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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10
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)
2625 NE 11th Court, Fort Lauderdale, Florida 33304
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(Address of Principal Executive Offices) (Zip Code)
(954) 568-3007
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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.
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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;
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.
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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 Holdings incurred
a net loss of $1,657,458 for the six-months ended June 30, 1999 and $3,191,902
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, broaden
its customer support capabilities 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 certain
assets of Constellation 3D Technology Limited, a British Virgin Island
corporation ("Constellation Tech"). 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. Nevertheless, 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.
The Company as a Going Concern
Due to its lack of operating revenues accumulated, operating losses of
$7,462,105 and need for additional 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 Financial Statements wherein they expressed substantial
doubt about the Company's ability to continue as a going concern.
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Need for Additional Capital
The Company believes that it has sufficient working capital to sustain
its operations through November 1999. 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 seeking to raise additional capital. 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
financing, if obtained, could result in substantial dilution to shareholders.
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.
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 revelent technological knowledge and
capabilities and/or purchase the right for specific technologies and/or purchase
rights on entries having the previous mentioned assets. 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.
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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.
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,
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 have a material adverse
affect.
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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.
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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 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. 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 tortious 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 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 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.
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Seasonality
Some of the Company's products are targeted to the retail consumer.
However, the Company's management does not believe that the markets for the
Company's products, to the extent that any will exist, will be seasonal. The
Company does not believe that there will be a significantly higher proportional
share of total sales occurring in the fourth quarter or sales slowdowns commonly
occurring during the first quarter and summer months. Revenues and growth rates
for any prior quarter will not necessarily be indicative of revenues or growth
rates to be expected in any future quarter.
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.
Government Contracts
No material portion of the Company's business is subject to
renegotiations of profits or termination of contracts at the election of any
government or governmental department, agency or authority.
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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Compliance with Environmental Laws
The Company does not believe that compliance with domestic,
international or foreign environmental provisions which have been enacted or
adopted regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, will have a material adverse
effect on the capital expenditures, earnings or the competitive position of C3D
or any of its subsidiaries.
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 or its
joint ventures 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 Company does not expect
that it will be subject to any legal or regulatory review or approval process.
However, if it is subject to such process, such process, together with any need
for extensive data prior to making application with a governmental or legal
authority, could result in several years elapsing prior to commercial
distribution of the Company's products.
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
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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 expects that it will design all of its products to be Year
2000 compliant so that the Company's products accurately and unambiguously
display, reconfigure, interpret and process all date codes designating the Year
2000 and beyond, including leap years. However, there is no assurance that the
Company or its joint ventures will be able to make all of its products Year 2000
compliant. Moreover, the Company and its joint ventures may have to add
personnel and buy and/or design new software and hardware earlier than planned
to complete Year 2000 compliance efforts, which could cause an unexpected
increase in expenses. Also, the Company's expenses and the expenses of its joint
ventures may increase faster than expected, because Year 2000 issues are causing
and are expected to cause a shortage in the availability of programmers. In
addition, the user of a Company's product may encounter a Year 2000 problem
because of the interaction of a third party's product with the Company's
product.
The Company lacks actual first-hand knowledge of a specific Year 2000
problem which could have a material impact on the Company's ability to conduct
its business. However, it is possible that some of the computer software and/or
firmware programs and/or operating systems used with, in or for the Company's
business or the business of a joint venture cannot or will not accurately and
unambiguously display, reconfigure, interpret or process all date codes
designating the Year 2000 and beyond, including leap years, thereby possibly
resulting in a system failure or miscalculation which could have a material
impact on the Company's ability to conduct its business or its financial
condition. Also, a material portion of the Company's operations occur outside of
the United States. The Year 2000 readiness of foreign countries is a risk factor
that the Company cannot fully and accurately assess. While the Company is making
contingency plans should any problems arise, there is no assurance that the
Company's contingency plans will be able to address all possible problems that
can arise as a result of the Year 2000 issue.
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
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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 will be 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,
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.
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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.
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On July 1, 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").
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 Rapid 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.
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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
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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 for laptop and hand-held computers, but that it also
will offer higher quality video. The Company also believes that this technology
will be ideal for downloading information from the Internet.
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.
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.
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:
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 be a product, allowing 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 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
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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 for ClearCard-ROM.
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.
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:
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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.
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 capacity. The driving forces of
the data storage market include, but are not limited to, 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 capacity 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 ODD 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, "World Compact Disc and Optical Disk Drive
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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) must 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,
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
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
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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 resulted in removable mass storage solutions becoming
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
ODs, 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
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.
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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 and, thus, saving data from a CD-ROM to a hard disk drive would not be an
efficient use of hard disk drive space. 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 fiscal 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 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.
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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
due to a lack of applicable components and of a suitable storage material.
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 micron 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 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 reportedly has the potential to store as
many as 1,000,000 gigabytes 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.
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.
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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 the Frost & Sullivan, "World Compact Disc and Optical
Disk Drive Market" (1997), the Company projects the revenues for the total CD
and ODD market will 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
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 Fluoresent 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
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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
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.
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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 fiscal year 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 of
the 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,
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
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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 this 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 an FMD 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 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.
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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.
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.
Employees
As of October 1, 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.
Common Stock
The Company's common shares, $.001 par value per share (the "Common
Stock"), have been traded under the symbol "CDDD" using the National Association
of Securities Dealers' Over-the Counter Bulletin Board service since April 8,
1999.
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PROPERTIES
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.
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 as the Company's headquarters
and 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.
30
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical consolidated financial data of C3D
for, and as of (1) each of the years ended December 31, 1996, 1997 and 1998 and
(2) the six-month period ended June 30, 1999 has been derived from the Company's
consolidated financial statements, including the notes thereto, which have been
audited by BDO Seidman, LLP, independent auditors. The selected historical
consolidated financial data for, and as of each of the years ended December 31,
1995 has been derived from the Company's unaudited consolidated financial
statements. The results for the six-month period ended June 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>
Six
Months
Ended
June 30, Years Ended December 31
-------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Interest Income............................. $ 14,858 $ -- $ -- $ -- $ -- $ --
Operating Expenses.......................... 699,850 -- -- -- -- --
Net Loss for the period..................... (684,992) -- -- -- -- --
Loss per common share....................... $ (0.14) $ (0.00) $ (0.00) $ (0.00) $ (0.00) $ (0.00)
Weighted average number of shares outstanding 4,678,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
</TABLE>
<TABLE>
<CAPTION>
As of June 30, As of December 31,
-------------- ----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................... $ 704,754 $ -- $ -- $ -- $ --
Working capital (deficiency)................ 540,443 -- -- -- --
Due to related parties...................... 53,862 -- -- -- --
Advances to related companies............... 1,234,837 -- -- -- --
Total assets................................ 1,949,208 -- -- -- --
Non-current liabilities..................... -- -- -- -- --
Stockholders' equity........................ $1,778,028 $ -- $ -- $ -- $ --
</TABLE>
31
<PAGE>
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.
32
<PAGE>
Results of Operations
For the six-months ended June 30, 1999, C3D incurred net losses of
$684,992, 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 six-month period ended June
30, 1999 were $482,500, of which $400,000 relates to compensation provided by
the issuance of 100,000 shares to two directors of C3D for services rendered.
The deemed value is based on the $4 per share price of C3D's common stock as of
the date of such issuance. The remaining $82,500 was management fees paid to C3D
staff for services rendered.
Consulting fees. Consulting fees for the six-month period ended June
30, 1999 were $32,000. 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 six-month period ended
June 30, 1999 were $109,159, the majority of which were related to legal support
for the C3D's application for listing 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 C3D's registration statement.
General and administrative. General and administrative costs for the
six-month period ended June 30, 1999 were to $20,483. The costs represent rent,
telephone, and other general corporate expenses.
Travel and accommodation. Travel costs for the six-month period ended
June 30, 1999 were $50,024, which reflect costs incurred to raise the private
placement funds and the costs of directors travelling to board meetings.
Interest earned. C3D earned $14,858 in interest revenue from cash
advances made to Constellation Tech.
Liquidity and Capital Resources
As at June 30, 1999, C3D's cash position was $704,754 and its working
capital was $540,443.
33
<PAGE>
Since its inception, C3D has financed its operations solely from
capital contributions from shareholders. During the six-month period ended June
30, 1999, C3D received proceeds of $2,063,020 from the sale of Common Stock.
Net cash used in operating activities was $174,543 for the six-month
period ended June 30, 1999 including a net loss of $684,992 and the non-cash
transaction of $400,000 paid by the issuance of Stock. For the six-months ended
June 30, 1999, C3D has advanced Constellation Tech $1,219,979 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
$1,234,837.
Due to its lack of operating revenues, operating losses and 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.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR CONSTELLATION 3D HOLDINGS LIMITED
Overview
Effective July 1, 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 Holdings will be the operating company, because during
the period reported, June 30, 1999, the operations of the Company were still in
Constellation Holdings.
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") in Park Rabin Rechovot,
Israel, and the activities in Israel started moving to it. For the six-months
ended June 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. A significant employee of the Company
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.
35
<PAGE>
On October 1, 1999, C3D completed its acquisition of C-TriD, Vostok,
TriDStore, and TriD SV, and the assumption of certain 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 six-month period ended June 30, 1999 and the fiscal years
ended December 31, 1998 and 1997, represent the consolidated operations of
Constellation Holdings, the predecessor of Constellation Tech for accounting
purposes, and its wholly owned subsidiaries. Constellation Holdings, 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 Constellation Holdings 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
36
<PAGE>
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 November 1999 and is in the process of negotiating for
additional capital. The Company is currently exploring additional financing
alternatives, including the possibility of a private equity offering. 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.
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 Six-Months Ended June 30, 1999 Compared to
Six-Months Ended June 30, 1998
Revenue. Constellation Holdings generated no revenue for the six-month
period ended June 30, 1999 or the six-month period ended June 30, 1998.
Research and System Development Expenses. Constellation Holdings
incurred research and development expenses of $1,062,305 for the six-month
period ended June 30, 1999, as compared to $629,823 for six-month period ended
June 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 $604,565 for the six-months ended June 30,1999 and
$344,285 for the six-months ended June 30, 1998. Professional fees were $383,252
for patent registration for the six-months ended June 30, 1999, and $274,731 for
the six-months ended June 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 $17,881 for the six-months ended June
30, 1999, and $42,037 for the six-months ended June 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.
37
<PAGE>
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 $554,863 for the six-months ended June 30, 1999 compared to $698,810 for
the six-months ended June 30, 1998. Constellation Holdings paid substantially
less for management and facilities charges for the six-months ended June 30,
1999, than it did for the six-months ended June 30, 1998. Payroll expenses and
management fees relating to general and administrative expenses were $170,335
for the six-months ended June 30, 1999, and $280,064 for the six-months ended
June 30, 1998. The decrease was due to the reduction of management fees charged
by Constellation Memory Division from $200,000 for the six-months ended June 30,
1998 to $100,000 for the six-months ended June 30, 1999. Office and maintenance
charges were $197,442 for the six-months ended June 30, 1999, and $117,951 for
the six-months ended June 30 1998. The increase in office and maintenance
charges reflects the increase in the number of facilities Constellation Holdings
is operating from one in Israel for the six-months ended June 30, 1998 to three
facilities for the six-months ended June 30, 1999 consisting of one in Israel,
one in Russia, and one in North America. Travel and accommodation expenses were
$92,777 in the six-months ended June 30, 1999 and $175,071 for the six-months
ended June 30, 1998. The decrease in travel and accommodation expenditures was
due to the reduction of fund-raising activities of Constellation Holdings
management for the six-months ended June 30, 1998 over the six-months ended June
30, 1999 when Constellation Holdings was seeking capital.
Interest and other charges. Constellation Holdings has recorded
interest expenses of $29,920 for the six-months ended June 30, 1999 compared to
$55,724 for the six-months ended June 30, 1998. Interest expense consist of
$15,062 for bank overdrafts and $14,858 for loans from C3D for the six-months
ended June 30, 1999 and $55,724 and $0, respectively, for the six-months ended
June 30, 1998. Constellation Holdings' interest expense decreased due to the
reduction in interest rates charged by creditors compared to the six-months
ended June 30, 1998
Income Taxes. Constellation Holdings has generated minimal
inter-company taxable income to date and therefore has paid $11,000 for the
six-months ended June 30, 1999 and $0 for the six-months ended June 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 Holdings generated no revenue in the fiscal
years ended December 31, 1998 and 1997.
38
<PAGE>
Research and System Development Expenses. Constellation Holdings
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,
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 Holdings 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.
39
<PAGE>
Income Taxes. Constellation Holdings 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 June 30, 1999, Constellation Holdings' cash position was $112,800
and its working capital deficit was $2,815,135 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 Holdings has financed its operations
from capital contributions and short-term financings from shareholders. During
the six-month period ended June 30, 1999, Constellation Holdings received net
proceeds of $1,227,721 from short term loans from shareholders and related
parties, including $1,234,837 in advances from C3D. Constellation Holdings
received proceeds of $4,328,528 from the sale of common stock and had a net
redemption of short term loans of $4,413,567 for the fiscal year ended December
31, 1998.
The Company currently has sufficient working capital to support its
operations through November 1999 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, operating losses and 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.
Net cash used in operating activities was $1,221,831 for the six-month
period ended June 30, 1999, including a net loss of $1,657,458 and an increase
in payables of $424,591. 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 Holdings incurred capital expenditures of $29,865 for the
six-month period ended June 30, 1999 and $129,761 for the six-month period ended
June 30, 1998. These expenditures were primarily for laboratory equipment
associated with Constellation Holdings' continued research and development.
40
<PAGE>
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 November 1999. 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 Holdings has been in the development stage since its
inception. It has had no operating revenue to date, has accumulated losses of
$7,462,105, 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
Market risk inherent in financial instruments outside the financial
statements is considered immaterial.
Year 2000 Issue
The Company has identified several Year 2000 computer failures that it
is reasonably likely to face. However, only a small subset of these failures
could possibly have a material adverse effect on the Company's financial
condition or result in harm to the Company's operations.
The Company believes that the expected cost and availability of
resources to recover information not properly processed after December 31, 1999
will not exceed $20,000. However, there can be no assurance that the Company's
Year 2000 remediation efforts, or those of third parties, will be properly and
timely completed, and the failure to do so could have a material adverse effect
on the Company, its business, results of operation, and its financial condition.
The Company has determined that its suppliers may face Year 2000
problems that may affect the suppliers' ability to provide the materials that
the Company needs to continue its research operations. If one or more of its
suppliers is unable to fill orders for the Company as a result of a Year 2000
41
<PAGE>
computer failure, the Company is prepaid to utilize other suppliers to satisfy
its material requirements. Thus, the Company does not believe that the failure
of one or more its suppliers will have a material adverse effect on the Company.
The Company has determined that its operations in Russia, which accounts for a
material portion of the Company's business, may be materially adversely affected
by the Year 2000 computer problems. 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 computer problem. The Company has put
contingency plans in place to deal with a possible Year 2000 computer problem,
including, but not limited to, equiping all of its Russian facilities with
electrical generators, and hiring additional personnel to address any software
failures that may occur. Finally, in a worst case scenario, the Company is
prepared to relocate its key personnel and operations to the United States.
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 Holdings is an Exhibit
incorporated herein by reference. The Company did not hold any material market
rate sensitive instruments.
42
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As of November 8, 1999, including exercisable options of 175,000, 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 November 8,
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
benefically owned by such person or entity, subject to the information set forth
in the footnotes to the table below. The securities benefically 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 November 8, 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
Name of Beneficial Owner Beneficially Owned Percent
- -------------------------------------------------------------- ------------------ ---------
<S> <C> <C>
Constellation 3D Technology Limited
235 West 76th Street, Suite 8D, New York, New York 10023 .... 9,750,000 70.4%
Rapids Trusts Ltd.(2)
56 Mazah Street,Tel Aviv, Israel 55905 ....................... 9,750,000 70.4%
United European Enterprises (3)
56 Mazah Street,Tel Aviv, Israel 55905........................ 5,362,500 38.7%
Brigadier General Itzhak Yaakov(1)............................ 150,000 (4) 1.1%
Professor Eugene Levich (1)(5)(6)............................. 1,787,500 12.9%
Lev Zaidenberg (1)(5)(7)...................................... 1,787,500 12.9%
Michael Goldberg (1)(5)....................................... 125,000 (8) *
Leonardo Berezowsky (1)(5) (9)................................ 1,787,500 12.9%
All directors and executive officers as a group... 5,637,500 (10) 40.7%
</TABLE>
- ----------------------------
* Less than one percent.
(1) The business address of such person is 2625 NE 11th Court, Fort Lauderdale,
Florida 33304.
(2) Rapids Trusts Ltd., an Israeli trust. Rapids Trusts Ltd. holds of record
100 % of Constellation 3D Technology Limited, for the benefit of certain
persons and entities.
(3) United European Enterprises, a Nevis company, is the beneficial owner of
approximately 55% of the shares of Constellation Tech, which are held of
record by Rapids Trusts Ltd.
(4) 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 November 8, 1999.
(5) Constellation Group, a British Virgin Islands company, hold 100% of United
European Enterprises. Three Lichtenstein trusts, the Alex-L Foundation, the
Lion & Heart Foundation and the Lediligi Foundation, hold 100% of
Constellation Group.
(6) Certain members of Professor Levich's family are among the beneficiaries of
the Alex-L Foundation, that, along with the Lion & Heart Foundation and the
Lediligi Foundation, control Constellation Group.
(7) Certain members of Lev Zaiderberg's family are among the beneficiaries of
the Lion & Heart Foundation, that, along with the Alex L. Foundation and
the Lediligi Foundation, control the Constellation Group.
(8) 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 November 8, 1999.
(9) Leonardo Berezowsky and certain of his family members are among the
beneficiaries of the Lediligi Foundation, that, along with the Alex-L
Foundation and the Lion & Heart Foundation, control Constellation Group.
(10) Includes: (a) 175,000 shares of Common Stock issuable upon Messrs.
Yaakov and Goldberg's exercise of options which are exercisable within 60
days of November 8, 1999; (b) 5,362,500 shares of Common Stock over which
the Lichtenstein trusts share indirect control.
43
<PAGE>
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.
44
<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.
45
<PAGE>
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
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.
46
<PAGE>
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, 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
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.
47
<PAGE>
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
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. He
established 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.
48
<PAGE>
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). C3D's Board of
Directors anticipates that it will fix a date in the near future for an annual
meeting.
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,
except in the event if 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 if 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.
49
<PAGE>
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.
50
<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 200,000 (1)
Chief Executive Officer 1997 200,000 (1)
1996 --
</TABLE>
- ----------------------------
(1) Professor Levich was not directly compensated by C3D for his position as
Chief Executive Officer. However, Constellation Holdings paid management
fees Constellation Memory Division, of which he is a principal.
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.
51
<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 July 15, 1998, 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 17,500 New Israeli
Shekel (approximately US $4,070) 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.
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.
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.
52
<PAGE>
On July 1, 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. 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
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 listed 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*.......................... $25.88 $ 16.06
- ----------------------------
* For the period October 1, 1999 through and including November 3, 1999.
The price of C3D's Common Stock on the NASD's Over-the-Counter Bulletin
Board on November 3, 1999 was $19.00 (high) and $17.88 (low). The close price on
November 3, 1999 was $18.69.
53
<PAGE>
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 October 15, 1999, there were approximately 46 shareholders of
record of the Common Stock.
