As filed with the Securities and Exchange Commission on December 23, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
-------------------------
COMPU-DAWN, INC.
(Name of Small Business Issuer in its Charter)
Delaware 7373 11-3344575
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Number)
organization) Code No.)
77 Spruce Street
Cedarhurst, New York 11516
Telephone : (516) 374-6700
Telecopier: (516) 374-9553
(Address and telephone number of principal executive
offices) (Address of principal place of business or intended
principal place of business)
-------------------------
Mark Honigsfeld
Chairman of the Board
77 Spruce Street
COMPU-DAWN, INC.
Cedarhurst, New York 11516
Telephone: (516) 374-6700
Telecopier: (516) 374-9553
(Name, address and telephone number of agent for service)
-------------------------
Copies to:
Fred Skolnik, Esq. Edward K. Blodnick, Esq.
Gavin C. Grusd, Esq. Blodnick, Blodnick & Zelin, P.C.
Certilman Balin Adler & Hyman, LLP 2 Expressway Plaza, Suite 200
90 Merrick Avenue Roslyn Heights, New York 11577
East Meadow, NY 11514 Telephone: (516) 621-7500
Telephone: (516) 296-7000 Telecopier: (516) 621-7533
Telecopier: (516) 296-7111
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of the registration statement.
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. o ______________
[Cover continued on next page.]
<PAGE>
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 for the same offering. o ____
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. o
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Titles of Each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered (1) per Share (2) Price (2) Registration Fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares (3) 1,150,000 $5.00 $5,750,000 $1,796.88
Underwriter's Common Share
Purchase Warrants (4) 100,000 --- $ 100 ---
Common Shares (5) 100,000 $5.50 $ 550,000 $171.88
Common Shares (6) 431,200 $5.00 $2,156,000 $674.82
Common Shares (7) 250,250 $5.00 $1,251,250 $391.02
-------------------
Total Registration Fee: $3,034.60
=========================================================================================================
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended
("Securities Act"), this Registration Statement covers such additional
indeterminate number of Common Shares underlying warrants (the "Bridge
Warrants") issued to certain bridge lenders (the "Bridge Lenders") and
Underwriter's Common Share Purchase Warrants (the "Underwriter's Warrants")
as may be issued by reason of adjustments in the number of Common Shares
pursuant to anti-dilution provisions contained in the Bridge Warrants and
Underwriter's Warrants, respectively. Because such additional Common Shares
will, if issued, be issued for no additional consideration, no registration
fee is required.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Includes 150,000 Common Shares subject to the Underwriter's overallotment
option.
(4) To be issued to the Underwriter.
(5) Issuable upon exercise of the Underwriter's Warrants.
(6) Issuable upon exercise of the Bridge Warrants and registered on behalf of
the Bridge Lenders.
(7) Registered on behalf of Selling Stockholders.
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 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1996
PROSPECTUS
Compu-DAWN, Inc.
1,000,000 Shares of Common Stock, par value $.01 per share
Offering Price Per Share - $5.00
---------------
Compu-DAWN, Inc., a Delaware corporation (the "Company"), hereby offers
1,000,000 shares of Common Stock, par value $.01 per share (the "Common
Shares"). See "Risk Factors" and "Description of Securities." The "Risk Factors"
section begins on page 6 of this Prospectus.
The Company will apply for inclusion of the Common Shares on The Nasdaq
SmallCap Market, although there can be no assurances that an active trading
market will develop even if the securities are accepted for quotation. See "Risk
Factors - Lack of Prior Market for Common Shares; No Assurance of Public Trading
Market" and "Risk Factors - Penny Stock Regulations May Impose Certain
Restrictions on Marketability of Securities".
Prior to this offering (the "Offering"), there has been no public
market for the Common Shares. It is currently anticipated that the initial
public offering price will be $5.00 per Common Share. The price of the Common
Shares has been determined by negotiations between the Company and European
Community Capital Ltd., the underwriter of this Offering (the "Underwriter"),
and does not necessarily bear any relationship to the Company's assets, book
value, net worth or results of operations or any other established criteria of
value. The Underwriter may enter into arrangements with one or more
broker-dealers to act as co-underwriters of this Offering. For additional
information regarding the factors considered in determining the initial public
offering price of the Common Shares, see "Risk Factors - Arbitrary Offering
Price; Possible Volatility of Stock Price," "Risk Factors - Lack of Prior Market
for Common Shares; No Assurance of Public Trading Market," "Description of
Securities" and "Underwriting".
The registration statement of which this Prospectus forms a part also
covers the resale of an aggregate of 431,200 Common Shares (the "Warrant
Shares") underlying warrants (the "Bridge Warrants") issued to certain bridge
lenders (the "Bridge Lenders") (see "Bridge Financing") and an aggregate of
250,250 Common Shares held by certain stockholders (collectively with the Bridge
Lenders, the "Selling Stockholders"). The Company will not receive any of the
proceeds from the resale of the Common Shares by the Selling Stockholders. The
Common Shares held by the Selling Stockholders may be resold at any time
following the date of this Prospectus, subject to an agreement between the
Bridge Lenders and the Underwriter restricting the transfer of the Warrant
Shares for a period of six months without the Underwriter's consent. The resale
of the Common Shares by the Selling Stockholders is subject to Prospectus
delivery and other requirements of the Securities Act of 1933, as amended (the
"Act"). Sales of such Common Shares or the potential of such sales at any time
may have an adverse effect on the market price of the Common Shares offered
hereby. See "Principal and Selling Stockholders" and "Risk Factors - Shares
Eligible for Future Sale May Adversely Affect the Market".
----------------
[Cover Continued on Next Page]
<PAGE>
AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK
VALUE OF THE COMMON SHARES OFFERED HEREBY AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS" 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.
Price Underwriting Discounts Proceeds to
to Public and Commissions (1) Company (2)
--------- ------------------- -----------
Per Share....... $5.00 $0.50 $4.50
Total (3)....... $5,000,000 $500,000 $4,500,000
(1) Does not reflect additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $150,000
($172,500 if the Overallotment Option (as hereinafter defined) is
exercised in full), $50,000 of which has already been paid, (ii) a three
year financial advisory and investment banking agreement providing for
aggregate fees of $108,000 payable in advance at the closing of this
Offering, and (iii) warrants (to be purchased by the Underwriter for one
mil ($.001) per warrant) to purchase 100,000 Common Shares (10% of the
total number of Common Shares sold pursuant hereto) (the "Underwriter's
Warrants"), exercisable for a period of four years, commencing one year
from the date of this Prospectus. The Company and the Underwriter have
agreed to indemnify each other against certain liabilities, including
liabilities under the Act. The Company has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy and is therefore unenforceable. See "Underwriting".
(2) Before deducting expenses of the Offering payable by the Company
estimated at $625,000, including the Underwriter's non-accountable
expense allowance and financial advisory fee referred to in footnote
(1) (not assuming exercise of the Overallotment Option), registration
fees, transfer agent fees, NASD fees, Blue Sky filing fees and
expenses, legal fees and expenses, and accounting fees and expenses.
See "Use of Proceeds" and "Underwriting".
(3) Does not include 150,000 additional Common Shares to cover
overallotments which the Underwriter has an option to purchase for 45
days from the date of this Prospectus at the initial public offering
price, less the Underwriter's discount (the "Overallotment Option"). If
the Overallotment Option is exercised in full, the total Price to
Public will be $5,750,000, Underwriting Discounts and Commissions will
be $575,000, and Proceeds to Company will be $5,175,000. See
"Underwriting."
---------------
[Cover Continued on Next Page]
<PAGE>
The Common Shares are offered by the Underwriter on a "firm commitment"
basis, when, as and if delivered to and accepted by the Underwriter, and subject
to prior sale, allotment and withdrawal, modification of the offer with notice,
receipt and acceptance by the Underwriter named herein and subject to its right
to reject orders in whole or in part and to certain other conditions. It is
expected that the delivery of the certificates representing the Common Shares
and payment therefor will be made at the offices of the Underwriter on or about
, 1997.
EUROPEAN COMMUNITY CAPITAL LTD.
The date of this Prospectus is December 23, 1997.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
SHARES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ SMALLCAP MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
A SIGNIFICANT PORTION OF THE COMMON SHARES TO BE SOLD IN THIS OFFERING
MAY BE SOLD TO CUSTOMERS OF THE UNDERWRITER. SUCH SALES MAY AFFECT THE MARKET
FOR AND LIQUIDITY OF THE COMPANY'S SECURITIES IN THE EVENT THAT ADDITIONAL
BROKER-DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S SECURITIES, AS TO WHICH
THERE CAN BE NO ASSURANCE. SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN
TRANSACTIONS FOR THE SALE OR PURCHASE OF THE COMMON SHARES THROUGH AND/OR WITH
THE UNDERWRITER.
ALTHOUGH IT HAS NO OBLIGATION TO DO SO, THE UNDERWRITER MAY FROM TIME
TO TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE COMPANY'S
SECURITIES. THE UNDERWRITER, IF IT PARTICIPATES IN THE MARKET, MAY BECOME A
DOMINATING INFLUENCE IN THE MARKET FOR THE COMMON SHARES. HOWEVER, THERE IS NO
ASSURANCE THAT THE UNDERWRITER WILL OR WILL NOT CONTINUE TO BE A DOMINATING
INFLUENCE. THE PRICES AND LIQUIDITY OF THE SECURITIES OFFERED HEREBY MAY BE
SIGNIFICANTLY AFFECTED BY THE DEGREE, IF ANY, OF THE UNDERWRITER'S PARTICIPATION
IN SUCH MARKET. THE UNDERWRITER MAY DISCONTINUE SUCH ACTIVITIES AT ANY TIME OR
FROM TIME TO TIME. SEE "RISK FACTORS - LACK OF PRIOR MARKET FOR COMMON SHARES;
NO ASSURANCE OF PUBLIC TRADING MARKET".
2
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information (including financial
statements and notes thereto) contained in this Prospectus and is qualified in
its entirety by the more detailed information appearing elsewhere herein. In
addition, unless otherwise indicated to the contrary, the information appearing
herein does not give effect to the issuance of (a) 150,000 Common Shares upon
exercise of the Overallotment Option; (b) 100,000 Common Shares upon exercise of
the Underwriter's Warrants; (c) 431,200 Common Shares upon the exercise of the
Bridge Warrants; or (d) 501,450 Common Shares upon the exercise of other
outstanding options and warrants. See "Bridge Financing." However, all
references to Common Shares and prices per share in this Prospectus give
retroactive effect to a 325 for 1 stock split effectuated on October 18, 1996 as
part of the Company's reincorporation in the State of Delaware. See
"Underwriting." Each prospective investor is urged to read this Prospectus in
its entirety.
The Company
Compu-DAWN, Inc. (the "Company") is primarily engaged in the business
of designing, developing, licensing, installing and servicing computer software
products and systems for law enforcement and public safety agencies. The
software systems include computer-aided dispatching, computer interfacing with
state and national crime information databases, advanced mobile on-line radio
computing, automatic vehicle location (employing dynamic map displays), records
management and photo-image database systems. Certain of these applications
utilize telecommunications and space satellite technology, and other
infrastructure, provided by third parties. The Company has developed, licensed
and installed its systems in more than 55 agencies primarily located in the
State of New York.
The Company was incorporated under the name Coastal Computer Systems,
Inc. in New York on March 31, 1983 and was reincorporated in Delaware under its
present name on October 18, 1996.
The Company's executive offices are located at 77 Spruce Street,
Cedarhurst, New York 11516 and its telephone number is (516) 374-6700.
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating the Company and its business.
3
<PAGE>
The Offering
Common Shares Being Offered ...... 1,000,000 shares
Common Shares Outstanding Prior to
the Offering ..................... 986,700 shares
Common Shares to be Outstanding
After the Offering (1)............ 1,986,700 shares
Use of Proceeds................... The net proceeds to the Company from the
sale of the 1,000,000 Common Shares
offered hereby are estimated to be
$3,875,000. The net proceeds are
expected to be applied in the following
approximate percentages for the
following purposes: (i) product
enhancement and development (32.3%);
(ii) repayment of indebtedness (19.9%);
(iii) marketing and advertising (16.8%);
(iv) hiring and training of additional
personnel (3.8%); (v) purchase of
equipment (3.8%); (vi) payment of
accrued compensation to Chairman of the
Board and to President (3.0%); and (vii)
working capital (20.4%). See "Use of
Proceeds".
Risk Factors...................... An investment in the securities offered
hereby involves a high degree of risk
and immediate substantial dilution of
the book value of the Common Shares,
and should be considered only by persons
who can afford the loss of their entire
investment. See "Risk Factors" and
"Dilution".
Proposed Nasdaq SmallCap Market
Symbol(2)....................... "CODI"
- -----------------
(1) Does not give effect to the issuance of (i) 150,000 Common Shares upon
exercise of the Overallotment Option; (ii) 100,000 Common Shares upon
exercise of the Underwriter's Warrants; (iii) 431,200 Common Shares
upon the exercise of the Bridge Warrants; or (iv) 501,450 Common Shares
upon the exercise of other outstanding options and warrants (the "Other
Derivative Securities"). See "Bridge Financing" and "Underwriting".
(2) Although the Company will apply for inclusion of the Common Shares on
The Nasdaq SmallCap Market, there can be no assurance that the
Company's securities will be included for quotation, or, if so
included, that the Company will be able to continue to meet the
requirements for continued quotation, or that a public trading market
will develop or, if such market develops, that it will be sustained.
See "Risk Factors - Lack of Prior Market for Common Shares; No
Assurance of Public Trading Market".
4
<PAGE>
Summary Financial Information
The following summary financial information has been derived from the
financial statements of the Company included elsewhere in this Prospectus. All
amounts are in dollars except the number of Common Shares. The information
should be read in conjunction with the financial statements and the related
notes thereto. See "Financial Statements".
Statement of Operations Data
Nine Months Ended Years Ended
September 30, December 31,
--------------------- ---------------------
1996 1995 1995 1994
---- ---- ---- ----
Revenues .................... $478,714 $ 779,718 $1,040,181 $1,154,695
Operating income (loss) ...... (38,053) 104,512 129,981 110,022
Net income (loss) ............ (32,240) 63,273 78,660 68,450
Net income (loss) per share .. (.02) .03 .04 .04
Weighted average number of
Common Shares outstanding . 1,829,483 1,829,483 1,829,483 1,829,483
Balance Sheet Data
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
---------------------------------------------- -----------------
Pro Forma
Actual Pro Forma (1) As Adjusted(1)(2) Actual
------ ------------- ----------------- ------
<S> <C> <C> <C> <C>
Working capital ............. $ 83,290 $ 857,615 $ 3,997,615 $140,179
Total assets ................ 458,057 1,367,482 4,472,482 385,240
Total liabilities ........... 325,452 1,095,452 325,452 220,395
Total stockholders' equity .. 132,605 272,030 4,147,030 164,845
</TABLE>
- ---------------
(1) Adjusted to give retroactive effect to a certain October 1996 bridge
financing discussed herein (the "Bridge Financing") and the repurchase
by the Company of 65,000 Common Shares in connection therewith. See
"Bridge Financing."
(2) Adjusted to give effect to the receipt and application of the net
proceeds of approximately $3,875,000 from the sale of the Common Shares
offered hereby.
5
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative and
involves a high degree of risk and substantial dilution, and should only be
purchased by investors who can afford to lose their entire investment.
Prospective purchasers, prior to making an investment, should consider carefully
the following risks and speculative factors associated with this Offering, as
well as other information set forth elsewhere in this Prospectus, including the
information contained in the financial statements herein.
1. Dependence on Offering Proceeds; Possible Need for Additional
Financing. The Company's cash requirements have been and will continue to be
significant. The Company is dependent on the proceeds from this Offering in
order to sustain and further expand its operations. The Company believes that
the net proceeds of this Offering, together with anticipated increased revenues
generated from operations, will be sufficient to conduct the Company's
operations for at least 12 months. In the event that the Company's plans change,
or the costs of operations prove greater than anticipated, the Company could be
required to curtail its expansion or seek additional financing sooner than
currently anticipated. The Company has no current arrangements with respect to
additional financing and there can be no assurance that such additional
financing, if available, will be on terms acceptable to the Company. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations - Liquidity and Capital Resources".
2. Inexperience of Underwriter. This is the first offering under-
written by the Underwriter. There can be no assurance that the Underwriter's
limited experience will not adversely affect the development of a trading market
for, or liquidity of, the Company's securities. Therefore, purchasers of the
Common Shares offered hereby may suffer a lack of liquidity in their investment
or a material diminution of the value of their investment. See "Underwriting".
3. Downward Trend in Revenues; Anticipated Future Losses. For the years
ended December 1994 and 1995 the Company's revenues were $1,154,695 and
$1,040,181, respectively. For the nine month periods ended September 30, 1995
and 1996 the Company's revenues were $779,718 and $478,714, respectively. For
the nine month period ended September 30, 1996, the Company experienced a net
loss of $32,240. The Company's operating results for future periods are subject
to numerous uncertainties. The Company anticipates significant expenses for the
foreseeable future, including, without limitation, research and development
expenses, enhancing and refining the Company's current product line, marketing
costs and general administrative expenses. The Company believes that, for the
foreseeable future, it will be unable to achieve sufficient additional revenues
to offset such anticipated significant operating costs. Accordingly, the Company
anticipates that operating losses could continue for a significant period of
time. There can be no assurance that the Company's technology and products will
be able to compete successfully in the marketplace and/or generate significant
revenue, or that the Company's business will be able to operate profitably. See
"Risk Factors - Competition", "Business - Competition", "Management's Discussion
and Analysis of Financial Conditions and Results of Operations - Results of
Operations".
6
<PAGE>
4. Evolving Market; New Product Development; Technological
Obsolescence. The markets for the Company's products are characterized by
evolving industry requirements which may result in product or technology
obsolescence. As a result, certain companies may be developing technologies or
products of which the Company is unaware which may be functionally similar, or
superior, to some or all of those offered by the Company. As a result, the
ability of the Company to compete will depend on its ability to adapt, enhance
and improve its existing products and technology and, if necessary, to develop
and introduce new products and technology to the marketplace in a timely and
cost-competitive manner. 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 products or technology or adapt them satisfactorily.
New product development efforts are subject to all of the risks
inherent in the development of new technology and products including
unanticipated delays, expenses, technical problems or difficulties, as well as
the possible insufficiency of funding to complete development. There can be no
assurance as to when, or whether, new products will be successfully developed.
In addition, no assurance can be given that additional technologies can be
developed within a reasonable development schedule, if at all. Further, there
can be no assurance that the Company would have sufficient economic or human
resources to complete such development in a timely manner, or at all, or that it
could enter into economically reasonable arrangements for the completion of such
products by third parties.
Following the development of additional products, the Company must
successfully complete a testing program for the products before they can be
marketed. Although the Company believes that its testing program is adequate,
unforeseen technical problems arising out of such testing could significantly
and adversely affect the Company's ability to produce and market a commercially
acceptable product. In addition, the Company's success will depend upon its
current and proposed technologies and products meeting acceptable cost and
performance criteria in the marketplace. There can be no assurance that the
technologies and products will meet applicable price or performance objectives
or that unanticipated technical or other problems will not occur which would
result in increased costs or material delays. Also, there can be no assurance
that new technologies will be developed in the future by the Company. If
superior technology is developed by the Company's competitors, such products may
render the Company's present products obsolete, and thus would have a materially
negative impact on the Company. See "Business".
5. Intellectual Property Protection and Infringement. The Company
relies on trade secrets and common law intellectual property rights, together
with non-disclosure agreements, to establish and protect certain proprietary
rights in its products. These measures afford limited protection, and there can
be no assurance that the steps taken by the Company to protect these proprietary
rights will be adequate to prevent misappropriation of its technology or the
independent development by others of similar technology. The Company intends to
seek copyright protection under United States law with respect to some of its
technology, although no assurance can be given
7
<PAGE>
that the Company will obtain such protection. While the Company believes that it
would be impractical and not cost-effective for anyone to attempt to copy
software such as that used in its products, unauthorized parties, nevertheless,
might attempt to copy aspects, or reverse engineer certain, of the Company's
products, or may obtain and use information that the Company regards as
proprietary. The cost of, and time dedicated to, enforcement by the Company of
its rights, if any, could be significant. Regardless of the outcome of such
enforcement proceedings, there can be no assurance that such proceedings will be
effective. In addition, although the Company believes that there are no
infringement claims against the Company and no grounds for the assertion of any
such claims, the cost of responding to any such assertion, should it be made,
could be significant. See "Business - Intellectual Property Rights and
Licenses".
6. Competition. The Company's products compete with those of numerous
well-established companies, which design, sell, produce or market software
systems for public safety operations. Many of these companies have substantially
greater financial, technical and other resources than those of the Company, and
they may have established reputations for success in the development, licensing,
sale and service of their products and technology. Certain of those competitors
have the financial resources necessary to enable them to withstand substantial
price competition or downturns in the market for computer software products used
by public safety agencies and organizations. In addition, the Company
anticipates that a material portion of the sale of its products will be made
through the competitive bid process. There can be no assurance that the Company
will be able to compete effectively in such process. See "Business - Industry
and Competition" and "Business - Products and Services".
7. Limited Sales and Marketing Experience. The Company has limited
experience in the areas of sales, marketing and distribution. The Company's
sales and marketing staff will require additional personnel in the future. There
can be no assurance that the Company will be able to build an adequate sales and
marketing staff, that establishing such a sales and marketing staff will be
cost-effective, or that the Company's sales and marketing efforts will be
successful. See "Risk Factors Challenges to Growth" and "Business - Sales and
Marketing".
8. Dependence on Significant Customers. Although the composition of the
Company's largest customers has changed from year to year, historically the
Company's revenues have been materially dependent on a limited number of
customers. Generally, the Company does not receive repeat business from its
customers for the design and installation of software systems. Further revenues
from customers to whom the Company has licensed software systems are usually
derived from maintenance and support contracts. Accordingly, the Company does
not believe that the makeup of its current customers is material to an
understanding of the Company's future business prospects. While the Company
expects its customer base to continue to expand, a limited number of large
customers may continue to account for a significant portion of the Company's
sales during any given period for the foreseeable future. As such, the Company's
financial condition and results of operations may be adversely affected by a
delay, reduction or cancellation of orders from one or more of its current or
future significant customers or the loss of one or more such customers. See
"Risk Factors - Lengthy Sales Cycle" and "Business - Customers".
8
<PAGE>
9. Product Concentration. Licensing of products and the provision of
maintenance and support services to the law enforcement and public safety market
represented substantially all of the Company's revenues for the fiscal year
ended December 31, 1995 and nine months ended September 30, 1996, and are
expected to continue to account for all of the Company's revenues for the
foreseeable future. Any factors adversely affecting the Company's products, such
as the introduction of superior competitive products or shifts in the needs of
the marketplace, would have a material adverse effect on the Company's financial
condition and results of operations. See "Risk Factors - Competition", "Business
- - Products and Services" and "Business-Competition".
10. Lengthy Sales Cycle. Licensing of the Company's software products
typically involve a detailed technical evaluation and a commitment of capital,
technical, marketing and other resources, with the attendant delays frequently
associated with customers' internal procedures to approve large capital
expenditures and to test and accept new technologies that affect the customer's
operations infrastructure. For those and other reasons, the sales cycle
associated with the Company's products is typically lengthy and subject to a
number of significant risks, including customers' budgetary constraints and
internal acceptance procedure, that are beyond the Company's control. Because of
the lengthy sales cycle and the generally large size of customer orders, if
revenues forecasted from a specific customer for a particular fiscal quarter are
not realized in that quarter, the Company's operating results for that quarter
could be materially adversely affected. See "Risk Factors - Dependence on
Significant Customers".
11. New Management Team; Dependence on Executive Management; Honigsfeld
Agreement with Third Party; Need to Retain Key Personnel. The Company's
executive management team, Mark Honigsfeld, Chairman and contemplated Chief
Executive Officer of the Company, and Dong W. Lew, President and Chief Operating
Officer of the Company, have worked together for only a brief period as Mr.
Honigsfeld was elected Chairman of the Board of the Company in August 1996 and
he will be elected Chief Executive Officer of the Company effective on the
closing date of this Offering.
The Company has a three year employment agreement with Mr. Lew, and
intends to enter into a three year employment agreement with Mr. Honigsfeld
effective on the closing date of this Offering, each of which includes, among
other things, a non-competition and non-solicitation provision. However, each
agreement provides that the employee can terminate his agreement with the
Company at any time upon 30 days notice for any reason. Additionally, Mr.
Honigsfeld's employment agreement will allow him to devote up to 10% of his
working time to other endeavors which are not competitive with the Company. The
loss of the services of either Mr. Honigsfeld or Mr. Lew would have a material
adverse effect on the Company's business.
Mr. Honigsfeld is currently a party to an agreement (the "Third Party
Agreement")with a third party in an unrelated industry, which Third Party
Agreement requires that Mr. Honigsfeld serve as a business consultant and devote
such of his full business time, as may be required by such third party, for the
period ending on April 26, 1999. The Third Party Agreement provides salary and
benefits substantially in excess of the base salary and benefits to which Mr.
Honigsfeld is entitled
9
<PAGE>
to receive under his employment agreement with the Company. Since April 26,
1996, the date of the Third Party Agreement, Mr. Honigsfeld has not been
required to devote any significant time nor has he been requested to perform any
significant services under the Third Party Agreement (although the third party
has indicated its intention to make such request). Mr. Honigsfeld and the third
party are currently negotiating a settlement of the Third Party Agreement which
would include its termination (Mr. Honigsfeld being entitled to terminate the
Third Party Agreement at any time in any event). Mr. Honigsfeld has advised the
Company that such settlement is expected tobe concluded prior to the effective
date of this Registration Statement. There can be no assurance that such a
settlement will be concluded. If a settlement is not reached, no assurance can
be given that the third party might not demand a substantial portion of Mr.
Honigsfeld's time in the future. In such event, unless Mr. Honigsfeld elects to
terminate the Third Party Agreement, he will be unable to devote significant
services on behalf of the Company. Such an occurrence would have a material
adverse effect on the Company.
The Company intends to obtain a "key-man" life insurance policy on the
life of each of Messrs. Honigsfeld and Lew which would provide for a death
benefit to the Company, on each of their lives, of $1,000,000. Although
management believes that such insurance is usually obtainable, in light of Mr.
Lew's age and history as a smoker, there can be no assurance that such coverage
for Mr. Lew will be made available to the Company. Moreover, there can be no
assurance that the death benefit would be adequate to fund the Company's needs
until a replacement could be found.
The success of the Company is also dependent upon its ability to hire
and retain additional qualified executive, technical and marketing personnel.
There is always competition for qualified personnel in the Company's business
and there can be no assurance that the Company will be able to retain the
members of its current management or personnel, or that it will be able to
successfully attract and retain qualified management, engineering and sales or
other personnel in the future. See "Management - Employment Agreements".
12. Dependence on Licensors. The Company currently relies on operating
system software owned by certain third parties for certain software and platform
operating systems which the Company uses to create its products, and in some
cases to bundle with its own software in its products. The licenses are
perpetual in duration subject to the payment of an annual maintenance and
enhancement fee, which is based on the number of end users of such operating
system software, or a monthly sublicense fee, which is based upon the number of
customers to which the Company's products (which includes such licensed
operating system software) are licensed. Although the Company believes that
there are alternatives to the operating system software that the Company
currently uses, termination of any of these licenses could delay the Company
from producing its products for approximately three to six months as a result of
the need to revise the Company's software to make it compatible with such
alternative operating system software, which may have a material adverse effect
on the Company. See "Business- Intellectual Property Rights and Licenses".
10
<PAGE>
13. Challenges to Growth. The Company anticipates a period of rapid
growth that is expected to place a strain on the Company's administrative,
financial and operational resources. The Company's ability to manage any growth
effectively will require it to continue to improve its operational, financial
and management controls, reporting systems and procedures, to install new
management information and control systems, and to train, motivate and manage
its employees. There can be no assurance that the Company will install such
management information and control systems in an efficient and timely manner or
that the new systems will be adequate to support the Company's operations.
Because of the complexity of its products, the Company has in the past
experienced, and expects in the future to experience, a time lag between the
date on which technical and sales personnel are hired and the time at which such
persons become fully productive. In addition, customer satisfaction could be
substantially affected by the quality of the Company's post- sales system
implementation process and, in many cases, its maintenance and service
capabilities. If the Company is unable to hire, train and retain qualified
personnel and consultants to implement these services or is unable to manage the
post-sales process effectively, its ability to attract repeat sales or obtain
references for new prospective sales could be adversely affected, which could
limit the Company's growth opportunities. Additionally, many of the challenges
of growth may be unforeseeable and beyond the control of the Company. If the
Company is unable to manage growth effectively, such that the Company's sales
and marketing efforts exceed its capacity to design, develop, install, maintain
and service its products, or if new employees are unable to achieve adequate
performance levels, the Company's business, operating results and financial
condition could be adversely affected. See "Risk Factors - Limited Sales and
Marketing Experience" "Business-Sales and Marketing".
14. International Expansion. As part of the Company's overall marketing
plan, the Company intends to expand its operations into international markets
which will require significant management attention and financial resources.
There can be no assurance that the Company's efforts to develop international
sales and support channels will be successful. International sales are subject
to a number of risks, including potentially longer payment cycles, unexpected
changes in regulatory requirements, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, the burden of
complying with a variety of foreign laws, greater difficulty in accounts
receivable collection, potentially adverse tax consequences, currency
fluctuations and potential political and economic instability. Additionally, the
protection of intellectual property may be more difficult and costly to enforce
outside of the United States. In the event that the Company is successful in
expanding its sales and operations internationally, the imposition of, or change
in, price controls or other restrictions on foreign currencies could materially
affect the Company's business, operating results and financial condition.
15. Control by Existing Management and Stockholders; Effect of Certain
Anti- Takeover Considerations. Upon completion of the Offering, the Company's
directors, executive officers and certain principal stockholders and their
affiliates will own beneficially approximately 48% of the Common Shares (giving
effect to the sales of Common Shares by the Selling Stockholders and without
giving effect to the exercise of the Overallotment Option). Accordingly, such
holders, if acting together, will have the ability to exert significant
influence over the election
11
<PAGE>
of the Company's Board of Directors and other matters submitted to the Company's
stockholders for approval. The voting power of these holders may discourage or
prevent any proposed takeover of the Company unless the terms thereof are
approved by such holders. Pursuant to the Company's Certificate of
Incorporation, Preferred Shares may be issued by the Company in the future
without stockholder approval and upon such terms as the Board of Directors may
determine. The rights of the holders of Common Shares will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Shares
that may be issued in the future. The issuance of Preferred Shares could have
the effect of discouraging a third party from acquiring a majority of the
outstanding Common Shares of the Company and preventing stockholders from
realizing a premium on their Common Shares. The Certificate of Incorporation
also provides for staggered terms for the members of the Board of Directors. A
staggered Board of Directors and certain provisions of the Company's by-laws and
of Delaware law applicable to the Company could delay or make more difficult a
merger, tender offer or proxy contest involving the Company. See "Principal and
Selling Stockholders" and "Description of Securities".
16. Broad Discretion in Application of Proceeds. While the Company
intends to use the net proceeds of this Offering as described in the "Use of
Proceeds" section of this Prospectus, the Company has broad discretion to adjust
the application and allocation of such net proceeds in order to address changed
circumstances and opportunities. As a result of the foregoing, the success of
the Company will be substantially dependent upon the discretion and judgment of
the management of the Company with respect to the application and allocation of
the net proceeds of this Offering. Pending use of the proceeds, the funds will
be invested in certificates of deposit, high grade commercial paper and
government securities or other low risk investments. See "Use of Proceeds."
17. Lack of Prior Market for Common Shares; No Assurance of Public
Trading Market. Prior to this Offering, no public trading market existed for the
Common Shares. There can be no assurances that a public trading market for the
Common Shares will develop or that a public trading market, if developed, will
be sustained. Although the Company anticipates that, upon completion of this
Offering, the Common Shares will be eligible for inclusion on The Nasdaq
SmallCap Market, no assurance can be given that the Common Shares will be listed
thereon. Under prevailing rules of The Nasdaq Stock Market, Inc., in order to
qualify for initial quotation of securities on The Nasdaq SmallCap Market, a
company, among other things, must have at least $4,000,000 in total assets,
$2,000,000 in total capital and surplus, $1,000,000 in market value of public
float and a minimum bid price of $3.00 per share. Although the Company may, upon
the completion of this Offering, qualify for initial quotation of the Common
Shares on The Nasdaq SmallCap Market, in order for the Common Shares to continue
to be listed thereon, the Company, among other things, generally must have
$2,000,000 in total assets, $1,000,000 in total capital and surplus, $1,000,000
in market value of public float and a minimum bid price of $1.00 per share.
The Nasdaq Stock Market, Inc. has proposed a rule change which,
if adopted, would impose substantially more stringent criteria for the initial
and continued listing of securities on The Nasdaq SmallCap Market. The proposed
new rules provide that, for initial listing on The Nasdaq
12
<PAGE>
SmallCap Market, a company would need to have, among other things, (i) either
net tangible assets (i.e., net of goodwill) of $4,000,000, a market
capitalization of $50,000,000 or net income for two of the last three fiscal
years of $750,000, (ii) a minimum market value of public float of $5,000,000,
(iii) a minimum bid price of $4.00 per share, and (iv) either one year of
operating history or a market capitalization of $50,000,000. For continued
listing on The Nasdaq SmallCap Market, a company would need to have, among other
things, (i) either net tangible assets of $2,000,000, a market capitalization of
$35,000,000, or net income for two of the last three fiscal years of $500,000,
and (ii) a minimum market value of public float of $1,000,000. Additionally, for
both initial listing and continued listing on The Nasdaq SmallCap Market,
companies would be required to have at least two independent directors, and an
Audit Committee, a majority of the members of which would need to be independent
directors.
If the Company is unable to satisfy the requirements for
quotation on The Nasdaq SmallCap Market, trading, if any, in the Common Shares
offered hereby would be conducted in the over-the-counter market in what is
commonly referred to as the "pink sheets" or on the NASD OTC Electronic Bulletin
Board. As a result, an investor may find it more difficult to dispose of, or to
obtain accurate quotations as to the price of, the securities offered hereby.
The above-described rules may adversely affect the liquidity of the market for
the Company's securities. If a trading market does in fact develop for the
Common Shares offered hereby, there can be no assurance that it will be
maintained. In any event, because certain restrictions may be placed upon the
sale of securities at prices under $5.00 per share, if the price of the Common
Shares falls below such threshold, unless such Common Shares qualify for an
exemption from the "penny stock" rules, such as a listing on The Nasdaq SmallCap
Market, some brokerage firms will not effect transactions in the Company's
securities and it is unlikely that any bank or financial institution will accept
such securities as collateral. Such factors could have a material adverse affect
in developing or sustaining any market for the Common Shares. See "Risk Factors
- - 'Penny Stock' Regulations May Impose Certain Restrictions on Marketability of
Securities" and "Underwriting".
Although it has no legal obligation to do so, the Underwriter may from
time to time act as a market maker and may otherwise effect and influence
transactions in the Company's securities. However, there is no assurance that
the Underwriter will continue to effect and influence transactions in the
Company's securities. The prices and liquidity of the Company's Common Shares
may be significantly affected by the degree, if any, of the Underwriter's
participation in the market. The Underwriter may voluntarily discontinue such
participation at any time. Further, the market for, and liquidity of, the
Company's Common Shares may be materially adversely affected by the fact that a
significant portion of the Common Shares may be sold to customers of the
Underwriter.
18. Arbitrary Offering Price; Possible Volatility of Stock Price. The
initial public offering price of the Common Shares was determined by negotiation
between the Company and the Underwriter, may not be indicative of the market
price for such securities in the future, and does not necessarily bear any
relationship to the Company's assets, book value, net worth or results of
operations of the Company or any other established criteria of value. Among the
factors considered in determining the price of the Common Shares were the
history of, and prospects for, the industry
13
<PAGE>
in which the Company operates, estimates of the business potential of the
Company, the present state of the development of the Company's business, the
Company's financial condition, an assessment of the Company's management, the
general condition of the securities markets at the time of this Offering, and
the demand for similar securities of comparable companies. It should be noted
that the stock market in recent years has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many smaller
companies. Frequently, such fluctuations have been unrelated or disproportionate
to the operating performance of such companies. These fluctuations, as well as
general economic and market conditions, may have a material adverse effect on
the market price of the Common Shares. See "Underwriting," "Description of
Securities" and "Financial Statements".
19. "Penny Stock" Regulations May Impose Certain Restrictions on
Marketability of Securities. The Commission has adopted regulations which
generally define "penny stock" to be any equity security that has a market price
less than $5.00 per share, subject to certain exceptions. If, as anticipated,
the Common Shares offered hereby are authorized for quotation on The Nasdaq
SmallCap Market upon the completion of this Offering, such securities will
initially be exempt from the definition of "penny stock." If the Common Shares
offered hereby are removed from listing on The Nasdaq SmallCap Market at any
time, the Company's Common Shares may become subject to rules that impose
additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated by
the Commission relating to the penny stock market. The broker-dealer must also
disclose the commission payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Consequently, the
"penny stock" rules may restrict the ability of broker-dealers to sell the
Company's Common Shares and may affect the ability of purchasers in this
Offering to sell the Company's Common Shares in the secondary market as well as
the price at which such purchasers can sell any such Common Shares.
20. Immediate and Substantial Dilution; Equity Securities Sold
Previously at Below Offering Price. Upon completion of this Offering, assuming
no exercise of the Overallotment Option, and without giving effect to the
exercise of the Underwriter's Warrant, but giving retroactive effect to the
October 1996 repurchase by the Company of 65,000 Common Shares in connection
with the Bridge Financing, the net tangible book value per share of the
Company's Common Shares as of September 30, 1996 would have been $2.09. At the
initial public offering price of $5.00 per share, investors in this Offering
will experience an immediate dilution of approximately $2.91 or 58.2% in net
tangible book value per share, and existing investors will experience an
increase of
14
<PAGE>
approximately $1.81 per share. The present stockholders of the Company have
acquired their respective equity interest at costs substantially below the
public offering price. Accordingly, to the extent that the Company incurs
losses, the public investors will bear a disproportionate risk of such losses.
