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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
POST-EFFECTIVE
FORM 10/A No. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES ACT OF 1934
CONSTELLATION 3D, INC.
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(Exact Name of Registrant as Specified in its Charter)
Florida 13-4064492
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
230 Park Avenue, Suite 453, New York, New York 10169
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(Address of Principal Executive Offices) (Zip Code)
(212) 983-1107
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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, Constellation 3D, 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"), the rules and regulations
of the Securities and Exchange Commission (the "SEC") promulgated thereunder and
by agreement with the SEC.
The Company believes that this Registration Statement automatically
became effective January 11, 2000. Upon the effectiveness of this Registration
Statement, the Common Stock (as defined hereinafter) became registered under
Section 12(g) of the Exchange Act. Following effectiveness of this Registration
Statement, C3D is required and expects to file annual, quarterly and current
reports, proxy statements and other information with the SEC. You may read and
copy any reports, statements or other information filed by C3D at the SEC's
public reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at
7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. It
is expected that C3D's filings will be also available to the public from
commercial document retrieval services and at the world wide web site maintained
by the SEC at http://www.sec.gov. The current Internet address of the Company is
http://www.c-3d.net.
Except where the context indicates otherwise, references in this
document to "we," "us" and "our" refer to the Company.
FORWARD LOOKING STATEMENTS
Some of the information in this Registration Statement or the documents
incorporated by reference in this Registration Statement may contain
forward-looking statements. You can identify these statements by the appearance
of words and phrases such as "will likely result," "may," "believes," "are
expected to," "is anticipated to," "is forecasted to," "is designed to," "plans
to," "predict," "seek," "estimate," "projected," "intends to" or other similar
words and phrases. Important factors that could cause actual results to differ
materially from expectations include:
o market conditions and demand for new data storage technology;
o our competitors' ability to successfully develop new
technologies to satisfy demand for data storage;
o difficulties in achieving sales, gross margin and operating
expense targets based on competitive market factors;
o difficulties in competing successfully in the markets for new
products with established and emerging competitors;
o difficulties with single source supplies, product defects or
product delays;
o our status as a going concern;
o difficulties in forming and maintaining successful joint
venture relationships;
o difficulties in negotiating and receiving licensing royalties;
o difficulties in obtaining, maintaining and using intellectual
property protections;
o changes in data storage technological protocols and standards;
o volatility in interest rates and currency exchange rates;
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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.
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 Registration Statement.
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
2001. The operating subsidiaries of Constellation Tech (as defined below)
incurred a net loss of $2,762,714 for the nine-months ended September 30, 1999
and $3,191,902 for the year ended December 31, 1998. The operating results for
C3D were a net loss of $2,089,182 for the nine-month ended September 30, 1999
and $0 for the year ended December 31, 1998. The Company has never been
profitable and there can be no assurance that, in the future, the Company will
be profitable on a quarterly or annual basis. In addition, over the next twelve
months, the Company plans to increase its operating expenses from approximately
$350,000 per month to $1,200,000 per month in order to fund research and
development and increase its administration resources. However, the Company
expects to receive revenues by the end of 2000. Nevertheless, it is possible
that the revenue of the Company may never be sufficient to recognize a profit.
Limited Operating History
C3D began operations as of October 1, 1999, and C3D has no prior
operating history other than that associated with the acquisition of
Constellation 3D Technology Limited, a British Virgin Islands corporation
("Constellation Tech"), which primarily performed research and development of
three-dimensional technology for the storage of digital information on disc.
However, C3D's subsidiaries were in operation before October 1, 1999, when they
were owned by Constellation 3D Holdings Limited, an Irish company
("Constellation Holdings") or Constellation Tech.
The Company's proposed operations will be subject to the problems,
expenses, difficulties, complications, and delays frequently encountered in
connection with starting a new operation. Primarily, there is the risk that the
Company may not be able to transform the technology into commercially profitable
products. Also, there is the risk that once introduced into the market place,
the Company's products will not be embraced by the market.
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The Company as a Going Concern
Due to its lack of operating revenues, accumulated operating losses of
$8,567,361 and $2,094,182 in Constellation Tech and C3D, respectively, and the
need for additional working capital, there is no assurance that the Company will
be able to continue as a going concern. The Company's independent certified
public accountants modified their opinion on C3D's and Constellation Tech's
Financial Statements to express their substantial doubt about the respective
companies ability to continue as a going concern.
Possible Removal from NASD Over-the-Counter Bulletin Board
The National Association of Securities Dealers ("NASD")
Over-the-Counter Bulletin Board quotation service (the "Bulletin Board") sets
requirements for those companies which use or wish to use that service. If C3D
in the future fails to meet any of these requirements, the NASD Over-the-Counter
Bulletin Board quotation service may prevent C3D from having its Common Stock
traded using the service.
One of the requirements recently established by the NASD requires a
company quoted on the Bulletin Board to file reports with the SEC pursuant to
the Exchange Act. The NASD has adopted a schedule for phasing in this reporting
requirement. According to this schedule, as accelerated, C3D needed to be a
reporting company by December 23, 1999 in order to avoid the Bulletin Board's
placement of an "E" next to C3D's ticker symbol, which was "CDDD". The "E"
denotes that C3D is delinquent in making Exchange Act filings. On December 23,
1999, the Company was not yet an Exchange Act reporting company, and thus the
Bulletin Board placed an "E" to the right of "CDDD". As of December 23, 1999,
C3D's ticker symbol read "CDDDE". If, by January 19, 2000, the Bulletin Board
does not receive evidence to its satisfaction that this Registration Statement,
which is C3D's initial Exchange Act filing, has fully satisfied all SEC comments
regarding this Registration Statement, then the Bulletin Board will not allow
C3D's Common Stock to continue to be traded using the Bulletin Board quotation
service.
Change of Name and Ticker Symbol
It is possible that a recent change in C3D's legal name and expected
change in C3D's ticker symbol will have a material adverse effect on C3D's
financial condition due to possible confusion over the name and ticker symbol in
the market for C3D's Common Stock. As approved by the necessary number of votes
at the Annual Meeting of Shareholders of C3D held on December 27, 1999, C3D Inc.
changed its name to Constellation 3D, Inc. effective December 29, 1999. For
purposes of this Registration Statement, and except where the context clearly
indicates otherwise, Constellation 3D, Inc. will be called "C3D." According to
the NASD, as a result of C3D's name change, C3D must change its ticker symbol.
The Company expects this ticker symbol change to occur in the very near future.
NASDAQ Market Operations asked C3D to make to it a formal request for possible
replacement ticker symbols preferred by C3D. The following are the five (5)
ticker symbols that C3D formally requested as a replacement for the ticker
symbol "CDDD", in order of preference from most preferred to least preferred:
1. CDCD
2. CMDD
3. CDMM
4. CFMD
5. DDDM
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NASDAQ Market Operations has informed C3D that its new ticker symbol is expected
to be CFMD in the near future, but as discussed in the next paragraph, the new
ticker symbol may be CFMDE and later revert to CFMD. Although the Company
believes that, as of January 12, 2000, at least one of the foregoing five (5)
ticker symbols is available, there is no assurance that the NASD will assign
CFMD or any of the other foregoing ticker symbols to C3D.
As discussed in the last Risk Factor, entitled "Possible Removal from
NASD OTC Bulletin Board," C3D currently has an "E" placed at the end of its
ticker symbol. Thus, the NASD may place an "E" at the end of any new ticker
symbol. The Company expects that the NASD OTC Bulletin Board will remove the "E"
from the end of C3D's ticker symbol if and after the Bulletin Board receives
evidence to its satisfaction that this Registration Statement, which is C3D's
initial Exchange Act filing, has fully satisfied all U.S. Securities and
Exchange Commission comments regarding this Registration Statement. A change in
C3D's ticker symbol does not, by itself, decrease the risk that the NASD will
prevent the quotation of C3D's Common Stock on the Bulletin Board. Furthermore,
it is possible that a recent change in C3D's legal name and expected change in
C3D's ticker symbol will have a material adverse effect on C3D's financial
condition due to possible confusion over the name and ticker symbol in the
market for C3D's Common Stock.
Need for Additional Capital
The Company believes that it has sufficient working capital to sustain
its operations through February 2000. However, as a research and development
company in the data storage technology field, the Company continually expends
large amounts of capital over short periods of time. The Company is currently
generating no revenues and does not expect to do so until the end of 2000. There
is no assurance that revenues generated in future operations, if any, will be
sufficient to finance the complete cost of the Company's research and
development. Additional funds will be required before the Company achieves
positive cash flow from operations. Future capital requirements and
profitability depend on many factors, including, but not limited to, the timely
success of product development projects and the timeliness and success of joint
venture and corporate alliance strategies and marketing. The Company is actively
in the process of raising additional capital, including the issuance of
convertible debt securities and the potential issuance of preferred shares. The
Company's outstanding convertible debt contains no restrictions on the further
incurrence of indebtedness nor does such debt adversely effect the Company's
liquidity. However, future debt or preferred share offerings could result in
restrictions that could make payments of such debts difficult, create
difficulties in obtaining further financings, limit the flexibility of changes
in the business, and cause substantial liquidity problems. However, there can be
no assurances that financing or additional funds needed will be available when
needed or, if available, on terms acceptable to the Company. Additional equity
or convertible debt financing, if obtained, could result in substantial dilution
to shareholders. The Company is not currently considering acquiring a bank
credit facility.
Foreign Operations
In addition to its activities in the United States, the Company
conducts business operations in Israel and Russia, and it has hired a
subcontractor to perform various activities for the Company in 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.
Economic Instability
Economic instability may encompass unstable price level (i.e.
inflation), unstable interest levels or rates (i.e. fluctuation of capital) and
social unrest.
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The rate of inflation in Israel, Russia and Ukraine has not materially
adversely affected the Company's financial condition. It is not possible for the
Company to predict whether the rate of inflation in Israel, Russia or Ukraine
will materially adversely affect the Company's financial condition in the
future. However, the Company believes that it is possible that such adverse
effects might result in the future. High rates of inflation have occurred in the
above-mentioned countries on numerous occasions in the past, and they may
reoccur in the future. High rates of inflation may cause insecurity and
uneasiness in the local populace in general, including the Company's employees.
In such situations, there is often concern about the increasing cost of living
(as measured in local currency) and attempts to keep pace with it. This
situation by itself might adversely affect the performance of the Company.
Whenever inflation is not matched proportionately by the currency exchange rate
(as has happened as a matter of governmental policy in countries such as Israel,
Argentina, and Russia), there is an increase in the costs to the Company in U.S.
dollars. Such increases in costs might materially adversely affect the Company.
The company does not have, at the moment, a hedging policy for
protecting against changes in the dollar costs of the activities.
Changes and fluctuations of interest rates might, in principle, affect
the operations of the Company in each of the aforementioned countries. The
changes in the interest rates might create flows of capital that might affect
the economy of and entire country, and thus also the Company's employees. Since
most of the financing of the non-U.S. operations is provided by the Company, and
since such financing is expected to continue in the future, the Company believes
that local interest rate fluctuations will not have a material adverse impact on
the Company's financial condition.
The situation in each of the above-mentioned countries might eventually
develop into extended social unrest. Such social unrest might materially
adversely affect the performance of the Company's local activities and of the
Company as a whole.
Political Instability
The Company does not possess "political risk" or other insurance to
protect it against business interruption losses caused by political acts.
Israel's physical security and integrity have been at risk since
Israel's inception as a modern nation. Recently, Israel and Syria have restarted
peace negotiations. However, there is no formal peace between Israel and Syria
or Lebanon, and there are conflicts also between Israel and Iraq and between
Israel and Iran. Furthermore, Israel and the Palestinian Authority have been
conducting negotiations with respect to the legal status of the West Bank and
Gaza Strip, and negotiations concerning the legal status of Jerusalem, the
current Israeli capital, may ensue. In connection with those negotiations and
their results, violent activity has occurred, and may reoccur. Therefore, to the
extent that the Company has operations in Israel, there is risk that the
political instability will have an adverse impact on the Company's ability to
conduct its business. It is highly unlikely, but possible, that Israel's
compulsory military service obligation for its citizens, which lasts until an
individual is 50 years of age, could disrupt the scheduled work of the Company's
Israeli research and development facility, which in turn could delay the
commercial launch of the Company's planned volumetric storage product line and
materially adversely affect the Company's results of operations and financial
condition.
Russia's significant political and economic instability could have a
material adverse effect on the results of our operations and the market price of
our stock. Russia has incurred significant debt, which it may fail to adequately
service. Russian currency, the ruble, has encountered foreign exchange
volatility. The Russian government has experienced frequent political
instability and change, including wars inside Russia, acts of terrorism, power
struggles among government officials and among big commercial enterprises, which
included allegations of high levels of corruption, and allegations of organized
or other crime. In the recent years, prime ministers have been replaced
frequently, and parties with radical positions regarding intervention of the
government in the economy, like the Communist Party, have gained in influence.
Although we do not believe that the Company has been materially adversely
affected by these activities to date, in the future, such factors may have a
material adverse effect on our operations. Our ability to conduct operations in
Russia could be adversely affected by difficulties in protecting and enforcing
our rights and by future changes to local laws and regulations.
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Other Adversities
Additional strains on our local operations might result from other
factors, such as the delay of Moscow banks in acknowledging wire transfers of
funds into Russia. These delays can be anywhere from a day to a week. Also,
Moscow banks often charge very expensive and somewhat arbitrary fees with
respect to wire transfers.
The Company's activities in Ukraine are limited to the operations of a
single subcontractor. Economic or political instability in Ukraine might have a
material adverse impact on the Company's ability to conduct its business and/or
its financial condition. It should be noted that, as in Russia, Ukraine has
experienced significant political and economic change. The Ukrainian economy is
less developed than that of Russia. Ukraine is susceptible to most of the same
economic risks as Russia, including sovereign debt defaults and/or
restructurings, foreign exchange volatility and political instability.
Deterioration in the Ukrainian economic or political situation could adversely
impact our results of operations.
It is highly unlikely but possible that Israel's compulsory military
service obligation for its citizens, which lasts until an individual is 50 years
of age, could disrupt the scheduled work of the Company's Israeli research and
development facility, which in turn could delay the commercial launch of the
Company's planned volumetric storage product line and materially adversely
affect the Company's results of operations and financial conditions.
Need for Additional Technology
The Company believes that it has developed a substantial amount of
technology for developing its products. Nevertheless the Company foresees the
need to recruit more employees with relevant technological knowledge and
capabilities and/or to purchase the right for specific technologies from others.
However, there can be no assurances that the Company will succeed in performing
these acquisitions.
Proprietary Rights Protection
Although the Company intends to rely on trade secret, trademark,
copyright and other intellectual property laws to protect its Fluorescent Memory
Technology, currently the Company relies and expects to rely almost entirely on
patent laws for such protection. While the Company currently intends to
vigorously enforce its intellectual property rights, there can be no assurance
that the steps taken by the Company to protect its Fluorescent Memory Technology
and to enforce its rights will be successful. The Company, through its wholly
owned subsidiary TriDStore IP, L.L.C., individually holds four U.S. patents
relating to its Fluorescent Memory Technology. Through its wholly owned
subsidiary TriDStore IP, L.L.C., 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, through its wholly owned
subsidiary TriDStore IP, L.L.C., the Company holds 10 pending provisional patent
applications. There is no assurance that the Company will timely exercise its
right to convert provisional patent applications into regular or international
patent applications or that patents will be issued for any regular or
international patent applications into which the Company does convert such
provisional patent applications.
The Company expects that it will develop trade secrets. The Company may
seek patent or copyright protection for such trade secrets. There is no
assurance that the Company will develop trade secrets or seek patent or
copyright protection for any or all of them. The Company intends to enter into
confidentiality and non-disclosure agreements to protect one or more trade
secrets which it or its employees or independent contractors may develop, but
there is no assurance that the Company will do so or that the confidentiality
necessary to protect a Company trade secret will be maintained. Such failure to
maintain one or more trade secrets could have a material adverse financial
impact on the Company.
The Company may offer products in the U.S. and in foreign countries
based on its patented Fluorescent Memory Technology. Certain foreign countries
in the Pacific Rim and elsewhere may not offer the same degree of intellectual
property protection that is afforded in the U.S., European Community and Japan,
and the Company may be unable to enforce its patent rights in such
jurisdictions, even if it were able to obtain such rights.
Pending Intellectual Property Applications
The Company has filed intent to use trademark applications with the
U.S. Patent and Trademark Office for the trademarks "CLEARCARD" and
"CONSTELLATION 3D". There is no assurance that these applications will mature
into registrations or that the Company will even use these marks. Furthermore,
the Company has acquired the internet domain names "C-3D.NET," "C-TRID.COM,"
"C-TRID.NET", "CONSTELLATION3D.COM", and "CONSTELLATION3D.NET". Currently, the
Company maintains a web site at http://www.c-3d.net.
There can be no assurance that any patents, copyrights, trade secrets,
trademarks or domain names developed or obtained by the Company will provide
substantial or sufficient value or protection to the Company. Furthermore, there
is no assurance that their validity will not be challenged or that affirmative
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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 suffer a material
adverse effect.
Possible Intellectual Property Litigation
As is typical in the data storage industry, from time to time, the
Company may in the future be notified of claims that it may be infringing,
diluting, misusing, misappropriating or otherwise violating patents, copyrights,
trademarks, trade secrets and/or other intellectual property rights of third
parties. It is not possible to predict the outcome of such claims, and there can
be no assurance that such claims will be resolved in the Company's favor. If one
or more of such claims is resolved unfavorably, there can be no assurance that
such outcomes will not have a material adverse effect on the Company's business
or financial results. In particular, the data storage industry has been
characterized by significant litigation relating to infringement of patents and
other intellectual property rights. There can be no assurance that future
intellectual property claims will not result in litigation. If infringement,
dilution, misuse, misappropriation or another intellectual property rights
violation were established, the Company and/or its joint ventures (to the extent
that it has any) could be required to pay substantial damages or be enjoined
from developing, marketing, manufacturing and selling the infringing product(s)
in one or more countries, or both. In addition, the costs of engaging in
intellectual property litigation may be substantial regardless of outcome. If
the Company seeks licensure for intellectual property that it cannot otherwise
lawfully use, there can be no assurance that the Company will be able to obtain
such licensure on satisfactory terms.
Intellectual Property Ownership
In the future, a Company employee or contractor, and not the Company,
might be the legal and/or record owner of one or more patents, patent
applications or other intellectual property which is material to protecting the
Company's data storage technology. The Company typically requires that its
employees and contractors assign to the Company all right, title and interest in
and to the intellectual property which they develop for the Company. However,
there can be no assurance that the Company will obtain legal or record ownership
of, or one or more licenses to use, such intellectual property on satisfactory
terms. It is possible that failure to obtain such legal or record ownership, or
one or more licenses to use, such intellectual property will have a material
adverse effect on the Company's business or financial results.
Product Liability Considerations
The Company may face inherent business risk of exposure to product
liability claims in the event that the use or misuse of its future products is
alleged to have resulted in the death or injury of a customer, consumer or user
or to have had some other adverse effect. The Company does not presently have
product liability insurance. Currently, the Company's technology is not mass
manufactured and it is not expected to be mass manufactured in the near future.
Although the Company might obtain product liability insurance and the Company
might protect itself against product liability claims by contractually requiring
its joint ventures (to the extent that it has any): (a) to have continuous
quality control inspections, detailed training and instructions in the
manufacture of its products; (b) to indemnify the Company for damages caused by
the joint venture's own tortuous acts or omissions; and/or (c) to obtain and
maintain adequate product liability insurance, product liability lawsuits may
affect the reputation of the Company's future products and services (to the
extent that it has any) 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
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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 future products (to the extent that it has any) 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 future products (to the extent that it has any).
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 (to the extent that it has any) 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 (to the extent that it has any) could be prevented
from producing any quantity of the affected product(s) until such component
becomes available from an alternative source. Such adverse events could cause
delays to product shipments, thereby increasing the joint venture's material or
manufacturing costs or causing an imbalance in the inventory levels of certain
components. Moreover, difficulties in obtaining sufficient components may cause
the Company's joint venture(s) to modify the design of the Company's products to
use a more readily available component, and such design modifications may result
in product performance problems. Any or all of these problems could result in
the loss of customers, provide an opportunity for competing products to achieve
market acceptance and otherwise adversely affect the Company's business and
financial results. The Company does not believe that there are any raw materials
on which its products depend whose unavailability is a material risk to the
financial condition of the Company.
Customers
As solely a research and development company, the Company has not yet
had any customers for its products. As discussed above, the Company intends to
establish joint ventures with strategic partners to market and sell the
Company's Fluorescent Memory Technology. In the future, it is possible that the
Company or its joint ventures will have sales to one or more customers which
equal ten percent (10%) or more of the Company's consolidated revenues. However,
the Company does not intend to become financially dependent on a small number
of, or any single, customer.
Directors' and Officers' Involvement in Other Projects
Some of the officers and directors of C3D, notably Leonardo Berezowsky
and Michael Goldberg, serve and are expected to serve as directors, officers
and/or employees of companies other than C3D. 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 C3D,
there can be no assurance that such other positions will not negatively impact
an officer's or a director's duties for C3D and that such impact will not have a
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material adverse effect on C3D's financial condition. The Company believes that
such other company positions do not raise actual or potential conflicts of
interests that could interfere with the carrying out of the respective duties of
Messrs. Berezowsky and Goldberg at C3D.
Legal and Regulatory Controls
The Company is not aware of any particular electrical,
telecommunication, environmental, health or safety laws and standards that will
apply to the Company's products. While the Company does not anticipate
regulation of its products, there can be no assurances that the Company will not
have to comply with laws and regulations of domestic, international or foreign
governmental or legal authorities, compliance with which could have a material
adverse affect on the Company. The U.S. Federal Communications Commission (the
"FCC") regulates computer hardware that contains or utilizes magnetic forces to
store information. To the extent the FCC may regulate in the future
fluorescent-based computer storage devices, such as our products, compliance
with those regulations could have a material adverse effect on us.
Market Risk
The Company expects that, like many companies, it may be exposed to
some degree of market risk, particularly for its Ukrainian, Israeli and Russian
operations. The Company cannot provide any assurance that future developments in
each respective country will not generally have an adverse effect on the
financial condition of the Company. 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
As of January 11, 2000, the Company's management does not have any
actual knowledge of any Year 2000 computer problem that has had, is having or
will have a material adverse effect on the Company's financial condition.
The Year 2000 issue arises with the change in century and the potential
inability of information systems to correctly "rollover" dates to the new
century. To save on computer storage space, many systems were programmed with a
two-digit century (e.g., December 31, 1999 would appears as 12/31/99) assuming
that all years would be part of the 20th century. On January 1, 2000, systems
with this programming would have defaulted to 01/01/1900 instead of 01/01/2000
and calculations using or reporting the date would not be correct and errors
would 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. As of the date of this
Registration Statement, the Company has not experienced any material adverse
effects resulting from the arrival of January 1, 2000.
The Company has completed its assessment of its information technology
systems, as well as its non-information technology systems. The Company
reasonably believes that it was not materially adversely affected by the
Year 2000.
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The Company's research records are primarily handwritten. Furthermore,
in Russia and the Ukraine, the Company's accounting and bookkeeping records are
kept without the aid of computers. The Company's computer hardware and software
is relatively new and all have been purchased with Year 2000 computer risks in
mind. The Company does not reasonably anticipate that any of its computer
hardware or software will malfunction as a result of the Year 2000.
The Company expects that its research prototypes will accurately and
unambiguously display, reconfigure, interrupt and process all date codes
designating the Year 2000 and beyond, including leap years. However, the
Company's research prototypes may encounter a Year 2000 problem because of the
interaction of a third party's product with the Company's prototypes.
The Company is primarily relying on Year 2000 Readiness Disclosures in
its assessment of its principal suppliers. After reviewing these Year 2000
Readiness Disclosures, the Company does not foresee that any of its principle
suppliers will suffer Year 2000 issues. The Company has one supplier from which
it purchases the raw materials needed for its research operations. The Company
believes that this suppler will not face Year 2000 problems that would affect
the supplier's ability to provide the materials the Company needs to continue
its research operations. However, in the event the supplier is unable to fill
orders to the Company as a result of a Year 2000 computer failure, the Company
is prepared to utilize other suppliers to fill its orders for raw materials. As
a further precaution, the Company has purchased enough raw materials to last
through the first quarter of 2000.
Finally, the Company has determined that its operations in Russia,
which account for a material portion of the Company's business, were not
materially adversely affected by the Year 2000 problem. The Company's concerns
stem from the state of readiness of third parties, including the Russian
government, and not from its own level of preparation. The Company reasonably
believes that the Russian government may not be equipped to handle all possible
problems that may have arisen or may arise as a result of a Year 2000 problem.
The Company has put contingency plans in place to deal with a possible Year 2000
failure in Russia. These contingency plans include a complete back-up of all
computer files, as well as the creation of paper copies of all computer files.
Also, the Company equipped its Russian facilities with electrical generators.
Finally, for the worst case scenario, the Company has prepared a relocation plan
for its Russian operations.
Dependence on Employees
The Company's success depends, to a great extent, upon its ability to
attract and retain highly qualified technical and management personnel,
including experts in the field of data storage technology and the sciences
underlying such technology. Such individuals are in high demand and are often
subject to competing offers. The Company faces competition for such personnel
from other companies, research and academic institutions, government entities
and other organizations. There can be no assurances that the Company will be
able to attract and retain other qualified personnel needed for its business.
Furthermore, the Company does not currently maintain "key man" insurance for any
personnel.
Competitors in the Data Storage Technology Industry
The Company estimates that there are approximately 14 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.
<PAGE>
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 provide significant performance, price,
creative or other advantages over those offered by the Company.
Restricted Securities
Sales of a substantial number of shares of our Common Stock after the
filing of this Registration Statement could adversely affect the market price of
our Common Stock by introducing a large number of sellers to the market. Given
the potential volatility in the price of our shares, these sales could cause the
market price of our Common Stock to decline.
The majority of our outstanding shares of Common Stock have been issued
in private placements and are restricted securities under the U.S. Securities
Act of 1933, as amended. These restricted securities will be subject to
restrictions on the timing, manner and volume of sales of restricted shares.
We cannot predict if future sales of our Common Stock or the
availability of our Common Stock for sale will adversely affect the market price
for our Common Stock or our ability to raise capital by offering equity
securities.
<PAGE>
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 New York, New York. The Company, an
international enterprise with operations in the United States, Israel and Russia
and a subcontractor who performs services for the Company in 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, strategic alliances, and licensing agreements, the
Company intends to become the pre-eminent provider in the data storage research
and development market and thereby provide significant returns to its
shareholders. It is anticipated that the signing of a joint venture, strategic
alliance or licensing agreement would provide the Company with a significant
capital infusion as well as the development, marketing and distribution
expertise that the Company would require for commercialization of the
technology.
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. As
approved by the necessary number of votes at the Annual Meeting of Shareholders
of C3D held on December 27, 1999, C3D Inc. changed its name to Constellation 3D,
Inc. effective December 29, 1999. For purposes of this Registration Statement,
and except where the context clearly indicates otherwise, Constellation 3D, Inc.
will be called "C3D." From its inception until October 1, 1999, C3D had no
business operations.
On September 19, 1999, Constellation Holdings sold all of its assets to
Constellation Tech. In consideration for those assets, Constellation Tech
assumed all liabilities and obligations of Constellation Holdings. After the
Acquisition (as defined below), all the record and beneficial shareholders of
Constellation Holdings are all of the record and beneficial shareholders of
Constellation Tech.
<PAGE>
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 Rapids Trusts Ltd., an Israeli trust. The Company conducts its
Israeli operations through C-TriD Israel Ltd.
TriD SV, Inc. is a Delaware corporation formed on August 10, 1998. As
of November 1, 1999, TriD SV, Inc. has had no operations.
The Company's organizational structure is as follows:
[organizational chart appears here]
Products
The Company has developed Fluorescent Memory Technology and plans to
develop end-user products over the next two years. With each of these products,
the Company intends to seek and establish joint ventures with strategic partners
who are already established with market share and manufacturing capabilities in
the appropriate markets. The initial three products that are expected to be
developed by the Company include:
o Micro Read/Write ("R/W") Disk;
o ClearCard Read Only Memory ("ROM"); and
o ClearCard Read/Write.
Micro Read/Write Disk
Micro Read/Write is a 30 millimeter recordable disk that is expected to
fit in many portable devices. The Company anticipates that this technology will
be applied to devices such as laptop and hand-held computers, digital cameras
and video recorders and players. For laptop and hand-held computers, it is
<PAGE>
expected to offer lightweight, high capacity storage and quick access to data.
The Company believes that for cameras and video players, Micro R/W will not only
offer the same gains as laptop and hand-held computers, but that it also will
offer higher quality video. The Company also believes that this technology will
be ideal for downloading information from the Internet.
Micro R/W disks will be largely similar to existing CD and DVD drives.
Therefore, new designs of ODD players would not be required to be able to read
the Micro R/W disks.
The Company has entered into a relationship with Toolex International,
N.V. ("Toolex") regarding the production and manufacture of Micro R/W disks.
ClearCard ROM
The Company intends for this technology to be applied to many portable
devices including global positioning and navigating systems, hand-held gaming
devices, automobile systems and electronic book devices. It is anticipated that
ClearCard ROM will be read in very low-cost players. The Company believes that
this technology will be the first of its products to become commercially
available. It is expected to be available by the last quarter of 2000.
ClearCard R/W
This technology is one step beyond ClearCard ROM in that it is expected
to offer a one-time recording function. The Company anticipates that ClearCard
R/W will be used with the same low-cost players for reading as ClearCard ROM.
While many of the same product applications apply to this technology, the
expected added benefit of ClearCard R/W is its ability to allow a user to
download or determine the information that he or she is interested in having on
a particular device. The Company believes that this technology will present a
storage advantage for Internet-based data.
The Clear Card drives do not have an analogous system in the current
market. These products are completely new designs. However, the materials and
machinery for manufacturing the devices are all available. In addition, the
interface between ClearCard devices and hand held electronic devices, such as
laptops and handheld computes, for instance, will be in accordance with accepted
standards.
Products and Markets in Development
The Company believes that three-dimensional Fluorescent Memory
Technology will allow the creation of user-oriented products with new
performance qualities that form a solid base for consumer technologies. The
following are products in the development stage which the Company intends to
bring to market through joint ventures and strategic partnerships, such as the
existing relationship with Toolex International, N.V.:
o Fluorescent Memory Disk ROM (diameter of 120 millimeters with
140 to 420 gigabytes (GB) of data storage capacity) is
expected to provide the user with a wide range of large volume
archive and reference information, as well as with much more
detailed video information. The Company believes that this
product will produce home cinema technology with cinema-tape
quality;
o Fluorescent Memory Disk ROM and Fluorescent Memory Disk R/W
(diameter of 120 millimeters with 70 gigabytes (GB) of data
storage capacity) is expected to allow the user to create his
or her own library of digital material;
<PAGE>
o Fluorescent Memory Disk ROM, Fluorescent Memory Disk R/W and
Fluorescent Memory Disk RAM (diameter of 120 millimeters with
various data storage capacities) is a product which is
expected to permit users to utilize supplied archive and
reference data, and add to one's own recordings for constant
storage;
o Fluorescent Memory Disk ROM (diameter of 30 to 40 millimeters
with 12 to 15 gigabytes (GB) of data storage capacity) is
designed for information storing in portable devices;
o Fluorescent Memory Disk R/W and Fluorescent Memory Disk ROM
(diameter of 30 to 40 millimeters with 10 to 13.5 gigabytes
(GB) of data storage capacity) is expected to be a base for
extra-portable information recording and storing device with
new quality functions. It is anticipated that it will enable
the addition of the user's own data, audio and video
recordings, as well as those received via the Internet. The
Company intends that this product will provide new
possibilities for the individual to integrate into the global
information network;
o Fluorescent Memory Disk R/W (diameter of 30 to 40 millimeters
with 9 to 12 gigabytes (GB) of data storage capacity) is a new
product expected to promote digital photo and video systems'
development. The Company intends that the product will promote
the further development of recorded photo and video on PCs and
the restoration of them by means of photographic printing or
different video-restoration systems;
o Super Fluorescent Memory Disk ROM (diameter of 120 millimeters
with 1.4 terabytes (TB) of data storage capacity) is intended
to promote the idea of advanced reference books and archives,
art and cinema collections, new generations of video games
(with virtual reality effects and extended video environment
development and real presentation effect);
o Super Fluorescent Memory Disk R/W (diameter of 120 millimeters
with 1 terabyte (TB) of data storage capacity) is designed as
a base for stable storage systems for large and extra-large
databases with high data access rate;
o Super Fluorescent Memory Disk RAM (diameter of 120 millimeters
with 1 terabyte (TB) of data storage capacity) is intended to
be a base for secondary memory systems for large and
extra-large PCs with much greater access restrictions because
of the ability to remove the disk from the system;
o ClearCard-ROM (credit card-sized memory carrier with 1 to 20
gigabytes (GB) of data storage capacity) is expected to take
the form of a one square centimeter-sized spot on a card. Such
a card is intended to be a mass produced product designed for
persons to carry and to use in inexpensive miniature reading
devices and electronic books; and
o Recordable R/W and Recordable ClearCard (with 1 to 3 gigabytes
(GB) of data storage capacity) are envisioned as a part of
`I-net Video Terminal' systems. The Company anticipates that
Recordable ClearCard will be recorded at the locations of
various providers of information such as bookstores and
information kiosks and that they will be read in inexpensive
reading devices which may use ClearCard-ROM.
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.
<PAGE>
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 the technology, strategic alliances and joint
venture programs. The Company expects to engage in research and development and
administration only and will rely on future strategic partners to perform and
fund the marketing and mass production of its Fluorescent Memory Technology.
The Company anticipates that any agreements with potential partners
will most likely involve a commitment, by the partner, of a significant amount
of capital and resources to the Company, including experienced management and
personal, facilities and market know-how to successfully develop and market the
technology.
In December 1999, the Company signed a letter of intent with Toolex
International, N.V., a Dutch company (the "Letter of Intent"). The Letter of
Intent provides that the Company and Toolex shall cooperate to develop processes
and machinery to mass produce Fluorescent Memory Disks ("FMDs"). The Company and
Toolex believe that the outcome of their co-operative efforts will be a
technique for embossing, metalizing and laminating the FMDs to levels necessary
for mass production. In connection with the Letter of Intent, the Company and
Toolex signed a Co-Invention Agreement, which governs the ownership of
inventions and patents that are developed pursuant to the Letter of Intent.
As a result of its joint venture approach to entering the market, the
Company does not plan to engage in marketing efforts on its own. Instead, it
intends to rely on others' expertise in this area. Despite this intention, the
Company believes that it will need to develop market intelligence so as to keep
abreast of the technological requirements demanded by its customers. The Company
believes also that in order to negotiate the most advantageous licensing
agreements with joint venture partners and other licensees, the Company will
need to maintain a knowledge of the market size and growth parameters for each
of the target markets. Similarly, the Company expects that an intimate knowledge
of pricing and cost trends in the market will be required to realize the most
value from each licensing agreement into which it will enter. Notwithstanding
the foregoing, the Company may engage directly in marketing its Fluorescent
Memory Technology at some time in the future.
The Company intends to identify a partner for introducing the Company's
products to the market based on the following criteria:
o The partner should have an established presence in the data
storage market. The Company believes that an established
presence includes market share and leadership, as well as
ownership of assets in the form of capital, production
facilities, employees, etc. The Company expects that it would
provide the necessary intellectual property;
o The partner should be able and willing to make the investments
needed for successful product launch, including marketing,
advertising, sales and promotions; and
o The partner should also have the ability to differentiate
itself on the basis of the quality and quantity of service.
The Company believes that it is imperative that the partner be
<PAGE>
able to dedicate enough quality service and support staff
long-term to the marketing of the Company's products.
In addition to the existing relationship with Toolex International,
N.V., the Company is presently engaged in preliminary talks with a number of
companies regarding joining in a strategic partnership for the commercial
production of the Company's products.
The Data Storage Technology Market and Competition
The data storage industry is very dynamic and very competitive. Trends
can quickly change and competing companies are constantly involved in product
improvement and innovation in order to keep up with customers' increasing demand
for faster and smaller storage devices with high data storage capacity. The
driving forces of the data storage market include diverse applications such as
analysis of meteorological data, printing payroll checks, writing letters,
browsing the Internet, editing television commercials, searching a data
warehouse, or playing a computer game. Businesses have witnessed a significant
increase in the amount of data used and stored in the past decade, and the
Company believes that they will continue to do so for the next few years to
come.
Trends in the Data Storage Industry
Increased Demand for Removable Storage
The Company believes that there is a rising demand for removable disk
drives of varying storage capacities due to the significant advantages of
removable drives compared to floppy disks. While both floppy disks and removable
drives are portable and can interface with other systems, the removable disk
drive can substantially exceed the floppy disk in terms of storage capacity.
Transition from Older Drive Technologies to New Technologies
The Company anticipates that the CD and optical disk drive industry
will undergo a major transition over the next several years as drive producers
begin manufacturing technologies that have been recently introduced. The
Company, after reviewing Frost & Sullivan's "World Compact Disc and Optical Disk
Drive Market" (1997), believes these new technologies, including the DVD drive,
will account for the majority of the CD and ODD market. The Company believes
that new technology with varying applications and cost effectiveness, including
the Company's Fluorescent Memory Technology, will be readily accepted into the
market.
