U.S SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from January 1, 1997 to December 31, 1997
Commission file number 0-27256
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
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DELAWARE 13- 3858917
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State or Other Jurisdiction of (I.R.S. Employer Identification No.
Incorporation or Organization)
200 East Palmetto Park Road, Suite 200, Boca Raton, Florida 33432
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(Address of Principal Executive Offices) (Zip Code)
(561) 393-6685
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
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(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes / / No / X/
(CONTINUED NEXT PAGE)
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the 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.
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State issuer's revenues for its most recent fiscal year: The issuer's
revenues for the fiscal year ended December 31, 1997 were $ 4,416,790
The aggregate market value at March 31, 1998 of shares of the
registrant's Common Stock, $.001 par value per share (based upon the closing
price of $4.3125 per share of such stock on the Nasdaq OTC Bulletin Board on
such date), held by non-affiliates of the Registrant was approximately
$31,885,120. Solely for the purposes of this calculation, shares held by
directors and officers of the Registrant have been excluded. Such exclusion
should not be deemed a determination or an admission by the Registrant that such
individuals are, in fact, affiliates of the Registrant.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: At March 31, 1998 there
were outstanding 9,676,190 shares of the Registrant's Common Stock, $.001 par
value.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Company is making this statement in order to satisfy the "safe
harbor" provisions contained in the Private Securities Litigation Reform Act of
1995. This Annual Report on Form 10-KSB includes forward-looking statements
relating to the business of the Company. Forward-looking statements contained
herein or in other statements made by the Company are made based on Management's
expectations and beliefs concerning future events impacting the Company and are
subject to uncertainties and factors relating to the Company's operations and
business environment, all of which are difficult to predict and many of which
are beyond the control of the Company, that could cause actual results of the
Company to differ materially from those matters expressed in or implied by
forward-looking statements. The Company believes that the following factors,
among others, could affect its future performance and cause actual results of
the Company to differ materially from those expressed in or implied by
forward-looking statements made by or on behalf of the Company; (a) general
economic, business and market conditions; (b) competition; (c) the success of
advertising and promotional efforts; (d) trends within the Internet Gaming and
Internet Supply Provider industries; (e) the existence or absence of adverse
publicity; (f) changes in relationships with the Company's major customers or in
the financial condition of those customers; and (g) the adequacy of the
Company's financial resources and the availability and terms of any additional
capital. Such forward-looking statements are based on assumptions that the
Company will continue to design, market and provide successful new services,
that competitive conditions will not change materially, that demand for the
Company's services will continue to grow, that the Company will retain and add
qualified personnel, that the Company's forecasts will accurately anticipate
revenue growth and the costs of producing that growth, and that there will be no
material adverse change in the Company's business. In light of the significant
uncertainties inherent in the forward-looking information included in this Form
10-KSB, actual results could differ materially from the forward-looking
information contained in this Annual Report on Form 10-KSB.
Atlantic International Entertainment, Ltd. (the "Company"), a Delaware
corporation, develops and markets Interactive products and services in the
Entertainment and Information Technology fields. The Company (formerly,
Cine-Chrome Laboratories, Inc., Medco Health Care Services, Inc., Cine-Chrome
Video Corp., Network 4, Inc. and CEEE Group Corporation) was incorporated in the
state of Colorado in October 1939 under the name "Pacific Gold, Inc." to explore
and develop gold and silver ore prospects and to operate mining and milling
facilities. Pacific Gold, Inc. conducted limited mining activities until
operations ceased. The CEEE Group then sought new business opportunities as a
development stage entity.
In 1973 the Company changed its name to Cine-Chrome Laboratories, Inc.
and operated a film-processing lab in California. From 1984 until June 1994, the
Company did not conduct any operations, transactions or business activities. In
June 1994, the Company began acting as a corporate advisory operation which
included acting as a "finder" with respect to U.S. public companies and
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providing advisory services concerning corporate structure and raising capital.
Beginning in 1996, the Company has concentrated its business operations
primarily on the manufacturing, marketing and development of Interactive
products and services. These products and services are focused on two major
industries that include Interactive gaming & wagering and Information Technology
products and services.
Prior to July 16, 1996, the Company had no operations other than
searching for a business combination. In July 1996, the Company consummated a
share exchange pursuant to an Exchange of Stock Agreement and Plan of
Reorganization with Atlantic International Capital Ltd., a Delaware corporation
("Atlantic Capital") and the former stockholders of Atlantic Capital (the "Stock
Exchange Agreement"). As a result of the Stock Exchange Agreement, the business
of Atlantic Capital became the business of the Company.
On November 22, 1996, the Company merged with and into its wholly-owned
Delaware subsidiary, Atlantic International Entertainment, Ltd., whereby the
Company, among other things, (i) changed its state of incorporation to Delaware;
(ii) increased its authorized capital stock to 110,000,000 (100,000,000 shares
of common stock, $.001 per share (the "Common Stock") and 10,000,000 shares of
preferred stock, $.001 par value per share (the "Preferred Stock"); and (iii)
effectuated a 1 for 3 share exchange. All shares referred to herein (unless
specifically stated otherwise) refer to post split amounts.
The Company acquired the major assets of RAM Associates, Inc. ("RAM")
pursuant to a Purchase and Sale Agreement dated April 15, 1996. The RAM assets
acquired by the Company included COMMUNITY CASINO and REALSPORTS(TM) that formed
a part of the foundation of the Company's current gaming software products.
Other products acquired from RAM included HOTEL HOTLINKS(TM) and CLUB
INTERACTIVE. The Company has significantly improved and expanded its operational
software and the software products developed by the Company. The Company
continues to perform substantial development efforts to adapt to current
technological advances.
In March 1997, the Company acquired the Internet Service Provider and
developer The EmiNet Domain, Inc. Through the EmiNet Domain, Inc. the Company
based it's Interactive non-gaming wagering products and services. In addition to
dial-up Internet business, EmiNet, offers web hosting and development services
to commercial markets. (See EmiNet Business, infra).
The Company's executive offices are located at 200 East Palmetto Park
Rd., Suite 200, Boca Raton, Florida 33432. The telephone number of the Company
is (561) 393-6685. The Company maintains a home page HTTP://WWW.AIELTD.COM.
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PRODUCTS AND SERVICES
INTERACTIVE GAMING AND WAGERING PRODUCTS
INTERNET CASINO EXTENSION(TM)
The Company is a developer and worldwide marketer of private network
and Interactive gaming and wagering products including its proprietary flagship
product, Internet Casino Extension(TM) or "ICE(TM)." The Company licenses these
products to licensed casino, gaming operators and sports wagering businesses.
Trial operations, under the name ARUBA PALMS CASINO and SPORTSBOOK, began in
October, 1996. Upon conclusion of its successful trial in the first quarter of
1997 the casino site reverted back to its generic name, ICE(TM) and is now
available for demonstration for potential new clients. The Company has added
other variations to ICE(TM) aimed at a specific market including the Indian
Casino Extension(TM), Interactive Club Extension & Internet Charity Extension.
The Company has entered into eleven (11) license agreements for the
ICE(TM) product. The ICE(TM) product is offered for license in either of two (2)
ways. The base License Agreement calls for a fully customized package of four
(4) casino games, hardware, a complete back-office accounting and marketing
program for $450,000. Additional games and customizations are at additional cost
to the customer. Financing is currently available over a three-year period with
an 8.5% interest rate. A deposit of $150,000 is now required and is due at
installation. The alternative programs available offer all of the products and
services developed by the Company included for the duration of the agreement.
This plan requires $150,000 due at installation and a monthly fee equal to 10%
of the Net-Win (money players wagered versus paid out). Additionally, the
Company will receive a fee of $2,000 per month for technical support and product
upgrades.
WEBSPORTS(TM)
The Company licenses the webSports(TM) sportsbook software system to
casino operators and sports book businesses. The system can be accessed via the
telephone, Internet, private network, touch screen kiosk and walk-up sports
book. The system allows for automated position keeping as well as manual input
into the managing of the sports book operations. The system has American and
International sports and allows both fixed price and fractional wagering. As
with all of the Company products, there is a back-end database, accounting and
auditing features.
The Company has entered into seven (7) license agreements for the
webSports(TM) product. There is financial option presently available. The
complete system integrating both Internet and phone wagering for the U.S. sports
markets is offered for $175,000, not including hardware. In addition, the
Company offers an international version that offers U.S., European, Australian
and South African style wagering for $225,000. A minimum deposit of fifty five
thousands dollars ($55,000) is required prior to installation. Additionally, the
Company will receive a monthly maintenance and support agreement in the amount
of $1,000.
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NETWORK GAMING
The Company offers stand-alone Bingo, Keno and lottery systems that
utilize the ICEtm and webSportstm gaming platforms.
INTERACTIVE CLUB EXTENSION
The Company offers a system that integrates on-site networked touch
screen kiosks giving players the ability to games, both at the venue and at
home.
HOTEL HOTLINKS(TM):
The Company also actively markets the Hotel HotLinks(TM) system which
is a variation and expansion of ICE(TM) and webSports(TM) which has features
specific to hotel guests such as in-room services, Internet access and in-room
advertising of local goods and services. The product uses set top boxes and
infrared remote controls to allow hotel guests to access gaming and the
additional services mentioned above. As of the date hereof, the Company has not
consummated any sales of the Hotel HotLinks(TM) system.
The television set top boxes used in the Hotel Hotlinks(TM) product
permit the use of smart cards for identification and other purposes. This same
hardware/smart card technology will be employed in other products that the
Company intends to develop throughout the year ending December 31, 1998.
INDUSTRY OVERVIEW
The Internet is a global network of computers connecting millions of
individual computers and more than 70,000 business, commercial, government and
academic networks. This interconnectivity allows any one of these computers to
transmit information to any other computer. Management believes that there is
tremendous growth potential for Internet products as consumer and business
access becomes easier and more cost efficient. It is estimated that there are
already over 50 million Internet users, and the number of users is growing at a
rate of 10% per month.
The commodity pricing of powerful computers and the wealth of
information available on the Internet have all contributed to the creation of a
vast market of consumers and business buyers. During the last three years, the
number of Internet service providers ("ISP's") in the United States has grown
from roughly zero to over 3,000. Management attributes the influx of ISP's to
several factors which include: (i) an increasing demand for connection to the
Internet; (ii) the Internet offers significant marketing opportunities for a
variety of products and services; and (iii) providing Internet connections
requires minimum expertise and start-up costs.
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The Interactive Gaming & Wagering marketplace has become the next step
in the gaming industry. Revenues from the worldwide gaming market exceeds Fifty
Billion Dollars ($50,000,000,000). Expert's estimate that gaming revenues
derived from just Internet gaming revenues will exceed Eight Billion Dollars by
the year 2000. The integrated Interactive gaming & wagering (Network gaming
terminals, lotteries, Internet, telephone) revenues will far exceed that amount.
The existing customer base from the established gaming and wagering
marketplace will be where the vast majority of these new revenues are derived.
Building upon the gaming industry's high customer loyalty level, the existing
gaming operators will be able to launch a new generation of gaming & wagering
products to it's player base.
GROWTH STRATEGY
The Company's current plan of operations is to expand its current
worldwide account base by offering a complete Interactive gaming & wagering
product line. The Company will also seek to expand upon its current Information
Technology products and services in the form of International acquisition with
or merger into existing operations. Achieving market acceptance for the
Company's services and products will require substantial marketing efforts and
the expenditure of significant funds to create awareness and demand.
MARKETING
Marketing efforts are directed by the Company's President and Chief
Executive Officer. The Company currently employs a direct sales team directed
primarily to casino operators and duly licensed sports books throughout the
Caribbean, Central & South America and Europe. The Company is seeking to expand
direct sale coverage to the Australian-Asian and African markets by having
locally based operations in each region.
TRADEMARKS
The Company markets its services utilizing various names. The Company
is currently in the process of registering the following trademarks recognizable
in the United States: AIE(TM), Internet Casino Extension(TM), ICE(TM),
webSports(TM), realSports(TM), Indian Casino Extension(TM), Internet Charity
Extension(TM) and Hotel Hotlinks(TM). The Company has no patents but claims
copyrights on its software products.
DEPENDENCE ON CUSTOMERS
During the year ended December 31, 1997 the Company's largest
customers, Australian Advisors Corporation. ("Australian") accounted for
approximately 20% of the Company's revenues. The Company does anticipate
revenues from this customer in the year ending December 31, 1998.
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REGULATORY MATTERS
The legality of gaming through the use of the Internet is uncertain at
this point. Since the sale of a foreign subsidiary which ran a sports book (see
Recent Developments), the Company does not operate virtual casinos or Internet
sports books. However, sales of the Company's products depend on the continued
international growth of virtual casinos and Internet sports books. A number of
United States federal and state statutes could be construed to prohibit gaming
through use of the Internet. While the Company focuses its sales and marketing
efforts in jurisdictions that allow private network and Interactive gaming which
include Australian, Caribbean, African and American gaming markets, there can be
no assurance that international, federal, state or local laws or regulatory
procedures, including those which relate to the issue of jurisdiction over
gaming on the Internet, which would adversely affect the Company's business,
financial condition, results of operations or prospects will not be expanded or
imposed.
COMPETITION
The Company competes with other companies involved in the development
and marketing of gaming related entertainment and Information products and
services. The Company faces intense competition in connection with its gaming
operations. The Company believes that its Internet casino and sports book
products currently compete with four (4) companies and that its Hotel Hot-Links
product currently competes with two (2) companies. The Company continues to face
increasing competition from both established and newly emerging operations in
both the United States and elsewhere. There are numerous casinos and sports
books currently operating over the Internet, many of which use software
developed for their own purposes. The Company believes that some of these
operators may decide to offer to sell their software to other casino and sports
book operators in the future. The Company's gaming products also compete with
other forms of gaming activities, including state-sponsored lotteries and horse
racing and competes for discretionary spending with other leisure time
activities and alternate forms of entertainment. While competition for
Interactive Gaming is intense, the Company's marketing approach is unique in
that the major marketing & sales focus is with the established gaming and
wagering marketplace.
EMPLOYEES
As of April 10, 1998, the Company had thirty (30) full-time employees
(three (3) employed by EmiNet), of whom two (2) were software engineers. None of
the Company's employees is covered by a collective bargaining agreement or is a
member of a union. The Company may also employ full-time and part-time
consultants on an as-needed basis. The Company considers its relationship with
its employees to be satisfactory.
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RECENT DEVELOPMENTS
On December 15, 1996, the Company entered into an agreement to sell its
foreign subsidiary, known as Atlantic International Entertainment, N.V. ("AIE,
NV"), which ran a sportsbook operation. The purchase price was $850,000 payable
as follows: (i) $2,000 was paid to the Company at closing and (ii) the balance
payable beginning 60 days after closing based on 40% of net win before expenses
of the casino in a minimum monthly amount of $3,000. Interest on the unpaid
balance accrues at 8% per annum. The effective date of this transaction was
January 1, 1997, and the transaction closed in March 1997.
In December 1997, the Company sold Australian Advisers 100,000 shares
of Common Stock of the Company pursuant to the completion of its S-8
Registration Statement for $3.00 per share, these shares were issued and held in
escrow until the closing in January 1998. Australian Advisors continues to
render valuable consulting services to the Company.
On April 3, 1998, the Company entered into a Securities Purchase
Agreement for the sale of $500,000.00 of a newly created 5% Convertible
Preferred Stock. The Agreement also grants the purchaser the right to purchase
up to an additional $2,500,000.00 in said class of securities at market prices.
The Preferred stock is convertible into the Company's common stock at the
purchaser's option. Contemporaneously with the execution of the Securities
Purchase Agreement described above, the Company entered into an agreement with
the Purchaser to register all of the shares of the purchased securities and the
Common Stock that may be issued pursuant to the exercise of the Purchaser's
conversion rights. The Company has agreed, not later than thirty days after the
closing of the transactions described above, to use its commercially reasonable
best efforts to file a registration statement with the Securities and Exchange
Commission for the registration of the shares of above securities and the shares
of Common Stock issuable upon exercise of the Purchaser's conversion rights and
to maintain the effectiveness of such registration statement for the term of the
above Agreement. The Company believes that, during the period of effectiveness
of such registration statement, the Purchaser may convert the securities to
Common Stock and sell all or any of the shares of Common Stock without
restriction.
On April 30, 1998, the Company entered into a Securities Purchase
Agreement with Hosken Consolidated Investments, Ltd., a South African
corporation for the purchase of 1,000,000 shares of the Company's Common Stock
at $4.00 per share. Hosken is engaged in the technology industry, including
cellular, telecommunications, video gaming and media.
In a simultaneous transaction, HCI has subscribed for 25% of the
Company's South African subsidiary, Atlantic International Entertainment, Ltd.
South Africa. HCI received its equity in consideration for its services to be
rendered related to introducing the Company to the South African gaming and
wagering community.
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In May 1998, the Company's wholly-owned subsidiary, AIE, Australia,
Ltd. intends to submit an acquisition bid for an Australian listed company,
Coms21. The Company will offer Coms21 shareholders the equivalent of $.70 AUD
per share in the form of the Company's U.S. shares.
The Company recently added three new directors to its Board of
Directors. In addition, the Company has recently begun discussions with various
individuals regarding the formation of an advisory board. The Company
anticipates that the advisory board will be formed in the near future. Among the
employees hired during 1997, was Karen Welch, as Senior Vice President for
Operations and General Manager. Ms. Welch was formerly with IBM. On April 14,
1998, in anticipation of increased business activity, the Company engaged Harry
Winderman as General Counsel. Mr. Winderman has degrees in law, tax and business
administration and has practiced law for over twenty years. In addition, Mr.
Winderman is an adjunct professor at Florida Atlantic University.
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INFORMATION PRODUCTS & SERVICES
THE EMINET DOMAIN
The Company's focus outside of Interactive gaming & wagering is in
Information Technologies ("IT"). In March, 1997, The EmiNet Domain, Inc. was
acquired as the Company's first IT asset. All non-Interactive gaming projects
and activities where placed under the supervision and direction of The EmiNet
Domain, Inc. EmiNet seeks to expand its current product line and is exploring
Internet Telephony and Internet financial transaction products to offer the
market in 1998.
REALSPORTS(TM)
The Eminet Domain offers an information service on the Web called
"realSports(TM)." This service provides real-time odds, scores and other sports
wagering information and is free of charge to users. The Company anticipates
generating revenues from this service by selling advertising space to companies
wishing to target their marketing to sports fans and individuals who wager on
sporting events. The Company uses this service to promote visits to model sites
established for its ICE(TM), webSports(TM) and Internet related products.
On January 31, 1997, the Company entered into an agreement to purchase
all of the shares of The EmiNet Domain, Inc. ("Eminet"). The purchase price for
the shares was $2,020,000 payable by the issuance and delivery to the
shareholders of Eminet or their designees of a minimum of 200,000 shares of
fully-paid and non-assessable shares of Common Stock at the market value as of
January 31, 1997 and $20,000 cash payable at March 31, 1997. In addition, the
shareholders of Eminet or their designees will receive additional shares at
market price equal to one time EmiNet's net profit before taxes for the years
ending 1997 and 1998 up to $750,000 per annum, one and one-half times over
$750,000 to $1,000,000 and two times over $1,000,000. Eminet provides monthly
Internet service to approximately 1,000 subscribers. The current equipment and
personnel are capable of handling up to 2,500 subscribers without upgrades. As
additional profit centers, EmiNet hosts and programs web sites for businesses
and individuals, provides networking design and services and sells computer and
networking equipment.
The EmiNet Domain ("EmiNet") is a wholly owned subsidiary of Atlantic
International Entertainment, Ltd. With its offices in Boca Raton. On December
31, 1997 EmiNet had approximately 10 employees. At present, EmiNet is one of the
leading South Florida Internet Service Provider ("ISP") with a network
infrastructure comprised of a leased high speed fiber optic backbone, computer
hardware and software, and points of presence ("POPs") in 18 South Florida
cities providing access availability to thousands of customers from Miami to
Northern West Palm Beach cities. EmiNet was recently ranked number three in
South Florida by the South Florida Business Journal. EmiNet outranked all of the
Ft. Lauderdale (Broward County) ISP's. EmiNet currently offers a wide range of
Internet products as a full service Internet company. Those products include
dial-up access, dedicated high speed access, Integrated Services Digital Network
("ISDN") service, fractional T1's (transmissions speed up to 1.54 megabits per
second),
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Flex 56 (enhanced speed modem services), and other Internet related services to
businesses and individuals including World Wide Web ("Web") services, which
includes Web design/development and a significant amount of Web hosting, data
services and network frame relay services. EmiNet attempts offering exemplary
customer service at competitive prices. EmiNet's high speed, digital
telecommunications network provides subscribers with direct access to the full
range of Internet applications and resources in E-Mail, World Wide Web sites,
USENET newsgroups and FTP software. EmiNet is one of only a handful of ISP's
that offer co-location services. EmiNet continues to experience growth in
various areas of its subscriber base.
MEDICAL PRODUCTS
In February 1998, the Company entered into an agreement with ELG Health
Management Services to market the Atlantic International Medical ("AIM")
products & services. Atlantic is currently focused on Interactive gaming &
wagering and Information Technology. The agreement with ELG will enable the
Company to benefit from earlier efforts while not allocating additional
resources in a non-core business. ELG will provide Atlantic 40% of the net
profits from the sale and distribution of medical products. ELG is developing a
global distribution network for medical testing devices (e.g., HIV, pregnancy,
drug abuse, hepatitis, etc.) and other medical products.
ELG, through AIM, markets distributorships for American manufacturers
of medical testing and diagnostic kits and other medical products throughout the
world. AIM acts as a broker between the manufacturer and distribution companies
located in foreign countries. AIM does not resell products but simply collects a
commission for taking an order from the distributor and placing the order with
the manufacturer. This approach limits the risks associated with inventory and
product liability and keeps overhead and direct costs to a minimum.
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INDUSTRY OVERVIEW
The Internet had its origins in 1969 as a project of the Advanced
Research Project Agency ("ARPA") of the U.S. Department of Defense. The network
established by ARPA was designed to provide efficient connections between
different types of computers separated by large geographic areas and to function
even if part of the network became inoperative. Historically, the infrastructure
was used by academic institutions and governmental agencies for remote access to
host computers and electronic mail communications. Accordingly, the U.S.
government historically provided the majority of funding for the infrastructure.
However, as the modern Internet developed and became commercial, funding shifted
to the private sector. The number of worldwide Internet users continues to
increase significantly. In a recent government study, it was stated that traffic
on the Internet doubles every 100 days. Business use is growing the faster and
as many as 62 million Americans now have Internet access. In addition, the
number of domains registered, which EmiNet believes is a forward-indicator of
activity on the Internet, has increased at a rapid pace. EmiNet believes that
there are several key drivers responsible for the rapid proliferation of
Internet use:
SERVICE QUALITY: Quality is the differentiating aspect that sets
EmiNet apart from the other carriers.
IMPROVING PERFORMANCE - There have been significant bandwidth,
communications, and price/performance improvements in communications
over the Internet. These developments make the Internet an
increasingly attractive medium for conducting business, adding
convenience, and attracting more users.
HIGH SPEED MODEMS - As the installed personal computer ("PC") base
has grown, it has become increasingly common for those PCs to have a
modem connection. Many new computers now have higher speed,
pre-installed modems, such as a K56 Flex, allowing connections to be
made even more easily.
IMPROVED CONTENT - As the Internet grows new information and
services available on the Internet have attracted attention and
created a more widespread appeal.
EXPANSION OF LANS AND WANS - Corporate, government, and educational
local area networks ("LANs") and wide area networks ("WANs") are
expanding and these installed networks enable multiple users to be
connected to the Internet through a single point of contact.
Therefore, the actual number of Internet users connected through
these LANs and WANs greatly exceeds the number of connection points.
EXTRANET - Businesses can set up a proprietary Network or Virtual
Private Network ("VPN") using the Internet. A VPN is a secure and
cost effective means of data communication.
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EXPECTATIONS FOR ELECTRONIC COMMERCE OVER THE INTERNET - With the
increased recognition of the Internet's potential as a medium for
marketing and purchasing, a growing number of companies are
initiating or expanding their use of the Internet for commercial
purposes. The United States Department of Commerce stated that 10
million North Americas made purchases over the Internet by the end
of 1997.
DRAMATIC INCREASE IN NAVIGATIONAL AND UTILITY TOOLS - The
proliferation and improvement of software tools and browsers, which
facilitate Internet use, have attracted more users. The World Wide
Web browsers and other user-friendly interfaces have made it easier
for users to access desired information on the Internet.
A convergence is occurring in the Internet industry as more traditional Internet
providers become communications companies and communication companies become
Internet companies. These factors are creating an environment in which
individuals and businesses and other organizations perceive a compelling need to
establish Internet access and an Internet presence. EmiNet believes that its
Internet access, Web services and value-added service offerings are particularly
appealing to businesses for a number of reasons. For example, many businesses
are accustomed to working with a vendor with a local presence and may prefer to
contract with an Internet service provider such as EmiNet which has a local
presence and the experience and reputation of providing quality and dependable
service. Furthermore, many businesses have Internet requirements that go beyond
the simple access that most Internet service providers offer. These Internet
requirements include security, network consulting, high-bandwidth managed access
and data services.
EMINET STRATEGY
EmiNet is implementing a strategy to become a full service
telecommunications company providing a full complement of communication
services, a one-stop shop for the small and medium size business user and the
consuming public. As a full service Internet provider EmiNet will continue to
offer full Web services, including production of Web sites, the hosting of Web
sites and the marketing of Web sites. EmiNet believes the foundation for
business growth and Electronic Commerce ("E Commerce") will be through the
creation, hosting and marketing of Web sites. As more companies want to sell
their products and services over the Internet, the demand for Web services is
expected to increase rapidly. This will require an E Commerce solution for most
Web sites that will be developed for the business community. EmiNet has provided
this capability to its customers and expects to expand this through additional E
Commerce offerings such as ATM. Marketing will play a more important role for
Web Site owners, as more people will want to monitor the activity on their site.
As the demand for speed increases, EmiNet will meet the challenges of providing
greater bandwidth to its customers. EmiNet will seek to meet the challenge
through various types of dedicated connections at the local loop level and
greater bandwidth at the backbone level.
The cable industry faces considerable challenges to enter the Internet
access market. The high cost of cable modems and the cost to upgrade systems may
continue to slow that segment of
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the industry. Given the significant cost for the cable companies to rapidly
deploy Internet services over coaxial cable, the traditional wire line carriers
will remain the dominant providers of Internet access in the near term.
IP Telephony is an anticipated source of potential revenue enhancement
for EmiNet. It will become more prevalent in its use for companies and people
who want a low cost solution to long distance telephone communication. EmiNet
has been evaluating the WebPhone product by a local company Netspeak.
EmiNet also recognizes the increased security requirements being
demanded by some of their medium to large customers. This coming year, they will
begin offering security services, which include: producing security documents,
installing and configuring firewalls, and for those who request it, EmiNet will
remotely manage the customer's firewall.
Additionally, vertical markets are becoming more and more important in
expanding the level of services. This coming year will see EmiNet enter the
world of documents on demand. This is extremely important as the revenues comes
from a per page fee per year. This leads to a reoccurring revenue stream, which
fits nicely with the many law offices, legal offices and small business which
currently are EmiNet customers.
EMINET SERVICES TODAY & TOMORROW
Today, EmiNet primarily provides two high quality services which it
believes, are competitively priced: Internet access service and Web services.
Internet access services can be divided into two basic categories: personal
accounts for individuals and small businesses that connect to the Internet via a
modem (referred to as "dial-up" accounts), and high speed dedicated accounts
(principally for medium to large business users) that connect to the Internet
via dedicated telecommunications lines. Dial-up subscribers can access the
Internet by calling EmiNet's local POPs. EmiNet's dedicated accounts consist of
subscribers that desire to connect internal computer networks to the Internet.
EmiNet offers a wide variety of service options, which vary in price
depending upon the features included and the data rate, the amount of space, or
bandwidth, of the connection. EmiNet bills its Internet access subscribers
monthly, quarterly or annually in advance. A significant percentage of
individual accounts are billed automatically through pre-authorized credit card
accounts. EmiNet also provides complete installation services, sales of turnkey
networking equipment, education and training services, through their technical
support and network monitoring support teams.
Web services can also be divided into three basic categories: Web
hosting services and Web production (or content) and Web Marketing. EmiNet
designs Web sites and performs additional programming for Web sites on behalf of
its business subscribers. Charges for Web site design and programming vary
widely with the size and complexity of the project. EmiNet's Web services
produce Web sites that make use of original graphic arts, interactive forms,
data base
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queries and search engines. EmiNet hosts a substantial number of Web sites on
behalf of its customers enabling them to have a continued presence on the
Internet. In addition, EmiNet offers its customers a marketing strategy to
insure that their Web sites are visited by potential customers.
TOMORROW - EMINET WILL OFFER
As EmiNet expands its product offerings, EmiNet will focus on seven
core areas:
1. Dedicated high-speed large bandwidth service to the small and medium
size business user, such as ISDN & T1's, Fractional T1's and DS3's.
2. Dial up access service to the residential community, focused on easy
user interface and access to information on the World Wide Web.
3. E commerce with expansions in the current offerings specifically ATM
for the small, medium and large businesses.
4. Traditional long distance service with all the enhancement
customers generally are looking for such as private line services
to the small and medium size business, Frame Relay, VPN and other
traditional private line services.
5. Web Services, including production, hosting, marketing and
Co-Location services.
6. Integration, Technology and Engineering Services for small and
medium business including fire wall installations, security analysis and when
requested, remote administration of the firewall.
7. Document Imaging on demand. This will include services such as
setting up the customer's database and scanning in the documents for a fee.
Additionally, the revenues are based on a per- page per year fee, leading to
reoccurring revenues with very little additional marketing.
In addition, EmiNet has established itself as a provider's provider for
Internet Transportation services. EmiNet facilitates and enables businesses that
want to provide Internet transportation services, such as Hypertext Transfer
Protocol ("HTTP") for Web, Simple Mail Transfer Protocol ("SMTP") for mail,
Network News Transfer Protocol ("NNTP") for news, File Transfer Protocol ("FTP")
for file transfer, as well as taking on Web contracting design and development
from other providers.
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<PAGE>
ON-LINE NETWORK REPORTS
EmiNet operates a password-protected on-line network reporting service
and provides a report to all customers on the traffic and performance of both
EmiNet's network and the client's Web page hits.
TRAINING
EmiNet provides on site training or one on one training in their
offices.
NETWORK INFRASTRUCTURE
EmiNet believes that its future success in the Internet access services
market depends in part on its ability to enhance its current service offerings
for individuals and businesses and to advance the capabilities and capacity of
its telecommunications network. EmiNet operates Ten (10) PRI circuits and Three
T-1 lines that simultaneously supports Frame Relay, Integrated Services Digital
Network ("ISDN"), and Asynchronous Transfer Mode ("ATM") on a single platform.
EmiNet installed these PRI's in various locations in the cities of Palm Beach,
Boca Raton, Ft. Lauderdale and Miami. These PRI's are interconnected via an ICI
network.
EmiNet is continuing to optimize and increase the capacity and
capabilities of its telecommunications network. EmiNet currently is working to
increase its speed, reliability, and network fault tolerance. EmiNet operates a
data center, which is located in their Boca Raton office. This facility not only
provides redundancies and stability to the Company's network, but also allows
EmiNet to make this facility available to those clients that want the ability to
collocate their Web servers in the data center and pay EmiNet for use of the
facility and gain high bandwidth access to the Internet.
OPERATIONS AND CUSTOMER SUPPORT
EmiNet has approximately 3 employees dedicated to technical dial-up
support, commercial account support, network operations and customer service.
SALES & MARKETING
EmiNet's growth in its subscriber base is attributable to word-of-mouth
referrals primarily in the individual dial-up market. EmiNet has a direct sales
group in order to support a strong focus on business customers. EmiNet is
delivering high-speed Internet access solutions and Web services to business
customers in its regional markets and is differentiating itself through a
non-site consultative approach, high-quality services and exemplary customer
service.
EmiNet believes that its ability to differentiate itself from the
national Internet access providers, long distance providers and regional
telephone companies can best be achieved in the
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<PAGE>
business market by becoming a one stop shop and providing the highest quality of
service at competitive prices.
EmiNet intends to increase its advertising and to maximize the amount
of local newspaper, yellow pages support with press releases and interest
articles on EmiNet.