54
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
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
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.
55
<PAGE>
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. 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.
56
<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.
57
<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 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.
58
<PAGE>
PROFORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF C3D, INC.
Introduction of Proforma Combined Condensed Balance Sheet (Unaudited)
Proforma Combined Condensed Balance Sheets (Unaudited)
Proforma Combined Condensed Statement of Loss (Unaudited)
Notes to Proforma Combined Condensed Financial Statements (Unaudited)
59
<PAGE>
Introduction to Proforma Combined Condensed Balance Sheets (Unaudited)
On October 1, 1999 C3D, Inc. ("C3D") issued 9,750,000 shares of its common stock
to acquire all of the issued and outstanding shares of common stock of
Constellation Tech (the "merger transaction"). In connection with the
acquisition, C3D canceled 975,000 shares of its common stock issued to founders
of the Company. C3D did not acquire two subsidiaries of Constellation Tech
having net assets of approximately $32,000. 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 the merger
transaction treated as a recapitalization of Constellation.
The unaudited pro forma combined condensed financial statements of C3D are based
upon the historical financial statements of the Company and Constellation Tech
after giving effect to the merger 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 transaction 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 acquisition on the Company's financial position and
results of operations. The unaudited pro forma combined condensed balance sheet
as of June 30, 1999 is based on the historical balance sheets of the Company and
Constellation Tech and assumes the acquisition took place on that date. The
combined condensed statements of loss for six months ended June 30, 1999 and the
year ended December 31, 1998, are based on the historical statements of
operations of the Company and Constellation Tech for the same period and assume
the merger transaction 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
Company and Constellation Tech.
1
<PAGE>
C3D Inc.
(A Development Stage Company)
Proforma Combined Condensed
Balance Sheets (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Constellation Proforma
As of June 30, 1999 C3D Tech Adjustments Pro Forma
- --------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash $ 704,754 $ 112,800 $ (72,541) (1a) $ 745,013
Other receivable 6,869 155,248 (8,737) (1a) 153,380
- --------------------------------------------------------------------------------------------------------------------
Total Current Assets 711,623 268,048 (81,278) 898,393
Furniture and equipment, net 2,748 292,073 (58,009) (1a) 236,812
Advances to related companies 1,234,837 -- (1,234,837) (1b) --
====================================================================================================================
Total Assets $ 1,949,208 $ 560,121 $ (1,374,124) $ 1,135,205
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 117,318 $ 434,308 $ (107,094) (1a) $ 444,532
Due to related parties 52,730 1,409,021 (1,234,837) (1b) 226,914
Due to shareholder 1,132 241,490 -- 242,622
Other -- 998,364 -- 998,364
- --------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 171,180 3,083,183 (1,341,931) 1,912,432
- --------------------------------------------------------------------------------------------------------------------
Long-Term Liabilities -- 50,503 -- 50,503
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities 171,180 3,133,686 (1,341,931) 1,962,935
Commitments and Contingencies
Stockholders' Equity
Common stock, $.001 par value 50,000,000
shares authorized, 4,678,000, and
13,453,255 4,678 -- 8,775 (1a) 13,453
Additional paid in capital 2,463,342 4,888,540 (683,767) (1a) 6,668,115
Deficit accumulated during the
development stage (689,992) (7,462,105) 642,799 (1a) (7,509,298)
- --------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,778,028 (2,573,565) (32,193) (827,730)
Total Liabilities and Stockholders' Equity $ 1,949,208 $ 560,121 $ (1,374,124) $ 1,135,205
====================================================================================================================
See Notes to Pro Forma Combined Condensed Financial Statements (Unaudited).
</TABLE>
2
<PAGE>
C3D Inc.
(A Development Stage Company)
Proforma Combined Condensed
Statement of Loss (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Constellation Proforma
Six Months Ended June 30, 1999 C3D Tech Adjustments Pro Forma
- -------------------------------------------- ------------------ ------------------ ------------------- ------------------
OPERATING EXPENSES:
<S> <C> <C> <C> <C>
Interest (income) expense $ (14,858) $ 29,290 $ -- $ 14,432
General and administrative 699,850 554,863 -- 1,254,713
Research and development -- 1,062,305 -- 1,062,305
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses 684,992 1,646,458 -- 2,331,450
- -----------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Taxes 11,000 -- 11,000
- --------------------------------------------------------------------------------------------------- -------------------
Net loss $ (684,992) $ (1,657,458) $ -- $ (2,342,450)
=======================================================================================================================
Basic and diluted loss per share $ (0.17)
=======================================================================================================================
Weighted average number of shares (basic
and diluted) 13,453,255
=======================================================================================================================
Year Ended December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Interest (income) expense $ -- $ (6,985) $ -- $ (6,985)
General and administrative -- 1,534,948 -- 1,534,948
Research and development -- 1,660,477 -- 1,660,477
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses -- 3,188,440 -- 3,188,440
- ---------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Taxes -- 3,462 -- 3,462
- -----------------------------------------------------------------------------------------------------------------------
Net loss $ -- $ (3,191,902) $ -- $ (3,191,902)
=======================================================================================================================
Basic and diluted loss per share $ (6,921.79)
=======================================================================================================================
Weighted average number of shares (basic
and diluted) 200
=======================================================================================================================
See Notes to Pro Forma Combined Condensed Financial Statements (Unaudited).
</TABLE>
3
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Proforma Combined Condensed
Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NOTE 1: (a) Acquisition of Constellation Tech -- Pursuant to the terms of the Asset
Pro Forma Transactions Purchase Agreement dated October 1, 1999, C3D acquired substantially all the
operating assets of Constellation Tech in exchange for 9,750,000 shares of the
Company's common stock. In connection with the transaction, the Company
cancelled 975,000 shares of its common stock issued to company founders. Two
subsidiaries of Constellation Tech, having net assets of 432,193 at June 30,
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. The consideration issued will
be applied to the assets acquired and liabilities assumed based on the relative
fair values at the date of acquisition. For purposes of these pro forma combined
condensed financial statements only, and based on the assets and liabilities of
C3D as at June 30, 1999, this allocation is as follows:
The asset purchase agreement provides for the cancellation of 975,000 shares of
founders' common stock of the company.
(b) To eliminate intercompany balances existing between C3D and Constellation
Holdings as of June 30, 1999. C3D had advanced funds to Constellation Holdings
for expenditures on its behalf.
(c) Share capital as at June 30, 1999 in the pro forma combined condensed balance
sheet is comprised of the following:
</TABLE>
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Proforma Combined Condensed
Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NOTE 1: Number of Par value, Additional
Pro Forma Transactions June 30, 1999 shares $.001 paid-in capital
(continued) ------------------------------------------------------------------------------------
Share Capital, as set out in the
audited consolidated financial
statements of C3D 4,678,255 $ 4,678 $ 2,463,342
Cancellation of founders shares
per purchase agreement (975,000) (975) 975
Net adjustment to pro forma equity
for reverse take-over -- -- (674,992)
Acquisition, including adjustment
required by for par value of
shares issued 9,750,000 9,750 4,878,790
------------------------------------------------------------------------------------
13,453,255 $ 13,453 $ 6,668,115
====================================================================================
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.
</TABLE>
5
<PAGE>
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 due to C3D's listing 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
statement disclosure or auditing scope or procedures. Within C3D's past two
fiscal years, 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 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 the related instructions to this item) or a
reportable event (as described in paragraph 304(a)(1)(v) of Regulation S-K).
60
<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 Sheets as of June 30, 1999, December 31, 1998 and December
31, 1997;
Statements of Operation, Stockholder's Equity and Cash Flows for
the six-months ended June 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 form the date
of inception (September 25, 1997) through June 30, 1999; and
Notes to Consolidated Financial Statements.
(b) Exhibits
61
<PAGE>
C3D Inc.
(A Development Stage Company)
Financial Statements
Six months ended June 30, 1999 and 1998
Three years ended December 31, 1998
<PAGE>
C3D Inc.
(A Development Stage Company)
- --------------------------------------------------------------------------------
Financial Statements
Six months ended June 30, 1999 and 1998
Three years ended December 31, 1998
<PAGE>
C3D, Inc.
(A Development Stage Company)
Contents
- --------------------------------------------------------------------------------
Report of Independent Certified Public Accountants........................ 1
Financial Statements
Balance Sheets....................................................... 2
Statements of Operations............................................. 3
Statements of Changes in Stockholders' Equity........................ 4
Statements of Cash Flows............................................. 5
Notes to Financial Statements........................................ 6 - 9
<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 June 30, 1999, December 31, 1998 and December 31,
1997 and the related statements of operations, stockholders' equity and cash
flows for the six months ended June 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 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.
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 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 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 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 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
October 22, 1999
<PAGE>
C3D Inc.
(A Development Stage Company)
Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31, December 31,
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
<S> <C> <C> <C>
Cash $ 704,754 $ -- $ --
Other receivable 6,869 -- --
- -----------------------------------------------------------------------------------------------------------------------
Total Current Assets 711,623 -- --
Furniture and Equipment, net 2,748 -- --
Advances to Related Company 1,234,837 -- --
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,949,208 $ -- $ --
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 117,318 $ -- $ --
Due to related parties 52,730 -- --
Due to shareholder 1,132 -- --
- -----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 171,180 -- --
- -----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Equity
Common stock, $.001 par value ($.005 par value in 1997);
50,000,000 shares authorized, 4,678,000, 1,000,000 and
1,000,000 issued and outstanding 4,678 1,000 5,000
Additional paid in capital 2,463,342 4,000 --
Deficit accumulated during the development stage (689,992) (5,000) (5,000)
- -----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,778,028 -- --
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 1,949,208 $ -- $ --
=======================================================================================================================
See accompanying notes to financial statements.
</TABLE>
2
<PAGE>
C3D Inc.
(A Development Stage Company)
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative Amounts
from Inception Six Months Ended Year Ended
(December 27, 1995) June 30, December 31,
through June 30, ---------------------- -----------------------------------
1999 1999 1998 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
<S> <C> <C> <C> <C> <C> <C>
General and administrative $ 704,850 $ 699,850 $ -- $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 704,850 699,850 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Interest income (14,858) (14,858) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $(689,992) $(684,992) $ -- $ -- $ -- $ --
====================================================================================================================================
Net loss per common share -- basic
and diluted $ (0.15) $ -- $ -- $ -- $ --
Weighted average number of common shares
outstanding 4,678,000 4,678,000 1,000,000 1,000,000 1,000,000
====================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
3
<PAGE>
C3D Inc.
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Deficit
----------------------------- Accumulated
Additional During
Shares Amount Paid-in capital Development Stage Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
C3D Inc. activities (Formerly known
as Latin Venture Partners,
Inc.):
Issuance of common stock
for cash 1,000,000 $ 5,000 $ -- $ (5,000) $ --
Net loss -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,000,000 5,000 -- (5,000) --
Net loss -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 1,000,000 5,000 -- (5,000) --
Change in par value -- August 3,
1998 -- (4,000) 4,000 -- --
Net loss -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 1,000,000 1,000 4,000 (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
Net loss -- -- -- (684,992) (684,992)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 4,678,255 $ 4,678 $ 2,463,342 $ (689,992) $ 1,778,028
============================================================================================================================
See accompanying notes to financial statements.
</TABLE>
4
<PAGE>
C3D Inc.
(A Development Stage Company)
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
Cumulative Six Months Year Ended
Amounts from Ended June 30, December 31,
Inception ----------------------- ---------------------------
(December 27,
1995) through 1998
June 30, 1999 1999 (unaudited) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
<S> <C> <C> <C> <C> <C> <C>
Net loss $ (689,992) $ (684,992) $ -- $ -- $ -- $ --
Adjustments to reconcile net loss to net
cash used in operating activities:
Issuance of common stock for services 400,000 400,000 -- -- -- --
Change in assets and liabilities:
Other receivable (6,869) (6,869) -- -- -- --
Accounts payable 117,318 117,318 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (179,543) (174,543) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
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 (1,234,837) (1,234,837) -- -- -- --
Proceeds from issuance of common stock 2,068,020 2,063,020 -- -- -- --
Due to related parties 52,730 52,730 -- -- -- --
Due to shareholder 1,132 1,132 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 887,045 882,045 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Cash 704,754 704,754 -- -- -- --
Cash, beginning of period -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 704,754 $ 704,754 $ -- $ -- $ -- $ --
====================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
5
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NOTE 1: Operations -- C3D Inc. ("the Company") was incorporated in the State of Florida on
Description of Business and December 27, 1995 under the name of Latin Ventures Partners, Inc. ("LVPI"). On August
Summary of Significant 3, 1998 the State of Florida approved the Company's restated Articles of Incorporation,
Accounting Policies 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 listing 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, Ltd.
("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.
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.
</TABLE>
6
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>
<C>
NOTE 1: Income Taxes - The Company accounts for income taxes in accordance with the provisions
Description of Business of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
and Summary of ("SFAS 109"). SFAS 109 requires the recognition of deferred tax assets and liabilities
Significant Accounting for the expected future income tax consequences of events that have been recognized
Policies in a company's financial statements or tax return. Under this method, deferred tax
(continued) 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 200:1 stock split declared on August 3, 1998. As of
June 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 since its inception. It has had no
Development operating revenues to date, has accumulated losses of $689,992, and will require
Operations 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 believes it can raise adequate working capital through future sales
of its common stock in private placement transactions. To date, the Company has
raised $2.1 million in private placements and will borrow an additional $300,000
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.
</TABLE>
7
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NOTE 3: In anticipation of the closing of the acquisition for certain assets and liabilities of
Advances to Related Party Constellation Tech, C3D advanced Constellation Tech $1,219,979. The advances are backed
by a promissory note to C3D. All amounts advanced are due on demand with interest thereon
at the annual equal to eight percent. C3D earned interest of $14,858 on the note for a total
balance owing of $1,234,837 as at June 30, 1999.
NOTE 4: Furniture and equipment consists of the following:
Furniture and
Equipment June 30, December 31,
1999 1998 1997
-----------------------------------------------------------------------------------------
Furniture and equipment $ 2,748 $ -- $ --
----------------------------------------------------------------------------------------
Less accumulated depreciation -- -- --
-----------------------------------------------------------------------------------------
Furniture and equipment, net $ 2,748 $ -- $ --
=========================================================================================
NOTE 5: At June 30, 1999 the Company has net deferred tax assets of $227,800 primarily due to
Income Taxes 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 6: Certain operating expenses are paid by a related company, which in turn is reimbursed
Related Party by the Company. For the six months ended June 30, 1999, these expenses were $45,371.
Transactions In addition, the Company paid the related company $11,000 under an informal rental
agreement. The agreement may be cancelled at any time.
The Company retained all key employees under consulting agreements during the six-month
period ended June 30, 1999. These agreements may be cancelled at any time. The expense of these
agreements totaled $82,500, $45,000 of which is included in related party payables.
</TABLE>
8
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NOTE 7: On March 8, 1999 the Company approved the issuance of 100,000 shares of common stock to
Stock and Stock Options certain board members for prior services performed on behalf of the Company.
Grants Accordingly, $400,000 of general and administrative expense was recorded during the
six-month period ended June 30, 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. No expense was recognized upon granting of the
options as the strike price was equal to the market price as evidenced by the
last sale of the Company's common stock to third parties.
NOTE 8: On October 1, 1999, the Company completed the asset purchase agreement and acquired
Subsequent Events substantially all the operations of Constellation Technology Ltd. ("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
provides for the cancellation of 975,000 shares of founders' common stock of the company.
Constellation Tech. has operations in the United States, Israel, and Russia researching and
developing new data storage technology products.
For financial statement purposes, the acquisition will be treated as a reverse acquisition
whereby the Company was acquired by Constellation Tech., 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. As the transaction is a reverse merger with a
public shell and treated as recapitalization of Constellation, no pro forma information related
to this transaction is provided.
On August 10, 1999, C3D issued $1 million of convertible subordinated debt to Seattle Investments
LLC, a limited liability company organized under the laws of Nevis, West Indies ("Seattle
Investments"). 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.
Subsequent to June 30, 1999, the Company issued an aggregate of 2,500 shares of common stock,
which C3D valued at an aggregate of $28,750, to MBA-on-Demand, L.L.C., a Texas limited liability
company, to compensate them for their services.
</TABLE>
9
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
- --------------------------------------------------------------------------------
Consolidated Financial Statements
Six months ended June 30, 1999
Year ended December 31, 1998
Three months ended December 31, 1997
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Contents
- --------------------------------------------------------------------------------
Report of Independent Certified Public Accountants......................... 1
Financial Statements
Consolidated Balance Sheets........................................... 2
Consolidated Statements of Operations................................. 3
Consolidated Statements of Changes in Stockholders' Deficit........... 4
Consolidated Statements of Cash Flows................................. 5
Notes to Consolidated Financial Statements............................6 - 9
<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
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
<S> <C> <C> <C>
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
=======================================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
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 Year Ended Three Months
(September 25, 1997) June 30, December 31, Ended December 31,
through June 30, --------------------------- ---------------------------------
1999 1999 1998 (Unaudited) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
<S> <C> <C> <C> <C> <C>
Interest (income) expense $ 76,156 $ 29,290 $ 55,724 $ (6,985) $ 53,851
Research and development 4,018,960 1,062,305 629,823 1,534,948 1,491,707
General and administrative 3,352,527 554,863 698,810 1,660,477 1,067,187
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 7,447,643 1,646,458 1,384,357 3,188,440 2,612,745
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Taxes 14,462 11,000 -- 3,462 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $ (7,462,105) $ (1,657,458) $ (1,384,357) $ (3,191,902) $ (2,612,745)
====================================================================================================================================
Net loss per common share -- basic
and diluted $ (1.33) $ (6,921.79) $ (20.41) $ (13,063.73)
Weighted average number of common
shares outstanding 1,250,000 200 156,425 200
====================================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Changes in Stockholders' Deficit
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
--------------------- During
Additional Development
Shares Amount Paid-in capital Stage Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <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)
====================================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
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
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
<S> <C> <C> <C> <C> <C>
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
====================================================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
5
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NOTE 1: Operations -- Constellation 3D Holdings Limited and Subsidiaries ("the Company")
Description of Business was incorporated in Ireland on September 25, 1997 under the name of Tandy
and Summary of Holdings Limited. On March 13, 1998 Tandy Holdings Limited changed its name to
Significant Accounting Constellation 3D Holdings Limited. In contemplation of the proposed asset
Policies 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
</TABLE>
6
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NOTE 1: Principles of Consolidation -- The consolidated financial statements include
Description of Business accounts of Constellation 3D Holding Limited and its subsidiaries. All
and Summary of significant intercompany transactions have been eliminated. The results of
Significant Accounting subsidiaries are included from the date of incorporation, on the basis that
Policies results prior to the date of incorporation of the holding company are deemed
(continued) 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.
</TABLE>
7
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NOTE 1: Income Taxes - The Company recognizes deferred tax assets and liabilities for
Description of Business the expected future income tax consequences of events that have been recognized
and Summary of in a company's financial statements or tax return. Under this method, deferred
Significant Accounting tax assets and liabilities are determined based on the temporary differences
Policies between the financial statement carrying amounts and their tax basis using
(continued) 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 its inception. It has had no
Development operating revenues to date, has accumulated losses of $7,462,105, and will require
Operations 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 June 30, December 31,
1999 1998 1997
--------------------------------------------------------------------------------------
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
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NOTE 4: In anticipation of the closing of the acquisition as discussed in Note 5, C3D advanced
Related Party the Company $1,219,979. The advances are backed by a promissory note to C3D. All
Transactions 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 all of the Company's operations
Subsequent Events through an asset 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:
For the Six Months For the Year Ended
Ended December 31,
(unaudited) June 30, 1999 1998
---------------------------------------------------------------------------------------
Net loss ($2,328,000) ($3,191,902)
Basic and diluted loss per share ($0.17) ($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.
