As filed with the Securities and Exchange Commission on October 22, 1997
Registration No. 333-5374
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
IMAGING DYNAMICS, INC.
(Exact name of Registrant as specified in Charter)
New Jersey 22-3378935
(State of (Primary standard industrial I.R.S. employer
Incorporation) classification code) Identification No.
53 Century Road
Paramus, New Jersey 07657
(201) 265-7117
(Address and Telephone Number of Principal Executive Offices)
Stephen Saltman, President
53 Century Road
Paramus, New Jersey 07657
(201) 265-7117
(Name, Address and Telephone Number of Agent for Service)
Copies To:
Mitchell Lampert, Esq. Michael Koblenz, Esq.
Lampert & Lampert Mound Cotton & Wollan
10 East 40th Street 1 Battery Park Plaza
New York, New York 10016 New York, New York 10004
(212) 889-7300 (212) 804-4200
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If any of the securities being registered on this Form SB-2 are to be offered on
a continuous basis pursuant to Rule 415 under the Securities Act of 1993, please
check the following box: [x]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of a prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class Maximum Maximum Amount of
of Securities Amount Being Offering Price Aggregate Registration
Being Registered Registered Per Security (1) Offering Price(1) Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, consisting of
Common Stock, no
par value
Warrants(2) 1,150,000 $7.00 $8,050,000 $2,775.64
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
Purchase
Warrants (3) 3,450,000 $.10 $345,000 $118.96
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
no par value (4) 3,450,000 $9.00 $31,050,000 $10,706.04
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriter's
Warrants (5) 100,000 $100.00 nil nil (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock,
Purchase
Warrants (7) 300,000 $.12 $36,000 $12.41
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock,
no par
value (8) 100,000 $8.40 $840,000 $289.63
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock,
no par value (9) 300,000 $8.40 $2,520,000 $868.90
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, no
par value (10) 140,000 $6.00 $840,000 $289.63
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
Purchase
Warrants (11) 140,000 $.10 $14,000 $4.83
- ------------------------------------------------------------------------------------------------------------------------------------
Totals........... $43,695,000 $15,066.04(12)
====================================================================================================================================
</TABLE>
(1) Total estimated solely for the purpose of determining the registration
fee.
(2) Includes 150,000 shares of Common Stock subject to sale upon exercise
of the Underwriter's Over-allotment Option granted to the Underwriter by the
Company.
(3) Includes 450,000 Redeemable Common Stock purchase warrants (the
"Warrants") subject to sale upon exercise of the Underwriter's Over- allotment
Option granted to the Underwriter.
(4) Issuable upon exercise of the Warrants, together with such
indeterminate number of securities as may be issuable by reason of anti-dilution
provisions contained therein.
(5) Represent warrants to be issued to the Underwriter to purchase 100,000
shares of Common Stock and 300,000 Warrants (the "Underwriter's Warrants"). See
"Underwriting."
<PAGE>
(6) No fee due pursuant to Rule 457(g).
(7) Represents Warrants issuable upon exercise of the Underwriter's
Warrants.
(8) Represents shares of Common Stock issuable upon the exercise of the
Underwriter's Warrants, together with such indeterminate number of securities as
may be issuable by reason of anti-dilution provisions contained therein.
(9) Represents shares of Common Stock issuable upon the exercise of
Warrants issuable upon exercise of the Underwriter's Warrants, together with
such indeterminate number of securities as may be issuable by reason of
anti-dilution provisions contained therein.
(10) Represents shares of Common Stock issuable upon the exercise of the
Warrants sold in the Company's April 1997 private placement.
(11) Represents Warrants issued pursuant to the Company's April 1997
private placement.
(12) The Company previously paid $9,344.77 in connection with its filing on
August 6, 1996.
ii
<PAGE>
Cross Reference Sheet Pursuant to Rule 404 (a)
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
<TABLE>
<CAPTION>
Item in Form SB-2 Prospectus Caption
<S> <C>
1. Forepart of the Registration Cover Page and Cover Page of Registration
Statement and Outside Front Statement
Cover Page of Prospectus
2. Inside Front and Outside Continued Cover Page, Table of Contents
Back Cover Pages of
Prospectus
3. Summary Information and Prospectus, Summary, Risk Factors,
Risk Factors Summary Financial Information
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Cover Page, Underwriting, Risk Factors
Price
6. Dilution Risk Factors, Dilution
7. Selling Securityholders Principal and Selling Stockholders
8. Plan of Distribution Cover Page, Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers Management
Promoters and Certain Control
Persons
11. Security Ownership of Principal and Selling Stockholders
Certain Beneficial Owners
and Management
iii
<PAGE>
12. Description of Securities Description of Securities
13. Interest of Named Experts Legal Opinions, Experts
and Counsel
14. Disclosure of Commission Position Management and Item 24. Indemnification
on Securities Act Liabilities Officers and Directors
15. Organization Within Five Years Prospectus Summary, Business, Principal and
Selling Stockholders, Certain Relationships
and Related Transactions, Risk Factors
16. Description of Business Business
17. Management's Discussion Management's Discussion and Analysis of
and Analysis or Plan of Operation Financial Condition and Results of Operations
18. Description of Property Business
19. Certain Relationships and Related Certain Relationships and Related
Transactions Transactions
20. Market for Common Equity Not Applicable
and Related Stockholder
Matters
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements Not Applicable
with Accountants and Financial
Disclosure
</TABLE>
iv
<PAGE>
Preliminary prospectus subject to completion, dated , 1997
PROSPECTUS
IMAGING DYNAMICS, INC.
1,000,000 Units
Consisting of 1,000,000 Shares of Common Stock and
3,000,000 Class A Redeemable Warrants
This Prospectus relates to an offering (the "Offering") of 1,000,000
units (the "Units"), each Unit consisting of one share of common stock, no par
value per share (the "Common Stock") and three Class A Redeemable Warrants (the
"Warrants"), of Imaging Dynamics, Inc. (the "Company") being sold by the Company
through Global Equities Group, Inc. (the "Underwriter"). The securities
comprising the Units will be separately transferable days from the date hereof
(the "Separation Date"). Each Warrant entitles the registered holder thereof to
purchase, at any time during the period commencing on the Separation Date, one
share of Common Stock at a price of $9.00 per share through a date three years
following the Separation Date. Commencing on the Separation Date, the Warrants
are redeemable by the Company at any time, upon thirty days' notice, at a
redemption price of $.05 per warrant, provided that the closing bid quotation of
the Common Stock for each of the thirty trading days ending on the third day
prior to the day on which the Company gives notice has been at least 150% of the
exercise price of the Warrants being redeemed. The Units, shares of Common Stock
and the Warrants underlying the Units are sometimes collectively referred to as
the "Securities." See "Description of Securities" and "Principal and Selling
Securityholders."
This Registration Statement also relates to the offer and sale of an
aggregate of 140,000 warrants (the "Private Placement Warrants") owned by
certain selling securityholders (the "Selling Securityholders"). The Private
Placement Warrants and shares of Common Stock underlying the Private Placement
Warrants are being registered pursuant to registration rights agreements entered
into by the Company and the Selling Securityholders. The Company will not
receive any of the proceeds from the sale of such securities. See "Selling
Securityholders", "Selling Securityholders' Offering", "Plan of Operation" and
"Underwriting".
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION TO INVESTORS.
SEE "RISK FACTORS" AND DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=================================================================================================================
Price to Discounts and Proceeds to
Public Commission (1) the Company
(2)(3)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit (4)............. $7.30 $.73 $6.57
- -----------------------------------------------------------------------------------------------------------------
Per Share................ $7.00 $.70 $6.30
- -----------------------------------------------------------------------------------------------------------------
Per Warrant............ $.10 $.01 $.09
- -----------------------------------------------------------------------------------------------------------------
Total (5)............... $7,300,000 $730,000 $6,570,000
=================================================================================================================
</TABLE>
(footnotes on following page)
GLOBAL EQUITIES GROUP, INC.
The date of this Prospectus is _______________, 1997.
<PAGE>
(1) Does not include additional compensation to be received by the
Underwriter, including (i) a non-accountable expense allowance equal to 3% of
the gross proceeds of the Offering, which includes $30,000 paid to date; (ii)
warrants entitling the Underwriter to purchase from the Company 100,000 Units
(the "Underwriter's Warrants") at 120% of their public offering prices,
exercisable for a period of four years commencing one year from the date of the
Prospectus; and (iii) the right for five years, to designate one nominee to
serve on the Company's Board of Directors or to serve as a board observer. The
Company has also agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). See "Underwriting."
(2) Before deduction of expenses of the Offering, all or which are payable
by the Company, estimated at $457,580 ($490,430 if the Underwriter's
Over-allotment Option is exercised in full), which includes the Underwriter's
non-accountable expenses allowance, as well as filing, legal, accounting,
printing and other costs and expenses.
(3) Before deducting a 3% non-accountable expense allowance being paid by
the Company to the Underwriter of $219,000 ($251,850 if the Underwriter's
Over-allotment option is exercised in full).
(4) The shares of Common Stock and Warrants are being sold as Units, at a
purchase price of $7.30 per Unit, whereby the Company and the Underwriter have
determined in negotiations that the price per share and per Warrant is $7.00 and
$.10, respectively.
(5) The Company has granted the Underwriter options, exercisable within
thirty (30) days from the date of this Prospectus, to purchase up to an
additional 150,000 Units on the same terms set forth above, solely for the
purpose of covering over-allotments. If such options are exercised in full, the
total Price to the Public, Underwriting Discounts and Commission, Proceeds to
Company and Proceeds to the Company will be $8,395,000, $839,500, and
$7,555,500, respectively. See "Underwriting".
Prior to this Offering, there has been no public market for the
Company's Securities and there can be no assurance that any market will develop
therefor. The Company has applied for listing of the Units, the shares of Common
Stock and the Warrants on the Nasdaq SmallCap Stock Market ("Nasdaq") under the
symbols "IMAGU", "IMAG" and "IMAGW", respectively, although no assurance can be
given as to whether and when such listing will be obtained. Quotation on Nasdaq
does not imply that a meaningful, sustained market for the Company's Securities
will develop or if developed that it will be sustained for any period of time.
In the event the Company's Securities are not listed on Nasdaq, the Company's
Securities will be available for trading only in over-the-counter market on the
OTC Bulletin Board. The offering price of the Units, the Common Stock and the
Warrants, as well as the exercise price of the Warrants, were determined in
negotiations between the Company and the Underwriter on an arbitrary basis and
bear no direct relationship to the assets, earnings or any other recognized
criteria of value. The prices should in no event, however, be regarded as an
indication of any future market price of the Common Stock or the Warrants. See
"Risk Factors", "Underwriting" and "Use of Proceeds".
<PAGE>
The Securities are being sold by the Company through Global Equities
Group, Inc. (the "Underwriter"), on a "firm commitment" basis subject to prior
sale, when, as and if accepted by the Underwriter and subject to approval of
certain legal matters by counsel for the Underwriter and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and reject any order in whole or in part. It is expected that
delivery of certificates representing the Securities being sold hereby will be
made against payment therefor at the offices of Global Equities, Inc., 5 Hanover
Square, New York, New York on or about ____________, 1997.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY DISCONTINUE AT ANY TIME.
AVAILABLE INFORMATION
The Company's fiscal year end is December 31. The Company has filed
with the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form SB-2 under the Securities Act, with respect to the Units and
securities underlying the Units to which this Prospectus relates. As permitted
by the rules and regulations of the Commission, this Prospectus does not contain
all of the information set forth in the Registration Statement. For further
information with respect to the Company and the Securities offered hereby,
reference is made to the Registration Statement, including the exhibits thereto,
which may be copied and inspected at the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C.,
20549 or at its regional office at 7 World Trade Center, New York, New York.
The Company will be subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), upon
completion of this Offering, and in accordance therewith, will file periodic
reports, proxy statements and other information with the Commission. In the
event the Company's obligation to file such periodic reports, proxy statements
and other information is suspended, the Company will voluntarily continue to
file such information with the Commission. The Company will distribute to its
stockholders annual reports containing audited financial statements, together
with an opinion by its auditing accountants. In addition, the Company may, in
its discretion, furnish quarterly reports to stockholders containing unaudited
financial information for the first three quarters of each year.
In addition to the 1,000,000 Units being offered by the Company, the
Registration Statement of which this Prospectus forms a part also covers the
offering of 140,000 warrants (by certain Selling Securityholders. The Company
consummated a private placement offering in April 1997 (the "Private
Placement"), whereby the Company sold 7 units, each unit was comprised of a
promissory note (the "Notes") in the amount of $50,000 bearing interest at the
rate of 10% per annum, and 20,000 common stock purchase warrants at a purchase
price of $52,000 per unit. The Notes sold in the private placement are to be
repaid by the Company from the proceeds of this Offering. The proceeds of the
Private Placement were used by the Company as working capital to finance its
operations. See "Risk Factors," "Capitalization Private Placement", "Use of
Proceeds" and "Principal and Selling Securityholders."
3
<PAGE>
SUMMARY
The following summary is intended to set forth certain pertinent facts and
highlights from material contained in the body of this Prospectus. The summary
is qualified in its entirety by the detailed information and financial
statements appearing elsewhere in this Prospectus.
THE COMPANY
Imaging Dynamics, Inc. (the "Company" or "IDI") is a developmental stage
corporation that was formed in June 1995 to commercialize its proprietary
industrial process (the "IDI Process"). The IDI Process combines digital imaging
and bonding technology in order to replicate patterns in natural and man made
materials and images for vertical and horizontal durable surfacing.
The IDI Process comprises software, hardware and proprietary techniques
which allow analog and digitally based images to be converted into a high
resolution digital format (2500 dpi). The image is then manipulated and enhanced
using custom software designed to remove imperfections in the original image and
increase the clarity when viewed through the polymer-silica material to which
the image is ultimately bonded.
Using the IDI Process, the image can be recolored and reformatted with
respect to size, shape, geometry and detail. New artistic elements can be
integrated which were not in the original image.
The image is then printed on polyester sheets utilizing chemical formulas
specially designed for optimizing and enhancing the optical characteristics of
the image when viewed through the polymer-silica material. Depending on the
ultimate application, the thickness of the polymer-silica material can vary from
1/8" to 5/8". The finished product can then be inserted into traditional stock
framing systems for cabinets, furniture, wall systems, and panels, as well as a
variety of other uses.
Products manufactured using the IDI Process are characterized by extreme
sharpness and accurate vibrant color. The dimensional appearance is enhanced due
to a high level of definition at the edge of the image which is created by
shading techniques and a controlled level of contrast. The images replicate
natural patterns such as marbles, granites, woods or man made designs such as
paintings, photographs, computer art and wall covering designs and patterns. The
IDI Process allows for a high degree of customization and short production runs.
The physical properties of the polymer-silica material utilized by the
Company in the manufacture of its products is harder than many competing
materials. The polymer-silica material is stain and chemical resistant,
sanitary, crack resistant and shatter proof. The Company believes that products
manufactured using the IDI Process are easier and cheaper to install than stone
or Corian. The Company also believes that the IDI Process allows for the
creation of more patterns and custom design features than Formica(TM).
The Company believes that the major markets for its products are home
decorating, office design, furniture construction for home, retail and office
uses, commercial graphics and advertising, large format convention booth
construction and retail display fixtures and buildouts. The Company also
believes that there exists a market for the reproduction of fine art, both in
its original size and form as well as in shapes and forms other than the
original canvas. The Company believes that the use of the IDI Process in the
reproduction of fine art will result in pieces that exhibit higher resolution,
realism and conformance to the original than the traditional lithographic
printing systems.
The company maintains its principal offices at 53 Century, Paramus, New
Jersey 07657. The Company's telephone number at its principal office is (201)
265-7117.
4
<PAGE>
THE OFFERING(1)
<TABLE>
<CAPTION>
<S> <C>
Securities Offered (2):
Units Each Unit is comprised of one share of Common Stock
and three Warrants at a purchase price of $7.30 per
Unit. The Securities underlying the Units shall be
separately tradeable immediately.
The Company 1,000,000 Units
Price Per:
Unit $7.30
Share $7.00
Warrant $0.10
Securities Outstanding Prior
to the Offering:
Common Stock 2,005,000 Shares
Warrants 0 (3)
Securities Outstanding After
the Offering:
Common Stock 3,005,000 Shares
Warrants 3,000,000 Warrants (3)
Terms of the Warrants Each Warrant sold in this Offering entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $9.00, subject to adjustment, during an exercise
period commencing one year from the date hereof, for a period of three years, until
___________, 2001. The Warrants are redeemable by the Company at any time commencing
one year from the date of this Prospectus upon 30 days notice, at a redemption price of $.05
per Warrant, provided that the closing bid quotation of the Company's Common Stock for at
least 20 consecutive trading days ending not more than 15 days prior to the date on which
the Company gives notice, has been at least 150% of the then effective exercise price of the
Warrants. The Private Placement Warrants sold in the Company's April 1997 private
placement entitle the holder thereof to purchase one share of Common Stock at an exercise
price of $6.00 per share at any time prior to April 17, 2000. The Company has been advised
by the Underwriter that the Underwriter does not intend to make a market in the Private
Placement Warrants. Notwithstanding the foregoing, the owners of the Private Placement
Warrants can exercise their warrants and receive shares of the Company's Common Stock
identical to the shares of Common Stock offered herein. See "Description of Securities -
Warrants."
<PAGE>
Use Of Proceeds The net proceeds of this Offering, estimated at $5,893,420, will be used as follows: (i)
$252,000 to repay notes, (ii) $350,000 to repay the Notes issued in the Company's April
private placement, (iii) $510,000 for marketing and advertising, (iv) $1,805,000 for
financing the purchase of new equipment, (v) $180,000 financial consulting fee, (vi) $19,283
to repay loans made by certain officers, and (vii) $2,753,137 for working capital. See "Use
of Proceeds."
Risk Factors An investment in the Securities offered hereby involves a high degree of risk and immediate
substantial dilution to investors. Potential purchasers should not invest in these securities
unless they can afford the risk of losing their entire investment. See "Risk Factor" and
"Dilution."
NASDAQ Symbols (2)
Nasdaq Units .........................IMAGU
Common Stock .............IMAG
Warrants .....................IMAGW
</TABLE>
(1) Unless otherwise indicated, no effect is given in this Prospectus to
(i) the 3,000,000 shares of Common Stock reserved for issuance upon the
exercise of the Warrants; (ii) the exercise of the Underwriter's
Over-allotment Option to purchase up to an additional 150,000 Units;
(iii) the exercise of the Underwriter's Warrants to purchase 100,000
Units; (iv) the 140,000 shares of Common Stock reserved for issuance
upon the exercise of the Warrants issued in the Company's April 1997
private placement; and (v) the issuance of up to 300,000 shares of
Common Stock under the Company's Senior Management Incentive Plan.
(2) The Company has applied for listing of the Securities being offered
hereby on Nasdaq SmallCap Stock Market. Quotation on Nasdaq does not
imply that a meaningful, sustained market for the Company's Securities
will develop or if developed that it will be sustained for any period
of time.
(3) Exclusive of 140,000 warrants sold in the Company's April 1997 private
placement (the "Private Placement Warrants"), which warrants are
exercisable at $6.00 per share at any time prior to April 17, 2000. The
Company has been advised by the Underwriter that the Underwriter does
not intend to make a market in the Private Placement Warrants.
Notwithstanding the foregoing, the owners of the Private Placement
Warrants can exercise their warrants and receive shares of the
Company's Common Stock identical to the shares of Common Stock offered
herein.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
Set forth below is the historical summary financial information with
respect to the Company for the years ended December 31, 1995 and 1996 and the
unaudited six month period ended July 31, 1995 and 1996. The historical
financial data for the years ended December 31, 1996 and 1995 is derived from
the audited financial statements of the Company which have been reported upon by
Thomas P. Monahan, C.P.A. The summary historical financial data presented below
should be read in conjunction with the audited financial statements of the
Company and related notes thereto included elsewhere in this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
======================================================================================================
For the Year From Inception
Ended Until
- ------------------------------------------------------------------------------------------------------
December 31, July 31,
1996 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $121,914 $302,545
- ------------------------------------------------------------------------------------------------------
Net Income (Loss) $(280,399) $(735,803)
- ------------------------------------------------------------------------------------------------------
Earnings (loss) per
Common Share $(.14) $(.36)
- ------------------------------------------------------------------------------------------------------
Total Number
Shares Outstanding 2,000,000 2,005,000
======================================================================================================
</TABLE>
Development Stage Balance Sheet Data:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
December 31, 1996 July 31, 1997 July 31, 1997
- -------------------------------------------------------------------------------------------------------------
Actual Actual As Adjusted (1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets $74,988 $140,329 $6,033,749
- -------------------------------------------------------------------------------------------------------------
Tangible Assets $(158,697) $(537,457) $5,355,963
- -------------------------------------------------------------------------------------------------------------
Working Capital $(306,864) $(788,402) $5,105,018
- -------------------------------------------------------------------------------------------------------------
Total Assets $251,155 $424,274 $6,317,694
- -------------------------------------------------------------------------------------------------------------
Total Liabilities $381,852 $928,731 $928,731
- -------------------------------------------------------------------------------------------------------------
Stockholders'
Equity $(130,697) $(504,457) $5,388,963
=============================================================================================================
</TABLE>
(1) Gives effect to the sale by the Company of 1,000,000 Units in this
Offering, and the application of net proceeds therefrom. Does not give effect to
the exercise of the Over-allotment Option or the Underwriter's Warrants. See
"Use of Proceeds."
6
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree
of risk. In addition to the other information contained in this Prospectus, the
following factors should be carefully considered before purchasing the
securities offered by this Prospectus. The purchase of these Securities should
not be considered by anyone who cannot afford the risk of loss of his entire
investment.
Except for the historical information contained herein, the following
discussions contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
projected in the forward-looking statements discussed herein. Factors that could
cause or contribute to such difference include, but are not limited to, those
discussed in this section, as well as in the section entitled "Business."
1. New Enterprise; Limited Operations and Operating History; Working
Capital Deficit; Retained Earnings Deficiency. The Company is in an early stage
of development and has extremely limited financial and operational history upon
which investors may base an evaluation of its performance or any assumption as
to the likelihood that the Company will become commercially viable. Although the
"IDI Process" technology has been developed by the Company's president over a
period of more than two decades, it has yet to be commercialized. There is no
assurance that the Company's operations can become commercially viable or
profitable. For the year ended December 31, 1996, the Company had losses from
operations of $(280,399), working capital deficit of $(306,864) and a deficit
accumulated during development stage of $331,697. In the event that the Company
continues to have losses and an accumulated deficit and in the event it is
unable to meet its accounts payable as such become due, any and all of these
factors may have materially adverse effects as to the business and finances of
the Company, its ability to continue as a going concern and its ability to
operate profitably. There can be no assurance that the Company will be able to
produce its product line on a profitable basis, nor can there be any assurances
that the Company will succeed in its business endeavors. See "Business."
2. Explanatory Paragraph in Independent Auditors's Report. The
Company's independent auditors have included an explanatory paragraph in their
report on the Company's financial statement stating that certain factors raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's continuation as a going-concern is dependent upon its ability to
obtain additional financing, including the proceeds from this Offering, to
generate sufficient cash flow to meet its obligations on a timely basis. As a
result of the start-up nature of the Company's business, additional operating
losses can be expected in the foreseeable future. There can be no assurance that
the Company can be operated profitably in the future. See Consolidated Financial
Statements.
3. Competition. The market in which the Company competes is
characterized by rapidly changing technology and evolving industry standards.
The Company has competition in every area of its existing and proposed
businesses from furniture manufacturers, photographic laboratories, computer
graphics firms and suppliers of counter-top and table top surfaces, such as
Formica(TM). Many of its competitors are well known and have far greater
financial, technological, managerial, personnel and other resources than the
Company. Although the Company is not aware of any company which directly
competes against the Company, there can be no assurance that other technologies
or products which are functionally similar to those of the Company are not
currently available or under development. In addition, there can be no assurance
that other companies with the expertise or resources that would encourage them
to attempt to develop or market competing products will not develop new products
directly competitive with the Company's products. See "Business - Competition."
<PAGE>
4. Technological Factors; Uncertainty of Product Development;
Uncertainty of Commercial Technology. Although the Company's development efforts
relating to the technological aspects of the existing versions of the IDI
Process are completed, the Company is continually seeking to refine and improve
the IDI Process. The Company's efforts remain subject to all of the risks
inherent in new product development, including unanticipated technical,
regulatory or other problems which could result in material delays in product
development or commercialization or significantly increased costs. The Company
may be required to commit considerable additional effort, time and resources to
commercialize development of production versions of its proposed products. The
Company's success will depend upon such products meeting targeted product costs
and performance, and may also depend upon their timely introduction into the
marketplace. There can be no assurance that development of the Company's
proposed products will be successfully completed on a timely basis, or at all,
that they will meet projected price or performance objectives, satisfactorily
perform all of the functions for which they are being designed, or prove to be
sufficiently reliable or durable in widespread commercial application. Moreover,
there can be no assurance that unanticipated problems will not arise with
respect to technologies incorporated into the IDI Process or that
7
<PAGE>
product defects will not become apparent after commercial introduction. In the
event that the Company is required to remedy defects in any of its products
after commercial introduction, the costs to the Company could be significant,
which could have a material adverse effect on the Company.
In addition, there has been only limited outside research in many areas
of the Company's focus and results in research and testing conducted to date are
not conclusive from independent sources. Adverse independent testing results
could have a material adverse effect on the Company. See "Patents and Trade
Marks" and "Product Testing".
5. Development and Expansion of Business; Management of Growth.
Management is of the opinion that it currently has sufficient management
expertise and depth to develop its business. However, it will need a skilled and
dedicated marketing staff as well as technical and production personnel in the
future. There is no guarantee that the Company can retain its present staff or
that capable personnel with relevant skills will be available. To manage its
growth effectively, the Company must continue to improve and expand its existing
resources and management information systems and must attract, train and
motivate qualified managers and employees. There can be no assurance that the
Company's business will grow or that the Company will be able to manage growth,
if any, effectively and efficiently. The Company's inability to manage growth
effectively would adversely affect its operating results. In the event a
business expansion is commenced by the Company, there can be no assurances that
such expansion will be cost-effective or profitable. See "Business".
6. Market Acceptance. Although a number of orders have been produced to
customers' satisfaction, no significant orders have resulted to date. The
Company's success is contingent on the acceptance by its current and potential
future users, of which there can be no assurance. See "Business."
7. Inability to Keep Pace with Competitor Innovation or Consumer's
Changing Preferences and Tastes. The market in which the Company intends to
compete is subject to rapid technological and innovative change. Competition
from and among companies which produce similar or alternative products is
characterized by continuous technological and innovative changes and advances.
There can be no assurances that the Company will be able to keep pace with the
technological and innovative developments in the industry or implement such
changes. Therefore, competitors may develop superior products which may make the
IDI Process obsolete. As a result of the continual changing nature of the
markets the Company competes in, the success of the Company is dependent on its
ability to change and adapt to such changing tastes and preferences. See "Risk
Factor - Competition" and "Business - Competition."
<PAGE>
8. Control by Management. Upon the sale of the Units offered hereby,
the Company's management will own an aggregate of approximately 45.3% of the
Company's Common Stock (exclusive of the exercise of any Warrants). Accordingly,
if only 4.8% of the other shareholders vote similarly to management, management
will effectively be able to elect the entire Board of Directors of the Company
and direct the affairs of the Company after the Offering. See "Management" and
"Principal Stockholders."
9. No Dividends and None Anticipated. To date, the Company has not paid
any cash dividends on its Common Stock and does not expect to declare or pay any
cash or other dividends in the foreseeable future. The Company anticipates that
any profits from operations will be reinvested in the Company. See "Dividend
Policy."
10. Arbitrary Offering Price of Units and Exercise Price of Warrants.
The offering prices of the Units, shares of Common Stock and Warrants, and the
exercise price of the Warrants have been determined by negotiations between the
Company and the Underwriter on an arbitrary basis and bear no direct
relationship to the assets, earnings or any other recognized criteria of value.
Factors considered in determining such prices, in addition to prevailing market
conditions, included the history of and the business prospects for the Company
and an assessment of the net worth and financial condition of the Company, as
well as such other factors as were deemed relevant, including an evaluation of
management and the general economic climate. The prices should in no event,
however, be regarded as an indication of any future market price of the
Securities. Prior to this Offering, there has been no public market for the
Securities. See "Dilution" and "Underwriting."
11. Lack of Public Market for the Securities. Prior to the Offering, no
public market exists for the Company's Securities. There is no assurance that a
regular trading market will develop at the conclusion of this Offering, or if
one does develop, that it will be sustained. Therefore, purchasers of the
Securities offered herein may be unable to resell said Securities at or near
their original offering price or at any price. Furthermore, it is unlikely that
a lending institution will accept the Company's securities as pledged collateral
for loans even if a regular trading market develops.
8
<PAGE>
12. Dilution; Possible Future Dilution. Management of the Company plans
to institute a Senior Management Incentive Plan (the "Plan"). Pursuant to this
Plan, Management of the Company will have the ability to grant upto 350,000
stock options to executive officers, key employees and consultants. To date, the
Company has issued 25,000 options each to Stephen Saltman and Damian Greco
pursuant to the terms of the Plan. Further issuances pursuant to the Plan could
cause the Investors purchasing Units in this Offering to incur a substantial
dilution in the value of their investment. The Company has authorized capital
stock of 20,000,000 shares of Common Stock, no par value per share and 5,000,000
shares of Preferred Stock, no par value per share. None of the shares of
Preferred Stock have been issued. Inasmuch as the Company may use authorized but
unissued shares of Common Stock or issue shares of Preferred Stock which may be
convertible into shares of Common Stock, without stockholder approval, there may
be further dilution of the stockholders' interests. See "Description of
Securities."
13. Dependence on Suppliers. The manufacture of the Company's products
is contingent upon the ability of the Company to purchase raw materials,
specifically polymer-silica material, from suppliers. Currently the Company has
one vendor who supplies the Company with the polymer-silica material the Company
utilizes in the manufacture of its products. The loss of this supplier would
have a detrimental effect on the Company, however, the Company believes that
there are other suppliers of polymer-silica material. The Company believes that
it will continue to be able to purchase its polymer-silica material in the
future at prices and on terms similar to its present capabilities. No assurances
can be given that an uninterrupted and adequate supply of polymer-silica
material will be available to the Company in the future, although, the Company
believes that there are a sufficient number of suppliers so that in the event
that any individual or group of suppliers can no longer service the Company's
needs, the Company will be able to find other suppliers at competitive price and
terms. If conflicts arise or there is a void of suppliers, this would have a
detrimental effect on the Company's operations. See "Business Suppliers."
14. Protection of Proprietary Technology and Information; Possible
Patent and/or Trademark Infringement. The Company will also rely on trade
secrets, know-how and continuing technological advancement to maintain its
proposed competitive position. No assurance can be given that competitors will
not independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets and know how.
Part of the Company's proposed business is the reproduction of fine art. There
can be no assurance that the Company will not be found to be infringing on
another individual or entities patent or trademark. In the event that the
Company is found to be infringing upon such individuals or entities patent or
trademark, there can be no assurance that the Company will have the financial
means to litigate such matters. See "Business - Patents and Trademarks."
15. Authorization of Preferred Stock. The Company's Certificate of
Incorporation authorizes the issuance of 5,000,000 shares of preferred stock, no
par value per share, with such designation, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without obtaining shareholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
that could adversely affect the voting power or other rights of the holders of
the Common Stock. In the event of issuance, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying, or
preventing a change in the control of the Company. The Company is restricted
from issuing any shares of preferred stock for a period of years from the date
hereof, without the prior consent of the Underwriter. See "Description of
Securities - Preferred Stock" and "Underwriting."
<PAGE>
16. Broad Discretion in the Application of Proceeds. The Company's
management will have broad discretion regarding the use of proceeds of this
Offering of approximately $2,753,137 or 46.7% ($3,681,937 or 54.0% if the
Underwriter's Over-allotment Option is exercised in full), which proceeds have
been allocated to working capital. See "Use of Proceeds."
17. Protection of Intellectual Property. The Company does not intend to
patent its proprietary trade secrets. In the event that such information becomes
known to its competitors, the business of the Company would be materially and
adversely effected. The Company does intend to trademark certain of its trade
names. However, there can be no assurance that trademark protection will be
available for such marks at the time the protection is sought. The failure to
obtain such protection would materially and adversely effect the business of the
Company. See "Business -- Patents and Trademarks".
18. Dependence on Management; Salary Commitment; Limited Number of
Management Personnel. The Company is dependent upon the personal efforts and
abilities of Stephen Saltman, the Company's President, and Damian J. Greco, the
Company's Secretary and Treasurer. Following this Offering, there can be no
assurance that, if the Company grows, the current management team will be able
to continue to adequately manage the Company's affairs. Further, there can be no
assurance that the Company will be able to identify and hire additional
qualified managers on terms economically feasible for the Company. The Company
has entered into employment agreements with both Messrs. Saltman and Greco. The
loss of the services of Mr. Saltman or Mr. Greco would adversely affect the
business of the Company. The Company currently has no key-man insurance on the
lives of either Mr. Saltman or Mr. Greco. Mr. Saltman and Mr. Greco have entered
into employment agreements with the Company, which agreements provide for the
payment of annual base salaries of $180,000 and $160,000, respectively, with 10%
yearly escalations during the term of the agreement. The agreements are for a
term of five years expiring May 2002. Based upon the Company's limited operating
history and continued losses, there can be no assurances that the Company will
be able to pay such salaries from operations. In the event that this Offering is
consummated, the Company may use the proceeds apportioned to working capital for
general corporate purposes, such as salaries, in the event the Company's income
from operations does not meet its cash requirements. As of July 31, 1997, the
Company had a working capital deficit of $(718,402). Expenditures of the
proceeds for general corporate purposes may include the payment of salaries to
the Company's officers, aggregating $340,000 per annum. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Management."
19. Immediate Substantial Dilution. The purchasers of the Securities
offered hereby will incur immediate substantial dilution from their purchase
price in the net tangible book value of each share of Common Stock of
approximately $5.49 per share or 75.2% of their initial investment. The present
stockholders of the Company will own approximately 66.67% of the Company's
outstanding shares of Common Stock upon completion of this Offering and will
realize an immediate increase in the net tangible book value of their shares of
approximately $2.04 per share. Accordingly, the current shareholders will be the
primary beneficiaries of this Offering. If the Company's future operations are
unsuccessful, the persons who purchased the Securities offered hereby will
sustain the principal losses.
20. Shares Available for Resale. All of the 2,005,000 shares of the
Company's Common Stock outstanding are "restricted securities" which, in the
future, may be sold upon compliance with Rule 144 adopted under the Securities
Act, or any other exemption from the registration requirements of the Securities
Act.
<PAGE>
Rule 144 provides, in essence, that a person holding "restricted
securities" for a period of one year may sell every three months in brokerage
transactions an amount equal to the greater of: (a) one percent of the Company's
outstanding shares of Common Stock; (b) the average weekly reported volume of
trading for the securities on all national exchanges and/or through the
automated quotation system of a registered securities association during the
four calendar week period preceding each transaction; or (c) the average weekly
trading volume in the securities reported through the consolidated transaction
reporting system during the four calendar week period. Rule 144 also requires
that current information about the securities must be available to stockholders
and brokers.
Therefore, after taking into account the shares to be sold in this
Offering (and without giving effect to any shares of Common Stock which may be
issued upon exercise of the Warrants) in each three-month period commencing
1997, at least 30,050 (31,550 shares if the Underwriter's Over-allotment option
is exercised in full) shares may be publicly sold under Rule 144 by each holder
of "restricted securities" who has held such shares for at least one year.
Persons who are not "affiliates" of the Company, as that term is
defined under the Securities Act, who have been non-affiliates for the 90 days
immediately preceding the sale, and who have owned their shares for a period of
at least one year, may sell such shares without limitation. Giving effect to the
sale of 1,000,000 shares by the Company, the Company will have issued and
outstanding 3,005,000 shares of its Common Stock, of which 2,005,000 shares will
be "restricted securities." Notwithstanding, the holders of 1,958,400 of the
aforementioned 2,005,000 shares have entered into twenty-four month lockups with
the Underwriter whereby none of their shares can be sold with the consent of the
Underwriter until twenty-four months after the Effective Date. Investors should
be aware that the possibility of such sales under Rule 144 will in all
probability have a depressive effect on the price of the Company's Common Stock
in any market which may develop. See "Shares Eligible for Future Sales."
All officers, directors and owners of 5% or more of the Company's
Common Stock, except the Selling Stockholders, have agreed to "lock-up" and not
sell, publicly, privately or otherwise dispose of any shares of Common Stock for
a period of two years from the date of this Prospectus, whereby these
stockholders cannot sell, publicly, privately or otherwise dispose of any of
their shares without the prior written consent of Global Equities Group, Inc.
21. Restrictions on Exercise of Warrants; Necessity for Updating
Registration Statement. The Warrants offered hereby are not exercisable unless,
at the time of the exercise, the Company has a current prospectus covering the
shares of Common Stock issuable upon exercise of the Warrants and such shares
have been registered, qualified of deemed to be exempt under the securities laws
of the state of residence of the exercising holder of the Warrants. Since the
Warrants are not exercisable for a period of one year from the date of this
Prospectus, the Company will be required to file a post-effective amendment and
have same declared effective and deliver a current Prospectus before the
Warrants may be exercised. Although the Company will use its best efforts to
have all of the shares of Common Stock issuable upon exercise of the Warrants
registered or qualified on or before the exercise date and to maintain a current
prospectus relating thereto until the expiration of the Warrants, there is no
assurance that it will be able to do so. The Company will notify all
Warrantholders and its transfer agent that the Warrants may not be exercised at
any time that a current post-effective amendment has not been declared effective
on or before ___________, 199 , so as to prevent the Warrants from being
exercised in the absence of a current Registration Statement.
<PAGE>
Although the Warrants will not knowingly be sold to purchasers in
jurisdictions in which the Warrants are not registered or otherwise qualified
for sale, purchasers may buy Warrants in the after-market or may move to
jurisdictions in which the shares underlying the Warrants are not so registered
or qualified for sale during the period that the Warrants are exercisable. In
this event, the Company would be unable to issue shares to those persons
desiring to exercise their Warrants unless and until the shares could be
qualified for sale in the jurisdictions in which such purchasers reside, or an
exemption from such qualification exists in such jurisdictions, and
Warrantholders would have no choice but to attempt to sell the Warrants in a
jurisdiction where such sale is permissible or allow them to expire unexercised.
See "Description of Securities - Warrants."
22. Possible Delisting of Securities from Nasdaq System; Risks of Low
Priced Stocks. The Commission has approved rules imposing more stringent
criteria for listing of the Securities on the Nasdaq SmallCap Stock Market
("Nasdaq"). In order to continue to be listed on the Nasdaq the Company would be
required to maintain (i) net tangible assets of $2,000,000, or market
capitalization of $35,000,000 or $500,000 in net income for two of last three
years, (ii) a public float of 500,000 shares or $1,000,000 market value for the
public float, (iii) 300 shareholders, (iv) a minimum bid price of $1.00 per
share, (v) two market makers, and (vi) compliance with the Corporate Governance
Standards. In the event the Company's Securities are delisted from the Nasdaq
SmallCap system, trading, if any, in Securities would thereafter be conducted in
the over-the-counter market on the OTC Bulletin Board. Consequently, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the price of the Company's Securities. The Company has applied for the listing
of its Securities on Nasdaq. Quotation on Nasdaq does not imply that a
meaningful, sustained market for the Company's Securities will develop or if
developed that it will be sustained for any period of time.