COMPETITION
The Internet connectivity business is highly competitive, and there are
no substantial barriers to entry. EmiNet believes that competition will
intensify in the future and its ability to successfully compete depends on a
number of factors including market presence, the capacity, reliability, and the
security of its network infrastructure, its pricing of services compared to its
competitors, the timing of new products and services by EmiNet and its
competitors, EmiNet's ability to react to changes in the market, and industry
and economic trends. EmiNet's competitors and positioning was recently published
in the March 13th, 1998 issue of the South Florida Business Journal. The number
one (Icanect) is located in Miami and has 17,000 subscribers primarily in the
Miami and Southern portion of Ft. Lauderdale. The number two (Florida Internet)
is in West Palm Beach and extends Northward and has 7,000 subscribers. EmiNet is
conveniently located in Boca Raton and address the northern Ft. Lauderdale and
Southern Palm Beach area with 4,000 potential subscribers. Numbers 4 through 10
in the survey are all located in Broward county with four in Ft. Lauderdale, one
in Hollywood and one in Plantation ranging from 1500 subscribers to 500.
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<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY.
The Company, including EmiNet, leases approximately 5,150 square feet
of office space in Boca Raton, Florida pursuant to a lease expiring on September
30, 2002 with a monthly rent of approximately $8,757.10. The Company believes
that its existing facilities are adequate for its current needs and that
additional facilities in its service area are available to meet future needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to pending or threatened litigation, both as
plaintiff and defendant. However, the Company believes that said litigation will
not materially affect the Company's operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On November 18, 1996, the Company held a Special Meeting of
Shareholders to, among other things, vote on a proposal to reincorporate the
Company under the laws of Delaware. There were 7,062,238 shares voted for the
proposal, 700 shares voted against the proposal and 105 shares abstaining from
the vote. There were no matters submitted to the Shareholders in 1997.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been quoted on the Nasdaq OTC Bulletin
Board since July 25, 1996. Prior to July 25, 1996, the Company believes that its
Common Stock last traded in a public market in approximately 1987. The Company's
current symbol is "AIEE."
The following table sets forth, for the periods indicated, the highest
and lowest bid prices for the Common Stock, as reported by the Nasdaq OTC
Bulletin Board. The prices reported reflect inter-dealer prices, without retail
mark-up, markdown or commission, and may not reflect actual transactions. The
prices have been adjusted to reflect a 3 for 1 reverse split of the Company's
Common Stock in November 1996.
CALENDAR 1997 HIGH LOW
- ------------- ---- ---
First Quarter 10 1.5
Second Quarter 8.25 1.468
Third Quarter 5.25 3.25
Fourth Quarter 5.25 2.75
CALENDAR 1998 HIGH LOW
- ------------- ---- ---
First Quarter 4.87 3.0
At April 10, 1998, there were approximately 340 holders of record of
the Company's Common Stock. This number does not include an indeterminate number
of shareholders whose shares are held by brokers in "street name."
The Company has not paid any cash dividends on the Common Stock in the
past and the Board of Directors does not anticipate declaring any cash dividends
on the Common Stock in the foreseeable future. The Company currently intends to
utilize any earnings it may achieve for the development of its business and
working capital purposes.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, THE COMPANY'S EXPANSION INTO NEW MARKETS, COMPETITION,
TECHNOLOGICAL ADVANCES AND AVAILABILITY OF MANAGERIAL PERSONNEL.
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OVERVIEW
During 1997, the Company focused its business efforts in two areas,
Interactive Gaming & Wagering and Information Technologies. Gaming and Wagering
continues to grow in terms of customer base and product line. A market for the
gaming and wagering products has been established whereas the Company has
entered into 18 license agreements. The Company expects to expand its account
base with its existing product line for the foreseeable future. .
At this time efforts in the Information Technologies area mainly
consists of the operations of The EmiNet Domain, an Internet service provider
and developer. The Company plans to increase its current base through
acquisition and merger in 1998.
RESULTS OF OPERATIONS
The following is a summary of the Company's consolidated financial and
operating data:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
STATEMENTS OF OPERATIONS DATA: 1997 1996
- ------------------------------ ---- ----
<S> <C> <C>
Revenue $4,416,790 $ 454,656
Income [Loss] from Operations 1,394,890 (427,975)
Net Income [Loss] 1,047,317 (376,270)
Basic and Diluted Net Income [Loss] Per Common Share
$.11 $(.04)
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: DECEMBER 31, 1997 DECEMBER 31, 1996
- ------------------- ----------------- -----------------
<S> <C> <C>
Working Capital $ 352,559 $ 199,893
Total Assets 6,828,784 1,982,014
Total Liabilities 1,882,165 302,879
Stockholders' Equity 4,946,619 1,679,135
</TABLE>
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The following is a summary of the Company's financial data broken into
business segments:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
Net Sales:
<S> <C> <C>
Investment Advisory Services -0- 366,204
Internet Software and Services 4,002,894 87,000
Medical Products and Equipment -0- -0-
Internet Access and Services 413,896 1,452
---------- -----------
$4,416,790 $ 454,656
Operating Income:
Investment Advisory Services -0- 231,081
Internet Software 1,564,666 (659,056)
Medical Products and Equipment -0- -0-
Internet Access and Services (169,776) -0-
---------- -----------
$1,394,890 $ (427,975)
Total Assets:
Investment Advisory Services -0- 1,423
Internet Software 5,104,525 1,980,591
Medical Products and Equipment -0- -0-
Internet Access and Services 1,724,259 -0-
---------- -----------
$6,828,784 $ 1,982,014
Depreciation and Amortization:
Investment Advisory Services -0- 285
Internet Software and Services 323,959 67,091
Medical Products and Equipment -0- -0-
Internet Access and Services 98,579 -0-
---------- -----------
$ 422,538 $ 67,376
Capital Expenditures:
Investment Advisory Services -0- 1,423
Internet Software 490,590 1,490,395
Medical Products and Equipment -0- -0-
Internet Access and Services 200,585 -0-
---------- -----------
$ 691,179 $ 1,491,818
</TABLE>
No income was generated from the investment advisory services for the
year ended December 31, 1997. Internet software and related activities generated
net income from operations of $1,047,317 due to the growth in the industry and
the Company's product recognition. In the first quarter of 1997, AIE(TM) NV and
its operations were sold as an operating Internet sports book. The net operating
loss from this discontinued business segment totaled ($69,531) pre tax benefit.
In 1997 the Company continued its focus on Internet related products
and services while continuing to identify new markets and strategic alliances.
In 1997, expenditures were made for both software and hardware in an aggregate
amount of $2,162,049. Additional employees were hired in both the technical and
sales areas. With the further development of the Internet related software
products and the change of business focus, revenues increased by 912%, or
$3,962,134 to a total of $4,416,790 for 1997. Depreciation expense and software
amortization for 1997 totaled $442,538 or 10.02% of gross revenues.
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OUTLOOK
The Interactive Gaming & Wagering industry, is expected to continue to
grow for the foreseeable future. Worldwide interest in the ICE(TM) and
webSports(TM) software systems is high with particular attention coming from
Australia & South Africa where the government is supportive of private network
and Interactive gaming. Management expects continued sales growth from these
products. The Company will continue to focus its efforts on marketing these
software systems as well as the Hotel Hotlinks(TM) and Networked touch screen
kiosk products. Management believes that interest in all of the Interactive
gaming & wagering products is very high especially in Australia, South Africa
and surrounding regions. The Company expects to continue sales of these products
for the foreseeable future. The Company will also continue its development of
add-on products for both ICE(TM) and webSports(TM) including the adaptations for
Overseas gaming markets.
Management expects continued growth in the Information Technologies
areas. It is expected that through On-line, private network, Web and networking
services through Eminet or newly acquired or merged entities to contribute
significantly to profits in 1998 due to new contracts and expanding
opportunities in the IT markets. The Company is considering expanding its
portfolio of Information Technology companies and is looking for Internationally
based companies to bring into the United States marketplace.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. At December 31, 1997 the Company had a working capital
of $352,559. At December 31, 1996, the Company had working capital of $199,893.
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES. During the years ended
December 31, 1996 and 1997, net cash provided (used) by operating activities was
($193,975) and ($811,628) respectively. Cash flows from continuing operating
activities decreased by $617,653 for the year ended December 31, 1997 compared
to the same period in 1996 primarily due to the transition from start up
activities of a new segment of business to the sales and marketing phase with
continued product enhancements.
CASH FLOWS FROM INVESTING ACTIVITIES. During the years ended December
31, 1996 and 1997, the Company made net capital expenditures of $308,859 and
$425,862, respectively, primarily for purchases of property and equipment. The
amounts expended in 1997 represent expenditures necessary for the Internet and
private network development and implementation as well as the acquisition and
upgrade of the Internet Service Provider. [EmiNet Domain]. .
CASH FLOWS FROM FINANCING ACTIVITIES. During the years ended December
31, 1996 and 1997, cash flows from financing activities were $723,425 and
$852,012 respectively. For the year ended December 31, 1997, cash flows from
financing activities are primarily from the issuance of Common Stock in
connection with private placements of the Company's Common Stock which raised
proceeds to the Company of approximately $350,250 with an additional cash flow
from the conversion of Debt to Equity in 1997 of $313,475.
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<PAGE>
The Company believes that cash from operating activities will be
sufficient to fund proposed operations for at least the next 12 months at its
current rate of growth.
INFLATION
In the opinion of management, inflation has not had a material adverse
effect on its results of operations.
ITEM 7. FINANCIAL STATEMENTS.
[See page F-1.]
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On January 30, 1997, the Board of Directors of the Company dismissed
Buchbinder Tunick & Company LLP as independent accountants to the Company and on
March 5, 1997 appointed Moore Stephens, P.C. as the new independent accountants
to the Company. Buchbinder Tunick & Company LLP has not reported on any of the
Company's financial statements. Since, December 19, 1996 (the date on which
Buchbinder was engaged as the Company's independent accountants), there were no
disagreements between the Company and Buchbinder Tunick & Company LLP on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Buchbinder Tunick & Company LLP, would have caused Buchbinder
Tunick & Company LLP to make a reference to the subject matter of the
disagreements in connection with its reports.
ITEM 9. RELATED PARTY TRANSACTIONS.
The Company made advances to the affiliated company during the year
ended December 1997, increasing the balance receivable to $49,855. The advances
accrue interest at a rate of 6% per annum, and are due on demand.
The company has notes payable to two officers in the aggregate amount
of $166,636 at December 31, 1997. The notes are demand notes and incur interest
at 8% per annum. Interest expense related to the shareholders notes totaled
$7,525 and $1,302 for the years ended December 31, 1997 and 1996, respectively.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their positions
with the Company are set forth below.
NAME AGE POSITION
---- --- --------
Norman J. Hoskin 63 Chairman of the Board,Secretary and
Treasurer
Richard A. Iamunno 40 President, Chief Executive Officer and
Director
David Halaburda 45 Chief Financial Officer
Steven D. Brown 51 Director
Martin V. McCarthy 42 Director
Jeffrey L. Hurwitz 42 Director
Dr. Leonard Haimes 70 Director
NORMAN J. HOSKIN has served as the Chairman of the Board, Secretary and
Treasurer since July 16, 1996 and served as Chairman of the Board, Secretary and
Treasurer of Atlantic since its inception in 1994. Mr. Hoskin served a Senior
Vice President of Rentar Industries Group from 1972 to 1982, one of the largest
transportation, warehousing and banking conglomerates in the United States. Mr.
Hoskin was former Chairman of the Board of Tapistron International and Director
and Officer of Trinitech System, Consolidated Technologies, Spintek Gaming and
American Artists Corporation . Mr. Hoskin is also a Director and Secretary of
Aqua Care Systems.
RICHARD A. IAMUNNO has served as a Director, the Chief Executive
Officer and President since July 16, 1996 and served as a Director, the Chief
Executive Officer and President of Atlantic since its inception in 1994. Prior
to starting the Company, Mr. Iamunno was President of Ameristar International,
an investment banking firm which provided European-based companies with merger
assistance into the U.S. public marketplace. Mr. Iamunno's business experience
includes positions as Senior Director of Marketing and Vice President of Western
Union Corporation. Mr. Iamunno has in the past served as a Director of Tapistron
International, as a Director and officer of Trinitech Systems, Inc.. Mr. Iamunno
earned his Business degree from Drake University in Des Moines, Iowa.
DAVID HALABURDA was appointed Chief Financial Officer in June of 1997.
Mr. Halaburda has acted as the Company Certified Public Accountant since it's
inception. Prior to Atlantic, Mr. Halaburda
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<PAGE>
was with the regional accounting firm of Buchbinder Tunick & Co. LLP. Mr.
Halaburda earned both CPA & CFP designations and has held various positions in
both professional and civic organizations. Mr. Halaburda earned his Bachelor of
Science degree from Monmouth University in New Jersey.
STEVEN D. BROWN was appointed a Director of the Company on July 16,
1996. Mr. Brown is the Chairman of American Artists Film Corporation, A
Georgia-based public Company. Since 1989, Mr. Brown has been active in the
development of feature film projects, through Movie America Corporation, a
Georgia corporation which Mr. Brown helped organize and for which he served as
President and Director until leaving that Company in 1991 to found American
Artists Film Corporation.
MARTIN V. McCarthy was appointed a Director of the Company in March of
1998. Mr. McCarthy was the President and CEO of IDD Enterprises, L.P. The
Company was recently sold to Dow Jones and Company. Mr. McCarthy has been a
pioneer in the online world for almost two decades. He has led organization of
scale that have created, commercialized and deployed leading edge technologies
in the areas of communications, information services and transactions. Prior to
joining IDD in 1988, Mr. McCarthy served as Vice President, Office Message and
Information Services at Western Union and was the youngest corporate officer in
the firm's 130 year history. Mr. McCarthy has an MBA from Harvard University.
JEFFREY L. HURWITZ was appointed a Director of the Company in March of
1998. Mr. Hurwitz had been the Managing Director of South African based Clinic
Holdings since 1987. While at Clinic Holdings, the Company grew to 26 Hospitals
with annual turnover of over $370,00,000. In November 1997 Mr. Hurwitz left
Clinic Holdings under the terms of Agreement of Sale of the Company. Prior to
Clinic Holdings Mr. Hurwitz was employed as a Chartered Accountant with Deloitte
& Touche. Mr. Hurwitz graduated from the University of Witwatersrand in South
Africa with degrees in Commerce and Accounting.
DR. LEONARD HAIMES was appointed Director of the Company in October of
1997. Since1985, Dr. Haimes has been the Medical Director at the Haimes Centre
Clinic in Boca Raton, Florida. As an expert in alternative care & medicine, Dr.
Haimes is an often featured media speaker in the United States and
Internationally. Dr. Haimes was formally the Chief of Staff of the Nevada Clinic
of Preventative Medicine. Dr. Haimes has a medical degree from Hahnemann Medical
College in Philadelphia, PA.
MEETINGS AND COMMITTEES
The Board held four (4) meetings during the year ended December 31,
1997. In addition, from time to time during such year, the members of the Board
acted by unanimous written consent. The Company has elected a standing
compensation and audit committees. The entire Board of Directors performs the
typical functions of such committees.
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<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the Company's
chief executive officer during the year ended December 31, 1997, 1996 and 1995.
No other executive officer's salary and bonus exceeded $100,000 for services
rendered to the Company during such years.
SUMMARY COMPENSATION TABLE
NAME AND
PRINCIPAL POSITION YEAR SALARY($) BONUS($)
------------------ ---- --------- --------
Richard A. Iamunno 1998 $125,000 --
President and Chief 1997 $ 91,000 --
Executive Officer 1996 $ 63,000(2) --
(1) The columns for "Other Annual Compensation" and "Long-term
Compensation" have been omitted as there is no compensation required to
be reported in such columns. The aggregate amount of perquisites and
other personal benefits did not exceed the lesser of $50,000 or 10% of
the total of salary and bonus. In addition, the Option Grants in Last
Year Table and Aggregated Option Exercises in Last Year and Year End
Option Values Table have been omitted as the above named executive
officer was not granted any options during the last year and owns no
options.
(2) Represents salary paid for services rendered as an executive of
Atlantic International Capital, Ltd., a wholly-owned subsidiary of the
Company.
BOARD OF DIRECTORS COMPENSATION
The Company does compensate directors who are also executive officers
of the Company for service on the Board of Directors. Directors receive $1,500
per meeting and are reimbursed for their expenses incurred in attending meetings
of the Board of Directors.
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<PAGE>
LONG-TERM INCENTIVE AND PENSION PLANS
The Company does not have any long-term incentive or defined benefit
pension plans.
OTHER
No director or executive officer is involved in any material legal
proceeding in which he is a party adverse to the Company or has a material
interest adverse to the Company.
EMPLOYMENT AGREEMENTS
The Company currently has employment agreements with Messrs. Iamunno &
Hoskin pursuant to which they will continue to serve as the Company's President
and Chief Executive Officer, Chairman of the Board, Secretary and Treasurer
respectively. It is anticipated that as compensation for their services, the
Company will pay Messrs. Iamunno and Hoskin base salaries of $144,000 each per
annum, respectively which shall be subject to annual increases of 10%. The
agreements will continue for three years and will expire in the year 2000. Other
than the aforementioned agreements, the Company has not entered into any other
employment agreement with any of its officers, directors or any other persons
and no such agreements are anticipated in the immediate future.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission"). Officers, directors and greater than ten percent
shareholders are required by the Commission's regulations to furnish the Company
with copies of all Section 16(a) forms they file.
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<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 31, 1998, information
regarding the beneficial ownership of the Company's Common Stock by each person
known by the Company to own five percent or more of the outstanding shares, by
each of the directors and officers, and by the directors and officers as a
group. As of March 31, 1998, there were outstanding 9,676,190 shares of the
Common Stock of the Company.
Name and Address of Beneficial Owner(2) Amount of
Beneficial Percent of
Ownership Class
Norman J. Hoskin 1,115,935 11.53%
Richard A. Iamunno 1,133,270 11.71%
Steven D. Brown 50,000 0.52%
David Halaburda N/A
Martin V. McCarthy 10,000 0.10%
Jeffrey L. Hurwitz N/A
Dr. Leonard Haimes 8,333 0.09%
The AWIXA Trust 1,161,536 12.0%
C/o Mello, Hollis, Jones & Martin
31 Church Street
Hamilton, Bermuda
The Kunni Lemmel Trust 1,154,868 11.94%
C/o Mello, Hollis, Jones & Martin
31 Church Street
Hamilton, Bermuda
All Officers and Directors as a Group 2,317,538 23.95%
(5 persons)
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
of the Securities Exchange Act of 1934. Generally, a person is deemed
to be the beneficial owner of a security if he has the right to acquire
voting or investment power within 60 days.
(2) Unless otherwise indicated, all addresses are at the Company's office
at 200 East Palmetto Park Rd., Suite 200, Boca Raton, Florida 33432.
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<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 10KSB.
(a) Exhibits:
3.1 - Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 to the
Company's Form 10-KSB for the fiscal year ended
December 31, 1996.
3.2 - Bylaws of the Company, incorporated by reference to
Exhibit 3.2 to the Company's Form 10-KSB for the fiscal
year ended December 31, 1996.
4.1 - Specimen Common Stock Certificate, incorporated by
reference to Exhibit 4.1 to the Company's Form 10-KSB
for the fiscal year ended December 31, 1996.
10.1 - Incentive Stock Option Plan for Employees, Directors,
Consultants and Advisers, incorporated by reference to
Exhibit 10.1 to the Company's Form 10-KSB for the
fiscal year ended December 31, 1996.
10.2 - Agreement for Purchase and Sale of Stock dated as of
January 31, 1997 by and between the Company and Eminet
Domain, Inc., incorporated by reference to the
Company's Form 8K dated March 7, 1997.
*10.3 - Securities Purchase Agreement dated April 3, 1998 by
and between the Company and The Shaar Fund, which
includes (i) the Certificate of Designations of
Convertible Preferred Stock as Annex I, and (ii) the
form of Registration Rights Agreement as Annex IV. The
Company agrees to furnish the disclosure schedules and
other Annexes, which have been omitted from this
filing, to the Commission upon request.
*10.4 - Employment Agreement dated as of May 1, 1997 between
the Company and Richard Iamunno.
*10.5 - Employment Agreement dated as of May 1, 1997 between
the Company and Norman Hoskin.
*11.1 - Statement of Computation of Per Share Earnings
*21.1 - Subsidiaries of the Company
*23.1 - Consent to the incorporation by reference in the
Company's Registration Statement on Form S-8 of the
report of Moore Stephens, P.C. included herein.
*23.2 - Consent to the incorporation by reference of the
report of Moore Stephens, P.C. included herein.
*27 - Financial Data Schedule.
- --------------------------
* Included herein.
(b) Reports on Form 8-K
On February 6, 1997, the Company filed two reports on Form 8-K
dated December 19, 1996 and January 30, 1997, respectively. Such reports
disclosed changes in the Company's independent accountants.
On April 14, 1997, the Company filed with the Commission a Form
8-K dated March 7, 1997 disclosing the acquisition of The EmiNet Domain, Inc.
-30-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report ...............................................F-2
Consolidated Balance Sheet as of December 31, 1997 ....................F-3..F-4
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996..................................................F-5
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1997 and 1996......................................F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996..................................................F-7
Notes to Consolidated Financial Statements .................................F-9
. . . . . . . . . . . .
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Atlantic International Entertainment, Ltd.
We have audited the accompanying consolidated balance sheet of Atlantic
International Entertainment, Ltd. and its subsidiaries as of December 31, 1997,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the two years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Atlantic International Entertainment, Ltd. and its subsidiaries as of December
31, 1997, and the consolidated results of their operations and their cash flows
for each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/S/ MOORE STEPHENS, P. C.
-------------------------
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
April 24, 1998
F-2
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
<TABLE>
<CAPTION>
ASSETS:
CURRENT ASSETS:
<S> <C>
Cash and Cash Equivalents $ 11,260
Accounts Receivable [Net of Allowance for Doubtful Accounts of $22,204] 43,228
Notes Receivable 1,927,899
Refundable Income Taxes 77,215
Deferred Tax Asset 176,812
Prepaid Expenses 6,564
Other Current Assets 10,000
----------
TOTAL CURRENT ASSETS 2,252,978
----------
FURNITURE, FIXTURES AND EQUIPMENT - NET 464,454
----------
SOFTWARE [NET OF ACCUMULATED AMORTIZATION OF $313,655] 1,285,574
----------
COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED -
[NET OF ACCUMULATED AMORTIZATION OF $78,132] 1,465,149
----------
OTHER ASSETS:
Due from Related Parties 49,855
Other Assets 18,781
Investments 10,125
Notes Receivable [Net of Discounts and Reserve] 1,359,083
----------
TOTAL OTHER ASSETS 1,437,844
----------
TOTAL ASSETS $6,905,999
==========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-3
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 951,592
Notes Payable - Officers 166,636
Due to Customers 20,721
Current Portion of Long-Term Debt 36,000
Current Portion of Capital Lease Obligations 41,427
Income Taxes Payable - Federal 605,213
Income Taxes Payable - State 29,123
Line of Credit 24,391
Other Current Liabilities 25,316
-----------
TOTAL CURRENT LIABILITIES 1,900,419
LONG-TERM DEBT 4,500
CAPITAL LEASE OBLIGATIONS 54,461
COMMITMENTS AND CONTINGENCIES --
-----------
TOTAL LIABILITIES 1,959,380
-----------
STOCKHOLDERS' EQUITY:
Preferred Stock - Par Value $.001 Per Share; Authorize
10,000,000 Shares, None Issued or Outstanding --
Common Stock - Par Value $.001 Per Share;
Authorized 100,000,000 Shares, Issued and
Outstanding 9,590,184 Shares 9,590
Additional Paid-in Capital 4,149,906
Unrealized Holding Loss on Marketable Securities (42,763)
Retained Earnings 829,886
-----------
TOTAL STOCKHOLDERS' EQUITY 4,946,619
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,905,999
===========
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-4
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
REVENUE $ 4,416,790 $ 454,656
COST OF SALES 527,344 48,894
----------- -----------
GROSS PROFIT 3,889,446 405,762
----------- -----------
GENERAL AND ADMINISTRATIVE 1,895,616 766,361
PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES 412,698 --
DEPRECIATION AND AMORTIZATION 186,242 67,376
----------- -----------
TOTAL OPERATING EXPENSES 2,494,556 833,737
----------- -----------
INCOME [LOSS] FROM OPERATIONS 1,394,890 (427,975)
----------- -----------
OTHER INCOME [EXPENSES]:
Interest Income 17,331 4,350
Interest Expense (10,477) (2,870)
Interest Expense - Related Party (7,525) (1,302)
Other Income [Expense] (34,669) 3,556
----------- -----------
OTHER [EXPENSES] INCOME - NET (35,340) 3,734
----------- -----------
INCOME [LOSS] FROM CONTINUING OPERATIONS BEFORE
INCOME TAX EXPENSE [BENEFIT] EXPENSE 1,359,550 (424,241)
INCOME TAX EXPENSE [BENEFIT] EXPENSE 411,325 (77,215)
----------- -----------
INCOME [LOSS] FROM CONTINUING OPERATIONS 948,225 (347,026)
DISCONTINUED OPERATIONS - [NET OF INCOME TAXES OF 51,047]:
[Loss] from Operations of Discontinued Foreign Subsidiary (45,890) (29,244)
Gain on the Disposal of Discontinued Foreign Subsidiary 144,982 --
----------- -----------
NET INCOME [LOSS] $ 1,047,317 $ (376,270)
=========== ===========
INCOME [LOSS] PER COMMON SHARE:
Continuing Operations .10 (.04)
Discontinued Operations .01 --
----------- -----------
BASIC AND DILUTED NET INCOME PER SHARE OF COMMON STOCK $ .11 $ (.04)
=========== ===========
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING 9,452,992 8,514,537
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-5
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
--------------------- ADDITIONAL LOSS ON RETAINED TOTAL
PREFERRED NUMBER OF PAID-IN MARKETABLE EARNINGS STOCKHOLDERS'
--------- --------- ------- ---------- -------- -------------
STOCK SHARES AMOUNT CAPITAL SECURITIES (DEFICIT) EQUITY
----- ------ ------ ------- ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1995 $ -- 6,803,451 $ 6,803 $ (6,713) $ -- $ 158,839 $ 158,929
Equity of CEEE [1] -- 1,500,033 1,500 (6,794) -- -- (5,294)
Sale of Common Stock -- 13 13 35,749 -- -- 35,762
Recapitalization
Adjustment [1] -- (13) (13) 13 -- -- --
Private Placement [1] -- 886,700 887 825,994 -- -- 826,881
Asset Acquisition [4] -- 200,000 -- 1,200,000 -- -- 1,200,000
Recapitalization
Adjustment [1] -- (200,000) -- -- -- -- --
Recapitalization Costs [1] -- -- -- (160,873) -- -- (160,873)
[Loss] from Continuing
Operations -- -- -- -- -- (347,026) (347,026)
[Loss] from Discontinued
Foreign Subsidiary -- -- -- -- -- (29,244) (29,244)
------- ------------- --------- ------------- ---------- ----------- -----------
BALANCE - DECEMBER 31, 1996 -- 9,190,184 9,190 1,887,376 -- (217,431) 1,679,135
Sale of Common Stock -- 75,000 75 350,175 -- -- 350,250
Sale of Common Stock -- 25,000 25 -- -- -- 25
Asset Acquisition [Note 8] -- 200,000 200 1,598,880 -- -- 1,599,080
Conversion of Debt to Equity -- -- -- 313,475 -- -- 313,475
Issuance of Shares in Escrow -- 100,000 100 -- -- -- 100
Unrealized Holding Loss on
Marketable Securities -- -- -- -- (42,763) -- (42,763)
Income from Continuing
Operations -- -- -- -- -- 948,225 948,225
Income from Discontinued
Operations -- -- -- -- -- 99,092 99,092
------- ------------- --------- ------------- ---------- ----------- -----------
BALANCE-DECEMBER 31, 1997 $ -- 9,590,184 $ 9,590 $ 4,149,906 $ (42,763) $ 829,886 $ 4,946,619
======= ============= ========= ============= ========== =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-6
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 7 1 9 9 6
------- -------
OPERATING ACTIVITIES:
<S> <C> <C>
Income [Loss] from Continuing Operations $ 948,225 $ (347,026)
Adjustments to Reconcile Net Income [Loss] to
Net Cash Provided by [Used for] Operating Activities:
Depreciation and Amortization 422,538 67,376
Provision for Doubtful Accounts 412,698 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (65,432) (63,965)
Prepaid Expenses (2,195) 20,723
Notes Receivable (3,677,476) --
Deferred Taxes (176,812) --
Restricted Cash (10,000)
Other Assets (13,915) (6,900)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 698,647 225,686
Income Taxes Payable 634,336 (90,500)
Other Current Liabilities 25,316 631
Due to Customers (7,558) --
----------- -----------
NET CASH - CONTINUING OPERATIONS (811,628) (193,975)
----------- -----------
DISCONTINUED OPERATIONS:
[Loss] from Discontinued Operations (45,890) (29,244)
Adjustments to Reconcile Net [Loss] to Net Cash Operations:
Depreciation 1,366 1,278
Changes in Net Assets and Liabilities (44,411) 41,641
----------- -----------
NET CASH - DISCONTINUED OPERATIONS (88,935) 13,675
----------- -----------
NET CASH - OPERATING ACTIVITIES - FORWARD (900,563) (180,300)
----------- -----------
INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Increase in Due from Related Parties (1,582) (37,177)
Purchase of Investments (109,418)
Sale of Investments 35,671 10,252
Purchase of EmiNet - Net of Cash Acquired (18,268) --
Purchase of Property and Equipment (425,862) (281,934)
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARD (519,459) (308,859)
----------- -----------
INVESTING ACTIVITIES - DISCONTINUED OPERATIONS:
Purchase of Property and Equipment -- (13,755)
Gain on the Disposal of Discontinued Foreign Subsidiary
[Net of Tax] 144,982 --
Sale of AIE NV - Net of Cash 13,100 --
----------- ------------
NET CASH INVESTING ACTIVITIES - DISCONTINUED OPERATIONS -
FORWARD $ 158,082 $ (13,755)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-7
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES - FORWARDED $ (900,563) $ (180,300)
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARDED (361,377) (322,614)
----------- -----------
NET CASH INVESTING ACTIVITIES - DISCONTINUED OPERATIONS -
FORWARDED 158,082 (13,755)
----------- -----------
FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Proceeds from the Conversion of Debt to Equity 313,475 --
Proceeds from Issuance of Common Stock 350,250 701,770
Increase in Loan Payable to Shareholder 144,981 21,655
Proceeds from Long-Term Debt 45,000 --
Payment of Notes Payable (4,500) --
Proceeds from Line of Credit 24,391 --
Payment of Lease Payable (21,585) --
----------- -----------
NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS 852,012 723,425
----------- -----------
[DECREASE] INCREASE IN CASH AND CASH EQUIVALENTS (409,928) 220,511
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 421,188 200,677
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 11,260 $ 421,188
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 5,903 $ 4,172
Income Taxes $ -- $ 77,215
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On April 15, 1996, the Company entered into an asset acquisition
agreement. The non-cash portion of the transaction included the issuance of
200,000 shares of common stock with a fair value of $1,200,000 [See Note 1 for
details of recapitalization].
On March 26, 1997, the Company issued 200,000 shares of the Company's
common stock as part of the acquisition of its subsidiary, The EmiNet Domain
[See Note 7].
As part of the acquisition of EmiNet Domain, Inc. [See Note 7], capital
lease obligations of approximately $106,000 were incurred for the purchase of
equipment [See Note 10].
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-8
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] ORGANIZATION AND STOCK ACQUISITION
CORPORATE STRUCTURE - CEEE Group, Inc. ["CEEE"] was incorporated under the laws
of the State of Colorado in October of 1939 as Pacific Gold, Inc. CEEE was
organized to explore, develop, mine and mill gold and silver deposits of ore.
The Company conducted limited mining activities until operations ceased. CEEE
was seeking new business opportunities as a development stage entity.
On July 16, 1996, CEEE entered into an exchange of stock and plan of
organization with Atlantic International Capital, Ltd. ["AIC"] pursuant to which
CEEE acquired all of the common shares of AIC in exchange for an aggregate of
6,803,451 common shares of CEEE. Following the share exchange and the issuance
of all shares, the shareholders of AIC own approximately 94% of CEEE.
