<PAGE> 1
As filed with the Securities and Exchange Commission on March 11, 1998
Registration Statement No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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REGISTRY MAGIC INCORPORATED
(Name of Small Business Issuer in Its Charter)
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Florida 7372 65-0623427
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
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One South Ocean Blvd., Suite 206
Boca Raton, FL 33432
(561) 367-0408
(Address and Telephone Number of Principal Executive Offices)
-------------------------
Walt Nawrocki, President
Registry Magic Incorporated
One South Ocean Boulevard, Suite 206
Boca Raton, Florida 33432
(561) 367-0408
(Name, Address and Telephone Number of Agent For Service)
------------------------------
Copies of all communications to:
James Schneider, Esq. Fran Stoller, Esq.
Gayle Coleman, Esq. Julie Yoo, Esq.
Atlas, Pearlman, Trop & Borkson, P.A. Bachner, Tally, Polevoy & Misher LLP
200 East Las Olas Boulevard, Suite 1900 380 Madison Avenue
Fort Lauderdale, FL 33301 New York, NY 10017-2590
Telephone: (954) 763-1200 Telephone: (212) 687-7000
Facsimile No. (954) 766-7800 Facsimile No. (212) 682-5729
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Each Shares Proposed Maximum Proposed Maximum Amount Of
Class of Securities To Be Offering Price Aggregate Offering Registration
To Be Registered Registered Per Unit(1) Price(1) Fee
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Common Stock,
$.001 par value 1,610,000(2) $ 8.00 $12,880,000 $3,800.00
Representative's Warrants
each to purchase one share
of Common Stock, $.001
par value 140,000 $ .001 $ 140 (3)
Common Stock,
$.001 par value 140,000(4) $ 9.60 $ 1,344,000 $396.00
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Amount Due........................................................................................... $4,196.00
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Assumes the Underwriters' over-allotment option to purchase up to
210,000 additional shares of Common Stock is exercised in full.
(3) None pursuant to Rule 457(g).
(4) Issuable upon exercise of the Representative's Warrants, together with
such indeterminate number of shares of Common Stock as may be issuable
by reason of the anti-dilution provisions contained therein.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ii
<PAGE> 3
PROSPECTUS
SUBJECT TO COMPLETION, DATED MARCH 10, 1998
REGISTRY MAGIC INCORPORATED
1,400,000 Shares of Common Stock
---------------
Registry Magic Incorporated (the "Company") is hereby offering
1,400,000 shares of common stock, $.001 par value (the "Common Stock"). Prior to
this offering (the "Offering'), there has been no public market for the Common
Stock of the Company. The initial public offering price will be determined by
negotiation between the Company and Commonwealth Associates, as representative
(the "Representative") of the several underwriters (the "Underwriters"). See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. It is anticipated that the initial public
offering price will be between $6.00 and $8.00 per share.
The Company has applied for listing of the Common Stock on The Nasdaq
SmallCap Market ("Nasdaq") under the symbol "RMAG."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON
PAGE 7 AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=============================================================================================================================
Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Company(2)
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Per Share .............. $ $ $
=============================================================================================================================
Total(3) ................. $ $ $
=============================================================================================================================
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(1) Does not include additional underwriting compensation to be received by
the Representative in the form of: (i) warrants to purchase up to
140,000 shares of Common Stock exercisable for a period of four years
commencing one year from the date of the Prospectus at a price equal to
120% of the initial public offering price (the "Representative's
Warrants"); (ii) a non-accountable expense allowance equal to 1.5% of
the initial public offering price; and (iii) an advisory fee (the
"Advisory Fee") equal to 2% of the initial public offering price. The
Company has agreed to
<PAGE> 4
indemnify the Underwriters against certain liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the Offering payable by the
Company, including the non-accountable expense allowance and the
Advisory Fee, estimated at $_______ ($______ if the Underwriters'
over-allotment option is exercised in full). See "Underwriting."
(3) The Company has granted to the Underwriters a 45-day option (which may
be exercised by the Representative, individually) to purchase up to
210,000 additional shares of Common Stock on the same terms and
conditions as set forth above, solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$__________, $_________ and $____________, respectively.
See "Underwriting."
The shares of Common Stock are being offered by the Underwriters
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to certain other conditions. The Underwriters reserve
the right to withdraw, cancel or modify the Offering and to reject any order in
whole or in part. It is expected that delivery of certificates representing the
Common Stock will be made against payment therefor at the offices of
Commonwealth Associates, 830 Third Avenue, New York, New York 10017, on or about
______________, 1998. See "Underwriting."
COMMONWEALTH ASSOCIATES
The date of this Prospectus is , 1998.
2
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[DIAGRAMS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON STOCK FOLLOWING THE PRICING
OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR
THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, OR THE IMPOSITION OF
PENALTY BIDS. SEE "UNDERWRITING" FOR A DESCRIPTION OF THESE ACTIVITIES.
3
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO
READ THIS PROSPECTUS IN ITS ENTIRETY. EXCEPT AS OTHERWISE NOTED, ALL SHARE AND
PER SHARE DATA AND INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER- ALLOTMENT OPTION. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS."
THE COMPANY
Registry Magic Incorporated 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 to a computer in a
natural conversational manner. The Company recently introduced the Virtual
Operator(TM) ("Virtual Operator")--a speech driven auto-attendant for the
commercial marketplace that has received a number of industry awards including
"Product of the Year" for 1997 by both CTI MAGAZINE and TELECONNECT MAGAZINE,
and is one of the five finalists for a COMPUTERWORLD SMITHSONIAN AWARD in the
category of Business & Related Services. The Company has developed prototypes
for two additional telephone-based speech recognition products which it intends
to introduce during calendar 1998--a voice driven speed dialing product and a
conversational personal assistant that performs voice mail, facsimile and e-mail
retrieval, as well as auto-attendant and speed dialing functions. The Company
anticipates that it will initially market these products primarily through a
distribution network of independent resellers, although it will also seek to
license its proprietary applications software to telephone switch and voice-mail
manufacturers, among others, on an original equipment manufacturer (OEM) basis.
The Company's goal is to continue to develop applications software that
simulates the manner in which people communicate by incorporating the following
key attributes into its products: (i) speaker independence (the ability to
understand almost anyone); (ii) continuous speech (the ability to understand
language at a natural pace rather than one word at a time); (iii) barge-in (the
ability to allow a user to talk through or interrupt a prompt); and (iv) key
word spotting (the ability to recognize relevant speech and ignore the balance).
The Company's strategy is to establish alliances with corporate partners to
develop specific customer solutions incorporating the Company's proprietary
applications software and generate revenue on a recurring basis. For example,
the Company has entered into an agreement in principle with a national shopping
mall operator for the development of conversational kiosk systems incorporating
the Company's applications software and full motion video which, if successful,
will provide the Company with a percentage of the revenues derived from
kiosk-related sales.
Industry sources agree that the potential market for speech recognition
products is vast and worldwide. Through its assembled group of highly qualified
professionals, including a former IBM management team with extensive
international experience in the speech recognition industry, as well as its
technical expertise, the Company believes that it is well positioned to compete
in the emerging market for speech driven telephony and computer products and
services.
4
<PAGE> 7
The Company was incorporated as a Florida corporation on October 11,
1995 under the name Registry Database Incorporated, and on May 24, 1996 changed
its name to Registry Magic Incorporated. The address and telephone number of the
Company's executive offices are One South Boulevard, Suite 206, Boca Raton,
Florida 33432; (561) 367-0408. Its fiscal year end is July 31.
THE OFFERING
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Common Stock offered by the Company........................... 1,400,000 shares
Common Stock outstanding after the Offering................... 5,393,000 shares (1)(2)
Use of Proceeds............................................... The Company intends to use the net
proceeds from the Offering for (i)
product development and refinement; (ii)
sales and marketing; (iii) repayment of
debt; and (iv) general corporate
purposes, including working capital.
See "Use of Proceeds."
Proposed Nasdaq SmallCap Market Symbol........................ RMAG
Risk Factors.................................................. The Offering involves a high degree of
risk and immediate substantial dilution.
See "Risk Factors" and "Dilution."
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- ----------------------------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(2) Excludes: (i) 140,000 shares of Common Stock issuable upon exercise of
the Representative's Warrants; (ii) 300,000 shares of Common Stock
reserved for issuance in accordance with the Company's 1997 Stock
Option Plan, pursuant to which options to purchase 212,350 shares of
Common Stock are issued and outstanding; and (iii) 426,176 shares of
Common Stock underlying additional outstanding options and warrants
held by officers, employees, consultants and others. See "Management -
Stock Options," "Description of Securities" and "Underwriting."
5
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SUMMARY FINANCIAL INFORMATION
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For the three
Cumulative from months ended For the period from
October 11, 1995 October 31, For the October 11, 1995
(Inception) through -------------------------- year ended (Inception) through
October 31, 1997 1997 1996 July 31, 1997 July 31, 1996
---------------- -------------------------- ------------- --------------------
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STATEMENT OF OPERATIONS DATA:
Incidental consulting fees
revenues $ 458,328 $ 113,384 $ - $ 344,944 $ -
Total costs and expenses 2,191,918 428,930 369,972 1,719,147 43,841
Net loss $ (1,733,590) $ (315,546) $ (369,972) $ (1,374,203) $ (43,841)
Weighted average
shares outstanding 3,793,000 3,325,000 3,625,200 3,325,000
Net loss per common
share outstanding $ (0.08) $ (0.11) $ (0.38) $ (0.01)
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OCTOBER 31, 1997
----------------------------------------------------
Pro Forma
JULY 31, 1997 ACTUAL PRO FORMA(1) ADJUSTED(2)
------------- -------------- ---------- --------
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BALANCE SHEET DATA:
Current assets $ 937,904 $ 541,766 $ 1,539,966 $
Working capital (deficit) $ 196,029 $ (171,083) $ 827,117 $
Total assets $ 1,108,095 $ 763,523 $ 1,761,723 $
Total liabilities $ 741,875 $ 712,849 $ 712,849 $
Shareholders' equity $ 366,220 $ 50,674 $ 1,048,874 $
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- --------------------------
(1) Gives pro forma effect to the sale of 200,000 shares of Common Stock in
November 1997 pursuant to which the Company received net proceeds of
$998,200. See "Certain Transactions."
(2) As adjusted to give effect to the sale of 1,400,000 shares of Common
Stock offered hereby, the receipt of net proceeds therefrom and the
application of a portion of the proceeds to repay debt. See "Use of
Proceeds."
6
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RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN NATURE AND
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED
IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED
HEREBY. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD- LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS
THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY; OPERATING LOSSES AND ACCOUNTANTS' REPORT
The Company is a development stage enterprise and has received only
limited incidental revenues from its inception in October 1995 through October
31, 1997. The Company has only recently begun shipping its Virtual Operator
product for on-site field testing and evaluation, and has entered into a limited
number of contracts for the provision of its speech recognition products and
services. Accordingly, the Company has only a limited history upon which an
evaluation of its prospects and future performance can be made. Such prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered in the operations and expansion of a new business in an evolving
industry which has not obtained widespread commercial acceptance and which is
characterized by rapid technological obsolescence and intense competition.
From inception through October 31, 1997, the Company has incurred
cumulative losses of $1,733,590 and anticipates that losses will continue during
the current fiscal year ending July 31, 1998. The Company expects to incur
significant expenditures in connection with the development and marketing of its
speech recognition applications which will likely result in losses until such
time, if ever, as the Company is able to secure sufficient contracts for its
speech recognition products and services which would generate adequate sources
of revenue to support its operations. There can be no assurance that the
Company's current business strategy will enable it to ever achieve profitable
operations. In addition, as a result of the aforementioned conditions, the
Company's independent certified public accountants included an explanatory
paragraph in their report dated December 19, 1997 indicating that such
conditions raise substantial doubt about the Company's ability to continue as a
going concern. See "Management's Discussion and Analysis and Plan of Operation"
and "Financial Statements."
SIGNIFICANT CAPITAL REQUIREMENTS; DEPENDENCE ON OFFERING PROCEEDS TO IMPLEMENT
BUSINESS PLAN; POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company's capital requirements have been and will continue to be
significant 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. The Company's cash requirements for the
purpose of developing its products have been substantial and, as a result, the
Company has been dependent upon capital resources provided by investors in order
to finance its operations. The Company is dependent upon the proceeds of the
Offering to implement its business plan and finance its working capital
requirements. Based on the Company's currently proposed plans and assumptions
relating to the implementation of its business plan, the Company anticipates
that the net proceeds of the Offering will be sufficient to satisfy its
contemplated cash requirements for at least 12 months following the consummation
of the Offering.
7
<PAGE> 10
In the event the Company's products are not developed and refined on a timely
basis, contracts for the provision of products and technology are not
consummated in sufficient number or in the event the proceeds of the Offering
otherwise prove to be insufficient to fund the implementation of the Company's
business plan and working capital requirements, the Company could be required to
seek additional financing. The Company has no current arrangements with respect
to, or potential sources of, additional financing and, following the
consummation of the Offering, it is not anticipated that existing shareholders
will satisfy any portion of the Company's future financing requirements. There
can be no assurance that any additional financing will be available to the
Company when needed, on commercially reasonable terms, or at all. Any inability
to obtain additional financing when needed would have a material adverse effect
on the Company, including the curtailment of its product development, marketing
and expansion activities. See "Use of Proceeds" and "Management's Discussion and
Analysis and Plan of Operation."
DEVELOPMENT OF MARKETS REQUIRED FOR SUCCESSFUL PERFORMANCE BY THE COMPANY
The Company has only recently commenced significant marketing
activities, and there can be no assurance that the Company's marketing program
will be successful or that the Company's applications software will achieve
market acceptance. Achieving market acceptance for the Company's products will
require substantial marketing efforts and the expenditure of significant funds.
The financial performance of the Company will depend, in part, on acceptance of
speech recognition technology and the future development, growth and ultimate
size of this market. The Company's 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 be dependent upon the demand for new applications, the ability of the
Company's products and services to meet and adapt to these needs, and the
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 the Company's applications. See "Business
- - Sales and Marketing."
UNCERTAINTY OF PRODUCT AND TECHNOLOGY DEVELOPMENT BY THE COMPANY
The Company has recently introduced the Virtual Operator product, which
is a speech driven auto-attendant, and has 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, the Company
has not developed foreign language versions for its Virtual Operator product or
its two prototypes. Additionally, the Company also intends to continue to
develop and refine additional products including conversational call centers,
kiosks, and point-of-sale applications, which are currently in the relatively
early stages of development. The Company will be required to commit considerable
time, effort and resources to finalize development of these products. The
Company's success will depend, in part, upon the ability of its proposed
products to meet targeted performance, cost objectives, and timely introduction
into the marketplace.
In addition, early versions of software products often contain errors
or defects. There can be no assurance that, despite extensive testing by the
Company and potential customers, errors or defects will not be found in the
Company's applications software products prior to or after commencement of
commercial deployment, resulting in redevelopment costs and loss of, or delay
in, market acceptance of the Company's products. Additionally, there can be no
assurance that the Company's products will satisfactorily perform the functions
for which they are designed or, that they will meet applicable price or
performance objectives. See "Business - Products."
8
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RAPID TECHNOLOGICAL CHANGE
The market for speech recognition products is expected to be
characterized by rapid technological change resulting in dynamic customer
demands, frequent new product and service introductions and short product
lifecycles. The markets for the Company's products may change rapidly as a
result of innovations in core speech recognition engine technology, computer
hardware, software and communications technologies. The Company's success will
depend, in part, upon its ability to make timely and cost-effective enhancements
and additions to its existing applications software products and develop new
products that meet evolving customer demands. There can be no assurance that the
Company will have the resources necessary to achieve this objective and that the
Company's products will not be rendered obsolete.
COMPETITION
The speech recognition applications market is growing and expected to
become intensely competitive. The Company's products will compete with those
developed or being developed by many well established companies, including
International Business Machines Corporation("IBM"), American Telephone and
Telegraph Company ("AT&T"), Microsoft Corporation ("Microsoft"), Digital
Equipment Corporation ("Digital Equipment"), Lucent Technologies, Inc.
("Lucent"), American Nortel Communications, Inc. ("Nortel") and Unisys
Corporation ("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. A number 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
which may be functionally similar to some or all of those being developed by the
Company. With respect to its Virtual Operator product, the Company's
competitors may include Voice Control Systems, Vocalis Group plc ("Vocalis"),
and PureSpeech, Inc. ("PureSpeech"). In the conversational speed dialing and
personal assistant applications, the Company expects that its initial
competitors will be Wildfire Communications, Inc. ("Wildfire"), General Magic,
and Webley Systems, Inc. ("Webley"). 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 the Company are continually evolving, which often
results in product obsolescence or short product life cycles. Accordingly, the
ability of the Company to compete will depend on its ability to complete
development and introduce into the marketplace its proposed products and
technology, to continually enhance and improve its products and technology in a
timely manner, to adapt its proposed products in order to be compatible with
specific products manufactured by others, and to successfully develop and market
new products and technology. 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. See "Business - Competition."
9
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DIFFICULTIES IN MAINTAINING PROPRIETARY RIGHTS
The Company's success is dependent upon its proprietary applications
software technology which may be difficult to protect. The Company will rely on
a combination of contractual rights, patents, trade secrets, know-how,
trademarks, non-disclosure agreements and technical knowledge to establish and
protect its proprietary rights. There can be no assurance, however, that the
measures taken by the Company to protect its 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
the Company's products. Additionally, although the Company believes that its
technology has been independently developed and does not infringe on the
proprietary rights or trade secrets of others, there can be no assurance that
the Company's 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 the Company in the future. In the
case of infringement, the Company could, under certain circumstances, be
required to modify its products or obtain licenses, which would likely require
cash or other consideration. There can be no assurance that the Company would be
able to do either in a timely manner or upon acceptable terms and conditions,
and such failure could have a material adverse effect on the Company. In
addition, there can be no assurance that the Company will have the resources to
defend or prosecute a patent infringement or other proprietary rights
infringement action. See "Business - Proprietary Rights."
DEPENDENCE ON OTHER COMPANIES FOR ASSEMBLY AND COMPONENT PARTS
The Company does not manufacture component parts for its products and,
accordingly, will be dependent on others for the supply and assembly of various
of its products. The Company's products are designed to be used with personal
computers (PCs), specifically Intel Pentium MMX (multi-media extension)
processors. While the Company currently purchases its modems, which are required
for its software applications, for remote maintenance from Boca Research, Inc.
and its telephone interface cards, which are also required for its software
applications, from Dialogic Corporation, located in Parsippany, New Jersey,
there are a number of other manufacturers who can supply similar products to the
Company, and the Company is 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 an impact on the Company, since the Company
may not be able to offer all of the features of a particular application if a
card manufactured by another entity were to be used. Additionally, the Company
generally does not have long-term contracts with suppliers for the purchase and
delivery of component parts or contractors for the assembly of its products.
However, any interruption of supply in the assembly services utilized by the
Company or in the supply of key components, for any reason, could result in
significant delivery delays, thereby adversely affecting the Company's marketing
efforts, customer relations, revenues and profitability. See "Business -
Suppliers and Licensors."
LACK OF SALES AND MARKETING CAPABILITIES; DEPENDENCE UPON INDEPENDENT
DISTRIBUTORS, CORPORATE PARTNERS AND STRATEGIC ALLIANCES
The Company's sales and marketing efforts have been limited to date,
and the Company does not intend to establish a large internal sales and
marketing organization. The Company has allocated a substantial portion of the
proceeds of the Offering for sales and marketing activities, including those
aimed at establishing a network of independent distributors. There can be no
assurance that such network can be successfully established or will result in
substantial sales of the Company's products. The Company also will seek to enter
into strategic alliances to develop and market certain products, however,
10
<PAGE> 13
none of these arrangements may prove successful. There can be no assurance that
the Company's strategic partners will provide the Company with the support
anticipated by the Company, 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 could have a
material adverse effect on the Company's business and prospects. See "Business -
Sales and Marketing."
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
The Company's business plan anticipates, among other things,
significant growth in the Company's customer base and continued development of
its speech recognition products and related services which represent potential
attendant risks. This growth and continued development, if it materializes,
could place a significant strain on the Company's management, employees and
operations. In the event of this expansion, the Company would have to continue
to implement and improve its operating systems, and to expand, train and manage
its employee base. If the Company is unable to implement and improve these
operating systems and manage its employee base effectively, the Company's
operations could be materially adversely affected. See "Business - Employees."
DIFFICULTIES IN IMPLEMENTATION OF STRATEGY
The Company's strategy is to develop and refine proprietary
applications software products that address certain of the shortcomings
associated with speech recognition products currently in the market. While the
Company intends to market its initial products on a stand-alone basis through
independent reseller channels and on an OEM basis, the Company's ultimate
strategy is to establish alliances with corporate partners with whom it will
develop specific customer solutions incorporating the Company's proprietary
applications software and generate revenue on a recurring basis. The Company's
ability to implement its strategy and its ultimate success are subject to a
broad range of uncertainties and contingencies, many of which are beyond the
Company's control. There can be no assurance that the Company will be able to
establish alliances to develop customer solutions, that such solutions will be
profitable, or that these applications will generate revenue to the Company on a
recurring basis. See "Business - Strategy."
RISK OF INTERNATIONAL SALES
The Company's business in the near term is expected to be conducted in
the European Union ("EU"), 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. The Company's 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.
The Company will generally deal in local currencies in foreign markets. If the
U.S. dollar strengthens in relation to these international currencies, the
Company's revenues from international sales and the gains and losses on the
settlement of receivables of the Company from international operations may be
adversely affected. There can be no assurance that exchange rate fluctuations
and other risks associated with international operations will not have a
material adverse effect on the Company's business and prospects. See "Business -
Sales and Marketing."
11
<PAGE> 14
VARIABILITY OF QUARTERLY RESULTS
The Company's quarterly operating results may fluctuate as a result of
a variety of factors, including the length of the sales cycle, the timing of
orders from and shipments to customers, delays in product development and
customer acceptance of custom applications, product development expenses, the
success of new product introductions or announcements by the Company or its
competitors, levels of market acceptance for new and existing products and the
hiring and training of additional staff as well as general economic conditions.
Because a significant portion of the Company's overhead is fixed in the
short-term, the Company's results of operations may be materially adversely
affected if revenues fall below the Company's expectations. If management's
estimate of product sales and product mix prove to be substantially inaccurate,
the Company may not have the necessary inventory available to deliver systems in
a timely manner, which may have a material adverse effect on the Company's
results of operations during such period. See "Management's Discussion and
Analysis and Plan of Operation."
DEPENDENCE ON KEY PERSONNEL
The success of the Company will be largely dependent on the efforts of
the members of the management of the Company, especially Walt Nawrocki, its
President and Chief Executive Officer, Lawrence Cohen, its Chairman of the
Board, and Neal Bernstein, its Vice President of Business Development and
Marketing. Although the Company has entered into employment agreements with
various members of the management of the Company, there can be no assurance that
such persons will continue their employment with the Company. The loss of the
services of one or more of such key personnel could have a material adverse
effect on the Company's ability to maximize its use of its products and
technologies or to develop related products and technologies. The Company has
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. The
success of the Company is also dependent upon its ability to hire and retain
additional qualified executive, programming, engineering and marketing
personnel. Qualified employees are in great demand and are likely to remain a
limited resource for the foreseeable future. Competition for skilled, creative
and technical talent is intense. There can be no assurance that the Company will
be successful in attracting and retaining such personnel. Any failure by the
Company to retain existing employees or to hire new employees when necessary
could have a material adverse effect upon the Company's business, financial
condition and results of operations. See "Business Employees" and "Management."
BROAD DISCRETIONARY USE OF PROCEEDS
The Company has broad discretion with respect to the specific
application of the net proceeds of the Offering. Such amounts are intended to be
used for working capital, including salaries, product development,
implementation of a sales and marketing program and the repayment of promissory
notes issued to investors in a private placement between November and December
1996. Thus, purchasers of the Common Stock offered hereby will be entrusting
their funds to the Company's management, upon whose judgment such purchasers
must depend, with only limited information concerning management's specific
intentions. See "Use of Proceeds."
12
<PAGE> 15
DILUTION
Upon the closing of the Offering, investors in the Offering will incur
immediate substantial dilution of approximately $____ or ____% in the per share
net tangible book value of their Common Stock. See "Dilution."
NO DIVIDENDS
The Company has not paid any cash dividends on its Common Stock since
its inception and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. See "Dividend Policy."
CONTROL OF THE COMPANY BY MANAGEMENT
Immediately following the Offering, the executive officers and
directors of the Company will beneficially own 51.3% of the outstanding shares
of Common Stock (49.3% if the Underwriters' over-allotment option is exercised
in full, but exclusive of options granted to management). Accordingly, the
management of the Company will have the ability to elect the Company's entire
Board of Directors and control the outcome of all matters submitted to a vote of
the shareholders of the Company. See "Management" and "Principal Shareholders."
ARBITRARY OFFERING PRICE; POSSIBLE STOCK PRICE VOLATILITY
The initial public offering price of the shares of Common Stock offered
hereby has been determined by negotiations between the Company and the
Representative. Among the factors considered in determining this price were the
Company's current financial condition and prospects, stage of development of the
speech recognition industry, market prices of similar securities of various
publicly traded software companies, and the general condition of the securities
market. However, the initial public offering price does not necessarily bear any
direct relationship to the Company's assets, book value, earnings or other
established indicia of value. See "Underwriting."
The stock market, especially Nasdaq, has from time to time experienced
significant price and volume fluctuations that may be unrelated to the operating
performance of particular companies. In addition, the market price of the Common
Stock, like the stock prices of many publicly-traded technology companies, may
prove to be highly volatile. Announcements of technological innovations or new
commercial products by the Company or its competitors, developments or disputes
concerning patent or proprietary rights, publicity regarding actual or potential
products by the Company or its competitors, commercial contracts consummated or
not obtained as a result of unsuccessful testing, various external factors as
well as period-to-period fluctuation in financial results, among other factors,
may have a significant impact on the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
The sale, or availability for sale, of a substantial number of shares
of Common Stock in the public market subsequent to the Offering pursuant to Rule
144 under the Securities Act ("Rule 144") or otherwise could materially
adversely affect the market price of the Common Stock and could impair the
Company's ability to raise additional capital through the sale of its equity
securities or debt financing. The availability of Rule 144 to the holders of
restricted securities of the Company would be conditioned
13
<PAGE> 16
on, among other factors, the availability of certain public information
concerning the Company. All of the 3,993,000 shares of Common Stock currently
outstanding are "restricted securities" as that term is defined in Rule 144, and
3,793,000 of such shares may be sold, under certain circumstances, without
registration under the Securities Act. Ordinarily, any shares issuable to
employees upon exercise of options granted under the Company's 1997 Stock Option
Plan or otherwise, pursuant to Rule 701 under the Securities Act, could be sold
publicly commencing 90 days after the Company becomes a reporting company under
the Securities Exchange Act of 1934 (the "Exchange Act"). Additionally, the
holders of 668,000 shares of Common Stock have certain demand and piggyback
registration rights with respect to shares owned by them and the holders of
warrants to purchase 100,000 shares of Common Stock have registration rights
with respect to the shares underlying such warrants. All of the Company's
executive officers, directors and shareholders have agreed not to sell their
shares of Common Stock for a period of 12 months from the date of this
Prospectus without the Representative's prior written consent. See "Shares
Eligible for Future Sale."
NO PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that any trading market therefor will
develop, or, if any such market develops, that it will be sustained.
Accordingly, purchasers of the shares of Common Stock offered hereby may
experience difficulty selling or otherwise disposing of their shares of Common
Stock. See "Underwriting."
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ
The Company's Common Stock is expected to be listed on The Nasdaq
SmallCap Market upon the completion of the Offering. In order to continue to be
listed on Nasdaq, however, the Company 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.
14
<PAGE> 17
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, the Board of Directors is empowered,
without shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights which could adversely affect
the voting power or other rights of the holders of the 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. The Company has no present plan to issue any shares
of its preferred stock, although there can be no assurance that the Company will
not do so in the future. See "Description of Securities - Preferred Stock."
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation include provisions to
eliminate, to the full extent permitted by the Florida Business Corporation Act
(the "Florida Act") as in effect from time to time, the personal liability of
directors of the Company for monetary damages arising from a breach of their
fiduciary duties as directors. The Articles of Incorporation also include
provisions to the effect that the Company shall, to the maximum extent permitted
from time to time 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 such law, as
it may from time to time be in effect. See "Management - Indemnification of
Directors and Officers."
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated expenses payable by the Company, will be approximately
$_________ (or approximately $__________ if the over-allotment option granted to
the Underwriters is exercised in full). The Company intends to use the net
proceeds of the Offering approximately as follows:
Approximate Amount
Application of Net Proceeds
----------- ---------------
Product Development(1)............................ $3,500,000
Sales and Marketing(2)............................ 3,500,000
Repayment of Debt(3).............................. 410,000
Working Capital(4)................................
----------
Total.......................................... $
- ----------------------
(1) Includes the costs of personnel, equipment and software necessary to
further develop and enhance the Company's Virtual Operator,
conversational personal assistant and voice dialing products.
See "Business - Products."
(2) Includes the costs of marketing and sales and technical support
personnel and related expenditures to be incurred in connection with
developing and implementing a sales and marketing program.
See "Business - Sales and Marketing."
(3) Represents principal and accrued interest on promissory notes
in the aggregate principal amount of $410,000 held by private placement
investors which bear interest at the rate of 7% per annum and are
payable on the earlier of October 1, 1998 or completion of the
Offering. The proceeds of all of these loans were used for working
capital purposes. See "Management's Discussion and Analysis and Plan of
Operation" and "Certain Transactions."
(4) Includes general corporate purposes, such as funding day-to-day
operations of the Company, payment of salaries and general and
administrative expenses and the future development of the Company.
The foregoing represents the Company's best estimate of its allocation
of the net proceeds of the Offering during the next approximately 12 months
based on current plans and prevailing economic, industry and competitive
conditions. The Company reserves the right to reallocate the proceeds if
unanticipated events may cause the Company to redirect its priorities.
Any additional proceeds received upon exercise of the Underwriters'
over-allotment option will be added to working capital. Pending utilization, the
net proceeds of the Offering will be invested in short-term, investment grade,
interest-bearing investments, certificates of deposit or direct or guaranteed
United States government obligations.
16
<PAGE> 19
DIVIDEND POLICY
The Company has not paid, and does not anticipate paying, any dividends
on its Common Stock in the foreseeable future. The Company currently intends to
retain its future earnings for use in operations and expansions of its business.
Declaration and payment of future dividends, if any, will be at the sole
discretion of the Board of Directors.
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i)
as of October 31, 1997; (ii) pro forma as of October 31, 1997 giving effect to
the sale on November 10, 1997 of 200,000 shares of Common Stock at $5.00 per
share resulting in net proceeds of $998,200; and (iii) pro forma as adjusted to
give effect to the sale of the Common Stock offered hereby at a public offering
price of $____ per share and the receipt of the estimated net proceeds
therefrom.
<TABLE>
<CAPTION>
October 31, 1997
-----------------------------------------------------
Actual Pro Forma As Adjusted(1)
------ --------- --------------
<S> <C> <C> <C>
Notes payable - shareholders $ 410,000 $ 410,000 $ -
Note payable - related party 50,000 50,000 50,000
----------- ----------- -----------
Total debt $ 460,000 $ 460,000 $ 50,000
=========== =========== ===========
Shareholders' equity:
Preferred Stock, $.01 par value; 5,000,000
shares authorized; no shares outstanding - - -
Common Stock, $.001 par value; 30,000,000
shares authorized; 3,793,000 shares issued
(actual); 3,993,000 shares (pro forma);
and 5,393,000 shares (as adjusted) (1) 3,793 3,993 5,393
Additional paid-in capital 1,780,471 2,778,471
Accumulated deficit (1,733,590) (1,733,590) ( )
----------- ----------- -----------
Total shareholders' equity 50,674 1,048,874
----------- ----------- -----------
Total capitalization $ 510,674 $ 1,508,874 $
=========== =========== ===========
- --------------------------------
</TABLE>
(1) Reflects repayment of $410,000 principal amount of promissory notes
issued to shareholders in a private placement completed in December
1996.
17
<PAGE> 20
DILUTION
As of October 31, 1997, the negative net tangible book value of the
Company was ($25,673) or approximately ($.01) per share of Common Stock. After
giving effect to the issuance of 200,000 shares of Common Stock for $1,000,000
(net proceeds of $998,200) in November 1997 (the "Post-Balance Sheet
Transaction"), the pro forma net tangible book value of the Company as of
October 31, 1997 was $972,527 or approximately $.24 per share of Common Stock
based on 3,993,000 shares of Common Stock outstanding. Net tangible book value
per share represents the amount of the Company's pro forma shareholders' equity,
less intangible assets, divided by the number of shares of Common Stock
outstanding. Dilution to new investors represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the Offering
made hereby and the pro forma net tangible book value per share of Common Stock
immediately after completion of the Offering. After giving effect to the sale of
1,400,000 shares of Common Stock by the Company at a public offering price of
$____ per share and receipt of the estimated net proceeds therefrom, the
adjusted net tangible book value of the Company as of October 31, 1997 would
have been $________ or $____ per share. This represents an immediate increase in
pro forma net tangible book value of $____ per share to existing shareholders
and an immediate dilution in net tangible book value of $____ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price per share....................................
$
Pro forma net tangible book value before the
Offering (giving effect to Post-Balance Sheet Transaction)........ .24
Increase attributable to new investors............................ ---
Adjusted net tangible book value after the Offering........................ ---
Dilution to new investors.................................................. $
</TABLE>
In the event that the Underwriters' over-allotment option is exercised
in full, the net tangible book value of the Company at October 31, 1997 would be
approximately $____ per share, after giving effect to the Post-Balance Sheet
Transaction, which would result in dilution per share to the new investors in
the Offering of approximately $____ per share.
The following table summarizes at October 31, 1997, the difference
between the number of shares of Common Stock purchased from the Company, giving
effect to the Post-Balance Sheet Transaction, the total consideration paid and
the average price per share paid by existing shareholders since inception and by
new investors in the Offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------------- -------------------------
Average Price
Number Percent Amount Percent Per Share
--------- ------- ------ ------- --------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders 3,993,000 74.0% $ 2,641,325 ___% $0.66
New Investors 1,400,000 26.0% $ ___% $
--------- ---------- ---------
Totals 5,393,000 100% $ 100%
</TABLE>
The foregoing tables do not give effect to the exercise of any
outstanding options. See "Management - Stock Options."
18
<PAGE> 21
SELECTED FINANCIAL INFORMATION
The table below contains certain summary historical financial
information of the Company. The information has been derived from the Financial
Statements included elsewhere in this Prospectus. The quarterly data at October
31, 1997, the cumulative data from October 11, 1995 (inception) through October
31, 1997, and for the three months ended October 31, 1997 and 1996 are derived
from the Company's unaudited financial statements and include all adjustments,
consisting only of normal recurring adjustments, that management considers
necessary to fairly present such data. The results of the three months ending
October 31, 1997 are not necessarily indicative of the results to be expected
for the full year ended July 31, 1998. This information should be read in
conjunction with the Financial Statements and "Management's Discussion and
Analysis and Plan of Operation."
<TABLE>
<CAPTION>
For the three
Cumulative from months ended For the Period from
October 11, 1995 October 31, For the October 11, 1995
(Inception) through ----------------------- year ended (Inception) through
October 31, 1997 1997 1996 July 31, 1997 July 31, 1996
---------------- ------------------------ -------------- -------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Incidental consulting fees
revenues $ 458,328 $ 113,384 $ - $ 344,944 $ -
Total costs and expenses 2,191,918 428,930 369,972 1,719,147 43,841
Net loss $ (1,733,590) $ (315,546) $ (369,972) $ (1,374,203) $ (43,841)
Weighted average
shares outstanding 3,793,000 3,325,000 3,625,200 3,325,000
Net loss per common
share outstanding $ (0.08) $ (0.11) $ (0.38) $ (0.01)
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997
------------------------------------------------------
Pro Forma
July 31, 1997 Actual Pro Forma (1) Adjusted(2)
------------- -------------- ---------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets $ 937,904 $ 541,766 $ 1,539,966 $
Working capital (deficit) $ 196,029 $ (171,083) $ 827,117 $
Total assets $ 1,108,095 $ 763,523 $ 1,761,723 $
Total liabilities $ 741,875 $ 712,849 $ 712,849 $
Shareholders' equity $ 366,220 $ 50,674 $ 1,048,874 $
</TABLE>
- --------------------------
(1) Gives pro forma effect to the sale of 200,000 shares of Common Stock in
November 1997 pursuant to which the Company received net proceeds of
$998,200. See "Certain Transactions."
(2) As adjusted to give effect to the sale of 1,400,000 shares of Common
Stock offered hereby the receipt of net proceeds therefrom and the
application of a portion of the proceeds to repay debt. See "Use of
Proceeds."
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS.
RESULTS OF OPERATIONS
The Company is in the development stage. Since its inception in October
1995, the Company's efforts have been principally devoted to research,
development and design of products, marketing activities and raising capital.
The Company has generated only nominal incidental consulting fee revenues and
has incurred substantial operating losses to date, which losses are continuing.
Since inception, the Company has sustained cumulative losses of
($1,733,590). These losses have resulted primarily from expenditures for general
and administrative activities, including salaries and professional fees, which
have aggregated $1,017,174 since inception. Losses are expected to continue
through fiscal year 1998.
Since inception, the Company has recognized incidental consulting fee
revenues of $458,328 which were derived from three consulting contracts, one of
which was completed as of July 31, 1997 and the two remaining consulting
contracts were both completed as of December 31, 1997. The Company performed
these consulting services for Lernout Hauspie Speech Products, N.V. ("L&H") and
Nortel. At October 31, 1997, the Company had deferred additional revenues of
$225,000 derived from such contracts, which will be recognized in the quarter
ended January 1998. The Company does not consider revenues from consulting fees
to be a significant source of revenues in the future, as revenues are expected
to be derived from the sale or licensing of products and technologies.
Research and development expenses for the fiscal year ended July 31,
1997 were $418,164 compared to $16,129 for the period ended July 31, 1996, an
increase of $402,035. Research and development expenses for the three months
ended October 31, 1997 were $188,794, compared to $14,670 for the three months
ended October 31, 1996, an increase of $174,124. These increases were due to the
development of the Company's Virtual Operator product, the development of other
product and service prototypes, and expenses related to the Company's
performance of the 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." As of
October 31, 1997, the Company had not reached technological feasibility of its
products.
Royalty expense for the fiscal year ended July 31, 1997 was $500,000,
compared to nil for the fiscal year ended July 31, 1996. This amount represents
a non-refundable prepayment to L&H on royalties to use certain speech
recognition engine technologies and text to speech technologies. The Company
expensed such prepaid royalties in the absence of any contracts for the sale of
its products at the time of the prepayment. See Note 8 of Notes to the Financial
Statements and "Business - Suppliers and Licensors." As of October 31, 1997, the
Company has not sold any products utilizing these licenses and accordingly, has
not used any of the prepaid royalties.
20
<PAGE> 23
General and administrative expenses increased from $26,879 for the
fiscal year ended July 31, 1996 to $770,283 for the fiscal year ended July 31,
1997. General and administrative expenses decreased by $132,797 from $352,809
for the three months ended October 31, 1996 to $220,012 for the three months
ended October 31, 1997. The Company incurred a $300,000 charge for the three
months ended October 31, 1996 for stock options issued to employees. This charge
contributed to the increase in general and administrative expenses for the
fiscal year ended July 31, 1997, but also substantially increased general and
administrative expenses for the three months ended October 31, 1996 in
comparison with the three months ended October 31, 1997. The increases for the
entire fiscal year 1997 were due to additional employees hired to begin
marketing and sales of the Virtual Operator, additional office support staff,
and increased legal and accounting fees incurred in connection with the
Company's expanding activities and patent applications.
The Securities and Exchange Commission has issued Staff Legal Bulletin
No. 5 (CF/IM) stating that public operating companies should consider whether
there will be any anticipated costs, problems and uncertainties associated with
the Year 2000 issue, which affects many existing computer programs that use only
two digits to identify a year in the date field. According to the Company's best
knowledge, all software used by the Company is Year 2000 compliant, whether
developed by the Company or by third parties, and the Company will continue to
ensure that all software systems used by the Company are Year 2000 compliant.
LIQUIDITY AND CAPITAL RESOURCES
From inception through October 31, 1996, 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 plus accrued interest still outstanding and due to the Chairman shall be
repaid not earlier than six months from the date of this Prospectus and only to
the extent of cash flow from operations, if any. 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 (the
"Notes") and 410,000 shares of Common Stock for an aggregate payment net of
expenses of $1,606,216 to 40 investors, none of whom were affiliated with the
Company and substantially all of whom were accredited investors. The Notes bear
interest at the rate of 7% per annum payable semi-annually on April 1 and
October 1 of each year and mature on October 1, 1998. In accordance with the
terms of the Notes, the principal amount of such Notes together with accrued
interest is to be repaid from the proceeds of the Offering. See "Use of
Proceeds." The placement agent for the offering received warrants to purchase
100,000 shares of Common Stock exercisable at $6.00 per share on or prior to
November 27, 2001.
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 $998,200 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.
See "Business - Sales and Marketing" and "Certain Transactions."
The proceeds generated from private placements described above were
used for (i) research and development (approximately $324,000), (ii) payment of
the non-refundable prepayment due to L&H ($500,000), (iii) general and
administrative expenses including salaries (approximately $529,000), (iv)
21
<PAGE> 24
purchase of equipment (approximately $185,000), (v) repayment of related party
loans ($50,000), and (vi) patent fees and related legal expenses (approximately
$18,000).
The Company has agreed to pay L&H an additional $200,000 non-refundable
prepayment on future royalties, which is due on or before March 15, 1998. See
Note 8 of Notes to the Financial Statements.
In December 1997, the Company entered into three-year employment
agreements with three of its executive officers which provide for aggregate base
salaries of $415,500. See "Management Employment Agreements" and Note 8 of Notes
to the Financial Statements.
PLAN OF OPERATION
The report of the independent auditors on the Company's financial
statements as of July 31, 1997 contains an explanatory paragraph regarding an
uncertainty with respect to the ability of the Company to continue as a going
concern. The Company has generated only nominal, incidental consulting fee
revenues of $458,328 and incurred an accumulated deficit through October 31,
1997 of $1,733,590. However, the Company believes that upon the completion of
the Offering and the receipt of the proceeds therefrom, it will have the
necessary liquidity and capital resources to sustain planned operations for the
12 month period following the Offering. See "Use of Proceeds."
During such 12-month period, the Company intends to focus its efforts
on enhancing its Virtual Operator product and refining two of its
telephone-based speech recognition prototypes which it intends to introduce
during calendar 1998. It will also use a portion of the proceeds for the
implementation of its sales and marketing program which includes developing a
marketing and sales network initially in North America and thereafter, in the
EU.
In the event that the Company's internal estimates relating to its
planned expenditures prove materially inaccurate or the Company's development
and marketing efforts do not result in significant product sales, the Company
may be required to reallocate funds among its planned activities and curtail
certain planned expenditures. In any event, the Company is unable to predict
whether revenues from operations will be sufficient to fund the Company's
working capital requirements beyond 12 months. Therefore, the Company may be
required to obtain substantial additional financing through equity or debt
financings, collaborative arrangements or otherwise. There can be no assurance
as to the availability or terms of any required additional financing, when and
if needed. In the event that the Company fails to raise any funds it requires,
it may be necessary for the Company to significantly curtail its activities or
cease operations. See "Use of Proceeds."
FUTURE ACCOUNTING PRONOUNCEMENTS
SFAS No. 128, "Earnings per Share," issued in February 1997, replaces
the current methodology for calculating and presenting earnings per share. Under
SFAS No. 128, primary earnings per share will be replaced with a presentation of
basic earnings per share and fully diluted earnings per share will be replaced
with diluted earnings per share. Basic earnings per share excludes dilution and
is computed by dividing income available to common shares outstanding for the
period by the weighted average number of shares of common stock outstanding.
Diluted earnings per share is computed similarly to fully diluted earnings per
share in accordance with APB Opinion No. 15. The Statement will be effective for
financial
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statements issued by the Company after December 15, 1997. The impact of SFAS No.
128 is not expected to be material.
SFAS 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.
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.
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BUSINESS
INTRODUCTION
The Company was organized to design, develop and market proprietary
applications software to exploit advances in speech recognition technologies.
The Company is creating products that enable a user to perform tasks or retrieve
information by speaking into a telephone or to a computer in a natural
conversational manner. The Company recently introduced the Virtual
Operator--a speech driven auto-attendant that has received a number of
industry awards including "Product of the Year 1997" by both CTI MAGAZINE and
TELECONNECT MAGAZINE, and a nomination as one of five finalists for a
COMPUTERWORLD SMITHSONIAN AWARD in the category of Business & Related Services.
The Company has developed prototypes for two additional telephone-based speech
recognition products which it intends to introduce during calendar 1998-- a
voice driven speed dialing product and a conversational personal assistant that
performs voice mail, facsimile, and e-mail retrieval, as well as auto-attendant
and speed dialing functions. See "--Products." The Company anticipates
that it will initially market these products primarily through a distribution
network of independent resellers, although it will also seek to license its
proprietary applications software to telephone switch and voice-mail
manufacturers, among others, on an OEM basis. See "--Sales and
Marketing."
The Company's goal is to continue to develop and refine speech driven
applications software products which will 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. The Company's strategy is to establish alliances with
corporate partners to develop specific customer solutions incorporating the
Company's proprietary applications software and generate revenue on a recurring
basis. See "--Strategy."
INDUSTRY BACKGROUND
While various types of speech recognition technology have existed for
several years and the number of commercially available speech-enabled products
continues to grow, until recently, speech recognition technology applications
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 applications technology. The speech
recognition engine is the core technology upon which various applications are
based. Major companies, including IBM, Dragon, L&H, Voice Control Systems,
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
applications requires an entirely different set of skills including speech and
word recognition, linguistics, usability engineering, phonetics, multimedia 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
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<PAGE> 27
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 goal is to exploit existing speech engine technology to
create advanced speech recognition applications. The Company's strategy is to
develop and refine proprietary applications software products that address
certain of the shortcomings associated with speech recognition products
currently on the market. In pursuit of that goal, management has retained 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.
The Company intends to offer products and services that, among other
attributes, will substantially eliminate touch-tone menus, reduce labor costs by
reducing the number of live operators, increase efficiency by reducing the
potential for lost messages and information, and provide information in a
natural conversational manner to a targeted audience.
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While the Company intends to market its initial products on a
stand-alone basis through independent reseller channels and on an OEM basis, the
Company's ultimate strategy is to establish alliances with corporate partners
pursuant to which it will develop specific customer solutions incorporating the
Company's proprietary applications software and generate revenue on a recurring
basis. See "-- Sales and Marketing."
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:
* 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.
* NATURAL SPEECH-- allows users to speak at a continuous and
natural pace rather than one word at a time.
* 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 which have been spoken.
* 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.
* ADVANCED STATISTICAL METHODS--used to analyze what users
will 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).
TELEPHONY PRODUCTS
The Company believes that because of its universality, the telephone
offers a particularly powerful 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 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
multi-lingual voice recognition products. 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
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applications in the telephony market will increase. Accordingly, the Company has
determined to focus its initial development efforts primarily on telephone
products and services.
* THE VIRTUAL OPERATOR. 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 the 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. 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. In December 1997, the Company was
nominated as one of five finalists for a COMPUTERWORLD SMITHSONIAN AWARD for its
Virtual Operator application in the category of Business & Related Services,
with the winner to be announced in April 1998.
In December 1997, the Company began shipping the Virtual Operator for
on-site field testing and evaluation by several international businesses,
national and regional distribution companies and prospective OEM resellers. The
Company is engaged in ongoing discussions with respect to additional field
pilots as well as sales of product for those entities which are nearing
completion of their evaluation process. See "-- Sales and Marketing."
* CONVERSATIONAL VOICE DIALING. The Company's second product is an
application software package that enables a user to dial his or her contact list
by stating the requested name rather than requiring a user to enter a number or
numerical extension. This product is targeted at companies providing cellular
telephone services, as well as to long distance and calling card companies.
* CONVERSATIONAL PERSONAL ASSISTANT. The Company is also developing a
conversational personal assistant that can be sold as either a stand-alone
product or as a service on a subscription basis. This product will perform
remote voice mail, facsimile, and e-mail retrieval, as well as the functions of
the Virtual Operator and the speed dialing product.
The Company has allocated a substantial portion of the proceeds of the
Offering for product development efforts aimed at enhancing the Virtual
Operator, including the creation of foreign language versions of this product,
completion of development of the conversational voice dialing and personal
assistant applications, and creation of foreign language versions of the latter.