Downward Price Pressure in the CD/ODD Industry
Price declines have played a significant role in the mainstream
acceptance of CD/ODD technology. The Company anticipates that new technology
acceptance over existing technologies will be gauged by pricing. The Company
predicts that, as new technologies are introduced, they will have a price
premium over existing technologies. However, the Company believes that, as these
new technologies are accepted and unit shipments increase, they will benefit
from economies-of-scale, allowing them to significantly compete with older
technologies. Consequently, the Company believes that it must: (i) lower its
production costs in order to maintain adequate margin, (ii) increase its
production volume and (iii) remain on the cutting edge of data storage
technology with the innovation of new products.
<PAGE>
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
(GB) of data storage memory space than ODDs. It is expected that most mass
storage industry leaders will continue to use magnetic drives as their primary
storage medium. The Company believes that in order to remain competitive with
the magnetic mass storage industry, it must continue to improve the
cost-effectiveness, as well as product acceptance by the public, of its
Fluorescent Memory Technology.
Competing Products and Technologies
The Company's Fluorescent Memory Technology disks and cards are in
competition with other types of storage devices, which come in various formats.
While hard disk drives are the most common form of mass data storage, they are
not the only storage media available to computer users. A variety of options
exist, each with unique price and performance characteristics that meet specific
requirements. Some other forms of storage devices are Removable Storage Devices,
such as Tape Drives, Magneto-Optical ("MO") Disks, Personal Computer ("PC")
Cards, ROM and One Time Programmable Cards, Static Random Access Memory Cards,
Flash Cards, ODDs, CDs, and Redundant Arrays of Inexpensive Disks, among others.
Removable Mass Storage Devices
The trend of processing sensitive data on desktop PCs instead of on
mainframe computers has made removable mass storage solutions increasingly
important. Floppy diskettes, which have been the most commonly used removable
storage devices, often have been insufficient for certain data-intensive
applications. For these applications, high capacity removable mass storage
devices offer advantages. Removable mass storage devices, which are particularly
suitable for secondary storage applications like data backup and archiving,
rather than as a primary form of on-line storage, come in many forms, such as
tape cartridges, Compact Disk Read Only Memory ("CD-ROMs") and other optical
disks, MO disks, and PC cards.
Tape Drives
The magnetic tape drive was one of the first computer storage
technologies, and was commonly used on early mainframe computers. However, its
inability to randomly access or write data like disk drives makes it much slower
than newer data storage technologies. It has therefore been replaced as the
primary storage device in most computer applications. However, due to its high
storage capabilities and low cost-to-megabyte ratio, it is still very much in
use as a storage medium for archiving large amounts of data. Additionally,
recent advances in tape technology, such as digital audio tape cartridges, have
also made tape a preferred technology for backing up network servers and other
critical data.
<PAGE>
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.
CD-ROM drives are by far the most widely used ODDs and are the computer
industry's standard for distribution of software products. They are typically
used to distribute large databases and documents that require only periodic
access. Read/Write drives, on the other hand, are used almost exclusively for
archival storage where it is important that the data cannot be changed or erased
after it is written for example, for financial records storage.
Retail price levels for CD-RW rewritable drives have decreased. The
writable CD format, which was heretofore dominated by write-once CD-R drives, is
currently being replaced by CD-RW as a result of the combination of CD-RW's
media flexibility and lower prices. The Company anticipates rapid growth for
rewritable DVD drives starting in year 2000, with shipment levels rising to
rival those of CD-RW drives. The Company believes that its proposed Fluorescent
Memory rewritable disks and drives will be the medium through which the Company
will be able to gain a large share of the market for rewritable data storage
media.
Magneto-Optical Disks
Magneto-optical disk systems combine the technology of traditional
magnetic media, like hard disk drives, with optical disk technology. It is
expected that MO technology will allow users to store hundreds of megabytes of
data on a disk that looks similar to a traditional 3.5-inch floppy disk and
typically comes in a 3.5-inch or 5.25-inch form factor. MO disks have many
advantages. They provide relatively high data densities. The data stored on them
can be changed at will and is resistant to magnetic fields, unlike a traditional
floppy or hard disk. The disadvantage of MO technology is that, because of the
relatively high intensity of the magnetic field created with the combined use of
the read/write head and laser, the two rotations required for writing data make
them twice as slow as hard disk drives during write operations. The Company
believes that its Fluorescent Memory Technology, due to its faster read/write
capability coupled with high data storage capacity, has a distinct advantage in
this product category.
Personal Computer Cards
PC Cards are built using the Personal Computer Memory Card
International Association standard, and can be either storage or Input/Output
cards. By virtue of being compact, highly reliable, lightweight and requiring
less power, some consider them to be ideal for battery-powered notebook and
palmtop computers, hand-held personal digital assistants and personal
communicator devices. Due to their diminutive size, PC cards used for storage,
commonly called "memory cards," make transporting data relatively easy. They can
be used for program storage or data interchange between systems. A big deterrent
to the widespread use of PC cards is their high cost relative to hard disk
drives. The Company believes that the ClearCard that the Company proposes for
introduction to the market will not be as expensive as a PC Card and, thus, will
have a distinct advantage in this product category.
<PAGE>
Competing Technologies in Development and Advancement
In addition to the existing storage devices, there are some comparable
data storage technologies in the research and development phase, such as the
following technologies:
Magnetic Hard Disk Drives. One of the original data storage media, some
view magnetic disk drives as the most reliable source of storage media. Despite
the advent of alternate technologies, magnetic storage remains dominant,
particularly where mass storage is concerned. Magnetic disk heads fly on a
slider approximately one ten-millionth of a meter over the surface of the
storage medium. During the writing process, small magnetic domains are written
and the magnetic fields of these domains are detected during the read process.
The information can be overwritten indefinitely. The area density of magnetic
recording has grown about 60% per year during the last decade. Devices with an
area density of 4 gigabytes per square inch are in production, and area
densities of 20 gigabytes per square inch have been created. However, the
magnetic domains become unstable at a physical and technical limit called the
super-paramagnetic limit. Therefore, further growth in area density is limited,
although it is not certain where this limit puts an end to the further density
increase of magnetic memory. Furthermore, many magnetic memory carriers are not
easily removable, are not easily disposable and are relatively expensive.
Optical Disk Drives. Optical Disk Drives, which include compact disc
drives, DVDs, and magneto-optical drives, came onto the scene in the mid 1980's
and have gained mainstream acceptance, particularly CD-ROM drives as a result of
their entertainment or educational uses. The Company anticipates that the advent
of rewritable optical disks will make the optical disk drive an increasingly
important segment of the data storage industry. In ODDs, such as CDs, DVDs, and
MOs, light from a semiconductor laser is focused onto the storage layer to
perform writing or reading. The storage layer is protected through the disk
substrate or a thick overcoat, making this technology well-suited for removable
media. CDs, CD-ROM, and DVD media are commonly used around the world for both
entertainment and commercial purposes. The Company expects that, at least in the
next few years, they will continue to be commonly used in these ways around the
world.
Near Field Drives. In some of the proposed near field recording, light
is focused onto the front surface of the storage medium, thereby avoiding some
problems with distortions of the focused beam in the protected layer. High
density is achievable, but at high cost, as the medium is exposed to dust and
remains vulnerable to crashes of the drive head. Thus, this technology is not
suitable for portable devices. The storage capacity is limited, because in near
field optics, data is stored in a thin layer at the surface.
Volumetric/Holographic. Volumetric or holographic storage allows data
to be stored in three dimensions, which increases actual storage capacity
exponentially. Although holographic storage was considered feasible almost 40
years ago, attempts at commercialization of these devices have not achieved
great success largely because, unlike the Company's products, there continues to
be a lack of applicable components and of a suitable storage material. However,
it was only until the Company developed its patented process that there was no
longer a lack of applicable components and suitable storage material for the
Company's Fluorescent Memory Technology. The Company's products' components and
materials for fluorescent disks and cards are either available or have been
developed by the Company and can be manufactured by using available machinery
and materials.
Atomic Force Microscopy. In the field of probe-based storage,
scientists are fabricating tiny silicon cantilevers 10 microns long and 0.3
microns thick, with an even smaller silicon probe tip (.008 microns in
diameter). The tip rests on a rotating plastic disk. To store data, heat from an
electric pulse through the tip momentarily softens the surface of the plastic,
and the slight force that the tip exerts on the plastic pokes a tiny depression.
<PAGE>
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. Scanning Tunneling Microscopy reportedly
has the potential to store as many as one million gigabytes (GB) per square
inch, although the Company expects that commercial usage of this technique is
not in the foreseeable future. The technique involves moving xenon on a nickel
surface with a scanning tunneling microscope. As attempted, this process
required a temperature of near absolute zero and several hours to complete.
Market Segmentation
The three primary CD and ODD market segments are: (i) CD Drive, (ii)
Stand-alone Drives and (iii) CD and ODD Jukebox. The CD Drive segment can be
further broken into the CD and ODD drive, the CD and DVD drive, the CD-ROM
drive, the CD-R drive, the DVD-ROM drive, the CD-RW drive and the DVD-RAM drive
markets. Stand-alone drives include both the magneto optical drive and large
form factor markets. The CD and ODD Jukebox market includes magneto optical
drive jukeboxes, large form factor jukeboxes and CD drive jukeboxes.
The Company's product line will both create new product lines and new
products. The fluorescent discs is an existing market that will be enhanced by
the addition of these products. The ClearCards will create entirely new
products. That market is just developing and the Company plans to be one of the
early players in the market.
Geographically, the CD and ODD market is segmented into four regions:
the United States, European, Pacific Rim and Rest-of-World ("ROW") markets. A
common pattern in the way these markets behave is that the United States is
usually an early adopter of a new technology, with Europe following later. The
Pacific Rim and ROW markets are heavily impacted by the economic well being of
the constituent nations, which in turn decide whether that market is going to be
an early or late adopter. However, the Pacific Rim and ROW markets are also the
ones with good growth projections for all the storage device product categories.
With this trend in perspective, the Company believes that it can be inferred
that these markets will adopt and proliferate the Fluorescent Memory Technology.
The Company expects that the Company and its partners should therefore focus
their marketing efforts worldwide if they are to achieve the goal of their
technology becoming the industry standard for the data storage industry.
CD and ODD Market
After reviewing Frost & Sullivan's "World Compact Disc and Optical Disk
Drive Market" (1997), the Company projects the revenues for the total CD and ODD
market to reach $19.12 billion in 2000 and to increase to $25 billion in 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 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 2003. This change
in market share is attributed to the early adoption by the U.S. compounded by a
healthy economy. The Pacific Rim, though an early adopter, suffered because of
<PAGE>
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 Fluorescent Memory Technology in the data storage market.
CD and DVD Drive Market
The CD and DVD Drive market is expected to continue its rapid rate of
growth during the next few years. It is projected that the market will have
overall revenues of $16.34 billion in 2000 and $21.17 billion in 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.
Based on the Frost & Sullivan study, the Company anticipates the
replacement of CD-ROM drives with DVD-ROM drives as the primary drives in the
next few years. In the recordable sub-segment, there is a transition projected
to occur from CD-R drives to CD-RW drives, and then from CD-RW drives to DVD-RAM
drives. The major change that is anticipated in the market is the shift from CD
technology to DVD technology, and that the DVD technology will become the
market's mass storage medium of choice. This is due to higher storage capacity
of the DVD technology and also because DVD is backward compatible with most CD
media. It is further anticipated that the DVD technology will be used in three
different industries - computers, movies and music - which will allow it to
reach the economies of scale not experienced by other optical technologies. The
study forecasts that DVD technology will account for 61% of the total CD and DVD
drive market shipments.
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 U.S. 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 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 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 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.
<PAGE>
DVD Read Only Memory Market
The DVD Read Only Memory ("DVD-ROM") is a high-density, read-only,
optical disk format. It is expected to become the logical successor to the
CD-ROM technology, and also that its sales will be further enhanced with the
introduction of the DVD-RAM technology. Revenues for the DVD-ROM drives are
projected to reach $12.63 billion in 2003. It is also anticipated that DVD-ROM
drives will replace CD-ROM drives as the choice medium of data storage in 2003.
CD-Rewritable Drive Market
The CD-Rewritable ("CD-RW") drive technology is expected to gain market
acceptance due to the additional applications it opens up to the CD format.
However, it is not expected to be sustained for long, because DVD-RAM technology
is expected to offer greater data storage density. The Frost & Sullivan study
predicts that by 2003, unit shipments of CD-R drives will decrease to 5 million
units.
DVD Random Access Memory Market
DVD-RAM refers to the optical technology that allows users to record
information on DVD media. It is expected to replace technologies such as CD-R
and CD-RW. By 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 2000, and approximately $1.7 billion in 2003.
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
1998 to the present. Despite its rapidly falling prices, it is expected that the
3.5-inch MO will account for 73.5% of revenues, and 93.1% of unit shipments of
the entire MO and large form factor market in 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 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 2003.
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 2003. Europe, on the
other hand, is expected to have a shrinking market share that decreases from
19.9% in 2000 to 18.6% in 2003. However, the European market's revenue is
expected to increase from $244.8 million in 2000 to $317 million in 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 U.S. market share. Revenues from Pacific Rim ODD
market are expected to reach $417.7 million in 2000, and $500.1 million in 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
<PAGE>
nations in this region. It is expected that this segment will have revenues of
$50.7 million in 2000 and $91.2 million in 2003 which translates to market
shares of 4.1% and 5.4%, respectively.
The most common applications for these products are storage-intensive
applications. Growth of the jukebox market has been attributed to the increasing
needs of government agencies and private businesses for of reliable mass storage
solutions. The need of engineering, education, medical imaging and storage,
legal document imaging, and other such storage-intensive areas also have
contributed to the jukebox market. The Company believes that the entry of
Fluorescent Memory Technology could potentially force this product segment into
obsolescence, because the basic idea behind a Fluorescent Memory device is to
eliminate the need for multiple layers of disks and drives, and instead provide
for storage of terabytes of data on one disk or card.
Growth in the magneto optical (MO - 5.25-inch and 3.5-inch form
factors) segment's market share has been eroded by a more rapid growth in the CD
jukebox segment. By 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 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 2003. In that year, it
is expected to contribute 36.9% of the entire jukebox market's earnings.
The U.S. was an early adopter of the jukebox technology. Growth of the
U.S. 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 U.S. market share is expected to
decrease to about 50.6% in 2003 from 53.5% in 2000.
The European market share has been declining steadily due to strict
market regulations as compared to the other regions. It is projected that this
market will have an 18.2% share of the CD and ODD jukebox market in 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 2000 and grow to 24.3% in 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
2003, which translate into sales of $146.8 billion.
The Company's success and ability to compete will depend in part on its
ability to protect proprietary technology and other intellectual property. The
Company, through its wholly owned subsidiary TriDStore IP, L.L.C., seeks patents
on its important inventions, primarily in the United States, Israel, European
Community Countries and Japan. Additional countries that belong to the Patent
Cooperation Treaty may also be designated if it is deemed to be cost effective
and beneficial to the Company.
Currently, the Company, through its wholly owned subsidiary TriDStore
IP, L.L.C., owns four U.S. Patents:
<PAGE>
o U.S. Patent No. 5,847,141, entitled " Photochromic Material
for Electro-Optic Storage Memory," which was issued on
December 8, 1998 and which expires on December 22, 2015. This
patent covers photochromically modified pyridones which are
useful in three dimensional, stable, optical memory storage
devices.
o U.S. Patent No. 5,936,878, entitled "Polymeric Photo-Chromic
Composition," which was issued on August 10, 1999 and which
expires on December 12, 2017. This patent covers the use of
photochromically modified spiropyrans in three dimensional,
stable, optical memory storage devices.
o U.S. Patent No. 5,945,252, entitled "Photochemical Generation
of Stable Fluorescent Amines from Peri-Phenoxiderivatives of
Polycyclic P-Quinones," which was issued August 31, 1999 and
which expires on December 11, 2017. This patent covers the use
of photochromically modified polycyclic quinones in three
dimensional, stable, optical memory storage devices.
o U.S. Patent No. 6,009,065, entitled "Optical Pickup for 3-D
Data Storage Reading from the Multilayer Fluorescent Optical
Disk," which was issued on December 28, 1999 and which expires
on December 4, 2017. This patent covers an optical pickup
capable of reading binary optical information from a
multilayer fluorescent disk.
The Company has filed more than forty (40) additional pending U.S.,
international and foreign applications covering compositions, methods, and
apparatus which relate to the Company's Fluorescent Memory Technology. Other
patent applications are in the process of being prepared.
There can be no assurance that any of the Company's patent applications
will issue as patents, or that if patents are issued on the Company's
applications, they will be of sufficient scope and strength to provide
meaningful protection of the Company's technology or any commercial advantage to
the Company, or that such patents will not be challenged, invalidated or
circumvented in the future. Moreover, there can be no assurance that the
Company's competitors, many of which have substantial resources and have made
substantial investments in competing technologies, do not presently have or will
not seek patents that will prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the U.S. or in other
countries.
The Company intends to rely on a combination of patents, trade secrets,
copyrights and trademarks to protect its intellectual property rights. No
assurance can be given, however, that competitors will not independently develop
substantially equivalent proprietary technology, or that the Company can
meaningfully protect its rights in unpatented proprietary technology.
Nevertheless, the Company intends to enforce its intellectual property rights
whenever it becomes aware of any infringement or violation to its rights.
The Company's success and ability to compete will depend in part upon
its ability to protect its proprietary technology and other intellectual
property. As earlier noted, the Company has filed numerous patent applications
to protect technology, inventions and improvements it believes are significant
to the development of its business and are protectable under applicable patent
laws. However, the Company's patented products may be sold in foreign countries
where the Company has not applied for patent protection, or, if a patent
application was filed, where a patent may not be granted. In those countries
where no patents are obtained, there is a risk that competitors may be able to
reverse engineer the Company's products and undermine the ability of the Company
to compete in such markets. In addition, there are foreign countries whose
intellectual property laws are not enforced or, if enforced, are enforced to a
lesser extent than the intellectual property laws of the United States. In the
event that the Company markets its patented products in such countries, there is
a risk of piracy or reverse engineering by competitor(s) that may undermine the
ability of the Company to compete in such markets.
<PAGE>
The Company has not received any notices alleging, and is not aware of
any infringement by the Company of any patents or intellectual property of
others. However, there can be no assurance that current and potential
competitors and other third parties have not filed or in the future will not
file applications for patents, or have not received or in the future will not
receive, patents or other proprietary rights relating to devices, apparatus,
materials or processes used or proposed to be used by the Company.
Employees
As of January 10, 2000, the Company had 59 employees, including 17 in
the research and development office in Israel, 35 in the research and
development office in Moscow, one subcontractor in Ukraine and five in
management, finance and administration and one in research and development in
North America. None of the Company's employees are covered by a collective
bargaining agreement.
PROPERTIES
C3D is leasing facilities at 230 Park Avenue, Suite 453, New York, New
York 10169 for administrative purposes. The facilities serve as the office of
C3D's Chief Executive Officer. The lease expires December 31, 2000 with an
option to renew for one (1) year.
C-TriD Israel Ltd. has entered into two operating lease agreements for
the real property it uses at 2 Prof. Bergman Str., Rechovot 76327 Israel. The
first lease was to expire on May 14, 1999, but C-TriD Israel Ltd. exercised its
option to extend the lease period until May 14, 2000. There is another option to
extend the lease period until May 14, 2001. The second lease is to expire on
April 5, 2001, but there is an option to extend the lease period until April 4,
2003. The Company conducts research and development at the Rechovot facilities.
TriD Store Vostok leases two sets of facilities in Moscow, Russia
primarily to conduct research and development. The lease for the facilities at
119146, Moscow, 2nd Frunzenskaya ul., 8, Building 1, expired December 1, 1999,
and the lease for the facilities at MSU Science Park Building 5, Locations 513A,
514 and 522 expired December 30, 1999. However, TriD Store Vostok has renewed
both leases. The lease for the facilities at 119146 Moscow, 2nd Fruzenskaya ul.,
8, Building 1 will now expire on December 30, 2000. The lease for the facilities
at MSU Science Park has changed. It is now a lease for premises at Leninsky
Hills, Posession 1, Building 75, Entrance 5, Premises 514, 515 and 523, and it
will now expire December 31, 2000.
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 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.
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of C3D for, and as of
(1) each of the years ended December 31, 1997 and 1998 and (2) the nine-month
period ended September 30, 1999 has been derived from the Company's financial
statements, including the notes thereto, which have been audited by BDO Seidman,
LLP, independent auditors. The results for the nine-month period ended September
30, 1999 are not necessarily indicative of results to be expected for the full
fiscal year. The information set forth below is qualified in their entirety by
reference to, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Financial
Statements and Notes thereto included elsewhere in this Registration Statement.
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Years Ended December 31
----------------------- ------------------------------------------------
1999 1998 1998 1997 1996 1995
------------ ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Interest Income.......................... $ 57,458 $ -- $ -- $ -- $ -- $ --
Operating Expenses....................... 1,109,305 -- -- -- -- --
Interest Expense......................... 1,037,335 -- -- -- -- --
Net Loss for the period.................. (2,089,182) -- -- -- -- --
Loss per common share.................... $ (0.64) (0.00) (0.00) (0.00) (0.00) (0.00)
Weighted average number of shares
outstanding.............................. 3,253,016 1,00,000 1,000,000 1,000,000 1,000,000 1,000,000
</TABLE>
<TABLE>
<CAPTION>
As of
September 30, As of December 31
------------- -------------------------------------------------
1999 1998 1997 1996 1995
----------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................ $ 219,225 $ -- $ -- $ -- $ --
Working capital (deficiency)............. (82,418) -- -- -- --
Due to related parties................... 161,786 -- -- -- --
Advances to related companies............ 2,465,764 -- -- -- --
Total assets............................. 2,689,454 -- -- -- --
Non-current liabilities.................. 1,315,616 -- -- -- --
Stockholders' equity..................... $1,373,838 $ -- $ -- $ -- $ --
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR CONSTELLATION 3D, 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. As approved
by the requisite number of shares at the Annual Meeting of Shareholders of C3D
held on December 27, 1999, C3D Inc. changed its name to Constellation 3D, Inc.
effective December 29, 1999. For purposes of this Registration Statement, and
except where the context clearly indicates otherwise, Constellation 3D, Inc.
will be called "C3D". 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
Rechovot Park and Tel Aviv, Israel;
o all of the issued and outstanding shares of TriD Store Vostok,
which operates research and development facilities in Moscow,
Russia;
o the sole membership interest of Constellation Tech in
TriDStore IP, L.L.C., which has had no active operations but
which, as of November 3, 1999, holds the patents and the
patent applications for the Company's Fluorescent Memory
Technology; and
o all of the issued and outstanding shares of TriD SV, Inc.,
which has had no operations but is expected to head C3D's
California operations.
The Company must raise additional funds as a result of the planned
significant increase in its operating expenditures and anticipates that it will
require approximately $20 million in order to fund its operations over the next
twelve months. The Company has sufficient working capital to support its
operations through February 2000 and is in the process of negotiating for
additional capital. The Company does not expect to receive revenues until the
end of the fiscal year 2000 and expects to continue to incur operating losses
until late in the third or fourth quarter of fiscal year 2001. The Company is
currently exploring additional financing alternatives, including the possibility
of private equity or debt offerings. In November 1999 and December 1999, the
Company raised $0.5 million ($0.4 million net of commissions) and $1.6 million,
respectively, through the issuance of convertible debt. In November 1999, the
Company borrowed $1.3 million from an existing shareholder as evidenced by two
promissory notes, each payable in July 2001. In December 1999, the Company
entered into an agreement with Sands Brothers & Co., Ltd. pursuant to which
Sands Brothers & Co., Ltd. is obligated to raise, on a best efforts basis, a
minimum of $4.0 million and a maximum of $25.0 million of financing for the
Company through the issuance of the Company's capital stock. Although the
Company's existing debt
<PAGE>
securities contain no such restrictions, the signing of future convertible debt
or preferred share agreements could result in restrictions being placed on
dividends, interest and principle payments, or any other convenant restrictions
that could make payments of such debts difficult, create difficulties in
obtaining further financings, limit the flexibility of changes in the business,
and cause substantial liquidity problems. There can be no assurance, however,
that such financing will be available to the Company or, if it is, that it will
be available on terms acceptable to the Company. If the Company is unable to
obtain the financing necessary to support its operations, its may be unable to
continue as a going concern.
Results of Operations
For the nine-months ended September 30, 1999, C3D incurred net losses
of $2,089,182, which is attributable to management fees, consulting fees,
professional fees, general expenses, administrative expenses and interest
expenses. These expenses were incurred in the course of completing the financing
transactions to support negotiations for the acquisition between C3D and
Constellation Tech and the preparation of this Registration Statement.
Management fees. Management fees for the nine-month period ended
September 30, 1999 were $602,500, of which $400,000 related to compensation
provided by the issuance of 100,000 shares to two directors of C3D for services
rendered. At the time of grant, March 8, 1999, the Company had not begun trading
on the Over-the-Counter Bulletin Board and the deemed value was based on the
$4.00 per share offering being completed by C3D at the time. The remaining
$202,500 represents management fees paid to C3D staff for services rendered.
Consulting fees. Consulting fees for the nine-month period ended
September 30, 1999 were $97,000. These fees were paid to independent consultants
for their services to complete the two private placements and other
administration work.
Professional fees. Professional fees for the nine-month period ended
September 30, 1999 were $263,967, the majority of which were related to legal
support for the C3D's application for quotation on the NASD's Over-the-Counter
Bulletin Board quotation service, the closing of the financing transactions, the
negotiations with Constellation Tech, and the initial preparation of this
Registration Statement.
General and administrative. General and administrative costs for the
nine-month period ended September 30, 1999 were to $77,459. The costs represent
rent, telephone, and other general corporate expenses.
Travel and accommodation. Travel costs for the nine-month period ended
September 30, 1999 were $68,379, which reflect costs incurred to raise capital
and the costs of directors travelling to board meetings.
Interest expense. Interest costs for the nine-month period ended
September 30, 1999 were $1,037,355 which included $1,000,000 for the beneficial
conversion feature on the subordinated convertible debt and the interest accrued
on the note.
Interest earned. C3D earned $57,458 in interest revenue from cash
advances made to Constellation Tech.
Liquidity and Capital Resources
As at September 30, 1999, C3D's cash position was $219,225 and its
working capital deficit was $82,418.
<PAGE>
Since its inception, C3D has financed its operations primarily through
capital contributions from shareholders. During the nine-month period ended
September 30, 1999, C3D received proceeds of $2,063,020 from the sale of Common
Stock and received proceeds of $1,000,000 from the sale of convertible
subordinated debt which was subsequently converted on October 22, 1999 into
202,945 shares of Common Stock.
Subsequent to the nine-month period ended September 30, 1999, C3D
issued $2,100,000 worth of convertible subordinated debt and issued two
promissory notes to a shareholder for total proceeds of $1,300,000. A capital
contribution was made on November 1, 1999 for net proceeds of $100,000.
Net cash used in operating activities was $537,069 for the nine-month
period ended September 30, 1999 including a net loss of $2,089,182 and the
non-cash transactions of $400,000 paid by the issuance of Common Stock and
$1,000,000 from the beneficial conversion on the subordinated convertible note.
For the nine-months ended September 30, 1999, C3D has advanced Constellation
Tech $2,408,306 in anticipation of the closing of the acquisition for certain
assets and liabilities of Constellation Tech. The advances are governed by a
promissory note issued to C3D. C3D earned interest of $57,458 on the note for a
total balance owing of $2,465,764. Upon closing of the Asset Purchase Agreement,
dated October 1, 1999, the promissory note issued to C3D from Constellation Tech
will be forgiven by virtue of C3D assuming all obligations and liabilities of
Constellation Tech as of September 30, 1999.
Due to its lack of operating revenues, its operating losses and its
need for working capital, there is no assurance that the Company will be able to
continue as a going concern. As a result of these factors, the Company's
independent certified public accountants modified their opinion on the Company's
ability to continue as a going concern.
Income Taxes
C3D has not generated any taxable income to date and therefore has not
paid any federal income taxes since its inception. Deferred tax assets created
primarily from net operating loss carryforwards have been fully reserved as
management is unable to conclude that future realization is more likely than
not.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR CONSTELLATION 3D TECHNOLOGY LIMITED
Overview
Effective September 19, 1999, Constellation Tech entered into a
purchase agreement with Constellation Holdings pursuant to which Constellation
Tech acquired all of the assets of Constellation Holdings. For purposes of this
discussion, Constellation Technology will be the operating company, because
during the period reported, September 30, 1999, the operations of the Company
were in Constellation Tech. However, for discussions on the formation and the
history of the Company preceding the September 19, 1999 transaction,
Constellation Holdings will be referenced.
Constellation Holdings was incorporated on September 25, 1997 but
commenced operations in January of 1997 through its Israeli subsidiaries, O.M.D.
Optical Memory Devices Ltd. and Tridstore Ltd. Both subsidiaries were active in
1997 and 1998 and performed the initial research and development of the
Company's Fluorescent Memory Technology. On January 1, 1998, Constellation
Holdings incorporated C-TriD Israel Ltd. ("C-TriD") located in Park Rabin,
Rechovot, Israel, and the activities in Israel started moving to it. For the
nine-months ended September 30, 1999, C-TriD's main function has been the
testing and ongoing development of the Company's current products, the Micro
Read/Write Disk and ClearCard ROM. Research and development is expected to
increase at the Israeli facility for further testing and the development of new
products such as ClearCard R/W.
In January 1999, Constellation Holdings formed TriD Store Vostok
("Vostok") in Russia. Vostok is also conducting research and development of the
Company's technology, supporting C-TriD's research and development activity
because of the Russian subsidiary's extensive talent pool and reduced labor
costs.
In February 1998 Constellation Holdings incorporated TriDStore IP,
L.L.C. ("TriDStore"), a Delaware limited liability company that has had no
active operations but currently holds the patents and patent applications for
the Company's Fluorescent Memory Technology. At present, TriDStore holds four
U.S. patents, more than forty U.S. and foreign regular patent applications and
ten pending provisional applications. The Company plans to continue to use
TriDStore as a holding company for its patent registrations and applications.
In August 1998, Constellation Holdings formed TriD SV, Inc. ("TriD
SV"), a Delaware corporation that had no operations when it was a subsidiary of
Constellation Holdings. It is anticipated that TriD SV will be the operating
vehicle of the California operations. The General Manager of Products, Ingolf
Sander, currently resides and conducts operations in Mountain View, California
and expects to increase activities in California significantly when the
Company's products have reached the point of commercialization. Mountain View is
expected to be an ideal location for the Company, because the area has the
infrastructure and talent pool for the data storage industry already in place.
On October 1, 1999, C3D completed its acquisition of C-TriD, Vostok,
TriDStore, and TriD SV, and the assumption of all the liabilities and
obligations of Constellation Tech. The acquisition, more fully described in the
attached notes to the financial statements, will be accounted for as a reverse
takeover whereby Constellation Tech is deemed the parent for reporting purposes
and C3D is considered the acquired entity. This treatment conforms with
generally accepted accounting principles.
All financial statements referenced in this management discussion,
covering the interim nine-month period ended September 30, 1999 and the fiscal
years ended December 31, 1998 and 1997, represent the consolidated operations of
Constellation Tech, and its wholly owned subsidiaries. Constellation Tech,
<PAGE>
itself, was active and was responsible for paying subcontractors outside of
Israel and Russia and also supported the North American operations. The reported
results essentially reflect the activities of Constellation Tech and the
subsidiaries. These statements precede the acquisition date so they are
presented on a stand-alone basis. Pro forma information is also presented in
this registration statement.
The Company plans to continue its focus on research and development of
its data storage technology and to develop strategic alliances with established
companies in the data storage industry. The Company expects that its operating
expenses will increase significantly during the foreseeable future as the result
of its plans to:
o increase expenditures on marketing and business development by
hosting demonstrations of the Company's technology to
potential stratgic partners, continually obtaining information
about the market size and growth parameters, updating industry
pricing and cost trends, hiring a business development vice
president and support team responsible for establishing
partnerships, and monitoring new technological developments in
the industry. The Company expects to incur expenditures of
approximately $200,000 per month for the above activities;
o enhance existing capabilities of products by increasing the
levels of research and development expenditures and capital
assets from the current levels of $200,000 and $25,000 per
month, respectively, to $600,000 and $40,000 per month,
respectively;
o increase expenditures on administration from the current
levels of $100,000 per month to $200,000 per month;
o increase monthly expenditures on professional fees for patent
registration and joint venture agreements from $50,000 per
month to $150,000 per month; and
o establish full manufacturing operations at its California
location by hiring additional staff and transferring equipment
and personnel to the United States increasing such expenses
approximately $1,000,000 over the next twelve months.
The Company must raise additional funds as a result of the planned
significant increase in its operating expenditures and anticipates that it will
require approximately $20 million in order to fund its operations over the next
twelve months. The Company has sufficient working capital to support its
operations through February 2000 and is in the process of negotiating for
additional capital. The Company does not expect to receive revenues until the
end of the fiscal year 2000 and expects to continue to incur operating losses
until late in the third or fourth quarter of fiscal year 2001. The Company is
currently exploring additional financing alternatives, including the possibility
of private equity or debt offerings. Although the Company's existing debt
securities contain no such restrictions, the signing of future convertible debt
or preferred share agreements could result in restrictions being placed on
dividends, interest and principle payments, or any other convenant restrictions
that could make payments of such debts difficult, create difficulties in
obtaining further financings, limit the flexibility of changes in the business,
and cause substantial liquidity problems. There can be no assurance, however,
that such financing will be available to the Company or, if it is, that it will
be available on terms 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.
<PAGE>
Results of Operations for the Nine-Months Ended September 30, 1999 Compared to
the Nine-Months Ended September 30, 1998
Revenue. Constellation Tech generated no revenue for the nine-month
period ended September 30, 1999 or the nine-month period ended September 30,
1998.
Research and System Development Expenses. 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
protection and other intellectual property. Constellation Tech incurred research
and development expenses of $1,717,983 for the nine-month period ended September
30, 1999, as compared to $951,371 for nine-month period ended September 30,
1998. The significant costs were payroll for staff and contractors which
amounted to $1,005,242 for the nine-months ended September 30,1999 and $439,979
for the nine-months ended September 30, 1998. Professional fees were $451,557
for patent preparation and filing for the nine-months ended September 30, 1999,
and $158,800 for the nine-months ended September 30, 1998. The increase in
patent costs was due to the expanded coverage in scope and geography of the
patenting of Constellation Tech's Fluorescent Memory Technology. Materials
consumed amounted to $36,455 for the nine-months ended September 30, 1999, and
$64,113 for the nine-months ended September 30, 1998. This decrease was due to
the reduction of new materials required as the Company's products went from
prototypes to testing in 1999.
General and Administrative Expenses. General and administrative
expenses consist of management compensation, rent, professional fees, telephone,
travel and other general corporate expenses. General and administrative expenses
were $906,140 for the nine-months ended September 30, 1999 compared to
$1,132,622 for the nine-months ended September 30, 1998. Constellation Tech paid
substantially less for management and facilities charges for the nine-months
ended September 30, 1999, than it did for the nine-months ended September 30,
1998. Payroll expenses and management fees relating to general and
administrative expenses were $241,963 for the nine-months ended September 30,
1999, and $319,534 for the nine-months ended September 30, 1998. The decrease
was due to the reduction of management fees charged by Constellation Memory
Division from $200,000 for the nine-months ended September 30, 1998 to $100,000
for the nine-months ended September 30, 1999. Office and maintenance charges
were $351,536 for the nine-months ended September 30, 1999, and $169,763 for the
nine-months ended September 30 1998. The increase in office and maintenance
charges reflects the increase in the number of facilities Constellation Tech is
operating from one in Israel for the nine-months ended September 30, 1998 to
three facilities for the nine-months ended September 30, 1999 consisting of one
in Israel, one in Russia, and one in North America. Travel and accommodation
expenses were $100,985 in the nine-months ended September 30, 1999 and $156,868
for the nine-months ended September 30, 1998. The decrease in travel and
accommodation expenditures was due to the reduction of fund-raising activities
of Constellation Tech management for the nine-months ended September 30, 1998
over the nine-months ended September 30, 1999 when C3D began most of the capital
seeking activities.
Interest and other charges. Constellation Tech has recorded interest
expenses of $126,591 for the nine-months ended September 30, 1999 compared to
$240 for the nine-months ended September 30, 1998. Interest expense consist of
$35,866 for bank overdrafts and $57,458 for loans from C3D for the nine-months
ended September 30, 1999 and $240 and $0, respectively, for the nine-months
ended September 30, 1998. Constellation Tech's interest expense rose due to the
increase in current liabilities compared to the nine-months ended September 30,
1998
<PAGE>
Income Taxes. Constellation Tech has generated minimal inter-company
taxable income to date and therefore has paid $12,000 for the nine-months ended
September 30, 1999 and $0 for the nine-months ended September 30, 1998. The
taxes were incurred in the Russian subsidiary due to their treatment of
inter-company advances as taxable revenue.
Results of Operations for the Year Ended December 31, 1998 Compared to the Year
Ended December 31, 1997
Revenue. Constellation Tech generated no revenue in the fiscal years
ended December 31, 1998 and 1997.
Research and System Development Expenses. 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. Constellation Tech incurred research and development
expenses of $1,534,948 for the year ended December 31, 1998 and $1,491,707 for
the fiscal year ended December 31, 1997. 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 preparation and filing 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 for the fiscal year ended
December 31, 1998 and $261,126 for the year ended December 31, 1997.
