to enforce any claim against Debtor for moneys due under the landlord's lien, mortgagee's 4 mortgage or other lien by levy of distraint or other similar proceeding against the Collateral or Debtor's Books and Records and assuring Secured Party's ability to have access to the Collateral and Debtor's Books and Records in order to exercise Secured Party's rights to take possession thereof and to remove them from such premises; 4. TERM. This Agreement shall be effective as of the date first above written and shall continue in effect until such time as the Obligation is satisfied in full or this Agreement is otherwise terminated whichever is earlier. 5. USE OF COLLATERAL; CASUALTY. Until the occurrence of an Event of Default, Debtor may use the Collateral in the course of its business. 6. EVENT OF DEFAULT. The occurrence of any one or more of the following shall be an "Event of Default" hereunder: (a) The failure of Debtor at any time to observe or perform any of its warranties, representations or agreements contained in this Agreement, and upon notice of such failure by Secured Party, Debtor does not cure such failure within ten (10) days of its mailing of notice by Secured Party; (b) Debtor's default under the terms of the Obligation, or; (c) The subjection of the Collateral or any rights therein to or the threat of any judicial process, or forfeiture proceedings. 7. SECURED PARTY'S RIGHTS AND REMEDIES. Upon or after the occurrence of any Event of Default, Secured Party may do any or all of the following, all of which rights and remedies shall be cumulative and any and all of which may be exercised from time to time and as often 5 as Secured Party shall deem necessary or desirable: (a) Exercise any and all rights, privileges and remedies available to Secured Party under this Agreement, the Obligation, and of a secured party under the UCC, or any other applicable law, including without limitation the right to require the Debtor to assign the Collateral to Secured Party; (b) Notify account debtors to make all payments directly to Secured Party; (c) Cure any default in any reasonable manner and add the costs of any such cure to the amount due under the Obligation and accrue interest thereon at the prime rate then being charged by Wilmington Trust, Wilmington, Delaware; (d) Retain all of Debtor's Books and Records; (e) Upon five (5) days prior written notice to Debtor, which notice Debtor acknowledges is sufficient, proper and commercially reasonably, Secured Party may sell, or otherwise dispose of the Collateral, at any time and from time to time, in whole or in part, at public or private sale, without advertisement or notice of sale, all of which are hereby waived and apply the proceeds of any such sale: (i) first, to the expenses of Secured party in preparing the Collateral for sale, selling and the like, including without limitation reasonably attorneys' fees and expenses incurred by Secured Party (including fees and expenses of any litigation incident to any of the foregoing); (ii) second, to the payment in full of all sums owing to Secured Party under the Obligation; and (iii) any excess shall be paid to Debtor. The waiver of any Event of Default, or Secured Party's failure to exercise any right or remedy 6 hereunder, shall not be deemed a waiver of any subsequent Event of Default or of the right to exercise that or any other right or remedy available to Secured Party. 8. MISCELLANEOUS. The rights and privileges of Secured Party under this Agreement shall inure to the benefit of its endorsers, successors and assigns. All representations, warranties and agreements of Debtor contained in this Agreement shall survive this Agreement. If any provision of this Agreement shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. This Agreement shall be construed with and under the laws of the State of Florida. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 7 9. NOTICES. All notices, requests, demands, deliveries and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed, postage prepaid, by registered or certified mail, return receipt requested to the parties at their current addresses or at such other address as may be designated in writing by a party hereto. IN WITNESS WHEREOF, Debtor and Secured Party have caused this Security Agreement to be duly executed and sealed as of the day and year first above written. Attest: U.S. TECHNOLOGIES, INC., Debtor /s/ PETER S. STEELE By: /s/ PETER S. STEELE ______________________________ ______________________________ Peter S. Steele, Secretary Peter S. Steele, President Attest: SSGI-UST ACQUISITION CORPORATION, Debtor /s/ PETER S. STEELE By: /s/ PETER S. STEELE ______________________________ ______________________________ Peter S. Steele, Secretary Peter S. Steele, President STRATEGIC SOLUTIONS GROUP, INC., Secured Party /s/ JOHN J. CADIGAN By: /s/ JOHN J. CADIGAN ______________________________ ______________________________ John J. Cadigan, Secretary John J. Cadigan, President 8 EX-2 7 EXHIBIT 2(F) Exhibit 2(F) SECURED SUBORDINATED DEBENTURE THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. No. US $ SSGI-UST ACQUISITION CORPORATION 6% CONVERTIBLE DEBENTURE DUE ON THE 545TH DAY AFTER THE CLOSING DATE OF THE MERGER OF SSGI-UST ACQUISITION CORPORATION WITH AND INTO U.S. TECHNOLOGIES, INC. WHEREAS, STRATEGIC SOLUTIONS GROUP, INC., a corporation duly organized and existing under the laws of the State of Delaware ("SSGI"), proposes to effectuate a merger of its wholly-owned subsidiary, U.S. TECHNOLOGIES, INC., a corporation duly organized and existing under the laws of the State of Florida ("UST") with SSGI-UST Acquisition Corporation ("SUAC"), a corporation duly organized and existing under the laws of the State of Florida. WHEREAS, pursuant to the terms of the Agreement and Plan of Merger entered into contemporaneously with this Debenture, SUAC shall be merged with and into UST with UST being the surviving corporation (the "Merger") and for which this Debenture constitutes a portion of the merger consideration payable to SSGI. NOW, THEREFORE, intending to be legally bound, the parties hereto mutually agree as follows: FOR VALUE RECEIVED, SUAC promises to pay to SSGI, its successor or assign, the registered holder hereof (the "Holder"), the principal sum of $927,000.00 (as increased for any funding provided by SSGI to UST after February 6, 1998) due on the earlier of the closing of a public offering of the shares of stock of UST or SUAC or 545th day after the Closing of the Merger (the "Maturity Date") and to pay interest on the principal sum outstanding in arrears upon conversion as provided herein at the rate of 6% per annum accruing from the date of initial issuance. Accrual of interest shall commence on the first business day to occur after the date hereof until payment in full of the principal sum has been made or duly provided for. Subject to the provisions of Section 4 below, the principal of, and interest on, this Debenture are payable at the option of the Holder, in shares of common stock, 0.01 par value, of SUAC ("Common Stock"), or in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at the address last appearing on the Debenture Register of SUAC as designated in writing by the Holder from time to time. SUAC will pay the principal of and interest upon this Debenture on the Maturity Date to the Holder addressed to the Holder at the last address appearing on the Debenture Register. The issuance of registered Common Stock or the forwarding of a check, as the Holder shall elect, shall constitute a payment of principal and interest hereunder and shall satisfy and discharge the liability for principal and interest on this Debenture to the extent of the value of the Common Stock or sum represented by the check. As security for the repayment of the principal of and interest on this Debenture, SUAC hereby grants SSGI a security interest in all of its assets pursuant to a General Security Agreement of even date herewith. SUBORDINATION 1. Subordination of Debenture to Senior Indebtedness. All indebtedness evidenced by this Debenture shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all amounts due under the Senior Indebtedness (as hereinafter defined). For the purposes of this Section, the term "Senior Indebtedness" shall mean all indebtedness and obligations of SUAC under financing leases, conditional sale and other title retention agreements and all obligations issued or assumed as full or partial payment for property, whether or not secured by a purchase money mortgage, whether outstanding on the date hereof or hereafter created or incurred by SUAC or UST, which is not by its terms subordinate and junior to or on a parity with this Debenture. The term "Senior Indebtedness" shall also include any obligation of SUAC to any trade creditor entered into in the ordinary course of business of SUAC or the assignee of any trade creditor provided that such assignment was in the ordinary course of business of SUAC. 2. Priority of Senior Indebtedness on Distribution of Assets. Upon (a) any payment being required to be made by SUAC under this Debenture upon any declaration of acceleration of the principal amount hereof or (b) any payment or distribution of assets of SUAC of any kind or character, whether in money, property or securities, to creditors upon any dissolution or winding up or total or partial liquidation or reorganization of SUAC, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon, all Senior Indebtedness of SUAC shall first be paid in full, or payment thereof provided for in money, before any payment is made on this Debenture; and upon any such declaration of acceleration or dissolution or winding up or liquidation or reorganization, any distribution of assets of SUAC of any kind or character, whether in money, property or securities, to which the holder - of this Debenture would be entitled except for the provisions hereof shall be paid by SUAC or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the holder of this Debenture if received by it directly, to the holders of Senior Indebtedness (pro rata to each such holder on the basis of the respective amounts of such Senior Indebtedness held by such holder), or its representatives, to the extent necessary to pay all such Senior Indebtedness in 2 full, in money, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness, before any payment or distribution is made hereunder to holder of this Debenture. 