The exercise of the Bridge Warrants issued to the Bridge Lenders for the
purchase of 431,200 Common Shares and the exercise of the Other Derivative
Securities for the purchase of an aggregate of 501,450 Common Shares, in each
case generally at exercise prices substantially below the public offering price,
will result in further substantial dilution to the public investors. See
"Dilution", "Bridge Financing", "Management - Executive Compensation,"
"Management - Stock Option Grants; Warrants" and "Underwriting".
21. No Dividends. The Company has never paid any dividends on its
Common Shares and does not intend to pay dividends on its Common Shares in the
foreseeable future. Any earnings which the Company may realize in the
foreseeable future are anticipated to be retained to finance the growth of the
Company. See "Dividend Policy" and "Description of Securities".
22. Shares Eligible for Future Sale May Adversely Affect the Market.
All of the Company's outstanding Common Shares are "restricted securities" and,
in the future, may be sold upon compliance with Rule 144 or pursuant to
registration under the Act (see discussion below with respect to the
registration of Common Shares held by certain stockholders of the Company and
underlying the Bridge Warrants held by the Bridge Lenders). Rule 144 currently
provides, in essence, that a person holding "restricted securities" for a period
of two years may sell an amount every three months up to the greater of (a) 1%
of the Company's issued and outstanding securities of that class of securities
or (b) the average weekly volume of sales of such securities during the four
calendar weeks preceding the sale if there is adequate current public
information available concerning the Company. Additionally, non-affiliates (who
have not been affiliates of the Company for at least three months) may sell
their "restricted securities" in compliance with Rule 144 without volume
limitations after they have held such securities for a period of three years. An
aggregate of 406,250 Common Shares have been owned by Mr. Lew for more than two
years. However, such shares are subject to an agreement with the Underwriter
restricting the public sale thereof for a period of one year without the
Underwriter's consent.
The Company is registering for resale 250,250 Common Shares held by
certain stockholders. In addition, the Company is registering for resale the
431,200 Common Shares underlying the Bridge Warrants. Such Common Shares may be
resold at any time following the date of this Prospectus, subject to an
agreement between each of the Bridge Lenders and the Underwriter restricting the
transferability of such Common Shares for a period of six months without the
Underwriter's consent. Prospective investors should be aware that the
possibility of resales by the Selling Stockholders, as well as other
stockholders of the Company, may have a material depressive effect on the market
price of the Company's Common Shares in any market which may develop. See
"Bridge Financing", "Principal and Selling Stockholders" and "Underwriting".
23. Limitations on Director Liability. The Company's Certificate of
Incorporation provides, pursuant to Delaware law, that a director of the Company
shall not be personally liable to
15
<PAGE>
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director, with certain exceptions. These provisions may discourage
stockholders from bringing suit against a director for breach of fiduciary duty
and may reduce the likelihood of derivative litigation brought by stockholders
on behalf of the Company against any director. In addition, the Company's
Certificate of Incorporation provides for mandatory indemnification of directors
and officers to the fullest extent permitted or not prohibited by Delaware law.
See "Description of Securities Limitation on Liability of Directors;
Indemnification".
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 Common
Shares offered hereby are estimated to be $3,875,000 (after deducting
underwriting discounts of $500,000 and other expenses of this Offering estimated
to be $625,000, including the Underwriter's non-accountable expense allowance in
the amount of 3% of the gross proceeds of the Offering, and an $108,000
financial consulting fee payable to the Underwriter at the closing) (but not
considering any exercise of the Overallotment Option or the Underwriter's
Warrants). The Company, based upon all currently available information, intends
to utilize such net proceeds approximately as follows:
Approximate Approximate
Amount of Percentage
Net Proceeds of Net Proceeds
Product enhancement and development(1) $1,250,000 32.3%
Repayment of indebtedness (2) 770,000 19.9%
Marketing and advertising (3) 650,000 16.8%
Hiring and training of additional personnel 150,000 3.8%
Purchase of equipment 150,000 3.8%
Payment of accrued compensation, including
signing bonuses, to Chairman of the Board
and to President(4) 115,000 3.0%
Working capital (5) 790,000 20.4%
---------- -----
Total $3,875,000 100.0%
========== ======
(1) Includes, without limitation, costs to develop a radio modem to be used in
connection with mobile computing software systems. See "Business - Products"
16
<PAGE>
(2) Represents the repayment of promissory notes in the aggregate principal
amount of $770,000 issued in connection with the Bridge Financing
transaction in October 1996. See "Bridge Financing".
(3) See "Business - Sales and Marketing".
(4) Represents the payment of a signing bonus of approximately $100,000 to the
Company's Chairman of the Board (representing the amount of compensation
that would be payable to him for the period commencing October 1, 1996 and
ending on the closing date of this Offering, as if he had been employed by
the Company during such period pursuant to the terms of his employment
agreement), and the payment of an accrued and unpaid signing bonus of
$15,000 payable to the President of the Company in connection with the
execution of his employment agreement which was effective as of October 1,
1996. See "Management - Employment Agreements".
(5) To be used for general operating and overhead expenses. Additionally,
the Company may use a portion of the proceeds of this Offering
allocated to working capital to acquire technology to expand or enhance
its product line. At present, the Company has not identified any
acquisition candidates, nor can it predict that it will identify any
appropriate acquisition candidates in the future. The Company is not
actively seeking any acquisition candidates at this time.
The amounts set forth above are estimates. Should a reapportionment or
redirection of funds be determined to be in the best interests of the Company,
the actual amount expended to finance any category of expenses may be increased
or decreased by the Company's management, at its discretion.
The Company believes that the proceeds of this Offering will enable the
Company to expand its business, which the Company anticipates, but cannot
assure, will result in an increase of annual revenues. The Company believes that
the net proceeds of this Offering, together with anticipated increased revenues
generated from operations, will be sufficient to conduct the Company's
operations for at least 12 months. See "Risk Factors - Dependence on Offering
Proceeds; Possible Need for Additional Financing."
It is anticipated that, to the extent that the Company's expenditures
are less than projected and/or the proceeds of this Offering increase as a
result of the exercise by the Underwriter of its Overallotment Option, the
resulting balances will be retained and used for general working capital
purposes. Conversely, to the extent that such expenditures require the
utilization of funds in excess of the amounts anticipated, additional financing
may be sought from other sources, such as debt financing from financial
institutions, although there can be no assurance that such additional financing,
if available, will be on terms acceptable to the Company. See "Risk Factors -
Dependence on Offering Proceeds; Possible Need for Additional Financing" and
"Risk Factors - Risks Attendant to Expansion".
17
<PAGE>
Pending use of the proceeds, the funds will be invested in certificates
of deposit, high grade commercial paper and government securities, or other low
risk investments.
DILUTION
All references herein to pro forma net tangible book value, pro forma
net tangible book value per Common Share and the number of Common Shares
outstanding on a pro forma basis give retroactive effect to the October 1996
repurchase by the Company of 65,000 Common Shares in connection with the Bridge
Financing (the "Common Share Repurchases") and assume no exercise of the
Underwriter's Overallotment Option or the Underwriter's Warrants. See "Bridge
Financing" and "Underwriting."
No Exercise of Bridge Warrants or Other Derivative Securities
The following discussion assumes no exercise of the Bridge Warrants or
the Other Derivative Securities.
As of September 30, 1996, the Company had an aggregate of 986,700
Common Shares outstanding on a pro forma basis and a pro forma net tangible book
value of $272,030, or $.28 per Common Share. Pro forma net tangible book value
per share represents the total amount of the Company's pro forma tangible
assets, less the total amount of its liabilities, divided by the total number of
Common Shares outstanding on a pro forma basis.
After giving effect to the sale of 1,000,000 Common Shares by the
Company at the Offering price of $5.00 per Common Share, with net proceeds of
$3,875,000 , the pro forma net tangible book value of the Company as of
September 30, 1996 would have been $4,147,030, or $2.09 per Common Share. This
amount represents an immediate dilution (the difference between the price per
Common Share to purchasers in this Offering and the pro forma net tangible book
value per Common Share as of September 30, 1996, after giving effect to the
issuance of the 1,000,000 Common Shares) of approximately $2.91 per Common Share
to new investors and an immediate increase (the difference between the pro forma
net tangible book value per Common Share as of September 30, 1996, after giving
effect to the issuance of the 1,000,000 Common Shares, and the pro forma net
tangible book value per Common Share as of September 30, 1996, before giving
effect to the Offering) of approximately $1.81 per Common Share to the Company's
current stockholders. Such increase to the Company's current stockholders is
solely attributable to the cash price paid by purchasers of the Common Shares
offered for sale by the Company.
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<PAGE>
The following table illustrates the per share dilution as of September 30, 1996:
Public offering price per share(1)..................... $5.00
Pro forma net tangible book value per share
before giving effect to the Offering(2).............. $ .28.
Increase per share attributable to the sale
of the Common Shares offered hereby................. 1.81
----
Pro forma net tangible book value per share
after the Offering(2) (3)........................... 2.09
----
Dilution per share to purchasers in the Offering (4) .. $2.91
====
(1) Before deduction of underwriting discounts and commissions and estimated
expenses of the Offering.
(2) Gives retroactive effect to the Common Share Repurchases.
(3) After deduction of underwriting discounts and commissions and estimated
expenses of the Offering.
(4) Does not give effect to the exercise of the Underwriter's Overallotment
Option, the Underwriter's Warrants, the Bridge Warrants, or the Other
Derivative Securities for the purchase of 501,450 Common Shares of the
Company. See "Bridge Financing", "Description of Securities - Common
Shares" and "Underwriting".
The following table sets forth the relative cost and ownership
percentage of the Common Shares offered hereby as compared to the Common Shares
outstanding immediately prior to the Offering.
<TABLE>
<CAPTION>
Common Shares Average
Acquired Total Consideration Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Current Stockholders........ 986,700(1) 49.7% $ 133,925 2.6% $ .14
Purchasers of Common
Shares in the Offering... 1,000,000(2) 50.3% $5,000,000 97.4% $5.00
--------- ---- --------- ----
Total............... 1,986,700(1)(2) 100.0% $5,133,925 100.0%
========= ===== ========= =====
</TABLE>
(1) Does not give effect to the exercise of the Bridge Warrants or the Other
Derivative Securities. See "Bridge Financing" and "Description of Securities
- Common Shares".
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<PAGE>
(2) Assumes no exercise of the Underwriter's Overallotment Option. See
"Underwriting."
Exercise of Bridge Warrants and Other Derivative Securities
As indicated above, the foregoing figures do not give effect
to the exercise of the Bridge Warrants for the purchase of an aggregate of
431,200 Common Shares of the Company or the Other Derivative Securities for the
purchase of an aggregate of 501,450 Common Shares of the Company. The following
discussion assumes such exercises.
As of September 30, 1996, the Company had an aggregate of 1,919,350
Common Shares outstanding on a pro forma basis and a pro forma net tangible book
value of $693,337, or $.36 per Common Share.
After giving effect to the sale of 1,000,000 Common Shares by the
Company at the Offering price of $5.00 per Common Share, with net proceeds of
$3,875,000 , the pro forma net tangible book value of the Company as of
September 30, 1996 would have been $4,568,337 or $1.56 per Common Share. This
amount represents an immediate dilution (the difference between the price per
Common Share to purchasers in this Offering and the pro forma net tangible book
value per Common Share as of September 30, 1996, after giving effect to the
issuance of the 1,000,000 Common Shares) of approximately $3.44 per Common Share
to new investors and an immediate increase (the difference between the pro forma
net tangible book value per Common Share as of September 30, 1996, after giving
effect to the issuance of the 1,000,000 Common Shares, and the pro forma net
tangible book value per Common Share as of September 30, 1996, before giving
effect to the Offering) of approximately $1.20 per Common Share to the Company's
current stockholders. Such increase to the Company's current stockholders is
solely attributable to the cash price paid by purchasers of the Common Shares
offered for sale by the Company.
The following table illustrates the per share dilution as of September 30, 1996:
Public offering price per share(1).................... $5.00
Pro forma net tangible book value per share
before giving effect to the Offering(2)............. $ .36
Increase per share attributable to the sale
of the Common Shares offered hereby................. 1.20
----
Pro forma net tangible book value per share
after the Offering(2) (3)........................... 1.56
----
Dilution per share to purchasers in the Offering (4).. $3.44
=====
(1) Before deduction of underwriting discounts and commissions and estimated
expenses of the Offering.
20
<PAGE>
(2) Gives retroactive effect to the Common Share Repurchases, and the
exercise of the Bridge Warrants and the Other Derivative Securities.
(3) After deduction of underwriting discounts and commissions and estimated
expenses of the Offering.
(4) Does not give effect to the exercise of the Underwriter's Overallotment
Option or the Underwriter's Warrants. See "Underwriting".
The following table sets forth the relative cost and ownership
percentage of the Common Shares offered hereby as compared to the Common Shares
outstanding immediately prior to the Offering.
<TABLE>
<CAPTION>
Common Shares Average
Acquired Total Consideration Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Current Stockholders........ 1,919,350(1) 65.7% $ 583,260 10.4% $ .30
Purchasers of Common
Shares in the Offering.. 1,000,000(2) 34.3% $5,000,000 89.6% $5.00
--------- ------ --------- -----
Total.............. 2,919,350(1)(2) 100.0% $5,583,260 100.0%
========= ===== ========== =====
</TABLE>
(1) Gives effect to the exercise of the Bridge Warrants and the Other Derivative
Securities. See "Bridge Financing" and "Description of Securities - Common
Shares".
(2) Assumes no exercise of the Underwriter's Overallotment Option. See "Unde-
writing."
CAPITALIZATION
The following table sets forth the unaudited capitalization of the
Company as of September 30, 1996 and as adjusted to give effect to the issuance
and sale of the 1,000,000 Common Shares offered by the Company at $5.00 per
Common Share, and the application of net proceeds of approximately $3,875,000
therefrom. This table should be read in conjunction with the financial
statements of the Company, including the notes thereto, appearing elsewhere in
this Prospectus.
21
<PAGE>
September 30, 1996
-------------------------------------
Pro Forma
Actual Pro Forma(1) As Adjusted(1)(2)
------ ------------ -----------------
Long-Term Debt........................ $ 19,121 $ 789,121 $ 19,121
------ ------- ------
Stockholders' Equity:
Preferred Shares, $.01 par value,
1,000,000 shares authorized, none
issued.................. - - -
Common Shares, $.01 par value,
20,000,000 shares authorized,
1,051,700 shares issued and
outstanding (actual), 986,700
shares issued and outstanding (pro
forma) (1), and 1,986,700 shares
issued and outstanding
(pro forma, as adjusted)(1)(2)...... 10,517 9,867 19,867
Additional paid-in capital............ 158,118 124,058 3,989,058
Retained earnings..................... 138,105 138,105 138,105
Common Share Subscriptions Receivable. (174,135) - -
--------- ------- ---------
Total Stockholders' Equity............ 132,605 272,030 4,147,030
--------- ------- ---------
Total Capitalization.................. $151,726 $1,061,151 $4,166,151
========= ========= ==========
(1) Gives retroactive effect to the Bridge Financing and the Common Share
Repurchases.
(2) Reflects the issuance of the 1,000,000 Common Shares of the Company offered
hereby, and the anticipated application of the net proceeds of $3,875,000
therefrom, after deducting underwriting discounts and commissions and
estimated expenses of the Offering.
DIVIDEND POLICY
Holders of the Company's Common Shares are entitled to dividends when,
as and if declared by the Board of Directors out of funds legally available
therefor. The Company has not declared or paid any dividends in the past and
does not currently anticipate declaring or paying any dividends in the
foreseeable future. The Company intends to retain earnings, if any, to finance
the development and expansion of its business. Future dividend policy will be
subject to the discretion of the Board of Directors and will be contingent upon
future earnings, if any, the Company's financial condition, capital
requirements, general business conditions, and other factors. Therefore, there
can be no assurance that any dividends of any kind will ever be paid.
BRIDGE FINANCING
In October 1996, the Company borrowed an aggregate of $770,000 from 22
lenders (the "Bridge Lenders") in a financing in which the Underwriter acted as
the placement agent. In consideration for making the loans to the Company, each
Bridge Lender received, for each $10,000 loaned, (i) a promissory note in the
principal amount of $10,000 (each a "Bridge Note") and (ii) five year warrants
for the purchase of 5,600 Common Shares of the Company at an exercise price of
$.50 per share (the "Bridge Warrants"). Among the Bridge Lenders were Dong W.
Lew ($70,000),
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<PAGE>
President of the Company, Mark Honigsfeld ($60,000), Chairman of the Board of
the Company, Murray Gross ($50,000), a principal stockholder of the Company and
John P. Hefferon ($10,000), Executive Vice President - Sales and Marketing of
the Company. See "Management", "Principal and Selling Stockholders" and "Certain
Relationships and Related Transactions".
Each of the Bridge Notes is due and payable upon the closing of the
Offering of the Company's securities described in this Prospectus. In the event
such closing occurs on or before September 15, 1997, no interest will be payable
on the Bridge Notes. The Company intends to use a portion of the proceeds of
this Offering to repay the Bridge Lenders in full. See "Use of Proceeds."
The Company entered into the Bridge Financing transaction because it
required additional financing to fund costs and expenses relating to this
Offering, for the Common Share Repurchases, to recruit additional personnel and
training costs, to fund product development costs, and for working capital, and
no other sources of financing were available to the Company at that time. As
part of the Bridge Financing transaction, the Company agreed to register, and
has included in the Registration Statement of which this Prospectus forms a
part, the 431,200 Common Shares underlying the Bridge Warrants issued to the
Bridge Lenders for resale under the Act. See "Principal and Selling
Stockholders" and "Underwriting".
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
The Company was incorporated in the State of New York on March 31, 1983
under the name of Coastal Computer Systems, Inc. The Company was reincorporated
in the State of Delaware under its present name Compu-DAWN, Inc., on October 18,
1996. The Company is engaged in the business of designing, developing,
licensing, installing and servicing computer software products and systems for
the law enforcement and public safety industry.
The Company generates revenues from the granting of non-exclusive,
non-transferable and non-assignable licenses to use software it has developed,
through fixed price contracts. Revenues from such fixed price contracts are
recognized using the percentage of completion method of accounting. The Company
retains title to the software and warrants that it will provide technical
support and repair any defects in the software at no charge. The warranty period
for each contract is negotiated individually, with the periods ranging from 90
days to three years. To date, repair costs have been minimal and, therefore, the
Company has not had to establish a reserve for warranty costs.
The Company also provides post contract, customer support to licensees
of its software. Revenues from such services are recognized ratably over the
period of performance. Fees billed and/or received prior to performance of
services are reflected as deferred revenues.
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<PAGE>
The Company's revenues, expenses and operating results have varied
considerably in the past and are likely to vary in the future. Fluctuations in
revenues depend on a number of factors, some of which are beyond the Company's
control. These factors include, among other things, the timing of contracts,
delays in customer acceptance of the Company's software products, and
competition.
See "Risk Factors - Lengthy Sales Cycle".
Currently, the Company's products are marketed primarily in the State
of New York.
Results of Operations
The following chart sets forth certain line items in the Company's
statements of operations as a percentage of revenues, for the periods indicated:
Nine Months Ended For the Year Ended
September 30, December 31,
------------------ -----------------
1996 1995 1995 1994
------- ------ ----- ----
Revenues:
Software sales 58.5% 81.5% 78.6% 83.6%
Maintenance income 41.5 18.5 21.4 16.4
----- ------ ------ ------
Total Revenues 100.0 100.0 100.0 100.0
----- ------ ----- -----
Costs and Expenses:
Programming costs 29.8 38.1 38.9 46.7
General and administrative 54.9 35.9 35.1 32.8
Research and development 23.3 12.7 13.5 11.0
----- ------ ------ ------
Total Costs and Expenses 108.0 86.7 87.5 90.5
----- ------ ------ ------
Operating Income (Loss) (8.0) 13.3 12.5 9.5
Other (.8) - - -
------ ----- ------ ----
Income (Loss) Pretax (8.8) 13.3 12.5 9.1
Income Taxes (2.1) 5.3 5.0 3.2
------ ------ ------ -----
Net Income (Loss) (6.7%) 8.0% 7.5% 5.9%
====== ====== ====== =====
Nine Months Ended September 30, 1996 versus 1995
Revenues
Total revenues for the nine months ended September 30, 1996 were
$478,714 as compared to $779,718 for the corresponding period of the prior year,
a decrease of $301,004 or 38.6%. This decrease was primarily a result of the
decrease in software sales which occurred due to the Company's focus on raising
capital and developing new wireless mobile computing technology, which diverted
the Company's resources away from sales activities. As a result of the new
systems
24
<PAGE>
licensed during 1995, maintenance income for the nine month period ended
September 30, 1996 increased by approximately $54,000, from $144,570 to
$198,639, when compared to the period ended September 30, 1995.
Costs and Expenses
Total costs decreased from $675,206 to $516,767 when comparing the nine
months ended September 30, 1995 to 1996.
Programming costs decreased from $297,450 for the nine months ended
September 30, 1995 to $142,679 for the nine months ended September 30, 1996.
These costs decreased as a direct result of the decrease in software sales and
primarily encompassed salaries and wages and license fees for the Company's main
computer operating system. General and administrative expenses decreased
slightly from $278,741 for the 1995 nine month period to $262,706 for the 1996
nine month period. While general overhead costs remained relatively stable,
there was a significant increase in 1996 as a percentage of revenues due to the
aforementioned decrease in revenues. Research and development costs increased
from $99,015 to $111,382 when comparing September 1995 to 1996. This increase of
12.5% was due to increased payroll and related costs.
Income (Loss)
For the nine month period ended September 30, 1996 the Company had a
net loss of $32,240, or $.02 per share. For the nine month period ended
September 30, 1995 the Company had net income of $63,273, or $.03 per share. The
principal reason for this decrease in earnings is the 38.6% decrease in revenues
as discussed above.
Year Ended December 31, 1995 versus 1994
Revenues
The Company had total revenues of $1,040,181 for the year ended
December 31, 1995 as compared to $1,154,695 for the year ended December 31,
1994, a decrease of $114,514 or 9.9%.
Revenues from software sales decreased from $964,908 to $817,271 when
comparing the year ended December 31, 1994 to 1995 primarily due to the
Company's focus on raising capital and developing new wireless mobile computing
technology, which diverted the Companies resources away from sales activities.
Maintenance income however, increased from $189,787 to $222,910, when comparing
the years ended December 31, 1994 to 1995, due to the systems sold in years
prior to 1995 and during such year.
25
<PAGE>
Costs and Expenses
Total costs and expenses decreased from $1,044,673 to $910,200 when
comparing the years ended December 31, 1994 and 1995, a decrease of $134,473 or
12.9%.
Programming costs and expenses decreased from $539,328 to $404,165 when
comparing 1994 to 1995 principally due to reduced license fees. General overhead
costs decreased slightly from $378,828 to $365,760 when comparing 1994 to 1995
principally due to a reduction in commissions. Research and development costs,
however, increased slightly from $126,517 for the year ended December 31, 1994
to $140,275 for the year ended December 31, 1995 as the Company hired additional
programming personnel for this function.
Income
For the year ended December 31, 1995, the Company had net income of
$78,660, or $.04 per share. For the year ended December 31, 1994 the Company
reflected net income of $68,450, or $.04 per share. This increase in earnings
was primarily due to the overall reduction in costs and expenses as described
above, offset by the decrease in revenues.
Liquidity and Capital Resources
At September 30, 1996, the Company had cash of $57,172, accounts
receivable of $332,449, a current ratio of 1.3:1 and a debt to net worth ratio
of 2.5:1. At December 31, 1995 the Company had cash of $105,962, accounts
receivable of $218,466, a current ratio of 1.8:1 and a debt to net worth ratio
of 1.3:1. Management of the Company attributes the decline in its financial
position to the net loss during the nine month period ended September 30, 1996,
as described previously.
In August 1996, the Company sold 505,375 of its Common Shares for
aggregate proceeds of $151,612.50. Payment for these shares was held in escrow
until the consummation of the Bridge Financing transaction which was completed
in October 1996 (as discussed below).
In October 1996, in a Bridge Financing transaction, the Company
successfully completed the sale of 77 units, each unit consisting of a $10,000
Bridge Note and a Bridge Warrant to acquire 5,600 Common Shares of the Company.
The Bridge Warrants are exercisable only upon the successful completion of an
initial public offering ("IPO") of the Company's Common Shares as discussed
below. Each of the Bridge Notes is due and payable upon the closing of the
contemplated IPO, i.e. this Offering. In the event such closing occurs on or
before September 15, 1997, no interest will be payable on these Bridge Notes.
A portion of the net proceeds of approximately $3,875,000 from this
Offering will be used for product enhancement and development, to repay the
Bridge Notes, for marketing and advertising, for hiring and training of
additional personnel and for the purchase of equipment. See "Use of Proceeds".
26
<PAGE>
The Company currently has no planned capital commitments.
Cash Flows - Nine Months Ended September 30, 1996 versus 1995
For the nine months ended September 30, 1996, cash provided by
operating activities was $2,250 as compared to $57,058 for the same period of
the prior year. This is a result of higher software sales generated in 1995 as
compared to 1996 thereby generating more receipts from customers.
While the Company utilized no cash for investing purposes in 1996, for
the nine month period ended September 30, 1995, $15,638 was utilized for such
purposes, primarily for the purchase of fixed assets.
For the nine month periods ended September 30, 1996 and 1995, cash
utilized for financing activities aggregated $51,040 and $71,487, respectively.
Cash in this category was primarily used for the repurchase of Common Shares
from minority stockholders and for the payment of long-term debt. For the period
ended September 30, 1996, the Company also paid $25,460 in expenses associated
with the Bridge Financing.
Cash Flows - Years Ended December 31, 1995 versus 1994
For the year ended December 31, 1995, cash generated from operations
was $50,644 as compared to $236,202 for the year ended December 31, 1994. Higher
cash was generated in 1994 due to higher sales resulting in more cash collected
net of expenses paid.
Cash used for investing activities (primarily for the purchase of fixed
assets) was $32,712 and $13,830 in 1995 and 1994, respectively.
Cash used for financing activities of $98,063 and $64,480 in 1995 and
1994, respectively, was primarily for the payment for Common Shares repurchased
from minority stockholders and the payment of long-term debt.
Other
The Company believes that the cash it generates from operations, the
cash generated from the debt offering and the expected net proceeds from this
Offering will be sufficient for at least the ensuing 12 month period.
Inflationary Impact
Since the inception of operations, inflation has not significantly
affected the operating results of the Company. However, inflation and changing
interest rates have had a significant effect on the economy in general and,
therefore, could affect the operating results of the Company in the future.
27
<PAGE>
BUSINESS
Introduction
The Company is primarily engaged in the business of designing,
developing, licensing, installing and servicing computer application software
systems for law enforcement and public safety agencies. The Company's software
systems include computer-aided dispatching ("CAD"), computer interfacing with
local, state and national crime information databases, advanced wireless mobile
on-line communications computing ("AMO") (utilizing radio frequency), automatic
vehicle location ("AVL") (employing dynamic map displays), records management,
and photo-imaging database systems. These modules may be integrated and licensed
as a package, or may be licensed individually. Certain of these applications
utilize telecommunications and space satellite technology, and other
infrastructure, provided by third parties. The Company's software is compatible
with virtually all operating systems. The Company has installed its systems in
more than 55 agencies, primarily law enforcement agencies located in the state
of New York. The Company provides a full range of product support and
maintenance services, both on-site and by remote connection.
Industry Background
The goal of law enforcement and public safety agencies is to maximize
the safety and improve the quality of life of people and communities. The
effectiveness of a law enforcement or public safety agency is dependent on its
personnel and resources. Such effectiveness is enhanced by maximizing the patrol
time of agency personnel, and the availability of timely, accurate and reliable
information. This allows services to be provided in an efficient, cost-effective
manner. Computer technology is an important tool for providing information to
law enforcement and public safety personnel, reducing administrative time and
streamlining procedures, to support an agency's strategic and operational goals.
Generally, a law enforcement or public safety agency's strategy is not
geared to one overall plan for an entire community, but is based on several
individual plans addressing the unique needs of the neighborhoods that comprise
that community. Agencies need the ability to maximize their resources, customize
information, analyze crime information by sector, district and area, and analyze
repeat call areas that tax agencies' resources. Additionally, agencies have a
need to respond to incidents and 911 calls as rapidly, efficiently and cost
effectively as possible.
Computer technology has been developed for the public safety market to
address these needs. CAD systems, integrated with enhanced 911 ("E911") systems,
allow a dispatcher to retrieve information about the 911 caller, and the
location and the individuals involved in the incident being reported. Mobile
wireless communication systems in vehicles provide agency personnel in the field
with the ability to receive information regarding an incident and the people
involved, such as location, "mug shots" and photographs, and arrest and booking
data. Such systems also enable such personnel to go "on line" with the agency's
database, and with other vehicles, in real time. Wireless
28
<PAGE>
communication systems also provide personnel with the capability to file reports
from their vehicles instead of having to return to the station. This increases
personnel time and visibility in the community. AVL system technology provides a
dispatcher with the capability of immediately identifying the location of the
most appropriate vehicle to investigate an incident, significantly shortening
response time. Without an AVL system, a dispatcher has to alert the vehicles in
the field of an incident and then wait, as they report their location and/or
availability, before determining which vehicle would be the most appropriate to
respond to an incident. Information sharing technology allows agencies to link
their databases to local, state and national crime databases to access
information for more in-depth and efficient investigation of incidents. Records
management and photograph imaging systems for law enforcement agencies make
arrest and booking procedures and incident investigations more efficient, while
similar systems for fire and EMS departments contribute to the efficient
deployment of firefighting and emergency equipment and investigation of
incidents. Without a computerized records management system, records and reports
would need to be handwritten or typed, and physically stored in various filing
cabinets, file rooms, or on microfilm or microfiche. In such form, such reports
are comparatively error prone, and may be misplaced or unavailable, which makes
retrieval difficult and time consuming. Computerized records systems allow for
easy entry and retrieval, and increased productivity, enabling agency personnel
to spend more time "on the beat" in the community.
In essence, the foregoing computer technology enables law enforcement
and public safety agencies to allocate and utilize resources and manpower hours
to maximize their goal of public safety.
The Company believes that the global market for application software
and technology products utilized in the law enforcement and public safety market
is growing due to (i) an increased public and governmental priority for law
enforcement and public safety, (ii) an awareness that specific computer
technology for the law enforcement and public safety market now exists, (iii)
the availability of federal funding assistance to obtain computer equipment and
technology, (iv) breakthroughs in development of new mobile wireless computer
communications technology and (v) acknowledgment by certain agencies that
computer-aided law enforcement has contributed to a recent drop in crime rates,
and the ability to effectively handle increasing incidents of crime without
increasing personnel. For example, The New York Times recently reported that New
York City's mayor and top police officials attribute that City's drop in crime
rate, in part, to a series of new police strategies which includes, among other
things, the use of computer technology which has allowed the police department
to identify crime patterns much more quickly and flood problem streets with
undercover and beat officers. Also, the City of Chicago has installed an E911
dispatch system which has contributed to a recent decline in crime. In addition,
the City of Glens Falls, New York, a customer of the Company, recently advised
the Company that, although incidents of crime had increased, its computer system
enabled the police department to effectively respond to, and handle, these
incidents without increasing personnel.
Products and Services
Products
The Company's software products consist of CAD systems, computer
interface systems which connect the customer's computer system to local, state
and national crime information databases, AMO communication systems utilizing
radio frequency, AVL systems employing
29
<PAGE>
dynamic map displays, records management systems, and photo-imaging database
systems. Certain of the Company's software systems also interface with and
utilize space satellite technology, telecommunications technology and other
infrastructure provided by third parties. The Company's software is compatible
with virtually all operating systems, utilizing a variety of software, including
Windows(R) and Unix(R). The Company's software also allows linkage of its
products to mainframe systems and is adaptable to both small and large hardware
systems.
The Company markets its products to law enforcement agencies under the
ALECS 2000(TM) (Advanced Law Enforcement Computer System) product line and to
fire and EMS departments under its AFFECT(TM) (Advanced Firefighter Computer
Technology) product line.
The Company licenses its software to customers in modules pursuant to a
perpetual license. Customers may acquire all the modules as an integrated "total
solution" package, or any of the modules individually, on a stand alone basis or
as an addition to, or as a replacement for, an existing system. The software
modules licensed from the Company can be integrated with the customer's other
software systems. The Company's "total solution" package of integrated Modules
maximizes efficiency since data entered into one module will be available in all
modules in real time. A hybrid network comprised of certain of the Company's
modules and other software systems may require data to be entered into the
Company modules and other software systems separately.
The price to the customer of the Company's products, whether a "total
solution" package or individual modules, varies depending on several factors,
including the need for, and existence of, communication infrastructure in the
customer's jurisdiction (such as radio towers necessary for AMO radio frequency
modules), volume of use of telecommunications systems (such as telephone lines
and radio cells), and the customer's computer hardware requirements to implement
the software system.
The Company's ALECS 2000(TM) product line for law enforcement, and its
AFFECT(TM) product line for fire and EMS are similar in many respects. Both
address the reporting of incidents, the dispatch of resources and the deployment
of personnel.
The Company's modules are described below. See "Business - Customers".
Computer-Aided Dispatching - CAD and AVL
The Company's CAD system, under both the ALECS 2000(TM) and AFFECT (TM)
product lines, integrates several software and communications technologies, such
as E911 dispatch systems, mapping software integrated with global positioning
systems for vehicle tracking, and geo-based mapping systems, which include
street addresses and intersections, longitude/latitude, and other information to
identify the locations and addresses of incidents. The integration of these
systems with the Company's CAD software provides to police and other public
safety agencies the capability to respond rapidly and efficiently to incidents,
and streamlines record management, enhancing productivity and accuracy of record
keeping. The Company is currently developing unique visual CAD software (known
as V-CAD, or Visual Computer-Aided Dispatching), which provides the dispatcher
with touch screen graphical interfacing, allowing for a more user-friendly
environment.
The CAD system allows the dispatcher receiving the E911 call to
immediately identify the caller's telephone number, the related address, and the
name of the telephone number owner (unless
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<PAGE>
the call is made from a cellular phone). The CAD system enables the dispatcher
to access any records maintained in the agency's database relative to that
person or the location of the incident (e.g. gun permit issued, prior domestic
violence or prank calls).
Once a decision is made to dispatch a vehicle to an incident, a record
is created and the location of the incident appears on a computer-generated map
of the area. Using AVL software, which links the customer's system and a
receiver in each of the customer's vehicles to global positioning satellites,
the map also shows the position of vehicles "in the field" which are available
to respond to the incident. The dispatcher can then select the closest available
vehicle to respond to the incident and can observe the movement of that vehicle
as it responds to the call.
Wireless Mobile Data Communications System - AMO
The Company has recently developed and begun to market a wireless AMO
data communications system which permits "on-line" real time access between
vehicles in the field and the central database, between the central database and
local, state or national databases, crime information centers and other
centralized computer records, and between vehicles. The Company's AMO system
employs radio frequency networks (i.e. private radio networks, public radio
networks, and cellular and short range spread spectrum technology) to provide
complete communication and access from the vehicle to the central databases as
well as vehicle to vehicle. The Company's AMO system allows the agency's
personnel to log onto the customer's central database directly from their
vehicles and have access to all information in such central database.
Additionally, the AMO technology provides capability for the agency's personnel
to input information into the agency's database directly from their vehicles,
and transfer or access information from vehicle to vehicle. In comparison, other
currently existing competitive mobile data access systems do not provide for
on-line and real time access to information between vehicles and the central
databases, but only allow for the transmittal of batch data from the central
databases to vehicles and vice versa. AMO employs unique "text to voice"
technology which converts data received by the vehicles' systems from text into
voice data, and by voice recognition, converts voice commands into text to be
sent to the dispatcher. This enhances the safety of vehicle operators since they
can receive and give information without having to divert their attention to
read a computer screen or input information by keyboard. Furthermore, the main
police, fire and EMS radio channels are not employed and remain available.
AMO, through the use of photo imaging technology, allows "mug shots" to
be rapidly made available at a crime or incident scene, or the personnel at the
scene can create a permanent computer photograph record of the accident or crime
scene and transmit it directly into the agency's central database or to other
vehicles.
The Company intends to uses a portion of the net proceeds from this
Offering to develop a radio modem to be used in connection with the Company's
AMO System and other mobile computing software systems. However, the Company
cannot assure that it will be successful in developing such a radio modem. See
"Use of Proceeds".
Records Management
The Company's records management systems for law enforcement and other
public safety agencies offers a wide range of options and flexibility to fit an
agency's needs and budget. The ALECS 2000(TM) records management system
processes data from the incident report through
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<PAGE>
prosecution, and is made up of component sub-modular units, including a records
management system, a photograph/"mug shot" imaging system, a parking violation
system, and a false alarm billing system. The AFFECT(TM) records management
system processes data from the incident report through closing the
investigation, and also provides information such as the location of resources,
including, without limitation, hydrants and secondary sources of water (such as
ponds, lakes, rivers, and seawater access), foam and other chemical fire
extinguishing material, hoses and jaws-of-life.
As discussed above, the Company's records management systems obviate
the need for handwritten or typed reports and physical filing systems which are
cumbersome, error prone, and make for difficult and time consuming information
retrieval.
Local Court Records Management and Sheriff's Records Management
The Company's products also include records management systems which
are specifically designed for local courts and sheriff departments. The local
court records management system records summonses, tracks fines payable and
enters the appropriate dates on court calendars. The sheriff's records
management system provides several functions through the following sub-modules:
civil warrants/attachment records management, pistol permit records management,
photo imaging/booking for county jails, property records management, jewelry
recovery and pawn shop records management, and police academy records
management. One of the goals of this technology is to streamline procedures and
allow for more efficient allocation of resources and manpower hours.
Services
Installation
System installation is an integral part of the Company's services. The
Company's installation procedure commences with an in-depth consultation with
the customer to determine the appropriate modules needed to meet the customer's
particular requirements within budgetary parameters. Once the customer's needs
have been identified, the Company provides customized system design and file
creation. The Company then implements the system, undertakes system start-up and
provides training for the customer's personnel in the operation of the Company's
software products. Customer training is conducted either at the customer's site
or at a remote location, and can range up to several days, depending on the
customer's particular system.