23. Penny Stock Regulation. Broker/dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker/dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker/dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker/dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock, the broker/dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If the Company's Securities become subject to the penny stock
rules, investors in this Offering may find it more difficult to sell their
Securities.
11
<PAGE>
24. Underwriter's Warrants. The Underwriter will acquire, for nominal
consideration, the Underwriter's Warrants to purchase 100,000 Units at a price
of $8.76 per Unit during the four year period commencing one year from the date
of this Prospectus. The Securities issuable upon exercise by the Underwriter of
the Underwriter's Warrants are identical to the Securities being offered hereby.
The Company has agreed to register the Underwriter's Warrants and the underlying
securities at its expense, one time only, upon request of holders of a majority
of the Underwriter's Warrants or underlying securities. In addition, the Company
has agreed, for a period of seven years following the date of this Prospectus,
to give advance notice to the holders of the Underwriter's Warrants or
underlying securities of its intention to file a registration statement, and in
such case the holders of the Underwriter's Warrants and underlying securities
shall have the right to require the Company to include the Underwriter's
Warrants and underlying securities in such registration statement at the
Company's expense. These obligations could be a hindrance to any future
financing of the Company. Furthermore, in the event the Underwriter exercises
its registration rights to effect the distribution of the Common Stock and/or
Warrants underlying the Underwriter's Warrants, the Underwriter and any holder
of such Warrants who is a market maker in the Company's Securities, prior to
such distribution, will be unable to make a market in the Company's Securities
for up to a period of five days prior to the commencement of such distribution
and until such distribution is completed. If the Underwriter ceases to make a
market, the market and market prices for the Securities may be adversely
affected, and the holders thereof may be unable to sell such Securities. See
"Underwriting."
25. Underwriter's Possible Ability to Dominate or Influence the Market
for the Securities. A significant number of the Securities offered in the
Offering may be sold to customers of the Underwriter. Such customers
subsequently may engage in transactions for the sale or purchase of the
Securities through or with the Underwriter. Although they have no obligation to
do so, all or any individual Underwriter may exert a dominating influence on the
market, if one develops, for the Company's Securities. The price, liquidity and
price volatility of the Company's Securities may be significantly affected by
the degree, if any, of an Underwriter's participation in such market.
Additionally, the Underwriter may participate in the solicitation of the
exercise of the Warrants. In connection with the solicitation of Warrant
exercises, unless the Underwriter is granted an exemption by the Commission from
Regulation M under the Exchange Act, the Underwriter and any other soliciting
broker/dealer will be prohibited from engaging in any market-making activities
with respect to the Company's Securities for the period commencing either one or
five business days (depending on the market price of the Common Stock) prior to
any solicitation activity until the later of (i) the termination of such
solicitation activity or (ii) the termination (by wavier or otherwise) of any
right that the Underwriter or any other soliciting broker/dealer may have to
receive a fee for the exercise of Warrants following such solicitation. As a
result, the Underwriter or any other soliciting broker/dealer may be unable to
provide a market for the Company's securities, should they desire to do so,
during certain periods while the Warrants are exercisable. Such restrictions may
adversely affect the price and liquidity of the shares of Common Stock and
Warrants. See "Underwriting."
26. Potential Adverse Effect of Redemption of Warrants. The Warrants may be
redeemed by the Company at any time commencing one year from the date of this
Prospectus, upon notice of not less than 30 days at a price of $.05 per Warrant
provided the closing bid quotation of the Common Stock on all 20 of the trading
days ending not more than 15 days prior to the day on which the Company gives
notice has been at least 150% of the then effective exercise price of the
Warrants. Redemption of the Warrants could force the holders to exercise the
Warrants and pay the exercise price at a time when it may be disadvantageous for
the holders to do so, to sell the Warrants at the then current market price when
they might otherwise wish to hold the Warrants, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants at the time of redemption. The Company will not redeem the Warrants at
any time in which its registration statement is not current, so that investors
will be able to exercise their Warrants during the 30 day notice period in the
event of a warrant redemption by the Company. See "Description of Securities -
Warrants."
27. Limited Experience of Underwriter. Global Equities Group, Inc. has
previously completed public offerings. The Underwriter is a relatively small
firm and there can be no assurance that the Underwriter will be able to make a
meaningful market in the Company's Securities or that another broker/dealer will
make a meaningful market in the Company's Securities. See "Underwriting."
28. Indemnification of Officers and Directors. The New Jersey Supreme Court
has held that the directors' duty of care to a corporation and its stockholders
requires the exercise of an informed business judgment. Having become informed
of all material information reasonably available to them, directors must act
with requisite care in the discharge of their duties. The New Jersey General
Corporation Law permits a corporation, through its certificate of incorporation,
to exonerate its directors from personal liability to the corporation or its
stockholders for monetary damages for a breach of their fiduciary
12
<PAGE>
duty of care as a director, with certain exceptions. The exceptions include a
breach of the director's duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or knowing violation of law, improper
declaration of dividends and transactions from which the director derived an
improper personal benefit. As noted above, the Company's certificate of
incorporation exonerates its directors, acting in such capacity, from monetary
liability to the extent permitted by this statutory provision. This limitation
of liability provision does not eliminate a stockholder's right to seek
non-monetary, equitable remedies such as injunction or rescission in order to
redress an action taken by directors. However, as a practical matter, equitable
remedies may not be available in all situations, and their may be instances in
which no effective remedy is available at all. See "Management."
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock and intends
to retain earnings, if any, for use in its activities. Payment of cash dividends
in the future will be wholly dependent upon the Company's earnings, financial
condition, capital requirements and other factors deemed relevant by the Board
of Directors. It is not likely that cash dividends or other dividends will be
paid in the foreseeable future.
DILUTION
The difference between the public offering price per share and the pro
forma net tangible book value per share after this Offering constitutes the
dilution per share of Common Stock to the new investors. Net tangible book value
per share is determined by dividing the net tangible book value (total tangible
assets less total liabilities) by the number of outstanding shares of Common
Stock.
As of July 31, 1997, there were outstanding 2,005,000 shares of the
Company's Common Stock. The Company's Common Stock prior to this Offering had a
net tangible book value per share of approximately $(0.23), based upon a total
of 2,005,000 shares issued and outstanding. Net tangible book value per share
represents the amount by which the Company's total tangible assets exceed its
total liabilities, divided by the number of shares of its Common Stock
outstanding. Purchasers will incur immediate substantial dilution of $5.49 or
75.2% of the Offering Price.
The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
<S> <C>
Public offering price per share (1)(2) $7.30
Net tangible book value per share prior to this offering $(.23)
Increase attributable to new investors(3) $2.04
-----
Net tangible book value per share after this Offering $1.81
-----
Dilution per share to new investors $5.49
=====
</TABLE>
(1) Offering price before deduction of estimated expenses of the Offering
and underwriting discounts and commissions.
(2) Assumes the Warrants have no value.
(3) Does not include funds which may be received upon exercise of the
Warrants, the Underwriter's Warrants or the Underwriter's Over-allotment Option.
13
<PAGE>
The following table sets forth at September 30, 1997 the difference
between the existing stockholders and the new investors with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the price per share paid.
<TABLE>
<CAPTION>
Shares Total Average
Purchased Consideration Paid Consideration Paid
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing
Stockholders 2,005,000 66.67% $210,000 2.8% $.11
New
Investors 1,000,000(1) 33.33% $7,300,000 97.2% $7.30
------------ ------ ---------- ----- -----
3,005,000 100% $7,510,000 100% $2.50
========= ==== ========== ==== =====
</TABLE>
(1) For purposes of this table, the Warrants are considered to have no
value. No effect is given to the possible exercise of (i) the Warrants
to purchase 140,000 shares of Common Stock, (ii) the Underwriter's
Warrants to purchase 100,000 Units or (iii) the Underwriter's
Over-allotment Option, to purchase from the Company 150,000 Units.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby after deducting underwriting discounts and estimated expenses of the
Offering payable by the Company, which have been estimated at $457,580 ($490,430
if the Underwriter's Over-allotment Option is exercised in full) is $5,893,420
($6,813,220) if the Underwriter's Over-allotment Option is exercised in full).
The net proceeds of this Offering are intended to be used as follows:
<TABLE>
<CAPTION>
Percent of
Use of Proceeds Amount of Proceeds Net Proceeds
<S> <C> <C>
Repayment of Certain Loan (1) $ 252,000 4.3%
Financial Consulting Fee $ 180,000 3.1%
Repayment of Loans from Officers $ 19,283 0.6%
Repayment of Private Placement Notes (2) $ 350,000 5.9%
Marketing and Advertising (3) $ 510,000 8.7%
Purchase of Equipment (4) $ 1,805,000 30.6%
Working Capital (5) $ 2,753,137 46.7%
----------- -----
Total $5,893,420 100.0%
========== ======
</TABLE>
(1) In March 1996, the Company attempted to complete an offering which
offering was intended to be effected under an exemption from registration
provided by Rule 504 of Regulation D. The Company originally contemplated that
it would sell shares of preferred stock pursuant to Rule 504. However, the
offering was never completed, and the Company never sold any shares of preferred
stock. However, the Company did receive an aggregate of approximately $252,000,
including accrued interest, from one investor who acted as an agent for a group
of investors. The Company and this individual have agreed to characterize this
transaction as a "loan". The Company intends to repay this loan with $252,000 of
the proceeds of this Offering.
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<PAGE>
(notes continued from previous page)
(2) The Company consummated a private placement offering of its securities
in April 1997 (the "Private Placement"), whereby at September 30, 1997, the
Company sold 7 units, each comprised of a promissory note in the amount of
$50,000 bearing interest at the rate of 10% per annum, and 20,000 common stock
purchase warrants at a purchase price of $52,000 per unit. Pursuant to the terms
of the Private Placement, the Notes are to be out of the proceeds of this
Offering. 140,000 warrants are being registered by the Selling Securityholders
in connection with this Offering (the "Private Placement Warrants"). The Company
has been advised by the Underwriter that the Underwriter does not intend to make
a market in the Private Placement Warrants. Notwithstanding the foregoing, the
owners of the Private Placement Warrants can exercise their warrants and receive
shares of the Company's Common Stock identical to the shares of Common Stock
offered herein.The proceeds of the Private Placement were used by the Company as
working capital to finance its operations.
(3) For advertising, hiring additional sales employees and printing
marketing materials in order to increase sales through increased name
recognition of the Company.
(4) The Company will use these proceeds to purchase equipment
(5) Working capital will be used primarily (i) as capital in order to
obtain and retain financing at preferable rates enabling the Company to purchase
additional equipment as described in footnote 3 above, (ii) for cash flow in
order to pay down the notes on the purchase of such equipment, (iii) to pay
maintenance costs on the equipment purchased, and (iv) to pay for minor repair
costs on equipment. Though a portion of the proceeds allocated to working
capital may be held in the Company's bank account to increase its liquid assets
in order to obtain financing, a portion of the proceeds being allocated to
working capital will be used to increase cash flows, which in turn should enable
the Company to decrease its interest and financing expenses. The Company will
not use the proceeds apportioned to working capital for salaries or general
administrative expenses unless the Company's income from operations does not
meet its cash requirements, whereby salaries and other administrative expenses
may be paid from such proceeds. The Company has no current plans to use any of
the proceeds of this Offering to merge or acquire assets of another company and
presently has no plans, commitments or agreements, and is not currently involved
in any discussions with regards to any acquisition or merger, however, in the
event an acquisition is deemed in the best interests in the Company in the
future, a portion of the proceeds may be used for such purposes. See "Business."
The Company believes that the proceeds of this Offering will be
sufficient to meet its anticipated cash requirements for the 12 months
subsequent to the closing of this Offering. It is not anticipated that the
Company will be required to raise any additional capital within the next twelve
months. If for any reason such estimates prove inaccurate, the Company may be
forced to seek additional financing. There can be no assurances that such
financing will be available, and if available, that it will be on terms
acceptable to the Company. None of the proceeds of this Offering will be paid to
members of the National Association of Securities Dealers, Inc. (the "NASD") or
associates or affiliates thereof, except for the proceeds being paid to the
Underwriter as described in this Prospectus. See "Underwriting."
Any additional proceeds received from the purchase of additional
securities by the Underwriter to cover over-allotments or the exercise of
Warrants, will be added to the Company's working capital. In the event the
Underwriter exercises the Underwriter's Over-allotment Option in full, the net
proceeds to the Company would be approximately $6,813,220, of which $3,681,937
or 54.0% of the proceeds will be used for working capital. No proceeds from this
Offering will be paid to any officer or director of the Company, or affiliates
or associates for expenses of the Offering or for any type of fee or
remuneration except as described herein. A portion of the proceeds may be used
to pay salaries in the event the Company's income from operations does not meet
its cash requirements. The Company will not make any loans to any officer,
director, affiliate or associate with the proceeds of the Offering.
15
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company at
July 31, 1997 and (ii) such capitalization as adjusted to reflect the sale of
the Securities offered hereby.
<TABLE>
<CAPTION>
As
Actual Adjusted(1)
<S> <C> <C>
Long Term Debt $0 $0
Stockholders' Equity:
Common Stock, no par value,
20,000,000 shares authorized;
issued and outstanding,
2,005,000 shares at July 31, 1997,
3,005,000 shares as adjusted 221,500 6,114,920
Warrants, 140,000 9,846 9,846
Deficit Accumulated During
Development Stage (735,803) (735,803)
--------- ---------
Total Stockholders' Equity (504,457) (6,860,569)
--------- -----------
Total Capitalization $(504,457) $(6,860,569)
========== ============
</TABLE>
(1) Does not include (i) 3,000,000 shares of Common Stock reserved for
issuance upon the exercise of the Warrants, (ii) 150,000 shares of
Common Stock and 450,000 Warrants issuable upon the exercise of the
Underwriter's Over-allotment Option, (iii) 400,000 shares of Common
Stock reserved for issuance upon the exercise of the Underwriter's
Warrants inclusive of the shares issuable upon the exercise of the
Warrants underlying the Underwriter's Warrants and (iv) 300,000 shares
of Common Stock reserved issuance under the Company's Senior Management
Incentive Plan.
Private Placement
The Company consummated a private placement offering of its securities
in April 1997 (the "Private Placement"), whereby the Company sold 7 units, each
comprised of a promissory note in the amount of $50,000 bearing interest at the
rate of 10% per annum, and 20,000 common stock purchase warrants at a purchase
price of $52,000 per unit. 140,000 Warrants are being registered by the Selling
Securityholders in connection with this Offering (the "Private Placement
Warrants"). The Company has been advised by the Underwriter that the Underwriter
does not intend to make a market in the Private Placement Warrants.
Notwithstanding the foregoing, the owners of the Private Placement Warrants can
exercise their warrants and receive shares of the Company's Common Stock
identical to the shares of Common Stock offered herein. The proceeds of the
Private Placement were used by the Company as working capital to finance its
operations.
16
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Period from inception
(June 8, 1995) to July 31, 1997.
Development stage activities.
The Company has been a development stage enterprise since its inception
June 8, 1995 to December 31, 1996 and for the seven months ended July 31, 1997.
During this period, manage ment had devoted the majority of its efforts to
obtaining new customers for its products, enhanc ing its inventory of images,
pursuing and finding a management team to continue the process of completing its
marketing goals, further its research and development of its techniques and pro
cesses, market limited quantities of the Company's products, obtain sufficient
working capital through loans, through the completion of the sale of a private
placement of Units, and complete the documentation for the Company's registered
offering. These activities were funded by the Company's management and
investments from stockholders and borrowings from related third parties. The
Company has not yet generated sufficient revenues during its limited operating
history to fund its ongoing operating expenses, repay outstanding indebtedness
or to fund its product development activities. For the period of inception June
8, 1995 to July 31, 1997, the Company completed the development of its first
product line.
Results of operations.
Results of Operations For the period from the Company's inception June 8, 1995
through July 31, 1997.
For the period from the Company's inception June 8, 1995 through December
31, 1995, the end of its fiscal years (a period of approximatelty six months),
the Company generated net sales of approminately $175,823 (or an average of
approximately $29,303 per month). Of these sales approximately 60% were to one
large customer. For the year ended December 31, 1996, the Company's net sales
were $121,914 (an average of $10,160 per month). Of these sales, 90% of which
were to two customers. For the seven months ended July 31, 1997, the Company's
net sales were $4,808 (an average of $686 per month). Management attributes
these sales sreductions to having moved twice. Once from a location in North
Bergen, New Jersey in December 1995 for purposes of obtaining a more suitable
facility in Paterson, New Jersey and the second necesity to move in December,
1996 as a resiult of unsuitability to for the Company to house just purchased
digital equipment.
The Company's gross profit on sales was approximately 68% for the period
from the Company's inception June 8, 1995 through December 31, 1995. For the
year ended December 31, 1996, the gross profit remained essentially the same at
65.5% and was reduced to 40% for the seven months ended July 31, 1997.
Management believes this gross profit of an average of 66.7% for period from
inception June 8, 1995 to December 31, 1996 will be increased by 10% once the
Company's planned purchases of digital equipment has been completed and in place
for produc tion.
<PAGE>
The Comany's overhead costs aggregated approximately $803,306 for the
period from inception June 8, 1995 to July 31, 1997. Of these initial start up
costs, $180,000 is attributed to a consulting contract, $85,000 in accrued
salaries, approximately $57,000 in rent, $45,000 in prodcution of samples used
for promotion purposes, approximately $18,000 in telephone expenses, $9,950 in
travel, $75,000 in supplies, legal and professional $55,000, filing fees $9,344,
office expense including outside labor, printing, laboratory and computer
supplies of approximately $96,082, research and development of approximatelty
$90,500 and depreciation of $82,430. . The Company's Products
Development of the Company's products has been an ongoing process of the
President of the Company which has progressed from the research and development
stage to becoming the mainstay of the Company's line of products. The recent
acquisition and construction of operating assets positions the Company to have
extensive production capability of producing up to $10,000,000 in orders.
Further investments into digital processing and production as defined in the
Company's operating plans will significantly reduce the costs of production,
preparation and processing by enabling the Company to complete the production of
most of its product line in-house without having to rely upon outside digital
processing vendors and suppliers. Cost reductions of upwards of 30% are
achievable.
In addition, the Company has improved its purchasing procedures by
expanding its supplier base. As a result, the cost of manufacturing products
will drop offering the Company greater opportunities for better profit margins.
Liquidity and capital resources.
The Company increased liquidity by $81,893 from a cash balance at the
Company's inception of $1,000 through the process of borrowing money in the
aggregate of $525,581 from officers and investors, acquiring a bank loan to
purchase a vehicle of $3,050, and obtain credit from trade debt of $139,500.
The Company expended an aggregate of 159,081 for equipment and furnishings,
$19,210 in security deposits, and paid $5,000 in pre-offering expenses, $19,210
in security deposits and reduced Company notes payable by $15,000 through July
31, 1997. The Company is initiating an initial public offering of 1,000,000
Units at $7.30 per Unit. Management believes that the present cash balance will
pay the initial cost of beginning the setup of the business and the initial cost
of the Offering. The Company will defer the expenses of the Offering until the
Offering is completed and the offering expenses will be deducted from proceeds
received therefrom. The Offering proceeds will be sufficient to satisfy
Management's objectives of purchasing equipment and supplies projected to be
$1,805,000, repay outstanding loans aggregating $242,000, repayment of private
placement notes aggregating $350,000, pay marketing and advertising costs of
$520,000, and provide working capital of $2,787,706.
<PAGE>
BUSINESS
History
Imaging Dynamics, Inc. (the "Company" or "IDI") was incorporated in the
State of New Jersey on June 8, 1995 by Stephen S. Saltman. The Company is a
developmental stage corporation that was formed in order to commercialize its
proprietary industrial process (the "IDI Process"). The IDI Process combines
digital imaging and bonding technology to replicate patterns in natural and man
made materials and images for vertical and horizontal durable surfacing.
The IDI Process
The IDI Process comprises software, hardware and proprietary techniques
which allow analog and digitally based images to be converted into a high
resolution digital format (2500 dpi). The image is then manipulated and enhanced
using custom software designed to remove imperfections in the original image and
increase the clarity when viewed through the polymer-silica material to which
the image is ultimately bonded.
Throughout the IDI Process, the image can be recolored and reformatted
with respect to size, shape, geometry and detail. New artistic elements can be
integrated which were not in the original image.
The image is then printed on polyester sheets utilizing chemical
formulas specially designed for optimizing and enhancing the optical
characteristics of the image when viewed through the polymer-silica material.
Depending on the ultimate application, the thickness of the polymer-silica
material can vary from 1/8" to 5/8". The finished product can then be inserted
into traditional stock framing systems for cabinets, furniture, wall systems,
and panels, as well as a variety of other uses.
Products manufactured using the IDI Process are characterized by
extreme sharpness and accurate vibrant color. The dimensional appearance is
enhanced due to a high level of definition at the edge of the image which is
created by shading techniques and a controlled level of contrast. The images
replicate natural patterns such as marbles, granites, woods or man made designs
such as paintings, photographs, computer art and wall covering designs and
patterns.
The IDI Process allows for a high degree of customization and short
production runs. The physical properties of the polymer-silica material utilized
by the Company in the manufacture of its products is harder than many competing
materials. The polymer-silica material is stain and chemical resistant,
sanitary, crack resistant and shatter proof. The Company believes that products
manufactured using the IDI Process are easier and cheaper to install than stone
or Corian. The Company also believes that the IDI Process allows for the
creation of more patterns and custom design features than Formica(TM).
Comparison of the Company's Products and Other Materials
The Company believes that it's proprietary surface technology is a
viable alternative to materials such as Formica(TM) (HPL's), glass, woods, stone
products, Corian, metals, lacquer and resin coatings. The Company believes that
its products will have commercial applications in the following areas: (1)
commercial furniture manufacturing, (2) new home and home improvement relating
to vanities and wall tiles, (3) commercial graphics and advertising, (4) display
furniture and fixtures, (5) limited edition art work and, (6) customized home,
institutional and office furnishings. There can be no assurance that the Company
is correct in any of the foregoing beliefs.
Maintenance and Durability
Given the properties of the materials comprising the Company's
products, it is the Company's belief that in many commercial environments that
rely upon surface material, the Company's products are superior since they do
not stain. The Company's products are easy to clean with the use of cloth and
any standard cleaning agent. The surface of the Company's product will not
deteriorate as marble does from water. Since it is virtually graffiti proof, the
Company believes that its products would make an ideal surface for public areas,
schools, malls and bathrooms.
18
<PAGE>
Weight and Structure
Because of light weight characteristics of the Company's products as
compared to stone, they can easily be transported, handled by fewer workers and
installed with greater ease, all at a lower cost. The Company's products can be
used as ceiling tile and wall tile or sheets, thereby reducing the installation
time. The Company's products can be fabricated and worked on site. The Company's
products can be routed and cut to fit odd areas with the same ease as wood.
Because the products manufactured using the IDI Process are extremely
difficult to crack like stone or do not shatter like glass, they can be more
easily handled. The Company's products are not brittle like high pressure
laminates that may chip. The Company's products do not dry out like high
pressure laminates which are made of craft paper.
The Marketplace
The Company believes that the major markets for its products are home
decorating, office design, furniture construction for home, retail and office
uses, commercial graphics and advertising, large format convention booth
construction and retail display fixtures and buildouts. The Company also
believes that there exists a market for the reproduction of fine art, both in
its original size and form as well as in shapes and forms other than the
original canvas. The Company believes that the use of the IDI Process in the
reproduction of fine art will result in pieces that exhibit higher resolution,
realism and conformance to the original than the traditional lithographic
printing systems.
Home and Office Furniture, Decoration and Furnishings
The Company believes that the IDI Process has many applications for
furniture and fixture use such as desks, tables, wall system dividers, vanities
and cabinets.
The Company believes that there are approximately 6,600 Furniture
Designers and Custom Builders in the furniture industry. The Company further
believes that there are over 3,300 kitchen cabinet and equipment manufactures
and more than 2,200 kitchen and planning services to market in the United
States. Moreover, Kitchen and Bath Design News ("KBDN") the industry magazine
for the Kitchen and Bath industry reported U.S. Remodeling Expenditures for 1995
were $123.9 Billion. Cabinet demand in that year reached 72.2 million units. The
Business and Industrial Furniture Manufacturers Association reported the value
of U.S. office furniture shipments in 1995 was $9.43 Billion. There can be no
assurance that the Company will be able to successfully penetrate any of these
markets or that the Company's proposed products will be commercially successful.
See "Risk Factor."
Display Furniture and Fixtures
The 1996 report The Size of the Exhibition Industry recently published
by the Center for Exhibition Industry Research reported that in 1996 there were
4,000 exhibitions held within the United States and Canada, which exhibitions
occupied over 448 million square feet. The average booth size was reported to be
300 square feet. While it is not possible to determine the exact amount of
surface materials used in the construction of each booth, the Company believes
that the amount of space is considerable and, while some companies will travel
from exhibit to exhibit with the same display several times, changes in products
and services will necessitate changes in display design. The Company believes
that its proposed marketing program can adequately and efficiently introduce the
Company's products to the exhibition industry. There can be no assurance that
the Company is correct in this belief.
The Company believes that the retail display industry is also a very
large market. This market comprises counters, cabinets, wall displays, shelving
and point of sale buildouts. Point of sale advertising for signage, graphics and
image displays is also a specialized segment that will be focused separately
from the other display market segments. The Company believes that its proposed
marketing program can adequately and efficiently introduce the Company's
products into the retail display market, as well as the signage, graphics and
image display markets. There can be no assurance that the Company will be able
19
<PAGE>
to successfully penetrate any of these markets or that the Company's
proposed products will be commercially successful. See "Risk Factor."
Limited Edition Fine Art Reproduction
The Company believes that limited editions of many art works are not
made available due to the high cost of reproducing the pieces and the cost of
carrying the sizable inventory of the lithographs necessary to make the
production run economic. The Company intends to solicit museums, galleries,
private collectors and artists to reproduce their art works utilizing the IDI
Process. The images would be stored digitally until an order was received and
then the piece would be reproduced at that time. The Company believes that this
method would eliminate the cost of carrying large inventories. In addition the
Company believes that the quality of the image produced using the IDI Process is
superior to reproductions made using alternative techniques. Current
lithographic techniques limit the size of the reproduction to the size of the
plate that was used to create the end product. The IDI Process is not bound by
the same limitation. The Company believes that the IDI Process will introduce
into the market larger formats than the original and new applications for the
image to be reproduced. There can be no assurance that the Company is correct in
its belief that such a market exists.
Image Library
The Company believes that it will be required to pay licensing fees and
royalties for photographic, copyrighted logos and symbols and fine art images
that are proprietary. The Company also believes that over time the image library
that will be generated in the course of fulfilling customers design requirements
will become a valuable asset for license by third parties. The Company believes
that the marketing of these images for various mediums will become a separate
profit center.
Sales To Date
The Company is currently utilizing it's proprietary surfacing
technology to create products for the commercial and home markets. Due primarily
to the Company's financial constraints, the Company's products have only been
manufactured on a small scale for custom orders. However, as part of the
Company's market research, management has met with a number of companies which
have indicated that they could utilize its products, including commercial
furniture manufacturers, designers, advertising and PR firms and art-related
entities. There can be no assurance, however, that the Company's products will
ever receive commercial acceptance. See "Risk Factors."
Suppliers
The manufacture of the Company's products is contingent upon the
ability of the Company to purchase raw materials, specifically polymer-silica
material, from suppliers. Currently the Company has one vendor who supplies the
Company with the polymer-silica material the Company utilizes in the manufacture
of its products. The loss of this supplier would have a detrimental effect on
the Company, however, the Company believes that there are other suppliers of
polymer-silica material. The Company believes that it will continue to be able
to purchase its polymer-silica material in the future at prices and on terms
similar to its present capabilities. No assurances can be given that an
uninterrupted and adequate supply of polymer-silica material will be available
to the Company in the future, although, the Company believes that there are a
sufficient number of suppliers so that in the event that any individual or group
of suppliers can no longer service the Company's needs, the Company will be able
to find other suppliers at competitive price and terms. If conflicts arise or
there is a void of suppliers, this would have a detrimental effect on the
Company's operations.
20
<PAGE>
Existing Facilities
The Company presently leases, from a nonaffiliated party, an industrial
building of 9,700 square feet of industrial space, including 700 square feet of
office space, 900 square feet for a gallery and conference room, 375 square feet
for coating area and 475 square feet for a computer room at 53 Century Road,
Paramus, New Jersey 07657 under a three year lease. Rent is approximately $5,500
per month.
The balance of the space, 7250 square feet, is divided into office and
gallery areas and a photographic laboratory, bonding area and prototype
manufacturing area. The laboratory area contains two darkrooms, each with
specialized equipment and related processing equipment. There are four
processing machines capable of producing up to 50 inch wide prints of up to 98
feet long. However, the largest image on a single sheet of photographic paper
which the laboratory can presently produce is 50 inches by 25 feet long.
Combining strips of photographic paper can yield an image up to 10 feet by 25
feet.
The bonding section contains two presses which generally handle
laminates up to 4 feet by 8 feet but can be set up to handle laminates of 6 feet
wide by 12 feet long.
The prototype section contains saws, routers, routing tables and
related equipment. In addition, this section has sophisticated equipment for
color coating the laminate to create borders and special effects. This equipment
is also used to apply a water and chemical proof coating to the underside of the
laminate.
A major feature of the laboratory is a camera designed to take pictures
of flat objects, such as art. It has special devices for holding the image to be
photographed, a long bellows, a large ground glass and holding devices for
making transparencies up to 11 inches by 14 inches in size which are intended to
create very high resolution digital files. A small photographic studio capable
of photographing products has been established.
Marketing
The Company intends to market its products in five major markets; (1)
commercial furniture, (2) new home and home improvement products (kitchen
cabinets, vanities, etc.), (3) advertising signage, graphics and images, (4)
display fixtures and furniture, and (5) custom furnishings. The Company plans
the marketing of its products through the use of dedicated product managers.
Each product manage will be responsible for one market in which the Company's
products are sold. The Company anticipates that the product managers will
recruit in house sales representatives and independent manufacturers sales
agents to introduce the Company's products to potential distributors, retail
outlets, designers and architects to stimulate creative design applications and
interface with the consumers.
The Company plans to market its products in part through the use of
CD-ROM systems. Images replicating marbles, woods, stones, and other materials,
will be placed on CD-ROM, at a lower resolution, so as not to be copied, yet
high enough to be viewed on a monitor clearly with integrity of color and
detail. Decorators, Designers, Architects and Consumers will be able to view
images of finished products on a monitor, in three dimensional imaging, where
they will be able to manipulate the images to conform to their preferences until
the finished product is completed, before placing an order. Through the use of
the latest digital prints a color proof output could be offered to the client.
The Company's hoped for capacity to customize at this level offers great
flexibility and an opportunity to input customers' design specifications.
Employees
As of September 30, 1997, the Company had two executive officers on a
full-time basis and one on a part-time basis. Additionally, the Company employs
four person on a full-time basis. None of the employees of the Company is
represented by a union. The Company considers relations with its employees to be
good.
21
<PAGE>
Patents and Trademarks
The Company does not intend to patent its proprietary trade secrets. In
the event that such information becomes known to its competitors, the business
of the Company would be materially and adversely effected. The Company does
intend to trademark certain of its trade names. However, there can be no
assurance that trademark protection will be available for such marks at the time
the protection is sought. The failure to obtain such protection would materially
and adversely effect the business of the Company. See "Risk Factors."
Consideration Regarding Product Liability Insurance
The Company has never had any liability claim asserted against it.
However the Company could be subject to product liability claims in the
connection with the use of the custom products it sells. There can be no
assurance that the company would have sufficient resources to satisfy any
liability resulting from these claims. The Company does not carry product
liability insurance. There can be no assurance that such coverage, if
attainable, would be adequate in terms and scope to protect it against material
adverse effects in the event of a successful product liability claim.
Legal Proceedings
There are no material proceedings pending against the Company.
MANAGEMENT
Directors and Executive Officers.
The directors and executive officers of the Company and their
respective ages, positions with the Company, along with certain biographical
information are as set forth below.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Stephen S. Saltman 50 President and Director
Damian J. Greco 49 Secretary, Treasurer and Director
Earl Bassil Tyson 42 Vice-President
Donald B. Cohen 45 Director
Irene Scherer 58 Director
</TABLE>
Stephen S. Saltman has been the president and a director of the Company
since its inception. Mr. Saltman is an inventor, photochemist, and photographer
with over thirty years of experience in his fields. From 1992 to 1995, Mr.
Saltman was President of Visual Impact Products, Inc. a photographic processing
laboratory and producers of photographic display materials. From 1992 to 1993
Mr. Saltman was employed by Duggal Color Projects, Inc. as Technical Director.
In that capacity he directed a number of mural displays. From 1975 to July 1992,
Mr. Saltman was president of Chromeprint, Inc., North Bergen, New Jersey.
Chromeprint produced photographic displays for billboards, posters, murals,
galleries, trade show exhibits and point of purchase displays.
22
<PAGE>
Damian J. Greco has been the Secretary, Treasurer and a director of the
Company since February 1997. Mr. Greco was a Senior Advisor in the Global
Technology Group of the United Nations Development Programme from May 1996 to
August 1997. Mr. Greco is the secretary of MiraDent International, Inc., a
dental products company. From 1991 to 1993, Mr. Greco was the chief financial
officer and senior vice president of Corporate Development of Video Lottery
Technologies, a company listed on the Nasdaq system. Mr. Greco received his
M.B.A. from New York University.
Earl Bassil Tyson has been the vice-president of the Company since May
1996. Mr. Tyson was also a director of the Company from its inception until
February 1997. Mr. Tyson has over twenty years of experience in the photographic
imaging industry. Since 1994, he has been Chief Executive Officer of Chrystal
Images, a New York-based photographic image laboratory. From 1988 to 1994, he
was the owner/manager of Image Masters, Inc., a New York-based film processing
laboratory. From 1986 to 1988, Mr. Tyson was manager of Cosmic Sound, a
recording studio. Mr. Tyson attended the College of the Virgin Islands from 1972
to 1974 and the Germain School of Photography from 1974 to 1976.
Donald B. Cohen has been a director of the Company since September 1997.
Mr. Cohen is an attorney in private practice in New York specializing in
corporate matters, tax planning and real estate finance. Mr. Cohen has been in
practice for over twenty years. Mr. Cohen received his law degree from Emory
University in 1976 and a Master's of Law in Taxation from New York University in
1977. Mr. Cohen graduated magna cum laude from Ohio State University in 1973.
Irene Scherer has been a director of the Company since September 1997. Ms.
Scherer has been a sales and marketing consultant to Beta Screen since 1989. Ms.
Scherer received a bachelor's degree from the University of Michigan in 1960 and
an M.S. from Rutgers University in 1965 and a M.A. from Kean College in 1981.
All of the Company's current directors will serve as directors until the
next annual meeting of stockholders and until their respective successors have
been duly elected and qualified, subject to their earlier removal or
resignation. Outside Directors will receive a fee of $250 for attendance at
meetings of the Board of Directors. The Company's officers are elected by, and
serve at the pleasure of, the Board of Directors.
Limitation of Director's Liability
The New Jersey Supreme Court has held that the directors' duty of care
to a corporation and its stockholders requires the exercise of an informed
business judgment. Having become informed of all material information reasonably
available to them, directors must act with requisite care in the discharge of
their duties. The New Jersey General Corporation Law permits a corporation,
through its certificate of incorporation, to exonerate its directors from
personal liability to the corporation or its stockholders for monetary damages
for a breach of their fiduciary duty of care as a director, with certain
exceptions. The exceptions include a breach of the director's duty of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, improper declaration of dividends and transactions
from which the director derived an improper personal benefit. As noted above,
the Company's certificate of incorporation exonerates its directors, acting in
such capacity, from monetary liability to the extent permitted by this statutory
provision. This limitation of liability provision does not eliminate a
stockholder's right to seek non-monetary, equitable remedies such as injunction
or rescission in order to redress an action taken by directors. However, as a
practical matter, equitable remedies may not be available in all situations, and
their may be instances in which no effective remedy is available at all.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company, will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
23
<PAGE>
Directors and Officers Liability Insurance
The Company currently does not have directors and officers liability
insurance. It does not anticipate obtaining such coverage unless such coverage
can be purchased at a reasonable cost to the Company in accordance with the
provisions of its certificate of incorporation to the maximum extent permissible
by law.
Shareholder Agreement
A majority of the shareholders of the Company have approved a
resolution authorizing an amendment to the Company's By-laws, which amendment
shall reflect that actions requiring the consent of the Board of Directors must
be unanimous. These shareholders have further agreed that upon the completion of
an initial public offering of the Company's securities, this amendment to the
Company's By-laws shall be reversed in order to permit decisions requiring the
Board of Directors consent to be made by a majority of the directors. The
resolution further provides that in the event that the Board of Directors is
unable to unanimously approve any matter presented before it, the Directors will
be required to submit the unresolved issue to the American Arbitration
Association ("AAA") for a resolution. The decision rendered by the AAA shall be
binding.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and
Non-Plan compensation awarded to, earned by the named executive officer (as
designated in Item 402 (a)(2) of Regulation S-B), paid by the Company for the
nine months ended September 30, 1997 and during the years ended December 31,
1996 and 1995. The Company did not incur any compensation expense during such
periods.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
(a) (b) (c) (d) (e)
Name and Principal Other Annual
Position Year Salary($) Bonus($) Compensation($)
<S> <C> <C> <C> <C>
Stephen S. Saltman 1997 $75,000 (2) - $9,000(1)
President 1996 $0 - $0
and Chairman of the Board 1995 $0 - $0
Damian J. Greco 1997 $66,667 (2) - $189,000(1)(3)
Secretary and 1996 $0 - $0
Treasurer 1995 $0 - $0
</TABLE>
(1) Includes the cost of an automobile and expenses of upto $9,000 annually.
(2) This figure is for the salary that has accrued for the nine months ended
September 30, 1997.
24
<PAGE>
(3) On February 14, 1997, the Company entered into a Consulting Agreement with
Marca Group, Inc., a company wholly owned by Mr. Greco. Under the terms of
the Agreement, the Company shall pay Marca Group, Inc. a fee of $180,000
from the proceeds of this Offering.
Employment and Consulting Agreement
In May 1997, the Company entered into employment agreements with two of its
officers, Stephen S. Saltman and Damian J. Greco. Pursuant to the terms of their
agreements Mr. Saltman and Mr. Greco shall receive annual compensation at a rate
of $180,000 and $160,000, respectively, with 10% yearly escalations during the
term of the agreements. The agreements are for a term of five years expiring May
2002. Pursuant to the terms of the agreements, each employee received stock
options under the Company's Senior Management Incentive Plan to purchase 50,000
and 50,000 shares at $8.00 per share, respectively. These options vest a the
rate of 33.3% per annum commencing May 1998. The agreements restrict Mr. Saltman
and Mr. Greco from competing with the Company for a period of three year(s)
after the termination of their employment.