3. Treatment of Mistaken Payments and Distributions. If any payment or distribution of assets of SUAC of any kind or character, whether in money, property or securities, not permitted by the foregoing shall be received by the Holder of this Debenture, such payment or distribution shall be held for the benefit of, and shall be paid over or delivered to, the holders of such Senior Indebtedness, or their representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Senior Indebtedness may have been issued or under which such instruments are pledged or secured, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all such Senior Indebtedness in full in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness. 4. Subrogation. Subject to the payment in full of all Senior Indebtedness, the Holder of this Debenture shall be subrogated to the rights of the holders of Senior Indebtedness to receive payment or distributions of assets of SUAC applicable to the Senior Indebtedness until this Debenture shall be paid in full, and no such payment or distribution to the holders of Senior Indebtedness shall, as among SUAC, its creditors other than the holders of Senior Indebtedness, and the Holder of this Debenture, be deemed to be a payment by SUAC to or on account of this Debenture. 5. Conversion Rights Not Subject to Subordination. Notwithstanding anything to the contrary set forth above, the subordination provisions of this Debenture will have no force and effect and will be deemed null and void upon the conversion or attempted conversion of this Debenture, in whole or in part, by the Holder in accordance with the terms hereof. This Debenture is subject to the following additional provisions: 1. The Debentures are issuable in denominations of One Hundred Thousand Dollars (US$100,000) and integral multiples thereof. The Debentures are exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange. 2. SUAC shall be entitled to withhold from all payments of principal of, and interest on, this Debenture any amounts required to be withheld under the applicable provisions of the United States income tax laws or other applicable laws at the time of such payments, and Holder shall execute and deliver all required documentation in connection therewith. 3. This Debenture has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (the "Act"), and other applicable state and foreign securities laws. In the event of 3 any proposed transfer of this Debenture, SUAC may require, prior to issuance of a new Debenture in the name of such other person, that it receive reasonable transfer documentation including opinions that the issuance of the Debenture in such other name does not and will not result in a violation of the Act or any applicable state or foreign securities laws. Prior to due presentment for transfer of this Debenture, SUAC and any agent of SUAC may treat the person in whose name this Debenture is duly registered on SUAC's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither SUAC nor any such agent shall be affected by notice to the contrary. 4. A. Subject to the other provisions of this Section 4, the Holder of this Debenture is entitled, at its option, to convert at the time of the first public offering of the Common Stock of SUAC subsequent to the date of this Debenture, all or a portion of the then principal amount and accrued interest of this Debenture into shares of Common Stock of SUAC at a conversion price for each share of Common Stock (the "Conversion Price") equal to the public offering price of the Common Stock less twenty (20%) percent. SUAC agrees to notify the Holder hereof prior to the public offering mentioned herein at such time SUAC has signed a letter of intent relating thereto. After notice of SUAC's proposed public offering, SUAC will not without the express written approval of the Holder attempt to repay all or a portion of the principal or interest due hereunder. B. Conversion shall be effectuated by surrendering the Debentures to be converted to SUAC with the form of conversion notice attached hereto as Exhibit "A", executed by the Holder of the Debenture evidencing such Holder's intention to convert this Debenture or a specified portion (as above provided) hereof, and accompanied, if required by SUAC, by proper assignment hereof in blank. Interest accrued or accruing from the date of issuance to the date of conversion shall, at the option of the Holder, be paid in cash or Common Stock (based on the same Conversion Price) upon conversion at the Conversion Date. No fraction of Shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. The date on which notice of conversion is given (the "Conversion Date") shall be deemed to be the date on which the Holder has delivered this Debenture, with the conversion notice duly executed, to SUAC or, the date set forth in such facsimile delivery of the notice of conversion if the Debenture is received by SUAC within three (3) business days therefrom. Certificates representing Common Stock upon conversion will be delivered within three (3) business days from the close of the public offering date. C. The shares of stock of SUAC subject to the conversion rights of Holder herein shall be subject to the Registration Rights Agreement between SUAC and SSGI of even date herewith. 5. The terms of the Agreement and Plan of Merger, dated March 20 , 1998 (the "Merger Agreement"), is incorporated herein by reference. No provision of this Debenture shall alter or impair the obligation of SUAC, which is absolute and unconditional, to pay the principal of, and interest on, this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture and all other Debentures now or hereafter issued of similar terms are direct obligations of SUAC. 6. No recourse shall be had for the payment of the principal of, or the interest on, this Debenture, or for any claim based hereon, or otherwise in respect hereof, against any incorporator, shareholder, officer or director, as such, past, present or future, of SUAC or any successor 4 corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. 7. If SUAC merges or consolidates with another corporation or sells or transfers all or substantially all of its assets to another person and the holders of the Common Stock are entitled to receive stock, securities or property in respect of or in exchange for Common Stock, then as a condition of such merger, consolidation, sale or transfer, SUAC and any such successor, purchaser or transferee agree that the Debenture may thereafter be converted on the terms and subject to the conditions set forth above into the kind and amount of stock, securities or property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares of Common Stock into which this Debenture might have been converted immediately before such merger, consolidation, sale or transfer, subject to adjustments which shall be as nearly equivalent as may be practicable. In the event of any proposed merger, consolidation or sale or transfer of all or substantially all of the assets of SUAC (a "Sale"), the Holder hereof shall have the right to convert by delivering a Notice of Conversion to SUAC within fifteen (15) days of receipt of notice of such Sale from SUAC. In the event the Holder hereof shall elect not to convert, SUAC may prepay all outstanding principal and accrued interest on this Debenture, less all amounts required by law to be deducted, upon which tender of payment following such notice, the right of conversion shall terminate. 8. The Holder of the Debenture, by acceptance hereof, agrees that this Debenture is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Debenture or the Shares of Common Stock issuable upon conversion thereof except under circumstances which will not result in a violation of the Act or any applicable state Blue Sky or foreign laws or similar laws relating to the sale of securities. 9. This Debenture shall be governed by and construed in accordance with the laws of the State of Delaware for contracts to be wholly performed in such state and without regard to the principles thereof regarding the conflict of laws. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of Wilmington or the state courts of the State of Delaware sitting in the City of Wilmington in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on FORUM NON COVENIENS, to the bringing of any such proceeding in such jurisdictions. 