As filed with the Securities and Exchange Commission on June 11, 1996
Registration No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CD-MAX, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
Delaware 8980 87-0378128
- ---------------------- ----------------- ------------------------
(State or other juris- (Primary Standard (I.R.S. Employer Identi-
diction of incorpora- Classification Code fication Number)
tion or organization) Number)
11480 Sunset Hills Road, Suite 110
Reston, Virginia 22090
(703) 471-5755
- --------------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
Philip J. Gross
CD-MAX, Inc.
11480 Sunset Hills Road, Suite 110
Reston, Virginia 22090
(703) 471-5755
- --------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
------------------
Copies to:
David M. Lewis, Esq. Rubi Finkelstein, Esq.
Lewis, Goldberg & Ball Orrick, Herrington & Sutcliffe
Suite 1075, 2000 Corporate Ridge 666 Fifth Avenue
McLean, VA 22102-7858 New York, NY 10103-0001
Telephone: (703) 506-0550 Telephone: (212) 506-5000
Telecopy: (703) 506-6829 Telecopy: (212) 506-5151
------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: |X|
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount Being Offering Price Per Aggregate Offering Registration
Securities to be Registered Registered Unit(1) Price(1) Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Units (each Unit consisting
of two shares of Common
Stock ("Common Stock"),
$.01 par value, and one 1,035,000 $7.00 $7,245,000 $2,498.29
Redeemable Warrant
("Redeemable Warrant"))(2):
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock included in 2,070,000 $0.00 $0.00 $0.00
Units:
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemable Warrants 1,035,000 $0.00 $0.00 $0.00
included in Units (3):
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying
the Redeemable Warrants 1,035,000 $5.25 (4) $5,433,750 $1,873.72
included in Units (3):
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Warrants 90,000 $.0001 $9.00 (7)
to purchase Units (5)(6):
- ------------------------------------------------------------------------------------------------------------------------------------
Units issuable upon
exercise of Representative's
Warrants (each Unit 90,000 $8.40 $756,000 $260.69
consisting of two shares of
Common Stock and one
Redeemable Warrant) (8):
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock included in
Units issuable upon 180,000 $0.00 $0.00 $0.00
exercise of Representative's
Warrants:
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemable Warrants
included in Units issuable
upon exercise of 90,000 $0.00 $0.00 $0.00
Representative's Warrants:
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying
Redeemable Warrants
included in Units issuable 90,000 $5.25 $472,500.00 $162.93
upon exercise of
Representative's Warrants:
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemable Warrants (9): 1,070,000 $0.25 $267,500 $92.24
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying
Redeemable Warrants (10): 1,070,000 $5.25 $5,617,500 $1,937.08
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock (11): 60,615 $7.00 (12) $424,305 $146.31
- ------------------------------------------------------------------------------------------------------------------------------------
Total Registration Fee: $6,971.26
====================================================================================================================================
</TABLE>
(footnotes on following page)
<PAGE>
(footnotes to Calculation of Registration Fee table)
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 135,000 Units, which the Underwriter has the option to
purchase to cover over-allotments, if any.
(3) Pursuant to Rule 416, there also are being registered such additional
securities as may be required for issuance pursuant to the
anti-dilution provisions of the Redeemable Warrants.
(4) The price per share of Common Stock issuable upon exercise of the
Redeemable Warrants is based on 75% of the offering price per Unit.
(5) To be issued to the Underwriter at Closing.
(6) Pursuant to Rule 416, there also are being registered such additional
securities as may be required for issuance pursuant to the
anti-dilution provisions of the Representative's Warrants.
(7) No registration fee required pursuant to Rule 457(g).
(8) Pursuant to Rule 416, there are also being registered such additional
securities as may be required for issuance pursuant to the
anti-dilution provisions of the Redeemable Warrants underlying the
Representative's Warrants.
(9) These Redeemable Warrants are to be issued to the holders of the
warrants issued in certain of the Company's recently completed bridge
financings and certain other prior financings in exchange for such
warrants.
(10) Pursuant to Rule 416, there also are being registered such additional
securities as may be required for issuance pursuant to the
anti-dilution provisions of the Redeemable Warrants.
(11) Represents shares held by certain selling shareholders whose shares are
not included as part of the Units.
(12) Estimated solely for the purpose of calculating the registration fee
based upon the closing bid price of the Common Stock on the NASD OTC
Electronic Bulletin Board on June 5, 1996.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said section
8(a), may determine.
<PAGE>
CD-MAX, Inc.
Cross-Reference Sheet Pursuant to Item 501(b) of Regulation S-B
Cross-reference between items of Part I of Form SB-2 and the Prospectus filed by
CD-MAX, Inc. as part of the Registration Statement.
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM NUMBER
AND HEADING PROSPECTUS HEADING
<S> <C> <C>
1. Front of Registration Statement and Outside Front Cover Page of
Outside Front Cover Page of Prospectus Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover and
Pages of Prospectus Outside Back Cover Pages of
Prospectus; Additional Information
3. Summary Information and Risk Factors Prospectus Summary;
Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page of
Prospectus; Risk Factors;
Underwriting
6. Dilution Risk Factors; Dilution
7. Selling Security Holders Selling Securityholders
8. Plan of Distribution Outside and Inside Front Cover Pages
of Prospectus; Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers, Management; Certain
Promoters, and Control Persons Transactions; Principal Stockholders
11. Security Ownership of Certain Principal Stockholders
Beneficial Owners and Management
12. Description of Securities Outside Front Cover Page of
Prospectus; Description of Securities;
Underwriting
13. Interest of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liability
15. Organization Within Last Five Years Certain Transactions
16. Description of Business Prospectus Summary; Business
17. Management's Discussion and Analysis Management's Discussion
or Plan of Operations and Analysis of Financial
Condition and Results of Operations
18. Description of Property Business
19. Certain Relationships and Related Certain Transactions
Transactions
<PAGE>
20. Market for Common Equity and Related Market For Common Equity
Stockholder Matters and Related Stockholder Matters
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements With Not Applicable
Accountants on Accounting and
Financial Disclosure
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 11, 1996
PROSPECTUS
CD-MAX, INC.
900,000 UNITS
EACH UNIT CONSISTING OF TWO SHARES OF COMMON STOCK
AND
ONE REDEEMABLE WARRANT
CD-MAX, Inc., a Delaware Corporation (the "Company"), is hereby
offering (the "Offering") 900,000 Units (the "Units"), each Unit consisting of
two shares of common stock, $.01 par value per share ("Common Stock"), and one
redeemable common stock purchase warrant ("Redeemable Warrant"). The shares of
Common Stock and Redeemable Warrants comprising the Units are separately
tradeable commencing upon issuance. Each Redeemable Warrant entitles the
registered holder thereof to purchase one share of Common Stock at an initial
exercise price of $__________ [75% of the public offering price per Unit],
subject to adjustment, at any time from issuance until __________, 2001 [60
months after the date of this Prospectus]. The Company shall have the right to
redeem all, but not less than all, of the Redeemable Warrants, commencing
__________, 1997 [12 months after the date of this Prospectus] at a price of
$.05 per Redeemable Warrant on 30 days' prior written notice, provided that the
Company shall have obtained the consent of Joseph Stevens & Company, L.P., the
representative of the several underwriters (the "Representative"), and the
average closing bid price of the Common Stock equals or exceeds 150% of the then
exercise price per share, subject to adjustment, for any 20 trading days within
a period of 30 consecutive trading days ending on the fifth trading day prior to
the date of the notice of redemption. See "Description of Securities --
Redeemable Warrants."
The Company's Common Stock is publicly traded on the NASD OTC
Electronic Bulletin Board ("OTC") under the symbol "CMAX." On June 5, 1996, the
closing bid price for the Common Stock on the OTC was $7.00. See "Market for
Common Equity and Related Stockholders Matters." Prior to the Offering, there
has been a limited public market for the Common Stock and no public market for
the Units or the Redeemable Warrants, and there can be no assurance that such a
market will develop after the completion of the Offering or, if developed, that
it will be sustained. It is currently anticipated that the public offering price
will be $7.00 per Unit. For information regarding the factors considered in
determining the public offering price of the Units and the exercise price and
other terms of the Redeemable Warrants, see "Risk Factors," "Description of
Securities" and "Underwriting." Application has been made for, and it is
anticipated that upon consummation of the Offering the Units, the Common Stock
and the Redeemable Warrants will be approved for quotation on the Nasdaq
SmallCap Market ("Nasdaq") under the symbols "CMAXU," "CMAX" and "CMAXW,"
respectively.
(continued on the following page)
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS," COMMENCING ON PAGE 7, AND "DILUTION."
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATES SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Underwriting
Price to Public Discounts(1) Proceeds to Company(2)
- --------------------------------------------------------------------------------
Per Unit................ $ $ $
- --------------------------------------------------------------------------------
Total(3)................ $ $ $
================================================================================
(1) Does not include additional compensation payable to the Representative
in the form of a non-accountable expense allowance. In addition, see
"Underwriting" for information concerning indemnification and
contribution arrangements with the Underwriters and other compensation
payable to the Representative.
(2) Before deducting expenses of the Offering estimated at $589,000 payable
by the Company, including the non-accountable expense allowance payable
to the Representative.
(3) The Company has granted to the Underwriters an option (the
"Over-Allotment Option"), exercisable for a period of 45 days after the
date of this Prospectus, to purchase up to 135,000 additional Units
upon the same terms and conditions set forth above, solely to cover
over-allotments, if any. If the Over-Allotment Option is exercised in
full, the total Price to Public, Underwriting Discounts and Proceeds to
Company will be $_____________, $____________ and $______________,
respectively. See "Underwriting."
The Units are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify the Offering and to reject any order in whole or in part. It is expected
that delivery of the Units offered hereby will be made against payment, at the
offices of Joseph Stevens & Company, L.P., New York, New York, on or about
_________, 1996.
JOSEPH STEVENS & COMPANY, L.P.
The date of this Prospectus is , 1996.
<PAGE>
This Prospectus also relates to 1,070,000 Redeemable Warrants (the
"Selling Securityholder Warrants"), and 1,130,615 shares of Common Stock,
including the 1,070,000 shares of Common Stock issuable upon exercise of the
Selling Securityholder Warrants (collectively the "Selling Securityholder
Shares"). The Selling Securityholder Warrants will be issued at the consummation
of the Offering to certain security holders (the "Selling Securityholders") upon
the automatic conversion of certain warrants (the "Bridge Warrants") issued to
the Selling Securityholders in a private financings consummated in February,
March, April and May 1996 (the "Bridge Financings"), and in 1995 (the "1995
Financings"). Neither the Selling Securityholder Warrants nor the Selling
Securityholder Shares may be sold for a period of eighteen (18) months from the
effective date of the Registration Statement without the prior written consent
of the Representative. The Selling Securityholder Warrants and the Selling
Securityholder Shares are not being underwritten in the Offering. The Company
will not receive any proceeds from the sale of the Selling Securityholder
Warrants or the Selling Securityholder Shares by the holders thereof, although
the Company will receive proceeds from the exercise, if any, of the Selling
Securityholder Warrants (the offer by the Selling Securityholders of the Selling
Securityholder Shares and the Selling Securityholder Warrants is referred to
herein as the "Concurrent Offering"). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations---Liquidity and Capital
Resources," "Recent Bridge Financings" and "Selling Securityholders."
[A graphic will be inserted here entitled "The CD-MAX System". The graphic
consists of eight boxes containing graphic figures which are connected by
dotted lines, some of which also have captions. The first box is the
picture of a lock and key, to symbolize the fact that the CD-MAX System
provides encryption software. The second box is a picture of a parking
meter, to symbolize the fact that the CD-MAX System provides metering
software. Dotted lines emanate from boxes one and two to box three which
contains a picture of a CD-ROM and the caption "CD-MAX encryption and
metering software added to CD-ROM during mastering." A dotted line
emanates from box three to box four which contains a picture of persons
gathered around a computer and contains the caption "Publisher's customers
use CD-ROM," and "Usage is 'metered' and protected by CD-MAX software." A
dotted line emanates from box four to box five which contains a picture of
a modem and the caption "Usage data and access codes transmitted via
modem." A dotted line emanates from box five to box six which contains a
picture of a computer and the caption "CD-MAX billing services database:
Retrieves usage data electronically; and Issues invoices and processes
payments." Dotted lines emanate from box six to boxes seven and eight. Box
seven contains a picture of a book with the caption "Provides publishers
with customized reports and billing statements." Box eight contains a
picture of a bank and the caption "Payments deposited."]
The Company intends to furnish to the registered holders of the
Units, Redeemable Warrants and Common Stock, annual reports containing financial
statements audited by its independent auditors and quarterly reports for the
first three quarters of each fiscal year containing unaudited interim financial
information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by reference to the detailed information, including the financial
statements and notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all references to the Company and to shares of Common Stock
of the Company: (a) gives affect to the occurrence of the following events, all
of which occurred in April 1996, (i) the reincorporation of the Company in
Delaware, (ii) the merger into the Company of its wholly owned subsidiary,
CD-MAX, Inc., and the change of the Company's name to CD-MAX, Inc.; (iii) the
consummation of a 1 for 30 share exchange, and a change in par value to $0.01
per share, (iv) the elimination of the Class B Common Stock, (v) the elimination
of certain grant-back and buy back rights held by members of management and the
Class B shareholders, (vi) the cancellation of options to purchase 100,000
shares of Common Stock previously issued to management and the issuance to
management of warrants to purchase 990,000 shares of Common Stock; (b) assumes
no exercise of (i) the Underwriters' Over-Allotment Option to purchase up to
135,000 Units; (ii) the Representative's Warrants to purchase up to 90,000
Units; (iii) the Redeemable Warrants included in the Units; (iv) 1,070,000
Redeemable Warrants issuable in exchange for the Bridge Warrants upon
consummation of the Offering and (c) assumes the cancellation of common stock
purchase warrants previously granted to the Representative in connection with
the Second Bridge Financing (as hereinafter defined).
The Company
The Company is engaged in the business of developing and marketing
the CD-MAX(TM) System, based upon its proprietary technology, which is designed
to allow publishers of professional, corporate, library and educational CD-ROM
based information to sell their information to end-users on a usage basis.
Publishers in these fields currently sell CD-ROM titles for a fixed fee,
normally as an annual subscription. The Company believes that the CD-MAX System
has the potential to increase the revenues of CD-ROM publishers by reducing
copyright and license abuse and enabling them to expand into new markets. The
CD-MAX System consists of proprietary metering and encryption software and
billing services. The CD-MAX System is being adapted for use on the Internet and
is expected to be commercially available during 1996 under the name NET-MAX(TM).
The Company's strategy is to achieve broad market acceptance of its
CD-MAX System in its target markets and to create a range of services based on
proprietary technology which is expected to produce a continuous revenue stream.
The Company has targeted publishers in the professional, corporate, library and
educational fields as its initial markets. According to InfoTech, Inc., a
leading CD-ROM market research firm, these publishers were estimated to account
for 75% of the approximately $9 billion U.S. CD-ROM software market for 1995.
The U.S. CD-ROM software market is projected to grow 60% in 1996 to over $14
billion, with the worldwide CD-ROM software market increasing to over $23
billion. The Company is focusing its initial marketing efforts in the U.S. and
Canada. Subsequent marketing efforts may be extended to European markets. The
Company has received an unrestricted export license from the Department of
Commerce. This license allows it to export its software to most countries in the
world, unlike many other hardware and software encryption methods, which may not
be exported due to federal export restrictions.
Electronic information is currently distributed primarily by three
methods: 1) CD-ROM 2) online services and 3) the Internet. Currently,
professional and business information delivered on CD-ROM is generally sold on a
flat fee or subscription basis for unlimited use. The Company believes that such
forms of access can be inefficient and expensive for many end-users. Unmetered
usage may also prevent publishers from maximizing revenues from heavy users,
particularly users on networks. The second method, online services, may be
advantageous for timely information, such as stock quotes, but, due to the high
costs of building and maintaining a mainframe computer installation and the high
costs of transmission, online is usually a more expensive alternative to CD-ROM.
Hybrid CD-ROM/online systems attempt to maximize the advantages of both methods
of distribution, by combining the timeliness of online systems with the lower
costs of CD-ROM. The Internet is the third and newest method of distribution. It
has only recently been developed for commercial use and faces similar problems
as CD-ROM, including the need for security and metering services.
The CD-MAX System monitors the amount and type of information
accessed from an encrypted CD-ROM. The usage data is stored in encrypted form on
the computer's hard disk. The CD-MAX System can retrieve this data from the
end-user via modem. The Company can then update the necessary security codes and
bill the end-user on behalf of the publisher. CD-MAX withholds new security
codes if the end-user does not pay the applicable charges which will terminate
access to the CD-ROM. For those personal computers without a modem, the Company
offers alternate billing arrangements.
Information contained on published CD-ROMs is located via the use
of special software on the CD-ROM known as a "search and retrieval engine." The
CD-MAX System is compatible with many popular search and retrieval engines. The
Company has entered into agreements with Dataware Technologies, Inc., and Folio
Corporation, major search and retrieval software firms, to facilitate the
compatibility of the CD-MAX metering and encryption capabilities with the
Dataware and Folio search and retrieval engines.
3
<PAGE>
As of the date hereof, the Company has two contracts with customers
for its CD-MAX System. In March, 1995, the Company entered into a contract with
Mitchell International, a unit of Thomson Publishing that publishes automobile
repair manuals. Mitchell is working with their CD-ROM product "On-Demand
Computerized Repair Information" under the name "Metered On-Demand" using the
CD-MAX System. To date, this contract has resulted in minimal revenues to the
Company. In July, 1995, the Company entered into a contract with Disclosure,
Incorporated, a major provider of financial and legal information about public
companies to the investment and legal communities. Its CD-ROM title "New Issues"
is the first of four titles under contract and intended to be sold under the
name "Metered New Issues." This product is presently in the testing stage. Each
of these contracts requires the publisher to pay fees for billing services and
to pay CD-MAX a percentage of all revenues generated through the use of CD-MAX
encrypted products.
The Offering
Units Offered........................ 900,000 Units, each Unit consisting of
two shares of Common Stock and one
Redeemable Warrant. The Common Stock and
Redeemable Warrants will be separately
tradeable immediately upon issuance. See
"Description of Securities-- Units."
Each Redeemable Warrant entitles the
holder to purchase one share of Common
Stock for $____ [75% of the public
offering price] per share, subject to
adjustment, exercisable from the date of
issuance until _________________, 2001
[60 months after the date of this
Prospectus]. The Company may redeem the
Redeemable Warrants commencing
_______________, 1997 [12 months after
the date of this Prospectus] at a
redemption price of $0.05 per Redeemable
Warrant on thirty days' prior written
notice, provided that (i) the average
closing bid price (or last sales price)
of the Common Stock as reported on
Nasdaq (or on such exchange on which the
Common Stock is then traded) equals or
exceeds $____ [150% of the exercise
price per share] per share, subject to
adjustment, for any 20 trading days
within a period of 30 consecutive
trading days ending on the fifth trading
day prior to the date on which the
notice of redemption is given and (ii)
the Company shall have obtained written
consent from the Representative to
redeem the Redeemable Warrants. See
"Description of Securities--Redeemable
Warrants."
4
<PAGE>
Securities offered by Selling
Securityholders..................... 1,070,000 Redeemable Warrants ("Selling
Securityholders Warrants"), which will
be issued to the Selling Securityholders
upon the automatic conversion of the
Bridge Warrants, and an aggregate of
1,130,615 shares ("Selling
Securityholders Shares") 1,070,000 of
which are issuable upon exercise of such
Selling Securityholders Warrants. The
Selling Securityholders Warrants and the
Selling Securityholders Shares being
registered for the account of the
Selling Securityholders at the Company's
expense are not being underwritten in
the Offering. The Company will not
receive any proceeds from the sale of
these securities, although it will
receive proceeds from the exercise, if
any, of the Selling Securityholders
Warrants. See "Recent Bridge
Financings," "Certain Transactions" and
"Selling Securityholders".
Common Stock Outstanding Before
Offering............................ 2,047,300 shares(1)
Common Stock Outstanding After
Offering............................ 3,847,300 shares(1)
Redeemable Warrants Outstanding After
Offering............................ 1,970,000 Redeemable Warrants(2)
Use of Proceeds...................... Repayment of Bridge Financings:
$1,080,000; payment of deferred
management salaries: $258,497; sales and
marketing: $900,000; product
development: $1,800,000; and working
capital: $1,042,503. See "Use of
Proceeds."
Risk Factors......................... The purchase of the Units offered hereby
involves a high degree of risk and
immediate substantial dilution. See
"Risk Factors" and "Dilution."
Proposed Nasdaq Symbols.............. Units: CMAXU
Common Stock: CMAX
Redeemable Warrants: CMAXW
- ------------------
(footnotes to The Offering)
(1) Does not include (i) 125,193 shares reserved for issuance upon the
exercise of outstanding warrants at exercise prices ranging from
$.30 to $22.50 per share; (ii) 990,000 shares reserved for issuance
upon the exercise of warrants granted to management at an exercise
price of $10.50 per share; (iii) 86,345 shares reserved for
issuance upon the exercise of stock options granted pursuant to the
Company's 1993 Stock Incentive Plan at exercise prices ranging from
$7.00 per share to $45.00 per share; and (iv) 113,655 shares
reserved for issuance upon the exercise of options which may be
granted under the Company's 1993 Stock Incentive Plan. See
"Management," "Certain Transactions," "Description of Securities,"
and "Underwriting."
(2) Includes 1,070,000 Selling Securityholder Warrants.
5
<PAGE>
CD-MAX, Inc.
SUMMARY FINANCIAL DATA
The summary financial information set forth below is derived from the financial
statements appearing elsewhere in this Prospectus and represents the financial
results of the Company. Such information should be read in conjunction with such
financial statements, including the Notes thereto.
<TABLE>
<CAPTION>
Period from
July 1, 1993
Year ended June 30, Nine months ended March 31, (Inception) to
1994 1995 1995 1996 March 31, 1996
------------------------ --------------------------- --------------
(unaudited) (unaudited) (unaudited)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues $ - $ 2,500 $ - $ 8,500 $ 11,000
Costs and expenses:
Selling 112,455 120,285 83,882 153,202 385,942
General and
administrative 710,952 691,472 443,223 461,229 1,863,653
Research and
development 107,135 277,120 235,082 437,224 821,479
---------- ------------ ---------- ------------ -----------
Total costs and expenses 930,542 1,088,877 762,187 1,051,655 3,071,074
Interest income 547 3,962 1,020 8,089 12,598
---------- ------------ -------- ------------ -----------
Net loss $(929,995) $(1,082,415) $(761,167) $(1,035,066) $(3,047,476)
========== ============ ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
June 30, 1995 March 31, 1996
------------- ------------------------------------------------------
Pro Forma
Actual Pro Forma(1) As Adjusted(2)
------ ------------ --------------
(unaudited) (unaudited) (unaudited)
Balance Sheet Data:
<S> <C> <C> <C> <C>
Working capital (deficit) $ (8,686) $ (521,449) $ (591,449) $ 4,474,968
Total assets 326,868 137,566 1,119,566 4,700,069
Total liabilities 335,554 627,568 1,517,568 193,654
Deficit accumulated during the
development stage (2,012,410) (3,047,476) (3,047,476) (3,224,059)
Stockholders' equity (deficit) (8,686) (490,002) (398,002) 4,506,415
</TABLE>
- ---------------
(1) Adjusted to give effect to (i) the Second Bridge Financing of
$1,000,000, which consisted of $900,000 of promissory notes and
$100,000 allocated to the Bridge Warrants, net of $180,000 of expenses
(ii) the remaining $100,000 of the First Bridge Financing, which
consisted of $90,000 of promissory notes and $10,000 allocated to the
Bridge Warrants, and (iii) repayment of $100,000 of debt issued
in the First Bridge Financing.
(2) Adjusted to give effect to (i) the receipt of the net proceeds of this
Offering, after deducting estimated offering expenses, and (ii) the
initial application of such proceeds as described herein, and (iii) an
expense of $162,000 of debt issuance costs relating to the Second
Bridge Financing and an expense of $14,583 in additional interest
expense related to the debt incurred in the Bridge Financings. See "Use
of Proceeds."
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RISK FACTORS
An investment in the Units involves a high degree of risk and should be made
only by investors who can afford the loss of their entire investment.
Prospective investors, prior to making an investment in the securities, should
consider carefully the following risk factors and the other information included
in this Prospectus.
Accumulated Deficit; Limited Operating History; Expectation of Future
Losses; Independent Auditors' Report Regarding Company's Ability to Continue as
a Going Concern. The Company commenced operations in July 1993, is a development
stage company, and has a very limited operating history. From inception through
March 31, 1996, the Company recognized insignificant revenues, and had
accumulated operating losses of approximately $3,047,476. At March 31, 1996, the
Company had a working capital deficit of approximately $521,449 and
stockholders' deficit of approximately $490,002. Subsequent to March 31, 1996
the Company received net proceeds of $920,000 from private bridge financings.
See "Recent Bridge Financings." The Company has continued to operate at a loss
since March 31, 1996, and it expects to continue to operate at a loss until such
time, if ever, as operations generate sufficient revenues to cover its costs.
For the short-term, the Company expects that its losses will increase. The
likelihood of the success of the Company must be considered in light of the
difficulties and risks inherent in a new business. There can be no assurance
that revenues will increase significantly in the future or that the Company will
ever achieve profitable operations. The report of the Company's independent
auditors contains an explanatory paragraph expressing substantial doubt
regarding the Company's ability to continue as a going concern. Among the
factors cited by the auditors as raising substantial doubt as to the Company's
ability to continue as a going concern are that the Company is currently in its
development stage, has not generated revenues or obtained profitable operations
to date. See the Financial Statements and the notes thereto.
Uncertainty of Commercialization of the CD-MAX System; Limited Number
of Customers; Need for Market Acceptance. The CD-MAX System has not achieved any
substantial commercial acceptance. While the Company has agreements with two
database publishers for the use of the Company's technology and services, none
of these contracts has yet generated any substantial revenues for the Company,
or wide-scale acceptance by the publishers' respective customers. There can be
no assurance that these contracts, or other contracts obtained in the future,
may not be terminated before obtaining any substantial revenues for the Company.
The CD-MAX System has only been test marketed by one of these publishers, and it
has not yet been placed in full commercial operation by any of such publishers.
There can be no assurance that the results of testing by these or other
publishers will be satisfactory. The Company's ability to market the CD-MAX
System successfully will depend on the Company convincing potential customers of
the benefits of the CD-MAX System. Although the Company is engaged in
negotiations and discussions with a number of other potential customers, there
can be no assurance that any such discussions will lead to significant sales of
the CD-MAX System, or that the CD-MAX System will attain significant market
acceptance. See "Business."
Long Lead Time in Implementing Contracts; Unknown Profitability. The
Company's experience to date has demonstrated that the process of identifying a
potential customer of the Company's products and services, entering into a
contract with such a customer, customizing the Company's products and services
to meet the customer's needs, allowing the customer to test market the product,
and ultimately completing the final product for the customer is a lengthy
process that is expected to take at least six months, and possibly much longer.
The Company's pricing of its products and services is based upon the Company's
estimates of what publishers will be willing to pay for such products and
services, and an amount sufficient to return profits to the Company. There can
be no assurance that these estimates will prove to be correct.
Limited Marketing Capabilities. The Company's operating results will
depend to a large extent on its ability to successfully market the CD-MAX System
to publishers. In addition, the Company's revenue stream is dependent upon the
revenue generated by a publisher's customer's use of the CD-MAX System, over
which the Company will have no control. The Company currently has limited
marketing capability. The Company intends to use a portion of the proceeds of
the Offering to hire additional sales and marketing personnel and outside
consultants to market the CD-MAX System. There can be no assurance that any
marketing efforts undertaken by the Company will be successful or will result in
any significant sales of the CD-MAX System. See "Business."
Need for Additional Financing. Although the Company believes that the
net proceeds from this Offering, together with funds expected to be generated
from operations, will be sufficient to finance the Company's working capital
requirements for twelve (12) months following the completion of this Offering,
it is likely that the Company will not generate sufficient revenues to fund its
operations after such period, and will need additional financing. Further, the
Company may be required to seek additional financing during such twelve (12)
month period in the event of delays, cost overruns or unanticipated expenses
associated with a company in such an early stage of developing and marketing its
product. The Company has no commitments to provide additional financing, if
required, and there can be no assurance that any additional financing will be
available if needed or, if available, will be on terms acceptable to the
Company. In the event such necessary financing is not obtained, the Company will
be materially adversely affected and will have to cease or substantially reduce
operations. See "Use of Proceeds."
Dependence on Key Person. The Company's success depends upon the
continued contributions of its executive officers, sales and marketing personnel
and technical personnel, particularly John David Wiedemer, the inventor of the
CD-MAX System. The Company has applied for a key-man term life insurance policy
in the amount of $1,000,000 on the life of John David Wiedemer.
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Although the Company has entered into an employment agreement with Mr. Wiedemer
expiring in 1998, competition for qualified personnel is intense and the loss of
services of Mr. Wiedemer could materially adversely affect the Company. There
can be no assurance that the Company will be able to retain existing personnel
or attract additional qualified personnel. See "Management."
Lack of Proprietary Protection. The Company does not currently have any
patent protection for the CD-MAX System. The Company believes that commercial
protection of its products will depend primarily upon the CD-MAX System
proprietary software remaining a trade secret and maintaining copyright
protection. In order to protect its trade secrets, the Company is taking
measures which in its opinion are appropriate procedures to protect its rights.
The Company is also maintaining its copyright rights in this proprietary
software. In any case, there can be no assurance that the Company's technology
will remain secret or that others will not develop similar technology and use
such technology to compete with the Company. Also, copyright protection does not
normally prevent competitors from making functionally similar products. The
CD-MAX System is based upon proprietary software and related technical data
licensed by the Company from an officer of the Company. In the event that such
officer is terminated by the Company without cause and certain other conditions
exist, the officer will have the right to obtain a sublicense for the
proprietary software and related technical data. Such right will not exist until
the year 1999. Although the Company believes that its technology does not
infringe upon the proprietary hardware or software of others, it is possible
that others may have or may be granted patents claiming products or processes
that are necessary for or useful to the development of the CD-MAX System and
that legal actions could be brought against the Company claiming infringement.
In the event that the Company is unsuccessful against such a claim, it may be
required to obtain licenses to such patents or to other patents or proprietary
technology in order to develop or market the CD-MAX System. There can be no
assurance that the Company will be able to obtain such licenses on commercially
reasonable terms, if at all. See "Business-Proprietary Rights and Intellectual
Property."
Competition. The business of selling encryption and metering services
for CD-ROMs, and for the Internet is in its early stages and is subject to
competition from other companies, substantially all of which have greater
financial and other resources than the Company. The Company is aware of other
companies that are developing metering and encryption systems that are in some
ways similar to the Company's system. In addition, the Company believes that it
is possible to provide some of the same benefits that the CD-MAX System will
offer by other means. It is also possible that other companies may be developing
systems comparable to the CD-MAX System. There can be no assurance that either
existing or new competitors will not develop technologies that are superior to
or more cost-effective than the Company's systems or that otherwise achieve
greater market acceptance. There can be no assurance that the Company will be
able to compete successfully against existing competitors or future entrants
into the market. The Company operates in an environment that is characterized by
rapidly evolving technology. There can be no assurance that either existing or
new competitors will not develop technologies that are superior to or more
cost-effective than the Company's system or that otherwise achieve greater
market acceptance. There can be no assurance that the Company will be able to
compete successfully against existing competitors or future entrants into the
market. See "Business - Competition."
Rapid Technological Change; New Product Introductions. The market for
the Company's technology is characterized by rapidly changing technology and
frequent new product introductions. Even if the Company's technology gains
initial market acceptance, the Company's success will depend, among other
things, upon its ability to enhance its product and to develop and introduce new
products and services that keep pace with technological developments, respond to
evolving customer requirements and achieve continued market acceptance. There
can be no assurance that the Company will be able to identify, develop,
manufacture, market or support new products or offer new services successfully,
that such new products or services will gain market acceptance, or that the
Company will be able to respond effectively to technological changes or product
announcements by competitors. Any failure by the Company to anticipate or
respond adequately to technological developments and customer requirements or
any significant delays in product development or introductions could result in a
loss of market share or revenues. The Company has devoted a substantial amount
of its efforts to adapting its technology to the CD-ROM medium. There can be no
assurance that CD-ROM technology will not be replaced by other distribution and
access technologies or that any such replacement will not render the Company's
technology obsolete or require substantial time and expense by the Company to
adapt its technology, if at all possible. In 1996, the Company is planning to
introduce a version of the CD-MAX System, called NET-MAX, that will work on the
Internet. However, there can be no assurance of its successful development or
market acceptance. See "Business - Marketing."
Control by Insiders. Upon completion of this Offering, the executive
officers and directors will beneficially own shares of the Company's capital
stock representing approximately 32.33% of the total voting power of the
Company, (assuming the sale of an aggregate of 138,056 Redeemable Warrants and
12,841 shares of Common Stock by certain officers and directors in the
Concurrent Offering), and may be able to elect all the Company's directors and
thereby direct the policies of the Company. See "Principal Stockholders,"
"Selling Securityholders," and "Description of Securities."
<PAGE>
Future Sales of Common Stock. Of the 3,847,300 shares of Common Stock
to be outstanding upon completion of this Offering, 2,191,052 shares of Common
Stock, including the 1,800,000 shares underlying the units offered hereby, will
be freely tradeable without restriction under the Securities Act of 1933, as
amended (the "Securities Act") except for any shares of Common Stock purchased
by an "affiliate" of the Company (as that term is defined under the rules and
regulations of the Securities Act), which will be subject to the resale
limitations of Rule 144 under the Securities Act. The remaining 1,656,248 shares
of Common Stock outstanding are "restricted stock" as that term is defined under
Rule 144 under the Securities Act and under certain circumstances
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<PAGE>
may be sold without registration pursuant to such rule. The Company is unable to
predict the effect that sales made under Rule 144, or otherwise, may have on the
then prevailing market price of the Company's securities although any future
sales of substantial amounts of securities pursuant to Rule 144 could adversely
affect prevailing market prices. Holders of 1,635,436 of such restricted stock,
including each of the Company's officers, directors and principal stockholders
have agreed not to, directly or indirectly, issue, offer to sell, grant an
option for the sale of, assign, transfer, pledge, hypothecate or otherwise
encumber or dispose of (collectively "Transfer") any of their shares of Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock for a period commencing on the date of this Prospectus and ending eighteen
months after the effective date of this Offering, without the prior written
consent of the Representative. See "Principal Stockholders," "Shares Eligible
For Future Sale" and "Underwriting."
The Redeemable Warrants underlying the Units offered hereby and the
shares of Common Stock underlying such Redeemable Warrants, upon exercise
thereof, will be freely tradeable without restriction under the Securities Act,
except for any Redeemable Warrants of shares of Common Stock purchased by an
"affiliate" of the Company, which will be subject to the resale limitations of
Rule 144 under the Securities Act. In addition, 1,070,000 Redeemable Warrants
and 1,130,615 shares of Common Stock, including the 1,070,000 shares of Common
Stock underlying such Redeemable Warrants, are being registered on behalf of the
Selling Securityholders. The Selling Securityholders have agreed not to Transfer
such Redeemable Warrants, or shares of Common Stock, for a period of eighteen
(18) months from the effective date of the Registration Statement, without the
prior written consent of the Representative.
In addition, without the consent of the Representative, the Company has
agreed not to sell or offer for sale any of its securities for a period of 18
months following the effective date of the Registration Statement, except
pursuant to outstanding options and warrants and pursuant to the Company's
existing option plans and no option shall have an exercise price that is less
than the fair market value per share of Common Stock on the date of grant.
In addition, 200,000 shares of Common Stock will be available for
issuance upon the exercise of options which may be granted under the Company's
Stock Incentive Plan and 1,115,193 shares of Common Stock will be issuable upon
the exercise of other outstanding warrants. To the extent that options or
warrants are exercised, dilution to the interests of the Company's shareholders
may occur. Moreover, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected, since the holders of the
outstanding options or warrants can be expected to exercise them, to the extent
they are able to, at a time when the Company would, in all likelihood, be able
to obtain any needed capital on terms more favorable to the Company than those
provided in the options or warrants. See "Management," "Certain Transactions",
"Description of Securities", and "Shares Eligible for Future Sale."
Absence of Dividends. The Company has not paid any cash dividends on
its Common Stock and does not intend to declare or pay cash dividends in the
foreseeable future. The Company expects that it will retain all available
earnings, if any, to finance and expand its business. See "Dividend Policy."
Dilution. Purchasers of Units offered hereby will incur an immediate
and substantial dilution in the net tangible book value of the Common Stock.
Dilution represents the difference between the price of the Common Stock sold
hereby and the pro forma net tangible book value per share of the Company after
the Offering. Additional dilution to future net tangible book value per share
may occur upon exercise of the Redeemable Warrants, the Representative's
Warrants, certain options that may be issued or exercised under the Company's
stock option plan and other outstanding warrants. The immediate dilution per
share of Common Stock to purchasers of the Units offered hereby is $2.33 per
share, or 66.6% per share. See "Dilution."
Absence of Public Market; Arbitrary Determination of Offering Price;
Possible Volatility of Stock Price. Prior to this Offering, there has been no
public market for the Units or the Redeemable Warrants. There is a limited
public market for the Company's Common Stock. There is no assurance that a more
active market will develop, or, if one does develop, that it will be sustained.
The offering price for the Units has been arbitrarily determined by negotiation
between the Company and the Representative and is not necessarily related to the
Company's asset value, net worth or other established criteria of value. Market
prices for the Company's Common Stock following this Offering will be influenced
by a number of factors, including quarterly variations in the financial results
of the Company and its competitors, changes in earnings, estimates by analysts,
conditions in the digital information market, the overall economy and the
financial markets. See "Market Price for Common Equity and Related Stockholder
Matters" and "Underwriting."
Lack of Experience of Representative. Joseph Stevens & Company, L.P.
commenced operations in May 1994 and does not have extensive experience as an
underwriter of public offerings of securities. Joseph Stevens & Company, L.P.,
has acted as the managing underwriter for four public offerings. The
Representative is a relatively small firm and no assurance can be given that the
firm will be able to participate as a market maker in the Units, the Common
Stock, or the Redeemable Warrants, and no assurance can be given that any
broker-dealer will make a market in the Units, the Common Stock or the
Redeemable Warrants. See "Underwriting."
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Possible Adverse Effects of Authorization of Preferred Stock. The
Company's Certificate of Incorporation authorizes the issuance of shares of
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval (but subject to
applicable government regulatory restrictions), to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Company's Common
Stock. In the event of issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although the Company has no present intention
to issue any shares of its preferred stock there can be no assurance that the
Company will not do so in the future. See "Management," "Principal Stockholders"
and "Description of Securities."
No Public Trading Market; Possible Delisting from Nasdaq SmallCap
Market; Disclosure Relating to Low Priced Stocks. Prior to the Offering there
has been no public trading market for the Units or the Redeemable Warrants and
there has been only a limited trading market for the Common Stock. Although the
Units, the Common Stock and the Redeemable Warrants have been approved for
quotation on Nasdaq, there can be no assurance that a trading market will
develop or, if developed, that it will be maintained. In addition, there can be
no assurance that the Company will in the future meet the maintenance criteria
for continued quotation of the securities on Nasdaq. The continued quotation
criteria for Nasdaq include, among other things, $2,000,000 in total assets,
$1,000,000 in capital and surplus, a public float of 100,000 shares with a
market value equal to $200,000, two market makers and a minimum bid price of
$1.00 per share of common stock. If an issuer does not meet the $1.00 minimum
bid price standard, it may, however, remain on Nasdaq if the market value of its
public float is at least $1,000,000 and the issuer has at least $2,000,000 in
equity. If the Company were removed from Nasdaq, trading, if any, in the Units,
the Common Stock or the Redeemable Warrants would thereafter have to be
conducted in the over-the-counter market in the so-called "pink sheets" or, if
then available, the NASD's OTC Electronic Bulletin Board. As a result, an
investor would find it more difficult to dispose of, and to obtain accurate
quotations as to the value of such securities.
In addition, if the Common Stock is delisted from trading in Nasdaq and
the trading price of the Common Stock is less than $5.00 per share, trading in
the Common Stock would also be subject to the requirements of Rule 15g-9
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Under such rule, broker/dealers who recommend such low-priced securities
to persons other than established customers and accredited investors must
satisfy special sales practice requirements, including a requirement that they
make an individualized written suitability determination for the purchaser and
receive the purchaser's written consent prior to the transaction. The Securities
Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional
disclosure in connection with any trades involving a stock defined as a penny
stock (generally, according to recent regulations adopted by the Securities and
Exchange Commission (the "Commission"), any equity security not traded on an
exchange or quoted on Nasdaq that has a market price of less than $5.00 per
share, subject to certain exceptions), including the delivery, prior to any
penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. Such requirements could severely
limit the market liquidity of the Units, the Common Stock and the Redeemable
Warrants and the ability of purchasers in the Offering to sell their securities
in the secondary market. There can be no assurance that the Units, the Common
Stock and the Redeemable Warrants will not be delisted or treated as a penny
stock. Prior to completion of this Offering, the Company's Common Stock was
subject to Rule 15g-9 under the Exchange Act.
Potential Adverse Effect of Redemption of Redeemable Warrants. The
Redeemable Warrants are redeemable by the Company with the prior written consent
of the Representative at a price of $.05 per Warrant commencing __________,
1997, one year from the Effective Date, provided that (i) 30 days prior written
notice is given to the holders of the Redeemable Warrants and (ii) the closing
bid price per share of the Common Stock as reported on Nasdaq (or the last sale
price, if quoted on a national securities exchange) for any 20 trading days
within a period of 30 consecutive trading days, ending on the fifth day prior to
the date of the notice of redemption, has been at least 150% of the then
exercise price per share, subject to adjustment in certain events. The holders
of the Redeemable Warrants will automatically forfeit their rights to purchase
the shares of Common Stock issuable upon exercise of such Redeemable Warrants
unless the Redeemable Warrants are exercised before they are redeemed. Notice of
redemption of the Redeemable Warrants could force the holders to exercise the
Redeemable Warrants and pay the respective exercise prices at a time when it may
be disadvantageous for them to do so, to sell the Redeemable Warrants at the
market price when they might otherwise wish to hold the Redeemable Warrants, or
to accept the redemption price which is likely to be substantially less than the
market value of the Redeemable Warrants at the time of redemption. See
"Description of Securities -- Redeemable Warrants."
<PAGE>
Current Prospectus and State Blue Sky Registration Required to Exercise
Redeemable Warrants. Holders will have the right to exercise the Redeemable
Warrants and purchase shares of Common Stock only if a current prospectus
relating to such shares is then in effect and only if the shares are qualified
for sale under the securities laws of the applicable state or states, or there
is an exemption from the applicable qualification requirements. The Company has
undertaken and intends to file and keep effective and current a prospectus which
will permit the purchase and sale of the Common Stock underlying the Redeemable
Warrants, but there can be no assurance that the Company will be able to do so.
Although the Company intends to qualify for sale the shares of Common Stock
underlying the Redeemable Warrants in those states in which the securities are
to be offered, no assurance can be given that
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such qualification will occur. The Redeemable Warrants may be deprived of any
value if a prospectus covering the shares issuable upon the exercise thereof is
not kept effective and current or if such underlying shares are not, or cannot
be, registered in the applicable states. Although the Company does not presently
intend to do so, the Company reserves the right to call the Redeemable Warrants
for redemption whether or not a current prospectus is in effect or such
underlying shares are not, or cannot be, registered in the applicable states.
See "Description of Securities -- Redeemable Warrants."
THE COMPANY
The Company's predecessor was originally incorporated in Montana in
1931, and for many years prior to December, 1993 it had been a shell corporation
with no business or assets. In December, 1993, the Company changed its name to
InfoServe, Inc. and formed a subsidiary, CD-MAX, Inc. In April 1996, the Company
merged into a newly formed Delaware corporation, and merged CD-MAX, Inc. into
the Company and changed the Company's name to CD-MAX, Inc. The Company's
executive offices are located at 11480 Sunset Hills Road, Suite 110, Reston,
Virginia 22090; its telephone number is (703) 471-5755, and its facsimile number
is (703) 471-2806.
RECENT BRIDGE FINANCINGS
In February, and March 1996, Steven P. Schnipper, a director of the
Company, and two principal stockholders of the Company, advanced an aggregate of
$200,000 to the Company, and in April 1996 the same investors advanced an
aggregate of $100,000 to the Company (the "First Bridge Financing"). The initial
$100,000 was advanced pursuant to a one-year, 10% promissory note that was
repaid from the net proceeds of the Second Bridge Financing, as described below.
In addition, the Company issued an aggregate of (i) $180,000 principal amount of
promissory notes (the "First Bridge Notes") which bear interest at the rate of
10% per annum and are due and payable upon the earlier of (a) the consummation
of a public financing of the Company through the sale of equity securities from
which the Company receives gross proceeds of at least $3,000,000 or (b) May 16,
1997, and (ii) 170,000 Common Stock purchase warrants (the "First Bridge
Warrants"), each First Bridge Warrant entitling the holder to purchase one share
of Common Stock at an initial exercise price of $3.37 (subject to adjustment
upon the occurrence of certain events) during the three-year period commencing
May 16, 1997. See "Certain Transactions."
On May 16, 1996, the Company consummated a $1,000,000 bridge financing
(the "Second Bridge Financing", collectively the First Bridge Financing and the
Second Bridge Financing are referred to as the "Bridge Financings"), pursuant to
which it issued an aggregate of (i) $900,000 principal amount of promissory
notes (the "Second Bridge Notes", collectively the First Bridge Notes and the
Second Bridge Notes are referred to as the "Bridge Notes") which bear interest
at the rate of 10% per annum and are due and payable upon the earlier of (a) the
consummation of a public financing of the Company through the sale of equity
securities from which the Company receives gross proceeds of at least $3,000,000
or (b) May 16, 1997, and (ii) 600,000 warrants with an aggregate purchase price
of $100,000, (the "Second Bridge Warrants", collectively the First Bridge
Warrants, the Second Bridge Warrants and 300,000 warrants issued in connection
with the 1995 Financings are referred to as the "Bridge Warrants") each Second
Bridge Warrant entitling the holder to purchase one share of Common Stock at an
initial exercise price of $3.37 (subject to adjustment upon the occurrence of
certain events) during the three-year period commencing May 16, 1997.
The net proceeds of $1,120,000 from the Bridge Financings were applied
by the Company to pay off the first $100,000 advanced under the First Bridge
Financing, reduce accounts payable and accrued liabilities, and for working
capital. Upon the consummation of this Offering, each Bridge Warrant shall
automatically, without any action by the holder thereof, be converted into a
Redeemable Warrant (sometimes hereinafter referred to as the "New Warrant")
having terms identical to those of the Redeemable Warrants underlying the Units
offered hereby. The New Warrants and the underlying shares of Common Stock
issuable upon exercise of the New Warrants are being registered under the
Securities Act in the Registration Statement of which this Prospectus is a part.
The Company intends to use a portion of the proceeds of this Offering to repay
the entire principal amount of, and accrued interest on, the Bridge Notes. See
"Use of Proceeds."
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USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Units offered by the Company hereby at an assumed offering price of $7.00 per
Unit, after deducting underwriting discounts and expenses payable by the
Company, are estimated to be $5,081,000 ($5,903,150 if the Over-allotment Option
is exercised in full). The Company presently intends to use the net proceeds
(assuming no exercise of the Over-allotment Option) as follows:
Dollar
Amount Percentage
---------- ----------
Repay Bridge Notes(1) $1,080,000 21%
Payment of Deferred Management Salaries 258,497 5%
Sales and Marketing 900,000 18%
Product Development 1,800,000 35%
Working Capital 1,042,503 21%
---------- ----------
Total Net Proceeds $5,081,000 100%
- -------------------------------
(1) The Company intends to repay the aggregate principal amount of
$1,080,000, plus accrued interest thereon of the Bridge Notes (as
hereinafter defined). The Bridge Notes bear interest at the rate of 10%
per annum and mature on the earlier of (i) consummation of an offering
of the Company's securities from which the Company receives gross
proceeds of at least $3,000,000 or (ii) May 16, 1997, one year from the
date of issuance. See "Recent Bridge Financings."
The foregoing represents the Company's best estimate of the allocation
of the net proceeds of this Offering based upon the current status of its
business operations, its current plans and current economic conditions. Future
events, including the problems, delays, expenses, and complications frequently
encountered by early stage companies as well as changes in competitive
conditions affecting the Company's business and the success or lack thereof of
the Company's marketing efforts, may make adjustments in the allocation of funds
necessary or desirable.
The Company believes that the estimated net proceeds to be received by
the Company from this Offering will be sufficient to meet the Company's cash
requirements for a period of at least 12 months following the date of this
Prospectus. Thereafter, if the Company has insufficient funds for its needs,
there can be no assurance that additional funds can be obtained on acceptable
terms, if at all. If necessary funds are not available, the Company's business
would be materially adverse affected.
The Company will not receive any of the proceeds from the sale of the
Selling Securityholder Warrants or the Selling Securityholder Shares by the
holders thereof, although the Company will receive proceeds from the exercise,
if any, of the Selling Securityholder Warrants. See "Recent Bridge Financings,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Selling Securityholders."
Prior to expenditure, the net proceeds will be invested in short-term
interest bearing securities, such as bank certificates of deposit, United States
government obligations, or money market instruments.
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MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Prior to the acquisition of CD-MAX, Inc. in December 1993, the Company
was a shell corporation without any active trading. The Company's Common Stock
trades on the NASD OTC Electronic Bulletin Board. The following table sets forth
the range of high and low bid prices for the Company's Common Stock for the
fiscal quarters indicated as reported by NASDAQ Research Services. The prices
have been adjusted to reflect the 1 for 30 share exchange of the Company's
Common Stock in April 1996. Such quotations represent inter-dealer quotations
without retail markups, markdowns or commissions and may not necessarily
represent actual transactions. Furthermore, the Company does not believe that
the quotations for the Common Stock for the periods set forth below are true
indicators of the prices at which a substantial number of shares could be bought
or sold since, during such periods, trading in the Common Stock was relatively
inactive.
Bid Prices(1)
------------
High Low
---- ---
(Fiscal Year Ended 6/30/94)
4/1/94 to 6/30/94 .............................. $52.50 $22.50
(Fiscal Year Ending 6/30/95)
First Quarter ................................. $45.00 $22.50
Second Quarter ................................. 29.06 13.125
Third Quarter .................................. 18.75 8.4375
Fourth Quarter ................................. 16.875 9.375
(Fiscal Year Ending 6/30/96)
First Quarter ................................. $13.125 $9.375
Second Quarter ................................. 15.00 3.75
Third Quarter .................................. 27.00 9.375
- -----------
(1) These prices have been adjusted to reflect the 1 for 30 share exchange
of the Company's Common Stock in April 1996.
At June 5, 1996, there were approximately 381 holders of record of the
Common Stock. On June 5, 1996, the closing bid price on the OTC was $7.00 for
the Common Stock according to NASDAQ Research Services.
DIVIDEND POLICY
Since the acquisition of CD-MAX, Inc. in 1993, the Company has not paid
any cash dividends on its Common Stock. The Company presently intends to retain
earnings to provide for the operation and expansion of its business and
therefore does not anticipate paying cash dividends on its Common Stock in the
foreseeable future.
13
<PAGE>
DILUTION
As of March 31, 1996, the pro forma net tangible book value (deficit)
of the Company's Common Stock was $(560,002), or $(0.27) per share (after giving
effect to the portion of the Bridge Financings which occurred subsequent to
March 31, 1996). The net pro forma tangible book value (deficit) per share of
the Company is its total tangible assets less its total liabilities, divided by
the pro forma number of shares of Common Stock outstanding. Dilution per share
represents the difference between the amount per share paid by purchasers in the
Offering and the pro forma net tangible book value per share after the Offering.
After giving effect to the portion of the Bridge Financings which occurred
subsequent to March 31, 1996, and the receipt and application of the net
proceeds of the Offering, based upon the offering price of $7.00 per Unit
(assuming no value is attributed to the Redeemable Warrants included in the
Units), the pro forma as adjusted net tangible book value of the Company as of
March 31, 1996, would have been $4,506,415, or $1.17 per share. This represents
an increase in net tangible book value per share of $1.44 to the Company's
existing stockholders and an immediate dilution of $2.33 per share, or 66.6% to
public investors in this Offering (assuming no value is attributed to the
Redeemable Warrants included in the Units). The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed public offering price per share of Common Stock .............. $ 3.50
Pro forma net tangible book value per share before Offering .......... $ (0.27)
Pro forma increase per share attributable to new investors ........... $ 1.44
Pro forma as adjusted net tangible book value per share after Offering $ 1.17
Dilution per share to new investors .................................. $ 2.33
</TABLE>
The following table summarizes, as of March 31, 1996 (after giving
effect to the portion of the Bridge Financings which occurred subsequent to
March 31, 1996), the number and percentage of shares of Common Stock purchased
from the Company, the amount and percentage of cash consideration paid and the
average price per share paid by existing stockholders and by new investors in
the Offering.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------------------ -------------------------------------------------------
Percentage of
Percentage of Consideration Total Average Price
Number Outstanding Shares Paid Consideration Paid Per Share
----- ------------------ ------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Present Stockholders... 2,047,300 53% $2,286,272 27% $ 1.12
New Investors.......... 1,800,000 47 6,300,000(1) 73 $ 3.50
Total.................. 3,847,300 100% $8,586,272 100%
- ----------------------------------
</TABLE>
(1) Assumes no value for the Redeemable Warrants.
If the Underwriter's Over-Allotment Option is exercised in full, the
increase per share attributable to new investors would be $1.56, the pro forma,
as adjusted net tangible book value per share of Common Stock after the Offering
would be $1.29 and the dilution to new investors would be $2.21 per share or
63%.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as
of March 31, 1996, on an actual basis which reflects the restructuring of the
Company, including the 1 for 30 share exchange of the Common Stock and receipt
of $200,000 of the First Bridge Financing, of which $10,000 was allocated to the
purchase of 60,000 Bridge Warrants, and (ii) as of March 31, 1996 on a pro forma
basis to reflect the receipt of the balance of the First Bridge Financing of
$100,000, the repayment of $100,000 from the First Bridge Financing, and the
receipt of the net proceeds of the Second Bridge Financing of $820,000, of which
$100,000 was allocated to the purchase of 600,000 Bridge Warrants, and (iii) as
of March 31, 1996 on a pro forma as adjusted basis to reflect the sale by the
Company of the Units offered hereby at an assumed public offering price of $7.00
per Unit and the application of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Recent Bridge Financings".
<TABLE>
<CAPTION>
March 31, 1996
----------------------------------------
Pro Forma
Actual Pro Forma(2) As Adjusted(3)
------ ------------ --------------
<S> <C> <C> <C>
Short-term debt:
10% Promissory Notes, less unamortized
interest of $14,583, on an actual and pro forma basis $ 175,417 $ 1,065,417 $ --
Long-term debt -- -- --
----------- ----------- -----------
Total debt 175,417 1,065,417 --
----------- ----------- -----------
Stockholders' equity (deficit):
Preferred Stock, $1.00 par value; 1,000,000 shares
authorized; no shares outstanding -- -- --
Common Stock, $.01 par value; 10,000,000 shares
authorized, 2,047,300 shares outstanding on an actual
and proforma basis, 3,847,300 shares outstanding on a
proforma as adjusted basis(1) 20,473 20,473 38,473
Capital in excess of par value 2,537,001 2,629,001 7,692,001
Deficit accumulated during the
development stage (3,047,476) (3,047,476) (3,224,059)
----------- ----------- -----------
Total stockholders' equity (deficit) (490,002) (398,002) 4,506,415
----------- ----------- -----------
Total Capitalization $ (314,585) $ 667,415 $ 4,506,415
=========== =========== ===========
</TABLE>
- ---------------
(1) Does not include (i) 125,193 shares reserved for issuance upon the
exercise of outstanding warrants at exercise prices ranging from $.30
to $22.50 per share; (ii) 990,000 shares reserved for issuance upon the
exercise of warrants granted to management at an exercise price of
$10.50 per share; (iii) 86,345 shares reserved for issuance upon the
exercise of stock options granted pursuant to the Company's 1993 Stock
Incentive Plan at exercise prices ranging from $7.00 per share to
$45.00 per share; and (iv) 113,655 shares reserved for issuance upon
the exercise of options which may be granted under the Company's 1993
Stock Incentive Plan. See "Management," "Certain Transactions,"
"Description of Securities," and "Underwriting."
(2) As part of the Second Bridge Financing approximately $162,000 has been
reflected as deferred financing costs.
(3) As adjusted to reflect (i) an expense of $162,000 of debt issuance
costs relating to the Second Bridge Notes which would have otherwise
been amortized over the term of the Second Bridge Notes, and (ii) an
expense of $14,583 of additional interest expense related to the Second
Bridge Notes.
15
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data as of June 30, 1994 and 1995, and the
balance sheet data as of June 30, 1995 are derived from the financial statements
included elsewhere in this Prospectus. The condensed statement of operations
data and condensed balance sheet data for the nine months ended March 31, 1995
and 1996 and as of March 31, 1996, are derived from the unaudited financial
statements included elsewhere in this Prospectus. The results for the nine
months ended March 31, 1996, are not necessarily indicative of results of
operations for a full year. In the opinion of management, the unaudited
condensed financial statements included herein reflect all adjustments necessary
for the fair presentation of such financial data and all such adjustments are of
a normal and recurring nature. The information set forth below should be read in
conjunction with the Company's financial statements, and Management's Discussion
and Analysis of Financial Condition, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Period from
July 1, 1993
Year ended June 30 Nine months ended March 31, (Inception) to
1994 1995 1995 1996 March 31, 1996
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ -- $ 2,500 $ -- $ 8,500 $ 11,000
Costs and expenses:
Selling 112,455 120,285 83,882 153,202 385,942
General and
administrative 710,952 691,472 443,223 461,229 1,863,653
Research and
development 107,135 277,120 235,082 437,224 821,479
----------- ----------- ----------- ----------- -----------
Total costs and expenses 930,542 1,088,877 762,187 1,051,655 3,071,074
Interest income 547 3,962 1,020 8,089 12,598
----------- ----------- ----------- ----------- -----------
Net loss $ (929,995) $(1,082,415) $ (761,167) $(1,035,066) $(3,047,476)
=========== =========== =========== =========== ===========
Net loss per share(1) (.89) (.91) (.70) (.54)
=========== =========== =========== ===========
Weighted average number of
common stock shares outstanding(1) 1,046,540 1,192,279 1,087,010 1,925,278
=========== =========== =========== ===========
June 30, March 31,
-------------------------- --------------
1994 1995 1996
---- ---- -----------
(Unaudited)
Balance Sheet Data:
Cash and cash equivalents $ 74,670 $ 321,856 $ 50,462
Working capital (deficit) (147,806) (8,686) (521,449)
Total assets 74,670 326,868 137,566
Total liabilities 222,476 335,554 627,568
Deficit accumulated during the development stage (929,995) (2,012,410) (3,047,476)
Total stockholders' equity (deficit) (147,806) (8,686) (490,002)
</TABLE>
- ------------
(1) Computed on the basis described in Note 2 of the Notes to the Financial
Statements
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a development stage company engaged in the development
and marketing of the CD-MAX technology to publishers of digitally stored
information. The Company commenced operations in July 1993. Prior thereto, the
principals of the Company were involved in the development of the CD-MAX
technology, development of the business plan and arranging for the initial
capitalization of the Company.
From July 1, 1993 (inception) through March 31, 1996, the Company
recognized revenues from operations of $11,000 and had an accumulated deficit of
approximately $3,047,476. The Company has continued to operate at a deficit
since inception and expects to incur significant additional operating losses
until the Company generates significant revenues from operations which are
sufficient to cover its monthly operating expenses.
The Company's strategy is to achieve market acceptance of the CD-MAX
System with publishers of professional, general corporate, library and
educational materials which use CD-ROMs as the method of information
distribution. The Company has an Internet version of its service under
development and expects to introduce it in 1996. The Company has entered into
agreements with two information publishers pursuant to which it may receive
product development, transaction and licensing fees (which represent a
percentage of the revenue billed by the Company on behalf of the publisher),
provided that the publishers are successful in marketing their CD-ROMs, of which
there can be no assurance. The first commercial test of the CD-MAX System began
in August, 1995, and to date, only $11,000 in revenues have been generated.
Results of Operations
Nine Months Ended March 31, 1996 Compared with Nine Months Ended March 31, 1995
For the nine months ended March 31, 1996, the Company recognized
revenues of $8,500 as license fee income pursuant to its agreements with
publishers. For the nine months ending March 31, 1995, the Company did not
recognize any revenues from operations.
The Company's operating expenses were $1,051,655 for the nine months
ended March 31, 1996, compared to $762,187 for the nine months ended March 31,
1995. This increase of $289,468 or 38% was attributable primarily to the
following factors:
Selling expenses were $153,202 for the nine months ended March 31,
1996, compared to $83,882 for the nine months ended March 31, 1995. This
increase of $69,320 or 83% was attributable primarily to increased expenses
associated with the design and production of marketing materials and an increase
in public relations expenses.
General and administrative expenses were $461,229 for the nine months
ended March 31, 1996, compared to $443,223 for the nine months ended March 31,
1995. This increase of $18,006 or 4% was primarily due to a $58,015 increase in
administrative salaries (annual salary increase for key employees, additional
staff and temporary services); a $8,245 increase in Virginia office rent (nine
months rent versus two months rent in the prior nine months); a $24,108 increase
due to the hiring of an accountant and external audit expenses; a $10,540
increase due to an increase in travel (finance related activities); a $27,565
increase in legal expenses; and a $30,653 increase in general office expenses
offset by a decrease of $141,120 in investors' and financial relations expense.
Research and development expenses were $437,224 for the nine months
ended March 31, 1996, compared to $235,082 for the nine months ending March 31,
1995. This increase of $202,142 or 86% was primarily attributed to the increase
of nine additional personnel in software development and operations. This
increase in staff also resulted in an increase of equipment and related
expenses.
Due to the above, the Company had a net loss of $1,035,066 for the nine
months ended March 31, 1996, compared to a net loss of $761,167 for the nine
months ended March 31, 1995.
Year Ended June 30, 1995 Compared with Year Ended June 30, 1994
For fiscal year ended June 30, 1995 ("Fiscal 1995"), the Company
recognized revenues of $2,500 as license fee income pursuant to an agreement
with a publisher. For the fiscal year ending June 30, 1994 ("Fiscal 1994"), the
Company did not recognize any revenue from operations.
The Company's operating expenses were $1,088,877 in Fiscal 1995,
compared to $930,542 in Fiscal 1994. The increase of $158,335 or 17% was
attributable primarily to the growth in the Company's operations. More
specifically to the following factors:
17
<PAGE>
Selling expenses were $120,285 for Fiscal 1995, compared to $112,455
for Fiscal 1994. The increase of $7,830 or 7% was primarily due to an increase
in public relations expense.
General and administrative expenses were $691,472 for Fiscal 1995,
compared to $710,952 for Fiscal 1994. The decrease of $19,480 or 3% was due
primarily to a $64,130 increase in salaries, where management received or
accrued salaries for 12 months of Fiscal 1995, versus nine months for Fiscal
1994, a $134,994 decrease in financial public relations expense, and a $51,384
increase in general office expenses.
Research and development expenses were $277,120 for Fiscal 1995,
compared to $107,135 for Fiscal 1994. This increase of $169,985 or 159% was
primarily attributable to an increase in head count and temporary services in
the software development and operations areas. The Company opened its Northern
Virginia Operations Center late in Fiscal 1994, and only incurred nominal office
related costs for this facility in Fiscal 1994, versus Fiscal 1995.
Due to the above, the Company had a net loss of $1,082,415 in Fiscal
1995, compared to a net loss of $929,995 in Fiscal 1994.
Recent Pronouncements
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation" which is effective for the
Company's 1997 financial statements. SFAS No. 123 allows companies to account
for stock-based compensation under either the new provisions of SFAS 123 or the
provisions of APB No. 25, but requires pro forma disclosure in the footnotes to
the financial statements as if the measurement provisions of SFAS No. 123 had
been adopted. At this time, the Company intends to continue accounting for its
stock based compensation in accordance with the provisions of APB No. 25. As
such, the implementation of SFAS No. 123 will not materially impact the
financial position or results of operations of the Company.
Liquidity and Capital Resources
The Company has experienced net losses and negative cash flow from
operations since its inception and at March 31, 1996 had a working capital
deficiency of $521,449. Other than routine trade payables, the Company's primary
liability is for accrued expenses of $322,582, which as of March 31, 1996,
represents back salary due management of $300,764, fringe benefit accruals of
$19,299, and other accruals of $2,519.
The Company has financed its operations primarily through funds
obtained from the sale of Common Stock in private placement transactions of
$2,286,272 and the deferral of management salaries, which as of March 31, 1996,
amounted to $300,764. During the period July 1, 1995 through March 31, 1996, the
Company received $725,000 of additional financing through the sale of equity and
the issuance of debt securities. Subsequent to March 31, 1996, the Company has
received $1,100,000 of additional financing through the sale of equity and the
issuance of debt securities to fund the Company's operations until this Offering
is completed.
The Company has no material capital commitments. Most of its capital
assets consist of computers and related peripheral equipment which have either
been purchased or leased. The Company's obligations under its equipment leases
are not material. The Company does have employment agreements with four of its
senior executives which call for annual salaries of approximately $56,000 to
$79,500 per year per individual. And, the Company has office lease obligations
for its offices in Murray Hill, NJ and Reston, VA, in the aggregate of $82,447
in Fiscal 1996, $95,889 in Fiscal 1997, and $65,112 in Fiscal 1998.
At June 30, 1995, the Company had available net operating loss carry
forwards of approximately $1,100,000 to offset future taxable income for federal
tax purposes. The utilization of the loss carry forwards to reduce future income
taxes will depend upon the Company's ability to generate sufficient taxable
income prior to the expiration of the net operating loss carry forwards. The
carry forwards expire in the year 2008 through 2010. However, the Internal
Revenue Code of 1986, as amended, (the "Code") limits the maximum annual use of
net operating loss and tax credit carry forwards in certain situations where
changes occur in the stock ownership of a corporation. As a result of this
Offering, a change in ownership is likely to occur and therefore may place
restrictions on the Company's use of the net operating loss carry forwards for
federal and state income tax purposes. See Note 5 to Financial Statements.