See "Use of Proceeds."
OTHER PRODUCTS
The Company has developed several additional products and services. One
of these--Magic Calendar--is a PC microphone-based interface which enables users
to input scheduling data into their computers utilizing spoken commands. In
December 1997, the Company entered into a licensing agreement with L&H for
distribution of Magic Calendar pursuant to which L&H shall pay $450,000 of
prepaid royalties to the Company.
Retail products and services under development include:
* CONVERSATIONAL CALL CENTERS. Integrating the attributes of key word
spotting and barge-in, this product could be employed in applications such as
order-taking by a virtual call-center attendant.
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* CONVERSATIONAL KIOSKS. Employing most of the Company's applications
technologies and integrating full motion video, this product can be employed by
customers to create a virtual employee capable of promoting product sales to or
eliciting information from the end user.
* CONVERSATIONAL POINT-OF-SALE APPLICATIONS. Employing many of the
Company's application technologies, this product can potentially be used in a
diverse number of applications including fast-food items ordering via telephone
or as part of an in-store informational kiosk.
The Company does not intend to utilize a significant portion of the
proceeds of the Offering to further develop these applications. Instead, it is
the Company's intention to seek strategic alliances pursuant to which third
parties will contribute technology or services, provide financing or marketing,
sales or support in connection with the development and commercialization of
these specific customer solutions. See "--Strategy."
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 1998.
The Company and M.S. Management Associates, Inc. ("MSM"), an affiliate
of the Simon DeBartollo Group, L.P. ("SDG"), 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
SDG 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 software and related
technology under development. Revenues derived from advertising, rent and
transaction fees from the Conversational Kiosks would also be divided evenly
between MSM and the Company. The letter of intent contemplates that the first
phase of the venture will consist of a pilot program for installation of
Conversational Kiosks in a limited number of malls, with additional
Conversational Kiosks to be installed at additional SDG properties based on the
results of the initial phase of the program. There can be no assurance that a
definitive agreement with MSM will be consummated or that full scale deployment
of Conversational Kiosks will occur following evaluation of the initial phase of
the program.
RESEARCH AND DEVELOPMENT EXPENSES
For the period ended July 31, 1996, the fiscal year ended July 31, 1997
and the three months ended October 31, 1997, the Company incurred research and
development expenses of $16,129, $418,164 and $188,794, respectively. As
previously described above and under "Use of Proceeds", the Company will use a
substantial portion of the proceeds of the Offering for further product
development.
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
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voicemail manufacturers which would conduct field pilots of the Virtual Operator
for evaluation purposes. The Company anticipates that initially sales of its
telephony products will be made primarily through independent resellers that
supply telephone and voicemail systems to businesses, as well as OEM
manufacturers. The Company is first seeking to establish a distribution network
for North America. Thereafter, the Company intends to establish a similar
network in the EU, focusing initially on the United Kingdom, 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.
The Company has allocated a substantial portion of the proceeds of the
Offering for sales and marketing activities, including the costs of attendance
at trade shows, 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. See "Use of
Proceeds." There can be no assurance, however, 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's ultimate strategy is to establish alliances with
corporate partners pursuant to which it will develop specific customer solutions
incorporating the Company's proprietary applications software and generate
revenue on a 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 or that any arrangements entered into will generate significant
revenues for the Company.
SUPPLIERS AND LICENSORS
The Company's proprietary applications software incorporates core
speech engine technology developed by others for which the Company must obtain
licenses. The Company has entered into a four-year, non-exclusive, worldwide
license agreement, effective as of December 31, 1996 and 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 $500,000 in
non-refundable prepayments against future royalties due to L&H on sales of
certain of the Company's products incorporating L&H technology. An additional
$200,000 non-refundable prepayment on future royalties is due on March 15, 1998.
The Company has also entered into a licensing arrangement with IBM for use of
its core speech engine technology to incorporate into certain products under
development.
The Company's applications software is designed to be used with PCs,
specifically Intel Pentium MMX (multi-media extension) processors. The Company's
software applications also require a modem for remote maintenance which 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 applications if
these operations communicate via the
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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
external processing boards which 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 conversational kiosk applications under development
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 telephony applications software is
designed to be used with Microsoft(R) Windows NT and its kiosk applications
software is designed to be used with Microsoft(R) Windows 95. 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 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
relies on a combination of copyright, patent, trade secret and trademark laws
and license agreements to protect its intellectual property rights. The Company
also 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") for the marks REGISTRY MAGIC(TM) and
VIRTUAL OPERATOR(TM).
There are three 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 six additional
provisional patent disclosures filed with the PTO which relate to its
conversational personal assistant and speed dialing 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
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Company and have established reputations for success in the development,
licensing and sale of their products and technology, especially the larger
organizations. Various 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 which 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,
Vocalis and PureSpeech. In the speed dialing and conversational personal
assistant applications, the Company expects that its initial competitors will be
Wildfire, General Magic, and Webley. Additionally, voice-mail companies and
telephone switch manufacturers 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.
EMPLOYEES
The Company currently has 13 full-time employees. Three persons are in
management and provide services in the areas of marketing and business
development, administration and research and development; seven are employed in
research and development; two persons are engaged in sales and marketing and one
person is 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 11 individuals on an as-needed basis to
develop programming or provide sales and marketing assistance for the Company.
LITIGATION
The Company is not a party to any litigation nor is it aware of any
threatened litigation.
FACILITIES
The Company currently leases adjacent facilities consisting of
approximately 1,594 and 1,009 square feet of office space in Boca Raton, Florida
at an initial monthly base rental amount of $1,726 and $1,093, respectively plus
the Company's proportionate share (an aggregate of 5.43%) of taxes and operating
expenses for the common area of the building. The Company's leases terminate on
December 31, 1999.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Walt Nawrocki 52 President, Chief Executive Officer
and Director
Lawrence Cohen 53 Chairman of the Board
Neal A. Bernstein 36 Vice President-Business Development and Marketing
Martin Scott 29 Treasurer and Secretary
Ted Gordon 68 Director
Paul Spindler 66 Director
</TABLE>
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. It is anticipated that Mr. Cohen
will devote approximately 25% of his working time to the Company's affairs.
NEAL A. BERNSTEIN has served as Vice President-Business Development and
Marketing of the Company since January 1997. 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
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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 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.
TED GORDON served as a director of the Company from its inception in
October 1995 until his resignation in December 1996 and was reelected to the
Board of Directors in December 1997. From April 1971 to June 1990, Mr. Gordon
served as President and Chairman of the Board of The Futures Group, a
Connecticut-based management consulting firm he founded which provides strategic
planning in the areas of technology deployment and Company re-engineering.He
remains a director and consultant of such firm. Mr. Gordon also serves as
Director of the Millennium Project in Washington, D.C., an outlook study for the
American Council of the United Nations with which he has been associated since
January 1992. Since March 1994, he has served as a consultant to the United
States Environmental Protection Agency in the area of forecasting future
environment issues. He currently serves on the boards of directors of Apollo
BioPharmaceuticals and the Institute for Global Ethics in Camden, Maine.
PAUL SPINDLER has served as a director of the Company since its
inception in October 1995. He has served as Chairman of the Board and Executive
Vice President of Bristol since he co-founded such company in April 1996. Since
May 1987, Mr. Spindler has been the President of GCI-Spindler, a Los
Angeles-based marketing communications firm (a subsidiary of Grey Advertising,
Inc.), whose clients include Toshiba Information Systems, Microsoft Corp. and
IBM.
Directors are elected at the Company's annual meeting of shareholders
and serve a term of one year or until their successors are elected and
qualified. Officers are appointed by the Board of Directors and serve at the
discretion of the Board of Directors, subject to the By-Laws of the Company.
BOARD COMMITTEES
Upon the closing of this Offering, the Company will establish a
Compensation Committee and an Audit Committee.
The Compensation Committee will administer the Company's stock option
plan and make recommendations to the full Board of Directors concerning
compensation, including incentive arrangements, of the Company's officers and
key employees. The Compensation Committee will be comprised of a majority of
independent directors upon establishment.
The Audit Committee will review the engagement of the independent
accountants and review the independence of the accounting firm. The Audit
Committee will also review the audit and non-audit fees of the independent
accountants and the adequacy of the Company's internal accounting controls. The
Audit Committee will consist of a majority of independent directors upon
establishment.
The Company has agreed that, if it is requested to do so by the
Representative, it will use its best efforts, for a period of two years from the
date of this Prospectus, to elect one designee of the
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<PAGE> 36
Representative as a director of the Company or, at the Representative's option,
as a non-voting observer to the Company's Board of Directors. Such observer will
have no voting rights. He or she will be reimbursed for any out-of-pocket
expense incurred in attending such meetings, and will be indemnified against any
claims arising out of participation at Board meetings, including claims based on
liabilities arising under the securities laws.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Act permits the indemnification of directors, employees,
officers and agents of Florida corporations. The Company's Articles of
Incorporation indemnify its directors and officers to the fullest extent
permitted by law.
At present, there is no pending litigation or proceeding involving a
director, officer, employee, or other agent of the Company as to which
indemnification is being sought, nor is the Company aware of any threatened
litigation that may result in claims for indemnification by any director,
officer, employee or other agent.
Insofar as indemnification for liability arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
DIRECTOR COMPENSATION
The Company may compensate non-employee directors in the future at a
customary rate for attending meetings of the board of directors, and such
directors will be reimbursed for expenses incurred in attending such meetings.
In addition, directors are eligible to receive options under the Company's 1997
Stock Option Plan.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information relating to the compensation
paid by the Company during the past two fiscal years to: (i) the Company's
President and Chief Executive Officer; and (ii) each of the Company's executive
officers who earned more than $100,000 during the fiscal year ended July 31,
1997 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
Name And Stock All Other
Principal Position Year Salary Bonus Options Compensation
------------------ ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Walt Nawrocki,
President and Chief Executive 1997 $175,000 $ 0 200,000 $ 0
Officer .............................. 1996 $ 14,583 $ 0 0 $ 0
1997 $ 67,375 $ 0 100,000 $ 0
Lawrence Cohen, Chairman.............. 1996 $ 0 $ 0 0 $ 0
</TABLE>
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<PAGE> 37
The Company maintains key man life insurance on the life of Walt
Nawrocki in the amount of $2,500,000 payable to the Company.
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 $125,000,
respectively. The employees may receive annual bonuses at the discretion of the
Company, subject to the Company's agreement with the Representative that the
compensation levels of current executive officers will not increase for a period
of 13 months from the date of this Prospectus. The agreements provide for
severance equal to one year's salary in the event of (i) non-renewal of the
agreement upon expiration other than for cause or (ii) a change of control of
the Company as a result of which the employee is not retained by new management
on a comparable basis. In addition, the agreements contain confidentiality
provisions and 12-month post termination non-competition restriction which may
be imposed by the Company provided the employee receives a lump sum payment
equal to one year's salary within 30 days of termination of employment.
STOCK OPTIONS
OPTION/SAR GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Number of Securities Percentage of Total Exercise or Expiration
Underlying Options/ Options/SARs Granted Base Price Date
Name SARs Granted (#) Employees in Fiscal Year ($/Sh) Through
- ---- ---------------- ------------------------ ------ ----------------
<S> <C> <C> <C> <C>
Walt Nawrocki 200,000 37% $3.50 October 20, 2001
Lawrence Cohen 100,000 18% $3.85 March 11, 2001
</TABLE>
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.
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")
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<PAGE> 38
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 227,350 shares of Common Stock have been granted
pursuant to the Plan leaving a balance of 72,650 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 and Marketing, received options to purchase 50,000 shares
of Common Stock and 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
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.
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<PAGE> 39
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
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. Subsequent to October 31, 1997, the Company granted five-year options
to purchase 4,676 shares of Common Stock at $3.50 per share and 2,000 shares of
Common Stock at $5.00 per share to two consultants, including one of the
consultants referred to above.
In connection with the issuance of the aforementioned options, $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. In addition, $4,500 was charged to operations for services received in
exchange for the grant of options.
CERTAIN TRANSACTIONS
Between June and September 1996, the Company issued an aggregate of
3,325,000 shares of Common Stock for $.001 per share in connection with its
initial capitalization. Following reallocation and transfers, executive officers
and directors, their immediate family members or affiliated entities received
shares of Common Stock as follows: (i) 300,000 shares were issued to Elizabeth
Nawrocki, the wife of Walt Nawrocki, the President, Chief Executive Officer and
a director of the Company; (ii) 1,724,000 shares were issued to Alliant Holding
and Transfer Company ("Alliant"), an affiliate of Lawrence Cohen, the Company's
Chairman of the Board; (iii) 120,000 shares were issued to The Spindler Trust
which is controlled by Paul Spindler, a director of the Company; (iv) 320,000
shares were issued to Ted Gordon, a director of the Company; and (v) 300,000
shares were issued to Leslie Bernstein, the wife of Neal Bernstein, a Vice
President of the Company. Alliant transferred 15,000 of its shares in October
1997 to Martin Scott, the Company's Secretary and Treasurer.
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 may be repaid not earlier than six months from the date
of this Prospectus and only to the extent of cash flow from operations if any.
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 $998,200). 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.
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<PAGE> 40
Between October 20, 1996 and October 15, 1997, the Company granted
options to purchase an aggregate of 355,000 shares of Common Stock at exercise
prices ranging from $0.50 to $3.85 per share to executive officers of the
Company. See "Management - Stock Options."
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus and
as adjusted to reflect the sale of the shares of Common Stock offered hereby,
certain information with respect to the beneficial ownership of the Company's
Common Stock by (i) each person known by the Company to own beneficially 5% or
more of the outstanding Common Stock, (ii) each director of the Company, (iii)
the executive officers of the Company and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Percentage Of Shares
Shares Of Common Stock Beneficially Owned
Name And Address Beneficially Owned ---------------------------
Before After
Of Beneficial Owners(1)(2) Prior to Offering Offering Offering
- -------------------------- ----------------- -------- --------
<S> <C> <C> <C>
Lawrence Cohen(3)........................ 1,809,000 44.2% 32.9%
Walt Nawrocki(4).......................... 500,000 11.9% 8.9%
Neal Bernstein(5)........................ 325,000 8.1% 6.0%
Ted Gordon................................ 320,000 8.0% 5.9%
1-800-REACH ME, LLC(6).................... 200,000 5.0% 3.7%
One Penn Plaza, Suite 1526
New York, New York 10019.
Paul Spindler(7).......................... 120,000 3.0% 2.2%
Martin Scott.............................. 15,000 .4% .3%
All officers and directors
as a group (6 persons).................... 3,089,000 71.5% 54.0%
</TABLE>
- ------------------------
(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 Prospectus upon the exercise of options. Each person's percentage
of ownership is determined by assuming that any options held by such
person have been exercised.
(2) Unless otherwise indicated below, the address of each person is c/o the
Company at One South Ocean Boulevard, Boca Raton, Suite 206, Florida
33432.
(3) Includes (i) 100,000 shares of Common Stock underlying immediately
exercisable options and (ii) 1,719,000 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.
(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) The managing member of REACH ME is Mortimer D.A. Sackler.
(7) Such shares are held of record by The Spindler Trust, of which Mr.
Spindler is the beneficial owner and trustee.
38
<PAGE> 41
DESCRIPTION OF SECURITIES
GENERAL
The following description of the material terms of the Common Stock is
subject to the Florida Act and to the provisions contained in the Company's
Articles of Incorporation, as amended (the "Articles of Incorporation"), and
By-Laws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. See "Available Information."
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, $.001 par value, and 5,000,000 shares of preferred stock, $.01 par
value (the "Preferred Stock"). Immediately prior to the Offering, there were
outstanding 3,993,000 shares of Common Stock and no shares of Preferred Stock.
The Company has 67 shareholders of record.
COMMON STOCK
The Company is authorized to issue 30,000,000 shares of Common Stock,
$.001 par value per share, of which as of the date of this Prospectus, 3,993,000
shares of Common Stock are outstanding and held by holders of record. All
outstanding shares of Common Stock are, and all shares of Common Stock to be
outstanding upon completion of the Offering will be, validly authorized and
issued, fully paid and non-assessable.
The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders. Holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. In the event
of a liquidation, dissolution, or winding up of the Company, holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock, $.01 par value per share, of which no shares are outstanding as of the
date hereof. The Preferred Stock may be issued in one or more series, the terms
of which may be determined at the time of issuance by the Board of Directors,
without further action by shareholders, and may include voting rights (including
the right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion rights, redemption rights, and sinking
fund provisions. The issuance of any such Preferred Stock could adversely affect
the rights of the holders of Common Stock and, therefore, reduce the value of
the Common Stock. The ability of the Board of Directors to issue Preferred Stock
could discourage, delay, or prevent a takeover of the Company.
THE NASDAQ SMALLCAP MARKET(R)
The Company has applied for listing of the Common Stock on The Nasdaq
SmallCap Market under the symbol "RMAG."
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
The Company may be subject to the control-share acquisition provisions
of Section 607.0902 of the Florida Act.
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<PAGE> 42
The control share acquisition provisions generally provide that control
shares of an issuing public corporation acquired in a control share acquisition
have no voting rights until voting rights are granted by a resolution approved
by a majority of shares entitled to vote excluding control shares. Control share
acquisition provisions apply to "Issuing Public Corporations" which are defined
to include corporations with: (i) 100 or more shareholders, excluding all
nominees or brokers; (ii) principal offices in Florida; and (iii) more than 10%
of its shares owned by Florida residents.
"Control Shares" are defined as shares that, when acquired and added to
other shares owned by a person, enable that person to exercise voting power with
respect to shares of an Issuing Public Corporation within the ranges of
one-fifth to one-third, one-third to one-half, and one-half or more of the
outstanding voting power. This term does not include all shares owned by the
person but only those shares acquired to put the shareholder "over the top" with
respect to that particular range. The Florida Act provides that shares acquired
within any 90-day period either before or after purchase are considered to be
one acquisition. Approval of voting rights requires: (i) approval by each class
entitled to vote separately by majority vote and (ii) approval by each class or
series entitled to vote separately by a majority of all votes entitles to be
cast by that group excluding all Control Shares.
If an acquiring person proposes to make or has made a control share
acquisition, he may deliver to the Issuing Public Corporation an acquiring
person's statement ("APS"). The acquiring person may then request that the
Issuing Public Corporation call a special meeting of the shareholders at the
acquiring person's expense to consider granting rights to the Control Shares. If
no APS has been filed, any Control Shares acquired in a Control Share
acquisition by such person may, after 60 days has passed since the last
acquisition of Control Shares, be redeemed at their fair market value. If an APS
is filed, the shares are not subject to redemption unless the shares are not
accorded full voting rights by shareholders. The effect and intent of the
control share acquisition provision is to deter corporate takeovers. Therefore,
it is more likely than not that control of the Company will remain in the hands
of the existing principal shareholders. See "Principal Shareholders."
REGISTRATION RIGHTS
The Company has granted demand and piggyback registration rights to
(i)investors in the December 1996 private placement who hold 410,000 shares of
Common Stock; (ii) the holders of 58,000 shares of Common Stock acquired in
January 1997; (iii) REACH ME, which holds 200,000 shares of Common Stock; and
(iv) the former placement agent for the Company's private offering of
securities, which holds warrants to purchase 100,000 shares of Common Stock.
Each of the foregoing shareholders have entered into a lock-up agreement with
the Representative, pursuant to which each of such shareholders has agreed not
to exercise such registration rights and not to sell or transfer any of their
shares of Common Stock for a period of 12 months from the date of this
Prospectus. The holders of the Representative's Warrants will also have certain
demand and piggyback registration rights with respect to such Warrants and the
140,000 shares of Common Stock underlying such Warrants. Any exercise of the
above registration rights may hinder efforts by the Company to arrange future
financings of the Company and/or have an adverse effect on the market price of
the Company's shares of Common Stock.
TRANSFER AGENT
The transfer agent for the Common Stock is American Stock Transfer &
Trust Company, 40 Wall Street, New York, New York 10005.
40
<PAGE> 43
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 5,393,000 shares
of Common Stock outstanding (5,603,000 shares of Common Stock outstanding if the
Underwriters' over-allotment option is exercised in full). Of these shares, the
1,400,000 shares of Common Stock offered hereby (1,610,000 shares if the
Underwriter's over-allotment option is exercised in full) will be freely
tradable without further registration under the Securities Act. All of the
presently outstanding 3,993,000 shares of Common Stock are "restricted
securities" within the meaning of Rule 144 of the Securities Act and, will be
eligible for sale in the public market in reliance upon, and in accordance with,
the provisions of Rule 144 commencing on the date of this Prospectus, subject to
the restrictions on transferability described below. In general, under Rule 144,
as currently in effect, a person or persons whose shares are aggregated,
including a person who may be deemed to be an "affiliate" of the Company as that
term is defined under the Securities Act, would be entitled to sell within any
three month period a number of shares beneficially owned for at least one year
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock, or (ii) the average weekly trading volume in the Common Stock on a
designated exchange or automated quotation system during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice, and the availability of current
public information about the Company. However, a person who is not deemed to
have been an affiliate of the Company during the 90 days preceding a sale by
such person and who has beneficially owned shares of Common Stock for at least
two years may sell such shares without regard to the volume, manner of sale, or
notice requirements of Rule 144.
Under Rule 701 of the Securities Act, a person having exercisable
options which were granted prior to the date of this Prospectus would be
entitled to sell such shares commencing 90 days following the date of this
Prospectus in reliance on Rule 144, without having to comply with the holding
period requirements of Rule 144 and, in the case of non-affiliates, without
having to comply with the public information, volume limitation or notice
provisions of Rule 144. Affiliates are subject to all Rule 144 restrictions
after the 90-day period, but without a holding period. Currently, 411,176
outstanding options are exercisable; however, if all the requirements of Rule
701 are met, an aggregate of 474,851 shares subject to outstanding stock options
may be sold by December 31, 1998, subject to the restrictions on transferability
described below.
All officers, directors and shareholders of the Company have agreed not
to sell, assign, transfer or otherwise dispose of their shares for a period of
12 months following the date of this Prospectus without the prior written
consent of the Representative.
The Company has granted certain demand and piggyback registration
rights with respect to an aggregate of 768,000 shares of Common Stock and shares
of Common Stock underlying warrants. The Representative also has demand and
piggyback registration rights with respect to the Common Stock underlying the
Representative's Warrants. See "Description of Securities - Registration Rights"
and "Underwriting."
Prior to the Offering, there has been no public market for the
Company's securities. Following the Offering, the Company cannot predict the
effect, if any, that sales of shares of Common Stock pursuant to Rule 144 or
otherwise, or the availability of such shares for sale, will have on the market
price prevailing from time to time. Nevertheless, sales by the current
shareholders of a substantial number of shares of Common Stock in the public
market could materially adversely affect prevailing
41
<PAGE> 44
market prices for the Common Stock. In addition, the availability for sale of a
substantial number of shares of Common Stock acquired through the exercise of
the Representative's Warrants or the currently outstanding options could
materially adversely affect prevailing market prices for the Common Stock.
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement dated the date hereof, the Underwriters named below, for
whom Commonwealth Associates is acting as Representative, have severally agreed
to purchase, and the Company has agreed to sell to them, severally, the
respective number of shares of Common Stock set forth opposite the names of such
Underwriters below:
Name Number of Shares
- ---- ----------------
Commonwealth Associates -----------
- ----------------------------------------- -----------
- ----------------------------------------- -----------
Total ....................................... 1,400,000
The Underwriters have advised the Company that they propose to offer
the shares of Common Stock to the public at the initial offering price set forth
on the cover page of this Prospectus and to certain dealers who are members of
the NASD, at such prices less concessions of not in excess of $____ per share,
of which a sum not in excess of $_____ per share may in turn be reallowed to
other dealers who are members of the NASD. After the commencement of the
Offering, the initial public offering price, the concession and the reallowance
may be changed by the Representative. The Underwriters are committed to purchase
all of the shares of Common Stock offered hereby if any are purchased. The
shares are being offered by the Underwriters subject to prior sale, when, as and
if delivered to and accepted by the Underwriters and subject to approval of
certain legal matters by counsel and to certain other conditions.
The Company has granted to the Underwriters an option, exercisable
during the 45-day period commencing on the date of this Prospectus, to purchase
from the Company at the initial public offering price, less underwriting
discounts, up to 210,000 additional shares for the purpose of covering
over-allotments, if any.
The Company has agreed to sell to the Representative and its designees,
for nominal consideration, the Representative's Warrants to purchase up to
140,000 shares of Common Stock. The Representative's Warrants will be
exercisable during the four-year period commencing one year after the date of
this Prospectus at an exercise price of $____ per share, subject to adjustment
in certain events to protect against dilution, and are not transferable for a
period of one year after the date of this Prospectus except to officers of the
Representative or to members of the selling group or their respective officers.
The Company has agreed to register during the four-year period commencing one
year after the date of this Prospectus, on two separate occasions, the
securities issuable upon exercise thereof under the Securities Act, the initial
such registration to be at the Company's expense and the second at the expense
of the holders. The Company has also granted certain demand and piggyback
registration rights to holders of the Representative's Warrants. The
Representative's Warrant includes a provision permitting the holders to elect a
"cashless exercise" whereby the holders, in lieu of paying the exercise price in
cash, may elect to forego the right to exercise the Representative's Warrant
with respect to certain of the shares
42
<PAGE> 45
issuable thereunder (the "Warrant Shares") as consideration for part or all of
the remaining shares issuable under the Representative's Warrant. Specifically,
the Representative's Warrant provides that the dollar amount of such cashless
consideration shall be deemed to be the market value per share of Common Stock
on the date of exercise less the exercise price per share provided in the
Representative's Warrant multiplied by the number of Warrant Shares surrendered.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to 1.5% of the gross proceeds derived from the sale of
shares offered hereby, including any shares purchased pursuant to the
Underwriters' over-allotment option, $25,000 of which has been paid to date. The
Company has also agreed to enter into a financial consulting agreement with the
Representative providing for an advisory fee of 2.0% of the gross proceeds
derived from the sale of shares offered hereby, including any shares purchased
pursuant to the Underwriters' over-allotment option.
The Company and the Underwriters have agreed in the Underwriting
Agreement to indemnify each other against certain liabilities, including
liabilities under the Securities Act.
The Company has agreed that, if it is requested to do so by the
Representative, it will use its best efforts, for a period of two years from
the date of this prospectus, to elect one designee of the Representative as a
director of the Company or, at the Representative's option, as a non-voting
observer to the Company's Board of Directors.
All officers, directors, and shareholders of the Company have agreed
not to sell, assign, transfer or otherwise dispose of their shares for a period
of 12 months following the date of this Prospectus without the prior written
consent of the Representative.
Prior to the Offering, there has been no public market for any of the
securities offered hereby. Accordingly, the initial public offering price of the
shares offered hereby has been determined by negotiation between the Company and
the Representative and are not necessarily related to the Company's asset value,
net worth or other established criteria of value. Among the factors considered
in determining such prices and terms, in addition to the prevailing market
conditions, include the history of and the prospects for the industry in which
the Company competes, the present state of the Company's development and its
future prospects, an assessment of the Company's management, the Company's
capital structure and demand for similar securities of comparable companies.
The Representative has informed the Company that it does not expect
sales to discretionary accounts to exceed 5% of the total number of the shares
offered hereby.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A., Fort
Lauderdale, Florida. Certain members of the firm of Atlas, Pearlman, Trop &
Borkson own 21,000 shares of Common Stock. Certain matters will be passed upon
for the Underwriters by Bachner, Tally, Polevoy & Misher LLP., New York, New
York.
EXPERTS
The financial statements of the Company appearing in this Prospectus
have been audited by BDO Seidman, LLP, independent certified public accountants,
to the extent and for the periods set forth in their report appearing elsewhere
herein, which contains an explanatory paragraph raising substantial doubt as to
the Company's ability to continue as a going concern, and are included in
reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.
43
<PAGE> 46
ADDITIONAL INFORMATION
The Company intends to furnish to its shareholders annual reports,
which will include financial statements audited by independent accountants, and
such other periodic reports as it may determine to furnish or as may be required
by law, including Sections 13(a) and 15(d) of the Securities Exchange Act of
1934, as amended.
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form SB-2 (the "Registration Statement") under the Securities Act
with respect to the securities offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits
thereto, as permitted by the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement and to the
exhibits filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document which has been filed as an exhibit to
the Registration Statement are qualified in their entirety by reference to such
exhibits for a complete statement of their terms and conditions. The
Registration Statement and the exhibits thereto may be inspected without charge
at the offices of the Commission and copies of all or any part thereof may be
obtained from the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at certain of the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the
fees prescribed by the Commission. Electronic reports and other information
filed through the Electronic Data Gathering, Analysis, and Retrieval System are
publicly available through the Commission's website (http://www.sec.gov.). In
addition, following approval of the Common Stock for quotation on The Nasdaq
SmallCap Market, reports and other information concerning the Company may be
inspected at the office of the National Association of Securities Dealers, Inc.,
1735 K Street, N.W., Washington, D.C. 20006.
44
<PAGE> 47
Registry Magic Incorporated
(A Development Stage Company)
CONTENTS
PAGE
----
Report of Independent Certified Public Accountants F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
<PAGE> 48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Registry Magic Incorporated
(A Development Stage Company)
We have audited the accompanying balance sheet of Registry Magic Incorporated,
(a development stage company) as of July 31, 1997 and the related statements of
operations, shareholders' equity (deficit) and cash flows for the year ended
July 31, 1997 and for the period from October 11, 1995 (inception) through July
31, 1996. 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 (a
development stage company), as of July 31, 1997 and the results of its
operations and its cash flows for the year then ended and for the period from
October 11, 1995 (inception) to July 31, 1996 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company's dependence on outside financing, lack of existing
commitments from lenders to provide necessary financing, lack of sufficient
working capital, and losses since inception raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans concerning
these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Miami, Florida BDO Seidman, LLP
December 19, 1997
F-2
<PAGE> 49
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
============================================================================================
OCTOBER 31, JULY 31,
1997 1997
---------- ----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 533,846 $ 928,680
Accounts receivable -- 5,140
Other current assets 7,920 4,084
---------- ----------
Total current assets 541,766 937,904
Property and equipment, net (Note 3) 145,410 114,929
Deferred patent costs 18,459 17,847
Deferred loan costs, net 23,961 30,490
Deferred offering costs 27,002 --
Other assets 6,925 6,925
---------- ----------
$ 763,523 $1,108,095
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 27,849 $ 44,375
Notes payable - shareholders (Note 4) 410,000 410,000
Notes payable - related party (Note 5) 50,000 50,000
Deferred revenue 225,000 237,500
============ ============
Total current liabilities 712,849 741,875
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock $.01 par value; 5,000,000
shares authorized; no shares outstanding -- --
Common stock, $.001 par value; 30,000,000
shares authorized; 3,793,000 shares issued
and outstanding 3,793 3,793
Additional paid-in capital 1,780,471 1,780,471
Deficit accumulated during the development stage (1,733,590) (1,418,044)
------------ ------------
Total shareholders' equity 50,674 366,220
------------ ------------
$ 763,523 $ 1,108,095
============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 50
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
CUMULATIVE PERIOD FROM
FROM OCTOBER OCTOBER 11,
11, 1995 1995
(INCEPTION) FOR THE (INCEPTION)
THROUGH FOR THE THREE MONTHS ENDED YEAR ENDED THROUGH
OCTOBER 31, OCTOBER 31, JULY 31, JULY 31,
1997 1997 1996 1997 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Incidental consulting fees revenue $ 458,328 $ 113,384 $ -- $ 344,944 $ --
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
General and administrative 1,017,174 220,012 352,809 770,283 26,879
Research and development 623,087 188,794 14,670 418,164 16,129
Royalty expense (Note 8) 500,000 -- -- 500,000
Depreciation and amortization 56,961 20,047 1,541 36,357 557
Interest expense (income), net (5,304) 77 952 (5,657) 276
--------- ----------- ----------- ------------ -----------
Total costs and expenses 2,191,918 428,930 369,972 1,719,147 43,841
----------- ----------- ----------- ----------- -----------
Net Loss $(1,733,590) $ (315,546) $ (369,972) $(1,374,203) $ (43,841)
=========== =========== =========== =========== ===========
Weighted average shares
oustanding (Note 1) 3,793,000 3,325,000 3,625,200 3,325,000
=========== =========== =========== ===========
Net loss per common share (Note 1) $ (0.08) $ (0.11) $ (0.38) $ (0.01)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 51
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
================================================================================
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
COMMON STOCK PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
--------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash at
$.001 per share (Note 7) 3,325,000 $ 3,325 $ -- $ -- $ 3,325
Capital contributions (Note 7) -- -- 25,959 -- 25,959
Net loss -- -- -- (43,841) (43,841)
========= =========== =========== =========== ===========
Balance at July 31, 1996 3,325,000 3,325 25,959 (43,841) (14,557)
Issuance of stock options to employees
(Note 9) -- -- 300,000 -- 300,000
Capital contributions (Note 7) -- -- 3,500 -- 3,500
Issuance of common stock for cash at
$3.50 per share net of offering
costs of $191,020 (Note 7) 410,000 410 1,243,570 -- 1,243,980
Issuance of stock options for services
(Note 9) -- -- 4,500 -- 4,500
Issuance of common stock for cash at
$3.50 per share (Note 7) 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
Net loss (unaudited) -- -- -- (315,546) (315,546)
========= =========== =========== =========== ===========
Balance at October 31, 1997 (unaudited) 3,793,000 $ 3,793 $ 1,780,471 $(1,733,590) $ 50,674
========= =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 52
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
CUMULATIVE FOR THE
FROM PERIOD
OCTOBER 11, FROM
1995 OCTOBER 11,
(INCEPTION) FOR THE THREE MONTHS FOR THE 1995
THROUGH ENDED OCTOBER 31, YEAR ENDED (INCEPTION)
OCTOBER 31, --------------------------- JULY 31, TO JULY 31,
1997 1997 1996 1997 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,733,590) $ (315,546) $ (369,972) $(1,374,203) $ (43,841)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 56,961 20,047 1,541 36,357 557
Stock option compensation expense 304,500 -- 300,000 304,500 --
(Increase) decrease in accounts receivable -- 5,140 -- (5,140) --
Increase in other current assets (7,920) (3,836) -- (4,084) --
Increase in other assets (6,925) -- -- (6,925) --
Increase (decrease) in accounts payable
and accrued expenses 27,849 (16,526) 16,347 22,137 22,238
Increase (decrease) in deferred revenue 225,000 (12,500) -- 237,500 --
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (1,134,125) (323,221) (52,084) (789,858) (21,046)
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Purchase of equipment (185,380) (50,811) (1,524) (116,525) (18,044)
Proceeds from sale of equipment 6,812 6,812 -- -- --
Deferred patent costs (18,459) (612) (1,365) (13,824) (4,023)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (197,027) (44,611) (2,889) (130,349) (22,067)
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Borrowings from related party 100,000 -- 30,000 50,000 50,000
Repayment to related party (50,000) -- -- (50,000) --
Stock subscription receivable -- -- 1,479 1,479 (1,479)
Payment of deferred offering costs (27,002) (27,002) (13,481) -- --
Payment of deferred loan costs (47,764) -- -- (47,764)
Net proceeds from sale of common stock 1,453,805 -- -- 1,450,480 3,325
Capital contribution 25,959 -- -- -- 25,959
Notes payable 410,000 -- -- 410,000 --
----------- ----------- ----------- ----------- -----------
Net cash from (used in) financing activities 1,864,998 (27,002) 17,998 1,814,195 77,805
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash 533,846 (394,834) (36,975) 893,988 34,692
Cash beginning of period -- 928,680 34,692 34,692 --
----------- ----------- ----------- ----------- -----------
Cash end of period $ 533,846 $ 533,846 $ (2,283) $ 928,680 $ 34,692
=========== =========== =========== =========== ===========
Supplemental disclosures:
Cash paid for interest $ 28,009 $ 17,945 $ 952 $ 10,064 $ --
=========== =========== =========== =========== ===========
Common stock issued for services rendered in
connection with private placement $ 3,500 $ -- $ 3,500 $ 3,500 $ --
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 53
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
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 prototype 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. The Company is
in the development stage and its operations to
date have largely consisted of the research
and development of its products. Certain
incidental consulting fees revenue have been
earned unrelated to the Company's intended
purpose.
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 liquid debt
instruments with original maturities of three
months or less to be cash equivalents. Cash
equivalents include investments in money
market accounts.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs incurred to
establish the
F-7
<PAGE> 54
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
technological feasibility of computer software
products are charged to operations as
incurred.
EQUIPMENT AND DEPRECIATION
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.
DEFERRED LOAN COSTS
The costs incurred in connection with the
issuance of debt are deferred and amortized
over the term of the notes. See Note 4.
DEFERRED OFFERING COSTS
Costs incurred in connection with the
Company's effort to obtain additional
financing through a public offering have been
deferred and will be offset against the
proceeds of the offering or charged to
operations if the offering is unsuccessful.
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-8
<PAGE> 55
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
approximate their estimated fair value as of
July 31, 1997. 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. Deferred revenues
represent prepayments for such services.
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 no income since inception and
accordingly has not provided for income taxes.
NET LOSS PER COMMON SHARE
Net loss per common share is based on the
weighted average
F-9
<PAGE> 56
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
number of shares of common stock outstanding.
Common stock issued by the Company for
nominal consideration is treated as
outstanding for loss per share for all
periods presented. All stock options
outstanding are not included in the
calculation of net loss per share since the
effects of such inclusion would be
anti-dilutive.
LONG-LIVED ASSETS
In accordance with Financial Accounting
Standards Board Statement of Financial
Accounting Standards No. 121 "Accounting for
Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of ("SFAS No.
121"), the Company includes as a component of
income from continuing operations before taxes
on income, the impairment loss of assets to be
held and gains and losses that are expected to
be disposed of.
STOCK BASED COMPENSATION
In October 1995, FASB 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 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
(SFAS) No. 128, "Earnings per Share," issued
in February 1997, replaces the current
methodology for calculating and presenting
earnings per share. Under SFAS No. 128,
primary earnings per share will be replaced
with a presentation of basic earnings per
share and fully diluted earnings per share
will be replaced with diluted earnings per
share. Basic earnings per share excludes
dilution and is computed by dividing income
available to common shares outstanding for the
F-10
<PAGE> 57
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
period by the weighted average number of
shares of common stock outstanding. Diluted
earnings per share is computed similarly to
fully diluted earnings per share in accordance
with APB Opinion No. 15. The Statement will be
effective for financial statements issued by
the Company for periods ending after December
15, 1997. The impact of SFAS No. 128 is not
expected to be material.
SFAS 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.
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 recent
issuance of these standards, management has
F-11
<PAGE> 58
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
been unable to fully evaluate the impact, if
any, they may have on future financial
statement disclosures.
UNAUDITED FINANCIAL STATEMENTS
The interim financial statements as of October
31, 1997 and for the three months ended
October 31, 1997 and 1996 and the cumulative
period October 11, 1995 (inception) through
October 31, 1997 are unaudited. In the opinion
of management, such statements reflect all
adjustments (consisting only of normal
recurring adjustments) necessary for a fair
presentation of the financial position,
results of operations and changes in cash
flows. The results of operations for the three
months ended October 31, 1997 and 1996 are not
necessarily indicative of the results for the
entire year.
2. LIQUIDITY The accompanying financial statements have
been prepared assuming the Company will
continue as a going concern. This basis of
accounting contemplates the recovery of the
Company's assets and the satisfaction of its
liabilities in the normal course of
operations. Since inception, the Company has
been involved in the research and design of
its products, the development of an
organizational infrastructure, and the
performance of preliminary marketing and
promotional activities. The Company's
ultimate ability to attain profitable
operations is dependent upon obtaining
additional financing adequate to complete
its development activities, and to achieve a
level of sales adequate to support its cost
structure. Through July 31, 1997, the
Company has incurred losses totaling
$1,418,044 which raises substantial doubt
about the Company's ability to continue as a
going concern.
The Company has entered into a letter of
intent with an underwriter for an initial
public offering of the Company's common stock.
If the Company is not successful in
consummating an initial public offering, the
Company intends to fund future development
activities by obtaining additional funds from
new or existing investors. However, there can
be no assurance that the Company will be
successful in consummating
F-12
<PAGE> 59
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
its plans, or that such plans, if
consummated, will enable the Company to
attain profitable operations or continue as
a going concern.
3. PROPERTY AND
EQUIPMENT The Company's property and equipment is
summarized as follows:
JULY 31, 1997
----------------------------------------------
Office equipment $ 3,883
Computers 125,012
Leasehold improvements 5,674
----------------------------------------------
134,569
Accumulated depreciation (19,640)
----------------------------------------------
$114,929
==============================================
4. NOTES PAYABLE The Company issued $410,000 of subordinate
SHAREHOLDERS notes in connection with a private
placement of securities. The notes are due
and payable on October 1, 1998 or
prior thereto upon receipt by the Company of
proceeds from the sale of equity securities
equal to or exceeding $5 million. There is no
scheduled prepayment or amortization of
principal on the notes. Costs associated with
this transaction were $47,764. Interest of 7%
per annum is payable semi-annually on April 1
and October 1 of each year. (Note 7)
5. NOTES PAYABLE
RELATED PARTY Notes payable related party consists of a
$50,000 loan from an officer and director of
the Company. The note bears interest at a rate
of 6.5% per annum and is payable no earlier
than six months from the date of the Company's
initial public offering of securities and only
to the extent that there is cash flows from
operations. The wife of this officer of the
Company loaned the Company an additional
$50,000 in October and November of 1996 at a
rate of 7% per annum. The full amount of this
$50,000 loan and interest was paid in December
1996.
F-13
<PAGE> 60
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
6. INCOME TAXES At July 31, 1997, the Company had a net
operating loss carryforward (NOL) of
approximately $2,000 which expires through
2011. In the event of a change in ownership
of the Company, the utilization of the NOL
carryforward will be subject to limitation
under certain provisions of the internal
revenue code. Deferred income taxes are
comprised of the following at July 31, 1997:
----------------------------------------------
Prepaid royalty expense $ 161,000
Start up costs 156,000
Compensation 113,000
Deferred revenue 89,000
Net operating loss carryforward 1,000
----------------------------------------------
Gross deferred tax asset 520,000
Deferred tax asset valuation
allowance (520,000)
----------------------------------------------
Net deferred tax asset $ --
==============================================
Realization of any portion of the Company's
deferred tax asset at July 31, 1997 is not
considered to be more likely than not and
accordingly a $520,000 valuation allowance has
been provided.
7. STOCKHOLDERS' During 1996, the Company issued 3,325,000
EQUITY (DEFICIT) shares of common stock for $3,325.
During 1997 and 1996, the Company received
$3,500 and $25,959 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
F-14
<PAGE> 61
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
subordinated notes were also sold (Note 4). 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.
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.
8. 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 of $415,500. In the event of
a change of control of the Company,
and 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.
b) The Company has entered into a
licensing agreement with Lernout &
Hausple 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 commenced
on December 31, 1996 for a term of four
years and provides for the payment of
percentage royalties and unit royalties
as specified in the agreement. During
1996, the Company prepaid a $500,000
non-refundable royalty which has been
expensed. As of July 31, 1997 the
Company has not sold any products and
accordingly has not used any of the
prepaid royalties. The Company has also
agreed to pay L&H a $200,000
non-refundable royalty prepayment on
future royalties in March 1998.
The success of the Company will be largely
dependent on the members of the management of
the Company, especially its President and
Chief Executive Officer, Chairman, and Vice
President - Business Development. Although the
Company has
F-15
<PAGE> 62
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
entered into employment agreements with
certain members of the management of the
Company, as described above, there can be no
assurance that such persons will continue
their employment with the Company.
The Company occupies premises under two
operating leases. The facilities are leased
for three year terms with annual rental
payments of approximately $34,000. Rent
expense for 1997 and 1996 aggregated
approximately $10,000 and $0, respectively.
Minimum guaranteed lease payments under these
leases are as follows:
--------------------------------------------
1998 $ 31,600
1999 33,800
2000 14,100
--------------------------------------------
$ 79,500
============================================
9. STOCK BASED At July 31, 1997, the Company has a fixed
COMPENSATION stock option plan and non-plan options which
are described below. The Company applies
Accounting Principles Board ("APB") Opinion
25, Accounting For Stock Issued to Employees,
and related interpretations in accounting for
the plan. Under APB Opinion 25, in situations
where the exercise price of the Company's
employee stock options equals or exceeds the
market price of the underlying stock on the
date of grant, no compensation cost is
recognized.
In March 1997, the Company adopted a Stock
Option Plan (the "Plan") under which 300,000
shares of common stock will be 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 will be
administered by a plan administrator which may
consist of 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
F-16
<PAGE> 63
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
option granted is as follows: (i) Incentive
stock options shall be equal to or greater
than the fair market value of the common
stock 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. To date, options to purchase 207,350
shares of common stock at $3.50 to $3.85
have been granted pursuant to the plan. These
options vest over terms up to two years from
the grant date and expire in 2001.
In addition, 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 services
provided.
SFAS No. 123, Accounting for Stock-Based
Compensation, requires the Company to provide
pro forma information regarding net income and
net income 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 1997: no dividend yield percent;
expected volatility of 0.001; risk-free
interest rates of 6.1%, and expected lives
ranging between 4 and 5 years for the Plan and
non-plan options.
F-17
<PAGE> 64
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
Under the accounting provisions of SFAS No.
123, the Company's net loss and loss per
share would have been increased to the pro
forma amount indicated below.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1997
-----------------------------------------------------
<S> <C>
Net loss
As reported $ 1,374,203
Pro forma $ 1,641,203
Net loss per common share
As reported $ (.38)
Pro forma $ (.45)
</TABLE>
A summary of the status of the Company's fixed
stock option plan and non-plan options as of
July 31, 1997, and changes during the year
ended on that date is presented below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
JULY 31, 1997 SHARES PRICE
---------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year -- $ --
Granted 526,850 3.00
Exercised -- --
Forfeited -- --
---------------------------------------------------------------------------
Outstanding at end of year 526,850 3.00
---------------------------------------------------------------------------
Options exercisable at year-end 404,500 2.84
Weighted-average fair value of
options granted during the
year:
Below market $ 3.13
At market $ 0.74
Above market $ 0.70
</TABLE>
F-18
<PAGE> 65
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE THREE MONTHS
ENDED OCTOBER 31, 1997 AND 1996
================================================================================
The following table summarizes information about fixed stock options and
non-plan options outstanding at July 31, 1997.
<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 7/31/97 LIFE PRICE 7/31/97 PRICE
----------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
$3.85 100,000 3.6 years $ 3.85 100,000 $ 3.85
$3.50 326,850 3.9 years $ 3.50 204,500 $ 3.50
$0.50 100,000 4.2 years $ .50 100,000 $ .50
</TABLE>
10. SUBSEQUENT EVENTS Subsequent to July 31, 1997, the Company's
board of directors authorized the Company to
undertake an initial public offering of the
Company's common stock pursuant to a letter
of intent dated October 22, 1997.
Subsequent to July 31, 1997, options to
purchase 26,676 shares of common stock were
granted to two consultants, an officer and an
employee of the Company. Such options are
exercisable at $3.50 to $5.00 per share,
expiring in four to five years and vesting
over terms up to two years. Options to
purchase 6,676 shares of common stock vested
immediately.
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 $1,800.
In December 1997, the Company entered into a
distribution agreement for one of its products
which calls for the Company to receive
$450,000 in non-refundable prepaid royalties
during 1998.
F-19
<PAGE> 66
No dealer, sales representative, or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any of the
Underwriters. This Prospectus does not constitute an offer or any securities
other than those to which it relates or an offer to sell, or a solicitation of
any offer to buy, to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
the information set forth herein is correct as of any time subsequent to the
date hereof.
TABLE OF CONTENTS
Page
----
Prospectus Summary............................. 4
Risk Factors................................... 7
Use of Proceeds................................ 16
Dividend Policy ............................... 17
Capitalization................................. 17
Dilution....................................... 18
Selected Financial Information................. 19
Management's Discussion and Analysis
and Plan of Operation ........................ 20
Business....................................... 24
Management..................................... 32
Certain Transactions........................... 37
Principal Shareholders......................... 38
Description of Securities...................... 39
Shares Eligible for Future Sale................ 41
Underwriting................................... 42
Legal Matters.................................. 43
Experts........................................ 43
Additional Information ........................ 44
Index to Financial Statements.................. F-1
Until ______________, 1998 (25 days after the date of the Prospectus), all
dealers affecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
REGISTRY MAGIC INCORPORATED
[LOGO]
1,400,000 Shares of
Common Stock
PROSPECTUS
_________________, 1998
COMMONWEALTH ASSOCIATES
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "Florida Act") contains
provisions entitling the Company's directors and officers to indemnification
from judgments, settlements, penalties, fines, and reasonable expenses
(including attorney's fees) as the result of an action or proceeding in which
they may be involved by reason of having been a director or officer of the
Company. In its Articles of Incorporation, the Company has included a provision
that limits, to the fullest extent now or hereafter permitted by the Florida
Act, the personal liability of its directors to the Company or its shareholders
for monetary damages arising from a breach of their fiduciary duties as
directors. Under the Florida Act as currently in effect, this provision limits a
director's liability except where such director breaches a duty. The Company's
Articles of Incorporation and By-Laws provide that the Company shall indemnify
its directors and officers to the fullest extent permitted by the Florida Act.
