SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUER UNDER SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
SYNTHONICS TECHNOLOGIES, INC.
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(Name of Small Business Issuer in Its Charter)
Utah 87-032620
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State or other Jurisdiction of (IRS Employer
of Incorporation or Organization) Identification No.)
N/A
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(SEC File No.)
31324 Via Colinas, Suite 106, Westlake Village, CA 91362
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(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, Including Area Code: (818) 707-6000
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Securities to be registered pursuant to Section 12(b) of the Act:
NONE
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value Per Share
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(Title of Class)
DOCUMENTS INCORPORATED BY REFERENCE: See Exhibit Index herein.
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PART I.
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Item 1. Business
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(a) Business Development
Synthonics Technologies, Inc., (the "Company") was organized under the laws
of the State of Utah on March 27, 1974, under the name "Columbine Financial
Corporation." The Company was incorporated for the purpose of engaging in the
real estate development business in the State of Utah. No business activities
were engaged in and the company became inactive and remained so until 1978 when
it was reactivated and commenced business in the State of California for the
purpose of originating loans on swimming pools construction, primarily in
Southern California. The loan origination business operations ceased in 1991.
The Company was reclassified as a development stage company and began seeking
new business opportunities believed to hold a potential profit.
The Company was initially authorized to issue a total of 5,000,000 shares
of common stock having a par value of $0.01 per share. Copies of the Company's
initial Articles of Incorporation and its current Bylaws are attached hereto and
incorporated herein by reference. See the Exhibit Index, Part III.
The Board of Directors of the Company unanimously resolved on May 18, 1995
pursuant to Section 16-10a-1007 of the Utah Revised Business Corporation Act, to
restate the Articles of Incorporation to increase its authorized capital from
5,000,000 shares to 50,000,000 shares of common stock, with a par value to
remain at $0.01 per share. A copy of the Articles of Incorporation as Restated
whereby the Company effected this increase is attached hereto, and is
incorporated herein by this reference. See the Exhibit Index, Part III.
In May Synthonics Incorporated, a California Corporation, was acquired by
the Company, then known as Columbine Financial Corporation by way of a stock
exchange providing 4.5 shares of Columbine stock for every one share of
Synthonics Incorporated stock. The acquisition was completed in August 1995.
Columbine Financial Corporation was dormant, but still fully registered as a
public corporation at the time of the merger. Synthonics Incorporated pursued
this merger as a method of guaranteeing a means to enter into public trading of
its stock as soon as it was determined to be strategically desirable. At this
time, public trading has resumed. A Form 211 pursuant to Rule 15c-211 was
prepared and submitted by its market maker in order to resume trading.
On September 16, 1996, in conjunction with the acquisition of Synthonics
Incorporated, the Company changed its name to "Synthonics Technologies, Inc." A
copy of the Amendment of the Articles of Incorporation whereby the Company
effected this name change is attached hereto and is incorporated herein by this
reference. See Exhibit Index, Part III.
On November 4, 1996, the Company qualified itself as a foreign corporation
in the State of California. A copy of the Statement and Designation by Foreign
Corporation whereby the Company qualified to do business in the State of
California is attached hereto and is incorporated herein by this reference. See
Exhibit Index, Part III.
Synthonics Incorporated, a California Corporation (now a wholly owned
subsidiary of the Company) was founded in August 1993. Its primary focus since
its founding has been to develop technology that will have an extremely positive
impact on any industry where success can be enhanced by improving measurement
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accuracy, eliminating dangerous environments, extending human vision
capabilities, or replacing animation with realism. Virtually all efforts to date
have been focused on market research, technology concept definition, technology
design, and technology validation.
The Board of Directors of the Company unanimously resolved on August 22,
1997, to Amend Article IV, of the Articles of Incorporation to add a class of
Preferred Stock which would consist of 550,000 shares of Preferred Stock, with a
par value of $10.00 per share. The Preferred Stock would receive a dividend on a
cumulative basis at the rate of 12.0% of its par value per annum, payable on a
quarterly basis. The Preferred Stock is redeemable by the Company at a sum of
$10.50 per share and is convertible into common stock at a rate of $2.00 per
share of common stock being converted into. At a special meeting of the
shareholders held September 6, 1997, the shareholders of the Company voted to
adopt the amendment to Article IV, of the Articles of Incorporation to add the
class of Preferred Stock, with 9,687,803 shares voting in favor, no shares
voting against and none abstaining. A copy of the Certificate of Amendment to
the Articles of Incorporation whereby the Company effected the addition of the
class of preferred stock is attached hereto and is incorporated herein by this
reference. See Exhibit Index, Part III.
The Board of Directors of the Company unanimously resolved on March 3,
1998, to Amend and Restate its Articles of Incorporation to provide for a
staggered board of directors. At the Annual Meeting of the Shareholders held on
April 8, 1998, the shareholders of the Company voted to adopt the Amended and
Restated Articles of Incorporation, with 14,243,526 shares voting in favor, 525
shares voting against and 21,800 shares abstaining. A copy of the Amended and
Restated Articles of Incorporation are attached hereto and incorporated herein
by this reference. See Exhibit Index, Part III.
OPERATING STRATEGY
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The operating plan being employed by Synthonics was chosen to facilitate
rapid growth while optimizing the use of resources within the Company. This
strategic approach is also designed to result in maximum growth of shareholder
value. Simply stated, Synthonics' operating objective is to rapidly deploy its
technological advantage into many diverse markets in order to entrench itself as
the standard for accurate and affordable 3D graphical content.
In order to accomplish this mission, Synthonics has embarked on a strategy
that provides the marketplace with the option of acquiring either the content
generation tools through strategic partner affiliations or the content itself
directly from Synthonics. Although preferring to be strictly a software tool
provider, the Company discovered, while doing its market research, that a very
large market exists for completed, but customized, 3D graphical content. It also
determined that by providing content directly it could reach several markets
sooner, thereby validating the utility of the technology in a shorter
time-frame. The Company believes that it will attract strategic partners in a
quicker fashion by virtue of its ability to demonstrate market demand for its
patented technology.
Business Model
--------------
Synthonics receives its revenues from supplying software tools and 3D
graphical content for direct sale to end users. The Company's primary goal is to
provide 3D content generation tools through strategic alliances with brand name
software tool providers currently supplying the markets described later in this
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document. These include Animation, Multimedia Authoring, CAD, Virtual
Environment, Configuration, and 3D Clip-Art. By entering the market in this
fashion, Synthonics takes advantage of the distribution channel access already
established by its strategic partner and can remain focused on its core
strengths - technology and business development. In some cases, it may be
advantageous for Synthonics to form a joint venture with its strategic partners.
This approach was taken by the Company as it positioned itself to service the
Medical Market. Synthonics could not find a suitable product to align itself
with, so it chose to partner with medical professionals to form Acuscape.
Synthonics supplies this venture with technology (via a license agreement) while
its partners provide the management expertise and capital required to develop
the business.
The secondary focus of the business model is to create and provide actual
3D graphical content. Synthonics determined that its ability to secure strategic
partners quickly was directly related to an established credibility in the
marketplace. A decision to supply 3D content was selected as the most effective
approach to accomplish this objective. The museum market was selected as the
target of this direct approach due to the vast market size and the outspoken
need on behalf of the museum industry to extend the benefits of their
collections to audiences around the world. Further, the Company decided to
target the prestigious Smithsonian Institution as its initial customer in order
to leverage this relationship both inside and outside the museum industry. To
implement this revenue path, Synthonics formed a wholly owned subsidiary called
Christopher Raphael, Inc. Below is a graphical display of the business model.
Business Revenue Model
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Revenue Source based on
Tools Customers Revenues From
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Software Partners License
Joint Ventures License
Buyers of Software Service
Database Visitors Subscriptions
Revenue Source based on
Content Customers Revenues From
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Museums Multimedia and Databases
Services and Subscription
Education Publishers Multimedia
Science Centers Multimedia
Computer Based Training Databases, Services and Subscriptions
Distance Learning Center Databases, Services and Subscriptions
As part of the business model, Synthonics intends to "spin-off" its equity
interest in Christopher Raphael, Inc., Acuscape, and other similar subsidiaries
or joint ventures, it may form or be involved with at future dates when it is
strategically and economically advantageous. This enables Synthonics to focus on
its core strength once it has adequately entrenched itself in the various
markets it has targeted. Upon divesting itself of each entity, stock dividends
(if done by way of an IPO or stock exchange) or cash dividends (if done by way
of a cash transaction) will be issued to the Company's shareholders. No such
divestitures are included in the Company's financial projections as it is
impossible to forecast such an event.
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Marketing Plan
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Because Synthonics will focus in two major market segments, Software Tools
and 3D Content, the access to each market will be different.
As discussed below, the Software Tools market has defined participants that
have been identified and Synthonics has begun to approach segments within the
market based upon each segment's need and the value Synthonics' RVR(TM) brings
to that need. Initially, this marketing thrust will require a small, focused
effort with modest mass media-based-expenditures.
Due to the fact that RVR(TM) is a technology that substantially improves
productivity and lowers cost, Synthonics will begin its marketing efforts on
those software providers who have tools that are known to immediately benefit
from RVR(TM)'s technology (i.e. Animation tools). Synthonics' own content
generation organization uses many of these tools and has first-hand knowledge of
how RVR(TM) will assist both the target partner's product offering and the
ultimate user.
In addition to improved productivity, RVR(TM)'s technology will afford the
opportunity to the targeted tools providers to penetrate a new and large market
that they currently have great difficulty servicing --- Electronic Commerce. The
difficulty lies in the large computer file sizes generated by the available
methods used to create 3D digital models in the market today. These large file
sizes and the resulting slow throughput of the Internet result in high
frustration levels among potential electronic shoppers such that they will not
wait to make the proposed Electronic Commerce transaction. By virtue of
innovative RVR(TM) technology, these same digital models can have file sizes
smaller than one-tenth the size of those generated by conventional processes.
Thus, the long download and slow response times are eliminated when examining 3D
graphical content generated with Synthonics' tools. As a result, the market
opportunity afforded Synthonics' customers will provide them with significant
incremental revenue growth.
Once the frustration level associated with delays is eased, an additional
benefit is available to the ultimate Electronic Commerce user. Using the
Company's viewing tools, they will have full control of the 3D digital model of
the product on their computer monitor. They will be able to move and examine the
object from virtually any angle. They will be able to, for example, change the
color of the dress and place the dress on a 3D mannequin of their own body. The
user will literally be able to shop as though they were in the store without the
hassles of having to travel (likely to several stores); dealing with salesman
pressure tactics and having to pay the store mark-ups. The same process applies
to homes, landscaping, car purchases, grocery shopping, catalog shopping, and
many others. For the software tools providers, this is an opportunity of
enormous size. Synthonics will benefit from this emerging market.
Another of the major benefits to the Company's targeted tools customers is
ease of use. The major market realization that Windows NT is perceived as a
lower cost platform than UNIX is well documented, Thus, the end customers'
benefit is that the Windows Graphical Users Interface (GUI) is known and easier
to use. Synthonics will leverage not only its presence in NT but also the
genuine technical and financial benefit of the RVR(TM) tool set. In some cases,
RVR(TM) will add capability the customer has not possessed in its current
product offering (e.g.: Autodesk's AutoCAD). The ability of RVR(TM) to use
photogrammetry as a measurement and creation tool is a capability that is not
currently available in AutoCAD or any other CAD product. The inclusion of this
tool from Synthonics provides the CAD user with much improved productivity when
creating 3D digital models of objects or environments that already exist. In a
very real sense, RVR(TM) brings technical and productivity benefits to existing
software tools in the Windows NT market that have existed in UNIX but have been
too expensive, cumbersome and not practical for the Windows users.
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Synthonics will offer to license its tools to each of the major brands
currently participating in the animation, CAD, authoring, configuration and
virtual realty software tool markets. The market is such that once any one of
the major participants adopts RVR(TM), the balance will have increasing market
pressure to match the capability. The Synthonics patents are strong protection
to assist in the total market adoption.
The three dimensional content focus of the marketing effort will be
centered on the Museum and Electronic Commerce segments. The museum market was
selected due to the enormous need of that market to be able to increase
accessibility to their artifact collections by their customers. The vast
majority of most museums treasures are not accessible due to:
(1) Lack of display space;
(2) The fragile nature of the artifact;
(3) The inability to fully explain the use, value, history, etc., of the
artifact;
(4) Sheer volume of known artifacts (over 800 million worldwide);
(5) Required travel
The museum market was identified by Synthonics as an immediate opportunity
to validate the technology. With the limited financial resources of the museum
market, both the combination of RVR(TM)s low cost of development and the
opportunity to generate revenues from products containing the digitized
collections of the museum is a significant mutual benefit for both parties.
Again, the list of museums is well known and a highly targeted effort can
be accomplished with lower cost methods such as broadcast fax, email and through
industry shows associated to that market. There will be very little media
advertising required except through related industry magazines.
The Electronic Commerce market for 3D content will be pursued through end
user or software partners in the market. Due to the significant technological
benefit of three dimensional objects with relatively small file sizes and the
growing need for home shopping over the Internet, RVR(TM) will optimize network
throughput and minimize consumer frustration. This will be greatly aided by the
imminent increase of overall network speed. Essentially, Synthonics will be
optimizing the utility created by the resources established for the Museum
Industry as those resources will be applied to the same volume of need for
Electronic Commerce. Companies involved with home shopping, that do not desire
or possess internal resources, will opt to use Synthonics' team/network of
content providers to provide their electronic commerce content needs.
Sales Plan
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A small direct sales force will possess the appropriate skills to sell to
both the software tools market and the content target markets selected. An
integral part of the selling effort is to develop a multi-tier channel of
distribution. Targeted customers in the tools market will be sold directly by
the Synthonics sales force. Due to the size and geographical distribution of the
museum market, only the largest transactions for 3D content will be made by the
direct sales force. The sheer number of the museums dictates the establishment
of alliances with organizations that can service the smaller and more remote
locations.
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The financial models associated with the tools market have accounted for
the tiers of distribution for the tools market and the direct sale processes in
the content markets. For example, in the tools market, the Company expects to
allow a 50% margin for partner and allow a 50% margin for its partner's channel
of distribution.
(b) Business of Issuer
(1) Principal products or services and their markets
TARGET MARKETS
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Realistic 3D graphic content is a very desirable commodity that currently
costs far too much to be utilized effectively by those who desire it. Synthonics
believes that many industries would move rapidly to incorporate 3D graphics if
these could be procured at significantly lower cost than is available from
today's traditional processes. This belief is founded on research conducted with
several experts from different industries. A sampling of the vertical markets
that would benefit most from the use of Rapid Virtual Reality(TM) (RVR(TM) ) is
summarized below:
Computer Aided Design (CAD)
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Includes all engineering functions where a product or an environment can be
modified by virtue of starting with an accurate 3D digital model rather
than a blank sheet of paper. Most all design engineers perform their tasks
in this regard by using a CAD software package. Many new products are
renditions of existing products and their designs can be completed much
quicker by using Synthonics' technology. Reverse engineering and
competitive analysis are both ideal applications. Another significant
advantage afforded CAD users by RVR(TM) is the ability to extract accurate
measurements from difficult to measure objects through the use of
photogrammetry.
Medical/Dental
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Includes all medical procedures requiring three-dimensional analysis to
achieve optimum results. This would include orthodontics, cosmetic surgery,
forensics, growth forecasting and veterinary.
Education/Edutainment
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Includes all educational applications where interaction between a computer
and the focused subject of the learning would result in a more rapid and
thorough rate of knowledge transfer to occur. For example, interactive case
studies requiring diagnosis and reaction plan formulation could easily be
constructed for medical and criminology courses with the use of accurate 3D
graphical content. Virtual laboratories could be brought into the home,
thereby overcoming scheduling and content availability problems that often
occur with physical laboratories. When targeting the younger generations,
many forms of education are camouflaged as games, hence the derivation of
the term Edutainment. Another very attractive segment of Education is that
of the rapid expansion and acceptance of the Distance Learning concept as a
primary method for obtaining formal education. Synthonics' tools are
ideally suited to serve both Edutainment's and Distance Learning's need for
3D graphical content.
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Video Games
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Includes video game customization applications where users can personalize
their games by installing familiar faces on a game's avatars and by
inserting familiar environments into a game. Also enables more realistic
graphics to be included in the game by the game developers. For those
players desiring a virtual reality experience, the ability to play the game
under full depth perception viewing conditions could be made available by
utilizing RVR(TM) stereoscopic viewing capability.
Electronic Commerce
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Includes on-line commerce where virtual handling of the product and a 3D
walk-around viewing on the Internet would dramatically enhance the
presentation of all products, thereby replicating the in-store shopping
experience without either the hassle of traveling to the store or having to
pay the distributor's mark-up. Photo-realistic 3D digital models created
using the RVR(TM) technology consists of much smaller file sizes than those
images created by CAD engineering tools, thus making the RVR(TM) technology
ideal for on-line 3D digital model manipulation, examination, and
transmission.
Movie Industry
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The costs of special effects could be significantly reduced in the face of
an escalating demand for more and more elaborate special effects. RVR(TM)
is able to lower the overall costs of special effects by lowering the cost
to produce 3D digital models, by substituting digital actors for stunt
doubles, by bringing environments to the studio by way of digital
replication, and by simplifying the task of marrying together live and
digital film footage. RVR(TM) is also capable of accurately resurrecting
actors from the past in the form of 3D digital models allowing them to,
once again, perform on the big screen. Finally, it is also possible to
convert existing two dimensional (2D) films into true virtual reality
experiences.
Museums
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Collections of valuable artifacts can be easily and accurately digitized in
3D with RVR(TM) technology. Museums that want to extend their collections
beyond physical viewing constraints, or the private collector who wants an
accurate 3D digital record of his valuables are both well served by this
technology. Most importantly, the ability to interact with accurate
digitized replicas of the artifacts greatly expands both the ability and
desire to increase knowledge which, of course, is the major objective of
most museums. Now anyone can view, and interact with, the wonders of the
Louvre or the Smithsonian Institution from the comfort of their own home.
Not just view these treasures, as one would a movie film, but, instead, be
able to walk around each item and dwell on any aspect they choose - just as
if they were in the museum. The original utility of each and every artifact
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can be demonstrated, without fear of damage, by interacting with an
animated 3D digital replica of the artifact. Also, the huge problem of no
access to stored artifacts (as high as 95% of the collections of many
museums) is eliminated as all artifacts can be accessed in a 3D digital
format. These needs have all been validated by a number of museums that
have witnessed the Company's presentations (both on-site at museums and at
the American Association of Museums annual show).
Accident and Crime Scene Investigation
--------------------------------------
Most accident and crime scene work involves the capture of all conditions
as they existed at the time of the incident. This information is used to
solve the crime, settle claims, and for courtroom presentations. Accuracy
and speed are essential when gathering such data as the scene will
deteriorate very quickly. Video recording (speed) can be performed with a
calibration target inserted in the view. When a rendition of the scene is
required, RVR(TM) can be utilized to create an accurate 3D digital
environment or simply to extract precise measurements important to the
resolution of the case.
Synthonics believes its patented software offers the only solution to
providing accurate 3D digital images at a non-prohibitive cost. In fact, the
cost drops so dramatically that virtually all the industries within the vertical
markets described above will be demanding products utilizing Synthonics' RVR(TM)
technology in order to better serve their customers as well as increase their
own profits.
The targeted vertical markets, described above, are currently being
serviced by many established software tool providers. These providers, whose
tools fall into the following categories, are able to provide horizontal access
to the targeted vertical markets.
Animation Software - The software that "brings to life" the 3D
graphical content (i.e. an animal that displays human
characteristics).
Multimedia Authoring Software - The software that creates a story-line
around 3D graphical content (i.e. an interactive CD-ROM presentation).
CAD Software - The software that enables complex designs to take shape
in a 3D digital format (i.e. the creation of an architectural
structure).
Virtual Reality Environments - The software that creates simulated 3D
environments without the use of true 3D digital models (i.e. a
furniture showroom with chairs that spin around).
Configuration Software - The software that enables an on-line shopper
to configure the desired product from a list of optional features
(i.e. selecting and viewing a home theater system from many available
combinations).
Clip-Art Libraries - The suppliers of non-custom, off-the-shelf 3D
graphical content (i.e. an automobile for a website where the make and
model is unimportant).
Each of these families contain several prominent suppliers of the software
tools, and Synthonics' RVR(TM) portfolio of tools is very complimentary to most.
Therefore, Synthonics will seek to partner with these established software tool
providers to provide its tools to these same vertical markets. This strategy is
detailed in the Operating Plan section of this Business Plan.
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Each of these vertical and horizontal applications represents a significant
business opportunity on its own. Taken as a whole, they define a huge
opportunity the likes of which is only available to very few companies.
Synthonics believes the markets described above are by no means a complete
listing of all possible applications. While the Company believes it has
sufficient market-entry barriers against competition by virtue of both its
current lead over all competitors and the likelihood of many aspects of the
technology being patented, the sheer size of the market makes the advent of
additional competition a minor concern. In fact, the size of the market will
certainly attract competitors in the not-too-distant future. Competition will
also serve to accelerate technological advances within Synthonics.
THE PRODUCTS
------------
Thus far, Synthonics has developed a portfolio of software tools that can
be used separately or collectively to dramatically reduce the cost of generating
photo-realistic 3D graphical content. Overall, Synthonics refers to this
portfolio as Rapid Virtual Reality(TM). A brief description of each tool is
included below:
3D Model Generator - A tool that enables the construction of a
wireframe and the photo-rendering of same starting with as few as two
photographs of an object or environment. The output files can be
exported to different formats including DXF, 3DS, and VRML II.
Single Object Viewer - A tool that enables real time examination of a
3D digital model constructed by the 3D Model Generation tool (above).
The object can be viewed from any perspective, sized to fit viewing
need, measured, and converted to an anaglyph for stereoscopic viewing.
Multi-Object Viewer - A tool that enables several objects to be
present in the viewer at the same time. Thus, entire environments can
be altered or examined. Scenes can be rearranged, objects can be added
or subtracted from a scene, or objects can be altered within a scene.
Camera Parameter Tracking - A tool that precisely determines the
position, in free space, of the image capture device (camera or
camcorder) in six degrees of freedom (x-axis, y-axis, z-axis, tilt,
rotation, & azimuth) with only the focal length and a three point
calibration target as input. Knowing this information is essential to
the accurate projection of the third dimension from a 2D flat image
such as a photograph.
Morphing Editor - A tool that enables very rapid wireframe generation
by morphing a "standard" wireframe of similar shape by introducing
several landmark data points to the editor. Thus difficult shapes can
be altered instantaneously from the standard to create custom 3D
digital models containing all the "one-of-a-kind" traits of the object
of concern.
Optical Tape Measure - A tool that enables extremely accurate
measurements of complex shapes in very little time by using
photogrammetry. Overcomes the problems of access to an object,
mobility of an object, complexity of shape, and firmness of the
surface of the object which are inherent to all sophisticated
measurement devices, including laser scanners, optical comparators,
mechanical digitizers, and survey range finding equipment.
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Anaglyph Generation - A tool that enables a pair of stereo photographs
to be quickly converted to an anaglyph which allows full depth
perception viewing with the assist of red and blue glasses worn by the
viewer. The images can be output to devices as simple as red/blue
glasses or as sophisticated as total immersion headsets.
3D Stereo Movie Maker - A tool that enables stereo video capture to be
quickly converted to a series of anaglyphs that play as a full depth
movie with the assist of red and blue glasses worn by the viewer. The
images can be output to devices as simple as red/blue glasses or as
sophisticated as total immersion headsets.
File Converter - A tool that provides file format conversion between
Synthonics' tools and popular software tool formats.
M-PEG Converter - A tool that enables an efficient means of reducing
movie film file sizes.
Synthonics has determined that these software tools meet the needs of
several markets in their quest to secure an affordable solution for 3D graphical
content generation. Specifically, Education, Edutainment, Museums, Electronic
Commerce, Medical, Video Games, and Movies are all industries that are seeking
the ability to enhance their own products or services through the use of 3D
graphical content. The Company has also determined that several families of
available software tools currently reach most of these vertical markets. These
tool families include:
Animation Tools that bring life to inanimate objects.
Authoring Tools that wrap a story-line around content for presentation
purposes.
CAD Tools that are used by engineers and animators to create 3D
digital objects and scenes.
Virtual Environment Tools (video games) that are used to create
synthetic environments for display on computers.
Configuration Tools that are used by on-line shoppers to configure
product selections that offer several optional features.
Clip Art Libraries that are accessed as a resource for 3D graphical
content when generic content will suffice.
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The table below displays the current use levels of each software tool
across each targeted market:
<TABLE>
<CAPTION>
Software Tool Usage by Vertical Market
--------------------------------------
Education/ Electronic Video
Edutainment Museum Commerce Medical Game Movies
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Animation Tools High High Low Low High High
Authoring Tools High High Medium None High None
CAD Tools None None None Low None High
Virtual Environment
Tools High High High None Medium None
Configuration Tools Medium None High None None None
Clip Art Libraries High None Low None Medium Low
</TABLE>
This data suggests that several opportunities exist for Synthonics to
partner with current tool providers that currently supply complimentary software
tools to the very markets that Synthonics has determined have a real need for
its own software tools. Even the applications identified as "none" are, in fact,
opportunities because the lack of use is usually a result of the high cost of
the processes currently available. An example of a vertical market that falls
into this classification is the Medical Industry. By offering an affordable, yet
accurate solution (Synthonics' RVR(TM) ), this market will open up to our
strategic partners. In the same vein, if CAD tool providers possessed an
inexpensive option (Synthonics' RVR(TM)), they would be able to penetrate
several untapped markets.
THE TECHNOLOGY
--------------
Definition of Technology
------------------------
Synthonics has developed patented software that enables its user to create
photo-realistic, three-dimensional (3D) digital models from as few as two
photographs of an object or environment. Accurate 3D digital replicas can be
constructed of anything that can be seen, or anything that is now extinct but
had previously been well documented on film. Synthonics calls this technology
Rapid Virtual Reality(TM)(RVR(TM)).
To better understand the significance of what Synthonics has created with
its revolutionary RVR(TM) technology, one needs to understand what is required
to create a digital model that is accurately portrayed in all three dimensions.
Most are familiar with the construction of a house or the human body. They are
comprised of a frame or skeleton to support the structure and an outer shell or
skin which is overlaid to define the appearance. 3D digital models require the
same structure to be accurate and viewable in all three dimensions. The skeleton
is called a wireframe and the skin is referred to as the surface texture.