Support and Maintenance
The Company provides post-installation system software maintenance and
training support for all of its software products. The Company's systems support
teams, which include communications and software technicians and program
developers, are available to assist customers via telephone access, 24 hours a
day, seven days a week, 52 weeks a year, and provide on-site support, pursuant
to a software maintenance agreement. Software updates and enhancements to the
modules are included under maintenance contracts. Customers pay the Company a
set monthly service fee (currently ranging between 1% and 2% of the installation
contract value) which is dependent on the extent and complexity of the
customer's system. Currently, the Company has maintenance agreements with all of
its customers. During the fiscal year ended December 31, 1995 and the nine
months ended September 30, 1996, support and maintenance income represented
approximately 21% and 41%, respectively, of the Company's revenues. See
"Business-Customers".
32
<PAGE>
Intellectual Property Rights and Licenses
The Company's products are based on approximately 3,000 interdependent
software application programs and system utility modules, including software
developed for creating applications of the modules. The Company's technology is
not patented; however, its software programs are copyrighted under common law.
The Company believes that it takes at least two to three months of training for
a programmer to grasp the complete structure of the Company's software. The
Company requires every employee to sign an agreement of nondisclosure and
assignment of development rights. While large software vendors have instituted
lawsuits to protect intellectual property rights to software against infringers,
the Company believes that in its case, the complexity and total system
integration of the Company's products best protects its trade secrets. There can
be no assurance that the intellectual property and contractual rights on which
the Company relies to protect its intellectual property and confidential and
proprietary information will provide it with meaningful protections. See "Risk
Factors - Intellectual Property Protection and Infringement".
The Company utilizes certain operating system software owned by certain
third parties in the development of its software systems. The Company uses such
operating system software pursuant to perpetual licenses which allow the Company
to use such software to create its software modules, and, in some cases, to
"bundle" such operating system software with its own software as part of its
software products. The Company pays the licensors a monthly fee to sublicense
such operating software based on the number of product units in which the third
party's operating system software is included, and an annual fee to use such
operating software to create software, based on the number of product units for
which the third party's operating system software is used to create. The
termination of any of these licenses could have a material adverse effect on the
Company's ability to produce and deliver its software products on a timely
basis. If any of such licenses are terminated, the Company would be required to
license alternative operating system software, which the Company believes is
currently available. However, the Company would have to revise its software to
make it compatible with such alternative operating system software, which the
Company believes would result in production and delivery delays of approximately
three to six months. See "Risk Factors - Dependence on Licensors".
Sales and Marketing
According to the National Directory of Fire Chiefs and Emergency
Department (1993) and the National Directory of Law Enforcement Administration
(1996), the national law enforcement and public safety market is estimated to
have more than 18,000 law enforcement agencies and more than 35,000 fire
departments. Based on management's exposure to the marketplace, the Company
believes that the majority of such agencies currently have limited or no
computerization of their law enforcement and public safety activities. The
Company believes that mobile wireless computer communications, computer-aided
dispatching, integrated mapping and photo-imaging technology have not been
marketed extensively to a majority of these agencies.
The Company intends to implement the following marketing strategy with a
portion of the proceeds of this Offering, although no assurances can be given
that if such marketing strategy is implemented, it will be successful. See "Risk
Factors - Limited Sales and Marketing Experience" and "Use of Proceeds".
33
<PAGE>
Direct Marketing
The Company currently participates to a limited extent in public safety
conferences and trade shows, holds regional seminars, presents and conducts
demonstrations, and conducts targeted mailings and phone campaigns. The Company
intends to expand such direct marketing significantly following the consummation
of this Offering.
Current Customers
Generally, once a system is designed and installed for a customer, there
is little repeat business other than maintenance and support, and the provision
of software enhancements or updates. Accordingly, the Company intends to
intensify sales efforts to current customers for add-on products and to obtain
references for other prospective customers, a strategy which has been somewhat
successful with current sales resources. See "Business-Customers".
Subcontracting and Business Partnership Opportunities
The Company is pursuing a strategy whereby it would create business
co-ventures and subcontractor relationships with large system integrators and
public network service providers such as IBM, AT&T, Bell Atlantic, Motorola, RAM
and GTE, in order to have the resources needed to establish a presence in the
"large size" market segment (i.e. departments or agencies with more than 200
sworn officers or personnel). See "Business - Customers". No assurances can be
given that the Company will develop such relationships or derive future revenues
from any such affiliations. The Company monitors governmental announcements of
officially published requests for proposals ("RFPs") to find business co-venture
or subcontracting opportunities. The selection of the appropriate large system
integrator by the Company as a potential business co-venturer or prime
contractor often depends on the specifications in the RFP. The Company intends
to contact large system integrators to demonstrate its product capabilities and,
more importantly, to establish a credible presence for participating in "large
size" market segment projects. Although, in the past, the Company has had some
success in partnering with large system integrators, no assurance can be given
that the Company will be viewed by these entities as an acceptable business
co-venturer or subcontractor in the future. If the Company is unable to
establish such a business relationship, its plans to expand into the "large
size" market segment may be delayed or hindered due to a limitation of resources
needed to respond competitively to RFPs or to meet "large size" market segment
agency requirements. See "Risk Factors - Limited Sales and Marketing Experience"
and "Business - Competition".
Increase of Sales Staff
Until recently, the Company had no sales staff and sales efforts were
conducted by one of the Company's principals and its project manager. Since the
closing of its Bridge Financing, the Company has retained two full-time sales
associates. The Company intends to use a portion of the proceeds of this
Offering to increase sales staff in order to penetrate geographic markets beyond
New York. In addition, the Company intends to engage a marketing support person,
a technical training specialist, a technical writer and other individuals
coordinate installations, handle subcontract relations with large system
integrators, and provide technical sales support. See "Risk Factors Challenges
of Growth", "Risk Factors - Limited Sales and Marketing Experience" and "Use of
Proceeds".
34
<PAGE>
Customers
The Company has installed software systems for, and provides maintenance
and support services to, 57 customers, 53 of which are law enforcement agencies
and four of which include fire and EMS departments. The Company believes that
there is a trend away from town and municipality dispatching and toward
county-wide dispatching. As a result of this trend, the Company believes that
there will be a need in the future for comprehensive public safety systems which
will address and integrate the needs of police, fire and EMS departments. As a
"total solution" software system provider, the Company believes that, with the
proceeds of this Offering and the successful implementation of its marketing
plan, it will be in a position to meet such needs.
See "Use of Proceeds" and "Business - Sales and Marketing".
Typically, a customer will procure a software system from the Company
under a perpetual license, pursuant to which the Company will be paid a
percentage of the license fee at the time the contract is entered into, and then
will receive further installments as certain performance milestones are met,
until completion of the contract. After the contract is completed, any further
revenues from that customer are usually derived from a maintenance and support
contract. From time to time, however, the Company may receive additional
contracts from an existing customer for add-on modules, an aspect of business
which the Company intends to market more aggressively in the future. See
"Business-Sales and Marketing".
The length of time that it takes to complete a systems installation
contract varies (generally from three to twelve months), depending on the nature
and complexity of the system and the customer's internal procurement procedures.
During the period of time that installments are being paid, the customer, or a
small number of customers with contracts in progress, may account for a
significant percentage of the Company's revenues. However, once those contracts
are completed, such customers will no longer represent a material portion of the
Company's future revenues. Accordingly, the Company does not rely on such
customers for a continuing revenue stream and the Company does not believe that
the make-up of its current significant customers is material to an understanding
of the Company's future business prospects. However, the Company anticipates
that at any particular time a limited number of large customers will continue to
represent a significant portion of its revenues for the foreseeable future. See
"Risk Factors - Lengthy Sales Cycle", "Risk Factors - Evolving Market; New
Product Development; Technological Obsolescence", Risk Factors "Significant
Customers" and "Business - Sales and Marketing".
The following two examples are illustrative of the diverse application of
the Company's products and services:
(i) The Onondaga County Police Department utilizes an AMO
application, designed, developed and installed by the Company, which links over
700 police, fire and EMS vehicles. For this project, the Company was retained by
International Business Machines Corp. ("IBM") as a subcontractor to design,
develop, install and service all the required AMO software. The project included
integration by the Company of IBM and Digital Equipment Corp. hardware which
already contained application software provided by other subcontractors for both
records management and computer-aided dispatch; and
35
<PAGE>
(ii) The Company, as prime contractor, designed developed and
installed a "total solution" system for the Putnam County Sheriff's Office, a
comparatively small agency of seven vehicles. The system consisted of a records
management system, a CAD system and an AMO system.
Competition
The Company faces competition in the "small size" market segment (which
the Company views as departments or agencies with 20 or fewer sworn officers or
personnel) and the "medium size" market segment (which the Company views as
departments or agencies with 21 to 200 sworn officers or personnel) from
companies such as NewWorld Systems and Pamit, Inc. Although such competitors
have significantly greater financial, technical and other resources than those
of the Company, the Company feels that it has been able to compete successfully
in such market due to its "total solution" system integration technology and
local presence, the Company having installed systems in over 50 "small size" and
"medium-size" law enforcement agencies in the state of New York. The Company
believes further that as it expands its presence to other geographical areas and
market segments, sales to such agencies are likely to develop outside of its
current primary market of New York.
The Company believes that more intense competition exists in the "large
size" market segment in which the system price ranges widely (between $1 million
and $100 million) depending on the size of the customer and the complexity of
the system (as compared to the Company's typical sale in the "small size" and
"medium size" market segments, which historically has ranged between $25,000 and
$350,000). The "large size" market is dominated by software vendors, such as PRC
Public Safety, Inc. and Systemhouse, Ltd. and large system integrators such as
IBM, Andersen Consulting, Electronic Data Systems and Harris Corporation. In
order to penetrate the "large size" market segment, the Company intends to
pursue business co-ventures or subcontracting relationships with large systems
integrators having greater financial resources and name recognition than the
Company. The Company believes that, in the future, through an extensive
marketing plan, it can build brand name awareness for its products and services.
The Company cannot, however, assure that it will be successful in this strategy.
See "Risk Factors - Competition" and "Business - Sales and Marketing".
The Company believes that the mobile wireless computer communication
technology sub- market is in its infancy. With the development of the Company's
AMO system utilizing radio frequency networks as discussed above, the Company
believes that, with sufficient resources, it will be capable of increasing its
sale price range to between $75,000 and $1 million per installation, depending
on the customer size and the extent and complexity of the system.
36
<PAGE>
The Company further believes that large software companies, communication
equipment companies and computer hardware companies are currently not
concentrating their resources on the law enforcement and public safety market
because of that market's special requirements for secure radio operations and
the particular applications and expertise needed to meet those special
requirements. Additionally, most "large size" agencies have a general need for
highly specific customized systems and systems integration. Generally, such
companies that do have an interest in pursuing the law enforcement and public
safety markets look for a business partner, like the Company, that has the
necessary expertise to design and install law enforcement and public safety
systems. The Company also believes that, as a "total solution" provider in the
field of law enforcement and public safety computer technology, it is, subject
to obtaining the appropriate resources, positioned to develop generic
communications software protocols for secure on-line radio frequency mobile data
transmission basic to almost all mobile computers for police, fire and EMS
departments. See "Business - Products and Services" and "Business - Sales and
Marketing".
Employees
The Company currently has 13 full-time employees, including seven
programmers, two sales and marketing employees, and four executive and
administrative personnel. Management believes that its relations with its
employees are satisfactory.
The Company's Product Development Group performs research and development
activities and its Customer Service Support Group handles installations,
maintenance and service. The Company's new customers are trained by consultants
who generally are retired and active-duty police officers from police
departments that have systems installed by the Company. The Company's daily
operations are managed by a software development manager, a manager of
operations, and a director of technology.
Facilities
The Company's executive offices are located at 77 Spruce Street,
Cedarhurst, New York where it leases approximately 5,000 square feet of space.
The premises are held pursuant to a five year double net lease expiring in
September 2001 that provides for a base annual rental of approximately $85,000.
The Company believes that its premises are adequate for its needs for the
foreseeable future.
37
<PAGE>
MANAGEMENT
Executive Officers and Directors
The names and ages of, and the positions held by, the executive officers
and directors of the Company are set forth below.
Class of
Name Age Positions Held Directorship(1)
---- --- -------------- ---------------
Dong W. Lew 67 President, Chief Operating I
Officer, Treasurer and Director
Mark Honigsfeld 42 Chairman of the Board, Chief II
Executive Officer, Secretary
and Director (2)
John P. Hefferon 51 Executive Vice President - Sales -
and Marketing
Doris H. Abruzzo 57 Vice President, Assistant III
Secretary and Director
- ----------
(1) The Company's Certificate of Incorporation provides for
three classes of directors. The term of each class is three years except that
the initial term of office of the Class I directors will expire at the Company's
annual meeting of stockholders in 1997 and the initial term of office of the
Class II directors will expire at the Company's annual meeting in 1998.
(2) Mr. Honigsfeld will become the Chief Executive Officer of the Company
upon the closing date of this Offering. See "Management - Employment Agreements"
Mark Honigsfeld
---------------
Mr. Honigsfeld joined the Company as Chairman of the Board, Secretary and
a director in August 1996 and, effective on the closing date of this
Offering, he will assume the position of Chief Executive Officer of the
Company. In 1978, he founded Facelifters Home Systems, Inc. ("FACE"), a
cabinet manufacturing and installation company for which he served as
Chief Executive Offer and Chairman of the Board until April 25, 1996. On
such date, FACE, a publicly-traded company, was acquired by a New York
Stock Exchange company in a transaction valued at approximately $70
million to FACE's stockholders. Prior to the merger, FACE's revenues on
an annualized basis approached $50 million. As the founder, Chief
Executive Officer and Chairman of the Board, Mr. Honigsfeld was directly
involved in the
38
<PAGE>
planning and development of almost all areas of FACE's business,
including corporate finance, public offerings, investor relations,
mergers and acquisitions, licensing, product design and engineering,
sales and marketing, manufacturing, field installation, customer service,
management information services and management training. Prior to the
sale transaction, FACE had approximately 600 employees and associates
representing its products and services at 28 locations in 14 states,
approximately 135 telemarketing personnel, 180 direct sellers, 120
manufacturing employees and 165 supervisory, management and
administrative personnel. In addition, FACE had working arrangements with
approximately 175 independent contracting companies nationwide. Mr.
Honigsfeld holds a Bachelor of Science Degree in Industrial Arts, magna
cum laude, and a Master of Science Degree in Industrial Arts, with
honors, from City College of the City University of New York.
Dong W. Lew
-----------
Mr. Lew joined the Company in l988. He was elected a director and the
President in August 1992 and was elected Treasurer in August 1996. He is
a graduate of Massachusetts Institute of Technology (M.I.T.) with a
Bachelor of Arts Degree in Business and Engineering Administration, and
has over 25 years of experience in the computer industry. From 1981 to
1988, Mr. Lew was an independent computer consultant providing turnkey
computer systems with custom software to the manufacturing and publishing
industries. Prior to 1981, he was employed in computer systems design and
managerial capacities by such firms as Mergenthaler, Inc.,
Harris-Intertype, Inc., and Codesco International, Inc.
John P. Hefferon
----------------
Mr. Hefferon joined the Company in October 1996 as Executive Vice
President - Sales and Marketing. From January 1973 to January 1987, he
served in various positions with Wang Laboratories, Inc. ("Wang
Laboratories"), including sales representative, branch manager, district
manager, Atlantic area director and Eastern Regional Vice President -
Sales and Marketing of Wang Financial Information Services Corporation, a
subsidiary of Wang Laboratories (a position he held for eleven years).
From January 1987 to November 1988, Mr. Hefferon worked for Computer
Leasing, Inc. where he was involved in arranging lease financing for
multi-million dollar IBM mainframes in the Fortune 500 marketplace. From
late 1988 through March 1990, Mr. Hefferon was Eastern Regional Director
for Imnet, Inc., a start-up imaging software company. From March 1990 to
August 1995, Mr. Hefferon served in several executive sales and marketing
positions with Allerion, Inc., a network systems integrator. From August
1995 to October 1996, Mr. Hefferon served as Vice President - Sales of
Ultradata Inc., an application software company.
39
<PAGE>
Doris H. Abruzzo
----------------
Ms. Abruzzo joined the Company in April 1990 as Manager of Administrative
Services. She has served as a member of the Board of Directors since
September 1992 and was elected a Vice President and Assistant Secretary
in October 1996. Ms. Abruzzo was employed from 1960 to 1974 as
Administrative Assistant to a senior partner in the New York City law
firm of LeBoeuf, Lamb, Leiby & MacRae. From 1975 until she joined the
Company, Ms. Abruzzo held various administrative positions at Nassau
Regional Off-Track Betting Corporation, the New York Mets, the New York
Islanders, and Spencer Sports Media, Inc.
Each Director will hold office until the next annual meeting of
stockholders during the year in which the term of his or her class of
directorship expires and until his or her successor is elected and qualified.
Executive officers serve at the pleasure of the Board of Directors. See "Risk
Factors - Control of the Company" and "Certain Relationships and Related
Transactions".
There is no family relationship among any of the Company's executive
officers and directors.
Executive Compensation
The following table provides summary information concerning cash and
certain other compensation paid or accrued by the Company to, or on behalf of,
Mr. Lew, the Company's President, during the last three fiscal years. No
executive officer of the Company had a combined salary and bonus in excess of
$100,000 for any year during such period.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------- --------------------------------
Awards Payouts
---------------------- -------
Name and Restricted Securities
Principal Other Annual Stock Underlying LTIP All Other
Positions Year Salary Bonus Compensation Award(s) Options Payout Compensation
- --------- ---- ------ ----- ------------ -------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dong W. Lew 1995 $70,980 - - - - - -
President 1994 70,980 - - - - - -
1993 70,980 - - - - - -
</TABLE>
Each non-employee director of the Company is entitled to receive a
director's fee of $500 per meeting (other than telephonic meetings) and options
to purchase 5,000 Common Shares of the Company each year at an exercise price
equal to the market price of the Company's Common Shares on the date of the
grant, and will be reimbursed for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors of the Company. The members of the
Board of Directors intend to meet regularly, as needed.
40
<PAGE>
Employment Agreements
The Company is a party to Employment Agreements with Mark Honigsfeld and
Dong W. Lew, each for a term of three years, subject to continuing, automatic
one year extensions unless either the Company or the individual notifies the
other, at least 90 days prior to any annual anniversary date, of its desire not
to extend the term thereof. Each Employment Agreement provides for earlier
termination as discussed below.
Pursuant to the Mr. Honigsfeld's Employment Agreement (which will
commence upon the consummation of the Offering made hereby), Mr. Honigsfeld will
serve as Chief Executive Officer, and will continue as Chairman of the Board, of
the Company.
Pursuant to Mr. Lew's Employment Agreement (which commenced as of October
1, 1996), Mr. Lew serves as President and Chief Operating Officer of the
Company.
The Employment Agreements provide for base annual compensation of
$250,000 and $125,000 for Messrs. Honigsfeld and Lew, respectively. The
Employment Agreement with Mr. Honigsfeld provides for a signing bonus in an
amount equal to the economic value of all salary (based upon an annualized
amount of $250,000), bonuses and benefits that would have been due to Mr.
Honigsfeld if he had been employed by the Company as of October 1, 1996. Such
amount will be due and payable to him on the closing date of this Offering (Mr.
Honigsfeld being entitled to receive no other compensation from the Company
prior to such time). The Employment Agreement for Mr. Lew provides for a signing
bonus in the amount of $15,000 which will be paid to him on the closing date of
this Offering. See "Use of Proceeds".
In addition to base compensation, each of Messrs. Honigsfeld and Lew is
entitled to receive (i) an annual bonus amount equal to a percentage of base
salary (ranging from 7 1/2% to 20%) based upon the Company achieving certain
sales levels (ranging from $3,750,000 to $6,000,000 in the initial year with
$1,000,000 increased thresholds per year if the bonus is earned in a particular
year) and (ii) an annual bonus based on the Company's earnings, if any, before
income taxes (excluding, among other items, any one time non-recurring charges)
("EBITANC"). Such latter bonus for each ranges from 5% to 10% of EBITANC based
on EBITANC thresholds ranging from $250,000 to $1,500,000.
The Employment Agreements for Messrs. Honigsfeld and Lew provide that
each is entitled to receive, for each year thereof, options for the purchase of
5,000 Common Shares of the Company for each $100,000 of EBITANC. Such options
would be exercisable for a five year period at an exercise price of no less than
110% of the market value of the Common Shares on the date of the grant. Messrs.
Honigsfeld and Lew are also entitled to receive an expense allowance of up to
$500 per month and an automobile allowance in the amount of $1,000 per month.
Each Employment Agreement provides that, notwithstanding the rolling
three year term thereof, it may be terminated prior to such expiration date
under the following circumstances: (i)
41
<PAGE>
death; (ii) total disability (as provided for in the Employment Agreements);
(iii) termination by the Company for "cause" (as defined in the Employment
Agreements); (iv) termination by the Company at any time upon written notice to
the employee; (v) termination by the employee upon 30 days written notice to the
Company; (vi) termination by the employee at any time for "good reason" (as
defined in the Employment Agreements); or (vii) termination by the Company at
any time within 12 months after a "change in control" (as defined in the
Employment Agreements). Additionally, Mr. Honigsfeld's Employment Agreement
allows him to devote up to 10% of his working time to other endeavors which are
not in competition with the Company.
The Employment Agreements provide for compensation under certain
circumstances upon termination of employment (in addition to accrued but unpaid
compensation) as follows: (i) in the event of the employee's death, the
employee's estate or spouse shall be entitled to receive an amount equal to the
employee's monthly salary as of the date of death multiplied by the number of
full years that he was an employee of the Company or a subsidiary or a
predecessor in interest thereof; (ii) in the event of termination of an
Employment Agreement due to disability, the employee shall be entitled to
receive an amount equal to his monthly salary as of the date of termination of
such Employment Agreement, multiplied by the number of full years that he was an
employee of the Company or a subsidiary or a predecessor in interest thereof
(but, in no event, would the disabled employee be entitled to an amount equal to
less than six months of salary); and (iii) in the event of termination of
employment by the Company following a "change of control" or for any reason
other than death, disability or "cause", or in the event of termination of an
Employment Agreement by the employee for "good reason", the employee shall be
entitled to receive his full salary for the unexpired term of such agreement,
without mitigation of damages based upon employment obtained elsewhere.
The Employment Agreements provide for a restriction on the solicitation
of customers of the Company for a period of two years following termination
thereof, and a covenant not to compete with the Company for a period of six
months following termination of employment for cause. See "Risk Factors - New
Management Team; Dependence on Executive Management; Honigsfeld
Agreement with Third Party; Need to Retain Key Personnel".
Stock Option Plan
The Company's 1996 Stock Option Plan (the "1996 Plan") provides for the
grant of options intended to qualify as "incentive stock options" ("ISOs") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
options that are not intended to so qualify ("Nonstatutory Stock Options"). The
total number of Common Shares reserved for issuance under the 1996 Plan is
2,000,000 (subject to adjustment in the event of a stock split, stock dividend,
recapitalization or similar capital change) plus an indeterminate number of
Common Shares issuable upon the exercise of "reload options".
The 1996 Plan is presently administered by the Board of Directors of the
Company, which selects the eligible persons to whom options shall be granted,
determines the number of Common
42
<PAGE>
Shares subject to each option, the exercise price therefor and the periods
during which options are exercisable, interprets the provisions of the 1996 Plan
and, subject to certain limitations, may amend the 1996 Plan. Each option
granted under the 1996 Plan is evidenced by a written agreement between the
Company and the optionee.
Options may be granted to all full-time employees (including officers)
and directors of, and certain consultants and advisors to, the Company or any
subsidiary of the Company.
The exercise price for ISOs granted under the 1996 Plan may not be less
than the fair market value of the Common Shares on the date the option is
granted, except for ISOs granted to 10% stockholders which must have an exercise
price of not less than 110% of the fair market value of the Common Shares on the
date the option is granted. The exercise price for Nonstatutory Stock Options is
determined by the Board of Directors. ISOs granted under the 1996 Plan have a
maximum term of ten years, except for 10% stockholders who are subject to a
maximum term of five years. The term of Nonstatutory Stock Options is determined
by the Board of Directors. Options granted under the 1996 Plan are not
transferable, except by will and the laws of descent and distribution. The total
amount of ISOs that may be granted to any individual person in any calendar year
is limited; however, there is no limit as to Nonstatutory Stock Options. The
Company and the Underwriter have agreed that, for a period of one year after the
date of this Prospectus, there shall not be outstanding more than 1,100,000
options and warrants (excluding the Bridge Warrants and Underwriter's Warrants).
Stock Option Grants; Warrants
As of the date of this Offering, there are outstanding options and
warrants for the purchase of an aggregate of 501,450 Common Shares with exercise
prices ranging from $.30 to $5.00 per share (including options held by Messrs.
Honigsfeld and Lew for the purchase of 233,000 and 156,950 shares, respectively,
at an exercise price of $.30 per share). All grants were at exercise prices at
least equal to the fair market value of the Company's Common Shares on the date
of grant, as determined by the Board of Directors.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus with respect to the beneficial ownership of the outstanding Common
Shares of the Company by (i) any holder of more than 5% of the outstanding
Common Shares; (ii) the Company's directors; (iii) the directors and executive
officers of the Company as a group; and (iv) the Selling Stockholders. The
number of Common Shares under the column below entitled "Number of Common Shares
Beneficially Owned Before the Offering" includes Common Shares underlying the
Bridge Warrants (which become exercisable upon the consummation of the Offering)
held by certain persons as indicated in the footnotes following the table.
43
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of Common Number of Common
of Beneficial Owner; Shares Beneficially Number of Shares Beneficially Percentage of Class(1)
----------------------
Name of Selling Owned Before the Common Shares Owned After the Before After
Stockholder Offering Offered Hereby Offering Offering Offering
- -------------------- ------------------- -------------- ------------------- -------- --------
<S> <C> <C> <C> <C> <C>
Dong W. Lew(2) 1,502,650(3)(4)(5) 39,200 563,200(3) 100.0% 26.3%
Mark Honigsfeld(2) 596,800(3)(6) 33,600 563,200 47.6% 25.4%
Murray Gross(7 ) 103,075(3)(8) 103,075 0 10.2% -
Robert H. Solomon(9) 100,275(3)(10) 100,275 0 9.1% -
Robert LoRusso(11) 100,100(3) 100,100 0 10.1% -
Harvey Bibicoff(12) 70,000(13) 70,000 0 6.9% -
Apollo Equities(14) 56,000(13) 56,000 0 5.4% -
James Favia 42,000(13 42,000 0 4.1% -
Sydney Gluck 22,400(13) 22,400 0 2.2% -
Steven Wallitt 16,800(13) 16,800 0 1.7% -
John Eckhoff 14,000(13) 14,000 0 1.4% -
Kenneth Moschetto 14,000(13) 14,000 0 1.4% -
Lawrence Levine 11,200(13 11,200 0 1.1% -
Maretza Jimenez
Campos 11,200(13) 11,200 0 1.1% -
Lori Siegal 11,200(13) 11,200 0 1.1% -
Horizon Acquisitions 8,400(13) 8,400 0 * -
Stuart Copperman 5,600(13) 5,600 0 * -
Teddy Selinger 5,600(13) 5,600 0 * -
John P. Hefferon 5,600(13) 5,600 0 * -
Scott Cohen 2,800(13) 2,800 0 * -
Peter Guardino 2,800(13) 2,800 0 * -
James Portnof 2,800(13) 2,800 0 * -
Windsor L. P. 2,800(13) 2,800 0 * -
Doris H. Abruzzo (2) 0 0 0 - -
Directors and executive
officers as a group
(4 persons) 1,508,250(3)(4) 78,400 1,126,40 100.0% 47.8%
(5)(6)
(15)
</TABLE>
- ------------------------
* Less than 1%.
(1) Does not give effect to the exercise of the Underwriter's Overallotment
Option or the Underwriter's Warrants. See "Underwriting".
(2) The address for Messrs. Lew and Honigsfeld and Ms. Abruzzo is 77 Spruce
Street, Cedarhurst, New York.
(3) The number of Shares reflected as being owned by Mr. Lew before the
Offering includes all shares beneficially owned by Messrs. Honigsfeld,
LoRusso, Gross and Solomon as such shares are subject to a limited
irrevocable proxy which will expire upon consummation of this Offering.
See "Certain Relationships and Related Transactions".
(4) Includes 156,950 shares issuable upon the exercise of options granted under
the 1996 Plan and 39,200 shares issuable upon exercise of the Bridge
Warrants.
44
<PAGE>
(5) In October 1996, the Company made a $70,000 loan to Mr. Lew, the proceeds of
which were utilized by him to participate in the Bridge Financing. A
floating number of shares owned by Mr. Lew, having a value equal to 120% of
the declining balance of the loan amount, serve to secure the repayment of
the loan. Mr. Lew retains voting rights to such shares unless and until
there is a default under the terms of the loan. As of the date hereof,
approximately 16,800 of Mr. Lew's shares were subject to the pledge (based
upon a fair market value of $5.00 per share). See "Certain Relationships
and Related Transactions".
(6) Includes 233,000 shares issuable upon the exercise of options granted
under the 1996 Plan and 33,600 shares issuable upon the exercise of
Bridge Warrants. Also includes 330,200 shares held by the Mark Honigsfeld
Living Trust dated March 27, 1996 whose sole beneficiary is Mr.
Honigsfeld's wife. Mr. Honigsfeld, the settlor and trustee of the trust,
has the right to terminate the trust and receive the shares.
(7) Mr. Gross's address is 6539 Waggoner Drive, Dallas, Texas.
(8) Includes 28,000 shares issuable upon the exercise of the Bridge Warrants.
(9) Mr. Solomon's address is 68 West Park Avenue, Long Beach, New York.
(10)Includes 25,200 shares issuable upon the exercise of the Bridge Warrants.
(11)Mr. LoRusso's address is 410 Jericho Turnpike, Jericho, New York.
(12)Mr. Bibicoff's address is 55 Maple Run Drive, Jericho, New York.
(13)Represents shares issuable upon the exercise of the Bridge Warrants.
(14)Apollo Equities' address is 30 Broad Street, New York, New York.
(15)Includes 5,600 shares issuable to Mr. Hefferon upon the exercise of the
Bridge Warrants.
The Company will not receive any of the proceeds from the resale of the
Common Shares by the Selling Stockholders. The Common Shares held by the Selling
Stockholders may be resold at any time following the date of this Prospectus,
subject to an agreement between each of the Bridge Lenders and the Underwriter
restricting the transfer of the Common Shares for a period of six months without
the Underwriter's consent. The sale of such Common Shares or the potential of
such sales at any time may have an adverse effect on the market prices of the
Common Shares offered hereby. See "Risk Factors - Shares Eligible For Future
Sale May Adversely Affect the Market".
The Common Shares offered may be sold from time to time directly by the
Selling Stockholders. Alternatively, the Selling Stockholders may from time to
time offer such Common
45
<PAGE>
Shares through underwriters, dealers, or agents. The distribution of Common
Shares by the Selling Stockholders may be effected in one or more transactions
that may take place on the over-the-counter market, including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
broker-dealers for resale of such shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Stockholders in
connection with such sales of Common Shares. The Common Shares offered by the
Selling Stockholders may be sold by one or more of the following methods,
without limitation: (i) a block trade in which a broker or dealer so engaged
will attempt to sell the Common Shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (ii) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (iii) ordinary brokerage transactions in
which the broker solicits purchasers; and (iv) face-to-face transactions between
sellers and purchasers without a broker-dealer. In effecting sales, brokers or
dealers engaged by the Selling Stockholders may arrange for other brokers or
dealers to participate. The Selling Stockholders and intermediaries through whom
such Common Shares are sold may be deemed "underwriters" within the meaning of
the Act with respect to the Common Shares offered, and any profits realized or
commissions received may be deemed underwriting compensation.
At the time a particular offer of Common Shares is made by or on behalf
of a Selling Stockholder, to the extent required, a Prospectus Supplement will
be distributed which will set forth the number of Common Shares being offered
and the terms of the offering, including the name or names of any underwriters,
dealers or agents, the purchase price paid by any underwriter for Common Shares
purchased from the Selling Stockholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective August 1996, the Company issued 330,200 Common Shares to the
Mark Honigsfeld Living Trust dated March 27, 1996 (the "Honigsfeld Trust") in
consideration for $.30 per share or an aggregate price of $99,060. Mr.
Honigsfeld, the settlor and trustee of the Honigsfeld Trust, has the right to
terminate it and receive the Common Shares. Mr. Honigsfeld's wife is the sole
beneficiary of the Honigsfeld Trust. Upon Mr. Honigsfeld accepting the position
as Chairman of the Board, he was issued an option to acquire up to 233,000
Common Shares of the Company pursuant to the 1996 Plan at an exercise price of
$.30 per share.
In October 1996, the Company repurchased 65,000 Common Shares and
canceled warrants for the purchase of 50,700 Common Shares (the "Repurchase
Agreements") from 13 individuals (the "Minority Stockholders"), such repurchases
occurring upon the consummation of the Bridge Financing. Pursuant to the
Repurchase Agreements, the Minority Stockholders were paid $.30 per share and
received new warrants exercisable for a five year period to purchase an
aggregate of 31,200 Common Shares at an exercise price of $5.00 per share.
Concurrently with the closing of the Bridge Financing, the Company also entered
into a certain Consulting Agreement with one of the
46
<PAGE>
Minority Stockholders (who was the Company's founder) providing for a one-time
payment of $25,290 at such closing.
In October 1996, the Company loaned $70,000 to Dong W. Lew, President and
Chief Operating Officer of the Company, for purposes of his participation in the
Bridge Financing. Such loan is evidenced by a promissory note, providing for the
payment of principal and interest at the rate of 8% per annum in 120 equal
monthly installments. Payment of the promissory note is secured by a pledge of a
floating number of Common Shares of the Company having a value equal to 120% of
the declining balance of the loan amount. Such value is $5.00 per share as of
the date of this Prospectus, and, accordingly, approximately 16,800 of Mr. Lew's
Common Shares are subject to the pledge as of the date of this Prospectus. All
voting rights to such shares remain with Mr. Lew except in the event of a
default on the payment of the promissory note.
DESCRIPTION OF SECURITIES
Common Shares
The Company is authorized to issue up to 20,000,000 Common Shares, par
value $.01 per share, of which 986,700 shares are issued and outstanding as of
the date of this Prospectus. All of the issued and outstanding Common Shares are
validly issued, fully paid and non-assessable. An additional 932,650 Common
Shares are reserved for issuance upon the exercise of outstanding options and
warrants, including the Bridge Warrants.
Holders of the Common Shares of the Company are entitled to share equally
on a per share basis in such dividends as may be declared by the Board of
Directors out of funds legally available therefor. There are presently no plans
to pay dividends with respect to the Common Shares. See "Dividend Policy." Upon
liquidation, dissolution or winding up of the Company, after payment of
creditors and the holders of any senior securities of the Company, including
Preferred Shares, if any, the assets of the Company will be divided pro rata on
a per share basis among the holders of the Common Shares. The Common Shares are
not subject to any liability for further assessments. There are no conversion or
redemption privileges, nor any sinking fund provisions, with respect to the
Common Shares, and the Common Shares are not subject to call. The holders of the
Common Shares do not have any preemptive or other subscription rights.
Holders of the Common Shares are entitled to cast one vote for each share
held at all stockholders' meetings including the annual meeting for the election
of directors. The Common Shares do not have cumulative voting rights.
Preferred Shares
The Company's Certificate of Incorporation authorizes 1,000,000 "blank
check" Preferred Shares, par value $.01 per share, whereby the Board of
Directors of the Company shall have the authority, without further action by the
holders of the outstanding Common Shares, to issue
47
<PAGE>
Preferred Shares from time to time in one or more series, to fix the number of
shares constituting any series and the stated value thereof, if different from
the par value, and to fix the terms of any such series, including dividend
rights, dividend rates, conversion or exchange rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price
and the liquidation preference of such series. As of the date of this
Prospectus, there are no Preferred Shares issued and outstanding, and the
Company has no plans to issue any Preferred Shares.
Delaware Anti-Takeover Law
The Company is governed by the provisions of Section 203 of the General
Corporation Law of Delaware, an anti-takeover law enacted in 1988. In general,
the law prohibits a Delaware public corporation from engaging in a 'business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless it is approved in a prescribed manner. As a result of
Section 203, potential acquirors of the Company may be discouraged from
attempting to effect acquisition transactions with the Company, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of such securities at above-market prices pursuant to such
transactions.
Limitation on Liability of Directors; Indemnification
Article X of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the Company and its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permitted by Section 102 of the Delaware General Corporation Law, provided that
this provision shall not eliminate or limit the liability of a director (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) arising under Section 174 of the
Delaware General Corporation Law (with respect to unlawful dividend payments and
unlawful stock purchases or redemptions), or (iv) for any transaction from which
the director derived an improper personal benefit.
Additionally, the Company has included in its Certificate of
Incorporation and its by-laws provisions to indemnify its directors, officers,
employees and agents and to purchase insurance with respect to liability arising
out of the performance of their duties as directors, officers, employees and
agents as permitted by Section 145 of the Delaware General Corporation law. The
Delaware General Corporation law provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors, officers, employees and agents may be entitled under the
Company's by-laws, any agreement, vote of stockholders or otherwise.
The effect of the foregoing is to require the Company, to the extent
permitted by law, to indemnify the officers, directors, employees and agents of
the Company for any claim arising against such persons in their official
capacities if such person acted in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
48
<PAGE>
In connection with the Offering, the Underwriter has agreed to indemnify
the Company, its directors, officers, and each person who controls the Company
within the meaning of Section 15 of the Act with respect to any statement in or
omission from the Registration Statement or the Prospectus or any amendment or
supplement thereto if such statement or omission was made in reliance upon
information furnished in writing to the Company by the Underwriter specifically
for or in connection with the preparation of the Registration Statement, the
Prospectus, or any such amendment or supplement thereto.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.
Transfer Agent
The transfer agent for the Company's Common Shares is American Stock
Transfer Company.
UNDERWRITING
General
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Underwriter has agreed to purchase the 1,000,000
Common Shares offered hereby from the Company on a "firm commitment" basis, if
any are purchased. The Underwriter has advised the Company that it proposes to
offer the Common Shares to the public at a price of $5.00 per Common Share, as
set forth on the cover page of this Prospectus, and that it may allow to certain
dealers who are NASD members concessions not to exceed $___ per Common Share, of
which an amount not in excess of $___ per Common Share may be reallowed to other
dealers who are members of the NASD. After the Offering, the public offering
price, concession and reallowance may be changed by the Underwriter.