The report of the Company's independent auditors on the Company's
financial statements as of June 30, 1995 and for the years ended June 30, 1994
and 1995 and for the period from July 1, 1993 (inception) to June 30, 1995,
contains an explanatory paragraph expressing substantial doubt with respect to
the ability of the Company to continue as a going concern. The Company believes
that the net proceeds from this Offering will be sufficient to finance the
Company's working capital requirements for 12 months following the completion of
the Offering. See "Use of Proceeds." There can be no assurance that the Company
will generate sufficient revenues or be able to raise additional capital to fund
its operations after such period.
18
<PAGE>
BUSINESS
The Company is engaged in the business of developing and marketing the
CD-MAX(TM) System, based upon its proprietary technology, which is designed to
allow publishers of professional, corporate, library and educational CD-ROM
based information to sell their information to end-users on a usage basis.
Publishers in these fields currently sell CD-ROM titles for a fixed fee,
normally as an annual subscription. The Company believes that the CD-MAX System
has the potential to increase the revenues of CD-ROM publishers by reducing
copyright and license abuse and enabling them to expand into new markets. The
CD-MAX System consists of proprietary metering and encryption software and
billing services. The CD-MAX System is being adapted for use on the Internet and
is expected to be commercially available during 1996 under the name NET-MAX(TM).
The Company's strategy is to achieve broad market acceptance of its
CD-MAX System in its target markets and to create a range of services based on
proprietary technology which is expected to produce a continuous revenue stream.
The Company has targeted publishers in the professional, corporate, library and
educational fields as its initial markets. The Company is focusing its initial
marketing efforts in the U.S. and Canada. Subsequent marketing efforts may be
extended to European markets. The Company has received an unrestricted export
license from the Department of Commerce. This license allows it to export its
software to most countries in the world, unlike many other hardware and software
encryption methods, which may not be exported, due to federal export
restrictions.
Electronic information is currently distributed primarily by three
methods: 1) CD-ROM 2) online services and 3) the Internet. Currently,
professional and business information delivered on CD-ROM is generally sold on a
flat fee or subscription basis for unlimited use. The Company believes that such
forms of access can be inefficient and expensive for many end-users. Unmetered
usage may also prevent publishers from maximizing revenues from heavy users,
particularly users on networks. The second method, online services, may be
advantageous for timely information, such as stock quotes, but, due to the high
costs of building and maintaining a mainframe computer installation and the high
costs of transmission, online is usually a more expensive alternative to CD-ROM.
Hybrid CD-ROM/online systems attempt to maximize the advantages of both methods
of distribution, by combining the timeliness of online systems with the lower
costs of CD-ROM. The Internet is the third and newest method of distribution. It
has only recently been developed for commercial use and faces similar problems
as CD-ROM, including the need for security and metering services.
The CD-MAX System monitors the amount and type of information accessed
from an encrypted CD-ROM. The usage data is stored in encrypted form on the
computer's hard disk. The CD-MAX System can retrieve this data from the end-user
via modem. The Company can then update the necessary security codes and bill the
end-user on behalf of the publisher. CD-MAX withholds new security codes if the
end-user does not pay the applicable charges which will terminate access to the
CD-ROM. For those personal computers without a modem, the Company offers
alternate billing arrangements.
Information contained on published CD-ROMs is located via the use of
special software on the CD-ROM known as a "search and retrieval engine." The
CD-MAX System is compatible with many popular search and retrieval engines. The
Company has entered into agreements with Dataware Technologies, Inc., and Folio
Corporation, major search and retrieval software firms, to facilitate the
compatibility of the CD-MAX metering and encryption capabilities with the
Dataware and Folio search and retrieval engines.
The Company has been working with industry leaders and associations to
gain industry acceptance of the CD-MAX System. The Company was the only
information security and metering firm invited to speak at the Information
Industry Association's Annual Investor's Conference in June, 1995. Company
management was also invited to chair three sessions at the Information Industry
Association's annual conference in September, 1995. An article in CD-ROM
Professional written by two of the Company's executives, received an award for
Best Article at the annual Online/CD-ROM convention in October, 1995.
The Company's executive offices are located at 11480 Sunset Hills Road,
Suite 110, Reston, Virginia 22090; its telephone number at this location is
(703) 471-5755.
Industry Background
The sale of electronic information on CD-ROMs is a large and growing
market. The Company has targeted publishers of professional, corporate, library
and educational fields as its initial markets. According to InfoTech, Inc., a
leading CD-ROM market research firm, these publishers were estimated to account
for 75% of the approximately $9 billion U.S. CD-ROM software market for 1995.
The U.S. CD-ROM software market is projected to grow 60% in 1996 to over $14
billion, with the worldwide CD-ROM software market increasing to over $23
billion.
19
<PAGE>
Sales of CD-ROM hardware generate sales of CD-ROM software. InfoTech
reports that approximately 12 million CD-ROM drives were installed in the U.S.
in 1994 and more than 20 million were installed in 1995, an increase in excess
of 60%. Additionally, CD-ROM drives are increasingly being installed in networks
where one CD-ROM drive may serve dozens or even hundreds of users.
The introduction of the new high density CD-ROM drives, known as
Digital Video Disk ("DVD"), which are expected to ship in mid-year 1996, may
expand the CD-ROM market further by expanding the capacity of a CD-ROM by 700%
or more. DVD is expected to also allow for greater use of full-motion video
which will enhance the value of CD-ROM titles, particularly interactive training
titles.
Distribution of Electronic Information
Currently, electronic information databases are primarily distributed
in three ways: CD-ROM, online services and the Internet.
CD-ROM: CD-ROM titles in the professional, corporate, library and
educational markets are currently sold on a fixed fee basis, normally as an
annual subscription where the user usually receives a new disc (or set of discs)
monthly or quarterly. For many titles, the price exceeds $2,000 per year.
Without usage billing services, a publisher's customers are faced with a
difficult "all or nothing" purchase decision. Many potential customers who need
occasional access may be unwilling to commit to the large up-front costs under
the current pricing system. Furthermore, the tremendous information storage
capacity of optical technology allows multiple databases on one CD-ROM. Current
technology and practices, however, discourage publishers from offering multiple
databases on one CD-ROM since the total cost for the databases to the end-user
could be prohibitive.
Even when publishers charge a higher flat fee for network licenses,
they are finding network users can easily abuse their network licenses by
unauthorized use. The CD-MAX System is designed to capture all use for billing
purposes in order to prevent unrecorded sharing of data from a CD-ROM and to
provide the publishers with the option of billing network users based upon
usage.
CD-ROM publishers face the problem of piracy of their CD-ROM based
information. Recently developed low cost writable optical technologies and
high-capacity cartridge tape drives make it possible to copy all or part of a
CD-ROM easily and inexpensively. The applications software industry suffers
substantial losses of potential revenue due to piracy. Providers of information
on CD-ROMs are becoming equally susceptible, but are at greater risk because of
the much higher price of their products. The Company's proprietary encryption
software is designed to address this problem.
Online: An alternative to CD-ROM is online information services. These
services often cost many times what a comparable CD-ROM would cost. Online
information costs are high because the provider must pass along the
telecommunications costs and the cost of maintaining a mainframe computer
installation that must be large enough to handle peak periods, but is often not
used to capacity.
Some publishers currently offer a hybrid CD-ROM/online service. In a
hybrid environment, users receive a subscription to the CD-ROM product for which
they receive monthly updates. All of the searches for information would normally
begin with the CD-ROM. Only if the user wanted information that was issued since
the last monthly CD-ROM update would he need to go online for the most recent
information. In this way, online time is minimized and the low cost and large
storage capacity of CD-ROM is maximized. The Company believes the hybrid
CD-ROM/online distribution method will ultimately become a dominant method of
distribution for professional and business information.
Internet: Closely related to the CD-ROM industry is the Internet
market. The Internet market for published information has only recently
developed and is not as large as the current CD-ROM market, but, it may become a
multi-billion dollar industry. Professional, corporate, library and educational
information publishers on the Internet have a similar need for metering and
security technology as CD-ROM publishers. The Company is in the process of
developing the Internet version of its CD-MAX System, under the name NET-MAX. It
expects to introduce a commercial version of NET-MAX in 1996. There can be no
assurance that the Company will develop this product, or that it will find any
commercial acceptance.
The CD-MAX System
The CD-MAX System consists of software installed on the end-user's
computer, which includes an encrypted file structure containing security codes
and transaction tracking programs, and an encrypted CD-ROM. The CD-MAX System is
installed on the end-user's computer by means of a short CD-MAX program
contained on the CD-ROM itself, or on an accompanying diskette.
20
<PAGE>
Information on a CD-ROM may be protected from unauthorized use by
encrypting the data on the CD-ROM. The Company employs a proprietary data
encryption process to protect CD-ROM information. CD-ROM files are encrypted on
a pre-master disk from which the CD-ROMs are then pressed in the manufacturing
process.
An encrypted CD-ROM will be accessible only when three elements
interact and match properly: (1) the encrypted CD-ROM, (2) security codes
contained in the metering software, and (3) electronic code updates gained
through registration and reauthorization with the CD-MAX billing center. When a
CD-MAX encrypted CD-ROM is read by an authorized end-user, the proper security
codes unlock the information automatically. The Company's encryption technique
produces no discernible effect on a CD-ROM's performance.
Once the CD-MAX System is installed (in either single-user or network
settings), any use of a CD-MAX encrypted CD-ROM is recorded for
transaction-tracking and billing purposes. The CD-MAX System automatically
monitors and records information transactions according to the publisher's
specifications and stores them in a file on the user's hard disk. The stored
transaction data is periodically retrieved via modem, with minimal customer
involvement. The Company's billing operations then process the data, prepare and
mail billing statements, and accept payment of fees from end-users. For users
who do not have a modem, the CD-MAX System can be used with alternative
arrangements, with usage information retrieved via diskette.
Security codes are changed whenever transaction data is retrieved from
the end-user. Transaction data retrieval is based on the user's credit limit or
an expiration date. To prevent non-paying users from accessing the CD-ROM
information, the system will not function without access to the new codes.
The CD-MAX system is designed to monitor and record end-user
transaction data; therefore, trends and patterns of use can be reported to
publishers for each of their CD-ROM databases. Publishers may learn how their
customers use databases, which databases are used frequently and which are used
infrequently for marketing and product development purposes. The Company
includes transaction reports to publishers with its billing services.
The CD-MAX System is customized to the needs of each publisher. This
process involves consulting with the publisher to determine product parameters
such as pricing, data measurement goals and possible marketing enhancements.
Publishers typically rely on outside firms to pre-master and master the software
files contained on a CD-ROM. The Company's involvement in the production process
is limited to encrypting the pre-mastered files and testing for errors. The
Company provides support to end-users and publishers with a telephone help-line.
CD-MAX Billing Services: On behalf of publishers, the Company bills and
accepts payment of transaction fees from all users of CD-ROM based information
sources which use the CD-MAX System. The Company currently offers two
alternatives for billing: after-use and pay-in-advance billing.
For after-use billing, the user's computer accesses the Company's
billing computer via a standard modem at the end of a billing period. Upon
access, the Company downloads the transaction information and calculates billing
accordingly. If bills are not paid within a predetermined period of time, the
Company will not download new access codes and the CD-MAX System will
automatically terminate access to the CD-ROM until the bill has been paid and
new codes are downloaded to the user's computer. For most publishers, after-use
billing is the preferred option. Although the Company does not assume liability
for unpaid customer invoices, it charges publishers a percentage only of
revenues collected.
For pay-in-advance billing, users are required to contact the Company
and pay for a certain amount of transactions, normally via credit card or check
debit. The Company then updates the access control codes in the CD-MAX software.
The software tracks the transactions and notifies the user when the advances
have been depleted.
Architecture of the Primary Elements of CD-MAX System
The primary elements of the CD-MAX System are data encryption, metering
and security.
Data Encryption. Data encryption is a method of generating and
expanding codes. An algorithm reads the code, expands it and combines it with
the unencrypted text (the "plaintext") to create encrypted text (the
"cyphertext"). This cyphertext is unreadable by the user without the appropriate
code and algorithm to decrypt the data. The reverse process is decryption, which
reads the code, expands it and combines it with the cyphertext to create the
plaintext. The CD-MAX System uses a proprietary encryption method specifically
designed for information on CD-ROMs. The CD-MAX System has no discernible effect
on retrieval times and provides a high level of security relative to the value
of the information on the disc. The encryption method is not designed to stop
all attempts to break it, but rather to provide an economic level of security
that is intended to deter all normal unauthorized access to the
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information. In addition, the Company's encryption method has been approved by
the U.S. Department of Commerce for an unrestricted export license so that,
unlike other encryption methods, the CD-MAX System can be exported outside the
United States.
Once integrated with the publisher's search and retrieval engine, the
CD-MAX System decrypts data continuously, provided that the user has either paid
for data retrieval or established credit with the CD-MAX billing center. To
facilitate encrypted information updates, the Company has created an Automated
Encryption Program, which allows publishers to encrypt additional data without
the Company's intervention.
Metering. Metering is a method of measuring and recording information.
The CD-MAX System measures and records actual data access, which allows
publishers to charge on a "One Chargeable Unit" ("OCU") basis. An OCU is a small
data segment. The ability to meter by OCU gives the publisher flexibility in
pricing information. Retrieving, printing and transferring (copying) data are
the main functions recorded. Each time an OCU is retrieved from the database,
information about that OCU is recorded in a transaction file. The CD-MAX system
automatically calculates the transaction charges, according to specific base
prices and transaction fees the publisher chooses.
Security. The CD-MAX System provides security at many different levels.
Security begins with the proprietary CD-ROM encryption technology employed to
protect CD-ROM information. User login security is provided to prevent
unauthorized users from retrieving data, as well as giving the publisher's
customers the ability to charge departments within their organizations for their
transactions. Installation diskette security protects publishers from lost
revenues since users must register with the CD-MAX billing center in order to
retrieve the data. Authorization codes are entered into the user's CD-MAX system
during reauthorization. The transaction data cannot be read by ordinary means as
it is encrypted using a special one-way encryption process that is decrypted at
the CD-MAX facility.
Architecture of the NET-MAX System for the Internet
The Company is in the process of developing an Internet version of the
CD-MAX System, to be named NET-MAX. There can be no assurance that this Internet
product will be successfully developed or commercialized. Based upon the
Company's development to date, it is expected that the architecture of the
NET-MAX System will be as follows:
The publisher's data will be prepared with embedded NET-MAX encryption
tags in the Internet source document. The data will then be stored at the
publisher's web site. Data tagged with the NET-MAX encryption tag will be stored
in encrypted format and will be unreadable to a unauthorized user.
To retrieve the NET-MAX encrypted data, the Company will make available
a complex set of programs that administer tracking, metering and security on the
user's computer (the "metering stub") which can be downloaded from an Internet
Web Site. When the NET-MAX metering stub is installed, the user will be required
to register with the CD-MAX billing center. All sensitive transactions will be
subject to encryption using available Internet encryption software, such as the
Netscape standard Secure Sockets Layer.
The metering stub inserts itself into the protocol layer looking at
each packet destined for the user's web browser. Once a NET-MAX encryption tag
is found in the data stream, the metering stub determines the appropriate
charges and communicates this to a metering server at the Company's facility. If
the user's authorization codes are accepted by the Company's metering server,
the decryption of the packet is accomplished at the user site. Without the
NET-MAX metering stub, the data is unreadable to the web browser.
Many browsers save the publisher's Internet document. The CD-MAX
metering stub also intercepts requests to store the data into the local hard
disk and ensures that the data remains stored in encrypted format. When the data
is again requested from the local hard disk, the metering stub decrypts the
data. Depending on the publisher's requirements, verification and approval from
the NET-MAX metering server may be required prior to data decryption. The
publisher's data is safe from unauthorized users even when it has been
downloaded from the publisher's web site.
Finally, users can send the encrypted data by mail to another user
(redistribution). If that user is also registered with the Company, the NET-MAX
metering stub will intercept requests to read that file. Once the CD-MAX
metering server recognizes the new user's authorization codes, the encrypted
data is decrypted. The publisher's data remains inaccessible to unauthorized
users.
Marketing
The primary method of marketing the CD-MAX System to publishers is the
Company's internal sales force. All end-user marketing will be done by the
publishers. Presently the Company's sales force consists of two people. The
Company expects to
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increase the sales force to four persons in the second half of 1996, assuming
available resources. Based on the nature of the Company's initial target
markets, the Company believes that a four person sales force will be sufficient
for the foreseeable future.
Information contained on published CD-ROMs is located and retrieved via
the use of special software included on the CD-ROM known as a "search and
retrieval engine." There are a small number of companies that sell search and
retrieval engines to a large number of CD-ROM publishers. The Company's
marketing strategy includes working with search and retrieval engine software
companies to have the CD-MAX System incorporated into their software. The
Company believes this strategy will provide the CD-MAX System with the approval
of the search and retrieval software companies and convince publishers that the
CD-MAX System is compatible with the search and retrieval software. The Company
has entered into agreements with Dataware Technologies, Inc., and Folio
Corporation, major search and retrieval software firms, to facilitate the
compatibility of the CD-MAX metering and encryption capabilities with the
Dataware and Folio search and retrieval engines. Neither Dataware nor Folio is
under any obligation to make their search and retrieval software compatible with
the CD-MAX System.
The Company has been working with industry leaders and associations to
gain industry acceptance of the CD-MAX System. The Company was the only
information security and metering firm invited to speak at the Information
Industry Association's Annual Investor's Conference in June, 1995. Company
management was also invited to chair three sessions at the Information Industry
Association's annual conference in September, 1995. An article in CD-ROM
Professional that was written by two of the Company's executives received an
award for Best Article at the annual Online/CD-ROM convention in October, 1995.
The Company has utilized trade advertising to increase its name
recognition within its target market. The Company advertises in major industry
publications. The Company has also retained a public relations firm. To expand
its contacts within the industry, the Company has created an advisory board
comprised of senior executives who have been employed at large publishing firms.
See "Management - Advisory Board."
Principal Contracts
As of the date hereof, the Company has two contracts with customers for
its CD-MAX System. In March, 1995, the Company entered into a contract with
Mitchell International, a unit of Thomson Publishing, which publishes automobile
repair manuals. Mitchell is working with its CD-ROM product "On-Demand
Computerized Repair Information" under the name "Metered On-Demand" using the
CD-MAX System. To date, this contract has resulted in minimal revenues to the
Company. In July, 1995, the Company entered into a contract with Disclosure,
Incorporated a major provider of financial and legal information. Disclosure's
CD-ROM title, "New Issues," is the first of four titles under contract and is
intended to be sold under the name "Metered New Issues." This product is in the
testing stage. Each of these contracts requires the publisher to pay fees for
billing services and to pay CD-MAX a percentage of all revenues generated
through the use of CD-MAX encrypted products.
Competition
The Company is aware of other companies that are developing metering
and encryption systems that are in some ways similar to the Company's system. In
addition, the Company believes that it is possible to provide some of the same
benefits that the CD-MAX System will offer by other means. It is also possible
that other companies may be developing systems comparable to the CD-MAX System.
There can be no assurance that either existing or new competitors will not
develop technologies that are superior to, or more cost-effective than, the
Company's system or that otherwise achieve greater market acceptance. There can
be no assurance that the Company will be able to compete successfully against
existing competitors or future entrants into the market.
No security and pricing/billing technology has yet emerged as the
standard for the CD-ROM industry. Individual information providers, however,
have begun to actively seek solutions to the security-related problem of license
abuse, and to the pricing issues that arise when multiple databases are loaded
onto one CD-ROM. Both software and hardware solutions are currently available
from the Company's competitors, and each category is profiled below.
Software-only systems. Software-based security systems have been
available to the software and information industries for a number of years.
These systems provide security in the form of copy protection, but do not have
any capability for usage-based pricing. Only a few CD-ROM publishers in CD-MAX's
target markets use software based security systems.
CD-MAX has encountered only three firms that are actively selling
software-based security systems to CD-ROM providers. Rainbow Technologies, Inc.
("Rainbow"), TestDrive Corporation and Softbank, Inc. These systems all allow
catalogs of software programs to be distributed on CD-ROM, either gratis or at a
nominal subscription price. Customers may review descriptions and trial versions
of individual products at their convenience, with the option of unlocking access
to any program they desire. Sellers take credit card payment and provide pass
codes over the telephone. This approach is viewed as most acceptable for selling
large quantities of low-priced consumer educational and entertainment programs,
since they are usually self-contained and require small
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amounts of memory. Simple unlocking systems, such as Rainbow's VendorSystem and
the others, do not, however, adequately address the pricing, security and
customer-convenience needs of high-priced CD-ROM databases that contain large
numbers of records and require ongoing copyright protection. The Company
believes it is unlikely that CD-MAX's target markets will adopt the approach
offered by these three companies.
Hardware-based security systems. The introduction of a hardware element
into a security system increases the level of security that can be attained,
since protection of codes no longer rests solely on software barriers. Hardware
security systems, such as Rainbow's Sentinel Hardware Key, are commonly used to
protect high-priced workstation software. End-users insert a hardware plug into
the parallel port of their computer in order to gain access to the software
program. Since the security codes are both fixed and proprietary, each software
program that uses this approach requires a separate hardware plug in the
parallel port of the computer. This type of hardware system lacks a metering
capability.
The Company knows of two companies that have developed hardware-based
security systems which have metering capability. Wave Systems Corp. ("Wave")
uses a board that is installed in the user's computer. In addition to metering,
the board facilitates the use of Data Encryption Standard ("DES"), a government
encryption standard developed in the 1970's. CD-MAX uses a proprietary approach
that the Company believes is more flexible and appropriate for information sold
on CD-ROM and does not require additional hardware. Wave is also attempting to
adopt an alternative approach that uses a proprietary microchip, instead of a
board, which would be installed in the user's computer at the time the computer
is manufactured. This would require the cooperation of computer manufacturers.
As of the date hereof, to the Company's knowledge, no manufacturer has agreed to
install Wave's microchip in their computers. Wave is also currently attempting
to develop a satellite-based information delivery system.
InfoSafe Systems, Inc. ("InfoSafe") has developed an encryption system
to meter CD-ROM usage and bill customers accordingly. Certain elements of
InfoSafe's Keystone System -- principally the encryption of files and use of a
hardware device -- are similar to Wave's approach. InfoSafe's system uses an
external control box that connects to a Small Computer System Interface ("SCSI")
port on a computer.
Proprietary Rights and Intellectual Property
The CD-MAX System is based upon software and related technical data
that the Company believes is a "trade secret." The Company believes that
commercial protection of its products will depend primarily upon the CD-MAX
System proprietary software remaining a trade secret and on copyright
protection. In order to protect trade secrets, the Company is taking
measurements which in its opinion are appropriate procedures to protect its
rights. The Company is also maintaining its copyright rights in this proprietary
software. In any case, there can be no assurance that the Company's technology
will remain secret or that others will not develop similar technology and use
such technology to compete with the Company. While the Company has certain
rights with respect to patents (see discussion below) those patents do not cover
the CD-MAX System as it is presently configured.
Prior to the formation of CD-MAX, John David Wiedemer, Senior Vice
President, Operations, developed the technology, which led to the creation of
the CD-MAX System. In connection with the formation of the CD-MAX System, he
entered into an exclusive, 99 year, worldwide, master license with CD-MAX to
certain intellectual property, technology and patents (the "Intellectual
Property") free and clear of any liens or claims (the "Master License").
The Intellectual Property includes rights to certain patents, and the
following non-patented intellectual property: a demonstration program (original
and subsequent versions), a hardware card (original and subsequent versions),
and software outlines, including an Overview of Software Components of CD-MAX
System (July 15, 1993); Functional Program Description (August 25, 1993); and
Preliminary Notes on Billing System Design (Sept. 21, 1993). None of the patents
have been and none of the patents can be filed in Europe.
The field of use of the Intellectual Property covered by the Master
License is for text and related multimedia information on any electronic medium,
including the Internet, online and CD-ROM market. The Master License includes
standard default provisions, such as the reversion of the license to the
licensor (or assigns), should CD-MAX file for bankruptcy or not protect and
defend from infringement any of the intellectual property covered by the
license. The Master License also permits John David Wiedemer to compete with the
Company after 1999, if he is terminated by the Company without cause and if the
Company fails to have adjusted gross revenues from sales of products and
services using the Intellectual Property of at least $3,000,000 in 1999,
$4,000,000 in 2000, and $5,000,000 in 2001, and each year after 2001 adjusted
gross revenues equal to the prior year's adjusted gross revenues requirement
plus 15%, adjusted for inflation. The Master License provides for a royalty to a
Royalty Trust (the beneficiaries of which include John David Wiedemer, Robert
Wiedemer, members of their family, David B. Boelio, Philip J. Gross and Weldon
P. Rackley) of 1.25% of the adjusted gross revenues of CD-MAX in excess of $15
million but under $100 million per year, and 2.5% of the adjusted gross revenues
on amounts over $100 million. However, no royalties are due or payable unless
the closing bid price
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for the Company's Common Stock has been at least $52.50, as adjusted for any
stock dividends, stock splits or recapitalization, for a thirty calendar day
period, and the Company's net income during any fiscal year is at least equal to
three percent (3%) of the shareholders' equity after payment of the royalty. See
"Certain Transactions."
The above referred to patents do not cover the CD-MAX System as it is
currently configured, and thus the Company does not currently have any patent
protection for the CD-MAX System.
Research and Development
The Company is engaged in research and development efforts aimed at
improving and expanding the potential markets for its products. The Company's
research and development resources consist of a nine person product development
staff. Primary projects presently being researched and developed include:
adapting the CD-MAX System to the Internet; product enhancements to the CD-MAX
System relating to the user interface, tracking capabilities, and the system
security; expanding potential computer platforms that can be used with the
CD-MAX System; improving the efficiency and capability of the back end support
software, including improvement in usage reporting and market research
capabilities for publishers; improving testing, customer service and publisher
support capabilities; planning improvements necessary to allow for rapid growth
in operations and development; and support for the marketing efforts, which
include improved product demonstrations and demonstration support capabilities.
Employees.
The Company has fifteen (15) full time employees. Two employees are in
marketing, four are in management and administrative positions, and nine are in
product research and development. Management considers its employee relations to
be satisfactory.
Facilities.
The Company leases space for offices in Murray Hill, New Jersey
(approximately 1,650 square feet) on a five (5) year lease expiring in January,
2000 and Reston, Virginia (approximately 4,400 square feet) on a two year lease.
The Company also owns or leases office equipment and personal computers.
Legal Proceedings.
The Company is not a party to any legal proceedings.
MANAGEMENT
Executive Officers and Directors.
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Robert A. Wiedemer 36 President, Chief Executive Officer, Chairman of Board
Philip J. Gross 44 Secretary, Treasurer, Vice President-Chief Financial Officer,
Director
John David Wiedemer, Ph.D. 42 Senior Vice President, Operations, Director
David B. Boelio 42 Executive Vice President, Marketing and Sales
Steven P. Schnipper 25 Director
Weldon P. Rackley 60 Director
</TABLE>
Robert A. Wiedemer, Chairman of the Board since 1995, President, Chief
Executive Officer and a Director of the Company since 1993. Together with his
brother John David Wiedemer, Mr. Wiedemer co-founded the Company. From March
1990 until June 1993, he worked with Dr. Wiedemer in the development of the
CD-MAX technology. Mr. Wiedemer received his B.A. from the University of Texas
and a Master's Degree in Business from the University of Wisconsin-Madison with
a specialty in Marketing.
Philip J. Gross, Secretary/Treasurer, Chief Financial Officer, and
Director since 1993. From 1986 until 1989 Mr. Gross was chief financial officer,
treasurer and secretary of America Online. From 1985 until May, 1994, he was a
director of National Digital Corporation of McLean, Virginia, a digital photo
transmission company. From 1990 through June, 1993, Mr. Gross was chief
financial officer of Phone Base Systems of Vienna, Virginia, a
telecommunications firm. From 1991 to the present, he has been the chief
operating officer and a director of Credential Information and Verification
Services, Inc. of Rockville, Maryland, a health care credential information
service. Mr. Gross is a Certified Public Accountant. He holds AB and MBA degrees
from Syracuse University.
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John David Wiedemer, Ph.D., a Director, since 1995, and Senior Vice
President--Operations since 1993. Dr. Wiedemer co-founded the Company with his
brother Robert Wiedemer. From March 1990 until June 1993, Dr. Wiedemer was
involved in efforts to develop the CD-MAX technology. Dr. Wiedemer holds Ph.D.
and Masters degrees in economics from the University of Wisconsin-Madison, and a
Bachelor of Arts degree (Magna cum laude) from the University of Pennsylvania.
David B. Boelio, Executive Vice President, Marketing and Sales since
July, 1993. From 1990 until June, 1992 he was vice-president, editor in chief at
Macmillan Publishing of New York City. From June, 1992 through July, 1993, he
was a self employed consultant to the publishing industry. He holds a BA degree
from the University of Michigan.
Steven P. Schnipper, Director since 1995. Since 1992, he has been a
financial consultant, working with individual and corporate clients. From 1993
to November, 1994, Mr. Schnipper was employed by the City of Elizabeth, NJ
designing, implementing and troubleshooting computerized systems and
applications. Mr. Schnipper holds BA and MBA degrees from Rutgers University.
Prior to 1992, Mr. Schnipper was a student.
Weldon P. Rackley, Director since May 1996. From 1991 to November 1994
he was executive director of AMACOM Books, the book publishing division of the
American Management Association, located in New York City, and from November
1994 to the present he has been the managing director of publications for the
American Management Association.
Advisory Board
The CD-MAX Advisory Board consists of the persons set forth below. The
Advisory Board members serve one year terms from the date of their appointment
and receive options to purchase the Company's Common Stock in consideration of
their service on the Advisory Board. The Company policy is to annually grant
stock options to members of the Advisory Board. The number of options to be
granted is at the discretion of the Company's Board of Directors.
John H. Davis, the former chairman and chief executive officer of The
Thomson Corporation's Book/Reference Group, retired from Thomson in 1993.
Previously he held executive positions with Simon & Schuster, Inc. and its
subsidiary, Prentice-Hall, Inc., including president of the Simon & Schuster
Higher Education Group and president of the Prentice-Hall College Division.
Until 1993, Mr. Davis served as treasurer of the Board of Directors of the
Association of American Publishers ("AAP") and as a member of its Executive
Committee. In May, 1994, he received the AAP's James F. Leisy Achievement Award
in recognition of the positive influence he has exerted on the careers of many
publishing industry executives.
James D. Ramsey, III is president and chief executive officer of Evoke,
Inc., a new venture serving the information needs of various professional and
corporate markets. From 1991 to 1994, Mr. Ramsey was senior vice president of
Research Institute of America ("RIA"), a publisher of tax information owned by
The Thomson Corporation. As general manager of RIA's electronic publishing unit,
he bore primary responsibility for planning and executing the company's move
from print into CD-ROM-based distribution of information.
William Saffady, Ph.D. is a Professor in the School of Information
Science and Policy, State University of New York at Albany. As the author of
over 30 books and dozens of articles, Dr. Saffady is a recognized authority on
many aspects of information management, including the use of optical discs and
the cost of online search services.
Fraser P. Seitel is managing partner of Emerald Partners,
communications counselors, and senior counselor to Burston-Marsteller. For 21
years, Mr. Seitel was a communications executive of the Chase Manhattan Bank,
resigning in 1992 after 10 years as senior vice president and director of public
affairs. Mr. Seitel teaches and lectures extensively on the field of public
relations. He is the author of the Prentice-Hall textbook, The Practice of
Public Relations.
William E. Strum served until recently as Vice President of Advanced
Products and Tools at America Online, Inc., where he developed future strategies
for enhanced browser, server and Internet server products. Previously, Mr. Strum
was president and chief technical officer of Media Cybernetics, Inc., a producer
and marketer of imaging and multimedia software products. Mr. Strum is currently
providing business development consulting services to companies involved in
Internet and interactive technologies.
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Executive Compensation
The following table sets forth the compensation paid during the fiscal
year ended June 30, 1995, to the Company's Chief Executive Officer. No other
officer, director, or employee earned more than $100,000 for the fiscal year
ended June 30, 1995.
Annual Compensation Long-Term
--------------------------------- Compensation
Name and Other Annual Awards
Principal Position Salary Bonus Compensation Options
- ------------------ ------ ----- ------------ ----------
Robert A. Wiedemer, President,
Chief Executive Officer $79,500(2) --- ___ ---
- ---------------
(1) The named executive officers did not receive any annual compensation,
stock options, restricted stock awards, stock appreciation rights, long
term incentive plan payouts, or any perquisites or other personal
benefits, securities or property that exceeded the lesser of $50,000 or
10% of the salary and bonus for such officer during the fiscal year
ended June 30, 1995.
(2) Payment of a portion of the salary due to Mr. R. Wiedemer as of the
date of this Offering, totaling approximately $90,000, has been
deferred until such time as the Company has adequate funding. The
Company intends to pay Mr. Wiedemer's deferred salary from the net
proceeds of this Offering.
Employment Contracts
CD-MAX has entered into employment agreements with Messrs. Boelio,
Gross, J.D. Wiedemer, and R. Wiedemer which terminate on October 1, 1998. Each
employment agreement provides for automatic one-year renewals subject to earlier
termination by either party with or without cause on certain terms and
conditions. Each agreement is terminable by either the employee or the Company
by notice at least 90 days prior to the end of the term or any renewal term. If
the agreement is terminated by the Company prior to the end of the term or any
renewal thereof without cause, as such term is defined in the agreement, the
Company must pay the employee his base salary for six (6) months thereafter as
severance pay. In addition, the Company may terminate the agreement for breach
of the agreement, including neglect of duty, malfeasance or misfeasance, or
inability to perform specified duties upon 30 days prior notice. Each employee
has agreed with the Company that the employee shall not, directly or indirectly,
in the United States in geographical locations in which the Company does or is
in the process of extending its capability to market and sell its products, for
a period of 18 months after termination, engage in any competitive business, or
solicit customers of the Company in competition with the Company.
Robert A. Wiedemer is employed as President and Chief Executive
Officer, is in charge of all operations, and entrusted with the direction,
administration, and implementation of the Company's plans and policies. John
David Wiedemer is employed as Senior Vice President of Operations and is
responsible for supervising and managing the Company's product development.
David B. Boelio is the Executive Vice President, Marketing and Sales and is
responsible for supervising and managing the Company's marketing and sales
activities. Philip J. Gross is employed as Chief Financial Officer and is
responsible for all accounting records, all other economic and financial
information and systems of the Company, and for apprising the President and the
Board of Directors of all corporate financial information relevant to their
determinations. Mr. Gross is also employed as the chief operating officer of a
health care credential information service. There can be no assurance that the
demands upon Mr. Gross from his employment by the Company and the other company
will not create a conflict of interest between Mr. Gross and the Company, or
that such demands may not result in the Company having less availability of Mr.
Gross' services.
Stock Incentive Plan
In September, 1993, the Board of Directors adopted, and in December,
1993, the stockholders approved, the 1993 Stock Incentive Option Plan (the
"Plan"), which provides for the grant of options to purchase an aggregate of
200,000 shares of the Company's Common Stock. The Plan provides for the grant to
key employees of incentive stock options within the meaning of Section 422 of
the Code, and for the grant of non-qualified stock options, and restricted stock
awards to eligible executive officers, directors, consultants and key employees
of the Company. The Plan, which expires in 2003, is administered by the Board of
Directors or a committee designated by the Board of Directors. The purposes of
the Plan are to ensure the retention of existing executive personnel, key
employees and consultants of the Company, to attract and retain new executive
personnel, key employees and consultants and to provide additional incentive by
permitting such individuals to participate in the ownership of the Company. The
criteria to be utilized by the Board of Directors or committee in granting
options pursuant to the Plan will be consistent with these purposes. Senior
management of the Company is not expected to participate in this Plan; however,
they have been granted Management Warrants which are described below.
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Incentive stock options granted under the Plan may be exercisable for a
period of up to 10 years or from the date of grant at an exercise price which is
not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive stock option granted under the Plan
to a stockholder owning more than 10% of the outstanding Common Stock may not
exceed five years and its exercise price may not be less than 110% of the fair
market value of the Common Stock on the date of the grant. To the extent that
the aggregate fair market value, as of the date of grant, of the shares of which
incentive stock options become exercisable for the first time by an optionee
during the calendar year exceeds $100,000, the portion of such option which is
in excess of the $100,000 limitation will be treated as a non-qualified stock
option. Upon the exercise of an option, payment may be made by cash, check or
any other means that the Board or the committee determines. No option may be
granted under the Plan after December 2003.
To date the Company has issued 86,345 stock options to its
non-management directors, key employees, and consultants exercisable at a prices
ranging from $7.00 to $45.00 per share. The Company has not issued any
restricted stock awards.
Management Warrants
In April, 1996, the Company issued to its senior management an
aggregate of 990,000 ten year, common stock purchase warrants that are
exercisable after October 1, 1996 and only at such time as the Common Stock has
traded for twenty days in any thirty business day period at a closing bid price
equal to or greater than $10.50, as adjusted for any stock splits or
recapitalizations, provided, however, that if the Company does not consummate a
public offering of its securities by December 31, 1997, the warrants shall
expire. The exercise price of these Warrants is $10.50 per share, subject to
adjustment for stock splits or recapitalizations.
Limitation of Liability of Directors and Officers and Indemnification
The Certificate of Incorporation limits, to the fullest extent now or
hereafter permitted by the Delaware General Corporation Law, liability of the
Company's directors to the Company or its stockholders for monetary damages
arising from a breach of their fiduciary duties as directors in certain
circumstances. This provision presently limits a director's liability except
where a director (i) breaches his or her duty of loyalty to the Company or its
stockholders, (ii) fails to act in good faith or engages in intentional
misconduct or a knowing violation of law, (iii) authorizes payment of an
unlawful dividend or stock purchase or redemption or (iv) obtains an improper
personal benefit. This provision does not prevent the Company or its
stockholders from seeking equitable remedies, such as injunctive relief or
recision. If equitable remedies are found not to be available to stockholders in
any particular case, stockholders may not have any effective remedy against
actions taken by directors that constitute negligence or gross negligence.
The Certificate of Incorporation also authorizes the Company to
indemnify its directors, officers or other persons serving at the request of the
Company against liabilities arising from their services in such capacities to
the fullest extent permitted by law, including payment in advance of a final
disposition of a director's or officer's expenses or attorneys' fees incurred in
defending any action, suit or proceeding, other than in the case of an action,
suit or proceeding brought by the Company on its own behalf against an officer.
Presently, the Delaware General Corporation Law provides that to be entitled to
indemnification an individual shall have acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the Company's best
interests.
CERTAIN TRANSACTIONS
In July, 1993, John David Wiedemer and Robert Wiedemer formed CD-MAX
for the purpose of developing the CD-MAX System. Prior to that time they had
engaged in limited development efforts through a number of different entities
owned entirely by Messrs. Wiedemer and members of their family.
CD-MAX entered into the Master License Agreement with John David
Wiedemer which agreement gave CD-MAX rights in certain specified Intellectual
Property. The Master License includes standard license provisions, such as the
reversion of the license to the licensor (or assigns), should CD-MAX file for
bankruptcy or not protect and defend from infringement any of the intellectual
property covered by the license. The Master License provides for a royalty to a
Royalty Trust of 1.25% of the adjusted gross revenues of CD-MAX in excess of $15
million, but under $100 million per year, and 2.5% of the adjusted gross
revenues on amounts over $100 million. However, no royalties are due or payable
until such time as the closing bid price for the Company's Common Stock is at
least $52.50, as adjusted for any stock dividends, stock splits or
recapitalization, for a thirty calendar day period, and the Company's net income
during any fiscal year after payment of the royalty is at least equal to three
percent (3%) of the shareholders' equity after payment of the royalty. The
Master License also permits John David Wiedemer to compete with the Company
after 1999, if he is terminated by the Company without cause and if the Company
fails to have adjusted gross revenues from sales of products and services using
the Intellectual Property of at least $3,000,000 in 1999, $4,000,000 in 2000,
and $5,000,000 in 2001 (the "Minimum Revenue Goal"), and each year after 2001
adjusted gross revenues equal to the prior year's Minimum Revenue Goal plus 15%,
adjusted for inflation. See "Business - Proprietary Rights and Intellectual
Property."
28
<PAGE>
In December, 1995, the Company issued 80,825 shares of Common Stock and
80,825 warrants to purchase Common Stock with an exercise price of $6.60 per
share to Steven P. Schnipper, a director of the Company, and two other existing
shareholders of the Company, Suan Investments and Stourbridge Investments, Ltd.,
in return for their guarantee to provide interim financing of up to $300,000 to
the Company. The stock and warrant issuance was the result of negotiations
between the Company and the investors and represents the repricing of the
investors' earlier equity investments in the Company.
Pursuant to their guarantees, in February, March and April 1996, Steven
P. Schnipper, and the two principal stockholders of the Company, advanced an
aggregate of $300,000 to the Company. In exchange for the initial $100,000
advance of the First Bridge Financing, the Company issued 50,000 Bridge Warrants
and a one-year, 10% promissory note that was repaid from the net proceeds of the
Second Bridge Financing. For the remaining $200,000 the Company issued an
aggregate of (i) $180,000 principal amount of promissory notes which bear
interest at the rate of 10% per annum and are due and payable upon the earlier
of (a) the consummation of a public financing of the Company through the sale of
equity securities from which the Company receives gross proceeds of at least
$3,000,000 or (b) May 16, 1997, and (ii) 120,000 Bridge Warrants. See "Recent
Bridge Financings."
Some of the Company's officers, directors and principal shareholders
(or their family members) purchased an aggregate of $200,000 of the Second
Bridge Financing on terms identical to the other investors in that offering. See
"Selling Securityholders."
29
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of Common Stock as of May 31, 1996, and as adjusted to
reflect the sale of the 1,800,000 shares of Common Stock offered hereby, by (i)
each stockholder known by the Company to own beneficially five percent or more
of the outstanding Common Stock, (ii) each director, (iii) each "Named
Executive" officer, and (iv) all executive officers and directors of the Company
as a group.
<TABLE>
<CAPTION>
Percentage of Outstanding
Shares of Common Stock
--------------------------
Name and Addresses of Shares Beneficially Prior to After
Beneficial Owners Owned(1) Offering Offering
------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
David B. Boelio 223,487 10.92% 5.81%
Philip J. Gross(2) 197,986 9.60% 4.76%(3)
John D. Wiedemer(4) 477,062 23.30% 12.40%
Robert A. Wiedemer(5) 187,950 9.18% 4.89%
Wiedemer Charitable Trust(6) 230,050 11.24% 5.98%
c/o John D. Wiedemer, Trustee
Steven P. Schnipper(7) 256,003 11.50% 3.07%(8)
Weldon P. Rackley 70,575 3.45% 1.83%
Stourbridge Investments, Ltd.(9) 213,057 9.71% 1.69%(10)
c/o Private Trust Ltd.
P.O. Box N-65
Nassau, Bahamas
Suan Investments(11) 504,341 21.38% 4.97(12)
c/o Ernest Gottdiener
911 Sterner Road
Hillside, NJ 07205
All Executive Officers and
Directors as a group
(six persons)(13) 1,413,063 63.03% 32.33%(14)
</TABLE>
- ---------------
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
of the Securities Exchange Act of 1934, as amended. 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. Except as
otherwise noted, each individual or entity has sole voting and
investment power over the securities listed.
(2) Includes 15,000 shares of Common Stock issuable upon exercise of
Redeemable Warrants to be issued upon consummation of this Offering in
exchange for Bridge Warrants. See "Recent Bridge Financings" and
"Selling Securityholders."
(3) Assumes the sale of 15,000 Redeemable Warrants in the Concurrent
Offering. See "Selling Securityholders."
(4) Robert A. Wiedemer and John D. Wiedemer are brothers. Includes 230,050
shares owned by the Wiedemer Charitable Residual Trust over which Mr.
John David Wiedemer exercises voting control, and in which he has a
beneficial interest.
(5) Robert A. Wiedemer and John D. Wiedemer are brothers. Does not include
any shares owned by the Wiedemer Charitable Residual Trust in which Mr.
Robert Wiedemer has a beneficial interest but does not exercise any
voting or investment control.
(6) John D. Wiedemer is the trustee of this trust and he and Robert A.
Wiedemer have a beneficial interest in the trust.
(7) Includes 19,152 shares subject to Common Stock options exercisable at
$9.00 per share, 37,397 shares subject to Common Stock warrants that
are immediately exercisable at prices ranging from $.30 to $8.70 per
share, and 123,056 shares of Common Stock issuable upon exercise of
Redeemable Warrants to be issued upon consummation of this Offering in
exchange for Bridge Warrants. See "Recent Bridge Financings," "Certain
Transactions" and "Selling Securityholders."
(8) Assumes the sale of 123,056 Redeemable Warrants and 12,841 shares of
Common Stock in the Concurrent Offering. See "Selling Securityholders."
(9) Includes 11,000 shares subject to Common Stock warrants that are
immediately exercisable at prices ranging from $6.60 to $8.70 per
share, and 136,612 shares of Common Stock issuable upon exercise of
Redeemable Warrants to be issued upon consummation of this Offering in
exchange for Bridge Warrants. See "Recent Bridge Financings," "Certain
Transactions" and "Selling Securityholders.".
(10) Assumes the sale of 136,612 Redeemable Warrants and 11,001 shares of
Common Stock in the Concurrent Offering. See "Selling Securityholders."
(11) Includes 32,439 shares subject to Common Stock warrants that are
immediately exercisable at $8.70 per share, and 278,896 shares of
Common Stock issuable upon exercise of Redeemable Warrants to be issued
upon consummation of this Offering in exchange for Bridge Warrants. See
"Recent Bridge Financings," "Certain Transactions" and "Selling
Securityholders."
(12) Assumes the sale of 278,896 Redeemable Warrants and 32,442 shares of
Common Stock in the Concurrent Offering. See "Selling Securityholders."
(13) Includes 19,152 shares subject to Common Stock options exercisable at
$9.00 per share and 37,397 shares subject to Common Stock warrants that
are immediately exercisable at prices ranging from $.30 to $8.70 per
share, and 138,056 shares of Common Stock issuable upon exercise of
Redeemable Warrants to be issued upon consummation of this Offering in
exchange for Bridge Warrants. See "Recent Bridge Financings," "Certain
Transactions" and "Selling Securityholders."
(14) Assumes the sale of 138,056 Redeemable Warrants and 12,841 shares of
Common Stock in the Concurrent Offering.See"Selling Securityholders."
30
<PAGE>
SELLING SECURITYHOLDERS
An aggregate of 1,070,000 Redeemable Warrants which will be issued to
certain Selling Securityholders in exchange for the Bridge Warrants, together
with 1,070,000 shares of Common Stock issuable upon their exercise, and an
additional 60,615 shares of Common Stock are being registered under the
Registration Statement, at the expense of the Company, for the account of such
Selling Securityholders. See "Recent Bridge Financings" and "Shares Eligible for
Future Sale." Sales of such Redeemable Warrants and shares of Common Stock may
depress the price of the Common Stock or Redeemable Warrants in any market that
may develop for such securities.
The following table sets forth information with respect to persons for
whom the Company is registering the Selling Securityholder Warrants and the
Selling Securityholder Shares for resale to the public in the Concurrent
Offering. Beneficial ownership of Redeemable Warrants and Common Stock by such
Selling Securityholders after the Offering will depend on the number of
securities sold by each Selling Securityholder in the Concurrent Offering. See
"Certain Transactions."
<TABLE>
<CAPTION>
Ownership After the Offering and Prior to
Sales in the Concurrent Offering(1)
-----------------------------------------------------------
Redeemable Warrants(2) Common Stock
---------------------- ------------------------
Selling Securityholder Number Percentage Number Percentage
- ---------------------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Norman B. and Gail B. Antin 15,000 * --- ---
Stanley S. Arkin 30,000 1.5% --- ---
Mark Banach(3) 4,781 * 5,747 *
Edwin R. Bindseil 15,000 * --- ---
Elliot Y. Braun 15,000 * --- ---
Dominick Casale 30,000 1.5% --- ---
D'Arbra Fetzer 15,000 * --- ---
Michael Gauss(4) 9,562 * 11,494 *
Morton and DeVera Gordon 15,000 * --- ---
Martin J. Gross 9,000 * --- ---
Philip J. Gross 15,000 * 182,986 4.8%
Stanley J. Gross 6,000 * --- ---
Fred Kassner 60,000 3% --- ---
Ery W. and Helga L. Kehaya 15,000 * --- ---
Paul E. Keitel 15,000 * --- ---
Bernard P. Kolkana 15,000 * --- ---
Cecil Lee 15,000 * --- ---
Ernest P. Lee 15,000 * --- ---
Edward Leibowitz 15,000 * --- ---
S. Alan Lisenby 15,000 * --- ---
Hawk Management and Financial Services, Inc. 30,000 1.5% --- ---
Alfred Palagonia 15,000 * --- ---
Brett Raymer 60,000 3% --- ---
Richard B. Schechter, DMD 15,000 * --- ---
Steven P. Schnipper(5) 123,056 6.2% 76,398 2%
Harold Staenberg(6) 5,180 * 6,226 *
Stourbridge Investments, Ltd.(7) 136,612 6.9% 65,445 1.7%
Suan Investments(8) 278,896 14.1% 193,004 5%
Walter E. Scott 15,000 * --- ---
Murray Sussman IRA 15,000 * --- ---
Saeed S. Toghraie 15,000 * --- ---
Jay Varon(9) 1,913 * 2,299 *
Alan Young 15,000 * --- ---
-------- - ------ ------- ----
1,070,000 54.3% 543,599 14.1%
========= ======= ======= =====
</TABLE>
- -----------------
The symbol "*" indicates that the interest is less than 1%.
(footnotes on the following page)
31
<PAGE>
(footnotes to Selling Securityholders Chart)
(1) Assuming no purchase by any Selling Securityholder of Common Stock or
Redeemable Warrants offered in the Offering.
(2) All of the Redeemable Warrants listed are offered in the Concurrent
Offering, and, assuming each Selling Securityholder sold their
respective Redeemable Warrants offered in the Concurrent Offering, no
Selling Securityholder would own any Redeemable Warrants after the
Concurrent Offering.
(3) Of the 5,747 shares of Common Stock owned, 966 are offered in the
Concurrent Offering.
(4) Of the 11,494 shares of Common Stock owned, 1,932 are offered in the
Concurrent Offering.
(5) Of the 76,398 shares of Common Stock owned, 12,841 are offered in the
Concurrent Offering.
(6) Of the 6,226 shares of Common Stock owned, 1,047 are offered in the
Concurrent Offering.
(7) Of the 63,445 shares of Common Stock owned, 11,001 are offered in the
Concurrent Offering.
(8) Of the 193,004 shares of Common Stock owned, 32,442 are offered in the
Concurrent Offering.
(9) Of the 2,299 shares of Common Stock owned, 386 are offered in the
Concurrent Offering.
There are no material relationships between any of the Selling
Securityholders and the Company or any of its predecessors or affiliates except
(i) Philip J. Gross is an officer and director of the Company, and Martin J.
Gross and Stanley J. Gross are his relatives; (ii) Steven P. Schnipper is a
director of the Company; and (iii) Suan Investments is a principal stockholder
of the Company. The Securities offered by the Selling Securityholders are not
being underwritten by the Underwriter. The Selling Securityholders may sell the
Selling Securityholder Warrants and/or the Selling Securityholder Shares at any
time on or after the date hereof, provided prior consent is given by the
Representative. In addition, the Selling Securityholders have agreed with the
Company that, during the period ending on the second anniversary of the
effective date of the Registration Statement, the Selling Securityholders will
not sell such securities other than through the Representative, and that the
Selling Securityholders shall compensate the Representative in accordance with
its customary compensation practices. Subject to these restrictions, the Company
anticipates that sales of the Selling Securityholder Warrants and/or the Selling
Securityholder Shares may be effected from time to time in transactions (which
may include block transactions) in the over-the-counter market, in negotiated
transactions, or a combination of such methods of sale, at fixed prices that may
be changed, at market prices prevailing at the time of sale, or at negotiated
prices. The Selling Securityholders may effect such transactions by selling the
Selling Securityholder Warrants and/or the Selling Securityholder Shares
directly to purchasers or through broker-dealers that may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Selling Securityholder Warrants and/or the Selling
Securityholder Shares for whom such broker-dealers may act as agents or to whom
they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Securityholders and any broker-dealers that act in
connection with the sale of the Selling Securityholder Warrants and/or the
Selling Securityholder Shares as principals may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act and any commission
received by them and any profit on the resale of such securities as principals
might be deemed to be underwriting discounts and commissions under the Act. The
Selling Securityholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of such
securities against certain liabilities, including liabilities arising under the
Securities Act. The Company will not receive any proceeds from the sales of the
Selling Securityholder Warrants and/or the Selling Securityholder Shares by the
Selling Securityholders, although the Company will receive proceeds from the
exercise of the Selling Securityholder Warrants. Sales of the Selling
Securityholder Warrants and/or the Selling Securityholder Shares by the Selling
Securityholders, or even the potential of such sales, would likely have an
adverse effect on the market price of the Units, the Redeemable Warrants and
Common Stock.
At the time a particular offer of Selling Securityholder Warrants
and/or the Selling Securityholder Shares is made, except as herein contemplated,
by or on behalf of the Selling Securityholder, to the extent required, a
Prospectus will be distributed which will set forth the number of Selling
Securityholder Warrants and/or the Selling Securityholder Shares being offered
and the terms of the offering, including the name or names of any underwriters,
dealers or agents, if any, the purchase price paid by any underwriter for shares
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers.
<PAGE>
Under the Exchange Act, and the regulations thereunder, any person
engaged in a distribution of the securities of the Company offered by this
Prospectus may not simultaneously engage in market-making activities with
respect to such securities of the Company during the applicable "cooling-off"
period (two or nine days) prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Securityholders will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7, in
connection with transactions in such securities, which provisions may limit the
timing of purchases and sales of such securities by the Selling Securityholders.
32
<PAGE>
DESCRIPTION OF SECURITIES
Units
Each Unit consists of two shares of Common Stock, $.01 par value, of
the Company, together with one Redeemable Warrant. The Common Stock and the
Redeemable Warrants may only be purchased as Units in the Offering, but are
immediately detachable and separately tradeable.
Authorized Equity Securities
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, $.01 par value, and 1,000,000 shares of preferred stock, $1.00 par
value (the "Preferred Stock"). As of the date hereof, there were outstanding
2,047,300 shares of Common Stock and no outstanding shares of Preferred Stock.
The following summary description of capital stock of the Company is qualified
in its entirety by reference to the Company's Certificate of Incorporation, as
amended (the "Certificate of Incorporation"), and its Bylaws, as amended (the
"Bylaws").
Preferred Stock
The Company's Certificate of Incorporation provides for the issuance of
1,000,000 shares of Preferred Stock none of which are currently outstanding. The
Board of Directors, within the limitations and restrictions contained in the
Certificate of Incorporation and without further action by the Company's
stockholders, has the authority to issue shares of Preferred Stock from time to
time in one or more series and to fix the number of shares and the relative
rights, conversion rights, voting rights, and terms of redemption, liquidation
preferences and any other preferences, special rights and qualifications of any
such series. Any issuance of Preferred Stock could, under certain circumstances,
have the effect of delaying, deferring or preventing a change in control of the
Company and may adversely affect the rights of holders of Common Stock. The
Company has no present plans to issue any shares of Preferred Stock.
Common Stock
The holders of Common Stock have the right to cast one vote for each
share held of record on all matters submitted to a vote of holders of Common
Stock, including the election of directors. The Common Stock votes together as a
single class on all matters on which stockholders may vote, except when class
voting is required by applicable law, or the terms of any other security issued
by the Company.
Holders of Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors, from funds legally available therefore,
subject to the rights of holders of any outstanding Preferred Stock. In the
event of the liquidation, dissolution or winding up of the affairs of the
Company, all assets and funds of the Company remaining after the payment of all
debts and other liabilities, subject to the rights of the holders of any
outstanding Preferred Stock, shall be distributed, pro rata, among the holders
of the Common Stock. Holders of Common Stock are not entitled to preemptive,
subscription, cumulative voting or conversion rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable.
Redeemable Warrants
At the conclusion of the Offering the Company will have outstanding
1,970,000 Redeemable Warrants (2,105,000 if the Over-Allotment Option is
exercised). Each of the Redeemable Warrants expires five years from the
effective date, and entitles the holder to purchase one share of Common Stock
for $ [75% of the initial offering price per Unit] per share, subject to
adjustment in certain events. The Redeemable Warrants are redeemable by the
Company with the prior written consent of the Representative at a price of $.05
per Redeemable Warrant commencing __________, 1997, one year from the effective
date, provided that (i) 30 days prior written notice is given to the holders of
the Redeemable Warrants (the "Warrantholders") and (ii) the closing bid price
per share of the Common Stock as reported on Nasdaq (or the last sale price, if
quoted on a national securities exchange) for any 20 trading days within a
period of 30 consecutive trading days, ending on the fifth day prior to the date
of the notice of redemption, has been at least 150% of the then exercise price,
subject to adjustment in certain events. The Warrantholders shall have exercise
rights until the close of the business day immediately preceding the date fixed
for redemption.
The Warrants provide for adjustment of the exercise price and for a
change in the number of shares issuable upon exercise to protect holders against
dilution in the event of a stock dividend, stock split, combination or
reclassification of the Common Stock.
The exercise prices of the Redeemable Warrants were determined by
negotiation between the Company and the Representative thereof and should not be
construed to be predictive of or to imply that any price increases in the
Company's securities will occur.
The Warrants do not confer upon the Warrantholder any voting or other
rights of a stockholder of the Company.
33
<PAGE>
Other Warrants
As of the date of this Prospectus the Company had outstanding warrants
to purchase an aggregate of 125,193 shares of Common Stock which are exercisable
for various periods of time up through the year 2006, at exercise prices ranging
from $0.30 per share to $22.50 per share. In April 1996, the Company issued to
its senior management 990,000 Warrants to purchase Common Stock with an exercise
price of $10.50 per share. See "Management-Management Warrants." The warrants
provide for adjustment of the exercise price and for a change in the number of
shares issuable upon exercise to protect holders against dilution in the event
of a stock dividend, stock split, combination or reclassification of the Common
Stock. The exercise prices of the warrants were determined by negotiation
between the Company and the purchasers thereof and should not be construed to be
predictive of or to imply that any price increases in the Company's securities
will occur. The warrants do not confer upon the warrantholder any voting or
other rights of a stockholder of the Company.
Anti-takeover Effects of Provisions of Delaware Law
The Company is subject to Section 203 of the Delaware General
Corporation Law ("Section 203"), which, subject to certain exceptions, prohibits
a Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66-2/3% of the outstanding voting stock that is not owned by the interested
stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Transfer Agent, Registrar and Warrant Agent
The Transfer Agent and Registrar for the Units, Common Stock and
Redeemable Warrants is Continental Stock Transfer & Trust Company, New York City
("Continental"). Continental can be reached at (212) 509-4000. Continental will
also act as Warrant Agent for the Redeemable Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 3,847,300 shares of Common Stock to be outstanding upon
completion of this Offering, approximately 2,191,052 shares of Common Stock,
including the 1,800,000 shares underlying the units offered hereby, will be
freely tradeable without restriction under the Securities Act of 1933, as
amended (the "Securities Act") except for any shares of Common Stock purchased
by an "affiliate" of the Company (as that term is defined under the rules and
regulations of the Securities Act), which will be subject to the resale
limitations of Rule 144 under the Securities Act. The remaining 1,656,248 shares
of Common Stock outstanding are "restricted stock" as that term is defined under
Rule 144 under the Securities Act and under certain circumstances may be sold
without registration pursuant to such rule. In general, under Rule 144, as
currently in effect, a person (or persons whose shares are aggregated), with
respect to restricted securities that satisfy a two-year holding period, may
sell within any three-month period a number of restricted shares which does not
exceed the greater of 1% of the then outstanding shares of such class of
securities or the average weekly trading volume during the four calendar weeks
prior to such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. Rule 144 also permits, under certain
circumstances, the sale of shares by a person who is not an affiliate of the
Company, with respect to restricted securities that satisfy a three-year holding
period, without regard to the volume or other resale limitations. The above is a
brief summary of Rule 144 and is not intended to be a complete description of
the Rule.
34
<PAGE>
The Company is unable to predict the effect that sales made under Rule
144, or otherwise, may have on the then prevailing market price of the Company's
securities although any future sales of substantial amounts of securities
pursuant to Rule 144 could adversely affect prevailing market prices. Holders of
1,635,436 shares of such restricted stock, including each of the Company's
officers, directors and principal stockholders have agreed not to, directly or
indirectly, issue, offer to sell, grant an option for the sale of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of (collectively
"Transfer") any of their shares of Common Stock or securities convertible into
or exchangeable or exercisable for Common Stock for a period commencing on the
date of this Prospectus and ending eighteen months after the effective date of
this Offering, without the prior written consent of the Representative. See
"Principal Stockholders," and "Underwriting."
The Redeemable Warrants underlying the Units offered hereby and the
shares of Common Stock underlying such Redeemable Warrants, upon exercise
thereof, will be freely tradeable without restriction under the Securities Act,
except for any Redeemable Warrants of shares of Common Stock purchased by an
"affiliate" of the Company, which will be subject to the resale limitations of
Rule 144 under the Securities Act. In addition, 1,070,000 Redeemable Warrants
and the shares of Common Stock underlying such Redeemable Warrants are being
registered on behalf of the Selling Securityholders. Holders of such Redeemable
Warrants have agreed not to Transfer such Redeemable Warrants, or the underlying
shares of Common Stock, for a period of eighteen (18) months from the effective
date of the Registration Statement, without the prior written consent of the
Representative.
In addition, without the consent of the Representative, the Company has
agreed not to sell or offer for sale any of its securities for a period of 18
months following the effective date of the Registration Statement, except
pursuant to outstanding options and warrants and pursuant to the Company's
existing option plans and no option shall have an exercise price that is less
than the fair market value per share of Common Stock on the date of grant.
In addition, 200,000 shares of Common Stock will be available for
issuance upon the exercise of options which may be granted under the Company's
Stock Option Plan and, in addition to the 1,070,000 Redeemable Warrants being
registered on behalf of the Selling Securityholders, 1,115,193 shares of Common
Stock will be issuable upon the exercise of other outstanding warrants. To the
extent that options or warrants are exercised, dilution to the interests of the
Company's shareholders may occur. Moreover, the terms upon which the Company
will be able to obtain additional equity capital may be adversely affected,
since the holders of the outstanding options or warrants can be expected to
exercise them, to the extent they are able to, at a time when the Company would,
in all likelihood, be able to obtain any needed capital on terms more favorable
to the Company than those provided in the options or warrants. See "Management,"
"Certain Transactions", and "Description of Securities."
35
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Joseph
Stevens & Company, L.P. is acting as Representative, have severally agreed,
subject to the terms and conditions contained in the Underwriting Agreement (the
"Underwriting Agreement") to purchase from the Company, and the Company has
agreed to sell to the Underwriters on a firm commitment basis, the respective
number of Units set forth opposite their names:
Number of
Underwriter Units
- ----------- -----
Joseph Stevens & Company, L.P.....................................
-------
Total.................................................... 900,000
=======
The Underwriters are committed to purchase all the Units offered
hereby, if any of the Units are purchased. The Underwriting Agreement provides
that the obligations of the several Underwriters are subject to the conditions
precedent specified therein.
The Company has been advised by the Representative that the
Underwriters initially propose to offer the Units to the public at the public
offering price set forth on the cover page of this Prospectus and that the
Underwriters may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") concessions not in excess of
$____ per Unit, of which amount a sum not in excess of $__________ per Unit may
in turn be reallowed by such dealers to other dealers. After the commencement of
the Offering, the public offering price, concessions and reallowances may be
changed. The Representative has informed the Company that it does not expect
sales to discretionary accounts by the Underwriters to exceed five percent of
the securities offered by the Company hereby.
The Company has granted to Underwriters an option, exercisable within
45 days of the date of this Prospectus, to purchase from the Company at the
offering price, less underwriting discounts and the non-accountable expense
allowance, all or part of an additional 135,000 Units on the same terms and
conditions of the Offering for the sole purpose of covering over-allotments, if
any.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
agreed to pay to the Representative a non-accountable expense allowance equal to
three percent of the gross proceeds derived from the sale of the Units
underwritten, $25,000 of which has been paid to date.
Upon the exercise of any Redeemable Warrants more than one year after
the date of this Prospectus, which exercise was solicited by the Representative,
and to the extent not inconsistent with the guidelines of the NASD and the Rules
and Regulations of the Commission, the Company has agreed to pay the
Representative a commission which shall not exceed five percent of the aggregate
exercise price of such Redeemable Warrants in connection with bona fide services
provided by the Representative relating to any warrant solicitation. In
addition, the individual must designate the firm entitled to such warrant
solicitation fee. However, no compensation will be paid to the Representative in
connection with the exercise of the Redeemable Warrants if (a) the market price
of the Common Stock is lower than the exercise price of the Redeemable Warrants,
(b) the Redeemable Warrants were held in a discretionary account or (c) the
Redeemable Warrants are exercised in an unsolicited transaction. Unless granted
an exemption by the Commission from its Rule 10b-6 promulgated under the
Exchange Act, the Representative will be prohibited from engaging in any
market-making activities with regard to the Company's securities for the period
from nine (9) business days (or such applicable periods as Rule 10b-6 may
provide) prior to any solicitation of the exercise of the Redeemable Warrants
until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right the Representative may have to
receive a fee. As a result, the Representative may be unable to continue to
provide a market for the Company's Units, Common Stock or Redeemable Warrants
during certain periods while the Redeemable Warrants are exercisable. If the
Representative has engaged in any of the activities prohibited by Rule 10b-6
during the periods described above, the Representative undertakes to waive
unconditionally its rights to receive a commission on the exercise of such
Redeemable Warrants.
