SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 1O-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended December 31, 1999
OR
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
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Commission file number: 0-21489
INTERNATIONAL DISPENSING CORPORATION
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(Name of Small Business Issuer in Its Charter)
Delaware 13-3856324
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
I-97 Business Park, 1111 Benfield Blvd.,
Suite 230, Millersville, Maryland 21108
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(Address or Principal Executive Offices) (Zip Code)
(410) 729-0125
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section l2(b) of the Exchange Act: None
Securities registered under Section l2(g) of the Exchange Act:
Common Stock, $.001 par value per share
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(Title of Class)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or l5(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
The registrant did not have any revenues for the fiscal year ended December
31, 1999.
The aggregate market value of the registrant's voting stock held by
non-affiliates computed by reference to the average bid and asked price of such
stock as of March 24, 2000 as reported on the National Association of Securities
Dealers OTC Bulletin Board was approximately $8,272,650. (Aggregate market value
has been estimated solely for the purposes of this report. For the purpose of
this report it has been assumed that all officers and directors of the
registrant are affiliates of the registrant. The statements made herein shall
not be construed as an admission for determining the affiliate status of any
person.)
APPLICABLE ONLY TO CORPORATE REGISTRANTS
There were 9,566,668 shares of Common Stock outstanding as of March 24,
2000.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
Documents Incorporated by Reference: None
<PAGE>
Information contained or incorporated by reference in this report contains
"forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. See, e.g., "Management's
Discussion and Analysis or Plan of Operations" and "Description of
Business-Strategic Focus." No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The following
matters include cautionary statements identifying important factors with respect
to such forward-looking statements, including certain risks and uncertainties,
that could cause actual results to vary materially from the future results
covered in such forward-looking statements. Other factors could also cause
actual results to vary materially from the future results covered in such
forward-looking statements.
PART I
ITEM 1. Description of Business.
General Description of Business
Products & Technologies
International Dispensing Corporation (the "Company") designs and
manufactures products which provide dispensing solutions for flowable food and
beverage products. The Company has proprietary technologies that can be adapted
to provide dispensing solutions across three distinct packaging platforms:
flexible packaging, rigid packaging and dispensing systems for beverage
concentrates. The Company was incorporated under the laws of Delaware in October
1995.
Flexible Packaging
Flexible packages typically use a plastic bag or pouch to hold flowable
foods or non-carbonated beverages. These packages are in turn enclosed in
corrugated boxes that display the product with high imagery graphics. Such
products include wine, cooking oils, coffee, tea and fruit juices.
The Company has designed a gravity flow valve (the "Gravity Flow
Valve") and a safety spout (the "Safety Spout") that are disposable and
tamper-evident products that safely deliver hot (200 degrees Fahrenheit) or cold
non-carbonated beverages. The Gravity Flow Valve fits on a flexible bag or pouch
and provides both a safety seal closure and a dispensing mechanism for hot or
cold beverages. The Gravity Flow Valve is unique because it can be customized to
product needs, such as flow, and designed to meet the ergonomic requirements of
the customer. The Company's Safety Spout is a flow restrictor that regulates the
quantity of liquid (hot or cold) that is evacuated from a bag or pouch.
The Gravity Flow Valve and Safety Spout are enabling technologies that
provide food and beverage companies with product safety benefits that represent
a competitive advantage and a sustainable product point of difference that
competitors cannot copy. The Gravity Flow Valve is designed with oxygen and
bacteria barriers that maintain the quality standards of the product during the
shipping, product handling and dispensing phases of a product's life cycle. Food
service and leading food and beverage companies recognize the cost, safety and
product performance benefits derived from dispensing food and beverage products
from the original package or container. The Gravity Flow Valve eliminates
secondary handling, product contamination and product waste.
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Flexible packaging companies understand the competitive benefit of
offering food and beverage companies a turn-key packaging solution that includes
innovative dispensing technology. The Gravity Flow Valve and Safety Spout
deliver products safely and, in the case of the Gravity Flow Valve, help
maintain product freshness once the package is opened.
The Company is currently in discussions with various companies in the
quick serve restaurant, food service and warehouse grocery channels of
distribution, as well as with leading food & beverage and flexible packaging
manufacturers, regarding the Company's flexible packaging products. The Company
expects to manufacture both the Gravity Flow Valve and Safety Spout in
commercial quantities during the current year.
Rigid Packaging
Rigid packaging typically is constructed of a plastic material that
holds non-carbonated beverages, flowable foods, including nacho cheese, salad
dressings, yogurts, puddings, sauces and condiments. The Company is working to
complete a portion control pump (the "Portion Control Pump") that would safely
dispense flowable foods in predictable quantities from both flexible and rigid
packages. The Portion Control Pump also helps maintain product freshness and is
designed to work with the characteristics of specific products such as
viscosity, particulate and portion size.
The Company has met with several major food and beverage manufacturers
and expects to manufacture the Portion Control Pump in commercial quantities
once a final contract is entered into with a customer for a specific product
application.
Dispensing Systems
The majority of non-carbonated beverage dispensing systems currently
rely on peristaltic pumps to evacuate products from a plastic bag or pouch. (A
peristaltic pump is either a mechanical or electrical positive displacement
device that is embedded in a dispensing system.) The current technology limits
the range of non-carbonated beverages that can be dispensed through a post-mix
unit. The Company has developed an innovative technology called the Fresh Flow
System that evacuates non-carbonated beverage concentrates from a plastic bag or
pouch without using a peristaltic pump.
The new Fresh Flow technology expands the variety of non-carbonated
beverages that can be dispensed by post-mix equipment. By utilizing the Fresh
Flow System, a dispensing equipment manufacturer will have the opportunity to
benefit from its exclusive sale to end users of flexible bags or pouches that
incorporate the Fresh Flow System.
The Company's Fresh Flow System has two component parts. One component
is a valve that is placed on the bag or pouch of beverage concentrate at the
filling facility. This valve acts as a closure and maintains the integrity of
the concentrate. Once the bag or pouch of concentrate is attached to the
dispensing equipment, the second component of the Fresh Flow System facilitates
the evacuation of the beverage concentrate.
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The Company is presently in discussions with major post-mix equipment
and food dispensing manufacturers for the purpose of adapting the Fresh Flow
System to their dispensing equipment.
Marketing Focus
The Company has developed a three-pronged marketing strategy. The first
leg of the strategy is directed toward the end users in the quick serve
restaurant, food service and warehouse grocery channels of distribution. The
second is directed towards leading food & beverage and flexible packaging
manufacturers. The third is a B2B e-commerce strategy that employs the Company's
website which is linked to the National Flexible Packaging Association's
website. The Company believes that its participation in an Internet system that
is cross-linked will create awareness and leads for the Company's products.
The Company is engaged in the direct selling and marketing of its
products and technology to large and small, national and regional, quick serve
restaurants, food service and warehouse grocery distributors. Across these
channels, there is a need to distribute and dispense food and non-carbonated
beverage products safely, conveniently and cost effectively. In the quick serve
restaurant and food service business there is a trend toward dispensing flowable
foods and non-carbonated beverages right from the plastic bags and pouches
received from suppliers. A majority of food and beverage products are filled and
shipped in steel containers or aluminum cans. Once the food or beverage
container arrives at the restaurant or food service outlet, the food and
beverage contents must be carefully poured or mixed into another stainless steel
dispenser. Therefore, the mixing and cleaning processes required with
traditional containers are not as cost effective or safe as self-contained bags
and pouches.
The Company believes that the increased emphasis placed by its
potential customers on product quality and product safety in the distribution
and dispensing process will present to the Company a growing marketing
opportunity. The Company's products and technology have the capability to offer
customized, cost effective dispensing solutions for food and non-carbonated
beverage products that are sold for consumption away from home.
In 1999, more than half of every dollar spent on a food or beverage
product was consumed "on the go" or away from home. As the "on the go"
consumption trend accelerates, food and beverage companies continue to source
new technologies that will allow them to control product quality from the point
of manufacture through the distribution phase and consumption phase. The Company
has met with leading food and beverage companies to discuss how to safely
distribute and dispense their products using plastic bags and/or pouches. The
Company is working to form alliances with these national and regional food and
beverage companies to incorporate its technologies.
The Company is also engaged in the direct selling and marketing of its
products and technology to large and small, national and regional packaging and
dispensing companies that specialize in flexible food and beverage packaging.
Packaging and dispensing companies are looking for leading edge products and
technologies that will provide them with product safety and product quality
dispensing solutions that are cost effective.
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The Company's products are designed to be bundled with the current
products and technologies of its potential packaging and dispensing customers in
order to provide a fully integrated, turn-key solution to the food and beverage
company end users. The Company is in the process of working with several
packaging and dispensing companies to determine the most advantageous strategic
fit. The benefit of forming alliances with packaging and dispensing companies is
the opportunity to share technology and reduce costs in order to produce
packaging solutions and/or dispensing systems that deliver higher margins.
With a nondisclosure agreement in place, the Company begins discussions
with a potential customer or partner in order to adapt the Company's
technologies to specific product requirements. Customers or strategic alliance
partners may choose to take a more active role in adapting the Company's
technologies to their specific product. In that case, a portion of the costs of
adapting the technologies to a particular application may be borne by the
customer or strategic alliance partners. The particular relationship between the
customer and the Company will vary depending on each party's resources and
needs. Therefore, in commercializing the technologies, the Company may use a
variety of structuring and cost sharing alternatives.
Competition and Trends in the Packaging and Dispensing Industry
The Company's competitors are manufacturers of alternative valves,
pumps and dispensing systems for flowable food and non-carbonated beverage
products. Competing technologies in the packaging and dispensing industry are in
many cases fifteen to twenty years old and are designed to dispense only simple
fluids. As a result, such technologies do not permit ergonomic customization of
products and cannot be embedded into new dispensing systems. Packaging and
dispensing limitations may result from the fact that food and beverage companies
often carefully guard disclosure to third parties of the characteristics of
products they are developing. Packaging and dispensing systems to support the
new food and beverage product are generally developed externally. As a result,
the packaging and dispensing collaboration often occurs in the final stages of
the product development process. Therefore, packaging and dispensing solutions
often cannot be synchronized with a new product entry until the new product has
been brought to market.
The Company is working with food and beverage companies under strict
nondisclosure agreements to try to synchronize the packaging and/or dispensing
development cycle with that of the new product. The incentive for the food and
beverage companies to begin work with the Company early on is the Company's
ability to customize and/or embed the technology into a unique packaging and/or
dispensing solution.
The Company's technology is designed to maintain a product's purity
throughout the time it is being used, by providing appropriate mechanical
barriers to contamination while the product is being stored and dispensed. The
Company believes that its technologies provide the only commercially viable
closed delivery and dispensing system, which allows for continuous delivery of a
product in the desired metered or measured amounts while maintaining the
product's purity.
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The Company's major current competitors include Waddington & Duval, a
division of David S. Smith, and Smurfit-Stone Container Corp., each of which the
Company believes has greater capital resources than the Company.
The Company's technologies and capabilities differ from these leading
packaging companies in two distinct ways. First, the Company can modify the
spout's, valve's or pump's ergonomic look and feel to fit the brand, package, or
product characteristics. Second, the Company can modify the spout's or valve's
or pump's internal flow characteristics to conform to a wide range of product
viscosities.
Typically, large sizes of beverages and other flowable products, such
as condiments, certain fruit juices and wine, will remain fresh without
refrigeration for a relatively long period of time before being opened; however,
once the container is opened, the contents will spoil within a short period of
time. In the case of containers with general purpose valves, where the product
is dispensed by applying pressure with a finger, the product flows out at the
same time air enters the container, thereby accelerating the spoilage of the
remainder of the product. Furthermore, the repeated use of fingers directly
adjacent to the spout also can lead to unsanitary conditions. There are several
faucet-type valves that eliminate some of the sanitary problems described above,
but they are costly and not widely used.
The soda-fountain-type pumps utilized for various condiments employ
stainless steel or plastic containers into which the condiments are poured. Such
pumps may encounter spillage onto the dispensing mechanism during the course of
a day and require frequent servicing. To maintain sanitary conditions, these
pumps must be disassembled, cleaned and sterilized daily.
The Company believes that its dispensing alternatives offer a distinct
advantage over each of these other systems because each of the Company's
products is designed to prohibit the flow of air and contaminants back into it
when product is being dispensed. It is anticipated that the Company's products
will require no cleanup, since the product will always be contained in a bag or
a pouch and the entire system will be disposable. A self-contained system
provides considerably more product purity and cleanliness. The Company's
products are designed to keep products fresher and purer while being consumed.
In instances where available on premises, additional precise temperature control
in conjunction with the systems will provide vendors with the ability to serve
and sell perishable products at their optimum temperature.
Research and Development
The Company significantly changed its approach to the product
development and research methodology process in 1999. Janet George Murnick,
Ph.D. was retained by the Company in late September 1999 and has helped the
Company redirect its testing, research and product development processes. Dr.
Murnick brings over 25 years of successful product and commercialization
expertise from the biomedical and pharmacutical industry.
The Company spent approximately $502,547 on research and product
development activities during fiscal 1999 as compared to a total of $349,034 on
research activities during fiscal 1998.
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The License Agreement
Pursuant to an Amended and Restated License Agreement with an effective
date of October 10, 1995 (the "License Agreement") with ReSeal International
Corporation, a Florida corporation ("RIC"), the Company paid to RIC an aggregate
of $4,000,000 and issued to RIC an aggregate of 2,900,000 shares of the
Company's Common Stock, par value $.001 per share ("Common Stock"), in exchange
for an exclusive worldwide royalty-free license to (i) directly or indirectly
make (or subcontract to make), use, sell and otherwise commercially exploit
certain technologies, solely in the Field of Use (as defined below) and (ii)
grant sublicenses to affiliated and non-affiliated third parties, solely in the
Field of Use, provided, however, that the Company shall not be permitted to
sublicense the right to manufacture patented unidirectional flow valves licensed
under the License Agreement (the "Valve Assemblies"). "Field of Use" means the
use of the licensed technologies to make, use, lease, sell or distribute (a) any
food or beverage dispensers or containers that embody the technologies or the
manufacture, use, lease, sale or distribution of which uses the technologies
(collectively, the "Product") intended for use in an industrial or commercial
place of business in the preparation of food or beverage at such place of
business, (b) any food or beverage Product intended for use in an industrial or
commercial place of business by a customer purchasing food or beverage at such
place of business for consumption on or off the premises of such place of
business, or (c) any food or beverage Product intended to be sold to or by food
or beverage wholesale price discounters, retailers and similar establishments
that sell food or beverage to consumers.
Under the License Agreement, the Company is primarily responsible for
all research and development activities necessary to exploit fully the
commercial possibilities of the technologies. The research and development
activities include testing of proposed products and ongoing technical support
for the modification, improvement, enhancement, development or variation of
existing products and the development of new products. RIC is responsible for
causing ReSeal International Limited Partnership ("RILP"), RIC's licensor and
parent company, to manage all intellectual property associated with the licensed
technologies, including patents and trademarks, to maximize its commercial
potential. This obligation includes the prosecution of all patent and trademark
applications, subject to the Company's approval of budgets and expenditures in
advance, and, in the sole discretion of RIC (or upon receipt by RIC of the
Company's commitment to pay 100% of the related reasonable costs and expenses),
all suits against third parties for infringement of patents or trademarks. If
RIC or RILP is unwilling or unable to undertake such patent obligations, then
the Company is authorized to undertake such obligations on its own behalf.
The License Agreement may not be assigned by either party thereto
without the express written consent of the other party, except that the Company
may sublicense applications of the licensed technologies within the Field of Use
at its own discretion and may subcontract, but not sublicense, for the
manufacturing of components incorporating the licensed technologies in the Field
of Use.
Patents, Trademarks and Other Intellectual Property
Under the License Agreement, RIC has granted to the Company a
license to use certain patents which RIC in turn licenses from RILP, the owner
of such patents. The License Agreement includes a license to the Company to use
certain trademarks RIC licensed from RILP, which the Company believes
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to be immaterial. These patents encompass a broad range of delivery and
dispensing technologies and product applications for food and beverages. The
following sets forth a summary of certain key patents.
1. A valve assembly for a container permitting the easy dispensing of
fluid while preventing backflow of contaminants through the valve
assembly into the container holding the remaining fluid.
U.S. Patent No. Re. 34,243 (Expiration Date:
July 11, 2006)
2. An enclosing sleeve for a one-way valve presses an elastomeric sheath
against the valve body to provide a seal between the sheath and the
valve body. In addition, the sleeve can form a closure over the outlet
end of the valve body protecting it from contamination or contact with
contaminating surfaces.
U.S. Patent No. 5,092,855 (Expiration Date:
March 3, 2009)
3. An elastomeric sleeve stretched over the valve body with ring-shaped
enlargements on each end forming "molded o-rings" in tight sealed
contact to the valve body.
U.S. Patent No. 5,305,783 (Expiration Date:
April 26, 2011)
4. A fluid dispensing unit includes a collapsible reservoir with a one-way
valve at its outlet for directing flow into a metering chamber. The
metering chamber has an outlet connected to another one-way valve which
prevents backflow of contaminants into the container after fluid is
dispensed. Both the collapsible reservoir and the metering chamber can
be completely collapsed to ensure that the dispensing unit is
completely empty.
U.S. Patent No. 5,279,447 (Expiration Date:
January 18, 2011)
5. A disc shaped valve body enclosed circumferentially by an elastomeric
membrane. Fluid flows through separate passageways between the
circumferential edge of the valve body and the elastomeric membrane.
U.S. Patent No. 5,279,330 (Expiration Date:
January 18, 2011)
6. A one-way valve assembly with a cover member which encloses an
expandable elastomer sleeve and valve body and which presses the sleeve
into fluid-tight contact with the valve body at two axially spaced
locations.
U.S. Patent No. 5,305,786 (Expiration Date:
April 26, 2011)
7. A dispenser with two separate collapsible chambers, each holding a
component or substance to be mixed before use with at least one
component being in a flowable condition. A one-way valve permits flow
of the flowable component into the other chamber and prevents any
backflow, thereby
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providing the dispensing of a mixture having a short use lifetime where
the components of the mixture are capable of being stored separately
for an extended period.
U.S. Patent No. 5,353,961 (Expiration Date:
October 11, 2011)
8. An embodiment that replaces the tubular or disc shaped valve core with
a flat valve platform more appropriate for higher speed and lower cost
manufacturing. The elastomeric sheath can be executed as a flat sheet
from roll stock. A housing component protects the sheath while
providing the necessary sealing and resistance needed for successful
functioning.
U.S. Patent No. 5,613,517 (Expiration Date:
March 25, 2014)
9. A one-way vacuum actuated sheath valve with a flat elastic membrane
held in tension over a convex valve platform under a conforming cover
with inlet and outlet channels. The cover includes an expansion area on
the cover surface adjacent to the membrane and between the inlet and
outlet. Liquid flows through the valve when it is drawn by a vacuum.
The vacuum operates on both the flow path exit, but also above the
membrane, lifting it to open the flow path. Discontinuance of the
vacuum allows the membrane to seal the inlet and outlet, thus again
preventing any flow between them.
U.S. Patent No. 5,673,251 (Expiration Date:
August 24, 2014)
In January and March 2000 the Company also filed provisional patent
applications with respect to its Safety Spout technology and Safety Spout with a
carafe.
Agreement with Well Men
On December 23, 1997, the Company entered into an agreement with Well
Men Industrial Company Limited, a Hong Kong registered corporation ("Well Men"),
pursuant to which Well Men granted to the Company an exclusive right to market
and sell in China certain products, including a water heater for showers, a
water pitcher and a filter for such water pitcher (collectively, the "Well Men
Products") manufactured by Well Men. Well Men also assigned to the Company for
the purpose of commercializing such Well Men Products, all of Well Men's patents
and patent applications relating to such Well Men products. Under the agreement
the Company has rights of first refusal to sell Well Men Products in any
territory outside of China and to market other products developed by Well Men in
China. The agreement is for an initial term of ten (10) years and shall continue
for successive periods of ten years unless terminated by either party by written
notice prior to the end of the existing term.
Pursuant to the agreement, the Company established a representative
office in Guangzhou, China, through which consultation and market research is
being provided. The Company also established, with Well Men's assistance, a
Chinese licensed and registered corporation, which would exclusively sell,
promote, market, advertise and solicit orders for Well Men Products in China.
The Company is solely responsible for
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all costs and expenses of the Chinese corporation until such time as it is
profitable. However, the Company does not have any equity interest in such
corporation.
In 1998 the Company received two orders for Well Men products in China.
The first order was for 2,750 water heaters and 11,000 water pitchers, which
were delivered to China in April pursuant to a Sale/Purchase Contract between
the Company and Guangdon Rixin Industrial Development Corporation, a Chinese
Government authorized Importer/Exporter ("Rixin"). The Company incurred a cost
of $217,250 for these goods and recorded revenues of $332,750 for the sale to
Rixin. The second order was for 5,000 water heaters placed in August for
delivery to China by December 31, 1998. The $275,000 cost of these units and the
related sales revenue of $375,000 were reflected as an account payable and an
account receivable, respectively. In December of 1998, Rixin canceled the second
order. Rixin has yet to make payment on the first order.
In December of 1998, Well Men materially breached its agreement with
the Company by selling Well Men water heaters directly in China. As a result of
this breach, the Company has discontinued its operations in China, and has taken
a charge of $718,926 representing costs and expenses incurred by the Company in
its China venture, and has fully reversed the $332,750 due from Rixin.
The Company intends to pursue payment of the $332,750 receivable from
Rixin as well as reimbursement from Well Men of expenses incurred by the Company
in its China venture.
Employees
As of March 24, 2000, the Company employed two people, one as an
executive officer and one as an office manager. Both persons were employed on
full-time basis.
ITEM 2. Description of Property.
The Company currently leases approximately 3,825 square feet of space
for its principal executive office at I-97 Business Park, 1111 Benfield
Boulevard, Millersville, Maryland 21108. The term of the lease expires on
September 30, 2005. The monthly rental on this property is currently
approximately $3,612. On September 30, 2000 and annually thereafter the rent
shall increase by 3%. Management believes that this facility is adequate for the
Company's intended activities in the foreseeable future.
ITEM 3. Legal Proceedings.
In or about January 2000, Nologies, Inc. ("Nologies"), a former
consultant to the Company based in Hartford, Connecticut, commenced an
arbitration proceeding against the Company before the American Arbitration
Association in Hartford, Connecticut. Nologies seeks an extension of time to
exercise certain stock options granted to it (the exercise period of which the
Company believes has expired), $12,000 allegedly due for unpaid consulting fees,
and $10,256.79 in reimbursable expenses, together with interest and the costs of
the arbitration. The Company has filed a general denial, together with a request
to change
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the locale of the proceeding to New York, New York. The Company intends to
oppose Nologies' request for any extension of time to exercise its stock options
and for the balance of the amounts sought.
ITEM 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of the Company's fiscal year ended December
31, 1999, no matter was submitted to a vote of security holders of the Company.
PART II
ITEM 5. Market for the Company's Common Equity and Related Stockholder Matters.
Since the consummation of the Company's initial public offering on
October 23, 1996 (the "IPO"), the Company's Common Stock has been traded and
quoted under the symbol IDND on the OTC Bulletin Board. The following table sets
forth the high and low bid prices for the Common Stock, as quoted on the OTC
Bulletin Board, for the periods indicated. Quotations are interdealer prices
without retail markup, markdown or commission, and may not necessarily represent
actual transactions.
High Low
---- ---
Quarter ended March 31, 1998 $1.57 $0.85
Quarter ended June 30, 1998 $2.97 $1.55
Quarter ended September 30, 1998 $2.09 $0.78
Quarter ended December 31, 1998 $1.06 $0.50
Quarter ended March 31, 1999 $1.00 $.469
Quarter ended June 30, 1999 $.625 $.219
Quarter ended September 30, 1999 $.531 $.25
Quarter ended December 31, 1999 $1.125 $.17
As of March 17, 2000, the Company had 64 holders of record of its
Common Stock. The Company believes that a significant number of shares of the
Company's Common Stock are held in street name and, consequently, it is unable
to determine the actual number of beneficial owners.
Since its inception, the Company has not paid any cash dividends on its
Common Stock. The Company intends to retain future earnings, if any, that may be
generated from the Company's operations to help finance the operations and
expansion of the Company and accordingly does not plan, for the reasonably
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foreseeable future, to pay cash dividends to holders of the Common Stock. Any
decisions as to the future payment of dividends will depend on the earnings and
financial position of the Company and such other factors as the Company's Board
of Directors deem relevant.
ITEM 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis should be read in conjunction
with the Company's financial statements, beginning on page F-1, and financial
information included elsewhere in this report.
The Company was formed primarily for the purpose of commercializing and
marketing technologies designed to maintain the sterility, purity and freshness
of flowable food and beverage products. The Company is focusing its marketing
activities on the application of licensed technologies in the Field of Use as
set forth in the License Agreement (which encompasses the food and beverage
industries as broadly defined) as well as technologies the Company is
independently developing.
The Company is undertaking the formation of strategic alliances or
direct license/supply agreements with major food and beverage companies, as well
as applicable equipment/bag-in-box manufacturers, currently generating
substantial revenues from their existing markets.
The Company is subject to a number of risks including the Company's
lack of prior operating history. The Company is also subject to the availability
of sufficient financing to meet its future cash requirements and the uncertainty
of future product development and regulatory approval and market acceptance of
existing and proposed products. In the event of the bankruptcy of RIC, the
status of the continuing obligations of the various parties to and under the
License Agreement is unclear since a court in a bankruptcy proceeding may not
enforce such continuing obligations. Additionally, other risk factors such as
loss of key personnel, lack of manufacturing capabilities, difficulty in
establishing new intellectual property rights and preserving and enforcing
existing intellectual property rights as well as product obsolescence due to the
development of competing technologies could impact the future results of the
Company.
Results of Operations
The Company has not generated any revenues to date and must be
considered to be in the development stage. The activities of the Company since
inception in October 1995 have been primarily directed at formational
activities, including the completion of initial capitalization, research and
development and pre-production marketing.
The Company has engaged in on-going marketing discussions with a number
of potential strategic alliance partners, licensees and end users of its
technologies. In this regard, discussions have been conducted with major
companies in Canada, Europe and the United States to explore opportunities in
the product categories.
11
<PAGE>
For the twelve months ended December 31, 1999, the Company had
operating expenses of $1,740,163 versus operating expenses of $1,341,990 for the
twelve month period ended December 31, 1998. This increase of $398,173 or 29.7%
over the comparable period last year is primarily due to an increase in
executive compensation associated with the hiring of a new President and Chief
Executive Officer, the cost associated with the Company's private placement of
its preferred stock, and the Company's acceleration of investment in research
and development of its core technology.
For the twelve months ended December 31, 1999, the Company had a net
loss of $1,702,108 versus a net loss of $1,938,390 for the twelve months ended
December 31, 1998. This decrease in net loss of $236,282, or 12.2% over the
comparable period last year is almost entirely due to not incurring any further
substantial expenses associated with the Company's discontinued China
operations.
In 1998 the Company received two orders for Well Men products in China.
