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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10/A NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES ACT OF 1934
C3D INC.
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(Exact Name of Registrant as Specified in its Charter)
Florida 13-4064492
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
230 Park Avenue, Suite 453, New York, New York 10169
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(Address of Principal Executive Offices) (Zip Code)
(212) 697-3200
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(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value
$.001 per share
(Title of Class)
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The registrant, C3D Inc. (individually "C3D," collectively with all of
its directly and indirectly owned subsidiaries, the "Company"), is filing this
Registration Statement pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations of the Securities
and Exchange Commission (the "SEC") promulgated thereunder.
Upon the effectiveness of this Registration Statement, the Common Stock
(as defined hereinafter) will be registered under Section 12(g) of the Exchange
Act. Following effectiveness of this Registration Statement, C3D will be
required and expects to file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by C3D at the SEC's public
reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at 7
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. It
is expected that C3D's filings will be also available to the public from
commercial document retrieval services and at the world wide web site maintained
by the SEC at http://www.sec.gov. The current Internet address of the Company is
http://www.c-3d.net.
Except where the context indicates otherwise, references in this
document to "we," "us" and "our" refer to the Company.
FORWARD LOOKING STATEMENTS
Some of the information in this Registration Statement or the documents
incorporated by reference in this Registration Statement may contain
forward-looking statements. You can identify these statements by the appearance
of words and phrases such as "will likely result," "may," "believes," "are
expected to," "is anticipated to," "is forecasted to," "is designed to," "plans
to," "predict," "seek," "estimate," "projected," "intends to" or other similar
words and phrases. Important factors that could cause actual results to differ
materially from expectations include:
o market conditions and demand for new data storage technology;
o our competitors' ability to successfully develop new technologies to
satisfy demand for data storage;
o difficulties in achieving sales, gross margin and operating expense
targets based on competitive market factors;
o difficulties in competing successfully in the markets for new
products with established and emerging competitors;
o difficulties with single source supplies, product defects or product
delays;
o our status as a going concern;
o difficulties in forming and maintaining successful joint venture
relationships;
o difficulties in negotiating and receiving licensing royalties;
o difficulties in obtaining, maintaining and using intellectual
property protections;
o changes in data storage technological protocols and standards;
o volatility in interest rates and currency exchange rates;
o difficulties in state, federal, foreign and international regulation
and licensing requirements;
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o economic and political instability in the foreign countries where we
conduct operations;
o litigation actions by directors, employees, investors and others;
o limited operation and management history;
o dependence on key personnel;
o risks associated with Year 2000 computer systems problems; and
o other factors discussed in the Registration Statement.
All of the above factors could cause our actual results to differ
materially from historical results and those presently anticipated. When
considering forward-looking statements, you should keep these factors in mind as
well as the other cautionary statements in this Form 10.
RISK FACTORS
No History of Revenue
As a research and development enterprise, the Company has no revenue
history and therefore has not achieved profitability. The Company expects to
continue to incur operating losses until late in the third or fourth quarter of
fiscal year 2001. The operating subsidiaries of Constellation Tech (as defined
below) incurred a net loss of $2,762,714 for the nine-months ended September 30,
1999 and $3,191,902 for the year ended December 31, 1998. The operating results
for C3D (as defined below) incurred a net loss of $2,089,182 for the nine months
ended September 30 1999 and $0 for the year ended December 31, 1998. The Company
has never been profitable and there can be no assurance that, in the future, the
Company will be profitable on a quarterly or annual basis. In addition, over the
next twelve months, the Company plans to increase its operating expenses from
approximately $350,000 per month to $1,200,000 per month in order to fund
research and development and increase its administration resources. However, the
Company expects to receive revenues by the end of fiscal year 2000.
Nevertheless, it is possible that the revenue of the Company may never be
sufficient to recognize a profit.
Limited Operating History
C3D began operations as of October 1, 1999, and C3D has no prior
operating history other than that associated with the acquisition of
Constellation 3D Technology Limited, a British Virgin Islands corporation
("Constellation Tech"), which primarily performed research and development of
three-dimensional technology for the storage of digital information on disc.
However, C3D's subsidiaries were in operation before October 1, 1999, when they
were owned by Constellation 3D Holdings Limited, an Irish company
("Constellation Holdings") or Constellation Tech.
The Company's proposed operations will be subject to the problems,
expenses, difficulties, complications, and delays frequently encountered in
connection with starting a new operation. Primarily, there is the risk that the
Company may not be able to transfer the technology into commercially profitable
products. Also, there is the risk that once introduced into the market place,
the Company's products will not be embraced by the market.
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The Company as a Going Concern
Due to its lack of operating revenues, accumulated operating losses of
$8,567,361 and the need for additional working capital, there is no assurance
that the Company will be able to continue as a going concern. The Company's
Independent Certified Public Accountants modified their opinion on C3D's and
Constellation Tech's Financial Statements to express their substantial doubt
about the respective companies ability to continue as a going concern.
Possible Removal from NASD OTC Bulletin Board
The National Association of Securities Dealers ("NASD")
Over-the-Counter Bulletin Board quotation service (the "Bulletin Board") sets
requirements for those companies which use or wish to use that service. If C3D
in the future fails to meet any of these requirements, the NASD Over-the-Counter
Bulletin Board quotation service may prevent C3D from having its Common Stock
traded using the service.
One of the requirements recently established by the NASD requires a
company quoted on the Bulletin Board to file reports with the U.S. Securities
and Exchange Commission pursuant to the U.S. Securities Exchange Act of 1934
(the "Exchange Act"). The NASD has adopted a schedule for phasing in this
reporting requirement. According to this schedule, as recently accelerated, C3D
needed to be a reporting company by December 23, 1999 in order to avoid the
Bulletin Board's placement of an "E" next to C3D's ticker symbol, which is
"CDDD". The "E" denotes that C3D is delinquent in making Exchange Act filings.
On December 23, 1999, the Company was not yet an Exchange Act reporting company,
and thus the Bulletin Board placed an "E" to the right of "CDDD". As of December
23, 1999, C3D's ticker symbol read "CDDDE". If, by January 19, 2000, the
Bulletin Board does not receive evidence to its satisfaction that this
Registration Statement, which is C3D's initial Exchange Act filing, has fully
satisfied all U.S. Securities and Exchange Commission comments regarding this
Registration Statement, then the Bulletin Board will not allow C3D's Common
Stock to continue to be traded using the Bulletin Board quotation service.
Need for Additional Capital
The Company believes that it has sufficient working capital to sustain
its operations through January 2000. However, as a research and development
company in the data storage technology field, the Company continually expends
large amounts of capital over short periods of time. The Company is currently
generating no revenues and does not expect to do so until the end of fiscal year
2000. There is no assurance that revenues generated in future operations, if
any, will be sufficient to finance the complete cost of the Company's research
and development. Additional funds will be required before the Company achieves
positive cash flow from operations. Future capital requirements and
profitability depend on many factors, including, but not limited to, the timely
success of product development projects and the timeliness and success of joint
venture and corporate alliance strategies and marketing. The Company is actively
in the process of raising additional capital, including the issuance of
convertible debt securities and the potential issuance of preferred shares. The
Company's outstanding convertible debt contains no restrictions on the further
incurrence of indebtedness nor does such debt adversely effect the Company's
liquidity. However, future debt or preferred share offerings could result in
restrictions that could make payments of such debts difficult, create
difficulties in obtaining further financings, limit the flexibility of changes
in the business, and cause substantial liquidity problems. However, there can be
no assurances that financing or additional funds needed will be available when
needed or, if available, on terms acceptable to the Company. Additional equity
or convertible debt financing, if obtained, could result in substantial dilution
to shareholders. The Company is not currently considering acquiring a bank
credit facility.
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Foreign Operations
In addition to its activities in the United States, the Company
conducts business operations in Israel, Russia and Ukraine. In recent history,
these three nations have experienced significant economic and political
instability. It is possible that present or future economic or political
instability in those nations will have a material adverse impact on the
Company's ability to conduct its business and/or its financial condition.
Israel's physical security and integrity have been at risk since
Israel's inception as a modern nation. Recently, Israel and Syria have restarted
peace negotiations, however, there is no formal peace between Israel and Syria
or Lebanon, a client state of Syria. Therefore, to the extent that the Company
has operations in Israel, there is risk that the political instability will have
an adverse impact on the Company's ability to conduct its business. However,
most of the Company's operations in Israel are inUS dollar- equivalent's, and we
report our results of operations in US dollars, so the risk of economic adverse
impact to the Company's business due to currency fluctuations is limited.
Russia's significant political and economic instability could have a
material adverse effect on our operations. High levels of corruption exist among
government officials and among commercial enterprises in which the state has an
ownership interest. Although we do not believe we have been adversely affected
by these activities to date, organized or other crime could in the future have a
material adverse effect on our operations. In the same regard, our ability to
conduct operations in Russia could be adversely affected by difficulties in
protecting and enforcing our rights and by future changes to local laws and
regulations. In addition Moscow banks often delay recognizing wire transfers of
funds into Russia. These delays can be anywhere from a day to a week. Also,
Moscow banks often charge very expensive and somewhat arbitrary fees with
respect to wire transfers. These difficulties and expenses could impose
additional strains on our local operations. The Company does not engage in
hedging transactions at present because the Company pays its operating expenses
in US dollar-equivalent rubles. Thus, any fluctuation in ruble valuation has
little or not effect on our financials.
The Company's operations in Ukraine are limited to the operations of a
single subcontractor. It is therefore unlikely that present or future economic
or political instability in Ukraine will have a material adverse impact on the
Company's ability to conduct its business and/or its financial condition.
Nevertheless, it should be noted that, as in Russia, Ukraine has experienced
significant political and economic change. The Ukrainian economy is less
developed than that of Russia. However, Ukraine is susceptible to many of the
same macroeconomic risks as Russia such as sovereign debt defaults and/or
restructurings, foreign exchange volatility and political instability.
Deterioration in the Ukrainian economic or political situation could adversely
impact our results of operations.
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Need for Additional Technology
The Company believes that it has developed a substantial amount of
technology for developing its products. Nevertheless the Company foresees the
need to recruit more employees with relevant technological knowledge and
capabilities and/or to purchase the right for specific technologies from others.
However, there can be no assurances that the Company will succeed in performing
these acquisitions.
Proprietary Rights Protection
Although the Company intends to rely on trade secret, trademark,
copyright and other intellectual property laws to protect its Fluorescent Memory
Technology, currently the Company relies and expects to rely almost entirely on
patent laws for such protection. While the Company currently intends to
vigorously enforce its intellectual property rights, there can be no assurance
that the steps taken by the Company to protect its Fluorescent Memory Technology
and to enforce its rights will be successful. The Company individually holds
three U.S. patents relating to its Fluorescent Memory Technology. The Company
holds more than forty U.S. and foreign regular patent applications relating to
its Fluorescent Memory Technology. However, there can be no assurance that
patents will be issued for those patent applications. As of November 1, 1999,
the Company holds ten pending provisional patent applications. There is no
assurance that the Company will timely exercise its right to convert provisional
patent applications into regular or international patent applications or that
patents will be issued for any regular or international patent applications into
which the Company does convert such provisional patent applications.
The Company expects that it will develop trade secrets. The Company may
seek patent or copyright protection for such trade secrets. There is no
assurance that the Company will develop trade secrets or seek patent or
copyright protection for any or all of them. The Company intends to enter into
confidentiality and non-disclosure agreements to protect one or more trade
secrets which it or its employees or independent contractors may develop, but
there is no assurance that the Company will do so or that the confidentiality
necessary to protect a Company trade secret will be maintained. Such failure to
maintain one or more trade secrets could have a material adverse financial
impact on the Company.
The Company may offer products in the U.S. and in foreign countries
based on its patented Fluorescent Memory Technology. Certain foreign countries
in the Pacific Rim and elsewhere may not offer the same degree of intellectual
property protection that is afforded in the U.S. European Community and Japan,
and the Company may be unable to enforce its patent rights in such countries,
even if it were able to obtain such rights.
Pending Intellectual Property Applications
The Company has filed intent to use trademark applications with the
U.S. Patent and Trademark Office for the trademarks "CLEARCARD" and
"CONSTELLATION 3D". There is no assurance that these applications will mature
into registrations or that the Company will even use these marks. Furthermore,
the Company has acquired the internet domain names "C-3D.NET," "C-TRID.COM,"
"C-TRID.NET", "CONSTELLATION3D.COM", and "CONSTELLATION3D.NET". Currently, the
Company maintains a web site at http://www.c-3d.net.
There can be no assurance that any patents, copyrights, trade secrets,
trademarks or domain names developed or obtained by the Company will provide
substantial or sufficient value or protection to the Company. Furthermore, there
is no assurance that their validity will not be challenged or that affirmative
defenses to infringement will not be asserted. With respect to trademarks,
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affirmative defenses to both infringement or dilution may be asserted. If
another party were to succeed in developing data storage technology comparable
to the Company's Fluorescent Memory Technology without infringing, diluting,
misusing, misappropriating or otherwise violating the Company's intellectual
property rights, the Company's financial condition might suffer a material
adverse effect.
Possible Intellectual Property Litigation
As is typical in the data storage industry, from time to time, the
Company may in the future be notified of claims that it may be infringing,
diluting, misusing, misappropriating or otherwise violating patents, copyrights,
trademarks, trade secrets and/or other intellectual property rights of third
parties. It is not possible to predict the outcome of such claims, and there can
be no assurance that such claims will be resolved in the Company's favor. If one
or more of such claims is resolved unfavorably, there can be no assurance that
such outcomes will not have a material adverse effect on the Company's business
or financial results. In particular, the data storage industry has been
characterized by significant litigation relating to infringement of patents and
other intellectual property rights. There can be no assurance that future
intellectual property claims will not result in litigation. If infringement,
dilution, misuse, misappropriation or another intellectual property rights
violation were established, the Company and/or its joint ventures could be
required to pay substantial damages or be enjoined from developing, marketing,
manufacturing and selling the infringing product(s) in one or more countries, or
both. In addition, the costs of engaging in intellectual property litigation may
be substantial regardless of outcome. If the Company seeks licensure for
intellectual property that it cannot otherwise lawfully use, there can be no
assurance that the Company will be able to obtain such licensure on satisfactory
terms.
Intellectual Property Ownership
In the future, a Company employee or contractor, and not the Company,
might be the legal and/or record owner of one or more patents, patent
applications or other intellectual property which is material to protecting the
Company's data storage technology. The Company typically requires that its
employees and contractors assign to the Company all right, title and interest in
and to the intellectual property which they develop for the Company. However,
there can be no assurance that the Company will obtain legal or record ownership
of, or one or more licenses to use, such intellectual property on satisfactory
terms. It is possible that failure to obtain such legal or record ownership, or
one or more licenses to use, such intellectual property will have a material
adverse effect on the Company's business or financial results.
Product Liability Considerations
The Company may face inherent business risk of exposure to product
liability claims in the event that the use or misuse of its future products is
alleged to have resulted in the death or injury of a customer, consumer or user
or to have had some other adverse effect. The Company does not presently have
product liability insurance. Currently, the Company does not manufacture any
products and does not expect to do so in the near future. Although the Company
might obtain product liability insurance and the Company might protect itself
against product liability claims by contractually requiring joint ventures: (a)
to have continuous quality control inspections, detailed training and
instructions in the manufacture of its products; (b) to indemnify the Company
for damages caused by the joint venture's own tortuous acts or omissions; and/or
(c) to obtain and maintain adequate product liability insurance, product
liability lawsuits may affect the reputation of the Company's products and
services or otherwise diminish the financial resources of the Company. If
product liability suits are brought, there is no assurance that any existing
product liability insurance of the Company or a joint venture or any existing
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indemnification by the Company's joint ventures will be adequate to cover the
liability claims. However, there is no assurance that product liability
insurance will continue to be available to the Company or the Company's joint
ventures in sufficient amounts at acceptable costs.
Supply of Components and Raw Materials
It is not uncommon in the data storage technology manufacturing and
assembly industry that certain components are available only from a few or
sole-source suppliers. However, the Company anticipates that the key components
for its products will be available from a number of source suppliers and that
the Company and its joint ventures will not experience difficulty in obtaining a
sufficient supply of key components on a timely basis. As discussed below, the
Company intends to develop relationships with qualified manufacturers with the
goal of securing high-volume manufacturing capabilities and controlling the cost
of current and future models of the Company's products.
However, there can be no assurance that the Company will be able to
obtain a sufficient supply of components on a timely basis or on commercially
reasonable terms or realize any future cost savings. Sales may be adversely
affected for these or similar reasons. The inability to obtain sufficient
components and equipment, to obtain or develop alternative sources of supply at
competitive prices and quality or to avoid manufacturing delays could prevent
the Company's joint ventures from producing sufficient quantities of the
Company's products to satisfy market demand. In addition, in the case of a
component purchased exclusively from one supplier, the Company's joint ventures
could be prevented from producing any quantity of the affected product(s) until
such component becomes available from an alternative source. Such adverse events
could cause delays to product shipments, thereby increasing the joint venture's
material or manufacturing costs or causing an imbalance in the inventory levels
of certain components. Moreover, difficulties in obtaining sufficient components
may cause the Company's joint venture(s) to modify the design of the Company's
products to use a more readily available component, and such design
modifications may result in product performance problems. Any or all of these
problems could result in the loss of customers, provide an opportunity for
competing products to achieve market acceptance and otherwise adversely affect
the Company's business and financial results. The Company does not believe that
there are any raw materials on which its products depend whose unavailability is
a material risk to the financial condition of the Company.
Customers
As solely a research and development company, the Company has not yet
had any customers for its products. As discussed above, the Company intends to
establish joint ventures with strategic partners to market and sell the
Company's Fluorescent Memory Technology. In the future, it is possible that the
Company or its joint ventures will have sales to one or more customers which
equal ten percent or more of the Company's consolidated revenues. However, the
Company does not intend to become financially dependent on a small number of, or
any single, customer.
Directors' and Officers' Involvement in Other Projects
Some of the officers and directors of the Company serve and are
expected to serve as directors, officers and/or employees of companies other
than the Company. See "Directors, Executive Officers and Certain Significant
Employees." While the Company believes that such officers and directors will be
devoting adequate time to effectively manage the Company, there can be no
assurance that such other positions will not negatively impact an officer's or a
director's duties for the Company and that such impact will not have a material
adverse effect on the Company's financial condition.
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Legal and Regulatory Controls
The Company is not aware of any particular electrical,
telecommunication, environmental, health or safety laws and standards that will
apply to the Company's products. While the Company does not anticipate
regulation of its products, there can be no assurances that the Company will not
have to comply with laws and regulations of domestic, international or foreign
government or legal authorities, compliance with which could have a material
adverse affect on the Company. The FCC regulates computer hardware that contains
or utilizes magnetic forces to store information. To the extent the FCC may
regulate in the future fluorescent-based computer storage devices, such as our
products, compliance with those regulations could have a material adverse effect
on us.
Market Risk
The Company expects that, like many companies, it may be exposed to
some degree of market risk. However, although changes in interest rates and
currency exchange rates could have a material adverse impact on the Company's
financial condition, the Company believes that such an effect is unlikely.
Therefore, the Company does not anticipate that it will enter into derivative
transactions (e.g., foreign currency forward or option contracts) to hedge
against known or forecasted market changes.
No Dividends
The Company does not intend to pay dividends to the holders of any of
the Company's outstanding stock for the foreseeable future. Therefore, investors
who anticipate the need for immediate or future income by way of dividends from
their investment should refrain from the purchase of the Company's shares.
Year 2000
The Year 2000 issue arises with the change in century and the potential
inability of information systems to correctly "rollover" dates to the new
century. To save on computer storage space, many systems were programmed with a
two-digit century (e.g., December 31, 1999 would appears as 12/31/99) assuming
that all years would be part of the 20th century. On January 1, 2000, systems
with this programming will default to 01/01/1900 instead of 01/01/2000 and
calculations using or reporting the date will not be correct and errors will
arise. To prevent this from occurring, information systems need to be updated to
ensure that they recognize the Year 2000. The Company does not anticipate any
material exposure to the Year 2000 issue.
The Company has completed its assessment of its information technology
systems, as well as its non-information technology systems. The Company
reasonably believes that it will not be materially adversely affected by the
Year 2000.
The Company's research records are primarily handwritten. Further, in
Russia and the Ukraine, the Company's accounting and bookkeeping records are
kept without the aid of computers. The Company's computer hardware and software
is relatively new and all have been purchased with the Year 2000 in mind. The
Company does not reasonably anticipate that any of its computer hardware or
software will malfunction as a result of the Year 2000.
The Company expects that its research prototypes will accurately and
unambiguously display, reconfigure, interrupt and process all date codes
designating the Year 2000 and beyond, including leap years. However, at the
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company's research prototypes may encounter a Year 2000 problem because of the
interaction of a third party's product with the Company's prototypes.
The Company is primarily relying on Year 2000 Readiness Disclosures in
its assessment of its principal suppliers. After reviewing these Year 2000
Readiness Disclosures, the Company does not foresee that any of its principle
suppliers will suffer Year 2000 issues. The Company has one supplier from which
it purchases the raw materials needed for its research operations. The Company
believes that this suppler will not face Year 2000 problems that would affect
the supplier's ability to provide the materials the Company needs to continue
its research operations. However, in the event the supplier is unable to fill
orders to the Company as a result of a Year 2000 computer failure, the Company
is prepared to utilized other suppliers to its orders for raw materials. As a
further precaution, the Company has purchased enough raw materials to last
through the first quarter of 2000.
Finally, the Company has determined that its operations in Russia,
which account for a material portion of the Company's business, may be
materially adversely affected by the Year 2000 problem. The Company's concerns
stem from the state of readiness of third parties, including the Russian
government, and not from its own level of preparation. The Company reasonably
believes that the Russian government may not be equipped to handle all possible
problems that may arise as a result of a Year 2000 problem. The Company has put
contingency plans in place to deal with a possible Year 2000 failure in Russia.
These contingency plans include a complete back-up of all computer files, as
well as the creation of paper copies of all computer files. Also, the Company is
equipping all of its Russian facilities with electrical generators. Finally, in
the worse case scenario, the Company is prepared to relocate its Russian
facility and personnel to the United States.
Dependence on Employees
The Company's success depends, to a great extent, upon its ability to
attract and retain highly qualified technical and management personnel,
including experts in the field of data storage technology and the sciences
underlying such technology. Such individuals are in high demand and are often
subject to competing offers. The Company faces competition for such personnel
from other companies, research and academic institutions, government entities
and other organizations. There can be no assurances that the Company will be
able to attract and retain other qualified personnel needed for its business.
Furthermore, the Company does not currently maintain "key man" insurance for any
personnel.
Competitors in the Data Storage Technology Industry
The Company estimates that there are approximately fourteen enterprises
researching, developing and/or producing data storage technology which the
Company believes to be the Company's material competitors. The data storage
technology industry is fiercely competitive, and a number of the Company's
competitors have already established their names, brands, products and
technologies in the marketplace. Some competitors are expected to have
significant market shares. Mergers, acquisitions and research and development by
the Company's competitors might further increase their market shares.
While the Company believes that its Fluorescent Memory products and
joint venture strategies will result in competitive advantages, there is no
assurance that any such advantages will be obtained or, if obtained, can be
maintained over time, that a competitor will not invent a superior technology,
or that the Company's products and services will be able to penetrate the data
storage market. Many of the Company's current and potential competitors have or
may have advantages over the Company such as greater financial, personnel,
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marketing, sales and public relations resources. Existing or future competitors
may develop or offer products that provided significant performance, price,
creative or other advantages over those offered by the Company.
Restricted Securities
Sales of a substantial number of shares of our common stock after this
registration could adversely affect the market price of our common stock by
introducing a large number of sellers to the market. Given the potential
volatility in the price of our shares, these sales could cause the market price
of our common stock to decline.
The majority of our outstanding shares of common stock have been issued
in private placements and are restricted securities under the Securities Act of
1933. These restricted securities will be subject to restrictions on the timing,
manner and volume of sales of restricted shares.
We cannot predict if future sales of our common stock or the
availability of our common stock for sale will adversely affect the market price
for our common stock or our ability to raise capital by offering equity
securities.
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BUSINESS
Overview
The Company is a development stage company. It has no prior operating
history other than the acquisition of certain assets of Constellation Tech. The
Company has no revenue history and therefore has not achieved profitability. C3D
is a corporation headquartered in Fort Lauderdale, Florida. The Company, an
international enterprise with operations in the United States, Israel, Russia
and Ukraine, researches and develops data storage technology products with
flexibility in commercial applications. The Company has developed what it
believes to be a state-of-the-art optical, data storage product that surpasses
the physical limits of two-dimensional memory technology. Research and
development work on the Company's technology has been conducted and is being
conducted in the United States, Israel, Russia and Ukraine.
The mission of the Company is to develop state-of-the-art technologies
and products to serve the growing data storage needs of customers in government,
business, education and consumer segments through continuous research and
product innovation. By providing new data storage solutions to its customers
through joint ventures and licensing agreements, the Company intends to become
the pre-eminent provider in the data storage research and development market,
thus providing significant returns to its shareholders.
The Company's new technology implements the concept of the volumetric
storage of information. Data is recorded on multiple layers located inside a
disk or a card, as opposed to the single or double layer method available in
optical disks ("ODs"), compact discs ("CDs") and DVDs. The recording, reading
and storing of the information is done by using fluorescent materials embedded
in pits and grooves in each of the layers. The fluorescent material emits
radiation when excited by an external light source. The information is then
decoded as modulations of the intensity and color of the emitted radiation.
The Company's research has determined that these fluorescent multilayer
disks and cards furnish the user with considerably improved storage space and
storage time and deliver substantial performance advantages when compared to the
CDs and DVDs produced.
Company History and Structure
C3D was incorporated on December 27, 1995 under the name Latin Venture
Partners, Inc. The name of the company was changed to C3D Inc. on March 24, 1999
in anticipation of a proposed transaction with Constellation Holdings. From its
inception until October 1, 1999, C3D had no business operations.
On September 19, 1999, Constellation Holdings sold all of its assets to
Constellation Tech. In consideration for those assets, Constellation Tech
assumed all liabilities and obligations of Constellation Holdings. After the
Acquisition (as defined below), all the record and beneficial shareholders of
Constellation Holdings are all of the record and beneficial shareholders of
Constellation Tech.
On October 1, 1999, C3D purchased certain assets of Constellation Tech
for total consideration of 9,750,000 shares of Common Stock and C3D's assumption
of certain liabilities and obligations of Constellation Tech (the
"Acquisition").
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In the Acquisition, C3D acquired the following assets:
o Constellation's Tech's then sole existing membership interest in
TriDStore IP, L.L.C.;
o all of the issued and outstanding ordinary shares in TriD Store
Vostok;
o 99 ordinary shares of the 100 ordinary shares then allotted of
C-TriD Israel Ltd.; and
o all of the issued and outstanding shares of common stock of TriD SV,
Inc.
TriDStore IP, L.L.C. is a Delaware limited liability company formed on
February 2, 1998, formerly known as OMD Devices, L.L.C., until March 9, 1999.
TriDStore IP, L.L.C. owns a substantial majority of the material intellectual
property owned by the Company, which consists mostly of patent registrations
and applications. See "Risk Factors -- Intellectual Property/Proprietary
Rights."
TriD Store Vostok is a Russian company formed on January 15, 1999. The
Company conducts its Russian operations through TriD Store Vostok.
C-TriD Israel Ltd. is an Israeli company formed on December 2, 1996.
C3D is the record owner of 99 of 100 allotted ordinary shares but is the
beneficiary of all 100 allotted ordinary shares, one of which is held in trust
for C3D by Rapids Trusts Ltd., an Israeli trust. The Company conducts its
Israeli operations through C-TriD Israel Ltd.
TriD SV, Inc. is a Delaware corporation formed on August 10, 1998. As
of November 1, 1999, TriD SV, Inc. has had no operations.
The Company's organizational structure is as follows:
[organizational chart appears here]
Products
The Company has developed Fluorescent Memory Technology and plans to
develop end-user products over the next two years. With each of these products,
the Company intends to seek and establish joint ventures with strategic partners
who are already established with market share and manufacturing capabilities in
the appropriate markets. The initial three products that are expected to be
developed by the Company include:
o Micro Read/Write ("R/W") Disk;
o ClearCard Read Only Memory ("ROM"); and
o ClearCard Read/Write.
Micro Read/Write Disk
Micro Read/Write is a 30 millimeter recordable disk that is expected to
fit in many portable devices. The Company anticipates that this technology will
be applied to devices such as laptop and hand-held computers, digital cameras
and video recorders and players. For laptop and hand-held computers, it is
expected to offer lightweight, high capacity storage and quick access to data.
The Company believes that for cameras and video players, Micro R/W will not only
offer the same gains as laptop and hand-held computers, but that it also will
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offer higher quality video. The Company also believes that this technology will
be ideal for downloading information from the Internet.
Micro R/W disks will be largely similar to existing CD and DVD drives.
Therefore, new designs of ODD players would not be required to be able to read
the Micro R/W disks.
The company has entered into a relationship with Toolex International,
N.V. regarding the production and manufacture of Micro R/W disks.
ClearCard ROM
The Company intends for this technology to be applied to many portable
devices including global positioning and navigating systems, hand-held gaming
devices, automobile systems and electronic book devices. It is anticipated that
ClearCard ROM will be read in very low-cost players. The Company believes that
this technology will be the first of its products to become commercially
available. It is expected to be available by the last quarter of 2000.
ClearCard R/W
This technology is one step beyond ClearCard ROM in that it is expected
to offer a one-time recording function. The Company anticipates that ClearCard
R/W will be used with the same low-cost players for reading as ClearCard ROM.
While many of the same product applications apply to this technology, the
expected added benefit of ClearCard R/W is its ability to allow a user to
download or determine the information that he or she is interested in having on
a particular device. The Company believes that this technology will present a
storage advantage for Internet-based data.
The Clear Card drives do not have an analogous system in the current
market. These products are completely new designs. However, the materials and
machinery for manufacturing the devices are all available. In addition, the
interface between ClearCard devices and hand held electronic devices, such as
laptops and handheld computers, for instance, will be in accordance with
accepted standards.
Products and Markets in Development
The Company believes that three-dimensional Fluorescent Memory
Technology will allow the creation of user-oriented products with new
performance qualities that form a solid base for consumer technologies. The
following are products in the development stage which the Company intends to
bring to market through joint ventures and strategic partnerships, such as the
existing relationship with Toolex International, N.V.:
o Fluorescent Memory Disk ROM (diameter of 120 millimeters with 140 to
420 gigabytes (GB) of data storage capacity) is expected to provide
the user with a wide range of large volume archive and reference
information, as well as with much more detailed video information.
The Company believes that this product will produce home cinema
technology with cinema-tape quality;
o Fluorescent Memory Disk ROM and Fluorescent Memory Disk R/W
(diameter of 120 millimeters with 70 gigabytes (GB) of data storage
capacity) is expected to allow the user to create his or her own
library of digital material;
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o Fluorescent Memory Disk ROM, Fluorescent Memory Disk R/W and
Fluorescent Memory Disk RAM (diameter of 120 millimeters with
various data storage capacities) is a product which is expected to
permit users to utilize supplied archive and reference data, and add
to one's own recordings for constant storage;
o Fluorescent Memory Disk ROM (diameter of 30 to 40 millimeters with
12 to 15 gigabytes (GB) of data storage capacity) is designed for
information storing in portable devices;
o Fluorescent Memory Disk R/W and Fluorescent Memory Disk ROM
(diameter of 30 to 40 millimeters with 10 to 13.5 gigabytes (GB) of
data storage capacity) is expected to be a base for extra-portable
information recording and storing device with new quality functions.
It is anticipated that it will enable the addition of the user's own
data, audio and video recordings, as well as those received via the
Internet. The Company intends that this product will provide new
possibilities for the individual to integrate into the global
information network;
o Fluorescent Memory Disk R/W (diameter of 30 to 40 millimeters with 9
to 12 gigabytes (GB) of data storage capacity) is a new product
expected to promote digital photo and video systems' development.
The Company intends that the product will promote the further
development of recorded photo and video on PCs and the restoration
of them by means of photographic printing or different
video-restoration systems;
o Super Fluorescent Memory Disk ROM (diameter of 120 millimeters with
1.4 terabytes (TB)) of data storage capacity) is intended to promote
the idea of advanced reference books and archives, art and cinema
collections, new generations of video games (with virtual reality
effects and extended video environment development and real
presentation effect);
o Super Fluorescent Memory Disk R/W (diameter of 120 millimeters with
1 terabyte (TB) of data storage capacity) is designed as a base for
stable storage systems for large and extra-large databases with high
data access rate;
o Super Fluorescent Memory Disk RAM (diameter of 120 millimeters with
1 terabyte (TB) of data storage capacity) is intended to be a base
for secondary memory systems for large and extra-large PCs with much
greater access restrictions because of the ability to remove the
disk from the system;
o ClearCard-ROM (credit card-sized memory carrier with 1 to 20
gigabytes (GB) of data storage capacity) is expected to take the
form of a one square centimeter-sized spot on a card. Such a card is
intended to be a mass produced product designed for persons to carry
and to use in inexpensive miniature reading devices and electronic
books; and
o Recordable R/W and Recordable ClearCard (with 1 to 3 gigabytes (GB)
of data storage capacity) are envisioned as a part of `I-net Video
Terminal' systems. The Company anticipates that Recordable ClearCard
will be recorded at the locations of various providers of
information such as bookstores and information kiosks and that they
will be read in inexpensive reading devices which may use
ClearCard-ROM.
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The Company believes that its Fluorescent Memory Technology has a wide
variety of applications and markets. It is expected that these technologies will
continue to evolve after they are brought to market and the Company begins to
better understand how customers and users respond to these technologies.
Strategic Partners and Joint Ventures
The data storage industry is a very capital-intensive industry. The
core competency of the Company lies in research and development of data storage
technologies. The facilities that the Company leases are used for research and
development or administrative purposes. The Company does not plan to vertically
integrate its business to manufacture, or to undertake mass manufacturing of,
the products that it proposes to introduce to the market. The Company plans to
enter the market through licensing, strategic alliances and joint venture
programs. The Company expects to engage in research and development and
administration only and to outsource the marketing and mass production of its
Fluorescent Memory Technology.
In December 1999, the company signed a letter of intent with Toolex
International, N.V., a Dutch company (the "Letter of Intent"). The Letter of
Intent provides that the company and Toolex shall cooperate to develop processes
and machinery to mass produce Fluorescent Memory Disks ("FMDS"). The Company and
Toolex believe that the outcome of their co-operative efforts shall be a
technique for embossing, metalizing and laminating the FMDs to levels necessary
for mass production. In connection with the Letter of Intent, the Company and
Toolex signed a Co-Invention Agreement. The Co-Invention Agreement governs the
ownership of inventions and patents that are developed as part of the Letter of
Intent.
As a result of its joint venture approach to entering the market, the
Company does not plan to engage in marketing efforts on its own. Instead, it
intends to rely on others' expertise in this area. Despite this intention, the
Company believes that it will need to develop market intelligence so as to keep
abreast of the technological requirements demanded by its customers. The Company
believes also that in order to negotiate the most advantageous licensing
agreements with joint venture partners and other licensees, the Company will
need to maintain a knowledge of the market size and growth parameters for each
of the target markets. Similarly, the Company expects that an intimate knowledge
of pricing and cost trends in the market will be required to realize the most
value from each licensing agreement into which it will enter. Notwithstanding
the foregoing, the Company may engage directly in marketing its Fluorescent
Memory Technology at some time in the future.
The Company intends to identify a partner for introducing the Company's
products to the market based on the following criteria:
o The partner should have an established presence in the data storage
market. The Company believes that an established presence includes
market share and leadership, as well as ownership of assets in the
form of capital, production facilities, employees, etc. The Company
expects that it would provide the necessary intellectual property;
o The partner should be able and willing to make the investments
needed for successful product launch, including marketing,
advertising, sales and promotions; and
o The partner should also have the ability to differentiate itself on
the basis of the quality and quantity of service. The Company
believes that it is imperative that the partner be able to dedicate
enough quality service and support staff long-term to the marketing
of the Company's products.
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In addition to the existing relationship with Toolex International,
N.V., the Company is presently engaged in preliminary talks with a number of
companies regarding joining in a strategic partnership for the commercial
production of the Company's products.
The Data Storage Technology Market and Competition
The data storage industry is very dynamic and very competitive. Trends
can quickly change and competing companies are constantly involved in product
improvement and innovation in order to keep up with customers' increasing demand
for faster and smaller storage devices with high data storage capacity. The
driving forces of the data storage market include diverse applications such as
analysis of meteorological data, printing payroll checks, writing letters,
browsing the Internet, editing television commercials, searching a data
warehouse, or playing a computer game. Businesses have witnessed a significant
increase in the amount of data used and stored in the past decade, and the
Company believes that they will continue to do so for the next few years to
come.
Trends in the Data Storage Industry
Increased Demand for Removable Storage
The Company believes that there is a rising demand for removable disk
drives of varying storage capacities due to the significant advantages of
removable drives compared to floppy disks. While both floppy disks and removable
drives are portable and can interface with other systems, the removable disk
drive can substantially exceed the floppy disk in terms of storage capacity.
Transition from Older Drive Technologies to New Technologies
The Company anticipates that the CD and optical disk drive industry
will undergo a major transition over the next several years as drive producers
begin manufacturing technologies that have been recently introduced. The
Company, after reviewing Frost & Sullivan's "World Compact Disc and Optical Disk
Drive Market" (1997), believes these new technologies, including the DVD drive,
will account for the majority of the CD and ODD market. The Company believes
that new technology with varying applications and cost effectiveness, including
the Company's Fluorescent Memory Technology, will be readily accepted into the
market.
Downward Price Pressure in the CD/ODD Industry
Price declines have played a significant role in the mainstream
acceptance of CD/ODD technology. The Company anticipates that new technology
acceptance over existing technologies will be gauged by pricing. The Company
predicts that, as new technologies are introduced, they will have a price
premium over existing technologies. However, the Company believes that, as these
new technologies are accepted and unit shipments increase, they will benefit
from economies-of-scale, allowing them to significantly compete with older
technologies. Consequently, the Company believes that it must (i) lower its
production costs in order to maintain adequate margin, (ii) increase its
production volume and (iii) remain on the cutting edge of data storage
technology with the innovation of new products.
Increased Demand for Increased Performance
The Company anticipates that data storage performance levels will
increase in a pattern similar to the past, resulting in faster spin rate,
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shorter access times and higher capacities. Performance increases have become
relatively common in the industry, and many consumers now expect them on a
regular basis. In keeping with this user demand for performance, the Company
believes that it must maintain its current emphasis on research and development
in order to maintain the Company's viability.
Magnetic Storage Continues to Dominate the Mass Storage Industry
Magnetic disk drives ("MDDs") and ODDs comprise the substantial
majority of the data storage market in terms of market share. Historically, MDDs
have been in higher demand for mass storage use and have cost less per gigabyte
(GB) of data storage memory space than ODDs. It is expected that most mass
storage industry leaders will continue to use magnetic drives as their primary
storage medium. The Company believes that in order to remain competitive with
the magnetic mass storage industry, it must continue to improve the
cost-effectiveness, as well as product acceptance by the public, of its
Fluorescent Memory Technology.
Competing Products and Technologies
The Company's Fluorescent Memory Technology disks and cards are in
competition with other types of storage devices, which come in various formats.
While hard disk drives are the most common form of mass data storage, they are
not the only storage media available to computer users. A variety of options
exist, each with unique price and performance characteristics that meet specific
requirements. Some other forms of storage devices are Removable Storage Devices,
such as Tape Drives, Magneto-Optical ("MO") Disks, Personal Computer ("PC")
Cards, ROM and One Time Programmable Cards, Static Random Access Memory Cards,
Flash Cards, ODDs, CDs, and Redundant Arrays of Inexpensive Disks, among others.
Removable Mass Storage Devices
The trend of processing sensitive data on desktop PCs instead of on
mainframe computers has made removable mass storage solutions increasingly
important. Floppy diskettes, which have been the most commonly used removable
storage devices, often have been insufficient for certain data-intensive
applications. For these applications, high capacity removable mass storage
devices offer advantages. Removable mass storage devices, which are particularly
suitable for secondary storage applications like data backup and archiving,
rather than as a primary form of on-line storage, come in many forms, such as
tape cartridges, Compact Disk Read Only Memory ("CD-ROMs") and other optical
disks, MO disks, and PC cards.
Tape Drives
The magnetic tape drive was one of the first computer storage
technologies, and was commonly used on early mainframe computers. However, its
inability to randomly access or write data like disk drives makes it much slower
than newer data storage technologies. It has therefore been replaced as the
primary storage device in most computer applications. However, due to its high
storage capabilities and low cost-to-megabyte ratio, it is still very much in
use as a storage medium for archiving large amounts of data. Additionally,
recent advances in tape technology, such as digital audio tape cartridges, have
also made tape a preferred technology for backing up network servers and other
critical data.
Optical Disk Drives
The three primary optical disk storage technologies are available, as
follows: CD-ROM drives, Read/Write drives and rewritable optical disks. ODDs can
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hold relatively large amounts of data. Rewriteable optical disks typically are
used for data backup and archiving massive amounts of data, such as image
databases.
ODDs are used for a diverse mixture of applications. The principal
performance advantage of ODDs as compared to MDDs is their ability to provide
greater track density than MDDs, thus enabling them to store more data per disk.
The principal disadvantage of ODDs as compared to MDDs is a slower average data
access time. The Company believes that its Fluorescent Memory Technology has a
cost/price advantage over the currently available ODDs.
CD-ROM drives are by far the most widely used ODDs and are the computer
industry's standard for distribution of software products. They are typically
used to distribute large databases and documents that require only periodic
access. Read/Write drives, on the other hand, are used almost exclusively for
archival storage where it is important that the data cannot be changed or erased
after it is written for example, for financial records storage.
Retail price levels for CD-RW rewritable drives have decreased. The
writable CD format, which was heretofore dominated by write-once CD-R drives, is
currently being replaced by CD-RW as a result of the combination of CD-RW's
media flexibility and lower prices. The Company anticipates rapid growth for
rewritable DVD drives starting in year 2000, with shipment levels rising to
rival those of CD-RW drives. The Company believes that its proposed Fluorescent
Memory rewritable disks and drives will be the medium through which the Company
will be able to gain a large share of the market for rewritable data storage
media.
Magneto-Optical Disks
Magneto-optical disk systems combine the technology of traditional
magnetic media, like hard disk drives, with optical disk technology. It is
expected that MO technology will allow users to store hundreds of megabytes of
data on a disk that looks similar to a traditional 3.5-inch floppy disk and
typically comes in a 3.5-inch or 5.25-inch form factor. MO disks have many
advantages. They provide relatively high data densities. The data stored on them
can be changed at will and is resistant to magnetic fields, unlike a traditional
floppy or hard disk. The disadvantage of MO technology is that, because of the
relatively high intensity of the magnetic field created with the combined use of
the read/write head and laser, the two rotations required for writing data make
them twice as slow as hard disk drives during write operations. The Company
believes that its Fluorescent Memory Technology, due to its faster read/write
capability coupled with high data storage capacity, has a distinct advantage in
this product category.
Personal Computer Cards
PC Cards are built using the Personal Computer Memory Card
International Association standard, and can be either storage or Input/Output
cards. By virtue of being compact, highly reliable, lightweight and requiring
less power, some consider them to be ideal for battery-powered notebook and
palmtop computers, hand-held personal digital assistants and personal
communicator devices. Due to their diminutive size, PC cards used for storage,
commonly called "memory cards," make transporting data relatively easy. They can
be used for program storage or data interchange between systems. A big deterrent
to the widespread use of PC cards is their high cost relative to hard disk
drives. The Company believes that the ClearCard that the Company proposes for
introduction to the market will not be as expensive as a PC Card and, thus, will
have a distinct advantage in this product category.
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Competing Technologies in Development and Advancement
In addition to the existing storage devices, there are some comparable
data storage technologies in the research and development phase, such as the
following technologies:
Magnetic Hard Disk Drives. One of the original data storage media, some
view magnetic disk drives as the most reliable source of storage media. Despite
the advent of alternate technologies, magnetic storage remains dominant,
particularly where mass storage is concerned. Magnetic disk heads fly on a
slider approximately one ten-millionth of a meter over the surface of the
storage medium. During the writing process, small magnetic domains are written
and the magnetic fields of these domains are detected during the read process.
The information can be overwritten indefinitely. The area density of magnetic
recording has grown about 60% per year during the last decade. Devices with an
area density of 4 gigabytes per square inch are in production, and area
densities of 20 gigabytes per square inch have been created. However, the
magnetic domains become unstable at a physical and technical limit called the
super-paramagnetic limit. Therefore, further growth in area density is limited,
although it is not certain where this limit puts an end to the further density
increase of magnetic memory. Furthermore, many magnetic memory carriers are not
easily removable, are not easily disposable and are relatively expensive.
Optical Disk Drives. Optical Disk Drives, which include compact disc
drives, DVDs, and magneto-optical drives, came onto the scene in the mid 1980's
and have gained mainstream acceptance, particularly CD-ROM drives as a result of
their entertainment or educational uses. The Company anticipates that the advent
of rewritable optical disks will make the optical disk drive an increasingly
important segment of the data storage industry. In ODDs, such as CDs, DVDs, and
MOs, light from a semiconductor laser is focused onto the storage layer to
perform writing or reading. The storage layer is protected through the disk
substrate or a thick overcoat, making this technology well-suited for removable
media. CDs, CD-ROM, and DVD media are commonly used around the world for both
entertainment and commercial purposes. The Company expects that, at least in the
next few years, they will continue to be commonly used in these ways around the
world.
Near Field Drives. In some of the proposed near field recording, light
is focused onto the front surface of the storage medium, thereby avoiding some
problems with distortions of the focused beam in the protected layer. High
density is achievable, but at high cost, as the medium is exposed to dust and
remains vulnerable to crashes of the drive head. Thus, this technology is not
suitable for portable devices. The storage capacity is limited, because in near
field optics, data is stored in a thin layer at the surface.
Volumetric/Holographic. Volumetric or holographic storage allows data
to be stored in three dimensions, which increases actual storage capacity
exponentially. Although holographic storage was considered feasible almost 40
years ago, attempts at commercialization have not achieved great success largely
because unlike the Company's products, there is a lack of applicable components
and of a suitable storage material. The Company's products' components and
materials for fluorescent disks and cards are either available or have been
developed by the company and its subsidiaries and can be manufactured by using
available machinery and materials.
Atomic Force Microscopy. In the field of probe-based storage,
scientists are fabricating tiny silicon cantilevers 10 microns long and 0.3
microns thick, with an even smaller silicon probe tip (.008 microns in
diameter). The tip rests on a rotating plastic disk. To store data, heat from an
electric pulse through the tip momentarily softens the surface of the plastic,
and the slight force that the tip exerts on the plastic pokes a tiny depression.
As the tip is pulled across the tip on playback, its dip into the pit is
detected. Researchers report that this technique can reliably read and write
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data at a density of 64 gigabits per square inch and have developed the basics
for a read only system holding a CD's worth of data on a disk the size of a
penny.
Scanning Tunneling Microscopy. Scanning Tunneling Microscopy reportedly
has the potential to store as many as 1,000,000 gigabytes (GB) per square inch,
although the Company expects that commercial usage of this technique is not in
the foreseeable future. The technique involves moving xenon on a nickel surface
with a scanning tunneling microscope. As attempted, this process required a
temperature of near absolute zero and several hours to complete.
Market Segmentation
The three primary CD and ODD market segments are (i) CD Drive, (ii)
Stand-alone Drives and (iii) CD and ODD Jukebox. The CD Drive segment can be
further broken into the CD and ODD drive, the CD and DVD drive, the CD-ROM
drive, the CD-R drive, the DVD-ROM drive, the CD-RW drive and the DVD-RAM drive
markets. Stand-alone drives include both the magneto optical drive and large
form factor markets. The CD and ODD Jukebox market includes magneto optical
drive jukeboxes, large form factor jukeboxes and CD drive jukeboxes.
The Company's product line will both create new product lines and new
products. The fluorescent discs is an existing market that will be enhanced by
the addition of these products. The ClearCards will create entirely new
products. That market is just developing and the Company plans to be one of the
early players in the market.
Geographically, the CD and ODD market is segmented into four regions -
the United States, European, Pacific Rim and Rest-of-World ("ROW") markets. A
common pattern in the way these markets behave is that the United States is
usually an early adopter of a new technology, with Europe following later. The
Pacific Rim and ROW markets are heavily impacted by the economic well being of
the constituent nations, which in turn decide whether that market is going to be
an early or late adopter. However, the Pacific Rim and ROW markets are also the
ones with good growth projections for all the storage device product categories.
With this trend in perspective, the Company believes that it can be inferred
that these markets will adopt and proliferate the Fluorescent Memory Technology.
The Company expects that the Company and its partners should therefore focus
their marketing efforts worldwide if they are to achieve the goal of their
technology becoming the industry standard for the data storage industry.
CD and ODD Market
After reviewing Frost & Sullivan's "World Compact Disc and Optical Disk
Drive Market" (1997), the Company projects the revenues for the total CD and ODD
market to reach $19.12 billion in fiscal year 2000 and to increase to $25
billion in fiscal year 2003. The Company further expects CD and DVD drives to
account for 96.37% of unit shipments and 85.5% of revenues. A slight decrease in
these numbers, perhaps no more than 1%, is expected to occur in fiscal year 2003
due to growth in other segments such as 3.5-inch MO drives.
The United States, which was originally the largest market for CD and
ODD revenues, is projected to account for only 46.8% of the market in 2003,
totaling $11.69 billion. The Pacific Rim and European markets, on the other
hand, are projected to grow to 24.6% and 21.5% respectively in fiscal year 2003.