On February 14, 1997, the Company entered into a Consulting Agreement with
Marca Group, Inc., a Company wholly owned by Damian Greco. Marca Group, Inc.
provides financial and management consulting services to developing companies.
Under the terms of the Agreement, the Company shall pay Marca Group, Inc. a fee
of $180,000 from the proceeds of an Initial Public Offering, if such an Offering
is completed.
Senior Management Incentive Plan
In August 1997, the Board of Directors adopted the Senior Management
Incentive Plan (the "Management Plan"), which was adopted by shareholder
consent. The Management Plan provides for the issuance of up to 350,000 shares
of the Company's Common Stock in connection with the issuance of stock options
and other stock purchase rights to executive officers and other key employees.
The adoption of the Management Plan was prompted by the Company's desire to
provide the Board with sufficient flexibility regarding the forms of incentive
compensation which the Company will have at its disposal in rewarding executive
officers, key employees and consultants who render significant services to the
Company. The Board of Directors intends to offer key personnel equity ownership
in the Company through the grant of stock options and other rights pursuant to
the Management Plan to enable the Company to attract and retain qualified
personnel without unnecessarily depleting the Company's cash reserves. The
Management Plan is designed to augment the Company's existing compensation
programs and is intended to enable the Company to offer executives, key
employees and consultants a personal interest in the Company's growth and
success through awards of either shares of Common Stock or rights to acquire
shares of Common Stock.
The Management Plan is intended to attract and retain key executive
management personnel whose performance is expected to have a substantial impact
on the Company's long-term profit and growth potential by encouraging and
assisting those persons to acquire equity in the Company. It is contemplated
that only those executive management employees (generally the Chairman of the
Board, Vice-Chairman, Chief Executive Officer, Chief Operating Officer,
President, and Vice-Presidents of the Company) who perform services of special
importance to the Company will be additional management employees and has not
engaged in any solicitations or negotiations with respect to the hiring of any
management employees. As of the date of this Prospectus, the Company's officers
and directors are Stephen S. Saltman, Damian J. Greco and Earl Bassil Tyson. A
total of 300,000 shares of Common Stock have been reserved for issuance under
the Management Plan. Pursuant to the terms of their employment agreements, Mr.
Saltman and Mr. Greco received 25,000 restricted shares each under the
Management Plan, which shares vest pursuant to a three year vesting schedule. It
is anticipated that awards made under the Management Plan will be subject to
three-year vesting periods, although the vesting periods are subject to the
discretion of the Administrator.
See "Management - Officers and Directors."
<PAGE>
Unless otherwise indicated, the Management Plan is to be administered by
the Board of Directors or a committee of the Board, if one is appointed for this
purpose (the Board or such committee, as the case may be, shall be referred to
in the following description as the "Administrator"). Subject to the specific
provisions of the Management Plan, the Administrator will have the discretion to
determine the recipients of the awards, the nature of the awards to be granted,
the dates such awards will be granted, the terms and conditions of awards and
the interpretation of the Management Plan, except that any award granted to any
employee of the Company who is also a director of the Company shall also be
subject, in the event the persons serving as members of the Administrator of
such plan at the time such award is proposed to be granted do not satisfy the
requirements regarding the participation of "disinterested persons" set forth in
Rule 16b-3 ("Rule 16b-3") promulgated under the Exchange Act, to the approval of
an auxiliary committee consisting of not less than two individuals who are
considered "disinterested persons" as defined under Rule 16b-3. As of the date
hereof, the Company has not yet determined who will serve on such auxiliary
committee, if one is required. The Management Plan generally provides that,
unless the Administrator determines otherwise, each option or right granted
under a plan shall become exercisable in full upon certain "change of control"
events as described in the Management Plan, or subject to any right or option
granted under the Management Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Administrator will make
appropriate adjustments to such plans and the classes, number of shares and
price per share of stock subject to outstanding rights or options. Generally,
the Management Plan may be amended by action of the Board of Directors, except
that any amendment which would increase the total number of shares subject to
such plan, extend the duration of such plan, materially increase the benefits
accruing to participants under such plan, or would change the category of
persons who can be eligible for awards under such plan must be approved by
affirmative vote of a majority of shareholders entitled to vote. The Management
Plan permits awards to be made thereunder until 200 .
Directors who are not otherwise employed by the Company will not be
eligible for participation in the Management Plan. The Management Plan provides
for four types of awards: stocks options, incentive stock rights, stock
appreciation rights (including limited stock appreciation rights) and restricted
stock purchase agreements, as described below.
Stock Options. Options granted under the Management Plan may be either
incentive stock options ("ISOs") or options which do not qualify as ISOs
("non-ISOs"). ISOs may be granted at an option price of not less than 100% of
the fair market value of the Common Stock on the date of grant, except that an
ISO granted to any person who owns capital stock representing more than 10% of
the total combined voting power of all classes of Common Stock of the Company
("10% shareholder") must be granted at an exercise price of at least 110% of the
fair market value of the Common Stock on the date of the grant. The exercise
price of the non-ISOs may not be less than 85% of the fair market value of the
Common Stock on the date of grant. Unless the Administrator determines
otherwise, no ISO or non-ISO may be exercisable earlier than one year from the
date of grant. ISOs may not be granted to persons who are not employees of the
Company. ISOs granted to persons other than 10% shareholders may be exercisable
for a period of up to ten years form the date of grant; ISOs granted to 10%
shareholders may be exercisable for a period of up to five years from he dated
of grant. No individual may be granted ISOs that become exercisable in any
calendar year for Common Stock having a fair market value at the time of grant
in excess of $100,000.
Non-ISOs may be exercisable for a period of up to 13 years from the date of
grant.
Payment for shares of Common Stock purchases pursuant to exercise of stock
options shall be paid in full in (i) cash, by certified check or, at the
discretion of the Administrator, (ii) by shares of Common Stock having a fair
market value equal to the total exercise price or (iii) by a combination of (i)
and (ii) above. The provision that permits the payment to exercise the option by
the payment of shares is called "pyramiding". In general, pyramiding enables a
holder to start with as little as one share of common stock and, by using the
shares of common stock acquired in successive, simultaneous exercises of the
option, to exercise the entire option, regardless of the number of shares
covered thereby, with no additional cash or investment other than the original
share of common stock used to exercise the option.
<PAGE>
Upon termination of employment or consulting services, an optionee will be
entitled to exercise the vested portion of an option for a period of up to three
months after the date of termination, except that if the reason for termination
was a discharge for cause, the option shall expire immediately, and if the
reason for termination was for death or permanent disability of the optionee,
the vested portion of the option shall remain exercisable for a period of twelve
months thereafter.
Incentive Stock Rights. Incentive stock rights consist of incentive stock
units equivalent to one share of Common Stock in consideration for services
performed for the Company. Each incentive stock unit shall entitle the holder
thereof to receive, without payment of cash or property to the Company, one
share of Common Stock in consideration for services performed for the Company or
any subsidiary by the employee, subject to the lapse of the incentive periods,
whereby the Company shall issue such number of shares upon the completion of
each specified period. If the employment or consulting services of the holder
with the Company terminate prior to the end of the incentive period relating to
the units awarded, the rights shall thereupon be null and void, except that if
termination is caused by death or permanent disability, the holder or his/her
heirs, as the case may be, shall be entitled to receive a pro rata portion of
the shares represented by the units, based upon that portion of the incentive
period which shall have elapsed prior to the death or disability.
Stock Appreciation Rights (SARs). SARs may be granted to recipients of
options under the management Plan. SARs may be granted simultaneously with, or
subsequent to, the grant of a related option and may be exercised to the extent
that the related option is exercisable, except that no general SAR (as
hereinafter defined) may be exercised within a period of six months of the date
of grant of such SAR and no SAR granted with respect to an ISO may be exercised
unless the fair market value of the Common Stock on the date of exercise exceeds
the exercise price of the ISO. A holder may be granted general SARs ("granted
SARs") or limited SARs ("limited SARs"), or both. General SARs permit the holder
thereof to receive an amount (in cash, shares of Common Stock or a combination
of both) equal to the number of SARs exercised multiplied by the excess of the
fair market value of the Common Stock on the exercise date over the exercise
price of the related option. Limited SARs are similar to general SARs, except
that, unless the Administrator determines otherwise, they may be exercised only
during a prescribed period following the occurrence of one or more of the
following "Change of Control" transaction: (i) the approval of the Board of
Directors of consolidation or merger in which the Company is not the surviving
corporation, the sale of all of substantially all the assets of the Company, or
the liquidation or dissolution of the Company; (ii) the commencement of a tender
or exchange offer for the Company's Common Stock (or securities convertible into
Common Stock) without the prior consent of the Board; (iii) the acquisition of
beneficial ownership by any person or other entity (other than the Company or
any employee benefit plan sponsored by the Company) of securities of the Company
representing 25% or more of the voting power of the Company's outstanding
securities; or (iv) if during any period of two years or less, individuals who
at the beginning of such period constitute the entire Board cease to constitute
a majority of the Board, unless the election, or the nomination for election, of
each new director is approved by at least a majority of the directors then still
in office.
The exercise of any portion of either the related option or the tandem SARs
will cause a corresponding reduction in the number of shares remaining subject
to the option or the tandem SARs, thus maintaining a balance between outstanding
options and SARs.
Restricted Stock Purchase Agreements. Restricted stock purchase agreements
provide for the sale by the Company of shares of Common Stock at prices to be
determined by the Board, which shares shall be subject to restrictions on
disposition for a stated period during which the purchaser must continue
employment with the Company in order to retain the shares. Payment must be made
in cash. If termination of employment occurs for any reason within six months
after the date of purchase, or for any reason other than death or by retirement
with the consent of the Company of the Company after the six-month period but
prior to the time that the restrictions on disposition lapse, the Company shall
have the option to reacquire the shares at the original purchase price.
<PAGE>
Restricted shares awarded under the Management Plan will be subject to a
period of time designated by the Administrator (the "restricted period") during
which the recipient must continue to render services to the Company before the
restricted shares will become vested. The Administrator may also impose other
restrictions, terms and conditions that must be fulfilled before the restricted
shares may vest.
Upon the grant of restricted shares, stock certificates registered in the
name of the recipient will be issued and such shares will constitute issued and
outstanding shares of Common Stock for all corporate purposes. The holder will
have the right to vote the restricted shares and to receive all regular cash
dividends (and such other distributions as the Administrator may designate), if
any, which are paid or distributed on the restricted shares, and generally to
exercise all other rights as a holder of Common Stock, except that, until the
end of the restricted period; (i) the holder will not be entitled to take
possession of the stock certificates representing the restricted shares and (ii)
the holder will not be entitled to sell, transfer or otherwise dispose of the
restricted shares. A breach of any restrictions, terms or conditions established
by the Administrator with respect to any restricted shares will cause a
forfeiture of such restricted shares.
Upon expiration of the applicable restriction period and the satisfaction
of any other applicable conditions, all or part of the restricted shares and any
dividends or other distributions not distributed to the holder (the "retained
distributions") thereon will become vested. Any restricted shares and any
retained distributions thereon which do not so vest will be forfeited to the
Company. If prior to the expiration of the restricted period a holder is
terminated without cause or because of a total disability
27
<PAGE>
(in each case as defined in the Management Plan), or dies, then, unless
otherwise determined by the Administrator at the time of the grant, the
restricted period applicable to each award of restricted shares will thereupon
be deemed to have expired. Unless the Administrator determines otherwise, if a
holder's employment terminates prior to the expiration of the applicable
restricted period for any reason other than as set forth above, all restricted
shares and any retained distributions thereon will be forfeited.
Accelerating of the vesting of the restricted shares shall occur, under the
provisions of the Management Plan, on the first day following the occurrence of
any of the following: (a) the approval by the shareholders of the Company of an
"Approved Transaction"; (b) a "Control Purchase"; or (c) a "Board Change."
An "Approved Transaction" is defined as (A) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of Common Stock would be converted into cash,
securities or other property other than a merger of the Company in which the
holders of the Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (B) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (C) the adoption of any plan or proposal for
the liquidation of dissolution of the Company.
A "Control Purchase" is defined as circumstances in which any person (as
such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act),
corporation or other entity (other than the Company or any employee benefit plan
sponsored by the Company) (A) shall purchase any Common Stock of the Company (or
securities convertible into the Company's Common Stock) for cash, securities or
any other consideration pursuant to at tender offer or exchange offer, without
the prior consent of the Board of Directors, or (B) shall become the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing twenty-five percent
(25%) or more of the combined voting power of the then outstanding securities of
the Company ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors (calculated
as provided in paragraph (d) of such Rule 13d-3 in the case of rights to acquire
the Company's securities).
A "Board Change" is defined as circumstances in which, during any period of
two consecutive years or less, individuals who at the beginning of such period
constitute the entire Board shall Cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by the company's
shareholders, of each new director was approved by a vote of at least a majority
of the directors then still in office.
28
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as to the number of Shares
beneficially owned as of October , 1997 by (i) each person who is deemed to be a
beneficial owner of more than 5% of the outstanding Shares; (ii) each director;
(iii) each executive officer; and (iv) all directors and executive officers as a
group. A person is deemed to be a beneficial owner of any securities of which
that person has the right to acquire beneficial ownership of such securities
within sixty days. All Shares are owned both of record and beneficially.
<TABLE>
<CAPTION>
Shares of Common Stock Beneficially Owned
Number Before Percent Before Percent After
Name of Beneficial Owner Offering Offering Offering
<S> <C> <C> <C>
Stephen S. Saltman (1) 758,400 37.9% 25.3%
Earl Bassil Tyson 0 * *
Damian J. Greco (2) (3) 0 * *
Clayton Street Advisors, L.P. (3) 600,000 30.0% 20.0%
Alexander Cavalli 600,000 30.0% 20.0%
Donald B. Cohen 0 * *
Irene Scherer 0 * *
All officers and
Directors as a group (3 persons) 1,358,400 67.9% 45.3%
</TABLE>
* Less than 5%
(1) Does not include 25,000 shares of Common Stock issuable upon the
exercise of options granted to Mr. Saltman in May 1997. See "Executive
Compensation -- Employment Agreements."
(2) Does not include 25,000 shares of Common Stock issuable upon the
exercise of options granted to Mr. Greco in May 1997. See "Executive
Compensation -- Employment Agreements."
(3) Although Mr. Greco does not own any shares of Common Stock
individually, and should be deemed the beneficial owner of the shares owned by
Clayton Street Advisors, L.P., a company of which the members of Mr. Greco's
family are the only shareholders. See "Certain Transactions".
29
<PAGE>
Selling Securityholders
The following table sets forth certain information at October , 1997.
Each of the Selling Securityholders has agreed to "lock-up" and not sell his
warrants for a period of two years without the prior written consent of the
Underwriter.
Warrants
Beneficially
Name of Owned Prior
Securityholder (1) to Offering
Arthur Midli 100,000
Jimmy Rogers 40,000
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was organized on June 8, 1995 under the laws of the State
of New Jersey. In June 1995, the Company issued 958,400 Shares of Common Stock
and 1,500,000 shares of preferred stock (the "Preferred Stock") to Stephen S.
Saltman, the Company's president, in consideration of $20,000 in accounts
receivable and the contribution of furniture and photographic equipment and
images in the amount of $180,000.
In June 1995, the Company issued 21,600 Shares of Common Stock to Roger
Fidler, Esq., an unaffiliated individual as an inducement for granting a loan of
$15,000 to the Company and further issued Mr. Fidler an additional 20,000 Shares
of Common Stock for payment of $1,000 of legal services.
In March 1996, the Company attempted to complete an offering which was
intended to be effected under an exemption from registration provided by Rule
504 of Regulation D. The Company originally contemplated that it would sell
shares of preferred stock pursuant to Rule 504. However, the offering was never
completed. However, the Company did receive an aggregate of approximately
$211,000 from one investor. As of December 31, 1996, the Company and this
individual have agreed to rescind the sale and characterize this transaction as
a "loan". The Company intends to repay this loan of $211,000, plus accrued
interest at 10%, from the proceeds of this Offering. See "Use of Proceeds".
In August 1996, the Company filed a registration statement on Form SB-2
with the Securities and Exchange Commission pursuant to which it attempted to
register 1,000,000 Units comprised of 1.5 shares of common stock and 2
redeemable common stock purchase warrants under the Securities Act of 1933. The
Company abandoned the Offering in November 1996.
In October 1996, Arthur Seligman resigned as both an officer and
director of the Company.
In December 1996, Stephen Saltman remitted 1,500,000 shares of
Preferred Stock and 200,000 shares of Common Stock to the Company for
cancellation.
In February 1997, the Company issued 5,000 shares of Common Stock to
Lampert & Lampert for payment of $500 of legal services.
In February 1997, the Company sold 600,000 shares of Common Stock to
Damian J. Greco, an officer and director of the Company, for aggregate
consideration of $5,000. Mr. Greco assigned these shares of Common Stock to
Clayton Street Advisors, L.P., a company of which the members of Mr. Greco's
family are the only shareholders.
30
<PAGE>
In February 1997, Mr. Greco loaned the Company $10,000. Pursuant to the
terms of the transaction the loan shall be repaid from the proceeds of a public
offering of the Company's securities.
In February 1997, the Company sold Alexander Cavalli 600,000 shares of
the Company's common stock for $15,000. The transaction was effected
concurrently with the transactions entered into by Mr. Greco referenced above.
As a result, the payment for Mr. Cavalli's stock was effected by Mr. Cavalli
advancing funds to Marca Group, Inc., a company owned by the members of Mr.
Greco's family. Marca Group, Inc. remitted an aggregate of $30,000 to the
Company.
On May 14, 1997, Edward D'Angelo resigned as both an officer and
director of the Company.
In April 1997, the Company consummated a private placement offering,
whereby the Company sold 7 units, each unit comprised of a promissory note in
the amount of $50,000 bearing interest at 10% per annum and 20,000 common stock
purchase warrants at a purchase price of $52,000 per unit. The private placement
closed in September 1997.
For a description of the Company's employment agreements, see "Executive
Compensation - Employment
Agreements."
DESCRIPTION OF SECURITIES
The Company's authorized capitalization consists of 20,000,000 shares
of Common Stock, no par value per share, and 5,000,000 shares of Preferred
Stock, no par value per share, which may be issued in one or more series at the
discretion of the Board of Directors. The following summary description of the
Common Stock and Preferred Stock are qualified in their entirety by reference to
the Company's Articles of Incorporation.
Common Stock
Each share of Common Stock entitles its holder to one non-cumulative
vote per share and, subject to the preferential rights of the preferred
stockholders, the holders of more than fifty percent (50%) of the shares voting
for the election of directors can elect all the directors if they choose to do
so, and in such event the holders of the remaining shares will not be able to
elect a single director. Holders of shares of Common Stock are entitled to
receive such dividends as the Board of Directors may, from time to time, declare
out of Company funds legally available for the payment of dividends. Upon any
liquidation, dissolution or winding up of the Company, holders of shares of
Common Stock are entitled to receive pro rata all of the assets of the Company
available for distribution to stockholders after the satisfaction of the
liquidation preference of the preferred stockholders.
Stockholders do not have any pre-emptive rights to subscribe for or
purchase any stock, warrants or other securities of the Company. The Common
Stock is not convertible or redeemable. Neither the Company's Certificate of
Incorporation nor its By-Laws provide for pre-emptive rights.
Preferred Stock
The preferred stock may be issued in one or more series, to be
determined and to bear such title or designation as may be fixed by resolution
of the Board of Directors prior to the issuance of any shares thereof. Each
series of the preferred stock will have such voting powers (including, if
determined by the Board of Directors, no voting rights), preferences, and other
rights as determined by the Board of Directors, with such qualifications,
limitations or restrictions as may be stated in the resolutions of the Board of
Directors adopted prior to the issuance of any shares of such series of
preferred stock.
<PAGE>
Purchasers of the Securities offered hereby should be aware that the
holders of any series of preferred stock, which may be issued in the future
could have voting rights, rights to receive dividends or rights to distribution
in liquidation, superior to those of holders of the Common Stock, thereby
diluting or negating the voting rights, dividend rights or liquidation rights of
the holders of the Common Stock.
Because the terms of each series of preferred stock may be fixed by the
Company's Board of Directors without stockholder action, the preferred stock
could be issued with terms calculated to defeat a proposed takeover of the
Company, or to make the removal of the Company's management more difficult.
Under certain circumstances, this could have the effect of decreasing the market
price of the Common Stock. Management of the Company is not aware of any such
threatened transaction to obtain control of the Company.
Warrants
Each warrant gives the holder the right to purchase one share of the
Company's Common Stock, subject to adjustment in certain events at an initial
price of $9.00 per share. The Warrants will be exercisable one year from the
date of this Prospectus for a period of four years, until ________, 2002. The
Warrants are redeemable by the Company at any time commencing one year from the
date of this Prospectus upon 30 days notice at a redemption price of $.05 per
Warrant, provided that the closing bid quotation of the Common Stock for at
least 20 trading consecutive days ending not more than 15 days prior to the date
on which the Company gives notice has been at least 150% of the then effective
exercise price of the Warrants. The Company may elect to redeem the Warrants at
such time as the Company requires additional capital. Redemption of the Warrants
could force the holders to exercise the Warrants and pay the exercise price at a
time when it may be disadvantageous for the holders to do so, to sell the
Warrants at the then current market price when they might otherwise wish to hold
the Warrants, or to accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. The Company will not redeem the Warrants at any time in which its
registration statement is not current, so that investors will be able to
exercise their Warrants during the 30 day notice period in the event of a
warrant redemption by the Company.
The exercise price and the number of shares of Common Stock purchasable
upon the exercise of each Warrant are subject to adjustment in certain events,
including the issuance of a stock dividend to holders of Common Stock, or a
combination, subdivision or reclassification of Common Stock. No fractional
shares will be issued upon exercise of Warrants, but the Company will pay the
cash value of the fractional shares otherwise issuable.
Notwithstanding the foregoing, in case of any consolidation, merger,
sale or conveyance of the property of the Company as an entirety or
substantially as an entirety, the holder of each outstanding Warrant shall
continue to have the right to exercise the Warrant for the kind and amount of
shares and other securities and property (including cash) receivable by a holder
of the number of shares of Common Stock for which such Warrants were exercisable
immediately prior thereto.
Holders of Warrants are not entitled, by virtue of being such holders,
to receive dividends or to consent or to receive notice as stockholders in
respect of any meeting of stockholders for the election of directors of the
Company or any other mater, or to vote at any such meeting, or to exercise any
rights whatsoever as stockholders of the Company.
Although the Company intends to seek to qualify for sale the shares of
Common Stock underlying the Warrants in those states in which the Securities are
to be offered. No assurance can be given that such qualification will occur. The
Warrants may be deprived of any value and the market for the Warrants may be
limited if a current prospectus covering the Common Stock issuable upon exercise
of the Warrants is not kept effective or if such Common Stock is not qualified
or exempt from qualification in the jurisdictions in which the holders of the
Warrants then reside.
<PAGE>
The Warrants may not exercised unless the Company has a current
Prospectus. Prior to the exercise of any Warrants, the Company must file a
post-effective amendment to this Registration Statement of which this Prospectus
forms a part, and such post-effective amendment must be declared effective by
the Commission. The Company will notify all Warrantholders and its transfer
agent that the Warrants may not be exercised in the event that a post-effective
amendment has not been declared effective on or before the one-year anniversary
of this Prospectus, as to prevent the Warrants from being exercised in the
absence of a current, effective Registration Statement.
In the event the Company reduces the exercise price or extends the
exercise period of the Warrants, the Company will undertake the notification
filing provisions herein referred to with respect to notification of
Warrantholders and the filing of a post-effective amendment. No such changes are
currently contemplated by the Company.
Private Placement Warrants
The Company consummated a private placement offering of its securities
in April 1997 (the "Private Placement"), whereby the Company sold 7 units, each
comprised of a promissory note in the amount of $50,000 bearing interest at the
rate of 10% per annum, and 20,000 common stock purchase warrants at a purchase
price of $52,000 per unit. The warrants entitle the holder to purchase one share
of Common Stock at an exercise price of $6.00 per share at any time prior to
April 17, 2000. The Company has been advised by the Underwriter that the
Underwriter does not intend to make a market in the Private Placement Warrants.
Notwithstanding the foregoing, the owners of the Private Placement Warrants can
exercise their warrants and receive shares of the Company's Common Stock
identical to the shares of Common Stock offered herein.The proceeds of the
Private Placement were used by the Company as working capital to finance its
operations.
<PAGE>
Notes
The Company has agreed to repay an aggregate of $252,000 of promissory
notes on the earlier of (i) the consummation of a public financing through the
sale of equity securities; (ii) 24 months from the date hereof; or (iii) the
"calling" of the Notes as authorized by the Board of Directors, and bear
interest at the rate of 10% per annum, payable at maturity. The Notes may be
prepaid at any time without premium or penalty. In case an event of default (as
defined in the Note) shall occur and be continuing, a Note shall be due and
payable immediately (subject, in certain circumstances, to the payor's right to
cure). The Company intends to repay the Notes from the proceeds of this
Offering. See "Use of Proceeds" and "Certain Relationships and Related
Transactions."
Transfer Agent and Warrant Agent.
The Company's Transfer Agent and Warrant Agent is Continental Stock
Transfer and Trust Company, which Agent is responsible for all record keeping
and administrative functions in connection with the Common Stock and Warrants.
REPORTS TO STOCKHOLDERS
The Company has adopted December 31 as its fiscal year end. The Company
will distribute annual reports to its stockholders, including financial
statements examined and reported on by an independent certified public
accountant, and will provide such other reports as management may deem necessary
or appropriate to keep stockholders informed of the Company's operations.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 2,005,000 shares of the Company's Common Stock outstanding,
1,400,000 shares were issued in June 1995 and 605,000 were issued in February
1997. All of such shares are "restricted securities" which, in the future, may
be sold upon compliance with Rule 144 adopted under the Securities Act, or any
other exemption from the registration requirements of the Securities Act.
Rule 144 provides, in essence, that a person holding "restricted
securities" for a period of one year may sell every three months in brokerage
transactions an amount equal to the greater of: (a) one percent of the Company's
outstanding shares of Common Stock; (b) the average weekly reported volume of
trading for the securities on all national exchanges and/or through the
automated quotation system of a registered securities association during the
four calendar week period preceding each transaction; or (c) the average weekly
trading volume in the securities reported through the consolidated transaction
reporting system during the four calendar week period. Rule 144 also requires
that current information about the securities must be available to stockholders
and brokers.
Therefore, after taking into account the shares to be sold in this
Offering (and without giving effect to any shares of Common Stock which may be
issued upon exercise of the Warrants) in each three-month period commencing
March 1997, at least 30,050 (31,550 shares if the Underwriter's Over-allotment
option in exercised in full) shares may be publicly sold under Rule 144 by each
holder of "restricted securities" who has held such shares for at least one
year.
33
<PAGE>
Persons who are not "affiliates" of the Company, as that term is
defined under the Securities Act, who have been non-affiliates for the 90 days
immediately preceding the sale, and who have owned their shares for a period of
at least three years, may sell such shares without limitation. Giving effect to
the sale of 1,000,000 Units by the Company, the Company will have issued and
outstanding 3,005,000 shares (3,155,000 if the Over-allotment Option is
exercised in full) of its Common Stock, of which 2,005,000 shares will be
"restricted securities." Investors should be aware that the possibility of such
sales under Rule 144 will in all probability have a depressive effect on the
price of the Company's Common Stock in any market which may develop.
All officers, directors and owners of 5% or more of the Company's
Common Stock, except the Selling Stockholders, have agreed to "lock-up" and not
sell, publicly, privately or otherwise dispose of any shares of Common Stock for
a period of two years from the date of this Prospectus, whereby these
stockholders cannot sell, publicly, privately or otherwise dispose of any of
their shares without the prior written consent of Global Equities Group, Inc.
UNDERWRITING
The Company has entered into an Underwriting Agreement (the "Agreement")
with Global Equities Group, Inc. (the "Underwriter"). The Underwriter is a
registered broker-dealer which was organized on or about 199 and is engaged
primarily in the retail brokerage business. The Underwriter is a relatively
small firm which has engaged in and completed firm commitment public offerings.
There can be no assurance that the Underwriter will be able to make a meaningful
market in the Company's Securities or that other broker/dealers will make a
meaningful market in the Company's Securities. The Agreement has been filed as
an exhibit to the Registration Statement filed with the Securities and Exchange
Commission of which this Prospectus forms a part.
Summary of Underwriting Agreement.
The Underwriter has agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase 1,000,000 Units. The
Underwriter is committed to purchase and pay for all of the shares of Common
Stock and Warrants (the "Securities") offered hereby if any Securities are
purchased. The shares of Common Stock and Warrants are being offered by the
Underwriter, subject to prior sale, when, as and if delivered to and accepted by
the Underwriter and subject to approval of certain legal matters by counsel and
to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Securities to the public at the public offering price set forth on the cover
page of this Prospectus. The Underwriter may allow to certain dealers who are
members of the National Association of Securities Dealers, Inc. ("NASD")
concessions, not in excess of $___ and $.___ per share and Warrant respectively.
The Underwriter will not confirm sales of any of the securities offered herein
to any account over which it exercises discretionary authority.
<PAGE>
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Accordingly, the offering or exercise price of the
Securities being offered hereby were determined, in large part, by negotiations
between the Company and the Underwriter on an arbitrary basis and bear no direct
relationship to the assets, earnings or any other recognized criteria of value.
Factors considered in determining such prices, in addition to prevailing market
conditions, included the history of and the business prospects for the Company
and an assessment of the net worth and financial condition of the Company, as
well as such other factors as were deemed relevant, including an evaluation of
management and the general economic climate. The prices should in no event,
however, be regarded as an indication of any future market price of the Common
Stock or the Warrants.
Neither the Company nor any of its officers, directors, affiliates and
associates will recommend, encourage or advise investors to open brokerage
accounts with any broker-dealer that is obtained to make a market in the
Company's Securities. Furthermore, no promoter or anyone acting at the direction
of the Company's officers, directors, affiliates, associates or promoters will
engage in such activities.
The Company has granted to the Underwriter an option, exercisable for
thirty (30) days from the date of this Prospectus, to purchase up to an
additional 150,000 Units at the public offering price set forth on the cover
page of this Prospectus, less the underwriting discounts and commissions. The
Underwriter may exercise this option in whole or, from time to time, in part,
solely for the purpose of covering over-allotments, if any, made in connection
with the sale of the Securities offered hereby.
The Company has agreed to pay to the Underwriter 3% of gross proceeds
of the Securities sold by the Company, or a total of $219,000 ($251,850 if the
Underwriter's Over-allotment Option is exercised in full) for the Underwriter's
expenses on a non-accountable basis, of which nothing has been paid to date. The
Underwriter's expenses in excess of the non-accountable expense allowance, if
any, will be borne by the Underwriter. To the extent that the expenses of the
Underwriter are less than the non-accountable expense allowance, such excess may
be deemed to be additional compensation to the Underwriter. The Company is
required to pay the cost of qualifying and registering the Securities being sold
under federal and certain state securities laws, together with any other legal
and accounting fees, printing and other costs in connection with the Offering.
<PAGE>
Additionally, pursuant to the terms of the underwriting agreement
between the Underwriter and the Company, the Underwriter has been engaged as its
warrant solicitation agent, and pursuant thereto may participate in the
solicitation of the exercise of the Warrants. Upon the exercise of the Warrants,
the Company will pay the Underwriter a commission of 5% of the aggregate
exercise price of the Warrants exercised. In accordance with the NASD Notice to
Members 92-28, no fee shall be paid: (i) upon the exercise where the market
price of the underlying Common Stock is lower than the exercise price; (ii) upon
the exercise of any Warrants not solicited by Underwriter; (iii) for the
exercise of Warrants held in any discretionary account; or (iv) upon the
exercise of Warrants where disclosure of compensation arrangements has not been
made and documents have not been provided to customers both as part of the
original Offering and at the time of exercise. Further, the exercise of any
Warrant shall be presumed unsolicited unless the Warrantholder states in writing
that the transaction was solicited by the Underwriter.
In connection with the solicitation of Warrant exercises, unless
granted an exemption by the Commission from Rule 10b-6, the Underwriter and any
other soliciting broker-dealer will be prohibited from engaging in any
market-making activities with respect to the Company's securities for the period
commencing either two or nine business days (depending on the market price of
the Company's shares of Common Stock) prior to any solicitation activity of the
exercise of Warrants until the later of (i) the termination of such solicitation
activity or (ii) the termination (by waiver or otherwise) of any right which the
Underwriter or any other soliciting broker-dealer may have to receive a fee for
the exercise of Warrants following such solicitation. As a result, the
Underwriter or other soliciting broker-dealer may be unable to provide a market
for the Company's securities, should it desire to do so, during certain periods
which the Warrants are exercisable.
In connection with this Offering, the Company has agreed to sell to the
Underwriter, for $100, five (5) year warrants (the "Underwriter's Warrants") to
purchase from the Company an aggregate of 100,000 Units. The Underwriter's
Warrants are exercisable at a price equal to 120% of the public offering price
of the Units for a four year period commencing one year from the date of this
Prospectus. The Underwriter's Warrants may not be sold, transferred, assigned or
hypothecated except to the officers of the Underwriter. The Underwriter's
Warrants will contain anti-dilution provisions providing for appropriate
adjustment under certain circumstances. The holders of the Underwriter's
Warrants have no voting, dividend or other rights as shareholders of the Company
with respect to shares underlying the Underwriter's Warrants until the
Underwriter's Warrants have been exercised. In the event the Underwriter
exercises its registration rights to effect the distribution of the Common Stock
and/or Warrants underlying the Underwriter's Warrants, the Underwriter and any
holder of such Warrants who is a market maker in the Company's Securities, prior
to such distribution, will be unable to make a market in the Company's
Securities for up to a period of nine days prior to the commencement of such
distribution and until such distribution is completed. If the Underwriter ceases
making a market, the market and market prices for the securities may be
adversely affected, and the holders thereof may be unable to sell such
Securities.
The Company has agreed, for a period of five years following the date of
this Prospectus, to give advance notice to the holders of the Underwriter's
Warrants or underlying shares of its intention to file a registration statement,
and in such case the holders of the Underwriter's Warrants and underlying shares
shall have the right to require the Company to include the Underwriter's
Warrants and underlying shares in such registration statement at the Company's
expense. In addition, at any time during the four year period following the
first anniversary of the date of this Prospectus, holders of 50% of the
Underwriter's Warrants or the underlying shares will have the right to require
the Company to prepare and file, at the Company's expense, one registration
statement so as to permit the public offering of the Underwriter's Warrants and
the shares underlying such Warrants.
<PAGE>
The Company has further agreed that no officer, director or shareholder
of the Company's Securities will offer, sell or otherwise dispose of, directly
or indirectly, any shares of Common Stock for a period of 24 months without the
prior written consent of the Underwriter, except with respect to the Securities
being sold by the Selling Securityholders.
Although the Company has additionally agreed to elect a designee of the
Underwriter to its Board of Directors for a period of five years, the
Underwriter has advised the Company that it has no intention to select such
individual in the immediate future. In the event that such an individual is
designated, such individual shall receive reimbursement of expenses for
attending the meetings of the Board of Directors.
The Company has agreed to indemnify the Underwriter against liabilities
incurred by the Underwriter by reason of misstatements or omissions to state
material facts in connection with the statements made in this Prospectus and the
Registration Statement of which it forms a part. The Underwriter, in turn, has
agreed to indemnify the Company against liabilities incurred by the Company by
reason of misstatements or omissions to state material facts in connection with
statements made in the Registration Statement and Prospectus based on
information furnished by the Underwriter.
The foregoing does not purport to be a complete statement of the terms
and conditions of the Agreement, copies of which are filed at the offices of the
Company and Underwriter and may be examined there during regular business hours.
SELLING SECURITYHOLDERS' OFFERING
Concurrently with this Offering, 140,000 shares of Common Stock,
including 140,000 shares of Common Stock issuable upon the exercise of 140,000
warrants have been registered under the Securities Act for resale on behalf of
the Selling Securityholders.
The Company will not receive any proceeds from the sales of the Selling
Securityholders's Shares by the Selling Securityholders. Sales of the Selling
Securityholders' Shares or even the potential of such sales, would likely have
an adverse effect on the market price of the Company's securities.
LEGAL OPINIONS
The validity of the Securities offered hereby and certain other legal
matters will be passed on for the Company by its counsel, Lampert & Lampert, New
York, New York. Certain legal matters will be passed upon for the Underwriter by
its counsel, Mound Cotton & Wollan, New York, New York. Lampert & Lampert
received 5,000 shares of Common Stock as payment for fees and expenses incurred
prior to this Offering.
EXPERTS
The financial statements of the Company as of July 31, 1997 and for
each of the years ended December 31, 1996 and 1995 included in the Prospectus
have been audited by Thomas P. Monahan, C.P.A., independent auditors and are
included in reliance upon their report appearing elsewhere herein given upon the
authority of said firm as experts in accounting and auditing.
36
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER IMAGING DYNAMICS, INC.
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS 1,000,000 Units
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS Consisting of One Share of
IN CONNECTION WITH THE OFFERING CONTAINED Common Stock and Three
HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION Class A Warrants
OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY STATE TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION STATED IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
ADDITIONAL INFORMATION
PROSPECTUS SUMMARY
RISK FACTORS
DIVIDEND POLICY
DILUTION
USE OF PROCEEDS
CAPITALIZATION
BUSINESS
MANAGEMENT
PRINCIPAL STOCKHOLDERS ------------------
PROSPECTUS
DESCRIPTION OF ------------------
SECURITIES
SHARES ELIGIBLE FOR
FUTURE SALE
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
UNDERWRITING
LEGAL OPINIONS
EXPERTS
INDEX TO FINANCIAL STATEMENTS GLOBAL EQUITIES GROUP, INC.
UNTIL , 1997 (25 DAYS AFTER THE DATE
OF THIS PROSPECTUS) ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A October , 1997
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITER AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The New Jersey Supreme Court has held that the directors' duty of care
to a corporation and its stockholders requires the exercise of an informed
business judgment. Having become informed of all material information reasonably
available to them, directors must act with requisite care in the discharge of
their duties. The New Jersey General Corporation Law permits a corporation,
through its certificate of incorporation, to exonerate its directors from
personal liability to the corporation or its stockholders for monetary damages
for a breach of their fiduciary duty of care as a director, with certain
exceptions. The exceptions include a breach of the director's duty of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, improper declaration of dividends and transactions
from which the director derived an improper personal benefit. As noted above,
the Company's certificate of incorporation exonerates its directors, acting in
such capacity, from monetary liability to the extent permitted by this statutory
provision. This limitation of liability provision does not eliminate a
stockholder's right to seek non-monetary, equitable remedies such as injunction
or rescission in order to redress an action taken by directors. However, as a
practical matter, equitable remedies may not be available in all situations, and
their may be instances in which no effective remedy is available at all.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Company pursuant to any charter,
provision, by-law, contract, arrangement, statute or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any such action, suit or proceeding) is asserted by
such director, officer or controlling person of the Company in connection with
the Securities being registered pursuant to this Registration Statement, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
by such court of such issue.