For accounting purposes, the acquisition was recorded as a recapitalization of
AIC, with AIC as the acquirer. The shares issued were treated as issued by AIC
for cash and are shown as outstanding for all periods presented in the same
manner as for a stock split. Recapitalization costs totaling $160,873 were
charged to additional paid-in capital. The consolidated financial statements of
the Company reflect the results of operations of CEEE and AIE from July 1, 1996
through December 31, 1996. The consolidated financial statements prior to July
1, 1996 reflect the results of operations and financial position of AIC. Pro
forma information on this transaction is not presented as, at the date of this
transaction, CEEE is considered a public shell and, accordingly, the transaction
will not be considered a business combination. CEEE changed its name to Atlantic
International Entertainment, Ltd. ["AIE or the "Company"]. AIE was incorporated
under the laws of the State of Delaware on August 22, 1996.
Upon consummation of the merger, the Company's authorized capital was increased
to 100,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of
preferred stock, $.001 par value. The combined entity operates under the name of
Atlantic International Entertainment, Ltd.
In March 1997, the Company concluded its acquisition of the EmiNet Domain, Inc.,
an Internet service provider and developer of Internet related software products
as well as hosting commercial web sites [See Note 8].
In October 1997, the Company formed two subsidiaries, Atlantic International
Entertainment, Australia, Ltd. ["AIE, Australia"] and Atlantic International
Entertainment, South Africa, Ltd. ["AIE, SA"]. The Company advanced $10,000 to
AIE, SA to assist in the incorporation process [see restricted cash]. Both AIE,
Australia and AIE, SA were inactive for the year ended December 31, 1997.
NATURE OF BUSINESS - The Company is located in Southern Florida and develops and
markets interactive products and services which are offered and operated via the
Internet and World Wide Web. The operations are focused on two segments which
include Internet software licensing and Internet service providers and developer
of Internet related software products.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiaries. All material intercompany accounts
and transactions have been eliminated.
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 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 a maturity of three months or less when purchased, to be cash equivalents.
At December 31, 1997, the Company did not have any cash equivalents.
F-9
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
PROPERTY AND EQUIPMENT AND DEPRECIATION - Property and equipment are stated at
cost. Depreciation is computed primarily using the straight-line method over the
estimated useful lives of the assets, which range from 5 to 7 years. Leasehold
improvements are amortized using the straight-line method over the lesser of the
term of the related lease or the estimated useful lives of the improvements.
Routine maintenance and repair costs are charged to expense as incurred and
renewals and improvements that extend the useful life of the assets are
capitalized. Upon sale or retirement, the cost and related accumulated
depreciation are eliminated from the respective accounts and any resulting gain
or loss is reported as income or expense.
ORGANIZATION COSTS - Costs incurred with the organization of the Company have
been capitalized and are being amortized over a period of five-years on the
straight-line method. As of December 31, 1997, organization costs net of
accumulated amortization totaled $2,096. Net organization costs are included in
other assets as of December 31, 1997.
COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED - The cost in excess of net
assets of business acquired is being amortized on a straight-line basis over 15
years. Amortization expense amounted to $77,099 and $-0- for the years ended
December 31, 1997 and 1996, respectively.
REVENUE RECOGNITION - Revenue from computer software licensing agreements is
accounted for under the completed contract method, income of all revenue and
related expenses are recognized at completion of installation or acceptance by
the user. Revenue from providing Internet service and web hosting and
development services is recognized when services are rendered.
INVESTMENTS - The Company accounts for investments in accordance with Statement
of Financial Accounting Standards ["SFAS"] No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Management determines the
appropriate classification of its investments in debt and equity securities at
the time of purchase and reevaluates such determination at each balance sheet
date. Equity securities, and debt securities which the Company does not have the
intent to hold to maturity, are classified as trading or available for sale.
Securities available for sale are carried at fair value, with any unrealized
holding gains and losses, net of tax, reported in a separate component of
shareholders' equity until realized. Trading securities are carried at fair
value with any unrealized gains or losses included in earnings. Held to maturity
securities are carried at amortized cost. Marketable debt and equity securities
available for current operations are classified in the balance sheet as current
assets while securities held for non-current uses are classified as long-term
assets. Realized gains and losses are calculated utilizing the specific
identification method [See Note 6].
INCOME TAXES - Pursuant to SFAS No. 109, "Accounting for Income Taxes," income
tax expense [or benefit] for the year is the sum of deferred tax expense [or
benefit] and income taxes currently payable [or refundable]. Deferred tax
expense [or benefit] is the change during the year in a company's deferred tax
liabilities and assets. Deferred tax liabilities and assets are determined based
on differences between financial reporting and tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
ADVERTISING EXPENSES - The Company expenses advertising costs as incurred. Total
advertising costs charged to expenses for the years ended December 31, 1997 and
1996 amounted to approximately $122,000 and $51,500, respectively.
NET INCOME PER SHARE - The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards ["SFAS"] No. 128, Earnings per
Share, which is effective for financial statements issued for periods ending
after December 15, 1997. Accordingly, earnings per share data in the financial
statements for the year ended December 31, 1997, have been calculated in
accordance with SFAS No. 128. Prior periods loss per share data did not require
restatement.
F-10
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
NET INCOME PER SHARE [CONTINUED] - SFAS No. 128 supersedes Accounting Principles
Board Opinion No. 15, Earnings per Share, and replaces its primary earnings per
share with a new basic earnings per share representing the amount of earnings
for the period available to each share of common stock outstanding during the
reporting period. Basic earnings [loss] per share is computed by dividing income
[loss] available to common stockholders by the weighted average number of common
shares outstanding during the period. SFAS No. 128 also requires a dual
presentation of basic and diluted earnings per share on the face of the
statement of operations for all companies with complex capital structures.
Diluted earnings per share reflects the amount of earnings for the period
available to each share of common stock outstanding during the reporting period,
while giving effect to all dilutive potential common shares that were
outstanding during the period, such as common shares that could result from the
potential exercise or conversion of securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise, or contingent issuance of securities that would have an antidilutive
effect on per share amounts (i.e., increasing earnings per share or reducing
loss per share). The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants.
STOCK-BASED COMPENSATION - The Company follows Accounting Principles Board
Opinion No. 25. "Accounting for Stock Issued to Employees" ["APB No. 25"] with
regard to the accounting for its employee stock options. Under APB No. 25,
compensation expense is recognized only when the exercise price of options is
below the market price of the underlying stock on the date of grant.
Accordingly, no compensation expense has been recognized for the Company's
stock-based compensation plan for fiscal year 1997. The Company applies the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" to
non-employee stock-based compensation and the pro forma disclosure provisions of
SFAS No. 123 to employee stock-based compensation.
SOFTWARE AND AMORTIZATION - Costs related to the conceptual formulation and
design of licensed programs are expensed as research and development. Costs
incurred subsequent to establishment of technological feasibility to produce the
finished product are capitalized. The annual amortization of the capitalized
amounts is the greater of the ratio that current gross revenues for a product
bear to the total of current and anticipated future gross revenues for that
product or the straight-line method over the remaining estimated economic life
of the product including the period being reported on. Amortization begins when
the product is available for general release to customers. Periodic reviews are
performed to ensure that unamortized program costs remain recoverable from
future revenues. Costs to support or service licensed programs are charged
against income as incurred, or when related revenue is recognized, whichever
occurs first. Amortization expense related to software amounted to $236,296 and
$48,894 for the years ended December 31, 1997 and 1996, respectively. The
amortization expense is included in cost of sales.
IMPAIRMENT - Certain long-term assets of the Company are reviewed when changes
in circumstances require as to whether their carrying value has become impaired,
pursuant to guidance established in Statement of Financial Accounting Standards
["SFAS"] No. 121, "Accounting for the Impairment of Long-Lived Assets and for
F-11
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #3
[3] SIGNIFICANT RISKS AND UNCERTAINTIES
Long-Lived Assets to be Disposed Of." Management considers assets to be impaired
if the carrying value exceeds the future projected cash flows from related
operations [undiscounted and without interest charges]. If impairment is deemed
to exist, the assets will be written down to fair value. Management also
reevaluates the periods of amortization to determine whether subsequent events
and circumstances warrant revised estimates of useful lives. As of December 31,
1997, management expects these assets to be fully recoverable.
RECLASSIFICATION - Certain prior year amounts have been reclassified to conform
to current year's financial statement presentation.
[A] CONCENTRATIONS OF CREDIT RISK - CASH - Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents and trade accounts and notes
receivable.
The Company places its cash and cash equivalents with high credit quality
institutions to limit its credit exposure. The Company believes no significant
concentration of credit risk exists with respect to these investments. The
Company routinely assesses the credit worthiness of its customers before a sale
takes place and believes its credit risk exposure on notes receivable is
limited. Five major customers accounted for approximately 67% of the Company's
notes receivable portfolio. The Company performs ongoing credit evaluations of
its customers but does not require collateral. The Company maintains allowances
for potential credit losses.
[B] OTHER CONCENTRATIONS - All of the Company's sales from Internet software
licensing is from outside the United States. These sales however, are not
subject to currency fluctuations as payment is made in U.S. dollars. The Company
had a portion of its revenues from five customers in 1997, totaling
approximately 66% of total revenues. The customers account for approximately
$2,935,000 of revenues for the year ended December 31, 1997. For the year ended
December 31, 1996, two customers accounted for 46% of revenues which accounted
for $125,500 [Investment Advisory Services] and $87,000 [Internet Software] of
revenues.
The Company purchases software from two vendors. Management believes that there
is no business vulnerability regarding this concentration of purchases from the
vendor as the software is available from other sources.
[4] NOTES RECEIVABLE
Notes receivable at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Australian Advisors, Ltd., minimum monthly principal and interest payments of
$3,000 or 40% of net win before expenses until June 1999 and $6,222
thereafter, interest at 8%, remaining balance due in full by June 2007. $ 826,000
Casinos of the South Pacific, monthly principal payments of $10,000
through August 2000; non-interest bearing. 310,000
BTN, Inc., monthly principal payments of $11,111 through June 2000,
non-interest bearing. 400,000
Carib Sportsbook, Inc., varying monthly payments, through June 1999,
non-interest bearing. 129,137
Intercoin AVV, monthly principal payment of $9,722, through
November 2000, non-interest bearing. 350,000
Tropical Reef Resorts, monthly principal payment of $2,542, through
November 2001, non-interest bearing. 122,000
Tropical Reef Resorts, monthly principal payment of $9,833 through
February 2001, non-interest bearing. 354,000
----------
Total - Forward $2,491,137
</TABLE>
F-12
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #4
[4] NOTES RECEIVABLE [CONTINUED]
<TABLE>
<CAPTION>
<S> <C>
Total - Forwarded $2,491,137
Permanent Mutual Investment Limited, monthly principal payment of
$11,388 through August 200, non-interest bearing. 410,000
Tradewinds Virtual Gaming, Inc., monthly principal and interest payments of
$10,725 through May 2001, interest at prime rate
plus 2% [10.5% at December 31, 1997]. 385,000
Tradewinds Virtual Gaming, Inc., monthly principal and interest payments of
$1,950, through May 2001, interest at prime
rate plus 2% [10.5% at December 31, 1997]. 70,000
Cyber Gold Casino, Corp., monthly principal and interest payments of $10,575,
through July 2001, interest at prime rate plus 2%
[10.5% at December 31, 1997]. 400,000
-----------
Total Notes Receivable 3,756,137
Less: Reserve for Uncollectible Notes (385,052)
Discounts for Non-Interest Bearing Notes (84,103)
-----------
Total 3,286,982
Less: Amounts Shown as Current (1,927,899)
-----------
NOTES RECEIVABLE - NON-CURRENT PORTION $ 1,359,083
-------------------------------------- ===========
</TABLE>
The Collateral for notes receivable are the activation codes supplied by AIE to
its customers in order for them to commence uninterrupted use of the software.
If payment is withheld from AIE, for any reason, AIE can in effect shut down the
Internet operation and make the program inoperable until a new activation code
is supplied by Atlantic. To this date, the Company has not shut down any service
to any of its customers.
[5] ASSET ACQUISITION
On April 15, 1996, the pre-merger Company [See Note 1] purchased certain assets
consisting principally of computer software for Internet products and hardware.
The purchase price was $1,230,000 payable as $30,000 in cash and issued 200,000
shares of common stock with a fair value of $1,200,000.
F-13
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #5
[6] INVESTMENTS IN EQUITY SECURITIES
At December 31, 1997, the Company's available for sale securities consisted of
equity securities. A summary of the Company's investments in equity securities
is as follows:
DECEMBER 31, 1997
-----------------
FINANCIAL STATEMENT CAPTION CARRYING VALUE FAIR VALUE
- --------------------------- -------------- ----------
Available for Sale:
Common Stock $ 10,125 $10,125
======== =======
Gross proceeds from sale of available for sale securities was $35,671 and net
realized loss on sales was $20,859 for the year ended December 31, 1997. The net
unrealized holding loss on securities available for sale securities was $42,763
and is included as a separate component of stockholder's equity for the year
ended December 31, 1997.
[7] BUSINESS ACQUISITION
On January 31, 1997, the Company entered into an agreement to purchase all of
the shares of EmiNet Domain, Inc. ["EmiNet"]. The purchase price for the shares
was $2,020,000 payable by the issuance and delivery to the shareholders of
EmiNet or their designees of a minimum of 200,000 shares of fully-paid and
non-assessable common stock of the Company at the market value as of January 31,
1997 and $20,000 cash payable at March 31, 1997. In addition, the shareholders
of EmiNet or their designees will receive additional shares at market equal to
one time EmiNet's net profit before taxes for the years ending 1997 and 1998 up
to $750,000 per annum, one and one-half times over $750,000 to $1,000,000 and
two times over $1,000,000. No additional shares were issued in 1997 due to the
net loss of EmiNet. The transaction, effective April 1, 1997 was accounted for
as a purchase and the results of EmiNet's operations are included in the
statement of operations from that date. As a result of the acquisition, cost in
excess of net assets of approximately $1,563,000 was recorded. The cost in
excess of net assets is being amortized using the straight-line method over 15
years.
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1997 and 1996 are presented as if the EmiNet
acquisition has been made at the beginning of each period presented. EmiNet
operated as an S corporation in 1996. Included in the expenses to arrive at Net
Income are reclassifications of Shareholders' Draw to Officers Salaries and
Income Tax Expense in the amounts of approximately $86,000 and $132,000 for 1997
and 1996, respectively. The unaudited pro forma information is not necessarily
indicative of either the results of operations that would have occurred had the
purchase been made during the periods presented or the future results of the
combined operations.
YEARS ENDED
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Net Sales $4,593,078 $ 878,097
Net Income [Loss] $1,096,976 $(347,072)
Basic Net Income [Loss] Per Share of Common Stock $ .12 $ (.04)
Diluted Net Income [Loss] Per Share of Common Stock $ .12 $ (.04)
F-14
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #6
[8] CAPITAL STOCK
On September 18, 1996 and October 31, 1996, the Company issued 521,500 and
365,200 shares, respectively of common stock in a private placement of its
securities. The Company received net proceeds of $826,881.
On January 16, 1997, the Company entered into a stock purchase agreement with
Brindenberg Securities, A/S under Regulation S of the Securities and Exchange
Commission. A total of 75,000 shares were issued under the agreement for
$525,000 net of offering costs and expenses of approximately $175,000.
In February 1997, the Company issued 25,000 shares of its common stock to an
outside consultant for services to be rendered. The consultant never performed
the required services and therefore, the common shares issued will be returned
in 1998.
In March 1997, the Company issued 200,000 shares of the Company's common stock
as part of the acquisition of EmiNet Domain, Inc. [See Note 7].
In December of 1997, the Company sold 100,000 shares of the Company's common
stock to Australian Advisors for a total of $300,000 pursuant to the
Registration Statement S-8.
Also in December 1997, the Company converted debt totaling $313,475 to equity.
The shares related to the conversion were unissued at December 31, 1997 and the
conversion ratio has yet to be determined.
[9] PROPERTY AND EQUIPMENT
The following details the composition of property and equipment:
ACCUMULATED
COST DEPRECIATION NET
---- ------------ ---
Computer Hardware $485,031 $88,867 $396,164
Equipment, Office Fixtures and Furnishings 56,296 6,803 49,493
Leasehold Improvements 19,352 555 18,797
-------- ------- --------
TOTALS $560,679 $96,225 $464,454
------ ======== ======= ========
Depreciation expense for the years ended December 31, 1997 and 1996 was $97,976
and $19,438, respectively.
[10] LEASES
CAPITAL LEASES - The Company is the lessee of office equipment under capital
leases expiring in various years through December 2001. The various leases are
collateralized by the related assets. The assets and liabilities under capital
leases are recorded at the present value of the net future minimum lease
payments. The assets are amortized over their estimated productive lives.
Amortization of assets under capital leases is included in depreciation expense.
Following is a summary of property held under capital leases:
Office Equipment $105,750
Less: Accumulated Amortization 8,860
--------
TOTAL $ 96,890
========
F-15
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #7
[10] LEASES [CONTINUED]
CAPITAL LEASES [CONTINUED] - Minimum future lease payments under capital leases
for each of the next five years and in the aggregate are:
1998 $ 48,732
1999 31,930
2000 20,984
2001 7,227
2002 --
Thereafter --
---------
Net Minimum Lease Payments 108,873
Less: Amount Representing Interest 12,985
---------
Present Value of Net Minimum Lease Payments 95,888
Less: Current Portion 41,427
---------
LONG-TERM PORTION $ 54,461
----------------- =========
OPERATING LEASES - The Company leases office space and equipment under operating
leases expiring through September 2002, and has a $10,236 security deposit with
its landlord. The lease grants an option for renewal for an additional 5 years.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1997.
YEAR ENDING OPERATING
DECEMBER 31, LEASES
- ------------ ------
1998 $ 114,266
1999 116,988
2000 119,344
2001 119,347
2002 92,121
Thereafter --
---------
TOTAL $ 562,066
----- =========
Rent expense for the years ended December 31, 1997 and 1996 was $91,525 and
$53,427, respectively.
[11] FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ["SFAS'] No. 107, "Disclosure About
Fair Value of Financial Instruments" requires disclosing fair value to the
extent practicable for financial instruments which are recognized or
unrecognized in the balance sheet. The fair value of the financial instruments
disclosed herein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement. The following table summarizes
financial instruments by individual balance sheet classifications as of December
31, 1997:
CARRYING FAIR
AMOUNT VALUE
Due from Related Parties $49,855 $41,275
F-16
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #8
[11] FAIR VALUE OF FINANCIAL INSTRUMENTS [CONTINUED]
In assessing the fair value of financial instruments, the Company used a variety
of methods and assumptions, which were based on estimates of market conditions
and risks existing at that time. For certain instruments, including cash and
cash equivalents, short term notes receivable, related party and trade and notes
payables, it was assumed that the carrying amount approximated fair value for
the majority of these instruments because of their short maturities.
The long-term notes receivable approximate fair value as all non-interest
bearing notes have been discounted to their present value.
[12] LINE OF CREDIT - BANK
The Company has a credit facility with a bank consisting of a revolving line of
credit under which the Company can borrow up to a maximum of $25,000. The
Company has borrowings of approximately $24,400 under the line of credit
outstanding at December 31, 1997. The revolving line of credit bears interest at
2.25% above the prime rate [10.75% at December 31, 1997] and is payable on
demand. The line of credit is guaranteed by the former shareholders of EmiNet
[See Note 7] and collateralized by certain assets. At December 31, 1997, the
Company had approximately $600 available under the line of credit.
[13] LONG-TERM DEBT
At December 31, 1997, long-term debt consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable bank, payable in thirty-six monthly installments of $500 plus
interest of 2.8% above a variable interest rate [prime rate] per annum,
[8.5% at December 31, 1997] through August 1999, collateralized by all
borrower's deposits and accounts on deposit with the lending institution. $ 10,500
Note payable - consultant, demand notes due September 5, 1998.
The notes accrue interest at 6% per annum. 30,000
----------
Total 40,500
Less: Current Portion (36,000)
----------
TOTAL $ 4,500
----- ==========
</TABLE>
Long-term debt at December 31, 1997, matures as follows:
1998 $ 36,000
1999 4,500
2000 --
----------
TOTAL $ 40,500
----- ==========
The Company is subject to restrictive covenants including maintaining primary
banking depositary relations with the lender and no additional debt to be
incurred unless it is in the normal and ordinary course of business.
Management believes the Company was in compliance with all debt covenants at
December 31, 1997.
The weighted average interest rate on short-term borrowings as of December 31,
1997 was 10%.
F-17
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #9
[14] RELATED PARTY TRANSACTIONS
The Company made advances to an affiliated company during the year ended
December 1997, increasing the balance receivable to $49,855. The advances accrue
interest at a rate of 6% per annum, and are due on demand.
The Company has notes payable to two officers in the aggregate amount of
$166,636 at December 31, 1997. The notes are demand notes and incur interest at
8% per annum. Interest expense related to the shareholders notes totaled $7,525
and $1,302 for the years ended December 31, 1997 and 1996, respectively.
[15] PROVISION FOR INCOME TAXES
Income tax [benefit] expense consists of the following
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Current:
Federal $610,061 $(77,215)
State 29,123 --
-------- --------
Total Current 639,184 (77,215)
-------- --------
Deferred:
Federal 167,062 --
State 9,750 --
-------- --------
Total Deferred 176,812 --
-------- --------
TAX EXPENSE BENEFIT $462,372 $(77,215)
------------------- ======== =========
Income tax at the federal statutory rate reconciled to the Company's effective
rate is as follows:
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Federal Statutory Rate 34.0% (34.0)%
Non-Deductible Expenses -- (13.3)
Benefit of Net Operating Loss (3.6) 52.8
State Income Taxes 3.6 (5.5)
-------- ------
EFFECTIVE RATE 34.0% --%
-------------- ======== ======
In 1996, the Company recognized the benefit of $77,215 from the utilization of
an operating loss carryback which was filed in 1997.
F-18
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #10
[15] PROVISION FOR INCOME TAXES [CONTINUED]
The major components of deferred income tax assets and liabilities are as
follows:
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Deferred Tax Liabilities
Accelerated Depreciation $ -- $ (85,620)
Deferred Tax Assets:
Net Operating Loss -- 138,700
Allowance for Doubtful Accounts 176,812 --
--------- ------------
Net Deferred Tax Asset:
Before Valuation Allowance 176,812 53,080
Valuation Allowance -- 53,080
--------- ------------
NET DEFERRED INCOME TAX ASSET $ 176,812 $ --
----------------------------- ========= ============
The Company did not record a valuation allowance for the year ended December 31,
1997, because in managements judgement, the related deferred tax asset will be
realized within the next year. Accordingly, the valuation allowance decreased of
$53,080 from December 31, 1996.
[16] BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into four business segments:
investment advisory services Internet software licensing, and medical products
and equipment and Internet access and services.
1 9 9 7 1 9 9 6
------- -------
Revenue:
Investment Advisory Services $ -- $ 366,204
Internet Software Licensing 4,002,894 87,000
Medical Products and Equipment -- 1,452
Internet Access and Services 413,896 --
----------- ----------
$ 4,416,790 $ 454,656
=========== ==========
Income [Loss] From Operations:
Investment Advisory Services $ -- $ 231,081
Internet Software Licensing 1,564,666 (659,056)
Medical Products and Equipment -- --
Internet Access and Services (169,776) --
----------- ----------
$ 1,394,890 $ (427,975)
=========== ==========
Total Assets:
Investment Advisory Services $ -- $ 1,423
Internet Software Licensing 5,181,740 1,980,591
Medical Products and Equipment -- --
Internet Access and Services 1,724,259 --
----------- ----------
$ 6,905,999 $1,982,014
=========== ==========
F-19
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #11
[16] BUSINESS SEGMENT INFORMATION [CONTINUED]
1 9 9 7 1 9 9 6
------- -------
Depreciation and Amortization:
Investment Advisory Services $ -- $ 285
Internet Software Licensing 323,959 67,091
Medical Products and Equipment -- --
Internet Access and Services 98,579 --
--------- -------------
$ 422,538 $ 67,376
========= =============
Capital Expenditures:
Investment Advisory Services $ -- $ 1,423
Internet Software Licensing 490,594 1,490,395
Medical Products and Equipment -- --
Internet Access and Services 122,558 --
--------- -------------
$ 613,152 $ 1,491,818
========= =============
[17] COMMITMENTS AND CONTINGENCIES
[A] EMPLOYMENT AGREEMENTS - The Company has employment agreements with certain
of its executives which commenced January 1, 1997 and expire on December 31,
2000. The aggregate annual commitment for future salaries at December 31, 1997
was $289,000. Also, included in the agreements are incentive bonus based upon
net income and net cash flows. Bonuses totaling approximately $151,000 have been
accrued at December 31, 1997.
[B] On June 17, 1996, the Company entered into a three year consulting agreement
with a well known personality to act as the Company's spokesman. The agreement
calls for the issuance of 5,000 shares of common stock during each year of the
three year term of the agreement. The shares are to be issued in quarterly
installments commencing September 30, 1996. No shares have yet been issued but
the Company has recorded a liability of $35,700 which represents the fair market
value of the quarterly installments of shares to be issued through December 31,
1997.
[C] On August 7, 1996, the Company's medical division signed an exclusive
distribution agreement for world wide sales of medical testing devices for HIV,
hepatitis, pregnancy, ovulation and other tests using the Internet as its means
of sales and distribution.
[D] On November 25, 1996, the Company signed and agreement with
Telecommunication Information Services Systems, NV ["TISS"], a Curacao based
company to provide international sports and entertainment information services.
As of December 31, 1996, $11,625 was received as revenues.
The agreement was terminated in February 1997 in contemplation of the
consummation of the Company's sale of its foreign subsidiary [See Note 19].
[E] In August 1997, the Company entered into a joint effort agreement with
OzEmail Limited ["OzEmail"]. The Company and OzEmail are jointly marketing and
selling the Company's software and business applications to customers and
prospective customers in Australia and Asia. The Agreement is for a term of one
year and will continue until terminated by either party.
[F] LITIGATION - The Company is party to litigation arising from the normal
course of business. In managements' opinion, this litigation will not materially
affect the Company's financial position, results of operations or cash flows.
F-20
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #12
[18] INCENTIVE STOCK OPTION PLAN
On January 1, 1997, the Company adopted an Incentive Stock Option Plan for
Employees, Directors, Consultants and Advisors [the "Plan"]. The Plan will
expire December 31, 2006 unless further extended by appropriate action of the
Board of Directors. Employees, directors, consultants and advisors of the
Company, or any of its subsidiary corporations, are eligible for participation
in the Plan. The Plan provides for stock to be issued pursuant to options
granted and shall be limited to 250,000 shares of Common Stock, $.001 par value.
The shares have been reserved for issuance in accordance with the terms of the
Plan. The exercise of these options may be for all or any portion of the option
and any portion not exercised will remain with the holder until the expiration
of the option period. The options expire on December 23, 2002.
A summary of the changes in outstanding Common Stock options for all outstanding
plans is as follows:
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
OUTSTANDING AT DECEMBER 31, 1995 -- --
Granted -- --
Exercised -- --
------- --------
Canceled
OUTSTANDING AT DECEMBER 31, 1996 -- --
Granted 175,000 3.25
Exercised -- --
Canceled -- --
------- -------
OUTSTANDING AT DECEMBER 31, 1997 175,000 3.25
======== =======
EXERCISABLE AT DECEMBER 31, 1997 175,000 3.25
======== =======
The following table summarizes information about stock options at December 31,
1997:
<TABLE>
<CAPTION>
EXERCISABLE
OUTSTANDING STOCK OPTIONS STOCK OPTIONS
------------------------- -------------
WEIGHTED-AVERAGE
RANGE OF REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- --------------- ------ ---------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$3.25 175,000 5.0 $3.25 175,000 $ 3.25
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, for stock options issued
to employees in accounting for its stock option plans. The exercise price of
certain options issued during 1997 was the market price at the date of grant.
Accordingly, no compensation expense has been recognized for the Company's
stock-based compensation plans for fiscal year 1997.
F-21
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #13
[18] INCENTIVE STOCK OPTION PLAN [CONTINUED]
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. The
weighted average fair value of stock options granted to employees used in
determining pro forma amounts is estimated at $2.63, and $-0- during 1997 and
1996, respectively.
Pro forma information regarding net loss and net loss per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method prescribed under SFAS No. 123, Accounting for Stock Based
Compensation. The fair value of these options was estimated at the date of grant
using the Black-Scholes option-pricing model for the pro forma amounts with the
following weighted average assumptions:
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Risk-Free Interest Rate 5.7% --%
Expected Life 2.0% --%
Expected Volatility 181.0% --%
Expected Dividends --% --%
The pro forma amounts are indicated below [in thousands, except per share
amounts]:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 7 1 9 9 6
------- -------
Net Income [Loss]:
<S> <C> <C>
As Reported $1,047,317 $ (376,270)
Pro Forma $ 586,367 $ (376,270)
Basic Net Income [Loss] Per Share of Common Stock:
As Reported $ .11 $ (.04)
Pro Forma $ .06 $ (.04)
Diluted Net Income [Loss] Per Share of Common Stock:
As Reported $ .11 $ (.04)
Pro Forma $ .06 $ (.04)
</TABLE>
[19] DISCONTINUED OPERATIONS
On December 15, 1996, the Company adopted a plan to discontinue and sell its
foreign subsidiary, known as Atlantic International, N.V. ["AIE, NV"], which
operated a Sportsbook operation. The sales price was $850,000, $2,000 payable at
closing and beginning 60 days after closing, 40% of net win before expenses on a
minimum of $3,000 monthly, until the balance is paid. Interest on the unpaid
balance shall be accrued at 8% per annum. The effective date of this transaction
is January 1, 1997. The foreign subsidiary was reported as a discontinued
operation for the year ended December 31, 1996.
The closing date of the sale was March 26, 1997. Revenues for the discontinued
operation totaled approximately $14,000. For the year ended December 31, 1997,
the gain on disposal of "AIE, NV" was approximately $220,000 [$144,982 net of
tax] and the loss from operations was approximately $70,000 [$45,890 net of tax
benefit].
f-22
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #14
[20] SUBSEQUENT EVENTS
In February 1998, the Company entered into an agreement with ELG Health
Management Services ["ELG"] to market the Atlantic International Medical ["AIM"]
products and services. ELG will provide the Company 40% of the net profits from
the sale and distribution of medical products.
In February 1998, the Company entered into a Development Service Agreement with
International Transaction Systems Corp. ["ITS"]. The Company's responsibilities
under the agreement include engaging in the development activity required to
host ITS on the Company's software and selling debt card processing ["DCP"].
ITS' responsibilities include development activity required to develop the DCP,
test methodology and/or test cases so that the Company may validate correct
operation of the DCP and provide service support.
Under the Agreement, the Company paid $20,000 to acquire access to DCP through
ITS for the purpose and exclusive application in the Company's software.
Transaction fees earned by customers will be distributed 75% and 25% to the
Company and ITS, respectively. The initial term of the agreement is 10 years,
and automatically renews in 5 year consecutive periods, unless terminated by
either party.
[21] SUBSEQUENT EVENTS [Unaudited]
On April 3, 1998, the Company entered into a Securities Purchase Agreement for
the sale of $500,000 of a newly created 5% Convertible Preferred Stock. The
Agreement also grants the purchaser the right to purchase up to an additional
$2,500,000 in said class of securities at market prices. The preferred stock is
convertible into the Company's common stock at the purchaser's option.
On April 30, 1998, the Company entered into a Securities Purchase Agreement with
Hosken Consolidated Investments, Ltd. ["HCI"], where HCI purchased one million
shares of the Company's common stock for $4,000,000 pursuant to Regulation D.
In a simultaneous transaction, HCI has subscribed for 25% of the Company's South
African subsidiary, Atlantic International Entertainment, Ltd. South Africa. HCI
received its equity in consideration for its services to be rendered related to
introducing the Company to the South African gaming and wagering community.
In May 1998, the Company's wholly-owned subsidiary, AIE, Australia, Ltd. intends
to submit an acquisition bid for an Australian listed company, Coms21. The
Company will offer Coms21 shareholders the equivalent of $.70 Australian dollars
[$.44 US dollars] per share in the form of the Company's U.S. shares.