5 10. The following shall constitute an "Event of Default": a. SUAC shall default in the payment of principal or interest on this Debenture and such default shall remain unremedied for ten (10) business days after SUAC has been notified of the default in writing by a Holder; or b. Any of the representations or warranties made by SUAC herein, in the Merger Agreement, or in any certificate or financial or other written statements furnished by SUAC in connection with the execution and delivery of this Debenture or the Merger Agreement shall be false or misleading in any material respect at the time made; or c. SUAC fails to issue shares of Common Stock to the Holder or to cause its Transfer Agent to issue shares of Common Stock upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Debenture, fails to transfer or to cause its Transfer Agent to transfer any certificate for shares of Common Stock issued to the Holder upon conversion of this Debenture and when required by this Debenture or the Registration Rights Agreement, or fails to remove any restrictive legend or to cause its Transfer Agent to transfer on any certificate or any shares of Common Stock issued to the Holder upon conversion of this Debenture as and when required by this Debenture, the Merger Agreement or the Registration Rights Agreement and any such failure shall continue uncured for five (5) business days after SUAC has been notified of such failure in writing by Holder; or d. SUAC shall fail to perform or observe, in any material respect, any other covenant, term, provision, condition, agreement or obligation of SUAC under this Debenture and such failure shall continue uncured for a period of thirty (30) days after written notice from the Holder of such failure; or e. SUAC shall (1) admit in writing its inability to pay its debts generally as they mature; (2) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (3) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or f. A trustee, liquidator or receiver shall be appointed for SUAC or for a substantial part of its property or business without its consent and shall not be discharged within ninety (90) days after such appointment; or g. Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of SUAC and shall not be dismissed within ninety (90) days thereafter; or 6 h. Any unappealable money judgment, writ or warrant of attachment, or similar process in excess of Two Hundred Thousand ($200,000) Dollars in the aggregate shall be entered or filed against SUAC or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of ninety (90) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or i. Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against SUAC and, if instituted against SUAC, shall not be dismissed within ninety (90) days after such institution or SUAC shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding; Then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Debenture immediately due and payable, without presentment, demand, protest or notice of any kinds, all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law. 11. Nothing contained in this Debenture shall be construed as conferring upon the Holder the right to vote or to receive dividends or to consent or receive notice as a shareholder in respect of any meeting of shareholders or any rights whatsoever as a shareholder of SUAC, unless and to the extent converted in accordance with the terms hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 7 12. Immediately after the Merger, UST shall be replaced for SUAC each and every time the name appears herein and all obligations of SUAC herein shall be deemed assumed by UST and this Form of Debenture shall be replaced by a new Form of Debenture naming UST as the Maker hereunder. IN WITNESS WHEREOF, SUAC has caused this instrument to be duly executed by an officer thereunto duly authorized. Dated: 4/3/98 , 1998 SSGI-UST ACQUISITION CORPORATION By: /s/ PETER S. STEELE ________________________________ Peter S. Steele ___________________________________ (Print Name) President ___________________________________ (Title) AGREED AND ACCEPTED BY U.S. TECHNOLOGIES, INC. & PETER S. STEELE, PRESIDENT OF U.S. TECHNOLOGIES, INC. /s/ PETER S. STEELE ___________________________________ Peter S. Steele 8 EXHIBIT "A" NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Debenture) The undersigned hereby irrevocably elects to convert $ ________________ of the principal and interest amount of the above Debenture No. ___ into shares of Common Stock of SSGI-UST ACQUISITION CORPORATION (the "Company") according to the conditions hereof, as of the date written below. In converting the Debenture No. ______________, the undersigned hereby confirms and acknowledges that the shares of Common Stock are being acquired solely for the account of the undersigned and not a nominee for any other party, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock, except under circumstances that will not result in a violation of the Securities Act of 1933, as amended. Date of Conversion* _____________________________________________________________ Applicable Conversion Price ____________________________________________________ Signature ______________________________________________________________________ [Name] Address: ______________________________________________________________________ ______________________________________________________________________ * This original Debenture and Notice of Conversion must be received by SSGI-UST ACQUISITION CORPORATION by the third business date following the Date of Conversion. EX-2 8 EXHIBIT 2(G) Exhibit 2(G) GENERAL SECURITY AGREEMENT THIS AGREEMENT, made this ____ day of March, 1998, by and between U.S. TECHNOLOGIES, INC., a Florida Corporation, and SSGI-UST ACQUISITION CORPORATION, a Florida Corporation (hereinafter individually and collectively referred to as "Debtor") and STRATEGIC SOLUTIONS GROUP, INC., a Delaware Corporation (hereinafter referred to as "Secured Party"). WITNESSETH: WHEREAS, Debtor is duly indebted to Secured Party in the principal amount of Nine Hundred Twenty-Seven Thousand ($927,000.00) Dollars, or as increased pursuant to the Secured Subordinated Debenture ("Debenture" of even date herewith), evidenced by the Debenture and incorporated herein by reference (the "Obligation"); WHEREAS, Secured Party desires to secure the Debtor's payment of the Obligation taking a security interest in all of Debtor's property. NOW, THEREFORE, intending to be legally bound by this Agreement, Debtor and Secured Party mutually covenant and agree as follows: 1. SECURITY INTEREST. Debtor hereby grants and conveys to Secured Party a subordinated security interest in and lien upon the Collateral (as hereinafter defined), all in accordance with the provisions of the Uniform Commercial Code as enacted in the State of Florida (the "UCC"). Such security interest is granted as security for the payment of all amounts due by Debtor to Secured Party. 2. COLLATERAL. For purposes of this agreement, "Collateral" shall be defined to include all of the assets of Debtor, including Debtor's interest in Titlelink, and the substitution therefor and proceeds thereof. 3. DEBTOR'S WARRANTIES, REPRESENTATIONS AND AGREEMENTS. The Debtor represents and warrants to Secured Party and agrees that: (a) Except for the security interest herein granted and the secured interest granted to the Secured Party to become a $600,000 indebtedness, Debtor is the owner of the Collateral free from any adverse lien, security interest or encumbrance; no financing statement covering any of the Collateral or any proceeds therefor is on file in any public office; and the Debtor will defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein; (b) The Collateral is and will be used for business purposes; (c) The offices where Debtor keeps the Books and Records (as defined in subparagraph 3(d) below) relating to the Collateral is the business address of Debtor, and Debtor shall not remove the Books and Records or keep them at any other place without giving Secured Party thirty (30) days prior written notice thereof; (d) Debtor shall keep complete and accurate Books and Records (as used herein, the term "Books and Records" shall be defined to include all books of original and final entry, including computer programs, software, stored material and data banks associated with or arising out of Debtor's business or recordkeeping) and make all necessary entries therein to reflect the quantities, costs, value and location of the Collateral. Debtor agrees to mark its Books and Records in such fashion as to indicate the security interest granted to Secured Party herein. Debtor shall permit 2 Secured Party, its employees and agents, to have access during regular business hours to all of Debtor's Books and Records and any other records pertaining to Debtor's business which Secured Party may request, and shall cause all persons including computer service bureaus, bookkeeping services, accountants and the like, to make all such Books and Records available to Secured party, its officers, employee and agents and, if deemed necessary by Secured Party in Secured Party's sole discretion, permit Secured Party, its officers, employees and agents to duplicate, at Debtor's expense, the Books and Records at Debtor's place of business or any other place where they may be found. Secured Party's right to inspect and duplicate Debtor's Books and Records shall be enforceable at law by action of replevin or by any other appropriate remedy at law or in equity, but shall not entitle Secured Party to inspect and duplicate Debtor's Books and Records more frequently than two times during any calendar year. (e) The Collateral is and will be kept at the business location of Debtor. If Debtor removes any of the Collateral from such locations, or changes the location of its business, Debtor will give to Secured Party prior written notice of such intended removal or change, as well as of Debtor's intent to close its business or to establish any new locations; (f) Debtor shall immediately notify Secured Party in writing of any event causing deterioration, loss or depreciation in value of the Collateral and the amount of such loss or depreciation. Debtor shall permit Secured Party, its officers, employees and agents, access to the Collateral during normal business hours from time to time, as and when requested by Secured Party, but no more frequently than two times during any twelve month period, for the purposes of examination, inspection and appraisal hereof and verification of Debtor's Books and Records 3 pertaining thereto. Debtor will promptly notify Secured Party in writing if there is any change in the status of any Collateral. (g) Debtor will not sell, exchange, lease, rent or otherwise dispose of any of the Collateral or of any Debtor's rights therein, other than in the ordinary course of Debtor's business, without the prior written consent of Secured Party; (h) Until the occurrence of an Event of Default (as this term is defined