</TABLE>
9
<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 by and between C3D Inc. and MBA-on-Demand, L.L.C.+
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 Optima Services Agreement (Member), dated April 23, 1999, by and between Omni
Offices Inc. and C3D Inc.
10.7 Employment Agreement dated July 15, 1998, by and between Memory Services
(M.D.) (1996) Ltd. and Ronen Yaffe.
21.1 Subsidiaries of the Registrant*
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* The subsidiaries of C3D and their places of organization are listed in the
Business section of this Registration Statement.
+ to be filed by amendment
<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>
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 Luxemburg corporation
Dated as of October 1, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I - THE ASSET PURCHASE.................................................2
1.1 The Asset Purchase..................................................2
1.2 The Closing..........................................................2
1.3 Assets to be Sold....................................................2
1.4 Assumed Liabilities.................................................2
1.5 Subcontracting Services.............................................3
1.6 Transfer of Rights...................................................3
ARTICLE II - THE PURCHASE PRICE................................................3
2.1 The Purchase Price...................................................3
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLER.....................3
3.1 Organization and Qualification.......................................3
3.2 Capitalization......................................................3
3.3 Authorization and Validity...........................................4
3.4 Consents and Approvals; No Violation.................................4
3.5 Contracts; Debt Instruments..........................................4
3.6 Actions Pending......................................................4
3.7 Labor Matters........................................................5
3.8 Title to Properties..................................................5
3.9 Taxes................................................................5
3.10 Patents, etc.........................................................5
3.11 Insurance Policies...................................................5
3.12 Disclosure...........................................................5
3.13 Acknowledgment Regarding the Asset Purchase..........................5
3.14 Investment Intent....................................................6
3.15 Other Representations and Warranties of the Seller...................6
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE BUYER.......................6
4.1 Authorization and Validity...........................................6
4.2 Consents and Approvals; No Violation.................................7
4.3 Capitalization.......................................................7
4.4 Litigation...........................................................7
4.5 Absence of Benefit Plans.............................................8
4.6 Contracts; Debt Instruments..........................................8
4.7 Actions Pending......................................................8
4.8 Labor Matters........................................................8
4.9 Title to Properties..................................................8
4.10 Disclosure...........................................................8
4.11 Investment Intent....................................................8
4.12 Acknowledgment Regarding the Asset Purchase..........................9
i
<PAGE>
4.13 Other Representations and Warranties of the Buyer....................9
ARTICLE V - COVENANTS.........................................................10
5.1 Mutual Covenants of the Seller and the Buyer........................10
ARTICLE VI - CONDITIONS TO CONSUMMATION OF THE TRANSACTION....................10
6.1 Conditions to Buyer's Obligations for the Closing...................10
6.2 Conditions to the Seller's Obligations for the Closing..............11
ARTICLE VII - TERMINATION; AMENDMENT; INDEMNIFICATION.........................11
7.1 Termination.........................................................11
7.2 Effect of Termination...............................................11
7.3 Amendment...........................................................12
7.4 Indemnification.....................................................12
ARTICLE VIII - MISCELLANEOUS..................................................12
8.1 Extension; Waiver...................................................12
8.2 Entire Agreement; Assignment........................................12
8.3 Survival; Enforcement of the Agreement..............................12
8.4 Validity............................................................12
8.5 Notices............................................................12
8.6 Descriptive Headings................................................13
8.7 Governing Law.......................................................13
8.8 Counterparts........................................................13
8.9 Delivery by Facsimile...............................................13
ii
<PAGE>
ASSET PURCHASE AGREEMENT
This AGREEMENT, dated as of October 1, 1999 (the "Agreement"), is by
and among C3D INC. (f/k/a Latin Venture Partners, Inc.), a corporation organized
under the laws of Florida (the "Buyer"), CONSTELLATION 3D TECHNOLOGY LIMITED
(f/k/a Dominion Intertrade Limited), a corporation organized under the laws of
the British Virgin Islands (the "Seller"), TriD Store, Inc., a corporation
organized under the laws of Delaware ("TriD Store, Inc."), and TriD IP S.A., a
corporation organized under the laws of Luxembourg ("TriD IP S.A.").
W I T N E S S E T H:
WHEREAS, the Buyer and Constellation 3D Holdings, Limited, a
corporation organized under the laws of Ireland ("Constellation"), were each a
party that certain stock purchase agreement, dated as of March 8, 1999 (the
"March 1999 Stock Purchase Agreement"), by and among the Buyer, Constellation,
TriD IP S.A. and TriD Store, Inc.; and
WHEREAS, the Buyer, Constellation, TriD IP S.A. and TriD Store, Inc.
have each agreed, among other things, to fully amend and restate the March 1999
Stock Purchase Agreement in the form of this Agreement; and
WHEREAS, pursuant to that certain stock purchase agreement, dated as of
September 19, 1999 (the "September 1999 Stock Purchase Agreement"), by and
between Constellation and the Seller pursuant to which Constellation sold all of
the assets of Constellation set forth on Appendix I of the September 1999 Stock
Purchase Agreement, including but not limited to the capital stock or other
equity interests held by Constellation in C-Trid Israel Ltd., a corporation
organized under the laws of Israel, TriDStore IP L.L.C., a limited liability
company organized under the laws of Delaware ("TriDStore IP"), TriD SV, Inc., a
corporation organized under the laws of Delaware, and TriD Store Vostok, a
corporation organized under the laws of Russia ("Vostok") (the capital stock of
Vostok was beneficially held by TriD Store, Inc. as trustee for Constellation),
to the Seller for total consideration of US$1 and the assumption of all of the
liabilities of Constellation; and
WHEREAS, TriD Store, Inc. acknowledges that it beneficially held 1,000
ordinary shares of common stock of Vostok, which represents all of the issued
and outstanding capital stock of Vostok, as trustee for Constellation, and that
such shares are currently beneficially held by TriD Store, Inc. for the Seller
pursuant to the September 1999 Stock Purchase Agreement; and
WHEREAS, the Seller desires to sell to the Buyer the Seller's Offered
Assets (as defined in Section 1.3 below) and the Boards of Directors of the
Buyer, the Seller, TriD Store, Inc. and TriD IP S.A. have each determined that
it is in the best interests of their respective companies and shareholders for
the Buyer to acquire the Seller's Offered Assets upon the terms and subject to
the conditions set forth herein; and
<PAGE>
WHEREAS, the Board of Directors of the Seller and its shareholders have
approved the purchase by the Buyer of the Seller's Offered Assets (the "Asset
Purchase") upon the terms and subject to the conditions set forth herein; and
WHEREAS, each of the Buyer, the Seller, TriD Store, Inc. and TriD IP
S.A. desires to provide for the consummation of the Asset Purchase and certain
other transactions relating thereto upon the terms and subject to the conditions
set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
THE ASSET PURCHASE
1.1 The Asset Purchase. Subject to and upon the terms and conditions
set forth in this Agreement, the Seller will sell, transfer, convey, assign and
deliver the Seller's Offered Assets to the Buyer for the Purchase Price (as
defined in Section 2.1 below) and the Buyer agrees to purchase the Seller's
Offered Assets from the Seller, all effective as of 12:01 a.m. on the Closing
Date (as defined in Section 1.2 below) (the "Effective Time").
1.2 The Closing. The closing of the transactions contemplated in this
Agreement (the "Closing") will take place at the offices of Blank Rome Comisky &
McCauley LLP in Philadelphia, Pennsylvania at 10:00 a.m., local time, on October
1, 1999 or within five Business Days (as defined below) following the date on
which the last of the conditions set forth in Article 5 is satisfied or waived
in accordance herewith, or at such other place, time or date as the parties may
agree (the "Closing Date"). For purposes of this Agreement, a "Business Day"
shall mean a day other than a Saturday, Sunday or a statutory holiday in
Philadelphia, Pennsylvania.
1.3 Assets to be Sold. Subject to the terms and conditions of this
Agreement, at Closing and as of the Effective Time, the Seller will sell,
transfer, convey, assign and deliver to the Buyer, and the Buyer will purchase,
assume and acquire from the Seller, free and clear of any and all encumbrances
(other than the security interests in the Patent Collateral (as defined in the
Patent Security Agreement) granted to Seattle Investments LLC pursuant to that
certain Patent Security Agreement, dated as of August 10, 1999, by and between
TriDStore IP and Seattle Investments LLC (the "Patent Security Agreement")) the
Seller's Offered Assets as set forth on Schedule "A" attached hereto (the
"Seller's Offered Assets").
1.4 Assumed Liabilities. At Closing, the Buyer will assume and agree to pay,
perform and observe and otherwise discharge, effective from and after the
Closing Date all obligations and liabilities of the Seller (i) related to the
Seller's Offered Assets, and (ii) as set forth on the audited balance sheet of
the Seller as of September 30, 1999. The Buyer assumes no obligations or
liabilities of the Seller other than as stated in the previous sentence.
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1.5 Subcontracting Services. The Seller shall use its best efforts to
assist the Buyer in retaining the services of certain subcontracting personnel
utilized by the Seller in connection with the operation of their respective
businesses.
1.6 Transfer of Rights. The Seller agrees to transfer to the Buyer, to
the extent permissible, the option to purchase Memde Israel Ltd., a corporation
organized under the laws of Israel.
ARTICLE II
THE PURCHASE PRICE
2.1 The Purchase Price. In consideration of the sale, transfer,
conveyance, assignment and delivery of the Seller's Offered Assets by the Seller
to the Buyer, and in reliance upon the representations and warranties made
herein by the Seller, the Buyer will, in full payment thereof, deliver to the
Seller Nine Million Seven Hundred Fifty Thousand (9,750,000) shares of its
common stock, par value $.001 per share (the "Common Stock"), at the Closing
Date (the "Purchase Price").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Buyer as follows:
3.1 Organization and Qualification.
(a) The Seller is a corporation duly organized and validly existing
under the laws of the British Virgin Islands, and has all corporate power
necessary to engage in all transactions in which it has been involved as well as
any general business transactions in the future that may be desired by its
directors. The Seller is in good standing under the laws of the British Virgin
Islands.
(b) The Seller has previously delivered to the Buyer complete and
correct copies of its memorandum of association and articles of association, as
currently in effect, of the Seller.
3.2 Capitalization. As of the Closing Date, the authorized, issued and
outstanding shares of capital stock of the Seller and the names and addresses of
the record owners thereof are as set forth on Schedule "B" attached hereto.
There are no outstanding subscriptions, options, warrants, convertible
securities in regard to the authorized but unissued common stock of the Seller.
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3.3 Authorization and Validity. The Seller has the requisite corporate
power and authority to execute and deliver this Agreement and all agreements and
documents contemplated hereby or executed in connection herewith (the "Ancillary
Documents") and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Ancillary Documents by the
Seller of the transactions contemplated hereby and thereby have been duly and
validly authorized by the Board of Directors and shareholders of the Seller, and
no other corporate proceedings on the part of the Seller are necessary to
authorize this Agreement and the Ancillary Documents or to consummate the
transactions contemplated hereby and thereby. This Agreement has been, and any
Ancillary Documents at the time of executions will have been, duly and validly
executed and delivered by the Seller, and (assuming this Agreement and such
Ancillary Documents each constitutes a valid and binding obligation of the
Buyer) constitutes and will constitute the valid and binding obligations of the
Seller, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
3.4 Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement or any of the Ancillary Documents by the Seller nor
the consummation of the transactions contemplated hereby or thereby will
conflict with, or result in any violation of or default (with or without notice
or lapse of time or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any lien upon any of the properties or
assets of the Seller under, (a) the certificate of incorporation or bylaws of
the Seller (or equivalent governing instruments), (b) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the Seller or
its properties or assets or (c) subject to any judgment, order decree, statute,
law, ordinance, rule or regulation applicable to the Seller or its properties or
assets, other than, in the case of clauses (b) or (c), any such conflicts,
violations, defaults, rights or liens that would not have a material adverse
effect. The Seller is not in violation of any provisions of laws or regulations
of Federal, state or local government authorities and agencies, domestic or
foreign ("Governmental Entities").
3.5 Contracts; Debt Instruments. Except with respect to the loan made
by Formula Ventures L.P. (through Argotec Ltd.) to C-TriD Israel Ltd. and
assumed by the Seller pursuant to the September 1999 Stock Purchase Agreement,
the Seller is not in violation of or in default under any loan or credit
agreement, mortgage, lease, or any other contract to which it is a party or by
which it or any of its properties are assets is bound, except for violations or
defaults that would not have a material adverse effect. The Seller is not a
party to, or bound by, any contract or agreement that materially limits the
ability of the Seller to compete in any line of business or with any person in
any geographic area during any period of time.
3.6 Actions Pending. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Seller, threatened against the
Seller or any of its material properties or rights, by or before any court,
arbitrator or administrative or governmental body, which if adversely decided,
could have a material adverse effect.
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3.7 Labor Matters. Except for the pending labor disputes involving Dr.
Glushko and Dr. Krupkin, the Seller is not involved in any labor strike,
dispute, material slowdown, representation campaign or material work stoppage
pending or threatened against or affecting such entities.
3.8 Title to Properties. (a) The Seller has good, valid and marketable
title to, and valid leasehold interests in, all of its material properties and
assets, if any. All such material properties and assets are free and clear of
all liens, except for liens that, in the aggregate, do not and will not
materially interfere with the ability of the Seller to conduct business as
currently conducted; and (b) the Seller has complied in all material respects
with the terms of all material leases to which it is a party and under which it
is in occupancy, if any, and all such leases are in full force and effect.
3.9 Taxes. The Seller has filed all Federal, state and other income tax
returns which are required to be filed, if any, and each has paid all taxes as
shown on said returns and on all assessments received by it to the extent that
such taxes have become due, or except such as any of the foregoing are being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP; and no tax lien has been filed
and no claim is being asserted with respect to any tax or other similar charge.
3.10 Patents, etc. The Seller owns or has the right to use all patents,
trademarks, service marks, trade names, copyrights, industrial designs, licenses
and other rights, free from non-customary burdensome restrictions, which are
necessary for the operation of its business substantially as presently
conducted. Nothing has come to the attention of the Seller to the effect that
(i) any product, process, method, substance, part or other material presently
sold by or employed by the Seller in connection with its business may infringe
any patent, trademark, service mark, trade name, copyright, industrial design,
license or other right owned by any other Person, or (ii) there is pending or
threatened any claim or litigation against or affecting the Seller contesting
its right to sell or use any such product, process, method, substance, part or
other material which would prevent, inhibit or render obsolete the production or
sale of any products of, or substantially reduce the projected revenues of, the
Seller, or otherwise have a material adverse effect.
3.11 Insurance Policies. The Seller maintains in force insurance
policies in such amounts and against such liabilities as the Seller deems
necessary taking into consideration.
3.12 Disclosure. This Agreement does not contain any untrue statement
of a material fact or omit to state a material fact. There are no facts which
the Seller has not disclosed to the Buyer which would have, or, so far as the
Seller can now reasonably foresee, could have individually or in the aggregate,
a material adverse effect.
3.13 Acknowledgment Regarding the Asset Purchase. The Seller
acknowledges and agrees that the Buyer is acting solely in the capacity of an
arm's length purchaser with respect to this Agreement, the Ancillary Documents
and the transactions contemplated hereby and thereby. The Seller further
acknowledges that the Buyer is not acting as a financial advisor of the Seller
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(or in any similar capacity) with respect to this Agreement, the Ancillary
Documents and/or the transactions contemplated hereby and thereby and that any
statement made by the Buyer or any of its representatives or agents in
connection with this Agreement, the Ancillary Documents and the transactions
contemplated hereby and thereby is not advice or a recommendation and is merely
incidental to the Buyer's purchase of the Seller's Offered Assets hereunder.
3.14 Investment Intent. The shares of Common Stock acquired by the
Seller as consideration for the Asset Purchase are "restricted securities" as
that term is defined in Rule 144 of the Rules and Regulations promulgated under
the Securities Act of 1933, as amended (the "Securities Act") and shall bear a
legend that such Common Stock has not been registered under the Securities Act.
The Common Stock is being acquired by the Seller for its own account, and not
with a present view to any distribution thereof that would violate the
Securities Act or the applicable state securities laws of any state or foreign
jurisdiction. The Seller will not distribute such Common Stock in violation of
the Securities Act or the applicable securities laws of any state or foreign
jurisdiction.
3.15 Other Representations and Warranties of the Seller.
(a) The Seller is not party to any contract lease or agreement
which would subject such entity to any performance of business obligations after
the Closing not in the ordinary course of business.
(b) The Seller has no other Subsidiaries other than as set forth on
Schedule "C" attached hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
4.1 Authorization and Validity. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and has all corporate power necessary to engage in such transactions in
which it has been involved as well as any general business transactions in the
future that may be desired by its Board of Directors of the Buyer. The Buyer has
the requisite power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby or executed in connection herewith,
including without limitation the Ancillary Documents, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Ancillary Documents by the Buyer and the consummation by the
Buyer of the transactions contemplated hereby and thereby have been duly and
validly authorized by the Board of Directors of the Buyer, and no other
corporate proceedings on the part of the Seller are necessary to authorize this
Agreement and the Ancillary Documents or to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and any Ancillary
Document at the time of execution will have been, duly and validly executed and
delivered by the Buyer and constitute and will constitute the valid and binding
obligations of the Buyer, enforceable in accordance with their respective terms,
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subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
4.2 Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement by the Buyer nor the consummation of the transaction
contemplated hereby will conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien upon any of
the properties or assets of the Buyer under, (a) the certificate of
incorporation or bylaws (or equivalent governing instruments) of the Buyer, (b)
any loan or credit agreement, note, bond, mortgage, or license applicable to the
Buyer or its properties or assets or (c) subject to the governmental filings and
other matters referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Buyer or
its properties or assets, other than, in the case of clauses (b) or (c), any
such conflicts, violations defaults, rights or liens that individually or in the
aggregate would not have a material adverse effect on the ability of the Buyer
to consummate the transactions contemplated hereby or by the Ancillary
Documents. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by the Buyer in
connection with the execution and delivery of this Agreement or any of the
Ancillary Documents or the consummation of the transactions contemplated hereby
and thereby.
4.3 Capitalization. The authorized capital stock of the Buyer consists
of 50,000,000 shares of Common Stock. Upon completion of the Asset Purchase and
after giving effect to (i) the cancellation of certificate number 1117 in the
amount of 32,025,000 shares of Common Stock issued to Challis International
Ltd., and (ii) the cancellation of certificate numbers 1001 and 1002 in the
amounts of 900,000 and 75,000 shares of Common Stock, respectively, issued to
Ronald A. Marini (each of (i) and (ii) shall occur as of the Effective Time),
not more than 14,300,000 shares of Common Stock will be issued and outstanding.
Except for (i) the conversion rights granted to Seattle Investments LLC in
connection with the issuance by the Buyer of its 10.0% Series A Convertible Note
(the "Convertible Note"), (ii) the right to acquire Common Stock granted to
MBA-on Demand, L.L.C. pursuant to that certain Engagement Letter dated May 23,
1999, and (iii) the options granted to General Itzhak Yaakov and Michael
Goldberg 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, there are no outstanding
subscriptions, options, warrants, convertible securities in regard to the
authorized but unissued common stock of the Buyer.