[22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ["FASB"] issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company is in the process of
determining its preferred format. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows.
F-23
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #15
[22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS [CONTINUED]
In June 1997, the FASB has issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. Financial
statement disclosures for prior periods are required to be restated. The Company
is in the process of evaluating the disclosure requirements. The adoption of
SFAS No. 131 will have no impact on the Company's consolidated results of
operations; financial position or cash flows.
In October 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, after clearance by the FASB, issued
Statement of Position (SOP) 97-2, Software Revenue Recognition. This SOP
supersedes SOP 91-1 of the same name and provides the most recent guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. SOP 97-2 is effective for transactions entered into in
fiscal years beginning after December 15, 1997.
SOP 97-2 requires that in arrangements to deliver software or a software system
that does not require significant production, modification, or customization,
revenue should be recognized when there is persuasive evidence that an
arrangement does in fact exist; delivery has occurred; the fee is fixed or
determinable; and collectibility is probable. If the software or software system
selling contract arrangement, either alone or together with other products or
services, requires significant production, modification or customization
construction type/production type contract accounting should be used for the
entire arrangement. Such accounting would recognize revenues and costs on a
contract arrangement as it progresses toward completion, rather than deferred
recognition of these items until persuasive evidence of delivery has occurred.
In software or software system selling arrangements that consist of multiple
elements (that is, additional software products, upgrades/enhancements, rights
to exchange or return software, postcontract customer support, or services), and
contract accounting does not apply, the fee must be allocated to the various
elements based on vendor-specific objective evidence of fair values. In general,
if sufficient vendor-specific objective evidence of fair values does not exist,
all revenue from the arrangement should be deferred until such sufficient
evidence exists, or until all elements have been delivered. The principle
difference between SOP 97-2 and its predecessor SOP 91-1 is in the accounting
for multiple-element arrangements based on vendor-specific objective evidence of
fair values. Management does not believe that SOP 97-2 will materially affect
the way the Company recognizes revenue.
. . . . . . . . . . .
F-24
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ATLANTIC INTERNATIONAL
ENTERTAINMENT, LTD.
Dated: May 20, 1998 /S/ NORMAN J. HOSKIN
------------------------------
Norman J. Hoskin,
Chairman of the Board
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
/S/ NORMAN J. HOSKIN Chairman of the Board, May 20, 1998
- ----------------------------- Secretary, and Treasurer
Norman J. Hoskin
/S/ RICHARD A. IAMUNNO President, Chief Executive May 20, 1998
- ----------------------------- Officer and Director
Richard A. Iamunno
/S/ DAVID HALABURDA Chief Financial Officer May 20, 1998
- ----------------------------- (principal accounting officer)
David Halaburda
/S/ STEVEN D. BROWN Director May 20, 1998
- -----------------------------
Steven D. Brown
/S/ JEFFREY HURWITZ Director May 20, 1998
- -----------------------------
Jeffrey Hurwitz
/S/ DR. LEONARD HAIMES Director May 20, 1998
- -----------------------------
Dr. Leonard Haimes
/S/ MARTIN V. MCCARTHY Director May 20, 1998
- -----------------------------
Martin V. McCarthy
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of April 6, 1998, is
entered into by and between ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD., a
Delaware corporation, with headquarters located at 200 East Palmetto Park Road,
Suite 200, Boca Raton, Florida 33432 (the "Company"), and the undersigned (the
"Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, 5% Convertible Preferred Stock, $.001 par
value per share (the "Convertible Preferred Stock"), of the Company which will
be convertible into shares of Common Stock, $.001 par value per share of the
Company (the "Common Stock"), upon the terms and subject to the conditions of
such Convertible Preferred Stock, and subject to acceptance of this Agreement by
the Company;
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 parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions. (i) The undersigned hereby agrees
to purchase from the Company shares of the Convertible Preferred Stock in the
amount set forth on the signature page of this Agreement (the "Initial Preferred
Stock"), out of a total offering of $3,000,000 of such Convertible Preferred
Stock, and having the terms and conditions set forth in the Certificate of
Designations, Voting Powers, Preferences and Rights to the Certificate of
Incorporation of the Company attached hereto as Annex I (the "Certificate of
Designations"). The purchase price for the Initial Preferred Stock shall be as
set forth on the signature page hereto (the "Purchase Price") and shall be
payable in United States Dollars.
(ii) As used herein, the term "Preferred Stock" means the Initial
Preferred Stock and the Additional Preferred Stock (as defined below), together
with all shares, if any, of the Convertible Preferred Stock issued as dividends
thereon, unless the context otherwise requires.
<PAGE>
(iii) As used herein, the term "Securities" means the Preferred
Stock and the Common Stock issuable upon conversion of the Preferred Stock.
b. Form of Payment. The Buyer shall pay the purchase price for the
Initial Preferred Stock by delivering immediately available good funds in United
States Dollars to the escrow agent (the "Escrow Agent") identified in the Joint
Escrow Instructions attached hereto as Annex II (the "Joint Escrow
Instructions"). No later than the Closing Date (as defined below), the Company
shall deliver one or more certificates representing the Initial Preferred Stock
duly executed on behalf of the Company (collectively, the "Certificate") to the
Escrow Agent. By signing this Agreement, the Buyer and the Company, and subject
to acceptance by the Escrow Agent, each agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
c. Method of Payment. Payment into escrow of the Purchase Price for
the Initial Preferred Stock shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
- Shaar Fund Ltd.
Account No.: 637-1657965
Not later than 1:00 p.m., New York time, on the date which is one (1) New York
Stock Exchange trading day after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Buyer shall deposit with the Escrow Agent the aggregate purchase
price for the Initial Preferred Stock, in immediately available funds. Time is
of the essence with respect to such payment, and failure by the Buyer to make
such payment shall allow the Company to cancel this Agreement.
d. Escrow Property. The Purchase Price and the Certificate delivered
to the Escrow Agent as contemplated by Sections 1(b) and (c) hereof are referred
to as the "Escrow Property."
2
<PAGE>
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock pursuant
to the Registration Statement (as that term is defined in the Registration
Rights Agreement defined below), the Buyer is purchasing the Preferred Stock and
will be acquiring the shares of Common Stock issuable upon conversion of the
Preferred Stock (the "Converted Shares") for its own account for investment or
as Agent for other "accredited investors", and not with a view towards the
public sale or distribution thereof and not with a view to or for sale in
connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined
in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Securities.
c. All subsequent offers and sales of the Preferred Stock and the
shares of Common Stock representing the Converted Shares (such Common Stock
sometimes referred to as the "Shares") by the Buyer shall be made pursuant to
registration of the Shares under the 1933 Act or pursuant to an exemption from
registration.
d. The Buyer understands that the Initial Preferred Stock are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Preferred Stock.
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Initial Preferred Stock and the
offer of the Shares which have been requested by the Buyer, including Annex V
hereto. The Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of the Company and have received complete and satisfactory
answers to any such inquiries. Without limiting the generality of the foregoing,
the Buyer has also had the
3
<PAGE>
opportunity to obtain and to review the Company's (i) the Company's annual
report on Form 10-K for the year ending December 31, 1996, (ii) the Company's
quarterly report on Form 10-Q for the quarterly period ending September 30, 1997
(the "SEC Reports"); and the Buyer understands that its investments in the
Shares involves a high degree of risk;
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
g. The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
i. Notwithstanding the provisions hereof or of the Preferred Stock,
in no event (except (i) with respect to an automatic conversion of the Preferred
Stock as provided in the Certificate of Designations or (ii) if the Company is
in default of any of its obligations under the Preferred Stock or any of the
Transaction Agreements, as defined below) shall the holder be entitled to
convert any Preferred Stock to the extent that, after such conversion, the sum
of (1) the number of shares of Common Stock beneficially owned by the Buyer and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Preferred Stock), and (2) the number of shares of Common Stock issuable upon the
conversion of the Preferred Stock with respect to which the determination of
this proviso is being made, would result in beneficial ownership by the Buyer
and its affiliates of more than 9.9% of the outstanding shares of Common Stock.
For purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), except as otherwise provided
in clause (1) of such proviso.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
a. Concerning the Preferred Stock and the Shares. The Convertible
Preferred Stock has been duly authorized and, when issued, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Preferred Stock or the Shares.
4
<PAGE>
b. Reporting Company Status. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or prospects or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole. The Company has registered its Common Stock
pursuant to Section 12 of the 1934 Act, and the Common Stock is listed and
traded on the NASDAQ/SmallCap market. The Company has received no notice, either
oral or written, with respect to the continued eligibility of the Common Stock
for such listing, and the Company has maintained all requirements for the
continuation of such listing.
c. Authorized Shares. The Company has at April 1, 1998, _________
shares of Common Stock outstanding, and has sufficient authorized and unissued
Shares as may be reasonably necessary to effect the conversion of the Preferred
Stock and exercise of the Warrants at [75% of Market Price on 1st Closing Date].
The Conversion Shares have been duly authorized and, when issued upon conversion
of, or as interest on, the Preferred Stock in accordance with its terms, will be
duly and validly issued, fully paid and non-assessable and will not subject the
holder thereof to personal liability by reason of being such holder.
d. Securities Purchase Agreement; Registration Rights Agreement and
Stock. This Agreement and the Registration Rights Agreement, the form of which
is attached hereto as Annex IV (the "Registration Rights Agreement"), and the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Company, this Agreement has been duly executed and delivered
by the Company and this Agreement is, and the Preferred Stock, and the
Registration Rights Agreement, when executed and delivered by or on behalf of
the Company, will be, valid and binding agreements of the Company enforceable in
accordance with their respective terms, subject, as to enforceability, to
general principles of equity and to bankruptcy, insolvency, moratorium, and
other similar laws affecting the enforcement of creditors' rights generally.
e. Non-contravention. The execution and delivery of this Agreement
and the Registration Rights Agreement by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Preferred Stock do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under (i)
the articles of incorporation or by-laws of the Company, each as currently in
effect, (ii) except as disclosed in Annex V, any indenture, mortgage, deed of
trust, or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound, including any
listing agreement for the Common Stock (except as herein set forth), (iii) to
its knowledge, any existing applicable law, rule, or regulation or any
applicable decree, judgment, or order of any court, United States federal or
state regulatory body, administrative
5
<PAGE>
agency, or other governmental body having jurisdiction over the Company or any
of its properties or assets, or (iv) any listing agreement for its Common Stock,
except such conflict, breach or default which would not have a material adverse
effect on the transactions contemplated herein.
f. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC Filings. None of the Company's SEC Reports contained, at the
time they were filed, any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading. Except as set forth on Annex V hereto, the Company has
since October 1, 1996 timely filed all requisite forms, reports and exhibits
thereto with the SEC.
h. Absence of Certain Changes. Since December 31, 1998, there has
been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), or results
of operations of the Company and its subsidiaries, taken as a whole, except as
disclosed in Annex V or in the Company's SEC Reports. Since December 31, 1998,
the Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any changes in employee compensation, except in the
ordinary course of business consistent with past practices; or (vii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment.
i. Full Disclosure. There is no fact known to the Company (other
than general economic conditions known to the public generally or as disclosed
in the Company's SEC Reports), that has not been disclosed in writing to the
Buyer that (i) would reasonably be expected to have a material adverse effect on
the business or financial condition of the Company or (ii) would reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement or any of the agreements
contemplated hereby (collectively, including this Agreement, the "Transaction
Agreements").
6
<PAGE>
j. Absence of Litigation. Except as set forth in Annex V hereto, and
in the Company's SEC Reports, which the Buyer has reviewed, there is no action,
suit, proceeding, inquiry or investigation before or by any court, public board
or body pending or, to the knowledge of the Company, threatened against or
affecting the Company, wherein an unfavorable decision, ruling or finding would
have a material adverse effect on the properties, business or financial
condition. results of operation or prospects of the Company and its subsidiaries
taken as a whole or the transactions contemplated by any of the Transaction
Agreements or which would adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations under, any of
the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in Annex V
hereto and Section 3(e) hereof, no Event of Default (or its equivalent term), as
defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (or its equivalent term) (as so defined in such
agreement), has occurred and is continuing, which would have a material adverse
effect on the Company's financial condition or results of operations.
l. Prior Issues. Except as set forth in Annex V, during the twelve
(12) months preceding the date hereof, the Company has not issued any Common
Stock or convertible securities in capital transactions which have not been
fully disclosed in the Company's filings with the SEC. All such issuances have
been fully converted into shares of common stock and there are no outstanding
unconverted debt or convertible securities from those transactions.
m. No Undisclosed Liabilities or Events. The Company has no
liabilities or obligations other than those disclosed in the Company's SEC
Reports or those incurred in the ordinary course of the Company's business since
December 31, 1998, and which, individually or in the aggregate, do not or would
not have a material adverse effect on the properties, business, condition
(financial or otherwise), results of operations or prospects of the Company and
its subsidiaries, taken as a whole. No event or circumstances has occurred or
exists with respect to the Company or its properties, business, condition
(financial or otherwise), results of operations or prospects, which, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed.
n. No Default. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it or its property is bound.
o. No Integrated Offering. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since June 1997, made any offer or sales of any security
or solicited any offers to buy any security under circumstances that would
eliminate the availability of the exemption from registration under Regulation D
in connection with the offer and sale of the Securities as contemplated hereby.
7
<PAGE>
p. Dilution. The number of Shares issuable upon conversion of the
Preferred Stock may increase substantially in certain circumstances, including,
but not necessarily limited to, the circumstance wherein the trading price of
the Common Stock declines prior to the conversion of the Preferred Stock. The
Company's executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue the Shares upon conversion of the Preferred Stock is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the
Preferred Stock has not been and is not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement, 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) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the
Preferred Stock and, until such time as the Common Stock has been registered
under the 1933 Act as contemplated by the Registration Rights Agreement and sold
pursuant to an effective Registration Statement, certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
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.
8
<PAGE>
c. Registration Rights Agreement. The parties hereto agree to enter
into the Registration Rights Agreement on or before the Closing Date.
d. Filings. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Preferred Stock to the Buyer under
any United States laws and regulations, or by any domestic securities exchange
or trading market, and to provide a copy thereof to the Buyer promptly after
such filing.
e. Reporting Status. So long as the Buyer beneficially owns any of
the Preferred Stock, the Company shall file all reports required to be filed
with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
permit such termination.
f. Use of Proceeds. The Company will use the proceeds from the sale
of the Preferred Stock (excluding amounts paid by the Company for legal fees,
finder's fees and escrow agent fees in connection with the sale of the Preferred
Stock) for general capital purposes and acquisitions, but shall not, directly or
indirectly, use such proceeds for investment in any other affiliate or to repay
debt to affiliates.
g. Future Purchases. (i) The Company unconditionally and irrevocably
agrees to issue, if the Buyer desires to purchase, up to an additional
$2,500,000 liquidation amount of Preferred Stock (the "Additional Preferred
Stock") in three tranches of $500,000 ("Tranche 2"), $1,000,000 ("Tranche 3"),
and $1,000,000 ("Tranche 4") (the "Additional Tranches"), on the terms and
subject to the conditions hereinafter provided.
(ii) The closing for each Additional Tranche shall occur on a date
(the "Additional Closing Date"), which date shall be not later than (a) thirty
(30) days after the effectiveness of the Company's listing on the American Stock
Exchange as to Tranche 2; (b) ninety (90) days after the Closing of Tranche 2 as
to Tranche 3; (c) one hundred and eighty (180) days after the Closing of Tranche
2 as to Tranche 4; or (d) as otherwise mutually agreed upon by the Company and
the Buyer. The closing of the Additional Tranche shall be conducted upon the
same terms and conditions as those applicable to the Initial Preferred Stock..
(iii) On each Additional Closing Date, (A) the Registration
Statement required to be filed under the Registration Rights Agreement shall
continue to be effective, (B) the representations and warranties of the Company
contained in Section 3 hereof shall be true and correct in all material respects
(and the Company's issuance of the Additional Preferred Stock shall constitute
the Company's making each such representation and warranty as of such date), and
(C)
9
<PAGE>
there shall have been no material adverse changes (financial or otherwise) in
the business or conditions of the Company from the Closing Date through and
including in the Additional Closing Date (and the Company's issuance of the
Additional Preferred Stock shall constitute the Company's making such
representation and warranty as of such date), and the Common Stock issuable upon
conversion of the Additional Preferred Stock and upon exercise of the Additional
Warrants, together with the Common stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants previously issued will not at a
conversion or exercise price equal to 75% of the Market Price on such Additional
Closing Date, result in the issuance of more than 20% of the Company's
outstanding Common Stock in accordance with NASDAQ Rule 4310(c)(25)(H)(i)(d)(2),
or any similar rule of a securities exchange on which the Common Stock may then
be listed ("Cap Regulations").
(iv) The term "Market Price of the Common Stock" means, the closing
bid price of the Common Stock as reported, at the option of the Buyer, by
Bloomberg, LP or the National Association of Securities Dealers.
h. Certain Agreements. (i) The Company covenants and agrees that it
will not, without the prior written consent of the Buyer, enter into any
subsequent or further offer or sale of Common Stock or securities convertible
into Common Stock with any third party until the earlier of the date which is
two hundred ten (210) days after the effectiveness of the Company's listing on
the American Stock Exchange.
(ii) The provisions of subparagraph (g)(i) will not apply to (w)
Common Stock issued pursuant to Rule 144, provided the holder thereof holds such
Common Stock for at least one year from the date of issuance; (x) a secondary
public offering of shares of Common Stock at market; (y) an offering of
convertible debentures at market or above; or (z) the issuance of securities
(other than for cash) in connection with a merger, consolidation, sale of
assets, disposition or the exchange of the capital stock for assets, stock or
other joint venture interests; provided, such securities would not be included
in the Registration Statement relating to the Shares and a registration
statement in respect of such stock shall not be filed prior to sixty (60) days
after the Effective Date.
(iii) The term "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities (as defined in the
Registration Rights Agreement).
(iv) In the event the Company breaches the provisions of this P.
4(h), the Conversion Price shall be amended to be the lesser of 68% of the
lowest five (5) day average closing bid for the twenty-five (25) days prior to
the Conversion Notice, but at no time in excess of 100% of the five (5) day
average bid price prior to Closing, and Purchaser may require the Company to
immediately redeem all outstanding Preferred Stock in accordance with Section
4(k)(y).
(v) Limitations on Conversion. (a) Solely with respect to the
Initial Preferred
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<PAGE>
Stock, if the closing bid price of the Common Stock on the last trading day
immediately preceding the date of delivery of a Notice of Conversion is less
than $1.50 per share or as adjusted (as herein defined) (such notice date being
the Limitation Notice Date), then the number of shares of 5% Convertible
Preferred Stock which may be converted by the holder requesting conversion,
shall be limited to an amount which does not exceed an aggregate of twenty (20%)
percent of the amount of shares of 5% Convertible Preferred Stock initially
purchased by the requesting holder (such limitation being the "Conversion
Limitation"). The Conversion Limitation shall be for a period of thirty (30)
calendar days commencing on the Limitation Notice Date (the "Limitation
Period"). The Conversion Limitation shall be measured as of each notice date,
notwithstanding the fact that the closing bid price may be greater than $1.50
per share (or as adjusted) subsequent to the Limitation Notice Date.
Notwithstanding anything to the contrary contained herein, the Conversion
Limitation of this paragraph shall not be applicable for more than three (3)
Limitation Periods with respect to any shareholder.
(b) Solely with respect to the Additional Preferred Stock, if the
closing bid price of the Common Stock on the ten (10) trading days immediately
preceding the date of delivery of a Notice of Conversion is less than $1.50 per
share or as adjusted (as herein defined) (such notice date being the Limitation
Notice Date), then the number of shares of 5% Convertible Preferred Stock which
may be converted by the holder requesting conversion at a Market Price of $1.50,
shall be limited to an amount which does not exceed an aggregate of fifty (50%)
percent of the amount of shares of 5% Convertible Preferred Stock initially
purchased by the requesting holder (such limitation being the "Conversion
Limitation"), and the holder may require that the balance of the shares under
such Notice of Conversion be redeemed at the Original Issue Price plus all
unpaid and accrued dividends.
i. Available Shares. The Company shall have at all times authorized
and reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield two hundred percent (200%) of the number of shares of Common
Stock issuable at conversion and upon exercise of the Warrants as may be
required to satisfy the conversion rights of the Buyer pursuant to the terms and
conditions of the Preferred Stock for all outstanding shares of Preferred Stock
and upon exercise of the Warrants.
j. Warrants. The Company agrees to issue to Buyer at each Closing,
transferable divisible warrants with cashless exercise provisions (the
"Warrants") for 45,000 shares of Common Stock per $1,000,000 pro rata. Such
Warrants shall bear an exercise price per share of Common Stock as follows: 120%
of the Market Price on the Initial Closing Date, and shall be exercisable
immediately upon issuance, and for a period of three (3) years thereafter, in
the form annexed hereto as Exhibit VI, together with piggy-back registration
rights, and demand registration rights under the Registration Rights Agreement.
k. Limitation on Issuance of Shares. The Company may be limited in
the number of shares of Common Stock it may issue by the "Cap Regulations".
Without limiting the other provisions thereof, the Preferred Stock shall provide
that (i) the Company will take all steps
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<PAGE>
reasonably necessary to be in a position to issue shares of Common Stock on
conversion of the Preferred Stock and/or exercise of the Warrants without
violating the Cap Regulations and (ii) if, despite taking such steps, the
Company still can not issue such shares of Common Stock without violating the
Cap Regulations, the holder of Preferred Stock and Warrants which can not be
converted as result of the Cap Regulations (each such share, an "Unconverted
Preferred Stock") shall have the option, exercisable in such holders' sole and
absolute discretion, to elect either of the following remedies:
(x) require the Company to issue shares of Common Stock
in accordance with such holder's notice of conversion at a
conversion purchase price equal to the average of the closing
bid price per share of Common Stock for the five (5)
consecutive trading days (subject to certain equitable
adjustments for certain events occurring during such period)
preceding the date of notice of conversion; or
(y) require the Company to redeem each Unconverted
Preferred Stock for an amount in cash (the "Redemption
Amount") equal to:
V x M
--
CP
where:
"V" means the principal of an Unconverted Preferred
Stock plus any accrued but unpaid interest thereon;
"CP" means the conversion price in effect on the date
of redemption (the "Redemption Date") specified in the notice
from the holder of the Unconverted Preferred Stock electing
this remedy; and
"M" means the highest closing bid price per share of
the Common Stock during the period beginning on the
Redemption Date and ending on the date of payment of the
Redemption Amount.
The Preferred Stock shall contain provisions substantially consistent with the
above terms, with such additional provisions as may be consented to by the
Buyer. The provisions of this paragraph are not intended to limit the scope of
the provisions otherwise included in the Preferred Stock. Additionally, the
Company may redeem all or less than all, upon twenty (20) days prior written
notice during the one (1) year period after the Initial Closing Date, at the
Redemption Premium.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the aggregate
purchase price for the Initial Preferred Stock in accordance with Section 1(c)
hereof, the Company will
12
<PAGE>
irrevocably instruct its transfer agent to issue Common Stock from time to time
upon conversion of the Preferred Stock in such amounts as specified from time to
time by the Company to the transfer agent, bearing the restrictive legend
specified in Section 4(b) of this Agreement prior to registration of the Shares
under the 1933 Act, registered in the name of the Buyer or its nominee and in
such denominations to be specified by the Buyer in connection with each
conversion of the Preferred Stock. The Company warrants that no instruction
other than such instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a) hereof prior to registration and
sale of the Shares under the 1933 Act will be given by the Company to the
transfer agent and that the Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement, and applicable law. Nothing in
this Section shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities. If the
Buyer provides the Company with an opinion of counsel reasonably satisfactory to
the Company that registration of a resale by the Buyer of any of the Securities
in accordance with clause (1)(B) of Section 4(a) of this Agreement is not
required under the 1933 Act, the Company shall (except as provided in clause (2)
of Section 4(a) of this Agreement) permit the transfer of the Securities and, in
the case of the Converted Shares, promptly instruct the Company's transfer agent
to issue one or more certificates for Common Stock without legend in such name
and in such denominations as specified by the Buyer.
b. (i) The Company will permit the Buyer to exercise its right to
convert the Preferred Stock by telecopying an executed and completed Notice of
Conversion to the Company and delivering within three (3) business days
thereafter, the original Notice of Conversion and the certificates representing
the Preferred Stock being converted to the Company by express courier, with a
copy to the transfer agent.
(ii) The term "Conversion Date" means, with respect to any
conversion elected by the holder of the Preferred Stock after the Effective
Date, the date specified in the Notice of Conversion, provided the copy of the
Notice of Conversion is telecopied to or otherwise delivered to the Company in
accordance with the provisions hereof so that is received by the Company on or
before such specified date. The Conversion Date for any mandatory conversion at
maturity shall be the Maturity Date of the Preferred Stock.
(iii) The Company will transmit the certificates representing the
Converted Shares issuable upon conversion of any Preferred Stock (together with
Preferred Stock not being so converted) to the Buyer via express courier, by
electronic transfer or otherwise, within five (5) business days after receipt by
the Company of the original Notice of Conversion and the certificate
representing the Preferred Stock being converted (the "Delivery Date").
c. The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Delivery Date could result in economic loss to
the Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer for late issuance of Shares upon Conversion in
accordance with the following schedule (where
13
<PAGE>
"No. Business Days Late" is defined as the number of business days beyond five
(5) business days from Delivery Date:
Late Payment For Each 10,000
of Preferred Stock Liquidation
No. Business Days Late Amount Being Converted
---------------------- ----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
Less than 10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Buyer's right to
pursue actual damages for the Company's failure to issue and deliver the Common
Stock to the Buyer. Furthermore, in addition to any other remedies which may be
available to the Buyer, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within five (5) business days
after the Delivery Date, the Buyer will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Buyer shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion.
d. In lieu of delivering physical certificates representing the
unlegended securities issuable upon conversion, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Buyer and its compliance with
the provisions contained in this paragraph, so long as the certificates therefor
do not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
e. The original certificate representing the Preferred Stock shall
be delivered by the Buyer to the Company simultaneous with the final Notice of
Conversion.
14
<PAGE>
6. DELIVERY INSTRUCTIONS.
The Initial Preferred Stock shall be delivered by the Company to the
Escrow Agent pursuant to Section 1(b) hereof, on a delivery against payment
basis, no later than on the Closing Date.
7. CLOSING DATE.
(i) The closing of the issuance and sale of the Initial Preferred
Stock shall occur on the date (the "Closing Date") which is the first NYSE
trading day after the fulfillment or waiver of all closing conditions pursuant
to Sections 8 and 9 hereof or such other date and time as is mutually agreed
upon by the Company and the Buyer. The date of the Additional Closing Date shall
be the date specified by either party upon at least five (5) business days'
advance notice to the other party; PROVIDED, HOWEVEr, that it shall be a
condition of the Additional Closing Date that (i) the conditions of Section 4(g)
be satisfied, and (ii) each of the conditions contemplated by Sections 8 and 9
hereof shall have been satisfied or waived on or before such date.
(ii) Each closing of the purchase and issuance of Preferred Stock
shall occur on the Closing Date or the Additional Closing Date, as the case may
be, at the offices of the Escrow Agent and shall take place no later than 12:00
Noon, New York time, on such day or such other time as is mutually agreed upon
by the Company and the Buyer.
(iii) Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Property only upon
satisfaction of the conditions set forth in Sections 8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
Preferred Stock on the Closing Date and Additional Closing Dates to the Buyer
pursuant to this Agreement is conditioned upon:
a. The receipt and acceptance by the Buyer of this Agreement as
evidenced by execution of this Agreement by the buyer for at least Five Hundred
Thousand ($500,000) Dollars in principal amount of Preferred Stock (or such
lesser amount as the Company, in its sole discretion, shall determine on the
Closing Date);
b. Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for the Preferred Stock
in accordance with Section 1(c) hereof;
c. The accuracy on the Closing Date and each Additional Closing Date
of the
15
<PAGE>
representations and warranties of the Buyer contained in this Agreement as if
made on the Closing Date and each Additional Closing Date, and the performance
by the Buyer on or before the Closing Date and each Additional Closing Date of
all covenants and agreements of the Buyer required to be performed on or before
the Closing Date and each Additional Closing Date;
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Stock on the Closing Date and each Additional Closing Date is
conditioned upon:
a. Acceptance by the Company of this Agreement for the sale of
Preferred Stock, as indicated by execution of this Agreement;
b. Delivery by the Company to the Escrow Agent of the appropriate
Preferred Stock in accordance with this Agreement and the warrants within ten
(10) days subsequent to Closing;
c. The accuracy in all material respects on the Closing Date and
each Additional Closing Date of the representations and warranties of the
Company contained in this Agreement as if made on the Closing Date and such
Additional Closing Date and the performance by the Company on or before the
Closing Date and each Additional Closing Date of all covenants and agreements of
the Company required to be performed on or before the Closing Date and such
Additional Closing Date, and as to Additional Preferred Stock, the conditions
set forth in ss.4j; and
d. On the Closing Date and each Additional Closing Date, the Buyer
having received an opinion of counsel for the Company, dated the Closing Date
and each Additional Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in Annex III attached hereto,
and on the Initial Closing Date only, the Registration Rights Agreement annexed
hereto as Annex IV and the Warrants.
e. No statute, rule, regulation, executive order, decree, ruling or
injunction shall be enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits or adversely
effects any of the transactions contemplated by this Agreement or the
Transaction Documents, and no proceeding or investigation shall have been
commenced or threatened which may have the effect of prohibiting or adversely
effecting any of the transactions contemplated by this Agreement or the
Transaction Documents.
f. From and after the date hereof to and including the initial
Closing Date and each Additional Closing Date, the trading of the Common Stock
shall not have been suspended
16
<PAGE>
by the SEC, or the NASD and trading in securities generally on the New York
Stock Exchange or NASDAQ/SmallCap shall not have been suspended or limited, nor
shall minimum prices been established for securities traded on NASDAQ/Small Cap,
nor shall there be any outbreak or escalation of hostilities involving the
United States or any material adverse change in any financial market that in
either case in the reasonable judgment of the Buyer makes it impracticable or
inadvisable to purchase the initial Preferred Stock or the Additional Preferred
Stock, as the case may be.
10. GOVERNING LAW: MISCELLANEOUS.
a. 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. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York 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 conveniens, to the bringing of any such proceeding in such
jurisdictions.
b. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
c. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.
d. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
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. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
g. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
11. NOTICES. Any notice required or permitted hereunder shall be
given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of
17
<PAGE>
(i) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(ii) the seventh business day after deposit, postage prepaid,
in the United States Postal Service by registered or certified
mail, or
(iii) the third business day after mailing by international
express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: ATLANTIC INTERNATIONAL ENTERTAINMENT, INC.
200 East Palmetto Park Road
Suite 200
Boca Raton, Florida 33432
ATTN:
Telecopier No.: (561) 393-6685
Telephone No.: (561) 393-1485
with a copy to:
Harry Winderman, Esq/
2295 Corporate Boulevard, N.W.
Suite 140
Boca Raton, FL 33431
Telecopier No.: 561-241-5266
Telephone No.: 561-241-0332
BUYER: At the address set forth on the signature page of this
Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
representations and warranties herein shall survive the execution and delivery
of this Agreement and the delivery of the Preferred Stock and the Purchase
Price, and shall inure to the benefit of the Buyer and its successors and
assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Buyer or one of its officers thereunto duly authorized as of the date set forth
below.
NUMBER OF SHARES OF PREFERRED STOCK TO BE PURCHASED: 5,000
AGGREGATE PURCHASE PRICE OF SUCH PREFERRED STOCK: $500,000.00
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this 4th day of April, 1998.
- ----------------------------- -----------------------------------
- ----------------------------- Printed Name of Subscriber
Address
By: /s/
-------------------------------
Telecopier No. _________________ (Signature of Authorized Person)
----------------------------------
- -------------------------------- Printed Name and Title
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
ATLANTIC INTERNATIONAL ENTERTAINMENT, INC.
By: /s/ Richard Iamunno
-----------------------------
Title: President and C.E.O.