Interest and other charges. Constellation Tech has recorded net
interest income of $6,985 for the fiscal year ended December 31, 1998 and a net
interest expense of $53,851 for the fiscal year ended December 31, 1997.
Interest income and expense consisted entirely of bank overdrafts.
Income Taxes. Constellation Tech has generated minimal inter-company
taxable income to date and therefore has paid $3,462 for the year ended December
31, 1998 and $0 for the year ended December 31, 1997. The taxes were incurred in
the Israeli subsidiary, C-TriD, due to their treatment of inter-company advances
as taxable revenue.
<PAGE>
Liquidity and Capital Resources
As of September 30, 1999, Constellation Tech's cash position was
$300,944 and its working capital deficit was $3,918,076 compared to a cash
position of $123,097 and a working capital deficit of $1,136,513 for fiscal year
ended December 31, 1998.
Since inception, Constellation Tech has financed its operations from
capital contributions and short-term financings from shareholders. During the
nine-month period ended September 30, 1999, Constellation Tech received net
proceeds of $2,478,945 from short term loans from shareholders and related
parties, including $2,465,764 in advances from C3D. Upon closing of the Asset
Purchase Agreement dated October 1, 1999, the advances issued to Constellation
Tech from C3D will be forgiven by virtue of C3D assuming all the obligations and
liabilities of Constellation Tech as at September 30, 1999. Constellation Tech
received proceeds of $4,888,537 from the sale of common stock and had a net
redemption of short term loans of $4,260,798 for the fiscal year ended December
31, 1998.
Due to its lack of operating revenues, its operating losses and its
need for working capital, there is no assurance that Constellation Tech will be
able to continue as a going concern. As a result of these factors, Constellation
Tech's independent certified public accountants modified their opinion on
Constellation Tech's ability to continue as a going concern.
Net cash used in operating activities was $2,210,724 for the nine-month
period ended September 30, 1999, including a net loss of $2,762,714 and an
increase in payables of $537,408. The Company's current operating expenditures
are approximately $350,000 per month and the Company plans to increase its
operating expenditures to $1,200,000 a month in order to expand its operations.
The Company has not generated any revenues to date and does not anticipate cash
flow from operations to be sufficient to fund its cash requirements until late
in 2001.
Constellation Tech incurred net capital expenditures of $87,977 for the
nine-month period ended September 30, 1999 and $170,844 for the nine-month
period ended September 30, 1998. These expenditures were primarily for
laboratory equipment associated with Constellation Tech's continued research and
development.
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 February 2000. The Company's
capital requirements depend on several factors, including the success and
progress of research development programs, the resources devoted to developing
products, the extent to which products achieve market acceptance and other
factors. The Company anticipates that it will require substantial additional
financing to fund its working capital requirements. There can be no assurance,
however, that additional funding will be available or, if available, that it
will be available on terms acceptable to the Company. If adequate funds are not
available, it may not be able to continue. There can be no assurance that the
Company will be able to raise additional cash if its cash resources are
exhausted. The Company's ability to arrange such financing in the future will
depend in part upon the prevailing capital market conditions as well as the
Company's business performance.
Constellation Tech has been in the development stage since its
inception. It has had no operating revenue to date, has accumulated losses of
$8,567,361 and will require additional working capital to complete its business
development activities and generate revenue adequate to cover operating and
further development expenses. Thus, there is no assurance that the Company will
be able to continue as a going concern.
<PAGE>
Market Risk
The Company expects that, like many companies, it may be exposed to
some degree of market risk, particularly for its Ukrainian, Israeli and Russian
operations. The Company cannot provide any assurance that future developments in
each respective country will not generally have an adverse effect on the
financial condition of the Company. The Company does not anticipate that it will
enter into derivative transactions (e.g., foreign currency forward or option
contracts) to hedge against known or forecasted market changes.
The Company believes that it does face political risk based on having
operations in the Ukraine, Israel and Russia. These countries do face political
instability that could have a material adverse effect on the Company's
operations, however, the Company believes that this is unlikely to occur. The
Company does not possess "political risk" or other insurance to protect it
against business interruption losses caused by political acts.
Year 2000 Issue
As of January 11, 2000, the Company's management does not have any
actual knowledge of any Year 2000 computer problem that has had, is having or
will have a material adverse effect on the Company's financial condition.
The Year 2000 issue arises with the change in century and the potential
inability of information systems to correctly "rollover" dates to the new
century. To save on computer storage space, many systems were programmed with a
two-digit century (e.g., December 31, 1999 would appears as 12/31/99) assuming
that all years would be part of the 20th century. On January 1, 2000, systems
with this programming would have defaulted to 01/01/1900 instead of 01/01/2000
and calculations using or reporting the date would not be correct and errors
would 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. As of the date of this
Registration Statement, the Company has not experienced any material adverse
effects resulting from the arrival of January 1, 2000.
The Company has completed its assessment of its information technology
systems, as well as its non-information technology systems. The Company
reasonably believes that it will not be materially adversely affected by the
Year 2000.
The Company's research records are primarily handwritten. Furthermore,
in Russia and the Ukraine, the Company's accounting and bookkeeping records are
kept without the aid of computers. The Company's computer hardware and software
is relatively new and all have been purchased with Year 2000 computer risks in
mind. The Company does not reasonably anticipate that any of its computer
hardware or software will malfunction as a result of the Year 2000.
The Company expects that its research prototypes will accurately and
unambiguously display, reconfigure, interrupt and process all date codes
designating the Year 2000 and beyond, including leap years. However, the
Company's research prototypes may encounter a Year 2000 problem because of the
interaction of a third party's product with the Company's prototypes.
<PAGE>
The Company is primarily relying on Year 2000 Readiness Disclosures in
its assessment of its principal suppliers. After reviewing these Year 2000
Readiness Disclosures, the Company does not foresee that any of its principle
suppliers will suffer Year 2000 issues. The Company has one supplier from which
it purchases the raw materials needed for its research operations. The Company
believes that this suppler will not face Year 2000 problems that would affect
the supplier's ability to provide the materials the Company needs to continue
its research operations. However, in the event the supplier is unable to fill
orders to the Company as a result of a Year 2000 computer failure, the Company
is prepared to utilize other suppliers to fill its orders for raw materials. As
a further precaution, the Company has purchased enough raw materials to last
through the first quarter of 2000.
Finally, the Company has determined that its operations in Russia,
which account for a material portion of the Company's business, may be
materially adversely affected by the Year 2000 problem. The Company's concerns
stem from the state of readiness of third parties, including the Russian
government, and not from its own level of preparation. The Company reasonably
believes that the Russian government may not be equipped to handle all possible
problems that may have arisen or may arise as a result of a Year 2000 problem.
The Company has put contingency plans in place to deal with a possible Year 2000
failure in Russia. These contingency plans include a complete back-up of all
computer files, as well as the creation of paper copies of all computer files.
Also, the Company is equipping all of its Russian facilities with electrical
generators. Finally, for the worst case scenario, the Company has prepared a
relocation plan for its Russian operations.
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
98-5, "Reporting the Costs of Start-up Activities" is effective for the year
ended January 1, 2000. The Company does not expect the adoption of the
accounting pronouncement to have a material effect on its financial position or
results of operations.
Financial data for C3D and Constellation Tech is an Exhibit
incorporated herein by reference. The Company did not hold any material market
rate sensitive instruments.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As of January 9, 2000, excluding any exercise of options or conversion
of convertible securities, there were 13,667,203 shares of Common Stock issued
and outstanding. The following table sets forth the beneficial ownership of the
Common Stock as of January 9, 2000 by each person known by C3D to own
beneficially more than five percent (5%) of the issued and outstanding Common
Stock, each of C3D's directors, each of C3D's named executive officers (as
defined in SEC Regulation S-K Item 402(a)(3)), and those directors and named
executive officers as a group.
Unless otherwise indicated, each person or entity named below has sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by such person or entity, subject to the information set
forth in the footnotes to the table below. The securities beneficially owned by
a person are determined in accordance with the definition of "beneficial
ownership" set forth in the regulations of the Securities and Exchange
Commission and, accordingly, may include securities owned by or for, among
others, a spouse, children or certain other relatives of such person as well as
other securities as to which the person has or shares voting or investment power
or has the right to acquire within sixty (60) days after January 9, 2000. The
same shares may be beneficially owned by more than one person. Beneficial
ownership may be disclaimed as to certain of the securities.
<TABLE>
<CAPTION>
Number of Shares
Beneficially
Name of Beneficial Owner Owned Percent
- ------------------------------------------------------------------ ----------------- -------
<S> <C> <C>
Constellation 3D Technology Limited (2)
235 West 76th Street, Suite 8D, New York, New York 10023......... 9,750,000 (2) 71.3%
Rapids Trust Limited (2)
56 Mazah Street, Tel Aviv, Israel 55905........................... 9,750,000 (2) 71.3%
United European Enterprises (2)
56 Mazah Street, Tel Aviv, Israel 55905........................... 9,750,000 (2) 71.3%
Constellation Group Investments Inc. (2)
c/o Euro-American Trust and Management Services Limited
P.O. Box 3161
Road Town, Tortola, British Virgin Islands........................ 9,750,000 (2) 71.3%
Markus Banzer (2)
Gr. Bongert 9
Triesen, Liechtenstein............................................ 9,750,000 (2) 71.3%
Hubert Buchel (2)
Salums 63
Gamprin, Liechtenstein............................................ 9,750,000 (2) 71.3%
Criterion Treuunternehmen reg., (2)
Austr. 49
Vaduz, Liechtenstein.............................................. 9,750,000 (2) 71.3%
Brigadier General Itzhak Yaakov................................... 150,000 (3) 1.1%
Professor Eugene Levich (1)....................................... 9,750,000 (4) 71.3%
Lev Zaidenberg (1)................................................ 9,750,000 (5) 71.3%
Leonardo Berezowsky (1)........................................... 9,750,000 (6) 71.3%
Michael Goldberg.................................................. 125,000 (7) *
All directors and executive officers as a group................... 10,025,000 (8) 73.3%
</TABLE>
- -----------------------------
* Less than one percent but greater than zero percent.
<PAGE>
(1) The business address of such person is 230 Park Avenue, Suite 453, New
York, New York 10169.
(2) Constellation 3D Technology Limited, a British Virgin Islands company,
directly owns 9,750,000 shares of Common Stock of C3D. United European
Enterprises, a Nevis company, owns approximately 52.5% of the voting
shares of Constellation 3D Technology Limited and, through its
instructions to Rapids Trusts Limited, an Israeli trust, thereby controls
how Constellation 3D Technology Limited votes and invests its 9,750,000
shares of C3D. Constellation Group Investments Inc., a British Virgin
Islands company, directly owns approximately 54.8% of the voting shares of
United European Enterprises and thereby indirectly controls how
Constellation 3D Technology Limited votes and invests its 9,750,000 shares
of C3D. Markus Banzer, Hubert Buchel and Criterion Treuunternehmen reg.,
as the sole three trustees of the Alex-L Foundation, the Lion & Heart
Foundation and Lediligi, three Liechtenstein trusts, have, through those
trusts, complete ownership of all of the voting shares of Constellation
Group Investments Inc. and thereby indirectly control how Constellation 3D
Technology Limited votes and invests its 9,750,000 shares of C3D. No
individual, trust or business entity controls the three trustees. Upon the
death or disability of a trustee, the remaining trustee(s) choose his or
her replacement. Upon the death or disability of all trustees before any
living and able replacement is chosen, a court of Liechtenstein chooses
their replacements.
(3) Represents 50,000 shares of Common Stock issued and outstanding and
100,000 shares of Common Stock issuable upon exercise of options which are
exercisable within 60 days of January 9, 2000.
(4) Professor Levich is a director and the Chief Executive Officer, President
and Chief Operating Officer of C3D and a director and/or executive officer
of Constellation 3D Technology Limited, United European Enterprises and/or
Constellation Group Investments Inc. Certain members of Professor Levich's
family are among the beneficiaries of the Alex-L Foundation. See footnote
(2).
(5) Mr. Zaidenberg is a director of C3D and a director and/or executive
officer of Constellation 3D Technology Limited, United European
Enterprises and/or Constellation Group Investments Inc. Certain members of
Mr. Zaidenberg's family are among the beneficiaries of the Lion & Heart
Foundation. See footnote (2).
(6) Mr. Berezowsky is the Senior Vice President of Finance and Chief Financial
Officer of C3D and an executive officer of Constellation Group
Investments Inc. Mr. Berezowsky and certain members of his family are
among the beneficiaries of the Lediligi Foundation. See footnote (2).
(7) Represents 50,000 shares of Common Stock issued and outstanding and 75,000
shares of Common Stock issuable upon exercise of options which are
exercisable within 60 days of January 9, 2000.
(8) Includes: (a) 100,000 shares of Common Stock issued to Messrs. Yaakov and
Goldberg in total and outstanding; (b) 175,000 shares of Common Stock
issuable upon Messrs. Yaakov and Goldberg's exercise of options which are
exercisable within 60 days of January 9, 2000; and (c) 9,750,000 shares of
Common Stock controlled by Constellation 3D Technology Limited, United
European Enterprises, Constellation Group Investments Inc., and the
trustees of certain trusts. See footnote (2).
C3D does not know of any arrangements, including any pledge by any person
of securities of C3D, the operation of which may at a subsequent date result in
a change in control of C3D.
<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
U.S.-Israeli Bi-national Industrial R&D Fund and Chairman of the Israeli
Standard Institute. Since 1979, he has been a private businessman and a partner
in the formation of several high-tech start-up companies in the field of
electronics, telecommunications, robotics, electro-optics and medical equipment.
He has been the sole owner of Yakov Consultants since 1985. From 1990 to the
present, he has been a partner in Goncharoff Inc., engaged in trading in Russia.
From 1995 to the present, he has been a partner in Tecnomatix NV, Belgium, which
manufactures medical machines. His academic activity has included lecturing at
the Hebrew University of Jerusalem and a professorship at Ben Gurion University
in the Negev, as well as lecturing in several seminars and publishing several
papers. He served as consultant to international organizations such as the
Korean Technology Development Corporation, the World Bank, the International
Financial Corporation, the Organization of American States and the United States
Department of Commerce, as well as the governments of Taiwan, Venezuela,
Singapore, Peru and Chile. He published several papers and a book about
innovation and the management of R&D.
Professor Eugene Levich serves as President, Chief Executive Officer,
Chief Operational Officer and Member of the Board of Directors of C3D. He was
appointed President and Chief Executive Officer of C3D effective April 19, 1999
and Chief Operational Officer of C3D effective November 11, 1999. He was elected
as a member of the Board of Directors of C3D effective April 19, 1999. Professor
Levich received a M.Sc. in Physics from Moscow University in 1968 and a Ph.D. in
Theoretical Physics from the Landau Institute in 1970. He has served in varying
academic capacities at a range of research institutions, including Harvard
University (as Visiting Fellow); Oxford University (Magdalene College) (three
times as Senior Visiting Fellow at the Department of Theoretical Physics); City
<PAGE>
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. On average, Mr. Goldberg spends no less than
thirty-five (35) hours per week devoted exclusively to the affairs of the
Company.
Lev Zaidenberg serves as a Member of the Board of Directors of C3D. He
was elected as a member of the Board of Directors of C3D on April 19, 1999. Mr.
Zaidenberg received a B.Sc. in Applied Mathematics and a M.Sc. in Information
Systems and Business Administration from Tel-Aviv University. From 1988 to 1994,
he was a partner and executive at DCL Systems Engineering Ltd., responsible for
the development of computer products for molecular modeling and financial
trading. From 1984 to 1988, he served as Vice President of IET Ltd., leading the
development and marketing of advanced expert systems for Computer Aided
Design/Computer Aided Manufacturing, image processing, satellite data
interpretation, military command and control, resource allocation and associated
business applications. Since 1984, he has served as a consultant to the Israeli
Defense Forces in computer auditing and security. Mr. Zaidenberg is Chief
Executive Officer and President of Mutek Solutions, a software company with
headquarters in Israel and subsidiaries in the United States and Germany.
Leonardo Berezowksy serves as Senior Vice President of Finance and
Chief Financial Officer of C3D. He was appointed Senior Vice President of
Finance and Chief Financial Officer effective November 5, 1999. Mr. Berezowsky
received a B.A in Economics in 1980, a B.A. in Computer Sciences in 1981 and an
M.A. in Economics in 1982 from the Hebrew University in Jerusalem. During the
years 1980 to 1983, he served as Lecturer Assistant at that institution. During
the years 1981 to 1983, he worked in software development. During the years 1984
to 1986, he served as Systems and Financial manager in Pelanar SA (Argentina), a
company involved in industrial and exporting activities. From 1986 to 1987, Mr.
Berezowsky served as consultant for international projects for that company.
From 1987 to 1994, he worked as Chief Financial Officer of a company engaged in
research and development in the energy field. Since 1995, he has served as Chief
Operational Officer of Constellation Group, a high tech entrepreneurship
company, mainly in the computer field. Since 1996, he has served as Chief
Operational Officer of Mutek Solutions Ltd., a software company with
headquarters in Israel and subsidiaries in the United States and Germany. On
average, Mr. Berezowsky spends no less than forty (40) hours per week devoted
exclusively to the affairs of the Company.
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
<PAGE>
high-tech public and private companies and advised such companies regarding
Enterprise Resource Providers. He also led the process of integrating Deloitte
Touche's accounting software into Deloitte Touche's Israeli operations. In
August 1996, he graduated from The School of Business Administration at the
College of Management located in Tel Aviv, Israel. In 1998, he became a
Certified Public Accountant.
Significant Employees
Professor Sergey A. Magnitskii serves as General Manager of Lasers and
Electronics of C3D. Mr. Magnitskii received a Dr. Sci. in Physics from Moscow
State University. From 1975 to 1976, he developed technologies in quantum
electronics under thermo-nuclear fusion with Nobel Prize winner N. Basov. In
1976, he worked with the founder of nonlinear optics, academician Rem Khokhlov,
to research experimental laser and nonlinear spectroscopy. He was a Professor of
the Physics Department of Moscow State University and of the International Laser
Center at Moscow State University. He has authored over 100 papers in
international journals and has given 39 papers and 25 presentations at
international conferences in the last three years.
Professor Jacob Malkin serves as General Manager of the Chemical
Division. Professor Malkin received a Ph.D. from Moscow State University in
1972. At the age of 22, he was recruited as a chemist by the Institute of
Chemical Physics of the Russian Academy of Sciences (formerly USSR Academy of
Sciences) where he collaborated with chemist academician N.M. Emanuel on the
development of new photo-chromic systems based on polymer materials. He received
a Ph.D. from the Syemenov Institute of Chemical Physics in 1976. He was a
Professor of Chemical Physics in 1985. He was a Professor of Physical Chemistry
at Moscow Lomonosov Institute until 1989. He was elected Gastella Fellow at the
Weizmann Institute of Sciences in 1990 for photo-dynamic therapy. For the study
of photo-dissociation in molecular beams, he received grants for 5 years from
the U.S.-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
<PAGE>
storage and fast image processing in the field of image registration, remapping,
and Viterbi decoding. During the period from 1989 to 1995, he was Founder,
President and Chief Executive Officer of LaserByte, in Sunnyvale, California, a
joint venture with Hyundai to develop optical disk drives. He developed a
methodology to improve read channel reliability and data throughput and set up a
laboratory to investigate the use of drives for document storage and multi-media
applications. In 1975, he worked at Philips Research Lab in Hamburg, then West
Germany. He has authored 12 patents in the field of optical and magneto-optical
memory.
Board of Directors
All holders of C3D Common Stock generally may vote in the election of
directors. The terms of all directors expire at the next annual shareholders'
meeting following their election. The term of a director elected to fill a
vacancy expires at the next shareholders' meeting at which directors are
elected. C3D's Bylaws provide that annual meetings of shareholders will be held
on such date and at such time fixed, from time to time, by the Board of
Directors (provided that there will be an annual meeting held every calendar
year at which the shareholders will elect a Board of Directors and transact such
other business as may properly be brought before the meeting).
The 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 of any early resignation or removal. The current members of
the Compensation Committee are Michael Goldberg and Lev Zaidenberg, who were
elected effective June 17, 1999.
The Audit Committee, which consists of two directors: (1) recommends
accountants to C3D to audit the financial statements of C3D and its consolidated
subsidiaries and to review the fees charged for such audits or for special
engagements given to such accounts; (2) meets with the independent accountants,
Chief Executive Officer and any other executives of the Company as the Audit
Committee deems appropriate at such times as the Audit Committee determines to
review (a) the scope of the audit plan, (b) the Company's financial statements,
(c) the results of external and internal audits, (d) the effectiveness of the
Company's system of internal controls, (e) any limitations imposed by Company
personnel on the independent public accountants and (f) such other matters by
the Audit Committee deems appropriate; and (3) reports to the entire Board of
Directors at such time as the Audit Committee determines but not less than once
each year. Each member of the Audit Committee must be nominated by a Board
member and elected by a majority of the Board of Directors. Each member of the
Audit Committee serves for a term of one year and until the member's successor
has been duly elected and qualified, except in the event of any early
resignation or removal. The current members of the Audit Committee are Michael
Goldberg and Lev Zaidenberg, who were elected effective June 17, 1999.
None of C3D's directors or executive officers are parties to any
arrangement or understanding with any other person pursuant to which said
individual was elected as a director or officer of C3D. There is no relationship
by blood, marriage or adoption not more remote than first cousin between any
director, executive officer, or person nominated or chosen by C3D to become a
director or executive officer.
<PAGE>
EXECUTIVE COMPENSATION
Except for Eugene Levich, the Chief Executive Officer, President and
Chief Operating Officer of C3D, no executive officer of C3D had a total annual
salary and bonus exceeding $100,000 for 1999. There is no additional individual
who would have been one of C3D's four other most highly compensated executive
officers had he served as an executive officer through the end of 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
--------------------------------------------------- ------------------------------
Other Annual Securities
Fiscal Compensation Underlying All other
Name and Principal Position Year Salary ($) Bonus($) ($) Options (#) Compensation
- ----------------------------------- ------- ----------- --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Professor Eugene Levich, 1999 $105,000 -- -- -- --
Chief Executive Officer
1998 $65,000 -- $20,000 (1) -- --
(approx.) (approx.)
1997 $65,000 -- $20,000 (1) -- --
(approx.) (approx.)
</TABLE>
- -----------------------------
(1) Until the end of 1998, Professor Levich was not directly compensated by
Constellation Tech, Constellation Holdings or C3D for his position as
Chief Executive Officer. However, in 1998 and 1997, Constellation Holdings
paid management fees to Constellation Memory Division, a Nevis company
("CMD"), which transferred, among other amounts, approximately $85,000 to
Memde Israel Ltd., an Israeli company related to CMD ("Memde"). This
$85,000 was paid by Memde as compensation, including non-salary and
non-bonus compensation, to Professor Levich, who was then a principal and
the president of Memde.
As of January 9, 2000, no executive officer of C3D has held any stock
appreciation rights with respect to the stock of C3D. Furthermore, as of January
9, 2000, no named executive officer of C3D (as defined in SEC Regulation S-K
Item 402(a)(3)) has held any stock options with respect to the stock of C3D. The
authorization and/or granting of stock options to directors of C3D and to other
executive officers of C3D is discussed elsewhere in this Registration Statement.
On December 17, 1999, C3D's Board of Directors approved a three-for-one
forward split of its Common Stock for those shareholders of record as of
December 16, 1999. The distribution of such additional shares of Common Stock
will occur on or about January 15, 2000, and it is expected that the per share
stock price for the Common Stock of C3D will change shortly thereafter.
On December 27, 1999, at the Annual Meeting of Shareholders of C3D, the
necessary number of votes of C3D's shareholders approved and adopted a 1999
Stock Option Plan (the "Plan"). The purpose of the Plan is to provide additional
incentive to officers, other key employees, and directors of, and important
consultants to C3D and each present or future parent or subsidiary corporation,
by encouraging them to invest in shares of Common Stock and thereby acquire a
proprietary interest in C3D and an increased personal interest in C3D's
continued success and progress.
All officers and key employees of C3D and of any present or future C3D
parent or subsidiary corporation are eligible to receive an option or options
under the Plan. All directors of, and important consultants to, C3D and of any
present or future C3D parent or subsidiary corporation would also be eligible to
receive an option or options under the Plan. The individuals who would, in fact,
receive an option or options would be selected by the Company's Compensation
Committee, in its sole discretion, except as otherwise specified in the Plan.
Options issued pursuant to the Plan would be either incentive stock options or
non-qualified stock options, as determined by the Compensation Committee.
<PAGE>
The aggregate number of shares of Common Stock which may be issued
under the Plan is 1,539,180. Notwithstanding the foregoing, in the event of any
change in the outstanding shares of the Common Stock of C3D by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what C3D's
Board of Directors or C3D's Compensation Committee deems in its sole discretion
to be similar circumstances, the aggregate number and kind of shares which may
be issued under the Plan will be appropriately adjusted in a manner determined
in the sole discretion of the committee. Reacquired shares of C3D's Common
Stock, as well as unissued shares, may be used for the purpose of the Plan.
Common Stock of C3D subject to options which have terminated unexercised, either
in whole or in part, will be available for future options granted under the
Plan.
As of January 9, 2000, C3D has no long-term incentive plan or pension
plan.
Director Compensation
For services rendered by General Yaakov as director of C3D, starting
July 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. There is no written contract for this
compensation. In addition, for services rendered on March 8, 1999, the Board of
Directors of C3D authorized the issuance of 50,000 shares of Common Stock and
100,000 options to purchase Common Stock at an exercise price of $4.00 per share
and an exercise period of five (5) years to General Yaakov. The issuance of the
50,000 shares occurred on December 7, 1999.
For services rendered by Michael Goldberg as Director of C3D, on March
8, 1999, the Board of Directors of C3D authorized the issuance of 50,000 shares
of Common Stock and 75,000 options to purchase Common Stock at an exercise price
of $4.00 per share and for an exercise period of five (5) years to Michael
Goldberg. The issuance of the 50,000 shares occurred on December 7, 1999.
On December 27, 1999, at the Annual Meeting of Shareholders of C3D, the
necessary number of votes of C3D shareholders approved and adopted a 1999 Stock
Option Plan. The purpose of the Plan is to provide additional incentive to
officers, other key employees, and directors of, and important consultants to
C3D and each present or future parent or subsidiary corporation, by encouraging
them to invest in shares of Common Stock and thereby acquire a proprietary
interest in C3D and an increased personal interest in C3D's continued success
and progress. Further details of the Plan are provided above in this "Executive
Compensation" section.
<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
July 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. There is no written contract for this
compensation.
For services rendered by General Yaakov and Michael Goldberg as
directors of C3D, on March 8, 1999, C3D's Board of Directors authorized the
issuance of 50,000 shares of Common Stock to each of General Yaakov and Michael
Goldberg. 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. The issuance of
Common Stock to Messrs. Yaakov and Goldberg occurred on December 7, 1999.
Between April 1999 and October 1999, in anticipation of the purchase by
C3D of certain assets of Constellation Holdings, C3D advanced approximately $2.5
million to Constellation Holdings and certain of its subsidiaries. Such amounts
were governed by a promissory note, dated as of September 30, 1999, made by
Constellation Tech and certain of its subsidiaries in favor of C3D, which
provided that the note was non-assignable, carried an annual interest rate of
8.0% and was payable on demand with no specific date of repayment. All amounts
owing under such promissory note were extinguished in connection with the
purchase by C3D of certain assets of Constellation Tech. The promissory note is
eliminated as an inter-company transaction in the Proforma Combined Condensed
Statements included elsewhere herein.
On June 17, 1999, the Compensation Committee of C3D set certain
compensations. There are no written contracts for such compensations. Professor
Eugene Levich, President, Chief Executive Officer and Chief Operational Officer
of C3D, is to receive $15,000 per month as of June 1, 1999. Leonardo Berezowsky,
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. In his capacity as consultant to the Company, Lev Zaidenberg, Director of
C3D, is to receive $10,000 per month, $5,000 monthly as of June 1, 1999, and
$5,000 to accrue monthly until the financing next following June 17, 1999.
On July 15, 1999, Ronen Yaffe, C3D's Treasurer, entered into an
employment contract with C-TriD Israel Ltd. The contract is still effective.
Pursuant to the contract, for services rendered as the Chief Financial Officer
of C-TriD Israel Ltd., C-TriD Israel Ltd. is to pay Mr. Yaffe 20,000 New Israeli
Shekels (approximately U.S. $4,824 based on a January 9, 2000 interbank exchange
rate of approximately 4.146 New Israeli Shekels per U.S. Dollar, without fees or
surcharges) per month in addition to (1) a bonus if C-TriD Israel Ltd.
distributes a bonus to its employees, as determined by the Board of Directors of
C-TriD Israel Ltd. and dependent on Mr. Yaffe's performance and the financial
results of C-TriD Israel Ltd. and (2) stock options in C-TriD Israel Ltd. if
C-TriD Israel Ltd. adopts a stock option plan for its employees.
<PAGE>
On September 19, 1999, Constellation Holdings sold all of its assets to
Constellation Tech. In consideration for those assets, Constellation Tech
assumed of all liabilities and obligations of Constellation Holdings, which each
of the Boards of Directors of Constellation Holdings and Constellation Tech and
the shareholders of Constellation Holdings deemed to be adequate and sufficient
consideration. No fairness opinion was rendered in connection with such
transaction. After the acquisition, all the record and beneficial shareholders
of Constellation Holdings became record and beneficial shareholders of
Constellation Tech.
C3D and Constellation Tech entered into an asset purchase agreement
which was completed on October 1, 1999, whereby C3D acquired certain assets and
liabilities from Constellation Tech, including the following directly and
indirectly owned subsidiaries:
o 99 of the 100 issued and outstanding shares of C-TriD Israel
Ltd.;
o all of the issued and outstanding shares of TriD Store Vostok;
o the sole membership interest of Constellation Tech in
TriDStore IP, L.L.C.; and
o all of the issued and outstanding shares of TriD SV, Inc.
The consideration paid to Constellation Tech was based on the $4.00 per
share price of C3D Common Stock in connection with the Regulation S offering
dated May 7, 1999. The $4.00 per share price was negotiated, at arms length in
March 1999, before the C3D's common stock began trading using the NASD
Over-the-Counter Bulletin Board service. The 9,750,000 shares of C3D Common
Stock paid to Constellation Tech were therefore valued at $39 million. The
acquisition was recorded at no value on the pro-forma consolidated financial
statements to comply with reverse-takeovers accounting per U.S. generally
accepted accounting principles. No fairness opinion was rendered in connection
with such transaction.
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 SHAREHOLDER MATTERS
<PAGE>
The securities of C3D, which are common shares, $.001 par value per
share, are quoted on the NASD's Over-the-Counter Bulletin Board (the "Bulletin
Board") service under the symbol "CDDDE." The ticker symbol is expected to
change in the near future. See the Risk Factor entitled "Change of Ticker
Symbol," above. The NASD will remove the "E" placed at the end of C3D's ticker
symbol if and after the NASD Bulletin Board receives evidence, to its
satisfaction, that this Registration Statement has cleared all SEC comments.
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 2000:
First Quarter*................................... $ 87.38 $ 58.00
Fiscal Year Ending 1999:
Fourth Quarter................................... $ 97.88 $ 16.06
Third Quarter.................................... $ 23.75 $ 10.00
Second Quarter................................... $ 12.13 $ 1.75
First Quarter.................................... -- --
- ----------------------------
* For the period January 1, 2000 through and including January 7, 2000.
The price of C3D's Common Stock on the NASD's Bulletin Board on January
7, 2000 was $62.00 (high) and $58.00 (low). The close price on January 7, 2000
was $61.875.
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 January 3, 2000, there were approximately 55 shareholders of
record of the Common Stock.
On December 17, 1999, C3D's Board of Directors approved a three-for-one
forward split of its Common Stock for those shareholders of record as of
December 16, 1999. The distribution of such additional shares of Common Stock
will occur on or about January 15, 2000, and it is expected that the per share
stock price for the Common Stock of C3D will change shortly thereafter.
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
Section 4(2) Offering to Winnburn Advisory
On December 24, 1999, C3D entered into an agreement to issue $1,600,000
of convertible subordinated debt to Winnburn Advisory, a corporation organized
under the laws of Nevis, West Indies ("Winnburn"). In connection with such
issuance, C3D granted to Winnburn certain registration rights with respect to
the underlying common stock. The issuance of the convertible note was made as an
exempt offering under Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act").
Section 4(2) Offering to Wilbro Nominees Limited
On November 11, 1999, C3D issued $500,000 of convertible subordinated
debt to Wilbro Nominee Limited, a corporation organized under the laws of
England ("Wilbro"). In connection with such issuance, C3D granted to Wilbro
certain registration rights with respect to the underlying common stock. The
issuance of the convertible note will be made as an exempt offering under
Section 4(2) of the Securities Act.
Section 4(2) Offering to MBA-on-Demand, L.L.C.
On November 8, 1999, the Board of Directors of C3D authorized, pursuant
to that certain Engagement Letter dated as of May 23, 1999, the issuance of
2,500 shares of Common Stock, which C3D valued at $28,750, to MBA-on-Demand,
L.L.C., a Texas limited liability company, as consideration for services
rendered pursuant to the Engagement Letter. In connection with such issuance,
C3D granted to MBA-on-Demand, L.L.C. certain registration rights with respect to
such Common Stock. C3D made the exempt offering under Section 4(2) of the
Securities Act.
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
<PAGE>
December 31, 1999 into 202,945 shares of Common Stock. The issuance of the
convertible note and the conversion were each made as an exempt offering under
Section 4(2) of the Securities Act.
Regulation S Offering to Twenty-Five Foreign Investors
On May 7, 1999, C3D issued 453,255 shares of its Common Stock at an
aggregate offering price of $1,813,020 to twenty-five individuals and entities
then residing outside of the United States pursuant to Regulation S under the
Securities Act.
Regulation D Offering to Sixteen Individuals
On March 24, 1999, C3D issued 3,125,000 shares of its Common Stock at
an aggregate offering price of $250,000 to sixteen individuals and entities. C3D
filed under SEC Rule 504 for an exemption from registration of those common
shares under the Securities Act.
Issuance of Stock to Messrs. 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. The
issuance of both sets of 50,000 shares occurred on December 7, 1999.
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.
<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 from
April 8, 1999 until December 23, 1999, when the ticker symbol became "CDDDE".
The ticker symbol is expected to change in the near future. See the Risk Factor
entitled "Change of Ticker Symbol," above. The NASD will remove the "E" placed
at the end of C3D's ticker symbol if and after the NASD Bulletin Board receives
evidence, to its satisfaction, that this Registration Statement has cleared all
SEC comments. As approved at the Annual Meeting of Shareholders of C3D held on
December 27, 1999, the authorized capital stock of C3D currently consists of 100
million shares of common stock, $.001 par value per share (the "Common Stock")
and 10 million shares of preferred stock, no par value per share (the "Preferred
Stock").
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. Each holder of record of Common Stock has
the right to one vote for each share of Common Stock registered in their name on
the books of C3D. Such holders of record shall have the right to vote in the
election of directors of the C3D.
The shares of Preferred Stock may be divided and issued from time to
time in one or more series as may be determined by the Board of Directors of
C3D, each such series to be distinctly designated and to consist of the number
of shares determined by the Board of Directors. The Board of Directors of C3D is
expressly vested with authority to adopt resolutions to issue the shares, to fix
the number of shares, to change the number of shares constituting any class or
series, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions, if any, of Preferred Stock, and
each class or series thereof, in each case without approval of the shareholders.
There are no restrictions on the repurchase or redemption of shares by C3D while
there is any arrearage in the payment of dividends or sinking fund installments.
C3D has not issued, and the Board of Directors of C3D has not
authorized the issuance of, any Preferred Stock or more than the one class of
shares of Common Stock or the division of the existing class of Common Stock
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.
On December 17, 1999, C3D's Board of Directors approved a three-for-one
forward split of its Common Stock for those shareholders of record as of
December 16, 1999. The distribution of such additional shares of Common Stock
will occur on or about January 15, 2000, and it is expected that the per share
stock price for the Common Stock of C3D will change shortly thereafter.
<PAGE>
On December 27, 1999, at an annual meeting of C3D's shareholders of
record as of December 1, 1999, the necessary number of votes of C3D shareholders
approved and adopted a 1999 Stock Option Plan. The purpose of the Plan is to
provide additional incentive to officers, other key employees, and directors of,
and important consultants to C3D and each present or future parent or subsidiary
corporation, by encouraging them to invest in shares of Common Stock and thereby
acquire a proprietary interest in C3D and an increased personal interest in
C3D's continued success and progress.
All officers and key employees of C3D and of any present or future C3D
parent or subsidiary corporation are eligible to receive an option or options
under the Plan. All directors of, and important consultants to, C3D and of any
present or future C3D parent or subsidiary corporation would also be eligible to
receive an option or options under the Plan. The individuals who would, in fact,
receive an option or options would be selected by the Company's Compensation
Committee, in its sole discretion, except as otherwise specified in the plan.
Options issued pursuant to the plan would be either incentive stock options or
non-qualified stock options, as determined by the Compensation Committee.
The aggregate number of shares of Common Stock which may be issued
under this Plan is 1,539,180. Notwithstanding the foregoing, in the event of any
change in the outstanding shares of the Common Stock of C3D by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what C3D's
Board of Directors or C3D's Compensation Committee deems in its sole discretion
to be similar circumstances, the aggregate number and kind of shares which may
be issued under the Plan will be appropriately adjusted in a manner determined
in the sole discretion of the committee. Reacquired shares of C3D's Common
Stock, as well as unissued shares, may be used for the purpose of the Plan.
