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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended July 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
COMMISSION FILE NUMBER 0-24283
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REGISTRY MAGIC INCORPORATED
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(Name of Small Business Issuer in Its Charter)
FLORIDA 65-0623427
- - ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
ONE SOUTH OCEAN BOULEVARD
SUITE 206
BOCA RATON, FLORIDA 33432
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(Address of Principal Executive Offices)(Zip Code)
(561) 367-0408
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Securities Exchange Act of
1934:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
NONE NONE
Securities registered under Section 12(g) of the Securities Exchange Act of
1934:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10- KSB. [X]
State registrant's revenues for the year ended July 31, 1998. $885,110.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant on October 30, 1998 computed by reference to the closing bid
price of the Registry Magic Incorporated Common Stock as reported by THE WALL
STREET JOURNAL on that date ($4.00): $13,824,000
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the registrant's Common Stock, par value
$.001 per share (the "Common Stock"), as of October 23, 1998, was 5,813,000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Registry Magic(R), (the "Company") was organized to design, develop,
commercialize and market proprietary products and services that exploit recent
advances in speech recognition technologies. The products currently available or
under development by the Company have the objective to enable a user to speak
into a telephone or to a computer in a natural conversational manner and, in
turn, have the product listen, understand and respond by performing tasks or
retrieving information.
The Company's initial product is the Virtual Operator(TM), a speech
driven auto-attendant and call routing turnkey product, that has received a
number of industry awards including "Product of the Year 1997" by both CTI
MAGAZINE and TELECONNECT MAGAZINE, "Best of Show" at the 1998 CT Expo and
included in the Smithsonian's permanent collection of Information, Technology
and Society. This product has begun to generate limited sales and rental revenue
for the Company and is being marketed and installed through both independent
resellers and a direct sales force. Recent installations span multiple
industries, and include prominent financial institutions, a major automotive
retailer, a credit card services company, a pharmaceutical manufacturer and a
teleservice firm. In addition to product sales, the Company is also seeking to
license its proprietary speech driven products to telephone switch and voice-
mail manufacturers, among others, on an original equipment manufacturer ("OEM")
basis.
The Company's MagicCalendar(TM) product, a speech driven desktop
calendar management tool, is currently being distributed by Lernout and Hauspie
Speech Products N.V. ("L&H") and has generated revenue to the Company. In
addition, the Company has entered into a Virtual Employee(R) service agreement
with Office Depot Corporation to handle a specific category of incoming calls to
their call center which will generate revenue, on a per transaction basis, to
the Company.
While the Company is beginning to generate limited recurring revenues
and licensing revenues, and anticipates increased revenues during its 1999
fiscal year, the Company's expenses continue to significantly exceed its current
revenues. There can be no assurance that the Company will generate sufficient
revenues to enable the Company to operate profitably during its 1999 fiscal year
or thereafter.
The Company's goal is to continue to develop and refine its speech
recognition products and services by adding additional functionality and foreign
language understanding to enable users to easily access computer automated
transactions via telephone or PC without the need for extensive touch-tone menus
or computer proficiency while providing customers with cost-saving benefits.
While the Company is currently marketing its initial products on a
stand-alone basis through independent reseller channels and a direct sales
force, the Company's ultimate strategy is to establish alliances with corporate
partners and manufacturers to license the Company's proprietary software
products to generate revenue on a transaction or recurring basis.
INDUSTRY BACKGROUND
While various types of speech recognition technology have existed for
several years and the number of commercially available speech-enabled products
continue to grow, until recently, speech recognition technology and products
have been deficient and costly, thereby limiting widespread acceptance.
Historically, emphasis in the speech recognition industry has been placed on the
development of core speech recognition engine technology, rather than on the
development of speech recognition
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applications technology. The speech recognition engine is the core technology
upon which various applications are based. Major companies, including IBM,
Dragon Systems, Inc., Lernout & Hauspie Speech Products, N.V. Voice Control
Systems, Fonix, Nortel and Lucent, have spent vast sums of money over the last
quarter century in developing core engine technology, but have, for the most
part, relegated developing applications to others.
Speech recognition engine technologies require distinct skills
including speech algorithms, statistics, digital signal processing algorithms,
digital signal processing programming, phonetics, linguistics, information
theory and coding theory. On the other hand, creating speech recognition
products requires an entirely different set of skills including speech and word
recognition, linguistics, usability engineering, speech engine tuning, noise
cancellation, phonetics, multimedia application development and telephone
application development.
Early speech recognition applications typically required programming of
equipment to recognize a limited number of discrete words spoken by a specific
user, referred to as "speaker enrollment." These speaker-dependent systems also
tended to be sensitive to background noise and to changes in speech patterns
that resulted from an enrolled speaker being tired or excited. Additionally,
these initial speech recognition applications had limited vocabularies and
required the user to speak discretely, pausing between each word, rather than
allowing natural continuous speech. Moreover, in addition to these performance
challenges, the development of foreign language versions of automatic speech
recognition and text-to-speech synthesis (technologies for converting textual
information into synthetic speech output) has been costly and time consuming. As
a result, most developers have limited development to one (typically English) or
a few language versions of their technology.
As the number of electronic devices used by businesses and consumers
proliferate and the features and functionality of these products and services
increase and become more complex, manufacturers continually seek to increase the
ease of use and the interface between their products and the end user. The
manner and simplicity of operation of a product can have a direct effect on its
popularity, frequency of use and market acceptance. The introduction of the
"mouse" and the graphical user interface (GUI), each of which simplified the use
of the personal computer, are examples of how improving a product's
user-friendliness can enhance its marketability.
Speech is typically the most natural, efficient and easiest means of
human communication. With the increase in the power and capability of core
speech recognition engine technology, as well as the increase in speed and
reduction of costs in computer processors, integration of human speech as an
interface to telephone and computer applications is now feasible. Recent
advances in the accuracy of speech recognition technologies have led to
improvements in the performance and reliability of speech recognition products,
allowing for multiple languages to be developed for a specific application.
Management believes that these improvements and continuing advances in speech
recognition technologies, including the development of intuitive and easy-to-use
natural language user interfaces, are accelerating the growth of speech-enabled
products in daily business and personal use. Furthermore, management believes
that electronic devices and products incorporating speech recognition technology
will be available in an increasing variety of applications, provided that these
applications are easy to use, natural, accurate and cost effective.
STRATEGY
The Company's overall goal is to exploit existing speech engine
technology to create advanced speech recognition products and services for
commercial applications. This technology, among other attributes, will (i)
substantially eliminate the need for touch-tone menus, (ii) allow for the
automation of telephone systems in international locations where touch-tone
systems may not be prevalent, (iii) reduce
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operational costs by performing repetitive tasks of live employees, and (iv)
allow for the access of information from any location and at anytime through
speech prompting. The Company's business strategy is to focus on products and
pricing models that produce revenue on a transaction or recurring basis.
In pursuit of this goal, the Company has assembled a development team
which includes (i) speech recognition developers to enhance the capabilities of
the speech recognition engines that form the foundation of the Company's
products; (ii) natural dialogue designers with linguistic and phonetic skills to
design applications that anticipate user responses; (iii) multimedia application
developers to exploit and integrate audio and video functionality; (iv)
usability engineers to design intuitive, easy-to-use applications; and (v)
telephone application developers to integrate telephone systems with computer
applications.
While the Company is currently marketing its initial products on a
stand-alone basis through independent reseller channels and a direct sales
force, the Company's ultimate marketing strategy is to establish alliances with
corporate partners and manufacturers to license the Company's proprietary
software products to generate revenue on a transaction or recurring basis.
PRODUCTS
GENERAL
The Company is developing proprietary applications software products
that simulate the manner in which human beings communicate by incorporating the
following key attributes:
o SPEAKER INDEPENDENCE -- enables any person to speak and be
understood. As a result, within a geographic region or country, the Company's
technology "listens" to and can understand different dialects, ages and genders.
o NATURAL, CONTINUOUS SPEECH -- allows users to speak at a
continuous and natural pace rather than one word at a time.
o DIALOGUE DETECTION (KEY WORD SPOTTING) -- identifies the key
words for action within any naturally spoken command. For example, a caller may
say, "I'd like to speak with John Doe, please." Dialogue Detection locates the
name "John Doe" and ignores all other words that have been spoken.
o TALK-THRU (BARGE-IN) -- allows callers to override prompts
with their voice. The computer stops speaking, "hears" the new input and
responds by going into its database to retrieve the requested information.
o MAGIC BULLSEYE(TM) -- performs automatically the desired
task based on the confidence of the understanding of the callers spoken command,
without the need for an additional confirmation prompt, thereby making the
caller interaction with the computer more efficient and natural.
o ADVANCED STATISTICAL METHODS -- analyzes what users say
based on quantitative statistical analyses that evaluates the combination of
responses in order to understand the spoken language. For example, although it
is currently not possible for a computer system to understand each individual
city, town or village in the United States (e.g., Boise, Dallas or Buffalo), it
can understand a specific city or town when coupled with a specific state (e.g.,
Idaho, Texas or New York).
PRODUCTS AVAILABLE OR UNDER DEVELOPMENT
The Company believes that because of its universality, the telephone
offers a particularly effective
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means for information retrieval, transactions and messaging. While in the United
States interactive voice response telephone systems using touch-tone input have
enjoyed considerable success in automating a variety of transactions, users
often find that using touch-tone telephone menus, which require a user to push
different buttons based upon a series of commands, tend to be inefficient and
frustrating. The limitations for touch-tone input for more complex and varied
transactions are significant and provide a strong opportunity for speech driven
products. Furthermore, outside North America, many telephone systems are still
rotary-driven, which precludes touch-tone telephone application capability. The
recent deregulation of the telecommunication market in the European Union
("EU"), however, is expected to result in telecommunication products and
services becoming more competitive. The Company believes it is well positioned
to compete in the overseas market based on its prior experience in developing
multilingual voice recognition products. The Company has developed and
demonstrated a Japanese language prototype, as well as a Spanish language
prototype of its Virtual Operator, which recently was awarded "Best of Show" at
the 1998 CT Expo. In light of the foregoing and as a result of better
applications and advances in speech recognition technologies, management
believes that the exploitation of speech driven applications in the telephony
market will increase. Accordingly, the Company has determined to focus its
initial development efforts primarily on telephone products and services.
o VIRTUAL OPERATOR(R). The Company's first stand-alone product is a
speech driven auto-attendant that enables a caller to request connection to a
person or department by speaking into a telephone in a natural manner. A caller
does not need to remember the extension of the person or department to whom the
caller wishes to speak, and the caller is not required to enter touch-tones to
transfer to a desired department. Additionally, a caller can interrupt a prompt
at any time and state the caller's request without waiting for the prompt to
finish. The Company believes that this product can be successful in the
international market, where it can automate telephone systems that do not
support touch-tone. Depending on individual configuration, the Virtual Operator
has the ability to answer up to twelve calls at once without placing a caller
on-hold, and function seven days a week, twenty four hours a day.
A product prototype of the Virtual Operator won a Best-of-Show Award at
the Computer Technology Expo 1997, a major trade show for products and services
using computer telephone solutions that was held in Los Angeles in March 1997.
The Virtual Operator was also named "Product of the Year" for 1997 by both
TELECONNECT MAGAZINE and CTI MAGAZINE, leading trade publications for telephone
equipment dealers, and "Best of Show" at the 1998 CT Expo. In December 1997, the
Company was nominated as a finalist for a COMPUTERWORLD SMITHSONIAN AWARD and
included in the Smithsonian's permanent collection of Information, Technology
and Society.
The Company has begun customer installations of its Virtual Operator
and is beginning to generate limited rental and sales revenue from customers
within a wide variety of industries. There were no rental revenues as of year
end July 31, 1998. Recent installations include several prominent financial
institutions, a major automotive retailer, a credit card services company, a
pharmaceutical manufacturer and a teleservice firm. The Virtual Operator is sold
to dealers or is rented to end-users, where it has the potential to generate
recurring revenue to the Company.
In September 1998, the Company began customer beta installations of a
newly designed Virtual Operator that provides the same accuracy, performance and
functionality as the earlier version, but with a reduction of approximately 50%
in product cost. The Company anticipates that this new version will replace the
current version before the end of calendar year 1998 and allow the Company to
offer a lower priced product to customers.
o MAGICCALENDAR(TM). MagicCalendar is a speech driven desktop software
application that allows users to schedule activities by speaking to the
computer. This product is currently being sold by L&H. In December 1997, the
Company entered into a royalty agreement with L&H for distribution of
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MagicCalendar pursuant to which L&H agreed to pay $450,000 in royalties to the
Company. Pursuant to this agreement L&H paid $325,000 in royalties by July 31,
1998 and paid the remaining $125,000 of additional royalties at October 2, 1998.
No additional royalties will be paid by L&H to the Company until L&H completes
sales of in excess of 75,000 units. While the Company does not believe that
sales by L&H will exceed 75,000 units, such royalties paid by L&H are not
subject to refund under the terms of the royalty agreement. In addition, an
enhanced version of this product is under development that provides for
integration with Microsoft(R) Outlook(TM) 98, thereby making the product more
useful to the large number of businesses which use Outlook.
o VIRTUAL DIALER(TM). The Company is currently in beta testing of a
speech driven personal phonebook that is a turnkey hardware product that enables
a user to place calls to a contact list by stating the requested name rather
than requiring a user to remember individual telephone numbers. The Company has
positioned its product as a productivity tool that accepts hundreds of telephone
numbers used both inside and outside of the office. This product is targeted at
companies providing cellular telephone services, as well as to long distance and
calling card companies. In prior communications, the Company has referred to
this product as MagicDialing(TM).
o VIRTUAL PERSONAL ASSISTANT(TM). The Company is currently in
development of a conversational personal assistant that can be sold as either a
turnkey hardware product or as a service on a subscription basis. It is
anticipated that this product will perform a number of tasks for the individual
user including remote voice mail, facsimile and e-mail retrieval, as well as the
functions of the Virtual Operator and the Virtual Dialer product. In prior
communications, the Company has referred to this product as Conversational
Personal Assistant(TM) or as MagicOne(TM).
o VIRTUAL EMPLOYEE(R) FOR CALL CENTERs. Available as an outsourced
service bureau through a strategic alliance with Phone Interactive Corporation,
this service is designed to handle selected incoming calls to call centers and
produce transaction revenue to the Company. The Company has entered into a
Service Agreement with Office Depot Corporation and anticipates the service to
be operational by the end of calendar year 1998. In prior communications, the
Company has referred to this product as Conversational Call Centers(TM).
DISCONTINUED PRODUCTS
The Company has previously developed prototypes of the following
products, but does not plan further development of these products at this time.
o CONVERSATIONAL KIOSKS(TM). Employing most of the Company's
proprietary technologies and integrating full motion video, this product
prototype was developed with the objective of allowing users to have two-way
conversations with computers in order to sell products, generate sales leads and
provide easy access to a wide variety of information.
o CONVERSATIONAL POINT-OF-SALE APPLICATIONS(TM). Employing the
Company's technologies, this product prototype was developed with the objective
to allow for a diverse number of point of sale applications including telephone
fast food ordering or as part of an in-store informational kiosk.
For the above two products, the Company has pursued strategic
alliances to which third parties could contribute technology, services,
financing or marketing in connection with the development and commercialization
of these specific solutions. To date, no business opportunities have been
identified that can yield significant long term or short term profit to the
Company. The Company is, therefore, de- emphasizing the development and
marketing of applications in the Kiosk and Point-of-Sale areas.
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STRATEGIC RELATIONSHIPS
The Company continues to expand its relationships with technology
providers and distribution partners. Currently, some of these relationships
include:
o LERNOUT & HAUSPIE SPEECH PRODUCTS N.V. The Company has entered into a
distribution and licensing agreement (the "Distribution Agreement") with L&H, an
international provider of speech recognition core engine technologies. Under the
terms of the Distribution Agreement, L&H will market and sell the Company's
MagicCalendar product to end-users. The Company also has acquired rights to
incorporate certain L&H technologies within the Company's products.
o DIALOGIC CORPORATION. The Company is a Platinum Partner of Dialogic
Corporation, one of the largest manufacturer of computer telephone equipment. As
such, the Company is authorized to participate in a number of marketing programs
in support of the promotion of the Company's products.
o INTER-TEL TECHNOLOGIES INCORPORATED. The Company has entered into a
Factored Products Distribution Agreement with Inter-Tel Technologies
Incorporated ("Inter-Tel"), a significant manufacturer and distribution company
of telephone related equipment. Under the terms of this agreement, Inter-Tel
will have the right to market and sell the Company's Virtual Operator product
through its 34 North American based sales offices.
o NEC AMERICA INCORPORATED. The Company's Virtual Operator product has
received a certification from NEC and is the only speech recognition product
included within their "Fusion" Strategic Alliance Program. As such, the Company
is authorized to participate in a number of marketing programs in support of the
promotion of the product. The Company intends to pursue and expects to receive
certification endorsements from other OEMs as well.
o NORTHERN TELECOM CORPORATION. The Company is a member of Northern
Telecom's Business Affiliate Program. As such, the Company is authorized to
participate in a number of marketing programs in support of the promotion of the
Company's products.
o PHONE INTERACTIVE CORPORATION. The Company has entered into a
strategic alliance agreement with Phone Interactive Corporation ("PIC"), a
telephone service bureau business. As part of this agreement, the Company has
agreed to contribute its speech recognition call center software under
development, while PIC will provide its telecommunications platforms, marketing,
customer base and other contributions, and each will receive a percentage of the
overall revenue from the proposed services based upon each party's contribution
in developing and marketing a specific application. The Company and PIC have
begun the integration of the Company's call center software with PIC's
telecommunications platforms, and the Company believes that the service will be
available for customers prior to the end of calendar year 1998.
o VERITEL CORPORATION OF AMERICA. The Company has entered into a
number of agreements with Veritel Corporation of America ("Veritel") for a
variety of products. Veritel is a provider of speaker verification technology.
Under a development agreement, the Company will receive revenue by developing a
proprietary interface that allows Registry Magic's Virtual Dialer product to
work seamlessly with one of Veritel products. As a result, the Virtual Dialer
will incorporate "voiceprint" technology that will provide additional user
security. Under a companion licensing agreement, the Company has secured rights
to develop and market a software product that uses Veritel's speaker
identification technology to limit access to specific files and programs via a
unique 'voiceprint'. Lastly under a separate distribution agreement, the Company
intends to expand its distribution through Veritel for the Virtual Dialer and
other products.
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o SIMON PROPERTY GROUP. The Company and M.S. Management Associates,
Inc. ("MSM"), an affiliate of the Simon Property Group, L.P. ("SPG"), a national
shopping mall developer, have entered into a letter of intent in anticipation of
consummation of a Strategic Technology and Marketing Agreement for purposes of
identifying opportunities for installation of conversational kiosks at a limited
number of SPG properties. Under the terms of the proposed joint venture, MSM
would provide national advertisers and mall facilities for the conversational
kiosks, while the Company would contribute its speech application conversational
software and related technology under development. Given the de-emphasizing of
the conversational Kiosks product by the Company, it is doubtful that full-scale
deployment will take place when planned. The strategic technology and marketing
agreement will remain in place should any significant opportunities present
themselves.
RESEARCH AND DEVELOPMENT EXPENSES
For the fiscal years ended July 31, 1997 and 1998, the Company incurred
research and development expenses of $418,164 and $1,076,567, respectively.
SALES AND MARKETING
To date, marketing efforts have been conducted by Company personnel and
have focused on international businesses, national and regional distribution
companies and OEM telephone switch and voicemail manufacturers.
The Company is currently in the process of establishing a distribution
network for North America. Initial sales of the Virtual Operator are being
achieved primarily through independent resellers that supply telephone and
voicemail systems to businesses, as well through the Company's direct sales
force which offers a rental program. To date, the Company has entered into
distribution agreements with both regional and national dealers including
Inter-Tel Technologies Incorporated and Southeastern Telecom Incorporated.
The Company intends to establish a similar network in the EU, focusing
initially on the United Kingdom ("U. K."), based on the natural progression from
U.S. English-based applications to U.K. English-based applications. Thereafter,
the Company intends to expand into other EU countries based on the expected size
of the market opportunities and the availability of distribution partners. The
Company will also be required to provide ongoing technical support and training
to distributors of its applications software. There can be no assurances that
the Company will be successful in establishing a distribution network within
North America or the EU.
The Company's ultimate strategy is to establish alliances with
corporate partners pursuant to which it will license the Company's proprietary
software products and generate revenue on a transaction or recurring basis.
There can be no assurances, however, that the Company will be able to enter into
any additional agreements or arrangements with any entities to develop, market,
distribute or sell applications software products. Furthermore, there can be no
assurance, that any sales and marketing efforts undertaken by or on behalf of
the Company will be successful or will result in substantial sales of the
Company's applications software products.
The Company has allocated a substantial portion of the proceeds of its
recently completed public offering for sales and marketing activities, including
retention of internal sales and telemarketing personnel, attendance at trade
shows, cost of trade journal publications and advertising and promotional
materials aimed at increasing awareness of the Company's products and
establishing a network of committed distributors and resellers. The Company
currently has 13 people to sell its products and is testing direct sales in
Florida. The Company's internal sales organization has been responsible for
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substantially all of the Company's current sales.
SUPPLIERS AND LICENSORS
The Company's proprietary software incorporates core speech engine
technology developed by others for which the Company has obtained licenses.
The Company has entered into a four-year, non-exclusive, worldwide
license agreement, effective as of December 31, 1996 and as subsequently amended
(the "L&H Agreement"), to use and exploit L&H's proprietary core speech
recognition engine technologies and text-to-speech technologies. L&H is an
international developer, licensor and provider of multilingual advanced speech
and language technologies and services for telephone and desktop applications.
Included in the license to the Company are all advances or improvements made by
L&H to such technologies and all foreign language uses requested by the Company
which initially include American English, Castillian Spanish, French, German,
Italian, Dutch, and in certain instances, British English and Korean. L&H has
agreed to provide technical support, marketing support and training to the
Company. To date, the Company has paid L&H an aggregate of $1,000,000 in
non-refundable prepayments against future royalties due to L&H on sales of
certain of the Company's products incorporating L&H technology.
The Company has entered into a three-year, non-exclusive worldwide
license agreement, effective as of September 30, 1998 to use and exploit
Veritel's proprietary core speaker verification engine technologies. Veritel is
a developer, licensor and provider of speaker verification "voiceprint"
technologies.
The Company had also entered into a licensing arrangement with
International Business Machines for use of its core speech engine technology to
incorporate into certain Company product prototypes under development.
The Company's software products are designed to be used with personal
computers, specifically Intel(R) Pentium processors that the Company currently
purchases from Dell Corporation, although these personal computers are available
from numerous sources on similar terms and conditions. The Company's turnkey
hardware products also require a modem for remote maintenance that the Company
currently purchases from Boca Research, although these modems are available from
numerous sources on similar terms and conditions. Standard telephone interface
cards are also required for certain of the turnkey hardware products if these
products communicate via the telephone. The Company's telephony products
currently require telephone interface cards manufactured by Dialogic of
Parsippany, New Jersey, however there are a number of other manufacturers,
including Natural Microsystems, Rhetoric, and NewVoice from which the Company
may purchase cards on similar terms and conditions. Certain of the Company's
products also rely on special processing boards that are manufactured by
Dialogic as well. The loss of Dialogic as a source for these cards could have a
material adverse impact on the Company, since the Company might not be able to
offer all the features of a particular application if it were required to rely
on other suppliers.
The Company's personal computer desktop software products require high
quality sound cards shipped with most PCs today, as well as high quality
noise-canceling microphones available from a number of suppliers including
Andrea Electronics. The Company's telephone based products are designed to be
used with Microsoft(R) Windows NT and its desktop software products are designed
to be used with Microsoft(R) Windows 95 and Windows 98. The Company undertakes
its software development using Microsoft programming tools. To the extent that
Microsoft programming tools become unavailable, the Company should be able to
utilize Borland programming tools; however, the loss of the Microsoft
programming tools could have a material adverse affect on the development of the
Company's
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applications. Additionally, toolkits (i.e. collections of programs that
facilitate the creation of applications software) from engine providers enable
the Company to exploit speech recognition engine technologies developed by
different vendors. Typically, the Company selects engine toolkits and speech
recognition engine technology manufactured by the same entity. Alternatively,
the Company selects a programming toolkit to complement a specific application
based on the toolkit that produces the fastest results in a high quality manner
and yields efficiencies in hardware requirements.
PROPRIETARY RIGHTS
The Company considers its software and applications as propriety and
currently relies on a combination of copyright, trade secret and trademark laws
and license agreements to protect its intellectual property rights. The Company
also has entered and will enter into license agreements with end-users of the
products and applications, and has required all employees to enter into
confidentiality and non- disclosure agreements. Despite these precautions, it
may be possible for unauthorized third parties to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. The Company currently has filed for federal trademark protection
with the United States Patent and Trademark Office (the "PTO") and has received
registration for the marks REGISTRY MAGIC(R), VIRTUAL OPERATOR(R), and VIRTUAL
EMPLOYEE(R).
There are four patent applications currently pending with the PTO on
various aspects of its applications software including for the Company's
barge-in and key word spotting attributes. The Company has five additional
provisional patent disclosures filed with the PTO which relate to the Virtual
Personal Assistant and the Virtual Dialer products. There can be no assurance
that any of these patents will be granted, or if granted, will provide the
Company with significant protection against competitors. Certain of the
Company's competitors have obtained patent protection, and the Company believes
that certain of its competitors are seeking patent protection on various aspects
of their speech recognition technology. There can be no assurances that the
Company's technology will not be subject to challenges that such technology
infringes on the proprietary rights or trade secrets of others.
COMPETITION
The speech recognition applications market is growing and is expected
to be characterized by intense competition. The Company's products will compete
with, or affect the sales of, many well-established companies including IBM,
AT&T, Digital Equipment, Lucent, Nortel and Unisys. Most of these companies have
substantially greater financial, technical, personnel and other resources than
the Company and have established reputations for success in the development,
licensing and sale of their products and technology, especially the larger
organizations. Several of these competitors have the financial resources
necessary to enable them to withstand substantial price competition or downturns
in their markets. In addition, certain companies may be expected to develop
technologies or products that may be functionally similar to some or all of
those being developed by the Company. With respect to the Virtual Operator
product, the Company's competitors will likely include Voice Control Systems,
Locus, Phonetics, Parlance and Vocalis. With respect to the Virtual Dialer
product, the Company's competitors will likely include IntelliVoice, Brite and
Periphonics. In the Virtual Personal Assistant product, the Company expects that
its initial competitors will be Wildfire, General Magic and Webley.
Additionally, manufacturers of voice-mail and telephone switches may also
attempt to develop their own conversational speech recognition applications.
There can be no assurance that the Company will be able to compete successfully,
that its competitors or future competitors will not develop technologies or
products that render the Company's products and technology obsolete or less
marketable, or that the Company will be able to successfully enhance its
proposed products or technology or adapt them satisfactorily.
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EMPLOYEES
The Company currently has 35 full-time employees. Of such employees, 5
persons are in management and provide services in the areas of marketing and
business development, administration and research and development; 15 are
employed in research and development; 13 are engaged in sales and marketing and
2 are in administration. No employee of the Company is covered by a collective
bargaining agreement or is represented by a labor union. The Company considers
its employee relations to be good. The Company also has entered into independent
contractor arrangements with three individuals on an as-needed basis to develop
programming or provide sales and marketing assistance for the Company.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company currently leases adjacent facilities consisting of
approximately 1,594, 1,009, 387 and 1,600 square feet of office space in Boca
Raton, Florida, for initial monthly base rental amount of $1,727, $1,093, $661
and $2,500, respectively, plus the Company's proportionate share (6.26%) of
taxes and operating expenses for the common area of the building. The Company's
leases for the 1,594 and 1,009 square feet of office space terminate on December
31, 1999, and for the 387 and 1,600 square feet of office space on April 30,
1999 and June 30, 2001, respectively.
ITEM 3. LEGAL PROCEEDING
On June 4, 1998, the Company instituted an action against Mr. Gregg
Marcus seeking a judicial declaration requiring Mr. Marcus to return to the
Company a stock certificate evidencing 240,000 shares of Common Stock that was
issued to Mr. Marcus after Mr. Marcus represented that his original stock
certificate was lost, destroyed, or stolen. The action is pending in the 15th
Judicial Circuit in and for Palm Beach County, Florida. As described hereafter
under "Item 11. Security Ownership of Certain Beneficial Owners and Management",
the Company believes that the shares in question were assigned by Mr. Marcus to
a third party in connection with a loan transaction, and that Mr. Marcus is not
the beneficial owner of the shares. On June 29, 1998, Mr. Marcus removed the
action to the United States District Court Southern District of Florida.
Separate litigation is pending between Mr. Marcus and such third party. The
Company has reached a tentative oral agreement with Mr. Marcus under which terms
the certificate evidencing Mr. Marcus' shares will be placed in escrow pending
the outcome of litigation or settlement between Mr. Marcus and such third party.
As a result, the Company believes that the outcome of this litigation should
have no adverse effect on the Company or result in any change in the outstanding
capitalization of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is traded on the NASDAQ SmallCap Market
under the symbol "RMAG." The following sets forth the range of high and low
closing bid prices for the Common Stock as reported on NASDAQ during each of the
periods presented. The quotations set forth below are inter-dealer quotations,
without retail mark-ups, markdowns or commissions, and may not necessarily
represent actual transactions.
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PERIOD HIGH LOW
------ ---- ---
May 29, 1998 to July 31, 1998 $13.13 $7.75
August 1, 1998 to October 30, 1998 $11.75 $4.00
The Company believes that as of October 23, 1998, there were
approximately 83 record holders of the Company's Common Stock. The Company
believes that there are substantially in excess of 300 beneficial and round lot
holders of the Company's Common Stock.
The Company has not paid any cash dividends on its Common Stock and
currently does not intend to declare or pay cash dividends in the foreseeable
future. The Company presently intends to retain any earnings that may be
generated to provide funds for the operation of business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements of the Company and the notes thereto appearing
elsewhere.
OVERVIEW
Registry Magic Incorporated, was organized to design, develop,
commercialize and market proprietary products and professional services that
exploit recent advances in speech recognition technologies. The products
currently available or under development by the Company have the objective to
enable a user to speak into a telephone or to a computer in a natural
conversational manner and, in turn, have the product listen, understand and
respond by performing tasks or retrieving information.
The Company's products and services, among other attributes, will (i)
substantially eliminate the need for touch-tone menus, (ii) allow for the
automation of telephone systems internationally where touch-tone may not be
prevalent, (iii) reduce operational costs by performing repetitive tasks of live
employees and (iv) allow for the access of information from anywhere and at
anytime through speech. The Company's business strategy is to focus on products
and pricing models that produce revenue on a transaction or recurring basis.
While the Company is beginning to generate limited recurring revenues
and licensing revenues, and anticipates increased revenues during its 1999
fiscal year, the Company's expenses continue to significantly exceed revenues
currently and for the foreseeable future. There can be no assurance that product
installations, royalties or licensing will generate sufficient revenues to
enable the Company to operate profitably during its 1999 fiscal year or
thereafter.
The Company is subject to all of the risks inherent in the
establishment of a new business enterprise. To address these risks, the Company
must, among other things, increase the number of key customer installations,
enter into successful distribution arrangements, expand into the international
market, respond to competitive developments, and attract, retain and motivate
qualified personnel. Failure to achieve one or more of these goals could have a
material adverse effect upon the Company's business, operating results and
financial condition.
RESULTS OF OPERATIONS
Since its inception in October 1995, the Company's efforts have been
principally devoted to research, development and design of products, initial
marketing activities and raising capital.
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For the year ended July 31,1998, the Company had total revenues of
$885,110, total costs and expenses of $3,192,596 and a net loss of $2,307,486.
Since inception, the Company has sustained cumulative losses of $3,725,530.
For the year ended July 31, 1998 the Company sold $517,135 of computer
software and hardware. Of this amount, $450,000 was a non-refundable royalty
from Lernout & Hauspie Speech Products, N.V. for a software package that is not
expected to generate recurring revenue as a result of future L&H sales. The
Company also performed consulting projects for L&H totalling $367,975. For the
year ended July 31, 1997, the Company had consulting fees of $344,944. For the
years ended July 31, 1998 and 1997 revenues derived from L&H were 94% and 76% of
total revenues, respectively.
For the year ended July 31, 1998, cost of goods sold amounted to
$59,527 on sales of $67,135, representing hardware costs associated with the
sales of the Company's Virtual Operator.
General and administrative expenses increased by $761,034 from $770,283
for the year ended July 31, 1997 to $1,531,317 for the year ended July 31, 1998.
These increases were due to additional employees hired to begin marketing and
selling the Virtual Operator, additional office support staff and increased
legal fees incurred in connection with the Company's growth. For the year ended
July 31, 1998, the Company incurred a charge of $75,366 for stock options issued
to consultants.
Research and development expenses for the year ended July 31, 1997 were
$418,164 compared to $1,076,567, for the year ended July 31, 1998, an increase
of $658,403. These increases were due to the development of the Company's
Virtual Operator product, Virtual Dialer, Magic Calendar and host- based product
and service prototypes, and expenses related to the Company's performance of
consulting contracts. Research and development expenses incurred in the course
of establishing technological feasibility of the Company's software applications
have been charged to operations pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 86 - "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed."
Royalty expenses for the fiscal years ended July 31, 1997 and 1998 were
$500,000 and $500,000, respectively. These amounts represent a non-refundable
prepayment to L&H on royalties to use certain speech recognition engine
technologies and text to speech technologies.
The Company has entered into a number of agreements with Veritel
Corporation of America, a provider of speaker verification technology. While the
Company expects to receive revenue for certain of its agreements with Veritel,
it is also obligated to pay licensing fees in the amount of $500,000 to Veritel.
Of this amount, $200,000 was paid in September 1998 and $300,000 is payable on
November 15, 1998. The Company expects to generate revenues from products
deploying Veritel's technology beginning in the 1999 fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1998 the Company had $10,252,511 in cash and cash
equivalents. The Company does not have any available lines of credit.