The Florida Act provides that no director or officer of the Company shall be
personally liable to the Company or its shareholders for damages for breach of
any duty owed to the Company or its shareholders, except for liability for (i)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (ii) any unlawful payment of a dividend or unlawful
stock repurchase or redemption in violation of the Florida Act, (iii) any
transaction from which the director received an improper personal benefit or
(iv) a violation of a criminal law. This provision does not prevent the Company
or its shareholders from seeking equitable remedies, such as injunctive relief
or rescission. If equitable remedies are found not to be available to
shareholders in any particular case, shareholders may not have any effective
remedy against actions taken by directors or officers that constitute negligence
or gross negligence.
The Articles of Incorporation also include provisions to the effect
that (subject to certain exceptions) the Company shall, to the maximum extent
permitted from time to time under the law 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 expenses is permitted under such
law, as may from time to time be in effect.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to any charter provision, by-law, contract, arrangement,
statute or otherwise, the Company has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Representative's non-accountable
expense allowance and advisory fee) are as follows:
II-1
<PAGE> 68
SEC registration fee.................................... $ 4,196.00
NASD filing fee ........................................ 1,922.41
Nasdaq listing fee...................................... 10,000.00
Legal fees and expenses................................. 125,000.00
Accounting fees and expenses............................ 50,000.00
Blue sky fees and expenses.............................. 50,000.00
Printing and engraving expenses*........................
Transfer agent fees and expenses........................ 3,500.00
Miscellaneous*.......................................... __________
Total.......................................... $
==========
- ------------------------
* To be completed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Company was incorporated on October 11, 1995, and in connection
with the commencement of operations and its initial capitalization between June
and September 1996, issued an aggregate of 3,325,000 shares of Common Stock for
$.001 per share, including issuances to members of the Company's management.
Each of such investors were either accredited and/or sophisticated investors,
had pre-existing relationships with members of management of the Company, were
employees or members of management of the Company and/or had access to relevant
information pertaining to the contemplated operations of the Company.
Accordingly, such issuances were exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) of the Securities Act.
Between November and December 1996, the Company 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 to 40 investors
for an aggregate cash investment of $1,845,000. All of such investors were
accredited or otherwise qualified investors based on their financial resources
and knowledge of investments, had access to or were provided with relevant
financial and other information relating to the Company. Accordingly, such
issuance was exempt from the registration provisions of the Securities Act in
accordance with the exemption provided by Section 4(2) of the Securities Act and
Rule 506 of Regulation D thereunder. First Cambridge Securities, a registered
broker-dealer which ceased operations in May 1997, served as placement agent for
the private offering and received commissions of 10%, and warrants to purchase
100,000 shares of Common Stock of the Company exercisable at $6.00 per share.
Such issuance was undertaken pursuant to the exemption provided by Section 4(2)
of the Securities Act.
In January 1997, the Company issued 58,000 shares of its Common Stock
at $3.50 per share to three investors for an aggregate consideration of
$203,000. All of such investors were accredited investors based on their
financial resources, had knowledge of investments, had access to relevant
information pertaining to the financial and other operations of the Company and
had a pre-existing relationship with members of management of the Company.
Accordingly, such issuance was exempt from the registration provisions of the
Securities Act in accordance with the exemption provided by Section 4(2) of the
Securities Act.
On November 10, 1997, the Company issued 200,000 shares of its Common
Stock at $5.00 per share for an aggregate consideration of $1,000,000 to
1-800-REACH ME, LLC. The latter, a dealer of the Company, had access to relevant
financial and other information relating to the Company, was a
II-2
<PAGE> 69
qualified investor based on its financial resources and knowledge of investments
and had a pre-existing relationship with the Company. Accordingly, the issuance
of the shares was exempt from the registration requirements of the Act pursuant
to Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation, as amended
3.2 By-Laws
4.1 Form of Common Stock Certificate*
4.2 Form of Subordinated Promissory Note issued to private investors
4.3 Promissory Note issued to Lawrence Cohen
4.4 Form of Representative's Warrants
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.*
10.1 1997 Stock Option Plan
10.2 Employment Agreement with Walt Nawrocki
10.3 Employment Agreement with Lawrence Cohen
10.4 Employment Agreement with Neal Bernstein
10.5 Lease Agreements with Intervest - One Ocean Plaza L.P.
10.6 Prepaid Royalty Agreement with Lernout & Hauspie Speech Products, Inc.
10.7 Agreement with 1-800 REACH ME, LLC
10.8 Phone Interactive Agreement
10.9 Agreement with M.S. Management Associate Inc.*
23.1 Consent of BDO Seidman, LLP, Independent Certified Public Accountants
23.2 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (contained in such
firm's opinion filed as Exhibit 5.1)*
24.1 Power of Attorney (incorporated in the signature pages of this
Registration Statement)
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
- ---------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes to:
(1) File, during any period in which it offers or sell securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act.
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information set forth in the
Registration Statement.
(iii) Include any additional or changed material
information on the plan of distribution;
II-3
<PAGE> 70
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration of the securities offered, and
the offering of such securities at that time to be the initial bona fide
offering; and
(3) File a post effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) The Company will provide to the Underwriters at the closing
specified in the Underwriter's Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the mater has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
For the purpose of determining any liability under the Securities Act,
the Company will treat the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Company pursuant to Rule 424(b)(1), or (4),
or 497(h) under the Securities Act as part of this Registration Statement as of
the time the Securities and Exchange Commission declares it effective.
For the purpose of determining any liability under the Securities Act,
the Company will treat such post-effective amendment that contains a form of
Prospectus as a new Registration Statement for the securities offered in the
Registration Statement therein, and treat the Offering of the securities at that
time as the initial bona fide offering of those securities.
II-4
<PAGE> 71
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, in the city of Boca
Raton, State of Florida on March 9, 1998.
REGISTRY MAGIC INCORPORATED
By: /s/ Walt Nawrocki
--------------------------------
Walt Nawrocki, President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Walt Nawrocki President, Chief Executive March 9, 1998
- --------------------------------------- Officer, Director and
Walt Nawrocki Principal Executive Officer
/s/ Lawrence Cohen Chairman of the Board March 9, 1998
- ---------------------------------------
Lawrence Cohen
/s/ Ted Gordon Director March 9, 1998
- ---------------------------------------
Ted Gordon
/s/ Paul Spindler Director March 9, 1998
- ---------------------------------------
Paul Spindler
/s/ Martin Scott Secretary, Treasurer March 9, 1998
- --------------------------------------- and Principal Financial and
Martin Scott Accounting Officer
</TABLE>
II-5
<PAGE> 72
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Walt Nawrocki, or Lawrence Cohen, or
either of them, such person's true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities (including such
persons' capacity as a director and/or officer of Registry Magic Incorporated)
to sign any and all amendments (including post-effective amendments pursuant to
Rule 462(b) or otherwise) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
<TABLE>
<CAPTION>
SIGNATURE DATE
--------- ----
<S> <C>
/s/ Walt Nawrocki March 9, 1998
- ---------------------------------------
Walt Nawrocki
/s/ Lawrence Cohen March 9, 1998
- ---------------------------------------
Lawrence Cohen
- --------------------------------------- ---------------------
Ted Gordon
/s/ Paul Spindler March 9, 1998
- ---------------------------------------
Paul Spindler
/s/ Martin Scott March 9, 1998
- ---------------------------------------
Martin Scott
</TABLE>
II-6
<PAGE> 1
EXHIBIT 1.1
COMMONWEALTH ASSOCIATES
1,400,000 Shares
REGISTRY MAGIC INCORPORATED
Common Stock
UNDERWRITING AGREEMENT
----------------------
_________________, 1998
Commonwealth Associates
As Representative of the Several Underwriters
830 Third Avenue
New York, New York 10017
Registry Magic Incorporated, a Florida corporation (the
"Company"), proposes to issue and sell to the underwriters named in Schedule A
(the "Underwriters") of this Underwriting Agreement (the "Agreement"), for whom
you are acting as representative (the "Representative"), an aggregate of
1,400,000 shares (the "Stock") of Common Stock, $.001 par value (such class of
stock being herein called the "Common Stock"), of the Company. In addition, the
Company grants to the Underwriters (or, at its option, the Representative,
individually) the option referred to in Section 3(b) hereof to purchase all or
any part of an aggregate of 210,000 additional shares of Common Stock, if and to
the extent that you, as Representative, shall have determined to exercise, on
behalf of the Underwriters, the right to purchase such shares of Common Stock.
Unless the context otherwise indicates, the term "Stock" shall include the
210,000 additional shares referred to above.
You have advised the Company that you and the other
Underwriters desire to purchase, severally, the Stock, and that you have been
authorized by the Underwriters to execute this agreement on their behalf. The
Company confirms the agreements made by it with respect to the purchase of the
Stock by the several Underwriters on whose behalf you are signing this
Agreement, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the Underwriters that:
(a) A registration statement (File No. 333- ) on
Form SB-2 relating to the public offering of the Stock, including a form of
prospectus subject to completion, copies of which have heretofore been
delivered to you, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
<PAGE> 2
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission under the Act and one or more amendments to such registration
statement may have been so filed. After the execution of this Agreement, the
Company will file with the Commission either (i) if such registration statement,
as it may have been amended, has been declared by the Commission to be effective
under the Act, a prospectus in the form most recently included in an amendment
to such registration statement (or, if no such amendment shall have been filed,
in such registration statement), with such changes or insertions as are required
by Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by the Representative prior to the execution of
this Agreement, or (ii) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the Act,
an amendment to such registration statement, including a form of prospectus, a
copy of which amendment has been furnished to and approved by the Representative
prior to the execution of this Agreement. As used in this Agreement, the term
"Registration Statement" means such registration statement, as amended at the
time when it was or is declared effective, including all financial schedules and
exhibits thereto and including any information omitted therefrom pursuant to
Rule 430A under the Act and included in the Prospectus (as hereinafter defined);
the term "Preliminary Prospectus" means each prospectus subject to completion
filed with such registration statement or any amendment thereto (including the
prospectus subject to completion, if any, included in the Registration Statement
or any amendment thereto at the time it was or is declared effective); and the
term "Prospectus" means the prospectus first filed with the Commission pursuant
to Rule 424(b) under the Act, or, if no prospectus is required to be filed
pursuant to said Rule 424(b), such term means the prospectus included in the
Registration Statement; except that if such registration statement or prospectus
is amended or such prospectus is supplemented, after the effective date of such
registration statement and prior to the Option Closing Date (as hereinafter
defined), the terms "Registration Statement" and "Prospectus" shall include such
registration statement and prospectus as so amended, and the term "Prospectus"
shall include the prospectus as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus. When the
Registration Statement becomes effective and at all times subsequent thereto up
to and on the Closing Date (as hereinafter defined) or the Option Closing Date,
as the case may be, (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein not misleading;
provided, however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus on page 2 with respect to stabilization,
under the heading "Underwriting" and the identity of counsel to the Underwriters
under the heading "Legal Matters" constitute the only information furnished in
writing by or on behalf of the several Underwriters for inclusion in the
Registration Statement and Prospectus, as the case may be.
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<PAGE> 3
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, with full power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus and is
duly qualified to do business as a foreign corporation and is in good standing
in all other jurisdictions in which the nature of its business or the character
or location of its properties requires such qualification, except where failure
to so qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized, issued and outstanding capital stock of
the Company as of January 31, 1998 is as set forth in the Prospectus under
"Capitalization"; the shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued and are
fully paid and non-assessable and have been issued in compliance with all
federal and state securities laws; except as set forth in the Prospectus, no
options, warrants or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company have been granted or entered into by the
Company; and the capital stock conforms to all statements relating thereto
contained in the Registration Statement and Prospectus.
(e) The Stock and the Common Stock to be issued upon exercise
of the common stock purchase warrants to be issued to the Representative (the
"Warrants") are duly authorized, and when issued, and delivered pursuant to this
Agreement, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights of any security holder of the
Company. Neither the filing of the Registration Statement nor the offering or
sale of the Stock as contemplated in this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock, except as described in the
Registration Statement.
(f) This Agreement, the Warrants and the Advisory Agreement
(to be delivered to you in accordance with Section 3(p) and 3(s), respectively,
hereof) have been duly and validly authorized, executed and delivered by the
Company. The Company has full power and lawful authority to authorize, issue and
sell the Stock to be sold by it hereunder on the terms and conditions set forth
herein, and no consent, approval, authorization or other order of any
governmental authority is required in connection with such authorization,
execution and delivery or with the authorization, issue and sale of the Stock or
the Warrants, except such as may be required under the Act or state securities
laws.
(g) Except as described in the Prospectus, the Company is not
in violation, breach or default of or under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach or violation of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of the Company pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
any of the respective properties or assets of the Company is subject, nor will
such action result in any violation of the provisions of the respective articles
of incorporation or the by-laws of the Company, as amended, or any statute
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<PAGE> 4
or any order, rule or regulation applicable to the Company of any court or of
any regulatory authority or other governmental body having jurisdiction over the
Company.
(h) Subject to the qualifications stated in the Prospectus,
the Company has good and marketable title to all respective properties and
assets described in the Prospectus as owned by the Company, free and clear of
all liens, charges, encumbrances or restrictions, except such as are not
materially significant or important in relation to its respective business; all
of the material leases and subleases under which the Company is the lessor or
sublessor of properties or assets or under which the Company holds properties or
assets as lessee or sublessee as described in the Prospectus are in full force
and effect, and, except as described in the Prospectus, the Company is not in
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and no claim has been asserted by anyone
adverse to rights of the Company as lessor, sublessor, lessee or sublessee under
any of the leases or subleases mentioned above, or affecting or questioning the
right of the Company to continued possession of the leased or subleased premises
or assets under any such lease or sublease except as described or referred to in
the Prospectus; and the Company owns or leases all such properties described in
the Prospectus as are necessary to its respective operations as now conducted
and, except as otherwise stated in the Prospectus, as proposed to be conducted
as set forth in the Prospectus.
(i) BDO Seidman, LLP, who have given their reports on certain
financial statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, are with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
(j) The financial statements, together with related notes, set
forth in the Prospectus or the Registration Statement present fairly the
financial position and results of operations and changes in cash flow of the
Company on the basis stated in the Registration Statement, at the respective
dates and for the respective periods to which they apply. Said statements and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a basis which is consistent during the periods
involved and the Rules and Regulations. The information set forth under the
captions "Dilution," "Capitalization" and "Selected Financial Information" in
the Prospectus fairly present, on the basis stated in the Prospectus, the
information included therein.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, the Company has not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the ordinary
course of business, which is material to the business of the Company, and there
has not been any change in the capital stock of, or any incurrence of short-term
or long-term debt by, the Company or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or any adverse change or any
development involving, so far as the Company can now reasonably foresee a
prospective adverse change in the condition (financial or other), net worth,
results of operations, business, key personnel or properties of the Company
which would be material to the business or financial conditions of the Company
and neither the Company has not become
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<PAGE> 5
a party to, and neither the business nor the properties of the Company has
become the subject of, any material litigation whether or not in the ordinary
course of business.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company is a party before or by any court or
governmental agency or body, which might result in any material adverse change
in the condition (financial or other), business prospects, net worth, or
properties of the Company, nor are there any actions, suits or proceedings
related to environmental matters or related to discrimination on the basis of
age, sex, religion or race; and no labor disputes involving the employees of the
Company exist or are imminent which might adversely affect the conduct of the
business, property or operations or the financial conditions or results of
operations of the Company.
(m) Except as disclosed in the Prospectus, the Company has
filed all necessary federal, state and foreign income and franchise tax returns
and has paid all taxes shown as due thereon; and there is no tax deficiency
which has been or to the knowledge of the Company might be asserted against the
Company.
(n) The Company has sufficient licenses, permits and other
governmental authorizations as are required for the conduct of its business or
the ownership of its properties as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights to
use all material patents, patent applications, trademarks, service marks,
trade-names, trademark registrations, service mark registrations, copyrights and
licenses necessary for the conduct of such business and none of the foregoing
are in dispute or are in conflict with the right of any other person or entity.
To the best knowledge of the Company, none of the activities or business of the
Company are in violation of, or cause the Company to violate, any law, rule,
regulation or order of the United States, any state, county or locality, or of
any agency or body of the United States or of any state, county or locality, the
violation of which would have a material adverse impact upon the condition
(financial or otherwise), businesses, properties, prospective results of
operations, or net worth of the Company.
(o) The Company has not directly or indirectly, at any time
(i) made any contributions to any candidate for political office, or failed to
disclose fully any such contribution in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or
other taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Stock to the several Underwriters
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
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<PAGE> 6
(q) All contracts and other documents of the Company which
are, under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock.
(s) The Company has no subsidiaries and does not own any
equity interest in any other corporation, joint venture, partnership or other
business entity.
(t) Except as previously disclosed in writing by the Company
to the Representative, no officer, director or stockholder of the Company has
any National Association of Securities Dealers Inc. (the "NASD") affiliation.
(u) The Company is not and upon receipt of the proceeds from
the sale of the Stock will not be, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(v) The Company has not distributed nor will not distribute
prior to the First Closing Date any offering material in connection with the
offering and sale of the Stock other than the Prospectus, the Registration
Statement and the other materials permitted by the Act.
(w) The conditions for use of Form SB-2, as set forth in the
General Instructions thereto, have been satisfied.
(x) The Company has complied with all provisions of Section
517.075 Florida Statutes relating to doing business with the government of Cuba
or with any person or affiliate located in Cuba.
(y) The Company has not entered into any agreement pursuant to
which any person is entitled, either directly or indirectly, to compensation
from the Company for services as a finder in connection with the public offering
referred to herein.
2. PURCHASE, DELIVERY AND SALE OF THE STOCK.
(a) Subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties, and agreements
herein contained, the Company agrees to issue and sell to the Underwriters, and
each such Underwriter agrees, severally and not jointly, to buy from the Company
at $ per share of Stock, at the place and time hereinafter specified, the number
of shares of Stock set forth opposite the names of the Underwriters in Schedule
A attached hereto (the "First Stock") plus any additional shares of Stock which
such Underwriters may become obligated to purchase pursuant to the provisions
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<PAGE> 7
of Section 9 hereof. The First Stock shall consist of 1,400,000 shares of Stock
to be purchased from the Company.
Delivery of the First Stock against payment therefor
shall take place at the offices of Commonwealth Associates, 830 Third Avenue,
New York, New York 10017 (or at such other place as may be designated by
agreement between you and the Company) at 10:00 a.m., New York time, on ,
1998, or at such later time and date as you may designate, such time and date
of payment and delivery for the First Stock being herein called the "First
Closing Date."
(b) In addition, subject to the terms and conditions
of this Agreement, and upon the basis of the representations, warranties and
agreements herein contained, the Company hereby grants, severally and not
jointly, an option to the several Underwriters (which may be exercised, at its
option, by the Representative, individually) to purchase all or any part of an
aggregate of an additional 210,000 shares of Stock, at the same price per share
of Stock, as the Underwriters shall pay for the First Stock being sold pursuant
to the provisions of subsection (a) of this Section 2 (such additional Stock
being referred to herein as the "Option Stock"). This option may be exercised
within 45 days after the effective date of the Registration Statement upon
notice by the Representative to the Company advising as to the amount of Option
Stock as to which the option is being exercised, the names and denominations in
which the certificates for such Option Stock are to be registered and the time
and date when such certificates are to be delivered. Such time and date shall be
determined by the Representative but shall not be earlier than four nor later
than ten full business days after the exercise of said option, nor in any event
prior to the First Closing Date, and such time and date is referred to herein as
the "Option Closing Date." Delivery of the Option Stock against payment therefor
shall take place at the offices of Commonwealth Associates, 830 Third Avenue,
New York, New York 10017. The number of shares of Option Stock to be purchased
by each Underwriter, if any, shall bear the same percentage to the total number
of shares of Option Stock being purchased by the several Underwriters pursuant
to this subsection (b) as the number of shares of Stock such Underwriter is
purchasing bears to the total number of the First Stock being purchased pursuant
to subsection (a) of this Section 2, as adjusted, in each case by the
Representative in such manner as the Representative may deem appropriate. The
option granted hereunder may be exercised only to cover overallotments in the
sale by the Underwriters of First Stock referred to in subsection (a) above. In
the event the Company declares or pays a dividend or distribution on its Common
Stock, whether in the form of cash, shares of Common Stock or any other
consideration, prior to the Option Closing Date, such dividend or distribution
shall also be paid on the Option Stock at the Option Closing Date.
(c) The Company will make the certificates for the
Stock to be purchased by the Underwriters hereunder available to you for
checking at least two full business days prior to the First Closing Date or the
Option Closing Date (which are collectively referred to herein as the "Closing
Dates"). The certificates shall be in such names and denominations as you may
request, at least two full business days prior to the Closing Dates. Time shall
be of the essence and delivery at the time and place specified in this Agreement
is a further condition to the obligations of each Underwriter.
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<PAGE> 8
Definitive certificates in negotiable form for the
Stock to be purchased by the Underwriters hereunder will be delivered by the
Company to you for the accounts of the several Underwriters against payment of
the respective purchase prices therefor by the several Underwriters, by
certified or bank cashier's checks in New York Clearing House funds, payable to
the order of the Company.
In addition, in the event the Underwriters (or the
Representative, individually) exercise the option to purchase from the Company
all or any portion of the Option Stock pursuant to the provisions of subsection
(b) above, payment for such stock shall be made to or upon the order of the
Company by certified or bank cashier's checks payable in New York Clearing House
funds at the offices of Commonwealth Associates, at the time and date of
delivery of such Stock as required by the provisions of subsection (b) above,
against receipt of the certificates for such Stock by the Representative for the
respective accounts of the several Underwriters registered in such names and in
such denominations as the Representative may request.
It is understood that you, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Stock to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any such
Underwriter or underwriters of any of its or their obligations hereunder. It is
also understood that you individually rather than all of the Underwriters may
(but shall not be obligated to) purchase the Option Stock referred to in
subsection (b) of this Section 2, but only to cover overallotments.
It is understood that the several Underwriters
propose to offer the Stock to be purchased hereunder to the public upon the
terms and conditions set forth in the Registration Statement, after the
Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the several Underwriters that:
(a) The Company will use its best efforts to cause
the Registration Statement to become effective. If required, the Company will
file the Prospectus and any amendment or supplement thereto with the Commission
in the manner and within the time period required by Rule 424(b) under the Act.
Upon notification from the Commission that the Registration Statement has become
effective, the Company will so advise you and will not at any time, whether
before or after the effective date, file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously have
been advised and furnished with a copy or to which you or your counsel shall
have objected in writing or which is not in compliance with the Act and the
Rules and Regulations. At any time prior to the later of (A) the completion by
all of the Underwriters of the distribution of the Stock contemplated hereby
(but in no event more than nine months after the date on which the Registration
Statement shall have become or been declared effective) and (B) 25 days after
the date on which the Registration Statement shall have become or been declared
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<PAGE> 9
effective (the "Minimum Period"), the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which, in your opinion, may be necessary or
advisable in connection with the distribution of the Stock.
As soon as the Company is advised thereof, the
Company will advise you, and confirm the advice in writing, of the receipt of
any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order or
threat thereof suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Stock for offering in any jurisdiction,
or of the institution of any proceedings for any of such purposes, and will use
its best efforts to prevent the issuance of any such order, and, if issued, to
obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies
of each Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriters and dealers to use the Prospectus in
connection with the sale of the Stock for such period as in the opinion of
counsel to the several Underwriters the use thereof is required to comply with
the applicable provisions of the Act and the Rules and Regulations. In case of
the happening, at any time within such period as a Prospectus is required under
this Act to be delivered in connection with sales by an underwriter of any event
of which the Company has knowledge and which materially affects the Company or
the securities of the Company, or which in the opinion of counsel for the
Company or counsel for the Underwriters should be set forth in an amendment of
the Registration Statement or a supplement to the Prospectus in order to make
the statements therein not then misleading, in light of the circumstances
existing at the time the Prospectus is required to be delivered to a purchaser
of the Stock or in case it shall be necessary to amend or supplement the
Prospectus to comply with law or with the Rules and Regulations, the Company
will notify you promptly and forthwith prepare and furnish to you copies of such
amended Prospectus or of such supplement to be attached to the Prospectus, in
such quantities as you may reasonably request, in order that the Prospectus, as
so amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or amended Prospectus or supplement
to be attached to the Prospectus shall be without expense to the Underwriters,
except that in case any Underwriter is required, in connection with the sale of
the Stock, to deliver a Prospectus nine months or more after the effective date
of the Registration Statement, the Company will upon request of and at the
expense of the Underwriter, amend or supplement the Registration Statement and
Prospectus and furnish the Underwriter with reasonable quantities of
prospectuses complying with Section 10(a)(3) of the Act.
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<PAGE> 10
The Company will comply with the Act, the Rules and
Regulations and the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations thereunder in connection with the offering
and issuance of the Stock.
(b) The Company will use its best efforts to qualify
to register the Stock for sale under the securities or "blue sky" laws of such
jurisdictions as the Representative may designate and will make such
applications and furnish such information as may be required for that purpose
and to comply with such laws, provided the Company shall not be required to
qualify as a foreign corporation or a dealer in securities or to execute a
general consent to service of process in any jurisdiction in any action other
than one arising out of the offering or sale of the Stock. The Company will,
from time to time, prepare and file such statements and reports as are or may be
required to continue such qualification in effect for so long a period as the
Underwriters may reasonably request.
(c) If the sale of the Stock provided for herein is
not consummated for any reason caused by the Company, the Company shall pay all
costs and expenses incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the expenses itemized in Section
8, including the accountable expenses of the Underwriters, including legal fees.
(d) The Company will use its best efforts to (i)
cause a registration statement under the Exchange Act to be declared effective
concurrently with the completion of this offering (and will notify the
Representative in writing immediately upon the effectiveness of such
registration statement), and (ii) if requested by the Representative, to obtain
a listing on the Pacific Stock Exchange, and to obtain and keep current a
listing in the Standard & Poors or Moody's Industrial OTC Manual.
(e) For so long as the Company is a reporting company
under either Section 12(g) or 15(d) of the Exchange Act, the Company, at its
expense, will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail, and
at its expense, will furnish to you during the period ending five (5) years from
the date hereof, (i) as soon as practicable after the end of each fiscal year, a
balance sheet of the Company and any of its subsidiaries as at the end of such
fiscal year, together with statements of income, surplus and cash flow of the
Company and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as practicable after the end of each of the first
three fiscal quarters of each fiscal year, consolidated summary financial
information of the Company for such quarter in reasonable detail; (iii) as soon
as they are available, a copy of all reports (financial or other) mailed to
security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with the
Commission of any securities exchange or automated quotation system on which any
class of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary
or subsidiaries, such financial statements referred to in subsection (e) above
will be on a
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<PAGE> 11
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will deliver to you at or before the
First Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the several Underwriters such number of conformed
copies of the Registration Statement, including such financial statements but
without exhibits, and of all amendments thereto, as the several Underwriters may
reasonably request. The Company will deliver to or upon the order of the several
Underwriters, from time to time until the effective date of the Registration
Statement, as many copies of any Preliminary Prospectus filed with the
Commission prior to the effective date of the Registration Statement as the
Underwriters may reasonably request. The Company will deliver to the
Underwriters on the effective date of the Registration Statement and thereafter
for so long as a Prospectus is required to be delivered under the Act, from time
to time, as many copies of the Prospectus, in final form, or as thereafter
amended or supplemented, as the Underwriters may from time to time reasonably
request.
(h) The Company will make generally available to its
security holders and deliver to you as soon as it is practicable to do so but in
no event later than 90 days after the end of twelve months after its current
fiscal quarter, an earnings statement (which need not be audited) covering a
period of at least twelve consecutive months beginning after the effective date
of the Registration Statement, which shall satisfy the requirements of Section
11(a) of the Act.
(i) The Company will apply the net proceeds from the
sale of the Stock for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Stock and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(j) The Company will, promptly upon your request,
prepare and file with the Commission any amendments or supplements to the
Registration Statement, Preliminary Prospectus or Prospectus and take any other
action, which in the reasonable opinion of Bachner, Tally, Polevoy & Misher LLP,
counsel to the several Underwriters, may be reasonably necessary or advisable in
connection with the distribution of the Stock, and will use its best efforts to
cause the same to become effective as promptly as possible.
(k) The Company will reserve and keep available that
maximum number of its authorized but unissued shares of Common Stock which are
issuable upon exercise of the Warrants outstanding from time to time.
(l) For a period of 12 months from the date of the
Prospectus, no officer, director or shareholder of the Company (including
beneficial holders of 5% or more of the Company's outstanding capital stock (the
"Principal Stockholders")) will offer, sell or dispose of, directly or
indirectly, any shares of Common Stock without the prior written consent of the
Representative.
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<PAGE> 12
In addition, holders of registration rights will agree not to exercise such
registration rights for a period of 12 months from the date of the Prospectus.
In order to enforce this covenant, the Company shall impose stop-transfer
instructions with respect to the shares of Common Stock owned by the Principal
Stockholders until the end of each such period.
(m) During the two year period commencing on the
effective date of the Registration Statement, the Company shall, at the
Representative's option, nominate a designee of the Representative for election
to the Company's Board of Directors. If no such designee is selected by
Representative, the Representative shall have the option to appoint an observer
selected by the Representative to attend all meetings of the Company's Board of
Directors during such period.
(n) Upon completion of this offering, the Company
will make all filings required, including registration under the Exchange Act,
to obtain the listing of its Common Stock on the Nasdaq SmallCap Market, and
will effect and maintain such listing for at least five years from the date of
this Agreement.
(o) The Company and each of the Principal
Stockholders represents that it or he has not taken and agree that it or he will
not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Stock or to facilitate the
sale or resale of the Stock.
(p) On the Closing Date, and simultaneously with the
delivery of the Stock, the Company shall execute and deliver to you,
individually and not as representative of the Underwriters, the Warrants. The
Warrants will be substantially in the form of the Stock Purchase Warrant filed
as an Exhibit to the Registration Statement.
(q) During the 18 month period commencing on the date
of this Agreement the Company will not, without the prior written consent of the
Representative, grant options to purchase shares of Common Stock at a price less
than the lesser of (i) initial public offering price of the Stock or (ii) the
fair market value of the Common Stock on the date of grant. During the six month
period commencing on the date of this Agreement, the Company will not, without
the prior written consent of the Representative, grant options to any current
officer of the Company. During the three year period from the First Closing
Date, the Company will not, without the prior written consent of the
Representative offer or sell any of its Securities pursuant to Regulation S.
(r) Walt Nawrocki will be Chief Executive Officer of
the Company on the Closing Dates. The Company has obtained key person life
insurance on the life of Walt Nawrocki in an amount of not less than $1 million
and will use its best efforts to maintain such insurance for a minimum period of
three years from the effective date of the Registration Statement or, if such
individual's employment is terminated prior to such date, to maintain such
insurance on his successor until the expiration of such period. For a period of
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<PAGE> 13
13 months from the First Closing Date, the compensation of the executive
officers of the Company shall not be increased from the compensation levels
disclosed in the Prospectus.
(s) On the Closing Date and simultaneously with the
delivery of the Stock the Company shall execute and deliver to you, individually
and not as representative of the Underwriters, a financial advisory and
consulting agreement with you, in the form previously delivered to the Company
by you (the "Advisory Agreement") along with payment of the fee due thereunder,
by certified or bank cashier's checks, in New York Clearing House Funds, payable
to the order of the Representative.
(t) For a period of five years from the effective
date of the Registration Statement the Company (i) at its expense, shall cause
its regularly engaged independent certified public accountants to review (but
not audit) the Company's financial statements for each of the first three fiscal
quarters prior to the announcement of quarterly financial information, the
filing of the Company's 10-QSB quarterly report and the mailing of quarterly
financial information to stockholders and (ii) shall maintain BDO Seidman, LLP
as the regularly engaged independent certified public accountants to the
Company, and shall not effect a change therefrom without the prior written
consent of the Representative; provided that no such consent shall be necessary
if the new independent certified public accountant to the Company is a firm
which is a member of the so called "Big Six".
(u) As promptly as practicable after the Closing
Date, the Company will prepare, at its own expense, hard cover "bound volumes"
relating to the offering, and will distribute at least four of such volumes to
the individuals designated by the Representative or counsel to the several
Underwriters.
(v) The Company shall, for a period of six years
after the date of this Agreement, submit such reports to the Secretary of the
Treasury and to stockholders, as the Secretary may require, pursuant to Section
1202 of the Internal Revenue Code, as amended, or regulations promulgated
thereunder, in order for the Company to qualify as a "small business" so that
stockholders may realize special tax treatment with respect to their investment
in the Company.
(w) The Company shall not grant any additional
registration rights to any person which are exercisable prior to 13 months after
the First Closing Date.
(x) For a period of one year after the Closing Date,
the Company shall cause the transfer agent for the Company's Common Stock, at
its own expense, to provide the Representative, if so requested, with copies of
the Company's daily transfer sheets.
(y) Prior to the Closing Date, the Company shall
engage a public relations firm, acceptable to you, and shall maintain such
public relations firm for a period of not less than one year following the
effective date of the Registration Statement.
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<PAGE> 14
4. CONDITIONS OF UNDERWRITERS' OBLIGATION. The obligations of
the several Underwriters to purchase and pay for the Stock which they have
respectively agreed to purchase hereunder, are subject to the accuracy (as of
the date hereof, and as of the Closing Dates) of and compliance with the
representations and warranties of the Company herein, to the performance by the
Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become
effective and you shall have received notice thereof not later
than 10:00 A.M., New York time, on the day following the date
of this Agreement, or at such later time or on such later date
as to which you may agree in writing; on or prior to the
Closing Dates no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no
proceedings for that or a similar purpose shall have been
instituted or shall be pending or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the
Commission; any request on the part of the Commission for
additional information shall have been complied with to the
reasonable satisfaction of Bachner, Tally, Polevoy & Misher
LLP, counsel to the several Underwriters; and no stop order
shall be in effect denying or suspending effectiveness of such
qualification nor shall any stop order proceedings with
respect thereto be instituted or pending or threatened. If
required, the Prospectus shall have been filed with the
Commission in the manner and within the time period required
by Rule 424(b) under the Act.
(b) At the First Closing Date, you shall have
received the opinion, addressed to the Underwriters, dated as
of the First Closing Date, of Atlas, Pearlman, Trop & Borkson,
P.A., counsel for the Company, in form and substance
satisfactory to counsel for the several Underwriters, to the
effect that:
(i) the Company has been duly incorporated and
is validly existing as a corporation in good standing
under the laws of the State of Florida, with full
corporate power and authority to own its properties
and conduct its business as described in the
Registration Statement and Prospectus and is duly
qualified or licensed to do business as a foreign
corporation and is in good standing in each other
jurisdiction in which the ownership or leasing of its
properties or conduct of its business requires such
qualification;
(ii) to the best knowledge of such counsel, (a)
the Company has obtained, or is in the process of
obtaining, all licenses, permits and other
governmental authorizations necessary to the conduct
of its respective business as described in the
Prospectus, (b) such licenses, permits and other
governmental authorizations obtained are in full
force and effect, and (c) the Company is in all
material respects complying therewith;
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<PAGE> 15
(iii) the authorized capitalization of the
Company as of January 31, 1998 is as set forth under
"Capitalization" in the Prospectus; all shares of the
Company's outstanding stock requiring authorization
for issuance by the Company's board of directors have
been duly authorized, validly issued, are fully paid
and non-assessable and conform to the description
thereof contained in the Prospectus; the outstanding
shares of Common Stock of the Company have not been
issued in violation of the preemptive rights of any
stockholder and the stockholders of the Company do
not have any preemptive rights or other rights to
subscribe for or to purchase, nor are there any
restrictions upon the voting or transfer of any of
the Stock; the Stock conforms to the description
thereof contained in the Prospectus; the Stock has
been duly authorized and, when issued and delivered
pursuant to this Agreement, will be duly and validly
issued, fully paid, non-assessable, free of
preemptive rights and no personal liability will
attach to the ownership thereof; all prior sales by
the Company of the Company's securities have been
made in compliance with or under an exemption from
registration under the Act and applicable state
securities laws and the stockholders of the Company
have no recession rights with respect to any
outstanding securities of the Company; and to the
best of such counsel's knowledge, neither the filing
of the Registration Statement nor the offering or
sale of the Stock as contemplated by this Agreement
gives rise to any registration rights or other
rights, other than those which have been waived or
satisfied for or relating to the registration of any
shares of Common Stock;
(iv) each of this Agreement, the Warrants and
the Advisory Agreement have been duly and validly
authorized, executed and delivered by the Company and
assuming due execution by each other party hereto,
constitutes a legal, valid and binding obligation of
the Company enforceable against the Company in
accordance with its respective terms (except as such
enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or
affecting enforcement of creditors' rights and the
application of equitable principles in any action,
legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law);
(v) the certificates evidencing the Stock are
in due and proper form; the Warrants will be
exercisable for shares of Common Stock of the Company
in accordance with the terms of the Warrants and at
the prices therein provided for; at all times during
the term of the Warrants the shares of Common Stock
of the Company issuable upon exercise of the Warrants
will have been duly authorized and reserved for
issuance upon such exercise and such shares, when
issued upon such exercise in
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<PAGE> 16
accordance with the terms of the Warrants and at the
price provided for, will be duly and validly issued,
fully paid and non-assessable;
(vi) such counsel knows of no pending or
threatened legal or governmental proceedings to which
the Company is a party which could materially
adversely affect the business, property, financial
conditions or operations of the Company; or which
question the validity of the Common Stock of the
Company, the Stock, this Agreement, the Warrants or
the Advisory Agreement, or of any action taken or to
be taken by the Company pursuant to this Agreement,
the Warrants or the Advisory Agreement, and no such
proceedings are known to such counsel to be
contemplated against the Company; there are no
governmental proceedings or regulations required to
be described or referred to in the Registration
Statement which are not so described or referred to;
(vii) the Company is not in violation of or
default under, nor will the execution and delivery of
this Agreement, the Warrants or the Advisory
Agreement, and the incurrence of the obligations
herein or therein set forth and the consummation of
the transactions herein or therein contemplated,
result in a breach or violation of, or constitute a
default under the articles of incorporation or
by-laws, in the performance or observance of any
material obligations, agreement, covenant or
condition contained in any bond, debenture, note or
other evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, lease, joint
venture or other agreement or instrument to which the
Company is a party or by which the Company or its
property may be bound or in violation of any material
order, rule, regulation, writ, injunction, or decree
of any government, governmental instrumentality or
court, domestic or foreign;
(viii) the Registration Statement has become
effective under the Act, and to the best of such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been
instituted or are pending before, or threatened by,
the Commission; the Registration Statement and the
Prospectus (except for the financial statements and
other financial data contained therein, or omitted
therefrom, as to which such counsel need express no
opinion) comply as to form in all material respects
with the applicable requirements of the Act and the
Rules and Regulations;
(ix) such counsel has participated in the
preparation of the Registration Statement and the
Prospectus and nothing has come to the attention of
such counsel to cause such counsel to have reason to
believe that the Registration Statement or any
amendment thereto at the time it
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<PAGE> 17
became effective or as of the Closing Dates contained
any untrue statement of a material fact required to
be stated therein or omitted to state any material
fact required to be stated therein or necessary to
make the statements therein not misleading or that
the Prospectus or any supplement thereto contains any
untrue statement of a material fact or omits to state
a material fact necessary in order to make statements
therein, in light of the circumstances under which
they were made, not misleading (except, in the case
of both the Registration Statement and any amendment
thereto and the Prospectus and any supplement
thereto, for the financial statements, notes thereto
and other financial information and schedules
contained therein, as to which such counsel need
express no opinion);
(x) all descriptions in the Registration
Statement and the Prospectus, and any amendment or
supplement thereto, of contracts and other documents
are accurate and fairly present the information
required to be shown, and such counsel is familiar
with all contracts and other documents referred to in
the Registration Statement and the Prospectus and any
such amendment or supplement or filed as exhibits to
the Registration Statement, and such counsel does not
know of any contracts or documents of a character
required to be summarized or described therein or to
be filed as exhibits thereto which are not so
summarized, described or filed;
(xi) no authorization, approval, consent, or
license of any governmental or regulatory authority
or agency is necessary in connection with the
authorization, issuance, transfer, sale or delivery
of the Stock by the Company, in connection with the
execution, delivery and performance of this Agreement
by the Company or in connection with the taking of
any action contemplated herein, or the issuance of
the Warrants or the Common Stock underlying the
Warrants, other than registrations or qualifications
of the Stock under applicable state or foreign
securities or Blue Sky laws and registration under
the Act;
(xii) the statements in the Registration
Statement under the captions "Business", "Use of
Proceeds", "Management", and "Description of Common
Stock" have been reviewed by such counsel and insofar
as they refer to descriptions of agreements,
statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions,
are correct in all material respects; and
(xiii) At the First Closing Date, you shall have
received the opinion, addressed to the Underwriters,
dated as of the First Closing Date, of __________,
patent counsel to the Company, in form and substance
satisfactory to counsel for the Underwriters, to the
effect that:
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<PAGE> 18
(a) we have carefully read and
analyzed the material set forth in the prospectus
under "Risk Factors - Difficulties in Maintaining
Proprietary Rights" and "Business - Proprietary
Rights" and, in our opinion, such material accurately
and adequately discloses the Company's patent
position and did not, at the time the Registration
Statement became effective and, at the First Closing
Date, does not contain an untrue statement of a
material fact or omit to state a material fact
required to be stated therein or necessary in order
to make the statements therein, in light of the
circumstances under which they were made, not
misleading;
(b) the patent applications referred
to in the Prospectus were properly filed and the
Patent and Trademark Office has not taken substantive
action with respect thereto; there has not been any
public use or sale by the Company prior to the filing
of any of the patents or patent applications which
would affect their validity and, in such counsel's
opinion, the claims contained in the applications
represent valid patent claims and such counsel has no
reason to believe that patents will not issue with
respect thereto or that the claims, contained in the
applications conflict with the rights of others;
(c) There are no facts which would
preclude the Company from having clear title to the
United States patents and United States patent
applications owned by the Company;
(d) The Company has not received any
notice challenging the validity or enforceability of
any of the United States patents owned by, or
licensed to, the Company;
(e) The Company does not lack nor will
it be unable to obtain any rights or licenses to use
United States patents necessary to the business as
currently conducted;
(f) There are no material legal or
governmental proceedings pending or threatened with
respect to any patents of the Company; and
(g) There have been no claims asserted
against the Company relating to the potential
infringement of or conflict with any patents,
trademarks, copyrights or trade secrets of others;
such counsel has conducted a search for existing
United States and European Union patents with claims
that might cover the Company's technology
particularly as it relates to the Virtual Operator,
Conversational Voice Dialing, Conversational Personal
Assistant and Magic Calendar and, in such counsel's
opinion, the Company's technology does not infringe
any United States patents.
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<PAGE> 19
(iv) the Stock has been duly
authorized for quotation on the Nasdaq SmallCap
Market.
Such opinion shall also cover such matters incident
to the transactions contemplated hereby as the Representative
or counsel for the several Underwriters shall reasonably
request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials
as to matters of fact; and may rely as to all matters of law
other than the law of the United States or of Florida upon
opinions of counsel satisfactory to you, in which case the
opinion shall state that they have no reason to believe that
you and they are not entitled to so rely.
(c) All corporate proceedings and other legal matters
relating to this Agreement, the Registration Statement, the
Prospectus and other related matters shall be satisfactory to
or approved by Bachner, Tally, Polevoy & Misher LLP, counsel
to the several Underwriters, and you shall have received from
such counsel a signed opinion, dated as of the First Closing
Date, together with copies thereof for each of the other
Underwriters, with respect to the validity of the issuance of
the Stock, the form of the Registration Statement and
Prospectus (other than the financial statements and other
financial data contained therein), the execution of this
Agreement and other related matters as you may reasonably
require. The Company shall have furnished to counsel for the
several Underwriters such documents as they may reasonably
request for the purpose of enabling them to render such
opinion.
(d) You shall have received a letter prior to the
effective date of the Registration Statement and again on and
as of the First Closing Date from BDO Seidman, LLP,
independent public accountants for the Company, substantially
in the form approved by you, and including estimates of the
Company's revenues and results of operations for the period
ending at the end of the month immediately preceding the
effective date and results of the comparable period during the
prior fiscal year.
(e) At the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be
true and correct with the same effect as if made on and as of
the Closing Dates and the Company shall have performed all of
its obligations hereunder and satisfied all the conditions on
its part to be satisfied at or prior to such Closing Date,
(ii) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all statements
which are required to be stated therein in accordance with the
Act and the Rules and Regulations, and in all material
respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or
supplement thereto shall contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading, (iii) there shall have been, since the
respective dates as of which information is
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<PAGE> 20
given, no material adverse change, or any development
involving a prospective material adverse change in the
business, properties or conditions (financial or otherwise),
results of operations, capital stock, long-term or short-term
debt or general affairs of the Company from that set forth in
the Registration Statement and the Prospectus, except changes
which the Registration Statement and Prospectus indicate might
occur after the effective date of the Registration Statement,
and the Company shall not have incurred any material
liabilities or agreement not in the ordinary course of
business other than as referred to in the Registration
Statement and Prospectus; and (iv) except as set forth in the
Prospectus, no action, suit or proceeding at law or in equity
shall be pending or threatened against the Company which would
be required to be set forth in the Registration Statement, and
no proceedings shall be pending or threatened against the
Company before or by any commission, board or administrative
agency in the United States or elsewhere, wherein an
unfavorable decision, ruling or finding would materially and
adversely affect the business, property, conditions (financial
or otherwise), results of operations or general affairs of the
Company, and (v) you shall have received, at the First Closing
Date, a certificate signed by each of the Chairman of the
Board or the President and the principal financial or
accounting officer of the Company, dated as of the First
Closing Date, evidencing compliance with the provisions of
this subsection (e).
(f) Upon exercise of the option provided for in
Section 2(b) hereof, the obligations of the several
Underwriters (or, at its option, the Representative,
individually) to purchase and pay for the Option Stock
referred to therein will be subject (as of the date hereof and
as of the Option Closing Date) to the following additional
conditions:
(i) The Registration Statement shall remain
effective at the Option Closing Date, and no stop
order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall
have been instituted or shall be pending, or, to your
knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any reasonable
request on the part of the Commission for additional
information shall have been complied with to the
satisfaction of Bachner, Tally, Polevoy & Misher LLP,
counsel to the several Underwriters.
(ii) At the Option Closing Date there shall
have been delivered to you as Representative the
signed opinions of Atlas, Pearlman, Trop & Borkson,
P.A., counsel for the Company, and ________________,
patent counsel to the Company, both dated as of the
Option Closing Date, in form and substance
satisfactory to Bachner, Tally, Polevoy & Misher LLP,
counsel to the several Underwriters, together with
copies of such opinions for each of the other several
Underwriters, which opinions shall be substantially
the same in scope
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<PAGE> 21
and substance as the opinions furnished to you at the
First Closing Date pursuant to Section 4(b), except
that such opinions, where appropriate, shall cover
the Option Stock.
(iii) At the Option Closing Date there shall
have been delivered to you a certificate of the
Chairman of the Board or the President and the
principal financial or accounting officer of the
Company, dated the Option Closing Date, in form and
substance satisfactory to Bachner, Tally, Polevoy &
Misher LLP, counsel to the several Underwriters,
substantially the same in scope and substance as the
certificate furnished to you at the First Closing
Date pursuant to Section 4(e).
(iv) At the Option Closing Date there shall
have been delivered to you a letter in form and
substance satisfactory to you from BDO Seidman, LLP,
dated the Option Closing Date and addressed to the
Underwriters confirming the information in their
letter referred to in Section 4(d) hereof and stating
that nothing has come to their attention during the
period from the ending date of their review referred
to in said letter to a date not more than five
business days prior to the Option Closing Date, which
would require any change in said letter if it were
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the
Option Closing Date in connection with the sale and
issuance of the Option Stock shall be satisfactory in
form and substance to you, and you and Bachner,
Tally, Polevoy & Misher LLP, counsel to the several
Underwriters, shall have been furnished with all such
documents, certificates, affidavits and opinions as
you may request in connection with this transaction
in order to evidence the accuracy and completeness of
any of the representations, warranties or statements
of the Company or its compliance with any of the
covenants or conditions contained herein.