Item 25. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee ............................ $5,713.00(1)(2)
NASD Filing Fee ................................. 4,867.10
Nasdaq Filing Fee ............................... 10,000
Printing and Engraving .......................... 40,000(1)
Legal Fees ...................................... 125,000(1)
Accounting ...................................... 15,000(1)
Transfer Agent and Warrant Agent Fees ........... 3,000(1)
Blue Sky Fee Expenses ........................... 25,000(1)
Underwriter's non-accountable
expense allowance ............................. 219,000(1)
Miscellaneous ................................... 10,000(1)
Total ........................................... $457,580.10
</TABLE>
(1) Estimated.
(2) The Company previously paid $9,344.77 in connection with the Company's
original filing on August 6, 1996.
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
The following issuance of shares of Common Stock were exempt from
registration under the Securities Act, in reliance upon the exemption afforded
by Section 4(2) of the Securities Act for transactions not involving a public
offering. All certificates evidencing such sales bear an appropriate restrictive
legend.
In June 1995, the Company issued 21,600 shares of Common Stock to an
unaffiliated individual, Roger Fidler, Esq. as an inducement for granting a loan
of $15,000 to the Company and 20,000 shares of Common Stock for payment of
$1,000 of legal services.
In February 1997, the Company issued 5,000 shares of its Common Stock
to Lampert & Lampert, counsel to the Company for fees and expenses.
In February 1997, the Company sold Alexander Cavalli 600,000 shares of
the Company's common stock for $15,000. The transaction was effected
concurrently with the transactions entered into by Mr. Greco referenced above.
As a result, the payment for Mr. Cavalli's stock was effected by Mr. Cavalli
advancing funds to Marca Group, Inc., a company owned by the members of Mr.
Greco's family. Marca Group, Inc. remitted an aggregate of $30,000 to the
Company.
In February 1997, the Company sold Alexander Cavalli 600,000 shares of
the Company's common stock for $15,000. The transaction was effected
concurrently with the transactions entered into by Mr. Greco referenced above.
As a result, the payment for Mr. Cavalli's stock was effected by Mr. Cavalli
advancing funds to Marca Group, Inc., a company owned by the members of Mr.
Greco's family. Marca Group, Inc. remitted an aggregate of $30,000 to the
Company.
The Company consummated a private placement offering in April 1997. The
Company sold 7 units in the Private Placement to the Selling Securityholders.
The units each comprised a promissory note in the amount of $50,000 bearing
interest at 10% per annum and 20,000 common stock purchase warrants at a
purchase price of $52,000 per unit.
Item 27. Exhibits.
The following exhibits marked with an asterisk are being filed with
this Registration Statement on Form SB-2.
<TABLE>
<CAPTION>
<S> <C>
1.1 - Form of Underwriting Agreement between the Company and Greenway Capital Corporation.
1.2 - Form of Selected Dealer Agreement
1.3 - Form Agreement Among Underwriters
1.4 - Form of Underwriter's Warrant
1.5 - Form of Underwriter's Agreement between the Company and Global Equities Group, Inc.
3.1 - Certificate of Incorporation of the Company.
3.2 - By-Laws of the Company.
4.1 - Specimen Common Stock Certificate.
4.2 - Specimen "A" Warrant Certificate.
4.3 - Form of Warrant Agreement between the Company and the Underwriter.
4.4 - Form of Warrant Agreement between the Company and Continental
Stock Transfer & Trust Company.
4.5 - Form of Lock-up Agreement.
5.0 - Opinion of Lampert & Lampert.
5.1 - Opinion of Pensley & Fugler
10.1 - Agreement with FCD Table-Tops, Inc., dated December 15, 1996
10.2 - Agreement with SMP Graphic Services, Inc., dated April 16, 1996
10.3 - Lease of premises at 36 East 13th Street, West Paterson, New Jersey 07524
10.4 - Form of Consulting Agreement between the Company and Greenway Capital Corporation
10.5* - The Company's Senior Management Incentive Plan.
10.6* - Employment Agreement with Stephen Saltman.
10.7* - Employment Agreement with Damian J. Greco.
10.8 - Consulting Agreement between Marca Consulting Group, Inc. and the Company.
10.9* - Lease Agreement between Imaging Dynamics and Bonnano Real Estate Group III, L.P.
23.1* - Consent of Thomas P. Monahan C.P.A.
23.2 - Consent of Pensley & Fugler, Esqs.
23.3* - Consent of Lampert & Lampert, Esqs.
</TABLE>
II-2
<PAGE>
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a Post-Effective Amendment to this Registration Statement;
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent Post-Effective Amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information
in the Registration Statement, including but not limited to any
addition or deletion of a managing Underwriter.
(2) That, for the purpose of determining any liability under the
Securities Act, each such Post-Effective Amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of Post-Effective Amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the
Underwriter at the Closing specified in the Underwriting Agreement, certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company, pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue. See Item 24.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in New York, New York on the 22nd day of October, 1997.
IMAGING DYNAMICS, INC.
By: /s/ Stephen S. Saltman
STEPHEN S. SALTMAN, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Stephen S. Saltman President and Director
Stephen S. Saltman (Principal Executive 10/22/97
Officer) Date
/s/ Damian J. Greco Secretary, Treasurer 10/22/97
Damian J. Greco and Director Date
/s/ Donald B. Cohen Director 10/22/97
Donald B. Cohen Date
/s/ Irene Scherer Director 10/21/97
Irene Scherer Date
</TABLE>
II-4
<PAGE>
THOMAS P. MONAHAN
CERTIFIED PUBLIC ACCOUNTANT
208 LEXINGTON AVENUE
PATERSON, NEW JERSEY 07502
(201) 790-8775
Fax (201) 790-8845
To The Board of Directors and Shareholders
of Imaging Dynamics, Inc. (a development stage company)
I have audited the accompanying balance sheet of Imaging Dynamics, Inc. (a
development stage company) as of December 31, 1996 and the related statements of
operations, cash flows and shareholders' equity for the period from inception
June 8, 1995 to December 31, 1995 and for the year ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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 and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Imaging Dynamics, Inc. (a
development stage company) as of December 31, 1996 and the results of its
operations, shareholders equity and cash flows for the period of inception June
8, 1995 to December 31, 1995 and for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Imaging
Dynamics, Inc. (a development stage company) will continue as a going concern.
As more fully described in Note 2, the Company has incurred operating losses
since inception and requires additional capital to continue operations. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans as to these matters are described in Note 2.
The financial statements do not include any adjustments to reflect the possible
effects on the recoverability and classification of assets or the amounts and
classifications of liabilities that may result from the possible inability of
Imaging Dynamics, Inc. (a development stage company) to continue as a going
concern.
Thomas P. Monahan, CPA
September 30, 1997
Paterson, New Jersey
<PAGE>
IMAGING DYNAMICS, INC.
(A Development Stage Company)
<TABLE>
<CAPTION>
BALANCE SHEET
July 31,
December 31, 1997
1996 Unaudited
ASSETS
Current assets
<S> <C> <C>
Cash $3,195 $82,893
Cash escrow receivable 50,000
Accounts receivable 48,793
Inventory 2,000 2,300
Prepaid expenses 5,136
Loan receivable-affiliated company 21,000
-------- --------
Total current assets 74,988 140,329
Capital assets-net 144,367 231,735
Other assets
Pre offering expense 5,000
Investment in photographic images 28,000 28,000
Security deposit 3,800 19,210
-------- -------
Total other assets 31,800 52,210
-------- -------
Total assets $251,155 $424,274
======== =======
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Accounts payable and accrued expenses 139,603 404,500
Loan payable-investor 227,916 252,019
Loan payable-bank 4,450 3,050
Loan payable-officer 9,283 19,283
Note payable 249,279
Corporate income taxes payable 600 600
--- ---
Total liabilities 381,852 928,731
Stockholders equity
Preferred stock- 5,000,000 shares authorized, no
par value. -0- shares outstanding at December 31,
1996 and July 31, 1997 -0- -0-
Common stock- 20,000,000 shares authorized, no
par value. The number of shares issued and
outstanding at December 31, 1996 and July 31,
1997 is 800,000 and 2,005,000 respectively. 201,000 221,500
Warrants- 96,462 outstanding at July 31, 1997 9,846
Deficit accumulated during development stage (331,697) (735,803)
------- ---------
Total stockholders equity (130,697) 504,457
--------- ---------
Total liabilities and stockholders equity 251,155 424,274
========= =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
IMAGING DYNAMICS, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the For the For the
period For the seven period
from For the seven months from
inception year months ended inception
June 8, ended ended July 31, June 8,
1995 to December July 31, 1997 1995 to
December 31, 1996 Unaudited July 31,
31, 1995 1996 Unaudited 1997
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $175,823 $121,914 $55,760 $4,808 $302,545
Cost of goods sold 120,472 79,915 20,668 2,884 203,271
------ -------- ------- ------ ---------
Gross profit 55,351 41,999 35,092 1,924 99,274
Operating expenses
General and administrative 85,799 179,672 117,983 365,405 630,876
Research and development 90,500 19,000 90,500
Depreciation amortization 20,000 42,430 20,000 20,000 82,430
------ ------ ------ ------ ------
Total operating expenses 105,799 312,602 156,983 385,405 803,806
------ ------- ------- ------- -------
Net loss before
corporate income taxes (50,448) (270,603) (121,891) (383,481) (704,532)
Corporate income taxes 350 250 1,500 600
Other income and expenses
Interest income 370 370
Interest expense (500) (9,916) 2,500 (20,625) (31,041)
---- ----- ---- ------ ------
(500) (9,546) 2,500 (20,625) (30,671)
Net loss $(51,298) $(280,399) $(125,891) $(404,106) $(735,803)
========= ========== ========== ========== ==========
Net loss per share $(.03) $(.14) $(.06) $(.20) $(.36)
========= ========== ======== ========== ==========
Total number of shares outstanding 2,005,000 2,005,000 2,005,000 2,005,000 2,005,000
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
IMAGING DYNAMICS, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
from For the For the For the period
inception seven seven from inception
June 8, 1995, For the months months June 8, 1995,
to year ended ended ended to July 31,
December December July 31, July 31, 1997
31, 31, 1996 1997 Unaudited
---------
1995 1996 Unaudited Unaudited
---- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Net loss ...................... $(51,298) $(280,399) $(125,891) $(404,106) $(735,803)
Non-cash .......................... 500 500
transaction
Interest expense ..................500 9,916 2,500 7,500 17,916
Depreciation ......................20,000 42,430 20,000 20,000 82,430
------- ------- ------ ------ ------
(30,798) (228,053) (103,391) (376,106) (634,957)
Adjustments
Accounts receivable ...............4,726 (43,435) (15,281) 8,793
Inventory .........................(5,000) 3,000 (575) (300) (2,300)
Prepaid expense ................... (5,136) (5,136)
Loan .............................. (21,000) (5,000) 21,000
receivable-affiliate
Accounts payable ..................19,427 120,176 62,150 264,897 404,500
Corporate taxes payable............ 350 250 600
------- ------- ------- ------- -------
TOTAL CASH FLOWS FROM OPPERATIONS...(11,295 (169,062) (62,097) (86,852) (237,293)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash escrow receivable.............. (50,000) (50,000)
Pre-offering expense ............... (5,000) (5,000)
Capital assets ..................... (54,797) (22,530) (90,278) (159,081)
Security deposit .................... (3,800) (19,210)
TOTAL CASH FLOWS FROM INVESTING
ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES (3,800) (54,797) (22,530) (145,278) (233,291)
Issuance of warrants .............. 1,000 9,846 9,846
Sale on Common Shares .............. 20,000 20,000
Notes payable-investors ............ 249,279 249,279
Loan payable-officer ............... 9,283 10,000 19,283
Loan payable-investor .............. 207,416 95,000 24,103 252,019
Loan payable-bank .................. 4,450 (1,400) 3,050
Loan payable ...................... 15,000 5,000
------ ----- ------- ------- --------
TOTAL CASH FLOWS FROM
FINANCING ACTIVITIES 16,000 226,149 95,000 311,828 553,477
NET INCREASE (DECREASE) IN CASH .......905 2,290 10,373 79,698 82,893
CASH BALANCE BEGINNING OF PERIOD ......-0- 905 905 3,195 -0-
----- ------- ------- ------- -------
CASH BALANCE END OF PERIOD ............$905 $3,195 $11,278 $82,893 $82,893
====== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
IMAGING DYNAMICS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
accumulated
Date Preferred Preferred Common Common during
Stock Stock Stock Stock Warrants development Total
---- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
6-15-1995(1) 1,500,000 $100,000 1,000,000 $101,000 $201,000
12-31-1995 Net loss (51,298) (51,298)
- ------------------------------------------------------------------------------------------------------------------
12-31-1995 1,500,000 100,000 1,000,000 101,000 (51,298) 149,702
12-31-1996(2) (1,500,000) (100,000) (200,000) 100,000 -0-
12-31-1996 Net loss (280,399) (280,399)
---------- --------- --------- ------- ------- --------
12-31-1996 -0- -0- 800,000 201,000 (331,697) (130,697)
Unaudited
2-18-1997(3) 1,200,000 20,000 20,000
2-18-1997(4) 5,000 500 500
7-31-1997(5) 9,846 9,846
7-31-1997 (404,106) (404,106)
-------- ---------- ---------- -------- ----- --------- ---------
7-31-1997 -0- $-0- 2,005,000 $221,500 $9,846 $(735,803) $(504,457)
======== ========== ========== ======== ===== ========= ==========
</TABLE>
(1) Issuance of Shares of Common Stock for contribution of assets.
(2) Cancellation of Shares of Common Stock and Shares of Preferred Stock by
Stephen Saltman.
(3) Sale of 600,000 Shares of Common Stock pursuant to Regulation D at
$.083 per share and sale of 600,000 Shares of Common Stock at $.025 per
share.
(4) Issuance of common shares to Lampert and Lampert in consideration for
legal services valued at $500 or $.10 per share
(5) Issuance of warrants as part of private placement.
See accompanying notes to financial statements.
<PAGE>
IMAGING DYNAMICS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31. 1996
Note 1. Organization of Company and Issuance of Common Stock
a. Creation of the Company
Imaging Dynamics, Inc. (the "Company") was formed on June 8, 1995 under the laws
of the State of New Jersey with an authorized capitalization of 5,000,000 Shares
of Preferred Stock, no par value per share and 20,000,000 Shares of Common
Stock, no par value per share.
b. Description of the Company
The Company is a development stage company that is producing limited quantities
of products containing a proprietary color imaging laminate process, which
contains imagery, patterns, designs and colors coated by a tough and durable
transparent high density polymer laminate. The Company manufactures products for
four distinct product lines: furniture and finishes, specialty products,
corporate products and products for the restaurant and hospitality industry.
c. Issuance of Capital Stock
In June, 1995, the Company issued 958,400 Shares of Common Stock and 1,500,000
Shares of Class "A" Convertible Preferred Stock to Stephen S. Saltman,
President, in consideration of his historic costs of $20,000 in accounts
receivable and the contribution of furniture and photographic equipment and
images in the amount of $180,000 for an average price per preferred share of
$.067 per share and an average price per common share of $.104 per share.
In June, 1995, the Company issued 21,600 Shares of Common Stock to Roger Fidler,
Esq., an unaffiliated individual as an inducement for granting a loan of $15,000
to the Company and further issued 20,000 Shares of Common Stock as consideration
of $1,000 in legal services. The average price paid per common share was $.024
per share.
<PAGE>
In March, 1996, the Company attempted to complete an offering which was
intended to be effected under an exemption from registration provided by Rule
504 of Regulation D. The Company originally contemplated that it would sell
Shares of Preferred Stock pursuant to Rule 504. However, the offering was never
completed, and the rescinded the sale of preferred stock. The Company did
receive an aggregate of approximately $211,000 from one investor. As of December
31, 1996, the Company and this individual have agreed to characterize this
transaction as a "loan". The Company intends to repay this loan of 211,000 plus
accrued interest at 10% from the proceeds of an offering.
On December 31, 1996, the Board of Directors voted to rescind the issuance of
1,500,000 Shares of Convertible Preferred Stock and 200,000 Shares of Common
Stock to Stephen Saltman and converted the consideration of $100,000 to
additional paid in capital.
On February 18, 1997, the Company sold 600,000 Shares of Common Stock pursuant
to Regulation D for $15,000 or $.025 per share.
On February 18, 1997, the Company sold 600,000 Shares of Common Stock for an
aggregate consideration of $5,000 or $.008 per share to Damian J. Greco, an
officer and director of the Company. Mr. Greco assigned these Shares of Common
Stock to Clayton Street Advisors, L.P., a company of which the members of Mr.
Greco,s family are the only shareholders.
On February 18, 1997, the Company issued 5,000 Shares of Common Stock in
consideration for legal services valued at $500 or $.10 per share.
Note 2-Summary of Significant Accounting Policies
a. Basis of Financial Statement Presentation
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company incurred net losses of
$735,803 for period from inception June 8, 1995 to July 31, 1997. These factors
indicate that the Company's continuation as a going concern is dependent upon it
ability to obtain adequate financing. The Company borrowed and aggregate of
$479,562 as of July 31, 1997. The Compan is in the process of completing the
documentation for a registered offering. The Company is anticipating at the
completion of its registered offering and with the increase in sales as a
result, the Company will able to complete the building of its production
facilities and finalize the preparation and submission of test sample products
to furniture and image reseller's and volume users of the Company's output. The
Company will require substantial additional funds to finance its business
activities on an ongoing basis and will have a continuing long-term need to
obtain additional financing. The Company's future capital requirements will
depend on numerous factors including, but not limited to, continued progress in
developing its digital production and output process and the acquisition of
additional digital equipment and processes. The Company plans to engage in such
ongoing financing efforts on a continuing basis.
The financial statements presented consist of the balance sheet of the
Company as at December 31, 1996 and the unaudited balance sheet as of July 31,
1997 and the related statements of operations, retained earnings and cash flows
for the year ended December 31, 1995 and 1996 and the related unaudited
statements of operations, retained earnings and cash flows for the seven months
ended July 31, 1996 and 1997 and for the period of inception June 8, 1995 to
July 31, 1997.
b. Cash and cash equivalents
The Company treats temporary investments with a maturity of less than three
months as cash.
<PAGE>
c. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives using the declining
balance and straight line methods.
d. Earnings per share
Earnings per share have been computed on the basis of the total number of shares
outstanding as of July 31, 1997. On that date 2,005,000 Shares of Common Stock
were outstanding.
e. Revenue recognition
Revenue is recognized when products are shipped or services are rendered.
f. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
g. Unaudited financial information
In the opinion of Management, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal recurring items) necessary to
present fairly the financial position of the Company as of July 31, 1997 and the
results of its operations and its cash flows for the seven months ended July 31,
1997. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the SEC's rules and
regulations of the Securities and Exchange Commission. The results of operations
for the periods presented are not necessarily indicative of the results to be
expected for the full year
Note 3 - Preferred Stock
The Board of Directors of the Company has the authority, without further action
by the holders of the outstanding Shares of Common Stock, to issue Shares of
Preferred Stock from time to time in one or more classes or series, to fix the
number of Shares constituting any class or series and the stated value, if
different from the par value, and to fix the terms of any such series or class,
including dividend rights, dividend rates, conversion or exchange rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price and the liquidation preference of such class or series. The
designations, rights and preferences of any Shares of Preferred Stock would be
set forth in a Certificate of Designation which would be filed with the
Secretary of State of the State of New Jersey.
The Company had issued 1,500,000 Shares of Class "A" Convertible Preferred Stock
to its President, Steven Saltman.
As of December 31, 1996, the Company has agreed to amend the offering
document and reclassify the $211,000 as a loan payable with interest at 10% to
be repaid out of the proceeds of a registered offering.
On December 31, 1996, the Board of Directors voted to reclassify the
$100,000 attributed to the 1,500,000 Shares of Preferred Stock to Shares of
Common Stock restating Common Stock to $201,000 and retire the preferred stock.
Note 4 - Marketable Securities, Available for Sale
Effective January 1, 1994 the Company adopted Financial Accounting
Standards Board ("FASB") Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", which requires that investments in equity
securities that have readily determinable fair values and investments in debt
securities be classified in three categories: held-to-maturity, trading and
available-for-sale. Based on the nature of the assets held by the Company and
Management's investment strategy, the Company's investments have been classified
as available-for-sale. Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of
each balance sheet date.
<PAGE>
Note 5 - Private Placements
a. Sale of Shares of Preferred Stock
Pursuant to a private placement which was intended to be effected under an
exemption from registration provided by Rule 504 of Regulation D, the Company
offered on a "best efforts" basis, a maximum of 107,500 Shares of Convertible
Preferred Stock at $2.00 per unit. During the year the Company sold 105,500
Share of Preferred Stock to one individual. The Company did receive an aggregate
of approximately $211,000 from one investor. As of December 31, 1996, the
Company and this individual have agreed to rescind the sale of the shares of
preferred stock and characterize this transaction as a "loan". The Company
intends to repay this loan of 211,000 plus accrued interest at 10% from the
proceeds of an offering.
b. Sale of Units
In April, 1997, the Company offered 12 Units at $52,000 per Unit for an
aggregate offering of $624,000. Each Unit comprised a promissory note ("Note")
in the amount of $50,000 bearing interest at the rate of 10% per annum, and
20,000 Common Stock Purchase Warrants. The Warrants will be registered by the
Company in connection with a registered offering. The principal amount of the
Notes plus accrued interest will be repaid out of the proceeds of the Registered
Offering. The 20,000 Common Stock Warrants have been allocated a value of $2,000
per Unit or $0.10 each. The Warrants will be registered by the Company in
connection with a registered offering and will be subject to a two year lockup
which prohibits the sale of such securities without prior written consent of the
Underwriter.
The Notes are due and payable on the earlier of the consummation of a public
financing through the sale of equity securities or 24 months from the date
thereof; or the calling of the Notes as authorized by the Board of Directors,
and bear interest at the rate of 10% per annum, payable at maturity. The Notes
may be prepaid at any time without penalty premium or penalty. In case an event
of default will occur and be continuing, a Note will be due and payable
immediately subject, in certain circumstances to the payor's right to cure. The
Notes contain no conversion rights nor will they contain restrictions upon the
Company's ability to create liens ion its assets in the normal course of
business or to incur additional indebtedness nor upon the conduct of its present
or proposed business. The holders of the Notes will not be accorded registration
rights under the Act.
Included in the Units sold are Warrants to purchase Shares of Common Stock.
The Warrants will entitle each holder to purchase one Share of Common Stock at a
price equal to the lessor of $6.00 per share or 110% of the initial offering
price of the Company's Shares of Common Stock should the Company effect a public
offering of its Shares of Common Stock during the term of the Warrants,
whichever is lesser. The Warrants will be exercisable for a period of three
years.
The Warrant Price and the number of Shares of Common Stock purchasable upon
the exercise of each Warrant are subject to adjustment in certain events,
including the issuance of stock dividend to holders of Shares of Common Stock,
or combination, subdivision or reclassification of Shares of Common Stock.
In case of any consolidation, merger, sale or conveyance of the property of
the Company as an entity or substantially as an entity, the holder of each
outstanding Warrant will continue to have the right to exercise the Warrant for
the kind and amount of shares and other securities and property (including cash)
receivable by a holder of the number of Shares of Common Stock for which such
Warrants were exercisable immediately prior.
As of July 31, 1997, the Company sold $256,000 in Units with the proceeds
characterized as follows: $246,154 allocated to Notes payable-investors and the
$9,846 allocated to Warrants.
The Company has reserved 98,462 Shares of Common Stock pending the exercise
of the Warrants.
Note 6 - Inventory
Inventory has been recorded at the lower of cost or market under the first-in
first-out method. Inventory components were as follows:
December 31, July 31,
1996 1997
---- ----
Raw materials $ 2,000 $2,300
===== ======
<PAGE>
Note 7 - Capital Assets
Capital assets consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
Asset Accumulated Balance
Depreciation
<S> <C> <C> <C>
Computer, photographic equipment
and fixtures 194,797 $50,430 $144,367
------- ------- --------
</TABLE>
Capital assets consisted of the following at July 31, 1997:
<TABLE>
<CAPTION>
Asset Accumulated Balance
Depreciation
<S> <C> <C> <C>
Computer, photographic equipment
and fixtures $302,165 $70,430 $231,735
-------- ------- --------
</TABLE>
Note 8 - Investment in Photographic Images
On June 15, 1995, Mr. Stephen Saltman contributed 40 images that he had
created and photographed. These images comprise the basic inventory of images to
be used by the Company to reproduce in the form of images suitable for
lamination using the Company's proprietary process. The contributed cost basis
of $40,000 represents the historic cost to Mr. Saltman to create, design,
prepare, setup, purchase props and equipment, film and process the image into a
suitable format. Amortization is computed over a period of 10 years using the
straight line method. The usefulness of an images will be reviewed periodically
and charged to operations upon determination of abandonment.
Note 9 - Related Party transactions
a. Issuance of Common Shares
In June, 1995, the Company issued 958,400 Shares of Common Stock and
1,500,000 Shares of Class "A" Convertible Preferred Stock to Stephen S. Saltman,
President, in consideration of his historic costs of $20,000 in accounts
receivable and the contribution of furniture and photographic equipment and
images in the amount of $180,000 for an average price per preferred share of
$.067 per share and an average price per common share of $.104 per share.
On December 31, 1996, the Board of Directors voted to rescind the issuance
of 1,500,000 Shares of Convertible Preferred Stock and 200,000 Shares of Common
Stock to Stephen Saltman and convert the consideration of $100,000 to additional
paid in capital.
On February 18, 1997, the Company sold 600,000 Shares of Common Stock for
an aggregate consideration of $5,000 or $.008 per share to Damian J. Greco, an
officer and director of the Company. Mr. Greco assigned these Shares of Common
Stock to Clayton Street Advisors, L.P., a company of which the members of Mr.
Greco's family are the only shareholders.
b. Loan payable shareholders
As of December 31, 1996, the Company is obligated to repay a loan payable
that was used as working capital to Mr. Roger Fidler, a shareholder in the
principal amount of $10,000 plus interest of $500 computed at the rate of 10%
per annum. The balance due at December 31, 1996 and July 31, 1997 was $5,000
plus accrued interest.
As of December 31, 1996, the Company borrowed $9,283 from Stephen Saltman
and is to repaid out of the proceeds of the registered offering with interest at
6%.
In February, 1997, the Company borrowed $10,000 from Damian J. Greco and is
to repaid out of the proceeds of the registered offering with interest at 6%.
<PAGE>
c. Employment Agreement
In May, 1997, the Company entered into employment agreements with two of
its officers, Stephen S. Saltman and Damian J. Greco. Pursuant to the terms of
their agreements, Mr. Saltman and Mr. Greco will receive annual compensation at
a rate of $180,000 and $160,000, respectively with 10% escalation's during the
term of the agreements. The agreements are for a term of five years expiring
May, 2002. Pursuant to the terms of the agreements, each employee received stock
options under the Company's Senior Management Incentive Plan to purchase 50,000
and 50,000 shares at $8.00 per share, respectively. These options vest at the
rate of 33.3% per annum commencing May, 1998. The agreement restricts Mr.
Saltman and Mr. Greco from competing with the Company for a period of three
years after the termination of their employment.
As of July 31, 1997, the Company accrued an aggregate of $85,000 in
salaries due Stephen Saltman and Damian Greco.
No other officer's earned over $100,000.
d. Consulting Agreement
On February 14, 1997, the Company entered into a consulting agreement with
Marca Group, Inc., a company wholly owned by Damian Greco. Marca Group, Inc.
provided financial and management consulting services between the months of
February and July, 1997. The fee of $180,000 will be paid from the proceeds of a
registered offering. The balance of $180,000 is characterized as a component of
accounts payable at July 31, 1997.
e. Senior Management Incentive Plan
In August, 1997, the Company adopted the Senior Management Incentive Plan
(the "Management Plan"), which was adopted by shareholder consent. The
Management Plan provides for the issuance of up to 350,000 Shares of Common
Stock in connection with the issuance of stock options and other stock purchase
rights to executive officers and other key employees.
Directors who are not otherwise employed by the Company will not be
eligible for participation in the Management Plan. The Management Plan provides
for four types of awards: Stock Options, Incentive Stock Rights, Stock
Appreciation Rights and Restricted Stock Purchase Agreements.
The Management Plan is to be administered by the Board of Directors or a
committee of the Board. The issuance's of shares or options may be granted to
employees, officers, directors, consultants of the Company or any other parties
who have made a significant contributions to the business and success of the
Company. The exercise price of the options granted under the Management Plan may
be more, equal to or less than the then current market price of the Shares of
Common Stock as deemed to be appropriate.
Stock Options
Options granted under the Management Plan may be either incentive stock
options ("ISO's") or options which do not qualify as ISO's ("non-ISO's"). ISO's
may be granted at an option price of not less than 100% of the fair market value
of the Common Stock on the date of grant, except that an Iso granted to any
person who owns capital stock representing more than 10% of the total combined
voting power of all classes of Common Stock must be granted at an exercise price
of at least 110% of the fair market value of the Common Stock on the date of
grant. The exercise price of the non-ISO's may not be less than 85% of the fair
market value of the Common Stock on the date of grant. Unless the Administrator
determines otherwise, no ISO or non-ISO may be exercisable earlier than 1 year
from the date of grant. ISO's may not be granted to persons who are not
employees of the Company. ISO's granted to 10% shareholders may be exercisable
for a period of up to five years from the date of the grant. No individual may
be granted ISO's that become exercisable in any calendar year for Common Stock
having a fair market value at the time of grant in excess of $100,000. Non-ISO's
may be exercisable for a period of up to 13 years from the date of grant.
Payment of Shares of Common Stock purchases pursuant to exercise of stock
options will be paid in full in cash, or at the discretion of the Administrator
by Shares of Common Stock having a fair market value equal to the total exercise
price or by a combination of the above.
<PAGE>
Upon termination of employment or consulting services, an optionee will be
entitled to exercise the vested portion of an option for a period of up to three
months after the date of termination, except that if the reason for termination
was a discharge for cause, the option will expire immediately, and if the reason
for termination was for death or permanent disability of the optionee, the
vested portion of the option will remain exercisable for a period of 12 months.
Incentive Stock Rights
Incentive stock rights consist of incentive stock units equivalent to one
share of Common Stock in consideration for services performed for the Company
without the payment of cash.
Stock Appreciation Rights ("SAR's")
Stock Appreciation Rights may be granted to recipients of options under the
Management Plan. SAR's may be granted simultaneously with or subsequent to, the
grant of a related option and may be exercisable to the extent that the related
option is exercisable, except that no SAR granted with respect to an ISO may be
exercised unless the fair market value of the Common Stock on the date of
exercise exceeds the exercise price of the ISO.
The exercise of any portion of either the related option or the tandem
SAR's will cause a corresponding reduction I the number of shares remaining
subject to the option or the tandem SAR's.
Restricted Stock Purchase Agreements
Restricted stock purchase agreements provide for the sale by the Company
Shares of Common Stock at prices to be determined by the Board, which shares
will be subject to restrictions on disposition for a stated period during which
the purchaser must continue employment with the Company in order to retain the
shares. payment must be in cash.
Note 10 - Income Taxes
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of December 31, 1996 and July 31, 1997,
the Company had no material current tax liability, deferred tax assets, or
liabilities to impact on the Company's financial position because the deferred
tax asset related to the Company's net operating loss carryforward and was fully
offset by a valuation allowance.
At July 31, 1997, the Company has net operating loss carry forwards for
income tax purposes of $735,303. This carryforward is available to offset future
taxable income, if any, and expire in the year 2010. The Company's utilization
of this carryforward against future taxable income may become subject to an
annual limitation due to a cumulative change in ownership of the Company of more
than 50 percent.
The components of the net deferred tax asset are as follows:
Deferred tax asset:
July 31,
1997
Net operating loss carry forward $ 250,000
Valuation allowance $(250,000)
---------
Net deferred tax asset $ -0-
========
<PAGE>
The Company recognized no income tax benefit from the loss generated in the
year ended December 31, 1996 and for the seven months ended July 31, 1997.
SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. The Company's ability to realize benefit of its deferred tax asset
will depend on the generation of future taxable income. Because the Company has
yet to recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.
Corporate tax expense for the year ended December 31, 1996 consists of New
Jersey State corporate tax liability of $600.
Note 11 - Business and Credit Concentrations
The amount reported in the financial statements for cash, trade accounts
receivable and investments approximates fair market value. Because the
difference between cost and the lower of cost or market is immaterial, no
adjustment has been recognized and investments are recorded at cost.
Financial instruments that potentially subject the company to credit risk
consist principally of trade receivables. Wholesale distributors of tables
account for a substantial portion of trade receivables; collateral is generally
not required
The Company derives its sales from domestic customers. As of December 31,
1996 and July 31, 1997, three major customer accounted for approximately 80% of
the Company's sales.
Note 12 - Commitments and Contingencies
a. Lease agreements
As of July 31, 1997, the Company leased 4,200 square feet of office and
production space at East 13th Street, Paterson, New Jersey at a monthly rent of
$2,160 until May 1, 1996 when the rent decreased to $1,800 for two years.
In August, 1997, the Company entered into a new 3 year lease agreement for
10,000 square feet commencing September 1, 1997 for office, production and
manufacturing facilitates at 53 West Century Road, Paramus, New Jersey for a
monthly rental of $5,000
b. Note Payable-Bank
The Company is obligated to repay a loan from the Chrysler Financial, Inc.
in the principal amount of $5,500 with interest at 18% in equal monthly
installments of $221.50. As of December 31, 1996 and July 31, 1997, the balance
due was $4,500 and 3,050 respectively.
c. Note Payable-Investor
The Company is obligated to repay a loan in the amount of $211,000 with
interest at 10% to an investor.
The Company is obligated to repay a loan in the principal amount of $20,000
with interest at 10% to an unrelated party. As of December 31, 1996, the balance
due is $5,000 plus accrued interest of $875.
d. Underwriter's Agreement
The Company has entered into a underwriter's agreement with Global Equities
Group, Inc. for the sale of the Company's registered offering for 1,000,000
Units.
The Company has agreed to the Underwriter an option, exercisable for thirty
days from the date of the prospectus to purchase an additional 150,000 Units at
the public offering price.
<PAGE>
The Company has agreed to pay to the Underwriter 3% of the gross proceeds
of the Securities sold by the Company, or a total of $219,150 ($251,850 if the
Underwriter's Over-allotment Option is exercised in full.) for the Underwriter's
expenses in excess of the non-accountable basis. of which nothing has been paid
to date. The Underwriter's expenses in excess of the non-accountable expense
allowance will be borne by the Underwriter.
In addition, the Underwriter has agreed with the Company to act as a
warrant solicitation agent, and may participate in the solicitation of the
exercise of the Warrants. Upon the exercise of the Warrants, the Company will
pay the Underwriter a commission of 5% of the aggregate exercise price of the
Warrants exercised.
In connection with this offering, the Company has agreed to sell to the
Underwriter, for $100, five year warrants to purchase from the Company an
aggregate of 100,000 Units. The Underwriter's Warrants are exercisable at a
price equal to 120% of the public offering price of the Units for a four year
period commencing one year from the date of the Prospectus. The Underwriter's
may not be sold, transferred, assigned or hypothecated except to the officers of
the Underwriter. The Underwriter's will contain anti-dilution provisions
providing for appropriate adjustment under certain circumstances.
The Company has agreed, for a period of five years from the date of the
Prospectus, to the holders of the Underwriters warrants or underlying shares of
its intention to file registration statement, and is such case to require the
Company to include the Underwriter's warrants and underlying shares in such
registration statement at the Company's expense.
The Company has further agreed, director or shareholder of the Company's
Securities, sell directly or indirectly, any Shares of Common Stock for a period
of 24 months without prior written consent of the Underwriter.
Note 13 - Development Stage Company
The Company is considered to be a development stage company with little
operating history. The Company is dependent upon the resources of the Company's
management for its continued existence. The Company will also be dependent upon
its ability to raise additional capital to complete is marketing program,
acquire additional equipment, management talent, inventory and working capital
to engage in profitable business activity. Since its organization, the Company's
activities have been limited to the enterin into the marketing of limited
production quantities for the furniture industry, preparation of documentation
and the sale of a registered offering.
Note 14 - Registered Offering
The Company is offering 1,000,000 Units. Each Unit consisting of one Share
of Common Stock and three Class A Redeemable Warrants through Global Equities
Group, Inc., (the "Underwriter"). The securities comprising the Units will be
separately transferable _____ days from the date of the Prospectus.. Each
Warrant entitles the registered holder to purchase, at any time during the
period commencing on the Separation Date, one Share Common Stock at a price of
$9.00 per share through a date three years following the separation date. The
Warrants are redeemable by the Company at any time, upon thirty days notice, at
a redemption price of $.05 per Warrant, provided that the closing bid quotation
of the Company's stock for each of the thirty days ending on the third day prior
to the day on which the Company gives notice has been 150% of the exercise price
of the Warrants being redeemed.
The registration statement also relates to the offer and sale of an
aggregate of 140,000 Warrants owned by certain selling security holders. The
Security holder's Warrants are being registered pursuant to registration rights
agreements antlered into by the Company and the selling Security holders. The
selling Security holders have each agreed not to sell any of the securities
being registered in the Securities holder's Offering for a period of twenty four
months from the Effective Date withoredeemed.
The registration statement also relates to the offer and sale of an
aggregate of 140,000 Warrants owned by certain selling security holders. The
Security holder's Warrants are being registered pursuant to registration rights
agreements entered into by the Company and the Selling Security holders.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
financial statements for the seven month period ended July 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jul-31-1997
<CASH> 82,893
<SECURITIES> 0
<RECEIVABLES> 50,000
<ALLOWANCES> 0
<INVENTORY> 2,300
<CURRENT-ASSETS> 140,329
<PP&E> 302,165
<DEPRECIATION> (70,430)
<TOTAL-ASSETS> 424,274
<CURRENT-LIABILITIES> 928,731
<BONDS> 0
0
0
<COMMON> 221,000
<OTHER-SE> 9,846
<TOTAL-LIABILITY-AND-EQUITY> 424,274
<SALES> 4,808
<TOTAL-REVENUES> 4,808
<CGS> 2,884
<TOTAL-COSTS> 384,905
<OTHER-EXPENSES> 20,625
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,625
<INCOME-PRETAX> (403,606)
<INCOME-TAX> 0
<INCOME-CONTINUING> (403,606)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (403,606)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
CERTIFICATE OF INCORPORATION
OF
IMAGING DYNAMICS, INC.
THIS IS TO CERTIFY THAT, there is hereby organized a corporation under
and by virtue of N.J.S. 14A:l-l et seq.1 the "New Jersey Business Corporation
Act."
1. The name of the corporation is Imaging Dynamics, Inc.
2. The address (and zip code) of this corporation's initial registered
offices is: 400 Grove Street Glen Rock, New Jersey 07452
and the name of the corporation's initial registered agent at such address
is Roger L. Fidler.
3. The purposes for which this corporation is organized are:
To engage in any activity with~n the purposes for which corporations may be
organized under the "New Jersey Business Corporation Act." N.J.S. 14A:l-l et
seq.
4. The aggregate number of shares which the corporation shall have the
authority to issue is:
20,000,000 Shares of Common Stock and 5,000,000 of Preferred Stock with no
Par Value, for a total of 25,000,000 in all.