Net cash used in operating activities increased by $1,316,301 from
$789,858 for the year ended July 31, 1997 to $2,106,159 for the year ended July
31, 1998. Net cash used in operating activities primarily related to the
Company's continued expansion of its research and development and sales and
marketing efforts.
Net cash used in investing activities during the years ended July 31,
1998 and 1997 were $320,074 and $130,349 respectively, an increase of $189,725.
The expenditures primarily related to purchases of
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computer equipment and patent costs.
Net cash provided from financing activities during the years ended July
31, 1998 and 1997 were $11,750,064 and $1,814,195 respectively, an increase of
$9,935,869. From inception through January 31, 1998, the Company's capital was
provided by loans made by the Company's Chairman and his wife in the amount of
$100,000, of which $50,000 was repaid at December 31, 1996. The remaining
$50,000 and accrued interest still outstanding and due to the Chairman shall be
paid on November 28, 1998, or such date thereafter as the Company has cash flow
from operations. Such related party loans included interest ranging from 6 1/2%
to 7% per annum.
Between November and December 1996, the Company completed a private
placement in which it sold 82 units of its securities consisting in the
aggregate of $410,000 principal amount of its subordinated promissory notes and
410,000 shares of Common Stock for an aggregate payment net of expenses of
$1,606,216. The notes included interest at the rate of 7% per annum and were to
mature on October 1, 1998. In accordance with the terms of the notes, the
principal amount of such notes together with accrued interest in the amount of
$20,208 were repaid from the proceeds of the Company's Public Offering completed
in June 1998.
In January 1997, the Company issued 58,000 shares of its Common Stock
to three unaffiliated investors at $3.50 per share for a total payment of
$203,000.
In November 1997, the Company received net proceeds of $997,159 through
the issuance of 200,000 shares of its Common Stock at $5.00 per share to
1-800-REACH ME LLC, a dealer for certain of the Company's products and services.
On June 2, 1998, the Company completed the public offering of 1,600,000
shares of Common Stock at an offering price of $7.25 per share through
Commonwealth Associates. The total gross proceeds from the offering was
$11,600,000 less underwriting discounts of approximately $.54 per share or an
aggregate of $870,000. In addition, the Company paid a non-accountable expense
allowance equal to 1.5% of the gross proceeds of the offering ($174,000) and a
financial advisory fee of $266,800. On June 26, 1998, Commonwealth Associates
exercised an over-allotment option and acquired 220,000 shares of Common Stock
under the same terms and subject to the same discounts and expense allowance.
Expenses of the offering paid through October 15,1998 were $594,956. The balance
of the proceeds is being maintained by the Company in cash and cash equivalents.
The aggregate net offering proceeds to the Company, after deducting total
offering expenses including expenses attributable to the exercise of the
over-allotment option ($167,725) were $11,162,905. The proceeds of the offering
have been used to date solely to pay certain of the aforementioned offering
expenses and to repay indebtedness to participants in the Company's previous
private placement in the principal amount of $410,000 and related interest of
approximately $20,208. The Company believes that its current revenues and cash
resources will enable it to finance operations for the ensuing 12 months.
IMPACT OF THE YEAR 2000 ON COMPANY PRODUCTS
Computers, software and other equipment utilizing microprocessors that
use only two digits to identify a year in a date field may be unable to process
accurately certain date-based information at or after the year 2000. The Company
recognizes the need to insure that its operations will not be adversely affected
by Year 2000 software failures. Software failures due to processing errors
potentially arising from calculations using the year 2000 date are a recognized
risk, and the Company is addressing this issue on several different fronts.
The Company is in contact with its suppliers to assess their
compliance. There can be no assurance that there will not be a material adverse
effect on the Company if third parties do not convert their
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systems in a timely manner and in a way that is compatible with the Company's
systems. The Company believes that its actions with suppliers will minimize
these risks.
Finally, the Company has established an internal workforce to
coordinate solutions for the Year 2000 issue with a goal of having all its
products Year 2000 compliant by the end of 1998. After evaluation of the
responses from suppliers, which the Company anticipates to complete in the third
quarter, the Company will prepare a contingency plan to mitigate such Year 2000
issues, if necessary.
Through July 31, 1998, the Company has not incurred material expenses
relating to Year 2000 compliance efforts and believes that the expenses
associated with completing its Year 2000 compliance plans will not have a
material adverse impact on the Company's operations. Internal and external
expenses specifically associated with modifying internal-use software for the
Year 2000 will be expensed as incurred. The Company's current estimates of the
amount of time and expenses necessary to implement and test its computer systems
are based on the facts and circumstances existing at this time. Nevertheless,
achieving Year 2000 compliance is dependent on many factors, some of which are
not completely within the Company's control. Should either the Company's
internal system or the internal systems of one or more significant vendors or
suppliers fail to achieve Year 2000 compliance, the Company's business and its
results of operations could be adversely affected.
YEAR 2000 IMPACT ON INTERNAL BUSINESS OPERATIONS
The Company uses a significant number of computer software programs and
operating systems in its internal operations, including applications used in
financial business systems and various administration functions. To the extent
that these software applications contain source code that is unable to
appropriately interpret the upcoming calendar year "2000," some level of
modification or even replacement of such source code or applications will be
necessary. The Company is in the process of identifying the software
applications that are not "Year 2000" compliant. Given the information known at
this time about the Company's systems, coupled with the Company's ongoing
efforts to upgrade or replace business critical systems as necessary, it is
currently not anticipated that these "Year 2000" costs will have a material
adverse impact on the Company's business, financial condition and results of
operations. However, the Company is still analyzing its software applications
and, to the extent they are not fully "Year 2000" compliant, there can be no
assurance that the costs necessary to update software or potential systems
interruptions would not have a material adverse effect on the Company's
business, financial condition and results of operations.
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RISK FACTORS
THIS ANNUAL REPORT FORM 10-KSB CONTAINS "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS,
OTHER THAN STATEMENTS OF HISTORICAL FACTS, INCLUDED IN OR INCORPORATED BY
REFERENCE INTO THIS FORM 10-KSB, ARE FORWARD-LOOKING STATEMENTS. IN ADDITION,
WHEN USED IN THIS DOCUMENT, THE WORDS "ANTICIPATE," "ESTIMATE," "PROJECT" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR
SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY
MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED OR PROJECTED. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS WE INCLUDE IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, WE CANNOT ASSURE YOU THAT THESE EXPECTATIONS WILL PROVE TO BE
CORRECT.
Among the key risks that could cause actual results to differ
materially from expectations, estimates of costs, projected results or
anticipated results are as follows:
LIMITED OPERATING HISTORY; OPERATING LOSSES
We have received only limited revenues from our inception in October
1995 through July 31, 1998. Total revenues for the year ended July 31, 1998 were
$885,110 and these included $367,975 of consulting fees. We have only recently
begun generating limited sales and rental revenue from our Virtual Operator
product. There was no such rental revenue for the year ended July 31, 1998.
Accordingly, we have only a limited history upon which you can evaluate our
prospects and future performance. Our prospects must be considered in light of
the risks, expenses and difficulties frequently involved in the operations and
expansion of a new business in an evolving industry which has not obtained
widespread commercial acceptance and which experiences rapid technological
obsolescence and intense competition.
From inception through July 31, 1998, we have incurred cumulative
losses of $3,725,530 and anticipate that our losses will continue during the
current fiscal year ending July 31, 1999. We expect to incur significant
expenditures in connection with the development and marketing of our speech
recognition applications which will likely result in losses until such time, if
ever, as we are able to obtain sufficient contracts for our speech recognition
products and services which will generate adequate sources of revenue to support
our operations. We cannot assure you that our current business strategy will
enable us to ever achieve profitable operations.
SIGNIFICANT CAPITAL REQUIREMENTS; POSSIBLE NEED FOR ADDITIONAL FINANCING
We will continue to have significant capital requirements due to the
substantial costs associated with product development and refinement,
recruitment of skilled personnel and the marketing of innovative speech
recognition products and related services primarily to large established
corporations and other organizations. Our cash requirements for the purpose of
developing our products have been substantial and, as a result, we have been
dependent upon capital resources provided by investors in order to finance our
operations.
At the current time our expenditures are exceeding our limited revenues
on a monthly basis. While we expect our revenues to increase during the 1999
fiscal year, if we are wrong, or our revenues do not increase substantially, we
will continue to deplete our cash resources from our previous public offering.
In the event we do not develop and refine our products on a timely basis, we do
not complete contracts for the provision of products and technology in
sufficient number or in the event the proceeds of our initial public offering
are insufficient to fund the implementation of our business plan and working
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capital requirements, we may require additional financing. We have no current
arrangements with respect to, or potential sources of, additional financing and
we do not anticipate that existing shareholders will satisfy any portion of our
future financing requirements. We cannot assure you that any additional
financing will be available to us when needed, on commercially reasonable terms,
or at all. If we are unable to obtain additional financing when needed, this may
have a material adverse effect on us, including the curtailment of our product
development, marketing and expansion activities.
DEVELOPMENT OF MARKETS REQUIRED FOR SUCCESSFUL PERFORMANCE BY THE COMPANY
We have only recently commenced major marketing activities, and we
cannot assure you that our marketing program will be successful or that our
applications software will be accepted by the market. Market acceptance for our
products will require substantial marketing efforts and the expenditure of
significant funds. Our financial performance will depend, in part, on acceptance
of speech recognition technology and the future development, growth and size of
this market. Our applications software products will compete with more
conventional means of information processing (e.g. data entry or access by
keyboard or touch-tone phone). The development of these markets also will depend
upon the following:
o demand for new applications
o ability of our products and services to meet and adapt to
these needs
o continuing price and performance improvements in speech
recognition engine technology and hardware technology that
will reduce the cost and increase the performance of products
incorporating our applications
UNCERTAINTY OF PRODUCT AND TECHNOLOGY DEVELOPMENT BY THE COMPANY
Our initial product, the Virtual Operator, is a speech driven
auto-attendant. In addition, we have developed prototypes for two additional
telephone-based speech recognition products including a voice driven speed
dialing product and a conversational personal assistant that performs
voice-mail, facsimile, and e-mail retrieval, as well as the functions of the
Virtual Operator and the speed dialing product. To date, however, we have not
developed foreign language versions for our Virtual Operator product (other than
Spanish and Japanese) or our two prototypes. Additionally, we also intend to
continue to develop and refine additional products including conversational call
centers which is currently in the relatively early stages of development. In
order to finalize development of these products, we will be required to spend
considerable time, effort and resources. Our success will depend, in part, upon
the ability of our proposed products to meet targeted performance, cost
objectives, and their timely introduction into the marketplace.
In addition, early versions of software products often contain errors
or defects. We cannot assure you that, despite extensive testing by us and
potential customers, errors or defects will not be found in our applications
software products prior to or after commencement of their commercial deployment.
This may result in redevelopment costs and loss of, or delay in, market
acceptance of our products. Additionally, we cannot assure you that our products
will satisfactorily perform the functions for which they are designed or, that
they will meet applicable price or performance objectives. Moreover, we
currently do not maintain errors and omissions insurance, although we intend to
do so in the future. In the event of any errors or defects in any of our
products that may adversely affect end users, we may be liable for such errors
or defects. This could have a material negative impact on our financial
condition.
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RAPID TECHNOLOGICAL CHANGE
The speech recognition products market is expected to involve rapid
technological change resulting in dynamic customer demands, frequent new product
and service introductions and short product lifecycles. The markets for our
products may change rapidly as a result of the following:
o innovations in core speech recognition engine technology
o computer hardware
o software and communications technologies
Our success will depend, in part, upon our ability to make timely and
cost-effective enhancements and additions to our existing applications software
products and developing new products that meet changing customer demands. We
cannot assure you that we will have the resources necessary to achieve this
objective and that our products will not be rendered obsolete.
COMPETITION
The speech recognition applications market is growing and expected to
become intensely competitive. Our products will compete with those developed or
being developed by many well-established companies. For example, we will compete
with International Business Machines Corporation, American Telephone and
Telegraph Company, Microsoft Corporation, Digital Equipment Corporation, Lucent
Technologies, Inc., American Nortel Communications, Inc. and Unisys Corporation.
Most of these companies have substantially greater financial, technical,
personnel and other resources than us and have reputations for success in the
development, licensing and sale of their products and technology, especially the
larger organizations. A number of these competitors have the financial resources
that enables them to withstand substantial price competition or downturns in
their markets. In addition, certain companies may be expected to develop
technologies or products which may be similar to some or all of those being
developed by us. With respect to our Virtual Operator product, our competitors
may include Voice Control Systems, Vocalis Group plc, and PureSpeech, Inc. In
the conversational speed dialing and personal assistant applications, we expect
that our initial competitors will be Wildfire Communications, Inc., General
Magic, and Webley Systems, Inc. Additionally, voicemail companies and telephone
switch manufacturers could also attempt to develop their own conversational
speech recognition applications.
Industry standards with respect to the markets for the technology and
products being developed by us are continually evolving. This often results in
product obsolescence or short product life cycles. Accordingly, our ability to
compete successfully will depend on a number of factors including:
o our ability to complete development and introduce into the
marketplace our proposed products and technology
o to continually enhance and improve our products and technology
in a timely manner
o to adapt our proposed products in order to be compatible with
specific products manufactured by others
o to successfully develop and market new products and technology
We cannot assure you that we will be able to compete successfully, that our
competitors or future competitors will not develop technologies or products that
make our products and technology obsolete or less marketable, or that we will be
able to successfully improve our proposed products or technology or adapt them
satisfactorily.
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DIFFICULTIES IN MAINTAINING PROPRIETARY RIGHTS
Our success depends upon our proprietary applications software
technology which may be difficult to protect. We currently rely on a combination
of contractual rights, trade secrets, know-how, trademarks, non-disclosure
agreements and technical knowledge to establish and protect our proprietary
rights. We cannot assure you, however, that the measures we have taken to
protect our proprietary rights will be adequate to prevent misappropriation of
the technology or independent development by others of products with features
based upon, or otherwise similar to, those of our products. Additionally,
although we believe that we have independently developed our technology and our
technology does not infringe on the proprietary rights or trade secrets of
others, we cannot assure you that our technology does not and will not so
infringe or that third parties will not assert infringement claims, trade secret
violations, competitive torts or other proprietary rights violations against us
in the future. In the case of infringement, we could, under certain
circumstances, be required to modify our products or obtain licenses, which
could require cash or other consideration. We cannot assure you that we will be
able to do either in a timely manner or upon acceptable terms and conditions,
and this failure could have a material negative effect on us. In addition, we
cannot assure you that we will have the resources to defend or prosecute a
patent infringement or other proprietary rights infringement action.
DEPENDENCE ON OTHER COMPANIES FOR ASSEMBLY AND COMPONENT PARTS
We do not manufacture component parts for our products and,
accordingly, will be dependent on others for the supply and assembly of various
of our products. Our products are designed to be used with personal computers
(PCs), specifically Intel Pentium MMX (multi-media extension) processors. While
we currently purchase our modems, which are required for our software
applications, for remote maintenance from Boca Research, Inc. and our telephone
interface cards, which are also required for our software applications, from
Dialogic Corporation, located in Parsippany, New Jersey, there are a number of
other manufacturers who can supply similar products to us, and we are not
dependent upon a single supplier for any equipment or component parts. However,
the loss of Dialogic as a source for telephone interface cards could have a
negative impact on us, since we may not be able to offer all of the features of
a particular application if a card manufactured by another entity is used.
Additionally, we generally do not have long-term contracts with suppliers for
the purchase and delivery of component parts or contractors for the assembly of
our products. However, any interruption of supply in the assembly services we
use or in the supply of key components, for any reason, could result in
significant delivery delays, which would have a material negative effect on our
marketing efforts, customer relations, revenues and profitability.
LACK OF SALES AND MARKETING CAPABILITIES; DEPENDENCE UPON INDEPENDENT
DISTRIBUTORS, CORPORATE PARTNERS AND STRATEGIC ALLIANCES
Our sales and marketing efforts have been limited to date, and we are
currently in the process of establishing a distribution network for North
America consisting of independent resellers as well as a direct sales force. Our
ultimate strategy is to establish alliances with corporate partners so that we
will be able to license our proprietary software products and generate revenue
on a recurring basis. We cannot assure you that our distribution network can be
successfully established or will result in substantial sales of our products.
Furthermore, we cannot assure you that our strategic partners will provide us
with the support anticipated by us, or that any of the strategic alliances will
be successful in marketing speech technology applications without further delays
or within budget. Failure of these joint ventures to be successful would have a
material negative effect on our business and prospects.
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IMPACT OF THE YEAR 2000 ON COMPUTER SYSTEMS
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the year 2000. Some older
computer systems store dates with only a two-digit year with an assumed prefix
of "19". Consequently, this limits those systems to dates between 1900 and 1999.
If not corrected, many computer systems and applications could fail or create
erroneous results by or at the year 2000 (the "Year 2000").
Because we will rely heavily on computers to conduct our business we
are subject to all the risks associated with the Year 2000. We have assessed the
scope of our risks related to problems these computer systems may have related
to the Year 2000 and we believe such risks are not significant. In addition, we
are in the process of questioning our vendors and business partners about their
progress in identifying and addressing problems related to the Year 2000.
However, no assurance can be given that all of these third party systems or our
computer systems will be Year 2000 compliant.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
Under our business plan the anticipated growth in our customer base and
continued development of our speech recognition products and related services
also involve potential risks. This growth and continued development could place
a major strain on our management, employees and operations. In the event of this
expansion, we would have to continue to implement and improve our operating
systems, and to expand, train and manage our employee base. If we are unable to
implement and improve these operating systems and manage our employee base
effectively, our operations could be negatively affected.
RISK OF INTERNATIONAL SALES
Our business is expected to be conducted in the European Union, as well
as in the United States, and may be affected by changes in demand resulting from
fluctuations in currency exchange rates, as well as by governmental controls and
other risks associated with international sales. Our international business may
be subject to longer payment cycles, difficulties in accounts receivable
collection, delays in shipments, increases in duties and taxes, price controls,
adverse changes in foreign regulations and the burdens of complying with a wide
variety of foreign laws. We will generally deal in local currencies in foreign
markets. If the U.S. dollar strengthens in relation to these international
currencies, our revenues from international sales and the gains and losses on
the settlement of receivables from international operations may be negatively
affected. We cannot assure you that exchange rate fluctuations and other risks
associated with international operations will not have a material negative
effect on our business and prospects.
VARIABILITY OF QUARTERLY RESULTS
Our quarterly operating results may fluctuate as a result of a variety
of factors, including:
o the length of the sales cycle
o the timing of orders from and shipments to customers
o delays in product development and customer acceptance of
custom applications
o product development expenses
o the success of new product introductions or announcements by
us or our competitors
o levels of market acceptance for new and existing products
o the hiring and training of additional staff as well as general
economic conditions.
20
<PAGE> 21
Because a significant portion of our overhead is fixed in the
short-term, our results of operations may be negatively affected if revenues
fall below our expectations. If our management's estimate of product sales and
product mix turn out to be substantially inaccurate, we may not have the
necessary inventory available to deliver systems in a timely manner. This could
have a material negative effect on our results of operations during quarterly
periods.
DEPENDENCE ON KEY PERSONNEL
Our success depends on the efforts of the members of our management,
especially Walt Nawrocki, our President and Chief Executive Officer, Lawrence
Cohen, our Chairman of the Board, and Neal Bernstein, our Vice President of
Business Development. Although we have entered into employment agreements with
various members of our management, we cannot assure you that these persons will
continue their employment with us. The loss of the services of these key people
could have a material negative effect on our ability to maximize our use of our
products and technologies, to develop related products and technologies or
conduct the normal operations of the Company. We obtained $2,500,000 of key man
insurance on the life of Mr. Nawrocki, which may prove insufficient in the event
Mr. Nawrocki were to become deceased. Our success also depends upon our ability
to hire and retain additional qualified executive, programming, engineering and
marketing personnel especially if any of our current key members of management
became unavailable for any reason. Qualified executives and employees are in
great demand and are likely to remain a limited resource for the future.
Competition for skilled, creative and technical talent is also intense. We
cannot assure you that we will be successful in attracting and retaining such
personnel. Any failure by us to retain existing employees or to hire new
employees when necessary could have a material negative effect on us.
CONTROL OF THE COMPANY BY MANAGEMENT
Our executive officers and directors will own or have the right to
acquire within the next 60 days up to approximately 43.7% of the outstanding
shares of Common Stock. Accordingly, our management will have the ability to
elect our entire Board of Directors and control the outcome of all matters
submitted to a vote of our shareholders.
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ
The Company's Common Stock is listed on The Nasdaq SmallCap Market. In
order to continue to be listed on Nasdaq, however, we must maintain at least
$2,000,000 in net tangible assets (total assets less total liabilities and
goodwill) or $500,000 in net income in the latest fiscal year or in two of the
last three years or $35,000,000 in market capitalization, a public float of at
least 500,000 shares, a $1,000,000 market value of public float, a minimum bid
price of $1.00 per share, at least two market makers, at least 300 shareholders
and at least two outside directors. The failure to meet these maintenance
criteria in the future may result in the delisting of the Company's securities
from Nasdaq, and the Company's Common Stock would thereafter be traded in the
non-Nasdaq over-the-counter market. As a result of such delisting, an investor
could find it more difficult to dispose of or to obtain accurate quotations as
to the market value of the Company's Common Stock.
21
<PAGE> 22
AUTHORIZATION OF PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS
The Board of Directors is authorized to issue shares of preferred stock
and to determine the dividend, liquidation, conversion, redemption, and other
rights, preferences, and limitations of such shares without any further vote or
action of the shareholders. Accordingly, our Board of Directors has the power,
without shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights which could negatively 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 and delaying or preventing a change
in control of the Company. We have no present plan to issue any shares of our
preferred stock, although we cannot assure you that the Company will not do so
in the future.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Our Articles of Incorporation include provisions to eliminate, to the
full extent permitted by the Florida Business Corporation Act (the "Florida
Act") the personal liability of our directors for monetary damages arising from
a breach of their fiduciary duties as directors. The Articles of Incorporation
also include provisions that we shall, to the maximum extent permitted under the
laws of the State of Florida, indemnify, and upon request shall advance expenses
to any director or officer, to the extent that such indemnification and
advancement of expense is permitted under law.
ITEM 7. FINANCIAL STATEMENTS
See "Index to Financial Statements" for the financial statements
included in this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
22
<PAGE> 23
PART III
ITEM 9. MANAGEMENT
The following table sets forth certain information concerning the
current directors and nominee directors of the Company and the executive
officers of the Company:
<TABLE>
<CAPTION>
NAME AGE TITLE
- - ---- --- -----
<S> <C> <C>
Walt Nawrocki 53 President, Chief Executive Officer
and Director
Lawrence Cohen(1)(2) 53 Chairman of the Board
Neal A. Bernstein 37 Vice President-Business Development
Martin Scott 30 Treasurer, Secretary and Controller
Sheldon E. Misher(1)(2) 57 Director
Cornelia Eldridge(1) 57 Director
</TABLE>
- - -----------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
WALT NAWROCKI has served as President, Chief Executive Officer and a
director of the Company since July 1996. Prior to joining the Company, Mr.
Nawrocki spent over 30 years at IBM where he was employed in positions of
increasing responsibility becoming Manager for Worldwide Product Development and
Business Management in August 1992. In such capacity, he oversaw a number of
business areas, including speech products, and was responsible for acquisitions,
joint development and OEM licensing programs. While at IBM, Mr. Nawrocki was
responsible for the shift from 5 1/4 inch diskettes to 3 1/2 inch diskettes and
the standardization of keyboards currently used on most PCs today. His working
teams have been honored with five BYTE MAGAZINE awards for speech recognition
products and an IBM MARKET DRIVEN QUALITY award for customer requirements and
customer satisfaction.
LAWRENCE COHEN has served as Chairman of the Board since he founded the
Company in October 1995. Mr. Cohen has been engaged in providing financial
consulting and merchant banking services to early-stage companies for more than
the past 25 years. He has served as Vice Chairman of the Board and Executive
Vice President of Bristol Retail Solutions, Inc. (Nasdaq:BRTL), a point-of-sale
equipment distributor ("Bristol"), since he co-founded such company in April
1996. He is also the co-founder and a director of Apollo BioPharmaceuticals,
Inc., a privately-held company in Massachusetts engaged in the development of
neuroprotective pharmaceuticals ("Apollo"), and currently serves on the board of
directors of ASHA Corp. (Nasdaq:ASHA), an automotive drive train developer.
Between November 1990 and September 1996, Mr. Cohen served as Chairman of the
Board of BioTime, Inc. (Nasdaq:BTIM), a biotechnology firm he founded to develop
an artificial blood plasma substitute. He was a co-founder of Cryomedical
Sciences (Nasdaq:CMSI), a low temperature surgery company, and served as its
President from November 1990 to November 1991.
23
<PAGE> 24
NEAL A. BERNSTEIN has served as Vice President-Business Development of
the Company from January 1997 to April 1998 and Vice President-Business
Development of the Company since April 1998. Prior to joining the Company, Mr.
Bernstein spent approximately 13 years at IBM where he was employed in a variety
of sales, marketing and business development capacities, serving last as a
Business Development Manager within the IBM Internet Division from May 1996
until December 1996. From January 1992 until May 1996, he held a number of
management positions within the Speech Products Business Unit, including Manager
of OEM and Licensing, Manager of Business Development and Strategic Alliances
and Manager of North American Sales and Marketing.
MARTIN SCOTT, a certified public accountant, has served as Controller,
Secretary and Treasurer of the Company since October 1997. From June 1996 until
October 1997, he was employed as an Audit Supervisor by Millward & Co., CPAs.
From October 1995 until June 1996, Mr. Scott served as Controller of ERD Waste
Corp. (Nasdaq:ERDI), a waste disposal company. Prior thereto, from January 1995,
he was employed as a Senior Accountant with the firm of Richard A. Eisner & Co.,
LLP. From January 1991 to January 1995, he was employed as a Senior Accountant
with the firm of Feldman Radin & Co., P.C.
SHELDON E. MISHER has served as a director of the Company since the
completion of the Company's initial public offering on June 2, 1998. Mr. Misher
has been a partner in the law firm of Bachner, Tally, Polevoy & Misher LLP, New
York, New York since 1971, and has over 35 years experience in the areas of
corporate and securities law.
CORNELIA ELDRIDGE has served as a director of the Company since October
1, 1998. Ms. Eldridge has been President of Eldridge Associates, Inc., a
management consulting firm she founded in 1981. Ms. Eldridge currently serves on
the board of directors of DE Frey, Inc., a financial services firm, SysComm, the
largest assembler and reseller of IBM mid-range computers, and Sims
Communications, a provider of intelligent POS terminals and software
applications.
In addition to the above executive officers and directors, the Company
has retained the services of the following key employees.
BILL BURBANK was appointed as Vice President-Sales and Marketing of the
Company on October 14, 1998 and was originally hired in September 1998 as
General Manager of Worldwide Corporate Accounts. Prior to joining the Company,
Mr. Burbank spent two years as Vice President of Sales for The Automatic Answer,
ranked as one of Inc. Magazine's "Fastest Growing Companies" in both 1996 and
1997. From January 1994 to July 1996 he was Vice President of Sales and
Marketing for Voice Processing Solutions, Inc. From October, 1990 to December
1993, Mr. Burbank was General Manager of Bennett Communications/Cellular One
which was acquired by AT&T Wireless Communications in August 1993. From June
1988 to September 1990, he was President of Allied Coordinated Trade Services,
Inc., a sales and marketing firm retained by corporations in the 'power sports'
industry.
DAVID MAY was appointed as Vice President-Product Strategy and
Development of the Company on June 15, 1998. Prior to joining the Company, Mr.
May spent approximately 13 years at Nortel where he held leadership positions in
the areas of business development, program management, and strategic marketing
serving last as Director in the Wireless New Business Ventures unit, and prior
to that as Director of Strategic Marketing and Business Development, involved in
Nortel's public and private network speech recognition products. Prior to 1992
Mr. May held R&D management positions in Nortel Technology (previously Bell
Northern Research). Mr. May holds several awarded and pending patents.
The Company's officers are elected annually by the Company's Board of
Directors and serve at the discretion of the Company's Board of Directors. The
Company compensates each non-employee director $500 per meeting for attending
meetings of the Board of Directors. In addition, directors will
24
<PAGE> 25
be reimbursed for expenses incurred in attending such meetings and will be
indemnified against any claims arising out of his or her status as a director of
the Company, including claims arising under federal and state securities laws.
In addition, directors are eligible to receive options under the Company's 1997
Stock Option Plan.
Mr. Ted Gordon, who served as a director of the Company beginning in
October 1995, resigned as a director on November 5, 1998.
During the year ended July 31, 1998, the Company's Board of Directors
held meetings and took action by unanimous written consent a total of 12 times.
BOARD COMMITTEES AND RELATED INFORMATION
The Compensation and Audit Committees were formed on July 15, 1998
after the Company's initial public offering. The Compensation Committee,
comprised of Lawrence Cohen, Sheldon E. Misher and Cornelia Eldridge, will
administer the Company's stock option plan and make recommendations to the full
Board of Directors concerning compensation, including bonuses and incentive
arrangements, of the Company's officers and key employees. The Audit Committee,
comprised of Lawrence Cohen, Ted Gordon and Sheldon E. Misher, will review the
engagement of the independent accountants and the independence of the accounting
firm, as well as review the audit and non-audit fees of the independent
accountants and the adequacy of the Company's internal accounting controls. The
initial Audit Committee included Lawrence Cohen, Sheldon E. Misher and Ted
Gordon. Mr. Gordon resigned as a director on November 5, 1998, and will be
replaced by either Ms. Eldridge or another independent director upon election of
a new director to replace Mr. Gordon. The Compensation and Audit Committees will
be comprised of a majority of the independent directors.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's outstanding Common Stock to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock. Such persons are required by SEC
regulation to furnish the Company with copies of all such reports they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners have been
complied with for the period which this proxy relates.
ITEM 10. SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation paid to Walt
Nawrocki, Lawrence Cohen and Neal Bernstein (the "Named Executive Officers") by
the Company. No other executive officer of the Company was paid a total annual
salary and bonus for the fiscal year ended July 31, 1998 which was $100,000 or
more.
25
<PAGE> 26
<TABLE>
<CAPTION>
SECURITIES OTHER
NAME AND PRIN- FISCAL UNDERLYING ANNUAL
CIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- - -------------- ------ ------ ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Walt Nawrocki 1998 $175,000 -0- -0- -0-
President and 1997 $175,000 -0- 200,000 -0-
Chief Executive 1996 $14,583 -0- -0- -0-
Officer
Lawrence Cohen 1998 $115,500 -0- -0- -0-
Chairman 1997 $67,375 -0- 100,000 -0-
1996 -0- -0- -0- -0-
Neal Bernstein 1998 $125,000 -0- -0- -0-
Vice-President 1997 $62,500 -0- 50,000 -0-
</TABLE>
- - ----------
EMPLOYMENT AGREEMENTS
Effective December 21, 1997, the Company entered into three-year
employment agreements with each of Walt Nawrocki, Lawrence Cohen and Neal
Bernstein providing for base annual salaries of $175,000, $115,500 and $125,000,
respectively. The employees may receive annual bonuses at the discretion of the
Company, with bonuses to be determined by the Compensation and Audit Committee.
No formula or criteria have been specifically determined. The agreements provide
for severance equal to one year's salary in the event of (i) non-renewal of the
agreement upon expiration other than for cause or (ii) a change of control of
the Company as a result of which the employee is not retained by new management
on a comparable basis. In addition, the agreements contain confidentiality
provisions and 12-month post termination non-competition restriction which may
be imposed by the Company provided the employee receives a lump sum payment
equal to one year's salary within 30 days of termination of employment. Under
Florida law, a court of competent jurisdiction may determine not to enforce such
non-competition restrictions or partially enforce or modify such provisions.
OPTION GRANTS IN LAST FISCAL YEAR
1997 STOCK OPTION PLAN
The 1997 Stock Option Plan (the "Plan") provides for the grant of
options to purchase up to 300,000 shares of Common Stock to employees, officers,
directors, and consultants of the Company. Options may either be "incentive
stock options" within the meaning of Section 422 of the United States Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified options.
Incentive stock options may be granted only to employees of the Company, while
non-qualified options may be issued to non-employee directors, consultants, and
others, as well as to employees of the Company.
The Plan will be administered by the Board of Directors or a committee
thereof, who determine, among other things, those individuals who shall receive
options, the time period during which the options may be partially or fully
exercised, the number of shares of Common Stock issuable upon the exercise of
each option, and the option exercise price.
26
<PAGE> 27
The exercise price of an incentive stock option may not be less than
the fair market value per share of Common Stock on the date the option is
granted. The exercise price of a non-qualified option may be established by the
Board of Directors. The aggregate fair market value (determined as of the date
the option is granted) of Common Stock for which any person may be granted
incentive stock options which first become exercisable in any calendar year may
not exceed $100,000. No person who owns, directly or indirectly, at the time of
the granting of an incentive stock option to such person, 10% or more of the
total combined voting power of all classes of stock of the Company (a "10%
Shareholder") shall be eligible to receive any incentive stock options under the
Plan unless the exercise price is at least 110% of the fair market value of the
shares of Common Stock subject to the option, determined on the date of grant.
Non-qualified options are not subject to such limitation.
Incentive stock options may not be transferred by an optionee other
than by will or the laws of descent and distribution, and, during the lifetime
of an optionee, the option will be exercisable only by the optionee. In the
event of termination of employment other than by death or disability, the
optionee will have no more than three months after such termination during which
the optionee will be entitled to exercise the option, unless otherwise
determined by the Board of Directors. Upon termination of employment of an
optionee by reason of death or permanent and total disability, an optionee's
options remain exercisable for one year thereafter to the extent such options
were exercisable on the date of such termination. No similar limitation applies
to non-qualified options.
Options under the Plan must be issued within ten years from the
effective date of the Plan, which is March 12, 1997. Incentive stock options
granted under the Plan cannot be exercised more than ten years from the date of
grant. Incentive stock options issued to a 10% Shareholder are limited to five
year terms. Options granted under the Plan generally provide for the payment of
the exercise price in cash and may provide for the payment of the exercise price
by delivery to the Company of shares of Common Stock already owned by the
optionee having a fair market value equal to the exercise price of the options
being exercised, or by a combination of such methods. Therefore, if so provided
in an optionee's options, an optionee may be able to tender shares of Common
Stock to purchase additional shares of Common Stock and may theoretically
exercise all of his stock options with no additional investment other than the
purchase of his original shares.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by the Company become available again for
issuance under the Plan.