Like building a house, a wireframe is first constructed and then a skin is
overlaid to complete the model. When 3D digital models are built with most
conventional processes, the builder must decide on the exact dimension and
orientation of each "stick" used to complete the wireframe. The builder must
also place each "stick" close enough to each other to adequately hold the shape
of the yet-to-be-applied surface texture. Surface textures are then selected or
fabricated to best replicate the actual surface of the physical object that is
being digitally duplicated. The builder of 3D digital models using conventional
processes must be an engineer, an artist, and a highly trained computer
operator.
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<PAGE>
RVR(TM) is based on complex algorithms that trace their origins back to the
tracking of Russian submarines via satellites. That technology has been
dramatically altered in order to generate the commercial application known as
Rapid Virtual Reality(TM). Despite the complexity of what is "under the hood",
the RVR(TM) process is quite simple to operate and can be performed on a
standard PC. The basic steps of the process include:
(1) Capture at least two 2D images of subject;
(2) Digitize the 2D images;
(3) Assist the computer to construct a wireframe; and
(4) Photo-texturing of the wireframe by the computer.
The key to Synthonics' RVR(TM) is its ability to pinpoint the exact
location of the camera when the 2D image was captured. It does so in six degrees
of freedom: x axis, y axis, z axis, tilt, rotation, and azimuth. This
essential-for-accuracy data is determined with only two known facts being
provided to the software by the user, these include:
(1) Focal length of the camera, and
(2) A calibration target in the viewing window (defined as the known
distance between three points). This target can be something as simple as
placing a business card in the photograph or the dimensions can come from
some known measurement on the object being captured).
With this data, the precise physical location of the camera by the
photographer is not required when capturing the 2D images at the start of the
process. The camera can be stationary or in motion with a different location in
free space for every frame. The three point calibration requirement dramatically
simplifies the 3D model building process, as virtually all mathematical
solutions require a minimum of six points which is an extremely difficult and
very costly method when used to determine the location of the camera in free
space. In fact, the three point solution is so unique that its application has
been the basis for one of the patents thus far granted by the U.S. Patent
Office.
Benefits of the Technology
--------------------------
Rapid Virtual Reality(TM) by Synthonics is so revolutionary it virtually
eliminates most of the skill, time and equipment investment requirements of
conventional processes that provide the same output. The 3D digital models
created by RVR(TM) are accurate, realistic in appearance, comprised of small
file sizes, and constructed on low-end PCs.
Another advantage of the RVR(TM) process is that it is extremely flexible.
In other words the output quality can be "adjusted " to fit the exact needs of
the content application. In some cases, a very simple wireframe and the textures
acquired from a few "tourist type" photographs may be all that is required. An
example of this grade of 3D digital model might be those used for the three
dimensional layout of a factory. The RVR(TM) process also supports the
generation of higher grade requirements such as 3D digital models used for
research. In such cases, a denser wireframe is constructed and the photographs
providing the surface texturing will be of a higher resolution.
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<PAGE>
Until the innovations brought about by Synthonics, achieving the same
output as available from RVR(TM) has been extremely expensive and time
consuming. Traditional approaches also require very large initial investments in
human resources, assets, and training. Consequently, many companies, and even
entire industries, that could benefit from three dimensional graphical content
have been blocked from using it due to the prohibitive costs involved. Prior to
the development of the Synthonics RVR(TM) process of creating 3D digital models,
only the movie industry could recover the costs of today's process to generate
accurate 3D digital models.
Future of the Technology
------------------------
Synthonics' current patented technology requires a "human assist" in order
for the computer to successfully correlate data points between images. This
correlation of points is defined as the identification of the same data point in
each of two or more photos. Synthonics is currently developing tracking software
that will enable the "human assist" requirement to be eliminated altogether.
Once completed and integrated into a system that contains an image capture
device and RVR(TM) software, a 3D copy machine is possible. Synthonics expects
to utilize digital signal processors (DSPs) to accelerate the entire system such
that 3D digital models can be generated in a targeted time of 15 to 30 seconds
with the push of a single button. (Note: Synthonics does not intend to get into
the hardware business with this development, but rather will seek to partner
with someone who is an established hardware supplier).
If the above automation is described as the second generation of RVR(TM),
the third generation is defined as real time modeling of video streams. In other
words, data will be simultaneously captured and converted to 3D graphical
content. For example, with such an advance, real-time, full-depth-perception
internal viewing will be available to surgeons while performing invasive
surgeries. The evolution of this generation of technology will take three to
four years of dedicated resources.
(2) Distribution methods of the products or services
Synthonics' business strategy is to exploit its technical expertise while
minimizing its need for capital. The primary focus of its strategy will be the
development of strategic alliances with software providers that can immediately
benefit from the RVR(TM) technology. Examples of such providers include those in
the animation and authoring markets, which already require more effective 3D
capabilities. Synthonics will license its technology to its alliance partners,
who will embed the technology into their own branded product offerings. Thus,
the Company remains a technology provider while benefiting from its association
with a brand name software company and from access to that partner's established
distribution channels and custom service operations.
In certain industries, companies that desire the RVR(TM) technology may be
unwilling or unable to make direct use of the technology themselves. To
accommodate this demand, Synthonics has developed an internal capability to
provide 3D content.
Strategic Alliances
-------------------
Synthonics will seek high profile software tool providers as strategic
business partners. Alliances with these partners are essential to the overall
success of Synthonics. These alliances themselves are Synthonics' immediate
customers and, while the technology benefits the ultimate user functionally, its
business practices must take into account multiple levels of support. In other
words, Synthonics must establish an infrastructure that meets the needs of its
alliance partners but also incorporates the requirements of the end user as part
of its future technology development.
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<PAGE>
Clearly, the Company's major customer is the software tools industry and,
by definition, it must have product design, documentation, technical support,
marketing and sales support, and business policies which support this model.
This support structure does not conflict with that which is required for the
segment of the business model that provides 3D content. In fact, direct access
to end users will provide an accurate assessment of market needs that will
facilitate the Company's ability to service its strategic alliance partners as
customers.
Several potential strategic partners (customers) have been identified by
Synthonics and discussions are underway with many of those shown below:
Targeted Strategic Alliance Partners
------------------------------------
Animation Authoring CAD Virtual Environment
--------- --------- --- -------------------
Kinetix (Autodesk) Macromedia Autodesk Apple
Alias Adobe Systems SDRC Infinite Pictures, Inc.
Newtek Microsoft Parametric Tech. Live Picture
Adobe Systems MetaCreations Black Diamond
Microsoft IBM
MetaCreations Cadence
Corel Computervision
In most cases, the Company expects to form a strategic alliance with its
partners. In doing so, Synthonics will provide the appropriate interface for its
partner to embed Synthonics' tools as part of its own product. The merged
product offerings will be distributed through established channels already
maintained by Synthonics' strategic partner. Synthonics benefits from increased
revenues by virtue of brand name association and access to established
distribution channels. Synthonics' partner benefits from increased revenues by
providing a solution to markets it hasn't yet penetrated and by providing
value-added upgrades to its existing user base. Neither Configuration Tools nor
3D Clip Art Libraries are addressed in the table above. Both categories are
relatively new and comprised of new companies for the most part. Synthonics'
partners in this area will likely be lesser known than the companies noted
above, consequently its selection criteria will involve a forward assessment of
a company's potential based on its resources and marketing strategy.
In some situations, the strategic alliance may take the form of a joint
venture. Such is the case with Synthonics' entree into the Medical Industry when
it took an equity position (30%) in Acuscape. Synthonics' partners include an
orthodontist, a radiologist, and an image capture expert. Initially, this
company will provide software tools to existing image processing labs that
support orthodontists, oral surgeons, and dentists throughout the United States.
To utilize this service, the doctor simply transmits digitized photographs (of
the teeth and face) and x-rays of the head from his/her patient to the image
processing lab. Using Synthonics' RVR(TM) technology, the lab will generate a
precise 3D digital replica from these submissions. Upon accessing the patient
specific model on-line, the doctor can perform appropriate diagnosis and
determine the optimum treatment plan in the comfort of his office with the
software tools provided by Acuscape. The accuracy and utility of the software
applies to the full range of complexity from the installation of braces, to
implants, to a full facial reconstruct. This service center concept should
shorten the analysis phase of treatment, provide a more accurate custom
treatment, and produce "near perfect" smiles on its patients. Future products
will benefit medical education, forensics, growth forecasting and cosmetic
surgery. Synthonics is receiving revenues currently for its product development
work. Licensing royalties to Synthonics will commence during the second half of
1998.
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<PAGE>
Production Plan
---------------
As mentioned earlier, a large source of Synthonics future revenues will
come from the generation of custom 3D graphical content for those industries or
major customers that desire the benefits of the revolutionary technology brought
forth by Synthonics but are unwilling or unable to install internal capabilities
to do so. To accommodate this source of revenues, Synthonics has its wholly
owned subsidiary called Christopher Raphael, Inc. The objective of this business
unit is to solicit content contracts with prominent customers that will display
the content to large audiences that, in turn will promote demand for Synthonics'
licensed software tools. This subsidiary is capable of outputting 3D graphical
content in many formats. CD-ROMs, DVDs, kiosks, interactive websites, and asset
databases are all within Christopher Raphael's capabilities.
Initially, Christopher Raphael, Inc. is focused on providing content
solutions to the huge museum industry. By using RVR(TM) technology to create 3D
digital replicas of artifacts, several current museum problems are eliminated.
Access to the artifacts is no longer limited by the ability to travel or by the
availability of display space at the museum. Access via the Internet or with
CD-ROMs is both easy and more convenient for many interested in viewing the
treasures contained in museums throughout the world. Most museums are faced with
having to store large portions of their collections due to display space
limitations. For example, despite having sixteen large museums, the Smithsonian
currently has over 137 million artifacts (more than 90% of its collection) in
storage. For all practical purposes, stored artifacts are only accessible
through a digital medium.
Another severe problem within museums is finding a way to let viewers
interact with artifacts so that an optimum learning experience can take place.
Interaction with a museum artifact is often limited so as to not risk damage to
the artifact. If the artifact is a device of some sort, it is also highly
desirable to demonstrate the original utility of the artifact during the
interactive experience. RVR(TM) enables interaction with an animated 3D digital
model. Thus, 3D digital replicas of artifacts can be handled, magnified,
measured, put into operation, disassembled, and explored - all in a digital
format. Until now, museums have been unable to utilize the power of 3D graphics
due to the high cost of current processes necessary to portray the accuracy
level demanded by museums. RVR(TM) technology now insures the accuracy required
is available at a very reasonable cost.
To provide the above capabilities, Christopher Raphael, Inc. has been
staffed with a regionally located sales team, project management, 3D model
builders and graphic designers. Outside resources will be utilized to supplement
this subsidiary's staff as much as possible. The subsidiary is housed in a
separate facility located two miles from Synthonics' main office. Separation of
production from development is very desirable in order to maintain the
appropriate environment for each. However, the close proximity makes it
convenient to provide technical assistance when required.
(3) Status of any publicly announced new product or services
Rapid Virtual Reality(TM) -- On October 15, 1996, the Company announced the
introduction of Rapid Virtual Reality(TM) technology as a productivity enhancing
approach to the generation of photo-realistic 3D content. To date the Company
has developed ten software tools that it makes available for licensing and is
also utilizing in its own production environment (Christopher Raphael, Inc.)
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<PAGE>
SynthaScan - On December 15, 1996, the Company announced the formation of
SynthaScan, a wholly owned subsidiary of Synthonics. This company has done some
preliminary development work on a 3D copier. At present, Synthonics is seeking
an alliance partner to supplement its own expertise in the development of the 3D
copier. Until a partner is secured, SynthaScan is not investing time or money on
any future development.
Acuscape -- On August 15, 1997, the Company announced its participation in
the formation of 3D DiagnosTx, LLC (now Acuscape, Inc.). Synthonics owns 30% of
the equity of Acuscape. This company has raised initial capital, started its
staffing, opened their headquarters in Glendale, CA, and is completing
development of their first product offering. Acuscape's first product should be
available in late summer.
Smithsonian Institution Contract. -- On October 20, 1997, the Company
announced the License Agreement entered into between the Company and the
Smithsonian Institution. At present, the contracted CD-ROM is under development
and scheduled for a late summer release.
Christopher Raphael. -- On November 3, 1997, the Company announced the
completion of its acquisition of Christopher Raphael, Inc. With the acquisition,
Synthonics has an internal production capability to produce 3D graphical content
in many formats.
(4) Competitive business conditions and the Company's competitive position
in the industry and methods of competition
As noted earlier, digital 3D model construction is possible by means other
than Synthonics' Rapid Virtual Reality(TM). These competitive processes vary
dramatically as to the cost and accuracy of their output. The most common
processes are noted below:
(1) Animation studio process
(2) CAD software and rendering software
(3) 3D Scanners
(4) Other Photogrammetry processes
Animation Studio Process - This is the most sophisticated and costly of the
competitive processes. It is the output of this process that people are most
familiar with. If you've seen a movie with any special effect, it is likely the
computer graphic model used to create the special effect came from this process.
Because it is both the most familiar and extreme form of generating 3D digital
models, it is presented in much more detail below as compared to the RVR(TM)
process.
CAD Software and Rendering Software - CAD Software, such as Pro Engineer,
can be utilized to construct a wireframe model. Rendering software, such as 3D
Studio Max, can then be utilized to texture over the wireframe. This process is
expensive as it requires skilled operators (artists and/or engineers) and
sophisticated hardware (UNIX workstation or very high-end PCs). Normally, the
resultant model is not realistic in appearance as it is very difficult to
construct realism from nothing. On the other hand, the photo-realistic model
generated by RVR(TM) has the exact same appearance as viewed in the photograph.
This competitive process is best utilized for creating digital models of objects
or environments that don't already exist. If the desired digital model is of
something that already exists, the RVR(TM) process by Synthonics is a much
better choice due to lower cost, less time required and the realistic appearance
of the digital model.
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<PAGE>
3D Scanners - A number of 3D Scanners exist and their prices range from
$2,000 to $400,000. At the low end, the 3D scanners are touch and probe devices
that record each data point (relative to a fixed 3D coordinate axis), one at a
time, as the probe makes contact with the object. This is extremely tedious
requiring the object to be secure from movement. There are also considerable
problems associated with the probing of "soft skinned" objects. Applications
requiring tight dimensional tolerances do not fare well with these low-end 3D
scanners. At the high end, 3D scanners are sophisticated laser scanners
recording millions of data points. Typical data files from high-end 3D laser
scanners must be considerably reworked in order to retain only essential data
before they are usable in the construction of a 3D digital model. The huge
deficiency with today's 3D scanners is that they are little more than
measurement devices. One still has to construct a wireframe and texture the
wireframe in order to complete the 3D digital model. RVR(TM) allows for
completion of the entire 3D model generation process in much less time, for a
lot less money, and with a photo-realistic appearance.
Other Photogrammetry Processes - The Company is aware of two other
companies offering products that create 3D digital models from photographs. EOS
Systems, located in Canada, has a product called Photomodeler, and 3D
Construction Co., located in California, has a product called 3D Builder. Both
products require more photos and data points (resulting in larger file sizes)
than does the RVR(TM) process. More importantly, both competitive approaches
cannot precisely determine the location of the camera when it captured the
photograph, whereas RVR(TM) makes use of a calibration target and precisely
locates the camera. This patented feature results in a much more accurate
digital replica and also facilitates the marrying of live and digital images.
Additionally, neither competitive product offers a stereoscopic viewing
capability.
As suggested above, in many cases, Synthonics' technology can generate the
same output as an animation studio does today for as little as 3% the cost of
the animation studio process. This reduction in cost comes in two forms --
operating and investment savings. The table below describes the magnitude of
difference between the required elements of the Synthonics and animation studio
processes.
Synthonics Process vs. Animation Studio Process
------------------ ------------------------
Digitized 2D images Clay models
Synthonics patented software Molds from clay models
Cast urethane maquettes
Laser-generated 3D template
High-powered, branded software
In both cases, the output is accurate 3D digital models. The leading-edge
technology developed by Synthonics requires only one man-hour for every sixty
man-hours required by the animation studio to produce the same output. Further,
the skill levels required for the animation studio process are much higher,
resulting in a higher cost per hour for each hour invested in the animation
studio process as compared to the Synthonics process. The absolute investment in
man-hours will depend on the complexity of the project.
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<PAGE>
The difference in costs required from an investment standpoint are equally
impressive and are noted below:
Synthonics Process vs. Animation Studio Process
------------------- -------------------------
35MM or video camera Mold-making equipment
inexpensive photographic digitizer Casting equipment
Standard PC Laser scanner
UNIX workstation
There is another class of competitors that create a simulated virtual
reality (VR) environment without the use of 3D digital models. These photography
based approaches include Apple's Quicktime VR, Black Diamond's Surround Video,
and RealVR Traveler by Live Picture & Realspace. The viewer of environments
created by these software programs is subjected to a simulated portrayal of a
virtual reality panorama from specific points of view. In other words, several
photographs are stitched together and, as either the object or the viewer is
rotated in a fixed plane, the sensation of depth is created. In these
approaches, true virtual reality is not achieved. The objects or environments
cannot be controlled by the viewer, nor can any information (such as
measurements) be extracted directly from this simulated VR environment, as 3D
digital models are necessary for true virtual reality to occur.
Finally, Synthonics' RVR(TM) technology is totally flexible as it is able
to adopt to the full range of needs, in terms of 3D digital model intricacies,
from those of Electronic Commerce on the low end to those of the Movie Industry
on the high end. It is the combination of accuracy, affordability, flexibility
and compact file sizes that sets Synthonics apart from its competition. Each of
the competitors discussed possesses at least one of these traits, but only
Synthonics is capable of providing all four as a package.
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<PAGE>
The following chart summarizes the differences of the competitive
technologies discussed earlier in this section.
<TABLE>
<CAPTION>
Competitive Technology Comparison
---------------------------------
CAD
Animation Plus Other
Synthonics Studio Rendering 3D Photogrammetry
RVR(TM) Process Software Scanners Processes
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Description 3D Digital 3D Digital 3D Model Dimensional 3D Digital
Model Model Replication Measurement Model
Replication Replication or creation of object Replication
or creation
Applications A Realistic Creation of Creation of Complicated A Realistic
Digital Digital Digital models objects Digital Model
Model of Models with from a Concept Requiring of object or
object or very High Many Data Environmental
Environment Quality Points in that Exists
that Exists Viewing Order to
Requirements Re-Create
Strength * Low Cost * Realistic * Accurate * Accurate * Low Cost
* Easily Accuracy * Excellent * Easily
Produced * High Level creation Produced
* Low Data of Detail capabilities * Low Data
files sizes * Excellent files sizes
* Photo- creation * Photo-
Realistic and Realistic
Appearance Replication Appearance
* Flexible to capabilities * Flexible to
meet end meet end
need need
* Stereo-
scopic
viewing
* Accurate
Weakness * Object * Extremely * High cost * High * Object must
must exist high cost * High investment exist
* Multiple skill cost * Accuracy
high skills requirement * Time limitations
requirements * Large consuming * More complex
* Very large data file * Require than
data file size secondary Synthonics
size * Time operation process
* Very time consuming to complete
consuming to produce model
* Moderate to
high skill
level requirement
* Very large
data file size
</TABLE>
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<PAGE>
(5) Sources and availability of raw materials and names of principal
suppliers
The Company does not utilize any specialized raw materials and as such any
and all materials and raw materials, if any, required, are readily available.
The Company is not aware of any problem that exists at present time or that is
projected to occur with the near future that will materially affect the source
and availability of raw materials which would be required by the Company.
(6) Dependence on one or a few major customers
The Company feels that by the diversity of the applications and uses of the
technology in various products and services that alleviates the dependence on
any one or major customer. Through the widespread use of the technology in
medical, multimedia, electronic commerce, education and other developing
industries, the Company will develop a wide base of customers.
(7) Patents, trademarks, license, franchises, concessions, royalty
agreements or labor contracts
PATENTS
-------
Without knowing the precise location of the camera, it is impossible to use
photogrammetry to build 3D digital models. Without the use of photogrammetry,
the low-cost construction of 3D digital models is impossible. Synthonics'
technology is based on photogrammetry, and its algorithms "nail the location" of
the camera in free space with the extremely unique and simple requirement of
only three known points in the same plane. Synthonics believes its technology to
be unique in its approach and application. The Company is also dedicated to the
protection of its trade secrets and source code through tight security, the
advancement of the technology, and the establishment of strong patent
protection. Therefore, the Company has retained a prominent legal firm to
develop and submit patent applications for several technologies that the Company
views as patented. To date, twenty-three patent applications have been filed in
the US and internationally. A very brief summary of the categories covered by
the patent applications is listed below:
Subject Matter of Patent Applications
-------------------------------------
(1) High-speed correlation engine for P.C. using Field Programmable Gate
Array computer chips.
(2) Digital creation and transmission of 3D images.
(3) Digital methods of creating photo-realistic computer models.
(4) Capturing and transmitting stereoscopic 3D images for the entertainment
industry.
(5) Camera parameter determination from photo image data.
(6) Improved methods for morphing and special effects for the entertainment
industry.
(7) Converting existing 2D films to a 3D virtual reality experience.
(8) Multi-user interactive 3D on the Internet.
(9) 3D scanner or copier technology.
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<PAGE>
To date, two patents have been issued by the U.S. Patent and Trademark
Office. These include U.S. Patent No. 5,661,518 titled "Methods and Apparatus
for the Creation and Transmission of Three Dimensional Images"; and U.S. Patent
No. 5,699,444 titled "Methods and Apparatus for Using Image Data to Determine
Camera Location and Orientation". The Company has also been notified by the U.S.
Patent and Trademark Office that four additional applications contain allowable
claims. Each is expected to issue soon. Finally, the remaining seventeen patent
applications (eleven in U.S., three in Europe, and three in Japan) are all
pending. As discussed above, the ability to pinpoint the location of the camera
with a simple calibration target (three points) is fundamental to the
extraordinary benefits derived from using the RVR(TM) technology, therefore the
issuance of U.S. Patent No. 5,699,444 not only adds great value to the Company,
but also establishes an effective barrier against competition. Considerable
value to the Company will be added with the granting of each additional patent
as well.
TRADEMARKS
----------
Synthonics owns trademarks for Rapid Virtual Reality(TM), RVR(TM). 3D
Maker(TM), and Wireframe Express(TM).
LICENSES and ROYALTY AGREEMENTS
-------------------------------
Synthonics has entered into license and royalty agreements with the
following entities:
On November 30, 1996, Synthonics Incorporated (a wholly owned subsidiary of
the Company) entered into a License Agreement with MedScape, LLC (now known as
Acuscape, Inc.) wherein Acuscape will utilize Synthonics' technologies in the
creation its own analysis and treatment planning software tools for medical
professionals. The Agreement grants Acuscape exclusive worldwide rights to use
Synthonics' technologies only for tools to be used by orthodontists, dentists,
oral surgeons, and cosmetic surgeons in return for a 3% royalty of Acuscape's
gross sales. The Agreement also provides for recovery of costs from all Acuscape
required development.
On October 2, 1997, the Company entered into a License Agreement with the
Smithsonian Institution wherein the Company will utilize its Rapid Virtual
Reality(TM) technology to produce an interactive CD-ROM introducing all 16
Smithsonian museums, and the National Zoo. This agreement requires Synthonics to
fund the production of the CD-ROM. All initial revenues from the sale of the
CD-ROM belong to Synthonics. Once Synthonics has recovered their production
costs, all subsequent revenues are split 50/50 with the Smithsonian Institution.
On December 19, 1997, the Company entered into a Contract Agreement with
Centro Alameda, Inc. (an Affiliations Partner of the Smithsonian Institution) to
provide a 3D database and associated analysis tools. A down payment of 50% was
paid by Centro Alameda in December when the Company had completed approximately
50% of the project. Accordingly the downpayment was recorded in revenues in 1997
and the balance with be recognized when earned. Synthonics' 3D tools will be
utilized by Christopher Raphael, Inc. (a wholly owned subsidiary of the Company)
to create the database and the analysis tools.
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<PAGE>
On February 17, 1998, the Company signed a Strategic Alliance Agreement
with KnowledgeLINK to provide non-exclusive use of its 3D tools for electronic
commerce. Synthonics will receive a royalty payment of $100 per month for every
website produced by KnowledgeLINK that utilizes any of the 3D tools provided by
Synthonics. The Agreement also enables the Company to recover development costs,
be paid $50 per hour for customer maintenance support, and be paid for any 3D
content generated for KnowledgeLINK's customers.
(8) Need for Government approval
The products and services provided through use of the Company's technology
are not subject to approval of any government regulation.
(9) Effect of existing or probable governmental regulations on the business
On the effectiveness of its Registration Statement on Form 10-SB, the
Company will be subject to Regulation 14A of the Commission, which regulates
proxy solicitations. Section 14(a) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), requires all companies with securities registered
pursuant to Section 12(g) thereof to comply with the rules and regulations of
the Commission regarding proxy solicitations, as outlined in Regulation 14A.
Matters submitted to stockholders of the Company at a special or annual meeting
thereof or pursuant to a written consent will require the Company to provide its
stockholders with the information outlined in Schedules 14A or 14C of Regulation
14; preliminary copies of this information must be submitted to the Commission
at least 10 days prior to the date that definitive copies of this information
are forwarded to stockholders.
The Company will also be required to file annual reports on Form 10-KSB and
quarterly reports on Form 10-QSB with the Commission on a regular basis, and
will be required to timely disclose certain events (e.g., changes in corporate
control; acquisitions or dispositions of a significant amount of assets other
than in the ordinary course of business; and bankruptcy) in a Current Report on
Form 8-K.
Management believes that these obligations will increase the Company's
annual legal and accounting costs, but it is expected that revenues will be
sufficient to meet these costs.
The Company is not aware of any other governmental regulations now in
existence or that may arise in the future that would have an effect on the
business of the Company.
(10) Estimate of the amount spent during each of the last two fiscal years
on research and development activities.
R&D expenditures for 1996 and 1997 were $368,593 and $753,014 respectively.
In some cases (as described above), customer contracts require direct payment
for specific development requirements. In general, R&D activities will be
recovered through the application of a burden rate to all quotes.
(11) Costs and effects of compliance with environmental laws (federal,
state and local)
The Company does not plan to manufacture the products that are derived from
the application and use of its technology. The Company does not feel that it is
effected by any rules which have been enacted or adopted regulating the
discharge of material into the environment.