Common Stock of C3D subject to options which have terminated unexercised, either
in whole or in part, will be available for future options granted under the
Plan.
<PAGE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS
C3D's Amended Articles of Incorporation provide for indemnification of
officers and directors of C3D. They permit C3D, in its Bylaws or in any
resolution of its shareholders or directors, to undertake to indemnify the
officers and directors of C3D against any contingency or peril as may be
determined to be in the best interests of C3D, and in conjunction therewith, to
procure, at C3D's expense, policies of insurance. The Bylaws of C3D do not
specifically provide for indemnification of officers or directors of C3D. C3D
does not carry any director and officer policies of insurance for C3D officers
or directors. In the near future, C3D expects to obtain director and officer
policies of insurance for C3D officers and directors. C3D has no other
arrangements specifically providing for indemnification of C3D officers or
directors.
The Company's Amended Articles of Incorporation provide for
indemnification of its officers and directors regardless of the criminal or
intentional nature of the wrongful activity undertaken, but (i) only so far as
such indemnification is determined to be in the best interests of the Company
and (ii) only to the extent not prohibited by applicable Florida law. Applicable
Florida law requires that the officer or director who was or is a party to any
proceeding (other than an action by, or in the right of, the corporation) to
have acted in good faith and in a manner he or she reasonably believed to be in,
or not opposed to, the best interests of the corporation and, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
that his or her conduct was unlawful. Applicable Florida law requires also that
the officer or director who was or is a party to any proceeding by or in the
right of the corporation to have acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation. Even if the officer or director satisfies the foregoing mental
state requirements, applicable Florida law may further limit the right of the
officer or director to indemnification or the amount of indemnification which he
or she has the right to receive.
<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 on October 19,1999 due to C3D's
quotation on the NASD's Over-the-Counter Bulletin Board service. BDO Seidman,
LLP was appointed as auditor for C3D and its subsidiaries. There have not been
any disagreements with Mr. Friedman on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures.
Within C3D's past two fiscal years and any subsequent interim periods preceding
his resignation, Mr. Friedman has not issued a report containing an adverse
disclaimer or qualified opinion concerning C3D or any of its subsidiaries.
During C3D's two most recent fiscal years, and the subsequent interim
period prior to engaging BDO Seidman, LLP, neither C3D 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 C3D's financial statements, and
neither a written report was provided to C3D nor oral advice provided that BDO
Seidman, LLP concluded was an important factor considered by C3D 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 Item
304(a)(iv) of SEC Regulation S-K and the instructions related to that item) or a
reportable event (as described in Item 304(a)(1)(v) of SEC Regulation S-K).
<PAGE>
PROFORMA COMBINED CONDENSED
FINANCIAL STATEMENTS OF
CONSTELLATION 3D, INC. (FORMERLY KNOWN AS C3D INC.)
Introduction of Proforma Combined Condensed Balance Sheets (Unaudited)
Proforma Combined Condensed Balance Sheets (Unaudited)
Proforma Combined Condensed Statement of Loss (Unaudited)
Notes to Proforma Combined Condensed Financial Statements (Unaudited)
<PAGE>
Introduction to Pro Forma Combined Condensed Financial Statements (Unaudited)
On October 1, 1999 Constellation 3D, Inc. (formerly known as C3D Inc.) ("C3D")
issued 9,750,000 shares of its common stock to acquire certain assets and all
liabilities of Constellation 3D Technology, Ltd. ("Constellation Tech") (the
"Merger Transaction"). In connection with the acquisition, C3D retired 975,000
shares of common stock based on negotiations between C3D and Constellation Tech.
C3D did not acquire two subsidiaries of Constellation Tech having net assets of
approximately $132,000.
As the former shareholders of Constellation Tech will control C3D after the
acquisition, this business combination will be accounted for as a reverse
take-over transaction under which Constellation Tech is deemed for accounting
purposes to be the acquirer and C3D the acquired entity. Under these accounting
principles, the Company's combined consolidated financial statements will
represent Constellation Tech on a historical basis consolidated with the results
of operations of C3D from the date of acquisition. As C3D is a non-operating
public shell, the reverse merger will be treated as a recapitalization of
Constellation Tech, with no goodwill recorded.
Subsequent to the Merger Transaction, C3D entered into the following financing
transactions -
o Conversion of the convertible promissory note and accrued interest thereon,
totaling $1,013,973, into 202,945 shares of common stock.
o Sale of 8,503 shares of common stock at $14.70 per share totaling $125,000;
o Issuance of $2,100,000 convertible promissory notes with interest at 8%, due
October 31, 2001.
o Short term borrowings totaling $1,300,000 from a shareholder with interest
at 10%, due July 31, 2000, (nine month term) as amended on December 24, 1999
The unaudited pro forma combined condensed financial statements of C3D are based
upon the historical financial statements of the C3D and Constellation Tech after
giving effect to the merger and financing transactions discussed above. These
unaudited pro forma combined condensed financial statements are not necessarily
indicative of the financial position and results of operations that would have
been attained had the transactions actually taken place at the date indicated
and do not purport to be indicative of the effects that may be expected to occur
in the future.
The accompanying unaudited pro forma combined condensed financial statements
illustrate the effect of the merger and financing transactions on C3D's
financial position and results of operations. The unaudited pro forma combined
condensed balance sheet as of September 30, 1999 is based on the historical
balance sheets of the C3D and Constellation Tech and assumes the merger and
financing transactions took place on that date. The combined condensed
statements of loss for nine months ended September 30, 1999 and the year ended
December 31, 1998, are based on the historical statements of operations of the
C3D and Constellation Tech for the same period and assume the merger and
financing transactions occurred as of January 1, 1998.
The accompanying unaudited pro forma combined condensed financial statements
should be read in connection with the historical financial statements of the C3D
and Constellation Tech.
<PAGE>
Constellation 3D, Inc.
(Formerly known as C3D Inc.)
(A Development Stage Company)
Pro Forma Combined Condensed
Balance Sheet (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
Constellation Merger
As of September 30, 1999 C3D Tech Adjustments
<S> <C> <C> <C>
=================================================================================================
ASSETS
Cash $ 219,225 $ 300,944 $ (66,050)(6)
Other receivable 228,203 (14,934)(6)
- -------------------------------------------------------------------------------------------------
Total Current Assets 219,225 529,147 (80,984)
Deposits 1,900 - -
Furniture and equipment, net 2,565 294,905 (51,274)(6)
Advances to related companies 2,465,764 - (2,465,764)(5)
- -------------------------------------------------------------------------------------------------
Total Assets $ 2,689,454 $ 824,052 $ (2,598,022)
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Accounts payable $ 139,857 $ 481,955 $ -
Due to C3D, Inc. - 2,465,764 (2,465,764)(5)
Due to related parties 161,786 194,481 -
Due to shareholder - 241,490 -
Other liabilities - 1,063,533 -
- -------------------------------------------------------------------------------------------------
Total Current Liabilities 301,643 4,447,223 (2,465,764)
Long-Term Liabilities 1,013,973 55,650 -
- -------------------------------------------------------------------------------------------------
Total Liabilities 1,315,616 4,502,873 (2,465,764)
- -------------------------------------------------------------------------------------------------
<CAPTION>
Pro Forma
Financing ARTICLE I
As of September 30, 1999 Subtotal Adjustments Pro Forma
<S> <C> <C> <C>
===========================================================================================
ASSETS
Cash $ 454,119 $ 3,500,000(8) $ 3,954,119
Other receivable 213,269 213,269
- -------------------------------------------------------------------------------------------
Total Current Assets 667,388 3,500,000 4,167,388
Deposits 1,900 - 1,900
Furniture and equipment, net 246,196 - 246,196
Advances to related companies - - -
- -------------------------------------------------------------------------------------------
Total Assets $ 915,484 $ 3,500,000 $ 4,415,484
===========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Accounts payable $ 621,812 $ - $ 621,812
Due to C3D, Inc. - - -
Due to related parties 356,267 - 356,267
Due to shareholder 241,490 1,300,000(8) 1,541,490
Other liabilities 1,063,533 1,063,533
- -------------------------------------------------------------------------------------------
Total Current Liabilities 2,283,102 1,300,000 3,583,102
Long-Term Liabilities 1,069,623 961,027(8) 2,030,650
- -------------------------------------------------------------------------------------------
Total Liabilities 3,352,725 2,261,027 5,613,752
- -------------------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Combined Condensed Financial Statements (Unaudited).
<PAGE>
Constellation 3D, Inc.
(Formerly known as C3D Inc.)
(A Development Stage Company)
Pro Forma Combined Condensed
Balance Sheet (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
Constellation Merger
As of September 30, 1999 C3D Tech Adjustments
<S> <C> <C> <C>
============================================================================================================
Stockholders' Equity (Deficit)
Common stock, $.001 par value 4,678 18,519 9,750 (1)
(18,519)(3)
(975)(4)
Additional paid in capital 3,748,342 4,870,021 (9,750)(1)
(2,094,182)(2)
18,519(3)
(284,025)(4)
(132,258)(6)
Deficit accumulated during the development stage (2,094,182) (8,567,361) 2,094,182(2)
Treasury stock (975,000 shares, at cost) (285,000) - 285,000(4)
- ------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity (Deficit) 1,373,838 (3,678,821) (132,258)
- ------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 2,689,454 $ 824,052 $ (2,598,022)
============================================================================================================
<CAPTION>
Pro Forma
Financing ARTICLE II
As of September 30, 1999 Subtotal Adjustments Pro Forma
<S> <C> <C> <C>
========================================================================================================
Stockholders' Equity (Deficit)
Common stock, $.001 par value 13,453 211(8) 13,664
Additional paid in capital 6,116,667 1,238,762(8) 7,355,429
Deficit accumulated during the development stage (8,567,361) - (8,567,361)
Treasury stock (975,000 shares, at cost) - - -
- --------------------------------------------------------------------------------------------------------
Total Stockholders' Equity (Deficit) (2,437,241) 1,238,973 (1,198,268)
- --------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 915,484 $ 3,500,000 $ 4,415,484
========================================================================================================
</TABLE>
See Notes to Pro Forma Combined Condensed Financial Statements (Unaudited).
<PAGE>
Constellation 3D, Inc.
(Formerly known as C3D Inc.)
(A Development Stage Company)
Pro Forma Combined Condensed
Statements of Operations (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma Merger
Constellation and Financing
Nine Months Ended September 30, 1999 C3D Tech Adjustments Pro Forma
<S> <C> <C> <C> <C>
========================================================================================================================
OPERATING EXPENSES:
General and administrative $ 1,109,305 $ 906,140 $ - $ 2,015,445
Research and development - 1,717,983 - 1,717,983
- ------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,109,305 2,624,123 - 3,733,428
- ------------------------------------------------------------------------------------------------------------------------
OTHER (INCOME ) EXPENSE
Interest income (57,458) - 57,458 (5) -
Interest expense 1,037,335 126,591 (57,458)(5) 1,404,968
223,500 (8e)
75,000 (8f)
Taxes - 12,000 - 12,000
- ------------------------------------------------------------------------------------------------------------------------
Net loss $ (2,089,182) $ (2,762,714) $ (223,500) $ (5,150,396)
========================================================================================================================
Basic and diluted loss per share $ (0.38)
========================================================================================================================
Weighted average number of shares (basic
and diluted) 13,664,703
========================================================================================================================
Year Ended December 31, 1998
========================================================================================================================
OPERATING EXPENSES:
Interest (income) expense $ - $ (6,985) $ 390,500(8e) $ 483,515
100,000(8f)
Research and development - 1,534,948 - 1,534,948
General and administrative - 1,660,477 - 1,660,477
- ------------------------------------------------------------------------------------------------------------------------
Total operating expenses - 3,188,440 390,500 3,678,940
- ------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Taxes - 3,462 - 3,462
- ------------------------------------------------------------------------------------------------------------------------
Net loss $ - $ (3,191,902) $ 390,500 $ (3,682,402)
========================================================================================================================
Basic and diluted loss per share $ (.27)
========================================================================================================================
Weighted average number of shares (basic
and diluted) 13,664,703
========================================================================================================================
</TABLE>
See Notes to Pro Forma Combined Condensed Financial Statements (Unaudited).
<PAGE>
Constellation 3D, Inc.
(Formerly known as C3D Inc.)
(A Development Stage Company)
Notes to Pro Forma Combined Condensed
Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 To reflect the issuance of 9,750,000 shares of C3D common
stock in exchange for all of the outstanding common stock of
Constellation Tech.
NOTE 2 To eliminate the accumulated deficit of C3D
NOTE 3 To eliminate the common stock of Constellation Tech.
NOTE 4 To reflect the retirement of the C3D treasury stock.
NOTE 5 To eliminate intercompany balances existing between C3D and
Constellation Tech as of September 30, 1999. C3D had advanced
funds to Constellation Tech for expenditures on its behalf.
NOTE 6 To eliminate the net assets of approximately $132,000 of
two subsidiaries (Tridstore Ltd. and O.M.D. Ltd.) of
Constellation Tech, which were not part of the merger.
NOTE 7 The weighted average number of shares 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 1998.
<PAGE>
Constellation 3D, Inc. (formerly known as C3D Inc.)
(A Development Stage Company)
Notes to Pro Forma Combined Condensed
Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
NOTE 8 Summary of Financing activities completed by C3D subsequent
to September 30, 1999:
<TABLE>
<CAPTION>
(a) (b) (c) (d) Total
<S> <C> <C> <C> <C> <C>
===========================================================================================================
Cash $ - $ 100,000 $ 2,100,000 $ 1,300,000 $ 3,500,000
- -----------------------------------------------------------------------------------------------------------
Current Liabilities $ - $ - $ - $ 1,300,000 $ 1,300,000
Long-term Liabilities (1,013,973) - 1,975,000 - 961,027
- -----------------------------------------------------------------------------------------------------------
Total Liabilities (1,013,973) - 1,975,000 1,300,000 2,261,027
Stockholders' Equity
Common stock 203 8 - - 211
Additional paid in
capital 1,013,770 99,992 125,000 - 1,238,762
- -----------------------------------------------------------------------------------------------------------
Total Liabilities
and Stockholders'
Equity $ - $ 100,000 $ 2,100,000 $ 1,300,000 $ 1,900,000
===========================================================================================================
</TABLE>
(a) Conversion of Note Payable and accrued interest into 202,945 shares of
common stock
(b) Sale of 8,503 shares of common stock to outside investor at $14.70 per
share, less $25,000 commission
(c) Sale of $500,000 convertible subordinated debt on November 11, 1999, with a
beneficial conversion feature of $125,000 and sale of $1.6 million
subordinated debt on December 24, 1999. All subordinated debt bears interest
at 8%
(d) Borrowing under short-term notes payable of $1.3 million, due July 31,2000
(e) Estimated interest expense calculations -
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
8% Subordinated debt - $2.1 million $126,000 $168,000
Beneficial conversion / discount 125,000
10% Working capital loan - $1.3 million 97,500 97,500
-------- --------
Total $223,500 $390,500
</TABLE>
(f) Estimated expenses associated with fundraising activities of $200,000 to be
amortized over 24 months, or $8,300 per month.
<PAGE>
FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements and related schedules are included in
this Item:
Financial Statements of C3D Inc.
Report of Independent Certified Public Accountants:
Balance Sheet as of September 30, 1999, December 31, 1998 and December 31,
1997;
Statements of Operation, Stockholder's Equity and Cash Flows for the
nine-months ended September 30, 1999 and 1998, 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 September 30, 1999; and
Notes to Consolidated Financial Statements.
Financial Statements of Constellation 3D Technology Ltd.
Report of Independent Certified Public Accountants:
Balance Sheets as of September 30, 1999, December 31, 1998 and December 31,
1997;
Statements of Operation, Stockholder's Equity and Cash Flows for the
nine-months ended September 30, 1999 and 1998, and years ended December 31,
1998 and 1997, and for the period from the date of inception (September 25,
1997) through September 30, 1999; and
Notes to Consolidated Financial Statements.
Financial Statements of Constellation 3D Holdings Limited
Report of Independent Auditor:
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 and
1997;
Consolidated Statements of Operation, Stockholder's Equity and Cash Flow for
the six-months ended June 30, 1999 and 1998, and years ended December 31,
1998 and 1997, and for the period from the date of inception (September 25,
1997) through June 30, 1999; and
Notes to Consolidated Financial Statements.
(b) Exhibits
<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 September 30, 1999, December 31, 1998 and
December 31, 1997 and the related statements of operations, stockholders' equity
and cash flows for the nine months ended September 30, 1999 and 1998, each of
the three years in the period ended December 31, 1998, and the period from the
date of inception (December 27, 1995) through September 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of C3D Inc. (a development stage
company) at September 30, 1999, December 31, 1998 and 1997, and the results of
its operations and its cash flows for the nine months ended September 30, 1999
and 1998, each of the three years in the period ended December 31, 1998, and the
period from the date of inception (December 27, 1995) through September 30, 1999
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company is in the development stage and has generated no
operating revenue to date and will need to raise additional working capital for
future development costs. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regards
to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
BDO Seidman, LLP
Seattle, Washington
December 3, 1999
<PAGE>
C3D Inc.
(A Development Stage Company)
Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1999 1998 1997
<S> <C> <C> <C>
===============================================================================================================
ASSETS
Current Assets
Cash $ 219,225 $ - $ -
- ---------------------------------------------------------------------------------------------------------------
Total Current Assets 219,225 - -
Deposits 1,900 - -
Furniture and Equipment, net 2,565 - -
Advances to Related Company 2,465,764 - -
- ---------------------------------------------------------------------------------------------------------------
Total Assets $ 2,689,454 $ - $ -
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 139,857 $ - $ -
Due to related parties 161,786 - -
- ---------------------------------------------------------------------------------------------------------------
Total Current Liabilities 301,643 - -
Convertible Notes Payable 1,013,973 - -
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities 1,315,616 - -
- ---------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Equity
Common stock, $.001 par value; 50,000,000 shares
authorized, 4,678,255, 1,000,000 and 1,000,000 issued
and outstanding 4,678 1,000 1,000
Additional paid in capital 3,748,342 4,000 4,000
Deficit accumulated during the development stage (2,094,182) (5,000) (5,000)
Treasury stock, at cost (975,000 shares) (285,000)
Total Stockholders' Equity 1,373,838 - -
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 2,689,454 $ - $ -
===============================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
C3D Inc.
(A Development Stage Company)
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative Amounts
from Inception
(December 27,
1995) through Nine Months Ended
September 30, September 30,
- --------------------------------------------------------------------------------------------------------
1999 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING EXPENSES:
General and administrative $ 1,114,305 $ 1,109,305 $ -
- --------------------------------------------------------------------------------------------------------
Total operating expenses 1,114,305 1,109,305 -
OTHER EXPENSE (INCOME)
Interest expense 1,037,335 1,037,335
Interest income, net (57,458) (57,458) -
- --------------------------------------------------------------------------------------------------------
Net loss $ (2,094,182) $ (2,089,182) $ -
========================================================================================================
Net loss per common share - basic and diluted $ (0.64) $ -
Weighted average number of common shares
outstanding 3,253,016 1,000,000
========================================================================================================
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Year Ended
December 31,
- -------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
OPERATING EXPENSES:
General and administrative $ - $ - $ -
- -------------------------------------------------------------------------------------------------
Total operating expenses - - -
OTHER EXPENSE (INCOME)
Interest expense
Interest income, net - - -
- -------------------------------------------------------------------------------------------------
Net loss $ - $ - $ -
=================================================================================================
Net loss per common share - basic and diluted $ - $ - $ -
Weighted average number of common shares
outstanding 1,000,000 1,000,000 1,000,000
=================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
C3D Inc.
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
------------------------------ During
Additional Development
Shares Amount Paid-in capital Stage
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
C3D Inc. activities
(Formerly known as
Latin Venture Partners, Inc.):
Issuance of common stock for cash 1,000,000 $ 1,000 $ 4,000 $ (5,000)
Net loss - - - -
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,000,000 1,000 4,000 (5,000)
Net loss - - - -
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 1,000,000 1,000 4,000 (5,000)
Net loss - - - -
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 1,000,000 1,000 4,000 (5,000)
Acquisition and contribution of treasury stock 285,000 -
Sale of common stock for cash ($.08/Share) 3,125,000 3,125 246,875 -
Sale of common stock for cash ($4.00/Share) 453,255 453 1,812,567 -
Common stock granted to directors ($4.00/Share) 100,000 100 399,900 -
Beneficial conversion discount of convertible debt - - 1,000,000 -
Net loss - - - (2,089,182)
- ----------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 4,678,255 $ 4,678 $ 3,748,342 $ (2,094,182)
======================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Treasury Stock
----------------------------------
Shares Amount Total
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
C3D Inc. activities
(Formerly known as
Latin Venture Partners, Inc.):
Issuance of common stock for cash - $ - $ -
ARTICLE III Net loss - - -
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 - - -
Net loss - - -
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 - - -
Net loss - - -
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 - - -
Acquisition and contribution of treasury stock 975,000 (285,000) -
Sale of common stock for cash ($.08/Share) - - 250,000
Sale of common stock for cash ($4.00/Share) - - 1,813,020
Common stock granted to directors ($4.00/Share) - - 400,000
Beneficial conversion discount of convertible debt - - 1,000,000
Net loss - - (2,089,182)
- ------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 975,000 $ (285,000) $ 1,373,838
============================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
C3D Inc.
(A Development Stage Company)
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
Nine Months
Cumulative Amounts Ended September 30,
from Inception -----------------------------------
(December 27,
1995) through
September 30, 1999 1999 1998 (unaudited)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net loss $ (2,094,182) $ (2,089,182) $ -
Adjustments to reconcile net loss to net cash used in
operating activities:
Discount amortization on convertible debt 1,000,000 1,000,000
Depreciation and amortization 183 183
Issuance of common stock for services 400,000 400,000 -
Change in assets and liabilities:
Deposits (1,900) (1,900)
Accounts payable 139,857 139,857
Accrued interest payable on convertible notes payable 13,973 13,973 -
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (542,069) (537,069) -
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of furniture and equipment (2,748) (2,748) -
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (2,748) (2,748) -
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Advances to related company (2,465,764) (2,465,764) -
Proceeds from issuance of common stock 2,068,020 2,063,020 -
Proceeds of convertible notes payable issue 1,000,000 1,000,000
Due to related parties 161,786 161,786 -
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 764,042 759,042 -
- ----------------------------------------------------------------------------------------------------------------------
Net Increase in Cash 219,225 219,225 -
Cash, beginning of period - - -
- ----------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 219,225 $ 219,225 $ -
======================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net loss $ - $ - $ -
Adjustments to reconcile net loss to net cash used in
operating activities:
Discount amortization on convertible debt
Depreciation and amortization
Issuance of common stock for services - - -
Change in assets and liabilities:
Deposits
Accounts payable
Accrued interest payable on convertible notes payable - - -
- --------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities - -
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of furniture and equipment - - -
- --------------------------------------------------------------------------------------------------------------------
ARTICLE IV Net Cash Used in Investing Activities - - -
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Advances to related company - - -
Proceeds from issuance of common stock - - -
Proceeds of convertible notes payable issue
Due to related parties - - -
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities - - -
- --------------------------------------------------------------------------------------------------------------------
Net Increase in Cash - - -
Cash, beginning of period - - -
- --------------------------------------------------------------------------------------------------------------------
Cash, end of period $ - $ - $ -
====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1: Operations - C3D Inc. ("the Company") was
Description of Business and incorporated in the State of Florida on December
Summary of Significant 27, 1995 under the name of Latin Ventures
Accounting Policies Partners, Inc. ("LVPI"). On August 3, 1998 the
State of Florida approved the Company's restated
Articles of Incorporation, which increased its
capitalization from 7,500 common shares to
50,000,000 common shares. The par value was
changed from $1.00 to $0.001. From inception
through August 31, 1998 there was no activity
within LVPI. On August 31, 1998, LVPI amended
its articles of incorporation to provide for a
200:1 stock split, and to apply for quotation on
the OTC Bulletin Board. In February 1999, a
shareholder of the Company acquired 975,000
shares of common stock of the Company from
another shareholder in exchange for $285,000.
These shares were cancelled in connection with
the reverse-merger transaction between the
Company and Constellation 3D Technology Limited
("Constellation Tech") described in Note 9 and
have been presented as treasury shares as of
September 30, 1999. On March 24, 1999 LVPI
changed its name to C3D Inc.
Accounting Estimates - The Company's financial
statements are prepared in conformity with
generally accepted accounting principles, which
requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements, and the reported
amounts of revenue and expenses during the
reporting period. Actual results could differ
from the estimates.
Furniture and Equipment - Furniture and
equipment are stated at cost. Depreciation and
amortization are computed utilizing
straight-line and accelerated methods over
estimated useful lives ranging from 3 to 5
years.
Research and Development - Costs will be
expensed as incurred until technological
feasibility has been obtained, when product
design is complete and a working model has been
developed and tested.
Revenue Recognition - The Company is a public
shell with no operating revenues. After
completion of the proposed asset purchase
agreement, the operations of the Company will
include the activities of Constellation Tech.
Constellation Tech is conducting research and
development activities to develop new
multi-layer data storage media. It is the intent
of this company to enter into strategic
alliances to license its technology to its
strategic partners.
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1: Income Taxes - The Company accounts for income
Description of Business taxes in accordance with the provisions of
and Summary of Significant Statement of Financial Accounting Standards No.
Accounting Policies 109, "Accounting for Income Taxes," ("SFAS
(continued) 109"). SFAS 109 requires the recognition of
deferred tax assets and liabilities for the
expected future income tax consequences of
events that have been recognized in a company's
financial statements or tax return. Under this
method, deferred tax assets and liabilities are
determined based on the temporary differences
between the financial statement carrying amounts
and their tax basis using enacted tax rates in
effect in the years in which the temporary
differences are expected to reverse. Valuation
allowances are provided when management
determines that the realization of deferred tax
assets 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 September 30,
1999, the Company had outstanding options to
purchase 175,000 shares of common stock which
were not included in the calculation of loss per
share as their effect was anti-dilutive.
NOTE 2: The Company has been in the development stage
Development since its inception. It has had no operating
Operations revenues to date, has accumulated losses of
$2,094,182, and will require additional working
capital to complete its business development
activities and generate revenues adequate to
cover operating and further development
expenses. These conditions raise substantial
doubt as to the Company's ability to continue as
a going concern.
The Company believes it can raise adequate
working capital through future sales of its
common stock in private placement transactions.
To date, the Company has raised $3.8 million in
private placements of convertible debt and
equity and has borrowed an additional $1.3
million from a stockholder. The Company intends
to raise up to $20 million in a series of
Private Placements to fund its research and
development activities. However, there can be no
assurance that the Company will be successful in
its efforts to raise these funds.
The financial statements do not contain any
adjustments that might be necessary if the
Company is unable to continue as a going
concern.
NOTE 3: In anticipation of the closing of the
Advances to Related Party acquisition for certain assets and liabilities
of Constellation Tech, C3D advanced
Constellation Tech $2,408,306. All amounts
advanced are due on demand with interest thereon
at the annual rate equal to eight percent. C3D
earned interest of $57,458 on the note for a
total balance owing of $2,465,764 as at
September 30, 1999.
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 4: Furniture and equipment consists of the
Furniture and following:
Equipment
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 1997
<S> <C> <C> <C>
=========================================================================================
Furniture and equipment $ 2,748 $ - $ -
Less accumulated depreciation 183 - -
-----------------------------------------------------------------------------------------
Furniture and equipment, net $ 2,565 $ - $ -
=========================================================================================
</TABLE>
NOTE 5: On August 10, 1999, C3D issued $1 million of
Notes Payable convertible subordinated debt to Seattle
Investments LLC, a limited liability company
organized under the laws of Nevis, West Indies
("Seattle Investments"). The note bears interest
at 10% and could be converted immediately into
common stock at the lesser of $5 or the quoted
market price at the time of conversion. The
market price on August 10, 1999 was $14.63. This
beneficial conversion feature resulted in the
Company recognizing a $1,000,000 non-cash
interest charge during 1999. On October 22,
1999, the debt and accrued interest thereon were
converted into 202,945 shares of the Company's
stock.
NOTE 6: At September 30, 1999 the Company has net
Income Taxes deferred tax assets of $711,000 primarily due to
net operating loss carry forwards, which begin
to expire in 2018. A 100% valuation allowance
has been recorded against the deferred tax asset
as management has yet to establish that recovery
of this asset is more likely than not.
NOTE 7: Certain operating expenses are paid by a related
Related Party Transactions company, which in turn is reimbursed by the
Company. For the nine months ended September 30,
1999, these expenses were $61,827. In addition,
the Company paid the related company $19,250
under an informal rental agreement. The
agreement may be cancelled at any time.
The Company paid a $25,000 finders fee to a
related party for the $1 million of convertible
debt issued to Seattle Investments.
The Company retained all key employees under
informal consulting agreements during the
nine-month period ended September 30, 1999.
These agreements may be cancelled at any time.
The expense of these agreements totaled
$202,500, $106,000 of which is included in
related party payables.
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 8: On March 8, 1999 the Company approved the
Stock Grants and issuance of 100,000 shares of common stock to
Stock Options certain board members for prior services
performed on behalf of the Company. Accordingly,
$400,000 of general and administrative expense
was recorded during the nine-month period ended
September 30, 1999, based on the estimated fair
value of the common stock issued and the private
placement completed on May 15, 1999 where the
Company sold 453,255 shares of common stock to
outside investors at $4 per share.
On March 8, 1999, these board members were also
granted options to purchase up to 175,000 shares
of the Company's common stock at $4 per share.
These options will vest immediately, and expire
in 2004. At September 30, 1999, these 175,000
options remained outstanding. The weighted
average fair value of these options, on the date
they were granted, was $3.89. No expense was
recognized upon granting of the options as the
strike price was equal to the estimated market
price, as evidenced by the sale of 453,255
shares of common stock to unrelated third
parties completed on March 15, 1999 but not
issued until May 15, 1999.
The pro forma information required by FAS 123
was estimated at the date of grant using a
Black-Sholes multiple option pricing model with
the following assumptions for the nine month
period ended September 30, 1999; risk free
interest rate of 5.84%, expected life of 60
months, expected volatility 192%, and no
expected dividend. Pro forma net loss and loss
per share information are $2,470,282 and $0.67
respectively, for the nine months ended
September 30, 1999.
NOTE 9: On October 1, 1999, the Company completed the
Subsequent Events asset purchase agreement and acquired
substantially all the operations of
Constellation Tech. for a total consideration of
9,750,000 shares of the Company's $.001 par
value common stock, and assumption of all
liabilities and obligations. The asset purchase
agreement also provided for the cancellation of
975,000 shares of treasury stock. 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 of Constellation Tech will be
treated as a reverse acquisition whereby the
Company was acquired by Constellation Tech.,
with the balance sheets to be combined using
each company's historical cost bases. The
results of operations will include the results
of both companies from the date of acquisition
forward. As the transaction is a reverse merger
with a public shell, no pro forma information
related to this transaction is provided.
<PAGE>
C3D Inc.
(A Development Stage Company)
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 9: On November 1, 1999, the Company sold 8,503
Subsequent Events shares of common stock at $14.70 per share to an
(continued) outside investor, pursuant to the terms and
conditions of a subscription agreement for a
total purchase price of $125,000. A commission
of $25,000 was paid in conjunction with this
sale.
On November 8, 1999, the Company issued 2,500
shares of common stock, which was valued at the
negotiated value of $28,750, to MBA Ventures,
LLC, a Texas limited liability company, to
compensate them for their services, in
accordance with the agreement dated May 23,
1999.
On November 10, 1999, the Company approved the
issuance of warrants to purchase 100,000 shares
of common stock at a price of $10.00 per share
to an investment banker, subject to certain
terms and conditions, including successful
placement of $2.5 million convertible
subordinated debt, of which $500,000 has been
completed to Wilbro Nominees Limited.
On November 11, 1999, C3D issued $500,000 of
convertible subordinated debt to Wilbro Nominees
Limited. The note is due October 31, 2001 with
interest at the rate of 8% per annum. The note
is convertible into common stock at a price
equal to 80% of the average posted price for the
20 days preceding the conversion date, beginning
May 11, 2000. The quoted price for the Company's
stock on November 11, 1999 was $23, resulting in
a deemed beneficial conversion and discount of
approximately $125,000, which will be shown as
an increase to paid in capital, and interest
expense. A commission of $100,000 was paid to an
investment banker in conjunction with this sale.
The Company borrowed $1.3 million from an
existing stockholder, and issued a $300,000
promissory note on October 29, 1999 and a $1
million note on November 18, 1999. Both notes
are unsecured, bear interest at 10% per annum,
and mature on January 31, 2000.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
Contents
--------
Report of Independent Certified Public Accountants 1- 2
Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of changes in Stockholders' Deficit 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7 - 10
-1-
<PAGE>
Report of Independent Certified Public Accountants to Broad of directors and
Stockholders of Constellation Technology Ltd. and Subsidiaries
We have audited the accompanying balance sheet of Constellations Technology Ltd.
and Subsidiaries (a development stage company) ("the Company") as of September
30, 1999 and the related consolidated statements of operations, stockholders'
deficit and cash flows for the nine months ended September 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The comparative figures for the periods ending December 31, 1997 and
1998 were audited by other auditors.
The consolidated financial statements were prepared in accordance with the
generally accepted accounting principles of Israel which do not differ in any
material respects from the generally accepted accounting principles of the
United States of America.
We conducted our audits in accordance with auditing standards generally accepted
in Israel, which do not differ in any material respects from auditing standards
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Constellation
Technology and Subsidiaries (a development stage company) at September 30, 1999,
and the results of its operations and its cash flows for the nine months ended
September 30, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company is in the development state and has generated
no operating revenue to date and will need to raise additional working capital
for future development costs. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regards
to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
BDO Shlomo Ziv & Co.
Certified Public Accountants (Isr.)
Tel - Aviv, Israel
December 22, 1999
-2-
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (in U.S.$)
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1999 1998 1997
----------------- ----------------- -----------------
Audited Audited Audited
----------------- ----------------- -----------------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash $300,944 $123,097 $2,818,719
Other receivable 228,203 171,261 36,047
-------- -------- ----------
Total current assets 529,147 294,358 2,854,766
-------- -------- ----------
FURNITURE AND EQUIPMENT, NET 294,905 267,231 100,163
-------- -------- ----------
Total assets $824,052 $561,589 $2,954,929
======== ======== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
CURRENT LIABILITIES:
Accounts payable $481,955 $442,889 $709,758
Due to C3D Inc. 2,465,764 - -
Due to related parties 194,481 422,790 531,067
Due to shareholder 241,490 - 4,152,521
Other 1,063,533 565,192 147,980
--------- --------- ---------
Total current liabilities 4,447,223 1,430,871 5,541,326
--------- --------- ---------
Commitments and contingencies
Long term liabilities:
Leases 44,429 46,825 26,345
Severance pay 11,221 - -
-------- -------- --------
55,650 46,825 26,345
-------- -------- --------
Stockholders' Deficit:
Common stock, $0.015 par value; 10,000,000 shares
Authorized, 1,250,000 issued and outstanding 18,519 18,519 3
Additional paid in capital 4,870,021 4,870,021 -
Deficit accumulated during the development stage (8,567,361) (5,804,647) (2,612,745)
-------- -------- --------
Total stockholders' deficit (3,678,821) (916,107) (2,612,742)
-------- -------- --------
Total liabilities and stockholders' deficit $824,052 $561,589 $2,954,929
-------- -------- --------
</TABLE>
------------------- -------------------
Director Director
The accompanying notes are an integral part of the financial statements.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS (in U.S.$)
<TABLE>
<CAPTION>
Cumulative amounts
from inception
(September 25, Three months
1997) through Nine months ended Year ended ended
September 30, September 30, December 31, December 31,
------------------- ----------------------------- -------------- --------------
1999 1999 1998 1998 1997
-------------------- -------------- -------------- -------------- --------------
Audited Audited Unaudited Audited Audited
-------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development $4,674,638 $1,717,983 $951,371 $1,534,948 $1,491,707
General and administrative 3,703,804 906,140 1,132,622 1,660,477 1,067,187
---------- ---------- ---------- ---------- ----------
Total operating expenses 8,378,442 2,624,123 2,083,993 3,195,425 2,558,894
---------- ---------- ---------- ---------- ----------
Interest (income) expense 173,457 126,591 240 (6,985) 53,851
Taxes 15,462 12,000 - 3,462 -
---------- ---------- ---------- ---------- ----------
Net loss ($8,567,361) ($2,762,714) ($2,084,233) ($3,191,902) ($2,612,745)
---------- ---------- ---------- ---------- ----------
Net loss per common share -
Basic and diluted ($2.21) ($10,421.16) ($20.41) ($13,063.73)
---------- ---------- ---------- ----------
Weighted average number of
Common shares outstanding 1,250,000 200 156,425 200
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (in U.S.$)
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during
Paid-in development
Shares Amount capital stage Total
-------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Constellation Technology activities
(Formerly known as constellation 3D
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 - - - (2,762,714) (2,762,714)
--------- ------- ---------- ---------- ----------
Balance September 30, 1999 1,250,000 $18,519 $4,870,021 ($8,567,361) ($3,678,821)
========= ======= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (in U.S.$)
<TABLE>
<CAPTION>
Cumulative
amounts from
inception
(September
25, 1997)
through Nine months ended
September September 30, Year ended December 31,
30, ---------------------------- -------------------------------
1999 1999 1998 1998 1997
----------------- ------------- ------------- --------------- ---------------
Audited Audited Unaudited Audited Audited
----------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ($8,567,361) ($2,762,714) ($2,084,233) ($3,191,902) ($2,612,745)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss on sale of fixed assets 18,203 18,203 - - -
Increase in severance pay 11,221 11,221 - - -
Depreciation expense 81,025 42,100 25,695 33,129 5,796
Change in assets and liabilities:
Other receivable (228,203) (56,942) (321,240) (135,214) (36,047)
Accounts payable 1,545,489 537,408 (248,834) 150,343 857,738
---------- ---------- ---------- ----------- ----------
Net cash used in operating
activities (7,139,626) (2,210,724) (2,628,612) (3,143,644) (1,785,258)
---------- ---------- ---------- ----------- ----------
Cash flows from investing activities:
Sale of assets 42,576 42,576 - - -
Purchase of furniture and equipment (436,709) (130,553) (170,844) (200,197) (105,959)
---------- ---------- ---------- ----------- ----------
Net cash used in investing
activities (394,133) (87,977) (170,844) (200,197) (105,959)
---------- ---------- ---------- ----------- ----------
Cash flows from financing activities:
Issuance of common stock 4,888,540 - 4,672,518 4,888,537 3
Advances from C3D Inc. 2,465,764 2,465,764 - - -
Due to shareholder 241,490 241,490 (4,152,521) (4,152,521) 4,152,521
Due to related parties 194,481 (228,309) (404,524) (108,277) 531,067
Net change in leases 44,429 (2,396) 1,933 20,480 26,345
---------- ---------- ---------- ----------- ----------
Net cash provided by (used in)
Financing activities 7,834,704 2,476,549 117,406 648,219 4,709,936
---------- ---------- ---------- ----------- ----------
Net increase (decrease) in cash 300,945 177,848 (2,682,050) (2,695,622) 2,818,719
Cash, beginning of period - 123,097 2,818,719 2,818,719 -
---------- ---------- ---------- ----------- ----------
Cash, end of period $300,945 $300,945 $136,669 $123,097 $2,818,719
========== ========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. Operations:
Constellation Technology Ltd. a British Virgin Island company, and Subsidiaries
("the Company") was incorporated on July 1, 1999. In contemplation of the
proposed asset purchase agreement with C3D Inc., as discussed in Note 5,
Constellation 3D Holdings Limited ("Constellation") transferred its operations
and all assets and liabilities to the Company, on September 19, 1999. The
comparative figures shown in the financial statements have been taken from
previous financial statements of Constellation.