The Plan may be terminated or amended at any time by the Board of
Directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the Plan may not be
increased without the consent of the shareholders of the Company.
Options to purchase 241,850 shares of Common Stock have been granted
pursuant to the Plan leaving a balance of 58,150 shares of Common Stock
available for issuance. The Company issued options to purchase an aggregate of
207,350 shares of Common Stock on March 12, 1997 exercisable at $3.50 to $3.85
per share over a four-year term to two executive officers and other employees of
the Company. Lawrence Cohen, the Company's Chairman of the Board, received
options to purchase 100,000 shares of Common Stock exercisable at $3.85 per
share during their four-year term. Neal Bernstein, the Company's Vice President
- - - Business Development, received options to purchase 50,000 shares of Common
Stock. Tony Nawrocki, an employee and the adult son of Walt Nawrocki, the
Company's President and Chief Executive Officer, received options to purchase
30,000 shares of Common Stock. Other employees also received options to purchase
27,350 shares of Common Stock exercisable at $3.50 per share during their
four-year term. In addition, Martin Scott, the Company's Secretary and
Treasurer, received options to purchase 5,000 shares of Common Stock of the
Company on October 15, 1997 at an exercise price of $3.50 per share over their
four-year term and an employee received options to purchase 15,000 shares of
27
<PAGE> 28
Common Stock of the Company on December 15, 1997 at an exercise price of $5.00
per share over their four-year term. Such options are exercisable as to 50% of
the options granted commencing one year following the date of grant and as to
the remaining 50% of such options, commencing two years from the date of grant,
except for Lawrence Cohen whose options are currently exercisable in their
entirety. Subsequent to January 31, 1998, options to purchase 14,500 shares of
Common Stock were granted to three consultants. Such options are exercisable at
$7.00 per share, expiring in five years and vesting immediately.
The Company intends to submit for shareholder approval at its 1998
Annual Meeting of Shareholders the 1998 Stock Option Plan ("1998 Plan"). Under
the 1998 Plan, the Company will reserve an aggregate of 1,000,000 shares of
Common Stock for issuance pursuant to options granted under the 1998 Plan. The
1998 Plan contains essentially the same terms and conditions as the existing
Plan.
OTHER OPTION GRANTS
In addition to options granted pursuant to the Company's 1997 Stock
Option Plan described above Registry Magic granted options in October 1996 to
Walt Nawrocki, the President and Chief Executive Officer of the Company, to
purchase 200,000 shares of Common Stock of the Company exercisable at $3.50 per
share on or prior to October 20, 2001. At that time, the Company also issued
options to purchase an aggregate of 100,000 shares of Common Stock to two
employees of the Company, exercisable at $.50 per share on or prior to October
20, 2001. See "Management's Discussion and Analysis and Plan of Operation." In
December 1996, the Company issued warrants to purchase 100,000 shares of Common
Stock to the placement agent for the Company's private placement completed in
December 1996. The warrants are exercisable at $5.00 per share (following
adjustment) over their five year term and vested immediately. In addition,
between March and July 1997, the Company granted options to purchase an
aggregate of 19,500 shares of Common Stock to two consultants of the Company,
exercisable at $3.50 per share during the five year term of such options. During
the six months ended January 31, 1998, options to purchase 6,926 shares of
Common Stock were granted to two consultants of the Company. Such options are
exercisable at $3.50 to $5.00 per share, expiring in five years and vesting
immediately.
EXPENSES ASSOCIATED WITH OPTION GRANTS
During the year ended July 31, 1997, $300,000 was charged to operations
representing the difference between the market price of the stock and the
exercise price of options to purchase a total of 100,000 shares of Common Stock
on the date the options were granted to two employees of the Company. In
addition, $4,500 was charged to operations for services received in exchange for
the grant of options. During the year ended July 31, 1998, $75,366 was charged
to operations in connection with the grant of options to three consultants to
purchase a total of 21,426 shares of Common Stock.
AGGREGATED FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth certain information concerning
unexercised stock options held by the Named Executive Officers as of July 31,
1998. No stock options were exercised by the Named Executive Officers during the
period ended July 31, 1998. No stock appreciation rights were granted or are
outstanding.
28
<PAGE> 29
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN THE MONEY
HELD AT JULY 31, 1998 OPTIONS AT JULY 31, 1998 (1)
----------- ------------- ----------- -------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Walt Nawrocki 200,000 -- $1,400,000 $ 0
Lawrence Cohen 100,000 -- $665,000 $ 0
Neal Bernstein 25,000 25,000 $175,000 $175,000
</TABLE>
- - --------------
(1) Dollar values are calculated based on the difference between the option
exercise price and $10.50, the closing price of the Company's Common Stock on
July 31, 1998, as reported by NASDAQ.
29
<PAGE> 30
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of November 5, 1998, information
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person who is known by the Company to own beneficially more than 5% of its
Common Stock, (ii) each director and nominee for director, (iii) each Named
Executive Officer (as defined herein), and (iv) all directors and executive
officers as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
NAME AND ADDRESS OF SHARES OF COMMON STOCK SHARES BENEFI-
BENEFICIAL OWNERS(1)(2) BENEFICIALLY OWNED CIALLY OWNED(1)
- - ----------------------- ---------------------- ---------------
<S> <C> <C>
Lawrence Cohen (3) ................. 1,800,000 30.4%
Walt Nawrocki(4) ................... 501,000 8.3%
Neal Bernstein (5) ................. 326,000 5.6%
Ted Gordon ......................... 320,000 5.5%
Harbor View Fund, Inc. (6) ......... 340,000 5.8%
488 Madison Avenue
New York, New York 10019
Martin Scott(7) .................... 17,500 *
Sheldon Misher(8) .................. -- --
Cornelia Eldridge(9) ............... 40,000 *
All officers and directors
as a group (6 persons) ............. 2,684,500 43.7%
</TABLE>
- - ----------
* Less than 1%.
(1) Unless otherwise indicated below, the persons in the table above have
sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable. A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days from the date of
this Proxy Statement upon the exercise of options. Each person's
percentage of ownership is determined by assuming that any
30
<PAGE> 31
options held by such person have been exercised. As of October 23, 1998
there were 5,813,000 shares of Common Stock outstanding.
(2) Unless otherwise indicated below, the address of each person is c/o the
Company at One South Ocean Boulevard, Suite 206, Boca Raton, Florida
33432.
(3) Includes (i) 100,000 shares of Common Stock underlying immediately
exercisable options and (ii) 1,700,000 shares owned by Alliant. Alliant
is wholly owned by East Ocean Limited Partnership, as to which Mr.
Cohen is the general partner and members of Mr. Cohen's family are
limited partners. Mr. Cohen disclaims beneficial ownership with respect
to the limited partnership interests owned by members of his family.
Does not include 340,000 shares beneficially owned by Harbor View Fund,
Inc., as to which Mr. Cohen has voting control pursuant to a Voting
Trust Agreement, as such shares must be voted in the same proportion as
votes cast by the Company's other shareholders.
(4) Includes (i) 200,000 shares of Common Stock underlying immediately
exercisable options and (ii) 300,000 shares owned by Mr. Nawrocki's
wife. Mr. Nawrocki disclaims beneficial ownership of his wife's shares.
(5) Includes (i) 25,000 shares of Common Stock underlying immediately
exercisable options and (ii) 300,000 shares owned by Mr. Bernstein's,
wife. Mr. Bernstein disclaims beneficial ownership of his wife's
shares.
(6) Harbor View Fund, Inc. ("Harbor View") is an entity controlled by Cori
Orr, the wife of Kenneth Orr, the former principal of the placement
agent for the Company's private offering completed in December 1996.
Harbor View's holdings include (i) 100,000 shares underlying warrants
originally issued to the placement agent in the aforementioned private
offering, and (ii) 145,000 shares acquired by Sheldon Schwartz, Mrs.
Orr's father, as to which she disclaims beneficial ownership. Harbor
View and Mr. Schwartz have entered into a Voting Trust Agreement
pursuant to which Lawrence Cohen, Chairman of the Board of the Company,
has been granted the right to vote their shares in the same proportion
as votes cast by the Company's other shareholders. A dispute exists as
to the ownership of an aggregate of 240,000 of the shares beneficially
owned by Harbor View and Mr. Schwartz. Based on supporting
documentation reviewed by the Company and statements of Mr. and Mrs.
Orr, the Company believes that the shares in question were assigned to
Mr. Orr by Gregg Marcus in May 1997 in connection with a loan
transaction. Mr. Marcus had acquired the shares from the Company in
August 1996. In August 1997, Mr. Marcus submitted an affidavit of lost
stock certificate to the Company pursuant to which the Company reissued
the 240,000 shares to Mr. Marcus. The representations contained in the
affidavit are inconsistent with certain transfer and assignment
documentation subsequently supplied to the Company by Mr. and Mrs. Orr,
and a lawsuit has been filed by Mrs. Orr against Mr. Marcus (whose
counsel has advised the Company that he is a convicted felon) seeking,
INTER ALIA, delivery of a formal stock power for the transfer. It is
the Company's present position, based on the foregoing, that the
240,000 shares were validly transferred to Mr. Orr and that Mr. Marcus
is not currently a beneficial shareholder of the Company. The Company
subsequently instituted a legal action against Mr. Marcus seeking a
pretrial declaration that would require Mr. Marcus to
31
<PAGE> 32
return to the Company his stock certificate. The Company has reached a
tentative oral agreement with Mr. Marcus in which Mr. Marcus would
place in escrow the certificate endorsing his shares pending the
outcome of litigation between Mr. Orr and Mr. Marcus. See "Item 3.
Legal Proceeding"
(7) Includes 2,500 shares of Common Stock underlying immediately
exercisable options.
(8) Address is 380 Madison Avenue, New York, New York 10017.
(9) Address is 25 Broad Street, 17M, New York, New York 10004.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996 and 1997, Lawrence Cohen contributed $25,959 and $3,500,
respectively, to the capital of the Company. At that time he also advanced the
Company $50,000 which bears interest at the rate of 6.5% per annum. This loan
and related interest is payable on November 28, 1998 or on such date thereafter
as the Company has cash flows from operations. In October and November 1996,
Donna Cohen, Mr. Cohen's wife, advanced the Company a total of $50,000, which
was repaid in December 1996 together with interest at the rate of 7% per annum.
In November 1997, the Company issued 200,000 shares of its Common Stock
to 1-800-REACH ME, LLC ("REACH ME") in consideration for a cash payment of
$1,000,000 (net proceeds of $997,159). REACH ME, subsequently entered into a
dealer agreement with the Company. REACH ME has certain demand and piggyback
registration rights with regard to these shares of Common Stock that it
acquired, and the Company will register the resale of such shares 12 months from
the date hereof.
All transactions between the Company and its officers, shareholders and
each of their affiliated companies have been made on terms no less favorable to
the Company than those available from unaffiliated parties. In the future, the
Company intends to handle transactions of a similar nature on terms no less
favorable to the Company than those available from unaffiliated parties. In
addition, any forgiveness of loans must be approved by a majority of the
Company's independent directors who do not have an interest in the transaction
and who have access, at the Company's expense, to the Company's counsel or
independent counsel.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION
1.1 Form of Underwriting Agreement(1)
3.1 Articles of Incorporation, as amended(1)
3.2 By-Laws(1)
4.1 Form of Common Stock Certificate(1)
32
<PAGE> 33
4.2 Form of Subordinated Promissory Note issued to private investors(1)
4.3 Promissory Note issued to Lawrence Cohen and addendum thereto(1)
4.4 Form of Representative's Warrants(1)
4.5 Form of Voting Trust Agreement with Harbor View Fund, Inc. and Sheldon
Schwartz(1)
10.1 1997 Stock Option Plan(1)
10.2 Employment Agreement with Walt Nawrocki(1)
10.3 Employment Agreement with Lawrence Cohen(1)
10.4 Employment Agreement with Neal Bernstein(1)
10.5 Lease Agreements with Intervest - One Ocean Plaza L.P.(1)
10.5(a) Lease Agreements with Intervest - One Ocean Plaza, L.P.(2)
10.6 Prepaid Royalty Agreement with Lernout & Hauspie Speech Products,
Inc.(1)
10.7 Agreement with 1-800 REACH ME, LLC(1)
10.8 Phone Interactive Agreement(1)
10.9 Agreement with M.S. Management Associates, Inc.(1)
10.10 Licensing Agreement with International Business Machines Corporation(1)
10.11 Financial Advisory and Consulting Agreement(1)
10.12 Form of Lock-Up Agreement(1)
10.13 Indemnification Agreement(1)
10.14 Distribution and License Agreement with Veritel Corporation of
America(2)
10.15 Master Software Joint Development Agreement with Veritel Corporation of
America(2)
27.1 Financial Data Schedule(2)
- - ----------
(1) Filed as an exhibit to the Company's Registration Statement on Form
SB-2 (File No. 333-47715) as filed with and declared effective by the
Commission on May 28, 1998.
(2) Filed herewith
B. REPORTS ON FORM 8-K:
None.
33
<PAGE> 34
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REGISTRY MAGIC INCORPORATED
DATE: November 13, 1998 By: /s/ Walt Nawrocki
-------------------------------------
Walt Nawrocki, Chief Executive Officer
and President
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
DATE: November 13, 1998 /s/ Walt Nawrocki
-----------------------------------------------
Walt Nawrocki, Chief Executive Officer
and President, Director and Principal Executive
Officer
DATE: November 13, 1998 /s/ Lawrence Cohen
-----------------------------------------------
Lawrence Cohen, Director
DATE:
-----------------------------------------------
Sheldon Misher, Director
DATE: November 13, 1998 /s/ Cornelia Eldridge
-----------------------------------------------
Cornelia Eldridge, Director
DATE: November 13, 1998 /s/ Martin Scott
-----------------------------------------------
Martin Scott, Treasurer and Secretary
Principal Financial and Accounting Officer
34
<PAGE> 35
INDEX TO EXHIBITS
EXHIBIT
NUMBERS DESCRIPTION
- - ------- -----------
10.5(a) Lease Agreements with Intervest - One Ocean Plaza, L.P.
10.14 Distribution and License Agreement with Veritel Corporation of America
10.15 Master Software Joint Development Agreement with Veritel Corporation of
America
27.1 Financial Data Schedule
35
<PAGE> 36
REGISTRY MAGIC INCORPORATED
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Balance Sheet F-3
Statements of Operations F-5
Statements of Shareholders' Equity F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
</TABLE>
F-1
<PAGE> 37
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Registry Magic Incorporated
We have audited the accompanying balance sheet of Registry Magic Incorporated,
as of July 31, 1998 and the related statements of operations, shareholders'
equity and cash flows for each of the two years in the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Registry Magic Incorporated, as
of July 31, 1998 and the results of its operations and its cash flows for each
of the two years in the period then ended in conformity with generally accepted
accounting principles.
Miami, Florida BDO Seidman, LLP
October 16, 1998
F-2
<PAGE> 38
REGISTRY MAGIC INCORPORATED
BALANCE SHEET
JULY 31,
1998
-----------
ASSETS
Current assets:
Cash and cash equivalents (Note 1) ......... $10,252,511
Accounts receivable (Note 1) ............... 124,060
Inventories ................................ 238,494
Other current assets ....................... 43,621
-----------
Total current assets ............................ 10,658,686
Property and equipment, net (Note 3) ............ 337,209
Deferred patent costs ........................... 36,073
Other assets .................................... 21,092
-----------
$11,053,060
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE> 39
REGISTRY MAGIC INCORPORATED
BALANCE SHEET
JULY 31,
1998
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 708,896
Notes payable - related party (Note 4) 50,000
------------
Total current liabilities 758,896
------------
COMMITMENTS AND SUBSEQUENT EVENTS (NOTES 7 AND 9)
SHAREHOLDERS' EQUITY: (NOTES 2 AND 6)
Preferred stock $.01 par value; 5,000,000
shares authorized; no shares outstanding
Common stock, $.001 par value; 30,000,000
shares authorized; 5,813,000
issued and outstanding 5,813
Additional paid-in capital 14,013,881
Deficit (3,725,530)
------------
Total shareholders' equity 10,294,164
============
$ 11,053,060
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE> 40
REGISTRY MAGIC INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JULY 31, 1998 1997
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Consulting fees $ 367,975 $ 344,944
Product sales 517,135 --
----------- -----------
Total revenues (Note 1) 885,110 344,944
----------- -----------
Costs and Expenses:
Cost of sales 59,527 --
General and administrative 1,531,317 770,283
Research and development 1,076,567 418,164
Royalty expense (Note 7) 500,000 500,000
Depreciation and amortization 101,284 36,357
Interest income, net of interest expense of $28,325 and
$22,958 in 1998 and 1997, respectively (76,099) (5,657)
----------- -----------
Total costs and expenses 3,192,596 1,719,147
----------- -----------
Net Loss $(2,307,486) $(1,374,203)
----------- -----------
Weighted average shares outstanding (Note 1) 4,216,836 3,625,200
----------- -----------
Net loss per common share (basic and diluted) (Note 1) $ (.55) (.38)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE> 41
REGISTRY MAGIC INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at August 1, 1996 3,325,000 $ 3,325 $ 25,959 $ (43,841) $ (14,557)
Issuance of stock options to employees
(Note 8) -- -- 300,000 -- 300,000
Capital contributions (Note 6) -- -- 3,500 -- 3,500
Issuance of common stock for cash at
$3.50 per share net of offering
costs of $191,020 (Note 6) 410,000 410 1,243,570 -- 1,243,980
Issuance of stock options for services
(Note 8) -- -- 4,500 -- 4,500
Issuance of common stock for cash at
$3.50 per share (Note 6) 58,000 58 202,942 -- 203,000
Net loss -- -- -- (1,374,203) (1,374,203)
--------- ------------ ------------ ------------ ------------
Balance at July 31, 1997 3,793,000 3,793 1,780,471 (1,418,044) 366,220
Issuance of common stock for cash at
$5.00 per share net of offering cost of 200,000 200 996,959 -- 997,159
$2,841 (Note 6)
Issuance of stock options for services
(Note 8) -- -- 75,366 -- 75,366
Issuance of stock in public offering,
net of offering costs of $2,032,095 1,820,000 1,820 11,161,085 -- 11,162,905
(Note 2)
Net loss -- -- -- (2,307,486) (2,307,486)
--------- ------------ ------------ ------------ ------------
Balance at July 31, 1998 5,813,000 $ 5,813 $ 14,013,881 $ (3,725,530) $ 10,294,164
========= ============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE> 42
REGISTRY MAGIC INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1998 1997
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,307,486) $ (1,374,203)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 101,284 36,357
Stock option compensation expense 75,366 304,500
Increase in accounts receivable (118,920) (5,140)
Increase in inventories (238,494) --
Increase in other current assets (39,537) (4,084)
Increase in other assets (14,167) (6,925)
Increase in accounts payable and accrued expenses 673,295 22,137
(Decrease) increase in deferred revenue (237,500) 237,500
------------ ------------
Net cash used in operating activities (2,106,159) (789,858)
------------ ------------
INVESTING ACTIVITIES:
Purchase of equipment (301,848) (116,525)
Deferred patent costs (18,226) (13,824)
------------ ------------
Net cash used in investing activities (320,074) (130,349)
------------ ------------
FINANCING ACTIVITIES:
Borrowings from related party -- 50,000
Repayment to related party -- (50,000)
Stock subscription receivable -- 1,479
Payment of deferred loan costs (47,764)
Net proceeds from sale of common stock 12,160,064 1,450,480
Notes payable - repayment (410,000) --
Notes payable-borrowing -- 410,000
------------ ------------
Net cash provided by financing activities 11,750,064 1,814,195
------------ ------------
Net increase in cash 9,323,831 893,988
Cash and cash equivalents - beginning of period 928,680 34,692
------------ ------------
Cash and cash equivalents - end of period $ 10,252,511 $ 928,680
============ ============
Supplemental disclosures:
Cash paid for interest $ 38,152 $ 10,064
============ ============
Common stock and options issued for services rendered $ 75,366 $ 3,500
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-7
<PAGE> 43
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF SIGNIFICANT ORGANIZATION AND BUSINESS
ACCOUNTING POLICIES
Registry Magic Incorporated (the "Company"),
was incorporated on October 11, 1995
(Inception). The Company is engaged in the
development and marketing of proprietary
applications software incorporating core
speech recognition technology. The Company's
products are designed to enable a user to
perform tasks or retrieve information by
speaking into a telephone or a computer in a
natural conversational manner. The Company
has developed voice recognition products that
span the spectrum of applications areas from
telephony to point-of-sale human interface
solutions. The Company's offices are located
in Boca Raton, Florida.
PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities
and disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid debt
instruments with original maturities of three
months or less to be cash equivalents. Cash
equivalents include investments in money
market accounts.
CONCENTRATION OF CREDIT RISK AND RELIANCE ON
CUSTOMERS AND SUPPLIERS
The Company had cash balances at a financial
institution in excess of insured limits by
approximately $10,152,000.
F-8
<PAGE> 44
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
In 1998, one customer accounted for
approximately 94% of total revenues and 100%
of accounts receivable.
Certain of the Company's products rely on
special processing boards that are
manufactured by one supplier. The loss of
this supplier could have a material adverse
impact on the Company.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs incurred to
establish the technological feasibility of
computer software products are charged to
operations as incurred.
INVENTORIES
Inventories are stated at the lower of cost
or market. Cost is determined using the
first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost.
Depreciation is calculated on a straight line
basis over the estimated useful lives of the
assets, which range from three to five years.
DEFERRED PATENT COSTS
Costs incurred in relation to patent
applications are capitalized as deferred
patent costs. If and when a patent is issued,
the related patent application costs will be
transferred to a patent account and amortized
over the legal life of the patent. If it is
determined that a patent will not be issued,
the related patent application costs will be
charged to expense at the time such
determination is made.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist
principally of cash and cash equivalents,
accounts receivable, accounts payable,
accrued liabilities and notes payable. The
carrying amounts of such financial
instruments as reflected in the balance sheet
F-9
<PAGE> 45
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
approximate their estimated fair value as of
July 31, 1998. The estimated fair value is
not necessarily indicative of the amounts the
Company could realize in a current market
exchange or of future earnings or cash flows.
CAPITALIZED SOFTWARE COSTS
Costs for developing computer software are
capitalized when technological feasibility
has been established for the computer
software product. Capitalization of computer
software costs is discontinued when the
product is available for general release to
customers and such costs are amortized on a
product-by-product basis over the estimated
lives of the products. There are no
capitalized costs in the accompanying
financial statements.
REVENUE RECOGNITION
Revenue from consulting services is
recognized as services are provided. Revenue
from the sale of software products is
recognized at the time of sale and shipment
of the product. Revenue from product
development is recognized when development is
complete.
INCOME TAXES
The Company accounts for income taxes
pursuant to the provisions of FASB No. 109,
"Accounting for Income Taxes," which
requires, among other things, a liability
approach to calculating deferred income
taxes. The asset and liability approach
requires the recognition of deferred tax
liabilities and assets for the expected
future tax consequences of temporary
differences between the carrying amounts and
the tax bases of assets and liabilities. The
Company has had losses since inception and
accordingly has not provided for income
taxes. Realization of the benefits related to
the net operating loss carryforwards may be
limited in any one year due to IRS Code
Section 382, change of ownership rules.
F-10
<PAGE> 46
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
NET LOSS PER COMMON SHARE
In February 1997, the Financial Accounting
Standards Board issued SFAS No. 128,
"Earnings Per Share," which simplifies the
standards for computing earnings per share
("EPS") previously found in APB No. 15,
"Earnings Per Share." It replaces the
presentation of primary EPS with a
presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on
the face of the income statement for all
entities with complex capital structures and
requires a reconciliation of the numerator
and denominator of the diluted EPS
computation. The Company adopted SFAS No. 128
in January 1998 and its implementation did
not have an effect on the financial
statements. EPS has been restated for all
prior periods presented.
Net loss per common share (basic and diluted)
is based on the net loss divided by the
weighted average number of common shares
outstanding during each year.
The Company's potentially issuable shares of
common stock pursuant to outstanding stock
purchase options and warrants, for fiscal
years ended July 31, 1998 and 1997 (totaling
828,276 shares and 626,850 shares with prices
ranging from $0.50 to $9.06 and $0.50 to
$6.00, respectively) are excluded from the
Company's diluted computation as their effect
would be antidilutive to the Company's net
loss per share.
LONG-LIVED ASSETS
In accordance with Financial Accounting
Standards Board Statement of Financial
Accounting Standards (SFAS) No. 121
"Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be
Disposed of," the Company includes as a
component of income from continuing
operations before taxes on income, the
impairment loss on assets to be held and
gains and losses on assets expected to be
disposed of. There was no impairment in 1998
or 1997.
F-11
<PAGE> 47
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation."
SFAS No. 123 establishes a fair value method
for accounting for stock-based compensation
plans either through recognition or
disclosure. The Company did not adopt, for
employee options the fair value based method
but instead will disclose the pro forma
effects of the calculation required by the
statement.
FUTURE ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income,"
establishes standards for reporting and
display of comprehensive income, its
components and accumulated balances.
Comprehensive income is defined to include
all changes in equity except those resulting
from investments by owners and distributions
to owners. Among other disclosures, SFAS No.
130 requires that all items that are required
to be recognized under current accounting
standards as components of comprehensive
income be reported in a financial statement
that is displayed with the same prominence as
other financial statements.
SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which
supersedes SFAS No. 14, Financial Reporting
for Segments of a Business Enterprise,
establishes standards for the way that public
enterprises report information about
operating segments in annual financial
statements and requires reporting of selected
information about operating segments in
interim financial statements issued to the
public. It also establishes standards for
disclosures regarding products and services,
geographic areas and major customers. SFAS
No. 131 defines operating segments as
components of an enterprise about which
separate financial information is available
that is evaluated regularly by the chief
operating decision maker in deciding how to
allocate the resources and in assessing
performance.
F-12
<PAGE> 48
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
Both SFAS No. 130 and 131, issued in June
1997, are effective for financial statements
for periods beginning after December 15, 1997
and require comparative information for
earlier years to be restated. Due to the
recent issuance of these standards,
management has been unable to fully evaluate
the impact, if any, they may have on future
financial statement disclosures.
In June 1998, the Financial Accounting
Standards Board Issued SFAS 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS 133 requires companies to
recognize ALL derivatives contracts as either
assets or liabilities in the balance sheet
and to measure them at fair value. If certain
conditions are met, a derivative may be
specifically designated as a hedge, the
objective of which is to match the timing of
gain or loss recognition on the hedging
derivative with the recognition of (i) the
changes in the fair value of the hedged asset
or liability that are attributable to the
hedged risk or (ii) the earnings effect of
the hedged forecasted transaction. For a
derivative NOT designated as a hedging
instrument, the gain or loss is recognized in
income in the period of change. SFAS 133 is
effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
Historically, the Company has not entered
into derivatives contracts either to hedge
existing risks or for speculative purposes.
Accordingly, the Company does not expect
adoption of the new standard on August 1,
1999 to affect its financial statements.
2. INITIAL PUBLIC
OFFERING In June 1998, the Company completed a public
offering of 1,820,000 shares of common
stock. The Company received gross proceeds
of $13,195,000 from this public offering.
Costs associated with this transaction were
$2,032,095.
Proceeds of $410,000 from this offering were
used to pay subordinate notes issued in
connection with a private placement of
securities.
F-13
<PAGE> 49
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
3. PROPERTY AND EQUIPMENT The Company's property and equipment is
summarized as follows:
JULY 31, 1998
--------------------------------------------
Office equipment $ 65,618
Computers 359,761
Leasehold improvements 10,660
--------------------------------------------
436,039
Accumulated depreciation (98,830)
--------------------------------------------
$ 337,209
============================================
4. NOTES PAYABLE RELATED Notes payable - related party is an unsecured
PARTY $50,000 loan from an officer and director of
the Company, bearing interest at a rate of
6.5% per annum and is payable on November
28, 1998 or on such date thereafter as the
Company has cash from operations.
5. INCOME TAXES At July 31, 1998, the Company had a net
operating loss carryforward (NOL) of
approximately $2,075,000, which expires
through 2013.
The net deferred tax asset is comprised of
the following at July 31, 1998:
--------------------------------------------
Deferred tax assets:
Prepaid royalty expense 280,000
Start up costs 225,000
Compensation 113,000
Net operating loss carryforward 781,000
--------------------------------------------
1,399,000
--------------------------------------------
Deferred tax liability:
Depreciation (49,000)
--------------------------------------------
Net deferred tax asset 1,350,000
Deferred tax asset valuation
allowance (1,350,000)
--------------------------------------------
Net deferred tax asset
============================================
F-14
<PAGE> 50
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
Realization of any portion of the Company's
deferred tax asset at July 31, 1998 is not
considered to be more likely than not and
accordingly a $1,350,000 valuation allowance
has been provided.
6. SHAREHOLDERS' EQUITY During 1997, the Company received $3,500 in
additional capital contributions from its
Chairman.
In December 1996, the Company completed a
private offering of securities. The Company
received gross proceeds of $1,845,000 from
this private offering. Costs associated with
this transaction were $238,784. In connection
with this offering, 410,000 shares of common
stock were sold for $1,435,000 and $410,000
in subordinated notes were also sold. In
addition, five year warrants to purchase
100,000 shares of common stock exercisable at
$6.00 per share were granted to the
investment banker. Subsequent to year end,
the exercise price of these warrants was
reduced to $5.00 per share.
In January 1997, in connection with a private
placement, the Company issued 58,000 shares
of common stock, at $3.50 per share for cash
of $203,000.
In November 1997, in connection with a
private placement, the Company issued 200,000
shares of common stock at $5.00 for cash
consideration of $1,000,000. Costs associated
with this transaction were $2,841.
In June 1998 the Company completed a public
offering of common stock (note 2).
7. COMMITMENTS a) In December 1997, the Company entered
into three year employment agreements
with three of its executive-officers,
which provide for aggregate base
salaries totaling $415,500. In the event
of a change of control of the Company,
where the officers are not retained on a
comparable basis by new management, the
officers will receive lump sum payments
equivalent to one year's salary. In
addition, in the event of the
non-renewal of the employment
agreements, the officers will be
entitled to the same lump sum payments.
F-15
<PAGE> 51
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
b) On December 31, 1996, the Company
entered into a licensing agreement with
Lernout & Hauspie Speech Products N.V.
("L&H") which grants the Company the
right to use a certain software object
code in the development of its products
in exchange for payment of certain
amounts for royalties. The agreement
runs for a term of four years and
provides for the payment of percentage
royalties and unit royalties as
specified in the agreement. During 1998
and 1997, the Company incurred $500,000
and $500,000, respectively, of
non-refundable royalties which were
expensed.
c) On December 8, 1997, the Company entered
into a licensing agreement with L&H
which grants L&H the right to use and
market certain proprietary software
developed by the Company in exchange for
non-refundable payments of $450,000. The
agreement may be terminated by either
party after January 1, 2001 and provides
for the payment of unit royalties as
specified in the agreement.
d) The Company occupies premises under
four operating leases. The facilities
are leased for terms of one to three
years with annual rental payments of
approximately $72,000. Rent expense for
1998 and 1997 aggregated approximately
$49,000 and $10,000, respectively.
Minimum guaranteed lease payments under
these leases are as follows:
----------------------------------------------
1999 $ 69,792
2000 45,100
2001 27,500
----------------------------------------------
$ 142,392
==============================================
8. STOCK BASED In March 1997, the Company adopted a Stock
COMPENSATION Option Plan (the "Plan") under which
300,000 shares of common stock are reserved
for issuance upon exercise of stock based
awards including, non-qualified stock options.
The Plan is also authorized to issue
short-term cash incentive awards. The Plan is
administered by either the Board or such
committees; officers and/or employees of the
Company as the Board may so designate. The
purchase price of each share of common stock
purchased upon exercise of any option granted
is as follows: (i) Incentive stock options
shall be equal to or greater than the fair
market value of the common stock
F-16
<PAGE> 52
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
on the date of grant as required under Section
422 of the Internal Revenue Code, (ii) Options
granted to 10% holders and designated by the
plan administrator as incentive stock options
shall be at least 110% of the fair market value
of the common stock on the date of grant as
required under Section 422 of the Internal
Revenue Code, (iii) Non-employee director
options shall be equal to or greater than the
fair market value of the common stock on the
date of the grant. Pursuant to the plan, options
to purchase 241,850 and 207,350 shares of common
stock exercisable at $3.50 to $7.00 and $3.50 to
$3.85 have been granted as of July 31, 1998 and
1997, respectively. These options vest over
terms up to five years from the grant date with
expiration dates beginning in 2001. Included in
the options granted as of July 31, 1998 were
four-year options to purchase 14,500 shares at
$7.00 which were granted to three consultants
for general business services. These options
were fully vested at date of grant. In
connection with these grants, approximately
$49,000 was charged to operations representing
the difference between the market price of the
stock and the exercise price of the options on
the date the options were granted.
In addition, during 1998, five-year non-plan
options to purchase 6,926 shares ranging at
$3.50 were granted to two consultants for
general business services. These options were
fully vested at date of grant. In connection
with these grants, approximately $26,000 was
charged to operations representing the
difference between the market price of the stock
and the exercise price of the options on the
date the options were granted.
During 1997, five-year non-plan options to
purchase 4,500 shares at $3.50 were granted to a
consultant for general business services and
five-year non-plan options to purchase 300,000
shares ranging between $0.50 and $3.50 were
granted to certain employees. These options were
fully vested at date of grant. In connection
with these grants, $300,000 was charged to
operations representing the difference between
the market price of the stock and the exercise
price of the options on the date the options
were granted and $4,500 was charged to
operations representing the value of the
F-17
<PAGE> 53
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
services provided. In 1997 four year non-plan
options to purchase 15,000 shares at $3.50 were
granted to an employee. These options vest over
two years.