This change in market share is attributed to the early adoption by the US
compounded by a healthy economy. The Pacific Rim, though an early adopter,
suffered because of its economic setback, and the European market is a late
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adopter. The ROW segment is expected to grow from 5.3% in 2000 to 7% of the
total market in 2003. The Company believes that these growth projections are
indicative of the viability of the Fluorescent Memory Technology in the data
storage market.
CD and DVD Drive Market
The CD and DVD Drive market is expected to continue its rapid rate of
growth during the next few years. It is projected that the market will have
overall revenues of $16.34 billion in 2000 and $21.17 billion in fiscal year
2003. The Company believes that its entry into the market at this point in time
is crucial because of the tremendous growth potential that it offers. The
Company believes also that any further delay will only result in loss of market
share to competitors, and loss of opportunity.
CD and DVD Drive Growth Projections by Product Category. Based on the
Frost & Sullivan study, the Company anticipates the replacement of CD-ROM drives
with DVD-ROM drives as the primary drives in the next few years. In the
recordable sub-segment, there is a transition projected to occur from CD-R
drives to CD-RW drives, and then from CD-RW drives to DVD-RAM drives. The major
change that is anticipated in the market is the shift from CD technology to DVD
technology, and that the DVD technology will become the market's mass storage
medium of choice. This is due to higher storage capacity of the DVD technology
and also because DVD is backward compatible with most CD media. It is further
anticipated that the DVD technology will be used in three different industries
computers, movies and music - which will allow it to reach the economies of
scale not experienced by other optical technologies. The study forecasts that
DVD technology will account for 61% of the total CD and DVD drive market
shipments.
CD and DVD Drive Growth Projections by Geographic Segments. The United
States, which was an early adopter of the CD technology, continues to have the
largest market share in terms of revenues. However, market forecasts predict
that by the year 2002, market share will decline to about 48.4%. It is
anticipated that the US market share of the CD and DVD drive market will decline
to 46.4% of the total market in 2003. It is also expected that the European
market share will be 22.19%, the Pacific Rim market share will be 24.3% and that
of the ROW market will be 7.2% in 2003. Additionally, the ROW region may very
well account for a larger portion of sales due to stronger economic growth of
its constituent nations.
CD-ROM Drive Market
For multimedia applications, the usage of CD-ROM systems is in
accessing large databases and also in distributing other large software
packages. Growth in the installed base of CD-recordable drives and CD jukeboxes
has further strengthened the CD-ROM format. Frost & Sullivan forecast the unit
shipments for CD-ROM to reach 65.8 million units in fiscal year 2000, which is
equivalent to revenues of $5.52 billion. However, as DVD-ROMs gain increased
presence, revenues from CD-ROM are expected to decline to $1.34 billion in
fiscal year 2003.
CD-Recordable Drive Market
The Compact Disc-Recordable ("CD-R") drive market has become an
important part of the CD and DVD drive market. The advantages that CD-R drives
offer include low media cost, high reliability, the ability to perform a random
data search, and media able to be read by a large installed base of CD-ROM
drives. However, this technology is expected to be replaced in the CD and DVD
markets in fiscal year 2000 by the technologies that allow for recording and
rewriting data such as CD-RW and DVD-RAM. The Company believes that this product
category will be a high-growth area for the Company should the Company enter
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into this market, because the Company believes that its Fluorescent Memory
Technology could potentially become the technology that replaces existing
technologies.
DVD Read Only Memory Market
The DVD Read Only Memory ("DVD-ROM") is a high-density, read-only,
optical disk format. It is expected to become the logical successor to the
CD-ROM technology, and also that its sales will be further enhanced with the
introduction of the DVD-RAM technology. Revenues for the DVD-ROM drives are
projected to reach $12.63 billion in 2003. It is also anticipated that DVD-ROM
drives will replace CD-ROM drives as the choice medium of data storage in 2003.
CD-Rewritable Drive Market
The CD-Rewritable ("CD-RW") drive technology is expected to gain market
acceptance due to the additional applications it opens up to the CD format.
However, it is not expected to be sustained for long, because DVD-RAM technology
is expected to offer greater data storage density. The Frost & Sullivan study
predicts that by 2003, unit shipments of CD-R drives will decrease to 5 million
units.
DVD Random Access Memory Market
DVD-RAM refers to the optical technology that allows users to record
information on DVD media. It is expected to replace technologies such as CD-R
and CD-RW. By fiscal year 2003, unit shipments of these drives are forecast to
be at 9.4 million. The Company expects that the disks and drives that the
Company intends for High Definition Television format stand to gain from this
projection of market growth.
World Magneto-Optical and Large Form Factor Market
The magneto-optical and large form factor market is expected to earn
revenues up to $1.23 billion in fiscal year 2000, and approximately $1.7 billion
in fiscal year 2003.
World MO and Large Form Factor Product Segmentation. Of all the
products in the MO and large form factor market, the 3.5-inch MO has had the
highest growth in the overall stand-alone market from fiscal year 1998 to the
present. Despite its rapidly falling prices, it is expected that the 3.5-inch MO
will account for 73.5% of revenues, and 93.1% of unit shipments of the entire MO
and large form factor market in fiscal year 2003. The Company believes that
ClearCard-ROM and ClearCard-R disks and drives, by virtue of their small size
and high capacity, can take advantage of this growing product segment.
The 5.25-inch, on the other hand, is projected to account for only 8.5%
of the of the total shipments of MO and large form factor ODD shipments. It is
also expected that it will account for only 26.8% of the stand-alone ODD
revenues in fiscal year 2000 and approximately 22% in 2003. The 12-inch and
14-inch Read/Write drive products are targeted at niche markets, and their
revenues and unit shipments are expected to decline to 5.4% and 0.1%,
respectively, by fiscal year 2003.
World MO and Large Form Factor Geographic Segmentation. The United
States market, which has been an early adopter of new optical technology, has a
major share of the MO and large form factor ODD market. It is projected that
United States will have a 42% share of the total ODD market, which is then
projected to increase to 46.7% in fiscal year 2003. Europe, on the other hand,
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is expected to have a shrinking market share that decreases from 19.9% in fiscal
year 2000 to 18.6% in fiscal year 2003. However, the European market's revenue
is expected to increase from $244.8 million in fiscal year 2000 to $317 million
in fiscal year 2003. The 3.5-inch and 5.25-inch MO were successful in the
Pacific Rim market. Despite growing revenues in the ODD market in this region,
its market share is declining due to the rapid growth in US market share.
Revenues from Pacific Rim ODD market are expected to reach $417.7 million in
fiscal year 2000, and $500.1 million in fiscal year 2003. The Rest of the World
segment is also expected to have increased revenues from ODD sales due to
increasing adoption of all high-technology products by the nations in this
region. It is expected that this segment will have revenues of $50.7 million in
2000 and $91.2 million in fiscal year 2003 which translates to market shares of
4.1% and 5.4%, respectively.
World CD and Optical Disk Drive Jukebox Market. The most common
applications for these products are storage-intensive applications. Growth of
the jukebox market has been attributed to the increasing needs of government
agencies and private businesses for of reliable mass storage solutions. The need
of engineering, education, medical imaging and storage, legal document imaging,
and other such storage-intensive areas also have contributed to the jukebox
market. The Company believes that the entry of Fluorescent Memory Technology
could potentially force this product segment into obsolescence, because the
basic idea behind a Fluorescent Memory device is to eliminate the need for
multiple layers of disks and drives, and instead provide for storage of
terabytes of data on one disk or card.
CD and ODD Jukebox Product Segmentation. Growth in the magneto optical
(MO - 5.25-inch and 3.5-inch form factors) segment's market share has been
eroded by a more rapid growth in the CD jukebox segment. By fiscal year 2003,
this segment is expected to contribute to 56.1% of the total CD and ODD jukebox
market.
The large form factor (12-inch and 14-inch) segment is considered to be
the most mature of all segments in the CD and ODD jukebox market, and is
expected to remain on a course of slow steady growth. By fiscal year 2003, this
segment is projected to account for only 0.8% of the total jukebox shipments.
The CD jukebox segment is forecasted to have the largest number of
units shipped in the total CD and ODD jukebox market by fiscal year 2003. In
that year, it is expected to contribute 36.9% of the entire jukebox market's
earnings.
CD and ODD Jukebox Geographic Segmentation. The US was an early adopter
of the jukebox technology. Growth of the US market's share of the CD and ODD
jukebox market is attributed to the overall size and health of its economy.
However, as other regions of the world become technologically more
sophisticated, the US market share is expected to decrease to about 50.6% in
2003 from 53.5% in fiscal year 2000.
The European market share has been declining steadily due to strict
market regulations as compared to the other regions. It is projected that this
market will have an 18.2% share of the CD and ODD jukebox market in fiscal year
2003, which is equal to revenues of $387.2 million.
The Pacific Rim region is the fastest growing market for the CD and ODD
jukebox technology. It is anticipated that this region will account for 21.7% of
the market in fiscal year 2000 and grow to 24.3% in fiscal year 2003, equivalent
to revenues of $516.9 million.
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The adoption of newer technologies by countries in the ROW segment will
result in increased revenues from the CD and ODD jukebox sales. Sales in this
region are expected to account for 5.7% of the total market in 2000 and 6.9% in
fiscal year 2003, which translate into sales of $146.8 billion.
The Company's success and ability to compete will depend in part on its
ability to protect proprietary technology and other intellectual property. The
Company seeks patents on its important inventions, primarily in the United
States, Israel, European Community Countries and Japan. Additional countries
that belong to the Patent Cooperation Treaty may also be designated if it is
deemed to be cost effective and beneficial to the Company.
Currently, the company owns three U.S. Patents:
o U.S. Patent No. 5,847,141, entitled " Photochromic Material for
Electro-Optic Storage Memory," which issued on December 8, 1998, and
expires on December 22, 2015. This patent covers photochromically
modified pyridones which are useful in three dimensional, stable,
optical memory storage devices.
o U.S. Patent No. 5,936,878, entitled "Polymeric Photo-Chromic
Composition" issued on August 10, 1999, and expires on December 12,
2017. This patent covers the use of photochromically modified
spiropyrans in three dimensional, stable, optical memory storage
devices.
o U.S. Patent No. 5,945,252, entitled "Photochemical Generation of
Stable Fluorescent Amines from Peri-Phenoxiderivatives of Polycyclic
P-Quinones" issued August 31, 1999, and expires on December 11,
2017. This patent covers the use of photochromically modified
polycyclic quinones in three dimensional, stable, optical memory
storage devices.
More than forty additional pending U.S. and International and foreign
applications covering compositions, methods, and apparatus which relate to the
Company's Fluorescent Memory Technology have been filed by the Company.
Other patent applications are in the process of being prepared.
There can be no assurance that any of the company's patent applications
will issue as patents, or that if patents are issued on the Company's
applications, they will be of sufficient scope and strength to provide
meaningful protection of the Company's technology or any commercial advantage to
the Company, or that such patents will not be challenged, invalidated or
circumvented in the future. Moreover, there can be no assurance that the
Company's competitors, many of which have substantial resources and have made
substantial investments in competing technologies, do not presently have or will
not seek patents that will prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the U.S. or in other
countries.
The Company intends to rely on a combination of patents, trade secrets,
copyrights and trademarks to protect its intellectual property rights. No
assurance can be given, however, that competitors will not independently develop
substantially equivalent proprietary technology, or that the Company can
meaningfully protect its rights in unpatented proprietary technology.
Nevertheless, the Company intends to enforce its intellectual property rights
whenever it becomes aware of any infringement or violation to its rights.
The Company has not received any notices alleging, and is not aware of
any infringement by the Company of any patents or intellectual property of
others. However, there can be no assurance that current and potential
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<PAGE>
competitors and other third parties have not filed or in the future will not
file applications for patents, or have not received or in the future will not
receive, patents or other proprietary rights relating to devices, apparatus,
materials or processes used or proposed to be used by the Company.
Employees
As of December 15, 1999, the Company had 59 employees, including 17 in
the research and development office in Israel, 35 in the research and
development office in Moscow, one subcontractor in Ukraine and five in
management, finance and administration and one in research and development in
North America. None of the Company's employees are covered by a collective
bargaining agreement.
PROPERTIES
C3D is leasing facilities at 230 Park Avenue, Suite 453, New York, New
York 10169 for administrative purposes. The lease expires December 31, 2000 with
an option to renew for one (1) year.
C-TriD Israel Ltd. has entered into two operating lease agreements for
the real property it uses at 2 Prof. Bergman Str., Rechovot 76327 Israel. The
first lease was to expire on May 14, 1999, but C-TriD Israel Ltd. exercised its
option to extend the lease period until May 14, 2000. There is another option to
extend the lease period until May 14, 2001. The second lease is to expire on
April 5, 2001, but there is an option to extend the lease period until April 4,
2003. The Company conducts research and development at the Rechovot facilities.
TriD Store Vostok leases two sets of facilities in Moscow, Russia
primarily to conduct research and development. The lease for the facilities at
119146, Moscow, 2nd Frunzenskaya ul., 8, Building 1, expires December 1, 1999,
and the lease for the facilities at MSU Science Park Building 5, Locations 513A,
514 and 522 expires December 30, 1999.
C3D leases facilities at 1875 Charleston Road, Mountain View,
California 94043. The lease is month-to-month and includes the right of C3D to
certain services such as secretarial support. The Company conducts research and
development at these facilities.
C3D subleases facilities at 230 Park Avenue, New York, NY 10169.
The sublease is for one year. The facilities are the office of the CEO.
Presently, C3D is using the Fort Lauderdale, Florida office located at
2625 NE 11th Court, Fort Lauderdale, Florida 33304, owned by one of C3D's
directors. The offices are primarily being used for administrative functions of
C3D. The Company currently has no lease arrangement for the Fort Lauderdale
offices but is not at material risk of losing its capacity to adequately use the
facilities.
The Company has determined that, for the foreseeable future, the
facilities at all of the addresses referenced are suitable, adequate and capable
of the necessary productivity for the activities undertaken and to be undertaken
there. The Company expects that it will continue to fully utilize these
facilities and that it will renew its leases and rental agreements before their
termination or find other adequate facilities to conduct the operations. The
Company might acquire additional facilities as it deems appropriate.
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SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of C3D for, and as of
(1) each of the years ended December 31, 1997 and 1998 and (2) the nine-month
period ended September 30, 1999 has been derived from the Company's financial
statements, including the notes thereto, which have been audited by BDO Seidman,
LLP, independent auditors. The results for the nine-month period ended September
30, 1999 are not necessarily indicative of results to be expected for the full
fiscal year. The information set forth below is qualified in their entirety by
reference to, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" below and the
Financial Statements and Notes thereto included elsewhere in this Registration
Statement.
<TABLE>
<CAPTION>
Nine
Months Ended
September 30, Years Ended December 31,
--------------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995
-------------- ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Interest Income.......................... $ 57,458 $ -- $ -- $ -- $ -- $ --
Operating Expenses....................... 1,109,305 -- -- -- -- --
Interest Expense......................... 1,037,335
Net Loss for the period.................. (2,089,182) -- -- -- -- --
Loss per common share.................... $ (0.56) $ (0.00) $ (0.00) $ (0.00) $ (0.00) $ (0.00)
Weighted average number of shares........ 703,255 25,000 25,000 25,000 25,000 25,000
As of
September 30, As of December 31,
-------------- -----------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------ ------------- ------------- ------------
Balance Sheet Data:
Cash and cash equivalents................ $ 219,225 $ -- $ -- $ -- $ --
Working capital (deficiency)............. (82,418) -- -- -- --
Due to related parties................... 161,786 -- -- -- --
Advances to related companies............ 2,465,764 -- -- -- --
Total assets............................. 2,689,454 -- -- -- --
Non-current liabilities.................. 1,315,616 -- -- -- --
Stockholders' equity..................... $1,373,838 $ -- $ -- $ -- $ --
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR C3D INC.
The following discussion contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed in these forward-looking statements as a result
of various factors, including risk factors set forth in this Registration
Statement. The following discussion should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Registration
Statement.
Overview
C3D was incorporated on December 27, 1995, under the name Latin Venture
Partners, Inc. The name of the company was changed to C3D Inc. on March 24, 1999
in anticipation of a proposed transaction with Constellation Tech. C3D incurred
expenses of $5,000 during the incorporation process in 1995 and did not incur
any further expenses until 1999, when C3D was involved in two equity offerings
and began negotiations with Constellation Tech. Accordingly, discussions of
periods prior to 1999 have not been included.
C3D and Constellation Tech entered into an asset purchase agreement
which was completed on October 1, 1999, whereby C3D acquired certain assets and
liabilities from Constellation Tech, including the following directly and
indirectly owned subsidiaries:
o 99 of the 100 issued and outstanding shares of C-TriD Israel Ltd.,
which operates research and development facilities in Rechovat Park
and Tel Aviv, Israel;
o all of the issued and outstanding shares of TriD Store Vostok, which
operates research and development facilities in Moscow, Russia;
o the sole membership interest of Constellation Tech in TriDStore IP,
L.L.C., which has had no active operations but which, as of November
3, 1999, holds the patents and the patent applications for the
Company's Fluorescent Memory Technology; and
o all of the issued and outstanding shares of TriD SV, Inc., which has
had no operations but is expected to head C3D's California
operations.
The Company must raise additional funds as a result of the planned
significant increase in its operating expenditures and anticipates that it will
require approximately $20 million in order to fund its operations over the next
twelve months. The Company has sufficient working capital to support its
operations through January 2000 and is in the process of negotiating for
additional capital. The Company does not expect to receive revenues until the
end of the fiscal year 2000 and expects to continue to incur operating losses
until late in the third or fourth quarter of fiscal year 2001. The Company is
currently exploring additional financing alternatives, including the possibility
of a private equity offering, convertible debt, or preferred shares. In November
1999, the Company raised $0.4 million (net of commissions) through the issuance
of convertible debt and in December 1999, the Company entered into an agreement
with Sands Brothers & Co., Ltd. pursuant to which Sands Brothers & Co. Ltd. is
obligated to raise, on a best efforts basis, a minimum of $4.0 million and a
maximum of $25.0 million of financing for the Company through the issuance of
the Company's capital stock. In addition, the Company entered into an agreement
with Winnburn Advisory in December 1999 pursuant to which the Company intends to
issue to Winnburn Advisory convertible debt in the principal amount of $1.6
million. The consummation of this transaction is scheduled to occur on or before
December 24, 1999. Although the Company's existing debt securities contain no
such restrictions, the signing of future convertible debt or preferred share
agreements could result in restrictions being placed on dividends, interest and
principle payments, or any other convenant restrictions that could make payments
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of such debts difficult, create difficulties in obtaining further financings,
limit the flexibility of changes in the business, and cause substantial
liquidity problems. There can be no assurance, however, that such financing will
be available to the Company or, if it is, that it will be available on terms
acceptable to the Company. If the Company is unable to obtain the financing
necessary to support its operations, its may be unable to continue as a going
concern.
Results of Operations
For the nine-months ended September 30, 1999, C3D incurred net losses
of $2,089,182, which is attributable to management fees, consulting fees,
professional fees and general and administrative expenses. These expenses were
incurred in the course of completing two private placements and to support
negotiations for the acquisition between C3D and Constellation Tech.
Management fees. Management fees for the nine-month period ended
September 30, 1999 were $602,500, of which $400,000 relates to compensation
provided by the issuance of 100,000 shares to two directors of C3D for services
rendered. At the time of grant, March 8, 1999, the Company had not begun trading
on the Over-the-Counter Bulletin Board and the deemed value was based on the $4
per share offering being completed by C3D at the time. The remaining $202,500
was management fees paid to C3D staff for services rendered.
Consulting fees. Consulting fees for the nine-month period ended
September 30, 1999 were $97,000. These fees were paid to independent consultants
for their services to complete the two private placements and other
administration work.
Professional fees. Professional fees for the nine-month period ended
September 30, 1999 were $263,967, the majority of which were related to legal
support for the C3D's application for quotation on the NASD's Over-the-Counter
Bulletin Board service, the closing of two private placements, the negotiations
with Constellation Tech, and the initial preparation of this Registration
Statement.
General and administrative. General and administrative costs for the
nine-month period ended September 30, 1999 were to $77,459. The costs represent
rent, telephone, and other general corporate expenses.
Travel and accommodation. Travel costs for the nine-month period ended
September 30, 1999 were $68,379, which reflect costs incurred to raise the
private placement funds and the costs of directors travelling to board meetings.
Interest expense. Interest costs for the nine-month period ended
September 30, 1999 were $1,037,355 which included $1,000,000 for the beneficial
conversion feature on the subordinated convertible debt and the interest accrued
on the note.
Interest earned. C3D earned $57,458 in interest revenue from cash
advances made to Constellation Tech.
Liquidity and Capital Resources
As at September 30, 1999, C3D's cash position was $219,225 and its
working capital was $82,418.
Since its inception, C3D has financed its operations primarily through
capital contributions from shareholders. During the six-month period ended
September 30, 1999, C3D received proceeds of $2,063,020 from the sale of Common
Stock.
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Since its inception, C3D has financed it operations primarily through
capital contributions from share holders. During the nine-months period ended
September 30, 1999, C3D received proceeds of $2,063,020 from the sale of Common
Stock and received proceeds of $1,000,000 from the sale of convertible
subordinated debt, which was subsequently converted on October 22, 1999 into
202,945 shares of Common Stock.
Subsequent to the nine-months period ended September 30, 1999,
C3Dissued $500,000 worht of convertible subordinated debt and issued two
promissory notes to a shareholder for proceeds of $300,000 and $1,000,000
respectively,. A capital contribution was made on November 1, 1999 for net
proceeds of $100,000.
Net cash used in operating activities was $537,069 for the six-month
period ended September 30, 1999 including a net loss of $2,089,182 and the
non-cash transaction of $400,000 paid by the issuance of Stock and $1,000,000
from the beneficial conversion on the subordinated convertible note. For the
nine-months ended September 30, 1999, C3D has advanced Constellation Tech
$2,408,306 in anticipation of the closing of the acquisition for certain assets
and liabilities of Constellation Tech. The advances are backed by a promissory
note issued to C3D. C3D earned interest of $14,858 on the note for a total
balance owing of $2,465,764. Upon closing of the Asset Purchase Agreement, dated
October 1, 1999, the promissory note issued to C3D from Constellation Tech will
be forgiven by virtue of C3D assunming all obligations and liabilities of
Constillaiton Tech as of September 30, 1999.
Due to its of operating revenues, its operating losses and its need for
working capital, there is no assurance that the Company will be able to continue
as a going concern. As a result of these factors, the Company's Independent
Certified Public Accountants modified their opinion on the Company's ability to
continue as a going concern.
Income Taxes
C3D has not generated any taxable income to date and therefore has not
paid any federal income taxes since its inception. Deferred tax assets created
primarily from net operating loss carryforwards have been fully reserved as
management is unable to conclude that future realization is more likely than
not.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR CONSTELLATION 3D TECHNOLOGY LIMITED
Overview
Effective September 19, 1999, Constellation Tech entered into a
purchase agreement with Constellation Holdings pursuant to which Constellation
Tech acquired all of the assets of Constellation Holdings. For purposes of this
discussion, Constellation Technology will be the operating company, because
during the period reported, September 30, 1999, the operations of the Company
were in Constellation Tech. However, for discussions on the formation and the
history of the Company preceding the September 19, 1999 transaction,
Constellation Holdings will be referenced.
Constellation Holdings was incorporated on September 25, 1997 but
commenced operations in January of 1997 through its Israeli subsidiaries, O.M.D.
Optical Memory Devices Ltd. and Tridstore Ltd. Both subsidiaries were active in
1997 and 1998 and performed the initial research and development of the
Company's Fluorescent Memory Technology. On January 1, 1998, Constellation
Holdings incorporated C-TriD Israel Ltd. ("C-TriD") located in Park Rabin,
Rehovt, Israel, and the activities in Israel started moving to it. For the
nine-months ended September 30, 1999, C-TriD's main function has been the
testing and ongoing development of the Company's current products, the Micro
Read/Write Disk and ClearCard ROM. Research and development is expected to
increase at the Israeli facility for further testing and the development of new
products such as ClearCard R/W.
In January 1999, Constellation Holdings formed TriD Store Vostok
("Vostok") in Russia. Vostok is also conducting research and development of the
Company's technology, supporting C-TriD's research and development activity
because of the Russian subsidiary's extensive talent pool and reduced labor
costs.
In February 1998 Constellation Holdings incorporated TriDStore IP,
L.L.C. ("TriDStore"), a Delaware limited liability company that has had no
active operations but currently holds the patents and patent applications for
the Company's Fluorescent Memory Technology. At present, TriDStore holds three
United States patents, more than forty United States and foreign regular patent
applications and ten pending provisional applications. The Company plans to
continue to use TriDStore as a holding company for its patent registrations and
applications.
In August 1998, Constellation Holdings formed TriD SV, Inc. ("TriD
SV"), a Delaware corporation that had no operations when it was a subsidiary of
Constellation Holdings. It is anticipated that TriD SV will be the operating
vehicle of the California operations. The General Manager of Products, Ingolf
Sander, currently resides and conducts operations in Mountain View, California
and expects to increase activities in California significantly when the
Company's products have reached the point of commercialization. Mountain View is
expected to be an ideal location for the Company, because the area has the
infrastructure and talent pool for the data storage industry already in place.
On October 1, 1999, C3D completed its acquisition of C-TriD, Vostok,
TriDStore, and TriD SV, and the assumption of all the liabilities and
obligations of Constellation Tech. The acquisition, more fully described in the
attached notes to the financial statements, will be accounted for as a reverse
takeover whereby Constellation Tech is deemed the parent for reporting purposes
and C3D is considered the acquired entity. This treatment conforms with
generally accepted accounting principles.
All financial statements referenced in this management discussion,
covering the interim nine-month period ended September 30, 1999 and the fiscal
years ended December 31, 1998 and 1997, represent the consolidated operations of
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Constellation Tech, and its wholly owned subsidiaries. Constellation Tech,
itself, was active and was responsible for paying subcontractors outside of
Israel and Russia and also supported the North American operations. The reported
results essentially reflect the activities of Constellation Tech and the
subsidiaries. These statements precede the acquisition date so they are
presented on a stand-alone basis. Pro forma information is also presented in
this registration statement.
The Company plans to continue its focus on research and development of
its data storage technology and to develop strategic alliances with established
companies in the data storage industry. The Company expects that its operating
expenses will increase significantly during the foreseeable future as the result
of its plans to:
o increase expenditures on marketing the joint venture proposal by
incurring expenditures of approximately $200,000 per month;
o enhance existing capabilities of products by increasing the levels
of research and development expenditures and capital assets from the
current levels of $200,000 and $25,000 per month, respectively, to
$600,000 and $40,000 per month, respectively;
o increase expenditures on administration from the current levels of
$100,000 per month to $200,000 per month;
o increase monthly expenditures on professional fees for patent
registration and joint venture agreements from $50,000 per month to
$150,000 per month; and
o establish full manufacturing operations at its California location
by hiring additional staff and transferring equipment and personnel
to the United States increasing such expenses approximately
$1,000,000 over the next twelve months.
The Company must raise additional funds as a result of the planned
significant increase in its operating expenditures and anticipates that it will
require approximately $20 million in order to fund its operations over the next
twelve months. The Company has sufficient working capital to support its
operations through January 2000 and is in the process of negotiating for
additional capital. The Company does not expect to receive revenues until the
end of the fiscal year 2000 and expects to continue to incur operating losses
until late in the third or fourth quarter of fiscal year 2001. The Company is
currently exploring additional financing alternatives, including the possibility
of a private equity offering, convertible debt, or preferred shares. In November
1999, the Company raised $0.4 million (net of commissions) through the issuance
of convertible debt and in December 1999, the Company entered into an agreement
with Sands Brothers & Co., Ltd. pursuant to which Sands Brothers & Co. Ltd. is
obligated to raise, on a best efforts basis, a minimum of $4.0 million and a
maximum of $25.0 million of financing for the Company through the issuance of
the Company's capital stock. In addition, the Company entered into an agreement
with Winnburn Advisory in December 1999 pursuant to which the Company intends to
issue to Winnburn Advisory convertible debt in the principal amount of $1.6
million. The consummation of this transaction is scheduled to occur on or before
December 24, 1999. Although the Company's existing debt securities contain no
such restrictions, the signing of future convertible debt or preferred share
agreements could result in restrictions being placed on dividends, interest and
principle payments, or any other convenant restrictions that could make payments
of such debts difficult, create difficulties in obtaining further financings,
limit the flexibility of changes in the business, and cause substantial
liquidity problems. There can be no assurance, however, that such financing will
be available to the Company or, if it is, that it will be available on terms
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acceptable to the Company. If the Company is unable to obtain the financing
necessary to support its operations, its may be unable to continue as a going
concern.
The Company has a limited operating history upon which to base an
evaluation of its business. The Company's business and prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development, particularly
companies in new and rapidly evolving markets such as electronic commerce. These
risks include, but are not limited to, rapid technological change, inability to
manage growth, competition from more established companies, dependence on
suppliers, internal system problems, risks relating to the Year 2000 issue,
inability to obtain sufficient financing and an unproven business record.
Results of Operations for the Nine-Months Ended September 30, 1999 Compared to
Nine-Months Ended September 30, 1998
Revenue. Constellation Tech generated no revenue for the nine-month
period ended September 30, 1999 or the nine-month period ended September 30,
1998.
Research and System Development Expenses. Constellation Tech incurred
research and development expenses of $1,717,983 for the nine-month period ended
September 30, 1999, as compared to $951,371 for nine-month period ended
September 30, 1998. Research and development expenses consist primarily of
expenses incurred for the development of the data storage technology, including
compensation of technical staff and contractors, materials consumed in the
development process, and professional fees for patent registration of
intellectual property. The significant costs were payroll for staff and
contractors which amounted to $1,005,242 for the nine-months ended September
30,1999 and $439,979 for the nine-months ended September 30, 1998. Professional
fees were $451,557 for patent registration for the nine-months ended September
30, 1999, and $158,800 for the nine-months ended September 30, 1998. The
increase in patent registration was due to the Constellation's Fluorescent
Memory Technology becoming more proven and patentable. Materials consumed
amounted to $36,455 for the nine-months ended September 30, 1999, and $64,113
for the nine-months ended September 30, 1998. This decrease was due to the
reduction of new materials required as the Company's products went from
prototypes to testing in 1999.
General and Administrative Expenses. General and administrative
expenses consist of management compensation, rent, professional fees, telephone,
travel and other general corporate expenses. General and administrative expenses
were $906,140 for the nine-months ended September 30, 1999 compared to
$1,132,622 for the nine-months ended September 30, 1998. Constellation Tech paid
substantially less for management and facilities charges for the nine-months
ended September 30, 1999, than it did for the nine-months ended September 30,
1998. Payroll expenses and management fees relating to general and
administrative expenses were $241,963 for the nine-months ended September 30,
1999, and $319,534 for the nine-months ended September 30, 1998. The decrease
was due to the reduction of management fees charged by Constellation Memory
Division from $200,000 for the nine-months ended September 30, 1998 to $100,000
for the nine-months ended September 30, 1999. Office and maintenance charges
were $351,536 for the nine-months ended September 30, 1999, and $169,763 for the
nine-months ended September 30 1998. The increase in office and maintenance
charges reflects the increase in the number of facilities Constellation Tech is
operating from one in Israel for the nine-months ended September 30, 1998 to
three facilities for the nine-months ended September 30, 1999 consisting of one
in Israel, one in Russia, and one in North America. Travel and accommodation
expenses were $100,985 in the nine-months ended September 30, 1999 and $156,868
for the nine-months ended September 30, 1998. The decrease in travel and
accommodation expenditures was due to the reduction of fund-raising activities
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of Constellation Tech management for the nine-months ended September 30, 1998
over the nine-months ended September 30, 1999 when C3D began most of the capital
seeking activities.
Interest and other charges. Constellation Tech has recorded interest
expenses of $126,591 for the nine-months ended September 30, 1999 compared to
$240 for the nine-months ended September 30, 1998. Interest expense consist of
$35,866 for bank overdrafts and $57,458 for loans from C3D for the nine-months
ended September 30, 1999 and $240 and $0, respectively, for the nine-months
ended September 30, 1998. Constellation Tech interest expense decreased due to
the reduction in interest rates charged by creditors compared to the nine-months
ended September 30, 1998
Income Taxes. Constellation Tech has generated minimal inter-company
taxable income to date and therefore has paid $12,000 for the nine-months ended
September 30, 1999 and $0 for the nine-months ended September 30, 1998. The
taxes were incurred in the Russian subsidiary due to their treatment of
inter-company advances as taxable revenue.
Results of Operations for the Year Ended December 31, 1998 Compared to the Year
Months Ended December 31, 1997
Revenue. Constellation Tech generated no revenue in the fiscal years
ended December 31, 1998 and 1997.
Research and System Development Expenses. Constellation Tech incurred
research and development expenses of $1,534,948 for the year ended December 31,
1998 and $1,491,707 for the fiscal year ended December 31, 1997. Research and
development expenses consist primarily of expenses incurred for the development
of the data storage technology, including compensation of technical staff and
contractors, materials consumed in the development process, and professional
fees for intellectual property. The increases in operating expenditures were due
to the start-up of the Israeli subsidiary, C-TriD, which became active in
January 1998. The significant costs were payroll for staff and contractors which
amounted to $965,114 for the fiscal year ended December 31,1998 and $537,419 for
1997. The increase in payroll expenditures was due to the increase in staff
levels to 35 for the fiscal year ended December 31, 1998 from 25 for the fiscal
year ended December 31, 1997. Materials consumed amounted to $139,565 for the
year ended December 31, 1998 and $75,991 for the fiscal year ended December 31,
1997 reflecting the increased usage of materials by staff. Professional fees
were $312,612 for patent registration for the fiscal year ended December 31,
1998 and $0 for the fiscal year ended December 31, 1997, when the Company did
not have a product at the stage of patent registration.
General and Administrative Expenses. General and administrative
expenses consist of management compensation, rent, professional services,
telephone expense, travel and other general corporate expenses. General and
administrative expenses were $1,660,477 for the fiscal year ended December 31,
1998 compared with $1,067,187 for the fiscal year ended December 31, 1997. This
increase reflected the hiring of additional management, increased facilities
charges and expansion of operations. Payroll expenses and management fees
relating to general and administrative expenses were $690,066 in the fiscal year
ended December 31, 1998 and $590,444 for the year ended December 31, 1997.
Office and maintenance charges were $491,322 in the fiscal year ended December
31, 1998 and $109,105 for the fiscal year ended December 31, 1997. The increase
in office and maintenance was primarily due to the expansion of facilities in
Israel to keep pace with the increased activity of the Company. The Company
upgraded facilities at Rechovat Park, Israel at the end of the year resulting in
expenditures of $64,500 for the fiscal year ended December 31, 1998 compared
with $0 for the fiscal year ended December 31, 1997. Office and maintenance
charges also increased due to the Company's increased expenditures on rent,
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general maintenance , and communications to $118,334 for the fiscal year ended
December 31, 1998 and from $61,159 for the fiscal year ended December 31, 1997.
Travel and accommodation expenses were $327,355 in the fiscal year ended
December 31, 1998 and $261,126 for the year ended December 31, 1997.
Interest and other charges. Constellation Tech has recorded net
interest income of $6,985 for the fiscal year ended December 31, 1998 and a net
interest expense of $53,851 for the fiscal year ended December 31, 1997.
Interest income and expense consisted entirely of bank overdrafts.
Income Taxes. Constellation Tech has generated minimal inter-company
taxable income to date and therefore has paid $3,462 for the year ended December
31, 1998 and $0 for the year ended December 31, 1997. The taxes were incurred in
the Israeli subsidiary, C-TriD, due to their treatment of inter-company advances
as taxable revenue.
Liquidity and Capital Resources
As of September 30, 1999, Constellation Tech's cash position was
$300,944 and its working capital deficit was $3,918,076 compared to a cash
position of $123,097 and a working capital deficit of $1,136,513 for fiscal year
ended December 31, 1998.
Since inception, Constellation Tech has financed its operations from
capital contributions and short-term financings from shareholders. During the
nine-month period ended September 30, 1999, Constellation Tech received net
proceeds of $2,478,945 from short term loans from shareholders and related
parties, including $2,465,764 in advances from C3D. Upon closing of the Asset
Purchase Agreement dated October 1, 1999, the advances issued to Constellation
Tech from C3D will be forgiven by virtue of C3D assuming all the obligations and
liabilities of Constellation Tech as at September 30, 1999. Constellation Tech
received proceeds of $4,672,518 from the sale of common stock and had a net
redemption of short term loans of $4,557,045 for the fiscal year ended December
31, 1998.
The Company currently has sufficient working capital to support its
operations through January 2000 and is in the process of negotiating for
additional capital. There can be no assurance, however, that such financing will
be available to the Company or, if it is, that it will be available on terms
acceptable to the Company. If the Company is unable to obtain the financing
necessary to support its operations, its may be unable to continue as a going
concern.
Due to its lack of operating revenues, its operating losses and its
need for working capital, there is no assurance that Constellation Tech will be
able to continue as a going concern. As a result of these factors, Constellation
Tech's Independent Certified Public Accountants modified their opinion on
Constellation Tech's ability to continue as a going concern.
Net cash used in operating activities was $2,210,724 for the nine-month
period ended September 30, 1999, including a net loss of $2,762,714 and an
increase in payables of $537,408. The Company's current operating expenditures
are approximately $350,000 per month and the Company plans to increase its
operating expenditures to $1,200,000 a month in order to expand its operations.
The Company has not generated any revenues to date and does not anticipate cash
flow from operations to be sufficient to fund its cash requirements until late
in 2001.
Constellation Tech incurred net capital expenditures of $87,977 for the
nine-month period ended September 30, 1999 and $170,844 for the nine-month
period ended September 30, 1998. These expenditures were primarily for
laboratory equipment associated with Constellation Tech' continued research and
development.
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The Company currently has no commitments for any credit facilities such
as revolving credit agreements or lines of credit that could provide additional
working capital. Based on its existing capital resources, the Company believes
that it will be able to fund operations through January 2000. The Company's
capital requirements depend on several factors, including the success and
progress of research development programs, the resources devoted to developing
products, the extent to which products achieve market acceptance and other
factors. The Company anticipates that it will require substantial additional
financing to fund its working capital requirements. There can be no assurance,
however, that additional funding will be available or, if available, that it
will be available on terms acceptable to the Company. If adequate funds are not
available, it may not be able to continue. There can be no assurance that the
Company will be able to raise additional cash if its cash resources are
exhausted. The Company's ability to arrange such financing in the future will
depend in part upon the prevailing capital market conditions as well as the
Company's business performance.
Constellation Tech has been in the development stage since its
inception. It has had no operating revenue to date, has accumulated losses of
$8,567,361 and will require additional working capital to complete its business
development activities and generate revenue adequate to cover operating and
further development expenses. Thus, there is no assurance that the Company will
be able to continue as a going concern.
Market Risk
The Company expects that, like many companies, it may be exposed to
some degree of market risk for its Ukrainian, Israeli and Russian operations.
The Company cannot provide any assurance that future developments in each
respective country will not generally have and adverse affect on the financial
condition of the Company. However, the Company believes that even the most
adverse economic conditions will not materially alter the financial conditions
of the Company as the Ukrainian, Israeli, and Russian operations are purely
research and development facilities and fluctuations in currency and interest
rates would not be material in light of the Company's operating budgets in the
respective countries. Therefore, the Company does not anticipate that it will
enter into derivative transactions (e.g., foreign currency forward or option
contracts) to hedge against known or forecasted market changes.
The Company believes that it does face political risk based on having
operations in the Ukraine, Israel and Russia. These countries do face political
instability that could have a material adverse effect on the Company's
operations, however, the Company believes that this is unlikely to occur.
Year 2000 Issue
The Year 2000 issue arises with the change in century and the potential
inability of information systems to correctly "rollover" dates to the new
century. To save on computer storage space, many systems were programmed with a
two-digit century (e.g., December 31, 1999 would appears as 12/31/99) assuming
that all years would be part of the 20th century. On January 1, 2000, systems
with this programming will default to 01/01/1900 instead of 01/01/2000 and
calculations using or reporting the date will not be correct and errors will
arise. To prevent this from occurring, information systems need to be updated to
ensure that they recognize the Year 2000. The Company does not anticipate any
material exposure to the Year 2000 issue.
The Company has completed its assessment of its information technology
systems, as well as its non-information technology systems. The Company
reasonably believes that it will not be materially adversely affected by the
Year 2000. See "Risk Factors -- Year 2000."
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Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including some types of derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS 133, as
amended by SFAS No. 137 defining SFAS No. 133's effective date, is effective for
fiscal years beginning after June 15, 2000, and must be applied to instruments
issued, acquired, or substantively modified after December 31, 1997. Also, SOP
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" and SOP 98-5, "Reporting the Costs of Start-up Activities" are
effective for the year ended January 1, 2000. The Company does not expect the
adoption of the accounting pronouncement to have a material effect on its
financial position or results of operations.
Financial data for C3D and Constellation Tech is an Exhibit
incorporated herein by reference. The Company did not hold any material market
rate sensitive instruments.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As of December 23, 1999, excluding any exercise of options or
conversion of convertible securities, there were 13,667,203 shares of Common
Stock issued and outstanding. The following table sets forth the beneficial
ownership of the Common Stock as of December 23, 1999 by each person known by
C3D to own beneficially more than five percent of the issued and outstanding
Common Stock, each of C3D's directors, and C3D's directors and executive
officers as a group.
Unless otherwise indicated, each person or entity named below has sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by such person or entity, subject to the information set
forth in the footnotes to the table below. The securities beneficially owned by
a person are determined in accordance with the definition of "beneficial
ownership" set forth in the regulations of the Securities and Exchange
Commission and, accordingly, may include securities owned by or for, among
others, a spouse, children or certain other relatives of such person as well as
other securities as to which the person has or shares voting or investment power
or has the right to acquire within 60 days after December 23, 1999. The same
shares may be beneficially owned by more than one person. Beneficial ownership
may be disclaimed as to certain of the securities.
<TABLE>
<CAPTION>
Number of Shares
Beneficially
Name of Beneficial Owner Owned Percent
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Constellation 3D Technology Limited (2)
235 West 76th Street, Suite 8D, New York, New York 10023 .......... 9,750,000 (2) 71.3%
Rapids Trust Limited (2)
56 Mazah Street, Tel Aviv, Israel 55905 ........................... 9,750,000 (2) 71.3%
United European Enterprises (2)
56 Mazah Street, Tel Aviv, Israel 55905 ........................... 9,750,000 (2) 71.3%
Constellation Group Investments Inc. (2)........................... 9,750,000 (2) 71.3%
c/o Euro-American Trust and Management Services Limited
P.O. Box 3161
Road Town, Tortola, British Virgin Islands
Markus Banzer (2).................................................. 9,750,000 (2) 71.3%
Gr. Bongert 9
Triesen, Liechtenstein
Hubert Buchel (2).................................................. 9,750,000 (2) 71.3%
Salums 63
Gamprin, Liechtenstein
Criterion Treuunternehmen reg., (2)................................ 9,750,000 (2) 71.3%
Austr. 49
Vaduz, Liechtenstein
Brigadier General Itzhak Yaakov (1)................................ 150,000 (3) 1.1%
Professor Eugene Levich............................................ 9,750,000 (4) 71.3%
Lev Zaidenberg..................................................... 9,750,000 (5) 71.3%
Leonardo Berezowsky................................................ 9,750,000 (6) 71.3%
Michael Goldberg (1)............................................... 125,000 (7) *
All directors and executive officers as a group.................... 10,025,000 (8) 73.3%
</TABLE>
- ------------------
* Less than one percent.
(1) The business address of such person is 230 Park Avenue, Suite 453,
New York, New York 10169.
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(2) Constellation 3D Technology Limited, a British Virgin Islands company,
directly owns 9,750,000 shares of Common Stock of C3D. United European
Enterprises, a Nevis company, owns approximately 60.1% of the voting
shares of Constellation 3D Technology Limited and, through its
instructions to Rapids Trust Limited, an Israeli Trust, thereby controls
how Constellation 3D Technology Limited votes and invests its 9,750,000
shares of C3D. Constellation Group Investments Inc., a British Virgin
Islands company, directly owns approximately 54.8% of the voting shares of
United European Enterprises and thereby indirectly controls how
Constellation 3D Technology Limited votes and invests its 9,750,000 shares
of C3D. Markus Banzer, Hubert Buchel and Criterion Treuunternehmen reg.,
the sole three trustees of the Alex-L Foundation, the Lion & Heart
Foundation and the Lediligi Foundation, three Liechtenstein trusts, have
complete ownership of all of the voting shares of Constellation Group
Investments Inc. and thereby indirectly control how Constellation 3D
Technology Limited votes and invests its 9,750,000 shares of C3D. No
individual, trust or business entity controls the three trustees. Upon the
death or disability of a trustee, the remaining trustee(s) choose his or
her replacement. Upon the death or disability of all trustees before any
living and able replacement is chosen, a court of Liechtenstein chooses
their replacements.
(3) Represents 50,000 shares of Common Stock issued and outstanding and
100,000 shares of Common Stock issuable upon exercise of options which are
exercisable within 60 days of December 23, 1999.
(4) Professor Levich is a director and the Chief Executive Officer, President
and Chief Operating Officer of C3D and a director and/or executive officer
of Constellation 3D Technology Limited, United European Enterprises and/or
Constellation Group Investments Inc. Certain members of Professor Levich's
family are among the beneficiaries of the Alex-L Foundation. See footnote
(2).
(5) Mr. Zaidenberg is a director of C3D and a director and/or executive
officer of Constellation 3D Technology Limited, United European
Enterprises and/or Constellation Group Investments Inc. Certain members of
Mr. Zaidenberg's family are among the beneficiaries of the Lion & Heart
Foundation. See footnote (2).
(6) Mr. Berezowsky is the Senior Vice President of Finance and Chief Financial
Officer of C3D and a director and/or executive officer of Constellation 3D
Technology Limited, United European Enterprises and/or Constellation Group
Investments Inc. Mr. Berezowsky and certain members of his family are
among the beneficiaries of the Lediligi Foundation. See footnote (2).
(7) Represents 50,000 shares of Common Stock issued and outstanding and 75,000
shares of Common Stock issuable upon exercise of options which are
exercisable within 60 days of December 23, 1999.
(8) Includes: (a) 100,000 shares of Common Stock issued to Messrs. Yaakov and
Goldberg and outstanding; (b) 175,000 shares of Common Stock issuable upon
Messrs. Yaakov and Goldberg's exercise of options which are exercisable
within 60 days of December 23, 1999; and (c) 9,750,000 shares of Common
Stock controlled by Constellation 3D Technology Limited, United European
Enterprises, Constellation Group Investments Inc., and the trustees of
certain trusts. See footnote (2).
C3D does not know of any arrangements, including any pledge by any person
of securities of C3D, the operation of which may at a subsequent date result in
a change in control of C3D.
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<PAGE>
DIRECTORS, EXECUTIVE OFFICERS AND
CERTAIN SIGNIFICANT EMPLOYEES OF C3D
<TABLE>
<CAPTION>
Name: Age: Position:
---------- ------ ------------
<S> <C> <C>
Brigadier General Itzhak Yaakov................. 73 Chairman of the Board of Directors
Professor Eugene Levich......................... 51 President and Chief Executive Officer; Chief
Operational Officer; Member of Board of Directors
Michael Goldberg................................ 50 Secretary; Director of Legal Affairs; Member of
Board of Directors
Lev Zaidenberg.................................. 45 Member of Board of Directors
Leonardo Berezowksy............................. 42 Senior Vice President of Finance and Chief
Financial Officer
Ronen Yaffe..................................... 29 Treasurer
Professor Sergey A. Magnitskii.................. 44 Chief Scientist
Professor Jacob Malkin.......................... 49 Chief Chemist
Professor Mark Alperovich....................... 61 General Manager, Chemical Division
Dr. Ingolf Sander............................... 49 General Manager of Products
</TABLE>
Directors and Executive Officers
Brigadier General Itzhak Yaakov serves as Chairman of the Board of
Directors of C3D. He was elected Chairman of the Board of Directors of C3D
effective April 19, 1999. He graduated from the Israeli Institute of Technology
as a Mechanical Engineer in 1953 and from the Massachusetts Institute of
Technology in 1963 with a M.Sc. in Industrial Management. During his last 10
years of military service, he was Chief of Defense Research and Development for
the State of Israel, and after retirement, was appointed Chief Scientist of the
Ministry of Industry and Trade of Israel. He was the first Chairman of the
US-Israeli Bi-national Industrial R&D Fund and Chairman of the Israeli Standard
Institute. Since 1979, he has been a private businessman and a partner in the
formation of several high-tech start-up companies in the field of electronics,
telecommunications, robotics, electro-optics and medical equipment. He has been
the sole owner of Yakov Consultants since 1985. From 1990 to the present, he has
been a partner in Goncharoff Inc., engaged in trading in Russia. From 1995 to
the present, he has been a partner in Tecnomatix NV, Belgium, which manufactures
medical machines. His academic activity has included lecturing at the Hebrew
University of Jerusalem and a professorship at Ben Gurion University in the
Negev, as well as lecturing in several seminars and publishing several papers.
He served as consultant to international organizations such as the Korean
Technology Development Corporation, the World Bank, the International Financial
Corporation, the Organization of American States and the United States
Department of Commerce, as well as the governments of Taiwan, Venezuela,
Singapore, Peru and Chile. He published several papers and a book about
innovation and the management of R&D.