The Company has granted an Overallotment Option to the Underwriter,
exercisable during the 45 day period from the date of this Prospectus, to
purchase up to a maximum of 150,000 additional Common Shares at the Offering
price, less the underwriting discount, to cover overallotments, if any.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriter against certain liabilities in
connection with the Registration Statement, including liabilities arising under
the Act. Insofar as indemnification for liabilities arising under the Act may be
provided to officers, directors or persons controlling the Company, the Company
49
<PAGE>
has been informed that, in the opinion of the Commission, such indemnification
is against public policy and is therefore unenforceable.
The Company has agreed to pay to the Underwriter a non-accountable
expense allowance of 3% of the aggregate Offering price of the Common Shares
offered hereby, including any Common Shares purchased pursuant to the
Overallotment Option, $50,000 of which has already been paid.
The Company has agreed to sell to the Underwriter, or its designees,
warrants to purchase an aggregate of 10% of the Common Shares sold pursuant to
this Offering, exclusive of the exercise of the Underwriter's Overallotment
Option, for a purchase price of one mil ($.001) per warrant (the "Underwriter's
Warrants"). The Underwriter's Warrants shall be exercisable during a four year
period commencing one year from the closing date of this Offering. Any profits
realized upon the sale of the Common Shares issuable upon exercise of the
Underwriter's Warrants may be deemed to be additional underwriting compensation.
The exercise price of the Common Shares issuable upon exercise of the
Underwriter's Warrant shall be $5.50 per share (110% of the initial public
offering price of the Common Shares). The exercise price of the Underwriter's
Warrants and the number of Common Shares covered thereby are subject to
adjustment in certain events to prevent dilution. For the life of the
Underwriter's Warrants, the holders thereof are given, at a nominal cost, the
opportunity to profit from a rise in the market price of the Company's Common
Shares with a resulting dilution in the interest of other stockholders. The
Company may find it more difficult to raise capital for its business if the need
should arise while the Underwriter's Warrants are outstanding. At any time when
the holders of the Underwriter's Warrants might be expected to exercise them,
the Company would probably be able to obtain additional capital on more
favorable terms. The Company has granted the Underwriter certain "demand" and
"piggyback" registration rights with respect to the Underwriter's Warrants and
the underlying Common Shares.
At the closing of the sale of the Common Shares offered hereby, the
Company will enter into a three year financial advisory and investment banking
agreement with the Underwriter, pursuant to which the Company will be obligated
to pay the Underwriter $108,000 in advance for financial and investment advisory
services to the Company.
The Company has granted the Underwriter a right of first refusal, for a
period of three years following the date of this Prospectus, on terms at least
as favorable as can be obtained from other sources, to act as lead manager,
placement agent or investment banker with respect to any underwritten public or
private offering of securities by the Company in the United States or in
connection with any merger, acquisition or disposition of assets of the Company,
if the Company requires such services. In the event of a contemplated offering
of at least $15,000,000, the Company shall have the right to terminate the right
of first refusal upon payment of $200,000 to the Underwriter. At the closing of
this Offering, the Company and the Underwriter will also enter into a
non-exclusive merger and acquisition agreement pursuant to which the Underwriter
would be compensated at the rate of between 2% - 5% of the value of any
consummated transaction with respect to which the Company was introduced to the
other party by the Underwriter.
50
<PAGE>
Additionally, for a period of three years following the date of this
Prospectus, the Underwriter has been granted the right to sell, for the account
of any officer, director or holder of 5% or more of the Company's Common Shares
(collectively, the "Insiders"), any of the Company's securities which the
Insiders propose to sell pursuant to Rule 144 promulgated under the Act, on
terms at least as favorable as the Insiders can secure elsewhere.
The Company has also agreed to have a designee of the Underwriter serve
as a director of the Company, or as an observer of the Board of Directors, for a
period of three years following the date of this Prospectus.
The Company's current stockholders, have agreed that, except with respect
to the Common Shares underlying the Bridge Warrants owned by them, they will not
transfer any of their Common Shares publicly for a period of one year following
the date of this Prospectus without the prior consent of the Underwriter.
Additionally, the Selling Stockholders (including current stockholders with
respect to the Common Shares underlying Bridge Warrants owned by them) have
agreed that they will not transfer any of their Common Shares publicly for a
period of six months following the date of this Prospectus without the consent
of the Underwriter. Notwithstanding the foregoing, Robert LoRusso, Murray Gross
and Robert H. Solomon, principal stockholders of the Company, are exempt from
such consent requirement with respect to the 100,100, 75,075 and 75,075 Common
Shares, respectively, owned by them. See "Principal and Selling Stockholders".
The Company has agreed not to issue any equity securities, or securities
convertible into, or exchangeable or exercisable for, equity securities, for a
period of twelve months from the date of this Prospectus, except that the
Company may issue (i) Common Shares upon the exercise of the Bridge Warrants and
the Underwriter's Warrants, (ii) Common Shares upon the exercise of the Other
Derivative Securities, that are currently outstanding, as well as upon the
exercise of options hereafter granted, of up to 1,100,000 Common Shares in the
aggregate, and (iii) Common Shares and Preferred Shares in connection with a
merger or acquisition transaction.
The foregoing is a summary of certain provisions of the Underwriting
Agreement and Underwriter's Warrants which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
The Underwriter, a registered broker-dealer, purchases and sells
securities on behalf of its customers. The Underwriter also engages in
investment banking activities and provides companies with financial advisory
services. This is the first offering underwritten by the Underwriter. See "Risk
Factors - Inexperience of Underwriter".
Determination of Public Offering Price
Prior to this Offering, there has been no public market for the Common
Shares. The initial public offering price for the Common Shares has been
determined by negotiations between the Company and the Underwriter. Among the
factors considered in the negotiations were an analysis
51
<PAGE>
of the areas of activity in which the Company is engaged, the present state of
the Company's business, the Company's financial condition, the Company's
prospects, an assessment of management, the general condition of the securities
market at the time of this Offering and the demand for similar securities of
comparable companies. The public offering price of the Common Shares does not
necessarily bear any relationship to assets, earnings, book value or other
criteria of value applicable to the Company.
The Company anticipates that the Common Shares will be listed for
quotation on The Nasdaq SmallCap Market under the symbol "CODI", but there can
be no assurance that an active trading market will develop, even if the
securities are accepted for quotation. The Underwriter intends to make a market
in the Common Shares of the Company.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon
for the Company by Certilman Balin Adler & Hyman, LLP, 90 Merrick Avenue, East
Meadow, New York 11554. Certain legal matters will be passed upon for the
Underwriter by Blodnick, Blodnick & Zelin, P.C., 2 Expressway Plaza, Suite 200,
Roslyn Heights, New York 11577.
EXPERTS
The financial statements of the Company as of December 31, 1995 and for
the years ended December 31, 1995 and 1994 included in this Prospectus have been
audited by Lazar, Levine & Company LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 under the Act
with the Commission in Washington, D.C. with respect to the Common Shares
offered hereby. This Prospectus, which is part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto. For further information with respect to the Company
and the Common Shares offered hereby, reference is hereby made to the
Registration Statement and such exhibits, which may be inspected without charge
at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Reports and other information filed by the Company with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at the following addresses: New York Regional Office, Seven World
Trade Center, New York, New York 10048; and Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Furthermore,
the Commission maintains a Web site that will contain reports, proxy and
information statements and other information regarding the Company. The address
of such Web site is http://www.sec.gov.
52
<PAGE>
- INDEX TO FINANCIAL STATEMENTS -
Page(s)
Independent Auditors' Report F - 2
Financial Statements:
Balance Sheets as of September 30, 1996 (unaudited) F - 3
and December 31, 1995
Statements of Operations for the Nine Month Periods F - 4
Ended September 30, 1996 and 1995 (unaudited) and
for the Years Ended December 31, 1995 and 1994
Statement of Shareholders' Equity for the Two Years F - 5
in the Period Ended December 31, 1995 and for the
Nine Month Period Ended September 30, 1996 (unaudited)
Statements of Cash Flows for the Nine Month Periods F - 6
Ended September 30, 1996 and 1995 (unaudited) and for
the Years Ended December 31, 1995 and 1994
Notes to Financial Statements F - 7
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Compu-DAWN, Inc.
Cedarhurst, New York
We have audited the accompanying balance sheet of Compu-DAWN, Inc. as of
December 31, 1995 and the statements of operations, shareholders' equity and
cash flows for the years ended December 31, 1995 and 1994. 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 audits 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 Compu-DAWN, Inc. as of December
31, 1995 and the results of its operations and its cash flows for the years
ended December 31, 1995 and 1994, in conformity with generally accepted
accounting principles.
LAZAR, LEVINE & COMPANY LLP
New York, New York
November 14, 1996
F-2
<PAGE>
Compu-DAWN, Inc.
BALANCE SHEETS
- ASSETS -
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash (Note 2b) $ 57,172 $105,962
Accounts receivable, net of allowances for doubtful accounts of
$21,000 and $18,000 for 1996 and 1995, respectively (Note 2b) 332,449 218,466
Prepaid expenses - 2,567
----------- ---------
TOTAL CURRENT ASSETS 389,621 326,995
----------- ---------
FIXED ASSETS (Notes 2c, 3 and 4) 29,996 45,265
----------- ---------
OTHER ASSETS:
Deferred offering costs (Note 10) 15,000 -
Deferred financing costs (Note 9a) 10,460 -
Deferred income taxes (Notes 2f and 7) 6,200 6,200
Security deposits 6,780 6,780
----------- ----------
38,440 12,980
----------- ----------
$ 458,057 $385,240
=========== ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 42,838 $ 38,442
Deferred revenue (Note 2d) 179,126 30,030
Current portion of long-term debt (Note 4a) 1,524 22,351
Capitalized lease payable - current (Note 4b) 2,998 2,442
Income taxes payable (Note 2f and 7) 79,845 93,551
----------- ---------
TOTAL CURRENT LIABILITIES 306,331 186,816
---------- ---------
NON-CURRENT LIABILITIES:
Equipment loans payable (Note 4a) - 2,958
Capitalized lease (Note 4b) 1,840 4,191
Deferred rent liability (Note 8) 17,281 26,430
----------- ---------
19,121 33,579
----------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 6, 8, 9 and 10)
SHAREHOLDERS' EQUITY (Note 5):
Preferred stock, $.01 par value; 1,000,000 shares authorized,
none issued or outstanding - -
Common stock, $.01 par value, 20,000,000 shares authorized,
1,051,700 and 1,157,000 shares issued for 1996 and 1995,
respectively 10,517 11,570
Additional paid-in capital 158,118 54,430
Retained earnings 138,105 170,345
--------- ---------
306,740 236,345
Less: treasury stock, 685,750 shares at cost for 1995 - (71,500)
stock subscriptions receivable, 580,450 shares (174,135) -
---------- ------
132,605 164,845
---------- ---------
$ 458,057 $385,240
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
Compu-DAWN, Inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months Ended For the Year Ended
September 30, December 31,
--------------------------------- -------------------------------
1996 1995 1995 1994
----------- --------- ------------ ------------
(unaudited) (unaudited)
REVENUES (Notes 2d and 6):
<S> <C> <C> <C> <C>
Software sales $280,075 $635,148 $ 817,271 $ 964,908
Maintenance income 198,639 144,570 222,910 189,787
--------- --------- ------------ ------------
478,714 779,718 1,040,181 1,154,695
--------- --------- ----------- -----------
COSTS AND EXPENSES:
Programming costs and expenses 142,679 297,450 404,165 539,328
General and administrative expenses 262,706 278,741 365,760 378,828
Research and development (Note 2e) 111,382 99,015 140,275 126,517
--------- --------- ------------ ------------
516,767 675,206 910,200 1,044,673
--------- --------- ------------ -----------
INCOME (LOSS) FROM
OPERATIONS (38,053) 104,512 129,981 110,022
--------- --------- ------------ ------------
OTHER INCOME (EXPENSES):
Interest income 1,728 593 1,367 -
Interest expense (814) (253) (993) (4,487)
Loss on abandonment of lease (5,378) - - -
---------- ---------- ------------- --------------
(4,464) 340 374 (4,487)
---------- ---------- ------------- -------------
INCOME (LOSS) BEFORE
PROVISION (CREDIT)
FOR INCOME TAXES (42,517) 104,852 130,355 105,535
Provision (credit) for income taxes
(Notes 2f and 7) (10,277) 41,579 51,695 37,085
--------- --------- ------------ ------------
NET INCOME (LOSS) $ (32,240) $ 63,273 $ 78,660 $ 68,450
========= ========= ============ ============
EARNINGS (LOSS) PER
COMMON SHARE (Note 2g) $(.02) $.03 $.04 $.04
===== ==== ==== ====
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING (Note 2g) 1,829,483 1,829,483 1,829,483 1,829,483
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F - 4
<PAGE>
Compu-DAWN, Inc.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Stock Total
Preferred Common Stock Paid-in Retained Treasury Subscriptions Shareholders'
----------------------
Stock Shares Amount Capital Earnings Stock Receivable Equity
--------- --------- -------- ---------- -------- -------- ------------- --------
Balance at January 1, 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Note 5) $ - 1,157,000 $11,570 $ 54,430 $ 23,235 $ - $ - $ 89,235
Net income - - - - 68,450 - - 68,450
Purchases of treasury stock,
578,500 shares at cost
(Note 5) - - - - - (38,500) - (38,500)
--------- --------- -------- ---------- -------- -------- --------- ---------
Balance at December 31, 1994 - 1,157,000 11,570 54,430 91,685 (38,500) - 119,185
Net income - - - - 78,660 - - 78,660
Purchases of treasury stock,
107,250 shares at cost
(Note 5) - - - - - (33,000) - (33,000)
-------- --------- -------- ---------- -------- -------- --------- ---------
Balance at December 31, 1995 - 1,157,000 11,570 54,430 170,345 (71,500) - 164,845
Cancellation of shares
held in treasury - (685,750) (6,858) (64,642) - 71,500 - -
Issuances of common stock
(Note 5) - 580,450 5,805 168,330 - - (174,135) -
Net loss (unaudited) - - - - (32,240) - - (32,240)
-------- --------- -------- ---------- -------- ------- --------- ---------
BALANCE AT SEPTEMBER
30, 1996 (unaudited) $ - 1,051,700 $10,517 $158,118 $138,105 $ - $(174,135) $132,605
======== ========= ======= ======== ======== ======== ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F - 5
<PAGE>
Compu-DAWN, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended For the Year Ended
September 30, December 31,
------------------------------- -----------------------------
1996 1995 1995 1994
------------- ------------- ----------- ----------
(unaudited) (unaudited)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Cash received from customers $ 510,826 $ 788,994 $1,027,473 $1,162,279
Cash paid to suppliers and employees (506,061) (731,855) (977,193) (924,227)
Interest paid (814) (253) (993) -
Interest received 1,728 593 1,367 -
Income taxes paid (3,429) (421) - (1,850)
----------- ----------- ------------ ------------
Net cash provided by operating activities 2,250 57,058 50,654 236,202
----------- ----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - (12,158) (29,232) (13,830)
Payment of security deposits - (3,480) (3,480) -
----------- ----------- ------------ ------------
Net cash (utilized) by investing activities - (15,638) (32,712) (13,830)
----------- ----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for treasury shares acquired (17,833) (19,415) (29,167) (24,500)
Proceeds from long-term debt - - - 11,000
Principal payments of other long-term debt (5,952) (52,072) (67,235) (50,980)
Payments of capital lease obligations (1,795) - (1,661) -
Payments of expenses in connection with debt
and equity offerings (25,460) - - -
----------- ----------- ------------ ------------
Net cash (utilized) by financing activities (51,040) (71,487) (98,063) (64,480)
----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (48,790) (30,067) (80,121) 157,892
Cash and cash equivalents, beginning of period 105,962 186,083 186,083 28,191
----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 57,172 $ 156,016 $ 105,962 $ 186,083
=========== =========== ========== ==========
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income (loss) $ (32,240) $ 63,273 $ 78,660 $ 68,450
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 9,891 7,700 12,370 3,948
Allowance for doubtful accounts 3,000 13,000 13,000 5,000
Deferred rent liability (9,149) - 26,430 -
Loss on abandonment of lease 5,378 - - -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (116,983) (17,864) (28,139) 19,994
Decrease in prepaid expenses 2,567 1,376 501 12,307
(Increase) in deferred income taxes - - (4,450) (1,750)
Increase (decrease) in accounts payable
and accrued expenses 4,396 (79,567) (119,715) 103,678
Increase (decrease) in deferred revenue 149,096 27,140 15,430 (12,410)
Increase (decrease) in income taxes payable (13,706) 42,000 56,567 36,985
----------- ---------- ----------- ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 2,250 $ 57,058 $ 50,654 $ 236,202
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F - 6
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Information as of and for the Periods Ended
September 30, 1996 and 1995 is unaudited)
NOTE 1 - DESCRIPTION OF COMPANY:
Compu-DAWN, Inc., the Company, was incorporated under the name
of Coastal Computer Systems, Inc., in New York on March 31,
1983, and was reincorporated in Delaware under its present name
on October 18, 1996. The Company is engaged in the business of
designing, developing, licensing, installing and servicing
computer software products and systems predominantly for public
safety and law enforcement agencies. The Company's customers, to
date, are primarily located in New York State.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with
generally accepted accounting principles. Outlined below are
those policies which are considered particularly significant.
(a) Use of Estimates:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results could
differ from those estimates, management does not expect such
variances, if any, to have a material effect on the financial
statements.
(b) Concentration of Credit Risk:
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash
investments and accounts receivable.
The Company maintains, at times, deposits in federally insured
financial institutions in excess of federally insured limits.
Management monitors the soundness of these financial
institutions and feels the Company's risk is negligible.
Management believes that concentrations of credit risk with
respect to accounts receivable are limited due to the Company's
methods of progress billings and collections.
(c) Fixed Assets:
Fixed assets are recorded at cost. Depreciation of fixed assets
is provided on a straight-line basis as follows:
Computer equipment 3 years
Furniture and fixtures 5 years
Motor vehicles 5 years
Maintenance and repairs are expensed as incurred.
F - 7
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Information as of and for the Periods Ended
September 30, 1996 and 1995 is unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(c) Fixed Assets (continued):
Depreciation and amortization expense for the years ended
December 31, 1995 and 1994 aggregated $12,370 and $3,948,
respectively. Depreciation and amortization expense for the nine
month periods ended September 30, 1996 and 1995 aggregated
$9,891 and $7,700, respectively.
(d) Revenue Recognition:
The Company generates revenues from the granting of
nonexclusive, non-transferable and non- assignable licenses to
use software it has developed, through fixed price contracts.
Revenues from such fixed price contracts are recognized using
the percentage of completion method of accounting. The Company
retains title to the software and warranties that it will
provide technical support and repair any defects in the software
at no charge. The warranty period for each contract is
negotiated individually, for periods ranging from 90 days to
three years. To date, repair costs have been minimal and
therefore the Company has not established a reserve for such
warranty costs.
In addition, the Company provides post contract customer support
to licensees of its software. Revenues from such services are
recognized ratably over the period of performance. Fees billed
and/or received prior to performance of services are reflected
as deferred revenue.
(e) Software Development Costs:
The Company reflects costs incurred in establishing the
technological feasibility of a computer software product to be
leased or sold as research and development costs and expenses
such costs in the period incurred. Research and development
costs for the years ended December 31, 1995 and 1994 aggregated
$140,275 and $126,517, respectively. Research and development
costs for the nine month periods ended September 30, 1996 and
1995 aggregated $111,382 and $99,015, respectively.
After technological feasibility has been established, all costs
incurred on the software product are to be capitalized and
amortized on a product by product basis. Capitalization of
computer software costs is discontinued when the product is
available to be sold or leased.
To date, the Company has only sold or leased software which has
been developed for specific customers. As such, all costs
incurred have been expensed as research and development costs.
Costs associated with post contract customer support
(maintenance) are charged to expense when related revenue is
recognized or when those costs are incurred, whichever occurs
first.
F - 8
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Information as of and for the Periods Ended
September 30, 1996 and 1995 is unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(f) Income Taxes:
The Company has adopted Financial Accounting Standards Board
Statement No. 109 "Accounting for Income Taxes" ("SFAS 109").
Under SFAS 109, deferred tax assets and liabilities are
determined based on differences between the financial reporting
and tax basis of assets and liabilities and are measured by
applying enacted tax rates and laws to taxable years in which
such differences are expected to reverse.
(g) Earnings Per Share:
Earnings per share has been computed on the basis of the
weighted average number of common shares and common equivalent
shares outstanding during each period presented. In accordance
with the rules of the Securities and Exchange Commission, all
shares issued and "cheap" options and warrants are being treated
as outstanding for all periods presented.
(h) Statements of Cash Flows:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
During 1995, the Company incurred a capital lease obligation of
$7,271, in connection with the purchase of furniture and
fixtures.
(i) Unaudited Interim Financial Data:
The unaudited financial statements for the periods ended
September 30, 1996 and 1995 reflect all adjustments, all of
which are of a normal recurring nature, and which are, in the
opinion of management, necessary to a fair presentation of the
results for the interim periods presented and are not
necessarily indicative of full year results.
F - 9
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Information as of and for the Periods Ended
September 30, 1996 and 1995 is unaudited)
NOTE 3 - FIXED ASSETS:
Fixed assets consist of the following:
September 30, December 31,
1996 1995
------------- ------------
Computer equipment $100,254 $100,254
Furniture and fixtures 6,389 6,389
Motor vehicles 24,445 24,445
Leasehold improvements - 10,756
Assets under capitalized leases 7,889 7,889
--------- ---------
138,977 149,733
Less: accumulated depreciation and
amortization 108,981 104,468
--------- ---------
$ 29,996 $ 45,265
========= =========
NOTE 4 - LONG-TERM DEBT:
(a) Notes Payable:
Term notes payable consist of the following:
September 30, December 31,
1996 1995
------------- ------------
Installment notes payable re: purchases
of treasury stock, non-interest bearing $ - $21,583
Equipment notes payable in monthly
installments of $258, with interest at
an annual rate of 6%, through March 1997 1,524 3,726
-------- --------
1,524 25,309
Less: current maturities 1,524 22,351
-------- --------
$ - $ 2,958
========= ========
F - 10
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Information as of and for the Periods Ended
September 30, 1996 and 1995 is unaudited)
NOTE 4 - LONG-TERM DEBT (Continued):
(b) Capitalized Lease Obligations:
In 1995, the Company entered into a capital lease for furniture
and fixtures which expires in June 1998. The assets and
liability under this capital lease are recorded at the lower of
the present value of the minimum lease payments or the fair
market value of the asset. The assets are depreciated over their
estimated useful lives. Depreciation of assets under capital
leases for the year ended December 31, 1995 aggregated $1,315.
Depreciation of assets under capital leases for the nine month
periods ended September 30, 1996 and 1995 aggregated $1,972 and
$986, respectively.
Minimum future lease payments under capital leases as of
December 31, 1995 are as follows:
1996 $3,323
1997 3,323
1998 1,384
-----
Total minimum lease payments 8,030
Less: amount representing interest 1,397
-----
$6,633
NOTE 5 - CAPITAL STOCK AND EQUIVALENTS:
In October 1996, simultaneously with its reincorporation in the
State of Delaware, (see Note 1) the Company increased its
authorized capital to 20,000,000 shares of common stock, $.01
par value, and 1,000,000 shares of preferred stock, $.01 par
value. The Company also effected a stock split of its issued and
outstanding common stock on a 325 for 1 basis, resulting in
1,157,000 shares. This stock split has been reflected
retroactively in the accompanying financial statements and
accordingly, all references to the number of common shares
issued and outstanding have been restated. No preferred shares
are issued and outstanding.
During 1994 the Company repurchased 578,500 shares of its common
stock from certain shareholders at an aggregate cost of $38,500.
These shares are reflected as shares held in treasury for 1995
and as being canceled in 1996.
During 1995 the Company repurchased an additional 107,250 shares
of its common stock from certain shareholders at an aggregate
cost of $33,000. These shares are also reflected as treasury
stock for 1995 and as being canceled in 1996.
F - 11
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Information as of and for the Periods Ended
September 30, 1996 and 1995 is unaudited)
NOTE 5 - CAPITAL STOCK AND EQUIVALENTS (Continued):
In August 1996, the Company sold 505,375 shares of its common
stock at a price of $.30 per share, for aggregate proceeds of
$151,612. The Company also issued 75,075 shares of its common
stock in lieu of payment of legal and consulting fees
aggregating $22,523, in connection with a contemplated IPO (see
Note 10). Since payment for these shares was being held in
escrow pending the consummation of a debt offering (see Note 9)
the proceeds therefrom are being reflected as stock
subscriptions receivable.
The Company had also granted, to certain former shareholders,
options to purchase an aggregate of 50,700 shares of common
stock (post-split) at an aggregate exercise price of $156. As of
September 30, 1996, none of these options had been exercised. In
October 1996, subsequent to the balance sheet date and following
the successful completion of a debt offering (see Note 9), the
Company entered into agreements with the former shareholders,
canceling these options in consideration of payment of $.30 for
each underlying share and the issuance of warrants to purchase
an aggregate of 31,200 shares of stock at an exercise price of
$5.00 per share.
The Company also re-purchased, subsequent to the balance sheet
date, 65,000 shares held by these minority shareholders at a per
share price of $.30.
In addition, in October 1996, subsequent to the balance sheet
date, the Company established a Stock Option Plan under which
options (including non-statutory options) to purchase up to
2,000,000 shares may be granted to eligible persons. The Company
has since granted options to purchase an aggregate of 501,450
shares of common stock at prices ranging from $.30 to $5.00 per
share, aggregating $233,735. To date, none of these options have
been exercised. (See also Note 2g regarding earnings per share).
NOTE 6 - ECONOMIC DEPENDENCY:
To date, the Company's revenues have been materially dependent
on a limited number of customers. The nature of the Company's
business (see Note 1) is such that during any individual
accounting period it will license its software products to a
limited amount of significant customers. In addition, revenues
from the Company's products are primarily from the public safety
and law enforcement markets.
Also, the Company currently relies on a limited number of (two
or three) software licensors of its main computer operating
system. The Company cannot assure that if any of these licenses
are terminated, it will be able to replace those licenses on a
timely basis.
F - 12
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Information as of and for the Periods Ended
September 30, 1996 and 1995 is unaudited)
NOTE 7 - INCOME TAXES:
The income tax expense (benefit) is comprised of the following:
For the Nine Months Ended For the Year Ended
September 30, December 31,
------------------------- -------------------------
1996 1995 1995 1994
--------- ---------- --------- ------
CURRENT:
Federal $ (9,000) $30,565 $39,050 $24,680
State (1,277) 12,764 17,095 14,155
DEFERRED:
Federal - (1,165) (3,000) (1,165)
State - (585) (1,450) (585)
-------- -------- -------- ---------
$(10,277) $41,579 $51,695 $37,085
======== ======== ======== =========
The component of the Company's deferred tax asset, pursuant to
SFAS 109, is as follows:
September 30, December 31,
1996 1995
------------- ------------
Allowance for doubtful accounts $6,200 $6,200
====== ======
The Company, after considering its previous pattern of
profitability, believes that it is more likely than not that the
deferred tax asset will be realized.
The following is a reconciliation of the maximum statutory
federal tax rate to the Company's effective tax rate:
For the Nine Months Ended For the Year Ended
September 30, December 31,
-------------------------- ------------------
1996 1995 1995 1994
-------- --------- ------ ------
Federal statutory rate (34.0%) 34.0% 34.0% 34.0%
State income taxes (2.0) 7.7 7.9 8.5
Other 11.8 (2.0) (2.0) (7.4)
------ ----- ----- -----
(24.2%) 39.7% 39.7% 35.1%
===== ==== ===== =====
F - 13
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Information as of and for the Periods Ended
September 30, 1996 and 1995 is unaudited)
NOTE 8 - COMMITMENTS:
(a) The Company is obligated under a lease commitment for its
executive office space which provides for a base annual rental
of $16,000 plus a proportionate amount of real estate taxes and
other operating costs. This lease is scheduled to expire in
March 1997. In October 1996, subsequent to the balance sheet
date, the Company signed a lease for new space at an annual rent
of approximately $85,000 and will be relocating prior to the
termination of its current lease.
The Company also sublets to an unaffiliated third party, space
which was previously utilized as its executive offices under a
lease which expires in February 1998. As of September 30, 1996,
the Company had a remaining accrued liability of $17,281 which
represents the net cost to the Company in excess of rental
income.
Total net rent expense for operating leases, consisted of the
following:
For the Nine Months Ended For the Year Ended
September 30, December 31,
------------------------- ------------------
1996 1995 1995 1994
---------- -------- ------- --------
Minimum rentals $31,877 $26,844 $39,544 $20,585
Sublease rentals (9,000) - (1,500) -
------- ------- ------- -------
Total net rent expense $22,877 $26,844 $38,044 $20,585
======= ======= ======= =======
At September 30, 1996, future minimum rentals (based upon the new
space) and sublease income for the years ending December 31, are
as follows:
Total Sublease
Rent Income Net
1996 $ 51,376 $18,000 $ 33,376
1997 95,428 18,000 77,428
1998 87,616 3,000 84,616
1999 87,975 - 87,975
2000 93,075 - 93,075
Thereafter 72,675 - 72,675
-------- ------- --------
Total $488,145 $39,000 $449,145
======== ======= ========
F - 14
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Information as of and for the Periods Ended
September 30, 1996 and 1995 is unaudited)
NOTE 8 - COMMITMENTS (Continued):
(b) The Company also leases certain types of equipment under
operating leases which expire at various dates through 1999.
Lease payments, which are charged to operations, aggregate
approximately $1,100 per month.
(c) The Company is also committed to provide post contract customer
support, to two of its customers through a third-party provider.
The agreement with the third party provides for monthly payments
of $483 and expires in July 1997.
(d) Effective October 1, 1996, the Company entered into a consulting
agreement with the Chairman of its Board of Directors, which
agreement terminates upon the earlier of (a) the closing date of
the contemplated IPO (see Note 10) or (b) December 15, 1997. The
Company has also executed an employment agreement with this
consultant, whereby he will serve as chief executive officer of
the Company, which becomes effective upon the closing date of
the contemplated IPO, to continue until September 30, 1999. Both
of these agreements provide for annual compensation of $250,000
and a signing bonus based on a fixed formula.
Effective October 1, 1996, the Company entered into a three year
employment agreement with its President and Chief Operating
Officer. This agreement provides for annual compensation of
$125,000 and a signing bonus of $15,000.
The agreements with both of these officers provide for
continuing automatic one year extensions, increases as
determined by the Board of Directors; annual bonuses based on
sales and pretax income and include provisions for termination
and covenants not to compete. In addition, the agreements
provide for common stock option grants based upon levels of
Company earnings.
NOTE 9 - SUBSEQUENT EVENTS:
(a) Debt Offering:
In October 1996, subsequent to the balance sheet date, the
Company successfully completed the sale of 77 units, each unit
consisting of a $10,000 principal amount 12% promissory note
("bridge note") and a redeemable stock purchase warrant to
acquire 5,600 shares of the Company' common stock for aggregate
gross proceeds of $770,000. The warrants are exercisable at a
price of $.50 per share only upon the successful completion of
an Initial Public Offering ("IPO"), (see Note 10), of the
Company's common stock.
Each of the bridge notes is due and payable upon the closing of
the IPO. In the event such closing occurs on or before September
15, 1997, no interest will be payable on these notes.
F - 15
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Information as of and for the Periods Ended
September 30, 1996 and 1995 is unaudited)
NOTE 9 - SUBSEQUENT EVENTS:
(a) Debt Offering (continued):
Deferred financing costs, which represent costs incurred in
connection with this offering, will be charged to operations as
additional interest expense over the term of the bridge notes.
Concurrently with the closing of this offering, the Company
entered into a consulting agreement with one of its founding
shareholders which provided for a one-time payment at closing of
$25,290.
(b) Loan Receivable - Officer:
In October 1996, the Company made a loan of $70,000 to an
officer for the purpose of such officer's participation in a
debt offering (see (a) above). Such loan is evidenced by a
promissory note requiring 120 equal monthly payments, at an
annual interest rate of 8% and is secured by shares of common
stock owned by the individual with a value equal to 120% of the
outstanding balance.
(c) See also Notes 5 and 8 for other subsequent events.
NOTE 10 - PROPOSED INITIAL PUBLIC OFFERING:
The Company is preparing to undertake an initial public offering
("IPO") of 1,000,000 shares of its common stock at a price of
$5.00 per share, or an aggregate of approximately $3,875,000 of
net proceeds. The net proceeds from this offering will be used
to repay the promissory notes from the private offering (see
Note 9), build a staff of regional sales managers to cover the
United States and for marketing, product development, etc.
The proposed offering also covers the resale of an aggregate of
431,200 shares of common stock underlying the warrants issued in
connection with the debt offering and an aggregate of 250,250
shares currently held by certain shareholders. The Company will
not receive any of the proceeds from the resale of these shares.
F - 16
<PAGE>
No dealer, salesman or other person has
been authorized to give any information or to
make any representations not contained in this
Prospectus and, if given or made, such
information or representations must not be
relied upon as having been authorized by the
Company or the Underwriter. Neither the
delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create
any implication that there has been no change
in the affairs of the Company since the date
hereof. This Prospectus does not constitute an
offer of any securities other than the securities
to which it relates or an offer to any person in
any jurisdiction in which such an offer would
be unlawful.
-----------
TABLE OF CONTENTS
Page
Prospectus Summary................................
Risk Factors......................................
Use of Proceeds...................................
Dilution..........................................
Capitalization....................................
Dividend Policy...................................
Bridge Financing..................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.....................................
Business..........................................
Management........................................
Principal and Selling Stockholders................
Certain Relationships and Related Transactions....
Description of Securities.........................
Underwriting......................................
Legal Matters.....................................
Experts...........................................
Additional Information............................
Financial Statements..............................
-------------
Until , 1997 (25 days after the date of this
Prospectus), all dealers effecting transactions in
the registered securities, whether or not participating
in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments
or subscriptions.
<PAGE>
1,000,000 Shares of Common Stock
COMPU-DAWN, INC.
PROSPECTUS
EUROPEAN COMMUNITY
CAPITAL LTD.
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Article X of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the Company and its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permitted by Section 102 of the Delaware General Corporation Law, provided that
this provision shall not eliminate or limit the liability of a director (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) arising under Section 174 of the
Delaware General Corporation Law (with respect to unlawful dividend payments and
unlawful stock purchases or redemptions), or (iv) for any transaction from which
the director derived an improper personal benefit.
Additionally, the Company has included in its Certificate of Incorporation
and its by-laws provisions to indemnify its directors, officers, employees and
agents and to purchase insurance with respect to liability arising out of the
performance of their duties as directors, officers, employees and agents as
permitted by Section 145 of the Delaware General Corporation law. The Delaware
General Corporation law provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which the
directors, officers, employees and agents may be entitled under the Company's
by-laws, any agreement, vote of stockholders or otherwise.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers, directors, employees and agents of
the Company for any claim arising against such persons in their official
capacities if such person acted in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
In connection with the Offering, the Underwriter has agreed to indemnify
the Company, its directors, and each person who controls it within the meaning
of Section 15 of the Act with respect to any statement in or omission from the
registration statement or the Prospectus or any amendment or supplement thereto
if such statement or omission was made in reliance upon information furnished in
writing to the Company by the Underwriter specifically for or in connection with
the preparation of the registration statement, the Prospectus, or any such
amendment or supplement thereto.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT MAY
BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY PURSUANT
TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT, IN THE OPINION
OF THE SECURITIES AND EXCHANGE
II-1
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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 to be incurred by the Company in connection with the
issuance and distribution of the securities being registered, other than
underwriting discounts and commissions, are estimated as follows:
SEC Registration Fee $ 3,034.60
NASD Filing Fee 2,000.00
Blue Sky Fees and Expenses 25,000.00
Registrant's Counsel Fees and Expenses 125,000.00
Accountant's Fees and Expenses 75,000.00
Underwriter's Non-Accountable Expense Allowance 150,000.00
Underwriter's Consulting Fee 108,000.00
Printing and Engraving Expenses 50,000.00
NASDAQ Listing Fees 10,000.00
Blue Sky Counsel Fees 25,000.00
Transfer Agent and Registrar's Fees and Expenses 15,000.00
Miscellaneous Expenses 36,965.40
----------
Estimated Total $625,000.00
Item 26. Recent Sales of Unregistered Securities.
The Company sold the following Common Shares during the past three
years. The number of Common Shares referred to herein gives effect to a 325 for
1 stock split effectuated on October 18, 1996 in connection with the Company's
reincorporation in the State of Delaware.
In October 1996, the Company borrowed $770,000 from the following
bridge lenders (the "Bridge Lenders") in a Bridge Financing transaction. In
exchange for making the loan, the Company issued Bridge Warrants to the Bridge
Lenders for the purchase of an aggregate of 431,200 Common Shares at a price of
$0.50 per share.
II-2
<PAGE>
Number of
Common Shares
Name Underlying Warrants
---- -------------------
Dong W. Lew 39,200
Mark Honigsfeld 33,600
Robert H. Solomon 25,200
Murray Gross 28,000
Harvey Bibicoff 70,000
Apollo Equities 56,000
James Favia 42,000
Sydney Gluck 22,400
Steven Wallitt 16,800
John Eckhoff 14,000
Kenneth Moschetto 14,000
Lawrence Levine 11,200
Maretza Jimenez
Campos 11,200
Lori Siegal 11,200
Horizon Acquisitions 8,400
Stuart Copperman 5,600
Teddy Selinger 5,600
John P. Hefferon 5,600
Scott Cohen 2,800
Peter Guardino 2,800
James Portnof 2,800
Windsor L. P. 2,800
---------
Total 431,200
In August 1996, the Company sold an aggregate of 497,875 Common Shares
at a price of $.30 per share to the following persons for the following
consideration:
Number of Aggregate
Name Common Shares Consideration
- ---- ------------- -------------
Murray Gross 75,075 $22,522.50(1)
Robert LoRusso 100,100 30,030.00(2)
Mark Honigsfeld
Living Trust 330,200 99,060.00(2)
------- ---------
Total 505,375 $151,612.50
======= ==========
(1) Consideration $15,000 paid in cash. Additionally, the Company issued 25,075
Common Shares in payment of consulting fees of $7,572.50 in connection with the
Company's marketing activities.
(2) Consideration paid in cash.
Additionally, in August 1996, the Company issued an aggregate of 75,075
Common Shares to Robert H. Solomon in payment of legal and consulting fees of
$22,522.50.