(12) Number of total employees and number of full time employees
At the present time the Company employs a total of 13 persons or which 13
are full time employees. These full time employees include F. Michael Budd,
Charles S. Palm, and Joseph R. Maher who are also officers and directors of the
Company.
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<PAGE>
Risk Factors.
-------------
Forward Looking Statements. When used in this Registration Statement, the
words or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "projected", "intends to" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties, including but not limited to market conditions,
competition, factors affecting the Company's ability to implement its growth
strategy, the Company's dependence on future financing, fluctuations in
operating results, the Company's ability to sustain levels of growth,
diversification of the Company's business, contingent risks, state and federal
regulation and licensing requirements, and environmental concerns that could
cause the Company's actual results to differ materially from those presently
anticipated or projected. Such factors, which are discussed in "Risk Factors,"
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the notes to consolidated financial statements, could
affect the Company's financial performance and could cause the Company's actual
results for future periods to differ materially from any opinions or statements
expressed with respect to future periods in this Registration Statement. As a
result all parties are cautioned not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company's
independent accountants have not examined or compiled the accompanying
forward-looking statements and accordingly do not provide any assurance with
respect to such statements.
The Company's present and proposed business operations will be highly
speculative and subject to the same types of risks inherent in any new or
unproven venture, as well as risk factors particular to the industries in which
it will operate, and will include, among other things, those types of risk
factors outlined below.
Developmental Stage Company. The Company was only recently organized and
has only a limited operating history. Although the Company and the Company's
operating subsidiaries do have limited operating experience, they too must be
deemed to be developmental stage companies. Taken together, the Company and its
subsidiaries must be considered to be in an early formative stage. There can be
no assurance that the Company's business plans will prove successful, or that
the Company or its wholly-owned subsidiaries will be able to operate profitably.
Competition. There are numerous corporations, firms and individuals which
are engaged in the type of business activities in which the Company is presently
engaged. Many of those entities are more experienced and possess substantially
greater financial, technical and personnel resources than the Company or its
subsidiaries. While the Company hopes to be competitive with other similar
companies, there can be no assurance that such will be the case.
Limited and Volatile Market for Common Stock. The Company's common stock is
quoted on the OTC Bulletin Board of the National Association of Securities
Dealers, Inc. (the "NASD") under the symbol "SNNT", however, there is a limited
and thinly traded trading market for the common stock and there can be no
assurance that an active market will ever develop or be maintained. Any market
price for shares of common stock of the Company is likely to be very volatile,
and numerous factors beyond the control of the Company may have a significant
effect. In addition, the stock markets generally have experienced, and continue
to experience, extreme price and volume fluctuations which have affected the
market price of many small capital companies and which have often been unrelated
to the operating performance of these companies. These broad market
fluctuations, as well as general economic and political conditions, may
adversely affect the market price of the Company's common stock in any market
that may develop.
Risks of "Penny Stock." The Company's common stock may be deemed to be
"penny stock" as that term is defined in Reg. Section 240.3a51-1 of the
Securities and Exchange Commission. Penny stocks are stocks (i) with a price of
less than five dollars per share; (ii) that are not traded on a "recognized"
national exchange; (iii) whose prices are not quoted on the NASDAQ automated
quotation system (NASDAQ-listed stocks must still meet requirement (i) above);
or (iv) of an issuer with net tangible assets less than US$2,000,000 (if the
issuer has been in continuous operation for at least three years) or
US$5,000,000 (if in continuous operation for less than three years), or with
average annual revenues of less than US$6,000,000 for the last three years.
Page 24 of 61
<PAGE>
Section 15(g) of the 1934 Act and Reg. Section 240.15g-2 of the Commission
require broker-dealers dealing in penny stocks to provide potential investors
with a document disclosing the risks of penny stocks and to obtain a manually
signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account. Potential investors in
the Company's common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be "penny stock."
Moreover, Reg. Section 240.15g-9 of the Commission requires broker-dealers
in penny stocks to approve the account of any investor for transactions in such
stocks before selling any penny stock to that investor. This procedure requires
the broker-dealer to (i) obtain from the investor information concerning his or
her financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for investors in the Company's
common stock to resell their shares to third parties or to otherwise dispose of
them.
Dependence on Key Employees. Historically, the Company has been heavily
dependent on the ability of its founder, Dr. Charles S. Palm as well as its
President, F. Michael Budd, to contribute essential technical and management
experience. In the event of future growth in administration, marketing,
manufacturing and customer support functions, the Company may have to increase
the depth and experience of its management team by adding new members. The
Company's success will depend to a large degree upon the active participation of
its key officers and employees. Loss of services of any of the current officers
and directors could have a significant adverse effect on the operations and
prospects of the Company. There can be no assurance that it will be able to
employ qualified persons on acceptable terms to replace officers that become
unavailable.
Future Capital Requirements; Uncertainty of Future Funding. The Company's
plan of operation calls for additional capital to facilitate growth and support
its long-term development and marketing programs. It is likely that the Company
would need to seek additional financing through subsequent future public or
private sales of its securities, including equity securities. The Company may
also seek funding for the development and marketing of its products through
strategic partnerships and other arrangements with investment partners. There
can be no assurance, however, that such collaborative arrangements or additional
funds will be available when needed, or on terms acceptable to the Company, if
at all. Any such additional financing may result in significant dilution to
existing stockholders. If adequate funds are not available, the Company may be
required to curtail one or more of its future programs.
Intense Competition and Rapid Technological Change. The industry in which
the Company operates is highly competitive, rapidly growing and the Company will
have to compete with a multitude of similar companies, possessing substantially
greater financial, personnel, technological and marketing resources. It is
particularly difficult for small independent companies to compete with such
major companies for recording artists, radio air time and floor space for their
releases in retail outlets. The Company is not a significant factor in the
industry. There is no assurance that the Company will be able to compete in such
an environment.
Page 25 of 61
<PAGE>
Item 2. Management's Discussion and Analysis of Plan of Operation
- -----------------------------------------------------------------
FINANCIAL CONDITION
-------------------
During its first three and one-half years of existence, the Company was
involved in the development of its technology. During this time, revenues were
virtually non-existent and expenditures primarily attributed to research and
development. Without adequate revenues to offset expenditures, the Company has
reported a loss in each of its years of existence. To date the Company has
funded itself by way of a series of private equity sales. As of the end of
fiscal 1997, the Company had offset its accumulated deficit in this manner and
has therefore not found it necessary to incur any long term debt. The most
valuable asset of the Company is its technology for which it has been granted
several patents and has several more pending. Although the Company believes its
patents to be very valuable in a real sense, this value is not quantified as
such on the Company's Balance Sheet. At the end of 1997, shareholder equity was
essentially equal to the cash on hand.
OPERATIONAL RESULTS
-------------------
During each of the last two years (1996 and 1997), the Company reported
revenues of $208,224 and $417,574 respectively. Revenues during 1996, were
almost exclusively the result of two license agreements that have both elapsed.
The balance of revenues for 1996 came as a result of some minor development work
for which the Company was reimbursed. During 1997, revenues were generated from
two primary sources: (1) a license agreement with Acuscape, Inc. and (2) a
contract with Centro Alameda, Inc. Nearly 50% of 1997's revenue occurred during
the fourth quarter reflecting the start of the Centro Alameda project.
The cost of goods sold increased both in the amount and as a percentage of
sales in 1997 versus 1996. These increases are due to the Company's securing of
contracts to produce 3D content. Both the Smithsonian and Centro Alameda
contracts are for the production of 3D content.
Expenditures increased by more than 50% in 1997 as compared to 1996. The
primary reasons for this occurrence are:
Acquisition of Christopher Raphael, Inc. in order to acquire the needed
multimedia capability.
Smithsonian CD-ROM Contract. The terms of the CD-ROM contract with the
Smithsonian Institution require Synthonics to fund the entire production
with expenses to be paid back from the initial revenues of the CD-ROM.
During 1997, $87,000 of CD-ROM production costs were incurred.
Acuscape's Software Tools. Development of Acuscape's tools commenced during
1997 and $267,000 of programming effort was completed during the year.
Option Exercise. An expense in the amount of $249,000 was booked in 1997 to
offset the difference in the share market price and the share option price
for 750,000 shares of the Company's Common Stock.
Amortization and Depreciation. An increase of $78,000 in the current year
over the prior year reflects the additional amortization of patent costs as
well as the write-off of $48,000 of goodwill associated with the
acquisition of Christopher Raphael, Inc.
During each of the last two fiscal years, certain officers of the Company
deferred, then forgave compensation owed to them by the Company. In each
year, the debt forgiveness was in return for stock options. In 1996,
options to purchase 600,000 shares of Common Stock at a price of $1.00 per
share were issued in return for $236,500 of debt forgiveness. In 1997,
options to purchase 588,290 shares of Common Stock at a price of $1.00 per
share were issued in return for $279,133 of debt forgiveness. The debt
forgiveness was recorded as a contribution to capital.
Page 26 of 61
<PAGE>
CAPITAL FUNDING
---------------
The Company currently is unable to generate sufficient cash from operations
to sustain its business efforts as well as to accommodate its growth plans.
Until it is able to generate sufficient cash flow, the Company will seek capital
funding from outside resources. At present, the Company is seeking a capital
infusion of at least $3,000,000 and anticipates the funding to be in exchange
for a combination of debt incurred and the sale of a percentage of its equity.
The Company presently has no committment for such funding and has not concluded
what form, whether debt or equity, such funding will be derived through.
FUTURE REVENUES
---------------
The Company has established two basic paths from which to achieve revenues.
These include 3D content creation and the licensing of the Company's 3D creation
software tools. The creation of 3D content, not only generates revenue through
the physical sale of the content but, also stimulates demand for the licensing
of the Company's tools by demonstrating the capabilities of same.
3D Content Creation. The prestigious and large museum industry is the
primary market targeted for 3D content sales. Museums around the world
are actively searching for ways to dramatically extend access to their
collections. The Company believes its patented technology provides the
only practical solution to this problem as it does not require a
compromise between the quality of the 3D content and the affordability
of acquiring same. The museum industry is huge as billions of
artifacts are contained in collections throughout the world. The
Company anticipates that by both utilizing an aggressive marketing
campaign and by leveraging its contractual relationship with the
Smithsonian Institution, it will be able to make significant
penetration into this market commencing in 1998. Additionally, the
Company anticipates that its efforts to advance its technology will
further reduce the cost of high quality 3D content and thereby enable
it to accelerate its penetration of the museum industry.
Licensing of 3D Content Creation Tools. The Company has constructed
its 3D content creation tools in such a manner that it believes they
are natural productivity extensions to currently available software
tools from name brand tool providers. These name brand providers
distribute animation, multimedia authoring, CAD, configuration, and
virtual reality tools to several markets including electronic
commerce, education, edutainment, video games, and movie special
effects. The Company believes that, if these name brand tool providers
were to offer their customers access to the tools provided by the
Company, each name brand tool provider would be able to increase their
own revenues by way of gaining additional market share as well as by
having access to new markets. The Company is seeking non-exclusive
licensing relationships thus allowing it to engage in licensing
relationships with all providers in any given market. The Company
believes that the advantage in 3D content creation afforded by its
tools is so powerful that the adoption by any one of the name brand
tool providers in a given market will prompt their competitors to
provide the same Synthonics advantage to their customers. The Company
anticipates significant revenue growth from the licensing of its 3D
content creation tools over the next several years as this approach
provides rapid access to already established channels of distribution
as well as market validation by partnering with name brand tool
providers.
Page 27 of 61
<PAGE>
Item 3. Properties
- ------------------
The Company does not own any real property. The Company currently occupies
approximately 2,430 square feet of space where it maintains its administrative
and development offices which are located at 31324 Via Colinas, Suite 106,
Westlake Village, California 91362. The term of the lease is from September 1,
1996 through August 31, 1999. The rental rate for year 1 was $2,254 per month.
The rental rate for year 2 was 2,376 per month and the rental rate for year 3 is
$2,497 per month.
The Company leases approximately 1,692 square feet to house its production
operation (Christopher Raphael, Inc.). These offices are located at 30423
Canwood, Suite 203, Agoura Hills, California 91301. This space is leased on a
month to month basis and is presently sufficient to meet the current
requirements of the Company and the business which it conducts. The term of the
lease is from September 15, 1996 through September 14, 2000. The rental rate for
years 1 and 2 is $2.030.40 per month. The rental rate for year 3 is $2,115.00
per month and the rental rate for year 4 is $2,199.60 per month.
Item 4. Security Ownership of Certain Beneficial Owners and Management
- ----------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth security ownership information as of the
close of business on December 31, 1997, for any person or group, known by the
Company to own more than five percent (5%) of the Company's voting securities.
<TABLE>
<CAPTION>
Title of Name of Amount of Percent of
Class Beneficial Owner Ownership Class
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock F. Michael Budd 1,170,750 6.7%
743 Cedar Point Pl.
Westlake Village, CA 91362
</TABLE>
Page 28 of 61
<PAGE>
(b) Security Ownership of Management
The following table sets forth security ownership information as of the
close of business on December 31, 1997, for any director, executive officer or
group of the Company's voting securities:
<TABLE>
<CAPTION>
Title of Name of Amount of Percent of
Class Beneficial Owner Ownership Class
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock LeRoy K. Speirs 200,334 1.1%
312 West Palm Dr.
Arcadia, CA 91007
Common Stock F. Michael Budd 1,170,750 6.7%
743 Cedar Point Pl.
Westlake Village, CA 91362
Common Stock Charles S. Palm 428,751 2.4%
31324 Via Colinas
Suite 106
Westlake Village, CA 91362
Common Stock David L. Stewart 8,897 0.1%
99 Canal Center Plaza
Suite 300
Alexandria, Virginia 22314
Common Stock Ronald Speirs 50,000 0.3%
1632 S. Pacific Coast Hwy.
#455
Redondo Beach, CA 90277
Common Stock Joseph R. Maher 10,000 0.1%
1336 N. Moorpark Rd.
#161
Thousand Oaks, CA 91360
Common Stock Timothy J. Andrews 0 0.0%
550 South Hope St.
22nd Floor
Los Angeles, CA 90071
Common Stock Thomas K. Carpenter 0 0.0%
29 Via Falerno
Laguna Hills, CA 92656
Common Stock Timothy G. Paulson 20,000 0.1%
21240 Burbank Blvd.
Woodland Hills, CA 91367
Common Stock All Directors & Officers
as a Group (9 Persons) 1,888,732 10.8%
-----------------------------------------------------------
</TABLE>
(c) Change in Control.
There are no present arrangements or pledges of the Company's securities
which may result in a change in control of the Company.
Page 29 of 61
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons
- --------------------------------------------------------------------
(a) Identity of Directors and Executive Officers.
<TABLE>
<CAPTION>
Name and Address Age Position Term Served Since
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
F. Michael Budd 51 President, CEO, 3 Years 1995
Director
Charles S. Palm 54 Chief Technology 3 Years 1995
Officer, Secretary,
Director
LeRoy K. Speirs 74 Chairman of Board 3 Years 1978
Ronald S. Speirs 46 Director 2 Years 1996
Timothy G. Paulson 51 Director 2 Years 1997
Thomas K. Carpenter 56 Director 2 Years 1997
Timothy J. Andrews 38 Director 1 Year 1997
Joseph R. Maher 37 VP Marketing 1 Year 1997
& sales, Director
David L. Stewart 54 Director 1 Year 1995
</TABLE>
There are no arrangements or understandings between any of the directors or
executive officers, or any other person or person pursuant to which they were
selected as directors and/or officers.
F. Michael Budd is a founder of Synthonics, Incorporated. He holds a BS in
Industrial Engineering from the General Motors Institute in Flint, Michigan, and
an MBA from the University of Detroit in 1973. Mr. Budd has had a long and
distinguished career in the administration of engineering and manufacturing
facilities, including 30 years of increasing management responsibility with
General Motors Corporation, Rockwell International, ITT Corporation, and Harman
International. During his career, Mr. Budd has orchestrated successful mergers,
acquisitions, divestitures, expansions, and start-ups for the companies with
whom he has been affiliated. He has successfully managed business units with
revenues up to $500 million, more than 7,000 employees, and with locations
around the world. Although he is most noted for his "turnaround" management
capabilities that convert marginal or losing operations into strong positive
cash-flow operations, Mr. Budd has been equally successful with new start-up
endeavors. Mr. Budd has been associated with the Company since its inception as
a director and shareholder.
Dr. Charles S. Palm, the "father" of Synthonics' technology, is a founder
of Synthonics, Incorporated. He received a Ph.D. in Engineering Sciences from
the University of Florida in 1975. Prior to joining the Company, he co-founded
Colorocs Corporation in Atlanta, Georgia. Colorocs developed and marketed
full-color copier and full-color laser printers that were marketed under several
different Brand names (such as Sharp and Savin) worldwide. Dr. Palm received
nine patents related to electro-photographic technologies used in his copier
designs. He was a member of the management team that took Colorocs through an
initial public offering in 1986. Dr. Palm supervised the Lunar Laser Ranging
Experiment at the University of Texas McDonald Observatory between 1975 and
1977. While in that capacity, he modified a gigawatt laser system used to
Page 30 of 61
<PAGE>
measure the distance from the Earth to the moon within an accuracy of 1.5
inches. Dr. Palm has led or been part of teams that have developed many
important inventions during his career. Besides those mentioned above, he was
very instrumental in the development of a device that was used by the US
Department of Defense, for nearly two decades, to track submerged Russian
submarines from satellite stereo photos of the ocean's surface.
Joseph R. Maher, combines sales, marketing, and promotional expertise with
a broad financial background. Mr. Maher has been responsible for the founding
and the senior level management of a variety of successful companies, both local
and national in scope. These include the publishing of consumer and trade
magazines, producing live entertainment for corporate and private clients,
directing the sales effort of the top out-placement firm in the United States,
and spearheading the growth and capital fund raising for several for-profit and
non-profit corporations. Mr. Maher was the founder and owner of Christopher
Raphael Marketing Design which was acquired by Synthonics during 1997.
LeRoy K. Speirs has been a successful entrepreneur throughout his entire
adult life with a number of different companies in endeavors as diverse as
opening a bookstore upon returning from World War II to founding a credit life
insurance company that grew to be the third-largest independent producer of
credit life insurance in California. He was a founder of the Brigham Young
University Center for Entrepreneurship in the Marriott School of Management and
recently received the prestigious Honorary Alumni Award (a life achievement
award) from Brigham Young University.
Ronald S. Speirs, was awarded BS and MS degrees in Computer Integrated
Manufacturing by Brigham Young University in 1986/1987. Mr. Speirs was a Senior
Industrial Engineer in Advanced Manufacturing Technologies for Allied Signal
Aerospace for five years, and is currently an independent computer consultant
and project facilitator for various high-tech enterprises.
David L. Stewart, Esq., is a patent attorney and partner in the firm of
McDermott, Will and Emory in Alexandria, Virginia. He holds a Bachelor of
Science degree in physics from California State University at Los Angeles and a
Juris Doctor degree from George Washington University in the District of
Columbia. Mr. Stewart was a Ph.D. candidate in information technology at George
Mason University in Fairfax, Virginia. He also served four years as
Administrative Patent Judge (Examiner-in-Chief) at the Board of Patent Appeals
and Interferences, United States Patent and Trademark Office.
Timothy J. Andrews is currently a Senior Vice President for Oaktree Capital
Management, LLC located in Los Angeles. His career has spanned seventeen years,
all within the investment community. Prior to Oaktree, Mr. Andrews held
prominent positions at Trust Company of the West, Govaars & Associates, and
Price Waterhouse. Mr. Andrews has also been appointed a member of several Boards
of Directors for companies in which Oaktree Capital has been involved. Mr.
Andrews' expertise in the areas of financial analysis, mergers & acquisitions,
and capital funding are essential skills resident within the Company.
Thomas K. Carpenter is an experienced executive with extensive P&L
responsibility and a heavy involvement in operational, technical, and
marketing/sales responsibilities. Mr. Carpenter has gained particular expertise
with software tools and applications within industrial, retail, government,
distribution, and medical marketplaces. Known as a persuasive, high energy
problem solver, he has demonstrated successes in both start-up and turn around
situations. Mr. Carpenter, a veteran of the software industry, is playing a key
role for the Company in the formation and execution of its operating strategy.
Mr. Carpenter is currently a member of the Board of Directors or the Board of
Advisors for three other companies all involved in the software industry.
Page 31 of 61
<PAGE>
Timothy G. Paulson has been a Corporate Vice President and the Treasurer of
Litton Industries, Inc. since 1994. With Litton since 1970, Mr. Paulson started
his career as a staff auditor and has progressed through several senior level
management positions prior to being appointed its Treasurer. He also earned his
Certified Public Accountant status in 1974. As a key member of management during
Litton's rise to prominence as a premier defense contractor, Mr. Paulson will
provide expert oversight guidance as Synthonics grows into a prominent software
tool provider.
(1) Directorships
No Director of the Company or person nominated or chosen to become a
Director holds any other directorship in any company with a class of securities
registered pursuant to section 12 of the Exchange Act or subject to the
requirements of section 15(d) of such Act or any other company registered as an
investment company under the Investment Company Act of 1940.
(a) Identity of Significant Employees.
The Company has no employees who are not executive officers, but who are
expected to make a significant contribution to the Company's business. It is
expected that current members of management and the Board of Directors will be
the only persons whose activities will be material to the Company's operations.
Members of management are the only persons who may be deemed to be promoters of
the Company
(b) Family Relationships.
The Chairman of the Board, LeRoy K. Speirs is the father of director Ronald
S. Speirs. Other than the father - son relationship of Messrs. Speirs, there is
no family relationship between any director or executive officer of the Company.
(c) Involvement in Certain Legal Proceedings.
During the past five years, no present or former director, executive
officer or person nominated to become a director or an executive officer of the
Company:
(1) was a general partner or executive officer of any business against
which any bankruptcy petition was filed, either at the time of the
bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; or
Page 32 of 61
<PAGE>
(4) was found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed,
suspended or vacated.
Item 6. Executive Compensation
- --------------------------------
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
---------------------------
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------
Securities All
Other Underlying Other
Name and Year or Annual Restricted Options/ LTIP Compen-
Principal Period Salary Bonus Compen- Stock SAR's Payouts sation
Position Ended ($) ($) sation) Awards (#) ($) ($)
($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
F. Michael 1997 $90,000 $0 $0 $0 378,860 $0 $0
Budd,
President 1996 $0 $0 $0 $0 750,000 $0 $0
1995 N/A N/A N/A N/A N/A N/A N/A
Charles S. 1997 $150,000 $0 $0 $0 189,430 $0 $0
Palm, CTO 1996 $150,000 $0 $0 $0 1,162,260 $0 $0
1995 $ 38,500 $0 $0 $0 0 $0 $0
Joseph R. 1997 $36,000 $0 $0 $0 780,000 $0 $0
Maher, VP 1996 N/A N/A N/A N/A N/A N/A N/A
Sales & 1995 N/A N/A N/A N/A N/A N/A N/A
Marketing
</TABLE>
EMPLOYMENT CONTRACTS/STOCK INCENTIVE PLANS
------------------------------------------
Michael Budd and Charles S. Palm, both have employment contracts with the
Company. Both are effective until December 31, 2000. Each contract contains an
Incentive Stock Option for 750,000 shares of common stock, of which F. Michael
Budd has exercised 300,000 shares from the option that he holds. The option
price per share is $0.50 and the 750,000 shares vest over a four year period
with all shares being vested by July 1, 2000 Joseph R. Maher has an employment
contract with the Company. It is effective until September 30, 2001. His
contract contains an Incentive Stock option for 750,000 shares of common stock.
The option price per share is $1.00 and the 750,000 shares vest over a three
year period. The total number of shares that vest is dependent on the overall
performance of Christopher Raphael, Inc., but cannot exceed a total of 750,000
shares.
Page 33 of 61
<PAGE>
INCENTIVE AWARDS FOR THE FISCAL YEARS OF 1998, 1999, AND 2000
--------------------------------------------------------------
The specific Performance Goals and Incentive Awards available to eligible
Participants for the fiscal years 1998, 1999, and 2000, have been predetermined
and shall be determined as set forth below. Any and all Incentive Awards for the
periods thereafter shall be determined in accordance with the terms of this
Plan.
Fiscal Year 1998 - In order for any Incentive Award to be granted during
fiscal year 1998, the Company must book no less than four million dollars
($4,000,000) of gross sales on a Consolidated Basis (i.e. the combined and
consolidation of sales from the Company and its subsidiaries). If the gross
sales exceed the $4,000,000 level, then there shall be created a bonus pool
equal to five percent (5%) of the total consolidated gross sales of the Company
for 1998, which shall be available for Incentive Awards.
Fiscal Year 1999 - In order for any Incentive Award to be granted during
fiscal year 1999, the Company must book no less than eight million dollars
($8,000,000) of gross sales on a Consolidated Basis (i.e. the combined and
consolidation of sales from the Company and its subsidiaries). If the gross
sales exceed the $8,000,000 level, then the bonus pool contribution for 1999
shall be equal to ten percent (10%) of the total pretax earnings of the Company
for 1999, which shall be available for Incentive Awards.
Fiscal Year 2000 - In order for any Incentive Award to be granted during
fiscal year 2000, the Company must book no less than fifteen million dollars
($15,000,000) of gross sales on a Consolidated Basis (i.e. the combined and
consolidation of sales from the Company and its subsidiaries). If the gross
sales exceed the $15,000,000 level then the bonus pool contribution for 2000
shall be equal to ten percent (10%) of the total pretax earnings of the Company
for 2000, which shall be available for Incentive Awards.
Incentive Awards from the bonus pool shall be made at the discretion of the
committee as set forth herein, up to the maximum of the entire bonus pool.
KEY EMPLOYEES
-------------
At the time of publication of this Annual Report, the Company has no other
employees that could not be replaced with other non-skilled labor. However, if
the Company is to grow, additional key personnel will be needed in the areas of
marketing, sales, and new product development. As the company expands,
additional sales, marketing, production, and support staff will be added.
Item 7 Certain Relationships and Related Transactions
TRANSACTIONS WITH MANAGEMENT AND OTHERS
---------------------------------------
Technology Acquisition: In 1993, Synthonics Incorporated made one-time
payments of $25,000 each to Dr. Charles Palm and Mr. Bruce Binns to acquire the
technology and image processing concepts that have become the proprietary
technological foundation of the Company's business for the foreseeable future.