The Company's subsidiaries are as follows:
TriDStore IP, LLC, a wholly-owned subsidiary, is a Delaware limited liability
company formed on February 2, 1998. It was formerly called "OMD Devices, LLC"
until it filed an amendment to its Certificate of Formation on March 9, 1999.
TriD Store Inc, a wholly owned subsidiary, is a Delaware Corporation formed on
March 6, 1997.
C-TriD Israel Limited, a wholly owned subsidiary, is an Israeli company formed
on December 2, 1996.
TriD SV, Inc., a wholly owned subsidiary, is a Delaware corporation formed on
August 10, 1998.
Tridistore Limited, a wholly owned subsidiary, is an Israeli corporation formed
on November 27, 1996.
JSC TriD Vostok, a wholly owned subsidiary, is a Russian company formed on
January 15, 1999.
Memory Devices Inc., a 60% owned subsidiary, is a Delaware company formed on
March 8, 1997.
OMD Optical Memory Devices Limited, a 67% owned subsidiary, is an Israeli
corporation formed on November 27, 1996.
The Company has operations in the United States, Israel, and Russia researching
and developing new data storage technology products. They conduct research and
development of optical memory storage technology.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont.):
2. Principles of Consolidation:
The consolidated financial statements include accounts of Constellation
Technology Ltd. and its subsidiaries. All significant inter company transactions
have been eliminated. The results of subsidiaries are included from the date of
incorporation, on the basis that results prior to the date of incorporation of
the holding company are deemed immaterial in the context of the consolidated
financial statements.
Accounting Estimates:
The Company's financial statements are prepared in conformity with generally
accepted accounting principles, which requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from the estimates.
Furniture and Equipment :
Depreciation and amortization are computed utilizing straight-line over
estimated useful lives ranging from approximately 3 to 17 years.
Research and Development:
Costs will be expensed as incurred until technological feasibility has been
obtained, when product design is complete and a working model has been developed
and tested.
Foreign Currency Translation:
The financial statements are expressed in U.S. dollars. Transactions during the
year have been translated at the rate of exchange ruling at the date of the
transaction. Assets and liabilities denominated if foreign currencies are
translated to U.S. dollars at the rates of exchange ruling at the balance sheet
date. The resulting profits or losses are dealt with through the profit and loss
account.
<PAGE>
CONSTELLATION TECHNOLOGY LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont.):
Revenue Recognition:
It is the intent of the Company to enter into licensing, strategic alliances and
joint venture programs with companies that have an established presence in the
data storage market, although no agreements have been entered into at this time.
These partner companies would be primarily responsible for the production and
marketing of the products developed by the Company. The Company would provide
engineering and technical support in addition to granting usage of its propriety
intellectual property and patented technologies and processes. The Company
intends to focus its activities in the area of research, development, and the
administration of the Company's agreements.
Any revenue derived from future agreements would be recognized over the term of
the underlying agreement, based on appropriate, objective criteria
Income Taxes:
The Company recognizes deferred tax assets and liabilities for the expected
future income tax consequences of events that have been recognized in a
company's financial statements or tax return. Under this method, deferred tax
assets and liabilities are determined based on the temporary differences between
the financial statement carrying amounts and their tax basis using enacted tax
rates in effect in the years in which the temporary differences are expected to
reverse. Valuation allowances are provided when management determines that the
realization of deferred tax assets is unlikely.
Net loss Per Share:
Basic loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding. Per share information for all
periods has been adjusted to reflect the 100:1 stock split declared on November
8, 1998. As of September 30, 1999, the Company has no outstanding options or
other common stock equivalents.
NOTE 2 - DEVELOPMENT OPERATIONS:
The Company has been in the development stage since its inception. It has had no
operating revenues to date, has accumulated losses of $8,567,361, and will
require additional working capital to complete its business development
activities and generate revenues adequate to cover operating and further
development expenses. This raises substantial doubt as to the Company's ability
to continue as a going concern.
The Company is currently seeking to raise equity or debt capital in the initial
amount of $5 million with further funding of up to $15 million to complete
research and development on its existing projects. No assurance can be provided
that the Company will be successful in its efforts.
The financial statements do not contain any adjustments that might be necessary
if the Company is unable to continue as a going concern.
<PAGE>
NOTE 3 - FURNITURE AND EQUIPMENT:
Furniture and equipment consists of the following (in U.S.$):
<TABLE>
<CAPTION>
September 30, December 31,
----------------- ------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Furniture and equipment $354,848 $306,156 $105,959
Less accumulated depreciation 59,943 38,925 5,796
-------- -------- --------
Furniture and equipment, net $294,905 $267,231 $100,163
======== ======== ========
</TABLE>
NOTE 4 - RELATED TRANSACTION:
In anticipation of the closing of the acquisition as discussed in Note 5. C3D
advanced the Company $2,408,306. The advances are backed by a promissory note to
C3D. All amounts advanced are due on demand with interest thereon at an annual
rate equal to eight percent. Interest expense at September 30, 1999 was $ 57,458
for a total balance owing of $ 2,465,764.
NOTE 5 - SUBSEQUENT EVENTS:
On October 1, 1999, C3D Inc. acquired substantially all of the Company's
operations through an asset purchase agreement for a total consideration of
9,750,000 shares of the Company's $0.001 par value common stock and assumption
of certain liabilities and obligations.
For financial statement purposes, the acquisition will be treated as a reverse
acquisition whereby C3D, Inc. was acquired by Constellation Technology Ltd. and
Subsidiaries, with the balance sheets to be combined using the respective
historical cost bases. The results of operations will include the results of
both companies from the date of acquisition. The unaudited pro forma combined
historical results of operations as though Constellation Tech. had been combined
at the beginning of fiscal 1998 and the nine month period ended September 30,
1999 are as follows:
For the Nine For the Year
Months ended ended
September 30, December 31,
----------------- ----------------
1999 1998
----------------- ----------------
UNAUDITED UNAUDITED
----------------- ----------------
U.S.$
-----------------------------------
Net loss ($4,851,896) ($3,191,902)
Basic and diluted loss per share ($0.36) ($0.24)
The unaudited pro forma results of operations may not be indicative of results
that would have been obtained had the combination occurred at the beginning of
the periods presented and are not necessarily indicative of future combined
results.
<PAGE>
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
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 December 31, 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash $ 112,800 $ 123,097 $ 2,818,719
Other receivable 155,248 171,261 36,047
- --------------------------------------------------------------------------------------------------------------------
Total Current Assets 268,048 294,358 2,854,766
Furniture and Equipment, net 292,073 267,231 100,163
- --------------------------------------------------------------------------------------------------------------------
Total Assets $ 560,121 $ 561,589 $ 2,954,929
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 434,308 $ 442,889 $ 709,758
Due to C3D Inc. 1,234,837 - -
Due to related parties 174,184 422,790 531,067
Due to shareholder 241,490 - 4,152,521
Other 998,364 565,192 147,980
- --------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 3,083,183 1,430,871 5,541,326
Commitments and Contingencies
Long Term Liabilities 50,503 46,825 26,345
Stockholders' Deficit
Common stock, $0.015 par value; 10,000,000 shares
authorized, 1,250,000, 1,250,000 and 200 issued and
outstanding 18,519 18,519 3
Additional paid in capital 4,870,021 4,870,021 -
Deficit accumulated during the development stage (7,462,105) (5,804,647) (2,612,745)
- --------------------------------------------------------------------------------------------------------------------
Total Stockholders' Deficit (2,573,565) (916,107) (2,612,742)
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit $ 560,121 $ 561,589 $ 2,954,929
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative Amounts
from Inception Six Months Ended
(September 25, 1997) June 30,
through June 30, -----------------------------------
1999 1999 1998 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING EXPENSES:
Interest (income) expense $ 76,156 $ 29,290 $ 55,724
Research and development 4,018,960 1,062,305 629,823
General and administrative 3,352,527 554,863 698,810
- -------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 7,447,643 1,646,458 1,384,357
- -------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Taxes 14,462 11,000 -
- -------------------------------------------------------------------------------------------------------------------------------
Net loss $ (7,462,105) $ (1,657,458) $ (1,384,357)
===============================================================================================================================
Net loss per common share - basic and diluted $ (1.33) $ (6,921.79)
Weighted average number of common shares outstanding 1,250,000 200
===============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended December 31,
-----------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING EXPENSES:
Interest (income) expense $ (6,985) $ 53,851
Research and development 1,534,948 1,491,707
General and administrative 1,660,477 1,067,187
- ---------------------------------------------------------------------------------------------------------
Total operating expenses 3,188,440 2,612,745
- ---------------------------------------------------------------------------------------------------------
OTHER INCOME
Taxes 3,462 -
- ---------------------------------------------------------------------------------------------------------
Net loss $ (3,191,902) $ (2,612,745)
=========================================================================================================
Net loss per common share - basic and diluted $ (20.41) $ (13,063.73)
Weighted average number of common shares outstanding 156,425 200
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Changes in Stockholders' Deficit
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Deficit
----------------------------- Accumulated
Additional During
Shares Amount Paid-in capital Development Stage Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Constellation 3D Holdings Limited
activities (Formerly known as Tandy
Holdings Limited) - $ - $ - $ - $ -
Issuance of common stock for cash 200 3 - - 3
Net loss - - - (2,612,745) (2,612,745)
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 200 3 - (2,612,745) (2,612,742)
Issuance of common stock for
cancellation of shareholders'
advances 1,249,800 18,516 4,870,021 - 4,888,537
Net loss - - - (3,191,902) (3,191,902)
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 1,250,000 18,519 4,870,021 (5,804,647) (916,107)
Net loss - - - (1,657,458) (1,657,458)
- -----------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 1,250,000 $ 18,519 $ 4,870,021 $ (7,462,105) $ (2,573,565)
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
Cumulative Amounts
from Inception Six Months
(September 25, Ended June 30,
1997) through ------------------------------------
June 30, 1999 1999 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (7,462,105) $ (1,657,458) $ (1,384,357)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation expense 43,948 5,023 13,363
Change in assets and liabilities:
Other receivable (155,248) 16,013 (174,108)
Accounts payable 1,432,672 424,591 (449,761)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (6,140,733) (1,211,831) (1,994,863)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of furniture and equipment (336,021) (29,865) (129,761)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (336,021) (29,865) (129,761)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Issuance of common stock 4,888,540 - 4,382,528
Advances from C3D Inc. 1,234,837 1,234,837 -
Due to shareholder 241,490 241,490 (3,882,500)
Due to related parties 174,184 (248,606) (531,067)
Net change in leases 50,503 3,678 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 6,589,554 1,231,399 (31,039)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 112,800 (10,297) (2,155,663)
Cash, beginning of period - 123,097 2,818,719
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 112,800 $ 112,800 $ 663,056
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (3,191,902) $ (2,612,745)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation expense 33,129 5,796
Change in assets and liabilities:
Other receivable (135,214) (36,047)
Accounts payable 150,343 857,738
- ----------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (3,143,644) (1,785,258)
- ----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of furniture and equipment (200,197) (105,959)
- ----------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (200,197) (105,959)
- ----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Issuance of common stock 4,888,537 3
Advances from C3D Inc. - -
Due to shareholder (4,152,521) 4,152,521
Due to related parties (108,277) 531,067
Net change in leases 20,480 26,345
- ----------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 648,219 4,709,936
- ----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (2,695,622) 2,818,719
Cash, beginning of period 2,818,719 -
- ----------------------------------------------------------------------------------------------------------------
Cash, end of period $ 123,097 $ 2,818,719
================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1: Operations - Constellation 3D Holdings Limited
Description of Business and and Subsidiaries ("the Company") was
Summary of Significant incorporated in Ireland on September 25, 1997
Policies under the name of Tandy Holdings Limited. On
March 13, 1998 Tandy Holdings Limited changed
its name to Constellation 3D Accounting Holdings
Limited. In contemplation of the proposed asset
purchase agreement with C3D Inc., as discussed
in Note 5, the Company transferred all assets
and liabilities to Constellation Technology Ltd.
("Constellation Tech."), a British Virgin Island
company, on September 19, 1999.
The Company's subsidiaries are as follows:
TriDStore IP, LLC, a wholly-owned subsidiary, is
a Delaware limited liability company formed on
February 2, 1998. It was formerly called "OMD
Devices, LLC" until it filed an amendment to its
Certificate of Formation on March 9, 1999.
TriD Store Inc, a wholly owned subsidiary, is a
Delaware Corporation formed on March 6, 1997.
C-TriD Israel Limited, a wholly owned
subsidiary, is an Israeli company formed on
December 2, 1996.
TriD SV, Inc., a wholly owned subsidiary, is a
Delaware corporation formed on August 10, 1998.
Tridistore Limited, a wholly owned subsidiary,
is an Israeli corporation formed on November 27,
1996.
JSC TriD 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
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1: Principles of Consolidation - The consolidated
Description of Business and financial statements include accounts of
Summary of Significant Constellation 3D Holding Limited and its
Accounting Policies subsidiaries. All significant intercompany
(continued) transactions have been eliminated. The results
of subsidiaries are included from the date of
incorporation, on the basis that results prior
to the date of incorporation of the holding
company are deemed immaterial in the context of
the consolidated financial statements.
Accounting Estimates - The Company's financial
statements are prepared in conformity with
generally accepted accounting principles, which
requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements, and the reported
amounts of revenue and expenses during the
reporting period. Actual results could differ
from the estimates.
Furniture and Equipment - 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 U.S. 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 U.S. 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.
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1: Income Taxes - The Company recognizes deferred
Description of Business tax assets and liabilities for the expected
and Summary of Significant future income tax consequences of events that
Accounting Policies have been recognized in a company's financial
(continued) statements or tax return. Under this method,
deferred tax assets and liabilities are
determined based on the temporary differences
between the financial statement carrying amounts
and their tax basis using enacted tax rates in
effect in the years in which the temporary
differences are expected to reverse. Valuation
allowances are provided when management
determines that the realization of deferred tax
assets is unlikely.
Net Loss Per Share - Basic loss per share is
computed by dividing the net loss by the
weighted average number of common shares
outstanding. Per share information for all
periods has been adjusted to reflect the 100:1
stock split declared on November 8, 1998. As of
June 30, 1999, the Company had no outstanding
options or other common stock equivalents.
NOTE 2: The Company has been in the development stage
Development since its inception. It has had no operating
Operations revenues to date, has accumulated losses of
$7,462,105, and will require additional working
capital to complete its business development
activities and generate revenues adequate to
cover operating and further development
expenses. This raises substantial doubt as to
the Company's ability to continue as a going
concern.
The Company is currently seeking to raise equity
or debt capital in the initial amount of $5
million with further funding of up to $15
million to complete research and development on
its existing projects.
The financial statements do not contain any
adjustments that might be necessary if the
Company is unable to continue as a going
concern.
NOTE 3: Furniture and equipment consists of the
Furniture and following:
Equipment
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998 1997
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and equipment $ 336,021 $ 306,156 $ 105,959
Less accumulated depreciation 43,948 38,925 5,796
-----------------------------------------------------------------------------------------
Furniture and equipment, net $ 292,073 $ 267,231 $ 100,163
=========================================================================================
</TABLE>
<PAGE>
Constellation 3D Holdings Limited
and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 4: In anticipation of the closing of the
Related Party Transactions acquisition as discussed in Note 5, C3D advanced
the Company $1,219,979. The advances are backed
by a promissory note to C3D. All amounts
advanced are due on demand with interest thereon
at an annual rate equal to eight percent.
Interest expense at June 30, 1999 was $14,858
for a total balance owing of $1,234,837.
NOTE 5: On October 1, 1999, C3D Inc. acquired
Subsequent Events substantially all of the Company's operations
through an asset purchase agreement for a total
consideration of 9,750,000 shares of the
Company's $.001 par value common stock and
assumption of certain liabilities and
obligations. The asset purchase agreement also
provides for the cancellation of 975,000 shares
of founders' common stock of the company.
For financial statement purposes, the
acquisition has been treated as a reverse
acquisition whereby C3D, Inc. was acquired by
Constellation 3D Holdings Limited and
Subsidiaries, with the balance sheets to be
combined using the respective historical cost
bases. The results of operations will include
the results of both companies from the date of
acquisition. The unaudited pro forma combined
historical results of operations as though
Constellation Tech. had been combined at the
beginning of fiscal 1998 and the six month
period ended June 30, 1999 are as follows:
<TABLE>
<CAPTION>
For the Six Months For the Year Ended
Ended December 31,
(unaudited) June 30, 1999 1998
-----------------------------------------------------------------------------------------
<S> <C> <C>
Net loss ($2,328,000) ($3,191,902)
Basic and diluted loss per share ($0.17) ($0.24)
=========================================================================================
</TABLE>
The unaudited pro forma results of operations
may not be indicative of results that would have
been obtained had the combination occurred at
the beginning of the periods presented and are
not necessarily indicative of future combined
results.
<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.
CONSTELLATION 3D, INC.
By: /s/ Eugene Levich
--------------------------------------
Eugene Levich, President,
Chief Executive Officer
and Chief Operational Officer
Date: January 13, 2000
------------------------------------
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
2.1* Asset Purchase Agreement by and between C3D INC., a Florida corporation
as Buyer, CONSTELLATION C3D 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 Articles of Incorporation of 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.
3.3A C3D Inc. Articles of Amendment to the Articles of Incorporation, filed
December 29, 1999
3.4* Bylaws of C3D Inc.
4.1* Investor's Rights Agreement, dated August 10, 1999, by and between C3D
Inc. and Seattle Investment L.L.C.
4.2* Subscription Agreement, dated November 29, 1999, by and between C3D
Inc. and MBA-on-Demand, L.L.C.
4.3* Purchase Agreement, dated November 11, 1999, by and between Wilbro
Nominees Limited and C3D Inc.
4.4* Registration Rights Agreement, dated November 11, 1999, by and between
Wilbro Nominees Limited and C3D Inc.
4.5* Warrant dated November 11, 1999 issued to Moorwood Investment Limited
4.6* Purchase Agreement, dated as of December 24, 1999, by and between
Winnburn Advisory and C3D Inc.
4.7* Registration Rights Agreement, dated as of December 24, 1999, by and
between Winnburn Advisory and C3D Inc.
4.8 Warrant Agreement, dated December 1, 1999, by and between Sands
Brothers & Co., Ltd. and C3D, Inc.
10.1* Rental Contract, Unprotected According to the Tenant's Protection Law
(Various Instructions) of 1968 as Drafted into the Tenant's Protection
Law (Consolidated Version) of 1972, made and signed in Tel Aviv on
March 25, 1997.
<PAGE>
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.
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 MSU Science
Park as "Lessor" and ZAO "TriD Store Vostok" as "Tenant."
10.5* Attachment No. 1 to The Rent Agreement, No. 5/8, dated July 5, 1999,
between MSU Science Park as "Lessor" and ZAO "TriD Store Vostok" as
"Tenant."
10.6* Sublease Agreement, dated November 18, 1999, by and between Harex
Global Corporation, as lessor, and C3D Inc., as lessee.
10.7* Optima Services Agreement (Member), dated April 23, 1999, by and
between Omni Offices Inc. and C3D Inc.
10.8* Employment Agreement dated July 15, 1998, by and between Memory
Services (M.D.) (1996) Ltd. and Ronen Yaffe.
10.9* Letter of Intent, dated December 20, 1999, by and between Toolex
International N.V. and C3D Inc.
10.10* Co-Invention Agreement, dated December 20, 1999, by and between Toolex
International N.V. and C3D Inc.
10.11 Stock Option Agreement, dated December 27, 1999, made by and between
C3D Inc. and Brigadier General Itzhak Yaakov
10.12 Stock Option Agreement, dated December 27, 1999, made by and between
C3D Inc. and Michael L. Goldberg, Esquire
10.13 Constellation 3D, Inc. 1999 Stock Option Plan
10.14 Placement Agency Agreement, dated December 1, 1999, by and between
Sands Brothers & Co., Ltd. and C3D, Inc.
10.15 Amendment No. 1 to Placement Agency Agreement, dated December 22, 1999
by and between Sands & Co., Ltd. and C3D, Inc.
10.16 Agreement N. 356A/291299 on the rent of the office premises, dated
December 29, 1999 between MACHMIR Co., Ltd. as "Lessor" and ZAO
"TriDStore Vostok" as "Renter"
10.17 The Rent Agreement of office premises No. 5/2, dated January 5, 2000,
between MSU Science Park as "Lessor" and ZAO "TriD Store Vostok" as
"Renter."
16.1* Auditor's Resignation letter dated December 20, 1999.
21.1+ Subsidiaries of the Registrant
27.1 Financial Data Schedule
- -----------------------------------
* Previously filed.
+ The subsidiaries of C3D and their places of organization are listed in the
Business Section of this Registration Statement.
<PAGE>
C3D INC.
Articles of Amendment to
the Articles of Incorporation
The Articles of Amendment to the Articles of Incorporation of C3D INC.
(the "Corporation") are set forth below, and all of them are adopted the 27th
day of December 1999. The number of votes cast for the amendments by the
shareholders was sufficient for approval.
Article 1. Name. The name of this Corporation is:
CONSTELLATION 3D, INC.
Article 2. Principal Office/Mailing Address. The street and mailing
address of this Corporation is:
230 Park Avenue
Suite 453
New York, New York 10169.
Article 3. Registered Office and Registered Agent. The location of the
registered office of this Corporation in this State is:
2625 NE 11th Court
Fort Lauderdale, Florida 33304.
The name and address of the registered agent of this Corporation in this State
is:
Michael Goldberg, Esquire
2625 NE 11th Court
Fort Lauderdale, Florida 33304.
Article 4. Authorized Capital Stock. The Corporation shall have the
authority to issue an aggregate of 110 million shares of capital stock which
shall be divided into 100 million shares of Common Stock, $.001 par value per
share, as more fully described in Section 4(a) below, and 10 million shares of
Preferred Stock, no par value per share, as more fully described in Section 4(b)
below.
(a) Common Stock. Each holder of record of Common Stock shall
have the right to one vote for each share of Common Stock registered in their
name on the books of the Corporation. Such holders of record shall have the
right to vote in the election of directors of the Corporation.
<PAGE>
(b) Preferred Stock. The shares of Preferred Stock may be
divided and issued from time to time in one or more series as may be determined
by the Board of Directors of the Corporation, each such series to be distinctly
designated and to consist of the number of shares determined by the Board of
Directors. The Board of Directors of the Corporation is hereby expressly vested
with authority to adopt resolutions to issue the shares, to fix the number of
shares, to change the number of shares constituting any class or series, and to
provide for or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions, if any, of Preferred Stock, and each class or series thereof, in
each case without approval of the shareholders. The authority of the Board of
Directors with respect to each class or series of Preferred Stock shall include,
without limiting the generality of the foregoing, the determination of the
following:
(1) The number of shares constituting that class or
series and the distinctive designation of that class or series;
(2) The dividend rate on the shares of that class or
series, whether dividends shall be cumulative, and, if so, from which
date or dates;
(3) Whether that class or series shall have voting
rights, in addition to any voting rights provided by law, and, if so,
the terms of such voting rights;
(4) Whether that class or series shall have
conversion privileges (including rights to convert such class or series
into the capital stock of the Corporation or any other entity) and, if
so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(5) Whether or not shares of that class or series
shall be redeemable and whether or not the Corporation or the holder
(or both) may exercise the redemption right, including the terms of
redemption (including any sinking fund provisions), the date or dates
upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different
conditions;
(6) The rights of the shares of that class or series
in the event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; and
-2-
<PAGE>
(7) Any other relative rights, preferences and
limitations of that class or series as may be permitted or required by
law.
The number of shares, voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions, if any, of any class or series of Preferred Stock which may be
designated by the Board of Directors may differ from those of any and all other
class or series at any time outstanding.
(c) Increase in Authorized Preferred Stock. Except as
otherwise provided by law or in a resolution or resolutions establishing any
particular series of Preferred Stock, the aggregate number of authorized shares
of Preferred Stock may be increased by an amendment to these Amended and
Restated Articles of Incorporation approved solely by the holders of Common
Stock and of any series of Preferred Stock which is entitled pursuant to its
voting rights designated by the Board of Directors to vote thereon, if at all,
voting together as a class.
IN WITNESS WHEREOF, I have hereunto subscribed to and executed these
Articles of Amendment to the Articles of Incorporation this 27th day of December
1999.
/s/ Eugene Levich
--------------------
Eugene Levich,
President of C3D INC.
/s/ Michael Goldberg
--------------------
Michael Goldberg,
Secretary of C3D INC.
Having been named as registered agent and office and to accept service
of process for the Corporation, I hereby accept the appointment as registered
agent and office and agree to act in this capacity this 27th day of December,
1999. I further agree to comply with the provisions of all statutes relative to
the proper and complete performance of my duties, and I am familiar with and
accept the obligation of my position as registered agent and office this 27th
day of December, 1999.
/s/ Michael Goldberg
--------------------
Michael Goldberg
-3-
<PAGE>
WARRANT AGREEMENT dated as of December 1, 1999 between C3D Inc., a
Florida corporation (the "Company") and Sands Brothers & Co., Ltd. (hereinafter
referred to variously as the "Holder" or "Sands Brothers").
W I T N E S S E T H:
-------------------
WHEREAS, in accordance with the terms of the Placement Agency
Agreement of even date herewith between the Company and Warrantholder (the
"Selling Agreement"), Warrantholder has agreed to act as exclusive placement
agent in connection with the proposed private placement offering (the
"Offering") by the Company of the Company's Capital Stock (the "Shares").
WHEREAS, the Company proposes to issue to Warrantholder warrants
(the "Warrants") to acquire a number of shares (the "Warrant Shares") of common
stock, par value $.001 per share, of the Company (the "Common Stock") which
number of Warrant Shares shall be determined as provided herein; and
WHEREAS, Warrants issued pursuant to this Warrant Agreement shall be
issued to Warrantholder or officers, employees or other designees thereof, (in
which event the investor letter shown in Exhibit A, shall be delivered to the
Company by the Sands Brothers) (collectively, "Permitted Designees") in
consideration for, and as part of the compensation of Warrantholder in
connection with, the Warrantholder acting as placement agent pursuant to the
terms of the Selling Agreement, and
1
<PAGE>
WHEREAS, all capitalized terms not otherwise defined herein shall
have the definitions assigned them in the Selling Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Holder to the Company of TWENTY FIVE ($25.00) DOLLARS, the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agrees as follows:
1. Grant. The Holder and its designees is hereby granted the right
to purchase, at any time from December 1, 1999, until 5:30 p.m., New York time,
on December 1, 2004, up to an aggregate of 5,350,000 Warrant Shares (subject to
adjustment as provided in Section 8 hereof) at the initial exercise price per
share as provided in Section 6 hereof, vesting as follows:
(i) 350,000 Warrant Shares shall vest upon the sale of the Minimum
Amount (the "Initial Warrant Shares"); (ii) 200,000 Warrant Shares for
each $1,000,000 of all Securities sold in the Financing ("the
Additional Warrant Shares").
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A
2
<PAGE>
attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions, and other variations as required or permitted by this
Agreement.
3. Exercise of Warrant.
ss.3.1 Method of Exercise. The Warrants initially are
exercisable at an initial exercise price (subject to adjustment as provided in
Section 8 hereof) per share of Common Stock set forth in Section 6 hereof
payable by certified or official bank check in New York Clearing House funds,
subject to adjustment as provided in Section 8 hereof. Upon surrender of a
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock purchased at the Company's principal offices in New York
(presently located at 230 Park Avenue, Suite 453 New York, NY 10169) the
registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the shares of Common Stock
so purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional shares of the Common Stock underlying the Warrants). Warrants may
be exercised to purchase all or part of the shares of Common Stock represented
thereby. In the case of the purchase of less than all the shares of Common Stock
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the shares of Common Stock.
3
<PAGE>
ss.3.2 Exercise by Surrender of Warrant.
(a) In addition to the method of payment set forth in Section
3.1 and in lieu of any cash payment required thereunder, the Holder(s) of the
Warrants shall have the right at any time and from time to time exercise the
Warrants in full or in part by surrendering the Warrant Certificate in the
manner specified in Section 3.1 in exchange for the number of shares of Common
Stock equal to the product of (x) the number of shares to which the Warrants are
being exercised multiplied by (y) a fraction, the numerator of which is the
Market Price (as defined in Section 8.1 (vi) hereof) of the Common Stock less
the Exercise Price and the denominator of which is such Market Price. (b) Solely
for the purposes of this Section 3.2, Market Price shall be calculated either
(i) on the date on which the form of election attached hereto is deemed to have
been sent to the Company pursuant to Section 13 hereof ("Notice Date") or (ii)
as the average of the Market Price for each of the five trading days preceding
the Notice Date, whichever of (i) or (ii) is greater. 4. Issuance of
Certificates. Upon the exercise of the Warrants, the issuance of certificates
for shares of Common Stock or other securities, properties or rights underlying
such Warrants, shall be made forthwith (and in any event such issuance shall be
made within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue
4
<PAGE>
or deliver such certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has been
paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock (and/or other securities, property or rights issuable
upon exercise of the Warrants) shall be executed on behalf of the Company by the
manual or facsimile signature of the then present Chairman or Vice Chairman of
the Board of Directors or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the then present Secretary or Assistant Secretary of the Company.
Warrant Certificates shall be dated the date of execution by the Company upon
initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof.
6. Exercise Price.
ss.6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price with respect
to the Initial Warrant Shares shall be $11.00 per share of Common Stock, and the
initial exercise price with respect to the Additional Warrant Shares shall be
equal to a 40% discount to the average of the bid price of the Common Stock for
the 60 day period prior any Closing, but in no event less than of $15.00 per
share of Common Stock. The adjusted exercise price shall be the price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 8 hereof.
5
<PAGE>
ss.6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
7. Registration Rights.
ss.7.1 Registration Under the Securities Act of 1933. The
Warrants and the shares of Common Stock issuable upon exercise of the Warrants
and any of the other securities issuable upon exercise of the Warrants have not
been registered under the Securities Act of 1933, as amended (the "Act") for
public resale. Upon exercise, in part or in whole, of the Warrants, certificates
representing the shares of Common Stock and any other securities issuable upon
exercise of the Warrants (collectively, the "Warrant Securities") shall bear the
following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act") for
public resale, and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar rule under such Act
relating to the disposition of securities), or (iii) an opinion of
counsel, if such opinion shall be reasonably satisfactory to counsel
to the issuer, that an exemption from registration under such Act is
available.
ss.7.2 Piggyback Registration.
If, at any time during the five year period commencing after
the date hereof, the Company proposes to register any of its securities under
the Act (other than in connection with a merger or pursuant to Form S-8, S-4 or
comparable registration statement) it will give written notice by registered
mail, at least thirty (30) days prior to the filing of each registration
statement, to Sands Brothers and to all other Holders of the Warrants and/or the
Warrant Securities of its intention to do so. If Sands Brothers or other Holders
of the Warrants and/or Warrant Securities notify the Company within twenty (20)
days after receipt of any such notice of its or their desire to include any
6
<PAGE>
such securities in such proposed registration statement, the Company shall
afford Sands Brothers and such Holders of the Warrants and/or Warrant Securities
the opportunity to have any such Warrant Securities registered under such
registration statement.
ss.7.3 Demand Registration.
(a) Commencing six months from the date of this Agreement (the
"Demand Date"), the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Commission, on one occasion, a registration statement and such other documents,
including a prospectus, as may be necessary in the opinion of both counsel for
the Company and counsel for Sands Brothers and Holders, in order to comply with
the provisions of the Act, so as to permit a public offering and sale of their
respective Warrant Securities for nine (9) consecutive months by such Holders
and any other Holders of the Warrants and/or Warrant Securities who notify the
Company within ten (10) days after receiving notice from the Company of such
request, provided, however, that in the event that prior to the Demand Date the
Company has filed a registration statement as to which the rights afforded the
Holder(s) pursuant to Section 7.2 hereof have been exercised such that the
re-sale of the Warrant Securities are covered by an effective registration
statement (the "Piggyback Registration Statement"), the Demand Date shall be
deferred until the earlier of (i) the date the Piggyback Registration Statement
is no longer effective with respect to the Warrant Securities held by the
Holder(s) or (ii) one year from the date of this Agreement; provided, further,
however, that in the event that more than 75% of the Warrant Securities have
been sold pursuant to the Piggyback
7
<PAGE>
Registration Statement, then the Demand Date shall be deferred until one year
from the date of this Agreement..
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within (10)
days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the amount of
Warrant Securities so demanded (the "Demanded Securities") within the time
period specified in Section 7.4(a) hereof pursuant to the written notice
specified in Section 7.3(a) of a Majority of the Holders of the Warrants and/or
Warrant Securities, the Company agrees that upon the written notice of election
of a Majority of the Holders of the Warrants and/or Warrant Securities it shall
repurchase (i) any and all Demanded Securities at the highest Market Price
(defined hereinafter) per share of Common Stock between the date of the notice
sent pursuant to Section 7.3(a) and the closing of such repurchase and (ii) any
and all demanded Warrants at such Market Price less the exercise price of such
Warrant. Such repurchase shall be in immediately available funds and shall close
within two (2) days after the later of (i) the expiration of the period
specified in Section 7.4(a) or (ii) the delivery of the written notice of
election specified in this Section 7.3(c). As used herein, the phase "Market
Price" at any date shall be deemed to be the last reported sale price, or, in
case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national
8
<PAGE>
securities exchange, the average closing bid price as furnished by the NASD
through NASDAQ or similar organization if NASDAQ is no longer reporting such
information, or if the Common Stock is not quoted on NASDAQ, as determined in
good faith by resolution of the Board of Directors of the Company, based on the
best information available to it.
ss.7.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within ninety (90) days of receipt of any demand therefor
(provided however that in the event that the Company is unable to file such
registration statement within such ninety (90) day period solely due to events
or circumstances predominantly outside of the Company's control as determined in
good faith by the Board of Directors as evidenced by a certificate of the
President and Chairman of the Company addressed to the Holder(s), the Company
shall have up to an additional thirty (30) days to make such filing), shall use
its best efforts to have any registration statements declared effective at the
earliest possible time, and shall furnish the Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding any
underwriting or selling commissions or other charges of any broker-dealer acting
on behalf of Holders), fees and expenses in connection with all registration
statements filed pursuant to Sections 7.2 and 7.3(a) hereof including, without
limitation, the Company's legal and accounting fees, printing expenses, blue sky
fees and expenses. If the Company shall fail to comply with the provisions of
Section 7.4(a), the Company shall, in addition to any other equitable or other
relief available to the Holder(s), be liable
9
<PAGE>
for any or all damages due to loss of profit sustained by the Holder(s)
requesting registration of its Warrant Securities.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of the state requested by the Holder.
(d) (i) The Company shall indemnify the Holder(s) of the
Warrant Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holder within the meaning of Section 15 of the
Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement.