4.4 Litigation. There are no claims, actions, suits, proceedings,
arbitrations, investigations or audits by a third party against the Buyer, at
law or in equity, and (ii) there is no litigation by a Governmental Entity
pending or, to the knowledge of the Buyer, threatened against the Buyer, at law
or at equity; nor does the Buyer have knowledge of any facts or circumstances
that it believes would be likely to form the basis for any litigation described
in the preceding clauses (i) and (ii) or any audit, investigation or other
review with respect to the Purchaser.
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4.5 Absence of Benefit Plans. The Buyer has no employment contracts or
any other agreements with any director or officer of the Buyer or any other
party.
4.6 Contracts; Debt Instruments. The Buyer is not in violation of or in
default under (nor does there exist any event or condition which upon the
passage of time or the giving of notice, or both, would cause such a violation
of or default under) any loan or credit agreement, note, bond, mortgage,
indenture, lease, or any other contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound, except for violations or defaults that would not have a
material adverse effect. The Buyer is not a party to, or bound by, any contract
or agreement that materially limits the ability of such entity to compete in any
line of business or with any person in any geographic area during any period of
time. The Buyer is not aware of any indemnification, breach of contract or
similar claims by or against the Buyer which are pending or threatened (or which
could be reasonably expected to be made in the future) with respect to the
acquisition of any business by the Buyer.
4.7 Actions Pending. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Buyer, threatened against the
Buyer or any of its material properties or rights, by or before any court,
arbitrator or administrative or governmental body, which if adversely decided,
could have a material adverse effect.
4.8 Labor Matters. The Buyer is not involved in any labor strike or
dispute pending or threatened.
4.9 Title to Properties. (a) The Buyer has good, valid and marketable
title to, and valid leasehold interests in, all of its material properties and
assets, if any. All such material properties and assets are free and clear of
all liens, except for liens that, in the aggregate, do not and will not
materially interfere with the ability of the Buyer to conduct business as
currently conducted; and (b) the Buyer has complied in all material respects
with the terms of all material leases to which it is a party and under which it
is in occupancy, if any, and all such leases are in full force and effect.
4.10 Disclosure. This Agreement does not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements contained herein, in light
of the circumstances under which they were made, not misleading. There are no
facts which the Buyer has not disclosed to the Seller which would have, or, so
far as the Buyer can now reasonably foresee, could have individually or in the
aggregate, a material adverse effect.
4.11 Investment Intent. The Seller's Offered Assets are being acquired
by the Buyer for its own account, and not with a present view to any
distribution thereof that would violate the Securities Act of 1933, as amended
(the "Securities Act"), or the applicable state securities laws of any state or
foreign jurisdiction. The Buyer will not distribute the Seller's Offered Assets
in violation of the Securities Act or the applicable securities laws of any
state or foreign jurisdiction.
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4.12 Acknowledgment Regarding the Asset Purchase. The Buyer
acknowledges and agrees that the Seller is acting solely in the capacity of an
arm's length seller with respect to this Agreement, the Ancillary Documents and
the transactions contemplated hereby and thereby. The Buyer further acknowledges
that the Seller is not acting as a financial advisor of the Buyer (or in any
similar capacity) with respect to this Agreement, the Ancillary Documents and/or
the transactions contemplated hereby and thereby and that any statement made by
the Seller or any of its representatives or agents in connection with this
Agreement, the Ancillary Documents and the transactions contemplated hereby and
thereby is not advice or a recommendation and is merely incidental to the
Buyer's purchase of the Seller's Offered Assets hereunder.
4.13 Other Representations and Warranties of the Buyer.
(a) Except for (i) the conversion rights granted to Seattle
Investments LLC in connection with the issuance by the Buyer of the Convertible
Note, (ii) the right to acquire Common Stock granted to MBA-on Demand, L.L.C.
pursuant to that certain Engagement Letter dated May 23, 1999, and (iii) the
Options, no person has any right, agreement, or option, present or future,
contingent or absolute, or any right capable of becoming a right, agreement, or
option to require the Buyer to issue any shares in its capital, or to convert
any securities of the Buyer or of any other company into Common Stock.
(b) Except for the Convertible Note, the proceeds of which were
loaned by the Buyer to a certain subsidiary of the Seller, the Buyer has no
outstanding debt for borrowed money.
(c) The Buyer is not a party to any contract, lease, order or
agreement which would subject it to any material performance or business
obligations or restrictions in the future after the Closing Date.
(d) The Buyer is not liable for any income, sales, withholding,
real or personal property taxes to any governmental agencies whatsoever.
(e) Except for the Convertible Note, the rights granted to MBA-On
Demand and the Options, there are no outstanding subscriptions, options,
warrants, convertible securities, or rights or commitments of any nature in
regard to the Buyer's authorized but unissued Common Stock and/or other
securities.
(f) There are no outstanding judgments, UCC financing instruments
or UCC securities interests filed against the Buyer.
(g) The Buyer has no shareholder contracts or agreements and/or
other agreements or understandings written or verbal.
(h) The Buyer has no outstanding powers of attorney.
(i) The Buyer has delivered to the Seller all written contracts,
agreements, arrangements or understandings to which it is a party and has
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provided the Seller with a detailed description of all oral contracts,
agreements, arrangements or understandings to which it is a party.
(j) The Buyer is currently registered on the electronic bulletin
board and has filed all required documents in connection therewith.
(k) No brokers' fees are owned by the Buyer in connection with this
transaction.
ARTICLE V
COVENANTS
5.1 Mutual Covenants of the Seller and the Buyer.
(a) The Seller will furnish the Buyer with whatever corporate
records and documents are available, such as its memorandum and articles of
association, financial statements and material contracts. The Buyer shall
provide the Seller with whatever corporate records and documents are available,
such as its certificate of incorporation, bylaws, financial statements and
material contracts of the Buyer.
(b) There are no share stock options, warrants or other rights or
interests in or to the Seller's Offered Assets at the time of Closing.
(c) The Seller and the Buyer will not encumber or mortgage any
right or interest in the Seller's Offered Assets nor transfer any rights to such
shares to any third party whatsoever.
(d) The Buyer will not declare any dividend in cash or stock, or
any other benefit prior to Closing.
(e) The Buyer will not institute any bonus benefit, profit sharing,
stock option, pension retirement plan or similar arrangement prior to Closing.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE TRANSACTION
6.1 Conditions to Buyer's Obligations for the Closing. The obligation
of the Buyer to effect the Asset Purchase is subject to the satisfaction of the
following conditions:
(a) The representations and warranties of the Seller contained in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date and the Seller shall have performed in all material respects
all of its obligations under this Agreement required to be performed prior to
the Closing Date.
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(b) The Seller shall provide a copy of the resolutions of its Board
of Directors and shareholders authorizing and approving the execution, delivery
and performance of this Agreement and the Ancillary Documents and the
consummation of the transactions contemplated hereby or thereby.
6.2 Conditions to the Seller's Obligations for the Closing.
The obligations of the Seller to effect the Asset Purchase are subject
to the satisfaction of the following conditions:
(a) The representations and warranties of the Buyer contained in
this Agreement shall be true and correct in all material respects, on and as of
the Closing Date, and the Buyer shall have performed in all material respects
all of its obligations under this Agreement required to be performed prior to
the Closing Date.
(b) The Buyer shall provide a copy of the resolutions of its Board
of Directors authorizing and approving the execution, delivery and performance
of this Agreement and the Ancillary Documents and the consummation of the
transactions contemplated hereby or thereby.
ARTICLE VII
TERMINATION; AMENDMENT; INDEMNIFICATION
7.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) By mutual written consent of the Seller and the Buyer;
(b) By the Seller at its sole discretion in the event that there is
discovery of a liability or obligation of material effect in its due diligence
and if there is any liability or obligation uncovered in the form of the letters
to be received by the attorney and accountant of the Buyer; and
(c) By the Buyer at its sole discretion in the event that there is
discovery of a liability or obligation of material effect in its due diligence
and if there is any liability or obligation uncovered in the form of the letters
to be received by the attorney and accountant of the Buyer.
7.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party or its directors, offices or shareholders. Nothing in this Section 7.2
shall relieve any party to this Agreement of liability for breach of this
Agreement.
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7.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by all of the parties hereto.
7.4 Indemnification. The Seller will indemnify the Buyer and its
directors, officers, employees, agents, partners and Affiliates (each such
person being called an "Indemnitee") against, and hold each Indemnitee harmless
from, any claims, demands, penalties, fines, liabilities, settlements, damages,
costs and expenses (including reasonable counsel fees, charges and
disbursements) of whatever kind or nature arising out of, or in any way relating
to any liabilities or obligations of the Seller not expressly assumed by the
Buyer hereby.
ARTICLE VIII
MISCELLANEOUS
8.1 Extension; Waiver. The parties hereto, may (a) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein, or (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of any party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by all parties.
8.2 Entire Agreement; Assignment. This Agreement, the Ancillary
Documents and the other documents and instruments contemplated hereby, (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, including the March 1999 Stock Purchase Agreement, among the
parties or any of them with respect to the subject matter hereof, and (b) shall
not be assigned by the operation of law of otherwise.
8.3 Survival; Enforcement of the Agreement. The representations and
warranties in this Agreement shall survive the Closing for a period of 12 months
following such Closing.
8.4 Validity. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity of any other provisions of this
Agreement, which shall remain in full force and effect.
8.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by cable, telegram or facsimile
transmission, or three days after being delivered by registered or certified
mail to the respective parties as follows:
If to the Buyer: C3D Inc.
235 West 76th Street, Suite 8D
New York, NY 10023
Facsimile: 212.580.4021
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With a copy to: Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attention: Alan L. Zeiger, Esquire
Facsimile: 215.569.5628
If to the Seller: Constellation 3D Technology Limited
235 West 76th Street, Suite 8D
New York, NY 10023
Facsimile: 212.580.4021
With a copy to: Efrima, Ben Yacov, Sherman, Milstein
56 Mazah Street
Tel Aviv, Israel 55905
Attention: Jonathan Sherman
Facsimile: 972-3-5602767
8.6 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.
8.7 Governing Law. This Agreement shall be governed by the laws of the
State of Florida, without giving effect to principles of conflicts of law
thereof.
8.8 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.
8.9 Delivery by Facsimile. This Agreement, the Ancillary 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.
* * *
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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/ Michael Goldberg
------------------------
Name: Michael Goldberg
Title: Director of Legal Affairs
CONSTELLATION 3D TECHNOLOGY
LIMITED
By: /s/ Eugene Levich
------------------------
Name: Eugene Levich
Title: President
TRID STORE, INC.
By: /s/ Eugene Levich
------------------------
Name: Eugene Levich
Title: President
TRID IP S.A.
By: /s/ Eugene Levich
------------------------
Name: Eugene Levich
Title: President
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT DATED OCTOBER 1, 1999]
-14-
<PAGE>
SCHEDULE "A"
Seller's Offered Assets
-----------------------
100% of the equity interests held by the Seller in the following entities:
TriDStore IP LLC, a Delaware limited liability company
C-TriD Israel Ltd., an Israeli company
TriD SV, Inc., a Delaware company
TriD Store Vostok, a Russian company held in trusteeship by TriD Store, Inc.
<PAGE>
SCHEDULE "B"
Shareholders of Seller
----------------------
Name of Seller Shareholder
-------------- -----------
Constellation 3D Technology Limited Rapid Trusts Ltd.
<PAGE>
SCHEDULE "C"
Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Percentage of Shares/Interests
Company State of Incorporation owned by Seller
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TriDStore IP LLC Delaware 100%
- --------------------------------------------------------------------------------------------------------------
TriD Store, Inc. Delaware 100%
- --------------------------------------------------------------------------------------------------------------
C-TriD Israel Ltd. Israel 99%
- --------------------------------------------------------------------------------------------------------------
TriD SV, Inc. Delaware 100%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ARTICLES OF INCORPORATION
OF
LATIN VENTURE PARTNERS, INC.
The undersigned subscriber to these Articles of Incorporation is a
natural person competent to contract and hereby form a Corporation for profit
under Chapter 607 of the Florida Statutes.
ARTICLE 1- NAME
---------------
The name of the Corporation is LATIN VENTURE PARTNERS, INC.,
(hereinafter, "Corporation").
ARTICLE 2 - PURPOSE OF CORPORATION
----------------------------------
The corporation shall engage in any activity or business permitted
under the laws of the United States and of the State of Florida.
ARTICLE 3- PRINCIPAL OFFICE
---------------------------
The address of the principal office of this Corporation is
343 Almeria Avenue, Coral Gables, Florida 33134.
ARTICLE 4- INCORPORATOR
-----------------------
The name and street address of the incorporator of this Corporation is:
Elsie Sanchez
343 Almeria Avenue
Coral Gables, Florida 33134
ARTICLE 5- MAILING ADDRESS
--------------------------
The mailing address of the Corporation shall be 343 Almeria Avenue,
Coral Gables, Florida 33134.
ARTICLES 6- CORPORATE CAPITALIZATION
------------------------------------
6.1 The maximum number of shares that this Corporation is authorized to
have outstanding at any time is SEVEN THOUSAND FIVE HUNDRED (7,500) shares of
common stock, each share having the par value of ONE DOLLAR ($1.00).
6.2 No holder of shares of stock of any class shall have any preemptive
right to subscribe to or purchase any additional shares of any class, or any
bonds or convertible securities of any nature: provided, however, that the Board
of Director(s) may, in authorizing the issuance
<PAGE>
of shares of stock of any class, confer any preemptive right that the Board of
Director(s) may deem advisable in connection with such issuance.
6.3 The Board of Director(s) of the Corporation may authorize the
issuance from time to time of shares of its stock of any class, whether now or
hereafter authorized, or securities convertible into shares of its stock of any
class, whether now or hereafter authorized, for such consideration as the Board
of Director(s) may deem advisable, subject to such restrictions or limitations,
if any, as may be set forth in the bylaws of the Corporation.
6.4 The Board of Director(s) of the Corporation may, by Restated
Articles of Incorporation, classify or reclassify any unissued stock from time
to time by setting or changing the preferences, conversions or other rights,
voting powers, restrictions, limitations as to dividends, qualifications, or
term or conditions of redemption of the stock.
ARTICLE 7- POWERS OF CORPORATION
--------------------------------
The Corporation shall have the same powers as an individual to do all
things necessary or convenient to carry out its business and affairs, subject to
any limitations or restrictions imposed by applicable law or these Articles of
Incorporation.
ARTICLE 8- TERM OF EXISTENCE
----------------------------
This Corporation shall have perpetual existence.
ARTICLE 9- REGISTERED OWNER(S)
------------------------------
The Corporation, to the extent permitted by law, shall be entitled to
treat the person in whose name any share or right is registered on the books of
the Corporation as the owner thereto, for all purposes, and except as may be
agreed in writing by the Corporation, the Corporation shall not be bound to
recognize any equitable or other claim to, or interest in, such share or right
on the part of any other person, whether or not the Corporation shall have
notice thereof.
ARTICLE 10- REGISTERED OFFICE AND REGISTERED AGENT
--------------------------------------------------
The initial address of registered office of this Corporation is The Law
Firm of Lawrence J. Spiegel, Chartered doing business as AmeriLawyer(R), located
at 343 Almeria Avenue, Coral Gables, Florida 33134. The name and address of the
registered agent of this Corporation is The Law Firm of Lawrence J. Spiegel,
Chartered doing business as AmeriLawyer(R), 343 Almeria Avenue, Coral Gables,
Florida 33134.
ARTICLE 11- BYLAWS
------------------
The Board of Director(s) of the Corporation shall have power, without
the assent or vote of the shareholders, to make, alter, amend or repeal the
Bylaws of the Corporation, but the affirmative vote of a number of Directors
equal to a majority of the number who would constitute a full Board of
Director(s) at the time of such action shall be necessary to take any action for
the making, alteration, amendment or repeal of the Bylaws.
<PAGE>
ARTICLE 12 - EFFECTIVE DATE
---------------------------
These Articles of Incorporation shall be effective immediately upon
approval of the Secretary of State, State of Florida.
ARTICLE 13 - AMENDMENT
----------------------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, or in any amendment
hereto, or to add any provision to these Articles of Incorporation or to any
amendment hereto, in any matter now or hereafter prescribed or permitted by the
provisions of any applicable statute of the State of Florida, and all rights
conferred upon shareholders in these Articles of Incorporation or any amendment
hereto are granted subject to this reservation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal, acknowledged
and filed the foregoing Articles of Incorporation under the laws of the State of
Florida, this Dec. 26, 1995.
/s/ Elsie Sanchez
---------------------------
Elsie Sanchez, Incorporator
ACCEPTANCE OF REGISTERED AGENT DESIGNATED
-----------------------------------------
IN ARTICLES OF INCORPORATION
----------------------------
The Law Firm of Lawrence J. Spiegel, Chartered doing business as
AmeriLawyer(R), having a business office identical with the registered office of
the Corporation name above, and having been designated as the Registered Agent
in the above and foregoing Articles of Incorporation, is familiar with and
accepts the obligations of the position of Registered Agent under Section
607.0505, Florida Statutes.
The Law Firm Of Lawrence J. Spiegel,
Chartered doing business as
AmeriLawyer(R)
By: /s/ Lawrence J. Spiegel
------------------------------
Lawrence J. Spiegel, President
<PAGE>
ARTICLES OF AMENDMENT TO
LATIN VENTURE PARTNERS, INC.
THE UNDERSIGNED, being the sole director and president of
LATIN VENTURE PARTNERS, INC., does hereby amend the Articles of Incorporation of
LATIN VENTURE PARTNERS, INC. effective as of July 29, 1998 as follows:
ARTICLE I
CORPORATE NAME
The name of the Corporation shall be LATIN VENURE PARTNERS, INC.
ARTICLE II
PURPOSE
The Corporation shall be organized for any and all purposes authorized
under the laws of the state of Florida.
ARTICLE III
PERIOD OF EXISTENCE
The period during which the Corporation shall continue is perpetual.
ARTICLE IV
SHARES
The capital stock of this corporation shall consist of 50,000,000
shares of common stock, $.001 par value.
ARTICLE V
PLACE OF BUSINESS
The address of the principal place of business of this corporation in
the State of Florida shall be One Biscayne Tower, Suite 3750, Miami, FL 33131.
The Board of Directors may at any time and form time to time move the principal
office of this corporation.
ARTICLE VI
DIRECTORS AND OFFICERS
The business of this corporation shall be managed by its Board of
Directors. The number of such directors shall be not less then one (1) and,
subject to such minimum may be increased or decreased from time to time in the
manner provided in the By-Laws.
<PAGE>
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
No shareholder shall have any right to acquire shares or other
securities of the Corporation except to the extent such right may be granted by
an amendment to these Articles of Incorporation or by a resolution of the board
of Directors.
ARTICLES VIII
AMENDMENT OF BYLAWS
Anything in these Articles of Incorporation, the Bylaws, or the Florida
Corporation Act notwithstanding, bylaws shall not be adopted, modified, amended
or repealed by the shareholders of the Corporation except upon the affirmative
vote of a simple majority vote of the holders of all the issued and outstanding
shares of the corporation entitled to vote thereon.