(g) No action shall have been taken by the Commission
or the NASD the effect of which would make it improper, at any
time prior to the Closing Date, for members of the NASD to
execute transactions (as principal or agent) in the Common
Stock and no proceedings for the taking of such action shall
have been instituted or shall be pending, or, to the knowledge
of the several Underwriters or the Company, shall be
contemplated by the Commission or the NASD. The Company
represents that at the date hereof it has no knowledge that
any such action is in fact contemplated by the Commission or
the NASD. The Company shall advise the several Underwriters of
any NASD affiliation of any of its officers, directors,
stockholders or their affiliates.
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<PAGE> 22
If any of the conditions herein provided for in this Section
shall not have been fulfilled as of the date indicated, this Agreement and all
obligations of the several Underwriters under this Agreement may be cancelled
at, or at any time prior to, each Closing Date by the Representative. Any such
cancellation shall be without liability of the Underwriters to the Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to sell and deliver the Stock is subject to the
following conditions:
(a) The Registration Statement shall have become
effective not later than 10:00 A.M. New York time, on the day
following the date of this Agreement, or on such later date as
the Company and the Representative may agree to in writing.
(b) At the Closing Dates, no stop orders suspending
the effectiveness of the Registration Statement shall have
been issued under the Act or any proceedings therefor
initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided
for in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Stock on
exercise of the option provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act against any losses, claims, damages or liabilities, joint
or several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which such Underwriter or such controlling person may become subject,
under the Act or otherwise, and will reimburse, as incurred, such Underwriter
and such controlling persons for any legal or other expenses reasonably incurred
in connection with investigating, defending against or appearing as a third
party witness in connection with any losses, claims, damages or liabilities,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
(B) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify any or all
of the Stock under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or arise out
of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment
or supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that
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<PAGE> 23
the Company will not be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Underwriters specifically for
use in the preparation of the Registration Statement or any such amendment or
supplement thereof or any such Blue Sky Application or any such preliminary
Prospectus or the Prospectus or any such amendment or supplement thereto. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) Each Underwriter severally, but not jointly, will
indemnify and hold harmless the Company, each of the Company's directors, each
nominee (if any) for director of the Company named in the Prospectus, each of
the Company's officers who have signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of the Act, against
any losses, claims, damages or liabilities (which shall, for all purposes of
this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
director, nominee, officer or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (i) in reliance upon and in conformity with written
information furnished to the Company by you or by any Underwriter through you
specifically for use in the preparation thereof and (ii) relates to the
transactions effected by the Underwriters in connection with the offer and sale
of the Stock contemplated hereby. This indemnity agreement will be in addition
to any liability which the Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section 6 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section, notify in writing the indemnifying party
of the commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under this Section. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any
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<PAGE> 24
such action and to participate in the defense thereof, but the fees and expenses
of such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
an Underwriter or a person who controls such Underwriter within the meaning of
the Act, the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party or (ii) the named parties to any
such action (including any impleaded parties) include both such Underwriter or
such controlling person and the indemnifying party and in the judgment of the
Representative, it is advisable for the Representative or such Underwriters or
controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such Underwriter or such controlling person, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all such Underwriters and controlling persons, which firm shall be
designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnifying party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnifying party.
7. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (i) any Underwriter makes claim
for indemnification pursuant to Section 7 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 6 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriters and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company, or the Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that (a) it would not be just
and
- 24 -
<PAGE> 25
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters and their
respective controlling persons in the aggregate were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the first sentence of this Section
7, (b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of shares of
Stock purchased by such Underwriter to the number of shares of Stock purchased
by all contributing Underwriters) of the portion of such losses, claims, damages
or liabilities for which the Underwriters are responsible. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. As used in this paragraph, the term "Underwriter"
includes any officer, director, or other person who controls an Underwriter
within the meaning of Section 15 of the Act and the word "Company" includes any
officer, director, or person who controls the Company within the meaning of
Section 15 of the Act. If the full amount of the contribution specified in this
paragraph is not permitted by law, then any Underwriter and each person who
controls any Underwriter shall be entitled to contribution from the Company, its
officers, directors and controlling persons to the full extent permitted by law.
The foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act other
than the Company and the Underwriters. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective
or the sale of the Stock to the Underwriters is consummated, the Company will
pay all costs and expenses incident to the performance of this Agreement by the
Company including, but not limited to, the fees and expenses of counsel to the
Company and the Company's accountants; the costs of investigative reports
regarding the Company, its principal stockholders and/or its officers and
directors; the costs and expenses incident to the preparation, printing, filing
and distribution under the Act of the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto),
Preliminary Prospectus and the Prospectus, as amended or supplemented, the fee
of the NASD in connection with the filing required by the NASD relating to the
offering of the Stock contemplated hereby; all expenses, including reasonable
fees and disbursements of counsel to the Underwriters, in connection with the
qualification of the Stock under the state securities or blue sky laws which the
Representative shall designate; the cost of printing and furnishing to the
several Underwriters copies of the Registration Statement, each Preliminary
Prospectus, the Prospectus, this Agreement, the Agreement Among Underwriters,
Selling Agreement, Underwriters' Questionnaire, Underwriters' Power of Attorney
and the Blue Sky Memorandum, any fees relating to the listing of the Common
Stock on the Nasdaq SmallCap Market or other securities exchange, the cost of
printing the certificates representing the Stock, the fees of the transfer
agent, the cost of publication of at least three "tombstones" of the offering
(at least one of which shall be in a national business
- 25 -
<PAGE> 26
newspaper and one of which shall be in a major New York newspaper and the cost
of preparing at least four hard cover "bound volumes" relating to the offering
for individuals designated by the Representative. The Company shall pay any and
all taxes (including any transfer, franchise, capital stock or other tax imposed
by any jurisdiction) on sales to the Underwriters hereunder. The Company will
also pay all cost and expenses incident to the furnishing of any amended
Prospectus or of any supplement to be attached to the Prospectus as called for
in Section 3(a) of this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company
shall at the First Closing Date pay to Commonwealth Associates in its individual
rather than representative capacity (i) a non-accountable expense allowance of
$_______ (1.5% of the gross proceeds of the offering) of which $25,000 has been
paid and (ii) an advisory fee of $________ (2% of the gross proceeds of the
offering). In the event the overallotment option is exercised, the Company shall
pay to Commonwealth Associates at the Option Closing Date an additional amount
equal to 3.5% of the gross proceeds from the sale of Stock by the Company on
exercise of the overallotment option. In the event the transactions contemplated
hereby are not consummated by reason of any action by the Representative (except
if such prevention is based upon a breach by the Company of any covenant,
representation or warranty contained herein or because any other condition to
the Underwriters' obligations hereunder required to be fulfilled by the Company
is not fulfilled) the Company shall be liable for the accountable expenses of
the Underwriters including legal fees. In the event the transactions
contemplated hereby are not consummated by reason of any action of the Company
or because of a breach by the Company of any covenant, representation or
warranty herein, the Company shall be liable for the accountable expenses of the
Underwriters, including legal fees.
(c) No person is entitled either directly or
indirectly to compensation from the Company, from the Representative or from any
other person for services as a finder in connection with the proposed offering,
and the Company agrees to indemnify and hold harmless the Representative and the
other Underwriters, against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys' fees), to
which the Company, the Representative or such other Underwriter or person may
become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it is entitled to a finder's fee in connection with the proposed offering
by reason of such person's or entity's influence or prior contact with the
indemnifying party.
9. SUBSTITUTION OF UNDERWRITERS. If any Underwriters shall for
any reason not permitted hereunder cancel their obligations to purchase the
First Stock hereunder, or shall fail to take up and pay for the number of First
Stock set forth opposite their respective names in Schedule A hereto upon tender
of such First Stock in accordance with the terms hereof, then:
(a) If the aggregate number of shares of First Stock
which such Underwriter or Underwriters agreed but failed to purchase does not
exceed 10% of the total
- 26 -
<PAGE> 27
number of First Stock, the other Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the First
Stock which such defaulting Underwriter or Underwriters agreed but failed to
purchase.
(b) If any Underwriter or Underwriters so default and
the agreed number of First Stock with respect to which such default or defaults
occurs is more than 10% of the total number of First Stock, the remaining
Underwriters shall have the right to take up and pay for (in such proportion as
may be agreed upon among them) the First Stock which the defaulting Underwriter
or Underwriters agreed but failed to purchase. If such remaining Underwriters do
not, at the First Closing Date, take up and pay for the First Stock which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the time
for delivery of the First Stock shall be extended to the next business day to
allow the several Underwriters the privilege of substituting within twenty-four
hours (including nonbusiness hours) another underwriter or underwriters
satisfactory to the Company. If no such underwriter or underwriters shall have
been substituted as aforesaid, within such twenty-four hour period, the time of
delivery of the First Stock may, at the option of the Company, be again extended
to the next following business day, if necessary, to allow the Company the
privilege of finding within twenty-four hours (including nonbusiness hours)
another underwriter or underwriters to purchase the First Stock which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the First Stock of the defaulting Underwriter or Underwriters as
provided in this Section, (i) the Company or the Representative shall have the
right to postpone the time of delivery for a period of not more than seven
business days, in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary, and (ii) the respective numbers of First Stock to be purchased
by the remaining Underwriters or substituted Underwriters shall be taken at the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and
the remaining Underwriters shall not take up and pay for all the First Stock
agreed to be purchased by the defaulting Underwriters or substitute another
underwriter or underwriters as aforesaid, the Company shall not find or shall
not elect to seek another underwriter or underwriters for such First Stock as
aforesaid, then this Agreement shall terminate.
If, following exercise of the option provided in Section 2(b)
hereof, any Underwriter or Underwriters shall for any reason not permitted
hereunder cancel their obligations to purchase Option Stock at the Option
Closing Date, or shall fail to take up and pay for the number of Option Stock,
which they become obligated to purchase at the Option Closing Date upon tender
of such Option Stock in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Stock of the defaulting Underwriters in the manner provided in Section 9(b)
hereof. If the remaining Underwriters or substituted Underwriters shall not take
up and pay for all such Option Stock, the Underwriters shall be entitled to
purchase the number of Option Stock for
- 27 -
<PAGE> 28
which there is no default or, at their election, the option shall terminate, the
exercise thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section. In the event of
termination, there shall be no liability on the part of any nondefaulting
Underwriter to the Company, provided that the provisions of this Section 9 shall
not in any event affect the liability of any defaulting Underwriter to the
Company arising out of such default.
10. EFFECTIVE DATE. The Agreement shall become effective upon
its execution except that you may, at your option, delay its effectiveness until
11:00 A.M., New York time on the first full business day following the effective
date of the Registration Statement, or at such earlier time after the effective
date of the Registration Statement as you in your discretion shall first
commence the initial public offering by the Underwriters of any of the Stock.
The time of the initial public offering shall mean the time of release by you of
the first newspaper advertisement with respect to the Stock, or the time when
the Stock is first generally offered by you to dealers by letter or telegram,
whichever shall first occur. This Agreement may be terminated by you at any time
before it becomes effective as provided above, except that Sections 3(c), 6, 7,
8, 13, 14, 15 and 16 shall remain in effect notwithstanding such termination.
11. TERMINATION.
(a) This Agreement, except for Sections 3(c), 6, 7,
8, 13, 14, 15 and 16 hereof, may be terminated at any time prior to the First
Closing Date, and the option referred to in Section 2(b) hereof, if exercised,
may be cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Stock agreed to be purchased hereunder by
reason of (i) the Company having sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other calamity, or
from any labor dispute or court or government action, order or decree; (ii)
trading in securities on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market having been
suspended or limited; (iii) material governmental restrictions having been
imposed on trading in securities generally (not in force and effect on the date
hereof); (iv) a banking moratorium having been declared by federal or New York
state authorities; (v) an outbreak of international hostilities or other
national or international calamity or crisis or change in economic or political
conditions having occurred; (vi) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business, or a
notification having been received by the Company of the threat of any such
proceeding or action, which could materially adversely affect the Company; (vii)
except as contemplated by the Prospectus, the Company are merged or consolidated
into or all or substantially all of the capital stock or assets of the Company
are acquired by another company or group or there exists a binding legal
commitment for the foregoing or any other material change of ownership or
control occurs; (viii) the passage by the Congress of the United States or by
any state legislative body, or federal or state agency or other authority of any
act, measure, rule or regulation, or the adoption of any orders, rules or
regulations by any
- 28 -
<PAGE> 29
governmental body or any authoritative accounting institute or board, or any
governmental executive, which is reasonably believed likely by the
Representative to have a material impact on the business, financial conditions
or financial statements of the Company or the market for the securities offered
pursuant to the Prospectus; (ix) any adverse change in the financial or
securities markets beyond normal market fluctuations, having occurred since the
date of this Agreement, or (x) any material adverse change having occurred,
since the respective dates of which information is given in the Registration
Statement and Prospectus, in the earnings, business, prospects or general
conditions of the Company, financial or otherwise, whether or not arising in the
ordinary course of business.
(b) If you elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section 11
or in Section 10, the Company shall be promptly notified by you, by telephone or
telegram, confirmed by letter.
12. WARRANTS. At or before the First Closing Date, the Company
will sell to Commonwealth Associates (for its own account and not as
Representative of the several Underwriters), or its designees for a
consideration of $140, and upon the terms and conditions set forth in the form
of Warrant annexed as an exhibit to the Registration Statement, Warrants to
purchase an aggregate of 140,000 shares of Common Stock of the Company. In the
event of conflict in the terms of this Agreement and the Warrants, the language
of the Warrants shall control.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties
and other statements of the Company or its Principal Stockholders where
appropriate, and the Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Stock and the termination of this Agreement.
14. NOTICE. Any communications specifically required hereunder
to be in writing, if sent to the Underwriters, will be mailed, delivered or
telegraphed and confirmed to them at Commonwealth Associates, 830 Third Avenue,
New York, New York 10017 with a copy sent to Bachner, Tally, Polevoy & Misher
LLP, 380 Madison Avenue, New York, New York 10017, or if sent to the Company,
will be mailed, delivered or telegraphed and confirmed to it at One South Ocean
Boulevard, Suite 206, Boca Raton, Florida 33432, with a copy sent to Atlas,
Pearlman, Trop & Borkson, P.A., 200 East Las Olas Boulevard, Suite 1900, Fort
Lauderdale, FL 33301.
15. PARTIES IN INTEREST. The Agreement herein set forth is
made solely for the benefit of the several Underwriters, the Company and, to the
extent expressed, the Principal Stockholders, any person controlling the Company
or any of the several Underwriters, and directors of the Company, nominees for
directors (if any) named in the Prospectus, its officers who have signed the
Registration Statement, and their respective executors, administrators,
successors, and assigns and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not
- 29 -
<PAGE> 30
include any purchaser, as such purchaser, from any of the several Underwriters
of the Stock. All of the obligations of the Underwriters hereunder are several
and not joint.
16. APPLICABLE LAW. This Agreement will be governed by, and
construed in accordance with, the laws of the State of New York applicable to
agreements made and to be entirely performed within New York.
- 30 -
<PAGE> 31
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company, the Selling Stockholders and the several
Underwriters in accordance with its terms.
Very truly yours,
REGISTRY MAGIC INCORPORATED
By:
------------------------------------------
Walt Nawrocki, President and Chief
Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
For itself and as Representative COMMONWEALTH ASSOCIATES
of the several Underwriters a New York limited partnership
By: COMMONWEALTH MANAGEMENT CO., INC.
a New York corporation, its general partner
By:
----------------------------------------
Robert Beuret, Vice Chairman
By:
----------------------------------------
Basil Aschuitto, Chief Operating Officer
- 31 -
<PAGE> 32
SCHEDULE A
NAME OF UNDERWRITER NUMBER OF SHARES OF STOCK TO BE PURCHASED
Commonwealth Associates
Total:
-----------
===========
<PAGE> 1
Exhibit 3.1
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
REGISTRY DATABASE INCORPORATED
Pursuant to Section 607.1006 of the Business Corporation Act of the
State of Florida, the undersigned President of REGISTRY DATABASE INCORPORATED, a
corporation organized and existing under and by virtue of the Business
Corporation Act of the State of Florida, does hereby certify:
First: That pursuant to Unanimous Written Consent of the Sole
Shareholder and Sole Director of said Corporation dated May 24, 1996, the
Shareholder and Director approved the amendment to the Corporation's Articles of
Incorporation as follows:
Article I of the Articles of Incorporation of this Corporation is
amended to read in its entirety as follows:
ARTICLE I
CORPORATE NAME
--------------
The name of this Corporation shall be: REGISTRY MAGIC INCORPORATED.
Article IV of the Articles of Incorporation of this Corporation is
amended to read in its entirety as follows:
ARTICLE IV
CAPITAL STOCK
-------------
The maximum number of shares of stock that this Corporation is
authorized to issue and have outstanding at any one time shall be thirty million
(30,000,000) shares of Common Stock with a par value of $.001 per share and five
million (5,000,000) shares of Preferred Stock having a par value of $.01 per
share.
Series of the Preferred Stock may be created and issued from time to
time, with
<PAGE> 2
such designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof as shall be stated and
expressed in the resolution or resolutions providing for the creation and
issuance of such series of Preferred Stock as adopted by the Board of Directors
pursuant to the authority in this paragraph given.
The foregoing amendment was adopted by the Sole Director of the
Corporation pursuant to Unanimous Written Consent of the Board of Directors on
May 24, 1996, and by the Sole Shareholder of the Common Stock of the Corporation
acting unanimously by Written Consent pursuant to Section 607.0702 of the
Florida Business Corporation Act, which shares consenting and voted at such
meeting represented all of the total issued and outstanding capital stock of the
Corporation entitled to vote. Therefore, the number cast for the amendment to
the Corporation's Articles of Incorporation was sufficient for approval.
IN WITNESS WHEREOF, the undersigned, being the President of this
Corporation, has executed these Articles of Amendment as of May 23, 1996.
REGISTRY DATABASE INCORPORATED
By: /s/ Lawrence Cohen
------------------------------
Lawrence Cohen, President
<PAGE> 3
ARTICLES OF INCORPORATION
OF
REGISTRY DATABASE INCORPORATED
The undersigned, a natural person competent to contract, does hereby
make, subscribe and file these Articles of Incorporation for the purpose of
organizing a corporation under the laws of the State of Florida.
ARTICLE I
CORPORATE NAME
--------------
The name of this Corporation shall be: REGISTRY DATABASE
INCORPORATED.
ARTICLE II
PRINCIPAL OFFICE AND MAILING ADDRESS
------------------------------------
The principal office and mailing address of the Corporation is 2901
N.E. 36th Avenue, Lighthouse Point, Florida 33074-5571.
ARTICLE III
NATURE OF CORPORATE BUSINESS AND POWERS
---------------------------------------
The general nature of the business to be transacted by this Corporation
shall be to engage in any and all lawful business permitted under the laws of
the United States and the State of Florida.
<PAGE> 4
ARTICLE IV
CAPITAL STOCK
-------------
The maximum number of shares that this Corporation shall be authorized
to issue and have outstanding at any one time shall be 1,000 shares of common
stock, par value $.001 per share.
ARTICLE V
TERM OF EXISTENCE
-----------------
This Corporation shall have perpetual existence.
ARTICLE VI
REGISTERED AGENT AND
INITIAL REGISTERED OFFICE IN FLORIDA
------------------------------------
The Registered Agent and the street address of the initial Registered
Office of this Corporation in the State of Florida shall be:
James M. Schneider
c/o Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
ARTICLE VII
BOARD OF DIRECTORS
------------------
This Corporation shall have one (1) Director initially.
ARTICLE VIII
INITIAL DIRECTOR
----------------
The name and address of the initial Director of this Corporation are:
Lawrence Cohen
2091 N.E. 36th Avenue
Lighthouse Point, Florida 33074-5571
2
<PAGE> 5
The person named as initial Director shall hold office for the first
year of existence of this Corporation, or until his successor is elected or
appointed and has qualified whichever occurs first.
ARTICLE IX
INCORPORATOR
------------
The name of the person signing these Articles of Incorporation as the
Incorporator is James M. Schneider, c/o Atlas, Pearlman, Trop & Borkson, P.A.,
200 East Las Olas Boulevard, Suite 1900, Fort Lauderdale, Florida 33301.
ARTICLE X
INDEMNIFICATION
---------------
This Corporation may indemnify any director, officer, employee or agent
of the Corporation to the fullest extent permitted by Florida law.
ARTICLE XI
AFFILIATED TRANSACTIONS
-----------------------
This Corporation expressly elects not to be governed by Section
607.0901 of the Florida Business Corporation Act, as amended from time to time,
relating to affiliated transactions.
IN WITNESS WHEREOF, the undersigned Incorporator has executed the
foregoing Articles of Incorporation on the 10th day of October, 1995.
/s/ James M. Schneider
--------------------------------
James M. Schneider, Incorporator
3
<PAGE> 6
CERTIFICATE DESIGNATING REGISTERED AGENT
AND OFFICE FOR SERVICE OF PROCESS
REGISTRY DATABASE INCORPORATED, a corporation existing under the laws
of the State of Florida with its principal office and mailing address at 2091
N.E. 36th Avenue, Lighthouse Point, Florida 33074-5571 has named James M.
Schneider, whose address is c/o Atlas, Pearlman, Trop & Borkson, P.A., 200 East
Las Olas Boulevard, Suite 1900, Fort Lauderdale, Florida 33301 as its agent to
accept service of process within the State of Florida.
ACCEPTANCE:
Having been named to accept service of process for the above named
Corporation, at the place designated in this Certificate, I hereby accept the
appointment as Registered Agent, and agree to comply with all applicable
provisions of law. In addition, I hereby am familiar with and accept the duties
and responsibilities as Registered Agent for said Corporation.
/s/ James M. Schneider
--------------------------------
James M. Schneider
4
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
REGISTRY MAGIC INCORPORATED
a Florida corporation
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
OFFICES
-------
Section 1.01 PRINCIPAL OFFICE........................................................ 1
Section 1.02 REGISTERED OFFICE....................................................... 1
Section 1.03 OTHER OFFICES........................................................... 1
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 2.01 ANNUAL MEETING.......................................................... 1
Section 2.02 SPECIAL MEETINGS........................................................ 2
Section 2.03 SHAREHOLDERS' LIST FOR MEETING.......................................... 2
Section 2.04 RECORD DATE............................................................. 3
Section 2.05 NOTICE OF MEETINGS AND ADJOURNMENT...................................... 3
Section 2.06 WAIVER OF NOTICE........................................................ 4
ARTICLE III
SHAREHOLDER VOTING
------------------
Section 3.01 VOTING GROUP DEFINED.................................................... 5
Section 3.02 QUORUM AND VOTING REQUIREMENTS FOR
VOTING GROUPS..................................................... 5
Section 3.03 ACTION BY SINGLE AND MULTIPLE VOTING
GROUPS............................................................ 5
Section 3.04 SHAREHOLDER QUORUM AND VOTING; GREATER
OR LESSER VOTING REQUIREMENTS..................................... 6
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 3.05 VOTING FOR DIRECTORS; CUMULATIVE VOTING................................. 6
Section 3.06 VOTING ENTITLEMENT OF SHARES............................................ 7
Section 3.07 PROXIES................................................................. 8
Section 3.08 SHARES HELD BY NOMINEES................................................. 9
Section 3.09 CORPORATION'S ACCEPTANCE OF VOTES....................................... 10
Section 3.10 ACTION BY SHAREHOLDERS WITHOUT MEETING.................................. 11
ARTICLE IV
BOARD OF DIRECTORS AND OFFICERS
-------------------------------
Section 4.01 QUALIFICATIONS OF DIRECTORS............................................. 11
Section 4.02 NUMBER OF DIRECTORS..................................................... 11
Section 4.03 TERMS OF DIRECTORS GENERALLY............................................ 12
Section 4.04 STAGGERED TERMS FOR DIRECTORS........................................... 12
Section 4.05 VACANCY ON BOARD........................................................ 12
Section 4.06 COMPENSATION OF DIRECTORS............................................... 12
Section 4.07 MEETINGS................................................................ 13
Section 4.08 ACTION BY DIRECTORS WITHOUT A MEETING................................... 13
Section 4.09 NOTICE OF MEETINGS...................................................... 13
Section 4.10 WAIVER OF NOTICE........................................................ 13
Section 4.11 QUORUM AND VOTING....................................................... 14
Section 4.12 COMMITTEES.............................................................. 14
Section 4.13 LOANS TO OFFICERS, DIRECTORS AND
EMPLOYEES; GUARANTY OF OBLIGATIONS............................... 15
Section 4.14 REQUIRED OFFICERS....................................................... 15
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 4.15 DUTIES OF OFFICERS...................................................... 16
Section 4.16 RESIGNATION AND REMOVAL OF OFFICERS..................................... 16
Section 4.17 CONTRACT RIGHTS OF OFFICERS............................................. 16
Section 4.18 GENERAL STANDARDS FOR DIRECTORS......................................... 16
Section 4.19 DIRECTOR CONFLICTS OF INTEREST.......................................... 17
Section 4.20 RESIGNATION OF DIRECTORS................................................ 18
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
---------------------------------------
Section 5.01 DIRECTORS, OFFICERS, EMPLOYEES
AND AGENTS........................................................ 18
ARTICLE VI
OFFICE AND AGENT
----------------
Section 6.01 REGISTERED OFFICE AND REGISTERED AGENT.................................. 22
Section 6.02 CHANGE OF REGISTERED OFFICE OR REGISTERED
AGENT; RESIGNATION OF REGISTERED AGENT........................... 23
ARTICLE VII
SHARES, OPTION, DIVIDENDS AND DISTRIBUTIONS
-------------------------------------------
Section 7.01 AUTHORIZED SHARES....................................................... 24
Section 7.02 TERMS OF CLASS OR SERIES DETERMINED
BY BOARD OF DIRECTORS............................................. 24
Section 7.03 ISSUED AND OUTSTANDING SHARES........................................... 25
Section 7.04 ISSUANCE OF SHARES...................................................... 25
Section 7.05 FORM AND CONTENT OF CERTIFICATES........................................ 26
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 7.06 SHARES WITHOUT CERTIFICATES............................................. 27
Section 7.07 RESTRICTION ON TRANSFER OF SHARES
AND OTHER SECURITIES.............................................. 27
Section 7.08 SHAREHOLDER'S PRE-EMPTIVE RIGHTS........................................ 27
Section 7.09 CORPORATION'S ACQUISITION OF ITS
OWN SHARES........................................................ 28
Section 7.10 SHARE OPTIONS........................................................... 28
Section 7.11 TERMS AND CONDITIONS OF STOCK RIGHTS
AND OPTIONS....................................................... 28
Section 7.12 SHARE DIVIDENDS......................................................... 29
Section 7.13 DISTRIBUTIONS TO SHAREHOLDERS........................................... 29
ARTICLE VIII
AMENDMENT OF ARTICLES AND BYLAWS
--------------------------------
Section 8.01 AUTHORITY TO AMEND THE ARTICLES OF
INCORPORATION..................................................... 31
Section 8.02 AMENDMENT BY BOARD OF DIRECTORS......................................... 31
Section 8.03 AMENDMENT OF BYLAWS BY BOARD OF
DIRECTORS......................................................... 32
Section 8.04 BYLAW INCREASING QUORUM OR VOTING
REQUIREMENTS FOR DIRECTORS........................................ 32
ARTICLE IX
RECORDS AND REPORT
------------------
Section 9.01 CORPORATE RECORDS....................................................... 33
Section 9.02 FINANCIAL STATEMENTS FOR SHAREHOLDERS................................... 34
Section 9.03 OTHER REPORTS TO SHAREHOLDERS........................................... 34
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
Section 9.04 ANNUAL REPORT FOR DEPARTMENT OF STATE................................... 35
ARTICLE X
MISCELLANEOUS
-------------
Section 10.01 DEFINITION OF THE "ACT"................................................. 35
Section 10.02 APPLICATION OF FLORIDA LAW.............................................. 36
Section 10.03 FISCAL YEAR............................................................. 36
Section 10.04 CONFLICTS WITH ARTICLES OF
INCORPORATION.................................................... 36
</TABLE>
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ARTICLE I
OFFICES
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SECTION 1.01. PRINCIPAL OFFICE.
The principal office of the corporation in the State of Florida shall
be established at such places as the board of directors from time to time
determine.
SECTION 1.02. REGISTERED OFFICE.
The registered office of the corporation in the State of Florida shall
be at the office of its registered agent as stated in the articles of
incorporation or as the board of directors shall from time to time determine.
SECTION 1.03. OTHER OFFICES.
The corporation may have additional offices at such other places,
either within or without the State of Florida, as the board of directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 2.01. ANNUAL MEETING.
(1) The corporation shall hold a meeting of shareholders annually, for
the election of directors and for the transaction of any proper business, at a
time stated in or fixed in accordance with a resolution of the board of
directors.
(2) Annual shareholders' meeting may be held in or out of the State of
Florida at a place stated in or fixed in accordance with a resolution by the
board of directors or, when not inconsistent with the board of directors'
resolution stated in the notice of the annual meeting. If no place is stated in
or fixed in accordance with these bylaws, or stated in the notice of the annual
meeting, annual meetings shall be held at the corporation's principal office.
(3) The failure to hold the annual meeting at the time stated in or
fixed in accordance with these bylaws or pursuant to the Act does not affect the
validity of any corporate action and shall not work a forfeiture of or
dissolution of the corporation.
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SECTION 2.02. SPECIAL MEETING.
(1) The corporation shall hold a special meeting of shareholders:
(a) On call of its board of directors or the person or persons
authorized to do so by the board of directors; or
(b) If the holders of not less than 10% of all votes entitled
to be cast on any issue proposed to be considered at the proposed special
meeting sign, date and deliver to the corporation's secretary one or more
written demands for the meeting describing the purpose or purposes for which it
is to be held.
(2) Special shareholders' meetings may be held in or out of the State
of Florida at a place stated in or fixed in accordance with a resolution of the
board of directors, or, when not inconsistent with the board of directors'
resolution, in the notice of the special meeting. If no place is stated in or
fixed in accordance with these bylaws or in the notice of the special meeting,
special meetings shall be held at the corporation's principal office.
(3) Only business within the purpose or purposes described in the
special meeting notice may be conducted at a special shareholders' meeting.
SECTION 2.03. SHAREHOLDERS' LIST FOR MEETING.
(1) After fixing a record date for a meeting, a corporation shall
prepare a list of the names of all its shareholders who are entitled to notice
of a shareholders' meeting, in accordance with the Florida Business Corporation
Act (the "Act"), or arranged by voting group, with the address of, and the
number and class and series, if any, of shares held by, each.
(2) The shareholders' list must be available for inspection by any
shareholder for a period of ten days prior to the meeting or such shorter time
as exists between the record date and the meeting and continuing through the
meeting at the corporation's principal office, at a place identified in the
meeting notice in the city where the meeting will be held, or at the office of
the corporation's transfer agent or registrar. A shareholder or his agent or
attorney is entitled on written demand to inspect the list (subject to the
requirements of Section 607.1602(3) of the Act), during regular business hours
and at his expense, during the period it is available for inspection.
(3) The corporation shall make the shareholders' list available at the
meeting, and any shareholder or his agent or attorney is entitled to inspect the
list at any time during the meeting or any adjournment.
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SECTION 2.04. RECORD DATE.
(1) The board of directors may set a record date for purposes of
determining the shareholders entitled to notice of and to vote at a
shareholders' meeting; however, in no event may a record date fixed by the board
of directors be a date preceding the date upon which the resolution fixing the
record date is adopted.
(2) Unless otherwise fixed by the board of directors, the record date
for determining shareholders entitled to demand a special meeting is the date
the first shareholder delivers his demand to the corporation. In the event that
the board of directors sets the record date for a special meeting of
shareholders, it shall not be a date preceding the date upon which the
corporation receives the first demand from a shareholder requesting a special
meeting.
(3) If no prior action is required by the board of directors pursuant
to the Act, and, unless otherwise fixed by the board of directors, the record
date for determining shareholders entitled to take action without a meeting is
the date the first signed written consent is delivered to the corporation under
Section 607.0704 of the Act. If prior action is required by the board of
directors pursuant to the Act, the record date for determining shareholders
entitled to take action without a meeting is at the close of business on the day
on which the board of directors adopts the resolution taking such prior action.
(4) Unless otherwise fixed by the board of directors, the record date
for determining shareholders entitled to notice of and to vote at an annual or
special shareholders' meeting is the close of business on the day before the
first notice is delivered to shareholders.
(5) A record date may not be more than 70 days before the meeting or
action requiring a determination of shareholders.
(6) A determination of shareholders entitled to notice of or to vote at
a shareholders' meeting is effective for any adjournment of the meeting unless
the board of directors fixes a new record date, which it must do if the meeting
is adjourned to a date more than one 120 days after the date fixed for the
original meeting.
SECTION 2.05. NOTICE OF MEETINGS AND ADJOURNMENT.
(1) The corporation shall notify shareholders of the date, time and
place of each annual and special shareholders' meeting no fewer than 10 or more
than 60 days before the meeting date. Unless the Act requires otherwise, the
corporation is required to give notice only to shareholders entitled to vote at
the meeting. Notice shall be given in the manner provided in Section 607.0141 of
the Act, by or at the direction of the president, the secretary, of the officer
or persons calling the meeting. If the notice is mailed at least 30 days before
the date of the meeting, it may be done by a class of
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United States mail other than first class. Notwithstanding Section 607.0141, if
mailed, such notice shall be deemed to be delivered when deposited in the United
Statement mail addressed to the shareholder at his address as it appears on the
stock transfer books of the corporation, with postage thereon prepaid.
(2) Unless the Act or the articles of incorporation requires otherwise,
notice of an annual meeting need not include a description of the purpose or
purposes for which the meeting is called.
(3) Notice of a special meeting must include a description of the
purpose or purposes for which the meeting is called.
(4) If an annual or special shareholders meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
or place if the new date, time or place is announced at the meeting before
adjournment is taken, and any business may be transacted at the adjourned
meeting that might have been transacted on the original date of the meeting. If
a new record date is or must be fixed under Section 607.0707 of the Act,
however, notice of the adjourned meeting must be given under this section to
persons who are shareholders as of the new record date who are entitled to
notice of the meeting.
(5) Notwithstanding the foregoing, no notice of a shareholders' meeting
need be given if: (a) an annual report and proxy statements for two consecutive
annual meetings of shareholders, or (b) all, and at least two checks in payment
of dividends or interest on securities during a 12-month period, have been sent
by first-class United States mail, addressed to the shareholder at his address
as it appears on the share transfer books of the corporation, and returned
undeliverable. The obligation of the corporation to give notice of a
shareholders' meeting to any such shareholder shall be reinstated once the
corporation has received a new address for such shareholder for entry on its
share transfer books.
SECTION 2.06. WAIVER OF NOTICE.
(1) A shareholder may waive any notice required by the Act, the
articles of incorporation, or bylaws before or after the date and time stated in
the notice. The waiver must be in writing, be signed by the shareholder entitled
to the notice, and be delivered to the corporation for inclusion in the minutes
or filing with the corporate records. Neither the business to be transacted at
nor the purpose of any regular or special meeting of the shareholders need be
specified in any written waiver of notice.
(2) A shareholder's attendance at a meeting: (a) Waives objection to
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting; or (b) waives objection to consideration of a particular matter
at the meeting that is not within
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the purpose or purposes described in the meeting notice, unless the shareholder
objects to considering the matter when it is presented.
ARTICLE III
SHAREHOLDER VOTING
------------------
SECTION 3.01. VOTING GROUP DEFINED.
A "voting group" means all shares of one or more classes or series that
under the articles of incorporation or the Act are entitled to vote and be
counted together collectively on a matter at a meeting of shareholders. All
shares entitled by the articles of incorporation or the Act to vote generally on
the matter are for that purpose a single voting group.
SECTION 3.02. QUORUM AND VOTING REQUIREMENTS FOR VOTING GROUPS.
(1) Shares entitled to vote as a separate voting group may take action
on a matter at a meeting only if a quorum of those shares exists with respect to
that matter. Unless the articles of incorporation or the Act provides otherwise,
a majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.
(2) Once a share is represented for any purpose at a meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
(3) If a quorum exists, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation or the Act requires a greater number of affirmative
votes.
SECTION 3.03. ACTION BY SINGLE AND MULTIPLE VOTING GROUPS.
(1) If the articles of incorporation or the Act provides for voting by
a single voting group on a matter, action on that matter is taken when voted
upon by that voting group as provided in Section 3.02 of these bylaws.
(2) If the articles of incorporation or the Act provides for voting by
two or more voting groups on a matter, action on that matter is taken only when
voted upon by each of those voting groups counted separately as provided in
Section 3.02 of these bylaws. Action may be taken by one voting group on a
matter even though no action is taken by another voting group entitled to vote
on the matter.
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SECTION 3.04. SHAREHOLDER QUORUM AND VOTING; GREATER OR LESSER VOTING
REQUIREMENTS.
(1) A majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of shareholders, but in no
event shall a quorum consist of less than one-third of the shares entitled to
vote. When a specified item of business is required to be voted on by a class or
series of stock, a majority of the shares of such class or series shall
constitute a quorum for the transaction of such item of business by that class
or series.
(2) An amendment to the articles of incorporation that adds, changes or
deletes a greater or lesser quorum or voting requirement must meet the same
quorum requirement and be adopted by the same vote and voting groups required to
take action under the quorum and voting requirements then in effect or proposed
to be adopted, whichever is greater.
(3) If a quorum exists, action on a matter, other than the election of
directors, is approved if the votes cast by the holders of the shares
represented at the meeting and entitled to vote on the subject matter favoring
the action exceed the votes cast opposing the action, unless a greater number of
affirmative votes or voting by classes is required by the Act or the articles of
incorporation.
(4) After a quorum has been established at a shareholders' meeting, the
subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof.
(5) The articles of incorporation may provide for a greater voting
requirement or a greater or lesser quorum requirement for shareholders (or
voting groups of shareholders) than is provided by the Act, but in no event
shall a quorum consist of less than one-third of the shares entitled to vote.
SECTION 3.05. VOTING FOR DIRECTORS; CUMULATIVE VOTING.
(1) Directors are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present.
(2) Each shareholder who is entitled to vote at an election of
directors has the right to vote the number of shares owned by him for as many
persons as there are directors to be elected and for whose election he has a
right to vote. Shareholders do not have a right to cumulate their votes for
directors unless the articles of incorporation so provide.
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SECTION 3.06. VOTING ENTITLEMENT OF SHARES.
(1) Unless the articles of incorporation or the Act provides otherwise,
each outstanding share, regardless of class, is entitled to one vote on each
matter submitted to a vote at a meeting of shareholders. Only shares are
entitled to vote.
(2) The shares of the corporation are not entitled to vote if they are
owned, directly or indirectly, by a second corporation, domestic or foreign, and
the first corporation owns, directly or indirectly, a majority of shares
entitled to vote for directors of the second corporation.
(3) This section does not limit the power of the corporation to vote
any shares, including its own shares, held by it in a fiduciary capacity.
(4) Redeemable shares are not entitled to vote on any matter, and shall
not be deemed to be outstanding, after notice of redemption is mailed to the
holders thereof and a sum sufficient to redeem such shares has been deposited
with a bank, trust company, or other financial institution upon an irrevocable
obligation to pay the holders the redemption price upon surrender of the shares.
(5) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the bylaws of the
corporate shareholder may prescribe or, in the absence of any applicable
provision, by such person as the board of directors of the corporate shareholder
may designate. In the absence of any such designation or in case of conflicting
designation by the corporate shareholder, the chairman of the board, the
president, any vice president, the secretary, and the treasurer of the corporate
shareholder, in that order, shall be presumed to be fully authorized to vote
such shares.
(6) Shares held by an administrator, executor, guardian, personal
representative, or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares into his name. Shares standing in the
name of a trustee may be voted by him, either in person or by proxy, but no
trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name or the name of his nominee.
(7) Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by him without the transfer thereof into his name.
(8) If a share or shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety, or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the secretary
of the corporation is given
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notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, then
acts with respect to voting have the following effect:
(a) If only one votes, in person or in proxy, his act binds
all;
(b) If more than one vote, in person or by proxy, the act of
the majority so voting binds all;
(c) If more than one vote, in person or by proxy, but the vote
is evenly split on any particular matter, each faction is entitled to vote the
share or shares in question proportionally;
(d) If the instrument or order so filed shows that any such
tenancy is held in unequal interest, a majority or a vote evenly split for
purposes of this subsection shall be a majority or a vote evenly split in
interest;
(e) The principles of this subsection shall apply, insofar as
possible, to execution of proxies, waivers, consents, or objections and for the
purpose of ascertaining the presence of a quorum;
(f) Subject to Section 3.08 of these bylaws, nothing herein
contained shall prevent trustees or other fiduciaries holding shares registered
in the name of a nominee from causing such shares to be voted by such nominee as
the trustee or other fiduciary may direct. Such nominee may vote shares as
directed by a trustee or their fiduciary without the necessity of transferring
the shares to the name of the trustee or other fiduciary.
SECTION 3.07. PROXIES.
(1) A shareholder, other person entitled to vote on behalf of a
shareholder pursuant to Section 3.06 of these bylaws, or attorney in fact may
vote the shareholder's shares in person or by proxy.
(2) A shareholder may appoint a proxy to vote or otherwise act for him
by signing an appointment form, either personally or by his attorney in fact. An
executed telegram or cablegram appearing to have been transmitted by such
person, or a photographic, photostatic, or equivalent reproduction of an
appointment form, is a sufficient appointment form.
(3) An appointment of a proxy is effective when received by the
secretary or other officer or agent authorized to tabulate votes. An appointment
is valid for up to 11 months unless a longer period is expressly provided in the
appointment form.
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(4) The death or incapacity of the shareholder appointing a proxy does
not affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
(5) An appointment of a proxy is revocable by the shareholder unless
the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest. Appointments coupled with an interest
include the appointment of: (a) a pledgee; (b) a person who purchased or agreed
to purchase the shares; (c) a creditor of the corporation who extended credit to
the corporation under terms requiring the appointment; (d) an employee of the
corporation whose employment contract requires the appointment; or (e) a party
to a voting agreement created in accordance with the Act.
(6) An appointment made irrevocable under this section becomes
revocable when the interest with which it is coupled is extinguished and, in a
case provided for in Subsection 5(c) or 5(d), the proxy becomes revocable three
years after the date of the proxy or at the end of the period, if any, specified
herein, whichever is less, unless the period of irrevocability is renewed from
time to time by the execution of a new irrevocable proxy as provided in this
section. This does not affect the duration of a proxy under subsection (3).
(7) A transferee for value of shares subject to an irrevocable
appointment may revoke the appointment if he did not know of its existence when
he acquired the shares and the existence of the irrevocable appointment was not
noted conspicuously on the certificate representing the shares or on the
information statement for shares without certificates.
(8) Subject to Section 3.09 of these bylaws and to any express
limitation on the proxy's authority appearing on the face of the appointment
form, a corporation is entitled to accept the proxy's vote or other action as
that of the shareholder making the appointment.
(9) If an appointment form expressly provides, any proxy holder may
appoint, in writing, a substitute to act in his place.
SECTION 3.08. SHARES HELD BY NOMINEES.
(1) The corporation may establish a procedure by which the beneficial
owner of shares that are registered in the name of a nominee is recognized by
the corporation as the shareholder. The extent of this recognition may be
determined in the procedure.
(2) The procedure may set forth (a) the types of nominees to which it
applies; (b) the rights or privileges that the corporation recognizes in a
beneficial owner; (c) the
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manner in which the procedure is selected by the nominee; (d) the information
that must be provided when the procedure is selected; (e) the period for which
selection of the procedure is effective; and (f) other aspects of the rights and
duties created.
SECTION 3.09. CORPORATION'S ACCEPTANCE OF VOTES.
(1) If the name signed on a vote, consent, waiver, or proxy appointment
corresponds to the name of a shareholder, the corporation if acting in good
faith is entitled to accept the vote, consent waiver, or proxy appointment and
give it effect as the act of the shareholder.
(2) If the name signed on a vote, consent, waiver, or proxy appointment
does not correspond to the name of its shareholder, the corporation if acting in
good faith is nevertheless entitled to accept the vote, consent, waiver, or
proxy appointment and give it effect as the act of the shareholder if: (a) the
shareholder is an entity and the name signed purports to be that of an officer
or agent of the entity; (b) the name signed purports to be that of an
administrator, executor, guardian, personal representative, or conservator
representing the shareholder and, if the corporation requests, evidence of
fiduciary status acceptable to the corporation has been presented with respect
to the vote, consent, waiver, or proxy appointment; (c) the name signed purports
to be that of a receiver, trustee in bankruptcy, or assignee for the benefit of
creditors of the shareholder and, if the corporation requests, evidence of this
status acceptable to the corporation has been presented with respect to the
vote, consent, waiver, or proxy appointment; (d) the name signed purports to be
that of a pledgee, beneficial owner, or attorney in fact of the shareholder and,
if the corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder has been presented with
respect to the vote, consent, waiver, or proxy appointment; or (e) two or more
persons are the shareholder as covenants or fiduciaries and the name signed
purports to be the name of at least one of the co-owners and the person signing
appears to be acting on behalf of all the co-owners.
(3) The corporation is entitled to reject a vote, consent, waiver, or
proxy appointment if the secretary or other officer or agent authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
(4) The corporation and its officer or agent who accepts or rejects a
vote, consent, waiver, or proxy appointment in good faith and in accordance with
the standards of this section are not liable in damages to the shareholder for
the consequences of the acceptance or rejection.
(5) Corporate action based on the acceptance or rejection of a vote,
consent, waiver, or proxy appointment under this section is valid unless a court
of competent jurisdiction determines otherwise.
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SECTION 3.10. ACTION BY SHAREHOLDERS WITHOUT MEETING.
(1) Any action required or permitted by the Act to be taken at any
annual or special meeting of shareholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if the action is
taken by the holders of outstanding stock of each voting group entitled to vote
thereon having not less than the minimum number of votes with respect to each
voting group that would be necessary to authorize or take such action at a
meeting at which all voting groups and shares entitled to vote thereon were
present and voted. In order to be effective, the action must by evidenced by one
or more written consents describing the action taken, dated and signed by
approving shareholders having the requisite number of votes of each voting group
entitled to vote thereon, and delivered to the corporation by delivery to its
principal office in this state, its principal place of business, the corporate
secretary, or another office or agent of the corporation having custody of the
book in which proceedings of meetings of shareholders are recorded. No written
consent shall be effective to take the corporate action referred to therein
unless, within 60 days of the date of the earliest dated consent is delivered in
the manner required by this section, written consent signed by the number of
holders required to take action is delivered to the corporation by delivery as
set forth in this section.
(2) Within 10 days after obtaining such authorization by written
consent, notice in accordance with Section 607.0704(3) of the Act must be given
to those shareholders who have not consented in writing.
ARTICLE IV
BOARD OF DIRECTORS AND OFFICERS
-------------------------------
SECTION 4.01. QUALIFICATIONS OF DIRECTORS.
Directors must be natural persons who are 18 years of age or older but
need not be residents of the State of Florida or shareholders of the
corporation.
SECTION 4.02. NUMBER OF DIRECTORS.
(1) The board of directors shall consist of not less than one nor more
than nine individuals.
(2) The number of directors may be increased or decreased from time to
time by amendment to these bylaws.
(3) Directors are elected at the first annual shareholders' meeting and
at each annual meeting thereafter unless their terms are staggered under Section
4.04 of these bylaws.
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SECTION 4.03. TERMS OF DIRECTORS GENERALLY.
(1) The terms of the initial directors of the corporation expire at the
first shareholders' meeting at which directors are elected.
(2) The terms of all other directors expire at the next annual
shareholders' meeting following their election unless their terms are staggered
under Section 4.04 of these bylaws.
(3) A decrease in the number of directors does not shorten an incumbent
director's term.
(4) The term of a director elected to fill a vacancy expires at the
next shareholders' meeting at which directors are elected.
(5) Despite the expiration of a director's term, he continues to serve
until his successor is elected and qualifies or until there is a decrease in the
number of directors.
SECTION 4.04. STAGGERED TERMS FOR DIRECTORS.