Of the 3,847,300 shares of Common Stock to be outstanding upon
completion of the Offering, the holders of 1,635,436 shares of Common Stock,
including each officer, director and principal stockholder, have agreed (i) not
to, directly or indirectly, issue, offer to sell, sell, grant an option for the
sale of, transfer, pledge, assign, hypothecate, or otherwise encumber or dispose
of (collectively, "Transfer"), any securities issued by the Company, including
shares of Common Stock or securities convertible into or exchangeable or
exercisable for or evidencing any right to purchase or subscribe for any shares
of Common Stock for a period of eighteen (18) months from the effective date of
the Registration Statement (the "Lock-Up Period"), without the prior written
36
<PAGE>
consent of the Representative and (ii) that, for twenty-four (24) months
following the effective date of the Registration Statement, any sales of the
Company's securities shall be made through the Representative in accordance with
its customary brokerage practices either on a principal or agency basis. An
appropriate legend shall be marked on the face of certificates representing all
such securities.
In connection with the Offering, the Company has agreed to issue and
sell to the Representative and/or its designees, at the closing of the proposed
underwriting, for nominal consideration, five (5) year Representative's Warrants
(the "Representative's Warrants") to purchase 90,000 Units. The Representative's
Warrants are exercisable at any time during a period of four (4) years
commencing twelve months after their issuance at a price of $__________ [120% of
the offering price of the Units] per Unit. The shares of Common Stock,
Redeemable Warrants, and shares of Common Stock underlying the Redeemable
Warrants issuable upon the exercise of the Representative's Warrants are
identical to those offered to the public. The Representative's Warrants contain
anti-dilution provisions providing for adjustment of the number of warrants and
exercise price under certain circumstances. The Representative's Warrants grant
to the holders thereof and to the holders of the underlying securities certain
rights of registration of the securities underlying the Representative's
Warrants.
In connection with the Second Bridge Financing, the Company paid to the
Representative, as placement agent, $100,000 in cash as commissions, a
non-accountable expense allowance of $30,000 and warrants (the "Placement
Agent's Warrants") to purchase 150,000 shares of Common Stock at an exercise
price of $3.37 per share commencing May 16, 1997. The Placement Agent's Warrants
will be canceled prior to the consummation of the Offering.
The Company has agreed that the Representative has a right of first
refusal for a period of three years from the date of this Prospectus with
respect to any sale of securities made by the Company or any of its present or
future affiliates or subsidiaries. The Company has agreed that for five (5)
years from the effective date of the Registration Statement, the Representative
may designate one person for election to the Company's Board of Directors (the
"Designation Right"). In the event that the Representative elects not to
exercise its Designation Right, then it may designate one person to attend all
meetings of the Company's Board of Directors for a period of five (5) years. The
Company has agreed to reimburse the Representative's designee for all
out-of-pocket expenses incurred in connection with the designee's attendance at
meetings of the Board of Directors. The Company has also agreed to retain the
Representative as the Company's financial consultant for a period of twenty-four
(24) months from the date hereof and to pay the Representative a monthly
retainer of $2,000, all of which is payable in advance on the closing date set
forth in the Underwriting Agreement.
Prior to this Offering, there has been a limited public market for the
Common Stock and no public market for the Units or the Redeemable Warrants.
Accordingly, the initial public offering price of the Units and the terms of the
Redeemable Warrants were determined by negotiation between the Company and the
Representative. Among the factors considered in determining such prices and
terms, in addition to the prevailing market conditions, included the history of
and the prospects for the industry in which the Company competes, the market
price of the Common Stock, an assessment of the Company's management, the
prospects of the Company, its capital structure and such other factors that were
deemed relevant. The offering price does not necessarily bear any relationship
to the assets, results of operations or net worth of the Company.
The Representative commenced operations in May 1994 and therefore does
not have extensive expertise as an underwriter of public offerings of
securities. In addition, the Representative is a relatively small firm and no
assurance can be given that the Representative will be able to participate as a
market maker in the Units, the Common Stock or in the Redeemable Warrants, and
no assurance can be given that any broker-dealer will make a market in the
Units, the Common Stock or the Redeemable Warrants. The Representative has
acted as the managing underwriter for four public offerings.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
37
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the issuance of the securities
offered hereby will be passed upon for the Company by Lewis, Goldberg & Ball, A
Professional Corporation, Suite 1075, 2000 Corporate Ridge, McLean, Virginia
22102. Certain legal matters relating to intellectual property law will be
passed upon for the Company by Quarles & Brady, Suite 600, One South Pinckney
Street, Madison, Wisconsin. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by Orrick, Herrington &
Sutcliffe, 666 Fifth Avenue, New York, New York 10103-0001.
EXPERTS
The financial statements of CD-MAX, Inc. (formerly InfoServe, Inc.) at
June 30, 1995, and for each of the two fiscal years in the period ended June 30
1995, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
(which contains an explanatory paragraph regarding substantial doubt about the
Company's ability to continue as a going concern mentioned in Note 8 to the
financial statements) appearing elsewhere herein and in the Registration
Statement, and have been included herein in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
A Registration Statement on Form SB-2 (the "Registration Statement"),
under the Securities Act, relating to the securities offered hereby has been
filed by the Company with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
securities offered hereby, reference is made to such Registration Statement,
exhibits and schedules. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as exhibits to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the Commission's
principal offices in Washington, D.C., and copies of all or any part thereof may
be obtained from the Commission upon the payment of certain fees prescribed by
the Commission.
Following the Offering, the Company will be subject to the information
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and in
accordance therewith will file periodic reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information concerning the Company may be inspected or copied at the public
reference facilities at the Commission located at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at the Commission's Regional Offices in New
York, 7 World Trade Center, 13th Floor, New York, New York 10048, and in
Chicago, Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such documents can be obtained at the
public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
38
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................................... F-2
Balance Sheets as of June 30, 1995 and March 31, 1996 (unaudited).......................... F-3
Statements of Operations for the years ended June 30, 1994 and 1995,
for the nine months ended March 31, 1995 and 1996 (unaudited), and for the
period from July 1, 1993 (inception) through March 31, 1996 (unaudited)................. F-4
Statements of Stockholders' Deficit for the years ended June 30, 1994 and 1995
and for the nine months ended March 31, 1996 (unaudited)................................ F-5
Statements of Cash Flows for the years ended June 30, 1994 and 1995,
for the nine months ended March 31, 1995 and 1996 (unaudited), and for the
period from July 1, 1993 (inception) through March 31, 1996 (unaudited)................. F-6
Notes to Financial Statements.............................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
CD-MAX, Inc.
We have audited the accompanying balance sheet of CD-MAX, Inc., formerly
InfoServe, Inc., (a development stage company) as of June 30, 1995, and the
related statements of operations, stockholders' deficit, and cash flows for
the years ended June 30, 1994 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CD-MAX, Inc. (formerly
InfoServe, Inc.) at June 30, 1995, and the results of its operations and
its cash flows for the two years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
CD-MAX, Inc. (formerly InfoServe, Inc.) will continue as a going concern.
As more fully described in Note 8, the Company is still in its development
stage, is not generating significant revenue from the sale of its products
and has not attained profitable operations. The success of the Company is
dependent on obtaining additional financing and the ability of the Company
to generate revenues which are sufficient to cover operating expenses, the
likelihood of which cannot be determined at this time. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are described in
Note 8. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Vienna, Virginia /s/ ERNST & YOUNG LLP
August 29, 1995, except Note 9, -------------------
as to which the date is May 16, 1996 ERNST & YOUNG LLP
F-2
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
Pro Forma
June 30, March 31, March 31, 1996
1995 1996 (Note 9)
------------------- ------------------- -------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 301,856 $ 30,462 $ 850,462
Short-term investments 20,000 20,000 20,000
Prepaid expenses 5,012 37,269 37,269
------------------- ------------------- -------------------
Total current assets 326,868 87,731 907,731
Computer equipment - 58,085 58,085
Less accumulated depreciation and amortization - (8,250) (8,250)
------------------- ------------------- -------------------
- 49,835 49,835
Debt issuance costs - - 162,000
------------------- ------------------- -------------------
Total assets $ 326,868 $ 137,566 $ 1,119,566
=================== =================== ===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 75,474 $ 66,129 $ 66,129
Accrued expenses 242,580 322,582 322,582
Unearned royalties 17,500 17,500 17,500
Notes payable - 175,417 1,065,417
Current portion of capital lease obligations - 27,552 27,552
------------------- ------------------- -------------------
Total current liabilities 335,554 609,180 1,499,180
Capital lease obligations, net of current portion - 18,388 18,388
Stockholders' deficit:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized; no shares issued and outstanding - - -
Common stock, $.01 par value; 10,000,000
shares authorized; 1,573,998 and
2,047,300 shares issued and outstanding at
June 30, 1995 and March 31, 1996, respectively 15,740 20,473 20,473
Capital in excess of par value 1,987,984 2,537,001 2,629,001
Deficit accumulated during the development stage (2,012,410) (3,047,476) (3,047,476)
------------------- ------------------- -------------------
Total stockholders' deficit (8,686) (490,002) (398,002)
=================== =================== ===================
Total liabilities and stockholders' deficit $ 326,868 $ 137,566 $ 1,119,566
=================== =================== ===================
</TABLE>
See accompanying notes.
F-3
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from July
1, 1993
(inception) to
Year ended June 30, Nine months ended March 31, March 31,
1994 1995 1995 1996 1996
---------------------------------- ------------------------------------ ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $ - $ 2,500 $ - $ 8,500 $ 11,000
Costs and expenses:
Selling expenses 112,455 120,285 83,882 153,202 385,942
General and administrative expenses 710,952 691,472 443,223 461,229 1,863,653
Research and development 107,135 277,120 235,082 437,224 821,479
---------------------------------- ------------------------------------ ------------------
Total costs and expenses 930,542 1,088,877 762,187 1,051,655 3,071,074
---------------------------------- ------------------------------------ ------------------
Interest income 547 3,962 1,020 8,089 12,598
---------------------------------- ------------------------------------ ------------------
Net loss $ (929,995) $ (1,082,415) $ (761,167) $ (1,035,066) $ (3,047,476)
================================== ==================================== ==================
Net loss per share $ (.89) $ (.91) $ (.70) $ (.54)
================================== ====================================
Weighted average number of common
shares outstanding 1,046,540 1,192,279 1,087,010 1,925,278
================================== ====================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
Statements of Stockholders' Deficit
Period from July 1, 1993 (inception) through March 31, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
During the Total
Common Stock Capital in excess Development Stockholders'
Shares Par Value of par value Stage (Deficit)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1993 34 $ - $ 100 $ - $ 100
Entries to record reverse acquisition,
December 29, 1993:
Issuance of common stock 701,566 7,015 (7,015) - -
Adjustment to record existing
capitalization of public shell
company 330,403 3,304 (3,304) - -
Conversion of debt to equity,
December 31, 1993 200 2 2,998 - 3,000
Conversion of debt to equity,
December 31, 1993 30,769 308 170,281 - 170,589
Issuance of compensatory stock options,
December, 1993 - - 171,000 - 171,000
Conversion of debt to equity,
June 30, 1994 4,861 49 437,451 - 437,500
Net loss - - - (929,995) (929,995)
--------------------------------------------------------------------------------
Balance at June 30, 1994 1,067,833 10,678 771,511 (929,995) (147,806)
Issuance of common stock,
November 14, 1994 11,494 115 49,885 - 50,000
Conversion of debt to equity,
December 15, 1994 13,333 133 450,367 - 450,500
Conversion of debt to equity,
February 21, 1995 6,226 62 27,021 - 27,083
Issuance of common stock,
March 31, 1995 2,299 23 9,977 - 10,000
Issuance of common stock,
April 28, 1995 5,747 58 24,942 - 25,000
Issuance of common stock,
June 30, 1995 143 2 7,498 - 7,500
Issuance of common stock,
June 30, 1995 333,590 3,336 (3,336) - -
Issuance of common stock,
June 30, 1995 133,333 1,333 578,667 - 580,000
Compensatory stock options earned during
1995 - - 71,452 - 71,452
Net loss - - - (1,082,415) (1,082,415)
--------------------------------------------------------------------------------
Balance at June 30, 1995 1,573,998 15,740 1,987,984 (2,012,410) (8,686)
Issuance of common stock,
August 5, 1995 120,690 1,207 523,793 - 525,000
Issuance of common stock,
August 5, 1995 217,242 2,172 (2,172) - -
Issuance of common stock,
December 15, 1995 80,825 808 (808) - -
Issuance of common stock,
December 15, 1995 54,545 546 (546) - -
Issuance of warrants in connection
with the Bridge Loan Agreement,
December 15, 1995 - - 28,750 - 28,750
Net loss for the nine months ended
March 31, 1996 (unaudited) - - - (1,035,066) (1,035,066)
--------------------------------------------------------------------------------
Balance at March 31, 1996 (unaudited) 2,047,300 $20,473 $2,537,001 $(3,047,476) $ (490,002)
================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
July 1, 1993
(inception) to
Year ended June 30, Nine months ended March 31, March 31,
1994 1995 1995 1996 1996
--------------------------------- ------------------------------------ -------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss $ (929,995)$ (1,082,415) $ (761,167) $ (1,035,066) $ (3,047,476)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization - - - 8,250 8,250
Issuance of compensatory stock
options 171,000 71,452 - - 242,452
Interest expense associated with
warrants issued in connection with
the Bridge Loan Agreement - - - 4,167 4,167
Changes in operating assets
and liabilities:
Prepaid expenses - (5,012) - (32,257) (37,269)
Accounts payable 115,201 (39,727) (9,314) (9,345) 66,129
Accrued expenses 82,275 162,388 123,500 80,002 324,665
Unearned royalties - 17,500 - - 17,500
--------------------------------- ------------------------------------ -------------------
Net cash used in operating activities (561,519) (875,814) (646,981) (984,249) (2,421,582)
Investing activities
Purchase of short-term investments - (20,000) (19,873) - (20,000)
---------------------------------------------------------------------- -------------------
Net cash used in investing activities - (20,000) (19,873) - (20,000)
Financing activities
Net proceeds from notes payable 25,000 450,500 453,999 200,000 675,500
Principal payments on capital lease
obligations - - - (12,145) (12,145)
Net cash proceeds from issuance
of common stock 611,189 672,500 165,000 525,000 1,808,689
--------------------------------- ------------------------------------ -------------------
Net cash provided by financing
activities 636,189 1,123,000 618,999 712,855 2,472,044
-------------------------------------------------------------------------------------------
Net increase (decrease) in cash 74,670 227,186 (47,855) (271,394) 30,462
Cash at beginning of period - 74,670 74,670 301,856 -
--------------------------------- ------------------------------------ -------------------
Cash at end of period $ 74,670 $ 301,856 $ 26,815 $ 30,462 $ 30,462
================================= ==================================== ===================
</TABLE>
Supplemental Schedule of Noncash Financing Activities
During the year ended June 30, 1995, two loans were converted into 19,559 shares
of common stock. The principal balances of the loans amounted to $450,500 and
$25,000. Accrued interest of $2,083 related to the $25,000 note payable was also
converted to equity.
During the year ended June 30, 1994, three loans were converted into 35,830
shares of common stock. The principal balances of the loans amounted to
$437,500, $3,000 and $170,589.
See accompanying notes.
F-6
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
Notes to Financial Statements
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and for the period from
July 1, 1993 (inception) to March 31, 1996 is unaudited.)
1. Organization and Significant Accounting Policies
Organization
CD-MAX, Inc., formerly InfoServe, Inc., (the "Company") is engaged in the
business of developing and marketing the CD-MAX(TM) System, based upon its
proprietary technology, which is designed to allow publishers of professional,
corporate, library and educational CD-ROM based information to sell their
information to end-users on a usage basis. The CD-MAX System consists of
proprietary metering and encryption software and billing services. The Company
believes that the CD-MAX System has the potential to increase revenues of CD-ROM
publishers by reducing copyright and license abuse and to enable them to expand
into new markets. The CD-MAX System is being adapted for use on the Internet and
is expected to be commercially available during 1996, under the name
NET-MAX(TM).
On December 29, 1993, CD-MAX, Inc., (formerly InfoServe, Inc.), a public shell
company incorporated in Montana, acquired the outstanding stock of Signal
Security Technologies Inc. ("Sigtek") in exchange for 701,566 shares of common
stock. Sigtek was a privately held company formed on July 1, 1993. For
accounting purposes the acquisition was treated as a recapitalization of Sigtek
with Sigtek as the acquirer (a reverse acquisition). The historical financial
statements prior to December 29, 1993 are those of Sigtek. Effective December
29, 1993, Sigtek merged with CD-MAX, Inc., (formerly InfoServe, Inc.).
In March 1996, the Board of Directors and stockholders of InfoServe, Inc., a
Montana corporation, approved the mergers of InfoServe, Inc. and its
wholly-owned subsidiary, CD-MAX, Inc. into a new Delaware corporation, CDMII,
Inc. ("CDMII"). Subsequently, the name of the Delaware Corporation, CDMII, was
changed to CD-MAX, Inc. As part of the merger, the Board of Directors and
stockholders approved a 1 for 30 stock exchange under which the holders of
InfoServe, Inc. stock would receive one share of stock in CDMII for each of the
30 shares of stock in InfoServe, Inc. (See Note 9).
Net Loss Per Share
The Company's net loss per share calculations are based upon the weighted
average number of shares of Common Stock outstanding. Other shares of common
stock issuable upon the exercise of stock options or warrants have been excluded
from the computation because the effect of their inclusion would be
antidulitive. In subsequent periods, stock options and warrants under the
treasury stock method will be included to the extent they are dilutive.
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ending June 30, 1996.
F-7
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
Notes to Financial Statements (Continued)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and for the period from
July 1, 1993 (inception) to March 31, 1996 is unaudited.)
1. Organization and Significant Accounting Policies (continued)
Income Taxes
The Company provides for income taxes in accordance with the liability method.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases 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.
Cash
For the purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
Short-Term Investments
The short-term investments are stated at cost, which as of June 30, 1995 and
March 31, 1996 approximates market, and consists of a certificate of deposit.
Computer Equipment
Computer equipment, held under capital leases, is recorded at cost. Depreciation
and amortization is calculated using the straight-line method over the lesser of
the estimated useful life of three years or the lease term.
Recent Pronouncements
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation" which is effective for the Company's
1997 financial statements. SFAS No. 123 allows companies to account for
stock-based compensation under either the new provisions of SFAS No. 123 or the
provisions of APB No. 25, but requires pro forma disclosure in the footnotes to
the financial statements as if the measurement provisions of SFAS No. 123 had
been adopted. At this time, the Company intends to continue accounting for its
stock-based compensation in accordance with the provisions of APB No. 25. As
such, the implementation of SFAS No. 123 will not materially impact the
financial position or results of operations of the Company.
F-8
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
Notes to Financial Statements (continued)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and for the period from
July 1, 1993 (inception) to March 31, 1996 is unaudited.)
1. Organization and Significant Accounting Policies (continued)
Use of Estimates
The preparation of the 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.
Product Development Costs
Through March 31, 1996, the Company expensed its product development costs as
research and development costs. It will continue to expense such costs until
such time as the realizability of the Company's software is established.
Revenue Recognition
The Company recognizes license revenue upon completion of each CD-ROM. The
Company records transaction and transaction related revenues in the month in
which the services are provided.
During the year ended June 30, 1995 and the nine months ended March 31, 1996,
the Company's total revenues were derived from one and three customers,
respectively.
2. Stockholders' Deficit
Financing Transactions
On December 15, 1995, the Company executed an agreement (the "Bridge Loan
Agreement") with a group of existing stockholders to provide up to $300,000 of
interim financing prior to the completion of the anticipated Private Placement
of $1,000,000 (See Note 9). In conjunction with this interim financing, the
existing stockholders received a total of 170,000 warrants to purchase common
stock at a price of $3.37 per share (See Warrants). In addition, the investors
renegotiated the price of their earlier investments in the Company, which
occurred in August, 1995. This renegotiation was based on management's estimate
of the fair market value of the common stock expected to be sold in the
anticipated public offering. As a result of this renegotiation and to effect the
negotiated decrease in price per share to $3.50, the investors were issued
80,825 shares of common stock and warrants to purchase 80,825 shares of common
stock (currently exercisable at $6.60 per share). This is subject to further
adjustment if the price per share of the public offering is less than the
effective price per share ($3.30) paid by these investors. The investors
provided this interim financing to the Company between February and April 1996.
In the event of a public offering, the warrants will be converted into
warrants with terms identical to the warrants to be underlying the Units in the
public offering.
F-9
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
Notes to Financial Statements (Continued)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and for the period from
July 1, 1993 (inception) to March 31, 1996 is unaudited.)
2. Stockholders' Deficit (continued)
Financing Transactions (continued)
In August 1995, the Company issued warrants to purchase 120,690 shares of common
stock in connection with the private placement of $525,000 to certain existing
stockholders. In connection with this private placement, 22,444 warrants were
also issued as payment for finders' fees. The warrants are currently
exercisable, and the exercise price for the warrants ranges from $.30 to $8.70
per share.
During June 1995, the Company issued 143 shares of common stock to a financial
advisory firm in lieu of a $7,500 retainer.
During the year ended June 30, 1995 and the nine month period ended March 31,
1996, the Company issued 333,590 and 271,787 shares, respectively of common
stock to Class B stockholders in accordance with the anti-dilution provision
related to the Sigtek transaction. (See Note 1.) These issued shares related to
all equity issuances during the year ended June 30, 1995 and the nine month
period ended March 31, 1996, respectively. All Class B stockholders, which
consisted of employees of the Company and outside stockholders, were afforded
the identical anti-dilution right. In March, 1996, all shares of Class B common
stock were converted to common stock, pursuant to the merger transactions
discussed in Notes 1 and 9.
Common stock was issued to the founders of Sigtek on the reverse acquisition
date. Additionally, at the reverse acquisition date, the issued and outstanding
common shares of the public shell company became common shares of CD-MAX, Inc.
(formerly InfoServe, Inc.).
Common Stock Options
The Company adopted the CD-MAX, Inc., (formerly InfoServe, Inc.) Stock Incentive
Plan (the "Plan") in 1993. The Plan provides for the issuance of incentive stock
options, nonqualified options and restricted stock to key employees, consultants
and directors. Exercise prices for incentive stock options may not be less than
fair market value on the date of grant. Two-hundred thousand shares (200,000) of
common stock have been reserved for possible issuance under the Plan.
F-10
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
Notes to Financial Statements (Continued)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and for the period from
July 1, 1993 (inception) to March 31, 1996 is unaudited.)
2. Stockholders' Deficit (continued)
Common Stock Options (continued)
Stock option activity for the years ended June 30, 1994 and 1995 and for the
nine months ended March 31, 1996 is as follows:
Outstanding Options
-------------------
Number
of Shares
-------------
Balance at June 30, 1993 -
Options granted 18,001
Options cancelled (3,333)
--------
Balance at June 30, 1994 14,668
Options granted 116,011
--------
Balance at June 30, 1995 130,679
Options granted 51,666
--------
Balance at March 31, 1996 182,345
========
Options exercisable at March 31, 1996 117,578
========
Exercise prices of the options range from $9.00 to $45.00 per share. The options
generally vest on a time-based schedule over a period of one to three years and
expire over a period of five to ten years.
During the years ended June 30, 1994 and 1995, the Company recognized
compensation, marketing, and investor relations expenses amounting to $171,000
and $71,452, respectively, in connection with options granted. These charges
represent the differences between the exercise price of the options and the
public bid price of the related shares on the date of grant.
Reserve for Common Stock
In connection with the stock options and warrants, the Company has reserved
795,200 shares of common stock for issuance as of March 31, 1996.
Warrants
In connection with the execution of the Bridge Loan Agreement in December 1995,
(See Financing Transactions), the Company issued warrants to purchase 170,000
shares of common stock at a price of $3.37 per share. The Company allocated
$18,750 of the interim bridge loan proceeds to the warrants issued. The $18,750
allocated to the warrants is being amortized to interest expense using the
effective interest method over the period (four to five months) the related debt
is expected to be outstanding. The effect of this allocation results in an
effective interest rate of 35%. As of March 31, 1996, the Company had recognized
additional interest expense of $4,167 related to this allocation.
F-11
<PAGE>
CD-MAX, Inc.
(formerly InfoServe, Inc.)
(A Development Stage Company)
Notes to Financial Statements (continued)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and for the period from
July 1, 1993 (inception) to March 31, 1996 is unaudited.)
2. Stockholders' Deficit (continued)
Warrants (continued)
In July 1995, the Company issued 1,200 warrants to an existing shareholder in
connection with a settlement of a contract. In September 1995, the Company
issued 609 warrants to a vendor in lieu of fees owed to this vendor. These
warrants are currently exercisable at a price of $.30 per share. The expenses
associated with the contract settlement and fees to the vendor are considered
immaterial to the financial statements.
During 1995, the Company received $1,142,583 in additional capital from private
investors through the sale of 172,432 shares of common stock. In conjunction
with these equity placements, the Company issued warrants for the purchase of
172,432 shares of common stock. The warrants are currently exercisable at prices
ranging from $8.70 to $22.50 per share.
Also, the Company granted warrants to purchase 26,667 shares of common stock to
certain individuals for assisting in these equity placements. The warrants are
currently exercisable at prices ranging from $0.30 to $8.70 per share.
3. Commitments
The Company leases offices in Murray Hill, New Jersey which terminates in
December, 2000; and in Reston, Virginia, the Company leases office space under a
lease which terminates in December, 1997. Additionally, the Company leases
various office and computer equipment under noncancelable operating and capital
leases.
At March 31, 1996, there was $58,085 of computer equipment held under capital
leases. Accumulated amortization of the equipment amounted to $8,250 at March
31, 1996. Amortization expense related to capital leases is classified as
depreciation and amortization in the statements of cash flows. The non-cash
portion of this transaction has been excluded from the statements of cash flows.
Rent expense for the years ended June 30, 1994 and 1995, for the nine months
ended March 31, 1995 and 1996, and for the period from July 1, 1993 (inception)
to March 31, 1996 was $21,026, $48,007, $38,028, $37,941 and $106,974,
respectively.
Future minimum lease payments under noncancelable operating leases are as follow
as of June 30, 1995:
Year ending June 30:
--------------------
1996 $ 82,447
1997 95,889
1998 65,112
1999 36,576
2000 36,576
Thereafter 12,192
------------
$ 328,792
============
F-12
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
Notes to Financial Statements (continued)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and for the period from
July 1, 1993 (inception) to March 31, 1996 is unaudited.)
3. Commitments (continued)
Future minimum lease payments under noncancelable capital leases as of March 31,
1996 are $34,917 in 1997, $14,164 in 1998, and $7,087 in 1999 less $10,228 in
interest.
4. Accrued Expenses
The Company partially funded its operations through the deferral of compensation
by management. As of June 30, 1995 and March 31, 1996, the Company owed four of
its executives a total of $212,712 and $300,764, respectively, in accrued
compensation. These amounts are classified as accrued expenses on the balance
sheets.
5. Income Taxes
Net deferred income tax assets are as follows:
June 30, March 31,
1995 1996
----------- ------------
Start-up costs $ 169,000 $ 143,000
Operating loss carryforwards 442,000 827,000
Accrued expenses 134,000 148,000
Other 31,000 34,000
----------- ------------
Deferred tax assets 776,000 1,152,000
Valuation allowance (776,000) (1,152,000)
----------- ------------
Net deferred tax assets $ - $ -
=========== ============
The valuation allowance increased by $376,000 from June 30, 1995 to March 31,
1996 primarily as a result of an increase in operating loss carryforwards due to
ongoing net losses.
At June 30, 1995 and March 31, 1996, the Company has net operating loss
carryforwards amounting to approximately $1,104,000 and $2,068,000,
respectively. Operating loss carryforwards expire in 2008 through 2011.
6. Related Party Transactions
An officer of CD-MAX, Inc. (formerly InfoServe, Inc.) granted a license to the
Company under which the Company has been assigned certain proprietary and
intellectual property rights to certain U.S. patents and other business and
technological know-how related to the Company's CD-MAX(TM) business. Under the
terms of the license agreement, the Company will pay specified royalties to a
royalty trust, the beneficiaries of which include that officer, certain other
members of his family, and certain other officers and directors of the Company.
No amounts are currently due or have been paid pursuant to the agreement.
F-13
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
Notes to Financial Statements (continued)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and for the period from
July 1, 1993 (inception) to March 31, 1996 is unaudited.)
6. Related Party Transactions (continued)
As part of the merger agreement between Sigtek and CD-MAX, Inc. (formerly
InfoServe, Inc.), the Company assumed a $3,000 loan made by an officer to
Sigtek. This loan was satisfied in 1993 in return for the issuance of 200 shares
of common stock to the officer. In 1994, a family member of an officer of
CD-MAX, Inc. (formerly InfoServe, Inc.), loaned the Company $25,000. During
1995, the loan and accrued interest of $2,083 were converted into 6,226 shares
of common stock.
7. 401(K) Plan
On July 1, 1995, the Company adopted a 401(k) Plan (the "Plan"). The Plan, which
covers all employees who have completed six months of service, stipulates that
employees may elect an amount between 1% and 15% of their total compensation to
contribute to the Plan. Contributions were made by the Company in the amount of
$2,912 during the nine months ended March 31, 1996.
8. Management Plans
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company does not have significant cash or other material
assets, nor does it have an established source of revenues sufficient to cover
its operating costs and to allow it to continue as a going concern. During the
year ended June 30, 1995, the Company raised equity capital amounting to
approximately $1.1 million from several investors. Subsequent to June 30, 1995,
the Company raised $525,000 in additional equity capital from several private
investors. The Company has also borrowed periodically from officers and other
related parties. During February to April 1996, the Company raised $300,000 in
interim bridge financing (Note 2), as well as successfully completed a private
placement to raise approximately $1,000,000 in exchange for $900,000 of
promissory notes and warrants to purchase 600,000 shares of common stock (see
Note 9). The Company plans to file a registration statement with the Securities
and Exchange Commission to raise approximately $6 million. If this offering is
not consummated, the Company must obtain financing from current investors or
other private and public investors, significantly reduce its development
activities, or generate revenues from sale of products. However, there can be no
assurance that the Company will be able to obtain the required financing.
9. Subsequent Events
The mergers of InfoServe, Inc. and CD-MAX, Inc. into CDMII were effective as of
April 15, 1996. Subsequently, the name of CDMII was changed to CD-MAX, Inc. All
references in the accompanying financial statements to the number of shares of
common stock and per-share amounts have been restated to reflect the stock
exchange. (See Note 1.)
On April 17, 1996, the Company issued warrants to purchase 990,000 shares of
common stock to four employees. The warrants are exercisable after October 1,
1996 and only at such time as the Common Stock has traded for twenty days in any
thirty business day period at a closing bid equal to or greater than $10.50;
however if the Company does not consummate a public offering by December 31,
1997, the warrants will expire. The warrants are exercisable at $10.50 per
share. Additionally, 100,000 options to purchase common stock which had
previously been granted to these four employees, were cancelled.
F-14
<PAGE>
CD-MAX, INC.
(formerly InfoServe, Inc.)
(A Development Stage Company)
Notes to Financial Statements (continued)
(Information as of March 31, 1996 and for the nine months
ended March 31, 1995 and 1996 and for the period from
July 1, 1993 (inception) to March 31, 1996 is unaudited.)
9. Subsequent Events (continued)
On May 16, 1996, the Company completed a private placement to raise
approximately $1,000,000 from current and new investors. The Company sold 20
units of which each unit consisted of a $45,000 unsecured promissory note and
30,000 warrants. The $45,000 promissory note bears interest at an annual rate of
10% and the principal balance plus accrued interest is due on the earlier of (1)
the closing of a public offering, which results in net proceeds to the Company
of at least $3,000,000 and (2) one year from the issuance date. Each warrant is
exercisable to purchase one share of common stock at a price equal to$3.37
commencing May 16, 1997. Upon closing of the Public Offering, the warrants will
convert to redeemable warrants if redeemable warrants are included in the Public
Offering. For subsequent financial statements of the Company, the Company will
allocate approximately $50,000 of the promissory note proceeds to the warrants
issued. The $50,000 allocated to the warrants will be amortized to interest
expense using the effective interest method over the period (three months) the
related debt is expected to be outstanding. The effect of this allocation will
result in an effective interest rate of 35%.
The financial statements include pro forma information as of March 31, 1996 to
reflect the completion of the Company's private placement, pursuant to which the
Company sold 20 units, each unit consisting of a $45,000 promissory note and
30,000 warrants, and anticipated expenses associated with the private placement.
F-15
<PAGE>
No underwriter, dealer, salesperson or any other person has been
authorized to give any information or to make any representations other than
those contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any Underwriter. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any date subsequent to the date
hereof. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any securities offered hereby by anyone in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
Prospectus Summary................................ 3
Risk Factors...................................... 7
The Company....................................... 11
Recent Bridge Financings.......................... 11
Use of Proceeds................................... 12
Market Price for Common Equity and
Related Stockholder Matters..................... 13
Dividend Policy................................... 13
Dilution ......................................... 14
Capitalization.................................... 15
Selected Financial Data........................... 16
Management's Discussion and Analysis of
Financial Condition
and Results of Operations...................... 17
Business.......................................... 19
Management........................................ 25
Certain Transactions.............................. 28
Principal Stockholders............................ 30
Selling Securityholders........................... 31
Description of Securities......................... 33
Shares Eligible for Future Sale................... 34
Underwriting...................................... 36
Legal Matters..................................... 38
Experts........................................... 38
Additional Information............................ 38
Index to Financial Statements..................... F-1
Until ________, 1996, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a Prospectus. This delivery requirement is in addition to
the obligations of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
[LOGO]
CD-MAX, INC.
900,000 Units
Each Unit Consisting
of
Two Shares of Common Stock
and
One Redeemable Warrant
PROSPECTUS
JOSEPH STEVENS & COMPANY, L.P.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
A. Section 145 of the Delaware General Corporation Law ("Section 145")
permits indemnification of directors, officers, agents and controlling persons
of a corporation under certain conditions and subject to certain limitations.
Section 145 empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer or agent of the corporation or another enterprise if serving at the
request of the corporation. Depending on the character of the proceeding, a
corporation may indemnify against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding if the person indemnified
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. In the case of an action by or in the right of the
corporation, no indemnification may be made with respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the court of chancery or the
court in which such action or suit was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually or reasonably
incurred by such person in connection therewith.
B. As permitted by the Delaware General Corporation Law, the Company
has included a provision in its Certificate of Incorporation (Exhibit 3.1
hereto), that, subject to certain limitations, eliminates the ability of the
Company and its stockholders to recover monetary damages from a director of the
Company for breach of fiduciary duty as a director. The Company's By-Laws
(Exhibit 3.2 hereto) provides for indemnification of the Company's directors and
officers and advancement of expenses to the extent otherwise permitted by
Section 145.
C. Reference is made to Section 7 of the Underwriting Agreement
(Exhibit 1 hereto) which provides for indemnification among the Company and the
Underwriters.
Insofar as indemnification for liabilities arising under the Securities Act of
1993 may be permitted to directors, officers, and controlling persons pursuant
to the foregoing provisions, the Registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
contrary to public policy as expressed in the Securities Act and, therefore, is
unenforceable. (See "ITEM 28. UNDERTAKINGS.")
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses, other than the underwriting discounts
and the non-accountable expenses payable to the Representative, in connection
with the distribution of the securities being registered:
SEC registration fee $ 6,971
Legal fees and expenses 125,000
"Blue Sky" fees and expenses (including attorneys' fees) 75,000
Accounting fees and expenses 75,000
Printing expenses 75,000
NASD filing fee 2,396
Transfer agent and registrar fee 5,000
Nasdaq listing fees 10,000
Miscellaneous 25,633
Total $400,000
All expenses, except the SEC fees and the NASD filing fee, are estimates. The
above expenses include the registration fees and other expenses with respect to
the Selling Securityholders, other than commissions, or other charges made in
connection with the sale of their securities being registered herein and their
attorney's fees, if any.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the three years last preceding the filing of this Registration Statement,
the Registrant issued the following securities without registration under the
Securities Act of 1933:
On December 27, 1993 the Company issued 223,233 shares of its then
Class A Common Stock and 478,333 shares of its then Class B Common Stock in
connection with a merger of Signal Security Technology, Inc. ("SigTek") into a
then wholly owned subsidiary of the Company. Prior to this transaction the
Company was a shell corporation without any assets or operations. The assets
acquired in the merger included the existing technology and intellectual
property with respect to the CD-MAX System. The eight existing shareholders of
SigTek (including David B. Boelio, Philip J. Gross, Weldon Rackley, John D.
Wiedemer, and Robert A. Wiedemer) became shareholders of the Company. This
transaction was exempt from registration under the Act as a private transaction
pursuant to Section 4(2) of the Act and Rule 145 promulgated thereunder.
On December 30, 1993 the Company issued 30,969 shares to two persons,
one of whom was Philip J. Gross, an officer and director of the Company, and the
other whom was an institutional investor, to convert approximately $173,589 in
advances previously made to the Company to equity. These transactions were
exempt from registration as private transactions pursuant to Section 4(2) of the
Act.
On June 30, 1994 the Company issued 4,861 shares to the institutional
investor mentioned above, to convert approximately $437,500 in advances
previously made to the Company to equity. This transaction was exempt from
registration as a private transactions pursuant to Section 4(2) of the Act.
On November 14, 1994 the Company sold to one accredited investor 11,494
shares of its Common Stock and 11,494 common stock purchase warrants for a total
consideration of $50,000. This transaction was exempt from registration as a
private transactions pursuant to Section 4(2) of the Act.
On December 15, 1994 the Company sold to the institutional investor
referred to above 13,333 shares of its Common Stock for a total consideration of
$450,500. This transaction was exempt from registration as a private transaction
pursuant to Section 4(2) of the Act.
On January 25, February 13, April 6, May 2, June 2, and August 5, 1995,
the Company sold to Suan Investments, an accredited investor, a total of 161,393
shares of its Common Stock and 161,393 common stock purchase warrants for a
total consideration of $702,061. These transactions were exempt from
registration as private transactions pursuant to Section 4(2) of the Act.
On February 21, 1995 the Company sold 6,226 shares of its Common Stock
and 6,226 common stock purchase warrants in return for the conversion of $27,083
in indebtedness due to an accredited investor. This transaction was exempt from
registration as a private transaction pursuant to Section 4(2) of the Act.
On March 31, 1995 the Company sold 2,299 shares of its Common Stock and
2,299 common stock purchase warrants to one accredited investor for a total
consideration of $10,000. This transaction was exempt from registration as a
private transaction pursuant to Section 4(2) of the Act.
On April 28, 1995 the Company sold 5,747 shares of its common stock and
5,747 common stock purchase warrants to one accredited investor for a total
consideration of $25,000. This transaction was exempt from registration as a
private transaction pursuant to Section 4(2) of the Act.
On June 30, 1995 the Company sold 143 shares of its Common Stock to a
consulting firm in lieu of paying $7,500 in fees that the Company owed the firm.
This transaction was exempt from registration as a private transaction pursuant
to Section 4(2) of the Act.
On August 5, 1995, in addition to the sale to Suan Investments referred
to above, the Company sold a total of 92,630 shares of its Common Stock and
92,630 common stock purchase warrants to two investors, Stourbridge Investments,
Ltd., an accredited investor, and Steven P. Schnipper, a director of the Company
for a total consideration of $402,939. These transactions were exempt from
registration as a private transactions pursuant to Section 4(2) of the Act.
On December 15, 1995, the Company issued a total of 80,825 shares of
Common Stock and 80,825 common stock purchase warrants to Steven P. Schnipper,
Suan Investments and Stourbridge Investments, Ltd., in return for their
guarantee to provide interim financing of up to $300,000 to the Company. The
stock and warrant issuance was the result of negotiations between the Company
and the investors and represents the repricing of the investors' earlier equity
investments in the Company. These transactions were exempt from registration as
a private transactions pursuant to Section 4(2) of the Act.
<PAGE>
In February, March and April 1996, Steven P. Schnipper, Suan
Investments and Stourbridge Investments, Ltd. advanced an aggregate of $300,000
to the Company. The initial $100,000 was advanced pursuant to a promissory note
that was repaid from the net proceeds of a subsequent financing, as described
below. The Company issued an aggregate of $180,000 principal amount of
promissory notes, and 170,000 Common Stock purchase warrants. These transactions
were exempt from registration as a private transactions pursuant to Section 4(2)
of the Act.
On May 16, 1996, the Company consummated a $1,000,000 bridge financing,
pursuant to which it issued an aggregate of (i) $900,000 principal amount of
promissory notes which bear interest at the rate of 10% per annum and are due
and payable upon the earlier of (a) the consummation of a public financing of
the Company through the sale of equity securities from which the Company
receives gross proceeds of at least $3,000,000 or (b) May 16, 1997, and (ii)
600,000 warrants with an aggregate purchase price of $100,000, each warrant
entitling the holder to purchase one share of Common Stock at an initial
exercise price of $3.37 (subject to adjustment upon the occurrence of certain
events) during the three-year period commencing May 16, 1997. This financing was
placed for the Company by Joseph Stevens & Company, LP with accredited
investors. These transactions were exempt from registration as a private
transactions pursuant to Section 4(2) of the Act, and pursuant to Regulation D
promulgated thereunder.
II-2
<PAGE>
ITEM 27. EXHIBITS
Copies of the following documents are included as exhibits to this Registration
Statement, pursuant to item 601 of Regulation S-K. The index to exhibits
required by such item appears on page .
<TABLE>
<CAPTION>
SEC Title of
Reference No. Exhibit No. Document
<S> <C> <C>
(1) 1 Underwriting Agreement
(3)(i) 2.1 Articles of Incorporation
(3)(ii) 2.2 By-Laws
(4) 4.1 Form of Common Stock Certificate
(4) 4.2 Form of Redeemable Warrant (to be filed by amendment)
(4) 4.3 Form of Warrant Agreement
(4) 4.4 Form of Representative's Warrant Agreement
(5) 5.1 Opinion of Lewis, Goldberg & Ball, A Professional Corporation (to be filed by Amendment)
(10)(i) 10.1 Amended Master License Agreement between John D. Wiedemer and CD-MAX, Inc.
(10)(i) 10.2 Employment Agreement by and between CD-MAX, Inc. and John David Wiedemer and Amendment
One thereto.
(10)(i) 10.3 Employment Agreement by and between CD-MAX, Inc. and Robert A. Wiedemer and Amendment
One thereto.
(10)(i) 10.4 Employment Agreement by and between CD-MAX, Inc. and Philip J. Gross and Amendment One
thereto.
(10)(i) 10.5 Employment Agreement by and between CD-MAX, Inc. and David B. Boelio and Amendment One
thereto.
(10)(i) 10.6 Letter from CD-MAX, Inc. to Dataware Technologies, Inc. dated September 6, 1995
(10)(i) 10.7 CD-MAX Data Security, Usage Billing and Information Management Services Agreement Mitchell
International, Inc.
(10)(i) 10.8 CD-MAX Data Security, Usage Billing and Information Management Services Agreement
Disclosure Incorporated
(10)(i) 10.9 Folio Corporation Reciprocal Nondisclosure Agreement
(10)(i) 10.10 E-Data Systems Limited License Agreement
(10)(ii) 10.11 Incentive Stock Option Plan
(10)(ii) 10.12 Board of Director Resolution and Agreement with Officers re Management Warrants
(10)(i) 10.13 Form of Financial Advisory and Consulting Agreement
(23) 23.1 Consent of Ernst & Young, LLP
(23) 23.2 Consent of Lewis, Goldberg & Ball, A Professional Corporation, included in Exhibit 5.1
(to be filed by amendment)
(23) 23.3 Consent of Quarles & Brady (to be filed by amendment)
(24) 24.1 Power of Attorney
(27) 27.1 Financial Data Schedule
</TABLE>
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
Post-Effective Amendments. [Regulation S-B, Item 512(a)]
The undersigned Registrant will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and, notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) of if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Delivery of Certificates. [Regulation S-B, Item 512(d)]
The undersigned Registrant will provide to the underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Indemnification. [Regulation S-B, Item 512(e)]
The undersigned Registrant undertakes that:
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Rule 430. [Regulation S-B, Item 512(f)]
The undersigned Registrant hereby undertakes that:
(1) For determining any liability under the Securities Act, it will treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(2) For determining any liability under the Securities Act, it will treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-4
<PAGE>
Signature Page
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Fairfax, Sate of Virginia, on June 7, 1996.
CD-MAX, Inc.
By:/s/Robert A. Wiedemer
---------------------------------------------------------
Robert A. Wiedemer, President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated:
/s/Robert A. Wiedemer June 7, 1996
------------------------------------------------ ------------
(Name)Robert A. Wiedemer (Title)President, Date
Chief Executive Officer, Chairman of Board
of Directors
/s/Philip J. Gross June 7, 1996
------------------------------------------------ ------------
(Name)Philip J. Gross (Title)Secretary, Date
Treasurer, Vice-President-Chief Financial
Officer (principal financial officer,
principal accounting officer)
/s/John David Wiedemer June 7, 1996
------------------------------------------------ ------------
(Name)John David Wiedemer (Title)Senior Vice Date
President-Operations, Director
/s/David B. Boelio June 7, 1996
------------------------------------------------ ------------
(Name)David B. Boelio (Title)Senior Vice Date
President-Marketing and Sales
/s/Steven P. Schnipper June 7, 1996
------------------------------------------------ ------------
(Name)Steven P. Schnipper (Title) Director Date
/s/Weldon P. Rackley June 7, 1996
------------------------------------------------ ------------
(Name)Weldon P. Rackley (Title) Director Date
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEC Title of
Reference No. Exhibit No. Document
<S> <C> <C>
(1) 1 Underwriting Agreement
(3)(i) 2.1 Articles of Incorporation
(3)(ii) 2.2 By-Laws
(4) 4.1 Form of Common Stock Certificate (to be filed by amendment)
(4) 4.2 Form of Redeemable Warrant (to be filed by amendment)
(4) 4.3 Form of Warrant Agreement
(4) 4.4 Form of Representative's Warrant Agreement
(5) 5.1 Opinion of Lewis, Goldberg & Ball, A Professional Corporation (to be filed by Amendment)
(10)(i) 10.1 Amended Master License Agreement between John D. Wiedemer and CD-MAX, Inc.
(10)(i) 10.2 Employment Agreement by and between CD-MAX, Inc. and John David Wiedemer and Amendment
One thereto.
(10)(i) 10.3 Employment Agreement by and between CD-MAX, Inc. and Robert A. Wiedemer and Amendment
One thereto.
(10)(i) 10.4 Employment Agreement by and between CD-MAX, Inc. and Philip J. Gross and Amendment One
thereto.
(10)(i) 10.5 Employment Agreement by and between CD-MAX, Inc. and David B. Boelio and Amendment One
thereto.
(10)(i) 10.6 Letter from CD-MAX, Inc. to Dataware Technologies, Inc. dated September 6, 1995
(10)(i) 10.7 CD-MAX Data Security, Usage Billing and Information Management Services Agreement Mitchell
International, Inc.
(10)(i) 10.8 CD-MAX Data Security, Usage Billing and Information Management Services Agreement
Disclosure Incorporated
(10)(i) 10.9 Folio Corporation Reciprocal Nondisclosure Agreement
(10)(i) 10.10 E-Data Systems Limited License Agreement
(10)(ii) 10.11 Incentive Stock Option Plan
(10)(ii) 10.12 Board of Director Resolution and Agreement with Officers re Management Warrants
(10)(i) 10.13 Form of Financial Advisory and Consulting Agreement
(15) 15.1 Letter from Accountants Re Report on Unaudited Interim Financial Statements (to be filed by
amendment)
(23) 23.1 Consent of Ernst & Young, LLP
(23) 23.2 Consent of Lewis, Goldberg & Ball, A Professional Corporation (to be filed by amendment)
(23) 23.3 Consent of Quarles & Brady (to be filed by amendment)
(24) 24.1 Power of Attorney
(27) 27.1 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 1.1
900,000 Units, Each
Unit Consisting of Two Shares of
Common Stock and One Redeemable Warrant
CD-MAX, INC.
UNDERWRITING AGREEMENT
New York, New York
, 1996
JOSEPH STEVENS & COMPANY, L.P.
As Representative of the
Several Underwriters listed
on Schedule A hereto
33 Maiden Lane, 8th Floor
New York, New York 10038
Ladies and Gentlemen:
CD-MAX, Inc., a Delaware corporation (the "Company"), confirms
its agreement with Joseph Stevens & Company, L.P. ("JSLP") and each of the
several underwriters named in Schedule A hereto (collectively, the
"Underwriters", which term shall also include any underwriter substituted as
hereinafter provided in Section 11) for whom JSLP is acting as representative
(in such capacity, JSLP shall hereinafter be referred to as "you" or the
"Representative"), with respect to the sale by the Company and the purchase by
the Representative of 900,000 units (the "Units"), each Unit consisting of two
(2) shares of common stock, $0.01 par value (the "Common Stock") and one (1)
redeemable warrant (the "Redeemable Warrants"). Each Redeemable Warrant is
exercisable for one share of Common Stock. The Common Stock and Redeemable
Warrants will be separately tradeable upon issuance and are hereinafter referred
to as the "Firm Units." The Redeemable Warrants are exercisable commencing
________________, 1996 [the effective date of the Registration Statement] until
_____________, 2001 [60 months from the effective date of the Registration
Statement], unless previously redeemed by the Company, at an initial exercise
price equal to $__________ [75% of the initial public offering price per unit]
per share, subject to adjustment. The Redeemable Warrants may be redeemed by the
Company, in whole, and not in part, at a redemption price of five cents ($.05)
per Redeemable Warrant at any time commencing ______________, 1997 [12 months
after the effective date of the Registration Statement] on 30 days' prior
written notice provided that the average closing bid price of the Common Stock
<PAGE>
equals or exceeds 150% of the then exercise price per share (subject to
adjustment) for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth (5th) trading day prior to the date
of the notice of redemption and the Company shall have obtained the prior
written consent of JSLP. Upon the Representative's request, as provided in
Section 2(b) of this Agreement, the Company shall also issue and sell to the
Underwriters up to an additional 135,000 Units for the purpose of covering
over-allotments, if any. Such 135,000 Units are hereinafter collectively
referred to as the "Option Units." The Company also proposes to issue and sell
to the Representative or its designees warrants (the "Representative's
Warrants"), pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement"), for the purchase of an additional 90,000
Units (the "Representative's Units"). The Representative's Units, the shares of
Common Stock and the Redeemable Warrants underlying the Representative's Units
and the shares of Common Stock underlying the Redeemable Warrants underlying the
Representative's Units are hereinafter collectively referred to as the
"Representative's Securities". The shares of Common Stock issuable upon exercise
of the Redeemable Warrants, including the Redeemable Warrants underlying the
Representative's Units, are hereinafter referred to as the "Warrant Shares."
Further, an additional [1,070,000] Redeemable Warrants (the "Selling
Securityholder Warrants") and [1,130,615] shares of Common Stock (the "Selling
Securityholder Shares"), including the 1,070,000 shares of Common Stock
underlying the Selling Securityholder Warrants, are being registered for the
account of certain selling security holders in connection with this offering
which are not being underwritten by the Underwriters. The Selling Securityholder
Warrants and the Selling Securityholder Shares are hereinafter collectively
referred to as the "Selling Securityholder Securities." The Firm Units, the
Option Units, the Representative's Warrants, the Representative's Units, the
Selling Securityholder Securities and the Warrant Shares are hereinafter
collectively referred to as the "Securities" and are more fully described in the
Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and covenants and agrees with, the Representative as
of the date hereof, and as of the Closing Date (hereinafter defined) and the
Option Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and amendments
thereto, on Form SB-2 (Registration No. __________), including any related
preliminary prospectus or prospectuses (each a "Preliminary Prospectus"), for
the registration of the Securities, under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations of the Commission under the Act. The Company will not file
any other amendment to such registration statement which the Representative
shall have objected to in writing after having been furnished with a copy
thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time it becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to, those documents or that information incorporated
by reference therein) and all information deemed to be a part thereof as of such
2
<PAGE>
time pursuant to paragraph (b) of Rule 430A of the rules and regulations under
the Act), is hereinafter called the "Registration Statement," and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the rules and regulations under the Act is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or threatened. Each of the Preliminary Prospectus and the
Registration Statement and the Prospectus, at the time of filing thereof,
conformed with the requirements of the Act and the Rules and Regulations, and
none of the Preliminary Prospectus, the Registration Statement nor the
Prospectus, at the time of filing thereof, contained an untrue statement of a
material fact or omitted 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; provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, the Registration Statement or
the Prospectus. The Company has filed all reports, forms or other documents
required to be filed under the Act and the Exchange Act and the respective Rules
and Regulations thereunder, and all such reports, forms or other documents, when
so filed or as subsequently amended, complied in all material respects with the
Act and the Exchange Act and the respective Rules and Regulations thereunder.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date, if any, and during such longer period as the Prospectus may be required to
be delivered in connection with sales by the Representative or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; and, at and through such dates, neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will 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 in which they were made, not misleading; provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in the Registration Statement or the Prospectus
or any amendment thereof or supplement thereto.
3
<PAGE>
(d) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations require such
qualification or licensing. The Company does not own, directly or indirectly, an
interest in any corporation, partnership, trust, joint venture or other business
entity. The Company has all requisite power and authority (corporate and other),
and has obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus; the Company
is and has been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and with all
federal, state, local and foreign laws, rules and regulations to which it is
subject; and the Company has not received any notice of proceedings relating to
the revocation or modification of any such authorization, approval, order,
license, certificate, franchise or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company. The disclosure in the Registration
Statement concerning the effects of federal, state, local and foreign laws,
rules and regulations on the Company's business as currently conducted and as
contemplated are correct in all respects and do not 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.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Representative's Warrant Agreement and the Warrant Agreement (as defined in
Section 1(ff) hereof of this Agreement) and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company on or
prior to the Closing Date and each Option Closing Date, if any, conform or, when
issued and paid for, will conform, in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no rights
of rescission with respect thereto and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holder of any security of the Company
or any similar contractual right granted by the Company. The Securities to be
sold by the Company hereunder and pursuant to the Representative's Warrant
Agreement and the Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with the terms hereof and
thereof, will be validly issued, fully paid and non-assessable and conform to
the descriptions thereof contained in the Prospectus; the holders thereof will
not be subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the Securities has
been duly and validly taken; and the certificates representing the Securities,
when delivered by the Company, will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof and the Representative's Warrant
Agreement of the Securities to be sold by the Company hereunder and thereunder
to the Underwriters, the Underwriters will acquire good and marketable title to
such Securities, free and clear of any lien, charge, claim, encumbrance, pledge,
4
<PAGE>
security interest, defect or other restriction or equity of any kind whatsoever
asserted against the Company or any affiliate (within the meaning of the Rules
and Regulations) of the Company.
(f) The audited financial statements of the Company and the
notes thereto included in the Registration Statement, each Preliminary
Prospectus and the Prospectus fairly present the financial position, income,
changes in stockholders' equity and the results of operations of the Company at
the respective dates and for the respective periods to which they apply. Such
financial statements have been prepared in conformity with generally accepted
accounting principles and the Rules and Regulations, consistently applied
throughout the periods involved. There has been no adverse change or development
involving a material prospective change in the condition, financial or
otherwise, or in the earnings, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the Company,
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus;
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company conform in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. The financial
information set forth in the Prospectus under the headings "The Company,"
"Capitalization," "Selected Financial Data" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" fairly presents, on
the basis stated in the Prospectus, the information set forth therein and such
financial information has been derived from or compiled on a basis consistent
with that of the audited financial statements included in the Prospectus.
(g) The Company (i) has paid all federal, state, local and
foreign taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986, as amended (the "Code"), and has furnished all information returns
it is required to furnish pursuant to the Code, (ii) has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
any tax deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriters of the
Securities from the Company, (iii) the consummation by the Company of any of its
obligations under this Agreement or the Representative's Warrant Agreement, or
(iv) resales of the Securities in connection with the distribution contemplated
hereby.
(i) The Company maintains insurance policies, including, but
not limited to, general liability, property, personal and product liability
insurance, and surety bonds which insure the Company and its employees against
such losses and risks generally insured against by comparable businesses. The
Company (i) has not failed to give notice or present any insurance claim with
respect to any insurable matter under the appropriate insurance policy or surety
bond in a due and timely manner, (ii) does not have any disputes or claims
against any underwriter of such insurance policies or surety bonds, nor has the
Company failed to pay any premiums due and payable thereunder, or (iii) has not
failed to comply with all conditions contained in such insurance policies and
surety bonds. There are no facts or circumstances under any such insurance
policy or surety bond which would relieve any insurer of its obligation to
satisfy in full any valid claim of the Company.
5
<PAGE>
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those pertaining to environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
which (i) questions the validity of the capital stock of the Company, this
Agreement, the Representative's Warrant Agreement, the Warrant Agreement or the
Consulting Agreement (as defined in Section 1(gg) hereof) or of any action taken
or to be taken by the Company pursuant to or in connection with this Agreement,
the Representative's Warrant Agreement, the Warrant Agreement or the Consulting
Agreement, (ii) is required to be disclosed in the Registration Statement which
is not so disclosed (and such proceedings as are summarized in the Registration
Statement are accurately summarized in all respects), or (iii) might materially
and adversely affect the condition, financial or otherwise, or the earnings,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this Agreement,
the Representative's Warrant Agreement, the Warrant Agreement and the Consulting
Agreement and to consummate the transactions provided for in such agreements;
and each of this Agreement, the Representative's Warrant Agreement, the Warrant
Agreement and the Consulting Agreement have been duly and properly authorized,
executed and delivered by the Company. Each of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement and the Consulting
Agreement constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of equitable
principles in any motion, legal or equitable, and except as obligations to
indemnify or contribute to losses may be limited by applicable law). None of the
Company's issue and sale of the Securities, execution or delivery of this
Agreement, the Representative's Warrant Agreement, the Warrant Agreement or the
Consulting Agreement, its performance hereunder and thereunder, its consummation
of the transactions contemplated herein and therein, or the conduct of its
business as described in the Registration Statement and the Prospectus and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company pursuant to
the terms of (i) the certificate of incorporation or by-laws of the Company,
(ii) any license, contract, indenture, mortgage, lease, deed of trust, voting
trust agreement, stockholders' agreement, note, loan or credit agreement or
other agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company is a party or by which it
is or may be bound or to which its properties or assets (tangible or intangible)
are or may be subject, or (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties.
6
<PAGE>
(l) No consent, approval, authorization or order of, and no
filing with, any arbitrator, court, regulatory body, administrative agency,
government agency or other body, domestic or foreign, is required for the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, this Agreement, the Representative's Warrant Agreement and the
Warrant Agreement, the performance of this Agreement, the Representative's
Warrant Agreement, the Warrant Agreement and the Consulting Agreement and the
transactions contemplated hereby and thereby, except such as have been obtained
under the Act, state securities laws and the rules of the National Association
of Securities Dealers, Inc. (the "NASD") in connection with the Representative's
purchase and distribution of the Securities.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company, and
constitute legal, valid and binding agreements of the Company, enforceable
against the Company in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of equitable
principles in any motion, legal or equitable, and except as obligations to
indemnify or contribute to losses may be limited by applicable law). The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required to be shown
with respect thereto by Form SB-2; and there are no agreements, contracts or
other documents which are required by the Act to be described in the
Registration Statement or filed as exhibits to the Registration Statement which
are not described or filed as required; and the exhibits which have been filed
are complete and correct copies of the documents of which they purport to be
copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of any class of its capital stock; and,
subsequent to such dates, and except as may otherwise be disclosed in the
Prospectus, there has not been any change in the capital stock, debt (long or
short term) or liabilities of the Company or any material change in the
condition, financial or otherwise, or the earnings, prospects, stockholders'
equity, value, operations, properties, business or results of operations of the
Company.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, stockholders' agreement, note,
loan or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company is or may be bound or to which the
property or assets (tangible or intangible) of the Company is or may be subject.
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(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and the Company is in
compliance with all federal, state, local and foreign laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
the Company by the United States Department of Labor or any other governmental
agency responsible for the enforcement of any federal, state, local or foreign
laws, rules and regulations relating to employment. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against or involving the Company, or any
predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute with the
employees of the Company exists or is imminent.
(q) The Company does not maintain, sponsor or contribute to
any program or arrangement that is an "employee pension benefit plan," an
"employee welfare benefit plan" or a "multiemployer plan," as such terms are
defined in Sections 3(2), 3(l) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans").
The Company does not maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(r) Neither the Company, nor any of its employees, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations),
has taken or will take, directly or indirectly, any action designed to or which
has constituted or which might be expected to cause or result in, under the
Exchange Act or otherwise, the stabilization or manipulation of the price of any
security of the Company, whether to facilitate the sale or resale of the
Securities or otherwise.
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(s) To the best of the Company's knowledge, none of the
trademarks, trade names, service marks, service names, copyrights, patents and
patent applications, and none of the licenses and rights to the foregoing,
presently owned or held by the Company are in dispute or are in conflict with
the right of any other person or entity. The Company (i) owns or has the right
to use, free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities of any kind
whatsoever, all trademarks, trade names, service marks, service names,
copyrights, patents and patent applications, and licenses and rights with
respect to the foregoing, used in the conduct of its business as now conducted
or proposed to be conducted without infringing upon or otherwise acting
adversely to the right or claimed right of any person, corporation or other
entity under or with respect to any of the foregoing and (ii) is not obligated
or under any liability whatsoever to make any payments by way of royalties, fees
or otherwise to any owner or licensee of, or other claimant to, any trademark,
trade name, service mark, service name, copyright, patent or patent application
except as set forth in the Registration Statement or the Prospectus. There is no
action, suit, proceeding, inquiry, arbitration, investigation, litigation or
governmental or other proceeding, domestic or foreign, pending or threatened (or
circumstances that may give rise to the same) against the Company which
challenges the exclusive rights of the Company with respect to any trademarks,
trade names, service marks, service names, copyrights, patents, patent
applications or licenses or rights to the foregoing used in the conduct of its
business.
(t) The Company owns and has the unrestricted right to use all
trade secrets, know-how (including all unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
technology, designs, processes, works of authorship, computer programs and
technical data and information that are material to the development,
manufacture, operation and sale of all products and services sold or proposed to
be sold by the Company, free and clear of and without violating any right, lien,
or claim of others, including, without limitation, former employers of its
employees.
(u) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than liens for taxes not
yet due and payable.
(v) Ernst & Young LLP whose reports are filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(w) The holders of at least _____ shares of Common Stock of
the Company, including each director, officer and principal stockholder of the
Company, have executed an agreement (collectively, the "Lock-Up Agreements")
pursuant to which he, she or it has agreed, (i) for a period extending eighteen
(18) months following the effective date of the Registration Statement (the
"Lock-Up Period"), not to, directly or indirectly, offer, offer to sell, sell,
grant an option for the purchase or sale of, transfer, assign, pledge,
hypothecate or otherwise encumber (whether pursuant to Rule 144 of the Rules and
Regulations or otherwise) any securities issued or issuable by the Company,
whether or not owned by or registered in the name of such persons, or dispose of
any interest therein, without the prior written consent of the Representative
and (ii) for a period extending twenty-four (24) months following the effective
date of the Registration Statement, that all sales of such securities issued by
the Company shall be made through JSLP in accordance with its customary
brokerage policies. The Company will cause its transfer agent to mark an
appropriate legend on the face of stock certificates representing all of such
securities and to place "stop transfer" orders on the Company's stock ledgers.
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(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriters' compensation, as determined by the NASD.
(y) The Units, the Common Stock and the Redeemable Warrants
have been approved for quotation on The Nasdaq SmallCap Market ("Nasdaq").
(z) Neither the Company nor any of its directors, officers,
stockholders, employees, agents or any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a customer
or supplier, or any official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or any other person who was, is or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (i) might subject the
Company or any other such person to any damage or penalty in any civil, criminal
or governmental litigation or proceeding (domestic or foreign), (ii) if not
given in the past, might have had a material and adverse effect on the
condition, financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company, or (iii) if not continued in the future, might
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company. The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(aa) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it or any affiliate commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
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(bb) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, and no affiliate or associate (as these
terms are defined in the Rules and Regulations) of any of the foregoing persons
or entities, has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficial interest in any contract or agreement to which the Company is
a party or by which the Company may be bound. Except as set forth in the
Prospectus under "Certain Transactions," there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company and
any officer, director or any person listed in the "Principal Stockholders"
section of the Prospectus or any affiliate or associate of any of the foregoing
persons or entities.
(cc) The minute books of the Company have been made available
to the Representative, contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all respects.
(dd) Except and to the extent described in the Prospectus, no
holder of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement. Except as set forth in the Prospectus, no person
or entity holds any anti-dilution rights with respect to any securities of the
Company.
(ee) Any certificate signed by any officer of the Company and
delivered to the Representative or to Underwriters' Counsel (as defined in
Section 4(d) herein), shall be deemed a representation and warranty by the
Company to the Representative as to the matters covered thereby.
(ff) The Company has entered into a warrant agreement,
substantially in the form filed as Exhibit ___ to the Registration Statement
(the "Warrant Agreement"), with Continental Stock Transfer & Trust Company, in
form and substance satisfactory to the Representative, with respect to the
Redeemable Warrants and providing for the payment of warrant solicitation fees
contemplated by Section 4(x) hereof. The Warrant Agreement has been duly and
validly authorized by the Company and, assuming due execution by the parties
thereto other than the Company, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law).
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(gg) The Company has entered into a financial advisory and
consulting agreement substantially in the form filed as Exhibit ____ to the
Registration Statement (the "Consulting Agreement") with the Underwriter, with
respect to the rendering of consulting services by the Underwriter to the
Company. The Consulting Agreement provides that the Representative shall be
retained by the Company commencing on the consummation of the proposed public
offering and ending 24 months thereafter, at a monthly retainer of $2,000, all
of which is payable on consummation of the proposed public offering. The
Consulting Agreement has been duly and validly authorized by the Company and
assuming due execution by the parties thereto other than the Company,
constitutes a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law).
(hh) The Company has filed a Form 8-A with the Commission
providing for the registration under the Exchange Act of the Securities and such
Form 8-A has been declared effective by the Commission.
(ii) Each Redeemable Warrant that is a Selling Securityholder
Warrant has been automatically converted into a Redeemable Warrant without any
action by the holder thereof and all of such Redeemable Warrants, as converted
and the Selling Securityholder Shares, have been registered in the Registration
Statement.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters, and the Underwriters
agree to purchase from the Company, the Firm Units at a price equal to $____ per
Unit [90% of the initial public offering price].