Both Dr. Palm and Mr. Binns were full-time employees of the Company and occupied
significant executive positions within the Company's management structure.
Page 34 of 61
<PAGE>
Life Insurance on Key Employees: The Company obtained a life insurance
policy in the amount of $5 million on Dr. Palm. The Company is the beneficiary
of the policy. The insurance is intended to help protect the shareholder's
investment against the loss of the individual during the critical founding
period of the Company's growth cycle.
Corporate Identity Artwork: Since the inception of Synthonics Incorporated,
the Company expended or committed approximately $66,850 in cash or
stock-equivalents of cash, in related-party transactions with Janet E. Jones,
one of the founders of the Company. The payments were made for work related to
establishing the corporate log and the corporate image graphics system, the
product packaging design, artwork for six (6) trademark application filings, and
numerous art projects related to magazine and Internet advertising and product
packing concepts for all of the product mentioned herein. Payment was made as
approximately $20,000 in cash with the balance paid in shares of Synthonics
Incorporated Common Stock issued at price per share valuations associated with
the time that the work was actually performed. It is expected that she will
continue to be used as a designer for additional trademark filings, additional
packaging designs and to guide the development of all corporate brochures,
advertising literature, corporate office designs, trade show booth designs, and
all other visual manifestations of the corporate image on an as-needed basis
throughout the balance of 1996.
Incentive Stock Options Exercised By Key Individuals By Means of Company
Loans: In 1993, a large number of shares (1,645,000) were allocated to the
founders, future officers of the Company, and other key people as incentive
stock options. The exercise price of the options was $.50 per share, the same
per share amount paid by all first round investors. In January 1994, the Company
made loans to eight individuals that allowed them to exercise their stock
options, Company, in accordance with California Corporations Code Section
315(c). The voting rights associated with the shares were passed to the
individual shareholders, but the Company as collateral for the notes is holding
the shares themselves issued. This action further provides, in effect, a call
option to the Company as collateral for the notes issued. This action further
provides, in effect, a call option to the Company that allowed the Company, at
the sole discretion of the Board of Directors, to repurchase the shares from any
key individual at the existing fair market value. The incentive shares were thus
recoverable if a key individual loses key individual status in the eyes of the
Board of Directors. The notes carried an interest at a rate of 6% per year, an
amount sufficient to pay for office rental and a portion of the operating
expenses each month. The notes were due and payable on or before December 1,
1996, by which time the Company would have received payments totaling $822,500
or the company would foreclose on and reclaim all shares covered by notes that
remain unpaid. These shares represented a significant overall dilution of voting
power and potential dividend distributions (of which, none are planned) to
subscribes under this offering and to subscribers of earlier offerings.
In late 1994, it was recognized that certain individuals were not going to
participate in the business in a material way and the remaining individuals who
had contributed in a material way had not performed as a group to a level of
performance that was anticipated at the start of the business and thereby felt
to be over-compensated by means of the stock purchase plan. Therefore, a program
was initiated to recover a significant portion of the incentive shares that were
felt to be attributed to over compensation. All recipients and participants in
the incentive stock plan either returned 50% of the incentive shares to the
Company for retirement or converted the shares to options to purchase at a
higher price or did both with each individual transaction covered by an
agreement that provided full satisfaction and accord to all parties. The
recovery of the incentive shares started in late 1994 and was completed just
prior to the tender offer made by Columbine Financial Corporation in May 1995.
The incentive share recovery program had a significant anti-dilution effect on
the Synthonics Incorporated minority shareholders that resulted in a greater
percentage ownership of the Company being pushed over to the minority
shareholders.
Page 35 of 61
<PAGE>
TRANSACTIONS WITH PROMOTERS
---------------------------
There have been no material transactions, series of similar transactions,
currently proposed transactions, or series of similar transactions, to which the
Company or any of its subsidiaries was or is to be a party, in which the amount
involved exceeded $60,000 and in which any promoter or founder, or any member of
the immediate family of any of the foregoing persons, had a material interest.
Item 8 Description of Securities
The Company has two classes of securities authorized, consisting of
50,000,000 authorized shares of common stock with a par value of $0.01 per share
and 550,000 authorized shares of preferred stock with a par value of $10.00 per
share.
COMMON STOCK
-------------
The holders of the Company's common stock are entitled to one vote per
share on each matter submitted to a vote at a meeting of stockholders. The
shares of common stock do not carry cumulative voting rights in the election of
directors.
The shareholders of the Company have no pre-emptive rights to acquire
additional shares of common stock or other securities. The common stock is not
subject to redemption rights and carries no subscription or conversion rights.
In the event of liquidation of the Company, the shares of common stock are
entitled to share equally in corporate assets after satisfaction of all
liabilities or the company and the liquidation preference of the preferred
shares. All shares of the common stock now outstanding are fully paid and
non-assessable.
PREFERRED STOCK
---------------
The Company has authorized 550,000 shares of preferred stock having a par
value of $10.00 per share. The Preferred Stock has dividend preferences over the
common stock. The preferred stock is entitled to receive dividends on a
cumulative basis at the rate of 12% of the stated par value per annum, payable
on a quarterly basis on the fifteenth day of the next month following the end of
each fiscal quarter. In addition, in the event of a voluntary or involuntary
liquidation or dissolution of the Company, the holders of the preferred stock
have a liquidation preference over the holders of the common stock.
The Company, at the option of the Board of Directors, may at any time after
December 31, 1998 redeem all the outstanding shares of preferred stock by
paying, in cash, a sum equal to $10.50 per share of each preferred share so
redeemed.
The holders of the preferred stock may, at any time up to 2 days fixed for
redemption, convert and receive 5 shares of common stock for each share of
preferred stock being converted at the rate of $2.00 per share of common stock
being converted into.
Page 36 of 61
<PAGE>
OUTSTANDING STOCK OPTIONS AND WARRANTS.
---------------------------------------
As of the year ended December 31, 1997, as well as March 6, 1998 there are
outstanding options to purchase additional shares of common stock of the Company
as follows:
<TABLE>
<CAPTION>
# Of Option Exercise Price Last
Name Shares Per Share Exercise Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
David Berkus 153,000 $1.00 Dec., 1999
F. Michael Budd 450,000 $0.50 July, 2006
F. Michael Budd 378,860 $1.00 Dec., 2002
Janet Jones 187,740 $1.00 Dec., 2001
Janet Jones 909,855 $0.22 May, 1999
Janet Jones 20,000 $1.00 Dec., 2002
Joseph R. Maher 30,000 $1.00 Dec., 2003
Joseph R. Maher 750,000 $1.00 Sept., 2003
Charles S. Palm 1,125,000 $0.22 May, 1999
Charles S. Palm 750,000 $0.50 July, 2006
Charles S. Palm 412,260 $1.00 Dec., 2001
Charles S. Palm 189,430 $1.00 Dec., 2002
Tony Riley 15,000 $1.00 Oct., 2002
Donald Cecil 15,000 $1.00 Oct., 2002
Timothy Paulson 90,000 $0.75 Oct., 2002
Timothy Andrews 180,000 $0.75 Oct., 2002
Thomas Carpenter 180,000 $0.75 Oct., 2002
LeRoy Speirs 200,000 $0.75 Oct., 2002
Ron Speirs 200,000 $0.75 Oct., 2002
David Stewart 100,000 $0.75 Oct., 2002
</TABLE>
As of December 31, 1997, there are outstanding warrants to purchase
additional shares of common stock of the Company as follows:
<TABLE>
<CAPTION>
# Of Shares Exercise Price Last
Name in Warrant Shares Per Share
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Rio Energy 250,000 $1.00 July, 1998
Mees Pierson 100,000 $1.00 July, 1998
B Warrant (Group) 167,000 50% x Avg. Price June, 1998
</TABLE>
As of March 6, 1998, there are outstanding warrants to purchase additional
shares of common stock of the Company as follows:
<TABLE>
<CAPTION>
# Of Shares Exercise Price Last
Name in Warrant Shares Per Share
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Rio Energy 250,000 $1.00 July, 1998
Mees Pierson 100,000 $1.00 July, 1998
B Warrant (Group) 167,000 50% x Avg. Price June, 1998
SPARC Fund 70,000 $0.75 Feb., 1999
Ramon Cantero-Frau 13,300 $2.00 March, 2002
Guardo M. Albini 2,362 $2.00 March, 2002
Jose Antonio Perez 1,838 $2.00 March, 2002
Ramon Cantero-Frau 29,260 $0.65 March, 2002
Guardo M. Albini 5,198 $0.65 March, 2002
Jose Antonio Perez 4,042 $0.65 March, 2002
Nelson Capote 84,616 $0.65 March, 1999
Manuel Freije 19,231 $0.65 March, 1999
V. Suarez & Co., Inc. 76,924 $0.65 March, 1999
Rafael Cortes Dapena 19,231 $0.65 March, 1999
Empire Gas Company, Inc. 25,000 $0.65 March, 1999
Ramon Cantero-Frau 50,000 $0.65 March, 1999
</TABLE>
Page 37 of 61
<PAGE>
CHANGE IN CONTROL
-----------------
There is no provision in the Company's Articles of Incorporation, as
amended, or Bylaws, as amended, that would delay, defer, or prevent a change in
control of the Company.
Part II
-------
Item 1. Market Price Of And Dividends On The Company's Common Equity And Related
Stockholder Matters
-----------------------------------------------------------------------
The Company's Common Stock is traded on the Electronic Bulletin Board. The
following chart depicts the high and low trading prices for each fiscal quarter
that the Company's Common Stock has been publicly traded:
<TABLE>
<CAPTION>
Quarter High Price Low Price
-------------------------------------------------
<S> <C> <C>
1st, 1998 $1.00 $0.50
4th, 1997 $1.375 $0.3125
3rd, 1997 $1.0625 $0.3125
2nd, 1997 $1.875 $0.50
1st, 1997 $2.75 $1.25
4th, 1996 $2.50 $1.75
</TABLE>
These prices were obtained from the National Quotation Bureau, Inc. (the
"NQB")and do not necessarily reflect actual transactions, retail markups,
markdowns or commissions.
No assurance can be given that any active "established public market" will
develop in the Company's common stock, regardless or whether its current and
proposed business operations are successful, or if any active market does
develop, that it will be sustained for any period of time.
Holders
-------
The Company has approximately 600 Common Stock shareholders and four (4)
Preferred Stock shareholders.
Dividends
---------
The Company has never paid a dividend on its common stock. The Company has
paid a 12% dividend on its Preferred Stock in each of the last two quarters. The
dividends on the Preferred Stock were accrued during the last quarter of 1997
and paid in January, 1998. The Preferred stock is convertible to the Company's
Common Stock. At the time of conversion, the dividends on the Preferred Stock
will cease.
Page 38 of 61
<PAGE>
Item 2. Legal Proceedings
- -------------------------
The company was involved in litigation in the calendar year 1997. The
company was a party Plaintiff in the matter of Synthonics, Inc. v. 3rd Dimension
Technologies, Inc. and Affiliated Defendants, Los Angeles Superior Court Case
no. LC-041882. This matter was concluded favorably to the company. All time
frames for appeal or new trial have exhausted. The judgment has become final.
This matter involved the company prosecuting an action against 3rd Dimension
Technologies, Inc. to protect the company's patent, trademark and trade secret
interests in its three dimensional computer software. The relevant facts and
procedural history is as follows.
The action grew out of a license agreement between Synthonics and 3rd
Dimension Technologies wherein 3rd Dimension was granted the right to distribute
Synthonics three-dimensional software known as 3D Express and Express Mapper.
The software programs perform three dimensional model creations and are used in
a number of industries, including medical and dental practices, aerial surveying
and mapping and the motion picture industry for animation purposes. Synthonics
maintains patents and copyright protection on all of their technologies.
In February of 1997, during a routine check of the Internet, Synthonics
discovered numerous consumers were registering complaints against 3rd Dimension
Technologies for various business practices. Also, consumers registered
technical complaints regarding the software obtained from the distributor that
were unique to the programs being distributed by 3rd Dimension Technologies.
Further investigation by Synthonics found 3rd Dimenson Technologies attempted to
fabricate the programs creating unauthorized duplications of the computer
software. Synthonics immediately terminated the license agreement and conducted
an audit of the distributor.
To protect its property rights in the technologies being violated by 3rd
Dimension Technologies, Synthonics filed a four count civil action in the
Superior Court for the County of Los Angeles on July 23, 1997; alleging Breach
of Contract, Accounting for misappropriated gains in the unlawful duplication of
computer software, Violations of California Business & Professions Code Section
17200, fraudulent and unfair business practices and Misappropriation of Trade
Secrets. On July 28, 1997 a temporary Restraining Order was issued against 3rd
Dimension Technologies and all of their individual officers, directors, agents
and employees enjoining the same from copying, duplicating and distributing
Synthonics 3D Express and Express Mapper computer software, or copying or
duplicating any technology contained in the software. The Restraining Orders
were confirmed into a Preliminary Injunction with identical prohibitions on
September 5, 1997. On January 8, 1998 a final judgment was entered in favor of
Synthonics and against 3rd Dimension Technologies in the amount of $300,000.00.
Additionally, the trial court granted a permanent injunction against 3rd
Dimension and all of its agents, servants, officers, shareholders, affiliates,
employees and all those individuals or entities acting in concert with 3rd
Dimension from copying, duplicating and distributing Synthonics, Inc. computer
software or the technology contained in the software. The injunction is
enforceable with the contempt powers of the Superior Court. As stated above the
judgment has become final. All illegal competition and violations of Synthonics
rights in its computer software have been halted. The entities illegally
competing have been closed down. Finally, and most important to Synthonics, the
integrity of the software was preserved.
With the exception of the legal proceedings set forth above, the Company is
not presently a party to any litigation, claim, or assessment. Further, the
Company is unaware of any unasserted claim or assessment, which will have a
material effect on the financial position or future operations of the Company.
Page 39 of 61
<PAGE>
Item 3. Changes in and Disagreements with Accountants
- -----------------------------------------------------
There has been no change of the independent auditors of the Company and
there are no disagreements with such independent auditors.
Item 4. Recent Sales of Unregistered Securities
- -----------------------------------------------
The following transactions describe the sales of the Company's securities
over the last three years:
(a) Transaction #1:
Exercise of Warrants from a prior Private Placement Offering during
February, 1996. 1,945,500 shares of Common Stock were sold at $0.27
per share. No underwriters were used. The securities were sold
pursuant to an exemption from registration provided under Section 4(2)
of the Securities Act of 1933.
(b) Transaction #2:
Private Placement Offering dated March 4, 1996. 168,500 Units
consisting of one A Warrant and one B Warrant were sold at $2.00 per
Unit. Each Warrant enables owner to purchase one share of Common Stock
at a 50% discount from the prior month's average trading price. The A
Warrant can only be exercised during June, 1997 and the B Warrant can
only be exercised during June, 1998. No underwriters were used. The
securities were sold pursuant to an exemption from registration
provided under Section 4(2) of the Securities Act of 1933.
(c) Transaction #3:
Private sale of Stock and attached Warrants to "high net worth
entities" during July, 1996. 545,000 shares of Common Stock were sold
at $1.00 per share. Each purchase of a share of stock included the
purchase of an equal amount of Warrants to purchase additional shares
of Common Stock at $1.00 per share prior to July, 1997. The purchasers
included: Rio Energy 200,000 shares; Donald Livingstone 100,000
shares; Paul Jennings 100,000 shares; Mees Pierson A/C337 100,000
shares; and Lee Phillips 45,000 shares. No underwriters were used. The
securities were sold pursuant to an exemption from registration
provided under Section 4(2) of the Securities Act of 1933.
(d) Transaction #4:
Exercise of stock option by Ray Hartman during December, 1996. 78,591
shares of Common Stock were sold at $0.22 per share. The securities
were sold pursuant to an exemption from registration provided under
Section 4(2) of the Securities Act of 1933.
(e) Transaction #5:
In February 1997, the Company issued 25,154 shares of common stock for
services rendered to the Company by employees and contractors. No
underwriters were used. The securities were sold pursuant to an
exemption from registration provided under Section 4(2) of the
Securities Act of 1933.
(f) Transaction #6:
Exercise of stock options by Roger Grant during July of 1997. 126,000
shares of common stock were issued and sold at $0.22 per share upon
the exercise of the stock options by Mr. Grant. No underwriters were
used. The securities were sold pursuant to an exemption from
registration provided under Section 4(2) of the Securities Act of
1933.
Page 40 of 61
<PAGE>
(g) Transaction #7:
Exercise of Warrants from a prior Private Placement Offering during
July, 1997. 350,000 shares of Common Stock were sold at $0.70 per
share. No underwriters were used. The securities were sold pursuant to
an exemption from registration provided under Section 4(2) of the
Securities Act of 1933.
(h) Transaction #8:
In August 1997, 179,700 shares of common stock were issued in exchange
for all remaining outstanding shares of common stock of Synthonics,
Inc. No underwriters were used. The securities were sold pursuant to
an exemption from registration provided under Section 4(2) of the
Securities Act of 1933.
(i) Transaction #9:
Private Placement Offering dated September 8, 1997. 50,000 shares of
Preferred Stock were sold at $10.00 per share. No underwriters were
used. The securities were sold pursuant to an exemption from
registration provided by Rule 505 of Regulation D of the Securities
Act of 1933.
(j) Transaction #10:
In October 1997, 10,000 share of common stock were issued to Joseph
Maher for the acquisition of Christopher Raphael Inc. No underwriters
were used. The securities were sold pursuant to an exemption from
registration provided under Section 4(2) of the Securities Act of
1933.
(k) Transaction #11:
Exercise of stock options by F. Michael Budd during December, 1997.
351,000 shares of Common Stock were sold at $0.22 per share and
150,000 shares of Common Stock were sold at $0.50 per share. The
securities were sold pursuant to an exemption from registration
provided under Section 4(2) of the Securities Act of 1933.
(l) Transaction #12:
Exercise of stock option by George Turner during December 1997.
562,500 shares of Common Stock were sold at $$0.22 per share. The
securities were sold pursuant to an exemption from registration
provided under Section 4(2) of the Securities Act of 1933.
(m) Transaction #13:
Common Stock issued as payment for outstanding debt. in February 1998,
70,000 shares of Common Stock issued to relieve $50,000 of debt ($0.71
per share). The securities were sold pursuant to an exemption from
registration provided under Section 4(2) of the Securities Act of
1933.
(n) Transaction #14:
Private Placement Offering dated January 20, 1998. 550,000 shares of
Common Stock were sold at $0.65 per share. No underwriters were used.
The securities were sold pursuant to an exemption from registration
provided by Rule 506 of Regulation D of the Securities Act of 1933.
Page 41 of 61
<PAGE>
Item 5. Indemnification of Directors and Officers
- -------------------------------------------------
Pursuant to Article 9., of the Articles of Incorporation, the Company shall
indemnify its directors, officers, employee, fiduciaries and agents as those
terms are defined in, and to the fullest extent permitted by, Part 9 of the Utah
Revised Business Corporation Act.
Sections 16-10a-902 through 16-10a-904 of the Utah Revised Business
Corporation Act provides as follows:
Section 16-10a-902. Authority to indemnify directors.
(1) Except as provided in subsection (4), a corporation may indemnify
an individual made a party to a proceeding because he is or was a
director, against liability incurred in the proceeding if:
(a) his conduct was in good faith; and
(b) he reasonably believed that his conduct was in, or not
opposed to, the corporation's best interests; and
(c) in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful
(2) A director's conduct with respect to any employee benefit plan for
a purpose he reasonably believed to be in or not opposed to the
interest of the participants in and beneficiaries of the plan is
conduct that satisfies the requirement of Subsection (1)(b).
(3) the termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the
standard of conduct described in this section.
(4) Corporation may not indemnify a director under this section:
(a) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(b) in connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not
involving action in his official capacity, in which proceeding he
was adjudged liable on the basis that he derived an improper
personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the proceeding.
Section 16-10a-903. Mandatory indemnification of directors.
Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was successful, on the merits or otherwise in the
defense of any proceeding or in the defense of any claim, issue, or matter in
the proceeding, to which he was a party because he is or was a director of the
corporation, against reasonable expenses incurred by him in connection with the
proceeding or claim with respect to which he has been successful.
Page 42 of 61
<PAGE>
16-10a-904. Advance of expenses for directors.
(1) A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if:
(a) the director furnishes the corporation a written affirmation
of his good faith belief that he has met the applicable standard
of conduct described in Section 16-10a-902;
(b) the director furnishes to the corporation a written
undertaking, executed personally or on his behalf, to repay the
advance if it is ultimately determined that he did not meet the
standard of conduct; and
(c) a determination is made that the facts then known to those
making the determination would not preclude indemnification under
this part.
(2) The undertaking required by Subsection (1)(b) must be an unlimited
general obligation of the director but need not be secured and may be
accepted without reference to financial ability to make repayment.
(3) Determinations and authorizations of payments under this section
shall be made in the manner specified in Section 16-10a-906.
Page 43 of 61
<PAGE>
PART F/S
--------
SYNTHONICS TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Audited Financial Statements
December 31, 1997 and December 31, 1996
Independent Auditors' Report ...................................... 45
Consolidated Balance Sheet ........................................ 46
Consolidated Statements of Operations ............................. 48
Conslidated Statements of Stockholders' Equity .................... 49
Consolidated Statements of Cash Flows ............................. 51
Notes to the Financial Statement .................................. 53
Page 44 of 61
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Synthonics Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Synthonics
Technologies, Inc. and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1997 and 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Synthonics Technologies, Inc. and Subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
Jones, Jensen & Company
Salt Lake City, Utah
February 6, 1998
Page 45 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
ASSETS
December 31,
------------
1997
------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $311,610
Accounts receivable (Note 1) 8,332
Inventory (Note 1) -
Prepaid expenses 2,667
------------
Total Current Assets 322,609
------------
PROPERTY AND EQUIPMENT (Net) (Note 2) 124,534
------------
OTHER ASSETS
Organization costs, net of accumulated
amortization of $1,195 and $920 (Note 1) 183
Goodwill (Note 1) 48,092
Intangibles (Note 3) 144,591
Deposits 15,083
------------
Total Other Assets 207,949
------------
TOTAL ASSETS $655,092
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 46 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
------------
1997
------------
<S> <C>
CURRENT LIABILITIES
Accounts payable $126,034
Accrued salaries (Note 5) 99,299
Other accrued expenses 22,166
Notes payable (Note 6) 100,000
------------
Total Current Liabilities 347,499
------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY
Preferred stock; 550,000 shares authorized
of $10.00 par value, 50,000 and -0- shares
issued and outstanding, respectively 500,000
Common stock; 50,000,000 shares authorized
of $0.01 par value, 17,823,387
shares issued and outstanding, 178,234
Additional paid-in capital 3,961,790
Accumulated deficit (4,332,431)
------------
Total Stockholders' Equity 307,593
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $655,092
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 47 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
REVENUE
Net sales $ 417,574 $ 208,224
Cost of goods sold 264,850 53,816
--------------------------
Gross Profit 152,724 154,408
--------------------------
EXPENSES
Research and development 753,014 368,593
General and administrative 830,415 690,779
Depreciation and amortization 110,979 32,918
--------------------------
Total Expenses 1,694,408 1,092,290
--------------------------
Loss From Operations (1,541,684) ( 937,882)
--------------------------
OTHER INCOME (EXPENSE)
Other income 2,104 971
Interest income 6,603 2,304
Interest expense (9,142) ( 7,229)
Bad debt expense (34,780) ( 8,376)
Income from debt release - -
--------------------------
Total Other Income (Expense) (35,215) ( 12,330)
--------------------------
Loss before provision for income taxes (1,576,899) ( 950,212)
Provision for income taxes (Note 8) 1,700 800
--------------------------
NET LOSS $(1,578,599) $ (951,012)
===========================
LOSS PER SHARE $ (0.10) $ (0.07)
===========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 48 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 - $ - 13,332,942 $133,329 $1,392,822 $(1,802,820)
Common stock issued
for cash at prices
ranging from $0.22
to $1.00 per share - - 2,515,500 25,155 1,027,523 -
Common stock issued
for services rendered
at $0.18 per share - - 275,000 2,750 45,830 -
Common stock issued
in lieu of debt and
equipment at $0.50
per share - - 105,000 1,050 51,450 -
Cancellation of
common stock - - (326,409) (3,264) 3,264 -
Contribution to
capital for the
purchase of
stock warrants
and options - - - - 570,500 -
Net loss for the
year ended
December 31, 1996 - - - - - (951,012)
-----------------------------------------------------------
Balance,
December 31,
1996 - $ - 15,902,033 $159,020 $3,091,389 $(2,753,832)
-----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 49 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 - $ - 15,902,033 $159,020 $3,091,389 $(2,753,832)
Common stock issued
upon exercise of
warrants - - 167,000 1,670 (1,670) -
Common stock issued
upon exercise of
warrants at
$0.70 per share - - 350,000 3,500 241,500 -
Common stock issued
upon exercise of
options at
$0.22 per share - - 688,500 6,885 144,862 -
Common stock issued
to acquire Christopher
Raphael, Inc. at
$0.52 per share - - 10,000 100 5,100 -
Common stock issued
to replace original
shares of Synthonics,
Inc. recorded at
predecessor cost - - 179,700 1,797 (1,797) -
Common stock issued
for services rendered
at $1.00 per share - - 25,154 252 24,903 -
Common stock issued in
exchange for the
forfeiture of 750,000
stock options - - 501,000 5,010 243,990 -
Preferred stock
issued for cash at
10.00 per share 50,000 500,000 - - - -
Stock offering
costs - - - - (50,620) -
Additional capital
contributed - - - - 279,133 -
Dividends declared - - - - (15,000) -
Net loss for
the year ended
December 31, 1997 - - - - - (1,578,599)
-----------------------------------------------------------
Balance,
December
31, 1997 50,000 $500,000 17,823,387 $178,234 $3,961,790 $(4,332,431)
================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 50 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,578,599) $(951,012)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 110,979 32,918
Stock issued for services 274,155 48,580
Changes in assets and liabilities:
(Increase) decrease in restricted cash - -
(Increase) decrease in accounts
receivable (7,244) 24,922
(Increase) decrease in prepaid expenses
and deposits 1,505 (2,797)
(Increase) decrease in inventory 4,296 (4,296)
Increase (decrease) in accounts payable (39,327) 8,434
Increase (decrease) in accounts
payable - shareholder - (62,500)
Increase (decrease) in accrued expenses (10,157) 4,680
---------------------------
Net Cash Used by Operating Activities (1,244,392) (901,071)
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (18,530) (77,893)
Patent costs (126,459) -
---------------------------
Net Cash Used by Investing Activities (144,989) (77,893)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principle payments on notes payable - (127,500)
Cash received from notes payable 50,000 -
Capital contributions 279,133 570,500
Issuance of common and preferred stock 846,127 1,052,678
---------------------------
Net Cash Provided by Financing
Activities 1,175,260 1,495,678
---------------------------
NET INCREASE (DECREASE) IN CASH (214,121) 516,714
CASH AT BEGINNING OF PERIOD 525,731 9,017
---------------------------
CASH AT END OF PERIOD $ 311,610 $525,731
===========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 51 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------
1997 1996
------------------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR
Interest $ 9,142 $ 7,229
Income Taxes $ 900 $ 800
NON CASH FINANCING ACTIVITIES
Stock issued for services $274,155 $48,580
Stock issued in conversion of debt
to common stock $ - $45,000
Income from debt release $ - $ -
Stock issued for equipment $ - $ 7,500
Stock issued for acquisition of
subsidiary $ 5,200 $ -
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 95,
"Statements of Cash Flows," the cash flows related to the purchase of
Christopher Raphael, Inc. during 1997 are shown for the three months ended
December 31, 1997. As a result, amounts related to assets and liabilities
reported on the consolidated statements of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheets.