Professor Eugene Levich serves as President, Chief Executive Officer,
Chief Operational Officer and Member of the Board of Directors of C3D. He was
appointed President and Chief Executive Officer of C3D effective April 19, 1999
and Chief Operational Officer of C3D effective November 11, 1999. He was elected
as a member of the Board of Directors of C3D effective April 19, 1999. Professor
Levich received a M.Sc. in Physics from Moscow University in 1968 and a Ph.D. in
Theoretical Physics from the Landau Institute in 1970. He has served in varying
academic capacities at a range of research institutions, including Harvard
University (as Visiting Fellow); Oxford University (Magdalene College) (three
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<PAGE>
times as Senior Visiting Fellow at the Department of Theoretical Physics); City
University of New York (as Professor at the Faculties of Physics and
Engineering); the Weizman Institute of Sciences (as Associate Professor at the
Department of Nuclear Physics); and Tel-Aviv University Faculty of Engineering
(as Visiting Professor). Since 1990, Professor Levich has been working as a
chief scientist and partner in high technology industries and has authored over
28 patents. He has published over 90 papers in the fields of astrophysics,
plasma turbulence and chaos, nonlinear phenomena in optics and turbulence in
fluids. His most recent scientific contribution in the field of turbulence
control was in cooperation with Professor D. ter Haar (Professor Emeritus of
Oxford University), entitled "The Origin of Coherence in Turbulence."
Michael Goldberg serves as Secretary, Director of Legal Affairs and
Member of the Board of Directors of C3D. He was appointed Secretary of C3D
effective August 9, 1999, and Director of Legal Affairs of C3D effective March
8, 1999, and he was elected as a member of the Board of Directors of C3D
effective April 19, 1999. Mr. Goldberg graduated as Asper Fellow from the
University of Maryland Law School in 1974. Upon graduation from law school, he
worked within the Criminal Division of the United States Attorney's Office in
Washington, DC. He interned on security cases at the Department of Justice such
as the Watergate case. He was the Assistant District Attorney in the City of
Philadelphia, Commonwealth of Pennsylvania, covering narcotics, homicide and
major trials. From 1978 to 1986, he was in private practice. Presently, he
serves as Chairman and Chief Executive Officer of Rx Medical Services and as an
advisor to private clients.
Lev Zaidenberg serves as a Member of the Board of Directors of C3D. He
was elected as a member of the Board of Directors of C3D on April 19, 1999. Mr.
Zaidenberg received a B.Sc. in Applied Mathematics and a M.Sc. in Information
Systems and Business Administration from Tel-Aviv University. From 1988 to 1994,
he was a partner and executive at DCL Systems Engineering Ltd., responsible for
the development of computer products for molecular modeling and financial
trading. From 1984 to 1988, he served as Vice President of IET Ltd., leading the
development and marketing of advanced expert systems for Computer Aided
Design/Computer Aided Manufacturing, image processing, satellite data
interpretation, military command and control, resource allocation and associated
business applications. Since 1984, he has served as a consultant to the Israeli
Defense Forces in computer auditing and security. Mr. Zaidenberg is Chief
Executive Officer and President of Mutek Solutions, a software company with
headquarters in Israel and subsidiaries in the United States and Germany.
Leonardo Berezowksy serves as Senior Vice President of Finance and
Chief Financial Officer of C3D. He was appointed Senior Vice President of
Finance and Chief Financial Officer effective November 5, 1999. Mr. Berezowsky
received a B.A in Economics in 1980, a B.A. in Computer Sciences in 1981 and an
M.A. in Economics in 1982 from the Hebrew University in Jerusalem. During the
years 1980 to 1983, he served as Lecturer Assistant at that institution. During
the years 1981 to 1983, he worked in software development and data analysis at
the Hebrew University's Data Archive Department. During the years 1984 to 1986,
he served as Systems and Financial manager in Pelanar SA (Argentina), a company
involved in wool, leather and meat production and exporting activities. From
1986 to 1987, Mr. Berezowsky served as consultant for international projects for
that company. From 1987 to 1994, he worked as Chief Financial Officer of a
company engaged in research and development in the energy field. Since 1995, he
has served as Chief Operational Officer of Constellation Group, a high tech
entrepreneurship company, mainly in the computer field. Since 1996, he has
served as Chief Operational Officer of Mutek Solutions Ltd., a software company
with headquarters in Israel and subsidiaries in the United States and Germany.
Ronen Yaffe serves as Treasurer of C3D. He was appointed Treasurer
effective November 5, 1999. From 1994 to 1998, he was a Manager for Deloitte
Touche Tohmatsu International Israel Ltd., where he oversaw the audit of Israeli
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high-tech public and private companies and advised such companies regarding
Enterprise Resource Providers. He also led the process of integrating Deloitte
Touche's accounting software into Deloitte Touche's Israeli operations. In
August 1996, he graduated from The School of Business Administration at the
College of Management located in Tel Aviv, Israel. In 1998, he became a
Certified Public Accountant.
Significant Employees
Professor Sergey A. Magnitskii serves as General Manager of Lasers and
Electronics of C3D. Mr. Magnitskii received a Dr. Sci. in Physics from Moscow
State University. From 1975 to 1976, he developed technologies in quantum
electronics under thermo-nuclear fusion with Nobel Prize winner N. Basov. In
1976, he worked with the founder of nonlinear optics, academician Rem Khokhlov,
to research experimental laser and nonlinear spectroscopy. He was a Professor of
the Physics Department of Moscow State University and of the International Laser
Center at Moscow State University. He has authored over 100 papers in
international journals and has given 39 papers and 25 presentations at
international conferences in the last three years.
Professor Jacob Malkin serves as General Manager of the Chemical
Division. Professor Malkin received a Ph.D. from Moscow State University in
1972. At the age of 22, he was recruited as a chemist by the Institute of
Chemical Physics of the Russian Academy of Sciences (formerly USSR Academy of
Sciences) where he collaborated with chemist academician N.M. Emanuel on the
development of new photo-chromic systems based on polymer materials. He received
a Ph.D. from the Syemenov Institute of Chemical Physics in 1976. He was a
Professor of Chemical Physics in 1985. He was a Professor of Physical Chemistry
at Moscow Lomonosov Institute until 1989. He was elected Gastella Fellow at the
Weizmann Institute of Sciences in 1990 for photo-dynamic therapy. For the study
of photo-dissociation in molecular beams, he received grants for 5 years from
the US-Israel Binational Fund and was Visiting Fellow at Heriott-Watt University
(Edinburgh) in 1990, and he received a British Royal Society Award for this
work. From 1991 to 1992, he was a Visiting Professor at the University of
California, where he (together with Prof. P. Rentzepis) formulated basic
principles for the applications of photo-chromic substances to three-dimensional
memory devices based on the process of two-photon absorption. He was a Visiting
Professor at the Imperial College (London) from 1994 to 1995. He has over 16
years of experience in the fields of photochemistry and spectroscopy with over
60 publications, including a theory of photo-dissociation of organic compounds.
He authored the Computerized Encyclopedia of Photochemistry and Photobiology in
6 volumes.
Professor Mark Alperovich serves as Chief Chemist of C3D. He received a
Ph.D in chemistry from Moscow State University. C3D considers Professor
Alperovich to be a world authority in photo-chemistry. He has developed key
chemical substances for memory storage for ROM and R/W. He has authored and/or
published a number of papers, patents and other scientific contributions. C3D
considers Professor Alperovich to be one of the world leading experts and
developers of dyes and photochromic substances.
Dr. Ingolf Sander serves as General Manager of Products of C3D. He
received a Ph. D. in Physics at Hamburg University. In 1984, he served as
Director of Optical Disk Drive Research and Development for Verbatim-Kodak in
Sunnyvale, California, where he headed a team of forty optical, electrical,
mechanical, and software engineers from the product development phase to the
commercial application of the world's first 3.5" Magnetic Optical drive. He was
appointed Group Director to research holographic storage and R/W for CD editing.
He developed a two-inch MO drive in a co-development with Philips Data Systems
for personal computer application and optical scanner for three-dimensional
-42-
<PAGE>
characterization of surfaces. In 1995, he became a Vice President of Optitek in
Mountain View, California, where he oversaw the development of holographic
storage and fast image processing in the field of image registration, remapping,
and Viterbi decoding. During the period from 1989 to 1995, he was Founder,
President and Chief Executive Officer of LaserByte, in Sunnyvale, California, a
joint venture with Hyundai to develop optical disk drives. He developed a
methodology to improve read channel reliability and data throughput and set up a
laboratory to investigate the use of drives for document storage and multi-media
applications. In 1975, he worked at Philips Research Lab in Hamburg, then West
Germany. He has authored 12 patents in the field of optical and magneto-optical
memory.
Board of Directors
All holders of C3D Common Stock generally may vote in the election of
directors. The terms of all directors expire at the next annual shareholders'
meeting following their election. The term of a director elected to fill a
vacancy expires at the next shareholders' meeting at which directors are
elected. C3D's Bylaws provide that annual meetings of shareholders will be held
on such date and at such time fixed, from time to time, by the Board of
Directors (provided that there will be an annual meeting held every calendar
year at which the shareholders will elect a Board of Directors and transact such
other business as may properly be brought before the meeting). The 1999 Annual
Meeting of Shareholders of the Company will be held on December 27, 1999. At the
1999 Annual Meeting of Shareholders, the Company's shareholders will be asked
to:
1. elect directors to hold office for a term of one year and until
each of their respective successors is duly elected and qualified;
2. approve the Amended and Restated Articles of Incorporation of the
Company to, among other things:
o change the name of the Company to CONSTELLATION 3D, INC. and
o change the capital structure of the Company by increasing the
number of authorized shares of Common Stock of the Company,
$.001 par value per share, to 100 million shares and by
authorizing the issuance of 10 million shares of Preferred
Stock, no par value per share; and
3. approve the 1999 Stock Option Plan.
On December 17, 1999, the Company's Board of Directors approved a
three-for-one split of its Common Stock, for those shareholders of record as of
December 16, 1999. The distribution of such additional shares of Common Stock
will be made on or about January 15, 2000.
The Board of Directors has two committees, the Compensation Committee
and the Audit Committee. The Compensation Committee, which consists of two
directors, (1) reviews and recommends each year to the Board of Directors the
form and amount of compensation to be received by executive officers of C3D; (2)
initiates, at its discretion, investigations within the parameters of the
foregoing responsibilities and for that purpose retains outside legal counsel,
or any other such experts as it shall deem appropriate; and (3) reports to the
entire Board of Directors at such time as the Compensation Committee determines,
but not less than once each year. Each member of the Compensation Committee must
be nominated by a Board member and elected by a majority of the Board of
Directors. Each member of the Compensation Committee serves for a term of one
year and until the member's successor has been duly elected and qualified,
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<PAGE>
except in the event of any early resignation or removal. The current members of
the Compensation Committee are Michael Goldberg and Lev Zaidenberg, who were
elected effective June 17, 1999.
The Audit Committee, which consists of two directors: (1) recommends
accountants to C3D to audit the financial statements of C3D and its consolidated
subsidiaries and to review the fees charged for such audits or for special
engagements given to such accounts; (2) meets with the independent accountants,
Chief Executive Officer and any other executives of the Company as the Audit
Committee deems appropriate at such times as the Audit Committee determines to
review (a) the scope of the audit plan, (b) the Company's financial statements,
(c) the results of external and internal audits, (d) the effectiveness of the
Company's system of internal controls, (e) any limitations imposed by Company
personnel on the independent public accountants and (f) such other matters by
the Audit Committee deems appropriate; and (3) reports to the entire Board of
Directors at such time as the Audit Committee determines but not less than once
each year. Each member of the Audit Committee must be nominated by a Board
member and elected by a majority of the Board of Directors. Each member of the
Audit Committee serves for a term of one year and until the member's successor
has been duly elected and qualified, except in the event of any early
resignation or removal. The current members of the Audit Committee are Michael
Goldberg and Lev Zaidenberg, who were elected effective June 17, 1999.
None of C3D's directors or executive officers are parties to any
arrangement or understanding with any other person pursuant to which said
individual was elected as a director or officer of C3D. There is no relationship
by blood, marriage or adoption not more remote than first cousin between any
director, executive officer, or person nominated or chosen by C3D to become a
director or executive officer.
-44-
<PAGE>
EXECUTIVE COMPENSATION
No executive officer of C3D other than the Chief Executive Officer had
a total annual salary and bonus exceeding $100,000 for the last completed fiscal
year. There is no additional individual who would have been one of C3D's four
other most highly compensated executive officers had he served as an executive
officer through the end of the fiscal year ended 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------------- -----------------------------
Other Annual Securities
Fiscal Compensation Underlying All other
Name and Principal Position Year Salary Bonus($) ($) Options (#) Compensation
- --------------------------- ------ ------ -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Professor Eugene Levich, 1998 $65,000 -- $20,000 (1) -- --
Chief Executive Officer (approx.) (approx.)
1997 $65,000 -- $20,000 (1) -- --
(approx.) (approx.)
1996 -- -- -- -- --
</TABLE>
- ---------------
(1) Professor Levich has never been directly compensated by Constellation
Tech, Constellation Holdings or C3D for his position as Chief Executive
Officer. However, in 1998 and 1997, Constellation Holdings paid management
fees to Constellation Memory Division, a Nevis company ("CMD"), which
transferred, among other amounts, approximately $85,000 to Memde Israel
Ltd., an Israeli company related to CMD ("Memde"). This $85,000 was paid
by Memde as compensation, including non-salary and non-bonus compensation,
to Professor Levich, who was then a principal and the president of Memde.
No executive officer of C3D has held any options or stock appreciation
rights before December 31, 1998, the end of the last completed fiscal year. C3D
has not had any long-term incentive plan or pension plan.
Director Compensation
For services rendered by General Yaakov as Director of C3D, starting
April 1999, Yakov Consultants, of which General Yaakov is the sole owner, is to
receive a monthly fee of $5,000 until C3D receives an investment of $2 million,
and thereafter, $10,000 per month instead. There is no written contract for this
compensation. In addition, for services rendered and time given, on March 8,
1999, the Board of Directors of C3D authorized the issuance of 50,000 shares of
Common Stock and 100,000 options to purchase Common Stock at an exercise price
of $4.00 per share and an exercise period of five (5) years to General Yaakov.
For services rendered and time given, on March 8, 1999, the Board of
Directors of C3D authorized the issuance of 50,000 shares of common stock and
75,000 options to purchase Common Stock at an exercise price of $4.00 per share
and for an exercise period of five (5) years.
-45-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as set forth below, there is no transaction, or series of
similar transactions, since the beginning of C3D's last fiscal year, or any
currently proposed transaction, or series of similar transactions, to which C3D
or any of its subsidiaries was or is to be a party, in which the amount involved
exceeds $60,000 and in which any of the following persons had, or will have, a
direct or indirect material interest: (1) any director or executive officer of
C3D; (2) any nominee for election as a director; (3) any security holder who is
known to C3D to own of record or beneficially more than five percent of any
class of C3D's voting securities; and (4) any member of the immediate family of
any of the foregoing persons.
For services rendered by General Yaakov as Director of C3D, starting
April 1999, Yakov Consultants, of which General Yakov is the sole owner, is to
receive a monthly fee of $5,000 until C3D receives an investment of $2 million,
and thereafter, $10,000 per month instead. There is no written contract for this
compensation.
On March 8, 1999, C3D's Board of Directors authorized the issuance of
50,000 shares of Common Stock to Brigadier General Itzhak Yaakov, Chairman of
the Board of Directors of C3D, and 50,000 shares of Common Stock to Michael
Goldberg, Secretary, Director of Legal Affairs and Member of the Board of
Directors of C3D. Furthermore, the Board authorized the issuance to General
Yaakov of options to purchase 100,000 shares of Common Stock and the issuance to
Mr. Goldberg of options to purchase 75,000 shares of Common Stock.
Between April 1999 and October 1999, in anticipation of the purchase by
C3D of certain assets of Constellation Holdings, C3D advanced approximately $2.5
million to Constellation Holdings and certain of its subsidiaries. Such amounts
were governed by a promissory note, dated as of June 30, 1999, made by
Constellation Holdings and certain of its subsidiaries in favor of C3D, which
provided that the note was non-assignable, carried an annual interest rate of
8.0% and was payable on demand with no specific date of repayment. All amounts
owing under such promissory note were extinguished in connection with the
purchase by C3D of certain assets of Constellation Tech. The promissory note is
eliminated as an inter-company transaction in the Proforma Combined Condensed
Statements included elsewhere herein.
On June 17, 1999, the Compensation Committee of C3D set certain
compensations. There are no written contracts for such compensations. Professor
Eugene Levich, President, Chief Executive Officer and Chief Operational Officer
of C3D, is to receive $15,000 per month as of June 1, 1999. Leonardo Berezowsky,
the Senior Vice President of Finance and Chief Financial Officer of C3D, is to
receive $10,000 per month, $5,000 monthly as of June 1, 1999, and $5,000 to
accrue monthly until the financing next following June 17, 1999. Michael
Goldberg, Secretary, Director of Legal Affairs and Member of the Board of
Directors of C3D, is to receive $10,000 per month, $5,000 monthly as of June 1,
1999, and $5,000 to accrue monthly until the financing next following June 17,
1999.
On July 15, 1999, Ronen Yaffe, C3D's Treasurer, entered into an
employment contract with C-TriD Israel Ltd. The contract is still effective.
Pursuant to the contract, for services rendered as the Chief Financial Officer
of C-TriD Israel Ltd., C-TriD Israel Ltd. is to pay Mr. Yaffe 20,000 New Israeli
Shekels (approximately US $4,760 based on a November 11, 1999 interbank exchange
rate of approximately 4.202 New Israeli Shekels per U.S. Dollar, without fees or
surcharges) per month in addition to (1) a bonus if C-TriD Israel Ltd.
distributes a bonus to its employees, as determined by the Board of Directors of
C-TriD Israel Ltd. and dependent on Mr. Yaffe's performance and the financial
results of C-TriD Israel Ltd. and (2) stock options in C-TriD Israel Ltd. if
C-TriD Israel Ltd. adopts a stock option plan for its employees.
-46-
<PAGE>
On September 19, 1999, Constellation Holdings sold all of its assets to
Constellation Tech. In consideration for those assets, Constellation Tech
assumed of all liabilities and obligations of Constellation Holdings, which each
of the Board of Directors of Constellation Holdings and Constellation Tech and
the Shareholders of Constellation Holdings deemed to be adequate and sufficient
consideration. No fairness opinion was rendered in connection with such
transaction. After the acquisition, all the record and beneficial shareholders
of Constellation Holdings became record and beneficial shareholders of
Constellation Tech.
C3D and Constellation Tech entered into an asset purchase agreement
which was completed on October 1, 1999, whereby C3D acquired certain assets and
liabilities from Constellation Tech, including the following directly and
indirectly owned subsidiaries:
o 99 of the 100 issued and outstanding shares of C-TriD Israel Ltd.;
o all of the issued and outstanding shares of TriD Store Vostok;
o the sole membership interest of Constellation Tech in TriDStore IP,
L.L.C.; and
o all of the issued and outstanding shares of TriD SV, Inc.
LEGAL PROCEEDINGS
The consideration paid to Constellation Tech was based on the $4.00 per
share price of C3D Common Stock in connection with the Regulation S offering
dated May 7, 1999. The $4.00 per share price was negotiated before the C3D's
common stock began trading using the NASD Over-the-Counter Bulletin Board
service. The 9,750,000 shares of C3D Common Stock paid to Constellation Tech
were therefore valued at $39.0 million. The acquisition was recorded at no value
on the pro-forma consolidated financial statements to comply with
reverse-takeovers accounting per US GAAP. No fairness opinion was rendered in
connection with such transaction.
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the registrant or any of
its subsidiaries is a party or of which any of their property is the subject.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The securities of C3D, which are common shares, $.001 par value per
share, are quoted on the NASD's Over-the-Counter Bulletin Board service under
the symbol "CDDD." C3D's securities are not and have not been listed or quoted
on any exchange or other quotation system.
Time Period High Bid Low Bid
----------------- ----------- -----------
Fiscal Year Ending 1999:
First Quarter...................... -- --
Second Quarter..................... $ 12.13 $ 1.75
Third Quarter...................... $ 23.75 $ 10.00
Fourth Quarter*.................... $ 60.50 $ 16.06
- -------------
* For the period October 1, 1999 through and including December 15, 1999.
-47-
<PAGE>
The price of C3D's Common Stock on the NASD's Over-the-Counter Bulletin
Board on December 15, 1999 was $57.50 (high) and $49.00 (low). The close price
on December 15, 1999 was $56.00.
Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
As of December 15, 1999, there were approximately 51 shareholders of
record of the Common Stock.
-48-
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
Section 4(2) Offering to Winnburn Advisory
------------------------------------------
In December 1999, C3D entered into an agreement to issue $16 million of
convertible subordinated debt to Winnburn Advisory, a corporation organized
under the laws of Nevis, West Indies ("Winnburn"). Consummation of such
transaction is expected to occur on or about December 24, 1999. In connection
with such issuance, C3D intends to grant to Winnburn certain registration rights
with respect to the underlying common stock. The issuance of the convertible
note will be made as an exempt offering under Section 4(2) of the Securities
Act.
Section 4(2) Offering to Wilbro Nominees Limited
------------------------------------------------
On November 11, 1999, C3D issued $500,000 of convertible subordinated
debt to Wilbro Nominees Limited, a corporation organized under the laws of
England ("Wilbro"). In connection with such issuance, C3D granted to Wilbro
certain registration rights with respect to the underlying common stock. The
issuance of the convertible note will be made as an exempt offering under
Section 4(2) of the Securities Act.
Section 4(2) Offering to MBA-on-Demand, L.L.C.
----------------------------------------------
On November 8, 1999, the Board of Directors of C3D authorized, pursuant
to that certain Engagement Letter dated as of May 23, 1999, the issuance of
2,500 shares of Common Stock, which C3D valued at $28,750, to MBA-on-Demand,
L.L.C., a Texas limited liability company, as consideration for services
rendered pursuant to the Engagement Letter. In connection with such issuance,
C3D granted to MBA-on-Demand, L.L.C. certain registration rights with respect to
such Common Stock. C3D made the exempt offering under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act").
Section 4(2) Offering to Individual Investor
--------------------------------------------
On November 1, 1999, C3D's Board of Directors authorized the issuance
of 8,503 shares of Common Stock to an individual investor for a total purchase
price of $125,000. In connection with such subscription, C3D paid a commission
in the amount of $25,000 to Challis International Limited. The Company expects
to make the offering of the Common Stock as an exempt offering under Section
4(2) of the Securities Act.
Section 4(2) Offering to Constellation Tech
-------------------------------------------
On October 1, 1999, in connection with the Acquisition, among other
undertakings, C3D issued 9,750,000 shares of Common Stock to Constellation Tech
as consideration for the sale of certain assets of Constellation Tech. C3D made
the exempt offering under Section 4(2) of the Securities Act. See "Certain
Relationships and Related Transactions."
Section 4(2) Offering to Seattle Investments LLC
------------------------------------------------
On August 10, 1999, C3D issued $1 million of convertible subordinated
debt to Seattle Investments LLC, a Nevis, West Indies limited liability company
organized under the laws of Nevis, West Indies ("Seattle Investments"). In
connection with such issuance, C3D granted to Seattle Investments certain
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<PAGE>
registration rights with respect to the underlying Common Stock. On October 22,
1999, Seattle Investments converted its 10.0% Series A Convertible Note due
December 31, 1999 into 202,945 shares of Common Stock. The issuance of the
convertible note and the conversion were each made as an exempt offering under
Section 4(2) of the Securities Act.
Regulation S Offering to Twenty-five Foreign Investors
------------------------------------------------------
On May 7, 1999, C3D issued 453,255 shares of its Common Stock at an
aggregate offering price of $1,813,020 to twenty-five individuals and entities
then residing outside of the United States pursuant to Regulation S under the
Securities Act.
Regulation D Offering to Sixteen Individuals
--------------------------------------------
On March 24, 1999, C3D issued 3,125,000 shares of its Common Stock at
an aggregate offering price of $250,000 to sixteen individuals and entities. C3D
filed under SEC Rule 504 for an exemption from registration of those common
shares under the Securities Act.
Issuance of Stock to Yaakov and Goldberg
----------------------------------------
As compensation for services rendered, on March 8, 1999, C3D's Board of
Directors authorized the issuance of 50,000 shares of Common Stock, valued by
the Board at an aggregate of $200,000, to Brigadier General Itzhak Yaakov,
Chairman of the Board of Directors of C3D, and 50,000 shares of Common Stock,
valued by the Board at an aggregate of $200,000, to Michael Goldberg, Secretary,
Director of Legal Affairs and Member of the Board of Directors of C3D.
Furthermore, as compensation for services rendered, the Board authorized the
issuance to General Yaakov of options to purchase 100,000 shares of Common Stock
and the issuance to Mr. Goldberg of options to purchase 75,000 shares of Common
Stock. General Yaakov's options and Mr. Goldberg's options expire after five
years. The Company expects to make the offering of the Common Stock as an exempt
offering under Section 4(2) of the Securities Act.
-50-
<PAGE>
DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
C3D's securities which are to be registered under Section 12(g) of the
Exchange Act pursuant to this Registration Statement have been traded under the
symbol "CDDD" using the NASD's Over-the-Counter Bulletin Board service since
April 8, 1999. The authorized capital stock of C3D consists of 50,000,000 shares
of common stock, $.001 par value per share. C3D's Board of Directors may
authorize the issuance from time to time of shares of its Common Stock or any
class or securities convertible into shares of its Common Stock of any class for
such consideration as the Board of Directors deems advisable, subject to such
restrictions or limitations, if any, as may be set forth in C3D's Bylaws. C3D
has not issued, and the Board of Directors of C3D has not authorized the
issuance of, more than the one class of shares or the division of the existing
class into series.
C3D's Board of Directors may from time to time declare, and C3D may
pay, dividends on its outstanding shares in cash, property, stock or otherwise
pursuant to the provisions of C3D's Articles of Incorporation. However, C3D's
Board of Directors does not intend to declare, and C3D does not intend to pay,
any dividends on its outstanding shares in cash, property, stock, or otherwise
pursuant to the provisions of C3D's Articles of Incorporation in the foreseeable
future.
C3D's shareholders do not have preemptive rights unless provided by
amendment to C3D's Articles of Incorporation or by a resolution of the Board of
Directors of C3D.
The holders of shares entitled to one-third of the votes at a meeting
of shareholders will constitute a quorum. Acts of shareholders require the
approval of holders of 50.01% of the outstanding votes of shareholders.
-51-
<PAGE>
INDEMNIFICATION OF OFFICERS AND DIRECTOR
C3D's Amended Articles of Incorporation provide for indemnification of
officers and directors of C3D. They permit C3D, in its Bylaws or in any
resolution of its shareholders or directors, to undertake to indemnify the
officers and directors of C3D against any contingency or peril as may be
determined to be in the best interests of C3D, and in conjunction therewith, to
procure, at C3D's expense, policies of insurance. The Bylaws of C3D do not
specifically provide for indemnification of officers or directors of C3D. C3D
does not carry any director and officer policies of insurance for C3D officers
or directors. In the near future, C3D expects to obtain director and officer
policies of insurance for C3D officers and directors. C3D has no other
arrangements specifically providing for indemnification of C3D officers or
directors.
-52-
<PAGE>
PRIVILEGED & CONFIDENTIAL/ ATTORNEY WORK PRODUCT
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Barry L. Friedman, P.C. Certified Public Accountant, previously served
as auditor for C3D. He resigned as the auditor on October 19, 1999 due to C3D's
quotation on the NASD's Over-the-Counter Bulletin Board service. BDO Seidman,
LLP was appointed as auditor for C3D and its subsidiaries. There
have not been any disagreements with Mr. Friedman on any matter of accounting
principles or practices, financial statements disclosure or auditing scope or
procedures. Within C3D's past two fiscal years and any subsequent interim
periods preceding the resignation. Mr. Friedman has not issued a report
containing an adverse disclaimer or qualified opinion concerning C3D or any of
its subsidiaries.
During the registrant's two most recent fiscal years, and the
subsequent interim period prior to engaging BDO Seidman, LLP, neither the
registrant nor someone on its behalf consulted BDO Seidman LLP regarding (i)
either the application of accounting principles to a specified transaction,
either completed or proposed: or the types of audit of audit opinion that might
be rendered on the registrant's financial statements, and neither a written
report was provided to registrant nor oral advice provided that BDO Seidman, LLP
concluded was an important factor considered by the registrant in reaching a
decision as to an accounting, auditing or financial reporting issue; or (ii) any
matter that was either the subject of a disagreement (as defined in paragraph
304(a)(iv) of Regulation S-K and related instructions to this item) or a
reportable event (as described in paragraph 304 (a)(1)(v) of Regulation S-K)
<PAGE>
PROFORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF C3D, INC.
Introduction of Proforma Combined Condensed Balance Sheets (Unaudited)
Proforma Combined Condensed Balance Sheets (Unaudited)
Proforma Combined Condensed Statement of Loss (Unaudited)
Notes to Proforma Combined Condensed Financial Statements (Unaudited)
<PAGE>
Introduction to Pro Forma Combined Condensed Financial Statements (Unaudited)
On October 1, 1999 C3D, Inc. ("C3D") issued 9,750,000 shares of its common stock
to acquire certain assets and all liabilities of Constellation 3D Technology,
Ltd. ("Constellation Tech") (the "Merger Transaction"). In connection with the
acquisition, the founders of C3D canceled 975,000 shares of common stock based
on negotiations between C3D and Constellation Tech. C3D did not acquire two
subsidiaries of Constellation Tech having net assets of approximately $132,000.
As the former shareholders of Constellation Tech will control C3D subsequent to
the Merger Transaction, for accounting purposes Constellation Tech is treated as
the acquirer and C3D as the acquired entity. The Merger Transaction is treated
as a reverse-takeover of C3D.
Subsequent to the Merger Transaction, C3D entered into the following financing
transactions -
o Conversion of the convertible promissory note and accrued interest
thereon, totaling $1,013,973, into 202,945 shares of common stock.
o Sale of 8,503 shares of common stock at $14.70 per share totaling
$125,000;
o Issuance of a $500,000 convertible promissory note with interest at 8%,
due October 31, 2001.
o Short term borrowings totaling $1,300,000 from a shareholder with interest
at 10%, due January 31, 2000.
The unaudited pro forma combined condensed financial statements of C3D are based
upon the historical financial statements of the C3D and Constellation Tech after
giving effect to the merger and financing transactions. These unaudited pro
forma combined condensed financial statements are not necessarily indicative of
the financial position and results of operations that would have been attained
had the transactions actually taken place at the date indicated and do not
purport to be indicative of the effects that may be expected to occur in the
future.
The accompanying unaudited pro forma combined condensed financial statements
illustrate the effect of the merger and financing transactions on the C3D's
financial position and results of operations. The unaudited pro forma combined
condensed balance sheet as of September 30, 1999 is based on the historical
balance sheets of the C3D and Constellation Tech and assumes the merger and
financing transactions took place on that date. The combined condensed
statements of loss for nine months ended September 30, 1999 and the year ended
December 31, 1998, are based on the historical statements of operations of the
C3D and Constellation Tech for the same period and assume the merger and
financing transactions occurred as of January 1, 1998.
The accompanying unaudited pro forma combined condensed financial statements
should be read in connection with the historical financial statements of the C3D
and Constellation Tech.
1
<PAGE>
C3D Inc.
(A Development Stage Company)
Pro Forma Combined Condensed
Balance Sheet (Unaudited)
-------------------------------------
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Constellation Merger Financing
As of September 30, 1999 C3D Tech Adjustments Subtotal Adjustments Pro Forma
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 219,225 $ 300,944 $ (66,050)(3) $ 454,119 $1,900,000(5) $2,354,119
Other receivable 228,203 (14,934)(3) 213,269 213,269
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 219,225 529,147 (80,984) 667,388 1,900,000 2,567,388
Deposits 1,900 - - 1,900 - 1,900
Furniture and equipment, net 2,565 294,905 (51,274)(3) 246,196 - 246,196
Advances to related companies 2,465,764 - (2,465,764)(2) - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $2,689,454 $ 824,052 $(2,598,022) $ 915,484 $1,900,000 $2,815,484
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 139,857 $ 481,955 $ - $ 621,812 $ - $ 621,812
Due to C3D, Inc. - 2,465,764 (2,465,764)(2) - - -
Due to related parties 161,786 194,481 - 356,267 - 356,267
Due to shareholder - 241,490 - 241,490 1,300,000(5) 1,541,490
Other liabilities - 1,063,533 - 1,063,533 1,063,533
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 301,643 4,447,223 (2,465,764) 2,283,102 1,300,000 3,583,102
Long-Term Liabilities 1,013,973 55,650 - 1,069,623 (638,973)(5) 430,650
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,315,616 4,502,873 (2,465,764) 3,352,725 661,027 4,013,752
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock, $.001 par value 3,703 18,519 (8,769)(1) 13,453 211(5) 13,664
Additional paid in capital 3,464,317 4,870,021 (2,094,182)(1) 6,248,925 1,238,762(5) 7,487,687
8,769 (1)
Deficit accumulated during the
development stage (2,094,182) (8,567,361) 2,094,182 (1) (8,699,619) (8,699,619)
(132,258)(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity (deficit) 1,373,838 3,678,821 (132,258) (2,437,241) 1,238,973 (1,198,268)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $2,689,454 $ 824,052 $(2,598,022) $ 915,484 $1,900,000 $2,815,484
===================================================================================================================================
See Notes to Pro Forma Combined Condensed Financial Statements (Unaudited).
</TABLE>
2
<PAGE>
C3D Inc.
(A Development Stage Company)
Pro Forma Combined Condensed
Statement of Loss (Unaudited)
-------------------------------------
<TABLE>
<CAPTION>
Pro Forma
Merger and
Constellation Financing
Nine Months Ended September 30, 1999 C3D Tech Adjustments Pro Forma
=============================================================================================================
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
General and administrative $1,109,305 $ 906,140 $ - $ 2,015,445
Research and development - 1,717,983 - 1,717,983
- -------------------------------------------------------------------------------------------------------------
Total operating expenses 1,109,305 2,624,123 - 3,733,428
- -------------------------------------------------------------------------------------------------------------
OTHER (INCOME ) EXPENSE
Interest (income) (57,458) - 57,458 (2) -
Interest expense 1,037,335 126,591 (57,458)(2) 1,154,458
48,000 (5e)
Taxes - 12,000 - 12,000
- -------------------------------------------------------------------------------------------------------------
Net loss $(2,089,182) $(2,762,714) $(48,000) $(4,899,896)
=============================================================================================================
Basic and diluted loss per share $ (0.36)
=============================================================================================================
Weighted average number of shares (basic
and diluted) 13,664,703
=============================================================================================================
Year Ended December 31, 1998
=============================================================================================================
OPERATING EXPENSES:
Interest (income) expense $ - $ (6,985) $197,000 (5e) $ 190,015
Research and development - 1,534,948 - 1,534,948
General and administrative - 1,660,477 - 1,660,477
- -------------------------------------------------------------------------------------------------------------
Total operating expenses - 3,188,440 197,000 3,385,440
- -------------------------------------------------------------------------------------------------------------
OTHER INCOME
Taxes - 3,462 - 3,462
- -------------------------------------------------------------------------------------------------------------
Net loss $ - $(3,191,902) $197,000 $(3,388,902)
=============================================================================================================
Basic and diluted loss per share $ (.24)
=============================================================================================================
Weighted average number of shares (basic
and diluted) 13,664,703
=============================================================================================================
See Notes to Pro Forma Combined Condensed Financial Statements (Unaudited).
</TABLE>
3
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Pro Forma Combined Condensed
Financial Statements (Unaudited)
================================================================================
Note 1 Acquisition of Constellation Tech - Pursuant to the
terms of the Asset Purchase Agreement, C3D acquired
substantially all the operating assets of
Constellation Tech in exchange for 9,750,000 shares
of the Company's common stock. Two subsidiaries of
Constellation Tech, having net assets of
approximately $132,000 at October 1, 1999 were not
acquired by the Company.
As the former shareholders of Constellation Tech
will control C3D after the acquisition, this
business combination will be accounted for as a
reverse take-over transaction under which
Constellation Tech is deemed for accounting
purposes to be the acquirer and C3D the acquired
entity. Under these accounting principles, the
Company's combined consolidated financial
statements will represent Constellation Tech on a
historical basis consolidated with the results of
operations of C3D from the date of acquisition. As
C3D is a non operating public shell, the reverse
merger will be treated as a recapitalization of
Constellation Tech, with no goodwill recorded.
The common stock of Constellation Tech of $18,519
has been exchanged for shares of C3D of $9,750.
Therefore, an adjustment has been made to
reclassify common stock to additional paid in
capital in the amount of $8,769.
Note 2 To eliminate intercompany balances existing
between C3D and Constellation Holdings as of
September 30, 1999. C3D had advanced funds to
Constellation Holdings for expenditures on its
behalf.
Note 3 To eliminate the net assets of approximately
$132,000 of two subsidiaries (Tridistore Ltd. and
O.M.D. Ltd.) of Constellation Tech, which were not
part of the merger.
4
<PAGE>
Note 4 Share capital as at September 30, 1999 in the pro
forma combined condensed balance sheet is comprised
of the following:
<TABLE>
<CAPTION>
Additional
Number of shares Par value, $.001 paid-in capital
===========================================================================================
<S> <C> <C> <C> <C>
Acquisition, including adjustment
required by for par
value of shares issued 9,750,000 $ 9,750 $ 4,878,790
Share Capital, as set out in the
audited consolidated financial
statements of C3D 3,703,255 3,703 3,464,317
Net adjustment to pro forma
equity for reverse take-over
(Note 1) (2,094,182)
-------------------------------------------------------------------------------------------
13,453,255 $ 13,453 $ 6,248,925
===========================================================================================
</TABLE>
The weighted average number of share outstanding
represents C3D's actual weighted average number of
shares for the period presented increased by the
shares issuable on completion of the pro forma
transactions as described above. Per share
information is presented as if the common shares
issuable were issued at the beginning of 1999.
NOTE 5 Summary of Financing activities completed by C3D
Subsequent to September 30, 1999:
<TABLE>
<CAPTION>
(a) (b) (c) (d) Total
============================================================================================
Cash $ - $ 100,000 $ 500,000 $1,300,000 $1,900,000
============================================================================================
<S> <C> <C> <C> <C> <C>
Current Liabilities $ - $ - $ - $1,300,000 $1,300,000
Long-term
Liabilities (1,013,973) - 375,000 - (638,973)
--------------------------------------------------------------------------------------------
Total Liabilities (1,013,973) - 375,000 1,300,000 661,027
Stockholders' Equity
Common stock 203 8 - - 211
Additional paid in
capital 1,013,770 99,992 125,000 - 1,238,762
--------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ - $ 100,000 $ 500,000 $1,300,000 $1,900,000
============================================================================================
</TABLE>
(a) Conversion of Note Payable and accrued interest into 202,945 shares of
common stock
(b) Sale of 8,503 shares of common stock to outside investor at $14.70 per
share, less $25,000 commission
(c) Sale of $500,000 convertible subordinated debt, with a beneficial conversion
feature of $125,000
(d) Borrowing under short-term notes payable of $1.3 million
(e) Estimated interest on the $500,000 convertible subordinated debt and on the
short-term notes payable at 10% is $197,000 and $48,027 as at September 30,
1999 and December 31, 1998, respectively.
5
<PAGE>
FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements and related schedules are included in
this Item:
Financial Statements of C3D Inc.
Report of Independent Certified Public Accountants:
Balance Sheet as of September 30, 1999, December 31, 1998 and December 31,
1997;
Statements of Operation, Stockholder's Equity and Cash Flows for the
six-months ended September 30, 1999 and each of the years in the three-year
period ended December 31, 1998 and for the period from the date of inception
(December 27, 1995) through June 30, 1999; and
Notes to Consolidated Financial Statements.
Financial Statements of Constellation 3D Holdings Limited
Report of Independent Auditor:
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 and
1997;
Consolidated Statements of Operation, Stockholder's Equity and Cash Flow
for the six-months ended June 30, 1999 and 1998 and years ended December 31,
1998 and 1997, and for the period from the date of inception (September 25,
1997) through June 30, 1999; and
Notes to Consolidated Financial Statements.
Financial Statements of Constellation Technology Ltd.
Report of Independent Certified Public Accountants:
Balance Sheets as of September 30, 1999, December 31, 1998 and December 31,
1997;
Statements of Operation, Stockholder's Equity and Cash Flows for the
six-months ended September 30, 1999 and each of the years in the three-year
period ended December 31, 1998 and for the period from the date of inception
(December 27, 1995) through June 30, 1999; and
Notes to Consolidated Financial Statements.
(b) Exhibits
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders of C3D Inc.
We have audited the accompanying balance sheets of C3D Inc. (a development stage
company) ("the Company") as of September 30, 1999, December 31, 1998 and
December 31, 1997 and the related statements of operations, stockholders' equity
and cash flows for the nine months ended September 30, 1999 and 1998, each of
the three years in the period ended December 31, 1998, and the period from the
date of inception (December 27, 1995) through September 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of C3D Inc. (a development stage
company) at September 30, 1999, December 31, 1998 and 1997, and the results of
its operations and its cash flows for the nine months ended September 30, 1999
and 1998, each of the three years in the period ended December 31, 1998, and the
period from the date of inception (December 27, 1995) through September 30, 1999
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company is in the development stage and has generated no
operating revenue to date and will need to raise additional working capital for
future development costs. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regards
to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
BDO Seidman, LLP
Seattle, Washington
December 3, 1999
1
<PAGE>
C3D Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
September 30, December 31, December 31,
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash $ 219,225 $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
Total Current Assets 219,225 - -
Deposits 1,900 - -
Furniture and Equipment, net 2,565 - -
Advances to Related Company 2,465,764 - -
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $ 2,689,454 $ - $ -
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 139,857 $ - $ -
Due to related parties 161,786 - -
- -----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 301,643 - -
Convertible Notes Payable 1,013,973 - -
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,315,616 - -
- -----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Equity
Common stock, $.001 par value; 50,000,000 shares
authorized, 3,703,255, 25,000 and 25,000 issued
and outstanding 3,703 25 25
Additional paid in capital 3,464,317 4,975 4,975
Deficit accumulated during the development stage (2,094,182) (5,000) (5,000)
- -----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,373,838 - -
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 2,689,454 $ - $ -
=======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
C3D Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Amounts
from Inception Nine Months Ended Year Ended
(December 27, 1995) September 30, December 31,
through September 30, ---------------------------- -------------------------------
1999 1999 1998 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
General and administrative $ 1,114,305 $ 1,109,305 $ - $ - $ - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,114,305 1,109,305 - - - -
OTHER EXPENSE (INCOME)
Interest expense 1,037,335 1,037,335
Interest income, net (57,458) (57,458) - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $ (2,094,182) $ (2,089,182) $ - $ - $ - $ -
====================================================================================================================================
Net loss per common share - basic and diluted $ (0.56) $ - $ - $ - $ -
Weighted average number of common shares 3,703,255 25,000 25,000 25,000 25,000
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
C3D Inc.
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
================================================================================
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During
------------------------ Additional Development
Shares Amount Paid-in capital Stage Total
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
C3D Inc. activities (Formerly
known as Latin Venture
Partners, Inc.):
Issuance of common stock
for cash 25,000 $ 25 $ 4,975 $ (5,000) $ -
Net loss - - - - -
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 25,000 25 4,975 (5,000) -
Net loss - - - - -
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 25,000 25 4,975 (5,000) -
Net loss - - - - -
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 25,000 25 4,975 (5,000) -
Sale of common stock for cash
($.08/Share) 3,125,000 3,125 246,875 - 250,000
Sale of common stock for cash
($4.00/Share) 453,255 453 1,812,567 - 1,813,020
Common stock granted to directors
($4.00/Share) 100,000 100 399,900 - 400,000
Beneficial conversion discount of
convertible debt - - 1,000,000 - 1,000,000
Net loss - - - (2,089,182) (2,089,182)
- -----------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 3,703,255 $ 3,703 $ 3,464,317 $ (2,094,182) $ 1,373,838
=======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
C3D Inc.
(A Development Stage Company)
Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
Cumulative Amounts Nine Months
from Inception Ended Year Ended
(December 27, 1995) September 30, December 31,
through September 30, ----------------------------- ---------------------------
1999 1999 1998 (unaudited) 1998 1997 1996
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (2,094,182) $ (2,089,182) $ - $ - $ - $ -
Adjustments to reconcile net loss to net cash
used in operating activities:
Discount amortization on convertible debt 1,000,000 1,000,000
Depreciation and amortization 183 183
Issuance of common stock for services 400,000 400,000 - - - -
Change in assets and liabilities:
Deposits (1,900) (1,900)
Accounts payable 139,857 139,857
Accrued interest payable on convertible
notes payable 13,973 13,973 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (542,069) (537,069) - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of furniture and equipment (2,748) (2,748) - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (2,748) (2,748) - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Advances to related company (2,465,764) (2,465,764) - - - -
Proceeds from issuance of common stock 2,068,020 2,063,020 - - - -
Proceeds of convertible notes payable issue 1,000,000 1,000,000
Due to related parties 161,786 161,786 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 764,042 759,042 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Cash 219,225 219,225 - - - -
Cash, beginning of period - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 219,225 $ 219,225 $ - $ - $ - $ -
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1: Operations - C3D Inc. ("the Company") was
Description of Business incorporated in the State of Florida on December
and Summary of 27, 1995 under the name of Latin Ventures
Significant Accounting Partners, Inc. ("LVPI"). On August 3, 1998 the
Policies State of Florida approved the Company's restated
Articles of Incorporation, which increased its
capitalization from 7,500 common shares to
50,000,000 common shares. The par value was
changed from $1.00 to $0.001. From inception
through August 31, 1998 there was no activity
within LVPI. On August 31, 1998, LVPI amended its
articles of incorporation to provide for a 200:1
stock split, and to apply for quotation on the
OTC Bulletin Board. On March 24, 1999 LVPI
changed its name to C3D Inc. in contemplation of
the proposed asset purchase agreement to acquire
substantially all the operations of Constellation
3D Technology, Limited ("Constellation Tech") as
discussed in Note 7.
Accounting Estimates - The Company's financial
statements are prepared in conformity with
generally accepted accounting principles, which
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 revenue and expenses during the
reporting period. Actual results could differ
from the estimates.
Furniture and Equipment - Furniture and equipment
are stated at cost. Depreciation and amortization
are computed utilizing straight-line and
accelerated methods over estimated useful lives
ranging from 3 to 5 years.
Research and Development - Costs will be expensed
as incurred until technological feasibility has
been obtained, when product design is complete
and a working model has been developed and
tested.
Revenue Recognition - The Company is a public
shell with no operating revenues. After
completion of the proposed asset purchase
agreement, the operations of the Company will
include the activities of Constellation Tech.
Constellation Tech is conducting research and
development activities to develop new multi-layer
data storage media. It is the intent of this
company to enter into strategic alliances to
license its technology to its strategic partners.
6
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1: Income Taxes - The Company accounts for income
Description of Business taxes in accordance with the provisions of
and Summary of Statement of Financial Accounting Standards No.
Significant Accounting 109, "Accounting for Income Taxes," ("SFAS 109").
Policies SFAS 109 requires the recognition of deferred tax
(continued) assets and liabilities for the expected future
income tax consequences of events that have been
recognized in a company's financial statements or
tax return. Under this method, deferred tax
assets and liabilities are determined based on
the temporary differences between the financial
statement carrying amounts and their tax basis
using enacted tax rates in effect in the years in
which the temporary differences are expected to
reverse. Valuation allowances are provided when
management determines that the realization of
deferred tax assets fails to meet the more likely
than not standard imposed by SFAS 109.
Net Loss Per Share - Basic loss per share is
computed by dividing net loss by the weighted
average number of common shares outstanding. Per
share information for all prior periods have been
adjusted to reflect the cancellation of 975,000
founders stock, which occurred on October 1,
1999, and the 200:1 stock split declared on
August 3, 1998. As of September 30, 1999, the
Company had outstanding options to purchase
175,000 shares of common stock which were not
included in the calculation of loss per share as
their effect was anti-dilutive.
NOTE 2: The Company has been in the development stage
Development since its inception. It has had no operating
Operations revenues to date, has accumulated losses of
$2,094,182, and will require additional working
capital to complete its business development
activities and generate revenues adequate to
cover operating and further development expenses.
These conditions raise substantial doubt as to
the Company's ability to continue as a going
concern.
The Company believes it can raise adequate
working capital through future sales of its
common stock in private placement transactions.
To date, the Company has raised $3.8 million in
private placements of convertible debt and equity
and has borrowed an additional $1.3 million from
a stockholder. The Company intends to raise up to
$20 million in a series of Private Placements to
fund its research and development activities.
However, there can be no assurance that the
Company will be successful in its efforts to
raise these funds.
The financial statements do not contain any
adjustments that might be necessary if the
Company is unable to continue as a going concern.
NOTE 3: In anticipation of the closing of the acquisition
Advances to Related for certain assets and liabilities of
Party Constellation Tech, C3D advanced Constellation
Tech $2,408,306. All amounts advanced are due on
demand with interest thereon at the annual rate
equal to eight percent. C3D earned interest of
$57,458 on the note for a total balance owing of
$2,465,764 as at September 30, 1999.
7
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 4: Furniture and equipment consists of the
Furniture and following:
Equipment
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 1997
============================================================
<S> <C> <C> <C>
Furniture and equipment $2,748 $ - $ -
Less accumulated depreciation 183 - -
------------------------------------------------------------
Furniture and equipment, net $2,565 $ - $ -
============================================================
</TABLE>
NOTE 5: On August 10, 1999, C3D issued $1 million of
Notes Payable convertible subordinated debt to Seattle
Investments LLC, a limited liability company
organized under the laws of Nevis, West Indies
("Seattle Investments"). The note bears interest
at 10% and could be converted immediately into
common stock at the lesser of $5 or the quoted
market price at the time of conversion. The
market price on August 10, 1999 was $14.63. This
beneficial conversion feature resulted in the
Company recognizing a $1,000,000 non-cash
interest charge during 1999. On October 22, 1999,
the debt and accrued interest thereon were
converted into 202,945 shares of the Company's
stock.