(b) In addition, on the basis of the representations,
warranties, covenants and agreement, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters to purchase all or any part of the Option Units at a price equal to
$________ per Unit [90% of the initial public offering price]. The option
granted hereby will expire forty-five (45) days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement
if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Units upon notice by the Representative to
the Company setting forth the number of Option Units as to which the
Representative is then exercising the option and the time and date of payment
and delivery for any such Option Units. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representative, but shall not
be later than seven (7) full business days after the exercise of said option,
nor in any event prior to the Closing Date, unless otherwise agreed upon by the
Representative and the Company. Nothing herein contained shall obligate the
Representative to exercise the option granted hereby. No Option Units shall be
delivered unless the Firm Units shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
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(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Units shall be made at the offices of the
Representative at 33 Maiden Lane, New York, New York 10038, or at such other
place as shall be agreed upon by the Representative and the Company. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on
_________, 1996 or at such other time and date as shall be agreed upon by the
Representative and the Company, but not less than three (3) nor more than seven
(7) full business days after the effective date of the Registration Statement
(such time and date of payment and delivery being herein called the "Closing
Date"). In addition, in the event that any or all of the Option Units are
purchased by the Representative, payment of the purchase price for, and delivery
of certificates for, such Option Units shall be made at the above mentioned
office of the Representative or at such other place as shall be agreed upon by
the Representative and the Company. Delivery of the certificates for the Firm
Units and the Option Units, if any, shall be made to the Representative against
payment by the Representative of the purchase price for the Firm Units and the
Option Units, if any, to the order of the Company by New York Clearing House
funds. Certificates for the Firm Units and the Option Units, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Representative may
request in writing at least two (2) business days prior to the Closing Date or
the relevant Option Closing Date, as the case may be. The certificates for the
Firm Units and the Option Units, if any, shall be made available to the
Representative at such offices or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
(d) On the Closing Date, the Company shall issue and sell to
the Representative or its designees the Representative's Warrants for an
aggregate purchase price of $.0001 per warrant, which warrants shall entitle the
holders thereof to purchase an aggregate of an additional 90,000 Units. The
Representative's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement at
a price equaling one hundred and twenty percent (120%) of the initial public
offering price of the Units. The Representative's Warrant Agreement and the form
of the certificates for the Representative's Warrant shall be substantially in
the form filed as Exhibit ____ to the Registration Statement. Payment for the
Representative's Warrants shall be made on the Closing Date.
3. Public Offering of the Units. As soon after the
Registration Statement becomes effective as the Representative deems advisable,
the Underwriters shall make a public offering of the Firm Units and such of the
Option Units as the Representative may determine (other than to residents of or
in any jurisdiction in which qualification of the Units is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
public offering price after distribution of the Units has been completed to such
extent as the Representative, in its sole discretion, deems advisable. The
Representative may enter into one or more agreements as the Representative, in
its sole discretion, deems advisable with one or more broker-dealers who shall
act as dealers in connection with such public offering.
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4. Covenants and Agreements of the Company. The Company
covenants and agrees with the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or the Exchange Act before termination of the offering of the
Securities to the public by the Underwriters of which the Representative shall
not previously have been advised and furnished with a copy, or to which the
Representative shall have objected or which is not in compliance with the Act,
the Exchange Act and the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the same in
writing, (i) when the Registration Statement, as amended, becomes effective,
when any post-effective amendment to the Registration Statement becomes
effective and, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding the outcome of which may
result in the suspension of the effectiveness of the Registration Statement or
any order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution of any
proceedings for that purpose, (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the receipt of any comments from the Commission, and (v) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If the
Commission or any state securities regulatory authority shall enter a stop order
or suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) with the Commission, or transmit
the Prospectus by a means reasonably calculated to result in filing the same
with the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations
(or, if applicable and if consented to by the Representative, pursuant to Rule
424(b)(4) of the Rules and Regulations) within the time period specified in Rule
424(b)(1) (or, if applicable and if consented to by the Representative, Rule
424(b)(4)).
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
in connection with the offering of any of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Representative with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the
Representative or Orrick, Herrington & Sutcliffe, its counsel ("Underwriter's
Counsel"), shall object.
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(e) The Company shall endeavor in good faith, in cooperation
with the Representative, at or prior to the time the Registration Statement
becomes effective, to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as the Representative may reasonably
designate to permit the continuance of sales and dealings therein for as long as
may be necessary to complete the distribution contemplated hereby, and shall
make such applications, file such documents and furnish such information as may
be required for such purpose; provided, however, the Company shall not be
required to qualify as a foreign corporation or file a general or limited
consent to service of process in any such jurisdiction. In each jurisdiction
where such qualification shall be effected, the Company will, unless the
Representative agrees that such action is not at the time necessary or
advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, the Exchange Act and the Rules
and Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If, at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, 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 the light of the circumstances in which they were made,
not misleading, or if it is necessary at any time to amend or supplement the
prospectus to comply with the Act, the Company will notify the Representative
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriters' Counsel, and the Company will
furnish to the Representative copies of such amendment or supplement as soon as
available and in such quantities as the Representative may request.
(g) As soon as practicable, but in any event not later than
forty five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof,
the Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings and will deliver to the
Representative:
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i) concurrently with furnishing such quarterly reports
to its stockholders statements of income of the Company for
such quarter in the form furnished to the Company's
stockholders and certified by the Company's principal
financial and accounting officer;
ii) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company as at the end
of the preceding fiscal year, together with statements of
operations, stockholders' equity and cash flows of the Company
for such fiscal year, accompanied by a copy of the report
thereon of the Company's independent certified public
accountants;
iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the
Commission, the NASD or any securities exchange;
v) every press release and every material news item or
article of interest to the financial community in respect of
the Company or its affairs which was released or prepared by
or on behalf of the Company; and
vi) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its
business which the Representative may request.
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer and warrant agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar (which may be the same entity as the transfer agent) for the Units,
the Common Stock and the Redeemable Warrants.
(j) The Company will furnish to the Representative, without
charge and at such place as the Representative may designate, copies of each
Preliminary Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (one of which will be signed and will include
all financial statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any prospectus prepared after the effective date
of the Registration Statement, in each case as soon as available and in such
quantities as the Representative may request.
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(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representative with originally-executed
copies of duly executed, legally binding and enforceable Lock-Up Agreements
which are in form and substance satisfactory to the Representative. On or before
the Closing Date, the Company shall deliver instructions to its transfer agent
authorizing such transfer agent to place appropriate legends on the certificates
representing the securities of the Company subject to the Lock-Up Agreements and
to place appropriate stop transfer orders on the Company's ledgers.
(l) The Company agrees that, for a period of eighteen (18)
months commencing on the effective date of the Registration Statement, and
except as contemplated by this Agreement, it and its present and future
subsidiaries will not, without the prior written consent of the Representative
(i) issue, sell, contract or offer to sell, grant an option for the purchase or
sale of, assign, transfer, pledge, distribute or otherwise dispose of, directly
or indirectly, any shares of capital stock or any option, right or warrant with
respect to any shares of capital stock or any security convertible, exchangeable
or exercisable for capital stock, except pursuant to stock options or warrants
issued on the date hereof, and (ii) file any registration statement for the
offer or sale of securities issued or to be issued by the Company or any present
or future subsidiaries.
(m) Neither the Company nor any of its officers, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to stabilize or
manipulate the price of any securities of the Company, or which might in the
future reasonably be expected to cause or result in the stabilization or
manipulation of the price of any such securities.
(n) The Company shall apply the net proceeds from the sale of
the Securities offered to the public in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(o) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, any Form SR
required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Representative as early
as practicable prior to each of the date hereof, the Closing Date and each
Option Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date hereof, the Closing Date or the relevant Option Closing
Date, as the case may be) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
Section 6(j) hereof.
(q) The Company shall cause the Units, the Common Stock and
the Redeemable Warrants to be quoted on Nasdaq and, for a period of seven (7)
years from the date hereof, use its best efforts to maintain the Nasdaq
quotation of the Units, the Common Stock and the Redeemable Warrants to the
extent outstanding.
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(r) For a period of five (5) years from the Closing Date, the
Company shall at the request of the Representative, furnish or cause to be
furnished to the Representative and at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Units, the Common Stock and the
Redeemable Warrants and (ii) a list of holders of all of the Company's
securities.
(s) For a period of five (5) years from the Closing Date, the
Company shall, at the Company's sole expense, (i) promptly provide the
Representative, upon any and all requests of the Representative, with a "blue
sky trading survey" for secondary sales of the Company's securities, prepared by
counsel to the Company, and (ii) take all necessary and appropriate actions to
further qualify the Company's securities in all jurisdictions of the United
States in order to permit secondary sales of such securities pursuant to the
"blue sky" laws of those jurisdictions, provided that such jurisdictions do not
require the Company to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than thirty
(30) days after the effective date of the Registration Statement, the Company
agrees to take all necessary and appropriate actions to be included in Standard
and Poor's Corporation Descriptions and Moody's OTC Manual and to continue such
inclusion for a period of not less than seven (7) years.
(u) Without the prior written consent of the Representative,
the Company hereby agrees that it will not, for a period of eighteen (18) months
from the effective date of the Registration Statement, (i) adopt, propose to
adopt or otherwise permit to exist any employee, officer, director, consultant
or compensation plan or arrangement permitting the grant, issue, sale or entry
into any agreement to grant, issue or sell any option, warrant or other contract
right (x) at an exercise price that is less than the greater of fifty (50%) of
the initial public offering price of the Units set forth herein and the fair
market value per share of Common Stock on the date of grant or sale or (y) to
any of its executive officers or directors or to any holder of five percent (5%)
or more of the Common Stock or any holder of five percent (5%) or more of the
Common Stock as the result of the exercise or conversion of equivalent
securities, including, but not limited to options, warrants or other contract
rights and securities convertible, directly or indirectly, into shares of Common
Stock; (ii) permit the maximum number of shares of Common Stock or other
securities of the Company purchasable at any time pursuant to options, warrants
or other contract rights to exceed 1,435,201 shares of Common Stock, excluding
the Representative's Warrants and the Redeemable Warrants; (iii) permit the
existence of stock appreciation rights, phantom options or similar arrangements;
or (iv) permit the payment for such securities with any form of consideration
other than cash.
(v) Until the completion of the distribution of the Units to
the public, and during any period during which a prospectus is required to be
delivered, the Company shall not, without the prior written consent of the
Representative, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
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(w) For a period of five (5) years after the effective date of
the Registration Statement, the Company shall cause one (1) individual selected
by the Representative, subject to the good faith approval of the Company, to be
elected to the Board of Directors of the Company (the "Board"), if requested by
the Representative. In the event the Representative shall not have designated
such individual at the time of any meeting of the Board or such person has not
been elected or is unavailable to serve, the Company shall notify the
Underwriter of each meeting of the Board. An individual selected by the
Representative shall be permitted to attend all meetings of the Board and to
receive all notices and other correspondence and communications sent by the
Company to members of the Board. The Company shall reimburse the
Representative's designee for his or her out-of-pocket expenses reasonably
incurred in connection with his or her attendance of the Board meetings.
(x) Commencing one year from the date hereof, to pay the
Representative a warrant solicitation fee equal to five percent (5%) of the
exercise price of the Redeemable Warrants, payable on the date of the exercise
thereof on terms provided in the Warrant Agreement. The Company will not solicit
the exercise of the Redeemable Warrants through any solicitation agent other
than the Representative. The Representative will not be entitled to any warrant
solicitation fee unless the Representative provides bona fide services in
connection with any warrant solicitation and the investor designates, in
writing, that the Representative is entitled to such fee.
(y) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 or S-1 (or other appropriate form) for
the registration under the Act of the Representative's Securities.
(z) For a period of twenty four (24) months after the
effective date of the Registration Statement, the Company shall not restate,
amend or alter any term of any written employment, consulting or similar
agreement entered into between the Company and any officer, director or key
employee as of the effective date of the Registration Statement in a manner
which is more favorable to such officer, director or key employee, without the
prior written consent of the Representative.
(aa) The Company will use its best efforts to maintain the
effectiveness of the Registration Statement for a period of five years after the
date hereof.
(bb) The Company agrees that, for a period of three (3) years
beginning with the effective date of the Registration Statement, JSLP shall have
a right of first refusal for all sales of any securities made by the Company or
any of its present or future affiliates or subsidiaries.
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5. Payment of Expenses.
(a) The Company hereby agrees to pay (such payment to be made,
at the discretion of the Representative, on the Closing Date and any Option
Closing Date (to the extent not paid on the Closing Date or a previous Option
Closing Date)) all expenses and fees (other than fees of Underwriters' Counsel)
incident to the performance of the obligations of the Company under this
Agreement, the Representative's Warrant Agreement and the Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage, overnight
delivery or courier charges with respect thereto) of the Registration Statement
and the Prospectus and any amendments and supplements thereto and the printing,
mailing (including the payment of postage, overnight delivery or courier charges
with respect thereto) and delivery of this Agreement, the Representative's
Warrant Agreement, the Warrant Agreement, and agreements with selected dealers,
and related documents, including the cost of all copies thereof and of each
Preliminary Prospectus and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Representative and such dealers as the
Representative may request, in such quantities as the Representative may
request, (iii) the printing, engraving, issuance and delivery of the Securities,
(iv) the qualification of the Securities under state or foreign securities or
"blue sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, and disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including, but not limited to
costs and expenses in connection with "road shows," information meetings and
presentations, bound volumes and prospectus memorabilia and "tombstone"
advertisement expenses, (vi) costs and expenses in connection with due diligence
investigations, including, but not limited to, the fees of any independent
counsel or consultants, (vii) fees and expenses of a transfer and warrant agent
and registrar for the Securities, (viii) applications for assignments of a
rating of the Securities by qualified rating agencies, (ix) the fees payable to
the Commission and the NASD, and (x) the fees and expenses incurred in
connection with the listing of the Securities on Nasdaq and any other exchange.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof,
the Company shall reimburse and indemnify the Representative for all of its
actual out-of-pocket expenses, including the fees and disbursements of
Underwriters' Counsel, less any amounts already paid pursuant to Section 5(c)
hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to Section 5(a) hereof, it will pay to the
Representative on the Closing Date by certified or bank cashier's check, or, at
the election of the Representative, by deduction from the proceeds of the
offering of the Firm Units, a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Firm Units, twenty-five thousand dollars ($25,000) of which has been paid to
date by the Company. In the event the Representative elects to exercise the
overallotment option described in Section 2(b) hereof, the Company further
agrees to pay to the Representative on each Option Closing Date, by certified or
bank cashier's check, or, at the Representative's election, by deduction from
the proceeds of the Option Units purchased on such Option Closing Date, a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of such Option Units.
20
<PAGE>
6. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any, as
if they had been made on and as of the Closing Date and each Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date and each
Option Closing Date, if any, of the statements of officers of the Company made
pursuant to the provisions hereof; the performance by the Company on and as of
the Closing Date and each Option Closing Date, if any, of its covenants and
obligations hereunder; and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representative,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Units and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representative's opinion, is material, or omits
to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances in which they were made not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Representative's opinion, is material, or omits to state a fact
which, in the Representative's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(c) On or prior to the Closing Date, the Representative shall
have received from Underwriters' Counsel such opinion or opinions with respect
to the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related matters as the
Representative may request and Underwriters' Counsel shall have received such
papers and information as they may request in order to enable them to pass upon
such matters.
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<PAGE>
(d) On the Closing Date, the Underwriters shall have received
the favorable opinion of Lewis, Goldberg & Ball, counsel to the Company, dated
the Closing Date, addressed to the Underwriters, in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
i) the Company (A) has been duly organized and is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, (B) is duly
qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) has all
requisite power and authority (corporate and other) and has
obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and
from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its
properties and conduct its business as described in the
Prospectus; the Company is and has been doing business in
compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits obtained by it
from governmental or regulatory officials and agencies and all
federal, state, local and foreign laws, rules and regulations
to which it is subject; and, the Company has not received any
notice of proceedings relating to the revocation or
modification of any such authorization, approval, order,
license, certificate, franchise or permit which, singly or in
the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the
condition, financial or otherwise, or the earnings, prospects,
stockholders' equity, value, operations, properties, business
or results of operations of the Company. The disclosure in the
Registration Statement concerning the effects of federal,
state, local and foreign laws, rules and regulations on the
Company's business as currently conducted and as contemplated
are correct in all respects and do not 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;
ii) the Company does not own, directly or indirectly, an
interest in any corporation, partnership, joint venture, trust
or other business entity;
22
<PAGE>
iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus
under "Capitalization" and except as set forth in the
Prospectus, the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Representative's
Warrant Agreement and the Warrant Agreement and as described
in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform, or when issued and
paid for, will conform, in all respects to the descriptions
thereof contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the
Company have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no
rights of rescission with respect thereto and are not subject
to personal liability by reason of being such holders; and
none of such securities were issued in violation of the
preemptive rights of any holders of any security of the
Company or any similar contractual right granted by the
Company. The Securities to be sold by the Company hereunder
and under the Representative's Warrant Agreement and the
Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and delivered
in accordance with the terms hereof and thereof, will be
validly issued, fully paid and non-assessable and conform to
the descriptions thereof contained in the Prospectus; the
holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the
Securities are in due and proper form. The Representative's
Warrants constitute valid and binding obligations of the
Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company
called for thereby. Upon the issuance and delivery pursuant to
this Agreement, the Representative's Warrant Agreement and the
Warrant Agreement of the Securities to be sold by the Company
hereunder and thereunder, the Representative will acquire good
and marketable title to such Securities, free and clear of any
lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever
asserted against the Company or any affiliate (within the
meaning of the Rules and Regulations) of the Company. No
transfer tax is payable by or on behalf of the Underwriters in
connection with (A) the issuance by the Company of the
Securities, (B) the purchase by the Underwriters of the
Securities from the Company, (C) the consummation by the
Company of any of its obligations under this Agreement, the
Representative's Warrant Agreement or the Warrant Agreement,
or (D) resales of the Securities in connection with the
distribution contemplated hereby;
iv) the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has
been timely made in the appropriate form under Rule 430A, and
no stop order suspending the use of the Preliminary
Prospectus, the Registration Statement or the Prospectus or
any part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending, threatened
or contemplated under the Act;
v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or
supplements thereto (other than the financial statements and
schedules and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to
form in all material respects with the requirements of the Act
and the Rules and Regulations;
23
<PAGE>
vi) to such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act
to be described in the Registration Statement and the
Prospectus or required to be filed as exhibits to the
Registration Statement (or required to be filed under the
Exchange Act if upon such filing they would be incorporated,
in whole or in part, by reference therein) other than those
described in the Registration Statement and the Prospectus and
filed as exhibits thereto, and the exhibits which have been
filed are correct copies of the documents of which they
purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment
thereto of agreements, contracts and other documents to which
the Company is a party or by which it is bound are accurate
and fairly represent the information required to be shown by
Form SB-2; (C) there is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental
proceeding (including, without limitation, those pertaining to
environmental or similar matters), domestic or foreign,
pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of,
the Company which (I) is required to be disclosed in the
Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement
are accurately summarized in all respects), or (II) questions
the validity of the capital stock of the Company or of this
Agreement, the Representative's Warrant Agreement, the Warrant
Agreement or the Consulting Agreement or of any action taken
or to be taken by the Company pursuant to or in connection
with any of the foregoing; (D) no statute or regulation or
legal or governmental proceeding required to be described in
the Prospectus is not described as required; and (E) there is
no action, suit or proceeding pending or threatened against or
affecting the Company before any court, arbitrator or
governmental body, agency or official (or any basis thereof
known to such counsel) in which there is a reasonable
possibility of an adverse decision which may result in a
material adverse change in the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity,
value, operation, properties, business or results of
operations of the Company taken as a whole, which could
adversely affect the present or prospective ability of the
Company to perform its obligations under this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement or
the Consulting Agreement or which in any manner draws into
question the validity or enforceability of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement or
the Consulting Agreement;
24
<PAGE>
vii) the Company has full legal right, power and
authority to enter into each of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement and
the Consulting Agreement and to consummate the transactions
provided for herein and therein; and each of this Agreement,
the Representative's Warrant Agreement, the Warrant Agreement
and the Consulting Agreement has been duly authorized,
executed and delivered by the Company. Each of this Agreement,
the Representative's Warrant Agreement, the Warrant Agreement
and the Consulting Agreement, assuming due authorization,
execution and delivery by each other party thereto,
constitutes a legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with
its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting
the enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and
except as obligations to indemnify or contribute to losses may
be limited by applicable law). None of the Company's execution
or delivery of this Agreement, the Representative's Warrant
Agreement, the Warrant Agreement or the Consulting Agreement,
its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the
conduct of its business as described in the Registration
Statement and the Prospectus and any amendments or supplements
thereto, conflicts with or will conflict with or results or
will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default
under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect
or other restriction or equity of any kind whatsoever upon,
any property or assets (tangible or intangible) of the Company
pursuant to the terms of (A) the certificate of incorporation
or bylaws of the Company, (B) any license, contract,
indenture, mortgage, lease, deed of trust, voting trust
agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which it is
or may be bound or to which its properties or assets (tangible
or intangible) are or may be subject, (C) any statute
applicable to the Company or (D) any judgment, decree, order,
rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction
over the Company or any of their activities or properties;
viii) no consent, approval, authorization or order of,
and no filing with, any arbitrator, court, regulatory body,
administrative agency, government agency or other body,
domestic or foreign (other than such as may be required under
"blue sky" laws, as to which no opinion need be rendered), is
required in connection with the issuance of the Securities
pursuant to the Prospectus, the Registration Statement, this
Agreement, the Representative's Warrant Agreement and the
Warrant Agreement, or the performance of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement and
the Consulting Agreement and the transactions contemplated
hereby and thereby;
ix) the properties and business of the Company conform
to the description thereof contained in the Registration
Statement and the Prospectus; and the Company has good and
marketable title to, or valid and enforceable leasehold
estates in, all items of real and personal property stated in
the Prospectus to be owned or leased by it, in each case free
and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, other than those referred to
in the Prospectus and liens for taxes not yet due and payable;
25
<PAGE>
x) the Company is not in breach of, or in default under,
any term or provision of any license, contract, indenture,
mortgage, lease, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or any
other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which
the Company is a party or by which it is or may be bound or to
which its property or assets (tangible or intangible) are or
may be subject; and the Company is not in violation of any
term or provision of (A) its certificate of incorporation or
by-laws, (B) any authorization, approval, order, license,
certificate, franchise or permit of any governmental or
regulatory official or body, or (C) any judgement, decree,
order, statute, rule or regulation to which it is subject;
xi) the statements in the Prospectus under "Prospectus
Summary," "Risk Factors," "The Company," "Recent Bridge
Financings," "Business," "Management," "Principal
Stockholders," "Selling Securityholders," "Certain
Transactions," "Shares Eligible For Future Sale," and
"Description of Securities" have been reviewed by such
counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects;
xii) the Units, the Common Stock and the Redeemable
Warrants have been accepted for quotation on Nasdaq;
xiii) the Company owns or possesses, free and clear of
all liens or encumbrances and right thereto or therein by
third parties, the requisite licenses or other rights to use
all trademarks, service marks, copyrights, service names,
tradenames, patents, patent applications and licenses
necessary to conduct its business (including without
limitation any such licenses or rights described in the
Prospectus as being owned or possessed by the Company) and
there is no claim or action by any person pertaining to, or
proceeding, pending or threatened, which challenges the
exclusive rights of the Company with respect to any
trademarks, service marks, copyrights, service names, trade
names, patents, patent applications and licenses used in the
conduct of the Company's business (including, without
limitation, any such licenses or rights described in the
Prospectus as being owned or possessed by the Company);
xiv) the persons listed under the captions "Principal
Stockholders" and "Selling Securityholders" in the Prospectus
are the respective "beneficial owners" (as such phrase is
defined in Rule 13d-3 under the Exchange Act) of the
securities set forth opposite their respective names
thereunder as and to the extent set forth therein;
26
<PAGE>
xv) except as disclosed in the Prospectus, no person,
corporation, trust, partnership, association or other entity
has the right to include and/or register any securities of the
Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any
security in such registration statement;
xvi) there are no claims, payments, issuances,
arrangements or understandings, whether oral or written, for
services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial
consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances that may affect the
Underwriters' compensation, as determined by the NASD; and
xvii) assuming due execution by the parties thereto, the
Lock-Up Agreements are legal, valid and binding obligations of
the parties thereto, enforceable against such parties and any
subsequent holder of the securities subject thereto in
accordance with their terms.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement or the Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or amendment became
effective, or the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, as of the date of the Preliminary Prospectus and the
Prospectus, and as of the date of such opinion, contained any untrue statement
of a material fact or omitted 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 (it being understood that
such counsel need express no opinion with respect to the financial statements
and schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
supplements or amendments thereto).
In rendering such opinion, such counsel may rely (a) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriters'
Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the
applicable laws; and (b) as to matters of fact, to the extent they deem proper,
on certificates and written statements of responsible officers of the Company
and certificates or other written statements of officers of departments of
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel, if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that the
Representative and they are justified in relying thereon. Such opinion shall
also state that the Underwriters' Counsel is entitled to rely thereon. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991) or any comparable state accord.
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At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Lewis, Goldberg & Ball, counsel to the
Company, dated the relevant Option Closing Date, addressed to the Underwriters,
and in form and substance satisfactory to Underwriters' Counsel confirming as of
the Option Closing Date, the statements made by Lewis, Goldberg & Ball in its
opinion delivered on the Closing Date.
(e) On the Closing Date, the Underwriters shall have received
the favorable opinion of Quarles & Brady, patent counsel to the Company, dated
the Closing Date, addressed to the Underwriters, in substantially the form
attached hereto as Exhibit A and in form and substance satisfactory to
Underwriters' Counsel.
At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Quarles & Brady, dated the relevant
Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriter's Counsel confirming, as of the Option Closing Date,
the statements made by Quarles & Brady, in its opinion delivered on the Closing
Date.
(f) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriters' Counsel shall have been furnished with such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
Section 6(c) hereof, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company herein contained.
(g) Prior to the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
or the earnings, stockholders' equity, value, operations, properties, business
or results of operations of the Company, whether or not in the ordinary course
of business, from the latest dates as of which such matters are set forth in the
Registration Statement and the Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and the Prospectus; (iii) the Company shall
not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) the Company shall not have issued any securities
(other than the Securities) or declared or paid any dividend or made any
distribution in respect of its capital stock of any class and there shall not
have been any change in the capital stock, debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise) from the
latest dates as of which such matters are set forth in the Registration
Statement and the Prospectus; (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and the Prospectus; (vi) no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or governmental or other
proceeding, domestic or foreign, shall be pending or threatened (or
circumstances giving rise to same) against the Company or affecting any of its
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially and adversely affect the condition,
financial or otherwise, or the earnings, stockholders' equity, value,
operations, properties, business or results of operations of the Company taken
as a whole, except as set forth in the Registration Statement and Prospectus;
and (vii) no stop order shall have been issued under the Act with respect to the
Registration Statement and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
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(h) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or the relevant Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as
of the Closing Date or the Option Closing Date, as the case
may be, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior
to such Closing Date or Option Closing Date, as the case may
be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued,
and no proceedings for that purpose have been instituted or
are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto contain all
statements and information required to be included therein,
and none of the Registration Statement, the Prospectus or any
amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any 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 and neither the Preliminary
Prospectus nor any supplement thereto included any untrue
statement of a material fact or omitted to state any 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; and
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iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (A) the Company has not incurred any material
liabilities or obligations, direct or contingent; (B) the
Company has not paid or declared any dividends or other
distributions on its capital stock; (C) the Company has not
entered into any transactions not in the ordinary course of
business; (D) there has not been any change in the capital
stock or long-term debt or any increase in the short-term
borrowings (other than any increase in short-term borrowings
in the ordinary course of business) of the Company (E) the
Company has not sustained any material loss or damage to its
property or assets, whether or not insured; (F) there is no
litigation which is pending or threatened (or circumstances
giving rise to same) against the Company or any affiliate
(within the meaning of the Rules and Regulations) of the
foregoing which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (G)
there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been set
forth.
References to the Registration Statement and the Prospectus in this Section 6(h)
are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters and
in form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriters and Underwriters' Counsel, from Ernst & Young LLP.
i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of
the Act and the Rules and Regulations;
ii) stating that it is their opinion that the financial
statements of the Company included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules
and Regulations and that the Underwriters may rely upon the
opinion of Ernst & Young LLP with respect to such financial
statements and supporting schedules included in the
Registration Statement;
iii) stating that, on the basis of a limited review
which included a reading of the latest unaudited interim
consolidated financial statements of the Company, a reading of
the latest available minutes of the stockholders and board of
directors and the various committees of the board of directors
of the Company, consultations with officers and other
employees of the Company responsible for financial and
accounting matters and other specified procedures and
inquiries, nothing has come to their attention which would
lead them to believe that (A) the unaudited consolidated
financial statements and supporting schedules of the Company
included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are
not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial
statements of the Company included in the Registration
Statement, or (B) at a specified date nor more than five (5)
days prior to the effective date of the Registration
Statement, there has been any change in the capital stock or
long-term debt of the Company, or any decrease in the
stockholders' equity or net current assets or net assets of
the Company as compared with amounts shown in the March 31,
1996 balance sheet included in the Registration Statement,
other than as set forth in or contemplated by the Registration
Statement, or, if there was any change or decrease, setting
forth the amount of such change or decrease, and (C) during
the period from March 31, 1996 to a specified date not more
than five (5) days prior to the effective date of the
Registration Statement, there was any decrease in net
revenues, net earnings or net earnings per share of Common
Stock, in each case as compared with the corresponding period
beginning March 31, 1995, other than as set forth in or
contemplated by the Registration Statement, or, if there was
any such decrease, setting forth the amount of such decrease;
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iv) setting forth, at a date not later than five (5)
days prior to the effective date of the Registration
Statement, the amount of liabilities of the Company (including
a break-down of commercial paper and notes payable to banks);
v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus, in each
case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general
accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an audit in accordance
with generally accepted auditing standards) set forth in the
letter and found them to be in agreement; and
vi) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriters may
request.
(k) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received from Ernst & Young LLP a letter, dated as
of the Closing Date or the relevant Option Closing Date, as the case may be, to
the effect that (i) it reaffirms the statements made in the letter furnished
pursuant to Section 6(j), (ii) if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that Ernst & Young LLP
has carried out procedures as specified in clause (v) of Section 6(j) hereof
with respect to certain amounts, percentages and financial information as
specified by the Underwriters and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
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(l) The Company shall have received a letter, dated such date,
addressed to the Company, in form and substance satisfactory in all respects to
the Representative, from Ernst & Young LLP stating that they have not during the
immediately preceding five (5) year period brought to the attention of the
Company's management any "weakness," as defined in Statement of Auditing
Standard No. 60 "Communication of Internal Control Structure Related Matters
Noted in an Audit," in any of the Company's internal controls.
(m) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Underwriters the appropriate number
of Securities.
(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriters pursuant to Section 4(e) hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(o) On or before the effective date of the Registration
Statement, the Company shall have executed and delivered to the Representative,
the Representative's Warrant Agreement, substantially in the form filed as
Exhibit to the Registration Statement. On or before the Closing Date, the
Company shall have executed and delivered to the Representative the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(p) On or before Closing Date, the Units, the Common Stock and
the Redeemable Warrants shall have been duly approved for quotation on Nasdaq,
subject to official notice of issuance.
(q) On or before Closing Date, there shall have been delivered
to the Representative all of the Lock-Up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
(r) On or before the Closing Date, the Company shall have (i)
executed and delivered to the Representative the Consulting Agreement,
substantially in the form filed as Exhibit ____ to the Registration Statement
and (ii) paid the Representative $48,000 representing the retainer fee pursuant
to the Consulting Agreement.
(s) On or before the effective date of the Registration
Statement, the Company and Continental Stock Transfer & Trust Company shall have
executed and delivered to the Representative the Warrant Agreement,
substantially in the form filed as Exhibit to the Registration Statement.
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<PAGE>
(t) At least two (2) full business days prior to the date
hereof, the Closing Date and each Option Closing Date, if any, the Company shall
have delivered to the Representative the unaudited interim consolidated
financial statements required to be so delivered pursuant to Section 4(p) of
this Agreement.
If any condition to the Representative's or the Underwriters'
obligations hereunder to be fulfilled prior to or at the Closing Date or at any
Option Closing Date, as the case may be, is not so fulfilled, the Representative
may terminate this Agreement or, if the Representative so elects, it may waive
any such conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters (for purposes of this Section 7, "Underwriters" shall include
the officers, directors, partners, employees, agents and counsel of the
Underwriters including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, from and against any and all
losses, claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries and suits in respect thereof), whatsoever
(including but not limited to any and all costs and expenses whatsoever
reasonably incurred in investigating, preparing or defending against such
action, proceeding, investigation, inquiry or suit commenced or threatened, or
any claim whatsoever), as such are incurred, to which the Underwriter or such
controlling person may become subject under the Act, the Exchange Act or any
other statute or at common law or otherwise or under the laws of foreign
countries, arising out of or based upon (A) any untrue statement or alleged
untrue statement of a material fact contained (i) in any Preliminary Prospectus,
the Registration Statement or the Prospectus (as from time to time amended and
supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included securities of the
Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this Section 7,
collectively referred to as "applications") executed by the Company or based
upon written information furnished by the Company filed, delivered or used in
any jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
the NASD, Nasdaq or any securities exchange; (B) the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading (in the case of the Prospectus, in
light of the circumstances in which they were made); or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be. The indemnity agreement in
this Section 7(a) shall be in addition to any liability which the Company may
have at common law or otherwise.
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<PAGE>
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of the Act, to the same extent as
the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or the Prospectus or any amendment thereof or
supplement thereto or in any application made in reliance upon, and in strict
conformity with, written information furnished to the Company with respect to
any Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or the Prospectus directly relating to
the transactions effected by the Underwriters in connection with the offering
contemplated hereby. The Company acknowledges that the statements with respect
to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in any Preliminary Prospectus, the Registration Statement or the
Prospectus. The indemnity agreement in this Section 7(b) shall be in addition to
any liability which the Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 (except to the extent that it
has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it or they may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, an indemnified party shall
have the right to employ its own counsel in any such case but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of such counsel shall have been authorized in writing
by the indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to one or all of the
indemnifying parties (in which event the indemnifying parties shall not have the
right to direct the defense of such action, investigation, inquiry, suit or
proceeding on behalf of the indemnified party or parties), in any of which
events such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action, investigation, inquiry, suit or proceeding or separate but
similar or related actions, investigations, inquiries, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances. An indemnifying party will not, without the prior written consent
of the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party. Anything in this Section 7 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent may not be unreasonably withheld.
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<PAGE>
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriters are the indemnified party, the relative benefits received
by the Company, on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Securities (before deducting expenses) bear to the total underwriting
discounts received by the Underwriters hereunder, in each case as set forth in
the table on the cover page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions, investigations, inquiries, suits or
proceedings in respect thereof) referred to in the first (1st) sentence of this
Section 7(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action, claim, investigation, inquiry suit or proceeding.
Notwithstanding the provisions of this Section 7(d), the Underwriters shall not
be required to contribute any amount in excess of the underwriting discount
applicable to the Securities purchased by the Underwriters hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 7(d), each
person, if any, who controls the Company or the Underwriter within the meaning
of the Act, each officer of the Company who has signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company or the Underwriter, as the case may be, subject in
each case to this Section 7(d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit, inquiry,
investigation or proceeding, against such party in respect to which a claim for
contribution may be made against another party or parties under this Section
7(d), notify such party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this Section 7(d), or to the extent that
such party or parties were not adversely affected by such omission.
Notwithstanding anything in this Section 7 to the contrary, no party will be
liable for contribution with respect to the settlement of any action or claim
effected without its written consent. The contribution agreement set forth above
shall be in addition to any liabilities which any indemnifying party may have at
common law or otherwise.
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8. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company contained in this Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall be deemed to be
representations, warranties, covenants and agreements at the Closing Date and
each Option Closing Date, if any, and such representations, warranties,
covenants and agreements of the Company, and the respective indemnity and
contribution agreements contained in Section 7 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter, the Company, any controlling person of any
Underwriter or the Company, and shall survive the termination of this Agreement
or the issuance and delivery of the Securities to the Underwriters.
9. Effective Date. This Agreement shall become effective at
10:00 a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Representative, in its discretion, shall release the Securities
for sale to the public; provided, however, that the provisions of Sections 5, 7
and 10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Representative of telegrams to
securities dealers releasing such shares for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
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10. Termination.
(a) Subject to Section 10(b) hereof, the Representative shall
have the right to terminate this Agreement: (i) if any domestic or international
event or act or occurrence has materially adversely disrupted, or in the
Representative's opinion will in the immediate future materially adversely
disrupt, the financial markets; or (ii) if any material adverse change in the
financial markets shall have occurred; or (iii) if trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the NASD, the Boston Stock
Exchange, the Commission or any governmental authority having jurisdiction over
such matters; or (iv) if trading of any of the securities of the Company shall
have been suspended, or if any of the securities of the Company shall have been
delisted, on any exchange or in any over-the-counter market; or (v) if the
United States shall have become involved in a war or major hostilities, or if
there shall have been an escalation in an existing war or major hostilities, or
a national emergency shall have been declared in the United States; or (vi) if a
banking moratorium shall have been declared by any state or federal authority;
or (vii) if a moratorium in foreign exchange trading shall have been declared;
or (viii) if the Company shall have sustained a material or substantial loss by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Representative's opinion, make it inadvisable to proceed with the
delivery of the Securities; or (ix) if there shall have occurred any outbreak or
escalation of hostilities or any calamity or crisis or there shall have been
such a material adverse change in the conditions or prospects of the Company, or
if there shall have been such a material adverse change in the general market,
political or economic conditions, in the United States or elsewhere, as in the
Representative's judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities; or (x) if John David Wiedemer
shall no longer serve the Company in his present capacities.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof
the Company shall promptly reimburse and indemnify the Representative for all
its actual out-of-pocket expenses, including the fees and disbursements of
Representative's Counsel, less amounts previously paid pursuant to Section 5(c)
hereof. In addition, the Company shall remain liable for all "blue sky" counsel
fees and expenses and "blue sky" filing fees. In addition, the Company shall
remain liable for all "blue sky" counsel fees and expenses and "blue sky" filing
fees. Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement (including, without
limitation, pursuant to Sections 6, 10(a) and 11 hereof), and whether or not
this Agreement is otherwise carried out, the provisions of Section 5 and Section
7 shall not be in any way be affected by such election or termination or failure
to carry out the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
Underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
37
<PAGE>
(a) if the number of Defaulted Securities does not exceed 10%
of the total number of Firm Units to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Units, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Units to be purchased on an Option Closing Date, the Representative
may, at its option, by notice from the Representative to the Company, terminate
the Representative's obligation to purchase Option Units from the Company on
such date) without any liability on the part of any non-defaulting party other
than pursuant to Section 5, Section 7 and Section 10 hereof. No action taken
pursuant to this Section 12 shall relieve the Company from liability, if any, in
respect of such default.
13. Notices. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Joseph Stevens & Company, L.P., 33 Maiden Lane, 8th Floor, New
York, NY 10038, Attention: Mr. Joseph Sorbara, with a copy to Orrick, Herrington
& Sutcliffe, 666 Fifth Avenue, New York, New York 10103, Attention: Rubi
Finkelstein, Esq. Notices to the Company shall be directed to the Company at
CD-MAX, Inc., 11480 Sunset Hills Road, Suite 110, Reston, Virginia 22090-5208,
Attention: Robert Wiedemer, with a copy to Lewis, Goldberg & Ball, Tysons
Executive Plaza I, 2000 Corporate Ridge, Suite 1075, McLean, Virginia
22102-7858, Attention: David Lewis, Esq.
38
<PAGE>
14. Parties. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Units from the Underwriters shall be deemed to be a
successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the
Representative's Warrant Agreement and the Consulting Agreement constitute the
entire agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing signed by the
Representative and the Company.
39
<PAGE>
If the foregoing correctly sets forth the understanding
between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
CD-MAX, INC.
By:_______________________________________
Name: Robert Wiedemer
Title: President
Confirmed and accepted as of the date first above written.
JOSEPH STEVENS & COMPANY, L.P.
As Representative of the
Several Underwriters
By:________________________________________
Name:
Title:
40
<PAGE>
SCHEDULE A
============================================================================
Underwriter Firm Units
============================================================================
Joseph Stevens & Company, L.P...............................
----------
- ----------------------------------------------------------------------------
Total.............................................. 900,000
==========
============================================================================
41
<PAGE>
Exhibit A
___________ __, 1996
JOSEPH STEVENS & COMPANY, L.P.
33 Maiden Lane
New York, New York 10038
Re:
Gentlemen:
Our firm has been engaged, from time to time, as patent counsel by
CD-MAX, Inc., a Delaware Corporation ("CD-MAX"). We understand that the company
has entered into an Underwriting Agreement with Joseph Stevens & Company, L.P.,
as representative (the "Representative") of the several underwriters (the
"Underwriters") named on Schedule A thereto.
For purposes of rendering the following opinions, we have inquired of
the principals of CD-MAX and reviewed the following documents:
(i) the files in our offices regarding those matters about which we
have been consulted by the principals of CD-MAX, Inc.;
(ii) copies of documents supplied to us from the files of CD-MAX which
relate to the intellectual property which is the subject of the opinions
rendered below, nothing having come to our attention which suggests that review
of other documents are required to render the opinions herein;
<PAGE>
(iii) the November 1, 1993 Settlement Agreement and Release between
John David Wiedemer and the "Releasors";
(iv) the November 10, 1993 Agreement between CD-MAX and Subsystem
Technologies Inc. for the development of the CD-MAX System;
(v) _______ the following sections of the Registration Statement
(Registration No.__ ), as amended (the "Registration Statement"): in the "Risk
Factors" section the paragraphs under the heading "Limited Proprietary
Protection"; in the "Business" section the paragraphs under the heading
"Proprietary Rights and Intellectual Property"; and the second full paragraph
of the section entitled "Certain Transactions;"
(vi) the patents referred to in the Master License (as defined below);
(vii) the May 15, 1996 Master License Agreement between John David
Wiedemer and CD-MAX ("the Master License"), all documents and things referred to
therein, including the documents and things which constitute the intellectual
property referred to in Exhibit A to the Master License;
2
<PAGE>
(viii) the Limited License Agreement between E-Data Corporation and
CD-MAX;
In addition, for the purpose of rendering the following opinions we
have also searched the ownership-related records of the United States Patent and
Trademark Office and the United States Copyright Office for liens, encumbrances,
security interests, defects or other restrictions or equities of any kind
whatsoever regarding the intellectual property rights or licenses which are the
subject of the opinions rendered in paragraphs 1 and 3, below.
Finally, for the purpose of rendering our opinions, we have also
searched the LEXIS database for any litigation involving CD-MAX or the
intellectual property which is the subject of the opinions in paragraphs 1-5,
below.
We express our opinions herein "to the best of our knowledge" which
means that such opinions are based upon (i) our inquiries of the principals of
CD-MAX, (ii) our review of the documents and files listed above, and (iii) our
searches of the ownership-related records and LEXIS database listed above. In
doing so, we do not intend to imply that the information available to us is
complete, current, accurate or otherwise sufficient to form a reasonable
judgment as to any matter addressed herein, but, through our inquiries of the
principals of CD- MAX, and our review of the documents listed herein, we have no
reason to doubt that the information is other than complete, current, accurate
and sufficient to form a reasonable judgment as to the matters addressed herein.
In our examination, we have assumed the authenticity of all documents, which,
through our inquiries of the principals of CD-MAX, and our review of the
documents listed herein, we have no reason to doubt.
3
<PAGE>
Based upon and subject to the foregoing, we are of the opinion that:
1. To the best of our knowledge, CD-MAX has the right to use,
free and clear of any and all liens, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind
whatsoever, all patents and patent applications listed in Exhibit A of
the Master License, the patents referred to in the Registration
Statement, and the patent referred to in the Limited License Agreement
with E-Data. In addition, to the best of our knowledge, the patents and
patent applications listed in Exhibit A to the Master License are valid
and enforceable, except that U.S. Patent 4,796,181 has expired without
possibility of reinstatement and U.S. Patent 5,047,928 has expired, but
will be reinstated.
2. To the best of our knowledge, CD-MAX owns or has the right
to use, free and clear of any and all liens, encumbrances, pledges,
security interests, defects or other restrictions or equities of any
kind whatsoever, all copyright rights to the software and other works
of authorship created by or for it in the conduct of its business,
including the software and other works of authorship referred to in
Exhibit A to the Master License. [In addition, to the best of our
knowledge, CD-MAX has a valid and enforceable Federal copyright
registration for, or has a pending Federal copyright registration
application for, all copyrights which it owns.]
4
<PAGE>
3. To the best of our knowledge, CD-MAX owns or has the right
to use, free and clear of any and all liens, encumbrances, pledges,
security interests, defects or other restrictions or equities of any
kind whatsoever, all of the trademark and service mark rights, and all
service and trade names, used by it: except for a pending disagreement
with Modcomp/Complex L.P. over the alleged prior right to that entity
to the trademark "MAX."
4. To the best of our knowledge, CD-MAX owns or has the right
to use, free and clear of any and all liens, encumbrances, pledges,
security interests, defects or other restrictions or equities of any
kind whatsoever, all the trade secret rights used in its business,
including the trade secret rights referred to in Exhibit A to the
Master License. In addition, to the best of our knowledge, CD-MAX has
not disclosed its trade secrets to persons who were, at the time of
disclosure, not under an obligation of confidentiality to CD-MAX and
CD-MAX has maintained at all times, and continues to maintain in place
adequate security measures for maintaining its trade secrets
confidential.
5. To the best of our knowledge, CD-MAX owns or has the right
to use, free and clear of any and all liens, encumbrances, pledges,
security interests, defects or other restrictions or equities of any
kind whatsoever, the intellectual property licenses used in its
business, including the license with E-Data Corporation and the Master
License. In addition, to the best of our knowledge, the Master License
and the license with E-Data Corporation are valid and enforceable.
5
<PAGE>
6. To the best of our knowledge, there is no claim or action,
pending or threatened, asserted or unasserted, which affects or could
affect the rights of CD-MAX with respect to its products, services,
processes or licenses, including, without limitation, the Master
License; except as set forth in the terms of the licenses referenced
herein.
7. To the best of our knowledge, except under the terms of the
Master License, and the November 10, 1993 Agreement with Subsystem
Technologies Inc., CD-MAX is not under any present obligation to pay
royalties or fees to any third party with respect to any intellectual
property developed, employed, licensed, or used by or for CD-MAX.
8. To the best of our knowledge, the statements contained in
the following sections of Registration Statement, as amended: in the
"Risk Factors" section, the statements in the paragraphs under the
heading "Lack of Proprietary Protection;" in the "Business" section,
the statements in the paragraphs under the heading "Proprietary Rights
and Intellectual Property," and in the second full paragraph of the
section entitled "Certain Transactions" are accurate in all material
respects and do not omit to state any fact which would make them
misleading or which is necessary to make them complete and accurate;
6
<PAGE>
9. To the best of our knowledge, nothing has come to our
attention in the November 1, 1993 Settlement Agreement between CD-MAX
and the "Releasors" that would cause us to believe that the agreement
is not valid and enforceable.
10. To the best of our knowledge, nothing has come to our
attention, in the November 10, 1993 Agreement between CD-MAX and
Subsystem Technologies Inc. that would cause us to believe that the
agreement is not valid and enforceable.
The opinions expressed herein are for the sole benefit of the
Underwriters and may be relied on only by CD-MAX, the Representative and Orrick,
Herrington, and Sutcliffe.
Respectfully submitted,
QUARLES & BRADY
7
<PAGE>
Exhibit 2.1
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "CDMIT, INC.", FILED IN THIS OFFICE ON THE TWENTY-SECOND DAY OF
FEBRUARY, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
-----------------------------------
[SEAL] Edward J. Freel, Secretary of State
2595246 8100 AUTHENTICATION: 7838409
DATE: 02-23-96
960051437
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CDMII, INC.
FIRST. The name of this corporation shall be:
CDMII, INC.
SECOND. Its registered office in the State of Delaware is to be located at
1013 Centre Road, in the City of Wilmington, County of New Castle and its
registered agent at such address is CORPORATION SERVICE COMPANY.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this corporation is
authorized to issue is:
Eleven Million (11,000,000) shares of which Ten Million (10,000,000) shares
at a par value of One Cent ($.Ol) each, amounting to One Hundred Thousand
Dollars ($100,000.00) are Common Stock, and One Million Shares (1,000,000) at a
par value of One Dollar ($1.00) each, amounting to One Million Dollars
($1,000,000.00) are Preferred Stock.
The Board of Directors shall set forth the designations, powers,
preferences and rights of the Preferred Stock.
<PAGE>
FIFTH. The name and address of the incorporator is as follows:
Pamela L. Simpson
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
SIXTH. The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
SEVENTH. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Seventh
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, has executed, signed and acknowledged this certificate of incorporation
this twenty-second day of February, A.D., 1996.
/s/ Pamela L. Simpson
-----------------------------
Pamela L. Simpson
Incorporator
<PAGE>
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP,
WHICH MERGES:
"CD-MAX, INC.", A DELAWARE CORPORATION, WITH AND INTO "CDMII, INC." UNDER
THE NAME OF "CD-MAX, INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS
OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE EIGHTH DAY OF
APRIL, A.D. 1996, AT 9:01 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
-----------------------------------
[SEAL] Edward J. Freel, Secretary of State
2595246 8100M AUTHENTICATION: 7898568
DATE: 04-08-96
960100382
<PAGE>
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:01 AM 04/08/1996
960100382 2595246
CERTIFICATE OF OWNERSHIP AND MERGER
of
CD-MAX, Inc.
(a Delaware Corporation)
INTO
CDMII, Inc.
(a Delaware Corporation)
It is hereby certified that:
1. CDMII, Inc. [hereinafter sometimes referred to as the "Corporation"] is
a business corporation of the State of Delaware.
2. The Corporation is the owner of all of the outstanding shares of the
stock of CD-MAX, Inc., which is also a business corporation of the State of
Delaware.
3. On April 4, 1996, the Board of Directors of the Corporation adopted the
following resolutions to merge CD-MAX, Inc. into the Corporation:
RESOLVED that CD-MAX, Inc. be merged into this Corporation, and that
all of the estate, property, rights, privileges, powers and franchises
of CD-MAX. Inc. be vested in and held and enjoyed by this Corporation
as fully and entirely and without change or diminution as the same were
before held and enjoyed by CD-MAX, Inc. in its name.
RESOLVED that this Corporation shall assume all of the obligations of
CD-MAX, Inc.
RESOLVED that this Corporation shall cause to be executed and filed
and/or recorded the documents prescribed by the laws of the State of
Delaware and by the laws of any other appropriate jurisdiction and will
cause to be performed all necessary acts within the State of Delaware
and within any other appropriate jurisdiction.
RESOLVED that this Corporation shall change its corporate name to
CD-MAX, Inc.
1
<PAGE>
RESOLVED that the effective time of the Certificate of Ownership and
Merger setting forth a copy of these resolutions, and the time when the
merger therein provided for, shall become effective shall be April 15,
1996.
Executed on April 4, 1996.
CDMII, Inc.
By: /s/ Robert A. Wiedemer
------------------------------------
Robert A. Wiedemer, its President
2
<PAGE>
BY-LAWS
OF
CD-Max, Inc.
----------------------------
ARTICLE I - OFFICES
The office of the Corporation shall be located in the City and State designated
in the Articles of Incorporation. The Corporation may also maintain offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
Section 1- Annual Meetings:
The annual meeting of the shareholders of the Corporation shall be held within
five months after the close of the fiscal year of the Corporation, for the
purpose of electing directors, and transacting such other business as may
properly come before the meeting.
Section 2- Special Meetings:
Special meetings of the shareholders may be called at any time by the Board of
Directors or by the President, and shall be called by the President or the
Secretary at the written request of the holders of ten per cent (10%) of the
shares then outstanding and entitled to vote thereat, or as otherwise required
under the provisions of the Business Corporation Act.
Section 3- - Place of Meetings:
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
By-Laws - 1
<PAGE>
Section 4 - Notice of Meetings:
(a) Except as otherwise provided by Statute, written notice of each meeting of
shareholders, whether annual or special, stating the time when and place where
it is to be held, shall be served either personally or by mail, not less than
ten or more than fifty days before the meeting, upon each shareholder of record
entitled to vote at such meeting, and to any other shareholder to whom the
giving of notice may be required by law. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by, or at the direction of, the person or
persons calling the meeting. If, at any meeting, action is proposed to be taken
that would, if taken, entitle shareholders to receive payment for their shares
pursuant to Statute, the notice of such meeting shall include a statement of
that purpose and to that effect. If mailed, such notice shall be directed to
each such shareholder at his address, as it appears on the records of the
shareholders of the Corporation, unless he shall have previously filed with the
Secretary of the Corporation a written request that notices intended for him be
mailed to the address designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
Section 5 - Quorum:
(a) Except as otherwise provided herein, or by statute, or in the Certificate of
Incorporation (such Certificate and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), at all meetings
of shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record a majority of
the total number of shares of the Corporation then issued and outstanding and
entitled to vote, shall be necessary and
By-Laws - 2
<PAGE>
sufficient to constitute a quorum for the transaction of any business. The
withdrawal of any shareholder after the commencement of a meeting shall have no
effect on the existence of a quorum, after a quorum his been established at such
meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
at the meeting as originally called if a quorum had been present.
Section 6 - Voting:
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation, any corporate action, other than the election of directors to be
taken by vote of the shareholders, shall be authorized by a majority of votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of stock
of the Corporation entitled to vote thereat, shall be entitled to one vote for
each share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact thereunto duly authorized in writing. No
proxy shall be valid after the expiration of eleven months from the date of its
execution, unless the persons executing it shall have specified therein the
length of time it is to continue in force. Such instrument shall be exhibited to
the Secretary at the meeting and shall be filed with the records of the
Corporation.
By-Laws - 3
<PAGE>
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
Section 1 - Number, Election and Term of Office:
(a) the number of the directors of the Corporation shall be five ( ), unless
and until otherwise determined by vote of a majority of the entire Board of
Directors. The number of Directors shall not be less than three, unless all of
the outstanding shares are owned beneficially and of record by less than three
shareholders, in which event the number of directors shall not be less than the
number of shareholders permitted by statute.
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares, present in person or by
proxy, entitled to vote in the election.
(c) Each director shall hold office until the annual meeting of the shareholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
Section 2 - Duties and Powers:
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Certificate of Incorporation or
by statute expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular Meetings; Notice:
(a) A regular annual meeting of the Board of Directors shall be held immediately
following the annual meeting of the shareholders, at the place of such annual
meeting of shareholders.
By-Laws - 4
<PAGE>
(b) The Board of Directors, from time to time, may provide by resolution for the
holding of other regular meetings of the Board of Directors, and may fix the
time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) of Section 4 of this Article III, with respect to special
meetings, unless such notice shall be waived in the manner set forth in
paragraph (c) of such Section 4.
Section 4 - Special Meetings; Notice:
(a) Special meetings of the Board of Directors shall be held whenever called by
the President or by one of the directors, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
(b) Except as otherwise required by statute, notice of special meeting shall be
mailed directly to each director, addressed to him at his residence or usual
place of business, at least two (2) days before the day on which the meeting is
to be held, or shall be sent to him at such place by telegram, radio or cable,
or shall be delivered to him personally or given to him orally, not later than
the day before the day on which the meeting is to be held. A notice, or waiver
of notice, except as required by Section 8 of this Article III, need not specify
the purpose of the meeting.
(c) Notice any special meeting shall not be required to be given to any director
who shall attend such meeting without protesting prior thereto or at its
commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairman:
At all meetings of the Board of Director the Chairman of the Board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
directors shall preside.
By-Laws - 5
<PAGE>
Section 6 - Quorum and Adjournment:
(a) At all meetings of the Board of Directors, the presence of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, except as otherwise provided by law, by the Certificate
of Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting:
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or these By-Laws, the action of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors. Any action authorized in writing, by all of the directors
entitled to vote thereon and filed with the minutes of the corporation shall be
the act of the Board of Directors with the same force and effect as if the same
had been passed by unanimous vote at a duly called meeting of the Board.
Section 8 - Vacancies:
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 9 - Resignation:
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
By-Laws - 6
<PAGE>
Section 10 - Removal:
Any director may be removed with or without cause at any time by the affirmative
vote of shareholders holding of record in the aggregate at least a majority of
the outstanding shares of the Corporation at a special meeting of the
shareholders called for that purpose, and may be removed for caused by action of
the Board.
Section 11 - Salary:
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 12 - Contracts:
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of a
majority of a quorum, notwithstanding the presence of any such director at the
meeting at which such action is taken. Such director or directors may be counted
in determining the presence of a quorum at such meeting. This Section shall not
By-Laws - 7
<PAGE>
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
Section 13 - Committees:
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
Section 1 - Number, Qualifications, Election
and Term of Office:
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board of
Directors may be, but is not required to be, a director of the Corporation. Any
two or more offices may be held by the same person.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
Section 2 - Resignation:
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
By-Laws - 8
<PAGE>
Section 3 - Removal:
Any officer may be removed, either with or without cause, and a successor
elected by a majority of the Board of Directors at any time.
Section 4 - Vacancies:
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board of Directors.
Section 5 - Duties of Officers:
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these By-laws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the chief executive officer of
the Corporation.
Section 6 - Sureties and Bonds:
In case of the Board of Directors shall so require, any officer, employee or
agent of the Corporation shall execute to the Corporation a bond in such sum,
and with such surety or sureties as the Board of Directors may direct,
conditioned upon the faithful performance of his duties to the Corporation,
including responsibility for negligence and for the accounting for all property,
funds or securities of the Corporation which may come into his hands.
Section 7 - Shares of Other Corporations:
Whenever the Corporation is the holder of shares of any other Corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders' meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the Corporation by
the President, any Vice President, or such other person as the Board of
Directors may authorize.
ARTICLE V - SHARES OF STOCK
Section 1 - Certificate of Stock:
(a) The certificates representing shares of the Corporation shall be in such
form as shall
By-Laws - 9
<PAGE>
be adopted by the Board of Directors, and shall be numbered and registered in
the order issued. They shall bear the holder's name and the number of shares,
and shall be signed by (i) the Chairman of the Board or the President or a Vice
President, and (ii) the Secretary or Treasurer, or any Assistant Secretary or
Assistant Treasurer, and shall bear the corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) To the extent permitted by law, the Board of Directors may authorize the
issuance of certificates for fractions of a share which shall entitle the holder
to exercise voting rights, receive dividends and participate in liquidating
distributions, in proportion to the fractional holdings; or it may authorize the
payment in cash of the fair value of fractions of a share as of the time when
those entitled to receive such fractions are determined; or it may authorize the
issuance, subject to such conditions as may be permitted by law, of scrip in
registered or bearer form over the signature of an officer or agent of the
Corporation, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a shareholder, except as therein
provided.
Section 2 - Lost or Destroyed Certificates:
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
By-Laws - 10
<PAGE>
Section 3 - Transfers of Shares:
(a) Transfers of shares of the Corporation shall be made on the share records of
the Corporation only by the holder of record thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith, duly executed, with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date:
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, nor less than ten days, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the directors relating thereto is adopted. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders has
been made as provided for herein, such determination shall apply to any
adjournment thereof, unless the directors fix a new record date for the
adjourned meeting.
By-Laws - 11
<PAGE>
ARTICLE VI - DIVIDENDS
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
Section 1 - By Shareholders:
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by the affirmative vote of shareholders holding of record
in the aggregate at least a majority of the outstanding shares entitled to vote
in the election of directors at any annual or special meeting of shareholders,
provided that the notice or waiver of notice of such meeting shall have
summarized or set forth in full therein, the proposed amendment.
Section 2 - By Directors:
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article IX
above-provided may alter, amend or repeal by-laws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meetings of shareholders or of the Board of Directors, or to change
any provisions of the by-laws with respect to the removal of directors or the
filling of vacancies in the Board resulting from the removal by the
shareholders. If any by-law regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors,
the by-law so adopted, amended or repealed, together with a concise statement of
the changes made.
By-Laws - 12
<PAGE>
ARTICLE X - INDEMNITY
(a) Any person made a party to any action, suit or proceeding, by reason of the
fact that he, his testator or intestate representative is or was a director,
officer or employee of the Corporation, or of any Corporation in which he served
as such at the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's fees, actually
and necessarily incurred by him in connection with the defense of such action,
suit or proceedings, or in connection with any appeal therein that such officer,
director or employee is liable for negligence or misconduct in the performance
of his duties.
(b) The foregoing right of indemnification shall not be deemed exclusive of any
other rights to which any officer or director or employee may be entitled apart
from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be entitled
shall be fixed by the Board of Directors, except that in any case where there is
no disinterested majority of the Board available, the amount shall be fixed by
arbitration pursuant to then existing rules of the American Arbitration
Association.
By-Laws - 13
<PAGE>
NUMBER SHARES
CDM LOGO/CD MAX(TM) COMMON STOCK
COMMON STOCK
CD-MAX, INC.
Incorporated Under the Laws CUSIP 125083 10 5
of the State of Delaware SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE OF
CD-MAX, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be subject to all of the
provisions of the Certificate of Incorporation and the By-Laws of the
Corporation, and all the amendments from time to time made thereto. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
Attest:
/s/ Philip xxxxxxx /s/ Robert A. xxxxxxx
- ------------------------- ------------------------------------
Secretary President
CORPORATE SEAL
CD MAX INC.
1996 DELAWARE
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(JERSEY CITY, N.J.)
transfer agent and registrar
By
Authorized Officer
<PAGE>
CD-MAX, INC.
The Corporation will furnish without charge to each stockholder who so
requests, a copy of the designations, powers, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common UNIF GIFT MIN ACT- _____Custodian________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with under Uniform Gifts to Minors
right of survivorship and Act__________________________
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,___________________ hereby sell, assign and tranfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________
| |
|__________________________|
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING
POSTAL ZIP CODE OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________Attorney
to transfer the said shares on the books of the within-named Corporation with
full power of substitution in the premises.
Dated ________________________________
_______________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF
THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CD-MAX, INC.
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
----------------
WARRANT AGREEMENT
Dated as of ______________, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
WARRANT AGREEMENT, dated this ___ day of ________ 1996 [the effective
date of the Registration Statement], by and between CD-MAX, INC., a Delaware
corporation (the "Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY.
WITNESSETH:
WHEREAS, in connection with (i) the offering (the "Offering") to the
public of 900,000 units (the "Units"), each Unit consisting of two shares of the
Company's common stock, $.01 par value per share (the "Common Stock"), and one
redeemable warrant (the "Warrants"), such redeemable warrant entitling the
holder thereof to purchase one share of Common Stock, (ii) the over-allotment
option granted to Joseph Stevens & Company, L.P., the representative (the
"Representative") of the several underwriters (the "Underwriters") in the public
offering referred to above, to purchase up to an additional 135,000 Units (the
"Over-Allotment Option"), (iii) the sale to the Representative of warrants (the
"Representative's Warrants") to purchase up to 90,000 Units and (iv) 1,070,000
Warrants to be issued upon consummation of the Offering and registered for the
account of the certain security holders of the Company in exchange for certain
warrants (i) issued in connection with the Company's bridge financing
consummated in _________ 1996 (the "First Bridge Financing"), (ii) issued in
connection with the Company's bridge financing consummated in May 1996 (the
"Second Bridge Financing") and (iii) issued in connection with certain of the
Company's financings consummated in _______ 1995 (the "1995 Financings";
collectively the First Bridge Financing, the Second Bridge Financing and the
1995 Financings are hereinafter referred to as the "Financings"), the Company
will issue up to 2,195,000 Warrants (subject to increase as provided herein);
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
<PAGE>
WHEREAS, the Company desires the Warrant Agent (as defined in Section
1(u) hereof) to act on behalf of the Company, and the Warrant Agent is willing
to so act, in connection with the issuance, registration, transfer and exchange
of certificates representing the Warrants and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the
Representative, the holders of certificates representing the Warrants and the
Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Commission" shall mean the Securities and Exchange Commission.
(c) "Common Stock" shall have the meaning set forth in Section 8(d)
hereof.
(d) "Company" shall have the meaning assigned to such term in the first
(1st) paragraph of this Agreement.
(e) "Corporate Office" shall mean the office of the Warrant Agent at
which at any particular time its principal business in New York, New York shall
be administered, which office is located on the date hereof at 2 Broadway, New
York, New York 10004.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Exercise Date" shall mean, subject to the provisions of Section
5(b) hereof, as to any Warrant, the date on which the Warrant Agent shall have
received both (i) the Warrant Certificate representing such Warrant, with the
exercise form thereon duly executed by the Registered Holder (as defined in
Section 1(m) hereof) thereof or his attorney duly authorized in writing, and
(ii) payment in cash or by check made payable to the Warrant Agent for the
account of the Company of an amount in lawful money of the United States of
America equal to the applicable Purchase Price (as defined in Section 1(k)
hereof).
2
<PAGE>
(h) "Initial Warrant Exercise Date" shall mean __________, 1996 [the
effective date of the Registration Statement].
(i) "Initial Warrant Redemption Date" shall mean __________, 1997 [the
date twelve (12) months after the effective date of the Registration Statement].
(j) "NASD" shall mean the National Association of Securities Dealers,
Inc.
(k) "Purchase Price" shall mean, subject to modification and adjustment
as provided in Section 8 hereof, $__________ per Share [75% of the IPO price per
Unit].
(l) "Redemption Date" shall mean the date (which may not occur before
the Initial Warrant Redemption Date) fixed for the redemption of the Warrants in
accordance with the terms hereof.
(m) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6(b) hereof.
(n) "Representative's Warrant Agreement" shall mean the agreement dated
as of __________, 1996 between the Company and the Representative relating to
and governing the terms and provisions of the Representative's Warrants.
3
<PAGE>
(o) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to elect
a majority of the board of directors of such corporation or corporations
(regardless of whether or not at the time the stock of any other class or
classes of such corporation shall have or may have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by the
Company or by one or more Subsidiaries, or by the Company and one or more
Subsidiaries.
(p) "Transfer Agent" shall mean Continental Stock Transfer & Trust
Company, of New York, New York or its authorized successor.
(q) "Underwriting Agreement" shall mean the underwriting agreement
dated _______________, 1996 [the effective date of the Registration Statement]
between the Company and the Representative relating to the purchase for resale
to the public of 900,000 Units (without giving effect to the Over-Allotment
Option).