The accompanying notes are an integral part of these consolidated financial
statements
Page 52 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The consolidated financial statements presented are those of
Synthonics Technologies, Inc.(STI) and its wholly-owned subsidiaries,
Synthonics Incorporated (Synthonics) and Christopher Raphael, Inc.
(CRI). Collectively, they are referred to herein as the "Company". STI
was incorporated on March 27, 1974 under the laws of the State of
Utah. Effective May 19, 1995, STI issued 9,983,301 shares of its
common stock in exchange for 98% of the issued and outstanding common
stock of Synthonics. During 1997, STI issued an additional 179,700
shares of its common stock for the remaining 2%. In 1996, STI changed
its name to Synthonics Technologies, Inc.
Synthonics was incorporated on August 26, 1993 under the state laws of
California. Synthonics was organized to engage in the design,
development and marketing of computer-interactive and
computer-automated image analysis software and hardware products. With
the acquisition of Synthonics, STI continued to engage in these
activities.
At the time of the acquisition of Synthonics, STI was essentially
inactive, with no operations and minimal assets. Additionally, the
exchange of STI's common stock for the common stock of Synthonics
resulted in the former stockholders of Synthonics obtaining control of
STI. Accordingly, Synthonics became the continuing entity for
accounting purposes, and the transaction was accounted for as a
recapitalization of Synthonics with no adjustment to the basis of
Synthonic's assets acquired or liabilities assumed. For legal
purposes, STI was the surviving entity.
On October 1, 1997, STI purchased CRI for $5,200 by issuing 10,000
shares of its common stock in exchange for 100% of the issued and
outstanding stock of CRI. The common stock issued was valued at its
trading price of $0.52 per share.
CRI was incorporated on June 17, 1997 under the state laws of
California. CRI was organized as a graphic design and print brokerage
firm.
b. Accounting Methods
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31, year end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition.
d. Loss Per Share
The computations of loss per share of common stock are based on the
weighted average number of common shares outstanding during the period
of the consolidated financial statements. Common stock equivalents,
consisting of warrants and employee stock options, have not been
included in the calculation as their effect is antidilutive or
immaterial for the periods presented.
e. Computer Software Development
The Company records all costs incurred to establish the technological
feasibility of its computer software products as research and
development expenses.
The accompanying notes are an integral part of these consolidated financial
statements
Page 53 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Inventory
Inventory is stated at the lower-of-cost or market using the first-in,
first-out method. The inventory was $0 and $4,296 as of December 31,
1997 and 1996, respectively, and consisted of computer software
products and packaging supplies.
g. Property and Equipment
Property and equipment is recorded at cost. Major additions and
improvement are capitalized. The cost and related accumulated
depreciation of equipment retired or sold are removed from the
accounts and any differences between the undepreciated amount and the
proceeds from the sale are recorded as gain or loss on sale of
equipment. Depreciation is computed using the straight-line method
over a period of three years.
h. Organization costs
Organization costs are recorded at cost and are amortized using the
straight-line method over a period of five years. Amortization expense
for the years ended December 31, 1997 and 1996 was $275 and $0,
respectively.
i. Accounts receivable
Accounts receivable are shown net of the allowance for doubtful
accounts.
j. Provision For Taxes
At December 31, 1997, the Company has net operating loss carryforwards
of approximately $4,300,000 that may be offset against future taxable
income through 2012. No tax benefit has been reported in the
consolidated financial statements, because the Company believes there
is a 50% or greater chance the net operating loss carryforwards will
not be used. Accordingly, the potential tax benefits of the net
operating loss carryforwards are offset by a valuation allowance of
the same amount.
k. Principles of Consolidation
The consolidated financial statements include those of Synthonics
Technologies, Inc. and its wholly-owned subsidiaries, Synthonics
Incorporated and Christopher Raphael, Inc.
All material intercompany accounts and transactions have been
eliminated.
l. Uninsured Cash Balances
The Company maintains its corporate cash balances at various banks.
Corporate cash accounts at banks are insured by the FDIC for up to
$100,000. Amounts in excess of insured limits were approximately
$142,377 at December 31, 1997.
The accompanying notes are an integral part of these consolidated financial
statements
Page 54 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued))
m. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
n. Goodwill
Goodwill consists of the excess of the purchase price over the fair
value of net tangible assets of the purchased subsidiary and is
amortized on the straight-line method over a two year period. The
Company periodically reviews goodwill for impairment. Amortization
expense on the goodwill for the year ended December 31, 1997 was
$48,092.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
--------------
1997
---------------
Computer equipment $ 168,057
Furniture and fixtures 17,789
Photographic equipment 55,122
--------------
240,968
Accumulated depreciation (116,434)
--------------
Net property and equipment $ 124,534
==============
Depreciation expense for the years ended December 31, 1997 and 1996
was $35,746 and $23,842, respectively.
NOTE 3 - INTANGIBLES
Intangible costs incurred are as follows:
December 31,
--------------
1997
--------------
Trademarks $ 1,484
Patents 186,675
--------------
188,159
Less accumulated amortization (43,568)
--------------
Total $ 144,591
==============
Amortization expense for the years ended December 31, 1997 and
1996 was $26,866 and $9,076, respectively.
The accompanying notes are an integral part of these consolidated financial
statements
Page 55 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 4 - COMMITMENTS AND CONTINGENCIES
During 1997, the Company entered into three separate operating lease
agreements for various computer equipment. The lease terms expire
beginning in November 1999 and ending November 2000. The monthly
rental payment for all three leases combined is $2,668.
The Company entered into a lease agreement for its office facilities
effective September 1, 1996 and expiring August 31, 1999. The monthly
rental payment is $2,254.
CRI has also entered into a lease agreement for its office facilities.
The lease expires September 14, 2000 and requires monthly rental
payments of $2,030.
Minimum future lease payments on all the leases as of December 31,
1997 are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, Amount
----------------------------------------------
<S> <C>
1998 $ 83,427
1999 69,473
2000 26,336
2001 8,121
2002 and thereafter -
-----------------------------------------------
Total $ 187,357
============
</TABLE>
The Company also has entered into employment agreements with certain
officers of the Company. The Company has agreed to pay its Chief
Executive Officer and Chief Technical Officer a base annual salary of
$240,000, each, beginning on July 1, 1996 and ending on December 31,
2000. The Company's Board of Directors may also authorize bonuses on
an-ad hoc basis.
NOTE 5 - RELATED PARTY TRANSACTIONS
As of December 31, 1997 and 1996, the Company owed $99,299 and
$120,000 to certain of its officers and shareholders. These amounts
represent accrued wages.
Page 56 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 6 - NOTES PAYABLE
Notes payable consisted of the following:
December 31,
-------------
1997
-------------
Note payable to a corporation,
principal and 7.50% interest
originally due April 1, 1997.
Secured by 70,000 shares of common
stock and 70,000 warrants to
purchase common stock. $ 50,000
Unsecured bank line-of-credit
at 11.5% interest, interest
paid monthly, principal
amount due December, 1998 50,000
-------------
Total Notes Payable $ 100,000
=============
NOTE 7 - STOCK OPTIONS, WARRANTS AND RIGHTS
a. Stock Subscription Receivable
During 1993, the Board of Directors of Synthonics approved stock
purchase option agreements for certain of its key employees and
officers. During January 1994, all outstanding options to purchase
common stock were exercised at $0.50 per share. A total of 7,402,500
shares of common stock were issued as a result of the exercise of the
stock options. Synthonics received promissory notes in the amount of
$822,500 in return for all options exercised. During 1995, 6,997,500
of the shares of common stock issued were returned to the Company for
cancellation and the related promissory notes of $777,500 were also
canceled. During 1996, 326,409 of the 405,000 remaining shares were
returned to the Company for cancellation and an additional amount of
$35,000 on the promissory notes was canceled. The remaining 78,591
shares were paid for by the receipt of $10,000 during 1996.
b. Stock "Rights" and Warrants
In connection with its acquisition of Synthonics, the Company acquired
from Synthonics stockholders, warrants and "rights" to acquire
1,369,190 shares of Synthonics common stock. In exchange, the Company
granted the exchanging stockholders warrants and "rights" to purchase
6,161,355 shares of the Company's common stock. 1,950,500 of the
2,124,000 stock purchase warrants were exercised during 1996 at $0.27
per share and the remaining 173,500 warrants expired unexercised on
February 15, 1996. There are 2,597,355 uncertificated "rights" with an
exercise price of $0.11 per share outstanding at December 31, 1997.
562,500 expire January 1, 1998 and 2,034,855 expire May 31, 1999.
During 1996, 337,000 warrants were purchased at $1.00 per share for
$337,000. 168,500 of the warrants are "A" warrants and 168,500 are "B"
warrants. They are redeemable at 50% of the average price the month
before being exercised. The "A" warrants were exercised during June
1997 and the "B" warrants expire during June 1998.
Page 57 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 7 - STOCK OPTIONS, WARRANTS AND RIGHTS (Continued)
c. Common Stock Options
During 1996, certain of the Company's officers were granted stock
options for a total of 600,000 restricted common shares of the Company
at $1.00 per share in return for their forgiveness of deferred
compensation debt in the amount of $236,500. During 1997, these
officers were granted additional stock options to purchase 588,290
shares of restricted common stock at $1.00 per share in return for
their forgiveness of deferred compensation debt in the amount of
$279,133. The Company also issued 501,000 shares of common stock
during 1997 in exchange for the forfeiture of 750,000 common stock
options. 450,000 of those stock options were valued at $0.22 per
option and the remaining 300,000 stock options were valued at $0.50
per option. The amounts are recorded as contributed capital at
December 31, 1996 and 1997. The options can be exercised in total or
in part prior to December 31, 2001 and 2002.
The total amount of outstanding stock options of the Company at
December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
Shares Exercise Price Exercised By
------------------------------------------------
<S> <C> <C>
2,034,855 $ 0.22 May 1999
1,200,000 $ 0.50 July 2006
2,151,290 $ 1.00 December 1999 - December 2002
950,000 $ 0.75 October 2002
</TABLE>
NOTE 8 - PROVISION FOR INCOME TAXES
The provision for income taxes for the years ended December 31, 1997
and 1996, consists of the following:
December 31,
----------------------------
1997 1996
----------------------------
State Franchise Taxes $ 1,700 $ 800
============================
NOTE 9 - PREFERRED STOCK
The Company has 50,000 outstanding shares of cumulative convertible
preferred stock. The preferred stock is convertible at the option of
the holder into five shares of the Company's common stock, are
non-voting, and feature a 12% annual dividend, paid quarterly. Accrued
dividends as of December 31, 1997 were $15,000. The preferred shares
are redeemable at the Company's option for $10.50 per share.
Page 58 of 61
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 10 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has
historically incurred significant losses which have resulted in an
accumulated deficit of $4,332,431 at December 31, 1997 which raises
substantial doubt about the Company's ability to continue as a going
concern. The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and
classification of liabilities that might result form the outcome of
this uncertainty. It is the intent of management to create additional
revenues through the development and sales of its image analysis
software and to rely upon additional equity financing if required to
sustain operations until revenues are adequate to cover the costs.
NOTE 11 - SUBSEQUENT EVENTS
On January 8, 1998, a default judgment was granted in favor of the
Company for breach of a license agreement and misappropriation of
trade secrets. The Company was awarded damages from the defendant in
the amount of $300,000. It is unlikely, however, that the Company will
receive any amount from the judgment.
Page 59 of 61
<PAGE>
PART III
--------
Item 1. Index to Exhibits
- --------------------------
The following exhibits are filed as a part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description*
-----------------------------------------------------------------------
<S> <C>
3.1 Articles of Incorporation of Columbine Financial filed on March
27, 1974
3.2 Restated Articles of Incorporation of Columbine Financial dated
May 18, 1995
3.3 Articles of Amendment to Articles of Incorporation, filed on
September 16, 1996
3.4 Statement and Designation as Foreign Corporation in California
filed November 4, 1996
3.5 Certificate of Amendment to Articles of Incorporation filed
September 6, 1997.
3.6 Amended and Restated Articles of Incorporation filed April 23,
1998.
3.7 Bylaws of Synthonics Technologies, Inc.
4.1 Statement of Rights, Preferences, and Privileges of Common and
Preferred Stock as of September 6, 1997.
10.1 Management Cash Incentive Plan
10.2 1998 Stock Option Plan
21 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
* Summaries of all exhibits contained within this registration statement
are modified in their entirety by reference to these exhibits.
Page 60 of 61
<PAGE>
SIGNATURES
----------
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Company has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Synthonics Technologies, Inc.
Date: 4-28-98 /S/ F. Michael Budd
---------------------------------------
By: F. Michael Budd,
Its:President, Chief Financial Officer,
and Director
Date: 4-28-98 /S/ Charles S. Palm
---------------------------------------
By: Charles S. Palm
Its: Vice President of Technology,
Secretary and Director
Page 61 of 61
<PAGE>
Exhibit 3.1
-----------
[Stamp of approval of the Secretary of State of Utah dated March 27, 1974
appears here]
ARTICLES OF INCORPORATION
OF
COLUMBINE FINANCIAL CORPORATION
We the undersigned, natural persons being more than twenty-one years of
age, acting as incorporators of a Corporation pursuant to the provisions of the
Utah Business Corporation Act, do hereby adopt the following Articles of
Incorporation for such a Corporation.
ARTICLE I
---------
NAME
-----
The name of the Corporation hereby created shall be:
COLUMBINE FINANCIAL CORPORATION
ARTICLE II
----------
DURATION
--------
The Corporation shall continue in existence perpetually unless sooner
dissolved according to the law.
ARTICLE III
-----------
PURPOSES
--------
The purposes for which the Corporation is organized are:
1. To purchase or otherwise acquire, and to hold, grant security interests
in pledge, sell, exchange, or otherwise dispose of, securities (which term
includes, without limitation of the generality thereof, any shares of stocks,
bonds, debentures, contracts, options, notes mortgages, or other obligations,
and any certificates, receipts, or other instruments representing rights to
receive, purchase, or subscribe for the same, or representing any other rights
or interests therein or in any property or assets) created or issued by any
persons, firm, associations, corporations, or governments or subdivisions
thereof; to make payment therefor in any lawful manner; and to exercise, as
owner or holder of a any securities, any and all rights, powers, and privileges
in respect thereof.
2. To acquire by purchase, subscription, underwriting, or otherwise, and to
own, hold for investment, or otherwise, and to use, sell, assign, transfer,
mortgage, create security interests in, pledge, exchange, or otherwise dispose
of real and personal property of every sort and description and wheresoever
situated.
-1-
<PAGE>
3. To issue offer, underwrite, buy, sell sponsor, create, assign, transfer,
pledge or otherwise deal in commodities, options, or double options on
commodities of any kind whatsoever.
4. To act as registrar or transfer agent either for itself or for others,
including the cancellation, authentication, validation, issuance and execution
of share certificates; the preparation and maintenance of any and all books,
ledgers, journals and records in connection therewith; the execution, signing,
verification, and acknowledgment of any kind and all documents or writings of
any kind whatsoever; and all other acts necessary or appropriate in connection
thereto.
5. To do any act or thing provided or permitted herein either directly or
indirectly through agents, independent contractors, joint ventures,
subsidiaries, divisions, contractual arrangements or otherwise.
6. In general, to possess and exercise all the powers an privileges granted
by the laws of the State of Utah or by these Articles of Incorporation together
with any powers incidental thereto, so far as such powers and privileges are
necessary or convenient to the conduct, promotion or attainment of the purpose
of the Corporation.
7. The business and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in no ways limited or restricted by
reference to, or inference from, the terms of any other clause in there Articles
of Incorporation together with any powers incidental thereto, so far as such
powers and privileges are necessary or convenient to the conduct, promotion or
attainment of the purpose of the Corporation.
ARTICLE IV
----------
CAPITALIZATION
--------------
The aggregate number of shares which the Corporation shall have authority
to issue is 5,000,000 capital shares with a par value of $.01 per share, each of
which shall have equal voting rights.
ARTICLE V
----------
PAID-IN CAPITAL
---------------
The Corporation shall not commence business until consideration of a value
of at least $1,000.00 has been received by it as consideration for the issuance
of its shares.
ARTICLE VI
----------
PRE-EMPTIVE RIGHTS
------------------
No holder of the Corporation of any class now or hereafter authorized,
shall have any preferential or pre-emptive right to subscribe for,
-2-
<PAGE>
ARTICLE VII
-----------
OFFICERS AND DIRECTORS CONTRACTS
---------------------------------
No contract of other transaction between this Corporation and any other
firm or corporation shall be affected by the fact that a director or officer of
this Corporation has an interest in, or is a director or officer of such firm or
other corporation. Any officer or director, individually or with others, may be
a party to, or may have an interest in, or is a director, individually or with
others, may be a party to, or may have an interest in, any transaction of this
Corporation or any transaction in which the Corporation is a party or has an
interest. Each person who is now or may become an officer or a director of this
Corporation is hereby relieved from liability that might otherwise obtain in the
event that such an officer or director contracts with this Corporation for the
benefit of himself or any other corporation for the benefit of himself or any
firm or other corporation in which he may have an interest, provided such
officer or director acts in good faith.
ARTICLE VIII
------------
REGISTERED OFFICE AND AGENT
---------------------------
The address of the initial registered office of the Corporation is:
Suite 500 Continental Bank Bldg.
Salt Lake City, Utah 84101
and the name of its initial registered agent at such address is:
Karin A. Lewis
ARTICLE IX
----------
DIRECTORS
---------
The internal affairs of the Corporation shall be managed by Board of
Directors which shall have not less than three (3) nor more than nine (9)
directors, as determined from time to time by the Board of Directors. The
original Board of Directors shall be comprised of three (3) persons. The names
and residence address of the person who are to serve as directors until the
first annual meeting of shareholders and until their successors are elected
shall qualify as follows:
-3-
<PAGE>
NAME ADDRESS
---- -------
Richard L. Chatham Suite 500 - Continental Bank Bldg.
Salt Lake City, Utah 84101
Gary L. Merrill Suite 500 - Continental Bank Bldg.
Salt Lake City, Utah 84101
Jo Lynda Mayhew Suite 500 - Continental Bank Bldg.
Salt Lake City, Utah 84101
ARTICLE X
---------
INCORPORATORS
-------------
The names and residence addresses of the incorporators are:
Karin A. Lewis 5678 Holladay Blvd.
Salt Lake City, Utah 84121
Gary Lee Merrill 5852 Fountaine Bleu Circle
Salt Lake City, Utah 84121
Sue Frankenberger 151 South Main #18
Midvale, Utah 84047
INCORPORATORS
-------------
/S/ Karin A. Lewis
--------------------------
Karin A. Lewis
/S/ Gary Lee Merrill
--------------------------
Gary Lee Mitchell
/S/ Sue Frankenberger
--------------------------
Sue Frankenberger
STATE OF UTAH )
) ss
COUNTY OF SALT LAKE )
I, Jo Lynda Mayhew, a Notary Public, hereby certify that on the 24th day of
March, 1974, personally appeared before me Karin A. Lewis, Gary Lee Merrill, and
Sue Frankenberger, who being by me first duly sworn, severally declared that
they are the persons who signed the foregoing documents as incorporators, and
that the statements therein contained are true.
/s/ Jo Lynda Mayhew
------------------------
Notary Public
Residing at Salt Lake City, Utah
My commission Expires:
11-20-74
- --------
-4-
Exhibit 3.2
-----------
[Stamp of approval of the Division of Corporations and Commercial Code of the
State of Utah Department of Commerce dated May 19, 1995, appears here]
ARTICLES OF INCORPORATION
(RESTATED)
OF
COLUMBINE FINANCIAL CORPORATION
Pursuant to ss.16-10a-1007 of the Utah Revised Business Corporation Act
("the Act") and a resolution heretofore adopted (by written consent pursuant to
ss.16-10a-821 of the Act) by its board of directors, Columbine Financial
Corporation hereby restates its Articles of Incorporation, as heretofore amended
and without any further amendment to be effectuated hereby, to-wit:
ARTICLE I
The name of this corporation is "Columbine Financial Corporation".
ARTICLE II
The corporation shall continue in existence perpetually unless sooner
dissolved according to law.
The Corporation is organized to engage in any and all lawful acts and/or
activities for which corporations may be organized under the Utah Revised
Business Corporation Act.
ARTICLE IV
The Corporation is authorized to issue a total of Fifty Million shares,
which shares are all of the same class, to-wit $0.01 par value common stock, and
when issued shall have all unlimited voting rights and be entitled to received
the net assets of the Corporation on dissolution.
-1-
<PAGE>
ARTICLE V
The Corporation shall indemnify its directors, officers, employees,
fiduciaries and agents as those terms are defined in, and to the fullest extent
permitted by, Part 9 of the Utah Revised Business Corporation Act.
ARTICLE VI
The shareholders of the Corporation shall not have any pre-emptive right to
acquire any additional shares of the Corporation and/or rights in respect of its
shares.
ARTICLE VII
(a) The board of directors of the Corporation shall consist of such number
or persons, not less than three, as shall be determined in accordance with the
bylaws from time to time. As of the effective date of this article the number of
directors is three.
(b) The officers of the Corporation are and shall hereafter be a President,
one or more Vice Presidents (as may be prescribed by the bylaws), a Secretary, a
Treasurer, and such other officers as may hereafter be designated by the board
of directors in a manner not inconsistent with the bylaws.
-2-
<PAGE>
ARTICLE VIII
The corporation may take action by the written consent of fewer than all of
the shareholders entitled to vote with respect to the subject matter of an
action in question; provided, however, that in order to be valid any and all
such written consents shall be made and provided in accordance with all
applicable requirements of ss.16-10a-704 of the Utah Revised Business
Corporation Act and signed by the holders of not less than a majority of the
corporation's outstanding shares (calculated as of the record date provided for
by S16-10a-704(6)) of that Act.
ARTICLE IX
Shares present in person or by proxy at a duly called shareholders meeting
shall constitute a quorum, and the affirmative vote of the majority of a quorum
shall constitute the act of the shareholders.
Upon filing by the Division of Corporations and Commercial Code of the Utah
Department of Commerce these restated Articles of Incorporation of Columbine
Financial Corporation shall supersede the original articles if incorporation and
all prior amendments to them.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned Secretary of Columbine Financial
Corporation hereby makes and executes these restated Articles of Incorporation
pursuant to specific authorization and direction from the board of directors of
said corporation to do so, on this 18th day of May, 1995:
/S/ Richard M. Day
--------------------------------
Richard M. Day, Secretary
-4-
Exhibit 3.3
-----------
AMENDMENT OF ARTICLES OF
COLUMBINE FINANCIAL CORPORATION
1. Article I of the Articles of Incorporation of this corporation is
amended to read as follows:
ARTICLE I
The name of this corporation is Synthonics Technologies, Inc.
2. The foregoing amendment of Articles of Incorporation was duly approved
and adopted by the Corporation's Board of Directors on August 14, 1996.
3. The foregoing amendment of Articles of Incorporation has been duly
approved and adopted by the shareholders, in accordance with the Utah
Corporations Code. The number of outstanding shares of the Corporation is
15,283,442. The number of votes entitled to be cast is 15,283,442. The total
number of votes indisputably represented and cast for the amendment is
9,490,835. The number of votes cast for the amendment is sufficient for
approval.
IN WITNESS WHEREOF, I certify that the matters set forth in this
certificate are true and correct.
Date: September 3, 1996
/S/ Charles S. Palm
---------------------------
Charles S. Palm
President
[Stamp of receipt of the Utah Division of Corporations and Commercial Code dated
September 16, 1996, appears here]
Exhibit 3.4
-----------
[Stamp of the Office of the Secretary of State of the State of California
Endorsed - Filed 1904683 dated November 4, 1996, appears here]
STATEMENT AND DESIGNATION
BY
FOREIGN CORPORATION
Synthonics Technologies, Inc., a corporation organized end existing under
the laws of Utah, makes the following statements and designation:
1. The address of its principal executive office is 31324 Via Colinas,
Suite 106 Westlake Village, CA 91362. (Insert complete address of principal
executive office wherever located.) DO NOT USE POST OFFICE BOX
2. The address of its principal office in the State of California is 31324
Via Colinas, Suite 106, Westlake Village CA 91362
DESIGNATION OF AGENT FOR SERVICE OF PROCESS IN THE STATE OF CALIFORNIA
(Complete either item 3 or item 4)
3. F. Michael Budd, a natural person residing in the State of California,
whose complete address is 743 Cedar Point Pl., Westlake Village, CA 91362
Is designated as agent upon whom process directed to the undersigned
corporation may be served within the State of California, in the manner provided
by law.
-1-
<PAGE>
4. (Use this paragraph if the process agent is a corporation) N/A, a
corporation organized and existing under the laws of N/A, is designated as agent
upon whom process directed to the undersigned corporation may be served within
the State of California, in the manner provided by law.
NOTE: Before a corporation may be designated by any other corporation
as an agent for service of process, a corporate agent must have
complied with Section 1505, California Corporations Code.