SFAS No. 123, Accounting for Stock-Based
Compensation, requires the Company to provide
pro forma information regarding net loss and net
loss per share as if compensation cost for the
Company's stock option plan had been determined
in accordance with the fair value based method
prescribed in SFAS No. 123. The Company
estimates the fair value of each stock option at
the grant date by using the Black-Scholes
option-pricing model with the following
weighted-average assumptions used for grants in
1998 and 1997: no dividend yield percent;
expected volatility of .500 and 0.001,
respectively; risk-free interest rates of 5.8%
and 6.1%, respectively, and expected lives
ranging between 4 and 5 years for the Plan and
non-plan options.
Under the accounting provisions of SFAS No. 123,
the Company's pro forma net loss and loss per
share would have been:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1998 1997
-------------------------------------------------------------------------
<S> <C> <C>
Net loss
As reported $ 2,307,486 $ 1,374,203
Pro forma $ 2,328,956 $ 1,641,203
Net loss per common share
As reported $ (.55) $ (.38)
Pro forma $ (.55) $ (.45)
</TABLE>
F-18
<PAGE> 54
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
A summary of the status of the Company's fixed
stock option plan and non-plan options as of
July 31, 1998 and 1997, and changes during the
years then ended is presented below:
<TABLE>
YEAR ENDED JULY 31, 1998 1997
----------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 526,850 $ 3.00 -- $ --
Granted 41,426 5.27 526,850 3.00
Exercised -- -- -- --
Forfeited -- -- -- --
----------------------------------------------------------------------------------------------
Outstanding at end of year 568,276 3.16 526,850 3.00
----------------------------------------------------------------------------------------------
Options exercisable at year-end 485,101 3.06 404,500 2.80
YEAR ENDED JULY 31, 1998 1997
------------------------------------------------------------------
Weighted-average fair value of options granted
during the year:
Below market $ 3.22 $ 3.13
At market $ 2.34 $ 0.74
Above market $ -- $ 0.70
</TABLE>
The following table summarizes information about fixed stock options and
non-plan options outstanding at July 31, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE
PRICES 7/31/98 LIFE PRICE 7/31/98 PRICE
------------------------------------------------------------------------ ---------------------------------
<S> <C> <C> <C> <C> <C>
$ 7.00 14,500 3.7 years $ 7.00 14,500 $ 7.00
$ 5.00 15,000 3.4 years $ 5.00 - $ 5.00
$ 3.85 100,000 2.6 years $ 3.85 100,000 $ 3.85
$ 3.50 338,776 3.3 years $ 3.50 270,601 $ 3.50
$ 0.50 100,000 3.2 years $ 0.50 100,000 $ 0.50
</TABLE>
F-19
<PAGE> 55
REGISTRY MAGIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
================================================================================
9. SUBSEQUENT EVENT On September 11, 1998, the Company settled both
the legal action which it initiated on April 3,
1998 against a former employee of the Company
whose employment was terminated on such date and
the counter-claim initiated by the former
employee. Under the terms of the agreement, the
former employee was permitted to retain the
20,000 shares of common stock and the option to
purchase 90,000 shares of common stock, which
had previously been granted to him.
On September 25, 1998, the Company entered into
a licensing agreement with Veritel Corporation
of America, Inc. which grants the Company the
right to use a certain software object code in
the development of its products in exchange for
payment of certain royalties. The agreement runs
for a term of three years. The Company has
agreed to pay a total of $500,000 of which
$200,000 was due and paid in September 1998 and
$300,000, which is due on November 15, 1998.
F-20
<PAGE> 1
Exhibit 10.5(a)
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter referred to as the "Lease") is made and
entered into this 9th day of July 1998, by and between Intervest One Ocean
Plaza, Ltd.(hereinafter referred to as "Landlord") and Registry Magic, Inc. a
Florida Corporation) (hereinafter referred to as "Tenant").
WITNESSETH:
THAT LANDLORD, in consideration of the rents, covenants and agreements hereafter
promised and agreed by Tenant to be paid and performed, does hereby lease,
demise and let to Tenant, and Tenant does hereby lease of and from Landlord, the
real property hereinafter described, subject to the following terms and
conditions.
ARTICLE I
Description of Property; Term
Section 1.1 Description of Property. Landlord leases to Tenant a portion of the
real property known as ONE OCEAN PLAZA, located at One S. Ocean Boulevard, Boca
Raton, FL (hereinafter referred to as the "Premises") in the subdivision known
as Por-La Mar, Lots 118-121, and indicated on the floor plan attached as Exhibit
1. The Premises consist of 387 rentable square feet of the real property known
as One Ocean Plaza (hereinafter referred to as the "Building"), Suite(s) # 318
and constitutes .83% of the rentable square feet of the Building.
Section 1.2. Term. Tenant shall have and hold the Premises for a term of eleven
(11) months commencing on June 1, 1998 and shall terminate April 30, 1999 after
the commencement date, except as otherwise provided for in this Lease. If the
term of this Lease commences on any day of the month other than the first day,
Rent from such date to the end of such month shall be prorated according to the
number of days in such month and paid on a per diem basis, in advance, on the
date the term commences.
Section 1.3. Holdover. Should Tenant hold over and remain in possession of the
Premises at the expiration of any Term hereby created, Tenant shall, by virtue
of this Section, become a tenant by the month at twice the Rent per month of the
last monthly installment of Rent above provided to be paid, which said monthly
tenancy shall be subject to all the terms, conditions and covenants of this
Lease as though the same had been a monthly tenancy instead of a tenancy as
provided herein, and Tenant shall give to Landlord at least thirty (30) days'
written notice of any intention to vacate the Premises, and shall be entitled to
ten (10) days notice from Landlord in the event Landlord desires possession of
the Premises; provided, however, that said Tenant by the month shall not be
entitled to ten (10) days notice in the event the said Rent is not paid in
advance without demand, the usual ten (10) days written notice being hereby
expressly waived.
ARTICLE II
Monthly Base Rent and Use of Premises
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<PAGE> 2
ARTICLE II
Monthly Base Rent and Use of Premises
Section 2.1. Monthly Base Rent; Late Charge: Sales Charge. Subject always to the
provisions of Section 2.2 of this Lease Tenant agrees to and shall pay Landlord
an aggregate sum for the ???????? term of this Lease of $ 7276.27, payable in
equal consecutive monthly installment payments of $ 661.47, in advance, upon the
first day of each calendar month of the term of this Lease (hereinafter referred
to as the "Monthly Base Rent". In addition to the Monthly Base Rent as
aforesaid, Tenant agrees to and shall pay Landlord Additional Rent. For purposes
of this Lease the term "Additional Rent" means the Tenant's proportionate share
of Taxes and Operating Expenses, as provided in Article III, in monthly
installment payments for the term of this Lease. (The Monthly Base Rent and
Additional Rent is sometimes hereinafter collectively referred to as the
"Rent"). In the event any monthly payment of Rent is not paid within five (5)
days after it is due, Tenant agrees to and shall pay Landlord a late charge of
TEN PERCENT (10%) of the amount of Rent payment. In addition to the Rent, Tenant
shall also pay to Landlord all Florida sales or use taxes pertaining to the Rent
and Additional Rent.
Section 2.2. Rental Adjustment. The Monthly Base Rent, as set forth in Section
2.1 shall be adjusted as of the first day of each Lease year of the term and any
renewal term commencing with the first (1) Lease Year. The term "Lease Year"
shall mean consecutive twelve (12) month periods commencing on the Commencement
Date and each anniversary thereof. In the event the Commencement Date does not
fall on the first day of the month, for purposes of the definition of Lease Year
only, the Commencement Date shall be deemed to fall on the first day of the
following month. The Monthly Base Rent shall be adjusted in accordance with
changes in the Consumer Price Index (hereinafter referred to as the "C.P.I.")
The C.P.I. shall mean the average for "all items" shown on the "U.S. City
Average for Urban Wage Earners and Clerical Workers (including Single Workers),
all items, groups, subgroups and special groups of items" as promulgated by the
Bureau of Labor Statistics of the U.S. Department of Labor, using the year
1982-84 as a base of 100. The Monthly Base Rent shall be adjusted in accordance
with the following provisions.
(a) The C.P.I. as of the month in which the Commencement date be
designated the Base C.P.I.
(b) After the end of the first Lease Year and of each Lease Year
thereafter, the Monthly Base Rent shall be determined as follows:
The Monthly Base The C.P.I. for the month
Rent for the x two months prior to the
first Lease Year month ending the Lease
Year then Ended
---------------
The Base C.P.I.
(c) No adjustment shall reduce the Monthly Base Rent below the Monthly
Base Rent for the prior Lease Year.
(d) If, during the Term of this Lease or any renewal thereof, the U.S.
Department of Labor Statistics ceases to maintain the C.P.I., such other index
or standard as will most nearly accomplish the aim and purpose of the C.P.I.
2
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<PAGE> 3
(as determined by Landlord) shall be used to determine the amount of rental
adjustments hereunder.
(e) In the event of any delay in computing the rental adjustment for a
subsequent Lease Year, such delay being a maximum 180 days, Tenant shall
continue payment of the most recent Monthly Base Rent as has been computed and
at such time as an accounting is made and notice is given to Tenant, an
accounting will be made retroactive to the beginning of the subsequent Lease
Year for which adjustment is made, and the amount then due Landlord shall be
paid by Tenant within ten (10) days of receipt of said notice of accounting.
Section 2.3. Payment Without Notice or Demand. Except as otherwise provided in
this Lease, Monthly Base Rent and Additional Rent called for hereunder shall be
paid to Landlord without notice or demand, and without counterclaim, offset,
deduction, except as specified in Section 3.4, abatement, suspension, deferment,
diminution or reduction, by reason of, and the obligations of Tenant under this
Lease shall not be affected by any circumstance or occurrence whatsoever, and
except as set forth herein, Tenant hereby waives all rights now or hereafter
conferred by statute or otherwise to quit, terminate or surrender this Lease of
the Premises or any part thereof, or to any abatement, suspensions, deferment,
diminution or reduction of the Rent on account of any such circumstances or
occurrence.
Section 2.4. Place of Payment. All payments of Rent shall be made and paid by
Tenant to Landlord at the General Manager's 1-5 E. Fifth Street, Suite 2700,
Tulsa, OK 74103, or at such other place as Landlord may, from time to time,
designate in writing, as such Rent shall come due. All Rent shall be payable in
the current legal tender of the United States, as the same is then by law
constituted. Any extension, indulgence, or waiver granted or permitted by
Landlord in the time, manner or mode of payment of Rent, upon any occasion,
shall not be construed as a continuing extension of waiver and shall not
preclude Landlord from demanding strict compliance herewith.
Section 2.5. Use of Premises. Tenant shall use the Premises for general
office and for no other purpose without first obtaining the written consent of
Landlord. The written consent of Landlord shall not be unreasonably withheld.
Tenant will not use or permit the use of the Premises or any part thereof for
any unlawful purpose and will not do or permit any act or thing which would
materially impair the value or usefulness of the Premises or any part thereof;
or which would constitute a public or private nuisance or waste, or which would
be a nuisance or annoyance or damage to Landlord or Landlord's other tenants, or
which would invalidate any policies of insurance or increase the premiums
thereof, now or hereafter written on the building and/or Premises.
Section 2.6. Parking. There shall be available at the building N/A parking
spaces for the nonexclusive use of the Tenant.
Section 2.7. Damage Deposit. Simultaneously with the execution of this Lease,
Tenant has paid the sum of $ 661.47 which shall continue to be held by Landlord
as a damage deposit as security for the performance by the Tenant of all of the
terms, covenants and conditions hereof, including, but not limited to
3
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<PAGE> 4
default in payment of rent or any other sum due the Landlord, whereupon Landlord
shall have the right to apply all or any part of the security deposit for such
payment, and as indemnity against: (a) unreasonable wear and tear on the
Premises; (b) loss or damage to the Premises or other property of the Landlord
caused by the Tenant, Tenant's employees, agents, invitees, or licensees; (c)
the cost of cleaning the Premises to the extent that the Landlord shall
determine is necessary to restore the Premises, except for reasonable wear and
tear, to the same condition it was in at the time Tenant began occupancy
thereof. If the Tenant complies with all such terms, covenants and conditions,
then within thirty (30) days after such termination of this Lease or any renewal
or extension thereof, the Landlord shall return said sum to the Tenant, less any
deductions made by the Landlord therefrom to pay or reimburse the Landlord for
the costs, losses or damages to the Premises or to any other property of the
Landlord, including the building of which the Premises is a part, for any such
costs, losses or damages which, in the judgment of the Landlord, are in excess
of such cash indemnity. Such money shall bear no interest and may be commingled
with other security deposits or funds of the Landlord.
ARTICLE III
Additional Rent
Section 3.1. Definitions. For the purposes of this Article and other provision
of the Lease:
(a) The term "Additional Rent" shall mean Tenant's Proportionate Share
of Taxes and Operating Expenses.
(b) The term "Common Area" shall mean all real or personal property
owned by the Landlord for the common (nonexclusive) use of the Landlord and
Tenant and their employees, guests and invitees including, but not limited to,
sidewalks, landscaping areas, lighting, delivery areas, parking areas, entrance
ways, lobby areas, building security, elevators, stairways, hallways shared by
more than one tenant and all lavatories shared by more than one tenant.
(c) The term "Operating Expenses" shall mean all expenses paid or
incurred by Landlord or on Landlord's behalf in respect to the repair,
maintenance and operation of the Property and/or Building, except for those
expenses directly attributable to one (1) tenant or where tenant is separately
metered due to a special use, and include, but are not limited to, the
following: (i) salaries, wages, medical, surgical, union and general welfare
benefits (including, without limitation, group life insurance) and pension
payments of employees of Landlord engaged in the repair, operation, and
maintenance of the Property and/or the Building; (ii) payroll taxes, worker's
compensation, uniforms and related expenses for employees; (iii) the cost of all
charges for gas, electricity, heat, ventilation, air conditioning, water, sewer,
garbage collection, and other utilities furnished to the Building (including,
without limitation, the Common Area), and to the property, together with any
taxes on such utilities; (iv) the cost of painting; (v) the cost of all charges
for Rent, casualty and liability insurance with regard to the Property and/or
Building and maintenance and/or operation thereof; (vi) the cost or rental of
all supplies (including, without limitation, cleaning supplies), tools,
materials and equipment, and sales and
4
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<PAGE> 5
other taxes thereon; (vii) depreciation of hand tools and other moveable
equipment used in repair, maintenance or operation of the Building; (viii) the
cost of all charges for window and other cleaning and janitorial and security
services; (ix) amounts charged to Landlord by contractors for services,
materials and supplies furnished in connection with the operation, maintenance
or repair of any part of the Building or the heating, air conditioning,
ventilating, plumbing, electrical, elevator and other systems of the Building;
(x) repairs and replacements made by Landlord at his expense; (xi) alterations
and improvements to the Building and/or the Property made by reason of laws and
requirements of any public authorities or the requirements of insurance bodies;
(xii) management fees; (xiii) the cost of any capital improvements to the
Building and/or of any machinery or equipment installed in the Building which is
made or becomes operational, as the case may be, after the Base Operating Year,
and which has the effect of reducing the expenses which otherwise would be
included in the operating expenses, to the extent of the lesser of; (A) such
cost, amortized over the useful life of the improvement, machinery and/or
equipment (as reasonably estimated by Landlord), or (B) the amount of such
reduction in the operating expenses; (xiv) reasonable legal, accounting and
other professional fees incurred in connection with the operation, maintenance
and management of the Property and/or Building; (xv) painting, refurbishing,
re-carpeting, redecorating or landscaping any portion of the Property and/or
Building exclusive of any work done in any Tenant's space, and which shall
include: (a) roof maintenance, which shall include the replacement of the roof
once every ten (10) years or sooner, should the Landlord deem it necessary; (b)
repainting of the Building, which shall include the painting of the building
once every five (5) years or earlier should the Landlord deem it necessary; and
(c) maintenance of the parking lot, which shall include the resealing of the
parking lot every three (3) years or at such other time that the Landlord deems
it necessary; and in the case of the Property, Landscaping shall entail the
replacement of dead trees, dead grass, and dead miscellaneous vegetation; (xvi)
all amounts collected and held by Landlord with respect to reserve accounts for
those items to which Landlord has designated; (xvii) real property Taxes;
(xviii) all other charges properly allocable to the repair, operation and
maintenance of the Building in accordance with generally accepted accounting
principles; (xvix) all amounts collected and held by the Landlord with respect
to reserve accounts for items which the Landlord has designated.
Notwithstanding the above, the following are excluded from the definition of
Operating Expenses: (1) Depreciation (except as provided above); (2) Interest on
and amortization of debts; (3) Leasehold improvements made for new tenants of
the Building; (4) Taxes; (5) Refinancing costs; (6) The cost of any work or
services performed for any tenant(s) of the Building (including Tenant), to the
extent that such work or service is separately reimbursed; (7) The cost of any
repair or replacement (other than those described in (xi) and (xiii) above which
would be required to be capitalized under generally accepted accounting
principles, unless such costs may be, under said principles, amortized over a
period of not more than ten (10) years, in which event a proportionate part of
such costs may be included each year in Operating Expenses over the useful life
(as reasonably estimated by Landlord) of such repair and replacement.
5
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<PAGE> 6
(d) The term "Taxes" shall mean: (i) the aggregate amount for which the
Building, and all land or real property owned or leased by Landlord underlying
the Building or adjacent thereto and used in connection with the operation of
the Building (collectively hereinafter sometimes referred to as the "Property")
are assessed by Palm Beach County or any city or municipal body having
jurisdiction for the purpose of imposition of real estate taxes; and (ii) any
expenses incurred by Landlord in contesting such taxes or assessments and/or the
assessed value of the Building and/or the Property, which expenses shall be
allocated to the Tax Year to which such expenses relate. Any special or other
assessment or levy for any Tax Year which is imposed upon the Property and/or
the Building shall be added to the amount so determined and shall be deemed to
be included within the term "Taxes" for the purposes hereof. If, at any time
during the term of this Lease, the methods of taxation prevailing on the date
hereof shall be altered, such additional or substitute tax, assessment, levy,
imposition, or charge, shall be deemed to be included within the term "Taxes"
for the purpose hereof.
(e) The term "Tenant's Proportionate Share" is ________________%, which
was determined by dividing the gross rentable square footage of the Building
into the Tenant's rentable square footage.
Section 3.2. Interim Additional Rent. During the period from the commencement
date of this Lease until January, 19__, Tenant shall pay an interim Additional
Rent of $5.35 per square foot per year and any adjustment thereof to reflect the
interim Additional Rent charge for 19__ , which is merely an estimate of actual
Taxes and Operating Expenses for such period. In early January of each year of
the lease term, Landlord shall compute actual Taxes and Operating Expenses
incurred during such period. Tenant shall receive a refund or be assessed an
additional sum based on the difference between Tenant's Proportionate Share of
actual expenses and Additional Rent payments made by Tenant. Any additional sums
owed by Tenant to Landlord or Landlord to Tenant shall be paid within ten (10)
days of receipt of assessment.
Section 3.3. Budget; Future Additional Rent. Landlord shall furnish to Tenant
prior to January 31 of each year, a budget setting forth Landlord's estimate
of Taxes and Operating Expenses for the coming year. The Budget shall be
determined as though the Building were occupied at an actual occupancy rate or
at an occupancy rate of 90%, whichever is higher. Tenant shall pay to Landlord,
on the first day of each month as Additional Rent, an amount equal to
one-twelfth (1/12th) of Tenant's Proportionate Share of Landlord's estimate of
the same. If, however, Landlord shall furnish any such estimate subsequent to
the commencement of any year during the term of this Lease, then until the first
day of the month following the month in which such estimate is furnished to
Tenant, Tenant shall pay to Landlord, on the first day of each month, an amount
equal to the monthly sum payable under this Section. If there shall be any
increase or decrease in the Taxes or Operating Expenses for any year, whether
during or after such year, Landlord shall furnish to Tenant a revised Budget and
the Additional Rent shall be adjusted and paid or refunded, as the case may be.
If a Tax Year or Operating Year ends after the expiration or termination of this
Lease, the Additional Rent payable hereunder shall be prorated to correspond
6
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<PAGE> 7
to that portion of the Tax Year occurring within the term of this Lease.
Section 3.4. Statement of Actual Costs. Within one Hundred Twenty (120) days
after the end of each year, Landlord shall furnish to tenant an Operating
Statement showing actual Taxes paid and Operating Costs incurred or reserved for
the preceding year. If the Operating Statement shows that the sums paid by
Tenant under this Article minus any amounts collected and held in the reserve
account exceed Tenant's Proportionate Share of the Additional Rent allocated to
Operating Expenses, Landlord shall promptly either refund to Tenant the amount
of such excess or permit Tenant to credit the amount thereof against subsequent
payments of Additional Rent under this Article; and if the Operating Statement
shows that the sums paid by Tenant were less than Tenant's Proportionate Share
of the same, Tenant shall pay the amount of such deficiency within ten (10) days
after demand therefore. Each Operating Statement given by Landlord shall be
conclusive and binding upon Tenant (a) unless within thirty (30) days after the
receipt thereof, Tenant shall notify Landlord that it disputes the accuracy of
said Operating Statement, specifying the particular respects in which the
Operating Statement is claimed to be incorrect. Failure of Landlord to submit
the written statement referred to herein shall not waive any rights of Landlord.
Notwithstanding the foregoing, the Base Rent shall never be decreased below that
amount set forth in Section 2.1 of this Lease.
ARTICLE IV
Preparation of Premises
Section 4.1. Leasehold Improvements. The Premises shall be completed and
prepared for Tenant's occupancy in the manner, and subject to the provisions of
a separate agreement between Landlord and Tenant. The facilities, materials and
work to be furnished, installed and performed in the Premises by Landlord, at
its expense, are hereinafter referred to as "Landlord's Work". In addition, such
other facilities, materials and work which may be undertaken by or for the
account of Tenant to equip, decorate and furnish the Premises for Tenant's
occupancy are hereinafter referred to as "Tenant's Work".
Section 4.2 Completion by Landlord. The Premises shall be deemed ready for
occupancy on the date on which Landlord's Work shall have been substantially
completed; the same shall be deemed substantially completed notwithstanding the
fact that minor or insubstantial details of construction, mechanical adjustment
or decoration remain to be performed, the non-completion of which does not
materially interfere with Tenant's use of the Premises. Landlord shall give
Tenant at least ten (10) days notice of the date on which Landlord estimates
Landlord's Work will be substantially completed. Any variance between the date
so estimated and the date on which Landlord's Work shall have been substantially
completed shall be of no consequence. Tenant shall occupy the Premises promptly
after the same are ready for occupancy.
Section 4.3. Delay by Tenant. If the substantial completion of the Landlord's
Work shall be delayed due to: (a) any act or omission of the Tenant or any of
its employees, agents or contractors (including, but not limited to, (i) any
delays due to
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<PAGE> 8
changes in or additions to Landlord's Work, or (ii) any delays by Tenant in the
submission of plans, drawings, specifications, or other information or in
approving any work, drawings, or estimates or in giving any authorizations or
approvals); or (b) any additional time needed for the completion of Landlord's
Work by the inclusion on Landlord's Work of any special work, then the Premises
shall be deemed ready for occupancy on the date they would have been ready but
for such delay and Rent shall commence as of such earlier date.
Section 4.4. Time Not of the Essence. If Landlord is unable to give possession
of the Premises on the Commencement Date, for any reason whatsoever, Landlord
shall not be subject to any liability for said failure and the validity of this
Lease shall not be impaired under such circumstances, nor shall the same be
construed in any way to extend the term of this Lease. If the Premises are
delivered after the Commencement Date, the Base Rent and Additional Rent payable
hereunder shall be abated (provided Tenant is not responsible for the inability
to obtain possession) until Landlord has given a second notice to Tenant that
the Premises are ready for Tenant's occupancy. If Landlord shall give Tenant
permission to enter into the possession of the Premises prior to the
Commencement Date, such possession or occupancy shall be deemed to be upon all
the terms, covenants, conditions, and provisions of this Lease including the
execution of an estoppel certificate.
Section 4.4. Acceptance of Premises. Tenant acknowledges that Landlord has not
made any representations or warranties with respect to the condition of the
Premises and neither Landlord or any assignee of Landlord shall be liable for
any latent defect therein. The taking of possession of the Premises by Tenant
shall be conclusive evidence that the Premises were in good and satisfactory
condition at the time such possession was taken, except for the minor or
insubstantial details referred to in this Section of which Tenant gives Landlord
notice, within thirty (30) days after the Commencement Date, specifying such
details with reasonable particularity.
ARTICLE V
Insurance - Destruction of Premises
Section 5.1. Tenant's Insurance.
(a) Tenant will carry and maintain, at its sole cost and expense, the
following types of insurance, in the amounts specified and in the form
hereinafter provided for:
(i) Public Liability and Property Damage. Tenant shall, during
the Term of this Lease, maintain insurance against public liability, including
that from personal injury or property damage in or about the Premises resulting
from the occupation, use or operation of the Tenant's business in the Premises,
insuring both Landlord and Tenant, in amounts of not less than One Million
Dollars ($1,000,000.00) in respect to bodily injury or death to any one person,
of not less than One Million Dollars ($1,000,000.00) Combined Single Limit for
both bodily injury and property damage.
(ii) Tenant Leasehold Improvements and Property. Insurance
covering all of the items included in Tenant's Work, Tenant's
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leasehold improvements, interior heating, ventilating and air conditioning
equipment, trade fixtures, merchandise and personal property from time to time
in, on or upon the Premises, and alterations, additions or changes made by
Tenant in an amount not less than on hundred percent (100%) of their full
replacement cost from time to time during the Term, providing protection against
perils included within the standard Florida form of fire and extended coverage
insurance policy, together with insurance against sprinkler damage, vandalism
and malicious mischief. Any policy proceeds from such insurance shall be held in
trust by Tenant's insurance company for the repair, reconstruction and
restoration or replacement of the property damaged or destroyed unless this
Lease shall cease and terminate.
(b) All policies of insurance provided for in Section 5.1(a) shall be
issued in form acceptable to Landlord by insurance companies with general
policyholder's rating of not less than XI and a financial rating of AAA as rated
in the most current available "Best's Insurance Reports, and qualified to do
business in Florida. Each and every such policy:
(i) shall be issued in the names of Landlord and Tenant and
any other parties in interest from time to time designated in writing by notice
from Landlord to Tenant;
(ii) shall be for the mutual and joint benefit and protection
of Landlord and Tenant and any such other parties in interest;
(iii) shall (or a certificate thereof shall) be delivered to
Landlord and any such other parties in interest within ten (10) days after
delivery of possession of the Premises to Tenant and thereafter within thirty
(30) days prior to the expiration of each policy, and, as often as any such
policy shall expire or terminate, renewal or additional policies shall be
procured and maintained in like manner and to like extent;
(iv) shall contain a provision that the insurer will give to
Landlord and such other parties in writing in advance of any cancellation,
termination or lapse, or the effective date of any reduction, in the amounts, of
insurance;
(v) shall be written as a primary policy which does not
contribute to and is not in excess of coverage which Landlord may carry; and
(vi) shall contain a provision that Landlord and any such
other parties in interest, although named as an insured, shall nevertheless be
entitled to recover under said policies for any loss occasioned to it, his
servants, agents and employees by reason of the negligence of Tenant.
(c) Any insurance provided for in Section 5.1(a) may be maintained by
means of a policy or policies of blanket insurance, covering additional items or
locations or insureds, provided, however, that: (i) Landlord and any other
parties in interest from time to time designated by Landlord to Tenant shall be
named as an additional insured thereunder as his interest may appear; (ii) the
coverage afforded Landlord and any such other parties in interest will not be
reduced or diminished by reason of the use of such blanket policy of insurance;
and (iii) the requirements set forth in this Article V are otherwise satisfied.
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(d) Tenant agrees to permit Landlord at all reasonable times to inspect
the policies of insurance of Tenant with respect to the Premises for which
policies or copies thereof are not delivered to Landlord.
(e) The Tenant's insured property shall be subject to an annual review
or appraisal at Tenant's expense by someone acceptable to both Tenant and
Landlord to determine one hundred percent (100%) replacement cost so adequate
insurance coverage can be maintained.
(f) These insurance requirements are subject to modification in the
event any mortgagee of Landlord requires the different insurance. In such event,
the requirements of such mortgagee shall control.
Section 5.2. Destruction of Premises. If, during the Term hereof, the Premises
be damaged by reason of fire or other casualty, Tenant shall give immediate
notice thereof to Landlord. Landlord shall promptly repair or rebuild the same,
so as to make the Premises at least equal in value to those existing immediately
prior to such occurrence and as nearly similar to it in character as shall be
practicable and reasonable. If the Premises are damaged, the Rent shall be
reduced in the same proportion as the percentage area of the Premises which is
rendered untenantable due to such damage until such damage is repaired. If the
Premises shall be so damaged by fire or otherwise that the cost of restoration
shall exceed Fifty Percent (50%) of the replacement value thereof, exclusive of
foundations, immediately prior to such damage, Landlord may, within thirty (30)
days of such damage, give notice to Tenant of his election to terminate this
Lease and, subject to the further provisions of this Article, this Lease shall
cease and come to an end on the date of the expiration of ten (10) days from the
delivery of such notice with the same force and effect as if such date were the
date hereinbefore fixed for the expiration of the term herein demised, and the
Rent shall be apportioned and paid to the time of such termination. In such
event, the entire insurance proceeds, except proceeds pertaining to Tenant's
property, shall be and remain the outright property of Landlord.
Section 5.3. Substitute Premises. At any time during the Term of this Lease,
Landlord shall have the right to request in writing that the Tenant move to a
mutually agreed upon Substitute Premises situated within the Building. The
Substitute Premises shall contain the same appropriate square footage as the
Premises. Tenant shall have thirty (30) days from the date of Landlord's request
to accept the Substitute Premises. Except for the change in designation of
Premises, all provisions of this Lease shall remain the same. Exclusive of the
cost of address changes for supplies, Landlord shall pay the cost of relocating
Tenant in the Substitute Premises. If Tenant refuses to accept the Substitute
Premises, or if Tenant fails to reply to Landlord's request within the time
stated, this Lease shall terminate upon Tenant vacating the Premises or three
(3) months from the date of Landlord's request to Tenant, whichever first
occurs.
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ARTICLE VI
Maintenance and Repair
Section 6.1. Tenant's Obligations. Tenant shall, at his expense, throughout the
term of this Lease, take good care of the Premises, the fixtures and
appurtenances therein and Tenant's Property. Tenant shall be responsible for all
repairs, interior and exterior, structural and non-structural, ordinary and
extraordinary, in and to the Premises and the Building and the facilities and
systems thereof, the need for which arises out of: (a) the performance or
existence of Tenant's Work or alterations; (b) the installation, use or
operation of Tenant's Property in the Premises; (c) the moving of Tenant's
Property in or out of the Building; or (d) the act, omission, misuse or neglect
of Tenant or any of its subtenants or its or their employees, agents,
contractors, or invitees. Tenant, at its expense, shall promptly replace all
scratched, damaged or broken doors and glass in and about the Premises and shall
be responsible for all repairs, maintenance and replacement of wall and floor
coverings in the Premises and for the repair and maintenance of all sanitary and
electrical fixtures therein. Tenant shall promptly make, at Tenant's expense,
all repairs in or to the Premises for which Tenant is responsible pursuant to
this Section, and any repairs required to be made by Tenant to the mechanical,
electrical, sanitary, heating, ventilating, air conditioning, or other systems
of the Building and the use of the Building by other occupants. All such repairs
shall be subject to the supervision and control by Landlord for which Landlord
may charge Tenant a reasonable fee. Any other repairs in or to the Building and
the facilities and systems thereof for which Tenant is responsible shall be
performed by Landlord at Tenant's expense.
Section 6.2. Landlord's Obligations for Common Area. Landlord shall keep and
maintain the Common Area of the Building and its systems and facilities serving
the Premises in good working order, condition and repair, and shall make all
repairs, structural and otherwise, interior and exterior, as and when needed in
or about the Common Area, except for those repairs for which Tenant is
responsible pursuant to any of the provisions of this Lease. Landlord shall have
no liability to Tenant, nor shall Tenant's covenants and obligations hereunder
be reduced or abated in any manner whatsoever, by reason of any inconvenience,
annoyance, interruption or injury to business arising from Landlord's making any
repairs or changes which Landlord is required or permitted by this Lease, or
required by law, to make in or to any portion of the Building or the Premises,
such repairs to be completed within a reasonable time. Landlord shall not be
liable for any damage to Tenant's property caused by water from bursting or
leaking pipes, waste water about the rented property, or otherwise; or from an
intentional or negligent act of any co-tenant or occupant of the property
surrounding the rented property, or other person, or by fire, hurricane or other
acts of God; or by riots or vandals; or from any other cause; all such risks
shall be assumed by the Tenant. Landlord shall not be required to furnish any
services or facilities to, or to make any repairs to or replacements or
alteration of, the Premises where necessitated due to the fault of Tenant, its
agents and employees, or other tenants, their agents or employees. Additionally,
Tenant waives any and all claims of any kind, nature or description against
Landlord arising out of the failure of the Landlord from time to time to furnish
any of the services requested to be furnished hereunder including, without
limitation, air conditioning, heat, electricity, elevator service, and toilet
facilities. by reason of any inconvenience
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Section 6.3. Floor Loads; Noise and Vibration. Tenant shall not place a load
upon any floor of the Premises which exceeds the load per square foot which is
allowed by law. Business machines and mechanical equipment belonging to Tenant
which cause noise or vibrations that may be transmitted to the structure of the
Building or to the Premises to such a degree as to be objectionable to Landlord
shall, at the Tenant's expense, be placed and maintained by Tenant in settings
of cork, rubber or spring-type vibration eliminators sufficient to eliminate
such noise or vibration.
ARTICLE VII
Alterations by Tenant
Section 7.1. Alterations by Tenant. Tenant shall have the right at any time and
from time to time during the term of this Lease to make, at its sole cost and
expense, and without any right to receive reimbursement from Landlord in respect
thereof, any alterations or improvements to the Premises or any part thereof,
excluding structural changes (the "Alterations"), subject, however, to the
following conditions:
(a) All such alterations or improvements shall be performed by Landlord
or an approved contractor at Tenant's expense.