(r) "Warrant Agent" shall mean Continental Stock Transfer & Trust
Company of New York, New York or its authorized successor.
(s) "Warrant Certificate" shall mean a certificate representing each of
the Warrants substantially in the form annexed hereto as Exhibit A.
(t) "Warrant Expiration Date" shall mean, unless the Warrants are
redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (New York
time) on __________, 2001 [the 60 month anniversary of issuance] or, if such
date shall in the State of New York be a holiday or a day on which banks are
authorized to close, then 5:00 p.m. (New York time) on the next following day
which in the State of New York is not a holiday or a day on which banks are
authorized to close, subject to the Company's right, prior to the Warrant
Expiration Date, with the consent of the Representative, to extend such Warrant
Expiration Date on five (5) business days prior written notice to the Registered
Holders.
4
<PAGE>
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) One Warrant shall initially entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase at the Purchase
Price therefor from the Initial Warrant Exercise Date until the Warrant
Expiration Date one (1) share of Common Stock upon the exercise thereof, subject
to modification and adjustment as provided in Section 8 hereof.
(b) Upon execution of this Agreement, Warrant Certificates
representing 900,000 Warrants to purchase up to an aggregate of 900,000 shares
of Common Stock (subject to modification and adjustment as provided in Section 8
hereof), shall be executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Over-Allotment Option, in whole or in
part, Warrant Certificates representing up to 135,000 Warrants to purchase up to
an aggregate of 135,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof) shall be executed by the Company and
delivered to the Warrant Agent.
(d) Upon exercise of the Representative's Warrants as provided
therein, Warrant Certificates representing 90,000 Warrants to purchase up to an
aggregate of 90,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof and in the Representative's Warrant
Agreement), shall be countersigned, issued and delivered by the Warrant Agent
upon written order of the Company signed by its Chairman of the Board, President
or a Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary.
5
<PAGE>
(e) Upon consummation of the Offering, Warrant Certificates
representing 1,070,000 Warrants, issued to certain security holders of the
Company in exchange for certain warrants issued in connection with the
Financings, entitling the holders thereof to purchase up to an aggregate of
1,070,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 8) shall be executed by the Company and delivered to the
Warrant Agent.
(f) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
denominations of one or whole number multiples thereof to the person entitled
thereto in connection with any transfer or exchange permitted under this
Agreement. No Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued upon
any transfer or exchange of Warrants, (iii) Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7 hereof, and (iv) Warrant Certificates issued pursuant to
the Representative's Warrant Agreement (including Warrants in excess of the
90,000 Representative's Warrants issued as a result of the antidilution
provisions contained in the Representative's Warrant Agreement) and (v) at the
option of the Company, Warrant Certificates in such form as may be approved by
its Board of Directors, to reflect any adjustment or change in the Purchase
Price, the number of shares of Common Stock purchasable upon the exercise of a
Warrant or the redemption price therefor.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates).
6
<PAGE>
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary,
by manual signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall
be manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent
and issued and delivered with the same force and effect as though the officer of
the Company who signed such Warrant Certificates had not ceased to hold such
office.
7
<PAGE>
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples
thereof may be exercised commencing at any time on or after the Initial Warrant
Exercise Date, but not after the Warrant Expiration Date, upon the terms and
subject to the conditions set forth herein (including the provisions set forth
in Sections 5 and 9 hereof) and in the applicable Warrant Certificate. A Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date, provided that the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, together
with payment in cash or by check made payable to the Warrant Agent for the
account of the Company of an amount in lawful money of the United States of
America equal to the applicable Purchase Price, have been received by the
Warrant Agent. The person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of such securities
as of the close of business on the Exercise Date. As soon as practicable on or
after the Exercise Date and in any event within five (5) business days after
such date, the Warrant Agent, on behalf of the Company, shall cause to be issued
to the person or persons entitled to receive the same a Common Stock certificate
or certificates for the shares of Common Stock deliverable upon such exercise,
and the Warrant Agent shall deliver the same to the person or persons entitled
thereto. Upon the exercise of any Warrants, the Warrant Agent shall promptly
notify the Company in writing of such fact and of the number of securities
delivered upon such exercise and, subject to Section 4(b) hereof, shall cause
all payments in cash or by check made payable to the order of the Company in
respect of the Purchase Price to be deposited promptly in the Company's bank
account or delivered to the Company.
8
<PAGE>
(b) At any time upon the exercise of any Warrants after one
year and one day from the date hereof, the Warrant Agent shall, on a daily
basis, within two business days after such exercise, notify the Representative,
its successors or assigns of the exercise of any such Warrants and shall, on a
weekly basis (subject to collection of funds constituting the tendered Purchase
Price, but in no event later than five business days after the last day of the
calendar week in which such funds were tendered), for services rendered by the
Representative to the Registered Holders of the Warrants then being exercised,
remit to the Representative an amount equal to five percent (5%) of the Purchase
Price of such Warrants then being exercised unless the Representative shall have
notified the Warrant Agent that the payment of such amount with respect to such
Warrant is violative of the General Rules and Regulations promulgated under the
Exchange Act, or the rules and regulations of the NASD or applicable state
securities or "blue sky" laws, or the Warrants are those underlying the
Representative's Warrants in which event, the Warrant Agent shall have to pay
such amount to the Company; provided, that, the Warrant Agent shall not be
obligated to pay any amounts pursuant to this Section 4(b) during any week that
such amounts payable are less than $1,000 and the Warrant Agent's obligation to
make such payments shall be suspended until the amount payable aggregates
$1,000, and provided further, that, in any event, any such payment (regardless
of amount) shall be made not less frequently than monthly.
(c) The Company shall not be obligated to issue any fractional
share interests or fractional warrant interests upon the exercise of any Warrant
or Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of
fractional interests. Any fractional interest shall be eliminated by rounding
any fraction up to the next full share or Warrant, as the case may be, or other
securities, properties or rights.
SECTION 5. Reservation of Shares, Listing, Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that, upon exercise of the Warrants and payment of the
Purchase Price for the shares of Common Stock underlying the Warrants, all
shares of Common Stock which shall be issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable, free from all preemptive or
similar rights, and free from all taxes, liens and charges with respect to the
issuance thereof, and that upon issuance such shares shall be listed or quoted
on each securities exchange, if any, on which the other shares of outstanding
Common Stock are then listed or quoted, or if not then so listed or quoted on
each place (whether the Nasdaq Stock Market, Inc., the NASD OTC Electronic
Bulletin Board, the National Quotation Bureau "pink sheets" or otherwise) on
which the other shares of outstanding Common Stock are listed or quoted.
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(b) The Company covenants that if any securities reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post-effective amendment to a registration statement, use its best efforts to
cause the same to become effective, keep such registration statement current
while any of the Warrants are outstanding and deliver a prospectus which
complies with Section 10(a)(3) of the Act, to the Registered Holder exercising
the Warrant (except, if in the opinion of counsel to the Company, such
registration is not required under the federal securities law or if the Company
receives a letter from the staff of the Commission stating that it would not
take any enforcement action if such registration is not effected). The Company
will use its best efforts to obtain appropriate approvals or registrations under
the state "blue sky" securities laws of all states in which Registered Holders
reside. Warrants may not be exercised by, nor may shares of Common Stock be
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares of Common Stock
upon exercise of the Warrants; provided, however, that if shares of Common Stock
are to be delivered in a name other than the name of the Registered Holder of
the Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
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(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing shares
of Common Stock or other securities required upon exercise of the Warrants, and
the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be so exchanged shall
be surrendered to the Warrant Agent at its Corporate Office, and the Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
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(c) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
assignment form, as the case may be, on the reverse thereof shall be duly
endorsed or be accompanied by a written instrument or instruments of
subscription or assignment, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder thereof or his attorney duly
authorized in writing.
(d) No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange shall be promptly cancelled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Warrant Certificate and (in the case of
loss, theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof a new
Warrant Certificate representing an equal number of Warrants. Applicants for a
substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Warrant Agent may
prescribe.
SECTION 8. Adjustments to Purchase Price and Number of Securities.
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(a) Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Purchase Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
(b) Stock Dividends and Distributions. In case the Company
shall pay dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Purchase Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8(b) shall be made as of the record date for the subject stock
dividend or distribution.
(c) Adjustment in Number of Securities. Upon each adjustment
of the Purchase Price pursuant to the provisions of this Section 8, the number
of Warrant Securities issuable upon the exercise at the adjusted Purchase Price
of each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Purchase Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Purchase Price.
(d) Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended or restated as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event the Company shall after the date
hereof issue Common Stock with greater or superior voting rights than the shares
of Common Stock outstanding as of the date hereof, each Holder, at its option,
may receive upon exercise of any Warrant either shares of Common Stock or a like
number of such securities with greater or superior voting rights.
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(e) Merger or Consolidation or Sale.
(i) In case of any consolidation of the Company with, or
merger of the Company with, or merger of the Company into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or surviving such merger shall execute and deliver
to the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation, merger, sale or transfer by a
Holder of the number of shares of Common Stock of the Company for which such
Warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in this Section
8. The above provision of this subsection shall similarly apply to successive
consolidations or mergers.
(ii) In the event of (A) the sale by the Company of all or
substantially all of its assets, or (B) the engagement by the Company or any of
its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Exchange Act or (C) a
distribution to the Company's stockholders of any cash, assets, property,
rights, evidences of indebtedness, securities or any other thing of value, or
any combination thereof, the Holders of the unexercised Warrants shall receive
notice of such sale, transaction or distribution twenty (20) days prior to the
date of such sale or the record date for such transaction or distribution, as
applicable, and, if they exercise such Warrants prior to such date, they shall
be entitled, in addition to the shares of Common Stock issuable upon the
exercise thereof, to receive such property, cash, assets, rights, evidence of
indebtedness, securities or any other thing of value, or any combination
thereof, on the payment date of such sale, transaction or distribution.
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(f) No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than ten cents (10(cent)) per share of Common Stock, provided,
however, that in such case any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
so carried forward, shall amount to at least ten cents (10(cent)) per share of
Common Stock.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the
Company may (but only with the prior written consent of the Representative), on
thirty (30) days' prior written notice, redeem all of the Warrants, in whole and
not in part, at a redemption price of five cents ($.05) per Warrant; provided,
however, that before any such call for redemption of Warrants can take place,
the (i) average closing bid price for the Common Stock, as reported by the
National Association of Securities Dealers Automated Quotation System, or (ii)
if not so quoted, as reported by any other recognized quotation system on which
the Common Stock is quoted, shall have for any twenty (20) trading days within a
period of thirty (30) consecutive trading days ending on the fifth (5th) trading
day prior to the date on which the notice contemplated by Sections 9(b) and 9(c)
hereof is given, equalled or exceeded 150% of the then exercise price per share
of Common Stock (subject to adjustment in the event of any stock splits or other
similar events as provided in Section 8 hereof).
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(b) In case the Company shall exercise its right to redeem all
of the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Warrant Agent. Any notice mailed in the manner provided
herein shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than five (5) business days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to the
Representative or its successors or assigns a similar notice telephonically and
confirmed in writing, together with a list of the Registered Holders (including
their respective addresses and number of Warrants beneficially owned by them) to
whom such notice of redemption has been or will be given.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place where
the Warrant Certificates shall be delivered and the redemption price shall be
paid, and (iv) that the Representative is the Company's exclusive warrant
solicitation agent and shall receive the commission contemplated by Section 4(b)
hereof and (v) that the right to exercise the Warrant shall terminate at 5:00
p.m. (New York time) on the business day immediately preceding the date fixed
for redemption. The date fixed for the redemption of the Warrants shall be the
"Redemption Date" for purposes of this Agreement. No failure to mail such notice
nor any defect therein or in the mailing thereof shall affect the validity of
the proceedings for such redemption except as to a holder (A) to whom notice was
not mailed or (B) whose notice was defective. An affidavit of the Warrant Agent
or the Secretary or Assistant Secretary of the Company that notice of redemption
has been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
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(d) Any right to exercise a Warrant shall terminate at 5:00
p.m. (New York time) on the business day immediately preceding the Redemption
Date. The redemption price payable to the Registered Holders shall be mailed to
such persons at their addresses of record.
(e) The Company shall indemnify the Representative and each
person, if any, who controls the Representative within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from the registration statement or prospectus referred to in Section 5(b) hereof
to the same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the company has agreed to
indemnify the Representative contained in Section 7 of the Underwriting
Agreement.
(f) Five business days prior to the Redemption Date, the
Company shall furnish to the Representative (i) opinions of counsel to the
Company, dated such date and addressed to the Representative, and (ii) a "cold
comfort" letter dated such date addressed to the Representative, signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities, including, without limitation, those matters covered in
Sections 6(d), 6(e) and 6(j) of the Underwriting Agreement.
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(g) The Company shall as soon as practicable after the
Redemption Date, and in any event within 15 months thereafter, make "generally
available to its security holders" (within the meaning of Rule 158 under the
Act) an earnings statement (which need not be audited) complying with Section
11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the Redemption Date.
(h) The Company shall deliver within five business days prior
to the Redemption Date copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to such registration statement and
permit the Representative to do such investigation, upon reasonable advance
notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as the
Representative shall reasonably request.
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SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company and the Representative, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder, be deemed to make any representations as to the validity or value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
non-assessable.
(b) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustment, or with
respect to the nature or extent of any such adjustment, when made, or with
respect to the method employed in making the same. It shall not (i) be liable
for any recital or statement of fact contained herein or for any action taken,
suffered or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties, (ii) be responsible for
any failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or (iii)
be liable for any act or omission in connection with this Agreement except for
its own gross negligence or willful misconduct.
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(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or the Representative)
and shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
(d) Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board of Directors, President or any Vice
President (unless other evidence in respect thereof is herein specifically
prescribed). The Warrant Agent shall not be liable for any action taken,
suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; the Company further agrees to indemnify the Warrant Agent
and hold it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's gross
negligence or willful misconduct.
20
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(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant Agent's own gross negligence or willful misconduct),
after giving thirty (30) days' prior written notice to the Company. At least
fifteen (15) days prior to the date such resignation is to become effective, the
Warrant Agent shall cause a copy of such notice of resignation to be mailed to
the Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation the Company shall appoint in writing a new warrant agent. If
the Company shall fail to make such appointment within a period of thirty (30)
days after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than ten million
dollars ($10,000,000) or a stock transfer company doing business in New York,
New York. After acceptance in writing of such appointment by the new warrant
agent is received by the Company, such new warrant agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named herein as the warrant agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not later than
the effective date of any such appointment, the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
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(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effect as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two (2)
years from the date of exercise any Warrant Certificate received by it upon such
exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make
any changes or corrections in this Agreement (a) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained, or (b) that they may
deem necessary or desirable and which shall not adversely affect the interests
of the holders of Warrant Certificates; provided, however, that this Agreement
shall not otherwise be modified, supplemented or altered in any respect except
with the consent in writing of the Registered Holders holding not less than
sixty-six and two-thirds percent (66- 2/3%) of the Warrants then outstanding;
provided, further, that no change in the number or nature of the securities
purchasable upon the exercise of any Warrant, and no change that increases the
Purchase Price of any Warrant, other than such changes as are specifically set
forth in this Agreement as originally executed, shall be made without the
consent in writing of each Registered Holders affected by such change. In
addition, this Agreement may not be modified, amended or supplemented without
the prior written consent of the Representative or its successors or assigns,
other than to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained or to make any such
change that the Warrant Agent and the Company deem necessary or desirable and
which shall not adversely affect the interests of the Representative or its
successors or assigns.
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SECTION 12. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid or delivered to a telegraph office for
transmission, if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company at CD-MAX, Inc., 11480 Sunset Hills Road, Suite 110,
Reston, Virginia 22090, Attention: Robert Wiedemer, President and Chief
Executive Officer, or at such other address as may have been furnished to the
Warrant Agent in writing by the Company; and if to the Warrant Agent, at its
Corporate Office. Copies of any notice delivered pursuant to this Agreement
shall be delivered to Joseph Stevens & Company, L.P., 33 Maiden Lane, 8th Floor,
New York, NY 10038, Attention: Joseph Sorbara, Chief Executive Officer or at
such other address as may have been furnished to the Company and the Warrant
Agent in writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to conflicts of laws
rules or principals.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon any
other person any duty, liability or obligation. The Representative is, and shall
at all times irrevocably be deemed to be, a third-party beneficiary of this
Agreement, with full power, authority and standing to enforce the rights granted
to it hereunder.
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SECTION 15. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CD-MAX, INC. CONTINENTAL STOCK TRANSFER &
TRUST COMPANY, INC.
As Warrant Agent
By:________________________________ By:_______________________________
Name: Name:
Title: Title:
24
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EXHIBIT A
No. W ___________ VOID AFTER ____________________, 2001
_________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK
CD-MAX, INC.
CUSIP____________
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. One Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and non-assessable share of Common Stock, $.01 par
value per share, of CD-MAX, Inc., a Delaware corporation (the "Company"), at any
time from _____________, 1996 [the effective date of the Registration Statement]
and prior to the Expiration Date (as hereinafter defined) upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004 as Warrant Agent,
or its successor (the "Warrant Agent"), accompanied by payment of $__________
[75% of the initial public offering price per Unit] subject to adjustment (the
"Purchase Price"), in lawful money of the United States of America in cash or by
check made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate is, and each Warrant represented hereby are,
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated __________,
1996 [the effective date of the Registration Statement], by and between the
Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all of the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
A-1
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The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 2001 [the 60 month anniversary of the issuance of the Warrant]. If
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) on the next day which in the State of New York is not a holiday or a day
on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, to
keep such registration statement current, if required under the Act, while any
of the Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, in whole and not in part, at a redemption
price of $.05 per Warrant, at any time commencing __________, 1997 [twelve (12)
months from issuance] provided that the average closing bid price for the
Company's Common Stock, as reported by the National Association of Securities
Dealers Automated Quotation System (or, if not so quoted, as reported by any
other recognized quotation system on which the price of the Common Stock is
quoted), shall have, for any twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth (5th) trading day prior to the
date on which the Notice of Redemption (as defined below) is given, equalled or
exceeded 150% of the then exercise price per share (subject to adjustment in the
event of any stock splits or other similar events). Notice of redemption (the
"Notice of Redemption") shall be given not later than the thirtieth (30th) day
before the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to this Warrant except to receive the $.05 per Warrant upon
surrender of this Certificate.
A-2
<PAGE>
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ___________, 1996
CD-MAX, INC.
[SEAL]
By: ________________________________
Name:
Title:
ATTEST:
By: ________________________________
Name:
Title:
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY, as Warrant Agent
By: _________________________
Authorized Officer
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
-------------------------------
-------------------------------
-------------------------------
(please print or type name and address)
and be delivered to
-------------------------------
-------------------------------
-------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-4
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. If the exercise of this Warrant was
solicited by Joseph Stevens & Company,
L.P. please check the
following box [ ]
2. The exercise of this Warrant was
solicited by [ ]
--------------------------
3. If the exercise of this Warrant was
not solicited, please check the
following box [ ]
Dated:
X
---------------------- ---------------------------------
---------------------------------
---------------------------------
Address
---------------------------------
Social Security or Taxpayer
Identification Number
---------------------------------
Signature Guaranteed
---------------------------------
A-5
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________, hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
----------------------------------
----------------------------------
----------------------------------
(please print or type name and address)
________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated:
X
---------------------- ---------------------------------
---------------------------------
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
A-6
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CD-MAX, INC.
AND
JOSEPH STEVENS & COMPANY L.P.
-----------------
REPRESENTATIVE'S
WARRANT AGREEMENT
________, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______ ____,
1996 by and between CD-MAX, INC., a Delaware corporation (the "Company"), and
JOSEPH STEVENS & COMPANY, L.P. ("Joseph Stevens") (Joseph Stevens is hereinafter
referred to variously as the "Holder" or the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative
or its designee(s) warrants ("Warrants") to purchase up to 90,000 Units (as
defined in Section 1 hereof, each Unit consisting of two (2) shares of common
stock, $.01 par value per share, of the Company ("Common Stock") and one (1)
redeemable Common Stock purchase warrant, each to purchase one additional share
of Common Stock ("Redeemable Warrants")); and
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof by and among the several Underwriters listed therein and the Company to
act as the underwriter in connection with the proposed public offering of 90,000
Units at a public offering price of $7.00 per Unit; and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, Joseph Stevens
acting as the Representative pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of nine dollars ($9.00), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
1. Grant. The Representative (or its designee(s)) is hereby
granted the right to purchase, at any time from __________, 1997 [one year from
the date hereof] until 5:00 p.m., New York time, on __________, 2001, [5 years
from the date hereof] up to 90,000 Units at an initial exercise price (subject
to adjustment as provided in Section 8 hereof) of $__________ [120% of the IPO
price per Unit] per Unit subject to the terms and conditions of this Agreement.
A "Unit" consists of two (2) shares of Common Stock and one (1) Redeemable
Warrant. Each Redeemable Warrant is exercisable to purchase one additional share
of Common Stock at an initial exercise price of $__________ [75% of the IPO
price per Unit] per share, commencing on the date of issuance (the "Initial
Exercise Date") and ending, at 5:00 p.m. New York time on __________, 2001 [60
months from the date hereof] (the "Redeemable Warrant Expiration Date") at which
time the Redeemable Warrants shall expire. Except as set forth herein, the Units
issuable upon exercise of the Warrants are in all respects identical to the
Units being purchased by the Underwriters for resale to the public pursuant to
the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants are initially exercisable
at an initial exercise price per Unit set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
2
<PAGE>
Certificate, together with the annexed Form of Election to Purchase duly
executed and payment of the Exercise Price (as hereinafter defined) for the
Units purchased at the Company's principal offices in Reston, Virginia
(presently located at 11480 Sunset Hills Road, Suite 110, Reston, Virginia
22090-5208 the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
shares of Common Stock so purchased and a certificate or certificates for the
Redeemable Warrants so purchased. The purchase rights represented by each
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock and
Redeemable WaMarket Price per Unit. Solely for the purposes of
rrants underlying the Warrants). In the event the Company redeems
all of the outstanding Redeemable Warrants, the Redeemable Warrants underlying
the Warrants may only be exercised if such exercise is simultaneous with the
exercise of the Warrants. Warrants may be exercised to purchase all or part of
the Units represented thereby. In the case of the purchase of less than all the
Units purchasable under any Warrant Certificate, the Company shall cancel said
Warrant Certificate upon the surrender thereof and shall execute and deliver a
new Warrant Certificate of like tenor for the balance of the Units purchasable
thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of Units equal to the product of (x) the number of Units
as to which the Warrants are being exercised, multiplied by (y) a fraction, the
numerator of which is the Market Price (as defined in Section 3.3 hereof) of the
Units minus the Exercise Price of the Units and the denominator of which is the
3
<PAGE>
Market Price per Unit. Solely for the purposes of this Section 3.2, Market Price
shall be calculated either (i) on the date on which the form of election
attached hereto is deemed to have been sent to the Company pursuant to Section
14 hereof ("Notice Date") or (ii) as the average of the Market Price for each
of the five trading days immediately preceding the Notice Date, whichever of
(i) or (ii) results in a greater Market Price.
3.3 Definition of Market Price. As used herein, the phrase
"Market Price" at any date shall be deemed to be (i) when referring to the
Units, the last reported sale price, or, in case no such reported sale takes
place on such day, the average of the last reported sale prices for the last
three (3) trading days, in either case as officially reported by the principal
securities exchange on which the Units are listed or admitted to trading or by
the Nasdaq National Market ("Nasdaq/NM") or the Nasdaq Small Cap Market ("Nasdaq
Small Cap"), or, if the Units are not listed or admitted to trading on any
national securities exchange or quoted by the National Association of Securities
Dealers Automated Quotation System ("Nasdaq"), the average closing bid price as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through Nasdaq or similar organization if Nasdaq is no longer reporting such
information (collectively, the "Appropriate Market Price"), or if the Units are
not quoted on Nasdaq, as determined by the sum of the Market Price with respect
to the Common Stock and the Market Price with respect to the Redeemable
Warrants; (ii) when referring to the Common Stock, the Appropriate Market Price
of the Common Stock, or if the Common Stock is not quoted on Nasdaq, as
determined in good faith (using customary valuation methods) by resolution of
the members of the Board of Directors of the Company, based on the best
information available to it; or (iii) when referring to a Redeemable Warrant,
the Appropriate Market Price of the Redeemable Warrants, or if the Redeemable
4
<PAGE>
Warrants are not quoted on Nasdaq or are no longer outstanding, the Market Price
of a Redeemable Warrant shall equal the difference between the Market Price of
the Common Stock and the Exercise Price of the Redeemable Warrant.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and Redeemable
Warrants or other securities, properties or rights underlying such Warrants, and
upon the exercise of the Redeemable Warrants, the issuance of certificates for
shares of Common Stock or other securities, properties or rights underlying such
Redeemable Warrants shall be made forthwith (and in any event such issuance
shall be made within five (5) business days thereafter) without charge to the
Holder thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof.
The Warrant Certificates and the certificates representing the
shares of Common Stock and the Redeemable Warrants underlying the Warrants and
the shares of Common Stock underlying each Redeemable Warrant or other
securities, property or rights shall be executed on behalf of the Company by the
manual or facsimile signature of the then present Chairman or Vice Chairman of
the Board of Directors or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the then present Secretary or Assistant Secretary or Treasurer or
Assistant Treasurer of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5
<PAGE>
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers or partners of the
Representative.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be $____ per Unit [120% of the IPO price per Unit]. The adjusted exercise price
shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The
Warrants, the shares of Common Stock and the Redeemable Warrants underlying the
Warrants and the shares of Common Stock issuable upon exercise of the Redeemable
Warrants underlying the Warrants and the other securities issuable upon exercise
of the Warrants (collectively, the "Warrant Securities") have been registered
under the Securities Act of 1933, as amended (the "Act") pursuant to the
Company's Registration Statement on Form SB-2 (Registration No. __________) (the
"Registration Statement"). All the representations and warranties of the Company
contained in the Underwriting Agreement relating to the Registration Statement,
the Preliminary Prospectus and Prospectus (as such terms are defined in the
Underwriting Agreement) and made as of the dates provided therein, are hereby
incorporated by reference. The Company agrees and covenants promptly to file
6
<PAGE>
post effective amendments to such Registration Statement as may be necessary to
maintain the effectiveness of the Registration Statement as long as any Warrants
are outstanding. In the event that, for any reason, whatsoever, the Company
shall fail to maintain the effectiveness of the Registration Statement, upon
exercise, in part or in whole, of the Warrants, certificates representing the
shares of Common Stock and the Redeemable Warrants underlying the Warrants, and
upon exercise, in whole or in part of the Redeemable Warrants, certificates
representing the shares of Common Stock underlying the Redeemable Warrants and
the other securities issuable upon exercise of the Warrants shall bear the
following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered, sold, pledged, hypothecated,
assigned or transferred except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii)
an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
7.2 Piggyback Registration. If, at any time commencing after
the date hereof and expiring seven (7) years thereafter, the Company proposes to
register any of its securities under the Act (other than pursuant to Form S-8,
S-4 or a comparable registration statement) the Company will give written notice
by registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Representative and to all other Holders of the
Warrants and/or the Warrant Securities of its intention to do so. If the
Representative or other Holders of the Warrants and/or Warrant Securities
notifies the Company within twenty (20) days after receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford the Representative and such Holders of the
Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement.
7
<PAGE>
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants and the Redeemable Warrants underlying the
Warrants) shall have the right (which right is in addition to the registration
rights under Section 7.2 hereof), exercisable by written notice to the Company,
to have the Company prepare and file with the Securities and Exchange Commission
(the "Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Representative and Holders, in order
to comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Securities for nine (9) consecutive months by
such Holders and any other Holders of the Warrants and/or Warrant Securities who
notify the Company within ten (10) days after receiving notice from the Company
of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
8
<PAGE>
(c) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company shall have the option, upon
the written notice of election of a Majority of the Holders of the Warrants
and/or Warrant Securities to repurchase (i) any and all Warrant Securities at
the higher of the Market Price per share of Common Stock on (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price
less the Exercise Price of such Warrant. Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 7.4(a) or (ii) the delivery of the
written notice of election specified in this Section 7.3(c).
(d) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of Warrants and/or
Warrant Securities shall have the right, exercisable by written request to the
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by any such Holder of its Warrant Securities
provided, however, that the provisions of Section 7.4(b) hereof shall not apply
to any such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
9
<PAGE>
7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration statement
declared effective at the earliest possible time, and shall furnish
each Holder desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling
commissions), fees and expenses in connection with all registration
statements filed pursuant to Sections 7.2 and 7.3(a) hereof including,
without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs,
fees and expenses in connection with any registration statement filed
pursuant to Section 7.3(d). If the Company shall fail to comply with
the provisions of Section 7.4(a), the Company shall, in addition to any
other equitable or other relief available to the Holder(s), be liable
for any or all incidental or special damages sustained by the Holder(s)
requesting registration of their Warrant Securities, excluding
consequential damages.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included
in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are requested by the
Holder(s), provided that the Company shall not be obligated to execute
10
<PAGE>
or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such
jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), against all loss, claim, damage, expense
or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement but only to the
same extent and with the same effect as the provisions pursuant to
which the Company has agreed to indemnify the Underwriters contained in
Section 7 of the Underwriting Agreement. The Company further agree(s)
that upon demand by an indemnified person, at any time or from time to
time, it will promptly reimburse such indemnified person for any loss,
claim, damage, liability, cost or expense actually and reasonably paid
by the indemnified person as to which the Company has indemnified such
person pursuant hereto. Notwithstanding the foregoing provisions of
this Section 7.4(d) any such payment or reimbursement by the Company of
fees, expenses or disbursements incurred by an indemnified person in
any proceeding in which a final judgment by a court of competent
jurisdiction (after all appeals or the expiration of time to appeal) is
entered against the Company or such indemnified person as a direct
result of the Holder(s) or such person's gross negligence or willful
misfeasance will be promptly repaid to the Company.
11
<PAGE>
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers
and directors and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from
information furnished by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 7 of the Underwriting Agreement pursuant to which
the Underwriters have agreed to indemnify the Company. The Holder(s)
further agree(s) that upon demand by an indemnified person, at any time
or from time to time, they will promptly reimburse such indemnified
person for any loss, claim, damage, liability, cost or expense actually
and reasonably paid by the indemnified person as to which the Holder(s)
have indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this Section 7.4(e) any such payment or
reimbursement by the Holder(s) of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final
judgment by a court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against the Company or such
indemnified person as a direct result of the Company or such person's
gross negligence or willful misfeasance will be promptly repaid to the
Holder(s).
12
<PAGE>
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any
registration statement filed pursuant to Section 7.3 hereof, or permit
any other registration statement to be or remain effective during the
effectiveness of a registration statement filed pursuant to Section 7.3
hereof, without the prior written consent of the Holders of the
Warrants and Warrant Securities representing a Majority of such
securities (assuming the exercise of all of the Warrants and the
Redeemable Warrants underlying the Warrants).
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public
accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of such accountants' letter, with respect to events subsequent
13
<PAGE>
to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered
to underwriters in underwritten public offerings of securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within
15 months thereafter, make "generally available to its security
holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of
the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriter, if any,
copies of all correspondence between the Commission and the Company,
its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement
and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting by Holders
holding a Majority of the Warrant Securities requested to be included
14
<PAGE>
in such underwriting, which may be the Representative. Such agreement
shall be satisfactory in form and substance to the Company, each
Holder and such managing underwriter, and shall contain such
representations, warranties and covenants by the Company and such
other terms as are customarily contained in agreements of that type
used by the managing underwriter. The Holders shall be parties to any
underwriting agreement relating to an underwritten sale of their
Warrant Securities and may, at their option, require that any or all
of the representations, warranties and covenants of the Company
to or for the benefit of such underwriters shall also be made to and
for the benefit of such Holders. Such Holders shall not be required to
make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders
and their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the
registration statement any other securities of the Company held by such
Holder(s) as of the date of filing of such registration statement,
including without limitation, restricted shares of Common Stock,
options, warrants or any other securities convertible into shares of
Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities shall mean
in excess of fifty percent (50%) of the then outstanding Warrants or
Warrant Securities that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith and (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under
the Act.
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8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
8.2 Stock Dividends and Distributions. In case the Company
shall pay dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 8, the number
of Warrant Securities issuable upon the exercise at the adjusted Exercise Price
of each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended or restated as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value.
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8.5 Merger or Consolidation or Sale.
(a) In case of any consolidation of the Company with, or
merger of the Company with, or merger of the Company into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of shares
of Common Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
(b) In the event of (i) the sale by the Company of all or
substantially all of its assets, or (ii) the engagement by the Company or any of
its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, or (iii) a distribution to the Company's stockholders
of any cash, assets, property, rights, evidences of indebtedness, securities or
any other thing of value, or any combination thereof, the Holders of the
unexercised Warrants shall receive notice of such sale, transaction or
distribution twenty (20) days prior to the date of such sale or the record date
for such transaction or distribution, as applicable, and, if they exercise such
Warrants prior to such date, they shall be entitled, in addition to the shares
of Common Stock issuable upon the exercise thereof, to receive such property,
cash, assets, rights, evidence of indebtedness, securities or any other thing of
value, or any combination thereof, on the payment date of such sale, transaction
or distribution.
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8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than ten cents (10(cent)) per Warrant Security, provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least ten cents (10(cent)) per Warrant Security.
8.7 Adjustment of Redeemable Warrants' Exercise Price. With
respect to any of the Redeemable Warrants whether or not the Redeemable Warrants
have been exercised (or are exercisable) and whether or not the Redeemable
Warrants are issued and outstanding, the Redeemable Warrant exercise price and
the number of shares of Common Stock underlying such Redeemable Warrants shall
be automatically adjusted in accordance with Section 8 of the Warrant Agreement
between the Company and Continental Stock Transfer & Trust Company dated
__________, 1996 (the "Redeemable Warrant Agreement"), upon the occurrence of
any of the events described therein. Thereafter, the underlying Redeemable
Warrants shall be exercisable at such adjusted Redeemable Warrant exercise price
for such adjusted number of underlying shares of Common Stock or other
securities, properties or rights.
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9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Units in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock or Redeemable Warrants upon the exercise of the Warrants, or fractions of
shares of Common Stock upon the exercise of the Redeemable Warrants underlying
the Warrants, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up to the nearest whole number of
shares of Common Stock or Redeemable Warrants, as the case may be, or other
securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and payment
of the Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. The
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Company further covenants and agrees that upon exercise of the Redeemable
Warrants underlying the Warrants and payment of the respective Redeemable
Warrant exercise price therefor, all shares of Common Stock and other securities
issuable upon such exercises shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. As
long as the Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Warrants and the Redeemable Warrants and all Redeemable Warrants underlying the
Warrants to be listed (subject to official notice of issuance) on all securities
exchanges on which the Common Stock or the Redeemable Warrants issued to the
public in connection herewith may then be listed and/or quoted on Nasdaq
National Market or Nasdaq Small Cap Market.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
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(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least twenty (20) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
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<PAGE>
13. Redeemable Warrants. The form of the certificate
representing Redeemable Warrants (and the form of election to purchase shares of
Common Stock upon the exercise of Redeemable Warrants and the form of assignment
printed on the reverse thereof) shall be substantially as set forth in Exhibit
"A" to the Redeemable Warrant Agreement. Each Redeemable Warrant issuable upon
exercise of the Warrants shall evidence the right to initially purchase one
fully paid and non-assessable share of Common Stock at an initial purchase price
of $__________ [75% of the IPO price per Unit] per share commencing on the
Initial Exercise Date and ending at 5:00 p.m. New York time on the Redeemable
Warrant Expiration Date at which time the Redeemable Warrants shall expire. The
exercise price of the Redeemable Warrants and the number of shares of Common
Stock issuable upon the exercise of the Redeemable Warrants are subject to
adjustment, whether or not the Warrants have been exercised and the Redeemable
Warrants have been issued, in the manner and upon the occurrence of the events
set forth in Section 8 of the Redeemable Warrant Agreement, which is hereby
incorporated herein by reference and made a part hereof as if set forth in its
entirety herein. Subject to the provisions of this Agreement and upon issuance
of the Redeemable Warrants underlying the Warrants, each registered holder of
such Redeemable Warrants shall have the right to purchase from the Company (and
the Company shall issue to such registered holders) up to the number of fully
paid and non-assessable shares of Common Stock (subject to adjustment as
provided herein and in the Redeemable Warrant Agreement), free and clear of all
preemptive rights of stockholders, provided that such registered holder complies
with the terms governing exercise of the Redeemable Warrants set forth in the
Redeemable Warrant Agreement, and pays the applicable exercise price, determined
in accordance with the terms of the Redeemable Warrant Agreement. Upon exercise
of the Redeemable Warrants, the Company shall forthwith issue to the registered
holder of any such Redeemable Warrant in his name or in such name as may be
directed by him, certificates for the number of shares of Common Stock so
purchased. Except as otherwise provided herein, the Redeemable Warrants
underlying the Warrants shall be governed in all respects by the terms of the
Redeemable Warrant Agreement. The Redeemable Warrants shall be transferable in
the manner provided in the Redeemable Warrant Agreement, and upon any such
transfer, a new Redeemable Warrant Certificate shall be issued promptly to the
transferee. The Company covenants to, and agrees with, the Holder(s) that
without the prior written consent of the Holder(s), the Redeemable Warrant
Agreement will not be modified, amended, cancelled, altered or superseded, and
that the Company will send to each Holder, irrespective of whether or not the
Warrants have been exercised, any and all notices required by the Redeemable
Warrant Agreement to be sent to holders of Redeemable Warrants.
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14. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
15. Supplements and Amendments. The Company and the
Representative may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem shall
not adversely affect the interests of the Holders of Warrant Certificates.
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
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17. Termination. This Agreement shall terminate at the close
of business on __________, 2003 [7 years from the date hereof]. Notwithstanding
the foregoing, the indemnification provisions of Section 7 shall survive such
termination until the close of business on __________, 2008 [12 years from the
date hereof.]
18. Governing Law, Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the address as set forth in Section 14 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
action, proceeding or claim. The Company, the Representative and the Holders
agree that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
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<PAGE>
19. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement to the extent portions thereof are referred to
herein) and the Redeemable Warrant Agreement contain the entire understanding
between the parties hereto with respect to the subject matter hereof and may not
be modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Representative and any other Holder(s) of the
Warrant Certificates or Warrant Securities.
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall to either constitute but one and
the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
CD-MAX, INC.
By:
--------------------------------------------
Robert Weidemer
President and Chief Executive Officer
Attest:
- ---------------------------------------
Secretary
JOSEPH STEVENS & COMPANY, L.P.
By:
--------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, ________, 2001
No. W- ____ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________, or
registered assigns, is the registered holder of __________ Warrants to purchase
initially, at any time from ____________, 1997 [one year from the effective date
of the Registration Statement] until 5:00 p.m. New York time on ____________,
2001 [five years from the effective date of the Registration Statement]
("Expiration Date"), up to ______________ Units, each Unit consisting of two (2)
fully-paid and non-assessable shares of common stock, $.01 par value ("Common
Stock") of CD-MAX, INC., a Delaware corporation (the "Company"), and one (1)
redeemable warrant ("Redeemable Warrants") (each Redeemable Warrant entitling
the holder to purchase one fully-paid and non-assessable share of Common Stock),
at the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $_____________ [120% of the public offering price per
Unit] per Unit upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, or by surrender of this
Warrant Certificate in lieu of cash payment, but subject to the conditions set
forth herein and in the warrant agreement dated as of _________________, 1996
between the Company and Joseph Stevens & Company, L.P. (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company or by surrender of this Warrant Certificate.
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No Warrant may be exercised after 5:00 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such Warrant.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
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IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of , 1996
CD-MAX, INC.
[SEAL] By:
--------------------------------------------
Robert Weidemer
President and Chief Executive Officer
Attest:
- -------------------------------
Secretary
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<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _____________ Units
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of CD-MAX, Inc. in
the amount of $__________, all in accordance with the terms of Section 3.1 of
the Representative's Warrant Agreement dated as of ___________, 1996 between
CD-MAX, Inc. and Joseph Stevens & Company, L.P. The undersigned requests that
certificates for such securities be registered in the name of _______________
whose address is __________________________ and that such certificates be
delivered to ______________________________ whose address is
______________________________.
Dated:
Signature
----------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
--------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
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<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ____________ Units
all in accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of ______________, 1996 between CD-MAX, Inc. and Joseph
Stevens & Company, L.P. The undersigned requests that certificates for such
securities be registered in the name of __________________ whose address is
_______________________ and that such certificates be delivered to
_____________________ whose address is ____________________________________.
Dated:
Signature
----------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
--------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
Signature
----------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
--------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
6
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is made and entered into as of
October 1, 1993 between Signal Security Technologies, Inc., a Delaware
corporation T/A as CD-MAX, with its principal office at 219 South Street, Suite
203, Murray Hill, NJ 07974, (the "Company") and JOHN DAVID WIEDEMER ("Employee")
who resides at 27 Kitchell Road, Morristown NJ, 07960-6950.
The parties recite that:
(i) The Company is engaged in the business of providing security
and billing services for CD-ROM text material and maintains
its principal office as set forth above.
(ii) The company desires to secure the services of the Employee as
Senior Vice President-Operations of the Company and the
Employee desires to perform such services for the Company on
the terms and conditions as hereinafter set forth.
ARTICLE I
EMPLOYMENT
The Company hereby employs the Employee as Senior Vice President-
Operations of the Company, subject to the terms, conditions and provisions of
this Agreement. The Employee hereby accepts such employment and agrees to render
his services as provided herein, all of which services shall be performed
conscientiously and to the full extent of the Employee's ability.
ARTICLE II
TERM PROVISIONS
2.1 Term Period: "Period of active employment", as used herein, shall
mean the period beginning on October 1, 1993 and terminating on the date on
which the first of the following events occurs:
(i) October 1, 1996;
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(ii) the death of the Employee;
(iii) the disability of the Employee, as provided in Section 8.3 of
this Agreement;
(iv) the termination of the Employee's employment, as provided in
Section 8.2 of this Agreement, or
(v) the liquidation of the Company (other than as incident to the sale
of all or substantially all of its assets as a going concern).
This employment agreement shall be automatically renewed on the basis
hereby established for successive one year terms unless, more than ninety days
prior to the expiration of the term of the Employee's employment, either the
Employee or the Company gives notice that the Employee's employment will not be
renewed.
The provisions of this Agreement shall remain in full force and effect
during the term of employment, except that the provisions of Article X shall
continue to be enforceable as specified therein after the termination of the
Employee's employment hereunder.
ARTICLE III
DUTIES
3.1 Capacity and Services. The Company hereby agrees to employ the
Employee and the Employee hereby agrees to accept such employment by the Company
on the terms and conditions set forth herein. The Employee shall have the duties
and responsibilities that are normally exercised by the Senior Vice President -
Operations of comparable companies, and shall fully and faithfully perform
services and discharge his duties in a manner consistent with the position. The
Employee shall assume such other additional responsibilities and duties as may
from time to time be reasonably assigned or delegated to him by the Board of
Directors or its designee.
The primary duties of the employee are to supervise and manage the
product development of the corporation including any employees and outside
contractors
2
<PAGE>
required. This involves supervising and managing the design of all necessary
hardware and software elements, as well as supervising and managing the
establishment and maintenance of any operations required to carry out the
billing and security functions of the CD-MAX service; to assist the Chief
Marketing Officer in the support of product marketing operations; and to
supervise and ensure functionality at a high level for CD-ROM security and
billing operations.
ARTICLE IV
EXCLUSIVITY PROVISIONS
4.1 Limitation on Outside Activities. The employee shall devote his
primary energies, interests, abilities and time to the performance of his
obligations hereunder. However such requirements shall not constitute a
limitation on outside activities, provided such employee does not neglect the
duties as described in Article III. Should the employee devote any time to
outside activities of a business nature then the employee's salary, including
any benefits received, shall be pro-rated based on the time spent in each
activity.
4.2 Exclusivity. The Employee hereby represents and warrants that the
execution and performance of this Agreement will not result in, or constitute a
default, breach, or violation, or an event which, with notice or lapse of time
or both, would be a default, breach or violation of any understanding, agreement
or commitment, written or oral, express or implied, to which the employee is a
party or over which the employee or employee's property is bound. The Employee
hereby agrees to indemnify and hold harmless the Company from and with respect
to any liability, damage or cost, including reasonable attorneys fees, arising
out of any breach by the Employee of this representation and warranty.
ARTICLE V
COMPENSATION
As full consideration for all services to be rendered by the Employee
pursuant hereto, and for all rights herein granted by the Employee to the
Company, and provided that the Employee has kept and performed all of his
obligations hereunder, the Company shall provide the following compensation for
the services hereunder:
5.1 Base Salary. The base salary shall be no less than $60,000 per year
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("Base"), in equal monthly installments, subject to review on an annual basis.
5.2 Incentive Compensation. Incentive Compensation shall be payable for
superior Employee performance at the discretion of the Board. This shall be in
addition to the Base and shall be separate from any warrants, options, or grants
of restricted stock mentioned hereunder.
The Employee shall be entitled to participate in an equitable manner
with all other executive employees of the Company in such discretionary bonuses
as the Company may award for the benefit of the executive employees in general.
ARTICLE VI
BENEFITS
The Company shall provide the following benefits to the Employee,
unless a benefit is rejected by the CEO for good cause as being counter to the
best interests of the Company and its Employee.
6.1 Medical. If the Company shall set up plans covering medical,
dental, long term disability and group life insurance, such Employee shall have
a right to participate in such a plan on the same terms and basis as other
executive employees of the Company. This provision does not obligate the Company
to set up or adopt any such plans. Employee shall be entitled to one day of sick
leave per month. Employee shall be entitled to accumulate unused sick leave.
6.2 Vacation. Employee shall be entitled to an annual paid vacation of
two weeks during the first year of the term of this agreement and one additional
week each of the next succeeding years of the term to a maximum of six weeks per
year. Employee shall be entitled to accumulate unused paid vacation time or to
receive additional compensation from the Company in lieu of unused vacation
time, up to a maximum of 4 weeks. The timing of vacation shall be scheduled in a
reasonable manner by Employee.
6.3 Illness or Death. If Employee is prevented from performing his
duties by reason of illness or incapacity ("illness absence") for an aggregate
of six months in any one year during the term, the corporation shall not be
obligated to pay Employee compensation for any period or absence due to illness
or incapacity in excess of the
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said aggregate period.
If Employee shall die during the term, the corporation shall pay
Employee's designated beneficiary or estate (a) all compensation earned
hereunder by Employee to the date of his death and not previously paid,
including accrued vacation, deferred bonuses, if any, and (b) $5,000 cash
pursuant to Internal Revenue Service Code 101, within sixty days after
Employee's death.
6.4 Retirement Benefits. If and when the Company sets up a retirement
plan for its employees, this Employee shall participate on an appropriate basis
in such a retirement plan.
6.5 Automobile for Business Purposes. Should the Company determine that
an automobile is necessary for the performance of the Employee's duties, the
Company shall either pay directly or reimburse employee for an automobile for
Employee's full time use and for all reasonable operating and maintenance
expenses, including insurance and fuel, incurred by the Employee in his use of
such automobile. The Company shall also provide adequate parking facilities for
such Employee within reasonable walking distance of the place of employment.
6.6 Moving and Relocation. The company shall reimburse employee up to
$2000 for the moving related expenses of the employee.
6.7 Other Benefits. In addition to the benefits explicitly described
above, the Employee shall be entitled to such other benefits, perquisites, and
service credit for benefits as are customarily provided to other executive
officers of the Company and on such terms as such benefits, perquisites, and
service credit for benefits are customarily provided under the then current
Company policy.
ARTICLE VII
REIMBURSEMENT
7.1 Reimbursement of Expenses. The Company agrees to promptly reimburse
or pay the Employee or pay directly for the following types of expenses, to the
extent reasonably incurred by the Employee in performing services for Company
pursuant to the terms of this Agreement:
(i). Rent for office space required by Employee, provided that
Employee
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should use the offices of the Company to the extent feasible;
(ii). Telephone and secretarial expenses necessary to Employee's
performance of this Agreement;
(iii). Actual expenses incurred in travel necessary to performance of
this Agreement, including automobile expenses in accordance with
the IRS' current standard for automobile expense reimbursement;
(iv). Cost of supplies and materials required specifically for
Company's benefit, such as copies of logs, copies of books,
company literature and miscellaneous office supplies necessary
to Employee's performance of this Agreement; and
(v). Such other expenses as to which Company may give its prior
written consent.
7.2 Key Man Life Insurance. The Company may apply for and procure as
owner for its own benefit insurance on the life of Employee, in such amounts and
in such form or forms as the corporation may choose. The Employee shall have no
interest whatsoever in any such policy or policies but shall, at the request of
the corporation, submit to such medical examinations, supply such information,
and execute such documents as may be required in connection with such insurance.
ARTICLE VIII
TERMINATION
8.1 Automatic Termination. Unless earlier terminated as otherwise
provided herein, this Agreement shall terminate automatically upon: (a) the
expiration of the term if 90 day notice was given, or (b) dissolution or
liquidation either voluntarily or involuntarily of the Company, and (regardless
of the cause or reason for termination) all rights under this Agreement shall
terminate without further notice upon the employee's termination, except for (i)
the payment of accrued salaries, expenses, bonuses, and vacation (ii) the
continuation of limitations and restrictions set forth in Article X and (iii)
any other obligation or right specifically referred to in this agreement to
survive the employee's employment by the Company.
8.2 Termination for Cause. he Company may terminate this Agreement for
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just cause by written notice to the Employee. Any one or more of the following
events shall constitute just cause:
(i). theft, fraud, embezzlement, dishonesty or other similar behavior
by the Employee;
(ii). any habitual neglect of duty or misconduct of the Employee in
discharging any of his duties and responsibilities hereunder;
(iii). any conduct of the Employee which is materially detrimental or
embarrassing to the Company, including, but not limited to the
Employee being convicted of a felony;
(iv). any default of the Employee's obligations hereunder which is not
cured within ten (10) days of written notification thereof to
the Employee by the Company;
(v). any failure of or refusal by the Employee to comply with the
policies, rules and regulations of the Company, which is not
cured by the Employee within ten (10) days of written
notification thereof to the Employee by the Company; or
(vi). repeated refusals by the Employee to comply with reasonable
written directives of the Company; provided, however, that the
Company may terminate the Employee's employment pursuant to this
sub-section only after the failure by the Employee to correct or
cure, or to commence and continue to pursue the correction for
curing of, such refusals within thirty days after receipt by the
Employee of written notice by the Company of each specific claim
of any such refusal.
If the Employee's employment hereunder is terminated pursuant to this
section, the Employee shall not be entitled to any further payments under this
Agreement.
8.3 Death or Disability. This Agreement and the Employee's employment
hereunder shall terminate upon the Employee's death or disability. For purposes
of this Section, the Employee shall be deemed to be disabled if the Employee is
unable to resume his normal duties and responsibilities hereunder on a full time
basis after
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a period of six months following commencement of the incapacitation preventing
the Employee from so discharging such duties and responsibilities.
8.4 Severance Payment. Upon an event of separation as defined below,
the Company shall pay the Employee an amount (the "severance payment") equal to
the Employee's Base for six months at the Base in effect on the date of such
event of separation, and shall continue the Employee's coverage (including
family coverage if this was in effect on date of separation) under the Company's
medical, dental and life insurance plans, if any, then in effect during such six
month period. The Company shall initiate the severance payment immediately
following the date of the event of separation and shall make the severance
payment in installments which are no less frequent than the Company's regular
payment of Employee's base salary.
For purposes of this Section, an "event of separation" shall mean any
involuntary termination of the Employee's employment hereunder, except an
involuntary termination due to the Employee's death or disability, or due to any
of the reasons set forth in Section 8.2. Provided the Company complies with
Section 8.4, the Company may terminate the Employee's employment by involuntary
termination at any time on immediate notice. The Employee hereby acknowledges
that, upon the occurrence of an event or separation, the Company shall have no
obligation to make any further payments whatsoever to the Employee, except to
pay the Employee's Base through the last day of the calendar month in which the
event of separation occurs, the severance payment, and all sums payable and owed
to the Employee pursuant to Section 8.4, before the termination of this
Agreement.
8.5 Cooperation after Termination. Following any notice of termination
of employment by the Employee, the Employee shall fully cooperate with the
Company in all matters relating to the completion of his pending work on behalf
of the Company and the orderly transfer of any such pending work to other
employees of the Company as may be designated by the Company. The Company shall
be entitled to such assistance, primarily by telephone, or brief visits for all
or any part of the sixty day period following any notice of termination by the
Employee.
ARTICLE IX
REMEDIES FOR BREACH
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9.1 Specific Performance/Remedy. The parties hereto agree that the
services to be rendered by the Employee pursuant to this Agreement, and the
rights and privileges granted to the Company by the Employee pursuant to this
Agreement are of a special, unique, extraordinary and intellectual character,
which gives them a peculiar value, the loss of which cannot be reasonably or
adequately compensated in damages in any action at law, and that a breach by the
Employee of any of the terms of this Agreement will cause the Company grave and
irreparable injury and damage. The Employee hereby expressly agrees that the
Company shall be entitled to the remedies of injunction, specific performance
and other equitable relief to prevent a breach of this Agreement by the
Employee. This provision shall not, however, be construed as a waiver of any of
the rights which the Company may have for damages, or otherwise.
9.2 Waiver of Breach. The failure of either party to require the
performance of any term or condition of the agreement, or the waiver by either
party of any breach of the agreement shall not prevent a subsequent enforcement
of any such term or of any other term nor be deemed to be a waiver of any
subsequent breach.
If the Company breaches any provision of this agreement, the Employee
shall not be deemed to waive any rights attributable to such a breach unless the
Employee executes a written waiver.
If the Employee breaches any provision of this agreement, the Company
shall not be deemed to waive any of its rights attributable to such breach
unless it executes a written waiver.
ARTICLE X
CONFIDENTIALITY
10.1 Confidential Information. The Employee agrees that for and during
the entire term of his employment and for as long as such information remains
confidential, proprietary or trade secret information, the employee will not at
any time in any form or manner, directly or indirectly, divulge, disclose or
communicate to any person, firm or corporation any confidential, proprietary or
trade secret information. Furthermore, the Employee agrees to take adequate
precautions and to follow Company policy in regard to protection of all trade
secrets and proprietary information, including, but not limited to, proper
secure storage of such information,
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and obtaining nondisclosure agreements or the equivalent before releasing or
divulging such information.
Confidential, proprietary or trade secret information shall include,
but not be limited to, the following types of material information, both
existing and contemplated, regarding the Company or any of its affiliates: the
business plan, customer lists, contact lists, corporate information, including
contractual licensing arrangements, plans, strategies, tactics, policies,
resolutions, patents, trade mark and trade name applications, and any litigation
or negotiations; marketing information, including sales or product plans,
strategies, tactics, methods, customers, prospects, or market research data;
financial information, including cost and performance data, debt arrangement,
equity structure, investors, and holdings; operational and scientific
information, including trade secrets; technical information, including technical
drawings and designs; and personal information, including personnel lists,
resumes, personal data, organizational structure and performance evaluations.
The Employee agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, program listings, or other written,
photographic, or other tangible material containing proprietary information,
whether created by the Employee or others, which shall come into his custody or
possession, shall be and are the exclusive property of the Company to be used by
the Employee only in the performance of his duties for the Company.
The Employee agrees that his obligation not to disclose or use
information, knowhow and records of the types set forth in the paragraphs above,
also extends to such types of information, knowhow, records and tangible
property of customers of the Company or suppliers to the Company or other third
parties who may have disclosed or entrusted the same to the Company or to the
Employee in the course of the Company's business.
ARTICLE XI
NON-COMPETITION
11.1 Restriction on Competition. The Employee agrees that during his
term of employment by the Company and after termination of employment with the
Company, in any manner, whether with or without cause, the Employee will not,
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within the continental U. S., directly or indirectly, engage in the Company's
business or in a business of security and billing for CD-ROM text information or
in any competitive business for a period of 18 months from such termination of
employment.
The application of such covenant against competition shall be
restricted to those geographic markets in which the Company is marketing and
selling, or is in the process of establishing the capability to market and sell
(as evidenced by written documentation), such products and services as of such
date. The Employee shall not be prohibited from owning beneficially, or of
record, five percent or less of any class of outstanding securities of any
issuer (whether or not directly competitive with the Company) if such securities
are traded on any national securities exchange or are quoted on any automated
quotation system of the National Association of Security Dealers.
11.2 Solicitation. That Employee agrees that, in addition to any other
limitations, for a period of 18 months after the termination of his employment
hereunder, except a termination without cause by the Company in violation of the
terms hereof, and unless otherwise specified herein, he will not, on behalf of
himself or on behalf of any other person, firm, or corporation, call on any of
the customers of the Company, or any of its affiliates or subsidiaries for the
purpose of soliciting and/or providing to any of said customers the same or
similar service provided by the Company, nor will he in any way, directly or
indirectly, for himself, or on behalf of any other person, firm or corporation,
solicit, divert, or take away any customer or employee of the Company, its
affiliates or its subsidiaries. Furthermore, the Employee agrees not to
disseminate or spread any confidential, libelous, disparaging, misleading,
fraudulent, or harmful information in regard to the Company to its customers,
employees, journalists or business investment analysts, or other elements of the
business community in order to damage the Company's reputation, its sales or its
ability to compete effectively on the market.
ARTICLE XII
PROPERTY RIGHTS
12.1 Disclosure. The Employee will make full and prompt disclosure to
the Company of all methods, works of authorship, business plans, studies and
reports,
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whether copyrightable or not, which are created, made, conceived or reduced to
practice by the Employee or under his direction or jointly with others during
his employment by the Company, whether or not during normal working hours or on
the premises of the Company (all of which are collectively referred to in this
Agreement as developments). This paragraph shall apply only to those
developments which are directly related to CD-ROM text information and shall not
apply to other fields.
12.2 Patents. The Employee agrees to assign and does hereby assign to
the Company (or any person or entity designated by the Company) all his right,
title and interest in and to all developments that are of a collective nature
using other employees, using the premises of the Company, and are fully funded
by the Company, and all related copyrights and copyright applications. However,
this section shall not apply to developments which do not relate to the present
or planned business or research and development of the Company and which are
made and conceived by the Employee not during normal working hours, not on the
Company's premises, and not using the Company's tools, devices, equipment or
proprietary information.
Furthermore, if the Employee is the sole inventor of an invention
suitable for which a patent is applied, that patent shall not be assigned to the
Company but the Company shall be subject to cross-licensing provisions in the
field of CD-ROM text information.
12.3 Cooperation. The Employee agrees to cooperate fully with the
Company, both during and after his employment with the Company, with respect to
the procurement, maintenance and enforcement of copyrights and patents (both
United States and foreign countries) relating to developments. The Employee
shall sign all papers, including, without limitation, patent and copyright
applications, declarations, oaths, formal assignments, assignment of priority
rights, and powers of attorney, which the Company may deem necessary or
desirable in order to protect its rights and interests in any development.
12.4 Return of Property. Upon termination of this agreement, regardless
of how termination may be effected, the Employee shall immediately turn over to
the Company all of the Company's property, including all items used by Employee
in rendering services hereunder or otherwise, that may be in the Employee's
possession or under his control.
12.5 Other Agreements. The Employee hereby represents that he is not
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bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his employment with the Company or to refrain from
competing directly, or indirectly, with the business of such previous employer
or any other party. The Employee further represents that his performance of all
the terms of this agreement and as an employee of the Company does not, and will
not, breach any agreement to keep in confidence proprietary information,
knowledge or data acquired by him in confidence or in trust prior to his
employment with the Company.
GENERAL PROVISIONS
ARTICLE XIII
GOVERNING LAW
13.1 Domicile. This agreement is made and entered into in the State of
New Jersey, and the laws of New Jersey shall govern its validity and
interpretation and the performance by the parties hereto of their respective
duties and obligations hereunder without regard to the principles of conflict of
laws.
ARTICLE XIV
AMENDMENTS
14.1 Assignment. This contract may be assigned to a new entity at the
sole discretion of the Company if such an entity agrees to assume all rights and
obligations enumerated in this contract.
14.2 Severability. In case any provision of this agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
14.3 Successors and Assigns. This agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which, or into which, the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
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14.4 Notices. All notices required, or permitted, under this agreement
shall be in writing and shall be deemed effective upon personal delivery or
after 5 days upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this section.
ARTICLE XV
ENTIRE AGREEMENT
15.1 Entire Agreement. This agreement supersedes and nullifies all
prior agreements between the parties concerning the subject matter hereof and
this agreement constitutes the entire agreement between the parties with respect
thereto. This agreement may be modified only by written instrument, duly
executed by each of the parties, or their respective agents. No person has any
authority to make any representation or promise on behalf of any of the parties
not set forth herein and this agreement has not been executed in reliance upon
any representation or promise except those contained herein. No waiver by any
party or any breach of this agreement shall be deemed to be a waiver of any
preceding or succeeding breach.
ARTICLE XVI
ARBITRATION
16.1 Arbitration. Any controversy or claim arising out of or relating
to this agreement or breach thereof, shall be settled by arbitration in
accordance with the voluntary labor arbitration rules of the American
Arbitration Association and judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. In reaching his or her
decision, the arbitrator shall have no authority to change or modify any
provision of this agreement. Any arbitration proceedings shall be conducted in
northern New Jersey.
IN WITNESS WHEREOF the parties hereto have executed this agreement as
of the day and year set forth above.
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- ------------------------------------------
John David Wiedemer, Employee
For Signal Security Technologies, Inc.
T/A CD-MAX
----------------------------------------
Robert A. Wiedemer, President
Attest:
- -------------------------------------------
John David Wiedemer, Secretary/Treasurer
Signal Security Technologies, Inc.
T/A CD-MAX
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EMPLOYMENT AGREEMENT - AMENDMENT ONE
THIS AMENDMENT ONE to the Employment Agreement between Signal Security
Technologies, Inc., subsequently renamed CD-MAX, Inc., and John David Wiedemer,
dated October 1, 1993, is made and entered into as of March 15, 1996.
The parties to the above referenced Employment Agreement do hereby
agree to amend Section 2.1 (i) to read October 1, 1998. All other terms and
conditions of the Employment Agreement remain unchanged.
IN WITNESS WHEREOF the parties hereto have executed this agreement as
of the date and year set forth above.
/s/ John David Wiedemer
- --------------------------------
John David Wiedemer, Employee
Attest: For CD-MAX, Inc.
/s/ Philip J. Gross /s/ Robert A. Wiedemer
- -------------------------------- ---------------------------------
Philip J. Gross, Secretary Robert A. Wiedemer, President/CEO
C:\wpwin\sigtek\empagree.amd
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is made and entered into as of
October 1, 1993 between Signal Security Technologies, Inc., a Delaware
corporation T/A as CD-MAX, with its principal office at 219 South Street, Suite
203, Murray Hill, NJ 07974, (the "Company") and ROBERT A. WIEDEMER ("Employee")
who resides at 27 Kitchell Road, Morristown, NJ, 07960-6950.
The parties recite that:
(i) The Company is engaged in the business of providing security
and billing services for CD-ROM text material and maintains
its principal office as set forth above.
(ii) The company desires to secure the services of the Employee as
President of theCompany and the Employee desires to perform
such services for the Company on the terms and conditions as
hereinafter set forth.
ARTICLE I
EMPLOYMENT
The Company hereby employs the Employee as President of the Company,
subject to the terms, conditions and provisions of this Agreement. The Employee
hereby accepts such employment and agrees to render his services as provided
herein, all of which services shall be performed conscientiously and to the full
extent of the Employee's ability.
ARTICLE II
TERM PROVISIONS
2.1 Term Period: "Period of active employment", as used herein, shall
mean the period beginning on October 1, 1993 and terminating on the date on
which the first of the following events occurs:
(i) October 1, 1996;
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(ii) the death of the Employee;
(iii) the disability of the Employee, as provided in Section 8.3 of
this Agreement;
(iv) the termination of the Employee's employment, as provided in
Section 8.2 of this Agreement, or
(v) the liquidation of the Company (other than as incident to the
sale of all or substantially all of its assets as a going
concern).
This employment agreement shall be automatically renewed on the basis
hereby established for successive one year terms unless, more than ninety days
prior to the expiration of the term of the Employee's employment, either the
Employee or the Company gives notice that the Employee's employment will not be
renewed.
The provisions of this Agreement shall remain in full force and effect
during the term of employment, except that the provisions of Article X shall
continue to be enforceable as specified therein after the termination of the
Employee's employment hereunder.
ARTICLE III
DUTIES
3.1 Capacity and Services. The Company hereby agrees to employ the
Employee and the Employee hereby agrees to accept such employment by the Company
on the terms and conditions set forth herein. The Employee shall have the duties
and responsibility that are normally exercised by the Chief Executive Officer of
comparable companies, and shall fully and faithfully perform services and
discharge his duties in a manner consistent with the position. The Employee
shall assume such other additional responsibilities and duties as may from time
to time be reasonably assigned or delegated to him by the Board of Directors or
its designee.
The primary duties of the employee are to supervise and assist in the
marketing activities of the corporation, both to final customers and publishers;
to
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assist in and supervise in raising both debt and equity capital and promoting
good relations with the investment community and individual investors; to
exercise general management supervisory authority over the facilities and
employees of the corporation; to report to the board and to ensure that their
directives are implemented; and to exercise the general supervisory authority
and responsibility normally associated with the job description of Corporate
President.
ARTICLE IV
EXCLUSIVITY PROVISIONS
4.1 Limitation on Outside Activities. The Employee shall devote his
full employment energies, interest, abilities and time to the performance of his
obligations hereunder.
4.2 Exclusivity. The Employee hereby represents and warrants that the
execution and performance of this Agreement will not result in, or constitute a
default, breach, or violation, or an event which, with notice or lapse of time
or both, would be a default, breach or violation of any understanding, agreement
or commitment, written or oral, express or implied, to which the employee is a
party or over which the employee or employee's property is bound. The Employee
hereby agrees to indemnify and hold harmless the Company from and with respect
to any liability, damage or cost, including attorneys fees, arising out of any
breach by the Employee of this representation and warranty.
ARTICLE V
COMPENSATION
As full consideration for all services to be rendered by the Employee
pursuant hereto, and for all rights herein granted by the Employee to the
Company, and provided that the Employee has kept and performed all of his
obligations hereunder, the Company shall provide the following compensation for
the services hereunder:
5.1 Base Salary. The base salary shall be no less than $60,000 per year
("Base"), in equal monthly installments, subject to review on an annual basis.