All the foregoing transactions were private transactions not involving
a public offering and were exempt from the registration provisions of the Act
pursuant to Section 4(2) thereof. Except as otherwise
II-3
<PAGE>
indicated below, sales of the securities were without the use of an underwriter,
and the certificates evidencing the securities relating to the foregoing
transactions bear restrictive legends permitting the transfer thereof only upon
registration of such securities or an exemption under the Act.
The Underwriter of this Offering acted as placement agent for the
Company in connection with the Bridge Financing transaction on a "best efforts,
all or none" basis. The Underwriter received a placement fee of 10% of the gross
proceeds of the Bridge Financing transaction, or $77,000, and a non-accountable
expense allowance of 3% of the gross proceeds of the Bridge Financing
transaction or $23,100. Additionally, the Underwriter is entitled to a warrant
solicitation fee of 10% of the exercise price of the Bridge Warrants. The
Company also paid the fees and disbursements of the Underwriter's counsel in
connection with representing the Underwriter in its capacity of placement agent
in the Bridge Financing transaction.
Item 27. Exhibits.
Exhibit
Number Title of Exhibit
1.1 Form of Underwriting Agreement by and between the Company and the
Underwriter.*
1.2 Form of Financial Consulting Agreement between the Underwriter and
the Company.*
2.1 Agreement of Merger between the Company and Coastal Computer Systems,
Inc., a New York corporation.
3.1 Articles of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1 Specimen Common Share Certificate.*
4.2 Form of Underwriter's Common Share Purchase Warrant.*
5.1 Opinion of Certilman Balin Adler & Hyman, LLP, counsel for the
Company.*
10.1 Employment Agreement dated as of October 1, 1996 between the Company
and Dong W. Lew.
10.2 Employment Agreement dated ________ between the Company and Mark
Honigsfeld. *
10.3 $70,000 Promissory Note dated October 30, 1996 from Dong W. Lew to
the Company.
II-4
<PAGE>
10.4 Form of Warrant between the Company and each of the Bridge Lenders.*
10.5 1996 Stock Option Plan.*
10.6 Lease dated October 1, 1996 between Summit Equities Corp. and the
Company.
23.1 Consent of Lazar, Levine & Company LLP, independent auditors.
23.2 Consent of Certilman Balin Adler & Hyman, LLP (included in its
opinion filed as Exhibit 5.1 hereto).*
27.1 Financial Data Schedule.
- ----------------------------
*To be filed by amendment.
Item 28. Undertakings.
(a) Rule 415 Offering.
The undersigned Company will:
(1) file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the 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; and
(iii) include any additional or changed material information on the
plan of distribution.
(2) for determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona
fide offering.
(3) file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Equity Offerings of Nonreporting Small Business Issuers.
II-5
<PAGE>
The undersigned Company will provide to the Underwriter, at the closing
specified in the underwriting agreement, Common Share certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
(c) Indemnification.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the provisions referred to in Item 24 of this Registration Statement, 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 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 persons of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(d) Rule 430A.
The undersigned Company will:
(1) for determining any liability under the Act, 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 under Rule 424(b)(1) or (4) or 497(h)
under the Act, as part of this Registration Statement as of the time
the Commission declared it effective;
(2) for determining any liability under the Act, treat each post-effective
amendment that contains a form of prospectus as a new registration
statement for the securities offered in the Registration Statement, and
that offering of the securities at that time as the initial bona fide
offering of those securities.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Company certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
County of Nassau, State of New York, on December 23, 1996.
COMPU-DAWN, INC.
By: /s/ Mark Hongisfeld
-----------------------
Mark Honigsfeld,
Chairman of the Board
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Mark Honigsfeld and Dong W. Lew, and each
of them, with full power to act as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, and each of his substitutes, full power and
authority to do and perform each and every act and thing requisite or 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 said
attorney-in-fact and agent, and each of his substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
Chairman of the Board, Principal December 23, 1996
Executive Officer, Principal
Accounting Officer, Secretary
/s/Mark Honigsfeld and Director
- ------------------
Mark Honigsfeld
President, Chief Operating December 23, 1996
Officer, Treasurer and
/s/Dong W. Lew Director
- --------------
Dong W. Lew
Vice President, Assistant December 23, 1996
/s/Doris H. Abruzzo Secretary and Director
- -------------------
Doris H. Abruzzo
II-7
<PAGE>
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of October18,
1996, by and between COMPU-DAWN, INC., a Delaware corporation ("Compu-Dawn"),
and COASTAL COMPUTER SYSTEMS, INC., a New York corporation ("Coastal").
Compu-Dawn is a corporation duly organized and existing under
the laws of the State of Delaware and has an authorized capitalization of
20,000,000 shares of Common Stock, par value $.01 per share, 10 shares of which
are outstanding and are held by Coastal, and 1,000,000 shares of Preferred
Stock, par value $.01 per share, none of which are outstanding.
Coastal is a corporation duly organized and existing under the
laws of the State of New York and has an authorized capitalization of 4,000
shares of Common Stock, without par value.
The respective Boards of Directors of Compu-Dawn and Coastal
have determined that, for the purpose of effecting the reincorporation of
Coastal in the State of Delaware under the name "Compu-Dawn, Inc.", it is
advisable and to the advantage of such two corporations that Coastal merge with
and into Compu-Dawn upon the terms and conditions herein provided.
The respective Boards of Directors of Compu-Dawn and Coastal
have approved this Agreement and the Boards of Directors of Compu-Dawn and
Coastal have directed that this Agreement be submitted to a vote of their
respective stockholders.
NOW THEREFORE, in consideration of the mutual agreements and
covenants set forth herein, Compu-Dawn and Coastal, subject to the terms and
conditions hereinafter set forth, hereby agree, as follows:
I
MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law ("Delaware Law") and the New York Business
Corporation Law ("New York Law"), Coastal shall be merged with and into
Compu-Dawn (the "Merger"). Compu-Dawn shall be and is hereinafter sometimes
referred to as the "Surviving Corporation." Compu-Dawn and Coastal are sometimes
hereinafter referred to as the "Constituent Corporations."
1.2 Filing and Effectiveness. The Merger shall become effective (the
"Effective Date of the Merger") for all purposes, including, without limitation,
accounting and operational purposes, except for purposes of the State of New
York, when the following actions shall have been completed:
1
<PAGE>
(a) The Agreement and the Merger shall have been adopted and
approved by the stockholders of each Constituent Corporation in accordance with
the requirements of Delaware Law and New York Law; and
(b) An executed Certificate of Ownership and Merger meeting
the requirements of Delaware Law, shall have been filed with the Secretary of
State of the State of Delaware in accordance with the applicable laws of such
State; and
1.3 New York Filing. An executed Certificate of Merger meeting the
requirements of New York Law, shall be filed with the Secretary of State of the
State of New York in accordance with the applicable laws of such State,
contemporaneously with the filing of the Certificate of Ownership and Merger
with the Secretary of State of the State of Delaware described in Section
1.2(b).
1.4 By-laws. The By-laws of Compu-Dawn as in effect on the Effective
Date of the Merger shall continue in full force and effect as the By-laws of the
Surviving Corporation.
1.5 Directors and Officers. The directors and officers of Compu-Dawn
immediately prior to the Effective Date of the Merger shall be the directors and
officers of the Surviving Corporation until their successors shall have been
elected and shall qualify or until otherwise provided by law, the Certificate of
Incorporation of the Surviving Corporation and the By-laws of the Surviving
Corporation.
1.6 Effect of Merger. Upon the Effective Date of the Merger, the
separate existence of Coastal shall cease and Compu-Dawn, as the Surviving
Corporation, (i) shall continue to possess all of its rights and property as
constituted immediately prior to the Effective Date of the Merger and shall
succeed, without other transfer, to all of the rights and property of Coastal,
and (ii) shall continue to be subject to all of its debts and liabilities as
constituted immediately prior to the Effective Date of the Merger and shall
succeed, without other transfer, to all of the debts and liabilities of Coastal
in the same manner as if Compu-Dawn had itself incurred them, pursuant to
Delaware Law and New York Law.
II
MANNER OF CONVERSION OF STOCK
2.1 Coastal Capital Stock. The Common Shares of Coastal issued and
outstanding on the Effective Date of the Merger shall, by virtue of the Merger
and without any action by the holder of such shares or the Surviving
Corporation, be converted into fully paid and nonassessable shares of Common
Stock, par value $.01 per share, of the Surviving Corporation, on the basis of
three hundred and twenty-five (325) shares of Common Stock of the Surviving
Corporation for each one (1) share of Common Stock of Coastal.
2
<PAGE>
2.2 Fractional Shares. No fractional shares of Common Stock of the
Surviving Corporation or cash in lieu thereof shall be issued or paid in
connection with the conversion pursuant to Section 2.1. If fractional shares
would otherwise result from such conversion, stockholders who would be entitled
to receive such fractional shares if they were to be issued shall instead
receive a full share.
2.3 Coastal Rights and Options. On the Effective Date of the Merger,
each outstanding right and option to acquire shares of Common Stock of Coastal
shall become, respectively, rights and options to acquire shares of the
Surviving Corporation's Common Stock on the basis of three hundred and
twenty-five (325) shares of the Surviving Corporation's Common Stock for each
one (1) share of Common Stock of Coastal issuable pursuant to any such right or
option, as the case may be, at a price per share equal to the purchase (or
conversion) price under such Coastal right or option prevailing at the Effective
Date of the Merger divided by three hundred twenty-five (325).
2.4 Compu-Dawn Capital Stock. Any then outstanding shares of Common
Stock of Compu-Dawn which are owned by Coastal immediately prior to the Merger
shall be canceled at the Effective Date of the Merger.
III
MISCELLANEOUS
3.1 Compu-Dawn Certificate of Incorporation. Annexed hereto as Exhibit
A is the Certificate of Incorporation of Compu-Dawn.
3.2 Abandonment. At any time before the Effective Date of the Merger,
the Agreement may be terminated and the Merger may be abandoned for any reason
whosoever by the Board of Directors of either Coastal or Compu-Dawn or both,
notwithstanding approval of the Agreement by the stockholders of Coastal, the
stockholders of Compu-Dawn or both.
3.3 Registered Office. The registered office of the Surviving
Corporation in the State of Delaware is located at 15 East North Street, Dover,
Delaware, and United Corporate Services, Inc. is the registered agent of the
Surviving Corporation at such address.
3.4 Agreement. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 166 West Park
Avenue, Long Beach, New York, and copies thereof will be furnished to the
stockholders of each Constituent Corporation upon request and without cost.
3.5 Governing Law. The Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware, and, so far as applicable, the merger provisions of New York
Law.
3
<PAGE>
3.6 Counterparts. The Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREOF, this Agreement, having been first approved by
resolutions of the Board of Directors of Coastal and Compu-Dawn, is hereby
executed on behalf of each of such two corporations by their respective officers
thereunto duly authorized.
COMPU-DAWN, INC.
By:/s/ Dong W. Lew
------------------------------
Dong W. Lew, President
COASTAL COMPUTER SYSTEMS, INC.,
By:/s/ Dong W. Lew
------------------------------
Dong W. Lew, President
4
<PAGE>
CERTIFICATE OF INCORPORATION
OF
COMPU-DAWN, INC.
The undersigned, being of legal age, in order to form a corporation
pursuant to the provisions of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
ARTICLE I
The name of the corporation (hereinafter referred to as the
"Corporation") is COMPU-DAWN, INC.
ARTICLE II
The registered office of the Corporation is located in the County of
Kent at 15 East North Street, Dover, Delaware 19901. The name of the
Corporation's registered agent at said address is United Corporate Services,
Inc.
ARTICLE III
The nature of the business of the Corporation, and the objects and
purposes proposed to be transacted, promoted and carried on by it, shall be to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
(a) The aggregate number of shares of stock which the Corporation shall
have the authority to issue is 21,000,000, of which 20,000,000 are shares of
Common Stock, with a par value of $.01 per share, and 1,000,000 are shares of
Preferred Stock, with a par value of $.01 per share.
(b) The Board of Directors hereby is vested with the authority to
provide for the issuance of the Preferred Stock, at any time and from time to
time, in one or more series, each of such series to
1
<PAGE>
have such voting powers, designations, preferences and relative participating,
optional, conversion and other rights, and such qualifications, limitations or
restrictions thereon as expressly provided in the resolution or resolutions duly
adopted by the Board of Directors providing for the issuance of such shares or
series thereof. The authority which hereby is vested in the Board of Directors
shall include, but not be limited to, the authority to provide for the following
matters relating to each series of the Preferred Stock:
(i) The designation of any series.
(ii) The number of shares initially constituting any
such series.
(iii) The increase, and the decrease, to a number not
less than the number of the outstanding shares of any such series, of the number
of shares constituting such series theretofore fixed.
(iv) The rate or rates and the times at which dividends
on the shares of Preferred Stock or any series thereof shall be paid, and
whether or not such dividends shall be cumulative, and, if such dividends shall
be cumulative, the date or dates from and after which they shall accumulate.
(v) Whether or not the shares of Preferred Stock or series
thereof shall be redeemable, and, if such shares shall be redeemable, the terms
and conditions of such redemption, including but not limited to the date or
dates upon or after which such shares shall be redeemable and the amount per
share which shall be payable upon such redemption, which amount may vary under
different conditions and at different redemption dates.
(vi) The amount payable on the shares of Preferred Stock
or series thereof in the event of the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided, however, that the
holders of shares ranking senior to other shares shall be entitled to be
2
<PAGE>
paid, or to have set apart for payment, not less than the liquidation value of
such shares before the holders of shares of the Common Stock or the holders of
any other series of Preferred Stock ranking junior to such shares.
(vii) Whether or not the shares of Preferred Stock or
series thereof shall have voting rights, in addition to the voting rights
provided by law, and, if such shares shall have such voting rights, the
terms and conditions thereof, including but not limited to the right of the
holders of such shares to vote as a separate class either alone or with the
holders of shares of one or more other class or series of Preferred Stock and
the right to have more than one vote per share.
(viii) Whether or not a sinking fund shall be provided
for the redemption of the shares of Preferred Stock or series thereof, and, if
such a sinking fund shall be provided, the terms and conditions thereof.
(ix) Whether or not a purchase fund shall be provided
for the shares of Preferred Stock or series thereof, and, if such a purchase
fund shall be provided, the terms and conditions thereof.
(x) Whether or not the shares of Preferred Stock or
series thereof shall have conversion privileges, and, if such shares shall have
conversion privileges, the terms and conditions of conversion, including but
not limited to any provision for the adjustment of the conversion rate or the
conversion price.
(xi) Any other relative rights, preferences,
qualifications, limitations and restrictions.
3
<PAGE>
ARTICLE V
The name and mailing address of the incorporator of the
Corporation is:
Name Mailing Address
Gavin C. Grusd Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
ARTICLE VI
No action required or permitted to be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, except upon the written consent of the holders of 100% of the shares of
capital stock of the Corporation entitled to vote on such action, unless such
action has been authorized by the Board of Directors, in which event such action
may be taken by the written consent of the holders of not less than a majority
of the shares of capital stock entitled to vote on such action.
ARTICLE VII
The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the Corporation
and of its directors and stockholders.
(a) The number of directors of the Corporation shall be such
as from time to time shall be fixed by, or in the manner provided in, the
By-Laws. Election of directors need not be by ballot unless the By-Laws so
provide.
(b) The Board of Directors shall have the power without
the assent or vote of the stockholders:
4
<PAGE>
(i) To make, alter, amend, change, add to or repeal
the By-Laws of the Corporation; to fix and vary the amount to be reserved for
any proper purpose; to authorize and cause to be executed mortgages and liens
upon all or any part of the property of the Corporation; to determine the use
and disposition of any surplus or net profits; and to fix the time for the
declaration and payment of dividends.
(ii) To determine from time to time whether, and to
what times and places, and under what conditions the accounts and books of the
Corporation (other than the stock ledger) or any of them, shall be open to the
inspection of the stockholders.
(c) The Board of Directors in their discretion may submit any
contract or act for approval or ratification at any annual meeting of the
stockholders, at any meeting of the stockholders called for the purpose of
considering any such act or contract, or through a written consent in lieu of a
meeting in accordance with the requirements of the General Corporation Law of
Delaware as amended from time to time, and any contract or act that shall be so
approved or be so ratified by the vote of the holders of a majority of the stock
of the Corporation which is represented in person or by proxy at such meeting
(or by written consent whether received directly or through a proxy) and
entitled to vote thereon (provided that a lawful quorum of stockholders be there
represented in person or by proxy) shall be as valid and as binding upon the
Corporation and upon all the stockholders as though it had been approved,
ratified, or consented to by every stockholder of the Corporation, whether or
not the contract or act would otherwise be open to legal attack because of
directors' interest, or for any other reason.
(d) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all
5
<PAGE>
such acts and things as may be exercised or done by the Corporation; subject,
nevertheless, to the provisions of the statutes of Delaware, this Certificate of
Incorporation, and to any By-Laws from time to time made by the stockholders;
provided, however, that no By-Laws so made shall invalidate any prior act of the
directors which would have been valid if such By-Law had not been made.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver appointed for the Corporation under the provisions
of Section 291 of Title 8 of the Delaware Code or on the application of trustees
in dissolution or of any receiver or receivers appointed for the Corporation
under the provisions of Section 279 of Title 8 of the Delaware Code, order a
meeting of the creditors or class of creditors and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors, and/or on all the stockholders or class of stockholders, of the
Corporation, as the case may be, and also on the Corporation.
6
<PAGE>
ARTICLE IX
The original By-Laws shall be adopted by the incorporator of
the Corporation. Thereafter, the Board of Directors or the stockholders may
adopt, amend or repeal the By-Laws in such manner as may be by law or therein
provided, but any By-Laws made by the Board of Directors is subject to amendment
or repeal by the stockholders of the Corporation.
ARTICLE X
No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty or loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit, it being the intention of the foregoing provisions to
eliminate the liability of the Corporation's directors to the Corporation or its
stockholders to the fullest extent permitted by Section 102(b)(7) of the
Delaware General Corporation Law, as amended from time to time.
ARTICLE XI
The directors of the Corporation shall be elected in three
classes. The number of directors in each class shall be fixed from time to time
by the Board of Directors of the corporation; provided, however that the number
of directors in any class shall not exceed the number of directors in any other
class by more than one. The initial term of office of the first class of
directors shall expire at the first annual meeting of stockholders after their
election, the initial term of office of the second class of directors shall
expire at the second annual meeting of
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stockholders after their election and the initial term of office of the third
class of directors shall expire at the third annual meeting of stockholders
after their election. At each annual meeting of stockholders after 1999, the
directors elected to succeed those whose terms have expired shall be identified
as being of the same class as the directors they succeed and shall be elected to
hold office until the third succeeding annual meeting of stockholders after
their election. Notwithstanding the foregoing, however, each director shall hold
office until his successor shall have been duly elected and qualified, unless he
shall resign, become disqualified, disabled or shall otherwise be removed.
If the number of directors is changed, any increase
or decrease in directors shall be apportioned among the classes so as to
maintain all classes as equal in number as possible, and any additional director
elected to any class shall hold office for a term which shall coincide with the
term of the other directors in such class. No increase in the number of
directors shall shorten the term of any incumbent director.
Any vacancy occurring in the Board of Directors
caused by the death, resignation, or removal of a director, and any newly
created directorship resulting from an increase in the number of directors,
may be filled by a majority of the directors then in office, although less
than a quorum. Each director chosen to fill a vacancy or newly created
directorship shall hold office until the next election of the class for which
such director shall have been chosen and until his successor shall be duly
elected and qualified.
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Notwithstanding the foregoing paragraphs of this
Article, whenever the holders of any preferred stock issued by the Corporation
shall have the right, voting as a class or otherwise, to elect directors, the
then authorized number of directors of the Corporation shall be increased
by the number of the additional directors so to be elected, and the holders of
such preferred stock shall be entitled, as a class or otherwise, to elect such
additional directors. Any directors so elected shall hold office until the
next annual meeting of stockholders or until their rights to hold such office
shall terminate pursuant to the provisions of such preferred stock, whichever
is earlier.
ARTICLE XII
(a) Each person who was or is made a party or is threatened to
be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or 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 or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader
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indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including without
limitation, attorneys fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in paragraph (b) hereof, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Article shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article or
otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
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(b) If a claim under paragraph (a) of this Article is not paid
in full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard or conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(c) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Article shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute,
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provision of the Certificate of Incorporation, By-Law, agreement, vote of
stockholders or disinterested directors or otherwise.
(d) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
ARTICLE XIII
The Corporation reserves the right to amend, alter, change or
repeal any provision of this Certificate of Incorporation in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on
stockholders, directors and officers are subject to this reserved power.
IN WITNESS WHEREOF, the undersigned hereby executes this
document and affirms that the facts set forth herein are true under penalties of
perjury this 16th day of October, 1996.
/s/ Gavin C. Grusd
Gavin C. Grusd, Incorporator
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BY-LAWS
OF
COMPU-DAWN, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. - The registered office shall be
established and maintained at c/o United Corporate Services, Inc., 15 East North
Street, Dover, Delaware 19901 and United Corporate Services, Inc. shall be the
registered agent of this corporation in charge thereof.
SECTION 2. OTHER OFFICES. - The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. - Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of meeting. To be properly
brought before an annual meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by, at the direction of or upon
authority granted by the Board of Directors, (b) otherwise brought before the
meeting by, at the direction of or upon authority granted by the Board of
Directors, or (c) subject to Article II, Section 8 hereof, otherwise properly
brought before the meeting by a stockholder. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Company. To be timely,
a stockholder's notice must be received at the principal executive offices of
the Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that, in the event that less than 70 days' notice of the date
of the meeting is given to stockholders and public disclosure of the meeting
date, pursuant to a press release, is either not made or is made less than 70
days prior to the meeting date, then notice by the stockholder to be timely must
be so received not later than the close of business on the tenth day following
the earlier of (a) the day on which such notice of the date of the annual
meeting was mailed to stockholders or (b) the day on which any such public
disclosure was made.
A stockholder's notice to the Secretary must set forth as to
each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting, and the reasons for conducting such business at the annual
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meeting, (b) the name and address, as they appear on the Company's books, of the
stockholder proposing such business, (c) the class and number of shares of the
Company which are beneficially owned by the stockholder, and (d) any material
interest of the stockholder in such business. Notwithstanding anything in the
By-Laws to the contrary, but subject to Article II, Section 8 hereof, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 1. The Chairman of an annual meeting shall,
if the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 1, and, if he should so determine, he shall so declare to the meeting,
and any such business not properly brought before the meeting shall not be
transacted.
If the date of the annual meeting shall fall upon a legal holiday,
the meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. SPECIAL MEETINGS. - Special meetings of stockholders fo
any purpose or purposes may be called by the President or the Chairman of the
Board of the corporation and such meetings may be held at such time and place,
within or without the State of Delaware, as shall be stated in the notice of the
meeting.
SECTION 3. VOTING. - Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder, but no
proxy shall be voted after three years from its date unless such proxy provides
for a longer period. Upon the demand of any stockholder, the vote for directors
and the vote upon any question before the meeting, shall be by ballot. All
elections for directors shall be decided by plurality vote; all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the
ensuing election, arranged in alphabetical order, with the address of each, and
the number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM . - Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite
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amount of stock entitled to vote shall be present. At any such adjourned meeting
at which the requisite amount of stock entitled to vote shall be represented,
any business may be transacted which might have been transacted at the meeting
as originally noticed; but only those stockholders entitled to vote at the
meeting as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof. If the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote the meeting.
SECTION 5. NOTICE OF MEETINGS. - Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
SECTION 6. ACTION WITHOUT MEETING. - Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. - The number of directors shall be fixed
from time to time by the Board of Directors of the corporation. The directors
shall be elected as provided below and each director shall be elected to serve
until his successor shall be elected and shall qualify. A director need not be a
stockholder.
Unless otherwise provided in the Certificate of Incorporation,
directors shall be elected in three classes. The number of directors in each
class shall be fixed from time to time by the Board of Directors of the
corporation; provided, however that the number of directors in any class shall
not exceed the number of directors in any other class by more than one. The
initial term of office of the first class of directors shall expire at the first
annual meeting of stockholders after their election, the initial term of office
of the second class of directors shall expire at the second annual meeting of
stockholders after their election and the initial term of office of the third
class of directors shall expire at the third annual meeting of stockholders
after their election. At each annual meeting of stockholders after 1999, the
directors elected to succeed those whose terms have expired shall be identified
as being of the same class as the directors they succeed and shall be elected to
hold office until the third succeeding annual meeting of stockholders after
their election. Notwithstanding the foregoing, however, each director shall
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hold office until his successor shall have been duly elected and qualified,
unless he shall resign, become disqualified, disabled or shall otherwise be
removed.
If the number of directors is changed, any increase or
decrease in directors shall be apportioned among the classes so as to maintain
all classes as equal in number as possible, and any additional director elected
to any class shall hold office for a term which shall coincide with the term of
the other directors in such class. No increase in the number of directors shall
shorten the term of any incumbent director.
Any vacancy occurring in the Board of Directors caused by the
death, resignation, or removal of a director, and any newly created directorship
resulting from an increase in the number of directors, may be filled by a
majority of the directors then in office, although less than a quorum. Each
director chosen to fill a vacancy or newly created directorship shall hold
office until the next election of the class for which such director shall have
been chosen and until his successor shall be duly elected and qualified.
Notwithstanding the foregoing paragraphs of this Section,
whenever the holders of any preferred stock issued by the corporation shall have
the right, voting as a class or otherwise, to elect directors, the then
authorized number of directors of the corporation shall be increased by the
number of the additional directors so to be elected, and the holders of such
preferred stock shall be entitled, as a class or otherwise, to elect such
additional directors. Any directors so elected shall hold office until the next
annual meeting of stockholders or until their rights to hold such office shall
terminate pursuant to the provisions of such preferred stock, whichever is
earlier.
SECTION 2. RESIGNATIONS. - Any director, member of a committee or
other officer may resign at any time. Such resignation shall be made in writing,
and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES - If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 4. REMOVAL. - Any director or directors may be removed either
for or without cause at any time by the affirmative vote of the holders of a
majority of all the shares of stock outstanding and entitled to vote at an
election of directors (notwithstanding the classification of the Board into
members having staggered terms), at a special meeting of the stockholders called
for the purpose and the vacancies thus created may be filled, at the meeting
held for the purpose of removal, by the affirmative vote of a majority in
interest of the stockholders entitled to vote, except that any director elected
by the holders of preferred stock may only be removed by the holders of a
majority of the shares of that class or series thereof entitled to vote at an
election of such director.
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SECTION 5. INCREASE OF NUMBER. - The number of directors may be
increased by amendment of these By-Laws by the affirmative vote of a majority of
the directors, though less than a quorum, or, by the affirmative vote of a
majority in interest of the stockholders, at the annual meeting or at a special
meeting called for that purpose, and by like vote the additional directors may
be chosen at such meeting to hold office until the next annual election and
until their successors are elected and qualify.
SECTION 6. POWERS. - The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES. - The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member or
such committee or committees, the member or members thereof present at any such
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution
of the Board of Directors, or in these By-Laws, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power of authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the By-Laws of the corporation; and unless the resolution, these
By-Laws, or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
SECTION 8. MEETINGS. - The newly elected Board of Directors may hold
their first meeting for the purpose of organization and the transaction of
business, if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent, in
writing, of all the directors.
Unless restricted by the Certificate of Incorporation or
elsewhere in these By-laws, members of the Board of Directors or any committee
designated by such Board may participate in a meeting of such Board or committee
by means of conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at such meeting.
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Regular meetings of the Board of Directors may be scheduled by
a resolution adopted by the Board. The Chairman of the Board or the President or
Secretary may call, and if requested by any two directors, must call a special
meeting of the Board and give five days' notice by mail, or two days' notice
personally or by telegraph or cable to each director. The Board of Directors may
hold an annual meeting, without notice, immediately after the annual meeting of
Stockholders.
SECTION 9. QUORUM. - A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
so adjourned.
SECTION 10. COMPENSATION. - Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. - Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if prior to such action a written
consent thereto is signed by all members of the board, or of such committee as
the case may be, and such written consent is filed with the minutes of
proceedings of the board or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. - The officers of the corporation shall be a
President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, a Chief
Executive Officer, a Chief Financial Officer, a Chief Operating Officer, one or
more Vice-Presidents and such Assistant Secretaries and Assistant Treasurers as
they may deem proper. None of the officers of the corporation need be directors.
The officers shall be elected at the first meeting of the Board of Directors
after each annual meeting. More than two offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. - The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
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SECTION 3. CHAIRMAN. - The Chairman of the Board of Directors, if
one be elected, shall preside at all meetings of the Board of Directors and he
shall have and perform such other duties as from time to time may be assigned to
him by the Board of Directors.
SECTION 4. PRESIDENT. - Unless a chief executive officer or other
officer is elected and has been assigned the powers and the duties of
supervision and management by the Board of Directors, the President shall be the
chief executive officer of the corporation and shall have the general powers and
duties of supervision and management usually vested in the office of President
of a corporation, subject to the control of the Board of Directors. Except as
the Board of Directors shall authorize the execution thereof in some other
manner, he shall execute bonds, mortgages and other contracts in behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or the Treasurer or Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE-PRESIDENT. - Each Vice-President shall have such
powers and shall perform such duties as shall be assigned to him by the
directors.
SECTION 6. TREASURER. - The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as
may be ordered by the Board of Directors, or the President, taking proper
vouchers for such disbursements. He shall render to the President and Board of
Directors at the regular meetings of the Board of Directors, or whenever they
may request it, an account of all his transactions as Treasurer and of the
financial condition of the corporation. If required by the Board of Directors,
he shall give the corporation a bond for the faithful discharge of his duties in
such amount and with such surety as the board shall prescribe.
SECTION 7. SECRETARY. - The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by the law or by these By-Laws, and in case of his absence or refusal
or neglect so to do, any such notice may be given by any person thereunto
directed by the President, or by the directors, or stockholders, upon whose
requisition the meeting is called as provided in these By-Laws. He shall record
all the proceedings of the meetings of the corporation and of the directors in a
book to be kept for that purpose, and shall perform such other duties as may be
assigned to him by the directors or the President. He shall have the custody of
the seal of the corporation and shall affix the same to all instruments
requiring it, when authorized by the directors or the President, and attest the
same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. - Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
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ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. - A certificate of stock, signed by
the Chairman or Vice-Chairman of the Board of Directors, if they be elected,
President or Vice-President, and the Treasurer or an Assistant Treasurer, or
Secretary or Assistant Secretary, shall be issued to each stockholder certifying
the number of shares owned by him in the corporation. When such certificates are
countersigned (1) by a transfer agent other than the corporation or its
employee, or, (2) by a registrar other than the corporation or its employee, the
signatures of such officers may be facsimiles.
SECTION 2. LOST CERTIFICATES. - A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. - The shares of stock of the corporation
shall be transferrable only upon its books by the holders thereof in person or
by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificate shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. - (a) In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record is adopted by
the board of directors.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders
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entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted.
SECTION 5. DIVIDENDS. - Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL. - The corporate seal shall be circular in form and
shall contain the name of the corporation, the year of its creation and the
words "Corporate Seal, Delaware, 1996". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. - The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. - All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. - Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage, prepaid,
addressed to the person entitled thereto at his address as it appears on the
records of the corporation, and such notice shall be deemed to have been given
on the day of such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by
Statute.
Whenever any notice whatever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the corporation of these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal of By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative
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vote of a majority of the stock issued and outstanding and entitled to vote
thereat, or by the affirmative vote of a majority of the Board of Directors, at
any regular meeting of the Board of Directors, or at any special meeting of the
Board of Directors, if notice of the proposed alteration or repeal of By-Law or
By-Laws to be made, be contained in the notice of such special meeting.
ARTICLE VII
INDEMNIFICATION
No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except with respect to (1) a breach of the director's duty of loyalty to the
corporation or its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
liability which may be specifically defined by law or (4) a transaction from
which the director derived an improper personal benefit, it being the intention
of the foregoing provision to eliminate the liability of the corporation's
directors to the corporation or its stockholders to the fullest extent permitted
by law. The corporation shall indemnify to the fullest extent permitted by law
each person that such law grants the corporation the power to indemnify.
ARTICLE VIII
NOTICE AND QUALIFICATION OF STOCKHOLDER
NOMINEES TO BOARD
Only persons who are nominated in accordance with the
procedures set forth in this Article VIII shall be qualified for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
for the election of Directors at the meeting who complies with the procedures
set forth in this Article VIII. In order for persons nominated to the Board of
Directors, other than those persons nominated by or at the direction of the
Board of Directors, to be qualified to serve on the Board of Directors, such
nomination shall be made pursuant to timely notice in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be received at the
principal executive offices of the Company not less than 60 days nor more than
90 days prior to the meeting; provided, however, that, in the event that less
than 70 days' notice of the date of the meeting is given to stockholders and
public disclosure of the meeting date, pursuant to a press release, is either
not made or is made less than 70 days prior to the meeting date, then notice by
the stockholder to be timely must be so received not later than the close of
business on the tenth day following the earlier of (a) the day on which such
notice of the date of the meeting was mailed to stockholders or (b) the day on
which such public disclosure was made.
A stockholder's notice to the Secretary must set forth (a) as
to each person whom the Stockholder proposes to nominate for election or
re-election as a director (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the corporation which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in
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solicitation of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended from time to time (including, without limitation, such
documentation as is required by Regulation 14A to confirm that such person is a
bona fide nominee); and (b) as to the stockholder giving the notice (i) the name
and address, as they appear on the corporation's books, of such stockholder and
(ii) the class and number of shares of the corporation which are beneficially
owned by such stockholder. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a Director shall furnish to
the Secretary of the corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be qualified for election as a Director of the corporation unless
nominated in accordance with the procedures set forth in this Article VIII. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with procedures
prescribed by the By-Laws, and, if he should so determine, he shall so declare
to the meeting, and the defective nomination shall be disregarded.
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") by and between COMPU-DAWN, INC., a
Delaware corporation ("Company"), and DONG LEW ("Executive") is made and entered
into a New York, New York on this the 28th day of October, 1996, effective as of
the 1st day of October, 1996 ("Effective Date").
TERMS OF EMPLOYMENT
1.1 Employment. The Company hereby employs the Executive as the
President and Chief Operating Officer of the Company for and during the term
hereof. The Executive hereby accepts employment under the terms and conditions
set forth in this Agreement.
1.2 Duties of Executive. The Executive shall perform in the capacity
described in Section 1.1 hereof and shall have such duties, responsibilities,
and authorities as are designated for such offices pursuant to the Bylaws, as
amended, of the Company, and as may be reasonably assigned to him from time to
time by the Board of Directors of the Company; provided, however, the Executive
shall, during the term hereof, continuously have and retain such duties,
responsibilities, and authorities at least as significant in scope and substance
as the duties, responsibilities, and authorities required of the Executive's
offices and position with the Company as of the effective date. The Executive
agrees to devote his full time during normal business hours, best efforts,
abilities, knowledge and experience to the faithful performance of the duties,
responsibilities, and authorities which may be reasonably assigned to him and
which are consistent with his executive offices under Section 1.1 of this
Agreement. Notwithstanding the preceding, the Executive may, without being in
violation of his obligations hereunder, (i) serve on corporate, civic or
charitable boards or committees which are not engaged in business in the
computer software industry; provided, however, the Executive may serve as an
officer or director of a trade or business association related to the computer
software industry provided, however, the Executive may serve as an officer or
director of a trade or business association related to the computer software
industry; (ii) invest the Executive's personal assets in such form or manner as
will not require any material services by the Executive in the operation of the
entities in which such investments are made, provided the Executive shall use
his best efforts to pursue such activities in such a manner so that such
activities shall not prevent the Executive from fulfilling his obligations to
the Company hereunder, and provided further, the Executive shall resolve any
conflict between his obligations to the Company and his obligations to any other
entity in which the Executive has a financial interest in favor of the Company.
1.3 Term. This Agreement shall become effective as of the Effective
Date and shall continue in force and effect until September 30, 1999, unless
sooner terminated as provided in Section 1.6 hereof or renewed or extended
either (i) by written agreement between the Company and the Executive pursuant
to terms and conditions mutually acceptable to each, or (ii) in
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accordance with the following sentence of this Section. Notwithstanding the
preceding, as of September 30 each year, the term of this Agreement shall be
automatically extended one (1) additional year so that the unexpired term of
this Agreement as of October 1 each year shall always be three (3) years unless
on or before July 1 of any year either party notifies the other in writing that
such party does not desire to so extend the term of this Agreement in which
event this Agreement shall continue in force and effect until the expiration of
the unexpired term of this Agreement, unless sooner terminated as provided in
Section 1.6 hereof or renewed or extended by written agreement between the
Company and the Executive pursuant to terms and conditions mutually acceptable
to each.
1.4 Compensation. The Company shall pay the Executive, as full compensation
for services rendered by the Executive under the Agreement, as follows:
(a) Base Salary. The Company shall pay the Executive a base salary of ONE
HUNDRED AND TWENTY FIVE THOUSAND AND NO/100 DOLLARS ($125,000.00) per year, or
such higher salary as may be determined from time to time during the term hereof
either in accordance with the provisions of Section 1.4(b) hereof or by the
Board of Directors in its sole discretion, prorated for any partial period of
employment ("Salary"). Such Salary shall be paid by the Company to the Executive
in twenty-six (26) equal bi-weekly installments in accordance with the regular
payroll payment dates of the Company or in such installments and on such days
during the month as the Company and the Executive shall mutually determine. The
Company's compensation of the Executive by payments of the Salary pursuant to
Section 1.4(a) shall not be deemed exclusive and shall not prevent the Executive
from participating in any other compensation or benefit plan of the Company, nor
shall such compensation in any way limit or reduce any other obligation of the
Company hereunder; and, except to the extent specifically set forth herein, no
other compensation, benefit or payment hereunder shall in any way limit or
reduce the obligation of the Company to pay the Salary to the Executive during
the term of this Agreement.