(b) No alterations shall be undertaken until Tenant shall have procured
all permits, licenses and other authorizations, if any, required for the lawful
and proper undertaking thereof.
(c) All alterations, when completed, shall be of a nature as not to
reduce or otherwise adversely affect the value of the Premises, nor to diminish
the general utility or change the general character thereof.
ARTICLE VIII
Landlord's and Tenant's Property
Section 8.1. Landlord's Property. All fixtures, equipment, improvements and
appurtenances attached to or built into the Premises at the commencement of or
during the term of this Lease, whether or not by or at the expense of Tenant,
shall be and remain a part of the Premises, shall be deemed the property of
Landlord and shall not be removed by Tenant except as set forth therein.
Further, any carpeting or other personal property in the Premises on the
Commencement Date, unless installed and paid for by Tenant, shall be and shall
remain Landlord's property and shall not be removed by Tenant.
Section 8.2. Tenant's Property. All moveable partitions, business and trade
fixtures, machinery and equipment, communications equipment and office
equipment, whether or not attached to or built into the Premises, which are
installed in the Premises by or for the account of Tenant without expense to
Landlord and which can be removed without structural damage to the Building, and
all furniture, furnishings and other articles of moveable personal property
owned by Tenant and located in the Premises (hereinafter collectively referred
to as "Tenant's Property") shall be and shall remain the property of Tenant and
may be removed by Tenant at any time during the term of this Lease. In
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the event Tenant's Property is so removed, Tenant shall repair or pay the cost
of repairing any damage to the Premises or to the Building resulting from the
installation and/or removal thereof and restore the Premises to the same
physical condition and layout as they existed at the Tenant was given possession
of the Premises. Any equipment or other property for which Landlord shall have
granted any allowance or credit to Tenant shall not be deemed to have been
installed by or for the account of Tenant without expense to Landlord, shall not
be considered Tenant's Property and shall be deemed the property of Landlord.
Section 8.3. Removal of Tenant's Property. At or before the expiration date of
of this Lease, or the date of any earlier termination hereof, or within five (5)
days after such an earlier termination date, Tenant, at its expense, shall
remove from the Premises all of Tenant's Property (except such items thereof as
Landlord shall expressly permitted to remain, which property shall become the
property of Landlord), and Tenant shall repair any damage to the Premises or the
Building resulting from any installation and/or removal of Tenant's Property and
restore Premises to the same physical condition and layout as they existed at
the time Tenant was given possession of Premises, reasonable wear and tear
excepted. Any other items of Tenant's Property which shall remain in the
Premises after the expiration date of this Lease, or after a period of five (5)
days following an earlier termination date, may, at the option of Landlord, be
deemed to have been abandoned, and in such case, such items may be retained by
Landlord as his property or disposed of by Landlord, without accountability, in
such manner as Landlord shall determine, at Tenant's expense.
ARTICLE IX
Compliance with Law
Section 9.1. Obliqations of Tenant. Tenant shall, during the Term of this
Lease, at its sole cost and expense, comply with all valid laws, ordinances,
regulations, orders and requirements of any governmental authority which may be
applicable to the Premises or to the use, manner of use or occupancy thereof,
whether or not the same shall interfere with the use or occupancy of the
Premises arising from: (a) Tenant's use of the Premises; (b) the manner or
conduct of Tenant's business or operation of its installations, equipment or
other property therein; (c) any cause or condition created by or at the instance
of Tenant; or (d) breach of any of Tenant's obligations hereunder, whether or
not such compliance requires work which is structural or nonstructural,
ordinary or extraordinary, foreseen or unforeseen; and Tenant shall pay all of
the costs, expenses, fines, penalties and damages which may be imposed upon
Landlord by reason or arising out of Tenant's failure to fully and promptly
comply with and observe the provisions of this Section. Tenant shall give prompt
notice to Landlord of any notice it receives of the violation of any law or
requirement of any public authority with respect to the Premises or the use or
occupation thereof.
Section 9.2. Right to Contest. Tenant shall have the right, by appropriate
legal proceedings in the name of Tenant or Landlord or both, but at Tenant's
sole cost and expense, to contest the validity of any law, ordinance, order,
regulation or requirement. If compliance therewith may legally be held in
abeyance, Tenant
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may postpone compliance until final determination under any such proceedings.
Section 9.3. Rules and Regulation. Tenant shall also comply with all rules
and regulation attached hereto as Exhibit 2 and as may be subsequently applied
by Landlord to all tenants of the Building. Tenant shall also comply with any
rules and regulations hereafter imposed by the One Ocean Plaza Condominium
Association, should the conversion of One Ocean Plaza to a condominium take
place in the future.
ARTICLE X
No Encumbrances by Tenant
Section 10.1. No Liens. Tenant agrees that it will not create, permit or suffer
the imposition of any lien, charge or encumbrance upon the Premises or any part
thereof.
Section 10.2. Mechanic's, Materialmen's and Laborer's Liens. Tenant agrees that
it will make full and prompt payment of all sums necessary to pay for the
cost of repairs, alterations, improvements, changes or other work done by Tenant
to the Premises and further agrees to indemnify and hold harmless Landlord from
and against any and all mechanic's, materialman's or laborer's liens arising out
of or from such work or the cost thereof which may be asserted, claimed or
charged against the Premises or the Building or site on which it is located.
Notwithstanding anything to the contrary in this Lease, the interest of Landlord
in the Premises shall not be subject to liens for improvements made by or for
Tenant, whether or not the same shall be made or done in accordance with any
agreement between Landlord and Tenant, and it is specifically understood and
agreed that in no event shall Landlord or the interest of Landlord in the
Premises be liable for or subjected to any mechanic's, materialmen's or
laborer's liens for improvements or work made by or for Tenant; and this Lease
specifically prohibits the subjecting of Landlord's interest in the Premises to
any mechanic's, materialmen's or laborer's liens for improvements made by Tenant
or for which Tenant is responsible for payment under the terms of this Lease.
All persons dealing with Tenant are hereby placed upon notice of this provision.
In the event any notice or claim of lien shall be asserted of record against the
interest of Landlord in the Premises or Building or the site on which it is
located on account of or growing out of any improvement or work done by or for
Tenant, or any person claiming by, through or under Tenant, for improvements or
work, the cost of which is the responsibility of Tenant, Tenant agrees to have
such notice of claim of lien canceled and discharged of record as a claim
against the interest of Landlord in the Premises or the Building or the site on
which it is located (either by payment or bond as permitted by law within ten
(10) days after notice to Tenant by Landlord, and in the event Tenant shall fail
to do so, Tenant shall be considered in default under this Lease.
ARTICLE XI
Right of Landlord to Perform Tenant's Covenants
Section 11.1. Payment or Performance. Landlord shall have the right at any time,
upon ten (10) days notice to the Tenant (or without notice in case of emergency
or in case any fine, penalty,
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interest or cost may otherwise be imposed or incurred) given following
expiration of any applicable cure period, to make any payment or perform any act
required of Tenant under any provision in this Lease, and in exercising such
right, to incur necessary and incidental costs and expenses, including
reasonable counsel fees. Nothing herein shall imply any obligation on the part
of Landlord to make any payment or perform any act required of Tenant, and the
exercise of the right to so do shall not constitute a release of any obligation
or a waiver of any default.
Section 11.2. Reimbursement. All payments made and all costs and incurred
expenses in connection with any exercise of the right set forth in Section 11.1
shall be reimbursed by the Tenant to the Landlord within ten (10) days after
receipt of a bill setting forth the amounts so expended, together with interest
at the annual rate of Eighteen Percent (18%) from the respective dates of the
making of such payments or the incurring of such costs and expenses, to the
Landlord making and paying the same. Any payment so made by Landlord shall be
treated as Additional Rent owed by Tenant.
ARTICLE XII
Availability of Public Utilities and Other Services
Section 12.1. Heat, Ventilation and Air Conditioning. Except as otherwise
provided therein, Tenant shall maintain the heating, ventilating and air
conditioning systems serving the Premises. Landlord shall furnish heat,
ventilating and air conditioning in the building common areas as may be required
for reasonably comfortable occupancy during business hours of business days.
"Business Hours" shall mean all days except Saturdays (after 1:00 p.m.), Sundays
and days observed by the Federal or the State of Florida as legal holidays, and
such other days as shall be designated as holidays.
Section 12.2. Electricity and Telephone. Tenant's use of electrical energy in
the Premises shall not, at any time, exceed the capacity of any of the
electrical conductors and equipment in serving the Premises. In order to ensure
that such capacity is not exceeded and to avert possible adverse effects upon
the Building's electric service, Tenant shall not, without Landlord's prior
written consent in each instance, connect major equipment to the Building,
electric distribution system, telephone system or make any alteration or
addition to the electric system of the Premises existing on the Commencement
Date. Tenant's electrical usage under this Lease contemplates only the use of
normal and customary office equipment. In the event Tenant installs any office
equipment which uses substantial additional amounts of electricity, then Tenant
agrees that Landlord's consent is required before the installation of such
additional office equipment. Tenant shall be solely liable for electricity and
telephone expenses relating to the Premises. Tenant's electrical service shall
be separately metered.
Section 12.3. Elevator, Water, Directory. Landlord shall provide elevator
service to the Premises during business hours of business days, and Landlord
shall have the elevator subject to call at all other times. The use of the
elevators shall be subject to the rules and regulations promulgated by the
Landlord. Provided that Landlord, his cleaning contractor and their
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employees shall have access to the Premises at all reasonable times and shall
have the right to use, without charge therefore, all light, power, and water in
the Premises reasonably required to clean the Premises, Landlord shall furnish
adequate hot and cold water to the Premises for drinking, lavatory and cleaning
purposes. Landlord shall maintain listings on the Building directory of the name
of Tenant, provided that the name so listed shall not use more than Tenant's
Proportionate Share of the space on the Building directory.
Section 12.4. Janitorial. Landlord shall not be responsible for the interior
cleaning of the suites. Rule and Regulation number 22 states the policy with
regard to interior cleaning.
Section 12.5. Right to Stop Services. Landlord reserves the right, without any
liability to Tenant and without affecting Tenant's covenants and obligations
hereunder, to stop service of the heating, air conditioning, electric, sanitary,
elevator, or other Building systems serving the Premises, or to stop any other
services required by Landlord under this Lease, whenever and for so long as may
be necessary, by reason of accidents, emergencies, strikes, or the making of
repairs or changes which Landlord is required by this Lease or by law to make or
in good faith deems necessary, by reason of difficulty in securing proper
supplies of fuel, steam, water, electricity, labor, or supplies, or by reason of
any other cause beyond Landlord's control.
ARTICLE XIII
Assignment and Subletting
Section 13.1. Tenant's Transfer.
(a) Tenant shall not, whether voluntarily, involuntarily, or by
operation of law, or otherwise: (a) assign or otherwise transfer this Lease or
the term and estate hereby granted, or offer to advertise to do so; or (b)
mortgage, encumber, or otherwise hypothecate this Lease or the Premises or any
part thereof in any manner whatsoever, without in each instance obtaining the
prior written consent of Landlord.
(b) The provisions of Section 13.1(a) shall apply to a transfer of a
majority of the stock of Tenant as if such transfer 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 substantially
all of Tenant's assets are transferred, or to any corporation which controls or
which is controlled by Tenant, or is under common control of Tenant, provided in
any of such events: (a) the successor to Tenant has a net worth computed in
accordance with generally accepted accounting principles at least equal to the
greater of (i) the net worth of Tenant immediately prior to such merger,
consolidation or transfer or (ii) the net worth of Tenant herein named on the
date of this Lease; and (b) 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 such transaction.
(c) Further, the Landlord may consent to the sublease of all or any
part of the Premises provided the Tenant enters into a sublease containing the
same terms and conditions contained
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herein (exclusive of rent) and the Landlord shall receive one-half (1/2) of any
increased Rent paid by a sublessee.
(d) Any assignment agreed to by Landlord shall be evidenced by a
validly executed assignment and assumption of lease. Any attempted transfer,
assignment, subletting, mortgaging or encumbering of this Lease in violation of
this Section shall be void and confer no rights upon any third person. Such
attempt shall constitute a material breach of this Lease and entitle Landlord to
the remedies provided for default.
(e) If, without such prior written consent, this Lease is transferred
or assigned by Tenant, or if the Premises, or any part thereof, are sublet or
occupied by anybody other than Tenant, whether as a result of any act or
omission by Tenant, or by operation of law or otherwise, Landlord, whether
before or after the occurrence of an event of default, may, in addition to, and
not in diminution of or substitution for, any other rights and remedies under
this Lease or pursuant to law to which Landlord may be entitled as a result
thereof, collect Rent from the transferee, assignee, subtenant or occupant and
apply the net amount collected to the Rent herein reserved.
Section 13.2. Tenant's Liability. Tenant shall always, and notwithstanding
any such assignment or subleasing, and notwithstanding the acceptance of Rent by
Landlord from any such assignees or sublessee, remain liable for the payment of
Rent hereunder and for the performance of all of the agreements, conditions,
covenants and terms herein contained, on the part of Tenant herein to be kept,
observed, or performed, Tenant's liability to always be that of principal and
not of surety, nor shall the giving of such consent to an assignment or
sublease, be deemed a complete performance of the said covenants contained in
this Article so as to permit any subsequent assignment or subleasing without the
like written consent.
Section 13.3. Landlord's Right of First Refusal. Notwithstanding the foregoing
other than Section 13.1(b), where Tenant desires to assign or sublease, the
Landlord shall have the right, but not the obligation, to cancel and terminate
the Lease and deal with Tenant's prospective assignees or subtenant directly
without any obligation to Tenant.
Section 13.4. Landlord's Transfer. The Landlord shall have the right to sell,
mortgage or otherwise encumber or dispose of Landlord's interest in the Building
and Premises and this Lease.
ARTICLE XIV
Subordination and Attornment
Section 14.1. Subordination. This Lease, and all rights of Tenant hereunder, are
and shall be subject and subordinate to all ground leases, overriding leases and
underlying leases of the Property and/or the Building now or hereafter existing
and to all first mortgages which may now or hereafter affect the Property and/or
the Building and/or any of such leases (whether or not such first mortgages
shall also cover other lands and/or buildings and/or leases) . This
subordination shall likewise apply to each and every advance made or hereafter
to be made under such first mortgages, to all renewals, modifications,
replacements and extensions of such leases and such mortgages and to spreaders
and
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consolidations of such first mortgages. This Section shall be self-operative and
no further instrument of subordination shall be required. In confirmation of
such subordination, Tenant shall promptly execute, acknowledge and deliver any
instrument that Landlord, the lessor under any such lease or the holder of any
such mortgage (or their respective successors-in-interest) may reasonably
request to evidence such subordination. If Tenant fails to execute, acknowledge
or deliver any such instrument within ten (10) days after request therefore,
Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's
attorney-in-fact, coupled with an interest, to execute and deliver any such
instruments for and on behalf of Tenant. Any lease to which this Lease is
subject and subordinate is hereinafter referred to as a "Superior Lease" and the
lessor of a Superior Lease is hereinafter referred to as a "Superior Lessor";
and any first mortgage to which this Lease is subject and subordinate is
hereinafter referred to as a "Superior Mortgage" and the holder of a Superior
Mortgage is hereinafter referred to as a "Superior Mortgagee".
Section 14.2. Notice of Superior Lessors and Mortgagee. If any act or omission
of Landlord would give Tenant the right, immediately or after the lapse of a
period of time, to cancel this Lease or to claim a partial or total eviction,
Tenant shall not exercise such right: (a) until it has given written notice of
such act or omission of Landlord and each Superior Mortgagee and Superior Lessor
whose name and address shall previously have been furnished to Tenant; and (b)
until a reasonable period of time for remedying such act or omission shall have
elapsed following the giving of such notice and following the time when such
Superior Mortgagee and Superior Lessor shall have become entitled under such
Superior Mortgage or Superior Lease, as the case may be, to remedy the same
(which reasonable period shall in no event be less than the period to which
Landlord would be entitled under this Lease or otherwise, after similar notice
to effect such remedy), provided such Superior Mortgagee or Superior Lessor
shall, with due diligence, give Tenant notice of intention to, and commence and
continue to, remedy such act or omission.
Section 14.3. Attornment. If any Superior Lessor or Superior Mortgagee shall
succeed to the rights of Landlord hereunder, whether through possession or
foreclosure action or delivery of a new lease or deed, then, at the request of
such party (hereinafter referred to as "Successor Landlord"), Tenant shall
attorn to and recognize each Successor Landlord as Tenant's landlord under this
Lease and shall promptly execute and deliver any instrument such Successor
Landlord may reasonably request to evidence such attornment. Upon such
attornment, this Lease shall continue in full force and effect as a direct lease
between Successor Landlord and Tenant upon all the terms, conditions, and
covenants as set forth in this Lease except that the Successor Landlord shall
not: (a) be liable for any previous act or omission of Landlord under this
Lease; (b) be subject to any offset, not expressly provided for in this Lease,
which theretofore shall have accrued to Tenant against Landlord; or (c) be bound
by any previous modification of this Lease or by any previous prepayment, unless
such modification or prepayment shall have been previously approved in writing
by such successor Landlord.
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ARTICLE XV
Non-Liability and Indemnification
Section 15.1. Non-Liability of Landlord. Neither Landlord nor any beneficiary,
agent, servant, or employee of Landlord, nor any Superior Lessor or any Superior
Mortgagee, shall be liable to Tenant for any loss, injury, or damage, to Tenant
or to any other person, or to its or their property, irrespective of the cause
of such injury, damage or loss, unless caused by or resulting from the
negligence of Landlord, Landlord's agents, servants or employees in the
operation or maintenance of the Premises or the Building, subject to the
doctrine of comparative negligence in the event of contributory negligence on
the part of Tenant or any of its subtenants or licensees or its or their
employees, agents or contractors. Tenant recognizes that any Superior Mortgagee
will not be liable to Tenant for injury, damage or loss caused by or resulting
from the negligence of the Landlord. Further, neither Landlord, any Superior
Lessor or Superior Mortgage, nor any partner, director, officer, agent, servant,
or employee of Landlord shall be liable: (a) for any such damage caused by other
tenants or persons in, upon or about the Building, or caused by operations in
construction of any private, public or quasi-public work; or (b) except when
negligent, for consequential damages arising out of any loss of use of the
Premises or any equipment or facilities therein by Tenant or any person claiming
through or under Tenant.
Section 15.2. Indemnification by Tenant. Tenant shall indemnify and hold
Landlord and all Superior Lessors and Superior Mortgagees and their respective
partners, directors, officers, agents, employees and beneficiaries harmless from
and against any and all claims from or in connection with: (a) the conduct or
management of the Premises or any business therein, or any work or thing
whatsoever done, or any condition created (other than by Landlord) in or about
the Premises during the term of this Lease or during the period of time, if any,
prior to the Commencement Date that Tenant may have been given access to the
Premises; (b) any act, omission or negligence of Tenant or any of its subtenants
or licensees or its or their partners, directors, officers, agents, employees or
contractors; (c) any accident, injury or damage whatsoever (unless caused solely
by Landlord's negligence) occurring in, at or upon the Premises; and (d) any
breach or default by Tenant in the full and prompt payment and performance of
Tenant's obligations under this Lease; together with all costs, expenses and
liabilities incurred in or in connection with each such claim or action or
proceeding brought thereon, including, without limitation, all reasonable
attorneys' fees and expenses. In case any action or proceeding be brought
against Landlord and/or Superior Lessor or Superior Mortgagee and/or his or
their partners, directors, officers, agents and/or employees by reason of any
such claim, Tenant, upon notice from Landlord or such Superior Lessor or
Superior Mortgagee, shall resist and defend such action or proceeding (by
counsel reasonably satisfactory to Landlord or such Superior Lessor or Superior
Mortgagee).
Section 15.3. Independent Obligations; Force Majeure. The obligations of Tenant
hereunder shall not be affected, impaired or excused, nor shall Landlord have
any liability whatsoever to Tenant, because: (a) Landlord is unable to fulfill,
or is delayed in fulfilling any of his obligations under this Lease by reason of
strike, other labor trouble, governmental pre-emption of priorities or other
controls in connection with a national or
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other public emergency or shortages of fuel, supplies, labor and materials, Acts
of God or any other cause, whether similar or dissimilar, beyond Landlord's
reasonable control; or (b) of any failure or defect in the supply, quantity or
character of electricity or water furnished to the Premises, by reason of any
requirement, act or omission of the public utility or others serving the
Building with electric energy, steam, oil, gas or water, or for any other reason
whether similar or dissimilar, beyond Landlord's reasonable control. Tenant
shall not hold Landlord liable for any latent defect in the Premises or the
Building nor shall Landlord be liable for injury or damage to person or property
caused by fire, theft, or resulting from the operation of elevators, heating or
air conditioning or lighting apparatus, or from falling plaster, or from steam,
gas, electricity, water, rain, or dampness, which may leak or flow from any part
of the Building, or from the pipes, appliances or plumbing work of the same.
ARTICLE XVI
Default; Landlord's Remedies
Section 16.1. Events of Default. The Tenant shall be in default under this Lease
if any one or more of the following events shall occur:
(i) Tenant shall fail to pay any installment of the Rent
and/or any Additional Rent called for hereunder as and when the same shall
become due and payable, and such default shall continue for a period of five (5)
days after the same is due;
(ii) Tenant shall default in the performance of or compliance
with any of the other terms or provisions of this Lease, and such default shall
continue for a period of ten (10) days after the giving of written notice
thereof from Landlord to Tenant, or, in the case of any such default which
cannot, with bona fide due diligence, be cured within ten (10) days, Tenant
shall fail to proceed promptly after the giving of such notice with bona fide
due diligence to cure such default and thereafter to prosecute the curing
thereof with said due diligence within such period of ten (10) days (it being
intended that as to a default not susceptible of being cured with due diligence
within ten (10) days, the time within which such default may be cured shall be
extended for such period as may be necessary to permit the same to be cured with
due diligence);
(iii) Tenant shall assign, transfer, mortgage or encumber this
Lease or sublet the Premises in a manner not permitted by Section 13.1;
(iv) Tenant shall file a voluntary petition in bankruptcy or
an Order for Relief be entered against it, or shall file any petition or answer
seeking any arrangement, reorganization, composition, readjustment or similar
relief under any present or future bankruptcy or other applicable law, or shall
seek or consent to acquiesce in the appointment of any trustee, receiver, or
liquidator of Tenant of all or any substantial part of Tenant's properties;
(v) If, within ninety (90) days after the filing of an
involuntary petition to bankruptcy against Tenant or the commencement of any
proceeding against Tenant seeking any
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arrangement, reorganization, composition, readjustment or similar relief under
any law, such proceeding shall not have been dismissed, or if, within ninety
(90) days after the appointment, without the consent or acquiescence of Tenant,
or any substantial part of its properties, such appointment shall not have been
vacated or stayed on appeal or otherwise, or if, within ninety (90) days after
the expiration of any such stay, such appointment shall not have been vacated;
or
(vi) Tenant shall vacate or abandon the Premises; then, and in
any such event, or during the continuance thereof, Landlord may, at his option,
by written notice to Tenant, designate a date not less than five (5) days from
the giving of such notice on which this Lease shall end; and thereupon, on such
date, subject to the provisions of Section 16.4, this Lease and all rights of
Tenant hereunder shall be deemed ended and terminated.
Section 16.2. Surrender of Premises. Upon any such termination of this Lease,
Tenant shall quit and peacefully surrender the Premises to Landlord, and
Landlord, upon and at any time after such termination may, without further
notice, re-enter and repossess the Premises, either by force, summary
proceedings or otherwise, without being liable to any prosecution or damages
therefore, and no person claiming through or under Tenant or by virtue of any
order of any court shall be entitled to possession of the Premises.
Section 16.3. Reletting. At any time or from time to time after such
termination of this Lease, Landlord may relet the Premises or part thereof, in
the name of Landlord or otherwise, for such terms and on such conditions as
Landlord in his discretion may determine, and may collect and receive the Rents
therefore. Landlord will in no way be responsible or liable for any failure to
relet the Premises or any part thereof or for any failure to collect any Rent
due from any such reletting.
Section 16.4. Survival of Obligations. No termination, pursuant to Article XVI
of this Lease, shall relieve Tenant of its liability or obligations under this
Lease, and such liability and obligations shall survive any such termination.
Section 16.5. Tenant's Liabilities after Default. If Tenant shall default in the
performance of any of its obligations under this Lease, the Landlord, without
thereby waiving such default, may (but shall not be obligated to) perform the
same for the account and at the expense of Tenant, without notice in a case of
emergency, and in any other case if such default continues after the expiration
of five (5) days from the date Landlord gives Tenant notice of the default. Any
expenses incurred by Landlord in connection with any such performance, and all
costs, expenses, and disbursements of every kind and nature whatsoever,
including reasonable attorneys' fees including appellate, bankruptcy and or
endeavoring to collect the Base Rent of Additional Rent or any part thereof or
enforcing or endeavoring to enforce any rights against Tenant or Tenant's
obligations hereunder, shall be due and payable upon Landlord's submission of an
invoice therefore. All sums advanced by Landlord on account of Tenant under this
Article, or pursuant to any other provision of this Lease, and all Base Rent and
Additional Rent, delinquent or not paid by Tenant and not received by Landlord
when due hereunder, shall bear interest at post-judgment proceedings involved in
collecting
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the maximum rate permitted by Law, from the due date thereof until paid and the
same shall be and constitute Additional Rent and be due and payable upon
Landlord's submission of an invoice therefore.
ARTICLE XVII
Damages
Section 17.1. Landlord's Damages. In the event this Lease is terminated under
the provisions of this Lease or any provision of law by reason of default
hereunder on the part of Tenant, Tenant shall pay to Landlord, as damages, at
the election of Landlord either:
(a) A sum which at the time of such termination of this Lease, or at
the time of any re-entry by Landlord, as the case may be, represents the then
value of the excess, if any, of: (1) the aggregate amount of the Monthly Base
Rent and Additional Rent which would have been payable by Tenant (conclusively
presuming the average monthly Additional Rent to be the same as were payable for
the year, or, if less than 365 days have then elapsed since the Commencement
Date, the partial year, immediately preceding such termination or re-entry) for
the period commencing with such earlier termination of this Lease or the date of
any such re-entry, as the case may be, and ending with the date contemplated as
the expiration date hereof if this Lease had not so terminated or if Landlord
had not so re-entered the Premises; over (ii) the aggregate rental value of the
Premises for the same period; or
(b) Sums equal to the Monthly Base Rent and the Additional Rent which
would have been payable by Tenant had this Lease not so terminated or had
Landlord not so re-entered the Premises, payable upon the due dates therefore
specified herein following such termination or such re-entry and until the date
contemplated and the expiration date if this Lease had not so terminated or if
Landlord had not so re-entered the Premises.
If Landlord, at his option, shall relet the Premises during said period,
Landlord shall credit Tenant with the net rents received by Landlord from such
reletting, such net rents to be determined by first deducting from the gross
rents, as and when received by Landlord, the expenses incurred or paid by
Landlord in terminating this Lease and/or re-entering the Premises and in
securing possession thereof, as well as the expenses of reletting, including,
without limitation, the alteration and preparation of the Premises for new
Tenants, brokers' commissions, attorneys' fees, and all other expenses properly
chargeable against the Premises and the rental therefrom. It is hereby
understood that any such reletting may be for a period shorter or longer than
the remaining term of this Lease but in no event shall Tenant be entitled in any
suit for the collection of damages pursuant hereto to a credit in respect of any
net rents from a re-letting, except to the extent that such net rents are
actually received by Landlord.
(c) A lump sum equal to the Monthly Base Rent then in effect plus the
estimated Additional Rent to become due for the remainder of the term of this
Lease.
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Section 17.2. Remedies Cumulative. Suit or suits for the recovery of such
damages or any installments thereof, may be brought by Landlord from time to
time at his election, and nothing contained herein shall be deemed to require
Landlord to postpone suit until the date when the term of this Lease would have
expired nor limit or preclude recovery by Landlord against Tenant of any sums or
damages which, in addition to the damages particularly provided above, Landlord
may lawfully be entitled by reason of any default hereunder on the part of
Tenant. All the remedies hereinbefore given to Landlord and all rights and
remedies given to it at law and in equity shall be cumulative and concurrent.
ARTICLE XVIII
Eminent Domain
Section 18.1. Taking. If the whole of the Building or the Premises or if more
than twenty percent (20%) of the Building which materially affects Tenant's use
and occupancy of the Premises shall be taken by condemnation or in any other
manner for any public or quasi-public use or purpose, this Lease and the term
and estate hereby granted shall terminate as of the date of vesting of title on
such taking (herein called "Date of Taking"), and the Base Rent and Additional
Rent shall be prorated and adjusted as of such date.
Section 18.2. Award. Landlord shall be entitled to receive the entire award or
payment in connection with any taking without deduction therefrom except to the
extent that the Tenant shall be entitled to compensation based upon the damages
sustained to its property.
Section 18.3. Temporary Taking. If the temporary use or occupancy of all of any
part of the Premises shall be taken by condemnation or in any other manner for
any public or quasi-public use or purpose during the term of this Lease, Tenant
shall be entitled, except as hereinafter set forth to receive that portion of
the award or payment for such taking which represents compensation for the use
and occupancy of the Premises, for the taking of Tenant's Property and for
moving expenses, and Landlord shall be entitled to receive that portion which
represents reimbursement for the cost of restoration of the Premises. This Lease
shall be and remain unaffected by such taking and Tenant shall continue to pay
in full the Base Rent and Additional Rent when due. If the period of temporary
use or occupancy shall beyond the expiration date of this Lease, that part of
the award which represents compensation for the use and occupancy of the
Premises (or a part thereof) shall be divided between Landlord and Tenant so
that Tenant shall receive so much thereof as represents the period up to and
including such expiration date and Landlord shall receive so much as represents
the period after such expiration date. All monies paid as, or as part of, an
award for temporary use and occupancy for a period beyond the date to which the
Base Rent and Additional Rent have been paid shall be received, held and applied
by Landlord as a trust fund for payment of the Base Rent and Additional Rent
becoming due hereunder.
Section 18.4. Partial Taking. In the event of any taking of less than the whole
of the Building and/or the Property upon which the Building is situated which
does not result in termination of this Lease, or in the event of a taking for a
temporary use or
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occupancy of all or any part of the Premises which does not result in a
termination of this Lease: (a) Landlord, at his expense, and whether or not any
award or awards shall be sufficient for the purpose, shall proceed with
reasonable diligence to repair the remaining parts of the Premises which are
Landlord's Property and Tenant's Property), to substantially their former
condition to the extent that the same be feasible (subject to reasonable changes
which Landlord shall deem desirable) and so as to constitute a complete and
tenantable Building and Premises; and (b) Tenant, at its expense, and whether or
not any award or awards shall be sufficient for the purpose, shall proceed with
reasonable diligence to repair the remaining parts of the Premises which are
deemed Landlord's property pursuant hereto and Tenant's Property to
substantially their former condition to the extent that the same may be
feasible, subject to reasonable changes which Tenant shall deem desirable. Such
work by Tenant shall be deemed Alterations as hereinabove defined.
ARTICLE XIX
Quiet Enjoyment
Landlord agrees that Tenant, upon paying all Rent and all other charges herein
provided for and observing and keeping the covenants, agreements, terms and
conditions of this Lease and rules and regulations of the Landlord affecting the
Premises on its part to be performed, shall lawfully and quietly hold, occupy
and enjoy the Premises during the term of this Lease, subject to its terms,
without hindrance or molestation by Landlord or any party claiming by, under or
through Landlord.
ARTICLE XX
Landlord's Right of Access
Section 20.1. Access for Maintenance and Repair. Except for the space within the
inside surfaces of all walls, hung ceilings, floors, windows and doors bounding
the Premises, all of the Building, including, without limitation, exterior
Building walls, core corridor walls and doors and any core corridor entrance,
and terraces or roofs adjacent to the Premises, and any space in or adjacent to
the Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts,
electric or other utilities, sinks or other Building facilities, and the use
thereof, as well as access thereto throughout the Premises for the purposes of
operation, maintenance, decoration and repair, are reserved to Landlord.
Landlord reserves the right, and Tenant shall permit Landlord, to install,
erect, use and maintain pipes, ducts and conduits in and through the Premises.
Landlord shall be allowed to take all materials into and upon the Premises that
may be required in connection therewith, without any liability to Tenant and
without any reduction of Tenant's covenants and obligations hereunder.
Section 20.2. Access for Inspection and Showing. Upon reasonable notice to
Tenant and during normal business hours Landlord and its agents shall have the
right to enter and/or pass through the Premises at any time or times to examine
the Premises and to show them to actual and prospective Superior Lessor's,
Superior Mortgagees, or prospective purchasers, mortgagors or lessors of the
Building. During the period of 18 months prior to the
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expiration date of this Lease, Landlord and its agents may exhibit the Premises
to prospective tenants.
Section 20.3. Landlord's Alterations and Improvements. If at any time any
windows of the Premises are temporarily darkened or obstructed by reason of any
repairs, improvements, maintenance and/or cleaning in or about the Building, or
if any part of the Building, other than the Premises, is temporarily or
permanently closed or inoperable, the same shall be without liability to
Landlord and without any reduction or diminution of Tenant's obligations under
this Lease. Landlord reserves the right, at any time without incurring any
liability to Tenant therefore, and without affecting or reducing any of Tenant's
covenants and obligations hereunder, to make such changes, alterations,
additions, and improvements in or to the Building and the fixtures and equipment
thereof, as well as in or to the street entrances, doors, halls, passages,
elevators, escalators and stairways thereof, and other public parts of the
Building, as Landlord shall deem necessary or desirable.
ARTICLE XXI
Signs, Obstruction
Section 21.1. Signs. Tenant shall not place or suffer to be placed or
maintained upon any exterior door, roof, wall or window of the Premises any
sign, awning, canopy or advertising matter or other thing of any kind, and will
not place or maintain any decoration, lettering or advertising matter on the
glass of any window or door of the Premises and will not place or maintain any
freestanding standard within or upon the Common Area of the Premises or
immediately adjacent thereto without first obtaining Landlord's express prior
written consent. Landlord agrees to grant approval of any sign located within
the Premises or entry to the Premises on glass or panel which is in conformity
with the sign criteria to be developed for the building. No exterior sign
visible from the exterior of the Building shall be permitted. Tenant further
agrees to maintain such sign, lettering, or other thing as may be approved by
Landlord in good condition and repair at all times and to remove the same at the
end of the term of this Lease as and if requested by Landlord. Upon removal
thereof, Tenant agrees to repair any damage to the Premises caused by such
installation and/or removal.