The first order was for 2,750 water heaters and 11,000 water pitchers, which
were delivered to China in April pursuant to a Sale/Purchase Contract between
the Company and Guangdon Rixin Industrial Development Corporation, a Chinese
Government authorized Importer/Exporter ("Rixin"). The Company incurred a cost
of $217,250 for these goods and recorded revenues of $332,750 for the sale to
Rixin. The second order was for 5,000 water heaters placed in August for
delivery to China by December 31, 1998. The $275,000 cost of these units and the
related sales revenue of $375,000 were reflected as an account payable and an
account receivable, respectively. In December of 1998, Rixin canceled the second
order. Rixin has yet to make payment on the first order.
In December 1998, Well Men materially breached its agreement with the
Company by selling Well Men water heaters directly in China. As a result of this
breach, the Company has discontinued its operations in China, and has taken a
charge of $718,927 representing costs and expenses incurred by the Company in
its China venture, and has fully reversed the $332,750 due from Rixin.
From inception (October 10, 1995) to December 31, 1999, the Company has
incurred a net loss from continuing and discontinued operations of $6,338,068.
Financial Condition
As reflected in the financial statements, the Company has experienced
continuing net losses and negative cash flows from operations through December
31, 1999. The Company's continuing existence is dependent on its ability to
achieve and maintain profitable operations. The Company continues to be in the
development stage and does not anticipate generating any operating revenue until
at least the fourth quarter of the fiscal year ending December 31, 2000 ("Fiscal
2000"), at which time, it may be in a position to generate revenue from sales of
its products.
As of February 28, 2000, the Company had working capital of
approximately $950,000. The Company anticipates that during Fiscal 2000, the
Company will be spending at a rate of approximately
12
<PAGE>
$130,000 per month. Therefore, the Company expects that it will require
additional capital to finance its operations during and after the third quarter
of Fiscal 2000.
The Company is currently studying the alternatives under which the
Company may raise additional funds. The Company expects that it will need an
additional $3,000,000 to $4,000,000 for the two-year period commencing in the
third quarter of Fiscal 2000. If the Company is not able to obtain additional
funds on terms and conditions satisfactory to the Company, the Company will have
to scale back its research and development and product commercialization
activities. Ultimately, the Company's ability to continue as a going concern is
dependent upon its ability to sell its equity securities and to produce and
market its products (see Note 2 of Notes to Financial Statements).
ITEM 7. Financial Statements.
See the financial statements and notes related thereto.
13
<PAGE>
TABLE OF CONTENTS
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS:
Balance Sheet as of December 31, 1999 F-2
Statements of Operations for the Years Ended December 31, 1999
and 1998 and for the Period from Inception (October 10, 1995)
Through December 31, 1999 F-3
Statements of Cash Flows for the Years Ended December 31, 1999
and 1998 and for the Period from Inception (October 10, 1995)
Through December 31, 1999 F-4
Statements of Changes in Shareholders' Equity (Deficiency) for the
Period from Inception (October 10, 1995) Through December 31,
1995 and for the Years Ended December 31, 1999, 1998, 1997 and 1996 F-5
NOTES TO FINANCIAL STATEMENTS F-6
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
International Dispensing Corporation:
We have audited the accompanying balance sheet of International Dispensing
Corporation (a Delaware corporation in the development stage) as of December 31,
1999, and the related statements of operations and cash flows for the years
ended December 31, 1999 and 1998, and for the period from inception (October 10,
1995) to December 31, 1999, and the statements of stockholders' equity
(deficiency) for the period from inception (October 10, 1995) through December
31, 1997, and for the years ended December 31, 1999 and 1998. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. 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 International Dispensing
Corporation as of December 31, 1999, and the results of its operations and its
cash flows for the years ended December 31, 1999 and 1998, and for the period
from inception (October 10, 1995) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has had a significant deficit accumulated during the development stage that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Arthur Andersen LLP
New York, New York
February 23, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL DISPENSING CORPORATION
(a development stage company)
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................................................................... $ 416,322
Prepaid expenses ................................................................................... 14,739
------------
Total current assets .................................................................. 431,061
------------
FIXED ASSETS:
Office equipment ................................................................................... 461,646
Accumulated depreciation and amortization .......................................................... (4,947)
------------
Fixed assets, net ..................................................................... 456,699
------------
OTHER ASSETS ........................................................................................... 26,647
------------
Total assets .......................................................................... $ 914,407
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable ................................................................................... $ 175,801
Accrued expenses ................................................................................... 51,821
------------
Total current liabilities ............................................................. 227,622
------------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $.001 par value; 2,000,000 shares authorized,
560 shares issued and outstanding ............................................................... 1,120,000
Common stock, $.001 par value; 40,000,000 shares authorized,
9,566,668 shares issued and outstanding ......................................................... 9,567
Additional paid-in capital ......................................................................... 9,895,286
Deficit accumulated during the development stage ................................................... (10,338,068)
------------
Total stockholders' equity ............................................................ 686,785
------------
Total liabilities and stockholders' equity ............................................ $ 914,407
============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-2
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL DISPENSING CORPORATION
(a development stage company)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
AND FOR THE PERIOD FROM INCEPTION
(OCTOBER 10, 1995) TO DECEMBER 31, 1999
Cumulative
from Inception
(October 10,
1995)
Years Ended December 31, Through
------------------------------ December 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES .................................................................. $ -- $ -- $ --
COSTS AND EXPENSES:
General and administrative ............................................ 1,740,163 1,341,990 5,569,403
Depreciation and amortization ......................................... 7,591 9,896 24,047
----------- ----------- -----------
Total costs and expenses ................................. 1,747,754 1,351,886 5,593,450
----------- ----------- -----------
Loss from operations ..................................... (1,747,754) (1,351,886) (5,593,450)
INTEREST EXPENSE .......................................................... -- -- (66,665)
INTEREST AND OTHER INCOME ................................................. 45,646 132,423 415,974
----------- ----------- -----------
Net loss before extraordinary loss and
discontinued operations ............................... (1,702,108) (1,219,463) (5,244,141)
EXTRAORDINARY LOSS ON RETIREMENT OF DEBT .................................. -- -- (250,000)
LOSS FROM DISCONTINUED OPERATIONS ......................................... -- (718,927) (843,927)
----------- -----------
Net loss ................................................. $(1,702,108) $(1,938,390) $(6,338,068)
=========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE FROM CONTINUING OPERATIONS ............... $ (.18) $ (.13)
BASIC AND DILUTED LOSS PER SHARE FROM DISCONTINUED OPERATIONS ............. (.00) (.07)
----------- -----------
BASIC AND DILUTED LOSS PER SHARE .......................................... $ (.18) $ (.20)
=========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING ..................... 9,566,668 9,566,668
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL DISPENSING CORPORATION
(a development stage company)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND FOR
THE PERIOD FROM INCEPTION (OCTOBER 10, 1995) TO DECEMBER 31, 1999
Cumulative from
Inception
Years Ended December 31, (October 10,
-------------------------------- 1995) Through
December 31,
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................... $ (1,702,108) $ (1,938,390) $ (6,256,392)
Deduct loss from discontinued operations ........................... -- 718,927 843,927
------------ ------------ ------------
Net loss from continuing operation .................... (1,702,108) (1,219,463) (5,412,465)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization ................................ 7,591 9,896 24,045
Compensation from stock grants ............................... -- 25,279 25,279
Noncash compensation ......................................... 10,961 -- 87,199
Loss on retirement of debt ................................... -- -- 250,000
Changes in operating assets and liabilities-
(Increase) in accounts receivable ........................ 46,925 -- --
Decrease (increase) in prepaid expenses .................. 28,806 2,788 (49,490)
Decrease (increase) in other assets ...................... 3,386 27,753 (20,847)
Increase in accounts payable ............................. 156,010 7,536 175,801
(Decrease) increase in accrued expenses .................. (20,685) (2,539) 26,542
------------ ------------ ------------
Net cash used in continuing operations ................ (1,516,039) (1,148,750) (4,940,861)
Net cash used in discontinued operations ..................... -- (718,927) (843,927)
------------ ------------ ------------
Net cash used in operating activities ................. (1,516,039) (1,867,677) (5,784,788)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ........................................... (458,166) -- (491,705)
Purchase of license ................................................ -- -- (4,000,000)
------------ ------------ ------------
Net cash used in investing activities ................. (458,166) -- (4,491,705)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock .......................... 1,120,000 -- 1,120,000
Proceeds from private placement .................................... -- -- 2,100,000
Proceeds from issuance of convertible debt ......................... -- -- 150,000
Repayment of promissory notes ...................................... -- -- (300,000)
Repayment of bridge loans .......................................... -- -- (1,050,000)
Repayment of convertible debt ...................................... -- -- (100,000)
Proceeds from initial public offering .............................. -- -- 8,772,815
------------ ------------ ------------
Net cash provided by financing activities ............. 1,120,000 -- 10,692,815
------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents ........................................ (854,205) (1,867,677) 416,322
CASH AND CASH EQUIVALENTS, beginning of year ........................... 1,270,527 3,138,204 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year ................................. $ 416,322 $ 1,270,527 $ 416,322
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest .......................................... $ -- $ -- $ 66,665
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock ........................................... $ -- $ -- $ 5,800
Purchase of license from affiliate ................................. $ -- $ -- $ 4,000,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL DISPENSING CORPORATION
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM OCTOBER 10, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995 AND
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997 AND 1996
Preferred Stock Common Stock
-------------------------- --------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, October 10, 1995 (inception) ........................ -- $ -- -- $ --
Issuance of common stock pursuant to License Agreement ..... -- -- 2,900,000 2,900
Issuance of common stock pursuant to Settlement Agreement .. -- -- 1,950,000 1,950
Issuance of common stock to management ..................... -- -- 950,000 950
Purchase of License from Affiliate ......................... -- -- -- --
Issuance of common stock in private placement .............. -- -- 87,500 88
Issuance of common stock rights in private placement ....... -- -- -- --
Net loss ................................................... -- -- -- --
------------ ------------ ------------ ------------
BALANCE, December 31, 1995 ................................... -- -- 5,887,500 5,888
Issuance of common stock in private placement .............. -- -- 437,500 437
Issuance of common stock rights in private placement ....... -- -- -- --
Issuance of common stock to bridge lenders ................. -- -- 1,575,000 1,575
Issuance of common stock in public offering, net of issuance
costs of $1,227,193 ..................................... 1,666,668 1,667 8,771,148 --
Net loss ................................................... -- -- -- --
------------ ------------ ------------ ------------
BALANCE, December 31, 1996 ................................... -- -- 9,566,668 9,567
Net loss ................................................... -- -- -- --
------------ ------------ ------------ ------------
BALANCE, December 31, 1997 ................................... -- -- 9,566,668 9,567
Net loss ................................................... -- -- -- --
------------ ------------ ------------ ------------
BALANCE, December 31, 1998 ................................... -- -- 9,566,668 9,567
Issuance of preferred stock in private placement ........... 560 1,120,000 -- --
Net loss ................................................... -- -- -- --
------------ ------------ ------------ ------------
BALANCE, December 31, 1999 ................................... 560 $ 1,120,000 9,566,668 $ 9,567
============ ============ ============ ============
Deficit
Accumulated Total
Additional During the Stockholders'
Paid-in Development Equity
Capital Stage (Deficiency)
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE, October 10, 1995 (inception) ........................ $ -- $ -- $ --
Issuance of common stock pursuant to License Agreement ..... -- -- 2,900
Issuance of common stock pursuant to Settlement Agreement .. -- -- 1,950
Issuance of common stock to management ..................... 76,238 -- 77,188
Purchase of License from Affiliate ......................... -- (4,000,000) (4,000,000)
Issuance of common stock in private placement .............. 43,662 -- 43,750
Issuance of common stock rights in private placement ....... 131,250 -- 131,250
Net loss ................................................... -- (249,795) (249,795)
------------ ------------ ------------
BALANCE, December 31, 1995 ................................... 251,150 (4,249,795) (3,992,757)
Issuance of common stock in private placement .............. 218,313 -- 218,750
Issuance of common stock rights in private placement ....... 656,250 -- 656,250
Issuance of common stock to bridge lenders ................. (1,575) -- --
Issuance of common stock in public offering, net of issuance
costs of $1,227,193 ..................................... 8,772,815
Net loss ................................................... -- (1,302,684) (1,302,684)
------------ ------------ ------------
BALANCE, December 31, 1996 ................................... 9,895,286 (5,552,479) 4,352,374
Net loss ................................................... -- (1,145,091) (1,145,091)
------------ ------------ ------------
BALANCE, December 31, 1997 ................................... 9,895,286 (6,697,570) 3,207,283
Net loss ................................................... -- (1,938,390) (1,938,390)
------------ ------------ ------------
BALANCE, December 31, 1998 ................................... 9,895,286 (8,635,960) 1,268,893
Issuance of preferred stock in private placement ........... -- -- 1,120,000
Net loss ................................................... -- (1,702,108) (1,702,108)
------------ ------------ ------------
BALANCE, December 31, 1999 ................................... $ 9,895,286 $(10,338,068) $ 686,785
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. THE COMPANY AND ORGANIZATION
International Dispensing Corporation (the "Company"), was incorporated in the
State of Delaware in October 1995 and is in the development phase. The Company
was formed primarily for the purpose of commercializing and marketing certain
proprietary and patented delivery and dispensing technologies (the
"Technologies") licensed from ReSeal International Corporation ("RIC"). The
Technologies are designed to dispense a flowable product while maintaining the
product's sterility, purity and freshness without employing preservatives.
In the event of bankruptcy of RIC, the status of the continuing obligations of
the various parties to and under the License Agreement (Note 6) is unclear since
a court in a bankruptcy proceeding may not enforce such continuing obligations.
Additionally, other risk factors such as loss of key personnel, lack of
manufacturing capabilities, difficulty in establishing new intellectual property
rights and preserving and enforcing existing intellectual property rights as
well as product obsolescence due to the development of competing technologies
could impact the future results of the Company.
2. GOING CONCERN
The Company's financial statements have been presented on the basis that it is a
going concern. The Company's development stage activities have resulted in an
accumulated deficit from inception to December 31, 1999, in excess of
$10,338,000 (including a discontinued operation in China of $844,000, see Note
5), and losses are continuing. Efforts to market its products have yet to result
in revenue. The Company's primary source of funds since inception has been from
the sale of its common and preferred stock (see Note 4 regarding IPO and Notes 7
and 17 regarding preferred stock private placements).
Management plans include the completion of an additional private placement of
equity securities in 2000 to provide funding to allow it to continue its
development of its licensed technology. In addition, management has taken
certain steps and made significant management changes in an effort to reduce
operating expenses of the Company. Notwithstanding, the Company believes that
with the completion of certain products, scheduled for the third quarter of
2000, it will generate sales revenue in the fourth quarter of 2000. The Company
believes these steps will provide sufficient liquidity for it to continue as a
going concern. Accordingly, the financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities or any other
adjustments that might result should the Company be unable to continue as a
going concern.
3. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks as well as highly liquid
investments with original maturities of less than three months.
Fixed Assets
Furniture and equipment are recorded at cost and are depreciated on a
straight-line basis over their estimated useful lives, generally five years.
F-6
<PAGE>
Patents
Costs to develop patents are expensed when incurred.
Revenue Recognition
Revenue will be recognized upon delivery of the product to the customer.
Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under this
method, deferred income taxes are determined based on differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each year-end and are measured based on enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
Net Loss Per Share
The Company presents "per share" data in accordance with SFAS No. 128, "Earnings
per Share," which requires the presentation of Basic Earnings per Share and
Diluted Earnings per Share. Basic Earnings per Share is based on the average
number of shares of common stock outstanding during the year. Diluted Earnings
per Share is based on the average number of shares of common stock outstanding
during the year plus the common stock equivalents related to preferred stock,
outstanding stock options and deferred contingent common stock awards. There
were no common stock equivalents outstanding at December 31, 1999 and 1998, that
would have a dilutive effect on earnings for those years.
Use of Estimates
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
Stock Options
In 1998, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." As permitted under this standard, the Company has elected to
follow Accounting Principles Board ("APB") Opinion No. 25, "Accounting For Stock
Issued to Employees" in accounting for its stock options and other stock-based
employee awards. Pro forma information regarding net loss and loss per share, as
calculated under the provisions of SFAS No. 123, are disclosed in Note 16.
4. INITIAL PUBLIC OFFERING
In October 1996, the Company sold, in an initial public offering (the "IPO"),
833,334 units (the "Units"), each Unit consisting of two shares of Common Stock
and two redeemable Class A purchase warrants for $12.00 per Unit. Each warrant
entitles the holder to purchase one share of the Company's Common Stock for
$7.00 commencing October 3, 1997, and expiring October 3, 2001. The warrants are
redeemable by the Company at $.05 per warrant any time after October 3, 1998, if
certain conditions are met. The net proceeds which the Company received from the
offering amounted to approximately $8,800,000. As of December 31, 1999, none of
the warrants have been redeemed or exercised.
F-7
<PAGE>
5. DISCONTINUED OPERATIONS
On December 23, 1997, the Company entered into an agreement with Well Men
Industrial Company Limited, a Hong Kong registered corporation ("Well Men"),
pursuant to which Well Men granted to the Company an exclusive right to market
and sell certain Well Men products in China. Well Men also assigned to the
Company, for the purpose of commercializing such Well Men products, all of Well
Men's patents and patent applications relating to such Well Men products. The
agreement was for an initial term of ten years. The Company had opened a
representative office in China to promote the sales of Well Men products and to
establish the name of the Company. The Company incurred cumulative expenses of
approximately $844,000 related to the opening and maintaining of the
representative office in China, merchandise shipped to China, and general and
administrative expenses.
In December 1998, Well Men materially breached its agreement with the Company by
selling Well Men water heaters directly in China. In addition, Well Men refused
to pay for any of the products provided to it. As a result of this breach and
the Company's inability to obtain payment from Well Men, the Company
discontinued this operation and wrote-off all related receivables, resulting in
a loss from discontinued operations of approximately $719,000 in 1998. Results
from operations from prior periods have also been restated.
6. LICENSE AGREEMENT
In October 1995, the Company entered into a License Agreement (the "Agreement")
with RIC, which was amended on June 17, 1996, pursuant to which the Company
obtained the right to commercialize and market the Technologies to third parties
for its implementation in the food and beverage industries. The Technologies are
licensed by RIC from its parent, Reseal International Limited Partnership
("RILP"). The Agreement is royalty-free and allows the Company to grant
sublicenses to third parties. Pursuant to the Agreement, the Company issued
2,900,000 shares of its common stock to RIC and paid $750,000 upon the
completion of a private placement (Note 7) and the remaining balance of
$3,250,000 upon the completion of the initial public offering (Note 4). The cash
paid to RIC and the common stock issued for this acquisition were charged
directly to stockholders' equity and therefore are not reflected as an asset on
the Company's Balance Sheet. The Agreement terminates at the end of the
Technologies' useful economic life.
7. PRIVATE PLACEMENTS
Preferred Stock
During 1999, the Company designated 2,000 shares of the authorized Preferred
Stock as Series A Redeemable Convertible Preferred Stock (the "Series A") and
entered into a Preferred Stock Subscription Agreement (the "Subscription
Agreement") with certain Directors of the Company and a third party
(collectively, the "Investors"). The Series A accrues cumulative dividends at
the annual rate of 12%. These dividends accrue and accumulate from the date of
issuance and are payable quarterly on the last day of March, June, September and
December, commencing on the last day of the quarter of the date of issuance.
Cumulative dividends are payable in cash or additional shares of Series A, at
the discretion of the Company. Each share of Series A is convertible any time at
the holder's option into approximately 9,100 shares of common stock of the
Company, plus additional shares of common stock for accrued but unpaid dividends
at the conversion rate of $0.22 per share. Each share of Series A is redeemable
at the option of the Company for $2,000 per share plus accrued and unpaid
dividends, if certain conditions are met. The Series A carries a liquidation
preference of $2,000 per share plus accrued and unpaid dividends.
Pursuant to the Subscription Agreement, the Investors agreed, subject to certain
conditions, to buy a maximum of 1,000 shares at a price of $2,000 per share
through August 31, 2000. Through December 31, 1999, the Investors purchased 560
shares of Series A, resulting in total net proceeds to the Company of
approximately $1,120,000 (see Note 17).
F-8
<PAGE>
Bridge Financing
During 1996, the Company was involved in a private placement ("Bridge
Financing"). The Bridge Financing consisted of promissory notes, common shares,
and rights ("Bridge Options") to acquire units ("Bridge Units") identical in
form to the IPO Units. The promissory notes bore interest at 8% per annum and
were due and paid upon completion of the IPO. Upon completion of the Bridge
Financing, the Company had received an aggregate of $2,100,000 in consideration
for $1,050,000 in promissory notes, 525,000 shares of common stock and rights to
obtain 787,500 Bridge Units. In August 1996, the Company amended the Bridge
Financing agreements so that the 787,500 Bridge Units underlying the Bridge
Options were deemed outstanding. As part of the initial public offering, the
787,500 Bridge Units, which are identical to the IPO Units, were registered.
8. SETTLEMENT AGREEMENT
In October 1995, in connection with a settlement of actions and claims against
certain affiliates of RIC, the licensor of the Technologies, the Company agreed
to issue (i) 2,900,000 shares of common stock to RIC as partial compensation
under the License Agreement, (ii) an aggregate of 1,500,000 shares of common
stock (the "Investor Shares") to certain investors in RILP, and (iii) an
aggregate of 450,000 shares of common stock (the "Service Shares") to certain
individuals for services rendered equal to the par value of such shares. Of the
Investor Shares issued, 552,000 were issued to individuals who are now members
of the board of directors and, of the Service Shares issued, 161,000 were issued
to current members of management and the board of directors.
Pursuant to such settlement, the holders of the Investor Shares may require the
Company to file a Registration Statement under the Securities Act with respect
to 25% of such shares of common stock, commencing one year from the effective
date of the Company's IPO (Note 4), subject to certain conditions and
limitations. Further, if the Company proposes to register any shares of common
stock under the Securities Act other than pursuant to an initial public offering
or the previous sentence, then the holders of the Investor Shares are entitled
to include an additional 25% of their shares of common stock in such
registration.
9. CONVERTIBLE PROMISSORY NOTES
During 1995, two convertible promissory notes were issued for $100,000 and
$50,000 (the "Convertible Notes") and were due on April 15, 1996 and December
20, 1996, respectively. These notes bore interest at 8% and each was convertible
at any time prior to the maturity date of the notes into 1,200,000 shares of
common stock, subject to adjustments. The $100,000 note (the "Portenoy Note")
would have converted at a price of $.084 per share, subject to adjustments, and
the $50,000 note (the "ATG Note") would have converted at a price of $.042 per
share, subject to adjustments.
On April 15, 1996, the Portenoy Note came due and was paid by the Company. On
June 28, 1996, in accordance with an agreement with the Company, the holder of
the ATG Note, which would have come due on December 20, 1996, and contained the
right to convert into 1.2 million shares of common stock, agreed to transfer
such note to the Company for cancellation in return for the Company agreeing to
pay it $300,000. The amounts owed by the Company to the holders of the
Convertible Notes were paid out of the proceeds of the IPO. The Company recorded
an extraordinary loss on retirement of debt of $250,000 during the year ended
December 31, 1996.
10. MANAGEMENT SHARES
In 1995, the Company issued an aggregate of 950,000 shares to management at par
as compensation for services rendered in incorporating the Company. Such shares
were issued at fair market value of the Company's common stock, which was
determined based upon the fair market value of the private placement shares
(Note 7) and the Convertible Notes. The statement of operations for the period
from inception through December 31, 1999 reflects approximately $76,000 of
compensation expense related to such shares.
F-9
<PAGE>
11. RELATED PARTY TRANSACTIONS
Until June 1997, the Company shared office space with certain affiliated
companies, including RIC and RILP. The Company also paid certain operating
expenses, including compensation of key personnel, on behalf of RIC and RILP.
The Company was reimbursed for these expenses as an offset against the liability
related to the License Agreement (Note 6) in the Company's balance sheet as of
December 31, 1996. Beginning in May 1997, the Company began paying substantially
all costs of obtaining and maintaining patents, a cost which was to be shared
equally by the Company and RIC, according to the Agreement. Until the Company is
reimbursed by RIC for 100% of these costs, RIC cannot utilize the patents for
any purpose. If RIC does not reimburse the Company within one year from the date
each payment was made, RIC must negotiate a fee with the Company for the use of
such patents for any purpose.
As of December 31, 1999, the Company has a receivable due from RIC related to
operating expenses and patent costs in the amount of $46,925, which has been
fully reserved due to the inability of RIC to reimburse the Company in the
foreseeable future.
During the year ended December 31, 1997, the Company paid consulting fees to
members of management in the aggregate amount of $73,000. In 1999 and 1998, no
such fees were paid.
12. INCOME TAXES
As a result of losses incurred since inception, there is no provision for income
taxes in the accompanying financial statements. As of December 31, 1999, the
Company has net deferred tax assets of approximately $2.6 million. The Company
has established a full valuation allowance against its net deferred tax assets
as realizability of such assets is predicated upon the Company achieving
profitability. In addition, the use of net operating loss carryforwards may be
limited as a result of ownership changes resulting from share issuances.
13. COMMITMENTS AND CONTINGENCIES
Lease
The Company leased office space in New York under a noncancellable operating
lease, which expired on February 29, 2000. Rental expenses were $26,875 for both
years ended December 31, 1999 and 1998. Payments made under this lease agreement
during 2000 totaled $5,572.
F-10
<PAGE>
During December 1999, the Company entered into a lease for office space in
Maryland beginning March 16, 2000 through September 30, 2005. Minimum future
rental payments under this lease are as follows:
Minimum
Payment
Year ending December 31:
2000 $ 39,738
2001 65,513
2002 67,478
2003 69,502
2004 and thereafter 126,477
-----------
Total minimum lease payments $ 368,708
===========
Employment Agreement - Gary Allanson
The Company and Mr. Allanson have entered into an employment agreement, dated as
of Match 15, 1999, which expires on March 14, 2001 (the "Allanson Employment
Agreement"). The term of the Allanson Employment Agreement may be extended for
one or two years upon written notice given by the Company to Mr. Allanson prior
to June 14, 2000. Pursuant to the Allanson Employment Agreement, Mr. Allanson
serves as the President and Chief Executive Officer of the Company and receives
an annual salary of $240,000. In addition, if Mr. Allanson is insurable, the
Company is obligated to pay the premium on a $1,000,000 term life insurance
policy, to which Mr. Allanson will designate the beneficiary. Under the Allanson
Employment Agreement, Mr. Allanson is also entitled to customary benefits and
perquisites.
Under the Allanson Employment Agreement, if Mr. Allanson's employment is
terminated for disability, for cause or upon his death, Mr. Allanson or his
estate will receive his base salary and other benefits through the date of his
termination. If Mr. Allanson voluntarily terminates his employment with the
Company for "good reason" (defined in the Allanson Employment Agreement to
include, among other things, a change in control of the Company or the removal
of Mr. Allanson from his position as the President and Chief Executive Officer),
Mr. Allanson is entitled to receive his base salary and other benefits through
the 180th day after the date of termination. If Mr. Allanson's employment is
terminated by the Company without cause, the Company is obligated to pay Mr.