NOTE 6: At September 30, 1999 the Company has net
Income Taxes deferred tax assets of $711,000 primarily due to
net operating loss carry forwards, which begin to
expire in 2018. A 100% valuation allowance has
been recorded against the deferred tax asset as
management has yet to establish that recovery of
this asset is more likely than not.
NOTE 7: Certain operating expenses are paid by a related
Related Party company, which in turn is reimbursed by the
Transactions Company. For the nine months ended September 30,
1999, these expenses were $61,827. In addition,
the Company paid the related company $19,250
under an informal rental agreement. The agreement
may be cancelled at any time.
The Company paid a $25,000 finders fee to a
related party for the $1 million of convertible
debt issued to Seattle Investments.
The Company retained all key employees under
informal consulting agreements during the
nine-month period ended September 30, 1999. These
agreements may be cancelled at any time. The
expense of these agreements totaled $202,500,
$106,000 of which is included in related party
payables.
8
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 8: On March 8, 1999 the Company approved the
Stock Grants and issuance of 100,000 shares of common stock to
Stock Options certain board members for prior services
performed on behalf of the Company. Accordingly,
$400,000 of general and administrative expense
was recorded during the nine-month period ended
September 30, 1999, based on the estimated fair
value of the common stock issued and the private
placement completed on May 15, 1999 where the
Company sold 453,255 shares of common stock to
outside investors at $4 per share.
On March 8, 1999, these board members were also
granted options to purchase up to 175,000 shares
of the Company's common stock at $4 per share.
These options will vest immediately, and expire
in 2004. At September 30, 1999, these 175,000
options remained outstanding. The weighted
average fair value of these options, on the date
they were granted, was $3.89. No expense was
recognized upon granting of the options as the
strike price was equal to the estimated market
price, as evidenced by the sale of 453,255 shares
of common stock to unrelated third parties
completed on March 15, 1999 but not issued until
May 15, 1999.
The pro forma information required by FAS 123 was
estimated at the date of grant using a
Black-Sholes multiple option pricing model with
the following assumptions for the nine month
period ended September 30, 1999; risk free
interest rate of 5.84%, expected life of 60
months, expected volatility 192%, and no expected
dividend. Pro forma net loss and loss per share
information are $2,470,282 and $0.67
respectively, for the nine months ended September
30, 1999.
NOTE 9: On October 1, 1999, the Company completed the
Subsequent Events asset purchase agreement and acquired
substantially all the operations of Constellation
Tech. for a total consideration of 9,750,000
shares of the Company's $.001 par value common
stock, and assumption of all liabilities and
obligations. The asset purchase agreement also
provided for the cancellation of 975,000 shares
of founders' common stock. This cancellation has
been reflected in the accompanying financial
statements as if it had occurred as of the
earliest date presented. Constellation Tech. has
operations in the United States, Israel, Russia,
and the Ukraine researching and developing new
data storage technology products.
For financial statement purposes, the acquisition
of Constellation Tech will be treated as a
reverse acquisition whereby the Company was
acquired by Constellation Tech., with the balance
sheets to be combined using each company's
historical cost bases. The results of operations
will include the results of both companies from
the date of acquisition forward. As the
transaction is a reverse merger with a public
shell, no pro forma information related to this
transaction is provided.
9
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 9: On November 1, 1999, the Company sold 8,503
Subsequent Events shares of common stock at $14.70 per share to an
(continued) outside investor, pursuant to the terms and
conditions of a subscription agreement for a
total purchase price of $125,000. A commission of
$25,000 was paid in conjunction with this sale.
On November 8, 1999, the Company issued 2,500
shares of common stock, which was valued at the
negotiated value of $28,750, to MBA Ventures,
LLC, a Texas limited liability company, to
compensate them for their services, in accordance
with the agreement dated May 23, 1999.
On November 10, 1999, the Company approved the
issuance of warrants to purchase 100,000 shares
of common stock at a price of $10.00 per share to
an investment banker, subject to certain terms
and conditions including successful completion of
a $2.5 million sale of convertible subordinated
debt, of which $500,000 has been completed to
date.
On November 11, 1999, C3D issued $500,000 of
convertible subordinated debt to Wilbro Nominees
Limited. The note is due October 31, 2001 with
interest at the rate of 8% per annum. The note is
convertible into common stock at a price equal to
80% of the average posted price for the 20 days
preceding the conversion date, beginning May 11,
2000. The quoted price for the Company's stock on
November 11, 1999 was $23, resulting in a deemed
beneficial conversion and a discount of
approximately $125,000, which will be shown as an
increase to paid in capital, and will be
amortized to interest expense From November 11,
1999 to May 11, 2000. A commission of $100,000
was paid to an investment banker in conjunction
with this sale.
The Company borrowed $1.3 million from an
existing stockholder, and issued a $300,000
promissory note on October 29, 1999 and a $1
million note on November 18, 1999. Both notes are
unsecured, bear interest at 10% per annum, and
mature on January 31, 2000.
10
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders of
Constellation 3D Holdings Limited and Subsidiaries
We have audited the accompanying consolidated balance sheets of Constellation 3D
Holdings Limited and Subsidiaries (a development stage company) ("the Company")
as of June 30, 1999, December 31, 1998 and December 31, 1997 and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the six months ended June 30, 1999, the year ended December 31, 1998, the period
from the date of inception (September 25, 1997) through December 31, 1997, and
the period from the date of inception (September 25, 1997) through June 30,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
The consolidated financial statements were prepared in accordance with the
generally accepted accounting principles of Ireland, which do not differ in any
material respects from the generally accepted accounting principles of the
United States of America.
We conducted our audits in accordance with auditing standards generally accepted
in Ireland, which do not differ in any material respects from auditing standards
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Constellation 3D
Holdings Limited and Subsidiaries (a development stage company) at June 30,
1999, December 31, 1998 and 1997, and the results of its operations and its cash
flows for the six months ended June 30, 1999, the year ended December 31, 1998,
the period from the date of inception (September 25, 1997) through December 31,
1997 and the period from the date of inception (September 25, 1997) through June
30, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company is in the development stage and has generated
no operating revenue to date and will need to raise additional working capital
for future development costs. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regards
to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
BDO Simpson Xavier
Dublin, Ireland
October 31, 1999
1
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31, December 31,
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash $ 112,800 $ 123,097 $ 2,818,719
Other receivable 155,248 171,261 36,047
- -----------------------------------------------------------------------------------------------------------------------
Total Current Assets 268,048 294,358 2,854,766
Furniture and Equipment, net 292,073 267,231 100,163
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $ 560,121 $ 561,589 $ 2,954,929
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 434,308 $ 442,889 $ 709,758
Due to C3D Inc. 1,234,837 - -
Due to related parties 174,184 422,790 531,067
Due to shareholder 241,490 - 4,152,521
Other 998,364 565,192 147,980
- -----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 3,083,183 1,430,871 5,541,326
Commitments and Contingencies
Long Term Liabilities 50,503 46,825 26,345
Stockholders' Deficit
Common stock, $0.015 par value; 10,000,000 shares
authorized 1,250,000, 1,250,000, and 200
issued and outstanding 18,519 18,519 3
Additional paid in capital 4,870,021 4,870,021 -
Deficit accumulated during the development stage (7,462,105) (5,804,647) (2,612,745)
- -----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Deficit (2,573,565) (916,107) (2,612,742)
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit $ 560,121 $ 561,589 $ 2,954,929
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Amounts
from Inception Six Months Ended
(September 25, 1997) June 30,
through June 30, ---------------------------------
1999 1999 1998 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING EXPENSES:
Interest (income) expense $ 76,156 $ 29,290 $ 55,724
Research and development 4,018,960 1,062,305 629,823
General and administrative 3,352,527 554,863 698,810
- -------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 7,447,643 1,646,458 1,384,357
- -------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Taxes 14,462 11,000 -
- -------------------------------------------------------------------------------------------------------------------------------
Net loss $ (7,462,105) $ (1,657,458) $ (1,384,357)
===============================================================================================================================
Net loss per common share - basic and diluted $ (1.33) $ (6,921.79)
Weighted average number of common shares outstanding 1,250,000 200
===============================================================================================================================
</TABLE>
<PAGE>
[RESTUBBED]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended Three Months
December 31, December 31,
--------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING EXPENSES:
Interest (income) expense $ (6,985) $ 53,851
Research and development 1,534,948 1,491,707
General and administrative 1,660,477 1,067,187
- -----------------------------------------------------------------------------------------------------
Total operating expenses 3,188,440 2,612,745
- -----------------------------------------------------------------------------------------------------
OTHER INCOME
Taxes 3,462 -
- -----------------------------------------------------------------------------------------------------
Net loss $ (3,191,902) $( 2,612,745)
=====================================================================================================
Net loss per common share - basic and diluted $ (20.41) $ (13,063.73)
Weighted average number of common shares outstanding 156,425 200
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Changes in Stockholders' Deficit
================================================================================
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During
--------------------- Additional Development
Shares Amount Paid-in capital Stage Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Constellation 3D Holdings Limited - $ - $ - $ - $ -
activities (Formerly
known as Tandy Holdings
Limited)
Issuance of common stock for cash 200 3 - - 3
Net loss - - - (2,612,745) (2,612,745)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 200 3 - (2,612,745) (2,612,742)
Issuance of common stock for
cancellation of shareholders'
advances 1,249,800 18,516 4,870,021 - 4,888,537
Net loss - - - (3,191,902) (3,191,902)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 1,250,000 18,519 4,870,021 (5,804,647) (916,107)
Net loss - - - (1,657,458) (1,657,458)
- --------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 1,250,000 $18,519 $ 4,870,021 $ (7,462,105) $ (2,573,565)
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
Cumulative Amounts Six Months Year Ended
from Inception Ended June 30, December 31,
(September 25, 1997) ------------------------------- ---------------------------
through June 30, 1999 1999 1998 (Unaudited) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (7,462,105) $ (1,657,458) $ (1,384,357) $ (3,191,902) $ (2,612,745)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation expense 43,948 5,023 13,363 33,129 5,796
Change in assets and liabilities:
Other receivable (155,248) 16,013 (174,108) (135,214) (36,047)
Accounts payable 1,432,672 424,591 (449,761) 150,343 857,738
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (6,140,733) (1,211,831) (1,994,863) (3,143,644) (1,785,258)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase of furniture and equipment (336,021) (29,865) (129,761) (200,197) (105,959)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (336,021) (29,865) (129,761) (200,197) (105,959)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Issuance of common stock 4,888,540 - 4,382,528 4,888,537 3
Advances from C3D Inc. 1,234,837 1,234,837 - - -
Due to shareholder 241,490 241,490 (3,882,500) (4,152,521) 4,152,521
Due to related parties 174,184 (248,606) (531,067) (108,277) 531,067
Net change in leases 50,503 3,678 - 20,480 26,345
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing
Activities 6,589,554 1,231,399 (31,039) 648,219 4,709,936
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 112,800 (10,297) (2,155,663) (2,695,622) 2,818,719
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, beginning of period - 123,097 2,818,719 2,818,719 -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 112,800 $ 112,800 $ 663,056 $ 123,097 $ 2,818,719
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
================================================================================
NOTE 1: Operations - Constellation 3D Holdings Limited and
Description of Business Subsidiaries ("the Company") was incorporated in
and Summary of Ireland on September 25, 1997 under the name of
Significant Accounting Tandy Holdings Limited. On March 13, 1998 Tandy
Policies Holdings Limited changed its name to Constellation
3D Holdings Limited. In contemplation of the
proposed asset purchase agreement with C3D Inc., as
discussed in Note 5, the Company transferred all
assets and liabilities to Constellation Technology
Ltd. ("Constellation Tech."), a British Virgin
Island company, on September 19, 1999.
The Company's subsidiaries are as follows:
TriDStore IP, LLC, a wholly-owned subsidiary, is a
Delaware limited liability company formed on
February 2, 1998. It was formerly called "OMD
Devices, LLC" unitl it filed an amendment to its
Certificate of Formation on March 9, 1999.
TriD Store Inc, a wholly owned subsidiary, is a
Delaware Corporation formed on March 6, 1997.
C-TriD Israel Limited, a wholly owned subsidiary,
is an Israeli company formed on December 2, 1996.
TriD SV, Inc., a wholly owned subsidiary, is a
Delaware corporation formed on August 10, 1998.
Tridistore Limited, a wholly owned subsidiary, is
an Israeli corporation formed on November 27, 1996.
JSC TriD Store Vostok, a wholly owned subsidiary,
is a Russian company formed on January 15, 1999.
Memory Devices Inc., a 60% owned subsidiary, is a
Delaware company formed on March 8, 1997.
OMD Optical Memory Devices Limited, a 67% owned
subsidiary, is an Israeli corporation formed on
November 27, 1996.
The Company has operations in the United States,
Israel, and Russia researching and developing new
data storage technology products. They conduct
research and development of optical memory storage
technology
6
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
================================================================================
NOTE 1: Principles of Consolidation - The consolidated
Description of Business financial statements include accounts of
and Summary of Constellation 3D Holding Limited and its
Significant Accounting subsidiaries. All significant intercompany
Policies transactions have been eliminated. The results of
(continued) subsidiaries are included from the date of
incorporation, on the basis that results prior to
the date of incorporation of the holding company
are deemed immaterial in the context of the
consolidated financial statements.
Accounting Estimates - The Company's financial
statements are prepared in conformity with
generally accepted accounting principles, which
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 revenue and
expenses during the reporting period. Actual
results could differ from the estimates.
Furniture and Equipment - Furniture and equipment
are stated at cost. Depreciation and amortization
are computed utilizing straight-line over estimated
useful lives ranging from approximately 3 to 17
years.
Research and Development - Costs will be expensed
as incurred until technological feasibility has
been obtained.
Foreign Currency Translation - The financial
statements are expressed in US dollars.
Transactions during the year have been translated
at the rate of exchange ruling at the date of the
transaction. Assets and liabilities denominated in
foreign currencies are translated to US dollars at
the rates of exchange ruling at the balance sheet
date. The resulting profits or losses are dealt
with through the profit and loss account.
Revenue Recognition - It is the intent of the
Company to enter into licensing, strategic
alliances and joint venture programs with companies
that have an established presence in the data
storage market. These partner companies would be
primarily responsible for the production and
marketing of the products developed by the Company.
The Company intends to focus its activities in the
area of research, development, and the
administration of the Company's agreements.
7
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
================================================================================
NOTE 1: Income Taxes - The Company recognizes deferred tax
Description of Business assets and liabilities for the expected future
and Summary of income tax consequences of events that have been
Significant Accounting recognized in a company's financial statements or
Policies tax return. Under this method, deferred tax assets
(continued) and liabilities are determined based on the
temporary differences between the financial
statement carrying amounts and their tax basis
using enacted tax rates in effect in the years in
which the temporary differences are expected to
reverse. Valuation allowances are provided when
management determines that the realization of
deferred tax assets is unlikely.
Net Loss Per Share - Basic loss per share is
computed by dividing the net loss by the weighted
average number of common shares outstanding. Per
share information for all periods has been adjusted
to reflect the 100:1 stock split declared on
November 8, 1998. As of June 30, 1999, the Company
had no outstanding options or other common stock
equivalents.
NOTE 2: The Company has been in the development stage since
Development its inception. It has had no operating revenues to
Operations date, has accumulated losses of $7,462,105, and
will require additional working capital to complete
its business development activities and generate
revenues adequate to cover operating and further
development expenses. This raises substantial doubt
as to the Company's ability to continue as a going
concern.
The Company is currently seeking to raise equity or
debt capital in the initial amount of $5 million
with further funding of up to $15 million to
complete research and development on its existing
projects.
The financial statements do not contain any
adjustments that might be necessary if the Company
is unable to continue as a going concern.
NOTE 3: Furniture and equipment consists of the following:
Furniture and
Equipment
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and equipment $336,021 $306,156 $105,959
Less accumulated depreciation 43,948 38,925 5,796
------------------------------------------------------------------
Furniture and equipment, net $292,073 $267,231 $100,163
==================================================================
</TABLE>
8
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
================================================================================
NOTE 4: In anticipation of the closing of the acquisition
Related Party as discussed in Note 5, C3D advanced the Company
Transactions $1,219,979. The advances are backed by a promissory
note to C3D. All amounts advanced are due on demand
with interest thereon at an annual rate equal to
eight percent. Interest expense at June 30, 1999
was $14,858 for a total balance owing of
$1,234,837.
NOTE 5: On October 1, 1999, C3D Inc. acquired substantially
Subsequent all of the Company's operations through an asset
Events purchase agreement for a total consideration of
9,750,000 shares of the Company's $.001 par value
common stock and assumption of certain liabilities
and obligations. The asset purchase agreement also
provides for the cancellation of 975,000 shares of
founders' common stock of the company.
For financial statement purposes, the acquisition
has been treated as a reverse acquisition whereby
C3D, Inc. was acquired by Constellation 3D Holdings
Limited and Subsidiaries, with the balance sheets
to be combined using the respective historical cost
bases. The results of operations will include the
results of both companies from the date of
acquisition. The unaudited pro forma combined
historical results of operations as though
Constellation Tech. had been combined at the
beginning of fiscal 1998 and the six month period
ended June 30, 1999 are as follows:
<TABLE>
<CAPTION>
For the Six Months For the Year Ended
Ended December 31,
(unaudited) June 30, 1999 1998
----------------------------------------------------------------------------
<S> <C> <C>
Net loss ($2,328,000) ($3,191,902)
Basic and diluted loss per share ($0.17) ($0.24)
============================================================================
</TABLE>
The unaudited pro forma results of operations may
not be indicative of results that would have been
obtained had the combination occurred at the
beginning of the periods presented and are not
necessarily indicative of future combined results.
9
<PAGE>
Report of Independent Certified Public Accountants to Broad of directors and
Stockholders of Constellation Technology Ltd. and Subsidiaries
We have audited the accompanying balance sheet of Constellations Technology Ltd.
and Subsidiaries (a development stage company) ("the Company") as of September
30, 1999 and the related consolidated statements of operations, stockholders'
deficit and cash flows for the nine months ended September 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The comparative figures for the periods ending December 31, 1997 and
1998 were audited by other auditors.
The consolidated financial statements were prepared in accordance with the
generally accepted accounting principles of Israel which do not differ in any
material respects from the generally accepted accounting principles of the
United States of America.
We conducted our audits in accordance with auditing standards generally accepted
in Israel, which do not differ in any material respects from auditing standards
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Constellation
Technology and Subsidiaries (a development stage company) at September 30, 1999,
and the results of its operations and its cash flows for the nine months ended
September 30, 1999 in conformity with generally accepted accounting principles.
-1-
<PAGE>
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company is in the development state and has generated
no operating revenue to date and will need to raise additional working capital
for future development costs. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regards
to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
BDO Shlomo Ziv & Co.
Certified Public Accountants (Isr.)
Tel - Aviv, Israel
December 22, 1999
-2-
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (in US$)
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1999 1998 1997
------------- ------------ ------------
Audited Audited Audited
------------- ------------ ------------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash $300,944 $123,097 $2,818,719
Other receivable 228,203 171,261 36,047
---------- --------- ----------
Total current assets 529,147 294,358 2,854,766
---------- --------- ----------
FURNITURE AND EQUIPMENT, NET 294,905 267,231 100,163
---------- --------- ----------
Total assets $824,052 $561,589 $2,954,929
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
CURRENT LIABILITIES:
Accounts payable $481,955 $442,889 $709,758
Due to C3D Inc. 2,465,764 - -
Due to related parties 194,481 422,790 531,067
Due to shareholder 241,490 - 4,152,521
Other 1,063,533 565,192 147,980
---------- --------- ----------
Total current liabilities 4,447,223 1,430,871 5,541,326
---------- --------- ----------
Commitments and contingencies
Long term liabilities:
Leases 44,429 46,825 26,345
Severance pay 11,221 - -
---------- --------- ----------
55,650 46,825 26,345
---------- --------- ----------
Stockholders' Deficit:
Common stock, $0.015 par value; 10,000,000 shares
authorized, 1,250,000 issued and outstanding 18,519 18,519 3
Additional paid in capital 4,870,021 4,870,021 -
Deficit accumulated during the development stage (8,567,361) (5,804,647) (2,612,745)
---------- --------- ----------
Total stockholders' deficit (3,678,821) (916,107) (2,612,742)
---------- --------- ----------
Total liabilities and stockholders' deficit $824,052 $561,589 $2,954,929
========== ========= ==========
------------ ------------
Director Director
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS (in US$)
<TABLE>
<CAPTION>
Cumulative
amounts from Three
inception months
(September 25, Year ended ended
1997) through Nine months ended December December
September 30, September 30, 31, 31,
------------------ ------------------------- ---------- ----------
1999 1999 1998 1998 1997
------------------ ---------- ----------- ---------- ----------
Audited Audited Unaudited Audited Audited
------------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development $4,674,638 $1,717,983 $951,371 $1,534,948 $1,491,707
General and administrative 3,703,804 906,140 1,132,622 1,660,477 1,067,187
---------- ---------- ---------- ---------- ----------
Total operating expenses 8,378,442 2,624,123 2,083,993 3,195,425 2,558,894
---------- ---------- ---------- ---------- ----------
Interest (income) expense 173,457 126,591 240 (6,985) 53,851
Taxes 15,462 12,000 - 3,462 -
---------- ---------- ---------- ---------- ----------
Net loss ($8,567,361) ($2,762,714) ($2,084,233) ($3,191,902) ($2,612,745)
---------- ---------- ---------- ---------- ----------
Net loss per common share -
basic and diluted ($2.21) ($10,421.16) ($20.41) ($13,063.73)
---------- ---------- ---------- ----------
Weighted average number of
common shares outstanding 1,250,000 200 156,425 200
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. Operations:
Constellation Technology Ltd. a British Virgin Island company, and
Subsidiaries ("the Company") was incorporated on July 1, 1999. In
contemplation of the proposed asset purchase agreement with C3D Inc., as
discussed in Note 5, Constellation 3D Holdings Limited ("Constellation")
transferred its operations and all assets and liabilities to the Company,
on September 19, 1999. The comparative figures shown in the financial
statements have been taken from previous financial statements of
Constellation.
The Company's subsidiaries are as follows:
TriDStore IP, LLC, a wholly-owned subsidiary, is a Delaware limited
liability company formed on February 2, 1998. It was formerly called "OMD
Devices, LLC" until it filed an amendment to its Certificate of Formation
on March 9, 1999.
TriD Store Inc, a wholly owned subsidiary, is a Delaware Corporation
formed on March 6, 1997.
C-TriD Israel Limited, a wholly owned subsidiary, is an Israeli company
formed on December 2, 1996.
TriD SV, Inc., a wholly owned subsidiary, is a Delaware corporation formed
on August 10, 1998.
Tridistore Limited, a wholly owned subsidiary, is an Israeli corporation
formed on November 27, 1996.
JSC TriD Vostok, a wholly owned subsidiary, is a Russian company formed on
January 15, 1999.
Memory Devices Inc., a 60% owned subsidiary, is a Delaware company formed
on March 8, 1997.
OMD Optical Memory Devices Limited, a 67% owned subsidiary, is an Israeli
corporation formed on November 27, 1996.
The Company has operations in the United States, Israel, and Russia
researching and developing new data storage technology products. They
conduct research and development of optical memory storage technology.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont.):
2. Principles of Consolidation:
The consolidated financial statements include accounts of Constellation
Technology Ltd. and its subsidiaries. All significant inter company
transactions have been eliminated. The results of subsidiaries are
included from the date of incorporation, on the basis that results prior
to the date of incorporation of the holding company are deemed immaterial
in the context of the consolidated financial statements.
Accounting Estimates:
The Company's financial statements are prepared in conformity with
generally accepted accounting principles, which 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 revenue and
expenses during the reporting period. Actual results could differ from the
estimates.
Furniture and Equipment :
Depreciation and amortization are computed utilizing straight-line over
estimated useful lives ranging from approximately 3 to 17 years.
Research and Development:
Costs will be expensed as incurred until technological feasibility has
been obtained, when product design is complete and a working model has
been developed and tested.
Foreign Currency Translation:
The financial statements are expressed in US dollars. Transactions during
the year have been translated at the rate of exchange ruling at the date
of the transaction. Assets and liabilities denominated if foreign
currencies are translated to US dollars at the rates of exchange ruling at
the balance sheet date. The resulting profits or losses are dealt with
through the profit and loss account.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (cont.):
Revenue Recognition:
It is the intent of the Company to enter into licensing, strategic
alliances and joint venture programs with companies that have an
established presence in the data storage market, although no agreements
have been entered into at this time. These partner companies would be
primarily responsible for the production and marketing of the products
developed by the Company. The Company would provide engineering and
technical support in addition to granting usage of its propriety
intellectual property and patented technologies and processes. The Company
intends to focus its activities in the area of research, development, and
the administration of the Company's agreements.
Any revenue derived from future agreements would be recognized over the
term of the underlying agreement, based on appropriate, objective criteria
Income Taxes:
The Company recognizes deferred tax assets and liabilities for the
expected future income tax consequences of events that have been
recognized in a company's financial statements or tax return. Under this
method, deferred tax assets and liabilities are determined based on the
temporary differences between the financial statement carrying amounts and
their tax basis using enacted tax rates in effect in the years in which
the temporary differences are expected to reverse. Valuation allowances
are provided when management determines that the realization of deferred
tax assets is unlikely.
Net loss Per Share:
Basic loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding. Per share information for all
periods has been adjusted to reflect the 100:1 stock split declared on
November 8, 1998. As of September 30, 1999, the Company has no outstanding
options or other common stock equivalents.
NOTE 2 - DEVELOPMENT OPERATIONS:
The Company has been in the development stage since its inception. It has
had no operating revenues to date, has accumulated losses of $8,567,361,
and will require additional working capital to complete its business
development activities and generate revenues adequate to cover operating
and further development expenses. This raises substantial doubt as to the
Company's ability to continue as a going concern.
The Company is currently seeking to raise equity or debt capital in the
initial amount of $5 million with further funding of up to $15 million to
complete research and development on its existing projects. No assurance
can be provided that the Company will be successful in its efforts.
The financial statements do not contain any adjustments that might be
necessary if the Company is unable to continue as a going concern.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTE 3 - FURNITURE AND EQUIPMENT:
Furniture and equipment consists of the following (in US$):
<TABLE>
<CAPTION>
September 30, December 31,
------------ ---------------------------
1999 1998 1997
------------ -------- ---------
<S> <C> <C> <C>
Furniture and equipment $354,848 $306,156 $105,959
Less accumulated depreciation 59,943 38,925 5,796
-------- -------- --------
Furniture and equipment, net $294,905 $267,231 $100,163
======== ======== ========
</TABLE>
NOTE 4 - RELATED TRANSACTION:
In anticipation of the closing of the acquisition as discussed in Note 5. C3D
advanced the Company $2,408,306. The advances are backed by a promissory note to
C3D. All amounts advanced are due on demand with interest thereon at an annual
rate equal to eight percent. Interest expense at September 30, 1999 was $ 57,458
for a total balance owing of $ 2,465,764.
NOTE 5 - SUBSEQUENT EVENTS:
On October 1, 1999, C3D Inc. acquired substantially all of the Company's
operations through an asset purchase agreement for a total consideration of
9,750,000 shares of the Company's $0.001 par value common stock and assumption
of certain liabilities and obligations.
For financial statement purposes, the acquisition will be treated as a reverse
acquisition whereby C3D, Inc. was acquired by Constellation Technology Ltd. and
Subsidiaries, with the balance sheets to be combined using the respective
historical cost bases. The results of operations will include the results of
both companies from the date of acquisition. The unaudited pro forma combined
historical results of operations as though Constellation Tech. had been combined
at the beginning of fiscal 1998 and the nine month period ended September 30,
1999 are as follows:
For the Nine For the Year
Months ended ended
September 30, December 31,
------------- -------------
1999 1998
------------- -------------
UNAUDITED UNAUDITED
------------- -------------
US$
------------------------------
Net loss ($4,851,896) ($3,191,902)
Basic and diluted loss per share ($0.36) ($0.24)
The unaudited pro forma results of operations may not be indicative of results
that would have been obtained had the combination occurred at the beginning of
the periods presented and are not necessarily indicative of future combined
results.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. Operations:
Constellation Technology Ltd. a British Virgin Island company, and
Subsidiaries ("the Company") was incorporated on July 1, 1999. In
contemplation of the proposed asset purchase agreement with C3D Inc., as
discussed in Note 5, Constellation 3D Holdings Limited ("Constellation")
transferred its operations and all assets and liabilities to the Company,
on September 19, 1999. The comparative figures shown in the financial
statements have been taken from previous financial statements of
Constellation.
The Company's subsidiaries are as follows:
TriDStore IP, LLC, a wholly-owned subsidiary, is a Delaware limited
liability company formed on February 2, 1998. It was formerly called "OMD
Devices, LLC" until it filed an amendment to its Certificate of Formation
on March 9, 1999.
TriD Store Inc, a wholly owned subsidiary, is a Delaware Corporation
formed on March 6, 1997.
C-TriD Israel Limited, a wholly owned subsidiary, is an Israeli company
formed on December 2, 1996.
TriD SV, Inc., a wholly owned subsidiary, is a Delaware corporation formed
on August 10, 1998.
Tridistore Limited, a wholly owned subsidiary, is an Israeli corporation
formed on November 27, 1996.
JSC TriD Vostok, a wholly owned subsidiary, is a Russian company formed on
January 15, 1999.
Memory Devices Inc., a 60% owned subsidiary, is a Delaware company formed
on March 8, 1997.
OMD Optical Memory Devices Limited, a 67% owned subsidiary, is an Israeli
corporation formed on November 27, 1996.
The Company has operations in the United States, Israel, and Russia
researching and developing new data storage technology products. They
conduct research and development of optical memory storage technology.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont.):
2. Principles of Consolidation:
The consolidated financial statements include accounts of Constellation
Technology Ltd. and its subsidiaries. All significant inter company
transactions have been eliminated. The results of subsidiaries are
included from the date of incorporation, on the basis that results prior
to the date of incorporation of the holding company are deemed immaterial
in the context of the consolidated financial statements.
Accounting Estimates:
The Company's financial statements are prepared in conformity with
generally accepted accounting principles, which 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 revenue and
expenses during the reporting period. Actual results could differ from the
estimates.
Furniture and Equipment :
Depreciation and amortization are computed utilizing straight-line over
estimated useful lives ranging from approximately 3 to 17 years.
Research and Development:
Costs will be expensed as incurred until technological feasibility has
been obtained, when product design is complete and a working model has
been developed and tested.
Foreign Currency Translation:
The financial statements are expressed in US dollars. Transactions during
the year have been translated at the rate of exchange ruling at the date
of the transaction. Assets and liabilities denominated if foreign
currencies are translated to US dollars at the rates of exchange ruling at
the balance sheet date. The resulting profits or losses are dealt with
through the profit and loss account.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (cont.):
Revenue Recognition:
It is the intent of the Company to enter into licensing, strategic
alliances and joint venture programs with companies that have an
established presence in the data storage market, although no agreements
have been entered into at this time. These partner companies would be
primarily responsible for the production and marketing of the products
developed by the Company. The Company would provide engineering and
technical support in addition to granting usage of its propriety
intellectual property and patented technologies and processes. The Company
intends to focus its activities in the area of research, development, and
the administration of the Company's agreements.
Any revenue derived from future agreements would be recognized over the
term of the underlying agreement, based on appropriate, objective criteria
Income Taxes:
The Company recognizes deferred tax assets and liabilities for the
expected future income tax consequences of events that have been
recognized in a company's financial statements or tax return. Under this
method, deferred tax assets and liabilities are determined based on the
temporary differences between the financial statement carrying amounts and
their tax basis using enacted tax rates in effect in the years in which
the temporary differences are expected to reverse. Valuation allowances
are provided when management determines that the realization of deferred
tax assets is unlikely.
Net loss Per Share:
Basic loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding. Per share information for all
periods has been adjusted to reflect the 100:1 stock split declared on
November 8, 1998. As of September 30, 1999, the Company has no outstanding
options or other common stock equivalents.
NOTE 2 - DEVELOPMENT OPERATIONS:
The Company has been in the development stage since its inception. It has
had no operating revenues to date, has accumulated losses of $8,567,361,
and will require additional working capital to complete its business
development activities and generate revenues adequate to cover operating
and further development expenses. This raises substantial doubt as to the
Company's ability to continue as a going concern.
The Company is currently seeking to raise equity or debt capital in the
initial amount of $5 million with further funding of up to $15 million to
complete research and development on its existing projects. No assurance
can be provided that the Company will be successful in its efforts.
The financial statements do not contain any adjustments that might be
necessary if the Company is unable to continue as a going concern.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTE 3 - FURNITURE AND EQUIPMENT:
Furniture and equipment consists of the following (in US$):
<TABLE>
<CAPTION>
September 30, December 31,
------------ ---------------------------
1999 1998 1997
------------ -------- ---------
<S> <C> <C> <C>
Furniture and equipment $354,848 $306,156 $105,959
Less accumulated depreciation 59,943 38,925 5,796
-------- -------- --------
Furniture and equipment, net $294,905 $267,231 $100,163
======== ======== ========
</TABLE>
NOTE 4 - RELATED TRANSACTION:
In anticipation of the closing of the acquisition as discussed in Note 5. C3D
advanced the Company $2,408,306. The advances are backed by a promissory note to
C3D. All amounts advanced are due on demand with interest thereon at an annual
rate equal to eight percent. Interest expense at September 30, 1999 was $ 57,458
for a total balance owing of $ 2,465,764.
NOTE 5 - SUBSEQUENT EVENTS:
On October 1, 1999, C3D Inc. acquired substantially all of the Company's
operations through an asset purchase agreement for a total consideration of
9,750,000 shares of the Company's $0.001 par value common stock and assumption
of certain liabilities and obligations.
For financial statement purposes, the acquisition will be treated as a reverse
acquisition whereby C3D, Inc. was acquired by Constellation Technology Ltd. and
Subsidiaries, with the balance sheets to be combined using the respective
historical cost bases. The results of operations will include the results of
both companies from the date of acquisition. The unaudited pro forma combined
historical results of operations as though Constellation Tech. had been combined
at the beginning of fiscal 1998 and the nine month period ended September 30,
1999 are as follows:
For the Nine For the Year
Months ended ended
September 30, December 31,
------------- -------------
1999 1998
------------- -------------
UNAUDITED UNAUDITED
------------- -------------
US$
------------------------------
Net loss ($4,851,896) ($3,191,902)
Basic and diluted loss per share ($0.36) ($0.24)
The unaudited pro forma results of operations may not be indicative of results
that would have been obtained had the combination occurred at the beginning of
the periods presented and are not necessarily indicative of future combined
results.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
C3D INC.
By: /s/ Eugene Levich
------------------------------------------
Eugene Levich, President,
Chief Executive Officer
and Chief Operational Officer
Date: November 12, 1999
----------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
2.1* Asset Purchase Agreement by and between C3D INC., a Florida corporation as
Buyer, CONSTELLATION 3D TECHNOLOGY LIMITED, a British Virgin Islands
corporation, as Seller, TRID STORE, INC., a Delaware corporation and TRID IP
S.A., a Luxembourg corporation dated as of October 1, 1999.
3.1* Articles of Incorporation of Latin Venture Partners, Inc., filed December 27,
1995.
3.2* Articles of Amendment to Latin Venture Partners, Inc., filed August 3, 1998.
3.3* Articles of Amendment to Articles of Incorporation of Latin Venture Partners,
Inc., filed March 24, 1999.
3.4* Bylaws of C3D Inc.
4.1* Investor's Rights Agreement, dated August 10, 1999, by and between C3D Inc.
and Seattle Investments L.L.C.
4.2 Subscription Agreement, dated November 29, 1999, by and between C3D Inc. and
MBA-on-Demand, L.L.C.
4.3 Purchase Agreement, dated November 11, 1999, by and between Wilbro Nominees
Limited and C3D Inc.
4.4 Registration Rights Agreement, dated November 11, 1999, by and between
Wilbro Nominees Limited and C3D Inc.
4.5 Warrant dated November 11, 1999 issued to Moorwood Investment Limited
4.6 Purchase Agreement, dated as of December 24, 1999, by and between Winnburn
Advisory and C3D Inc.
4.7 Registration Rights Agreement, dated as of December 24, 1999, by and between
Winnburn Advisory and C3D Inc.
10.1* Rental Contract, Unprotected According to the Tenant's Protection Law (Various
Instructions) of 1968 as Drafted into the Tenant's Protection Law
(Consolidated Version) of 1972, made and signed in Tel Aviv on March 25,
1997.
10.2 Rental Contract, Unprotected According to the Tenant's Protection Law (Various
Instructions) of 1968 as Drafted into the Tenant's Protection Law
(Consolidated Version) of 1972, made and signed in Tel Aviv on February 8,
1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
10.3* Agreement N. 356/181298 on the rent of office premises, dated December 18,
1998 between MACHMIR Co., Ltd. as "Lessor" and ZAO "TriD Store Vostok" as
"Renter."
10.4* The Rent Agreement, No. 5/8, dated July 5, 1999, between MSO Science Park as
"Lessor" and ZAO "TriD Store Vostok" as "Tenant."
10.5* Attachment No. 1 to The Rent Agreement, No. 518, dated July 5, 1999, between
MSO Science Park as "Lessor" and ZAO "TriD Store Vostok" as "Tenant."
10.6 Sublease Agreement, dated November 18, 1999, by and between Harex Global
Corporation, as lessor, and C3D Inc., as lessee.
10.7* Optima Services Agreement (Member), dated April 23, 1999, by and between Omni
Offices Inc. and C3D Inc.
10.8* Employment Agreement dated July 15, 1998, by and between Memory Services
(M.D.) (1996) Ltd. and Ronen Yaffe.
10.9 Letter of Intent, dated December 20, 1999, by and between Toolex
International N.V. and C3D Inc.
10.10 Co-Invention Agreement, dated December, 20, 1999, by and between Toolex
International N.V. and C3D Inc.
16.1 Auditor's Regisration letter dated December 20, 1999.
21.1+ Subsidiaries of the Registrant
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* Previously Filed.
+ The subsidiaries of C3D and their places of organization are listed in the
Business section of this Registration Statement.
<PAGE>
THE SECURITIES EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR CERTAIN STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND SUCH STATE LAWS AS MAY BE APPLICABLE, OR
DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED. ADDITIONAL RESTRICTIONS ON TRANSFER OF
THE SECURITIES ARE SET FORTH IN THIS AGREEMENT.
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT is dated as of November 29, 1999 (the
"Agreement") between C3D INC., a corporation organized under the laws of Florida
(the "Company"), and MBA-on-Demand, L.L.C., a limited liability company
organized under the laws of Texas ("MBA").
BACKGROUND
WHEREAS, pursuant to that certain Engagement Letter, dated as of May
23, 1999, by and between the Company and MBA and the Business Plan Development
Proposal attached thereto (collectively, the "Engagement Letter"), MBA performed
services for the Company related to the preparation of the Company's business
plan for which the Company agreed to compensate MBA $15,000 in cash and 2,500
shares (the "Shares") of common stock, par value $.001 per share (the "Common
Stock"), of the Company at a price of $11.50 per share; and
WHEREAS, as consideration for services rendered pursuant to the
Engagement Letter and in accordance with the terms and conditions herein, the
Company hereby grants to MBA the Shares.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and in the Engagement Letter and for the other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. SUBSCRIPTION FOR SHARES.
MBA hereby subscribes for and shall receive the Shares on the
terms and conditions set forth in this Subscription Agreement. The Company is a
Florida corporation and trades on the National Association of Securities Dealers
Over-the-Counter Bulletin Board under the Symbol "CDDD."
<PAGE>
2. PURCHASE PRICE.
The aggregate purchase price for the Shares is $28,750 (the
"Purchase Price"), which MBA has tendered in the form of services rendered
pursuant to the Engagement Letter.
3. REPRESENTATIONS AND WARRANTIES AS TO SUITABILITY STANDARDS.
MBA hereby represents and warrants that:
(a) MBA has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
prospective investment in the Company;
(b) MBA is acquiring the Shares for its own account, not on
behalf of other persons, and for investment and not with a view to resale or
distribution;
(c) MBA can bear the economic risk of losing its entire
investment;
(d) MBA's overall commitment to investments which are not
readily marketable is not disproportionate to MBA's net worth, MBA's investment
in the Shares will not cause such overall commitment to become excessive, and
the investment is suitable for MBA when viewed in light of its other securities
holdings, financial situation and needs;
(e) MBA has adequate means of providing for its current needs
and personal contingencies;
(f) MBA has evaluated all the risks of investment in the
Company;
(g) MBA has experience in making investment decisions of this
type;
(h) MBA understands the business in which the Company is to be
engaged;
(i) MBA otherwise meets any special suitability standards
applicable to Texas, MBA's state of incorporation;
4. TRANSFER RESTRICTIONS.
(a) MBA represents that it understands that the sale or
transfer of the Shares are severely restricted and that:
-2-
<PAGE>
(i) The Shares have not been registered under the
Securities Act, or the laws of any other jurisdiction. The Shares cannot be sold
or transferred by it unless the Shares are subsequently registered under the
applicable law or an exemption from registration is available. The Company is
not required to register the Shares or to make any exemption from registration
available;
(ii) The right to sell or transfer any of the Shares
will be restricted as set forth in a legend on the certificate representing the
Shares which requires that MBA furnish an opinion of counsel that any proposed
sale or transfer by him will not violate applicable securities laws; and
(iii) There is presently no public market for the
Shares and MBA may not be able to sell the Shares. Accordingly, MBA must bear
the economic risk of his investment for an indefinite period of time.
(b) MBA agrees that it will not sell or offer to sell or
transfer the Shares or any part thereof or interest therein without registration
under the Securities Act and applicable state securities laws or an exemption
from such registration.
5. MBA'S REPRESENTATIONS AND WARRANTIES.
MBA represents and warrants that:
(a) MBA has received a copy of the Company's registration
statement on Form 10 as filed with the SEC (as defined in Section 6(a)) on
November 12, 1999 (the "Form 10") and has been furnished with all documents and
information regarding the Company which it has requested;
(b) MBA has had the opportunity to ask questions of and has
received answers from the Company concerning the Company and the Shares and to
obtain any additional information necessary to verify the accuracy of the
information furnished;
(c) MBA has relied only on the foregoing information and
documents in determining to make this subscription;
(d) Any information furnished by the Company does not
constitute investment, accounting, legal or tax advice and MBA is relying on
professional advisers for such advice;
(e) All documents, records and books pertaining to MBA's
investment have been made available for inspection by MBA and by MBA's attorney,
and/or accountant and/or representative, and the books and records of the
Company will be available upon reasonable notice for inspection by investors
during reasonable business hours at the Company's principal place of business;
-3-
<PAGE>
(f) MBA and its advisors (which advisors do not include the
Company or its principals, representatives or counsel) have such knowledge and
experience in legal, financial and business matters as to be capable of
evaluating the merits and risks of investing in the Company and of making an
informed investment decision;
(g) MBA recognizes that any investment in the Company involves
substantial risk and has evaluated and fully understands such risks in its
decision to purchase the Shares hereunder; and
(h) MBA understands, acknowledges and agrees that the Company
is relying solely upon the representations and warranties made herein in
determining to grant MBA the Shares.
6. REGISTRATION RIGHTS.
(a) For purposes of this Section 6:
(i) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities
Act, and the declaration or ordering of effectiveness of such registration
statement or document.
(ii) The term "Registrable Securities" means (i) the
Common Stock, and (ii) any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in (i) and (ii) above, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his or her rights under this Section 6 are not assigned.
(iii) The term "SEC" shall mean the Securities and
Exchange Commission.
(b) If at any time after the Form 10 has been declared
effective by the SEC the Company proposes to register any of the Common Stock or
other equity securities in connection with the public offering of such
securities solely for cash (other than a registration relating solely to
employee benefit plans, or a registration relating solely to an SEC Rule 145
transaction, or a registration on any registration form which does not permit
secondary sales), the Company shall, subject to the provisions of Section 6(d),
automatically and without the need for notice from MBA, cause to be registered
under the Securities Act all of the Registrable Securities held by MBA; provided
that, the Company shall cause the Registrable Securities held by MBA to be
registered on or before May 11, 2000 in connection with certain registration
rights granted to Wilbro Nominees Limited ("Wilbro") pursuant to that certain
Registration Rights Agreement by and between the Company and Wilbro dated
November 11, 1999.
-4-
<PAGE>
(c) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Section 6 with respect to the
Registrable Securities of MBA that MBA shall, within thirty (30) days of receipt
of written notice from the Company, furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of MBA's Registrable Securities.
(d) In connection with any offering involving an underwriting
of shares of the Company's capital stock, the Company shall not be required
under Section 6(b) to include any of MBA's securities in such underwriting
unless it accepts the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it, and then only in such quantity as
the underwriters determine in their sole discretion will not, jeopardize the
success of the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by shareholders to be included in
such offering exceeds the amount of securities sold other than by the Company
that the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned pro
rata among the selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling shareholder or in such
other proportions as shall mutually be agreed to by such selling shareholders).
(e) MBA shall not have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 6.
(f) MBA hereby agrees that, during the period of duration
specified by the Company and an underwriter of the Common Stock or other
securities of the Company, following the effective date of a registration
statement of the Company filed under the Securities Act, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration; provided, however, that:
-5-
<PAGE>
(i) such agreement shall be applicable only to the
first such registration statement effected by the Company which covers the
Common Stock or other securities of the Company to be sold on its behalf to the
public in an underwritten offering;
(ii) all officers and directors of the Company and
all other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements;
(iii) such market stand-off time period shall not
exceed one hundred eighty (180) days;
(iv) in order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Registrable
Securities of Investor (and the shares or securities of every other person
subject to the foregoing restriction) until the end of such period; and
(v) notwithstanding the foregoing, the obligations
described in this Section 6(f) shall not apply to a registration relating solely
to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be
promulgated in the future, or a registration relating solely to a Commission
Rule 145 transaction on Form S-14 or Form S-15 or similar forms which may be
promulgated in the future.
(f) MBA shall not be entitled to exercise any right provided
for in this Section 6 (a) after one (1) year following the date on which the
Form 10 is declared effective by the SEC or (b) at such time following such
effective date and for so long as MBA may sell all of its Registrable Securities
in any single three (3) month period pursuant to Rule 144 (or such successor
rule as may be adopted).
7. INDEMNIFICATION AND HOLD HARMLESS.
MBA and the Company each agrees that if it breaches any
agreement, representation or warranty it has made in this Agreement, it agrees
to indemnify and hold harmless the other against any claim, liability, loss,
damage or expense (including attorneys' fees and other costs of investigating
and litigating claims) caused, directly or indirectly, by its breach.
8. GENERAL.
(a) Assignment. MBA's rights in this Agreement may not be
assigned, transferred, or otherwise hypothecated, pledged, borrowed upon, used
as security for a loan, alienated, or otherwise encumbered without the prior
written approval of the Company. Notwithstanding the foregoing, MBA's
obligations under this Agreement are binding upon MBA's heirs, representatives,
and administrators.
-6-
<PAGE>
(b) Governing Law. This Agreement, and its interpretation and
enforcement, shall be governed by the laws of the State of Florida, without
regard to the conflicts or choice of law provisions of such State.
(c) Notices. Notices given hereunder shall be deemed to have
been duly given on the date of personal delivery or on the date of postmark if
sent by certified or registered mail, return receipt requested or express
overnight courier service, to the party being notified at his or its address
specified on the signature page hereto or such other address as the addressee
may subsequently notify the other parties of in writing. Copies of all notices
shall also be sent simultaneously to Alan L. Zeiger, Esquire, Blank Rome Comisky
& McCauley LLP, One Logan Square, Philadelphia, Pennsylvania 19103, telecopy:
215-569-5628 and J.S. Wilson, III, Esquire, Wyatt, Tarrant & Combs, Crescent
Center, 6075 Poplar Avenue, Suite 650, Memphis, Tennessee 08119-4721, telecopy
number (901) 537-1010. Such copies shall not constitute sufficient notice
pursuant to this Paragraph 8.
(d) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Delivery by Facsimile. This Agreement and each other
agreement or instrument entered into in connection herewith or contemplated
hereby, and any amendments hereto, to the extent signed and delivered by means
of a facsimile machine, shall be treated in all manner and respects as an
original agreement or instrument and shall be considered to have the same
binding legal effect as if it were the original signed version thereof delivered
in person. At the request of any party hereto or to any such agreement or
instrument, each other party hereto or thereto shall reexecute original forms
thereof and deliver them to all other parties. No party hereto or to any such
agreement or instrument shall raise the use of a facsimile machine to deliver a
signature or the fact that any signature or agreement or instrument was
transmitted or communicated through the use of a facsimile machine as a defense
to the formation or enforceability of a contract and each such party forever
waives any such defense.
* * *
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first above written.
C3D INC.
By: /s/ Eugene Levich
--------------------------------------
Eugene Levich
President and Chief Executive Officer
Address: 235 West 76th Street, Suite 8D
New York, NY 10023
Telecopy: 212-580-4021
MBA-ON-DEMAND, L.L.C.
By: /s/ Craig E. Nadel
--------------------------------------
Craig E. Nadel
Principal
Address: 15705 Quorum Dr. Suite 3329
Addison, TX 75001
Telecopy: 972-720-9222
-8-
<PAGE>
================================================================================
C3D INC.