Section 21.2. Obstruction. Tenant shall neither obstruct the sidewalks or
parking lots in front of the Building or the Premises or the area around the
Building or Premises in any manner whatsoever.
ARTICLE XXII
Notices.
Any notices under this Lease shall be given in writing by mailing the same by
certified mail, return receipt requested, first-class postage prepaid, from a
post office station or letter box in the continental United States, to Landlord
or Tenant, as the case may be, addressed as follows:
As to Landlord: Intervest-One Ocean Plaza,Ltd.
15 E. Fifth St., Suite 2700
Tulsa, OK. 74103
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As to Tenant: Registry Magic, Inc.
One S. Ocean Blvd. Suite 206
Boca Raton, FL 33432
or to such address as either party may from time to time direct by notice in
writing. Except as herein otherwise provided, any such notice shall be deemed to
be given or delivered at the time of mailing. The failure by Tenant to give
proper and timely notice to Landlord shall preclude Tenant from all rights to
which the notice relates.
ARTICLE XXIII
Miscellaneous
Section 23.1. Financial Statements. Throughout the Term of this Lease, Landlord
may periodically request from Tenant its most current and complete financial
statement including, but not limited to, its balance sheet and profit and loss
statement.
Section 23.2. Estoppel Certificates. Each party agrees, at any time and from
time to time, as requested by the other party to execute and deliver to the
other a statement certifying that this Lease is unmodified and in full force and
effect (or if there have been modifications, that the same is in full force and
effect as modified and stating the modifications), certifying the dates to which
the Monthly Base Rent and Additional Rent have been paid, stating whether or
not, the other party is in default in performance of any of its obligations
under this Lease, and, if so, specifying each such default and stating whether
or not any event has occurred which with the giving of notice or passage of
time, or both, would constitute such a default, and, if so, specifying each such
event. Any such statement delivered pursuant hereto shall be deemed a
representation and warranty to be relied upon by the party requesting the
certificate and by others with whom such party may be dealing, regardless of
independent investigation. Tenant also shall include in any such statements such
other information concerning this Lease as Landlord may reasonably request. It
shall be a condition precedent to the Landlord's obligation to deliver
possession of the Premises to the Tenant, that Tenant execute an estoppel
certificate accepting the Premises and acknowledging the Lease. In the event
Tenant fails to comply with this Section, such failure shall constitute a
material breach of the Lease. If Tenant fails to execute the initial estoppel
certificate, Rent shall continue to accrue but Landlord shall be under no
obligation to deliver possession of the Premises.
Section 23.3. Approval by Superior Mortgagee. This Lease shall become binding
upon Landlord's execution and approval of the Lease by Landlord's Superior
Mortgagee for the building. Tenant agrees that Landlord may make modifications
to this Lease, if required by Landlord's Superior Mortgagee, which modifications
shall be binding upon Tenant without further signature, provided such
modifications do not materially impair Tenant's rights hereunder or materially
increase Tenant's obligations hereunder.
Section 23.4. Recordation. This Lease shall not be recorded in the Public
Records of Palm Beach County, Florida, or in any other
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place, by Tenant without the prior written consent of Landlord. Tenant shall
execute, acknowledge and deliver to Landlord for purposes of recording, such
memorandum of this Lease as Landlord may request for the purpose of obtaining
the benefits of Section 713.10 of the Florida Statutes (or any successor
legislative provision) which applies to mechanics liens. In no event shall such
memorandum set forth the rent or other charges payable by the Tenant under this
Lease; and any such memorandum shall state expressly that it is executed
pursuant to the provisions contained in this Lease, and that it is not intended
to and shall not be deemed to change vary or otherwise affect any of the terms,
covenants, conditions and/or provisions of this Lease.
If such memorandum is recorded, Tenant, upon request of Landlord, shall
forthwith execute, acknowledge and deliver any and all documents which Landlord
may require so as to release such memorandum from record. Furthermore, such
memorandum shall provide that Tenant, for itself and its heirs, personal
representatives, successors and assigns, does hereby make, constitute and
appoint any person coming within the definition of Landlord herein, and any
officer of any entity coming within such definition, as its, his, her or their
attorney-in-fact and in its, his, her or their name, place and stead, to execute
and acknowledge, whenever desired by Landlord, any instrument which Landlord may
deem appropriate to release such memorandum from record and shall further
provide that such appointment is coupled with an interest and is not revocable
by Tenant, or any heir, personal representative, successor or assign of Tenant.
Section 23.5. Entire Agreement, etc. This Lease and the writing referred to
herein constitute the entire understanding between the parties and shall bind
the parties, their successors and assigns. No representations, except as herein
expressly set forth, have been made by any party to the other, and this Lease
cannot be amended, modified or canceled, except by a writing, signed by Landlord
and Tenant during the term of this Lease. The headings and captions contained in
this Lease are inserted for convenience only and shall not be deemed part of or
be used in construing this Lease.
Section 23.6. Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State of Florida. If any provision of this Lease
or the application thereof to any person or circumstance shall, for any reason
and to any extent be invalid or unenforceable, the remainder of this Lease and
the application of that provision to other persons or circumstances permitted by
law shall apply. The table of contents, captions, invalid or unenforceable, the
application of that provision permitted by law headings and titles in this Lease
are solely for convenience of reference and shall not affect its interpretation.
This Lease shall be construed without regard to any presumption or other rule
requiring construction against the party causing this Lease to be drafted. Each
covenant, agreement, obligation, or other provision of this Lease on Tenant's
part to be performed, shall be deemed and construed as a separate and
independent covenant of Tenant, not dependent on any other provision of this
Lease. All terms and words used in this Lease, regardless of the number or
gender in which they are used, shall be deemed to include any other number and
any other gender as the context may require.
IN WITNESS WHEREOF, the parties have executed this Lease the day and year first
hereinabove written.
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CORPORATE RESOLUTION
RESOLVED, as of ________ that ______________ ,a ________ Corporation, shall
execute and deliver on behalf of the corporation that certain lease between
INTERVEST-ONE OCEAN PLAZA, LTD., and ____________ with respect to the demise
_________located in Palm Beach County, Boca Raton Florida and to pay the rent
and perform the other obligations as provided in the lease.
FURTHER RESOLVED, that any officer of this corporation is authorized and
directed to execute and deliver any other documents in connection therewith, and
to take such other actions as such officer, in his/her sole discretion, deems
appropriate in order to bring about the execution of the aforesaid lease.
FURTHER RESOLVED, that all documents executed and all actions taken by any
officer of this corporation pursuant to this resolution are hereby ratified and
confirmed and shall be fully binding upon this corporation in accordance with
their terms.
Director /s/ Walter A. Nawrocki, President & CEO
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Director
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Director
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Director
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CERTIFICATION
The undersigned, secretary of _____________, a _______________ corporation,
hereby certifies that the foregoing Corporate Resolution was duly adopted by the
Board of Directors of the corporation on the date above set forth and that said
resolution remains in full force and effect, unamended and unmodified.
The undersigned further certifies that the officers of the corporation, as of
this date, are Walter A. Nawrocki, President, Martin Scott, Vice President,
________????_____________Secretary, and ________????___________ Treasurer.
7/1/98
- - ------------------ Secretary /s/ Martin P. Scott
Date -------------------------
Secretary and Treasurer
<PAGE> 29
Exhibit 2
RULES AND REGULATIONS
FOR THE OCEAN PLAZA BUILDING
1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by any
Tenant or used for any purpose other than for ingress to and egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Landlord. There shall not be used in any space, or in the public hall of the
building, either by any tenant or by Jobbers, or others in the delivery or
receipt of merchandise, any hand trucks except those equipped by rubber tires
and safeguards.
2. Freight, furniture, business equipment, merchandise and bulky matter of any
description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Landlord. Landlord reserves the right
to inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of the Rules and Regulations or the
lease of which these Rules and Regulations are a part.
3. Tenant and Tenant's employees and agents shall not solicit business in the
parking or other common areas, nor shall Tenant distribute any handbills or
other advertising matter in automobiles parked in the parking area or in other
common areas.
4. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
5. The Tenant may not change (whether by alteration, replacement, rebuilding or
otherwise) the exterior color and/or architectural treatment of the demised
premises or of the building in which the same relocated, or any part thereof.
6. Tenant will not place or suffer to placed or maintained on any exterior door,
wall or window of the leased premises any sign, awning or canopy or advertising
matter or other thing of any kind, and will not place thereon or maintain any
decoration, lettering, advertising matter or other thing except as may be
approved by the Landlord.
7. Tenant shall not place anything or allow anything to be placed near the glass
or any window, door, partition or wall which may appear unsightly for outside
premises.
8. Tenant shall maintain the show windows in a clean, neat and orderly
condition.
9. No Tenant shall mark, paint, drill into, or in any way deface any part of the
demised premises or the building of which they form a part. No boring, cutting
or stringing of wires shall be permitted, except with the prior written consent
of the Landlord, and as Landlord may direct. No Tenant shall lay linoleum or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises and, if linoleum or other similar floor
covering is desired to be used, an interlining of builder's deadening felt shall
be first affixed to the floor by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
10. No wires or cable, or lines shall be brought into the leased premises, nor
shall there be permitted to operate any electrical device from which may emanate
electrical waves which may interfere with or impair radio or television
broadcasting or reception from or in the building.
11. Tenant shall not install any radio or television antenna on the roof, or on,
or in any part of the inside or the outside of the building other than inside
the leased premises.
12. Tenants shall not use any illumination or power for the operation of any
equipment or device other than electricity which
<PAGE> 30
shall be provided by the Landlord through its wiring installations into Tenant's
meter.
13. The Landlord may retain a pass key to the premises and be allowed admittance
thereto at all times to enable its representatives to examine or exhibit said
premises from time to time. No additional locks or bolts of any kind shall be
placed upon any of the doors or windows by any Tenant, nor shall any changes be
made in existing locks or mechanism thereof. Each Tenant must, upon the
termination of this Tenancy, restore to the Landlord all keys of stores, offices
and toilet rooms, either furnished to, or otherwise procured by, such Tenant,
and in the event of the loss of any keys so furnished, such Tenant shall pay to
Landlord the cost thereof.
14. Tenant agrees that Landlord shall have the right to prohibit the continued
use by Tenant of any unethical or unfair method of business operation,
advertising or interior display, if, in Landlord's opinion, the continued use
thereof would impair the reputation of the premises as a desirable place to shop
or is otherwise out of harmony with the general character thereof, and upon
notice from Landlord, Tenant shall forthwith refrain from or discontinue such
activities.
15. Tenant shall not bring or permit to be brought or kept in or on the demised
premises, any inflammable, combustible or explosive fluid, material, chemical or
substance, or cause or permit any odors of cooking or other processes, or any
unusual or other objectionable odors to permeate in or emanate from the demised
premises.
16. Tenant shall at all times maintain an adequate number of suitable fire
extinguisher on its premises for use in case of local fires, including
electrical or chemical fires.
17. Tenant shall not operate, or permit to be operated, any musical or sound
producing instrument or device inside or outside the leased premises which may
be heard outside the leased premises.
18. The Tenant must obtain and maintain in effect all permits and licenses
necessary for the operation of Tenant's business as herein provided.
19. Except for passenger automobiles parked in designated areas of the garage,
the Tenant shall not bring or permit to be brought into the building any
bicycle, or any vehicle, or dog, (except in the company of a blind person) or
other animal or bird.
20. Tenant shall use, at Tenant's cost, pest extermination on a regular basis.
21. Tenant shall not burn any trash or garbage of any kind in or about the
leased premises.
22. Tenants shall have the option of cleaning their own suites or of
individually contracting with the janitorial firm selected by the Landlord as
having the exclusive right to clean in the building. Tenants shall be
responsible for the cleaning of their own spaces and the removal of rubbish and
debris.
23. Tenant hereby acknowledges that ownership of the Real Estate may be
converted to that of a condominium at some date in the future. If and when the
Landlord makes the leased premises available for condominium ownership, subject
in all respects to the prior written approval of the owner and holders of the
first mortgage now or hereafter affecting the property, Landlord agrees that
Tenant shall have the "right of first refusal" with respect to acquiring
ownership of the leased premises.
24. Tenant acknowledges and agrees that the business hours are from 8:00 a.m. to
6:00 p.m. Monday through Friday; 8:00 a.m. to 1:00 p.m. on Saturday, and
excludes Sundays and all days observed by the state or federal government as
legal holidays.
<PAGE> 31
WITNESSES: LANDLORD: INTERVEST-ONE OCEAN PLAZA,LTD.
- - -------------------------------------
Angela Davis By: /s/ Dale A. Williams
- - ------------------------------------- ---------------------------------
I.P., LTD. its General Partner
Dale A. Williams, President
Tenant: Registry Magic, Inc.
- - -------------------------------------
?????? By: /s/ Walter A. Nawrocki
- - ------------------------------------- ---------------------------------
Walter A. Nawrocki
CEO & President
- - -------------------------------------
Landlord initials ?????
-------------
Tenant initials ?????
-------------
<PAGE> 1
Exhibit 10.14
VERITEL CORPORATION OF AMERICA
PRIVATE LABEL OEM DISTRIBUTION AND LICENSE AGREEMENT
This Agreement ("Agreement") is made as of this 24th day of September,
1998 ("Effective Date"), by and between Veritel Corporation of America, an
Illinois corporation, with its principal place of business at 250 South Wacker,
Suite 1500, Chicago, Illinois 60606 ("Veritel"), and Registry Magic
Incorporated, a Florida corporation with its principal place of business at 1
South Ocean Boulevard, Suite 206, Boca Raton, Florida 33432 ("Distributor").
WHEREAS, Veritel is a leading developer, manufacturer, and distributor of
voice verification technology products and components; and
WHEREAS, Distributor is a leading developer, manufacturer, and distributor
of speech recognition technology products and services; and
WHEREAS, Distributor wishes to distribute a private label version of
Veritel's VoiceCrypt product.
NOW THEREFORE in consideration of the mutual promises, covenants, terms
and conditions set forth in this Agreement, including any appendices, and for
other good and valuable consideration the receipt, adequacy, and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
1.1. "PRIVATE LABEL PRODUCT" means the private label version of Veritel's
VoiceCrypt product, which shall be modified and repackaged under a name chosen
by Distributor, and as further described in Section 2 of the Purchase Order of
even date herewith and attached hereto.
1.2. "DISTRIBUTION PARTNERS" means original equipment manufacturers,
resellers, system integrators, distributors, dealers, and other third parties
that acquire software products by purchase or license for resale and sublicense
to end user customers.
1.3. "END USER" means a party who uses the Private Label Products for its
own purposes as opposed to use for distribution or resale purposes.
1.4. "INTELLECTUAL PROPERTY RIGHT" means any and all rights existing from
time to time under patent law, copyright law, semiconductor chip design law,
moral rights law, trade secret law, trademark law, domain name law, unfair
competition law, and any other similar proprietary rights law, and any and all
renewals, extensions, and restorations thereof, now or hereinafter in force and
effect.
1.5. "GROSS PROFIT" means the total revenue received by Distributor for
the sale or license of Private Label Products.
1.6. "VERITEL SOFTWARE" means the executable Object Code for Software
Deliverable as defined in attached Purchase Order(s) to this Agreement.
1.7. "MINOR ENHANCEMENTS" means upgrades and features that do not result
in major functional changes or define a new purpose of use for the Veritel
Software.
1.8. "MAJOR ENHANCEMENTS" means upgrades and features that result in major
functional changes or define a new purpose of use for the Veritel Software.
1.9. "SPECIFICATIONS" means the functional performance parameters for the
Veritel Software as identified in Attachment 1 hereto.
1.10. "APPLICATION SOURCE CODE" shall mean the Source Code that defines
and controls the user interface and/or controls data input and output. It
specifically excludes Core Source Code.
1.11. "OBJECT CODE" means the machine-readable code that is used to
provide the functionality of the Veritel Software.
1.12. "SOURCE CODE" means computer programs, instructions and related
material written in a human-readable source language in form capable of serving
as the input to a compiler or assembler program, and in form capable of being
modified, supported and enhanced by programmers reasonably familiar with the
source language.
1.13. "CORE SOURCE CODE" shall mean the: (a) Code which serves the purpose
of voice recognition, (b) Code which serves the purpose of voice verification,
and/or (c) Any Code which RMI and Veritel deem to be outside the scope of this
Agreement.
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<PAGE> 2
2. LICENSE GRANT
2.1. Subject to Distributor's payments hereunder and compliance with the
other terms of this Agreement, Veritel hereby grants to Distributor, and
Distributor hereby accepts, subject to the restrictions and conditions set forth
in this Agreement and any attached Purchase Order which is hereby incorporated
by reference and made a part of this Agreement, the nonassignable, nonexclusive,
nontransferable worldwide license to use the Veritel Software to create Private
Label Products, and to use, reproduce, distribute copies of, transmit,
demonstrate, publicly perform, publicly display, and market sublicenses for
Private Label Products to End Users, in object code form only provided that
Distributor may market or grant such sublicenses only directly to businesses
that are End Users or by means of the Internet to any End Users and Distributor
may not use Distribution Partners for any reason or purpose except as is
necessary in the cause of distributing software over the Internet or directly to
businesses.
2.2. Veritel may from time to time notify Distributor in writing of
countries in which Distributor may not license Private Label Products to End
Users. The initial list of such countries is set forth in the Purchase Order.
Distributor shall not grant sublicenses to any End User including the right to
use Private Label Products in such countries.
2.3. Distributor shall have only those rights in the Veritel Software that
are expressly licensed to it pursuant to this Agreement, and to the extent that
there is a conflict between the body of this Agreement and the Purchase Order,
the body of this Agreement will control.
2.4. Distributor shall also impose on each of its End Users the
substantial equivalent of the obligations and restrictions set forth in Sections
2, 3, 4, 9, and 11.4 of this Agreement.
2.5. Distributor shall indemnify Veritel and hold it harmless from and
against all Claims, (defined below) arising herefrom, to the extent caused by
the intentional misconduct or negligent actions or omissions of Distributor, the
distribution of Private Label Products, or any disclosure or transfer of any
Source Code.
2.6. At the request of Distributor, Veritel shall deliver to Distributor
certain portions or all of the Application Source Code for the Veritel Software
if both parties deem such delivery necessary to implement updates or Minor
Enhancements. Any such Application Source Code shall be licensed as, and
otherwise deemed, part of the Veritel Software for purposes of Sections 2, 4 and
9.
3. CONDITIONS OF USE
3.1. COPIES. Distributor shall be permitted to make as many copies of the
Private Label Products as may be required for its authorized uses pursuant to
this Agreement, which shall be governed by the terms of this Agreement.
3.2. SUBLICENSING. Except as expressly authorized in this Agreement,
Distributor shall not license, sublicense, or otherwise transfer the Veritel
Software or any of the rights or licenses granted herein to any third party
without the prior written permission of Veritel.
3.3. OTHER USES. Distributor shall not: (i) decompile, reverse engineer,
disassemble, or otherwise determine or attempt to determine the source code for
the Veritel Software; (ii) create any derivative works based upon Veritel
Software (other than the Private Label Products described in Section 2 of the
Purchase Order attached hereto of even date herewith); or (iii) permit or
authorize any third party to do any of the foregoing.
3.4. COPY PROTECTION. Veritel and Distributor shall agree upon a mutually
acceptable form of software based mechanism, system, or technology for the
control of the number of copies which is allowed to be made or that can operate
simultaneously. Distributor shall not defeat or attempt to defeat any such
mutually agreed mechanism, system, or technology.
3.5. ATTRIBUTION. Unless otherwise requested by Veritel in writing,
Distributor shall include Veritel's logo and marks on the Product and on all
marketing materials, advertising and packaging of the Products, as well as in
the accompanying user documentation. Veritel's logo and marks shall appear in
the size and place similar to other licensors' logos or marks, or in the absence
thereof, in a reasonable place to be determined at Distributor's discretion. All
such use of Veritel's logo or trademarks shall inure to the benefit of Veritel
and shall be in accordance with Veritel's usage and advertising policies, as
they may be modified from time to time by Veritel. Notwithstanding the
foregoing, Distributor shall give appropriate copyright credit to Veritel in a
form and location acceptable to Veritel.
4. OWNERSHIP
4.1. Title, ownership, and all Intellectual Property Rights in and to the
Veritel Software and any copies thereof, including all technical know-how, are
and shall remain the exclusive property of Veritel.
5. TAXES
5.1. The fees listed in this Agreement or any Purchase Order do not
include taxes. Except for taxes based upon the net income or revenues of
Veritel, Distributor shall be responsible for paying all taxes imposed by any
federal, state, or local government agency either based upon the Private Label
Products or their use, or any payment made by Distributor to Veritel pursuant to
this Agreement (including any sales, use, property, value-added taxes), whether
such taxes are now or hereafter imposed.
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<PAGE> 3
6. INFRINGEMENT WARRANTY AND INDEMNITY
6.1. VERITEL INFRINGEMENT WARRANTY. Veritel represents and warrants that:
(i) Veritel owns all Intellectual Property Rights incorporated into or provided
with respect to the Veritel Software and that it is authorized to grant the
licenses under this Agreement; and (ii) the Veritel Software, does not infringe
any third party Intellectual Property Rights. The foregoing representation and
warranty, and any rights provided in this Section 6, are solely for the benefit
of Distributor. Distributor may make such warranties to its sublicensees as it
deems appropriate but may not under any circumstances make any warranty on
behalf of Veritel or pass Veritel's warranty through to any sublicensee.
6.2. INDEMNIFICATION BY VERITEL. Veritel shall indemnify and hold
Distributor harmless from any and all third party claims, suits, and liabilities
(including reasonable attorneys' fees and expenses) arising out of: (i) the
inaccuracy of any representation or warranty made by Veritel in this Section 6;
or (ii) any claim that the Veritel software infringes any third party
Intellectual Property Right; provided that Distributor promptly notifies Veritel
in writing of any third party claim with respect to the Veritel Software and
that Veritel shall have sole control of the defense of any such third party
intellectual property claim and all negotiations for settlement. Notwithstanding
the foregoing, Distributor shall be entitled to be represented by separate
counsel at its own expense.
6.3. NO INDEMNIFICATION OBLIGATION. Veritel shall have no liability for
any third party claim of infringement of Intellectual Property Rights based on:
(i) use of a superseded or altered release of the Veritel Software if the
alleged infringement would have been avoided by the use of a current, unaltered
release of the Veritel Software; or (ii) the combination, operation, or use of
the Veritel Software with applications, software, computer programming, system,
or technology if the alleged infringement would have been avoided by the use of
the Veritel Software without such applications, software, computer programming,
system, or technology.
6.4. OPTION TO AVOID INFRINGEMENT. In the event that, in Veritel's
opinion, any portion of the Veritel Software is likely to or does become the
subject of a third party claim alleging violation of Intellectual Property
Rights, Veritel may procure for Distributor: (i) the right to continue using the
Veritel Software; (ii) modify the Veritel Software to make it noninfringing; or
(iii) or replace the Veritel Software with a functionally equivalent (as
determined by Veritel), noninfringing replacement. If none of the foregoing
alternatives is, in Veritel's opinion, reasonably and economically available,
Veritel may terminate Distributor's right to use the Veritel Software upon
thirty (30) days' written notice to Distributor and Veritel shall refund a pro
rata portion (based on amortization over a deemed three-year life) of fees paid
by Distributor to Veritel representing the fees paid for the Veritel Software.
6.5. COMPLETE LIABILITY OF VERITEL. THIS SECTION 6 SETS FORTH THE COMPLETE
LIABILITY OF VERITEL WITH RESPECT TO INFRINGEMENT OF INTELLECTUAL PROPERTY
RIGHTS AND SECTION 6.4 SETS FORTH THE EXCLUSIVE REMEDY WITH RESPECT THERETO.
6.6. DISTRIBUTOR INFRINGEMENT WARRANTY. Distributor represents and
warrants that: (i) Distributor has the capability and resources to fulfill and
perform all of its obligations under this Agreement; and (ii) any Distributor
application, software, computer programming, system, or technology with which
the Veritel Software may be connected or combined will not infringe any third
party Intellectual Property Rights, either before or after such combination.
6.7. INDEMNIFICATION BY DISTRIBUTOR. Distributor shall indemnify and hold
Veritel, its subsidiaries, affiliates, shareholders, directors, officers,
successors and assigns harmless from and against any and all third party Claims
arising out of: (i) the inaccuracy of any representation or warranty made by
Distributor in this Section 6; or (ii) any claim that the Distributor
application, software, computer programming, system, or technology into which
the Veritel Software may be incorporated infringes any third party Intellectual
Property Right; provided that Veritel promptly notifies Distributor in writing
of any such third party claim and that Distributor shall have sole control of
the defense of any such third party intellectual property claim and all
negotiations for settlement. For purposes of this Agreement "Claims" shall mean
claims, litigation, actions, suits, administrative proceedings, losses, damages,
injuries, liabilities, demands, judgments, settlements, costs and expenses
(including, but not limited to reasonable attorneys' fees and expenses),
penalties and compensatory, multiple, exemplary, and punitive damages.
Notwithstanding the foregoing, Veritel shall be entitled to be represented by
separate counsel at its own expense.
6.8. COMPLETE LIABILITY OF DISTRIBUTOR. THIS SECTION 6 SETS FORTH THE
COMPLETE LIABILITY OF DISTRIBUTOR WITH RESPECT TO INFRINGEMENT OF INTELLECTUAL
PROPERTY RIGHTS.
-3-
<PAGE> 4
7. REPRESENTATIONS AND WARRANTIES
7.1. REPRESENTATIONS AND WARRANTIES OF VERITEL.
7.1.1. SOFTWARE. Veritel warrants solely for the benefit of
Distributor that, in its unmodified state, the Veritel Software shall operate in
conformity to the Specifications relating to it. If the Veritel Software shall
fail to conform to such Specifications, Veritel shall use commercially
reasonable efforts to correct such nonconformities. If Veritel cannot make
Veritel Software operate as warranted, then Veritel shall refund to Distributor
all amounts paid for such Veritel Software and this shall be Distributor's sole
and exclusive remedy. Veritel does not represent or warrant that: (i) the
Veritel Software will meet Distributor's requirements; (ii) the Veritel Software
will operate in the combinations which Distributor may select for use; (iii) the
operation of the Veritel Software will be error-free; or (iv) any errors in the
Veritel Software will be corrected. Distributor may make such warranties to its
sublicensees as it deems appropriate but may not under any circumstances make
any warranty on behalf of Veritel or pass Veritel's warranty through to any
sublicensee.
DEFECT WARRANTY. If Veritel becomes aware of errors in the Veritel Software that
prohibit the use of the Veritel Software within the Private Label Products,
Veritel will make commercially reasonable efforts to correct such errors in a
timely manner. An error shall mean any error, problem, or defect resulting from
(1) an incorrect functioning of Code, or (2) an incorrect or incomplete
statement of diagram in Documentation, if such an error, problem, or defect
renders the Code inoperable, causes the Code to fail to meet the specifications
thereof, causes the Documentation to be inaccurate or incomplete in any material
respect, causes incorrect results, or causes incorrect functions to occur when
any such materials are used.
7.1.2. YEAR 2000. Veritel represents and warrants that the Veritel
Software will operate in conformity to the Specifications relating to it before,
on, or after, the date January 1, 2000, for purposes of Year 2000 (including
Leap Year) processing. Veritel represents that it is not aware of any way in
which such matters are relevant to the operation of the Veritel Software.
7.2. LIMITATION ON WARRANTIES. THE LIMITED WARRANTIES OF VERITEL SET FORTH
ABOVE ARE MADE FOR THE BENEFIT OF DISTRIBUTOR ONLY AND SHALL NOT EXTEND TO ANY
THIRD PARTIES. THE REMEDY DESCRIBED IN SECTION 7.1.1 IS THE SOLE AND EXCLUSIVE
REMEDY FOR BREACH OF THE LIMITED WARRANTIES SET FORTH ABOVE. EXCEPT AS PROVIDED
IN THIS SECTION 7, VERITEL MAKES NO OTHER REPRESENTATION OR WARRANTY OF ANY
KIND, WHETHER EXPRESS OR IMPLIED, FROM A COURSE OF PERFORMANCE OR DEALING, TRADE
USAGE, OR OF UNINTERRUPTED OPERATION WITHOUT ERROR, INCLUDING, BUT NOT LIMITED
TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. VERITEL MAKES NO WARRANTIES WITH REGARD TO THE RESULTS OBTAINED FROM
THE OPERATION OR USE BY DISTRIBUTOR OF THE VERITEL SOFTWARE.
7.3. VERITEL SHALL NOT BE LIABLE TO DISTRIBUTOR, OR ANY THIRD PARTY, FOR
ANY THIRD PARTY CLAIMS BASED ON CONTRACT, TORT, OR OTHER GROUNDS (INCLUDING THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) RELATED TO
THIS AGREEMENT, THE PRIVATE LABEL PRODUCTS OR ANY DEVICE, MATERIAL, OR THING TO
WHICH THE PRIVATE LABEL PRODUCTS ARE ATTACHED, OR OF WHICH ANY PRIVATE LABEL
PRODUCT IS MADE A PART, OR WITHIN WHICH ANY SUCH PRODUCT IS ENCLOSED, REGARDLESS
OF WHETHER VERITEL MAY BE WHOLLY, CONCURRENTLY, PARTLY, JOINTLY, OR SOLELY
NEGLIGENT OR OTHERWISE AT FAULT.
7.4. THE LIMITED WARRANTIES SET FORTH ABOVE SHALL NOT APPLY TO ANY
PRODUCTS THAT HAVE BEEN SUBJECTED TO IMPROPER USE OR STORAGE, USE BEYOND RATED
CONDITIONS, IMPROPER MAINTENANCE, NEGLIGENCE, OR ACCIDENT. DISTRIBUTOR SHALL
PROVIDE VERITEL ACCESS TO THE PRIVATE LABEL PRODUCTS AS TO WHICH DISTRIBUTOR
CLAIMS A PURPORTED DEFECT OR NONCONFORMANCE IN THE VERITEL SOFTWARE. UPON
REQUEST BY VERITEL, DISTRIBUTOR SHALL, AT ITS OWN RISK AND EXPENSE, PROMPTLY
RETURN SUCH PRODUCTS IN QUESTION TO VERITEL.
7.5. THE FOREGOING WARRANTIES BY VERITEL ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE VERITEL SOFTWARE OR PRIVATE
LABEL PRODUCTS PROVIDED HEREUNDER. VERITEL SHALL HAVE NO LIABILITY WHATSOEVER
FOR ANY COVER OR SET-OFF NOR FOR ANY INDIRECT, CONSEQUENTIAL, EXEMPLARY,
INCIDENTAL, OR PUNITIVE DAMAGES, INCLUDING LOST PROFITS, EVEN IF VERITEL HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT AS PROVIDED IN SECTION
6.4 OF THIS AGREEMENT, REGARDLESS OF WHETHER ANY REMEDY SET FORTH IN THIS
AGREEMENT FAILS OF ITS ESSENTIAL PURPOSE, VERITEL'S LIABILITY TO DISTRIBUTOR FOR
ANY REASON AND UPON ANY CAUSE OF ACTION, WHETHER SOUNDING IN TORT, CONTRACT, OR
ANY OTHER LEGAL THEORY, EXCEED IN THE AGGREGATE THE TOTAL AMOUNT PAID BY
DISTRIBUTOR TO VERITEL UNDER THIS AGREEMENT DURING THE IMMEDIATELY PRECEDING
TWELVE (12) MONTH PERIOD.
-4-
<PAGE> 5
7.6. ALLOCATION OF RISK. DISTRIBUTOR ACKNOWLEDGES AND AGREES THAT THE FEES
CHARGED BY VERITEL IN THIS AGREEMENT REFLECT AN ALLOCATION OF RISK BETWEEN THE
PARTIES, INCLUDING, BUT NOT LIMITED TO, THE LIMITATION OF LIABILITY AND
EXCLUSIVE REMEDIES DESCRIBED IN THIS AGREEMENT. A MODIFICATION OF THE ALLOCATION
OF RISKS SET FORTH IN THIS AGREEMENT WOULD AFFECT THE FEES CHARGED BY VERITEL,
AND IN CONSIDERATION OF SUCH FEES, DISTRIBUTOR AGREES TO SUCH ALLOCATION OF
RISK.
8. SUPPORT AND MAINTENANCE
8.1. SUPPORT. Distributor shall provide first level and second level
support to its End Users and Distribution Partners. For a period of one (1) year
after the Effective Date, Veritel will provide third level support to
Distributor, provided that Distributor's support personnel have developed
reasonable competence with the Veritel Software (through training offered by
Veritel or otherwise) Veritel will provide commercially reasonable telephone and
online support for the Veritel Software to Distributor's engineering and
technical support personnel to assist in their support of Distributor's
Distribution Partners and End Users. Veritel's telephone support will be
available on standard business days, holidays excepted, from 9:00 a.m. to 5:00
p.m. Central Time.
8.1.1. First level support shall mean very basic assistance in the
use of Products.
8.1.2. Second level support shall include gathering and checking
information provided from first level support and responding to unresolved
issues for which answers may be available from alternative resources. Second
level support shall also include testing, collection of error logs and files,
and use of diagnostic tools.
8.1.3. Third level support is provided from Veritel to Distributor
in the event Distributor is unable to resolve the problem
8.2. MAINTENANCE, UPDATES AND UPGRADES. For a period of one (1) year after
the Effective Date, Veritel will provide to Distributor Minor Enhancements for
the Veritel Software. Major Enhancements may be negotiated under a separate
agreement. Licensee shall have sole responsibility for distributing any such
releases.