Allanson his base salary and provide Mr. Allanson and Mr. Allanson's family with
hospital, major medical and dental insurance equivalent to the insurance
provided on the date of termination, through the end of the term of the Allanson
Employment Agreement.
Employment Agreement - Jon Silverman
On March 15, 1999, the Company and Mr. Silverman entered into an agreement to
amend his employment agreement (the "Silverman Amendment"). Pursuant to the
Silverman Amendment, Mr. Silverman continued to serve as the Chairman of the
Company, but ceased being the President and Chief Executive Officer of the
Company, effective on the date of the Silverman Amendment. On June 30, 1999, Mr.
Silverman resigned as Chairman of the Company.
The Silvermen Amendment also provided that, of the options to purchase shares of
common stock of the Company previously granted to Mr. Silverman, options to
purchase an aggregate of 33,333 shares became exercisable on April 2, 1999 and
options to purchase an aggregate of 33,334 of such shares became exercisable on
December 30, 1999; provided in each case that Mr. Silverman was still employed
by the Company. The forgoing options may be exercised until December 31, 2004
whether or not the employment of Mr. Silverman by the Company has terminated.
Options to purchase the remaining 33,333 shares (of the options to purchase
100,000 shares previously granted to Mr. Silverman) became null and void and may
F-11
<PAGE>
not be exercised at any time after the termination of Mr. Silverman's employment
with the Company. As a result of the foregoing changes in the terms of the
options previously granted to Mr. Silverman, all of such options became
nonqualified stock options rather than incentive stock options. As Mr.
Silverman's employment terminated prior to December 30, 1999, options to
purchase an aggregate of 66,667 shares were cancelled and options to purchase
33,333 shares remain outstanding and exercisable.
Consulting Agreement
On March 5, 1996, the Company entered into an agreement with Nologies, Inc.
("Nologies") under which Nologies will assist in the directing and managing of
product and technology development, licensing and strategic alliance pursuits
and other related services in the areas of food and beverage dispensing systems.
The term of such agreement extended to February 28, 2000; however, it was
terminated on November 12, 1999. The Company paid Nologies $8,000 per month plus
expenses (see Note 17).
14. SETTLEMENT OF LAWSUIT
In May 1996, in connection with the settlement of a lawsuit brought by Banco
Inversion, S.A. and Administratadora General de Patrimonios, S.A. (collectively,
"Banco") against certain affiliates of RIC, RIC entered into an agreement
pursuant to which it agreed, among other things, (i) to transfer an aggregate of
300,000 of its shares of common stock (the "Settlement Shares") to Banco, (ii)
to pay Banco $50,000 at the closing of such settlement and $150,000 out of the
licensing fees RIC receives from the proceeds of the IPO and (iii) to exchange
mutual releases with the parties of such lawsuit.
The number of Settlement Shares, subject to certain antidilution adjustments,
may be increased up to 600,000 shares in the event that 30 months after the
effective date of the registration statement the market value of the 300,000
Settlement Shares is less than $2,800,000.
The Company has granted to the holders of such Settlement Shares, the right to
register such shares along with shares registered by the Company in a public
offering, whether on behalf of the Company or other holders of common stock,
subject to customary market factor limitations. Such registration rights
terminate upon the earlier of (i) the date that all Settlement Shares have been
either registered or sold, or (ii) the date that all such shares may be sold
pursuant to Rule 144(k) under the Securities Act.
15. BUSINESS DEVELOPMENTS
In October 1997, a strategic alliance was formed with Packaging Systems, L.L.C.
(PSI), the parent company of Rapak, Inc. The resulting products of this Joint
Systems Development Agreement were to be a variety of Bag-in-Box delivery
systems with unique Valve/Pump Technology for the food and beverage industries.
These systems were to be marketed throughout the United States. Subsequent to
year end, this agreement was terminated.
16. STOCK COMPENSATION PLANS
The Company has two stock option plans ("the Plans") effective as of April 2,
1998. The 1998 Stock Option Plan (the "Participant Plan") provides for the
granting of stock options to key employees, consultants or other persons
("Participants"). The objective of this Plan includes attracting and retaining
the best personnel, providing for additional performance incentives and
promoting the success of the Company by providing Participants the opportunity
to acquire common stock. The Plan provides for the granting of both options that
will qualify as "incentive stock options" and options that are non-qualified
stock options. The objectives of the second Plan, The Director Option Plan ("the
Director Plan") is to attract and retain the best available personnel for
service as outside directors of the Company, as well as to provide additional
incentive to the outside directors of the Company to serve as directors and to
encourage their continued service on the Board. On June 18, 1999 the Board of
Directors approved an increase in shares authorized, such that the Company is
authorized to grant up to 850,000 shares and 450,000 shares under the
Participant Plan and the Director Plan, respectively. Under both of the Plans,
the exercise price of the shares granted shall be 100% of the fair market value
per share on the date of grant of the option. Options expire on such date as the
Board of Directors or the Committee may determine, but in no event later than
ten years after the grant date.
F-12
<PAGE>
During 1999, the Company granted 400,000 nonqualified options to a key employee
under the Participant Plan. Of these options, 300,000 vested immediately with
the remaining 100,000 vesting on June 30, 2000.
During 1998, the Company issued 205,000 and 80,000 options under the Participant
Plan and Director Plan, respectively. All of the options granted during 1998
become exercisable in three annual installments commencing April 2, 1999.
Included in the options issued under the Participant Plan during 1998 were
155,000 incentive stock options issued to key employees and 50,000 nonqualified
options issued to an outside consultant, who is an employee of Nologies. The
options granted to the outside consultant, who is an employee of Nologies,
expired subsequent to year end (see Note 17).
The options issued to key employees have been accounted for under APB No. 25 as
discussed below. The options issued to the outside consultant were accounted for
in accordance with SFAS No. 123. Accordingly, approximately $25,000 of
compensation expense was recognized in 1998 for the estimated value of the
options granted to the outside consultant, who is an employee of Nologies. No
expense was recognized during 1999.
The status of the Company's stock option plans is summarized below as of
December 31, 1999:
Weighted
Number of Average
Shares Price
Outstanding at December 31, 1997 - $ -
Granted 285,000 1.595
---------- ---------
Outstanding at December 31, 1998 285,000 1.595
Granted 400,000 .655
Exercised - -
Cancelled (116,667) 1.595
---------- ---------
Outstanding at December 31, 1999 568,333 $ .98
========== =========
F-13
<PAGE>
As of December 31, 1999, 378,333 options were vested and exercisable. The
weighted average exercise price of these options was $.83. No options were
vested at December 31, 1998.
In addition, during 1999, the Company issued 50,000 non-plan options to a
Director of the Company. These options vested immediately at an exercise price
of $1.25, which equals fair market value on the date of grant. During 1998, the
Company issued 16,666 non-plan options to a former employee of the Company as
part of a severance agreement and 15,000 non-plan options to a Director of the
Company. These options vested immediately at an exercise price of $1.595, which
equalled fair market value on the date of grant. No compensation expense has
been recognized during 1999 or 1998 for these options.
The Company applies APB No. 25 in accounting for its stock options granted to
employees and directors. The option price under the Plans equal or exceed the
fair market value of the common stock on the date of grant and, accordingly, no
compensation cost has been recognized under the provisions of APB No. 25 for
stock options granted to employees or outside directors. Under SFAS No. 123,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service (or vesting) period. Had compensation cost
for the Company's stock option plans been determined under SFAS No. 123, based
on the fair market value at the grant dates, the Company's pro forma net income
and net earnings per share would have been reflected as follows:
December 31, 1999 December 31, 1998
----------------- -----------------
Net loss:
As reported $ 1,702,108 $ 1,938,390
Pro forma 1,912,591 2,038,492
Loss per share:
As reported (.18) (.20)
Pro Forma (.20) (.21)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted share average
assumptions used for those options granted in 1999: no dividend yield, expected
volatility 138.7%, risk-free interest rates of 5.51% and expected lives of 5
years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted share average
assumptions used for those options granted in 1998: no dividend yield, expected
volatility 142.12%, risk-free interest rates of 5.69% and expected lives of
seven years.
17. SUBSEQUENT EVENTS
Private Placement
Subsequent to year end, the Company designated 1,500 shares of the authorized
Preferred Stock as Series B Redeemable Convertible Preferred Stock (the "Series
B") and entered into an amendment to the Subscription Agreement (the "Series B
Amendment") with the Investors and one new investor (collectively, the "Series B
F-14
<PAGE>
Investors"). The Series B accrues cumulative dividends at the annual rate of
12%. These dividends accrue and accumulate from the date of issuance and shall
be payable quarterly on the last day of March, June, September and December,
commencing on the last day of the quarter of the date of issuance. Cumulative
dividends are payable in cash or additional shares of Series B, at the
discretion of the Company. Each share of Series B is convertible at the holder's
option into approximately 5,700 shares of common stock of the Company, plus
additional shares of common stock for accrued but unpaid dividends at the
conversion rate of $0.35 per share. Each share of Series B is redeemable at the
option of the Company for $2,000 per share plus accrued and unpaid dividends, if
certain conditions are met. The Series B carries a liquidation preference of
$2,000 per share plus accrued and unpaid dividends.
Pursuant to the Series B Amendment, the Series B Investors purchased 440 shares
of Series B instead of the remaining 440 shares of unsubscribed Series A. The
purchase of Series B resulted in total net proceeds to the Company of
approximately $880,000.
Temporary Office Lease
Subsequent to year end, the Company entered into a lease whereby the Company
agreed to rent office space, furnishings and certain services in Maryland for
monthly rent of $750 through March 2000. Subsequent to March 2000, the Company
will occupy space rented under the lease entered into during December 1999.
Nologies Arbitration
Subsequent to year end, Nologies commenced an arbitration proceeding against the
Company, seeking an extension related to 50,000 options granted to an employee
of Nologies (see Note 16). These options expired subsequent to year end.
Nologies is also requesting payment by the Company of approximately $22,000 in
unpaid consulting fees and reimbursable expenses. Management has indicated its
plans to vigorously contest this suit and believes the loss, if any, resulting
from the arbitration will not have a material impact on the Company's financial
position, results of operation, or cash flows in future years.
F-15
<PAGE>
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
As of March 24, 2000, the executive officers and directors of the
Company are as follows:
Name Age Position(s)
---- --- -----------
Gary Allanson 47 Chairman, President and Chief
Executive Officer
Jay M. Rosen 62 Director
George V. Kriste 52 Director
Gregory B. Abbott 49 Director
Frank Carillo 44 Director
Gary Allanson has served as the President and Chief Executive Officer
of the Company since March 15, 1999. From May 1997 to March 1999 Mr. Allanson
was the director of national retail sales at Arnott's Biscuit, Ltd. of
Australia, a manufacturer and marketer of biscuits, crackers and salty snacks,
which became a fully owned subsidiary of Campbell Soup Company in December 1997.
Mr. Allanson was a director of bakery sales at the Mid-Atlantic Division of
Pepperidge Farm, Inc. from April 1996 to May
15
<PAGE>
1997. From October 1992 to April 1996 Mr. Allanson was employed by Delmarva
Engineering of Maryland in various managerial capacities, including directing
the sales, marketing, strategic planning and joint venture strategies for the
electronics and management consulting firm.
George V. Kriste has served as a director of the Company since October
1995. He has been the Chairman and Chief Executive Officer of New Century Media,
a radio station owner, since January 1992.
Gregory B. Abbott has served as a director of the Company since October
1995. Mr. Abbott has been a private investor and a writer for more than five
years.
Frank Carillo has served as director of the Company since January 2000.
He has served as President of the Executive Communications Group, Inc., a
management communications consulting firm, as President for more than five
years.
Jay M. Rosen has served as a director of the Company since July 1998.
He has been Vice President, General Counsel and Secretary of Advanced Network &
Services, Inc., a not-for-profit networking services company, since January
2000. From January 1998 to December 1999, he was an independent consultant. From
January 1997 to December 1997, Mr. Rosen was Vice President, General Counsel and
Secretary of Celcore, Inc., a privately held company engaged in
telecommunications. For more than five years prior thereto, he was Corporate
Vice President and Associate General Counsel of GTE Corporation.
No family relationship exists between any directors or executive
officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten (10%) percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
(the "Commission") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Reporting
persons are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company, no persons failed to file, on a timely
basis, reports required by Section 16(a) of the Exchange Act for any
transactions occurring during Fiscal 1998.
16
<PAGE>
ITEM 10. Executive Compensation.
Summary Compensation Table
The following table sets forth for the three (3) fiscal years ended
December 31, 1999, information concerning the compensation paid or accrued to
the Chief Executive Officer of the Company and the one other person serving as
an executive officer of the Company whose salary and bonus for fiscal 1998
exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- ----------------------------------------
Name and Principal Fiscal Salary Bonus Other Annual Restricted Securities All Other
Position year ($) ($) Compensation Stock Underlying Compensation
($)(1) Award($) Options(#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Gary Allanson ......................... 1999 $190,000 - - - 400,000 $ 4,400(2)
Chairman, CEO and 1998 $ -- - - - -- --
President 1997 $ -- - - - -- --
Jon Silverman ......................... 1999 $105,000 - - - -- --
Chairman, CEO and 1998 $180,000 - - - -- $ 4,430(2)
President 1997 $187,500 - - - -- $ 4,000(2)
Jeffrey D. Lewenthal .................. 1999 $156,500 - - - -- --
Chief Financial 1998 $144,000 - - - 50,000 --
Officer, Executive 1997 $ 96,000(3) - - - -- --
Vice President of
Business Development,
Treasurer and Secretary
<FN>
- --------------------------
(1) The aggregate amount of perquisites and other personal benefits paid to
each of Mr. Allanson and Mr. Lewenthal did not exceed the lesser of (i)
10% of such officer's total annual salary and bonus for any given
fiscal year and (ii) $50,000. Thus, such amounts are not reflected in
the table.
(2) Represents the premiums paid on $1,000,000 term life insurance policies
as to which the person may designate the beneficiary.
(3) Jeffrey D. Lewenthal's employment with the Company began in March 1997
and terminated in March 2000. The figure for 1997 represents the
compensation Mr. Lewenthal received from the Company for the period of
his employment with the Company in 1997.
</FN>
</TABLE>
17
<PAGE>
Option Grants in Fiscal Year Ended December 31, 1999
The following table sets forth certain information concerning options
granted during the fiscal year ended December 31, 1999 pursuant to the 1998
Option Plan to the executive officers listed in the Summary Compensation Table.
Number of Securities Percent Of Total Exercise Expiration
Underlying Options Options Granted to Or Base Date
Granted (#) Employees In Fiscal Price
Year ($/Sh)
Gary Allanson 400,000(1) 100% $.655 (2)
- ------------------
(1) The terms of grant of such options provided that options to purchase
300,000 shares of Common Stock would become exercisable on March 15,
1999 and options to purchase 100,000 shares of Common Stock would
become exercisable on July 1, 2000.
(2) Of these options, options to purchase 300,000 shares of Common Stock
expire on March 14, 2006 and options to purchase 100,000 shares of
Common Stock expire on June 30, 2010.
Aggregated Option Exercises in Fiscal Year Ended December 31, 1999 and Fiscal
Year End Option Values
None of the executive officers listed in the Summary Compensation Table
exercised any option during the fiscal year ended December 31, 1999. The
following table sets forth certain information with respect to options to
purchase Common Stock held by the foregoing executive officers on December 31,
1999.
Value of
Number of Securities Underlying Unexercised In-The-Money
Unexercised Options on 12/31/99 Options on 12/31/99 ($)
Name (#)Exercisable/Unexercisable Exercisable/Unexercisable(1)
Gary Allanson 300,000/100,000 $28,500/$9,500
Jon Silverman 66,667/0 0/0
Jeffrey Lewenthal 16,666/33,334 0/0
- --------------------
(1) The average of the closing bid and asked prices of the Common Stock on
December 31, 1999 as reported by the National Quotation Bureau, Inc.
was $.75. All options held by Messrs. Silverman and Lewenthal had
exercise prices of $1.595. All of the options held by Mr. Allanson had
exercise prices of $.655.
18
<PAGE>
Employment and Non-Compete Agreements
The Company and Gary Allanson have entered into an employment
agreement, dated as of March 15, 1999, which expires on March 14, 2001 (the
"Allanson Employment Agreement"). The term of the Allanson Employment Agreement
may be extended for one or two years upon written notice given by the Company to
Mr. Allanson prior to June 14, 2000. Pursuant to the Allanson Employment
Agreement, Mr. Allanson serves as the President and Chief Executive Officer of
the Company and receives an annual salary of $240,000. In addition, if Mr.
Allanson is insurable, the Company is obligated to pay the premium on a
$1,000,000 term life insurance policy, to which Mr. Allanson will designate the
beneficiary. Under the Allanson Employment Agreement, Mr. Allanson is also
entitled to customary benefits and perquisites.
Under the Allanson Employment Agreement, if Mr. Allanson's employment
is terminated for disability, for cause or upon his death, Mr. Allanson or his
estate will receive his base salary and other benefits through the date of
termination. If Mr. Allanson voluntarily terminates his employment with the
Company for "good reason" (defined in the Allanson Employment Agreement to
include, among other things, a change in control of the Company or the removal
of Mr. Allanson from his position as the President and Chief Executive Officer),
Mr. Allanson is entitled to receive his base salary and other benefits through
the 180th day after the date of termination. If Mr. Allanson's employment is
terminated by the Company without cause, the Company is obligated to pay Mr.
Allanson his base salary and provide Mr. Allanson and Mr. Allanson's family with
hospital, major medical and dental insurance equivalent to the insurance
provided on the date of termination, through the end of the term of the Allanson
Employment Agreement then in effect on the date of termination.
Compensation of Directors
Non-employee directors of the Company are reimbursed for reasonable
travel and lodging expenses incurred in attending meetings of the Board of
Directors and any committees on which they may serve. Directors do not presently
receive any fees for attendance or participation at Board or committee meetings.
ITEM 11. Security Ownership Of Certain Beneficial Owners And Management.
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Common Stock as of March 24, 2000, for (i)
each person or group that is known by the Company to be a beneficial owner of
more than 5% of the outstanding shares of Common Stock, (ii) each director of
the Company, and (iii) all directors and executive officers of the Company as a
group. Except as otherwise indicated, the Company believes that such beneficial
owners, based on information furnished by
19
<PAGE>
such owners, have sole investment and voting power with respect to such shares,
subject to community property laws, where applicable.
Name and Address Percent of
Of Beneficial Owner (1) Number of Shares Class(2)
- ------------------- ---------------- ------
Gregory Abbott 3,372,731(3) 28.5%
1200 Kessler Drive
Aspen, CO 81611
Louis A. Simpson 2,241,142(4) 19.4%
5951 La Sendita
P.O. Box 1943
Rancho Santa Fe, California 92067
George Kriste 1,792,382(5) 16.2%
20643 Seabord Road
Malibu, California 90265
George Abbott 1,089,642(6) 10.3%
1285 South Ocean Boulevard
Palm Beach, Florida 33480
Jon Silverman 633,333(7) 6.6%
6 International Drive, Suite 160
Rye Brook, New York 10573
Gary Allanson 590,909(8) 5.7%
I-97 Business Park
1111 Benfield Boulevard
Millersville, Maryland 21108
Reed Slatkin 557,142(9) 5.5%
890 North Kellogg Avenue
Santa Barbara, California 93111
Jay M. Rosen 52,666(10) *
21 Longledge Drive
Rye Brook, New York 10593
Frank Carillo 10,000 *
570 Grand Avenue
Englewood, New Jersey 07631
20
<PAGE>
All directors and executive 5,818,688(11) 41.5%
officers as a group (5 persons)
- ----------------------------------------------
* Less than 1%.
(1) Address provided for beneficial owners of more than 5% of the Common
Stock.
(2) For purposes of computing the percentage of outstanding shares of
Common Stock held by each person or group of persons named above, any
security which such person or persons have or have the right to acquire
within 60 days is deemed to be outstanding but is not deemed to be
outstanding for the purpose of computing the percentage ownership of
any other person.
(3) Includes 2,257,142 shares of Common Stock issuable upon conversion of
preferred stock and 26,666 shares of Common Stock issuable upon
exercise of currently exercisable options. Does not include 13,334
shares of Common Stock subject to options which will not become
exercisable within 60 days of the date hereof.
(4) Includes 2,007,142 shares of Common Stock issuable upon conversion of
preferred stock.
(5) Includes 1,485,714 shares of Common Stock issuable upon conversion of
preferred stock and 26,666 shares of Common Stock issuable upon
exercise of currently exercisable options. Does not include 13,334
shares of Common Stock subject to options which will not become
exercisable within 60 days of the date hereof.
(6) Includes 1,007,142 shares of Common Stock issuable upon conversion of
preferred stock.
(7) Includes 33,333 shares of Common Stock of the Company issuable upon
exercise of options.
(8) Includes 300,000 shares of Common Stock issuable upon exercise of
currently exercisable options and 290,900 shares of Common Stock
issuable upon conversion of preferred stock.
(9) Includes 557,142 shares of Common Stock issuable upon conversion of
preferred stock.
(10) Includes 51,166 shares of Common Stock issuable upon exercise of
currently exercisable options. Does not include 3,334 shares of Common
Stock subject to options which will not become exercisable within 60
days of the date hereof.
(11) Includes an aggregate of 4,033,765 shares of Common Stock issuable upon
conversion of preferred stock and an aggregate of 404,998 shares of
Common Stock issuable upon exercise of currently exercisable stock
options.
21
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ITEM 12. Certain Relationships and Related Transactions.
On October 25, 1999 and December 15, 1999 certain persons, including
Gary Allanson, the Chairman and Chief Executive Officer of the Company, and
George Kriste and Gregory Abbott, directors of the Company, purchased from the
Company an aggregate of 560 shares of the Company's Series A Redeemable
Convertible Preferred Stock ("Series A Stock") for $2,000 per share. The number
of shares purchased by each of Messrs. Allanson, Kriste and Abbott on such dates
and the total purchase price paid by such persons are set forth below:
Total Shares
of Series A Total
Name Stock Purchased Purchase Price
---- --------------- --------------
Gary Allanson 32 $ 64,000
George Kriste 132 $264,000
Gregory Abbott 187 $374,000
On February 22, 2000 certain persons including Messrs. Kriste and
Abbott purchased from the Company an aggregate of 440 shares of the Company's
Series B Redeemable Convertible Preferred Stock ("Series B Stock") for $2,000
per share. The number of shares of Series B Stock purchased by each of Messrs.
Kriste and Abbott are set forth below:
Total Shares
of Series B Total
Name Stock Purchased Purchase Price
---- --------------- --------------
George Kriste 50 $100,000
Gregory Abbott 97.5 $195,000
The proceeds of the sale of the Series A Stock and Series B Stock
(collectively, the "Preferred Stock") are being used by the Company for working
capital.
The holders of Preferred Stock are entitled to receive cumulative
dividends at the rate of 12% per year. In the discretion of the Company, the
dividends may be paid in cash, in additional shares of Series A Stock or Series
B Stock, as the case may be, or any combination of the foregoing.
The holders of Series A Stock may convert the Series A Stock into
Common Stock initially at the rate of one share of Common Stock for each $.22 of
liquidation value of the Series A Stock. The holders of Series B Stock may
convert the Series B Stock into Common Stock initially at the rate of one share
of Common Stock for each $.35 of liquidation value of the Series B Stock. The
conversion rates of the Preferred Stock are subject to adjustment in certain
circumstances.
22
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The holders of Series A Stock, voting as a separate class, are entitled
to elect one director of the Company. In addition, the holders of Preferred
Stock are entitled to vote on all matters (including elections of directors)
together with the holders of the Common Stock with each share of Preferred Stock
having the number of votes equal to the number of whole and fractional shares of
Common Stock into which such share is then convertible (as of the date hereof,
each share of Series A Stock would have approximately 9,091 votes and each share
of Series B Stock would have approximately 5,714 votes).
ITEM 13. Exhibits, List and Reports on Form 8-K.
Exhibits
Exhibit No.
- -----------
3.1 Restated Certificate of Incorporation of the Company, as amended
(incorporated herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form SB-2 (Registration No. 333-7915)
(the "Form SB-2")).
3.2 Certificate of Amendment to the Certificate of Incorporation
(incorporated herein by reference to Exhibit 3.2 to the Form SB-2).
3.3 Certificate of Amendment to the Certificate of Incorporation
(incorporated by reference to Exhibit 3.3 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998
(the "1998 10-KSB")).
3.4 Certificate of Designation of Series A Redeemable Convertible
Preferred Stock of the Company.*
3.5 Certificate of Designation of Series B Redeemable Convertible
Preferred Stock of the Company.*
3.6 By-laws of the Company, as amended (incorporated herein by
reference to Exhibit 3.3 to the Form SB-2).
4.1 Specimen Common Stock Certificate (incorporated herein by reference
to Exhibit 4.1 to the Form SB-2).
4.2 Form of Class A Warrant Agreement (incorporated herein by reference
to Exhibit 4.2 to the Form SB-2).
10.1 License Agreement by and between the Company and RIC, dated as of
October 10, 1995, as amended (incorporated herein by reference to
Exhibit 10.1 to the Form SB-2).
23
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10.2 Form of Bridge Loan Agreement and Promissory Note (incorporated
herein by reference to Exhibit 10.3 to the Form SB-2).
10.3 Form of Amendment to Bridge Loan Agreement (incorporated herein by
reference to Exhibit 10.4 to the Form SB-2).
10.4 Settlement Agreement, dated as of October 10, 1995, by and among
Hardee Capital Partners, L.P., Louis Simpson, Gregory Abbott,
George Kriste, David Brenman, Gerald Gottlieb, Marc Gottlieb,
Joseph Koster, Greg Pardes, Linda Poit, ReSeal Food Dispensing
Systems, Inc., ReSeal International Limited Partnership,
Technologies & Advancements, Inc., ReSeal International
Corporation, ReSeal Pharmaceutical Systems, Ltd., Milton Stanson,
Hilda Brown, Ann Hoopes, Townsend Hoopes, Robin Smith and Eugene
Sumner (incorporated herein by reference to Exhibit 10.7 to the
Form SB-2).
10.5 Employment Agreement, dated March 15, 1999, between the Company and
Gary Allanson (incorporated by reference to Exhibit 10.9 to the
Company's 1998 10-KSB).
10.6 Agreement entered into as of December 23, 1997 between the Company
and Well Men (incorporated herein by reference to Exhibit 10.11 to
the Company's 1997 10-KSB).
10.7 Lease dated December 22, 1999 between MIE Properties, Inc. and the
Company.*
10.8 Amended and Restated 1998 Stock Option Plan. Incorporated by
reference to the definitive proxy statement of the Company filed on
May 12, 1999 in connection with the Annual Meeting of Shareholders
of the Company held on June 18, 1999 (the "1999 Proxy Statement").
10.9 Amended and Restated Director Option Plan. Incorporated by
reference to the 1999 Proxy Statement.