The directors of any corporation organized under the Act may, by the
articles of incorporation, or by amendment to these bylaws adopted by a vote of
the shareholders, be divided into one, two or three classes with the number of
directors in each class being as nearly equal as possible; the term of office of
those of the first class to expire at the annual meeting next ensuing; of the
second class one year thereafter; at the third class two years thereafter; and
at each annual election held after such classification and election, directors
shall be chosen for a full term, as the case may be, to succeed those whose
terms expire. If the directors have staggered terms, then any increase or
decrease in the number of directors shall be so apportioned among the classes as
to make all classes as nearly equal in number as possible.
SECTION 4.05. VACANCY ON BOARD.
(1) Whenever a vacancy occurs on a board of directors, including a
vacancy resulting from an increase in the number of directors, it may be filled
by the affirmative vote of a majority of the remaining directors.
(2) A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date may be filled before the vacancy occurs
but the new director may not take office until the vacancy occurs.
SECTION 4.06. COMPENSATION OF DIRECTORS.
The board of directors may fix the compensation of directors.
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SECTION 4.07. MEETINGS.
(1) The board of directors may hold regular or special meetings in or
out of the State of Florida.
(2) A majority of the directors present, whether or not a quorum
exists, may adjourn any meeting of the board of directors to another time and
place. Notice of any such adjourned meeting shall be given to the directors who
were not present at the time of the adjournment and, unless the time and place
of the adjourned meeting are announced at the time of the adjournment, to the
other directors.
(3) Meetings of the board of directors may be called by the chairman of
the board or by the president.
(4) The board of directors may permit any or all directors to
participate in a regular or special meeting by, or conduct the meeting through
the use of, any means of communication by which all directors participating may
simultaneously hear each other during the meeting. A director participating in a
meeting by this means is deemed to be present in person at the meeting.
SECTION 4.08. ACTION BY DIRECTORS WITHOUT A MEETING.
(1) Action required or permitted by the Act to be taken at a board of
directors' meeting or committee meeting may be taken without a meeting if the
action is taken by all members of the board or of the committee. The action must
be evidenced by one or more written consents describing the action taken and
signed by each director or committee member.
(2) Action taken under this section is effective when the last director
signs the consent, unless the consent specifies a different effective date.
(3) A consent signed under this section has the effect of a meeting
vote and may be described as such in any document.
SECTION 4.09. NOTICE OF MEETINGS.
Regular and special meetings of the board of directors may be held
without notice of the date, time, place, or purpose of the meeting.
SECTION 4.10. WAIVER OF NOTICE.
Notice of a meeting of the board of directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and a waiver of any and
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all objections to the place of the meeting, the time of the meeting, or the
manner in which it has been called or convened, except when a director states,
at the beginning of the meeting or promptly upon arrival at the meeting, any
objection to the transaction of business because the meeting is not lawfully
called or convened.
SECTION 4.11. QUORUM AND VOTING.
(1) A quorum of a board of directors consists of a majority of the
number of directors prescribed by the articles of incorporation or these bylaws.
(2) If a quorum is present when a vote is taken, the affirmative vote
of a majority of directors present is the act of the board of directors.
(3) A director of a corporation who is present at a meeting of the
board of directors or a committee of the board of directors when corporate
action is taken is deemed to have assented to the action taken unless:
(a) He objects at the beginning of the meeting (or promptly
upon his arrival) to holding it or transacting specified business at the
meeting; or
(b) He votes against or abstains from the action taken.
SECTION 4.12. COMMITTEES.
(1) The board of directors, by resolution adopted by a majority of the
full board of directors, may designate from among its members an executive
committee and one or more other committees each of which, to the extent provided
in such resolution, shall have and may exercise all the authority of the board
of directors, except that no such committee shall have the authority to:
(a) Approve or recommend to shareholders actions or proposals
required by the Act to be approved by shareholders.
(b) Fill vacancies on the board of directors or any committee
thereof.
(c) Adopt, amend, or repeal these bylaws.
(d) Authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the board of directors.
(e) Authorize or approve the issuance or sale or contract for
the sale of shares, or determine the designation and relative rights,
preferences, and limitations of a voting group except that the board of
directors may authorize a committee (or a senior
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executive officer of the corporation) to do so within limits specifically
prescribed by the board of directors.
(2) The sections of these bylaws which govern meetings, notice and
waiver of notice, and quorum and voting requirements of the board of directors
apply to committees and their members as well.
(3) Each committee must have two or more members who serve at the
pleasure of the board of directors. The board, by resolution adopted in
accordance herewith, may designate one or more directors as alternate members of
any such committee who may act in the place and stead of any absent member or
members at any meeting of such committee.
(4) Neither the designation of any such committee, the delegation
thereto of authority, nor action by such committee pursuant to such authority
shall alone constitute compliance by any member of the board of directors not a
member of the committee in question with his responsibility to act in good
faith, in a manner he reasonably believes to be in the best interests of the
corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
SECTION 4.13. LOANS TO OFFICERS, DIRECTORS, AND EMPLOYEES; GUARANTY OF
OBLIGATIONS.
The corporation may lend money to, guaranty any obligation of, or
otherwise assist any officer, director, or employee of the corporation or of a
subsidiary, whenever, in the judgment of the board of directors, such loan,
guaranty, or assistance may reasonably be expected to benefit the corporation.
The loan, guaranty, or other assistance may be with or without interest and may
be unsecured or secured in such manner as the board of directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in this section shall be deemed to deny, limit, or restrict the powers
of guaranty or warranty of any corporation at common law or under any statute.
Loans, guaranties, or other types of assistance are subject to section 4.19.
SECTION 4.14. REQUIRED OFFICERS.
(1) The corporation shall have such officers as the board of directors
may appoint from time to time.
(2) A duly appointed officer may appoint one or more assistant
officers.
(3) The board of directors shall delegate to one of the officers
responsibility for preparing minutes of the directors' and shareholders'
meetings and for authenticating records of the corporation.
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(4) The same individual may simultaneously hold more than one office in
the corporation.
SECTION 4.15. DUTIES OF OFFICERS.
Each officer has the authority and shall perform the duties set forth
in a resolution or resolutions of the board of directors or by direction of any
officer authorized by the board of directors to prescribe the duties of other
officers.
SECTION 4.16. RESIGNATION AND REMOVAL OF OFFICERS.
(1) An officer may resign at any time by delivering notice to the
corporation. A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date and the corporation accepts the future effective date, the board of
directors may fill the pending vacancy before the effective date if the board of
directors provides that the successor does not take office until the effective
date.
(2) The board of directors may remove any officer at any time with or
without cause. Any assistant officer, if appointed by another officer, may
likewise be removed by the board of directors or by the officer which appointed
him in accordance with these bylaws.
SECTION 4.17. CONTRACT RIGHTS OF OFFICERS.
The appointment of an officer does not itself create contract rights.
SECTION 4.18. GENERAL STANDARDS FOR DIRECTORS.
(1) A director shall discharge his duties as a director, including his
duties as a member of a committee:
(a) In good faith;
(b) With the care an ordinarily prudent person in a like
position would exercise under similar circumstances; and
(c) In a manner he reasonably believes to be in the best
interests of the corporation.
(2) In discharging his duties, a director is entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, if prepared or presented by:
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(a) One or more officers or employees of the corporation whom
the director reasonably believes to be reliable and competent in the matters
presented;
(b) Legal counsel, public accountants, or other persons as to
matters the director reasonably believes are within the persons' professional or
expert competence; or
(c) A committee of the board of directors of which he is not a
member if the director reasonably believes the committee merits confidence.
(3) In discharging his duties, a director may consider such factors as
the director deems relevant, including the long-term prospects and interests of
the corporation and its shareholders, and the social, economic, legal, or other
effects of any action on the employees, suppliers, customers of the corporation
or its subsidiaries, the communities and society in which the corporation or its
subsidiaries operate, and the economy of the state and the nation.
(4) A director is not acting in good faith if he has knowledge
concerning the matter in question that makes reliance otherwise permitted by
subsection (2) unwarranted.
(5) A director is not liable for any action taken as a director, or any
failure to take any action, if he performed the duties of his office in
compliance with this section.
SECTION 4.19. DIRECTOR CONFLICTS OF INTEREST.
No contract or other transaction between a corporation and one or more
interested directors shall be either void or voidable because of such
relationship or interest, because such director or directors are present at the
meeting of the board of directors or a committee thereof which authorizes,
approves or ratifies such contract or transaction, or because his or their votes
are counted for such purpose, if:
(1) The fact of such relationship or interest is disclosed or known to
the board of directors or committee which authorizes, approves or ratifies the
contract or transactions by a vote or consent sufficient for the purpose WITHOUT
counting the votes or consents of such interested directors;
(2) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
(3) The contract or transaction is fair and reasonable as to the
corporation at the time it is authorized by the board, a committee or the
shareholders.
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Common or interested directors may be counted in determining the
presence of a quorum at the meeting of the board of directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
For the purpose of paragraph (2) above, a conflict of interest
transaction is authorized, approved or ratified if it receives the vote of a
majority of the shares entitled to be counted under this subsection. Shares
owned by or voted under the control of a director who has a relationship or
interest in the conflict of interest transaction may not be counted in a vote of
shareholders to determine whether to authorize, approve or ratify a conflict of
interest transaction under paragraph (2). The vote of those shares, however, is
counted in determining whether the transaction is approved under other sections
of the Act. A majority of the shares, whether or not present, that are entitled
to be counted in a vote on the transaction under this subsection constitutes a
quorum for the purpose of taking action under this section.
SECTION 4.20. RESIGNATION OF DIRECTORS.
A director may resign at any time by delivering written notice to the
board of directors or its chairman or to the corporation.
A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date, the board of directors may fill the pending vacancy before the
effective date if the board of directors provides that the successor does not
take office until the effective date.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
---------------------------------------
SECTION 5.01. DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
(1) The corporation shall have power to indemnify any person who was or
is a party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against liability
incurred in connection with such proceeding, including any appeal thereof, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any proceeding by judgment, order, settlement,
or conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he
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reasonably believed to be in, or not opposed to, the best interests of the
corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) The corporation shall have power to indemnify any person, who was
or is a party to any proceeding by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses and amounts paid in settlement not exceeding, in the judgment of the
board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, except that no indemnification shall be made under this
subsection in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable unless, and only to the extent that, the
court in which such proceeding was brought, or any other court of competent
jurisdiction, shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
(3) To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subsections (1) or (2), or in defense of any claim,
issue, or matter therein, he shall be indemnified against expenses actually and
reasonably incurred by him in connection therewith.
(4) Any indemnification under subsections (1) or (2), unless pursuant
to a determination by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsections (1) or (2).
Such determination shall be made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such proceeding;
(b) If such a quorum is not obtainable or, even if obtainable,
by majority vote of a committee duly designated by the board of directors (in
which directors who are parties may participate) consisting solely of two or
more directors not at the time parties to the proceeding;
(c) By independent legal counsel:
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(i) Selected by the board of directors prescribed in
paragraph (a) or the committee prescribed in paragraph (b); or
(ii) If a quorum of the directors cannot be obtained
for paragraph (a) and the committee cannot be designed under paragraph (b),
selected by majority vote of the full board of directors (in which directors who
are parties may participate); or
(d) By the shareholders by a majority vote of a quorum
consisting of shareholders who were not parties to such proceeding or, if no
such quorum is obtainable, by a majority vote of shareholders who were not
parties to such proceeding.
(5) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of permissibility
is made by independent legal counsel, persons specified by paragraph (4)(c)
shall evaluate the reasonableness of expenses and may authorize indemnification.
(6) Expenses incurred by an officer or director in defending a civil or
criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if he is ultimately found not to
be entitled to indemnification by the corporation pursuant to this section.
Expenses incurred by other employees and agents may be paid in advance upon such
terms or conditions that the board of directors deems appropriate.
(7) The indemnification and advancement of expenses provided pursuant
to this section are not exclusive, and the corporation may make any other or
further indemnification or advancement of expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
However, indemnification or advancement of expenses shall not be made to or on
behalf of any director, officer, employee, or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute:
(a) A violation of the criminal law, unless the director,
officer, employee, or agent had reasonable cause to believe his conduct was
lawful or had no reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee,
or agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of Section 607.0834 under the Act are applicable; or
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(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder.
(8) Indemnification and advancement of expenses as provided in this
section shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person, unless otherwise provided when authorized or ratified.
(9) Notwithstanding the failure of the corporation to provide
indemnification, and despite any contrary determination of the board or of the
shareholders in the specific case, a director, officer, employee, or agent of
the corporation who is or was a party to a proceeding may apply for
indemnification or advancement of expenses, or both, to the court conducting the
proceeding, to the circuit court, or to another court of competent jurisdiction.
On receipt of an application, the court, after giving any notice that it
considers necessary, may order indemnification and advancement of expenses,
including expenses incurred in seeking court-ordered indemnification or
advancement of expenses, if it determines that:
(a) The director, officer, employee, or agent if entitled to
mandatory indemnification under subsection (3), in which case the court shall
also order the corporation to pay the director reasonable expenses incurred in
obtaining court-ordered indemnification or advancement of expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the exercise
by the corporation of its power pursuant to subsection (7); or
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or both, in
view of all the relevant circumstances, regardless of whether such person met
the standard of conduct set forth in subsection (1), subsection (2) or
subsection (7).
(10) For purposes of this section, the term "corporation" includes, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger, so that
any person who is or was a director, officer, employee, or agent of a
constituent corporation, or is or was serving at the request of a constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise, is in the same position
under this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
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(11) For purposes of this section:
(a) The term "other enterprises" includes employee benefit
plans;
(b) The term "expenses" includes counsel fees, including those
for appeal;
(c) The term "liability" includes obligations to pay a
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to any employee benefit plan), and expenses actually and reasonably
incurred with respect to a proceeding;
(d) The term "proceeding" includes any threatened, pending, or
completed action, suit or other type of proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal;
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation"
includes any service as a director, officer, employee, or agent of the
corporation that imposes duties on such persons, including duties relating to an
employee benefit plan and its participants or beneficiaries; and
(g) The term "not opposed to the best interest of the
corporation" describes the actions of a person who acts in good faith and in a
manner he reasonably believes to be in the best interests of the participants
and beneficiaries of an employee benefit plan.
(12) The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this section.
ARTICLE VI
OFFICE AND AGENT
----------------
SECTION 6.01. REGISTERED OFFICE AND REGISTERED AGENT.
(1) The corporation shall have and continuously maintain in the State
of Florida:
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(a) A registered office which may be the same as its place of
business; and
(b) A registered agent, who, may be either:
(i) An individual who resides in the State of Florida
whose business office is identical with such registered office; or
(ii) Another corporation or not-for-profit corporation
as defined in Chapter 617 of the Act, authorized to transact business or conduct
its affairs in the State of Florida, having a business office identical with the
registered office; or
(iii) A foreign corporation or not-for-profit foreign
corporation authorized pursuant to chapter 607 or chapter 617 of the Act to
transact business or conduct its affairs in the State of Florida, having a
business office identical with the registered office.
SECTION 6.02. CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT; RESIGNATION
OF REGISTERED AGENT.
(1) The corporation may change its registered office or its registered
agent upon filing with the Department of State of the State of Florida a
statement of change setting forth:
(a) The name of the corporation;
(b) The street address of its current registered office;
(c) If the current registered office is to be changed, the
street address of the new registered office;
(d) The name of its current registered agent;
(e) If its current registered agent is to be changed, the name
of the new registered agent and the new agent's written consent (either on the
statement or attached to it) to the appointment;
(f) That the street address of its registered office and the
street address of the business office of its registered agent, as changed, will
be identical;
(g) That such change was authorized by resolution duly adopted
by its board of directors or by an officer of the corporation so authorized by
the board of directors.
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ARTICLE VII
SHARES, OPTIONS, DIVIDENDS AND DISTRIBUTIONS
--------------------------------------------
SECTION 7.01. AUTHORIZED SHARES.
(1) The articles of incorporation prescribe the classes of shares and
the number of shares of each class that the corporation is authorized to issue,
as well as a distinguishing designation for each class, and prior to the
issuance of shares of a class the preferences, limitations, and relative rights
of that class must be described in the articles of incorporation.
(2) The articles of incorporation must authorize:
(a) One or more classes of shares that together have unlimited
voting rights, and
(b) One or more classes of shares (which may be the same class
or classes as those with voting rights) that together are entitled to receive
the net assets of the corporation upon dissolution.
(3) The articles of incorporation may authorize one or more classes of
shares that have special, conditional, or limited voting rights, or no rights,
or no right to vote, except to the extent prohibited by the Act;
(a) Are redeemable or convertible as specified in the articles
of incorporation;
(b) Entitle the holders to distributions calculated in any
manner, including dividends that may be cumulative, non-cumulative, or partially
cumulative;
(c) Have preference over any other class of shares with
respect to distributions, including dividends and distributions upon the
dissolution of the corporation.
(4) Shares which are entitled to preference in the distribution of
dividends or assets shall not be designated as common shares. Shares which are
not entitled to preference in the distribution of dividends or assets shall be
common shares and shall not be designated as preferred shares.
SECTION 7.02. TERMS OF CLASS OR SERIES DETERMINED BY BOARD OF DIRECTORS.
(1) If the articles of incorporation so provide, the board of directors
may determine, in whole or part, the preferences, limitations, and relative
rights (within the limits set forth in Section 7.01) of:
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(a) Any class of shares before the issuance of any shares of
that class, or
(b) One or more series within a class before the issuance of
any shares of that series.
(2) Each series of a class must be given a distinguishing designation.
(3) All shares of a series must have preferences, limitations, and
relative rights identical with those of other shares of the same series and,
except to the extent otherwise provided in the description of the series, of
those of other series of the same class.
(4) Before issuing any shares of a class or series created under this
section, the corporation must deliver to the Department of State of the State of
Florida for filing articles of amendment, which are effective without
shareholder action, in accordance with Section 607.0602 of the Act.
SECTION 7.03. ISSUED AND OUTSTANDING SHARES.
(1) A corporation may issue the number of shares of each class or
series authorized by the articles of incorporation. Shares that are issued are
outstanding shares until they are reacquired, redeemed, converted, or canceled.
(2) The reacquisition, redemption, or conversion of outstanding shares
is subject to the limitations of subsection (3) and to Section 607.06401 of the
Act.
(3) At all times that shares of the corporation are outstanding, one or
more shares that together have unlimited voting rights and one or more shares
that together are entitled to receive the net assets of the corporation upon
dissolution must be outstanding.
SECTION 7.04. ISSUANCE OF SHARES.
(1) The board of directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or benefit to
the corporation, including cash, promissory notes, services performed, promises
to perform services evidenced by a written contract, or other securities of the
corporation.
(2) Before the corporation issues shares, the board of directors must
determine that the consideration received or to be received for shares to be
issued is adequate. That determination by the board of directors is conclusive
insofar as the adequacy of consideration for the issuance of shares relates to
whether the shares are validly issued, fully paid, and non-assessable. When it
cannot be determined that outstanding shares
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are fully paid and non-assessable, there shall be a conclusive presumption that
such shares are fully paid and non-assessable if the board of directors makes a
good faith determination that there is no substantial evidence that the full
consideration for such shares has not been paid.
(3) When the corporation receives the consideration for which the board
of directors authorized the issuance of shares, the shares issued therefor are
fully paid and non-assessable. Consideration in the form of a promise to pay
money or a promise to perform services is received by the corporation at the
time of the making of the promise, unless the agreement specifically provides
otherwise.
(4) The corporation may place in escrow shares issued for a contract
for future services or benefits or a promissory note, or make other arrangements
to restrict the transfer of the shares, and may credit distributions in respect
of the shares against their purchase price, until the services are performed,
the note is paid, or the benefits received. If the services are not performed,
the shares escrowed or restricted and the distributions credited may be canceled
in whole or part.
SECTION 7.05. FORM AND CONTENT OF CERTIFICATES.
(1) Shares may but need not be represented by certificates. Unless the
Act or another statute expressly provides otherwise, the rights and obligations
of shareholders are identical whether or not their shares are represented by
certificates.
(2) At a minimum, each share certificate must state on its face:
(a) The name of the issuing corporation and that the
corporation is organized under the laws of the State of Florida;
(b) The name of the person to whom issued; and
(c) The number and class of shares and the designation of the
series, if any, the certificate represents.
(3) If the shares being issued are of different classes of shares or
different series within a class, the designations, relative rights, preferences,
and limitations applicable to each class and the variations in rights,
preferences, and limitations determined for each series (and the authority of
the board of directors to determine variations for future series) must be
summarized on the front or back of each certificate. Alternatively, each
certificate may state conspicuously on its front or back that the corporation
will furnish the shareholder a full statement of this information on request and
without charge.
(4) Each share certificate:
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(a) Must be signed (either manually or in facsimile) by an
officer or officers designated by the board of directors, and
(b) May bear the corporate seal or its facsimile.
(5) If the person who signed (either manually or in facsimile) a share
certificate no longer holds office when the certificate is issued, the
certificate is nevertheless valid.
(6) Nothing in this section may be construed to invalidate any share
certificate validly issued and outstanding under the Act on July 1, 1990.
SECTION 7.06. SHARES WITHOUT CERTIFICATES.
(1) The board of directors of the corporation may authorize the issue
of some or all of the shares of any or all of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the corporation.
(2) Within a reasonable time after the issue or transfer of shares
without certificates, the corporation shall send the shareholder a written
statement of the information required on certificates by the Act.
SECTION 7.07. RESTRICTION ON TRANSFER OF SHARES AND OTHER SECURITIES.
(1) The articles of incorporation, these bylaws, an agreement among
shareholders, or an agreement between shareholders and the corporation may
impose restrictions on the transfer or registration of transfer of shares of the
corporation. A restriction does not affect shares issued before the restriction
was adopted unless the holders of such shares are parties to the restriction
agreement or voted in favor of the restriction.
(2) A restriction on the transfer or registration of transfer of shares
is valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this section, and effected in compliance with the
provisions of the Act, including having a proper purpose as referred to in the
Act.
SECTION 7.08. SHAREHOLDER'S PRE-EMPTIVE RIGHTS.
The shareholders of the corporation do not have a pre-emptive right to
acquire the corporation's unissued shares.
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SECTION 7.09. CORPORATION'S ACQUISITION OF ITS OWN SHARES.
(1) The corporation may acquire its own shares, and, unless otherwise
provided in the articles of incorporation or except as provided in subsection
(4), shares so acquired constitute authorized but unissued shares of the same
class but undesignated as to series.
(2) If the articles of incorporation prohibit the reissue of acquired
shares, the number of authorized shares is reduced by the number of shares
acquired, effective upon amendment of the articles of incorporation.
(3) Articles of amendment may be adopted by the board of directors
without shareholder action, shall be delivered to the Department of State of the
State of Florida for filing, and shall set forth the information required by
Section 607.0631 of the Act.
(4) Shares of the corporation in existence on June 30, 1990, which are
treasury shares under Section 607.004(18), Florida Statutes (1987), shall be
issued, but not outstanding, until canceled or disposed of by the corporation.
SECTION 7.10. SHARE OPTIONS.
(1) Unless the articles of incorporation provide otherwise, the
corporation may issue rights, options, or warrants for the purchase of shares of
the corporation. The board of directors shall determine the terms upon which the
rights, options, or warrants are issued, their form and content, and the
consideration for which the shares are to be issued.
(2) The terms and conditions of stock rights and options which are
created and issued by the corporation, or its successor, and which entitle the
holders thereof to purchase from the corporation shares of any class or classes,
whether authorized by unissued shares, treasury shares, or shares to be
purchased or acquired by the corporation, may include, without limitation,
restrictions, or conditions that preclude or limit the exercise, transfer,
receipt, or holding of such rights or options by any person or persons,
including any person or persons owning or offering to acquire a specified number
or percentage of the outstanding common shares or other securities of the
corporation, or any transferee or transferees of any such person or persons, or
that invalidate or void such rights or options held by any such person or
persons or any such transferee or transferees.
SECTION 7.11. TERMS AND CONDITIONS OF STOCK RIGHTS AND OPTIONS.
The terms and conditions of the stock rights and options which are
created and issued by the corporation [or its successor], and which entitle the
holders thereof to purchase from the corporation shares of any class or classes,
whether authorized but
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unissued shares, treasury shares, or shares to be purchased or acquired by the
corporation, may include, without limitation, restrictions or conditions that
preclude or limit the exercise, transfer, receipt or holding of such rights or
options by any person or persons, including any person or persons owning or
offering to acquire a specified number or percentage of the outstanding common
shares or other securities of the corporation, or any transferee or transferees
of any such person or persons, or that invalidate or void such rights or options
held by any such person or persons or any such transferee or transferees.
SECTION 7.12. SHARE DIVIDENDS.
(1) Shares may be issued pro rata and without consideration to the
corporation's shareholders or to the shareholders of one or more classes or
series. An issuance of shares under this subsection is a share dividend.
(2) Shares of one class or series may not be issued as a share dividend
in respect of shares of another class or series unless:
(a) The articles of incorporation so authorize,
(b) A majority of the votes entitled to be cast by the class
or series to be issued approves the issue, or
(c) There are no outstanding shares of the class or series to
be issued.
(3) If the board of directors does not fix the record date for
determining shareholders entitled to a share dividend, it is the date of the
board of directors authorizes the share dividend.
SECTION 7.13. DISTRIBUTIONS TO SHAREHOLDERS.
(1) The board of directors may authorize and the corporation may make
distributions to its shareholders subject to restriction by the articles of
incorporation and the limitations in subsection (3).
(2) If the board of directors does not fix the record date for
determining shareholders entitled to a distribution (other than one involving a
purchase, redemption, or other acquisition of the corporation's shares), it is
the date the board of directors authorizes the distribution.
(3) No distribution may be made if, after giving it effect:
(a) The corporation would not be able to pay its debts as they
become due in the usual course of business; or
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<PAGE> 36
(b) The corporation's total assets would be less than the sum
of its total liabilities plus (unless the articles of incorporation permit
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
(4) The board of directors may base a determination that a distribution
is not prohibited under subsection (3) either on financial statements prepared
on the basis of accounting practices and principles that are reasonable in the
circumstances or on a fair valuation or other method that is reasonable in the
circumstances. In the case of any distribution based upon such a valuation, each
such distribution shall be identified as a distribution based upon a current
valuation of assets, and the amount per share paid on the basis of such
valuation shall be disclosed to the shareholders concurrent with their receipt
of the distribution.
(5) Except as provided in subsection (7), the effect of a distribution
under subsection (3) is measured;
(a) In the case of distribution by purchase, redemption, or
other acquisition of the corporation's shares, as of the earlier of:
(i) The date money or other property is transferred or
debt incurred by the corporation, or
(ii) The date the shareholder ceases to be a
shareholder with respect to the acquired shares;
(b) In the case of any other distribution of indebtedness, as
of the date the indebtedness is distributed;
(c) In all other cases, as of:
(i) The date the distribution is authorized if the
payment occurs within 120 days after the date of authorization, or
(ii) The date the payment is made if it occurs more
than 120 days after the date of authorization.
(6) A corporation's indebtedness to a shareholder incurred by reason of
a distribution made in accordance with this section is at parity with the
corporation's indebtedness to its general, unsecured creditors except to the
extent subordinated by agreement.
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(7) Indebtedness of the corporation, including indebtedness issued as a
distribution, is not considered a liability for purposes of determinations under
subsection (3) if its terms provide that payment of principal and interest are
made only if and to the extent that payment of a distribution to shareholders
could then be made under this section. If the indebtedness is issued as a
distribution, each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the payment is
actually made.
ARTICLE VIII
AMENDMENT OF ARTICLES AND BYLAWS
--------------------------------
SECTION 8.01. AUTHORITY TO AMEND THE ARTICLES OF INCORPORATION.
(1) The corporation may amend its articles of incorporation at any time
to add or change a provision that is required or permitted in the articles of
incorporation or to delete a provision not required in the articles of
incorporation. Whether a provision is required or permitted in the articles of
incorporation is determined as of the effective date of the amendment.
(2) A shareholder of the corporation does not have a vested property
right resulting from any provision in the articles of incorporation, including
provisions relating to management, control, capital structure, dividend
entitlement, or purpose or duration of the corporation.
SECTION 8.02. AMENDMENT BY BOARD OF DIRECTORS.
The corporation's board of directors may adopt one or more amendments
to the corporation's articles of incorporation without shareholder action:
(1) To extend the duration of the corporation if it was incorporated at
a time when limited duration was required by law;
(2) To delete the names and addresses of the initial directors;
(3) To delete the name and address of the initial registered agent or
registered office, if a statement of change is on file with the Department of
State of the State of Florida;
(4) To delete any other information contained in the articles of
incorporation that is solely of historical interest;
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<PAGE> 38
(5) To change each issued and unissued authorized share of an
outstanding class into a greater number of whole shares if the corporation has
only shares of that class outstanding;
(6) To delete the authorization for a class or series of shares
authorized pursuant to Section 607.0602 of the Act, if no shares of such class
or series have been issued;
(7) To change the corporate name by substituting the word
"corporation," "incorporated," or "company," or the abbreviation "corp.," Inc.,"
or Co.," for a similar word or abbreviation in the name, or by adding, deleting,
or changing a geographical attribution for the name; or
(8) To make any other change expressly permitted by the Act to be made
without shareholder action.
SECTION 8.03. AMENDMENT OF BYLAWS BY BOARD OF DIRECTORS.
The corporation's board of directors may amend or repeal the
corporation's bylaws unless the Act reserves the power to amend a particular
bylaw provision exclusively to the shareholders.
SECTION 8.04. BYLAW INCREASING QUORUM OR VOTING REQUIREMENTS FOR DIRECTORS.
(1) A bylaw that fixes a greater quorum or voting requirement for the
board of directors may be amended or repealed:
(a) If originally adopted by the shareholders, only by the
shareholders;
(b) If originally adopted by the board of directors, either by
the shareholders or by the board of directors.
(2) A bylaw adopted or amended by the shareholders that fixes a greater
quorum or voting requirement for the board of directors may provide that it may
be amended or repealed only by a specified vote of either the shareholders or
the board of directors.
(3) Action by the board of directors under paragraph (1)(b) to adopt or
amend a bylaw that changes the quorum or voting requirement for the board of
directors must meet the same quorum requirement and be adopted by the same vote
required to take action under the quorum and voting requirement then in effect
or proposed to be adopted, whichever is greater.
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ARTICLE IX
RECORDS AND REPORTS
-------------------
SECTION 9.01. CORPORATE RECORDS.
(1) The corporation shall keep as permanent records minutes of al
meetings of its shareholders and board of directors, a record of all actions
taken by the shareholders or board of directors without a meeting, and a record
of all actions taken by a committee of the board of directors in place of the
board of directors on behalf of the corporation.
(2) The corporation shall maintain accurate accounting records.
(3) The corporation or its agent shall maintain a record of its
shareholders in a form that permits preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and series of shares held by each.
(4) The corporation shall maintain its records in written form or in
another form capable of conversion into written form within a reasonable time.
(5) The corporation shall keep a copy of the following records:
(a) Its articles or restated articles of incorporation and all
amendments to them currently in effect;
(b) Its bylaws or restated bylaws and all amendments to them
currently in effect;
(c) Resolutions adopted by the board of directors creating one
or more classes or series of shares and finding their relative rights,
preferences, and limitations, if shares issued pursuant to those resolutions are
outstanding;
(d) The minutes of all shareholders' meetings and records of
all action taken by shareholders without a meeting for the past three years;
(e) Written communications to all shareholders generally or
all shareholders of a class or series within the past three years, including the
financial statements furnished for the past three years;
(f) A list of the names and business street addresses of its
current directors and officers; and
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<PAGE> 40
(g) Its most recent annual report delivered to the Department
of State of the State of Florida.
SECTION 9.02. FINANCIAL STATEMENTS FOR SHAREHOLDERS.
(1) Unless modified by resolution of the shareholders within 120 days
of the close of each fiscal year, the corporation shall furnish its shareholders
annual financial statements which may be consolidated or combined statements of
the corporation and one or more of its subsidiaries, as appropriate, that
include a balance sheet as of the end of the fiscal year, an income statement
for that year, and a statement of cash flows for that year. If financial
statements are prepared for the corporation on the basis of generally-accepted
accounting principles, the annual financial statements must also be prepared on
that basis.
(2) If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the president or the person responsible for the
corporation's accounting records:
(a) Stating his reasonable belief whether the statements were
prepared on the basis of generally-accepted accounting principles and, if not,
describing the basis of preparation; and
(b) Describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements prepared for
the preceding year.
(3) The corporation shall mail the annual financial statements to each
shareholder within 120 days after the close of each fiscal year or within such
additional time thereafter as is reasonably necessary to enable the corporation
to prepare its financial statements, if for reasons beyond the corporation's
control, it is unable to prepare its financial statements within the prescribed
period. Thereafter, on written request from a shareholder who was not mailed the
statements, the corporation shall mail him the latest annual financial
statements.
SECTION 9.03. OTHER REPORTS TO SHAREHOLDERS.
(1) If the corporation indemnifies or advances expenses to any
director, officer, employee or agent otherwise than by court order or action by
the shareholders or by an insurance carrier pursuant to insurance maintained by
the corporation, the corporation shall report the indemnification or advance in
writing to the shareholders with or before the notice of the next shareholders'
meeting, or prior to such meeting if the indemnification or advance occurs after
the giving of such notice but prior to the time such meeting is held, which
report shall include a statement specifying the persons paid,
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<PAGE> 41
the amounts paid, and the nature and status at the time of such payment of the
litigation or threatened litigation.
(2) If the corporation issues or authorizes the issuance of shares for
promises to render services in the future, the corporation shall report in
writing to the shareholders the number of shares authorized or issued, and the
consideration received by the corporation, with or before the notice of the next
shareholders' meeting.
SECTION 9.04. ANNUAL REPORT FOR DEPARTMENT OF STATE.
(1) The corporation shall deliver to the Department of State of the
State of Florida for filing a sworn annual report on such forms as the
Department of State of the State of Florida prescribes that sets forth the
information prescribed by Section 607.1622 of the Act.
(2) Proof to the satisfaction of the Department of State of the State
of Florida on or before July 1 of each calendar year that such report was
deposited in the United States mail in a sealed envelope, properly addressed
with postage prepaid, shall be deemed in compliance with this requirement.
(3) Each report shall be executed by the corporation by an officer or
director or, if the corporation is in the hands of a receiver or trustee, shall
be executed on behalf of the corporation by such receiver or trustee, and the
signing thereof shall have the same legal effect as if made under oath, without
the necessity of appending such oath thereto.
(4) Information in the annual report must be current as of the date the
annual report is executed on behalf of the corporation.
(5) Any corporation failing to file an annual report which complies
with the requirements of this section shall not be permitted to maintain or
defend any action in any court of this state until such report is filed and all
fees and taxes due under the Act are paid and shall be subject to dissolution or
cancellation of its certificate of authority to do business as provided in the
Act.
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.01. DEFINITION OF THE "ACT".
All references contained herein to the "Act" or to sections of the
"Act" shall be deemed to be in reference to the Florida Business Corporation
Act.
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<PAGE> 42
SECTION 10.02. APPLICATION OF FLORIDA LAW.
Whenever any provision of these bylaws is inconsistent with any
provision of the Florida Business Corporation Act, Statutes 607, as they may be
amended from time to time, then in such instance Florida law shall prevail.
SECTION 10.03. FISCAL YEAR.
The fiscal year of the corporation shall be determined by resolution of
the board of directors.
SECTION 10.04. CONFLICTS WITH ARTICLES OF INCORPORATION.
In the event that any provision contained in these bylaws conflicts
with any provision of the corporation's articles of incorporation, as amended
from time to time, the provisions of the articles of incorporation shall prevail
and be given full force and effect, to the full extent permissible under the
Act.
36
<PAGE> 1
Exhibit 4.2
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY BE TRANSFERRED
ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, THIS LEGEND
SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE.
REGISTRY MAGIC INCORPORATED
No. ____________
7% SUBORDINATED NOTE
DUE OCTOBER 1, 1998
- ----------------------- -----------------------
REGISTRY MAGIC INCORPORATED, a Florida corporation (the "Company"), for
value received, hereby promises to pay to ____________ or registered assigns
(the "Holder") on October 1, 1998 (the "Maturity Date"), or prior thereto as
hereinafter provided, at the principal offices of the Company, the principal sum
of ________________ Dollars ________________ in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts, and to pay interest on the outstanding
principal balance at the rate of seven percent (7%) per annum from the date
hereof until the Company's obligation with respect to the payment of such
principal sum shall be discharged as herein provided. Interest hereunder shall
accrue and shall be payable semi-annually on April 1 and October 1 of each year
while this Note is outstanding, commencing April 1, 1997, and on the Maturity
Date, in like coin or currency to the Holder hereof at the office of the Company
as hereinabove set forth.
1. SUBORDINATION This Note is the direct obligation of the Company
chargeable against all of its property, whatsoever and wheresoever, both present
and future. However, the indebtedness evidenced by this Note and the payment of
the principal and interest hereon, shall be at all times and in all respects
wholly subordinate, junior and subject in right of payment to any and all Senior
Indebtedness (as hereinafter defined) now outstanding or hereinafter incurred.
Without limiting the effect of the foregoing, "subordinate," as used herein,
shall be deemed to mean that, in the event of any default in the payment of
Senior Indebtedness (after giving effect to "cure" provisions, if any) or of any
liquidation, insolvency, bankruptcy, reorganization, or similar proceedings
relating to the Company, all sums payable on Senior Indebtedness shall first be
paid in full, with interest, if any, before any payment is made upon the
indebtedness evidenced by this Note, and, in such event, any payment or
distribution of any character which shall be made in respect of this Note shall
be paid over to the holders of Senior Indebtedness
<PAGE> 2
for application pro rata to the payment thereof, unless and until such Senior
Indebtedness shall have been paid and satisfied in full. "Senior Indebtedness"
shall mean the principal of, and premium, if any, and interest on, all
indebtedness of the Company to banks, trusts companies, insurance companies and
similar institutional or secured lenders, and any deferrals, renewals,
extensions, or guarantees of any of such indebtedness; PROVIDED, HOWEVER, that
Senior Indebtedness shall expressly exclude trade debt.
2. PREPAYMENT
A. The principal amount of this Note may be prepaid by the Company,
in whole or in part, without premium or penalty, at any time.
B. The principal amount of this Note shall be prepaid within ten
days of the date of consummation by the Company of a public or private offering
of its equity securities involving receipt of gross proceeds equal to or
exceeding $5,000,000.
C. Upon any prepayment of the entire principal amount of this Note,
all accrued but unpaid interest shall be paid to the Holder of this Note on the
date of prepayment.
3. EVENTS OF DEFAULT
A. The entire amount due under this Note shall become and be due and
payable upon written demand made by the Holder hereof if one or more of the
following events, herein called "events of default", shall happen and be
continuing:
(i) Default in the payment of the principal or accrued
interest on this Note when and as the same shall become due and payable, whether
by acceleration or otherwise, if such default shall continue uncured for 30 days
after written notice, specifying such default, shall have been given to the
Company by the Holder of the Note;
(ii) Default in the due observance or performance of any
covenant, condition or agreement on the part of the Company to be observed or
performed pursuant to the terms hereof, if such default shall continue uncured
for 30 days after written notice, specifying such default, shall have been given
to the Company by the Holder of the Note;
(iii) Application for, or consent to, the appointment of a
receiver, trustee or liquidator of the Company or of its property;
(iv) Admission in writing of the Company's inability to pay
its debts as they mature;
(v) General assignment by the Company for the benefit of
creditors;
2
<PAGE> 3
(vi) Filing by the Company of a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization or an arrangement
with creditors;
(vii) Entering against the Company of a court order
approving a petition filed against it under the Federal bankruptcy laws, which
order shall not have been vacated or set aside or otherwise terminated within
120 days;
(viii) Default in compliance by the Company with the
registration covenants under the Registration Rights Agreement with the Holder;
(ix) The Company's Confidential Private Placement Memorandum
contains an untrue statement of a material fact or omits to state a material
fact necessary to make any statement therein not materially misleading; or
(x) Liquidation, wind-up or dissolution of the Company.
B. The Company agrees that notice of the occurrence of any event of
default will be promptly given to the Holder at his or her registered address by
certified mail.
C. In case any one or more of the events of default specified above
shall happen and be continuing, the Holder may proceed to protect and enforce
his, her or its rights by suit in the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note or may proceed to enforce the payment of this Note or to enforce
any other legal or equitable rights as such Holder.
4. MISCELLANEOUS
A. This Note has been issued by the Company pursuant to
authorization of the Board of Directors of the Company, which provides for an
aggregate of up to $500,000 in face amount of identical Notes to be issued
(subject to increase in certain circumstances).
B. The Company may consider and treat the person in whose name this
Note shall be registered as the absolute owner thereof for all purposes
whatsoever (whether or not this Note shall be overdue) and the Company shall not
be affected by any notice to the contrary. The registered owner of this Note
shall have the right to transfer it by assignment, subject to the provisions
elsewhere contained herein, and the transferee thereof shall, upon his
registration as owner of this Note, become vested with all the powers and rights
of the transferor. Registration of any new owner shall take place upon
presentation of this Note to the Company at its principal offices, together with
a duly authenticated assignment. In case of transfer by operation of law, the
transferee agrees to notify the Company of such transfer and of his address, and
to submit appropriate evidence regarding the transfer so that this Note may be
registered in the name of the transferee. This Note is transferable only on the
books of the Company by the Holder hereof, in person or by his attorney, on the
surrender hereof, duly endorsed. Communications
3
<PAGE> 4
sent to any registered owner shall be effective as against all holders or
transferees of the Note not registered at the time of sending the communication.
C. Payments of interest shall be made as specified above to the
registered owner of this Note. Payment of principal shall be made to the
registered owner of this Note upon presentation of this Note upon or after
maturity. Interest shall continue to accrue on this Note until payment.
D. Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Note, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Note, if mutilated, the Company
shall execute and deliver a new Note of like tenor and date. Any such new Note
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not this Note so lost, stolen, destroyed or
mutilated shall be at any time enforceable by anyone.
E. This Note shall be construed and enforced in accordance with the
laws of the State of New York. The Company and the Holder each (a) agrees that
any legal suit, action or proceeding arising out of or relating to this Note
shall be instituted exclusively in New York State Supreme Court, County of New
York, or in the United States District Court for the Southern District of New
York, (b) waives any objection which the Company or such Holder may have now or
hereafter to the venue of any such suit, action or proceeding, and (c)
irrevocably consents to the in personam jurisdiction of the New York State
Supreme Court, County of New York and the United States District Court for the
Southern District of New York in any such suit, action or proceeding. The
Company and the Holder each further agrees to accept and acknowledge service of
any and all process which may be served in any such suit, action or proceeding
in the New York State Supreme Court, County of New York or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company or the Holder mailed by certified mail to their
respective addresses shall be deemed in every respect effective service of
process upon the Company or the Holder, as the case may be, in any suit, action
or proceeding.
F. The Company shall be liable for all costs, charges and expenses
including any attorneys' fees incurred by Payees by reason of the occurrence of
any event of default or the exercise of the Holder's remedies with respect
thereto.
G. In the event any provision contained in this Note shall, for any
reason, be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Note, and this Note shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
H. Any delay by Holder or any holder of this Note in exercising a
right or remedy shall not constitute a waiver thereof; a waiver of default,
right or remedy shall not constitute a waiver of a subsequent default, right or
remedy and a single or partial exercise of
4
<PAGE> 5
a right or remedy shall not preclude another or further exercise thereof or the
exercise of another right or remedy.
I. Any provision which may prove enforceable under any law shall not
affect the validity of any other provision hereof.
J. Except as otherwise set forth herein, the Company expressly
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, bringing of suit and diligence on the part of
the Holder in taking any action to collect amounts called for hereunder, and
shall be directly and primarily liable for the payment of all sums owing and to
be owing hereunder.
IN WITNESS WHEREOF, REGISTRY MAGIC INCORPORATED has caused this Note to
be signed in its name by its President.
REGISTRY MAGIC INCORPORATED,
a Florida corporation
By:
----------------------------------
Walt Nawrocki, President
ATTEST:
- -------------------------------
Walt Nawrocki, Secretary
5
<PAGE> 1
Exhibit 4.3
PROMISSORY NOTE
$50,000.00 Lighthouse Point, Florida
July 1, 1996
FOR VALUE RECEIVED, the undersigned, REGISTRY MAGIC INCORPORATED, a
Florida corporation, ("Maker"), hereby unconditionally promises to pay to the
order of DLJSC as Custodian IRA F/B/O LARRY COHEN (3lR911703)(the "Lender") two
years from the date hereof at the address of the Lender, at Pershing, One
Pershing Plaza, Jersey City, New Jersey 07302 in lawful money of the United
States of America the principal sum of Fifty Thousand Dollars ($50,000),
together with interest on the unpaid principal amount outstanding from time to
time at a rate of six and one-half percent (6 1/2%) per annum, payable at the
time of the payment of the principal amount of this Note. All outstanding
principal and interest accrued and unpaid on this Note shall be payable upon
demand of the Lender.
The Company waives demand, presentment, protest and notice of anymay
kind and consents to the extension of time or payments, the release, surrender
or substitution of any and all security or guarantees for the obligations
evidenced hereby or other indulgence with respect to this Note, all without
notice.
This Note may be prepaid in whole or in part by the Company at any time
and from time to time.
This Note shall be governed by and construed in accordance with the
laws of the State of Florida and shall be binding upon the successors, assigns,
heirs, administrators and executors for the Company and inure to the benefit of
the Lender, its successors, endorsee, assigns, heirs, administrators and
executors. If any term or provision of this Note shall be invalid, illegal or
unenforceable, the validity for all other terms and provisions hereof shall in
no way be affected thereby.
REGISTRY MAGIC INCORPORATED
By: /s/ Lawrence Cohen
-----------------------
Name: Lawrence Cohen
Its: President
<PAGE> 1
Exhibit 4.4
Void after 5:00 p.m. New York Time, on __________, 2003.
Warrant to Purchase ______ Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
REGISTRY MAGIC INCORPORATED
This is to Certify That, FOR VALUE RECEIVED, Commonwealth
Associates, or assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from Registry Magic Incorporated, a Florida
corporation ("Company"), _______ fully paid, validly issued and nonassessable
shares of Common Stock, par value $.001 per share, of the Company ("Common
Stock") at a price of $____ per share at any time or from time to time during
the period from ____________, 1999 to ________________, 2003, but not later than
5:00 p.m. New York City Time, on ______________, 2003. The number of shares of
Common Stock to be received upon the exercise of this Warrant and the price to
be paid for each share of Common Stock may be adjusted from time to time as
hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price". This Warrant, together with warrants of
like tenor, constituting in the aggregate warrants (the "Warrants") to purchase
140,000 shares of Common Stock, was originally issued pursuant to an
underwriting agreement between the Company and Commonwealth Associates
("Commonwealth"), in connection with a public offering through Commonwealth of
1,400,000 shares of Common Stock, in consideration of $140 received for the
Warrants.
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised in whole or in part
at any time or from time to time on or after ______________, 1999 and until
___________, 2003 (the "Exercise Period"), subject to the provisions of Section
(j)(2) hereof; provided, however, that (i) if either such day is a day on which
banking institutions in the State of New York are authorized by law to close,
then on the next succeeding day which shall not be such a day, and (ii) in the
event of any merger, consolidation or sale of substantially all the assets of
the Company as an entirety, resulting in any distribution to the Company's
stockholders, prior to _____________ 2003, the Holder shall have the right to
exercise this Warrant commencing at such time through ________, 2003 into the
kind and amount of shares of stock and other
<PAGE> 2
securities and property (including cash) receivable by a holder of the number of
shares of Common Stock into which this Warrant might have been exercisable
immediately prior thereto. This Warrant may be exercised by presentation and
surrender hereof to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Purchase Form annexed hereto duly
executed and accompanied by payment of the Exercise Price for the number of
Warrant Shares specified in such form. As soon as practicable after each such
exercise of the warrants, but not later than seven (7) days from the date of
such exercise, the Company shall issue and deliver to the Holder a certificate
or certificate for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt
by the Company of this Warrant at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be physically delivered to the Holder.
(2) At any time during the Exercise Period, the
Holder may, at its option, exchange this Warrant, in whole or in part (a
"Warrant Exchange"), into the number of Warrant Shares determined in accordance
with this Section (a)(2), by surrendering this Warrant at the principal office
of the Company or at the office of its stock transfer agent, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Warrant Shares to be exchanged and the date on which the Holder requests that
such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange
shall take place on the date specified in the Notice of Exchange or, if later,
the date the Notice of Exchange is received by the Company (the "Exchange
Date"). Certificates for the shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the shares
remaining subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within seven (7) days following the Exchange Date. In
connection with any Warrant Exchange, this Warrant shall represent the right to
subscribe for and acquire the number of Warrant Shares (rounded to the next
highest integer) equal to (i) the number of Warrant Shares specified by the
Holder in its Notice of Exchange (the "Total Number") less (ii) the number of
Warrant Shares equal to the quotient obtained by dividing (A) the product of the
Total Number and the existing Exercise Price by (B) the current market value of
a share of Common Stock. Current market value shall have the meaning set forth
Section (c) below, except that for purposes hereof, the date of exercise, as
used in such Section (c), shall mean the Exchange Date.