$500,000
8.0% Series B Convertible Note due October 31, 2001
------------------------------
PURCHASE AGREEMENT
------------------------------
Dated as of November 11, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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1. AUTHORIZATION OF ISSUE OF THE CONVERTIBLE NOTE...........................................................1
2. PURCHASE AND SALE OF THE CONVERTIBLE NOTE................................................................1
2A. Purchase and Sale...............................................................................1
2B. Registration Rights Agreement...................................................................1
2C. Closing.........................................................................................1
3. CONDITIONS OF CLOSING....................................................................................2
3A. Registration Rights Agreement...................................................................2
3B. Articles of Incorporation and By-laws...........................................................2
3C. Purchase Permitted by Applicable Laws...........................................................2
3D. Compliance with Securities Laws.................................................................2
3E. Proceedings.....................................................................................3
3F. Material Changes................................................................................3
4. AFFIRMATIVE COVENANTS....................................................................................3
4A. Use of Proceeds.................................................................................3
4B. Books and Records; Inspection of Property.......................................................3
4C. Stock to be Reserved............................................................................3
4D. Corporate Existence; Maintenance of Properties..................................................4
4E. Further Assurances..............................................................................4
5. EVENTS OF DEFAULT........................................................................................4
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................5
6A. Organization Qualification and Authority........................................................5
6B. Capital Stock and Related Matters...............................................................5
6C. Offering of the Convertible Note................................................................6
6D. Broker's or Finder's Commissions................................................................6
7. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR...........................................................6
8. CONVERSION OF THE CONVERTIBLE NOTE.......................................................................7
8A. Conversion Price................................................................................7
8B. Fractional Shares; Accrued Interest; Partial Conversion.........................................8
8C. Adjustment of Price and Adjustment of Number of Shares
of Common Stock Issuable upon Conversion........................................................8
8D. Stock to be Reserved............................................................................9
8E. Listing of Common Stock.........................................................................9
8F. Closing of Books................................................................................9
</TABLE>
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<TABLE>
<CAPTION>
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9. DEFINITIONS.............................................................................................10
10. MISCELLANEOUS...........................................................................................10
10A. Provisions Applicable if the Convertible Note is Sold..........................................10
10B. Restrictive Legends............................................................................11
10C. Persons Deemed Owners..........................................................................11
10D. Successors and Assigns.........................................................................11
10E. Notices........................................................................................11
10F. Descriptive Headings...........................................................................12
10G. Governing Law; Consent to Jurisdiction.........................................................12
10H. Entire Agreement...............................................................................12
10I. Severability...................................................................................12
10J. Amendments.....................................................................................12
10K. Payment Date...................................................................................13
10L. Counterparts...................................................................................13
10M. Delivery by Facsimile..........................................................................13
</TABLE>
EXHIBITS
Exhibit A Form of Convertible Note
Exhibit B Form of Registration Rights Agreement
-ii-
<PAGE>
C3D INC.
PURCHASE AGREEMENT
----------------
Dated as of
November 11, 1999
----------------
To the Investor:
The undersigned, C3D INC., a Florida corporation (the "Company"), and
the investor listed on the signature page hereto (the "Investor"), hereby agree
as follows:
1. AUTHORIZATION OF ISSUE OF THE CONVERTIBLE NOTE.
The Company will authorize the issuance, sale and delivery of
its 8.0% Series B Convertible Note (the "Convertible Note") in the principal
amount of $500,000 and convertible into that number of shares of Common Stock of
the Company, par value $.001 per share (the "Common Stock"), as set forth in
Section 8 hereof, to mature on October 31, 2001 (the "Maturity Date") and to
bear interest on the unpaid balances thereof from the date of the Convertible
Note at the rate of 8.0% per annum payable in arrears in shares of Common Stock
until the principal thereof shall become due and payable. Such Convertible Note
shall be substantially in the form of Exhibit "A" attached hereto.
2. PURCHASE AND SALE OF THE CONVERTIBLE NOTE.
2A. Purchase and Sale. The Company hereby agrees to sell to
the Investor and, subject to the terms and conditions herein set forth, the
Investor agrees to purchase from the Company, the Convertible Note. The purchase
price of the Convertible Note purchased and sold hereunder shall be 100% of the
principal amount thereof.
2B. Registration Rights Agreement. The Convertible Note shall
be issued pursuant to the terms and conditions of that certain Registration
Rights Agreement, of even date herewith, by and between the Company and the
Investor (the "Registration Rights Agreement") under which the Investor has been
granted certain rights with respect to the registration of Common Stock.
2C. Closing. The purchase and delivery of the Convertible Note
shall take place at a closing (the "Closing") at the offices of Blank Rome
Comisky & McCauley LLP, at 10:00 a.m., local time, on November 11, 1999 (or at
such other time and place or on such other Business Day thereafter as the
parties hereto shall agree) (herein called the "Closing Date"). On the Closing
Date, the Company will deliver the Convertible Note payable to or registered in
the name of the Investor and/or the Investor's nominee or other designee
specified on the signature page hereof, against receipt of the purchase price
therefor by wire transfer to the Company c/o Blank Rome Comisky & McCauley LLP,
Commerce Bank New Jersey, Attention: CBPA, Account Number 28208000, ABA Routing
Number 031201360. If at the Closing, the Company shall, in breach of this
Agreement, fail to tender to the Investor the Convertible Note or if any of the
conditions specified in Section 3 hereof shall not have been satisfied or waived
by the Investor, the Investor shall, at its election, be relieved of all further
obligations under this Agreement without thereby waiving any other rights it may
have by reason of such failure or such non-fulfillment. Notwithstanding anything
to the contrary, the obligation of the Company to deliver the Convertible Note
to the Investor at the Closing shall be conditioned on the concurrent receipt by
the Company of the purchase price of the Convertible Note from the Investor.
<PAGE>
3. CONDITIONS OF CLOSING.
The Investor's obligation to purchase and pay for the
Convertible Note to be purchased by it hereunder is subject to the satisfaction,
on or before the Closing Date, of the following conditions:
3A. Registration Rights Agreement. The Investor shall have
received a fully executed counterpart of the Registration Rights Agreement,
substantially in the form of Exhibit "B" attached hereto, and such Registration
Rights Agreement shall be in full force and effect and no term or condition
thereof shall have been amended, waived or modified.
3B. Articles of Incorporation and By-laws. The Investor shall
have received a certificate, dated the Closing Date, of the Secretary of the
Company attaching (i) true and complete copies of the Articles of Incorporation
of the Company as filed with the appropriate state officials of its jurisdiction
of incorporation with all amendments thereto, (ii) true and complete copies of
the By-laws of the Company in effect as of such date, (iii) certificates of good
standing of the appropriate officials of the jurisdiction of incorporation of
the Company, and (iv) resolutions of the Board of Directors of the Company
authorizing (a) the execution, delivery and performance of this Agreement, (b)
the authorization, issuance and delivery of the Convertible Note and (c) the
reservation for issuance of a sufficient number of shares of Common Stock into
which the Convertible Note may be converted to permit such conversion.
3C. Purchase Permitted by Applicable Laws. The purchase of and
payment for the Convertible Note shall not be prohibited by any applicable law
or governmental regulation (including, without limitation, Regulations G, T and
X of the Board of Governors of the Federal Reserve System) and shall not subject
the Investor to any tax, penalty, liability or other onerous condition under or
pursuant to any applicable law or governmental regulation.
3D. Compliance with Securities Laws. The offering and sale of
the Convertible Note under this Agreement shall have complied with all
applicable requirements of federal and state securities laws.
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<PAGE>
3E. Proceedings. All required corporate and other proceedings
taken or required to be taken in connection with the transactions contemplated
hereby and all documents incident thereto shall be reasonably satisfactory in
form and substance to the Investor and its counsel.
3F. Material Changes. Since October 15, 1999, there shall not
have been any changes in the business of the Company which could reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect,
nor shall there have been any development or discovery or any material
contingency or other liability which could have such effect.
4. AFFIRMATIVE COVENANTS.
All covenants contained herein shall be given independent
effect so that if a particular action or condition is not permitted by any such
covenant, the fact that such action or condition would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or condition
exists. The provisions of this Section 4 are for the benefit of the Investor so
long as it holds the Convertible Note and for the benefit of each other
successor holder of the Convertible Note.
4A. Use of Proceeds. The proceeds of the sale of the
Convertible Note shall be used to fund (i) capital expenditures, payroll and
working capital requirements for the completion of prototype development and the
commercial release of the Clear Card and mass storage product(s), (ii) costs
associated with the creation of new facilities in the United States and the
relocation of existing facilities and certain key scientists to the United
States, and (iii) expenditures for maintaining existing patents and for filing
new patent applications.
4B. Books and Records; Inspection of Property. The Company
will keep proper books of record and account in which full, true and correct
entries in conformity in all material respects with GAAP shall be made of all
dealings and transactions in relation to their business and activities. The
Company will, upon reasonable advance notice, permit any Person representing the
holder of the Convertible Note and designated in writing by such holder, at such
holder's expense, to visit and inspect any of the properties of the Company
during normal business hours in a manner which does not unduly interrupt the
normal course of business, to examine the corporate, financial and operating
records of the Company and make copies thereof or extracts therefrom and to
discuss the affairs, finances and accounts of any of such corporations with the
directors, officers and independent accountants of the Company, all at such
reasonable times and as often as the holders may reasonably request.
4C. Stock to be Reserved. The Company covenants that all
shares of Common Stock that may be issued upon conversion of the Convertible
Note will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof. The
Company further covenants that during the period within which the Convertible
Note may be converted, the Company will at all times have authorized and
reserved a sufficient number of shares of Common Stock to permit the conversion
of the Convertible Note.
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<PAGE>
4D. Corporate Existence; Maintenance of Properties. The
Company (i) will do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, rights and franchises,
(ii) will cause its properties and the properties to be maintained and kept in
good condition, repair and working order (ordinary wear and tear excepted) and
will cause to be made all necessary repairs, renewals, replacements, betterments
and improvements thereto, and (iii) will qualify and remain qualified to conduct
business in each jurisdiction where the nature of the business of or ownership
of property by the Company may require such qualification and where the failure
to be so qualified would have a Material Adverse Effect.
4E. Further Assurances. The Company shall cooperate with the
Investor and execute such further instruments and documents as the Investor
shall reasonably request to carry out to the satisfaction of the Investor the
transactions contemplated by this Agreement.
5. EVENTS OF DEFAULT.
If any of the following events shall occur and be continuing
for any reason whatsoever (and whether such occurrence shall be voluntary or
involuntary or come about or be effected by operation of law or otherwise):
(i) the Company defaults in the payment of any
principal or interest of or premiums (if any) on the Convertible Note when the
same shall become due, either by the terms thereof or otherwise as herein
provided and such default shall continue unremedied for ten (10) or more days
after notice by the Investor;
(ii) the Company defaults, in the performance or
observance of any of the agreements contained in Section 4 or in the performance
or observance of any other agreement, term or condition contained herein or in
the Related Agreements and any such default shall not have been remedied within
thirty (30) days (or if such default is not reasonably capable of cure within
thirty (30) days, the Company will have taken steps reasonably calculated to
cure such default within such thirty (30) day period) after such default shall
first become known to any officer of the Company;
(iii) any decree or order for relief in respect of
the Company is entered under any Bankruptcy Law of any jurisdiction; or the
Company petitions or applies to any tribunal for, or consents to, the
appointment of, or taking possession by, a trustee, receiver, custodian,
liquidator or similar official of the Company, of any substantial part of the
assets of the Company, or commences a voluntary case under the Bankruptcy Law of
the United States or any proceedings relating to the Company under the
Bankruptcy Law of any other jurisdiction;
then upon the occurrence and during the continuation of (a) any Event of Default
described in clause (i) above with respect to the Convertible Note, the holder
of the Convertible Note may, by written notice to the Company, declare the
Convertible Note to be, and the same shall thereupon be and become, forthwith
due and payable, together with the interest accrued thereon, without
presentment, further demand, protest or other requirements of any kind, all of
which are hereby expressly waived by the Company; (b) any Event of Default
described in clause (ii) above with respect to the Convertible Note, the holder
of the unpaid principal amount of the Convertible Note may, at its option and in
addition to any right, power or remedy permitted by law or equity, by notice in
writing to the Company, declare the Convertible Note to be, and the same shall
thereupon be and become, forthwith due and payable, together with interest
accrued thereon; and (c) any Event of Default described in clause (iii) above
with respect the Convertible Note, the unpaid principal amount of and accrued
interest on the Convertible Note outstanding shall automatically become
immediately due and payable, without presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by the
Company.
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<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Investor that:
6A. Organization Qualification and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida and is duly qualified to do business as a foreign
corporation and in good standing in each jurisdiction in which the character of
its properties or the nature of its business makes such qualification necessary,
except where the failure to so qualify would not have a Material Adverse Effect.
The Company has the corporate power to own its properties and to carry on its
business as now being conducted. The Company has all requisite corporate power
and authority to enter into this Agreement, to issue and sell the Convertible
Note hereunder, and to issue the shares of Common Stock upon conversion of the
Convertible Note and has the requisite corporate power and authority to carry
out the transactions contemplated hereby and thereby to be performed by it, and
the execution, delivery and performance hereof and thereof have been duly
authorized by all necessary corporate action. This Agreement constitutes, and
each other agreement or instrument (including the Convertible Note) executed and
delivered by the Company pursuant hereto or thereto or in connection herewith or
therewith will constitute, legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws or by the
application of principles of equity.
6B. Capital Stock and Related Matters. The authorized capital
stock of the Company consists of 50,000,000 shares of Common Stock. As of
November 11, 1999, after giving effect to the completion of the Asset Purchase
Agreement, dated as of September 30, 1999, by and among the Company,
Constellation 3D Technology Limited, a British Virgin Islands corporation, TriD
Store, Inc., a Delaware corporation, and TriD IP S.A., a Luxembourg corporation,
not more than 15,000,000 shares of Common Stock will be issued and outstanding.
Except for (i) the right to acquire Common Stock granted to MBA-on Demand,
L.L.C. pursuant to that certain Engagement Letter dated May 23, 1999, (ii) the
options granted to General Itzhak Yaakov and Michael Goldberg, each directors of
the Company, to purchase 100,000 shares and 75,000 shares, respectively, of
Common Stock (the "Options") pursuant to a resolution of the Compensation
Committee of the Board of Directors dated June 17, 1999, and (iii) the warrants
to purchase 100,000 shares of Common Stock (the "Warrants") granted to Moorwood
Investment Limited, a British Virgin Islands Corporation ("Moorwood") pursuant
to that certain Letter Agreement, of even date herewith, by and between the
Company and Moorwood (the "Letter Agreement"), there are no outstanding
subscriptions, options, warrants, convertible securities in regard to the
authorized but unissued Common Stock. All issued and outstanding shares of
Common Stock shall have been duly and validly issued, fully paid and
nonassessable.
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<PAGE>
6C. Offering of the Convertible Note. The offer, sale and
issuance of the Convertible Note pursuant to this Agreement does not require
registration of such security under the Securities Act or registration or
qualification under any applicable state "blue sky" or securities laws (or if so
required, has been so registered or qualified).
6D. Broker's or Finder's Commissions. Except for the fee in
the amount of 20% of all monies raised pursuant to this Agreement to be paid by
the Company to Moorwood pursuant to the Letter Agreement, no broker's or
finder's fee or commission will be payable by the Company with respect to the
issuance and sale of the Convertible Note or the transactions contemplated
hereby.
7. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor represents and warrants that: (i) it is acquiring
the Convertible Note to be purchased by it hereunder for its own account for the
purpose of investment and not with a view to or for sale in connection with any
distribution thereof; provided, however, that nothing herein contained shall
prevent the Investor, upon written notice to the Company explaining in
reasonable detail the transfer or proposed transfer, from selling or
transferring the Convertible Note in any transaction that, in the opinion of its
special counsel, is exempt from the registration provisions of the Securities
Act; (ii) it has full power and authority to enter into and perform its
obligations under this Agreement and that this Agreement has been duly
authorized, executed and delivered by a Person authorized to do so; (iii) it has
carefully reviewed the representations and warranties concerning the Company,
its business and its personnel; the Company has made available to it any and all
written information which it has requested and has answered to such Investor's
satisfaction all inquiries made by it; (iv) it has adequate net worth and means
of providing for its current needs and personal contingencies to sustain a
complete loss of its investment in the Company; (v) its overall commitment to
investments which are not readily marketable is not disproportionate to its net
worth; (vi) its investment in the Convertible Note will not cause such overall
commitment to become excessive; (vii) it has not relied upon any financial
projections received from the Company in connection with the transactions
contemplated by this Agreement; (viii) it is an Accredited Investor within the
definition set forth in Rule 501(a) promulgated under the Securities Act; (ix)
it is not making this investment as a result of any form of general solicitation
or general advertising; (x) this Agreement constitutes the valid and binding
obligation of the Investor enforceable in accordance with its terms; and (xi)
the execution of and performance of the transactions contemplated by this
Agreement and compliance with its provisions by it will not violate any
provision of law applicable to the Investor and will not conflict with or result
in any breach of any of the terms, conditions or provisions of, or constitute a
default under any agreement or other instrument to which such Investor is a
party or by which he is bound, or any decree, judgment, order, statute, rule or
regulation application to it.
-6-
<PAGE>
8. CONVERSION OF THE CONVERTIBLE NOTE.
8A. Conversion Price. (i) Subject to and upon compliance with
the provisions hereof, the holder of the Convertible Note shall have the right,
at such holder's option, at any time after May 11, 2000 to convert all or any
part of the principal amount of such Convertible Note into Common Stock, subject
to the provisions of subsection 8A(ii) below, at the price of the lesser of (A)
the average Market Price of the Common Stock as posted on the NASD OTC Bulletin
Board over a period of twenty (20) trading days preceding any applicable date of
conversion (the "Conversion Date") less a discount of 20%, or (B) the average
Market Price of the Common Stock as posted on the NASD OTC Bulletin Board over a
period of twenty (20) days preceding any applicable Conversion Date (such price
being referred to herein as the "Initial Conversion Price"), provided that, in
the event of (A) above, no discount shall apply unless such average market price
of the Common Stock is at least $5.00 per share, or, in case an adjustment of
such price has taken place pursuant to the further provisions of this Section 8,
then at the price as last adjusted and in effect at the date such Convertible
Note is surrendered for conversion (such Conversion Price or (if any adjustment
has been made pursuant to this Section 8) such price as last adjusted, as the
case may be, being referred to herein as the "Conversion Price").
(ii) Subject to and upon compliance with the
provisions hereof, the holder of the Convertible Note shall have the right to
convert, to the extent permissible under the Securities Act, (A) 40% of the
aggregate principal amount of the Convertible Note into Registered Securities
(as defined in the Registration Rights Agreement) on or after May 11, 2000, such
percentage increasing by increments of 10% monthly on the eleventh of each month
until November 11, 2000, at which time the holder of Convertible Note shall have
the right to convert all of the principal amount of the Convertible Note into
Registered Securities, or (B) all of the principal amount of the Convertible
Note in the event that the Company enters into a registration rights agreement
with Sands Brothers which contains terms more favorable than those provided
herein; provided, that in the event that the Company fails to register the
necessary shares of Common Stock to comply with the above, but not in the event
that such registration is not permissible under the Securities Act in the
opinion of the Securities and Exchange Commission after best efforts to register
such shares have been made by the Company, the holder of the Convertible Note
shall be entitled to receive the value in cash of an additional two percent (2%)
of the Registered Securities such holder was entitled to receive pursuant to the
terms hereof for the first thirty (30) days and three percent (3%) of such
Registered Securities for each thirty (30) days thereafter until the Company has
fully complied with this Section 8 and the terms and conditions of the
Registration Rights Agreement. For example, assuming a Conversion Price of $16
per share, the Investor would be entitled to receive $4,000 in cash for the
first thirty (30) days after May 11, 2000 calculated as follows: $200,000 (40%
of the Convertible Note) divided by $16 (Conversion Price) equals 12,500 shares,
multiplied by 2% penalty equals 250 additional shares of Registered Securities,
multiplied by $16 equals $4,000. In accordance with the terms of the
Registration Rights Agreement, the Company shall as expeditiously as practicable
after the Closing Date prepare and file with the Securities and Exchange
Commission a registration statement under the Securities Act, as more fully
described in the Registration Rights Agreement.
(iii)In order to exercise such conversion right the
holder shall surrender (in person or by mail) the Convertible Note to the
Company at its office designated in subsection 10E (or such other office or
agency as the Company may designate by notice in writing to the holder of the
Convertible Note), together with a written notice that the holder elects to
convert the Convertible Note, or a specified principal amount thereof, in
accordance with the provisions of this Section 8. Such notice shall also state
the name or names (with addresses) in which the certificate or certificates for
Common Stock shall be issued. To the extent permitted by law, such conversion
shall be deemed to have been effected and the Conversion Price shall be
determined as of the close of business on the date by which the events set forth
in this subsection 8A(iii) have occurred. The Convertible Note surrendered for
conversion shall be accompanied by the necessary instruments of transfer
thereof.
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<PAGE>
8B. Fractional Shares; Accrued Interest; Partial Conversion.
No fractional shares shall be issued upon conversion of the Convertible Note. At
the time of the conversion, the Company shall pay in cash all interest accrued
and unpaid on the principal amount of the Convertible Note or specified portion
thereof surrendered for conversion to the date upon which the conversion is
deemed to take place as provided in subsection 8A.
8C. Adjustment of Price and Adjustment of Number of Shares of
Common Stock Issuable upon Conversion.
(i) If the number of shares of Common Stock
outstanding at any time hereafter is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, following the record date fixed for the determination of holders of
Common Stock entitled to receive such stock dividend, subdivision or split-up,
the Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of the Convertible Note shall be
increased in proportion to such increase in outstanding shares.
(ii) If at any time hereafter the number of shares of
Common Stock outstanding is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date for such combination, the
Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of the Convertible Note shall be
decreased in proportion to such decrease in outstanding shares.
(iii) If at any time hereafter any reorganization,
reclassification of the capital stock of the Corporation (other than a change in
par value or from par value to no par value or from no par value to par value or
as a result of a stock dividend or subdivision, split-up or combination
of-shares), consolidation or merger (including a merger in which the Company is
the surviving entity), then the Convertible Note shall (in lieu of being
convertible for shares of Common Stock) after such reorganization,
reclassification, consolidation or merger be exercisable into the kind and
number of shares of stock or other securities or property (including cash) of
the Company or of the corporation resulting from such consolidation or surviving
such merger to which the holder of the number of shares of Common Stock
deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation or merger) upon conversion of the Convertible
Note would have been entitled upon such reorganization, reclassification,
consolidation or merger. The provisions of this subsection shall similarly apply
to successive reorganizations, reclassifications and other transactions
contemplated above.
(iv) All calculations under this subsection 8D shall
be made to the nearest cent ($.01) or to the nearest one-tenth of a share, as
the case may be.
(v) In any case in which the provisions of this
subsection 8D shall require that an adjustment of the Conversion Price shall
become effective immediately after a record date for an event, the Company may,
until the occurrence of such event, defer issuing to the holder of the
Convertible Note converted after such record date and before the occurrence of
such event the additional shares of capital stock issuable upon such conversion
by reason of the adjustment required by such event over and above the shares of
capital stock issuable upon conversion before giving effect to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
-8-
<PAGE>
(vi) (a) If any event occurs of the type
contemplated by the provisions of this subsection 8D but not expressly provided
for by such provisions, the Board of Directors of the Company will make
appropriate adjustments to the terms and conditions of the Convertible Note as
may be necessary fully to carry out the adjustments contemplated by this
subsection 8D.
(b) The Company will not, by amendment of
its Articles of Incorporation or Bylaws or through any reorganization, transfer
of assets, reclassification, merger, dissolution, issue or sale of securities or
otherwise, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed by the Company hereunder but will at all times
in good faith assist in the carrying out of all the provisions hereof and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the holder of the Convertible Note against impairment.
8D. Stock to be Reserved. The Company will at all times
reserve, free from any preemptive rights, and keep available out of its
authorized Common Stock, solely for the purpose of issue upon the exercise of
Convertible Note as herein provided, such number of shares of Common Stock as
shall then be issuable upon the conversion of the Convertible Note. The Company
covenants and agrees that all shares of Common Stock which shall be so issuable
will, upon issuance, be duly authorized and issued, fully paid and nonassessable
and, where required pursuant to Subsection 8A(ii), registered under the
Securities Act.
8E. Listing of Common Stock. If any shares of Common Stock
required to be reserved for purposes of conversion of the Convertible Note
hereunder require listing on any securities exchange before such shares may be
issued upon exercise, the Company will cause such Common Stock to be duly listed
on such securities exchange immediately prior to the issuance of such shares.
8F. Closing of Books. The Company will not close its books
against the issuance or transfer of any shares of Common Stock issuable upon
conversion of the Convertible Note.
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<PAGE>
9. DEFINITIONS.
For the purpose of this Agreement, and in addition to terms
defined elsewhere in this Agreement, the following terms shall have the
following meanings. In addition, all terms of an accounting character not
specifically defined herein shall have the meanings assigned thereto by
accounting principles generally accepted in the United States of America.
"Bankruptcy Law" shall mean any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation or
similar law, whether now or hereafter in effect.
"Business Day" shall mean any day which is not a Saturday, Sunday or
day on which banks are authorized by law to close in the State of New York.
"Default" shall mean any of the events specified in Section 5 hereof,
whether or not any requirement for the giving of notice, the lapse of time, or
both, or any of these conditions, event or act has been satisfied.
"Events of Default" shall mean any of the events specified in Section
5, provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act.
"Market Price" shall mean the average of the high and low bid prices
for the Common Stock on a given trading day as reported on the NASD OTC Bulletin
Board.
"Material Adverse Effect" shall mean (i) a material adverse effect on
the business, condition (financial or other), assets, properties, rights,
operations or prospects of the Company or (ii) any effect which could materially
adversely affect the ability of the Company to perform its obligations under
this Agreement.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
"Related Agreements" shall mean the Letter Agreement, the Warrants, the
Convertible Note and the Registration Rights Agreement.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended.
10. MISCELLANEOUS.
10A. Provisions Applicable if the Convertible Note is Sold.
The parties acknowledge that, subject to compliance with applicable securities
laws, the Investor shall be free to transfer the Convertible Note without
restriction. In the event that the Investor should sell or otherwise transfer
the Convertible Note or any part thereof to any Person other than the Company,
and such holder shall have designated in writing the address to which
communications with respect to the Convertible Note shall be mailed, all
notices, certificates, requests, statements and other documents required to be
delivered to the Investor by any provision hereof by reason of the holding of
the transferred Convertible Note shall also be delivered to such holder at such
address.
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<PAGE>
10B. Restrictive Legends. The Convertible Note shall bear the
following (or substantially equivalent) legend on the face or reverse side
thereof:
"THE CONVERTIBLE NOTE REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS, AND THIS CONVERTIBLE NOTE MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT AND SUCH LAWS AND THE RESPECTIVE
RULES AND REGULATIONS THEREUNDER."
In addition, the shares of Common Stock issuable upon conversion of the
Convertible Note shall bear at the time of issuance a legend in substantially
the form set forth above and any legend required by the state securities or
"Blue Sky" laws of any state in which a registered holder thereof is resident,
unless such shares have been registered under the Securities Act.
10C. Persons Deemed Owners. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name the
Convertible Note is registered as the owner and holder of such Convertible Note
for the purpose of receiving payment of principal of (and premium, if any) and
interest on such security and for all other purposes whatsoever, whether or not
such Convertible Note shall be overdue, and the Company shall not be affected by
notice to the contrary.
10D. Successors and Assigns. Except as otherwise provided
herein, all covenants and agreements in this Agreement contained by or on behalf
of the parties hereto shall bind and inure to the benefit of the respective
successors, transferees and assigns of the parties hereto whether so expressed
or not.
10E. Notices. All communications provided for hereunder shall
be sent by first class mail, overnight courier or by fax with hard copy by first
class mail or overnight courier and, if to the Investor, addressed to it c/o
Moorwood Investment Limited, Bison Court, P.O. Box 8460, Road Town, Tortola,
British Virgin Islands, telecopy number (284) 494-6728, with a copy (which shall
not constitute notice) to David J. Levenson, McGuire, Woods, Battle & Boothe,
LLP, 1050 Connecticut Avenue, N.W., Suite 1200, Washington, D.C. 20036, telecopy
number (202) 857-1737; if to the Company, addressed to it at 235 West 76th
Street, Suite 8D, New York, New York 10023, telecopy number (212) 580-4021, with
a copy (which shall not constitute notice) to Alan L. Zeiger, Esquire, at Blank
Rome Comisky & McCauley LLP, One Logan Square, Philadelphia, Pennsylvania 19103,
telecopy number (215) 569-5628; or to such other address with respect to any
party as such party shall notify the other in writing; provided, however, that
any such communication to the Company may also, at the option of the Investor,
be either delivered to the Company at its address set forth above or to any
executive officer of the Company.
-11-
<PAGE>
10F. Descriptive Headings. The descriptive headings of the
several Sections and subsections of this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.
10G. Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS
BEING DELIVERED AND IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE
PARTIES SHALL BE GOVERNED BY, THE LAW OF SUCH STATE WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW OR CONFLICTS OF LAW PRINCIPLES THEREOF. THIS AGREEMENT IS
EFFECTIVE ONLY WHEN DELIVERED AND ENTERED INTO BY THE INVESTOR IN THE STATE OF
NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. THE COMPANY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY
AT ITS ADDRESS SET FORTH IN SUBSECTION 10E, SUCH SERVICE TO BECOME EFFECTIVE
THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
THE INVESTOR OR ANY HOLDER OF A SECURITY TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE COMPANY IN ANY OTHER JURISDICTION.
10H. Entire Agreement This Agreement and the other writings
referred to herein or delivered pursuant hereto contain the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior and contemporaneous arrangements or understandings with respect thereto.
10I. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10J. Amendments. This Agreement may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
10K. Payment Date. Notwithstanding any provision of this
Agreement to the contrary, any payment on account of principal of (and premium,
if any) or interest on the Convertible Note which is due on a date which is not
a Business Day shall be paid on the next succeeding Business Day, and the amount
of interest included in any such payment shall be computed to the date on which
such payment is actually made.
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<PAGE>
10L. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
10M. Delivery by Facsimile. This Agreement, the Related
Agreements, and each other agreement or instrument entered into in connection
herewith or therewith or contemplated hereby or thereby, and any amendments
hereto or thereto, to the extent signed and delivered by means of a facsimile
machine, shall be treated in all manner and respects as an original agreement or
instrument and shall be considered to have the same binding legal effect as if
it were the original signed version thereof delivered in person. At the request
of any party hereto or to any such agreement or instrument, each other party
hereto or thereto shall reexecute original forms thereof and deliver them to all
other parties. No party hereto or to any such agreement or instrument shall
raise the use of a facsimile machine to deliver a signature or the fact that any
signature or agreement or instrument was transmitted or communicated through the
use of a facsimile machine as a defense to the formation or enforceability of a
contract and each such party forever waives any such defense.
10O. Dispute Resolution. All claims, demands, disputes,
controversies, differences, or misunderstandings between the parties arising out
of, by virtue of, or in connection with, this Agreement shall first be
negotiated, in good faith, by the parties, and, if an acceptable resolution does
not result, shall then be submitted to, determined and finally settled by
arbitration before the International Chamber of Commerce (the "ICC"), in
accordance with the provisions of this Section 10O. The parties agree that the
rules of the ICC then obtaining for commercial arbitration shall govern any
arbitration under this Agreement, except that to the extent there is any
conflict between this Section 10O and such rules, this Section shall govern. The
panel shall be composed of three (3) arbitrators, with one (1) arbitrator being
appointed by each party. The two arbitrators so appointed shall appoint the
third. In the event that the arbitrators can not, after good faith discussions,
agree upon a third arbitrator, the third arbitrator shall be appointed by the
ICC. The decision and award of a majority of the arbitrators shall be the
decision and award of the panel. Such decision and award shall be final and
binding by the parties. All hearings and proceedings in the arbitration shall
take place in New York City, New York and shall be governed by the substantive
law of the State of New York. This agreement to arbitrate may be specifically
enforced by any party. At any time before a decision of the arbitration panel
has been rendered, the parties may resolve the matter before the panel by
settlement. Each party shall bear the fees of such party's witnesses and such
party's own counsel. The other fees and expenses of the arbitration shall be
borne in accordance with the arbitration award. In the absence of any award or
designation within the award, such costs and fees shall be borne equally by the
parties.
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
C3D INC.
By: /s/ Eugene Levich
-------------------------------------
Eugene Levich
President and Chief Executive Officer
WILBRO NOMINEES LIMITED
By: /s/
-------------------------------------
Name:
Title: Secretary
[SIGNATURE PAGE TO SERIES B CONVERTIBLE NOTE PURCHASE AGREEMENT
DATED NOVEMBER 11, 1999]
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<PAGE>
EXHIBIT A
THE CONVERTIBLE NOTE REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS, AND THIS CONVERTIBLE NOTE MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND SUCH
LAWS AND THE RESPECTIVE RULES AND REGULATIONS THEREUNDER.
C3D INC.
8.0% Series B Convertible Note
due October 31, 2001
CR-1 November 11, 1999
$500,000
FOR VALUE RECEIVED, the undersigned, C3D INC., a corporation organized
and existing under the laws of the State of Florida (herein called the
"Company"), hereby promises to pay to WILBRO NOMINEES LIMITED, a company
organized under the laws of England, or registered assigns, the principal sum of
FIVE HUNDRED THOUSAND DOLLARS ($500,000) (such sum, together with interest
capitalized pursuant to the following sentence, the "Principal") on October 31,
2001. Interest on the unpaid Principal balance at the rate of 8.0% per annum
(computed on the basis of a 360-day year of twelve 30-day months) shall be
added in arrears to the Principal.
Payments of both Principal and interest are to be made at the address
shown on the Company's registry or at such other place as the holder hereof
shall designate to the Company in writing, in lawful money of the United States
of America.
This Note may be prepaid in whole or in part at anytime or from time to
time without premium or penalty.
This Convertible Note is issued pursuant to that certain Purchase
Agreement, dated as of November 11, 1999 (the "Agreement"), by and between the
Company and the Investor named on the signature page thereof and is entitled to
the benefits of the Agreement.
This Convertible Note is a registered Convertible Note and, as provided
in the Agreement, upon surrender of this Convertible Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer duly
executed, by the registered holder hereof or his attorney duly authorized in
writing, a new Convertible Note for a like principal amount will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
<PAGE>
Convertible Note is registered as the owner hereof for the purpose of receiving
payment and for all other purposes, and the Company shall not be affected by any
notice to the contrary.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the Principal of this Convertible Note may be declared due
and payable in the manner and with the effect provided in the Agreement. The
Company agrees to pay, and save the holder hereof harmless against any liability
for, any expenses, including reasonable attorney's fees, arising in connection
with the enforcement by the holder hereof of any of its rights under this
Convertible Note or the Agreement.
Payment of Principal, premium (if any) and interest in respect of this
Convertible Note are subordinate, to all principal of and interest on "Senior
Debt."
"Senior Debt" shall mean all obligations (whether now outstanding or
hereafter incurred) for the payment of which the Company is responsible or
liable as obligor, guarantor or otherwise in respect of the principal, premium
(if any), and unpaid interest on and all other amounts due with respect to
Indebtedness incurred by the Company so long as such Indebtedness is not
subodinated to any other Indebtedness of the Company and the terms of which do
not restrict this Company's ability to pay any and all amounts due under this
Convertible Note. The following shall not constitute Senior Debt: (a)
Indebtedness evidenced by this Convertible Note or any extension or refunding
thereof, (b) Indebtedness which is expressly made equal in right of payment with
this Convertible Note or subordinate and subject in right of payment to this
Convertible Note or (c) Indebtedness which purports to be senior to subordinated
debt, including this Convertible Note, but subordinate to the Indebtedness
described in the first sentence of this paragraph.
This Convertible Note is convertible into shares of Common Stock (as
defined in the Agreement) on the terms and conditions set forth in paragraph 8
of the Agreement.
This Convertible Note is intended to be performed in the State of New
York, and shall be construed and enforced in accordance with the law of such
State, without giving effect to the conflicts or choice of law principles of
such State.
CD3 INC.
By: /s/ Eugene Levich
---------------------------------
Eugene Levich
President and Chief Executive Officer
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made this 11th day of November 1999, by and between
C3D Inc., a Florida corporation (the "Company"), and Wilbro Nominees Limited
("Wilbro").
W I T N E S S E T H:
WHEREAS, the Agreement is executed contemporaneously with that certain
Purchase Agreement, of even date herewith, by and between the Company and Wilbro
(the "Purchase Agreement") pursuant to which the Company will sell to Wilbro its
8.0% Series B Convertible Note due October 31, 2001 (the "Convertible Note") in
principal amount of Five Hundred Thousand Dollars ($500,000) subject to certain
conditions. Capitalized terms used and not defined herein shall have the
meanings ascribed to them in the Purchase Agreement; and
WHEREAS the Company has agreed to grant certain registration rights to
Wilbro in connection with the Registrable Stock (as hereinafter defined),
subject to the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the covenants contained herein, and
other good and valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, and intending to be legally bound hereby, the
Company and Wilbro agree as follows:
1. Registration.
1.1 Certain Definitions. As used in this Agreement the following
terms shall be have the following meanings:
(a) "1933 Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(b) "1934 Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect at the time.
(c) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the 1933 Act.
(d) "Register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the 1933 Act, and the declaration or ordering of the
effectiveness of such registration statement.
(e) "Registered Securities" shall mean the common stock, par
value $.001 per share, of the Company (the "Common Stock") as registered with
the Commission in compliance with the 1933 Act.
<PAGE>
(f) "Registrable Securities" shall mean (i) the Common Stock,
and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in (i) and (ii) above, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his or her rights under this Paragraph 1 are not assigned.
(g) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company and Wilbro, blue
sky fees and expenses, expenses of any regular or special audits incident to or
required by any such registration and fees and disbursements of counsel retained
by Wilbro, but shall not include Selling Expenses.
(h) "Rule 145" shall mean Rule 145 as promulgated by the
Commission under the 1933 Act, as such Rule may be amended from time to time, or
any similar successor rule that may be promulgated by the Commission.
(i) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of the Registrable Securities.
1.2 Company Registration.
(a) If the Company shall determine to register any of the Common
Stock or other equity securities for its own account, other than (1) a
registration relating solely to employee benefit plans or to a Rule 145
transaction, or (2) a registration on a registration form that does not permit
secondary sales, the Company shall (i) promptly give to Wilbro written notice of
the proposed registration and (ii) use its best efforts to include in such
registration (and in any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, any and all the
Registrable Securities of the same class or classes as the securities to be
registered by the Company specified in a written request made by Wilbro within
thirty (30) days after Wilbro receives such written notice from the Company,
except as set forth in Paragraph 1.2(b).
(b) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company shall so
advise Wilbro as a part of the written notice given pursuant to Paragraph
1.2(a). In such event the right of Wilbro to registration pursuant to Paragraph
1.2(a) shall be subject to the provisions of Paragraph 1.7. If Wilbro proposes
to distribute its Registrable Securities through such underwriting, it shall,
together with the Company, enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Wilbro may elect not to be included in the registration by delivering
written notice to the Company at least seven days prior to the effective date of
the registration statement.
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<PAGE>
(c) The right of Wilbro to include its Registrable Securities in
any registration pursuant to this Paragraph 1.2 shall commence on May 11, 2000
and shall terminate on December 31, 2000.
1.3 Right to Registered Securities.
(a) All Common Stock received by Wilbro pursuant to the
conversion of any portion of the Convertible Note by Wilbro shall be registered
as of the date on which Wilbro will have the right to convert such portion of
the Convertible Note to Common Stock.
(b) Pursuant to the Purchase Agreement Wilbro shall have the
right to convert (A) 40% of the aggregate principal amount of the Convertible
Note into Registered Securities on or after May 11, 2000, such percentage
increasing by increments of 10% monthly on the eleventh of each month until
November 11, 2000, at which time the holder of Convertible Note shall have the
right to convert all of the principal amount of the Convertible Note into
Registered Securities, or (B) all of the principal amount of the Convertible
Note in the event that the Company enters into a registration rights agreement
with Sands Brothers which contains terms more favorable than those provided
herein; provided, that in the event that the Company fails to register the
necessary shares of Common Stock to comply with the above, but not in the event
that such registration is not permissible under the 1933 Act in the opinion of
the Commission after best efforts to register such shares have been made by the
Company, the holder of the Convertible Note shall be entitled to receive the
value in cash of an additional two percent (2%) of the Registered Securities
such holder was entitled to receive pursuant to the terms hereof for the first
thirty (30) days and three percent (3%) of such Registered Securities for each
thirty (30) days thereafter until the Company has fully complied with this
Paragraph 1.3 and the terms and conditions of the Purchase Agreement. For
example, assuming a Conversion Price (as defined in the Purchase Agreement) of
$16 per share, Wilbro would be entitled to receive $4,000 in cash for the first
thirty (30) days after May 11, 2000 calculated as follows: $200,000 (40% of the
Convertible Note) divided by $16 (Conversion Price) equals 12,500 shares,
multiplied by 2% penalty equals 250 additional shares of Registered Securities,
multiplied by $16 equals $4,000.
1.4 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Paragraphs 1.2 or 1.3 hereof shall be borne by the Company. All Selling Expenses
relating to Registrable Securities registered by Wilbro shall be borne by Wilbro
pro rata on the basis of the number of shares of Registrable Securities so
registered on its behalf.
1.5 Registration Procedures. If and whenever the Company is under an
obligation pursuant to the provisions of Paragraphs 1.2 or 1.3 to use its best
efforts to effect the registration of any Registrable Securities, the Company
shall as expeditiously as practicable:
-3-
<PAGE>
(a) prepare and file with the Commission a registration
statement, including a registration statement under Rule 415 of the 1933 Act, or
any similar rule that may be adopted by the Commission, if applicable, with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective in accordance with clause (b) hereof;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
at least nine (9) months and to comply with the provisions of the 1933 Act with
respect to the sale or other disposition of all Registrable Securities covered
by such registration statement;
(c) furnish to Wilbro such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the 1933 Act, and such other documents as
Wilbro may reasonably request in order to facilitate the public sale or other
disposition of such Registrable Securities;
(d) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions as Wilbro shall reasonably request; provided,
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions;
(e) notify Wilbro, at any time when a prospectus relating
thereto covered by such registration statement is required to be delivered under
the 1933 Act within the appropriate period mentioned in clause (b) hereof, of
the happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact in order to make the statements
therein in light of the circumstances under which they were made, not misleading
and at the request of Wilbro, prepare and furnish to Wilbro a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein in
light of the circumstances under which they were made, not misleading; and
(f) furnish, at the request Wilbro, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to Paragraphs 1.2 or 1.3, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to Wilbro; and (ii) a
letter dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters, if any, and to
Wilbro.
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<PAGE>
1.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Paragraph 1 with
respect to the Registrable Securities of Wilbro that Wilbro shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required to effect the registration of Wilbro's Registrable Securities.
1.7 Cessation of Offering. Upon receipt of any notice from the
Company of the happening of any event of the kind described in Paragraphs 1.5(e)
or 4, Wilbro shall immediately discontinue disposition of the shares of
Registrable Securities or Registered Securities, pursuant to the registration
statement covering such shares until Wilbro's receipt of the copies of the
supplemented or amended prospectus contemplated by Paragraphs 1.5(e) or 4, and,
if so directed by the Company, Wilbro shall deliver to the Company all copies of
the prospectus covering such shares in Wilbro's possession at the time of
receipt of such notice.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's equity securities, the
Company shall not be required under Paragraph 1.2(b) to include any of Wilbro's
securities in such underwriting unless Wilbro accepts the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it, and then only in such quantity as the underwriters determine in their sole
discretion will not, jeopardize the success of the offering by the Company. If
the total amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders).
1.9 Delay of Registration. Wilbro shall not have any right to take
any action to restrain, enjoin or otherwise delay any registration as a result
of any controversy that may arise with respect to the interpretation or
implementation of this Agreement.
-5-
<PAGE>
1.10 Indemnification.
(a) In the event of any registration of any Registrable
Securities under the 1933 Act or registration or qualification of any
Registrable Securities pursuant to Paragraphs 1.2 or 1.3 and to the extent
permitted by law, the Company shall indemnify and hold harmless Wilbro, each
underwriter, if any, each broker or any other person acting on behalf of Wilbro
and each other person, if any, who controls any of the foregoing persons, within
the meaning of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which any of the foregoing persons, may become subject
under the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (each a "Violation"): (i)
an untrue statement or alleged untrue statement of a material fact contained in
any registration statement under which such Registrable Securities were
registered under the 1933 Act, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or any document
prepared and/or furnished by the Company incident to the registration or
qualification of any Registrable Securities pursuant hereto, (ii) the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or, with
respect to any prospectus, necessary to make the statements therein in light of
the circumstances under which they were made, not misleading, or (iii) any
violation by the Company of the 1933 Act or state securities or "blue sky" laws
applicable to the Company and relating to action or inaction required of the
Company in connection with such registration or qualification under such state
securities or "blue sky" laws; and shall reimburse Wilbro, any underwriter,
broker or other person acting on behalf of Wilbro and each controlling person
for any legal or any other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon a Violation made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by Wilbro or such underwriter specifically for use in
the preparation thereof, and provided further that the indemnity agreement
contained in this Paragraph 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld).
(b) Before Registrable Securities held by Wilbro shall be
included in any registration pursuant to this Agreement, Wilbro and any
underwriter acting on his behalf shall have agreed to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Paragraph
1.10(a)) the Company, each director of the Company, each officer of the Company
who shall sign such registration statement and any person who controls the
Company within the meaning of the 1933 Act, and each agent and any underwriter
for the Company (within the meaning of the 1933 Act) against any losses, claims,
damages, or liabilities to which the Company or any such director, officer,
controlling person, agent, or underwriter may become subject, under the 1933 Act
or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any untrue statement
of any material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or omission was made in such registration
statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by Wilbro expressly for use in connection with such registration; and Wilbro
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, agent, or underwriter in
connection with investigating or defending any such loss, claim, damage,
liability, or action;, provided, however, that the indemnity agreement contained
in this Paragraph 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of Wilbro (which consent shall not be unreasonably
withheld).
-6-
<PAGE>
(c) Promptly after receipt by an indemnified party under this
Paragraph 1.10 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this paragraph, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires to assume
the defense thereof with counsel mutually satisfactory to the parties. The
failure to notify an indemnifying party promptly of the commencement of any such
action, if prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
paragraph, but the omission so to notify the indemnifying party will not relieve
him of any liability that he may have to any indemnified party otherwise than
under this paragraph.
(d) If the indemnification provided for in this Paragraph 1.10
is held by a court of competent jurisdiction to be unavailable to an indemnified
party, with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage which resulted in such loss, liability, claim, damage
or expense as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
-7-
<PAGE>
1.11. Information by Wilbro. Wilbro shall furnish to the Company such
information as the Company reasonably requests in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in Paragraphs 1.2 or 1.3 of this Agreement.
1.12. Reports under Securities Exchange Act of 1934. With a view to
making available to Wilbro the benefits of Rule 144 under the 1933 Act and any
other rule or regulation of the Commission that may at any time permit Wilbro to
sell securities of the Company to the public without registration, the Company
agrees to use its best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its equity securities to the general public;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act; and
(c) furnish to Wilbro so long as Wilbro owns any of the
Registrable Securities forthwith upon request a written statement by the Company
that it has complied with the reporting requirements of the 1933 Act and the
1934 Act, a copy of the most recent annual or quarterly report of the Company,
and such other reports and documents filed by the Company as may be reasonably
requested in availing Wilbro of any rule or regulation of the Commission
permitting the selling of any such securities without registration.
Provided, however, that the obligations of the Company under this
Paragraph 1.9 shall be suspended during any period during which its compliance
with such obligations is not required by Rule 144 to enable Wilbro to sell such
Registrable Securities, without limitation on amount.
2. Rights Granted to Subsequent Investors. The Company shall not grant
registration rights to future investors in the Company that are inconsistent
with the rights granted herein without the written consent of Wilbro.
3. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may only be
assigned by Wilbro to a transferee or assignee of such securities, provided: (a)
the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
(b) such transferee or assignee agrees in writing to be bound by and subject to
the terms and conditions of this Agreement; and (c) such assignment shall be
effective only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the 1933 Act.
-8-
<PAGE>
4. Other Transactions. The Company may suspend Wilbro's rights to make
sales pursuant to a registration statement at any time when the Board of
Directors of the Company reasonably believes that (i) due to pending or proposed
corporate developments including, without limitation, a pending or proposed
acquisition, merger, recapitalization, consolidation, reorganization or similar
transaction, or negotiations, discussions or pending proposals related thereto
(herein, a "Corporate Development"), or due to public filings with the
Commission, or due to any other similar events, it is advisable to defer the
effectiveness of the registration statement or request the withdrawal of the
effective registration statement, or (ii) the filing of the registration
statement or the offering of securities pursuant thereto would materially and
adversely affect a Corporate Development or be seriously detrimental to the
Company and its shareholders. The Company shall notify Wilbro if any of the
events described in clauses (i) and (ii) of this Paragraph 4 (herein, a
"Black-Out-Event") are applicable, in which case Wilbro shall be prohibited from
(x) disclosing to any person or entity the existence of Black-Out-Event or any
information related thereto, and (y) during the pendency of a Black-Out Event,
trading any of the shares of Common Stock held by Wilbro until either (I)
receipt by Wilbro of the supplemented or amended prospectus contemplated by
Paragraph 1.5(e) or (II) they are advised in writing by the Company that the use
of the applicable prospectus may be resumed, and Wilbro has received copies of
any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such prospectus. The Company shall use its
reasonable efforts to insure that the use of the prospectus may be resumed as
soon as practicable.
5. Termination of Registration Rights. Wilbro shall not be entitled to
exercise any rights provided for in this Agreement after the earlier of (a)
December 31, 2000, (b) the date on which all of Wilbro's Registrable Securities
or Registered Securities have been disposed of, or (c) such time at which Wilbro
may transfer all of its Registrable Securities in any single three (3) month
period pursuant to Rule 144 (or such successor rule as may be adopted).
6. Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
7. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York without giving effect to choice of law
or conflicts of law principles thereof.
8. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
-9-
<PAGE>
9. Notices. Notices given hereunder shall be deemed to have been duly
given on the date of personal delivery or on the date of postmark if sent by
certified or registered mail, return receipt requested or express overnight
courier service, to the party being notified at his or its address specified on
the signature page hereto or such other address as the addressee may
subsequently notify the other parties of in writing. Copies of all notices shall
also be sent simultaneously to Alan L. Zeiger, Esquire, Blank Rome Comisky &
McCauley LLP, One Logan Square, Philadelphia, Pennsylvania 19103, telecopy:
215-569-5628 and David J. Levenson, Esquire, McGuire, Woods, Battle & Boothe,
LLP, 1050 Connecticut Avenue, N.W., Suite 1200, Washington, D.C. 20036,
telecopy: 202-857-1737. Such copies shall not constitute sufficient notice
pursuant to this Paragraph 9.
10. Amendments and Waivers. Any amendment or waiver effected in
accordance with this Agreement shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
11. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
12. Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. Delivery by Facsimile. This Agreement and each other agreement or
instrument entered into in connection herewith or contemplated hereby, and any
amendments hereto, to the extent signed and delivered by means of a facsimile
machine, shall be treated in all manner and respects as an original agreement or
instrument and shall be considered to have the same binding legal effect as if
it were the original signed version thereof delivered in person. At the request
of any party hereto or to any such agreement or instrument, each other party
hereto or thereto shall reexecute original forms thereof and deliver them to all
other parties. No party hereto or to any such agreement or instrument shall
raise the use of a facsimile machine to deliver a signature or the fact that any
signature or agreement or instrument was transmitted or communicated through the
use of a facsimile machine as a defense to the formation or enforceability of a
contract and each such party forever waives any such defense.
-10-
<PAGE>
15. Dispute Resolution. All claims, demands, disputes, controversies,
differences, or misunderstandings between the parties arising out of, by virtue
of, or in connection with, this Agreement shall first be negotiated, in good
faith, by the parties, and, if an acceptable resolution does not result, shall
then be submitted to, determined and finally settled by arbitration before the
International Chamber of Commerce (the "ICC"), in accordance with the provisions
of this Paragraph 15. The parties agree that the rules of the ICC then obtaining
for commercial arbitration shall govern any arbitration under this Agreement,
except that to the extent there is any conflict between this Paragraph 15 and
such rules, this Paragraph shall govern. The panel shall be composed of three
(3) arbitrators, with one (1) arbitrator being appointed by each party. The two
arbitrators so appointed shall appoint the third. In the event that the
arbitrators can not, after good faith discussions, agree upon a third
arbitrator, the third arbitrator shall be appointed by the ICC. The decision and
award of a majority of the arbitrators shall be the decision and award of the
panel. Such decision and award shall be final and binding by the parties. All
hearings and proceedings in the arbitration shall take place in New York City,
New York and shall be governed by the substantive law of the State of New York.
This agreement to arbitrate may be specifically enforced by any party. At any
time before a decision of the arbitration panel has been rendered, the parties
may resolve the matter before the panel by settlement. Each party shall bear the
fees of such party's witnesses and such party's own counsel. The other fees and
expenses of the arbitration shall be borne in accordance with the arbitration
award. In the absence of any award or designation within the award, such costs
and fees shall be borne equally by the parties.
* * *
-11-
<PAGE>
IN WITNESS WHEREOF, the Company and Wilbro have executed this Agreement
effective as of the date first above written.
C3D INC.
By: /s/ Eugene Levich
--------------------------------------
Eugene Levich
President and Chief Executive Officer
Address: 235 West 76th Street, Suite 8D
New York, NY 10023
Telecopy: 212-580-4021
WILBRO NOMINEES LIMITED
By: /s/
--------------------------------------
Name:
Title: Secretary
Address: _______________________________
_______________________________
Telecopy: _______________________________
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
DATED AS OF NOVEMBER 11, 1999]
-12-
<PAGE>
THE WARRANTS REPRESENTED HEREBY WILL BE VOID AND OF NO VALUE UNLESS EXERCISED
WITHIN THE TIME LIMIT HEREIN PROVIDED.
NON-TRANSFERABLE WARRANTS
C3D INC.
235 West 76th Street
Suite 8D
New York, NY 10023
(Incorporated under the laws of the State of Florida)
Certificate No. 1 Warrants to Purchase
100,000 Common Shares
THIS WARRANT AND THE COMMON SHARES TO BE ISSUED UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
WARRANTS FOR PURCHASE OF COMMON SHARES
THIS IS TO CERTIFY THAT, for value received, Moorwood Investment Limited (the
"Bearer") is entitled to subscribe for and purchase up to 100,000 fully paid and
non-assessable Common Shares (as defined herein) in the capital of C3D Inc. (the
"Company") at any time after full satisfaction by Bearer of all of the terms and
conditions of that certain Letter Agreement, of even date herewith, by and
between the Bearer and the Company, including the successful placement of
financing in the aggregate principal amount of $2,500,000, until 4 p.m. local
time in New York, New York, on December 31, 2002, exercisable at a price of
US$10.00 per share subject, however, to the provisions and upon the terms and
conditions set out below.
The rights to acquire Common Shares granted by this Warrant Certificate may be
exercised by the Bearer, in whole or in part (but not as to a fractional Common
Share), by:
(a) duly completing in the manner indicated and executing the
Subscription Form attached hereto;
(b) delivering and surrendering this Warrant Certificate at the offices
of C3D Inc. at 235 West 76th Street, Suite 8D, New York, NY 10023;
and
(c) concurrently delivering to the Company at its address above a
certified check made payable to C3D Inc. for the amount then due to
the Company for the number of Common Shares purchased on the
exercise of this Warrant Certificate.
<PAGE>
In the event of any exercise of the rights represented by this Warrant
Certificate, certificates for the Common Shares so purchased shall be delivered
to the Bearer within a reasonable time not exceeding three (3) business days
after the rights represented by this Warrant Certificate shall have been so
exercised, and, unless the Warrants have expired, a new Warrant Certificate
granting the right to acquire that number of Common Shares, if any, with respect
to which the Warrants shall not then have been exercised shall also be issued to
the Bearer within such time.
The Company covenants to and agrees with the Bearer that all Common Shares which
may be issued upon the exercise of the rights represented by this Warrant
Certificate shall, upon issuance, be fully paid and non-assessable and free of
all liens, charges and encumbrances. The Company further covenants and agrees
that during the period within which the rights represented by this Warrant
Certificate may be exercised, the Company shall at all times have authorized and
reserved a sufficient number of Common Shares to provide for the exercise of the
rights represented by this Warrant Certificate.
Neither the Warrants represented by this certificate nor the Common Shares
issuable upon exercise hereof have been or will be registered under the
Securities Act.
THE FOLLOWING ARE THE TERMS AND CONDITIONS REFERRED TO IN THIS WARRANT
CERTIFICATE.
1. Upon the occurrence of one or more events involving the capital
reorganization, reclassification, subdivision or consolidation of the capital
stock of the Company, or the merger, amalgamation or other corporate combination
of the Company with one or more other entities, or of any other events in which
new securities of any nature are delivered in exchange for the issued Common
Shares and such issued Common Shares are cancelled (any such event being
referred to as a "Fundamental Change"), then at the time of any exercise of the
Warrants taking place after such Fundamental Change, and in lieu of issuing the
Common Shares which, but for such Fundamental Change and this provision, would
have been issued upon such exercise, the Company or its successor shall issue
instead such number of new securities as would have been delivered as a result
of the Fundamental Change in exchange for those Common Shares which the holder
would have been entitled to receive upon such exercise if such exercise had
occurred prior to the occurrence of the Fundamental Change.
The Company shall not effect any Fundamental Change which will result
in a successor to the Company unless prior to or simultaneously with the
consummation thereof, the entity succeeding the Company acknowledges in writing
that it is bound by and will comply with this provision.
2. As used herein, the term "Common Shares" shall mean and include shares of the
Company's presently authorized common stock, par value $.001 per share; the term
"Warrant Certificate" shall mean this certificate representing the right to
purchase such number of Common Shares as set forth above; and the term
"Warrants" shall mean the warrants of the Company granted pursuant to this
Warrant Certificate.
-2-
<PAGE>
3. The Warrants shall not entitle the Bearer to any rights as a shareholder of
the Company, including without limitation, voting rights.
4. The Warrants and all rights hereunder are not transferable.
5. This Warrant Certificate is exchangeable, upon the surrender hereof by the
Bearer at the offices of the Company, for a new Warrant Certificate of like
tenor representing in the aggregate the right to subscribe for and purchase the
number of Common Shares which may be subscribed for and purchased hereunder,
each of such new Warrant Certificates to represent the right to subscribe for
and purchase such number of Common Shares as shall be designated by the Bearer
at the time of such surrender.
6. In case at any time:
(a) the Company shall pay any dividend payable in stock upon its Common
Shares or make any distribution to the holders of its Common
Shares;
(b) the Company shall offer for subscription pro rata to the holders of
its Common Shares any additional shares of stock of any class or
other rights;
(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(d) in case of any Fundamental Change;
then, and in any one or more of such cases, the Company shall give to the Bearer
at least twenty days' prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution
or subscription rights, or for determining rights to vote with respect to such
Fundamental Change, dissolution, liquidation or winding-up and in the case of
such Fundamental Change, dissolution, liquidation or winding-up, at least
twenty-days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause, shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Shares shall be entitled thereto, and such notice in
accordance with the foregoing shall also specify the date on which the holders
of the Common Shares shall be entitled to exchange their Common Shares for
securities or other property deliverable upon such Fundamental Change,
dissolution, liquidation or winding-up as the case may be. Each such written
notice shall be given by first class mail, registered postage prepaid, addressed
to the Bearer at the address of such Bearer, as shown on the books of the
Company.
7. This Warrant Certificate shall be interpreted in accordance with the laws of
the State of New York, without giving effect to the conflicts or choice of law
principles of such state.
8. The Bearer acknowledges that any Common Shares issued upon exercise of the
Warrant may bear the following legends (in addition to any legend required by
the laws of the jurisdiction in which the Bearer resides):
-3-
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "U.S. SECURITIES ACT"), AND MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED, DIRECTLY
OR INDIRECTLY, WITHOUT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND ALL APPLICABLE STATE SECURITIES LAWS OR COMPLIANCE
WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE, AT THE OPTION
OF THE COMPANY, TO BE EVIDENCED BY AN OPINION OF SHAREHOLDER'S COUNSEL,
IN FORM ACCEPTIBLE TO THE COMPANY, THAT NO VIOLATION OF SUCH
REGISTRATION PROVISIONS WOULD NOT RESULT FROM ANY PROPOSED TRANSFER OR
ASSIGNMENT.
* * *
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed by a duly authorized officer this 11th day of November, 1999.
C3D INC.
/s/ Eugene Levich
-------------------------------------
Eugene Levich
President and Chief Executive Officer
-5-
<PAGE>
SUBSCRIPTION FORM
The undersigned hereby exercises the right to purchase shares and hereby
subscribes for the undernoted number of the Common Shares referred to in this
Warrant Certificate according to the terms and conditions specified therein and
herewith makes payment of the purchase price in full for the said shares.
Number of Payment
Name in full Address Shares Enclosed
DATED at____________________, this__________ day of __________________, 19____.
____________________________
Authorized Signatory
-6-
<PAGE>
================================================================================
C3D INC.
$1,600,000
8.0% Series C Convertible Note due October 31, 2001
-----------------------------
PURCHASE AGREEMENT
------------------------------
Dated as of December 24, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. AUTHORIZATION OF ISSUE OF THE CONVERTIBLE NOTE.........................................................1
2. PURCHASE AND SALE OF THE CONVERTIBLE NOTE..............................................................1
2A. Purchase and Sale.................................................................................1
2B. Registration Rights Agreement.....................................................................1
2C. Closing...........................................................................................1
3. CONDITIONS OF CLOSING..................................................................................2
3A. Registration Rights Agreement.....................................................................2
3B. Articles of Incorporation and By-laws.............................................................2
3C. Purchase Permitted by Applicable Laws.............................................................2
3D. Compliance with Securities Laws...................................................................3
3E. Proceedings.......................................................................................3
3F. Material Changes..................................................................................3
4. SCHEDULED PAYMENTS AND PREPAYMENTS OF THE CONVERTIBLE NOTE.............................................3
4A. Prepayments in General............................................................................3
4B. Mandatory Payments of the Convertible Note........................................................3
4C. Optional Prepayments of the Convertible Note......................................................3
4D. Notice of Optional Prepayments....................................................................3
5. AFFIRMATIVE COVENANTS..................................................................................4
5A. Use of Proceeds...................................................................................4
5B. Additional Financing..............................................................................4
5C. Prior Convertible Note............................................................................4
5D. Books and Records; Inspection of Property.........................................................4
5E. Stock to be Reserved..............................................................................4
5F. Corporate Existence; Maintenance of Properties....................................................5
5G. Further Assurances................................................................................5
6. EVENTS OF DEFAULT......................................................................................5
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................................6
7A. Organization Qualification and Authority..........................................................6
7B. Capital Stock and Related Matters.................................................................6
7C. Offering of the Convertible Note..................................................................7
7D. Broker's or Finder's Commissions..................................................................7
8. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.........................................................7
9. CONVERSION OF THE CONVERTIBLE NOTE.....................................................................7
9A. Conversion Price..................................................................................7
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9B. Fractional Shares; Accrued Interest; Partial Conversion...........................................8
9C. Adjustment of Price and Adjustment of Number of Shares of Common Stock Issuable upon Conversion...8
9D. Stock to be Reserved..............................................................................9
9E. Listing of Common Stock..........................................................................10
9F. Closing of Books.................................................................................10
10.DEFINITIONS...........................................................................................10
11.MISCELLANEOUS.........................................................................................11
11A. Provisions Applicable if the Convertible Note is Sold............................................11
11B. Restrictive Legends..............................................................................11
11C. Persons Deemed Owners............................................................................11
11D. Successors and Assigns...........................................................................11
10E. Notices..........................................................................................12
11F. Descriptive Headings.............................................................................12
11G. Governing Law; Consent to Jurisdiction...........................................................12
11H. Entire Agreement.................................................................................12
11I. Severability.....................................................................................13
11J. Amendments.......................................................................................13
11K. Payment Date.....................................................................................13
11L. Counterparts.....................................................................................13
11M. Delivery by Facsimile............................................................................13
11N. Dispute Resolution...............................................................................13
</TABLE>
EXHIBITS
Exhibit A Form of Convertible Note
Exhibit B Form of Registration Rights Agreement
-ii-
<PAGE>
C3D INC.
PURCHASE AGREEMENT
----------------
Dated as of
December 24, 1999
----------------
To the Investor:
The undersigned, C3D INC., a Florida corporation (the "Company"), and
the investor listed on the signature page hereto (the "Investor"), hereby agree
as follows:
1. AUTHORIZATION OF ISSUE OF THE CONVERTIBLE NOTE
The Company will authorize the issuance, sale and delivery of its
8.0% Series C Convertible Note (the "Convertible Note") in the principal amount
of $1,600,000 and convertible into that number of shares of Common Stock of the
Company, par value $.001 per share (the "Common Stock"), as set forth in Section
8 hereof, to mature on October 31, 2001 (the "Maturity Date") and to bear
interest on the unpaid balances thereof from the date of the Convertible Note at
the rate of 8.0% per annum payable in arrears in shares of Common Stock until
the principal thereof shall become due and payable. Such Convertible Note shall
be substantially in the form of Exhibit "A" attached hereto.
2. PURCHASE AND SALE OF THE CONVERTIBLE NOTE
2A. Purchase and Sale. The Company hereby agrees to sell to the
Investor and, subject to the terms and conditions herein set forth, the Investor
agrees to purchase from the Company, the Convertible Note. The purchase price of
the Convertible Note purchased and sold hereunder shall be 100% of the principal
amount thereof.
2B. Registration Rights Agreement. The Convertible Note shall be
issued pursuant to the terms and conditions of that certain Registration Rights
Agreement, of even date herewith, by and between the Company and the Investor
(the "Registration Rights Agreement") under which the Investor has been granted
certain rights with respect to the registration of Common Stock.
2C. Closing. The purchase and delivery of the Convertible Note shall
take place at a closing (the "Closing") at the offices of Blank Rome Comisky &
McCauley LLP, at 10:00 a.m., local time, on December 24, 1999 (or at such other
time and place or on such other Business Day thereafter as the parties hereto
<PAGE>
shall agree) (herein called the "Closing Date"). On or before December 22, 1999,
the Investor shall deliver by wire transfer a portion of the purchase price
totaling $500,000 to the Company pursuant to the wire instructions set forth in
the following sentence. On the Closing Date, the Company will deliver the
Convertible Note payable to or registered in the name of the Investor and/or the
Investor=s nominee or other designee specified on the signature page hereof,
against receipt of the remaining $1,100,000 of the purchase price therefor by
wire transfer to the Company c/o Blank Rome Comisky & McCauley LLP, Commerce
Bank New Jersey, Attention: CBPA, Account Number 28208000, ABA Routing Number
031201360. If at the Closing, the Company shall, in breach of this Agreement,
fail to tender to the Investor the Convertible Note or if any of the conditions
specified in Section 3 hereof shall not have been satisfied or waived by the
Investor, the Investor shall, at its election, be relieved of all further
obligations under this Agreement without thereby waiving any other rights it may
have by reason of such failure or such non-fulfillment. Notwithstanding anything
to the contrary, the obligation of the Company to deliver the Convertible Note
to the Investor at the Closing shall be conditioned on the concurrent receipt by
the Company of the purchase price of the Convertible Note from the Investor.
3. CONDITIONS OF CLOSING
The Investor's obligation to purchase and pay for the Convertible
Note to be purchased by it hereunder is subject to the satisfaction, on or
before the Closing Date, of the following conditions:
3A. Registration Rights Agreement. The Investor shall have received
a fully executed counterpart of the Registration Rights Agreement, substantially
in the form of Exhibit "B" attached hereto, and such Registration Rights
Agreement shall be in full force and effect and no term or condition thereof
shall have been amended, waived or modified.
3B. Articles of Incorporation and By-laws. The Investor shall have
received a certificate, dated the Closing Date, of the Secretary of the Company
attaching (i) true and complete copies of the Articles of Incorporation of the
Company as filed with the appropriate state officials of its jurisdiction of
incorporation with all amendments thereto, (ii) true and complete copies of the
By-laws of the Company in effect as of such date, (iii) certificates of good
standing of the appropriate officials of the jurisdiction of incorporation of
the Company, and (iv) resolutions of the Board of Directors of the Company
authorizing (a) the execution, delivery and performance of this Agreement, (b)
the authorization, issuance and delivery of the Convertible Note and (c) the
reservation for issuance of a sufficient number of shares of Common Stock into
which the Convertible Note may be converted to permit such conversion.
3C. Purchase Permitted by Applicable Laws. The purchase of and
payment for the Convertible Note shall not be prohibited by any applicable law
or governmental regulation (including, without limitation, Regulations G, T and
X of the Board of Governors of the Federal Reserve System) and shall not subject
the Investor to any tax, penalty, liability or other onerous condition under or
pursuant to any applicable law or governmental regulation.
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3D. Compliance with Securities Laws. The offering and sale of the
Convertible Note under this Agreement shall have complied with all applicable
requirements of federal and state securities laws.
3E. Proceedings. All required corporate and other proceedings taken
or required to be taken in connection with the transactions contemplated hereby
and all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor and its counsel.
3F. Material Changes. Since October 15, 1999, there shall not have
been any changes in the business of the Company which could reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect,
nor shall there have been any development or discovery or any material
contingency or other liability which could have such effect.
4. SCHEDULED PAYMENTS AND PREPAYMENTS OF THE CONVERTIBLE NOTE.
4A. Prepayments in General. The Convertible Note shall be subject to
prepayment only under the circumstances set forth in this Section 4.
4B. Mandatory Payments of the Convertible Note. On the Maturity
Date, the principal amount of the Convertible Note outstanding, together with
all accrued and unpaid interest thereon to such date, shall become due and
payable and shall be paid by the Company to the Investor.
4C. Optional Prepayments of the Convertible Note. Subject to the
rights of the holder of the Convertible Note to convert such Convertible Note
pursuant to the provisions thereof and of Section 9 hereof, the Convertible Note
shall be subject to prepayment at the Company's option, in whole or in part, at
any time.
4D. Notice of Optional Prepayments. The Company shall give the
holder of the Convertible Note written notice (the "Prepayment Notice") of the
prepayment pursuant to subsection4C specifying the prepayment date (the
"Prepayment Date"), which date shall be a date occurring not earlier than 60
days nor more than 180 days after the date on which the Prepayment Notice is
delivered, the amount of the Convertible Note to be prepaid on such date and
that such prepayment is to be made pursuant to subsection 4C. Notice of
prepayment having been given as aforesaid, the prepayment amount due in respect
of the Convertible Note specified in such notice shall become due and payable on
such Prepayment Date unless (i) the holder of such Convertible Note shall have
converted the Convertible Note prior to such Prepayment Date pursuant to the
terms thereof, or (ii) unless the filing by the Company of a registration
statement under the Securities Act relating to the Common Stock obtainable upon
conversion of the Convertible Note shall have been requested by a holder thereof
(either before or after receipt of such notice) pursuant to the Registration
Rights Agreement, in which case the prepayment shall be effected 30 days after
the declaration of effectiveness of such registration statement by the United
States Securities and Exchange Commission.
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5. AFFIRMATIVE COVENANTS
All covenants contained herein shall be given independent effect so that
if a particular action or condition is not permitted by any such covenant, the
fact that such action or condition would be permitted by an exception to, or
otherwise be within the limitations of, another covenant shall not avoid the
occurrence of a Default if such action is taken or condition exists. The
provisions of this Section 5 are for the benefit of the Investor so long as it
holds the Convertible Note and for the benefit of each other successor holder of
the Convertible Note.
5A. Use of Proceeds. The proceeds of the sale of the Convertible
Note shall be used to fund (i) capital expenditures, payroll and working capital
requirements for the completion of prototype development and the commercial
release of the Clear Card and mass storage product(s), (ii) costs associated
with the creation of new facilities in the United States and the relocation of
existing facilities and certain key scientists to the United States, and (iii)
expenditures for maintaining existing patents and for filing new patent
applications.
5B. Additional Financing. The Company covenants that it will not
accept any additional financing from either Moorwood Investment Limited, a
British Virgin Islands corporation ("Moorwood"), or Wilbro Nominees Limited, an
English corporation ("Wilbro"), or any affiliated parties thereof, on terms and
conditions less favorable to the Company than those contained herein and in the
Related Agreements.
5C. Prior Convertible Note. The Company covenants that prior to May
11, 2000, to the extent that sufficient financing is available, it will repay
that certain 8.0% Series C Convertible Note due October 31, 2001 in principal
amount of $500,000 (the "Prior Convertible Note") issued to Wilbro pursuant to
that certain Purchase Agreement, dated as of November 11, 1999, by and between
the Company and Wilbro; provided that, the Company shall repay the Prior
Convertible Note in the event that the Investor provides financing necessary to
make such prepayment on terms no less favorable to the Company than those
contained herein and in the Related Agreements.
5D. Books and Records; Inspection of Property. The Company will keep
proper books of record and account in which full, true and correct entries in
conformity in all material respects with GAAP shall be made of all dealings and
transactions in relation to their business and activities. The Company will,
upon reasonable advance notice, permit any Person representing the holder of the
Convertible Note and designated in writing by such holder, at such holder=s
expense, to visit and inspect any of the properties of the Company during normal
business hours in a manner which does not unduly interrupt the normal course of
business, to examine the corporate, financial and operating records of the
Company and make copies thereof or extracts therefrom and to discuss the
affairs, finances and accounts of any of such corporations with the directors,
officers and independent accountants of the Company, all at such reasonable
times and as often as the holders may reasonably request.
5E. Stock to be Reserved The Company covenants that all shares of
Common Stock that may be issued upon conversion of the Convertible Note will,
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upon issuance, be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issuance thereof. The Company
further covenants that during the period within which the Convertible Note may
be converted, the Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock to permit the conversion of the
Convertible Note.
5F. Corporate Existence; Maintenance of Properties. The Company (i)
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchises, (ii) will cause
its properties and the properties to be maintained and kept in good condition,
repair and working order (ordinary wear and tear excepted) and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereto, and (iii) will qualify and remain qualified to conduct business in each
jurisdiction where the nature of the business of or ownership of property by the
Company may require such qualification and where the failure to be so qualified
would have a Material Adverse Effect.
5G. Further Assurances The Company shall cooperate with the Investor
and execute such further instruments and documents as the Investor shall
reasonably request to carry out to the satisfaction of the Investor the
transactions contemplated by this Agreement.
6. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing for any
reason whatsoever (and whether such occurrence shall be voluntary or involuntary
or come about or be effected by operation of law or otherwise):
(i) the Company defaults in the payment of any principal or
interest of or premiums (if any) on the Convertible Note when the same shall
become due, either by the terms thereof or otherwise as herein provided and such
default shall continue unremedied for ten (10) or more days after notice by the
Investor;
(ii) the Company defaults, in the performance or observance of
any of the agreements contained in Section 5 or in the performance or observance
of any other agreement, term or condition contained herein or in the Related
Agreements and any such default shall not have been remedied within thirty (30)
days (or if such default is not reasonably capable of cure within thirty (30)
days, the Company will have taken steps reasonably calculated to cure such
default within such thirty (30) day period) after such default shall first
become known to any officer of the Company;
(iii) any decree or order for relief in respect of the Company
is entered under any Bankruptcy Law of any jurisdiction; or the Company
petitions or applies to any tribunal for, or consents to, the appointment of, or
taking possession by, a trustee, receiver, custodian, liquidator or similar
official of the Company, of any substantial part of the assets of the Company,
or commences a voluntary case under the Bankruptcy Law of the United States or
any proceedings relating to the Company under the Bankruptcy Law of any other
jurisdiction;
then upon the occurrence and during the continuation of (a) any Event of Default
described in clause (i) above with respect to the Convertible Note, the holder
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of the Convertible Note may, by written notice to the Company, declare the
Convertible Note to be, and the same shall thereupon be and become, forthwith
due and payable, together with the interest accrued thereon, without
presentment, further demand, protest or other requirements of any kind, all of
which are hereby expressly waived by the Company; (b) any Event of Default
described in clause (ii) above with respect to the Convertible Note, the holder
of the unpaid principal amount of the Convertible Note may, at its option and in
addition to any right, power or remedy permitted by law or equity, by notice in
writing to the Company, declare the Convertible Note to be, and the same shall
thereupon be and become, forthwith due and payable, together with interest
accrued thereon; and (c) any Event of Default described in clause (iii) above
with respect the Convertible Note, the unpaid principal amount of and accrued
interest on the Convertible Note outstanding shall automatically become
immediately due and payable, without presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by the
Company.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
7A. Organization Qualification and Authority The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida and is duly qualified to do business as a foreign
corporation and in good standing in each jurisdiction in which the character of
its properties or the nature of its business makes such qualification necessary,
except where the failure to so qualify would not have a Material Adverse Effect.
The Company has the corporate power to own its properties and to carry on its
business as now being conducted. The Company has all requisite corporate power
and authority to enter into this Agreement, to issue and sell the Convertible
Note hereunder, and to issue the shares of Common Stock upon conversion of the
Convertible Note and has the requisite corporate power and authority to carry
out the transactions contemplated hereby and thereby to be performed by it, and
the execution, delivery and performance hereof and thereof have been duly
authorized by all necessary corporate action. This Agreement constitutes, and
each other agreement or instrument (including the Convertible Note) executed and
delivered by the Company pursuant hereto or thereto or in connection herewith or
therewith will constitute, legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws or by the
application of principles of equity.
7B. Capital Stock and Related Matters. The authorized capital stock
of the Company consists of 50,000,000 shares of Common Stock. As of December 24,
1999, not more than 15,000,000 shares of Common Stock will be issued and
outstanding. Except for (i) the options granted to General Itzhak Yaakov and
Michael Goldberg, each directors of the Company, to purchase 100,000 shares and
75,000 shares, respectively, of Common Stock (the "Options") pursuant to a
resolution of the Compensation Committee of the Board of Directors dated June
17, 1999, and (ii) the warrants to purchase 100,000 shares of Common Stock (the
"Warrants") granted to Moorwood pursuant to that certain Letter Agreement, dated
as of November 11, 1999, by and between the Company and Moorwood (the "Letter
Agreement") (the exercise of such Warrants is subject to certain conditions set
forth therein), there are no outstanding subscriptions, options, warrants,
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convertible securities in regard to the authorized but unissued Common Stock.
All issued and outstanding shares of Common Stock shall have been duly and
validly issued, fully paid and nonassessable.
7C. Offering of the Convertible Note The offer, sale and issuance of
the Convertible Note pursuant to this Agreement does not require registration of
such security under the Securities Act or registration or qualification under
any applicable state "blue sky" or securities laws (or if so required, has been
so registered or qualified).
7D. Broker's or Finder's Commissions. No broker=s or finder=s fee or
commission will be payable by the Company with respect to the issuance and sale
of the Convertible Note or the transactions contemplated hereby.
8. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants that: (i) it is acquiring the
Convertible Note to be purchased by it hereunder for its own account for the
purpose of investment and not with a view to or for sale in connection with any
distribution thereof; provided, however, that nothing herein contained shall
prevent the Investor, upon written notice to the Company explaining in
reasonable detail the transfer or proposed transfer, from selling or
transferring the Convertible Note in any transaction that, in the opinion of its
special counsel, is exempt from the registration provisions of the Securities
Act; (ii) it has full power and authority to enter into and perform its
obligations under this Agreement and that this Agreement has been duly
authorized, executed and delivered by a Person authorized to do so; (iii) it has
carefully reviewed the representations and warranties concerning the Company,
its business and its personnel; the Company has made available to it any and all
written information which it has requested and has answered to such Investor=s
satisfaction all inquiries made by it; (iv) it has adequate net worth and means
of providing for its current needs and personal contingencies to sustain a
complete loss of its investment in the Company; (v) its overall commitment to
investments which are not readily marketable is not disproportionate to its net
worth; (vi) its investment in the Convertible Note will not cause such overall
commitment to become excessive; (vii) it has not relied upon any financial
projections received from the Company in connection with the transactions
contemplated by this Agreement; (viii) it is an Accredited Investor within the
definition set forth in Rule 501(a) promulgated under the Securities Act; (ix)
it is not making this investment as a result of any form of general solicitation
or general advertising; (x) this Agreement constitutes the valid and binding
obligation of the Investor enforceable in accordance with its terms; and (xi)
the execution of and performance of the transactions contemplated by this
Agreement and compliance with its provisions by it will not violate any
provision of law applicable to the Investor and will not conflict with or result
in any breach of any of the terms, conditions or provisions of, or constitute a
default under any agreement or other instrument to which such Investor is a
party or by which he is bound, or any decree, judgment, order, statute, rule or
regulation application to it.
9. CONVERSION OF THE CONVERTIBLE NOTE
9A. Conversion Price (i) Subject to and upon compliance with the
provisions hereof, the holder of the Convertible Note shall have the right, at
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such holder's option, at any time or, in the event that the Convertible Note has
been called for prepayment pursuant to Section 4, then until, but (unless the
Company shall default in the payment due upon the Prepayment Date) not after,
the close of business on the last Business Day before the Prepayment Date, to
convert all or any part of the principal amount of such Convertible Note into
Common Stock at the price of the greater of (A) the average Market Price of the
Common Stock as posted on the NASD OTC Bulletin Board over a period of twenty
(20) trading days preceding any applicable date of conversion (the "Conversion
Date"), or (B) Fifty Dollars ($50) (such price being referred to herein as the
"Initial Conversion Price"), provided, that in case an adjustment of such price
has taken place pursuant to the further provisions of this Section 9, then at
the price as last adjusted and in effect at the date such Convertible Note is
surrendered for conversion (such Conversion Price or (if any adjustment has been
made pursuant to this Section 9) such price as last adjusted, as the case may
be, being referred to herein as the "Conversion Price").
(ii) In order to exercise such conversion right the holder shall
surrender (in person or by mail) the Convertible Note to the Company at its
office designated in subsection 11 (or such other office or agency as the
Company may designate by notice in writing to the holder of the Convertible
Note), together with a written notice that the holder elects to convert the
Convertible Note, or a specified principal amount thereof, in accordance with
the provisions of this Section 9. Such notice shall also state the name or names
(with addresses) in which the certificate or certificates for Common Stock shall
be issued. To the extent permitted by law, such conversion shall be deemed to
have been effected and the Conversion Price shall be determined as of the close
of business on the date by which the events set forth in this subsection 9A(ii)
have occurred. The Convertible Note surrendered for conversion shall be
accompanied by the necessary instruments of transfer thereof.
9B. Fractional Shares; Accrued Interest; Partial Conversion. No
fractional shares shall be issued upon conversion of the Convertible Note. At
the time of the conversion, the Company shall pay in cash all interest accrued
and unpaid on the principal amount of the Convertible Note or specified portion
thereof surrendered for conversion to the date upon which the conversion is
deemed to take place as provided in subsection 9A.
9C. Adjustment of Price and Adjustment of Number of Shares of Common
Stock Issuable upon Conversion
(i) If the number of shares of Common Stock outstanding at any
time hereafter is increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of Common Stock, then, following
the record date fixed for the determination of holders of Common Stock entitled
to receive such stock dividend, subdivision or split-up, the Conversion Price
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of the Convertible Note shall be increased in proportion
to such increase in outstanding shares.
(ii) If at any time hereafter the number of shares of Common
Stock outstanding is decreased by a combination of the outstanding shares of
Common Stock, then, following the record date for such combination, the
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Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of the Convertible Note shall be
decreased in proportion to such decrease in outstanding shares.
(iii) If at any time hereafter any reorganization,
reclassification of the capital stock of the Corporation (other than a change in
par value or from par value to no par value or from no par value to par value or
as a result of a stock dividend or subdivision, split-up or combination
of-shares), consolidation or merger (including a merger in which the Company is
the surviving entity), then the Convertible Note shall (in lieu of being
convertible for shares of Common Stock) after such reorganization,
reclassification, consolidation or merger be exercisable into the kind and
number of shares of stock or other securities or property (including cash) of
the Company or of the corporation resulting from such consolidation or surviving
such merger to which the holder of the number of shares of Common Stock
deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation or merger) upon conversion of the Convertible
Note would have been entitled upon such reorganization, reclassification,
consolidation or merger. The provisions of this subsection shall similarly apply
to successive reorganizations, reclassifications and other transactions
contemplated above.
(iv) All calculations under this subsection 9C shall be made to
the nearest cent ($.01) or to the nearest one-tenth of a share, as the case may
be.
(v) In any case in which the provisions of this subsection 9C
shall require that an adjustment of the Conversion Price shall become effective
immediately after a record date for an event, the Company may, until the
occurrence of such event, defer issuing to the holder of the Convertible Note
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon conversion before giving effect to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder=s right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(vi) (a) If any event occurs of the type contemplated by the
provisions of this subsection 9C but not expressly provided for by such
provisions, the Board of Directors of the Company will make appropriate
adjustments to the terms and conditions of the Convertible Note as may be
necessary fully to carry out the adjustments contemplated by this subsection 8D.
(b) The Company will not, by amendment of its Articles
of Incorporation or Bylaws or through any reorganization, transfer of assets,
reclassification, merger, dissolution, issue or sale of securities or otherwise,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by the Company hereunder but will at all times in good
faith assist in the carrying out of all the provisions hereof and in the taking
of all such actions as may be necessary or appropriate in order to protect the
rights of the holder of the Convertible Note against impairment.
9D. Stock to be Reserved The Company will at all times reserve, free
from any preemptive rights, and keep available out of its authorized Common
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Stock, solely for the purpose of issue upon the exercise of Convertible Note as
herein provided, such number of shares of Common Stock as shall then be issuable
upon the conversion of the Convertible Note. The Company covenants and agrees
that all shares of Common Stock which shall be so issuable will, upon issuance,
be duly authorized and issued, fully paid and nonassessable and, where required
pursuant to Subsection 9A(ii), registered under the Securities Act.
9E. Listing of Common Stock. If any shares of Common Stock
required to be reserved for purposes of conversion of the Convertible Note
hereunder require listing on any securities exchange before such shares may be
issued upon exercise, the Company will cause such Common Stock to be duly listed
on such securities exchange immediately prior to the issuance of such shares.
9F. Closing of Books The Company will not close its books
against the issuance or transfer of any shares of Common Stock issuable upon
conversion of the Convertible Note.
10. DEFINITIONS.
For the purpose of this Agreement, and in addition to terms defined
elsewhere in this Agreement, the following terms shall have the following
meanings. In addition, all terms of an accounting character not specifically
defined herein shall have the meanings assigned thereto by accounting principles
generally accepted in the United States of America.
"Bankruptcy Law" shall mean any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation or
similar law, whether now or hereafter in effect.
"Business Day" shall mean any day which is not a Saturday, Sunday or
day on which banks are authorized by law to close in the State of New York.
"Default" shall mean any of the events specified in Section 6 hereof,
whether or not any requirement for the giving of notice, the lapse of time, or
both, or any of these conditions, event or act has been satisfied.
"Events of Default" shall mean any of the events specified in Section
6, provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act.
"Market Price" shall mean the average of the high and low bid prices
for the Common Stock on a given trading day as reported on the NASD OTC Bulletin
Board.
"Material Adverse Effect" shall mean (i) a material adverse effect on
the business, condition (financial or other), assets, properties, rights,
operations or prospects of the Company or (ii) any effect which could materially
adversely affect the ability of the Company to perform its obligations under
this Agreement.
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"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
"Related Agreements" shall mean the Convertible Note and the
Registration Rights Agreement.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended.
11. MISCELLANEOUS
11A. Provisions Applicable if the Convertible Note is Sold. The
parties acknowledge that, subject to compliance with applicable securities laws,
the Investor shall be free to transfer the Convertible Note without restriction.
In the event that the Investor should sell or otherwise transfer the Convertible
Note or any part thereof to any Person other than the Company, and such holder
shall have designated in writing the address to which communications with
respect to the Convertible Note shall be mailed, all notices, certificates,
requests, statements and other documents required to be delivered to the
Investor by any provision hereof by reason of the holding of the transferred
Convertible Note shall also be delivered to such holder at such address.
11B. Restrictive Legends The Convertible Note shall bear the
following (or substantially equivalent) legend on the face or reverse side
thereof:
"THE CONVERTIBLE NOTE REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS, AND THIS CONVERTIBLE NOTE MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT AND SUCH LAWS AND THE RESPECTIVE
RULES AND REGULATIONS THEREUNDER."
In addition, the shares of Common Stock issuable upon conversion of the
Convertible Note shall bear at the time of issuance a legend in substantially
the form set forth above and any legend required by the state securities or
ABlue Sky@ laws of any state in which a registered holder thereof is resident,
unless such shares have been registered under the Securities Act.
11C. Persons Deemed Owners Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name the
Convertible Note is registered as the owner and holder of such Convertible Note
for the purpose of receiving payment of principal of (and premium, if any) and
interest on such security and for all other purposes whatsoever, whether or not
such Convertible Note shall be overdue, and the Company shall not be affected by
notice to the contrary.
11D. Successors and Assigns Except as otherwise provided herein,
all covenants and agreements in this Agreement contained by or on behalf of the
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parties hereto shall bind and inure to the benefit of the respective successors,
transferees and assigns of the parties hereto whether so expressed or not.
11E. Notices. All communications provided for hereunder shall be
sent by first class mail, overnight courier or by fax with hard copy by first
class mail or overnight courier and, if to the Investor, addressed to it c/o
David Craven at World Trade Center, 10, route de l'Aeroport, P.O. Box 691, 1215
Geneva 15, Switzerland, telecopy number (41) 022 799 0801; if to the Company,
addressed to it at 235 West 76th Street, Suite 8D, New York, New York 10023,
telecopy number (212) 580-4021, with a copy (which shall not constitute notice)
to Alan L. Zeiger, Esquire, at Blank Rome Comisky & McCauley LLP, One Logan
Square, Philadelphia, Pennsylvania 19103, telecopy number (215) 569-5628; or to
such other address with respect to any party as such party shall notify the
other in writing; provided, however, that any such communication to the Company
may also, at the option of the Investor, be either delivered to the Company at
its address set forth above or to any executive officer of the Company.
11F. Descriptive Headings. The descriptive headings of the several
Sections and subsections of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.
11G. Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS
BEING DELIVERED AND IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE
PARTIES SHALL BE GOVERNED BY, THE LAW OF SUCH STATE WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW OR CONFLICTS OF LAW PRINCIPLES THEREOF. THIS AGREEMENT IS
EFFECTIVE ONLY WHEN DELIVERED AND ENTERED INTO BY THE INVESTOR IN THE STATE OF
NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. THE COMPANY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY
AT ITS ADDRESS SET FORTH IN SUBSECTION 10E, SUCH SERVICE TO BECOME EFFECTIVE
THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
THE INVESTOR OR ANY HOLDER OF A SECURITY TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE COMPANY IN ANY OTHER JURISDICTION.
11H. Entire Agreement This Agreement and the other writings
referred to herein or delivered pursuant hereto contain the entire agreement
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among the parties with respect to the subject matter hereof and supersede all
prior and contemporaneous arrangements or understandings with respect thereto.
11I. Severability Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11J. Amendments. This Agreement may not be changed orally, but only
by an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
11K. Payment Date Notwithstanding any provision of this Agreement
to the contrary, any payment on account of principal of (and premium, if any) or
interest on the Convertible Note which is due on a date which is not a Business
Day shall be paid on the next succeeding Business Day, and the amount of
interest included in any such payment shall be computed to the date on which
such payment is actually made.
11L. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.
11M. Delivery by Facsimile. This Agreement, the Related Agreements,
and each other agreement or instrument entered into in connection herewith or
therewith or contemplated hereby or thereby, and any amendments hereto or
thereto, to the extent signed and delivered by means of a facsimile machine,
shall be treated in all manner and respects as an original agreement or
instrument and shall be considered to have the same binding legal effect as if
it were the original signed version thereof delivered in person. At the request
of any party hereto or to any such agreement or instrument, each other party
hereto or thereto shall reexecute original forms thereof and deliver them to all
other parties. No party hereto or to any such agreement or instrument shall
raise the use of a facsimile machine to deliver a signature or the fact that any
signature or agreement or instrument was transmitted or communicated through the
use of a facsimile machine as a defense to the formation or enforceability of a
contract and each such party forever waives any such defense.
11N. Dispute Resolution. All claims, demands, disputes,
controversies, differences, or misunderstandings between the parties arising out
of, by virtue of, or in connection with, this Agreement shall first be
negotiated, in good faith, by the parties, and, if an acceptable resolution does
not result, shall then be submitted to, determined and finally settled by
arbitration before the International Chamber of Commerce (the "ICC"), in
accordance with the provisions of this Section 11N. The parties agree that the
rules of the ICC then obtaining for commercial arbitration shall govern any
arbitration under this Agreement, except that to the extent there is any
conflict between this Section 11N and such rules, this Section shall govern. The
panel shall be composed of three (3) arbitrators, with one (1) arbitrator being
appointed by each party. The two arbitrators so appointed shall appoint the
third. In the event that the arbitrators can not, after good faith discussions,
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<PAGE>
agree upon a third arbitrator, the third arbitrator shall be appointed by the
ICC. The decision and award of a majority of the arbitrators shall be the
decision and award of the panel. Such decision and award shall be final and
binding by the parties. All hearings and proceedings in the arbitration shall
take place in New York City, New York and shall be governed by the substantive
law of the State of New York. This agreement to arbitrate may be specifically
enforced by any party. At any time before a decision of the arbitration panel
has been rendered, the parties may resolve the matter before the panel by
settlement. Each party shall bear the fees of such party's witnesses and such
party's own counsel. The other fees and expenses of the arbitration shall be
borne in accordance with the arbitration award. In the absence of any award or
designation within the award, such costs and fees shall be borne equally by the
parties.
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Purchase Agreement to
be executed and delivered by their respective officers hereunto duly authorized
as of the date first above written.
C3D INC.,
a Florida corporation
By: /s/ Eugene Levich
---------------------------------
Eugene Levich
President and Chief Executive Officer
WINNBURN ADVISORY,
a Nevis corporation
By: /s/ Renee Hamouth
-------------------------------------
Name: Renee Hamouth
Title:
[SIGNATURE PAGE TO SERIES C CONVERTIBLE NOTE PURCHASE AGREEMENT
DATED DECEMBER 24, 1999]
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<PAGE>
EXHIBIT A
THE CONVERTIBLE NOTE REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS, AND THIS CONVERTIBLE NOTE MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND SUCH
LAWS AND THE RESPECTIVE RULES AND REGULATIONS THEREUNDER.
C3D INC.
8.0% Series C Convertible Note
due October 31, 2001
CR-1 December 24, 1999
$1,600,000
FOR VALUE RECEIVED, the undersigned, C3D INC., a corporation organized
and existing under the laws of the State of Florida (herein called the
"Company"), hereby promises to pay to WINNBURN ADVISORY, a company organized
under the laws of Nevis, or registered assigns, the principal sum of ONE MILLION
SIX HUNDRED THOUSAND DOLLARS ($1,600,000) (such sum, together with interest
capitalized pursuant to the following sentence, the "Principal") on October 31,
2001. Interest on the unpaid Principal balance at the rate of 8.0% per annum
(computed on the basis of a 360-day year of twelve 30-day months) shall be added
in arrears to the Principal.
Payments of both Principal and interest are to be made at the address
shown on the Company's registry or at such other place as the holder hereof
shall designate to the Company in writing, in lawful money of the United States
of America.
This Note may be prepaid in whole or in part at anytime or from time to
time without premium or penalty on the terms and conditions set forth in Section
4 of the Agreement.
This Convertible Note is issued pursuant to that certain Purchase
Agreement, dated as of December 24, 1999 (the "Agreement"), by and between the
Company and the Investor named on the signature page thereof and is entitled to
the benefits of the Agreement.
This Convertible Note is a registered Convertible Note and, as provided
in the Agreement, upon surrender of this Convertible Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer duly
executed, by the registered holder hereof or his attorney duly authorized in
writing, a new Convertible Note for a like principal amount will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
<PAGE>
Convertible Note is registered as the owner hereof for the purpose of receiving
payment and for all other purposes, and the Company shall not be affected by any
notice to the contrary.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the Principal of this Convertible Note may be declared due
and payable in the manner and with the effect provided in the Agreement. The
Company agrees to pay, and save the holder hereof harmless against any liability
for, any expenses, including reasonable attorney's fees, arising in connection
with the enforcement by the holder hereof of any of its rights under this
Convertible Note or the Agreement.
Payment of Principal, premium (if any) and interest in respect of this
Convertible Note are subordinate, to all principal of and interest on "Senior
Debt."
"Senior Debt" shall mean all obligations (whether now outstanding or
hereafter incurred) for the payment of which the Company is responsible or
liable as obligor, guarantor or otherwise in respect of the principal, premium
(if any), and unpaid interest on and all other amounts due with respect to
Indebtedness incurred by the Company so long as such Indebtedness is not
subodinated to any other Indebtedness of the Company and the terms of which do
not restrict this Company's ability to pay any and all amounts due under this
Convertible Note. The following shall not constitute Senior Debt: (a)
Indebtedness evidenced by this Convertible Note or any extension or refunding
thereof, (b) Indebtedness which is expressly made equal in right of payment with
this Convertible Note or subordinate and subject in right of payment to this
Convertible Note or (c) Indebtedness which purports to be senior to subordinated
debt, including this Convertible Note, but subordinate to the Indebtedness
described in the first sentence of this paragraph.
This Convertible Note is convertible into shares of Common Stock (as
defined in the Agreement) on the terms and conditions set forth in Section 9
of the Agreement.
This Convertible Note is intended to be performed in the State of New
York, and shall be construed and enforced in accordance with the law of such
State, without giving effect to the conflicts or choice of law principles of
such State.
CD3 INC.
By: /s/ Eugene Levich
---------------------------------
Eugene Levich
President and Chief Executive Officer
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made this 24th day of December 1999, by and between
C3D Inc., a Florida corporation (the "Company"), and Winnburn Advisory, a Nevis
corporation ("Winnburn").
W I T N E S S E T H:
WHEREAS, the Agreement is executed contemporaneously with that certain
Purchase Agreement, of even date herewith, by and between the Company and
Winnburn (the "Purchase Agreement") pursuant to which the Company will sell to
Winnburn its 8.0% Series C Convertible Note due October 31, 2001 (the
"Convertible Note") in principal amount of One Million Six Hundred Thousand
Dollars ($1,600,000) subject to certain conditions. Capitalized terms used and
not defined herein shall have the meanings ascribed to them in the Purchase
Agreement; and
WHEREAS the Company has agreed to grant certain registration rights to
Winnburn in connection with the Registrable Securities (as hereinafter defined),
subject to the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the covenants contained herein, and
other good and valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, and intending to be legally bound hereby, the
Company and Winnburn agree as follows:
1. Registration.
1.1 Certain Definitions. As used in this Agreement the following
terms shall be have the following meanings:
(a) "1933 Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(b) "1934 Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect at the time.
(c) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the 1933 Act.
(d) "Register", "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the 1933 Act, and the declaration or ordering of the
effectiveness of such registration statement.
<PAGE>
(e) "Registered Securities" shall mean the common stock, par
value $.001 per share, of the Company (the "Common Stock") as registered with
the Commission in compliance with the 1933 Act.
(f) "Registrable Securities" shall mean (i) the Common Stock,
and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in (i) and (ii) above, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his or her rights under this Paragraph 1 are not assigned.
(g) "Registration Expenses" shall mean all expenses incurred
in effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company and Winnburn,
blue sky fees and expenses, expenses of any regular or special audits incident
to or required by any such registration and fees and disbursements of counsel
retained by Winnburn, but shall not include Selling Expenses.
(h) "Rule 145" shall mean Rule 145 as promulgated by the
Commission under the 1933 Act, as such Rule may be amended from time to time, or
any similar successor rule that may be promulgated by the Commission.