5. The first Board of Directors of this corporation shall consist of one
Director and the name and address of such person who is to serve as such
Director is:
<PAGE>
Name: Roger L. Fidler
Address: 400 Grove Street, Glen Rock, New Jersey 07452
Zip Code: 07452
6. The name and address of each incorporator is:
Name: Wanda Billet
Address: 400 Grove Street, Glen Rock, New Jersey
Zip Code: 07452
IN WITNESS WHEREOF, each individual incorporator, each being over the age
of eighteen years, has signed this Certificate; or if the incorporator be a
corporation, has caused this Certificate to be signed by its authorized
officers, this second day of June 1995.
Wanda Billet
<PAGE>
CERTIFICATE OF INCORPORATION OF
IMAGING DYNAMICS, INC.
FORWARDED FOR RECORDING AND FILING BY:
Roger L. Fidler
400 Grove Street
Glen Rock, New Jersey 07452
BY-LAWS
OF
IMAGING DYNAMICS, INC.
ARTICLE I - OFFICES
1. The registered office of the corporation shall be as designated in
the Certificate of Incorporation of Imaging Dynamics, Inc. (hereinafter referred
to as "Imaging" or the corporation), unless changed by resolution of the
corporation's
Board of Directors.
2. The corporation may also have offices at such other places as-the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
1. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal, New
Jersey".
ARTICLE III - SHAREHOLDERS' MEETING
1. Meetings of the shareholders shall be held at the office of the
corporation at 36-38 East 13th Street, Patterson, New Jersey, or at such other
place or places either within or without the State of New Jersey, as may from
time to time be selected.
2. The annual meeting of the shareholders, shall be held on the second
Saturday of February in each year, if not a legal holiday, and if a legal
holiday, then on the next secular day following at 10:00 o'clock a.m. when they
shall elect a Board of
<PAGE>
Directors, and transact such other business as may properly be brought before
the meeting. If the annual meeting shall not be called and held during any
calendar year, any shareholder may call such meeting at any time thereafter.
3. The presence, in person or by proxy, of shareholders entitled to
cast at least a majority of the votes which all shareholders are entitled to
cast on the particular matter shall constitute a quorum for the purpose of
considering such matter, and, unless otherwise provided by statute, the acts, at
a duly organized meeting, of the shareholders present, in person or by proxy,
entitled to cast at least a majority of the votes which all shareholders present
are entitled to cast shall be the acts of the shareholders. The shareholders
present at a duly organized meeting can continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum. Adjournment, or adjoumments, of any annual or special meeting may
be taken but any meeting at which directors are to be elected shall be adjourned
only from day to day, or for such longer periods not exceeding fifteen days
each, as may be directed by shareholders who are present in person or by proxy
and who are entitled to cast at least a majority of the votes which all such
shareholders would be entitled to cast at an election of directors until such
directors have been elected. If a meeting cannot be organized because a quorum
has not attended, those present may, except as otherwise provided by statute,
adjourn the meeting to such time and place as they may determine, but in the
case of any meeting called for the election of directors, those who attend the
<PAGE>
second of such adjourned meetings, although less than a quorum, shall
nevertheless constitute a quorum for the purpose of electing directors.
4. Every shareholder entitled to vote at a meeting of shareholders, or
to express consent or dissent to corporate action in writing without a meeting,
may authorize another person or persons to act for him by proxy. Every proxy
shall be executed in writing by the shareholders, or by his duly authorized
attorney in ( fact, and filed with the Secretary of the corporation. A proxy,
unless coupled with an interest, shall be revocable at will, notwithstanding any
other agreement or any other provision in the proxy to the contrary, but the
revocation of a proxy shall not be effective until notice thereof has been given
to the Secretary of the corporation. No unrevoked proxy shall be valid after
eleven months from the date of its execution, unless a longer time is expressly
provided therein, but in no event shall a proxy, unless coupled with an interest
be voted on after three years from the date of its execution. A proxy shall not
be revoked by the death or incapacity of the maker unless before the vote is
counted or the authority is exercised, written notice of such death or
incapacity is given to the Secretary of the corporation. A shareholder shall not
sell his vote or execute a proxy to any person for any sum of money or anything
of value. A proxy coupled with an interest shall include an unrevoked proxy in
favor of a creditor of a shareholder and such proxy shall be valid so long as
the debt owed by him to the creditor remains unpaid. Elections for directors
need not be by ballot, except upon demand made by a
<PAGE>
shareholder at the election and before the voting begins. Cumulative voting
shall not be allowed. No share shall be voted at any meeting upon which any
installment is due and unpaid.
5. Written notice of the annual meeting shall be given to each
shareholder entitled to vote thereat, at least five (5) days prior to the
meeting.
6. In advance of any meeting of shareholders, the Board of Directors
may appoint judges of election, who need not be shareholders, to act at such
meeting or any adjournment thereof. If judges of election be not so appointed,
the chairman of any such meeting may, and on the request of any shareholder or
his proxy shall, make such appointment at the meeting. The number of judges
shall be one or three. If appointed at a meeting on the request of one or more
shareholders or proxies, the majority of shares present and entitled to vote
shall determine whether one or three judges are to be appointed. On request of
the chairman of the meeting, or of any shareholder or his proxy, the judges
shall make a report in writing of any challenge or question or matter determined
by them, and execute a certificate of any fact found by them. No person who is a
candidate for office shall act as a judge.
7. Special meetings of the shareholders may be called at any time by
the President, or the Board of Directors, or shareholders entitled to cast at
least one-fifth of the votes which all shareholders are entitled to cast at the
particular meeting. At any time, upon written request of any person or persons
who have duly called a special meeting, it shall be the
<PAGE>
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after the receipt of the request, and to give due notice thereof. If
the Secretary shall neglect or refuse to fix the date of the meeting and give
notice thereof, the person or persons calling the meeting may do so.
8. Business transacted at all special meetings shall be confined to
the objects stated in the call and matters germane thereto, unless all
shareholders entitled to vote are present and ( consent.
9. Written notice of a special meeting of shareholders stating the
time and place and object thereof, shall be given to each shareholder entitled
to vote thereat at least five (5) days before such meeting, unless a greater
period of notice is required by statute in a particular case.
10. The officer or agent having charge of the transfer books shall
make at least five days before each meeting of shareholders, a complete list of
the shareholders entitled to vote at the meeting, arranged in alphabetical
order, with the address of and the number of shares held by each, which list
shall be subject to inspection by any shareholder, at any time during usual
business hours. Such list shall also be produced and kept open at the time and
place of the meeting, and shall be subject to the inspection of any shareholder
during the whole time of the meeting. The original share ledger or transfer
book, or a duplicate thereof kept in this state, shall be prima facie evidence
as to who are the shareholders entitled to examine such list or share ledger or
transfer book, or to vote in person or by
<PAGE>
proxy, at any meeting of shareholders.
ARTICLE IV - DIRECTORS
1. The business of this corporation shall be managed by its Board of
Directors, which shall initially be composed of a sole member, but which may be
increased up to eleven members. The directors need not be residents of this
state or shareholders in the corporation. They shall be elected by the
shareholders, at ( the annual meeting of shareholders of the corporation, and
each director shall be elected for the term of one year and until his successor
shall be elected and shall qualify. Whenever there are three or more
shareholders, there must be at least three directors. The number of directors
may be increased or decreased within the limits set forth herein above by
majority vote of the Board of Directors. In the event that a vacancy occurs on
the Board of Directors, the remaining directors may fill that vacancy by
appointing by majority vote a replacement director who shall serve until his
successor is elected and qualified.
2. In addition to the powers and authorities by these By-Laws
expressly conferred upon them, the Board may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Articles or by these bylaws directed or required to be exercised or done by
the shareholders.
3. The meetings of the Board of Directors may be held at such place
within this state, Qr elsewhere, as a majority of the directors may from time to
time appoint, or as may be designated in the notice calling the meeting.
<PAGE>
4. Each newly elected Board may meet at such place and time as shall
be fixed by the shareholders at the meeting at which such directors are elected
and no notice shall be necessary to the newly elected directors in order legally
to constitute the meeting, or they may meet at such place, and time as may be
fixed by the con ent in writing of all directors.
5. Regular meetings of the Board shall be held without notice on the
second Saturday in February of each year at 10:30 a.m. at the registered office
of the corporation, or at such other time and place as shall be determined by
the Board.
6. Special meetings of the Board may be called by the President on
five days notice to each director, either personally or by mail or by telegram;
special meetings shall be called by the President or Secretary in like manner
and on like notice on the written request of a majority of the directors in
office.
7. A majority of the directors in office shall be necessary to
constitute a quorum for the transaction of business, and the Acts of a majority
of the directors present at a meeting at which a quorum is present shall be the
acts of the Board of Directors. Any action which may be taken at a meeting of
the directors may be taken without a meeting if a consent or consents in
writing, setting forth the action so taken, shall be signed by all of the
directors and shall be filed with the Secretary of the corporation.
8. Directors as such, shall not receive any stated salary for their
services, but by resolution of the Board, a fixed sum and expenses of
attendance, if any, may be allowed for attendance
<PAGE>
at each regular or special meeting of the Board PROVIDED, that nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity a~d receiving compensation theref or.
ARTICLE V - OFFICERS
1. The executive officers of the corporation shall be chosen by the
directors and shall be a President, Secretary and Treasurer The Board of
Directors may also choose a Vice President and such other officers and agents as
it shall deem necessary, who shall hold their offices for such terms and shall
have such authority and shall perform such duties as from time to time shall be
prescribed by the Board. Any number of offices may be held by the same person.
It shall not be necessary for the officers to be directors.
2. The salaries of all officers and agents of the corporation shall be
fixed by the Board of Directors.
3. The officers of the corporation shall hold office for one year and
until their-successors are chosen and have qualified. Any officer or agent
elected or appointed by the Board of Directors may be removed by the Board oi
Directors whenever in its judgment the best interests of the corporation will be
served thereby.
4. The President shall be the chief executive officer of the
corporation; he shall preside at all meetings of the shareholders and directors;
he shall have general and active management of the business of the corporation,
shall see that all orders and
<PAGE>
resolutions of the Board are carried into effect, subject, however, to the right
of the directors to delegate any specific powers, except such as may be by
statute exclusively conferred on the President, to any other officer or officers
of the corporation. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation. He shall be EX-OFFICIO a
member of all committees, and shall have the
general powers and duties of supervision and management usually ( vested in
the office of President of a corporation.
5. The Secretary shall attend all sessions of the Board and all
meetings of the shareholders and act as clerk thereof, and record all the votes
of the corporation and the minutes of all its transactions in a book to be kept
for that purpose; and shall perform like duties for all committees of the Board
of Directors when required. He shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or President,
and under whose supervision he shall be. He shall keep in safe custody the
corporate seal of the corporation, and when authorized by the Board, affix the
same to any instrument requiring it.
6. The Treasurer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper
<PAGE>
vouchers for such disbursements, and shall render to the President and
directors, at the regular meetings of the Board, or whenever they may require
it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
ARTICLE VI VACANCIES
1. If the office of any officer or agent, one or more, becomes vacant
for any reason, the Board of Directors may choose a successor or successors, who
shall hold office for the unexpired term in respect of which such vacancy
occurred.
2. Vacancies in the Board of Directors, including vacancies resulting
from an increase in the number of directors, shall be filled by a majority of
the remaining members of the Board though less than a quorum, and each person so
elected shall be a director until his successor is elected by the shareholders,
who may make such election at the next annual meeting of the shareholders or at
any special meeting duly called for that purpose and held prior thereto.
ARTICLE VII CORPORATE RECORDS
1 There shall be kept at the registered office or principal place of
business of the corporation an, original or duplicate record of the proceedings
of the shareholders and of the directors, and the original or a copy of its
ByLaws, including all amendments or alterations thereto to date, certified by
the Secretary of the corporation. An original or duplicate share register shall
also be kept at the registered office or principal
<PAGE>
place of business or at the office of a transfer agent or registrar, giving the
names of the shareholders, their respective addresses and the number and classes
of shares held by each.
2. Every shareholder shall, upon written demand under oath stating the
purpose thereof, have a right to examine, in person or by agent or attorney,
during the usual hours for business for any proper purpose, the share register,
books or records of account, and records of the proceedings of the shareholders
and directors, and make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a shareholder. In
every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the shareholder. The demand under oath shall be directed
to the corporation at or at its principal place of business.
ARTICLE VIII - SHARE CERTIFICATES, DIVIDENDS, ETC.
1. The share certificates of the corporation shall be numbered and
registered in the share ledger and transfer books of the corporation as they are
issued. They shall bear the corporate seal and shall be signed by the President
and Secretary.
2. Transfers of shares shall be made on the books of the corporation
upon surrender of the certificates therefor, endorsed by the person named in the
certificate or by attorney, lawfully constituted in writing. No transfer shall
be made which is inconsistent with law.
<PAGE>
3. The Board of Directors may fix a time, not more than fifty days,
prior to the date of any meeting of shareholders, or the date fixed for the
payment of any dividend or distribution, or the date for the allotment of
rights, or the date when any change or conversion or exchange of shares will be
made or go into effect, as a record date for the determination of the
shareholders entitled to notice of, or to vote at, any such meeting, or entitled
to receive payment of any such dividend or distribution, or to receive any such
allotment of rights, or to exercise the rights in respect to any such change,
conversion, or exchange of shares. In such case, only such shareholders as shall
be shareholders of record on the date so fixed shall be entitled to notice of,
or to vote at, such meeting or to receive payment of such dividend, or to
receive such allotment of rights, or, to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after any record date fixed as aforesaid. The Board of Directors may close the
books of the corporation against transfers of shares during the whole or any
part of such period, and in such case, written or printed notice thereof shall
be mailed at least ten days before the closing thereof to each shareholder of
record at the address appearing on the records of the corporation or supplied by
him to the corporation for the purpose of notice. While the stock transfer books
of the corporation are closed, no transfer of shares shall be made thereon. If
no record date is fixed for the determination of shareholders entitled to
receive notice of, or vote at, a shareholders' meeting, transferees of shares
which are
<PAGE>
transferred on the books of the corporation within ten days next preceding the
date of such meeting shall not be entitled to notice of or to vote at such
meeting.
4. In the event that a share certificate shall be lost, destroyed or
mutilated, a new certificate may be issued theref or upon such terms and
indemnity to the corporation as the Board of Directors may prescribe.
5. The Board of Directors may declare and pay dividends upon the
outstanding shares of the corporation, from time to time and to such extent as
they deem advisable, in the manner and upon the terms and conditions provided by
statute and the Articles of Incorporation.
6. Before payment of any dividend there may be set aside out of the
net profits of the corporation such sum or sums as the directors, from time to
time, in their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conducive to the interests of the corporation, and the directors may
abolish any such reserve in the manner in which it was created.
ARTICLE IX MISCELLANEOUS PROVISIONS
1. All checks or demands for money and notes of the corporation shall
be signed by such officer or officers as the Board of Directors may from time to
time designate.
2. The fiscal year shall begin in the first day of January
<PAGE>
each year.
3. Whenever written notice is required to be given to any person, it
may be given to such person, either personally or~y sending a copy thereof
through the mail, or by telegram, charges prepaid, to his address appearing on
the books of the corporation, or supplied by him to the corporation for the
purpose of notice. If the notice is sent by mail or by telegraph, it shall be
deemed to have been given to the person entitled thereto when deposited in the
United States mail or with a telegraph office for transmission to such person.
Such notice shall specify the place, day and hour of the meeting and, in the
case of a special meeting of shareholders, the general nature of the business,
to be transacted.
4. Whenever any written notice is required by statute, or by the
Articles or By-Laws of this corporation, a waiver thereof in writing, signed by
the person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice. Except
in the case of a special meeting of shareholders, neither the business to be
transacted at nor the purpose of the meeting need be specified in the waiver of
notice of such meeting. Attendance of a person, either in person or by proxy, at
any meeting shall constitute a waiver of notice of such meeting, except where a
person attends a meeting for the express purpose of objecting to the transaction
of any business because the meeting was not lawfully called or convened.
5. One or more directors or shareholders may participate in
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a meeting of the Board, of a Committee of the Board or of the shareholders, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
6. Except as otherwise provided in the Articles or Bylaws of this
corporation, any action which may be taken at a meeting of the shareholders or
of a class of shareholders may be taken without a meeting, if a consent or
consents in writing, setting ( forth the action so taken, shall be signed by all
of the shareholders who would be entitled to vote at a meeting for such purpose
and shall be filed with the Secretary of the corporation.
7. Any payments made to an officer or employee of the corporation such
as a salary, commission, bonus, interest, rent, travel or entertainment expense
incurred by him, which shall be disallowed in whole or in part as a deductible
expense by the Internal Revenue Service, shall be reimbursed by such officer or
employee to the corporation to the full extent of such disallowance. It shall be
the duty of the directors, as a Board, to enforce payment of each such amount
disallowed. In lieu of payment by the officer or employee, subject to the
determination of the directors, proportionate amounts may be withheld from his
future compensation payments until the amount owed to the corporation has been
recovered.
ARTICLE X ANNUAL STATEMENT
1. The President and Board of Directors shall present at each annual
meriting a full and complete statement of the business and affairs of the
corporation for the preceding year. Such statement shall be prepared and
presented in whatever manner the Board of Detectors shall deem advisable and
need not be verified by a certified public accountant.
ARTICLE XI AMENDMENTS
1. These By-Laws may be amended or repealed by the vote of the directors
entitled to cast at least a majority of the votes which all directors are
entitled to cast thereon1 at any regular or special meeting of the directors,
duly convened after notice to the directors of that purpose.
SENIOR MANAGEMENT INCENTIVE PLAN OF
IMAGING DYNAMICS, INC.
1. PURPOSE OF THE PLAN
The purpose of the Senior Management Incentive Plan (the "Management
Plan") of Imaging Dynamics, Inc. (the "Company") is to provide an incentive to
key management employees whose present and potential contributions to the
Company and its Subsidiaries (as such term is defined in Section 2 below) are or
will be important to the success of the Company by affording them an opportunity
to acquire a proprietary interest in the Company. It is intended that this
purpose will be effected through the issuance of (i) incentive stock rights,
(ii) stock options, (iii) stock appreciation rights; (iv) limited stock
appreciation rights and (v) shares of Common Stock, $.001 par value per share,
of the Company ("Common Stock") subject to restrictions on disposition
("restricted shares") (collectively, such options, rights and restricted shares
are referred to herein as "Awards"). Stock options may be granted under the
Management Plan which qualify as "Incentive Stock Options" under Section 422A of
the Internal Revenue Code of 1986, as it may be hereafter amended (the "Code").
Such options are sometimes referred to as an "ISO" or collectively as "ISOs."
2. ELIGIBILITY
Awards may be made or granted to key management employees of the
Company or its Subsidiaries who are deemed to have the potential to have a
significant effect on the future success of the Company (such eligible persons
being referred to herein as "Eligible Participants"). The term "management
employees" shall include executive officers of the Company or of a Subsidiary. A
director of the Company or of any Subsidiary who is not also an employee of the
Company or of one of its Subsidiaries will not be eligible to receive any Awards
under the Management Plan. No ISO shall be granted to an employee who, at the
time the option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of capital stock of the employer
corporation (as such term is used in the Code) or any Parent or Subsidiary of
the employer corporation, provided, however, that an ISO may be granted to such
an employee if at the time such ISO is granted the option price is at least one
hundred ten percent (110%) of the fair market value of stock subject to the ISO
on the date of grant (as determined pursuant to Subsection 8(a) hereof) and such
ISO is by its terms not exercisable after the expiration of five (5) years from
the date such option is granted. The terms "Subsidiary" and "Parent") as used
herein shall have the meanings given them in Section 425 of the Code. Awards may
be made to executive personnel who hold or have held options, rights or shares
under the Management Plan or any other plans of the Company.
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3. STOCK SUBJECT TO THE PLAN
The shares that may be issued upon exercise of options and rights and
which may be issued as restricted shares under the Management Plan shall not
exceed in the aggregate 350,000 shares of the Common Stock, as adjusted to give
effect to the anti-dilution provisions contained in Section 12 hereof. Such
shares may be authorized and unissued shares, or shares purchased by the Company
and reserved for issuance under the Management Plan. If a stock option or
incentive stock right for any reason expires or is terminated without having
been exercised in full, or if shares restricted are repurchased by the Company
in accordance with the terms thereof, those shares relating to an unexercised
stock option or incentive stock rights or shares which have been repurchased
shall again become available for grant and/or sale under the Management Plan.
4. AWARDS UNDER THE PLAN
Awards under the Management Plan may be of five types. They are:
"incentive stock rights," "stock options," "stock appreciation rights", "limited
stock appreciation rights" and "restricted shares. " "Incentive Stock rights"
are composed of incentive stock units which give the holder the right to
receive, without payment of cash or property to the Company, shares of Common
Stock, subject to the terms, conditions and restrictions described in Section 7
hereof. An option, including an ISO, is a right to purchase Common Stock in
accordance with Section 8 hereof. A "stock appreciation right" is a right given
to the holder of a stock option to receive, upon surrender of all or a portion
of his stock option without payment of cash or property to the Company, a number
of shares of Common Stock and/or cash determined pursuant to a formula in
accordance with Section 9 hereof. A "limited stock appreciation right" is a
right given to a holder of a stock option to receive, upon the occurrence of
certain events generally constituting a change in control of the Company, a
number of shares of Common Stock and/or cash upon surrender of all or a portion
of his stock option without the payment of cash or property to the Company, in
accordance with Section 10 hereof. "Restricted shares" are shares of Common
Stock which, following issuance, are nontransferable and subject to substantial
risk of forfeiture until specific conditions based on continuing employment or
achievement of preestablished performance objectives are met, in accordance with
Section 11 hereof. All references to "cash" herein shall mean "cash or certified
check. "
5. ADMINISTRATION
(a) Procedure. The Management Plan shall be administered by the Board
of Directors or by a Committee of the Board of Directors, if one is appointed
for this purpose (the "Committee"). Committee members shall serve for such term
as the Board of Directors may in each case determine, and shall be subject to
removal at any time by the Board of Directors. Members of the Board of Directors
who are either eligible for awards or have been granted awards may not vote on
any matters affecting the administration of the Management Plan or the grant of
any Award pursuant to the Management Plan.
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(b) Powers of the Board or Committee. As used herein, except as the
Committee's powers are specifically limited in Sections 5, 6, 20 and 21 hereof,
reference to the Board of Directors shall mean such Board or the Committee,
whichever is then acting with respect to the Management Plan. Subject to the
provisions of the Management Plan, the Board of Directors shall have the
authority in its discretion: (i) to determine, upon review of relevant
information, the fair market value of the Common Stock; (ii) to determine the
exercise price per share of stock options to be granted; (iii) to determine the
Eligible Participants to whom, and time or times at which, Awards shall be
granted and the number of shares to be issuable upon exercise of each stock
option or right or sold pursuant to restricted stock purchase agreements; (iv)
to construe and interpret the Management Plan; (v) to prescribe, amend and
rescind rules and regulations relating to the Management Plan; (vi) to determine
the terms and provisions of each Award (which need not be identical); and (vii)
to make all other determinations necessary to or advisable for the
administration of the Management Plan. Notwithstanding the foregoing, in the
event any employee of the Company or any of its Subsidiaries granted an Award
under the Management Plan is, at the time of such grant, a member of the Board
of Directors of the Company, the grant of such Award shall, in the event the
Board of Directors at the time such award is granted is not deemed to satisfy
the requirement of Rule 16(b)-3(b)(2)(i) or (ii) promulgated under the
Securities Exchange Act of l934, as amended (the "Exchange Act"), be subject to
the approval of an auxiliary committee consisting of not less than three persons
all of whom qualify as "disinterested persons" within the meaning of Rule
16(b)-3(d)(3) promulgated under the Exchange Act. In the event the Board of
Directors deems it impractical to form a committee of disinterested persons, the
Board of Directors is authorized to approve any award under the Management Plan.
6. DURATION OF THE PLAN
The Management Plan shall become effective upon the approval of the
requisite vote of the stockholders of the Company, and upon the approvals, if
required, of any other public authorities. The Management Plan shall remain in
effect for a term of ten (10) years from the date of adoption by the Board
unless sooner terminated under Section 20 hereof. Notwithstanding any of the
foregoing to the contrary, the Board of Directors (but not the Committee) shall
have the authority to amend the Management Plan pursuant to Section 20 hereof;
provided, however, that Awards already made shall remain in full force and
effect as if the Management Plan had not been amended or terminated.
7. INCENTIVE STOCK RIGHTS
The Board of Directors, in its discretion, may grant to Eligible
Participants incentive stock rights composed of incentive stock units. Incentive
stock rights shall be granted pursuant to incentive stock rights agreements in
such form, and not inconsistent with the Management Plan, as the Board of
Directors shall approve from time to time and shall include substantially the
following terms and conditions as determined by the Board of Directors:
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(a) Incentive Stock Units. An incentive stock rights agreement shall
specify the number of incentive stock units to which it pertains. Each incentive
stock unit shall be equivalent to one share of Common Stock. Each incentive
stock unit shall entitle the holder thereof to receive, without payment of cash
or property to the Company, one share of Common Stock in consideration for
services performed for the Company or any Subsidiary by the Eligible
Participant, subject to the lapse of the incentive periods (as hereinafter
defined).
(b) Incentive Period. The holder of incentive stock rights shall be
entitled to receive shares of Common Stock only after the lapse of such
incentive periods, and in such manner, as shall be fixed in the discretion of
the Board of Directors at the time of grant of such incentive stock rights.
(Such period or periods so fixed is or are herein referred to as an "incentive
period"). To the extent the holder of incentive stock rights receives shares of
Common Stock on the lapse of an incentive period, an equivalent number of
incentive stock units subject to such rights shall be deemed to have been
discharged.
(c) Termination by Reason of Death or Disability. In the event that the
recipient of incentive stock rights ceases to be employed by the Company or any
of its Subsidiaries during an incentive period due to death or permanent
disability (as determined by the Board of Directors), the holder of incentive
stock rights or, in the case of the death of the holder, the personal
representatives, heirs or legatees of such holder, shall be entitled to receive
a number of shares equal to an amount determined by multiplying the total number
of incentive stock units applicable to such incentive period by a fraction, the
numerator of which shall be the number of full calendar months between the date
of grant of the incentive stock rights and the date of such termination and the
denominator of which shall be the number of full calendar months between the
date of grant and the date such incentive period for such units would, but for
such termination, have lapsed. For purposes of this Subsection 7(c), this shall
constitute a lapse of the incentive period with respect to the number of
incentive stock units equal to the number of shares issued. Units upon which the
incentive period do not lapse pursuant to the foregoing sentence shall terminate
and be null and void on the date on which the recipient ceases to be employed by
the Company or any of its Subsidiaries.
(d) Termination for Any Other Reason. In the event that the employment
by the Company of the recipient to whom incentive stock rights have been issued
under the Management Plan terminates for any reason (including dismissal by the
Company with or without cause), other than death or permanent disability, such
rights as to which the incentive period has not lapsed shall terminate and be
null and void on termination of the relationship.
(e) Issuance of Shares. Upon the lapse of an incentive period, the
Company shall deliver to the holder of the related incentive stock unit a
certificate or certificates representing the number of shares of Common Stock
equal to the number of incentive stock units with respect to which an incentive
period has lapsed. The Company shall pay all applicable transfer or issue taxes.
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8. OPTIONS
Options shall be evidenced by stock option agreements in such form, and
not inconsistent with the Management Plan, as the Board of Directors shall
approve from time to time, which agreements shall contain in substance the
following terms and conditions:
(a) Option Price; Number of Shares. The option price,which shall be
approved by the Board of Directors, shall in no event be less than one hundred
percent (100%) in the case of ISOs, and eighty-five percent (85%) in the case of
other options, of the fair market value of the Company's Common Stock at the
time the option is granted. The fair market value of the Common Stock, for the
purposes of the Management Plan, shall mean: (i) if the Common Stock is traded
on a national securities exchange or on the NASDAQ National Market System
("NMS"), the per share closing price of the Common Stock on the principal
securities exchange on which they are listed or on NMS, as the case may be, on
the date of grant (or if there is no closing price for such date of grant, then
the last preceding business day on which there was a closing price); or (ii) if
the Common Stock is traded in the over-the-counter market and quotations are
published on the NASDAQ quotation system (but not on NMS), the closing bid price
of the Common Stock on the date of grant as reported by NASDAQ (or if there are
no closing bid prices for such date of grant, then the last preceding business
day on which there was a closing bid price); or (iii) if the Common Stock is
traded in the over-the-counter market but bid quotations are not published on
NASDAQ, the closing bid price per share for the Common Stock as furnished by a
broker-dealer which regularly furnishes price quotations for the Common Stock.
The option agreement shall specify the total number of shares to which
it pertains and whether such options are ISOs or are not ISOs. With respect to
ISOs granted under the Management Plan, the aggregate fair market value
(determined at the time an ISO is granted) of the shares of Common Stock with
respect to which ISOs are exercisable for the first time by such employee during
any calendar year shall not exceed $100,000 under all plans of the employer
corporation or its Parent or Subsidiaries.
(b) Waiting Period and Exercise Dates. At the time an option is
granted, the Board of Directors will determine the terms and conditions to be
satisfied before shares may be purchased, including the dates on which shares
subject to the option may first be purchased. (The period from the date of grant
of an option until the date on which such option may first be exercised is
referred to herein as the "waiting period. ") At the time an option is granted,
the Board of Directors shall fix the period within which it may be exercised
which shall not be less than one (l) year nor, for an ISO, more than ten (10)
years from the date of grant or, for a non-ISO, for more than thirteen (13)
years from the date of grant. (Any of such periods is referred to herein as the
"exercise period.")
(c) Form and Time of Payment. Stock purchased pursuant to an option
agreement shall be paid for at the time of purchase either in cash or by
certified check or, in the discretion of the Board of Directors, as set forth in
the stock option agreement (i) in a combination of cash
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and a promissory note, (ii) through the delivery of shares of Common Stock, or
(iii) in a combination of the methods described above. Upon receipt of payment,
the Company shall, without transfer or issue tax to the option holder or other
person entitled to exercise the option, deliver to the option holder (or such
other person) a certificate or certificates for the shares so purchased.
(d) Effect of Termination or Death. In the event that an option holder
ceases to be an employee of the Company or of any Subsidiary for any reason
other than permanent disability (as determined by the Board of Directors) and
death, any option, including any unexercised portion thereof, which was
otherwise exercisable on the date of termination, shall expire unless exercised
within a period of three months from the date on which the option holder ceased
to be so employed, but in no event after the expiration of the exercise period;
[provided, however, that, if the Board of Directors shall determine that an
option holder shall have been discharged for cause, options granted and not yet
exercised shall terminate immediately and be null and void as of the date of
discharge.] In the event of the death of an option holder during this three
month period, the option shall be exercisable by his or her personal
representatives, heirs or legatees to the same extent that the option holder
could have exercised the option if he or she had not died, for the three months
from the date of death, but in no event after the expiration of the exercise
period. In the event of the permanent disability of an option holder while an
employee of the Company or of any Subsidiary, any option granted to such
employee shall be exercisable for twelve (12) months after the date of permanent
disability, but in no event after the expiration of the exercise period. In the
event of the death of an option holder while an employee of the Company or any
Subsidiary, or during the twelve (12) month period after the date of permanent
disability of the option holder, that portion of the option which had become
exercisable on the date of death shall be exercisable by his or her personal
representatives, heirs or legatees at any time prior to the expiration of one
(l) year from the date of the death of the option holder, but in no event after
the expiration of the exercise period. Except as the Board of Directors shall
provide otherwise, in the event an option holder ceases to be an employee of the
Company or of any Subsidiary for any reason, including death, prior to the lapse
of the waiting period, his or her option shall terminate and be null and void.
(e) Other Provisions. Each option granted under the Management Plan may
contain such other terms, provisions, and conditions not inconsistent with the
Management Plan as may be determined by the Board of Directors.
9. STOCK APPRECIATION RIGHTS
The Board of Directors may grant, in its discretion, stock appreciation
rights to the holder of any stock option under the Management Plan. Such rights
shall be granted pursuant to a stock appreciation rights agreement in such form,
and not inconsistent with the Management Plan, as the Board of Directors shall
approve from time to time (and which may be incorporated in the stock option
agreement governing the terms of the related option) and shall include
substantially the following terms and conditions as the Board of Directors shall
determine:
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(a) Grant. Each right shall relate to a specific option granted under
the Management Plan and shall be granted to the option holder either
concurrently with the grant of such option, or at such later time as determined
by the Board of Directors.
(b) Exercise. A stock appreciation right shall entitle an option holder
to receive, without payment of cash or property to the Company, a number of
shares of Common Stock, cash, or a combination thereof in the amount determined
pursuant to Subsection 9(c) below. The Board of Directors shall determine
whether such payment shall be made in Common Stock, cash, or a combination
thereof. Unless otherwise determined by the Board of Directors, a right shall be
exercisable to no greater extent nor upon any more favorable conditions than its
related option is exercisable under Subsection 8(b) hereof. An option holder
wishing to exercise a right in accordance with this Subsection 9(b) shall give
written notice of such exercise to the Company, which notice shall state that
the holder of the right elects to exercise the right and the number of shares in
respect of which the right is being exercised. The effective date of exercise of
a right shall be the date on which the Company shall have received such notice.
Upon receipt of such notice, the Company shall: (i) deliver to the option holder
or other person entitled to exercise the right, a certificate or certificates
representing such shares; and/or (ii) pay cash. The Company shall pay all
applicable transfer or issue taxes. Notwithstanding the provisions of this
section, no stock appreciation right may be exercised within a period of six
months on the date of grant of such stock appreciation right and no stock
appreciation right granted with respect to an ISO may be exercised unless the
fair market value of the Common Stock on the date of exercise exceeds the
exercise price of the ISO.
(c) Number of Shares or Amount of Cash. The number of shares which
shall be issued pursuant to the exercise of a stock appreciation right shall be
determined by dividing (i) that portion, as elected by the option holder, of the
total number of shares which the option holder is eligible to purchase pursuant
to Subsection 8(b) hereof (and as adjusted pursuant to Section 12 hereof),
multiplied by the amount (if any) by which the fair market value (as determined
in accordance with Subsection 8(a) hereof) of a share of Common Stock on the
exercise date exceeds the option exercise price of the related option; by (ii)
the fair market value of a share of Common Stock on the exercise date. In lieu
of issuing shares of Common Stock on the exercise of a right, the Board of
Directors may elect to pay the cash equivalent of the fair market value on the
exercise date of any or all the shares which would otherwise be issuable on
exercise of the right. No fractional shares shall be issued under this
Subsection 9(c). In lieu of fractional shares, the option holder shall be
entitled to receive a cash adjustment equal to the same fraction of the fair
market value per share of Common Stock on the date of exercise.
(d) Effect of Exercise. Upon the exercise of stock appreciation rights,
the related option shall be considered to have been exercised to the extent of
the number of shares of Common Stock with respect to which such stock
appreciation rights are exercised, and shall be considered to have been
exercised to that extent for purposes of determining the number of shares of
Common Stock available for the grant of options under the Management Plan. Upon
the exercise or termination of the related option, the stock appreciation rights
with respect to such related option shall be considered to have been exercised
or terminated to the extent of the
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number of shares of Common Stock with respect to which the related option was so
exercised or terminated.
(e) Effect of Termination or Death. In the event that an option holder
ceases to be an employee or consultant of the Company or any of its Subsidiaries
for any reason, his stock appreciation rights shall be exercisable only to the
extent and upon the conditions that its related option is exercisable under
Subsection 8(d).
10. LIMITED STOCK APPRECIATION RIGHTS
The Board of Directors may grant, in its discretion, limited stock
appreciation rights ("Limited Rights") to the holder of any option with respect
to all or a portion of the shares subject to such option. Such Limited Rights
shall be granted pursuant to an agreement in such form, and not inconsistent
with the Management Plan, as the Board of Directors shall approve from time to
time (and which may be incorporated in the stock option agreement governing the
terms of the related option) and shall include substantially the following terms
and conditions as the Board shall determine.
(a) Grants. A Limited Right may be granted concurrently with the grant
of the related option or at such later time as determined by the Board of
Directors.
(b) Exercise. Unless otherwise determined by the Board of Directors, a
Limited Right may be exercised only during the period (a) beginning on the first
day following any one of (i) the date of approval by the stockholders of the
Company of an Approved Transaction (as defined in Subsection 10(e) below), (ii)
the date of a Control Purchase (as defined in Subsection 10(e) below) or (iii)
the date of a Board Change (as defined in Subsection 10(e) below); and (b)
ending on the thirtieth day (or such other date specified in the stock option
agreement) following such date (such period herein referred to as the "Limited
Right Exercise Period"). Each Limited Right shall be exercisable during the
Limited Right Exercise Period only to the extent the related option is then
exercisable, and in no event after the termination of the related option.
Limited Rights granted under the Management Plan shall be exercisable in whole
or in part by notice to the Company. Such notice shall state that the holder of
the Limited Rights elects to exercise the Limited Rights and the number of
shares in respect of which the Limited Rights are being exercised. The effective
date of exercise of a Limited Right shall be deemed to be the date on which the
Company shall have received such notice.
(c) Amount Paid Upon Exercise. Upon the exercise of Limited Rights, the
holder shall receive in cash an amount equal to the excess of the fair market
value (as determined pursuant to Subsection 8(a) above) on the date of exercise
of such Limited Rights of each share of Common Stock with respect to which such
Limited Right shall have been exercised over the exercise price per share of
Common Stock subject to the related option.
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(d) Effect of Exercise. Upon the exercise of Limited Rights, the
related option shall be considered to have been exercised to the extent of the
number of shares of Common Stock with respect to which such Limited Rights are
exercised, and shall be considered to have been exercised to that extent for
purposes of determining the number of shares of Common Stock available for the
grant of options under the Management Plan. Upon the exercise or termination of
the related option, the Limited Rights with respect to such related option shall
be considered to have been exercised or terminated to the extent of the number
of shares of Common Stock with respect to which the related option was so
exercised or terminated.
(e) Definitions. For purposes of this Section 10:
(i) An "Approved Transaction" shall mean (A) any consolidation
or merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of Common Stock would be converted into
cash, securities or other property, other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (B) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (C) the adoption of any plan or proposal for
the liquidation or dissolution of the Company.
(ii) A "Control Purchase" shall mean circumstances in which
any person (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act, corporation or other entity (other than the Company or any
employee benefit plan sponsored by the Company or any Subsidiary) (A) shall
purchase any Common Stock of the Company (or securities convertible into the
Company's Common Stock) for cash, securities or any other consideration pursuant
to a tender offer or exchange offer, without the prior consent of the Board of
Directors, or (B) shall become the "beneficial owner" (as such term is defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing twenty-five percent (25%) or more of the combined
voting power of the then outstanding securities of the Company ordinarily (and
apart from rights accruing under special circumstances) having the right to vote
in the election of directors (calculated as provided in paragraph (d) of such
Rule 13d-3 in the case of rights to acquire the Company's securities).
(iii) A "Board Change" shall mean circumstances in which, during any
period of two consecutive years or less, individuals who at the beginning of
such period constitute the entire Board shall cease for any reason to constitute
a majority thereof unless the election, or the nomination for election by the
Company's stockholders, of each new director was approved by a vote of at least
a majority of the directors then still in office.