below), Debtor may use the Collateral in any lawful manner not inconsistent with this Agreement or other agreements referred to herein or with the terms and condition of any policy of insurance thereon; (i) No Event of Default has occurred and no event has occurred which, with the passage of time or the giving of notice or both, could be an Event of Default hereunder; (j) Debtor will notify the Secured Party in writing prior to beginning to engage in business in any corporate or fictitious name other than its present corporate name; (k) Debtor will not use the Collateral in violation of any federal, state or local statute or ordinance; (l) Except for the security interest granted to Secured Party to secure a $600,000 indebtedness and except for Senior Indebtedness described in the Debenture, Debtor will not hereafter grant a security interest in the Collateral to any person, firm or corporation until such time as Debtor has paid the Obligation in full to Secured Party and Secured Party has terminated this Agreement; (m) If any of the Collateral or any of Debtor's Books and Records are at any time to be located on premises leased by Debtor or on premises owned by Debtor subject to a mortgage or other lien, Debtor shall obtain and deliver or cause to be delivered to Secured Party prior to 4 delivery of any Collateral or Books and Records concerning the Collateral to said premises, an agreement, in form satisfactory to Secured Party, waiving the landlord's, mortgagee's or lienholder's rights to enforce any claim against Debtor for moneys due under the landlord's lien, mortgagee's mortgage or other lien by levy of distraint or other similar proceeding against the Collateral or Debtor's Books and Records and assuring Secured Party's ability to have access to the Collateral and Debtor's Books and Records in order to exercise Secured Party's rights to take possession thereof and to remove them from such premises; 4. TERM. This Agreement shall be effective as of the date first above written and shall continue in effect until such time as the Obligation is satisfied in full or this Agreement is otherwise terminated whichever is earlier. 5. USE OF COLLATERAL; CASUALTY. Until the occurrence of an Event of Default, Debtor may use the Collateral in the course of its business. 6. EVENT OF DEFAULT. The occurrence of any one or more of the following shall be an "Event of Default" hereunder: (a) The failure of Debtor at any time to observe or perform any of its warranties, representations or agreements contained in this Agreement, and upon notice of such failure by Secured Party, Debtor does not cure such failure within ten (10) days of its mailing of notice by Secured Party; (b) Debtor's default under the terms of the Obligation, or; (c) The subjection of the Collateral or any rights therein to or the threat of any judicial process, or forfeiture proceedings. 5 7. SECURED PARTY'S RIGHTS AND REMEDIES. Upon or after the occurrence of any Event of Default, Secured Party may do any or all of the following, all of which rights and remedies shall be cumulative and any and all of which may be exercised from time to time and as often as Secured Party shall deem necessary or desirable: (a) Exercise any and all rights, privileges and remedies available to Secured Party under this Agreement, the Obligation, and of a secured party under the UCC, or any other applicable law, including without limitation the right to require the Debtor to assign the Collateral to Secured Party; (b) Notify account debtors to make all payments directly to Secured Party; (c) Cure any default in any reasonable manner and add the costs of any such cure to the amount due under the Obligation and accrue interest thereon at the prime rate then being charged by Wilmington Trust, Wilmington, Delaware; (d) Retain all of Debtor's Books and Records; (e) Upon five (5) days prior written notice to Debtor, which notice Debtor acknowledges is sufficient, proper and commercially reasonably, Secured Party may sell, or otherwise dispose of the Collateral, at any time and from time to time, in whole or in part, at public or private sale, without advertisement or notice of sale, all of which are hereby waived and apply the proceeds of any such sale: (i) first, to the expenses of Secured party in preparing the Collateral for sale, selling and the like, including without limitation reasonably attorneys' fees and expenses incurred by Secured Party (including fees and expenses of any litigation incident to any of the foregoing); (ii) second, to the payment in full of all sums owing to Secured Party 6 under the Obligation; and (iii) any excess shall be paid to Debtor. The waiver of any Event of Default, or Secured Party's failure to exercise any right or remedy hereunder, shall not be deemed a waiver of any subsequent Event of Default or of the right to exercise that or any other right or remedy available to Secured Party. 8. MISCELLANEOUS. The rights and privileges of Secured Party under this Agreement shall inure to the benefit of its endorsers, successors and assigns. All representations, warranties and agreements of Debtor contained in this Agreement shall survive this Agreement. If any provision of this Agreement shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. This Agreement shall be construed with and under the laws of the State of Florida. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 7 9. NOTICES. All notices, requests, demands, deliveries and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed, postage prepaid, by registered or certified mail, return receipt requested to the parties at their current addresses or at such other address as may be designated in writing by a party hereto. IN WITNESS WHEREOF, Debtor and Secured Party have caused this Security Agreement to be duly executed and sealed as of the day and year first above written. Attest: U.S. TECHNOLOGIES, INC., Debtor S/PETER S STEELE By: S/PETER S. STEELE __________________________ ___________________________ Peter S. Steele, Secretary Peter S. Steele, President Attest: SSGI-UST ACQUISITION CORPORATION, Debtor S/PETER S. STEELE By: S/PETER S. STEELE __________________________ ___________________________ Peter S. Steele, Secretary Peter S. Steele, President STRATEGIC SOLUTIONS GROUP, INC., Secured Party S/JOHN J. CADIGAN By: S/JOHN J. CADIGAN __________________________ ____________________________ John J. Cadigan, Secretary John J. Cadigan, President 8 EX-2 9 EXHIBIT 2(H) Exhibit 2(H) REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of March 20, 1998, is made by and between SSGI-UST ACQUISITION CORPORATION, a Florida corporation ("the Company") and STRATEGIC SOLUTIONS GROUP, INC., a Delaware corporation (the "Holder"). W I T N E S S E T H: WHEREAS, upon the terms and subject to the conditions of the Agreement and Plan of Merger ("the Agreement") together with the Form of Debenture (the "Debenture") of even date herewith between the Holder and the Company, the Company has agreed to issue to the Holder one or more 6.0% Convertible Debentures of the Company, in an aggregate principal amount of $927,000.00 (subject to adjustment as set forth in the Debenture) plus shares of Common Stock, 0.01 par value, of the Company valued at $500,000 on the date of delivery (such that SSGI will own 100,000 shares of UST Common Stock immediately following the merger)(the "Shares"); WHEREAS, the Debenture is convertible into shares of stock of the Company, at the option of the Holder upon the terms and subject to the conditions of the Debenture; and WHEREAS, to induce the Holder to execute and deliver the Agreement, the Debenture and the Shares, the Company, its successor or assign have agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "Securities Act"), with respect to the Registrable Securities; and NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Holder hereby agree as follows: 1. DEFINITIONS. (a) As used in this Agreement, the following terms shall have the following meanings: (i) "Holder" means Strategic Solutions Group, Inc. and any permitted transferee or assignee who agrees to become bound by the provisions of this Agreement in accordance with Section 10 hereof. (ii) "Register," "Registered," and "Registration" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the "SEC"). 1 (iii) "Registrable Securities" means (i) the Common Stock of the Company registered in the name of the Holder, (ii) the Common Stock of the Company issuable to the Holder upon the conversion of the Debenture at the option of the Holder, and (iii) any securities issued or to be issued with respect to the securities referred to above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when they have been (a) effectively registered under the 1933 Act and disposed of in accordance with the registration statement covering them, or (b) transferred pursuant to Rule 144 (or any similar provision then in force). (iv) "Registration Expenses" means all expenses incident to the Company's performance of or compliance with this Registration Rights Agreement, including without limitation all registration and filing fees, fees and expenses in compliance with securities and blue sky laws, printing expenses, messenger and delivery expenses, expenses and fees for listing the securities to be registered on exchanges or electronic quotation systems on which similar securities issued by the Company are then listed, and fees and disbursements of counsel for the Company and of all independent certified public accountants, underwriters and other persons retained by the Company. (v) "Registration Statement" means a registration statement of the Company under the Securities Act. 2. DEMAND REGISTRATIONS. (a) REQUESTS FOR REGISTRATION.Following the first anniversary of the date hereof and further provided a sale is not authorized under Rule 144 of the Securities Act, the Holder and such other holders holding in the aggregate at least 50% of the Registrable