5.2 Incentive Compensation. Incentive Compensation shall be payable for
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superior Employee performance at the discretion of the Board of Directors. This
shall be in addition to the Base.
The Employee shall be entitled to participate in an equitable manner
with all other executive employees of the Company in such discretionary bonuses
as the Company may award for the benefit of the executive employees in general.
ARTICLE VI
BENEFITS
The Company shall use its best efforts to provide the following
benefits to the Employee, unless a benefit is rejected by the CEO for good cause
as being counter to the best interests of the Company and its Employee.
6.1 Medical. If the Company shall set up plans covering medical,
dental, long term disability and group life insurance, such Employee shall have
a right to participate in such a plan on the same terms and basis as other
executive employees of the Company. This provision does not obligate the Company
to set up or adopt any such plans. Employee shall be entitled to one day of sick
leave per month. Employee shall be entitled to accumulate unused sick leave.
6.2 Vacation. Employee shall be entitled to an annual paid vacation of
two weeks during the first year of the term of this agreement and one additional
week each of the next succeeding years of the term to a maximum of six weeks per
year. Employee shall be entitled to accumulate unused paid vacation time or to
receive additional compensation from the Company in lieu of unused vacation
time, up to a maximum of 4 months. The timing of vacation shall be scheduled in
a reasonable manner by Employee.
6.3 Illness or Death. If Employee is prevented from performing his
duties by reason of illness or incapacity ("illness absence") for an aggregate
of six months in any one year during the term, the corporation shall not be
obligated to pay Employee compensation for any period or absence due to illness
or incapacity in excess of the said aggregate period.
If Employee shall die during the term, the corporation shall pay
Employee's designated beneficiary or estate (a) all compensation earned
hereunder by Employee to the date of his death and not previously paid,
including accrued
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vacation, deferred bonuses, if any, and (b) $5,000 cash pursuant to Internal
Revenue Service Code 101, within sixty days after Employee's death.
6.4 Retirement Benefits. If and when the Company sets up a retirement
plan for its employees, this Employee shall participate on an appropriate basis
in such a retirement plan.
6.5 Automobile for Business Purposes. Should the Company determine that
an automobile is necessary for the performance of the Employee's duties, the
Company shall either pay directly or reimburse employee for an automobile for
Employee's full time use and for all reasonable operating and maintenance
expenses, including insurance and fuel, incurred by the Employee in his use of
such automobile. The Company shall also provide adequate parking facilities for
such Employee within reasonable walking distance of the place of employment.
6.6 Moving and Relocation. The company shall reimburse employee up to
$2000 for the moving related expenses of the employee.
6.7 Other Benefits. In addition to the benefits explicitly described
above, the Employee shall be entitled to such other benefits, perquisites, and
service credit for benefits as are customarily provided to other executive
officers of the Company and on such terms as such benefits, perquisites, and
service credit for benefits are customarily provided under the then current
Company policy.
ARTICLE VII
REIMBURSEMENT
7.1 Reimbursement of Expenses. The Company agrees to promptly reimburse
or pay the Employee or pay directly for the following types of expenses, to the
extent reasonably incurred by the Employee in performing services for Company
pursuant to the terms of this Agreement:
(i). Rent for office space required by Employee, provided that
Employee should use the offices of the Company to the extent
feasible;
(ii). Telephone and secretarial expenses necessary to Employee's
performance of this Agreement;
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(iii). Actual expenses incurred in travel necessary to performance of
this Agreement, including automobile expenses in accordance
with the IRS' current standard for automobile expense
reimbursement;
(iv). Cost of supplies and materials required specifically for
Company's benefit, such as copies of logs, copies of books,
company literature and miscellaneous office supplies necessary
to Employee's performance of this Agreement; and
(v). Such other expenses as to which Company may give its prior
written consent.
7.2 Key Man Life Insurance. The Company may apply for and procure as
owner for its own benefit insurance on the life of Employee, in such amounts and
in such form or forms as the corporation may choose. The Employee shall have no
interest whatsoever in any such policy or policies but shall, at the request of
the corporation, submit to such medical examinations, supply such information,
and execute such documents as may be required in connection with such insurance.
ARTICLE VIII
TERMINATION
8.1 Automatic Termination. Unless earlier terminated as otherwise
provided herein, this Agreement shall terminate automatically upon: (a) the
expiration of the term if 90 day notice was given, or (b) dissolution or
liquidation either voluntarily or involuntarily of the Company, and (regardless
of the cause or reason for termination) all rights under this Agreement shall
terminate without further notice upon the employee's termination, except for (i)
the payment of accrued salaries, expenses, bonuses, and vacation (ii) the
continuation of limitations and restrictions set forth in Article X and (iii)
any other obligation or right specifically referred to in this agreement to
survive the employee's employment by the Company.
8.2 Termination for Cause. The Company may terminate this Agreement for
just cause by written notice to the Employee. Any one or more of the following
events shall constitute just cause:
(i). theft, fraud, embezzlement, dishonesty or other similar
behavior by the Employee;
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(ii). any habitual neglect of duty or misconduct of the Employee in
discharging any of his duties and responsibilities hereunder;
(iii). any conduct of the Employee which is materially detrimental or
embarrassing to the Company, including, but not limited to the
Employee being convicted of a felony;
(iv). any default of the Employee's obligations hereunder which is
not cured within ten (10) days of written notification thereof
to the Employee by the Company;
(v). any failure of or refusal by the Employee to comply with the
policies, rules and regulations of the Company, which is not
cured by the Employee within ten (10) days of written
notification thereof to the Employee by the Company; or
(vi). repeated refusals by the Employee to comply with reasonable
written directives of the Company; provided, however, that the
Company may terminate the Employee's employment pursuant to
this sub-section only after the failure by the Employee to
correct or cure, or to commence and continue to pursue the
correction for curing of, such refusals within thirty days
after receipt by the Employee of written notice by the Company
of each specific claim of any such refusal.
If the Employee's employment hereunder is terminated pursuant to this
section, the Employee shall not be entitled to any further payments under this
Agreement.
8.3 Death or Disability. This Agreement and the Employee's employment
hereunder shall terminate upon the Employee's death or disability. For purposes
of this Section, the Employee shall be deemed to be disabled if the Employee is
unable to resume his normal duties and responsibilities hereunder on a full time
basis after a period of six months following commencement of the incapacitation
preventing the Employee from so discharging such duties and responsibilities.
8.4 Severance Payment. Upon an event of separation as defined below,
the Company shall pay the Employee an amount (the "severance payment") equal to
the Employee's Base for six months at the Base in effect on the date of such
event of separation, and shall continue the Employee's coverage (including
family coverage
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if this was in effect on date of separation) under the Company's medical, dental
and life insurance plans, if any, then in effect during such six month period.
The Company shall initiate the severance payment immediately following the date
of the event of separation and shall make the severance payment in installments
which are no less frequent than the Company's regular payment of Employee's base
salary.
For purposes of this Section, an "event of separation" shall mean any
involuntary termination of the Employee's employment hereunder, except an
involuntary termination due to the Employee's death or disability, or due to any
of the reasons set forth in Section 8.2. Provided the Company complies with
Section 8.4, the Company may terminate the Employee's employment by involuntary
termination at any time on immediate notice. The Employee hereby acknowledges
that, upon the occurrence of an event or separation, the Company shall have no
obligation to make any further payments whatsoever to the Employee, except to
pay the Employee's Base through the last day of the calendar month in which the
event of separation occurs, the severance payment, and all sums payable and owed
to the Employee pursuant to Section 8.4, before the termination of this
Agreement.
8.5 Performance Goals. The Employee shall meet with the CEO of the
Company on at least an annual basis to establish commercially reasonable
performance goals for the upcoming year. These goals shall be mutually agreed
upon and must be approved by the board. Failure to meet these goals can result
in termination of this agreement. The employee must be provided with written
notice of lack of performance upon failure to meet the performance goals. The
employee shall have a cure period of 90 days and if such failure is not cured
within such period, this agreement can be terminated.
8.6 Cooperation after Termination. Following any notice of termination
of employment by the Employee, the Employee shall fully cooperate with the
Company in all matters relating to the completion of his pending work on behalf
of the Company and the orderly transfer of any such pending work to other
employees of the Company as may be designated by the Company. The Company shall
be entitled to such assistance, primarily by telephone, or brief visits for all
or any part of the sixty day period following any notice of termination by the
Employee.
ARTICLE IX
REMEDIES FOR BREACH
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9.1 Specific Performance/Remedy. The parties hereto agree that the
services to be rendered by the Employee pursuant to this Agreement, and the
rights and privileges granted to the Company by the Employee pursuant to this
Agreement are of a special, unique, extraordinary and intellectual character,
which gives them a peculiar value, the loss of which cannot be reasonably or
adequately compensated in damages in any action at law, and that a breach by the
Employee of any of the terms of this Agreement will cause the Company grave and
irreparable injury and damage. The Employee hereby expressly agrees that the
Company shall be entitled to the remedies of injunction, specific performance
and other equitable relief to prevent a breach of this Agreement by the
Employee. This provision shall not, however, be construed as a waiver of any of
the rights which the Company may have for damages, or otherwise.
9.2 Waiver of Breach. The failure of either party to require the
performance of any term or condition of the agreement, or the waiver by either
party of any breach of the agreement shall not prevent a subsequent enforcement
of any such term or of any other term nor be deemed to be a waiver of any
subsequent breach.
If the Company breaches any provision of this agreement, the Employee
shall not be deemed to waive any rights attributable to such a breach unless the
Employee executes a written waiver.
If the Employee breaches any provision of this agreement, the Company
shall not be deemed to waive any of its rights attributable to such breach
unless it executes a written waiver.
ARTICLE X
CONFIDENTIALITY
10.1 Confidential Information. The Employee agrees that for and during
the entire term of his employment and for as long as such information remains
confidential, proprietary or trade secret information, the employee will not at
any time in any form or manner, directly or indirectly, divulge, disclose or
communicate to any person, firm or corporation any confidential, proprietary or
trade secret information. Furthermore, the Employee agrees to take adequate
precautions and to follow Company policy in regard to protection of all trade
secrets and proprietary information, including, but not limited to, proper
secure storage of such information, and obtaining nondisclosure agreements or
the equivalent before releasing or
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divulging such information.
Confidential, proprietary or trade secret information shall include,
but not be limited to, the following types of material information, both
existing and contemplated, regarding the Company or any of its affiliates: the
business plan, customer lists, contact lists, corporate information, including
contractual licensing arrangements, plans, strategies, tactics, policies,
resolutions, patents, trade mark and trade name applications, and any litigation
or negotiations; marketing information, including sales or product plans,
strategies, tactics, methods, customers, prospects, or market research data;
financial information, including cost and performance data, debt arrangement,
equity structure, investors, and holdings; operational and scientific
information, including trade secrets; technical information, including technical
drawings and designs; and personal information, including personnel lists,
resumes, personal data, organizational structure and performance evaluations.
The Employee agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, program listings, or other written,
photographic, or other tangible material containing proprietary information,
whether created by the Employee or others, which shall come into his custody or
possession, shall be and are the exclusive property of the Company to be used by
the Employee only in the performance of his duties for the Company.
The Employee agrees that his obligation not to disclose or use
information, knowhow and records of the types set forth in the paragraphs above,
also extends to such types of information, knowhow, records and tangible
property of customers of the Company or suppliers to the Company or other third
parties who may have disclosed or entrusted the same to the Company or to the
Employee in the course of the Company's business.
ARTICLE XI
NON-COMPETITION
11.1 Restriction on Competition. The Employee agrees that during his
term of employment by the Company and after termination of employment with the
Company, in any manner, whether with or without cause, the Employee will not,
within the continental U. S., directly or indirectly, engage in the Company's
business or in a business of security and billing for CD-ROM text information or
in any
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competitive business for a period of 18 months from such termination of
employment.
The application of such covenant against competition shall be
restricted to those geographic markets in which the Company is marketing and
selling, or is in the process of establishing the capability to market and sell
(as evidenced by written documentation), such products and services as of such
date. The Employee shall not be prohibited from owning beneficially, or of
record, five percent or less of any class of outstanding securities of any
issuer (whether or not directly competitive with the Company) if such securities
are traded on any national securities exchange or are quoted on any automated
quotation system of the National Association of Security Dealers.
11.2 Solicitation. That Employee agrees that, in addition to any other
limitations, for a period of 18 months after the termination of his employment
hereunder, except a termination without cause by the Company in violation of the
terms hereof, and unless otherwise specified herein, he will not, on behalf of
himself or on behalf of any other person, firm, or corporation, call on any of
the customers of the Company, or any of its affiliates or subsidiaries for the
purpose of soliciting and/or providing to any of said customers the same or
similar service provided by the Company, nor will he in any way, directly or
indirectly, for himself, or on behalf of any other person, firm or corporation,
solicit, divert, or take away any customer or employee of the Company, its
affiliates or its subsidiaries. Furthermore, the Employee agrees not to
disseminate or spread any confidential, libelous, disparaging, misleading,
fraudulent, or harmful information in regard to the Company to its customers,
employees, journalists or business investment analysts, or other elements of the
business community in order to damage the Company's reputation, its sales or its
ability to compete effectively on the market.
ARTICLE XII
PROPERTY RIGHTS
12.1 Disclosure. The Employee will make full and prompt disclosure to
the Company of all methods, works of authorship, business plans, studies and
reports, whether copyrightable or not, which are created, made, conceived or
reduced to practice by the Employee or under his direction or jointly with
others during his employment by the Company, whether or not during normal
working hours or on the
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premises of the Company (all of which are collectively referred to in this
Agreement as developments). This paragraph shall apply only to those
developments which are directly related to CD-ROM text information and shall not
apply to other fields.
12.2 Patents. The Employee agrees to assign and does hereby assign to
the Company (or any person or entity designated by the Company) all his right,
title and interest in and to all developments that are of a collective nature
using other employees, using the premises of the Company, and are fully funded
by the Company, and all related copyrights and copyright applications. However,
this section shall not apply to developments which do not relate to the present
or planned business or research and development of the Company and which are
made and conceived by the Employee not during normal working hours, not on the
Company's premises, and not using the Company's tools, devices, equipment or
proprietary information.
Furthermore, if the Employee is the sole inventor of an invention
suitable for which a patent is applied, that patent shall not be assigned to the
Company but the Company shall be subject to cross-licensing provisions if in the
field of CD-ROM text information.
12.3 Cooperation. The Employee agrees to cooperate fully with the
Company, both during and after his employment with the Company, with respect to
the procurement, maintenance and enforcement of copyrights and patents (both
United States and foreign countries) relating to developments. The Employee
shall sign all papers, including, without limitation, patent and copyright
applications, declarations, oaths, formal assignments, assignment of priority
rights, and powers of attorney, which the Company may deem necessary or
desirable in order to protect its rights and interests in any development.
12.4 Return of Property. Upon termination of this agreement, regardless
of how termination may be effected, the Employee shall immediately turn over to
the Company all of the Company's property, including all items used by Employee
in rendering services hereunder or otherwise, that may be in the Employee's
possession or under his control.
12.5 Other Agreements. The Employee hereby represents that he is not
bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his employment with the Company or to refrain from
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competing directly, or indirectly, with the business of such previous employer
or any other party. The Employee further represents that his performance of all
the terms of this agreement and as an employee of the Company does not, and will
not, breach any agreement to keep in confidence proprietary information,
knowledge or data acquired by him in confidence or in trust prior to his
employment with the Company.
GENERAL PROVISIONS
ARTICLE XIII
GOVERNING LAW
13.1 Domicile. This agreement is made and entered into in the State of
New Jersey, and the laws of New Jersey shall govern its validity and
interpretation and the performance by the parties hereto of their respective
duties and obligations hereunder without regard to the principles of conflict of
laws.
ARTICLE XIV
AMENDMENTS
14.1 Assignment. This contract may be assigned to a new entity at the
sole discretion of the Company if such an entity agrees to assume all rights and
obligations enumerated in this contract.
14.2 Severability. In case any provision of this agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
14.3 Successors and Assigns. This agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which, or into which, the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
14.4 Notices. All notices required, or permitted, under this agreement
shall after 5 days
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upon deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the address shown above, or at
such other address or addresses as either party shall designate to the other in
accordance with this section.
ARTICLE XV
ENTIRE AGREEMENT
15.1 Entire Agreement. This agreement supersedes and nullifies all
prior agreements between the parties concerning the subject matter hereof and
this agreement constitutes the entire agreement between the parties with respect
thereto. This agreement may be modified only by written instrument, duly
executed by each of the parties, or their respective agents. No person has any
authority to make any representation or promise on behalf of any of the parties
not set forth herein and this agreement has not been executed in reliance upon
any representation or promise except those contained herein. No waiver by any
party or any breach of this agreement shall be deemed to be a waiver of any
preceding or succeeding breach.
ARTICLE XVI
ARBITRATION
16.1 Arbitration. Any controversy or claim arising out of or relating
to this agreement or breach thereof, shall be settled by arbitration in
accordance with the voluntary labor arbitration rules of the American
Arbitration Association and judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. In reaching his or her
decision, the arbitrator shall have no authority to change or modify any
provision of this agreement. Any arbitration proceedings shall be conducted in
northern New Jersey.
IN WITNESS WHEREOF the parties hereto have executed this agreement as
of the day and year set forth above.
- ------------------------------------------
Robert A. Wiedemer, Employee
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For Signal Security Technolo gies, Inc.
T/A CD-MAX
----------------------------------------
Robert A. Wiedemer, President
Attest:
- -------------------------------------------
John David Wiedemer, Secretary/Treasurer
Signal Security Technologies, Inc.
T/A CD-MAX
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EMPLOYMENT AGREEMENT - AMENDMENT ONE
THIS AMENDMENT ONE to the Employment Agreement between Signal Security
Technologies, Inc., subsequently renamed CD-MAX, Inc., and Robert A. Wiedemer,
dated October 1, 1993, is made and entered into as of March 15, 1996.
The parties to the above referenced Employment Agreement do hereby
agree to amend Section 2.1 (i) to read October 1, 1998. All other terms and
conditions of the Employment Agreement remain unchanged.
IN WITNESS WHEREOF the parties hereto have executed this agreement as
of the date and year set forth above.
/s/ Robert A. Wiedemer
- --------------------------------
Robert A. Wiedemer, Employee
Attest: For CD-MAX, Inc.
/s/ Philip J. Gross /s/ Robert A. Wiedemer
- -------------------------------- ----------------------------------
Philip J. Gross, Secretary Robert A. Wiedemer, President/CEO
C:\wpwin\sigtek\empagree.amd
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is made and entered into as of
October 1, 1993 between Signal Security Technologies, Inc., a Delaware
corporation T/A as CD-MAX, with its principal office at 219 South Street, Suite
203, Murray Hill, NJ 07974, (the "Company") and PHILIP J. GROSS ("Employee") who
resides at 1017 Farm Haven Drive, Rockville, MD., 20852-4247
The parties recite that:
(i) The Company is engaged in the business of providing security
and billing services for CD-ROM text material and maintains
its principal office as set forth above.
(ii) The company desires to secure the services of the Employee as
Chief Financial Officer of the Company and the Employee
desires to perform such services for the Company on the terms
and conditions as hereinafter set forth.
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs the Employee as Chief Financial Officer of
the Company, subject to the terms, conditions and provisions of this Agreement.
The Employee hereby accepts such employment and agrees to render his services as
provided herein, all of which services shall be performed conscientiously and to
the full extent of the Employee's ability.
ARTICLE II
TERM PROVISIONS
---------------
2.1 Term Period: "Period of active employment", as used herein,
shall mean the period beginning on October 1, 1993 and terminating on the date
on which the first of the following events occurs:
(i) October 1, 1996;
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(ii) the death of the Employee;
(iii) the disability of the Employee, as provided in Section 8.3
of this Agreement;
(iv) the termination of the Employee's employment, as provided in
Section 8.2 of this Agreement, or
(v) the liquidation of the Company (other than as incident to the
sale of all or substantially all of its assets as a going
concern).
This employment agreement shall be automatically renewed on the basis
hereby established for successive one year terms unless, more than ninety days
prior to the expiration of the term of the Employee's employment, either the
Employee or the Company gives notice that the Employee's employment will not be
renewed.
The provisions of this Agreement shall remain in full force and effect
during the term of employment, except that the provisions of Article X shall
continue to be enforceable as specified therein after the termination of the
Employee's employment hereunder.
ARTICLE III
DUTIES
------
3.1 Capacity and Services. The Company hereby agrees to employ the
Employee and the Employee hereby agrees to accept such employment by the Company
on the terms and conditions set forth herein. The Employee shall have the duties
and responsibility that are normally exercised by the Chief Financial Officer of
comparable companies, and shall fully and faithfully perform services and
discharge his duties in a manner consistent with the position. The Employee
shall assume such other additional responsibilities and duties as may from time
to time be reasonably assigned or delegated to him by the Board of Directors or
its designee.
The primary duty of the employee is to supervise and assist in the
raising of both equity and debt capital for the corporation; to advise on and
assist in supervising the design of the billing system for CD-ROM usage; to
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assist in managing all contractors in the Washington, DC metropolitan area; to
advise on and assist in resolving problems incident to a start-up corporation,
and particularly those involving marketing and initial sales; and to supervise
the accounting, cash management and audit functions of the corporation.
ARTICLE IV
EXCLUSIVITY PROVISIONS
----------------------
4.1 Limitation on Outside Activities. The Employee shall devote such
energies, interest, abilities and time as reasonably necessary to effectively
perform his obligations hereunder. The Company acknowledges that Employee has
other professional obligations outside of Signal Security Technologies, Inc.
that will require time and attention on his part.
4.2 Exclusivity. The Employee hereby represents and warrants that the
execution and performance of this Agreement will not result in, or constitute a
default, breach, or violation, or an event which, with notice or lapse of time
or both, would be a default, breach or violation of any understanding, agreement
or commitment, written or oral, express or implied, to which the employee is a
party or over which the employee or employee's property is bound. The Employee
hereby agrees to indemnify and hold harmless the Company from and with respect
to any liability, damage or cost, including reasonable attorneys fees, arising
out of any breach by the Employee of this representation and warranty.
ARTICLE V
COMPENSATION
------------
As full consideration for all services to be rendered by the Employee
pursuant hereto, and for all rights herein granted by the Employee to the
Company, and provided that the Employee has kept and reasonably performed all of
his obligations hereunder, the Company shall provide the following compensation
for the services hereunder:
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5.1 Base Salary. The base salary shall be no less than $45,000 per
year ("Base"), in equal monthly installments, subject to review on an annual
basis.
5.2 Incentive Compensation. Incentive Compensation shall be payable for
superior Employee performance. This shall be in addition to the Base and shall
be separate from any warrants, options, or grants of restricted stock mentioned
hereunder. The initial incentive compensation shall be $22,500 per year, based
on the performance schedule in the next paragraph. In subsequent years the Board
will establish a new performance schedule for the year and will consult with
employee in connection therewith.
During the first year of this contract the performance schedule has
three benchmarks with the incentive compensation being divided into three equal
parts and paid upon the attainment of each benchmark. The Company reserves the
right to pay the incentive compensation in 3 equal installments. The first part,
consisting of $7,500, would be paid upon obtaining the $250,000 of financing.
The second part, consisting of $7,500, would be paid upon obtaining an
additional $250,000. The third part, consisting of $7,500, would be paid upon
obtaining a further $250,000 for a total of $750,000. In addition, the Company
will pay Employee an additional bonus of $1,500 ninety days following the
effective date of the merger with Golden Flag Resources, Inc.
The Employee shall be entitled to participate in an equitable manner
with all other executive employees of the Company in such discretionary bonuses
as the Company may award for the benefit of the executive employees in general.
ARTICLE VI
BENEFITS
--------
The Company shall use its best efforts to provide the following
benefits to the Employee, unless a benefit is rejected by the CEO for good cause
as being counter to the best interests of the Company and its Employee.
6.1 Medical. If the Company shall set up plans covering medical,
dental, long term disability and group life insurance, such Employee shall have
a right to participate in such a plan on the same terms and basis as other
executive employees of the Company. This provision does not obligate the Company
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to set up or adopt any such plans. Employee shall be entitled to one day of sick
leave per month. Employee shall be entitled to accumulate unused sick leave.
6.2 Vacation. Employee shall be entitled to an annual paid vacation of
two weeks during the first year of the term of this agreement and one additional
week each of the next succeeding years of the term to a maximum of six weeks per
year. Employee shall be entitled to accumulate unused paid vacation time or to
receive additional compensation from the Company in lieu of unused vacation
time, up to a maximum of 4 weeks. The timing of vacation shall be scheduled in a
reasonable manner by Employee.
6.3 Illness or Death. If Employee is prevented from performing his
duties by reason of illness or incapacity ("illness absence") for an aggregate
of six months in any one year during the term, the corporation shall not be
obligated to pay Employee compensation for any period or absence due to illness
or incapacity in excess of the said aggregate period.
If Employee shall die during the term, the corporation shall pay
Employee's designated beneficiary or estate (a) all compensation earned
hereunder by Employee to the date of his death and not previously paid,
including accrued vacation, deferred bonuses, if any, and (b) $5,000 cash
pursuant to Internal Revenue Service Code 101, within sixty days after
Employee's death.
6.4 Retirement Benefits. If and when the Company sets up a retirement
plan for its employees, this Employee shall participate on an appropriate basis
in such a retirement plan.
6.5 Automobile for Business Purposes. Should the Company determine that
an automobile is necessary for the performance of the Employee's duties, the
Company shall either pay directly or reimburse employee for an automobile for
Employee's full time use and for all reasonable operating and maintenance
expenses, including insurance and fuel, incurred by the Employee in his use of
such automobile. The Company shall also provide adequate parking facilities for
such Employee within reasonable walking distance of the place of employment.
6.7 Other Benefits. In addition to the benefits explicitly described
above, the Employee shall be entitled to such other benefits, perquisites, and
service credit for benefits as are customarily provided to other executive
officers of the Company and on such terms as such benefits, perquisites, and
service credit for benefits are customarily provided under the then current
Company policy.
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ARTICLE VII
REIMBURSEMENT
-------------
7.1 Reimbursement of Expenses. The Company agrees to promptly reimburse
or pay the Employee or pay directly for the following types of expenses, to the
extent reasonably incurred by the Employee in performing services for Company
pursuant to the terms of this Agreement:
(i). Rent for office space required by Employee, provided that Employee
should use the offices of the Company to the extent feasible;
(ii). Telephone and secretarial expenses necessary to Employee's
performance of this Agreement;
(iii). Actual expenses incurred in travel necessary to performance of this
Agreement, including automobile expenses in accordance with the IRS'
current standard for automobile expense reimbursement;
(iv). Cost of supplies and materials required specifically for Company's
benefit, such as copies of logs, copies of books, company literature
and miscellaneous office supplies necessary to Employee's performance
of this Agreement; and
(v). Such other expenses as to which Company may give its prior written
consent.
7.2 Key Man Life Insurance. The Company may apply for and procure as
owner for its own benefit insurance on the life of Employee, in such amounts and
in such form or forms as the corporation may choose. The Employee shall have no
interest whatsoever in any such policy or policies but shall, at the request of
the corporation, submit to such medical examinations, supply such information,
and execute such documents as may be required in connection with such insurance.
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ARTICLE VIII
TERMINATION
-----------
8.1 Automatic Termination. Unless earlier terminated as otherwise
provided herein, this Agreement shall terminate automatically upon: (a) the
expiration of the term if 90 day notice was given, or (b) dissolution or
liquidation either voluntarily or involuntarily of the Company, and (regardless
of the cause or reason for termination) all rights under this Agreement shall
terminate without further notice upon the employee's termination, except for (i)
the payment of accrued salaries, expenses, bonuses, and vacation (ii) the
continuation of limitations and restrictions set forth in Article X and (iii)
any other obligation or right specifically referred to in this agreement to
survive the employee's employment by the Company.
8.2 Termination for Cause. The Company may terminate this Agreement for
just cause by written notice to the Employee. Any one or more of the following
events shall constitute just cause:
(i). theft, fraud, embezzlement, dishonesty or other similar behavior by the
Employee;
(ii). any habitual neglect of duty or misconduct of the Employee in
discharging any of his duties and responsibilities hereunder;
(iii). any conduct of the Employee which is materially detrimental or
embarrassing to the Company, including, but not limited to the
Employee being convicted of a felony;
(iv). any default of the Employee's obligations hereunder which is not cured
within ten (10) days of written notification thereof to the Employee by
the Company;
(v). any failure of or refusal by the Employee to comply with the policies,
rules and regulations of the Company, which is not cured by the
Employee within ten (10) days of written notification thereof to the
Employee by the Company; or
(vi). repeated refusals by the Employee to comply with reasonable written
directives of the Company; provided, however, that the Company may
terminate the Employee's employment pursuant to this sub-section only
after the failure by the Employee to correct or cure, or to commence
and continue to pursue the correction for curing of, such refusals
within thirty days after receipt by the Employee of written notice by
the Company of each specific claim of any such refusal.
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If the Employee's employment hereunder is terminated pursuant to this
section, the Employee shall not be entitled to any further payments under this
Agreement.
8.3 Death or Disability. This Agreement and the Employee's employment
hereunder shall terminate upon the Employee's death or disability. For purposes
of this Section, the Employee shall be deemed to be disabled if the Employee is
unable to resume his normal duties and responsibilities hereunder on a full time
basis after a period of six months following commencement of the incapacitation
preventing the Employee from so discharging such duties and responsibilities.
8.4 Severance Payment. Upon an event of separation as defined below,
the Company shall pay the Employee an amount (the "severance payment") equal to
the Employee's Base for six months at the Base in effect on the date of such
event of separation, and shall continue the Employee's coverage (including
family coverage if this was in effect on date of separation) under the Company's
medical, dental and life insurance plans, if any, then in effect during such six
month period. The Company shall initiate the severance payment immediately
following the date of the event of separation and shall make the severance
payment in installments which are no less frequent than the Company's regular
payment of Employee's base salary.
For purposes of this Section, an "event of separation" shall mean any
involuntary termination of the Employee's employment hereunder, except an
involuntary termination due to the Employee's death or disability, or due to any
of the reasons set forth in Section 8.2. Provided the Company complies with
Section 8.4, the Company may terminate the Employee's employment by involuntary
termination at any time on immediate notice. The Employee hereby acknowledges
that, upon the occurrence of an event or separation, the Company shall have no
obligation to make any further payments whatsoever to the Employee, except to
pay the Employee's Base through the last day of the calendar month in which the
event of separation occurs, the severance payment, and all sums payable and owed
to the Employee pursuant to Section 8.4, before the termination of this
Agreement.
8.5 Performance Goals. The Employee shall meet with the CEO of the
Company on at least an annual basis to establish commercially reasonable
performance goals for the upcoming year. These goals shall be mutually agreed
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upon and must be approved by the board. Failure to meet these goals can result
in termination of this agreement. The employee must be provided with written
notice of lack of performance upon failure to meet the performance goals. The
employee shall have a cure period of 90 days and if such failure is not cured
within such period, this agreement can be terminated.
8.6 Cooperation after Termination. Following any notice of termination
of employment by the Employee, the Employee shall fully cooperate with the
Company in all matters relating to the completion of his pending work on behalf
of the Company and the orderly transfer of any such pending work to other
employees of the Company as may be designated by the Company. The Company shall
be entitled to such assistance, primarily by telephone, or brief visits for all
or any part of the sixty day period following any notice of termination by the
Employee.
ARTICLE IX
REMEDIES FOR BREACH
-------------------
9.1 Specific Performance/Remedy. The parties hereto agree that the
services to be rendered by the Employee pursuant to this Agreement, and the
rights and privileges granted to the Company by the Employee pursuant to this
Agreement are of a special, unique, extraordinary and intellectual character,
which gives them a peculiar value, the loss of which cannot be reasonably or
adequately compensated in damages in any action at law, and that a breach by the
Employee of any of the terms of this Agreement will cause the Company grave and
irreparable injury and damage. The Employee hereby expressly agrees that the
Company shall be entitled to the remedies of injunction, specific performance
and other equitable relief to prevent a breach of this Agreement by the
Employee. This provision shall not, however, be construed as a waiver of any of
the rights which the Company may have for damages, or otherwise.
9.2 Waiver of Breach. The failure of either party to require the
performance of any term or condition of the agreement, or the waiver by either
party of any breach of the agreement shall not prevent a subsequent enforcement
of any such term or of any other term nor be deemed to be a waiver of any
subsequent breach.
If the Company breaches any provision of this agreement, the Employee
shall not be deemed to waive any rights attributable to such a breach unless the
Employee executes a written waiver.
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If the Employee breaches any provision of this agreement, the Company
shall not be deemed to waive any of its rights attributable to such breach
unless it executes a written waiver.
ARTICLE X
CONFIDENTIALITY
---------------
10.1 Confidential Information. The Employee agrees that for and during
the entire term of his employment and for as long as such information remains
confidential, proprietary or trade secret information, the employee will not at
any time in any form or manner, directly or indirectly, divulge, disclose or
communicate to any person, firm or corporation any confidential, proprietary or
trade secret information. Furthermore, the Employee agrees to take adequate
precautions and to follow Company policy in regard to protection of all trade
secrets and proprietary information, including, but not limited to, proper
secure storage of such information, and obtaining nondisclosure agreements or
the equivalent before releasing or divulging such information.
Confidential, proprietary or trade secret information shall include,
but not be limited to, the following types of material information, both
existing and contemplated, regarding the Company or any of its affiliates: the
business plan, customer lists, contact lists, corporate information, including
contractual licensing arrangements, plans, strategies, tactics, policies,
resolutions, patents, trade mark and trade name applications, and any litigation
or negotiations; marketing information, including sales or product plans,
strategies, tactics, methods, customers, prospects, or market research data;
financial information, including cost and performance data, debt arrangement,
equity structure, investors, and holdings; operational and scientific
information, including trade secrets; technical information, including technical
drawings and designs; and personal information, including personnel lists,
resumes, personal data, organizational structure and performance evaluations.
The Employee agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, program listings, or other written,
photographic, or other tangible material containing proprietary information,
whether created by the Employee or others, which shall come into his custody or
possession, shall be and are the exclusive property of the Company to be used by
the Employee only in the performance of his duties for the Company.
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The Employee agrees that his obligation not to disclose or use
information, knowhow and records of the types set forth in the paragraphs above,
also extends to such types of information, knowhow, records and tangible
property of customers of the Company or suppliers to the Company or other third
parties who may have disclosed or entrusted the same to the Company or to the
Employee in the course of the Company's business.
ARTICLE XI
NON-COMPETITION
---------------
11.1 Restriction on Competition. The Employee agrees that during his
term of employment by the Company and after termination of employment with the
Company, in any manner, whether with or without cause, the Employee will not,
within the continental U. S., directly or indirectly, engage in the Company's
business or in a business of security and billing for CD-ROM text information or
in any competitive business for a period of 18 months from such termination of
employment.
The application of such covenant against competition shall be
restricted to those geographic markets in which the Company is marketing and
selling, or is in the process of establishing the capability to market and sell
(as evidenced by written documentation), such products and services as of such
date. The Employee shall not be prohibited from owning beneficially, or of
record, five percent or less of any class of outstanding securities of any
issuer (whether or not directly competitive with the Company) if such securities
are traded on any national securities exchange or are quoted on any automated
quotation system of the National Association of Security Dealers.
11.2 Solicitation. That Employee agrees that, in addition to any other
limitations, for a period of 18 months after the termination of his employment
hereunder, except a termination without cause by the Company in violation of the
terms hereof, and unless otherwise specified herein, he will not, on behalf of
himself or on behalf of any other person, firm, or corporation, call on any of
the customers of the Company, or any of its affiliates or subsidiaries for the
purpose of soliciting and/or providing to any of said customers the same or
similar service provided by the Company, nor will he in any way, directly or
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indirectly, for himself, or on behalf of any other person, firm or corporation,
solicit, divert, or take away any customer or employee of the Company, its
affiliates or its subsidiaries. Furthermore, the Employee agrees not to
disseminate or spread any confidential, libelous, disparaging, misleading,
fraudulent, or harmful information in regard to the Company to its customers,
employees, journalists or business investment analysts, or other elements of the
business community in order to damage the Company's reputation, its sales or its
ability to compete effectively on the market.
ARTICLE XII
PROPERTY RIGHTS
---------------
12.1 Disclosure. The Employee will make full and prompt disclosure to
the Company of all methods, works of authorship, business plans, studies and
reports, whether copyrightable or not, which are created, made, conceived or
reduced to practice by the Employee or under his direction or jointly with
others during his employment by the Company, whether or not during normal
working hours or on the premises of the Company (all of which are collectively
referred to in this Agreement as developments). This paragraph shall apply only
to those developments which are directly related to CD-ROM text information and
shall not apply to other fields.
12.2 Patents. The Employee agrees to assign and does hereby assign to
the Company (or any person or entity designated by the Company) all his right,
title and interest in and to all developments that are of a collective nature
using other employees, using the premises of the Company, and are fully funded
by the Company, and all related copyrights and copyright applications. However,
this section shall not apply to developments which do not relate to the present
or planned business or research and development of the Company and which are
made and conceived by the Employee not during normal working hours, not on the
Company's premises, and not using the Company's tools, devices, equipment or
proprietary information.
Furthermore, if the Employee is the sole inventor of an invention
suitable for which a patent is applied, that patent shall not be assigned to the
Company but the Company shall be subject to cross-licensing provisions if in the
field of CD-ROM text information.
12.3 Cooperation. The Employee agrees to cooperate fully with the
Company, both during and after his employment with the Company, with respect to
the procurement, maintenance and enforcement of copyrights and patents (both
United States and foreign countries) relating to developments. The Employee
shall sign all papers, including, without limitation, patent and copyright
applications, declarations, oaths, formal assignments, assignment of priority
rights, and powers of attorney, which the Company may deem necessary or
desirable in order to protect its rights and interests in any development.
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12.4 Return of Property. Upon termination of this agreement, regardless
of how termination may be effected, the Employee shall immediately turn over to
the Company all of the Company's property, including all items used by Employee
in rendering services hereunder or otherwise, that may be in the Employee's
possession or under his control.
12.5 Other Agreements. The Employee hereby represents that he is not
bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his employment with the Company or to refrain from
competing directly, or indirectly, with the business of such previous employer
or any other party. The Employee further represents that his performance of all
the terms of this agreement and as an employee of the Company does not, and will
not, breach any agreement to keep in confidence proprietary information,
knowledge or data acquired by him in confidence or in trust prior to his
employment with the Company.
GENERAL PROVISIONS
ARTICLE XIII
GOVERNING LAW
-------------
13.1 Domicile. This agreement is made and entered into in the State of
New Jersey, and the laws of New Jersey shall govern its validity and
interpretation and the performance by the parties hereto of their respective
duties and obligations hereunder without regard to the principles of conflict of
laws.
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ARTICLE XIV
AMENDMENTS
----------
14.1 Assignment. This contract may be assigned to a new entity at the
sole discretion of the Company if such an entity agrees to assume all rights and
obligations enumerated in this contract.
14.2 Severability. In case any provision of this agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
14.3 Successors and Assigns. This agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which, or into which, the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
14.4 Notices. All notices required, or permitted, under this agreement
shall be in writing and shall be deemed effective upon personal delivery or
after 5 days upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this section.
ARTICLE XV
ENTIRE AGREEMENT
----------------
15.1 Entire Agreement. This agreement supersedes and nullifies all
prior agreements between the parties concerning the subject matter hereof and
this agreement constitutes the entire agreement between the parties with respect
thereto. This agreement may be modified only by written instrument, duly
executed by each of the parties, or their respective agents. No person has any
authority to make any representation or promise on behalf of any of the parties
not set forth herein and this agreement has not been executed in reliance upon
any representation or promise except those contained herein. No waiver by any
party or any breach of this agreement shall be deemed to be a waiver of any
preceding or succeeding breach.
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ARTICLE XVI
ARBITRATION
-----------
16.1 Arbitration. Any controversy or claim arising out of or relating
to this agreement or breach thereof, shall be settled by arbitration in
accordance with the voluntary labor arbitration rules of the American
Arbitration Association and judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. In reaching his or her
decision, the arbitrator shall have no authority to change or modify any
provision of this agreement. Any arbitration proceedings shall be conducted in
northern New Jersey.
IN WITNESS WHEREOF the parties hereto have executed this agreement as
of the day and year set forth above.
- ----------------------------------------
Philip J. Gross, Employee
For Signal Security Technologies, Inc.
T/A CD-MAX
-------------------------------------
Robert A. Wiedemer, President
Attest:
- -----------------------------------------
John David Wiedemer, Secretary/Treasurer
Signal Security Technologies, Inc.
T/A CD-MAX
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EMPLOYMENT AGREEMENT - AMENDMENT ONE
THIS AMENDMENT ONE to the Employment Agreement between Signal Security
Technologies, Inc., subsequently renamed CD-MAX, Inc., and Philip J. Gross,
dated October 1, 1993, is made and entered into as of March 15, 1996.
The parties to the above referenced Employment Agreement do hereby
agree to amend Section 2.1 (i) to read October 1, 1998. All other terms and
conditions of the Employment Agreement remain unchanged.
IN WITNESS WHEREOF the parties hereto have executed this agreement as
of the date and year set forth above.
/s/ Philip J. Gross
- --------------------------------
Philip J. Gross, Employee
Attest: For CD-MAX, Inc.
/s/ Philip J. Gross /s/ Robert A. Wiedemer
- -------------------------------- ---------------------------------
Philip J. Gross, Secretary Robert A. Wiedemer, President/CEO
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is made and entered into as of
October 1, 1993 between Signal Security Technologies, Inc., a Delaware
corporation T/A as CD-MAX, with its principal office at 219 South Street, Suite
203, Murray Hill, NJ 07974, (the "Company") and DAVID B. BOELIO ("Employee") who
resides at 126 Wyoming Avenue, Maplewood, NJ, 07040.
The parties recite that:
(i) The Company is engaged in the business of providing security
and billing services for CD-ROM text material and maintains
its principal office as set forth above.
(ii) The company desires to secure the services of the Employee as
Executive Vice President-Marketing of the Company and the
Employee desires to perform such services for the Company on
the terms and conditions as hereinafter set forth.
ARTICLE I
EMPLOYMENT
The Company hereby employs the Employee as Executive Vice President-
Marketing of the Company, subject to the terms, conditions and provisions of
this Agreement. The Employee hereby accepts such employment and agrees to render
his services as provided herein, all of which services shall be performed
conscientiously and to the full extent of the Employee's ability.
ARTICLE II
TERM PROVISIONS
2.1 Term Period: "Period of active employment", as used herein, shall
mean the period beginning on October 1, 1993 and terminating on the date on
which the first of the following events occurs:
(i) October 1, 1996;
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(ii) the death of the Employee;
(iii) the disability of the Employee, as provided in Section 8.3 of
this Agreement;
(iv) the termination of the Employee's employment, as provided in
Section 8.2 of this Agreement, or
(v) the liquidation of the Company (other than as incident to the sale
of all or substantially all of its assets as a going concern).
This employment agreement shall be automatically renewed on the basis
hereby established for successive one year terms unless, more than ninety days
prior to the expiration of the term of the Employee's employment, either the
Employee or the Company gives notice that the Employee's employment will not be
renewed.
The provisions of this Agreement shall remain in full force and effect
during the term of employment, except that the provisions of Article X shall
continue to be enforceable as specified therein after the termination of the
Employee's employment hereunder.
ARTICLE III
DUTIES
3.1 Capacity and Services. The Company hereby agrees to employ the
Employee and the Employee hereby agrees to accept such employment by the Company
on the terms and conditions set forth herein. The Employee shall have the duties
and responsibility that are normally exercised by the Chief Marketing Officer of
comparable companies, and shall fully and faithfully perform services and
discharge his duties in a manner consistent with the position. The Employee
shall assume such other additional responsibilities and duties as may from time
to time be reasonably assigned or delegated to him by the Board of Directors or
its designee.
The primary duties of the employee are to prepare the Company's annual
strategic marketing plan; supervise the preparation of all marketing materials,
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brochures and advertisements; identify, contact and visit potential customers;
secure customer commitments to purchase the Company's products and services in
accordance with the Company's financial plan; secure, train, and supervise
Marketing Department employees, if any; orchestrate publicity that will
positively affect potential customers and investors; prepare and manage
departmental budgets; and develop strategic marketing alliances.
ARTICLE IV
EXCLUSIVITY PROVISIONS
4.1 Limitation on Outside Activities. The Employee shall devote his
full employment energies, interest, abilities and time to the performance of his
obligations hereunder.
4.2 Exclusivity. The Employee hereby represents and warrants that the
execution and performance of this Agreement will not result in, or constitute a
default, breach, or violation, or an event which, with notice or lapse of time
or both, would be a default, breach or violation of any understanding, agreement
or commitment, written or oral, express or implied, to which the employee is a
party or over which the employee or employee's property is bound. The Employee
hereby agrees to indemnify and hold harmless the Company from and with respect
to any liability, damage or cost, including reasonable attorneys fees, arising
out of any breach by the Employee of this representation and warranty.
ARTICLE V
COMPENSATION
As full consideration for all services to be rendered by the Employee
pursuant hereto, and for all rights herein granted by the Employee to the
Company, and provided that the Employee has kept and performed all of his
obligations hereunder, the Company shall provide the following compensation for
the services hereunder:
5.1 Base Salary. The base salary shall be no less than $60,000 per year
("Base"), in equal monthly installments, subject to review on an annual basis.
The base shall be raised to equal $150,000 per year when $10 million in net
revenues
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for CD-MAX(TM) for any prior 12 month period are reached (net revenues does not
include revenues billed on behalf of clients for use of their information), and
$250,000 when $30 million in net revenues are reached for any prior 12 month
period. Additional increments and sub divisions of the mandated increase may be
made by the Board upon recommendation by a Compensation Committee that may be
established by the Board.
5.2 Incentive Compensation. Incentive Compensation shall be payable for
superior Employee performance. This shall be in addition to the Base and shall
be separate from any warrants, options, or grants of restricted stock mentioned
hereunder. The initial incentive compensation shall be $30,000 per year, based
on the performance schedule in the next paragraph. In subsequent years the Board
will establish a new performance schedule for the year and will consult with
employee in connection therewith.
During the first year of this contract the performance schedule has
three benchmarks with the incentive compensation being divided into three equal
parts and paid upon the attainment of each benchmark. The Company reserves the
right to pay each part of the incentive compensation in 3 equal installments.
The first part, consisting of $10,000, would be paid upon obtaining written
commitments from 3 bona fide publishers for extensive participation in field
demonstrations of CD-MAX(TM). The second part, consisting of $10,000, would be
paid upon obtaining written commitments from 5 bona fide publishers to use
CD-MAX(TM) with a commercial product in the normal marketplace or for
participation by publishers in field demonstrations of CD-MAX(TM), who are not
already participating in field demonstrations. The third part, consisting of
$10,000, would be paid when CD-MAX has billed $1 million on behalf of its
customers.
The Employee shall be entitled to participate in an equitable manner
with all other executive employees of the Company in such discretionary bonuses
as the Company may award for the benefit of the executive employees in general.
ARTICLE VI
BENEFITS
The Company shall use its best efforts to provide the following
benefits to the Employee, unless a benefit is rejected by the CEO for good cause
as being counter to the best interests of the Company and its Employee.
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6.1 Medical. If the Company shall set up plans covering medical,
dental, long term disability and group life insurance, such Employee shall have
a right to participate in such a plan on the same terms and basis as other
executive employees of the Company. This provision does not obligate the Company
to set up or adopt any such plans. Employee shall be entitled to one day of sick
leave per month. Employee shall be entitled to accumulate unused sick leave.
6.2 Vacation. Employee shall be entitled to an annual paid vacation of
two weeks during the first year of the term of this agreement and one additional
week each of the next succeeding years of the term to a maximum of six weeks per
year. Employee shall be entitled to accumulate unused paid vacation time or to
receive additional compensation from the Company in lieu of unused vacation time
up to a maximum of 4 weeks. The timing of vacation shall be scheduled in a
reasonable manner by Employee.
6.3 Illness or Death. If Employee is prevented from performing his
duties by reason of illness or incapacity ("illness absence") for an aggregate
of six months in any one year during the term, the corporation shall not be
obligated to pay Employee compensation for any period or absence due to illness
or incapacity in excess of the said aggregate period.
If Employee shall die during the term, the corporation shall pay
Employee's designated beneficiary or estate (a) all compensation earned
hereunder by Employee to the date of his death and not previously paid,
including accrued vacation, deferred bonuses, if any, and (b) $5,000 cash
pursuant to Internal Revenue Service Code 101, within sixty days after
Employee's death.
6.4 Retirement Benefits. If and when the Company sets up a retirement
plan for its employees, this Employee shall participate on an appropriate basis
in such a retirement plan.
6.5 Automobile for Business Purposes. Should the Company determine that
an automobile is necessary for the performance of the Employee's duties, the
Company shall either pay directly or reimburse employee for an automobile for
Employee's full time use and for all reasonable operating and maintenance
expenses, including insurance and fuel, incurred by the Employee in his use of
such automobile. The Company shall also provide adequate parking facilities for
such Employee within reasonable walking distance of the place of employment.
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6.6 Other Benefits. In addition to the benefits explicitly described
above, the Employee shall be entitled to such other benefits, perquisites, and
service credit for benefits as are customarily provided to other executive
officers of the Company and on such terms as such benefits, perquisites, and
service credit for benefits are customarily provided under the then current
Company policy.
ARTICLE VII
REIMBURSEMENT
7.1 Reimbursement of Expenses. The Company agrees to promptly reimburse
or pay the Employee or pay directly for the following types of expenses, to the
extent reasonably incurred by the Employee in performing services for Company
pursuant to the terms of this Agreement:
(i). Rent for office space required by Employee, provided that
Employee should use the offices of the Company to the extent
feasible;
(ii). Telephone and secretarial expenses necessary to Employee's
performance of this Agreement;
(iii). Actual expenses incurred in travel necessary to performance of
this Agreement, including automobile expenses in accordance
with the IRS' current standard for automobile expense
reimbursement;
(iv). Cost of supplies and materials required specifically for
Company's benefit, such as copies of logs, copies of books,
company literature and miscellaneous office supplies necessary
to Employee's performance of this Agreement; and
(v). Such other expenses as to which Company may give its prior
written consent.
7.2 Key Man Life Insurance. The Company may apply for and procure as
owner for its own benefit insurance on the life of Employee, in such amounts and
in such form or forms as the corporation may choose. The Employee shall have no
interest whatsoever in any such policy or policies but shall, at the request of
the corporation, submit to such medical examinations, supply such information,
and
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execute such documents as may be required in connection with such insurance.
ARTICLE VIII
TERMINATION
8.1 Automatic Termination. Unless earlier terminated as otherwise
provided herein, this Agreement shall terminate automatically upon: (a) the
expiration of the term if 90 day notice was given, or (b) dissolution or
liquidation either voluntarily or involuntarily of the Company, and (regardless
of the cause or reason for termination) all rights under this Agreement shall
terminate without further notice upon the employee's termination, except for (i)
the payment of accrued salaries, expenses, bonuses, and vacation (ii) the
continuation of limitations and restrictions set forth in Article X and (iii)
any other obligation or right specifically referred to in this agreement to
survive the employee's employment by the Company.
8.2 Termination for Cause. The Company may terminate this Agreement for
just cause by written notice to the Employee. Any one or more of the following
events shall constitute just cause:
(i). theft, fraud, embezzlement, dishonesty or other similar
behavior by the Employee;
(ii). any habitual neglect of duty or misconduct of the Employee in
discharging any of his duties and responsibilities hereunder;
(iii). any conduct of the Employee which is materially detrimental or
embarrassing to the Company, including, but not limited to the
Employee being convicted of a felony;
(iv). any default of the Employee's obligations hereunder which is
not cured within ten (10) days of written notification thereof
to the Employee by the Company;
(v). any failure of or refusal by the Employee to comply with the
policies, rules and regulations of the Company, which is not
cured by the Employee within ten (10) days of written
notification thereof to the Employee by the Company; or
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(vi). repeated refusals by the Employee to comply with reasonable
written directives of the Company; provided, however, that the
Company may terminate the Employee's employment pursuant to
this sub-section only after the failure by the Employee to
correct or cure, or to commence and continue to pursue the
correction for curing of, such refusals within thirty days
after receipt by the Employee of written notice by the Company
of each specific claim of any such refusal.
If the Employee's employment hereunder is terminated pursuant to this
section, the Employee shall not be entitled to any further payments under this
Agreement.
8.3 Death or Disability. This Agreement and the Employee's employment
hereunder shall terminate upon the Employee's death or disability. For purposes
of this Section, the Employee shall be deemed to be disabled if the Employee is
unable to resume his normal duties and responsibilities hereunder on a full time
basis after a period of six months following commencement of the incapacitation
preventing the Employee from so discharging such duties and responsibilities.
8.4 Severance Payment. Upon an event of separation as defined below,
the Company shall pay the Employee an amount (the "severance payment") equal to
the Employee's Base for six months at the Base in effect on the date of such
event of separation, and shall continue the Employee's coverage (including
family coverage if this was in effect on date of separation) under the Company's
medical, dental and life insurance plans, if any, then in effect during such six
month period. The Company shall initiate the severance payment immediately
following the date of the event of separation and shall make the severance
payment in installments which are no less frequent than the Company's regular
payment of Employee's base salary.
For purposes of this Section, an "event of separation" shall mean any
involuntary termination of the Employee's employment hereunder, except an
involuntary termination due to the Employee's death or disability, or due to any
of the reasons set forth in Section 8.2. Provided the Company complies with
Section 8.4, the Company may terminate the Employee's employment by involuntary
termination at any time on immediate notice. The Employee hereby acknowledges
that, upon the occurrence of an event or separation, the Company shall have no
obligation to make any further payments whatsoever to the Employee, except to
pay the Employee's Base through the last day of the calendar month in which the
event of
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separation occurs, the severance payment, and all sums payable and owed to the
Employee pursuant to Section 8.4, before the termination of this Agreement.
8.5 Performance Goals. The Employee shall meet with the CEO of the
Company on at least an annual basis to establish commercially reasonable
performance goals for the upcoming year. These goals shall be mutually agreed
upon and must be approved by the board. Failure to meet these goals can result
in termination of this agreement. The employee must be provided with written
notice of lack of performance upon failure to meet the performance goals. The
employee shall have a cure period of 90 days and if such failure is not cured
within such period, this agreement can be terminated.
8.6 Cooperation after Termination. Following any notice of termination
of employment by the Employee, the Employee shall fully cooperate with the
Company in all matters relating to the completion of his pending work on behalf
of the Company and the orderly transfer of any such pending work to other
employees of the Company as may be designated by the Company. The Company shall
be entitled to such assistance, primarily by telephone, or brief visits for all
or any part of the sixty day period following any notice of termination by the
Employee.
ARTICLE IX
REMEDIES FOR BREACH
9.1 Specific Performance/Remedy. The parties hereto agree that the
services to be rendered by the Employee pursuant to this Agreement, and the
rights and privileges granted to the Company by the Employee pursuant to this
Agreement are of a special, unique, extraordinary and intellectual character,
which gives them a peculiar value, the loss of which cannot be reasonably or
adequately compensated in damages in any action at law, and that a breach by the
Employee of any of the terms of this Agreement will cause the Company grave and
irreparable injury and damage. The Employee hereby expressly agrees that the
Company shall be entitled to the remedies of injunction, specific performance
and other equitable relief to prevent a breach of this Agreement by the
Employee. This provision shall not, however, be construed as a waiver of any of
the rights which the Company may have for damages, or otherwise.
9.2 Waiver of Breach. The failure of either party to require the
performance of any term or condition of the agreement, or the waiver by either
party of any breach
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of the agreement shall not prevent a subsequent enforcement of any such term or
of any other term nor be deemed to be a waiver of any subsequent breach.
If the Company breaches any provision of this agreement, the Employee
shall not be deemed to waive any rights attributable to such a breach unless the
Employee executes a written waiver.
If the Employee breaches any provision of this agreement, the Company
shall not be deemed to waive any of its rights attributable to such breach
unless it executes a written waiver.
ARTICLE X
CONFIDENTIALITY
10.1 Confidential Information. The Employee agrees that for and during
the entire term of his employment and for as long as such information remains
confidential, proprietary or trade secret information, the employee will not at
any time in any form or manner, directly or indirectly, divulge, disclose or
communicate to any person, firm or corporation any confidential, proprietary or
trade secret information. Furthermore, the Employee agrees to take adequate
precautions and to follow Company policy in regard to protection of all trade
secrets and proprietary information, including, but not limited to, proper
secure storage of such information, and obtaining nondisclosure agreements or
the equivalent before releasing or divulging such information.
Confidential, proprietary or trade secret information shall include,
but not be limited to, the following types of material information, both
existing and contemplated, regarding the Company or any of its affiliates: the
business plan, customer lists, contact lists, corporate information, including
contractual licensing arrangements, plans, strategies, tactics, policies,
resolutions, patents, trade mark and trade name applications, and any litigation
or negotiations; marketing information, including sales or product plans,
strategies, tactics, methods, customers, prospects, or market research data;
financial information, including cost and performance data, debt arrangement,
equity structure, investors, and holdings; operational and scientific
information, including trade secrets; technical information, including technical
drawings and designs; and personal information, including personnel lists,
resumes, personal data, organizational structure and performance evaluations.
10
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The Employee agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, program listings, or other written,
photographic, or other tangible material containing proprietary information,
whether created by the Employee or others, which shall come into his custody or
possession, shall be and are the exclusive property of the Company to be used by
the Employee only in the performance of his duties for the Company.
The Employee agrees that his obligation not to disclose or use
information, knowhow and records of the types set forth in the paragraphs above,
also extends to such types of information, knowhow, records and tangible
property of customers of the Company or suppliers to the Company or other third
parties who may have disclosed or entrusted the same to the Company or to the
Employee in the course of the Company's business.
ARTICLE XI
NON-COMPETITION
11.1 Restriction on Competition. The Employee agrees that during his
term of employment by the Company and after termination of employment with the
Company, in any manner, whether with or without cause, the Employee will not,
within the continental U. S., directly or indirectly, engage in the Company's
business or in a business of security and billing for CD-ROM text information or
in any competitive business for a period of 18 months from such termination of
employment.
The application of such covenant against competition shall be
restricted to those geographic markets in which the Company is marketing and
selling, or is in the process of establishing the capability to market and sell
(as evidenced by written documentation), such products and services as of such
date. The Employee shall not be prohibited from owning beneficially, or of
record, five percent or less of any class of outstanding securities of any
issuer (whether or not directly competitive with the Company) if such securities
are traded on any national securities exchange or are quoted on any automated
quotation system of the National Association of Security Dealers.
11.2 Solicitation. That Employee agrees that, in addition to any other
limitations, for a period of 18 months after the termination of his employment
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hereunder, except a termination without cause by the Company in violation of the
terms hereof, and unless otherwise specified herein, he will not, on behalf of
himself or on behalf of any other person, firm, or corporation, call on any of
the customers of the Company, or any of its affiliates or subsidiaries for the
purpose of soliciting and/or providing to any of said customers the same or
similar service provided by the Company, nor will he in any way, directly or
indirectly, for himself, or on behalf of any other person, firm or corporation,
solicit, divert, or take away any customer or employee of the Company, its
affiliates or its subsidiaries. Furthermore, the Employee agrees not to
disseminate or spread any confidential, libelous, disparaging, misleading,
fraudulent, or harmful information in regard to the Company to its customers,
employees, journalists or business investment analysts, or other elements of the
business community in order to damage the Company's reputation, its sales or its
ability to compete effectively on the market.
ARTICLE XII
PROPERTY RIGHTS
12.1 Disclosure. The Employee will make full and prompt disclosure to
the Company of all methods, works of authorship, business plans, studies and
reports, whether copyrightable or not, which are created, made, conceived or
reduced to practice by the Employee or under his direction or jointly with
others during his employment by the Company, whether or not during normal
working hours or on the premises of the Company (all of which are collectively
referred to in this Agreement as developments). This paragraph shall apply only
to those developments which are directly related to CD-ROM text information and
shall not apply to other fields.
12.2 Patents. The Employee agrees to assign and does hereby assign to
the Company (or any person or entity designated by the Company) all his right,
title and interest in and to all developments that are of a collective nature
using other employees, using the premises of the Company, and are fully funded
by the Company, and all related copyrights and copyright applications. However,
this section shall not apply to developments which do not relate to the present
or planned business or research and development of the Company and which are
made and conceived by the Employee not during normal working hours, not on the
Company's premises, and not using the Company's tools, devices, equipment or
proprietary information.
Furthermore, if the Employee is the sole inventor of an invention
suitable for
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which a patent is applied, that patent shall not be assigned to the Company but
the Company shall be subject to cross-licensing provisions if in the field of
CD-ROM text information.
12.3 Cooperation. The Employee agrees to cooperate fully with the
Company, both during and after his employment with the Company, with respect to
the procurement, maintenance and enforcement of copyrights and patents (both
United States and foreign countries) relating to developments. The Employee
shall sign all papers, including, without limitation, patent and copyright
applications, declarations, oaths, formal assignments, assignment of priority
rights, and powers of attorney, which the Company may deem necessary or
desirable in order to protect its rights and interests in any development.
12.4 Return of Property. Upon termination of this agreement, regardless
of how termination may be effected, the Employee shall immediately turn over to
the Company all of the Company's property, including all items used by Employee
in rendering services hereunder or otherwise, that may be in the Employee's
possession or under his control.
12.5 Other Agreements. The Employee hereby represents that he is not
bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his employment with the Company or to refrain from
competing directly, or indirectly, with the business of such previous employer
or any other party. The Employee further represents that his performance of all
the terms of this agreement and as an employee of the Company does not, and will
not, breach any agreement to keep in confidence proprietary information,
knowledge or data acquired by him in confidence or in trust prior to his
employment with the Company.
GENERAL PROVISIONS
ARTICLE XIII
GOVERNING LAW
13.1 Domicile. This agreement is made and entered into in the State of
New Jersey, and the laws of New Jersey shall govern its validity and
interpretation and
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the performance by the parties hereto of their respective duties and obligations
hereunder without regard to the principles of conflict of laws.
ARTICLE XIV
AMENDMENTS
14.1 Assignment. This contract may be assigned to a new entity at the
sole discretion of the Company if such an entity agrees to assume all rights and
obligations enumerated in this contract.
14.2 Severability. In case any provision of this agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
14.3 Successors and Assigns. This agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which, or into which, the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Employee are personal and shall not be assigned by him.
14.4 Notices. All notices required, or permitted, under this agreement
shall be in writing and shall be deemed effective upon personal delivery or
after 5 days upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this section.
ARTICLE XV
ENTIRE AGREEMENT
15.1 Entire Agreement. This agreement supersedes and nullifies all
prior agreements between the parties concerning the subject matter hereof and
this agreement constitutes the entire agreement between the parties with respect
thereto. This agreement may be modified only by written instrument, duly
executed by each of the parties, or their respective agents. No person has any
authority to make any representation or promise on behalf of any of the parties
not set forth
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herein and this agreement has not been executed in reliance upon any
representation or promise except those contained herein. No waiver by any party
or any breach of this agreement shall be deemed to be a waiver of any preceding
or succeeding breach.
ARTICLE XVI
ARBITRATION
16.1 Arbitration. Any controversy or claim arising out of or relating
to this agreement or breach thereof, shall be settled by arbitration in
accordance with the voluntary labor arbitration rules of the American
Arbitration Association and judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. In reaching his or her
decision, the arbitrator shall have no authority to change or modify any
provision of this agreement. Any arbitration proceedings should be conducted in
northern New Jersey.
IN WITNESS WHEREOF the parties hereto have executed this agreement as
of the day and year set forth above.
- ------------------------------------------
David B. Boelio, Employee
For Signal Security Technologies, Inc.
----------------------------------------
Robert A. Wiedemer, President
Attest:
- -------------------------------------------
John David Wiedemer, Secretary/Treasurer
Signal Security Technologies, Inc.
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EMPLOYMENT AGREEMENT - AMENDMENT ONE
THIS AMENDMENT ONE to the Employment Agreement between Signal Security
Technologies, Inc., subsequently renamed CD-MAX, Inc., and David B. Boelio,
dated October 1, 1993, is made and entered into as of March 15, 1996.
The parties to the above referenced Employment Agreement do hereby
agree to amend Section 2.1 (i) to read October 1, 1998. All other terms and
conditions of the Employment Agreement remain unchanged.
IN WITNESS WHEREOF the parties hereto have executed this agreement as
of the date and year set forth above.
/s/ David B. Boelio
- --------------------------------
David B. Boelio, Employee
Attest: For CD-MAX, Inc.
/s/ Philip J. Gross /s/ Robert A. Wiedemer
- -------------------------------- ---------------------------------
Philip J. Gross, Secretary Robert A. Wiedemer, President/CEO
C:\wpwin\sigtek\empagree.amd
<PAGE>
EXHIBIT 10.6
September 6, 1995
Mr. Bill Thornburg
Vice President, Product Management
Dataware Technologies, Inc.
Suite 220
5775 Flatiron Parkway
Boulder, CO 80301
Dear Bill:
It was good to speak with you again last Friday, September 1. As we
agreed, I've described below the objectives and elements of the relationship
between CD-MAX and Dataware Technologies. To confirm our understanding, I ask
that you sign and return to me one copy of this letter.
With the broad objective of enhancing sales and marketing opportunities
for our two companies, and for the information publishers we both serve, CD-MAX,
Inc. and Dataware Technologies, Inc. will take the following actions:
o CD-MAX, Inc. will enter into a separate security, billing and
information management services agreement with Dataware's
client, CompacData Solutions, Inc. CompacData's motor vehicle
registration database will be the subject of our joint efforts
to integrate our technologies.
o Dataware will execute and make available to CD-MAX the
programming modifications described in the document entitled
"CD-MAX(TM) Software Design for CD Author" in the next release
of the Advanced Design Library (ADL), planned for commercial
release later this year.
o Dataware will permit CompacData and CD-MAX to market and sell
products that incorporate a beta-test version of the ADL, if
in their judgement,
o Dataware and CD-MAX will coordinate public announcements of
the encryption and metering features of the ADL. If the
development schedule proves feasible, a joint announcement
will be made prior to CD-ROM Expo, which starts on November
28. CD-MAX and Dataware agree to submit for each other's
review and approval any news releases that mention the
encryption and metering features of the ADL.