(i) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of the Registrable Securities.
1.2 Company Registration.
(a) If at any time after an underwritten firm commitment
offering to the public of the Common Stock registered under the 1933 Act (the
"Initial Public Offering"), the Company shall determine to register (including
for this purpose a registration effected by the Company for shareholders other
than Investor) any of the Common Stock or other equity securities for its own
account, other than (1) a registration relating solely to employee benefit plans
or to a Rule 145 transaction, or (2) a registration on a registration form that
does not permit secondary sales, the Company shall (i) promptly give to Winnburn
written notice of the proposed registration and (ii) use its best efforts to
include in such registration (and in any related qualification under blue sky
laws or other compliance), and in any underwriting involved therein, any and all
the Registrable Securities of the same class or classes as the securities to be
registered by the Company specified in a written request made by Winnburn within
thirty (30) days after Winnburn receives such written notice from the Company,
except as set forth in Paragraph 1.2(b).
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise Winnburn as a part of the written notice given pursuant to Paragraph
1.2(a). In such event the right of Winnburn to registration pursuant to
Paragraph 1.2(a) shall be subject to the provisions of Paragraph 1.7. If
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<PAGE>
Winnburn proposes to distribute its Registrable Securities through such
underwriting, it shall, together with the Company, enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by the Company.
(c) The right of Winnburn to include its Registrable
Securities in any registration pursuant to this Paragraph 1.2 shall terminate on
October 31, 2001.
1.3 Required Registration. In the event that Investor elects to
convert the Convertible Note into shares of Common Stock, the Company hereby
agrees to effect the registration of that portion of the Registrable Securities
held by Investor on or before the earlier to occur of (A) 45 days after the
first anniversary of the effective date of the registration statement on Form 10
as filed by the Company with the SEC on November 12, 1999, or (B) the filing by
the Company of a registration statement with the SEC.
(a) The Company is obligated to effect only one (1) such
registration pursuant to this Paragraph 1.3.
(b) Notwithstanding the foregoing, if the Company shall
furnish to Investor a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its shareholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
such filing for a period of not more than one hundred eighty (180) days after
the first anniversary of the conversion date of the Convertible Note.
1.4 Expenses of Registration. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
Paragraphs 1.2 or 1.3 hereof shall be borne by the Company. All Selling Expenses
relating to Registrable Securities registered by Winnburn shall be borne by
Winnburn pro rata on the basis of the number of shares of Registrable Securities
so registered on its behalf.
1.5 Registration Procedures. If and whenever the Company is under
an obligation pursuant to the provisions of Paragraphs 1.2 or 1.3 to use its
best efforts to effect the registration of any Registrable Securities, the
Company shall as expeditiously as practicable:
(a) prepare and file with the Commission a registration
statement, including a registration statement under Rule 415 of the 1933 Act, or
any similar rule that may be adopted by the Commission, if applicable, with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective in accordance with clause (b) hereof;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
at least nine (9) months and to comply with the provisions of the 1933 Act with
respect to the sale or other disposition of all Registrable Securities covered
by such registration statement;
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<PAGE>
(c) furnish to Winnburn such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the 1933 Act, and such other documents as
Winnburn may reasonably request in order to facilitate the public sale or other
disposition of such Registrable Securities;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as Winnburn shall reasonably
request; provided, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions;
(e) notify Winnburn, at any time when a prospectus relating
thereto covered by such registration statement is required to be delivered under
the 1933 Act within the appropriate period mentioned in clause (b) hereof, of
the happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact in order to make the statements
therein in light of the circumstances under which they were made, not misleading
and at the request of Winnburn, prepare and furnish to Winnburn a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein in
light of the circumstances under which they were made, not misleading; and
(f) furnish, at the request Winnburn, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to Paragraphs 1.2 or 1.3, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to Winnburn; and (ii) a
letter dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters, if any, and to
Winnburn.
1.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Paragraph 1 with
respect to the Registrable Securities of Winnburn that Winnburn shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of Winnburn's Registrable Securities.
1.7 Cessation of Offering. Upon receipt of any notice from the
Company of the happening of any event of the kind described in Paragraphs 1.5(e)
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<PAGE>
or 4, Winnburn shall immediately discontinue disposition of the shares of
Registrable Securities or Registered Securities, pursuant to the registration
statement covering such shares until Winnburn's receipt of the copies of the
supplemented or amended prospectus contemplated by Paragraphs 1.5(e) or 4, and,
if so directed by the Company, Winnburn shall deliver to the Company all copies
of the prospectus covering such shares in Winnburn's possession at the time of
receipt of such notice.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's equity securities, the
Company shall not be required under Paragraph 1.2(b) to include any of
Winnburn's securities in such underwriting unless Winnburn accepts the terms of
the underwriting as agreed upon between the Company and the underwriters
selected by it, and then only in such quantity as the underwriters determine in
their sole discretion will not, jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by shareholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders).
1.9 Delay of Registration. Winnburn shall not have any right to
take any action to restrain, enjoin or otherwise delay any registration as a
result of any controversy that may arise with respect to the interpretation or
implementation of this Agreement.
1.10 Indemnification.
(a) In the event of any registration of any Registrable
Securities under the 1933 Act or registration or qualification of any
Registrable Securities pursuant to Paragraphs 1.2 or 1.3 and to the extent
permitted by law, the Company shall indemnify and hold harmless Winnburn, each
underwriter, if any, each broker or any other person acting on behalf of
Winnburn and each other person, if any, who controls any of the foregoing
persons, within the meaning of the 1933 Act, against any losses, claims, damages
or liabilities, joint or several, to which any of the foregoing persons, may
become subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (each a
"Violation"): (i) an untrue statement or alleged untrue statement of a material
fact contained in any registration statement under which such Registrable
Securities were registered under the 1933 Act, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto, or
any document prepared and/or furnished by the Company incident to the
registration or qualification of any Registrable Securities pursuant hereto,
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
or, with respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made, not misleading, or (iii)
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<PAGE>
any violation by the Company of the 1933 Act or state securities or "blue sky"
laws applicable to the Company and relating to action or inaction required of
the Company in connection with such registration or qualification under such
state securities or "blue sky" laws; and shall reimburse Winnburn, any
underwriter, broker or other person acting on behalf of Winnburn and each
controlling person for any legal or any other expenses reasonably incurred by
any of them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon a Violation made in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by Winnburn or such underwriter specifically for use in
the preparation thereof, and provided further that the indemnity agreement
contained in this Paragraph 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld).
(b) Before Registrable Securities held by Winnburn shall be
included in any registration pursuant to this Agreement, Winnburn and any
underwriter acting on his behalf shall have agreed to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Paragraph
1.10(a)) the Company, each director of the Company, each officer of the Company
who shall sign such registration statement and any person who controls the
Company within the meaning of the 1933 Act, and each agent and any underwriter
for the Company (within the meaning of the 1933 Act) against any losses, claims,
damages, or liabilities to which the Company or any such director, officer,
controlling person, agent, or underwriter may become subject, under the 1933 Act
or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any untrue statement
of any material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or omission was made in such registration
statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by Winnburn expressly for use in connection with such registration; and Winnburn
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, agent, or underwriter in
connection with investigating or defending any such loss, claim, damage,
liability, or action;, provided, however, that the indemnity agreement contained
in this Paragraph 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of Winnburn (which consent shall not be unreasonably
withheld).
(c) Promptly after receipt by an indemnified party under this
Paragraph 1.10 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this paragraph, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires to assume
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<PAGE>
the defense thereof with counsel mutually satisfactory to the parties. The
failure to notify an indemnifying party promptly of the commencement of any such
action, if prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
paragraph, but the omission so to notify the indemnifying party will not relieve
him of any liability that he may have to any indemnified party otherwise than
under this paragraph.
(d) If the indemnification provided for in this Paragraph 1.10
is held by a court of competent jurisdiction to be unavailable to an indemnified
party, with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage which resulted in such loss, liability, claim, damage
or expense as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
1.11. Information by Winnburn. Winnburn shall furnish to the
Company such information as the Company reasonably requests in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in Paragraphs 1.2 or 1.3 of this Agreement.
1.12. Reports under Securities Exchange Act of 1934. With a view to
making available to Winnburn the benefits of Rule 144 under the 1933 Act and any
other rule or regulation of the Commission that may at any time permit Winnburn
to sell securities of the Company to the public without registration, the
Company agrees to use its best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its equity securities to the general public;
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the 1933 Act and the 1934 Act;
and
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<PAGE>
(c) furnish to Winnburn so long as Winnburn owns any of the
Registrable Securities forthwith upon request a written statement by the Company
that it has complied with the reporting requirements of the 1933 Act and the
1934 Act, a copy of the most recent annual or quarterly report of the Company,
and such other reports and documents filed by the Company as may be reasonably
requested in availing Winnburn of any rule or regulation of the Commission
permitting the selling of any such securities without registration.
Provided, however, that the obligations of the Company under this
Paragraph 1.9 shall be suspended during any period during which its compliance
with such obligations is not required by Rule 144 to enable Winnburn to sell
such Registrable Securities, without limitation on amount.
2. Rights Granted to Subsequent Investors. The Company shall not grant
registration rights to future investors in the Company that are inconsistent
with the rights granted herein without the written consent of Winnburn.
3. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may only be
assigned by Winnburn to a transferee or assignee of such securities, provided:
(a) the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
(b) such transferee or assignee agrees in writing to be bound by and subject to
the terms and conditions of this Agreement; and (c) such assignment shall be
effective only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the 1933 Act.
4. Other Transactions. The Company may suspend Winnburn's rights to
make sales pursuant to a registration statement at any time when the Board of
Directors of the Company reasonably believes that (i) due to pending or proposed
corporate developments including, without limitation, a pending or proposed
acquisition, merger, recapitalization, consolidation, reorganization or similar
transaction, or negotiations, discussions or pending proposals related thereto
(herein, a "Corporate Development"), or due to public filings with the
Commission, or due to any other similar events, it is advisable to defer the
effectiveness of the registration statement or request the withdrawal of the
effective registration statement, or (ii) the filing of the registration
statement or the offering of securities pursuant thereto would materially and
adversely affect a Corporate Development or be seriously detrimental to the
Company and its shareholders. The Company shall notify Winnburn if any of the
events described in clauses (i) and (ii) of this Paragraph 4 (herein, a
"Black-Out-Event") are applicable, in which case Winnburn shall be prohibited
from (x) disclosing to any person or entity the existence of Black-Out-Event or
any information related thereto, and (y) during the pendency of a Black-Out
Event, trading any of the shares of Common Stock held by Winnburn until either
(I) receipt by Winnburn of the supplemented or amended prospectus contemplated
by Paragraph 1.5(e) or (II) they are advised in writing by the Company that the
use of the applicable prospectus may be resumed, and Winnburn has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such prospectus. The Company shall use its
-8-
<PAGE>
reasonable efforts to insure that the use of the prospectus may be resumed as
soon as practicable.
5. "Market Stand-Off" Agreement. Investor hereby agrees that, during
the period of duration specified by the Company and an underwriter of the Common
Stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the 1933 Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except common stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement effected by the Company which covers the Common Stock or
other securities of the Company to be sold on its behalf to the public in an
underwritten offering;
(b) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements;
(c) such market stand-off time period shall not exceed one hundred
eighty (180) days;
(d) in order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period; and
(e) notwithstanding the foregoing, the obligations described in
this Section 3.12 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-14 or Form S-15 or similar forms which may be promulgated
in the future.
6. Termination of Registration Rights. Winnburn shall not be entitled
to exercise any rights provided for in this Agreement after the earlier of (a)
October 31, 2001, (b) the date on which all of Winnburn's Registrable Securities
or Registered Securities have been disposed of, or (c) such time at which
Winnburn may transfer all of its Registrable Securities in any single three (3)
month period pursuant to Rule 144 (or such successor rule as may be adopted).
7. Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
-9-
<PAGE>
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
8. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York without giving effect to choice of law
or conflicts of law principles thereof.
9. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10. Notices. Notices given hereunder shall be deemed to have been duly
given on the date of personal delivery or on the date of postmark if sent by
certified or registered mail, return receipt requested or express overnight
courier service, to the party being notified at his or its address specified on
the signature page hereto or such other address as the addressee may
subsequently notify the other parties of in writing. A copy of all notices shall
also be sent simultaneously to Alan L. Zeiger, Esquire, Blank Rome Comisky &
McCauley LLP, One Logan Square, Philadelphia, Pennsylvania 19103, telecopy:
215-569-5628.
11. Amendments and Waivers. Any amendment or waiver effected in
accordance with this Agreement shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
12. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
13. Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15. Delivery by Facsimile. This Agreement and each other agreement or
instrument entered into in connection herewith or contemplated hereby, and any
amendments hereto, to the extent signed and delivered by means of a facsimile
machine, shall be treated in all manner and respects as an original agreement or
instrument and shall be considered to have the same binding legal effect as if
it were the original signed version thereof delivered in person. At the request
of any party hereto or to any such agreement or instrument, each other party
hereto or thereto shall reexecute original forms thereof and deliver them to all
other parties. No party hereto or to any such agreement or instrument shall
raise the use of a facsimile machine to deliver a signature or the fact that any
signature or agreement or instrument was transmitted or communicated through the
use of a facsimile machine as a defense to the formation or enforceability of a
contract and each such party forever waives any such defense.
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<PAGE>
16. Dispute Resolution. All claims, demands, disputes, controversies,
differences, or misunderstandings between the parties arising out of, by virtue
of, or in connection with, this Agreement shall first be negotiated, in good
faith, by the parties, and, if an acceptable resolution does not result, shall
then be submitted to, determined and finally settled by arbitration before the
International Chamber of Commerce (the "ICC"), in accordance with the provisions
of this Paragraph 15. The parties agree that the rules of the ICC then obtaining
for commercial arbitration shall govern any arbitration under this Agreement,
except that to the extent there is any conflict between this Paragraph 15 and
such rules, this Paragraph shall govern. The panel shall be composed of three
(3) arbitrators, with one (1) arbitrator being appointed by each party. The two
arbitrators so appointed shall appoint the third. In the event that the
arbitrators can not, after good faith discussions, agree upon a third
arbitrator, the third arbitrator shall be appointed by the ICC. The decision and
award of a majority of the arbitrators shall be the decision and award of the
panel. Such decision and award shall be final and binding by the parties. All
hearings and proceedings in the arbitration shall take place in New York City,
New York and shall be governed by the substantive law of the State of New York.
This agreement to arbitrate may be specifically enforced by any party. At any
time before a decision of the arbitration panel has been rendered, the parties
may resolve the matter before the panel by settlement. Each party shall bear the
fees of such party's witnesses and such party's own counsel. The other fees and
expenses of the arbitration shall be borne in accordance with the arbitration
award. In the absence of any award or designation within the award, such costs
and fees shall be borne equally by the parties.
* * *
-11-
<PAGE>
IN WITNESS WHEREOF, the Company and Winnburn have executed this
Registration Rights Agreement effective as of the date first above written.
C3D INC.
By: /s/ Eugene Levich
--------------------
Eugene Levich
President and Chief Executive Officer
Address: 235 West 76th Street, Suite 8D
New York, NY 10023
Telecopy: 212-580-4021
WINNBURN ADVISORY
By: /s/ Renee Hamouth
--------------------
Name: Renee Hamouth
Title:
Address: c/o David Craven
World Trade Center
10, route de l'Aeroport
P.O. Box 691
1215 Geneva 15, Switzerland
Telecopy: (41) 022 799 0801
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 24, 1999]
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<PAGE>
RENTAL CONTRACT
UNPROTECTED ACCORDING TO TBE TENANTS'PROTECTION LAW
(VARIOUS INSTRUCTIONS) OF 1968
AS DRAFTED INTO THE TENANTS' PROTECTION LAW (CONSOLIDATED VERSION) OF 1972
Checked and found fit to the original
Advocate and Notary
I1an Shain
License nurnbcr: 5559
Signature Date
- --------- -----
Made and signed in TelAviv on February 8,1998
Between 1. 1. Perel & Co. Ltd., private company no. 51-058094
2. Dar-Eli Construction and Investment Co. Ltd., private company no
51-118394-9
both together and separately and with mutual guarantee between
themselves
of 159 Ygal Alon St.Jel Aviv
hereinafter called "the lessor" on the one hand
---------------
And between Memory Devices M.D. (1996) Ltd., private company no. 51-240389-0
through its authorized directoi- Jacob Malkin, ID no. 303912836 all together and
separately and with mutual guarantee between themselves hereinafter called "the
tenant" on the other hand
-----------------
Whereas The lessor holds and is the owner of a hall marked in drawing no. 112
temporary + kitchenette + 2 'N(~S 4- a protected room inside the property object
of the rental rented witha total of about 227 sq. m. gross (including 10%
participation in its relative part of the common property object of the rental).
These are the details of the common property object of the rental: a) The
place where the garbagre bins will be set according to the plan of the
authorities; b) The entrances (lobbies) of the staircases; c) The elevator
1
<PAGE>
I
shafts; d) Airways and piping ducts; e) Elevators' machine rooms; f) Entrance
lobby to the property object of the rental ftom the elevator. g) The place for
the electricity, telephone boxes (water meters) the hall is on the fifth floor
(above the ground) facing southeast as it shows in the attached drawing painted
yellow and marked with the Hebrew letter 41 aleph" and that is an inseparable
part of the present rental contract, and that is situated in the building Wing
no. 1 new building for high-tech industries with 6 floors and with halls for
hi-tech industries (ground floor + 5 typical floors) with 2 staircases and 2
passenger elevators starting from the ground floor and until th.: Upper floor,
situated in the industrial park Rabin Park Rechovot temporary plot 1006 formerly
parcel 70 block 3695, called "the object of the rental"
And whereas The lessor declares that the property object of the rental is
mortgaged in favor of Union Bank of Israel Ltd. as security for the management
of its business and that as of the day of signature of the contract no legal
stcps were taken by the bank to realize said mortgage.
And whereas The lessor wishes to rent the property object of the rental to the
tenant in rental unprotected by the Tenants' Protection Law (Consolidated
Version) of 1972 and/or any law that shall come in its place or is added about
the same matter (hereinafter - "Tenwits' Protection Law").
And whereas The tenant has decided to rent the property object of the rental
unprotected by the Tenants' Protection Law.
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd. 51 -
Construction and Investment 240389-0]
Co. Ltd.]
2
<PAGE>
ACCORDINGLY, IT IS AGREED, DECLARED AND CONDITIONED
BETWEEN THE PARTIES AS FOLLOWS:
1. The introduction to the present contract forms an inseparable part of it.
2. The parties declare:
A. On August 20, 1968 there were no tenants in the property object of the
rental , defined in the Tenants' ?rotectiori Law as having the night to
hold the property object of the rental ..
B. The property object of the re.atal is located in a new building completed
after August 20, 1968.
C. The property object of the rental is not rented with key money and the
tenant did not pay to the lessor any money and he is not bound to pay to
the lessor any money, except the financial undertakings described in the
present contract.
D. The rental object of the present c.ontrwt is not protected under the
Tenants' Protection Law.
E. The lessor declares explicifly and advises the tenant and the tenant
confirms the notice of the lessor that according to the building permit
held by the contractor Pere] Dar-EIJ and according to the plans of the
Rechovot Local Authority the use of the 'building where the property
object of the rental is situated is for hi-tech industries only and/or
uses permitted according to the building permit and/or the competent
authorities. However, it is expressly emphasized that a basic condition
of the rental contract between the tenant and the lessor is that no use
3
<PAGE>
shall be made of the building where the propeiiy object of the rental is
situated as a workshop, locksmith's workshop, carpentry, garage and other
businesses and shops that cause noise or diit and that the destination of
the units in the building where the property cibj-.ct of the rental is
situated as registered in the regulations of the condominium is high
technology industries excluding those that might caase a use that is
contrary to the Abatement of Nuisances Law of 1961 and. irs regulations,
and also according to the decisions and broadening by the Local Building
and Planning Commission of Rechovot ancl/or any exceptional use, and/or a
change of use as allowed by the Rechovot Local Commission. The tenant
also declares that it is of its knowledge that the halls in the first
floor might serve as exhibition halls, bank branch, halls for commerce
and services and so on, and that it is preverited from claiming that said
use entails a nuisance or causes it any darnage.
Moreover, it is known to it that the structure of Wing C that is in the
front of Wing A shall be used as ail exclusive restaurant and/or
cafetenia and/or another use as permitted by the competent authonities.
3. Canceled.
4. Canceled.
5. A. The lessor undertakes subject to the conditions of the present
contract to rent the property object of the rental starting from April
5, 1998 and until April 4, 2001 (midnight) (hereinafter "the rental
period").
B. In spite of the terms of art. 5 A. above, concerning the rental period,
the tenant shall have an option given by the lessor to extend the rental
period for two additional rental periods (each one of them with 12
months), that is, starting from April 5, 2001 and until April 4, 2003
(midnight) and inclusive by the tenant.
4
<PAGE>
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd. 51 -
Construction and Investment 240389-0]
Co. Ltd.]
In order to dispel any doubts, in case the tenant exercises the option
subject to the conditions of thal present contract, then said option
shall apply to the whole year of rental (of 12 months). The first
extended rental period shall start from April 5, 2001 and end on Apri'l
14, 2002 (midnight) and the second extended renta.1 period shall start on
April 15, 2002 and end on April 4, 2003 (midnight), all according to the
express condition that the tenant has fulfilled all his undertakings as
detailed below:
1) The tenant has faithfully fulfilled all the instructions of rental in
that he has not breactic-d a fundamental breach of the contract during
the rental period and has also made all the payments to the different
authorities as rquired by the present contract.
2) It is agreed between the parties that the option to extend the rental
period shall be exercised automatically for 12 full months of rental
unless the tenant advises the lessor at least 75 days before the end
of the rental peniod or the extended rental period in writing
according to the address above that it is not its intention to extend
the rental period as de~,critbed in art. 5 B. above.
C. The lessor shall be entitled to cancel the rental contract and bring
it to an end, providing it has given advance notice about this in
writing 60 days whenever the tenant has breached or does not fulfill
in due time a fundamental condition of the present rental contract
(hereinafter "fundamental breach"). In spite of the terms of this
article, the tenant is given the possibility to repair the breach
within 30 days from the day of
5
<PAGE>
delivery of said notice by the lessor and in case the breach is not
repaired then the terms of the present article shall be fully valid.
In order to dispel doubts it is agreed between the parties that in
case the lessor breaches a fundamental breach then the tenant shall
have the right to cancel the present rental contract according to the
mechanism mentioned in item 5C above.
6. A. The tenant undertakes to pay to the lessor for each month of the rental
period of the property objecl of the rental the amount of US$ 2,497 + VAT
as against a tax invoice:, equivalent to NIS 8,934 + VAT + linkage
differentials. This amount Includes payment for 4 uncovered parking
spaces on the roof that will be )or the use of the tenant, the places of
the parking will be according to the attached parking plan marked with
the Hebrew letter "Aleph I" and their places are marked in the plan as
122, 123, 124 and 125 in continuity.
In order to dispel any doubts, the rental payment in dollars shall be
translated into NIS according to the basic exchange rate known on the day
of signature of the contTact, that is, on February 8, 1998 and that is
the representative rate of exchange of NIS 3.578 per US$l and in total
NIS 8,934 + VAT as required by law,
B. The monthly rental payment shall. be paid once every 3 months in advance
until the end of the rental period, that is, April 4, 2001 (midnight)
while linked to the Cost-of-Living Index.
1) It is agreed by the parti.-s that the said monthly rental payments
shall be linked to the C onsumer Price Index as defined in the
following detailed defin:ition, and they shall be according to the
payment conditions 1he tenant undertakes to pay the linkage
differences to the Ccnsamer Price Index immediately with the
6
<PAGE>
demand from the lessor together with VAT according to the law as it
applies during the demand for payment.
2) For purposes of the pr.-sent contract, the following terms shall have
the following interpretation: a
"Payment linked to the Consumer Price Index" - If it becomes clear
from the Consuracr Price index published from time to time before any
payment is dite from the tenant according to the present contract
(hereinafter "the new index") that the new index rose compared to the
index published on January 15, 1998 (hereinafter "the basic index")
the 1.3wiment due from the tenant according to the present contract
shall be paid with the increase in the same proportion of the raise of
the new index compared to the basic index, but not less than the basic
index, that is, 153,1 points.
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd. 51 -
Construction and Investment 240389-0]
Co. Ltd.]
3) "ConsurneT Price Index" - The Consumer Price index includes fruit and
vegetables, and it Is :;et by the Central Bureau of Statistics and the
Research Department, or by any other Government body, or any official
index coming in its place, whether it comes or not, if another index
comes, the index shall be according to the proportion set by the said
Bureau bc:tween it and the exchanged index. In case said Bureau duTing
3 months from the day of publishing of the other index does not set
the above proportion - the said proportion shall be set in
consultation with economics experts, in such a way that each party to
the contract appoint one economics expert on its behalf If the two
said experts do not reach agreement they shall
7
<PAGE>
appoint a third expert and the decision of the third expert shall bind
the parties for all purposes.
The dates of the payments mentioned in the present contract are a
fundamental condition of the contract and breach of one of these
conditions shall be censidered a fundamental breach of the contract.
In spite of the terms of the present article, it is agreed between the
parties that a delay of up to 7 days in the payment of rental by the
tenant to the lessor shall not be considered a fundamental breach
ofthe conditions of the contract.
C. On the occasion of signature of the contract the tenant shall pay the
lessor the amount of NIS 26,802 ~toj~;ether with VAT as required by law
on account of rental for the period April, 5, 1998 - July 4, 1998 and the
signature of the lessor on the present rental contract shall serve as
proof for the receipt of the said amount. The balance of rental payments
for the above period starting from July 5, 1998 shall be paid to the
lessor according to art. 6 B. above.
D. It is agreed between the parties that upon the extended option period, as
per the aforementioned Article 5b, will be an addition of 5% to the
monthly rent for the extended. option period only. When the monthly rent
is according to the provisions of this rent contract is adjusted to the
consumer price index as detaitecl on the Article 6b (1,2,3)
aforementioned, and that a rate of 5% will be added during the option
period -i- VAT according to the law.
In order to dispel any doubts, the rental payment for each month of
rental from April 5, 2001 until April. 4., 2003 (midnight) in the amount
of $2,622 + VAT while this amount is trarslated into NIS according to the
basic rate of exchange of the dollar knoxAm on the day of signature of
the present
8
<PAGE>
contract compared to the indox to be known on the day of actual payment
of each and every payment.
In order to dispel any doubts, the payment of VAT shall be made by
postdated check to the 15 of the month of the reported month, that is, 15
of the month after the date of actual payment of the rental payment.
E. It is hereby agreed that non pa)ment of a check and/or note given by the
tenant in due time shall cause -.*:hat the tenant shall bear fees for
lack of honoring the check and/or noi:ewith banking interests for
overdrafts at the rate acceptable at the Union Bank of Israel Ltd.
7. The tenant hereby declares that it is known to it that besides the rental
payments it must pay VAT as required by law.
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd. 51 -
Construction and Investment 240389-0]
Co. Ltd.]
8. A. The tenant shall use the property object of the rental only for the
purposes of high-tech offices business activity computers and all that is
connected with that and shall receive f:or this a license from the
authorities about managing its business in the property object of the
rental .
B. Any advertisement or sign of the tenant shall be paid by the tenant and
be ordered in common through the lessor. The place, size, shape and color
shall be set exclusively by th,.- lessor and/or the architect and
engineer of the building.
C. The tenant hereby declares that ).t has know-how about its business and
its licenses for operations and that before signing the present contract
it had the opportunity to check and it indeed actually checked the
suitability of
9
<PAGE>
the property object of the rental for the purposes of the rental and the
possibility to receive a licens,.- or licenses required to operate the
purpose of the rental in the propefty object of the rental as it is, and
that it found the property object of the rental and concerning the matter
of receiving said license.
The tenant undertakes to manage its business in the property object of
the rental in the framework of the purposes of the rental according to
all the licenses and permits required according to the law of any
authority and/or government, city or any other body for business licenses
and be granted at its account and responsibility any said license and
permit in order to the requirements of the Law.
9. A. The tenant has checked the property object of the rental , found it
suitable to the purposes of the rental and declares that it did not find
any unsuitability. If any such umultability then it waives any remedy
that is given to it for the unsuitability ind also any claim because of
hidden fault and/or after visual checking correct as of the time of
signature of the present contract the terms of the present article shall
be adapted even to construction made in the property object of the rental
according to the building plans that the tenant imdertakes to deliver
within 21 days from the date of signature of the present contract. It is
also known to the tenant that the weight on the ceiling areas - is the
usable weight of 500 kg. per square meter and that before the
introduction of equipment into the property object of the rental it must
receive professional advise and instructions from the building engineer,
Mr. Yaakov Chai,
B. The lessor undertakes at the incment of delivery of the possession of the
property object of the rental, the property object of the rental as
detailed in the attachment attached to tht. present Tental contract. It
is an inseparable part of it and marked with the Hebrew letter "Beit".
10
<PAGE>
C. 1. The tenant hereby undertakes to present within 21 days from the date
of signature of the prestnt contract the building plans of the
property object of the rental if the tenant to the landlord the plans
within 21 days then the rental period that starts on April 5, 1998 and
the date of delivery of the possession shall be delayed for the same
number of days of delay in presentling, the plans.
2. The lessor shall be entitled to delay the delivery of possession of
the property object of the r,-,ntal because of lack of completion of
building and this not later than May 5, 1998 and in this case the
lessor shall give notice to the tenant about the change of date of
delivery of at least 7 days in advance.
In order to dispel any doubts all the dates mentioned in the present
contract and that relate to dates of payment and rental period shall
be changed in accordance to the delay in delivery of possession as
mentioned in this sub-Iteni C.
3. In case of delay in delivery of possession that is a result of an
omission of the lessor beyond May 5, 1998 then the tenant shall be
entitled to cancel the contract and receive back immediately all the
rental payments it has made, linked to the Consumer Price Index.
4. In order to dispel doublis if the tenant presents the plans within 21
days from the date of signature of the present contract then the
lessor tindertakes to finish the construction of the property object
of the rental according to the plans presented to it by the tenant in
due time within 45 days from the date of presentation of the plans. If
the lessor was successful in finishing the construction of the
property object of the rental accoreling to the plans before its time
then it is
11
<PAGE>
agreed between the pixties that the tenant undertakes to receive
possession of the property object of the rental after notice from the
lessor that the property object of the rental is ready for occupation
and in this case all the dztes mentioned in the present contract and
that relate to dates of payment and rental period shall be changed in
accordance to the advanced delivery of possession of the property
object of the rental.
10. The lessor and/or its representative w-e permitted to enter the structurc of
the property object of the rental at any reasonable time and with previous
coordination in order to verify if the instructions of the present contract
are being fulfilled by the tenant, but this check and/or right to check does
not give to the tenant any right to breach and/or continue to breach the
present contract.
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd. 51 -
Construction and Investment 240389-0]
Co. Ltd.]
11. A. It is expressly emphasized that die rental period is of three years
only. That is, from April 5, 1998 till April 4, 2001 (midnight) only and
all according to the conditions that the lessor received the improvement
plans within 21 days from the date of signature of the present contract.
The extended rental periods shall be as detailed aboNe and under the
express condition that the tenant has fulfilled its undenakings according
to the conditions of the contract and in no case no more than the periods
detailed in the present contract in arts. 5 A. and B. above.
12. The lessor declares that the property object of the rental was delivered to
the tenant while it is connected to the electricity gnid and to the water
lines while it has arranged all matters concerning 1:he: connections to
electricity counters at the Electricity Company and the Local Authority on
its account only.
12
<PAGE>
13. Besides the said rental payments, the tenant shall bear payments for the
following matters that will be paid by it starting from the day the tenant
has entered the property object of the rental .
a. General municipal taxes set by the Municipality and Business Tax in case
it is due.
b. Water supply and use of water and electricity bills, garbage fees and any
city fees due by the tenant in the rented property object of the rental .
C. Payment of expenses of senica and maintenance insurance for the
airconditioners and smoke and fire: detectors found in the property
object of the rental .
d. The payments set by the ,ondominium commission or building commission
where the property object of the rental is located and/or expenses for
current maintenanc.- and cleaning of the staircase and patio of said
building. In order to dispel any doubts, the participation of the tenant
in said expenses according to art. 13 d. shall be in proportion to the
area under its use relative to the gerieral area of all the tenants of
the building.
e. it is known to the tenant that ~thf: building where the property object
of the rental is situated shall be managed by a condominium commission by
or through a maintenance company or a management company that shall sign
a contract with the condominium commission and that the tenant undertakes
towards the lessor -m bear all maintenance expenses of the property
object of the rental and the common property object of the rental
attached to it and all according to what is set for each tenant and unit
owners where the property obJect of the rental is situated whether
through the condominium commission c)r through the maintenance company or
management company as decided upon by the condominium commission
13
<PAGE>
or the tenants and owners of units in the building it is agreed between
the parties that in case the cost ofmanagement fees and maintenance
expenses of the common property object of the rental only shall not be
more than US2 at the representative rate of exchange per I sq. m. gross +
VAT as required by law.
14. Any bill submitted according to art. 13 above by the body to whom it is due
payment shall. be an apparent proof for the matter of amount of the debt
relative to bills for the period that only partially related to the periods
when the tenant has rented the property object of the rental , then the
tenant shall pay only its relative part.
In spite of the above, it is agreed between the parties that the tenant
shall have an extension of 21 days from the receipt deniands from the
authorities to check the debt for purposes of payment. After diis it shall
owe the payment.
15. The tenant shall be responsible for any fine, collection fee, interest and
payment imposed for delays in executing said payments in art. 13, and it
shall pay them within 21 days from the date it was required to do so.
16. The lessor is entitled to pay any notice of payment for matters mentioned in
art. 13 above in case they are not paid by the tenant and the tenant has not
received any notice from the several authorities to pay the debts. In this
case, the tenant shall pay to the lessor any amount paid by it within 21
days from receipt of a notice about it from the lessor and against the legal
certifications of the payments that were made, and the tenant shall not be
entitled to object to the amount as per art. 13 above. And this as said
after die tenant has received a respite of 21 days to check the amount of
the debt to the se.-veral authorities.
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd. 51 -
Construction and Investment 240389-0]
Co. Ltd.]
14
<PAGE>
17. A. The tenant undertakes to make reasonable use of the property object of
the rental and it is responsible for any damage in the property object of
the rental and/or any malfunction occurred and/or caused to it, except
damages caused in the property object of the rental by normal wear and
tear.
B. The tenant is not entitled to inake any changes or any investments in the
property object of the rental . If in spite of the instructions of the
present article the tenant makes changes and additions in the property
object of the rental, it shall not be entitled to any payment for them
and the expenses of returning the property object of the rental to its
previous state shall be bome by the tenant and they shall be paid by it
within 21 days from the day of demand from the lessor. In case the tenant
wishes to make any changes for purposes of the rental it must receive
from the lessor its agreement but under the expres3 condition that it is
known to it that any addition added by the tenant -to the structure of
the property object of the rental shall belong to the lessor including
electrical installation installed in the property object of the rental ,
C. Subject to the terms of sub-article B. above, the lessor agrees to make
it possible for the tenant to make internal changes in the property
object of the rental for purposes of th: rental including construction of
additional partitions and/or moving or cancellation of existing
partitions and also to invest investment in the properly object of the
rental but not to destroy external walls and not to damage the
foundations of the structure. And all this under the express condition
that the tenant expressly declares to the lessor that during the
evacuation of the property object of the rental the state of the property
object oil' the rental shall stay as it was at the eve of the evacuation
unless the lessor agrees that these investments shall stay in the
property object of the rental - in this case any addition that the tenant
leaves shall belong to the lessor -without any consideration from its
put.
15
<PAGE>
It is also agreed that in case there will be the need to whitewash the
walls as a result of the use of th-.- property object of the rental the
tenant undertakes to whitewash thern before it evacuates the property
object of the rental .
D. Any waiver or agreement aboul any matter that one party has waivedOT
agreed in favor of the other part), shall only be valid if it is given in
writing and it is signed by it.
18. At the end of the rental period or at 1he end of the extended rental period,
all according to the situation, the tenara 3hall evacuate the property
object of the rental of any person and/or chattel that does not belong to
the lessor and return the possession of the property object of the rental to
the lessor while the property object of the rental is clean and without any
damage, except for reasonable wear and tear (evacuation according to the
present article shall be called "evacuation of the property object of the
rental ").
19. The tenant shall evacuate the property object of the rental immediately, in
The event of any of the following:
A. The tenant has made a fundarnental breach of the present contract and
received a notice in writing about it from the lessor to repair the
breach within 30 days from the notice in registered letter and did not
repair the breach,
B. An order of apprehension of assets is given against the tenant or a
receiving order for its assets is given or a dissolution order against
the tenant and the order is not c2mcelled within 60 days from the date of
the order or if the tenant has given notice of voluntary dissolution.
16
<PAGE>
C. Without prejudice of the above:, the tenant has not paid a payment of the
payments imposed according to the present contract. For instance rental
payments, municipal taxes, payments to the Electricity Company and so on,
for more than a period of '; nionths.
D. Without prejudice to the abvve the tenant uses the property object of the
rental for purposes other than expressly agreed above,
E. In spite of the terms of the piesent article, it is agreed between the
parties that this action which means of the immediate evacuation property
subject of this rental shall not be taken by the tenant unless he was
given beforehand an advance notice, of 30 days in writing to repair the
breach and the breach was not repaired by it. In order to dispel any
doubts the temis of sub-article E valid or). all sub-articles A, 13, C, D
in this article.
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd. 51 -
Construction and Investment 240389-0]
Co. Ltd.]
20. A. If the tenant is obliged to evacuate the property object of the rental
for any reason whatsoever, then the tenant shall pay the lessor for each
day of delay in the evacuation of tie property object of the rental as
above previously agreed compensatiDn of US$150 per day of delay. This
amount shall be paid as exchanged into new Israel] shekels according to
the representative rate of exchange of the dollar at the date of payment
of the compensation agreed in ihe present article. The above agreed
compensation is as defined in the Law of Contracts (Remedies against
breach of contract) of TashW'a - 1971.
B. The above does not contain anything in order to prejudice the night of
the lessor to sue for repossession and/or immediate evacuation of the
tenant from. the property object of the rental and return of the
exclusive use and
17
<PAGE>
possession of the property obj,xt of the rental in its hand or any other
remedy given it by the present contract or according to the law. And all
under the express condition that the lessor has succeeded in its suit
against the tenant.
21. A. The tenant undertakes to take m -asuies of care in order to avoid
damaging actions and/or damages against any person and/or asset and to
prevent the disappearance of any object ftom the structure of the
property object of the rental .
B. The tenant undertakes to compensate the lessor for any amount as decided
against the lessor for suits whose cause of action is damages or damages
to a person and/or assets connected to the property object of the rental
during the rental period whose source and/or are connected directly to
its actions or omissions except events that liappened in public areas.
It is agreed between the parties that said compensation shall be valid in
cases where the tenant is given a. written notice about the suit as above
and the provision of opportunity for the tenant to defend itself against
it.
22. In any case that the tenant evacuates a:ad/or abandons the property object
of the rental within the rental period, wht-th.-r by its own initiative or
for any other reason whatsoever, which depended on him, the tenant shall pay
the lessor the rental payment and all the other pa~mmts due from it
according to the present contract, until the end of the rental pericd.
23. The tenant undertakes to insure on its account the contents of the property
object of the rental with extended fire insix.rance including risks of
burglary, inundation and earthquake for the period of use, and it undertakes
to present to the lessor within 30 days from the date of start ofthe rental
period a valid insurance policy as above and a copy of the temporary c,:)ver
within 10 days there is nothing in the
18
<PAGE>
above in order to prejudice the responsibility of the tenant for any damage
caused to the property object of thei-ental in. the responsibility of the
tenant the insurance policy shall include a condition that the insurer has
no right of return against the lessor and also the tenant undertakes to
insure itself with third party liability insurance including fire,
explosion, natural disasters and panic risks with the limits of
responsibility of NIS 500,000 per case and NIS 1,000,000 according to the
conditions of the policy. The teriEnt shall be the only responsible for any
action whatsoever against the lessor for body damages that arises from the
use of the property object of the rental and it also undertakes to
compensate the lessor for such actions if they are submitted and decided
against it.
In order to dispel any doubts it is agrced between the parties that
insurance for the structure of the property object of the rental shall be
made by the leSSOT.
24. A. It is expressly agreed that th~ ienant is not allowed to rent the
property object of the rental and/or deliver its possession to others
unless it receives the agreement in wn'ting for this from the lessor and
also the tenant undertakes not to transfer the present contract Or any
right or permission or benefit arising from it to another or to allow the
use of the property object of the rental or part of it in any way
whatsoever, except by the workers of the tenant.
B. In spite of the terms of art. 24 YL it is agreed between the parties that
the tenant is entitled to grant in patt of the property object of the
rental the right of use to professionals cor sub-teriants. But the tenant
declares to the lessor that the sub-tenants is only by permission in the
property object of the rental and that any responsibility towards the
lessor falls on the tenant towards the lessor including eva,-,uation of
the property object of the rental by the sub-tenants accordingto the
present rental contract.
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd. 51 -
Construction and Investment 240389-0]
Co. Ltd.]
19
<PAGE>
25. The lessor is entitled to sell the property object of the rental without the
agreement of the tenant to any third party under the condition that the
third party knows that it is buying the propeity object of the rental with a
tenant under contractual conditions between the tenant and the lessor and
that in this case there shall be valid the conditions of the contract even
on the third party until the end including the option to extend the rental
period in case and there will be an extension of the rental period. As
mentioned in the conditions of the present rental contract.
26. Any payment that the other party MUSt make according to the present contract
and the other party has paid it for any justified reason the owing party
undertakes to return immediately to the party who paid it and who does not
owe its payment and all this against presentation of a proper receipt,
together with linkage differences and interest according to the Interest and
Linkage Law.
27. A. It is agreed between the parties that the tenant is not allowed to
bring the present contract to an end bef3re the end of the use period and
even if the tenant stops the use or enjoyinerit of the property object of
the rental for any reason whatsoever before the end of use period, it
undertakes to continue paying for the use until the end of the rental
period according to the present contract. The above does not prejudice
the lessor's right to sue the tenant for any balance of use payment until
the end of the use period according to the contract and also demand from
the tenant any damages caused or to be caused to the property object of
the rental and also demand from the tenant any payment that the tenant
owes according to the contract and did not make it.
B. It is agreed between the parties that in spite of the terms of art. 27 A.
above and art. 22 above, the tenant shall be entitled to advise the
lessor during all
20
<PAGE>
the rental period either the basic one or the first extension or the second
extension if there will be such advance notice of 60 days about its wish to
stop the contracraal rental cornection and all under the condition that It
has the possibility to bring a sub;titute tenant to the satisfaction of the
lessor and who enters into the place of the tenant and adopts the conditions
of the present rental contract. In this case if a proper substitute tenant
is found and a new contract is signed with him about the property object of
the rental the parties shall consider the rental contract as reaching its
end after 60 days from the receipt of the advance notice and under the
condition as said that a new rental contract was signed with the new tenant.
If a substitute tenant is not found the tenant undertakes to fulfill the
conditions of the contract unti.1 the end of the rental period of 12 full
months.
28. A. To assure all the undertakings of the tenant according to the present
contract and without prejudice of the other undertakings of the tenant
including evacuation of the property object of the rental on time, the
payment of any damage caused to the property object of the rental, and
the payment of rental payments and the payments imposed on the tenant in
the present contract. The tenant shall deposit into the hands of its
attorney Adv. Ilan Shain at the delivery of the possession of the
property object of the rental. Autonomous and unconditional bank
guarantee equivalent to 3 months of rental that is USS7,491 linked
Cost-of-Living Index hereinafter "the bank guarantee" this gwxantee shall
be collected by the lessor or its attorney subject to sub-article C.
The tenant undertakes that the: bank guarantee is valid until 3 months +
30 days after the end of the rental period. The cost of this guarantee
shall be borne only by the tenant. Nevertheless what is said in any place
even for what is said in any other placc; i-t is agreed that the bank
guarantee shall be
21
<PAGE>
delivered to the lessor or its attOrney not later than the day of
entrance of the tenant into the property objcct of the rental and its
presentation to the lessor is a condition to the delivery of possession
of the property object of the rental to the tenant.
B. Besides the terms of sub-article A, the tenant shall deposit into the
hands of the trustee attorney Adv. Ilan Shein (hereinafter: "the
advocate") 2 noncommercial checks without dates to the order of the
Electricity Company and the condominium commission of Park Rabin Building
Pninat Binyanei Madah. These checks shall tie returned to the tenant
after a period of 30 days after the evacuation of the property object of
the rental by the tenant and all this in case the tenan't presents proper
receipts that it has paid its debts to the Electricity Comp,W; and to the
condominium commission. In case the tenant does not pr,.-sent these
receipts then the lessor or the attorney shall be entitled tD pay these
debts with these checks after passing of this period in case the tenant
leaves debts with the Electricity Company and to the condominium
commission.
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd. 51 -
Construction and Investment 240389-0]
Co. Ltd.]
C. It is agreed between the parties that the return of the guarantees
described in item A B above to the teriantshall be made only after
presentation of all the receipts required from the tenant for payments
that it paid to the several authorities and to the management company and
all according to the instructions of the present contract.
The tenant hereby gives to the lessor and/or the attorney Adv. Ilan Shein
an advanced and irrevocable order that cannot be cancelled and/or changed
in any way by it that in any case of lack of payment by the tenant of
rental payment and/or other payments set in the present contract with the
22
<PAGE>
addition of said linkage in full ;md in due time and in any case of lack
of evacuation of the properly object of the rental and return of
possession to the lessor according to the instructions of the present
contract the lessor shall have the right by himself or through its
attorney to execute the guarantee.
It is agreed that the lessor and/or its attorney shall not act unless a
written notice was sent by registered mail to the tenant with
confirmation of receipt and 30 days passed i~om the day of sending the
notice and the breach was not repaired. If the breaches are repaired by
the tenant and the tenant paid all its debts to all th,.- authorities and
presented proper receipts the guarantee bill shall be retamed to the
tenant by the lessor or its attorney.
D. It is agreed between the pailies that the receipt of the bank guarantee
and/or the non-commercial .-hi-Icks according to the conditions of the
present contract do not represent a waiver on the part of the lessor of
the right to other remedies agains-t the tenant whether these are
remedies specified in the body of the contract or remedies at the
lessor's disposal from any law effective at the date of signature of the
contract or that will be in effect at the date of the breach.
E. The non-deliveTy of any secun'Eles In due time that originates from the
omission of the tenant is considered a fundamental breach of the contract
by the tenant and the lessor shall be entitled without prejudice to its
other rights to cancel the contract and/or delay the delivery of
possession of the property object of the rental to the tenant according
to its discretion.
29. It is expressly agreed and conditioned that the parties consider the present
contract as a contract that allows the use of the property object of the
rental for the period mentioned in the present contract only or any extended
period if this is done in
23
<PAGE>
accordance to the contract and that at the end of said use period there
shall expire any permission of use of the property object of the rental by
the tenant and no person or body whatsoever except the lessor shall not have
the right to use the property object of the rental anymore or to be in it.
30. It is agreed that in any case that the lessor does not exercise its rights
springing from the present contract any delay or extension shall not be
considered as any waiver and/or agreement and/or confession by it.
31. Any behavior extension or waiver of license to receive money or change shall
not have the power to point to any intention of any party to waive any
rights of its rights according to the present corilract and shall not be
valid legally for any change unless the change was made cxplicitly in
writing and is signed by the parties in writing.
32. It is agreed between the parties that wk:hin 21 days from the date of
signature of the present rental contract the tenant and the lessor shall
communicate to the Municipality, to the Electricity Company to the telephone
company and to other authorities the fact that the tenant is an improtected
tenant in the property object of the rental .
33. The parties set that because the property object of the rental is inside a
new building the responsibility for faulty work or faulty building materials
shall be of the lessorfOTthe possession and maintenance period and in case
of urgent repairs (electrical short circuits, bursting of pipes and so on)
the fault shall be repaired within 24 hours from the time a notke about the
fault if the lessor does not do it then the tenant is entitled to make the
repair on its account and the lessor undertakes to return to the tenant
inunediately even the expenses of this repair according to bills and/or
receipts presented to it from competent professionals for the repairs that
are not urgent and are repaired within 7 days.
24
<PAGE>
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd. 51 -
Construction and Investment 240389-0]
Co. Ltd.]
34. The parties set that a breach of any instruction and/or condition of the
conditions in articles- 5, 8, 9, 13, 17, 19 and 27 above are considered
ftindamental breach of the conditions of the present contract.
35. The parties choose for themselves fo-.r purposes of the present contract and
all that is connected to it the following addresses:
The lessor: As mentioned above (in the introduction)
The tenant: As mentioned above (in the introduction).
Any notice sent by registered mail fi-ora any branch of the Israeli Post
Office by one of the parties to the other according to the above addresses
shall be deemed as received in its destination not later than 72 hours after
it was delivered for mailing as above.
36. The parties have read carefully the contents of the present rental contract
and signed it of their own free will.
37. In case the terms the lessor and/or the tenant speak of more than one person
(or body), each of the individual lessors and/or tenants, according to the
case, is responsible according to the present contract together and
separately. Any time that one of the individual lessors and/or tenant signs
any document, bill, letter, notice of confirmation of any kind in all
matters pertinent to the present contract, its execution or concerning it,
his signature shall bind the other individual lessors and/or tenants,
according to the case ud the signature on the present contract by the
individual lessors and/or tenants shall be considered for all matters as
giving the right to the individual lessors &adt'or tenants according to the
case, among
25
<PAGE>
themselves and from one to the othcr, to bind the other individual lessors
arid/or tenants according to the case in all matters concerning the present
contract.