Securities may demand registration (a "Demand Registration") of all or any portion of the Registrable Securities on Form S-3 (or, if Form S-3 is not available, on such other form as may be appropriate under the federal securities laws) with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Act. In order to accomplish such demand, such holder shall send written notice of the demand to the Company, and such notice shall specify the number of Registrable Securities sought to be registered. (b) NOTICE TO STOCKHOLDERS. Within ten (10) days after receipt of such a demand, the Company will give written notice of such requested registration to all other holders of Registrable Securities and will include in such registration, subject to the allocation provisions below, all other Registrable Securities with respect to which the Company has received written requests for inclusion within fifteen (15) days after the Company's mailing of such notice, plus any securities the Company chooses to include on its own behalf. (c) EXPENSES. In a Demand Registration, the Company will pay the Registration Expenses, but the Underwriting Commissions will be shared equally by the Company and those 2 holders of Registrable Securities whose Registrable Securities are included in the Demand Registration in proportion to any securities included on their behalf. (d) PRIORITY ON DEMAND REGISTRATIONS. If a Demand Registration is underwritten and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities requested to be included exceeds the number that can be sold in such offering, at a price reasonably related to fair value, the Company will include in such Demand Registration (i) first, the Registrable Securities requested to be included in such Demand Registration by the Holder; (ii) second, any securities that the Company desires to include on its own behalf; and (iii) any shares of Common Stock held by any other stockholder of the Company to whom registration is offered. (e) SELECTION OF UNDERWRITERS.If any Demand Registration is underwritten, the selection of investment banker(s) and manager(s) and the other decisions regarding the underwriting arrangements for the offering will be made by the Company and the Holder. (f) CONTEMPORANEOUS DEMAND. If any holder of the Company's securities that is not a holder of Registrable Securities under this Registration Rights Agreement exercises demand registration rights to have the Company register its securities under the Securities Act (a "Non-Stockholder Registration") within a period of thirty (30) days before or after the time the Holder shall have requested a Demand Registration, then the Holder's Demand Registration shall have priority over the Non-Stockholder Registration. 3. PIGGYBACK REGISTRATIONS. (a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register any of its securities under the Securities Act, and the registration form to be used may be used for the registration of Registrable Securities (a "Piggyback Registration"), the Company will give prompt written notice to the Holder and will include in such Piggyback Registration all Registrable Securities with respect to which the Company has received written requests for inclusion within fifteen (15) days after the Company's mailing of such notice. The Company shall not select a form of registration statement which imposes, for its use, limitations on the maximum value or number of securities to be registered if these limitations would preclude registration of the Registrable Securities that the Company has been requested to include in such registration. (b) PIGGYBACK EXPENSES. In all Piggyback Registrations, the Company will pay the Registration Expenses related to the Registrable Securities, but the Holder will pay the Underwriting Commissions related to their Registrable Securities. 4. OBLIGATIONS OF THE COMPANY. Whenever the Holder has requested that any Registrable Securities be registered pursuant to Section 2 or 3 above, the Company will, as expeditiously as possible do each of the following: (a) Prepare promptly, and file with the SEC a Registration Statement with respect to not less than the number of such Registrable Securities, and thereafter use its reasonable best efforts to cause each Registration Statement relating to Registrable Securities to become effective and keep the 3 Registration Statement effective at all times until the earliest (the "Registration Period") of (i) the date when the Holder may sell all Registrable Securities under Rule 144 or (ii) the date the Holder no longer owns any of the Registrable Securities, which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; (b) Prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement as may be necessary to keep the Registration effective at all times during the Registration Period, and, during the Registration Period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the Holder set forth in the Registration Statement; (c) The Company shall permit a single firm of counsel designated by the Holder to review the Registration Statement and all amendments and supplements thereto a reasonable period of time prior to their filing with the SEC, and not file any document in a form to which such counsel reasonably objects; (d) Furnish to the Holder whose Registrable Securities are included in the Registration Statement and its legal counsel identified to the Company, (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one (1) copy of the Registration Statement, and each amendment or supplement thereto and copies of the prospectus included therein (including each summary, preliminary, final, amended or supplemented prospectus) in conformity with the requirements of the Securities Act and copies of such other documents as the Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder; (e) Use its best efforts to register or qualify the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions in the United States the Holder determines is reasonably necessary to enable the Holder to consummate the disposition of the Registrable Securities owned by it in compliance with the laws of such jurisdiction. (f) As promptly as practicable after becoming aware of such event, notify the Holder of the happening of any event of which the Company has knowledge, as a result of which is included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement or other appropriate filing with the SEC to correct such untrue statement or omission, and deliver a number of copies of such supplement or amendment to the Holder as may be reasonably requested; (g) As promptly as practicable after becoming aware of such event, notify the Holder who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the SEC of a Notice of Effectiveness or any notice of effectiveness 4 or any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time; (h) Cause all of the Registrable Securities covered by the Registration Statement to be listed or included on securities exchanges on which similar securities issued by the Company are then listed or included; (i) Provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement; (j) Obtain a "comfort" letter addressed to the Company from its independent public accountants in customary form and covering such matters of the type customarily covered by "comfort" letters; (k) Cooperate with the Holder who holds Registrable Securities being offered to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or amounts as the case may be, as the Holder may reasonably request, and, within three (3) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Holder whose Registrable Securities are included in such Registration Statement) an appropriate instruction and opinion of such counsel; and (l) Take all other reasonable actions necessary to expedite and facilitate disposition by the Holder of the Registrable Securities pursuant to the Registration Statement. 5. [Reserved.] 6. OBLIGATIONS OF THE HOLDER. In connection with the registration of the Registrable Securities, the Holder shall have the following obligations: (a) It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of the Holder that the Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least ten (10) days prior to the first anticipated filing date of the Registration Statement, the Company shall notify the Holder of the information the Company requires from the Holder (the "Requested Information") if the Holder elects to have any of the Holder's Registrable Securities included in the Registration Statement. If at least five (5) business days prior to the filing date the Company has not received the Requested Information from the Holder (a "Non-Responsive Holder"), then the Company may file the Registration Statement without including Registrable Securities of such Non-Responsive Holder; 5 (b) The Holder by such Holder's acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement hereunder, unless the Holder has notified the Company in writing of the Holder's election to exclude all of the Holder's Registrable Securities from the Registration Statement; and 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder who holds such Registrable Securities, the directors, if any, of such Holder, the officers, if any, of such Holder, each person, if any, who controls any Holder within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Person" or ?Indemnified Party?), against any losses, claims, damages, liabilities or expenses (joint or several) incurred (collectively, "Claims") to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any of the following statements, omissions or violations in the Registration Statement, or any post-effective amendment thereof, or any prospectus included therein: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation under the Securities Act, the Exchange Act or any state securities law (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject to clause (b) of this Section 7, the Company shall reimburse the