<PAGE>
Mr. Bill Thornburg
Page 2
September 6, 1995
Because this non-exclusive relationship offers potential marketing
advantages to both Dataware and CD-MAX, and because both companies will charge
clients separately for products and services, neither company expects payment
from the other for providing an option that allows the integration of our
respective technologies.
Bill, one more adminstative note: while we signed your Software
Evaluation Agreement a few months back, we should also execute a reciprocal
non-disclosure agreement. Do you have a form that you'd like to use, or would
you like us to send one to you?
Sincerely,
<PAGE>
Exhibit 10.7
CD-MAX(TM) DATA SECURITY, USAGE BILLING AND
INFORMATION MANAGEMENT SERVICES AGREEMENT
This CD-MAX(TM) Data Security, Usage Billing and Information Management Services
Agreement is entered into this the _____ day of __________, 1995. by and between
CD- MAX, Inc., a Delaware corporation ("CD-MAX") and Mitchell International, a
division of Thomson Publishing Corporation, a Delaware corporation ("CUSTOMER").
WITNESSETH:
WHEREAS, CUSTOMER is engaged in the business of providing copyrighted
information and information services on CD-ROM for which CUSTOMER desires to
adopt security measures and bill End-Users on a usage basis; and
WHEREAS, CD-MAX has the ability to provide data security, usage billing and
information management services for CUSTOMER, and CUSTOMER desires to obtain
such services from CD-MAX under the terms and conditions contained herein:
NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants and
agreements contained herein and other good and valuable considerations, do
hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set forth
below, unless the context otherwise requires:
Business Day: A day other than Saturday and Sunday on which commercial banks are
open for business in the Commonwealth of Virginia.
Billing Records: Computer readable records containing END-USER billing data for
CUSTOMER's qualifying information products and services, which CD-MAX has the
capability of processing through its billing, reporting and collection systems.
CD-MAX(TM) Publisher System: A proprietary software system owned by CD-MAX,
Inc., provided in object code form for publisher use that includes the Automatic
Encryption Program (AEP) customized for use with the title(s) listed in Exhibit
A, and installation/setup programs. This system uses CD-MAX's proprietary
encryption technology to create an encrypted version of CUSTOMER's Title(s) as a
means of protecting the Title(s) against unauthorized or unlicensed access by
non-paying END-USERs. The System includes CD-MAX(TM) patented technology and the
computer programs comprising the system are protected under U.S. Copyright law.
<PAGE>
CD-MAX(TM) END-USER System: A software system in object code form that is used
with each CD-ROM Title that has been encrypted by use of the CD-MAX(TM)
Publisher System. The END- USER System is integrated with the CUSTOMER Title(s)
search and rendering software and includes a security module that performs
decryption for authorized paying END-USERs, meters and tracks usage of the
Title(s) by END-USERs, and includes copy protection and a reauthorization
process module. The System includes CD-MAX(TM) patented technology and the
computer programs comprising the system are protected under U.S. Copyright law.
CD-ROM (Compact Disc-Read Only Memory) Title: A CUSTOMER's information product
or offering, contained on one or more discs.
END-USER: A natural person, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, governmental
agency or instrumentality, or other entity that subscribes to or uses CUSTOMER's
information products and services.
Export License Designation: A phrase or acronym identifying the type of export
license applicable to a given system. The CD-MAX(TM) END-USER System has been
granted the Export License Designation "GTDU." This indicates the END-USER
System can be freely exported to all countries except Cuba, Cambodia, Libya,
North Korea, or Viet Nam. At the time of the execution of this agreement the
CD-MAX Publisher System has not been approved for export.
Post-Billing Adjustment or Credit: Rate adjustment or credit applied to an
END-USER's account that is granted by the CUSTOMER Service Department of either
CD-MAX, with prior approval of CUSTOMER, or CUSTOMER.
Uncollectible Amounts: Those amounts that are posted to END-USERs' accounts for
CUSTOMER's BILLING RECORDS and are billed to END-USERs, but are not collected
due to the END-USER receiving a post-billing adjustment or credit to his/her
invoice or the END- USER failing to pay its bill to CD-MAX and the account
subsequently being written off as a bad debt by the CUSTOMER.
Written-Off Accounts: Those END-USER accounts that are not paid by the END-USER
and are subsequently written off by the CUSTOMER. CUSTOMER retains the right to
turn over delinquent accounts to a collection agency.
SECTION 2. SCOPE OF AGREEMENT
CUSTOMER hereby agrees to purchase from CD-MAX the services described in
Sections 3 and 4 and CD-MAX agrees to provide such services at the time and in
the manner set forth herein, subject to the terms and conditions set forth
herein. CUSTOMER agrees that CD-MAX shall be its exclusive agent for security,
usage billing, and information management services for the CD-ROM Titles listed
in Exhibit "A" hereto for the term of this Agreement, provided, however, that
nothing herein contained shall be interpreted to prohibit CUSTOMER from billing
and collecting fees on information or information products and services in its
usual and customary manner with other third parties.
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SECTION 3. DATA SECURITY SERVICES
CD-MAX Data Security Services are based on use of the CD-MAX(TM) Publisher
System by the CUSTOMER and use of the CD-MAX(TM) END-USER System by each of
CUSTOMER's END-USERs for the Title(s) listed in Exhibit A. Accordingly, in order
to provide these services to CUSTOMER, CUSTOMER is granted a software license to
use the CD-MAX(TM) Publisher System; and a license to use, copy, and distribute
the CD-MAX(TM) END-USER System as part of its C-ROM Title(s); as follows:
As an essential part of this agreement, CD-MAX grants CUSTOMER a non-exclusive
license to use the CD-MAX(TM) Publisher System software for a period coterminous
with the term of this agreement. CD-MAX shall support and maintain the
CD-MAX(TM) Publisher System so that periodic updates of the CUSTOMER's CD-ROM
Title(s) listed in Exhibit "A" may be developed and produced without the direct
involvement of CD-MAX; provided, however, that the extent of CUSTOMER's
information updates do not materially affect the structure of the underlying
data. If the updating is extensive or if the structure of the data changes,
CD-MAX shall revise and update the CD-MAX(TM) Publisher System accordingly.
CUSTOMER is prohibited from reverse engineering, decompiling, disassembling,
modifying, or, creating derivative works from, the CD-MAX(TM) Publisher System.
However, CUSTOMER is authorized to copy the program to hard disk on one or more
standalones used within CUSTOMER's organization by its employees or contractors,
or in a server on an internal local area network, the users of which are
confined to CUSTOMER employees or contractors, and to make a back-up copy.
CD-MAX approval is required before providing a copy to a non-employee of
CUSTOMER, except that employees of CUSTOMER's development contractor, do not
need prior approval to receive copies.
CD-MAX will provide CUSTOMER with a Master Copy of the CD-MAX(TM) END-USER
System. CUSTOMER is hereby granted a nonexclusive license to make copies of this
system and to distribute copies to END-USERs. CD-MAX will provide CUSTOMER with
a copy of the CD-MAX END-USER License so that it's provisions can be
incorporated into CUSTOMER's Agreement with its END-USERs.
CUSTOMER is prohibited from reverse engineering, decompiling, disassembling,
modifying, or creating derivative works from, the CD-MAX END-USER System.
SECTION 4. USAGE BILLING AND INFORMATION MANAGEMENT SERVICES
During the term of this Agreement, CD-MAX agrees to provide the following
information management, billing and collection services to the extent and in the
manner described below:
Documentation: CD-MAX shall provide CUSTOMER a master set of camera-ready
documentation and printed materials for use with END-USERs that explain CD-MAX's
installation, setup and billing procedures.
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New Account Setup: Upon notification and authorization by CUSTOMER, through use
of CD-MAX's installation/setup programs, CD-MAX will create and maintain a
separate account and billing record for each END-USER who contracts with
CUSTOMER for its information services on a usage basis. Each account shall
include name of company or institution, the name of the individual placing the
order, billing address, account number (if applicable) and telephone number.
Each account shall be maintained in computer-readable form and shall be made
available for review as reasonably required by CUSTOMER.
Technical Support: CD-MAX shall provide installation/setup assistance, if
required, either directly to the END-USER or through CUSTOMER's technical staff
in a manner agreed upon by both parties.
Account Maintenance: On a periodic basis or as required, CD-MAX shall make any
changes or corrections deemed reasonably necessary to properly maintain END-USER
accounts.
Communications With END-USER: CD-MAX shall set up and maintain, for the term of
this Agreement, a means of communication between CD-MAX and each END-USER
capable of retrieving usage data on a monthly basis (unless otherwise agreed by
both parties) and of updating security codes. It is END-USER's responsibility to
provide and maintain his/her own equipment and hardware in a satisfactory
manner.
Information Retrieval: CD-MAX shall retrieve billing and usage information
pertaining to Title(s) from END-USERs during the specified period, either
through direct modem communications or through the exchange of computer
diskettes between CD-MAX and END-USERs.
Delivery of New Security Codes: CD-MAX shall provide updated security codes, on
a schedule to be mutually agreed upon with CUSTOMER, to END-USERs whose accounts
are in good standing. These updates shall provide END-USERs continued access to
CUSTOMER's Title(s) as security codes change.
Invoicing: Based on the usage information retrieved from the END-USER, CD-MAX
shall prepare, print and mail to END-USERs either invoices (for after-use
billing) or usage statements (for pre-pay and credit card billing). CD-MAX shall
then use all commercially reasonable efforts to collect moneys owed based on
those invoices. CD-MAX shall further receive and post such funds collected to
its accounting ledgers.
Reconciliation and Payment: Once a month, CD-MAX shall reconcile its financial
accounts with the CUSTOMER for funds collected, uncollectible amounts,
written-off accounts and post-billing adjustments or credits. CD-MAX or the
CUSTOMER shall then remit any funds owed to the other party in a timely manner.
General Assistance: CD-MAX shall provide general assistance to END-USERs, as
commercially reasonably necessary, regarding questions relating to its software
programs or billing services.
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SECTION 5. CD-MAX TRANSACTION FEES, CHARGES AND CHARGE-BACKS
In full consideration for the licenses and services provided for herein (as
defined in Sections 3 and 4), CUSTOMER shall pay to CD-MAX the amounts detailed
in Exhibit B of this Agreement. Exhibit B also specifies the formula used to
calculate the transaction/usage fee that will be paid to CD-MAX.
The charges and fees covered by the services and licenses provided herein
include the following:
CD-MAX(TM) Publisher System license: An annual fee for the use of the system and
for covering the costs of customizing, maintaining and enhancing the CD-MAX(TM)
Publishing System software.
New Account Set-Up Charge: A one-time registration fee to cover the costs of
establishing a new account and providing END-USER support during the first year.
Account Maintenance Fee: An annual charge, beginning on the first anniversary of
the account set-up, to cover the cost of providing END-USER support during the
second and subsequent years.
Billing Fee - A per-invoice/statement fee, regardless of payment method, to
cover the costs of preparing and mailing invoices, and of receiving, posting and
reconciling payments. The fee is incurred regardless of whether the invoice is
actually paid by END-USER.
Transaction/Usage Fee - A monthly fee, based on billable usage during the month
per Title (adjusted for applicable credits and debits). Credit
Card/Debit Card Fees - A pass-through fee to cover the merchant processing
charges of credit card and bank card transactions by the END-USER.
SECTION 6. CUSTOMER'S OBLIGATIONS
In connection with this Agreement, the CUSTOMER agrees to fulfill its
obligations as set forth below:
Cooperation by CUSTOMER: CUSTOMER agrees to use reasonable efforts within
reasonable cost limits to cooperate with CD-MAX to facilitate the services to be
provided by CD-MAX as described in Sections 3 and 4. All such cooperation shall
be supplied in a reasonable and timely manner.
Certification of Authority: CUSTOMER agrees to provide reasonable certification,
if necessary, of CD-MAX's authority to carry out its billing services on behalf
of CUSTOMER.
Technical Support: CUSTOMER agrees to provide technical information, support
and/or access to CUSTOMER's technical facilities, if necessary, to facilitate
CD-MAX's performance of its services under this Agreement.
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Notification: CUSTOMER agrees to evaluate and determine the final disposition of
any END-USER account that CD-MAX identifies as being in question. Such
notification shall be provided in a timely manner.
Shipper's Export Declaration Form and Destination Control Notice: When export is
made of the CD-ROM Title, CUSTOMER agrees to enter the general license symbol
"GTDU" on the Shipper's Export Declaration Form (Form 7525-V) to cover export of
the CD-MAX(TM) technology. In addition, the commercial invoice and the bill of
lading must contain the following destination control notice: "United States law
prohibits disposition of these commodities to Cuba, Cambodia, Libya, North
Korea, or Viet Nam unless otherwise authorized by the United States."
CUSTOMER End User Subscription/License Agreement: CUSTOMER agrees to update its
END- USER Subscription or License Agreement for the Title(s) listed in Exhibit A
to reflect the inclusion of CD-MAX's proprietary software program into the
package of materials supplied to END-USERs. Such update shall incorporate the
provisions of the CD-MAX(TM) END-USER System license agreement, but it will not
be necessary to repeat provisions that offer the same degree of control and
protection as in the CD-MAX license, as long as it is made clear the provisions
apply to the CD-MAX(TM) software. Said END-USER Agreement shall also contain
notice that the CD-MAX(TM) software contains patented technology, patented by
CD-MAX, Inc.
SECTION 7. PROTECTION OF CONFIDENTIAL INFORMATION
The parties hereto expressly recognize that, as a result of the provision of
services pursuant to this Agreement, information which may be proprietary to
each party may be disclosed to the other. "Confidential Information" shall be
information designated as confidential or otherwise disclosed in a manner
consistent with its confidential nature. Each party hereby agrees that it will
make no disclosure of Confidential Information provided under this Agreement
without the prior written consent of the other party. Additionally, each party
shall restrict disclosure of said information to its own employees, agents or
independent contractors to whom disclosure is necessary and who have agreed to
be bound by the obligations of confidentiality hereunder. Such employees, agents
or independent contractors shall use reasonable care, but not less care than
they use with respect to their own information of like character, to prevent
disclosure of any Confidential Information. Nothing contained in this Agreement
shall be considered as granting or conferring rights by license or otherwise in
any Confidential Information disclosed.
CUSTOMER agrees that it shall require all employees with access to CD-MAX source
code to sign nondisclosure agreements that make it clear that CD-MAX
Confidential information is subject to the same obligations as CUSTOMER
proprietary information; and that any independent contractors or other third
parties who work for customer on any programming efforts related to the Title(s)
in Exhibit A shall also sign such nondisclosure agreements before working on the
Title(s).
In addition to the clause stated above, CD-MAX acknowledges that CUSTOMER is the
owner of END-USER account information and related sales information. CD-MAX
shall use commercially reasonable efforts to protect and hold such information
in the strictest confidence. CD-MAX shall not use END-USER information for any
other purpose than that stated within this Agreement.
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SECTION 8. TAXES
The reporting and payment of Federal, state and local taxes to the applicable
jurisdiction is the sole responsibility of the CUSTOMER. In the course of
providing its service, CD-MAX will bill appropriate state taxes (if required by
the jurisdiction) and collect same from END-USERs along with standard usage
fees. All collected taxes will be identified as such and be forwarded to
CUSTOMER in the normal manner of financial transfers prescribed herein.
SECTION 9. FORCE MAJEURE
Neither party shall be held liable for any delay or failure in performance of
any part of this Agreement or Exhibits attached hereto from any cause beyond its
control and without its fault or negligence, such as acts of God, acts of civil
or military authority, government regulations, embargoes, epidemics, war,
terrorist acts, riots, insurrections, fires, explosions, earthquakes, nuclear
accidents, floods, strikes, power blackouts, major environmental disturbances,
unusually severe weather conditions, inability to secure products or services of
other persons or transportation facilities, or acts or omissions of common
transportation carriers.
SECTION 10. WARRANTIES
CD-MAX warrants that it has clear title to the CD-MAX Publisher System and the
CD-MAX End-User System, and that the software systems will substantially perform
the functions set forth in the CD-MAX documentation.
CD-MAX agrees to exercise reasonable care and workmanlike effort to provide
prompt and efficient service; however, CD-MAX makes no warranties or
representations regarding services except as specifically stated in this
Section. CD-MAX shall use due care in processing all accounts submitted to it by
CUSTOMER and agrees that it will, at its expense, correct any errors which are
due solely to problems with CD-MAX's operating systems or programs or errors by
CD-MAX's employees or agents. Correction shall be limited to correction of any
system or software problems and reprocessing of any affected END-USER BILLING
RECORDS. CD-MAX shall not be responsible in any manner for failures of, or
errors in proprietary systems and programs other then those of CD-MAX, nor shall
CD-MAX be liable for errors or failures of CUSTOMER's software or operational
systems.
THESE WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES, AND
CUSTOMER HEREBY WAIVES ALL OTHER WARRANTIES, EXPRESSED, IMPLIED, OR STATUTORY,
INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR
USE FOR A PARTICULAR PURPOSE.
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SECTION 11. LIMITATION OF LIABILITY
Should there be any problems with operation of CD-MAX's systems, or errors or
omissions with respect to the information being processed for billing and
collection, CD-MAX's liability shall be limited to making such corrections as
may be reasonable under the circumstances to remedy such system problems or
errors or omissions. In no event, except as specifically set forth herein, shall
CD-MAX be liable to CUSTOMER or any third parties (including CUSTOMER's
END-USERs) for any claim, loss or damage, ordinary, special, indirect or
consequential, including without limitation, lost profits or revenues, arising
from performance, or the lack or delay of performance, under this Agreement,
whether or not the party has been advised of the possibility of such damage. The
terms of this provision shall survive termination of this Agreement.
CUSTOMER agrees that any liability on the part of CD-MAX arising from breach of
warranty, breach of contract, negligence, strict liability in tort, or any other
legal theory, shall not exceed the amounts paid by CUSTOMER to CD-MAX for the
Title(s) listed in Exhibit A during the preceding six months minus the costs
CD-MAX incurred directly related to this Title(s).
Nothing herein is intended to limit CD-MAX's indemnification liability pursuant
to Section 13 hereof.
SECTION 12. TRADEMARK
"CD-MAX" is a trademark of CD-MAX, Inc. No right, or interest in such trademark
is granted hereunder, and CUSTOMER agrees that no such right or interest shall
be asserted with respect to the trademark.
SECTION 13. HOLD HARMLESS
CD-MAX agrees to defend, indemnify and hold CUSTOMER harmless from and against
any action brought against CUSTOMER to the extent it is based on a claim that
the CD-MAX(TM) Publisher System or CD-MAX(TM) END-USER System infringes any
patent, copyright, trademark, or trade secret, or other proprietary right of any
third party, provided that CD-MAX is immediately notified in writing of such a
claim. CD-MAX shall have the right to control the defense of all such claims,
lawsuits, and other proceedings.
CD-MAX further agrees to defend, indemnify and hold CUSTOMER harmless from and
against any action brought against CUSTOMER to the extent it is based on a claim
that damages were suffered as a result of use of the CD-MAX(TM) Publisher System
or the CD-MAX(TM) END-USER System, or because of the performance of the services
provided under this agreement, provided that CD-MAX is immediately notified in
writing of such a claim. CD-MAX shall have the right to control the defense of
all such claims, lawsuits, and other proceedings.
CUSTOMER agrees to defend, indemnify and hold CD-MAX harmless from and against
any action in which CD-MAX is named as a party, to the extent said action is
based on an act or failure to act of CUSTOMER and growing out of use of the
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CUSTOMER's CD-ROM Title(s) listed in Exhibit A hereto, provided that CUSTOMER is
immediately notified in writing of such a claim. CUSTOMER shall have the right
to control the defense of all such claims, lawsuits, and other proceedings.
SECTION 14. TERM OF AGREEMENT
This Agreement shall be effective as of the date first indicated above and shall
continue for a period of one (1) year. This Agreement will automatically renew
for a successive period of one (1) year unless either party shall give written
notice of its intent to terminate or renegotiate this Agreement at least sixty
(60) calendar days prior to the expiration of the then-current term. CD- MAX
shall provide CUSTOMER with its then-prevailing prices for its services at least
ninety (90) calendar days prior to the expiration of the then current term.
Notwithstanding anything contrary contained herein, CUSTOMER may terminate this
Agreement at any time between the third month and fourth month anniversary date
of this Agreement by providing at least ten (10) days prior written notice to
CD-MAX.
SECTION 15. EXPIRATION OR TERMINATION
This Agreement may be terminated by either party by written notice to the other
upon the occurrence of any of the following events:
a) Default on any payment specified hereunder and such default continues for
twenty (20) BUSINESS DAYs after written notice.
b) The material breach of any of the terms or conditions of this Agreement,
which breach is not remedied by the breaching party within a period of
twenty (20) BUSINESS DAYs after the receipt of written notice of such
material breach from the non-breaching party; provided, that if the breach
cannot reasonably be cured within twenty (20) business days, but the
breaching party has commenced to cure the breach within the twenty (20) day
period and diligently and in good faith continues to cure the breach, the
twenty (day) time limitation shall not apply.
c) The institution by or against either party of insolvency, receivership or
bankruptcy proceedings or any other proceedings for the settlement of
debts, provided that in any such case the proceeding is not vacated or
otherwise dismissed within sixty (60) calendar days of initiation, or upon
either party's dissolution.
Upon the expiration or termination of this Agreement for any reason, both
parties agree to satisfy any and all of its outstanding current and known
obligations. CUSTOMER agrees to pay CD-MAX all compensation associated with its
licenses, charges and fees on all invoices issued prior to expiration or
termination and not subject to a bona fide dispute.
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SECTION 16. AMENDMENTS; WAIVERS
This Agreement, or any Exhibits attached hereto and made a part hereof, may be
modified or additional provisions may be added only by written agreement signed
by or on behalf of both parties. No amendment or waiver of any provision of this
Agreement, and no consent to any default under this Agreement, shall be
effective unless the same shall be in writing and signed by or on behalf of the
party against whom such amendment, waiver or consent is claimed. In addition, no
course of dealing or failure of any party to strictly enforce any term, right or
condition of this Agreement shall be construed as a waiver of such term, right
or condition.
SECTION 17. ASSIGNMENT
Neither party shall sell, transfer, or assign any right or obligation hereunder,
except as expressly provided herein, without the prior written consent of the
other party except to a parent corporation or a wholly owned subsidiary, or to a
successor in ownership of substantially all of the assets, stock, or line of
business of the assigning party. All obligations and duties of any party under
this Agreement shall be binding on all successors in interest and assigns of
such party and shall survive any acquisition, merger, reorganization or other
business combination to which it is a party.
SECTION 18 INDEPENDENT CONTRACTORS
With the exception noted below, the parties acknowledge and agree that they are
dealing with each other hereunder as independent contractors. Neither party nor
any of its partners, agents, employees or representatives are, nor shall they be
deemed to be, affiliates, employees or legal representatives of the other.
Nothing contained in this Agreement shall be interpreted as constituting either
party as the joint venturer or partner of the other party or as conferring upon
either party the power or authority to bind the other party in any transaction
with third parties.
The parties may determine, however, that it is necessary to appoint CD-MAX as an
authorized agent of the CUSTOMER in the matter of merchant credit card or bank
card account transactions. If such authorization is deemed necessary, the
parties agree to outline the responsibilities and obligations of each party
under a separate written document which shall then be incorporated as an
attachment to this Agreement.
SECTION 19. THIRD PARTY BENEFICIARIES
This Agreement shall not provide any person not a party to this Agreement with
any remedy, claim, liability, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement.
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SECTION 20. NOTICES AND DEMANDS
Except as otherwise provided under this Agreement, all notices, demands or
requests which may be given by any party to the other party shall be in writing
and shall be deemed fully received immediately if sent by telecopy, with receipt
confirmed, or after five (5) BUSINESS DAYs if sent by certified mail, return
receipt requested, to the respective parties at the addresses set forth below:
If to CD-MAX: If to CUSTOMER:
Attn: Attn:
Robert A. Wiedemer
President
CD-MAX, Inc.
Suite 203
219 South Street
Murray Hill, NJ 07974-2100
If personal delivery is selected as the method of giving notice under this
Section, a receipt for such delivery shall be obtained. The address to which
such notices, demands, requests, elections or other communications may be given
by either party may be changed by written notice given by such party to the
other party pursuant to this Section.
SECTION 21. GOVERNING LAW
This Agreement shall be deemed to be a contract made under the laws of the
Commonwealth of Virginia, and the construction, interpretation and performance
of this Agreement and all transactions hereunder shall be governed by the
domestic laws of such jurisdiction. Both parties agree that jurisdiction and
venue for all legal proceedings relating to the subject matter of this Agreement
shall be maintained in Federal or state courts located in the Commonwealth of
Virginia.
SECTION 22. ENTIRE AGREEMENT
This Agreement, including the Exhibits attached hereto, and any written
amendments hereto, constitutes the entire and exclusive Agreement between the
parties and supersedes all prior or contemporaneous agreements, and oral or
written representations with regard to the subject matter contained herein.
SECTION 23. EXECUTION IN COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be an original; but such counterparts shall together constitute but one
and the same document.
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SECTION 24. SEVERABILITY
A determination that any provision of this Agreement is invalid, illegal or
unenforceable shall not affect the enforceability of any other provision.
SECTION 25. HEADINGS
The headings in this Agreement are for convenience only and shall not be
construed to define or limit any of the terms herein or affect the meaning or
interpretation of this Agreement:
SECTION 26. PUBLICITY
CD-MAX shall have the right to use the name of CUSTOMER in publicity releases,
advertising, or similar activities during the term of this Agreement, with the
prior consent of CUSTOMER, which shall not be unreasonably withheld. CD-MAX
shall make any changes reasonably requested by CUSTOMER.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the day and year first above written.
CD-MAX, Inc. CUSTOMER
By:___________________________ By:
Robert A. Wiedemer
President (Printed Name)
Date:_________________________ Title:
Date:
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Exhibit A
Mitchell International -- CD-MAX Agreement
CD-ROM TITLES (Information redacted as per
confidential information request)
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Exhibit B
(Information redacted as per confidential information request.)
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Exhibit 10.8
CD-MAX(TM)DATA SECURITY, USAGE BILLING AND INFORMATION
MANAGEMENT SERVICES AGREEMENT
This CD-MAX(TM)Data Security, Usage Billing and Information Management Services
Agreement is entered into this the _____ day of __________, 1995. by and between
CD-MAX, Inc., a Delaware corporation with its principal offices at 219 South
Street, Suite 203, Murray Hill, New Jersey 07974-2100 ("CD-MAX") and DISCLOSURE
Incorporated, a Delaware corporation with its principal offices at 5161 River
Road, Bethesda, Maryland 20816 ("DI").
WITNESSETH:
-----------
WHEREAS, DI is engaged in the business of providing copyrighted information and
information services on CD-ROM for which DI desires to adopt security measures
and bill End-Users on a usage basis; and
WHEREAS, CD-MAX has the ability to provide data security, usage billing and
information management services for DI, and DI desires to obtain such services
from CD-MAX under the terms and conditions contained herein:
NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants and
agreements contained herein and other good and valuable considerations, do
hereby agree as follows:
SECTION 1. DEFINITIONS
-----------------------
As used in this Agreement, the following terms shall have the meanings set forth
below:
Business Day: A day other than Saturday and Sunday on which commercial banks are
open for business in the Commonwealth of Virginia.
Billing Records: Computer readable records containing END-USER billing data for
DI's qualifying information products and services, which CD-MAX has the
capability of processing through its billing, reporting and collection systems.
CD-MAX(TM)Publisher System: A proprietary software system owned by CD-MAX, Inc.,
provided in object code form for publisher use that includes the Automatic
Encryption Program (AEP) customized for use with the title(s) listed in Exhibit
A, and installation/setup programs. This system uses CD-MAX's proprietary
encryption technology to create an encrypted version of DI's Title(s) as a means
of protecting the Title(s) against unauthorized or unlicensed access by
non-paying END-USERs. The System includes CD-MAX(TM)patented technology and the
computer programs comprising the system are protected under U.S. Copyright law.
CD-MAX(TM)END-USER System: A software system in object code form that is used
with each CD-ROM Title that has been encrypted by use of the CD-MAX(TM)Publisher
System. The END-USER System is integrated with the DI Title(s) search and
rendering software and includes a
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security module that performs decryption for authorized paying END-USERs, meters
and tracks usage of the Title(s) by END-USERs, and includes copy protection and
a reauthorization process module. The System includes CD-MAX(TM) patented
technology and the computer programs comprising the system are protected under
U.S. Copyright law.
CD-ROM (Compact Disc-Read Only Memory) Title: One of DI's information products
or offerings, listed in Exhibit A, which is incorporated by reference. A CD-ROM
Title may be contained on one or more discs.
END-USER: A natural person, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, governmental
agency or instrumentality, or other entity that subscribes to or uses DI's
information products and services.
Export License Designation: A phrase or acronym identifying the type of export
license applicable to a given system. The CD-MAX(TM) END-USER System has been
granted the Export License Designation "GTDU." This indicates the END-USER
System can be freely exported to all countries except Cuba, Cambodia, Libya,
North Korea, or Viet Nam. At the time of the execution of this agreement the
CD-MAX Publisher System has not been approved for export.
Post-Billing Adjustment or Credit: Rate adjustment or
credit applied to an END-USER's account that is granted by the DI Service
Department of either CD-MAX or DI.
Services: CD-MAX's services described in Sections 3 and 4.
Titles: Synonymous with CD-ROM Title defined above.
Uncollectible Amounts: Those amounts that are posted to END-USERs' accounts for
DI's BILLING RECORDS and are billed to END-USERs, but are not collected due to
the END- USER receiving a post-billing adjustment or credit to his/her invoice
or the END-USER failing to pay its bill to CD-MAX and the account subsequently
being written off as a bad debt by the DI.
Written-Off Accounts: Those END-USER accounts that are not paid by the END-USER
and are subsequently written off by DI.
SECTION 2. SCOPE OF AGREEMENT
DI hereby agrees to purchase from CD-MAX the services described in Sections 3
and 4 and CD- MAX agrees to provide such services at the time and in the manner
set forth herein, subject to the terms and conditions set forth herein. DI
agrees that CD-MAX shall be its nonexclusive agent for security, usage billing,
and information management services for the Metered Version of any of the CD-ROM
Titles listed in Exhibit "A" hereto for the term of this Agreement, provided,
however, that nothing herein contained shall be interpreted to prohibit DI from
billing and collecting fees on information or information products and services
in its usual and
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customary manner with other third parties.
SECTION 3. DATA SECURITY SERVICES
CD-MAX Data Security Services are based on use of the CD-MAX(TM) Publisher
System by the DI and use of the CD-MAX(TM) END-USER System by each of DI's
END-USERs for the Title(s) listed in Exhibit A. Accordingly, in order to provide
these services to DI, CD-MAX grants to DI a software license to use the
CD-MAX(TM) Publisher System; and a license to use, copy, and distribute the
CD-MAX(TM) END-USER System as part of its C-ROM Title(s); as follows:
As an essential part of this agreement, CD-MAX grants DI a non-exclusive license
to use the CD-MAX(TM) Publisher System software for a period coterminous with
the term of this agreement. CD-MAX shall support and maintain the CD-MAX(TM)
Publisher System so that periodic updates of the DI's CD-ROM Title(s) listed in
Exhibit "A" may be developed and produced without the direct involvement of
CD-MAX; provided, however, that the extent of DI's information updates do not
materially affect the structure of the underlying data. If the updating is
extensive or if the structure of the data changes, CD-MAX shall revise and
update the CD-MAX(TM) Publisher System accordingly.
DI is prohibited from reverse engineering, decompiling, disassembling,
modifying, or creating derivative works from, the CD-MAX(TM) Publisher System.
However, DI is authorized to copy the program to hard disk on one or more
standalones used within DI's organization by its employees, or in a server on an
internal local area network, the users of which are confined to DI employees or
consultants, and to make a back-up copy.
CD-MAX will provide DI with a Master Copy of the CD-MAX(TM) END-USER System. CD-
MAX grants to DI a nonexclusive license to make copies of the CD-MAX(TM)
END-USER System and to distribute copies to END-USERs. CD-MAX will provide DI
with a copy of the CD-MAX END-USER License in a single-page form that can be
used as an addendum to the DI Order Form and License, and can be signed by
END-USERS concomitant with signing of the DI license and forwarded to DI as part
of the Order Form package for the Titles in Exhibit A, for signing by the
parties. DI agrees to annex the CD-MAX addendum (which shall contain language
acceptable to the parties) to its Order/License Form.
DI is prohibited from reverse engineering, decompiling, disassembling,
modifying, or creating derivative works from, the CD-MAX END-USER System.
SECTION 4. USAGE BILLING AND INFORMATION MANAGEMENT SERVICES
During the term of this Agreement, CD-MAX agrees to provide the following
information management, billing and collection services to the extent and in the
manner described below:
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Documentation: CD-MAX shall provide DI a master set of camera-ready
documentation and printed materials for use with END-USERs that explain CD-MAX's
installation, setup and billing procedures.
New Account Setup: Upon notification and authorization by DI, through use of
CD-MAX's installation/setup programs, CD-MAX will create and maintain a separate
account and billing record for each END-USER who contracts with DI for its
information services on a usage basis. Each account shall include name of
company or institution, the name of the individual placing the order, billing
address, account number (if applicable), fax number, and telephone number. Each
account shall be maintained in computer-readable form and shall be made
available for review as reasonably required by DI.
Professionalism: CD-MAX shall at all times conduct itself in a professional
manner and perform Services on behalf of DI to END-USERS in a manner which will
reflect favorably on DI. Any action or conduct by CD-MAX which causes harm to DI
shall be material cause for termination of this Agreement by DI. CD-MAX shall
use its best commercial efforts to resolve each END-USER problem or issue
within one business day. However, if the complexity of the problem precludes
resolution within that time, CD-MAX will actively pursue resolution in as short
a period as feasible.
Technical Support: CD-MAX shall provide installation/setup assistance, if
required, either directly to the END-USER or through DI's technical staff in a
manner agreed upon by both parties.
Account Maintenance: On a periodic basis or as required, CD-MAX shall make any
changes or corrections deemed reasonably necessary to properly maintain END-USER
accounts.
Communications With END-USER: CD-MAX shall set up and maintain, for the term of
this Agreement, a means of communication between CD-MAX and each END-USER
capable of retrieving usage data on a monthly basis (unless otherwise agreed by
both parties) and of updating security codes. It is END-USER's responsibility to
provide and maintain his/her own equipment and hardware in a satisfactory
manner.
Information Retrieval: CD-MAX shall retrieve
billing and usage information pertaining to Title(s) from END-USERs during the
specified period, either through direct modem communications or through the
exchange of computer diskettes between CD-MAX and END-USERs.
Delivery of New Security Codes: CD-MAX shall provide updated security codes, on
a schedule to be mutually agreed upon with DI, to END-USERs whose accounts are
in good standing. These updates shall provide END-USERs continued access to DI's
Title(s) as security codes change.
Invoicing: Based on the usage information retrieved from the END-USER, CD-MAX
shall prepare, print and mail to END-USERs either invoices (for after-use
billing) or usage statements
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(for pre-pay and credit card billing). CD-MAX shall then use all commercially
reasonable efforts to collect moneys owed based on those invoices. In 30 days,
CD-MAX will send an overdue notice to clients. At 45 days, CD-MAX will turn
collections over to DI's Accounting department.
Reconciliation and Payment: Once a month, CD-MAX shall reconcile its financial
accounts with DI for funds collected, uncollectible amounts, written-off
accounts and post-billing adjustments or credits. CD-MAX will bill DI monthly
for royalty and fees owed to CD-MAX. CD-MAX can only post Exhibit B fees to the
CD-MAX ledger. Payment shall be within twenty days of the receipt of invoice.
Bank Account/Lock Box: CD-MAX will deposit DI's cash into DI's own account (DI
name only). CD-MAX may utilize a lock box to sort DI's cash from other client's
cash. DI will have access to cash in DI's account daily.
General Billing: Disclosure reserves the right to assume billing of Disclosure
clients from CD-MAX with 60 days notice.
Reporting: CD-MAX will provide Disclosure with invoice amount information by
client within 24 hours of invoicing via the Internet or some other electronic
file transfer.
General Assistance: CD-MAX shall provide general assistance to END-USERs, as
commercially reasonably necessary, regarding questions relating to its software
programs or billing services.
Nonsolicitation: As a material inducement for DI to enter into this Agreement,
CD-MAX agrees not to solicit, directly, indirectly or on behalf of any third
person, any Customers and/or END-USERs of DI to buy, license, lease, or
otherwise acquire any product or service of CD-MAX. Nothing herein shall be
construed to prevent CD-MAX from providing services to other publishers who,
independently and with no information on customers from CD-MAX, solicit entities
and enter into agreements with entities that also happen to be DI Customers.
SECTION 5. CD-MAX TRANSACTION FEES, CHARGES AND CHARGE-BACKS
In full consideration for the licenses and services provided for herein (as
defined in Sections 3 and 4), DI shall pay to CD-MAX the amounts detailed in
Exhibit B of this Agreement. Schedule B also specifies the formula used to
calculate the transaction/usage fee that will be paid to CD-MAX.
The charges and fees covered by the services and licenses provided herein
include the following:
CD-MAX(TM) Publisher System license: An annual fee for the use of the system and
for covering the costs of customizing, maintaining and enhancing the CD-MAX(TM)
Publishing System software.
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New Account Set-Up Charge: A one-time registration fee to cover the costs of
establishing a new account and providing END-USER support during the first year.
Account Maintenance Fee: An annual charge, beginning on the first anniversary of
the account set-up, to cover the cost of providing END-USER support during the
second and subsequent years.
Billing Fee - A per-invoice/statement fee, regardless of payment method, to
cover the costs of preparing and mailing invoices, and of receiving, posting and
reconciling payments. The fee is incurred regardless of whether the invoice is
actually paid by END-USER.
Transaction/Usage Fee - A monthly fee, based on billable usage during the month
per Title (adjusted for applicable credits and debits).
Credit Card/Debit Card Fees - A pass-through fee to cover the merchant
processing charges of credit card and bank card transactions by the END-USER.
SECTION 6. DI'S OBLIGATIONS
In connection with this Agreement, the DI agrees to fulfill its obligations as
set forth below:
Certification of Authority: DI agrees to provide certification, if necessary, of
CD-MAX's authority to carry out its billing services on behalf of DI.
Technical Support: DI agrees to provide technical information, support and/or
access to DI's technical facilities, if necessary, to facilitate CD-MAX's
performance of its services under this Agreement.
Notification: DI agrees to evaluate and determine the final disposition of any
END-USER account that CD-MAX identifies as being in question. Such notification
shall be provided in a timely manner.
Shipper's Export Declaration Form and Destination Control Notice: When export is
made of the CD-ROM Title, DI agrees to enter the general license symbol "GTDU"
on the Shipper's Export Declaration Form (Form 7525-V) to cover export of the
CD-MAX(TM) technology. In addition, the commercial invoice and the bill of
lading must contain the following destination control notice: "United States law
prohibits disposition of these commodities to Cuba, Cambodia, Libya, North
Korea, or Viet Nam unless otherwise authorized by the United States."
DI End User Subscription/License Agreement: DI agrees to annex the CD-MAX(TM)
END-USER License as an addendum to DI's END-USER Subscription/License/Order
Form.
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SECTION 7. PROTECTION OF CONFIDENTIAL INFORMATION
The parties hereto expressly recognize that, as a result of the provision of
services pursuant to this Agreement, information which may be proprietary to
each party may be disclosed to the other. Each party agrees to preserve the
confidentiality of all Confidential Information of the other party that is
disclosed pursuant to or obtained in connection with this Agreement, and shall
not, without the prior written consent of the other party, disclose or make
available to any other person, or use for its own benefit other than as
contemplated by this Agreement, any such Confidential Information of the other
party. The term "Confidential Information" shall include, without limitation,
the terms of this Agreement, all information pertaining to the business,
strategies, customers, financial information, employees, databases, trade
secrets, product development of either party which is disclosed to the other
party. Notwithstanding the foregoing, the term "Confidential Information" shall
not include any information which: (a) is or becomes publicly available (other
than through unauthorized disclosure by the receiving party); (b) is in the
possession of or is known to the receiving party prior to its disclosure
hereunder; (c) is independently developed by the receiving party; or (d) is made
available to the receiving party by any person other than the disclosing party
without breach of any obligation of confidentiality of such other person.
Additionally, each party shall restrict disclosure of said information to its
own employees, agents or independent contractors to whom disclosure is necessary
and who have agreed to be bound by the obligations of confidentiality hereunder.
Such employees, agents or independent contractors shall use reasonable care, but
not less care than they use with respect to their own information of like
character, to prevent any unauthorized disclosure or use of any Confidential
Information. Nothing contained in this Agreement shall be considered as granting
or conferring rights by license or otherwise in any Confidential Information
disclosed.
As part of providing billing services, CD-MAX will collect End-User usage
information required to determine the charges for use according to DI's pricing
method. CD-MAX shall treat such information as Confidential Information and
shall not use END-USER usage information for any purpose other than that stated
within this Agreement.
SECTION 8. TAXES
The reporting and payment of Federal, state and local taxes to the applicable
jurisdiction on fees collected by CD-MAX from END-USERS and paid to DI, is the
sole responsibility of DI. In the course of providing its service, CD-MAX will
bill appropriate state taxes (if required by the jurisdiction, and directed by
DI) and collect same from END-USERs along with standard usage fees. All
collected taxes will be identified as such and be forwarded to DI in the normal
manner of financial transfers prescribed herein. CD-MAX shall be responsible for
payment of all taxes on CD-MAX's revenue under this Agreement.
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SECTION 9. FORCE MAJEURE
Neither party shall be held liable for any delay or failure in performance of
any part of this Agreement or Exhibits attached hereto from any cause beyond its
control and without its fault or negligence, such as acts of God, acts of civil
or military authority, government regulations, embargoes, epidemics, war,
terrorist acts, riots, insurrections, fires, explosions, earthquakes, nuclear
accidents, floods, strikes, power blackouts, major environmental disturbances,
unusually severe weather conditions, inability to secure products or services of
other persons or transportation facilities, or acts or omissions of common
transportation carriers.
SECTION 10. WARRANTIES
CD-MAX warrants that it originally developed and has clear title to the
CD-MAX(TM) Publisher System and the CD-MAX(TM) END-USER System, and that the
CD-MAX(TM)Publisher System and CD-MAX(TM) END-USER System will each
substantially perform the functions set forth in the CD-MAX documentation.
CD-MAX further warrants to DI that: (1) each of the CD-MAX(TM) Publisher System
and CD-MAX END-USER System do not infringe any intellectual property right
(including patent, trademark, copyright, and trade secret) of any third person;
and (2) CD-MAX is not aware of any claim that the CD-MAX Publisher System
and\or CD-MAX END-USER System infringes any intellectual property right
(including patent, trademark, copyright, and trade secret) of any third person.
CD-MAX warrants to DI that: (1) all Services shall be performed by trained,
qualified and professional employees of CD-MAX; (2) CD-MAX shall perform all
Services on a timely basis and at the highest professional level of service
possible; and (3) CD-MAX shall at all times conduct itself and perform all
Services in a professional manner to reflect favorably on DI and its goodwill
and business.
CD-MAX agrees to exercise reasonable care and workmanlike effort to provide
prompt and efficient service; however, CD-MAX makes no warranties or
representations regarding services except as specifically stated in this
Section. CD-MAX shall use due care in processing all accounts submitted to it by
DI and agrees that it will, at its expense, correct any errors which are due
solely or in part to problems with CD-MAX's operating systems or programs or
errors by CD-MAX's employees or agents. Correction shall be limited to
correction of any system or software problems and reprocessing of any affected
END-USER BILLING RECORDS. CD-MAX shall not be responsible in any manner for
failures of, or errors in proprietary systems and programs other then those of
CD-MAX, nor shall CD-MAX be liable for errors or failures of DI's software or
operational systems.
THESE WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES, AND DI
HEREBY WAIVES ALL OTHER WARRANTIES, EXPRESSED, IMPLIED, OR STATUTORY, INCLUDING,
BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE FOR A
PARTICULAR PURPOSE.
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SECTION 11. LIMITATION OF LIABILITY
Should there be any problems with operation of CD-MAX's systems, or errors or
omissions with respect to the information being processed for billing and
collection, CD-MAX's liability shall be limited to making such corrections as
may be reasonable under the circumstances to remedy such system problems or
errors or omissions. In no event, except as specifically set forth herein, shall
CD-MAX be liable to DI or any third parties (including DI's END-USERs) for any
claim, loss or damage, ordinary, special, indirect or consequential, including
without limitation, lost profits or revenues, arising from performance, or the
lack or delay of performance, under this Agreement, whether or not the party has
been advised of the possibility of such damage. The terms of this provision
shall survive termination of this Agreement.
Due to the nature of the services being performed by CD-MAX, it is agreed that
in no event will CD-MAX be liable for any claim, loss, liability, correction,
cost, damage or expense caused by problems with CD-MAX's systems or performance
of services hereunder which is not reported by DI within fifteen (15) BUSINESS
DAYs from receipt of adequate information to identify such problems. [Note: The
CD-MAX END-USER License will contain an equivalent provision requiring
notification of problems by the END-USER within fifteen (15) business days.]
DI agrees that any liability on the part of CD-MAX arising from breach of
warranty, breach of contract, negligence, strict liability in tort, or any other
legal theory, shall not exceed the amounts paid by DI to CD-MAX for the Title(s)
listed in Exhibit A during the preceding twelve months of this Agreement.
SECTION 12. TRADEMARK
"CD-MAX" is a trademark of CD-MAX, Inc. No right, title or interest in such
trademark is granted hereunder, and DI agrees that no such right, title or
interest shall be asserted with respect to the trademark.
"DISCLOSURE" is a registered trade and service mark of DI. "COMPACT D" and
"EDGARPLUS" are trademarks of DI. "WORLDSCOPE" is a trademark of
Worldscope/Disclosure Partners. No right, title or interest in any DI trademark
is granted hereunder and CD-MAX agrees that no such right, title or interest
shall be asserted with respect to any DI trademark.
SECTION 13. HOLD HARMLESS
CD-MAX agrees to defend, indemnify and hold DI harmless from and against any
claim or action brought against DI to the extent it is based on a claim that the
CD-MAX(TM) Publisher System or CD-MAX(TM) END-USER System infringes any patent,
copyright, trademark, or trade
9
<PAGE>
secret, provided that CD-MAX is immediately notified in writing of such a claim.
CD-MAX shall have the right to control the defense of all such claims, lawsuits,
and other proceedings.
CD-MAX further agrees to defend, indemnify and hold DI harmless from and against
any claim or action brought against DI to the extent it is based on a claim that
damages were suffered as a result of use of the CD-MAX(TM) Publisher System or
the CD-MAX(TM) END-USER System, or because of the performance of the services
provided under this agreement, provided that CD-MAX is immediately notified in
writing of such a claim. CD-MAX shall have the right to control the defense of
all such claims, lawsuits, and other proceedings.
DI agrees to defend, indemnify and hold CD-MAX harmless from and against any
claim or action brought against CD-MAX, to the extent said action is based on an
act or failure to act of DI and growing out of use of the DI's CD-ROM Title(s)
listed in Exhibit A hereto, provided that DI is immediately notified in writing
of such a claim. DI shall have the right to control the defense of all such
claims, lawsuits, and other proceedings.
DI further agrees to defend, indemnify and hold CD-MAX harmless from and against
any claim or action brought against CD-MAX based on a claim that the contents of
any of the Exhibit A CD-ROM TITLES infringe a third person's copyright, patent,
trademark, or trade secret.
SECTION 14. TERM OF AGREEMENT
This Agreement shall be effective as of the date first indicated above and shall
continue for a period of one (1) year. This Agreement will automatically renew
for a successive period of one (1) year unless either party shall give written
notice of its intent to terminate or renegotiate this Agreement at least sixty
(60) calendar days prior to the expiration of the then-current term. CD-MAX
shall provide DI with its then-prevailing prices for its services at least
ninety (90) calendar days prior to the expiration of the then-current term.
SECTION 15. EXPIRATION OR TERMINATION
This Agreement may be terminated by either party by written notice to the other
upon the occurrence of any of the following events:
a) The material breach of any of the terms or conditions of this Agreement,
which breach is not remedied by the breaching party within a period of
twenty (20) BUSINESS DAYs after the receipt of written notice of such
material breach from the non-breaching party; provided, that if the breach
cannot reasonably be cured within twenty (20) BUSINESS DAYS, but the
breaching party has commenced to cure the breach within the twenty (20) day
period and diligently and in good faith continues to cure the breach, then
the parties will meet and discuss in good faith a reasonable cut-off date
by which the breach shall be cured; or
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<PAGE>
b) The institution by or against either party of insolvency, receivership or
bankruptcy proceedings or any other proceedings for the settlement of
debts, provided that in any such case the proceeding is not vacated or
otherwise dismissed within sixty (60) calendar days of initiation, or upon
either party's dissolution.
Upon the expiration or termination of this Agreement for any reason, both
parties agree to satisfy any and all of its outstanding current and known
obligations. DI agrees to pay CD-MAX all compensation associated with its
licenses, charges and fees on all invoices issued prior to expiration or
termination.
The terms and provisions of Sections 1, 7, 8, 10, 11, 12, 13, and 21, shall
survive any termination or expiration of this Agreement.
Within twenty (20) days of any termination or expiration of this Agreement or
earlier upon request by DI, CD-MAX shall deliver to DI all materials, documents
or information concerning CD-MAX'S Services and END-USERS to DI and certify such
delivery to DI.
Notwithstanding any termination or expiration of this Agreement, and unless
advised by DI, any outstanding leases or licenses of DI's TITLES including the
CD-MAX(TM) END-USER System shall continue for a period of at most one (1) year,
and CD-MAX will continue to provide services for the unexpired term of all
extant END-USER Licenses, or any additional negotiated term.
SECTION 16. AMENDMENTS; WAIVERS
This Agreement, or any Exhibits attached hereto and made a part hereof, may be
modified or additional provisions may be added only by written agreement signed
by or on behalf of both parties. No amendment or waiver of any provision of this
Agreement, and no consent to any default under this Agreement, shall be
effective unless the same shall be in writing and signed by or on behalf of the
party against whom such amendment, waiver or consent is claimed. In addition, no
course of dealing or failure of any party to strictly enforce any term, right or
condition of this Agreement shall be construed as a waiver of such term, right
or condition.
SECTION 17. ASSIGNMENT
Neither party shall sell, transfer, or assign any right or obligation hereunder,
except as expressly provided herein, without the prior written consent of the
other party except to a parent corporation or a wholly owned subsidiary, or to a
successor in ownership of substantially all of the assets, stock, or line of
business of the assigning party. All obligations and duties of any party under
this Agreement shall be binding on all successors in interest and assigns of
such party and shall survive any acquisition, merger, reorganization or other
business combination to which it is a party.
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SECTION 18 INDEPENDENT CONTRACTORS
With the exception noted below, the parties acknowledge and agree that they are
dealing with each other hereunder as independent contractors. Neither party nor
any of its partners, agents, employees or representatives are, nor shall they be
deemed to be, affiliates, employees or legal representatives of the other.
Nothing contained in this Agreement shall be interpreted as constituting either
party as the joint venturer or partner of the other party or as conferring upon
either party the power or authority to bind the other party in any transaction
with third parties.
The parties may determine, however, that it is necessary to appoint CD-MAX as an
authorized agent of the DI in the matter of merchant credit card or bank card
account transactions. If such authorization is deemed necessary, the parties
agree to outline the responsibilities and obligations of each party under a
separate written document which shall then be incorporated as an attachment to
this Agreement.
SECTION 19. THIRD PARTY BENEFICIARIES
This Agreement shall not provide any person not a party to this Agreement with
any remedy, claim, liability, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement.
SECTION 20. NOTICES AND DEMANDS
Except as otherwise provided under this Agreement, all notices, demands or
requests which may be given by any party to the other party shall be in writing
and shall be deemed fully received immediately if sent by telecopy, with receipt
confirmed, or after five (5) BUSINESS DAYs if sent by certified mail, return
receipt requested, to the respective parties at the addresses set forth below:
If to CD-MAX: If to DI:
Attn: Attn:
Robert A.Wiedemer President & General Counsel
President Disclosure Incorporated
CD-MAX, Inc. 5161 River Road
Suite 203 Bethesda, MD 20816
219 South Street
Murray Hill, NJ 07974-2100
If personal delivery is selected as the method of giving notice under this
Section, a receipt for such delivery shall be obtained. The address to which
such notices, demands, requests, elections or other communications may be given
by either party may be changed by written notice given by such party to the
other party pursuant to this Section.
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SECTION 21. GOVERNING LAW
This Agreement shall be deemed to be a contract made under the laws of the
Commonwealth of Virginia, and the construction, interpretation and performance
of this Agreement and all transactions hereunder shall be governed by the
domestic laws of such jurisdiction.
SECTION 22. ENTIRE AGREEMENT
This Agreement, including the Exhibits attached hereto, and any written
amendments hereto, constitutes the entire and exclusive Agreement between the
parties and supersedes all prior or contemporaneous agreements, and oral or
written representations with regard to the subject matter contained herein.
SECTION 23. EXECUTION IN COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be an original; but such counterparts shall together constitute but one
and the same document.
SECTION 24. SEVERABILITY
A determination that any provision of this Agreement is invalid, illegal or
unenforceable shall not affect the enforceability of any other provision.
SECTION 25. HEADINGS
The headings in this Agreement are for convenience only and shall not be
construed to define or limit any of the terms herein or affect the meaning or
interpretation of this Agreement:
SECTION 26. PUBLICITY (CORPORATE NAME LICENSES)
By DI. DI hereby grants to CD-MAX a license to use, during the term of this
Agreement, the corporate name DISCLOSURE INCORPORATED in connection with the
Services and publicity releases, advertising or similar activities which are
each pre-approved in writing by DI and subject to the terms and restrictions set
forth below.
CD-MAX's use of the corporate name DISCLOSURE INCORPORATED shall be
limited to use in literature, supporting documentation, and publicity releases
prepared by CD-MAX. CD-MAX will supply to DI advance copies of any intended use.
DI shall have at least five (5) business days to provide comments regarding such
usage. CD-MAX shall provide DI with at least one copy of each piece of
literature in which DI's name is used, and shall make changes thereto if they do
not reasonably conform to this Section.
By CD-MAX. CD-MAX hereby grants to DI a license to use, during the term of this
Agreement, the corporate name CD-MAX, INC. in connection with the Metered CD-ROM
Titles, Services, and publicity releases, advertising or similar activities
which are each pre-approved in writing by CD-MAX and subject to the terms and
restrictions set forth below.
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DI's use of the corporate name CD-MAX INC. shall be limited to use in
literature, supporting documentation, and publicity releases prepared by DI. DI
will supply to CD-MAX advance copies of any intended use. CD-MAX shall have at
least five (5) business days to provide comments regarding such usage. DI shall
provide CD-MAX with at least one copy of each piece of literature in which
CD-MAX's name is used, and shall make changes thereto if they do not reasonably
conform to this Section.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the day and year first above written.
CD-MAX, Inc. DI
By:__________________________ By:____________________________
Robert A. Wiedemer
President (Printed Name)_________________
Date:________________________ Title:_________________________
Disclosure Incorporated
Date:__________________________
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Exhibit A
DISCLOSURE Incorporated -- CD-MAX Agreement
CD-ROM TITLE(S): [Information redacted as per confidential information request.]
15
<PAGE>
Exhibit B
[Information redacted as per confidential
information request.]
16
<PAGE>
[LOGO]
FOLIO CORPORATION, 5072 NORTH 300 WEST, PROVO. UTAH, 84604
MAIN (801) 229-6700 SALES (800) 543-6546
FOLIO CORPORATION
RECIPROCAL NONDISCLOSURE AGREEMENT
This Agreement is made effective as of the date it is executed by both parties
(the "Effective Date") and is between FOLIO CORPORATION ("Folio"), a Utah
corporation with its principal place of business at 5072 N. 300 W., Provo, Utah
84604, and CD-MAX, Inc. ("CD-MAX"), a corporation with its principal place of
business at 219 South Street, Suite 203, Murray Hill, NJ 07974-2100. This
Agreement sets forth the terms and conditions which will apply to any
"Confidential Information" (as hereinafter defined) which may be disclosed by
either party (the "Discloser") to the other party (the "Recipient") with respect
to the Discloser's products, services, technologies or other aspects of the
business of the Discloser.
WHEREAS, Folio has developed certain proprietary technology and tools for
creating, compiling, distributing, updating, securing, accessing, protecting
access to, and managing rights to electronic infobases ("Infobase Technology"),
and
WHEREAS, CD-MAX has developed certain proprietary techniques and business models
for metering information usage and billing ("Metering Technology"), and
WHEREAS, Folio and CD-MAX intend to collaborate on developing integrated
solutions for information metering and billing to augment and enhance the
metering and billing methods already provided by the Infobase Technology, and/or
to provide alternatives to the Infobase Technology, and
WHEREAS, Folio and CD-MAX intend to disclose proprietary technology to the other
to enable Folio to enhance its information metering APIs to support the
requirements of CD-MAX, and to enable CD-MAX to support Folio's information
metering APIs through CD-MAX's products and services, and
WHEREAS, Folio intends to work with multiple providers of information metering
and billing technology in order to deliver a variety of metering and billing
solutions to its customers, and
The parties hereby agree as follows:
1. Confidential Information
1.1 "Confidential Information" means all information which Discloser discloses
to Recipient: (i) in documents or other tangible materials clearly marked
"CONFIDENTIAL" and delivered to Recipient by Discloser, or (ii) orally, or in
any other intangible form, if at the time of first disclosure to Recipient,
Discloser tells Recipient that the information is confidential, and the
<PAGE>
information subsequently is described in documents or other tangible materials
clearly marked "CONFIDENTIAL" then delivered to Recipient by Discloser within
thirty (30) calendar days after the information is first disclosed to Recipient,
or which under the circumstances surrounding the disclosure Recipient knows or
should know that the information it receives should be held confidential.
Folio's intention to develop a "Superset" Information Metering API, including
any related business and technical models provided by Folio, shall be considered
"Confidential Information".
1.2 "Confidential Information" does not include any information which: (a) is or
becomes publicly known or readily ascertainable by the public through no
wrongful act of Recipient, or (b) is received by Recipient from a third party
without breaching an obligation owed to Discloser or (c) is independently
developed by or for Recipient.
2. Obligations of Recipient.
2.1 Recipient will not disclose Confidential Information to any other party,
unless disclosure is required by law, and will not use Confidential Information
for any purpose other than to evaluate and develop technology that would allow
CD-MAX's Metering Technology to work with Folio's Infobase Technology unless
authorized by an officer of Discloser in writing. Recipient will take reasonable
precautions to prevent the disclosure of Confidential Information to another
party, including but not limited to segregating Confidential Information in a
secure location so as not to commingle Confidential Information with information
of others, and limiting disclosure of Confidential Information to those of its
employees who have a need to receive Confidential Information.
2.2 All materials containing Confidential Information delivered by Discloser
under this Agreement, and any copies or extracts thereof are and will remain the
property of Discloser. All such materials and any copies thereof will be
promptly returned to Discloser by Recipient upon Discloser's written request.
2.3 Recipient will promptly notify Discloser of any unauthorized disclosure or
use of Confidential information, and will cooperate with Discloser in every
reasonable way to help Discloser regain possession and prevent unauthorized
use of Confidential Information.
2.4 Each employee of Recipient who will have access to Confidential Information
shall have entered into an agreement with Recipient which restricts the
disclosure and use of information such employee receives during the course of
his or her employment, prior to disclosing Confidential Information to any
employee.
2.5 The obligations of Recipient under this Section 2 shall survive termination
of this Agreement.
3. Nonexclusivity. Nothing in this Agreement shall prevent either party from
working with one or more third parties in a manner similar to that in which it
is working with the other party, provided that party does so without breaching
its obligations under Section 2.
<PAGE>
4. Assignment. This Agreement shall be binding upon, and shall inure to the
benefit of the Parties and their respective successors and assigns. Neither
Party may assign or transfer this Agreement or any interest in this Agreement
without the written consent of the other Party. Notwithstanding the foregoing,
Folio may freely transfer or assign this Agreement, without notice, to (i) any
affiliate of Folio, including without limitation, any division or subsidiary of
Reed Elsevier Inc. or (ii) any person or entity who acquires all or
substantially all of the business or assets of Folio, or that portion of the
business or assets of Folio that relate to this Agreement or (iii) any of the
successors and assigns of any of the foregoing.
5. Expert Laws. Recipient shall not export, directly or indirectly, any
technical data acquired from Discloser under this Agreement or any products
utilizing any such data to any country for which the U.S. Government or any
agency thereof at the time of export requires an export license or other
Government approval without first obtaining such license or approval.
6. No Patent or Copyright Licenses Implied. This Agreement does not limit or
affect the rights of Discloser under patent or copyright and no licenses thereto
are granted.
7. Applicable Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Utah.
8. Entire Agreement; Waiver. This Agreement (a) is the complete agreement
between the parties regarding the subject matter hereof; (b) may be modified
only by a written instrument signed by both parties; and (c) shall not be deemed
to have been waived by any act of or failure to act by Discloser.
FOLIO CORPORATION CD-MAX, Inc.
By: /s/ Paul Ahlstrom By /s/ David Boelio
------------------------------- ----------------
Paul Ahlstrom Name: David Boelio
----------------
Director, New Business Development Title: Exec VP
---------
January, 23 1995 Date: January 24, 1995
<PAGE>
E-DATASYSTEM(TM) LIMITED LICENSE AGREEMENT
THIS AGREEMENT with an effective date of May 13, 1996 by and between
E-data Corporation, a Utah Corporation having a principal office located at
2140 Harmon Cove Towers, Secaucus, NJ 07094 (hereinafter referred to as
"E-data"), and CD-MAX, a Corp., organized under the laws of Delaware, having
a principal office located at 11480 Sunset Hills Rd., Reston, Va.
(hereinafter referred to as "Licensee").
1. DEFINITIONS
A. E-dataSystem(TM)
The term E-dataSystem(TM) is E-data's trademark for the system, method
and apparatus for distributing digital data products within the scope of at
least one of the claims of U.S. Patent No. 4,528,643 (and its foreign
counterparts where applicable) entitled SYSTEM FOR REPRODUCING INFORMATION IN
MATERIAL OBJECTS AT A POINT OF SALE LOCATION (the "Licensed Patents") which
are assigned to E-data.
B. Parties
As issued herein, the term Licensee shall include its affiliates, and all
other corporations, companies and other business entities in which the
Licensee now or hereafter owns or controls more than fifty percent (50%) of
the outstanding shares, stock or voting rights as set forth herein. Such
affiliates, corporations, companies and other business entities included in
this Agreement by virtue of present ownership or present control by Licensee
shall be listed by Licensee in Exhibit A attached hereto. Any changes in
applicable entities for Exhibit A, whether additions or deletions in the list
in Exhibit A, shall be identified to E-data within sixty (60) days of the
occurrence if Licensee desires the benefit of this limited license to include
any addition to the list in Exhibit A. Any parent organization of the
Licensee now or subsequent to this Agreement shall not be included in Exhibit
A and can not be included in this limited license.
C. Patented Subject Matter
As used herein, the term "patented subject matter" shall mean within the
scope of at least one claim of the Licensed Patents. By way of illumination
without any intent to limit the scope of the claims or expand them, subject
matter can include generally the electronic distribution of digital products
such as software, fonts, images, information, music, video or the like
specifically identified, which are electronically delivered after a
predetermined payment term for the individually purchased product is met by
the purchaser.
D. Types of Licensees
a. Content Provider
As used herein, the term "content provider" shall generally refer to
owners and sellers of products in which the products are sold
electronically by the content provider or through a distribution network
provided by another, within the scope of at least one patent claim of the
Licensed Patents in the applicable country.
b. Reseller
As used herein, the term "reseller" shall generally refer to
distributors who provide a distribution network for content providers to
sell products, within the scope of at least one patent claim of the
Licensed Patents in the applicable country.
c. Service Provider for Electronic Distribution Applications
As used herein, the term "service provider for electronic distribution
applications" shall generally refer to providers of various services,
i.e., encryption, locking, unlocking, etc., who provide applications for
the distribution of products for content providers and/or resellers,
within the scope of at least one patent claim of the Licensed Patents in
the applicable country.
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<PAGE>
E. Net Sales
As used herein, the term "net sales" shall include the Licensee and all
entities listed in Exhibit A (at the time of this Agreement and any additions
to Exhibit A), with applicable definition being as follows:
a. If a Content Provider:
The aggregate price billed or charged by Licensees for such products
sold within the scope of at least one patent claim of the Licensed Patents
in the applicable country, excluding credits and allowances for return,
electronic distribution reseller charges, electronic distribution service
provider charges, sales taxes, payments to credit providers (i.e., credit
card companies) and any other tax or Government charge on sales.
b. If a Reseller:
The aggregate revenues derived by Licensee for such products sold
within the scope of at least one patent claim of the Licensed Patents in
the applicable country, excluding credits and allowances for return,
content providers charges, electronic distribution service provider
charges, sales taxes, payments to credit providers (i.e., credit card
companies) and any other tax or Government charge on sales.
c. If a Service Provider for Electronic Distribution Applications:
The aggregate revenues derived by Licensee for services provided (i.e.,
encryption, locking, unlocking, etc.) to content providers or resellers of
products sold within the scope of at least one patent claim of the
Licensed Patents in the applicable country, excluding credits and
allowances for return, sales taxes, and any other tax or Government charge
on sales.
2. GRANT OF RIGHTS
A. Subject to the terms and provisions of this Agreement set forth
hereinbelow, E-data expressly grants to Licensee a nonexclusive right and
limited license under said Licensed Patents to utilize the E-dataSystem(TM).
The right shall not extend to any third party other than the entities listed
in the Exhibit A herein and amended in accordance with this Agreement. The
rights granted to Licensee under this Agreement shall not be a transferable
or assignable to third parties without the prior written consent of E-data.
Any attempt by Licensee to transfer or assign the rights without prior
approval by E-data shall terminate this Agreement at the sole discretion of
E-data.
B. So long as this Agreement is in effect, E-data agrees and covenants not
to sue or assert any claims, causes of action, or liabilities whatsoever
under said Licensed Patents against Licensee, its officers, directors,
employees, stockholders, representatives, agents/and or attorneys, anywhere
in the world, as well as any entities listed in Exhibit A (as amended).