AND THEREFORE THEY HAVE CAUSED THEIR SIGNATURES TO BE SET
UPON THIS:
(-) (-)
The Lessor The Lesssor
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd.
Construction and Investment 51-240389-0]
Co. Ltd.]
26
<PAGE>
ATTACHMENT B
That is an inseparable part of the rental contract
Made and signed in TelAviv on February 8,1998
Between
1. I. Perel & Co. Ltd., pn.vate company no. 51-058094
2. Dar-Eli Construction and Investment Co. Ltd., private company no.
51-118394-9
both together and separately and with mutual guarantee between
themselves
of 159 Ygal Alon st.,,rel Aviv
hereinafter called "the lessor" on the one hand
---------------
And between
Memory Devices (M.D.) (1996) Ltd., private company no. 51-240389-0 through its
authorized director Jacob Malkin, 1D no. 303912836
of______________________________
hereinafter called "the tenant" on the other hand
-----------------
1. According to the terms of the rental contract in art. 9 (D) the lessor
undertakes to deliver the property subject of the rentai to the tenant with
the property subject of the rental having the following items on account of
the lessor:
A. Decorative ceiling of the Random type 1.22 x 0.61 according to the price
of US$ 17 per meter.
27
<PAGE>
B. Internal division with plaster walls (with the calculation of 25 sq. m.
floor area per room) standard type straight with thickness of 10 cm with
insulation 2 + mortar + Emulldr paint according to the price of US$30 per
sq. m.
C. Each room with a door will have fillings and painted lintel with Formica
covering, or a laminated wood door with oil paint, or a Decoral door
according to the price of US$ 180 per unit of white paint.
D. Floor-to-floor carpeting Logo or Coral Stone, or Bravo at a price of US$
12 per net sq. m. (including labor, panels and depreciation).
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd. 51 -
Construction and Investment 240389-0]
Co. Ltd.]
E. Split air-conditioning or mini-central unit with conditioning power
according to need in the manufacturer's standard.
F. Fire and smoke detection system according to the standard.
G. Lowered ceiling to cover the air-conditioner's motor.
H. 20 light points.
I. Electricity power 40 X 3A (aniperes).
J. 20 electrical outlets.
K. 15 telephone outlets.
28
<PAGE>
L. 15 built-in lighting points 121) x 20 louvre perspex according to the
price of US$50 per unit (including installation).
M. 1 post office box at the entrance lobby at the ground floor.
N. 4 points for cold water + basin and tap equivalent to the existing
accessories in the kitchenette.
It is agreed between the parties that during ihe evacuation of the property
subject of the rental all the items listed above shall stay as property of the
lessor.
AND THEREFORE THEY HAVE CAU!SED THEIR SIGNATURES TO BE SET
UPON THIS:
(-) (-)
The Lessor The Lesssor
[Stamp: I, Perel & Co. Ltd [Stamp Memory Devices
Dar-Eli (M.D.) (1996) Ltd.
Construction and Investment 51-240389-0]
Co. Ltd.]
Checked and found fit to the original
Advocate and Notary
Ilan Shain
License number: 5559
- ------------------------- ---------------
Signature Date
29
<PAGE>
SUBLEASE AGREEMENT
<TABLE>
<CAPTION>
The parties agree as follows:
<S> <C> <C>
Date of this Sublease: November 18, 1999
Parties to this Sublease: Overtenant: Harex Global Corporation
Address for notices: 230 Park Avenue, Suite 453
New York, NY 10169
You, the Undertenant: C3D, Inc.
Address for notices: 235 W. 76th Street, Suite 8-D
New York, NY 10023
If there are more than one Overtenant or
Undertenant, the words "Overtenant" and
"Undertenant" used in the Sublease include
them.
Information from Landlord: May Capital Management Corp.
Over-Lease: Address for notices: 230 Park Avenue, 17th Floor
New York, NY 10169
Overtenant: Harex Global Corporation
Address for notices: 230 Park Avenue, 17th Floor
New York, NY 10169
Date of Over-Lease:
Term: from: to:
A copy of the Over-Lease is attached as an
important part of the Sublease.
Term: 1. One year and one month beginning November 18, 1999
ending December 31, 2000 with an option for one year.
Premises rented: 2. 230 Park Avenue, Suite 433
New York, NY 10169
Two furnished offices, one
conference room (when required),
and one reception area.
Uses of premises: 3. The premises may be used for executive offices only.
Rent: 4. The yearly rent is $36,000.00. You, the Undertenant,
will pay this yearly rent to the
Overtenant in twelve equal monthly
payments of $3,000. Payments shall
be paid in advance on the first
day of each month during the Term.
Security: 5. The security for the Undertenant's performance is $0.00.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Agreement to Lease and 6. Overtenant sublets the premises to you, the Undertenant,
pay rent: for the Term. Overtenant states that it has the authority
to do so. You, the Undertenant, agree to pay the Rent
and other charges as required in the Sublease. You, the
Undertenant, agree to do everything required of you in
the Sublease.
Notices: 7. All notices in the Sublease shall be sent by certified mail,
"return receipt requested".
Subject to: 8. The Sublease is subject to the Over-Lease. It is also
subject to any agreement to which the Over-Lease is
subject. You, the Undertenant, state that you have read
and initialed the Over-Lease and will not violate it in any
way.
Overtenant's duties: 9. The Over-Lease describes the Landlord's duties. The
Overtenant is not obligated to perform the Landlord's
duties. If the Landlord fails to perform, you, the
Undertenant, must send the Overtenant a notice. Upon
receipt of the notice, the Overtenant shall then promptly
notify the Landlord and demand that the Over-Lease
agreements be carried out. The Overtenant shall
continue the demands until the Landlord performs.
Covenant: 10. If the Landlord's consent to
the Sublease is required, this
consent must be received within 10
days from the date of this
Sublease. If the Landlord's
consent is not received within
this time, the Sublease will be
void. In such event all parties
are automatically released and all
payments shall be returned to you,
the Undertenant.
Adopting the Over-Lease 11. The provisions of the Over-Lease are part of the
and exceptions: Sublease.
No Authority: 12. You, the Undertenant, have no authority to contact or
make any agreement with the Landlord about the
premises or the Over-Lease. You, the Undertenant, may
not pay rent or other charges to the Landlord, but only to
the Overtenant.
Successors: 13. Unless otherwise stated, the Sublease is binding on all
parties who lawfully succeed to the rights or take the
place of the Overtenant or you, the Undertenant.
Examples are an assign, heir, or a legal representative
such as an executor of your will or administrator of your
estate.
</TABLE>
<PAGE>
Changes: 14. This Sublease can be changed only by an agreement in
writing signed by the parties to the Sublease.
Signatures:
OVERTENANT:
Harex Global Corp.
/s/ Harvey M. Hament, President
-------------------------------
You, the UNDERTENANT
C3D, Inc.
Witness: /s/ Elizabeth H. Flores /s/ Eugene Levich, President
----------------------- ----------------------------
GUARANTY OF PAYMENT WHICH IS PART OF THE SUBLEASE
Date of Guaranty:
Guarantor and address:
Reason for Guaranty: 1. I know that the Overtenant
would not rent the premises to
the Undertenant unless I
guarantee Undertenant's
performance. I have also
requested for Overtenant to
enter into the Sublease with
the Undertenant. I have a
substantial interest in make
sure that the Overtenant rents
the premises to the
Undertenant.
Guaranty: 2. The following is my Guaranty:
I guaranty the full performance of
the Sublease by the Undertenant.
This Guaranty is absolute and
without any condition. It
includes, but is not limited to,
the payment of rent and other
money charges.
<PAGE>
In addition, I agree to these other terms:
<TABLE>
<CAPTION>
<S> <C>
Changes in Sublease have 3. This Guaranty will not be affected by any change in the
no effect: Sublease, whatsoever. This includes, but is not limited
to, any extension of time or renewals. The Guaranty will
be binding even if I am not a party to these changes.
Waiver of notice: 4. I do not have to be informed about any failure of
performance by Undertenant, I waive notice of
nonpayment or nonperformance.
Performance: 5. If the Undertenant fails to perform under the Sublease,
the Overtenant may require me to perform without first
demanding that the Undertenant perform.
Waiver of jury trial: 6. I give up my right to trial by jury in any claim related to
the Sublease or this Guaranty.
Changes: 7. This Guaranty of payment and performances can be
changed only by written agreement signed by all parti8es
to the Sublease and Guaranty.
Signatures:
</TABLE>
WITNESS: GUARANTOR:
- ------------------------------- -----------------------------------
<PAGE>
EXHIBIT 10.7
OPTIMA SERVICES AGREEMENT (MEMBER)
THIS SERVICES AGREEMENT, (this "Agreement") is made this April 23, 1999
by and between OMNI OFFICES INC. ("Optima")and the undersigned ("Client") C3D,
Inc. for the short term use of certain services and facilities offered by Optima
at 1875 Charleston Road, Mountain View, CA 94043 (the "Facility"). In
consideration of the mutual covenants and conditions contained herein, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. TERM. The term of this Agreement shall begin on July 1, 1999 and end on July
30, 1999 (the "Initial Term"). Upon the expiration of the Initial Term, this
Agreement shall be automatically renewed each month thereafter upon the same
terms and conditions, except as may be otherwise provided herein, for successive
one-month terms (each, a "Renewal Term") unless earlier terminated by either
party upon thirty (30) days advance written notice received by Optima no later
than the first day of any month during the term of this Agreement. The Initial
Term, together with all Renewal Terms, is referred to herein as the "Term" of
this Agreement.
2. BASIC FEE. Client shall pay $1,534.47 (the "Fee") per month during the Term,
which shall entitle the Client to the services listed in Schedule "A". The Fee
may be subject to escalation on the first day of each calendar year if, and in
the same percentage increment that, the rent paid by Optima on the Facility is
escalated pursuant to Optima's lease for the Facility (the "Optima Lease").
3. SERVICES AND FEES. Optima hereby grants to Client the nonexclusive privilege
and right, subject to the terms and conditions contained herein, to use in
common with other customers, tenants, licensees, occupants and other parties
with whom Optima may contract, certain office services (the "Services") provided
by Optima between the hours of 9:00 A.M. and 5:00 P.M. Monday through Friday
(except on public holidays) as described on Schedule "B". Charges for the
Services shall be billed separately from the Fee at the rates indicated on
Schedule "B". Client shall pay all such charges promptly upon receipt of each
invoice for such charges. At any time the charges incurred by Client for the
Services exceed the amount of the Expense Deposit stated below, Optima shall not
be obligated to provide any further Services under this Agreement until the
balance due is reduced below the amount of the Expense Deposit.
4. USE OF SERVICES. Client shall use the Services only for the following
business purposes: computer peripherals and for no other use without Optima's
prior written consent. The following individual shall be entitled to the
Services and the use of the Facility, on behalf of Client: Ingolf Sandler. In
addition for so long as they are employees of Client, shall be entitled to the
Services, and the use of the Facility, on behalf of Client, except that Optima
shall not be obligated to take or receive telephone messages for or on behalf of
such individuals. Client shall be responsible for prompt payment of all invoices
for Services provided to any of the individuals identified in this Paragraph 4.
Furthermore, Client shall use the Services in compliance with all applicable
laws and Client shall not use the Services for any purpose that may be dangerous
to life, limb or property, or that may invalidate or increase the premium of any
insurance policy carried on the Facility or the building containing the Facility
or covering its operation. Client shall not suffer or permit the Facility to be
used in any manner or anything to be brought into or kept therein that, in the
judgment of Optima, shall in any way impair or tend to impair the character,
reputation or appearance of the Facility, or that will impair or interfere with
or tend to impair or interfere with any of the Services provided by Optima for
the Facility. Client shall not be entitled to transfer, assign or sublease its
rights to the Services or under this Agreement to any other person or entity. In
<PAGE>
addition, Client acknowledges receipt of a copy of Optima's Rules and
Regulations, which are incorporated herein by reference, and agrees to strictly
comply with them. Any unauthorized use of the Services by Client or any
violation of the Rules and Regulations shall be deemed a default hereunder and
in addition to any other remedies available to Optima hereunder and both at law
and in equity, Optima shall be entitled to retain the Expense Deposit as partial
liquidated damages and Client acknowledges that this provision is fair and
reasonable under the circumstances and is not a penalty.
5. EXPENSE DEPOSIT. Client shall deposit in advance with Optima a deposit of
$1,900.00 (the "Expense Deposit"). In the event of any default by Client
hereunder, Optima may, cumulative to all other remedies found at law or in
equity, apply or retain all or any part of the Expense Deposit to cure such
default or to reimburse Optima for any damages, losses, claims or expenses
Optima may have incurred by reason of the default. If at the end of the Term
Client shall not be in default under this Agreement, the Expense Deposit, or any
balance thereof, shall be returned to Client without interest. The Expense
Deposit is not to be considered the final payment due under this Agreement.
6. NO LIABILITY. Client acknowledges and agrees that the Services provided are
subject to human, electrical and mechanical error or other failure, which may
result in the delay, omission or discontinuance of the Services. Client further
acknowledges that the Services are without any warranty of any kind or
character. Client's sole remedy, and Optima's sole obligation for any failure to
render any Service, any error or omission, or any delay or interruption with
respect thereto, is limited to an adjustment to Client's billing in an amount
equal to the charge for such Service, for the period during which the failure,
delay or interruption continues. WITH THE SOLE EXCEPTION OF THE REMEDY SET FORTH
IN THIS PARAGRAPH, CLIENT EXPRESSLY AND SPECIFICALLY AGREES TO WAIVE, AND AGREES
NOT TO MAKE, ANY CLAIM FOR DAMAGES, DIRECT OR CONSEQUENTIAL, INCLUDING WITH
RESPECT TO LOST BUSINESS, ARISING OUT OF ANY FAILURE TO FURNISH ANY SERVICE, ANY
ERROR OR OMISSION WITH RESPECT THERETO, OR ANY DELAY OR INTERRUPTION OF THE
SAME. Notwithstanding anything in this Agreement to the contrary, there shall be
no such billing adjustment if Client is in default hereunder. All personal
property of Client located from to time at the Facility shall be at the sole
risk of Client and Optima shall not be liable for and is hereby released from
all liability with respect to damage thereto or theft thereof to the full extent
allowed by law.
7. INDEMNITY. As part of the consideration hereunder, Client expressly
indemnifies and holds Optima harmless from any and all claims, demands, losses,
expenses, injury to either person or property, and any other damage or loss,
including reasonable attorney's fees, which Optima may incur as a result of this
Agreement. Client acknowledges that Optima shall have no liability to Client as
to any claim for damages of any kind or character except such damages resulting
directly from Optima's gross negligence. In no event shall Optima be liable for
the conduct of any other client, tenant, occupant, licensee or invitee of the
Facility, and such conduct shall not give Client the right to terminate this
Agreement.
8. EMPLOYEES. Client recognizes that Optima has expended considerable time,
effort and expense in training Optima's employees so as to provide high quality
service to Client, and that the hiring by Client of Optima's present employees
or any employee employed by Optima within a six (6) month period prior to the
employment offer by Client to such employee would save Client, and cause Optima
to expend, considerable time and expense in training and procurement, the amount
2
<PAGE>
of which cannot be determined with certainty. Should Client, during the Term of
this Agreement or a period of twelve (12) months thereafter, offer employment to
or subsequently employ any employee of Optima who is or was an employee of
Optima at any time during the six (6) month period immediately preceding such
offer of employment by Client, Client shall pay to Optima, as a procurement fee
and not as a penalty, a sum equal to forty percent (40%) of the annual salary
last payable by Optima to such employee or $8,000.00, whichever is greater. The
payment of said procurement fee shall be cumulative to any other rights and
remedies available at law and in equity.
9. DEFAULT. In the event that Fee or charges for the Services are not paid
within five (5) calendar days after receipt of an invoice for Services, or of
written notice from Optima that same have not been paid when due, or if Client
shall fail to comply with any of the terms and provisions of this Agreement,
Optima may discontinue providing any Service to Client without further notice,
including, without limitation, disconnecting telephone services, and Optima may
exercise any and all other rights and remedies Optima may have under this
Agreement or at law or in equity, Client agrees to pay reasonable attorneys fees
and other disbursements incurred by Optima in enforcing any of Client's
obligations under this Agreement.
10. SUBORDINATION. This Agreement and all rights of Client hereunder are and
shall be subordinate to the Optima Leases, as modified or amended, any and all
future leases of the Facility or mortgages, deeds to secure debt or other
instruments encumbering the Facility. This Agreement shall terminate and be of
no further force or affect upon termination of the Optima Lease.
11. NO INTEREST IN PROPERTY. Client expressly acknowledges and agrees that no
easement, usufruct, lease or other estate or interest in real or personal
property is granted by this Agreement.
12. NOTICES. All notices required by this Agreement shall be in writing and
shall be deemed to have been given when hand-delivered or three (3) days after
deposited, postage prepaid, with the United States Postal Service, certified,
return receipt requested, and properly addressed as follows:
If to Optima:
OPTIMA OFFICES/Atlanta
1875 Charleston Road
Mountain View, CA 94043
if to Client: (other than facility address)
C3D, Inc.
747 3rd Avenue
New York, NY 10017
13. INSURANCE. Client acknowledges that it shall be responsible for maintaining
such insurance as Client deems necessary to protect against risk of injury or
damage to person or property, including Client's property. Any fire and extended
3
<PAGE>
risk casualty insurance that Client maintains shall include a waiver of
subrogation in favor of Optima and the landlord under the Optima Lease, and any
fire and extended risk insurance carried on the Facility by Optima shall
likewise contain a waiver of subrogation in favor of Client. In the event the
Facility is damaged, destroyed or taken by eminent domain or acquired by private
purchase in lieu of eminent domain so as to render the Facility untenantable or
unrestorable in Optima's judgment, then within thirty (30) days thereafter by
written notice to the other party, either party shall be entitled to terminate
this Agreement, but otherwise it shall remain in full force and effect.
14. ARBITRATION. In the event Client alleges any claim against Lessor, Lessor
shall have the option of submitting the matter to arbitration on an expedited
basis, pursuant to the procedure established by the American Arbitration
Association in the metropolitan area in which the Premises are located in lieu
of the institution of legal proceedings by Client; Client hereby waiving such
right. The decision of the arbitrator shall be binding on the parties. The costs
of arbitration shall be paid for by the non-prevailing party, as determined by
the arbitrator.
15. CONSTRUCTION. This instrument contains the entire agreement between the
parties relative to the subject matter hereof and may not be modified or waived
except in a writing signed by Optima and Client. This Agreement shall be
construed and enforced in accordance with Georgia law. In the event that any
part of this Agreement shall be held to be unenforceable or invalid, the
remaining parts of this Agreement shall nevertheless continue to be a valid and
enforceable as though the invalid portions had not been a part hereof. Time is
of the essence as to the performance of all covenants, terms and provisions of
this Agreement by Client.
IN WITNESS WHEREOF, Optima and Client have executed this Agreement as of the
date first written above.
OPTIMA:
OMNI OFFICES INC.
By: /s/ C. Thodas
---------------------------
C. Thodas
Title: ___________________________
CLIENT:
C3D, Inc.
By: /s/ Eugene Levich
---------------------------
Title: CEO
<PAGE>
Schedule "A"
------------
Mail Receipt
Telephone Set and Maintenance
Voice Mail
Office #31
8 Hours Small Conference Room Use
Schedule "B"
------------
Services Fees
- -------- ----
Secretarial $17.00 per 1/2 hour
Training Room $85.00 per hour
Copies $0.20 per page
Faxes $1.00 per page
Modem (out only) $5.00 per day
Modem (two-way) $10.00 per day
IBM PC/OMNINET $12.50 per hour
MacIntosh/OMNINET $12.50 per hour
Laser printer $0.20 per page
Storage (container) $15.00 per month
Binding $2.50 (soft cover)
Shipping UPS - $2.00 per shipment + carrier costs
Fed-Ex - $2.00 per package + carrier costs
Express Mail - actual time +
Messenger time
AT&T Language Lines $3.29 per minute
Office Supplies Cost + Secretarial time
In House Travel
Agency Included
Call Announce $50.00 per month
Additional Voice
Mailboxes $25.00 per month
Use of the other OPTIMA locations (based on availability and subject to the
current rate charged at the destination OPTIMA location)
*****RATES SUBJECT TO CHANGE WITH 30 DAY NOTICE*****
4
<PAGE>
RULES AND REGULATIONS
(1) Lessees will conduct themselves in a businesslike manner; proper
attire will be worn at all times; the noise level will be kept to a level so as
not to interfere with or annoy other lessees.
(2) Lessee will not affix anything to the walls of the Premises without
the prior written consent of the Lessor.
(3) Lessee will not prop open any corridor doors, exit doors or doors
connecting corridors during or after business hours.
(4) Lessees using public areas may only do so with the consent of the
Lessor, and those areas must be kept neat and attractive at all times.
(5) All corridors, halls, elevators and stairways shall not be
obstructed by Lessee or used for any purpose other than egress and ingress.
(6) No advertisement or identifying signs or other notices shall be
inscribed, painted or affixed on any part of the corridors, doors or public
areas.
(7) Lessee shall not, without Lessor's written consent, store or
operate any computer (except a desk top computer) or any other large business
machines, reproduction equipment, heating equipment, stove, speaker phones,
radios, stereo equipment or other mechanical amplification equipment,
refrigerator or coffee equipment, or conduct a mechanical business, do any
cooking, or use or allow to be used on the Premises oil, burning fluids,
gasoline, kerosene for heating, warming or lighting. No article deemed extra
hazardous on account of fire or any explosives shall be brought into said
Premises or Facility. No offensive gases, odors or liquids will be permitted.
(8) If Lessee requires any special wiring for business machines or
otherwise, such wiring shall be done by an electrician designated by Lessor at
Lessee's cost. The electrical current shall be used for ordinary lighting
purposes only, unless written permission to do otherwise shall first have been
obtained from Lessor at an agreed cost to Lessee.
(9) If Lessee requires any special wiring for telephone equipment or
otherwise, such wiring shall be done by personnel designated by Lessor at
Lessee's cost. Lessor reserves the right to limit the number and type of lines
Lessee can install in Lessee's premises.
5
<PAGE>
(10) Lessor and its agents shall have the right to enter the Premises
at all reasonable hours for the purpose of making any repairs, alterations or
additions which it shall deem necessary for the preservation, safety or
improvements of said Premises. In addition, Lessor may enter the Premises to
show same at any time within sixty (60) days prior to the end of the term.
(11) Lessee shall give Lessor immediate access to the Premises to show
said Premises on Lessee or Lessor giving notice of intent to vacate in
accordance with the provisions of the Agreement. The Lessee shall in no way
hinder the Lessor from showing said Premises. In addition, Lessor may enter the
Premises to show same at any time within sixty (60) days prior to the end of the
term.
(12) Lessee may not conduct business in the hallways or corridors or
any other areas except in its designated offices without written consent of
Lessor.
(13) Lessee will bring no animals into the Premises or Facility.
(14) Lessee shall not remove furniture, fixtures or decorative material
from offices without written consent of Lessor.
(15) Lessor reserves the right to make such other reasonable rules and
regulations as in its judgement may from time to time be needed for the safety,
care and cleanliness of the Facility.
(16) Lessee shall not smoke nor allow smoking in any area of the
Facility and shall comply with all governmental regulations and ordinances
concerning smoking.
(17) Lessee shall not allow more than three (3) visitors in the
reception lobby of the Premises at any one time.
(18) Lessee shall cooperate and be courteous with all other occupants
of the Facility and Lessor's staff and personnel.
6
<PAGE>
EMPLOYMENT AGREEMENT
Duly executed at 15th on July 1998
BY AND BETWEEN
Memory Devices (M.D.)(1996) Ltd.
("the Company")
of the first part;
AND
Ronen Yaffe (I.D. 024914384)
("the Employee")
of the second part
WHEREAS the Company wishes to employ the Employee according to the terms and
conditions set herein; and
WHEREAS the employee agrees to be employed by the Company according to the said
terms and conditions;
Now therefore in considerations of the mutual promises and agreements, the
parties hereto agree, declare and stipulate as follows:
1. The preamble and any appendix attached hereto shall constitute an
integral part hereof.
2. It should be emphasized in reference to this document that "the
Company" herein also includes certain subsidiary and/or affiliated
companies of the Company.
3. The Company hereby employees the Employee as Chief Financial Officer
("CFO") and the Employee accepts such employment upon the terms and
conditions of this agreement.
4. The Company hereby employs the Employee and the Employee hereby agrees
to serve as CFO for an unlimited term of employment which shall be
terminated (hereinafter called the "Term of Employment") (a) the death
or disability (as defined herein) of the Employee or the termination of
employment by the Company with cause, or (b) upon a 60 day prior
notice, in the event the board of directors of the Company (or any
person nominated by the board of directors to hold such powers), at its
sole discretion, determines to end the employment of the Employee, or
(c) upon a 60 day prior notice, in the event that the Employee
determine to end his employment; or (d) immediately without notice if
the agreement is terminated for cause (as defined below).
<PAGE>
(a) For the purpose of this Agreement, "disability" shall mean any physical
or mental illness or injury as a result of which Employee remains
absent from work for a period of two (2) successive months, or an
aggregate of four (4) months in any twelve (12) month period.
Disability shall occur upon the end of such two-month or four month
period, as the case may be.
(b) For the purpose of this Agreement, "cause" shall exist if the Employee
(i) materially breaches of the terms of this Agreement; (ii) engages in
willful misconduct or acts in bad faith with respect to the Company in
connection with and related to the employment hereunder; (iii) is
convicted of a felony or is held liable by a court of competent
jurisdiction for fraud against the Company and/or any of its officers,
directors or employees in their capacity as so; or (iv) fails to comply
with any material instructions of the Company's Board of Directors
given in good faith.
(c) During the period following notice of termination by any party for any
reason, the Employee shall cooperate with the Company and use his best
efforts to assist the integration into the Company's organization of
the person or persons who will assume the Employee's responsibilities.
6. During the Term of Employment the Employee shall, except during
customary vacation periods and periods of illness, devote all necessary
time and attention to the business of the Company and shall perform his
duties diligently and promptly for the benefit of the Company and shall
not undertake or accept any other paid or unpaid employment of
occupation or engage in or be associated with, directly or indirectly,
any businesses, duties or pursuits and shall devote his attention to
promoting the best interests of the Company and he shall not, either
during or outside such normal business hours engage in any activity
inimical to such best interests. The Employee shall competently perform
all assigned duties; carry out the policies, directives, and decisions
of the Board; not withhold information from the Board, and refrain from
any conduct which is illegal, dishonest, fraudulent, or detrimental to
the Company or any affiliate's business.
7. The Employee represents and warrants to the Company that the execution
and delivery of this Agreement and the fulfillment of the terms hereof
(i) will not constitute a default under a breach of any agreement or
instrument to which he is party or by which he is bound, including
without limitation, any confidentially and non competition agreement,
(ii) does not require the consent of any person or entity (iii) shall
not utilize during the term of his employment any proprietary
information of any third party, including prior employers of the
Employee.
8. The Employee acknowledges that his position requires a special measure
of personal trust as defined in the law of hours work - 1951 and
therefore the Employee shall not be entitled to any additional
compensation for extra hours of work.
9. The Employee shall be employed in the offices of the Company in Israel
but it is agreed that Employee shall be required to spend time in other
offices of the Company world wide and/or at sites outside of Israel.
The Employee agrees to the above and shall not receive any special
reimbursement for trips outside of Israel and/or time spent outside the
Company's offices in Israel, except reimbursement of expenses.
<PAGE>
(a) For the purpose of this Agreement, "disability" shall mean any physical or
mental illness or injury as a result of which Employee remains absent from
work for a period of two (2) successive months, or an aggregate of four (4)
months in any twelve (12) month period. Disability shall occur upon the end
of such two-month or four month period, as the case may be.
10. In consideration for the services provided by the Employee to the Company,
the Employee shall be entitled to compensation and other benefits as
detailed in Appendix A' attached hereto.
11. The Employee undertakes, in addition to any other commitment it may take
upon itself, and without derogating from any such undertaking, to confirm
and fulfill all the undertakings set in the non disclosure, assignment of
rights and non competition undertaking set in Appendix B' attached hereto.
12. Irrespective of the place where this agreement may be executed, in any
event that differences may arise between the parties in any matter
regarding this agreement or arising therefrom, such differences shall be
determined by the laws of the State of Israel in the competent courts of
Tel Aviv.
13. The instructions of this agreement will be abided with respect to all the
extended periods with the necessary modifications as the case may be.
14. The Employee undertakes to keep the terms of this Agreement and the terms
of any Appendix strictly confidential and not disclose this agreement
and/or any of the terms therein and/or any part thereof, to any third party
including any other employees of the Company. Any breach of this
undertaking shall be deemed a material breach of the undertakings of the
Employee according to the terms of this agreement.
15. The Employee hereby declares and confirms that he has read and understood
the Agreement and the appendices attached thereto, had the opportunity to
receive any additional information and clarifications required in
connection thereto and had the opportunity to consult with professional
advisors concerning the terms herein and only after all the above he
executed this agreement.
16. The effective date of this agreement shall be as of July 20, 1998.
In witness whereof the parties hereto have set thereof signatures:
/s/ Ronen Yaffe /s/ Eugene Levich
- -------------------------- ------------------------
Employee the Company
<PAGE>
APPENDIX A
1. In consideration for his employment and subject to the performance of
the services required to be performed hereunder by the Employee, the
Company shall pay to the Employee a Salary (as defined below) and
additional benefits as detailed herein.
2. The Salary (as defined below), shall be defined and paid in NIS.
3. Salary. During the Term of Employment, the Company shall pay to the
Employee the gross sum of NIS 17,500, (which includes the proportional
part of the annual vacation compensation "dmei havraa" to be paid as
part of every salary) less appropriate payroll taxes and other
deductions, ("the Salary") with annual reviews and adjustments which
shall be resolved no later than March 31st of each year, if any, at the
discretion of the Board.
From the Salary, the following shall be deducted- income tax, social
security and any other tax and/or loan and/or another payment which may
be due from time to time on a payment paid by the Company to the
Employee, and which should be deducted from the payment due to the
Employee according to the law and/or the relevant regulations and/or as
agreed with the Employee and subject to any term or condition written
herein above and hereunder in this Employment Agreement.
The Salary shall be paid to the Employee each month, no later than 8
days from the end of the Calendar month for which the salary is paid.
4. Expenses The Company shall reimburse the Employee, upon presentation of
proper documentation, for reasonable expenses incurred by the Employee
in the performance of his assigned duties. In addition, the Company
shall reimburse the Employee for the following expenses:
(a) Reimbursement of expenses incurred by the Employee during his
performance of his assigned duties overseas. The rate of such
reimbursement inclusive of living expenses abroad will be determined
from time to time by the Board.
(b) The Company shall provide the Employee with a car, type and model to be
determined by the Board, according to the customary type of cars
provided to managers in the status of the Employee and shall replace
the said car at lease once every 4 years. Any car maintenance expenses
including insurance, petrol, car repairs, registration etc. shall be
borne by the Company (and that shall be included in the Salary) and
payment of expenses as aforesaid. The Employee shall bear the taxes
levied on him due to the provision of the said car by the Company to
him and such taxes shall be included in the Salary.
(b) The Company shall pay the Employee travel expenses as required by law.
<PAGE>
5. Employee Insurance, Specialization Fund, Severance pay and fringe benefits.
(a) According to the Employee's request, the Company and the Employee shall
insure that during his period of employment in the Company he shall be
insured by an existing Employee Insurance Policy ("Bituach Menahalim"),
registered in his name or by a new policy, in the event that it is no
longer feasible to continue the existing policy in his name, or shall
be insured through payments to a pension plan. The Company shall
allocate for this end 5% of the amount of each monthly Salary to a
remuneration fund ("tagmulim") and 8.33% to a severance fund and 2.33%
as insurance for lack of ability to work and shall also deduct from the
Employee's Salary 5% as his participation to the said remuneration
fund. The said deductions from the Employee's Salary shall be made from
his salary.
(b) To avoid any doubts it is clearly understood by both parties that the
payments in concept of severance either to Managerial Insurance or
pension funds are done in concept of the Company's future obligation to
pay severance to the Employee, and the Employee will be entitled to
receive them upon termination of the agreement for any reason except
for cause ad defined above, and provided that in the case the Employee
is entitled to receive severance payment the amounts that accumulated
in these plans cover the Company's obligation. Should the coverage as
previously stated not be sufficient the Company will take duly care of
completing the amounts to which the Employee is entitled according to
the Law.
(c) The Company shall allocate for a specialization fund (Keren
Hishtalmot), in the Employee's name an amount of 7.5% of the Salary and
shall deduct from his salary 2.5% as the Employee's allocation due to
his participation in such fund, not to exceed the amounts allowed by
the Income Tax Ordinance as a recognized deduction. In case that any
law prohibits the Company from performing its obligations, in whole or
in part, to the Employee according to the provisions of this clause,
the Company shall seek other measures and tools to enable it to perform
these obligations under other procedures so as to provide the Employee
with benefits identical in amount to said obligations.
6. Vacations. The Employee shall be entitled each year to two (2) weeks
vacation and the working days in the Passover and Sukot holidays - chol
and Moaed), however this period does not include Fridays, Saturdays and
holidays whose dates are during the vacation period of the Employee.
The Employee shall be entitled to accumulate vacation days for a period
of upto 2 years and shall not be entitled to redeem his vacation or a
part thereof.
7. Illness. The Employee is entitled to receive the consideration due to
illness during the period of illness upto the amount due for 30 days of
sick leave each year and these will not be deemed as vacation days as
defined in section 6 above. The sick leave days may not be and shall
not be redeemable. The sick days may be accumulated from year to year a
period not to exceed two years.
<PAGE>
8. Reserve Duty. The Employee is entitled to receive the full
consideration for the period his military reserve duty, subject to
delivery of all the documents required for collection of the maximum
possible amount paid by the Social Security due to such military
reserve period. The Company shall receive the funds paid by the social
security.
9. Options. The Employee shall be entitled to receive options of the
Company, as determined by the board of directors, if the Company shall
adopt an option plan for its employees.
10. Bonus. The Employee shall be entitled to receive a bonus if the Company
shall distribute a bonus to its employees, as determined by the board
of directors and dependant of the performance of the Employee and
financial results of the Company.
<PAGE>
APPENDIX B'
Date: _____________
To
Memory Devices (96) (M.D.) LTD
Re: Non disclosure, assignment of rights and non competition undertaking
I the undersigned, Ronen Yaffe (Israeli I.D. 024914384) hereby confirm and
undertake herewith as follows:
1. Due to the fact that I am employed by you and/or any subsidiary and/or
any affiliate and/or parent company of yours (together referred to
jointly as "the Company") and in the framework of my employment by the
Company, I hereby state and undertake towards you that in relation to
any information and document, including data, inventions, patents,
ideas, software or parts of software, software applications, lists of
customers and any technical, business or other information which I may
receive in the framework of my employment in the Company and/or with
any customer, supplier, supplier of services of any type and/or a third
party with whom the Company is currently involved in business relations
with, whether directly or indirectly, including the contents of this
letter of undertaking (the "Information"), I shall act as set herein
below.
2. I hereby undertakes that for the duration of my employment by the
Company and during 5 more years past the termination of my employment
due to any reason whatsoever, I shall keep in complete confidence and
shall not reveal or transfer to any third parties, directly or
indirectly, any of the Information, including of (but limited to) any
information or professional secret and/or research and development and
manufacturing processes which may come to my knowledge due to my work
in the Company and/or in the course of my work in it.
3. a. I shall not be entitled to copy any document furnished to me by
you and which contains the Information or that reached me in any
other way, except for the purpose of which the Information was
given to me and/or in connection with my employment by you. I
further undertake not to remove the Information and/or any part
thereof from the premises of the Company, without the prior
written consent of the board of directors of the Company or a
person nominated to provide such approvals by the board of
directors of the Company.
<PAGE>
b. For the purpose of the instructions of this Letter, each and/or
copying may be deemed as if it were the original document from
which they were made.
c. Document for the purpose of this Letter of Undertaking shall
refer to:
Any presentation of letters, figures or marks in visible shape,
audible or given to visual, audible or other type of deciphering,
as well as any form of maintenance of information by a
mechanical, physical, chemical, magnetic, political, biological
or electronic manner.
4. I shall not disclose the Information, in whole or in part, to any
person whatsoever except as allowed according to the terms of this
letter of undertaking.
5. a. I shall preserve the Information and/or any equipment and/or any
document which includes the Information (or is owned by you) in a
safe manner and will take every action required to the
preservation of the documents which you shall forward to me.
b. I shall inform you as soon as I have knowledge of a loss or
suspicion to a loss of any document which included the
Information and/or any part thereof. I shall also inform you as
aforesaid about any suspicion of leakage of the Information
and/or its transfer to third parties, should I find out about it.
6. The following information shall not be deemed part of the Information,
provided it falls into one of the following categories through no act
or omission committed by me.
a. The Information is public knowledge at the time of its delivery
to me or becomes so through no wrongful act of me.
b. Is rightfully received from a third party without restrictions
and can be evidenced as so.
c. Is approved by release by your written authorization.
7. I shall return to you and/or destroy, upon your first request and/or in
any event of termination of my employment by your Company for whatever
reason, all the Information and shall return to you all equipment
delivered to me by you and every document and/or magnetic media which
includes the Information which is in my possession, along with any
document which has been prepared by me and/or for me relating to the
Information and/or which I received in the framework of my employment
by the Company. I undertake to provide you, no later then 7 days after
your request, with a sworn affidavit giving effect to the above.
<PAGE>
8. I hereby agree and declare that all proprietary information including
but not limited to trade secrets and know-how, patents and other rights
in connection therewith developed by or with contribution of my efforts
during the period of my employment by the Company, shall be the sole
property of the Company and I shall have no rights therein and herein
assign any and all rights I may have, if any, to the Company for no
consideration. I further undertake that I shall execute any document
necessary to assign any patents and/or any other intellectual property
(including copyrights and/or trade secrets) to the Company and
otherwise transfer such proprietary rights to the Company for no
consideration. Further, any document and/or opinion prepare by me shall
constitute a proprietary document belonging to you and I shall not
utilize same for any purpose and shall not introduce same to any third
party, except with your prior consent in writing and I shall have no
claim and/or demand from the Company in connection with any rights as
aforementioned.
My execution of this document shall irrevocably empower the chairman of
the board of directors of the Company and any other person nominated by
board of directors to execute any document to give effect to the above
and the said Chairman or other person so nominated shall have the right
to execute any power of attorney, deed of assignment or contract to
give effect to the above.
Signature: /s/ Ronen Yaffe
----------------------
9. I hereby agree and covenant that so long as (i) I am an employee of the
Company, and/or (ii) I am a director or office holder of the Company,
or designates a director of the Company, whichever is later (such
period, the "Involvement Period"), and for a period of 24 (twelve)
months thereafter, I shall not engage, directly or indirectly, in
research, development and manufacture of products identical to, similar
to, having similar functions to the products manufactured by the
Company or completing with the products manufactured by the Company.
The above shall also apply to products that are in the research and
developments phase. I further undertake that I shall not solicit
employees, customers or suppliers of the Company.
I Further agree and covenant that so long as (i) I am an employee of
the Company, and/or (ii) I am a director or office holder of the
Company, or designates a director of the Company, whichever is later
(such period, the "Involvement Period"), and for a period of 24
(twelve) months thereafter, I shall not engage, directly or indirectly,
in marketing and distribution of products identical to, similar to,
having similar functions to the products manufactured by the Company or
competing with the products manufactured by the Company in identical
markets as the Comp[any operates or intends to operate in. The above
shall also apply to products that are in research and developments
phase.
I hereby agree that during a period of three years from the termination
of my employment wit the Company (including any extension thereof) and
during a period of one year following termination of employment of any
employee of the Company, the later of the two, I shall not employ or
join in any partnership, directly or indirectly, with any individual
employed by the Company.
<PAGE>
10. I acknowledge that the restricted period of time and geographical area
specified in section 9 above are reasonable in view of the nature of
business the Company is engaged in and my knowledge of the Company's
business products. Notwithstanding the above, if the period of time or
the geographical area specified under section 9 shall be determined to
be unreasonable in any judicial proceeding, then the period of time and
area restriction shall be specifically and locally reduced so this
agreement can be enforced in such area and during such period of time
as shall be determined to be reasonable by such judicial proceeding.
11. The undertakings herein shall also apply in respect of any information
received by my by virtue of my employment and/or contacts with third
parties as a representative of the Company (including due to the
activity of the Company as a sub contractor and/or supplier and/or sub
supplier and/or supplier of services) and this undertaking shall be
deemed as if it were a contract in favor of a third party, for all
respects and purposes, as if I have directly obligated myself toward
these same third parties.
12. I also agree that in any event wherein I shall be required to sign an
additional undertaking towards you and/or towards your clients, at your
demand, I shall sign such an undertaking.
13. This letter is in addition to any other undertaking which I have
committed myself to fulfill and nothing in the aforesaid shall derogate
from any other undertaking towards you and/or towards third parties,
which I have signed but shall only add on and enhance such undertaking.
In the event of a contradiction between this letter and any other
undertaking I executed, including my employment agreement, this letter
shall govern.
Signature: /s/ Ronen Yaffe
----------------------
14. I undertake not to breach my above stated undertakings and I also
undertake to indemnify your company in respect of damages, losses,
expenses incurred or that may be incurred by you in the future as a
result of a breach of any of my aforesaid undertakings.
15. This agreement shall be governed and construed in accordance with the
laws of ______________. The competent courts situated in the district
of ______shall have an exclusive jurisdiction in all matters relating
to this agreement.
16. My above undertakings shall survive the termination of my employment by
you and are not limited in except for my undertakings according to
section 9 above., time.
17. Any reference to the Plural shall be construed as the Singular and vice
versa.
Signature /s/ Ronen Yaffe
--------------------------
by:________________________________
title:_____________________________
<PAGE>
LETTER OF INTENT on
COOPERATION C3D-TriDStore-TOOLEX
December 1999
This Agreement is made and entered into this on December 20th, 1999 by and
between
C3D Inc. (f/k/a Latin Venture Partners, Inc.), a Florida corporation ("C3D"),
TriDStore IP, L.L.C. (f/k/a OMD Devices L.L.C.), a Delaware limited liability
company and a wholly owned subsidiary of C3D ("TriDStore")
and
Toolex International N.V., De Run 4315, 5503 LP Veldhoven, The Netherlands and
its subsidiaries (hereinafter referred to as "Toolex")
Witnesseth:
Whereas: Industrialization of multi-layer disc systems and optical cards using
the FMD concepts by CDDD and TriDStore requires out-development of several media
production technologies. Among them are thin layer technologies, embossing thin
sheets, pit filling technologies, thin sheet handling, laminating and assembling
(hereinafter referred to as "thin film technology"). It is still in a
development stage for high volume media production.
Whereas: Toolex, as recognized supplier of production equipment for to-days and
next generation optical media, is interested in advanced production technologies
and especially in thin film production technologies.
Whereas: CDDD, TriDStore and Toolex formed a Steering Group in order to
co-ordinate the implementation of specific development plans as well as to
embody a specific preferred partnership. In addition, the parties went into a
Consultant Contract with the main objective to consult CDDD and TriDStore in
achieving the appropriate industrial and marketing ease for the FMD concept, and
Whereas: CDDD and TriDStore has since then demonstrated the FMD technology.
Integration of the processes and production equipment requires verification of
the concept and scaling up of the embossing, metalizing, and laminating
processes to production level capabilities. This is a necessary risk-reduction
effort for two reasons; the critical nature of the material qualification, and
the precision required for the mechanical components. Optimization of both areas
is especially critical as the technology is extended from CD to beyond DVD
scales for future higher density storage.
The parties now realise that co-operation between CDDD, TriDStore and Toolex in
the pre-embossing of thin sheets may go beyond the commercial delivery of
products (stampers) and services.
<PAGE>
FOR THESE REASONS, NOW IT IS HEREBY AGREED AS FOLLOWS:
1. CDDD, TriDStore and Toolex propose an exclusive co-operative effort to
develop process and equipment for thin film technology. This is focused
on high volume production. This will be done with a program based on
active interchange of ideas and processes that will be engineered into
production machinery and instrumentation.
2. In the performance of this co-operative effort, CDDD and TriDStore will
grant to Toolex specific rights to the technology. The rights shall be
to secure a preferred and economically relevant partner ship for
Toolex. This issue will require future discussion and has to be
finalised before the start of Phase 2.
3. This agreement is intended to provide the initial step leading to the
design of this detailed co-operation plan. This Phase 1 will be
finished per 1-1-2000.
4. In Phase 1, the commercial delivery of products and services can be
extended with insertion of and consults from experts from Toolex. The
necessary transfer of techniques, cautions, and procedures for handling
thin film materials will be dealt with in a Non-disclosure Agreement.
5. Cooperations leading to patent application(s) will be dealt with in a
accompanying Co-Invention Agreement.
6. CDDD, TriDStore and Toolex shall have the right to include a third
party or third parties in this co-operation. This requires a mutual
written agreement.
7. CDDD, TriDStore and Toolex shall have the right to terminate the
arrangements laid down here, if at any time prior to date 1-1-2000,
they come to the justifiable conclusion that the objective cannot be
reached within the current approach.
In order to provide an efficient progress, all actions will be co-ordinated by
the Steering Group members, Professor Eugene Levich at CDDD and TriDStore and
Dr. J.A. Th Verhoeven at Toolex.
The parties recognize that the points reflected in this Letter of Intent have
not received full tax, legal, financial, and other required reviews.
Accordingly, the parties retain the right to modify these points in light of
such reviews.
<PAGE>
This Letter of Intent is subject to formal approval of the Advisory Board of all
parties.
CDDD, Inc. Toolex International N.V.
Place: Veldhoven Place: Veldhoven
Date: 20-12-99 Date: 20-12-99
/s/ Professor Eugene Levich /s/ Dr. J.A. Th. Verhoeven
- ------------------------------- ------------------------------------
Name: Professor Eugene Levich Name: Dr. J.A. Th. Verhoeven
Position: Chairman Position: Strategic Program Manager
TriDStore
Place: Veldhoven
Date: 20-12-99
/s/ Professor Eugene Levich
- -------------------------------
Name: Professor Eugene Levich
Position: Chairman
<PAGE>
CONFIDENTIAL
Co-Invention Agreement C3D-TridStore-Toolex
By and between
C3D Inc. (f/k/a Latin Venture Partners, Inc.), a Florida corporation ("C3D"),
TriDStore IP, L.L.C. (f/k/a OMD Devices L.L.C.), a Delaware limited liability
company and a wholly-owned subsidiary of C3D ("TriDStore")
and
Toolex International N.V., De Run 4315, 5503 LP Veldhoven The
Netherlands and its subsidiaries (hereinafter referred to as "Toolex").
WHEREAS
The parties CDDD, TriDStore and TOOLEX, hereinafter called partners, have
entered into a co-operation program for out-developing and commercialising a
dedicated thin film technology and production equipment for optical media
manufacturing. This is dealt with in Cooperation Agreement CDDD-TriDStore-Toolex
December 1999 and the logical successors thereof. Inventions within this
co-operation may be forwarded into a patent application or patent applications.
NOW IT IS HEREBY AGREED AS FOLLOWS:
1. Title of right of (a) patent (s) generated by CDDD, TriDStore and
Toolex or its employees shall remain to the partner or partners, which
generated it. Employees from both partners can be involved in a
specific invention that may be forwarded towards a patent application.
2. Both partners grant each other royalty free license to use the patents
generated in and relevant for the collaboration on this specific
co-operation program for those industrial applications which can be
seen as a logical consequence of the co-operation program given the
industrial position of that partner.
3. Co-ownership of patent applications can never led to licensing by a
partner to a third party without the written consent of the other
partner. That partner cannot withhold this consent for applications
outside the scope of that partner.
4. The costs related to the patent shall be paid for by the owner(s). If a
patent is generated between the two partners and one partner does not
want to share the costs, the ownership will go to the remaining
partner. This does not impact the right on royalty free license as
mentioned under Clause 2.
5. Inventions leading to patent applications which are done after this
co-operation and which may be partially or fully based on skills and
knowledge explored during this co-operation are not within the scope of
this agreement.
<PAGE>
6. This agreement shall be governed and construed in accordance with the
laws of the State of New York, without giving effect to the conflicts
of law principles thereof.
CDDD, Inc. Toolex International N.V.
Veldhoven, 20 Dec 1999 Veldhoven, 20 Dec 1999
/s/ Professor Eugene Levich /s/ Dr. J.A. Th. Verhoeven
- ---------------------------------- ----------------------------------
Name: Professor Eugene Levich Name: Dr. J.A. Th. Verhoeven
Title: Chairman Title: Strategic Program Manager
TriDStore
Veldhoven, 20 Dec 1999
/s/ Professor Eugene Levich
- ----------------------------------
Name: Professor Eugene Levich
Title: Chairman
<PAGE>
BARRY L. FRIEDMAN, P.C.
Certified Public Accountant
1582 TULITA DRIVE OFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO. (702) 896-0278
C3D Inc.
230 Park Avenue
Suite 435
New York, New York 10169
December 20, 1999
Dear C3D Inc.:
I write you this letter to confirm my resignation, effective October 19, 1999,
as your principal accountant to audit your financial statements. Further, I
hereby confirm that my report on your financial statements for the two years
prior to my resignation did not contain an adverse opinion or a disclaimer of
opinion, and they were not qualified or modified as to uncertainty, audit scope,
or accounting principles. During the two most recent fiscal years and any
subsequent interim period preceding my resignation, there were no disagreements
with me on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope of procedure. I have reviewed the section entitled
"Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure" in the Form 10-12(g) that you filed with the U.S. Securities and
Exchange Commission on November 12, 1999, and I completely agree with all of the
statements therein concerning my firm and the services that it performed for C3D
Inc.
Very truly yours,
/s/ Barry L. Friedman
- ---------------------------------
Barry L. Friedman
Certified Public Accountant
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