Holders, promptly as such expenses are incurred and are due and payable, for reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 7(a) shall not (I) apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, (II) be available to the extent such Claim is based on a failure of the Holder to deliver or cause to be delivered the prospectus made available by the Company; or (III) apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Each Holder will indemnify the Company and its officers, directors and agents against any claims arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company, by or on behalf of such Holder, expressly for use in connection with the preparation of the Registration Statement, subject to such limitations and conditions as are applicable to the Indemnification provided by the Company to this Section 7. Such indemnity shall remain in full 6 force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Holders pursuant to Section 10. (b) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 7 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other person represented by such counsel in such proceeding. In such event, the indemnifying party shall pay for only one separate legal counsel for the Indemnified Party or Indemnified Person; such legal counsel to be selected by the Indemnified Person or Indemnified Party, (I) subject to the consent of the indemnifying party (which consent shall not be unreasonably withheld or delayed), and (II) if the Indemnified Parties or Indemnified Persons are Holders, by the Holders holding a majority in interests of the Registrable Securities included in the Registration Statement to which the Claim relates. Except as provided in the immediately preceding sentences, in case any such action is brought against any Indemnified Person or Indemnified Party, and it notifies the indemnifying party of the commencement thereof, after notice from the indemnifying party to such Indemnified Person or Indemnified Party of the indemnifying person?s election so to assume (alone or with other indemnifying persons) the defense thereof, the indemnifying party will not be liable to such Indemnified Person or Indemnified Party under this Section 7 for reasonable legal or other out-of-pocket expenses subsequently incurred by such Indemnified Person or Indemnified Party in connection with the defense thereof other than reasonable costs of investigation, unless the indemnifying party shall not defend such action to its final conclusion. The Indemnified Person or Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and out-of-pocket expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the Indemnified Person or Indemnified Party. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 7, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. The indemnification required by this Section 7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 8. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 7 to the fullest extent permitted by law; provided, however, that (a) no contribution shall be made under circumstances 7 where the maker would not have been liable for indemnification under the fault standards set forth in Section 7; (b) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation; and (c) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 9. REPORTS UNDER EXCHANGE ACT. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Holders to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) furnish to the Holder so long as such Holder owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested to permit the Holders to sell such securities pursuant to Rule 144 without registration. 10. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by the Holders to any transferee of the Registrable Securities (or all or any portion of any Debenture of the Company which is convertible into such securities) only if: (a) the Holder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (i) the name and address of such transferee or assignee and (ii) the securities with respect to which such registration rights are being transferred or assigned, (c) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws, and (d) at or before the time the Company received the written notice contemplated by clause (b) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein and the Form of Debenture of even date herewith. 11. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Holders who hold an eighty (80%) percent interest of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 11 shall be binding upon each Holder and the Company. 12. MISCELLANEOUS. 8 (a) A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (b) Notices required or permitted to be given hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered (by hand, by courier, by telephone line facsimile transmission, receipt confirmed, or other means) or sent by certified mail, return receipt requested, properly addressed and with proper postage pre-paid to the respective parties as follows: If to the Company: SSGI-UST ACQUISTION CORPORATION 8160 Woodland Business Center Waters Avenue Tampa, Florida 33614 Attention: Peter S. Steele 9 With a copy to: Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. 911 Chestnut Street Clearwater, FL 34617-1368 Attention: Michael T. Cronin, Esquire If to Holder: STRATEGIC SOLUTIONS GROUP, INC. 326 First Street, Suite 100 Annapolis, MD 21403, Attention: John J. Cadigan With a copy to: Palmarella & Sweeney, P.C. 993 Old Eagle School Rd., Suite 415 Wayne, PA 19087 Telecopier No.: (610) 687-8830 Attention: Ernest D. Palmarella, Esquire If to any other Holder: At such address as such Holder shall have provided in writing to the Company. Or at such other address as each such party furnishes by notice given in accordance with this Section 12(b), and shall be effective, when personally delivered, upon receipt and, when so sent by registered or certified mail, four (4) calendar days after deposit with the United States Postal Service. (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (d) This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws (e) If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. (f) Subject to the requirements of Section 10 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. 10 (g) All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. (h) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning thereof. (i) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by telephone line facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. (j) This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement thereof. (k) Neither party shall be liable for consequential damages. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 11 13. EFFECT OF MERGER. Immediately after the merger of SUAC with and into UST pursuant to the Agreement as described in the recitals to this Registration Rights Agreement, UST shall be replaced for SUAC each and every time the name appears herein and all obligations of SUAC hereunder shall be deemed assumed by UST. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. ATTEST: SSGI-UST ACQUISTION CORPORATION /s/ PETER S. STEELE By: /s/ PETER S. STEELE __________________________ _____________________________ Peter S. Steele, Secretary Peter S. Steele, President STRATEGIC SOLUTIONS GROUP, INC. /s/ JOHN J. CADIGAN By: /s/ JOHN J. CADIGAN __________________________ _____________________________ John J. Cadigan, Secretary John J. Cadigan, President AGREED TO AND ACCEPTED BY U.S. TECHNOLOGIES, INC. & PETER S. STEELE, PRESIDENT OF U.S. TECHNOLOGIES, INC. /s/ PETER S. STEELE ______________________________ Peter S. Steele 12 EX-10 10 EXHIBIT 10(I) Exhibit 10(I) AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment is made this 10th day of February, 1998, to the EMPLOYMENT AGREEMENT dated September 1, 1995 between STRATEGIC SOLUTIONS GROUP, INC. (formerly PACIFIC ANIMATED IMAGING CORPORATION), a Delaware corporation with its principal executive offices at 326 First Street, Suite 100, Annapolis, Maryland 21403 (the "Company"), and JOHN J. CADIGAN, residing at 287 Longpoint Road, Crownsville, Maryland ("Employee"). WHEREAS, the Company and Employee desire to amend the Employment Agreement pursuant to a resolution adopted by the Board of Directors at a special meeting held on February 10, 1998; WHEREAS, Section 14 permits an Amendment to the Employment Agreement if in writing and signed by both parties. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements herein contained and the sum of $1.00 and other valuable consideration and intending to be legally bound hereby, the Company and Employee hereby amend the Employment Agreement as follows: 1. Section 1. Term of Employment. is amended by changing the Termination Date from August 31, 1998 to August 31, 1999. 2. In all other respects, the EMPLOYMENT AGREEMENT dated September 1, 1995, together with this AMENDMENT, is ratified, approved and confirmed. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year first above written. Witness: STRATEGIC SOLUTIONS GROUP, INC. _________________________ By: /s/ A.DAVID ROSSIN __________________________________________ A. David Rossin for the Board of Directors EMPLOYEE: _________________________ By: /s/ JOHN J. CADIGAN __________________________________________ John J. Cadigan EX-23 11 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Strategic Solutions Group, Inc. (formerly Pacific Animated Imaging Corporation) on Form S-8 (File Nos. 333-23777, 333-10399, 33-53536, 33-94078, 33-94150, 33-94148, and 33-94062) and Form S-3 (File Nos. 333-20997 and 333-42281) of our report dated March 27, 1998, except for Note 16 for which the date is April 8, 1998, on our audits of the consolidated financial statements of Strategic Solutions Group, Inc. as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 which report is included in this Annual Report on Form 10-KSB. COOPERS & LYBRAND, L.L.P. McLean, Virginia April 15, 1998 EX-99 12 EXHIBIT 99(M) Exhibit 99(M) PACIFIC ANIMATED IMAGING CORPORATION INCENTIVE STOCK OPTION PLAN NO. 3 Effective May 22, 1997 1. Definitions.................................................. 