3. TERM OF THE AGREEMENT
This Agreement shall take effect upon the effective date first set forth
hereinabove, and shall continue in effect for a period of one (1) year, and
shall be renewable from year to year thereafter at the option of the Licensee
under the condition of paragraph 4.B.
4. LICENSE FEE
A. Initial License
Upon execution of this Agreement, Licensee agrees to pay to E-data an
annual fee in accordance with the licensing payment schedule in Exhibit B
attached hereto. Such annual fees shall be based upon the net sales, as
defined hereinabove, of the Licensee in its fiscal year ended immediately
prior to the date of this Agreement. The annual fee shall be paid within
fifteen (15) days of the date of this Agreement for this Agreement to be
accepted by E-data.
B. Annual Renewals
On each anniversary of this Agreement, and until the Licensed Patents
expire (the year 2003 for the U.S. patent), Licensee may renew this one-year
Agreement. In such event, Licensee will pay to E-data the annual fee in
accordance with the licensing payment scheduled in Exhibit B attached hereto.
Renewal fees shall be based
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<PAGE>
upon the net sales, as defined hereinabove, of the Licensee in its fiscal
year ending immediately prior to the renewal anniversary date of this
Agreement. Within thirty (30) days prior to each anniversary renewal date of
this Agreement, Licensee shall submit a representation report detailing the
licensing level of the requested license renewal and this report shall
constitute a material representation. The failure of Licensee to renew the
Agreement on or before the anniversary date may be sufficient basis for
E-data to refuse to accept a renewal.
C. Licensing Level and License Fee
License represents that its operations pursuant to this Agreement are
subject to License Level J. Therefore, the initial annual fee paid by
Licensee to E-data upon execution of and pursuant to this Agreement is
$500.00, the sum of which is attached and has been paid to E-data.
5. RELATIONSHIP
E-data and Licensee are separate and independent entities. This Agreement
does not convey any authority or power upon either to make any agreement or
commitment in the name of or on behalf of the other, or for either party to
incur any indebtedness whatsoever for the account of the other. This
Agreement shall not be deemed to constitute the parties partners or joint
ventures, and neither party, their respective agents and employees, shall
under any circumstances be deemed the agent or representative of the other.
6. SALES RECORDS
A. Licensee shall keep regular business records to record full entries and
particulars of net sales of products sold within the scope of at least one
patent claim of the Licensed Patents in the applicable country under this
Agreement. Except as expressly set forth herein, nothing within this Article
shall be construed as otherwise permitting access by E-data to Licensee's
business records.
B. For the purposes of verifying the licensing level granted under this
Agreement, Licensee gives E-data the right, at E-data's own expense, and with
a duly authorized certified public accountant of E-data, after at least
thirty (30) days prior written notice, to examine such books and records of
Licensee, insofar as they concern products sold within the scope of at least
one patent claim of the Licensed Patents in the applicable country under this
Agreement, but not more than once in any calendar year.
7. OTHER INTELLECTUAL PROPERTY RIGHTS
A. Licensee is granted the non-exclusive right to utilize the trade mark
E-dataSystem(TM) to demonstrate that it is duly licensed by E-data as long
as this Agreement remains valid from its inception and any renewals. Such
trade mark may be utilized by Licensee on written literature or other content
from Licensee. However, such trade mark must be shown as being owned by
E-data Corporation.
B. Nothing contained herein shall be construed to grant, assign, license
or otherwise give to E-data any interest in, or right to, make, use or sell
any of Licensee's own intellectual property rights, including but not limited
to, its name, trade marks and trade names.
C. No additional intellectual property rights including any other patent
rights now owned acquired by E-data after the date of this Agreement are
either explicitly or impliedly granted to Licensee.
8. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be settled by arbitration in New Jersey,
administered by this American Arbitration Association in accordance with its
applicable rules, and judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. E-data however, reserves
its right to sue for patent infringement in a court having jurisdiction over
the subject matter.
9. DEFAULT AND TERMINATION
A. If either party shall default in fulfilling any of its obligations
under this Agreement, and such defaulting party shall fail to remedy such
default with thirty (30) business days after receiving written notice thereof
by the other party, then the noticing party may, at its option, terminae this
Agreement by giving notice to that effect. The failure of any party to assert
the right to terminate shall not constitute any waiver of rights.
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B. Licensee shall be entitled to terminate this Agreement on any
anniversary date for any reason, or for no reason.
10. TERMINATION EFFECTS
A. Termination of this Agreement under Provision 9 A. and B. shall not
relieve either party of its liabilities accruing up to the time of
termination and shall not prejudice the right of either party to recover any
sums then due.
B. Termination of this Agreement shall not affect the right of E-data to
assert legal actions for infringement under the claims of the Licensed
Patents against Licensee for any period subsequent to the termination of this
Agreement and any renewals thereof.
11. NOTICES AND REPORTS
All notices and reports required in this Agreement shall be in writing.
Notices and reports shall be deemed to have been sufficiently given if one
copy is sent by overnight courier to the parties as set forth in the first
paragraph of this Agreement. The date of mailing shall be deemed to be the
date on which notice has been dispatched. Any party hereto may give written
notice of a change of address and, after notice of such change has been
received, any notice thereafter shall be given to that party at the changed
address.
12. CONSTRUCTION AND VENUE
This Agreement embodies the entire understanding between the parties and
shall be deemed to be a New Jersey contract subject to interpretation in
accordance with the laws of the State of New Jersey without giving effect to
principles of conflict of laws.
13. BENEFIT
This Agreement shall be binding upon and shall inure to the benefit of the
successors and assigns of the business of E-data.
14. ENTIRE AGREEMENT
This Agreement constitutes the entire understanding and agreement between
the parties hereto and supersedes any and all prior or collateral
understandings and agreements between them relating to the specific subject
matter hereof. There are no terms, obligations, covenants, representations,
statements or conditions other than those contained herein. No variation or
modification of this Agreement, or waiver of any of the terms or provisions
hereof, shall be deemed valid unless in writing and signed by the parties
hereto.
15. SEVERABILITY
If any provision of this Agreement is for any reason declared to be
invalid, the validity of the remaining provisions shall remain in full force
and effect.
16. SECTION AND OTHER HEADINGS
The section and other headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
17. REPRESENTATIONS
Any representations made by Licensee as to its net sales herein or in any
renewals shall be regarded as material and subject to verification. Any false
material representation shall be sufficient cause of E-data to terminate this
Agreement without any notice, at the discretion of E-data.
IN WITNESS WHEREOF, the parties have hereunder set their hands and seals
as of the date and year first written above.
4
<PAGE>
WITNESSED: E-data Corporation
By: ------ By ------
Title President
Licensee:
WITNESSED: CD-MAX, Inc.
By: ------ By ------
Title President
E-DATASYSTEM(TM) LIMITED LICENSE AGREEMENT
- -----------------------------------------------------------------------------
Exhibit A - Affiliates, corporations, companies, and other entities owned
more than fifty percent (50%):
Name of Company Address % Owned
--------------- ------- -------
- ------------------------ -------------------------- ------------
- ------------------------ -------------------------- ------------
- ------------------------ -------------------------- ------------
- ------------------------ -------------------------- ------------
- ------------------------ -------------------------- ------------
- ------------------------ -------------------------- ------------
EXHIBIT B - LICENSING PAYMENT SCHEDULE:
<TABLE>
<CAPTION>
Net sales Initial and Renewal Limited License Fees
License -------------------------- --------------------------------------------------------------------------
Level Over Under 1996 1997 1998 1999 2000 2001 2002
--------- ----------- ----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A 5,000,000 Subject to Individual Negotiations
- --------------------------------------------------------------------------------------------------------------------
B 3,000,000 5,000,000 40,000 44,000 48,000 52,000 56,000 60,000 64,000
- --------------------------------------------------------------------------------------------------------------------
C 1,500,000 3,000,000 25,000 27,500 30,000 32,500 35,000 37,500 40,000
- --------------------------------------------------------------------------------------------------------------------
D 750,000 1,500,000 15,000 16,500 18,000 19,500 21,000 22,500 24,000
- --------------------------------------------------------------------------------------------------------------------
E 400,000 750,000 10,000 11,000 12,000 13,000 14,000 15,000 16,000
- --------------------------------------------------------------------------------------------------------------------
F 200,000 400,000 7,500 8,250 9,000 9,750 10,500 11,250 12,000
- --------------------------------------------------------------------------------------------------------------------
G 100,000 200,000 4,000 4,400 4,800 5,200 5,600 6,000 6,400
- --------------------------------------------------------------------------------------------------------------------
H 50,000 100,000 2,500 2,750 3,000 3,250 3,500 3,750 4,000
- --------------------------------------------------------------------------------------------------------------------
I 25,000 50,000 1,000 1,100 1,200 1,300 1,400 1,500 1,600
- --------------------------------------------------------------------------------------------------------------------
J 0 25,000 500 550 600 650 700 750 800
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
LICENSEE REPRESENTATIONS
Name of Company: CD-Max, Inc.
Mailing Address: 11480 Sunset Hills Road, Suite 110E
City, State, Zip: Reston, Virginia 22090 Country: U.S.
Telephone: (703) 471-5755
Name and Title of Officer Making Representations: Robert Wiedemer --
President
Net sales (as defined in Paragraph 1.E) are for latest fiscal year ended 1995
Pursuant to Exhibit B above and based upon net sales of greater than $0 and
less than $25,000, the Licensee is subject to License Level J for its initial
1996 Limited License. Accordingly, the 1996 Limited License Fee is $500.00.
(Check enclosed payable to E-data Corporation)
Dated: May 13, 1996
Signature: Title:
This Form Constitutes Representations Pursuant to Paragraph 17 of the
E-dataSystem(TM) Limited License Agreement
ADDENDUM TO E-DATASYSTEM LIMITED LICENSE AGREEMENT
This is an Addendum to a printed document entitled "E-dataSystem Limited
License Agreement" which is intended to modify the terms thereof, these
modifications being a part of the original License Agreement entered into
between E-Data Corporation and CD-MAX, INC.
1. In paragraph 1, "Definitions," section A, change the title of the
section to read "License Product."
2. In paragraph 1, section A, delete "E-dataSystem(TM) is E-data's
trademark for the" and insert therefor "means any" and delete "(and its
foreign counterparts where applicable)" and insert therefor "(and all
existing or future US and foreign patents claiming the benefit of a priority
date in common with U.S. Patent No. 4,528,643, including all re-issues and
re-examinations of the same and all U.S. patents based on continuations,
continuations-in-part and divisions of the patent application for such
patent, and all foreign patents corresponding to that patent)".
3. In paragraph 2, section A, modify the first sentence of that paragraph
to read as follows: "Subject to the terms and provisions of this Agreement
set forth herein below, E-data expressly grants to Licensee a non-exclusive
license under the Licensed Patents to make, use and sell any product."
4. To paragraph 7, add the following two new subparagraphs;
"D. E-data warrants that it presently has no other intellectual
property rights that are infringed by Licensee, and Licensee has no other
liability to E-data except under the terms of this Agreement. No license
express or implied is granted to Licensee for any patent acquired by
E-data subsequent to this Agreement.
E. E-data warrants that it has the power to enter into this Agreement
and that there are no restrictions on its right to grant the license
rights granted hereunder."
5. To Exhibit B, for License Level A, insert "Subject to individual
negotiations, but not to exceed $100,000."
6
<PAGE>
Executed this 14th day of May, 1996 by and between the parties.
E-DATA CORPORATION
By _____________________
Title President
Date 5/14/96
CD-MAX, Inc.
By _____________________
Title President
Date May 13, 1996
7
<PAGE>
EXHIBIT 10.11
InfoServe, Inc.
1993 STOCK INCENTIVE PLAN
1. Purpose.
The purpose of this Stock Incentive Plan (the "Plan") is to offer to
those key employees, directors and consultants who contribute materially to the
successful operation of InfoServe, Inc. (the "Company") and its subsidiaries
additional incentive and encouragement to remain in the service of the Company
by increasing their participation in the Company through stock ownership. This
Plan provides a means whereby key employees may acquire shares of the Company's
Common Stock pursuant to Qualified Stock Options, Nonqualified Stock Options and
Restricted Stock Options, and key directors and consultants may acquire shares
of the Company's Common Stock pursuant to Nonqualified Stock Options and
Restricted Stock Awards.
2. Certain Definitions.
A. "Board" means the Board of Directors of the Company.
B. "Code" means the Internal Revenue Code of 1986, as amended.
C. "Committee" means a duly authorized committee of directors
appointed by the Board to manage and administer the Plan,
comprised of no fewer than three members. In the event that
the Company has a class of securities registered under Section
12 of the Securities Exchange Act of 1934 (the "1934 Act"),
the Committee shall consist of members of the Board who are
"disinterested persons" within the meaning of Rule 16b-3 under
the 1934 Act.
D. "Common Shares" means, the Class A Common shares.
E. "Conditions" mean the conditions attached to a Restricted
Stock Award pursuant to Section 8B.
F. "Consultant" means any individual engaged in providing
professional services for the Company or any Subsidiary who is
not an Employee or Director.
G. "Director" means any director of the Company or of any
Subsidiary who is not also an Employee.
H. "Disabled" means that because of injury or sickness, the
Employee, Director, or Consultant cannot perform each of the
material duties of his regular occupation.
I. "Employee" means any employee of the Company or of any
Subsidiary, including an employee who serves as an officer or
director of the Company or of a Subsidiary.
InfoServe, Inc. Stock Incentive Plan
Page 1 of 11
<PAGE>
J. An "Event" means an occurrence described in Section 6A.
K. "Fair Market Value" means the most recent determination of the
fair market value of each share of Common Stock made in
accordance with Section 9.
L. "Grantee" means Optionees and recipients of Restricted Stock
Awards.
M. "Nonqualified Stock Option" means an option granted under this
Plan which is not intended to qualify as an incentive stock
option under Section 422A of the Code.
N "Option" means Nonqualified Stock Options and Qualified Stock
Options.
O. "Option Shares" mean the shares of Common Stock purchased by
an Optionee upon exercise of an Option.
P. "Optionee" means an Employee to whom an Option has been
granted, or a Director or Consultant to whom a Nonqualified
Stock Option has been granted.
Q. "Parent" means a parent corporation of the Company within the
meaning of Section 425(e) of the Code.
R. "Qualified Stock Option" means an option granted under this
Plan which qualifies as an incentive stock option under
Section 422A of the Code.
S. "Restricted Stock" means the shares of Common Stock issued to
a Grantee pursuant to a Restricted Stock Award.
T. "Restricted Stock Award" means the grant under this plan, of
Common Stock which is nontransferable and subject to
substantial risk of forfeiture until specific Conditions have
been met.
U. "Subsidiary" means a subsidiary corporation of the Company
within the meaning of Section 425(f) of the Code.
3. Administration of the Plan.
This Plan will be administered by the Board, which will have the right
to delegate any and all of its powers under this Plan to a Committee. If the
Board appoints a Committee to administer this Plan, in whole or in part, the
Committee's determination will not be subject to approval by the Board, and to
the extent of such delegation, references in this Plan to the Board shall be
deemed to refer to the Committee.
The Board will have the authority and discretion to adopt and revise
such rules and regulations as it deems necessary for the administration of this
Plan and to determine, consistent with the provisions of this Plan, those
Employees eligible to be granted Qualified Stock Options and
InfoServe, Inc. Stock Incentive Plan
Page 2 of 11
<PAGE>
those Employees, Directors and Consultants eligible to be granted Nonqualified
Stock Options and Restricted Stock Awards, the times at which Options or
Restricted Stock Awards will be granted, the option price of the shares subject
to each Option and the price at which a Restricted Stock Award is made, the
number of shares subject to each Option and Restricted Stock Award, the vesting
schedule of Options, the conditions precedent to acceleration of the vesting
schedule of Options, the method of payment for shares acquired upon the exercise
of Options, the expiration dates of Options, and the Conditions attached to each
Restricted Stock Award. The Board's actions, including any interpretation or
construction of any provisions of this Plan or of any Option or Restricted Stock
Award, shall be final, conclusive and binding. No member of the Board shall be
liable for any action or determination made in good faith.
4. Eligibility.
All key Employees (as determined by the Board) will be eligible to
receive Options and Restricted Stock Awards, and each key Employee may be
granted more than one Option or Restricted Stock Award. All key Directors and
Consultants (as determined by the Board) will be eligible to receive only
Nonqualified Stock Options and Restricted Stock Awards, but each key Director or
Consultant may be granted more than one Nonqualified Stock Option or Restricted
Stock Award.
5. Shares of Stock Subject to the Plan.
The number of shares which may be issued pursuant to this Plan shall
not exceed six million shares of Common Stock subject to adjustment in
accordance with the provisions of Sections 7G and 8H. Any or all of such shares
may be issued under Qualified Stock Options. Such shares may be authorized and
unissued shares or shares previously acquired by the Company and held in its
treasury. Any shares subject to an Option which expires for any reason or is
terminated unexercised as to such shares, and any Restricted Stock and Option
shares which are repurchased by the Company, may again be subject to an Option
or Restricted Stock Award under this Plan.
6. Events.
A. Definition of Events. An event is the occurrence of (i) the
termination of a Grantee's service to the Company for any reason other than (a)
death, (b) being Disabled, (c) the Company's termination of an Employee or
Consultant's service to the Company for cause, or (d) the removal of any
Director for cause by the shareholders of the Company; (ii) the one year
anniversary of the date on which the Grantee initially becomes Disabled if
he/she is continuously Disabled from that date to the one year anniversary;
(iii) the Grantee's death; (iv) the termination of an Employee or Consultant's
service to the Company for cause or the removal of any Director for cause by the
shareholders of the Company; (v) the Grantee's insolvency or assignment for the
benefit of creditors; (vi) the sale of all or substantially all of the assets of
the Company; (vii) the consummation of a merger or consolidation of the Company
into or with another corporation under circumstances in which the Company is not
the surviving corporation (other than circumstances
InfoServe, Inc. Stock Incentive Plan
Page 3 of 11
<PAGE>
involving a mere change in the identity, form or place of organization of the
Company); (viii) the consummation of a sale of more than 50% of the Company's
outstanding stock to persons who are not shareholders of the Company on the date
of grant of the Option or Restricted Stock Award; or (ix) the liquidation or
dissolution of the Company. As used herein, termination "for cause" with respect
to an Employee shall mean termination by reason of gross negligence, dishonesty,
willful misconduct or insubordination; violation of Company policies; actions
endangering the health and welfare of the employees or clients of the Company
(or others); misappropriation or misuse of Company or client proprietary data or
products for the benefit of others or self; the failure or refusal of the
Employee to faithfully and diligently perform the usual and customary duties of
his or her position; or any other conduct of the Employee which would have a
material, adverse effect upon the business operations of the Company.
B. Notice of Event. The Grantee shall give prompt written notice to the
Company of the occurrence of the Grantee's insolvency or assignment for the
benefit of creditors. The Grantee's legal representative, heirs or legatees
shall give the Company prompt written notice of the Grantee's death. The Company
may give written notice to the Grantee of the occurrence of other Events,
although the Company shall have no obligation under this Plan to do so.
7. Terms and Conditions of Options.
A. Option Agreement. Each Option shall be evidenced by a written
agreement between the Company and the Optionee (an "Option Agreement"), which
sets forth (i) the number of shares subject to the Option; (ii) the exercise
price of the Option; (iii) the vesting schedule of the Option or a statement
that the Option is immediately exercisable in full; (iv) the expiration date of
the Option; (v) the method of payment on exercise of the Option; (vi) whether
the Option is a Qualified Stock Option or Nonqualified Stock Option; and (vii)
such additional provisions, not inconsistent with this Plan, as the Board may
prescribe. The Option Agreement shall be executed on behalf of the Company by
such officers as the Board shall authorize.
B. Grant of Options. No Option may be granted more than ten years after
the earlier of the date (i) this Plan is adopted by the Board, or (ii) approved
by the shareholders of the Company.
C. Exercise of Options. Optionees may exercise at any time, or from
time to time, all or any portion of a vested Option. An Option shall be
exercisable only to the extent it is vested. Options will vest, as set forth in
the Option Agreement, either immediately or over a period of months or years
(not exceeding ten years) measured from the date the Option is granted. For
purposes of vesting, an Optionee shall be credited with one (1) month of service
for each consecutive calendar month during which the Optionee is continuously
employed by or provides services to the Company, beginning with the first day of
the calendar month during which the Option is granted.
In the event of the Optionee's death, the Optionee will be treated for
vesting purposes as having completed the calendar month of service during which
the date of death occurred. Vesting of all or any portion of an Option may be
accelerated at the discretion of the Board. Any change in the duties or position
of an Employee, Director or Consultant that does not constitute an Event shall
not affect his or her right to exercise his or her Options granted pursuant to
this Plan.
InfoServe, Inc. Stock Incentive Plan
Page 4 of 11
<PAGE>
To the extent that the aggregate Fair Market Value of the Common Stock
with respect to which options qualifying as incentive stock options under
Section 422A of the Code are exercisable by the Optionee for the first time
during any calendar year (under all stock option plans of the Company, its
Parents or Subsidiaries) exceeds $100,000, such Options are not incentive stock
options. For the purposes of this paragraph, the Fair Market Value of the Common
Stock shall be determined as of the time the option with respect to such Common
Stock is granted. This paragraph shall be applied by taking options into account
in the order in which they were granted.
An Optionee shall exercise an Option by delivering to the Company at
its principal office a written notice signed by the Optionee which states the
Optionee's election to exercise the Option and the number of shares of Common
Stock the Optionee elects to purchase. The Optionee's notice shall be
accompanied by payment of the exercise price in accordance with the Option
Agreement or in a manner satisfactory to the Board.
Payment may be (i) in cash, (ii) by exchange of Common Stock having an
aggregate Fair Market Value on the date the Option is exercised equal to the
cash exercise price, or (iii) partly in cash and partly by exchange of Common
Stock. The Optionee's right to pay the exercise price by exchange of Common
Stock is subject to the following limitations:
(a) the Common Stock being exchanged must have been held by the
Optionee for more than six months, and
(b) if the Common Stock being exchanged was acquired upon the
Optionee's exercise of an incentive stock option under Section 422A of
the Code, the Common Stock must have been held by the Optionee at least
one year, and the incentive stock option must have been granted at
least two years before the date on which the Optionee exchanges the
Common Stock.
As soon as practicable following payment of the exercise price, the
Company will deliver to the Optionee a certificate representing the Option
Shares, provided that the Optionee has made appropriate arrangements with the
Company satisfactory to the Board for any federal, state or local taxes required
to be withheld; and provided further that the Company shall not be required to
issue any shares of Common Stock if such issuance would violate any law
(including federal or state securities laws). An Optionee shall not have any of
the rights and privileges of a shareholder of the Company (including without
limitation, any right to receive information from the Company) in respect of any
of the Option Shares until the Company has delivered the certificate.
D. Exercise Price. The exercise price of each Qualified Stock Option
shall be at least equal to the Fair Market Value of the Common Stock on the date
the Qualified Stock Option is granted. In the case of a Qualified Stock Option
granted to a person who owns (as defined in Section 425 of the Code) immediately
after the grant of such Qualified Stock Option, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company, or of
its Parent or Subsidiary, the exercise price of the Qualified Stock Option shall
be at least 110% of the Fair Market Value of the Common Stock on the date the
Qualified Stock Option is granted.
InfoServe, Inc. Stock Incentive Plan
Page 5 of 11
<PAGE>
The Board may set the exercise price of any Nonqualified Stock Option
at any price which is not less than the par value, if any, of the Common Stock.
E. Expiration of Options. Each Option shall expire on the date set
forth in the Option Agreement, provided that (i) each Option shall expire not
later than ten years after the date it is granted, and (ii) each Qualified Stock
Option granted to any person who owns stock possessing more than 10% of the
total combined voting power of the Company, or of its Parent or Subsidiary,
shall expire not later than five years after the date it is granted.
Notwithstanding the foregoing, upon the occurrence of an Event
described in Section 6(A)(iv) or (vi) - (ix), the Option granted under the
Option Agreement shall expire concurrently with the occurrence of the Event,
unless the Option is assumed in a transaction to which Section 425(a) of the
Code applies. Upon the occurrence of an Event described in Section 6(A)(i), (ii)
or (v), the portion of the Option which is vested as of the date of the Event
shall be exercisable by the Optionee for a period of ninety (90) days following
the date of the Event. Upon the occurrence of the Optionee's death, the portion
of the Option which is vested as of the date of death shall be exercisable by
the Optionee's heirs, legatees or legal representative for a period of nine
months following the date of death. The Board may, in its sole discretion,
accelerate the vesting as of the date of death.
F. Non-Transferability of Options. Options may not be sold,
transferred, assigned, pledged, hypothecated or disposed of (whether by
operation of law or otherwise) by the Optionee otherwise than by will or the
laws of descent or distribution, and each Option shall be exercisable during the
Optionee's lifetime only by the Optionee. Upon any attempt to transfer an Option
or any interest therein contrary to the provisions of this Plan, or to subject
the Option or any interest therein to execution, attachment or similar process,
the Option shall immediately terminate and become null and void.
G. Adjustment Provisions. Subject to any required action by the
shareholders of the Company, the Board will make a proportionate adjustment in
the number of shares of Common Stock covered by each outstanding Option and the
exercise price per share to account for any increase or decrease in the number
of issued shares of Common Stock of the Company resulting from a stock split
(whether by subdivision or consolidation of shares), any payment of a share
dividend (but only on the Common Shares) or from any other recapitalization or
reclassification.
In the event of a change in the Common Stock of the Company as
presently constituted, which is limited to a change of all of its authorized
shares of Common Stock with par value into the same number of shares with a
different par value or without par value, the shares resulting from any such
change shall be deemed to be Common Stock within the meaning of this Plan. The
foregoing adjustments shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive; provided, however, that no
adjustment shall be made in a manner that causes and Qualified Stock Option to
fail to continue to qualify as an incentive stock option within the meaning of
Section 422A of the Code.
H. Conflict of Contract. If the terms of the contract for optionees who
are founders holding long term options contracts based on employment contracts
issued before August, 1992 shall
InfoServe, Inc. Stock Incentive Plan
Page 6 of 11
<PAGE>
conflict with this plan, then this plan shall be modified so as to not conflict
with such contract, and in the event of a conflict between the provisions of
this plan and of the contract, the language in the contract shall be
determinative, and shall supersede and override any provisions contained in this
plan to the contrary.
I. Notice of Disposition of Shares. The Optionee shall give written
notice to the Company of his or her intent to make any disposition of the shares
acquired upon exercise of a Qualified Stock Option if such disposition occurs
within two years after the date the Qualified Stock Option was exercised. The
Optionee shall be required to make appropriate arrangements with the Company for
satisfaction of any federal, state or local taxes the Company is required to
withhold as a result of such disposition.
8. Terms and Conditions of Restricted Stock Awards
A. Restricted Stock Award Agreement. Each Restricted Stock Award shall
be evidenced by a written agreement between the Company and the recipient of the
Restricted Stock Award (a "Restricted Stock Award Agreement"). Each Restricted
Stock Award Agreement shall set forth (i) the number of shares awarded to the
recipient; (ii) the price, if any, the recipient is required to pay for such
shares; (iii) the Conditions applicable to such Restricted Stock; (iv) the
schedule pursuant to which such conditions are satisfied; (v) the provisions, if
any, for acceleration of the satisfaction of the Conditions and the portion of
the Restricted Stock Award subject to acceleration; and (vi) additional
provisions not inconsistent with this Plan as the Board may prescribe.
Officers authorized by the Board shall execute and date each Restricted
Stock Award Agreement.
B. Conditions. Except as provided in Section 8D, the Restricted Stock
may not be sold, transferred, assigned, pledged, hypothecated or disposed of
(whether by operation of law or otherwise) until all Conditions are satisfied.
The Board shall impose Conditions, as it deems advisable, that require the
holder's continued performance of services as an Employee, Director or
Consultant or the achievement of individual, group and/or Company performance
objectives and other conditions including, but not limited to, restrictions
under the Securities Exchange Act of 1934, as amended, under the requirements of
any stock exchange upon which shares or shares of the same class may be listed,
and under any "blue sky" or other state securities law applicable to such
shares. The Board may require the recipient of a Restricted Stock Award to enter
into an escrow agreement providing that the certificates representing Restricted
Stock will remain in the physical custody of an escrow agent, which may be the
Company, until all conditions have been satisfied. Each certificate representing
Restricted Stock will bear a legend making appropriate reference to the
Conditions imposed.
C. Purchase Price. The Board may set the price at which Restricted
Stock may be purchased at any amount which is not less than the par value, if
any, of the Common Stock.
D. Forfeiture and Repurchase of Restricted Stock. Unless the Restricted
Stock Award Agreement provides otherwise, upon the occurrence of any Event, all
Restricted Stock subject to
InfoServe, Inc. Stock Incentive Plan
Page 7 of 11
<PAGE>
unsatisfied Conditions shall be repurchased by the Company at the price paid, if
any, by the holder for the Restricted Stock. If no price was paid for the
Restricted Stock, the Restricted Stock will be forfeited to the Company. The
closing of any repurchase of Restricted Stock shall take place at a mutually
convenient time at the Company's headquarters within forty-five days after the
Event. At the closing, the holder shall surrender his or her stock certificates
and the Company shall pay to the holder in cash the repurchase price, if any, of
the Restricted Stock.
E. Rights as Shareholder. Subject to the provisions of this Section 8
and the transfer restrictions set forth in Section 10, the holder shall have all
rights of a shareholder with respect to the Restricted Stock, including the
right to vote the shares and receive distributions.
F. Section 83 Election. The holder of Restricted Stock may make an
election under Section 83(b) of the Code, within thirty days of the date the
Restricted Stock Award is granted, if the holder wishes to include in income for
the taxable year in which the grant of the Restricted Stock Award occurs, the
difference between the Fair Market Value of the Common Stock granted pursuant to
a Restricted Stock Award and the price the holder was required to pay for such
Common Stock. If the holder intends to make such election, a copy of the
completed election form required to be filed with the Internal Revenue Service
shall be provided to the Company and shall be attached to the Restricted Stock
Award Agreement as an exhibit.
G. Payment of Withholding Tax. The holder of Restricted Stock shall be
responsible for the payment of all federal and state income taxes and Social
Security (FICA) taxes required to be withheld and paid with respect to a
Restricted Stock Award. At the Company's option, the Company may (i) withhold
the appropriate amount from the holder's regular compensation and from any
dividends paid on Restricted Stock, or (ii) require the holder to pay the amount
of withholding tax to the Company and treat the holder's timely payment of such
amount to the Company as an additional Condition.
H. Adjustment Provisions. Subject to any required action by the
shareholders of the Company, the Board will make a proportionate adjustment in
the number of shares of Restricted Stock covered by each Restricted Stock Award
to account for any increase or decrease in the number of issued shares of Common
Shares of the Company resulting from a stock split (whether by subdivision or
consolidation of shares), any payment of a share dividend (but only to Common
Shares) or from any other recapitalization or reclassification. The foregoing
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive.
9. Valuation of Common Stock
The Fair Market Value of each share of Common Stock will be determined
by the Board annually, and in its discretion, the Board may retain an
independent appraiser to assist it in the determination of the Fair Market Value
of the Common Stock. The Board's determination of the Fair Market Value of the
Common Stock shall be final, binding and conclusive.
10. Transfer Restrictions Imposed by the 1933 Act
InfoServe, Inc. Stock Incentive Plan
Page 8 of 11
<PAGE>
A. Transfer Restrictions. Notwithstanding any other provision of the
Plan, any Option Agreement, or any Restricted Stock Award Agreement, no transfer
for value of any Option Shares or Restricted Stock shall be valid unless (i)
there is an effective registration statement under the Securities Act of 1933
(the "1933 Act") covering the Restricted Stock or Option Shares; (ii) the holder
has furnished an opinion of counsel satisfactory to the Company that such
registration is not required; or (iii) the holder has furnished a "no-action"
letter from the staff of the Securities and Exchange Commission satisfactory to
the Company that such registration is not required.
B. Legend. There shall be imprinted on the face of each certificate for
such shares a legend stating that the transferability of such shares is
restricted, and the following legend shall be imprinted on the back of each such
certificate:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE (1) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, OR APPLICABLE STATE LAWS,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SUCH ACT OR LAWS OR AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL
TO THE COMPANY) SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED OR A "NO ACTION" LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION THAT SUCH REGISTRATION IS NOT REQUIRED, AND (2) ARE SUBJECT
TO, AND ARE TRANSFERABLE ONLY UPON COMPLIANCE WITH, CERTAIN TRANSFER
AND OTHER RESTRICTIONS CONTAINED IN AN AGREEMENT BETWEEN SIGNAL
SECURITY TECHNOLOGIES, INC. AND THE HOLDER OF THIS CERTIFICATE, A COPY
OF WHICH IS ON FILE AT THE OFFICE OF THE COMPANY."
C. Investment. Optionees and holders of Restricted Stock Awards may
acquire stock only for their own account and not with a view to, or for resale
in connection with, any distribution thereof within the meaning of the 1933 Act,
and may dispose of such stock only in a manner consistent with the provisions of
this Section 10. The Company may require Optionees and holders of Restricted
Stock Awards to execute and be bound by an "Investment Letter" representing such
investment intent.
11. Transfer by Gift or Otherwise Without Consideration
A Grantee shall not transfer any Option Shares or Restricted Stock to
any person or entity other than the Company or his or her spouse or children by
gift or otherwise without consideration; provided, however, that the Grantee may
transfer such shares by will or the laws of descent and distribution to one or
more of his or her spouse, children, parents, siblings and/or a trust
established for the exclusive benefit of the Grantee and/or one or more of such
persons.
12. Indemnification of Board
In addition to such other rights as they may have as directors, the
members of the Board (in their capacities as such and also as members of the
Committee) shall be indemnified by the
InfoServe, Inc. Stock Incentive Plan
Page 9 of 11
<PAGE>
Company against the reasonable expenses (including attorneys' fees) incurred in
connection with the defense of any action, suit or proceeding, and in connection
with any appeal thereof, to which they or any of them may be a party by reason
of any action or failure to act in connection with this Plan, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be finally adjudged in such action,
suit or proceeding that the Board member is liable for willful misconduct in the
performance of his or her duties or that the Board member knowingly violated
criminal law; provided that within 60 days after institution of any such action,
suit or proceeding (or within 30 days after service upon such member of legal
process in such case, if later) the Board member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the same.
13. Termination and Amendment of the Plan
Unless sooner terminated as provided herein, this Plan shall remain in
effect through September 31, 2003. The Board may terminate this Plan at any time
or modify or amend it as it deems advisable and may from time to time suspend,
discontinue or abandon this Plan, except that (i) the number of shares available
under this Plan shall not be increased (except as provided in Section 7G and or
8H) and the classes of eligible Employees, Directors or Consultants shall not be
modified without shareholder approval, and (ii) no such action by the Board
shall increase the exercise price of any Option previously granted or otherwise
adversely affect any right or obligation with respect to any grant previously
made unless the written consent of the affected Grantee is obtained.
14. Miscellaneous
The provisions of this Plan shall be binding upon, and inure to the
benefit of, all successors of any Grantee, including, without limitation, his
estate and the executors, administrators or trustees thereof, his or her heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Grantee. The term "Grantee" shall be deemed to include any and
all of the foregoing persons in all places in this Plan where the context so
requires.
Nothing contained in this Plan or in any Option Agreement or Restricted
Stock Award Agreement shall confer upon any Employee, Director or Consultant the
right to continue serving the Company in such capacity or shall interfere in any
way with the Company's right to terminate such Employee or Consultant or the
shareholders' right to remove such Director at any time, with or without cause.
Except as expressly provided in this Plan, Grantees shall have no
rights by reason of any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class; the dissolution or liquidation of
the Company; the merger or consolidation of the company with or into any other
corporation; the sale or other transfer of assets or stock of the Company; or
any issue by the Company of shares of stock of any class or securities
convertible into shares of stock of any class. Except as expressly provided in
this Plan, no adjustment by reason of any of the foregoing events
InfoServe, Inc. Stock Incentive Plan
Page 10 of 11
<PAGE>
shall be made with respect to the number or price of shares of Common Stock
subject to an Option or the number or price of shares of Restricted Stock issued
pursuant to a Restricted Stock Award.
The grant of an Option or Restricted Stock Award pursuant to this Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassification, reorganizations or changes of its capital or
business structure, or to merge or consolidate, or to dissolve or liquidate, or
to sell or transfer all or any part of its business or assets.
15. Approval of Plan
This Plan was adopted by resolution of the Board on July 7, 1993 and
approved by the shareholders on July 7, 1993.
InfoServe, Inc. Stock Incentive Plan
Page 11 of 11
<PAGE>
Exhibit 10.12
Written Consent in Lieu of a Meeting of the
Board of Directors of
CD-MAX, Inc.
This written consent is in lieu of a meeting of the Board of Directors of
CD-MAX, Inc. and is effective as of April 17, 1996. This consent has been duly
executed by all members of the Board of Directors with each director abstaining
on any resolution which affected him directly.
RESOLVED, that the following individuals shall each be granted Common Stock
Purchase Warrant to purchase 247,500 shares of common stock with an initial
exercise price of $10.50 per share. Such other provisions of the warrants shall
be in form and substance similar to the warrant attached hereto. In addition,
each recipient of such warrant must agree to the cancellation of the currently
outstanding option to purchase 25,000 shares of common stock which was effective
on December 23, 1994.
o Robert A. Wiedemer
o John David Wiedemer
o Philip J. Gross
o David B. Boelio
FURTHER RESOLVED, that the proper officers of the Company are hereby, and each
of them is hereby, authorized , empowered and directed, for and on behalf of the
Company, to execute, deliver, file, acknowledge and record any and all such
documents and instruments, and to take or cause to be done any and all such
other things as they, or any of them, may deem necessary or desirable to
effectuate and carry out the resolutions adopted hereby; and be it
FURTHER RESOLVED, that the proper officers of the Company are hereby, and each
of them is hereby, authorized, empowered and directed to take such further
actions and to execute and deliver such agreements, instruments, documents and
certificates as they may deem necessary and appropriate to carry into effect the
intent of the foregoing resolutions; and be it
This Consent may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument.
The Secretary of the Company is hereby directed to file this Consent, when fully
executed, in the minute book of the Company.
Executed as of the 17th day of April, 1996.
/s/ Steven P. Schnipper
----------------------------
Steven P. Schnipper
/s/ Philip J. Gross
----------------------------
Philip J. Gross
/s/ Robert A. Wiedemer
----------------------------
Robert A. Wiedemer
/s/ John D. Wiedemer
----------------------------
John D. Wiedemer
<PAGE>
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED,
ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER
THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE
SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE
ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF
COUNSEL TO THE COMPANY, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY,
THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF
THE ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE SECURITIES LAW.
April 17, 1996
CD-MAX, INC.
COMMON STOCK PURCHASE WARRANT
The Transferability of this Warrant is
Restricted as Provided in Section 3
W-___ 247,500 Warrants
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by CD-MAX,, Inc., a Delaware
corporation (the "Company"),_______ is hereby granted the right to purchase, at
the initial exercise price of $10.50 per share (subject to adjustment as
provided herein), at any time from October 1, 1996 until 5:00 p.m. on September
30, 2006, 247,500 shares of common stock of the Company, $.01 par value per
share (the "Shares"), provided that the common stock of the Company has traded
for twenty days in any thirty business day period at a closing bid price equal
to or greater than $10.50, as adjusted for any stock splits or
recapitalizations, provided, however, that if the Company does
1
<PAGE>
not consummate a Public Offering of its securities by December 31, 1997, these
warrants shall expire.
Each Common Stock Purchase Warrant (the "Warrant") initially
is exercisable at a price of $10.50 per Share, payable in cash or by certified
or official bank check in New York Clearing House funds, subject to adjustments
as provided in Section 5 hereof. Upon surrender of this Warrant, with the
annexed Subscription Form duly executed, together with payment of the Purchase
Price (as hereinafter defined) for the Shares purchased at the offices of the
Company, the registered holder of this Warrant (the "Holder") shall be entitled
to receive a certificate or certificates for the Shares so purchased.
1. Exercise of Warrant.
The purchase rights represented by this Warrant are
exercisable at the option of the Holder, in whole or in part (but not as to
fractional Shares underlying this Warrant), during any period in which this
Warrant may be exercised as set forth above. In the case of the purchase of less
than all the Shares purchasable under this Warrant, the Company shall cancel
this Warrant upon the surrender hereof and shall execute and deliver a new
Warrant of like tenor for the balance of the Shares purchasable hereunder.
2. Issuance of Certificates.
Upon the exercise of this Warrant and payment in full for the
Shares, the issuance of certificates for Shares underlying this Warrant shall be
made forthwith (and in any event within five (5) business days thereafter)
without charge to the Holder, including, without limitation, any tax which may
be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Section 3 hereof) be issued in the name of, or in
such names as may be directed by, the Holder; provided, however, that the
Company shall not
2
<PAGE>
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The certificates representing the Shares underlying this Warrant shall be
executed on behalf of the Company by the manual or facsimile signature of the
present or any future President or Vice President and Secretary or Assistant
Secretary of the Company.
3. Restriction on Transfer; Registration Under the Securities
Act of 1933, as amended.
3.1 Neither this Warrant nor any Share issuable upon exercise
hereof has been registered under the Securities Act of 1933, as amended (the
"Act"), and none of such securities may be offered, sold, pledged, hypothecated,
assigned or transferred except (i) pursuant to a registration statement under
the Act which has become effective and is current with respect to such
securities, or, (ii) pursuant to a specific exemption from registration under
the Act but only upon a Holder hereof first having obtained the written opinion
of counsel to the Company, or other counsel reasonably acceptable to the
Company, that the proposed disposition is consistent with all applicable
provisions of the Act as well as any applicable "Blue Sky" or similar state
securities law. Upon exercise, in part or in whole, of this Warrant, each
certificate issued representing the Shares underlying this Warrant shall bear a
legend to the foregoing effect.
3
<PAGE>
4. Price.
4.1 Initial and Adjusted Purchase Price. The initial purchase
price shall be $10.50 per Share. The adjusted purchase price shall be the price
which shall result from time to time from any and all adjustments of the initial
purchase price in accordance with the provisions of Section 5 hereof and subject
to Section 6 hereof.
4.2 Purchase Price. The term "Purchase Price" herein shall
mean the initial purchase price or the adjusted purchase price, depending upon
the context.
5. Adjustments of Purchase Price and Number of Shares.
In the event that, prior to the issuance by the Company of all
the Shares issuable upon exercise of this Warrant, there shall be any change in
the outstanding common stock of the Company by reason of the declaration of
stock dividends, or through a recapitalization resulting from stock splits or
combinations, the remaining Shares still subject to this Warrant and the
purchase price thereof shall be appropriately adjusted (but without regard to
fractions) by the Board of Directors of the Company to reflect such change.
6. Merger or Consolidation.
In case of any consolidation of the Company with, or merger of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger which does not result in any reclassification or
change of the outstanding common stock of the Company), the corporation formed
by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the Holder shall have the right
thereafter (until the expiration of such Warrant) to receive, upon exercise of
his Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger by a holder of the number
of shares of common stock of
4
<PAGE>
the Company for which his Warrant might have been exercised immediately prior to
such consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in Section 5. The above provisions of this Section 6 shall
similarly apply to successive consolidations or mergers.
7. Exchange and Replacement of Warrant.
This Warrant is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company for a new Warrant of like tenor and date representing in the
aggregate the right to purchase the same number of Shares as are purchasable
hereunder in such denominations as shall be designated by the Holder hereof at
the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant.
8. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of Shares on the exercise of this Warrant, nor shall it
be required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated.
5
<PAGE>
9. Reservation of Securities.
The Company shall at all times reserve and keep available out
of its authorized common stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of Shares as shall be issuable upon the
exercise hereof. The Company covenants and agrees that, upon exercise of this
Warrant and payment of the Purchase Price therefor, all Shares issuable upon
such exercise shall be duly and validly issued, fully paid and nonassessable.
10. Notices to Warrant Holders.
Nothing contained in this Warrant shall be construed as
conferring upon the Holder hereof the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights whatsoever as
a stockholder of the Company.
11. Notices.
All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered
personally, telegraphed or sent by certified, registered, or express mail,
postage prepaid, and shall be deemed given when so delivered personally,
telegraphed or, if mailed, five days after the date of deposit in the United
States mails, as follows:
(a) If to the Company, to:
CD-MAX, Inc.
11480 Sunset Hills Road
Suite 110
Reston, Virginia 22090-5208
Attn: Robert A. Wiedemer
6
<PAGE>
(b) If to the registered Holder, to the address of such Holder
as shown on the books of the Company.
12. Successors.
All the covenants, agreements, representations and warranties
contained in this Warrant shall bind the parties hereto and their respective
heirs, executors, administrators, distributees, successors and assigns.
13. Headings.
The headings in this Warrant are inserted for purposes of
convenience only and shall have no substantive effect.
14. Law Governing.
This Warrant is delivered in the State of Virginia and shall
be construed and enforced in accordance with, and governed by, the laws of the
State of Virginia, without giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed in its corporate name by, and such signature to be attested to by, a duly
authorized officer and has caused its corporate seal to be affixed hereto on the
date first above written.
CD-MAX,, INC.
By:
----------------------------
Name:
Title:
[SEAL]
Attest:
- -----------------------
Secretary
7
<PAGE>
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the
right to purchase ______ Shares represented by this Warrant in accordance to the
conditions hereof and herewith makes payment of the Purchase Price of such
Shares in full.
------------------------------
Signature
------------------------------
Address
------------------------------
Dated: Social Security Number or
Taxpayer's Identification
Number
8
<PAGE>
MEMORANDUM
To: CD-MAX File
From: The Undersigned Individuals
Re: Cancellation of Stock Options
Date: April 17, 1996
- -------------------------------------------------------------------------------
This is to confirm that each of the undersigned individuals does hereby agree to
the cancellation of their respective stock option for 750,000 shares of CD-MAX
common stock (on a pre-split basis) upon the issuance of their respective
"Management Warrant" for 247,500 shares (on a post-split basis).
/s/ Robert A. Wiedemer
- ----------------------------
Robert A. Wiedemer
/s/ John David Wiedemer
- ----------------------------
John David Wiedemer
/s/ David B. Boelio
- ----------------------------
David B. Boelio
/s/ Philip J. Gross
- ----------------------------
Philip J. Gross
<PAGE>
FINANCIAL ADVISORY AND CONSULTING AGREEMENT
This Agreement is made and entered into as of this day of 1996, by
and between CD-MAX, Inc., a Delaware corporation (the "Company"), an Joseph
Stevens & Company, L.P. (the "Consultant").
In consideration of and for the mutual promises and covenants contained
herein, and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Purpose. The Company hereby retains the Consultant during the term
specified in Section 2 hereof to render consulting advice to the Company as an
investment banker relating to financial and similar matters, upon the terms and
conditions as set forth herein.
2. Term. Subject to the provisions of Sections 8, 9 and 10 hereof, this
Agreement shall be effective for a period of twenty-four (24) months commencing
, 1996.
3. Duties of Consultant. During the term of this Agreement, the
Consultant will provide the Company with such regular and customary consulting
advice as is reasonably requested by the Company, provided that the Consultant
shall not be required to undertake duties not reasonably within the scope of the
consulting advisory service contemplated by this Agreement. In performance of
these duties, the Consultant shall provide the Company with the benefits of its
best judgment and efforts. It is understood and acknowledged by the parties that
the value of the Consultant's advice is not measurable in any quantitative
manner, and that the Consultant shall be obligated to render advice, upon the
request of the Company, in good faith, but shall not be obligated to spend any
specific amount of time in doing so. The Consultant's duties may include, but
will not necessarily be limited to:
<PAGE>
A. Providing sponsorship and exposure in connection with the
dissemination of corporate information regarding the Company to the investment
community at large under a systematic planned approach.
B. Rendering advice and assistance in connection with the preparation
of annual and interim reports and press releases.
C. Arranging, on behalf of the Company and its representatives, at
appropriate times, meetings with securities analysts of major regional
investment banking firm.
D. Assisting in the Company's financial public relations, including
discussions between the Company and the financial community.
E. Rendering advice with regard to internal operations, including
(1) advice regarding formation of corporate goals and their
implementation;
(2) advice regarding the financial structure of the Company and its
divisions or subsidiaries or any programs and projects of such entities;
(3) advice concerning the securing, when necessary and if possible, of
additional financing through banks, insurance companies and/or other
institutions; and
(4) advice regarding corporate organization and personnel.
F. Rendering advice with respect to any acquisition program of the
Company.
G. Rendering advice regarding a future public or private offering of
securities of the Company or of any subsidiary.
4. Relationships with Others. The Company acknowledges that the
Consultant and its affiliates are in the business of providing financial
services and consulting advice (of all types contemplated by this Agreement) to
others. Nothing herein contained shall be construed to limit or restrict the
Consultant or its affiliates from rendering such services or advice to others.
5. Consultant's Liability. In the absence of gross negligence or
willful misconduct on the part of the Consultant, or the Consultant's breach of
this Agreement, the Consultant shall not be liable to the Company, or to any
officer, director, employee, shareholder or creditor of the Company, for any act
or omission in the course of or in connection with the rendering or providing of
advice hereunder. Except in those cases where the gross negligence or willful
misconduct of the Consultant or the breach by the Consultant of this Agreement
is alleged and proven, the Company agrees to defend, indemnity and hold the
Consultant harmless from and against any and all reasonable costs, expenses and
liability (including, but not limited to, attorneys' fees paid in the defense of
the Consultant) which may in any way result from services rendered by the
Consultant pursuant to or in any connection with this Agreement.
2
<PAGE>
6. Expenses. The Company, upon receipt of appropriate supporting
documentation, shall reimburse the Consultant for any and all reasonable
out-of-pocket expenses incurred by the Consultant in connection with services
rendered by the Consultant to Company pursuant to this Agreement, including, but
not limited to, hotel, food and associated expenses, all charges for travel and
long-distance telephone calls and all other expenses incurred by the Consultant
in connection with services rendered by the Consultant to the Company pursuant
to this Agreement. Expenses payable under this Section 6 shall not include
allocable overhead expenses of the Consultant, including, but not limited to,
attorneys' fees, secretarial charges and rent.
7. Compensation. As compensation for the services to be rendered by the
Consultant to the Company pursuant to Section 3 hereof, the Company shall pay
the Consultant a financial consulting fee of two thousand dollars ($2,000) per
month for twenty-four (24) months commencing on , 1996. Forty-Eight
Thousand Dollars ($48,000), representing payment in full of all amounts due the
Consultant pursuant to this Section 7, shall be paid by the Company on
, 1996.
8. Other Advice. In addition to the duties set out in Section 3 hereof,
the Consultant agrees to furnish advice to the Company in connection with the
acquisition of and/or merger with other companies, joint ventures with any third
parties, license and royalty agreements and any other financing (other than the
private or public sale of the Company's securities for cash), including, but not
limited to, the sale of the Company itself (or any significant percentage,
subsidiaries or affiliates thereof).
In the event that any such transactions are directly or indirectly
originated by the Consultant for a period of five (5) years from the date
hereof, the Company shall pay fees to the Consultant as follows:
Legal Consideration Fee
------------------- ---
1. $ -0- - $3,000,000 5% of legal consideration
2. $ 3,000,001 - $4,000,000 Amount calculated pursuant to line 1 of
this computation, plus 4% of excess over
$3,000,000
3. $ 4,000,001 - $5,000,000 Amount calculated pursuant to ___ _____
1 and 2 of this computation, plus 3%
of excess over $4,000,000
4. above $ 5,000,000 Amount calculated pursuant to lines
1, 2 and 3 of this computation, plus
2% of excess over $5,000,000.
3
<PAGE>
Legal consideration is defined, for purposes of this Agreement, as the
total of stock (valued at market on the day of closing, or if there is no
public market, valued as set forth herein for other property), cash and assets
and property or other benefits exchanged by the Company or received by the
Company or its shareholders (all valued at fair market value as agreed or, if
not, by any independent appraiser), irrespective of period of payment or terms.
9. Sales or Distributions of Securities. If the Consultant assists the
Company in the sale or distribution of securities to the public or in a private
transaction, the Consultant shall receive fees in the amount and form to be
arranged separately at the time of such transaction.
10. Form of Payment. All fees due to the Consultant pursuant to Section
8 hereof are due and payable to the Consultant, in cash or by certified check,
at the closing or closing of a transaction specified in such Section 8 or as
otherwise agreed between the parties hereto; provided, however, that in the case
of license and royalty agreements specified in Section 8 hereof, the fees due
the Consultant in receipt of such license and royalty agreements shall be paid
as and when license and/or royalty payments are received by the Company. In the
event that this Agreement shall not be renewed for a period of at least twelve
(12) months at the end of the five (5) year period referred to in Section 8
hereof or if terminated for any reason prior to the end of such five (5) year
period then, notwithstanding any such non-renewal or termination, the Consultant
shall be entitled to the full fee for any transaction contemplated under Section
8 hereof which closes within twelve (12) months after such non-renewal or
termination.
11. Limitation Upon the Use of Advice and Services.
(a) No person or entity, other than the Company or any of its
subsidiaries, shall be entitled to make use of or rely upon the advice of the
Consultant to be given hereunder, and the Company shall not transmit such advice
to others, or encourage or facilitate the use of or reliance upon such advice by
others, without the prior written consent of the Consultant.
(b) It is clearly understood that the Consultant, for services rendered
under this Agreement, makes no commitment whatsoever as to making a market in
the securities of the Company or to recommend or advise its clients to purchase
the securities of the Company. Research reports or corporate finance reports
that may be prepared by the Consultant will, when and if prepared, be done
solely on the merits or judgment of analysts of the Consultant or senior
corporate finance personnel of the Consultant.
4
<PAGE>
(c) The use of the Consultant's name in any annual report or other
report of the Company, or any release or similar document prepared by or on
behalf of the Company, must have the prior written approval of the Consultant
unless the Company is required by law to include the Consultant's name in such
annual report, other report or release, in which event the Consultant will be
furnished with a copy of such annual report, other report or release using
Consultant's name in advance of publication by or on behalf of the Company.
(d) Should any purchases of securities be requested to be effected
through the Consultant by the Company, its officers, directors, employees or
other affiliates, or by any person on behalf of any profit sharing, pension or
similar plan of the Company, for the account of the Company or the individuals
or entities involved, such orders shall be taken by a registered account
executive of the Consultant, shall not be subject to the terms of this
Agreement, and the normal brokerage commission as charged by the Consultant will
apply in conformity with all rules and regulations of the New York Stock
Exchange, the National Association of Securities Dealers, Inc. or other
regulatory bodies. Where no regulatory body sets the fee, the normal established
fee as used by the Consultant shall apply.
(e) The Consultant shall not disclose confidential information which it
learns about the Company as a result of its engagement hereunder, except as such
disclosure as may be required for Consultant to perform its duties hereunder.
12. Indemnification. Since the Consultant will be acting on behalf of
the Company in connection with its engagement hereunder, the Company and
Consultant have entered into a separate indemnification agreement substantially
in the form attached hereto as Exhibit A and dated the date hereof, providing
for the indemnification of Consultant by the Company. The Consultant has entered
into this Agreement in reliance on the indemnities set forth in such
indemnification agreement.
13. Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is deemed unlawful or invalid for any
reason whatsoever, such unlawfulness or invalidity shall not affect the validity
of the remainder of this Agreement.
14. Miscellaneous.
(a) Any notice or other communication between the parties hereto shall
be sent by certified or registered mail, postage prepaid, if to the Company,
addressed to it at 11480 Sunset Hills Road, Suite 110, Reston, Virginia 22090,
Attention: Robert Wiedemer, Chief Executive Officer, with a copy to Lewis,
Goldberg & Ball, Tysons Executive Plaza I, 2000 Corporate Ridge, Suite 1075,
McLean, Virginia 22102-7858, Attention: David Lewis, Esq. or, if to the
Consultant, addressed to it at 33 Maiden Lane, 8th Floor, New York, New York
10038, Attention: Joseph Sorbara, Chief Executive Officer, with a copy to
Orrick, Herrington & Sutcliffe, 666 Fifth Avenue, New York, New York 10103,
Attention: Rubi Finkelstein, Esq., or to such address as may hereafter be
designated in writing by one party to the other. Such notice or other
communication shall be deemed to be given on the date of receipt.
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<PAGE>
(b) If, during the term hereof, the Consultant shall cease to do
business, the provisions hereof relating to the duties of the Consultant and
compensation by the Company as it applies to the Consultant shall thereupon
cease to be in effect, except for the Company's obligation of payment for
services rendered prior thereto. This Agreement shall survive any merger of,
acquisition of, or acquisition by the Consultant and, after any such merger or
acquisition, shall be binding upon the Company and the corporation surviving
such merger or acquisition.
(c) This Agreement embodies the entire agreement and understanding
between the Company and the Consultant and supersedes any and all negotiations,
prior discussions and preliminary and prior agreements and understandings
related to the central subject matter hereof.
(d) This Agreement has been duly authorized, executed and delivered by
and on behalf of the Company and the Consultant.
(e) This Agreement shall be construed and interpreted in accordance
with laws of the State of New York, without giving effect to conflicts of laws.
(f) This Agreement and the rights hereunder may not be assigned by
either party (except by operation of law) and shall be binding upon and inure to
the benefit of the parties and their respective successors, assigns and legal
representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date hereof.
CD-MAX, INC.
By:
---------------------------
Robert Wiedemer
Chief Executive Officer
JOSEPH STEVENS & COMPANY, L.P.
By:
-----------------------------
6
<PAGE>
EXHIBIT A
, 1996
JOSEPH STEVENS & COMPANY, L.P
33 Maiden Lane
8th Floor
New York, New York 10038
Ladies and Gentlemen:
In connection with our engagement of JOSEPH STEVENS COMPANY, L.P.
(the "Consultant") as our financial advisor and investment banker, we hereby
agree to indemnify and hold the Consultant and its affiliates, and the
directors, officers, partners, shareholders, agents and employees of the
Consultant (collectively the "Indemnified Persons"), harmless from and against
any and all claims, actions, suits, proceedings (including those of
shareholders), damages, liabilities and expenses incurred by any of them
(including, but not limited to, fees and expenses of counsel) which are (A)
related to or arise out of (i) any actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made) by
us, or (ii) any actions taken or omitted to be taken by any Indemnified Person
in connection with our engagement of the Consultant pursuant to the Financial
Advisory and Consulting Agreement, of even date herewith, between the Consultant
and us (the "Consulting Agreement"), or (B) otherwise related to or arising out
of the Consultant's activities on our behalf pursuant to the Consultant's
engagement under the Consulting Agreement, and we shall reimburse any
Indemnified Person for all expenses (including, but not limited to, fees and
expenses of counsel) incurred by such Indemnified Person in connection with
investigating, preparing or defending any such claim, action, suit or proceeding
(collectively a "Claim"), whether or not in connection with pending or
threatened litigation in which any Indemnified Person is a party. We will not,
however, be responsible for any Claim which is finally judicially determined to
have resulted exclusively from the gross negligence or willful misconduct of any
person seeking indemnification hereunder. We further agree that no Indemnified
Person shall have any liability to us for or in connection with the Consultant's
engagement under the Consulting Agreement except for any Claim incurred by us
solely as a direct result of any Indemnified Person's gross negligence or
willful misconduct.
We further agree that we will not, without the prior written consent of
the Consultant settle, compromise or consent to the entry of any judgment in any
pending or threatened Claim in respect of which indemnification may be sought
hereunder (whether or not any Indemnified Person is an actual or potential party
to such Claim), unless such settlement, compromise or consent includes a legally
binding, unconditional, and irrevocable release of each Indemnified Person
hereunder from any and all liability arising out of such Claims.
<PAGE>
Promptly upon receipt by an Indemnified Person of notice of any
complaint or the assertion or institution of any Claim with respect to which
indemnification is being sought hereunder, such Indemnified Person shall notify
us in writing of such complaint or of such assertion or institution, but failure
to so notify us shall not relieve us from any obligation we may have hereunder,
unless, and only to the extent that, such failure results in the forfeiture by
us of substantial rights and defenses, and such failure to so notify us will not
in any event relieve us from any other obligation or liability we may have to
any Indemnified Person otherwise than under this Agreement. If we so elect or
are requested by such Indemnified Person, we will assume the defense of such
Claim, including the employment of counsel reasonably satisfactory to such
Indemnified Person and the payment of the fees and expenses of such counsel. In
the event, however, that such Indemnified Person reasonably determines in its
sole judgment that having common counsel would present such counsel with a
conflict of interest or such Indemnified Person concludes that there may be
legal defenses available to it or other Indemnified Persons different from or in
addition to those available to us, then such Indemnified Person may employ its
own separate counsel to represent or defend it in any such Claim and we shall
pay the reasonable fees and expenses of such counsel. Notwithstanding anything
herein to the contrary, if we fail timely or diligently to defend, contest, or
otherwise protect against any Claim, the relevant Indemnified Party shall have
the right, but not the obligation, to defend, contest, compromise, settle,
assert crossclaims or counterclaims, or otherwise protect against the same, and
shall be fully indemnified by us therefor, including, but not limited to, for
the fees and expenses of its counsel and all amounts paid as a result of such
Claim or the compromise or settlement thereof. In any Claim in which we assume
the defense, the Indemnified Person shall have the right to participate in such
defense and to retain its own counsel therefor at its own expense.
We agree that if any indemnity sought by an Indemnified Person
hereunder is held by a court to be unavailable for any reason, then (whether or
not the Consultant is the Indemnified Person) we and the Consultant shall
contribute to the Claim for which such indemnity is held unavailable in such
proportion as is appropriate to reflect the relative benefits to us, on the one
hand, and the Consultant, on the other, in connection with the Consultant's
engagement by us under the Consulting Agreement, subject to the limitation that
in no event shall the amount of the Consultant's contribution to such Claim
exceed the amount of fees actually received by the Consultant from us pursuant
to the Consultant's engagement under the Consulting Agreement. We hereby agree
that the relative benefits to us, on the one hand, and the Consultant, on the
other hand, with respect to the Consultant's engagement under the Consulting
Agreement shall be deemed to be in the same proportion as (a) the total value
paid or proposed to be paid or received by us or our stockholders as the case
may be, pursuant to the transaction (whether or not consummated) for which the
Consultant is engaged to render services bears to (b) the fee paid or proposed
to be paid to the Consultant in connection with such engagement.
2
<PAGE>
Our indemnity, reimbursement and contribution obligations under this
Agreement shall be in addition to, and shall in no way limit or otherwise
adversely affect any rights that an Indemnified Part may have at law or at
equity.
Should the Consultant, or any of its directors, officers, partners,
shareholders, agents or employees, be required or be requested by us to provide
documentary evidence or testimony in connection with any proceeding arising from
or relating to the Consultant's engagement under the Consulting Agreement, we
agree to pay all reasonable expenses (including but not limited to fees and
expenses of counsel) in complying therewith and one thousand dollars ($1,000)
per day for any sworn testimony or preparation therefor, payable in advance.
We hereby consent to personal jurisdiction and service of process and
venue in any court in which any claim for indemnity is brought by any
Indemnified Person.
It is understood that, in connection with the Consultant's engagement
under the Consulting Agreement, the Consultant may be engaged to act in one or
more additional capacities and that the terms of the original engagement or any
such additional engagement may be embodied in one or more separate written
agreements. The provisions of this Agreement shall apply to the original
engagement and any such additional engagement and shall remain in full force and
effect following the completion or termination of the Consultant's
engagements).
Very truly yours,
CD-MAX, INC.
By:
-------------------------------
Robert Wiedemer
Chief Executive officer
CONFIRMED AND AGREED TO:
JOSEPH STEVENS & COMPANY, L.P.
By:
3
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 29, 1995 (except Note 8, as to which the date is
May 16, 1996), in the Registration Statement (Form SB-2 No. 333 ___) and related
Prospectus of CD-MAX, Inc. (formerly InfoServe, Inc.) for the registration of
900,000 units.
Vienna, Virginia /s/ ERNST & YOUNG LLP
June 10, 1996 ------------------
ERNST & YOUNG LLP
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Robert A. Wiedemer and Philip J. Gross,
or either of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting said attorney-in-fact and agent,
and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
/s/Robert A. Wiedemer June 7, 1996
(Name)Robert A. Wiedemer (Title)President, Date
Chief Executive Officer, Chairman of Board
of Directors
/s/Philip J. Gross June 7, 1996
------------------------------------------------- ------------
(Name)Philip J. Gross (Title)Secretary, Date
Treasurer, Vice-President-Chief Financial
Officer (principal financial officer,
principal accounting officer)
/s/John David Wiedemer June 7, 1996
(Name)John David Wiedemer (Title)Senior Vice Date
President-Operations, Director
/s/David B. Boelio June 7, 1996
------------------------------------------------- ------------
(Name)David B. Boelio (Title)Senior Vice Date
President-Marketing and Sales
/s/Steven P. Schnipper June 7, 1996
------------------------------------------------- ------------
(Name)Steven P. Schnipper (Title) Director Date
/s/Weldon P. Rackley June 7, 1996
------------------------------------------------- ------------
(Name)Weldon P. Rackley (Title) Director Date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CD-MAX, INC.
(FORMERLY INFOSERVE, INC.) FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JUNE 30,
1995 AND NINE MONTHS ENDED MARCH 31, 1996.
</LEGEND>
<CIK> 0001015457
<NAME> CD-MAX, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUN-30-1995 MAR-31-1996
<PERIOD-START> JUL-01-1994 JUL-01-1995
<PERIOD-END> JUN-30-1995 MAR-31-1996
<EXCHANGE-RATE> 1 1
<CASH> 301,856 30,462
<SECURITIES> 20,000 20,000
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 326,868 87,731
<PP&E> 0 58,085
<DEPRECIATION> 0 8,250
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<BONDS> 0 0
0 0
0 0
<COMMON> 15,740 20,473
<OTHER-SE> (24,426) (510,475)
<TOTAL-LIABILITY-AND-EQUITY> 326,868 137,566
<SALES> 2,500 8,500
<TOTAL-REVENUES> 6,462 16,589
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<INCOME-PRETAX> (1,082,415) (1,035,066)
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<INCOME-CONTINUING> (1,082,415) (1,035,066)
<DISCONTINUED> 0 0
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<NET-INCOME> (1,082,415) (1,035,066)
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