(ii) The Holder(s) of the Warrant Securities to be sold
pursuant to any registration statement agree(s) to indemnify and hold harmless
the Company, each of its directors, and each person who controls the Company
within the meaning of either the Act or the Exchange Act, to the same extent as
the foregoing indemnity from the Company to the Holder(s), but only with
reference to written information relating to the Holder(s) furnished to the
Company by the Holder(s) specifically for inclusion in such registration
statement.
(e) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
10
<PAGE>
(f) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering; a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to agents subsequent to the date of such financial statements, are
as customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offering of securities.
(g) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration agreement.
(h) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to
11
<PAGE>
the registration statement and permit the Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request as it deems necessary to comply with applicable
securities laws or NASD rules.
(i) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation,
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock.
(j) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean in excess
of fifty percent (50%) of the then outstanding Warrants or Warrant Securities
that (i) are not held by the Company, an affiliate, officer, creditor, employee
or agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith or (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act.
8. Adjustments to Exercise and Number of Securities.
ss.8.1 Computation of Adjusted Exercise Price. Except as
hereinafter provided, in case the Company shall at any time after the date
hereof issue or sell any shares of Common Stock
12
<PAGE>
(other than the issuances or sales referred to in Section 8.7 hereof), including
shares held in the Company's treasury and shares of Common Stock issued upon the
exercise of any options, rights or warrants, to subscribe for shares of Common
Stock and shares of Common Stock issued upon the direct or indirect conversion
or exchange of securities for shares of Common Stock, for a consideration per
share less than the Exercise Price in effect immediately prior to the issuance
or sale of such shares or without consideration, then forthwith upon such
issuance or sale, the Exercise Price shall (until another such issuance or sale)
be reduced to the price (calculated to the nearest full cent) equal to the
quotient derived by dividing (A) an amount equal to the sum of (X) the product
of (a) the Exercise Price in effect immediately prior to such issuance or sale
and (b) the total number of shares of Common Stock outstanding immediately prior
to such issuance or sale, plus (Y) the aggregate of the amount of all
consideration, if any, received by the Company upon such issuance or sale, by
(B) the total number of shares of Common Stock outstanding immediately after
such issuance or sale; provided, however, that in no event shall the Exercise
Price be adjusted pursuant to this computation to an amount in excess of the
Exercise Price in effect immediately prior to such computation, except in the
case of a combination of outstanding shares of Common Stock, as provided by
Section 8.3 thereof.
For the purposes of this Section 8 the term Exercise Price
shall mean the Exercise Price per share of Common Stock set forth in Section 6
hereof, as adjusted from time to time pursuant to the provisions of this Section
8.
For the purposes of any computation to be made in accordance
with this Section 8.1, the following provisions shall be applicable:
13
<PAGE>
(i) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if either of such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing similar
services, or any expenses incurred in connection therewith and less any amounts
payable to security holders or any affiliate thereof, including without
limitation, any employment agreement, royalty, consulting agreement, covenant
not to compete, earned or contingent payment right or similar arrangement,
agreement or understanding, whether oral or written; all such amounts shall be
valued at the aggregate amount payable thereunder whether such payments are
absolute or contingent and irrespective of the period or uncertainty of payment,
the rate of interest, if any, or the contingent nature thereof.
(ii) In case of the issuance or sale (otherwise then as a
dividend or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of stockholders entitled to
14
<PAGE>
receive such dividend or other distribution and shall be deemed to have been
issued without consideration.
(iv) The reclassification of securities of the Company other
than shares of Common Stock shall be deemed to involve the issuance of such
shares of Common Stock for a consideration other than cash immediately prior to
the close of business on the date fixed for the determination of security
holders entitled to receive such shares, and the value of the consideration
allocable to such shares of Common Stock shall be determined as provided in
subsection (ii) of this Section 8.1.
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable
(subject to readjustment upon the actual issuance thereof) upon the exercise of
options, rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
ss.8.2 Options, Rights, Warrants and Convertible and
Exchangeable Securities. In case the Company shall at any time after the date
hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share less than the Exercise Price in
effect or without consideration, the Exercise Price in effect immediately prior
to the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of Section
8.1 hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall be deemed
to be issued and outstanding at
15
<PAGE>
the time such options, rights or warrants were issued, and for a consideration
equal to the minimum purchase price per share provided for in such options,
rights or warrants at the time of issuance, plus the consideration (determined
in the same manner as consideration received on the issue or sale of shares in
accordance with the terms of the Warrants), if any, received by the Company for
such options, rights or warrants.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of the Warrants) received by
the Company for such securities, plus the minimum consideration, if any,
receivable by the Company upon the conversion or exchange thereof.
(iii) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in subsection
(i) of this Section 8.2, or in the price per share at which the securities
referred to in subsection (ii) of this Section 8.2 are convertible or
exchangeable, such options, rights or warrants or conversion or exchange rights,
as the case may be, shall be deemed to have expired or terminated on the date
when such price change became effective in respect of shares not theretofore
issued pursuant to the exercise or conversion or exchange thereof, and the
Company shall be deemed to have issued upon such date new options, rights or
warrants or convertible or exchangeable securities at the new price in respect
of the number shares issuable upon the exercise of such options, rights or
warrants or the conversion or exchange of such convertible or exchangeable
securities.
16
<PAGE>
ss.8.3 Subdivision and Combination. In case the Company shall
at any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
ss.8.4 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Securities issuable upon the exercise of each Warrant shall be
adjusted to the nearest full amount by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Securities issuable upon exercise of the Warrants immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
ss.8.5 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value. In the event that the Company shall after the date hereof issue
securities with greater or superior voting rights than the shares of Common
Stock outstanding as of the date hereof, the Holder, at its option, may receive
upon exercise of any Warrant either shares of Common Stock or a like number of
such securities with greater or superior voting rights.
ss.8.6 Merger or Consolidation. In case of any consolidation
of the Company with, or merger of the Company with, or merger of the Company
into, another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver
17
<PAGE>
to the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
Subsection shall similarly apply to successive consolidations or mergers.
ss.8.7 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon (i) the issuance or sale of the Warrants or the
shares of Common Stock issuable upon the exercise of the Warrants, (ii) the
exercise of warrants, options or other derivative securities actually issued and
outstanding as of the date of this Agreement and (iii) the issuance of any
options under the Company's 1999 Stock Option Plan up to the amount initially
authorized under such Plan; or
(b) If the amount of said adjustment shall be less than 2
cents ($.02) per Security, provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to at least
2 cents ($.02) per Security.
ss.8.8 Dividends and Other Distributions. In the event that
the Company shall at any time prior to the exercise of all Warrants declare a
dividend (other than a dividend consisting solely
18
<PAGE>
of shares of Common Stock) or otherwise distribute to its stockholders any
assets, property, rights, evidences of indebtedness, securities (other than
shares of Common Stock), whether issued by the Company or by another, or any
other thing of value, the Holders of the unexercised Warrants shall thereafter
be entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such dividend or distribution as if the Warrants had been
exercised immediately prior to such dividend or distribution. At the time of any
such dividend or distribution, the Company shall make appropriate reserves to
ensure the timely performance of the provisions of this Subsection 8.8.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Securities in such denominations as shall
be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
19
<PAGE>
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants, nor shall it be required to issue scrip
or pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted NASDAQ.
12. Notice to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other manner, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
20
<PAGE>
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchange for shares of capital stock of the Company, or any
option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; then, in any one or more of said events, the Company shall give notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of the closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
21
<PAGE>
13. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the Holders, Sands Brothers & Co., Ltd., 90 Park
Avenue, 39th Floor, New York, New York 10016 as shown on the books of the
Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended or waived at
any time only by the written agreement of the parties hereto. Any waiver,
permit, consent or approval of kind or character on the part of each Company or
the Holder of any provisions or conditions of this Agreement must be made in
writing and shall be effective only to the extent specifically set forth in such
writing.
15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holder and their respective successors and assigns hereunder.
16. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all the purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company and the Holder hereby agree that any action,
proceeding or claim against it arising out of, or relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of New York
or of the United States of America for the Southern District of
22
<PAGE>
New York, and irrevocably submits to such jurisdiction, which jurisdiction shall
be exclusive. The Company, and the Holder hereby irrevocably waive any objection
to such exclusive jurisdiction or inconvenient forum. Any such process or
summons to be served upon any of the Company and the Holder (at the option of
the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address as set forth in
Section 13 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
The Company and the Holder agree that the prevailing party(ies) in any such
action or proceeding shall be entitled to recover from the other party(ies) all
of its/their reasonable legal costs and expenses relating to such action or
proceeding and/or incurred in connection with the preparation therefor.
17. Entire Agreement; Modification. This Agreement and the
Purchase Agreement (to the extent portions thereof are referred to herein)
contain the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
18. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
19. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
23
<PAGE>
20. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and the Holder.
21. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
C3D Inc.
By: /s/ Eugene Levich
-------------------------------
Title: President and CEO
SANDS BROTHERS & CO., LTD
By: /s/ Mark G. Hollo
-------------------------------
Authorized Officer
25
<PAGE>
EXHIBIT A-1
FORM OF WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, DECEMBER 1, 2004
No. SB- 5,350,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that
__________________________, or registered assigns, is the registered holder of
___________ Warrants to purchase initially, at any time from December 1, 1999
until 5:30 p.m. New York time on December 1, 2004 ("Expiration Date"), up to
5,350,000 fully-paid and non-assessable shares of common stock, $.001 par value
per share ("Common Stock") of C3D Inc., a Florida corporation (the "Company"),
at an initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $[ ] per share of Common Stock, upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, or by surrender of this Warrant Certificate in lieu of cash
payment, but subject to the conditions set forth herein and in the warrant
agreement dated as of December 1, 1999 between the Company and Sands Brothers &
Co., Ltd. (the "Warrant Agreement"). Payment of the Exercise Price shall be made
by certified or official bank check in New York Clearing House funds payable to
the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
- A-1 -
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax in
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings to them in the Warrant
Agreement.
- A-2 -
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of
C3D Inc.
By:
-------------------------------
Title:
- A-3 -
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ______ shares of
Common Stock at an exercise price of $_______ per share and herewith tenders in
payment for such Securities a certified or official bank check payable in New
York Clearing House Funds to the order of ______________ in the amount of $____,
all in accordance with the terms hereof. The undersigned requests that a
certificate for such Securities be registered in the name of _____________ whose
address is _____________ and that such Certificate be delivered to _____________
whose address is _____________.
Signature
__________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
- A-4 -
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase shares of Common
Stock in accordance with the terms of Section 3.2 of that certain Warrant
Agreement dated as of December 1, 1999 between C3D INC. and SANDS BROTHERS &
CO., LTD. The Undersigned requests that a certificate for such Securities be
registered in the name of _____________ whose address is _____________ and that
such Certificate be delivered to _____________ whose address is _____________.
Signature
__________________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
--------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
- A-5 -
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ________________ here sells, assigns and transfers
unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
(Insert Social Security or other
Identifying Number of Assignee)
- A-6 -
<PAGE>
STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement"), dated December 27, 1999, is
made by and between C3D Inc., a Florida corporation ("Company") and Brigadier
General Itzhak Yaakov ("Optionee").
WHEREAS, Company desires to afford Optionee the opportunity to purchase
shares of Company's common stock, par value $0.001 per share ("Stock"); and
WHEREAS, Company's board of directors and compensation committee have
determined that it would be in the best interests of Company to grant the option
provided for herein to Optionee, in recognition of services rendered.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained herein, and intending to be legally bound, the parties
hereto agree as follows:
1. Grant of Option. Optionee is hereby granted an option (the "Option") to
purchase at any time or from time to time, as a whole or in part, One
Hundred Thousand (100,000) shares of Stock ("Option Shares") on the
terms and conditions set forth in this Agreement.
2. Termination of Option. The Option shall terminate on June 17, 2004.
3. Purchase Price. The purchase price of the Option Shares shall be $4.00
per share ("Purchase Price").
4. Methods of Exercise. Optionee may exercise the Option by either of the
following methods. Notice of exercise shall be deemed given when
delivered to the Secretary or Treasurer of the Company (the "Exercise
Date").
a. Cash Method. Optionee may exercise the Option by
written notice to the Company stating (i) that the
Option is being exercised pursuant to the "Cash
Method," and (ii) the number of Option Shares desired
to be purchased, accompanied or followed by cash,
wire transfer, check, or money order in an amount
equal to the aggregate Purchase Price of the Option
Shares being purchased (i.e., the number of Option
Shares exercised multiplied by the Purchase Price).
b. Cashless Method. Optionee may exercise the Option by
written notice to the Company stating (i) that the
Option is being exercised pursuant to the "Cashless
Method," and (ii) the number of Option Shares desired
to be exercised. Pursuant to an exercise using the
Cashless Method, Optionee shall receive an amount of
Stock (the "Cashless Stock") equal to such number of
Option Shares for which the Optionee has elected to
exercise the Option (the "Option Shares Exercised")
multiplied by the difference between (a) the Market
Price (as defined below) per share of
<PAGE>
Stock as of the Exercise Date less (b) the Purchase
Price, with the resultant amount divided by the
Market Price. In equation form, the above calculation
is represented as follows:
Cashless Stock = Option Shares Exercised x
(Market Price - Purchase Price)
------------------------------------------
Market Price
The "Market Price" of the Stock on any particular
date shall mean the last reported sale price of a
share of the Stock on any stock exchange on which
such stock is then listed or admitted to trading, or
on the Nasdaq National Market or Nasdaq SmallCap
Market, on such date, or if no sale took place on
such day, the last such date on which a sale took
place, or if the Stock is not then quoted on the
Nasdaq National Market or the Nasdaq SmallCap Market,
or listed or admitted to trading on any stock
exchange, the average of the bid and asked prices in
the over-the-counter market on such date, or if none
of the foregoing, a price determined in good faith by
the Company's board of directors equal the fair
market value per share of the Stock.
5. Transferability of Option. Subject to compliance with applicable
federal and state securities laws, this Stock Option Agreement may be
transferred by the Optionee with respect to any or all of the Option
Shares purchasable hereunder. Upon surrender of this Stock Option
Agreement to the Company, together with the assignment hereof properly
endorsed, for transfer of this Stock Option Agreement as an entirety by
the Optionee, the Company shall issue a new Stock Option Agreement of
the same denomination to the assignee. Upon surrender of this Stock
Option Agreement to the Company, together with the assignment hereof
properly endorsed, by the Optionee for transfer with respect to a
portion of the Option Shares purchasable hereunder, the Company shall
issue a new Stock Option Agreement to the assignee, in such
denomination as shall be requested by the Optionee hereof, and shall
issue to such Optionee a new Stock Option Agreement covering the number
of Option Shares in respect of which this Stock Option Agreement shall
not have been transferred.
6. Change in Number of Shares of Stock. If and to the extent that the
number of issued shares of Stock shall be increased or reduced by
change in par value, split-up, reclassification, reorganization,
merger, distribution of a dividend payable in stock, or the like, the
number of shares of Stock subject to option and the Purchase Price may
be proportionately adjusted in good faith by the Company's Board of
Directors.
7. Rights prior to exercise of option. Optionee shall have no rights as a
stockholder with respect to the Option Shares until payment of the
Purchase Price and delivery to him of such Stock as herein provided.
<PAGE>
8. Agreement binding. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective next of kin,
legatees, administrators, executors, legal representatives, successors,
and assigns (including remote, as well as immediate, successors to and
assignees of said parties).
9. Severability. In case one or more provisions of this Agreement shall be
found to be invalid, illegal, or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions
contained herein shall not be in any way affected or impaired thereby.
10. Entire Agreement. This Agreement contains the entire understanding and
agreement between the parties hereto, relating to the subject matter
hereof, and cannot be amended, modified or supplemented in any respect,
except by subsequent written agreement entered into by both parties.
11. Governing Law. This Agreement shall be construed under and governed by
the laws of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date set forth above.
C3D INC.
By: /s/ Eugene Levich
--------------------------
Eugene Levich
President
/s/ Itzhak Yaakov
-------------------------------
Brigadier General Itzhak Yaakov
<PAGE>
STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement"), dated December 27, 1999, is
made by and between C3D Inc., a Florida corporation ("Company") and Michael L.
Goldberg, Esquire ("Optionee").
WHEREAS, Company desires to afford Optionee the opportunity to purchase
shares of Company's common stock, par value $0.001 per share ("Stock"); and
WHEREAS, Company's board of directors and compensation committee have
determined that it would be in the best interests of Company to grant the option
provided for herein to Optionee, in recognition of services rendered.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained herein, and intending to be legally bound, the parties
hereto agree as follows:
1. Grant of Option. Optionee is hereby granted an option (the "Option") to
purchase at any time or from time to time, as a whole or in part,
Seventy Five Thousand (75,000) shares of Stock ("Option Shares") on the
terms and conditions set forth in this Agreement.
2. Termination of Option. The Option shall terminate on June 17, 2004.
3. Purchase Price. The purchase price of the Option Shares shall be $4.00
per share ("Purchase Price").
4. Methods of Exercise. Optionee may exercise the Option by either of the
following methods. Notice of exercise shall be deemed given when
delivered to the Secretary or Treasurer of the Company (the "Exercise
Date").
a. Cash Method. Optionee may exercise the Option by
written notice to the Company stating (i) that the
Option is being exercised pursuant to the "Cash
Method," and (ii) the number of Option Shares desired
to be purchased, accompanied or followed by cash,
wire transfer, check, or money order in an amount
equal to the aggregate Purchase Price of the Option
Shares being purchased (i.e., the number of Option
Shares exercised multiplied by the Purchase Price).
b. Cashless Method. Optionee may exercise the Option by
written notice to the Company stating (i) that the
Option is being exercised pursuant to the "Cashless
Method," and (ii) the number of Option Shares desired
to be exercised. Pursuant to an exercise using the
Cashless Method, Optionee shall receive an amount of
Stock (the "Cashless Stock") equal to such number of
Option Shares for which the Optionee has elected to
exercise the Option (the "Option Shares Exercised")
multiplied by the difference between (a) the Market
Price (as defined below) per share of
<PAGE>
Stock as of the Exercise Date less (b) the Purchase
Price, with the resultant amount divided by the
Market Price. In equation form, the above calculation
is represented as follows:
<TABLE>
<CAPTION>
<S> <C>
Cashless Stock = Option Shares Exercised x (Market Price -
--------------------------------------------
Purchase Price) Market Price
---------------
</TABLE>
The "Market Price" of the Stock on any particular
date shall mean the last reported sale price of a
share of the Stock on any stock exchange on which
such stock is then listed or admitted to trading, or
on the Nasdaq National Market or Nasdaq SmallCap
Market, on such date, or if no sale took place on
such day, the last such date on which a sale took
place, or if the Stock is not then quoted on the
Nasdaq National Market or the Nasdaq SmallCap Market,
or listed or admitted to trading on any stock
exchange, the average of the bid and asked prices in
the over-the-counter market on such date, or if none
of the foregoing, a price determined in good faith by
the Company's board of directors equal the fair
market value per share of the Stock.
5. Transferability of Option. Subject to compliance with applicable
federal and state securities laws, this Stock Option Agreement may be
transferred by the Optionee with respect to any or all of the Option
Shares purchasable hereunder. Upon surrender of this Stock Option
Agreement to the Company, together with the assignment hereof properly
endorsed, for transfer of this Stock Option Agreement as an entirety by
the Optionee, the Company shall issue a new Stock Option Agreement of
the same denomination to the assignee. Upon surrender of this Stock
Option Agreement to the Company, together with the assignment hereof
properly endorsed, by the Optionee for transfer with respect to a
portion of the Option Shares purchasable hereunder, the Company shall
issue a new Stock Option Agreement to the assignee, in such
denomination as shall be requested by the Optionee hereof, and shall
issue to such Optionee a new Stock Option Agreement covering the number
of Option Shares in respect of which this Stock Option Agreement shall
not have been transferred.
6. Change in Number of Shares of Stock. If and to the extent that the
number of issued shares of Stock shall be increased or reduced by
change in par value, split-up, reclassification, reorganization,
merger, distribution of a dividend payable in stock, or the like, the
number of shares of Stock subject to option and the Purchase Price may
be proportionately adjusted in good faith by the Company's Board of
Directors.
7. Rights prior to exercise of option. Optionee shall have no rights as a
stockholder with respect to the Option Shares until payment of the
Purchase Price and delivery to him of such Stock as herein provided.
<PAGE>
8. Agreement binding. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective next of kin,
legatees, administrators, executors, legal representatives, successors,
and assigns (including remote, as well as immediate, successors to and
assignees of said parties).
9. Severability. In case one or more provisions of this Agreement shall be
found to be invalid, illegal, or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions
contained herein shall not be in any way affected or impaired thereby.
10. Entire Agreement. This Agreement contains the entire understanding and
agreement between the parties hereto, relating to the subject matter
hereof, and cannot be amended, modified or supplemented in any respect,
except by subsequent written agreement entered into by both parties.
11. Governing Law. This Agreement shall be construed under and governed by
the laws of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date set forth above.
C3D INC.
By: /s/ Eugene Levich
--------------------
Eugene Levich
President
/s/ Michael L. Goldberg
-----------------------
Michael L. Goldberg, Esquire
<PAGE>
CONSTELLATION 3D, INC.
1999 STOCK OPTION PLAN
------------------------------------------------------------------
1. Purpose of Plan
The purpose of this 1999 Stock Option Plan (the "Plan") is to provide
additional incentive to officers, other key employees, and directors of, and
important consultants to, CONSTELLATION 3D, INC., a Florida corporation (the
"Company"), and each present or future parent or subsidiary corporation, by
encouraging them to invest in shares of the Company's common stock, par value
$.001 per share (the "Common Stock"), and thereby acquire a proprietary interest
in the Company and an increased personal interest in the Company's continued
success and progress.
2. Aggregate Number of Shares
1,539,180 (One Million Five Hundred Thirty Nine Thousand One Hundred
and Eighty) shares of the Company's Common Stock shall be the aggregate number
of shares which may be issued under this Plan. Notwithstanding the foregoing, in
the event of any change in the outstanding shares of the Common Stock of the
Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Committee (defined in Section 4(a)), deems in its sole
discretion to be similar circumstances, the aggregate number and kind of shares
which may be issued under this Plan shall be appropriately adjusted in a manner
determined in the sole discretion of the Committee. Reacquired shares of the
Company's Common Stock, as well as unissued shares, may be used for the purpose
of this Plan. Common Stock of the Company subject to options which have
terminated unexercised, either in whole or in part, shall be available for
future options granted under this Plan.
3. Class of Persons Eligible to Receive Options
<PAGE>
25
All officers and key employees of the Company and of any present or
future Company parent or subsidiary corporation are eligible to receive an
option or options under this Plan. All directors of, and important consultants
to, the Company and of any present or future Company parent or subsidiary
corporation are also eligible to receive an option or options under this Plan.
The individuals who shall, in fact, receive an option or options shall be
selected by the Committee, in its sole discretion, except as otherwise specified
in Section 4 hereof.
4. Administration of Plan
(a) Prior to the registration of the Company's Common Stock
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), this Plan shall be administered by the Company's Board of
Directors and, after such registration, by a Compensation Committee appointed by
the Company's Board of Directors. The Committee shall consist of a minimum of
two members of the Board of Directors, each of whom shall be a "Non-Employee
Director" within the meaning of Rule 16b-3(b)(3) under the Exchange Act or any
future corresponding rule, except that the failure of the Committee for any
reason to be composed solely of Non-Employee Directors shall not prevent an
option from being considered granted under this Plan. The term "Committee," as
used herein, shall refer to either the Company's Board of Directors or such
Compensation Committee, depending upon who is administering the Plan. The
Committee shall, in addition to its other authority and subject to the
provisions of this Plan, determine which individuals shall in fact be granted an
option or options, whether the option shall be an Incentive Stock Option or a
Non-Qualified Stock Option (as such terms are defined in Section 5(a)), the
number of shares to be subject to each of the options, the time or times at
which the options shall be granted, the rate of option exercisability, and,
subject to Section 5 hereof, the price at which each of the options is
exercisable and the duration of the option.
<PAGE>
(b) The Committee shall adopt such rules for the conduct of
its business and administration of this Plan as it considers desirable. A
majority of the members of the Committee shall constitute a quorum for all
purposes. The vote or written consent of a majority of the members of the
Committee on a particular matter shall constitute the act of the Committee on
such matter. The Committee shall have the right to construe the Plan and the
options issued pursuant to it, to correct defects and omissions and to reconcile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee or the Board of Directors
shall be liable for any act or omission (whether or not negligent) taken or
omitted in good faith, or for the exercise of an authority or discretion granted
in connection with the Plan to a Committee or the Board of Directors, or for the
acts or omissions of any other members of a Committee or the Board of Directors.
Subject to the numerical limitations on Committee membership set forth in
Section 4(a) hereof, the Board of Directors may at any time appoint additional
members of the Committee and may at any time remove any member of the Committee
with or without cause. Vacancies in the Committee, however caused, may be filled
by the Board of Directors, if it so desires.
5. Incentive Stock Options and Non-Qualified Stock Options
(a) Options issued pursuant to this Plan may be either
Incentive Stock Options granted pursuant to Section 5(b) hereof or Non-Qualified
Stock Options granted pursuant to Section 5(c) hereof, as determined by the
Committee. An "Incentive Stock Option" is an option which satisfies all of the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and the regulations thereunder, and a "Non-Qualified Stock Option"
is an option which either does not satisfy all of those requirements or the
terms of the option provide that it will not be treated as an Incentive Stock
Option. The Committee may grant both an Incentive Stock Option and a
Non-Qualified Stock Option to the same person, or more than one of each type of
option to the same person. The option price for options issued under this Plan
shall be equal at least to the fair market value (as defined below) of the
Company's Common Stock on the date of the grant of the option. The fair market
value of the Company's Common Stock on any particular date shall mean the last
reported sale price of a share of the Company's Common Stock on any stock
exchange on which such stock is then listed or admitted to trading, or on the
NASDAQ National Market System or the NASDAQ SmallCap Market, on such date, or if
no sale took place on such day, the last such date on which a sale took place,
or if the Common Stock is not then quoted on the NASDAQ National Market System
or the NASDAQ SmallCap Market, or listed or admitted to trading on any stock
exchange, the average of the bid and asked prices in the over-the-counter market
on such date, or if none of the foregoing, a price determined in good faith by
the Committee to equal the fair market value per share of the Common Stock.
<PAGE>
(b) Subject to the authority of the Committee set forth in
Section 4(a) hereof, Incentive Stock Options issued pursuant to this Plan shall
be issued substantially in the form set forth in Appendix I hereof, which form
is hereby incorporated by reference and made a part hereof, and shall contain
substantially the terms and conditions set forth therein. Incentive Stock
Options shall not be exercisable after the expiration of ten years from the date
such options are granted, unless terminated earlier under the terms of the
option, except that options granted to individuals described in Section
422(b)(6) of the Code shall conform to the provisions of Section 422(c)(5) of
the Code. At the time of the grant of an Incentive Stock Option hereunder, the
Committee may, in its discretion, amend or supplement any of the option terms
contained in Appendix I for any particular optionee, provided that the option as
amended or supplemented satisfies the requirements of Section 422 of the Code
and the regulations thereunder. Each of the options granted pursuant to this
Section 5(b) is intended, if possible, to be an "Incentive Stock Option" as that
term is defined in Section 422 of the Code and the regulations thereunder. In
the event this Plan or any option granted pursuant to this Section 5(b) is in
any way inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an Incentive Stock Option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment.
(c) Subject to the authority of the Committee set forth in
Section 4(a) hereof, Non-Qualified Stock Options issued to officers and other
key employees pursuant to this Plan shall be issued substantially in the form
set forth in Appendix II hereof, which form is hereby incorporated by reference
and made a part hereof, and shall contain substantially the terms and conditions
set forth therein. Subject to the authority of the Committee set forth in
Section 4(a) hereof, Non-Qualified Stock Options issued to directors and
important consultants pursuant to this Plan shall be issued substantially in the
form set forth in Appendix III hereof, which form is hereby incorporated by
reference and made a part hereof, and shall contain substantially the terms and
conditions set forth therein. Non-Qualified Stock Options shall expire ten years
after the date they are granted, unless terminated earlier under the option
terms. At the time of granting a Non-Qualified Stock Option hereunder, the
Committee may, in its discretion, amend or supplement any of the option terms
contained in Appendix II or Appendix III for any particular optionee.
(d) Neither the Company nor any of its current or future
parent, subsidiaries or affiliates, nor their officers, directors, shareholders,
stock option plan committees, employees or agents shall have any liability to
any optionee in the event (i) an option granted pursuant to Section 5(b) hereof
does not qualify as an "Incentive Stock Option" as that term is used in Section
422 of the Code and the regulations thereunder; (ii) any optionee does not
obtain the tax treatment pertaining to an Incentive Stock Option; or (iii) any
option granted pursuant to Section 5(c) hereof is an "Incentive Stock Option."
<PAGE>
6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the
expiration of ten years from the date the Plan is adopted by the Board of
Directors of the Company. The Board of Directors reserves the right at any time,
and from time to time, to amend or supplement this Plan in any way (including,
without limitation, the power to amend this Plan in a tax-advantaged fashion for
the benefit of the Company's employees who are subject to the tax laws of other
countries), or to suspend or terminate it, effective as of such date, which date
may be either before or after the taking of such action, as may be specified by
the Board of Directors; provided, however, that such action shall not affect
options granted under the Plan prior to the actual date on which such action
occurred. If an amendment or supplement of this Plan is required by the Code or
the regulations thereunder to be approved by the shareholders of the Company in
order to permit the granting of "Incentive Stock Options" (as that term is
defined in Section 422 of the Code and regulations thereunder) pursuant to the
amended or supplemented Plan, such amendment or supplement shall also be
approved by the shareholders of the Company in such manner as is prescribed by
the Code and the regulations thereunder. If the Board of Directors voluntarily
submits a proposed amendment, supplement, suspension or termination for
shareholder approval, such submission shall not require any future amendments,
supplements, suspensions or terminations (whether or not relating to the same
provision or subject matter) to be similarly submitted for shareholder approval.
7. Effectiveness of Plan
This Plan shall become effective on the date of its adoption
by the Company's Board of Directors, subject however to approval by the holders
of the Company's Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
until shareholder approval is obtained.
8. General Conditions
(a) Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any employee the right to continue in
the employ of the Company or any affiliated or subsidiary corporation or
interfere in any way with the rights of the Company or any affiliated or
subsidiary corporation to terminate his employment in any way.
(b) Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any director or consultant the right to
continue as a director of, or consultant to, the Company or any affiliated or
subsidiary corporation or interfere in any way with the rights of the Company or
any affiliated or subsidiary corporation, or their respective shareholders, to
terminate the directorship of any such director or the consultancy relationship
of any such consultant.
(c) Corporate action constituting an offer of stock for sale
to any person under the terms of the options to be granted hereunder shall be
deemed complete as of the date when the Committee authorizes the grant of the
option to the such person, regardless of when the option is actually delivered
to such person or acknowledged or agreed to by him.
<PAGE>
(d) The terms "parent corporation" and "subsidiary
corporation" as used throughout this Plan, and the options granted pursuant to
this Plan, shall (except as otherwise provided in the option form) have the
meaning that is ascribed to that term when contained in Section 422(b) of the
Code and the regulations thereunder, and the Company shall be deemed to be the
grantor corporation for purposes of applying such meaning.
(e) References in this Plan to the Code shall be deemed to
also refer to the corresponding provisions of any future United States revenue
law.
(f) The use of the masculine pronoun shall include the
feminine gender whenever appropriate.
<PAGE>
APPENDIX I
INCENTIVE STOCK OPTION
To: _____________________________
Name
_____________________________
_____________________________
Address
Date of Grant: ____________________
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, par value $.001 per share (the
"Common Stock"), of CONSTELLATION 3D, INC., a Florida corporation (the
"Company"), at a price of $_______ per share pursuant to the Company's 1999
Stock Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to ___________% of
the total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
_________% of the total number of shares subject to the option minus the number
of shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after _________ years after the date of grant
(five years in the case of individuals described in Section 422(b)(6) of the
Code), except if terminated earlier as provided herein.
<PAGE>
In addition to the restrictions on exercise described above, for any
calendar year, any options granted under this Plan shall become exercisable
solely to the extent that, with respect to any options which would otherwise
become exercisable in such calendar year for the first time, the aggregate fair
market value of the stock with respect to which the options first become
exercisable did not have an aggregate fair market value (as determined for
federal income tax purposes) on the date upon which the options were granted in
excess of $100,000. Any options which would be exercisable but for the
limitation described in the immediately preceding sentence (the "$100,000
Limitation") shall become exercisable in the following calendar year subject to:
(i) the $100,000 Limitation (as determined for such following fiscal year), and
(ii) the limitations otherwise described above.
No fractional shares shall be issued or delivered. This option shall
terminate and is not exercisable after ten years from the date of its grant (the
"Scheduled Termination Date"), except if terminated earlier as hereafter
provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion) and your vesting date may accelerate accordingly. A "Change
of Control" shall be deemed to have occurred upon the happening of any of the
following events:
1. A change within a twelve-month period in a majority of the members
of the board of directors of the Company;
2. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "Change of Control" by the
Committee.
In the event of a sale or a proposed sale of the majority of the stock
or assets of the Company or a proposed Change of Control, the Committee shall
have the right to terminate this option upon thirty (30) days prior written
notice to you, notwithstanding anything to the contrary contained in this
option. In that case, the holders of vested options shall have the right to
exercise such options prior to the close of the thirty (30)-day period.
<PAGE>
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise;" (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). Any assignment of stock shall be
in a form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate thirty (30) days after the date on which your employment by the
Company or a Company subsidiary corporation is terminated (whether such
termination be voluntary or involuntary) other than by reason of disability as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder, or death, in which case your
option will terminate one year from the date of termination of employment due to
disability or death (but in no event later than the Scheduled Termination Date).
After the date your employment is terminated, as aforesaid, you may exercise
this option only for the number of shares which you had a right to purchase and
did not purchase on the date your employment terminated. If you are employed by
a Company subsidiary corporation, your employment shall be deemed to have
terminated on the date your employer ceases to be a Company subsidiary
corporation, unless you are on that date transferred to the Company or another
Company subsidiary corporation. Your employment shall not be deemed to have
terminated if you are transferred from the Company to a Company subsidiary
corporation, or vice versa, or from one Company subsidiary corporation to
another Company subsidiary corporation.
<PAGE>
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
Notwithstanding any other provision of the Option, the Committee shall
have the right to cancel this Option without notice if your employment is
terminated for: (i) criminal conduct; or (ii) willful misconduct or gross
negligence materially detrimental to the Company.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
<PAGE>
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) your portion of other federal, state and local payroll and
other taxes due in connection with the option exercise.
(e) Until the Company has completed a public offering of its
Common Stock registered under the Securities Act of 1933, as amended, or has
registered any of its Common Stock under the Securities Exchange Act of 1934, as
amended.
The following two paragraphs shall be applicable if, on the
date of exercise of this option, the Common Stock to be purchased pursuant to
such exercise has not been registered under the Securities Act of 1933, as
amended, and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
<PAGE>
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall, if
possible, be an "Incentive Stock Option" as that term is used in Section 422 of
the Code and the regulations thereunder. In the event this option is in any way
inconsistent with the legal requirements of the Code or the regulations
thereunder for an "Incentive Stock Option," this option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if such conformity may be achieved by amendment.
Nothing herein shall modify your status as an at-will employee of the
Company, if applicable. Further, nothing herein guarantees you employment for
any specified period of time. This means that either you or the Company may
terminate your employment at any time for any reason, or no reason. You
recognize that, for instance, you may terminate your employment or the Company
may terminate your employment prior to the date on which your option becomes
vested.
<PAGE>
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Florida.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
CONSTELLATION 3D, INC.
By:
Name:
Title:
<PAGE>
I hereby acknowledge receipt of a copy of the foregoing stock option
and of the Plan as of the date of grant set forth above, hereby acknowledge that
this stock option grant discharges any promise (either verbal or written) of the
Company made on or prior to the date of grant to give me a stock option, and,
having read it, hereby signify my understanding of, and my agreement with, its
terms and conditions. In consideration of the grant, I hereby release any claim
I may have against the Company with respect to any promise of a stock option
grant or other equity interest in the Company.
- ----------------------- -------------------------------
(Date) (Signature)
<PAGE>
APPENDIX II
NON-QUALIFIED STOCK OPTION
FOR OFFICERS AND OTHER KEY EMPLOYEES
To: _____________________________
Name
_____________________________
_____________________________
Address
Date of Grant: ____________________
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, par value $.001 per share (the
"Common Stock"), of CONSTELLATION 3D, INC., a Florida corporation (the
"Company"), at a price of $_______ per share pursuant to the Company's 1999
Stock Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to __________% of
the total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
___________% of the total number of shares subject to the option minus the
number of shares previously purchased by exercise of the option (as adjusted for
any change in the outstanding shares of the Common Stock of the Company by
reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Committee deems in its sole discretion to be similar
circumstances). Thus, this option is fully exercisable on and after ___________
years after the date of grant, except if terminated earlier as provided herein.
<PAGE>
No fractional shares shall be issued or delivered. This option shall
terminate and is not exercisable after ten years from the date of its grant (the
"Scheduled Termination Date"), except if terminated earlier as hereafter
provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion) and your vesting date may accelerate accordingly; provided,
however, that as set below, you may be required to exercise your option on
thirty (30) days notice from the Committee. A "Change of Control" shall be
deemed to have occurred upon the happening of any of the following events:
1. A change within a twelve-month period in a majority of the members
of the board of directors of the Company;
2. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "Change of Control" by the
Committee.