(b) RESERVATION OF SHARES. The Company shall at all times
reserve for issuance and/or delivery upon exercise of this Warrant such number
of shares of its Common Stock as shall be required for issuance and delivery
upon exercise of the Warrants.
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<PAGE> 3
(c) FRACTIONAL SHARES. No fractional shares or script
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of a share, determined as
follows:
(1) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq National
Market, the current market value shall be the last reported
sale price of the Common Stock on such exchange or market on
the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average
closing bid and asked prices for such day on such exchange or
market; or
(2) If the Common Stock is not so listed or admitted
to unlisted trading privileges, but is traded on the Nasdaq
SmallCap Market, the current Market Value shall be the average
of the closing bid and asked prices for such day on such
market and if the Common Stock is not so traded, the current
market value shall be the mean of the last reported bid and
asked prices reported by the National Quotation Bureau, Inc.
on the last business day prior to the date of the exercise of
this Warrant; or
(3) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount,
not less than book value thereof as at the end of the most
recent fiscal year of the Company ending prior to the date of
the exercise of the Warrant, determined in such reasonable
manner as may be prescribed by the Board of Directors of the
Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable hereunder. This Warrant is not transferable (other than
by will or pursuant to the laws of descent and distribution and except as
provided under Subsection (a)(1)(ii) hereof) and may not be assigned or
hypothecated for a period of one year from _____ , 1998, except to and among the
officers of Commonwealth, any member of the selling group, or to and among the
officers of any member of the selling group. Upon surrender of this Warrant to
the Company at its principal office or at the office of its stock transfer
agent, if any, with the Assignment Form annexed hereto duly executed and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant in the name of the assignee named in such instrument
of assignment and this Warrant shall promptly be cancelled. This Warrant may be
divided or combined with other warrants which carry the same rights upon
3
<PAGE> 4
presentation hereof at the principal office of the Company or at the office of
its stock transfer agent, if any, together with a written notice specifying the
names and denominations in which new Warrants are to be issued and signed by the
Holder hereof. The term "Warrant" as used herein includes any Warrants into
which this Warrant may be divided or exchanged. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at
any time and the number and kind of securities purchasable upon the exercise of
the Warrants shall be subject to adjustment from time to time upon the happening
of certain events as follows:
(1) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(2) Whenever the Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Subsection (1) above,
the number of Shares purchasable upon exercise of this Warrant
shall simultaneously be adjusted by multiplying the number of
Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
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<PAGE> 5
(3) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of
this Subsection (3) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations
under this Section (f) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to
make such changes in the Exercise Price, in addition to those
required by this Section (f), as it shall determine, in its
sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(4) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly (but no later than
10 days after any request for such an adjustment by the
Holder), cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of
each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to
the Holders at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. In the event the Company
does not provide the Holder with such notice and information
within 10 days of a request by the Holder, then
notwithstanding the provisions of this Section (f), the
Exercise Price shall be immediately adjusted to equal the
lowest Offering Price, Subscription Price or Conversion Price,
as applicable, since the date of this Warrant, and the number
of shares issuable upon exercise of this Warrant shall be
adjusted accordingly. The Company may retain a firm of
independent certified public accountants selected by the Board
of Directors (who may be the regular accountants employed by
the Company) to make any computation required by this Section
(f), and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(5) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder
of this Warrant thereafter shall become entitled to receive
any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Subsections (1) to (3), inclusive above.
5
<PAGE> 6
(6) Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon
exercise of this Warrant, Warrants theretofore or thereafter
issued may continue to express the same price and number and
kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall
be adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall
be outstanding, (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any share of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
6
<PAGE> 7
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) The Company shall advise the Holder of this
Warrant or of the Warrant Shares or any then holder of
Warrants or Warrant Shares (such persons being collectively
referred to herein as "holders") by written notice at least
four weeks prior to the filing of any post-effective amendment
to the Company's Registration Statement No. 333-____ on Form
SB-2 ("Registration Statement"), declared effective by the
Securities and Exchange Commission on ______ , 1998 or of any
new registration statement or post-effective amendment thereto
under the Securities Act of 1933 (the "Act") covering
securities of the Company and will for a period of five years,
commencing two years from the effective date of the
Registration Statement, upon the request of any such holder,
include in any such post-effective amendment or registration
statement such information as may be required to permit a
public offering of the Warrants or the Warrant Shares. The
Company shall supply prospectuses and other documents as the
Holder may request in order to facilitate the public sale or
other disposition of the Warrants or Warrant Shares, qualify
the Warrants and the Warrant Shares for sale in such states as
any such holder designates and do any and all other acts and
things which may be necessary or desirable to enable such
Holders to consummate the public sale or other disposition of
the Warrants or Warrant Shares, and furnish indemnification in
the manner as set forth in Subsection (3)(C) of this Section
(j). Such holders shall furnish information and
indemnification as set forth in Subsection (3)(C) of this
Section (j), except that the maximum amount which may be
recovered from the Holder shall be limited to the amount of
proceeds received by the Holder from the sale of the Warrants
or Warrant Shares.
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<PAGE> 8
(2) If any majority holder (as defined in Subsection
(4) of this Section (j) below) shall give notice to the
Company at any time during the four year period commencing one
year from the effective date of the Registration Statement to
the effect that such holder contemplates (i) the transfer of
all or any part of his or its Warrants and/or Warrant Shares,
or (ii) the exercise and/or conversion of all or any part of
his or its Warrants and the transfer of all or any part of the
Warrants and/or Warrant Shares under such circumstances that a
public offering (within the meaning of the Act) of Warrants
and/or Warrant Shares will be involved, and desires to
register under the Act, the Warrants and/or the Warrant
Shares, then the Company shall, within two weeks after receipt
of such notice, file a post-effective amendment to the
Registration Statement or a new registration statement on Form
S-1 or such other form as the holder requests, pursuant to the
Act, to the end that the Warrants and/or Warrant Shares may be
sold under the Act as promptly as practicable thereafter and
the Company will use its best efforts to cause such
registration to become effective and continue to be effective
(current) (including the taking of such steps as are necessary
to obtain the removal of any stop order) until the holder has
advised that all of the Warrants and/or Warrant Shares have
been sold; provided that such holder shall furnish the Company
with appropriate information (relating to the intentions of
such holders) in connection therewith as the Company shall
reasonably request in writing. In the event the registration
statement is not declared effective under the Act prior to
2003, then at the holder's request, the Company shall
purchase the Warrants from the holders for a per share price
equal to the fair market value of the Common Stock less the
per share Exercise Price. The holder may, at its option,
request the registration of the Warrants and/or Warrant Shares
in a registration statement made by the Company as
contemplated by Subsection (1) of this Section (j) or in
connection with a request made pursuant to Subsection (2) of
this Section (j) prior to the acquisition of the Warrant
Shares upon exercise of the Warrants and even though the
holder has not given notice of exercise of the Warrants. If
the Company determines to include securities to be sold by it
in any registration statement originally requested pursuant to
this Subsection (2) of this Section (j), such registration
shall instead be deemed to have been a registration under
Subsection (1) of this Section (j) and not under Subsection
(2) of this Subsection (j). The holder may thereafter at its
option, exercise the Warrants at any time or from time to time
subsequent to the effectiveness under the Act of the
registration statement in which the Warrant Shares were
included.
(3) The following provision of this Section (j) shall
also be applicable:
(A) Within ten days after receiving any such
notice pursuant to Subsection (2) of this Section
(j), the Company shall give notice to
8
<PAGE> 9
the other holders of Warrants and Warrant Shares,
advising that the Company is proceeding with such
post-effective amendment or registration statement
and offering to include therein Warrants and/or
Warrant Shares of such other holders, provided that
they shall furnish the Company with such appropriate
information (relating to the intentions of such
holders) in connection therewith as the Company shall
reasonably request in writing. Following the
effective date of such post-effective amendment or
registration, the Company shall upon the request of
any owner of Warrants and/or Warrant Shares forthwith
supply such a number of prospectuses meeting the
requirements of the Act, as shall be requested by
such owner to permit such holder to make a public
offering of all Warrants and/or Warrant Shares from
time to time offered or sold to such holder, provided
that such holder shall from time to time furnish the
Company with such appropriate information (relating
to the intentions of such holder) in connection
therewith as the Company shall request in writing.
The Company shall also use its best efforts to
qualify the Warrant Shares for sale in such states as
such majority holder shall designate.
(B) The Company shall bear the entire cost
and expense of any registration of securities
initiated by it under Subsection (1) of this Section
(j) notwithstanding that Warrants and/or Warrant
Shares subject to this Warrant may be included in any
such registration. The Company shall also comply with
one request for registration made by the majority
holder pursuant to Subsection (2) of this Section (j)
at its own expense and without charge to any holder
of any Warrants and/or Warrant Shares; and the
Company shall comply with one additional request made
by the majority holder pursuant to Subsection (2) of
this Section (j) (and not deemed to be pursuant to
Subsection (1) of this Section (j)) at the sole
expense of such majority holder. Any holder whose
Warrants and/ or Warrant Shares are included in any
such registration statement pursuant to this Section
(j) shall, however, bear the fees of his own counsel
and any registration fees, transfer taxes or
underwriting discounts or commissions applicable to
the Warrant Shares sold by him pursuant thereto.
(C) The Company shall indemnify and hold
harmless each such holder and each underwriter,
within the meaning of the Act, who may purchase from
or sell for any such holder any Warrants and/or
Warrant Shares from and against any and all losses,
claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material
fact contained in the Registration Statement or any
post-effective amendment thereto or any registration
statement under the Act or any prospectus included
therein required to be filed or
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<PAGE> 10
furnished by reason of this Section (j) or caused by
any omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue
statement or alleged untrue statement or omission or
alleged omission based upon information furnished or
required to be furnished in writing to the Company by
such holder or underwriter expressly for use therein,
which indemnification shall include each person, if
any, who controls any such underwriter within the
meaning of such Act provided, however, that the
Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged
omission made in said registration statement, said
preliminary prospectus, said final prospectus or said
amendment or supplement in reliance upon and in
conformity with written information furnished by such
Holder or any other Holder, specifically for use in
the preparation thereof.
(D) Neither the giving of any notice by any
such majority holder nor the making of any request
for prospectuses shall impose any upon such majority
holder or owner making such request any obligation to
sell any Warrants and/or Warrant Shares, or exercise
any Warrants.
(4) The term "majority holder" as used in this
Section (j) shall include Commonwealth or any owner or
combination of owners of Warrants or Warrant Shares in any
combination if the holdings of the aggregate amount of:
(i) the Warrants held by him or among them,
plus
(ii) the Warrants which he or they would be
holding if the Warrants for the Warrant Shares
owned by him or among them had not been
exercised,
would constitute a majority of the Warrant originally issued.
The Company's agreements with respect to Warrants or Warrant
Shares in this Section (j) shall continue in effect regardless of the exercise
and surrender of this Warrant.
REGISTRY MAGIC INCORPORATED
By:
----------------------------
Walt Nawrocki, President
[SEAL]
Dated: ____________, 1998
Attest:
- -----------------------------
Martin Scott, Secretary
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<PAGE> 11
PURCHASE FORM
-------------
Dated ____________, 19__
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing _______ shares of Common Stock and
hereby makes payment of _______ in payment of the actual exercise price thereof.
----------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
----------------------------------------
(Please typewrite or print in block letters)
Address
------------------------------------
Signature
------------------------------------
<PAGE> 12
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ______________ hereby sells, assigns and transfers
unto
Name
----------------------------------------
(Please typewrite or print in block letters)
Address
------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint ___________ as attorney, to transfer the same on the
books of the Company with full power of substitution in the premises.
Date
----------------------
Signature
------------------------------------
<PAGE> 1
EXHIBIT 10.1
REGISTRY MAGIC INCORPORATED
1997 STOCK OPTION PLAN
1. Grant of Options; Generally. In accordance with the provisions
hereinafter set forth in this stock option plan, the name of which is the
REGISTRY MAGIC INCORPORATED 1997 STOCK OPTION PLAN (the "Plan"), the Board of
Directors (the "Board") or, the Compensation Committee (the "Stock Option
Committee") of Registry Magic Incorporated (the "Corporation") is hereby
authorized to issue from time to time on the Corporation's behalf to any one or
more Eligible Persons, as hereinafter defined, options to acquire shares of the
Corporation's $.001 par value common stock (the "Stock").
2. Type of Options. The Board or the Stock Option Committee is
authorized to issue Incentive Stock Options ("ISOs") which meet the
requirements of Section ss.422 of the Internal Revenue Code of 1986, as amended
(the "Code"), which options are hereinafter referred to collectively as ISOs,
or singularly as an ISO. The Board or the Stock Option Committee is also, in
its discretion, authorized to issue options which are not ISOs, which options
are hereinafter referred to collectively as Non Statutory Options ("NSOs"), or
singularly as an NSO. The Board or the Stock Option Committee is also
authorized to issue "Reload Options" in accordance with Paragraph 8 herein,
which options are hereinafter referred to collectively as Reload Options, or
singularly as a Reload Option. Except where the context indicates to the
contrary, the term "Option" or "Options" means ISOs, NSOs and Reload Options.
3. Amount of Stock. The aggregate number of shares of Stock which
may be purchased pursuant to the exercise of Options shall be 300,000 shares.
Of this amount, the Board or the Stock Option Committee shall have the power
and authority to designate whether any Options so issued shall be ISOs or NSOs,
subject to the restrictions on ISOs contained elsewhere herein. If an Option
ceases to be exercisable, in whole or in part, the shares of Stock underlying
such Option shall continue to be available under this Plan. Further, if shares
of Stock are delivered to the Corporation as payment for shares of Stock
purchased by the exercise of an Option granted under this Plan, such shares of
Stock shall also be available under this Plan. If there is any change in the
number of shares of Stock due to of the declaration of stock dividends,
recapitalization resulting in stock split-ups, or combinations or exchanges of
shares of Stock, or otherwise, the number of shares of Stock available for
purchase upon the exercise of Options, the shares of Stock subject to any
Option and the exercise price of any outstanding Option shall be appropriately
adjusted by the Board or the Stock Option Committee. The Board or the Stock
Option Committee shall give notice of any adjustments to each Eligible Person
granted an Option under this Plan, and such adjustments
<PAGE> 2
shall be effective and binding on all Eligible Persons. If because of one or
more recapitalizations, reorganizations or other corporate events, the holders
of outstanding Stock receive something other than shares of Stock then, upon
exercise of an Option, the Eligible Person will receive what the holder would
have owned if the holder had exercised the Option immediately before the first
such corporate event and not disposed of anything the holder received as a
result of the corporate event.
4. Eligible Persons.
(a) With respect to ISOs, an Eligible Person means any individual
who has been employed by the Corporation or by any subsidiary of the
Corporation, for a continuous period of at least sixty (60) days.
(b) With respect to NSOs, an Eligible Person means (i) any
individual who has been employed by the Corporation or by any subsidiary of the
Corporation, for a continuous period of at least sixty (60) days, (ii) any
director of the Corporation or any subsidiary of the Corporation or (iii) any
consultant of the Corporation or any subsidiary of the Corporation.
5. Grant of Options. The Board or the Stock Option Committee has
the right to issue the Options established by this Plan to Eligible Persons.
The Board or the Stock Option Committee shall follow the procedures prescribed
for it elsewhere in this Plan. A grant of Options shall be set forth in a
writing signed on behalf of the Corporation or by a majority of the members of
the Stock Option Committee. The writing shall identify whether the Option being
granted is an ISO or an NSO and shall set forth the terms which govern the
Option. The terms shall be determined by the Board or the Stock Option
Committee, and may include, among other terms, the number of shares of Stock
that may be acquired pursuant to the exercise of the Options, when the Options
may be exercised, the period for which the Option is granted and including the
expiration date, the effect on the Options if the Eligible Person terminates
employment and whether the Eligible Person may deliver shares of Stock to pay
for the shares of Stock to be purchased by the exercise of the Option. However,
no term shall be set forth in the writing which is inconsistent with any of the
terms of this Plan. The terms of an Option granted to an Eligible Person may
differ from the terms of an Option granted to another Eligible Person, and may
differ from the terms of an earlier Option granted to the same Eligible Person.
6. Option Price. The option price per share shall be determined by
the Board or the Stock Option Committee at the time any Option is granted, and
shall be not less than (i) in the case of an ISO, the fair market value, (ii)
in the case of an ISO granted to a ten percent or greater shareholder, 110
percent of the fair market value, or (iii) in the case of an NSO, not less than
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<PAGE> 3
55% of the fair market value (but in no event less than the par value) of one
share of Stock on the date the Option is granted, as determined by the Board or
the Stock Option Committee. Fair market value as used herein shall be:
7. (a) If shares of Stock shall be traded on an exchange or
over-the-counter market, the mean between the high and low sales prices of
Stock on such exchange or over-the-counter market on which such shares shall be
traded on that date, or if such exchange or over-the-counter market is closed
or if no shares shall have traded on such date, on the last preceding date on
which such shares shall have traded.
(b) If shares of Stock shall not be traded on an exchange or
over-the-counter market, the value as determined by a recognized appraiser as
selected by the Board or the Stock Option Committee.
8. Purchase of Shares. An Option shall be exercised by the tender
to the Corporation of the full purchase price of the Stock with respect to
which the Option is exercised and written notice of the exercise. The purchase
price of the Stock shall be in United States dollars, payable in cash, check,
Promissory Note secured by the Shares issued through exercise of the related
Options, or in property or Corporation stock, if so permitted by the Board or
the Stock Option Committee in accordance with the discretion granted in
Paragraph 5 hereof, having a value equal to such purchase price. The
Corporation shall not be required to issue or deliver any certificates for
shares of Stock purchased upon the exercise of an Option prior to (i) if
requested by the Corporation, the filing with the Corporation by the Eligible
Person of a representation in writing that it is the Eligible Person's then
present intention to acquire the Stock being purchased for investment and not
for resale, and/or (ii) the completion of any registration or other
qualification of such shares under any government regulatory body, which the
Corporation shall determine to be necessary or advisable.
9. Grant of Reload Options. In granting an Option under this Plan,
the Board or the Stock Option Committee may include a Reload Option provision
therein, subject to the provisions set forth in Paragraphs 20 and 21 herein. A
Reload Option provision provides that if the Eligible Person pays the exercise
price of shares of Stock to be purchased by the exercise of an ISO, NSO or
another Reload Option (the "Original Option") by delivering to the Corporation
shares of Stock already owned by the Eligible Person (the "Tendered Shares"),
the Eligible Person shall receive a Reload Option which shall be a new Option
to purchase shares of Stock equal in number to the tendered shares. The terms
of any Reload Option shall be determined by the Board or the Stock Option
Committee consistent with the provisions of this Plan.
10. Stock Option Committee. The Stock Option Committee may be
appointed from time to time by the Corporation's Board of
3
<PAGE> 4
Directors. The Board may from time to time remove members from or add members
to the Stock Option Committee. The Stock Option Committee shall be constituted
so as to permit the Plan to comply in all respects with the provisions set
forth in Paragraph 20 herein. The members of the Stock Option Committee may
elect one of its members as its chairman. The Stock Option Committee shall hold
its meetings at such times and places as its chairman shall determine. A
majority of the Stock Option Committee's members present in person shall
constitute a quorum for the transaction of business. All determinations of the
Stock Option Committee will be made by the majority vote of the members
constituting the quorum. The members may participate in a meeting of the Stock
Option Committee by conference telephone or similar communications equipment by
means of which all members participating in the meeting can hear each other.
Participation in a meeting in that manner will constitute presence in person at
the meeting. Any decision or determination reduced to writing and signed by all
members of the Stock Option Committee will be effective as if it had been made
by a majority vote of all members of the Stock Option Committee at a meeting
which is duly called and held.
11. Administration of Plan. In addition to granting Options and to
exercising the authority granted to it elsewhere in this Plan, the Board or the
Stock Option Committee is granted the full right and authority to interpret and
construe the provisions of this Plan, promulgate, amend and rescind rules and
procedures relating to the implementation of the Plan and to make all other
determinations necessary or advisable for the administration of the Plan,
consistent, however, with the intent of the Corporation that Options granted or
awarded pursuant to the Plan comply with the provisions of Paragraph 20 and 21
herein. All determinations made by the Board or the Stock Option Committee
shall be final, binding and conclusive on all persons including the Eligible
Person, the Corporation and its shareholders, employees, officers and directors
and consultants. No member of the Board or the Stock Option Committee will be
liable for any act or omission in connection with the administration of this
Plan unless it is attributable to that member's willful misconduct.
12. Provisions Applicable to ISOs. The following provisions shall
apply to all ISOs granted by the Board or the Stock Option Committee and are
incorporated by reference into any writing granting an ISO:
(a) An ISO may only be granted within ten (10) years from March 12,
1997, the date that this Plan was originally adopted by the Corporation's Board
of Directors.
(b) An ISO may not be exercised after the expiration of ten (10)
years from the date the ISO is granted.
4
<PAGE> 5
(c) The option price may not be less than the fair market value of
the Stock at the time the ISO is granted.
(d) An ISO is not transferrable by the Eligible Person to whom it is
granted except by will, or the laws of descent and distribution, and is
exercisable during his or her lifetime only by the Eligible Person.
(e) If the Eligible Person receiving the ISO owns at the time of
the grant stock possessing more than ten (10%) percent of the total combined
voting power of all classes of stock of the employer corporation or of its
parent or subsidiary corporation (as those terms are defined in the Code), then
the option price shall be at least 110% of the fair market value of the Stock,
and the ISO shall not be exercisable after the expiration of five (5) years
from the date the ISO is granted.
(f) The aggregate fair market value (determined at the time the ISO
is granted) of the Stock with respect to which the ISO is first exercisable by
the Eligible Person during any calendar year (under this Plan and any other
incentive stock option plan of the Corporation) shall not exceed $100,000.
(g) Even if the shares of Stock which are issued upon exercise of
an ISO are sold within one year following the exercise of such ISO so that the
sale constitutes a disqualifying disposition for ISO treatment under the Code,
no provision of this Plan shall be construed as prohibiting such a sale.
(h) This Plan was adopted by the Corporation on March 12, 1997, by
virtue of its approval by the Corporation's Board of Directors. Approval by the
shareholders of the Corporation is to occur prior to March 1, 1998.
13. Determination of Fair Market Value. In granting ISOs under this
Plan, the Board or the Stock Option Committee shall make a good faith
determination as to the fair market value of the Stock at the time of granting
the ISO.
14. Restrictions on Issuance of Stock. The Corporation shall not be
obligated to sell or issue any shares of Stock pursuant to the exercise of an
Option unless the Stock with respect to which the Option is being exercised is
at that time effectively registered or exempt from registration under the
Securities Act of 1933, as amended, and any other applicable laws, rules and
regulations. The Corporation may condition the exercise of an Option granted in
accordance herewith upon receipt from the Eligible Person, or any other
purchaser thereof, of a written representation that at the time of such
exercise it is his or her then present intention to acquire the shares of Stock
for investment and not with a view to, or for sale in connection with, any
distribution thereof; except that, in the case of a legal
5
<PAGE> 6
representative of an Eligible Person, "distribution" shall be defined to
exclude distribution by will or under the laws of descent and distribution.
Prior to issuing any shares of Stock pursuant to the exercise of an Option, the
Corporation shall take such steps as it deems necessary to satisfy any
withholding tax obligations imposed upon it by any level of government.
15. Exercise in the Event of Death of Termination or Employment.
(a) If an optionee shall die (i) while an employee of the
Corporation or a Subsidiary or (ii) within three months after termination of
his employment with the Corporation or a Subsidiary because of his disability,
or retirement or otherwise, his Options may be exercised, to the extent that
the optionee shall have been entitled to do so on the date of his death or such
termination of employment, by the person or persons to whom the optionee's
right under the Option pass by will or applicable law, or if no such person has
such right, by his executors or administrators, at any time, or from time to
time. In the event of termination of employment because of his death while an
employee or because of disability, his Options may be exercised not later than
the expiration date specified in Paragraph 5 or one year after the optionee's
death, whichever date is earlier, or in the event of termination of employment
because of retirement or otherwise, not later than the expiration date
specified in Paragraph 5 hereof or one year after the optionee's death,
whichever date is earlier.
(b) If an optionee's employment by the Corporation or a Subsidiary
shall terminate because of his disability and such optionee has not died within
the following three months, he may exercise his Options, to the extent that he
shall have been entitled to do so at the date of the termination of his
employment, at any time, or from time to time, but not later than the
expiration date specified in Paragraph 5 hereof or one year after termination
of employment, whichever date is earlier.
(c) If an optionee's employment shall terminate by reason of his
retirement in accordance with the terms of the Corporation's tax-qualified
retirement plans if any, or with the consent of the Board or the Stock Option
Committee or involuntarily other than by termination for cause, and such
optionee has not died within the following three months, he may exercise his
Option to the extent he shall have been entitled to do so at the date of the
termination of his employment, at any time and from to time, but not later than
the expiration date specified in Paragraph 5 hereof or thirty (30) days after
termination of employment, whichever date is earlier. For purposes of this
Paragraph 14, termination for cause shall mean; (i) termination of employment
for cause as defined in the optionee's Employment Agreement or (ii) in the
absence of an Employment Agreement for the optionee, termination of employment
by reason of the optionee's commission of a felony, fraud or willful
6
<PAGE> 7
misconduct which has resulted, or is likely to result, in substantial and
material damage to the Corporation or a Subsidiary, all as the Board or the
Stock Option Committee in its sole discretion may determine.
(d) If an optionee's employment shall terminate for any reason other
than death, disability, retirement or otherwise, all right to exercise his
Option shall terminate at the date of such termination of employment absent
specific provisions in the optionee's Option Agreement.
16. Corporate Events. In the event of the proposed dissolution or
liquidation of the Corporation, a proposed sale of all or substantially all of
the assets of the Corporation, a merger or tender for the Corporation's shares
of Common Stock the Board of Directors may declare that each Option granted
under this Plan shall terminate as of a date to be fixed by the Board of
Directors; provided that not less than thirty (30) days written notice of the
date so fixed shall be given to each Eligible Person holding an Option, and
each such Eligible Person shall have the right, during the period of thirty
(30) days preceding such termination, to exercise his Option as to all or any
part of the shares of Stock covered thereby, including shares of Stock as to
which such Option would not otherwise be exercisable. Nothing set forth herein
shall extend the term set for purchasing the shares of Stock set forth in the
Option.
17. No Guarantee of Employment. Nothing in this Plan or in any
writing granting an Option will confer upon any Eligible Person the right to
continue in the employ of the Eligible Person's employer, or will interfere
with or restrict in any way the right of the Eligible Person's employer to
discharge such Eligible Person at any time for any reason whatsoever, with or
without cause.
18. Nontransferability. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the optionee, an Option shall be exercisable only by
him.
19. No Rights as Shareholder. No optionee shall have any rights as a
shareholder with respect to any shares subject to his Option prior to the date
of issuance to him of a certificate or certificates for such shares.
20. Amendment and Discontinuance of Plan. The Corporation's Board of
Directors may amend, suspend or discontinue this Plan at any time. However, no
such action may prejudice the rights of any Eligible Person who has prior
thereto been granted Options under this Plan. Further, no amendment to this
Plan which has the effect of (a) increasing the aggregate number of shares of
Stock subject to this Plan (except for adjustments pursuant to Paragraph 3
herein), or (b) changing the definition of Eligible Person under
7
<PAGE> 8
this Plan, may be effective unless and until approval of the shareholders of
the Corporation is obtained in the same manner as approval of this Plan is
required. The Corporation's Board of Directors is authorized to seek the
approval of the Corporation's shareholders for any other changes it proposes to
make to this Plan which require such approval, however, the Board of Directors
may modify the Plan, as necessary, to effectuate the intent of the Plan as a
result of any changes in the tax, accounting or securities laws treatment of
Eligible Persons and the Plan, subject to the provisions set forth in this
Paragraph 19, and Paragraphs 20 and 21.
21. Compliance with Rule 16b-3. This Plan is intended to comply in
all respects with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to participants who are subject to Section 16 of
the Exchange Act, and any provision(s) herein that is/are contrary to Rule
16b-3 shall be deemed null and void to the extent appropriate by either the
Stock Option Committee or the Corporation's Board of Directors.
22. Compliance with Code. The aspects of this Plan on ISOs is
intended to comply in every respect with Section 422 of the Code and the
regulations promulgated thereunder. In the event any future statute or
regulation shall modify the existing statute, the aspects of this Plan on ISOs
shall be deemed to incorporate by reference such modification. Any stock option
agreement relating to any Option granted pursuant to this Plan outstanding and
unexercised at the time any modifying statute or regulation becomes effective
shall also be deemed to incorporate by reference such modification and no
notice of such modification need be given to optionee.
If any provision of the aspects of this Plan on ISOs is determined to
disqualify the shares purchasable pursuant to the Options granted under this
Plan from the special tax treatment provided by Code Section 422, such
provision shall be deemed null and void and to incorporate by reference the
modification required to qualify the shares for said tax treatment.
23. Compliance With Other Laws and Regulations. The Plan, the grant
and exercise of Options thereunder, and the obligation of the Corporation to
sell and deliver Stock under such options, shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by any
government or regulatory agency as may be required. The Corporation shall not
be required to issue or deliver any certificates for shares of Stock prior to
(a) the listing of such shares on any stock exchange or over-the-counter market
on which the Stock may then be listed and (b) the completion of any
registration or qualification of such shares under any federal or state law, or
any ruling or regulation of any government body which the Corporation shall, in
its sole
8
<PAGE> 9
discretion, determine to be necessary or advisable. Moreover, no Option may be
exercised if its exercise or the receipt of Stock pursuant thereto would be
contrary to applicable laws.
24. Disposition of Shares. In the event any share of Stock acquired
by an exercise of an Option granted under the Plan shall be transferable other
than by will or by the laws of descent and distribution within two years of the
date such Option was granted or within one year after the transfer of such
Stock pursuant to such exercise, the optionee shall give prompt written notice
thereof to the Corporation or the Stock Option Committee.
25. Name. The Plan shall be known as the "Registry Magic
Incorporated 1997 Stock Option Plan."
26. Notices. Any notice hereunder shall be in writing and sent by
certified mail, return receipt requested or by facsimile transmission (with
electronic or written confirmation of receipt) and when addressed to the
Corporation shall be sent to it at its office, 1 South Ocean Boulevard, Suite
206, Boca Raton, Florida 33432 and when addressed to the Committee shall be
sent to it at 1 South Ocean Boulevard, Suite 206, Boca Raton, Florida 33432,
subject to the right of either party to designate at any time hereafter in
writing some other address, facsimile number or person to whose attention such
notice shall be sent.
27. Headings. The headings preceding the text of Sections and
subparagraphs hereof are inserted solely for convenience of reference, and
shall not constitute a part of this Plan nor shall they affect its meaning,
construction or effect.
28. Effective Date. This Plan, the Registry Magic Incorporated 1997
Stock Option Plan, was adopted by the Board of Directors of the Corporation on
March 12, 1997. The effective date of the Plan shall be the same date.
Dated as of March 12, 1997.
REGISTRY MAGIC INCORPORATED
By:
------------------------------
Its: President
9
<PAGE> 10
[NSO GRANT FORM]
REGISTRY MAGIC INCORPORATED
1 South Ocean Boulevard, Suite 206
Boca Raton, Florida 33432
Date: __________
- ----------
- ----------
- ----------
Dear __________:
The Board of Directors of Registry Magic Incorporated (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the 1997 Stock Option Plan (the "Plan"). This letter will describe the Option
granted to you. Attached to this letter is a copy of the Plan. The terms of the
Plan also set forth provisions governing the Option granted to you. Therefore,
in addition to reading this letter you should also read the Plan. Your
signature on this letter is an acknowledgement to us that you have read and
under-stand the Plan and that you agree to abide by its terms. All terms not
defined in this letter shall have the same meaning as in the Plan.
1. Type of Option. You are granted an NSO. Please see in
particular Section 11 of the Plan.
2. Rights and Privileges. Subject to the conditions hereinafter
set forth, we grant you the right to purchase __________ shares of Stock at
$__________ per share, the current fair market value of a share of Stock. The
right to purchase the shares of Stock accrues in __________ installments over
the time periods described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
3. Time of Exercise. The Option may be exercised at any time and
from time to time beginning when the right to purchase the shares of Stock
accrues and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chief Financial Officer at the Corporation's principal place of
business. The notice shall set forth the number of shares of Stock to be
acquired and shall contain a check payable
<PAGE> 11
to the Corporation in full payment for the Stock or that number of already
owned shares of Stock equal in value to the total Exercise Price of the Option.
We shall make delivery of the shares of Stock subject to the conditions
described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) __________, 199_, being __________ years from the date of
grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of three months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or
by reason of your permanent disability (as defined above).
6. Securities Laws.
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear
an appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this
letter shall inure to the benefit of and be binding upon both of us, and our
respective heirs, personal representatives, successors and assigns.
2
<PAGE> 12
8. Date of Grant. The Option shall be treated as having been
granted to you on the date of this letter even though you may sign it at a
later date.
Very truly yours,
By:
----------------------------------
President
AGREED AND ACCEPTED:
- -------------------------
3
<PAGE> 13
Date: ________________
REGISTRY MAGIC INCORPORATED
1 South Ocean Boulevard, Suite 206
Boca Raton, Florida 33432
- ---------------
- ---------------
- ---------------
Dear _______________:
The Board of Directors of Registry Magic Incorporated (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the 1997 Stock Option Plan (the "Plan"). This letter will describe the Option
granted to you. Attached to this letter is a copy of the Plan. The terms of the
Plan also set forth provisions governing the Option granted to you. Therefore,
in addition to reading this letter you should also read the Plan. Your
signature on this letter is an acknowledgement to us that you have read and
under-stand the Plan and that you agree to abide by its terms. All terms not
defined in this letter shall have the same meaning as in the Plan.
1. Type of Option. You are granted an ISO. Please see in
particular Section 11 of the Plan.
2. Rights and Privileges. Subject to the conditions hereinafter set
forth, we grant you the right to purchase __________ shares of Stock at
$__________ per share, the current fair market value of a share of Stock. The
right to purchase the shares of Stock accrues in __________ installments over
the time periods described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
<PAGE> 14
3. Time of Exercise. The Option may be exercised at any time and
from time to time beginning when the right to purchase the shares of Stock
accrues and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chief Financial Officer at the Corporation's principal place of
business. The notice shall set forth the number of shares of Stock to be
acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) _____________, 199___, being __________ years from the date
of grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of thirty (30) days following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or
by reason of your permanent disability (as defined above).
6. Securities Laws.
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear
an appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
2
<PAGE> 15
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this
letter shall inure to the benefit of and be binding upon both of us, and our
respective heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been
granted to you on the date of this letter even though you may sign it at a
later date.
Very truly yours,
By:
-------------------------------
President
AGREED AND ACCEPTED:
- -------------------------
3
<PAGE> 16
[NSO GRANT FORM
WITH RELOAD OPTIONS]
REGISTRY MAGIC INCORPORATED
1 South Ocean Boulevard, Suite 206
Boca Raton, Florida 33432
Date: __________
- ----------
- ----------
- ----------
Dear __________:
The Board of Directors of Registry Magic Incorporated (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the 1997 Stock Option Plan (the "Plan"). This letter will describe the Option
granted to you. Attached to this letter is a copy of the Plan. The terms of the
Plan also set forth provisions governing the Option granted to you. Therefore,
in addition to reading this letter you should also read the Plan. Your
signature on this letter is an acknowledgement to us that you have read and
under-stand the Plan and that you agree to abide by its terms. All terms not
defined in this letter shall have the same meaning as in the Plan.
1. Type of Option. You are granted an NSO. Please see in
particular Section 11 of the Plan.
2. Rights and Privileges.
(a) Subject to the conditions hereinafter set forth, we grant
you the right to purchase __________ shares of Stock at $__________ per share,
the current fair market value of a share of Stock. The right to purchase the
shares of Stock accrues in __________ installments over the time periods
described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
(b) In addition to the Option granted hereby (the "Underlying
Option"), the Corporation will grant you a reload option (the "Reload Option")
as hereinafter provided. A Reload Option is hereby granted to you if you
acquire shares of Stock pursuant to the exercise of the Underlying Option and
pay for such
<PAGE> 17
shares of Stock with shares of Common Stock already owned by you (the "Tendered
Shares"). The Reload Option grants you the right to purchase shares of Stock
equal in number to the number of Tendered Shares. The date on which the
Tendered Shares are tendered to the Corporation in full or partial payment of
the purchase price for the shares of Stock acquired pursuant to the exercise of
the Underlying Option is the Reload Grant Date. The exercise price of the
Reload Option is the fair market value of the Tendered Shares on the Reload
Grant Date. The fair market value of the Tendered Shares shall be the low bid
price per share of the Corporation's Common Stock on the Reload Grant Date. The
Reload Option shall vest equally over a period of __________ (___) years,
commencing on the first anniversary of the Reload Grant Date, and on each
anniversary of the Reload Grant Date thereafter; however, no Reload Option
shall vest in any calendar year if it would allow you to purchase for the first
time in that calendar year shares of Stock with a fair market value in excess
of $100,000, taking into account ISOs previously granted to you. The Reload
Option shall expire on the earlier of (i) __________ (___) years from the
Reload Grant Date, or (ii) in accordance with Paragraph 5(b), or (iii) in
accordance with Paragraph 5(c) as set forth herein. If vesting of the Reload
Option is deferred, then the Reload Option shall vest in the next calendar
year, subject, however, to the deferral of vesting previously provided. Except
as provided herein the Reload Option is subject to all of the other terms and
provisions of this Agreement governing Options.
3. Time of Exercise. The Option may be exercised at any time and
from time to time beginning when the right to purchase the shares of Stock
accrues and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chief Financial Officer at the Corporation's principal place of
business. The notice shall set forth the number of shares of Stock to be
acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) __________, 199_, being __________ years from the date of
grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of three months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by
2
<PAGE> 18
reason of death or permanent disability. As used herein, "permanent disability"
means your inability to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or
by reason of your permanent disability (as defined above).
6. Securities Laws.
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear
an appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this
letter shall inure to the benefit of and be binding upon both of us, and our
respective heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been
granted to you on the date of this letter even though you may sign it at a
later date.
Very truly yours,
By:
---------------------------------
President
AGREED AND ACCEPTED:
- -------------------------
3
<PAGE> 1
EXHIBIT 10.2
REGISTRY MAGIC, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT between Registry Magic (the "Company") and __Walt Nawrocki__ (the
"Executive") as of this date December 21, 1997.
1. For good consideration, the Company employs the Executive on
the following terms and considerations.
2. Term of Employment: Subject to the provisions for termination set forth
below this agreement will begin on December 21, 1997, and shall
terminate on December 21, 2000 subject to provisions for termination
set forth in this agreement.
Salary: The Company shall pay Executive a salary of _$175,000__
per year, for the services of the Executive, payable semi-monthly.
Other salary increases shall be determined by agreement of the Board of
Directors or a defined compensation committee.
Other Compensation and Benefits:
Bonuses: The Executive may receive such incentive bonus compensation, if any,
as the Company shall deem appropriate.
Profit Sharing: The Executive may participate in all corporate profit sharing
plans when they are defined by the Company.
Stock and Options: The Executive may receive additional Company stock and stock
options as the Company shall deem appropriate.
Health Care: The Company will provide the Executive with family medical health
coverage per Company policy.
e) Benefits, General: The Executive is entitled to participate in any
executive or Company wide benefit plan as defined by the Company.
f) Exercise of Stock Options: During the term of this agreement except for
Termination for Cause, Executive shall be entitled to exercise any options
granted to him during the course of employment with Company. In the event of
Death, Change of Control, Voluntary Termination or Non-Renewal, Executive shall
have the right to exercise all options granted to him prior to the date of
termination or non-renewal. In the event
<PAGE> 2
of death, the options granted to the Executive shall be exercisable by the
Executive's beneficiary.
Duties and Position: The Company agrees to employee the Executive in the
capacity of _President, Chief Executive Officer and Director Member of
Board of Directors _of the Company. The Executive's duties may be reasonably
modified consistent with his skills and experience.
6. Executive to Devote Full Time to Company: The Executive will devote
full time, attention, and energies to the business of the Company. During the
term of this employment agreement, given written notice to the Board of
Directors, the Executive may participate on the Boards of other companies that
are complementary to the Company. He may also participate in other companies or
subsidiaries that are affiliated with the Company.
Confidentiality of Proprietary Information: Executive agrees, during or after
the term of this employment, not to reveal confidential information, trade
secrets, business opportunities and proposals, products, methods, systems and
research, the names and addresses of customers, investors and suppliers, prices
charged and paid by the Company or its customers, designs and specifications,
customer files and records, services, operating procedures, financial records of
the Company and customers, to any person, firm, corporation, or entity. Should
Executive reveal or threaten to reveal this information the Company shall be
entitled to an injunction restraining the Executive from disclosing same, or
from rendering any services to any entity to whom said information has been or
is threatened to be disclosed. The right to secure an injunction is not
exclusive, and the Company may pursue any other remedies it has against the
Executive for a breach or threatened breach of this condition, including the
recovery of damages from the Executive.
Reimbursement of Expenses: The Executive may incur reasonable expenses for
furthering the Company's business, including expensed for
entertainment, travel and similar items. The Company shall reimburse
Executive for all business expenses after the Executive presents an
itemized account of expenditures, pursuant to Company policy.
Vacations and Holidays: During the term of this employment agree-
<PAGE> 3
ment, the Executive shall be entitled to annual paid vacation in accordance with
standards and procedures established by the Company. In the event that the
Executive does not take all the vacation to which he is entitled in a year, he
shall be entitled to carry forward up to two weeks thereof in any one or more of
the following years of his term. Executive shall be entitled to all holidays
designated by the Company.
Disability: If Executive cannot perform his duties because of illness or
incapacity in a period of more than 8 weeks, the compensation otherwise
due during said illness or incapacity will be reduced by 50%. The
Executive's full compensation will be reinstated upon return to work.
However, if the Executive is absent from work for any reason for a
continuous period of over 6 months, the Company may terminate the
Executive's employment. In the event of termination the Executive
is entitled to any unpaid compensation, bonuses, benefits and vacation
pro-rated to the date of termination.
11. Termination of Employment:
For Cause: The Company may terminate the Executive without notice or
any payment or compensation in lieu of notice for cause, which without
limiting the generality of the foregoing, shall include:
If there is a repeated failure on the part of the Executive to perform the
material duties of his position in a competent manner.
If Executive is convicted of a criminal offense involving fraud or dishonesty
or any offense similar thereto.
Fraud or Conversion relative to the Company.
4. If the Executive fails to honor his fiduciary duties to the
Company including without limiting the foregoing, his duty to act
in the best interests of the Company in a material manner.
5. If the Executive or any related person or group makes any personal profit
arising out of or in connection with a transaction to which the Company is
party without making disclosure to and obtaining the prior written consent
of the Board of Directors of excluding herefrom any transaction involving
profit sharing, increase in the value of current shareholdings,
share option or share purchase plans.
For Death:
1. This agreement shall terminate without notice upon the Executive's death.
2. The Executive's beneficiary shall be entitled to any unpaid compensation,
bonuses, benefits and vacation pro-rated to the end of the month in which
the death occurs.
Voluntary Termination: The Executive shall be entitled to compensation,
bonuses, benefits and vacation pro-rated to the date of termination.
<PAGE> 4
Termination not for Cause Effective on Change of Control: Change of Control
shall mean any change in the holding, direct or indirect shares of
the Company as a result of which a person or group of persons, are in
a position to exercise effective control of the Company and do
exercise their vote contrary to the interests of management. In the
event the Executive has not been terminated for cause, then upon a
Change of Control, if the Executive is not re-employed by the new
management with salary and benefits equal to the current company, then the
Executive will be paid the aggregate of all unpaid compensation, bonuses,
benefits and vacation pro-rated to that date in addition to a lump sum payment
equivalent to one years salary at the Executive's salary as of the termination
date.
Non-Renewal: In the event Agreement is not renewed for other reasons
than Cause, Executive shall be entitled to those rights as if there had
been a Change of Control.
Company Stock and Options upon Termination: See section 4-f of this
agreement.
Notice of Termination: This employment agreement may upon thirty days notice
at the option of the Executive, be terminated upon the happening of any
of the following events:
Whenever the Executive and the Company shall mutually agree in writing to
terminate this agreement.
Acts of material breach of any provision of this agreement.
Restriction on Post Employment Competition: For a period of 12 months after
the end of employment, the Executive shall not control, consult to or be
employed by any business similar to that conducted by the Company In addition,
for a period of 12 months after the end of employment, the Executive will not
directly or indirectly solicit or take away any of its accounts, customers,
employees, or clients. The Executive shall also not hold more than 5% of the
issued outstanding common stock of a competitor of the Company. In the event
that the Company imposes the above 12 month restriction against such control,
ownership, consulting or employment by any similar business, the Executive shall
be compensated for 12 months salary at his current salary level to be paid in
full within 30 days of termination of employment. The Company may decide
to shorten the restricted period from 12 months to 6 months, thus
lowering the compensation to the Executive to 6 months salary. At the
option of the Company, section 12 maybe deemed unnecessary thus
requiring no payment to the Executive related to this section.
<PAGE> 5
Assistance in Litigation: Executive shall upon reasonable notice, furnish
such information and proper assistance to the Company as it may
reasonably require in connection with any litigation in which it is, or
may become, a party either during or after employment.
Effect of Prior Agreements: This agreement supersedes any prior agreement
between the Company or any predecessor of the Company and Executive,
except that this agreement shall not affect or operate to reduce any
benefit or compensation to the Executive of a kind elsewhere provided
and not expressly provided in this agreement.
15. Settlement by Arbitration: Any claim or controversy that arises out
of or relates to this agreement, or the breach of it, shall be settled
by arbitration in accordance with the rules of the American Arbitration
Association. Judgment upon the award rendered may be entered in
any court with jurisdiction in Palm Beach County, Florida. In the event
any effort to obtain an equitable remedy, such matters shall be
determined in a court of equity jurisdiction in Palm Beach County,
Florida.
16. Limited Effect of Waiver by Company: Should Company waive breach
of any provision of this agreement by the Executive, that waiver will
not operate or be construed as a waiver of further breach by the
Executive.
Applicable Law - Severability: This Agreement shall be governed by and
construed pursuant to the laws of the State of Florida, where it is
made and executed. If any terms or part of this agreement shall be
determined to be invalid, illegal, or unenforceable in whole or in
part, the validity of the remaining part of such term or the validity
of any other term of this agreement shall not in any way be affected.
All provisions of this Agreement shall be construed to be valid and
enforceable to the full extent permitted by law.
Assumption of Agreement by Company's Successors and Assignees: The Company's
rights and obligations under this agreement will inure to the benefit
and be binding upon the Company's successors and assignees.
Oral Modifications Not Binding: This instrument is the entire agreement of
the Company and the Executive. Oral changes shall have no effect. It
may be altered only by a written agreement signed by the party against
whom enforcement of any waiver, change, modification, extension or
discharge is sought.
Company Records: All books, records and documents relating to Company's
business shall be the permanent property of the Company.
The Executive shall not be entitled to retain any copies thereof not
<PAGE> 6
withstanding his participation therein. Unless required by service of legal
process, no other Company records shall be displaced or delivered to,
or any information therefrom disclosed, to any person not connected
with the Company except in strict accordance with the rules of the
Company from time to time established. The Company shall provide
Executive reasonable access to all personnel records relating to
Executive's employment hereunder. In the event of termination of the
Executive for any reason, all books, records, documents, designs and
specifications will be returned to the Company.
21. This agreement supersedes any and all prior employment agreement
between the Company and said executive.
Signed this 21st day of December, 1997
/s/ Lawrence Cohen /s/ Walt Nawrocki
- -------------------------------- ---------------------------
Company Executive
<PAGE> 1
EXHIBIT 10.3
REGISTRY MAGIC, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT between Registry Magic (the "Company") and _Lawrence Cohen (the
"Executive") as of this date December 21, 1997.
1. For good consideration, the Company employs the Executive on
the following terms and considerations.
2. Term of Employment: Subject to the provisions for termination set forth
below this agreement will begin on December 21, 1997, and shall
terminate on December 21, 2000 subject to provisions for termination
set forth in this agreement.