9. CONFIDENTIALITY
9.1. CONFIDENTIAL INFORMATION. The parties acknowledge and agree that it
may be necessary for each of them or their directors, officers, partners,
agents, or representatives to disclose or make available to each other
information and materials that are confidential or proprietary or contain
valuable trade secrets relating to their respective businesses (collectively the
"Confidential Information"), and that some such information may already have
been disclosed prior to the date of this Agreement. Prior to disclosure to the
other party, the disclosing party shall use commercially reasonable efforts to
designate all Confidential Information by marking such materials or information,
if in tangible form, with a "Confidential" or similar legend. In any event,
Veritel and Distributor agree that even if not so marked, the Veritel Software
and Private Label Products, and all other components of both that are not
readily apparent to an end-user, are Confidential Information, as are any
documentation, descriptions, and embodiments thereof.
9.2. NON-DISCLOSURE. During the term of this Agreement and any Purchase
Order accepted hereunder, and for the longer of three (3) years or the longest
time permitted by relevant law following the termination of this Agreement, each
of the parties agrees: (i) to use commercially reasonable efforts to protect the
Confidential Information of the other party from unauthorized use or disclosure
and to use at least the same degree of care with regard thereto as it uses to
protect its own Confidential Information of a like nature; (ii) to use and
reproduce the Confidential Information of the other party only as permitted
under this Agreement and only as needed to perform its duties hereunder; (iii)
except pursuant to Distributor's license to grant sublicenses hereunder, not to
disclose or otherwise permit access to the Confidential Information of the other
party to any third party without the disclosing party's prior written consent
and then only to the extent reasonably required to accomplish the intent of this
Agreement; and (iv) to ensure that its employees participating in the
performance of this Agreement are advised of the confidential nature of the
Confidential Information of the other party, that they are prohibited from using
or copying the Confidential Information of the other party for any purpose other
than performing their obligations under this Agreement, from revealing the
Confidential Information of the other party for any other purpose whatsoever,
and from taking any action prohibited to either party under this Section 9.2.
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9.3. COMPELLED DISCLOSURE. In the event that either party or any of its
directors, officers, partners, or employees is required by deposition,
interrogatory, request for documents, subpoena, civil investigative demand, or
similar process to disclose any of the Confidential Information of the other
party, such compelled party or any such person may disclose only that portion of
the Confidential Information of the other party that such party or such person
is legally required to disclose. If legally permitted, a party shall first
provide notice to the other party of any such process requiring such disclosure
upon receipt thereof in order to provide the other party with the opportunity to
petition the court or administrative body to prevent such disclosure.
9.4. EXCEPTIONS. Information will not be considered to be Confidential
Information if it: (i) is already, or otherwise becomes, publicly known by third
parties other than as a result of an act or omission of the receiving party;
(ii) is lawfully received, after disclosure hereunder, from a third party having
the right to disseminate the information to the receiving party and without
restriction on disclosure; (iii) is furnished to others by the disclosing party
without restriction on disclosure; or (iv) can be shown by the receiving party
to have been independently developed by such party without use of or reference
to the Confidential Information of the disclosing party. Furthermore, it is
understood that each party shall be free to use ideas, concepts, know-how and
techniques related to the scope of its business and practice, provided they
contain no specific or identifiable elements unique to the other party hereto or
its operations and they otherwise contain no Confidential Information of the
other party.
9.5. RETURN OF CONFIDENTIAL INFORMATION. Except as otherwise expressly
provided herein, upon termination or completion of this Agreement, the parties
shall promptly return to each other all materials that were delivered to each
party by one another with respect to such Agreement or Purchase Order,
including, but not limited to, all tangible forms of Confidential Information
and any copies thereof. Furthermore, upon the return thereof, each party shall
cause one of its officers or principals to certify to the other party in writing
that that party has complied with this Section 9.5.
9.6. INJUNCTIVE RELIEF. The parties agree that any breach by a party or
any of its directors, officers, partners, employees, agents or representatives
of any provisions of this Section 9.6 may cause immediate and irreparable injury
to the other party and that, in the event of such breach, the injured party will
be entitled to seek injunctive relief as well as any and all other remedies
available at law or in equity.
10. MARKETING SUPPORT
10.1. PRESS RELEASES. Neither Veritel nor Distributor may issue press
releases pertaining to this Agreement or Purchase Order without the written
permission of the other party.
10.2. JOINT MARKETING. When requested, and if available, Veritel will
provide, at Distributor's expense, sales marketing support to Distributor for
significant customer opportunities.
11. TERM AND TERMINATION
11.1. TERM. The term of this Agreement shall commence on the Effective
Date set forth above and shall continue for the term provided in the attached
Purchase Order.
11.2. TERMINATION BY DISTRIBUTOR. DISTRIBUTOR may terminate this Agreement
upon written notice to Veritel (a) if Veritel breaches this Agreement and fails
to correct the breach within thirty (30) days following written notice
specifying the breach; (b) if Veritel makes an assignment for the benefit of
creditors, or files a voluntary petition of bankruptcy, or seeks or consents to
any reorganization or similar relief, or is adjudicated, bankrupt or insolvent,
or has commenced against it by a third party any bankruptcy, insolvency,
reorganization or similar petition or proceeding. In the event of a sale,
transfer, or other disposition of the "control" of Veritel (which for the
purpose of this Section 11.2 shall mean effective control of the management of
Veritel) or of any substantial part of Veritel's assets, interests, business or
property, RMI must approve the transfer the rights granted under this agreement
to the third party but may not reasonably withhold this transfer. Termination
shall not relieve Distributor of its obligation to pay all license fees that
have accrued under this Agreement.
11.3. TERMINATION BY VERITEL. Veritel may terminate this Agreement upon
written notice to Distributor (a) if Distributor breaches this Agreement and
fails to correct the breach within thirty (30) days following written notice
specifying the breach; (b) if Distributor makes an assignment for the benefit of
creditors, or files a voluntary petition of bankruptcy, or seeks or consents to
any reorganization or similar relief, or is adjudicated, bankrupt or insolvent,
or has commenced against it by a third party any bankruptcy, insolvency,
reorganization or similar petition or proceeding. In the event of a sale,
transfer, or other disposition of the "control" of Registry Magic (which for the
purpose of this Section 11.3 shall mean effective control of the management of
Registry Magic or of any substantial part of Registry Magic's assets, interests,
business or property, Veritel must approve the transfer of the rights granted
under this agreement to the third party but may not reasonably withhold this
transfer.
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11.4. EFFECT OF TERMINATION. Upon termination of this Agreement: (i)
Distributor shall return all copies of the Veritel Software and immediately
cease all further licensing and distribution of Private Label Products; and (ii)
all of Veritel's warranty, support and maintenance obligations shall cease,
including without limitation Veritel's obligation to provide maintenance
releases, updates and defect support. Termination of this Agreement or any
Purchase Order shall not limit either party from pursuing any other remedies
that may be available to it, including injunctive relief, nor shall termination
relieve Distributor of its obligation to pay all license fees that have accrued
or that Distributor has agreed to pay under any Purchase Order. The parties'
obligations under Sections 3, 6, 7 and 9 shall survive termination of this
Agreement.
12. GENERAL
12.1. COMPLETE AGREEMENT. This Agreement, including any Purchase Orders
hereunder, is the complete and exclusive statement of the agreement of the
parties with respect to the subject matter hereof and supersedes and merges all
prior proposals, understandings, and agreements, whether oral or written,
between the parties with respect to the subject matter hereof. This Agreement
may not be modified except by a written instrument duly executed by the parties
hereto.
12.2. NO WAIVER. No failure to exercise, and no delay in exercising, on
the part of either party, any right, power or privilege hereunder will operate
as a waiver thereof, nor will any party's exercise of any right, power or
privilege hereunder preclude further exercise of the same right or the exercise
of any other right hereunder.
12.3. ENFORCEABILITY. If any part of this Agreement shall be adjudged by
any court of competent jurisdiction to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not be
affected or impaired thereby and shall be enforced to the maximum extent
permitted by applicable law. If any remedy set forth in this Agreement is
determined to have failed of its essential purpose, then all other provisions of
this Agreement, including the limitations of liability and exclusion of damages,
shall remain in full force and effect.
12.4. NO CONSTRUCTION AGAINST DRAFTER. If an ambiguity or question of
intent arises with respect to any provision of this Agreement, the Agreement
will be construed as if drafted jointly by the parties and no presumption or
burden of proof will arise favoring or disfavoring either party by virtue of
authorship of any of the provisions of this Agreement.
12.5. FORCE MAJEURE. Either party shall be excused from performance and
shall not be liable for any delay in whole or in part, caused by the occurrence
of any contingency beyond the reasonable control either of the excused party or
its subcontractors or suppliers. These contingencies include, but are not
limited to, war, sabotage, insurrection, riot or other act of civil
disobedience, act of public enemy, failure or delay in transportation, act of
any government or any agency or subdivision thereof affecting the terms hereof,
accident, fire, explosion, flood, severe weather or other act of God, or
shortage of labor or fuel or raw materials.
12.6. NOTICES. Any notice required or permitted hereunder to the parties
hereto will be deemed to have been duly given only if in writing to the address
of the receiving party as set forth on the initial page hereof or such other
address as may be specified by such party in a notice delivered to the other
party in accordance with this Section and delivered by: (i) certified U.S. mail,
return receipt requested, postage prepaid; (ii) nationally recognized overnight
courier, delivery charges prepaid; or (iii) by hand delivery with signed
receipt. Any notice shall be deemed delivered: (a) on the fifth (5th) business
day following deposit of such notice with the U.S. Postal Service if notice is
given in accordance with (i), above; (b) on the second (2nd) business day
following deposit of such notice with the courier if notice is given in
accordance with (ii), above; or (c) on the date of actual delivery if notice is
given in accordance with (iii), above.
12.7. GOVERNING LAW AND JURISDICTION. This Agreement shall be deemed to
have been made in, and shall be construed pursuant to the laws of, the State of
Illinois.
12.8. HEADINGS AND SUBSECTIONS. Section headings are provided for
convenience of reference and do not constitute part of this Agreement. Any
references to a particular section of this Agreement shall be deemed to include
reference to any and all subsections thereof.
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<PAGE> 8
12.9. ASSIGNMENT. Neither party may assign or delegate any or all of its
rights (other than the right to receive payments) or its duties or obligations
hereunder without the consent of the other party, which consent shall not be
unreasonably withheld; provided, however, that either party may assign this
Agreement, without the need to obtain consent of the other party, a successor in
interest to substantially all of the business of that party to which this
Agreement relates. An assignee of either party authorized hereunder shall be
bound by the terms of this Agreement and shall have all of the rights and
obligations of the assigning party set forth in this Agreement. If any assignee
shall fail to agree to be bound by all of the terms and obligations of this
Agreement, then such assignment shall be deemed null and void and of no force or
effect.
12.10. NO THIRD PARTY BENEFIT. The provisions of this Agreement are for
the sole benefit of the parties hereto. This Agreement confers no rights,
benefits, or claims upon any person or entity not a party hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
VERITEL CORPORATION OF AMERICA
By: /s/ Mitchell Liss
------------------------------
Name: Mitchell Liss
-----------------------------
Title: Vice President and CFO
----------------------------
REGISTRY MAGIC INCORPORATED
By: /s/ Walt Nawrocki
------------------------------
Name: Walt Nawrocki
-----------------------------
Title: President and CEO
----------------------------
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<PAGE> 1
Exhibit 10.15
REGISTRY MAGIC INCORPORATED
MASTER SOFTWARE JOINT DEVELOPMENT AGREEMENT
This Agreement ("Agreement") is made as of this 24th day of September,
1998 ("Effective Date"), by and between Registry Magic Incorporated, a Florida
corporation, having its registered offices at One South Ocean Boulevard, Boca
Raton, Florida 33432 ("RMI") and Veritel Corporation of America (also known as
Veritel Corporation), an Illinois corporation, having its registered offices at
250 South Wacker Drive, Chicago, Illinois, 60606 ("Veritel").
WHEREAS, RMI is a leading developer, manufacturer, and marketer of speech
recognition technology products and services; and
WHEREAS, Veritel is a leading developer, manufacturer, and marketer of
voice verification technologies, products and components; and
WHEREAS, Veritel desires to engage RMI from time to time pursuant to one
or more Work Statements to develop, create, test, modify, and deliver certain
programming materials as works made for hire, and RMI is interested in accepting
such engagements, subject to the parties' further agreement on the scope terms
of each such Work Statement; and
WHEREAS, Veritel and RMI mutually desire to set forth in this Agreement
certain terms applicable to all such engagements;
WHEREAS, Veritel is willing to accept, wishes to distribute, and
compensate RMI for a variety of RMI's products,
WHEREAS, RMI is willing to accept, wishes to distribute, and compensate
Veritel for a variety of products which Veritel may develop jointly with RMI,
NOW THEREFORE in consideration of the premises and intending to be legally
bound, the parties agree as follows:
1. DEFINITIONS
1.1. "CODE" shall mean computer programming code. Code shall include any
Maintenance Modifications or Minor Enhancements thereto created by
RMI from time to time as specified in SECTION 15.3.
1.2. "SOURCE CODE" shall mean computer programs, instructions and related
material written in a human-readable source language in form capable
of serving as the input to a compiler or assembler program, and in
form capable of being modified, supported and enhanced by
programmers reasonably familiar with the source language.
1.3. "APPLICATION SOURCE CODE" shall mean the Source Code that defines
and controls the user interface and/or controls data input and
output. It specifically excludes Core Source Code.
1.4. "CORE SOURCE CODE" shall mean the: (a) Code which serves the purpose
of voice recognition, (b) Code which serves the purpose of voice
verification, and/or (c) Any Code which RMI and Veritel deem to be
outside the scope of the Work Statement
1.5. "OBJECT CODE" shall mean the machine-readable form of the Code.
1.6. "DERIVATIVE WORK" shall mean a work that is based upon one or more
pre-existing works, such as a revision, modification, translation,
abridgement, condensation, expansion, or any other form in which
such preexisting works may be recast, transformed, or adapted, and
that if prepared without authorization of the owner of the copyright
in such preexisting work, would constitute a copyright infringement.
For purposes hereof, a Derivative Work shall also include any
compilation that incorporates such a preexisting work.
1.7. "ERROR" shall mean any error, problem, or defect resulting from (1)
an incorrect functioning Code, or (2) an incorrect or incomplete
statement of diagram in Documentation, if such an error, problem,
or defect renders the Code inoperable, causes the Code to fail to
meet the specifications thereof, causes the Documentation to be
inaccurate or incomplete in any material respect, causes incorrect
results, or causes incorrect functions to occur when any such
materials are used.
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<PAGE> 2
1.8. "INTELLECTUAL PROPERTY RIGHT" means any and all rights existing from
time to time under patent law, copyright law, , moral rights law,
trade secret law, trademark law, unfair competition law, and any
other similar proprietary rights law, and any and all renewals,
extensions, and restorations thereof, now or hereinafter in force
and effect.
1.9. "DELIVERABLES" shall mean materials developed for or delivered to
Veritel by RMI under this Agreement and under any Work Statement
issued hereunder.
1.10. "PARTIES" shall mean RMI and Veritel. "PARTY" shall mean RMI or
Veritel interchangeably.
1.11. "SPECIFICATIONS" means the functional performance parameters for the
Software Deliverable as stated within the Attachment(s).
1.12. "MINOR ENHANCEMENTS" means upgrades and features that do not result
in major functional changes or define a new purpose of use for the
Product.
1.13. "MAJOR ENHANCEMENTS" means upgrades and features that result in
major functional changes or define a new purpose of use for the
Product.
1.14. "MAJOR ENHANCEMENTS" means upgrades and features that result in
major functional changes or define a new purpose of use for the
Product.
1.15. "WORK STATEMENT" shall mean a purchase offer of Veritel, a proposal
of RMI, or another written instrument that meets the following
requirements;
1.15.1. Includes substantially the following statement: "This is a
Work Statement under the Master Software Development
Agreement ....."
1.15.2. Is signed on behalf of both parties by their authorized
representatives
1.15.3. Contains the following five mandatory items; (1) Description
and/or specifications of the services to be performed and
the Deliverables to be delivered to Veritel, (2) the name
and address of a Technical Coordinator for each of Veritel
and RMI, (3) the amount, schedule, and method of payment,
(4) the time schedule for performance and for delivery of
the Deliverables, and (5) completion and acceptance criteria
for the Deliverables.
1.15.4. In addition, when applicable, the Work Statement may
include; (1) Provisions for written and/or oral progress
reports by the RMI, (2) detailed functional and technical
specifications and standards for all services and
Deliverables, including quality standards, (3) documentation
standards, (4) Lists of any special equipment to be procured
by RMI or provided by Veritel for use in performance of the
work, (5) test plans and scripts, and (6) such other terms
and conditions as may be mutually agreeable between parties.
2. CONTRACT ADMINISTRATION
2.1. CONTACT COORDINATOR. Upon execution of this Agreement, each Party
shall notify the other party of the name, business address, and
telephone number of its Contract Coordinator. The Contract
Coordinators of each Party shall be responsible for arranging all
meetings, visits, and consultations between the parties that are of
a non-technical nature. The Contract Coordinators shall also be
responsible for receiving all notices under this Agreement and for
all administrative matters such as invoices, payments, and
amendments.
2.2. TECHNICAL COORDINATOR. Each Work Statement shall state the name
business address, and telephone number of the Technical Coordinators
of each party. The Technical Coordinators of each party designated
for a particular Work Statement shall be responsible for technical
and performance matters, and the transmission and receipt of both
Deliverables and technical information between the parties, insofar
as they relate to such Work Statement
2.3. ISSUANCE OF WORK STATEMENTS. The initial Work Statement(s) agreed to
by the Parties are set forth as attachments to this Agreement.
Additional Work Statements, regardless of whether they relate to the
same subject matter as initial Work Statement(s), shall become
effective upon execution by authorized representatives of the
Parties.
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<PAGE> 3
3. CHANGES
3.1. Changes in any Work Statement or in any of the Specifications of
Deliverables under any Work Statement shall become effective only
when a written change request is executed by authorized
representatives of both parties. Change requests that do not
substantially affect the nature of Deliverables, their performance
or functionality, and that do not change schedules by more than one
week or development hour amounts by more than 5% may be requested
and/or accepted by the parties' Technical Coordinators. All other
change requests with respect to this Agreement, and Work Statement,
or any Specifications or Deliverables must be requested and/or
accepted by both parties' Contract Coordinators. RMI may not decline
any change requests that increase the cost or magnitude of the
performance, provided that the changes are reasonable in scope and a
commensurate increase in compensation is fixed.
4. NOTICE OF DELAY
4.1. Each Party agrees to notify the other Party promptly of any factor,
occurrence, or event coming to its attention that may affect their
ability to meet the requirements of any Work Statement issued under
this Agreement, or that is likely to occasion any material delay in
delivery of Deliverables. Such notice shall be given in the event of
any loss or reassignment of key employee, threat of strike, or major
equipment failure.
5. COMPENSATION
5.1. Amounts and modes of payment for all services to be performed and
Deliverables shall be set forth in each Work Statement. The parties
shall agree to use one of the following modes of payment:
5.1.1. FIXED PRICE. If RMI quotes a price for particular services
or Deliverables and such price is specified without
qualification in the application Work Statement, the amount
quoted shall be deemed a fixed price. Unless the Work
Statement provides for progress payments or deferral of
payment after completion, Veritel shall pay the full amount
of the fixed price upon RMI's satisfactory completion of the
specified services or upon Veritel's acceptance of
particular Deliverables. A Work Statement may alternatively
provide for payment to be based on a fixed priced for
certain services to be rendered over a specified period of
time. Unless otherwise specified in the Work Statement, such
payment for periodic services shall accrue on a monthly
basis and be prorated for any partial periods.
5.1.2. TIME AND MATERIALS. For services and Deliverables that
are not suitable for payment on the basis of a fixed
price, the Work Statement may provide for payment on the
basis of time and materials. Payment under this method shall
be determined according to the hourly rates set for RMI's
employees by skill, and possibly by level.
6. INVOICING
6.1. RMI shall submit invoices to Veritel for payment for work and/or
deliverables at such time or times as payment becomes due under each
Work Statement. Invoices shall be paid on payment dates as specified
in the Work Statement and shall be addressed to Veritel's Contract.
All invoices shall specifically refer to the Work Statement to which
they relate. Whenever an invoice includes charges for time and
materials, the invoices shall indicate the skill and hours of the
employees performing the work. Each invoice shall separately set
forth travel expenses, if any, authorized by Veritel for
reimbursement. Supporting documentation (e.g., receipts for air
travel, hotels, and rental cars) called for by Veritel's standard
reimbursement policies shall accompany any such invoice. Any
extraneous terms on RMI's invoices shall be void and of no effect.
7. EXPENSES
7.1. Except as expressly agreed otherwise by Veritel in a Work Statement,
RMI shall bear all of its own expenses arising from its performance
of its obligations under this Agreement and each Work Statement
issued hereunder, including (without limitation) expenses for
facilities, work spaces, utilities, management, clerical and
reproduction services, supplies, and the like.
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8. REPORTS
8.1. BI-MONTHLY REPORTS. RMI agrees to provide to Veritel at least once
every two months a written report of the progress of the work
required under each Work Statement issued hereunder, and anticipated
problems (resolved or unresolved), and any indication of delay in
fixed or tentative schedules
8.2. SITE VISITS. RMI shall, from time to time and upon reasonable
notice, allow access to its premises by Veritel for purposes of
design review, "walkthroughs," and discussions between Veritel and
RMI's management and personnel concerning the status and conduct of
work being performed under any Work Statements issued hereunder.
9. DELIVERY AND ACCEPTANCE
9.1. RMI shall deliver all deliverables, upon completion, to Veritel's
Technical Coordinator for testing and acceptance. RMI shall
memorialize such delivery in a Delivery Confirmation that sets forth
the nature and condition of the Deliverables, the medium of
delivery, and the date of their delivery. Veritel's Technical
coordinator shall countersign such delivery Confirmation so as to
indicate its receipt of the contents described therein, and delivery
confirmation shall thereupon be transmitted to the parties' Contract
Coordinator. Unless a different procedure for testing and acceptance
is set forth in a Work Statement, Veritel's Technical Coordinator
shall commence acceptance testing following its receipt of the
Deliverables. Upon completion of such testing, which shall take no
more than 30 days, Veritel shall issue to RMI's Technical
Coordinator notice of acceptance or rejection of the Deliverables.
In the event of rejection, Veritel shall give its reasons for
rejection to RMI's Technical Coordinator in reasonable detail. RMI
shall use commercially reasonable efforts to correct any
deficiencies or non-conformities and resubmit the rejected items as
promptly as possible. If (1) Veritel fails to complete acceptance
testing within 30 days of product delivery except in an instance of
Force Majeure or (2) RMI commences and completes a sale to a third
party of the product or Deliverable as developed and delivered to
Veritel, and as permitted under this agreement, the product shall be
deemed as having passed Veritel's acceptance testing.
10. INVENTIONS
10.1. INVENTION DEFINED. An "Invention" shall mean any idea, design,
concept, technique, invention, discovery, or improvement, regardless
of patentability, made solely by either Party, or jointly by both
Parties during the term of this Agreement and only in the
performance of any work under any Work Statement issued hereunder,
provided that the reduction to practice thereof occurs during the
term of this Agreement and in the performance of work under a Work
Statement issued hereunder.
10.2. VESTING OF RIGHTS. Each Party hereby assigns to the other Party a
perpetual, royalty-free, unrestricted license to the other, and it's
successors, all Inventions, together with the right to seek
protection by obtaining joint ownership of patent rights therefor
and to claim all rights or priority thereunder, and the same shall
become and remain the property of each Party regardless of whether
such protection is sought. Each Party shall promptly make a complete
written disclosure to the other party, of each Invention not
otherwise clearly disclosed to the other in the pertinent
deliverables, specifically pointing out features or concepts that
either Party believes to be new or different. Each Party shall work
jointly and at a shared expense to cause patent applications to be
filed thereon, through attorneys jointly agreeable by both Parties,
and shall forthwith co-name the other Party, and their successors,
as co-inventors of all such applications and provide a perpetual,
royalty-free, unrestricted license to the other Party, its
successors, and assigns. Each Party agrees to work together with
best commercial efforts in connection with the preparation and
prosecution of any such patent application and shall cause to be
executed all such assignments or other instruments or documents as
Veritel and/or RMI may consider necessary or appropriate to carry
out the intent of this Agreement.
10.3. AVOIDANCE OF INFRINGEMENT. In performing services under this
Agreement, each Party agrees to avoid designing or developing any
items that infringe one or more patents or other intellectual
property rights of any third party. If either Party becomes aware of
any such possible infringement in the course of performing work
under any Work Statement issued hereunder, that Party shall
immediately so notify the other Party in writing.
11. OWNERSHIP
11.1. OWNERSHIP OF PRODUCT DEVELOPED IN WORK STATEMENT. For each
development project, both Parties will own international
distribution rights of the Product Developed as part of the Work
Statement, unless otherwise stated within the Work Statement.
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11.2. PRE-EXISTING WORKS. In the event that any Deliverable or portion of
any Deliverable constitutes a derivative Work of any preexisting
work, each Party shall use best commercial efforts to ensure that
the Work Statement pertaining to such deliverable so indicates by
references to (1) the nature of such preexisting work; (2) its
owner; (3) any restrictions or royalty terms applicable to each
Party's use of such preexisting work or each Party's exploitation of
the Deliverable as a Derivative Work thereof; and (4) the source of
each Party's authority to employ the preexisting work in the
preparation of the deliverable. Unless otherwise specifically agreed
in the Work Statement pertaining to such deliverable, before
initiating the preparation of any deliverable that is a Derivative
Work of a preexisting work each Party shall cause the other Party,
its successor, and assigns, to have and obtain the irrevocable,
nonexclusive, worldwide, royalty-free right and license to (a) use,
execute, reproduce, display, perform, distribute internally or
externally, sell copies of, and prepare Derivative Works based upon
all preexisting works and Derivative Works thereof and (b) authorize
or sublicense others from time to time to authorize or sublicense
others from time to time to do any or all of the foregoing.
11.3. PATENT LICENSE FOR PRODUCT DEVELOPED IN WORK STATEMENT. For Products
jointly owned and developed under this agreement, each Party hereby
agree to co-name the other Party in any and all patents that arise
from the work performed under an agreed upon Work Statement. Such
patents shall be co-owned and each Party hereby grants to the other
Party, its successors, and assigns, the royalty-free, worldwide,
nonexclusive right and license under any patents owned by the Party
as a result of work performed under this agreement, or with respect
to which the Party has a right to grant such rights and licenses, to
the extent required by the other Party to exploit the Deliverables
and exercise its full rights in the deliverables, including (without
limitation) the right to make, use, and sell products and services
based on or incorporating such Deliverables.
12. TAXES
12.1. The fees listed in this Agreement or any Attachment(s) do not
include taxes. RMI shall be responsible for paying all taxes imposed
by any federal, state, or local government agency for any payment
made by Veritel to RMI pursuant to this Agreement (including any
sales, use, property, value-added taxes), whether such taxes are now
or hereafter imposed.
13. INFRINGEMENT WARRANTY AND INDEMNITY
13.1. RMI INFRINGEMENT WARRANTY. RMI represents and warrants that: (i) RMI
owns, or has acquired, all Intellectual Property Rights incorporated
into or provided with respect to the Software Deliverables, and that
it is authorized to grant the licenses under this Agreement; and
(ii) the Software Deliverables does not infringe any third party
Intellectual Property Rights. The foregoing representation and
warranty, and any rights provided in this SECTION 13, are solely for
the benefit of Veritel. Veritel may make such warranties to its
sublicensees as it deems appropriate but may not under any
circumstances make any warranty on behalf of RMI or pass RMI's
warranty through to any sublicensee.
13.2. INDEMNIFICATION BY RMI. RMI shall indemnify and hold Veritel, its
subsidiaries, affiliates, shareholders, directors, officers,
successors and assigns harmless from and against any and all party
claims, suits, and liabilities (including reasonable attorneys' fees
and expenses) arising out of: (i) the inaccuracy of any
representation or warranty made by RMI in this SECTION 13; or (ii)
any claim that the RMI application, software, computer programming,
system, or technology into which the Software Deliverable may be
incorporated infringes any third party Intellectual Property Right;
provided that Veritel promptly notifies RMI in writing of any such
third party claim and that RMI shall have sole control of the
defense of any such third party intellectual property claim and all
negotiations for settlement. For purposes of this Agreement "Claims"
shall mean claims, litigation, actions, suits, administrative
proceedings, losses, damages, injuries, liabilities, demands,
judgments, settlements, costs and expenses (including, but not
limited to reasonable attorneys' fees and expenses), penalties and
compensatory, multiple, exemplary, and punitive damages.
Notwithstanding the foregoing, RMI shall be entitled to be
represented by separate counsel at its own expense.
13.3. NO INDEMNIFICATION OBLIGATION. RMI shall have no liability for any
third party claim of infringement of Intellectual Property Rights
based on: (i) use of a superseded or altered release of the Software
Deliverables if the alleged infringement would have been avoided by
the use of a current, unaltered release of the Software
Deliverables; or (ii) the combination, operation, or use of the
Software Deliverables with applications, software, computer
programming, system, or technology if the alleged infringement would
have been avoided by the use of the Software Deliverable without
such applications, software, computer programming, system, or
technology.
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<PAGE> 6
13.4. OPTION TO AVOID INFRINGEMENT. In the event that, in RMI's opinion,
any portion of the Software Deliverable is likely to or does become
the subject of a third party claim alleging violation of
Intellectual Property Rights, RMI may procure for Veritel: (i) the
right to continue using the Software Deliverable; (ii) modify the
Software Deliverable to make it noninfringing; or (iii) or replace
the Software Deliverable with a functionally equivalent (as
determined by RMI), noninfringing replacement.
13.5. COMPLETE LIABILITY OF RMI. THIS SECTION 13 SETS FORTH THE COMPLETE
LIABILITY OF RMI WITH RESPECT TO INFRINGEMENT OF INTELLECTUAL
PROPERTY RIGHTS AND SECTION 13.4 SETS FORTH THE EXCLUSIVE REMEDY
WITH RESPECT THERETO.
13.6. VERITEL INFRINGEMENT WARRANTY. Veritel represents and warrants that:
(i) Veritel owns, or has acquired, all Intellectual Property Rights
incorporated into or provided with respect to the CVS application
and Veritel's APIs as delivered to RMI (the "Veritel Deliverables")
for use in developing Deliverables, and that it is authorized to
grant the licenses under this Agreement; and (ii) the Veritel
Deliverables does not infringe any third party Intellectual Property
Rights. The foregoing representation and warranty, and any rights
provided in this SECTION 13, are solely for the benefit of RMI.
Veritel may make such warranties to its sublicensees as it deems
appropriate but may not under any circumstances make any warranty on
behalf of Veritel or pass Veritel's warranty through to any
sublicensee.
13.7. INDEMNIFICATION BY VERITEL. Veritel shall indemnify and hold RMI,
its subsidiaries, affiliates, shareholders, directors, officers,
successors and assigns harmless from and against any and all party
claims, suits, and liabilities (including reasonable attorneys' fees
and expenses) arising out of: (i) the inaccuracy of any
representation or warranty made by Veritel in this SECTION 13; or
(ii) any claim that the Veritel Deliverables infringe any third
party Intellectual Property Right; provided that RMI promptly
notifies Veritel in writing of any such third party claim and that
Veritel shall have sole control of the defense of any such third
party intellectual property claim and all negotiations for
settlement. For purposes of this Agreement "Claims" shall mean
claims, litigation, actions, suits, administrative proceedings,
losses, damages, injuries, liabilities, demands, judgments,
settlements, costs and expenses (including, but not limited to
reasonable attorneys' fees and expenses), penalties and
compensatory, multiple, exemplary, and punitive damages.
Notwithstanding the foregoing, RMI shall be entitled to be
represented by separate counsel at its own expense.
13.8. COMPLETE LIABILITY OF VERITEL. THIS SECTION 13 SETS FORTH THE
COMPLETE LIABILITY OF VERITEL WITH RESPECT TO INFRINGEMENT OF
INTELLECTUAL PROPERTY RIGHTS.
14. REPRESENTATIONS AND WARRANTIES
14.1. Representations and Warranties of RMI.
14.1.1. SOFTWARE. RMI warrants solely for the benefit of Veritel
that, in its unmodified state, the Software Deliverable
shall operate in conformity to the Specifications relating
to it and defined within Attachment(s). If the Software
Deliverable shall fail to conform to such Specifications,
RMI shall use commercially reasonable efforts to correct
such non-conformities. If RMI cannot make Software
Deliverable operate as warranted, then RMI shall refund to
Veritel all amounts paid for such Software Deliverable and
this shall be Veritel's sole and exclusive remedy. RMI does
not represent or warrant that: (i) the Software Deliverable
will meet Veritel's requirements; (ii) the Software
Deliverable will operate in the combinations which Veritel
may select for use; (iii) the operation of the Software
Deliverable will be error-free; or (iv) any errors in the
Software Deliverable will be corrected. Veritel may make
such warranties to its sub-licensees as it deems appropriate
but may not under any circumstances make any warranty on
behalf of RMI or pass RMI's warranty through to any
sub-licensee.
14.1.2. YEAR 2000. RMI represents and warrants that the Software
Deliverable will operate in conformity to the Specifications
relating to it before, on, or after, the date January 1,
2000, for purposes of Year 2000 (including Leap Year)
processing. RMI represents that it is not aware of any way
in which such matters are relevant to the operation of the
Software Deliverable. This representation and warranty does
not include the other software programs, including operating
systems, that may effect the ability of the Software
Deliverables to operate.
14.1.3. DEFECT WARRANTY. If RMI becomes aware of errors in the
Software Deliverables that prohibit their use, RMI will make
commercially reasonable efforts to correct such errors in a
timely manner. An error shall mean any error, problem, or
defect resulting from (1) an incorrect functioning of Code,
or (2) an incorrect or incomplete statement of diagram in
Documentation, if such an error, problem, or defect renders
the Software Deliverables inoperable, causes the Software
Deliverables to fail to meet the specifications thereof,
causes the Documentation to be inaccurate or incomplete in
any material respect, causes incorrect results, or causes
incorrect functions to occur when any such materials are
used.