(b) Annual Bonus Based on Pre-Tax Taxable Income. In addition to the Salary set
forth in Section 1.4(a) hereof, the Executive shall receive a bonus each year
during the term of this Agreement in an amount equal to a varying percentages of
the pre-tax consolidated taxable income of the Company and its subsidiaries for
the preceding taxable year ending December 31 (or such other fiscal year as the
Company may adopt in the future), commencing with the taxable year ending
December 1, 1997 as determined by the Company's independent accountant in
accordance with generally accepted accounting principles (except as hereinafter
set forth) prorated for any partial period of employment ("Earnings Annual
Bonus"). Notwithstanding the preceding, for purposes of this Agreement the
pre-tax consolidated taxable income of the Company and its subsidiaries for any
given year shall be determined without taking into consideration (i) the
Earnings Annual Bonus to be paid to the Executive or other executive officers of
the Company for that year or; (ii) any losses incurred by the Company and its
subsidiaries on start up ventures during the first twelve months of such
venture; or (iii) one-time
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non-recurring charges as the result of, including but not limited to,
divestitures, acquisitions, consolidations, restructuring, and changes in
accounting ("EBITANC"). The Earnings Annual Bonus payable to the Executive shall
be the amount determined by multiplying the EBITANC of the Company as determined
above by the applicable percentage based upon the EBITANC of the Company as set
forth in the table below, prorated for any partial period of employment:
EBITANC Earnings Annual Bonus
Less than $250,000 None
$250,000 or more but 5% of EBITANC of the
less than $500,000 Company
$500,000 or more but 6% of the EBITANC of the
less than $1,000,000 Company
$1,000.00 or more but 7.5% of the EBITANC of the
less than $1,500,000 Company
$1,500,000 or more 10% of the EBITANC of the
Company
For example, if the Executive worked a full twelve months during the
employment year and the EBITANC of the Company for the preceding year ended
December 31 was either: $100,000, $300,000, $800,000 or $1,200,000, then the
Earnings Annual Bonus due the Executive would be $0, $15,000 ($300,000 x 5%),
$48,000 ($800,000 x 6%), $90,000 ($1,200,000 x 7.5%) and $150,000 ($1,500,000 x
10%), respectively. Such Earnings Annual Bonus, or the balance thereof in the
event the Executive elects to receive a portion of such bonus quarterly as
hereinafter set forth, shall be paid to the Executive within ninety (90) days
after the end of the taxable year of the Company for which the Executive is
entitled to receive the Earnings Annual Bonus.
Notwithstanding the preceding, the Earnings Annual Bonus shall be estimated
and determined quarterly by the Company within forty-five (45) days after the
end of each fiscal quarter of the Company ("Estimated Quarterly Earnings
Bonus"). The Company shall notify the Executive ("Bonus Notice") of the
Estimated Quarterly Earnings Bonus due the Executive. The Executive shall have
the option exercisable for a period of thirty (30) days after receiving the
Bonus Notice to demand and receive up to fifty percent (50%) of such Estimated
Quarterly Earnings Bonus ("Advance Earnings Bonus Payment"). If the Executive
elects to receive the Advance Earnings Bonus Payment, such amount shall be paid
concurrently with the next regularly scheduled payroll. In the event that the
sum of the Advance Earnings Bonus Payments paid to the Executive exceeds the
Annual Earnings Bonus due the Executive for the Company's fiscal year, the
Executive shall repay such excess to the Company within ninety (90) days after
the Company's audited financial results are made available by the Company's
auditors.
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(c) Annual Bonus Based On Net Sales. In addition to the Minimum Annual Earnings
Bonus set forth in Section 1.4(c) hereof, the Executive shall receive a bonus
each year during the term of this Agreement in an amount equal to varying
percentages of the "net sales" of the Company and its subsidiaries for the
preceding taxable year ended December 31 (or such other fiscal year as the
Company may adopt in the future), commencing with the taxable year ending
December 31, 1997 as determined by the Company's independent accountant in
accordance with generally accepted accounting principles (except as hereinafter
set forth) prorated for any partial period of employment ("Net Sales Annual
Bonus"). The Net Sales Annual Bonus payable to the Executive shall be the amount
determined by multiplying the Executive's base salary of the Company and its
subsidiaries as determined above by the applicable percentage based upon the
"net sales" of the Company and its subsidiaries as set forth in the table below,
prorated for any partial period of employment, provided however that the
threshold bonus levels below shall increase by $1,000,000 in the year next
succeeding a year when a Net Sales Annual Bonus is earned.
Net Sales Net Sales Annual Bonus
Less than $3,750,000 None
$3,750,000 or more but 7 1/2% of base salary
less than $4,500,000
$4,500,000 or more but 10% of base salary
less than $5,250,000
$5,250,000 or more but 15% of base salary
less than $6,000,000
$6,000,000 or more 20% of base salary
For example, if the Executive worked a full twelve months during the
employment year and the "net sales" of the Company and its subsidiaries for the
preceding year ended December 31 was either: $3,000,000, $4,000,000, $5,000,000,
$5,500,000 & $6,000,000, then the Net Sales Annual Bonus due the Executive would
be $0, $9,375 ($125,000 x 7.5%), $12,500($125,000 x 10%), $18,750 ($125,000 x
15%) and $25,000 ($125,000 x 20%), respectively. Such Net Sales Annual Bonus,
shall be paid to the Executive within thirty (30) days after the Company's
audited financial statements are made available by the Company's auditors.
For purposes of this Agreement, the term "Net sales" shall mean the gross
sales of the Company and its subsidiaries for the fiscal year ended December 31
less the sum of any returns and allowances for such taxable year and any sales
taxes included in the gross sales of the Company and its subsidiaries for such
taxable year.
(d) Discretionary Bonus Compensation. In addition to the Earnings Annual
Bonus set forth in Section 1.4(c) hereof, and Net Sales Annual Bonus set forth
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in Section 1.4(d) hereof, the Company may also pay the Executive discretionary
annual bonus compensation ("Discretionary Bonus Compensation") in an amount
determined by the Board of Directors of the Company in its sole discretion to be
proper and appropriate based upon such factors as the Board of Directors deems
appropriate including (i) the Executive's contributions to the success of the
business operations and the pre-tax profits of the Company and its subsidiaries,
as determined in accordance with generally accepted accounting principles, (ii)
the consolidated revenues of the Company and its subsidiaries for the taxable
year, and (iii) the general overall performance of the Company and its
subsidiaries for the taxable year. Such Discretionary Bonus Compensation shall
be paid by the Company to the Executive in the manner set forth in the
resolution of the Board of Directors of the Company authorizing and declaring
the payment of such Discretionary Bonus Compensation. Notwithstanding anything
herein to the contrary, the Executive shall not be entitled to any Discretionary
Bonus Compensation (i) for a period of one (1) year following the closing of the
contemplated initial public offering of the Company's securities and (ii) for
any Employment Year during the term of this Agreement unless and until such
Discretionary Bonus Compensation is determined and declared by the Board of
Directors of the Company.
(e) Signing Bonus. In addition to all other bonuses payable hereunder the
Executive shall be paid a signing bonus in the amount of Fifteen Thousand
($15,000.00) Dollars.
1.5 Employment Benefits. In addition to the Salary, the Earnings Annual
Bonus, Net Sales Annual Bonus or other bonus payable to the Executive hereunder,
the Executive shall be entitled to the following benefits upon satisfaction by
the Executive of the eligibility requirements therefor, subject to the following
limitations:
(a) Sick Leave Benefits and Disability Insurance. Unless this Agreement is
terminated pursuant to the provisions of Section 1.6(b) hereof, the Executive
shall be paid sick leave benefits for a period of up to six (6) months at his
then prevailing Salary rate during his absence due to illness or other
incapacity, reduced by the amount, if any, of worker's compensation, social
security entitlement, or disability benefits, if any, under the Company's group
disability insurance plan, if any.
(b) Life Insurance;"Key Man" Life Insurance. The Company, at its own expense,
shall provide the Executive, subject to the Executive passing any physical
examination required by the Company's insurance company, life insurance benefits
under and consistent with any group term life insurance plan which the Company,
at its election, may adopt. Any such life insurance coverage shall be upon terms
and conditions comparable to the coverage, if any, provided other executive
officers of the Company and provided further however, that the Company shall not
be obligated to incur a premium of more than $5,000 per year for any such
coverage. In addition, the Company may obtain "Key Man" life insurance upon the
life of the Executive in an amount determined by the Company in its sole
discretion. The Executive shall fully cooperate in obtaining said life
insurance, including submitting to any physical examination.
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(c) Hospitalization, Accident. Major Medical and Dental Insurance. The Company,
at its own expense, shall provide the Executive (and all dependents of the
Executive at the request of the Executive) with group Hospitalization, group
accident, major medical, and dental insurance in amounts of coverage comparable
to the coverage, if any, provided other executive officers of the Company.
(d) Vacations. The Executive shall be entitled to a reasonable paid vacation of
not less that fifteen (15) business days each year during the term of this
Agreement, exclusive of national and religious holidays and weekends, which
vacation shall be taken by the Executive in accordance with the business
requirements of the Company at the time and its personnel policies then in
effect relative to this subject. The Executive shall also be entitled to all
paid holidays given by the Company to its executive employees.
(e) Working Facilities. During the term of this Agreement, the Company shall
provide at its expense, adequate office space, furniture, equipment, supplies,
and personnel (including professional, clerical, support and other personnel) as
shall be suitable in the opinion of the Board of Directors of the Company to the
Executive's position and adequate for the Executive's use in performing his
duties and responsibilities under this Agreement.
(f) Automobile Allowance. During the term of this Agreement, the Company shall
provide the Executive with a monthly automobile allowance of ONE THOUSAND AND
NO/l00 DOLLARS ($1,000.00). In addition during the term of this Agreement, the
Company shall reimburse the Executive for the cost of automobile insurance,
gasoline and maintenance expenses incurred by the Executive in connection with
such automobile on a monthly basis within ten (10) business days after receiving
an itemized invoice. Any allowance due the Executive pursuant to the preceding
provisions of this paragraph shall be paid by the Company concurrently with
payroll in twenty-six payments of $461.54 per year.
(g) Minimum Incentive Stock Options. With respect to each of the Company's
fiscal years ending during the term of this Agreement, the Company shall grant
the Executive incentive stock options effective as of December 31 of that year,
to the extent permissible under incentive stock option plans maintained by the
Company, to purchase 5,000 shares of common stock of the Company for each full
$100,000 of EBITANC of the Company and its subsidiaries for such fiscal year as
determined by the Company's independent accountant in accordance with generally
accepted accounting principles. The number of shares of common stock covered by
the incentive stock options to be granted to the Executive pursuant to this
paragraph, and the exercise price per share thereof, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of common
stock of the Company resulting from a subdivision or consolidation of shares or
the payment of a stock dividend (but only on the common stock) or any other
increase or decrease in the number of shares affected without receipt of
consideration by the Company. Notwithstanding the preceding, nothing contained
herein shall preclude the Board of Directors of the Company from terminating one
or more incentive stock
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option plans currently or hereafter maintained by the Company or issuing
additional incentive stock options to the Executive in its discretion.
(h) Other Employment Benefits. As an employee of the Company, the Executive
shall participate in and receive such other fringe benefits as may be in effect
from time to time for employees of the Company, whether or not specifically
enumerated herein and whether or not through any written plan or arrangement,
upon satisfaction by the Executive of the eligibility requirements therefor. Any
such benefits shall be upon terms and conditions comparable to the benefits, if
any, provided other executive officers of the Company.
1.6 Termination. This Agreement and the Executive's employment hereunder may
be terminated without any breach of this Agreement at any time during the term
hereof only by reason of and in accordance with the following provisions:
(a) Death. If the Executive dies during the term of this Agreement and while in
the employ of the Company, this Agreement shall automatically terminate as of
the date of the Executive's death, and the Company shall have no further
liability hereunder to the Executive or his estate except to the extent set
forth in Section 1.7(a) hereof.
(b) Disability. If, during the term of this Agreement, the Executive shall] be
prevented from performing his duties hereunder by reason of becoming disabled as
hereinafter defined for twelve (12) months out of a twenty-four (24) month
period, then the Company may terminate this Agreement immediately upon written
notice to the Executive without any further liability hereunder to the Executive
except as set forth in Section 1.7(b) hereof. For purposes of this Agreement,
the Executive shall be deemed to have become disabled when (i) he either
receives "disability benefits" under (a) Social Security, or (b) the Companys
disability plan, if any (whether funded with insurance or self-funded by the
Company), or (ii) the Board of Directors of the Company, upon the written report
of a qualified physician (after complete examination of the Executive)
designated by the Board of Directors of the Company or its insurers, shall have
determined that the Executive has become physically and/or mentally incapable of
performing his duties under this Agreement.
(c) Termination By the Company for Cause. Prior to the expiration of the term of
this Agreement, the Company may discharge the Executive for cause and terminate
this Agreement immediately upon written notice to the Executive without any
further liability hereunder to the Executive or his estate, except to the extent
set forth in Section 1.7(c) hereof. For purposes of this Agreement, a "discharge
for cause" shall mean termination of the Executive upon written notice to the
Executive limited, however, to one or more of the following reasons: (1)
Misappropriation or embezzlement by the Executive in connection with the Company
as determined by the affirmative unanimous vote of the Board of Directors of the
Company other than the Executive;
(2) Gross mismanagement or gross neglect of the Executive's duties as determined
by the affirmative unanimous vote of the Board of Directors of the Company other
than the Executive after notice to the Executive of the
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particular details thereof and a period of thirty (30) days thereafter within
which to cure such act or acts of gross mismanagement or gross neglect, and the
failure of the Executive to cure such act or acts within such thirty (30) day
period;
(3) Indictment for a felony; or
(4) Willful and unauthorized disclosure of Trade Secrets (as defined in Section
1.8 hereof) of the Company as determined by the affirmative unanimous vote of
the Board of Directors of the Company other than the Executive.
(d) Termination by the Company with Notice. The Company may terminate this
Agreement, for a reason other than as set forth in subparagraphs (a), (b), (c)
or (g) of this Section 1.6 at any time immediately upon written notice to the
Executive without any further liability hereunder to the Executive except to the
extent set forth in Section 1.7(d) hereof.
(e) Termination by the Executive with Notice. The Executive may terminate
this Agreement without liability to the Company arising solely from the
resignation of the Executive at any time upon thirty (30) days written notice to
the Company in which event the Company shall have no further liability hereunder
to the Executive except to the extent set forth in Section 1.7(e) hereof.
(f) Termination by the Executive for Good Reason. The Executive may terminate
this Agreement at any time for Good Reason (as hereinafter defined) in which
event the Company shall have no further liability hereunder to the Executive
except to the extent set forth in Section 1.7(f) hereof. For purposes of this
Agreement, the term "Good Reason" shall mean, without the Executive's express
written consent, the occurrence of any the following circumstances (which
changes shall constitute a "Change"):
(1) The assignment to the Executive of any duties inconsistent in any material
respect (unless in the nature of a promotion) with the Executive's position in
the Company immediately prior to such Change (including, but not limited to, the
Executive's status, offices and titles), or a significant adverse alteration or
diminution in the nature or status of the Executive's authority, duties or
responsibilities from those in effect immediately prior to such change, other
than an isolated, insubstantial and inadvertent action that is fully corrected
within five (5) days after receipt of written notice from the Executive;
(2) Any failure by the Company to comply with any of the provisions of Section
1.4 or 1.5 of this Agreement, other than an isolated, insubstantial and
inadvertent action that is fully corrected within five (5) days after receipt of
written notice from the Executive;
(3) The Company's requiring the Executive to be based anywhere other than at the
Company's executive office, except for travel reasonably required of the
Executive in the performance of the Executive's duties on behalf of the Company
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to an extent substantially consistent with the Executive's present business
travel obligations;
(4) The failure of the Company to obtain an agreement, satisfactory to the
Executive, from any and all successors to assume and agree to perform this
Agreement, as contemplated in Section 1.9 hereof; or
(5) Any failure by the Company to comply with any material provision of this
Agreement that has not been cured within ten (10) days after notice of such
noncompliance has been given by the Executive to the Company.
During a period of three (3) months immediately following any such termination
of this Agreement by the Executive, the Executive agrees to provide such
consulting services to the Company as it may reasonably request, at such time or
times within such period as may be mutually agreed upon between the Company and
the Executive. The Executive shall be compensated for any such consulting
services at a daily rate equal to one thirtieth (1/30) of the monthly Salary
paid to the Executive at the time of the Executive's resignation from the
Company, plus reimbursement for any reasonable out-of-pocket expenses incurred
by the Executive in rendering such consulting service.
(g) Termination Upon Chanqe in Control. The Company may terminate this
Agreement at any time within twelve (12) months after a Change in Control (as
hereinafter defined) immediately upon written notice to the Executive without
any further Liability hereunder to the Executive except to the extent set forth
in Section 1.7(g) hereof. In the event this Agreement is terminated by the
Company within twelve (12) months after the occurrence of a Change of Control,
the provisions of this Section shall supersede the provisions of Sections 1.6(d)
hereof, the provisions of Section 1.6(d) shall not be available to the Company
and the payments due the Executive hereunder shall be determined in accordance
with the provisions of Section 1.7(g) hereof and the provisions of Section
1.7(d) shall not be available. For purposes of this Agreement, the terms "Change
of Control" shall mean:
(1) The transfer, through one transaction or a series of related transactions,
either directly or indirectly, or through one or more intermediaries, of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934) of 25% or more of either the then outstanding
shares of common stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors, or the last of any series of transfers that results in the transfer
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934) of 25% or more of either the then outstanding
shares of common stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors;
(2) Approval by the shareholders of the Company of a merger or consolidation,
with respect to which persons who were the shareholders of the Company
immediately prior to such merger or consolidation do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
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generally in the election of directors of the merged or consolidated company's
then outstanding voting securities, or a liquidation or dissolution of the
Company or the sale of all or substantially all of the assets of the Company;
(3) The transfer, through one transaction or a series of related transactions,
of more than 50% of the assets of the Company, or the last of any series of
transfers that results in the transfer of more than 50% of the assets of the
Company. For purposes of this paragraph, the determination of what constitutes
more than 50% of the assets of the Company shall be determined based on the most
recent financial statement prepared by the Company's independent accountants; or
(4) During any calendar year, individuals who at the beginning of such year
constituted the Board of the Company and any new director or directors whose
election by the Board was approved by a vote of a majority of the directors then
still in office who either were directors at the beginning of the year or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof provided, however, that this provision
will not be triggered in the event the Executive votes or causes other
stockholders to vote their shares to cause said change to the directorship of
the Company.
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1.7 Compensation upon Termination.
(a) Death. In the event the Executive's employment hereunder is terminated
pursuant to the provisions of Section 1.6(a) hereof due to the death of the
Executive, the Company shall have no further obligation to the Executive or his
estate, except to pay to the Executive's spouse, or if he leaves no spouse, to
the estate of the Executive (provided, however, that the Executive, with the
written consent of the Executive's spouse, if any, may affirmatively designate a
beneficiary other than his spouse or estate): (i) any accrued, but unpaid,
Salary, any authorized but unreimbursed business expenses, and any vacation or
sick leave benefits, which have accrued as of the date of death, but were then
unpaid or unused, (ii) any accrued, but unpaid, Earnings Annual Bonus, Net Sales
Annual Bonus or other bonuses payable to the Executive, and (iii) an amount
equal to the difference between (a) the full monthly Salary payable hereunder as
of the date of death of the Executive for a period consisting of that number of
months equal to one (1) month multiplied by the number of full years that the
Executive was an employee of the Company or a subsidiary or a predecessor in
interest thereof, and (b) the monthly payment, if any, payable to the Executive
under the Companys salary continuation plan, if any, for the corresponding month
during the period set forth in clause (iii)(a) above. Any amount due the
Executive under clause (i) of this paragraph shall be paid in a lump sum in cash
within thirty (30) days after the death of the Executive, any amount, due the
Executive under clause (ii) of this paragraph shall be paid in accordance with
the Discretionary Bonus Resolution; provided, however, that any unpaid Annual
Bonus shall be paid to the Executive within thirty (30) days after the Company's
audited financial statements for the fiscal year is made available by the
Company's auditors for which such Annual Bonus is due, and any amount due the
Executive under clause (iii) of this paragraph shall be paid in accordance with
the Company's regular payroll periods during the period set forth in said clause
(iii). For purposes of the provision "Salary" shall include any amounts due
under Section 1.5(f) hereof.
(b) Disability. In the event the Executive's employment hereunder is
terminated pursuant to the provisions of Section 1.6(b) hereof due to the
Disability of the Executive, the Company shall be relieved of all of its
obligations under this Agreement, except to pay the Executive (i) any accrued,
but unpaid Salary, any authorized but unreimbursed business expenses, and any
vacation or sick leave benefits which have accrued as of the date on which such
permanent disability is determined, but then remain unpaid, (ii) any accrued,
but unpaid, Earnings Annual Bonus and Net Sales Annual Bonus and any declared,
but unpaid, Discretionary Bonus Compensation but without accelerating the bonus
payment date, and (iii) an amount equal to the difference between (a) the full
monthly Salary payable hereunder as of the date of termination of the
Executive's employment hereunder for a period consisting of that number of
months equal to one (1) month multiplied by the number of full years that the
Executive was an employee of the Company or a subsidiary or predecessor in
interest thereof, subject to a minimum of six (6) months, and (b) the monthly
payment, if any, payable to the Executive under the Company's salary
continuation plan and/or disability plan, if any, for the corresponding month
during the period set forth in clause (iii)(a) above. The provisions of the
preceding sentence shall not
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affect the Executive's rights to receive payments under the Company's disability
insurance plan, if any. Any amount due the Executive under clause (i) of this
paragraph shall be paid in a lump sum in cash within thirty (30) days after the
termination of the Executive's employment hereunder, any amount due the
Executive under clause (ii) of this paragraph shall be paid in accordance with
the Discretionary Bonus Resolution; provided, however, that Bonus and Net Sales
Annual Bonus shall be paid to the Executive within thirty (30) days after the
issuance of the Company's fiscal year audited financial results for which such
Earnings Annual Bonus is due, and any amount due the Executive under clause
(iii) of this paragraph shall be paid in accordance with the Company's regular
payroll periods during the period set forth in clause (iii). For purposes of
this provision "salary" shall include any amounts due under Section 1.5(f)
hereof.
(c) Cause. In the event the Executive's employment hereunder is terminated
by the Company for Cause pursuant to the provisions of Section 1.6(c) hereof,
the Company shall have no further obligation to the Executive under this
Agreement except to pay the Executive (i) any accrued, but unpaid, Salary, any
authorized but unreimbursed business expenses, and any vacation or sick leave
benefits, which have accrued as of the date of termination of this Agreement,
but were then unpaid or unused, and (ii) any accrued, but unpaid, Earnings
Annual Bonus, Net Sales Annual Bonus and other bonus. Any amount due the
Executive under clause (i) of this paragraph shall be paid in a lump sum in cash
within thirty (30) days after the termination of the Executive's employment
hereunder, and any amount due the Executive under clause (ii) of this Paragraph
shall be paid in accordance with the Discretionary Bonus Resolution; provided,
however, that any unpaid Earnings Annual Bonus or Net Sales Annual Bonus and
other bonus shall be paid to the Executive within thirty (30) days after the end
of the Company's taxable year for which such Earnings or Net Sales Annual Bonus
is due.
(d) Termination By the Company with Notice. In the event the Executive's
employment hereunder is terminated by the Company pursuant to the provisions of
Section 1.6(d) hereof, the Executive shall be entitled to receive (i) any
accrued, but unpaid, Salary, any authorized but unreimbursed business expenses,
and any vacation or sick leave benefits which have accrued as of the date of
termination of the Agreement, but were then unpaid or unused, (ii) any accrued,
but unpaid, Earnings Annual Bonus or Net Sales Annual Bonus and any declared,
but unpaid, and (iii) the full monthly Salary payable hereunder for the
unexpired term of the Agreement whether or not the Executive has sought or
obtained employment elsewhere after the termination of the Executive's
employment pursuant to the provisions of section 1.6(d) hereof. Any amount due
the Executive under clauses (i), (ii) and (iii) of this paragraph (other than
for any Earnings Annual Bonus and Net Sales Annual Bonus) shall be paid in a
lump sum in cash within thirty (30) days after the termination of the
Executive's employment thereunder; provided, however, that any unpaid Earnings
Annual Bonus and Net Sales Annual Bonus shall be paid to the Executive within
ninety (90) days after the end of the Company's taxable year for which such
Earnings or Net Sales Annual Bonus is due. In addition, in the event this
Agreement is terminated by the Company pursuant to the provisions of Section
1.6(d) hereof, the Company at its expense shall continue to provide the
Executive with the benefits set forth in Sections 1.5(b), 1.5(c), 1.5(f) and
1.5(h) above for the unexpired term of this Agreement whether or not the
Executive has sought or obtained employment
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elsewhere after the termination of the Executive's employment pursuant to the
provisions of Section 1.6(d) hereof; provided, however, if the Executive obtains
employment elsewhere during the aforesaid period, then the Company shall
continue to provide the benefits set forth in Sections 1.5(b), 1.5(c), 1.5(f)
and 1.5(h) hereof only to the extent the Executive does not receive such
benefits in their entirety from the Executive's then current employer.
(e) Termination by the Executive with Notice. In the event the Executives
employment hereunder is terminated by the Executive pursuant to the provisions
of Section 1.6(e) hereof, the Executive shall be entitled to receive (i) any
accrued, but unpaid, Salary, any authorized but unreimbursed business expenses,
and any vacation or sick leave benefits which have accrued as of the date of
termination of this Agreement, but were then unpaid or unused, and (ii) any
accrued, but unpaid, Earnings Annual Bonus, Net Sales Annual Bonus and any
declared, but unpaid, Discretionary Bonus Compensation. Any amount due the
Executive under clause (i) of this paragraph shall be paid in a lump sum in cash
within thirty (30) days after the termination of the Executive's employment
hereunder, and any amount due the Executive under clause (ii) of this paragraph
shall be paid in accordance with the Discretionary Bonus Resolution; provided,
however, that any unpaid Earnings Annual Bonus and Net Sales Annual Bonus shall
be paid to the Executive within ninety (90) days after the end of the Company's
taxable year for which such Earnings and Net Sales Annual Bonus is due.
(f) Termination by the Executive for Good Reason.
(1) Prior to Change of Control. In the event this Agreement is terminated by the
Executive pursuant to the provisions of Section 1.6(f) hereof prior to the
occurrence of a Change of Control, the Executive shall be entitled to receive
(i) any accrued, but unpaid, Salary, any authorized but unreimbursed business
expenses, and any vacation or sick leave benefits which have accrued as of the
date of termination of the Agreement, but were then unpaid or unused, (ii) any
accrued, but unpaid, Earnings Annual Bonus, and Net Sales Annual Bonus and any
declared, but unpaid, Discretionary Bonus Compensation, and (iii) the full
monthly Salary payable hereunder for the unexpired term of the Agreement whether
or not the Executive has sought or obtained employment elsewhere after the
termination of the Executive's employment pursuant of the provisions of Section
1.6(f) hereof. Any amount due the Executive under clauses (i), (ii) and (iii) of
this paragraph (other than for any Earnings Annual Bonus and Net Sales Annual
Bonus) shall be paid in a lump sum in cash within thirty (30) days after the
termination of the Executive's employment hereunder; provided, however, that any
unpaid Earnings or Net Sales Annual Bonus shall be paid to the Executive within
ninety (90) days after the end of the Company's taxable year for which such
Minimum Annual Bonus is due. In addition, in the event this Agreement is
terminated by the Executive pursuant to the provisions of Section 1.6(f) hereof;
provided, however, if the Executive obtains employment elsewhere during the
aforesaid period, then the Company shall continue to provide the benefits set
forth in Sections 1.5(b), 1.5(c) and 1.5(h) hereof only to the extent the
Executive does not receive such benefits in their entirety from the Executive's
then current employer.
In addition, in the event this Agreement is terminated by the Executive pursuant
to the provisions of Section 1.6(f), the Company at its expense shall purchase
the automobile provided to the Executive pursuant to Section 1.5(f) by paying
the total lease payments
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due pursuant to Section 1.5(f) and the residual value then due in order to
acquire title and transfer title on said automobile to Executive within ninety
(90) days after the termination of the Executive's employment thereunder.
2. After Change of Control. In the event this Agreement is terminated by the
Executive pursuant to the provisions of Section 1.6(f) hereof after the
occurrence of a Change of control, the executive shall be entitled to receive
(i) any accrued, but unpaid, Salary, any authorized but unreimbursed business
expenses, and any vacation or sick leave benefits which have accrued as of the
date of termination of the Agreement, but were then unpaid or unused, (ii) any
accrued, but unpaid, Earnings Annual Bonus, Net Sales Annual Bonus and any
declared, but unpaid, Discretionary Bonus Compensation, and (iii) an amount
equal to the full monthly Salary payable hereunder for the unexpired term of the
Agreement whether or not the Executive has sought or obtained employment
elsewhere after the termination of the Executive's employment pursuant to the
provisions of Section 1.6(f) hereof. Any amount due the Executive under clauses
(i), (ii) and (iii) of this paragraph (other than for any Earnings or Net Sales
Annual Bonus) shall be paid in a lump sum in cash within thirty (30) days after
the termination of the Executive's employment hereunder; provided, however, than
any unpaid Earnings Annual Bonus and Net Sales Annual Bonus shall be paid to the
Executive within ninety (90) days after the end of the Company's taxable year
for which such Earnings or Net Sales Annual Bonus is due. In addition, in the
event this Agreement is terminated by the Executive pursuant to the provisions
of Section 1.6(f) hereof after the occurrence of a Change of Control, the
Company at its expense shall continue to provide the Executive with the benefits
set forth in Section 1.5(b), 1.5(c) 1.5(f) and 1.5(h) above for the unexpired
term of this Agreement whether or not the Executive has sought or obtained
employment elsewhere after the termination of the Executive's employment
pursuant to the provisions of Section 1.6(f) hereof; provided, however, if the
Executive obtains employment elsewhere during the aforesaid period, then the
Company shall continue to provide the benefits set forth in Sections 1.5(b),
1.5(c), 1.5(f) and 1.5(h) hereof only to the extent the Executive does not
receive such benefits in their entirety from the Executive's current employer.
In addition, in the event this Agreement is terminated by the Executive pursuant
to the provisions of Section 1.6(f), the Company at its expense shall purchase
the automobile provided to the Executive pursuant to Section 1.5(f) by paying
the total lease payments due Section 1.5(f) and residual value than due in order
to acquire title and transfer title on said automobile to Executive within
ninety (90) days after the termination of the Executive's employment thereunder.
(g) Termination by the Company After Change of Control. In the event this
Agreement is terminated by the Company pursuant to the provisions of Section
1.6(g) hereof after the occurrence of a Change of Control, the Executive shall
be entitled to receive (i) any accrued, but unpaid, Salary, any authorized but
unreimbursed business expenses, and any vacation or sick leave benefits which
have accrued as of the date of termination of the Agreement, but were then
unpaid or unused, (ii) any accrued, but unpaid, Earnings Annual Bonus, Net Sales
Annual Bonus and any declared, but unpaid, Discretionary Bonus Compensation, and
(iii) an amount equal to the full monthly Salary payable hereunder for the
unexpired term of the Agreement whether or not the Executive has sought or
obtained employment elsewhere after the termination of the Executive's
employment pursuant to the provisions of Section l.6(g) hereof. Any amount due
the Executive under clauses (i) and (ii) of this paragraph shall be paid in a
lump sum in cash within thirty (30) days after the termination of the
Executive's employment hereunder, and any amount due the Executive under clause
(iii) of this paragraph shall
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be paid in a lump sum in cash within ninety (90) days after the termination of
the Executive's employment hereunder. In additional, in the event this Agreement
is terminated by the Company pursuant to the provisions of Section 1.6(g) hereof
after the occurrence of a Change of Control, the Company at its expense shall
continue to provide the Executive with the benefits set forth in Sections
1.5(b), 1.5(c) 1.5(f) and 1.5(h) above for the unexpired term of this Agreement
whether or not the Executive has sought or obtained employment elsewhere after
the termination of the Executive's employment pursuant to the provisions of
Section 1.6(g) hereof; provided, however, if the Executive obtains employment
elsewhere during the aforesaid period, then the Company shall continue to
provide the benefits set forth in Sections 1.5(b), 1.5(c), l.5(f) and 1.5(h)
hereof only to the extent the Executive does not receive such benefits in their
entirety from the Executive's then current employer.
(h) Termination of Obligations of the Company Upon Payment of Compensation.
Upon payment of the amount, if any, due the Executive pursuant to the preceding
provisions of this Section, the Company shall have no further obligation to the
Executive under this Agreement.
1.8 Protective Covenants. The Executive recognizes that his employment by the
Company is one of the highest trust and confidence because (i) the Executive
will become fully familiar with all aspects of the Company's business and that
of its subsidiaries during the period of his employment with the Company, (ii)
certain information of which the Executive will gain knowledge during his
employment is proprietary and confidential information which is of special and
peculiar value to the Company or its subsidiaries, and (iii) if any such
proprietary and confidential information were imparted to or became known by any
person, including the Executive, engaging in a business in competition with that
of the Company or its subsidiaries, hardship, loss and irreparable injury and
damage could result to the Company or its subsidiaries, the measurement of which
would be difficult if not impossible to ascertain. The Executive acknowledges
that any and all inventions, improvements, discoveries, formulae, processes,
products or designs developed by the Executive alone or in conjunction with
others in connection with the Company's business during the term of the
Executive's employment with the Company ("Proprietary Information") shall be the
sole and absolute property of the Company in perpetuity, that the Executive
shall promptly disclose such Proprietary Information to the Company, and the
Executive shall have no right, title or interest therein or to receive
additional monies therefor, regardless of whether development occurred during
working hours or any other time during the term of the Executive's employment
with the Company. The Executive shall assist the Company in obtaining patents on
all such Proprietary Information deemed patentable by the Company and shall
execute all documents necessary to obtain such patents and to vest the Company
with full and extensive title to the patents and to protect the patents against
infringement by others. For purposes of this Agreement, an invention shall be
deemed to have been made during the period of the Executive's employment if,
during such period, the invention was conceived or first actually reduced to
practice, and the Executive agrees that any patent application filed by the
Executive within one (1) year after a termination of the Executive's employment
with the Company shall be presumed to relate to an invention made during the
term of the Executive's employment with the Company unless the Executive can
establish the contrary. The Executive further acknowledges that the Company or
its subsidiaries has developed unique skills, concepts, sales presentations,
marketing programs, marketing strategy, business practices, methods of
operation, trademarks, licenses, technical information, Proprietary Information,
computer software programs,
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tapes and discs concerning its operations systems, customer lists, customer
leads, documents identifying past, present and future customers, hiring and
training methods, investment policies, financial and other confidential and
proprietary information concerning its operations and expansion plans ("Trade
Secrets"). Therefore, the Executive agrees that it is necessary for the Company
to protect its business and that of its subsidiaries from such damage, and the
Executive further agrees that the following covenants constitute a reasonable
and appropriate means, consistent with the best interest of both the Executive
and the Company, to protect the Company or its subsidiaries against such damage
and shall apply to and be binding upon the Executive as provided herein:
(a) Trade Secrets. The Executive recognizes that his position
with the Company is one of the highest trust and confidence by reason of the
Executive's access to and contact with certain Trade Secrets of the Company and
its subsidiaries. The Executive agrees and covenants to use his best efforts and
exercise utmost diligence to protect and safeguard the Trade Secrets of the
Company and its subsidiaries. The Executive further agrees and covenants that,
except as may be required by the Company in connection with this Agreement, or
with the prior written consent of the Company, the Executive shall not, either
during the term of this Agreement or thereafter, directly or indirectly, use for
the Executive's own benefit or for the benefit of another, or disclose,
disseminate, or distribute to another, any Trade Secret (whether or not
acquired, learned, obtained, or developed by the Executive alone or in
conjunction with others) of the Company or its subsidiaries or of other with
whom the Company or its subsidiaries has a business relationship. All memoranda,
notes, records, drawings, documents, or other writings whatsoever made,
compiled, acquired, or received by the Executive during the term of this
Agreement, arising out of, in connection with, or related to any activity or
business of the Company or its subsidiaries, including, but not limited to, the
customers, suppliers, or others with whom the Company or its subsidiaries has a
business relationship, the arrangements of the Company or its subsidiaries with
such parties, and the pricing and expansion policies and strategy of the Company
or its subsidiaries, are, and shall continue to be, the sole and exclusive
property of the Company or its subsidiaries, are, and shall continue to be, the
sole and exclusive property of the Company or its subsidiaries, as applicable,
and shall, together with all copies thereof and all advertising literature, to
returned and delivered to the Company by the Executive immediately, without
demand, upon the termination of this Agreement, or at any time upon the
Company's demand.
(b) Restriction on Soliciting Customers of the Company and its
Subsidiaries. The Executive covenants that for a period of twenty-four (24)
months following the termination of this Agreement, he will not, either directly
or indirectly, (i) disclose or otherwise make known to any person or entity the
names and addresses of any of the customers of the Company, of (ii) call on,
solicit, or take away, or attempt to call on solicit or take away any of the
customers of the Company or its subsidiaries with whom he became acquainted
during his employment with the Company, either for himself or for any other
person, firm, corporation or other entity.
(c) Covenant Not to Compete. In the event this Agreement is terminated
pursuant to the provisions of Section 1.6(c) hereof, the Executive hereby
covenants and agrees that for a period of twelve (12) months following the
termination of his employment hereunder, he will not directly or indirectly,
either as an employee, employer, consultant, agent, principal, partner,
shareholder (other than through
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ownership of public traded capital stock of a corporation which represent less
than five percent (5%) of the outstanding capital stock of such corporation),
corporate officer, director, investor, financier or in any other individual or
representative capacity, engage or participate in any business located in a
county in which the Company or any of its subsidiaries is doing business as of
the date of termination of the Executive's employment hereunder which is
competitive with the business of the Company or any of its subsidiaries as of
such date. Notwithstanding the foregoing, the Company agrees that the
participation of the Executive in the current and currently proposed business of
Coastal Computers will not violate the provisions of this paragraph.
(d) Survival of Covenants. Each covenants of the Executive set forth in
this Section 1.8 shall survive the termination of this Agreement and shall be
construed as an agreement independent of any other provision of this Agreement,
and the existence of any claim or cause of action of the Executive against the
Company whether predicated on this Agreement or otherwise shall not constitute a
defense to the enforcement by the Company of said covenant.
(e) Remedies. In the event of breach or threatened breach by the
Executive of any provision of this Section 1.8, the Company shall be entitled to
relief by temporary restraining order, temporary injunction, or permanent
injunction or otherwise, in addition to other legal and equitable relief to
which it may be entitled, including any and all monetary damages which the
Company may incur as a result of said breach, violation or threatened breach or
violation. The Company may pursue any remedy available to it concurrently or
consecutively in any order as to any breach, violation, or threatened breach or
violation, and the pursuit of one of such remedies at any time will not be
deemed an election of remedies or waiver of the right to pursue any other of
such remedies as to such breach, violation, or threatened breach or violation,
or as to any other breach, violation, or threatened breach or violation.