Salary: The Company shall pay Executive a salary of __$115,500__
per year, for the services of the Executive, payable semi-monthly. Other salary
increases shall be determined by agreement of the Board of Directors or a
defined compensation committee.
Other Compensation and Benefits:
Bonuses: The Executive may receive such incentive bonus compensation, if any,
as the Company shall deem appropriate.
Profit Sharing: The Executive may participate in all corporate profit sharing
plans when they are defined by the Company.
Stock and Options: The Executive may receive additional Company stock and
stock options as the Company shall deem appropriate.
Health Care: The Company will provide the Executive with family medical health
coverage per Company policy.
e) Benefits, General: The Executive is entitled to participate
in any executive or Company wide benefit plan as defined by the Company.
f) Exercise of Stock Options: During the term of this agreement except for
Termination for Cause, Executive shall be entitled to exercise any options
granted to him during the course of employment with Company. In the event of
Death, Change of Control, Voluntary Termination or Non-Renewal, Executive shall
have the right to exercise all options granted to him prior to the date of
termination or non-renewal. In the event
<PAGE> 2
of death, the options granted to the Executive shall be exercisable
by the Executive's beneficiary.
Duties and Position: The Company agrees to employee the Executive in the
capacity of _Chairman of the Board__ of the Company. The Executive's
duties may be reasonably modified consistent with his skills and experience.
6. Executive not full time: The Executive as Chairman of the Board will not
participate on a daily basis in the operation of the Company. The executive will
as an advisor to the Company and become directly involved when required. During
the term of this employment agreement, given written notice to the Board of
Directors, the Executive may participate on the Boards of other companies that
are complementary to the Company. He may also participate in other companies or
subsidiaries that are affiliated with the Company.
Confidentiality of Proprietary Information: Executive agrees, during or after
the term of this employment, not to reveal confidential information, trade
secrets, business opportunities and proposals, products, methods, systems and
research, the names and addresses of customers, investors and suppliers, prices
charged and paid by the Company or its customers, designs and specifications,
customer files and records, services, operating procedures, financial records of
the Company and customers, to any person, firm, corporation, or entity. Should
Executive reveal or threaten to reveal this information the Company shall be
entitled to an injunction restraining the Executive from disclosing same, or
from rendering any services to any entity to whom said information has been or
is threatened to be disclosed. The right to secure an injunction is not
exclusive, and the Company may pursue any other remedies it has against the
Executive for a breach or threatened breach of this condition, including the
recovery of damages from the Executive.
Reimbursement of Expenses: The Executive may incur reasonable expenses for
furthering the Company's business, including expensed for
entertainment, travel and similar items. The Company shall reimburse
Executive for all business expenses after the Executive presents an
itemized account of expenditures, pursuant to Company policy.
Vacations and Holidays: During the term of this employment agree-
<PAGE> 3
ment, the Executive shall be entitled to annual paid vacation in accordance with
standards and procedures established by the Company. In the event that the
Executive does not take all the vacation to which he is entitled in a year, he
shall be entitled to carry forward up to two weeks thereof in any one or more of
the following years of his term. Executive shall be entitled to all holidays
designated by the Company.
Disability: If Executive cannot perform his duties because of illness or
incapacity in a period of more than 8 weeks, the compensation otherwise
due during said illness or incapacity will be reduced by 50%. The
Executive's full compensation will be reinstated upon return to work.
However, if the Executive is absent from work for any reason for a
continuous period of over 6 months, the Company may terminate the
Executive's employment. In the event of termination the Executive
is entitled to any unpaid compensation, bonuses, benefits and vacation
pro-rated to the date of termination.
11. Termination of Employment:
For Cause: The Company may terminate the Executive without notice or
any payment or compensation in lieu of notice for cause, which without
limiting the generality of the foregoing, shall include:
If there is a repeated failure on the part of the Executive to perform the
material duties of his position in a competent manner.
If Executive is convicted of a criminal offense involving fraud or dishonesty
or any offense similar thereto.
Fraud or Conversion relative to the Company.
4. If the Executive fails to honor his fiduciary duties to the
Company including without limiting the foregoing, his duty to act
in the best interests of the Company in a material manner.
5. If the Executive or any related person or group makes any personal profit
arising out of or in connection with a transaction to which the Company is
party without making disclosure to and obtaining the prior written consent
of the Board of Directors of excluding herefrom
any transaction involving profit sharing, increase in the value of
current shareholdings, share option or share purchase plans.
For Death:
1. This agreement shall terminate without notice upon the Executive's death.
2. The Executive's beneficiary shall be entitled to any unpaid compensation,
bonuses, benefits and vacation pro-rated to the end of the month in which
the death occurs.
Voluntary Termination: The Executive shall be entitled to compensation,
bonuses, benefits and vacation pro-rated to the date of termination.
<PAGE> 4
Termination not for Cause Effective on Change of Control: Change of Control
shall mean any change in the holding, direct or indirect shares of
the Company as a result of which a person or group of persons, are in
a position to exercise effective control of the Company and do
exercise their vote contrary to the interests of management. In the
event the Executive has not been terminated for cause, then upon a
Change of Control, if the Executive is not re-employed by the new
management with salary and benefits equal to the current company, then
the Executive will be paid the aggregate of all unpaid compensation, bonuses,
benefits and vacation pro-rated to that date in addition to a lump sum payment
equivalent to one years salary at the Executive's salary as of the termination
date.
Non-Renewal: In the event Agreement is not renewed for other reasons
than Cause, Executive shall be entitled to those rights as if there had
been a Change of Control.
Company Stock and Options upon Termination: See section 4-f of this
agreement.
Notice of Termination: This employment agreement may upon thirty days notice
at the option of the Executive, be terminated upon the happening of any
of the following events:
Whenever the Executive and the Company shall mutually agree in writing to
terminate this agreement.
Acts of material breach of any provision of this agreement.
Restriction on Post Employment Competition: For a period of 12 months after
the end of employment, the Executive shall not control, consult to or be
employed by any business similar to that conducted by the Company In addition,
for a period of 12 months after the end of employment, the Executive will not
directly or indirectly solicit or take away any of its accounts, customers,
employees, or clients. The Executive shall also not hold more than 5% of the
issued outstanding common stock of a competitor of the Company. In the event
that the Company imposes the above 12 month restriction against such control,
ownership, consulting or employment by any similar business, the Executive shall
be compensated for 12 months salary at his current salary level to be paid in
full within 30 days of termination of employment. The Company may decide
to shorten the restricted period from 12 months to 6 months, thus
lowering the compensation to the Executive to 6 months salary. At the
option of the Company, section 12 maybe deemed unnecessary thus
requiring no payment to the Executive related to this section.
<PAGE> 5
Assistance in Litigation: Executive shall upon reasonable notice, furnish
such information and proper assistance to the Company as it may
reasonably require in connection with any litigation in which it is, or
may become, a party either during or after employment.
Effect of Prior Agreements: This agreement supersedes any prior agreement
between the Company or any predecessor of the Company and Executive,
except that this agreement shall not affect or operate to reduce any
benefit or compensation to the Executive of a kind elsewhere provided
and not expressly provided in this agreement.
15. Settlement by Arbitration: Any claim or controversy that arises out
of or relates to this agreement, or the breach of it, shall be settled
by arbitration in accordance with the rules of the American Arbitration
Association. Judgment upon the award rendered may be entered in any
court with jurisdiction in Palm Beach County, Florida. In the event
any effort to obtain an equitable remedy, such matters shall be
determined in a court of equity jurisdiction in Palm Beach County,
Florida.
16. Limited Effect of Waiver by Company: Should Company waive breach
of any provision of this agreement by the Executive, that waiver will
not operate or be construed as a waiver of further breach by the
Executive.
Applicable Law - Severability: This Agreement shall be governed by and
construed pursuant to the laws of the State of Florida, where it is
made and executed. If any terms or part of this agreement shall be
determined to be invalid, illegal, or unenforceable in whole or in
part, the validity of the remaining part of such term or the validity
of any other term of this agreement shall not in any way be affected.
All provisions of this Agreement shall be construed to be valid and
enforceable to the full extent permitted by law.
Assumption of Agreement by Company's Successors and Assignees: The Company's
rights and obligations under this agreement will inure to the benefit
and be binding upon the Company's successors and assignees.
Oral Modifications Not Binding: This instrument is the entire agreement of
the Company and the Executive. Oral changes shall have no effect. It
may be altered only by a written agreement signed by the party against
whom enforcement of any waiver, change, modification, extension or
discharge is sought.
Company Records: All books, records and documents relating to
Company's business shall be the permanent property of the Company.
The Executive shall not be entitled to retain any copies thereof not
<PAGE> 6
withstanding his participation therein. Unless required by service of legal
process, no other Company records shall be displaced or delivered to,
or any information therefrom disclosed, to any person not connected
with the Company except in strict accordance with the rules of the
Company from time to time established. The Company shall provide
Executive reasonable access to all personnel records relating to
Executive's employment hereunder. In the event of termination of the
Executive for any reason, all books, records, documents, designs and
specifications will be returned to the Company.
21. This agreement supersedes any and all prior employment agreement
between the Company and said executive.
Signed this 21st day of December, 1997
/s/ Walt Nawrocki /s/ Lawrence Cohen
- -------------------------------- ---------------------------
Company Executive
<PAGE> 1
EXHIBIT 10.4
REGISTRY MAGIC, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT between Registry Magic (the "Company") and __Neal Bernstein (the
"Executive") as of this date December 21, 1997.
1. For good consideration, the Company employs the Executive on
the following terms and considerations.
2. Term of Employment: Subject to the provisions for termination set
forth below this agreement will begin on December 21, 1997, and shall
terminate on December 21, 2000 subject to provisions for termination
set forth in this agreement.
Salary: The Company shall pay Executive a salary of _$125,000__
per year, for the services of the Executive, payable semi-monthly.
Other salary increases shall be determined by agreement of the Board of
Directors or a defined compensation committee.
Other Compensation and Benefits:
Bonuses: The Executive may receive such incentive
bonus compensation, if any, as the Company shall
deem appropriate.
Profit Sharing: The Executive may participate in all corporate
profit sharing plans when they are defined by the Company.
Stock and Options: The Executive may receive additional
Company stock and stock options as the Company shall
deem appropriate.
Health Care: The Company will provide the Executive with
family medical health coverage per Company policy.
e) Benefits, General: The Executive is entitled to participate
in any executive or Company wide benefit plan as defined
by the Company.
f) Exercise of Stock Options: During the term of this agreement
except for Termination for Cause, Executive shall be
entitled to exercise any options granted to him during the
course of employment with Company. In the event of Death,
Change of Control, Voluntary Termination or Non-Renewal,
Executive shall have the right to exercise all options granted to
him prior to the date of termination or non-renewal. In the event
<PAGE> 2
of death, the options granted to the Executive shall be exercisable
by the Executive's beneficiary.
Duties and Position: The Company agrees to employee the
Executive in the capacity of _Vice President - WW Business Development
& Marketing -of the Company. The Executive's duties may be reasonably modified
consistent with his skills and experience.
6. Executive to Devote Full Time to Company: The Executive will devote full
time, attention, and energies to the business of the Company. During the term
of this employment agreement, given written notice to the Board of Directors,
the Executive may participate on the Boards of other companies that are
complementary to the Company. He may also participate in other companies or
subsidiaries that are affiliated with the Company.
Confidentiality of Proprietary Information: Executive agrees, during or after
the term of this employment, not to reveal confidential information, trade
secrets, business opportunities and proposals, products, methods, systems and
research, the names and addresses of customers, investors and suppliers, prices
charged and paid by the Company or its customers, designs and specifications,
customer files and records, services, operating procedures, financial records
of the Company and customers, to any person, firm, corporation, or entity.
Should Executive reveal or threaten to reveal this information the Company
shall be entitled to an injunction restraining the Executive from disclosing
same, or from rendering any services to any entity to whom said information has
been or is threatened to be disclosed. The right to secure an injunction is not
exclusive, and the Company may pursue any other remedies it has against the
Executive for a breach or threatened breach of this condition, including the
recovery of damages from the Executive.
Reimbursement of Expenses: The Executive may incur reasonable expenses for
furthering the Company's business, including expensed for
entertainment, travel and similar items. The Company shall reimburse
Executive for all business expenses after the Executive presents an
itemized account of expenditures, pursuant to Company policy.
Vacations and Holidays: During the term of this employment agree-
<PAGE> 3
ment, the Executive shall be entitled to annual paid vacation in accordance
with standards and procedures established by the Company. In the event that the
Executive does not take all the vacation to which he is entitled in a year, he
shall be entitled to carry forward up to two weeks thereof in any one or more
of the following years of his term. Executive shall be entitled to all holidays
designated by the Company.
Disability: If Executive cannot perform his duties because of illness or
incapacity in a period of more than 8 weeks, the compensation
otherwise due during said illness or incapacity will be reduced by
50%. The Executive's full compensation will be reinstated upon return
to work. However, if the Executive is absent from work for any reason
for a continuous period of over 6 months, the Company may terminate
the Executive's employment. In the event of termination the Executive
is entitled to any unpaid compensation, bonuses, benefits and vacation
pro-rated to the date of termination.
11. Termination of Employment:
For Cause: The Company may terminate the Executive without notice or
any payment or compensation in lieu of notice for cause, which without
limiting the generality of the foregoing, shall include:
If there is a repeated failure on the part of the Executive to perform
the material duties of his position in a competent manner.
If Executive is convicted of a criminal offense involving fraud or dis-
honesty or any offense similar thereto.
Fraud or Conversion relative to the Company.
4. If the Executive fails to honor his fiduciary duties to the
Company including without limiting the foregoing, his duty to
act in the best interests of the Company in a material manner.
5. If the Executive or any related person or group makes any personal
profit arising out of or in connection with a transaction to which
the Company is party without making disclosure to and obtaining the
prior written consent of the Board of Directors of excluding herefrom
any transaction involving profit sharing, increase in the value of
current shareholdings, share option or share purchase plans.
For Death:
1. This agreement shall terminate without notice upon the Executive's
death.
2. The Executive's beneficiary shall be entitled to any unpaid compen-
sation, bonuses, benefits and vacation pro-rated to the end of the
month in which the death occurs.
Voluntary Termination: The Executive shall be entitled to compensation,
bonuses, benefits and vacation pro-rated to the date of termination.
<PAGE> 4
Termination not for Cause Effective on Change of Control: Change of Control
shall mean any change in the holding, direct or indirect shares of
the Company as a result of which a person or group of persons, are
in a position to exercise effective control of the Company and do
exercise their vote contrary to the interests of management. In the
event
the Executive has not been terminated for cause, then upon a Change of
Control, if the Executive is not re-employed by the new management
with salary and benefits equal to the current company, then the Executive will
be paid the aggregate of all unpaid compensation, bonuses, benefits and
vacation pro-rated to that date in addition to a lump sum payment equivalent to
one years salary at the Executive's salary as of the termination date.
Non-Renewal: In the event Agreement is not renewed for other reasons
than Cause, Executive shall be entitled to those rights as if there had
been a Change of Control.
Company Stock and Options upon Termination: See section 4-f of this
agreement.
Notice of Termination: This employment agreement may upon thirty days
notice at the option of the Executive, be terminated upon the happening
of any of the following events:
Whenever the Executive and the Company shall mutually agree in
writing to terminate this agreement.
Acts of material breach of any provision of this agreement.
Restriction on Post Employment Competition: For a period of 12 months after
the end of employment, the Executive shall not control, consult to or be
employed by any business similar to that conducted by the Company In addition,
for a period of 12 months after the end of employment, the Executive will not
directly or indirectly solicit or take away any of its accounts, customers,
employees, or clients. The Executive shall also not hold more than 5% of the
issued outstanding common stock of a competitor of the Company. In the event
that the Company imposes the above 12 month restriction against such control,
ownership, consulting or employment by any similar business, the Executive
shall be compensated for 12 months salary at his current salary level to be
paid in full within 30 days of termination of employment. The Company may
decide to shorten the restricted period from 12 months to 6 months, thus
lowering the compensation to the Executive to 6 months salary. At the
option of the Company, section 12 maybe deemed unnecessary thus
requiring no payment to the Executive related to this section.
<PAGE> 5
Assistance in Litigation: Executive shall upon reasonable notice, furnish
such information and proper assistance to the Company as it may
reasonably require in connection with any litigation in which it is,
or may become, a party either during or after employment.
Effect of Prior Agreements: This agreement supersedes any prior agreement
between the Company or any predecessor of the Company and Executive,
except that this agreement shall not affect or operate to reduce any
benefit or compensation to the Executive of a kind elsewhere provided
and not expressly provided in this agreement.
15. Settlement by Arbitration: Any claim or controversy that arises out of
or relates to this agreement, or the breach of it, shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association. Judgment upon the award rendered may be entered in any
court with jurisdiction in Palm Beach County, Florida. In the event
any effort to obtain an equitable remedy, such matters shall be determined in a
court of equity jurisdiction in Palm Beach County, Florida.
16. Limited Effect of Waiver by Company: Should Company waive breach
of any provision of this agreement by the Executive, that waiver will
not operate or be construed as a waiver of further breach by the
Executive.
Applicable Law - Severability: This Agreement shall be governed by and
construed pursuant to the laws of the State of Florida, where it is
made and executed. If any terms or part of this agreement shall be
determined to be invalid, illegal, or unenforceable in whole or in
part, the validity of the remaining part of such term or the validity
of any other term of this agreement shall not in any way be affected.
All provisions of this Agreement shall be construed to be valid and
enforceable to the full extent permitted by law.
Assumption of Agreement by Company's Successors and Assignees: The Company's
rights and obligations under this agreement will inure to the benefit
and be binding upon the Company's successors and assignees.
Oral Modifications Not Binding: This instrument is the entire agreement of
the Company and the Executive. Oral changes shall have no effect. It
may be altered only by a written agreement signed by the party against
whom enforcement of any waiver, change, modification, extension or
discharge is sought.
Company Records: All books, records and documents relating to
Company's business shall be the permanent property of the Company.
The Executive shall not be entitled to retain any copies thereof not
<PAGE> 6
withstanding his participation therein. Unless required by service of legal
process, no other Company records shall be displaced or delivered to,
or any information therefrom disclosed, to any person not connected
with the Company except in strict accordance with the rules of the
Company from time to time established. The Company shall provide
Executive reasonable access to all personnel records relating to
Executive's employment hereunder. In the event of termination of the
Executive for any reason, all books, records, documents, designs and
specifications will be returned to the Company.
21. This agreement supersedes any and all prior employment agreement
between the Company and said executive.
Signed this 21st day of December, 1997
/s/ Walt Nawrocki /s/ Neil Bernstein
- -------------------------------- ---------------------------
Company Executive
<PAGE> 1
EXHIBIT 10.5
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter referred to as the "Lease") is made and
entered into this 9 day of September, 1997, 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 1,009 rentable square feet of the real
property known as One Ocean Plaza (hereinafter referred to as the "Building"),
Suite(s) #205 and constitutes 2% of the rentable square feet of the Building.
Section 1.2 Term. Tenant shall have and hold the Premises for a term of two (2)
years & three (3) months commencing on October 1, 1997 and shall terminate
December 31, 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
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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
Section 2.1 Monthly Base Rent; Late Charge: Sales Tax. Subject always to the
provisions of Section 2.2 of this Lease, Tenant agrees to and shall pay
Landlord an aggregate sum for the initial year of this Lease of $13,177.00,
payable in equal consecutive monthly installment payments of $1,093.08, 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.l shall be adjusted as of the first day of each Lease year of the term and
any renewal term commencing with the first (l) 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:
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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.
(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, the 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 15 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.
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Section 2.5 Use 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 $0.00 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 Tenant's
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
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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 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
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<PAGE> 6
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.
(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 purposes hereof.
(e) The term "Tenant's Proportionate Share" is 2%, 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, 1998 , 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
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charge for 1998, 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 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.
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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 no limited to, (i) any
delays due to 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
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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 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
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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.
(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
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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 states, 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.
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,
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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.
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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 V
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
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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 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
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 Obligations 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,
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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 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
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,
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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, 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 expenses
incurred 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 A Conditioning. Except as otherwise provided
herein, 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 or otherwise serving the Premises. In
order to ensure that such
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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 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 a 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
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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 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
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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 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
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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.
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
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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 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.
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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 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
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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 Liability 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 ln 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
post-judgment proceedings involved in collecting 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 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.
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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 or 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.
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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 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 tb) 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,
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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 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.
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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 Street
Suite 2700
Tulsa, OK 74103
As to Tenant: Registry Magic, Inc.
One S. Ocean Boulevard
Suite 205
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
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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 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 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.
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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, 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.
LANDLORD:
INTERVEST-ONE OCEAN PLAZA, LTD.
By: /s/ Dale A. Williams
-------------------------------
I.P., Ltd., its General Partner
Dale A. Williams, President
TENANT:
REGISTRY MAGIC INC.
(a Florida corporation)
By: /s/ Walter Nawrocki
--------------------------------
Walter A. Nawrocki
CEO and President
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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 ln 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 place near
the glass or any window, door, partition or wall which may appear unsightly for
outside premises.
<PAGE> 32
8. Tenant shall maintain the show windows in a clean, neat and
orderly condition.
9. No Tenant shall mark, paint, drill into, or ln 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 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
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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.
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EXHIBIT 3
SPECIAL PROVISIONS
1.) Tenant hereby accepts the Leased Premises in its current "as-is"
condition.
2.) Tenant hereby agrees that acceptance of this Lease Agreement by
Landlord is contingent upon the execution of leases by Landlord for
Suites 202, 204, and 208 located in the One Ocean Plaza Office
Building, Boca Raton, Florida, by no later than September 1, 1997.
<PAGE> 35
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter referred to as the "Lease") is made and
entered into this _____ day of December, 1996, 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 1,594 rentable square feet of the real
property known as One Ocean Plaza (hereinafter referred to as the "Building"),
Suite(s) #206 and constitutes 3.43% of the rentable square feet of the
Building.
Section 1.2 Term. Tenant shall have and hold the Premises for a term of
thirty-six (36) months commencing on January 1, 1997 and shall terminate
December 31, 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
<PAGE> 36
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
Section 2.1 Monthly Base Rent; Late Charge: Sales Tax. Subject always to the
provisions of Section 2.2 of this Lease, Tenant agrees to and shall pay
Landlord an aggregate sum for the initial year of this Lease of $20,721.96
payable in equal consecutive monthly installment payments of $1,726.83, 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.l shall be adjusted as of the first day of each Lease year of the term and
any renewal term commencing with the first (l) 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:
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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.
(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, the 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 15 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.
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Section 2.5 Use 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 200 parking
spaces for the nonexclusive use of the Tenant, at no charge to tenant.
Section 2.7 Damage Deposit. Simultaneously with the execution of this Lease,
Tenant has paid the sum of $2,396.00 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 Tenant's 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
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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 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
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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.
(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 purposes hereof.
(e) The term "Tenant's Proportionate Share" is 3.43%, 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, 1998 , Tenant shall pay an interim Additional
Rent of $5.00 per square foot per year and any adjustment thereof to reflect
the interim Additional Rent
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charge for 1997, 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 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.
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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 no limited to, (i) any
delays due to 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
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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 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
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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.
(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
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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 states, 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.
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,
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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.
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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 V
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
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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 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
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 Obligations 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,
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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 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
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,
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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, 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 expenses
incurred 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 A Conditioning. Except as otherwise provided
herein, 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 or otherwise serving the Premises. In
order to ensure that such
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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 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 a 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
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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 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
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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 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
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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.
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
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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 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.
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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 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
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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 Liability 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 ln 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
post-judgment proceedings involved in collecting 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 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.
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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 or 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.
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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 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 tb) 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,
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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 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.
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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 Street
Suite 2700
Tulsa, OK 74103
As to Tenant: Registry Magic, Inc.
One S. Ocean Boulevard
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
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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 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 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.
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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, 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.
LANDLORD:
INTERVEST-ONE OCEAN PLAZA, LTD.
By: /s/ Dale A. Williams
-----------------------------------
I.P., Ltd., its General Partner
Dale A. Williams, President
TENANT:
REGISTRY MAGIC INC.
(a Florida corporation)
By: /s/ Walt A. Nawrocki
-----------------------------------
Walter A. Nawrocki
CEO and President
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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 ln 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 place near
the glass or any window, door, partition or wall which may appear unsightly for
outside premises.
<PAGE> 66
8. Tenant shall maintain the show windows in a clean, neat and
orderly condition.
9. No Tenant shall mark, paint, drill into, or ln 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 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
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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.
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EXHIBIT 3
SPECIAL PROVISIONS
1.) Tenant hereby accepts the Leased Premises in its current "as-is"
condition.
2.) Tenant hereby agrees that acceptance of this Lease Agreement by
Landlord is contingent upon the execution of leases by Landlord for
Suites 202, 204, and 208 located in the One Ocean Plaza Office
Building, Boca Raton, Florida, by no later than September 1, 1997.
<PAGE> 1
EXHIBIT 10.6
LICENSE AGREEMENT
-----------------
This Agreement is made and entered into as of this 31st December, 1996
(hereinafter the "Effective Date") by and between LERNOUT & HAUSPIE SPEECH
PRODUCTS N.V., a company organized and existing under the laws of Belgium and
having its registered of flee at Sint-Krispijnstraat 7, 8900 leper, Belgium,
hereinafter referred to as "LICENSOR" represented by Gaston Bastiaens, President
and REGISTRY MAGIC, INC., a company organized and existing under the laws of
Florida and having its registered of rices at 551 Northwest Fourteenth Avenue,
Boca Raton, Florida, USA, hereinafter referred to as LICENSEE represented by
Walt Nawroki, Chief Executive Officer.
W I T N E S S E T H:
WHEREAS, LICENSOR is engaged in developing and licensing speech
input-output software programs;
WHEREAS, LICENSEE desires to obtain certain rights, as hereinafter
described, in said software programs and its related documentation and to
purchase certain services relating thereto;
WHEREAS, LICENSOR is willing to grant LICENSEE said rights with respect
to said software programs; and
NOW, THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth, the parties hereby agree as follows:
ARTICLE 1. DEFINITIONS
The following terms shall have the meanings ascribed to them herein
wherever they are used in this Agreement unless otherwise clearly indicated by
the context.
1.1 "Commercial Software" shall mean the computer programs in object
code form, embodying certain proprietary algorithms as specified in Addendum A.
Said Commercial Software shall include all Corrections to any portion thereof
made by or for LICENSOR.
1.2 "Corrections" shall mean changes made in the Commercial Software
and/or Development Software and/or Documentation by LICENSOR to correct errors
or defects in the Commercial Software and/or Development Software and/or
Documentation.
1.3 "Critical Problem(s)" shall mean a problem(s) caused by defective
Commercial Software and/or Development Software and for Run-Time Software and
<PAGE> 2
characterized by one of the following: (i) Designated Equipment is down, or (ii)
End User's use of the Designated Equipment is significantly affected.
1.4 "Designated Equipment" shall mean those products or applications of
LICENSEE as listed in Addendum A, item C.
1.5 "Development Software" shall mean the Commercial Software as
adapted by LICENSOR upon request of LICENSEE to work with the Designated
Equipment, and Documentation and other associated documentation for the
Commercial Software which are customarily provided by LICENSOR as part of the
Commercial Software.
1.6 "Documentation" shall mean those visually readable materials, in
English, developed by or for LICENSOR for use in connection with the Development
Software. Documentation includes operating instructions, input information and
format specifications, instructional and other documentation, including all
guides and manuals. Documentation also includes all revisions thereto made by or
for LICENSOR including, new documents and corrected documents to properly
reflect changes made in the Development Software. Documentation shall not
include background information.
1.7 "Effective Date" shall mean the date first above mentioned.
1.8 "End User" shall mean a customer of LICENSEE, or of Third Parties,
who are granted a sublicense which only includes the right to use the Run-Time
Software and Documentation in connection with the Designated Equipment.
1.9 "Minor Problem(s)" shall mean a problem(s) caused by defective
Commercial Software and/or Development Software and for Run-Time Software and
which is not a Critical Problem(s).
1.10 "Run-Time Software" shall mean an object code copy of software
derived from Development Software (or any portion thereof) by LICENSEE which is
integrated within a Designated Equipment and executable only in association with
such application.
1.11 "Technical Support" shall mean technical support LICENSOR provides
to LICENSEE under the provisions of Article V.
1.12 "Third Party" shall include any original equipment manufacturers,
system houses, value added resellers and other such entities engaged in doing
business with LICENSEE, and who acquire the Designated Equipment which
incorporates the Run-Time Software, for distribution purposes only.
1.13 "Medium Telephony Product" shall mean the telephony application
which runs on a platform serving multiple phone lines (more than 2) and which is
targeted to
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<PAGE> 3
the telephony market such as applications for call centers and multi-line
Interactive Voice Response Systems.
1.14 "Desktop Product" shall mean the application which runs on one PC
and which can execute maximum one (1) channel using the Run- Time Software and
which is not directly connected to a telephone line.
1.15 "SOHO Product" shall mean the telephony application which runs on
a platform serving one or two phone lines and which is targeted to the small
office and home of flee market.
1.16 "Order" shall mean LICENSEE's form of purchase order or schedule
used for the purpose of ordering the license or maintenance of Software and
Documentation provided that the terms and conditions of such purchase order are
consistent with the terms of this Agreement.
ARTICLE 2. GRANT OF LICENSE
2.1 LICENSOR hereby grants to LICENSEE and LICENSEE accepts from
LICENSOR under LICENSOR's patents, copyrights and trade secrets related to the
Commercial Software, Development Software and Run-Time Software and
Documentation, a world-wide, non-exclusive, non- transferable license subject to
all applicable terms and conditions hereof to:
(a) use the Development Software, at no license fee, solely in
connection with LICENSEE's development, distribution, and provision of technical
support for the Designated Equipment incorporating Run-Time Software;
(b) make, have made and, directly or indirectly through Third
Parties, distribute copies of the Run-Time Software solely when incorporated
within the Designated Equipment to End Users;
(c) use the Run-Time Software incorporated into the Designated
Equipment, at no license fee (unless a fee has been charged to the potential
customer in respect of the Run-Time Software or the Designated Equipment) solely
to demonstrate the features of the Designated Equipment to LICENSEE's potential
customers;
(d) incorporate portions of the Documentation in LICENSEE's
Designated Equipment documentation provided LICENSEE properly incorporates and
references LICENSOR's trademarks and copyrights in the documentation;
(e) make copies of and distribute Corrections to End Users who
have Designated Equipment;
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<PAGE> 4
(f) grant sublicenses to Third Parties containing the same
rights as are granted to LICENSEE in subparagraphs b through e above. This
subparagraph shall be construed as authorizing LICENSEE to permit cascaded
sublicensing such that for example, LICENSEE may sublicense a Third Party such
as a distributor, who will have the right to sublicense another Third Party such
as a dealer, which shall have the right to sublicense an End User, provided that
LICENSEE complies with the requirements of Article 2.2.; and
2.2 All sublicensing by LICENSEE to any Third Party shall be pursuant
to written agreements that incorporate terms substantially similar to the
applicable terms and conditions hereof. This should be interpreted to require a
payment for each copy of the Run-Time Software (as calculated in Addendum B)
ultimately licensed to an End User. Each of such sublicense shall require that
entities other than an End User shall require separate accounting, and shall
obligate the sublicensee and its sublicensee to include in all licenses of the
Run-Time Software to End Users, terms substantially similar to the limitations
on LICENSOR's warranties and liabilities provided in Articles VI.2., VI.3. and
VIII and LICENSOR's right to control intellectual property claims as provided in
Article XII. If LICENSEE is willing to enter into a site license agreement with
its customers, both parties shall mutually agree in writing on the financial
terms and conditions of such site license prior to the signing thereof.
2.3 LICENSOR shall not be obligated to deliver or disclose to LICENSEE
the source code for any Commercial Software and/or Development Software.
2.4 LICENSOR hereby grants to LICENSEE a non-exclusive right and
license, during the term of this Agreement, to use, in connection with
exploitation by LICENSEE of the Designated Equipment, pursuant to this
Agreement, the trademarks identified in Addendum E.
ARTICLE 3. ROYALTIES/PAYMENTS
-----------------------------
3.1 LICENSEE shall make:
(a) royalty payments to LICENSOR for each royalty bearing copy
of the Run-Time Software shipped hereunder by LICENSEE or distributed by any
Third Party pursuant to Addendum B.
(b) payments for Technical Support to LICENSOR pursuant to
Addendum B.
3.2 LICENSEE shall provide LICENSOR with calendar quarterly reports
showing the quantity of Designated Equipment shipped or otherwise transferred to
an End User by LICENSEE or Third Parties hereunder, as well as the gross revenue
received by LICENSEE, commencing after the commercial release of the Designated
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<PAGE> 5
Equipment. These quarterly reports shall be provided to LICENSOR within thirty
(30) days after the end of each quarter as well as the payment of the amount of
royalties due under said quarterly report. LICENSEE shall provide LICENSOR with
a written notification of the date of the initial commercial release of the
Designated Equipment within thirty (30) days of said release.
LICENSOR shall issue an invoice to LICENSEE for technical support
services provided pursuant to Article V and Addendum B within ten (10) days of
the completion of each month in which such services are provided by LICENSOR.
All invoices shall be submitted to the address specified in LICENSEE's
Order or such address as LICENSEE shall identify to LICENSOR in writing.
3.3 LICENSEE shall keep a separate register in which it shall record
the exact number of royalty bearing copies, as well as the type of the products
(by Designated Equipment) incorporating the Run-Time Software, and any other
information relevant for determining the amounts of royalties payable.
LICENSOR shall have the right to conduct an audit of LICENSEE's records
relative to the performance of this Agreement no more than once yearly. Such
audit shall be conducted by a mutually acceptable auditing film, independent
from the parties. At the occasion of such audit, LICENSEE shall provide the
auditor with a list of names and addresses of all Third Parties distributing the
Designated Equipment. Said list shall not be disclosed to LICENSOR.
LICENSEE's approval of the time and place for the audit requested by
LICENSOR shall not be unreasonably withheld.
Any audit shall be performed during normal business hours. In the event
such audit reveals an underpayment to LICENSOR, LICENSEE shall pay LICENSOR such
underpayment within thirty (30) days of the date of the audit. In the event the
underpayment is more than five percent (5%), LICENSEE shall also pay the audit
costs.
ARTICLE 4. MARKETING
--------------------
A. MARKETING SUPPORT.
-----------------
4.1 (a) At LICENSEE's reasonable request, and given reasonable advance
notice, LICENSOR shall demonstrate the operation of the Run-Time Software to
prospective customers (i.e. End Users and Third Parties) of LICENSEE and
otherwise reasonably assist LICENSEE in the marketing effort during visits by
such prospective customers. Such demonstrations may include the use of
LICENSEE's furnished marketing materials in addition to any of LICENSOR's own
marketing materials.
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<PAGE> 6
(b) The identity and specific product requirements of
LICENSEE's prospective customers is confidential information. LICENSOR shall not
use or disclose such information without LICENSEE's consent.
4.2 At LICENSEE's reasonable request, and given reasonable advance
notice, LICENSOR shall participate in trade shows, user conferences and other
significant events at which the Software is to be exhibited, demonstrated, or
otherwise involved.
4.3 At LICENSEE's reasonable request, LICENSOR shall provide pre-sales
support, including seminars, course, presentation and consultations relative to
LICENSEE's marketing activity.
4.4 The support rendered pursuant to paragraph 4. 1.,4.2. or 4.3.,
above, shall be free of charge, except if any of those support services are
furnished at other than a LICENSOR facility, LICENSEE shall reimburse LICENSOR
for reasonable travel and living expenses incurred by LICENSOR's personnel to
the extent such expenses arise from such support being performed at other than a
LICENSOR facility.
4.5 At LICENSEE's reasonable request, LICENSOR shall provide to
LICENSEE without charge, reasonable quantities of the following materials:
(1) existing sales materials and brochures; and
(2) current published technical specifications.
ARTICLE 5. TECHNICAL SUPPORT
----------------------------
5.1 SUPPORT CREDITLINE.
------------------
5.1.1 In return for LICENSEE's commitment to pay a non-
refundable up-front payment on royalties amounting to US$ 500.000 in compliance
with the payment terms set forth in Addendum B. LICENSOR agrees to provide
technical support, as described hereunder, at no cost to LICENSEE equaling to
600 man-hours (at a cost of US$ 125 per hour) which shall be provided by
LICENSOR in accordance with the procedure as set out below in 5.1.3.
5.1.2 TECHNICAL SUPPORT.
-----------------
A. TELEPHONE SUPPORT. LICENSOR shall provide
telephone consulting services to LICENSEE's designated personnel to assist such
personnel in resolving problems, obtaining clarification relative to the
Development Software and Documentation and providing assistance regarding
suspected defects or errors in the Development Software or Documentation. Said
services shall be provided during normal business hours (Belgian time), Mondays
through Fridays (excluding Belgian legal
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<PAGE> 7
holidays) and LICENSOR shall furnish the names, telephone, fax numbers of its
support personnel, as well as a list of the current holidays.
B. WRITTEN SUPPORT. LICENSOR agrees to diligently
work for the prompt resolution of defects and errors in the Commercial Software,
Development Software, Run-Time Software and/or Documentation.
C. CORRECTIONS. LICENSOR shall provide to LICENSEE a
copy of all Corrections done by LICENSOR for the Development Software and
Documentation.
5.1.3 PROCEDURE. LICENSEE shall send a written request for the
support services described in 5.1.1. to LICENSOR's Technical Contract
Administrator, as appointed in Article X.
In this written request LICENSEE shall define the problem, the reason
for request, the qualification of the problem, as a Minor Problem or Critical
Problem, as well as the name(s), telephone number and fax number of LICENSEE's
employee to be contacted.
In the event the problem is a Minor Problem, the technical contract
administrator shall contact LICENSEE's contact person within two (2) working
days after receipt of the written request in order to acknowledge the receipt of
the request and shall propose a schedule for the support to be rendered.
Within five (5) working days, LICENSEE will receive a final proposal
from the technical contract administrator for the support.
In the event the problem is a Critical Problem, the technical contract
administrator shall contact LICENSEE's contact person within twenty-four (24)
hours after receipt of the written request in order to acknowledge the receipt
of the request and shall propose a schedule for the support.
Within two (2) working days, LICENSEE will receive a final proposal
from the technical contract administrator for the support.
5.2 At the moment the free man hours have been consummated, the
services mentioned under 5.1. shall be provided at the prices set forth in
Addendum B.
5.3 EXCEPTIONS. The support fee does not cover the provision of the
following services:
(a) Maintenance of equipment or software not delivered by LICENSOR;
(b) Repairs other than normal use or repairs, caused by force
majeure (such as, but not limited to, fire, flood, failure of electric power or
air conditioning); and
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<PAGE> 8
(c) Repairs required by the fact that maintenance has been done by
a third party not authorized by LICENSOR.
ARTICLE 6. WARRANTY
-------------------
6.1 LICENSOR warrants that it has the right to grant the licenses
contained in this agreement.
6.2 LICENSOR warrants that the Development Software shall be
sufficiently stabilized and capable of extended operation without failure and/or
premature termination of operation. This warranty shall expire ninety (90) days
after the delivery of the Designated Equipment incorporating Run-Time Software
to End Users.
6.3 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR MAKES AND
LICENSEE RECEIVES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
LICENSOR DOES NOT WARRANT THAT ANY OR ALL FAILURES, DEFECTS OR ERRORS WILL BE
CORRECTED, OR WARRANT THE FUNCTIONS CONTAINED IN THE DEVELOPMENT SOFTWARE WILL
MEET CUSTOMER'S REQUIREMENTS. LICENSEE ACKNOWLEDGES THAT LICENSOR HAS MADE NO
REPRESENTATIONS REGARDING WARRANTY OR LIABILITY OTHER THAN AS STATED IN THIS
AGREEMENT.
ARTICLE 7. TERM
---------------
7.1 (a) The term of this Agreement shall commence on the Effective Date
herein and shall continue for a period of four (4) years unless terminated or
canceled as provided below:
This Agreement may be terminated by one party for cause, upon
written notice to the other party in the event that the other party:
(i) fails to comply with any obligation under this Agreement,
and any such failure is not remedied within ninety (90) days after receipt of
written notice; or
(ii) expressly repudiates this license by refusing to observe
any of the material conditions to which this license is subject;
(b) After the four (4) year period, parties shall negotiate in good
faith any extension to this Agreement.
7.2 Any termination or cancellation of this Agreement shall promptly
terminate LICENSEE's right to copy the Run-Time Software, and to grant
additional sublicenses, provided however, that such termination shall not
terminate or affect sublicenses
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previously and properly granted to End Users and Third Parties, or required to
be granted under binding contracts or purchase orders and further provided that
LICENSEE and Third Parties shall be permitted to continue to use the Run-Time
Software to enable LICENSEE to meet its obligations to support Third Parties and
End Users existing at the time of such termination.
7.3 No termination or cancellation of this Agreement shall affect the
obligation of LICENSEE to collect and distribute to LICENSOR all payments which
have become or will be due from sublicenses and any other payments which have
become due hereunder.
ARTICLE 8. LIABILITY
--------------------
8.1 LIMITATION ON DAMAGES. In no event will a party be liable for any
loss of or damage to revenues, profits or goodwill or other special, incidental,
indirect or consequential damages of any kind, resulting from its performance or
failure to perform pursuant to the terms of this Agreement or any of the
attachments hereto, or resulting from the furnishing, performance, or use or
loss of use of any Software or other materials delivered to the other party
hereunder, including, without limitation, any interruption of business, whether
resulting from breach of contract, breach of warranty, or any other cause
(including negligence), even if a party has been advised of the possibility of
such damages.
8.2 MAXIMUM LIABILITY. Except as provided in Article XII. 1.,
LICENSOR's total liability to LICENSEE from any and all causes shall be limited
to one hundred percent (100%) of the amounts actually paid by LICENSEE to
LICENSOR. LICENSOR's limitation of liability is cumulative with all LICENSEE's
payments being aggregated to determine satisfaction of the limit. The existence
of more than one claim will not enlarge or extend the limit.
ARTICLE 9. FORCE MAJEURE
------------------------
9.1 Neither LICENSEE nor LICENSOR shall be liable to the other for
delays in the performance of or completion of this Agreement if such delay is
caused by strikes, riots, wars, government regulations, acts of God, fire,
flood, or other similar causes beyond its reasonable control; provided, however,
if such delay continues for ninety (90) days, the other party shall have the
option, exercisable by written notice, to cancel the Agreement without
additional charge or liability, except payment of sums due to LICENSOR as
provided in Article 8.3. above.
9
<PAGE> 10
ARTICLE 10. PERSONNEL AND COMMUNICATIONS
----------------------------------------
10.1 FOR LICENSEE.
------------
10.1.1 General administration and liaison for LICENSEE will be
performed by (referred to herein as "LICENSEE's contract administrator") or a
designee or successor.
10.1.2 Technical liaison for LICENSEE will be performed by
(referred to herein as "LICENSEE's technical administrator") or a designee or
successor.
10.2 FOR LICENSOR.
------------
10.2.1 General administration and liaison for LICENSOR will be
performed by Patrick De Schrijver (referred to herein as "LICENSOR's contract
administrator") or a designee or successor.
10.2.2 Technical liaison for LICENSOR will be performed by
Johan Thys (referred to herein as "LICENSOR's technical administrator") or a
designee or successor.
10.3 All notices under this Agreement shall be in writing, sent by
mail, courier service, telefax or telex, to the respective contract
administrator, unless otherwise specified.
10.4 Technical administrators shall be the principal liaisons for
LICENSEE and LICENSOR on technical matters and they may clarify, explain and
provide further details as required for performance under this Agreement, but
shall have no authority to make any agreements between them which change the
cost or any of the terms and conditions of this Agreement.
ARTICLE 11. CONFIDENTIAL INFORMATION
------------------------------------
11.1 Both parties agree not to disclose any trade secrets or
confidential information transferred to it by the other party which are
identified in writing as confidential ("Trade Secrets"), including the contents
of this Agreement, except that a party may disclose such information to those
affiliates whose knowledge thereof is reasonably necessary or appropriate in
light of the party's rights and obligations under this agreement. Each party
shall take the same action and utilize at least the same precautions in
preventing unauthorized disclosures of the other party's Trade Secrets as it
uses with regard to its own secrets and confidential information of similar
nature.
11.2 The obligation of each party not to use or disclose Trade Secrets
of the other party shall survive the termination or cancellation of this
Agreement.
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<PAGE> 11
However, neither party shall be obligated to protect Trade Secrets of
the other party under any provision of this Agreement in the event the
aforesaid:
(a) are known to or developed by the receiving party without
restriction independently of the disclosing party,
(b) are or become generally known to the public by other than
a breach of duty hereunder by the receiving party,
(c) which the disclosing party agrees in writing is free of
such restrictions,
(d) which at the time of disclosure to the receiving party was
known to such party free of restrictions.
The obligation of one party not to use or disclose said Trade Secrets
of the other party will remain in effect until one of these exceptions occurs.
11.3 In the event disclosure of the one party's Trade Secrets is
required by the other party under provisions of any law or court order, the one
party shall only disclose the particular information required to be disclosed
and shall notify the other party in writing of the said disclosure.
11.4 Since unauthorized transfer of one party's Trade Secrets will
substantially diminish their value and injure such party in ways that may not be
remedied fully by money, the other party's breach of these Article XI
obligations may entitle the one party to equitable relief (including orders for
specific performance and injunctions) as well as monetary damages.
ARTICLE 12. INDEMNITY
---------------------
12.1 LICENSOR shall indemnify and defend LICENSEE. Third Parties and
End Users against any claim that the Commercial and the Development Software
infringes any third party patent, copyright or other intellectual property
rights when used in accordance with the terms of this Agreement.
LICENSEE shall give LICENSOR prompt notice of such claim and shall give
information, reasonable assistance and authority to defend or settle the claim.
LICENSOR shall have the right, at its option, either to obtain for LICENSEE the
right to continue using the Development Software and Run-Time Software,
substitute other software with equivalent functional capabilities or modify the
Commercial Software, the Development Software and Run-Time Software so that it
is no longer infringing while retaining equivalent functions.
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<PAGE> 12
The same indemnification shall apply to a claim that the Development
Software, as an integrated part of any product, infringes any intellectual
property right by the Development Software.
12.2 Except as provided in Article 12.1., LICENSOR shall have no
liability to LICENSEE, Third Parties and End Users in the event infringement of
any intellectual property right arises from components of a Designated Equipment
which are not derived directly from the Development Software or Run-Time
Software operating on the Designated Equipment but which are introduced into a
Designated Equipment by LICENSEE, or which result from compliance with
LICENSEE's designs, specifications or instructions or from modification by
LICENSEE of the software.
ARTICLE 13. RESTRICTED USE
--------------------------
13.1 LICENSEE shall not use the Development Software or distribute the
Run-Time Software or Documentation in connection with or on any equipment other
than the Designated Equipment.
13.2 LICENSEE shall not recreate, generate or reverse-engineer any
portion or version of any delivered software or attempt any of the foregoing or
aid, abet or permit others to do so.
LICENSEE shall be allowed to make derivative works based on the
software delivered hereunder. LICENSEE shall have rights and title to these
derivative works, and LICENSOR shall be entitled to use any such derivative
works on reasonable commercial conditions to be agreed upon
13.3 LICENSEE acknowledges that unauthorized reproduction or use of any
delivered software as provided in this Article XIII is a breach of a material
obligation of this Agreement and is subject to any available remedies for such
breach.
ARTICLE 14. TITLE AND RIGHTS TO SOFTWARE AND MODIFICATIONS
----------------------------------------------------------
14.1 The grant of license and distribution rights to LICENSEE under
Article II hereof are LICENSEE's only rights to the Commercial Software,
Development Software, Run-Time Software and Documentation. Title, interests and
rights to the Commercial, Development and Run-Time Software and Documentation
shall always remain in LICENSOR.
ARTICLE 15. ASSIGNMENT
----------------------
15.1 Either party to this Agreement shall have with the prior written
approval of the other party, which shall not be unreasonably withheld, the right
to assign or transfer this Agreement (including rights and duties of
performance) to any entity: (i) which owns
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<PAGE> 13
more than fifty percent (50%) of the issued and outstanding voting stock of such
party; (ii) in which such party owns more than fifty percent (50%) of the issued
and outstanding voting stock; (iii) which acquires all or substantially all of
the operating assets of such party; or (iv) into which such party is merged or
reorganized pursuant to any plan of merger or reorganization. This Agreement
shall be binding upon and inure to the benefit of each of the parties to this
Agreement and their respective legal successors and permitted assigns.