10.10 Preferred Stock Subscription Agreement dated as of September 23,
1999 between the Company, Gregory Abbott, George V. Kriste
("Kriste"), Louis Simpson ("Simpson") and Gary Allanson
("Allanson").*
10.11 Amendment No. 1, dated as of October 25, 1999 to Preferred Stock
Subscription Agreement between the Company, Gregory Abbott, Kriste,
Simpson and Allanson.*
10.12 Amendment No. 2, dated as of December 15, 1999 to Preferred Stock
Subscription Agreement between the Company, Gregory Abbott, Kriste,
Simpson, Allanson and George Abbott.*
10.13 Amendment No. 3, dated as of February 22, 2000 to Preferred Stock
Subscription Agreement between the Company, Gregory Abbott, Kriste,
Simpson, Allanson, George Abbott and Reed Slatkin.*
24
<PAGE>
27 Financial Data Schedule*
- ----------------------------
* Filed herewith
Reports on Form 8-K
No Form 8-K was filed by the Company within the fourth quarter
of the Company's fiscal year ended December 31, 1999.
25
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 30, 2000 INTERNATIONAL DISPENSING
CORPORATION
By: /s/ Gary Allanson
-----------------
Gary Allanson
President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated:
Signature Title Date
- ----------------------- --------------------------------- --------------
/s/ Gary Allanson Chairman, President and Chief March 30, 2000
- ----------------------- Executive Officer
Gary Allanson (Principal Executive
Officer)
/s/ Jeffrey Lewenthal Chief Financial Officer (Principal March 30, 2000
- ----------------------- Accounting and Financial Officer)
Jeffrey Lewenthal
/s/ Jay Rosen Director March 30, 2000
- -----------------------
Jay Rosen
/s/ Gregory Abbott Director March 30, 2000
- -----------------------
Gregory Abbott
/s/ George Kriste Director March 30, 2000
- -----------------------
George Kriste
/s/ Frank Carillo Secretary and Director March 30, 2000
- -----------------------
Frank Carillo
26
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
EXHIBITS INDEX
Description of Exhibits
Exhibit No.
3.1 Restated Certificate of Incorporation of the Company, as amended
(incorporated herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form SB-2 (Registration No. 333-7915)
(the "Form SB-2")).
3.2 Certificate of Amendment to the Certificate of Incorporation
(incorporated herein by reference to Exhibit 3.2 to the Form SB-2).
3.3 Certificate of Amendment to the Certificate of Incorporation
(incorporated by reference to Exhibit 3.3 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998
(the "1998 10-KSB")).
3.4 Certificate of Designation of Series A Redeemable Convertible
Preferred Stock of the Company.*
3.5 Certificate of Designation of Series B Redeemable Convertible
Preferred Stock of the Company.*
3.6 By-laws of the Company, as amended (incorporated herein by
reference to Exhibit 3.3 to the Form SB-2).
4.1 Specimen Common Stock Certificate (incorporated herein by reference
to Exhibit 4.1 to the Form SB-2).
4.2 Form of Class A Warrant Agreement (incorporated herein by reference
to Exhibit 4.2 to the Form SB-2).
27
<PAGE>
10.1 License Agreement by and between the Company and RIC, dated as of
October 10, 1995, as amended (incorporated herein by reference to
Exhibit 10.1 to the Form SB-2).
10.2 Form of Bridge Loan Agreement and Promissory Note (incorporated
herein by reference to Exhibit 10.3 to the Form SB-2).
10.3 Form of Amendment to Bridge Loan Agreement (incorporated herein by
reference to Exhibit 10.4 to the Form SB-2).
10.4 Settlement Agreement, dated as of October 10, 1995, by and among
Hardee Capital Partners, L.P., Louis Simpson, Gregory Abbott,
George Kriste, David Brenman, Gerald Gottlieb, Marc Gottlieb,
Joseph Koster, Greg Pardes, Linda Poit, ReSeal Food Dispensing
Systems, Inc., ReSeal International Limited Partnership,
Technologies & Advancements, Inc., ReSeal International
Corporation, ReSeal Pharmaceutical Systems, Ltd., Milton Stanson,
Hilda Brown, Ann Hoopes, Townsend Hoopes, Robin Smith and Eugene
Sumner (incorporated herein by reference to Exhibit 10.7 to the
Form SB-2).
10.5 Employment Agreement, dated March 15, 1999, between the Company and
Gary Allanson (incorporated by reference to Exhibit 10.9 to the
Company's 1998 10-KSB).
10.6 Agreement entered into as of December 23, 1997 between the Company
and Well Men (incorporated herein by reference to Exhibit 10.11 to
the Company's 1997 10-KSB).
10.7 Lease dated December 22, 1999 between MIE Properties, Inc. and the
Company.*
10.8 Amended and Restated 1998 Stock Option Plan. Incorporated by
reference to the definitive proxy statement of the Company filed on
May 12, 1999 in connection with the Annual Meeting of Shareholders
of the Company held on June 18, 1999 (the "1999 Proxy Statement").
10.9 Amended and Restated Director Option Plan. Incorporated by
reference to the 1999 Proxy Statement.
10.10 Preferred Stock Subscription Agreement dated as of September 23,
1999 between the Company, Gregory Abbott, George V. Kriste
("Kriste"), Louis Simpson ("Simpson") and Gary Allanson
("Allanson").*
28
<PAGE>
10.11 Amendment No. 1, dated as of October 25, 1999 to Preferred Stock
Subscription Agreement between the Company, Gregory Abbott, Kriste,
Simpson and Allanson.*
10.12 Amendment No. 2, dated as of December 15, 1999 to Preferred Stock
Subscription Agreement between the Company, Gregory Abbott, Kriste,
Simpson, Allanson and George Abbott.*
10.13 Amendment No. 3, dated as of February 22, 2000 to Preferred Stock
Subscription Agreement between the Company, Gregory Abbott, Kriste,
Simpson, Allanson, George Abbott and Reed Slatkin.*
27 Financial Data Schedule.*
- ----------------------------
* Filed herewith.
29
Exhibit 3.4
CERTIFICATE OF DESIGNATION
OF
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF INTERNATIONAL DISPENSING CORPORATION
INTERNATIONAL DISPENSING CORPORATION, a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article
Fourth of its Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors has adopted the following resolution as of
October 25, 1999 creating a series of its Preferred Stock designated as the
Series A Redeemable Convertible Preferred Stock:
RESOLVED, that a separate series of the class of authorized
Preferred Stock, par value $.001 per share, of the Corporation be
hereby created, and that the designation and the amount thereof and the
voting powers, preferences and relative, participating, optional and
other special rights of the shares of such series and the
qualifications, limitations of restrictions thereof are as follows:
1. DESIGNATION AND AMOUNT. The shares of the series of Preferred
Stock of the Corporation created and authorized hereby shall be designated as
"Series A Redeemable Convertible Preferred Stock" (hereinafter referred to as
the "Preferred Stock") and the number of shares constituting such series shall
be 2,000.
2. DIVIDENDS.
(a) Computation of Cumulative Dividends. The holders of the
outstanding shares of Preferred Stock shall be entitled to receive, out of any
funds legally available therefor, cumulative dividends at the annual rate of
twelve percent (12%) per share of Preferred Stock, or $240 per share. Such
cumulative dividends shall accrue and accumulate from the date of original
issuance and shall be payable quarterly on the last day of March, June,
September and December of each year, commencing on the last day of the calendar
quarter in which the date of original issuance occurs. Cumulative dividends on
the Preferred Stock shall be payable in cash or in additional shares of
Preferred Stock having an aggregate liquidation value equal to the dividend, or
any combination of the foregoing, at the discretion
1
<PAGE>
of the Corporation. Cumulative dividends on the Preferred Stock shall be payable
if, as and when declared by the Board of Directors of the Corporation, but shall
nevertheless be payable upon liquidation as provided in Section 3.
Dividends on the Preferred Stock shall accrue from day to day
on each share of Preferred Stock from the date of original issuance of such
share, whether or not earned or declared, and shall accrue until paid.
All numbers relating to calculation of cumulative dividends
shall be subject to equitable adjustment in the event of any stock dividend,
stock split, merger, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Preferred Stock. Such dividends on the Preferred Stock shall be
cumulative so that if such dividends in respect of any previous or current
quarterly dividend period, at the annual rate specified above, shall not have
been paid or declared and a sum sufficient for the payment thereof set apart,
the deficiency shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart for the Corporation's
Common Stock, par value $.001 per share (the "Common Stock").
(b) No Participating Dividends. In the event that the Board of
Directors of the Corporation shall declare a dividend payable upon the then
outstanding shares of Common Stock (other than a stock dividend on the Common
Stock distributed solely in the form of additional shares of Common Stock), the
holders of the Preferred Stock shall not be entitled to any dividends on the
Common Stock other than dividends payable to such holders in their status as
holders of Common Stock.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
Treatment at Liquidation, Dissolution or Winding Up. In the event
of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or in the event of its insolvency, before any
distribution or other payment is made to any holders of any shares of Common
Stock, or any other class or series of capital stock of the Corporation
designated to be junior to the Preferred Stock, and any future class or series
of capital stock designated to be junior to the Preferred Stock, the holders of
each share of Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes whether such assets are capital,
surplus or earnings, an amount equal to Two Thousand ($2,000) Dollars per share
of Preferred Stock (which amount shall be subject to equitable adjustment
whenever there shall occur a stock dividend, stock split, merger, combination,
reorganization, recapitalization, reclassification or other similar event
involving a change in the capital structure of the Preferred Stock) plus an
amount equal to the sum of all accumulated and unpaid dividends to the date
fixed for the payment of the distribution on the shares of Preferred Stock.
2
<PAGE>
If, upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Preferred Stock the
full amounts to which they otherwise would be entitled, the holders of Preferred
Stock shall share ratably in any distribution of available assets according to
the respective amounts which would otherwise be payable with respect to the
shares of Preferred Stock held by them upon such liquidating distribution if all
amounts payable on or with respect to said shares were paid in full, based upon
the aggregate liquidation value of the Preferred Stock.
After such payment shall have been made in full to the holders of
the Preferred Stock, or funds necessary for such payment shall have been set
aside by the Corporation in trust for the account of holders of the Preferred
Stock so as to be available for such payment, the remaining assets available for
distribution shall be distributed among the holders of the Common Stock and any
other class or series of capital stock of the Corporation designated to be
junior to the Preferred Stock.
4. Voting Rights; Election of Director.
(a) At such times and for so long as a majority of the shares of
Preferred Stock which have been issued after October 25, 1999 have not been
either converted into Common Stock or redeemed by the Corporation, the holders
of a majority of the outstanding shares of Preferred Stock, voting as a separate
class, shall be entitled to elect one (1) director of the Corporation (the
"Preferred Director"). The right to elect the Preferred Director may be
exercised at any annual meeting of the stockholders of the Corporation, at any
special meeting held in place of an annual meeting, or at a special meeting of
the holders of Preferred Stock called to elect the Preferred Director or by the
unanimous written consent of the holders of Preferred Stock.
At any time that special voting power is vested in the holders of
Preferred Stock, the Secretary of the Corporation may, and at the written
request of holders of 5 percent or more of the shares of Preferred Stock must,
call a special meeting of the holders of Preferred Stock for the election of the
Preferred Director. The meeting must be held within forty (40) days of the
delivery of the request at the time and place provided by law or in the bylaws
of the Corporation for meetings of stockholders of the Corporation; provided,
however, that no meeting need be called if the request is delivered less than
ninety (90) days before the date fixed for the next annual meeting of the
stockholders.
If at any meeting held when special voting power is vested in the
holders of Preferred Stock, the holders of at least 50 percent of Preferred
Stock then outstanding are present in person or by proxy, then the holders of
Preferred Stock present by vote of at least 50 percent of those present shall be
entitled to elect the Preferred Director. The Preferred Director selected by the
holders of Preferred Stock shall replace the existing Preferred Director, who
shall be deemed to have resigned. The Preferred Director so elected by the
3
<PAGE>
holders of Preferred Stock shall serve until the next annual meeting of the
stockholders of the Corporation and until his successor is elected by the
holders of Preferred Stock and shall have qualified.
When the holders of Preferred Stock are divested of special voting
power, the term of office of the person elected as the Preferred Director by the
holders of Preferred Stock shall immediately terminate. If the office of the
Preferred Director is vacant due to resignation, removal or death during the
time that special voting power is vested in the holders of Preferred Stock, a
special meeting of the holders of Preferred Stock shall be called and the
vacancy filled at that meeting.
(b) In addition to the rights provided in Section 4(a) or Section
5 or by law, the holders of Preferred Stock shall be entitled to vote on all
matters as to which holders of Common Stock shall be entitled to vote
(including, but not limited to, the election of directors of the Corporation),
in the same manner and with the same effect as such holders of Common Stock,
except as set forth in Section 4(a) or Section 5, voting together with the
holders of Common Stock as one class. Each share of Preferred Stock shall
entitle the holder thereof to such number of votes as shall equal the number of
whole and fractional shares of Common Stock into which such share is then
convertible.
5. RIGHTS OF PREFERRED STOCK WITH RESPECT TO CORPORATE ACTION;
AMENDMENTS TO CHARTER. The Corporation shall not take any corporate action or
otherwise amend its Certificate of Incorporation without the approval by vote or
written consent of the holders of at least a majority of the then outstanding
shares of Preferred Stock, voting as a separate class, each share of Preferred
Stock to be entitled to one vote in each instance, if such corporate action or
amendment would change any of the rights, preferences, privileges of or
limitations provided for herein for the benefit of any shares of Preferred Stock
or adversely affect the rights of the Preferred Stock.
6. NOTICES OF RECORD DATE. In the event of:
(a) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of capital stock of any class or any
other securities or property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
4
<PAGE>
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed by first class mail, postage prepaid, or
express overnight courier service, at least ten (10) days prior to the date
specified in such notice on which such action is to be taken.
7. CONVERSION.
(a) Each of the holders of Preferred Stock shall have the right
at any time prior to the Redemption Date (as hereinafter defined) to convert all
of any part of his outstanding shares of Preferred Stock together with accrued
and unpaid dividends thereon into fully paid and non-assessable shares of Common
Stock of the Corporation ("Common Stock") at the conversion price of $0.22 (the
"Conversion Price"), which Conversion Price shall be subject to adjustment as
provided in Section 7(e). The Corporation shall not be required to issue any
fractional shares of Common Stock upon the conversion of Preferred Stock. If
more than one share of Preferred Stock is surrendered for conversion at one time
by the same holder, the number of full shares of Common Stock that shall be
issued upon the conversion of Preferred Stock shall be computed on the basis of
the aggregate number of shares of Preferred Stock surrendered. If any interest
in a fractional share of Common Stock would otherwise be deliverable upon the
conversion of Preferred Stock, the Corporation shall make adjustment for that
fractional share interest by payment of an amount in cash equal to the same
fraction of the market value at that time of a full share of Common Stock of the
Corporation.
(b) The Corporation covenants that, during the period conversion
rights exist, the Corporation will at all times reserve from its authorized and
unissued Common Stock a sufficient number of shares of Common Stock to permit
conversion in full of the outstanding shares of Preferred Stock at the
Conversion Price from time to time in effect. The Corporation represents and
warrants that upon issuance, such shares of Common Stock will be duly and
validly issued, fully paid and non-assessable.
(c) The Corporation agrees that its issuance of Preferred Stock
shall constitute full authority to its officers and agents who are charged with
the duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the conversion of Preferred Stock.
5
<PAGE>
(d) The right of each of the holders of Preferred Stock to
convert his shares of Preferred Stock shall be exercised by delivering to the
Corporation (i) a certificate or certificates for the shares of Preferred Stock
to be converted, duly endorsed or assigned in blank to the Corporation and (ii)
a conversion notice stating that the holder elects to convert such shares and
stating the name or names and addresses in which the certificates for shares of
Common Stock are to be issued (the "Notice of Conversion"). The Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock or other
securities or property on conversion of Preferred Stock. As soon as practicable
after the conversion of Preferred Stock, the Corporation shall issue to the
holder a certificate or certificates for the number of shares of Common Stock to
which the holder is entitled. If the shares of Preferred Stock represented by
the certificates delivered to the Corporation are not converted in full, the
Corporation shall deliver to the holder a new certificate for the shares of
Preferred Stock not converted.
(e) (i) In case of any consolidation or merger of the Corporation
with any other corporation (other than a wholly-owned subsidiary of the
Corporation) in which the Corporation is not the surviving corporation, or in
case of any stock split, stock dividend or reclassification of the Common Stock
of the Corporation, or in case of any share exchange pursuant to which all of
the outstanding shares of Common Stock are converted into other securities or
property (each event, a "Capital Transaction"), the Corporation shall make
appropriate provision or cause appropriate provision to be made so that the
holder of Preferred Stock shall have the right thereafter to convert his shares
of Preferred Stock into the kind of shares of stock and other securities and
property receivable upon such Capital Transaction by the persons who were
holders of Common Stock immediately prior to the effective date of such Capital
Transaction and on a basis which preserves the economic benefits of the
conversion rights of the holder on a basis as nearly as practical as such rights
existed prior to such Capital Transaction. If, in connection with any such
Capital Transaction each holder of shares of Common Stock is entitled to elect
to receive either securities, cash or other assets upon completion of such
Capital Transaction, the Corporation shall provide or cause to be provided to
the holder the right to elect the securities, cash or other assets into which
Preferred Stock shall be convertible after completion of any such Capital
Transaction on the same terms and subject to the same terms and subject to the
same conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). The above provisions shall similarly apply to successive Capital
Transactions.
(ii) In case the Corporation shall in one or a series of
related transactions issue or sell a number of shares of Common Stock which in
the aggregate exceed 20% of the outstanding shares of Common Stock of the
Corporation on a fully diluted basis giving effect to the issuance of such
shares (a "Qualifying Transaction") for a consideration per share less than the
Conversion Price in effect immediately prior to the issuance of the shares of
Common Stock which triggers the operation of this Section 7(e)(ii) (the
"Triggering Issuance"), then the Conversion Price in effect immediately prior to
such Triggering Issuance shall be
6
<PAGE>
reduced to the average consideration per share of all Common Stock issued in the
Qualifying Transaction. For the purposes of any computation to be made in
accordance with the provisions of this Section 7(e)(ii), the following
provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Corporation for such shares (or, if such shares of Common Stock are offered by
the Corporation for subscription, the subscription price, or, if shares of
Common Stock shall be sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price) before
deducting therefrom any commissions or other expenses paid or incurred by the
Company for any underwriting of, or otherwise in connection with, the issuance
of such shares.
(B) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be other than cash (otherwise
than as a dividend or other distribution on any shares of the Company or on
conversion, exchange or exercise of other securities of the Company or upon
acquisition of the assets or securities of another company or upon merger or
consolidation with another entity), the amount of consideration therefor other
than cash shall be the value of such consideration as of the date of the
issuance or sale of the shares of Common Stock, irrespective of accounting
treatment. The reclassification of securities other than Common Stock into
securities including Common Stock shall be deemed to involve the issuance for a
consideration other than cash of such Common Stock immediately prior to the
close of business on the date fixed for the determination of security holders
entitled to receive such Common Stock.
(C) In case of the issuance of shares of Common Stock upon
conversion or exchange of any obligations or of any shares of stock of the
Corporation that shall be convertible into or exchangeable for shares of Common
Stock or upon the exercise of rights or options to subscribe for or to purchase
shares of Common Stock, the amount of consideration received by the Corporation
for such shares of Common Stock shall be deemed to be the total of (1) the
amount of the consideration received by the Corporation upon the original
issuance of such obligations, shares, rights or options, as the case may be,
plus (2) the consideration, if any, other than such obligations, shares, rights
or options, received by the Corporation upon such conversion, exchange, or
exercise except in adjustment of interest and dividends. The amount of the
consideration received by the Corporation upon the original issuance of the
obligations, shares, rights or options so converted, exchanged or exercised and
the amount of the consideration, if any, other than such obligations, shares,
rights or options, received by the Corporation upon such conversion, exchange or
exercise shall be determined in the same manner provided in clauses (A) and (B)
above with respect to the consideration received by the Corporation in case of
the issuance of shares of Common Stock; if such obligations, shares, rights or
options shall have been issued as a dividend upon any stock of the Corporation,
the amount of the consideration received by the Corporation upon the original
issuance thereof shall be deemed to be zero.
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(D) In case of the issuance of shares of Common Stock upon
acquisition by the Corporation of the assets or securities of another company or
upon merger or consolidation of the Corporation with another entity, the
consideration therefor received by the Corporation for such issuance shall be
deemed to equal the cash and the Fair Market Value of securities issued by the
Corporation. The Fair Market Value of securities issued shall be the lesser of
the Fair Market Value of the securities on the date an agreement in principle
with respect to such merger, consolidation or purchase is reached among the
parties or the date the agreement of consolidation, merger or purchase is
executed. For purposes hereof, the "Fair Market Value" of a unit of a security
means:
(1) if the security is Common Stock, then
(i) if the Common Stock is traded on an exchange or is quoted
on the NASDAQ National Market System, then the average of the
closing or last sale prices, respectively, reported for the 20
trading days ended immediately preceding the determination
date; or
(ii) if the Common Stock is not traded on an exchange or on
the NASDAQ National Market System but is traded in the
over-the-counter market, then the mean of the average of the
closing bid and asked prices reported for the 20 trading days
ended immediately preceding the determination date; or
(iii) in all other circumstances, the fair market value per
share of the Common Stock as determined in good faith by the
Board of Directors of the Corporation; and
(2) if the security is not Common Stock, the fair market value thereof
as determined in good faith by the Board of Directors of the Corporation.
(f) Whenever the Corporation shall propose to take any of the
actions specified in Section 7(e), the Corporation shall cause a notice to be
mailed at least 10 days prior to the date on which the books of the Corporation
will close or on which a vote will be taken for such action, to the holder. Such
action shall specify the action proposed to be taken by the Corporation and the
date as of which holders of record of the Common Stock shall participate in any
such actions or be entitled to exchange their Common Stock for securities or
other property, as the case may be. Failure by the Corporation to mail the
notice or any defect in such notice shall not affect the validity of the
transaction. Upon receipt by the Corporation of a Notice of Conversion meeting
the requirements for conversion as provided in Section 7(d), the Corporation
shall issue and deliver or cause to be issued and delivered to the holder of
Preferred Stock certificates for the Common Stock issuable upon such conversion
within 15 business days after such receipt, and the holder of Preferred Stock
shall be deemed to be the holder of record of the Common Stock issuable upon
such conversion.
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8. REDEMPTION.
(a) Redemption at the Option of the Holders of Preferred Stock.
Within 30 days after the occurrence of a Change of Control (as hereinafter
defined), the Corporation shall notify each of the holders of Preferred Stock in
writing of such occurrence. Within 30 days after the Corporation so notifies the
holders, any of the holders of the outstanding shares of Preferred Stock may, by
notice to the Corporation as hereinafter provided, require the Corporation to
redeem all or part of his outstanding shares of Preferred Stock, at a price per
share equal to $2,000 (which amount shall be subject to equitable adjustment
wherever there shall occur a stock dividend, stock split, merger, combination,
reorganization, recapitalization, reclassification and other similar event
involving a change in capital structure of the Preferred Stock) plus all
cumulative dividends accrued and unpaid on such Preferred Stock through the date
of redemption (the "Redemption Price"). The notice of redemption shall be in
writing.
(b) Redemption at the Option of the Corporation. The Corporation
may, at its option (i) at any time after the date when the Corporation first
reports either three consecutive quarters of positive net income or one fiscal
year of positive net income (if the latter, such report must be audited by a
nationally recognized independent accounting firm) or (ii) within 30 days after
giving the holders of Preferred Stock notice of the occurrence of a Change of
Control, redeem shares of outstanding Preferred Stock, in whole or in part,
provided that the redemption must be pro rata for each holder of Preferred Stock
based on the number of shares held by each such holder of Preferred Stock, at a
price per share equal to the Redemption Price. The Corporation shall give notice
of such redemption to each holder of the Preferred Stock, which notice shall
specify the date of the requested redemption in accordance with Section 8(d)
hereof, and the number of shares of Preferred Stock held by such holder of
Preferred Stock being redeemed pursuant to this subsection 8(b).
(c) Legally Sufficient Funds. In the event of a requested
redemption by a holder of Preferred Stock in accordance with Section 8(a) or by
the Corporation in accordance with Section 8(b), if the funds of the Corporation
legally available for redemption of Preferred Stock on any Redemption Date (as
hereinafter defined) are insufficient to redeem all of the shares of Preferred
Stock to be redeemed on such date, those funds which are legally available will
be used to redeem the maximum possible number of shares of Preferred Stock
ratably among the holders of the Preferred Stock to be redeemed. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of such Preferred Stock, such funds will promptly be used to
redeem the balance of the shares of such Preferred Stock together with any
accrued dividends thereon.
(d) Redemption Date; Redemption Price. The date of a redemption
of Preferred Stock pursuant to this Section 8 (a "Redemption Date") shall be a
business day not less than sixty (60) days from and not more than ninety (90)
days from the date of the first notice sent by a holder of Preferred Stock in
accordance with Section 8(a), or not less than thirty (30) days from the date of
the notice sent by the Corporation in accordance with Section 8(b); provided
that
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no such date will be a Redemption Date unless the applicable Redemption Price is
paid in full in cash on such date, and if not so paid in full, the Redemption
Date will be the date on which such Redemption Price is fully paid as permitted
and required by this Designation. For each share of Preferred Stock which is to
be redeemed pursuant to this Section 8, the Corporation will be obligated on the
Redemption Date to pay to the holder thereof, upon surrender by such holder at
the Corporation's principal office of the certificate representing such shares
of Preferred Stock endorsed or assigned in blank to the Corporation, an amount
equal to the Redemption Price.
(e) Dividends After Redemption Date. No share of Preferred Stock
is entitled to any dividends accruing after its Redemption Date. On such
Redemption Date all rights of the holder of such share of Preferred Stock will
cease and such share of Preferred Stock will not be deemed to be outstanding.
(f) Redeemed or Otherwise Acquired Shares. Any shares of
Preferred Stock which are redeemed or otherwise acquired by the Corporation will
be canceled and will not be reissued, sold or transferred.