1 ----------- 2. Purpose...................................................... 1 ------- 3. Administration............................................... 1 -------------- 4. Shares Subject to Plan....................................... 2 ---------------------- 5. Eligible Employees........................................... 2 ------------------ 6. Restrictions on Eligibility.................................. 2 --------------------------- 7. Allotment of Shares.......................................... 2 ------------------- 8. Grant of Option.............................................. 2 --------------- 9. Option Price................................................. 2 ------------ 10. Option Period................................................ 3 ------------- 11. Termination of Option........................................ 3 --------------------- 12. Rights in Event of Termination of Service, Retirement, ------------------------------------------------------ Disability or Death........................................ 3 ------------------- 13. Payment and Notice of Exercise............................... 3 ------------------------------ 14. Exercise of Option........................................... 4 ------------------ 15. Changes in Capital Structures................................ 4 ----------------------------- 16. Nontransferability........................................... 5 ------------------ 17. Transfers of Stock Received Upon Exercise.................... 5 ----------------------------------------- 18. Re-Issuance of Shares........................................ 5 --------------------- 19. Interpretation............................................... 5 -------------- 20. Term of Plan, Amendment, Discontinuance...................... 5 --------------------------------------- 21. Effect of the Plan, etc...................................... 6 ------------------------ 22. Governing Law................................................ 6 ------------- PACIFIC ANIMATED IMAGING CORPORATION ------------------------------------ INCENTIVE STOCK OPTION PLAN NO. 3 --------------------------------- 1. Definitions. As used herein, the following terms shall have the following meanings: (a) "Board" shall mean the Board of Directors of Pacific Animated Imaging Corporation. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. Reference herein to specific sections of the Code shall include references to any successor provisions to such sections. (c) "Committee" shall mean the committee appointed by the Board pursuant to Section 3. of this Plan to administer this Plan. (d) "Company" shall mean Pacific Animated Imaging Corporation and its subsidiaries, if any. (e) "Effective Date" shall mean the date this Plan is approved by the stockholders of Pacific Animated Imaging Corporation, as provided in Section 19. hereof. (f) "Option Period" shall mean the period during which an option granted under this Plan shall be exercisable, as set forth in Section 10. hereof. (g) "Subsidiary", for purposes of this Plan, shall mean any corporation (or similar organization) of which the Company owns, directly or indirectly, more than 50% of the total voting power of all classes of stock entitled to vote therein. 2. Purpose. The purpose of this Plan is to increase the interest in the welfare of the Company of those employees of the Company who have made valuable contributions to the business of the Company, to furnish such employees with an incentive to continue their services to the Company, and to attract able personnel to the employ of the Company through the grant to such employees of options to purchase shares of the Company's Common Stock. The Company intends that options granted pursuant to the provisions of this Plan will qualify as "incentive stock options" within the meaning of Section 422 of the Code. 3. Administration. This Plan shall be administered by the Board or a committee (the "Committee") of not less than two (2) members of the Board. Members of the Committee shall be appointed, and vacancies shall be filled, by the Board. No member of the Board or Committee shall participate in any action by the Board or Committee which allots or grants options to him/her personally. 4. Shares Subject to Plan. Options may be granted from time to time under this Plan providing for the purchase of not more than eighty thousand (80,000) shares of the common stock, par value $.0001 per share, of the Company ("Common Stock"), as constituted on the Effective Date (subject to adjustment pursuant to Section 15.), plus such number of such shares as may become available for reissuance pursuant to Section 17. Shares of authorized and unissued Common Stock reacquired by the Company and held in its Treasury, as from time to time determined by the Board, may be issued upon exercise of options granted under this Plan. 5. Eligible Employees. Except as provided in Section 6. hereof, employees of the Company who are designated by the Board or the Committee shall be eligible to be granted options under this Plan. Said designated employee shall hereinafter be referred to as "Participant". 6. Restrictions on Eligibility. No option shall be granted under this Plan to any employee who, immediately before the option is granted, owns stock possessing more than ten (10%) percent of the total combined voting power of all classes of stock of (i) the Company or (ii) any of the Company's subsidiaries (within the meaning of Section 422(b)(6) of the Code and the Treasury Regulations thereunder), unless (a) at the time of such grant the option price is at least one hundred ten (110%) percent of the fair market value of the shares represented by such option on that date, and (b) such option is not exercisable after the expiration of five (5) years from the date of grant. 7. Allotment of Shares. The grant of an option to an eligible employee under this Plan shall not be deemed either to entitle such employee to, or to disqualify such employee from, participation in any other grant of options under this Plan. 8. Grant of Option. Except as otherwise provided in Section 6., options may be granted under this Plan from time to time prior to the expiration of ten (10) year period commencing with the Effective Date. The aggregate fair market value (determined as of the date such options are granted) of the stock with respect to which incentive stock options are exercisable for the first time by such Participant in any calendar year under all stock option plans of the Company and its subsidiaries shall not exceed one hundred thousand ($100,000) dollars, or such other amount as may be specified from time to time in Section 422(b)(7) of the Code. Grants under this Plan shall be made only by resolution adopted by Board or the Committee. The grant of an option under this Plan shall commence to have legal force and effect at the time of adoption by the Board or the Committee of the resolutions making the grant, and the employee to whom such option is granted shall become a Participant in this Plan at such time. 9. Option Price. Except as otherwise provided in Section 6., the price at which the Common Stock may be purchased upon the exercise of an option granted under this Plan shall be fixed by the Board or the Committee but shall be not less than the fair market value of such shares on the date on which the option is granted. The fair market value of such shares shall be determined in 2 accordance with the provisions of the Code and Treasury Regulations promulgated thereunder. 10. Option Period. Subject to the provisions of Section 14. below, an option granted under this Plan may be exercised during the period (the "Option Period") which begins on the date the option is granted (or such other time as may be determined by the Committee as set forth in the resolutions evidencing the grant of the option) and which ends (a) on the earlier of (i) the expiration of 10 years (5 years in the case of an employee described in Section 6.) after the date the option is granted; or (ii) the termination of the Participant's employment with the Company (within the meaning of Section 422(a)(2) of the Code) for any reason except as provided in Section 12. of this Plan; or (b) such shorter period of time as may be determined by the Board or the Committee, as set forth in the resolution evidencing the grant of the option. 11. Termination of Option. All rights to exercise an option granted under this Plan shall terminate at the end of the Option Period, as described in Section 10. above. 12. Rights in Event of Termination of Service, Retirement, Disability or Death. If a Participant terminates service with the Company, retires from the Company on or after attainment of age 65, has his/her employment by the Company terminated due to disability (within the meaning of Section 22(e)(3) of the Code, as determined by the Board or the Committee) or dies without having fully exercised an option granted under this Plan, the Participant, his/her representative or custodian (in the event of his/her incompetency), or the executors, administrators, legatees or distributees of his/her estate (in the event of his/her death) shall have the right, for a period of three (3) months after the date of his/her termination of service, retirement or death or for a period of one (1) year after the date of his/her termination of employment due to disability, to exercise the unexercised and unexpired portion, if any, of such option, in whole or in part, to the same extent that the Participant could have exercised such option before the expiration of such three-month or one-year period had the Participant continued to be an employee of the Company. 