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11. RESTRICTED SHARES
The Board of Directors may authorize, in its discretion, the issuance
of restricted shares of Common Stock to Eligible Participants pursuant to
restricted share agreements in such form, and not inconsistent with the
Management Plan, as the Board of Directors shall approve from time to time. Any
amount of restricted shares issued shall be subject to the following terms:
(a) Restricted Period and Price. The Board of Directors shall prescribe
restrictions, terms and conditions, including but not limited to the period
("restricted period") during which the holder must continue to render services
to the Company in order to retain the restricted shares, in addition to those
provided in the Management Plan. The Board shall determine the price, if any, to
be paid by the holder for the restricted shares. Upon forfeiture of any
restricted shares; any amount paid by the holder shall be repaid in full by the
Company.
(b) Issuance of Restricted Shares. Restricted shares, when issued, will
be represented by a stock certificate or certificates registered in the name of
the holder to whom such restricted shares shall have been awarded. During the
restricted period, certificates representing the restricted shares and any
securities constituting retained distributions (as defined below in Subsection
ll(c)) shall bear a restrictive legend to the effect that ownership of the
restricted shares, and the enjoyment of all rights appurtenant thereto, are
subject to the restrictions, terms and conditions provided in the Management
Plan and the applicable restricted shares agreement. Such certificates shall be
deposited by such holder with the Company, together with stock powers or other
instruments of assignment, each endorsed in blank, which will permit transfer to
the Company of all or any portion of the restricted shares and any retained
distributions that shall be forfeited or that shall not become vested in
accordance with the Management Plan and the applicable restricted shares
agreement.
(c) Rights With Respect to Restricted Shares. Restricted shares shall
constitute issued and outstanding shares of Common Stock for all corporate
purposes. The holder will have the right to vote such restricted shares, to
receive and retain all regular cash dividends, and such other distributions as
the Board may in its sole discretion designate, pay, or distribute on such
restricted shares and to exercise all other rights, powers and privileges of a
holder of Common Stock with respect to such restricted shares, with the
exception that (i) the holder will not be entitled to delivery of the stock
certificate or certificates representing such restricted shares until the
restricted period shall have expired and unless all other vesting requirements
with respect thereto shall have been fulfilled; (ii) the Company will retain
custody of the stock certificate or certificates representing the restricted
shares during the restricted period; (iii) other than regular cash dividends and
such other distributions as the Board may in its sole discretion designate, the
Company will retain custody of all distributions ("retained distributions") made
or declared with respect to the restricted shares (and such retained
distributions will be subject to the same restrictions, terms and conditions as
are applicable to the restricted shares) until such time, if ever, as the
restricted shares with respect to which such retained distributions shall have
been made, paid or declared shall have become vested, and such retained
distributions shall not bear interest or be segregated in separate accounts;
(iv) the holder may not sell, assign, transfer,
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pledge, exchange, encumber of dispose of the restricted shares or any retained
distributions during the restricted period; and (v) a breach of any
restrictions, terms or conditions provided in the Management Plan or established
by the Board with respect to any restricted shares or retained distributions
will cause a forfeiture of such restricted shares and any retained distributions
with respect thereto.
(d) Completion of Restricted Period. On the last day of the restricted
period with respect to each Award of restricted shares, and the satisfaction of
any other applicable restrictions, terms and conditions (i) all or part of such
restricted shares shall become vested and (ii) any retained distributions with
respect to such restricted shares shall become vested. Unless the Administrator
determines otherwise, any such restricted shares and retained distributions that
shall not have become vested upon the termination of employment of the holder
shall be forfeited to the Company and the holder shall not thereafter have any
rights (including dividend and voting rights) with respect to such restricted
shares and retained distributions that shall have been so forfeited, provided,
however, that if a holder shall die, become totally disabled or is terminated by
the Company without cause during a restricted period with respect to any
restricted shares, then, unless the restricted share agreement relating to such
shares provide otherwise, the restricted period applicable to each award of
restricted shares to such holder shall be deemed to have expired and all such
restricted shares and retained distributions shall become vested.
12. RECAPITALIZATION
In the event that dividends are payable in Common Stock or in the event
there are splits, subdivisions or combinations of shares of Common Stock, the
number of shares available under the Management Plan shall be increased or
decreased proportionately, as the case may be, and the number of shares
delivered upon the exercise thereafter of any stock option or stock appreciation
right, upon distribution pursuant to incentive stock rights theretofore granted
or issued pursuant to restricted share agreements theretofore entered into shall
be increased or decreased proportionately, as the case may be, without change in
the aggregate purchase price (where applicable).
13. ACCELERATION
Notwithstanding any contrary waiting period in any stock option
agreement, any incentive period in any incentive stock rights agreement or any
restricted period with respect to any restricted shares issued pursuant to any
restricted shares agreement, or in the Management Plan, but subject to any
determination by the Board of Directors to provide otherwise at the time such
Award is granted or subsequent thereto, each outstanding option granted under
the Management Plan shall, except as otherwise provided in the stock option
agreement, become exercisable in full for the aggregate number of shares covered
thereby, and each share issuable upon lapse of an incentive period or each share
issued pursuant to a restricted share agreement, except as otherwise provided in
the incentive stock rights agreement or restricted share agreement, as the case
may be, shall vest unconditionally on the first day following the occurrence of
any of the
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following: (a) the approval by the stockholders of the Company of an
Approved Transaction; (b) a Control Purchase; or (c) a Board Change.
14. CONTINUATION OF RELATIONSHIP; LEAVE OF ABSENCE
(a) Nothing in the Management Plan or any Award made hereunder shall
interfere with or limit in any way, the right of the Company or of any
Subsidiary to terminate any Eligible Participant's employment at any time, nor
confer upon any Eligible Participant any right to continue any such relationship
with the Company or Subsidiary.
(b) For purposes of the Management Plan, a transfer of a recipient of
options, rights or restricted shares hereunder from the Company to a Subsidiary
or vice versa, or from one Subsidiary to another, or a leave of absence duly
authorized by the Company shall not be deemed a termination of employment or a
break in the incentive, waiting, exercise or restricted period, as the case may
be. In the case of any employee on an approved leave of absence, the Board of
Directors may make such provisions with respect to continuance of stock rights,
options or restricted shares previously granted while on leave from the employ
of the Company or a Subsidiary as it may deem equitable.
15. GENERAL RESTRICTION
Each Award made under the Management Plan shall be subject to the
requirement that, if at any time the Board of Directors shall determine, in its
sole and subjective discretion, that the registration, qualification or listing
of the shares subject to such Award upon a securities exchange or under any
state or federal law, or the consent or approval of any government regulatory
body, is necessary or desirable as a condition of, or in connection with, the
granting or exercise of such Award, the Company shall not be required to issue
such shares unless such registration, qualification, listing, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board of Directors. Nothing in the Management Plan or any
agreement or grant hereunder shall obligate the Company to effect any such
registration, qualification or listing.
16. RIGHTS AS A STOCKHOLDER
The holder of a stock option, incentive stock right or limited stock
appreciation right shall have no rights as a stockholder with respect to any
shares covered by the stock option, incentive stock right, stock appreciation
right or limited stock appreciation right, as the case may be, until the date of
issuance of a stock certificate to him for such shares related to the exercise
or discharge thereof. No adjustment shall be made for the dividends or other
rights for which the record date is prior to the date such stock certificate is
issued.
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17. NONASSIGNABILITY OF AWARDS
No incentive stock right, stock option, stock appreciation right or
limited stock appreciation right shall be assignable or transferable by an
Eligible Participant except by will or by the laws of descent and distribution
and during the lifetime of an Eligible Participant may only be exercised by him.
18. WITHHOLDING TAXES
Whenever under the Management Plan shares are to be issued in
satisfaction of stock options, incentive stock rights, stock appreciation right
or limited stock appreciation rights granted thereunder, or pursuant to
restricted share agreements, the Company shall have the right to require the
Eligible Participant to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such shares or at such later time as when
the Company may determine that such taxes are due. Whenever under the Management
Plan payments are to be made in cash, such payment shall be net of an amount
sufficient to satisfy federal, state and local withholding tax requirements.
l9. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Management Plan by the Board of Directors
nor any provision of the Management Plan shall be construed as creating any
limitations on the power of the Board (but not the Committee) to adopt such
additional compensation agreements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Management
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
20. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Board of Directors (but not the Committee) may at any time amend,
alter, suspend or discontinue the Management Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of any
recipient of a stock option, incentive stock right, limited stock appreciation
right or restricted shares under any agreement theretofore entered into
hereunder, without his consent, or which, without the requisite vote of the
stockholders of the Company approving such action, would:
(a) except as is provided in Section 12 of the Management Plan,
increase the total number of shares of stock reserved for the purposes of the
Management Plan; or
(b) extend the duration of the Management Plan; or
(c) materially increase the benefits accruing to participants under the
Management Plan; or
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(d) change the category of persons who can be Eligible Participants
under the Management Plan. Without limiting the foregoing, the Board of
Directors may, any time or from time to time, authorize the Company, without the
consent of the respective recipients, to issue new options or rights in exchange
for the surrender and cancellation of any or all outstanding options or rights.
21. LIMITATIONS ON EXERCISE.
Notwithstanding anything to the contrary contained in the Management
Plan, any agreement evidencing any Award hereunder may contain such provisions
as the Board deems appropriate to ensure that the penalty provisions of Section
4999 of the Code, or any successor thereto, will not apply to any stock or cash
received by the holder from the Company.
22. GOVERNING LAW
The Management Plan shall be governed by, and construed in accordance
with, the laws of the State of New York.
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 1st day
of May, 1997 by and between Imaging Dynamics, Inc., a New Jersey corporation
(the "Company"), and Stephen Saltman, (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto hereby agree as follows:
1. Employment Term. Subject to the terms and conditions hereof, the
Company hereby employs the Executive as a senior executive officer of the
Company, and the Executive agrees to serve the Company in such capacity, with
effect from May 1, 1997 through April 30, 2001, unless terminated earlier
pursuant to the terms hereof (the "Term").
2. Termination.
(a) This Agreement and the Executive's employment with the
Company may be terminated prior to the end of the Term (i) by the Executive at
any time upon 30 days' written notice to the Company, (ii) by the Company
without cause (as hereinafter defined) at any time upon 30 days' written notice
to the Executive (iii) by the Company for cause immediately upon written notice
by the Company to the Executive and (iv) by the Company immediately upon the
death or disability (as hereinafter defined) of the Executive.
(b) The term "cause" shall mean: (i) the Executive's willful
failure or refusal to perform specific reasonable directives of the Board of
Directors (the "Board") of the Company, which directives are consistent with the
scope and nature of the Executive's duties and responsibilities under this
Agreement, and which failure is not remedied by the Executive within seven (7)
days after being notified, in writing, of such failure by the Company; (ii) the
Executive's conviction of, or guilty plea to, a felony; (iii) any act of fraud
or dishonesty by the Executive involving the Company or the performance of his
duties hereunder, or the Executive's breach of any fiduciary duty to the
Company; (iv) the Executive has habitually abused alcohol or used illegal drugs;
or (v) the Executive's breach of any obligation under this Agreement, which
breach is not remedied by the Executive within ten (10) days after being
notified, in writing, of such breach by the Company. The term "disability" shall
mean that the Board of the Company determines in good faith on the basis of such
information as it deems appropriate in the circumstances that it appears that
the Executive is unable to perform his assigned duties due to illness, injury or
physical, mental or other incapacity, which is reasonably expected to continue
for a prolonged period as determined by the Board.
<PAGE>
(c) If termination of this Agreement occurs pursuant to clause
(i), (iii) or (iv) of Paragraph 2(a), the Company shall pay to the Executive,
through the effective date of such termination, the accrued but unpaid amounts
payable to the Executive pursuant to Paragraphs 5 and 6(a) (appropriately
prorated to the date of such termination, if applicable); provided, however,
that the Company shall not be liable for any other amounts that would have been
payable to the Executive hereunder had his employment continued throughout the
Term, except, in the case of termination of this Agreement pursuant to clause
(iii) (other than in respect of Paragraph 2(b)(ii) or (iii) or (iv) of Paragraph
2(a), in addition to the other payments set forth above, the Company shall pay
to the Executive (x) in one lump sum within thirty (30) days following the
effective date of such termination an amount equal to $180,000 representing
twelve (12) months of salary pursuant to Paragraph 5(b) following the effective
date of such termination and (y) the amount, if any, due under Paragraph 5(b) in
respect of the Company's fiscal year in which the effective date of such
termination occurs payable in accordance with the provisions of Paragraph 5(b)
(for clarification purposes, it is understood and agreed that the amount, if
any, due to the Executive pursuant to this clause (y) shall not be prorated to
account for the termination of this Agreement during the relevant fiscal year of
the Company). If termination of this Agreement occurs pursuant to clause (ii) of
Paragraph 2(a), the Company shall pay to the Executive (i) the amount that the
Executive would have been owed, pursuant to Paragraph 5, had his employment
continued throughout the Term in equal quarterly installments (calculated by
dividing the aggregate amount so owed by the number of quarters then remaining
in the Term), provided that the amounts, if any, due under Paragraph 5(b) shall
be paid in accordance with the provisions thereof and (ii) all accrued but
unpaid amounts payable to the Executive pursuant to Paragraph 6(a) on the
effective date of such termination; provided, however, that the Company shall
not be liable for any other amounts that would have been payable to the
Executive hereunder had his employment continued throughout the Term. Each
payment of the amounts due under this paragraph (c) is subject in all respects
to the provisions of paragraph 7 hereof.
(d) With respect to the Executive, his successors, assigns,
heirs, executors, administrators and legal representatives, payment by the
Company of the amounts provided under Paragraph 2(c) shall represent liquidated
damages and shall release, relinquish and discharge the Company and its parents,
subsidiaries and affiliates and any director, officer, employee, principal,
shareholder or agent of the Company or its parents, subsidiaries or affiliates
from any and all claims, damages, losses, costs, expenses, liabilities and
obligations, whether known or unknown, which the Executive has or may have as a
result of the Executive's employment by the Company or the termination of such
employment. The release, relinquishment and discharge set forth in this
paragraph (d) shall not apply to any right, claim or interest arising out of or
under any document, instrument, agreement, arrangement or undertaking between
the Company and the Executive, other than this Agreement.
(e) The termination or expiration of this Agreement shall not
effect the continuing operation and effect of Paragraphs 2(d) and 4 hereof,
which shall continue in full force and effect.
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3. Duties. The Executive shall assist in the operation and conduct of
the business and related affairs of the Company as a senior executive officer,
with specific duties as designated by the Board of the Company. During the
period the Executive is employed by the Company, the Executive shall devote a
reasonable amount of his business time and efforts to the business and affairs
of the Company in order to satisfactorily perform his duties hereunder as
reasonably determined by the Board of the Company. The Executive shall report
directly to the Board of the Company.
4. Noncompetition; Nonsolicitation; Nondisclosure of Proprietary
Information; Surrender of Records; Inventions and Patents.
4.1 Noncompetition; Nonsolicitation. Upon any termination or
expiration of this Agreement, the Executive shall be subject to a two-year
restriction on, directly or indirectly, establishing, owning, managing,
operating, or engaging or otherwise participating in the conduct of, in North
America any business that is reasonably related to the Company's business or
operations; provided, however, that in no event shall the Executive be precluded
from establishing, owning, managing, operating, or engaging or otherwise
participating in the conduct of the Executive's dental practice. In addition,
upon any termination or expiration of this Agreement, the Executive shall be
subject to a two-year restriction on soliciting other employees to leave the
Company.
4.2 Proprietary Information. The Executive acknowledges that
during the course of his employment while discharging his duties he will of
necessity regularly have access to and make use of proprietary information and
confidential records (as each such term is defined below). The Executive
covenants that he shall not during the Term or at any time thereafter
(irrespective of the circumstances under which the Executive's employment by the
Company terminates), directly or indirectly, use for his own purpose or for the
benefit of any person or entity other than the Company, nor otherwise disclose,
any proprietary information to any individual or entity, unless such disclosure
has been authorized in writing by the Company or is otherwise required by law,
rule or regulation or applicable legal, regulatory or administration process or
by a court of competent jurisdiction. For purposes of this Agreement, the term
"proprietary information" shall include, but is not limited to: (a) the name
and/or address of any customer, vendor or affiliate of the Company or any
information concerning the transactions or relations of any customer, vendor or
affiliate of the Company with the Company or any of its shareholders,
principals, directors, officers or agents; (b) any information concerning any
product, service, technology, process, methodology or procedure employed by the
Company but not generally known to its customers, vendors or competitors or
under development by or being tested by the Company but not at the time offered
generally to customers or vendors; (c) any information relating to the Company's
computer software, computer systems, pricing or marketing methods, sales
margins, cost of goods, cost of material, capital structure, operating results,
borrowing arrangements or business plans; (d) any information which is generally
regarded as confidential or proprietary in any line of business engaged in by
the Company; (e) any business plans, budgets, advertising or marketing plans;
(f) any information contained in any of the Company's written or oral policies
and procedures
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or employee manuals; (g) any information belonging to customers, vendors or
affiliates of the Company or any other person or entity which the Company has
agreed to hold in confidence; (h) any inventions, innovations or improvements
owned, licensed or used by the Company or covered by Paragraph 4.4 below; and
(i) all written, graphic and other material relating to any of the foregoing.
Information that is not novel or copyrighted or patented may nonetheless be
proprietary information. The term "proprietary information" shall not include
information generally available to and known by the public or information that
is or becomes available to the Executive on a non-confidential basis from a
source other than the Company or the Company's directors, officers, employees,
shareholders, principals or agents (other than as a result of a breach of any
obligation of confidentiality).
4.3 Confidentiality and Surrender of Records. The Executive
shall not during the Term or at any time thereafter (irrespective of the
circumstances under which the Executive's employment by the Company terminates),
except as required by law, rule or regulation or applicable legal, regulatory or
administrative process or by a court of competent jurisdiction, directly or
indirectly, publish, make known or in any fashion disclose any confidential
records to, or permit any inspection or copying of confidential records by, any
individual or entity other than in the course of such individual's or entity's
employment or retention by the Company, nor shall he retain, and will deliver
promptly to the Company, any of the same following termination of his employment
hereunder. For purposes hereof, "confidential records" means all correspondence,
memoranda, files, manuals, books, lists, financial, operating or marketing
records, magnetic tape, or electronic or other media or equipment of any kind
which may be in the Executive's possession or under his control or accessible to
him which contain any proprietary information. All confidential records shall be
and remain the sole property of the Company during the Term and thereafter.
4.4 Inventions and Patents. All inventions, innovations, or
improvements in any of the Company's lines of business (including, without
limitation, technologies, policies, procedures, products, services, processes,
methodologies, developments, improvements, software, ideas, know-how and
discoveries, whether patentable or copyrightable or not) conceived or made by
the Executive, either alone or jointly with others, during the Term belong to
the Company. The Executive will promptly disclose in writing such inventions,
innovations or improvements to the Company and perform all actions reasonably
requested by the Company to establish and confirm such ownership by the Company,
including, but not limited to, cooperating with and assisting the Company in
obtaining patents for the Company in the United States and in foreign countries.
Any patent application filed by the Executive within a year after termination of
his employment hereunder shall be presumed to relate to any invention which was
made during the Term unless the Executive can provide evidence satisfactory to
the Company to the Company to the contrary.
4.5 Enforcement. The Executive acknowledges and agrees that,
by virtue of his position, his services and access to and use of confidential
records and proprietary information, any violation by him of any of the
undertakings contained in this Paragraph 4 would cause the Company immediate,
substantial and irreparable injury for which it has no
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adequate remedy at law. Accordingly, the Executive agrees and consents to the
entry of an injunction or other equitable relief by a court of competent
jurisdiction restraining any violation or threatened violation of any
undertaking containing in this Paragraph 4. The Executive waives posting by the
Company of any bond otherwise necessary to secure such injunction or other
equitable relief. Rights and remedies provided for in this Paragraph 4 are
cumulative and shall be in addition to rights and remedies otherwise available
to the parties hereunder or under any other agreement or applicable law.
5. Compensation. (a) Subject to the terms and conditions hereof, the
Company shall pay the Executive a salary at the rate of $15,000 per calendar
month throughout the Term. Subject to Paragraph 7 hereof, such compensation
shall be payable in accordance with the usual payroll practices of the Company
as of the first business day of each such calendar month, as compensation to the
Executive for the services rendered by the Executive hereunder.
(b) Subject to the terms and conditions hereof (including,
without limitation, Paragraph 7), in addition to the salary payable pursuant to
Paragraph 5(a), as compensation to the Executive for the services rendered by
the Executive hereunder, the Company shall pay to a bonus as determined by the
Company's board of directors.
6. Benefits.
(a) Subject to the terms and conditions hereof, the Company
agrees to reimburse the Executive for all reasonable and necessary travel,
business entertainment and other business expenses incurred by the Executive in
connection with the performance of his duties under this Agreement. Subject to
Paragraph 7 hereof, such reimbursements shall be made by the Company on a timely
basis upon submission by the Executive of vouchers in accordance with the
Company's standard procedures. All such reimbursements shall be subject to such
reasonable limitations as may from time to time be prescribed by the Board of
the Company (in addition to the limitations set forth in the first sentence of
this Paragraph 6(a).
(b) Subject to the terms and conditions hereof, the Executive
shall be entitled to participate in any and all life insurance, medical
insurance, group health, disability insurance and other benefit plans as
determined by the Board of the Company. Additionally, subject to the terms and
conditions hereof, the Executive shall be entitled to receive annual paid
vacation and paid holidays made available pursuant to the Company's policy as
determined by the Board of the Company.
(c) The Company shall pay to Executive a monthly automobile
allowance equal to the Executive's monthly lease payments as well as the payment
of expenses, insurance and normal maintenance of such automobile. The Company
further covenants to reimburse Executive for any expenses associated with the
maintenance and upkeep of said automobile within seven (7) days of Executive
submitting receipts for such expenses.
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7. Payments. Notwithstanding any provision of this Agreement to the
contrary, the Company shall not be obligated to make any of the payments to the
Executive provided for hereunder until such time as the Board of the Company
determines that the Company has sufficient liquidity to make such payments (at
which time, such accrued but unpaid amounts shall be paid to the Executive),
provided that all such amounts payable hereunder to the Executive shall continue
to accrue to the Executive as provided herein, and provided further that no
accrued amount due to the Executive hereunder shall not be paid by reason of
this Paragraph 7 for more than one (1) year following the date such amount
accrued to the Executive hereunder.
8. Intentionally Omitted.
9. Notices. All notices and other communications given or made pursuant
to this Agreement shall be in writing and shall be deemed to have been duly
given or made if (i) sent by registered or certified mail, return receipt
requested, or (ii) hand delivered, or (iii) sent by prepaid overnight carrier,
with a record of receipt, to the parties at the following addresses (or at such
other addresses as shall be specified by the parties by like notice):
(i) if to the Company:
53 Century Road
Paramus, New Jersey 07657
(ii) if to the Executive:
288 Spruce Avenue
Emerson, New Jersey 07630
10. Assignability; Binding Effect. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned or delegated by
either party hereto without the prior written consent of the other party.
Subject to the foregoing, this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors, permitted
assigns, heirs, executors, administrators and legal representatives, and the
terms "Company" and "Executive" shall be construed accordingly, and is not
intended to confer upon any other person or entity any rights or remedies
hereunder.
11. Complete Understanding; Amendment; Waiver. This Agreement
constitutes the complete understanding between the parties with respect to the
employment of the Executive and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and no statement, representation, warranty or covenant
has been made by either party with respect thereto except as expressly set forth
herein. This Agreement shall not be altered, modified, amended or terminated
except by a written instrument signed by each of the parties hereto. Any waiver
of any term or provision hereof, or of the application of any such term or
provision to any circumstances, shall be in writing
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signed by the party charged with giving such waiver. Waiver by either party
hereto of any breach hereunder by the other party shall not operate as a waiver
of any other breach, whether similar to or different from the breach waived. No
delay on the party of the Company or the Executive in the exercise of any of
their respective rights or remedies shall operate as a waiver thereof, and no
single or partial exercise by the Company or the Executive of any such right or
remedy shall preclude other or further exercise thereof.
12. Severability. If any provision of this Agreement or the application
of any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid or unenforceable to any extent,
the remainder of this Agreement, or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid or unenforceable, shall not be affected thereby, and each provision
hereof shall be enforced to the fullest extent permitted by law. If any
provision of this Agreement, or any part thereof, is held to be invalid or
unenforceable because of the scope or duration of or the area covered by such
provision, the parties hereto agree that the court making such determination
shall reduce the scope, duration and/or area of such provision (and shall
substitute appropriate provisions for any such invalid or unenforceable
provisions) in order to make such provision enforceable to the fullest extent
permitted by law and/or shall delete specific words and phrases, and such
modified provision shall then be enforceable and shall be enforced. The parties
hereto recognize that if, in any judicial proceeding, a court shall refuse to
enforce any of the separate covenants contained in this Agreement, then that
invalid or unenforceable covenant contained in this Agreement shall be deemed
eliminated from these provisions to the extent necessary to permit the remaining
separate covenants to be enforced. In the event that any court determines that
the time period or the area, or both, are unreasonable and that any of the
covenants is to that extent invalid or unenforceable, the parties hereto agree
that such covenants will remain in full force and effect, first, for the
greatest time period, and second, in the greatest geographical area that would
not render them enforceable. To the extent that a court of competent
jurisdiction determines that the Executive breached any undertaking in Paragraph
4, the Company's obligations to make payments pursuant to Paragraphs 2(c), 5 and
6 shall immediately cease.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to the
principles of conflict of laws.
14. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one agreement binding on the parties hereto.
15. Enforcement Costs. With respect to any suit, action or proceeding
arising out of or in connection with this Agreement or the Executive's
employment with the Company hereunder, the Company shall be solely responsible
for all fees, costs and expenses (including, without limitation, the fees and
costs of attorneys and court costs) incurred by the Company and/or the
Executive, except, if it is determined by a court in a final and non-appealable
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judgment that the Executive engaged in the activity described in Paragraph
2(b)(ii) or (iii) hereof, then the Executive shall be solely responsible for all
such fees, costs and expenses incurred by the Executive.
16. Titles and Captions. All paragraph titles or captions in this
Agreement are for convenience only and in no way defined, limit, extend or
describe the scope or intent of any provision hereof.
IN WITNESS WHEREOF, each of the parties hereof has duly executed this
Agreement as of the date first above written.
IMAGING DYNAMICS, INC.
By:
Name:
Title:
STEPHEN S. SALTMAN
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 1st day
of May, 1997 by and between Imaging Dynamics, Inc., a New Jersey corporation
(the "Company"), and Damian Greco, (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto hereby agree as follows:
1. Employment Term. Subject to the terms and conditions hereof, the
Company hereby employs the Executive as a senior executive officer of the
Company, and the Executive agrees to serve the Company in such capacity, with
effect from May 1, 1997 through April 30, 2001, unless terminated earlier
pursuant to the terms hereof (the "Term").
2. Termination.
(a) This Agreement and the Executive's employment with the
Company may be terminated prior to the end of the Term (i) by the Executive at
any time upon 30 days' written notice to the Company, (ii) by the Company
without cause (as hereinafter defined) at any time upon 30 days' written notice
to the Executive (iii) by the Company for cause immediately upon written notice
by the Company to the Executive and (iv) by the Company immediately upon the
death or disability (as hereinafter defined) of the Executive.
(b) The term "cause" shall mean: (i) the Executive's willful
failure or refusal to perform specific reasonable directives of the Board of
Directors (the "Board") of the Company, which directives are consistent with the
scope and nature of the Executive's duties and responsibilities under this
Agreement, and which failure is not remedied by the Executive within seven (7)
days after being notified, in writing, of such failure by the Company; (ii) the
Executive's conviction of, or guilty plea to, a felony; (iii) any act of fraud
or dishonesty by the Executive involving the Company or the performance of his
duties hereunder, or the Executive's breach of any fiduciary duty to the
Company; (iv) the Executive has habitually abused alcohol or used illegal drugs;
or (v) the Executive's breach of any obligation under this Agreement, which
breach is not remedied by the Executive within ten (10) days after being
notified, in writing, of such breach by the Company. The term "disability" shall
mean that the Board of the Company determines in good faith on the basis of such
information as it deems appropriate in the circumstances that it appears that
the Executive is unable to perform his assigned duties due to illness, injury or
physical, mental or other incapacity, which is reasonably expected to continue
for a prolonged period as determined by the Board.
<PAGE>
(c) If termination of this Agreement occurs pursuant to clause
(i), (iii) or (iv) of Paragraph 2(a), the Company shall pay to the Executive,
through the effective date of such termination, the accrued but unpaid amounts
payable to the Executive pursuant to Paragraphs 5 and 6(a) (appropriately
prorated to the date of such termination, if applicable); provided, however,
that the Company shall not be liable for any other amounts that would have been
payable to the Executive hereunder had his employment continued throughout the
Term, except, in the case of termination of this Agreement pursuant to clause
(iii) (other than in respect of Paragraph 2(b)(ii) or (iii) or (iv) of Paragraph
2(a), in addition to the other payments set forth above, the Company shall pay
to the Executive (x) in one lump sum within thirty (30) days following the
effective date of such termination an amount equal to $160,000 representing
twelve (12) months of salary pursuant to Paragraph 5(b) following the effective
date of such termination and (y) the amount, if any, due under Paragraph 5(b) in
respect of the Company's fiscal year in which the effective date of such
termination occurs payable in accordance with the provisions of Paragraph 5(b)
(for clarification purposes, it is understood and agreed that the amount, if
any, due to the Executive pursuant to this clause (y) shall not be prorated to
account for the termination of this Agreement during the relevant fiscal year of
the Company). If termination of this Agreement occurs pursuant to clause (ii) of
Paragraph 2(a), the Company shall pay to the Executive (i) the amount that the
Executive would have been owed, pursuant to Paragraph 5, had his employment
continued throughout the Term in equal quarterly installments (calculated by
dividing the aggregate amount so owed by the number of quarters then remaining
in the Term), provided that the amounts, if any, due under Paragraph 5(b) shall
be paid in accordance with the provisions thereof and (ii) all accrued but
unpaid amounts payable to the Executive pursuant to Paragraph 6(a) on the
effective date of such termination; provided, however, that the Company shall
not be liable for any other amounts that would have been payable to the
Executive hereunder had his employment continued throughout the Term. Each
payment of the amounts due under this paragraph (c) is subject in all respects
to the provisions of paragraph 7 hereof.
(d) With respect to the Executive, his successors, assigns,
heirs, executors, administrators and legal representatives, payment by the
Company of the amounts provided under Paragraph 2(c) shall represent liquidated
damages and shall release, relinquish and discharge the Company and its parents,
subsidiaries and affiliates and any director, officer, employee, principal,
shareholder or agent of the Company or its parents, subsidiaries or affiliates
from any and all claims, damages, losses, costs, expenses, liabilities and
obligations, whether known or unknown, which the Executive has or may have as a
result of the Executive's employment by the Company or the termination of such
employment. The release, relinquishment and discharge set forth in this
paragraph (d) shall not apply to any right, claim or interest arising out of or
under any document, instrument, agreement, arrangement or undertaking between
the Company and the Executive, other than this Agreement.
(e) The termination or expiration of this Agreement shall not
effect the continuing operation and effect of Paragraphs 2(d) and 4 hereof,
which shall continue in full force and effect.
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3. Duties. The Executive shall assist in the operation and conduct of
the business and related affairs of the Company as a senior executive officer,
with specific duties as designated by the Board of the Company. During the
period the Executive is employed by the Company, the Executive shall devote a
reasonable amount of his business time and efforts to the business and affairs
of the Company in order to satisfactorily perform his duties hereunder as
reasonably determined by the Board of the Company. The Executive shall report
directly to the Board of the Company.
4. Noncompetition; Nonsolicitation; Nondisclosure of Proprietary
Information; Surrender of Records; Inventions and Patents.
4.1 Noncompetition; Nonsolicitation. Upon any termination or
expiration of this Agreement, the Executive shall be subject to a two-year
restriction on, directly or indirectly, establishing, owning, managing,
operating, or engaging or otherwise participating in the conduct of, in North
America any business that is reasonably related to the Company's business or
operations; provided, however, that in no event shall the Executive be precluded
from establishing, owning, managing, operating, or engaging or otherwise
participating in the conduct of the Executive's dental practice. In addition,
upon any termination or expiration of this Agreement, the Executive shall be
subject to a two-year restriction on soliciting other employees to leave the
Company.
4.2 Proprietary Information. The Executive acknowledges that
during the course of his employment while discharging his duties he will of
necessity regularly have access to and make use of proprietary information and
confidential records (as each such term is defined below). The Executive
covenants that he shall not during the Term or at any time thereafter
(irrespective of the circumstances under which the Executive's employment by the
Company terminates), directly or indirectly, use for his own purpose or for the
benefit of any person or entity other than the Company, nor otherwise disclose,
any proprietary information to any individual or entity, unless such disclosure
has been authorized in writing by the Company or is otherwise required by law,
rule or regulation or applicable legal, regulatory or administration process or
by a court of competent jurisdiction. For purposes of this Agreement, the term
"proprietary information" shall include, but is not limited to: (a) the name
and/or address of any customer, vendor or affiliate of the Company or any
information concerning the transactions or relations of any customer, vendor or
affiliate of the Company with the Company or any of its shareholders,
principals, directors, officers or agents; (b) any information concerning any
product, service, technology, process, methodology or procedure employed by the
Company but not generally known to its customers, vendors or competitors or
under development by or being tested by the Company but not at the time offered
generally to customers or vendors; (c) any information relating to the Company's
computer software, computer systems, pricing or marketing methods, sales
margins, cost of goods, cost of material, capital structure, operating results,
borrowing arrangements or business plans; (d) any information which is generally
regarded as confidential or proprietary in any line of business engaged in by
the Company; (e) any business plans, budgets, advertising or marketing plans;
(f) any information contained in any of the Company's written or oral policies
and procedures
3
<PAGE>
or employee manuals; (g) any information belonging to customers, vendors or
affiliates of the Company or any other person or entity which the Company has
agreed to hold in confidence; (h) any inventions, innovations or improvements
owned, licensed or used by the Company or covered by Paragraph 4.4 below; and
(i) all written, graphic and other material relating to any of the foregoing.
Information that is not novel or copyrighted or patented may nonetheless be
proprietary information. The term "proprietary information" shall not include
information generally available to and known by the public or information that
is or becomes available to the Executive on a non-confidential basis from a
source other than the Company or the Company's directors, officers, employees,
shareholders, principals or agents (other than as a result of a breach of any
obligation of confidentiality).
4.3 Confidentiality and Surrender of Records. The Executive
shall not during the Term or at any time thereafter (irrespective of the
circumstances under which the Executive's employment by the Company terminates),
except as required by law, rule or regulation or applicable legal, regulatory or
administrative process or by a court of competent jurisdiction, directly or
indirectly, publish, make known or in any fashion disclose any confidential
records to, or permit any inspection or copying of confidential records by, any
individual or entity other than in the course of such individual's or entity's
employment or retention by the Company, nor shall he retain, and will deliver
promptly to the Company, any of the same following termination of his employment
hereunder. For purposes hereof, "confidential records" means all correspondence,
memoranda, files, manuals, books, lists, financial, operating or marketing
records, magnetic tape, or electronic or other media or equipment of any kind
which may be in the Executive's possession or under his control or accessible to
him which contain any proprietary information. All confidential records shall be
and remain the sole property of the Company during the Term and thereafter.
4.4 Inventions and Patents. All inventions, innovations, or
improvements in any of the Company's lines of business (including, without
limitation, technologies, policies, procedures, products, services, processes,
methodologies, developments, improvements, software, ideas, know-how and
discoveries, whether patentable or copyrightable or not) conceived or made by
the Executive, either alone or jointly with others, during the Term belong to
the Company. The Executive will promptly disclose in writing such inventions,
innovations or improvements to the Company and perform all actions reasonably
requested by the Company to establish and confirm such ownership by the Company,
including, but not limited to, cooperating with and assisting the Company in
obtaining patents for the Company in the United States and in foreign countries.
Any patent application filed by the Executive within a year after termination of
his employment hereunder shall be presumed to relate to any invention which was
made during the Term unless the Executive can provide evidence satisfactory to
the Company to the Company to the contrary.
4.5 Enforcement. The Executive acknowledges and agrees that,
by virtue of his position, his services and access to and use of confidential
records and proprietary information, any violation by him of any of the
undertakings contained in this Paragraph 4 would cause the Company immediate,
substantial and irreparable injury for which it has no
4
<PAGE>
adequate remedy at law. Accordingly, the Executive agrees and consents to the
entry of an injunction or other equitable relief by a court of competent
jurisdiction restraining any violation or threatened violation of any
undertaking containing in this Paragraph 4. The Executive waives posting by the
Company of any bond otherwise necessary to secure such injunction or other
equitable relief. Rights and remedies provided for in this Paragraph 4 are
cumulative and shall be in addition to rights and remedies otherwise available
to the parties hereunder or under any other agreement or applicable law.
5. Compensation. (a) Subject to the terms and conditions hereof, the
Company shall pay the Executive a salary at the rate of $13,333 per calendar
month throughout the Term. Subject to Paragraph 7 hereof, such compensation
shall be payable in accordance with the usual payroll practices of the Company
as of the first business day of each such calendar month, as compensation to the
Executive for the services rendered by the Executive hereunder.
(b) Subject to the terms and conditions hereof (including,
without limitation, Paragraph 7), in addition to the salary payable pursuant to
Paragraph 5(a), as compensation to the Executive for the services rendered by
the Executive hereunder, the Company shall pay to a bonus as determined by the
Company's board of directors, which bonus shall be equivalent to 70% of any
bonus granted to Stephen Saltman.
6. Benefits.
(a) Subject to the terms and conditions hereof, the Company
agrees to reimburse the Executive for all reasonable and necessary travel,
business entertainment and other business expenses incurred by the Executive in
connection with the performance of his duties under this Agreement. Subject to
Paragraph 7 hereof, such reimbursements shall be made by the Company on a timely
basis upon submission by the Executive of vouchers in accordance with the
Company's standard procedures. All such reimbursements shall be subject to such
reasonable limitations as may from time to time be prescribed by the Board of
the Company (in addition to the limitations set forth in the first sentence of
this Paragraph 6(a).
(b) Subject to the terms and conditions hereof, the Executive
shall be entitled to participate in any and all life insurance, medical
insurance, group health, disability insurance and other benefit plans as
determined by the Board of the Company. Additionally, subject to the terms and
conditions hereof, the Executive shall be entitled to receive annual paid
vacation and paid holidays made available pursuant to the Company's policy as
determined by the Board of the Company.
(c) The Company shall pay to Executive a monthly automobile
allowance equal to the Executive's monthly lease payments as well as the payment
of expenses, insurance and normal maintenance of such automobile. The Company
further covenants to reimburse Executive for any expenses associated with the
maintenance and upkeep of said automobile within seven (7) days of Executive
submitting receipts for such expenses.
5
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7. Payments. Notwithstanding any provision of this Agreement to the
contrary, the Company shall not be obligated to make any of the payments to the
Executive provided for hereunder until such time as the Board of the Company
determines that the Company has sufficient liquidity to make such payments (at
which time, such accrued but unpaid amounts shall be paid to the Executive),
provided that all such amounts payable hereunder to the Executive shall continue
to accrue to the Executive as provided herein, and provided further that no
accrued amount due to the Executive hereunder shall not be paid by reason of
this Paragraph 7 for more than one (1) year following the date such amount
accrued to the Executive hereunder.