(g) Change of Control. For purposes of this Section 8, a "Change
of Control" shall be deemed to have occurred on the date that:
(i) any "Person" including a "Group" (as such term is defined
in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act) becomes (except as a result of the acquisition of Preferred Stock or
conversion of Preferred Stock into Common Stock) a "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, in a
single transaction or group of related transactions of securities of the
Corporation representing 33-1/3% or more of the combined voting power of the
Corporation's then outstanding securities eligible to vote for the election of
the Board (the "Voting Securities"); provided, however, that the event described
in this Section 8(g)(i) shall not be deemed to be a Change in Control by virtue
of any of the following acquisitions: (A) by the Corporation or any subsidiary
of the Corporation in which the Corporation owns more than 50% of the combined
voting power of such entity (a "Subsidiary"), (B) by any employee benefit plan
(or related trust) sponsored or maintained by the Corporation or any Subsidiary,
(C) by any underwriter temporarily holding the Corporation's Voting Securities
pursuant to an offering of such Voting Securities, or (D) pursuant to a
Non-Qualifying Transaction (as defined in Section 8(g)(ii));
(ii) there is a consummation of a merger, consolidation,
statutory share exchange or similar form of corporate transaction involving the
Corporation or any of its Subsidiaries that requires the approval of the
Corporation's shareholders (a "Business Combination"), unless immediately
following such Business Combination either of the following is applicable: (A)
more than 50% of the total voting power of (1) the Corporation resulting from
such Business Combination (the "Surviving Corporation"), or (2) if applicable,
the ultimate parent corporation that directly or indirectly has beneficial
ownership of 100% of the voting securities eligible to elect directors of the
Surviving Corporation (the "Parent Corporation"), is
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represented by the Corporation's Voting Securities that were outstanding
immediately prior to such Business Combination (or, if applicable, is
represented by shares into which the Corporation's Voting Securities were
converted pursuant to such Business Combination), and such voting power among
the holders thereof is in substantially the same proportion as the voting power
of the Corporation's Voting Securities among the holders thereof immediately
prior to the Business Combination; or (B) no person (other than any person
engaged in a transaction described in clauses (A) through (D) in Section 8(g)(i)
above), is or becomes (except as a result of the acquisition of Preferred Stock
or conversion of Preferred Stock into Common Stock) the beneficial owner,
directly or indirectly, of 33-1/3% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation)(any Business Combination in which any of the criteria specified in
(A) or (B) of this Section 8(g)(ii) is applicable shall be deemed to be a
"Non-Qualifying Transaction); or
(iii) there is a closing for a sale of all or substantially
all of the Corporation's assets.
Notwithstanding the foregoing, a Change in Control of the
Corporation shall not be deemed to occur solely because any person acquires
beneficial ownership of more than 33-1/3% of the Corporation's Voting Securities
as a result of the acquisition of the Corporation's Voting Securities by the
Corporation which reduces the number of the Corporation's Voting Securities
outstanding; provided, that if after such acquisition by the Corporation such
person becomes the beneficial owner of additional Corporation Voting Securities
that increases the percentage of outstanding Corporation Voting Securities
beneficially owned by such person by more than 3%, a Change in Control of the
Corporation shall then become effective unless otherwise exempt under clauses
(A) through (D) of Section 8(g)(i) above or because it constitutes a
Non-Qualifying Transaction.
IN WITNESS WHEREOF, International Dispensing Corporation has caused
this Certificate of Designation of Series A Redeemable Convertible Preferred
Stock to be duly executed this 25th day of October, 1999.
INTERNATIONAL DISPENSING CORPORATION
By: /s/ Gary Allanson
---------------------
Name: Gary Allanson
Title: President
11
Exhibit 3.5
CERTIFICATE OF DESIGNATION
OF
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF INTERNATIONAL DISPENSING CORPORATION
INTERNATIONAL DISPENSING CORPORATION, a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article
Fourth of its Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors has adopted the following resolution as of
February 7, 2000 creating a series of its Preferred Stock designated as the
Series B Redeemable Convertible Preferred Stock:
RESOLVED, that a separate series of the class of authorized
Preferred Stock, par value $.001 per share, of the Corporation be
hereby created, and that the designation and the amount thereof and the
voting powers, preferences and relative, participating, optional and
other special rights of the shares of such series and the
qualifications, limitations of restrictions thereof are as follows:
1. DESIGNATION AND AMOUNT.The shares of the series of Preferred Stock
of the Corporation created and authorized hereby shall be designated as "Series
B Redeemable Convertible Preferred Stock" (hereinafter referred to as the
"Preferred Stock") and the number of shares constituting such series shall be
1,500.
2. DIVIDENDS.
(a) Computation of Cumulative Dividends. The holders of the
outstanding shares of Preferred Stock shall be entitled to receive, out of any
funds legally available therefor, cumulative dividends at the annual rate of
twelve percent (12%) per share of Preferred Stock, or $240 per share. Such
cumulative dividends shall accrue and accumulate from the date of original
issuance and shall be payable quarterly on the last day of March, June,
September and December of each year, commencing on the last day of the calendar
quarter in which the date of original issuance occurs. Cumulative dividends on
the Preferred Stock shall be payable in cash or in additional shares of
Preferred Stock having an aggregate liquidation value equal to the dividend, or
any combination of the foregoing, at the discretion
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of the Corporation. Cumulative dividends on the Preferred Stock shall be payable
if, as and when declared by the Board of Directors of the Corporation, but shall
nevertheless be payable upon liquidation as provided in Section 3.
Dividends on the Preferred Stock shall accrue from day to day
on each share of Preferred Stock from the date of original issuance of such
share, whether or not earned or declared, and shall accrue until paid.
All numbers relating to calculation of cumulative dividends
shall be subject to equitable adjustment in the event of any stock dividend,
stock split, merger, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Preferred Stock. Such dividends on the Preferred Stock shall be
cumulative so that if such dividends in respect of any previous or current
quarterly dividend period, at the annual rate specified above, shall not have
been paid or declared and a sum sufficient for the payment thereof set apart,
the deficiency shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart for the Corporation's
Common Stock, par value $.001 per share (the "Common Stock").
(b) No Participating Dividends. In the event that the Board of
Directors of the Corporation shall declare a dividend payable upon the then
outstanding shares of Common Stock (other than a stock dividend on the Common
Stock distributed solely in the form of additional shares of Common Stock), the
holders of the Preferred Stock shall not be entitled to any dividends on the
Common Stock other than dividends payable to such holders in their status as
holders of Common Stock.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
Treatment at Liquidation, Dissolution or Winding Up. In the event
of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or in the event of its insolvency, before any
distribution or other payment is made to any holders of any shares of Common
Stock, or any other class or series of capital stock of the Corporation
designated to be junior to the Preferred Stock, and any future class or series
of capital stock designated to be junior to the Preferred Stock, the holders of
each share of Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes whether such assets are capital,
surplus or earnings, an amount equal to Two Thousand ($2,000) Dollars per share
of Preferred Stock (which amount shall be subject to equitable adjustment
whenever there shall occur a stock dividend, stock split, merger, combination,
reorganization, recapitalization, reclassification or other similar event
involving a change in the capital structure of the Preferred Stock) plus an
amount equal to the sum of all accumulated and unpaid dividends to the date
fixed for the payment of the distribution on the shares of Preferred Stock.
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If, upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Preferred Stock the
full amounts to which they otherwise would be entitled, the holders of Preferred
Stock shall share ratably in any distribution of available assets according to
the respective amounts which would otherwise be payable with respect to the
shares of Preferred Stock held by them upon such liquidating distribution if all
amounts payable on or with respect to said shares were paid in full, based upon
the aggregate liquidation value of the Preferred Stock and the aggregate
liquidation value of all other classes or series of preferred stock which are
not designated to be junior to the Preferred Stock.
After such payment shall have been made in full to the holders of
the Preferred Stock, or funds necessary for such payment shall have been set
aside by the Corporation in trust for the account of holders of the Preferred
Stock so as to be available for such payment, the remaining assets available for
distribution shall be distributed among the holders of the Common Stock and any
other class or series of capital stock of the Corporation designated to be
junior to the Preferred Stock.
4. VOTING RIGHTS. In addition to the rights provided in Section 5 or
by law, the holders of Preferred Stock shall be entitled to vote on all matters
as to which holders of Common Stock shall be entitled to vote (including, but
not limited to, the election of directors of the Corporation), in the same
manner and with the same effect as such holders of Common Stock, except as set
forth in Section 5, voting together with the holders of Common Stock as one
class. Each share of Preferred Stock shall entitle the holder thereof to such
number of votes as shall equal the number of whole and fractional shares of
Common Stock into which such share is then convertible.
5. RIGHTS OF PREFERRED STOCK WITH RESPECT TO CORPORATE ACTION;
AMENDMENTS TO CHARTER. The Corporation shall not take any corporate action or
otherwise amend its Certificate of Incorporation without the approval by vote or
written consent of the holders of at least a majority of the then outstanding
shares of Preferred Stock, voting as a separate class, each share of Preferred
Stock to be entitled to one vote in each instance, if such corporate action or
amendment would change any of the rights, preferences, privileges of or
limitations provided for herein for the benefit of any shares of Preferred Stock
or adversely affect the rights of the Preferred Stock.
6. NOTICES OF RECORD DATE. In the event of:
(a) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of capital stock of any class or any
other securities or property, or to receive any other right, or
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(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed by first class mail, postage prepaid, or
express overnight courier service, at least ten (10) days prior to the date
specified in such notice on which such action is to be taken.
7. CONVERSION.
(a) Each of the holders of Preferred Stock shall have the right
at any time prior to the Redemption Date (as hereinafter defined) to convert all
of any part of his outstanding shares of Preferred Stock together with accrued
and unpaid dividends thereon into fully paid and non-assessable shares of Common
Stock of the Corporation ("Common Stock") at the conversion price of $0.35 (the
"Conversion Price"), which Conversion Price shall be subject to adjustment as
provided in Section 7(e). The Corporation shall not be required to issue any
fractional shares of Common Stock upon the conversion of Preferred Stock. If
more than one share of Preferred Stock is surrendered for conversion at one time
by the same holder, the number of full shares of Common Stock that shall be
issued upon the conversion of Preferred Stock shall be computed on the basis of
the aggregate number of shares of Preferred Stock surrendered. If any interest
in a fractional share of Common Stock would otherwise be deliverable upon the
conversion of Preferred Stock, the Corporation shall make adjustment for that
fractional share interest by payment of an amount in cash equal to the same
fraction of the market value at that time of a full share of Common Stock of the
Corporation.
(b) The Corporation covenants that, during the period conversion
rights exist, the Corporation will at all times reserve from its authorized and
unissued Common Stock a sufficient number of shares of Common Stock to permit
conversion in full of the outstanding shares of Preferred Stock at the
Conversion Price from time to time in effect. The Corporation
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represents and warrants that upon issuance, such shares of Common Stock will be
duly and validly issued, fully paid and non-assessable.
(c) The Corporation agrees that its issuance of Preferred Stock
shall constitute full authority to its officers and agents who are charged with
the duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the conversion of Preferred Stock.
(d) The right of each of the holders of Preferred Stock to
convert his shares of Preferred Stock shall be exercised by delivering to the
Corporation (i) a certificate or certificates for the shares of Preferred Stock
to be converted, duly endorsed or assigned in blank to the Corporation and (ii)
a conversion notice stating that the holder elects to convert such shares and
stating the name or names and addresses in which the certificates for shares of
Common Stock are to be issued (the "Notice of Conversion"). The Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock or other
securities or property on conversion of Preferred Stock. As soon as practicable
after the conversion of Preferred Stock, the Corporation shall issue to the
holder a certificate or certificates for the number of shares of Common Stock to
which the holder is entitled. If the shares of Preferred Stock represented by
the certificates delivered to the Corporation are not converted in full, the
Corporation shall deliver to the holder a new certificate for the shares of
Preferred Stock not converted.
(e) (i) In case of any consolidation or merger of the Corporation
with any other corporation (other than a wholly-owned subsidiary of the
Corporation) in which the Corporation is not the surviving corporation, or in
case of any stock split, stock dividend or reclassification of the Common Stock
of the Corporation, or in case of any share exchange pursuant to which all of
the outstanding shares of Common Stock are converted into other securities or
property (each event, a "Capital Transaction"), the Corporation shall make
appropriate provision or cause appropriate provision to be made so that the
holder of Preferred Stock shall have the right thereafter to convert his shares
of Preferred Stock into the kind of shares of stock and other securities and
property receivable upon such Capital Transaction by the persons who were
holders of Common Stock immediately prior to the effective date of such Capital
Transaction and on a basis which preserves the economic benefits of the
conversion rights of the holder on a basis as nearly as practical as such rights
existed prior to such Capital Transaction. If, in connection with any such
Capital Transaction each holder of shares of Common Stock is entitled to elect
to receive either securities, cash or other assets upon completion of such
Capital Transaction, the Corporation shall provide or cause to be provided to
the holder the right to elect the securities, cash or other assets into which
Preferred Stock shall be convertible after completion of any such Capital
Transaction on the same terms and subject to the same terms and subject to the
same conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). The above provisions shall similarly apply to successive Capital
Transactions.
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(ii) In case the Corporation shall in one or a series of
related transactions issue or sell a number of shares of Common Stock which in
the aggregate exceed 20% of the outstanding shares of Common Stock of the
Corporation on a fully diluted basis giving effect to the issuance of such
shares (a "Qualifying Transaction") for a consideration per share less than the
Conversion Price in effect immediately prior to the issuance of the shares of
Common Stock which triggers the operation of this Section 7(e)(ii) (the
"Triggering Issuance"), then the Conversion Price in effect immediately prior to
such Triggering Issuance shall be reduced to the average consideration per share
of all Common Stock issued in the Qualifying Transaction. For the purposes of
any computation to be made in accordance with the provisions of this Section
7(e)(ii), the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Corporation for such shares (or, if such shares of Common Stock are offered by
the Corporation for subscription, the subscription price, or, if shares of
Common Stock shall be sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price) before
deducting therefrom any commissions or other expenses paid or incurred by the
Company for any underwriting of, or otherwise in connection with, the issuance
of such shares.
(B) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be other than cash (otherwise
than as a dividend or other distribution on any shares of the Company or on
conversion, exchange or exercise of other securities of the Company or upon
acquisition of the assets or securities of another company or upon merger or
consolidation with another entity), the amount of consideration therefor other
than cash shall be the value of such consideration as of the date of the
issuance or sale of the shares of Common Stock, irrespective of accounting
treatment. The reclassification of securities other than Common Stock into
securities including Common Stock shall be deemed to involve the issuance for a
consideration other than cash of such Common Stock immediately prior to the
close of business on the date fixed for the determination of security holders
entitled to receive such Common Stock.
(C) In case of the issuance of shares of Common Stock upon
conversion or exchange of any obligations or of any shares of stock of the
Corporation that shall be convertible into or exchangeable for shares of Common
Stock or upon the exercise of rights or options to subscribe for or to purchase
shares of Common Stock, the amount of consideration received by the Corporation
for such shares of Common Stock shall be deemed to be the total of (1) the
amount of the consideration received by the Corporation upon the original
issuance of such obligations, shares, rights or options, as the case may be,
plus (2) the consideration, if any, other than such obligations, shares, rights
or options, received by the Corporation upon such conversion, exchange, or
exercise except in adjustment of interest and dividends. The amount of the
consideration received by the Corporation upon the original issuance of the
obligations, shares, rights or options so converted, exchanged or exercised and
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the amount of the consideration, if any, other than such obligations, shares,
rights or options, received by the Corporation upon such conversion, exchange or
exercise shall be determined in the same manner provided in clauses (A) and (B)
above with respect to the consideration received by the Corporation in case of
the issuance of shares of Common Stock; if such obligations, shares, rights or
options shall have been issued as a dividend upon any stock of the Corporation,
the amount of the consideration received by the Corporation upon the original
issuance thereof shall be deemed to be zero.
(D) In case of the issuance of shares of Common Stock upon
acquisition by the Corporation of the assets or securities of another company or
upon merger or consolidation of the Corporation with another entity, the
consideration therefor received by the Corporation for such issuance shall be
deemed to equal the cash and the Fair Market Value of securities issued by the
Corporation. The Fair Market Value of securities issued shall be the lesser of
the Fair Market Value of the securities on the date an agreement in principle
with respect to such merger, consolidation or purchase is reached among the
parties or the date the agreement of consolidation, merger or purchase is
executed. For purposes hereof, the "Fair Market Value" of a unit of a security
means:
(1) if the security is Common Stock, then
(i) if the Common Stock is traded on an exchange or is quoted
on the NASDAQ National Market System, then the average of the
closing or last sale prices, respectively, reported for the 20
trading days ended immediately preceding the determination
date; or
(ii) if the Common Stock is not traded on an exchange or on
the NASDAQ National Market System but is traded in the
over-the-counter market, then the mean of the average of the
closing bid and asked prices reported for the 20 trading days
ended immediately preceding the determination date; or
(iii) in all other circumstances, the fair market value per
share of the Common Stock as determined in good faith by the
Board of Directors of the Corporation; and
(2) if the security is not Common Stock, the fair market value thereof
as determined in good faith by the Board of Directors of the Corporation.
(f) Whenever the Corporation shall propose to take any of the
actions specified in Section 7(e), the Corporation shall cause a notice to be
mailed at least 10 days prior to the date on which the books of the Corporation
will close or on which a vote will be taken for such action, to the holder. Such
action shall specify the action proposed to be taken by the Corporation and the
date as of which holders of record of the Common Stock shall participate in any
such actions or be entitled to exchange their Common Stock for securities or
other property,
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as the case may be. Failure by the Corporation to mail the notice or any defect
in such notice shall not affect the validity of the transaction. Upon receipt by
the Corporation of a Notice of Conversion meeting the requirements for
conversion as provided in Section 7(d), the Corporation shall issue and deliver
or cause to be issued and delivered to the holder of Preferred Stock
certificates for the Common Stock issuable upon such conversion within 15
business days after such receipt, and the holder of Preferred Stock shall be
deemed to be the holder of record of the Common Stock issuable upon such
conversion.
8. REDEMPTION.
(a) Redemption at the Option of the Holders of Preferred Stock.
Within 30 days after the occurrence of a Change of Control (as hereinafter
defined), the Corporation shall notify each of the holders of Preferred Stock in
writing of such occurrence. Within 30 days after the Corporation so notifies the
holders, any of the holders of the outstanding shares of Preferred Stock may, by
notice to the Corporation as hereinafter provided, require the Corporation to
redeem all or part of his outstanding shares of Preferred Stock, at a price per
share equal to $2,000 (which amount shall be subject to equitable adjustment
wherever there shall occur a stock dividend, stock split, merger, combination,
reorganization, recapitalization, reclassification and other similar event
involving a change in capital structure of the Preferred Stock) plus all
cumulative dividends accrued and unpaid on such Preferred Stock through the date
of redemption (the "Redemption Price"). The notice of redemption shall be in
writing.
(b) Redemption at the Option of the Corporation. The Corporation
may, at its option (i) at any time after the date when the Corporation first
reports either three consecutive quarters of positive net income or one fiscal
year of positive net income (if the latter, such report must be audited by a
nationally recognized independent accounting firm) or (ii) within 30 days after
giving the holders of Preferred Stock notice of the occurrence of a Change of
Control, redeem shares of outstanding Preferred Stock, in whole or in part,
provided that the redemption must be pro rata for each holder of Preferred Stock
based on the number of shares held by each such holder of Preferred Stock, at a
price per share equal to the Redemption Price. The Corporation shall give notice
of such redemption to each holder of the Preferred Stock, which notice shall
specify the date of the requested redemption in accordance with Section 8(d)
hereof, and the number of shares of Preferred Stock held by such holder of
Preferred Stock being redeemed pursuant to this subsection 8(b).
(c) Legally Sufficient Funds. In the event of a requested
redemption by a holder of Preferred Stock in accordance with Section 8(a) or by
the Corporation in accordance with Section 8(b), if the funds of the Corporation
legally available for redemption of Preferred Stock on any Redemption Date (as
hereinafter defined) are insufficient to redeem all of the shares of Preferred
Stock to be redeemed on such date, those funds which are legally available will
be used to redeem the maximum possible number of shares of Preferred Stock
ratably among the holders of the Preferred Stock to be redeemed. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of such Preferred Stock, such funds
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will promptly be used to redeem the balance of the shares of such Preferred
Stock together with any accrued dividends thereon.
(d) Redemption Date; Redemption Price. The date of a redemption
of Preferred Stock pursuant to this Section 8 (a "Redemption Date") shall be a
business day not less than sixty (60) days from and not more than ninety (90)
days from the date of the first notice sent by a holder of Preferred Stock in
accordance with Section 8(a), or not less than thirty (30) days from the date of
the notice sent by the Corporation in accordance with Section 8(b); provided
that no such date will be a Redemption Date unless the applicable Redemption
Price is paid in full in cash on such date, and if not so paid in full, the
Redemption Date will be the date on which such Redemption Price is fully paid as
permitted and required by this Designation. For each share of Preferred Stock
which is to be redeemed pursuant to this Section 8, the Corporation will be
obligated on the Redemption Date to pay to the holder thereof, upon surrender by
such holder at the Corporation's principal office of the certificate
representing such shares of Preferred Stock endorsed or assigned in blank to the
Corporation, an amount equal to the Redemption Price.
(e) Dividends After Redemption Date. No share of Preferred Stock
is entitled to any dividends accruing after its Redemption Date. On such
Redemption Date all rights of the holder of such share of Preferred Stock will
cease and such share of Preferred Stock will not be deemed to be outstanding.
(f) Redeemed or Otherwise Acquired Shares. Any shares of
Preferred Stock which are redeemed or otherwise acquired by the Corporation will
be canceled and will not be reissued, sold or transferred.
(g) Change of Control. For purposes of this Section 8, a "Change
of Control" shall be deemed to have occurred on the date that:
(i) any "Person" including a "Group" (as such term is defined
in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act) becomes (except as a result of the acquisition of Preferred Stock or
conversion of Preferred Stock into Common Stock) a "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, in a
single transaction or group of related transactions of securities of the
Corporation representing 33-1/3% or more of the combined voting power of the
Corporation's then outstanding securities eligible to vote for the election of
the Board (the "Voting Securities"); provided, however, that the event described
in this Section 8(g)(i) shall not be deemed to be a Change in Control by virtue
of any of the following acquisitions: (A) by the Corporation or any subsidiary
of the Corporation in which the Corporation owns more than 50% of the combined
voting power of such entity (a "Subsidiary"), (B) by any employee benefit plan
(or related trust) sponsored or maintained by the Corporation or any Subsidiary,
(C) by any underwriter temporarily holding the Corporation's Voting Securities
pursuant to an offering of such Voting Securities, or (D) pursuant to a
Non-Qualifying Transaction (as defined in Section 8(g)(ii));
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(ii) there is a consummation of a merger, consolidation,
statutory share exchange or similar form of corporate transaction involving the
Corporation or any of its Subsidiaries that requires the approval of the
Corporation's shareholders (a "Business Combination"), unless immediately
following such Business Combination either of the following is applicable: (A)
more than 50% of the total voting power of (1) the Corporation resulting from
such Business Combination (the "Surviving Corporation"), or (2) if applicable,
the ultimate parent corporation that directly or indirectly has beneficial
ownership of 100% of the voting securities eligible to elect directors of the
Surviving Corporation (the "Parent Corporation"), is represented by the
Corporation's Voting Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, is represented by shares into which the
Corporation's Voting Securities were converted pursuant to such Business
Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of the Corporation's
Voting Securities among the holders thereof immediately prior to the Business
Combination; or (B) no person (other than any person engaged in a transaction
described in clauses (A) through (D) in Section 8(g)(i) above), is or becomes
(except as a result of the acquisition of Preferred Stock or conversion of
Preferred Stock into Common Stock) the beneficial owner, directly or indirectly,
of 33-1/3% or more of the total voting power of the outstanding voting
securities eligible to elect directors of the Parent Corporation (or, if there
is no Parent Corporation, the Surviving Corporation)(any Business Combination in
which any of the criteria specified in (A) or (B) of this Section 8(g)(ii) is
applicable shall be deemed to be a "Non-Qualifying Transaction); or
(iii) there is a closing for a sale of all or substantially
all of the Corporation's assets.
Notwithstanding the foregoing, a Change in Control of the
Corporation shall not be deemed to occur solely because any person acquires
beneficial ownership of more than 33-1/3% of the Corporation's Voting Securities
as a result of the acquisition of the Corporation's Voting Securities by the
Corporation which reduces the number of the Corporation's Voting Securities
outstanding; provided, that if after such acquisition by the Corporation such
person becomes the beneficial owner of additional Corporation Voting Securities
that increases the percentage of outstanding Corporation Voting Securities
beneficially owned by such person by more than 3%, a Change in Control of the
Corporation shall then become effective unless otherwise exempt under clauses
(A) through (D) of Section 8(g)(i) above or because it constitutes a
Non-Qualifying Transaction.
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IN WITNESS WHEREOF, International Dispensing Corporation has caused
this Certificate of Designation of Series A Redeemable Convertible Preferred
Stock to be duly executed this 7th day of February, 2000.
INTERNATIONAL DISPENSING CORPORATION
By: /s/ Gary Allanson
---------------------
Name: Gary Allanson
Title: President
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EXHIBIT 10.7
THIS LEASE, Made this 22nd day of December, 1999, by and between MIE
Properties, Inc., as agent for owner, herein called "Landlord", and
International Dispensing Corporation, herein called "Tenant".
WITNESSETH, That in consideration of the rental hereinafter agreed
upon, and the performance of the conditions and covenants hereinafter set forth
on the part of Landlord and Tenant to be performed, Landlord does hereby lease
unto said Tenant, and the latter does lease from the former approximately 3,825
square feet at the following premises: 1111 Benfield Boulevard, Suite 230,
Millersville, Maryland 21108 for the term of five (5) years and six (6) months
and two (2) weeks beginning on the 16th day of March, 2000 and ending on the
30th day of September, 2005 at and for the annual rental of (see rent schedule
below), payable in advance on the first day of each and every month during the
term of this Lease in equal monthly installments of (see rent schedule below).
Said rental shall be paid to MIE Properties, Inc., 5720 Executive Drive,
Baltimore, Maryland 21228-1757, or at such other place or to such appointee of
Landlord as Landlord may from time to time designate in writing.
TENANT COVENANTS AND AGREES WITH LANDLORD AS FOLLOWS:
1. To pay said rent and each installment thereof as and when due,
without setoff or deduction.
RENTAL - ESCALATION
2. Beginning with the first anniversary of the commencement date of
the lease term and each annual anniversary thereafter throughout the remainder
of the Lease and renewal term if any, the annual rent shall be increased by
three percent (3%) of the previous year's rent, which
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sum shall be payable in equal monthly advance as hereinabove set forth, and as
set forth in the rent schedule below.
USE
3. To use and occupy the leased premises solely for the following
purposes:
General offices for packaging company and related entities.
RENT SCHEDULE
TERM ANNUAL RENT MONTHLY RENT
---- ----------- ------------
March 16, 2000 - September 30, 2000 - $3,612.50
October 1, 2000 - September 30, 2001 $65,025.00 $ 5,418.75
October 1, 2001 - September 30, 2002 $66,975.75 $ 5,581.31
October 1, 2002 - September 30, 2003 $68,985.02 $5,748.75
October 1, 2003 - September 30, 2004 $71,054.57 $5,921.21
October 1, 2004 - September 30, 2005 $73,186.21 $6,098.85
ADDITIONAL RENT
4. A. UTILITIES
Tenant shall apply for and pay, directly to the provider, all
costs of electricity, gas telephone and other utilities used or consumed on the
premises together with all taxes, levies or other charges on such utilities.
Tenant agrees to pay as additional rent, Tenant's Pro Rata Share of the water
and sewer service charges, or when applicable, Tenant's pro rata share of the
cost of maintaining and operating the well water and/or septic system chargeable
to the total building in which the premises are located. However, if in
Landlord's reasonable judgement, the water and sewer charges for the premises
are substantially higher than normal due to Tenant's water usage, then Tenant
agrees that it will, upon written notice from Landlord, install a water
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meter at Tenant's expense and thereafter pay all water charges for the premises
based on such meter readings.