13. Payment and Notice of Exercise. Full payment of the purchase price for shares purchased upon the exercise, in whole or in part, of an option granted under this Plan shall be made at the time of such exercise. The purchase price may be paid for with cash, stock in the Company, or a combination thereof. No such shares shall be issued or transferred to a Participant until full payment therefor has been made and the Participant has delivered his/her written Notice of Exercise of the respective options to the Company at its principal office, and a Participant who is not already a 3 stockholder at the time of the issue shall have none of the rights of a stockholder until shares are issued or transferred to him/her. 14. Exercise of Option. No option under this Plan shall be exercisable at any time by a Participant to whom an "incentive stock option" (as such term is defined in Section 422 of the Code) has previously been granted prior to December 31, 1986 while such previously granted incentive stock option is "outstanding" (within the meaning of Section 422 of the Code), in whole or in part. Unless the Board or Committee otherwise directs, options granted hereunder shall be exercisable by a Participant pursuant to the Vesting Formula defined below, provided the Participant is employed by Company on the Allocation Dates as defined below. On the original date of grant the Participant shall have the right to purchase as much as twenty (20%) percent of the shares of Common Stock which are the subject of his/her option. On the first anniversary of the original date of grant and on the second, third and fourth anniversary of the original date of grant thereafter, Participant shall have the right to purchase as much as an additional twenty (20%) percent of the shares of Common Stock which are the subject of his/her option. As of the fourth anniversary of the original date of grant, Participant shall have given the right to purchase one hundred (100%) percent of the shares of Common Stock which are the subject of his/her option. The Allocation Dates are the above mentioned four (4) anniversary dates of the original date of grant. Options granted under this Plan shall otherwise be exercisable during the Option Period at such times, in such amounts, in accordance with such terms and conditions, and subject to such restrictions as may be determined by the Board or Committee, and as are set forth in the resolutions and the Notice of Grant evidencing a Participant's exercise of such options. In no event shall an option be exercised or shares be issued pursuant to an option if any applicable laws shall not have been conformed with or if requisite approval or consent of any governmental authority having jurisdiction over the exercise of the options or the issue and sale of the Common Stock shall not have been secured, unless in the opinion of counsel for the Company, the exercise or issuance is exempt from the obligation to obtain such approval or consent. Each Participant shall agree not to offer, sell, pledge, hypothecate or otherwise transfer any shares of Common Stock purchased pursuant to the exercise of an option granted under this Plan unless the shares have been registered under applicable federal and state securities laws or unless the proposed transaction is exempt from such registration in the opinion of counsel for the Company. Each Participant shall, at the time of purchase of shares of Common Stock upon the exercise of an option, if requested by the Company upon advice of its counsel that the same is necessary or desirable, deliver to the Company his/her written representation that he/she is purchasing the shares for his/her own account for investment and not with a view to public distribution or with any present intention of reselling any of such shares, and deliver such other written representations as may be reasonably requested by the Company to assure compliance with applicable laws. If a Participant so requests, shares purchased upon the exercise of any option may be issued in or transferred into the name of the Participant and another person jointly with right of survivorship. 15. Changes in Capital Structures. In the event of the payment of any dividend payable in, or the making of any distribution of, Common Stock of the Company to holders of record of Common Stock of the Company, which increases the outstanding Common Stock of the Company 4 by more than twenty-five (25%) percent during the period any option granted under this Plan is outstanding or in the event of any stock split, combination of shares, recapitalization or other similar change in the authorized capital stock of the Company during such period or in the event of the merger or consolidation of the Company into or with any other corporation or the reorganization, dissolution, liquidation or winding up of the Company during such period, Participants shall be entitled, upon the exercise of any unexercised option held by them, to receive such new, additional or other shares of stock of any class, or other property (including cash), as they would have been entitled to receive as a matter of law in connection with such payment, distribution, stock split, combination, recapitalization, as the case may be, had they held the shares of the Common Stock being purchased upon exercise of such option on the record date set for such payment or distribution or on the date of such stock split, combination, recapitalization, change, merger, consolidation, reorganization, dissolution or liquidation, and the option price under any such option shall be appropriately adjusted. In case any such event shall occur during the term of this Plan, the number of shares that may be optioned and sold under this Plan as provided in Section 4. shall be appropriately adjusted. The decision of the Board or the Committee, with respect to all such adjustments shall be conclusive. 16. Nontransferabiltiy. Options granted under this Plan shall not be transferable other than by will or by the laws of descent and distribution, and shall be exercisable only by the Participant or by Participant's heirs or personal representatives in accordance with Section 12. of this Plan. 17. Transfers of Stock Received Upon Exercise. Pursuant to 423(a) of the Code, there shall be no income tax consequences incurred upon the grant of an option or upon the exercise of an option, provided, a Participant who has received stock pursuant to exercise of an option to purchase Common Stock, does not dispose of such shares of stock for a period of 2 years from the date of the grant of the option or for a period of 1 year from the date of transfer of such stock to Participant, whichever is later. 18. Re-Issuance of Shares. Any shares of Common Stock which, by reason of the expiration of an option or otherwise, are no longer subject to purchase pursuant to an option granted under this Plan shall be available for re-issuance under this Plan. 19. Interpretation. The Board or the Committee shall interpret this Plan and prescribe, amend or rescind rules and regulations relating to it and make any and all other determinations necessary or advisable for its administration. 20. Term of Plan, Amendment, Discontinuance. This Plan shall be or has been submitted for approval by the holders of at least a majority of the shares called for that purpose within twelve months before or after adoption of the Plan by the Board. Upon stockholder approval, the Plan shall be deemed effective and adopted as of such date. This Plan, unless sooner terminated or discontinued by the Board pursuant to this Section 19., shall expire on the tenth anniversary of the Effective Date (except to the extent necessary for administration of options exercisable but unexercised on that date), and no options shall be granted under this Plan after that date. The Board may terminate 5 or discontinue this Plan at any time and may suspend this Plan or amend or modify this Plan in any respect at any time or from time to time, without the approval of the stockholders, except that the number of shares of Common Stock that may be optioned and sold under this Plan, as provided in Section 4., above, may not be changed (except pursuant to Section 15., above) and the class of eligible employees to whom options may be granted, as provided in Sections 5. and 6. above, may not be modified without the approval of the stockholders of the Company and the Board or the Committee. No action of the Board, the Committee or stockholders may alter or impair the rights of a Participant under any option theretofore granted to him/her without his/her consent to such action. 21. Effect of the Plan, etc. Neither the adoption of this Plan nor any action of the Board or Committee, shall be deemed to give any employee any right to be granted an option to purchase Common Stock of the Company or any other rights hereunder unless and until the Board or Committee shall have adopted a resolution granting such employee an option, and then only to the extent and on such terms and conditions as may be set forth in such resolution; the terms and conditions of options granted under this Plan may differ from one another as the Board or Committee shall at its discretion determine, as long as all options granted under the Plan satisfy the requirements in this Plan. Date Adopted by Board: January 30, 1997 Date Approved by Shareholders: May 22, 1997 Effective Date: May 22, 1997 22. Governing Law. The validity, construction, interpretation and effect of this instrument shall exclusively be governed by and determined in accordance with the laws of the State of Delaware, except to the extent preempted by federal law, which shall to such extent govern. 6 EX-27 13 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1,149,372 0 741,841 75,000 0 137,618 1,058,313 701,390 1,446,066 1,303,527 1,487,864 0 0 177 965,252 3,756,820 4,791,823 4,791,823 3,527,089 7,342,245 (60,605) 119,096 410,539 (2,900,356) 0 (2,900,356) 0 0 0 (2,900,356) (1.70) (1.70)
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