ARTICLE IX
SHAREHOLDERS
9.1. Inspection of Books. The board of directors shall make reasonable
rules to determine at what times and places and under what conditions the books
of the Corporation shall be open to inspection by shareholders or a duly
appointed representative of a shareholder.
9.2. Control Share Acquisition. The provisions relating to any control
share acquisition as contained in Florida Statutes now, or hereinafter amended,
and any successor provision shall not apply to the Corporation.
9.3. Quorum. The holders of shares entitled to one-third of the votes
at a meeting of shareholder's shall constitute a quorum.
9.4. Required Vote. Acts of shareholders shall require the approval of
holders of 50.01% of the outstanding votes of shareholders.
ARTICLE X
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
To the fullest extent permitted by law, no director or officer of the
Corporation shall be personally liable to the Corporation or its shareholders
for damages for breach of any duty owed to the Corporation or its shareholders.
In addition, the Corporation shall have the power, in its By-Laws or in any
resolution of its stockholders or directors, to undertake to indemnify the
officers and directors of this corporation against any contingency or peril as
may be determined to be in the best interests of this corporation, and in
conjunction therewith, to procure, at this corporation's expense, policies of
insurance.
<PAGE>
ARTICLE XI
CONTRACTS
No contract or other transaction between this corporation and any
person, firm or corporation shall be affected by the fact that any officer or
director of this corporation is such other party or is, or at some time in the
future becomes, an officer, director or partner of such other contracting party,
or has now or hereafter a direct interest in such contract.
I hereby certify that the following was adopted by a majority vote of
the shareholders and directors of the corporation of July 30, 1998 and that the
number of votes cast was sufficient for approval.
IN WITNESS WHEREOF, I have hereunto subscribed to and executed this
Amendment to Articles of Incorporation this on July 30, 1998.
/s/ Ronald A. Marini
- -----------------------------------
Ronald A. Marini
President
The foregoing instrument was acknowledged before me on July 30, 1998,
by Ronald A. Marini, who is personally known to me.
My commission Expires:
/s/
-----------------------------
Notary Public
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
LATIN VENTURE PARTNERS, INC.
----------------------------
Pursuant to the provisions of section 607.1006, Florida Statues, this
Florida profit corporation adopts the following articles of amendment to its
articles of incorporation:
FIRST: Amendment adopted:
Article I is hereby amended to read as follows:
The name of this corporation is C3D INC.
SECOND: There is no change to the capital of the corporation.
THIRD: This amendment was adopted on March 12th, 1999.
FOURTH: The amendment was approved by the shareholders. The number of votes
cast for the amendment was sufficient for approval.
Signed this 12th day of March, 1999. /s/ John Jones
------------------------------------------
John Jones, President
Prepared by: Alixe B. Cormick
Barrister & Solicitor
Venture Law Corporation
#618 - 688 W. Hastings Street
Vancouver, BC V6L 3E3
Tel: (604) 659-9188
Fax: (604) 659-9178
NOTARY WITNESS
On March 12th, 1999, personally appeared before me, a Notary Public,
John Jones, President of Latin Venture Partners, Inc., who acknowledged that he
executed the above instrument.
/s/ A.R. Jayes
-------------------------------
Notary Public/Solicitor
A.R. Jayes
Solicitor
Gentle Jayes
66 Grosvenor Street
London, W1X OBD
<PAGE>
BYLAWS
OF
C3D INC.
(A FLORIDA CORPORATION)
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C> <C>
ARTICLE ONE - OFFICES
Section 1. Principal Office.....................................................................1
Section 2. Other Offices........................................................................1
ARTICLE TWO - MEETINGS OF SHAREHOLDERS
Section 1. Place................................................................................1
Section 2. Time of Annual Meeting...............................................................1
Section 3. Call of Special Meetings.............................................................1
Section 4. Conduct of Meetings..................................................................1
Section 5. Notice of Waiver of Notice...........................................................2
Section 6. Business and Nominations for Annual and Special Meetings.............................2
Section 7. Quorum...............................................................................2
Section 8. Voting Rights Per Share..............................................................3
Section 9. Voting of Shares.....................................................................3
Section 10. Proxies..............................................................................3
Section 11. Shareholder List.....................................................................4
Section 12. Action Without Meeting...............................................................4
Section 13. Fixing Record Date...................................................................4
Section 14. Inspectors and Judges................................................................5
Section 15. Voting for Directors.................................................................5
ARTICLE THREE - DIRECTORS
Section 1. Number, Term; Election; Qualification................................................5
Section 2. Resignation; Vacancies; Removal......................................................5
Section 3. Powers...............................................................................5
Section 4. Place of Meetings....................................................................6
Section 5. Annual Meetings......................................................................6
Section 6. Regular Meetings.....................................................................6
Section 7. Special Meetings and Notice..........................................................6
Section 8. Quorum and Required Vote.............................................................6
Section 9. Action Without Meeting...............................................................7
Section 10. Conference Telephone or Similar Communications Equipment Meetings.....................7
Section 11. Committees............................................................................7
Section 12. Compensation of Directors.............................................................7
ARTICLE FOUR - OFFICERS
Section 1. Positions............................................................................8
Section 2. Election of Specified Officers by Board..............................................8
Section 3. Election or Appointment of Other Officers............................................8
Section 4. Compensation.........................................................................8
Section 5. Term; Resignation; Removal; Vacancies................................................8
Section 6. Chairman of the Board................................................................9
Section 7. Chief Executive Officer..............................................................9
Section 8. President............................................................................9
Section 9. Vice Presidents......................................................................9
Section 10. Secretary.............................................................................9
Section 11. Chief Financial Officer..............................................................10
Section 12. Treasurer............................................................................10
Section 13. Other Officers; Employees and Agents.................................................10
ARTICLE FIVE - CERTIFICATES FOR SHARES
Section 1. Issue of Certificates...............................................................10
Section 2. Legends for Preferences and Restrictions on Transfer................................11
Section 3. Facsimile Signatures................................................................11
Section 4. Lost Certificates...................................................................11
Section 5. Transfer of Shares..................................................................11
Section 6. Registered Shareholders.............................................................11
Section 7. Redemption of Control Shares........................................................12
ARTICLE SIX - GENERAL PROVISIONS
Section 1. Dividends...........................................................................12
Section 2. Reserves............................................................................12
Section 3. Checks..............................................................................12
Section 4. Fiscal Year.........................................................................12
Section 5. Seal................................................................................12
Section 6. Gender..............................................................................12
ARTICLE SEVEN - AMENDMENT OF BYLAWS.....................................................................12
</TABLE>
<PAGE>
BYLAWS
OF
C3D INC.
ARTICLE ONE
OFFICES
-------
Section 1. PRINCIPAL OFFICE. The principal office of C3D Inc., a
Florida corporation (the "Corporation"), shall be located at such place
determined by the Board of Directors of the Corporation (the "Board of
Directors") in accordance with applicable law.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places, either within or without the State of Florida, as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. PLACE. All annual meetings of shareholders shall be held at
such place, within or without the State of Florida, as may be designated by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at such
place, within or without the State of Florida, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. TIME OF ANNUAL MEETING. Annual meetings of shareholders
shall be held on such date and at such time fixed, from time to time, by the
Board of Directors, provided, that there shall be an annual meeting held every
calendar year at which the shareholders shall elect a board of directors and
transact such other business as may properly be brought before the meeting.
Section 3. CALL OF SPECIAL MEETINGS. Special meetings of the
shareholders shall be held if called in accordance with the procedures set forth
in the Corporation's Articles of Incorporation (the "Articles of Incorporation")
for the call of a special meeting of shareholders.
Section 4. CONDUCT OF MEETINGS. The Chairman of the Board of Directors
(or in his absence, the President, or in his absence, such other designee of the
Chairman of the Board of Directors) shall preside at the annual and special
meetings of shareholders and shall be given full discretion in establishing the
rules and procedures to be followed in conducting the meetings, except as
otherwise provided by law or in these Bylaws.
1
<PAGE>
Section 5. NOTICE AND WAIVER OF NOTICE. Except as otherwise provided by
law, written or printed notice stating the place, date and time of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than sixty
(60) days before the date of the meeting, either personally or by first-class
mail or other legally sufficient means, by or at the direction of the Chairman
of the Board, President, or the persons calling the meeting, to each shareholder
of record entitled to vote at such meeting. If the notice is mailed at least
thirty (30) days before the date of the meeting, it may be done by a class of
United States mail other than first class. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to the
shareholder at the address appearing on the stock transfer books of the
Corporation, with postage thereon prepaid. If a meeting is adjourned to another
time and/or place, and if an announcement of the adjourned time and/or place is
made at the meeting, it shall not be necessary to give notice of the adjourned
meeting unless the Board of Directors, after adjournment, fixes a new record
date for the adjourned meeting. Whenever any notice is required to be given to
any shareholder, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether signed before, during or after the time of the
meeting stated therein, and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records, shall constitute an effective
waiver of such notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the shareholders need be specified in any
written waiver of notice. Attendance of a person at a meeting shall constitute a
waiver of (a) lack of or defective notice of such meeting, unless the person
objects at the beginning to the holding of the meeting or the transacting of any
business at the meeting, or (b) lack of or defective notice of a particular
matter at a meeting that is not within the purpose or purposes described in the
meeting notice, unless the person objects to considering such matter when it is
presented.
Section 6. BUSINESS AND NOMINATIONS FOR ANNUAL AND SPECIAL MEETINGS.
Business transacted at any special meeting shall be confined to the purposes
stated in the notice thereof. At any annual meeting of shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting in accordance with the requirements and procedures set forth in the
Articles of Incorporation shall be eligible for election as directors of the
Corporation.
Section 7. QUORUM. Shares entitled to vote as a separate voting group
may take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Except as otherwise provided in the Articles of
Incorporation or applicable law, shares representing one third of the votes
pertaining to outstanding shares which are entitled to be cast on the matter by
the voting group constitute a quorum of that voting group for action on that
matter. If less than a quorum of shares are represented at a meeting, the
holders of a majority of the shares so represented may adjourn the meeting from
time to time. After a quorum has been established at any shareholders' meeting,
the subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof. Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
2
<PAGE>
Section 8. VOTING RIGHTS PER SHARE. Each outstanding share, regardless
of class, shall be entitled to vote on each matter submitted to a vote at a
meeting of shareholders, except to the extent that the voting rights of the
shares of any class are limited or denied by or pursuant to the Articles of
Incorporation or the Florida Business Corporation Act.
Section 9. VOTING OF SHARES. A shareholder may vote at any meeting of
shareholders of the Corporation, either in person or by proxy. Shares standing
in the name of another corporation, domestic or foreign, may be voted by the
officer, agent or proxy designated by the bylaws of such corporate shareholder
or, in the absence of any applicable bylaw, by such person or persons as the
board of directors of the corporate shareholder may designate. In the absence of
any such designation, or, in case of conflicting designation by the corporate
shareholder, the chairman of the board, the president, any vice president, the
secretary and the treasurer of the corporate shareholder, in that order, shall
be presumed to be fully authorized to vote such shares. Shares held by an
administrator, executor, guardian, personal representative, or conservator may
be voted by such person, either in person or by proxy, without a transfer of
such shares into his name. Shares standing in the name of a trustee may be voted
by such person, either in person or by proxy, but no trustee shall be entitled
to vote shares held by such person without a transfer of such shares into his
name or the name of his nominee. Shares held by or under the control of a
receiver, a trustee in bankruptcy proceedings, or an assignee for the benefit of
creditors may be voted by such person without the transfer thereof into his
name. If shares stand of record in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety or otherwise, or if two or more persons have the same fiduciary
relationship respecting the same shares, unless the Secretary of the Corporation
is given notice to the contrary and is furnished with a copy of the instrument
or order appointing them or creating the relationship wherein it is so provided,
then acts with respect to voting shall have the following effect: (a) if only
one votes, in person or by proxy, his act binds all; (b) if more than one vote,
in person or by proxy, the act of the majority so voting binds all; (c) if more
than one vote, in person or by proxy, but the vote is evenly split on any
particular matter, each faction is entitled to vote the share or shares in
question proportionally; or (d) if the instrument or order so filed shows that
any such tenancy is held in unequal interest, a majority or a vote evenly split
for purposes hereof shall be a majority or a vote evenly split in interest. The
principles of this paragraph shall apply, insofar as possible, to execution of
proxies, waivers, consents, or objections and for the purpose of ascertaining
the presence of a quorum.
Section 10. PROXIES. Any shareholder of the Corporation, other person
entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact
for such persons may vote the shareholder's shares in person or by proxy. Any
shareholder of the Corporation may appoint a proxy to vote or otherwise act for
such person by signing an appointment form, either personally or by his
attorney-in-fact. An executed telegram or cablegram appearing to have been
transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient appointment
form. An appointment of a proxy is effective when received by the Secretary of
the Corporation (the "Secretary") or such other officer or agent which is
authorized to tabulate votes, and shall be valid for up to 11 months, unless a
longer period is expressly provided in the appointment form. The death or
incapacity of the shareholder appointing a proxy does not affect the right of
the Corporation to accept the proxy's authority unless notice of the death or
incapacity is received by the Secretary or other officer or agent authorized to
tabulate votes before the proxy authority under the appointment is exercised. An
appointment of a proxy is revocable by the shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest.
3
<PAGE>
Section 11. SHAREHOLDER LIST. After fixing a record date for a meeting
of shareholders, the Corporation shall prepare an alphabetical list of the names
of all its shareholders who are entitled to notice of the meeting, arranged by
voting group with the address of, and the number and class and series, if any,
of shares held by each. The shareholders' list must be available for inspection
by any shareholder for a period of ten (10) days prior to the meeting or such
shorter time as exists between the record date and the meeting and continuing
through the meeting at the Corporation's principal office, at a place identified
in the meeting notice in the city where the meeting will be held, or at the
office of the Corporation's transfer agent or registrar. Any shareholder of the
Corporation or such person's agent or attorney is entitled on written demand to
inspect the shareholders' list (subject to the requirements of law), during
regular business hours and at his expense, during the period it is available for
inspection. The Corporation shall make the shareholders' list available at the
meeting of shareholders, and any shareholder or agent or attorney of such
shareholder is entitled to inspect the list at any time during the meeting or
any adjournment. The shareholders' list is prima facie evidence of the identity
of shareholders entitled to examine the shareholders' list or to vote at a
meeting of shareholders.
Section 12. ACTION WITHOUT MEETING. Any action required or permitted by
law to be taken at a meeting of shareholders may be taken without a meeting or
notice if a consent, or consents, in writing, setting forth the action so taken,
shall be dated and signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all voting groups and shares entitled to vote
thereon were present and voted with respect to the subject matter thereof, and
such consent shall be delivered to the Corporation, within the period required
by Section 607.0704 of the Florida Business Corporation Act, by delivery to its
principal office in the State of Florida, its principal place of business, the
Secretary or another officer or agent of the Corporation having custody of the
book in which proceedings of meetings of shareholders are recorded. Within ten
(10) days after obtaining such authorization by written consent, notice must be
given to those shareholders who have not consented in writing or who are not
entitled to vote on the action, in accordance with the requirements of Section
607.0704 of the Florida Business Corporation Act.
Section 13. FIXING RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purposes, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
(70) days, and, in case of a meeting of shareholders, not less than ten (10)
days, before the meeting or action requiring such determination of shareholders.
If no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders or the determination of
shareholders entitled to receive payment of a dividend, the date before the day
on which the first notice of the meeting is mailed or the date on which the
resolutions of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof, except where the Board of Directors fixes a
new record date for the adjourned meeting.
4
<PAGE>
Section 14. INSPECTORS AND JUDGES. The Board of Directors in advance of
any meeting may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any adjournment
thereof. If any inspector or inspectors, or judge or judges, are not appointed,
the person presiding at the meeting may, but need not, appoint one ore more
inspectors or judges. In case any person who may be appointed as an inspector or
judge fails to appear or act, the vacancy may be filled by the Board of
Directors in advance of the meeting, or at the meeting by the person presiding
thereat. The inspectors or judges, if any, shall determine the number of shares
of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots and consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate votes, ballots and consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the person presiding at the meeting, the inspector or inspectors
or judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
Section 15. VOTING FOR DIRECTORS. Unless otherwise provided in the
Articles of Incorporation, directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.
ARTICLE THREE
DIRECTORS
---------
Section 1. NUMBER; TERM; ELECTION; QUALIFICATION. The number of
directors of the Corporation shall be fixed from time to time, within the limits
specified by the Articles of Incorporation, by resolution of the Board of
Directors. Directors shall be elected in the manner and hold office for the term
as prescribed in the Articles of Incorporation. Directors must be natural
persons who are 18 years of age or older but need not be residents of the State
of Florida, shareholders of the Corporation or citizens of the United States.
Section 2. RESIGNATION; VACANCIES; REMOVAL. A director may resign at
any time by giving written notice to the Board of Directors or the Chairman of
the Board. Such resignation shall take effect at the date of receipt of such
notice or at any later time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. In the event the notice of resignation specifies a later effective
date, the Board of Directors may fill the pending vacancy (subject to the
provisions of the Articles of Incorporation) before the effective date if they
provide that the successor does not take office until the effective date.
Director vacancies shall be filled, and directors may be removed, in the manner
prescribed in the Corporation's Articles of Incorporation.
Section 3. POWERS. The business and affairs of the Corporation shall be
managed by the Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised and done by the shareholders.
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Section 4. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Florida.
Section 5. ANNUAL MEETINGS. Unless scheduled for another time by the
Board of Directors, the first meeting of each newly elected Board of Directors
shall be held, without call or notice, immediately following each annual meeting
of shareholders.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may also be held without notice at such time and at such place as shall from
time to time be determined by the Board of Directors.
Section 7. SPECIAL MEETINGS AND NOTICE. Special meetings of the Board
of Directors may be called by the President or Chairman of the Board and shall
be called by the Secretary on the written request of any two directors. At least
forty-eight (48) hours prior written notice of the date, time and place of
special meetings of the Board of Directors shall be given to each director.
Except as required by law, neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. Notices to
directors shall be in writing and delivered to the directors at their addresses
appearing on the books of the Corporation by personal delivery, mail or other
legally sufficient means. Subject to the provisions of the preceding sentence,
notice to directors may also be given by telegram, teletype or other form of
electronic communication. Notice by mail shall be deemed to be given at the time
when the same shall be received. Whenever any notice is required to be given to
any director, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before, during or after the meeting, shall
constitute a waiver of notice of such meeting and a waiver of any and all
objections to the place of the meeting, the time of the meeting and the manner
in which it has been called or convened, except when a director states, at the
beginning of the meeting or promptly upon arrival at the meeting, any objection
to the transaction of business because the meeting is not lawfully called or
convened. The Chairman may, in his discretion, adjourn a meeting to a later time
or new location.
Section 8. QUORUM AND REQUIRED VOTE. One third of the prescribed number
of directors determined as provided in the Articles of Incorporation shall
constitute a quorum for the transaction of business and the act of the majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors, unless a greater number is required by the
Articles of Incorporation. Whenever, for any reason, a vacancy occurs in the
Board of Directors, a quorum shall consist of one third of the remaining
directors until the vacancy has been filled. If a quorum shall not be present at
any meeting of the Board of Directors, a majority of the directors present
thereat may adjourn the meeting to another time and place, without notice other
than announcement at the time of adjournment. At such adjourned meeting at which
a quorum shall be present, any business may be transacted that might have been
transacted at the meeting as originally notified and called. In the event of a
tied vote, the Chairman shall be entitled to cast a second deciding vote.