-----------------------------
Date: 04/03/98
-----------------------------
<PAGE>
ANNEX I CERTIFICATE OF DESIGNATIONS
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX V COMPANY DISCLOSURE
[TO BE SUPPLIED BY COMPANY]
<PAGE>
ANNEX IV
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of April 6, 1998 (this
"Agreement"), is made by and between ATLANTIC INTERNATIONAL ENTERTAINMENT, INC.,
a Delaware corporation (the "Company"), and the entity named on the signature
page hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of April 6, 1998, between the Initial Investor and
the Company (the "Securities Purchase Agreement"; capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement), the Company has agreed to issue and sell to the
Initial Investor $4,000,000 liquidation preference of 5% Convertible Preferred
Stock, par value $.001 per share of the Company (the "Preferred Stock," which
term, as used herein shall have the meaning ascribed to it in the Securities
Purchase Agreement); and
WHEREAS, the Company has agreed to issue the Warrants to the Initial
Investor in connection with the issuance of the Preferred Stock; and
WHEREAS, the Preferred Stock is convertible into shares of Common Stock
(the "Conversion Shares") upon the terms and subject to the conditions contained
in the Certificate of Designations and the Warrants to be issued to the Initial
Investor may be exercised for the purchase of shares of Common Stock (the
"Warrant Shares") upon the terms and conditions of the Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has 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 Conversion Shares and the Warrant Shares;
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
Initial Investor hereby agree as follows:
<PAGE>
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Investor" means the Initial Investor and any permitted transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(b) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company that disclosure of such information in
the registration statement would be detrimental to the business and affairs of
the Company; or (ii) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
(c) "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").
(d) "Registrable Securities" means the Conversion Shares and the
Warrant Shares.
(e) "Registration Statement" means a registration statement of the
Company under the Securities Act.
2. REGISTRATION.
(A) MANDATORY REGISTRATION. The Company shall prepare and file with the
SEC, as soon as possible after the Closing Date, but no later than thirty (30)
days following the Closing Date, either a Registration Statement on Form SB-2 or
an amendment to any such pending Registration Statement registering for resale
by the Investor all of the Registrable Securities, but in no event less than the
aggregate number of shares into (i) which the Preferred Stock would be
convertible at the time of filing of the Form SB-2 (assuming for such purposes
that all shares of Preferred Stock had been eligible to be converted, and had
been converted, into Conversion Shares in accordance with their terms, whether
or not such eligibility or conversion had in fact occurred as of such date), and
(ii) which would be issued upon exercise of all of the Warrants at the time of
filing of the Form SB-2 [assuming for such purposes that all Warrants had been
eligible to be exercised and had been exercised in accordance with their terms,
whether or not such eligibility or exercise had in fact occurred as of such
date]. Such Registration Statement or amended Registration Statement shall also
state that, in accordance with Rule 416 and 457 under the Securities Act, it
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon
2
<PAGE>
conversion of the Preferred Stock and the exercise of the Warrants resulting
from adjustment in the Conversion Price or the Warrant exercise price, as the
case may be, or to prevent dilution resulting from stock splits, or stock
dividends. The Company will use its reasonable best efforts to cause such
Registration Statement to be declared effective no later than ninety (90) days
after the Closing Date. If at any time the number of shares of Common Stock into
which the Preferred Stock may be converted and which would be issued upon
exercise of the Warrants exceeds the aggregate number of shares of Common Stock
then registered, the Company shall, within ten (10) business days after receipt
of a written notice from any Investor, either (i) amend the Registration
Statement filed by the Company pursuant to the preceding sentence, if such
Registration Statement has not been declared effective by the SEC at that time,
to register all shares of Common Stock into which the Preferred Stock may
currently or in the future be converted and which would be issued currently or
in the future upon exercise of the Warrants, or (ii) if such Registration
Statement has been declared effective by the SEC at that time, file with the SEC
an additional Registration Statement on Form SB-2, as may be appropriate, to
register the shares of Common Stock into which the Preferred Stock may currently
or in the future be converted and which would be issued currently or in the
future upon exercise of the Warrants that exceed the aggregate number of shares
of Common Stock already registered. Such Registration Statement shall not
include any shares other than the Registrable Securities without the consent of
the Investor.
(B) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the Registrable Securities
is not filed in proper form with the SEC by thirty (30) days after the Closing
Date (the "Required Filing Date"), then the Company will make payments to the
Initial Investor in such amounts and at such times as shall be determined
pursuant to this Section 2(b).
(ii) If the Registration Statement covering the registrable securities
is not effective (a) within the earlier of (1) five (5) days after notice by the
SEC that it may be declared effective, or (2) ninety (90) days following the
Closing Date (the "Required Effective Date"), or (b) after a suspension period
(as defined below), then the Company will make payments to the Initial Investor
in such amounts and at such times as shall be determined pursuant to this
Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by the Company to
the Initial Investor shall be determined as of each computation date (as defined
below) and such amount shall be equal to (A) two percent (2%) of the Purchase
Price paid by the Initial Investor (the "Purchase Price") for all Preferred
Stock then purchased and outstanding pursuant to the Securities Purchase
Agreement on the Required Filing Date or the Required Effective date, as the
case may be, to the first relevant computation date, and (B) three percent (3%)
of the Purchase Price on each Computation Date thereafter. By way of
illustration and not in limitation of the foregoing, if the Registration
Statement is timely filed but is not declared effective until one hundred
sixty-five (165) days after the Closing Date, the Periodic Amount will aggregate
eight (8%) percent of the Purchase Price of the Preferred Stock (2% on day 91,
plus 3% on days 120 and 150).
3
<PAGE>
(iv) Additionally, if (a) the Registration Statement is not
filed within sixty (60) days from the Closing Date or (b) the Required Effective
Date is greater than one hundred fifty (150) days after the Closing Date, or (c)
the effectiveness of the Registration Statement is not maintained during the
Registration Period as hereinafter defined, Purchaser may, at its option,
require the Company to redeem the Preferred Stock in full, within three (3)
days, in cash, in accordance with Section 4(k)(y) of the Securities Purchase
Agreement.
(v) Each Periodic Amount will be payable to the Investor by
the Company in cash or other immediately available funds, upon demand of the
Investor.
(vi) The parties acknowledge that the damages which may be
incurred by the Investor if the Registration Statement is not filed by the
Required Filing Date or if the Registration Statement has not been declared
effective by the Required Registration Date may be difficult to ascertain. The
parties agree that the Periodic Amount represents a reasonable estimate on the
part of the parties, as of the date of this Agreement, of the amount of such
damages and the sole and exclusive remedy of the Investor with respect to such
default by the Company.
(vii) Notwithstanding the foregoing, the amounts payable by
the Company pursuant to this provision shall not be payable to the extent any
delay in the effectiveness of the Registration Statement occurs because of an
act of, or a failure to act or to act timely by the Initial Investor or its
counsel if the Company timely forwards to counsel any required documents or in
the event all of the Registrable Securities may be sold pursuant to Rule 144 or
another available exemption under the Act.
(viii) "Computation Date" means (i) the date which is the
earlier of (A) thirty (30) days after the Required Filing Date and the Required
Effective Date, as the case may be, or (B) the date after the Required Filing
Date or the Required Registration Date on which the Registration Statement is
filed (with respect to payments due as contemplated by Section 2(b)(i) hereof)
or declared effective (with respect to payments due as contemplated by Section
2(b)(ii) hereof), as the case may be, and (ii) each date which is the earlier of
(A) thirty (30) days after the previous Computation Date or (B) the date after
the previous Computation Date on which the Registration Statement is filed (with
respect to payments due as contemplated by Section 2(b)(i) hereof) or declared
effective (with respect to payments due as contemplated by Section 2(b)(ii)
hereof), as the case may be.
3. OBLIGATIONS OF THE COMPANY. IN CONNECTION WITH THE REGISTRATION
OF THE REGISTRABLE SECURITIES, THE COMPANY SHALL DO EACH OF THE FOLLOWING.
(a) Prepare promptly, and file with the SEC by the Required Filing
Date, a Registration Statement with respect to not less than the number of
Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause each Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times until the earliest (the
"Registration Period") of (i) the date that is two (2) years after the Closing
Date, (ii) the date when the Investors may sell all
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Registrable Securities under Rule 144 or (iii) the date the Investors no longer
own 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 and the
prospectus used in connection with 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 seller or sellers
thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel designated by
the Initial Investors to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time (but not less than three (3)
business days) prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects.
(d) Notify the Holders of Registrable Securities to be sold, their
Counsel and any managing underwriters immediately (and, in the case of (i)(A)
below, not less than five (5) days prior to such filing) and (if request by any
such Person) confirm such notice in writing no later than one (1) Business Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) whenever the Commission notifies the Company whether there will be a
"review" of such Registration Statement; (C) whenever the Company receives (or
representatives of the Company receive on its behalf) any oral or written
comments from the Commission respect of a Registration Statement (copies or, in
the case of oral comments, summaries of such comments shall be promptly
furnished by the Company to the Holders); and (D) with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to the Registration
Statement or Prospectus or for additional information; (iii) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) if at any time any of the
representations or warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that to the best knowledge of
the Company makes any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case
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<PAGE>
may be, it will not contain any untrue statement of a material fact or omit to
state any 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. In addition, the Company shall furnish the Holders with copies
of all intended written responses to the comments contemplated in clause (C) of
this Section 3(d) not later than one (1) Business Day in advance of the filing
of such responses with the Commission so that the Holders shall have the
opportunity to comment thereon.
(e) Furnish to each Investor 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, each preliminary prospectus and prospectus, and each amendment or
supplement thereto, and (ii) such number of copies of a prospectus, and all
amendments and supplements thereto and such other documents, as such Investor
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus 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 each Investor as such Investor may reasonably
request;
(g) As promptly as practicable after becoming aware of such event,
notify each Investor 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 or any stop
order or other suspension of the effectiveness of the Registration Statement at
the earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time to
time after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Investor receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; PROVIDED, HOWEVER, that the
Company may not so suspend the right to such holders of Registrable Securities
for more than two twenty (20) day periods in the aggregate during any 12-month
period ("Suspension Period") with at least a ten (10) business day interval
between such periods, during the periods the Registration Statement is required
to be in effect;
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<PAGE>
(i) Use its reasonable efforts to secure NASDAQ/OTC Bulletin Board
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities;
(j) 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;
(k) Cooperate with the Investors who hold Registrable Securities
(or, subject to receipt by the Company of appropriate notice and documentation,
as may be required by the Securities Purchase Agreement, the Certificate of
Designations, the Warrants or this Agreement, securities convertible into
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
Investors 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 Investors whose Registrable Securities or
securities convertible into Registrable Securities are included in such
Registration Statement) an appropriate instruction and opinion of such counsel;
provided, however, that nothing in this subparagraph (j) shall be deemed to
waive any of the provisions regarding the conditions or method of conversion of
Preferred Stock or exercise of Warrants into Registrable Securities; and
(l) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the Registration
of the Registrable Securities, the Investors 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 a particular Investor that such Investor 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 five (5) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
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<PAGE>
(b) Each Investor, by such Investor'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 such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. Expenses of Registration. (a) All reasonable expenses (other than
underwriting discounts and commissions of the investor and legal fees of counsel
to the Investor) incurred in connection with registrations, filings or
qualifications pursuant to section 3, including, without limitation, all
registration, listing, and qualifications fees, printers and accounting fees,
the fees and disbursements of counsel for the company, and a fee for a single
counsel for the Investor not exceeding $3,500, shall be borne by the Company.
(b) Except as and to the extent specifically set forth in Schedule
5(b) attached hereto, neither the Company nor any of its subsidiaries has, as of
the date hereof, nor shall the Company nor any of its subsidiaries, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. Except as and to
the extent specifically set forth in Schedule 5(b) attached hereto, neither the
Company nor any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the holders set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.
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 Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (each, an "Indemnified Person" or "Indemnified Party"), against any
losses, claims, damages, liabilities
8
<PAGE>
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 6, the
Company shall reimburse the Investors, promptly as such expenses are incurred
and are due and payable, for any 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 6(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 any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) be available to the extent such Claim is based on a failure of
the Investor 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 Investor 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
Investor, 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 6.
Such indemnity shall remain in full 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 Investors pursuant to Section
9.
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 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 6, 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. In case any such action is
9
<PAGE>
brought against any Indemnified Person or Indemnified Party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying
party to such Indemnified Person or Indemnified Party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
Indemnified Person or Indemnified Party under this Section 6 for any legal or
other reasonable 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 pursue the action of 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 reasonable
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 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 6 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.
7. 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 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (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.
8. Reports under Exchange Act. With a view to making available to
the Investors 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
Investors 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) use its best efforts to 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
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<PAGE>
(c) furnish to each Investor so long as such Investor 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 Investors to sell such securities pursuant to Rule 144 without
registration.
9. Assignment of the Registration Rights. The rights to have the
Company Register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any Preferred Stock of the Company which is
convertible into such securities) permitted or allowable by the terms of the
Securities Purchase Agreement only if: (a) the Investor 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 or in favor of the Company to be bound by all of the provisions
contained herein, a copy of which shall be provided to the Company. The copies
referred to in clauses (a) and (d) of the immediately preceding sentence may be
redacted to delete certain financial and other details of the transaction
between the Investor and the transferee if the same is included in the document
to be provided to the Company. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shall not be liable for any damages arising from such delay, or the
payments set forth in Section 2(c) hereof.
10. 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 Investors who
hold an eighty (80%) percent interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. Miscellaneous.
(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
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line facsimile transmission, receipt confirmed, or other means) or sent by
certified mail, return receipt requested, properly addressed and with proper
postage pre-paid (i) if to the Company, Atlantic International Entertainment,
Inc., 200 East Palmetto Park Road, Suite 200, Boca Raton, Florida 33432, ATTN:
President, Telecopier No.: (561) 393-6685; with a copy to Harry Winderman, Esq.,
2295 Corporate Boulevard, N.W., Suite 140, Boca Raton, Florida 33431, Telecopier
No.: (561) 241-5266; (ii) if to the Initial Investor, at the address set forth
under its name in the Securities Purchase Agreement, with a copy to Samuel
Krieger, Esq., Krieger & Prager, 319 Fifth Avenue, Third Floor, New York, NY
10016, Telecopier No.: (212) 213-2077; and (iii) if to any other Investor, at
such address as such Investor 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 11(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. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York 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.
(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 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(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
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<PAGE>
facsimile transmission of a copy of this Agreement bearing the signature of the
party so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless the same is the result of force majeure.
Neither party shall be liable for consequential damages.
(k) 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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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.
ATLANTIC INTERNATIONAL ENTERTAINMENT, INC.
By:
---------------------------------------
Name:
Title:
------------------------------------------
By:
---------------------------------------
Name:
Title:
<PAGE>
CERTIFICATE OF DESIGNATION
PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD., a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that, pursuant to the authority contained in
Article Five of its Certificate of Incorporation, as amended, and in accordance
with the provisions of Section 151 of the General Corporation Law of the State
of Delaware, its Board of Directors has adopted the following resolution
creating a series of its Preferred Stock designated as Series A Convertible
Preferred Stock:
RESOLVED, that a series of the class of authorized preferred Stock
of the Corporation be, and hereby is, created, and that the designation and
amount thereof and the voting powers, preferences and qualifications,
limitations or restrictions thereof, are as follows.
(1) Designation and Amount. The shares of such series shall be
designated as "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting such series shall be Four Million
(4,000,000). The number of shares of Series A Preferred Stock may be decreased
(but not below the number of shares then outstanding) or increased by a
certificated executed, acknowledged, filed and recorded in accordance with the
General Corporation Law of the State of Delaware setting forth a statement that
a specified decrease or increase, as the case may be, thereof had been
authorized and directed by a resolution or resolutions adopted by the Board of
Directors pursuant to authority expressly vested in it by the provisions of the
Certificate of Incorporation of the Corporation.
(2) Dividends. The holders of shares of Series A Preferred Stock
shall be entitled to receive quarterly, out of any assets legally available
therefor, cumulative dividends, at the rate of Five percent (5%) per annum of
the Original issue Price of the Series A Preferred Stock (as defined below),
payable at the holder's option, in cash or in Common Stock at the Series A
Conversion Price (as defined below).
(3) Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership thereof, an amount per
share equal to the sum of (A) $100.00 for each outstanding share of Series A
Preferred Stock (the "Original Issue Price" for the Series A Preferred Stock)
and (B) an amount equal to declared but unpaid dividends on such share. If upon
the occurrence of such
<PAGE>
event, the assets and funds thus distributed among the holders of the full
aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock in proportion to the
preferential amount of each such holder is otherwise entitled to receive.
(b) After payment to the holders of the Series A Preferred Stock of
the amounts set forth in Section 3(a) above, the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed among the holders of the Common Stock in proportion to the shares of
Common Stock then held by them.
(c) For purposes of the Section (3), (I) any acquisition of the
Corporation by means of merger or other form of corporate reorganization in
which outstanding shares of the Corporation are exchanged for securities or
other consideration, issued, or caused to be issued, by the acquiring
corporation or its subsidiary (other than a mere reincorporation transaction)
and following which the stockholders of the Corporation immediately prior to
such transaction own less than a majority of the voting shares of the surviving
corporation or (ii) a sale of all or substantially all of the assets of the
Corporation, shall be treated as a liquidation, dissolution or winding up of the
Corporation and shall entitle the holders of Series A Preferred Stock to receive
at the closing in cash, securities or other property (valued as provided in
Section (3)(d) below) amounts as specified in Section (3)(a) above.
(d) Whenever the distribution provided for in this Section (3) shall
be payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or other property
as determine4d in good faith by the Board of Directors.
(4) Redemption.
(a) At any time after the date of issuance of the Series A Preferred
Stock and prior the conversion thereof (as provide in Section (6) below), this
Corporation may redeem, from any source of funds legally available therefor,
some or all of the outstanding Series A Preferred Stock (the date of each such
redemption being referred to herein as the "Series A Redemption Date"). The
Corporation shall effect such redemptions on the Series A Redemption Date by
paying in exchange for each share of Series A Preferred Stock to be redeemed an
amount in cash (the "Series A Redemption Price") equal to:
V x M
----
CP
where
"V" means the Original Issue Price for the Series A Preferred Stock
plus any declared but unpaid dividends on such share;
"CP" means the Series A Conversion Price (as defined in Section 6(a)
below); and
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"M" means the highest closing bid price per share of the Common
Stock during the period beginning on the Redemption Date and ending on the date
of payment of the Series A Redemption Price.
Any redemption effected pursuant to this Section (4)(a) shall be made on a
pro-rata basis among the holders of the Series A Preferred Stock in proportion
to the share of Series A Preferred Stock then held by them.
(b) At least 20 days prior to the Redemption Date written notice
shall be mailed, first class postage prepaid, to each holder of record (at the
close of business on the business day next preceding the day on which notice is
given) of the Series A Preferred Stock to be redeemed, at the address last shown
on the records of the Corporation for such holder, notifying such holder of the
redemption to be effected, specifying the number of shares to be redeemed from
such holder, the Redemption Date, the Series A Redemption Price, the place at
which payment may be obtained and calling upon such holder to surrender to the
Corporation, in the manner and at the place designated, his certificate or
certificates representing the shares to be redeemed (the "Redemption Notice").
Except as provided in Section (4)(c), on or after the Redemption Date, each
holder of Series A Preferred Stock to be redeemed shall surrender to the
Corporation the certificate or certificates representing such shares, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Series A Redemption Price of such shares shall be payable to the order of the
person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be cancelled. In the event less
than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(c) From and after the Redemption Date, unless there shall have been
a default in payment of the Series A Redemption Price, all rights of the holders
of shares of Series A Preferred Stock designated for redemption in the
Redemption Notice as holders of Series A Preferred Stock (except the right to
receive the Series A Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter by transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever. The shares of Series A
Preferred Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein.
(d) If on the Redemption Date, the Corporation does not pay the
Series A Redemption Price, the holder of Series A Preferred Stock may thereafter
convert any or all or part of his Series A Preferred Stock at the lesser of (I)
the Series A Conversion Price (as defined in Section 6(a) hereof), or (ii) 78%
of the five-day average closing bid price for the Corporation's Common Stock for
the five (5) trading days prior to the delivery of the Notice of Redemption.
(5) Voting Rights. Each holder of shares of the Series A Preferred
Stock shall be entitled to the number of votes equal to the number of shares of
Common Stock into which such shares of Series A Preferred Stock could be
converted and shall have voting rights and powers equal to the voting rights and
powers of the Common Stock (except as otherwise expressly provided herein or as
required by law, voting together with the Common Stock as a
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<PAGE>
single class) and shall be entitled to notice of any stockholders' meeting in
accordance with the Bylaws of the Corporation. Fractional votes shall not,
however, be permitted and any fractional voting rights resulting from the above
formula (after aggregating all shares into which shares of Series A Preferred
Stock held be each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
(6) Conversion. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share and on or prior to the fifth day prior to any
Redemption date, if any, as may have been fixed in any Redemption Notice with
respect to the Series A Preferred Stock, at the office of the Corporation or any
transfer agent for such stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Original Issue Price for
the Series A Preferred Stock by the Conversion Price applicable to such share,
determined as hereinafter provided, in effect on the date conversion shall be
deemed to have been made (the "Conversion Date"), as specified by the holder of
Series A Preferred Stock in his Notice of Conversion (as defined below). The
price at which shares of Common Stock shall be deliverable upon conversion of
shares of the Series A Preferred Stock (the "Series A Conversion Price") shall
be 78% of the lowest not necessarily consecutive three day average closing bid
price for the Corporation's Common Stock listed and traded on the NASDAQ/Small
Cap market, or such other national securities exchange on which the
Corporation's Common Stock is then listed, for the 25-day period prior to the
Conversion Date. In no event shall the Series A Conversion Price be less than
$1.50 per share of Common Stock.
(b) Automatic Conversion. Each share of Series A Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Series A Conversion Price three (3) years after the issuance of such
share.
(c) Mechanics of Conversion.
(i) Before any holder of Series A Preferred Stock shall be
entitled to convert the same into shares of Common Stock, he shall telecopy an
executed and completed notice (each a "Notice of Conversion") to the
Corporation, specifying the number of shares of Series A Preferred Stock to be
converted, the Conversion Date, the name or names in which he wishes the
certificate or certificates for shares of Common Stock to be issued, and such
other information as the Corporation may reasonably request. The holder of
Series A Preferred Stock shall deliver within three (3) business days after
transmitting the Notice of Conversion by telecopy, the original Notice of
Conversion by express courier, with a copy to the Corporation's transfer agent.
(ii) The Corporation shall, or its expense, take all actions
and use all means necessary and diligent to cause its transfer agent to issue
and deliver a certificate or certificates representing the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock (together with a
certificate or certificates representing the Series A Preferred Stock
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<PAGE>
not being so converted) to such holder of Series A Preferred Stock via express
courier, by electronic transfer or otherwise, within three (3) business days of
the later of (i) receipt by the transfer agent of the copy of the original
Notice of Conversion, and (ii) the Conversion Date (the "Delivery Date").
(iii) Conversion shall be deemed to have been made immediately
prior to the close of business on the Conversion Date, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the second holders or holders of such
shares of Common Stock on such date.
(iv) The Corporation agrees to pay late payments in the amounts
and as set forth herein to the holder of Series A Preferred Stock satisfying the
prerequisites for conversion of the Series A Preferred Stock set forth in
Section 6(c)(i) hereof in the event that due entirely to the Corporation's
direct or indirect actions or its failure to act (the Corporation's Actions")
the transfer agent does not issue and deliver to such holder of Series A
Preferred Stock certificates representing the shares of Common Stock issuable
upon conversion of the Series A Preferred Stock, in the manner and as set forth
in Section 6(c)(ii) hereof, by the Delivery Date. The late payments shall be
paid in accordance with the following schedule (where "No. Business Days Late"
is defined as the number of business days beyond five (5) business days from
Delivery Date:
Late Payment for each $10,000
Of Preferred Stock Liquidation
No. Business Days Late Amount Being Converted
- --------------------------------------------------------------------------------
1 $100.00
2 $200.00
3 $300.00
4 $400.00
5 $500.00
Greater than 5 $500 + $200 for each Business
Day Late beyond Five (5)
days from Delivery Date
The Corporation shall pay any payments incurred under this subsection in
immediately available funds upon demand. Nothing herein shall limit the holder
of Series A Preferred Stock from pursing actual damages for the Corporation's
Actions resulting in the transfer agent's failing to issue and deliver the
Common Stock to such holder of Series A Preferred Stock. Furthermore, in
addition to any other remedies that may be available to the holder of Series A
Preferred Stock, in the event that delivery of such shares of Common Stock is
not made within five (5) business days after the Delivery Date, due to the
Corporation's Actions, the holder of Series A Preferred Stock will be entitled
to revoke the relevant Notice of Conversion by delivering a notice to such
effect to the Corporation whereupon the Corporation and such holder of Series A
Preferred Stock shall each be restored to their respective positions immediately
prior to delivery of such Notice of Conversion, and the holder of Series A
Preferred Stock may then require the Corporation to immediately redeem all
outstanding Series A Preferred Stock in accordance with Section 4 hereof.
5
<PAGE>
(v) If, by the relevant Delivery Date, due to the
Corporation's Actions, delivery of the shares of Common Stock to be issued upon
conversion of the Series A Preferred Stock is not made, and after such Delivery
Date the holder of the Series A Preferred Stock purchases, in an open market
transaction or otherwise, shares of Common Stock (the "Covering Shares") in
order to make delivery in satisfaction of a sale of Common Stock by such holder
of Series A Preferred Stock (the "Sold Shares"). Which delivery such holder of
Series A Preferred Stock anticipated to make using the shares of Common Stock to
be issued upon such conversion of Series A Preferred Stock (a "Buy In"), the
Corporation shall pay to such holder of the Series A Preferred Stock the Buy in
Adjustment Amount (as defined below). The "Buy In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the holder of Series A Preferred
Stock's total purchase price (including brokerage commissions, if any) for the
Covering Shares over (y) te net proceeds (after brokerage commissions, if any)
received by such holder of Series A Preferred Stock from the sale of the Sold
Shares. The Corporation shall pay the Buy-In Adjustment Amount to the holder of
Series A Preferred Stock in immediately available funds immediately upon demand
by such holder of Series A Preferred Stock. By way of illustration and not in
limitation of the foregoing, if the holder of Series A Preferred Stock purchases
shares of Common Stock having a total purchase price (including brokerage
commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock
is sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the
Corporation will be required to pay to such holder of Series A Preferred Stock
will be $1,000.
(vi) Subject to the completeness and accuracy of the holder of
Series A Preferred Stock's representations and warranties herein, upon the
conversion of any Series A Preferred Stock by a person who is a non U.S. Person,
and following the expiration of any applicable Restricted Period (as those terms
are defined in Regulation S), the Corporation shall, at its expenses, take all
necessary action (including the issuance of an opinion of counsel) to assure
that the Corporation's transfer agent shall issue stock certificates without
restrictive legends or stop orders in the name of such holder of Series A
Preferred Stock (or its nominee (being a non U.S. Person) or such non U.S.
Persons as may be designated by such holder of Series A Preferred Stock) and in
such denominations to be specified at conversion representing the number of
shares of Common Stock issuable upon such conversion, as applicable. Nothing in
this Section 6, however, shall affect in any way any holder of Series A
Preferred Stock's or such nominee's obligations and agreement to comply with all
applicable securities laws upon resale of the shares of Common Stock. The
remedies set forth in subsections 4(c)(iv), (v) and (vi) shall be cumulative.
(vii) In lieu of delivering physical certificates representing
the unlegended securities issuance upon conversion, provided the Corporation's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of the holder of Series A
Preferred Stock and its compliance with the provisions contained in this
subsection, so long as the certificates therefor do not bear a legend and such
holder of Series A Preferred Stock thereof is not obligated to return such
certificate for the placement of a legend thereon, the Corporation shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the holder of
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<PAGE>
Series A Preferred Stock by crediting the account of the Prime Broker of such
holder of Series A Preferred Stock with DTC through its Deposit Withdrawal Agent
Commission System.
(vii) The original certificate or certificates representing
the Series A Preferred Stock shall be delivered by the holder thereof to the
Corporation concurrently with delivery of the Final Notice of Conversion.
(d) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section (6) and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(e) Notice of Record Date. In the event that the Corporation shall
propose at any time: (i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus; (ii)
to offer for subscription pro rata to the holders of any class or series of its
tock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; or (iv) to merge or
consolidate with or into any corporation other than the Corporation's
subsidiaries, or sell, lease or convey all or substantially all of its assets,
or to liquidate, dissolve or wind up:
Then, in connection with each such event, the Corporation shall send
to the holders of Series A Preferred Stock: (1) at least twenty (20) days prior
written notice of the date on which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and (iv) above, at least
twenty (20) days prior written notice of the date when the same shall take place
( and specifying the date on which the holders of Common Stock shall be entitled
to exchange their Common Stock for securities or other property deliverable upon
the occurrence of such event).
(f) Issue Taxes. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of shares of Series A Preferred Stock pursuant
hereto; provided, however, that the Corporation shall not be obligated to pay
any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(g) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time
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<PAGE>
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
A Preferred Stock, the Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to this Certificate.
(h) Fractional Shares. No fractional share shall be issued upon the
conversion of any share or shares of Series A Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors).
(i) Notices. Any notice required by the provisions of this Section
(6) to be given to he holders of shares of Series A Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
(7) Restrictions and Limitations.
(a) So long as any shares of Preferred Stock remain outstanding, the
Corporation shall not, without the vote or written consent by the holders of at
least 66 and 2/3% of the then outstanding shares of the Series A Preferred
Stock, voting together as a single class:
(i) Redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purposes) any share or shares of
Preferred Stock otherwise than by redemption in accordance with Section (6)
hereof or by conversion in accordance with Section (4) hereof;
(ii) Redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose), any of the Common Stock, provided,
however, that this restriction shall not apply to the repurchase of shares of
Common Stock from employees, officers, directors, consultants or other persons
performing services for the Corporation or any subsidiary pursuant to agreements
under which the Corporation has the option to repurchase such shares upon the
occurrence of certain events, such as the termination of employment;
(iii) Authorize or issue, or obligate itself to issue, any
other equity security (including any security convertible into or exercisable
for any equity security) senior to or on a parity with the Series A Preferred
Stock as to voting rights, dividend rights, conversion rights, redemption rights
or liquidation preferences;
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<PAGE>
(iv) Declare or pay any dividend or make any distribution with
regard to any share of Common Stock;
(v) Sell, convey, lease or otherwise dispose of all or
substantially all of its property or business; liquidate dissolve or wind up the
Corporation's business; or merge into or consolidate with any other corporation
(other than a wholly owned subsidiary corporation); or effect any transaction or
series of related transaction in which more than 50% of the voting power of the
corporation is disposed of (a "Corporate Transaction"), unless the corporation's
stockholders of record as constituted immediately prior to such Corporate
Transaction will, immediately after such Corporate Transaction, hold at lease a
majority of the voting power of the surviving or acquiring entity;
(vi) Permit any subsidiary to issue or sell, or obligate
itself to issue or sell, except to the Corporation or any wholly owned
subsidiary, any stock of such subsidiary;
(vii) Increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Preferred Stock; or
(viii) Alter or change the rights, preferences or privileges
of the shares of Preferred Stock so as to affect adversely the shares.
(8) No Reissuance of Series A Preferred Stock. No share or shares of
Series A Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be cancelled, retired and eliminated from the shares which the Corporation shall
be authorized to issue.
IN WITNESS WHEREOF, ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. has caused this
Certificate of Designation, Preferences and Rights of Series A Convertible
Preferred Stock to be duly executed by its President and attested to by its
Assistant Secretary and has caused it corporate seal to be affixed hereto this
3rd day of April, 1998.
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD
By:_____________________________________________
(Corporate Seal)
By:_____________________________________________
ATTEST:
- -----------------------------------
ATLANTIC INTERNATIONAL ENTERTAINMENT
EMPLOYNENT AGREEMENT
EMPLOYMENT AGREEMENT effective as of the 1st day of May, 1997, by and
between RICHARD A. IAMUNNO, an individual residing at 320 SW 17th Street, Boca
Raton, FL 33434 ("Executive"), and ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD., a
Delaware corporation with its principal offices at 2200 Corporate Boulevard,
Suite 317, Boca Raton, FL 33431 (the "Company").