B. TAXES
Tenant shall pay to Landlord, as additional rent, Tenant's
pro-rata share of the taxes in excess of those assessed against the property
during the fiscal year commencing July 1, 1999 and ending June 30, 2000 whether
the taxes are payable to the State of Maryland and/or Anne Arundel County. If
this Lease shall be in effect for less than a full fiscal year, Tenant shall pay
a pro-rata share of the increased taxes based upon the number of months that
this Lease is in effect. Said taxes shall include Metropolitan District Charges,
sewer service charges and CPRA charges, if any, and any and all benefits or
assessments which may be levied on the premises hereby Leased but shall not
include the United States Income Tax, or any State or other income tax upon the
income or rent payable hereunder.
C. COMMON AREA
Tenant shall pay to Landlord as additional rent, Tenant's Pro Rata
Share of the following Common Area Expenses:
- Snow Removal
- Grounds Maintenance
- Security (when Landlord, in its reasonable judgement deems
necessary).
- Trash Removal (when supplied by Landlord).
"Tenant's Pro Rata Share" shall mean the same percentage that the
gross square foot area of' Tenant's leased premises bears to the gross square
foot area of all leaseable floor area within the property. Landlord shall notify
Tenant or any change in "Tenant's Pro Rata Share". Tenant's Pro Rata Share is
equal to 9.4 percent. If the actual leaseable area of the
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property is or becomes more than as set forth in this Lease, Tenant's Pro Rata
Share shall be proportionately adjusted.
Landlord shall notify Tenant from time to time of the amounts
which Landlord estimates will be payable by Tenant for Tenant's Pro Rata Share
of Utilities, Taxes and Common Area expenses and Tenant shall pay such amounts
to Landlord in equal monthly installments in advance on or before the first day
of each month. Within a reasonable period of time following the end of each
calendar year, or fiscal year (with regard to taxes) Landlord shall submit to
Tenant a statement showing the Utilities Taxes and Common Area expenses to be
paid by Tenant with respect to such year, the amount paid by Tenant, and the
amount of the resulting balance due or overpayment. Each such statement shall be
final and conclusive if no objection is raised within one hundred eighty (180)
days after submission of each such statement. Notwithstanding the forgoing
provisions of the above paragraph, Landlord may require Tenant to pay in arrears
Tenant's Pro Rata Share of Utilities, Taxes and Common Area expenses in
quarterly or semi-annual payments rather than on a monthly basis as provided
above.
Landlord shall keep for at least three (3) years after the
expiration of each calendar year, true and accurate books of account and records
proving payment of Utilities, Taxes and Common Area expenses ("Operating
Expenses") which records conform to generally accepted accounting principles
show the Operating Expenses incurred at the building for such calendar year.
Tenant's employees, accountants, or representatives shall have the
right to audit Operating Expenses and in connection therewith to examine
Landlord's books of accounts and operating Expenses and supporting data
maintained by Landlord and related to Operating
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Expenses. If any such audit discloses that the Operating Expenses are less than
those reported, Landlord shall forthwith pay to Tenant, or credit Tenant the
difference as may be shown to be paid or payable for actual Operating Expenses.
If Tenant disagrees on the accuracy of Operating Expenses as set
forth in Landlord's statement, Tenant shall give written notice to Landlord to
that effect, but shall nevertheless make payment in accordance with the terms of
this Lease.
MUNICIPAL REGULATING
5. To observe, comply with and execute at its expense, all laws,
orders, rules, requirements, and regulations of the United States, State, City
or County of the said State, in which the leased premises are located, and of
any and all governmental authorities or agencies and of any board of fire
underwriters or other similar organization, respecting the premises hereby
leased and the manner in which said premises are or should be used by Tenant.
ASSIGNMENT AND SUBLET
6. Not to assign this Lease, in whole or in part, or sublet the
leased premises, or any part or portion thereof, or grant any license or
concession for any part of the premises, without the prior written consent of'
Landlord, said permission shall not be unreasonably withheld, conditioned or
delayed. If such assignment or subletting is permitted, Tenant shall not be
relieved from any liability whatsoever under this Lease. Landlord shall be
entitled to all additional considerations over and above those stated in this
Lease, which are obtained in or for the sublease and/or assignment. Except in
the case of a "Permitted Assignment" as hereinafter defined no option rights
call be assigned or transferred by Tenant to an assignee or subtenant.
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Any sublet or assignment of' this Lease will be assessed with processing fees to
be paid for by Tenant as additional rent. Such fees shall not exceed $500.00.
Notwithstanding anything to the contrary contained in this Lease,
Tenant shall have the right, without the prior consent of Landlord, to assign
this lease or sublet the whole or any part of the leased premises to a
corporation or entity which: (i) is Tenant's parent organization; or, (ii) is a
wholly-owned subsidiary of Tenant or Tenant's parent corporation; or, (iii) is a
corporation of which Tenant or Tenant's parent owns in excess of fifty (50%) of
the outstanding capital stock; or, (iv) as a result of a consolidation or merger
with Tenant and/or Tenant's parent corporation, shall own all the capital stock
of Tenant or Tenant's parent corporation; or, (v) substantially all of Tenant's
assets may be transferred. Any transfer pursuant to (i), (ii), (iii), (iv), or
(v) above shall be subject to the following conditions: (a) Tenant shall remain
fully liable during the unexpired term of this lease; (b) any such assignment,
sublease, or transfer shall be subject to all of the terms, covenants, and
conditions of this lease and such assignee, subtenant, or transferee shall
expressly assume the obligations of Tenant under the Lease by a document
reasonably satisfactory to Landlord; and (c) shall be considered a "Permitted
Assignment".
INSURANCE
7. Tenant will not do anything in or about said premises that will
contravene or affect any policy of insurance against loss by fire or other
hazards, including, but not limited to, public liability now existing or which
Landlord may hereafter place thereon, or that will prevent Landlord from
procuring such policies in companies acceptable to Landlord. Tenant will do
everything reasonably possible, and consistent with the conduct of Tenant's
business, to obtain the greatest possible reduction in the insurance rates on
the Property, including the building in
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which the premises is situated. Tenant further agrees to pay, as additional
rent, any increase in the premium of any insurance carried by Landlord caused by
Tenant's occupancy, the nature of its business, any alterations or installations
made by Tenant, or otherwise resulting from any act of Tenant its agents,
employees or customers.
ALTERATIONS
8. (a) Tenant will not make any alterations in addition to original
improvements to the premises without the prior written consent of Landlord which
consent shall not be unreasonably withheld, conditioned or delayed. If Tenant
shall desire to make any such alterations, plans for the same shall first be
submitted to Landlord for approval, and the same shall be performed by Tenant at
its own expense, Tenant agrees that all such work shall be done in a good and
workmanlike manner, that the structural integrity of the building shall not be
impaired, that no liens shall attach to the building by reason thereof, and that
all alterations shall be in accordance with all applicable building codes.
(b) Tenant agrees to obtain at Tenant's expense all permits
pertaining to the alterations. Tenant also agrees to obtain, prior to commencing
to make such alterations and to keep in full force and effect at all times while
such alterations are being made, all at Tenant's sole cost and expense, such
policies of insurance pertaining to such alterations and/or to the making
thereof as Landlord reasonably may require Tenant to obtain, including, but not
limited to, public liability and property damage insurance, and to furnish
Landlord evidence satisfactory to Landlord of the existence of such insurance
prior to Tenant's beginning to make such alterations.
(c) Any such alterations shall become the property of Landlord as
soon as they are affixed to the premises and all right, title and interest
therein of Tenant shall immediately
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cease, unless otherwise agreed to by Landlord in writing. Landlord shall have
the sole right to collect any insurance for any damage of any kind caused by any
alterations or improvements placed upon the premises by Tenant. If the making
of' any such alterations, or the obtaining of any permits therefore shall
directly or indirectly result in a franchise, minor privilege or any other tax
or increase in tax, assessment or increase in assessment, such tax or assessment
shall be paid, immediately upon its levy and subsequent levy, by Tenant.
(d) Unless Landlord shall elect in writing that all or part of
any alterations, except the original improvement as indicated in Exhibit A,
installed by Tenant shall remain, the premises shall be restored to their
original condition by Tenant, at its own expense, before the expiration of its
tenancy.
(e) Any alterations or modifications (in addition to the
improvements as described herein in Section 34) Tenant requests Landlord to make
on Tenant's behalf during the term of this lease shall be due and payable as
additional rent.
(f) Notwithstanding anything to the contrary contained in this
Lease, Tenant shall be permitted to make any non-structural and non-material
alteration, and improvements, less than $5,000, without the prior written
consent of the Landlord. Tenant shall have the right at all times to install
furniture, equipment, and trade fixtures, provided that Tenant complies with all
applicable governmental rules, regulations, laws, statutes, and ordinances.
Tenant shall have the right, and the obligation, to remove, at the expiration or
sooner termination of this Lease, trade fixtures, furniture, and equipment;
however, Tenant shall, prior to the termination of this Lease, repair any damage
caused by such removal. Tenant shall not be required to make any
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structural alterations to the demised premises, including without limitation
installing sprinkler systems, fire doors or ADA complaint improvements.
MAINTENANCE
9. (a) Tenant will, during the term of this Lease, keep said demised
premises and appurtenance (including, but not limited to, interior and exterior
windows, interior and exterior doors, interior plumbing, all heating and air
conditioning. and interior and exterior electrical works thereof) in good order
and condition and will make all necessary repairs or replacement thereof at its
own expense. Tenant will be responsible for all exterminating services, except
termites, required in said demised premises. Landlord does, however, give a
ninety (90) day warranty on all of the above mentioned items. This warranty does
not include the required annual maintenance contract on the HVAC unit(s) as
described below. Any repair made by Landlord at the request of Tenant to
Tenant's demised premises shall be invoiced to Tenant and shall become due and
payable as additional rent. If Tenant does not make necessary repair within
thirty (30) days after receiving written notice from Landlord of the need to
make a repair, Landlord will proceed to make said repair and the cost of said
repair will become part of and in addition to the next due monthly rental.
(b) Tenant agrees to furnish to Landlord, at the expense of
Tenant, prior to occupancy, a copy of all executed and paid for annual
maintenance contract on all heating and air conditioning equipment which
furnishes HVAC for said Tenant premises only with a reputable company acceptable
to Landlord and said contract will be kept in effect during the term of the
Lease at the expense of Tenant. Should Tenant not provide a satisfactory HVAC
Maintenance contract to Landlord prior to occupancy, Tenant shall be provided a
contract through MIE
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Properties, Inc. Billings for this contract shall become due and payable upon
receipt of invoice and shall be considered additional rent.
(c) Landlord will make all necessary structural repairs to the
exterior masonry walls including the foundation, glass in exterior walls and
doors, structural floors, ceilings, roof, exterior of the building, equipment,
and all other structural elements, common areas and facilities of the building,
and any of the foregoing which shall be located in the demised premises, unless
the repair is due to misuse or neglect by Tenant or any of its employees,
agents, or contractors. Landlord agrees to commence repairs promptly after
demand from Tenant and shall thereafter be diligently prosecuted to completion.
(d) Tenant will, at the expiration of the term or at the sooner
termination thereof by forfeiture or otherwise, deliver up the demised premises
in the same good order and condition as they were at the beginning of the
tenancy, reasonable wear and tear excepted.
DEFAULT
10. If Tenant shall fail to pay said rental or any other sum required
by this Lease to be paid by Tenant and such failure shall continue for ten (10)
days after written notice thereof to Tenant, Landlord shall have, along with any
and all other legal remedies, the immediate right to make distress therefore,
and upon such distress, in Landlord's discretion, this tenancy shall terminate.
In case Tenant shall fail to comply with any of the other provisions, covenants,
or conditions of this Lease, on its part to be kept and performed, and such
default shall continue for a period of twenty (20) days after written notice
thereof shall have been given to Tenant by Landlord, and/or if Tenant shall fail
to pay said rental or any other sum required by the terms of this Lease to be
paid by Tenant. However, if a default shall be of a nature that it cannot
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reasonably be cured within such twenty (20) day period, Tenant shall have a
reasonable period of time in which to cure such default, provided Tenant shall
commence to cure such default within such twenty (20) day period and shall
diligently prosecute such cure to completion. Then, upon the happening of any
such event, and in addition to any and all other remedies that may thereby
accrue to Landlord, Landlord may do the following:
1. LANDLORD'S ELECTION TO RETAKE POSSESSION WITHOUT TERMINATION OF
LEASE. Landlord may retake possession of the leased premises and shall have the
light, but not the obligation, without being deemed to have accepted a surrender
thereof, and without terminating this Lease, to relet the same for the remainder
of the Lease term upon terms and conditions satisfactory to Landlord and if the
rent received from such reletting does not at least equal the rent and other
sums payable by Tenant hereunder, Tenant shall pay and satisfy the deficiency
between the amount of rent and other sums so provided in this Lease and the rent
received through reletting the Leased premises; and, in addition, Tenant shall
pay reasonable expenses in connection with any such reletting, including, but
not limited to, the cost of renovating, altering and decorating for any
occupant. leasing commissions paid to any real estate broker or agent, and
attorney's fees incurred. Notwithstanding the above Landlord agrees to use its
best efforts to relet the leased premises and mitigate Landlord's damages.
2. LANDLORD'S ELECTION TO TERMINATE LEASE. Landlord may terminate the
Lease and forthwith repossess the leased premises and be entitled to recover as
damages a sum of money equal to the total of the following amounts:
(a) any unpaid rent or any other outstanding monetary obligation
of Tenant to Landlord under the Lease;
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(b) the balance of the rent and other sums payable by Tenant for
the remainder of the lease term into be determined as of the date of Landlord's
re-entry;
(c) reasonable damages for the wrongful withholding of the leased
premises by Tenant;
(d) all reasonable legal expenses, including attorney's fees,
expert and witness fees, court costs and other costs incurred in exercising its
rights under the Lease;
(e) all reasonable costs incurred in recovering the leased
premises, restoring the Leased premises to good older and condition, and all
commissions incurred by Landlord in reletting the leased premises; and
(f) any other reasonable amount necessary to compensate Landlord
for all detriment caused by Tenant's default.
DAMAGE
11. In the case of the total destruction of said leased premises by
fire, other casualties, the elements or other cause, or of such damage thereto,
Landlord shall within thirty (30) days after such fire or other casualty notify
Tenant of the length of time required to complete the restoration thereof. If
the leased premises shall be rendered totally unfit for occupancy by Tenant for
more than forty five (45) days, this Lease, upon surrender and delivery to
Landlord of the said leased premises by Tenant, together with the payment of the
rent to the date of such occurrence shall terminate and be at an end. If the
leased premises are tendered partly untenantable by any cause mentioned in the
preceding sentence, Landlord shall at its own expense, restore said leased
premises with all reasonable diligence, and the rent shall be abated
proportionately for the period
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of said partial untenantability and until the leased premises shall have been
fully restored by Landlord.
Notwithstanding to the contrary in this Lease, if the demised premises
are substantially damaged or destroyed so that Tenant cannot conduct its normal
business operations and if such damage has not been repaired within ninety (90)
days thereafter, Tenant shall have the right to terminate this Lease.
BANKRUPTCY
12. In the event of the appointment of a receiver or trustee for
Tenant by any court, Federal or State, in any legal proceedings under any
provisions of the Bankruptcy Act, if the appointment of such receiver or such
trustee is not vacated within sixty (60) days, or if said Tenant be adjudicated
bankrupt or insolvent, or shall make all assignment for the benefit of its
creditors, then and in any of said events, Landlord may, at its option,
terminate this tenancy, and re-enter upon said premises.
POSSESSION/BENEFICIAL OCCUPANCY
13. Landlord covenants and agrees that possession of said premises
shall be given to Tenant as soon as said premises are ready for occupancy. In
case possession, in whole or in part, cannot be given to Tenant on or before the
commencement date of this Lease, Landlord agrees to abate the rent
proportionately until possession is given to said Tenant, and Tenant agrees to
accept such prorated abatement as liquidated damages for the failure to obtain
possession. Landlord shall use its best efforts to deliver the leased premises
to Tenant by March 16, 2000.
If Tenant occupies any portion of' the premises prior to tender of
possession thereof by Landlord, such partial occupancy shall be deemed to be
beneficial occupancy and a proportionate
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share of the rent shall be due and payable as to that portion of the premises so
occupied, immediately upon Tenant's occupancy. Such occupancy by Tenant and rent
thereby due shall not depend on official governmental approval of such
occupancy, state of completion of building availability or connection of
utilities and services such as but not limited to sewer, water, gas, oil, or
electric. No rent credit shall be given because of lack of utilities or services
unless caused by the gross negligence of Landlord.
SIGNS, ETC.
14. Tenant covenants and agrees that:
(a) It will not place or permit any signs, lights, awnings or
poles on or about the exterior of said premises without file prior permission,
in writing, of Landlord and in the event such consent is given, Tenant agrees to
pay any minor privileges or other tax.
(b) Landlord is to immediately remove and dispose of any of the
unauthorized aforementioned items at the expense of Tenant and said reasonable
cost shall become part of and in addition to the next due monthly rental, as
additional rent. Tenant further covenants and agrees that it will not paint or
make any changes in or on the outside of said premises without the written
permission of Landlord. Tenant agrees that it will not do anything on the
outside of said premises to change file uniform architecture, paint or
appearance of said building, without the written consent of Landlord.
(c) Landlord shall have the right to place a "For Rent" sign on
any portion of said premises for ninety (90) days prior to termination of this
Lease and to place a "For Sale" sign thereon at any time.
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EXTERIOR OF PREMISES
15. Tenant further covenants and agrees not to put any items on the
sidewalk or parking lot in the front, rear, or sides of said building or block
said sidewalk, and not to do anything that directly or indirectly will take away
any of the rights of ingress or egress or of light from any other tenant of
Landlord or do anything which will, in any way, change the uniform and general
design of any property of Landlord of which the leased premises hereby leased
shall constitute a part.
WATER DAMAGE
16. Tenant covenants and agrees that Landlord shall not be held
responsible for and Landlord is hereby released and relieved from any liability
by reason of or resulting from damage or injury to person or property of Tenant
or of anyone else, directly or indirectly caused by (a) dampness or water in any
part of said premises or in any part of any other property of Landlord or of
others and/or (b) any leak or break in any part of said premises or in any part
of any other property of Landlord or of' others or in the pipes of the plumbing
or heating works thereof, unless the damage is due to Landlord's or Landlord's
employees, agents, or contractor's negligence or willful misconduct.
LIABILITY
17. Landlord shall not be liable to Tenant for any loss or damage to
Tenant or to any other person or to the property of Tenant or of any other
person unless such loss or damage shall be caused by or result from a negligent
act of emission or commission or the willful misconduct on the part of Landlord
or any of its agents, servants, or employees. Tenant shall indemnify and save
harmless Landlord, its successors or assigns, from all claims and demands of
every kind,
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that may be brought against it, them or any of them for or on account or any
damage, loss or injury to persons or property in or about the leased premises
during the continuance of this tenancy, or during the time of any alterations,
repairs, improvements or restorations to said property by Tenant and arising in
connection therewith, and from any and all costs, expenses and other charges,
including reasonable attorney's fees, which may be imposed upon Landlord, its
successors or assigns, or which it or they may be obligated to incur in
consequence thereof'. Tenant shall also carry and pay for a general liability
policy including fire damage liability naming Landlord as an additional insured,
with combined single limits of not less than $2,000,000.00, and will furnish
Landlord with certificate of same showing a thirty (30) day notice of
cancellation clause.
RIGHT OF ENTRY
18. It is understood and agreed that Landlord, and its agents,
servants, and employees, including any builder or contractor employed by
Landlord, shall have, and Tenant hereby gives them and each of them, the
absolute, and unconditional right, license and permission, at any and all
reasonable times, and for any reasonable purpose whatsoever, to enter through,
across or upon the leased premises or any part thereof, and, at the option of
Landlord, to make such reasonable repairs to or changes in said premises as
Landlord may deem necessary or proper. Notwithstanding anything to the contrary
in this lease, except in the case of emergency, Landlord shall use its best
efforts to give reasonable advance notice to Tenant before Landlord, and its
agents, servants, and employees, including any builder or contractor employed by
Landlord, enters the demised premises.
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<PAGE>
EXPIRATION
19. It is agreed that the term of this Lease expires on September 30,
2005 without the necessity of any notice by or to any of the parties hereto. If
Tenant shall occupy the leased premises after such expiration, it is understood
that, in the absence of any written agreement to the contrary said Tenant shall
hold said premises as a "Tenant from month-to-month", subject to all the other
terms and conditions of this Lease, at one and one half times (1 1/2) times the
highest monthly rental installment reserved in this Lease; provided that
Landlord shall, upon such expiration, be entitled to the benefit of all public
general or public local laws relating to the speedy recovery of the possession
of' lands and tenements held over by Tenant that may be now in force or may
hereafter be enacted.
Prior to Lease expiration, Tenant agrees to schedule all inspection
with Landlord to confirm that the leased premises will be in proper order at
expiration, including, but not limited to, lighting, mechanical, electrical and
plumbing systems.
CONDEMNATION
20. It is agreed that in the event condemnation proceedings are
instituted against the leased premises and possession taken by the condemning
authority, then this Lease shall terminate at the date possession is taken and
Tenant shall not be entitled to recover any part of the award.
SUBORDINATION
21. It is agreed that Landlord shall have the right to place a
mortgage or deed of trust on the premises and this Lease will be subordinate to
any such mortgage or deed of trust whether presently existing or hereafter
placed on the premises. Tenant agrees to execute any and all
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<PAGE>
reasonable documents assisting the effectuating of said subordination.
Furthermore, if any person or entity shall succeed to all or part of Landlord's
interest in the leased premises, whether by purchase, foreclosure, deed in lieu
of foreclosure, power of sale, or otherwise, Tenant shall automatically attorn
to such successor in interest, which attornment shall be self operative and
effective upon the signing of this Lease, and Tenant shall execute such other
agreement in confirmation of such attornment as such successor in interest shall
reasonably request.
NOTICES
22. Any written notice required by this Lease shall be deemed
sufficiently given, if hand delivered, or sent via first class mail, certified
mail or by overnight courier service. Any notice required by this Lease is to be
sent to Landlord at:
5720 Executive Drive
Baltimore, Maryland 21228-1757
Any notice required by this Lease is to be sent to Tenant at:
1111 Benfield Boulevard, Suite 230
Millersville, Maryland 21108
REMEDIES NOT EXCLUSIVE
23. No remedy conferred upon Landlord shall be considered exclusive of
any other remedy, but shall be in addition to every other remedy available to
Landlord under this Lease or as a matter of law. Every remedy available to
Landlord may be exercised concurrently or from time to time, as often as the
occasion may arise. Tenant hereby waives any and all rights which it may have to
request a jury trial in any proceeding at law or in equity in any court of
competent jurisdiction.
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<PAGE>
NON-WAIVER
24. It is agreed that the failure of Landlord to insist in any one or
more instances upon a strict performance of any covenant of this Lease or to
exercise any right herein contained shall not be construed as a waiver or
relinquishment for the future of such covenant or right, but the same shall
remain in full force and effect, unless the contrary is expressed in writing by
Landlord. The receipt of rent by Landlord, with knowledge of any breach of this
Lease by Tenant or of any default on the part of Tenant hereunder, shall not be
deemed to be a waiver of any provisions of this Lease. Neither acceptance of the
keys nor any other act or thing done by Landlord or any agent or employee of
Landlord shall be deemed to be an acceptance of a surrender of the premises,
excepting only an agreement in writing by Landlord accepting or agreeing to
accept such surrender.
SECURITY DEPOSIT AND FINANCIAL STATEMENTS
25. A security deposit of $3,612.50 is required to accompany this
Lease, when submitted for approval by Landlord, subject to all the conditions of
the Security Deposit Agreement attached. If this Lease is not approved by
Landlord within thirty (30) days of its submission to Landlord, the security
deposit will be refunded in full. Landlord shall have the right to require
annual financial statements for Tenant and/or any Guarantor of this Lease.
Tenant or Guarantor shall provide written answers to any questions from Landlord
which are related to Tenant's financial statements or provide written
projections on Tenant's business, if the financials are unacceptable to
Landlord.
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FINAL AGREEMENT
26. This Lease contains the final and entire agreement between the
parties hereto, and neither they nor their agents shall be bound by any terms,
conditions or representations not herein written.
LEGAL EXPENSE
27. In the event, to enforce the terms of this Lease, either party
files legal action against the other, and is successful in said action, the
losing party agrees to pay all reasonable expenses to the prevailing party,
including the reasonable attorney's fee incident to said legal action. In the
event that Landlord is successful in any legal action filed against Tenant,
Landlord's reasonable attorney's fees incident to said legal action shall be due
as additional rent.
LAND
28. It is agreed that the leased premises is the building area
occupied by Tenant and only the land under that area.
RELOCATION
29. Landlord shall have the right at any time during the lease term,
upon not less than sixty (60) days written notice to Tenant, to relocate Tenant
to another location within the Property, provided: (a) the new location is
similar or better in size, utility and appearance to the premises hereby demised
and (b) Landlord pays all reasonable moving costs, including but not limited to
telephone and computer wiring and new stationery and other expenses associated
with relocating an office, incurred by Tenant in connection with such move. The
parties shall, upon Landlord's request, execute an amendment to this Lease which
will specify the change in leased premises, but this Lease shall in no other
respect be amended. Notwithstanding anything to the
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<PAGE>
contrary in this Lease, Landlord may only exercise the right to relocate Tenant
once during the original lease term.
ENVIRONMENTAL REQUIREMENTS
30. Tenant hereby covenants and agrees that if at any time it is
determined that there are materials placed on the premises by Tenant or its
agents, servants, employees or invitees which, under any environmental
requirements, require special handling in collection, storage, treatment or
disposal, Tenant shall, within thirty (30) days after written notice thereof,
take or cause to be taken, at its sole expense, such actions as may be necessary
to comply with all environmental requirements. If Tenant shall fail to take such
action, Landlord may make advances or payments towards performance or
satisfaction of the same but shall be under no obligation to do so, and all sums
so advanced or paid, including all sums advanced or paid in connection with any
judicial or administrative investigation or proceeding relating thereto,
including, without limitation, reasonable attorney's fees, fines, or other
penalty payments, shall be at once repayable by Tenant as additional rent and
shall bear interest at the rate of two (2%) per annum above the Prime Rate from
time to time as published by the Wall Street Journal, from the date the same
shall become due and payable until the date paid. Failure of Tenant to comply
with all environmental requirements shall constitute and be a default under this
Lease.
Tenant will remain totally liable hereunder regardless of any other
provisions which may limit recourse.
SEVERABILITY
31. In case any one or more of the provisions contained in this Lease
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or
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<PAGE>
unenforceability shall not affect any other provisions of this Lease, but this
Lease shall be construed as if such invalid, illegal or unenforceable provision
had never been contained herein.
LATE CHARGE
32. If Tenant shall fail to pay when due, after applicable notice and
grace periods, the said rental or any other sum required by the terms of this
lease to be paid by Tenant. then, upon the happening of any such event, and in
addition to any and all other remedies that may thereby accrue to Landlord,
Tenant agrees to pay to Landlord a late charge of five percent (5%) of the
monthly account balance. The late charge on the base rent accrues after ten (10)
days of the due date and said late charge shall be collectible as additional
rent.