8. Intentionally Omitted.
9. Notices. All notices and other communications given or made pursuant
to this Agreement shall be in writing and shall be deemed to have been duly
given or made if (i) sent by registered or certified mail, return receipt
requested, or (ii) hand delivered, or (iii) sent by prepaid overnight carrier,
with a record of receipt, to the parties at the following addresses (or at such
other addresses as shall be specified by the parties by like notice):
(i) if to the Company:
53 Century Road
Paramus, New Jersey 07657
(ii) if to the Executive:
104 Hard Scrabble Lake Road
Chappaqua, New York 10514
10. Assignability; Binding Effect. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned or delegated by
either party hereto without the prior written consent of the other party.
Subject to the foregoing, this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors, permitted
assigns, heirs, executors, administrators and legal representatives, and the
terms "Company" and "Executive" shall be construed accordingly, and is not
intended to confer upon any other person or entity any rights or remedies
hereunder.
11. Complete Understanding; Amendment; Waiver. This Agreement
constitutes the complete understanding between the parties with respect to the
employment of the Executive and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and no statement, representation, warranty or covenant
has been made by either party with respect thereto except as expressly set forth
herein. This Agreement shall not be altered, modified, amended or terminated
except by a written instrument signed by each of the parties hereto. Any waiver
of any term or provision hereof, or of the application of any such term or
provision to any circumstances, shall be in writing
6
<PAGE>
signed by the party charged with giving such waiver. Waiver by either party
hereto of any breach hereunder by the other party shall not operate as a waiver
of any other breach, whether similar to or different from the breach waived. No
delay on the party of the Company or the Executive in the exercise of any of
their respective rights or remedies shall operate as a waiver thereof, and no
single or partial exercise by the Company or the Executive of any such right or
remedy shall preclude other or further exercise thereof.
12. Severability. If any provision of this Agreement or the application
of any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid or unenforceable to any extent,
the remainder of this Agreement, or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid or unenforceable, shall not be affected thereby, and each provision
hereof shall be enforced to the fullest extent permitted by law. If any
provision of this Agreement, or any part thereof, is held to be invalid or
unenforceable because of the scope or duration of or the area covered by such
provision, the parties hereto agree that the court making such determination
shall reduce the scope, duration and/or area of such provision (and shall
substitute appropriate provisions for any such invalid or unenforceable
provisions) in order to make such provision enforceable to the fullest extent
permitted by law and/or shall delete specific words and phrases, and such
modified provision shall then be enforceable and shall be enforced. The parties
hereto recognize that if, in any judicial proceeding, a court shall refuse to
enforce any of the separate covenants contained in this Agreement, then that
invalid or unenforceable covenant contained in this Agreement shall be deemed
eliminated from these provisions to the extent necessary to permit the remaining
separate covenants to be enforced. In the event that any court determines that
the time period or the area, or both, are unreasonable and that any of the
covenants is to that extent invalid or unenforceable, the parties hereto agree
that such covenants will remain in full force and effect, first, for the
greatest time period, and second, in the greatest geographical area that would
not render them enforceable. To the extent that a court of competent
jurisdiction determines that the Executive breached any undertaking in Paragraph
4, the Company's obligations to make payments pursuant to Paragraphs 2(c), 5 and
6 shall immediately cease.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to the
principles of conflict of laws.
14. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one agreement binding on the parties hereto.
15. Enforcement Costs. With respect to any suit, action or proceeding
arising out of or in connection with this Agreement or the Executive's
employment with the Company hereunder, the Company shall be solely responsible
for all fees, costs and expenses (including, without limitation, the fees and
costs of attorneys and court costs) incurred by the Company and/or the
Executive, except, if it is determined by a court in a final and non-appealable
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judgment that the Executive engaged in the activity described in Paragraph
2(b)(ii) or (iii) hereof, then the Executive shall be solely responsible for all
such fees, costs and expenses incurred by the Executive.
16. Titles and Captions. All paragraph titles or captions in this
Agreement are for convenience only and in no way defined, limit, extend or
describe the scope or intent of any provision hereof.
IN WITNESS WHEREOF, each of the parties hereof has duly executed this
Agreement as of the date first above written.
IMAGING DYNAMICS, INC.
By:
Name:
Title:
DAMIAN GRECO
8
THIS LEASE, dated the 25th day of July 1997, between BONANNO
REAL ESTATE GROUP III, L.P., a New Jersey limited partnership, with offices at
107 West Tryon Avenue, Teaneck, New Jersey 07666 (hereinafter referred to as the
"Landlord"); and IMAGING DYNAMICS, INC.,a New Jersey corporation, with offices
at 53 West Century Road, Paramus, New Jersey, hereinafter referred to as the
"Tenant")
W I T N S S E T H:
ARTICLE I
Demise of Premises
Section 1.01. The Landlord, for and in consideration of the rents to be
paid and of the covenants and agreements thereinafter contained to be kept and
performed by the Tenant, hereby demises aid leases unto the Tenant, and the
Tenant hereby lures and Lakes from the Landlord, for the term and the rent, and
upon the covenants and agreements hereinafter set forth, the premises described
iii Exhibit A attached hereto and made a part hereof (such premises together
with a portion of the Building as hereinafter defined being hereinafter referred
to as the "Demised Premises") , which is situated on that certain parcel of land
located at 53 West Century Road, in the Borough of Paramus, County of Bergen,
State of New Jersey (hereinafter referred to as the "Real Property"), to include
the use of fifteen (15) parking spaces and use of one (1) tailgate loading door,
as described on Exhibit B, subject, however, to all of the following:
(a)Any state of facts an accurate survey may disclose;
(b)Zoning regulations and ordinances of the governmental subdivision(s) in
which the Demised Premises lie; and
(C)Covenants, restrictions, conditions, easements and party wall agreements
of record, if any.
ARTICLE II
Term of Lease
Section 2.01. The term of this Lease and the demise of the Demised Premises
shall be for three (3) years beginning, subject to Section 29.13, on August 1,
1997 (the "Commencement Date") and ending July 31, 2000 or on such earlier or
later commencement or termination as hereinafter set forth (which term is
hereinafter called the "Term")
<PAGE>
ARTICLE III Rent
Section 3.01. Tue Tenant shall pay to the Landlord, during the Term without
counterclaim, deduction or setoff, basic rent, in the amount of One Hundred
Eighty-four Thousand Nine Hundred Seventeen and 60/100 ($184,917.60) Dollars
(hereinafter "Term Basic Rent"), payable in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
Section 3.02. The Term Basic Rent shall accrue at an annual rate of
Sixty-one Thousand Six Hundred Thirty-nine and 20/100 ($61,639.20) Dollars
(hereinafter "Annual Basic Rent"),and shall be payable in advance on the first
day of each calendar month during the Term in monthly installments of Five
Thousand One Hundred Thirty~six and 60/100 ($5,136.60) Dollars each (hereinafter
"Monthly Basic Rental) except that a proportionately lesser sum lay be paid for
the first and last months of the Term of this lease if the Term commences on a
date other than the first day of the month, in accordance with the provisions of
this Lease hereinafter set forth. The Basic Rent shall be payable at the office
of the Landlord at the address above set forth, or as may otherwise be directed
by notice from the Landlord to the Tenant. As used in this Lease, Basic Rent
shall mean either Term Basic Rent, Annual Basic Rent or Monthly Basic Rent, as
appropriate.
Section 3.03. the Tenant shall, and will, during the Term well and truly
pay, or cause to be paid, to the Landlord, the installments of Monthly Basic
Rent as herein provided and all other sums that may become due and payable by
the Tenant thereunder, at that time and in the manner herein provided, without
counterclaim, offset or deduction; and all other sums due and payable by the
Tenant hereunder may, at the Landlord's option, be deemed to be, and treated as,
Additional Rent, and added to any Term Basic Rent due and payable by the Tenant
hereunder, and, in the event of nonpayment of such other sums, the Landlord
shall have all the rights and remedies herein provided for in the case of the
nonpayment of the Term Basic Rent and Additional Rent, or of a breach of any
covenant to be performed by the Tenant
Section 3.04. The Basic Rent payable by the Tenant pursuant to thus Lease
is intended to be net to the Landlord, and all other charges and expenses
imposed upon the Demised Premises or incurred in connection with its use,
occupancy, care, maintenance, operation aud control, including but not limited
to the charges and expenses payable pursuant to Articles VII and VIII of this
Lease, shall be paid by the Tenant, excepting liens resulting from acts or
omissions of the Landlord and other payments to be paid or obligations
undertaken by tile Landlord as specifically provided in this Lease.
Section 3.05. The Basic Rent payable under this Lease shall be payable to
Bonanno Real Estate Group III, L.P., at the office of the Landlord at the
address set forth in Section 16.01, or as may otherwise be directed by notice
from the Landlord to the Tenant, and shall be payable in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts.
ARTICLE IV
The Demised Premises
Section 4.01. The Demised Premises consists of approximately 9,784 gross
square feet located in a portion of a presently existing building of
approximately 34,966 gross square feet (which building is hereinafter called the
"Building") previously erected thereon) which the Tenant acknowledges that it
has inspected aud is fully familiar with its condition and is leasing the same
"AS Is" condition, subject to the work described in Exhibit C to be done by
Landlord, at Landlord's sole cost and expense. Lisidloid represents that as of
the Commencement Date all Building Systems (i.e. electrical, plumbing,
sprinkler) shall be in working order. Tenant shall, at its sole cost and
expense, perform all initial improvements to tile Demised Premises. Tenant shall
obtain all governmental approvals required for the performance of such work and
shall provide landlord with copies thereof. All work performed by Tenant shall
be iii a 900(3 and workmanlike manner, consistent with the character aud
integrity of the Building and subject to all of the requirements of Sect ions
9.02 and 9.03.
<PAGE>
Section 4.02. The Demised Premises herein above described constitutes a
self-contained unit and nothing in this Lease shall impose upon the Landlord any
obligation to provide any services for the benefit of the Tenant, including but
not limited to waLer, gas, electricity, heat, janitorial or garbage removal,
unless aud to the extent expressly provided for in this lease.
ARTICLE V
Use
Section 5.01. The Demised Premises may be used for photographic imaging and
processing and offices in connection therewith. Notwithstanding)y anything to
the contrary, the Landlord makes no representation that the Demised Premises may
be used for those purposes set forth in this Section 5.01. Tenant, at its sole
cost and expense, shall be responsible for obtaining any and all certificates
and/or permits sanctioning Tenant's use from any governmental agencies having
jurisdiction over the Demised Premises, including by way of example, but not
limitation, a Certificate of Occupancy for the Demised Premises. The Tenant
shall not use or permit to be used the Demised Premises or any part thereof for
any purpose other than the aforementioned. In no event shall Tenant store any
products, materialS, machinery, equipment or inventory or perform any activities
outside of the Building.
ARTICLE VI
Quiet Enjoyment
Section 6.01. The Landlord covenants that if, and so long as. the Tenant
pays the Term Basic Rent, and any Additional Rent as herein provided, and
performs the covenants hereof, the Landlord shall do nothing to affect the
Tenant's right to peaceably and quietly have, hold and enjoy the Demised
Premises for the Term herein mentioned, subject to the provisions of this Lease
and to any mortgage or deed of trust to which this Lease shall be subordinate.
ARTICLE VII
Additional Rent, Taxes, Assessments, Water Rates, charges, Etc.
Section 7.01. It is expressly agreed that Tenant shall pay, in addition to
the Basic Rent provided in Article III above, as Additional Rent, Tenant's
Proportionate Share, as defined herein, of the Operating Costs for the Demised
Premises and Building. The Tenant shall pay its Proportionate Share of the
Operating Costs to Landlord before any interest or penalties accrue thereon.
Operating Costs, as used herein, shall mean all reasonable costs incurred for
the operation, maintenance, repair and replacement of the Building and shall
include by way of illustration but; not limitation, Real Estate Taxes, all
domestic water charges, fire sprinkler stand-by charges, costs for snow removal
and landscaping charges, sewer rates and charges, and all other governmental
charges imposed during the Term on the Real Property and Building of which the
Demised Premises are a part, parking lot repairs, pothole maintenance and all
other charges relating to the maintenance of the parking lot area. There shall
be apportioned any tax or charge relating to the fiscal years in which the Term
of this Lease commences or terminates.
Section 7.02. The Tenant shall not be required to pay any estate,
inheritance, devolution, succession, transfer, legacy or gift tax charged
against the Landlord or the estate or
<PAGE>
interest of the Landlord in the Demised Premises or upon the right of any
person to succeed to the same or any part thereof by inheritance, succession,
transfer or gift, nor any capital stock tax or corporate)franchise tax incurred
by the Landlord, nor any income tax upon or against the income of the Landlord
(including any rental income derived by the Landlord from the Demised Premises
but titis exclusion shall not be applicable to a gross receipts or rental tax
which shall be considered a Real Estate Tax)
Section 7.03. The Tenant shall pay 20.37(%) percent of all assessments that
may be imposed upon the Real Property by reason of any specific public
improvement (including but not limited to assessments for street openings,
grading, paving and sewer installations and improvements) except that if by law
such special assessment is payable, or may, at the option of the taxpayer, be
paid, in installments, the Tenant may whether or not interest accrues on the
unpaid balance thereof, pay the same and any accrued interest on any unpaid
balance thereof in installments as each installment becomes due and payable, but
in any event before any penalty or cost may be added thereto for payment of any
installment or interest. Any such benefit, assessment or installment thereof
relating to a fiscal period in which the Term~of this lease begins or ends shall
be apportioned.
Section 7.04. The Tenant, in its name or the Landlord's name, shall have
the right to contest, or review, by appropriate proceedings, iii such manner as
it may deem suitable, at its only expense, and without expense to the Landlord,
any tax, assessment, water aud sewer rates or charges, or other charges payable
by the Tenant pursuant to this Lease, and upon the request of this Tenant, and
upon receipt by Landlord of the taxes payable by Tenant under this Article, the
Landlord will pay, under protest, any tax, assessment, water or sewer rent or
charge, or any other charge payable by the tenant pursuant to this Lease, which
shall be contested or reviewed by the Tenant. In the event any such appeal is
successful 20.37(%) percent of any refund resulting from such contest or review
shall be assigned to aud belong to the Tenant and shall be paid to the Tenant
promptly upon its receipt by the Landlord. If the refund relates to a tax year
that is apportioned between the Landlord and the Tenant, the refund shall be
apportioned between the Landlord and the Tenant
Section 7.05. Notwithstanding anything contained herein to the contrary,
should Landlord's mortgagee require at any time, the maintenance of an escrow
reserve for the tax obligations of Tenant or to any other obligation of Tenant
as in this Lease contained, 'Tenant shall promptly pay to said escrowee the
required amount that may be periodically adjusted from time to time
Section 7.06. The Tenant shall be required to pay, as its Proportionate
Share of the total charges for the items enumerated in Section 7.01, the
following:
(i) Real Estate Taxes imposed upon tile Building and land 20.37%
(ii) Fire sprinkler standby 27.98%
(iii) Domestic water and sewer 22.01%
(iv) Parking lot repairs, parking lot lighting and snow removal 25.33%
(v) Landscaping 27.98%
<PAGE>
The Tenant shall pay its Proportionate Share of the items enumerated ii)
this Article as well as any other sums due and payable by Tenant under this
Lease within ten (10) days after being billed by landlord, failing which the
Landlord may, but without being required to do so, pay said proportion and add
the amount hereof as Additional Rent to the Term Basic Rent due for the next
ensuing months. In the event that Landlord incurs an Operating Cost for which
Tenant's Proportionate Share is not specified above, Landlord shall in good
faith, using its reasonable determination, establish the Tenant's Proportionate
Share with respect to such item(s) . In the event that any of the above
enumerated items are separately metered to the Demised Premises, the Tenant
stall pay the amount metered. If any of the aforesaid items are increased beyond
that which have existed but for Tenant's acts, use or installation, Tenant shall
pay said increase in ful]
Section 7.08. Tenant shall pays before delinquency, all taxes, assessments,
license fees, and other charges that are levied or assessed against Tenant's
personal property located on the Demised Premises. On demand by Landlord, Tenant
shall furnish Landlord with satisfactory evidence of these payments. If any
taxes on Tenant's personal property are levied against Landlord or Landlord' S
property, or if the assessed value of the Building is increased by the inclusion
of a value placed on Tenant's personal property or as a result of alterations,
additional improvements made to the Demised Premises by or for Tenant, Tenant,
on demand, shall immediately pay to Landlord as Additional Rent, the sum of
taxes levied against Landlord, or the proportion of the taxes resulting from
such increase in Landlord's assessment caused thereby. Landlord shall be
entitled to, in good faith using its reasonable determination, ascertain the
value of the tax increase attributable to Tenant's personal property or
alterations, additions or improvements.
ARTICLE VIII
Insurance
Section 8.01. The Landlord shall, during the Term of this Lease, cause the
Building to be insured for the benefit of the Landlord and ground lessor, if
any, and any and all mortgagees of the Landlord and for the Tenant, as its
interest may appear, "All Risk" property insurance against damage or loss by
tire, malicious mischief, sprinkler leakage and such other hazards and perils as
now or hereafter may be included in a standard "extended coverage" endorsement
from time to time including boiler insurance and with a vandalism and malicious
mischief endorsement, in ah amount not less than the full replacement value of
an identical building (excluding Tenant improvements and alterations)
constructed in accordance with all requirements, rules and regulations, which
may be applicable at the time of any loss or damage, of all governmental
agencies having jurisdiction over the Building and construction of such Building
and improvements. Such policies shall be issued by insurance companies licensed
to do business in New Jersey. Tenant shall pay, as Additional Rent, 22.23(%)
percent of the total premium promptly when billed. In addition, the Tenant shall
pay the full amount of any increase in the premium imposed solely by reason of
its ~)~ing a named insured and for any increase assessed against the entire
Building resulting from Tenant's use. If the Tenant shall fail to pay the amount
of such premiums within ten (10) days after being billed by Landlord, the amount
thereof shall be added to the amount of the Monthly Basic Rent next coming due
hereunder and shall be due and payable as part of said Monthly Basic Rent next
coming due. Any deductible shall be deemed self-insurance by the Tenant, to the
extent of 22.23(%) percent of the amount thereof. Landlord's current insurance
policy covering the Building provides for a Five Thousand and 00/100 ($5,000.00)
Dollar deductible. Landlord agrees to advise Tenant in the event of any increase
in the deductible.
Section 8.02. The Tenant shall provide and keep in force, during tike Term
of this Lease, for the benefit of the Landlord and ground lessor, if any,
comprehensive general liability insurance policies in standard form, insuring
the Landlord with respect to ownership, maintenance and use against liability
for personal injury, bodily injury, broad form property damage. operations
hazard, owner's protective
<PAGE>
coverage, blanket contractual liability, products and completed operations
liability in or upon the Demised Premises during the Term of this Lease. Said
policies shall be written by insurance companies licensed to do business in the
State of New Jersey rated A+XV by A.M. Best Company, Oldwick, New Jersey, and
shall cover the entire Demised Premises as well as any sidewalk in front of the
same, and shall be in the minimum amount of Two Million and 00/100
($2,000,000.00) Dollars and shall contain provision for ten (10) days' written
notice by registered mail to the Landlord of any change or cancellation of said
policy. The said policies shall also contain an endorsement protecting the
Landlord for water damage and sprinkler damage liability with respect to
property other than the Landlord's. The Landlord reserves the right to require
an increase in the aforesaid amount during the term of this lease to an amount
reasonable under the circumstances considering the character and location of the
Building and Tenant 's use of the Demised Premises.
Tenant represents, said representation being specifically designed to
induce the Landlord to execute this Lease, that Tenant shall insure its business
against interruption and its Premises, improvements, alterations, personal
property and fixtures and any other items which Tenant may bring to the Demised
Premises or which may be under Tenant's care, custody and control which may be
subject to any claim for damages or destruction, which property value shall
never exceed the amount of insurance which Tenant is required to carry pursuant
to this Lease. If at any time the value of the personal property fixtures or
other goods located at the Demised Premises shall exceed said amount, Tenant
covenants to so notify Landlord and at the same time increase the amount of
insurance required to be carried pursuant to this Section 8.02 to an amount
sufficient to cover the aforesaid. Should Tenant fail to do so, or fail to
maintain insurance coverage adequate to cover the aforesaid, then Tenant shall
be in default hereunder and shall be deemed to have breached its covenants as
set forth herein.
Section 8.03. The Tenant shall provide and keep in force, during the Term
of this Lease, for the benefit of the Landlord and ground lessor, if any,
machinery insurance if applicable. The Landlord shall be named as an additional
named insured and loss payee under the policy, with respect to real property.
Upon failure at any time on the part of the Tenant to procure any or all of the
policies of insurance as herein provided, or to pay the premiums therefor, the
Landlord shall be at liberty from time to time as often as such failure shall
occur, to procure such insurance and pay the premiums therefor as herein
provided in case of fire insurance, and all and any sums paid for such failure
by the Landlord together with interest thereon from date of payment shall be and
become and are hereby declared to be Additional Rent under this Lease, forthwith
due and payable, and shall be collectible accordingly.
Section 8.04. The Landlord shall provide on behalf of the Tenant and keep
in force during the Term of this Lease, for the benefit of the Landlord, rental
income insurance insuring the Landlord against the loss of Term Basic Rent and
Additional Rent, as in this Lease provided, from the perils of fire and extended
coverage for a period of no less than one (1) year. The Tenant
<PAGE>
shall reimburse Landlord for the cost of said insurance when billed. If the
Tenant shall fail to pay the amount of such premiums within ten (10) days after
being billed, the amount thereof shall be added to the amount of the Term Basic
Rent next coining due hereunder and shall be due and payable as part of said
Tern Basic Rent next coming due.
Section 8.05. Each such insurance policy carried by Landlord arid each such
insurance policy carried by Tenant insuring the Demised Premises, its business
against interruption, and its fixtures and contents against loss by fire, water
and causes covered by standard extended coverage or all risks endorsement
insurance, shall be written in a manner so as to provide that the insurance
company waives all right of recovery by way of subrogation against Landlord or
Tenant in connection with any loss or damage covered by such policies. Neither
party shall be liable to the other for any loss or damage caused by fire, water
or any of the risks enumerated in standard extended coverage insurance or all
risks endorsement insurance, provided such insurance was obtainable at the time
of such loss or damage. If the release of either Landlord or Tenant, as set
forth in the second sentence of this paragraph, shall contravene any law with
respect to exculpatory agreements, the liability of the party in question shall
be deemed not released but shall be deemed secondary to the latter's insurer.
Section 8.06. The Tenant shall also furnish insurance for such other
hazards and in such amounts as the Landlord may reasonably require and as at the
time are commonly insured against with respect to buildings similar in
character, general location and use and occupancy to the Demised Premises in
relative amounts normally carried with respect thereto. The Landlord reserves
the right at any time and from time to time to require that the limits for any
of the insurance required pursuant to Article VIII be increased to limits as at
the time are reasonable with respect to Tenant's use and to buildings similar in
character, general location and use and occupancy to the Demised Premises.
Section 8.07. In the event any mortgagee, ground lessor or trust deed
holder requires an escrow for insurance, taxes or any other recurring charges,
Tenant shall, on demand from Landlord, deposit tire required escrow as required
by any of the aforesaid.
Section 8.08. If any taxes on Tenant's personal property are levied against
Landlord or Landlord's property, or if the assessed value of the Building is
increased by the inclusion of a value placed on Tenant's personal property or as
a result of alterations, additions or improvements made to the Demised Premises
by or for Tenant, Tenant, on demand, shall immediately pay to Landlord as
Additional Rent the sum of the taxes levied against Landlord, or the proportion
of the taxes resulting from such increase in Landlord's assessment caused
thereby. If such separate valuation is not reasonably available to Landlord,
Landlord shall be entitled to, in good faith using its reasonable determination,
ascertain the value of the tax increase attributable to 'tenant's personal
property or alterations, additions or improvements.
ARTICLE IX
Repairs
Section 9.01. The Tenant shall keep the Demised Premises in good condition
and repair, and shall redecorate, paint and renovate the Demised Premises as may
be necessary to keep them in good condition and repair and good appearance. The
Tenant shall keep the Demised Premises and all parts thereof in a
<PAGE>
clean and sanitary condition and free from trash, inflammable material and
other objectionable matter. The Tenant shall comply with all of the requirements
and recommendations as announced from time to time by tire engineering
department or any other similar enforcement department of the fire insurance
company insuring the Demised Premises or any agencies or departments of the
Borough of Paramus including by way of example but not limitation the health or
fire department. The Tenant shall keep the sidewalks and roadway's forming part
of the Demised Premises clean arid free Of obstruct ions, snow and ice. Except
as hereinafter in this Lease set forth, throughout the Term of this Lease, the
Tenant, at its sole cost and expense, will take good care of the Demised
Premises including by way of example but not limitation, boiler, heating,
ventilating and air conditioning systems, plumbing systems, electrical system
and sprinkler, landscaping and weed removal, and the sidewalks and curbs
adjoining the Demised Premises and will keep the same in good order and
condition and make all necessary repairs thereto, interior and exterior,
ordinary and extraordinary, foreseen and unforeseen. Tenant shall return the
Demised Premises at the end of the Term in the same condition they were in at
the commencement, subject to reasonable wear and tear. In addition, the Tenant
shall replace, at the Tenant's expense, all glass in and on the Demised Premises
which may become broken after the date of Tenant' s occupancy. All repairs made
by Tenant shall be equal in quality and class to the original work. The Tenant
shall quit Demised Premises at the end of the Term in broom-clean condition and
in as good condition as the reasonable use thereof will permit. when used in
this Article, the term "repairs" shall include all necessary replacements and
renewals
In case the Tenant shall fail or neglect at any time to make any of the
repairs or replacements herein above agreed to be made by it and shall continue
such failure or neglect after thirty (30) days' notice in writing thereof from
the Landlord, unless the critical nature of the repair requires immediate
attention in which event the repair or replacement shall be made within
twenty-four (24) hours after such written notice, then the Landlord or its
agents, at the option of the Landlord, may enter the Demised Premises and make
such repairs or replacements at the cost and expense of the Tenant and in case
of the Tenant's failure to pay therefor, the same cost and expense may be added
to tire next installment of Monthly Basic Rent and be due and payable as such,
or the Landlord may, at its option, terminate this Lease or pursue any of its
other remedies hereunder
The Tenant shall obtain and keep in full force and effect during the Term
of tins Lease, at its own cost and expense, a maintenance contract oil the
heating, ventilation and air conditioning system
section 9.02. The Tenant shall not, without the written consent of the
Landlord, make any alterations, additions or improvements with respect to the
following:
(a)the structure of the Building (which shall include, but not be limited
to, footings, foundation walls, exterior bearing and non-bearing walls,
structural steel framework, floor slab, roofing, framework consisting of
barjoists, girders and purlins, and load-bearing interior masonry partitions)
(b)mechanical, plumbing and electrical systems; and
<PAGE>
(c)any other alterations, additions or improvements, the cost of which
would exceed Five Thousand and 00/~00 ($5,000.00) Dollars on an annual basis in
the aggregate
If so requested by the Landlord, the Tenant will remove all improvements
made by it under this Lease (including by way of example but not limitation, any
interior partitions and dark rooms installed in the Demised Premises) prior to
the expiration of the Term and leave the Demised Premises in such condition as
it was at the commencement of the Term of this Lease, reasonable wear and tear
excepted. In the event the Tenant so tails to remove such improvements, the
Landlord may do so and collect from the Tenant, as Additional Rent, its costs
and expense of doing so. All erections, alterations, additions and improvements,
whether temporary or permanent in character, which may be made upon or to the
Demised Premises either by the Landlord or the Tenant, except furniture or
movable trade fixtures installed at the expense of the Tenant, shall be the
property of the Landlord and shall remain upon and be surrendered with the
Demised Premises as a part thereof at the termination of this Lease, without
compensation to the Tenant. All furniture, movable trade fixtures and personalty
of the Tenant remaining in the Demised Premises after the expiration of the Term
shall be deemed abandoned aud 'nay be removed by Landlord who may collect from
the Tenant, as additional Rent, its costs and expenses of so removing
Section 9.03. The Landlord~may, as a condition to granting its consent to
any alteration, addition or improvement referred to in (a), (b) or (c) of
Section 9.02 above, require the following
(a)Plans and Specifications therefor are first submitted to the Landlord;
(b)The Landlord shall approve such plans and specifications, the Landlord
agreeing that, as to nonstructural repairs and alterations, its approval will
not be unreasonably withheld;
(c) Provided the Landlord has approved the same, the said Plans and
Specifications are appropriately filed (if necessary) with the governing body or
agency having jurisdiction of building alterations, construct ions and
improvements; and
(d)Consent (if necessary) is granted by that body for any of the said
alterations, improvements, construction or repairs.
Section 9.04. Notwithstanding anything contained herein to the contrary,
Landlord shall, throughout the Term, keep and maintain in good order, condition
and repair, the exterior load-bearing walls (excluding windows and glass) ,
foundation and structural steel framework, exclusive of windows, window frames,
door frames, and normal maintenance items including but not limited to caulking,
pointing, painting and waterproofing, and the roof (including membrane and
structure) , provided that Tenant furnishes Landlord with notice of the need for
such repairs as and when the need arises and further provided that such repairs
are not required as a result of the negligence of Tenant, its agents, servants
or employees.
<PAGE>
ARTICLE X
Casualty
Section 10~01. If the Demised Premises or the Building is damaged or
destroyed by fire, explosion, the elements or otherwise during the Term so as to
render the Demised Premises wholly untenantable or unfit for occupancy, or
should the Demised Premises be so badly injured that the same cannot be repaired
within one hundred eighty (180) days from the happening of such injury, then,
and in such case, the Term hereby created shall, at the option of either the
'landlord or the Tenant, terminate upon the giving of a notice of termination.
If a notice of termination is given, the Term of this Lease shall terminate
effective as of the dale of such damage or destruction, and the Tenant shall
immediately surrender the Demised Premises and all the Tenant's interest therein
to the Landlord, and pay Term Basic Rent and Additional Rent to the time of such
damage or destruction, and the Landlord may re-enter and repossess the Demised
Premises discharged from this Lease and may remove all parties therefrom
Section 10.02. Should the Demised Premises be rendered untenantable and
unfit for occupancy, but yet be repairable within one hundred eighty (180) days
from the happening of said injury, the Landlord will, provided the mortgagee
makes the proceeds of any casualty insurance required to be carried pursuant to
this Lease available to the Landlord to restore and further provided that the
insurance proceeds so received are adequate to restore the Building and the
Demised Premises, enter and repair the same with reasonable speed, and the Term
Basic Rent and Additional Rent shall abate to the extent of rent insurance
received by the Landlord until the earlier of Ci) such time as the Landlord
makes such repairs so as to render the Demised Premises once again usable by the
Tenant for the purposes under this Lease or (ii) the cessation of Landlord's
receipt of rent insurance
Section 10.03. If the Demised Premises shall be so slightly injured as not
to be rendered untenantable and unfit for occupancy, the Landlord shall repair
the same with reasonable promptness and the Term Basic Rent and Additional Rent
accrued and accruing shall not cease or terminate. The Tenant shall immediately
notify the Landlord in case of fire or other damage to the Demised Premises
Section 10.04. Notwithstanding anything to the contrary in Section 10.01,
neither the Landlord nor the Tenant shall have any obligation to terminate this
Lease upon the happening Of an injury referred to iii Section 10.01 provided Ci)
that the happening of such injury occurs at a time when the unexpired Term of
this lease is two (2) years or more; (ii) further provided that the mortgagee
makes the proceeds of any casualty insurance required to be carried pursuant to
this Lease available to Landlord to restore; and (iii) further provided that the
insurance proceeds so received are adequate to restore the Building and the
Demised Premises. In such event, the Landlord shall repair the Demised Premises,
even to the extent of rebuilding the Building if necessary, subject, however, to
the receipt of sufficient insurance proceeds. The Landlord shall promptly enter
and repair the Demised Premises with reasonable speed, making due allowance for
conditions beyond the Landlord's control, including, but not limited to time
lost in adjusting insurance claims' and strikes, and the Term Basic Rent and
Additional Rent shall abate to the extent of rent insurance received by Like
Landlord until the earlier of such time as the Landlord makes such repairs so as
to render the Demised Premises once again usable by the Tenant for the purposes
under this Lease or (ii) the cessation of Landlord's receipt of rent
<PAGE>
insurance. Landlord shall have no obligation to repair or restore Tenant'
improvements.
ARTICLE XI
Condemnation
Section 11.01. If, during the Term, twenty-five (25%) percent or more of
the area of the Demised Premises shall be taken under any power of eminent
domain or condemnation then, at the option of the Tenant, to be exercised in
writing within thirty (30) days of taking of title thereto, this Lease shall
expire within thirty (30) days of the date of such notice and the Tern Basic
Rent and any Additional Rent herein reserved shall be apportioned as of said
date. However, if the Tenant does not exercise the aforementioned option, or if
the taking does not deprive the Tenant of at least twenty~five (25%) percent of
the area of the Demised Premises, this Lease shall not expire but the Term Basic
Rent and Additional Rent shall be equitably apportioned. If the Landlord and the
Tenant fail to agree upon an equitable apportionment, the Term Basic Rent and
Additional Rent for the Building, after such taking, shall be determined in
accordance with the Commercial Rules of the American Arbitration Association,
and the arbitrator shall be empowered to assess the costs and expenses of the
proceedings as part of the determination. Pending such determination the Tenant
shall pay, on account of the Term Basic Rent and Additional Rent, such
proportion of the Term Basic Rent and Additional Rent reserved in this Lease as
the total area of the Building after the taking bears to the total area of the
Building before the taking, subject to adjustment in accordance with the
arbitrator's award. No part of any award shall belong to the Tenant except that
nothing contained herein is intended to affect or limit the Tenant's claim for
fixtures or other improvements owned by Tenant provided the same does not
diminish the Landlord's award. It is expressly understood and agreed that the
provisions of this Article XI shall not be applicable to any condemnation or
taking for governmental occupancy for a limited period of time.
ARTICLE XII
Compliance With Laws, Etc.
Section 12.01. The Tenant shall not do or permit anything to be done in the
Demised Premises which shall constitute a public nuisance or which will conflict
with the regulations of the Fire Department or with any insurance policy upon
improvements or any part thereof
Section 12.02. The Tenant shall, at its own expense, obtain all necessary
environmental and operating permits and comply with all present and future
requirements of law and with all present and future ordinances or orders, rules
and regulations of any State, Municipal or other public authority affecting the
Demised Premises and with all requirements of the Fire Insurance Executive or
similar body, and of any liability insurance company insuring the Landlord
against liability for accidents in or connected with the Demised Premises
including, but not limited to laws, ordinance, orders, rules and regulations
which apply to the interior or exterior of the Demised Premises, the structural
or nonstructural parts thereof, and to make all improvements and repairs
required by such laws, ordinances, orders, rules and regulations, ordinary or
extraordinary foreseen or unforeseen. Landlord represents that it has not
received any notice of violation from any state, municipal, federal or other
public authority affecting the Demised Premises.
<PAGE>
ARTICLE X
Section 12.03. Tenant acknowledges the existence of environmental laws,
rules and regulations, including but not limited to the provisions of ISRA, as
hereinafter defined. Tenant shall comply with any and all such laws, rules and
regulations. Tenant represents to Landlord that Tenant's Standard Industrial
Classification (SIC) Number as designated in the Standard Industrial
Classification Manual prepared by the Office of Management and Budget in the
Executive Office of the President of the United States will not subject the
Demised Premises to ISRA applicability. Any change by Tenant to an operation
with an SIC Number subject to ISRA shall require Landlord's written consent. Any
such proposed change shall be sent in writing to landlord sixty (60) days prior
to the proposed change. Landlord, at its sole option, may deny consent.
Tenant hereby agrees to execute such documents as Landlord reasonably deems
necessary and to make such applications as Landlord reasonably requires to
assure compliance with all applicable environmental laws including ISRA. In
addition, prior to the expiration of the Term, Tenant agrees to make such
applications as are required to comply with ISRA in connection with closing,
terminating or transferring operations. Tenant shall bear all costs and expenses
incurred in connection with any required ISRA compliance resulting from Tenant's
use of the Demised Premises including but not limited to state agency fees,
engineering-' fees, clean up costs, filing fees and suretyship expenses . As
used herein, ISRA compliance shall include applications for determinations of
nonapplicability by the appropriate governmental authority, issuance of a
negative declaration or implementation, and the completion of a clean up plan.
The foregoing undertaking shall survive the termination or sooner expiration of
the Lease and surrender of the Demised Premises and shall also survive sale, or
lease or assignment of the Demised Premises by Landlord. Tenant agrees to
indemnify and hold Landlord harmless from any violation of ISRA occasioned by
Tenant's use of the Demised Premises. The Tenant shall immediately provide the
Landlord with copies of all correspondence, reports, notices, orders, findings,
declarations and other materials pertinent to the Tenant's compliance and
requirements of the New Jersey Department of Environmental Protect ion " NJDEP")
under ISRA as they are issued or received by the Tenant
Tenant agrees not to generate, store, manufacture, refine, transport,
treat;, dispose of, or otherwise permit to be present on or about the Demised
Premises, any Hazardous Substances. As used herein, hazardous Substances shall
be defined as any "hazardous chemical," "hazardous substance" or similar tern as
defined in the Comprehensive Environmental Responsibility Compensation and
Liability Act, as amended (42 U.S.C. 9601, et seq.) ,The New Jersey
Environmental Cleanup Responsibility Act, as amended, N.J.S.A. 13:1K-6 et seq.
and/or the Industrial Site Recovery Act ("ISRA"), the New Jersey Spill
Compensation and Control Act, as amended, N.J.S.A. 58:10-23.11b, et seq., any
rules or regulations promulgated thereunder, or in any other applicable federal,
state or local law, rule or regulation dealing with environmental protection. It
is understood and agreed that the provisions contained in this Article shall be
applicable notwithstanding the fact that any substance shall not be deemed to be
a Hazardous Substance at the time of its use by the Tenant but shall thereafter
be deemed to be a hazardous substance. Notwithstanding the foregoing, Tenant may
store hazardous Substances used in the ordinary course of its business
operations in the Demised Premises, provided: (i) such hazardous Substances
shall be stored in containers having not greater than a five (5) gallon
capacity; (ii) at no time shall such hazardous Substances exceed twenty-five
(25) gallons in the aggregate, at any one tine; and (iii) such Hazardous
Substances shall be stored and disposed of in the manner required by all
applicable laws, rules, ordinances, regulations and codes.