5. The undersigned corporation hereby irrevocably consents to service of
process directed to it upon the agent designated above, and to service of
process on the Secretary of State of the State of California if the agent so
designated or the agent's successor is no longer authorized to act or cannot be
found at the address given.
Synthonics Technologies, Inc.
------------------------------
(Name of Corporation)
/S/ F. Michael Budd
------------------------------
(Signature of Corporate Officer)
F. Michael Budd, President and CEO
----------------------------------
(Typed Name and Title of Officer Signing)
-2-
Exhibit 3.5
-----------
[Stamp of approval of the Division of Corporations and Commercial Code of the
State of Utah Department of Commerce dated September 8, 1997, appears here]
CERTIFICATE OF AMENDMENT
TO ARTICLES OF INCORPORATION
OF
SYNTHONICS TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
Charles S. Palm hereby certifies that:
1. He is the Secretary of Synthonics Technologies, Inc., a Utah corporation
(the "Corporation").
2. Article IV., of the articles of incorporation of this Corporation is
amended to read as follows:
ARTICLE IV.
-----------
A. This Corporation is authorized to issue two (2) classes of shares
designated respectively "Common Stocks" and "Preferred Stock", and referred to
herein as either Common Stock or Common Shares and Preferred Stock or Preferred
Shares. The total number of shares of capital stock this Corporation shall have
the authority to issue is Fifty Million Five Hundred and Fifty Thousand
(50,550,000). No Fractional shares may be issued.
B. Common Stock. The total number of shares of Common Stock this
Corporation shall have the authority to issue is Fifty Million (50,000,000). The
Common Stock shall have a stated par value of $0.01 per share. Each shall of
Common Stock shall have, for all purposes one (1) vote per share. Subject to the
cumulative dividend preference to holders of Preferred Stock as provided in
Paragraph C. below. The shares of Common Stock are entitled to participate in
any dividends available therefor in equal amounts per share on all outstanding
Preferred and Common Stock. Subject to the provisions for the payment of the
Liquidation Preference to the holders of Preferred Stock as provided in
paragraph C., below, the Common Stock is entitled to participate in all
distributions to shareholders made upon liquidation, dissolution or winding up
of the Corporation in equal amounts per share as all outstanding Preferred and
Common Stock. The holders of Common Shares issued and outstanding have and
possess the right to receive notice of shareholders' meetings, and to vote upon
the election of directors or upon any other matter as to which approval of the
outstanding shares of Common Stock or approval of the common shareholders is
required or requested.
C. Preferred Stock. The total number of shares of Preferred Stock this
Corporation is authorized to issue is Five Hundred Fifty Thousand (550,000). The
Preferred Stock shall have a stated par value of $10.00 per share. The
designations, powers, preferences, rights and restrictions granted or imposed
upon the Preferred Stock and holders thereof are as follows:
Page 1 of 5
<PAGE>
(1) Dividend Preference: The Preferred Stock is entitled to
receive dividends on a cumulative basis at the rate of twelve
percent (12%) of its stated par value per annum (the "Dividend
Preference"), payable on a quarterly basis on the fifteenth
(15th) day of the next month following the end of each fiscal
quarter. Such dividends shall accrue from the date of issuance,
whether or not earned. Dividends on the Preferred Shares shall be
cumulative so that if dividends required to be paid on said
shares are not paid or set apart for payment by the Board of
Directors on or before fifteenth day of the month following the
end of each fiscal quarter, in which the same are due, the rights
thereof shall cumulate and remain due and payable by the
Corporation. No dividends or other distributions may be made to
the Common Stock during any fiscal year of the Corporation until
dividends on the Preferred Stock in the amount of the Dividend
Preference have been paid or set apart for payment.
(2) Liquidation Preference:
(a) In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of
Preferred Shares shall be entitled to receive out of the
assets of the Corporation, whether such assets are capital
or surplus of any nature, an amount equal to the stated par
value less the aggregate amount of all prior distributions
to its Preferred Shareholders made to holders of Preferred
Stock, plus any accrued previously declared but unpaid
dividends (the amount so determined being hereinafter
referred to as the "Liquidation Preference"). No
distribution shall be made to the holders of the Common
Shares upon liquidation, dissolution or winding up until
after the full amount of the Liquidation Preference has been
distributed or provided to the holders of the Preferred
Shares.
(b) If, upon such liquidation, dissolution or winding up,
the assets thus distributed among the Preferred Shareholders
shall be insufficient to permit payment to such shareholders
of the full amount of the Liquidation Preference, then the
entire assets of the Corporation shall be distributed
ratably among the holders of the Preferred Shares.
(c) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
when the Corporation has completed distribution of the full
Liquidating Preference to the holders of the Preferred
Shares, the Preferred Shares shall be considered to have
been redeemed, and thereafter, the remaining assets of the
Corporation shall be paid in equal amounts on all
outstanding shares of Common Stock.
Page 2 of 5
<PAGE>
(d) A consolidation or merger of the Corporation with or
into any other corporation or corporations, or a sale of all
or substantially all of the assets of the Corporation shall
not be deemed a liquidation, dissolution or winding up
within the meaning of this Paragraph C(2).
(3) Redemption Rights. The Corporation, at the option of the
Board of Directors, may at any time redeem all of the outstanding
Preferred Stock by paying, in cash, a sum equal to the $10.50 per
share for each Preferred Share so redeemed, less the aggregate
amount of all previously paid dividends, through and including
the date of redemption, hereinafter referred to as the
"redemption price", by giving to each Preferred Shareholder of
record at his or her last known address, as shown on the records
of the Corporation at least thirty (30) days prior notice in
writing, by first-class mail, postage prepaid, stating the date
and plan of redemption, hereinafter called the "redemption
notice". On or after the date fixed for redemption, each holder
of shares called for redemption shall surrender his or her
certificate(s) for such shares to the Corporation at the place
designated in the redemption notice and shall thereupon be
entitled to receive payment of the redemption. price. If the
redemption notice is duly given, and if sufficient funds are
available therefor on the date fixed for redemption, then,
whether or not the certificates evidencing the shares to be
redeemed are surrendered, all rights with respect to such shares
shall terminate on the date fixed for redemption, except the
right of the holders to receive the redemption price, without
interest, on surrender of their certificates therefor. Shares
redeemed by the Corporation shall be restored to the status of
authorized but unissued shares of the Corporation.
(4) Conversion Rights. At any time up to and including two (2)
days before the date fixed for redemption of redeemable shares in
a notice of redemption (as provided above), holders of the
Preferred Shares being redeemed who endorse the share
certificates and deliver them together with a written notice of
their intent to convert to the corporation at its Principal
office, shall be entitled to convert and receive five (5) shares
of Common Stock for each share being converted at the rate of
$2.00 per share of Common Stock being converted into. Such
redemption is subject to the following adjustments, terms and
conditions:
(a) If the number of outstanding shares of Common Stock has
been increased or decreased since the initial issuance or
the Preferred Stock (or series having conversion rights (by
reason of any split, stock dividend, merger, consolidation
or other capital change or reorganization affecting the
number of outstanding shares of Common Stock), the number of
shares of Common Stock to be issued on conversion to the
Page 3 of 5
<PAGE>
holders or Preferred Stock shall equitably be adjusted by
appropriate amendment of this article. The purpose of such
adjustment is to preserve fairly and equitably (as far as
reasonably possible) the original conversion rights of the
Preferred shares being converted. No redemption notice
pursuant to this article shall be given until an amendment
to the articles required to effect this adjustment has been
made.
(b) Shares converted under this article shall not be
reissued. The corporation shall at all times reserve and
keep available a sufficient number of authorized but
unissued common shares, and shall obtain and keep in effect
any required permits, to enable it to issue and deliver all
common shares required to implement the conversion rights
granted herein.
(c) No fractional shares shall be issued upon conversion,
but the corporation shall pay cash for any fractional shares
of Common Stock to which shareholders may be entitled, at
the fair value of such shares at the time of conversion.
Such fair value shall be determined by the board of
directors.
(5) Default Conversion Rights. If the Corporation is in default
in the payment of any dividend to be paid to the holders of the
Preferred Stock, as required under this Article, then, the
holders of the Preferred Stock, at any time up to and including
two (2) days before the date fixed for redemption of redeemable
shares in a notice of redemption (as provided above), who endorse
the share certificates and deliver them together with a written
notice of their intent to convert to the corporation at its
Principal office, shall be entitled to convert and receive seven
(7) shares of Common Stock for each share being converted at the
rate of $1.43 per share of Common Stock being converted into.
Such conversion and redemption is subject to the adjustments,
terms and conditions set forth in paragraph C(4)(a)(b) and (c)
above.
3. The foregoing amendment to the Articles of Incorporation was duly
approved and adopted by the Corporation's Board of Directors on August 25, 1997.
4. The foregoing amendment to the Articles of Incorporation has been duly
approved and adopted by the shareholders, in accordance with the Utah Revised
Business Corporation Act. The total number of outstanding shares of the
Corporation is 16,512,437. The number of votes entitled to be cast is
16,512,437. The total number of votes indisputably represented and cast for the
amendment is 9,687,803. The total number of votes cast for the amendment is
sufficient for approval.
Page 4 of 5
<PAGE>
IN WITNESS WHEREOF, We certify that the matters set forth in this
certificate are true and correct of our own knowledge.
Dated: September 6, 1997 /S/ Charles S. Palm
--------------------------
By: Charles S. Palm
Its: Secretary
Page 5 of 5
Exhibit 3.6
------------
[Stamp of approval of the Division of Corporations and Commercial Code of the
State of Utah Department of Commerce dated April 23, 1998, appears here]
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SYNTHONICS TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
F. Michael Budd and Charles S. Palm hereby certify that:
1. They are the President and Secretary, respectively, of Synthonics
Technologies, Inc., a Utah corporation (the "Corporation").
2. The Articles of Incorporation of this Corporation is amended and
restated in its entirety to read as follows:
ARTICLE 1.
----------
Name
----
The name of this corporation is Synthonics Technologies, Inc.
ARTICLE 2.
----------
Duration
--------
The corporation shall continue in existence perpetually unless sooner
dissolved according to law.
ARTICLE 3.
---------
Purpose
-------
The Corporation is organized to engage in any and all lawful acts and/or
activities for which corporations may be organized under the Utah Revised
Business Corporation Act.
ARTICLE 4.
----------
Capitalization
--------------
A. This Corporation is authorized to issue two (2) classes of shares
designated respectively "Common Stock" and "Preferred Stock," and referred to
herein as either Common Stock or Common Shares and Preferred Stock or Preferred
Shares. The total number of shares of capital stock this Corporation shall have
the authority to issue is Fifty Million Five Hundred and Fifty Thousand
(50,550,000). No Fractional shares may be issued.
Page 1 of 8
<PAGE>
B. Common Stock. The total number of shares of Common Stock this
Corporation shall have the authority to issue is Fifty Million (50,000,000). The
Common Stock shall have a stated par value of $0.01 per share. Each share of
Common Stock shall have, for all purposes one (1) vote per share. Subject to the
cumulative dividend preference to holders of Preferred Stock as provided in
Paragraph C below. The shares of Common Stock are entitled to participate in any
dividends available therefor in equal amounts per share on all outstanding
Preferred and Common Stock. Subject to the provisions for the payment of the
Liquidation Preference to the holders of Preferred Stock as provided in
paragraph C below, the Common Stock is entitled to participate in all
distributions to shareholders made upon liquidation, dissolution, or winding up
of the corporation in equal amounts per share as all outstanding Preferred and
Common Stock. The holders of Common Shares issued and outstanding have and
possess the right to receive notice of shareholders' meetings and to vote upon
the election of directors or upon any other matter as to which approval of the
outstanding shares of Common Stock or approval of the common shareholders is
required or requested.
C. Preferred Stock. The total number of shares of Preferred Stock this
Corporation is authorized to issue is Five Hundred fifty Thousand (550,000). The
Preferred Stock shall have a stated par value of $10.00 per share. The
designations, powers, preferences, rights and restrictions granted or imposed
upon the Preferred Stock and holders thereof are as follows:
(1) Dividend Preference. The Preferred Stock is entitled to receive
dividends on a cumulative basis at the rate of twelve percent (12%) of
its stated par value per annum (the "Dividend Preference"), payable on
a quarterly basis on the fifteenth (15th) day of the next month
following the end of each fiscal quarter. Such dividends shall accrue
from the date of issuance whether or not earned. Dividends on the
Preferred Shares shall be cumulative so that if dividends required to
be paid on said shares are not paid or set apart for payment by the
Board of Directors on or before fifteenth day of the month following
Page 2 of 8
<PAGE>
the end of each fiscal quarter, in which the same are due, the rights
thereof shall cumulate and remain due and payable by the Corporation.
No dividends or other distributions may be made to the Common Stock
during any fiscal year of the Corporation until dividends on the
preferred Stock in the amount of the Dividend Preference have been
paid or set apart for payment.
(2) Liquidation Preference.
(a) In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of Preferred
Shares shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature,
an amount equal to the stated par value less the aggregate amount of
all prior distributions to its Preferred Shareholders made to holders
of Preferred Stock, plus any accrued previously declared but unpaid
dividends (the amount so determined being hereinafter referred to as
the "liquidation Preference"). No distribution shall be made to the
holders of the Common Shares upon liquidation, dissolution, or winding
up until after the full amount of the Liquidation Preference has been
distributed or provided to the holders of the Preferred Shares.
(b) If, upon such liquidation, dissolution or winding up the
assets thus distributed among the Preferred Shareholders shall be
insufficient to permit payment to such shareholders of the full amount
of the Liquidation Preference, the entire assets of the Corporation
shall be distributed ratably among the holders of the Preferred
Shares.
(c) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, when the Corporation has
completed distribution of the full Liquidating Preference to the
holders of the Preferred Shares, the Preferred Shares shall be
considered to have been redeemed, and thereafter, the remaining,
assets of the Corporation shall be paid in equal amounts on all
outstanding shares of Common Stock.
(d) A consolidation or merger of the Corporation with or into any
other corporation or corporations, or a sale of all or substantially
all of the assets of the Corporation shall not be deemed a
liquidation, dissolution or winding up within the meaning of this
Paragraph C(2).
Page 3 of 8
<PAGE>
(3) Redemption Rights. The Corporation, at the option of the
Board of Directors, may at any time redeem after December 31,
1998, all of the outstanding Preferred Stock by paying, in cash,
a sum equal to the $10.50 per share for each Preferred Share so
redeemed, hereinafter referred to as the "redemption price" by
giving to each Preferred Shareholder of record at his or her last
known address, as shown on the records of the Corporation at
least thirty (30) days prior notice in writing, by first-class
mail, postage prepaid stating the date and plan of redemption,
hereinafter called he "redemption notice." On or after the date
fixed for redemption, each holder of shares called for redemption
shall surrender his or her certificate(s) for such shares to the
Corporation at the place designated in the redemption notice and
shall thereupon be entitled to receive payment of the redemption
price. If the redemption notice is duly given, and if sufficient
funds are available therefore on the date fixed for redemption,
then, whether or not the certificates evidencing the shares to be
redeemed are surrendered, all rights with respect to such shares
shall terminate on the date fixed for redemption, except the
right of the holders to receive the redemption price, without
interest, on surrender of their certificates therefor. Shares
redeemed by the Corporation shall be restored to the status of
authorized but unissued shares of the Corporation.
(4) Conversion Rights. At any time up to and including two (2)
days before the date fixed for redemption of redeemable shares in
a notice of redemption (as provided above), holders of the
Preferred Shares being redeemed who endorse the share
certificates and deliver them together with a written notice of
their intent to convert to the corporation at its Principal
office, shall be entitled to convert and receive five (5) shares
of Common Stock for each share being converted at the rate of
$2.00 per share of Common Stock being converted into. Such
redemption is subject to the following adjustments, terms, and
conditions:
Page 4 of 8
<PAGE>
(a) If the number of outstanding shares of common Stock has
been increased or decreased since the initial issuance of the
Preferred Stock (or series having conversion rights (by reason of
any split, stock dividend, merger, consolidation or other capital
change or reorganization affecting the number of outstanding
shares of Common Stock), the number of shares of common Stock to
be issued on conversion to the holders or Preferred Stock shall
equitably be adjusted by appropriate amendment of this article.
The purpose of such adjustment is to preserve fairly and
equitably (as far as reasonably possible) the original conversion
rights of the Preferred shares being converted. No redemption
notice pursuant to this article shall be given until an amendment
to the articles required to effect this adjustment has been made.
(b) Shares converted under this article shall not be
reissued. The corporation shall at all times reserve and keep
available a sufficient number of authorized but unissued common
shares, and shall obtain and keep in effect any required permits
to enable it to issue and deliver all common shares required to
implement the conversion rights granted herein.
(c) No fractional shares shall be issued upon conversion,
but the corporation shall pay cash for any fractional shares of
Common Stock to which shareholders may be entitled at the fair
value of such shares at the time of conversion. The board of
directors shall determine such fair value.
(5) Default Conversion Rights. If the Corporation is in default
in the payment of any dividend to be paid to the holders of the
Preferred Stock, at any time up to and including two (2) days
before the date fixed for redemption of redeemable shares in a
notice of redemption (as provided above), who endorse the share
certificates and deliver them together with a written notice of
their intent to convert to the corporation at its Principal
office, shall be entitled to convert and receive seven (7) shares
of Common Stock for each share being converted at the rate of
$1.43 per share of Common Stock being converted into. Such
conversion and redemption is subject to the adjustments, terms
and conditions set forth in paragraph C (4)(a)(b) and (c) above.
Page 5 of 8
<PAGE>
ARTICLE 5.
---------
Pre-Emptive Rights
-------------------
The shareholders of the Corporation shall not have any pre-emptive right to
acquire any additional shares of the Corporation and/or rights in respect of its
shares.
ARTICLE 6.
----------
Board of Directors
------------------
(a) Number. The board of directors of the Corporation shall consist of such
number of persons, not less than three, as shall be determined in accordance
with the bylaws from time to time. As of the effective date of this article the
number of directors is nine.
(b) Staggered Board; Tenure. The directors shall be divided into three
classes: Class I, Class II, and Class III. The term of office of directors shall
be three years, staggered by class so that one class is elected each year. Such
classes shall be as nearly equal in number as possible. Directors chosen to
succeed those who have been removed or whose terms have expired shall be
identified as being of the same class as the directors they succeed and shall be
elected for a term expiring at the expiration date of such class or thereafter
when their respective successors are elected and have been qualified. 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 nearly equal in
number as possible, and any individual director elected to any class shall hold
office for a term which shall coincide with the term of such class. In no case,
will a decrease in the number of directors shorten the term of any incumbent
director.
ARTICLE 7.
---------
Officers
--------
The officers of the Corporation are and shall hereafter be a President, one
or more Vice Presidents (as may be prescribed by the bylaws), a Secretary, a
Treasurer, and such other officers as may hereafter be designated by the board
of directors in a manner not inconsistent with the bylaws.
Page 6 of 8
<PAGE>
ARTICLE 8.
----------
Action by Written Consent of Shareholders
-----------------------------------------
The corporation may take action by the written consent of fewer than all of
the shareholders entitled to vote with respect to the subject matter of an
action in question; provided, however, that in order to be valid any and all
such written consents shall be made and provided in accordance with all
applicable requirements of ss.16-10a-704 of the Utah Revised Business
Corporation Act and signed by the holders of not less than a majority of the
corporation's outstanding shares (calculated as of the record date provided for
by ss.16-10a-704(6)) of that Act.
ARTICLE 9.
----------
Indemnification
---------------
The Corporation shall indemnify its directors, officers, employee,
fiduciaries and agents as those terms are defined in, and to the fullest extent
permitted by, Part 9 of the Utah Revised Business Corporation Act.
3. The foregoing Amended and Restated Articles of Incorporation has been
duly approved by the board of directors.
4. The foregoing Amended and Restated Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with the Utah
Revised Business Corporation Act. The total number of outstanding shares of the
corporation is 17,893,387. The number of votes entitled to be cast on the
amended and restated articles of incorporation is 17,893,387 and the number of
votes indisputably represented at the meeting at which the foregoing amended and
restated articles of incorporation was approved was 15,985,914. The total number
of undisputed votes cast for the amended and restated articles of incorporation
was 14,243,526, which was sufficient for approval of the same.
Page 7 of 8
<PAGE>
IN WITNESS WHEREOF, We certify that the matters set forth in this
certificate are true and correct of our own knowledge.
Dated: April 8, 1998 /S/ F. Michael Budd
-----------------------------
By: F. Michael Budd
Its: President
Dated: April 8, 1998 /S/ Charles S. Palm
-----------------------------
By: Charles S. Palm
Its: Secretary
Page 8 of 8
Exhibit 3.7
------------
BY-LAWS
ARTICLES I. OFFICES
--------------------
The principal office of the corporation in the State of Utah shall be
located in Slat Lake City, Utah. The corporation may have such other offices,
either within or without the State of Utah, as the Board of Directors may
designate or as the business of the corporation may require from time to time.
The registered office of the corporation required by the Utah Business
Corporation Act to be maintained in the State of Utah may be, but need not be,
identical with the principal office in the State of Utah, and the address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE II. SHAREHOLDERS
------------------------
Section 1. Annual Meeting. The annual meeting of the shareholders shall be
held on 2nd Tuesday, in the month of April, in each year, beginning with the
year 1975, at the hour of 10:00 o'clock a.m., for the purpose of electing
Directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday in the
State of Utah, such meeting shall be held on the next succeeding business day.
If the election of Directors shall not be held on the day designated herein or
any annual meeting of the shareholders, or at any adjournment thereof, the Board
of Directors shall cause the election to be held at a special meeting of the
shareholders as soon as thereafter as conveniently may be.
Section 2. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President at the request of the holders of not less than one-tenth of all
outstanding shares of the corporation entitled to vote at the meeting. Should
the President fail to call a shareholders meeting within ten (10) days after
notification by ten percent of the shareholders, said shareholders may call and
conduct the meeting by notifying the Company's transfer agent.
Section 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Utah, as the place of meeting for
any annual meeting or for any special meeting for any annual meeting or for any
special meeting called by the Board of Directors. A waiver of notice signed by
all shareholders entitled to vote at a meeting may designate any place, either
within or without the State of Utah, as the place for the holding of such
meeting. If no designation is made, or if a special meeting be otherwise called,
the place of meeting shall be the principal office of the corporation in the
State of Utah.
Section 4. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall, unless otherwise prescribed by statute,
be delivered not less than ten nor more than fifty days before the date of the
meeting, either personally or by mail, by the direction of the President, or the
Secretary, or the persons calling the meeting, to each shareholder or record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United State mail, addressed to the shareholders
at his address as it appears on the stock transfer books of the corporation,
with postage thereon prepaid.
Section 5. Closing of Transfer Books or Fixing or Record Data. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other purposes, the Board of Directors of the Corporation
may provide that the stock transfer books shall be closed for a stated period
but not to exceed, in any case, fifty days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
days immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date for
-1-
<PAGE>
any such determination of shareholders, such date in any case to be not more
than fifty days and, in case of a meeting of shareholders, not less than ten
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
Section 6. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at each meeting of shareholders or any adjournment
thereof, arranged in alphabetical order, with the address of and the number of
shares held by each. Such list shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purpose thereof.
Section 7. Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 8. Proxies. At all meetings of shareholders, a shareholder may vote
in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
Section 9. Voting of Shares. Subject to the provisions of Section 12 of
this Article II, each outstanding share entitled to vote shall be entitled to
one vote upon each matter submitted to a vote at a meeting of shareholders.
Section 10. Voting of Share of Certain Holders. Shares outstanding in the
name of another corporation may be voted by such officer, agent or proxy as the
by-laws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but nor trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
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<PAGE>
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the share so transferred.
Neither shares of the own stock held by the corporation, nor those held by
another corporation if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the corporation,
shall be voted at any meeting or counted in determining total number of
outstanding shares at any given time for the purpose of any meeting.
Section 11. Informal Action by Shareholders. Any action required to be take
at a meeting of the shareholder, or any action which may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken shall be signed by all of the shareholders
entitled to vote with respect to the subject thereof.
Section 12. Cumulative Voting. There shall be no cumulative voting.
ARTICLE III. BOARD OF DIRECTORS
--------------------------------
Section 1. General Powers. The business and affairs of the corporation
shall be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of directors shall
not be less than three nor more than nine. Each shall until the next annual
meeting of shareholders and until his successor shall have been elected and
qualified. Directors need not be residents of the State of Utah or shareholders
of the corporation.
Section 3. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this by-law immediately after, and at
the same place as, the annual meeting of the shareholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Utah, for the holding of additional regular meeting without
other notice than such resolution.
Section 4. Special Meeting. Special meeting of the Board of Directors may
be called by or at the request of the President or any two Directors or more, or
10% of the shareholders. The person or persons authorized to call special
meeting of the Board of Directors may fix any place, either within or without,
the State of Utah, as the place for holding of additional regular meeting
without other notice than resolution.
Section 5. Notice. Notice of any special meeting shall be given at least
two days previously thereto by written notice delivered personally or mailed to
each Director at his business address, or by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegram company. Any Director may waive notice of any meeting. The attendance
of a Director at a meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of Directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, but if less than such majority is present
at a meeting, a majority of the Directors present may adjourn the meeting from
time to time without further notice.
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<PAGE>
Section 7. Manner of Acting. The act majority of the Directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
Any action which may be taken at a meeting of the directors may be taken without
a meeting if a consent in writing, setting forth the action so taken, shall be
signed all of the directors.
Section 8. Vacancies. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining Directors
though less than a quorum of the Board of Directors. A Director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
Directors may be filled by election by the Board of Directors for a term of
office continuing only until the next election of Directors by the shareholders.
Section 9. Compensation. By resolution of the Board of Directors, each
Director may be paid his expenses, if any, of attendance at each meeting of the
Board of Directors, and may be paid a stated salary as director or a fixed sum
for attendance at each meeting of the Board of Directors or both. No such
payment shall preclude any Director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 10. Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered into the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
ARTICLE IV. OFFICERS.
---------------------
Section 1. Number. The officers of the corporation shell be a President,
one or more Vice-Presidents (the number thereof to be determined by the Board of
Directors), a Secretary, and a Treasurer, each of whom shall be elected or
appointed by the Board of Directors. Such other officers and assistant officers
as may be deemed necessary may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person, except the
offices of President and Secretary.
Section 2. Election and Term of Office. The officers of the corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held as
soon thereafter as conveniently may be. Each officer shall hold office until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided.