The Executive hereby acknowledges that the Executive's agreement to be
bound by the protective covenants set forth in this Section 1.8 was a material
inducement for the Company entering into this Agreement and agreeing to pay the
Executive the compensation and benefits set forth herein.
1.9 Merger or Acquisition. In the event the Company should consolidate, or
merge into another corporation, or transfer all or substantially all of its
assets to another entity, or divide its assets among a number of entities, this
Agreement shall continue in full force and effect. The Company will require any
and all successors (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, to expressly assume and agree pursuant to an appropriate
written assumption agreement to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such successor shall be a breach of this
Agreement and shall entitle the Executive to terminate his employment and this
Agreement for Good Reason. As used in this Agreement, the term "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which executes and delivers the assumption agreement
provided for in this Section 1.9 or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law.
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1.10 Reimbursement of Employee Expenses. The Executive is authorized to incur
ordinary, necessary and reasonable expenses in connection with the performance
of his duties and responsibilities under this Agreement and for the promotion of
the business and activities of the Company during the term hereof, including,
without limitation, expenses for necessary travel and necessary travel and
entertainment and other items of expenses required in the normal and routine
course of the Executive's employment hereunder. The Company will reimburse the
Executive from time to time for all such business expenses incurred pursuant to
and in conformity with the provisions of this Section provided that the
Executive presents to the Company:
(a) An account book in which the Executive recorded at or near the time
each expenditure was made; (i) the amount of the expenditures, (ii) the time,
place and designation of the type of entertainment and travel or other expenses,
or the date and description of the gift (gifts made to one individual are not to
exceed a total of Twenty-Five and No/100 Dollars ($25.00) in any taxable year);
(iii) the business reason for the expenditure and the nature of the business
benefit derived or expected to be derived as the result of the expenditure; and
(iv) the names, occupations, addresses and other information concerning each
person who was entertained or given a gift sufficient to establish the business
relationship to the Company; and
(b) Documentary evidence (such as receipts or paid bills) which state
sufficient information to establish the amount, date, place and essential
character of the expenditure, for such expenditure (i) of Twenty-Five and No/100
Dollars ($25.00) or more except for transportation charges if not readily
available and (ii) for lodging or traveling away from home.
GENERAL PROVISIONS
2.1 Notices. All notices, requests, consents, and other communications under
this Agreement shall be in writing and shall be deemed to have been delivered on
the date personally delivered or on the date deposited in a receptacle
maintained by the United States Postal Service for such purpose, postage
prepaid, by certified mail, return receipt requested, addressed to the
respective parties as follows:
If to the Executive: Dong W. Lew
10 Monroe Blvd., apt. 6H
Long Beach, New York 11561
If to the Company: Compu-Dawn, Inc.
77 Spruce Street
Cedarhurst, New York 11516
Either party hereto may designate a different address by providing written
notice of such new address to the other party hereto.
2.2 Severability. If any provision contained in this Agreement is
determined to be void, illegal or unenforceable, in whole or in part, then the
other provisions contained herein shall remain in full force and effect as if
the provision which was determined to be void, illegal, or unenforceable had not
been contained herein.
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2.3 Waiver, Modification, and Integration. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by any party. This instrument
contains the entire agreement of the parties concerning employment and
supersedes all prior and contemporaneous representations, understandings and
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Company and all such prior or
contemporaneous representations, understandings and agreements, both oral and
written, are hereby terminated. The terms of this Agreement may not be modified,
altered or amended except by written agreement of the Executive and the Company,
subject to the prior approval of the Board of Directors of the Company.
2.4 Binding Effect. This Agreement shall be binding and effective Upon
the Company and its successors and permitted assigns, and upon the Executive,
his heirs and representatives; provided, however, that the Company shall not
assign this Agreement without the written consent of the Executive.
2.5 Choice of Law and Venue. The parties agree that this Agreement is
made and entered into in Nassau County, New York and shall be governed by and
construed in accordance with the laws of the State of New York, and that any
litigation, special proceeding or other proceeding as between the parties that
may be brought, or arise out of, in connection with or by reason of this
Agreement shall be brought in the applicable state court in and for Nassau
County, New York which Courts shall be the exclusive courts or jurisdiction and
venue.
2.6 Representation of Executive. The Executive hereby represents and
warrants to the Company that he has not previously assumed any obligations
inconsistent with those contained in this Agreement. The Executive further
represents and warrants to the Company that the Executive has entered into this
Agreement pursuant to his own initiative and that the Company did not induce the
Executive to execute this Agreement in contravention of any existing
commitments. The Executive acknowledges that the Company has entered into this
Agreement in reliance Upon the foregoing representations of the Executive.
2.7 Independent Counsel. The Company has been presented by ROBERT H.
SOLOMON, ESQ. The Executive has been represented by .Each
has made his or her its own determination with respect to counsel without
coercion from the other. Each has thoroughly reviewed the provisions of this
Agreement and all matters concerning the consulting with the benefit of
independent counsel.
2.8 Arbitration Any controversy or claim arising out of or relating to
this Agreement shall be settled by binding arbitration in Nassau County, New
York under the rules of the American Arbitration Association. Judgment Upon the
award may be entered in any court having jurisdiction and the arbitrator(s) are
specifically authorized to award the prevailing party in such arbitration all
reasonable attorney's fees, expenses and costs of arbitration.
19
<PAGE>
2.9 Counterpart Execution. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written effective as of the Effective Date.
COMPU-DAWN, INC.
BY: /s/ Mark Honigsfeld
-----------------------
MARK HONIGSFELD,
Secretary and Chairman
of the Board
EXECUTIVE:
/s/ Dong Lew
------------
DONG LEW
Attest
/s/ Doris H. Abruzzo
- --------------------
Assistant Secretary
AGEMPCOAST
20
<PAGE>
PROMISSORY NOTE
$70,000 Long Beach, New York October 30, 1996
- ------- -------------------- ----------------
FOR VALUE RECEIVED, Dong W. Lew (the "Payor") hereby promises to pay
Coastal Computer Systems, Inc. (the "Payee"), or order at 166 West Park Avenue,
Long Beach, New York or at such other place that may be designated, in writing,
by the Payee, the principal sum of $70,000.00, in lawful money of the United
States of America at the time of payment, together with interest on the unpaid
principal hereof from time to time outstanding from the date hereof until
maturity at the rate hereinafter provided, upon the terms and conditions
hereinafter provided.
The Note shall be payable under the following terms: the principal
amount, plus interest, at eight (8%) percent for 120 equal monthly payments,
which shall be first applied to interest, then to principal and the balance, if
any, to be due and payable at the end of the 120 month period.
This Note shall be due and payable at such earlier dates if the
following occurs: In the event there is a public offering of the Payee's Common
Stock any time after three (3) years from the date hereof where the gross
proceeds to the Payor are equal or exceed $4,500,000.00 then the Note shall be
due and payable upon the closing of the public offering.
This Note is subject to the terms and conditions of that certain letter
agreement by and among the Payor, the Payee, Mark Honigsfeld Revocable Trust and
Robert Solomon dated October 16, 1996.
This Note may be prepaid in whole or in part at any time without
penalty, the first payments to be applied to interest and then to principal. In
the event of any default on the payment of either principal or interest on said
Note and said default remains uncured for ten (10) days after the sending of
written notice by certified mail, return receipt requested, then the entire
balance of the Note, including unpaid interest, shall become due at once. If
there are at least three (3) defaults on the payments of either interest or
principal where a notice to cure has been sent, then on any subsequent default
in either payment of principal or interest, the Payee shall have absolute right
to accelerate the entire balance of the Note, including unpaid interest with no
right to cure.
<PAGE>
Demand and presentment of this Note is hereby waived. Failure to
exercise the option of acceleration in any one case shall not constitute a
waiver of the right to exercise acceleration in any other event.
If this Note is placed in the hands of an attorney for collection,
Payor agrees to pay all expenses, including reasonable attorney's fees in regard
to collection of said Note.
The invalidity, or unenforceability in particular circumstances, of any
provision of this Note shall not extend beyond such provision or such
circumstances and no other provision of this instrument shall be affected
thereby.
This Note has been executed and delivered in the State of New York, and
the construction, validity and performance hereof shall be governed by the laws
of the State of New York without regard to any principals of conflict of laws.
Any action arising out of or with respect to this Note may be
instituted in the Supreme Court of the State of New York, County of Nassau, and
Payors hereby consent to the jurisdiction of such court and expressly waive any
and all objections they may have as to venue in such court.
This Note may be prepaid, in whole or in part, any time without
penalty. All prepayments shall be applied first to accrued and unpaid interest
and then to principal. All partial prepayments shall be applied in the inverse
order of maturity.
This Note and all the covenants, promises and agreement contained
herein shall be binding upon and inure to the benefit of the respective legal
and personal representatives, devisees, heirs, successors, and assigns of Payor
and the holder hereof.
EXECUTED this 30th day of October 1996.
PAYOR:
By:/s/ Dong W. Lew
------------------
PNCOASTAL
<PAGE>
STANDARD FORM OF STORE LEASE The
Real Estate Board of New York, Inc.
Agreement of Lease, made as of this 1st day of October 1996, between
INTERNATIONAL SUMMIT EQUITIES CORP. 77 SPRUCE STREET, CEDARHURST, NY party of
the first part, hereinafter referred to as OWNER, and COMPU-DAWN, INC. 77 SPRUCE
STREET, CEDARHURST, NY party of the second part, hereinafter referred to as
TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner
THE ENTIRE TOP 3RD AS IS, PLUS NINE PARKING SPACES,
#9-15-16-17-18-19-20-21-22-12-8
in the building known as 77 SPRUCE STREET, CEDARHURST, NY 11516 in the Borough
of Town of Hempstead, City of New York, for the term of Five (5) Years (or until
such term shall sooner cease and expire as hereinafter provided) to commence on
the
1st day of October Nineteen Hundred and Ninety Six, and to end on the
30th day of September Two Thousand One
both dates inclusive, at an annual rental rate of
SEE RENT RIDER
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless this lease
be a renewal).
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby convenant
as follows:
Rent 1. Tenant shall pay the rent as above and as hereinafter provided
6,375 per month basement.
Occupancy 2. Tenant shall use and occupy demised premises for Furniture
offices, Date Processing, Training and for no other purpose,
what-so-ever
and for no other purpose Tenant shall at all times conduct its business in a
high grade and reputable manner, shall not violate Article 37 hereof, and shall
keep show windows and signs in a neat and clean condition.
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<PAGE>
Alterations: 3. Tenant shall make no changes in or to the demised premises of
any nature without Owner's prior written consent which consent will not be
unreasonably withheld or delayed. Subject to the prior written consent of Owner,
and to the provisions of this article, Tenant at Tenant's expense, may make
alterations, installations, additions or improvements which are non-structural
and which do not affect utility services or plumbing and electrical lines, in or
to the interior of the demised premises by using contractors or mechanics first
approved by Owner. Tenant shall, before making any alterations, additions,
installations or improvements, at its expense, obtain all permits, approvals and
certificates required by any governmental or quasi-governmental bodies and (upon
completion) certificates of final approval thereof and shall deliver promptly
duplicates of all such permits, approvals and certificates to Owner and Tenant
agrees to carry and will cause Tenant's contractors and sub-contractors to carry
such workman's compensation, general liability, personal and property damage
insurance as Owner may require. If any mechanic's lien is filed against the
demised premises, or the building of which the same forms a part, for work
claimed to have done for, or materials furnished to, Tenant, whether or not done
pursuant to this article, the same shall be discharged by Tenant within ten days
thereafter, at Tenant's expense, by filing the bond required by law. All
fixtures and all paneling, partitions, railings and like installations,
installed in the premises at any time, either by Tenant or by Owner in Tenant's
behalf, shall, upon installation, become the property of Owner and shall remain
upon and be sur rendered with the demised premises unless Owner, by notice to
Tenant no later than twenty days prior to the date fixed as the termination of
this lease, elects to relinquish Owner's rights thereto and to have them removed
by Tenant, in which event, the same shall be removed from the premises by Tenant
prior to the expiration of the lease, at Tenant's expense. Nothing in this
article shall be construed to give Owner title to or to prevent Tenant's removal
of trade fixtures, moveable office furniture and equipment, but upon removal of
any such from the premises or upon removal of other installations as may be
required by Owner, Tenant shall immediately and at its expense, repair and
restore the premises to the condition existing prior to installation and repair
any damage to the demised premises or the building due to such removal. All
property permitted or required to be removed by Tenant at the end of the term
remaining in the premises after Tenant's removal shall be deemed abandoned and
may, at the election of Owner, either be retained as Owner's property or may be
removed from the premises by Owner at Tenant's expense.
Repairs 4. Tenant shall maintain and repair the interior and shall make
all repairs thereto necessary to keep same in good order and condition,
at Tenant's own cost and expense, and shall cause the same to be
covered by the insurance provided for hereafter in Article 8. Tenant
shall, throughout the term of this lease, take good care of the demised
premises and the fixtures and appurtenances therein, and thereto, and
at its sole cost and expense, make all non-structural repairs thereto
as and when needed to preserve them in good working order and
condition, reasonable wear and tear, obsolescence and damage from the
elements, fire or other casualty, excepted. If the demised premises be
or become infested with vermin, Tenant shall at Tenant's expense, cause
the same to be exterminated from time to time to the satisfaction of
Owner. Except as specifically provided in Article 9 or elsewhere in
this lease, there shall be no allowance to the
2
<PAGE>
Tenant for the diminuation of rental value and no liability on the part
of Owner by reason of inconvenience, annoyance or injury to business
arising from Owner, Tenant or others making or failing to make any
repairs, alterations, additions or improvements in or to any portion of
the building including the erection or operation of any crane, derrick
or sidewalk shed, or in or to the demised premises or the fixtures,
appurtenances or equipment thereof. The provisions of this article 4
with respect to the making of repairs shall not apply in the case of
fire or other casualty which are dealt with in article 9 hereof.
Landlord shall be responsible for the maintenance and repair of the
roof of the building of which the demised premises forms a part.
Window Cleaning: 5. Tenant will not clean nor require, permit, suffer or allow
any window in the demised premises to be cleaned from the outside in violation
of Section 202 of the New York State Labor Law or any other applicable law or of
the Rules of the Board of Standards and Appeals, or of any other Board or body
having or asserting jurisdiction.
Requirements of Law, Fire Insurance 6. Prior to the commencement of the lease
term, if Tenant is then in possession, and at all times thereafter, Tenant at
Tenant's sole cost and expense, shall promptly comply with all present and
future laws, orders and regulations of all state, federal, municipal and local
governments. departments, commissions and boards and any direction of any public
officer pursuant to law, and all orders, rules and regulations of the New York
Board of Fire Underwriters or the Insurance Services Office, or any similar body
which shall impose any violation, order or duty upon Owner or Tenant with
respect to the demised premises, and with respect to the portion of the sidewalk
adjacent to the premises, if the premises are on the street level, whether or
not arising out of Tenant's use or manner of use thereof, or with respect to the
building if arising out of Tenant's use or manner of use of the premises or the
building (including the use permitted under the lease). Except as provided in
Article 29 hereof, nothing herein shall require Tenant to make structural
repairs or alterations unless Tenant has by its manner of use of the demised
premises or method of operation therein, violated any such laws, ordinances,
orders, rules, regulations or requirements with respect thereto. Tenant shall
not do or permit any act or thing to be done in or to the demised premises which
is contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Owner. Tenant shall pay all costs, expenses, fines, penalties or
damages, which may be imposed upon Owner by reason of Tenant's failure to comply
with the provisions of this article. If the fire insurance rate shall, at the
beginning of the lease or at any time thereafter, be higher than it otherwise
would be, then Tenant shall reimburse Owner, as additional rent hereunder, for
that portion of all fire insurance premiums thereafter paid by Owner which shall
have been charged because of such failure by Tenant, to comply with the terms of
this article. In any action or proceeding wherein Owner and Tenant are parties,
a schedule or "make-up" of rate for the building or demised premises issued by a
body making fire insurance rates applicable to said premises shall be conclusive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rate then applicable to said premises.
3
<PAGE>
Subordination: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Owner may request.
Tenant's Liability Insurance Property Loss, Damage, Indemnity: 8. Owner or its
agents shall not be liable for any damage to property of Tenant or of others
entrusted to employees of the building, nor for loss of or damage to any
property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence of Owner, its agents, servants or employees. Owner
or its agents will not be liable for any such damage caused by other tenants or
persons in, upon or about said building or caused by operations in construction
of any private, public or quasi public work. Tenant agrees, at Tenant's sole
cost and expense, to maintain general public liability insurance in standard
form in favor of Owner and Tenant against claims for bodily injury or death or
property damage occurring in or upon the demised premises, effective from the
date Tenant enters into possession and during the term of this lease. Such
insurance shall be in an amount and with carriers acceptable to the Owner. Such
policy or policies shall be delivered to the Owner. On Tenant's default in
obtaining or delivering any such policy or policies or failure to pay the
charges therefor, Owner may secure or pay the charges for any such policy or
policies and charge the Tenant as additional rent therefor. Tenant shall
indemnify and save harmless Owner against and from all liabilities, obligations,
damages, penalties, claims, costs and expenses for which Owner shall not be
reimbursed by insurance, including reasonable attorneys fees, paid, suffered or
incurred as a result of any breach by Tenant, Tenant's agent, contractors,
employees, invitees, or licensees, or any covenant on condition of this lease,
or the carelessness, negligence or improper conduct of the Tenant, Tenant's
agents, contractors, employees, invitees or licensees. Tenant's liability under
this lease extends to the acts and omissions of any subtenant, and any agent,
contractor, employee, invitee or licensee of any subtenant. In case any action
or proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by Counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
Destruction, Fire and Other Casualty: 9. (a) If the demised premises or any part
thereof shall be damaged by fire or other casualty, Tenant shall give immediate
notice thereof to Owner and this lease shall continue in full force and effect
except as hereinafter set forth. (b) If the demised premises are partially
damaged or rendered partially unusable by fire or other casualty, the damages
thereto shall be repaired by and at the expense of Owner and the rent, until
such repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly unusable by
fire or other casualty, then the rent shall be proportionately paid up to the
4
<PAGE>
time of the casualty and thenceforth shall cease until the date when the
premises shall have been repaired and restored by Owner, subject to Owner's
right to elect not to restore the same as hereinafter provided. (d) If the
demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any of such
events. Owner may elect to terminate this lease by written notice to Tenant
given within 90 days after such fire or casualty specifying a date for the
expiration of the lease, which date shall not be more than 60 days after the
giving of such notice, and upon the date specified in such notice the term of
this lease shall expire as fully and completely as if such date were the date
set forth above for the termination of this lease and Tenant shall forthwith
quit, surrender and vacate the premises without prejudice however, to Owner's
rights and remedies against Tenant under the lease provisions in effect prior to
such termination, and any rent owing shall be paid up to such date and any
payments of rent made by Tenant which were on account of any period subsequent
to such date shall be returned to Tenant. Unless Owner shall serve a termination
notice as provided for herein, Owner shall make the repairs and restorations
under the conditions of (b) and (c) hereof, with all reasonable expedition
subject to delays due to adjustment of insurance claims, labor troubles and
causes beyond Owner's control. After any such casualty, Tenant shall cooperate
with Owner's restoration by removing from the premises as promptly as reasonably
possible, all of Tenant's salvageable inventory and movable equipment,
furniture, and other property. Tenant's liability for rent shall resume five (5)
days after written notice from Owner that the premises are substantially ready
for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant
from liability that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, each party shall look first to any insurance in
its favor before making any claim against the other party for recovery for loss
or damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Owner
and Tenant each hereby releases and waives all right of recovery against the
other or any one claiming through or under each of them by way of subrogation or
otherwise. The foregoing release and waiver shall be in force only if both
releasors' insurance policies contain a clause providing that such a release or
waiver shall not invalidate the insurance and also, provided that such a policy
can be obtained without additional premiums. Tenant acknowledges that Owner will
not carry insurance on Tenant's furniture and/or furnishings or any fixtures or
equipment, improvements, or ap purtenances removable by Tenant and agrees that
Owner will not be obligated to repair any damage thereto or replace the same.
(f) Tenant hereby waives the provisions of Section 227 of the Real Property Law
and agrees that the provisions of this article shall govern and control in lieu
thereof.
Eminent Domain: 10. If the whole or any part of the demised premises shall be
acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease.
Assignment, Mortgage, Etc. 11. Tenant, for itself, its heirs, distributees,
executors, administrators, legal representatives, successors and assigns
5
<PAGE>
expressly covenants that it shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the demised premises or any part
thereof to be used by others, without the prior written consent of Owner in each
instance. If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Owner may, after
default by Tenant, collect rent from the assignee, under-tenant or occupant, and
apply the net amount collected to the rent herein reserved, but no such
assignment, underletting, occupancy or collection shall be deemed a waiver of
the covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting.
Electric Current: 12. Tenant is to pay own utilities. Tenant covenants and
agrees that at all times its use of electric current shall not exceed the capac
ity of existing feeders to the building or the risers or wiring installation and
Tenant may not use any electrical equipment which, in Owner's opinion,
reasonably exercised, will overload such installations or interfere with the use
thereof by other tenants of the building. The change at any time of the
character of electric service shall in no wise make Owner liable or responsible
to Tenant, for any loss, damages or expenses which Tenant may sustain.
Access to Premises: 13. Owner or Owner's agents shall have the right (but shall
not be obligated) to enter the demised premises in any emergency at any time,
and, at other reasonable times, to examine the same and to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to any portion of the building or which Owner may elect to perform, in
the premises, following Tenant's failure to make repairs or perform any work
which Tenant is obligated to perform under this lease, or for the purpose of
complying with laws, regulations and other directions of governmental
authorities. Tenant shall permit Owner to use and maintain and replace pipes and
conduits in and through the demised premises and to erect new pipes and conduits
therein, provided they are within the walls, Owner may, during the progress of
any work in the demised premises, take all necessary materials and equipment
into said premises without the same constituting an eviction nor shall the
Tenant be entitled to any abatement of rent while such work is in progress nor
to any damages by reason of loss or interruption of business or otherwise.
Throughout the term hereof Owner shall have the right to enter the demised
premises at reasonable hours for the purpose of showing the same to prospective
purchasers or mortgages of the building, and during the last six months of the
term for the purpose of showing the same to prospective tenants and may, during
said six months period, place upon the premises the usual notice "To Let" and
"For Sale" which notices Tenant shall permit to remain thereon without
molestation. If Tenant is not present to open and permit an entry into the
premises, Owner or Owner's agents may enter the same whenever such entry may be
necessary or per missible by master key or forcibly and provided reasonable care
is exercised to safeguard Tenant's property and such entry shall not render
Owner or its agents liable therefor, nor in any event shall the obligations of
Tenant hereunder be affected. If during the last month of term Tenant shall have
removed all or
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<PAGE>
substantially all of Tenant's property therefrom, Owner may immediately enter,
alter, renovate or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any compensation and
such act shall have no effect on this lease or Tenant's obligations hereunder.
Owner shall have the right at any time, without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets, or other public parts of the building and
to change the name, number or designation by which the building may be known.
Vault, Vault Space, Area: 14. No vaults, vault space or area, whether or not
enclosed or covered, not within the property line of the building is leased
hereunder, anything contained in or indicated on any sketch, blue print or plan,
or anything contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility, Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by Tenant.
Occupancy: 15. Tenant will not at any time use or
occupy the demised premises in violation of, Articles
2 or 37 hereof, or of, the certificate of occupancy
issued for the building of which the demised premises
are a part. Tenant has inspected the premises and
accepts them as is, subject to the riders annexed
hereto with respect to Owner's work, if any. In any
event, Owner makes no representation as to the
condition of the premises and Tenant agrees to accept
the same subject to violations whether or not of
record.
Bankruptcy: 16(a) Anything elsewhere in this lease to
the contrary notwithstanding, this lease may be
canceled by Landlord by the sending of a written
notice to Tenant within a reasonable time after the
happening of any one or more of the following events:
(I) the commencement of a case in bankruptcy or under
the laws of any state naming Tenant as the debtor; or
(2) the making by Tenant of an assignment or any
other arrangement for the benefit of creditors under
any state statute. Neither Tenant nor any person
claiming through or under Tenant, or by reason of any
statute or order of court, shall thereafter be
entitled to possession of the premises demised but
shall forthwith quit and surrender the premises. If
this lease shall be assigned in accordance with its
terms, the provisions of this Article 16 shall be
applicable only to the party then owning Tenant's
interest in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the
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<PAGE>
fair and reasonable rental value of the demise premises for the same period. In
the computation of such damages the difference between any installment of rent
becoming due hereunder after the date of termination and the fair and reasonable
rental value of the demised premises for the period for which such installment
was payable shall be discounted to the date of termination at the rate of four
per cent (4%) per annum. If such premises or any part thereof be re-let by the
Owner for the unexpired term of said lease, or any part thereof, before
presentation of proof of such liquidated damages to any court, commission or
tribunal, the amount of rent reserved upon such reletting shall be deemed to be
the fair and reasonable rental value for the part or the whole of the premises
so re-let during the term of the re-letting. Nothing herein contained shall
limit or prejudice the right of the Owner to prove for and obtain as liquidated
damages by reason of such termination, an amount equal to the maximum allowed by
any statute or rule of law in effect at the time when, and governing the
proceedings in which, such damages are to be proved, whether or not such amount
be greater, equal to, or less than the amount of the difference referred to
above.
Default: 17. (1) If Tenant defaults in fulfilling any of the covenants
of this lease other than the covenants for the payment of rent or
additional rent; or if the demised premises become vacant or deserted;
or if any execution or attachment shall be issued against Tenant or any
of Tenant's property whereupon the demised premises shall be taken or
occupied by someone other than Tenant; or if this lease be rejected
under Section 365 of Title 11 of the U.S. Code (Bankruptcy Code); or if
Tenant shall fail to move into or take possession of the premises
within fifteen (15) days after the commencement of the term of this
lease, of which fact Owner shall be the sole judge; then, in any one or
more of such events, upon Owner serving a written five (5) days notice
upon Tenant specifying the nature of said default and upon the
expiration of said five (5) days, if Tenant shall have failed to comply
with or remedy such default, or if the said default or omission
complained of shall be of a nature that the same cannot be completely
cured or remedied within said five (5) day period, and if Tenant shall
not have diligently commenced curing such default within such five (5)
day period, and shall not thereafter with reasonable diligence and in
good faith proceed to remedy or cure such default, then Owner may serve
a written three (3) days notice of cancellation of this lease upon
Tenant, and upon the expiration of said three (3) days, this lease and
the term thereunder shall end and expire as fully and completely as if
the expiration of such three (3) day period were the day herein
definitely fixed for the end and expiration of this lease and the term
thereof and Tenant shall then quit and surrender the demised premises
to Owner but Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (I) hereof shall have been given, and
the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any pan of either or in making any other payment herein required;
then and in any of such events Owner may without notice, re-enter the demised
premises either by force or otherwise, and dispossess Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made,
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and Tenant hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end.
Remedies of Owner and Waiver of Redemption: 18. In case of any such default,
re-entry, expiration and/or dispossess by summary proceedings or otherwise,(a)
the rent, and additional rent, shall become due thereupon and be paid up to the
time of such reentry, dispossess and/or expiration. (b) Owner may re-let the
premises or any part or parts thereof, either in the name of Owner or otherwise,
for a term or terms, which may at Owner's option be less than or exceed the
period which would otherwise have constituted the balance of the term of this
lease and may grant concessions or free rent or charge a higher rental than that
in this lease, and/or (c) Tenant or the legal representatives of Tenant shall
also pay Owner as liquidated damages for the failure of Tenant to observe and
perform said Tenant's covenants herein contained, any deficiency between the
rent hereby reserved and/or convenanted to be paid and the net amount, if any,
of the rents collected on account of the subsequent lease or leases of the
demised premises for each month of the period which would otherwise have
constituted the balance of the term of this lease. The failure of Owner to
re-let the premises or any part or parts thereof shall not release or affect
Tenant's liability for damages. In computing such liquidated damages there shall
be added to the said deficiency such expenses as Owner may incur in connection
with re-letting, such as legal expenses, attorneys' fees, brokerage, advertising
and for keeping the demised premises in good order or for preparing the same for
re-letting. Any such liquidated damages shall be paid in monthly installments by
Tenant on the rent day specified in this lease. Owner, in putting the demised
premises in good order or preparing the same for re-rental may, at Owner's
option, make such alterations, repairs, replacements, and/or decorations in the
demised premises as Owner, in Owner's sole judgement, considers advisable and
necessary for the purpose of re-letting the demised premises, and the making of
such alterations, repairs, replacements, and/or decorations shall not operate or
be construed to release Tenant from liability. Owner shall in no event be liable
in any way whatsoever for failure to re-let the demised premises, or in the
event that the demised premises are re-let, for failure to collect the rent
thereof under such re-letting, and in no event shall Tenant be entitled to
receive any excess, if any, of such net rent collected over the sums payable by
Tenant to Owner hereunder. In the event of a breach or threatened breach by
Tenant or any of the covenants or provisions hereof, Owner shall have the right
of injunction and the right to invoke any remedy allowed at law or in equity as
if re-entry, summary proceedings and other remedies were not herein provided
for. Mention in this lease of any particular remedy, shall not preclude Owner
from any other remedy, in law or in equity. Tenant hereby expressly waives any
and all rights of redemption granted by or under any present or future laws.
Fees and Expenses: 19. If Tenant shall default in the observance or performance
of any term or covenant on Tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this lease, then,
unless otherwise provided elsewhere in this lease, Owner may immediately or at
any time thereafter and without notice perform the obligation of Tenant
thereunder, and if Owner, in connection therewith or in connection with any
default by Tenant in the covenant to pay rent hereunder, makes any expenditures
9
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or incurs any obligations for the payment of money, including but not limited to
attorney's fees, in instituting, prosecuting or defending any actions or pro
ceeding, such sums so paid or obligations incurred with interest and costs shall
be deemed to be additional rent hereunder and shall be paid by Tenant to Owner
within five (5) days of rendition of any bill or statement to Tenant therefor,
and if Tenant's lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be recoverable by
Owner as damages.
No Representations by Owner: 20. Neither Owner nor Owner's agents have made any
representations or promises with respect to the physical condition of the
building, the land upon which it is erected or the demised premises, the rents,
leases, expenses of operation, or any other matter or thing affecting or related
to the premises except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this lease. Tenant has inspected the building and
the demised premises and is thoroughly acquainted with their condition, and
agrees to take the same "as is" and acknowledges that the taking of possession
of the demised premises by Tenant shall be conclusive evidence that the said
premises and the building of which the same form a part were in good and
satisfactory condition at the time such possession was so taken, except as to
latent defects. All understandings and agreements heretofore made between the
parties hereto are merged in this contract, which alone fully and completely
expresses the agreement between Owner and Tenant and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
End of Term: 21. Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear excepted, and Tenant shall
remove all its property. Tenant's obligation to observe or perform this covenant
shall survive the expiration or other termination of this lease. If the last day
of the term of this lease or any renewal thereof, falls on Sunday, this lease
shall expire at noon on the preceding Saturday unless it be a legal holdiay in
which case it shall expire at noon on the preceding business day.
Quiet Enjoyment: 22. Owner covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 33 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
Failure to Give Possession: 23. If Owner is unable to give possession of the
demised premises on the date of the commencement of the term hereof, because of
the holding-over or retention of possession of any tenant, undertenant or
occupants, or if the premises are located in a building being constructed,
because such building has not been sufficiently completed to make the premises
10
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ready for occupancy or because of the fact that a certificate of occupancy has
not been procured or for any other reason, Owner shall not be subject to any
liability for failure to give possession on said date and the validity of the
lease shall not be impaired under such circumstances, nor shall the same be
construed in any wise to extend the term of this lease, but the rent payable
hereunder shall be abated (provided Tenant is not responsible for the inability
to obtain possession) until after Owner shall have given Tenant written notice
that the premises are substantially ready for Tenant's occupancy. If permission
is given to Tenant to enter into the possession of the demised premises or to
occupy premises other than the demised premises prior to the date specified as
the commencement of the term of this lease. Tenant covenants and agrees that
such occupancy shall be deemed to be under all the terms, covenants, conditions
and provisions of this lease, except as to the covenant to pay rent. The
provisions of this article are intended to constitute "an express provision to
the contrary" within the meaning of Section 223-a of the New York Real Property
Law.
No Waiver: 24. The failure of Owner to seek redress for
violation of, or to insist upon the strict performance
of any covenant or condition of this lease or of any of
the Rules or Regulations set forth or hereafter adopted
by Owner, shall not prevent a subsequent act which
would have originally constituted a violation from
having all the force and effect of an original
violation. The receipt by owner of rent with knowledge
of the breach of any covenant of this lease shall not
be deemed a waiver of such breach and no provision of
this lease shall be deemed to have been waived by Owner
unless such waiver be in writing signed by Owner. No
payment by Tenant or receipt by Owner of a lesser
amount than the monthly rent herein stipulated shall be
deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement
of any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction,
and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of
such rent or pursue any other remedy in this lease
provided. No act or thing done by Owner or Owner's
agents during the term hereby demised shall be deemed
in acceptance of a surrender of said premises and no
agreement to accept such surrender shall be valid
unless in writing signed by Owner. No employee of Owner
or Owner's agent shall have any power to accept the
keys of said premises prior to the termination of the
lease and the delivery of keys to any such agent or
employee shall not operate as a termination of the
lease or a surrender of the premises.
Waiver of Trial by Jury: 25. It is mutually agreed by and between Owner and
Tenant that the respective parties hereto shall and they hereby do waive trial
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any summary proceeding
for possession of the premises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding.
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Inability to Perform: 26. This lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in no wise be affected, impaired or excused
because Owner is unable to fulfill any of its obligations under this lease or to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make, or is delayed in making any repair, additions,
alterations or decorations or is unable to supply or is delayed in supplying any
equipment or fixtures or Owner is prevented or delayed from so doing by reason
of strike or labor troubles, government preemption in connection with a National
Emergency or by reason of any rule, order or regulation of any department or
subdivision thereof of any government agency or by reason of the conditions of
supply and demand which have been or are affected by war or other emergency, or
when, in the judgement of Owner, temporary interruption of such services is
necessary by reason of accident, mechanical breakdown, or to make repairs,
alterations or improvements.
Bills and Notices: 27. Except as otherwise in this lease provided, a bill,
statement, notice or communication which Owner may desire or be required to give
to Tenant, shall be deemed sufficiently given or rendered if, in writing,
delivered to Tenant personally or sent by registered or certified mail addressed
to Tenant at the building of which the demised premises form a part or at the
last known residence address or business address of Tenant or left at any of the
aforesaid premises addressed to Tenant, and the time of the rendition of such
bill or statement and of the giving of such notice or communication shall be
deemed to be the time when the same is delivered to Tenant, mailed, or left at
the premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
Water: 28. If Tenant requires, uses or consumes water for any purpose in
addition to ordinary lavatory purposes (of which fact Tenant constitutes Owner
to be the sole judge) Owner may install a water meter and thereby measures
Tenant's water consumption for all purposes. Tenant shall pay Owner for the cost
of the meter and the cost of the installation thereof and throughout the
duration of Tenant's occupancy Tenant shall keep said meter and installation
equipment in good working order and repair at Tenant's own cost and expense.
Tenant agrees to pay for water consumed, as shown on said meter as and when
bills are rendered. Tenant covenants and agrees to pay the sewer rent, charge or
any other tax, rent, levy or charge which now or hereafter is assessed, imposed
or a lien upon the demised premises or the realty of which they are part
pursuant to law, order or regulation made or issued in connection with the use,
consumption, maintenance or supply of water, water system or sewage or sewage
connection or system. The bill rendered by Owner shall be payable by Tenant as
additional rent. If the building or the demised premises or any part thereof be
supplied with water through a meter through which water is also supplied to
other premises Tenant shall pay to Owner as additional rent, on the first day of
each month, 39 % ($ ) of the total meter charges, as Tenant's portion.
Independently of and in addition to any of the remedies reserved to Owner
hereinabove or elsewhere in this lease, Owner may sue for and collect any monies
to be paid by Tenant or paid by Owner for any of the reasons or purposes
hereinabove set forth.
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Sprinklers: 29. Anything elsewhere in this lease to the contrary not with-
standing, if the New York Board of Fire Underwriters or the Insurance Services
Office or any bureau, department or official of the federal, state or city
government require or recommend the installation of a sprinkler system or
that any changes, modifications, alterations, or additional sprinkler
heads or other equipment be made or supplied in an existing sprinkler system
by reason of Tenant's business, or the location of partitions, trade
fixtures, or other contents of the demised premises, or for any other reason, or
if any such sprinkler system installations, changes, modifications,
alterations, additional sprinkler heads or other such equipment, become
necessary to prevent the imposition of a penalty or charge against the full
allowance for a sprinkler system in the fire insurance rate set by any said
Exchange or by any fire insurance company. Tenant shall, at Tenant's
expense, promptly make such sprinkler system installations, changes,
modifications, alterations, and supply additional sprinkler heads or other
equipment as required whether the work involved shall be structural or non-
structural in nature. Tenant shall pay to Owner as additional rent the sum of
$ , on the first day of each month during the term of this lease, as Tenant's
portion of the contract price for sprinkler supervisory service.
[Paragraph 30 deleted]
Security: 31. Tenant has deposited with Owner the sum of S12,750.00 as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent. Owner may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Owner may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including but not limited to, any
damages or deficiency in the re-letting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this lease, the security
shall be returned to Tenant after the date fixed as the end of the Lease and
after delivery of entire possession of the demised premises to Owner. In the
event of a sale of the land and building or leasing of the building, of which
the demised premises form a part, Owner shall have the right to transfer the
security to the vendee or lessee and Owner shall thereupon be released by Tenant
from all liability for the return of such security, and Tenant agrees to look to
the new Owner solely for the return of said security; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
SECURITY DEPOSIT SHALL NOT BEAR INTEREST.