In the event of a sale or a proposed sale of the majority of the stock
or assets of the Company or a proposed Change of Control, the Committee shall
have the right to terminate this option upon thirty (30) days prior written
notice to you, notwithstanding anything to the contrary contained in this
option. In that case, the holders of vested options shall have the right to
exercise such options prior to the close of the thirty (30)-day period.
<PAGE>
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise;" (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). Any assignment of stock shall be
in a form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate thirty (30) days after the date on which your employment by the
Company or a Company subsidiary corporation is terminated (whether such
termination be voluntary or involuntary) other than by reason of disability as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder, or death, in which case your
option will terminate one year from the date of termination of employment due to
disability or death (but in no event later than the Scheduled Termination Date).
After the date your employment is terminated, as aforesaid, you may exercise
this option only for the number of shares which you had a right to purchase and
did not purchase on the date your employment terminated. If you are employed by
a Company subsidiary corporation, your employment shall be deemed to have
terminated on the date your employer ceases to be a Company subsidiary
corporation, unless you are on that date transferred to the Company or another
Company subsidiary corporation. Your employment shall not be deemed to have
terminated if you are transferred from the Company to a Company subsidiary
corporation, or vice versa, or from one Company subsidiary corporation to
another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
<PAGE>
Notwithstanding any other provision of the Option, the Committee shall
have the right to cancel this Option without notice if your employment is
terminated for: (i) criminal conduct; or (ii) willful misconduct or gross
negligence materially detrimental to the Company.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
<PAGE>
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) your portion of other federal, state and local payroll and
other taxes due in connection with the option exercise.
(e) Until the Company has completed a public offering of its
Common Stock registered under the Securities Act of 1933, as amended, or has
registered any of its Common Stock under the Securities Exchange Act of 1934, as
amended.
The following two paragraphs shall be applicable if, on the
date of exercise of this option, the Common Stock to be purchased pursuant to
such exercise has not been registered under the Securities Act of 1933, as
amended, and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
<PAGE>
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder.
Nothing herein shall modify your status as an at-will employee of the
Company, if applicable. Further, nothing herein guarantees you employment for
any specified period of time. This means that either you or the Company may
terminate your employment at any time for any reason, or no reason. You
recognize that, for instance, you may terminate your employment or the Company
may terminate your employment prior to the date on which your option becomes
vested.
<PAGE>
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Florida.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
CONSTELLATION 3D, INC.
By:
Name:
Title:
<PAGE>
I hereby acknowledge receipt of a copy of the foregoing stock option
and of the Plan as of the date of grant set forth above, hereby acknowledge that
this stock option grant discharges any promise (either verbal or written) of the
Company made on or prior to the date of grant to give me a stock option, and,
having read it, hereby signify my understanding of, and my agreement with, its
terms and conditions. In consideration of the grant, I hereby release any claim
I may have against the Company with respect to any promise of a stock option
grant or other equity interest in the Company.
- ----------------------- -------------------------------
(Date) (Signature)
<PAGE>
APPENDIX III
NON-QUALIFIED STOCK OPTION FOR DIRECTORS
AND IMPORTANT CONSULTANTS
To: _____________________________
Name
_____________________________
_____________________________
Address
Date of Grant: ____________________
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, par value $.001 per share ("Common
Stock"), of CONSTELLATION 3D, INC., a Florida corporation (the "Company"), at a
price of $_______ per share pursuant to the Company's 1999 Stock Option Plan
(the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to ____% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
___% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after ________ years after the date of grant,
except if terminated earlier as provided herein.
<PAGE>
No fractional shares shall be issued or delivered. This option shall
terminate and is not exercisable after ten years from the date of its grant (the
"Scheduled Termination Date"), except if terminated earlier as hereafter
provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion) and your vesting date may accelerate accordingly. A "Change
of Control" shall be deemed to have occurred upon the happening of any of the
following events:
1. A change within a twelve-month period in a majority of the members
of the board of directors of the Company;
2. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "Change of Control" by the
Committee.
In the event of a sale or a proposed sale of the majority of the stock
or assets of the Company or a proposed Change of Control, the Committee shall
have the right to terminate this option upon thirty (30) days prior written
notice to you, notwithstanding anything to the contrary contained in this
option. In that case, the holders of vested options shall have the right to
exercise such options prior to the close of the thirty (30)-day period.
<PAGE>
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise;" (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). Any assignment of stock shall be
in a form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate thirty (30) days after the date on which you cease for any reason to
be a director of, or consultant to, the Company or a subsidiary corporation
(whether by death, disability, resignation, removal, failure to be reappointed,
reelected or otherwise, or the expiration of any consulting arrangement, and
regardless of whether the failure to continue as a director or consultant was
for cause or without cause or otherwise), but in no event later than ten years
from the date this option is granted. After the date you cease to be a director
or consultant, you may exercise this option only for the number of shares which
you had a right to purchase and did not purchase on the date you ceased to be a
director or consultant. If you are a director of a subsidiary corporation, your
directorship shall be deemed to have terminated on the date such company ceases
to be a subsidiary corporation, unless you are also a director of the Company or
another subsidiary corporation, or on that date became a director of the Company
or another subsidiary corporation. Your directorship or consultancy shall not be
deemed to have terminated if you cease being a director of, or consultant to,
the Company or a subsidiary corporation but are or concurrently therewith become
(a) a director of, or consultant to, the Company or another subsidiary
corporation or (b) an employee of the Company or a subsidiary corporation.
Notwithstanding any other provision of the Option, the Committee shall
have the right to cancel this Option without notice if your directorship or
consultancy is terminated for: (i) criminal conduct; or (ii) willful misconduct
or gross negligence materially detrimental to the Company.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
<PAGE>
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) your portion of other federal, state and local payroll and
other taxes due in connection with the option exercise.
(e) Until the Company has completed a public offering of its
Common Stock registered under the Securities Act of 1933, as amended, or has
registered any of its Common Stock under the Securities Exchange Act of 1934, as
amended.
The following two paragraphs shall be applicable if, on the
date of exercise of this option, the Common Stock to be purchased pursuant to
such exercise has not been registered under the Securities Act of 1933, as
amended, and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
<PAGE>
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
<PAGE>
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Florida.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
CONSTELLATION 3D, INC.
By:
Name:
Title:
<PAGE>
I hereby acknowledge receipt of a copy of the foregoing stock option
and of the Plan as of the date of grant set forth above, hereby acknowledge that
this stock option grant discharges any promise (either verbal or written) of the
Company made on or prior to the date of grant to give me a stock option, and,
having read it, hereby signify my understanding of, and my agreement with, its
terms and conditions. In consideration of the grant, I hereby release any claim
I may have against the Company with respect to any promise of a stock option
grant or other equity interest in the Company.
- ----------------------- -------------------------------
(Date) (Signature)
<PAGE>
C3D Inc.
235 West 76th Street, Suite 8-D
New York, NY 10023
December 1, 1999
Sands Brothers & Co., Ltd.
90 Park Avenue
New York, New York 10016
Gentlemen:
The undersigned, C3D Inc., a corporation organized under the laws of
the state of Florida (together with any of its subsidiaries, affiliates,
successors or assigns the "Company"), proposes to offer for sale to certain
"accredited investors, through Sands Brothers & Co., Ltd., in accordance with
the terms and conditions specified in the letter agreement dated October 25,
1999 between the parties hereto (the "Letter Agreement"), as exclusive placement
agent ("Sands Brothers" or the "Placement Agent") on a best efforts basis, a
minimum of $4,000,000 (the "Minimum Amount") and a maximum of $25,000,000 (the
"Maximum Amount") of (a) the Company's capital stock (whether Common Stock or
Preferred Stock convertible into Common Stock) (collectively, the "Capital
Stock"), at a price (or conversion price, should convertible Preferred Stock be
offered) equal to a 30% discount to the average of the bid price for the 30 day
period prior to the Closing (the "Minimum Offering Price") with respect to the
Minimum Amount, and with respect to an amount in excess of the Minimum Amount
and up to the Maximum Amount, at the Minimum Offering Price but in no event less
than $12.00 per share and/or (b) any other similar form of debt financing
transactions (hereinafter, collectively "Other Financing"). The Capital Stock
and Other Financing instruments (the "Securities") to be offered pursuant to the
Offering Documents (as hereinafter defined) and Other Financing transactions to
be consummated are sometimes hereinafter referred to collectively as the
"Financing" or the "Offering."
The closing of the Financing shall not occur until the Company has, in
any combination, received and accepted subscriptions for the purchase of
Securities and/or consummated Other Financing transactions in amounts equal to
the Minimum Amount (the "Closing").
The Capital Stock and/or Other Financing (collectively, the
"Securities") will be offered pursuant to those terms and conditions acceptable
to you and your counsel as reflected in a definitive form of Confidential
Private Placement Memorandum of the Company (which shall contain the Company's
audited financial statements and substantially the same descriptive information
contained in the Company's Form 10 as filed with the Securities and Exchange
Commission) and/or "long form" subscription agreement for institutional
investors only (together with the exhibits and any
<PAGE>
supplements thereto, the "Memorandum"). The Securities will be offered pursuant
to the Memorandum in accordance with Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
Each prospective investor subscribing to purchase Securities
("Subscriber") will be required to deliver, among other things, a subscription
agreement ("Subscription Agreement") and an investment suitability questionnaire
("Questionnaire") in the forms to be provided, representing and warranting,
among other things, that such Subscriber is an "accredited investor" as such
term is defined in Regulation D.
The Memorandum and the form of proposed Subscription Agreement between
the Company and each Subscriber and the exhibits which are part of the
Memorandum (including, without limitation, the Registration Rights Agreement
between the Company and each of the Subscribers with respect to certain
registration rights under the Securities Act (the "Registration Rights
Agreement")) and/or the Subscription Agreement are referred to herein
collectively as the "Offering Documents."
The Securities will be offered for minimum subscription amounts of $
100,000 on a "best efforts" basis, exclusively by Sands Brothers, subject to
conditions during the Period; provided, however, that the Company and the
Placement Agent may, in their discretion, accept subscriptions for a lesser
amount from a Subscriber.
The Company will prepare and deliver to the Placement Agent a
reasonable number of copies of the Offering Documents in form and substance
satisfactory to the Placement Agent and its counsel, which Offering Documents
shall include reviewed financial statements for such periods as may be required.
Capitalized terms used herein, unless otherwise defined or unless the
context otherwise indicates, shall have the same meanings provided in the
Memorandum.
1. Appointment of Placement Agent. You are hereby appointed exclusive
Placement Agent of the Company during the offering period herein specified (the
"Offering Period") for the purposes of assisting the Company on a "best efforts"
basis in finding qualified Subscribers for the purchase of Securities and to
identify potential sources to engage in Other Financing transactions with the
Company in connection with the Offering. The Offering Period shall commence on
the date of delivery and acceptance by the Placement Agent of the Memorandum
generated and reviewed by Company counsel and Placement Agent's counsel,
respectively, the Company's Form 10 as filed with the Securities and Exchange
Commission (the "Commission"), including the financial statements contained
therein, and the due diligence list attached hereto as Exhibit D ("Commencement
Date"). The Minimum Amount must be sold within 45 days after the Commencement
Date. If the Minimum Amount is sold during such time period, then the Offering
shall continue until the earlier to occur of: (i) the sale of the Maximum
Amount; or (ii) 12 months from the completion of the sale of the Minimum Amount.
If the Minimum Amount is not sold during the time period set forth herein, the
Offering will be terminated and all funds received from Subscribers and held in
a special non-interest
2
<PAGE>
bearing escrow account (the "Account") at Republic National Bank, New York, New
York (the "Bank") will be returned, without deduction or accrued interest
thereon. It is anticipated that the Placement Agent will sell $7.5 million of
Securities within 90 days after the Commencement Date, $11 million of Securities
within 150 days after the Commencement Date, and $14.5 million of Securities
within 210 days after the Commencement Date, provided, however, in the event
that $7.5 million of Securities are not sold within 150 days after the
Commencement Date, this Agreement shall be subject to renegotiation by the
parties hereto. You hereby accept such agency and agree to assist the Company in
finding qualified Subscribers for the purchase of the Securities in connection
with the Offering and to identify potential sources to engage in Other Financing
transactions with the Company in connection with the Offering. Unless specified
otherwise herein writing, your agency hereunder is not terminable by the Company
except upon termination of the Offering.
As part of the Placement Agent's exclusive representation of the
Company with respect to the Offering, the Placement Agent shall assist the
Company in identifying potential investors and sources of Other Financing and
shall on behalf of the Company, contact such potential investors and other
potential investors as the Company may designate. In addition, the Placement
Agent shall assist the Company in structuring, negotiating and effecting the
Offering. The Company agrees that, during the course of the engagement
hereunder, in the event that it, or any of its management or affiliates, shall
initiate any negotiations with third parties with respect to the Offering and to
the extent any of such persons receives an inquiry or offer from any third
parties concerning the Offering or any other financing related to the Company,
they will reasonably promptly inform the Placement Agent as to the name of such
person and the date of such initial contact. Sands Brothers has been appointed
pursuant to the Letter Agreement to negotiate the best terms available for each
Potential Investment and Potential Joint Venture (as each term is defined
therein) but in the event that such a proposal is reasonably considered to be of
strategic importance, the Company shall retain the sole right to determine
whether any such Potential Investment or Potential Joint Venture is to be
consummated.
2. Representations and Warranties of the Company. The Company
represents and warrants as follows:
(a) Securities Law Compliance. The Offering Documents, upon delivery,
will conform in all material respects with the requirements of the Securities
Act and Regulation D promulgated thereunder and with the requirements of all
other published rules and regulations of the United States Securities and
Exchange Commission (the "Commission") currently in effect relating to "private
offerings" and/or "accredited investors" of the type contemplated by the
Company. The Offering Documents will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; except that no representation or warranty is made with
respect to statements or omissions made in the Offering Documents in reliance
upon and in conformity with written information furnished to the Company with
respect to the Placement Agent (or any person who may be deemed to be affiliated
therewith or an associated person thereof ) or on behalf of the Placement Agent
for use in the Offering Documents or any amendment thereof or supplement
thereto. The Offering Documents will not be amended or supplemented and no
amendment or supplement thereto will be made without the prior consent of the
Placement Agent, which consent will not be unreasonably withheld.
3
<PAGE>
(b) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own and
lease its properties, to carry on its business as currently conducted and as
proposed to be conducted. The Company is duly qualified to do business in the
states or jurisdictions set forth on Schedule 2(b). To the best of the Company's
knowledge after due inquiry, except as set forth in Schedule 2(b), there is no
jurisdiction in which the conduct of the Company's business or ownership or
leasing of its properties requires it to be qualified to do business as a
foreign corporation, except where such qualifications have been obtained or the
failure to be so qualified would not have a material adverse effect on the
business, financial condition or prospects of the Company. The Company has all
requisite power and authority to execute and deliver this Agreement and to carry
out the transactions contemplated by this Agreement.
(c) Capitalization.
(i) The authorized, issued and outstanding capital stock of
the Company prior to the consummation of the Closing of the transactions
contemplated by the Offering is set forth on Schedule 2 (c)(i) hereto. Each such
share is validly issued, fully paid and nonassessable. Except as set forth on
Schedule 2 (c)(i), there are no other classes of capital stock or other
securities authorized by the Company.
(ii) The authorized, issued and outstanding capital stock of
the Company immediately upon the consummation of the Closing shall be as set
forth on Schedule 2 (c)(ii) hereto, such Schedule to be recalculated by the
Company to reflect the sale of Securities at the Closing.
(iii) The Company has no obligation (contingent or otherwise)
to pay any dividend or make any other distribution in respect of any of its
capital stock. The Company is not a party to, and, to the Company's knowledge
after due inquiry, except as set forth on Schedule 2(c) (iii) hereto, there
exist no voting trusts or agreements, stockholders' agreements, pledge
agreements, buy-sell agreements, rights of first refusal or proxies relating to
any securities of the Company (whether or not the Company is a party thereto).
All of the outstanding securities of the Company were issued, in all material
respects, in compliance with all applicable federal and state securities laws
since June 1, 1999, and to the best knowledge of the Company with respect to the
period prior to June 1, 1999. The Company has no obligation (contingent or
otherwise) to repurchase, redeem or otherwise acquire any shares of its capital
stock.
4
<PAGE>
(iv) The stockholders of record and the holders of
subscriptions, warrants, options, preemptive rights, convertible securities and
other rights (contingent or otherwise) to purchase or otherwise acquire equity
securities of the Company, and the number of shares of capital stock of the
Company and the number of such subscriptions, warrants, options, preemptive
rights, convertible securities and other such rights held by each, with respect
to, but only with respect to each individual director and executive officer of
the Company and each stockholder owning 5% or more of the capital stock of the
Company, are as set forth in Schedule 2(c)(iv) hereto. The designations, powers,
preferences, rights, privileges, qualifications, limitations and restrictions in
respect of each class and series of authorized capital stock of the Company are
as set forth in the Articles of Incorporation and all such designations, powers,
preferences, rights, privileges, qualifications, limitations and restrictions
are valid, binding and enforceable in accordance with all applicable laws
(subject, as to enforcement, to the discretion of the courts in awarding
equitable relief and to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors generally). Except
as disclosed in Schedule 2(c)(iv), no subscription, warrant, option, preemptive
right, convertible security, agreement or other right (contingent or otherwise)
to purchase or otherwise acquire equity securities of the Company is authorized
or outstanding; and, except as disclosed in Schedule 2(c)(iv) hereto, there is
no commitment by the Company to issue shares, subscriptions, warrants, options,
preemptive rights, convertible securities or other such rights or to distribute
to holders of any of its equity securities any evidence of indebtedness or asset
other than the Placement Agent Warrants ("Placement Agent Warrants"). An
appropriate number of shares of the Capital Stock have been reserved for
issuance upon the conversion or exercise, as the case may be, of any of the
securities referred to in this Section. The Company has no obligation
(contingent or otherwise) to repurchase, redeem or otherwise acquire any shares
of its capital stock.
(d) Subsidiaries and Investments. Except as set forth in Schedule 2(d)
hereto, the Company does not own, directly or indirectly, any capital stock, or
other equity ownership or proprietary interest, in any other corporation,
association, trust, partnership, joint venture or other entity.
(e) Financial Statements. The audited consolidated balance sheet of the
Company as of December 31, 1998 (the "1998 Balance Sheet") and the related
consolidated statements of operations, shareholders' equity and statements of
cash flow for the fiscal year ended December 31, 1998 and the audited
consolidated balance sheet of the Company as of June 30, 1999 (the "Balance
Sheet Date"), and the related unaudited consolidated statements of operations,
shareholders' equity and statements of cash flow for the six month period ending
June 30, 1999 (collectively, the "Financial Statements"), have heretofore been
delivered to the Placement Agent. Except as may be otherwise indicated therein,
the Financial Statements have been prepared in conformity with Generally
Accepted Accounting Principles consistently applied and present fairly the
financial position and results of operations of the Company as of the dates and
for the periods indicated. Except as may be otherwise indicated herein, the
Financial Statements of the Company as of the dates indicated, and for the
periods then ended, present fairly the financial position and results of
operations of the Company (and its Subsidiaries) as of the dates and for the
periods indicated.
5
<PAGE>
(f) Access to Corporate Documents. The minute books of the Company have
been made available to the Placement Agent and contain a complete summary of all
meetings and actions of the directors and stockholders of the Company, since the
time of its respective incorporation and reflect all transactions referred to in
such minutes accurately in all respects.
(g) Patents, Trademarks and Copyrights, Etc. Except as set forth in
Schedule 2(g) hereto, the Company owns or is licensed or otherwise entitled to
use all patents, trademarks, trade names, service marks, copyrights, technology,
know-how, processes and other intellectual property used in the conduct of its
business as currently conducted and as proposed to be conducted. The Company has
received no notice of any claims, have no knowledge of any threatened claims,
and knows of no facts which would form the basis of any claim, asserted by any
person, to the effect that the sale or use of any product or process now used or
offered by the Company infringes on any patents or infringes upon the use of any
such trademarks, trade names, service marks, copyrights, technology, know-how,
processes or other intellectual property of another person or challenges or
questions the validity or effectiveness of any such license or agreement. The
sale and use of any such products and processes by the Company, and the use of
any such patents, trademarks, trade names, service marks, copyrights,
technology, know-how, processes or other intellectual property by the Company,
does not, to the Company's knowledge, after due inquiry, infringe on the rights
of any person.
(h) Litigation. There is no action, suit, investigation, customer
complaint, claim or proceeding at law or in equity by or before any arbitrator,
governmental instrumentality or other agency now pending nor, to the best of the
Company's knowledge, threatened against or affecting the Company, nor, to the
best of the Company's knowledge, does there exist any basis therefor. The
Company is not subject to any judgment, order, writ, injunction or decree of any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign. The Company agrees to
promptly notify the Placement Agent of the commencement of any litigation or
proceedings against the Company or any of its respective officers or directors
in connection with the sale of the transaction contemplated in the Offering
Documents.
(i) Non-Defaults; Non-Contravention. Except as set forth in Schedule
2(i) hereto, the Company is not in default in the performance or observance of
any obligation (i) under its Articles of Incorporation, as amended, or its
By-laws, or any indenture, mortgage, contract, purchase order or other agreement
or instrument to which the Company is a party or by which it or any of its
property is bound or affected; or (ii) with respect to any order, writ,
injunction or decree of any court of any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign and there exists no condition, event or act which
constitutes, nor which after notice, the lapse of time or both, would
constitute, a default under any of the foregoing.
(j) Taxes. The Company has filed all federal, state, local and foreign
tax returns which are required to be filed by it, except where such failure to
so file would not have a material adverse
6
<PAGE>
impact on the Company, and all such returns are true and correct in all material
respects. The Company has paid all taxes pursuant to such returns or pursuant to
any assessments received by them and have withheld all amounts which they are
obligated to withhold from amounts owing to any employee, creditor or third
party, except where such failure to pay or withhold would not have a material
adverse impact on the Company. The tax returns of the Company have never been
audited by any state, local or federal authorities. The Company has not waived
any statute of limitations with respect to taxes or agreed to any extension of
time with respect to any tax assessment or deficiency. All tax elections have
been made by the Company in accordance with generally accepted practices. No
deficiency assessment with respect to or proposed adjustment of the Company's
federal, state, county or local taxes is pending or, to the best of the
Company's knowledge, threatened. There is no tax lien, whether imposed by any
federal, state, county or local taxing authority, outstanding against the
assets, properties or business of the Company. Neither the Company nor, to the
Company's knowledge, its respective present or former shareholders has ever
filed an election pursuant to Section 1362 of the Internal Revenue Code of 1986,
as amended (the "Code"), that the Company be taxed as an S corporation.
(k) Agreements. Except as set forth in Schedule 2(k) hereto, the
Company is not a party to any written or oral contract, agreement, arrangement
or understanding which is material to the business of the Company or which is
material to, and which a prudent investor would need to review in order to make
an informed investment decision with respect to the purchase of the Securities
offered pursuant to the Offering Documents. Each material contract of the
Company is valid and binding on the Company, the Company has not received notice
that any such contract is not binding on any party thereto. The Company has
performed in all material respects all obligations to have been performed on
such contracts through the date hereof, and the Company is not in default in any
material respect under any such contract. Each material contract of the Company
is valid and binding on the Company and the Company has not received notice that
any such contract is not binding on any party thereto.
(l) Compliance with Laws; Environmental Matters, Licenses, Etc. The
Company has received no notice of any violation of, or noncompliance with, any
federal, state, local or foreign laws, ordinances, regulations or orders
(including, without limitation, those relating to environmental protection,
occupational safety and health and other labor laws, ERISA, federal drug laws,
federal securities laws, equal employment opportunity, consumer protection,
credit reporting, "truth-in- lending," and warranties and trade practices)
applicable to its business, the violation of, or noncompliance with which, would
have a material adverse effect on the Company's business or operations, and the
Company knows of no facts or set of circumstances which would give rise to such
a notice. Except as set forth in Schedule 2(l), the Company has all licenses and
permits and other governmental certificates, authorizations and permits and
approvals (collectively, "Licenses") required by every federal, state and local
government or regulatory body for the operation of their business and the use of
their properties, except where the failure to possess such a License would not
have a material adverse effect on the business, properties, financial condition
or results of operations
7
<PAGE>
of the Company. The Licenses are in full force and effect and, to the Company's
knowledge, no violations are or have been recorded in respect of any License and
no proceeding is pending or threatened to revoke or limit any thereof. The
Company has not received any written opinion or memorandum from legal counsel
providing that it has taken any action which has resulted in, or is reasonably
likely to result in, the Company incurring any liability which may be material
to its business, prospects, financial condition, operations, property or
affairs. The Company shall comply with all applicable laws, rules, regulations
and orders, the noncompliance with which could materially adversely affect its
business or condition, financial or otherwise.
(m) Authorization of Agreement, Etc. Each of this Agreement and all
other agreements or documents required to be executed and delivered by the
Company in connection with the Offering (collectively the "Ancillary Documents")
has been or will be duly executed and delivered by the Company and the
execution, delivery and performance by the Company of this Agreement and the
Ancillary Documents has been duly authorized by all requisite corporate action
by the Company; and, assuming due authorization, execution and delivery by the
Placement Agent, each constitutes, or will constitute, the legal, valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, usury or other similar laws affecting the enforcement of
creditors' rights generally. The execution, delivery and performance of this
Agreement and the issuance, sale and delivery of the Securities, and the
issuance and delivery of the Securities upon exercise of the Placement Agent
Warrants (the "Reserved Shares"), will not (i) violate any provision of law or
statute or any order of any court or other agency of government binding on the
Company; or (ii) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time or
both) a default under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company under
the Articles of Incorporation, as amended, or By-Laws of the Company or any
indenture, mortgage, lease agreement or other agreement or instrument to which
the Company is a party or by which it or any of its property is bound or
affected, except for such conflict, breach or default as to which requisite
waivers or consents shall have been obtained by the Company and delivered to the
Subscribers by the time of Closing.
(n) Authorization of Securities and Placement Agent Warrants. The
issuance, sale and delivery of the Securities and the Placement Agent Warrants
have been duly authorized by all requisite corporate action of the Company, and
when so issued, sold and delivered, (i) the Securities and Reserved Shares will
be validly issued and outstanding, duly executed and delivered, fully paid and
nonassessable, free and clear of all liens, charges, claims, encumbrances,
restrictions or preemptive or any other similar rights and the Company shall
have paid all taxes, if any, in respect of the issuance thereof; (ii) the
Placement Agent Warrants will be validly issued and outstanding, duly executed,
issued and delivered, fully paid and nonassessable, free and clear of all liens,
charges, claims, encumbrances, restrictions or preemptive or any other similar
rights and the Company shall have paid all taxes, if any, in respect of the
issuance thereof; and (iii) neither the Securities, nor the Placement Agent
Warrants will be subject to preemptive or any other similar rights of the
8
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shareholders of the Company or others which rights shall not have been waived
prior to the time of acceptance by the Company of the first Subscriber's
Subscription Agreement. The offer and sale of the Securities is exempt from the
registration requirements of the Securities Act and the rules and regulations
promulgated thereunder and the Securities will be issued in compliance with all
applicable federal securities laws.
(o) Authorization of Reserved Shares. The issuance, sale and delivery
by the Company of the Reserved Shares have been duly authorized by all requisite
corporate action of the Company, and the Reserved Shares have been duly reserved
for issuance upon exercise of all or any of the Securities and the Placement
Agent Warrants and when so issued, sold and delivered, the Reserved Shares will
be validly issued and outstanding, duly executed, issued and delivered, fully
paid and nonassessable, free and clear of all liens, charges, claims,
encumbrances, restrictions or preemptive or any other similar rights and the
Company shall have paid all taxes, if any, in respect of the issuance thereof
and the Reserved Shares will not be subject to any preemptive or any other
similar rights of the shareholders of the Company or others which rights shall
not have been waived prior to the time of acceptance by the Company of the first
Subscriber's Subscription Agreement.
(p) Related Transactions. Except as set forth on Schedule 2(p) hereto,
no current director, officer or employee of the Company, nor any affiliate of
any such person, is presently, or since the inception of the Company has been,
directly or indirectly, through his, her or its affiliation with any other
person or entity, a party to any loan from the Company.
(q) Registration Rights. Except as set forth on Schedule 2(c) hereto
and except as may exist with respect to the holders of the Securities and the
Placement Agent Warrants, (i) no person or entity has any right to cause the
Company to effect the registration under the Securities Act of any securities of
the Company and (ii) no person or entity holds any anti-dilution or "piggy back"
rights with respect to any securities of the Company.
(r) Brokers. The Company has not, or any of its respective officers,
directors, employees or shareholders, employed any broker or finder in
connection with the transactions contemplated by this Agreement, other than
Sands Brothers.
(s) No Consents. Except for federal or state securities law filings, no
permit, consent, approval, authorization, order or filing with any court or
governmental authority is required to consummate the transactions contemplated
by this Agreement.
(t) Information. The Company shall provide the holders of the
Securities with the information, if any, specified in the Memorandum.
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<PAGE>
(u) Change in Nature of Business. The Company shall not, without the
prior approval of a majority of their Board of Directors, make any material
change in the nature of its business as the same shall be set forth in the
Memorandum.
(v) Title to Securities. When certificates representing the Securities
shall have been duly delivered to the Subscribers, payment therefor will become
due, and to the extent such payment shall have been made therefor, the several
Subscribers shall have title to the Securities free and clear of all liens,
encumbrances and claims whatsoever, and the Company shall have paid all taxes,
if any, in respect of the issuance thereof.
(w) Foreign Corrupt Practices Act. None of the Company, nor to their
knowledge any of their respective officers, employees, agents or any other
person acting on behalf of the Company has, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of the Company (or to assist the Company in
connection with any actual or proposed transaction) which (a) might subject the
Company, or any other such person, to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign); (b) if
not given in the past, might have had a material adverse effect on the assets,
business or operations of the Company; or (c) if not continued in the future,
might adversely affect the assets, business, operations or prospects of the
Company, taken as a whole. The Company believes that its international
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(x) Corporate Representations. Any certificate signed by the Chairman
or Chief Executive Officer of the Company and delivered to the Placement Agent
or to the Placement Agent's counsel pursuant to this Agreement, shall be deemed
a representation and warranty by the Company to the Placement Agent as to the
matters covered thereby.
(y) Escrow Arrangements. Pursuant to paragraph 3(e)(i) hereof, if the
Closing does not take place before the termination of the Offering Period, the
Company will instruct the Bank to return the funds to the Subscribers without
any deduction or interest thereon.
(z) Confidential Arrangements. The Company agrees to take reasonable
precautions in protecting the confidentiality, privacy and security of the
business contacts identified by the Placement Agent by taking appropriate
administrative and managerial action, and to use its best efforts to prevent
disclosure of such property information to any all persons and entities. The
Company agrees that, without the expressed written consent of the Placement
Agent, it will not
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initiate, respond or otherwise abide any contract with any person, company,
institution, professional association, nor other entity to which it has been
introduced or with whom it has become acquainted through the Placement Agent, in
the course of the Offering. The Company agrees to hold completely confidential
the name, address, telephone, telex, facsimile number, account or other business
number of such contact as may be introduced by the Placement Agent, except to
the extent such information is required to be disclosed pursuant to applicable
law or has been disclosed to a third party through no fault of the Company. The
above restrictions apply to any subsequent follow up, repeated or extended or
renegotiation transactions related to the Offering regardless of the results of
the Offering.
(AA) Disclosure. Neither this Agreement nor any other document,
certificate or written statement to be furnished to the Subscribers by or on
behalf of the Company in connection with the transactions contemplated hereby,
including the Offering Documents, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary in
order to make the statements contained herein and therein not misleading. There
is no fact known to the Company which, in its reasonable judgement, materially
adversely affects the business operations, affairs, prospects, conditions,
properties or assets of the Company (hereinafter "Material Facts") which has not
been set forth in this Agreement, the Company's Form 10 (defined hereinafter) or
which will not be set forth in the Offering Documents. To the extent Material
Facts become known to the Company subsequent to the date hereof, such facts will
be set forth in the Memorandum and/or in the other documents, certificates or
statements furnished to the Subscribers by or on behalf of the Company pursuant
hereto.
(BB) Exchange Act Compliance. The Company has filed a Form 10 (the
"Form 10") under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). To the best of the Company's knowledge, the Form 10 complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and when filed, did not
contain any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Form 10
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. The Company last filed audited financial statements with the
Commission in connection with the filing of the Form 10, and has not received
any comments from the Commission in respect thereof as of the date hereof.
(CC) Year 2000 Compliance. The Company has taken appropriate steps to
avoid any disruption in its software caused by Year 2000 problems. The Company
is not currently aware of any Year 2000 compliance problems relating to its
software system that would have a material adverse effect on its businesses,
results of operations and financial condition. To date, the Company has not
incurred any material costs in identifying or evaluating Year 2000 compliance
issues. The Company does not anticipate that such costs relating to Year 2000
Compliance will be material.
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3. Representations, Warranties and Covenants of the Placement Agent.
The Placement Agent represents, warrants and covenants as follows:
(a) Authorization of Agreement, Etc. This Agreement has been duly and
validly authorized, executed and delivered by or on behalf of the Placement
Agent, and the Agreement (assuming due authorization, execution and delivery by
the Company) constitute the legal, valid and binding obligation of the Placement
Agent, enforceable in accordance with the terms, except that enforceability may
be limited by bankruptcy, insolvency, reorganization, usury or other similar
laws affecting the enforcement of creditors' rights generally.
(b) Compliance with Offering Documents. The Placement Agent will offer
the Securities in accordance with the Offering Documents and will deliver the
Offering Documents to each Subscriber before accepting a signed copy of the
Subscription Agreement or payment for any Securities.
(c) Compliance with Laws of Jurisdictions. The Placement Agent will
offer the Securities only in those jurisdictions in which it is permitted to
sell the Securities pursuant to the laws of said jurisdiction, and the Placement
Agent may arrange for the Securities to be offered by a broker/dealer or
offshore or domestic facilitator(s).
(d) Registration as Broker-Dealer; Member of NASD. The Placement Agent
is registered as a broker-dealer with the Securities and Exchange Commission and
is registered as a broker-dealer in all states in which it shall offer the
Securities for sale and is a member in good standing of NASD.
(e) Escrow Arrangements.
(i) The Placement Agent will promptly deposit funds received
from Subscribers in the Account with the Bank and hold the funds in accordance
with the terms of this Agreement and hold the Offering Documents for the benefit
of the Subscribers and the Company. The Bank shall release funds from such
Account only upon receipt of instruction executed by each of the Placement Agent
and the Company. If the Closing does not take place before the termination of
the Offering Period, the Placement Agent will instruct the Bank to return the
funds to the Subscribers without any deduction or interest thereon.
(ii) In the event the Placement Agent has deposited funds from
any Subscriber into the Account and the Company exercises its right to reject
such Subscriber's funds (except where such rejection is based on a Subscriber
being a competitor of the Company), in whole or in part, the Placement Agent
shall be entitled to payment by the Company of a sum equal to the fees and
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expenses due by the terms of this Agreement and entitled to issuance by the
Company of the Placement Agent Warrants that the Placement Agent would have
received pursuant to sub-paragraphs 4(d), 4(e) and 4(f) of this Agreement,
respectively.
4. Closing; Placement and Fees.
(a) Closing. The initial Closing of the Financing shall take place at
the offices of the Placement Agent, 90 Park Avenue, New York, New York 10016, at
a time and date agreed upon between the Placement Agent and the Company upon the
receipt of Subscription Agreements and related documents in form and substance
satisfactory to the Company and the Placement Agent and delivery of documents
evidencing that Subscribers' funds in an amount at least equal to or in excess
of the Minimum Amount is available in the Account with the Bank (the "Closing
Date"). At the initial and subsequent Closing(s), payment for the Securities
shall be made against delivery of certificates representing the Securities sold.
All proceeds received from the sale of the Securities sold after the initial
Closing date will continue to be deposited in the Account maintained with the
Bank until the occurrence of additional Closing(s).
(b) Procedures at Closing. At each Closing:
(i) The Placement Agent on behalf of itself and the
Subscribers shall receive the opinion of Blank Rome Comisky & McCauley LLP
("Company Counsel"), substantially in the form attached hereto as Exhibit A.
(ii) Counsel for the Placement Agent and Company Counsel shall
receive certificates from the Company, signed by the President or a Vice
President thereof, certifying (A) that the representations and warranties
contained in Section 2 hereof are true and accurate at the Closing with the same
effect as though expressly made at the Closing; and (B) that attached thereto is
(1) a true and correct copy of resolutions adopted by the Company's Board of
Directors authorizing (i) the execution, delivery and performance of this
Agreement and the Ancillary Documents, and (ii) the issuance of the Securities
and the Placement Agent Warrants and certifying that such resolutions have not
been modified, rescinded or amended and are in full force and effect; and (2) a
true and correct copy of a resolution adopted by the Company's Board of
Directors, authorizing the execution, delivery and performance of each document
to which it is a party, and that such resolutions have not been modified,
rescinded or amended and are in full force and effect.
(iii) There shall be delivered on behalf of each Subscriber
one copy of the Subscription Agreement signed by each Subscriber and one copy of
the Questionnaire signed by each Subscriber.