W I T N E S S E T E:
WHEREAS, the Company, through its wholly-owned or controlled
subsidiaries, is engaged in a variety of businesses, including gaming, wagering
and internet software development and related telecommunications and financial
advisory and business consulting services; and
WHEREAS, the Company, desires the Executive to serve, and the Executive
is willing to serve, as the Company's Chief Executive Officer on and subject to
the terms set forth in this Agreement;
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs the Executive as its Chief
Executive Officer for the Term of this Agreement (as hereinafter defined)
subject to and in accordance with the terms, conditions and provisions of this
Agreement. The Executive shall also serve as an executive officer of such of the
Company's wholly-owned or controlled subsidiaries (the "Subsidiaries") which
shall include any entity existing as of the date hereof or formed or acquired
during the Term hereof, including corporations, partnerships, limited liability
companies, joint ventures or other entities (each an "entity" and collectively,
the "Entities"), owned or controlled by the Company or by any Entity owned or
controlled by any such Entity, to which Executive may be elected by the board of
directors of any such Subsidiary. The Executive shall also serve in such other
positions or capacities, not inconsistent with his position as Chief Executive
Officer of the Company or the provisions of this Agreement, to which he may be
elected by the Board or by the board of directors of any Subsidiary or to which
he may be assigned by the Board from time to time during the Term hereof. The
Company shall, subject to the Executive's consent, cause the Executive to be
nominated and elected to the Board and to the boards of directors of such of the
Subsidiaries as the Board may determine. The Executive hereby accepts such
employment upon and subject to the terms, conditions and provisions of this
Agreement.
2. Executive' s Duties and Responsibilities.
(a) During the Term hereof, the Executive will perform all of the
services customarily associated with the position of chief executive officer
including, without limitation, services on behalf of any Subsidiary of which he
may serve as an officer, subject to the policies established by and at the
direction of the Board.
<PAGE>
(b) The Executive will devote substantially all of his business time,
attention and efforts to the performance of his duties under this Agreement
during the Term hereof and shall perform such duties diligently, in good faith
and in a manner consistent with the best interests of the Company. The Executive
will use his best efforts at all times during the Term hereof to preserve,
protect, enhance and maintain the trade, business and goodwill of the Company.
Subject to the provisions of subparagraphs 7(b) and (c) hereof, the Executive
will perform his services wherever his services may reasonably be required, but
principally at the principal offices of the Company, which are currently located
at the address set forth above.
3. Term: Severance.
(a) The term of this Agreement (the "Term") commenced in January 1997
and shall expire on December 31, 2000, subject to earlier termination as
provided in subparagraph 3(b) below:
(b) This Agreement shall terminate prior to December 31, 2000, upon the
occurrence of any of the following events:
(i) The death of the Executive;
(ii) The Permanent Disability, as hereinafter defined, of the
Executive, subject to the provisions of Paragraph 8 of this Agreement;
(iii) Entry of a final judgment by a court of competent
jurisdiction that there has been a breach or default by the Executive in the
performance or observance of any of the provisions of Paragraph 9 of this
Agreement;
(iv) Entry of a final judgment by a court of competent
jurisdiction that there has been repeated and deliberate misconduct by the
Executive;
(v) Entry of a final judgment by a court of competent
jurisdiction that there has been a repeated breach of trust or other repeated
action by which the Executive has obtained a material personal gain (other than
as provided for in this Agreement or consented to by the Board) at the material
expense or to the material detriment of the Company;
(vi) Entry of a final judgment by a court of competent
jurisdiction that there has been a failure by the Executive to perform the
customary duties of his position; provided that the Executive is furnished with
notice of such breach from the Company, which notice sets forth with
particularity such alleged failures, and the Executive fails to cure any such
breach within thirty (30) days of such notice. If the alleged breach is of a
type that cannot be cured within thirty (30) days, no breach shall exist under
this subparagraph 3(b)(vi) if the Executive has undertaken and is diligently
pursuing such cure;
(vii) Upon notice to the Company by the Executive of the
termination of this Agreement for any breach or default by the Company of any of
its obligations or covenants under this Agreement; provided that any such breach
or default is not cured within thirty (30) days of such notice; or
(viii) In the event of a Change of Control, as hereinafter
defined, during the Term hereof, the Executive may terminate this Agreement upon
ninety (90) days notice to the Company. For purposes of this Agreement, the term
"Change of Control" shall mean the date on which the Company sells all or
substantially all of its assets, sells more than 20% of the outstanding capital
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stock of any one or more subsidiaries, the aggregate gross revenues of which
constitute 33-1/3% or more of the gross revenues of the Company on a
consolidated basis, merges with or into or consolidates with any Entity, issues
to an independent, non-affiliated third party such number of shares of its
outstanding capital stock (or equity or debt securities convertible into or
exchangeable for shares of the Comp any's capital stock) as shall equal twenty
five percent (25%) or more of its total issued and outstanding shares of capital
stock, or Executive is removed from the Board, without cause, provided, however,
that a Change of Control shall not be deemed to occur as a result of or in
connection with any recapitalization or public offering of the Company's
securities or the occurrence of any of the foregoing transactions which is
approved by the Executive. For the purpose of this subparagraph 3(b)(viii), a
merger transaction shall mean the merger or consolidation of the Company with or
into any other Entity; or
(ix) Upon thirty (30) days notice from Executive if Executive is
removed from the Board without cause; or
(x) Upon seven days notice from Executive in the event of the
entry by a court of competent jurisdiction of a decree or order for relief in
respect of the Company in an involuntary case under any applicable bankruptcy,
insolvency, or similar law then in effect or the appointment of a receiver,
liquidator, assignee, custodian, trustee, or sequestrator of the Company or for
any substantial part of its property or an order by any such court for the
wind-up or liquidation of the Company's affairs; or a petition initiating an
involuntary case under any such bankruptcy, insolvency, or similar law is filed
against the Company and is pending for sixty (60) days without a stay or
dismissal; or the Company commences a voluntary case under any such bankruptcy,
insolvency, or similar law then in effect, or makes any general assignment for
the benefit of its creditors or fails generally to pay its debts as such debts
become due or takes corporate action in furtherance of any of the foregoing.
(c) In the event of a Change of Control of any Subsidiary to which
Executive renders services pursuant to this Agreement, or the occurrence of any
event with respect to any such subsidiary under subparagraphs 3(b)(vii) or
3(b)(ix), the Executive shall have the right to resign as an officer and/or
director of such Subsidiary; provided, however, that such resignation shall not
affect the compensation or any benefits payable to the Executive, or any rights
of the Executive pursuant to this Agreement.
4. Compensation. In consideration of the performance by the Executive
of the services to be performed by him under this Agreement during the Term
hereof, the Company will pay to the Executive the following compensation:
(a) (i) An annual salary at the rate of One Hundred Forty-four Thousand
Dollars ($144,000), plus the increases thereto hereinafter referred to (the
"Salary") from January 1, 1997 through the remainder of the Term hereof. The
Salary shall be paid to the Executive in equal bi-weekly installments (after the
deduction of all applicable withholding and other required payroll deductions),
in arrears, during the Term hereof. The Salary may be increased at any time and
from time to time by the Board during the Term hereof. The term "Salary" shall
also include all such increases as well as all increases pursuant to
subparagraph 4(a)(ii) below.
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(ii) Commencing January 1, 1998 and on each January 1 thereafter
during the Term hereof, the Executive shall receive an increase in Salary equal
to the greater of (A) five percent (5%) of the Salary in effect for the year
prior to such increase, or (B) the increase, if any, in the Cost of Living
Index, as hereinafter defined. The Company will, on the next payroll date
following the publication of such Cost of Living Index, pay to the Executive all
amounts of such increased salary determined in accordance with the preceding
sentence for the period commencing on the 1st day of January of such year
through such payroll date.
(iii) For purposes of this subparagraph-4(a), the increase in the
Cost of Living Index shall be computed as follows:
(A) The Cost of Living Index, as hereinafter defined, for each
December, commencing with December 1996, shall be compared with the Cost of
Living Index for December of the previous year. The increase in the Cost of
Living Index shall mean the percentage increase in the Cost of Living Index from
the previous December to the December as of which the computation is made. Such
determination shall be made as soon as possible after publication of the Cost of
Living Index for the December as of which the computation is being made.
(B) The Cost of Living Index shall mean the "Consumers Price
Index for Urban Wage Earners and Clerical Workers (Revised Series) - Boca Raton
Metropolitan Area," published by the Bureau of Labor Statistics of the United
States Department of Labor. If the said Cost of Living Index in the form in
which it is published as of the date of this Agreement or the calculation basis
thereof shall be revised or discontinued, the parties shall attempt in good
faith to modify the provisions of this subparagraph 4(a)(ii) on a basis which
will provide a method of calculation consistent with the method described herein
for prior years.
(b) (i) A bonus for each calendar year during the Term of this
Agreement (the "Bonus") commencing with the year ending December 31, 1997, equal
to Five percent (5%) of the amount by which the greater of (A) the Company's
consolidated net income before income taxes, determined in accordance with
generally accepted accounting principles applied on a basis consistent with
prior years or (B) the Company's Consolidated Net Cash Flow, as hereinafter
defined, exceeds Six Hundred Thousand Dollars ($600,000). "Consolidated Net Cash
Flow" shall mean (A) consolidated net income, plus (B) depreciation,
amortization and other non-cash items of expense, minus (C) payments of all
principal amounts of then outstanding indebtedness, all determined in accordance
with generally accepted accounting principles applied on a basis consistent with
prior years. The computation of consolidated net income before income taxes and
Consolidated Net Cash Flow shall be made in a manner consistent with the
financial statements included in the Company's Annual Report on Form 10-K for
the year with respect to which the Bonus is computed; provided, however, that
such computation shall be made without any deduction for the Bonus payable to
the Executive pursuant to this subparagraph 4(b). Such computation shall be made
by the Company's independent auditors, whose determination shall be final,
binding and conclusive on the parties (subject to the provisions of subparagraph
4(b)(iii) hereof)
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(ii) The Bonus shall be payable to the Executive on or before the
later of (A) thirty (30) days following the completion of the audited
consolidated financial statements of the Company, or (B) May 1 of each such
year, or (C) within ten (10) days after the final resolution of any disagreement
with respect to the calculation of consolidated net income before income taxes
or Consolidated Net Cash Flow pursuant to subparagraph 4(b)(iii) of this
Agreement. In the event of any termination of this Agreement prior to the end of
any calendar year during the Term hereof, the Company will pay to the Executive
(or, in the case of early termination due to the Executive's death, to his
beneficiary, as hereinafter defined), with respect to the year in which any such
termination occurs, a portion of the Bonus which shall be determined by
calculating the Bonus for the entire year in which such termination occurs and
multiplying such Bonus by a fraction, the numerator of which is the number of
months in such year prior to the month in which such termination occurs and the
denominator of which shall be twelve (12), unless such termination results from
an event or occurrence described in subparagraphs 3(b)(iv) or 3(b)(v) of this
Agreement, in which case, notwithstanding any provision of this Agreement to the
contrary, the Company will have no obligation to make any payment of the Bonus
to the Executive for the year in which such termination occurs. As used in this
Agreement, the term "Beneficiary" shall mean the person designated by the
Executive by an instrument signed by the Executive, acknowledged before a notary
public and delivered to the Company. In the event that the Executive fails to
designate a beneficiary as provided in the previous sentence, his estate shall
be deemed to be his beneficiary.
(iii) The Company shall deliver to the Executive with each Bonus
payment a report setting forth the calculation of consolidated net income before
income taxes and Consolidated Net Cash Flow for the year with respect to which
such Bonus is computed in accordance with subparagraph 4(b)(i) of this
Agreement. Unless the Executive notifies the Company within fifteen (15)
business days after receipt of said calculations of his disagreement therewith
(which notice shall state with reasonable specificity the reasons for any such
disagreement and the amounts in dispute), such calculations will be final,
binding and conclusive on the Executive. If there is a disagreement of which the
Company is so notified by the Executive, and the disagreement cannot be resolved
by the Company and the Executive within sixty (60) days following the delivery
of such notice, the items in dispute may be submitted by either the Company or
the Executive to the Company's independent auditors (with a copy being furnished
to the other party). After affording each of the Company and the Executive the
opportunity to present their respective positions (which opportunity shall not
extend for more than ten (10) business days following the submission of such
disputed items to such auditors), the Company's independent auditors shall
determine what changes, if any, are required in the calculations, and such
determination shall be final, binding and conclusive on the Company and the
Executive. The fees, costs and expenses of such independent auditors shall be
borne by the Company.
(iv) The Executive and his duly authorized representatives shall
have the right, at his sole expense, upon reasonable advance notice and during
normal business hours at the Company's offices, to examine and copy the books
and records of the Company relating to its financial statements and/or any sums
payable to Executive under this Agreement.
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(c) In the event of a termination of this Agreement pursuant to
subparagraphs 3(b)(i), (ii), (vii), (viii), (ix) or (x) of this Agreement, the
Executive will be entitled to receive from the Company, in addition to any
Salary and Bonus payable pursuant to this Paragraph 4, and the Company will pay
to the Executive, severance compensation as follows:
(i) In the event of any termination of the Term hereof pursuant
to subparagraph 3(b)(i) of this Agreement, the Company will pay to the
Executive's beneficiary the face value of the life insurance policy to be
maintained by the Company pursuant to subparagraph 5(b) of this Agreement. In
the event that the Company fails to maintain such insurance, unless such failure
results from the Company having a lack of sufficient funds to pay the premiums
therefor, the Executive's failure to pass an insurance physical or the Executive
being otherwise uninsurable, the Company will pay such amount in forty-eight
(48) equal consecutive monthly installments, the first of which shall be due and
payable on the first day of the first month following the month in which the
Executive's death occurs.
(ii) In the event of the termination of this Agreement pursuant
to subparagraph 3(b)(ii) of this Agreement, the Executive will be entitled to
receive the payments provided for in subparagraph 8(b) of this Agreement.
(iii) In the event of the termination of this Agreement pursuant
to subparagraphs 3(b)(vii), (viii), (ix) or (x) of this Agreement, the
Executive, his legal representative or his beneficiary, as the case may be, will
continue to receive the Executive's then Salary in equal monthly installments,
in advance, for a period of one hundred twenty (120) months from the date of any
such termination.
(d) In the event of the sale, during the Term hereof, of the stock,
business or assets of the Company or any Subsidiary of the Company, the
Executive shall be entitled to a profitsharing bonus (the "Profit-Sharing
Bonus") equal to ten percent (10%) of the gross profit (determined as provided
below), if any, received by the seller in such transaction (the "Seller") as a
result of such sale. In the event of any such sale in which the purchase price
is paid in cash or marketable securities, or a combination of cash and
marketable securities, the Profit-Sharing Bonus shall be paid by delivery to the
Executive by the Seller of cash and/or marketable securities in the same
proportion as received by the Seller. In all other events, the Profit-Sharing
Bonus shall be payable in cash or in such other manner as to which the Executive
and the Company may agree prior to the consummation of such sale. Each
Profit-Sharing Bonus shall be payable by the Seller to the Executive within
twenty (20) days following the date of any such sale and each such payment shall
be accompanied by a document, signed by the Chief Financial Officer of the
Company, showing the Seller's adjusted cost basis in the stock, business or
assets sold, the gross sale price, the gross profit on such sale, which shall be
the Seller's gross sale price less the Seller's adjusted cost basis in the
stock, business or assets sold (the "Gross Profit"), the amount of the
Profit-Sharing Bonus payable and a description and statement of the value of
each kind of property, other than cash, being delivered in payment of the
Profit-Sharing Bonus (the "Bonus Certificate"). The adjusted cost basis of the
Seller in the stock, business or assets being sold, the value of each kind of
property, other than cash, received by the Seller in such sale, the gross sale
price and the amount of the Profit-Sharing Bonus shall be determined by the
Company's
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independent auditors. If the Executive shall not have disputed the amount of
such payment, the accuracy or completeness of the Bonus Certificate and/or the
information set forth in such Bonus Certificate within thirty (30) days of the
receipt of payment of any Profit-Sharing Bonus under this subparagraph 4(d) and
the related Bonus Certificate, then the information set forth in the Bonus
Certificate shall be conclusive and binding upon the parties. If the Executive
desires to dispute the amount of such payment, the accuracy or completeness of
the Bonus Certificate and/or the information set forth therein, such dispute
shall be conducted and resolved in accordance with the procedures set forth in
the third, fourth and fifth sentences of subparagraph 6(i) of this Agreement.
The Bonus Certificate to which any such dispute relates will be promptly
modified following the resolution of any such dispute to reflect such
resolution.
(e) In the event of the Retirement (as hereinafter defined) of the
Executive, the Executive or his legal representative or beneficiary, as the case
may be, will continue to receive, as and for retirement compensation, an amount
equal to one-twelfth of the greater of (i) the Executive's Salary for the year
in which Retirement occurs, or (ii) the average of the Executive's Salary and
Bonus for each of the five (5) years immediately preceding the year in which
Retirement occurs, for a period of twenty (20) months from the date of
commencement of such Retirement. The amount calculated pursuant to the preceding
sentence shall be payable, in equal monthly installments, in arrears. For the
purpose of this subparagraph 4(e), "retirement" shall be deemed to have occurred
at the expiration of the Term or any renewal Term of this Agreement or upon
termination of the employment provided for herein prior to the expiration of the
Term by the mutual consent of the Executive and the Company.
5. Executive Benefits. In addition to the Salary, Bonus and severance
compensation, the Executive will receive the following benefits:
(a) The Executive will be entitled to four (4) weeks paid vacation and
fifteen (15) paid sick days during each calendar year of the Term hereof
commencing with 1997. The Executive will take such vacation at such times as
will not unreasonably interfere with significant activities of the Company and
upon reasonable advance notice to the Company. Any unused vacation or sick days
shall be paid to the Executive by the Company at the end of each year of the
Term hereof based upon Executive's then Salary.
(b) The Company will pay for and maintain for the Executive during the
Term of this Agreement, disability insurance providing for the payment to the
Executive of a minimum of sixty percent (60%) of his Salary for any "disability"
as defined in such disability insurance policy. The Company will also pay and
maintain for the Executive during the Term hereof, major medical,
hospitalization, dental and vision insurance (which insurance will cover the
Executive and members of his immediate family, as defined in the applicable
insurance policies) and life insurance upon the life of the Executive having a
face value of not less than One Million Dollars ($1,000,000), the proceeds of
which shall be payable to such beneficiary(ies) as shall be designated by the
Executive from time to time during the Term hereof, or, in the absence thereof,
Executive's estate. The Company will maintain such disability, medical, dental,
and vision insurance in effect, at the Company's cost, for a period of one
hundred twenty (120) months after the expiration or termination of the Term
hereof unless this Agreement shall be terminated
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pursuant to subparagraphs 3(b)(iii), (iv), (v) or (vi) of this Agreement, in
which case the Company will not be obligated to maintain such insurance. During
the Term hereof, any such life insurance policy which the Company is obligated
hereby to maintain will remain the property of the Company; provided, however,
upon the expiration of the Term hereof, the Executive will have the right to
have such life insurance policy assigned to him and the Company shall continue
to pay or reimburse the Executive for all costs therefor. The Company may, at
its election at any time during the Term hereof, obtain and maintain at its
cost, a key man life insurance policy on the Executive's life with the Company
as the beneficiary thereof, and the Executive will cooperate with the Company
and its insurer with respect to obtaining and maintaining in force such
insurance policy.
(c) The Company will provide the Executive with a late model luxury
automobile during the Term of this Agreement (and/or reimburse the Executive for
all costs incurred by him in connection therewith) with a maximum of $750.00 per
month. In addition, the Company will pay or reimburse the Executive for the cost
of insurance, gasoline, service and maintenance of such automobile upon
presentation of bills or other evidences of payment therefor.
(d) The Company agrees that nothing contained in this Agreement is
intended to, or shall be deemed to be a grant to the Executive in lieu of, or as
a limitation upon, any rights and privileges to which the Executive may
otherwise be entitled as an executive employee of the Company or any Subsidiary
under any retirement, pension, profit sharing, insurance, hospitalization or
other employee benefit plan of any type (including, without limitation, any
incentive, profit sharing, bonus or stock option plan), which may now be in
effect or which may hereafter be adopted or instituted by the Company or any
Subsidiary during the Term hereof of which the Executive is an officer or
director, it being understood that the Executive shall have the same rights and
privileges to participate in such Company and Subsidiary benefit plans as any
other officer or executive employee of the Company or any such Subsidiary.
6. Executive's Right to Participate in Future Expansion of the Company.
(a) From and after January 1997, and through the expiration or earlier
termination of the Term hereof, the\ Executive or his designees (who or which,
for the purposes\of this Paragraph 6, shall be deemed to be included in the
definition of and referred to as the "Executive"), shall have the right to and
benefit of participating in the future growth and expansion of the Company, as
hereinafter provided in this Paragraph 6.
(b) If the Company or its wholly-owned subsidiaries, or any subsidiary
of the Company shall propose to acquire, or enters into any agreement or other
understanding to acquire, by purchase, merger, consolidation or by or as a
result of any other form of business arrangement (including the establishment of
a new business) or combination (an "Acquisition"), all or any part of any
corporation, partnership, joint venture, proprietorship or other operating
business, or any equity interest in any such business (other than for investment
purposes only, for services rendered or as a fee, as provided for in
subparagraph 6(e) hereof), including, but not limited to, the acquisition of
common or preferred stock of any class or series, or options, warrants, rights
or other securities convertible into or exchangeable for common or preferred
stock of any class or series
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(each a "Security" or collectively, the "Securities"), the Executive shall have
the right to form or cause to be formed, at his sole cost and expense, the
subsidiary or subsidiaries to be used by the Parent for such purpose (the
"Purchaser") and, in consideration of the Executive bearing such cost and
expense, the Executive shall receive, as of the date of the formation of any
such Purchaser, 5% of the Securities of each class and series of such Purchaser
which are issued at that time (the "Founder's Securities") Whether or not the
Founder's Securities of any Purchaser are physically issued on the date of the
formation of any such Parent, the Executive shall be deemed to have equitable
and beneficial ownership of 5% of such securities as of the date of formation of
any such Purchaser.
(c) If, subsequent to the formation of any such Purchaser, such
Purchaser issues, or agrees to issue, any Securities (other than as a dividend
or in respect of any Securities of such Purchaser then held by the Parent or
Executive), Executive shall, simultaneously and on the date of such issuance (or
on the date of such agreement to issue, if earlier), receive five (5%) percent
of such subsequently issued securities (the ~Subsequently Issued Securities"),
free and clear of all liens, charges and encumbrances. The purchase price
payable by Executive for any such Subsequently Issued Securities shall be the
same as provided for in subparagraph 6(g) with respect to the Investment
Securities referred to therein (except that the Purchase Date, for purposes of
this subparagraph (c), shall be the date on which the Subsequently Issued
Securities are approved for issuance by the Purchaser's Board of Directors) and
the payment terms therefor shall be the same as provided for in subparagraph
6(j) with respect to the Investment Securities referred to therein. Whether or
not the Subsequently Issued Securities of any Purchaser are physically issued,
the Executive shall be deemed to have equitable and beneficial ownership of five
(5%) percent of such securities as of the first date on which any recipient of
such securities became entitled to receive the same.
(d) Attached hereto as Schedule A is a Schedule as of the date hereof
setting forth the name, state of incorporation and date of formation of each
Purchaser, the capitalization of each Purchaser as of its date of formation, the
Founder's Securities of such Purchaser issued to the Executive, the costs and
expenses incurred and paid by the Executive in connection with the formation of
each such Purchaser, the Subsequently Issued Securities of each Purchaser, if
any, the Subsequently Issued Securities of each Purchaser owned by Executive,
the date of ownership of same and the purchase price paid by Executive therefor.
Each time, subsequent to the date of this Agreement, that a new Purchaser is
formed, the Executive shall prepare and deliver to the Company a supplement to
or an updated Schedule A which shall set forth the date of such supplement or
update and include the information specified in the preceding sentence with
respect to the new Purchaser. Each such supplement or updated Schedule A shall
be signed by the Executive when delivered to the Company and, upon receipt by
the Company, will be countersigned and returned to the Executive by the Chief
Financial Officer of the Company. Each time, subsequent to the date hereof, that
Subsequently Issued Securities are approved for issuance by the Board of
Directors of a Purchaser, the Company shall prepare and deliver to the Executive
a supplement to or an updated Schedule A which shall include the information
specified above with respect to the Subsequently Issued Securities. The
information with respect to the purchase price to be paid by the Executive for
inclusion in such supplement to or updated Schedule A shall be provided by the
Company on the basis of the terms and procedures provided for in subparagraph
6(g) (subject to Executive's right to dispute the same in the same manner as
provided in subparagraph 6(i)
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hereof). Each such supplement to or updated Schedule A shall be signed by the
Chief Financial Officer of the Company when delivered to the Executive and, upon
receipt by the Executive and subject to the provisions relating to dispute
resolution specified in subparagraph 6(i), will be countersigned and returned to
the Chief Financial Officer of the Company by the Executive. Notwithstanding any
provision in this Agreement to the contrary, Schedule A attached hereto is
binding and conclusive on the parties hereto with respect to the accuracy of the
information set forth therein.
(e) If a Parent shall purchase or acquire any Securities solely for
investment purposes or in exchange for or in consideration of the performance of
services or as a fee, the Executive will purchase from the Parent, and the
Parent will sell to the Executive, simultaneously with and on the same date as
the acquisition of each such Security by the Parent (the "Purchase Date"), free
and clear of all liens, charges and encumbrances, ten (10%) percent of each such
Security (the "Investment Securities"). Notwithstanding the date on which legal
title to any such Security is transferred to the Executive by the Parent, the
Executive shall have equitable and beneficial ownership of such Security
concurrently with the acquisition of such Security by the Parent.
(f) Notwithstanding the provisions of any subparagraph of this
Paragraph 6, the Executive shall have no entitlement to any debt or equity
securities of the Company which are issued to or in any other manner become the
property of any subsidiary of the Company.
(g) The purchase price to be paid by the Executive for each Investment
Security purchased pursuant to subparagraph 6(e) hereof shall be an amount equal
to one hundred ten percent (110%) of the "fair market value" of each such
Security on the Purchase Date (the "Purchase Price"). The fair market value of
each such Security on the aforesaid date shall be determined by the Company's
then independent auditors who, in making such determination shall consider,
among such other criteria as they shall deem relevant, the purchasing Parent's
cost to acquire such Security, the net tangible book value per share of such
Security, the existence or absence of a trading market in such Security, the
magnitude of the public float of such Security, the trading volume, if any, of
such Security over such period of time as they shall deem relevant, any
restrictions, legal or otherwise, on the Executive's ability to freely trade
such Security in a public market, any other restrictions on the free
transferability or pledge of such Security, the value as collateral of such
Security, the value of the property or services delivered in exchange for such
Security and the current value and collectibility of any loans or advances made
or debt incurred by the purchasing Parent in connection with the acquisition of
such security.
(h) Attached hereto as Schedule B is a schedule setting forth as of the
date hereof each Investment Security purchased by the Executive prior to the
date hereof, the Purchase Price of each such Security, the date or dates of
acquisition of each such Security by a Parent, and the date of transfer to the
Executive of each such Security. Each time, subsequent to the date hereof that
the Parent acquires or otherwise obtains an Investment Security which is subject
to subparagraph 6(e) of this Agreement, the Company shall prepare and deliver to
the Executive a supplement to or an updated Schedule B which will set forth the
date of such supplement or update, the Investment Security acquired or otherwise
obtained by the Parent (including the type or designation of such Security, the
number of shares of such Security and the date of purchase
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or acquisition thereof) the Purchase Price of such Security and the date of
transfer to the Executive of such Security. Each such supplement or updated
Schedule B shall be signed by the Chief Financial Officer of the Company when
delivered to the Executive and, upon receipt by the Executive, will be
countersigned and returned to the Company by the Executive (unless disputed in
accordance with the provisions of subparagraph 6(i) hereof). Notwithstanding any
provision in this Agreement to the contrary, Schedule B attached hereto is
binding and conclusive on the parties hereto as to the Investment Securities,
Purchase Price, and dates of acquisition and transfer as set forth in such
Schedule.
(i) The supplement or updated Schedule B provided for in subparagraph
6(h) hereof shall be prepared and delivered by the Company to the Executive
within thirty (30) days of the purchase or acquisition by a Parent of any
Investment Security, together with a notice of such purchase or acquisition (the
"Purchase Notice"). If the Executive shall not have disputed the computation of
the Purchase Price or date of acquisition by the Parent and transfer to the
Executive with respect to any Investment Security within thirty (30) days after
receipt of the Purchase Notice, then the information set forth in the Purchase
Notice shall be binding upon the parties and the Purchase Price shall be
immediately due and payable, as provided elsewhere herein. If the Executive
disputes the computation of the Purchase Price, or the date of acquisition by
the Parent or transfer to the Executive as set forth in the Purchase Notice, he
shall be required to give notice of such dispute to the Company within such
thirty (30) day period (the "Dispute Notice"). The Dispute Notice shall set
forth the Executive's computation of the Purchase Price with respect to such
Security (and/or the date of such acquisition and/or transfer), and, if the
Company and Executive shall not have agreed upon a Purchase Price (or such date
of acquisition and/or transfer) within thirty (30) days after the Company's
receipt of the Dispute Notice, the matter shall be submitted to the Company's
then independent auditors for a determination thereof and the decision of such
auditors shall be final, binding and conclusive on the Company, the Parent and
the Executive. Pending the determination by said auditors, payment of the
Purchase Price shall be made, as provided elsewhere herein, based upon the
purchase price set forth by the Executive in the Dispute Notice, subject to
adjustment thereto in the event that the Purchase Price is subsequently
determined by such auditors to be higher than that set forth in the Dispute
Notice. The fees of said auditors shall be paid by the Company. The supplement
or updated Schedule B to which the Dispute Notice relates will be promptly
modified following the resolution of any such dispute to reflect such
resolution.
(j) Payment of the Purchase Price with respect to any Investment
Security subject to the provisions of subparagraph 6(e) hereof shall be made by
the Executive immediately following the thirty (30) day period after Executive's
receipt of a Purchase Notice as referred to in subparagraph 6(i) hereof if
Executive does not dispute the same in accordance with the terms thereof or, if
disputed by Executive as provided therein, within ten (10) days after either any
resolution of the dispute between the Company and the Executive or the
submission of the dispute to the Company's independent auditors (subject to
adjustment, if any, as provided for in subparagraph 6(i) hereof), against
delivery by the purchasing Parent to the Executive of certificates or other
evidences of ownership of the ten (10%) percent of any such Investment Security
purchased by the Executive. Payment of the Purchase Price for any Investment
Security subject to the provisions of subparagraph 6(e) hereof may be made in
cash, by delivery of a five
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(5) year recourse promissory note of the Executive (the "Note") bearing interest
to be payable annually within forty-five (45) days after the end of each year of
the term of the Note at the lowest rate necessary to avoid imputed interest
under the applicable provisions of the Internal Revenue Code of 1986, as amended
(such rate to be determined as of the Purchase Date), prepayable, in whole or in
time to time, without penalty or of the Company's Common Stock and/or any
publicly traded company (or other a publicly traded company as described below),
including affiliates of the Company or any such stock to be valued, for these
purposes, at the fair market value thereof on the date such stock is tendered in
payment of the Purchase Price. For the purposes of this subparagraph 6(j), the
fair market value of (A) any unregistered shares of common stock of a publicly
traded company shall mean the fair market value thereof as determined pursuant
to subparagraph 6(g) hereof, and (B) any registered shares of common stock of a
publicly traded company shall mean the closing price on the principal stock
exchange on which such shares are traded (if the shares are traded on the New
York or American Stock Exchange or other nationally recognized exchange) or on
The Nasdaq Stock Market or, if there are no sales on such date or if the shares
are not so listed, the average of the closing bid and ask prices as reported by
Nasdaq, the National Quotation Bureau, Inc. or similar entity selected by the
Board of Directors of the Company. In addition, fair market value, for the
purposes of this subparagraph 6(j), shall not include or reflect any discount or
reduction for any other restriction of any kind relating or applicable to the
securities tendered in payment of the Purchase Price. In the event that the
Executive tenders securities which are not publicly traded but which are
convertible into securities which are publicly traded, the tendered securities
shall be valued in the same manner as if they were fully converted on the date
tendered, even if, on the date tendered, the securities are not then
convertible. Payment of the principal and/or interest of any Note delivered as
payment for all or any part of the Purchase Price, may be made, in whole or in
part, at the election of the Executive, in shares of the Company's Common Stock
and/or shares of common stock of any publicly traded company (or any such
convertible securities) in accordance with the provisions set forth in this
subparagraph 6(j).