Section 3. Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment, the best interests of the prejudice to the
contract rights, if any, of the person so removed. Election or appointment of an
officer or agent shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5. President. The president shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall be general supervise and control all of the business and
affairs of the corporation. He shall, when present, preside at all meetings of
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<PAGE>
the shareholders and of the Board of Directors. He may sign, with the Secretary
or any other proper officer of the corporation thereunto authorized by the Board
of Directors, certificated for shares of the corporation, any deeds, mortgages,
bonds contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and executing
thereof shall be expressly delegated by the Board of Directors or by those
By-laws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 6. The Vice-President. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice-President (or in the
event there be more than one Vice-President, the Vice-Presidents in the order
designated at the time of their election, or in the absence of any designation,
them in the order of their election) shall perform the duties of the President,
and so when acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice-President may sign, with the Secretary
an the Assistant Secretary, certificates for shares of the corporation; and
shall perform such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
Section 7. The Secretary. The Secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-laws or as required by laws; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep a
register of the post office address of each shareholder; (e) sign with the
President, or a Vice-President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have a general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
Section 8. The Treasurer. The Treasurer shall: (a) have charge and custody
and be responsible for all funds and securities of the corporation; (b) receive
and give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Article V of these By-laws; and (c) in general perform
all of the duties as from time to time may be assigned to him by the President
or by the Board of Directors. If requested by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine.
Section 9. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice-President certificates for shares of the corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall respectively, if required by the Board
of Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary of the Treasurer, respectively, or by
the President or the Board of Directors.
Section 10. Salaries. The salaries of the officers shall be fixed from time
to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
Corporation.
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<PAGE>
ARTICLE V. CONTRACTS, LOANS, CHECKS, AND DEPOSITS
-------------------------------------------------
Section 1. Certificates for Shares. Certificates representing shares of the
corporation shall be in such forms as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a
Vice-President and by the Secretary and sealed with the corporate seal or a
facsimiles thereof. The signatures of such officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the corporation itself or one of its
employees. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for the transfer shall be canceled,
and no new certificates shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the corporation as the Board of Directors may
prescribe.
Section 2. Transfer of Shares. Transfer of shares of the corporation shall
be made only on the stock transfer books of the corporation by the holder of the
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
ARTICLE VII. FISCAL YEAR.
--------------------------
The fiscal year of the corporation shall begin on the first day of January
and end on the thirty-first day of December in each year.
ARTICLE VIII. DIVIDENDS.
------------------------
The Board of Directors may, from time to time, declare and the corporation
may pay dividends on its outstanding shares in the manners and upon the term and
conditions provided by law and its articles of incorporation.
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<PAGE>
ARTICLE IX. CORPORATE SEAL.
---------------------------
The Board of Directors shall provide a corporate seal.
ARTICLE X. WAIVER OF NOTICE.
----------------------------
Whenever any notice is required to be given to any shareholder or director
of the corporation under the provisions of the articles of incorporation or
under the provisions of the Utah Business Corporation Act, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice.
ARTICLE XI. AMENDMENTS.
-----------------------
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by the Board of Directors at any regular or special meeting of the Board
of Directors.
ARTICLE XII. PROCEDURE FOR CONDUCTING MEETINGS.
-----------------------------------------------
All shareholders and director meetings shall be conducted in accordance
with the rules and procedures set forth in the most current edition of Robert's
Rules of Order.
-7-
Exhibit 4
---------
STATEMENT OF RIGHTS, PREFERENCES AND PRIVILEGES
OF THE COMMON STOCK AND PREFERRED STOCK
OF
SYNTHONICS TECHNOLOGIES, INC.
A Utah Corporation
- -------------------------------------------------------------------------------
The rights, preferences, privileges and restrictions granted to or imposed
upon the Common stock and the Preferred stock of Synthonics Technologies, Inc.,
a Utah Corporation, as established by Article IV, of its Articles of
Incorporation, as amended are as follow:
1. Common Stock. The total number of shares of Common Stock this
Corporation shall have the authority to issue is Fifty Million (50,000,000). The
Common Stock shall have a stated par value of $0.01 per share. Each shall of
Common Stock shall have, for all purposes one (1) vote per share. Subject to the
cumulative dividend preference to holders of Preferred Stock as provided in
Paragraph C. below. The shares of Common Stock are entitled to participate in
any dividends available therefor in equal amounts per share on all outstanding
Preferred and Common Stock. Subject to the provisions for the payment of the
Liquidation Preference to the holders of Preferred Stock as provided in
paragraph C., below, the Common Stock is entitled to participate in all
distributions to shareholders made upon liquidation, dissolution or winding up
of the Corporation in equal amounts per share as all outstanding Preferred and
Common Stock. The holders of Common Shares issued and outstanding have and
possess the right to receive notice of shareholders' meetings, and to vote upon
the election of directors or upon any other matter as to which approval of the
outstanding shares of Common Stock or approval of the common shareholders is
required or requested.
2. Preferred Stock. The total number of shares of Preferred Stock this
Corporation is authorized to issue is Five Hundred Fifty Thousand (550,000). The
Preferred Stock shall have a stated par value of $10.00 per share. The
designations, powers, preferences, rights and restrictions granted or imposed
upon the Preferred Stock and holders thereof are as follows:
(a) Dividend Preference: The Preferred Stock is entitled to receive
dividends on a cumulative basis at the rate of twelve percent (12%) of
its stated par value per annum (the "Dividend Preference"), payable on
a quarterly basis on the fifteenth (15th) day of the next month
following the end of each fiscal quarter. Such dividends shall accrue
from the date of issuance, whether or not earned. Dividends on the
Preferred Shares shall be cumulative so that if dividends required to
be paid on said shares are not paid or set apart for payment by the
Board of Directors on or before fifteenth day of the month following
the end of each fiscal quarter, in which the same are due, the rights
thereof shall cumulate and remain due and payable by the Corporation.
No dividends or other distributions may be made to the Common Stock
during any fiscal year of the Corporation until dividends on the
Preferred Stock in the amount of the Dividend Preference have been
paid or set apart for payment.
(b) Liquidation Preference:
(i) In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of Preferred
Shares shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature,
an amount equal to the stated par value less the aggregate amount of
all prior distributions to its Preferred Shareholders made to holders
Page 1 of 3
<PAGE>
of Preferred Stock, plus any accrued previously declared but unpaid
dividends (the amount so determined being hereinafter referred to as
the "Liquidation Preference"). No distribution shall be made to the
holders of the Common Shares upon liquidation, dissolution or winding
up until after the full amount of the Liquidation Preference has been
distributed or provided to the holders of the Preferred Shares.
(ii) If, upon such liquidation, dissolution or winding up, the
assets thus distributed among the Preferred Shareholders shall be
insufficient to permit payment to such shareholders of the full amount
of the Liquidation Preference, then the entire assets of the
Corporation shall be distributed ratably among the holders of the
Preferred Shares.
(iii) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, when the Corporation has
completed distribution of the full Liquidating Preference to the
holders of the Preferred Shares, thereafter, the Preferred Shares
shall be considered to have been redeemed, and thereafter, the
remaining assets of the Corporation shall be paid in equal amounts on
all outstanding shares of Common Stock.
(iv) A consolidation or merger of the Corporation with or into
any other corporation or corporations, or a sale of all or
substantially all of the assets of the Corporation shall not be deemed
a liquidation, dissolution or winding up within the meaning of this
Paragraph C(b).
(c) Redemption Rights. The Corporation, at the option of the Board of
Directors, may at any time redeem all of the outstanding Preferred
Stock by paying, in cash, a sum equal to the $10.50 per share for each
Preferred Share so redeemed, less the aggregate amount of all
previously paid dividends, through and including the date of
redemption, hereinafter referred to as the "redemption price", by
giving to each Preferred Shareholder of record at his or her last
known address, as shown on the records of the Corporation at least
thirty (30) days prior notice in writing, by first-class mail, postage
prepaid, stating the date and plan of redemption, hereinafter called
the "redemption notice". On or after the date fixed for redemption,
each holder of shares called for redemption shall surrender his or her
certificate(s) for such shares to the Corporation at the place
designated in the redemption notice and shall thereupon be entitled to
receive payment of the redemption. price. If the redemption notice is
duly given, and if sufficient funds are available therefor on the date
fixed for redemption, then, whether or not the certificates evidencing
the shares to be redeemed are surrendered, all rights with respect to
such shares shall terminate on the date fixed for redemption, except
the right of the holders to receive the redemption price, without
interest, on surrender of their certificates therefor. Shares redeemed
by the Corporation shall be restored to the status of authorized but
unissued shares of the Corporation.
(d) Conversion Rights. At any time up to and including two (2) days
before the date fixed for redemption of redeemable shares in a notice
of redemption (as provided above), holders of the Preferred Shares
being redeemed who endorse the share certificates and deliver them
together with a written notice of their intent to convert to the
Page 2 of 3
<PAGE>
corporation at its Principal office, shall be entitled to convert and
receive five (5) shares of Common Stock for each share being converted
at the rate of $2.00 per share of Common Stock being converted into.
Such redemption is subject to the following adjustments, terms and
conditions:
(i) If the number of outstanding shares of Common Stock has been
increased or decreased since the initial issuance or the
Preferred Stock (or series having conversion rights (by reason of
any split, stock dividend, merger, consolidation or other capital
change or reorganization affecting the number of outstanding
shares of Common Stock), the number of shares of Common Stock to
be issued on conversion to the holders or Preferred Stock shall
equitably be adjusted by appropriate amendment of this article.
The purpose of such adjustment is to preserve fairly and
equitably (as far as reasonably possible) the original conversion
rights of the Preferred shares being converted. No redemption
notice pursuant to this article shall be given until an amendment
to the articles required to effect this adjustment has been made.
(ii) Shares converted under this article shall not be reissued.
The corporation shall at all times reserve and keep available a
sufficient number of authorized but unissued common shares, and
shall obtain and keep in effect any required permits, to enable
it to issue and deliver all common shares required to implement
the conversion rights granted herein.
(iii) No fractional shares shall be issued upon conversion, but
the corporation shall pay cash for any fractional shares of
Common Stock to which shareholders may be entitled, at the fair
value of such shares at the time of conversion. Such fair value
shall be determined by the board of directors.
(e) Default Conversion Rights. If the Corporation is in default in the
payment of any dividend to be paid to the holders of the Preferred
Stock, as required under this Article, then, the holders of the
Preferred Stock, at any time up to and including two (2) days before
the date fixed for redemption of redeemable shares in a notice of
redemption (as provided above), who endorse the share certificates and
deliver them together with a written notice of their intent to convert
to the corporation at its Principal office, shall be entitled to
convert and receive seven (7) shares of Common Stock for each share
being converted at the rate of $1.43 per share of Common Stock being
converted into. Such conversion and redemption is subject to the
adjustments, terms and conditions set forth in paragraph 2(d)(i)(ii)
and (iii) above.
Page 3 of 3
Exhibit 10.1
------------
SYNTHONICS TECHNOLOGIES, INC.
MANAGEMENT CASH INCENTIVE PLAN
1. PURPOSE AND EFFECTIVE TIME.
This Synthonics Technologies, Inc., Management Cash Incentive Plan (the
"Plan") is designed to provide a significant and flexible economic opportunity
to selected officers and employees of the Company and its Affiliates as a
reflection of their individual and group contributions to the success of the
Company and its Affiliates. Payments pursuant to Section 10, of the Plan are
intended to qualify under Section 162(m)(4)(C) of the Internal Revenue Code of
1986, as amended, as excluded from the term "applicable employee remuneration"
(such payments are hereinafter referred to as "Excluded Income"). The Plan shall
be effective at the Effective Time, as defined below, if the shareholder
approvals required by Section 13, of the Plan are obtained.
2. DEFINITIONS.
"Affiliate" means (i) a corporation at least 50% of the common stock or
voting power of which is owned, directly or indirectly, by the Company and (ii)
any other corporation or other entity controlled by the Company and designated
by the Committee from time to time as such.
"Board" shall mean the Board of Directors of the Company.
"Bonus Pool" shall mean the pool of available cash created pursuant to the
Plan to be made available for Incentive Awards.
"Change in Control" shall mean the happening of any of the following
events:
(a) An acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (1) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (2) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); excluding, however, the following: (i) any acquisition directly
from the Company, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself acquired
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the: Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this definition; or
(b) A change in the composition of the Board such that the individuals who,
as of the Effective Time, constitute the Board (such Board shall be hereinafter
referred to as the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, for purposes of this
definition, that any individual who becomes a member of the Board subsequent to
the Effective Time, whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of those individuals
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who are members of the Board and who were also members of the Incumbent Board
(or deemed to be such pursuant to this proviso) shall be considered as though
such individual were a member of the Incumbent Board; but, provided further,
that any such individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of the
Incumbent Board; or
(c) The approval by the shareholders of the Company of a reorganization,
merger, consolidation, share exchange, or sale, or other disposition of all or
substantially all of the assets of the Company ("Corporate Transaction") or, if
consummation of such Corporate Transaction is subject, at the time of such
approval by shareholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly by
consummation); excluding, however, such a Corporate Transaction pursuant to
which (i) all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 60% of,
respectively, the outstanding shares of common stock, and the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation resulting from
such Corporate Transaction (including, without limitation, a corporation which
as a result of such transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Corporate Transaction, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person (other than the
Company, any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Corporate Transaction) will beneficially own,
directly or indirectly, 20% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction or the
combined voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors except to the extent
that such ownership existed prior to the Corporate Transaction and (iii)
individuals who were members of the Incumbent Board will constitute at least a
majority of the members of the board of directors of the corporation resulting
from such Corporate Transaction; or
(d) The approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Compensation Committee of the Board, or such
other committee of the Board as the Board may from time to time determine,
which, except as specifically decided otherwise by the Board, is composed solely
of not less than two non-employee directors, each of whom shall be appointed by
and serve at the pleasure of the Board.
"Company" shall mean Synthonics Technologies, Inc., a Utah corporation.
"Consolidated Basis" shall mean the combined and consolidation of sales
from the Company and its Affiliates.
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<PAGE>
"Covered Employees" shall mean Participants designated by the Committee
prior to the award of an Incentive Award opportunity hereunder who are or are
expected to be "covered employees" within the meaning of Section 162(m)(3) of
the Code for the Incentive Period as to which an Incentive Award hereunder is
payable and for whom the Committee intends that amounts payable hereunder
constitute Excluded Income.
"Disinterested Person" shall mean a member of the Board who qualifies as an
"outside director" for purposes of Section 162(m) of the Code.
"Effective Time" shall mean the Effective Time as defined in the Merger
Agreement.
"Incentive Award" shall mean a cash award payable to a Participant pursuant
to the terms of the Plan, including a Special Incentive Award.
"Incentive Period" shall mean the period with respect to which a
Participant is eligible to earn an Incentive Award.
"Participant" shall have the meaning set forth in Section 4., hereof.
"Payment Date" shall mean the date following the conclusion of a particular
Incentive Period on which the Committee certifies that applicable Performance
Goals have been satisfied and authorizes payment of corresponding Incentive
Awards.
"Performance Goals" shall have the meaning set forth in Section 10, hereof.
"Special Incentive Award" shall have the meaning set forth in Section 10,
hereof.
"Target Incentive Award" shall mean the amount determined by multiplying a
Participant's base salary as of the last day of the applicable Incentive Period
by a percentage designated by the Committee in its sole discretion at the time
the award is granted, which percentage need not be the same for each
Participant.
3. ADMINISTRATION.
The Plan shall be administered by the Committee. In administering the Plan,
the Committee may at its option employ compensation consultants, accountants and
counsel (who may be the compensation consultants, independent auditors, and
outside counsel of the Company or an Affiliate) and other persons to assist or
render advice to the Committee, all at the expense of the Company. The Committee
shall have sole authority to make rules and regulations relating to the
administration of the Plan, and any interpretations and decisions of the
Committee with respect to the Plan shall be final and binding.
4. ELIGIBILITY.
The Committee shall, in its sole discretion, determine for each Incentive
Period those full-time officers and salaried employees of the Company and its
Affiliates who shall be eligible to participate in the Plan (the "Participants")
for such Incentive Period based upon such Participants' opportunity to have a
substantial impact on the operating results of the Company or an Affiliate.
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<PAGE>
Nothing contained in the Plan shall be construed as or be evidence of any
contract of employment with any Participant for a term of any length nor shall
participation in the Plan in any Incentive Period by any Participant require
continued participation by such Participant in any subsequent Incentive Period.
5. INITIAL PERFORMANCE GOALS AND INCENTIVE AWARDS FOR THE FISCAL YEARS 1998,
1999 AND 2000.
The specific Performance Goals and Incentive Awards available to eligible
Participants for the fiscal years 1998, 1999 and 2000, have been predetermined
and shall be determined as set forth below. Any and all Incentive Awards for the
periods thereafter shall be determined in accordance with the terms of this
Plan.
Fiscal Year 1998 - In order for any Incentive Award to be granted
during fiscal year 1998, the Company must book no less than four
million dollars ($4,000,000) of gross sales on a Consolidated Basis
(i.e. the combined and consolidation of sales from the Company and its
subsidiaries). If the gross sales exceed the $4,000,000 level, then
there shall be created a bonus pool equal to five percent (5.0%) of the
total consolidated gross sales of the Company for 1998, which shall be
available for Incentive Awards.
Fiscal Year 1999 - In order for any Incentive Award to be granted
during fiscal year 1999, the Company must book no less than eight
million dollars ($8,000,000) of gross sales on a Consolidated Basis
(i.e. the combined and consolidation of sales from the Company and its
subsidiaries). If the gross sales exceed the $8,000,000 level, then the
bonus pool contribution for 1999 shall be equal to ten percent (10.0%)
of the total pretax earnings of the Company for 1999, which shall be
available for Incentive Awards.
Fiscal Year 2000 - In order for any Incentive Award to be granted
during fiscal year 2000, the Company must book no less than fifteen
million dollars ($15,000,000) of gross sales on a Consolidated Basis
(i.e. the combined and consolidation of sales from the Company and its
subsidiaries). If the gross sales exceed the $15,000,000 level, then
the bonus pool contribution for 2000 shall be equal to ten percent
(10.0%) of the total pretax earnings of the Company for 2000, which
shall be available for Incentive Awards.
Incentive Awards from the bonus pool shall be made at the discretion
of the Committee as set forth herein, up to the maximum of the entire
bonus pool.
6. DETERMINATION OF INCENTIVE AWARDS.
Subject to Article 10, hereof, the amount and terms of each Incentive Award
to a Participant shall be determined by and at the discretion of the Committee.
The Committee may condition the earning of an Incentive Award upon the
attainment of specified performance goals, measured over a period ending no
later than the end of the applicable Incentive Period. Such performance goals
may relate to the Participant or the Company, or any Affiliate, division or
department of the Company for or within which the Participant is primarily
employed, or upon such other factors or criteria as the Committee shall
determine, and may be different for each Participant. Incentive Awards payable
under the Plan will consist of a cash award from the Company, based upon a
percentage (which may exceed 100%) of the Target Incentive Award and, if
applicable, the degree of achievement of such performance goals. With the
exception of the Incentive Periods for the fiscal years 1998, 1999 and 2000 for
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which Performance Goals have been established as set forth in Section 5,
Incentive Awards under this Plan for Covered Employees shall be subject to
pre-established Performance Goals in accordance with Section 10, hereof. Except
with respect to Covered Employees, the Committee may, in its sole discretion,
increase or decrease the amount of any Incentive Award payable to a Participant
and, in recognition of changed or special circumstances, may award Incentive
Awards to Participants even though the Incentive Awards are not earned.
Incentive Awards earned or otherwise awarded will be paid as soon as
administratively feasible on or after the Payment Date.
7. TERMINATION OF EMPLOYMENT.
In the event that a Participant's employment with the Company and its
Affiliates terminates for any reason during the Incentive Period with respect to
any Incentive Awards, the balance of any Incentive Award which remains unpaid at
the time of such termination shall be payable to the Participant, or forfeited
by the Participant, in accordance with the terms of the award granted by the
Committee; provided, however, that in the case of a Covered Employee, no amount
shall be payable pursuant to the Plan unless the Performance Goals are satisfied
or the termination of employment of the Covered Employee is due to death or
disability. A Participant who remains employed through the Incentive Period, but
is terminated prior to the Payment Date shall be entitled to receive any
Incentive Award payable to such Participant with respect to such Incentive
Period.
8. AMENDMENT AND DISCONTINUANCE.
The Board shall have the right to amend, alter, discontinue, or otherwise
modify the Plan from time to time but no such modification shall, without the
consent of the Participant affected, impair any award made prior to the
effective date of the modification.
9. MISCELLANEOUS.
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the payment obligations created under the
Plan; provided, however, that, unless the Committee otherwise determines, the
existence of such trusts or other arrangements is consistent with the "unfunded"
status of the Plan. The Plan shall be governed by and construed in accordance
with the laws of the State of California, without regard to its principles of
conflict of laws.
10. PROCEDURES FOR CERTAIN DESIGNATED PARTICIPANTS.
Incentive Awards under the Plan to Participants who are Covered Employees
shall be subject to pre-established Performance Goals as set forth herein.
Notwithstanding Section 6, hereof, the Committee shall not have discretion to
modify the terms of awards to such Participants except as specifically set forth
in this Section 10.
(a) Target Bonus. On or before the 90th day of each Incentive Period, and
in any event before 25% or more of the Incentive Period has elapsed, the
Committee shall establish in writing specific Performance Goals for the
Incentive Period (provided that no Performance Goals for such Incentive Period
has been previously established), upon the attainment of which will be
conditioned the payment of Incentive Awards ("Special Incentive Awards") to such
of the Participants who may be Covered Employees. A Special Incentive Award
shall consist of a cash award from the Company to be based upon a percentage
(which may exceed 100%) of a Target Incentive Award. The extent, if any, to
which a Special Incentive Award will be payable will be based upon the degree of
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achievement of pre-established Performance Goals over a specified Incentive
Period; provided, however, that the Committee may, in its sole discretion,
reduce the amount which would otherwise be payable with respect to an Incentive
Period.
(b) Incentive Period. With the exception of the Incentive Periods
established in Section 5., the Incentive Period will be a period of up to twelve
months, unless a shorter period is otherwise selected and established in writing
by the Committee at the time the Performance Goals are established with respect
to such Incentive Period.
(c) Performance Goals. The Performance Goals established by the Committee
at the time a Special Incentive Award is granted may be based on one or more of
the following: earnings per share, market share, stock price, gross or net sales
sales, costs, net operating income, pretax earnings, cash flow, retained
earnings, return on equity, results of customer satisfaction surveys, aggregate
product price and other product price measures, safety record, service
reliability, demand-side management (including conservation and load
management), operating and maintenance cost management, energy production
availability, and individual performance measures; provided, that all
Performance Goals shall be objective performance goals satisfying the
requirements for "performance-based compensation" within the meaning of Section
162(m)(4) of the Code. Such Performance Goals also may be based on the
attainment of specified levels of performance of the Company and/or any
Affiliates under one or more of the measures described above relative to the
performance of other corporations.
(d) Payment of an Incentive Award. At the time the Special Incentive Award
is granted, the Committee shall prescribe a formula to determine the percentage
of the Target Incentive Award which may be payable based upon the degree of
attainment of the Performance Goals during the Incentive Period. If the minimum
Performance Goals established by the Committee are not met, no payment will be
made to a Participant who is a Covered Employee. To the extent that the minimum
Performance Goals are satisfied or surpassed, and upon written certification by
the Committee that the Performance Goals have been satisfied to a particular
extent and any other material terms and conditions of the Special Incentive
Awards have been satisfied, payment shall be made on the Payment Date in
accordance with the prescribed formula based upon a percentage of the Target
Incentive Award unless the Committee determines, in its sole discretion, to
reduce the payment to be made.
(e) Maximum Payable. The maximum amount payable to a Covered Employee under
this Plan for any fiscal year of the Company pursuant to this Plan shall be
$1,000,000.
11. CHANGE IN CONTROL.
Notwithstanding any other provision of this Plan, (i) upon a Change in
Control, each Participant who is employed by the Company or an Affiliate
immediately before the Change in Control shall be entitled to receive a payment
equal to his or her Target Incentive Award for the Incentive Period that
includes the date of the Change in Control, and (ii) any additional Incentive
Award that becomes payable to such a Participant for that Incentive Period shall
be reduced (but not below zero) by the amount of the payment made to such
Participant pursuant to clause (i) of this Section 11.
12. DEFERRAL ELECTIONS.
The Committee may at its option establish procedures pursuant to which
Participants are permitted to defer the receipt of Incentive Awards payable
hereunder.
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13. SHAREHOLDER APPROVAL.
This Plan shall not become effective with respect to individuals who are
Covered Employees unless it shall have been approved by the affirmative vote of
a majority of the votes entitled to be cast by the holders of the shares of
common stock of Synthonics Technologies, Inc., represented at a meeting and
entitled to vote thereon and by the affirmative vote of a majority of the total
voting power of the shares of common stock, present in person or by proxy and
entitled to vote thereon.
14. INDEMNIFICATION.
To the extent permitted by applicable law in effect from time to time, no
member of the Board or the Committee shall be liable for any action or omission
of any other member of the Board or Committee, nor for any act or omission on
the member's own part, except only the member's own willful misconduct or gross
negligence. The Company shall pay expenses incurred by, and satisfy a judgment
or fine rendered or levied against, a present or former director or member of
the Committee in any action against such person (whether or not the Company is
joined as a party defendant) to impose liability or a penalty on such person for
an act alleged to have been committed by such person while a director or member
of the Committee arising with respect to the Plan or administration thereof or
out of membership on the Committee or by the Company, or all or any combination
of the preceding; provided, the director or Committee member was acting in good
faith, within what such director or Committee member reasonably believed to have
been within the scope of his or her employment or authority and for a purpose
which he or she reasonably believed to be in the best interests of the Company
or its shareholders. Payments authorized hereunder include amounts paid and
expenses incurred in settling any such action or threatened action. This section
does not apply to any action instituted or maintained in the right of the
Company by a shareholder or holder of a voting trust certificate representing
shares of the Company. The provisions of this section shall apply to the estate,
executor, administrator, heirs, legatees or devisees of a director or Committee
member, and the term "person" as used in this section shall include the estate,
executor, administrator, heirs, legatees or devisees of such person.