In the event Tenant's rent is received fifteen (15) days after due
date, Landlord has the option to require the rental payment be made with a
certified or cashier's check.
QUIET ENJOYMENT
33. Tenant, upon paying the rent, additional rent and other charges
herein provided for and observing and keeping all of its covenants, agreements
and conditions in this Lease, shall quietly have and enjoy the premises during
the term of this Lease without hindrance or molestation by anyone claiming by or
through Landlord; subject, however, to all exceptions, reservations and
conditions of this Lease.
LANDLORD'S WORK
34. The Leased premises shall contain only the following items at the
expense of Landlord:
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35. As per Exhibit "A", using building standard materials. Landlord
has allocated a $20.00 per square foot allowance for Tenant's interior
improvements. Should Tenant exceed this allowance, Tenant will be responsible
for the extra costs.
WINDOW COVERINGS
36. Tenant covenants and agrees not to install any window covering,
other than a one-inch horizontal mini-blind of an off-white color, unless
approved in writing by Landlord.
RULES AND REGULATIONS
37. Tenant shall at all times comply with the Rules and Regulations
attached hereto. Landlord shall use its best efforts to enforce the Rules and
Regulations equitably against all tenants of the property.
ESTOPPEL CERTIFICATE
38. Tenant and/or Landlord shall, at any time during the term of this
Lease or any renewal thereof, upon request of the other party, execute,
acknowledge, and deliver to such party or its designee, a statement in writing,
certifying that this Lease is unmodified and in full force and effect if such is
the fact.
ADDITIONAL RENT
39. All sums of money required to be paid by Tenant to Landlord
pursuant to the terms of this Lease, unless otherwise specified herein, shall be
considered additional rent and shall be collectible by Landlord as additional
rent, in accordance with the terms of this Lease.
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<PAGE>
EXCULPATION CLAUSE
40. Neither Landlord nor any principal, partner. member, officer,
director, trustee or affiliate of' Landlord (collectively, "Landlord
Affiliates") shall have any personal liability under any provision of this
Lease.
OPTIONS
41. Provided Tenant is not then in default thereunder, after
applicable notice and grace periods, Tenant may extend the term of this Lease
and as it may be amended from time to time, for one (i) further successive
period of five (5) years each, by notifying Landlord in writing of its intention
to do so at least one hundred twenty (120) days prior to the expiration of the
then current term. The annual rental for each succeeding extension shall be
adjusted as follows:
(a) If at the end of the original term of this Lease or at the
end of any renewal term, the official Consumers' Price Index for All Urban
Consumers (CPIU), U.S. Average, All Items, published by the Bureau of Labor
Statistics, U.S. Department of Labor (1982 - 1984=100) (the "CPI") is in excess
of the CPI at the date of the commencement of the original term of this Lease,
the annual rental for the succeeding Lease term shall be determined by
multiplying said $65,025.00 by a fraction, the numerator of which is the CPI six
months prior to the end of the current Lease term, and the denominator of which
is the CPI six months prior to the date of the commencement of the original term
of this Lease. The monthly installments of rent shall be adjusted accordingly,
provided, however, that the annual rental payable by Tenant under this Lease
never be less than $73, 186.21, during the extension term.
(b) In the event the Bureau of Labor Statistics shall cease to
publish the aforesaid Index in its present form and calculated on the present
basis, a similar index or an index reflecting similar changes in the cost of
living shall be chosen by agreement of the parties. In the
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<PAGE>
event the parties are unable to agree upon the selection of such an index, such
dispute shall be submitted to arbitration in accordance with the rules of the
American Arbitration Association.
(c) If the option to extend the term of this Lease is not timely
exercised, the unexercised option to extend shall automatically become null and
void.
(d) The right to extend the term of this Lease may be exercised
only by the undersigned Tenant or a "Permitted Assignment" for its continued use
and occupancy of the Leased premises and only if it is in possession of the
Leased premises and operating a permitted use when it exercises the right.
approved an assignment of this Lease. However, if Tenant assigns this Lease,
with Landlord's consent to any corporation into which or with which Tenant
merges or consolidates and/or to any parent, subsidiary, or affiliated
corporation, the assignee may exercise such right to renew.
(e) If Tenant shall not cure a default under the Lease, after
applicable notice and grace periods, all unexercised rights to extend the term
of the Lease shall automatically be extinguished and become null and void.
AS WITNESS THE HANDS AND SEALS OF THE PARTIES HERETO THE DAY AND YEAR FIRST
ABOVE WRITTEN:
WITNESS: TENANT: International Dispensing Corporation
/s/ Lynn Chan By: /s/ Jeffrey D. Lewenthal
- --------------------------- ---------------------------
Printed Name: Jeffrey D. Lewenthal
Title: Executive Vice President/CFO
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WITNESS: LANDLORD: MIE Properties, Inc., as agent for
owner
By: /s/ Robert C. Becker
- ------------------------- -----------------------
Printed Name: Robert C. Becker
Title: Vice President
26
<PAGE>
SECURITY DEPOSIT AGREEMENT
This is NOT a rent receipt.
Date November 30, 1999
-----------------
Received from International Dispensing Corporation, the amount of
$3,612.50, as security deposit for premises 1111 Benfield Boulevard, Suite 230,
Millersville, Maryland 21108.
Landlord agrees that, subject to the conditions listed below, this
security deposit will be returned in full within thirty (30) days of vacancy.
Tenant agrees that this security deposit may not be applied by Tenant
as rent and that the full monthly rent will be paid on or before the first day
of every month, including the last month of occupancy, Tenant further agrees
that a mortgagee of' the property demised by the Lease to which this Security
Deposit Agreement is appended and/or a mortgagee thereof in possession of 'said
property and/or a purchaser of said property at a foreclosure sale shall not
have any liability to Tenant for this security deposit.
SECURITY DEPOSIT RELEASE PREREQUISITES:
----------------------------------------
1. Full term of Lease has expired.
2. No damage to property beyond fair wear and tear.
3. Entire Leased premises clean and in order.
4. No unpaid late charges or delinquent rents, or other delinquent
sums payable by Tenant.
5. All keys returned.
6. All debris and rubbish and discards placed in proper rubbish
containers.
7. Forwarding address left with Landlord.
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<PAGE>
AS WITNESS THE HANDS AND SEALS OF THE PARTIES HERETO THE DAY AND YEAR FIRST
ABOVE WRITTEN:
WITNESS: TENANT: International Dispensing Corporation
/s/ Lynn Chan By: /s/ Jeffrey D. Lewenthal
- ------------------------ ---------------------------
WITNESS: LANDLORD: MIE Properties, Inc., as agent for
owner
By: /s/ Robert C. Becker
- ------------------------ -----------------------
28
<PAGE>
RULES AND REGULATIONS
1111 Benfield Boulevard, Suite 230, Millersville, Maryland 21108
1. The Common Facilities, and the sidewalks, driveways, and other public
portion of the Property (herein "Public Areas") shall not be obstructed
or encumbered by Tenant or used for any purpose other than ingress or
egress to and from its premises, and Tenant shall not permit any of'
its employees, agents. licensees or invitees to congregate or loiter in
any of the Public Areas. Tenant shall not invite to, or permit to visit
its premises, persons in such numbers or under such conditions as may
interfere with the use and enjoyment by others of the Public Areas.
Landlord reserves the right to control and operate, and to restrict and
regulate the use of, the Public Areas and the public facilities, as
well as facilities furnished for the common use of Tenants, in such
manner as it deems best for the benefit of Tenants generally.
2. No bicycles, animals (except seeing eye dogs) fish or birds of any kind
shall be brought into, or kept in or about any premises within the
Building.
3. No noise, including, but not limited to, music, the playing of' musical
instruments, recordings, radio or television, which, in the judgement
of Landlord, might disturb other tenants in the Building, shall be made
or permitted by any tenant.
4. Tenant's premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
5. Tenant shall not cause or permit any odors of cooking or other
processes, or any unusual or objectionable odors, to emanate from its
premises which would annoy other tenants or create a public or private
nuisance.
6. Plumbing facilities shall not be used for any purpose other than those
for which they were constructed, and no sweepings, rubbish, ashes,
newspapers or other substances or any kind shall be thrown into them.
7. Tenant agrees to keep the Leased Premises in a neat, good and sanitary
condition and to place garbage, trash, rubbish and all other
disposables only where Landlord directs.
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<PAGE>
8. Landlord reserves the right to rescind, alter, waive or add, any Rule
or Regulation at any time prescribed for the Building when, in the
reasonable judgment of Landlord, Landlord deems it necessary or
desirable for the reputation, safety, character, security, care,
appearance or interests of the Building, or the preservation of' good
order therein, or the operation or maintenance of the Building, or the
equipment thereof, or the comfort of tenants or others in the Building.
No rescission, alteration, waiver or addition of any Rule or Regulation
in respect of' one tenant shall operate as a rescission, alteration or
waiver in respect of any other tenant.
9. Tenant shall have the non-exclusive right to park in parking spaces in
front of and behind tenant's Leased Premises. Landlord warrants that
the parking space ratio shall never be less than four (4) spaces to
every 1,000 square feet of rentable building area.
10. Tenant shall not place any storage trailers or other storage containers
of any type outside Tenant's premises.
11. Tenant shall not park, on a permanent or semi permanent basis, any
trailers behind any dock doors or in any other location outside
Tenant's premises for the purpose of storage.
12. Non-compliance with any of the above rules and regulations may, in
Landlord's reasonable judgement, result in a monetary fine not to
exceed $25.00 per day, Landlord will notify Tenant of such violations
and Tenant will have ten (10) days to rectify, after which, daily fine
will be applied.
30
EXHIBIT 10.10
======================================
PREFERRED STOCK SUBSCRIPTION AGREEMENT
Dated as of September 23, 1999
By and Among
THE INVESTORS LISTED ON EXHIBIT A HERETO
and
INTERNATIONAL DISPENSING CORPORATION
======================================
<PAGE>
PREFERRED STOCK SUBSCRIPTION AGREEMENT
PREFERRED STOCK SUBSCRIPTION AGREEMENT (this "Agreement") dated as of
September 23, 1999, by and among the Investors listed on Exhibit A hereto (each
a "Investor," and collectively the "Investors"), and INTERNATIONAL DISPENSING
CORPORATION, a Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Investors desire to subscribe for, and the Company desires
to issue up to an aggregate of 1,000 shares of the Company's Series A Redeemable
Convertible Preferred Stock, par value $.001 per share (the "Preferred Stock")
for the per share purchase price of $2,000 on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
ISSUANCE OF STOCK AND PAYMENT OF SUBSCRIPTION PRICE; CLOSING
1.1 ISSUANCE OF STOCK. Subject to the terms and conditions set forth in
this Agreement, the Company agrees to sell to the Investors, and the Investors
severally irrevocably subscribe for and agree to purchase for $2,000 per Share,
1,000 shares of Preferred Stock (the "Shares").
1.2 CLOSING DATES.
(a) The purchase and sale of the Shares shall occur at one or more
closings (each, a "Closing") at such times as shall be determined by the
Company, subject to the conditions set forth in this Agreement. The initial
Closing shall occur within three business days after the execution of this
Agreement by the Company and the Investors . The date of the initial Closing is
hereinafter referred to as the "Initial Closing Date." On the Initial Closing
Date GREGORY B. ABBOTT, GEORGE V. KRISTE, LOUIS SIMPSON and GARY ALLANSON
(collectively, the "Investors") shall purchase THREE HUNDRED FIFTY (350) Shares
and shall pay to the Company by certified check or wire transfer of immediately
available funds, SEVEN HUNDRED THOUSAND DOLLARS ($700,000).
<PAGE>
(b) Subsequent Closings shall occur not less than forty-five (45)
days after written NOTICE BY THE COMPANY TO THE INVESTORS (THE "CALL NOTICE") IN
THE FORM ATTACHED HERETO AS EXHIBIT B. The Call Notice shall set forth the
number of Shares to be issued and sold to the Investors at such Closing. Within
forty-five (45) days after the giving of the Call Notice to the Investors, the
Investors shall give written notice to the Company setting forth the amount of
Shares to be purchased BY EACH INVESTOR AT THE CLOSING TO WHICH THE CALL NOTICE
RELATES; PROVIDED, that if the Investors cannot agree upon the number of Shares
to be purchased by them, each Investor shall be severally obligated to purchase
the entire number of Shares as set forth in the Call Notice. The Company may
schedule as many Closings as it desires, subject to the following conditions:
(i) The Company shall not issue and sell more than an
aggregate of 350 Shares (including Shares sold on the Initial
Closing Date) prior to November 1, 1999.
(ii) The Company shall not issue and sell more than an
aggregate of 560 Shares on a cumulative basis from and after
(and including) the Initial Closing Date through February 1,
2000.
(iii) The Company shall not issue and sell more than an
aggregate of 860 shares on a cumulative basis from and after
(and including) the Initial Closing Date through May 1, 2000.
(iv) The Company shall not issue and sell more than an
aggregate of 1,000 Shares on a cumulative basis from and after
(and including) the Initial Closing Date and no Investor shall
have the obligation to purchase any Shares after August 31,
2000.
(v) Any Investor, at any time, in his or its sole
direction, upon written notice to the Company, may terminate his
commitment to purchase Shares.
(vi) The commitment of each Investor to purchase
additional Shares shall also terminate upon written notice from
the Company that the Company has determined not to issue and
sell additional Shares pursuant to this Agreement. The Company
may make such determination in its sole discretion and without
incurring any penalty or incurring any obligation to any
Investor.
(vii) No Investor shall have the obligation to purchase
any Shares at any time during which the Company does not have at
least $100,000 in cash or immediately available funds in bank or
investment accounts, which have not been pledged or hypothecated
or subject to any lien.
<PAGE>
1.3 LEGENDS. From and after the date hereof, all share certificates
representing Shares, or shares of the Common Stock into which the Shares are
convertible ("Conversion Shares"), shall bear a legend which shall state as
follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SUCH ACT."
ARTICLE II
REPRESENTATIONS AND COVENANTS OF THE COMPANY
2. REPRESENTATIONS AND COVENANTS OF THE COMPANY. The Company hereby
represents, warrants and agrees as follows:
2.1 EXISTENCE AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Company is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the character or location of the
properties owned, leased or operated by the Company or the nature of the
business conducted by the Company makes such qualification or license necessary,
except where the failure to be so duly qualified or licensed would not have a
material adverse effect on the business, operations, financial condition or
results of operations of the Company (a "Material Adverse Effect").
2.2 CAPITAL STOCK. The Company has an authorized capitalization
consisting of 40,000,000 shares of common stock, par value $.001 per share (the
"Common Stock") and 2,000,000 shares of Preferred Stock, par value $.001 per
share. Of the Common Stock, 9,566,668 shares are issued and outstanding and no
shares of Preferred Stock are issued and outstanding. Options and warrants to
purchase an aggregate of 2,327,776 shares of Common Stock are outstanding. On
the Initial Closing Date and on each subsequent date of Closing, after giving
effect to the transactions contemplated by this Agreement, each Investor will
receive good and marketable title to the Shares he acquires from the Company,
free and clear of all liens, claims and other encumbrances. All outstanding
shares of capital stock of the Company have been, and will on the Initial
Closing Date be, duly authorized and validly issued and fully paid and
nonassessable. Other than as set forth on SCHEDULE 2.2 and as set forth in this
Agreement, there will be on the Initial Closing Date no
<PAGE>
outstanding subscriptions, options, registration rights, warrants, rights,
calls, commitments, conversion rights, rights of exchange, preemptive rights,
rights of first refusal, rights of first offer, plans or other agreements of any
character providing for the purchase, registration, issuance or sale of any
shares of the capital stock of the Company.
2.3 AUTHORIZATION AND VALIDITY OF THIS AGREEMENT. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement by the Company and the performance of its
obligations hereunder have been duly authorized and approved by its Board of
Directors and no other corporate action on the part of the Company is necessary
to authorize the execution, delivery and performance of this Agreement by the
Company. This Agreement has been duly executed and delivered by the Company and,
assuming due execution of this Agreement by the Investors, is a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
2.4 SEC DOCUMENTS; NO MATERIAL CHANGES. (a) The Company has furnished to
the Investors true, correct and complete copies of its Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998 and its Quarterly Reports on
Form 10-QSB for the quarters ended March 31, 1999 and June 30, 1999. Such
periodic reports constitute all the documents that the Company was required to
file with the Securities and Exchange Commission (the "SEC") from January 1,
1999 to the Initial Closing Date. Each of the periodic reports filed by the
Company with the SEC since June 30, 1998 ("SEC Documents") has been timely and
duly filed and when filed was in compliance in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations of the SEC thereunder applicable to such SEC
Document. Each of the SEC Documents (including the financial statements included
therein) was complete and correct in all material respects as of its date and,
as of its date, did not contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. The financial statements included within the SEC
Documents have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and present fairly or will present fairly (subject, in the case of the
unaudited statements, to normal year-end audit adjustments) the consolidated
financial position of the Company as at the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended.
(b) Since June 30, 1999, there has been no (i) material adverse
change in the business, operations, financial condition, results of operations
or prospects of the Company or (ii) material damage, destruction or loss to any
asset or property, tangible or intangible, of the Company which materially
affects the ability of the Company to conduct its business. Notwithstanding the
foregoing, the Investors acknowledge that the Company is in the development
stage, has incurred significant losses since inception and will continue to
incur significant losses.
<PAGE>
2.5 CONSENTS AND APPROVALS: NO VIOLATIONS. The execution and delivery of
this Agreement by the Company and the consummation of the transactions
contemplated hereby and thereby (a) will not violate or contravene any provision
of the Certificate of Incorporation or By-laws of the Company, or any statute,
rule, regulation, order or decree of any public body or authority by which the
Company is or any of its properties are bound, (b) will not require any filing
with, or consent of, or the giving of any notice to, any governmental or
regulatory body, agency or authority, or any other person and (c) will not
result in a violation or breach of, conflict with, constitute a default (or give
rise to any right of termination, cancellation, payment or acceleration) under,
or result in the creation of any encumbrance upon any of the properties or
assets of the Company under, any of the terms, conditions or provisions of any
agreement, instrument or obligation to which the Company is a party, or by which
any of its properties or assets may be bound or under which it may have any
rights, excluding from the foregoing clauses (b) and (c) filings, notices,
permits, consents and approvals, the absence of which, and violations, breaches,
defaults, conflicts and encumbrances of which, in the aggregate, would not have
a Material Adverse Effect.
2.6 BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting on
behalf of the Company, is, or will be, entitled to any commission or broker's or
finder's fees from the Company, or from any person or entity controlling,
controlled by or under common control with the Company, in connection with any
of the transactions contemplated by this Agreement; PROVIDED, HOWEVER, that the
independent committee of the Board of Directors of the Company retained Brooks,
Houghton & Company, Inc. ("BHC") to render an opinion concerning the fairness of
the transactions contemplated by this Agreement to the holders of Common Stock
of the Company and BHC will be paid a fee by the Company in connection
therewith.
2.7 REVERSE STOCK SPLIT. The Board of Directors of the Company shall meet
at an appropriate time to consider the terms of a possible reverse stock split
of the Company's Common Stock, and if that occurs, the numbers set forth herein
will be adjusted in an equitable manner.
ARTICLE III
REPRESENTATIONS OF THE INVESTORS
3. REPRESENTATIONS OF THE INVESTORS. Each Investor, represents, warrants and
agrees, for itself or himself only, as follows:
3.1 EXISTENCE AND GOOD STANDING; POWER AND AUTHORITY. Such Investor, if
it is a corporation, a limited liability company or a limited liability
partnership, is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization. Such Investor has the legal power
and authority to enter into, execute and deliver this Agreement and perform its
obligations hereunder and thereunder. This Agreement has been duly authorized
and approved by such Investor and is a valid and binding obligation of such
Investor enforceable against such Investor in accordance with its terms, except
to the extent that its enforceability may be subject to applicable
<PAGE>
bankruptcy, insolvency, reorganization, moratorium and other similar laws
effecting the enforcement of creditors' rights generally and by general
equitable principles.
3.2 RESTRICTIVE DOCUMENTS. Such Investor is not subject to any mortgage,
lien, lease, agreement, instrument, order, law, rule, regulation, judgment or
decree, or any other restriction of any kind or character, which would prevent
consummation by such Investor of the transactions contemplated by this
Agreement.
3.3 PURCHASE FOR INVESTMENT. Such Investor will acquire the Shares for
its own account for investment and not with a view toward any resale or
distribution thereof; provided, however, that the disposition of each such
Investor's property shall at all times remain within the sole control of the
Investor.
3.4 BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting
on behalf of such Investor is, or will be, entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from any person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated by this
Agreement.
3.5 EXEMPTION FROM REGISTRATION. Such Investor acknowledges that the
offering and sale of the Shares is intended to be exempt from registration under
the Securities Act of 1933, as amended (the "Securities Act"), by virtue of
Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
3.6 ABILITY TO BEAR ECONOMIC RISK. Such Investor has determined that the
Shares are a suitable investment for the Investor, that the Investor has the
financial ability to bear the economic risk of its investment in the Company,
has adequate means of providing for its current needs and personal contingencies
and has no need for liquidity with respect to investment in the Company.
3.7 NO LIQUIDITY. Such Investor will not sell or otherwise transfer the
Shares without registration under the Act or an exemption therefrom, and fully
understands and agrees that the Investor must bear the economic risk of its
investment for an indefinite period of time because, among other reasons, the
Shares have not been registered under the Act or under the securities laws of
any state and, therefore, cannot be resold, pledged, assigned or otherwise
disposed of unless they are subsequently registered under the Act and under
applicable state securities laws or an exemption from such registration is
available. Such Investor also understands that sales or transfers of the Shares
are further restricted by the provisions of state securities laws.
3.8 SUITABILITY AND ACCREDITED STATUS. Such Investor represents and
warrants that such Investor is an accredited investor and that all information
provided by such Investor in the Purchaser Questionnaire executed simultaneous
herewith is true and correct as of the Initial Closing Date.
<PAGE>
3.9 ACCESS TO INFORMATION. Such Investor acknowledges that the Company
has made available to him the opportunity to ask questions of, and receive
answers from, the management of the Company concerning the terms and conditions
of this Agreement and the business, financial condition and prospects of the
Company and to obtain additional information to the extent the Company possesses
such information or can acquire it without unreasonable effort or expense,
necessary to verify the accuracy of the information given to the Investor in the
SEC Documents or otherwise to make an informed investment decision and
acknowledges that all material documents, records and books pertaining to the
investment have, on request, been made available to any advisors designated by
the Investor to receive such information.
ARTICLE IV
COVENANTS
4.1 APPOINTMENT OF DIRECTORS; DIRECTORS AND OFFICERS INSURANCE.
The holders of the Shares shall be entitled to appoint one (1) Director to the
Company's Board of Directors until such time as a majority of the issued Shares
have been converted into Common Stock. The Company shall maintain at all times
from the date hereof and during the period which any person designated solely by
the holders of Shares to act as a director of the Company pursuant to the
provisions of the Certificate of Designation of the Preferred Stock, so acts as
a director, an insurance policy or policies providing liability insurance for
directors, officers, employees, agents or fiduciaries of the Company of an
amount not less than FIVE MILLION DOLLARS ($5,000,000), which is now currently
in effect. The designee of the holders of the Preferred Stock shall be covered
by such policy or policies in accordance with its or their terms to the maximum
extent of the coverage available for any such director, officer, employee, agent
or fiduciary under such policy or policies. In addition, such designee will be
entitled to the full and complete indemnification by the Company as permitted by
applicable law.
4.2 SEC REPORTS. So long as any Shares are outstanding the Company shall
(a) within 15 days of each required filing date (i.e., the date on which the
reports or other documents are required to be filed with the SEC pursuant to
Sections 13(a) and 15(d), (b) transmit by mail to all holders of Shares, as
their names and addresses appear in the corporate books and records maintained
by the Company, without cost to such holders, copies of the annual reports,
quarterly reports and other documents which the Company is required to file with
the SEC pursuant to Sections 13(a) and 15(d) of the Exchange Act, and (c)
transmit to all holders any and all documents or materials distributed to all of
the holders of the Common Stock simultaneously with the distribution to the
holders of Common Stock.
ARTICLE V
REGISTRATION RIGHTS
5.1 CERTAIN DEFINITIONS. As used in this Article V, the following
terms shall have the following respective meanings:
<PAGE>
"Holders" shall mean the holders of Registrable Securities.
"Initiating Holders" shall mean any persons who in the aggregate are
Holders of at least a majority of the voting power held by all outstanding
Registrable Securities.
"Registrable Securities" shall mean (i) the Conversion Shares and
(ii) any Common Stock issued in respect thereof upon any stock split, stock
dividend, recapitalization or similar event.
"Requesting Stockholders" shall mean holders of securities of the
Company entitled to have securities included in any registration pursuant to
Section 5.2 and who shall request such inclusion.
The terms "register," "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with Sections 5.2 and 5.3 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, reasonable
fees and disbursements of one counsel for all the selling Holders for a "due
diligence" examination of the Company, and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any event by the
Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder, except as otherwise provided herein.
"Underwritten Offering" shall mean the offering and sale of
Registrable Securities in a registration pursuant to a firm commitment
underwriting to an underwriter at a fixed price for reoffering or pursuant to
agency or best efforts arrangements with a placement agent or underwriter.
5.2 DEMAND REGISTRATION
(a) REQUESTS FOR REGISTRATION. At any time after thirty (30) days from
the date of this Agreement the Initiating Holders may request registration under
the Securities Act of all or part of their Registrable Securities. Within ten
(10) days after receipt of any such request, the Company will give written
notice of such requested registration to all other Holders of Registrable
Securities and any other stockholder having registration rights which entitle it
to participate in such registration. The Company will include in such
registration all Registrable Securities with respect to which it has received
written requests for inclusion therein within fifteen (15) days after receipt
<PAGE>
of the Company's notice. The Company shall cause its management to cooperate
fully and to use its best efforts to support the registration of the Registrable
Securities and the sale of the Registrable Securities pursuant to such
registration as promptly as is practicable. Such cooperation shall include, but
not be limited to, management's attendance and reasonable presentations in
respect of the Company at road shows with respect to the offering of Registrable
Securities. All registrations requested under this Section 5.2(a) are referred
to herein as "Demand Registrations." The Holders of Registrable Securities will
be entitled to request one Demand Registration hereunder. A registration will
not count as a Demand Registration until it has become effective. Should the
Demand Registration not be filed by the Company within sixty (60) days of the
date of the Company's written notice to the Holders of Registrable Securities,
then the Company shall pay to all the Holders of Registrable Securities, on a
pro rata basis, as liquidated damages, the sum of FIVE THOUSAND DOLLARS ($5,000)
per day for each day beyond the sixty (60) day period that the Demand
Registration has not become effective.