7. Expense Reimbursement.
(a) The Company will reimburse the Executive for all ordinary and
necessary expenses incurred by him in connection with the performance of his
services under this Agreement, subject to and upon receipt by the Company of
invoices or other supporting documentation in accordance with the Company's
expense reimbursement policies as in effect from time to time.
(b) In the event that the Company moves its corporate headquarters from
the New York metropolitan area, the Company will, if the Executive elects to
relocate, pay the Executive's reasonable moving expenses, including temporary
living accommodations for up to six months; provided. that the Company may not
require the Executive to relocate. In the event the Company so relocates its
corporate headquarters and the Executive elects not to relocate, the Company
will provide the Executive, at the Company's cost, with such offices and staff
in a location in the Boca Raton area as to which the Company and the Executive
may agree.
(c) In the event that the Company establishes multiple offices and the
Executive is required to spend any significant part of his time at more than one
Company office, the Company shall pay
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to the Executive a housing allowance of Three Thousand Five Hundred Dollars
($3,500) per month for as long as more than one Company office is maintained;
provided, however, that following the closing of any such office, the Company
will reimburse the Executive for any costs incurred by him in moving and in
terminating any lease obligations and similar expenses.
8. Disability.
(a) In the event the Executive suffers any temporary disability during
the Term hereof, he shall continue to receive one hundred (100%) percent of the
Salary and Bonus to which he was entitled at the time he became so disabled for
any period of disability not in excess of six (6) consecutive calendar months.
The term "Permanent Disability" as used in this Agreement shall mean any
disability of the Executive for a period in excess of six (6) consecutive
calendar months. For the purpose of this subparagraph 8(a). the terms "Disabled"
and "disability" shall mean (i) any physical or mental illness, injury or other
incapacity which, in the opinion of a doctor reasonably satisfactory to the
Company and the Executive or his legal representative, renders the Executive
unable to perform substantially all of his duties under this Agreement, or (ii)
a judicial determination of incompetence. The date that any such disability
shall be deemed to have commenced shall be the date the Executive first absents
himself from work during a continuous period of disability as determined by the
doctor referred to in this subparagraph 8(a) or the date of judicial
determination of incompetence, as the case may be.
(b) In the event of a Permanent Disability, the shall pay to the
Executive, as disability benefits, one twenty (120) monthly payments each in an
amount equal to percent (60%) of Executive's then Salary divided by twelve first
of such payments to commence on the first day of month following any such
termination of this Agreement as a result of a Permanent Disability. In the
event that such date is a date subsequent to the date such Permanent Disability
is determined, payments for all prior months in which the Executive was entitled
to such payments will be made together with the first payment made. Such
payments shall be reduced by the amount of all payments which the Executive
receives under any disability policy maintained by the Company.
9. Confidentiality and Non-Disclosure Covenant.
(a) The Executive hereby acknowledges that, in the performance of his
duties pursuant to this Agreement, he may obtain and be entrusted with
unpublished confidential and proprietary information relating to the Company's
and its Subsidiaries' present and proposed businesses and operations, the use or
disclosure of which would materially adversely affect the operations of the
Company or its Subsidiaries, including, without limitation, unpublished material
financial information relating to the Company's and its Subsidiaries' present
and proposed businesses and operations, the cost and pricing of the Company's
and its Subsidiaries' services, the sales and marketing plans and strategies of
the Company and its Subsidiaries, proposed acquisitions by the Company and its
Subsidiaries, and the terms of all material agreements to which the Company or
any Subsidiary is a party. All of such unpublished information that may be
obtained by the Executive shall, for purposes hereof, be referred to as
"Confidential Information". The Executive hereby agrees that, unless the
Confidential Information becomes publicly known other than by
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reason of any improper act or omission of the Executive, neither he, nor any
entity or person owned or controlled by him, shall, during or after the Term
hereof, use for his own benefit or for the benefit of others for any purpose and
in any manner whatsoever, divulge to any person, firm, corporation or other
entity or otherwise publish or disclose any Confidential Information, except as
necessary in connection with the performance of the Executive's services under
this Agreement. Notwithstanding the foregoing, the Executive shall not be in
breach of this covenant with respect to any use or disclosure of any
Confidential Information by him which is required as a result of any legal
process served upon him in any judicial or administrative, (provided, if
possible, the Company shall be given notice in time to enable it to object to
such disclosure) or which was obtained by the Executive from a third party
without such third party's breach of any agreement or obligation of trust. The
term "entity or person owned or controlled by" the Executive or words of like
import shall not include the Company or any of its Subsidiaries.
(b) The Executive agrees that his violation or threatened violation of
any of the provisions of this Paragraph 9 may cause immediate and irreparable
harm to the Company. In the event of any breach or threatened breach of said
provisions, the Company shall be entitled to seek all available equitable
remedies therefor including, without limitation, preliminary and permanent
injunctions by a court of competent jurisdiction prohibiting Executive from any
violation or threatened violation of these provisions and compelling the
Executive to comply with these provisions. This Paragraph 9 shall not affect or
limit, and the equitable remedies provided in this subparagraph 9(b) shall be in
addition to, any other remedies available to the Company at law. The provisions
of this Paragraph 9 shall survive the termination or expiration of the Term of
this Agreement.
10. Representations and Warranties of the Executive. The Executive
represents and warrants to the Company as follows:
(a) All action on the part of the Executive necessary for the
authorization, execution, delivery and performance of this Agreement by him and
the consummation of the transactions contemplated hereby, has been taken and
this Agreement constitutes a valid and legally binding obligation of the
Executive, enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, reorganization,-moratorium, or other laws
affecting generally enforcement of creditors' rights and by general principles
of equity.
(b) The authorization, execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, will
not result in any violation or be in conflict with or constitute, with
or-without the passage of time and giving of notice, a default under any
provision of any instrument, judgment, order, writ, decree or agreement to which
the Executive is a party or by which he is bound.
(c) There is no action, suit, proceeding, or investigation pending, or
to the knowledge of the Executive, currently threatened against the Executive,
in any way relating to the validity of this Agreement or the right of the
Executive to enter into or to consummate this Agreement and the transactions
contemplated hereby.
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11. Representations and Warranties of the Company. The Company
represents and warrants to the Executive as follows:
(a) All action on the part of the Company, SISC and each Subsidiary
necessary for the authorization, execution, delivery and performance of this
Agreement by them and the consummation of the transactions contemplated hereby,
has been taken and this Agreement constitutes a valid and legally binding
obligation of the Company, enforceable in accordance with its terms, except as
the same may be limited by bankruptcy, insolvency, reorganization, moratorium,
or other laws affecting generally the enforcement of creditors' rights and by
general principles of equity.
(b) The authorization, execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, will
not result in any violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, a default under any provision
of any instrument, judgment, order, writ, decree or agreement to which the
Company, or any Subsidiary is a party or by which any of them is bound.
(c) There is no action, suit, proceeding, or investigation pending, or
to the knowledge of the Company, currently threatened against the Company or any
Subsidiary, in any way relating to the validity of this Agreement or the right
of the Company to enter into or to consummate this Agreement and the
transactions contemplated hereby.
12. Arbitration. Except for any action under this Agreement for
injunctive or other equitable relief and except . otherwise expressly provided
in subparagraphs 4(b) and 6(i) of this Agreement, all disputes, controversies
and differences between the parties hereto arising under this Agreement which
the parties hereto are unable to settle amicably shall be resolved in Boca
Raton, Florida, by binding arbitration in accordance with the rules then in
force of the American Arbitration Association. The arbitration shall be held
before three arbitrators, one of which shall be selected by each of the
Executive and the Company and one of which shall be selected by the other two
arbitrators, and the decision of such arbitrators shall be deemed to be final.
Judgment upon any award or decision rendered by such arbitrators may be entered
or enforced in any court, domestic or foreign, having jurisdiction thereof. The
arbitrators shall not, except as provided in subparagraph 14(f) of this
Agreement, have any authority to modify or amend any express provisions of this
Agreement.
13. Agreements with Affiliates. The Executive may enter into employment
agreements with affiliates of the Company (the "Affiliate Agreements"). To the
extent that, for any year during the Term hereof that the aggregate annual
salary paid to Executive pursuant to the Affiliate Agreements does not exceed
the Salary payable pursuant to this Agreement for such year, such aggregate
salary received by the Executive under such Affiliate Agreements shall reduce
the Salary payable pursuant to this Agreement on a dollar for dollar basis. If,
for any year during the Term hereof that the aggregate annual salary paid to
Executive pursuant to the Affiliate Agreements exceeds the Salary payable
pursuant to this Agreement for such year, no Salary shall be paid by the Company
to the Executive pursuant to this Agreement for such year; provided, however,
that in such event the Executive shall not be required to refund any Salary (or
salary or other compensation received by him pursuant to any Affiliate
Agreement) paid to him during
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such year. Any bonuses or other non-salary compensation or benefits paid to
Executive pursuant to the Affiliate Agreements shall not affect in any way the
Salary, Bonus, or other benefits payable to Executive pursuant to this
Agreement.
14. Miscellaneous.
(a) This Agreement constitutes the entire agreement of the Company and
the Executive with respect to the subject matter hereof and supersedes all prior
written or prior or contemporaneous oral understandings or agreements, including
the Prior Employment Agreements and any other employment agreements or
understandings between the Company and the Executive with respect to the subject
matter covered in this Agreement. This Agreement may not be modified or amended,
nor may any right be waived, except by a writing which expressly refers to this
Agreement, states that it is intended to be a modification, amendment or waiver
and is signed by both parties hereto in the case of a modification or amendment
or by the party granting the waiver. No course of conduct or dealing between the
parties hereto and no custom or trade usage shall be relied upon to vary the
terms of this Agreement. The failure of a party to this Agreement to insist upon
strict adherence to any term of this Agreement on any occasion shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(b) Any notice, demand or other communication (collectively, the
"Notices") required or permitted by or with respect to the provisions of this
Agreement shall be given in writing and delivered by hand, overnight courier or
messenger service, against a signed receipt or acknowledgment of receipt, or
mailed by registered or certified mail, return receipt requested, with notice to
the Company being sent to the attention of the individual who executed this
Agreement on behalf of the Company. Either party may, by notice given in
accordance with the terms hereof, change the person, address or telecopier
number to which Notice should be sent. All such Notices shall be deemed given
when personally delivered or transmitted as aforesaid, or, if mailed as
aforesaid, on the fifth (5th) business day after mailing or on the day actually
received, if earlier, except for a notice of a change of person, address or
telecopier number which shall be effective only upon receipt.
(c) Except as specifically set forth in this subparagraph, neither
party hereto may assign this Agreement or his or its rights, benefits or
obligations hereunder without the written consent of the other party; except
that the rights of the Executive set forth in Paragraph 6 hereof may be assigned
to designated purchasers and shall inure to the benefit of the Executive's
heirs, administrators, executives, personal representatives, successors and
permitted assigns. Subject to the foregoing, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their heirs,
administrators, executors, personal representatives, successors and permitted
assigns. Nothing contained herein is intended to confer upon any person or
entity, other than the parties hereto, and their respective heirs,
administrators, executors, personal representatives, successors or permitted
assigns or, in the case of the Executive, his designated purchasers under
Paragraph 6 hereof, any rights, benefits, obligations, remedies or liabilities
under or by reason of this Agreement.
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(d) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida with respect to contracts made and to be
fully performed therein, without regard to the conflicts of laws principles
thereof. By their execution hereof, the Company and the Executive hereby consent
and irrevocably submit to the in personam jurisdiction of the American
Arbitration Association tribunal located in the City of Boca Raton, County of
Palm Beach and State of Florida or, with respect to Paragraph 9, the Federal or
state courts situated in Palm Beach County, State of Florida, which shall have
sole jurisdiction as to such matters, and agree that any process in any action
commenced in such tribunal or court under this Agreement may be served upon it
or him personally, by certified or registered mail, return receipt requested, or
by Federal Express or other courier service, with the same full force and effect
as if personally served upon it or him in Boca Raton. Each of the parties hereto
hereby waives any claim that the jurisdiction of any such tribunal is not a
convenient forum for any such action and any defense of lack of in personam
jurisdiction with respect thereto. In the event of any arbitration proceeding
pursuant to Paragraph 9 hereof, the arbitrator shall have the right to assess
reasonable counsel fees and disbursements.
(e) The parties hereto hereby agree that, at any time and from time to
time during the Term hereof, upon the reasonable request of the other party
hereto, they shall do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, such further acts, deeds, assignments,
transfers, conveyances, other documents and assurances as may be reasonably
required to more effectively consummate this Agreement and the transactions
contemplated thereby or to confirm or otherwise effectuate the provisions of
this Agreement.
(f) If any term or provision of this Agreement, or the application
thereof to any person or circumstance, is finally determined by a court or
arbitration tribunal to any extent to be illegal, invalid or unenforceable, the
remainder of this Agreement, or the application of such term or provision to
persons or circumstances other than those as to which it is held illegal,
invalid or unenforceable, shall not be affected thereby and each term and
provision of this Agreement shall be valid and shall be enforced to the fullest
extent permitted hereunder and by law.
(g) During and after the Term hereof, the Company shall defend,
indemnify and hold the Executive harmless from any and all claims, causes of
action, liabilities, damages, costs or expenses (including, without limitation,
attorneys' fees and disbursements) incurred by the Executive based upon or in
connection with the performance of his services under this Agreement to the
fullest extent permitted by the laws of the State of New York (and, with respect
to indemnification by by a Subsidiary, the laws of the jurisdiction of
incorporation of any such Subsidiary) and of the By-Laws of the Company, or any
such Subsidiary, as the case may be. In the event that, under applicable law,
the Company is not permitted to defend the Executive or pay the costs of defense
as provided in this subparagraph 14(g) unless the Executive undertakes to
reimburse the Company in the event that any such payment is unlawful, then, in
such event, the Company may condition such defense or payment on receipt of an
appropriate reimbursement agreement from the Executive. This provision will
survive the expiration or termination of the Term of this Agreement.
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(h) The headings in this Agreement are for convenience of reference
only and shall not affect in any way the construction or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of the day and year first above written.
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
/s/ Richard A. Iamunno
By: --------------------------------------------
Richard A. Iamunno, President & CEO
Attest: /s/ Norman J. Hoskin
---------------------------------
Norman J. Hoskin, Secretary
EMPLOYEE:
By:/s/ Richard A. Iamunno
---------------------------
Richard A. Iamunno
ATLANTIC INTERNATIONAL ENTERTAINMENT
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT effective as of the 1st day of May, 1997, by
and between NORMAN J. HOSKIN, an individual residing at 2401 Coconut Road, Boca
Raton, FL 33432 ("Executive"), and ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD., a
Delaware corporation with its principal offices at 2200 Corporate Boulevard,
Suite 317, Boca Raton, FL 33431 (the "Company").
W I T N E S S E T H:
WHEREAS, the Company, through its wholly-owned or controlled
subsidiaries, is engaged in a variety of businesses, including gaming, wagering
and internet software development and related telecommunications and financial
advisory and business consulting services; and
WHEREAS, the Company, desires the Executive to serve, and the
Executive is willing to serve, as the Company's Chief Executive Officer on and
subject to the terms set forth in this Agreement;
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs the Executive as its Chairman and
Secretary for the Term of this Agreement (as hereinafter defined) subject to and
in accordance with the terms, conditions and provisions of this Agreement. The
Executive shall also serve as an executive officer of such of the Company's
wholly-owned or controlled subsidiaries (the "Subsidiaries") which shall include
any entity existing as of the date hereof or formed or acquired during the Term
hereof, including corporations, partnerships, limited liability companies, joint
ventures or other entities (each an "entity" and collectively, the "Entities"),
owned or controlled by the Company or by any Entity owned or controlled by any
such Entity, to which Executive may be elected by the board of directors of any
such Subsidiary. The Executive shall also serve in such other positions or
capacities, not inconsistent with his position as Chairman and Secretary of the
Company or the provisions of this Agreement, to which he may be elected by the
Board or by the board of directors of any Subsidiary or to which he may be
assigned by the Board from time to time during the Term hereof. The Company
shall, subject to the Executive's consent, cause the Executive to be nominated
and elected to the Board and to the boards of directors of such of the
Subsidiaries as the Board may determine. The Executive hereby accepts such
employment upon and subject to the terms, conditions and provisions of this
Agreement.
2. Executive' s Duties and Responsibilities.
(a) During the Term hereof, the Executive will perform all of the services
customarily associated with the position of Chairman and Secretary including,
without limitation, services on behalf of any Subsidiary of which he may serve
as an officer, subject to the policies established by and at the direction of
the Board.
<PAGE>
(b) The Executive will devote substantially all of his business time, attention
and efforts to the performance of his duties under this Agreement during the
Term hereof and shall perform such duties diligently, in good faith and in a
manner consistent with the best interests of the Company. The Executive will use
his best efforts at all times during the Term hereof to preserve, protect,
enhance and maintain the trade, business and goodwill of the Company. Subject to
the provisions of subparagraphs 7(b) and (c) hereof, the Executive will perform
his services wherever his services may reasonably be required, but principally
at the principal offices of the Company, which are currently located at the
address set forth above.
3. Term: Severance.
(a) The term of this Agreement (the "Term") commenced in January 1997 and shall
expire on December 31, 2000, subject to earlier termination as provided in
subparagraph 3(b) below:
(b) This Agreement shall terminate prior to December 31, 2000, upon the
occurrence of any of the following events:
(i) The death of the Executive;
(ii) The Permanent Disability, as hereinafter defined, of the
Executive, subject to the provisions of Paragraph 8 of this Agreement;
(iii) Entry of a final judgment by a court of competent jurisdiction
that there has been a breach or default by the Executive in the performance or
observance of any of the provisions of Paragraph 9 of this Agreement;
(iv) Entry of a final judgment by a court of competent jurisdiction
that there has been repeated and deliberate misconduct by the Executive;
(v) Entry of a final judgment by a court of competent jurisdiction that
there has been a repeated breach of trust or other repeated action by which the
Executive has obtained a material personal gain (other than as provided for in
this Agreement or consented to by the Board) at the material expense or to the
material detriment of the Company;
(vi) Entry of a final judgment by a court of competent jurisdiction
that there has been a failure by the Executive to perform the customary duties
of his position; provided that the Executive is furnished with notice of such
breach from the Company, which notice sets forth with particularity such alleged
failures, and the Executive fails to cure any such breach within thirty (30)
days of such notice. If the alleged breach is of a type that cannot be cured
within thirty (30) days, no breach shall exist under this subparagraph 3(b)(vi)
if the Executive has undertaken and is diligently pursuing such cure;
(vii) Upon notice to the Company by the Executive of the termination of
this Agreement for any breach or default by the Company of any of its
obligations or covenants under this Agreement; provided that any such breach or
default is not cured within thirty (30) days of such notice; or
(viii) In the event of a Change of Control, as hereinafter defined,
during the Term hereof, the Executive may terminate this Agreement upon ninety
(90) days notice to the Company. For purposes of this Agreement, the term
"Change of Control" shall mean the date on which the Company sells all or
substantially all of its assets, sells more than 20% of the outstanding capital
stock of any one or more subsidiaries, the aggregate gross revenues of which
constitute 33-1/3%
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or more of the gross revenues of the Company on a consolidated basis, merges
with or into or consolidates with any Entity, issues to an independent,
non-affiliated third party such number of shares of its outstanding capital
stock (or equity or debt securities convertible into or exchangeable for shares
of the Comp any's capital stock) as shall equal twenty five percent (25%) or
more of its total issued and outstanding shares of capital stock, or Executive
is removed from the Board, without cause, provided, however, that a Change of
Control shall not be deemed to occur as a result of or in connection with any
recapitalization or public offering of the Company's securities or the
occurrence of any of the foregoing transactions which is approved by the
Executive. For the purpose of this subparagraph 3(b)(viii), a merger transaction
shall mean the merger or consolidation of the Company with or into any other
Entity; or
(ix) Upon thirty (30) days notice from Executive if Executive is
removed from the Board without cause; or
(x) Upon seven days notice from Executive in the event of the entry by
a court of competent jurisdiction of a decree or order for relief in respect of
the Company in an involuntary case under any applicable bankruptcy, insolvency,
or similar law then in effect or the appointment of a receiver, liquidator,
assignee, custodian, trustee, or sequestrator of the Company or for any
substantial part of its property or an order by any such court for the wind-up
or liquidation of the Company's affairs; or a petition initiating an involuntary
case under any such bankruptcy, insolvency, or similar law is filed against the
Company and is pending for sixty (60) days without a stay or dismissal; or the
Company commences a voluntary case under any such bankruptcy, insolvency, or
similar law then in effect, or makes any general assignment for the benefit of
its creditors or fails generally to pay its debts as such debts become due or
takes corporate action in furtherance of any of the foregoing.
(c) In the event of a Change of Control of any Subsidiary to which Executive
renders services pursuant to this Agreement, or the occurrence of any event with
respect to any such subsidiary under subparagraphs 3(b)(vii) or 3(b)(ix), the
Executive shall have the right to resign as an officer and/or director of such
Subsidiary; provided, however, that such resignation shall not affect the
compensation or any benefits payable to the Executive, or any rights of the
Executive pursuant to this Agreement.
4. Compensation. In consideration of the performance by the Executive of the
services to be performed by him under this Agreement during the Term hereof, the
Company will pay to the Executive the following compensation:
(a) (i) An annual salary at the rate of One Hundred Forty-four Thousand Dollars
($144,500), plus the increases thereto hereinafter referred to (the "Salary")
from January 1, 1997 through the remainder of the Term hereof. The Salary shall
be paid to the Executive in equal bi-weekly installments (after the deduction of
all applicable withholding and other required payroll deductions), in arrears,
during the Term hereof. The Salary may be increased at any time and from time to
time by the Board during the Term hereof. The term "Salary" shall also include
all such increases as well as all increases pursuant to subparagraph 4(a)(ii)
below.
(ii) Commencing January 1, 1998 and on each January 1 thereafter during the Term
hereof, the Executive shall receive an increase in Salary equal to the greater
of (A) five percent (5%) of the
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Salary in effect for the year prior to such increase, or (B) the increase, if
any, in the Cost of Living Index, as hereinafter defined. The Company will, on
the next payroll date following the publication of such Cost of Living Index,
pay to the Executive all amounts of such increased salary determined in
accordance with the preceding sentence for the period commencing on the 1st day
of January of such year through such payroll date.
(iii) For purposes of this subparagraph-4(a), the increase in the Cost of Living
Index shall be computed as follows:
(A) The Cost of Living Index, as hereinafter defined, for each December,
commencing with December 1996, shall be compared with the Cost of Living Index
for December of the previous year. The increase in the Cost of Living Index
shall mean the percentage increase in the Cost of Living Index from the previous
December to the December as of which the computation is made. Such determination
shall be made as soon as possible after publication of the Cost of Living Index
for the December as of which the computation is being made.
(B) The Cost of Living Index shall mean the "Consumers Price Index for Urban
Wage Earners and Clerical Workers (Revised Series) - Boca Raton Metropolitan
Area," published by the Bureau of Labor Statistics of the United States
Department of Labor. If the said Cost of Living Index in the form in which it is
published as of the date of this Agreement or the calculation basis thereof
shall be revised or discontinued, the parties shall attempt in good faith to
modify the provisions of this subparagraph 4(a)(ii) on a basis which will
provide a method of calculation consistent with the method described herein for
prior years.
(b) (i) A bonus for each calendar year during the Term of this Agreement (the
"Bonus") commencing with the year ending December 31, 1997, equal to Five
percent (5%) of the amount by which the greater of (A) the Company's
consolidated net income before income taxes, determined in accordance with
generally accepted accounting principles applied on a basis consistent with
prior years or (B) the Company's Consolidated Net Cash Flow, as hereinafter
defined, exceeds Six Hundred Thousand Dollars ($600,000). "Consolidated Net Cash
Flow" shall mean (A) consolidated net income, plus (B) depreciation,
amortization and other non-cash items of expense, minus (C) payments of all
principal amounts of then outstanding indebtedness, all determined in accordance
with generally accepted accounting principles applied on a basis consistent with
prior years. The computation of consolidated net income before income taxes and
Consolidated Net Cash Flow shall be made in a manner consistent with the
financial statements included in the Company's Annual Report on Form 10-K for
the year with respect to which the Bonus is computed; provided, however, that
such computation shall be made without any deduction for the Bonus payable to
the Executive pursuant to this subparagraph 4(b). Such computation shall be made
by the Company's independent auditors, whose determination shall be final,
binding and conclusive on the parties (subject to the provisions of subparagraph
4(b)(iii) hereof)
(ii) The Bonus shall be payable to the Executive on or before the later of (A)
thirty (30) days following the completion of the audited consolidated financial
statements of the Company, or (B) May 1 of each such year, or (C) within ten
(10) days after the final resolution of any disagreement
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<PAGE>
with respect to the calculation of consolidated net income before income taxes
or Consolidated Net Cash Flow pursuant to subparagraph 4(b)(iii) of this
Agreement. In the event of any termination of this Agreement prior to the end of
any calendar year during the Term hereof, the Company will pay to the Executive
(or, in the case of early termination due to the Executive's death, to his
beneficiary, as hereinafter defined), with respect to the year in which any such
termination occurs, a portion of the Bonus which shall be determined by
calculating the Bonus for the entire year in which such termination occurs and
multiplying such Bonus by a fraction, the numerator of which is the number of
months in such year prior to the month in which such termination occurs and the
denominator of which shall be twelve (12), unless such termination results from
an event or occurrence described in subparagraphs 3(b)(iv) or 3(b)(v) of this
Agreement, in which case, notwithstanding any provision of this Agreement to the
contrary, the Company will have no obligation to make any payment of the Bonus
to the Executive for the year in which such termination occurs. As used in this
Agreement, the term "Beneficiary" shall mean the person designated by the
Executive by an instrument signed by the Executive, acknowledged before a notary
public and delivered to the Company. In the event that the Executive fails to
designate a beneficiary as provided in the previous sentence, his estate shall
be deemed to be his beneficiary.
(iii) The Company shall deliver to the Executive with each Bonus payment a
report setting forth the calculation of consolidated net income before income
taxes and Consolidated Net Cash Flow for the year with respect to which such
Bonus is computed in accordance with subparagraph 4(b)(i) of this Agreement.
Unless the Executive notifies the Company within fifteen (15) business days
after receipt of said calculations of his disagreement therewith (which notice
shall state with reasonable specificity the reasons for any such disagreement
and the amounts in dispute), such calculations will be final, binding and
conclusive on the Executive. If there is a disagreement of which the Company is
so notified by the Executive, and the disagreement cannot be resolved by the
Company and the Executive within sixty (60) days following the delivery of such
notice, the items in dispute may be submitted by either the Company or the
Executive to the Company's independent auditors (with a copy being furnished to
the other party). After affording each of the Company and the Executive the
opportunity to present their respective positions (which opportunity shall not
extend for more than ten (10) business days following the submission of such
disputed items to such auditors), the Company's independent auditors shall
determine what changes, if any, are required in the calculations, and such
determination shall be final, binding and conclusive on the Company and the
Executive. The fees, costs and expenses of such independent auditors shall be
borne by the Company.
(iv) The Executive and his duly authorized representatives shall have the right,
at his sole expense, upon reasonable advance notice and during normal business
hours at the Company's offices, to examine and copy the books and records of the
Company relating to its financial statements and/or any sums payable to
Executive under this Agreement.
(c) In the event of a termination of this Agreement pursuant to subparagraphs
3(b)(i), (ii), (vii), (viii), (ix) or (x) of this Agreement, the Executive will
be entitled to receive from the Company, in addition to any Salary and Bonus
payable pursuant to this Paragraph 4, and the Company will pay to the Executive,
severance compensation as follows:
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(i) In the event of any termination of the Term hereof pursuant to subparagraph
3(b)(i) of this Agreement, the Company will pay to the Executive's beneficiary
the face value of the life insurance policy to be maintained by the Company
pursuant to subparagraph 5(b) of this Agreement. In the event that the Company
fails to maintain such insurance, unless such failure results from the Company
having a lack of sufficient funds to pay the premiums therefor, the Executive's
failure to pass an insurance physical or the Executive being otherwise
uninsurable, the Company will pay such amount in forty-eight (48) equal
consecutive monthly installments, the first of which shall be due and payable on
the first day of the first month following the month in which the Executive's
death occurs.
(ii) In the event of the termination of this Agreement pursuant to subparagraph
3(b)(ii) of this Agreement, the Executive will be entitled to receive the
payments provided for in subparagraph 8(b) of this Agreement.
(iii) In the event of the termination of this Agreement pursuant to
subparagraphs 3(b)(vii), (viii), (ix) or (x) of this Agreement, the Executive,
his legal representative or his beneficiary, as the case may be, will continue
to receive the Executive's then Salary in equal monthly installments, in
advance, for a period of one hundred twenty (120) months from the date of any
such termination.
(d) In the event of the sale, during the Term hereof, of the stock, business or
assets of the Company or any Subsidiary of the Company, the Executive shall be
entitled to a profitsharing bonus (the "Profit-Sharing Bonus") equal to ten
percent (10%) of the gross profit (determined as provided below), if any,
received by the seller in such transaction (the "Seller") as a result of such
sale. In the event of any such sale in which the purchase price is paid in cash
or marketable securities, or a combination of cash and marketable securities,
the Profit-Sharing Bonus shall be paid by delivery to the Executive by the
Seller of cash and/or marketable securities in the same proportion as received
by the Seller. In all other events, the Profit-Sharing Bonus shall be payable in
cash or in such other manner as to which the Executive and the Company may agree
prior to the consummation of such sale. Each Profit-Sharing Bonus shall be
payable by the Seller to the Executive within twenty (20) days following the
date of any such sale and each such payment shall be accompanied by a document,
signed by the Chief Financial Officer of the Company, showing the Seller's
adjusted cost basis in the stock, business or assets sold, the gross sale price,
the gross profit on such sale, which shall be the Seller's gross sale price less
the Seller's adjusted cost basis in the stock, business or assets sold (the
"Gross Profit"), the amount of the Profit-Sharing Bonus payable and a
description and statement of the value of each kind of property, other than
cash, being delivered in payment of the Profit-Sharing Bonus (the "Bonus
Certificate"). The adjusted cost basis of the Seller in the stock, business or
assets being sold, the value of each kind of property, other than cash, received
by the Seller in such sale, the gross sale price and the amount of the
Profit-Sharing Bonus shall be determined by the Company's independent auditors.
If the Executive shall not have disputed the amount of such payment, the
accuracy or completeness of the Bonus Certificate and/or the information set
forth in such Bonus Certificate within thirty (30) days of the receipt of
payment of any Profit-Sharing Bonus under this subparagraph 4(d) and the related
Bonus Certificate, then the information set forth in the Bonus Certificate shall
be conclusive and binding upon the parties. If the Executive desires to
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dispute the amount of such payment, the accuracy or completeness of the Bonus
Certificate and/or the information set forth therein, such dispute shall be
conducted and resolved in accordance with the procedures set forth in the third,
fourth and fifth sentences of subparagraph 6(i) of this Agreement. The Bonus
Certificate to which any such dispute relates will be promptly modified
following the resolution of any such dispute to reflect such resolution.
(e) In the event of the Retirement (as hereinafter defined) of the Executive,
the Executive or his legal representative or beneficiary, as the case may be,
will continue to receive, as and for retirement compensation, an amount equal to
one-twelfth of the greater of (i) the Executive's Salary for the year in which
Retirement occurs, or (ii) the average of the Executive's Salary and Bonus for
each of the five (5) years immediately preceding the year in which Retirement
occurs, for a period of twenty (20) months from the date of commencement of such
Retirement. The amount calculated pursuant to the preceding sentence shall be
payable, in equal monthly installments, in arrears. For the purpose of this
subparagraph 4(e), "retirement" shall be deemed to have occurred at the
expiration of the Term or any renewal Term of this Agreement or upon termination
of the employment provided for herein prior to the expiration of the Term by the
mutual consent of the Executive and the Company.