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(iv) The Placement Agent shall have received a certificate of
good standing of the Company, dated as of a recent date, from the Secretary of
State of the jurisdiction of its incorporation.
(v) At the Closing the Placement Agent shall instruct the Bank
to pay to the Company out of the funds on deposit in the Account, as such funds
are received from Subscribers whose Subscriptions have been accepted.
(c) Blue Sky. Where appropriate, counsel for the Placement Agent shall
prepare a summary blue sky survey stating the extent to which and the conditions
upon which offers and sales of the Securities may be made in certain
jurisdictions. Blue Sky applications shall be made in such states and
jurisdictions as shall be requested by the Placement Agent. It is understood
that such survey may be based on or rely upon (i) the representations of each
Subscriber set forth in the Subscription Agreement delivered by such Subscriber;
(ii) the representations, warranties and agreements of the Company and its
Subsidiary set forth herein; (iii) the representations and warranties of the
Placement Agent set forth herein; and (iv) the representations of the Company
set forth in the certificate to be delivered at the Closing pursuant to
paragraph 4(b)(iii) hereof. Upon execution and delivery of this Agreement, the
Company shall deliver to counsel for the Placement Agent $5,000 on account of
blue sky legal fees and the Company shall pay required filing fees as and when
required by such counsel.
(d) Placement Fee and Expenses. At each Closing, the Company shall pay
to the Placement Agent a commission equal to (i) with respect to the sale of the
Minimum Amount, ten (10%) percent of the aggregate proceeds derived from the
sale of the Minimum Amount and (ii) eight (8%) percent thereafter from the sale
of up to the Maximum Amount. In addition, the Company shall pay the Placement
Agent a non-accountable and non-refundable expense allowance equal to three (3%)
percent of the aggregate proceeds derived from the Financing. From the proceeds
of the Closing, the Company shall pay all Placement Agent's expenses in
connection with the proposed Offering, including, but not limited to, reasonable
counsel expenses and fees of counsel to the Company and of counsel to the
Placement Agent, disbursements and fees, reasonable accountant expenses,
disbursements and fees, filing fees, reasonable business and investigatory
expenses, printing costs, postage and mailing expenses with respect to the
transmission of the Offering and Ancillary Documents, registrar and transfer
agent fees, issue and transfer taxes, if any, and counsel fees of the Placement
Agent in connection with the qualification of the Securities under the
securities or blue sky laws of the states which the Placement Agent shall
designate. Upon execution and delivery of this agreement, the Company shall pay
Placement Agent's counsel fees of $5,000 to initiate blue sky filings. The
Company also shall pay for the costs of placing "tombstone advertisements" in
any publications which may be selected by the Placement Agent and approved in
writing by the Company, all costs and expenses in connection with the
establishment and maintenance of the Account referred to in paragraph 1 of this
Agreement, and all other costs and expenses incident to the
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<PAGE>
performance of its obligations hereunder which are not otherwise specifically
provided for in this paragraph 4(d), including the cost of transaction
memorabilia determined at the reasonable discretion of the Placement Agent.
(e) Issuance of Placement Agent Warrants. At each Closing as provided
in paragraph 4(a) above, the Company shall issue to the Placement Agent or its
designee(s), subject to the ratable adjustment of the shares underlying the
Placement Agent Warrants (hereinafter defined) and the exercise price thereof in
the event of any Company dividend, stock split or reclassification declared
after the date hereof, (i) with respect to the sale of the Minimum Amount,
warrants to purchase 350,000 shares of the Company's Common Stock ("Initial
Placement Agent Warrants") and (ii) 200,000 warrants for each $1,000,000 of all
Securities sold in the Financing ("the Additional Placement Agent Warrants")
(collectively referred to as the "Placement Agent Warrants"). The Initial
Placement Agent Warrants shall be exercisable for five (5) years, commencing
upon the date of their issuance, at a price of $11.00 per share of Common Stock.
The Additional Placement Agent Warrants shall be exercisable for five (5) years,
commencing upon the date of their issuance, at a price equal to a 40% discount
to the average of the bid price of the Common Stock for the 60 day period prior
any Closing, but in no event less than of $15.00 per share. The Placement Agent
Warrants shall be in the form attached hereto as Exhibit B, and will be governed
by the terms of the Warrant Agreement attached hereto as Exhibit C. The
certificates representing the Placement Agent Warrants will be in such
denominations and such names as the Placement Agent may request prior to each
closing. The Placement Agent Warrants may not be assigned by Sands Brothers,
except to Sands Brothers' employees, without the written consent of the Company.
All issuance of Placement agent warrants will be done in full compliance with
applicable law.
(f) Due Diligence Fees. As a material inducement to Sands Brothers to
commence its due diligence investigation of the Company and in addition to any
other compensation set forth herein, the Company shall pay Sands Brothers a
non-accountable and non-refundable fee of One Hundred Thousand ($100,000)
Dollars, payable at closing from the proceeds of the Financing.
(g) Placement Agent's Decision Not to Proceed, If the Placement Agent
decides not to proceed with the Offering because of a breach by the Company or
by its Subsidiaries of its/their representations, warranties, or covenants in
this Agreement, or as a result of material adverse changes in the affairs of the
Company or of its Subsidiaries, the Company shall pay Sands Brothers the sum of
One Hundred and Fifty Thousand ($150,000) Dollars.
5. Covenants of the Company.
(a) Amendments and Supplements. The Company covenants and agrees that,
until the Offering contemplated by the Offering Documents has been completed or
terminated, if there shall occur any event relating to or affecting, among other
things, the Company, or the proposed operations
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<PAGE>
of the Company as described in the Offering Documents, as a result of which it
is necessary, in the opinion of the Placement Agent and its counsel or Company
Counsel, to amend or supplement the Offering Documents in order that the
Offering Documents will not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
the Company shall promptly prepare and furnish to the Placement Agent a
reasonable number of copies of an appropriate amendment of or supplement to the
Offering Documents, in form and substance satisfactory to the Placement Agent
and its counsel.
(b) Use of Proceeds. The net proceeds of the Offering of the Securities
will be used by the Company, as more fully described in the Memorandum, for the
purposes to be set forth in the Memorandum.
(c) Expenses of Offering. The Company shall be responsible for, and
shall bear all expenses directly and necessarily incurred in connection with the
proposed financing, including, but not limited to, the costs of preparing,
printing and filing the Offering and Ancillary Documents to be used in
connection with the Offering contemplated hereby and all amendments and
supplements thereto; preparing, printing and delivering exhibits to the Offering
and Ancillary Documents; preparing, printing and delivering all Placement Agent
and selling documents, including, but not limited to, this Agreement and the
blue sky memorandum, the Share certificates, blue sky fees, filing fees and the
fees and disbursements of the Placement Agent's counsel and the other fees and
expenses set forth above.
(d) Reservation of Securities. The Company will reserve and keep
available the maximum number of its authorized but unissued Reserved Shares
which are issuable upon exercise of the Placement Agent Warrants.
(e) Early Termination by the Company. Anything contained herein to the
contrary notwithstanding, in the event that, following the date of this
Agreement until the termination of the Offering Period, the Company desires to
terminate this Agreement for any reason (which for purposes of this Agreement
shall include, but not be limited to, Sands Brothers being ready, willing and
able to proceed with the transactions contemplated hereunder, but the Company
being unwilling to proceed for any reason), Sands Brothers has the right, but
not the obligation, to agree to such early termination upon the payment by the
Company to Sands Brothers of a sum equal to the placement fees and expenses
(including its counsel fees and expenses) and Placement Agent Warrants it would
have received under Sections 4(d), 4(e) and 4(f) hereunder had the Maximum
Amount been sold.
(f) No Closing. Anything set forth herein to the contrary
notwithstanding, in no event shall Sands Brothers be responsible for any of the
Company's fees, costs or expenses and the Company shall pay all expenses of the
Offering and the preparation of the Offering and Ancillary Documents. The
Company shall reimburse Sands Brothers for any out-of-pocket expenses
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<PAGE>
(including, but not limited to, reasonable counsel fees and expenses) which
Sands Brothers may incur in connection with the enforcement of its rights
hereunder.
(g) Ratification and Confirmation of Letter Agreement. The Company
hereby confirms and ratifies the Letter Agreement including, without limitation,
(i) the retention of Sands Brothers as its exclusive investment banker and
financial consultant for a period of three (3) years following the completion of
the Financing, at an annual fee of Forty Eight Thousand ($48,000) Dollars
(exclusive of any accountable out-of-pocket expenses), payable quarterly in
advance in installments of Twelve Thousand ($12,000) Dollars, with the first
payment to be made upon the sale of the Minimum Amount by deduction of the
proceeds therefrom, pursuant to Section 7 thereof, provided, however, that in
the event that $25,000,000 million of Securities have not been sold within one
year after the Commencement Date, Sands Brothers' status as investment banker
and financial consultant to the Company, thereunder and hereunder, shall cease
to be exclusive (ii) the granting of the right of first refusal to Sands
Brothers pursuant to Section 8 thereof as described in Exhibit E hereto, (iv)
the granting of the right to designate a board member or observer to the board
of directors of the Company pursuant to Section 9 thereof after the Closing
Date, and (v) the expense reimbursement and indemnification provisions thereof.
Such ratification and confirmation shall survive any termination of the
Offering.
(i) Financing Sources. The Company will provide to the
Placement Agent a list of each of its present financing sources, with such list
to be amended for a period of one year from the date of termination of the
Offering if, and when, the Company is approached by, or has any contact with,
any potential financing sources ("Company Sources").
(j) Placement Agent Sources. For a period of two years from the date of
this Agreement, the Placement Agent shall keep a list of the names of all its
sources of potential financing ("Placement Agent Sources" and together with the
Company Sources collectively, the "Sources") for the Company, which list shall
be furnished to the Company and amended from time to time by the Placement Agent
at its discretion. The Company agrees, in the event it directly or indirectly
receives financing in any form or nature whatsoever from any Source, that it
will fully compensate the Placement Agent under the terms and conditions of this
Agreement to the same extent as if the Placement Agent itself had obtained such
financing from such Source.
(k) No Finder's Fee. The Company represents and warrants to the
Placement Agent that it is not obligated to pay a finders' fee to any one in
connection with the introduction of the Company to Sands Brothers.
6. Indemnification.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless the Placement Agent and its agents, shareholders, officers and
directors, and each person,
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if any, who controls the Placement Agent, within the meaning of the Securities
Act against any and all losses, damages or liabilities, joint or several, to
which they or any of them may become subject under the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or other
federal or states statutory law or regulation, at common law or otherwise, as
follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever arising out of any untrue statement or alleged untrue statement of a
fact contained in the Offering Documents or the omission or alleged omission
therefrom of a fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, unless
such untrue statement or omission was made in the Offering or Ancillary
Documents in reliance upon and in conformity with information furnished in
writing to the Company in connection therewith by the Placement Agent expressly
for use therein;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of any
litigation, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission or any such alleged untrue statement or omission;
and
(iii) against any and all expense whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense is not
paid under clause (i) or (ii) above.
(b) Indemnification by the Placement Agent. The Placement Agent agrees
to indemnify and hold harmless the Company and its agents, shareholders,
officers and directors and each person, if any, who controls the Company within
the meaning of the Securities Act against any and all losses, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Securities Act, the Exchange Act, or other federal or states statutory
law or regulation, at common law or otherwise, insofar as losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Memorandum or any amendment or supplement thereof or supplement
thereto, or arise out of or based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and in each case to the extent, by only
to the extent, that the same was made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of the
Placement Agent (or any person who may be deemed to be affiliated therewith or
an associated person thereof) specifically for use in the preparation of the
Memorandum, and agrees to reimburse each such indemnified party for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action. This indemnity
provision shall be in addition to any liability that the Placement Agent may
otherwise have.
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(c) Indemnity under Securities Laws. The Company agrees to indemnify
and hold harmless the Placement Agent and its agents, and each person, if any,
who controls the Placement Agent, to the same extent as the foregoing indemnity,
against any and all loss, liability, claim, damage and expense whatsoever
directly arising out of the exercise by any person of any right under the
Securities Act or the Exchange Act or the securities or blue sky laws of any
state on account of violations of the representations, warranties or agreements
set forth herein.
(d) If any action is brought against an indemnified party or any of its
officers, directors, stockholders, employees, agents, advisors, consultants and
counsel or any controlling persons of the indemnifying party (each, an
"Indemnified Party" and collectively, "Indemnified Parties"), in respect of
which indemnity may be sought against the indemnifying party pursuant to
Sections 6(a), 6(b) or 6(c) hereof, each such Indemnified Party shall promptly
notify the indemnifying party (the "Indemnifying Party") in writing of the
institution of such action (but the failure to so notify shall not relieve the
Indemnifying Party from any liability it may have under this Section 6 unless
such failure results in the imposition of a default judgment which cannot be
reopened) and the Indemnifying Party shall promptly assume the defense of such
action, including the employment of counsel reasonably satisfactory to each such
Indemnified Party and payment of expenses. Each such Indemnified Party shall
have the right to employ its own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of each such Indemnified Party
unless the employment of such counsel shall have been authorized in writing by
the Indemnifying Party in connection with the defense of such action or the
Indemnifying Party shall have not have promptly employed counsel reasonably
satisfactory to each such Indemnified Party to have charge of the defense of
such action or each such Indemnified Party shall have reasonably concluded that
there may be one or more legal defenses available to it or them or to other
Indemnified Parties which are different from or additional to those available to
one or more of the Indemnifying Parties and it would be inappropriate for the
same counsel to represent both parties due to actual or potential differing
interests between them, in any of which events such fees and expenses shall be
borne by the Indemnifying Party and the Indemnifying Party shall not have the
right to direct the defense of such action on behalf of each Indemnified Party.
Anything in this Section 6(c) to the contrary notwithstanding, the Indemnifying
Party shall not be liable for any settlement of any such claim or action
effected without its written consent, which consent shall not be unreasonably
withheld. The Company agrees to promptly notify the Placement Agent of the
commencement of any litigation or proceedings against the Company or any of its
officers or directors in connection with the sale of the Securities or the
Memorandum.
(e) Contribution. In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes a claim for
indemnification pursuant to this Section 6, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such
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<PAGE>
indemnification may not be enforced in such case; notwithstanding the fact that
the express provisions of this Section 6 provide for indemnification in such
case; or (ii) contribution under the Securities Act may be required on the part
of any indemnified party, then each indemnifying party shall contribute to the
amount paid as a result of such losses, claims, damages, expenses or liabilities
(or actions in respect thereof) (A) in such proportion as is appropriate to
reflect the relative benefits received by each of the contributing parties, on
the one hand, and the party to be indemnified on the other hand, from the
Offering of the Securities; or (B) if the allocation provided by clause (A)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of each of the contributing parties, on the one hand,
and the party to be indemnified on the other hand, in connection with the
statements or omissions that resulted in such losses, claims, damages, expenses
or liabilities, as well as any other relevant equitable considerations. In any
case where the Company is a contributing party and the Placement Agent is the
indemnified party, the relative benefits received by the Company on the one
hand, and the Placement Agent, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the Offering of the Securities (before
deducting expenses) bear to the total Placement Agent commissions received by
the Placement Agent hereunder, in each case as set forth in the table on the
cover page of the Memorandum. Relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, or by the Placement Agent, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions in respect thereof) referred to above in
this subsection (c), shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating,
preparing or defending any such action or claim. Notwithstanding the provisions
of this subsection (c), the Placement Agent shall not be required to contribute
any amount in excess of the Placement Agent commissions applicable to the
Securities placed by the Placement Agent hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person, if any, who controls the Company within the meaning of the
Securities Act, each officer of the Company who has signed the Memorandum, and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to this subsection (c). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this subsection
(c), notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this subsection (c), or to the extent
that such party or parties were not adversely affected by such omission. The
contribution agreement set forth
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above shall be in addition to any liabilities which any indemnifying party may
have at common law or otherwise.
7. Miscellaneous.
(a) General. The Company shall supply Sands Brothers' with such
financial statements, contracts and other corporate records and documents as may
be reasonably requested of it. In addition, Sands Brothers shall be fully
informed by the Company of any events which might have a material affect on the
financial condition of the Company. If, in the opinion of Sands Brothers, the
condition of the Company, financial or otherwise, and its prospects are affected
in a material and/or adverse manner and do no fulfill the expectation of Sands
Brothers, it shall have the sole discretion to review and determine its
continued interest in the Offering.
(b) Representations, Warranties and Covenants to Survive Delivery. The
respective representations, warranties, indemnities, agreements, covenants and
other statements of the Company, and where appropriate, its respective principal
stockholders, shall survive execution of this Agreement and delivery of the
Securities and the termination of this Agreement. Notwithstanding anything
provided herein to the contrary, the provisions of Sections 4(d), 4(e) and
4(f)hereof shall survive the termination of the Offering Period and shall remain
in full force and effect with respect to all Sources who invest, or commit to
invest, in the Company at any time during the two year period commencing the day
that the Offering Period terminates. Additionally, the Placement Agent shall be
entitled to also retain its non-accountable and non-refundable expense allowance
to the extent it has been paid prior to the date of termination.
(c) No Other Beneficiaries. This Agreement is intended for the sole and
exclusive benefit of the parties hereto and their respective successors and
controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York. The parties hereby agree: (i)
in any legal proceeding brought in connection with this Agreement or the
transactions contemplated hereby, to irrevocably submit to the nonexclusive in
personam jurisdiction of (A) any state or federal court of competent
jurisdiction sitting in the State of New York, County of New York; or (B) in the
event that any party is a defendant in any legal proceeding in which it seeks to
join the other as a third party defendant, then, any state or federal court in
which such proceeding has properly been brought, and consents to suit therein;
and (ii) to waive any objection they may now or hereafter have to the venue of
such proceeding in any such court or that such proceeding was brought in an
inconvenient court.
21
<PAGE>
(e) Notices. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally, receipt
acknowledged, or five (5) days after being sent by registered or certified mail,
return receipt requested, postage prepaid. All notices shall be made to the
parties at the addresses designated above, or at such other or different
addresses which a party may subsequently provide with notice thereof, and to
their respective legal counsel, as follows:
(i) If to the Placement Agent, to:
Sands Brothers & Co., Ltd.
90 Park Avenue
New York, NY 10016
Attn: Mr. Mark G. Hollo
Managing Director
- with a copy to -
Littman Krooks Roth & Ball P.C.
655 Third Avenue 20th floor
New York, NY 10017
Attn: Mitchell C. Littman, Esq.
or to such other person or address as the Placement Agent shall furnish the
Company in writing.
(ii) If to the Company, to:
C3D Inc.
235 West 76th Street, Suite 8-D
New York, NY 10023
Attn: Mr. Eugene Levich
President and Chief Executive Officer
- with a copy to -
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, Pennsylvania 19103
Attn: Alan L. Zeiger, Esq.
22
<PAGE>
or to such other person or address as the Company shall furnish the Placement
Agent in writing.
(f) Counterparts. This Agreement may be signed in counterparts with the
same effect as if both parties had signed one and the same instrument.
(g) Reimbursement. Notwithstanding the non-occurrence of a Closing, or
any other condition, in no event shall the Placement Agent be responsible for
any of the Company's fees, costs or expenses; however, the Company shall
reimburse the Placement Agent for any out-of-pocket expenses (including, but not
limited to, reasonable counsel fees and expense) which the Placement Agent may
incur in connection with the enforcement of its rights hereunder provided that
the Placement Agent prevails.
(h) Form of Signature. The parties hereto agree to accept a facsimile
transmission copy of their respective signatures as evidence of their respective
actual signatures to this Agreement; provided however, that each party who
produces a facsimile signature agrees, by the express terms hereof, to place,
immediately after transmission of his or her signature by fax, a true and
correct original copy of his or her signature in overnight mail to the address
of the other party.
(i) Modification. This Agreement (i) may only be modified by a written
instrument which is executed by both parties thereto, (ii) constitutes the
entire agreement between the parties, and (iii) shall be binding upon and inure
to the benefit of both parties hereto and their respective successor and
assignees.
(j) Non-Circumvention. Each of the Company and the Placement Agent each
agree that no effort shall be made to circumvent the terms and conditions of
this Agreement or gain a fee, commission, remuneration, consideration or benefit
whatsoever. With respect to any attempt at circumvention of this Agreement, the
injured party is entitled to seek any and all legal remedies, fees or
compensation equal to those received or committed or agreed to be paid pursuant
to the terms of this Agreement as the same are due and payable to the
circumvented party under the terms of this Agreement.
(k) Good Faith. Each of the Company and the Placement Agent understand
that this Agreement is a reciprocal and mutual one and both warrant, covenant,
and promise that it will act in good faith toward each other in the performance
of this Agreement and in other matters.
(l) Further Services. The Placement Agent shall, if requested by the
Company, testify in, and shall prepare and assist in the preparation of
testimony for, any judicial or administrative proceeding in respect of the
services performed by the Placement Agent hereunder. With respect
23
<PAGE>
thereto, the Company shall pay, in addition to the fees and expenses payable to
the Placement Agent hereunder, for the time required to expend by the Placement
Agent at its standard hourly rates as then in effect, together with reasonable
out-of-pocket expenses, but not limited to, fees and expenses of its legal
counsel.
(m) Waiver of Breach. The waiver by either the Placement Agent or the
Company of any provision of this Agreement shall not be construed as a waiver of
any subsequent breach hereof.
24
<PAGE>
If you find the foregoing is in accordance with our understanding,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between us.
Very truly yours,
C3D Inc.
By: /s/ Eugene Levich
------------------------------------------
Name: Eugene Levich
Title: President & Chief Executive Officer
Agreed:
SANDS BROTHERS & CO., LTD.
By: /s/ Mark G. Hollo
---------------------------
Name: Mark G. Hollo
Title: Managing Director
25
<PAGE>
LIST OF SCHEDULES
SCHEDULE 2(b) Organization
SCHEDULE 2(c) Capitalization
SCHEDULE 2(i) Non Defaults; Non Contravention
SCHEDULE 2(g) Patents, Trademarks and Copyrights
SCHEDULE 2(k) Agreements
SCHEDULE 2(p) Related Transactions
26
<PAGE>
EXHIBITS
Exhibit A - Form of Legal Opinion
Exhibit B - Placement Agent Warran
Exhibit C - Placement Agent Warrant Agreement
Exhibit D - Due Diligence List
Exhibit E - Right of First Refusal
27
<PAGE>
December 22, 1999
C3D Inc.
230 Park Avenue, Suite 453
New York, NY 10169
Attn: Eugene Levich
President and CEO
Re: Amendment No. 1 to Placement Agency Agreement
---------------------------------------------
Dear Dr. Levich:
The parties hereto, C3D Inc., a Florida corporation (the "Company") and
Sands Brothers & Co., Ltd., a Delaware corporation ("Sands Brothers") have
entered into that certain placement agency agreement (hereinafter the "Agency
Agreement") dated as of December 1, 1999.
In connection therewith, the parties hereto agree that the Agency
Agreement is hereby amended as follows:
1. Paragraph 2(k) of the Agency Agreement is hereby deleted in its
entirety and in its place and stead the following is inserted:
"(k) Agreements. Except as set forth in Schedule
2(k) hereto, the Company is not a party to any
written or oral contract, agreement, arrangement
or understanding which is material to the business
of the Company or which is material to, and which
a prudent investor would need to review in order
to make an informed investment decision with
respect to the purchase of the Securities offered
pursuant to the Offering Documents. The Company
has performed in all material respects all
obligations to have been performed on such
contracts through the date hereof, and the Company
is not in default in any material respect under
any such contract. Each material contract of the
Company is valid and binding on the Company and
the Company has not received notice that any such
contract is not binding on any party thereto."
<PAGE>
C3D Inc.
December 22, 1999
Page 2
2. Paragraph 2(r) of the Agency Agreement is hereby deleted in its
entirety and in its place and stead the following is inserted:
"(r) Brokers. The Company has not, or any of its
respective officers, directors, employees or
shareholders, employed any broker or finder in
connection with the transactions contemplated by
this Agreement, other than Sands Brothers, except
as previously disclosed to Sands Brothers and for
whose fees the Company shall be solely
responsible."
3. Paragraph 5(g) of the Agency Agreement is hereby deleted in its
entirety and in its place and stead the following is inserted:
"(g) Ratification and Confirmation of Letter
Agreement. The Company hereby confirms and
ratifies the Letter Agreement including, without
limitation, (i) the retention of Sands Brothers as
its exclusive investment banker and financial
consultant for a period of three (3) years
following the completion of the Financing, at an
annual fee of Forty Eight Thousand ($48,000)
Dollars (exclusive of any accountable
out-of-pocket expenses), payable quarterly in
advance in installments of Twelve Thousand
($12,000) Dollars, with the first payment to be
made upon the sale of the Minimum Amount by
deduction of the proceeds therefrom, pursuant to
Section 7 thereof, provided, however, that in the
event that $25 million of Securities have not been
sold within one year after the Commencement Date,
Sands Brothers' status as investment banker and
financial consultant to the Company, thereunder
and hereunder, shall cease to be exclusive (ii)
subject to $25 million of Securities having been
sold, the granting of the right of first refusal
to Sands Brothers pursuant to Section 8 thereof as
described in Exhibit E hereto, (iii) subject to
$25 million of Securities having been sold, the
granting of the right to designate a board member
or observer to the board of directors of the
Company pursuant to Section 9 thereof after the
Closing Date, and (iv) the expense reimbursement
and indemnification provisions thereof. Such
ratification and confirmation shall survive any
termination of the Offering."
4. Except as set forth herein, the Agency Agreement shall remain in
full force and effect.
<PAGE>
C3D Inc.
December 22, 1999
Page 3
IN WITNESS WHEREOF, the Company and Sands Brothers have caused this
Agreement to be executed by its duly authorized representative.
C3D INC. SANDS BROTHERS & CO., LTD.
By: /s/ Eugene Levich By: /s/ Mark G. Hollo
--------------------------------- -----------------------------
Name: Eugene Levich Name: Mark G. Hollo
Title: President and CEO Title: Managing Director
Date: December 22, 1999 Date: December 22, 1999
------------------------------- ---------------------------
<PAGE>
EXHIBIT 10.16
AGREEMENT N 356A/291299
on the rent of office premises
Moscow December 29, 1999
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 payment (without the right of sublease and redemption) 200 square meters
of office premises (further - "premises") on the second floor of the building,
located at: 119146, Moscow, 2nd Frunzenskaya ul., 8, building 1, owned by the
lessor, for allocation of the office.
Plan of the premises is shown in the Attachment to the present
agreement, which makes its essential part.
1.2 The rent period is January 1, 2000 until December 30, 2000 or
shorter, 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.
1.4. The Renter shall make all the necessary activities and cover all
the expenses connected to the present Agreement state registration.
Article 2. THE RIGHTS AND RESPONSIBILITIES OF THE PARTIES
2.1 The Lessor commits oneself:
2.1.1 To grant the premises to the Renter's disposal since January 1,
2000 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;
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
<PAGE>
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 accidents not through the Renter's quilt, 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 bases of notification of
indebtedness until complete coverage of all debts before the phone site.
2.2 The lessor eliminates accidents and their consequences at his own
expense, if they took place through his guilt. In case of any crash, the Parties
compose a two-sided 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 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.
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.
<PAGE>
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 his temporary use the Renter shall pay the
Lessor the equivalent of 50.384 US dollars and 20% VAT equal to 10.166 US
dollars, basing on the rate of 254,17 US dollars per 1 square meter annually
plus VAT of 50,83 US dollars per 1 sq. m.
3.2 Rent and other payments upon this agreement are made in rubles at
the rate of the RF Central Bank on the transfer date.
3.3 The Renter transfers to the Lessor's account the total annual rate,
as mentioned in item 3.1 of this article, quarterly in equal lots together with
VAT as advance payment prior to the 20th date of the last month of the previous
quarter.
3.4 The date of payment is the date of receipt of the appropriate sums
on the recipient's account.
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
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 major circumstances,
as stipulated in items 5.1-5.5 of the present Agreement.
Article 5. FORCE MAJOR
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 major circumstances arisen after
<PAGE>
conclusion of the present Agreement as a result of extreme events, which the
Party could not 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 servicing 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 at 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.
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.
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.
<PAGE>
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.
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 7704195574 119146 Moscow, 2nd Frunzenskaya ul., 8, building 1
Bank: account 40702810500008996740 in "Bank Austria (Moscow) OOO
BIK 044525746 corr. acc. 30101810400000000746
The present agreement is signed in two copies in Russian, all copies
having identical legal force, one for each Party.
The Lessor The Renter
General director General director
/s/ N.N. Kudimov /s/ I.E. Diskin
<PAGE>
EXHIBIT 10.17
THE RENT AGREEMENT
of office premises # 5/2
Moscow January 05, 2000
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
Store Vostok", hereinafter referred to as <<RENTER>>, 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 gives, and the RENTER hires (without the right of repayment) the
office premises hereinafter referred to as <>, on the territory of the
MSU Science Park at the following address: Leninsky Hills, Possession 1,
Building 75, entrance 5, flours 1 and 2, premises ## 514, 515, 523 with total
square of 55,1 sq. m.
Characteristics and location of the rented PREEMISES is described in
Attachment 1 to this Agreement.
1.2. The LESSOR owns the given PREMISES according to the State
Registration CERTIFICATE, issued by Moscow State Committee for state
registration of real estate rights and transitions on Nov. 16, 1999, No. AA
_________________________.
1.2. The RENTER shall use the PREMISES for its activities in the field
of _________________________________.
1.3. The rent period is from January 01, 2000 until December 31, 2000.
2. OBLIGATIONS OF THE PARTIES
2.1. THE LESSOR will:
2.1.1. After signing of the present Agreement, allow the RENTER to use
the PREMISES mentioned in item 1.1 of the Agreement, under the Acceptance
Report.
2.1.2. Allow the RENTER to use the PREMISES.
2.1.3. In case of accidents affecting PREMISES of the RENTER, which
occurred without the RENTER'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 RENTER will not ask for lowering
payment under this agreement or for compensation of damages.
2.1.5. Respect other conditions, foreseen by the present Agreement and
the Charter of MSU Science park MSU.
2.2. THE RENTER will:
2.2.1. Use PREMISES according to item 1.2 of the Agreement only for
mutually agreed activities.
2.2.2. Respect the service regulations, regulations concerning use of
heat and electricity, not allow overloading of electricity system, monitor fire
safety according to the Instruction from 03.04.95 <<Measures of fire safety in
the MSU Science Park premises>> and sanitary status of the PREMISES before
leaving them. As well as agree and solve all the items, arising during usage of
the PREMISES, connected to the sanitary and fire control organizations'
activities.
2.2.3. In the periods, fixed herein, pay for the rent, services and
operation costs connected to the PREMISES.
2.2.4. Not make any re-planning and re-equipment of the leased PREMISES
due to the RENTER's needs without a written permission of the LESSOR.
<PAGE>
2.2.5. Make, at his own expense, the necessary current repairing of the
leased PREMISES.
2.2.6. Repair in due times the heating system and in-door electrical
equipment (including changing light bulbs and counting equipment service).
2.2.7. Repair the sanitary equipment.
2.2.8. In case of accidents affecting the PREMISES, which occurred
without the RENTER's fault, inform the LESSOR immediately and permit his
representatives' access to the PREMISES for inspection and repair of the
constructions and technical equipment.
2.2.9. Insure the PREMISES from natural disasters, fire, accidents and
unlawful activities of the third persons.
2.2.10. Inform the LESSOR in writing two weeks prior his forthcoming
release, and hand over the PREMISES to the LESSOR according to the Acceptance
Report in a normal state of operability.
NOTE: the PREMISES will be released in the presence of the Lessor's
representative.
2.2.11. In case the RENTER leaves PREMISES before the rent expires or
due to termination of the Agreement, he pays the amount needed for making
thorough and current repairing, imposed as his duty but not carried out. The
LESSOR can invite a construction company for making calculations and the
mentioned repairing. In case the RENTER disagrees with the calculation results,
he can chose a construction company himself in case he can guarantee the LESSOR
due quality of the repairing.
2.2.12. Transmit to the LESSOR free after expiration or advance
termination of the Agreement all modifications, alterations and improvements,
made in the leased PREMISES, 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.
3. PAYMENT TERMS
3.1. The RENTER pays to the LESSOR for PREMISES, mentioned in item 1.1
herein, the rent, including operational costs and expenditures connected to its
servicing, at a rate of 230 (Two hundred thirty) US dollars, including VAT 38,33
(Thirty eight) US dollars 33 cents per square meter annually in Russian rubles
at the rate of the Central Bank of Russia on the 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 service costs for the leased premises.
The padding rent is paid upon the invoices from the LESSOR.
3.3. In case the service costs arise for more than 20%, the LESSOR can
unilaterally increase the rent payment on the sum of the increased service
costs.
4. RESPONSIBILITIES OF THE PARTIES
4.1. In case of delay in payment, the Lessor pays 0, 3 % penalty for
each day of delay.
4.2. For non-fulfillment of any obligation upon the present Agreement,
the guilty party pays a penalty of 10 % from annual rent.
4.3. Payment of sanctions upon the present Agreement does not release
the party from execution of his obligations or elimination of violations.
5. MAINTENANCE OF ORDER AND USE OF PREMISES
5.1. THE LESSOR is not responsible for any faultiness detected after
signing the Acceptance Report. THE RENTER can not require their elimination or
remedial.
<PAGE>
5.2. THE LESSOR is not responsible for safety of property in leased
premises, as well as of the property outside the premises.
5.3. THE RENTER bears responsibility for damage being a result of his
activities or activities of third parties, using the PREMISES with his consent.
The RENTER will remove or reimburse this damage.
5.4. The RENTER shall make cosmetic repairing, including walls
decoration, coloration and floor coating after the planned or prescheduled
termination of this Agreement.
5.5. Maintenance of entrance halls, corridors, ladders and shared
premises is the responsibility of the LESSOR.
5.6. Changes, re-equipment and re-planning of PREMISES at the expense
of the RENTER 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 RENTER
puts PREMISES in a primal state at his owns.
5.7. If the changes, made by RENTER under the written coordination with
the LESSOR, remain after termination of the Agreement, the RENTER can not claim
reimbursement of their cost.
5.8. THE RENTER will not conduct operations, which can hinder other
client of the LESSOR, on working days from 9 AM till 6 PM.
5.9. THE RENTER or his representatives can enter the leased PREMISES on
working days during working hours. The entrance in other time will be agreed
with the LESSOR in writing.
5.10. Installation in PREMISES 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.
5.11. Stacking or installation of equipment and subjects of the RENTER
outside of leased PREMISES is forbidden. If by way of exception the LESSOR gives
a temporary permission on such allocation, the RENTER bears responsibility for
any resulting damage.
5.12. The vehicles of the RENTER 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 RENTER's vehicles or those upon his order in other
places is allowed only for loading and unloading.
5.13. THE RENTER is responsible for any damage caused by his means of
transport, arrived upon his order.
5.14. In case of contamination by the RENTER's vehicles of the land lot
or PREMISES, the RENTER will remove the contamination immediately.
5.15. THE RENTER will place his wastes in the containers, specially
assigned for this purpose. If the size of scraps exceeds a size of the
container, the RENTER will export scraps from the LESSOR's territory by himself.
Allocation of scraps near to containers or on other sites of territory is
forbidden.
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 positions of the present Agreement lose force, other
positions 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:
<PAGE>
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 RENTER, he can not claim returning of the paid rent and other payments for
the unused rent period.
7.2. The agreement is subject to advance cancellation, and RENTER to
eviction:
7.2.1. In case of usage by the RENTER of the building or PREMISES (as a
whole or in part) not according to the lease Arrangement.
7.2.2. If the RENTER worsens the state of a PREMISES intentionally or
on imprudence.
7.2.3. If the RENTER has not paid the rent within two months after
written warning of the LESSOR.
7.2.4. If the RENTER does not make overhaul in case it is his duty upon
the Agreement.
7.2.5. In case of state need in the leased PREMISES (with return to the
RENTER of the paid rent and other payments for the unused rent period).
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
major, 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 major the performance of obligations under the
present Agreement is removed in time proportionally to duration of force major
and its consequences, upon agreement between the parties (coordination protocol
to be necessarily attached).
9. OTHER CONDITIONS
9.1. THE RENTER has no paramount right on the new period of rent.
9.2. The RENTER shall by himself arrange registration of the present
Rent Agreement in the Committee for rights' registration and shall cover all the
expenses, connected to this registration.
9.3. The LESSOR shall provide all the documents, necessary for
registration of the Rent Agreement in the Committee for rights' registration,
while the RENTER carries all costs for obtaining notary copies of these
documents.
9.4. The present Agreement is made on six pages in three copies of
identical legal force, one for each party and one for the Committee for rights'
registration.
10. LEGAL ADDRESSES AND PROPERTIES OF THE PARTIES
10.1.<<LESSOR>>:
ZAO<<Science park MSU>>
119899, Moscow, Leninsky 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.<<RENTER>>:
ZAO "TriD Store Vostok"
119146, Moscow, 2nd Frunzenskaya ul., 8
Account 40702810500008996710 in CB <<Bank Austria Creditanshtalt>> (Russia),
correspondent account 30101810400000000746, BIC 044525746, OKPO code 49930006;
OKONH 95120
LESSOR: RENTER:
Acting General Manager General Manager
of MSU Science Park of ZAO "TriD Store Vostok"
/s/ /O.V. Movsesyan/ /s/ /I.E. Diskin/
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
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<SECURITIES> 0 0
<RECEIVABLES> 2,467,664 0
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0 0
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<OTHER-SE> 1,369,160 (1,000)
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