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Section 9. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors or committee thereof may be
taken without a meeting if a consent in writing, setting forth the action taken,
is signed by all of the members of the Board of Directors or the committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting. Action taken under this Section 9 is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this Section 9 shall have the effect of a
meeting vote and may be described as such in any document.
Section 10. CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT
MEETINGS. Directors and committee members may participate in and hold a meeting
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in such a meeting shall constitute presence in person at the
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground the
meeting is not lawfully called or convened.
Section 11. COMMITTEES. The Board of Directors, by resolution adopted
by a majority of the whole Board of Directors, may designate from among its
members an executive committee and one or more other committees, each of which,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Directors in the business and affairs of the
Corporation except where the action of the full Board of Directors is required
by applicable law. Each committee must have two or more members who serve at the
pleasure of the Board of Directors. The Board of Directors, by resolution
adopted in accordance with this Article III, may designate one or more directors
as alternate members of any committee. Vacancies in the membership of a
committee may be filled only by the Board of Directors at a regular or special
meeting of the Board of Directors. The executive committee shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
required. The designation of any such committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility imposed upon it or such member by law.
Section 12. COMPENSATION OF DIRECTORS. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Similarly, members of special or standing committees may be allowed
compensation for attendance at committee meetings or a stated salary as a
committee member and payment of expenses for attending committee meetings.
Directors may receive such other compensation as may be approved by the Board of
Directors.
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ARTICLE FOUR
OFFICERS
--------
Section 1. POSITIONS. The officers of the Corporation shall consist of
a Chairman of the Board, a Chief Executive Officer, a President, one or more
Vice Presidents (any one or more of whom may be given the additional designation
of rank of Executive Vice President or Senior Vice President), a Secretary, a
Chief Financial Officer, Chief Operating Officer, and a Treasurer. Any two or
more offices may be held by the same person. Officers other than the Chairman of
the Board need not be members of the Board of Directors. The Chairman of the
Board must be a member of the Board of Directors.
Section 2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of
Directors at its first meeting after each annual meeting of shareholders shall
elect a Chairman of the Board, a Chief Executive Officer, a President, one or
more Vice Presidents (including any Senior or Executive Vice Presidents), a
Secretary, a Chief Financial Officer and a Treasurer.
Section 3. ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors, or, unless otherwise specified
herein, appointed by the Chairman of the Board. The Board of Directors shall be
advised of appointments by the Chairman of the Board at or before the next
scheduled Board of Directors meeting.
Section 4. COMPENSATION. The salaries, bonuses and other compensation
of the Chairman of the Board and all officers of the Corporation to be elected
by the Board of Directors pursuant to Section 2 of this Article IV shall be
fixed from time to time by the Board of Directors or pursuant to its direction.
The salaries of all other elected or appointed officers of the Corporation shall
be fixed from time to time by the Chairman of the Board or pursuant to his
direction.
Section 5. TERM; RESIGNATION; REMOVAL; VACANCIES. The officers of the
Corporation shall hold office until their successors are chosen and qualified.
Any officer or agent elected or appointed by the Board of Directors shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer or agent appointed by the Chairman of the Board pursuant to Section 3 of
this Article IV may also be removed from such office or position by the Board of
Directors or the Chairman of the Board, with or without cause. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise shall be filled by the Board of Directors, or, in the case of an
officer appointed by the Chairman of the Board, by the Chairman of the Board or
the Board of Directors. Any officer of the Corporation may resign from his
respective office or position by delivering notice to the Corporation, and such
resignation shall be effective without acceptance. Such resignation shall be
effective when delivered unless the notice specifies a later effective date.
If a resignation is made effective at a later date and the Corporation accepts
the future effective date, the Board of Directors may fill the pending vacancy
before the effective date if the Board provides that the successor does not take
office until such effective date.
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Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the shareholders and the Board of Directors. The
Chairman of the Board shall also serve as the chairman of any executive
committee.
Section 7. CHIEF EXECUTIVE OFFICER. Subject to the control of the Board
of Directors, the Chief Executive Officer, in conjunction with the President,
shall have general and active management of the business of the Corporation,
shall see that all orders and resolutions of the Board of Directors are carried
into effect and shall have such powers and perform such duties as may be
prescribed by the Board of Directors. In the absence of the Chairman of the
Board or in the event the Board of Directors shall not have designated a
Chairman of the Board, the Chief Executive Officer shall preside at meetings of
the shareholders and the Board of Directors. The Chief Executive Officer shall
also serve as the vice-chairman of any executive committee.
Section 8. PRESIDENT. Subject to the control of the Board of Directors,
the President, in conjunction with the Chief Executive Officer, shall have
general and active management of the business of the Corporation and shall have
such powers and perform such duties as may be prescribed by the Board of
Directors. In the absence of the Chairman of the Board and the Chief Executive
Officer or in the event the Board of Directors shall not have designated a
Chairman of the Board and a Chief Executive Officer shall not have been elected,
the President shall preside at meetings of the shareholders and the Board of
Directors. The President shall also serve as the vice-chairman of any executive
committee.
Section 9. VICE PRESIDENTS. The Vice Presidents, in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President and the Chief Executive Officer, perform
the duties and exercise the powers of the President. They shall perform such
other duties and have such other powers as the Board of Directors, the Chairman
of the Board or the Chief Executive Officer shall prescribe or as the President
may from time to time delegate. Executive Vice Presidents shall be senior to
Senior Vice Presidents, and Senior Vice Presidents shall be senior to all other
Vice Presidents.
Section 10. SECRETARY. The Secretary shall attend all meetings of the
shareholders and all meetings of the Board of Directors and record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the shareholders and special meetings of the
Board of Directors and shall keep in safe custody the seal of the Corporation
and, when authorized by the Board of Directors, affix the same to any instrument
requiring it. The Secretary shall perform such other duties as may be prescribed
by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or the President.
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Section 11. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
be responsible for maintaining the financial integrity of the Corporation, shall
prepare the financial plans for the Corporation and shall monitor the financial
performance of the Corporation and its subsidiaries, as well as performing such
other duties as may be prescribed by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President.
Section 12. TREASURER. The Treasurer shall have the custody of
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chairman of the Board and the Board of Directors at its regular meetings or
when the Board of Directors so requires an account of all his transactions as
Treasurer and of the financial condition of the Corporation. The Treasurer shall
perform such other duties as may be prescribed by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President.
Section 13. OTHER OFFICERS; EMPLOYEES AND AGENTS. Each and every other
officer, employee and agent of the Corporation shall possess, and may exercise,
such power and authority, and shall perform such duties, as may from time to
time be assigned to such person by the Board of Directors, the officer so
appointing such person or such officer or officers who may from time to time be
designated by the Board of Directors to exercise such supervisory authority.
ARTICLE FIVE
CERTIFICATES FOR SHARES
-----------------------
Section 1. ISSUES OF CERTIFICATES. The shares of the Corporation shall
be represented by certificates, provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares of such a resolution by the Board of
Directors, every holder of stock represented by certificates (and upon request
every holder of uncertificated shares) shall be entitled to have a certificate
signed by or in the name of the Corporation by the Chairman of the Board or a
Vice Chairman of the Board, or the Chief Executive Officer, President or Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the Corporation, representing the number of shares
registered in certificate form.
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Section 2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. The
designations, relative rights, preferences and limitations applicable to each
class of shares and the variations in rights, preferences and limitations
determined for each series within a class (and the authority of the Board of
Directors to determine variations for future series) shall be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder a full statement of this information on request and without charge.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares are
restricted as to transfer, and there shall be set forth or fairly summarized
upon the certificate, or the certificate shall indicate that the Corporation
will furnish to any shareholder upon request and without charge, a full
statement of such restrictions. If the Corporation issues any shares that are
not registered under the Securities Act of 1933, as amended, or not registered
or qualified under the applicable state securities laws, the transfer of any
such shares shall be restricted substantially in accordance with the following
legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW, THEY MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1)
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ANY
APPLICABLE STATE LAW, OR (2) AT HOLDER'S EXPENSE, AN OPINION
(SATISFACTORY TO THE CORPORATION) OF COUNSEL (SATISFACTORY TO
THE CORPORATION) THAT REGISTRATION IS NOT REQUIRED."
Section 3. FACSIMILE SIGNATURES. Any and all signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Corporation may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed.
Section 5. TRANSFER OF SHARES. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled
to recognize the exclusive rights of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the State
of Florida.
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<PAGE>
Section 7. REDEMPTION OF CONTROL SHARES. As provided by the Florida
Business Corporation Act, if a person acquiring control shares of the
Corporation does not file an acquiring person statement with the Corporation,
the Corporation may, at the discretion of the Board of Directors, redeem the
control shares at the fair value thereof at any time during the 60-day period
after the last acquisition of such control shares. If a person acquiring control
shares of the Corporation files an acquiring person statement with the
Corporation, the control shares may be redeemed by the Corporation, at the
discretion of the Board of Directors, only if such shares are not accorded full
voting rights by the shareholders as provided by law.
ARTICLE SIX
GENERAL PROVISIONS
------------------
Section 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
cash, property, stock (including its own shares) or otherwise pursuant to law
and subject to the provisions of the Articles of Incorporation.
Section 2. RESERVES. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.
Section 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31 of each year, unless otherwise fixed by resolution of the Board of
Directors.
Section 5. SEAL. The corporate seal shall have inscribed thereon the
name and state of incorporation of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
Section 6. GENDER. All words used in these Bylaws in the masculine
gender shall extend to and shall include the feminine and neuter genders.
ARTICLE SEVEN
AMENDMENT OF BYLAWS
-------------------
Except as otherwise set forth herein, these Bylaws may be altered,
amended or repealed or new Bylaws may be adopted at any meeting of the Board of
Directors at which a quorum is present, by the affirmative vote of a majority of
the directors present at such meeting.
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<PAGE>
SECRETARY'S CERTIFICATE OF ADOPTION OF
THE BYLAWS OF C3D INC.
I hereby certify:
That I am the duly elected Secretary of C3D INC., a Florida
corporation;
That the foregoing Bylaws comprising nine (9) pages, constitute the
Bylaws of said corporation as duly adopted by the Board of Directors of the
Corporation on April ___, 1999.
IN WITNESS WHEREOF, I have hereunder subscribed my name this ___ day of
April, 1999.
-----------------------------------
John Jones, Secretary
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EXHIBIT 4.1
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is made as of the
10th day of August 1999, by and between C3D, INC., a Florida corporation (the
"Company"), and the investor listed on the signature page hereto (the
"Investor").
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
Investor (the "Purchase Agreement") pursuant to which the Company will sell to
Investor a 10.0% Series A Convertible Note due December 31, 1999 (the
"Convertible Note") in principal amount of One Million Dollars ($1,000,000)
subject to certain conditions. Capitalized terms used and not defined herein
shall have the meanings ascribed to them in the Purchase Agreement;
WHEREAS, it is a condition to the obligations of the parties under the
Purchase Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of the foregoing and the agreements
set forth below, and intending to be legally bound hereby, the parties agree
with each other as follows:
1. Amendment.
1.1 Procedure. Any provision of this Agreement may be amended,
waived, discharged or terminated upon the written consent of the Company and
Investor.
1.2 Rights of Investor. Investor shall have the absolute right
to exercise or refrain from exercising any right or rights that it may have by
reason of this Agreement, including, without limitation, the right to consent to
the waiver or modification of any obligation under this Agreement, and Investor
shall not incur any liability to any other holder of any securities of the
Company as a result of exercising or refraining from exercising any such right
or rights.
2. Right of First Offer. The Company covenants and agrees as follows:
2.1 Rights of Investor. Subject to the terms and conditions
specified in this Section 2, the Company hereby grants to Investor a right of
first offer with respect to future sales by the Company of any shares of, or
debt or equity securities convertible into or exchangeable into or exercisable
for any shares of, any class of its capital stock (the "Shares"). Each time the
Company proposes to offer its Shares, the Company shall first make an offering
of such Shares to Investor in accordance with the provisions set forth herein.
2.2 Notice. The Company shall deliver a written notice (the
"Notice") to Investor stating (i) its bona fide intention to offer such Shares,
(ii) the number of such Shares to be offered, and (iii) the price and terms, if
any, upon which it proposes to offer such Shares.
<PAGE>
2.3 Purchase by Investor. By written notification received by
the Company within twenty (20) calendar days after giving of the Notice,
Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, the Shares.
2.4 Non-Exercise. If Investor elects not to purchase the
Shares pursuant to subsection 2.3 hereof, the Company may, during the 90-day
period following the expiration of the period provided in subsection 2.3, offer
the Shares to any person or persons at a price not less than, and upon terms no
more favorable to the offeree than those specified in the Notice. If the Company
does not enter into an agreement for the sale of the Shares within such period,
or if such agreement on such terms is not consummated within thirty (30) days of
the execution thereof, the right provided hereunder shall be deemed to be
revived and such Shares shall not be offered unless first reoffered to Investor
in accordance herewith.
2.5 Applicability. The right of first offer in this Section 2
shall not be applicable to (i) the issuance or sale of shares of Common Stock
(or options or convertible instruments therefor) to officers, directors or
employees of, or consultants, equipment lessors or independent contractors to,
or persons having a business relationship with, the Company pursuant to a stock
purchase or option or bonus plan or agreement or other equity incentive program
or arrangement approved by the Board of Directors, (ii) a bona fide, firmly
underwritten public offering of shares of Common Stock, (iii) the issuance of
securities pursuant to the conversion, exchange or exercise of convertible,
exchangeable or exercisable securities, (iv) the issuance of securities in
connection with a bona fide business acquisition of or by the Company, whether
by merger, consolidation, sale of assets, sale or exchange of stock or
otherwise, or (v) the issuance of stock, warrants or other securities or rights
to persons or entities with which the Company has business relationships
provided such issuances are for other than primarily equity financing purposes
as determined by the Company's Board of Directors.
2.6 Term. The right of first offer contained in this Section 2
shall commence on the Closing Date and shall terminate and be of no further
force or effect upon the earlier to occur of: (i) the first anniversary of the
Closing Date, (ii) the sale of securities pursuant to a registration statement
is filed by the Company under the Securities Act of 1933, as amended (the "1933
Act"), in connection with the firm commitment underwritten offering of its
securities to the general public is consummated, or (iii) the date the Company
first becomes subject to the periodic reporting requirements of the 1934 Act
pursuant to Sections 12(g) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act").
3. Registration Rights. The Company covenants and agrees as follows:
3.1 Definitions. For purposes of this Section 3:
(a) 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 1933 Act, and
the declaration or ordering of effectiveness of such registration statement or
document.
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<PAGE>
(b) The term "Registrable Securities" means (i) the
common stock, par value $.001 per share, of the Company (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 Section 3 are not assigned.
(c) The number of shares of "Registrable Securities
then outstanding" shall be determined by the number of shares of common stock of
the Company outstanding which are, and the number of shares of common stock of
the Company issuable pursuant to then exercisable or convertible securities
which are, Registrable Securities.
(d) The term "SEC" shall mean the Securities and
Exchange Commission.
3.2 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 first anniversary of the date of such
conversion (the "Conversion Date").
(a) The Company is obligated to effect only one (1)
such registration pursuant to this Section 3.2.
(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.
3.3 Company Registration. 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 proposes 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 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 3.7, automatically and without the
need for notice from Investor, cause to be registered under the 1933 Act all of
the Registrable Securities held by Investor.
3.4 Obligations of the Company. Whenever required under this
Section 3 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
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(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its reasonable
best efforts to cause such registration statement to become effective.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to Investor a copy of the prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by him.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by
Investor; 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) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. If Investor
participates in such underwriting, he shall also enter into and perform its
obligations under such an agreement
(f) Notify Investor at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(i) Furnish, at the request of Investor, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 3, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (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 Investor, and (ii) a
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letter dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to Investor.
3.5 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 3
with respect to the Registrable Securities of Investor that Investor 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 Investor's Registrable
Securities.
3.6 Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 3.2, including, without limitation, all registration,
filing, and qualification fees, printers and accounting fees relating or
apportionable thereto, but excluding underwriting discounts and commissions
relating to Registrable Securities.
3.7 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 3.2 to include any of Investor's securities
in such underwriting unless he 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).
3.8 No Delay of Registration. Investor 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 3.
3.9 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 3:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless Investor, any underwriter (as defined in the 1933
Act) for Investor and each person, if any, who controls Investor or such
underwriter within the meaning of the 1933 Act or the 1934 Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the 1933 Act, or the 1934 Act or other federal or state
law, 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 (collectively, a "Violation"): (i) any untrue statement
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or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (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 (iii) any violation
or alleged violation by the Company of the 1933 Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the 1933 Act, or the
1934 Act or any state securities law; and the Company will pay to Investor or
each of such underwriter or controlling person, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 3.9(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), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by Investor, underwriter or controlling person.
(b) To the extent permitted by law, Investor will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter and any
controlling person of any such underwriter, 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 the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by Investor expressly for
use in connection with such registration; and Investor will pay any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 3.9(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 3.9(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 Investor, which
consent shall not be unreasonably withheld; provided, that, in no event shall
any indemnity under this subsection 3.9(b) exceed the gross proceeds from the
offering received by Investor.
(c) Promptly after receipt by an indemnified party
under this Section 3.9 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 3.9,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
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indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
3.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 3.9.
(d) If the indemnification provided for in this
Section 3.9 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 that 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 foregoing, to 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.
(f) The obligations of the Company and Investor under
this Section 3.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 3, and otherwise.
3.10. Reports Under 1934 Act. With a view to making available
to Investor the benefits of Rule 144 promulgated under the 1933 Act and any
other rule or regulation of the SEC that may at any time permit Investor to sell
securities of the Company to the public without registration, the Company agrees
to:
(a) Make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration statement
filed by the Company for the offering of its securities to the general public;
and
(b) File with the SEC in a timely manner all reports
and other documents required of the Company under the 1933 Act and the 1934 Act.
3.11 Assignment of Registration Rights. The rights to cause
the Company to register Registrable Securities pursuant to this Section 3 may
only be assigned by Investor to a transferee or assignee of such securities,
provided: (a) the Company is, within a reasonable time after such transfer,
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<PAGE>
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.
3.12 "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.
3.13 Termination of Registration Rights. Investor shall not be
entitled to exercise any right provided for in this Section 3, (a) after three
(3) years following the closing of the Initial Public Offering (other than an
offering relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction) or (b) at such time following the Initial Public Offering and for
so long as Investor may sell all of his Registrable Securities in any single
three (3) month period pursuant to Rule 144 (or such successor rule as may be
adopted).
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4. Miscellaneous.
4.1 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.
4.2 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.
4.3 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.
4.4 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 and to
Seattle Investments LLC, c/o Kingston Smith, 60 Goswell Road, London EC1M 7AD.
4.5 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.
4.6 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.
4.7 Entire Agreement; Amendment. This Agreement constitutes
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof.
4.8 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.