5. Executive Benefits. In addition to the Salary, Bonus and severance
compensation, the Executive will receive the following benefits:
(a) The Executive will be entitled to four (4) weeks paid vacation and fifteen
(15) paid sick days during each calendar year of the Term hereof commencing with
1997. The Executive will take such vacation at such times as will not
unreasonably interfere with significant activities of the Company and upon
reasonable advance notice to the Company. Any unused vacation or sick days shall
be paid to the Executive by the Company at the end of each year of the Term
hereof based upon Executive's then Salary.
(b) The Company will pay for and maintain for the Executive during the Term of
this Agreement, disability insurance providing for the payment to the Executive
of a minimum of sixty percent (60%) of his Salary for any "disability" as
defined in such disability insurance policy. The Company will also pay and
maintain for the Executive during the Term hereof, major medical,
hospitalization, dental and vision insurance (which insurance will cover the
Executive and members of his immediate family, as defined in the applicable
insurance policies) and life insurance upon the life of the Executive having a
face value of not less than One Million Dollars ($1,000,000), the proceeds of
which shall be payable to such beneficiary(ies) as shall be designated by the
Executive from time to time during the Term hereof, or, in the absence thereof,
Executive's estate. The Company will maintain such disability, medical, dental,
and vision insurance in effect, at the Company's cost, for a period of one
hundred twenty (120) months after the expiration or termination of the Term
hereof unless this Agreement shall be terminated pursuant to subparagraphs
3(b)(iii), (iv), (v) or (vi) of this Agreement, in which case the Company will
not be obligated to maintain such insurance. During the Term hereof, any such
life insurance policy which the Company is obligated hereby to maintain will
remain the property of the Company; provided, however, upon the expiration of
the Term hereof, the Executive will have the right to have such life insurance
policy assigned to him and the Company shall continue to pay or
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reimburse the Executive for all costs therefor. The Company may, at its election
at any time during the Term hereof, obtain and maintain at its cost, a key man
life insurance policy on the Executive's life with the Company as the
beneficiary thereof, and the Executive will cooperate with the Company and its
insurer with respect to obtaining and maintaining in force such insurance
policy.
(c) The Company will provide the Executive with a late model luxury automobile
during the Term of this Agreement (and/or reimburse the Executive for all costs
incurred by him in connection therewith) with a maximum of $750.00 per month. In
addition, the Company will pay or reimburse the Executive for the cost of
insurance, gasoline, service and maintenance of such automobile upon
presentation of bills or other evidences of payment therefor.
(d) The Company agrees that nothing contained in this Agreement is intended to,
or shall be deemed to be a grant to the Executive in lieu of, or as a limitation
upon, any rights and privileges to which the Executive may otherwise be entitled
as an executive employee of the Company or any Subsidiary under any retirement,
pension, profit sharing, insurance, hospitalization or other employee benefit
plan of any type (including, without limitation, any incentive, profit sharing,
bonus or stock option plan), which may now be in effect or which may hereafter
be adopted or instituted by the Company or any Subsidiary during the Term hereof
of which the Executive is an officer or director, it being understood that the
Executive shall have the same rights and privileges to participate in such
Company and Subsidiary benefit plans as any other officer or executive employee
of the Company or any such Subsidiary.
6. Executive's Right to Participate in Future Expansion of the Company.
(a) From and after January 1997, and through the expiration or earlier
termination of the Term hereof, the\ Executive or his designees (who or which,
for the purposes\of this Paragraph 6, shall be deemed to be included in the
definition of and referred to as the "Executive"), shall have the right to and
benefit of participating in the future growth and expansion of the Company, as
hereinafter provided in this Paragraph 6.
(b) If the Company or its wholly-owned subsidiaries, or any subsidiary of the
Company shall propose to acquire, or enters into any agreement or other
understanding to acquire, by purchase, merger, consolidation or by or as a
result of any other form of business arrangement (including the establishment of
a new business) or combination (an "Acquisition"), all or any part of any
corporation, partnership, joint venture, proprietorship or other operating
business, or any equity interest in any such business (other than for investment
purposes only, for services rendered or as a fee, as provided for in
subparagraph 6(e) hereof), including, but not limited to, the acquisition of
common or preferred stock of any class or series, or options, warrants, rights
or other securities convertible into or exchangeable for common or preferred
stock of any class or series (each a "Security" or collectively, the
"Securities"), the Executive shall have the right to form or cause to be formed,
at his sole cost and expense, the subsidiary or subsidiaries to be used by the
Parent for such purpose (the "Purchaser") and, in consideration of the Executive
bearing such cost and expense, the Executive shall receive, as of the date of
the formation of any such Purchaser, 5% of the Securities of each class and
series of such Purchaser which are issued at that time (the
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"Founder's Securities") Whether or not the Founder's Securities of any Purchaser
are physically issued on the date of the formation of any such Parent, the
Executive shall be deemed to have equitable and beneficial ownership of 5% of
such securities as of the date of formation of any such Purchaser.
(c) If, subsequent to the formation of any such Purchaser, such Purchaser
issues, or agrees to issue, any Securities (other than as a dividend or in
respect of any Securities of such Purchaser then held by the Parent or
Executive), Executive shall, simultaneously and on the date of such issuance (or
on the date of such agreement to issue, if earlier), receive five (5%) percent
of such subsequently issued securities (the ~Subsequently Issued Securities"),
free and clear of all liens, charges and encumbrances. The purchase price
payable by Executive for any such Subsequently Issued Securities shall be the
same as provided for in subparagraph 6(g) with respect to the Investment
Securities referred to therein (except that the Purchase Date, for purposes of
this subparagraph (c), shall be the date on which the Subsequently Issued
Securities are approved for issuance by the Purchaser's Board of Directors) and
the payment terms therefor shall be the same as provided for in subparagraph
6(j) with respect to the Investment Securities referred to therein. Whether or
not the Subsequently Issued Securities of any Purchaser are physically issued,
the Executive shall be deemed to have equitable and beneficial ownership of five
(5%) percent of such securities as of the first date on which any recipient of
such securities became entitled to receive the same.
(d) Attached hereto as Schedule A is a Schedule as of the date hereof setting
forth the name, state of incorporation and date of formation of each Purchaser,
the capitalization of each Purchaser as of its date of formation, the Founder's
Securities of such Purchaser issued to the Executive, the costs and expenses
incurred and paid by the Executive in connection with the formation of each such
Purchaser, the Subsequently Issued Securities of each Purchaser, if any, the
Subsequently Issued Securities of each Purchaser owned by Executive, the date of
ownership of same and the purchase price paid by Executive therefor. Each time,
subsequent to the date of this Agreement, that a new Purchaser is formed, the
Executive shall prepare and deliver to the Company a supplement to or an updated
Schedule A which shall set forth the date of such supplement or update and
include the information specified in the preceding sentence with respect to the
new Purchaser. Each such supplement or updated Schedule A shall be signed by the
Executive when delivered to the Company and, upon receipt by the Company, will
be countersigned and returned to the Executive by the Chief Financial Officer of
the Company. Each time, subsequent to the date hereof, that Subsequently Issued
Securities are approved for issuance by the Board of Directors of a Purchaser,
the Company shall prepare and deliver to the Executive a supplement to or an
updated Schedule A which shall include the information specified above with
respect to the Subsequently Issued Securities. The information with respect to
the purchase price to be paid by the Executive for inclusion in such supplement
to or updated Schedule A shall be provided by the Company on the basis of the
terms and procedures provided for in subparagraph 6(g) (subject to Executive's
right to dispute the same in the same manner as provided in subparagraph 6(i)
hereof). Each such supplement to or updated Schedule A shall be signed by the
Chief Financial Officer of the Company when delivered to the Executive and, upon
receipt by the Executive and subject to the provisions relating to dispute
resolution specified in subparagraph 6(i), will be countersigned and returned to
the Chief Financial Officer of the Company by the Executive. Notwithstanding
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any provision in this Agreement to the contrary, Schedule A attached hereto is
binding and conclusive on the parties hereto with respect to the accuracy of the
information set forth therein.
(e) If a Parent shall purchase or acquire any Securities solely for investment
purposes or in exchange for or in consideration of the performance of services
or as a fee, the Executive will purchase from the Parent, and the Parent will
sell to the Executive, simultaneously with and on the same date as the
acquisition of each such Security by the Parent (the "Purchase Date"), free and
clear of all liens, charges and encumbrances, ten (10%) percent of each such
Security (the "Investment Securities"). Notwithstanding the date on which legal
title to any such Security is transferred to the Executive by the Parent, the
Executive shall have equitable and beneficial ownership of such Security
concurrently with the acquisition of such Security by the Parent.
(f) Notwithstanding the provisions of any subparagraph of this Paragraph 6, the
Executive shall have no entitlement to any debt or equity securities of the
Company which are issued to or in any other manner become the property of any
subsidiary of the Company.
(g) The purchase price to be paid by the Executive for each Investment Security
purchased pursuant to subparagraph 6(e) hereof shall be an amount equal to one
hundred ten percent (110%) of the "fair market value" of each such Security on
the Purchase Date (the "Purchase Price"). The fair market value of each such
Security on the aforesaid date shall be determined by the Company's then
independent auditors who, in making such determination shall consider, among
such other criteria as they shall deem relevant, the purchasing Parent's cost to
acquire such Security, the net tangible book value per share of such Security,
the existence or absence of a trading market in such Security, the magnitude of
the public float of such Security, the trading volume, if any, of such Security
over such period of time as they shall deem relevant, any restrictions, legal or
otherwise, on the Executive's ability to freely trade such Security in a public
market, any other restrictions on the free transferability or pledge of such
Security, the value as collateral of such Security, the value of the property or
services delivered in exchange for such Security and the current value and
collectibility of any loans or advances made or debt incurred by the purchasing
Parent in connection with the acquisition of such security.
(h) Attached hereto as Schedule B is a schedule setting forth as of the date
hereof each Investment Security purchased by the Executive prior to the date
hereof, the Purchase Price of each such Security, the date or dates of
acquisition of each such Security by a Parent, and the date of transfer to the
Executive of each such Security. Each time, subsequent to the date hereof that
the Parent acquires or otherwise obtains an Investment Security which is subject
to subparagraph 6(e) of this Agreement, the Company shall prepare and deliver to
the Executive a supplement to or an updated Schedule B which will set forth the
date of such supplement or update, the Investment Security acquired or otherwise
obtained by the Parent (including the type or designation of such Security, the
number of shares of such Security and the date of purchase or acquisition
thereof) the Purchase Price of such Security and the date of transfer to the
Executive of such Security. Each such supplement or updated Schedule B shall be
signed by the Chief Financial Officer of the Company when delivered to the
Executive and, upon receipt by the Executive, will be countersigned and returned
to the Company by the Executive (unless disputed in accordance with the
provisions of subparagraph 6(i) hereof). Notwithstanding any provision in
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this Agreement to the contrary, Schedule B attached hereto is binding and
conclusive on the parties hereto as to the Investment Securities, Purchase
Price, and dates of acquisition and transfer as set forth in such Schedule.
(i) The supplement or updated Schedule B provided for in subparagraph 6(h)
hereof shall be prepared and delivered by the Company to the Executive within
thirty (30) days of the purchase or acquisition by a Parent of any Investment
Security, together with a notice of such purchase or acquisition (the "Purchase
Notice"). If the Executive shall not have disputed the computation of the
Purchase Price or date of acquisition by the Parent and transfer to the
Executive with respect to any Investment Security within thirty (30) days after
receipt of the Purchase Notice, then the information set forth in the Purchase
Notice shall be binding upon the parties and the Purchase Price shall be
immediately due and payable, as provided elsewhere herein. If the Executive
disputes the computation of the Purchase Price, or the date of acquisition by
the Parent or transfer to the Executive as set forth in the Purchase Notice, he
shall be required to give notice of such dispute to the Company within such
thirty (30) day period (the "Dispute Notice"). The Dispute Notice shall set
forth the Executive's computation of the Purchase Price with respect to such
Security (and/or the date of such acquisition and/or transfer), and, if the
Company and Executive shall not have agreed upon a Purchase Price (or such date
of acquisition and/or transfer) within thirty (30) days after the Company's
receipt of the Dispute Notice, the matter shall be submitted to the Company's
then independent auditors for a determination thereof and the decision of such
auditors shall be final, binding and conclusive on the Company, the Parent and
the Executive. Pending the determination by said auditors, payment of the
Purchase Price shall be made, as provided elsewhere herein, based upon the
purchase price set forth by the Executive in the Dispute Notice, subject to
adjustment thereto in the event that the Purchase Price is subsequently
determined by such auditors to be higher than that set forth in the Dispute
Notice. The fees of said auditors shall be paid by the Company. The supplement
or updated Schedule B to which the Dispute Notice relates will be promptly
modified following the resolution of any such dispute to reflect such
resolution.
(j) Payment of the Purchase Price with respect to any Investment Security
subject to the provisions of subparagraph 6(e) hereof shall be made by the
Executive immediately following the thirty (30) day period after Executive's
receipt of a Purchase Notice as referred to in subparagraph 6(i) hereof if
Executive does not dispute the same in accordance with the terms thereof or, if
disputed by Executive as provided therein, within ten (10) days after either any
resolution of the dispute between the Company and the Executive or the
submission of the dispute to the Company's independent auditors (subject to
adjustment, if any, as provided for in subparagraph 6(i) hereof), against
delivery by the purchasing Parent to the Executive of certificates or other
evidences of ownership of the ten (10%) percent of any such Investment Security
purchased by the Executive. Payment of the Purchase Price for any Investment
Security subject to the provisions of subparagraph 6(e) hereof may be made in
cash, by delivery of a five (5) year recourse promissory note of the Executive
(the "Note") bearing interest to be payable annually within forty-five (45) days
after the end of each year of the term of the Note at the lowest rate necessary
to avoid imputed interest under the applicable provisions of the Internal
Revenue Code of 1986, as amended (such rate to be determined as of the Purchase
Date), prepayable, in whole or in time to time, without penalty or of the
Company's Common Stock and/or any publicly traded company (or other a publicly
traded company as described below), including affiliates of the Company or any
such stock to be valued, for these purposes, at the fair market value thereof on
the date such stock is tendered in payment of the Purchase Price. For the
purposes of this subparagraph 6(j), the fair market value of (A) any
unregistered shares of common stock of a publicly traded company shall mean the
fair market value thereof as determined pursuant to subparagraph 6(g) hereof,
and (B) any registered shares of common stock of a publicly traded company shall
mean the closing price on the principal stock exchange on which such shares are
traded (if the shares are traded on the New York or American Stock Exchange or
other nationally recognized exchange) or on The Nasdaq Stock Market or, if there
are no sales on such date or if the shares are not so listed, the average of the
closing bid and ask prices as reported by Nasdaq, the National Quotation Bureau,
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Inc. or similar entity selected by the Board of Directors of the Company. In
addition, fair market value, for the purposes of this subparagraph 6(j), shall
not include or reflect any discount or reduction for any other restriction of
any kind relating or applicable to the securities tendered in payment of the
Purchase Price. In the event that the Executive tenders securities which are not
publicly traded but which are convertible into securities which are publicly
traded, the tendered securities shall be valued in the same manner as if they
were fully converted on the date tendered, even if, on the date tendered, the
securities are not then convertible. Payment of the principal and/or interest of
any Note delivered as payment for all or any part of the Purchase Price, may be
made, in whole or in part, at the election of the Executive, in shares of the
Company's Common Stock and/or shares of common stock of any publicly traded
company (or any such convertible securities) in accordance with the provisions
set forth in this subparagraph 6(j).
7. Expense Reimbursement.
(a) The Company will reimburse the Executive for all ordinary and necessary
expenses incurred by him in connection with the performance of his services
under this Agreement, subject to and upon receipt by the Company of invoices or
other supporting documentation in accordance with the Company's expense
reimbursement policies as in effect from time to time.
(b) In the event that the Company moves its corporate headquarters from the New
York metropolitan area, the Company will, if the Executive elects to relocate,
pay the Executive's reasonable moving expenses, including temporary living
accommodations for up to six months; provided. that the Company may not require
the Executive to relocate. In the event the Company so relocates its corporate
headquarters and the Executive elects not to relocate, the Company will provide
the Executive, at the Company's cost, with such offices and staff in a location
in the Boca Raton area as to which the Company and the Executive may agree.
(c) In the event that the Company establishes multiple offices and the Executive
is required to spend any significant part of his time at more than one Company
office, the Company shall pay to the Executive a housing allowance of Three
Thousand Five Hundred Dollars ($3,500) per month for as long as more than one
Company office is maintained; provided, however, that following the closing of
any such office, the Company will reimburse the Executive for any costs incurred
by him in moving and in terminating any lease obligations and similar expenses.
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8. Disability.
(a) In the event the Executive suffers any temporary disability during the Term
hereof, he shall continue to receive one hundred (100%) percent of the Salary
and Bonus to which he was entitled at the time he became so disabled for any
period of disability not in excess of six (6) consecutive calendar months. The
term "Permanent Disability" as used in this Agreement shall mean any disability
of the Executive for a period in excess of six (6) consecutive calendar months.
For the purpose of this subparagraph 8(a). the terms "Disabled" and "disability"
shall mean (i) any physical or mental illness, injury or other incapacity which,
in the opinion of a doctor reasonably satisfactory to the Company and the
Executive or his legal representative, renders the Executive unable to perform
substantially all of his duties under this Agreement, or (ii) a judicial
determination of incompetence. The date that any such disability shall be deemed
to have commenced shall be the date the Executive first absents himself from
work during a continuous period of disability as determined by the doctor
referred to in this subparagraph 8(a) or the date of judicial determination of
incompetence, as the case may be.
(b) In the event of a Permanent Disability, the shall pay to the Executive, as
disability benefits, one twenty (120) monthly payments each in an amount equal
to percent (60%) of Executive's then Salary divided by twelve first of such
payments to commence on the first day of month following any such termination of
this Agreement as a result of a Permanent Disability. In the event that such
date is a date subsequent to the date such Permanent Disability is determined,
payments for all prior months in which the Executive was entitled to such
payments will be made together with the first payment made. Such payments shall
be reduced by the amount of all payments which the Executive receives under any
disability policy maintained by the Company.
9. Confidentiality and Non-Disclosure Covenant.
(a) The Executive hereby acknowledges that, in the performance of his duties
pursuant to this Agreement, he may obtain and be entrusted with unpublished
confidential and proprietary information relating to the Company's and its
Subsidiaries' present and proposed businesses and operations, the use or
disclosure of which would materially adversely affect the operations of the
Company or its Subsidiaries, including, without limitation, unpublished material
financial information relating to the Company's and its Subsidiaries' present
and proposed businesses and operations, the cost and pricing of the Company's
and its Subsidiaries' services, the sales and marketing plans and strategies of
the Company and its Subsidiaries, proposed acquisitions by the Company and its
Subsidiaries, and the terms of all material agreements to which the Company or
any Subsidiary is a party. All of such unpublished information that may be
obtained by the Executive shall, for purposes hereof, be referred to as
"Confidential Information". The Executive hereby agrees that, unless the
Confidential Information becomes publicly known other than by reason of any
improper act or omission of the Executive, neither he, nor any entity or person
owned or controlled by him, shall, during or after the Term hereof, use for his
own benefit or for the benefit of others for any purpose and in any manner
whatsoever, divulge to any person, firm, corporation or other entity or
otherwise publish or disclose any Confidential Information, except as necessary
in connection with the performance of the Executive's services under this
Agreement.
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Notwithstanding the foregoing, the Executive shall not be in breach of this
covenant with respect to any use or disclosure of any Confidential Information
by him which is required as a result of any legal process served upon him in any
judicial or administrative, (provided, if possible, the Company shall be given
notice in time to enable it to object to such disclosure) or which was obtained
by the Executive from a third party without such third party's breach of any
agreement or obligation of trust. The term "entity or person owned or controlled
by" the Executive or words of like import shall not include the Company or any
of its Subsidiaries.
(b) The Executive agrees that his violation or threatened violation of any of
the provisions of this Paragraph 9 may cause immediate and irreparable harm to
the Company. In the event of any breach or threatened breach of said provisions,
the Company shall be entitled to seek all available equitable remedies therefor
including, without limitation, preliminary and permanent injunctions by a court
of competent jurisdiction prohibiting Executive from any violation or threatened
violation of these provisions and compelling the Executive to comply with these
provisions. This Paragraph 9 shall not affect or limit, and the equitable
remedies provided in this subparagraph 9(b) shall be in addition to, any other
remedies available to the Company at law. The provisions of this Paragraph 9
shall survive the termination or expiration of the Term of this Agreement.
10. Representations and Warranties of the Executive. The Executive represents
and warrants to the Company as follows:
(a) All action on the part of the Executive necessary for the authorization,
execution, delivery and performance of this Agreement by him and the
consummation of the transactions contemplated hereby, has been taken and this
Agreement constitutes a valid and legally binding obligation of the Executive,
enforceable in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization,-moratorium, or other laws affecting
generally enforcement of creditors' rights and by general principles of equity.
(b) The authorization, execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, will not result in
any violation or be in conflict with or constitute, with or-without the passage
of time and giving of notice, a default under any provision of any instrument,
judgment, order, writ, decree or agreement to which the Executive is a party or
by which he is bound.
(c) There is no action, suit, proceeding, or investigation pending, or to the
knowledge of the Executive, currently threatened against the Executive, in any
way relating to the validity of this Agreement or the right of the Executive to
enter into or to consummate this Agreement and the transactions contemplated
hereby.
11. Representations and Warranties of the Company. The Company represents and
warrants to the Executive as follows:
(a) All action on the part of the Company, SISC and each Subsidiary necessary
for the authorization, execution, delivery and performance of this Agreement by
them and the consummation of the transactions contemplated hereby, has been
taken and this Agreement constitutes a valid and
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legally binding obligation of the Company, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other laws affecting generally the enforcement of
creditors' rights and by general principles of equity.
(b) The authorization, execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, will not result in
any violation or be in conflict with or constitute, with or without the passage
of time and giving of notice, a default under any provision of any instrument,
judgment, order, writ, decree or agreement to which the Company, or any
Subsidiary is a party or by which any of them is bound.
(c) There is no action, suit, proceeding, or investigation pending, or to the
knowledge of the Company, currently threatened against the Company or any
Subsidiary, in any way relating to the validity of this Agreement or the right
of the Company to enter into or to consummate this Agreement and the
transactions contemplated hereby.
12. Arbitration. Except for any action under this Agreement for injunctive or
other equitable relief and except . otherwise expressly provided in
subparagraphs 4(b) and 6(i) of this Agreement, all disputes, controversies and
differences between the parties hereto arising under this Agreement which the
parties hereto are unable to settle amicably shall be resolved in Boca Raton,
Florida, by binding arbitration in accordance with the rules then in force of
the American Arbitration Association. The arbitration shall be held before three
arbitrators, one of which shall be selected by each of the Executive and the
Company and one of which shall be selected by the other two arbitrators, and the
decision of such arbitrators shall be deemed to be final. Judgment upon any
award or decision rendered by such arbitrators may be entered or enforced in any
court, domestic or foreign, having jurisdiction thereof. The arbitrators shall
not, except as provided in subparagraph 14(f) of this Agreement, have any
authority to modify or amend any express provisions of this Agreement.
13. Agreements with Affiliates. The Executive may enter into employment
agreements with affiliates of the Company (the "Affiliate Agreements"). To the
extent that, for any year during the Term hereof that the aggregate annual
salary paid to Executive pursuant to the Affiliate Agreements does not exceed
the Salary payable pursuant to this Agreement for such year, such aggregate
salary received by the Executive under such Affiliate Agreements shall reduce
the Salary payable pursuant to this Agreement on a dollar for dollar basis. If,
for any year during the Term hereof that the aggregate annual salary paid to
Executive pursuant to the Affiliate Agreements exceeds the Salary payable
pursuant to this Agreement for such year, no Salary shall be paid by the Company
to the Executive pursuant to this Agreement for such year; provided, however,
that in such event the Executive shall not be required to refund any Salary (or
salary or other compensation received by him pursuant to any Affiliate
Agreement) paid to him during such year. Any bonuses or other non-salary
compensation or benefits paid to Executive pursuant to the Affiliate Agreements
shall not affect in any way the Salary, Bonus, or other benefits payable to
Executive pursuant to this Agreement.
15
<PAGE>
14. Miscellaneous.
(a) This Agreement constitutes the entire agreement of the Company and the
Executive with respect to the subject matter hereof and supersedes all prior
written or prior or contemporaneous oral understandings or agreements, including
the Prior Employment Agreements and any other employment agreements or
understandings between the Company and the Executive with respect to the subject
matter covered in this Agreement. This Agreement may not be modified or amended,
nor may any right be waived, except by a writing which expressly refers to this
Agreement, states that it is intended to be a modification, amendment or waiver
and is signed by both parties hereto in the case of a modification or amendment
or by the party granting the waiver. No course of conduct or dealing between the
parties hereto and no custom or trade usage shall be relied upon to vary the
terms of this Agreement. The failure of a party to this Agreement to insist upon
strict adherence to any term of this Agreement on any occasion shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(b) Any notice, demand or other communication (collectively, the "Notices")
required or permitted by or with respect to the provisions of this Agreement
shall be given in writing and delivered by hand, overnight courier or messenger
service, against a signed receipt or acknowledgment of receipt, or mailed by
registered or certified mail, return receipt requested, with notice to the
Company being sent to the attention of the individual who executed this
Agreement on behalf of the Company. Either party may, by notice given in
accordance with the terms hereof, change the person, address or telecopier
number to which Notice should be sent. All such Notices shall be deemed given
when personally delivered or transmitted as aforesaid, or, if mailed as
aforesaid, on the fifth (5th) business day after mailing or on the day actually
received, if earlier, except for a notice of a change of person, address or
telecopier number which shall be effective only upon receipt.
(c) Except as specifically set forth in this subparagraph, neither party hereto
may assign this Agreement or his or its rights, benefits or obligations
hereunder without the written consent of the other party; except that the rights
of the Executive set forth in Paragraph 6 hereof may be assigned to designated
purchasers and shall inure to the benefit of the Executive's heirs,
administrators, executives, personal representatives, successors and permitted
assigns. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, administrators,
executors, personal representatives, successors and permitted assigns. Nothing
contained herein is intended to confer upon any person or entity, other than the
parties hereto, and their respective heirs, administrators, executors, personal
representatives, successors or permitted assigns or, in the case of the
Executive, his designated purchasers under Paragraph 6 hereof, any rights,
benefits, obligations, remedies or liabilities under or by reason of this
Agreement.
(d) This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida with respect to contracts made and to be fully
performed therein, without regard to the conflicts of laws principles thereof.
By their execution hereof, the Company and the Executive hereby consent and
irrevocably submit to the in personam jurisdiction of the American Arbitration
Association tribunal located in the City of Boca Raton, County of Palm Beach and
State of Florida or, with respect to Paragraph 9, the Federal or state courts
situated in Palm Beach County, State of Florida, which shall have sole
jurisdiction as to such matters, and agree that any process in any action
commenced in such
16
<PAGE>
tribunal or court under this Agreement may be served upon it or him personally,
by certified or registered mail, return receipt requested, or by Federal Express
or other courier service, with the same full force and effect as if personally
served upon it or him in Boca Raton. Each of the parties hereto hereby waives
any claim that the jurisdiction of any such tribunal is not a convenient forum
for any such action and any defense of lack of in personam jurisdiction with
respect thereto. In the event of any arbitration proceeding pursuant to
Paragraph 9 hereof, the arbitrator shall have the right to assess reasonable
counsel fees and disbursements.
(e) The parties hereto hereby agree that, at any time and from time to time
during the Term hereof, upon the reasonable request of the other party hereto,
they shall do, execute, acknowledge and deliver, or cause to be done, executed,
acknowledged and delivered, such further acts, deeds, assignments, transfers,
conveyances, other documents and assurances as may be reasonably required to
more effectively consummate this Agreement and the transactions contemplated
thereby or to confirm or otherwise effectuate the provisions of this Agreement.
(f) If any term or provision of this Agreement, or the application thereof to
any person or circumstance, is finally determined by a court or arbitration
tribunal to any extent to be illegal, invalid or unenforceable, the remainder of
this Agreement, or the application of such term or provision to persons or
circumstances other than those as to which it is held illegal, invalid or
unenforceable, shall not be affected thereby and each term and provision of this
Agreement shall be valid and shall be enforced to the fullest extent permitted
hereunder and by law.
(g) During and after the Term hereof, the Company shall defend, indemnify and
hold the Executive harmless from any and all claims, causes of action,
liabilities, damages, costs or expenses (including, without limitation,
attorneys' fees and disbursements) incurred by the Executive based upon or in
connection with the performance of his services under this Agreement to the
fullest extent permitted by the laws of the State of New York (and, with respect
to indemnification by by a Subsidiary, the laws of the jurisdiction of
incorporation of any such Subsidiary) and of the By-Laws of the Company, or any
such Subsidiary, as the case may be. In the event that, under applicable law,
the Company is not permitted to defend the Executive or pay the costs of defense
as provided in this subparagraph 14(g) unless the Executive undertakes to
reimburse the Company in the event that any such payment is unlawful, then, in
such event, the Company may condition such defense or payment on receipt of an
appropriate reimbursement agreement from the Executive. This provision will
survive the expiration or termination of the Term of this Agreement.
17
<PAGE>
(h) The headings in this Agreement are for convenience of reference only and
shall not affect in any way the construction or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
as of the day and year first above written.
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
By: --------------------------------------------
Richard A. Iamunno, President & CEO
Attest: ______________________________
Norman J. Hoskin, Secretary
EMPLOYEE:
By:__________________________
Norman J. Hoskin
Atlantic International Entertainment, LTD.
Computation of Earnings (Loss) Per Share
Net Earnings (Loss) per common share is computed by dividing net
earnings of loss by the Weighted average number of shares of Common Stock
outstanding during each year. The Company had Common Stock equivalents
outstanding during the years ended December 31, 1996 and 1997 in the amount of
- -0- and 175,000, respectively.
1997 1996
--------------------------------------
Earnings (Loss) per
Share:
Net Income (Loss) $ 1,047,317 $ (376,270)
Weighted average
Number of shares
Outstanding 9,452,992 8,514,537
Income (Loss) per share $ 0.11 $ (0.04)
Assumed issuances
Under exercise of
Stock options and
Warrants 9,456,828 (1)
Income (Loss) per
Share $ 0.11 $ (0.04)
(1) During 1996 there were no common stock equivalents outstanding.
Jurisdiction of Percentage
Incorporation Owned
------------- -----
EmiNet Domain, Inc. Delaware 100%
Atlantic International Entertainment, South Africa 51%
Ltd. South Africa
Atlantic International Entertainment, Australia 100%
Australia, Ltd.
Atlantic Gaming Technologies Bahamas 100%
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Atlantic International Entertainment, Ltd.:
As independent public accountants, we hereby consent to the incorporation of our
report dated April 24, 1998, included in this Form 10-KSB into the Company's
previously filed Registration Statement on Form S-8, File Number 333-21501.
/s/ Moore Stephens, P.C.
---------------------------------------
Moore Stephens, P.C.
Certified Public Accountants
Cranford, New Jersey
May 22, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Atlantic International Entertainment, Ltd.:
As independent certified public accountants, we hereby consent to the
incorporation of our report dated April 24, 1998, included in this Form 10-KSB.
/s/ Moore Stephens, P.C.
---------------------------------------
Moore Stephens, P.C.
Certified Public Accountants
Cranford, New Jersey
May 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ATLANTIC
INTERNATIONAL ENTERTAINMENT, LTD.'S FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 21,260
<SECURITIES> 10,125
<RECEIVABLES> 1,993,331
<ALLOWANCES> (22,204)
<INVENTORY> 0
<CURRENT-ASSETS> 2,252,978
<PP&E> 1,898,001
<DEPRECIATION> 422,538
<TOTAL-ASSETS> 6,905,999
<CURRENT-LIABILITIES> 1,900,419
<BONDS> 0
<COMMON> 9,590
0
0
<OTHER-SE> 4,937,030
<TOTAL-LIABILITY-AND-EQUITY> 6,905,999
<SALES> 4,416,790
<TOTAL-REVENUES> 4,416,790
<CGS> 527,344
<TOTAL-COSTS> 3,889,446
<OTHER-EXPENSES> 17,338
<LOSS-PROVISION> 412,698
<INTEREST-EXPENSE> 18,002
<INCOME-PRETAX> 1,359,550
<INCOME-TAX> 411,325
<INCOME-CONTINUING> 948,225
<DISCONTINUED> 99,092
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,047,317
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