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<PAGE> 7
14.2. Representations and Warranties of Veritel.
14.2.1. LIMITATION ON WARRANTIES. THE LIMITED WARRANTIES OF RMI SET
FORTH ABOVE ARE MADE FOR THE BENEFIT OF VERITEL ONLY AND
SHALL NOT EXTEND TO ANY THIRD PARTIES. THE REMEDY DESCRIBED
IN SECTION 14.1.1 IS THE SOLE AND EXCLUSIVE REMEDY FOR
BREACH OF THE LIMITED WARRANTIES SET FORTH ABOVE. EXCEPT AS
PROVIDED IN SECTIONS 13 AND 14, RMI MAKES NO OTHER
REPRESENTATION OR WARRANTY OF ANY KIND, WHETHER EXPRESS OR
IMPLIED, FROM A COURSE OF PERFORMANCE OR DEALING, TRADE
USAGE, OR OF UNINTERRUPTED OPERATION WITHOUT ERROR,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. RMI
MAKES NO WARRANTIES WITH REGARD TO THE RESULTS OBTAINED FROM
THE OPERATION OR USE BY VERITEL OF THE SOFTWARE DELIVERABLE.
14.2.2. OTHER THAN PURSUANT TO SECTION 13, RMI SHALL NOT BE LIABLE
TO VERITEL, OR ANY THIRD PARTY, FOR ANY THIRD PARTY CLAIMS
BASED ON CONTRACT, TORT, OR OTHER GROUNDS (INCLUDING THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE) RELATED TO THIS AGREEMENT, THE PRODUCTS OR ANY
DEVICE, MATERIAL, OR THING TO WHICH THE PRODUCTS ARE
ATTACHED, OR OF WHICH ANY PRODUCT IS MADE A PART, OR WITHIN
WHICH ANY SUCH PRODUCT IS ENCLOSED, REGARDLESS OF WHETHER
RMI MAY BE WHOLLY, CONCURRENTLY, PARTLY, JOINTLY, OR SOLELY
NEGLIGENT OR OTHERWISE AT FAULT.
14.2.3. THE LIMITED WARRANTIES SET FORTH ABOVE SHALL NOT APPLY TO
ANY PRODUCTS THAT HAVE BEEN SUBJECTED TO IMPROPER USE OR
STORAGE, USE BEYOND RATED CONDITIONS, IMPROPER MAINTENANCE,
NEGLIGENCE, OR ACCIDENT. VERITEL SHALL PROVIDE RMI ACCESS TO
THE PRODUCTS AS TO WHICH VERITEL CLAIMS A PURPORTED DEFECT
OR NONCONFORMANCE IN THE SOFTWARE DELIVERABLE. UPON REQUEST
BY RMI, VERITEL SHALL, AT ITS OWN RISK AND EXPENSE, PROMPTLY
RETURN SUCH PRODUCTS IN QUESTION TO RMI.
14.2.4. THE FOREGOING WARRANTIES BY RMI ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE SOFTWARE
DELIVERABLE OR PRODUCTS PROVIDED HEREUNDER. RMI SHALL HAVE
NO LIABILITY WHATSOEVER FOR ANY COVER OR SET-OFF NOR FOR ANY
INDIRECT, CONSEQUENTIAL, EXEMPLARY, INCIDENTAL, OR PUNITIVE
DAMAGES, INCLUDING LOST PROFITS, EVEN IF RMI HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT AS
PROVIDED IN SECTION 13.4 OF THIS AGREEMENT, REGARDLESS OF
WHETHER ANY REMEDY SET FORTH IN THIS AGREEMENT ------------
FAILS OF ITS ESSENTIAL PURPOSE, RMI'S LIABILITY TO VERITEL
FOR ANY REASON AND UPON ANY CAUSE OF ACTION, WHETHER
SOUNDING IN TORT, CONTRACT, OR ANY OTHER LEGAL THEORY,
EXCEED IN THE AGGREGATE THE TOTAL AMOUNT PAID BY VERITEL TO
RMI UNDER THIS AGREEMENT DURING THE IMMEDIATELY PRECEDING
TWELVE (12) MONTH PERIOD.
14.3. ALLOCATION OF RISK. VERITEL ACKNOWLEDGES AND AGREES THAT THE FEES
CHARGED BY RMI IN THIS AGREEMENT REFLECT AN ALLOCATION OF RISK
BETWEEN THE PARTIES, INCLUDING, BUT NOT LIMITED TO, THE LIMITATION
OF LIABILITY AND EXCLUSIVE REMEDIES DESCRIBED IN THIS AGREEMENT. A
MODIFICATION OF THE ALLOCATION OF RISKS SET FORTH IN THIS AGREEMENT
WOULD AFFECT THE FEES CHARGED BY RMI, AND IN CONSIDERATION OF SUCH
FEES, VERITEL AGREES TO SUCH ALLOCATION OF RISK.
15. SUPPORT AND MAINTENANCE
15.1. VERITEL SUPPORT. For a period of (1) year after the Effective Date,
RMI hereby agrees to provide training to Veritel's employees
regarding the Software Deliverables, so that Veritel's employees can
provide support to Distribution Partners and End Users. Such
training shall take place at Veritel's place of business. RMI's
telephone support will be available on standard business days,
holidays excepted, from 9:00 a.m. to 5:00 p.m. Eastern Time.
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<PAGE> 8
15.2. END-USER AND DISTRIBUTION PARTNER SUPPORT. Veritel will provide
first level and second level support to its' End Users and
Distribution Partners. RMI will provide third level support to
Veritel.
15.2.1. First level support shall mean very basic assistance in the
use of Products.
15.2.2. Second level support shall include gathering and checking
information provided from first level support and responding
to unresolved issues for which answers may be available from
alternative resources. Second level support shall also
include testing, collection of error logs and files and use
of diagnostic tools.
15.2.3. Third level support is provided from RMI to Veritel in the
event Veritel is unable to resolve the problem.
15.3. MAINTENANCE, UPDATES AND UPGRADES. For a period of one (1) year
after the Effective Date, RMI will provide to Veritel Minor
Enhancements for the RMI Software. Major Enhancements may be
negotiated under a separate agreement. Veritel shall have sole
responsibility for distributing any such releases.
16. CONFIDENTIALITY
16.1. CONFIDENTIAL INFORMATION. The parties acknowledge and agree that it
may be necessary for each of them or their directors, officers,
partners, agents, or representatives to disclose or make available
to each other information and materials that are confidential or
proprietary or contain valuable trade secrets relating to their
respective businesses (collectively the "Confidential Information"),
and that some such information may already have been disclosed prior
to the date of this Agreement. Prior to disclosure to the other
party, the disclosing party shall use commercially reasonable
efforts to designate all Confidential Information by marking such
materials or information, if in tangible form, with a "Confidential"
or similar legend. In any event, RMI and Veritel agree that even if
not so marked, the Software Deliverable and Products, and all other
components of both that are not readily apparent to an end-user, are
Confidential Information, as are any documentation, descriptions,
and embodiments thereof.
16.2. NON-DISCLOSURE. During the term of this Agreement and any
Attachment(s) accepted hereunder, and for the longer of three (3)
years or the longest time permitted by relevant law following the
termination of this Agreement, each of the parties agrees: (i) to
use commercially reasonable efforts to protect the Confidential
Information of the other party from unauthorized use or disclosure
and to use at least the same degree of care with regard thereto as
it uses to protect its own Confidential Information of a like
nature; (ii) to use and reproduce the Confidential Information of
the other party only as permitted under this Agreement and only as
needed to perform its duties hereunder; (iii) except pursuant to
Veritel's license to grant sublicenses hereunder, not to disclose or
otherwise permit access to the Confidential Information of the other
party to any third party without the disclosing party's prior
written consent and then only to the extent reasonably required to
accomplish the intent of this Agreement; and (iv) to ensure that its
employees participating in the performance of this Agreement are
advised of the confidential nature of the Confidential Information
of the other party, that they are prohibited from using or copying
the Confidential Information of the other party for any purpose
other than performing their obligations under this Agreement, from
revealing the Confidential Information of the other party for any
other purpose whatsoever, and from taking any action prohibited to
either party under this SECTION 16.2.
16.3. COMPELLED DISCLOSURE. In the event that either party or any of its
directors, officers, partners, or employees is required by
deposition, interrogatory, request for documents, subpoena, civil
investigative demand, or similar process to disclose any of the
Confidential Information of the other party, such compelled party or
any such person may disclose only that portion of the Confidential
Information of the other party that such party or such person is
legally required to disclose. If legally permitted, a party shall
first provide notice to the other party of any such process
requiring such disclosure upon receipt thereof in order to provide
the other party with the opportunity to petition the court or
administrative body to prevent such disclosure.
16.4. EXCEPTIONS. Information will not be considered to be Confidential
Information if it: (i) is already, or otherwise becomes, publicly
known by third parties other than as a result of an act or omission
of the receiving party; (ii) is lawfully received, after disclosure
hereunder, from a third party having the right to disseminate the
information to the receiving party and without restriction on
disclosure; (iii) is furnished to others by the disclosing party
without restriction on disclosure; or (iv) can be shown by the
receiving party to have been independently developed by such party
without use of or reference to the Confidential Information of the
disclosing party. Furthermore, it is understood that each party
shall be free to use ideas, concepts, know-how and techniques
related to the scope of its business and practice, provided they
contain no specific or identifiable elements unique to the other
party hereto or its operations and they otherwise contain no
Confidential Information of the other party.
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<PAGE> 9
16.5. RETURN OF CONFIDENTIAL INFORMATION. Except as otherwise expressly
provided herein, upon termination or completion of this Agreement,
the parties shall promptly return to each other all materials that
were delivered to each party by one another with respect to such
Agreement or Attachment(s), including, but not limited to, all
tangible forms of Confidential Information and any copies thereof.
Furthermore, upon the return thereof, each party shall cause one of
its officers or principals to certify to the other party in writing
that that party has complied with this SECTION 16.5.INJUNCTIVE
RELIEF. The parties agree that any breach by a party or any of its
directors, officers, partners, employees, agents or representatives
of any provisions of this SECTION 16.6 may cause immediate and
irreparable injury to the other party and that, in the event of such
breach, the injured party will be entitled to seek injunctive relief
as well as any and all other remedies available at law or in equity.
17. MARKETING SUPPORT
17.1. Press Releases. Neither Party may issue press releases pertaining to
this Agreement or Attachment(s) without the written permission of
the other Party.
17.2. When requested, and if available, RMI will provide, at Veritel's
expense, sales marketing support to Veritel for significant customer
opportunities
18. PAYMENT TERMS
18.1. CURRENCY. All payments due under this Agreement shall be made to RMI
in US Dollars.
18.2. PAYMENT TRANSMITTALS. All payments are to be made via Electronic
Funds Transfer to Registry Magic Incorporated at First Union
National Bank of Florida to Account Number 9981591341 with ABA
Routing Number 063000021 067006432.
18.3. PAYMENT DUE DATES. Development payments for items specified within
the Work Statement are due as specified in the Work Statements.
18.4. LATE FEES. Any Development payment not made when due shall bear
interest at the lower of one and one-half percent (1 1/2%) per month
or the maximum rate allowed by law. In the event RMI is required to
institute an action to collect any such amount and shall prevail in
whole or in part, RMI shall be entitled to reimbursement by Veritel
of its reasonable expenses so incurred (including attorneys' fees).
19. TERM AND TERMINATION
19.1. TERM. The term of this Agreement shall commence on the Effective
Date set forth above and shall continue for a term of three years.
19.2. TERMINATION BY RMI. RMI may terminate this Agreement upon written
notice to Veritel if (a) Veritel breaches this Agreement and fails
to correct the breach within thirty (30) days following written
notice specifying the breach; (b) if Veritel makes an assignment for
the benefit of creditors, or files a voluntary petition of
bankruptcy, or seeks or consents to any reorganization or similar
relief, or is adjudicated, bankrupt or insolvent, or has commenced
against it by a third party any bankruptcy, insolvency,
reorganization or similar petition or proceeding. In the event of a
sale, transfer, or other disposition of the "control" of Veritel
(which for the purpose of this SECTION 19.2 shall mean effective
control of the management of Veritel) or of any substantial part of
Veritel's assets, interests, business or property, RMI must approve
the transfer the rights granted under this agreement to the third
party but may not reasonably withhold this transfer. Termination
shall not relieve Veritel of its obligation to pay all license fees
that have accrued under this Agreement.
19.3. TERMINATION BY VERITEL. Veritel may terminate this Agreement upon
written notice to RMI if (a) RMI breaches this Agreement and fails
to correct the breach within thirty (30) days following written
notice specifying the breach; (b) if RMI makes an assignment for the
benefit of creditors, or files a voluntary petition of bankruptcy,
or seeks or consents to any reorganization or similar relief, or is
adjudicated, bankrupt or insolvent, or has commenced against it by a
third party any bankruptcy, insolvency, reorganization or similar
petition or proceeding. In the event of a sale, transfer, or other
disposition of the "control" of RMI (which for the purpose of this
SECTION 19.3 shall mean effective control of the management of RMI)
or of any substantial part of RMI's assets, interests, business or
property, Veritel must approve the transfer the rights granted under
this agreement to the third party but may not reasonably withhold
this transfer. Termination shall not relieve RMI of its obligations
under this Agreement.
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<PAGE> 10
19.4. EFFECT OF TERMINATION. Upon termination of this Agreement, all of
RMI's and Veritel's warranty, support and maintenance obligations
shall cease, including without limitation RMI's and Veritel's
obligation to provide maintenance releases, updates and defect
support. Termination of this Agreement or any Attachment(s) shall
not limit either party from pursuing any other remedies that may be
available to it, including injunctive relief, nor shall termination
relieve Veritel or RMI of its obligation to pay all license fees
that have accrued or that Veritel or RMI has agreed to pay under any
Attachment(s). The parties' obligations under SECTIONS 11, 13, 14,
AND 16 shall survive termination of this Agreement.
20. GENERAL
20.1. INDEPENDENT CONTRACTOR. RMI is an independent contractor under this
Agreement, and nothing herein shall be construed to create a
partnership, joint venture, or agency relationship between the two
parties hereto. Veritel shall have no authority to enter into
agreements of any kind on behalf of RMI and, except as set forth
herein, shall not have the power or authority to bind or obligate
RMI in any manner to any third party.
20.2. COMPLETE AGREEMENT. This Agreement, including any Attachment(s)s
hereunder, is the complete and exclusive statement of the agreement
of the parties with respect to the subject matter hereof and
supersedes and merges all prior proposals, understandings, and
agreements, whether oral or written, between the parties with
respect to the subject matter hereof. This Agreement may not be
modified except by a written instrument duly executed by the parties
hereto.
20.3. NO WAIVER. No failure to exercise, and no delay in exercising, on
the part of either party, any right, power or privilege hereunder
will operate as a waiver thereof, nor will any party's exercise of
any right, power or privilege hereunder preclude further exercise of
the same right or the exercise of any other right hereunder.
20.4. ENFORCEABILITY. If any part of this Agreement shall be adjudged by
any court of competent jurisdiction to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the
remaining provisions shall not be affected or impaired thereby and
shall be enforced to the maximum extent permitted by applicable law.
If any remedy set forth in this Agreement is determined to have
failed of its essential purpose, then all other provisions of this
Agreement, including the limitations of liability and exclusion of
damages, shall remain in full force and effect.
20.5. NO CONSTRUCTION AGAINST DRAFTER. If an ambiguity or question of
intent arises with respect to any provision of this Agreement, the
Agreement will be construed as if drafted jointly by the parties and
no presumption or burden of proof will arise favoring or disfavoring
either party by virtue of authorship of any of the provisions of
this Agreement.
20.6. FORCE MAJEURE. Either party shall be excused from performance and
shall not be liable for any delay in whole or in part, caused by the
occurrence of any contingency beyond the reasonable control either
of the excused party or its subcontractors or suppliers. These
contingencies include, but are not limited to, war, sabotage,
insurrection, riot or other act of civil disobedience, act of public
enemy, failure or delay in transportation, act of any government or
any agency or subdivision thereof affecting the terms hereof,
accident, fire, explosion, flood, severe weather or other act of
God, or shortage of labor or fuel or raw materials.
20.7. NOTICES. Any notice required or permitted hereunder to the parties
hereto will be deemed to have been duly given only if in writing to
the address of the receiving party as set forth on the initial page
hereof or such other address as may be specified by such party in a
notice delivered to the other party in accordance with this Section
and delivered by: (i) certified U.S. mail, return receipt requested,
postage prepaid; (ii) nationally recognized overnight courier,
delivery charges prepaid; or (iii) by hand delivery with signed
receipt. Any notice shall be deemed delivered: (a) on the fifth
(5th) business day following deposit of such notice with the U.S.
Postal Service if notice is given in accordance with (i), above; (b)
on the second (2nd) business day following deposit of such notice
with the courier if notice is given in accordance with (ii), above;
or (c) on the date of actual delivery if notice is given in
accordance with (iii), above.
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<PAGE> 11
20.8. GOVERNING LAW AND JURISDICTION. This Agreement shall be deemed to
have been made in, and shall be construed pursuant to the laws of,
the State of Florida.
20.9. HEADINGS AND SUBSECTIONS. Section headings are provided for
convenience of reference and do not constitute part of this
Agreement. Any references to a particular section of this Agreement
shall be deemed to include reference to any and all subsections
thereof.
20.10. ASSIGNMENT. Neither party may assign or delegate any or all of its
rights (other than the right to receive payments) or its duties or
obligations hereunder without the consent of the other party, which
consent shall not be unreasonably withheld; provided, however, that
either party may assign this Agreement, without the need to obtain
consent of the other party, a successor in interest to substantially
all of the business of that party to which this Agreement relates.
An assignee of either party authorized hereunder shall be bound by
the terms of this Agreement and shall have all of the rights and
obligations of the assigning party set forth in this Agreement. If
any assignee shall fail to agree to be bound by all of the terms and
obligations of this Agreement, then such assignment shall be deemed
null and void and of no force or effect.
20.11. NO THIRD PARTY BENEFIT. The provisions of this Agreement are for
the sole benefit of the parties hereto. This Agreement confers no
rights, benefits, or claims upon any person or entity not a party
hereto
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT AS OF THE EFFECTIVE
DATE.
REGISTRY MAGIC INCORPORATED
By: /s/ Walt Nawrocki
--------------------------------------
Name: Walt Nawrocki
------------------------------------
Title: President and CEO
-----------------------------------
VERITEL CORPORATION OF AMERICA
By: /s/ Mitchell Liss
--------------------------------------
Name: Mitchell Liss
--------------------------------------
Title: Vice President and CFO
--------------------------------------
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<PAGE> 12
BUSINESS LEASE
THIS AGREEMENT, entered into this ______ day of June ____, 1998 between
Diversified Equity Management Corporation, hereinafter called the lessor, party
of the first part, and Registry Magic, Inc., a Florida corporation of the County
of Palm Beach and State of Florida hereinafter called the lessee or tenant,
party of the second part:
WITNESSETH, That the said lessor does this day lease unto said lessee,
and said lessee does hereby hire and take as tenant under said lessor
XXXXXXXXXXXXXXXXXXXXX
XXX Suite 1, 1 South Ocean Blvd., Boca Raton, FL 33432 situate in Boca Raton,
Florida, to be used and occupied by the lessee as Office/Non-Retail facility and
for no other purposes or uses whatsoever, for the term of 3 years ** , subject
and conditioned on the provisions of clause ten of this lease beginning the 1st
day of **, 1998 and ending the last day of **, 2001 at and for the agreed total
rental of $ 90,000.00 Dollars, payable as follows:
Monthy payments of $ 2,500.00 shall be due on the 1st day of each month of the
Lease for a term of 3 years commencing on the 1st day of July, 1998 and ending
on June 30, 2001 except as set forth on Exhibit "B" attached hereto and
incorporated by reference herein. Lessee shall also pay to Lessor with each
month's rental payment all applicable sales tax.
Upon execution of this Lease, Lessee shall also pay to Lessor a first month's
rent of $2,500.00 and a last month's rent of $2,500.00.
all payments to be made to the lessor on the first day of each and every month
In advance without demand at the office of Lessor at _________________________
in the City of ______________________________ or at such other place and to such
other person, as the lessor may from time to time designate in writing.
The following express stipulations and conditions are made a
part of this lease and are hereby assented to by the lessee:
FIRST: The lessee shall not assign this lease, nor sub-let the
premises, or any part thereof nor use the same, or any part thereof, nor permit
the name, or any part thereof, to be used for any other purpose than as above
stipulated, nor make any alterations therein and all additions thereto, without
the written consent of the lessor, and all additions, fixtures or
improvements which may be made by leasee, except movable office furniture,
shall become the property of the lessor and remain upon, the premises as a part
thereof, and be surrendered with the premises at the termination of this lease.
SECOND: All personal property placed or moved in the premises
above described shall be at the risk of the lessee or owner thereof, and lessor
shall not be liable for any damage to said personal property, or to the lessee
arising from the bursting or leaking of water pipes, or from any act of
neglience of any co-tenant or occupants of the building or any other person
whatsoever.
THIRD: That the tenant ______ shall promptly execute and
comply with all statutes, ordinances, rules, orders, regulations and
requirements of the Federal, State and City Government and of any and all their
Departments and Bureaus applicable to said premises, for the correction,
prevention, and abatement of nuisances or other grievances in, upon, or
connected with said premises during said term: and shall also promptly comply
with and execute all rules, orders and regulations of the Southeastern
Underwriters Association for the prevention of fires, at ______ own cost and
expense.
FOURTH: In the event the premises shall be destroyed or so
damaged or injured by fire or other casualty during the life of this agreement,
whereby the same shall be rendered untenantable, then the lessor shall have the
right to render said premises tenantable by repairs within ninety days
therefrom. If said premises are not rendered tenantable within said time, it
shall be optional with either party hereto to cancel this lease, and in the
event of such cancellation the rent shall be paid only to the date of such fire
or casualty. The cancellation herein mentioned shall be evidenced in writing.
<PAGE> 13
FIFTH: The prompt payment of the rent for said premises upon
the dates named, and the faithful observance of the rules and regulations
printed upon this lease, and which are hereby made as part of this covenant, and
of such other and further roles or regulations as may be hereafter made by the
lessor are the conditions upon which the lease is made and accepted and any
failure on the part of the lessee to comply with the terms of said lease, or any
rules and regulations now in existence, of which may be hereafter prescribed by
the lessor, shall at the option of the lessor, work a forfeiture of this
contract, and all of the rights of the lessee hereunder, and thereupon the
lessor, his agents or attorneys, shall have the right to enter premises, and
remove all persons therefrom forcibly or otherwise, and the lessee thereby
expressly waives any and all notice required by law to terminate tenancy, and
also waives any and all legal proceedings to recover possession of said
premises, and expressly agrees that in the event of a violation of any of the
terms of this lease, or of said rules and regulations, now in existence or which
hereafter be made, said lessor, his agent or attorneys, may immediately re-enter
said premises and dispossess lessee without legal notice or the institution of
any legal proceedings whatsoever.
SIXTH: If the lessee shall abandon or vacate said premises
before the end of the term of this lease, or shall suffer the rent to be in
arrears, the leasor may, at his option, forthwith cancel this lease or he may
enter said premises as the agent of the lessee, by force or otherwise without
being liable in any way therefor, and relet the premises with or without any
furniture that may be therein, as the agent of the lessee, at such price and
upon such terms and for such duration of time as the lessor may determine and
receive the rent therefor, applying the same to the payment of the rent due by
these presents, and if the full rental herein provided shall not be realized by
lessor over and above the expenses to lessor in such re-letting, the said lessee
shall pay any deficiency, and if more than the full rental is realized lessor
will pay over to said lessee the excess of demand.
SEVENTH: Lessee agrees to pay the cost of collection and ten
per cent attorney's fee on any part of said rental that may be collected by suit
or by attorney, after the same is past due.
EIGHTH: The lessee agrees that he will pay all charges for
rent gas, electricity or other illumination, and for all water used on said
premises, and should said charges for rent, light or water herein provided for
at any time remain due and unpaid for the space of five days after the same
shall have become due, the lessor may at its option consider the said lessee
tenant at sufferance and immediately re-enter upon said premises and the entire
rent for the rental period then next ensuing shall at once be due and payable
and may forthwith be collected by distress or otherwise,
NINTH: The said lessee hereby pledges and assigns to the
lessor all the furniture, fixtures, goods and chattels of said lessee, which
shall or may be brought or put on said premises as security for the payment of
the rent herein reserved, and the lessee agrees that the said lien may be
enforced by, distress foreclosure or otherwise at the election of the said
lessor, and does hereby agree to pay attorney's fees of ten percent of the
amount so collected or found to be due, together with all costs and charges
therefore incurred or paid by the lessor.
TENTH: It is hereby agreed and understood between lessor and
lessee that in the event the lessor decides to remodel, alter or demolish all or
any part of the premises leased hereunder, or in the event of the sale or long
term lease of all or any part of this space; requiring this space, the lessee
hereby agrees to vacate same upon receipt of sixty (60) days' written notice and
the return of any advance rental paid on account of this lease.
It being further understood and agreed that the lessee will
not be required to vacate said promises during the winter season: namely,
November first to May first, by reason of the above paragraph.
ELEVENTH: The lessor, or any of his agents, shall have the
right to enter said premises during all reasonable hours to examine the same to
make such repairs, additions or alterations as may be deemed necessary for the
safety. comfort, or preservation thereof, or of said building, or to exhibit
said premises, and to put or keep upon the doors or windows thereof a notice
"FOR RENT" at any time within thirty (30) days before the expiration of this
lease. The right of entry shall likewise exist for the purpose of removing
placards, signs, fixtures alterations, or additions, which do not conform to
this agreement, or to the rules and regulations of the building.
TWELFTH: Lessee hereby accepts the premises in the condition
they are in at the beginning of this lease and agrees to maintain said premises
in the same condition, order and repair as they are at the commencement of said
term, excepting only reasonable wear and tear arising from the use thereof
under this agreement and to make good to said lessor immediately upon demand,
any damage to water apparatus, or electric lights or any fixture, appliances or
appurtenances of said premises, or of the building, caused by any act or
neglect of lessee, or of any person or persons in the employ or under the
control of the lessee.
THIRTEENTH: It is expressly agreed and understood by and
between the parties to this agreement, that the landlord shall not be liable for
any damage or injury by water, which may be sustained by the said tenant or
other person or for any other damage or injury resulting from the carelessness,
negligence, or improper conduct on the part of any other tenant or agents, or
employees, or by reason of the breakage, leakage or obstruction of the water,
sewer or coil pipes, or other leakage in or about the said building.
<PAGE> 14
FOURTEENTH: If the lessee shall become insolvent or if
bankruptcy proceedings shall be begun by or against the lessee, before the end
of said term the lessor is hereby irrevocably authorized at its option, to
forthwith cancel this lease, as for a default. Lessor may elect to accept rent
from such receiver trustee, or other judicial officer during the term of their
occupancy in their fiduciary capacity without effecting lessor's rights as
contained in this contract, but no receiver, trustee or other judicial officer
shall ever have any right, title or interest in or to the above described
property by virtue of this contract.
FIFTEENTH: This contract shall bind the lessor and its assigns
or successors, and the heirs, assigns, administrators, legal representatives,
executors or successors as the case may be, of the lessee.
SIXTEENTH: It is understood and agreed between the parties
hereto that time is of the essence of this contract and this applies to all
terms and conditions contained herein.
SEVENTEENTH: It is understood and agreed between the parties
hereto that written notice mailed or delivered to the premises leased hereunder
shall constitute sufficient notice to the lessee and written notice mailed or
delivered to the office of the lessor shall constitute sufficient notice to the
Lessor, to comply with the terms of this contract.
EIGHTEENTH: The rights of the lessor under the foregoing shall
be cumulative, and failure on the part of the lessor to exercise promptly any
rights given hereunder shall not operate to forfeit any of the said rights.
NINETIETH: It is further understood and agreed between the
parties hereto that any charge against the lessee by the lessor for service or
for work done on the premises, by order of the lessee or otherwise accruing
under this contract shall be considered as rent due and shall be included in
any lien for rent due and unpaid.
TWENTIETH: It is hereby understood and agreed that any signs
or advertising to be used, including awnings, in connection with the premises
leased hereunder shall be first submitted to the lessor for approval before
installation of same.
SEE EXHIBIT "A" ATTACHED HERETO FOR ADDITIONAL TERMS AND CONDITIONS
<PAGE> 15
EXHIBIT "B"
ADDENDUM TO Business Lease
THIS ADDENDUM ("Addendum") made between Diversified Equity Management
Corporation ("Lessor") and Registry Magic, Inc., a Florida corporation
("Lessee") to that Business Lease ("Agreement") dated July __, 1998 concerning
real property located at a portion of Suite 1, 1 South Ocean Blvd., Boca Raton,
FL.
WITNESSETH, that for and in consideration of Ten and No/100 Dollars and the
mutual covenants contained herein, the Lessor and Lessee agree as follows:
1. The following shall be added to paragraphs TENTH and TWELFTH:
"Notwithstanding the foregoing, the Lessee shall accept the
space identified on Exhibit "A" in "As Is" condition with no warranties or
representations from the Lessor. Lessor agrees to construct, at its own expense,
the improvements more particularly described on Exhibit "A" attached hereto
within 60 days of the effective date of this Lease.
2. Use of the Lobby area described on Exhibit "A" will be joint and several by
the parties. Landlord shall handle all cleaning and maintenance in the Lobby at
its own expense.
3. Notwithstanding any provisions in this Lease to the contrary:
A. The maintenance of the air conditioning system shall be
shared by the parties on a prorata basis computed on square footage of
occupancy. Lessee shall promptly pay when due all electric bills for Suite 1
[which shall include the space occupied by Lessor and Lessee comprising the
entire space of Suite 1].
B. With the exception of the Lobby and the air conditioning
system, the Lessee shall bear all costs of the maintenance, cleaning and repair
of all systems within the space which shall include but not be limited to
plumbing and lighting.
C. The monthly rent payment due from the Lessee shall include
water service, common area maintenance and building taxes.
D. Lessee shall provide a Certificate of Insurance to Lessor
naming Lessor as an additional insured/loss payee on a policy of
liability/hazard/personal property insurance acceptable to Lessor in amount of
coverage and carrier. Both parties shall insure the Lobby but Lessee shall have
no liability or be required to insure any art work placed in the Lobby by the
Lessor.
E. Lessee shall not be permitted any signage whatsoever
including but not limited to the Lobby, the exterior areas of its space or the
Lessor's space. The existing signage for Ryals Gallery shall remain at Lessor's
sole discretion. Notwithstanding the foregoing, Lessee shall be permitted to
place a sign, approved in form and design by Lessor, on the interior door to the
Lessee's space (in the Lobby) and Lessee shall be solely liable for any fines,
fees, penalties, suits, damages, costs of litigation, court costs and attorneys
fees and costs incurred as the result of the actions of any municipal or state
authority in conjunction with the existence of the sign or Lessee's occupancy
and of its space. Lessee shall also indemnify and hold Lessor harmless from any
losses, suits, fines, penalties, damages, court costs, costs of litigation and
attorneys fees and costs incurred as the result of the Lessee's sign and
occupancy of the Lessee of its space as noted on Exhibit "A" attached hereto.
4. Paragraphs TENTH and NINTH shall be deleted in their entireties.
5. If Lessee requests occupancy of its space prior to July 1, 1998, the Lease
shall be deemed commenced on such date of occupancy and Lessee shall pay a
prorated rental for the days of the month prior to July 1 in which it occupies
the space payable in advance to the Lessor. The term of the lease shall be
extended for the number of days in which the Lessee commenced occupancy prior to
July 1, 1998.
6. The Lessee acknowledges that this Lease is a sublease to that certain lease
to which Lessor is a tenant.
7. Any court costs and attorneys fees and costs incurred with respect to
litigation in conjunction with this Lease except for that specified in paragraph
SEVENTH shall be paid by the prevailing party.
<PAGE> 16
8. The parties acknowledge that the Lessee herein (sublessee to Prime Lease) has
reviewed the Prime Lease ("Lease Agreement"), except for the payment terms
thereunder (see attached Prime Name Lease reviewed by Lessee herein), by and
between Boca Equities Company and Diversified Equity Management Corporation
dated September 28, 1992, as assigned, (the "Prime Lease") and further
acknowledge that this Lease is (a) subject to the terms and conditions of the
Prime Lease and (b) supersedes this Lease and remains in full force and effect.
Accordingly, this Lease shall create no additional rights unto the Lessee than
exist under the terms of the Prime Lease including the length of term available
or the termination thereof
Witness: XXXXX "Lessor"
- - ----------------------------------- Diversified Equity Management Corporation
/s/ Glenn Ryals
- - ----------------------------------- -----------------------------------------
By:
Dated:
-----------------------------------
Donna Marum "Lessee"
- - ---------------------------------- Registry Magic, Inc.
7/2 /s/ Walt Nawrocki
- - ---------------------------------- -----------------------------------------
By:
Dated: 7/2/98
-----------------------------------------
Re: Lease between Boca Equities Company, Ltd. (Landlord) and Diversified Equity
Management Corporation, Inc. (Tenant), dated September 18, 1992 (the "Prime
Lease").
Pursuant to the terms of the above referenced Prime Lease, the
undersigned Landlord consents to the sublease of approximately 1600 square feet
to Registry Magic, Inc. according to the attached sublease while reserving all
rights contained in the Prime Lease.
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
instrument for the purpose herein expressed, the day and year above written.
Signed, sealed and delivered in the presence of:
Diversified Equity Management Corporation
Subject to Approval by "Prime (Seal)
- - ----------------------------------- ----------------------------------------
Lease" Landlord. By: W. (Seal)
- - ----------------------------------- ----------------------------------------
As to Lessor Lessor
Registry Magic, Inc.
/s/ Walt Nawrocki
- - -----------------------------------
President & CEO
- - -----------------------------------
As to Lessee
State of Florida, )
County of ________________________ )
Before me, a Notary Public in and for said State and County, personally came
__________________________________________________________________to me well
known and known to be the person _________ named in the foregoing lease, and
____________________ acknowledged that ______________ executed the same for the
purpose therein expressed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the _______________day of ________________, 19 __
---------------------------------------
My commission expires
-------------- ---------------------------------------
Notary Public, State of Florida at Large
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