(b) DEMAND REGISTRATION EXPENSES. The Company will pay up to an aggregate
of TWENTY THOUSAND DOLLARS ($20,000) of Registration Expenses in connection with
a Demand Registration hereunder. The Requesting Stockholders shall be obligated
to pay their pro rata share (based on the number of their Registrable Securities
included in the registration statement) of any Registration Expenses in
connection with a Demand Registration which exceed TWENTY THOUSAND DOLLARS
($20,000) in the aggregate. The Requesting Stockholders shall also pay all
Selling Expenses attributable to the sale of their securities pursuant to any
Demand Registration, including their pro rata share of all fees and
disbursements of counsel for the Holders in connection with such Demand
Registration.
(c) PRIORITY ON DEMAND REGISTRATIONS. If a Demand Registration is an
Underwritten Offering, and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities requested to
be included exceeds the number which can be sold in such offering, the Company
will include in such registration such number of shares, which in the opinion of
such underwriters, may be sold, allocated among the Holders electing to
participate and all other persons entitled to and electing to participate pro
rata in accordance with the amounts of securities requested to be so included by
the respective Holders and other persons.
(d) RESTRICTIONS ON DEMAND REGISTRATION. The Company will not be
obligated to effect any Demand Registration within six (6) months after the
effective date of a previous registration in which the Holders of Registrable
Securities were given piggyback rights pursuant to Section 5.3 other than a
registration of Registrable Securities intended to be offered on a continuous or
delayed basis under Rule 415 or any successor rule under the Securities Act.
5.3 PIGGYBACK REGISTRATIONS
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register any of
its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration and contemplated disposition of
<PAGE>
Registrable Securities (a "Piggyback Registration"), the Company will give
prompt written notice to all Holders of Registrable Securities of its intention
to effect such a registration so that such notice is received by each Holder at
least twenty (20) days before the anticipated filing date. The Company will
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within ten (10)
days after the receipt of the Company's notice.
(b) PIGGYBACK EXPENSES. In connection with each Piggyback Registration,
all of the Registration Expenses of the Holders of Registrable Securities will
be paid by the Company and such Holders shall pay all of the Selling Expenses
attributable to the sale of their securities pursuant to the Piggyback
Registration, including their pro rata share of all fees and disbursements of
counsel for the Holders in connection with such Piggyback Registration.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the
distribution of the Registrable Securities to be included concurrently with the
securities being registered on behalf of the Company would materially adversely
affect the distribution of such securities by the Company, the Company will
include in such registration (i) first, the securities the Company proposes to
sell, (ii) second, the Registrable Securities and securities of the Company with
respect to which similar registration rights have heretofore been granted and
requested to be included in such registration, pro rata in accordance with the
amounts of Registrable Securities and such securities requested to be so
included by the respective Holders and holders of such securities of the
Company; and (iii) third, any other securities requested to be included in such
registration.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the distribution of the Registrable Securities to be included
concurrently with the securities being registered on behalf of the Company would
materially adversely affect the distribution of such securities by the Company,
the Company will include in such registration (i) first, the securities
requested to be included therein by the holders requesting such registration,
(ii) second, the Registrable Securities and securities of the Company with
respect to which similar registration rights have heretofore been granted and
requested to be included in such registration, pro rata in accordance with the
amounts of Registrable Securities and such securities requested to be so
included by the respective Holders and holders of such securities of the
Company, and (iii) third, other securities requested to be included in such
registration.
5.4 HOLDBACK AGREEMENTS.
(a) Each Holder of Registrable Securities which is a party to this
Agreement agrees not to effect any public sale or distribution of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven (7)
<PAGE>
days prior to and the 90-day period beginning on the effective date of any
underwritten Demand Registration in which the Holder participates or any
underwritten Piggyback Registration in which the Holder participates (except as
part of such underwritten registration or with the consent of the managing
underwriter).
(b) The Company agrees (i) not to effect any public sale or distribution
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven (7) days prior to and the
90-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except (A) as part of
such underwritten registration, (B) with the consent of the managing underwriter
or (C) pursuant to registrations on Form S-8 or any other similar form for
employee benefit plans), and (ii) to use its reasonable best efforts to cause
each holder of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, purchased from the Company at
any time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution of any such
securities during such period (except as part of such underwritten registration,
if otherwise permitted or with the consent of the managing underwriter).
5.5 REGISTRATION PROCEDURES. Whenever the Holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Article V, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities, which registration statement will state
that the Holders of Registrable Securities covered thereby may sell such
Registrable Securities either under such registration statement or, at any
Holder's proper request, pursuant to Rule 144 (or any similar rule then in
effect), and use its best efforts to cause such registration statement to become
effective (provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will furnish to the counsel
selected by the Holders of a majority of the Registrable Securities covered by
such registration statement copies of all such documents proposed to be filed,
which documents will be subject to the review and approval of such counsel);
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for the period
set forth in Section 5.5(k) hereof and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each Holder of Registrable Securities covered by such
registration such number of copies of such registration statement, each
amendment and supplement thereto, the prospectus included in such registration
statement (including each preliminary prospectus) and such
<PAGE>
other documents as such Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities;
(d) use its best efforts to register or qualify such Registrable
Securities covered by such registration under such other securities or blue sky
laws of such jurisdictions as any Holder reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to enable
the Holders thereof to consummate the disposition in such jurisdictions of the
Registrable Securities as requested by such Holders (provided that the Company
will not be required to qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subsection,
subject itself to taxation in any such jurisdiction, or consent to general
service of process in any such jurisdiction);
(e) notify each Holder of Registrable Securities covered by such
registration, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any fact necessary to make the
statements therein not misleading, and, the Company will prepare a supplement or
amendment to such prospectus so that, such prospectus (or any document
incorporated therein by reference) will not contain an untrue statement of a
material fact or omit to state any fact necessary to make the statements therein
not misleading;
(f) cause all such Registrable Securities to be listed on each securities
exchange or automated quotation system on which similar securities issued by the
Company are then listed or quoted;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as the Holders of a
majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, using its best efforts to
effect a stock split or a combination of shares);
(i) make available for inspection by any Holder of Registrable Securities
covered by such registration, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or other
agent retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
<PAGE>
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than 45 days after the end of any 12-month period (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold and (ii) beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the registration statement, which
statements shall cover said 12-month periods; and
(k) keep each registration statement effective for a period of one year
after the effective date of such registration statement, except in the case of a
Form S-3 Registration Statement which shall continue to remain effective.
5.6 INDEMNIFICATION. In the event of any registration under the
provisions of this Article V, the Company, to the extent permitted by law, will
indemnify any Holder participating in such registration, its respective officers
and directors, if any, and each person, if any, who controls such Holder within
the meaning of Section 15 of the Securities Act, against all losses, claims,
damages and liabilities caused by any untrue statement of a material fact
contained in the registration statement or prospectus (and as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading and
will reimburse such Holder its officers and directors and any person, if any,
who controls such Holder within the meaning of Section 15 of the Securities Act,
against any legal or other expenses reasonably incurred by such Holder, officer,
director or person in connection with investigating or defending any such
losses, claims, damages and liabilities, except insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or omission contained
in information furnished in writing to the Company by such Holder participating
in such registration or by underwriters expressly for use therein. The
obligation of the Company under this Article V to register securities for any of
the Holders shall be subject to the condition that each such Holder and the
underwriters involved in the offering shall furnish to the Company in writing
such information as shall be reasonably requested by the Company for use in
connection with the preparation of any such registration statement or prospectus
and, to the extent permitted by law, shall indemnify the Company, its directors
and officers, any other underwriter, the other Holders participating in such
registration and each person, if any, who controls the Company, any other
underwriter or such other Holders, within the meaning of Section 15 of the
Securities Act, against all losses, claims, damages and liabilities caused by
any untrue statement or omission contained in information so furnished in
writing to the Company by such Holder or such underwriter expressly for use
therein.
5.7 CONTRIBUTION. If the indemnification provided for in this Article V
from the indemnifying party is unavailable as a matter of law or public policy
to any indemnified party hereunder in respect of any losses, claims, damages or
liabilities referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages
<PAGE>
or liabilities, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party under this
Article V as a result of the losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5.7 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to herein.
5.8 TERMINATION. The registration rights provided in this Article V shall
terminate as to any Investor which can immediately sell all of the shares of
Common Stock issued or issuable to such Investor upon conversion of the Shares
in a single sale pursuant to Rule 144 under the Securities Act.
ARTICLE VI
INDEMNITIES
6.1 INDEMNITY OF INVESTORS. Each Investor, severally, agrees to indemnify
and hold harmless the Company and each other person, if any, who controls the
Company within the meaning of Section 15 of the Act, against any and all loss,
liability, claim, damage and expense whatsoever (including, but not limited to,
any and all expenses reasonably incurred in investigating, preparing or
defending against any litigation commenced or threatened or any claim
whatsoever) arising out of or based upon any false representation or warranty or
breach or failure by such Investor to comply with any covenant or agreement made
by such Investor herein or in any other document furnished by the Investor to
any of the foregoing in connection with this transaction. The Company hereby
acknowledges that no Investor shall have any liability for a breach by any other
Investor of any representation, warranty or agreement hereunder.
6.2 INDEMNITY OF COMPANY. The Company agrees to indemnify and hold
harmless the Investors, against any and all loss, liability, claim, damage and
expense whatsoever (including, but not limited to, any and all expenses
reasonably incurred in investigating, preparing or defending against any
litigation commenced or threatened or any claim whatsoever) arising out of or
based upon any false representation or warranty or breach or failure by the
Company to comply with any covenant or agreement made by the Company herein or
in any other document furnished by the Company to any of the foregoing in
connection with this transaction.
6.3 NOTICE TO INDEMNIFYING PARTY. Each party entitled to indemnification
under this Article VI (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual
<PAGE>
knowledge of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, PROVIDED, that counsel for the Indemnifying Party, who
shall conduct the defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and PROVIDED, FURTHER, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article VI unless such failure
has had a material adverse effect on the defense against such claim. The parties
to this Agreement reserve any rights to claim under this Agreement for damages
actually incurred by reason of any failure of the Indemnified Party to give
prompt notice of a claim. To the extent counsel for the Indemnifying Party shall
in such counsel's reasonable judgment, have a conflict in representing an
Indemnified Party in conjunction with the Indemnifying Party or other
Indemnified Parties, such Indemnified Party shall be entitled to separate
counsel at the expense of the Indemnifying Party subject to the approval of such
counsel by the Indemnified Party (whose approval shall not be unreasonably
withheld). No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and any litigation resulting therefrom.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS
7. SURVIVAL OF REPRESENTATIONS. The respective representations and
warranties of the Company and the Investors contained in this Agreement shall
survive the Closing for a period of two years.
ARTICLE VIII
MISCELLANEOUS
8.1 KNOWLEDGE OF THE COMPANY. Where any representation or warranty made
by the Company contained in this Agreement is expressly qualified by reference
to its knowledge, such knowledge shall be deemed to exist if the matter is
within the knowledge of the executive officers of the Company.
8.2 EXPENSES The parties hereto shall pay their own expenses relating to
the transactions contemplated by this Agreement, including, without limitation,
the fees and expenses of their respective counsel and financial advisers.
<PAGE>
8.3 GOVERNING LAW. The interpretation and construction of this Agreement,
and all matters relating hereto, shall be governed by the laws of the State of
New York applicable to agreements executed and to be performed solely within
such State.
8.4 CAPTIONS. The Article and Section captions used herein are for
reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
8.5 NOTICES. Any notice or other communication required or permitted
under this Agreement shall be sufficiently given if delivered in person or sent
by telecopy or by registered or certified mail, postage prepaid, addressed as
follows: if to any Investor, to the address set forth on Exhibit A attached
hereto set forth below such Investor's name; and if to the Company, to it at
2500 Westchester Avenue, Suite 304, Purchase, New York 10577 (Facsimile No.
914-251-0335) Attention: Gary Allanson, President and Chief Executive Officer,
with a copy to its counsel, Wolf, Block, Schorr and Solis-Cohen LLP, 250 Park
Avenue, New York, New York 10177 (Facsimile Number 212-986-0604) Attention:
Martin R. Bring, , Esq., or such other address or number as shall be furnished
in writing by any such party, and such notice or communication shall be deemed
to have been given upon automatic confirmation of receipt by the receiving
machine if sent by telecopier, upon delivery if delivered in person, and upon
mailing if mailed.
8.6 PARTIES IN INTEREST . This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
8.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
8.8 ENTIRE AGREEMENT. This Agreement, including the exhibits, schedules,
and other documents referred to herein and therein which form a part hereof and
thereof, contain the entire understanding of the parties hereto with respect to
the subject matter contained herein and therein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
8.9 AMENDMENTS. This Agreement may not be changed orally, but only by an
agreement in writing signed by the Investors and the Company.
8.10 SEVERABILITY. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
8.11 THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
<PAGE>
8.12 JURISDICTION. Any judicial proceeding brought against any of the
parties to this Agreement or any dispute arising out of this Agreement or any
matter related hereto shall be brought in the courts of the State of New York,
or in the United States District Court for the Southern District of New York,
and, by execution and delivery of this Agreement, each of the parties to this
Agreement accepts the jurisdiction of such courts. The foregoing consent to
jurisdiction shall not be deemed to confer rights on any Person other than the
respective parties to this Agreement.
8.13 AVAILABILITY OF EQUITABLE REMEDIES. Since a breach of the provisions
of this Agreement could not adequately be compensated by money damages, any
party shall be entitled, either before or after any Closing, in addition to any
other right or remedy available to it, to an injunction restraining such breach
or a threatened breach and to specific performance of any such provision of this
Agreement, and in either case no bond or other security shall be required in
connection therewith, and the parties hereby consent to the issuance of such
injunction and to the ordering of specific performance.
IN WITNESS WHEREOF, the Investors have signed this Agreement and the
Company has caused its corporate name to be hereunto subscribed by its officers
thereunto duly authorized, all as of the day and year first above written.
INTERNATIONAL DISPENSING CORPORATION
BY: /s/Gary Allanson
--------------------
Name: Gary Allanson
Title: President
INVESTORS:
/s/ Gregory B. Abbott
------------------------
GREGORY B. ABBOTT
/s/ George V. Kriste
------------------------
GEORGE V. KRISTE
/s/ Louis Simpson
------------------------
LOUIS SIMPSON
/s/ Gary Allanson
------------------------
GARY ALLANSON
<PAGE>
EXHIBIT A
INVESTORS
Percentage of Shares
Name Address to be Purchased
Gregory B. Abbott 120 Kessler Drive 31.43 %
Aspen, Colorado 81611
George V. Kriste 20643 Seabord Road 31.43%
Malibu, California 90265
Louis Simpson c/o Plaza Investment Managers, Inc. 31.43%
5951 La Sendita, Building A
Rancho Santa Fe, California 92067
Gary Allanson 275 Long Point Road 5.71%
Crownsville, Maryland 21032
<PAGE>
EXHIBIT B
CALL NOTICE
INTERNATIONAL DISPENSING CORPORATION
2500 Westchester Avenue, Suite 304
Purchase, New York 10574
Reference is made to the Preferred stock Purchase Agreement dated as of
September 23, 1999 by and among International Dispensing Corporation (the
"Company") and certain investors (the "Investors"), including you (the
"Agreement"). Unless otherwise defined herein, capitalized terms used herein
have the same meanings herein as in the Agreement.
In accordance with Section 1.2(a) of the Agreement you are hereby
notified that the Company will sell to the Investors at a closing to be held on
[not less than 45 days after the date of this Call Notice] ____ Shares.
In accordance with Section 1.2(a) of the Agreement you are required to
notify the Company within 45 days after the giving of this Call Notice how many
of such ________ Shares you shall purchase.
Very truly yours,
INTERNATIONAL DISPENSING CORPORATION
BY:
---------------------------------
EXHIBIT 10.11
AMENDMENT NO. 1
TO
PREFERRED STOCK SUBSCRIPTION AGREEMENT
THIS AMENDMENT NO. 1 (the "Amendment") TO PREFERRED STOCK SUBSCRIPTION
AGREEMENT dated as of September 23, 1999 (the "Subscription Agreement") by and
among the investors listed on the signature page thereto (the "Investors") and
INTERNATIONAL DISPENSING CORPORATION, a Delaware corporation (the "Company"), is
entered into on the date hereinafter set forth.
WHEREAS: The Investors and the Company are parties to the Subscription
Agreement and they wish to amend the Subscription Agreement as set forth below.
NOW, THEREFORE, IT IS AGREED as follows:
1. Section 1.2(a) of the Subscription Agreement is hereby amended in its
entirety to read as follows:
(a) The purchase and sale of the Shares shall occur at one or more
closings (each, a "Closing") at such times as shall be determined by the
Company, subject to the conditions set forth in this Agreement. The initial
Closing shall occur within three business days after the execution of this
Agreement by the Company and the Investors . The date of the initial Closing is
hereinafter referred to as the "Initial Closing Date." On the Initial Closing
Date, GREGORY B. ABBOTT, GEORGE V. KRISTE, LOUIS A. SIMPSON and GARY ALLANSON
(collectively, the "Investors") shall purchase THREE HUNDRED FIFTY (350) Shares
and shall pay to the Company by certified check or wire transfer of immediately
available funds, SEVEN HUNDRED THOUSAND DOLLARS ($700,000), in the following
amounts:
AMOUNT OF SHARES DOLLAR
NAME TO BE PURCHASED AMOUNT
---------------- --------------- --------
Gregory Abbott 137.5 $275,000
George V. Kriste 82.5 $165,000
Louis A. Simpson 110 $220,000
Gary Allanson 20 $ 40,000
TOTALS: 350 $700,000
<PAGE>
2. Section 1.2(b) of the Subscription Agreement is hereby amended by
adding thereto the following language:
The obligation of each Investor for subsequent closings shall be
in the same proportion as set forth in Section 1.2(a) hereof. Should
any Investor give notice to the Company that such Investor wishes to
terminate such Investor's commitment to purchase additional shares,
then the remaining Investors may, but are not required, to purchase
such shares of the Investor who declines to purchase additional
shares, in the same proportion as set forth above.
3. Section 4.1 of the Subscription Agreement is hereby amended by
changing the amount of the liability insurance to be provided to directors,
officers, employees, agents or fiduciaries of the Company from "not less than
FIVE MILLION DOLLARS ($5,000,000)" to "not less than ONE MILLION DOLLARS
($1,000,000)".
4. Section 5.2(a) of the Subscription Agreement is amended in its entirety
to read as follows:
"(a) REQUESTS FOR REGISTRATION. At any time after one hundred
twenty (120) days from the date of this Agreement the Initiating
Holders may request registration under the Securities Act of all or
part of their Registrable Securities. Within ten (10) days after
receipt of any such request, the Company will give written notice of
such requested registration to all other Holders of Registrable
Securities and any other stockholder having registration rights which
entitle it to participate in such registration. The Company will
include in such registration all Registrable Securities with respect
to which it has received written requests for inclusion therein within
fifteen (15) days after receipt of the Company's notice. The Company
shall cause its management to cooperate fully and to use its best
efforts to support the registration of the Registrable Securities and
the sale of the Registrable Securities pursuant to such registration
as promptly as is practicable. Such cooperation shall include, but not
be limited to, management's attendance and reasonable presentations in
respect of the Company at road shows with respect to the offering of
Registrable Securities. All registrations requested under this Section
5.2(a) are referred to herein as "Demand Registrations." The Holders
of Registrable Securities will be entitled to request one Demand
Registration hereunder. A registration will not count as a Demand
Registration until it has become effective. Should the Demand
Registration not be filed by the Company within ninety (90) days of
the date of the Company's written notice to the Holders of Registrable
Securities, then the Company shall pay to all the Holders of
Registrable Securities, on a pro rata basis, as liquidated damages,
the sum of TWO HUNDRED THIRTY-THREE DOLLARS ($233) per day for each
day beyond the ninety (90) day period that the Demand Registration has
<PAGE>
not been filed; PROVIDED, HOWEVER, that the maximum amount of
liquidated damages payable to the Holders hereunder shall be
$100,000."
5. In all other respects, the Subscription Agreement is hereby ratified,
confirmed and approved.
This Amendment No. 1 may be signed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment this
25th day of October, 1999.
COMPANY:
INTERNATIONAL DISPENSING CORPORATION,
a Delaware corporation
BY: /s/Gary Allanson
--------------------
Name: Gary Allanson
Title: President
INVESTORS:
/s/ Gregory B. Abbott
------------------------
GREGORY B. ABBOTT
/s/ George V. Kriste
------------------------
GEORGE V. KRISTE
/s/ Louis A. Simpson
------------------------
LOUIS A. SIMPSON
/s/ Gary Allanson
------------------------
GARY ALLANSON
EXHIBIT 10.12
December 15, 1999
International Dispensing Corporation
2500 Westchester Avenue, Suite 304
Purchase, New York 10574
Gentlemen:
Reference is made to the Preferred Stock Subscription Agreement dated
as of September 23, 1999 and Amendment No. 1 thereto, dated as of October 25,
1999 by and among Gregory B. Abbott ("Gregory Abbott"), George Kriste
("Kriste"), Louis A. Simpson ("Simpson"), Gary Allanson ("Allanson") and
International Dispensing Corporation (the "Company")(collectively, the "Purchase
Agreement"). Unless otherwise defined herein, capitalized terms used herein have
the meanings ascribed to them in the Purchase Agreement.
This will confirm the agreement of the undersigned and the Company as
follows:
George Abbott whose address is 10 Rockefeller Plaza, Suite 604, New
York, New York 10020, hereby agrees to become a party to the Purchase Agreement
as an Investor and, by his signature below, shall as of the date hereof be
deemed to have made all of the representations and agreements made by each
Investor in the Purchase Agreement as if he were an original signatory thereof.
The Investors hereby agree to purchase on the date hereof the number of
additional Shares of Preferred Stock set forth opposite their names below for
the purchase price set forth opposite their names, all in accordance with the
terms and conditions of the Purchase Agreement. The purchase price shall be paid
by wire transfer on the date hereof to the Company's bank account of immediately
available funds pursuant to wire transfer instructions previously given to each
of the Investors.
Shares of Preferred
Name of Investor Stock Purchased Purchase Price
- ---------------- --------------- --------------
Gregory Abbott 49.5 $99,000
Kriste 49.5 $99,000
Simpson 49.5 $99,000
Allanson 12 $24,000
George Abbott 49.5 $99,000
Each Investor reaffirms as of the date hereof all of the
representations and agreements made by such Investor in the Purchase Agreement.
<PAGE>
International Dispensing Corporation
December 15, 1999
Page 2
The Company reaffirms as of the date hereof all of the representations
made by the Company in the Purchase Agreement, except that as of the date
hereof, prior to the purchases being made hereby, an aggregate of 350 Shares of
Preferred Stock are issued and outstanding.
Very truly yours,
/s/ Gregory Abbott
------------------------
Gregory Abbott
/s/ George Kriste
------------------------
George Kriste
/s/ Louis A. Simpson
------------------------
Louis A. Simpson
/s/ Gary Allanson
------------------------
Gary Allanson
/s/ George Abbott
------------------------
George Abbott
AGREED TO:
INTERNATIONAL DISPENSING
CORPORATION
By: /s/ Gary Allanson
-----------------
Gary Allanson
President
EXHIBIT 10.13
February 22, 2000
International Dispensing Corporation
2500 Westchester Avenue, Suite 304
Purchase, New York 10574
Gentlemen:
Reference is made to the Preferred Stock Subscription Agreement dated
as of September 23, 1999, as amended by Amendment No. 1 thereto, dated as of
October 25, 1999 and Amendment No. 2 thereto dated December 15, 1999 by and
among Gregory B. Abbott ("Gregory Abbott"), George Kriste ("Kriste"), Louis A.
Simpson ("Simpson"), Gary Allanson ("Allanson"), George Abbott ("George Abbott")
and International Dispensing Corporation (the "Company")(collectively, the
"Purchase Agreement"). Unless otherwise defined herein, capitalized terms used
herein have the meanings ascribed to them in the Purchase Agreement.
This will confirm the agreement of the undersigned and the Company as
follows:
Reed Slatkin ("Slatkin"), whose address is 890 North Kellogg Avenue,
Santa Barbara, California 93111, hereby agrees to become a party to the Purchase
Agreement as an Investor and, by his signature below, shall as of the date
hereof be deemed to have made all of the representations and agreements made by
each Investor in the Purchase Agreement as if he were an original signatory
thereof.
The Company has designated a new series of preferred stock called
Series B Redeemable Convertible Preferred Stock ("Series B Stock"). The Series B
Stock has the same rights and preferences as the Series A Redeemable Convertible
Preferred Stock of the Company ("Series A Stock"), except that the Series B
Stock shall not have a right to elect a separate director and the initial
conversion price at which Series B Stock may be converted into Common Stock
shall be $.35 per share rather than the $.22 per share initial conversion price
applicable to the Series A Stock.
The Investors and the Company hereby agree that in lieu of the purchase
by the Investors of the remaining 440,000 shares of Series A Stock that the
Investors committed to purchase pursuant to the Purchase Agreement, on the date
hereof the Company shall issue and sell to each Investor and each Investor shall
purchase for $2,000 per share from the Company, upon all of the other terms and
conditions set forth in the Purchase Agreement, the number of shares of Series B
Stock set forth opposite the name of such Investor below. The purchase price
shall be paid by
<PAGE>
International Dispensing Corporation
February 22, 2000
Page 2
wire transfer on the date hereof to the Company's bank account of immediately
available funds pursuant to wire transfer instructions previously given to each
of the Investors.
Shares of Series B
Name of Investor Stock Purchased Purchase Price
- ---------------- --------------- --------------
Gregory Abbott 97.5 $195,000
Slatkin 97.5 $195,000
Simpson 97.5 $195,000
George Abbott 97.5 $195,000
Kriste 50.0 $100,000
Allanson 0 $0
Each Investor reaffirms as of the date hereof all of the
representations and agreements made by such Investor in the Purchase Agreement.
The Company reaffirms as of the date hereof all of the representations
and agreements made by the Company in the Purchase Agreement, except that as of
the date hereof, prior to the purchases being made hereby, an aggregate of 560
Shares of Series A Stock are issued and outstanding and no shares of Series B
Stock are issued or outstanding.
Very truly yours,
/s/ Gregory Abbott
------------------------
Gregory Abbott
/s/ George Kriste
------------------------
George Kriste
/s/ Louis A. Simpson
------------------------
Louis A. Simpson
<PAGE>
International Dispensing Corporation
February 22, 2000
Page 3
/s/ Gary Allanson
------------------------
Gary Allanson
/s/ George Abbott
------------------------
George Abbott
/s/ Reed Slatkin
------------------------
Reed Slatkin
AGREED TO:
INTERNATIONAL DISPENSING
CORPORATION
By: /s/ Gary Allanson
-----------------
Gary Allanson
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001016739
<NAME> INTERNATIONAL DISPENSING CORPORATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,416,322
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 431,061
<PP&E> 461,646
<DEPRECIATION> 4,947
<TOTAL-ASSETS> 914,407
<CURRENT-LIABILITIES> 227,622
<BONDS> 0
0
1,120,000
<COMMON> 9,567
<OTHER-SE> (442,782)
<TOTAL-LIABILITY-AND-EQUITY> 914,407
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,747,754
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,702,108)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,702,108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,702,108)
<EPS-BASIC> (.18)
<EPS-DILUTED> (.18)
</TABLE>