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Captions: 32. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
Definitions: 33. The term "Owner" as used in this lease means only the Owner, or
the mortgagee in possession, for the time being of the land and building (or the
Owner of a lease of the building or of the land and building) of which the
demised premises form a part, so that in the event of any sale or sales of said
land and building or of said lease, or in the event of a lease of said building,
or of the land and building, the said Owner shall be and hereby is entirely
freed and relieved of all covenants and obligations of Owner hereunder, and it
shall be deemed and construed without further agreement between the parties of
their successors in interest, or between the parties and the purchaser, at any
such sale, or the said lessee of the building, or of the land and building, that
the purchaser or the lessee of the building has assumed and agreed to carry out
any and all covenants and obligations of Owner hereunder. The words "re-enter"
and "re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude Saturdays
(except such portion thereof as is covered by specific hours in Article 30
hereof), Sundays and all days designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
Engineers contract with respect to H V A C service.
Adjacent Excavation -- Shoring: 34. If an excavation shall be made upon land
adjacent to the demised premises, or shall be authorized to be made Tenant shall
afford to the person causing or authorized to cause such excavation, license to
enter upon the demised premises for the purpose of doing such work as said
person shall deem necessary to preserve the wall or the building of which
demised premises form a part from injury or damage and to support the same by
proper foundations without any claim for damages or indemnity against Owner, or
diminution or abatement of rent.
Rules and Regulations: 35. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with the
Rules and Regulations and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Notice of
any additional rules or regulations shall be given in such manner as Owner may
elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within ten (10) days
after the giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against any
other tenant and Owner shall not be liable to Tenant for violation of the same
by any other tenant, its servants, employees, agents, visitors or licensees.
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Glass: 36. Owner shall replace, at the expense of Tenant, any and all
plate and other glass damaged or broken from any cause whatsoever in and
about the demised premises. Owner may insure, and keep insured, at Tenant's
expense, all plate and other glass in the demised premises for and in the name
of Owner. Pills for the premiums therefor shall be rendered by Owner to
Tenant at such times as Owner may elect, and shall be due from, and payable by,
Tenant when rendered, and the amount thereof shall be deemed to be, and be
paid as, additional rent.
Pornographic uses Prohibited 37. Tenant agrees that the value of the demised
premises and the reputation of the Owner will be seriously injured if the
premises are used for any obscene or pornographic purposes or any sort of
commercial sex establishment. Tenant agrees that Tenant will not bring or permit
any obscene or pornographic material on the premises, and shall not permit or
conduct any obscene, nude, or semi-nude live performances on the premises, nor
permit use of the premises for nude modeling, rap sessions, or as so-called
rubber goods shops, or as a sex club of any sort, or as a "massage parlor."
Tenant agrees further that Tenant will not permit any of these uses by any
sublessee or assignee of the premises. This Article shall directly bind any
successors in interest to the Tenant. Tenant agrees that if at any time Tenant
violates any of the provisions of this Article, such violation shall be deemed a
breach of a substantial obligation of the terms of this lease and objectionable
conduct. Pornographic material is defined for purposes of this Article as any
written or pictorial matter with prurient appeal or any objects of instrument
that are primarily concerned with lewd or prurient sexual activity. Obscene
material is defined here as it is in Penal Law Section 235.00.
Estoppel Certificate 38. Tenant, at any time, and from time to time, upon at
least 10 days prior notice by Owner, shall execute, acknowledge and deliver to
Owner, and/or to any other person, firm or corporation specified by Owner, 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), stating the dates which the rent and
additional rent have been paid, and stating whether or not there exists any
defaults by Owner under this lease, and, if so, specifying each such default.
Successors and Assigns 39. The covenants, conditions and agreements contained in
this lease shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease. their assigns.
- -----------------
Space to be filled in or deleted.
(16) SIXTEEN PAGES OF RIDERS ARE MADE APART HEREOF. PLUS RENT RIDER.
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In Witness Whereof, owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Owner:
/s/ Illegible INTERNATIONAL SUMMIT EQUITIES, CORP. Corp. Seal
/s/ Michael Gedell [L.S.]
MICHAEL GEDELL, PRESIDENT
Witness for Tenant:
COMPU-DAWN, INC. Corp. Seal
/s/ Dong W. Lew [L.S.]
DONG W. LEW, PRESIDENT
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ACKNOWLEDGMENTS
CORPORATE OWNER
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me
personally came to me known, who being by me duly sworn, did depose and say that
he resides in
that he is the of
the corporation described in and which executed the foregoing instrument, as
OWNER: that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of The Board
of Directors of said corporation, and that he signed his name thereto by like
order.
...........................................
INDIVIDUAL OWNER
STATE OF NEW YORK, ss.:
County of
On this day of . 19 , before me personally came
to me known and known to me to be the individual described in and who, as OWNER,
executed the foregoing instrument and acknowledged to me that he executed the
same.
...........................................
CORPORATE TENANT
STATE OF NEW YORK ss.:
County of
On this day of , 19 , before me personally came
to me known, who being by me duly sworn, did depose and say that he resides in
that he is the of
the corporation described in and which executed the foregoing instrument, as
TENANT; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board
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of Directors of said corporation, and that he signed his name thereto by like
order.
...........................................
INDIVIDUAL TENANT
State of New York ss.:
County of
On this day of , 19 , before me personally came
to me known and known to me to be the individual
described in and who, as TENANT, executed the foregoing instrument and
acknowledged to me that he executed the same.
-------------------------------------------
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 35.
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 Owner. 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 with rubber
tires and safeguards.
2. If the premises are situated on the ground floor of the building,
Tenant thereof shall further, at Tenant's expense, keep the sidewalks and curb
in front of said premises clean and free from ice, snow, etc.
3. 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.
4. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the demised premises, or permit or suffer the
demised premises to be occupied or used in a manner offensive or objectionable
to Owner or other occupants of the building by reason of noise, odors and/or
vibrations or interfere in any way with other Tenants or those having business
therein.
5. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any Tenant on any part of the
outside of the demised premises or the building or on the inside of the demised
premises if the same is visible from the outside of the premises without the
prior written consent of Owner, except that the name of Tenant may appear on the
entrance door of the premises. In the event of the violation of the foregoing by
any Tenant, Owner may remove same without any liability and may charge the
expense incurred by such removal to Tenant or Tenants violating this rule. Signs
on interior doors and directory tablet shall be inscribed painted or affixed for
each Tenant by Owner at the expense of such Tenant, and shall be of a size,
color and style acceptable to Owner.
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6. No Tenant shall mark, paint, drill into, or in any way deface any
part of the demised premises or the Building of which they form a part. No
boring, cutting or stringing of wires shall be permitted, except with the prior
written consent of Owner, and as Owner 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.
7. Freight, furniture, business equipment, merchandise and bulky matter
of any description shall be delivered to and removed from the premises only on
the freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner 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 these Rules and Regulations or the
lease of which these Rules and Regulations
8. Owner reserves the right to exclude from the building between the
hours of 6 P.M. and 8 A.M. and at all hours on Sundays, and holidays all persons
who do not present a pass to the building signed by Owner will furnish passes to
persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such person.
9. Owner shall have the right to prohibit any advertising by any Tenant
which, in Owner's opinion, tends to impair the reputation of Owner or its
desirability as a building for stores or offices, and upon written notice from
Owner, Tenant shall refrain from or discontinue such advertising.
10. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible or explosive fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or emanate
from the demised premises.
11. Tenant shall not place a load on any floor of the demised premises
exceeding the floor load per square foot area which it was designed to carry and
which is allowed by law. Owner reserves the right to prescribe the weight and
position of all safes, business machines and mechanical equipment. Such
installations shall be placed and maintained by Tenant at Tenant's expense in
setting sufficient in Owner's judgement to absorb and prevent vibration, noise
and annoyance.
GUARANTY
The undersigned guarantees to Owner, Owner's successors and assigns, the full
performance and observance of all the agreements to be performed and observed by
Tenant In the attached Lease, including the "Rules and Regulations" as therein
provided, without requiring any notice to Guarantor of nonpayment or,
nonperformance, or proof, or notice of demand, to hold the undersigned
responsible under this guaranty, all of which the undersigned hereby expressly
waives and expressly agrees that the legality of this agreement and the
agreements of the Guarantor under this agreement shall not be ended, or changed
by reason of the claims to Owner against Tenant of any of the rights or remedies
given to Owner as agreed in the attached Lease. The Guarantor further agrees
that
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this guaranty shall remain and continue in full force and effect as any renewal,
change or extension of the Lease. As a further inducement to Owner to make the
Lease Owner and Guarantor agree that in any action or proceeding brought by
either owner or the Guarantor against the other on any matters concerning the
Lease of the guaranty that Owner and the undersigned shall and do waive trial by
jury.
------------------------------------
Guarantor
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RENT RIDER TO LEASE DATED OCTOBER 1, 1996
BETWEEN INTERNATIONAL SUMMIT EQUITIES CORP. &
COMPU-DAWN, INC.
1st year November 1, 1996 to September 30, 1997
(Partial)
$ 4,781.25 Base Rent Per Month
$57,375.00 Base Rent Per Year
2nd year October l, 1997 to September 30, 1998
$ 6,800.00 Base Rent Per Month
$81,600.00 Base Rent Per Year
3rd year October l, 1998 to September 30, 1999
S 7,225.00 Base Rent Per Month
$86,700.00 Base Rent Per Year
4th year October l, 1999 to September 30, 2000
$ 7,650.00 Base Rent Per Month
$91,800.00 Base Rent Per Year
5th year October 1, 2000 to September 30, 2001
$ 8,075.00 Base Rent Per Month
$96,900.00 Base Rent Per Year
It is understood that International Summit Equities Corp. has
reduced the first year rent from $76,500.00 to $57,375.00
as a rent concession.
INTERNATIONAL SUMMIT EQUITIES CORP
By: /s/ Michael Gedell
Michael Gedell, President
COMPU-DAWN, INC.
By: /s/ Dong W. Lew
Dong W. Lew, President
page l of 2
21
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Option to Renew
Landlord agrees so long as Tenant does not default hereunder, Tenant shall
have the option to renew and extend the term of this lease for one (1) period of
five (5) years (the "Option Term") covering the period commencing October 1,
2001 up through and including September 30, 2006. Tenant may exercise said
option only by serving written notices sent by registered or certified mail
(return receipt requested) upon Landlord of its agreement to exercise said
option, at least six (6) months prior to the commencement date of said option
period. For purposes of this paragraph time shall be of the essence. The option
term shall be upon all the same terms and conditions; as are herein contained in
this lease agreement, except that the basic annual rent shall be increased as
follows:
1st year October 1, 2001 to September 30, 2002
$ 8,478.75 Base Rent Per Month
$ 101,745.00 Base Rent Per Year
2nd year October 1, 2002 to September 30, 2003
$ 8,902.66 Base Rent Per Month
$106,832.00 Base Rent Per Year
3rd year October 1, 2003 to September 30, 2004
$ 9,347.75 Base Rent Per Month
$ 112,173.00 Base Rent Per Year
4th year October 1, 2004 to September 30, 2005
$ 9, 815.08 Base Rent Per Month
$ 117,781.00 Base Rent Per Year
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<PAGE>
5th year October 1, 2005 to September 30, 2006
$ 10,305.83 Base Rent Per Month
$123,670.00 Base Rent Per Year
INTERNATIONAL SUMMIT EQUITIES CORP.
By:/s/ Michael Gedell
Michael Gedell, President
COMPU-DAWN, INC.
By:/s/ Dong W. Lew
Dong Lew, President
page 2 of 2
23
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Rider to Lease dated: OCTOBER 1st, 1996
Between INTERNATIONAL SUMMIT EQUITIES CORP., as Landlord, and COMPU-DAWN, INC.,
as Tenant
1. Wherever the printed form of the lease conflicts with any provision of this
rider, then the provisions of this rider shall supersede the printed form and
shall control.
2. Tenant shall pay as additional rent in addition to all other rents
specified in this lease the following:
(A) Thirty-nine percent (39%) of all tax increases over and above
the below listed base tax years:
Total Tax for Indicated
Base Year
General 1996 (1/1/96-12/31/96): $12,851.63
School 1996/97 (7/1/96-6/30/97): $30,690.84
Village 1996/97 (6/1/96-5/31/97): $ 7,996.96
(B) Thirty-nine percent (39%) of any special assessments that may
be levied or assessed against the premises of which the
demised premises form a part.
3. In addition to the above listed payments and as additional rent, the Tenant
will pay to the Landlord, promptly upon receipt of the Landlord's bill, all
water charges for water consumed in the demised premises. The amount due will be
based upon the rate charged to the Landlord for water by the municipal agency
having jurisdiction and upon the water meter reading on the water meter for the
demised premises, for water consumed in the billing period by the Tenant.
4. Tenant agrees to procure, provide, and keep in force at its own cost and
expense throughout the term of this lease, for the benefit of the Landlord,
liability insurance in standard form, written by good and solvent companies duly
licensed to do business in the State of New York. In an amount of at least One
Million ($1,000,000) Dollars in respect to any one accident and in the amount of
Five Hundred Thousand ($500,000) Dollars in respect to any one person. Said
policies and renewals thereof shall be delivered by the Tenant to the Landlord
on the Issuance of same and at least fifteen (15) days before the expiration of
any expiring policy, and if not so delivered, the Landlord may procure the same,
pay the premium thereon and add the amount to the fixed rentals payable
hereunder.
5. Tenant agrees to keep all its own cost and expense the plate glass in the
demised premises insured for the benefit of the Landlord during the entire term
hereof, and to furnish the policies therefore to the Landlord together with
receipts showing payment of the premium. Said policies and renewals thereof
shall be delivered by the tenant to the Landlord on the issuance of same and at
least Fifteen (15) days before the expiration of any expiring policy, and if not
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so delivered, the Landlord may procure the same, pay the premium thereon and add
the amount to the fixed rentals payable hereunder.
6. Tenant shall, at its sole expense, comply with any and all reasonable
recommendations to reduce risk of loss made by an insurance company insuring the
building of which the demises premises are a part.
7. This lease does not include any air conditioning. The Landlord will permit
the Tenant to use and maintain, at the Tenants own cost and expense, the air
conditioning equipment now installed within or connected to the demised
premises. Landlord represents that such air conditioning equipment is presently
in good working order.
8. This lease does not include any heating. The Landlord will permit the Tenant
to use and maintain, at the Tenant's own cost and expense, the heating equipment
now installed and/or connected to the demised premises. Landlord represents that
such heating equipment is presently in good working order.
9. Tenant shall not paint over, black out, or in any other manner obscure the
windows without first obtaining the written consent of the Landlord.
10. Tenant may not install and gates, bars, or other such protective devices
outside or inside the demised premises where such protective devices maybe
visible from outside the office, without the prior written consent of the
Landlord.
11. The use and occupance of the demised premises are limited as in accordance
with the occupancy clause of this lease and shall not conflict with that of any
other Tenant in the building.
12. Tenant shall, at its own cost and expense, make adequate provision for and
supply all gas, electricity, light, heat, power and all meter installations
connected therewith, in the demised premises.
13. Tenant shall not do anything in or about the demised premises which will in
any way tend to increase the insurance rates on said premises and/or building of
which they are apart. Tenant agrees to pay, as additional rent, any increase in
premiums for insurance against loss by fire and/or public liability that maybe
charged during the term of this lease on the amount of insurance carried by the
Landlord on said premises and/or building of which they are a part, resulting
from the business carried on in the leased premises by the Tenant, whether or
not the Landlord has consented to the same. If the Tenant installs any
electrical equipment that over-loads the lines in the herein leased premises,
the Tenant shall, at its own cost and expense make whatever changes are
necessary to comply with the requirements of all agencies having jurisdiction,
public or private.
14. This lease does not include any heating, ventilation, air conditioning, hot
water, or sanitation service. The Tenant shall maintain and replace, if
necessary, at its own cost and expense, all heating, electrical, and other
equipment and systems which service the demised premises on the day the Tenant
took occupancy.
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15. The Tenant shall keep the office window and the are visible from the street
in a neat and orderly condition, and will not permit anything that will
downgrade the property.
16. The Tenant must, at its own cost and expense, provide for sanitation
service.
17. The Tenant expressly covenants and agrees that Tenant will retain, at its
own cost and expense, a professional exterminating service who will service the
demised premises at least once every month.
18. The plumbing facilities shall not be used for any other purpose than for
which they are constructed, and no foreign substance of any kind shall be thrown
therein, and the expense of any breakage, stoppage, or damage resulting from a
violation of this provision shall be borne by the Tenant, who shall, or whose
employees, or agents shall not mark, paint, drill, or in any way deface any
walls, ceilings, floors, windows, wood, stone or iron work without the prior
written consent of the Landlord which consent will not be unreasonably withheld
or delayed.
19. At Landlord's option, Tenant shall pay a "Late Charge" of four (4%) percent
per month from the due date of any installment of rental (fixed minimum, and
additional rent) together with a late charge of $250.00 for the purpose of
defraying expenses incident to the handling of such delinquent account, if said
rental payments is made after its due date (time being of the essence). But in
no event shall the late charge exceed legal maximums for the same.
20. In the event any check made by Tenant in the payment of rent, additional
rent or otherwise, made payable to the Landlord is returned to the Landlord by
the bank for insufficient funds, uncollectible funds, or for any other reason
what-so-ever (except due to Landlord's actions), this shall constitute a default
and Tenant must replace such check with either cash or certified funds only. If
Landlord elects to redeposit such check, Tenant will not be required to replace
check with cash or certified funds, as above; provided the redeposited check
then "clears"; and such action by landlord shall not be deemed to be, or
constitute a waiver of this paragraph or of the default. Nothing herein
contained shall be deemed to limit any right or recovery which Landlord may have
under this lease, at law or in equity.
21. Tenant may, at its option, install machinery and equipment in the demised
premises for the usual and normal practices and progress of its business, with
the following exceptions:
(A) Where an install is in violation of the covering codes of the
several agencies, public or private, having jurisdiction;
(B) Where such an installation creates a hazard or a nuisance;
(C) Where the quiet enjoyment (of their premises) of the
neighboring tenants is disturbed; and
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<PAGE>
(D) Where such an installation impairs the integrity of the
demised premises, or of the structure of which the demised
premises is a part.
22. All machinery and equipment installed by the Tenant shall be filled with
shock mounts or vibration eliminators, where necessary, so that neighboring
tenants may not be disturbed when such machinery or equipment is in operation.
If a question arises as to the Tenants proper performance, as slated in this
paragraph, the burden of proof lies expressly with the Tenant to the
satisfaction of the Landlord.
23. The security deposit as set forth in the printed part of this lease shall
not bear interest.
24. Should any plumbing facilities be required for commercial use, such piping
as may be required shall be installed by the Tenant, at his own cost and
expense, and in a manner which conforms to the Codes of the several agencies
having jurisdiction. The maintenance of such an installation shall be borne by
the Tenant only. The entire installation shall be such as to not disturb the
quiet enjoyment of any other tenant in their premises. Should there by any
complaint of a leak, which appears as if its origin is in the demised premises,
the Tenant shall, without objection, immediately investigate. Should it be found
that such a leak had been caused as a result of some defect in the plumbing
system belonging to the demised premises, the Tenant shall immediately perform
all remedial measures necessary to repair the defect, at his own cost and
expense.
If the necessary repairs are not made by the Tenant with all due speed and
without unreasonable delay, the Landlord may effect the necessary repairs and
will charge the Tenant for all costs for such work. The amount may be added to
the fixed rentals payable hereunder.
25. The demised premises must be available for inspection, meter reading, etc.,
by authorized persons having jurisdiction, without any harassment.
26. All additions, improvements, and installations made by Tenant to, in, or
about the demised premises shall immediately become and be part of the demised
premises and the sole property of the Landlord, and shall under no conditions
be, or be permitted to be, removed, encumbered, or damaged, but shall at all
times be kept and maintained in good and proper functioning condition and
repair, and upon the termination hereof they shall be surrendered to the
Landlord in good condition and repair, reasonable wear and tear excepted.
27. Tenant shall make all repairs to premises at Tenants own cost and expense.
28. In the event that the Landlord expends any reasonable amounts for attorney's
fees for the enforcement of any provisions of this agreement, the Tenant shall
promptly reimburse the Landlord for the cost thereof, and the same shall be
considered as additional rent.
29. [INTENTIONALLY DELETED]
30. Alterations; Improvements and Modifications
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<PAGE>
(A) Tenant shall not perform any alteration, improvements, or
modifications to the demised premises, whether interior or
exterior, without the prior written consent of the Landlord,
which consent will not be unreasonably withheld or delayed.
(B) Should the Tenant obtain the Landlord's consent as provided in
subparagraph (A) hereinabove, any and all alterations,
improvements or modifications required or desired by Tenant in
the demised premises shall be done by Tenant, at its sole cost
and expense, but in accordance with all the terms and
conditions of the lease and subject to the following:
(1) Tenant will, prior to the performance of
such work, deliver to the Landlord plans for
such work, prepared by an Architect or store
designer, reasonably satisfactory to
Landlord for Landlord's prior written
approval (not to be unreasonably withheld or
delayed). Tenant shall, before commencement
of any work, deliver waivers of liens from
contractors and subcontractors and shall:
(a) Obtain the necessary consents, authorization
and licenses from all federal, state and/or
municipal authorities having jurisdiction
over such work; and
(b) Enter into a contract with the
contractors and/or other person or
persons who will perform Tenant's
work.
(i) That the work will be done in
acceptance with the approval plans
and specifications and the consents,
authorizations and licenses obtained;
and
(ii) That the contractor or
other persons performing
the work will look solely
to the Tenant for payment
and will hold Landlord and
the demised premises, and
the building containing the
demised premises, free from
all liens and claims of all
persons furnishing labor or
materials therefore.
(C) Tenant shall perform all such work in a good and workman like
manner and shall obtain and deliver to the Landlord a
certificate of completion for all alterations and improvements
performed to the demised premises, by the municipality having
jurisdiction thereof.
(D) All additions, improvements and installations made by Tenant
to, in, or about the demised premises, shall immediately
become and be part of the demised premises and the sole
property of the Landlord, and shall under no conditions be, or
be permitted to be, removed,
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<PAGE>
encumbered, or damaged, but shall at all times be kept and
maintained in good and proper functioning condition and
repair, and upon the termination hereof they shall be
surrendered to the Landlord in good condition and repair,
reasonable wear and tear excepted.
(E) Furnish to Landlord a certificate, or certificates, of
Worker's Compensation Insurance covering all persons who will
perform Tenant's work for Tenant or any contractor,
subcontractor or other person. Tenant agrees to indemnify and
save harmless the Landlord from and against any and all bills
for labor performed and equipment, fixtures and material
furnished to Tenant and from and against any and all liens
bills or claims therefor or against the demised premises or
the building containing the same and from and against all
losses, damages, costs, expenses, suits and claims whatsoever
in connection with Tenant's work. The demised premises shall
at all times be free of liens for labor and materials supplied
or claimed to have been supplied except with respect to
Tenants trade fixtures, equipment and inventory. No financing
statements or other security instruments shall be filed
against the demised premises or their contents.
31. Landlord shall have the sole right to commence tax reduction proceedings on
the premises. If recovery is made, and refund received from taxing authorities,
the Tenant will be paid its prorata share of same, less the actual expenses
expended for securing such refund. No tax reduction will reduce the Base Tax
Year for purposes of the Paragraph two (2) in the rider hereof.
32. Tenant waives all right to make repairs at the expense of Landlord as may be
provided by any law presently in effect, or which may be enacted in the future,
which authorizes a Tenant to make repairs at the expense of the Landlord.
33. No Broker: Tenant warrants and represents that there was no broker
instrumental in consummating this lease, and that no conversations or prior
negotiations were had with any broker concerning the renting of the premises.
Tenant agrees to hold Landlord harmless against any claims for brokerage
commission arising out of any conversations or negotiations had by Tenant with
any broker.
34. Landlord may, at its sole discretion from time to time, modify, alter,
redesign or change the size and location of the common area, as long as adequate
common area facilities are made available to Tenant.
35. Landlord may make temporary installations, and move or remove the same, and
may temporarily close the common area, or any part thereof, for repair, changes,
installations, construction or to prevent the acquisition of public rights or to
prevent or discourage non Tenant parking, provided same does not have a material
adverse affect on the ongoing operations of the Tenant's business.
36. Changes and Additions: Tenants consent shall not be required for Landlord
to make changes, revisions, additions, reductions or modifications to the
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premises. Landlord shall provide adequate common facilities in the event any
changes are made by landlord.
37. [INTENTIONALLY DELETED]
38. Additional Rent and Charges: [INTENTIONALLY DELETED]
39. Additional Payments: Any additional moneys to be paid by Tenant to Landlord
under this lease shall be deemed to be additional rent (whether or not
specifically designated additional rent), and shall be collectable with the next
monthly installment of basic rent unless payable sooner under any express
provision of this lease.
40. Mechanic's Liens:
(A) Tenant shall not permit any mechanics or other lien to exist,
be placed or filed against the premises, for any labor or
material furnished on behalf of, or to Tenant, or in
connection with work of any character performed, or materials
furnished Tenant for the premises, by or at the direction of
Tenant, or as a result of any act or failure to act by Tenant.
(B) Tenant shall indemnify and save harmless Landlord against all loss,
liability, costs (including reasonable attorney's fees), damages or
interest charges, as a result of any such mechanic's lien or any
other lien caused to be filled on account of Tenant's or its agent's
acts or omissions, and Tenant shall, within ten (10) days of the
filing of any such lien and notice given to Tenant, remove, pay or
cancel said lien or secure the payment of any such lien or liens by
bond or other acceptable security.
41. Indemnification by Tenant. Tenant shall indemnify and save Landlord harmless
from legal action, damages, loss, liability and expense in connection with loss
of life, bodily or personal injury or property damage arising from or out of the
use or occupancy by Tenant of the premise or the premises, occasioned wholly or
in part by any negligent act or omission of Tenant, Tenant's agents,
contractors, employees, or persons claiming through Tenant.
42. Waiver of Subrogation. Each party hereby release the other party (which term
as used in this section includes the employees, agents, officers and directors
of the other party) from all liability, whether for negligence or otherwise, in
connection with loss covered by any insurance policies which the releaser
carries with respect to the premises or any interest or property therein or
thereon (whether or not such insurance is required to be carried under this
lease), but only to the extent that such loss is collected under said insurance
policies. Such release is also conditioned upon the inclusion in the policy or
policies of a provision whereby any such release shall not adversely affect said
policies or prejudice any right of the releaser to recover thereunder. Each
party agrees that its insurance policies, aforesaid, will include such a
provision so long as the same shall be obtainable without extra cost, or if
extra cost shall be chargeable therefore, each party shall advise the other
thereof the
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<PAGE>
amount of the extra cost, and the other party, at its election, may pay the
same, but shall not be obligated to do so.
43. No failure by Landlord to insist upon the strict performance of any
covenant, agreement, term or condition of this lease or to exercise any right or
remedy consequent upon a breach thereof, and no acceptance of full or partial
rent or additional rent during the continuance of any such breach, shall
constitute a waiver of any such breach or of such covenant, agreement, term or
condition. No covenant, agreement, term or condition of this lease to be
performed or complied with by Tenant, and no breach thereof, shall be waived,
altered or modified except by a written instrument executed by Landlord. No
waiver of any breach shall affect or alter this lease, but each and every
covenant, agreement, term and condition of this lease shall continue in full
force and effect with respect to any other then existing or subsequent breach
thereof. The specified remedies to which the Landlord may resort under the terms
of this lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which the Landlord may be lawfully entitled in
case of any breach or threatened breach by the Tenant of any provisions of this
lease.
44. In the event of any breach or threatened breach by Tenant of any of the
covenants, agreements, terms of conditions contained in this lease, Landlord
shall be entitled to enjoin such breach, or threatened breach, and shall have
the right to invoke any right and remedy allowed at law or in equity, or by
statute or otherwise, as though re-entry, summary proceedings, and other
remedies that were not provided for in this lease.
45. [INTENTIONALLY DELETED]
46. [INTENTIONALLY DELETED]
47. Signs: No signs or lettering of any nature maybe put on or in any
window nor in the exterior of the Building or elsewhere within the Demised
Premises such as will be visible from the street.
47A. Directory: Landlord will furnish in the lobby of the Building a
directory which will contain the name of Tenant and suite number.
48. Assignment and Subletting: Tenant shall not assign, mortgage or encumber
this lease, in whole or in part, or sublet all or any part of the demised
premises without the prior written consent of Landlord, which consent will not
be unreasonably withheld or delayed. The consent of landlord to any assignment
or subletting shall not constitute a waiver of the necessity for such consent to
any subsequent assignment or subletting. The prohibition against any assigning
or subletting shall be construed to include a prohibition against any assignment
or subletting by operation of law. If this lease be assigned or if the demised
premises or any part thereof be occupied by anybody other than Tenant, Landlord
may collect to the assignee or occupant and apply the net amount collected to
the rent herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this provision or the acceptance of the
assignee, undertenant or occupant as Tenant, or as a release of Tenant from the
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<PAGE>
further performance by Tenant of the covenants and provisions of this lease on
its part to be observed or performed. Notwithstanding any assignment or
sublease, whether or not approved by Landlord, Tenant shall remain fully liable
and shall not be released from performing any of the terms of this lease. If
Tenant is a corporation and if any transfer, sale, pledge or other disposition
of its common stock shall occur, or power to vote the majority of its
outstanding capital stock be changed, such change shall constitute a default
hereunder and Landlord shall have the right, at its option, to terminate this
lease upon five(5) days' notice to Tenant, but Tenant shall continue to be
liable hereunder as in the case of a default. Notwithstanding the foregoing,
Tenant may, upon prior written notice to Landlord, assign this Lease or sublet
the whole of the demised premises, for the uses permitted herein, to any
affiliate, subsidiary or parent of Tenant, provided that, notwithstanding said
assignment, Tenant hereunder shall continue to remain liable for the full and
complete performance of all of the terms, provisions and covenants hereof.
49. Laws, Waste or nuisance: Tenant shall, at its own cost and expense: (a)
comply with the certificate of occupancy and all governmental laws, ordinances,
orders and regulations affecting the demised premises how or hereafter in force
including, without limitation, all environmental and health laws, rules and
regulations; (b) comply with and execute all rules, regulations and requirements
of the board of fire Underwriters, Landlord's insurance companies and other
organizations establishing rates; (c) not suffer, permit or commit any waste or
nuisance and (d) not store or dispose of any toxic or hazardous wastes in the
demised premises or the premises.
50. Intentionally deleted.
51. Indemnity:
(A) Tenant does hereby indemnify, and will defend and hold harmless the
Landlord, its agents, officers and employees, from and against any
and all liability, claims, demands, damages, expenses, fees, fines,
penalties, suits, proceedings, actions, and causes of action of any
and every kind or nature, and for all liability and all expenses in
connection with loss of life, bodily or personal injury or property
damage of every kind arising from or out of any occurrence in,
upon, at or from the demised premises or the occupancy or use by
Tenant of said premises or any part thereof, or occasioned wholly
or in part by any act or omission or Tenant, its agents,
contractors, employees, servants, invitees, licensees or
concessionaires.
(B) Tenant shall store its property in and shall occupy the
demised premises and all other portions of the premises at its
own risk, and releases Landlord, to the full extent permitted
by law, from all claims of every kind resulting in loss of
life, personal or bodily injury or properly damage.
(C) Landlord shall not be responsible or liable at any time for
any loss or damage to Tenant's merchandise, equipment,
fixtures or other personal property or for any loss or damage
to either the person or
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<PAGE>
property of Tenant that may be occasioned by or through the
acts of omissions of persons occupying adjacent, connecting or
adjoining premises.
(D) Landlord shall not be responsible or liable for any defects, latent
or otherwise, in any building in the premises or any of the
equipment, machinery, utilities, appliances or apparatus therein,
nor shall it be responsible or liable for any injury, loss or damage
to any person or to any property of Tenant or other persons caused
by or resulting from bursting, breakage, or by or from plumbing,
sprinkler or other leakage, steam or snow or ice, running, backing
up, seepage, or the overflow of water or sewerage in any part of the
premises, nor for any injury or damage caused by or resulting from
acts of God or the elements, nor for any injury or damage caused by
or resulting from any defect or negligence in the occupancy,
construction, operation, or of use of any portion of the premises or
the building, machinery, apparatus, or equipment therein by any
person or by or from the act of or any negligence of any occupant of
the premises.
(E) Tenant shall give prompt notice to Landlord in case of fire or
accident in the demised premises or in the building of which
the demised premises are a part or of any defect therein or in
any fixture or equipment.
(F) In case Landlord shall, without fault on its part, be made a
party to any litigation commenced by or against Tenant, then
Tenant shall protect and hold Landlord harmless and shall pay
all costs, expenses and reasonable attorneys' fees.
(G) Tenant shall also pay all costs, expenses and reasonable
attorneys' fees that may be incurred or paid by Landlord in
enforcing the terms of this Lease. The provisions of this
paragraph shall also apply to the period prior to the
commencement of the term in the event that permission is given
to Tenant to do Tenant's construction work and install its
fixtures prior to the commencement of the term hereof.
52. Default:
(A) If Tenant falls with the exception of the covenant for the payment
of rent or additional rent hereunder to perform any other of the
terms of this lease to be observed or performed by Tenant, or it
Tenant shall be come bankrupt or insolvent, or file any debtor
proceedings or take or have taken against Tenant in any court
(pursuant to any statute either of the United States or of any
state) a petition in bankruptcy or insolvency or for reorganization
or for the appointment of a receiver or trustee of all or a portion
of Tenant's property, or if Tenant makes an assignment for the
benefit of creditors, or petitions for or enters into an
arrangement, or suffers this lease to be taken under any writ of
execution or attachment or if this lease shall pass to or devolve
upon, by law or otherwise, one other than Tenant except as herein
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<PAGE>
provided, then, in any one or more of such events, upon
Landlord serving a written five(5) day notice of default upon
Tenant specifying the nature of said default and if, at the
expiration of said five (5) day period, Tenant shall have
failed to comply with or remedy such default then, Landlord
may give Tenant a three (3) day notice of cancellation of this
lease and at the expiration of such three (3) day period, this
lease and the term hereunder shall terminate and come to an
end, and Tenant shall quit and surrender, the demised premises
to Landlord as if the term hereunder ended by the expiration
of the time fixed herein, but Tenant shall remain liable as
hereafter provided.
(B) Tenant shall at all times remain liable to Landlord for all rents
and additional rents becoming due to the expiration of the term
regardless of whether Landlord shall have terminated this Lease for
Tenant's default. Tenant shall pay to landlord any deficiency
between the rent hereby reserved and the net amounts received by
landlord on account of rent for the demised premises for each month
of the period which would otherwise have constituted the balance of
the term of hits lease. The failure of landlord to relet shall not
release or otherwise affect Tenant's liability for damages,
provided, however that Landlord has a duty to mitigate damages by
making reasonable efforts to relet. The damages shall be paid in
monthly installments by Tenant on the rent day specified in this
lease, unless Landlord shall elect to proceed in any other manner
afforded or provided for hereunder. Upon any reletting all rentals
received by Landlord from such reletting shall be applied, first, to
the payment of any indebtedness other than rent due hereunder from
Tenant to Landlord; second, to the payment of any reasonable costs
and expenses actually incurred of such reletting all rentals
received by Landlord from such reletting including reasonable
brokerage fees and reasonable attorneys' fees and of costs of such
alterations and repairs; third, to the payment of rent due and
unpaid hereunder, and the residue, if any, shall be held by Landlord
and applied in payment of future rent as the same may become due and
payable hereunder. If such rentals received from any reletting
during any months be less than that which was to be paid during that
month by Tenant hereunder, Tenant shall pay an amount equal to any
such deficiency to landlord. Such deficiency shall be calculated
and paid monthly. Landlord may recover from Tenant all damages it
may incur by reason of Tenant's default, including the excess, if
any, of the amount of rent and charges equivalent to rent reserved
in this lease for the remainder of the stated term over the then
reasonable rental value of the demised premises for the remainder of
the state term, all of which amounts shall be immediately due and
payable from Tenant to Landlord. In determining the rent which
would be payable by Tenant subsequent to default, the annual rent
for each year of the unexpired term shall be equal to the average
annual minimum and additional rents payable by Tenant from the
commencement of the term to the time of default, or during the
preceding three full calendar years, whichever period is shorter.
34
<PAGE>
53. Intentionally deleted.
54. Waiver of Counterclaim and Jury Trail: In the event that Landlord shall
commence any summary proceedings or action for non-payment of minimum annual
rent, percentage rent or additional rent hereunder, Tenant shall not interpose
any Counterclaim of any nature or description in such proceeding or action. The
parties hereto waive a trial by jury on any and all issues arising in any action
or proceeding between them or their successors under or connected with this
lease or any of its provisions, any negotiations in connection therewith, or the
use of occupancy of the premises.
55. Tenant must provide to Landlord all insurance policies as hereby provided
for under this lease no later than ten (10) days after the commencement date of
this lease. If insurance certificate and policies are not provided by the Tenant
it shall be considered a substantial breach of this lease, and the lease shall
be terminated.
56. Compliance with law: Tenant shall, at its sole cost and expense, use the
premises in compliance with the certificate of occupancy and comply with all
federal, state, county and municipal statutes, laws, rules, orders, regulations
and ordinances affecting the premises and the use thereof which require the
making of any unforeseen or extraordinary changes (whether or not any such
statutes, laws, rules, orders, regulations and ordinances which may be hereafter
enacted involve a change of policy on the part of the governmental body enacting
the same), and with all other rules, orders and regulations which must be
complied with by Tenant in order to keep in full force and effect all insurance
required to be kept in force by Tenant Tenant shall comply with the requirements
of all policies of public liability, fire and other insurance at any time in
force and effect with respect to the premises. If Tenant fails to comply, it
shall be considered a substantial breach of this lease, and the lease shall be
terminated.
INTERNATIONAL SUMMIT EQUITIES CORP
By /s/ Michael Gedell
---------------------
Michael Gedell, President
COMPU-DAWN, INC.
By: /s Dong W. Lew
------------------
Dong W. Lew, President
K:\WPDOC\CORP\LEASE.WP5
35
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated November 14, 1996 relating to the financial statements of
Compu-DAWN, Inc. and to the reference to our Firm under the caption "Experts" in
the Prospectus.
/s/ Lazar, Levine & Company LLP
-------------------------------
LAZAR, LEVINE & COMPANY LLP
New York, New York
December 23, 1996
<PAGE>
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<FISCAL-YEAR-END> Dec-31-1996 Dec-31-1995
<PERIOD-START> Jan-01-1996 Jan-01-1995
<PERIOD-END> Sep-30-1996 Dec-31-1995
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