<PAGE>
ARTICLE X
In the event Tenant fails to comply with ISRA as stated in this Section or
any other governmental law as of the termination or sooner expiration of the
Lease and as a consequence thereof Landlord is unable to rent the Demised
Premises, then the Landlord shall treat the Tenant as one who has riot removed
at the end of its Term, and thereupon be entitled to all remedies against the
Tenant provided by law in that situation including a monthly basic rental of two
hundred (200%) percent of the Monthly Basic Rent for the last month of the Term
or any renewal term, payable iii advance on the first day of each month, until
such time as Tenant provides Landlord with a negative declaration or
confirmation that any required clean up plan has been successfully completed
Tenant agrees to indemnify and hold harmless the Landlord and each
mortgagee of the Demised Premises from and against any and all liabilities,
damages, claims, losses, judgments, causes of action costs and expenses
(including the reasonable fees and expenses of counsel) which may be incurred
the Landlord or any such mortgagee or threatened against the Landlord or such
mortgagee, relating to or arising out of any breach by Tenant of the
undertakings set forth in this Article, said indemnity to survive the Lease
expiration or sooner termination
ARTICLE XIII
Subordination/Estoppels
Section 13.01. This Lease and any option contained herein is and shall be
subject and subordinate to all present and future first mortgages or first deeds
of trust affecting the Demised Premises. The Tenant shall execute any instrument
which may be deemed necessary or.. desirable by the Landlord to further effect
or to evidence the subordination of this Lease to any such first mortgage or
first deed of trust. The Landlord may assign this Lease to any such first
mortgagee or first trust deed holder in connection with any such lien superior
to this Lease, and the Tenant shall execute any instrument which may be
necessary or desirable by the Landlord or the holder of said lien in connection
with said assignment. Any expense incurred in the preparing or recording of such
assignment or subordination to any such holder shall be without expense or cost
to the Tenant.
Section 13.02. The Tenant further agrees, within ten (10) days of
Landlord's written request, to certify by written instrument duly executed and
acknowledged to any first mortgagee, first trust deed holder or purchaser, or
any proposed first mortgage lender, first trust deed holder or purchaser, that
this Lease is in full force and effect, or if not, in what respect it is not,
that this Lease has not been modified, or the extent to which it has been
modified, that there are no existing defaults hereunder to the best of the
knowledge of the party so certifying, or specifying the defaults, if any, and
any other information which Landlord shall reasonably require. Any such
certification shall be without prejudice as between the Landlord and the Tenant,
it being agreed that any document required hereunder shall not be used in any
litigation between the Landlord and the Tenant
ARTICLE XIV
Defaults, Remedies
<PAGE>
Section 14.01. If, during the Term, any one or more of the following acts
or occurrences (any one of such occurrences or acts being hereinafter called an
Event of Default) shall happen:
(A) The Tenant shall default in making any payment of Term Basic Rent or
any Additional Rent as and when the same shall become due and payable, and such
default shall continue for a period of ten (10) days after notice from the
Landlord that such payment is due and unpaid; or
(B) The Tenant shall default in the performance or if compliance with any
of the other covenants, agreements, terms or conditions of this Lease to be
performed by the Tenant (other than any default curable by payment of money) ,
and such default shall continue for a period of twenty (20) days after written
notice thereof from the Landlord to the Tenant, or, in the case of a default
which cannot with due diligence be cured within twenty (20) days, the Tenant
shall fail to proceed promptly (except for unavoidable delays) after the giving
of such notice and with all due diligence to cure such default and thereafter to
prosecute the curing hereof with all due diligence (it being ii~tended that as
to a default not susceptible of being cured with due diligence within twenty
(20) days, the time within which such default may be cured shall be extended for
such period as may be reasonably necessary to permit the same to be cured with
all due diligence) ; or
(C) Tue Tenant or any guarantor of this Lease shall tile a voluntary
petition in bankruptcy or shall be adjudicated a bankrupt or insolvent, or shall
file any petition or answer seeking any reorganization, composition,
readjustment or similar relief under any present or future bankruptcy or other
applicable law, or shall seek or consent to or acquiesce in the appointment of
any trustee, receiver, or liquidator of the Tenant or any guarantor of this
Lease or of all or any substantial part of its properties or of all or any part
of the Demised Premises; or
(D) If within sixty (60) days after the filing of an involuntary petition
in bankruptcy against the Tenant or any guarantor of This Lease, or the
commencement of any proceeding against the Tenant or such guarantor- seeking any
reorganization, composition, readjustment or similar relief under any law, such
proceeding shall not have been dismissed, or if, within sixty (60) days after
the appointment, without the consent or acquiescence of the Tenant or such
guarantor, of any trustee, receiver or liquidator of the Tenant or such
guarantor, or of all or any part of the Demised Premises, such appointment shall
not have been vacated or stayed on appeal or otherwise, or if, within .sixty
(60) days after the expiration of any such stay, such appointment shall have
been vacated, or if, within sixty (60) days after the taking possession, without
the consent or acquiescence of the Tenant or such guarantor, of the property of
the Tenant, or of such guarantor by any governmental office or
<PAGE>
agency pursuant to statutory authority for the dissolution or liquidation
of the Tenant or such guarantor, such taking shall not have been vacated or
stayed on appeal or otherwise; or
(E)If the Demised Premises shall be abandoned by the Tenant for a period of
thirty (30) consecutive days, then, and ii) any such event, and during the
continuance thereof, the Landlord may, at its option, then or thereafter while
any such~ Event of Default shall continue and notwithstanding the fact that the
Landlord may have any other remedy hereunder or at law or in equity, by notice
to the Tenant, designate a date, not less than ten (10) days after the giving of
such notice, on which this Lease shall terminate; and thereupon, on such date
the Term of this Lease and the estate hereby granted shall expire and terminate
upon the date specified in such~notice with the same force and effect as if the
date specified in such notice was the date hereinbefore fixed for the expiration
of the Term of this Lease, and all rights of the Tenant hereunder shall expire
and terminate, but the Tenant shall remain liable as hereinafter provided.
Additionally, Tenant agrees to pay, as Additional Rent, all attorney's fees and
other expenses incurred by the Landlord in enforcing any of the obligations
under this Lease, this covenant to survive the expiration or sooner termination
of this Lease.
Section 14.02. If this Lease is terminated as provided in Section 14.01, or
as permitted by law, the Tenant shall peaceably quit and surrender the Demised
Premises to the Landlord, and the Landlord may, without further notice, enter
upon, re-enter, possess and repossess. the same by summary proceedings,
ejectment or other legal proceedings, and again have, repossess and enjoy the
same as if this Lease had not been made, and in any such event neither the
Tenant nor any person claiming tI~rougki or under the Tenant by virtue of any
law or an order of any court shall be entitled to possession or to remain in
possession of the Demised Premises, and the Landlord, at its option, shall
forthwith, notwithstanding any other provision of this Lease, be entitled to
recover from the Tenant (in lieu of all other claims for damages on account of
such termination) as and for liquidated damages an amount equal to the excess of
all Term Basic Rent and Additional Rent reserved hereunder for the unexpired
portion of the Term of this Lease discounted at the rate of six (6%) percent per
annum to the then present worth, over the fair rental value of the Demised
Premises at the time of termination for such unexpired portion of the Term.
Nothing herein contained shall limit or prejudice the right of the Landlord, in
any bankruptcy or reorganization or insolvency proceeding, to prove for and
obtain as liquidated damages by reason of such termination for such amount equal
to the maximum allowed by any bankruptcy or reorganization or insolvency
proceedings, or to prove for and obtain as liquidated damages by reason of such
termination, an amount equal to the maximum allowed by any statute or rule of
law whether such amount shall be greater or less than the excess referred to
above.
Section 14.03. If the Landlord re-enters and obtains possession of the
Demised Premises, as provided in Section 14.02 of this Lease, fol~owing an Event
of Default, the Landlord shall have the right, without notice, to repair or
alter the Demised Premises in such manner as the Landlord may deem necessary or
advisable so as to put the Demised Premises in good order and to make the same
rentable, and shall have the right, at the Landlord's option, to relet the
Demised Premises or a part thereof, and the Tenant shall pay to the Landlord on
demand all reasonable expenses incurred by the Landlord in obtaining possession,
and in altering, repairing and putting the Demised
Premises in good order and condition and in reletting the same, including
reasonable fees of attorneys and architects, and all other reasonable expenses
or commissions, and the Tenant shall pay to the Landlord upon (he rent payment
dates following the dare of such re-entry and including the date for the
expiration of the Term of this Lease in effect immediately prior to such
re-entry, The sums of money which would have been payable by the Tenant as Term
Basic Rent and Additional Rent hereunder on such rent payment dates if the
Landlord had not re-entered and resumed possession of the Demised Premises,
deducting only the net amount of Term Basic Rent and Additional Rent, if any,
which the Landlord shall actually receive (after deducting from the gross
receipts the expenses, costs and payments of the Landlord which in accordance
with rite terms of this Lease would have been borne by the Tenant) in the
meantime from and by any reletting of the Demised Premises, and the Tenant shall
remain liable for all sums otherwise payable by the Tenant under this Lease,
including but not limited to the expense of the Landlord aforesaid, as well as
for any deficiency aforesaid, and the Landlord shall have the right from time to
time to begin and maintain
<PAGE>
successive actions or other legal proceedings against the Tenant for the
recovery of such deficiency, expenses or damages or for a sum equal to any Term
Basic Rent payment and Additional Rent. As an alternative remedy, the Landlord
shall be entitled to damages against the Tenant for breach of this lease, at any
time (whether or not the Landlord shall have become entitled to or shall have
received any damages as herinabove) Provided) in an amount equal to the excess
if any, of the Term Basic Rent and Additional Rent which would be payable under
this Lease at the date of the expiration of the Terri, less (lie amount of Term
Basic Rent and Additional Rent received by the Landlord upon any reletting, both
discounted to present worth at the rate of six (6%) percent per annum. The
obligation and liability of the Tenant to pay the Term Basic Rent and the
Additional Rent shall survive the commencement, prosecution and termination of
any action to secure possession of rite Demised Premises. Nothing herein
contained shall be deemed to require the Landlord to wait to begin such action
or other legal proceedings until the date when this Lease would have expired had
there not been an Event of Default.
Section 14.04. The Tenant hereby waives all right of redemption to which
the Tenant or any person under it may be entitled by any law now or hereafter in
force. In addition, in the event of an Event of Default which results in the
Landlord recovering possession of the Demised Premises, Landlord shall be under
no duty to mitigate Tenant's damages as provided for in this Article XIV. The
Landlord's remedies hereunder are in addition to any remedy allowed by law
Section 14.05. In the event of any breach or threatened breach by Tenant of
any of the agreements, terms, covenants or conditions contained in this Lease,
Landlord shall be entitled to enjoin such breach or threatened breach and shall
have the right to invoke arty right or remedy allowed at law or in equity or by
statute or otherwise as though re-entry, summary dispossess proceedings, arid
other remedies were not provided for in this Lease. During the pendency of any
proceedings brought by Landlord to recover possession by reason of default,
Tenant shall continue all money payments required to be made to Landlord, and
Landlord may accept such payments for use and occupancy of the Demised Premises.
In such event, Tenant waives its right in such proceedings to claim as a defense
that the receipt of such money payments by Landlord constitutes a waiver by
Landlord of such default.
Section 14.06. If Tenant fails, on three (3) separate occasions in any
twelve (12) month period during the Term hereof, to make payment of the Monthly
Basic Rent and/or any Additional Rent and/or late charge on or before the due
date, then, whether or not Tenant ultimately takes and Landlord accepts the
required
<PAGE>
payment after the due date, such failure shall entitle Landlord, upon or at
any time after such third (3rd) separate occasion, to pursue the remedies
provided in this Article, said circumstances being hereby declared a default no
longer susceptible of being cured or removed by Tenant.
ARTICLE XV
Subletting
Section 15.01. (A) The Tenant may sublet the whole or any part of the
Demised Premises subject to the following:
(B)In the event that the Tenant desires to sublease the whole or any part
of the Demised Premises to any other party, then Tenant shall first offer to
terminate the Lease and surrender the Demised Premises to the Landlord, by a
written offer to Landlord to terminate the Lease and surrender the Demised
Premises, on a specified date which shall be not less than ninety (90) days from
the date of the giving of such notice nor more than one hundred twenty (120)
days after such date. Landlord shall give written notice to Tenant of its
acceptance or rejection of such offer, within sixty (60) days of the receipt of
such written offer from the Tenant, and if the Landlord accepts said offer, this
Lease shall terminate on the date set forth in the aforesaid offer to Landlord
to terminate the Lease and the Tenant shall surrender the Demised Premises to
the Landlord on said specified date, and each party shall be released from all
obligations under the Lease except those which have accrued or shall accrue
prior to the date of termination and surrender. In the event of such termination
of the Lease, rent and other charges due and owing hereunder shall be
apportioned as of the date of such termination and any part of the Lease deposit
made under this Lease which shall not have been returned or applied under the
terms thereof, or which may not be required to bring about performance of
Tenant's obligations under the terms of this Lease, shall be returned to the
Tenant.
(C)If Landlord rejects Tenant's offer of termination and surrender, or
fails to give notice of its intention to accept or reject same, within the sixty
(60) day period provided for above, Tenant shall have the right to underlet the
whole or any part of the Demised Premises for a use permitted hereunder, but
only with the written consent of the Landlord first had and obtained, on the
basis of the following terms and conditions
(1)A copy of the sublease shall be furnished to the Landlord which shall
provide that said sublease assumes all of the obligations of this Lease.
(2)The Tenant shall be and remain liable for the observance of all of the
covenants and provisions of this Lease, including but not limited to the payment
of the Term Basic Rent reserved herein, through the entire Term of this Lease,
as the same may be renewed, extended or otherwise modified
(3) The Tenant shall promptly pay to the Landlord one-half (1A) of the
rent, as and when received, in excess of the rent (Basic and Additional)
required to be paid by the Tenant for the area sublet, computed on the basis of
an average square foot rent for the entire demised Building.
<PAGE>
(D)In any event, the acceptance by the Landlord of any rent from any of the
subtenants, or the failure of the Landlord to insist upon a strict performance
of any of the terms, conditions and covenants herein shall not release the
Tenant herein from any and all of the obligations herein during and for the
entire Term of this Lease
(E)The Landlord shall require a Five Hundred and 00/100 ($500.00) Dollar
payment to cover its handling charges for each request for consent to any sublet
prior to its consideration of the same. The Tenant acknowledges that its sole
remedy with respect to any assertion that the Landlord's failure to consent to
any sublet is unreasonable shall be the remedy of specific performance, and the
Tenant shall have no other claim or cause of action against the Landlord as a
result of the Landlord's actions in refusing to consent thereto.
(F)In the event that any or all of Tenant's interest in the Demised
Premises and/or this Lease is transferred by operation of law to any trustee,
receiver, or other representative or agent of Tenant, or to Tenant as a debtor
in possession, and subsequently any or all of Tenant's interest in the Demised
Premises and/or this Lease is offered or to be offered by Tenant or any trustee,
receiver, or other representative or agent of Tenant as to its estate or
property (such person, firm or entity being hereinafter referred to as the
"Grantor"), for assignment, conveyance, lease, or other disposition to a person,
firm or entity other than Landlord (each such transaction) being hereinafter
referred to as a "Disposition"), it is agreed that Landlord has and shall have a
right of first refusal to purchase, take, or otherwise acquire, the same upon
the same terms and conditions as the Grantor thereof shall accept upon such
Disposition to such other person, firm, or entity; and as to each such
Disposition the Grantor shall give written notice to Landlord in reasonable
detail of all of the terms and conditions of such Disposition within twenty (20)
days next following its determination to accept the same but prior to accepting
the same, and Grantor shall not make the Disposition until and unless Landlord
has failed or refused to accept such right of first refusal as to the
Disposition, as set forth herein.
Landlord shall have sixty (60) days next following its receipt of the
written notice as to such Disposition in which to exercise the option to acquire
Tenant's interest by such Disposition, and the exercise of the option by
Landlord shall be effected by notice to that effect sent to the Grantor; but
nothing herein shall require Landlord to accept a particular Disposition or any
Disposition, nor does the rejection of any oi~e such offer of first refusal
constitute a waiver or release of the obligation of the Grantor to submit other
offers hereunder to Landlord In the event Landlord accepts such offer of first
refusal, the transaction shall be consummated pursuant to the terms aud
conditions of the Disposition described in the notice to Landlord. In the event
Landlord rejects such offer of first refusal, Grantor may consummate the
Disposition with such other person, firm, or entity; but any decrease in price
of more than two (2%) percent of the price sought from Landlord or any change in
the terms of payment for such Disposition shall constitute a new transaction
requiring a further option of first refusal to be given to Landlord hereunder.
(G)Without limiting any of the provisions of Article XIV, if pursuant to
the Federal Bankruptcy Code (or any similar law hereafter enacted having the
same general purpose), Tenant is permitted to assign this Lease, notwithstanding
the restrictions contained iii this Lease, adequate assurance of future
performance by an assignee expressly permitted under such Code shall be deemed
to mean the deposit of cash security in an amount equal to the sum of one (1)
year's Annual Basic Rent and
<PAGE>
Additional Rent for the next succeeding twelve (12) months (which
Additional Rent shall be reasonably estimated by Landlord) , which deposit shall
be held by Landlord for the balance of the Term, without interest, as security
for the full performance of all of Tenant's obligations under this Lease, to be
held and applied in the manner specified for security in Section 22.02.
(H)Without limiting any of the provisions of Article XIV, if pursuant to
the Federal Bankruptcy Code (or any similar law hereafter enacted having the
same general purpose) * Tenant is permitted to assign this Lease, the Tenant aud
any assignee shall promptly pay to Landlord one-halt (1/2) of any consideration
received for any assignment.
(I)Except as specifically set forth above, no portion of the Demised
Premises or of Tenant's interest in this Lease may be acquired by any other
person or entity, whether by assignment, mortgage, sublease, transfer, operation
of law or act of the Tenant, nor shall Tenant pledge its interest in this Lease
or in any security deposit required hereunder.
(J)If Tenant is a corporation other than a corporation whose stock is
listed and traded on a nationally recognized stock exchange, the provisions of
this subsection 15.01(J) shall apply to a transfer (however accomplished,
whether in a single transaction or in a series of related or unrelated
transactions) of stock (or any other mechanism such as, by way of example, the
issuance of additional stock, a stock voting agreement or change in class(es) of
stock] which results in a change of control of Tenant as if such transfer of
stock (or other mechanism) which results in a change of control of Tenant were
an assignment of this Lease, and if Tenant is a partnership or joint venture,
said provisions shall apply with respect to a transfer (by one or more
transfers) of an interest in the distributions of profits and losses of such
partnership or joint venture (or other mechanism, such as, by way of example,
the creation of additional general partnership or limited partnership interests)
which results in a change of control of such a partnership or joint venture as
if such transfer of an interest in the distributions of profits and losses of
such partnership or joint venture which results in a change of control of such
partnership or joint venture were an assignment of this Lease; but said
provisions shall not apply to transactions with a corporation into or with which
Tenant is merged or consolidated or to which all or substantially all of
Tenant's assets are transferred or to any corporation which controls or is
controlled by Tenant or is under common control with Tenant, provided that in
the event of such merger, consolidation or transfer of all or substantially all
of Tenant's assets, (i) the successor to Tenant has a net worth computed in
accordance with generally accepted accounting principles at least equal to the
greater of (a) the net worth of Tenant immediately prior to such merger,
consolidation or transfer or (b) the net worth of Tenant herein named on the
date of this Lease, and (ii) proof satisfactory to Landlord of such net worth
shall have been delivered to Landlord at least ten (10) days prior to the
effective date of any such transaction.
ARTICLE XVI
Notices
Section 16.01. All notices, demands, consents, approvals, requests and
instruments or documents by this Lease required or permitted to be given to or
served upon the Landlord or the Tenant shall be in writing. Any such notice,
demand, consent, approval, request, instrument or document shall be sufficiently
given or served only if delivered personally or if sent by a recognized
overnight courier service, or if sent by
<PAGE>
certified or registered mail, postage prepaid, addressed at the address set
forth below, or at such other address as it shall designate by notice, as
follows
If to Landlord:
Bonanno Real Estate
Group III, L.P.
with copy to:
c/o Tryon Management
107 West Tryon Avenue
Teaneck, NJ 07666
Dollinger & Dollinger, P.A.
365 West Passaic Street
Rochelle Park, NJ 07662
If to Tenant:
Imaging Dynamics Inc.
53 West Century Road
Paramus, NJ 07642
with copy to:
Roger L. Fidler, Esq.
163 South Street Hackensack, NJ 07601
Any notice so sent shall be deemed given or served upon receipt or
rejection thereof.
ARTICLE XVII
Holding Over
Section 17.01. If the Tenant shall remain in the Demised Premises after the
expiration of the Term without having executed and delivered a new lease with
the Landlord, such holding over shall not constitute a renewal or extension of
this Lease. The Landlord may, at its option, elect to treat the Tenant as one
who has not removed at the end of its Term, and thereupon be entitled to all the
remedies against the Tenant provided by law in that situation, or the Landlord
may elect, at its option, to construe such holding over as a tenancy from month
to month, subject to all the terms and conditions of this Lease, except as to
duration thereof, and in that event the Tenant shall pay installments of Monthly
Basic Rent as provided for pursuant to N.J.S.A. 2A:42-6, but in no event less
than the rate provided herein for the last month of the Term.
ARTICLE XVIII
Liens
<PAGE>
Section 18.01. This Lease may be cancelled by the Landlord if any
mechanic's lien is filed against the Demised Premises as a result of
alterations, additions or improvements made by the Tenant and not discharged by
payment or bonding with~in thirty (30) days after notice by the Landlord to the
Tenant. In addition, after thirty (30) days' written notice to the Tenant, the
Landlord, at its option, may pay and discharge such lien, without inquiring into
the validity thereof, and the Tenant shall, on demand of the Landlord, reimburse
the Landlord as Additional Rent hereunder for the total expense incurred by the
Landlord in discharging such lien
ARTICLE XIX
Condition of Demised Premises, Loss, Etc.
Section 19.01. After the commencement of the Tenant's occupancy, the
Landlord shall not be responsible for the loss of, or damage to, Tenant's
property or that under its care, custody or control, or injury to Tenant
occurring in or about the Demised
Premises, or for any business interruption loss, for any reason whatsoever,
to include but not be limited to: any existing or future condition, defect,
matter or thing in the Demised Premises; the acts, omissions or negligence of
other persons or tenants in and about the Demised Premises; theft or burglary
from the Demised Premises; the negligence of Landlord, its agents, servants or
invitees; and defects, errors or omissions in the construction or design of the
Demised Premises and/or the Building including the structural and nonstructural
portions thereof. Tenant covenants and agrees to make no claim for any such
loss, damage or injury at any time.
ARTICLE XX
Inspection, For Sale and For Rent Signs
Section 20.01. The Landlord, or its agents, shall have the right to enter
the Demised Premises at reasonable hours to examine the same, or to exhibit the
Demised Premises to prospective purchasers and to place upon the Demised
Premises a suitable "For Sale" sign, which sign must be approved by the Tenant,
which approval shall not be unreasonably withheld. For twelve (12) months prior
to the expiration of the Term, the Landlord, or its agents, 'nay exhibit the
Demised Premises to prospective tei~ants and may place the usual "To Let" signs
therein
ARTICLE XXI
Signs
Section 21.01. No sign, advertisement or notice shall be affixed to or
placed upon any part of the Demised Premises by the Tenant, except in such
manner, and of such size, design and color as shall be approved in advance in
writing by the Landlord, which approval the Landlord shall not unreasonably
withhold, provided; (i) that Tenant comply with all applicable governmental
ordinances and regulations and receives all necessary governmental approvals
required for erection and maintenance of the sign and (ii) no later than the
last day of the Term, Tenant shall, at Tenant's expense, remove the sign and
repair all injury done by or in connection with the installation or removal of
the sign.
<PAGE>
ARTICLE XXII
Advance Rent, Security and Late Charge
Section 22.01. simultaneously herewith, the Tenant has deposited with the
Landlord the sum of Five Thousand One Hundred Thirty-six and 60/100 ($5,136.60)
Dollars in advance for Monthly for the first month of the Term
Section 22.02. The Tenant has this day deposited with the Landlord the sum
of Fifteen Thousand Four Hundred Nine and 80/100 ($15,409.80) Dollars
(hereinafter "Security Deposit") as security for the full and faithful
performance by Tenant of all of the terms and conditions upon the Tenant's part
to be performed, which said sum shall be returned to the Tenant after the time
fixed as the expiration of the Term herein, provided the Tenant has fully and
faithfully carried out all of the terms, covenants and conditions on tue
Tenant's part to be performed. In the event the Landlord uses any of said
Security Deposit to cure Tenant's default(s) or meet any of Tenant's
obligations, Tenant covenants to upon demand replace the amount so utilized. In
the event of a bona fide sale, subject to this Lease, the Landlord shall have
the right to transfer the Security Deposit to the vendee, and the Landlord shall
be considered released by the Tenant from all liability for the return of such
Security
Deposit; and the Tenant agrees to look solely to the new landlord for the
return of the said Security Deposit, and it is agreed that this shall apply to
every transfer or assignment made of the Security Deposit to a new landlord. The
security deposited under this shall not be mortgaged1 assigned or encumbered by
the Tenant without the written consent of the Landlord.
At all Limes during the Term or any extension or renewal thereof, the
Security Deposit shall equal the sum of three (3) installments of Monthly Basic
Rent. As and when the Monthly Basic Rent increases, Tenant shall deposit with
Landlord the difference between the then existing Security Deposit and the
aforementioned sum (hereinafter "Additional Security") . Failure of Tenant to
deposit Additional Security within ten (10) days after Landlord's written demand
sI~all constitute a material breach of this Lease by Tenant.
Section 22.03. In the event of the insolvency of Tenant or in the event of
the entry of a judgment in bankruptcy in any court against Tenant which is not
discharged within thirty (30) days after entry, or in the event a petition is
filed by or against Tenant under any chapter of the bankruptcy laws of the State
of New Jersey or the united States of America, then and in such event Landlord
may require the Tenant to deposit Additional Security in the amount specified in
Subsection 15.01(H) to adequately assure Tenant's performance of all of its
obligations under this Lease, including all payments subsequently accruing.
Failure of Tenant to deposit the security required by this Section within ten
(10) days after Landlord's written demand shall constitute a material breach of
this Lease by Tenant.
Section 22.04. Anything in this Lease to the contrary notwithstanding, at
Landlord's option, Tenant shall pay a "Late Charge" of seven (7%) percent of any
installment of Monthly Basic Rent or Additional Rent paid more than five (5)
days after the due date thereof, to cover the extra expense involved in handling
delinquent payments. Tenant shall not be charged a Late charge the first time
Tenant is late during each twelve (12) month period during the Term commencing
on the Commencement Date until Tenant, as to such time in each twelve (12) month
period, is given five (5) days' notice and an opportunity to cure said
nonpayment within said notice period and fails to cure said nonpayment witkiin
said time
ARTICLE XXIII
Financial Statements
Section 23.01. The Tenant agrees, within ninety (90) days after the end of
the Tenant's accounting year, at the request of the Landlord, or at the request
of the holder of any first mortgage upon the Demised Premises, to furnish to the
Landlord or mortgagee, a certified balance sheet and profit and loss statement
for the last accounting year.
<PAGE>
ARTICLE XXIV
Broker
Section 24.01. The Tenant represents and warrants to the Landlord that
Tryon Management Corporation is the sole broker which advised it of the
availability of the Demised Premises for leasing and is the sole broker which
introduced it to the Landlord, and the Landlord shall pay the commission, if
any, which may be due to said broker. The Tenant agrees to indemnify and hold
Landlord harmless from any and all claims of other brokers and expenses in
connection therewith arising out of or in connection with the negotiation of or
the entering into this Lease by Landlord and Tenant.
ARTICLE XXV
Short Form or Memorandum of Lease
Section 25.01. At the request of either party the Landlord and the Tenant
will execute and deliver, in duplicate original counterparts, a recordable
memorandum of this Lease identifying the Demised Premises and stating the
commencement and termination dates of the Term of this Lease
ARTICLE XXVI
Waiver of Jury Trial~Non-Mandatory Counterclaims
Section 26.01. If Landlord commences any summary I proceedings or an action
for nonpayment of Term Basic Rent or Additional Rent, Tenant shall not interpose
any non-mandatory counterclaim of any nature or description in any such
proceedings or action. Tenant and Landlord both waive a trial by jury of any or
all issues arising in any action or proceeding between the parties hereto or
their successors under or connected with this Lease or any of its provisions
ARTICLE XXVII
Waiver of Distraint
Section 27.01. Landlord waives all lien, right, interest and claim it might
otherwise have in and waives its right of distraint of, the machinery, fixtures
and other property of the Tenant, and in any other property of any nature
whether on or off the Demised Premises, belonging to the Tenant. The provisions
of this Section are intended to apply to the Landlord's common law (if any) and
statutory right of distraint because of failure to pay Term Basic Rent or
Additional Rent.
ARTICLE XXVIII
Retained Rights
Section 28.01. Landlord hereby reserves to itself, its successors and
assigns the full use of the roof and the right to grant, construct, maintain and
use ingress and egress easements, railroad easements, utility easements,
drainage easements, across, through, over and under the Demised Premises,
Building and Real Property or to or from other lands and other portions of the
Real Property now owned or in the future acquired by the Landlord, and to
construct and install pipes and other equipment necessitated thereby, provided,
however, that the same be at the cost of the Landlord and does not unreasonably
interfere with the use of or access to the Demised Premises by the Tenant.
<PAGE>
ARTICLE XXIX
Miscellaneous
Section 29.01. Partial Invalidity. If any term or provision of this Lease
or the application thereof to any party I or circumstances shall to any extent
be invalid or unenforceable, the remainder of this Lease or the application of
such term or provision to parties or circumstances other than those to which it
is held invalid or unenforceable, shall not be affected thereby, and each term
and provision of this Lease shall be valid and enforced to the fullest extent
permitted by law.
Section 29.02. Waivers. One or more waivers by either party of the
obligation of the other to perform any covenant or condition shall not be
construed as a waiver of a subsequent breach of the same or any other covenant
or condition.
The receipt of Monthly Basic Rent and Additional Rent by the Landlord, with
knowledge of any breach of this Lease by the Tenant or of any default on the
part of the Tenant in the observance or performance of any of the conditions or
covenants of this Lease, shall not be deemed to be a waiver of any provision of
this Lease. Neither acceptance of the keys nor any other act or thing done by
the Landlord or any agent or employee during the Term herein demised shall be
deemed to be an acceptance of a surrender of said Demised Premises, excepting
only an agreement in writing signed by the Landlord accepting or agreeing to
accept such a surrender.
Section 29.03. Number, Gender. Wherever herein the singular number is used,
the same shall include the plural, and the masculine gender shall include the
feminine and neuter genders.
Section 29.04. Successors, Assigns. The terms, covenants and conditions
herein contained shall be binding upon and inure to the benefit of the
respective parties and their successors and assigns.
Section 29.05. Headings. The Article and marginal headings herein are
intended for convenience in finding the subject matters, are not to be taken as
part of this Lease and are not to be used in determining the intent of the
parties to this Lease.
Section 29.06. Entire Agreement. This instrument contains the entire and
only agreement between the parties and no oral statements or representations or
prior written matter not contained in this instrument shall have any force or
effect. This Lease shall not be modified in any way or terminated except by a
writing executed by both parties.
Section 29.07. Landlord. The term "Landlord" as used in this Lease means
only the holder, for the time being, of the Landlord's interest under this Lease
so that in the event of any transfer of title to the Demised Premises the
Landlord shall be and hereby is entirely freed and relieved of all obligations
of the Landlord hereunder accruing after such transfer, and it shall be deemed
without further agreement between the parties that such grantee, transferee or
assignee has assumed and agreed to observe and perform all obligations of the
Landlord hereunder arising during the period it is the holder of the Landlord's
interest hereunder.
Section 29.06. Words of Duty. Whenever in this Lease any words of
obligation or duty are used, such words or expressions shall have the same force
and effect as though made in the form of covenants
Section 29.09. Cumulative Remedies. The specified remedies to which the
Landlord or the Tenant may resort under the terms of this Lease are cumulative
and are not intended to be exclusive of any other remedies or means of redress
to which the Landlord or the Tenant may lawfully be entitled in case of any
breach or threatened breach of any provision of this Lease.
Section 29.10. No option. The submission of this Lease Agreement for
examination does not constitute a reservation of, or option for, the Demised
Premises, and this Lease Agreement
<PAGE>
becomes effective as a Lease Agreement only upon execution and delivery
thereof by Landlord and Tenant.
Section 29.11. Accord and Satisfaction. No payment by Tenant or receipt by
Landlord of a lesser amount than the Monthly Basic Rent and additional charges
payable hereunder shall be deemed to be other than a payment on account of the
earliest stipulated Monthly Basic Rent and Additional Rent, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment for Basic Rent or Additional Rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such Basic Rent and Additional Rent or pursue
any other remedy provided herein or by law.
Section 29.12. Corporate Authority. If Tenant is a corporation, Tenant
represents and warrants that this Lease and the undersigned's execution of this
Lease has been duly authorized and approved by the corporation's Board of
Directors. The undersigned officers and representatives of the corporation
executing this Lease on behalf of the corporation represent and warrant that
they are officers of the corporation with authority to execute this Lease on
behalf of the corporation, and within fifteen (15) days of execution hereof,
Tenant will provide Landlord with a corporate resolution confirming the
aforesaid.
Section 29.13. Lease Commencement. Notwithstanding anything contained
herein to the contrary, if Landlord, for any reason whatsoever including
Landlord's negligence, cannot deliver possession of the Demised Premises to
Tenant at the commencement of the agreed Term as set forth in Section 2.01, this
Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for
any loss or damage resulting therefrom, but in that event, the Term shall be for
the full Term as specified above to commence from and after the date Landlord
shall have delivered possession of the Demised Premises to Tenant, and, if
requested by Landlord, Landlord and Tenant shall, by a writing signed by the
parties, ratify and confirm said commencement and termination dates. Landlord
and Tenant acknowledge and agree that Tenant's obligations hereunder are
conditioned upon Tenant obtaining a Certificate of Occupancy permitting its use
of the Demised Premises for the purpose set forth in the first sentence of
Section 5.01 (the "Use CO), as opposed to a Certificate of Occupancy that may be
required upon completion of any tenant improvements. Tenant shall have a period
of thirty (30) days from the date of this Lease to procure the Use CO. Upon
execution of this Lease, Tenant shall promptly file for and thereafter in good
faith diligently prosecute an application for the Use CO. In the event that on
or before said thirtieth (30th)day following the date of t)~is Lease Tenant has
not obtained the Use CO, then either party may cancel this Lease upon notice to
the other given on or after said thirtieth (30th) day, in which event all
advance rent and security paid by Tenant shall be returned and the parties
released herefrom. Nothing herein contained shall be construed to permit Tenant
to enter the Demised Premises and perform any work prior to the Commencement
Date
Section 29.14. Real Estate Taxes. As used in this Lease, Real Estate Taxes
shall mean the property taxes and assessments imposed upon the Real Property
including the Building, or upon the Term Basic Rent and Additional Rent, as
such, payable to Landlord, including, but not limited to, real estate, city,
county, village, school and transit taxes, or taxes, assessments or charges
levied, imposed, or assessed against the Demised Premises including the Building
by any other taxing authority, whether general or specific, ordinary or
extraordinary, foreseen or unforeseen. If due to a future change in the method
of taxation, any franchise, income or profit tax or other tax shall be levied
against Landlord in substitution for,
<PAGE>
or in lieu of, or in addition to, any tax which would otherwise constitute
a Real Estate Tax, such franchise, income or profit tax or other tax shall be
deemed to be a Real Estate Tax for the purposes hereof; conversely, any
additional real estate tax hereafter imposed in substitution for, or in lieu of,
any franchise, income or profit tax or other tax (which is not in substitution
for, or in lieu of, or in addition to, a Real Estate Tax as hereinbefore
provided) shall not be deemed a Real Estate Tax for the purposes. hereof.
Section 29.15. Additional Rent. Additional Rent shall mean all sums in
addition to Term Basic Rent payable by Tenant to Landlord pursuant to the
provisions of this Lease.
ARTICLE XXX
Personal Liability
Section 30.01. Notwithstanding anything to the contrary provided in this
Lease, it is specifically understood and agreed, such agreement being a primary
consideration for the execution of this Lease by Landlord, that there shall be
absolutely no personal liability on the part of Landlord, its successors,
assigns or any mortgagee in possession (for the purposes of this Section,
collectively referred to as "Landlord"), with respect to any of the terms,
covenants and conditions of this Lease, and that Tenant shall look solely to the
equity of Landlord in the Building for the satisfaction of each and every remedy
of Tenant in the event of any breach by Landlord of any of the terms, covenants
and conditions of this Lease to be performed by Landlord, such exculpation of
liability to be absolute and without any exceptions whatsoever.
ARTICLE XXXI
Renewal option
Section 31.01. Tenant is hereby granted an option to renew this Lease upon
the following terms and conditions:
(A)At the time of the exercise of the option to renew and at the time of
the said renewal, the Tenant shall not be default in accordance with the terms
and provisions of this Lease, and shall be in possession of the Demised Premises
pursuant to this Lease.
(B)Notice of the exercise of the option shall be sent to the Landlord in
writing at least nine (9) months before the expiration of the Term of this
Lease.
(C)The renewal term (herein "Extended Term") shall be for the term of three
(3) years, to commence at the expiration of the Term of this Lease, and all of
the terms and conditions of this Lease, other than the Term Basic Rent, shall
apply during any such renewal term.
(D)The Annual Basic Rent to be paid during the Extended Term (August 1,
2000 through July 31, 2003) shall accrue at the rate equal to the Annual Basic
Rent paid during the last year of the Term [Sixty-one Thousand Six hundred
Thirty-nine and 20/100 ($61,639.20) Dollars, increased by the percentage of
increase in the index now known
<PAGE>
as the Revised Consumer Price Index for All Urban Consumers of the New
York, N.Y.-Northeastern, New Jersey area as published by the Bureau of Labor
Statistics of the United States Department of Labor (1982-84-100) (hereinafter
"Index") between May 1997 and May 2000, but in no event to be less than the
Annual Basic Rent paid for the Demised Premises for the last year of the
original Term of the Lease.. If, at the time required for the determination of
the renewal rent the aforesaid Index is no longer published or issued, the
parties shall use such other index as is then generally recognized and accepted
for similar determinations of cost of living increases.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first above written.
BONANNO REAL ESTATE GROUP III, L.P., Landlord
BY:
THOMAS P. BONNANO, JR.,
General Partner
IMAGING DYNAMICS, INC., Tenant
By:
Name:
Title:
CONSENT OF THOMAS A. MONAHAN, C.P.A.
The undersigned, THOMAS A. MONAHAN, C.P.A., hereby consents to the use
of his name and the use of his Opinion dated October 17, 1997 for Imaging
Dynamics, Inc. (the "Company") as filed with its Registration Statement on Form
SB-2, in this Amendment No. 1 to the Form SB-2 Registration Statement being
filed by the Company.
Dated : October 17, 1997
/s/ Thomas A. Monahan
THOMAS A. MONAHAN, C.P.A.
LAMPERT & LAMPERT
ATTORNEYS AT LAW
10 EAST 40TH Street
NEW YORK, NEW YORK
TELEPHONE (212) 889-7300
TELECOPIER (212) 889-5732
MITCHELL LAMPERT* IRWIN S. LAMPERT
DARREN LAMPERT OF COUNSEL
--
MICHAEL H. FERENCE*
--
*NEW YORK AND NEW JERSEY
CONSENT OF ATTORNEYS
The undersigned, LAMPERT & LAMPERT, hereby consent of our name and the
use of our Opinion dated October 20, 1997 for Imaging Dynamics, Inc. (The
"Company") as filed with this Amendment No. 1 to the Form SB-2 Registration
Statement being filed by the Company.
Dated: October 21, 1997
LAMPERT & LAMPERT