ARTICLE 16. NON-SOLICITATION OF EMPLOYEES
-----------------------------------------
16.1 During the term of this Agreement and for an additional year
following its completion or termination, neither party shall solicit or hire an
employee of the other engaged in the research, implementation or marketing of
speech processing information, technology or products. Nothing herein shall
preclude the non-breaching party from pursuing any remedy available to it, in
law or equity, including but not limited to the right to seek injunctive and/or
other relief.
ARTICLE 17. AGREEMENT DOCUMENTS
-------------------------------
17.1 The addenda referenced in this Agreement, and the specifications
referenced therein, as well as other documentation referenced in this agreement
which define the obligations of the parties, are a part of this Agreement with
the same force and effect as if fully set forth herein.
ARTICLE 18. GENERAL
-------------------
18.1 This Agreement shall be deemed to have been entered into and shall
be construed, governed and interpreted in accordance with the laws of the
Commonwealth of Massachusetts, without giving effect to principles of conflict
of law. LICENSEE hereby agrees to submit to the jurisdiction of an appropriate
court within the Commonwealth of Massachusetts. Massachusetts courts are solely
competent to decide any dispute relating to the interpretation or performance of
this agreement.
18.2 The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions, and this Agreement shall
be constructed in all respects as if such invalid or unenforceable provisions
were omitted.
18.3 The failure of either party to insist, in any one or more
instances, upon the performance of any of the terms of this Agreement or to
exercise any right hereunder, shall not be construed as a waiver of the future
performance of any such term or the future exercise of such right.
18.4 Whenever any occurrence (e.g. an event of Force Majeure) is
delaying or threatens to delay a party's timely performance under this
Agreement. That party will
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<PAGE> 14
promptly give notice thereof, including all relevant information with respect
thereto, to the other party.
ARTICLE 19. TAXES
-----------------
19.1 The Software licensed hereunder is intended principally for use by
End Users and therefore should be exempt from sales, use, excise and other
similar taxes. However, if such tax, or any import duty, or export duty, should
be imposed on LICENSOR, LICENSEE shall either bear such tax or duty by a direct
payment to the taxing authority or shall reimburse LICENSOR for such tax or duty
paid by LICENSOR. The provisions of this Article 19. l. shall not apply to
income taxes of LICENSOR.
ARTICLE 20. SURVIVAL OF PROVISION
---------------------------------
20.1 It is hereby agreed that the rights and obligations of the parties
hereto contained in Article 3, 7, 8, 11, 12, 13, 14 and 20 shall survive and
continue after any termination or cancellation of this Agreement and shall bind
the parties and their successors, assigns and legal representatives.
ARTICLE 21. ENTIRE AGREEMENT
----------------------------
21.1 This Agreement shall constitute the entire agreement between
LICENSEE and LICENSOR with respect to the subject matter thereof, and shall
supersede any and all prior agreements, understandings, promises and
representations made by one party to the other concerning the subject matter
herein and the terms and conditions applicable thereto.
This Agreement may not be released, discharged, supplemented,
interpreted, amended or modified in any manner except by an instrument in
writing signed by a duly authorized officer or representative of each of the
parties hereto as is specially provided elsewhere in this Agreement.
21.2 In making and performing this Agreement, the parties have acted
and shall act at all times as independent contractors and nothing contained in
this Agreement shall be construed or implied to create the relationship of
partner or of employer and employee between the parties. At no time shall either
party make commitments for or in the name of the other party.
ARTICLE 22. USE OF LOGO/ PREMISES
---------------------------------
22.1 LICENSEE shall include the "L&H Speech Quality" logo or other L&H
logo's reasonably requested by LICENSOR to its Designated Equipment using
Run-Time Software. This logo has to appear on the packaging of the Designated
Equipment, as well as in the accompanying user documentation, in the size and
place similar to other
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<PAGE> 15
licensors or, absent of such licensors, in LICENSEE's reasonable discretion.
Notwithstanding the above, LICENSEE shall give appropriate copyright credit to
LICENSOR in a form and location approved by both parties.
The parties agree to issue a joint press release upon mutual consent,
which shall not be unreasonable withheld.
22.2 LICENSOR shall make office space available to LICENSEE in either
leper or Wemmel to accommodate LICENSEE's initial performance in Belgium. The
expenses related to the office, such as rent, telephone and related equipment
will be paid by LICENSEE on a cost basis.
IN WITNESS WHEREOF, this Agreement has been duly executed in duplicate
by the parties hereto, as of the Effective Date, and each party acknowledges
having received one original.
LICENSOR: LICENSEE:
LERNOUT & HAUSPIE REGISTRY MAGIC, INC.
SPEECH PRODUCTS N.V.
By: /s/ GESTON BASTIAEUS By: /s/ WALT NAWROCKI
---------------------------------- ---------------------------
Name: GESTON BASTIAEUS Name: WALT NAWROCKI
-------------------------------- -------------------------
Title: PRESIDENT Title: PRESIDENT & CEO
------------------------------- ------------------------
15
<PAGE> 16
AMENDMENT I TO THE LICENSE AGREEMENT
BETWEEN
LERNOUT & HAUSPIE SPEECH PRODUCTS N.A.
AND
REGISTRY MAGIC, INC.
WHEREAS, Registry Magic, Inc. ("LICENSEE") and Lernout & Hauspie Speech
Products, N.V. ("LICENSOR") have entered into a License Agreement, effective on
December 31, 1996 (hereafter the "Original Agreement");
WHEREAS, the parties are bound by the terms of the Original Agreement
except for the terms and conditions contradicted hereto;
WHEREAS, the parties wish to modify Original Agreement as set out
below;
ARTICLE 1:
1.1 LICENSEE committed to pay to LICENSOR the amount of 125,000 US$ of a
non-refundable prepayment on royalties upon first shipment of
Designated Equipment, but no later than December 15, 1997.
In consideration for the successful delivery of a beta version of the
software, LICENSEE hereby commits to accelerate payment of the
non-refundable prepayment on royalties to the amount of 125,000 US$ and
therefore will pay LICENSOR on or before June 30, 1997.
IN WITNESS WHEREOF, this Amendment has been duly executed in duplicate
by the parties hereto, as of the date mentioned hereunder.
Dated on March __, 1997.
LICENSOR: LICENSEE:
LERNOUT & HAUSPIE REGISTRY MAGIC, INC.
SPEECH PRODUCTS N.V.
By: /s/ GASTON BASTIAEUS By: /s/ WALT NAWROCKI
----------------------------- ----------------------------------
Name: GESTON BASTIAEUS Name: WALT NAWROCKI
--------------------------- --------------------------------
Title: PRESIDENT Title: PRESIDENT & CEO
-------------------------- -------------------------------
<PAGE> 17
AMENDMENT II TO THE LICENSE AGREEMENT
BETWEEN
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
AND
REGISTRY MAGIC, INC.
This Amendment II is entered into as of this 8th day of December, 1997
("Effective Date") by and between LERNOUT & HAUSPIE SPEECH PRODUCTS N.V. and
REGISTRY MAGIC, INC.
WHEREAS, Registry Magic, Inc. ("LICENSEE") and Lernout & Hauspie Speech
Products N.V. ("LICENSOR") have entered into a License Agreement, effective
December 31, 1996 (the "Original Agreement").
WHEREAS, the parties wish to expand the aforesaid Original Agreement.
IT HAS BEEN AGREED AS FOLLOWS:
1. LICENSEE hereby commits to an additional non-refundable prepayment on
royalties in the amount of Two Hundred Thousand US Dollars ($200,000
USD). This non-refundable prepayment shall be paid in a single lump sum
payment to LICENSOR, pursuant to the terms and conditions of the
Original Agreement.
2. It is agreed to incorporate this Amendment II into the Original
Agreement on the Effective Date of this Amendment II.
LICENSEE: LICENSOR:
REGISTRY MAGIC INCORPORATED LERNOUT & HAUSPIE SPEECH
PRODUCTS, N.V.
By: /s/ ROGER GOLDWYN By: /s/ JOHN GIBBONS
--------------------------------- -----------------------------------
Name: ROGER M. GOLDWYN Name: JOHN GIBBONS
------------------------------- ---------------------------------
Title: VICE PRESIDENT, WORLDWIDE Title: SENIOR DIRECTOR OF US OPERATIONS
------------------------------ --------------------------------
RESEARCH & DEVELOPMENT
------------------------------
By: /s/ KIMBERLY A. ADAMS
-------------------------------
Name: KIMBERLY A. ADAMS
-----------------------------
Title: CONTRACTS MANAGER
----------------------------
<PAGE> 1
EXHIBIT 10.7
REGISTRY MAGIC INCORPORATED
1 SOUTH OCEAN BOULEVARD, SUITE 206
BOCA RATON, FLORIDA 33432
November 10, 1997
1-800-REACH ME LLC
One Penn Plaza, Suite 1526
New York, New York 10119
Attention: Mortimer D.A. Sackler
Lee M. Erdman
Dear Sirs:
This letter states and confirms the agreement between the
undersigned, Registry Magic Incorporated, a Florida corporation (the "Company"),
and 1-800-REACH ME LLC, a New York limited liability company ("800-Reach Me"),
with respect to the purchase by 800-Reach Me simultaneous with the execution of
this letter agreement by 800-Reach Me of 200,000 shares of Common Stock, par
value $0.001 per share, of the Company (the "Shares"), for an aggregate purchase
price of $1,000,000 (the "Purchase Price"), based upon the terms and conditions
set forth below. On the date of this letter agreement, the Company will deliver
to 800-Reach Me a stock certificate representing the Shares against payment of
the Purchase Price by wire transfer to the account of the Company.
1. Representations and Warranties. The Company
hereby represents and warrants to 800-Reach Me as follows:
(a) The Company is a corporation duly
incorporated, validly existing and in good standing under the
laws of the State of Florida.
(b) The Company has full power, authority and
legal right to execute and deliver this letter agreement, and to perform its
obligations hereunder. The Company has all necessary approvals, permits,
licenses and authorizations to own, lease or use its properties and assets and
to conduct its business as currently conducted.
(c) The execution, delivery and performance of
this letter agreement have been duly authorized by all necessary corporate
action on the part of the Company. This letter agreement has been duly executed
and delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as its enforceability may be limited by bankruptcy, insolvency
or similar laws affecting creditors' rights generally or by general principles
of equity.
<PAGE> 2
(d) The execution, delivery and performance by
the Company of this letter agreement do not and will not (i) violate (A) the
certificate of incorporation or by-laws of the Company, (B) any law, rule,
regulation, order, writ, injunction or decree of any court or governmental
instrumentality or arbitration panel or (C) any provision of any indenture,
agreement or other instrument to which the Company is a party or by which any of
its assets or properties is bound or affected, or (ii) be in conflict with, or
result in a breach of or constitute a default under any indenture, agreement or
other instrument referred to in clause (d)(i)(C) above.
(e) The Company's unaudited financial
statements at and for the year ended July 31, 1997, a copy of which has been
furnished to 800-Reach Me (the "Financial Statements"), are complete and correct
in all material respects and present fairly the financial condition of the
Company as at such date, and the results of the Company's operations and cash
flow for the fiscal year then ended. The Financial Statements, including the
related schedules and notes thereto, have been prepared in accordance with
generally accepted accounting principles applied consistently throughout the
periods involved.
(f) Since July 31, 1997 there has been no
material adverse change in the business, operations, property, condition
(financial or otherwise) or prospects of the Company.
(g) No litigation, investigation or proceeding
of or before any arbitrator, court or governmental authority is pending or, to
the Company's knowledge, threatened by or against the Company or against any of
its properties or revenues.
(h) No event of default (or condition which
would constitute an event of default with the giving of notice or the passage of
time) exists under any agreements, contracts or commitments of the Company which
could have a material adverse effect on the business, operations, property,
condition (financial or otherwise) or prospects of the Company.
(i) The Company solely owns, or is licensed to
use, free of liens and encumbrances, all patents, trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted (the "Intellectual Property"). No claim has been
asserted and is pending by any person with respect to the use of any such
Intellectual Property, or challenging or questioning the validity or
effectiveness of any such Intellectual Property, and the Company does not know
of any valid basis for any such claim. The use of such Intellectual Property by
the Company does not infringe on the rights of any person.
2
<PAGE> 3
(j) No obligation of the Company and no law or
regulation materially adversely affects, or insofar as the Company could
reasonably foresee may so affect, the business, operations, property, condition
(financial or otherwise) or prospects of the Company.
(k) The Shares being purchased by 800-Reach Me
hereunder are duly authorized, validly issued, fully paid and nonassessable,
have the rights, powers and privileges described in the Company's certificate of
incorporation and, based in part upon the representations of 800-Reach Me in the
investment letter from 800-Reach Me to the Company dated the date hereof, are
issued in compliance with all applicable federal and state securities laws.
(l) All material contracts, agreements,
orders, leases, licenses and other commitments of the Company are in full force
and effect, none is in default and none will result in the successful assertion
or claim of any liability on the part of the Company.
(m) All information with respect to the
Company furnished to 800-Reach Me by or on behalf of the Company is complete and
correct in all material respects. No fact is known to the Company which
materially and adversely affects or in the future may (so far as the Company can
reasonably foresee) materially and adversely affect the business, assets or
liabilities, financial condition, results of operations or business properties
of the Company which has not been disclosed in writing to 800-Reach Me. No
document furnished or statement made in writing to 800-Reach Me by or on behalf
of the Company contains any untrue statement of a material fact or omits to
state any such material fact necessary in order to make the statements contained
therein not misleading.
(n) The authorized capital of the Company
consists of (i) 30,000,000 shares of Common Stock, par value $0.001 per share
(the "Common Stock"), of which 3,800,000 shares are issued and outstanding, all
of which are duly authorized, validly issued, fully paid and nonassessable, and
(ii) 5,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock"), none of which have been issued. There are 600,000 shares of
Common Stock reserved for future issuance pursuant to the Company's employee
stock plan (the "Employee Stock Plan Shares"), and there are 600,000 shares of
Common Stock reserved for future issuance pursuant to outstanding options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from the Company of Common Stock (the "Option
Shares"). Except for the Employee Stock Plan Shares and the Option Shares, there
are no outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock or other securities of the
3
<PAGE> 4
Company.
2. Right of First Refusal. For so long as 800- Reach Me owns
(i) at least 50,000 shares of Common Stock of the Company, or (ii) the right to
acquire shares of Common Stock of the Company that together with any other
shares of Common Stock of the Company owned by 800-Reach Me would equal in the
aggregate at least 50,000 shares of Common Stock of the Company, and until the
Company issues shares of the Company's Common Stock by means of an underwritten
public offering pursuant to the Securities Act that raises $5,000,000 for the
Company, the Company shall grant 800-Reach Me the right of first refusal to
purchase its pro rata share of all or any part of New Securities (as defined
below) that the Company may, from time to time, propose to issue. 800-Reach Me's
pro rata share, for purposes of this right of first refusal, shall equal a
fraction, the numerator of which is the number of shares of Common Stock (a)
owned by 800-Reach Me immediately prior to the issuance of New Securities and
(b) issuable upon conversion or exercise of any convertible securities, options,
rights or warrants held by 800-Reach Me immediately prior to the issuance of New
Securities, and the denominator of which is the total number of shares of Common
Stock outstanding immediately prior to the issuance of New Securities, assuming
full conversion of all convertible securities of the Company and all outstanding
rights, options and warrants to acquire Common Stock of the Company. "New
Securities" means (i) any Common Stock of the Company whether now authorized or
not, and rights, options or warrants to purchase Common Stock, (ii) any
Preferred Stock of the Company whether now authorized or not, and rights,
options or warrants to purchase Preferred Stock, and (iii) securities or
instruments of any type whatsoever that are, or may become, convertible into
capital stock; provided, however, that New Securities will not include (i)
shares of the Company's Common Stock that are issued by the Company by means of
an underwritten public offering pursuant to the Securities Act or (ii) the
Option Shares.
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<PAGE> 5
3. Registration.
(a) Definitions.
(i) The terms "register," "registered"
and "registration" refer to a registration effected by
preparing and filing a registration statement in compliance with the
Securities Act, and the declaration of the effectiveness of such
registration statement under the Securities Act.
(ii) The term "Registrable Securities"
means:(A) the Shares; and (B) any securities of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of any of the
securities described in clause 3(a)(ii)(A) above, if any;
provided, however, that the securities described in clauses 3(a)(ii)(A) and (B)
above shall cease to be Registrable Securities upon the first occurrence of any
of the following events: (1) a registration statement with respect to such
securities shall have been declared effective under the Securities Act and such
securities shall have been disposed of by the holder (as defined below) thereof
pursuant to such registration statement; or (2) such securities shall become
transferable to any person pursuant to Rule 144(k) (or any successor provisions)
promulgated under the Securities Act.
(iii) The term "holder" means 800-Reach
Me, its designees, assignees and successors.
(iv) The term "Form S-3" means Form S-3
under the Securities Act as in effect on the date hereof or any
registration form under the Securities Act subsequently adopted by the
Securities and Exchange Commission (the "SEC") in lieu of Form S-3
which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(b) Demand for Registration.
(i) If the Company shall receive at any
time after three months after the effective date of the first
registration statement for a public offering of its securities (other
than a registration statement relating to the sale of securities to
employees of the Company pursuant to an employee stock plan), a written
request from the holder that the Company file a registration statement
under the Securities Act covering the registration of Registrable
Securities then outstanding, then the Company shall, subject to the
limitations of subsection 3(b)(ii) and 3(b)(iii), file as soon as
5
<PAGE> 6
practicable, and in any event within 90 days of the receipt of such
request, a registration statement under the Securities Act covering all
Registrable Securities then outstanding that the holder requests to be
registered.
(ii) If the holder intends to distribute the
Registrable Securities covered by its request by means of an
underwritten offering, the holder shall so advise the Company as a part
of its request made pursuant to this Section 3(b). The holder shall
(together with the Company as provided in subsection 3(d)(v)) enter
into an underwriting agreement in customary form with the underwriter
or underwriters selected by the holder, which underwriter or
underwriters shall be reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 3(b), if the
underwriter advises the holder in writing that marketing factors
require (i) a limitation of the number of shares to be underwritten, or
(ii) a delay in the registration of the Registrable Securities covered
by the holder's request not to exceed 180 days after receipt of the
holder's request, then (i) the number of shares of Registrable
Securities that may be included in the underwriting shall be reduced to
the number permitted by the underwriter, or (ii) the registration of
the Registrable Securities covered by the holder's request will be
deferred for such a period of time not to exceed 180 days after receipt
of the holder's request, as determined by the underwriter in its
reasonable best judgment.
(iii) Notwithstanding the foregoing, if the Company
shall furnish to the holder a certificate signed by an authorized
officer of the Company stating that it would be seriously detrimental
to the Company and its shareholders for such registration statement to
be filed or that to file such registration statement at such time would
require the disclosure of an event or fact that would have a material
adverse effect on the business, operations or prospects of the Company,
then the Company shall have the right to defer such filing for a period
of not more than 180 days after receipt of the request of the holder
referred to in Section 3(b)(i) above.
(c) Piggy-Back Registration. If the Company proposes to
register (including for this purpose a registration effected by the Company for
shareholders other than the holder) any of its securities under the Securities
Act in connection with the public offering of such securities (other than a
registration relating solely to the sale of securities to participants in an
employee stock plan), the Company shall, at such time, promptly give the holder
written notice of such registration. Upon the written request of the holder, the
Company shall, subject to the provisions of Section 3(h), cause
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<PAGE> 7
to be registered under the Securities Act all of the Registrable Securities that
the holder has requested to be registered.
(d) Obligations of the Company. Whenever required under this
Section 3 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its
reasonable efforts to cause such registration statement to become
effective, and, upon the request of the holder, keep such registration
statement effective until the holder has disposed of the Registrable
Securities.
(ii) During the time a registration statement is
required to be kept effective hereunder, prepare and file with the SEC
such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may
be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement.
(iii) Furnish to the holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as it may
reasonably request in order to facilitate its disposition of
Registrable Securities.
(iv) During the time a registration statement is
required to be kept effective hereunder, use its reasonable efforts to
register and qualify the securities covered by such registration
statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the holder, provided
that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions.
(v) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement,
in usual and customary form, with the managing underwriter of such
offering. The holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.
(vi) Notify the holder at any time when a prospectus
relating to the holder's Registrable
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<PAGE> 8
Securities is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(vii) Furnish, at the request of the holder, on the date
that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 3, if
such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that
the registration statement with respect to such securities becomes
effective, (A) an opinion, dated such date, of the counsel representing
the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the
holder and (B) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the holder.
(e) Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 3 that
the holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of the
Registrable Securities.
(f) Expenses of Demand Registration. All expenses, other than
underwriting discounts and commissions and stock transfer taxes relating to
Registrable Securities, incurred in connection with registrations, filings or
qualifications pursuant to Section 3(b), including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the holder shall be borne by the Company.
(g) Expenses of Piggy-Back Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 3(c) for the holder, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees
relating or apportionable thereto and the
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<PAGE> 9
reasonable fees and disbursements of one counsel not to exceed $2,500 for the
holder, but excluding underwriting discounts and commissions and stock transfer
taxes relating to Registrable Securities.
(h) Underwriting Requirements. In connection with any offering
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 3(c) to include any of the holder's
securities in such underwriting unless the holder accepts the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it, and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Company. At any
time, the underwriters may determine a maximum number of shares to be offered,
which the underwriters reasonably determine to be the maximum number of shares
compatible with the offering's success. If the total amount of securities
requested to be sold in the offering, including Registrable Securities requested
by the holder to be included in such offering, exceeds such maximum, then the
Company shall be required to include in the offering only such number of
Registrable Securities which the underwriters believe will not jeopardize the
success of the offering; provided, however, that in no event shall the amount of
securities of the holder to be included in the offering be reduced to an amount
less than forty percent (40%) of the total amount of Registrable Securities
requested to be included in such offering, unless such offering is the initial
public offering of the Company's securities, in which case the holder may be
totally excluded if the underwriters make the determination described above and
the securities of no other shareholder, director, officer or employee (each an
"Additional Holder") who, together with (i) any relative, spouse or relative of
the spouse of the Additional Holder, (ii) any trust or estate in which the
Additional Holder and any of the persons related to him as specified in
paragraph 3(h)(i) or 3(h)(iii) collectively have more than 50% of the beneficial
interest (excluding contingent interest), and (iii) any corporation or other
organization of which the Additional Holder and any of the persons related to
him as specified in paragraph 3(h)(i) or 3(h)(ii) collectively are beneficial
owners of more than 50% of the equity securities (excluding directors'
qualifying shares) or equity interest, holds more than 1% of any class of the
Company's voting securities are included.
(i) Market Stand-Off Agreement. The holder agrees that it will
not, to the extent requested by the Company and an underwriter of the Common
Stock of the Company, sell or otherwise transfer or dispose (other than to
donees who agree to be similarly bound) of any Registrable Securities following
the effective date of a registration statement of the Company under the
Securities Act that becomes effective within six months of the date hereof;
provided, however, that:
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<PAGE> 10
(i) such agreement will be applicable only to the
first such registration statement of the Company which covers Common
Stock of the Company to be sold on the Company's behalf to the public
in an underwritten offering; and
(ii) (a) all officers and directors of the Company,
(b) any other shareholder of the Company's Common Stock who, together
with (A) any relative, spouse or relative of the spouse of such
shareholder, (B) any trust or estate in which such shareholder and any
of the persons related to him as specified in paragraph 3(i)(ii)(b)(A)
and 3(i)(ii)(b)(C) collectively have more than 50% of the beneficial
interest (excluding contingent interest), and (C) any corporation or
other organization of which such shareholder and any of the persons
related to him specified in 3(i)(ii)(b)(A) and 3(i)(ii)(b)(B)
collectively are beneficial owners of more than 50% of the equity
securities (excluding directors' qualifying shares) or equity interest,
holds more than 1% of the Company's Common Stock, and (c) any other
person with registration rights in connection with any Option Shares
that upon exercise are convertible into the Company's Common Stock who,
together with (A) any relative, spouse or relative of the spouse of
such person, (B) any trust or estate in which such person and any of
the persons related to him specified in paragraph 3(i)(ii)(c)(A) and
3(i)(ii)(c)(C) collectively have more than 50% of the beneficial
interest (excluding contingent interest), and (C) any corporation or
other organization of which such person and any of the persons related
to him specified in 3(i)(ii)(c)(A) and 3(i)(ii)(c)(B) collectively are
beneficial owners of more than 50% of the equity securities (excluding
directors' qualifying shares) or equity interest, would upon exercise
of the Option Shares hold more than 1% of the Company's Common Stock,
enter into similar agreements.
(j) Indemnification. (i) The Company will indemnify the holder,
each of its officers and directors and partners, if any, and each person
controlling the holder within the meaning of Section 15 of the Securities Act
with respect to which registration, qualification or compliance has been
effected pursuant to this Section 3, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement filed pursuant to Section 3 hereof, any
prospectus included therein, or any amendment or supplement thereto, or based on
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to
10
<PAGE> 11
make the statements therein, in light of the circumstances in which they were
made, not misleading, and the Company will reimburse, as incurred, the holder,
each of its officers, directors and partners, if any, and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by the holder, such controlling person or underwriter and stated
to be specifically for use therein, and provided further that the Company will
not be liable to any such person with respect to any such untrue statement or
omission (or alleged untrue statement or omission) made in any preliminary
prospectus that is corrected in the final prospectus (or any amendment or
supplement thereto) if the person asserting any such loss, claim, damage or
liability was not sent or given a copy of the prospectus (as amended or
supplemented), at or prior to the written confirmation of the sale of
Registrable Securities to such person in any case where such delivery of the
prospectus (as amended or supplemented) is required by the Securities Act and
the untrue statement or alleged untrue statement of a material fact, or the
omission or alleged omission to state a material fact, that is found to be or is
alleged to be the basis of liability in such preliminary prospectus was
corrected in the prospectus as amended or supplemented.
(ii) The holder will, if Registrable Securities held by
the holder are included in a registration statement filed pursuant to
Section 3 hereof, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered
by such a registration statement, and each person who controls the
Company or such underwriter within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in
any such registration statement, any prospectus included therein, or
any amendment or supplement thereto, or any omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, not misleading,
and will reimburse the Company, such directors, officers, partners,
persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each
case to the extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged omission) is
11
<PAGE> 12
made in such registration statement, prospectus, or amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by the holder
and stated to be specifically for use therein; provided, however, that
the obligations of the holder under this Section 3(j)(ii) shall be
limited to an amount equal to the proceeds to the holder of Registrable
Securities sold in connection with such registration.
(iii) Each party entitled to indemnification under this
Section 3(j) (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly
after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party
to assume the defense of any such claim or any litigation resulting
therefrom, provided that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 3 except and to the extent the
failure to give such notice is materially prejudicial to an
Indemnifying Party's ability to defend such action. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except
with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect to
such claim or litigation.
(k) Reports Under Securities Exchange Act of 1934. With a view to
making available to the holder the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit the holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company, at its sole
cost and expense, agrees to:
(i) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times
after 90 days after the effective date of the first registration
statement filed by the Company for the offering of its securities to
the general public;
(ii) take such action, including the voluntary
registration of its Common Stock under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as is necessary
to enable the holder to utilize Form S-3 for the sale of its
Registrable Securities, such action to be taken as soon as practicable
after the end of the fiscal year in which the first registration
statement filed by the Company for
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<PAGE> 13
the offering of its securities to the general public is declared
effective;
(iii) file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act
and the Exchange Act; and
(iv) furnish to the holder, so long as the holder owns
any Registrable Securities, forthwith upon request (A) a written
statement by the Company that it has complied with the reporting
requirements of SEC Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by the
Company), the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to
Form S-3 (at any time after it so qualifies), (B) a copy of the most
recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company with the SEC and (C) such other
information as may be reasonably requested in availing the holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration.
4. Governing Law. This agreement will be governed by and
construed in accordance with the law of the State of New York.
5. Notices. Any notice, communication or demand to be given or
made by or to the Company or 800-Reach Me pursuant to this letter agreement will
be in writing and will be sufficiently given or made for all purposes if
delivered personally to such party, if sent by receipt confirmed
telecommunications, or if sent to such party by recognized courier, at its
respective address set forth above or, in the event of a change in any address,
then to such other address as to which notice of the change is given. Notice
will be deemed given on receipt.
6. Amendment. This letter agreement may be amended only by an
instrument in writing signed by the parties hereto.
7. Entire Agreement. This letter agreement contains the entire
understanding of the parties with respect to the subject matter of this letter
agreement, and it supersedes all prior understandings and agreements, whether
written or oral, and all prior dealings of the parties with respect to the
subject matter hereof.
8. Parties in Interest and Assignment. This letter agreement
is binding upon and is for the benefit of the parties hereto and their
respective successors and permitted assigns. This letter agreement may not be
assigned by either
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<PAGE> 14
party without the prior written consent of the other party hereto.
9. Execution and Counterparts. This letter agreement may be
executed in several counterparts, each of which will be deemed to be an
original, and all such counterparts when taken together, will constitute one and
the same instrument.
If the foregoing accurately reflects our agreement, please
sign and return a copy of this letter.
Very truly yours,
REGISTRY MAGIC INCORPORATED
By /s/ Walt Namwrocki
-------------------------------
Name: Walt Nawrocki
Title: President & CEO
CONFIRMED AND AGREED TO THIS
10TH DAY OF NOVEMBER, 1997.
1-800-REACH ME LLC
By /s/ Mortimer D.A. Sackler
----------------------------
Mortimer D.A. Sackler
Chairman
By /s/ Lee M. Erdman
----------------------------
Lee M. Erdman
President
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<PAGE> 1
EXHIBIT 10.8
AGREEMENT
THIS STRATEGIC ALLIANCE AGREEMENT (the "Agreement") is entered into as
of the _____ day of November, 1997, by and between REGISTRY MAGIC CORPORATION
(hereinafter "Registry"), a Florida corporation with its principal offices at
One South Ocean Boulevard, Suite 206, Boca Raton, Florida 33432 and PHONE
INTERACTIVE CORP. (hereinafter "Phone Interactive"), a Florida corporation with
offices at 600 S. Dixie Highway, Suite 210, Boca Raton, Florida 33432.
W I T N E S S E T H:
WHEREAS, Phone Interactive is engaged in the telephone service bureau
business and possesses both the requisite technical capabilities and
telecommunications equipment that enables its customers, among other
communications services, the ability to call receive multiple inbound calls from
#800 and #900 lines, process responses to automated prompts and/or re-direct
such calls to other third parties through its switching system; and,
WHEREAS, Registry is engaged in automated speech recognition business
and possesses the requisite technical capabilities, personnel and equipment that
enables its customers, among other communications services, to provide automated
operator services through its Virtual Operator product, and automated voice
dialing services through its MagicDialing product; and,
WHEREAS, Phone Interactive and Registry desire, from time to time, to
refer marketing and sales leads to each other, and/or jointly cooperate in
offering certain industry solutions (hereinafter "Alliances") by combining their
respective services in accordance with the terms of this Agreement and the
supplements to this Agreement (hereinafter "Alliance Supplements") entered into
from time to time.
NOW, THEREFORE, in consideration of the foregoing premises and the
promises herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties,
Registry and Phone Interactive, intending to be legally bound, hereby agree as
follows:
SECTION 1. BUSINESS GOALS
(a) Establishing a flexible, reliable product development and
service delivery process to ensure timely delivery of
defect-free services in quantities consistent with the
up-to-the-minute needs of the marketplace.
<PAGE> 2
(b) Achieving continuous total-cost reductions through improved
production, management, staffing, and administrative
efficiencies and design improvements.
(c) Allowing a reasonable return for work done by both parties
while reducing both parties' costs and increasing value to the
customer. Cost savings achieved by improved design,
procedures, and materials will be reflected by price
adjustments.
(d) Establishing an aggressive lead-time reduction plan for
continuous reduction in engineering, production, and purchase
lead time.
(e) Adopting and using communication and documentation procedures
and formats (including fax and E-mail) compatible with each
company's development, logistics, and systems strategy to save
time and avoid unnecessary paperwork.
(f) Working with our suppliers and service contractors to obtain
constant improvement in their processes to meet our mutual
goals.
(g) Providing technical documentation and technical assistance as
reasonably required to assist each other to perform their
duties reliably and on time.
(h) Working together on long-term development and marketing
strategies to increase product and service sales volumes.
(i) Meeting at least once every month to review, on both a general
and a specific basis, the mutual progress and results against
these stated goals.
SECTION 2. PROCEDURES
2.1 The specific terms and conditions of each Alliance Supplement will
be in writing, signed by each party hereto or electronically transmitted with
authorized identification. A guideline for each Alliance Supplement is attached
hereto as Exhibit A. In the absence of conformity with Exhibit A, each Alliance
Supplement will contain at a minimum the following:
(a) Scope of work, including responsibilities of each party. Where
appropriate, the parties may agree to refer to Specifications
for work and deliverable content.
(b) Terms of reimbursement of materials and/or labor, if
applicable.
(c) Pricing of Alliance Offering.
2
<PAGE> 3
(d) Quantity and delivery commitments.
(e) Loans or sharing of equipment of facilities.
(f) Division of fixed and variable costs.
(g) Payment terms and division of revenues
(h) The lead party in the transaction (such as, but not limited
to, lead contracting party, focal point for billing and
collection, and lead support function).
2.2 Alliance Supplement, once issued and accepted, will represent the
binding commitment of both parties to perform the work indicated therein, unless
or until terminated or changed by mutual agreement. Both parties understand that
neither is obligated by this Agreement to issue or accept Alliance Supplements.
2.3 Except as specifically agreed and stated in a binding Alliance
Supplement, each party will be responsible for its own costs and expenses.
2.4 Each party will be responsible for obtaining from third parties any
Intellectual Property Rights necessary to complete its performance; to the
extent that products or services are required to be provided by either party,
that party shall be responsible for having and providing the Intellectual
Property Rights needed for the contemplated use or sale of those products or
services.
2.5 Intellectual Property Rights of the parties relating to any joint
works shall be defined in each Alliance Supplement.
2.6 Each party agrees to comply with all applicable federal, state, and
local laws, regulations, and ordinance, including, without limitation, U.S. laws
relating to the export of technical data, machines, and commodities insofar as
they relate to the activities to be performed under this Agreement.
SECTION 3. CONFIDENTIALITY
3.1 The term "Confidential Information" shall mean any and all
proprietary information belonging to any disclosing party, whether tangible or
intangible, written or oral, including, without limitation, any data, products,
inventions, patents, copyrights or trademarks (or any application therefor),
know how, process technique, marketing materials, layouts and campaigns, books
and records, financial information, computer software and files, and lists of
(and information concerning) customers, suppliers, vendors, contractors and
other business relationships. Each of the parties hereto is a "Disclosing Party"
to the extent it provides Confidential Information to the other, as well
3
<PAGE> 4
as a "Non-Disclosing Party" to the extent it receives Confidential Information
from the other.
3.2 The term "Trade Secret" shall mean any information, which may not
otherwise be considered Confidential Information, including a formula, pattern,
compilation, program, device, method, technique, or process that (i) derives
independent economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use; and (ii) is the subject of
efforts that are reasonable under the circumstances to maintain its secrecy.
3.3 Registry and Phone Interactive acknowledge that in performing their
respective obligations under this Agreement they may have access to the Trade
Secrets and Confidential Information of the other. Registry and Phone
Interactive each agree that (i) during the term of this Agreement and for so
long as the relevant information remains a Trade Secret of the disclosing party,
it will not use, copy of disclose, or permit any unauthorized person (which
includes any employee of Registry or Phone Interactive unless such use or
disclosure is for purposes specifically related to its respective obligations
hereunder and who is subject to the security and control of Registry or Phone
Interactive, as the case may be) access to, any Trade Secrets of the other party
except for that which is required in performing its obligations under this
Agreement, or (ii) during the term of this Agreement or for a period of three
years after the termination of this Agreement it will not use, copy, disclose,
or permit any unauthorized person access to, any Confidential Information of the
other except in connection with its obligations hereunder. Registry and Phone
Interactive shall take all appropriate action, whether by instruction, agreement
or otherwise to ensure the protection, security, and confidentiality of the
other's Trade Secrets and Confidential Information, and to satisfy their
respective obligations under this Section 3.3. Any data or other materials owned
by a Disclosing Party which it furnishes for use by the Non-Disclosing Party in
connection with the obligations under this Agreement, including other Trade
Secrets and Confidential Information, shall remain the sole property of the
Disclosing Party, shall be held in confidence by the Non-Disclosing Party in
accordance with the provisions of this Section 3.3, and shall be returned to the
Disclosing Party or destroyed by the Non-Disclosing Party and certified as
destroyed to the Disclosing Party upon termination of this Agreement.
3.4 For purposes of this Agreement, Confidential Information shall not
include, and the obligations provided hereunder shall not apply to, information
that: (a) is now or subsequently becomes generally available to the public
through no fault of the Non-Disclosing Party; (b) the Non-Disclosing Party can
demonstrate was rightfully in its possession prior to disclosure by the
Disclosing Party; (c) is independently developed by the Non-Disclosing Party
without the use of any Confidential Information provided by the Disclosing
Party; (d) Non-Disclosing Party rightfully obtained or obtains from a third
party who has the right, without obligation to the Disclosing Party, to transfer
or disclose
4
<PAGE> 5
such information; (e) is released or approved for release by the other
Disclosing Party without restriction.
3.5 In the event that either party is requested in any court or
governmental proceeding, or required in connection with any court or
governmental filing, to disclose any Confidential Information furnished to it by
the other party hereto, then the Non-Disclosing Party shall give the Disclosing
Party notice of such request as promptly and as reasonably feasible (but in any
event within three business days from the receipt by the non-disclosing party of
any such request for information), so that the Disclosing Party may seek an
appropriate protective order. If, in the absence of a protective order, the
non-disclosing party (or affiliate, employee, agent or representative thereof)
may nonetheless be compelled to disclose any Confidential Information, it may
disclose such Confidential Information without liability hereunder, and such
disclosure will not be deemed to constitute a breach or other violation of any
provision of this Agreement.
SECTION 4. NOTICES
Any notice under this Agreement shall be deemed given if sent by
courier, facsimile or mail, directed to the principal contact of the party being
notified. The contacts for purposes of all work and business between the parties
concerning this Agreement and all notices required or permitted hereunder shall
be:
For Registry:
Principal Contact: Walt Nawrocki
Business Phone: 561-367-0408
(Fax: 561-367-0608)
Business Mailing Address: Registry Magic, Inc.
One S. Ocean Boulevard
Suite 206
Boca Raton, Florida 33432
For Phone Interactive:
Principal Contact: Kurt Draxl
Business Phone: 561-391-9351
(Fax 561-391-4147)
Business Mailing Address: Phone Interactive, Inc.
600 S. Dixie Highway
Suite 202
Boca Raton, Florida 33432
5
<PAGE> 6
SECTION 5. TERM AND TERMINATION
This Agreement is effective as of the date first set forth above, and
shall continue for a period of one (1) year (the "Initial Term"), or until:
(a) Expiration of Agreement Renewal. This Agreement shall
automatically renew for one (1) year terms upon expiration of
the Initial Term. In the event that either party determines
that it will not exercise its option to renew this Agreement
for any renewal term, such party shall provide the other with
no less than sixty (60) days prior written notice of such
non-renewal.
(b) Termination by Phone Interactive. Phone Interactive shall have
the right but not the obligation to terminate this Agreement
if Registry: (i) fails to pay, in full, when due any amounts
for which it is obligated to pay hereunder, provided that
Phone Interactive has given Registry thirty (30) days prior
written notice of such non-payment and the Registry has failed
to make such payment during said thirty (30) day period; or
(ii) fails, is unable or refuses to perform any of the
Registry's material obligations under this Agreement, unless
within thirty (30) days after receipt of written notice of
such default, Registry remedies the default; or (iii) becomes
insolvent or commits any act of bankruptcy, or a petition for
involuntary bankruptcy is filed against Registry, or Registry
makes a general assignment for the benefit of creditors under
the bankruptcy or insolvency laws.
(c) Termination by Registry. Registry shall have the right but not
the obligation to terminate this Agreement if Phone
Interactive: (i) fails to pay, in full, when due any amounts
for which it is obligated to pay hereunder, provided that
Registry has given Phone Interactive thirty (30) days prior
written notice of such non-payment and Phone Interactive has
failed to make such payment during said thirty (30) day
period; or (ii) fails, is unable or refuses to perform any of
Phone Interactive's material obligations under this Agreement,
unless within thirty (30) days after receipt of written notice
of such default, Phone Interactive remedies the default; or
(iii) becomes insolvent or commits any act of bankruptcy, or a
petition for involuntary bankruptcy is filed against Phone
Interactive, or Phone Interactive makes a general assignment
for the benefit of creditors under the bankruptcy or
insolvency laws.
SECTION 6. CONSEQUENCES OF TERMINATION
6.1 Upon any termination of this Agreement, payment shall remain
due for services rendered prior to the effective date of this Agreement's
termination, and
6
<PAGE> 7
thereafter all obligations of each party to the other shall cease; however,
notwithstanding any such termination, the provisions of Section 3 shall remain
in effect.
6.2 Alliance Supplements, if any, may contain addition terms relating
to termination and consequences of termination.
SECTION 7. LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, LOSS OF PROFITS, OR INTERRUPTION OF BUSINESS, OR FOR ACTS
OF NEGLIGENCE THAT ARE NOT INTENTIONAL IN NATURE, WHETHER SUCH ALLEGED DAMAGES
ARE ALLEGED IN TORT, CONTRACT OR INDEMNITY, EVEN IF A PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
SECTION 8. MISCELLANEOUS
8.1 Force Majeure. Either party shall be excused from delays in
performing or from its failure to perform hereunder to the extent that such
delays or failures result from causes beyond the reasonable control of such
party; provided that, in order to be excused from delay or failure to perform,
such party must act diligently to remedy the cause of such delay or failure.
8.2 Agency. No agency, partnership, or other joint relationship is
created by this Agreement. None of the parties hereto has any authority of any
kind to bind any other party hereto in any respect whatsoever, nor shall any
party hereto act or attempt to act, or represent itself, directly or by
implication, as an agent of the other party hereto or in any manner assume or
create, any obligation on the behalf of or in the name of any of the other
party.
8.3 Severability. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be invalid, illegal or unenforceable, the
validity, legality, and enforceability of the remaining provisions hereof will
not in any way be affected or impaired, provided that the material terms and
intent of this Agreement remain unaffected or unimpaired.
8.4 Multiple Counterparts. This Agreement may be executed in several
counterparts, all of which taken together shall constitute one single Agreement
between the parties.
8.5 Section Headings. The section and subsection headings used herein
are for reference and convenience only, and shall not enter into the
interpretation hereof.
7
<PAGE> 8
8.6 No Waiver. No delay or omission by either party hereto to exercise
any right or power occurring upon any noncompliance or default by the other
party with respect to any of the terms of this Agreement shall impair any such
right or power or be construed to be a waiver thereof. A waiver by either of the
parties hereto of any of the covenants, conditions, or agreements to be
performed by the other shall not be construed to be a waiver of any succeeding
breach thereof or of any covenant, condition, or agreement herein contained.
8.7 Remedies. The remedies hereunder shall be cumulative and not
alternative and not alternatives; the election of one remedy for a breach shall
not preclude pursuit of other remedies.
8.8 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by and enforced in
accordance with the internal laws, and not the law of conflicts, of the State of
Florida applicable to all agreements made and to be performed in such state. The
parties hereto agree that all actions and proceedings relating directly or
indirectly hereto shall be litigated in any state court or federal court located
in Palm Beach County, and the parties hereto expressly consent to the
jurisdiction of any such courts and to venue therein. In the event of any
litigation arising out of a breach of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees and court costs.
8.9 Entire Agreement. This Agreement and the exhibits attached hereto,
constitute the entire agreement between the parties. No change, waiver, or
discharge hereof shall be valid unless it is in writing and is executed by the
party against whom such change, waiver, or discharge is sought to be enforced.
8.10 Third Party Beneficiaries. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
8.11 No Assignment. Neither party shall assign or transfer this
Agreement or any obligation incurred hereunder, except by merger,
reorganization, consolidation, or sale of all or substantially all of such
party's assets. Any attempt to do so in contravention of this Section shall be
void and of no force and effect.
8.12 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the heirs, successors and assigns of the parties hereto.
8.13 Rule of Construction. Both parties acknowledge that the rule of
construction that ambiguities are to be construed against the draftsman is not
to apply to this Agreement.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
and delivered by their duly authorized officers, all as of the date first
hereinabove written.
PHONE INTERACTIVE CORP. REGISTRY MAGIC, INC.
By: /s/ Kurt Draxl By: /s/ Walter Nawrocki
---------------------- ---------------------------
Printed Name: Kurt Draxl Printed Name: Walt Nawrocki
------------ -----------------
Title: VP Title: President and CEO
------------------- ------------------------
9
<PAGE> 10
EXHIBIT A
OUTLINE OF ALLIANCE SUPPLEMENTS
1. General
(a) Identification of parties and date of execution.
(b) Reference to Base Agreement.
2. Summary of Purpose for Alliance Supplement
(a) General description of required services and products.
3. Ownership of Work Product
(a) Agreement regarding relative rights of each party in the
\deliverables, including associated Intellectual Property
Rights.
(b) General description of preexisting works, if any.
4. Description of Equipment, Facilities, Programming, and Other Resources
to be Provided by Each Party
(a) If appropriate, identify personnel, by name or classification,
to be assigned to the work.
5. Description of Deliverables
(a) Include functional and technical specifications, as
applicable.
(b) Describe form of product to be delivered.
(c) Indicate whether documentation, such as reports, inspections,
and tests, are included as deliverables.
6. Protection of Confidential Materials
(a) Provide for treatment of source code or development
environment.
7. Special Terms (if any)
(a) Sharing of development expenses
(b) Payment terms and revenue sharing
(c) Method of customer delivery and support
(d) Roles of the parties (for customer contracting, billing and
collection, focal point for sales and support)
8. Payment Schedule, if applicable
<TABLE>
<CAPTION>
Date Amount Deliverable/Milestones
---- ------ ----------------------
<S> <C> <C>
Statement of Work Executed
- ------- ------------- Project Management Plan Completed and Delivered
- ------- ------------- Specifications Accepted
- ------- ------------- Prototype Delivered
- ------- ------------- Testing and Debugging Completed
- ------- ------------- Code Delivered
- ------- ------------- Documentation Delivered
- ------- ------------- Acceptance
- ------- -------------
</TABLE>
10
<PAGE> 11
9. Schedule and Performance Milestones
(a) This Schedule sets forth the target dates and performance
milestones for each party's responsibilities.
<TABLE>
<CAPTION>
Performance Milestone Responsible Party Target Date
--------------------- ----------------- -----------
<S> <C> <C>
Company and Supplier meet
to prepare the Functional
Specifications and test
procedures ------------------ -----------, 19---
Project Management Plan
completed ------------------ -----------, 19---
Development Work to begin ------------------ -----------, 19---
Prototype to Company ------------------ -----------, 19---
Testing and Debugging ------------------ -----------, 19---
Acceptance and Final Delivery ------------------ -----------, 19---
</TABLE>
10. Acceptance and Testing Procedures
11. Location of Work Facilities
(a) Where substantially all of the work will be conducted by the
Phone Interactive and Registry.
(b) Where on-going services are to be delivered from.
11
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Registry Magic Incorporated
Boca Raton, Florida
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated December 19, 1997, relating to
the financial statements of Registry Magic Incorporated which is contained in
that Prospectus. Our report contains an explanatory paragraph indicating that
there exists substantial doubt about the Company's ability to continue as a
going concern.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
BDO Seidman, LLP
Miami, Florida
March 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 533,846
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 541,766
<PP&E> 178,189
<DEPRECIATION> (32,779)
<TOTAL-ASSETS> 763,523
<CURRENT-LIABILITIES> 712,849
<BONDS> 0
0
0
<COMMON> 3,793
<OTHER-SE> 46,881
<TOTAL-LIABILITY-AND-EQUITY> 763,523
<SALES> 113,384
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 428,853
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> (315,546)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (315,546)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> JUL-31-1996
<PERIOD-END> JUL-31-1997
<CASH> 928,680
<SECURITIES> 0
<RECEIVABLES> 5,140
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 937,904
<PP&E> 134,569
<DEPRECIATION> (19,640)
<TOTAL-ASSETS> 1,108,095
<CURRENT-LIABILITIES> 741,875
<BONDS> 0
0
0
<COMMON> 3,793
<OTHER-SE> 362,427
<TOTAL-LIABILITY-AND-EQUITY> 1,108,095
<SALES> 344,944
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,719,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> (1,374,203)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,374,203)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
</TABLE>