4.10 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
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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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IN WITNESS WHEREOF, the parties have executed this Agreement 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, New York 10023
Facsimile: 212.580.4021
SEATTLE INVESTMENTS LLC
By: Falcon Management LLC, as sole manager
By: George Hobson
-------------------------------------
Name: George Hobson
Title:
Address: c/o Kingston Smith
60 Goswell Road
London EC1M 7AD
Facsimile: 011.44.171.566.4010
[SIGNATURE PAGE TO INVESTOR'S RIGHTS AGREEMENT DATED AUGUST 10, 1999]
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RENTAL CONTRACT
UNPROTECTED ACCORDING TO THE TENANTS' PROTECTION LAW
(VARIOUS INSTRUCTIONS) OF 1968
AS DRAFTED INTO THE TENANTS' PROTECTION LAW (CONSOLIDATED
VERSION) OF 1972
Made and signed in Tel Aviv on March 25, 1997
Between 1. I. 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., Tel Aviv
hereinafter called "the lessor" on the one hand
And between O.M.D. Optical Memory Devices Ltd., private company no.
51-2401605 through its authorized director Glosko Boris, ID no.
3-0375886-6 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.
252 temporary + kitchenette + 2 WCs + a protected room inside the
property object of the rental rented with a total of about 239.14
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 garbage bins will be set according to the plan of the
authorities; b) The entrances (lobbies) of the staircases; c) The
elevator shafts; d) Airways and piping ducts; e) Elevators'
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machine rooms; f) Entrance lobby to the property object of the
rental from 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 "aleph"
and that is an inseparable part of the present rental contract,
and that is situated in the building Wing no. 2 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 the upper floor, situated in the industrial park Rabin Park
Rechovot temporary plot 1006 formerly parcel 70 block 3695.
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 -
"Tenants' 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: O.M.D. Optical
Dar-Eli Memory Devices Ltd
Construction and Investment Co. Ltd.] 51-240160-5]
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.
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2. The parties declare:
A. On August 20, 1968 there were no tenants in the property object of the
rental , defined in the Tenants' Protection Law as having the right to
hold the property object of the rental.
B. The property object of the rental 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 contract is not protected under the
Tenants' Protection Law.
E. The tenant declares and knows that the lessor advised it explicitly that
according to the building permit held by the contractor Perel Dar-Eli 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 shall be made of the building where
the property object of the rental is situated as a workshop, locksmith's
workshop, carpentry, garage and other businesses and shops that cause
noise or dirt and that the destination of the units in the building where
the property object of the rental is situated as registered in the
regulations of the condominium is high technology industries - excluding
those that might cause a use that is contrary to the Abatement of
Nuisances Law of 1961 and its regulations, and also according to the
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decisions and broadening by the Local Building and Planning Commission of
Rechovot and/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 prevented from claiming that said use entails a nuisance or causes it
any damage.
Moreover, it is known to it that the structure of Wing C that is in the
front of Wing A shall be used as an exclusive restaurant and/or cafeteria
and/or another use as permitted by the competent authorities.
3. The present contract cancels previous contracts and agreements having as
object the rental of the property object of the rental, in case they exist.
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 May 15, 1997 and
until May 14, 1999 (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 May 15, 1999 and until May 14, 2000
(midnight) and another period from May 15, 2000 until May 14, 2001
(midnight).
[Stamp: I. Perel & Co. Ltd [Stamp: O.M.D. Optical
Dar-Eli Memory Devices Ltd
Construction and Investment Co. Ltd.] 51-240160-5]
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In order to dispel any doubts, in case the tenant exercises the option
subject to the conditions of the present contract, then said option shall
apply to the whole year of rental (of 12 months). The first extended
rental period shall start from May 15, 1999 and end on May 14, 2000
(midnight) and the second extended rental period shall start on May 15,
2000 and end on May 14, 2001 (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 breached a fundamental breach of the contract during
the rental period and has also made all the payments to the different
authorities as required 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 period or the extended rental period in writing
according to the address above that it is not its intention to extend
the rental period as described 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 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.
6. A. The tenant undertakes to pay to the lessor for each month of the rental
period of the property object of the rental the amount of US$ 2,497 + VAT
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as against a tax invoice, equivalent to NIS 8,420 + VAT + linkage
differentials. This amount includes payment for 4 uncovered parking
spaces on the roof that will be for the use of the tenant, the places of
the parking will be according to the attached parking plan marked with
the Hebrew letter "Aleph 1" and their places are marked in the plan as
169, 170, 171 and 172.
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 contract, that is, on March 25, 1997 and that is the
representative rate of exchange of NIS 3.372 per US$1 and in total NIS
8,420 + VAT as required by law.
The monthly rental payment shall be paid once every 3 months in advance
until the end of the rental period, that is, May 14, 1999 (midnight)
while pegged to the Cost-of-Living Index.
1) It is agreed by the parties that the said monthly rental payments
shall be linked to the Consumer Price Index as defined in the
following detailed definition, and they shall be according to the
payment conditions the tenant undertakes to pay the linkage
differences to the Consumer Price Index immediately with the demand
from the lessor together with VAT according to the law as it applies
during the demand for payment.
2) For purposes of the present contract, the following terms shall have
the following interpretation:
"Payment linked to the Consumer Price Index" - if it becomes clear
from the Consumer Price index published from time to time before any
payment is due from the tenant according to the present contract
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<PAGE>
(hereinafter "the new index") that the new index rose compared to the
index published on March 16, 1997 (hereinafter "the basic index") the
payment 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, 145.4 points.
[Stamp: I. Perel & Co. Ltd [Stamp: O.M.D. Optical
Dar-Eli Memory Devices Ltd
Construction and Investment Co. Ltd.] 51-240160-5]
3) "Consumer Price Index" - The Consumer Price index includes fruit and
vegetables, and it is set 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 between it and the exchanged index. In case said Bureau during
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 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 considered 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
of the conditions of the contract.
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C. On the occasion of signature of the contract the tenant shall pay the
lessor the amount of NIS 25,260 together with VAT as required by law on
account of rental for the period May 15, 1997 - August 14, 1997 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 August 15, 1997 shall be paid to the
lessor according to art. 6 B. above.
D. It is agreed between the parties that in case the tenant wishes to
exercise the option mentioned in art. 5 B. above, then the rental period
shall be extended by 12 additional months for each rental period
extension and all subject to the terms of art. 5 B. 2) while the rental
payment stays subject to the conditions of the contract as mentioned in
art. 6 B. above.
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.
In order to dispel any doubts, the rental payments paid during the period
of option will be of a month of rental in the amount of NIS 8,420
together with VAT while this amount is pegged to the basic index to be
published by the Central Bureau of Statistics on March 16, 1997, that is,
145.4 points compared to the index to be known on the day of actual
payment of each and every payment.
E. It is hereby agreed between the parties that if the check/note given by
the tenant to the lessor as rental payment as above is not honored, this
shall be considered also as a breach of other laws as non-payment of the
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<PAGE>
conditions of rental contract with all this means from the articles of
the present contract and then the lessor shall have the right to enter
the property object of the rental , to change locks and to hold it to
remove chattels belonging to the tenant and depositing them on account of
the tenant, and the tenant shall have no claims against the lessor for
this action and this only after it is sent to the tenant a written notice
by registered mail by the lessor that the tenant does not stand by the
conditions of the contract and 15 passed from the day of delivery of the
notice to the post office.
F. It is hereby agreed that non payment of a check and/or note given by
the tenant in due time shall cause that the tenant shall bear fees for
lack of honoring the check and/or note with 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: O.M.D. Optical
Dar-Eli Memory Devices Ltd
Construction and Investment Co. Ltd.] 51-240160-5]
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 for 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 the lessor and/or the architect and engineer
of the building.
9
<PAGE>
C. The tenant hereby declares that it 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 the property object of the rental for the purposes of the
rental and the possibility to receive a license or licenses required to
operate the purpose of the rental in the property 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 operate any business in the property object of the
rental.
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 unsuitability then it waives any remedy
that is given to it for the unsuitability and 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 undertakes to deliver
within 14 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 advice and instructions from the building engineer,
Mr. Yaakov Chai.
10
<PAGE>
B. The lessor undertakes at the moment 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 the present rental contract. It is
an inseparable part of it and marked with the Hebrew letter "Beit".
C. Canceled.
10. The lessor and/or its representative are permitted to enter the structure 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.
11. A. It is expressly emphasized that the rental period is of two years only.
That is, from May 15, 1997 till May 14, 1999 (midnight) only and all
according to the conditions that the lessor received the improvement
plans within 14 days from the date of signature of the present contract.
The extended rental periods shall be as detailed above and under the
express condition that the tenant has fulfilled its undertakings
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 grid and to the water
lines while it has arranged all matters concerning the connections to
electricity counters at the Electricity Company and the Local Authority on
its account only.
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.
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<PAGE>
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 service and maintenance insurance for the
air-conditioners and smoke and fire detectors found in the property
object of the rental.
d. The payments set by the condominium commission or building commission
where the property object of the rental is located and/or expenses for
current maintenance 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 general area of all the tenants of the
building.
e. It is known to the tenant that the 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 to 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 or through the maintenance company or
management company as decided upon by the condominium commission or the
tenants and owners of units in the building it is agreed between the
parties that in case the cost of management 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 1 sq. m. gross + VAT as
required by law.
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<PAGE>
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 demands from the
authorities to check the debt for purposes of payment. After this 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 the tenant has received a respite of 21 days to check the amount of
the debt to the several authorities.
17. A. The tenant undertakes to make careful 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.
13
<PAGE>
B. The tenant is not entitled to make 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 borne 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 express 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 the rental including construction of
additional partitions and/or moving or cancellation of existing
partitions and also to invest investment in the property 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 of 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
part.
It is also agreed that in case there will be the need to whitewash the
walls as a result of the use of the property object of the rental the
tenant undertakes to whitewash them before it evacuates the property
object of the rental.
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<PAGE>
D. Any waiver or agreement about any matter that one party has waived or
agreed in favor of the other party 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 the end of the extended rental period,
all according to the situation, the tenant shall 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").
A. If the tenant breaches any of the fundamental conditions of the contract
the lessor shall be entitled after sending advance notice of 30 days that
it shall vacate the property object of the rental immediately, in case
the tenant does not vacate as required the lessor shall be entitled to
remove the lessor by force through its previous agreement as given in the
present article and all expenses for this evacuation shall be borne by
the tenant only and also the tenant is responsible for any damage caused
to the lessor as a result of the evacuation made by force by the lessor.
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 fundamental 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 cancelled within 60 days from the date of
the order or if the tenant has given notice of voluntary dissolution.
15
<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 3 months.
D. Without prejudice to the above the tenant uses the property object of the
rental for purposes other than expressly agreed above.
E. In spite of the terms of the present article, it is agreed between the
parties that this action 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.
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 the property object of the rental as
above previously agreed compensation of US$150 per day of delay. This
amount shall be paid as exchanged into new Israeli shekels according to
the representative rate of exchange of the dollar at the date of payment
of the compensation agreed in the present article. The above agreed
compensation is as defined in the Law of Contracts (Remedies against
breach of contract) of Tashla"a - 1971.
B. The above does not contain anything in order to prejudice the right 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 possession of the property object 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.
16
<PAGE>
21. A. The tenant undertakes to take measures 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 from 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 happened 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 and/or abandons the property object of
the rental within the rental period, whether by its own initiative or for
any other reason whatsoever, the tenant shall pay the lessor the rental
payment and all the other payments due from it according to the present
contract, until the end of the rental period.
23. The tenant undertakes to insure on its account the contents of the property
object of the rental with extended fire insurance 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 of the rental
period a valid insurance policy as above and a copy of the temporary cover
within 10 days there is nothing in the above in order to prejudice the
responsibility of the tenant for any damage caused to the property object of
the rental in the responsibility of the tenant the insurance policy shall
17
<PAGE>
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 tenant 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 agreed between the parties that
insurance for the structure of the property object of the rental shall be
made by the lessor.
24. A. It is expressly agreed that the tenant is not allowed to rent the
property object of the rental and/or deliver its possession to others
unless it receives the agreement in writing 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 A. it is agreed between the parties that
the tenant is entitled to grant in part of the property object of the
rental the right of use to professionals or sub-tenants. 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 evacuation of the
property object of the rental by the sub-tenants according to the present
rental contract.
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 property object of the rental with a
tenant under contractual conditions between the tenant and the lessor and
18
<PAGE>
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 before the end of the use period and even
if the tenant stops the use or enjoyment 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 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 contractual rental connection and all
under the condition that it has the possibility to bring a substitute
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
19
<PAGE>
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 until 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 signature of the contract. Autonomous and
unconditional bank guarantee equivalent to 3 months of rental that is
US$7,890 linked to the representative rate of exchange of the dollar
hereinafter "the bank guarantee" this guarantee 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 +
15 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 place it is agreed that the bank
guarantee shall be delivered to the lessor or its attorney not later than
the day of entrance of the tenant into the property object 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.
20
<PAGE>
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 non-commercial checks without dates to the order of the
Electricity Company and the condominium commission of Park Rabin Building
Pninat Binyanei Madah. These checks shall be 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 tenant presents proper
receipts that it has paid its debts to the Electricity Company and to the
condominium commission. In case the tenant does not present these
receipts then the lessor or the attorney shall be entitled to 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: O.M.D. Optical
Dar-Eli Memory Devices Ltd
Construction and Investment Co. Ltd.] 51-240160-5]
C. 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
addition of said linkage in full and in due time and in any case of lack
of evacuation of the property 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 from the day of sending the
notice and the breach was not repaired. If the breaches are repaired by
21
<PAGE>
the tenant and the tenant paid all its debts to all the authorities and
presented proper receipts the guarantee bill shall be returned to the
tenant by the lessor or its attorney.
D. It is agreed between the parties that the receipt of the bank guarantee
and/or the non-commercial checks 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 against 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-delivery of any securities 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 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.
22
<PAGE>
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 contract and shall not be
valid legally for any change unless the change was made explicitly in
writing and is signed by the parties in writing.
32. It is agreed between the parties that within 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 unprotected
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 lessor for the 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 notice 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
immediately 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.
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
fundamental breach of the conditions of the present contract.
35. The parties choose for themselves for 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).
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<PAGE>
Any notice sent by registered mail from 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 and 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 and/or tenants according to the
case, among themselves and from one to the other, to bind the other
individual lessors and/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 tenant
[Stamp: I. Perel & Co. Ltd [Stamp: O.M.D. Optical
Dar-Eli Memory Devices Ltd
Construction and Investment Co. Ltd.] 51-240160-5]
24
<PAGE>
ATTACHMENT B
That is an inseparable part of the rental contract
Made and signed in Tel Aviv on March 25, 1997
Between
1. I. 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., Tel Aviv
hereinafter called "the lessor" on the one hand
And between
O.M.D. Optical Memory Devices Ltd., private company no.
51-2401605 through its authorized director Glosko Boris, ID no.
3-0375886-6 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 rental 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.
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<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 + Emulkir 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: O.M.D. Optical
Dar-Eli Memory Devices Ltd
Construction and Investment Co. Ltd.] 51-240160-5]
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. 20 electrical outlets.
J. 15 telephone outlets.
K. 15 built-in lighting points 120 x 20 louvre perspex according to the
price of US$50 per unit (including installation).
26
<PAGE>
L. 1 post office box at the entrance lobby at the ground floor.
It is agreed between the parties that during the evacuation of the property
subject of the rental all the items listed above shall stay as property of the
lessor.
AND THEREFORE THEY HAVE CAUSED THEIR SIGNATURES TO BE SET UPON THIS:
(-) (-)
The lessor The tenant
[Stamp: I. Perel & Co. Ltd [Stamp: O.M.D. Optical
Dar-Eli Memory Devices Ltd
Construction and Investment Co. Ltd.] 51-240160-5]
27
<PAGE>
AGREEMENT N 356/181298
on the rent of office premises
Moscow December 18, 1998
MACHMIR Co, Ltd., the legal company under the legislation of Russian Federation,
presented by the general director Kudimov N.N., operating on the basis of the
Charter, hereinafter referred to as "Lessor", on the one hand, and ZAO "TriD
Store Vostok", the legal company under the legislation of Russian Federation,
presented by the general director Diskin I.E., operating on the basis of the
Charter, hereinafter referred to as "Renter", on the other hand, further
mentioned together as "Parties", wishing to cooperate on a stable and mutually
advantageous basis, have concluded the present Agreement as follows:
Article 1. SUBJECT OF THE AGREEMENT
1.1 The lessor is obliged to grant the Renter in temporary use for the
defined sum 198 square meters of office premises (further - "premises") for
allocation of the office (without the right of sublease and redemption), on the
second floor of the building, located at: 119146, Moscow, 2nd Frunzenskaya ul.,
8, building 1, which the lessor owns according to the Certificate on depositing
in the Property Registry No. 0018120.
Plan of the premises is shown in the Attachment to the present
agreement, which makes its essential part.
1.2 The rent is valid since December 18, 1998 until December 1, 1999 or
on smaller period, in case of application of the positions, foreseen in article
6 of the present Agreement.
1.3 The present Agreement is valid since its signing by representatives
of both Parties.
Article 2. THE RIGHTS AND RESPONSIBILITIES OF THE PARTIES
2.1 The lessor commits oneself:
2.1.1 To grant to the Renter's disposal the premises for agreed
purposes since December 18, 1998 under the acceptance report, stating technical
conditions of premises and engineering equipment at the moment of leasing;
2.1.2 To render the Renter necessary assistance in registration of the
present agreement in state bodies according to the requirements of the Russian
legislation;
2.1.3 To provide for the Renter and persons, indicated by him in
written notice, unconstrained access to the premises and places of common use
during working days from 8 AM till 9 PM; in remaining time, in case of business
necessity, with preliminary Lessor's notification and his written permission;
<PAGE>
2.1.4 To provide for the validity period of the present agreement the
electricity supply for lighting, office equipment and home appliances
(installation of other apparatus consuming electric power requires the Lessor's
consent; the payment for current consumption by such apparatus is made
follow-up, basing on actual power of instruments); feed of hot and cold water,
heating upon the existing norms in Moscow, and also operation of the water
drain, sweeping of places of common use and adjacent territory, round-the-clock
protection of the building and adjacent territory;
2.1.5 In case of crashes not through the Renter's guilt, to assist in
elimination of their consequences;
2.1.6 To grant for the validity period of the present agreement for use
of the Renter 4 city telephone lines, providing if needed telephone feed to the
premises. The Miussky Telephone site at the expense of the Renter can re-assign
the local telephone lines to the Renter with the consent of the Lessor;
After termination or advance cancellation of this agreement, the
agreement on use of the local telephone lines is restored and the telephone
numbers are reverted to the former user - the lessor. The Renter pays the
telephone bills during validity of this lease arrangement directly to the
Service Company.
In case the Renter detains from payments for more than one month, the
Lessor switches off the phones in his use on the basis of notification of
indebtedness until complete coverage of all debts before the phone site.
2.2 The lessor eliminates crashes and their consequences at his own
expense, if they took place through his guilt. In case of any crash, the Parties
compose a two-Partied report, indicating the reasons and order of liquidation of
consequences.
2.3 The Renter accepts the following obligations:
2.3.1 To use premises extremely with the purposes, indicated in item
1.1 of the present Agreement; not to transfer his rights and responsibilities
upon the agreement to third parties.
2.3.2 To pay the rent in due terms;
2.3.3 To use premises according to sanitary & fire-prevention rules and
regulations of using the sanitary - technical and engineering equipment; to
respect rules and norms of public behavior;
The personal responsibility for fire prevention in the leased premises
according to the current legislation (item 1.1.7 of the Fire prevention rules in
the Russian Federation) is assigned to the chief of Company.