15. MISCELLANEOUS PROVISIONS.
(a) Further Assurances. All parties to this Plan agree to perform any and
all further acts and to execute and deliver any documents that may reasonably be
necessary to carry out the provisions of this Plan.
(b) Attorneys' Fees. In any legal action or other proceeding brought by any
party to enforce or interpret the terms of this Plan, the prevailing party shall
be entitled to recover reasonable attorneys' fees and costs.
(c) Governing Law. The Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by the Code or the
securities laws of the United States, shall be governed by the law of the State
of California.
(d) Notices. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Chair of the Committee, if any,
the chief operational officer or to the chief executive officer of the Company,
and shall become effective when it is received by the office of the chief
personnel officer or the chief executive officer.
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(e) Entire Agreement. This Plan, together with those documents that are
referenced in the Plan, are intended to be the final, complete, and exclusive
statement of the terms of this Plan. This Plan supersedes all other prior
agreements, communications, and statements, whether written or oral, express or
implied, pertaining to that subject matter. This Plan may not be contradicted by
evidence of any prior or contemporaneous statements or agreements, oral or
written, and may not be explained or supplemented by evidence of consistent
additional terms.
(f) Interpretation. This Plan shall be construed as a whole, according to
its fair meaning, and not in favor of or against any party. By way of example
and not in limitation, this Plan shall not be construed in favor of the party
receiving a benefit nor against the party responsible for any particular
language in this Plan. Captions are used for reference purposes only and should
be ignored in the interpretation of the Plan. Unless the context requires
otherwise, all references in this Plan to Paragraphs are to the paragraphs of
this Plan.
The undersigned hereby certify that the foregoing Management Cash Incentive
Plan was duly adopted and approved by the Board of Directors on March 3, 1998
and the shareholders on April 8, 1998.
/S/ F. Michael Budd Charles S. Palm
- ----------------------------- --------------------------------
F. Michael Budd - President Dr. Charles S. Palm - Secretary
Page 8 of 8
Exhibit 10.2
-------------
SYNTHONICS TECHNOLOGIES, INC.
1998 STOCK OPTION PLAN
- -------------------------------------------------------------------------------
1. Purpose.
The purpose of this 1998 Stock Option Plan (the "Plan") is to attract,
retain, and reward persons providing services to Synthonics Technologies, Inc.,
a Utah corporation, and any successor corporation thereto (collectively referred
to as the "Company"), and any present or future parent and/or subsidiary
corporations of such corporation (all of which along with the Company being
individually referred to as a "Participating Company" and collectively referred
to as the "Participating Company Group"), and to motivate such persons to
contribute to the growth and profits of the Participating Company Group in the
future. For purposes of the Plan, a parent corporation and a subsidiary
corporation shall be as defined in Sections 424(e) and 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Administration.
(a) Administration By Board And/Or Committee. The Plan shall be
administered by the Board of Directors of the Company (the "Board") and/or by a
duly appointed committee of the Board having such powers as shall be specified
by the Board. Any subsequent references herein to the Board shall also mean the
committee if such committee has been appointed, and unless the powers of the
committee have been specifically limited. The committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
terminate or amend the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law. All questions of interpretation of
the Plan or of any options granted under the Plan (an "Option") shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan and/or any Option.
(b) Options Authorized. Options may be either incentive stock options as
defined in Section 422 of the Code ("Incentive Stock Options") or non-statutory
stock options.
3. Eligibility.
(a) Eligible Persons. Options may be granted only to employees (including
officers) and directors of the Participating Company Group, or to individuals
who are rendering services as consultants, advisors, or other independent
contractors to the Participating Company Group. The Board shall, in its sole
discretion, determine which persons shall be granted Options (an "Optionee").
Eligible persons may be granted more than one (1) Option.
(b) Restrictions on Option Grants. A director of a Participating Company
may only be granted a non-statutory stock option unless the director is also an
employee of the Participating Company Group. An individual who is rendering
services as a consultant, advisor, or other independent contractor may only be
granted a non-statutory stock option.
4. Shares Subject to Option. Options shall be for the purchase of shares of
the authorized but unissued common stock or treasury shares of common stock
$0.01 par value of the Company (the "Stock"), subject to adjustment as provided
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in paragraph 10 below. The maximum number of shares of Stock which may be issued
under the Plan shall be Two Million (2,000,000) shares. In the event that any
outstanding Option for any reason expires or is terminated or canceled and/or
shares of Stock subject to repurchase are repurchased by the Company, the shares
allocable to the unexercised portion of such Option, or such repurchased shares,
may again be subject to an Option grant. Notwithstanding the foregoing, any such
shares shall be made subject to a new Option only if the grant of such new
Option and the issuance of such shares pursuant to such new Option would not
cause the Plan or any Option granted under the Plan to contravene Rule 16b-3.
5. Time for Granting Options. All Options shall be granted, if at all,
within three (3) years from the earlier of the date the Plan is adopted by the
Board or the date the Plan approved by the stockholders of the Company.
6. Terms, Conditions and Form of Options. Subject to the provisions of the
Plan, the Board shall determine for each Option (which need not be identical)
the number of shares of Stock for which the Option shall be granted, the
exercise price of the Option, the timing and terms of exercisability and vesting
of the Option, the time of expiration of the Option, the effect of the
Optionee's termination of employment or service, whether the Option is to be
treated as an Incentive Stock Option or as a non-statutory stock option, the
method for satisfaction of any tax withholding obligation arising in connection
with Option, including by the withholding or delivery of shares of stock, and
all other terms and conditions of the Option not inconsistent with the Plan.
Options granted pursuant to the Plan shall be evidenced by written agreements
specifying the number of shares of Stock covered thereby, in such form as the
Board shall from time to time establish, which agreements may incorporate all or
any of the terms of the Plan by reference and shall comply with and be subject
to the following terms and conditions:
(a) Exercise Price. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that
(i) the exercise price per share for an Incentive Stock Option shall be not
less than the fair market value, as determined by the Board, of a share of
Stock on the date of the granting of the Option, (ii) the exercise price
per share for a non-statutory stock option shall not be less than
eighty-five percent (85%) of the fair market value, as determined by the
Board, of a share of Stock on the date of the granting of the Option and
(iii) no Incentive Stock Option granted to an Optionee who at the time the
Option is granted owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of a Participating
Company within the meaning of Section 422(b)(6) of the Code (a "Ten Percent
Owner Optionee") shall have an exercise price per share less than one
hundred ten percent (110%) of the fair market value, as determined by the
Board, of a share of Stock on the date of the granting of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option
or a non-statutory stock option) may be granted with an exercise price
lower than the minimum exercise price set forth above if such Option is
granted pursuant to an assumption or substitution for another option in a
manner qualifying with the provisions of Section 424(a) of the Code.
(b) Exercise Period of Options. The Board shall have the power to set,
including by amendment of an Option, the time or times within which each
Option shall be exercisable or the event or events upon the occurrence of
which all or a portion of each Option shall be exercisable and the term of
each Option; provided, however, that no Option shall be exercisable after
the expiration of seven (7) years after the date such Option is granted.
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(c) Termination of Employee Options. If an optionee who is an employee
ceases to be an employee of the Company, his or her rights to exercise an
incentive stock option then held shall be only as follows:
(i) Death. If an optionee dies while he or she is employed by the
Company, the optionee's estate shall have the right for a period of
six (6) months (or such longer period as the Committee may determine
at the date of grant or during the term of the option) after the date
of death to exercise the option to the extent the optionee was
entitled to exercise the option on that date, provided the date of
exercise is in no event after the expiration of the term of the
option. To the extent the option is not exercised within this period,
the option will terminate. An optionee's "estate" shall mean the
optionee's legal representative or any person who acquires the right
to exercise an option by reason of the optionee's death.
(ii) Disability. If an optionee's employment with the Company
ends because the optionee becomes disabled, the optionee or his or her
qualified representative (in the event of the optionee's mental
disability) shall have the right for a period of twelve (12) months
after the date on which the optionee's employment ends to exercise the
option to the extent the optionee was entitled to exercise the option
on that date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is not
exercised within this period, the option will terminate.
(iii) Resignation. If an optionee voluntarily resigns from the
Company, the optionee shall have the right for a period of two (2)
months after the date of resignation to exercise the option to the
extent the optionee was entitled to exercise the option on that date,
provided the date of exercise is in no event after the expiration of
the term of the option. To the extent the option is not exercised
within this period, the option will terminate.
(iv) Termination for Reasons other than Cause. If an optionee's
employment is terminated by the Company for reasons other than
"Cause," the optionee shall have the right for a period of two (2)
months after the date of termination to exercise the option to the
extent the optionee was entitled to exercise the option on that date,
provided the date of exercise is in no event after the expiration of
the term of the option. To the extent the option is not exercised
within this period, the option will terminate. For the purpose of this
clause, "Cause" shall mean that: the optionee is determined by the
Committee to have committed an act of embezzlement, fraud, dishonesty,
or breach of fiduciary duty to the Company, or to have deliberately
disregarded the rules of the Company which resulted in loss, damage,
or injury to the Company, or because the optionee has made any
unauthorized disclosure of any of the secrets or confidential
information of the Company, has induced any client or customer of the
Company to break any contract with the Company, has induced any
principal for whom the Company acts as agent to terminate the agency
relationship, or has engaged in any conduct that constitutes unfair
competition with the Company.
(v) Other Reasons. If an optionee's employment with the Company
ends for any reason not mentioned above in this Subsection 6(c), all
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rights of the optionee in an incentive stock option, to the extent
that it has not been exercised, shall terminate on the date the
optionee's employment ends.
(d) Terminations of Non-employee Director Options. If a non-employee
director ceases to be a director of the Company, his or her rights to
exercise an option then held shall be only as follows:
(i) Death. If a nonemployee director dies while he or she is
serving on the Board of the Company, the director's estate shall have
the right for a period of six (6) months (or such longer period as the
Committee may determine at the date of grant or during the term of the
option) after the date of death to exercise the option to the extent
the director was entitled to exercise the option on that date,
provided the date of exercise is in no event after the expiration of
the term of the option. To the extent the option is not exercised
within this period, the option will terminate. A director's "estate"
shall mean the director's legal representative or any person who
acquires the right to exercise an option by reason of the director's
death.
(ii) Disability. If a nonemployee director's Board membership
ends because the director becomes disabled, the director or his or her
qualified representative (in the event of the director's mental
disability) shall have the right for a period of twelve (12) months
after the date on which the director's Board membership ends to
exercise the option to the extent the director was entitled to
exercise the option on that date, provided the date of exercise is in
no event after the expiration of the term of the option. To the extent
the option is not exercised within this period, the option will
terminate.
(iii) Resignation. If a nonemployee director voluntarily resigns
from the Company's Board, the director shall have the right for a
period of six (6) months after the date of resignation to exercise the
option to the extent the director was entitled to exercise the option
on that date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is not
exercised within this period, the option will terminate.
(iv) Termination for Reasons other than Cause. If a nonemployee
director's Board membership is terminated by the Company for reasons
other than "Cause," the director shall have the right for a period of
six (6) months after the date of termination to exercise the option to
the extent the director was entitled to exercise the option on that
date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is not
exercised within this period, the option will terminate. For the
purpose of this clause, "Cause" shall mean that: the director is
determined by the Committee to have committed an act of embezzlement,
fraud, dishonesty, or breach of fiduciary duty to the Company, or to
have deliberately disregarded the rules of the Company which resulted
in loss, damage, or injury to the Company, or because the director has
made any unauthorized disclosure of any of the secrets or confidential
information of the Company, has induced any client or customer of the
Company to break any contract with the Company, has induced any
principal for whom the Company acts as agent to terminate the agency
relationship, or has engaged in any conduct that constitutes unfair
competition with the Company.
Page 4 of 10
<PAGE>
(v) Other Reasons. If a nonemployee director's Board membership
ends for any reason not mentioned above in this Subsection 6(d), all
rights of the director in an option, to the extent that it has not
been exercised, shall terminate on the date the director's Board
membership ends.
(e) Payment of Exercise Price.
(i) Forms of Payment Authorized. Payment of the exercise price
for the number of shares of Stock being purchased pursuant to any
Option shall be made (1) in cash, by check, or cash equivalent, (2) by
tender to the Company of shares of the Company's stock owned by the
Optionee having a fair market value, as determined by the Board (but
without regard to any restrictions on transferability applicable to
such stock by reason of federal or state securities laws or agreements
with an underwriter for the Company), not less than the exercise
price, (3) by the Optionee's recourse promissory note in a form
approved by the Company, (4) by the assignment of the proceeds of a
sale of some or all of the shares being acquired upon the exercise of
the Option (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time
to time by the Board of Governors of the Federal Reserve System), (5)
by the withholding of shares being acquired upon exercise of the
Option having a fair market value, as determined by the Board (but
without regard to any restrictions on transferability applicable to
such stock by reason of federal or state securities laws or agreements
with an underwriter for the Company), not less than the exercise
price, or (6) by any combination thereof. The Board may at any time or
from time to time grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise
price and/or which otherwise restrict one (1) or more forms of
consideration.
(ii) Tender of Company Stock. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company of shares of the
Company's stock to the extent such tender of stock, as determined by
the Board, would constitute a violation of the provisions of any law,
regulation and/or agreement restricting the redemption of the
Company's stock. Unless otherwise provided by the Board, an Option may
not be exercised by tender to the Company of shares of the Company's
stock unless such shares of the Company's stock either have been owned
by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(iii) Promissory Notes. No promissory note shall be permitted if
an exercise using a promissory note would be a violation of any law.
Any permitted promissory note shall be due and payable not more than
four (4) years after the Option is exercised, and interest shall be
payable at least annually and be at least equal to the minimum
interest rate necessary to avoid imputed interest pursuant to all
applicable sections of the Code. The Board shall have the authority to
permit or require the Optionee to secure any promissory note used to
exercise an Option with the shares of Stock acquired on exercise of
the Option and/or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, in the event the Company at
any time is subject to the regulations promulgated by the Board of
Governors of the Federal Reserve System or any other governmental
entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such
applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations.
Page 5 of 10
<PAGE>
(iv) Assignment of Proceeds of Sale. The Company reserves, at any
and all times, the right, in the Company's sole and absolute
discretion, to establish, decline to approve and/or terminate any
program and/or procedures for the exercise of Options by means of an
assignment of the proceeds of a sale of some or all of the shares of
Stock to be acquired upon such exercise.
7. Standard Forms of Stock Option Agreement.
(a) Incentive Stock Options. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as an
"Incentive Stock Option" shall comply with and be subject to the terms and
conditions of an Incentive Stock Option Agreement which shall be in such
form as designated by the Board of Directors or Committee from time to
time.
(b) Non-Statutory Stock Options. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as a
"Non-statutory Stock Option" shall comply with and be subject to the terms
and conditions of a Non-statutory Stock Option Agreement which shall in
such form as designated by the Board of Directors or Committee from time to
time.
(c) Standard Term For Options. Unless otherwise provided for by the
Board in the grant of an Option, any Option granted hereunder shall be
exercisable for a term of seven (7) years.
8. Authority To Vary Terms. The Board shall have the authority from time to
time to vary the terms of either of the standard forms of Stock Option Agreement
described in paragraph 7 above either in connection with the grant or amendment
of an individual Option or in connection with the authorization of a new
standard form or forms; provided, however, that the terms and conditions of such
revised or amended standard form or forms of stock option agreement shall be in
accordance with the terms of the Plan. Such authority shall include, but not by
way of limitation, the authority to grant Options which are not immediately
exercisable.
9. Fair Market Value Limitation. To the extent that the aggregate fair
market value (determined at the time the Option is granted) of stock with
respect to which Incentive Stock Options are exercisable by an Optionee for the
first time during any calendar year (under all stock option plans of the
Company, including the Plan) exceeds one hundred thousand dollars ($100,000),
such Options shall be treated as non-statutory stock options. This paragraph
shall be applied by taking Incentive Stock Options into account in the order in
which they were granted.
10. Effect of Change in Stock Subject to Plan. Appropriate adjustments
shall be made in the number and class of shares of Stock subject to the Plan and
to any outstanding Options and in the exercise price of any outstanding Options
in the event of a stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or like change in the capital
structure of the Company. In the event a majority of the shares which are of the
same class as the shares that are subject to outstanding Options are exchanged
for, converted into, or otherwise become (whether or not pursuant to a Transfer
of Control (as defined below)) shares of another corporation (the "New Shares"),
the Company may unilaterally amend the outstanding Options to provide that such
Options are exercisable for New Shares. In the event of any such amendment, the
number of shares and the exercise price of the outstanding Options shall be
adjusted in a fair and equitable manner.
Page 6 of 10
<PAGE>
11. Transfer of Control. A "Transfer of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company.
(a) the acquisition of direct or indirect ownership of stock by any
person, entity or group of persons or entities acting in concert possessing
more than a majority of the beneficial interest in the voting stock of the
Company;
(b) the direct or indirect sale or exchange by the stockholders of the
Company of all or substantially all of the stock of the Company where the
stockholders of the Company before such sale or exchange do not retain,
directly or indirectly, at least a majority of the beneficial interest in
the voting stock of the Company after such sale or exchange;
(c) a merger or consolidation where the stockholders of the Company
before such merger or consolidation do not retain, directly or indirectly,
at least a majority of the beneficial interest in the voting stock of the
Company after such merger or consolidation;
(d) the sale, exchange, or transfer of all, or substantially all, of
the assets of the Company (other than a sale, exchange, or transfer to one
(1) or more subsidiary corporations (as defined in paragraph 1 above) of
the Company; or
(e) a liquidation or dissolution of the Company. For purposes of the
foregoing, if a group of persons or entities begins to act in concert, and
if such group meets the beneficial ownership requirements set forth in
clause (a) above, then such acquisition shall be deemed to have occurred on
the date the Company first becomes aware of such group or its actions.
A Stock Option Agreement may, in the discretion of the Board, provide for
accelerated vesting in the event of a Transfer of Control. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), shall either assume the Company's rights and obligations under
outstanding stock option agreements or substitute options for the Acquiring
Corporation's stock for such outstanding Options. In the event the Acquiring
Corporation elects not to assume or substitute for such outstanding Options in
connection with the Transfer of Control, any unexercisable and/or unvested
shares subject to such outstanding stock option agreements shall be immediately
exercisable and fully vested as of the date thirty (30) days prior to the
proposed effective date of the Transfer of Control. The exercise and/or vesting
of any Option that was permissible solely by reason of this paragraph 11 shall
be conditioned upon the consummation of the Transfer of Control. Any Options
which are neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date of the
Transfer of Control shall terminate and cease to be outstanding effective as of
the date of the Transfer of Control.
12. Provision of Information. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders generally.
Page 7 of 10
<PAGE>
13. Options Non-Transferable. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution.
14. Termination or Amendment of Plan or Options. The Board, including any
duly appointed committee of the Board, may terminate or amend the Plan or any
Option at any time; provided, however, that without the approval of the
Company's stockholders, there shall be (a) no increase in the total number of
shares of Stock covered by the Plan (except by operation of the provisions of
paragraph 10 above), (b) no change in the class eligible to receive Incentive
Stock Options, and (c) no expansion in the class eligible to receive
non-statutory stock options. In addition to the foregoing, the approval of the
Company's stockholders shall be sought for any amendment to the Plan for which
the Board deems stockholder approval necessary in order to comply with Rule
16b-3. In any event, no amendment may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such amendment is required to enable an Option designated as an Incentive
Stock Option to qualify as an Incentive Stock Option.
15. Information to Optionees. The Company shall provide to each Optionee
during the period for which he or she has one or more outstanding options,
copies of all annual reports and all other information which is provided to
shareholders of the Company. The Company shall not be required to provide such
information to key employees whose duties in connection with the Company assure
their access to equivalent information.
16. Privileges of Stock Ownership, Securities Law Compliance. No Optionee
shall be entitled to the privileges of stock ownership as to any Shares not
actually issued and delivered to the Optionee. The exercise of any option under
the Plan shall be conditioned upon the registration of the Shares with the SEC
and qualification of the options and underlying Shares under the California
securities laws, unless in the opinion of counsel to the Company registration or
qualification is not necessary. The Company shall diligently endeavor to comply
with all applicable securities laws before any options are granted under the
Plan and before any Shares are issued pursuant to the exercise of such options.
17. Indemnification. To the extent permitted by applicable law in effect
from time to time, no member of the Board or the Committee shall be liable for
any action or omission of any other member of the Board or Committee nor for any
act or omission on the member's own part, excepting only the member's own
willful misconduct or gross negligence. The Company shall pay expenses incurred
by, and satisfy a judgment or fine rendered or levied against, a present or
former director or member of the Committee in any action against such person
(whether or not the Company is joined as a party defendant) to impose liability
or a penalty on such person for an act alleged to have been committed by such
person while a director or member of the Committee arising with respect to the
Plan or administration thereof or out of membership on the Committee or by the
Company, or all or any combination of the preceding; provided the director or
Committee member was acting in good faith, within what such director or
Committee member reasonably believed to have been within the scope of his or her
employment or authority and for a purpose which he or she reasonably believed to
be in the best interests of the Company or its shareholders. Payments authorized
hereunder include amounts paid and expenses incurred in settling any such action
or threatened action. This section does not apply to any action instituted or
maintained in the right of the Company by a shareholder or holder of a voting
trust certificate representing shares of the Company. The provisions of this
section shall apply to the estate, executor, administrator, heirs, legatees or
devisees of a director or Committee member, and the term "person" as used in
this section shall include the estate, executor, administrator, heirs, legatees
or devisees of such person.
Page 8 of 10
<PAGE>
18. Miscellaneous Provisions.
(a) Withholding Taxes. In the event that the Company determines that
it is required to withhold federal, state, or local tax as a result of the
exercise of this option, Employee, as a condition to the exercise of this
option, shall make arrangements satisfactory to the Company to enable it to
satisfy all withholding requirements.
(b) No Rights as a Shareholder. Employee shall have no rights as a
shareholder with respect to any Shares subject to this option until the
Shares have been issued in the name of Employee.
(c) No Employment Rights. Nothing in this Plan shall be construed as
giving Employee the right to be retained as an employee of the Company.
(d) Further Assurances. All parties to this Plan agree to perform any
and all further acts and to execute and deliver any documents that may
reasonably be necessary to carry out the provisions of this Plan.
(e) Attorneys' Fees. In any legal action or other proceeding brought
by any party to enforce or interpret the terms of this Plan, the prevailing
party shall be entitled to recover reasonable attorneys' fees and costs.
(f) Governing Law. The Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the Code or
the securities laws of the United States, shall be governed by the law of
the State of California.
(g) Notices. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the chief personnel officer or
to the chief executive officer of the Company, and shall become effective
when it is received by the office of the chief personnel officer or the
chief executive officer.
(h) Entire Agreement. This Plan, together with those documents that
are referenced in the Plan, are intended to be the final, complete, and
exclusive statement of the terms of the agreement between Employee and the
Company with regard to the subject matter of this Plan. This Agreement
supersedes all other prior agreements, communications, and statements,
whether written or oral, express or implied, pertaining to that subject
matter. This Plan may not be contradicted by evidence of any prior or
contemporaneous statements or agreements, oral or written, and may not be
explained or supplemented by evidence of consistent additional terms. This
Plan does not effect the terms and conditions of any options granted by the
Company prior to the date of adoption of this Plan by the Board of
Directors.
(i) Successors and Assigns. Optionee agrees that he will not assign,
sell, transfer, delegate, or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Plan, except as expressly permitted by this Plan. Any such purported
Page 9 of 10
<PAGE>
assignment, sale, transfer, delegation, or other disposition shall be null
and void. Subject to the limitations set forth in this Plan, the Plan shall
be binding on and inure to the benefit of the successors and assigns of the
Company and any successors and permitted assigns of Employee, including any
of his executors, administrators, or other legal representatives. It shall
not benefit any person or entity other than those specifically enumerated
in this Agreement.
(j) Severability. If any provision of this Plan, or its application to any
person, place, or circumstance, is held by an arbitrator or a court of competent
jurisdiction to be invalid, unenforceable, or void, that provision shall be
enforced to the greatest extent permitted by law, and the remainder of this
Agreement and of that provision shall remain in full force and effect as applied
to other persons, places, and circumstances.
(k) Interpretation. This Plan shall be construed as a whole, according to
its fair meaning, and not in favor of or against any party. By way of example
and not in limitation, this Plan shall not be construed in favor of the party
receiving a benefit nor against the party responsible for any particular
language in this Plan. Captions are used for reference purposes only and should
be ignored in the interpretation of the Plan. Unless the context requires
otherwise, all references in this Plan to Paragraphs are to the paragraphs of
this Plan.
The undersigned hereby certify that the foregoing 1998 Stock Option Plan
was duly adopted and approved by the Board of Directors on March 3, 1998 and the
shareholders on April 8, 1998.
/s/ F. Michael Budd Charles S. Palm
- ------------------------------ ----------------------------------
F. Michael Budd - President Dr. Charles S. Palm - Secretary
Page 10 of 10
Exhibit 21
-------------
SUBSIDIARIES OF SYNTHONICS TECHNOLOGIES, INC. (The "Company")
(1) Synthonics Incorporated, a California Corporation (Wholly-owned
subsidiary). Its primary focus since its founding has been to develop technology
that will have an extremely positive impact on any industry where success can be
enhanced by improving measurement accuracy, eliminating dangerous environments,
extending human vision capabilities, or replacing animation with realism.
Virtually all efforts to date have been focused on market research, technology
concept definition, technology design, and technology validation.
(2) Christopher Raphael Inc., a California Corporation. (Wholly-ownede
subsidiary). The objective of Christopher Raphael is to solicit content
contracts with prominent customers that will display the content to large
audiences that, in turn will promote demand for the Company's software tools.
This subsidiary is capable of outputting 3D graphical content in many formats.
CD-ROMs, DVDs, kiosks, interactive websites, and asset databases are all within
Christopher Raphael's capabilities.
(3) SynthaScan (Wholly-owned subsidiary). This company has done some
preliminary development work on a 3D copier. At present, Synthonics is seeking
an alliance partner to supplement its own expertise in the development of the 3D
copier. Until a partner is secured, SynthaScan is not investing time or money on
any future development.
(4) Acuscape LLC, a California Limited Liability Company (Joint Venture
Partner). The Company owns a 30% joint venture equity interest in Acuscape.
Acuscape is headquarter in Glendale, CA, and is completing development of their
first product offering. Acuscape utilizes the Company's technologies in the
creation its own analysis and treatment planning software tools for medical
professionals.
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