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<PAGE>
2.3.4 To remove and to bear commodities and materials from the premises
upon his invoices presenting them to the guards;
2.3.5 To carry out the necessary current repair of premises in time and
at his own expense. Expenditures of the Renter on the current repair are not the
basis for lowering the rent;
2.3.6 After cancellation of the present Agreement, the conditions of
returned premises shall be not worse, than as fixed in the report mentioned in
item 2.1.1 of the present Agreement with allowance of a natural wear.
If the conditions of returned premises upon termination of the
agreement is worse than the provided, the Renter reimburses to the Lessor the
caused damage according to the legislation of Russian Federation.
2.3.7 To seal up the leased premises daily and to hand over on the
guards' console with notification in the register.
In case of absence of seals at the door of the premises, defective
locks and absence of a signature in the guards' register, the Lessor is not
responsible for loss and plunder of commodities and materials from the leased
premises.
At revealing of plunder of commodities and materials from leased
premises when under protection and in case of habitual negligence of the
protection servicing by the Lessor, the Renter can claim reimbursement of
suffered damage, as fixed by competent authorities.
Article 3. PAYMENTS AND ACCOUNTS BY AGREEMENT
3.1 For the premises in temporary use the Renter shall pay the Lessor
the equivalent of 60.390 (sixty thousand three hundred ninety) US dollars per
annum, basing on the rate of 305 US dollars per 1 square meter annually.
3.2 Rent and other payments upon this agreement are made in rubles at
the rate of the Central Bank of Russian Federation on the date of payment.
3.3 The Renter transfers monthly in advance, not later than the 20th of
the last month of prior quarter, the equivalent of 15.097,5 US dollars to the
account, indicated by the Lessor at the moment of the first payment.
3.4 The date of payment is the date of receipt of the appropriate sums
on the recipient's account.
3.5 All the sums, mentioned in the present article, include the
value-added tax.
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<PAGE>
Article 4. THE RESPONSIBILITY OF THE PARTIES
4.1 For default, delayed incomplete fulfillment of the obligations
indicated in article 3 of the present agreement, the Renter pays to the Lessor
the fine at a rate of 0,5% of the delayed sum per each day of delay. In case of
delay in rent payments over one month, the Lessor has the right to terminate the
agreement by written notification of the Renter. On receipt of such
notification, the Renter shall release the rented premises in 30 days.
4.2 In case of violation or inadequate fulfillment of his obligations
and/or warranties by any Party under the present Agreement, he is obliged to
reimburse to the other Party the losses, caused by such violation or inadequate
fulfillment.
4.3 The payment of sanctions, fixed hereby, does not release the
Parties from execution of their obligations or from elimination of violations.
4.4 The Renter and Lessor shall not bear responsibility for violation
or inadequate fulfillment of their duties in case of force majeure
circumstances, as stipulated in items 5.1-5.5 of the present Agreement.
Article 5. FORCE MAJEURE
5.1. The Party is released from responsibility for partial or complete
violation of its obligations under the present Agreement, if this violation or
inadequate fulfillment was caused by force majeure circumstances arisen after
conclusion of the present Agreement as a result of extreme events, which the
Party could neither foresee, nor prevent by reasonable measures. Such extreme
events include: the fire, flood and other natural phenomena, military
operations, mass rioting, acts of government and management bodies of the
Russian Federation, activities of municipal services realizing provision of the
building.
5.2 At arise of circumstances, indicated in item 1 of the present
article, the Party shall immediately notify the other Party in written form. The
notice should contain description of circumstances, rating of their influence on
fulfillment by the Party of its obligations under the present Agreement and time
of performance of the obligations.
5.3 The Party shall immediately inform the other Party in written form
on termination of circumstances, indicated in item 1 of the present article. The
notice shall indicate the period of execution of the obligation under the
present Agreement.
5.4 In cases, foreseen in item 1 of the present article, the period of
execution by the Parties of their obligations under the present agreement is
removed in proportion to time, during which such circumstances operate.
5.5 In case the indicated circumstances and their consequences continue
to operate over a month or if at the approach of such circumstances it becomes
clear that they and their consequences will operate over this period, the
Parties can terminate the present Agreement by mutual agreement. Then, neither
Party shall claim reimbursement of any losses suffered in connection with the
present Agreement.
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<PAGE>
Article 6. ADVANCE TERMINATION
AND CANCELLATION OF THE AGREEMENT
6.1 Changing terms of the present agreement requires written agreement
between the Parties, and this agreement can be terminated after its expiry or in
advance.
The advance termination by any Party is possible by written
notification of the other Party not less than 30 days before reputed date of
termination.
6.2 The agreement can also be terminated by the Lessor, if the Renter
infringes the contractual obligations stated in item 2.3.3, uses leased premises
not as required, does not hinder with systematic gross violation by the
employees company of the order and, despite of written warning terminating
continues to infringe the obligations within 30 days from the date of the notice
in writing.
6.3 At advance cancellation of the agreement, the Parties settle all
the accounts upon this agreement, outstanding at the date of cancellation.
Article 7. RESOLUTION OF DISPUTES
7.1 All disputes and dissents arising from the present Agreement or in
connection with it shall be whenever possible settled by negotiations between
the Parties.
7.2 In case the Parties can not reach an agreement, the dispute between
them is subject to consideration in Arbitration Court of Moscow.
Article 8. PARTICULAR TERMS
8.1 All inseparable (without detriment) improvements in the premises,
made by the Renter in a location, become the property of the Lessor without
reimbursing cost of these improvements to the Renter after cancellation or
advance termination of the Agreement.
8.2 The lessor hereby guarantees that he is the proprietor of premises
and possesses all necessary and sufficient rights on granting the premises to
rent.
8.3 The lessor will have access to leased premises for inspection,
repair under advance notification of the Renter, except for extreme cases, like
a fire or flood, at which no warning is required. The Renter shall be
immediately informed about such access in extreme situations.
8.4 During validity of this agreement, the Renter will have the right
to make re-equipment and re-planning of leased premises only under the written
approval of the Lessor.
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<PAGE>
8.5 The Parties are obliged to provide confidentiality of financial and
commercial information tangent of conditions of the present agreement.
8.6 All changes and additions to the present agreement should be made
in writing and signed by the plenipotentiaries.
Article 9. PROPERTIES OF THE PARTIES
9.1 Lessor: the closed joint-stock company "MACHMIR"
INN 7704010953 119146, Moscow, 2nd Frunzenskaya ul., 8
Bank account 40702810500000000045 in ZAO AKB <<Shinprombank>> BIK
044583374 corr.acc. 30101810500000000374
9.2 Renter: ZAO "TriD Store Vostok"
INN 119146 Moscow, 2nd Frunzenskaya ul., 8, building 1
Bank account in "Bank Austria" (Moscow) 000
BIK 044525746 corr. acc. 30101810400000000746
The present agreement is signed in triplicate in Russian, all copies
having identical legal force, one for each Party and one - for
registering bodies.
On behalf of the Lessor On behalf of the Renter
General director General director
/s/ N.N. Kudimov /s/ I.E. Diskin
--------------------- -------------------
N.N. Kudimov I.E. Diskin
The translation was made by Tatiana V. Vassilieva completely and correctly on 1
page on November 05, 1999.
General Director I.E. Diskin
-6-
<PAGE>
THE RENT AGREEMENT
No. 5/8 July 05, 1999
The closed joint-stock company "MSU Science Park", hereinafter referred
to as "Lessor", presented by the executive general director Movsesyan O.V.,
operating on the basis of the Charter, on the one hand, and ZAO "TriD Stor
Vostok", hereinafter referred to as "Tenant", presented by the General Director
I.E. Diskin, operating on the basis of the Charter, on the other hand, have
concluded the present Agreement as follows:
1. Subject of the Agreement.
1.1 The Lessor transmits, and the Tenant hires (without the right of
repayment) the following uninhabited locations hereinafter referred to as
"Locations"), on the territory of the MSU Science Park:
Building No. 5 Locations No. 513A, 514, 522 total square of 59,4
sq.m.
1.2 The Tenant uses Locations for its activities according to the
presented concept and (or) affirmed project. The Tenant can change the sphere of
activities, agreed at the conclusion of the present Agreement, under written
consent of the Lessor.
1.3 The rent period is from July 01, 1999 until December 30, 1999.
2. Obligations of the Parties.
2.1 The Lessor will:
2.1.1 After signing of the present Agreement, allow the Tenant to
use Locations indicated in item 1.1 of the Agreement, under the Acceptance
Report.
N.B.: The Lessor can leave the Location by parts upon their
availability to maintenance under the Acceptance Report.
2.1.2 Allow the Tenant use of all shared locations and different
services for additional payment.
2.1.3 Make overhaul of Locations occupied by the Tenant, together
with overhaul of buildings and engineering networks on the territory of the
Lessor.
2.1.4 In case of crashes affecting Locations of the Tenant, which
occurred without the Tenant's fault immediately take all measures on their
removal.
Engineering communications can be switched off in case of emergency
(crash, breakage, etc.). In these cases, the Tenant will not ask for lowering
payment under this agreement or for compensation of damages.
<PAGE>
2.1.5 Respect other conditions, foreseen by the present Agreement
and the Charter of MSU Science Park MTY.
2.2 The Tenant will:
2.2.1 Use Locations according to item 1.2 of the Agreement only for
mutually agreed activities.
2.2.2 Respect the service regulations, monitor fire safety according
to the Instruction from 03.04.95 "Measures of fire safety in the MSU Science
Park locations" and sanitary status of Locations before leaving them.
2.2.3 In the periods, fixed herein, pay for the rent, services and
operation costs of the Lessor connected to the Locations.
2.2.4 Not make any re-planning and re-equipment of the leased
Location without a written permission of the Lessor.
2.2.5 Make, at his own expense, the necessary current repairing of
the leased Location, as well as its thorough repairs connected to his
activities; the Tenant makes the necessary repair of Location as agreed at
signing the contract in size and periods defined by a padding agreement to the
present Agreement.
2.2.6 Dispose his and related organizations' logos, signboards and
pointers at his own expense in places agreed with the Lessor. After termination
of the rent, he will remove all signboards, made inscriptions, etc.
2.2.7 Inform the Lessor, in writing in two weeks prior his
forthcoming release, and hand over the Location to the Lessor according to the
Acceptance Report in a normal state of operability, with allowance of natural
wear and tear.
Note: The Location will be released with the participation of the
Lessor's representative.
2.2.8 In case the Tenant leaves Location before the rent expires or
due or termination of the Agreement, he pays the amount needed for making
thorough and current repairing, imposed as his duty but not carried out.
2.2.9 Transmit to the Lessor free after expiration or advance
termination of the Agreement all modifications, alterations and improvements,
made in leased Location, which make its integral part and can not be removed
harmlessly.
2.3 The Parties will respect confidentiality of all the information
and trade secrets, arising as a result of conclusion and execution of the given
Agreement.
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<PAGE>
3. Payment Terms.
3.1 The Tenant pays to the Lessor for Location, mentioned in item
1.1 herein, the rent, including operational costs and expenditures connection to
its servicing, at a rate of 230 US dollars for one square meter of leased
premises annually, including VAT, in RUR at the rate of Central Bank of Russia
at transfer date.
The payment is made on a quarter basis, not later than on 15th date
of the first month of each quarter.
3.2 The value of rent can be changed under the mutual agreement due
to the change of servicing the leased premises.
The padding rent is paid upon the invoices from the Lessor.
3.3 The final settlement of all payments is made in the end of each
quarter, basing on actual expenditures of the Lessor. The difference upon
recalculation is paid by the Tenant.
4.
4.1 In case of delay, the Lessor pays fine at the rate of 0,3% of
the sum due per each day of delay.
4.2 For non-fulfillment of any obligation upon the present
Agreement, the Tenant pays a penalty of 10% from annual rent.
4.3 Payment of sanctions upon the present Agreement does not release
the Tenant from execution of his obligations or elimination of violations.
5. Maintenance of Order and Use of Locations.
5.1 The Lessor is not responsible for any faultiness detected after
signing the Acceptance Report. The Tenant can not require their elimination or
remedial.
5.2 The Lessor is not responsible for safety of property in leased
locations, as well as of property outside the locations.
5.3 The Tenant bears responsibility for damage being a result of his
activities or activities of third parties, using the Locations with his consent.
The Tenant will remove or reimburse this damage.
5.4 The Tenant immediately informs the Lessor of any faultiness in
the Locations. The Tenant is responsible for any damage not in his guilt, but
about which he has not informed the Lessor in time.
5.5 The Tenant can make redecoration, including walls decoration,
coloration and coating the floors.
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<PAGE>
5.6 Maintenance of entrance halls, corridors, ladders and shared
locations is the responsibility of the Lessor.
5.7 Maintenance of adjacent territory and access roads is the
responsibility of the Lessor.
5.8 Changes, re-equipment and re-planning of Locations at the
expense of the Tenant can be carried out only with a written permission of the
Lessor. The permission can be given only provided that after ending of rent the
Tenant puts Locations in a primal state at his own expense.
5.9 If the changes, made by Tenant under the written coordination
with the Lessor, remain after termination of the Agreement, the Tenant can not
claim reimbursement of their cost.
5.10 The Tenant will not conduct operations, which can hinder other
clients of the Lessor, on working days from 9 AM till 6 PM.
5.11 The Tenant or his representatives can enter the leased
Locations on working days during working hours. The entrance in other time will
be agreed with the Lessor in writing.
5.12 Installation in Locations of heavy equipment (over 100 kilos
weight) is subject to checking of its correspondence with the ultimate load on
the floor and with a written permission of the Lessor.
5.13 Stacking or installation of equipment and subject of the Tenant
outside of leased Location is forbidden. If by way of exception the Lessor gives
a temporary permission on such a location, the Tenant bears responsibility for
any damage, connected to it.
5.14 The vehicles of the Tenant and his employees are to be disposed
on parking place of the Lessor at additional expense and in the order, fixed by
the Lessor. Parking of the Tenant's vehicles or those upon his order in other
places is allowed only for loading and unloading.
5.15 The Tenant is responsible for any damages caused by his means
of transport, arrived upon his order.
5.16 In case of contamination by the Tenant's vehicles of the land
lot or Locations, the Tenant will remove the contamination immediately.
5.17 The Tenant will place his wastes in the containers, specially
assigned for this purpose. If the size of scraps exceeds a size of the
container, the Tenant will export scraps from the Lessor's territory by himself.
Allocation of scraps near to containers or on other sites of territory is
forbidden.
-4-
<PAGE>
5.18 For the development of the Science Park infrastructure, duly
overhaul of buildings and engineering networks, improving operation of leased
Locations, the Lessor can attract padding resources of the Tenant on conditions
defined by follow-up agreements.
6. Change of the Agreement and Resolution of Disputes.
6.1 The changes and additions to the present Agreement are real only
under written consent of both Parties.
6.2 In case some provisions of the present Agreement lose force,
other provisions remain valid.
6.3 Any dispute and inconsistencies relating the present Agreement,
the Parties try to settle by means of negotiations. If the Parties can not
achieve the compromise, the dispute is authorized in the order fixed by the
legislation of the Russian Federation.
7. Advance Cancellation of the Agreement.
7.1 The present Agreement can be terminated in advance:
7.1.1 On mutual consent of the Parties on conditions defined by the
appropriate written agreement, but not contradicting to the present Agreement
and to the obligations of any Party before the third persons.
7.1.2 At advance cancellation of the Agreement under the initiative
of the Tenant, he can not claim returning of the paid rent and other premiums
for the unused rent period.
7.2 The agreement is subject to advance cancellation, and Tenant to
eviction:
7.2.1 In the case of usage by the Tenant of the building or Location
(as a whole or in part) not according to the lease Arrangement.
7.2.2 If the Tenant worsens the state of a Location intentionally or
on imprudence.
7.2.3 If the Tenant has not paid the rent within two months after
written warning of the Lessor.
7.2.4 If the Tenant does not make overhaul in case it is his duty
upon the Agreement.
7.2.5 In case of state necessity for a leased Location (with return
to the Tenant of the paid rent and other payments for the unused rent period).
-5-
<PAGE>
8. Force Majeure.
8.1 The Parties are released from partial or complete violation of
the obligations under the present Agreement, if this violation was caused by
force majeure, arising after signing of the present Agreement as a result of
extreme circumstances (natural disasters, operation and acts of state bodies,
etc.), which the Parties could neither foresee, nor prevent by reasonable means.
8.2 In case of force majeure the performance of obligations under
the present Agreement is removed in time proportionally to duration of force
majeure and its consequences, upon agreement between the parties (coordination
protocol is necessarily attached).
9. Other Conditions
9.1 The Tenant has no paramount right on the new period of rent.
9.2 The present Agreement is in two copies of identical legal force,
one for each party.
10. Legal Addresses and Properties of the Parties.
10.1 Lessor:
ZAO Science Park MSU
119899, Moscow
Vorobyovy gory, 1
building 75
Moscow State University
Science Park
Account No.: 40702810400040000875 in CB "Moscow Lights"
BIC 044525983
Correspondent account 30101810700000000983,
INN 7729088180,
OKONH codes 95120, 95400,
OKPO code 17363304
10.2 Tenant:
ZAO "TriD Store Vostok"
119146, Moscow, 2nd Frunzenskaya ul., 8
Account 40702810500008996710 in "CB Bank Austria
Creditanshtalt"
Correspondent account 30101810400000000746
BIC 044525746
OKPO code 49930006
OKONH 95120
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<PAGE>
Lessor: Tenant:
Acting General Manager General Manager
of MSU Science Park of ZAO "TriD Store Vostok"
/s/ O.V. Movsesyan /s/ I.E. Diskin
- ----------------------------- ------------------------------
O.V. Movsesyan I.E. Diskin
The translation was made by Tatiana V. Vassilieva completely and
correctly on 6 pages on November 05, 1999.
General Director I.E. Diskin
-7-
<PAGE>
ATTACHMENT N 1
To the Rent Agreement No. 5/8
Dated July 05, 1999
THE ACCEPTANCE REPORT
On Rent of Locations
Moscow July 05, 1999
Limited Shareholders' company "MSU Science Park", hereinafter referred
to as "Lessor", presented by the acting general director Movsesyan Oleg
Vladimirovitch, operating on the basis of the Charter, on the one hand, and ZAO
"TriD Store Vostok", hereinafter referred to as "Tenant", presented by General
Director I.E. Diskin, operating on the basis of the Charter, on the other hand,
state herein that the Lessor has handed over, and the Tenant has accepted for
rent in building #5 locations ## 513A, 514, 522 with common space of 59,4 sq.m.
The location is equipped with steam heating, electric lighting, power
supply (European and domestic standard) and telephones No. _________________,
No. ________________, No. __________________ and No. ______________.
The locations and internal communications are accepted by the Tenant in
use in properly functioning state with the standard (improved) furnish.
The Tenant will maintain Locations during rent in the primary state.
Any improvements in Locations conducted by the Tenant upon his initiative do not
influence the mutual calculations.
The Tenant will provide insurance of apparatus, machinery, audio- and
video equipment, furniture, etc., located in the rented premises.
From the Lessor: From the Tenant:
Acting General Manager General Manager
of MSU Science Park of ZAO "TriD Store Vostok"
/s/ O.V. Movsesyan /s/ I.E. Diskin
- ----------------------- ---------------------
O.V. Movsesyan I.E. Diskin
The translation was made by Tatiana V. Vassilieva completely and
correctly on 1 page on November 05, 1999.
General Director I.E. Diskin
<PAGE>
EXHIBIT 10.6
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:_____________________________
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